Economic Report of the President 1978 - St. Louis FedThese four economic objectives are sufficiently ambitious to constitute a serious challenge, but sufficiently realistic to be within

ECONOMIC

TRANSMITTED TOTHE CONGRESSJANUARY 1378

TOGETHER WITH

THE ANNUAL REPORT OF THE COUNCIL OF ECONOMIC ADVISERS

Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis


Economic Report

of the President

Transmitted to the CongressJanuary 1978

TOGETHER WITH

THE ANNUAL REPORTOF THE

COUNCIL OF ECONOMIC ADVISERS

UNITED STATES GOVERNMENT

WASHINGTON : 1978

For sale by the Superintendent of Documents, U.S. Government Printing OfficeWashington,D.C. 20402

Stock Number 040-000-00389-4



CONTENTS

PageECONOMIC REPORT OF THE PRESIDENT 1

ANNUAL REPORT OF THE COUNCIL OF ECONOMICADVISERS* 25

CHAPTER 1. PROGRESS DURING 1977—THE THIRD YEAR OF

RECOVERY 35

CHAPTER 2. ECONOMIC OUTLOOK AND POLICY 73

CHAPTER 3. T H E WORLD ECONOMY—A HESITANT RECOVERY 96

CHAPTER 4. INFLATION AND UNEMPLOYMENT 138

CHAPTER 5. MAJOR ECONOMIC POLICY ISSUES OF 1977 179

APPENDIX A. REPORT TO THE PRESIDENT ON THE ACTIVITIES OF

THE COUNCIL OF ECONOMIC ADVISERS DURING 1977 239

APPENDIX B. STATISTICAL TABLES RELATING TO INCOME, EMPLOY-

MENT, AND PRODUCTION 251

* For a detailed table of contents of the Council's Report, see page 29.

I l l



ECONOMIC REPORTOF THE PRESIDENT



ECONOMIC REPORT OF THE PRESIDENT

To the Congress of the United States:

I will be working closely with the Congress in 1978 to enact a programaddressed to the immediate and the long-term needs of our economy. I amproposing tax reductions and reforms to continue our strong economicrecovery, to encourage increased investment by American businesses, andto create a simpler and fairer tax system. I am seeking legislation to ad-dress the special problems of the disadvantaged and the unemployed.And I am taking new steps to combat inflation.

This report to the Congress on the condition of the economy setsforth the overall framework within which my economic proposals wereformulated. It outlines, for you and for the Nation, my economic prioritiesfor the years ahead and my strategies for achieving them.

I have begun from the premise that our economy is basically healthy,but that well-chosen Government policies will assure continued progresstoward our economic goals.

Last year more than four million new jobs were created in our coun-try—an all-time record—and unemployment was reduced by more thanone million persons. Output rose by almost 6 percent, and the benefits ofthis large increase were widely shared. The after-tax income of consumers,adjusted for inflation, rose substantially during 1977. Wages of the typ-ical American worker increased by more than the rise of prices, and busi-ness profits also advanced.

The American economy is completing three years of recovery from thesevere recession of 1974—75. Recovery in most other nations has laggedfar behind our own. In the economies of our six major trading partners,seven million persons were unemployed at year's end—more than at thedepths of the 1974-75 recession. Our inflation rate is also lower than inmost other nations around the world. We have a great many accomplish-ments. But much progress remains to be made, and there are problemsto be dealt with along the way.

The recession of 1974-75 was the worst in 40 years, and the substan-tial increase in output over the past three years still leaves the economyoperating below its productive potential. We cannot be content when


almost 6/2 million people actively seeking jobs cannot find work, when3% million workers take part-time jobs because they cannot find full-time employment, and when one million people have stopped lookingfor a job because they have lost hope of finding one. We cannot be con-tent when a substantial portion of our industrial plant stands idle, as itdoes today.

We cannot be satisfied with an economic recovery that bypasses signifi-cant segments of the American people. Unemployment among minori-ties is more than twice as high as that among whites—and unemploymentamong minority teenagers is tragically high. Women have fewer satis-fying job opportunities than men, and older Americans often find theiraccess to the job market blocked. Farm incomes have droppedprecipitously.

We must also address other problems if we are to assure full restora-tion of prosperity. Inflation is a serious economic concern for all Ameri-cans. The inflation rate is too high and must be brought down.Moreover, a residue of unease and caution about the future still pervadesthe thinking of some of our people. Businesses are still hesitant in theirlong-term investment planning, and the stock market remains depresseddespite the substantial increase in business profits.

The economic difficulties that we face in the United States also con-front most nations around the world. Our mutual problems are the leg-acy of the trauma suffered by the world economy during the early 1970s.The massive escalation of oil prices since 1973 continues to impose greatburdens on the world economy. Oil imports drain away the purchasingpower of oil-importing nations and upset the international balance ofpayments.

Many foreign governments have been reluctant to adopt policiesneeded to stimulate economic growth because they are concerned thatinflationary pressures might be renewed or that their balance of interna-tional payments might be worsened. Abroad, as well as at home, concernsabout the future have deterred business investment in new plants andequipment. As a consequence, economic growth has stagnated in manycountries, and the rise in the capital stock needed to increase productivity,raise standards of living, and avoid future inflationary bottlenecks is notoccurring.

The problems we face today are more complex and difficult than thoseof an earlier era. We cannot concentrate just on inflation, or just onunemployment, or just on deficits in the Federal budget or our inter-national payments. Nor can we act in isolation from other countries. Wemust deal with all of these problems simultaneously and on a worldwidebasis.


Our problems cannot be solved overnight. But we can resolve themif we fix our sights on long-term objectives, adopt programs that willhelp us to realize our goals, and remain prepared to make adjustments asbasic circumstances change.

In making my decisions on tax and budget policies for fiscal 1979, andin planning more generally for our Nation's future, I have been guidedby four objectives for our economy that I believe our Nation shouldpursue.

We must continue to move steadily toward a high-employment econ-omy in which the benefits of prosperity are widely shared. Progress inreducing unemployment of our labor and capital resources must be sureand sustainable. Over the next several years I believe we can increaseour real output by 4 / 2 to 5 percent per year, and reduce unemploymentby about one-half of a percentage point each year. An especially highpriority is to increase job opportunities for the disadvantaged, particu-larly for black and Spanish-speaking Americans, and to deal more effec-tively with local pockets of unemployment, such as those in urban areas.We should eliminate unfair advantages through reform of the tax sys-tem, and restructure our welfare system to assure that the fruits of eco-nomic growth are enjoyed by all Americans.

We should rely principally on the private sector to lead the economicexpansion and to create new jobs for a growing labor force. Five out ofevery six new jobs in the economy are created in the private sector. Thereare good reasons for continuing to rely mainly on the private sector in theyears ahead. By emphasizing the creation of private jobs, our resourceswill be used more efficiently, our future capacity to produce will expandmore rapidly, and the standard of living for our people will rise faster.Reliance upon the private sector does not mean neglecting the tasks thatgovernment can and must perform. The Federal Government can bean active partner to help achieve progress toward meeting national needsand, through competent management, still absorb a declining portion ofthe Nation's output.

We must contain and reduce the rate of inflation as we move towarda more fully employed economy. Inflation extracts a heavy toll fromall Americans, and particularly from the poor and those on fixed incomes.Reducing inflation would benefit us all. A more stable price envi-ronment would make it easier for business firms and consumers to planfor the future. Thus, reduced inflation would substantially enhance ourchances to maintain a strong economic expansion and return to a high-


employment economy. In the years ahead we must seek to unwind theinflation we have inherited from the past and take the steps necessaryto prevent new inflationary pressures as we approach high employment.

We must act in ways that contribute to the health of the world econ-omy. As the strongest economy in the world, the United States has uniqueresponsibilities to improve the international economic climate. The well-being of the United States depends on the condition of other nationsaround the world. Their economic destiny is, in turn, shaped by ours.The United States can retain its stature in the world only by pursuingpolicies that measure up to its role as a leader in international economicaffairs.

These four economic objectives are sufficiently ambitious to constitutea serious challenge, but sufficiently realistic to be within our reach. Awell-designed program will permit us to achieve them. The principalelements of my economic strategy are:

• Adopting promptly an effective national energy program;

• Managing Federal budget expenditures carefully and prudently,so that we can meet national needs while gradually reducing theshare of our national output devoted to Federal spending;

• Using tax reductions to ensure steady growth of the private economyand reforming the tax system to make it fairer, simpler, and moreprogressive;

• Working to reduce the Federal deficit and balance the budget asrapidly as the developing strength of the economy allows;

• Improving existing programs and developing new ones to attack theproblem of structural unemployment among the disadvantaged;

• Promoting greater business capital formation in order to enhanceproductivity gains, increase standards of living, and reduce thechances that capacity shortages would inhibit expansion later on;

• Adopting more effective programs to reduce the current rate of in-flation and prevent a re acceleration of inflation as we approachhigh employment; and

• Pursuing international economic policies that promote economicrecovery throughout the world, encourage an expansion of worldtrade, and maintain a strong international monetary system.

Prompt Adoption of the National Energy Plan

It has now been over four years since our economy was buffeted by theoil embargo and its aftermath of sharply increased oil prices. The massiveoil price increase in 1973-74 contributed to the double-digit inflation of


1974 and to the worst recession in 40 years. It is a primary factor todaybehind the large deficit in our international balance of payments. Yet theUnited States still has not enacted a comprehensive and effective energypolicy.

Our dependence on imported oil is sapping the strength of the Amer-ican economy. Last year our imports of oil reached a total of about $45billion, compared with $8/2 billion in 1973. The increased expenditureson those imports have been like a sudden and massive tax imposed on theAmerican people. Only part of the revenues have been returned to theUnited States in the form of higher exports of American goods to oil-producing countries. As a consequence, that "tax" has become a majorobstacle to economic growth.

The huge deficit in foreign trade arising from our oil imports has con-tributed to the fall in the value of the dollar abroad. The dollar's declinehas raised the cost of the goods we import and contributed to inflation.Our deficit also has unsettled international monetary markets, with ad-verse consequences for our international trading partners. Our responseto the energy crisis is therefore a central element in our international anddomestic economic policy. The energy program will not solve our prob-lems at once, but it will pave the way for a balanced foreign tradeposition and a strong and sound dollar.

Our energy problems will worsen in the years to come unless we curbour appetite for oil and gas. Without decisive action, we will put addi-tional pressure on the world oil market, aggravate inflationary pressuresat home, and increase our vulnerability to the threat of oil supply disrup-tions. Together, these forces could severely limit the potential for con-tinued economic progress over the coming decade.

The United States has no choice but to adjust to the new era of expen-sive energy. We can only choose when and how. If we act today, wehave time to make a gradual transition to more efficient energy use—by conserving energy, increasing domestic energy production, and devel-oping alternative sources of energy. If we delay, adjustment later willbe harsh and painful, requiring draconian measures to accomplish whatcan now be done gradually and with far less anguish.

The energy problem we face is enormously complex. Finding an ac-ceptable and effective solution has not been easy for me or for the Con-gress. I look forward to working closely with the Congress early this yearto assure a speedy resolution. An acceptable bill must satisfy the followingprinciples:

• First, the program must effectively reduce our consumption oflimited energy supplies—oil and gas—while encouraging energy


production and promoting a transition to the use of resources thatare more abundant.

• Second, the program must be fair. No segment of the populationshould bear a disproportionate share of the cost or burden of ad-justment, and no industry should reap unnecessary and undeservedwindfall gains.

• Third, the program must be consistent with our overall economicstrategy. It must neither undermine our efforts to continue the re-covery nor obstruct achievement of our long-term budgetary goals.

Dealing with the energy problem is a difficult test for our Nation. Itis a test of our economic and political maturity. Our people wouldsurely react if there were an immediate crisis. But I am asking them toundertake sacrifices to prevent a crisis. If we fail to act today, we willbring a crisis upon ourselves and our children in years to come.

Careful Management of Federal Budget Expenditures

My Administration has given high priority to making more effectiveuse of limited Federal resources. In fiscal 1976, Federal outlays amountedto 22/2 percent of the Nation's gross national product. This is consider-ably higher than the share devoted to government spending that pre-vailed for many years. To some degree, the recent higher share reflectsthe fact that the economy is still performing below its capacity, andthat Federal programs to support the unemployed and the needy arelarger than they would be in a high-employment economy. But it alsostems from very rapid growth in a number of Federal programs institutedover the past 10 to 15 years.

Most of our Federal expenditure programs are designed to achieve im-portant national goals that the private sector of the economy cannot ac-complish. Only the government can provide for the national defense,and government resources are essential to cushion the hardships createdby economic recession, to preserve our national resources, to protect theenvironment, and to meet other critical needs.

The Federal Government has a particular obligation to provide assist-ance to those who remain in need even during good times. Last year Ipresented to the Congress a program to reform the welfare system—theBetter Jobs and Income Act of 1977—that is a concrete example of ourcommitment to devote resources to the most pressing national needs. Myprogram will cost money. But it also will establish a more easily under-stood welfare system that is less costly to administer, less subject to abuse,and more responsive to the true needs of those who receive a helping handfrom government. This program will create up to 1.4 million jobs for


those able to work, and it will replace the patchwork of Federal, State,and local programs with a consistent income-support system that willrelieve much of the enormous burden now placed on State and localgovernments.

In the management of a business enterprise, efficiency is enforced bythe discipline of the market place. The collective judgments of millions ofconsumers establish an environment in which waste and efficiency areeventually penalized. The government, however, is not subject to thatdiscipline. We in government must therefore impose stringent controls onourselves to ensure greater efficiency and to make better choices amongthe possible uses of the taxpayers' money.

To assist us in this endeavor, I have adopted methods of budgetarycontrol that have been tested in the business community. Early last yearI asked the Office of Management and Budget to inaugurate a system ofzero-based budgeting throughout the Federal Government. Within thisbudgetary system, every Federal program is given careful scrutiny—nomatter how large or how small it may be, no matter how long it has beenin existence or how recently established. This new system of budgetaryplanning helped to hold down less essential outlays in the budget for fiscal1979 and focus our resources on our important national needs. It willproduce even greater savings in subsequent years. A process of multi-year budgeting also has been inaugurated within the Federal Govern-ment that will require tentative budget plans to be developed and re-viewed for three years ahead. With this system we can more effectivelycontrol future expenditures—by avoiding commitments now to endeavorsthat would grow in the future beyond the proportions we desire.

In formulating my recommendations for the 1979 budget, I have ex-ercised very strict controls over spending. Adjusted for inflation, the in-crease in outlays has been held to less than 2 percent and the share ofFederal expenditures in GNP will fall to 22.0 percent. I intend tocontinue prudent expenditure controls in the future. With good man-agement we can, I believe, achieve our Nation's important social goalsand still reduce over time the share of gross national product committedto Federal expenditures to about 21 percent.

Using Tax Reductions to Promote Steady Economic Expansion

I propose to rely principally upon growth in the private sector of theeconomy to reduce unemployment and raise incomes. Special Federalefforts will, of course, be necessary to deal with such problems as struc-tural unemployment, but tax reductions will be the primary means bywhich Federal budget policy will promote growth. Careful mange-


ment of budget outlays and a growing economy should permit substantialreductions in the years ahead. Tax reductions will be needed to strengthenconsumer purchasing power and expand consumer markets. Stablegrowth in markets, together with added tax incentives for business, willlead to rising business investment and growing productivity.

As inflation and real economic growth raise the incomes of mostAmericans, they are pushed into higher income tax brackets. The taxburden on individuals is raised just as if higher rates had been enacted.The payroll taxes levied on workers and business firms for social securityand unemployment insurance will also increase substantially over theyears ahead. These are very large increases, but they are needed to keepour social security and unemployment insurance systems soundly financed.

Between 1977 and 1979, taxes on businesses and individuals will risevery sharply as a result of these several factors. Even though our economyis basically healthy, this increasingly heavy tax burden would exert amounting drag on economic growth. It must, therefore, be counteractedby tax reductions. The magnitude and timing of the reductions should bedesigned to maintain economic growth at a steady pace, taking intoaccount the effects both of the growing tax burden and of other factorsat work in the economy.

Consistent with this strategy, I am proposing a $25 billion program ofnet tax reductions accompanied by substantial tax reforms.

Individual income taxes will be reduced primarily through across-the-board reductions in personal tax rates, with special emphasis on low- andmiddle-income taxpayers. Personal taxes also will be simplified by myproposal to replace the existing personal exemption and credit with a taxcredit of $240 for each person in the taxpayer's family.

There also will be important reforms that will improve the individualincome tax system and raise substantial revenues, enabling me to recom-mend larger personal tax reductions.

Overall, I am proposing personal tax reductions of $24 billion, offsetby $7 billion in tax reforms. These tax cuts, which will take effect nextOctober 1, will significantly improve the progressivity of the tax system.The typical four-person family with $15,000 in income will receive a taxcut of $258—or more than 19 percent. As a result of the changes Iam recommending, filling out tax returns will be simpler for many people.

Individuals also will benefit from reductions I have proposed in theFederal excise tax on telephone bills, and in the Federal payroll tax forunemployment insurance. These two proposals will add about $2 billionto consumers' purchasing power that will be realized principally throughlower prices.

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Business taxes will be reduced by more than $8 billion in 1979 undermy tax program, offset partially by more than $2 billion in business taxreforms for a net tax reduction of nearly $6 billion. I have recommendedthat the overall corporate tax rate be reduced on October 1 from thecurrent 48 percent to 45 percent, and be cut further to 44 percent in1980. I also recommend that the existing 10-percent investment taxcredit be made permanent, and that the benefits of this credit be extendedto investments in industrial and utility structures. My proposal willenable businesses to use the investment tax credit to offset up to 90 percentof their Federal tax liability, compared with the 50-percent limit nowimposed.

Important new tax reforms also will affect businesses. I am, for exam-ple, proposing to reduce the deductibility of a large class of business en-tertainment expenses. I have also proposed changes in the tax status ofinternational business transactions that are of significant cost to taxpayersbut that benefit the public insufficiently.

Because tax reform measures will raise $9 billion in revenue, it hasbeen possible for me to recommend $34 billion in overall tax reductionswhile keeping the net loss in revenues to $25 billion, the level I believe isappropriate given the state of our economy and the size of the budgetdeficit.

These proposals do not include any adjustment to take account ofcongressional action on my energy proposals. I proposed last April thatthe Congress pass a wellhead tax and rebate the proceeds of that taxdirectly to the American people. This is the best course to follow becauseit protects the real incomes of consumers and avoids a new source of fiscaldrag. If the final energy bill includes a full rebate of the net proceeds ofthe wellhead tax, no further action on my part will be necessary. How-ever, if the final bill allows for a rebate only for 1978—as provided in theHouse version—I will send a supplemental message to the Congress rec-ommending that the individual tax reduction I am now proposing beincreased by the amount of the net proceeds of the wellhead tax.

These tax reductions are essential to healthy economic recovery during1978 and 1979. Prospects for continuation of that recovery in the nearterm are favorable. Consumers have been spending freely, and manyother economic indicators recently have been moving up strongly. With-out the tax reductions I have proposed, however, the longer-term pros-pects for economic growth would become increasingly poor. Because ofthe fiscal drag imposed by rising payroll taxes and inflation, economicgrowth would slow substantially in late 1978, and fall to about ?>l/2 per-cent in 1979. The unemployment rate would stop declining and might

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begin to rise again, and the growth of investment outlays for new plantand equipment would slow significantly.

With the reductions in taxes I have proposed, on the other hand,the economy should grow by 4 / 2 to 5 percent in both 1978 and 1979.Nearly one million new jobs would be created. Unemployment would

.therefore continue to fall and by late 1979 should be down to around5/ 2 to 6 percent. Capacity utilization and after-tax business profits wouldboth improve, and thus the rate of investment in new plants and equip-ment should increase significantly.

Success in keeping a firm rein on spending will permit further tax re-ductions in years to come. Our ability to foresee the future course of theeconomy is not good enough, however, to enable us to know when addi-tional reductions will be needed or how large they should be. It wouldtherefore be imprudent to plan specific policy measures now for morethan the current and the next fiscal year. But I will make recommenda-tions for budget and tax policies for 1980 and beyond that are in keepingwith our objectives of steady growth in the economy, more stable prices,and principal reliance on the private sector to achieve economicexpansion.

Working to Reduce the Federal Deficit and Balance the Budget as Soonas the Strength of the Economy Allows

Federal budgetary policy can play a constructive role in maintainingthe health of the economy. There are times when large deficits in theFederal budget must be tolerated because they are needed to bolsterthe purchasing power of consumers and businesses. A budget deficitthat persisted during a period of high employment and strong furthergrowth of private demand, however, would put upward pressures onprices and would aggravate our inflationary problem. Under those cir-cumstances, a budget deficit would also absorb savings that would bebetter used by the private sector to build new factories and offices andto purchase new machines. In order to assure that our economic progressremains on a solid footing and is not undermined by inflation, we mustreduce the Federal budget deficit and achieve a balanced budget as soonas the developing strength in the economy allows.

The first requisite is careful management and control of Federal spend-ing. The second is a prudent weighing of the need for tax reductionsagainst the goal of budget balance.

This year I have proposed budgets that call for a deficit of $62 billionin 1978, and one only slightly smaller in 1979. Had I decided not torecommend a tax cut to put additional purchasing power in the hands of

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consumers and businesses, the deficit in 1979 could have been $15 to $20billion smaller. But I believe that tax reduction is essential to continuedprogress in an economy still characterized by substantial unemploymentand idle plant capacity.

How rapidly we can restore budget balance depends on the strengthof the private economy. Over the next few years, two factors will be ofparticular importance.

The first is the financial condition of State and local governments. Inthe past, the aggregate budget of these governments tended to be ap-proximately in balance. Today the State and local sector as a whole is insurplus. In 1977, for example, aggregate State and local receipts from allsources exceeded expenditures by nearly $30 billion. This overall surplusdoes not mean that every State and local government is in good financialcondition. Many are hard pressed. Moreover, a large part of the aggregatesurplus represents accumulations of pension funds for the 13 millionemployees of State and local governments.

Substantial surpluses in the State and local sector are likely to con-tinue in the future. They absorb the incomes of consumers and business,and so act as a drag on the economy.

The second factor affecting the pace at which we can expect to movetoward budget balance is the large deficit in America's foreign tradein goods and services. Imports into the United States have been swollen bythe enormous quantity of oil we buy abroad to drive our cars, heat ourhomes, and fuel our industry. Our exports have grown only slowly, inlarge measure because economic growth abroad has been much slowerthan in the United States. As a result, the United States last year recordeda deficit of close to $18 billion in our current international accounts. Thisdeficit has the same general effect on economic activity as a multibilliondollar increase in taxes.

Enactment of an effective energy program ultimately will reverse ourgrowing dependence on oil imports. Moreover, economic growth in othercountries should be improving over the next few years. But we may expecta current account deficit of some size to continue in the near future.

If strong economic expansion is to be maintained in the face of thesemajor drains on the economy, additional tax reductions may be neces-sary beyond those I have proposed for 1979. But we will be better able tojudge this question in a year or two, and we should not prejudge it now.

In formulating my budgetary decisions thus far, I have been carefulto avoid commitments that would make it impossible for us to balancethe budget by 1981. With unusually strong growth in the private econ-omy, we would need a balanced Federal budget. In an economy growingless strongly, however, balancing the budget by 1981 would be possible

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248-947 O - 78 - 2Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

only by forgoing tax reductions needed to reach our goal of high employ-ment. In those circumstances, the date for reaching the goal of budgetbalance would have to be deferred.

What is important is that the planning and execution of Federal fiscalpolicies proceed in a prudent manner. Every decision on spending andtaxes during my Administration has been, and will continue to be,made in the context of long-run budgetary planning that avoids the cre-ation of excess demand during periods of high employment. That is anessential ingredient of responsible budgetary policy.

Programs to Attack the Problem of Structural Unemployment

Meaningful job opportunities ought to be available for all Americanswho wish to work. But overall fiscal and monetary policy alone will notprovide employment to many in our Nation. If we are to reduce unem-ployment satisfactorily, we must do more.

Eleven percent of adult American workers from minority groups arenow jobless—close to the rate a year ago, and over twice as high as the un-employment rate for white adults. About 17 percent of our teenagers areunemployed today; among black teenagers the unemployment rate isnearly 40 percent. These intolerably high rates of unemployment mustbe brought down. This is an important goal, but achieving it will be adifficult task.

A generally healthy and growing economy is a prerequisite for dealingeffectively with structural unemployment, but it is not enough. Even ingood times some groups suffer from very high unemployment, whichadds to the difficulty of achieving low unemployment and low inflationsimultaneously. As the economy moves toward high employment, em-ployers try to fill job vacancies from those groups of workers with sub-stantial training and experience. Wage rates are bid up and prices follow,while large numbers from other groups are still looking unsuccessfullyfor work. Efforts to reduce unemployment among the unskilled andotherwise disadvantaged can be frustrated by inflationary pressures setoff in those sectors of the labor market already fully employed.

To reach high levels of employment while maintaining reasonable pricestability, we must take effective and adequate measures now to increasethe employment opportunities of the disadvantaged. This principle is akey element of the Humphrey-Hawkins Bill—The Full Employment andBalanced Growth Act. I support this legislation and hope the Congresswill enact it.

We have already taken several significant steps in this direction. Lastyear I proposed and the Congress appropriated $8.4 billion to expand thePublic Service Employment Program to 725,000 jobs. These jobs are

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more sharply targeted on the long-term unemployed and the poor thanprevious programs under the Comprehensive Employment and TrainingAct. Direct opportunities for youth also have been expanded. The YouthEmployment and Demonstration Projects Act of 1977, which is provid-ing job experience and training in skills to unemployed youths, also wasproposed by my Administration and enacted in 1977, providing 166,000work and training positions for unemployed youths.

Several further measures are proposed in my 1979 budget. I haverecommended that Public Service Employment be continued at the725,000 job level throughout 1979, and that the number of jobs bephased down gradually in subsequent years as progress is made in reduc-ing the overall level of unemployment. I have also recommended anexpansion to $1.2 billion of the Youth Employment and DemonstrationProjects Act to provide work opportunities and skill training for theunemployed youth who most need help. The Better Jobs and Income Pro-gram that I sent to the Congress in mid-1977 will create up to 1.4 millionjobs, supplemented by cash allowances, for poor people who are able towork. An initial demonstration project for this program that will create50,000 jobs is proposed in my 1979 budget, and more jobs will be phasedin gradually once the welfare reform program is enacted.

Government programs can provide valuable assistance to the unem-ployed. In the end, however, we must turn to the private sector for thebulk of permanent job opportunities for the disadvantaged. It is in pri-vate industry that most productive jobs with opportunity for advance-ment are found. For this reason, I am requesting $400 million in my1979 budget to begin a major new initiative for private sector hiring ofthe disadvantaged. Details of this proposal will be submitted to the Con-gress shortly. I am requesting the fullest cooperation of the business com-munity in this initiative and have been assured by business leaders that itwill be forthcoming.

Greater Emphasis on Promoting Business Capital Formation

Over a broad expanse of years, improvement of the standard of livingin this Nation depends primarily on growth in the productivity of theAmerican work force. During the first two decades of the postwar period,the productivity of American labor increased at an average annual rateof about 3 percent. Over the past ten years, however, productivity growthhas slowed markedly—to about 2 percent or less a year.

The reasons for this break with past trends are complex, but onefactor that clearly stands out is the relatively slow growth in the stock ofbusiness plant and equipment. Historically, improvements in productiv-ity have been linked closely to investment in plant and equipment. In-

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vestment in new facilities has embodied new and more productivetechnology and has provided our work force with more and better tools.

Business investment has lagged during the recovery for several reasons.Some of the fears engendered by the steep recession and severe inflationof 1973-75 have remained and have reduced the incentive for businessesto invest. Uncertainties about energy supplies and energy prices havealso been a deterrent to investment, and so have concerns about govern-mental regulations in a variety of areas. Finally, high costs of capitalgoods and a depressed stock market have diminished the incentivesand raised the costs to businesses of investment in new plant andequipment.

Industrial capacity is ample now. But without a substantial increase ininvestment over the next few years, problems would build for the future.Rapid growth of capacity is needed to assure that shortages of particularproducts do not emerge before we regain high employment. If capacityis not sufficient, bottlenecks may develop in some sectors, forcing up pricesof industrial commodities. Inadequate rates of capital formation will alsohold back the gains in productivity needed to improve standards of livingand to avoid further aggravation of our inflation problem.

My tax and other economic proposals will encourage a greater rateof business investment in several ways. By promoting a sustainable rateof economic recovery, they will assure businesses of an expanding marketfor the output from new factories and equipment. The specific tax reduc-tions for business I have proposed will increase after-tax profits andso directly provide additional incentives for investment.

We must also have conditions in financial markets that permit busi-nesses to raise the funds they need for investment. Prudent Federalbudgetary policies will contribute significantly to that end, as will policiesthat deal effectively with inflation. Both will ease the Federal Reserve'stask of pursuing monetary policies that support full recovery.

More Effective Programs to Reduce the Rate of Inflation

We cannot achieve full prosperity unless we deal effectively with infla-tion. We must take steps to reduce the high rate of inflation inheritedfrom the past and to guard against a renewed outbreak of inflation as weregain a high-employment economy.

Our economy is not suffering at present from excess demand. Mone-tary growth in recent years has not been excessive, and Federal budgetdeficits have occurred in an economy with high unemployment and ex-cess capacity. Yet prices continue to rise as a result of an inflationaryprocess that has been under way for a decade.

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Our present inflation began back in the late 1960s and acceleratedsharply in the early years of the 1970s. Since 1974 the rate of consumerprice inflation has declined substantially—from 12 percent to between6 and 6/2 percent at present. But that improvement is due largely to thetermination of special influences affecting prices during 1974—the sharprise of food and fuel prices, and the bulge in prices following the removalof wage and price controls.

Recent experience has demonstrated that the inflation we have in-herited from the past cannot be cured by policies that slow growth andkeep unemployment high. Since 1975, inflation has persisted stubbornlyat a 6 to 6l/2 percent rate—even though unemployment went as high as9 percent and still stands above 6 percent, and even though a substantialproportion of our industrial capacity has been idle. The human tragedyand waste of resources associated with policies of slow growth are intoler-able, and the impact of such policies on the current inflation is verysmall. Moreover, by discouraging investment in new capacity, slowgrowth sows the seeds of future inflationary problems when the economydoes return to high employment. Economic stagnation is not the answerto inflation.

Our first task in combating inflation is to guard against a renewedoutbreak of higher price increases in the future. Firm discipline overthe Federal budget and a prudent monetary policy are the most im-portant steps that can be taken. Programs to attack structural pockets ofunemployment among our people will make it possible to achieve higherlevels of employment without exerting pressures on prices. Greater invest-ment also will make a major contribution toward assuring that the capac-ity of our industry will be adequate to meet the needs of a high-employment economy.

Enactment of an energy program will eventually reduce the demandfor oil imports—contributing to market conditions that discourage sub-stantial oil price increases, and combating the inflation that results froma decline in the exchange value of the dollar. The programs I have in-augurated to build a 30- to 3 5-million metric ton grain reserve will pro-vide a. buffer against sudden upward movements in food prices in theevent of bad weather.

Our second task—reducing the current rate of inflation—will beharder. Yet we must tackle the problem. Unless the inflation rate isbrought down, the rate of price increase may well rise as unemploymentfalls to lower levels in later years, with consequences that would thwartour efforts to bring about full recovery.

The government has an obligation to set an example for the privatesector, and we can play an important role in moderating inflation by

17


reducing the effects of our own actions on prices. By adopting tax incen-tives and other policies to improve the growth of investment and pro-ductivity, we will help reduce the rise in costs and hence in prices.

The excise tax reductions I have proposed in my 1979 budget also willcontribute moderately to lower costs and prices.

Government regulations also add to costs and raise prices. To someextent, this is the inevitable cost of much needed improvements in theenvironment and in the health and safety of workers and consumers. Butthere is no question that the scope of regulation has become excessive andthat too little attention is given to its economic costs. We should not, andwill not, give up our efforts to achieve cleaner air and water and a saferworkplace. But, wherever possible, the extent of regulation should bereduced. We have eliminated hundreds of unneeded regulations al-ready and will continue to pare down the remainder.

I also intend to put a high priority on minimizing the adverse effectsof governmental regulations on the economy. To this end, I have estab-lished a high-level interagency committee that—together with the rele-vant regulatory agency—will review the economic effects of major regula-tions. This committee will seek to assure that the costs of each regulationhave been fully considered, and that all alternatives have been explored,so that we may find and apply the least costly means of achieving ourregulatory objectives. I have also directed my advisers to explore waysin which we can undertake an assessment of the impact of regulation onthe economy as a whole and within each major sector. We need to find away to set priorities among regulatory objectives and understand morefully the combined effects of our regulatory actions on the privateeconomy.

Where regulation of economic activity has become outmoded and sub-stantial overhaul is called for, I will pursue effective legislation. For ex-ample, I have supported actively congressional efforts to reform regula-tion of the airline industry, and I am considering proposals to reformthe regulation of other industries.

I have given special attention to reducing the runaway cost of healthcare. The cost of a day in the hospital has more than doubled since 1970.Continuing escalation in the charges for hospital care can no longer betolerated. I have submitted legislation, the Hospital Cost ContainmentAct of 1977, that would limit sharply the rate of growth in hospital spend-ing, and I urge the Congress to enact this legislation in 1978.

The States can also play a role in moderating the current inflation. In1976, State governments collected $50 billion in sales taxes. For the mostpart, these taxes enter directly into the cost of goods we buy and thusincrease the price level. Today, State governments with significant sur-

18


pluses are considering tax reductions. I urge those in a position to do soto consider the advantages to the national economy of reducing salestaxes, thereby helping to slow inflation.

Government alone cannot unwind the current inflation, however.Today's inflationary process is largely the consequence of self-fulfillingexpectations. Businessmen, expecting inflation to continue, are less re-sistant to cost increases than they might be, since they have come tobelieve that, with all prices rising, their own increased costs can be passedon to consumers through higher prices. Wage increases are based on theexpectation that prices will continue to rise. Wage gains in one sector spursimilar demands in others.

There are gainers and losers in this process, since some groups in theeconomy are more successful than others at defending themselves againstinflation. On the whole, however, the main result is continued inflation.No one group—neither business, nor labor, nor government—can stopthis spiral on its own. What is needed is a joint efTort.

Since the current inflation has developed strong momentum, it cannotbe brought to a sudden halt. But we can achieve a gradual but sustaineddeceleration—having each succeeding year's inflation lower than theprevious one. The benefits of slower growth of prices and wages wouldbe broadly shared. Everyone would be better off. A conscious efTortshould be made by those who make wage and price decisions to take theindividual actions necessary to bring about an economy-wide decelera-tion of inflation.

I am therefore asking the business community and American workersto participate in a voluntary program to decelerate the rate of price andwage increase. This program is based on the initial presumption thatprices and wages in each industry should rise significantly less in 1978than they did on average during the past two years.

I recognize that not all wages and prices can be expected to decelerateat the same pace. For example, where profit margins have been par-ticularly squeezed, or where wages are lagging seriously, deceleration in1978 would be less than for other firms or groups of workers. In excep-tional cases deceleration may not be possible at all. Conversely, firms orgroups that have done exceptionally well in the recent past may be ex-pected to do more.

To enhance the prospects for success of this deceleration program, Ihave asked that major firms and unions respond to requests from mem-bers of my Administration to discuss with them on an informal basis stepsthat can be taken during the coming year to achieve deceleration in theirindustries. In reviewing the economic situation prior to making my rec-ommendations to the Congress on the size of the pay raise for Federal

19


workers, due to take effect next October, I will keep this objective ofdeceleration in mind.

This program does not establish a uniform set of numerical standardsagainst which each price or wage action is to be measured. The past infla-tion has introduced too many distortions into the economy to make thatpossible or desirable. But it does establish a standard of behavior for eachindustry for the coming year: every effort should be made to reduce therate of wage and price increase in 1978 to below the average rate of thepast two years.

I have chosen this approach after reviewing extensively all of theavailable options. There is no guarantee that establishing a voluntary de-celeration standard will unwind the current inflation. I believe, however,that with the cooperation of business and labor, this proposal will work.Deceleration is a feasible standard of behavior, for it seeks restraint inwage and price actions in exchange for a general reduction in inflation.It is also a fair standard. Industries and workers with far different his-tories and current situations will not be asked to fit within the constraintof a single numerical guideline.

The inflation problem will not be easy to overcome. It will take time andpatience. But the importance of these efforts cannot be overestimated.Unless we gain better control over the inflation rate, the prospectsfor regaining a fully employed economy will be seriously reduced. MyAdministration cannot and will not pursue policies in the future thatthreaten to trigger a new and more virulent round of inflation in thiscountry. To do so would be the surest way of destroying the hopes of ourcitizens for a long-lasting prosperity.

International Economic Policies that Promote Economic RecoveryThroughout the World

Outside the United States, the world economy has seen a hesitantrecovery from the deep recession of 1974-75. The rapid pace of economicgrowth that was widespread over most of the postwar years has all butdisappeared. Unemployment is high, and in most industrial countriesexcept the United States it is rising. Inflation is at high levels anddeclining only very slowly.

The imbalances in the international economic system continue tostrain the world economy. Because of the surpluses of oil-exporting coun-tries, many countries have sizable deficits, including the United States.Some industrial nations are also running large and persistent surpluses—thus increasing the pressures on countries in deficit. These imbalanceshave been a major factor contributing to disorder in exchange marketsin recent months.

20


The condition of the world economy requires above all that nationswork together to develop mutually beneficial solutions to global prob-lems. If we fail to work together, we will lose the gains in living stand-ards arising from the expansion of world commerce over the past threedecades. If the world economy becomes a collection of isolated andweak nations, we will all lose.

The first priority in our international economic policy is continuedeconomic recovery throughout the industrial world. Growth of theU.S. economy—the largest and strongest in the world—is of vitalimportance. The economic program that I have proposed will ensurethat America remains a leader and a source of strength in the world econ-omy. It is important that other strong nations join with us to take directactions to spur demand within their own economies. World recoverycannot proceed if nations rely upon exports as the principal source ofeconomic expansion.

At the same time all countries must continue the battle against infla-tion. This will require prudent fiscal and monetary policies. Such policiesmust be supplemented by steps to reduce structural unemployment,measures to avoid bottlenecks by encouraging investment, and coopera-tion in the accumulation of commodity reserves to insulate the world fromunforeseen shocks.

Reducing the widespread imbalances in international payments will re-quire several parallel steps. To begin with, each individual country mustensure that its own policies help relieve the strains. The United States willdo its part. In 1977 we had a current account deficit of about $18 billion.While not a cause for alarm, this is a matter of concern. We can take amost constructive step toward correcting this deficit by moving quicklyto enact the National Energy Plan.

Countries in surplus should also do their part. Balance of paymentssurpluses in some countries have contributed to the economic stagnationamong their trading partners. Where their own economies have slack,it is appropriate for nations in surplus to stimulate the growth of domesticdemand—thereby increasing their imports and improving the prospectsfor growth in deficit countries. In some countries, lifting restraints onimports from abroad and reducing excessive government efforts to pro-mote exports would be useful. After consultations with the United States,the Japanese have indicated they will take a series of steps towardreducing their large surplus.

The system of flexible exchange rates for currencies also can be help-ful in correcting unsustainable imbalances in payments among countries.Since its inception in 1973, this system has operated well under unprece-dented strains.

21


During 1977 the U.S. dollar has fallen in value against several keycurrencies. The decline in the dollar's value has occurred primarilyagainst the currencies of those nations that.have large trade and pay-ments surpluses, and was not surprising in view of our large paymentsdeficit and their surpluses. Late in 1977, however, movements in ourexchange rate became both disorderly and excessively rapid. The UnitedStates reaffirmed its intention to step in when conditions in exchangemarkets become disorderly and to work in close cooperation with ourfriends abroad in this effort.

Under the flexible exchange rate system basic economic forces mustcontinue to be the fundamental determinant of the value of currencies.However, we will not permit speculative activities in currency marketsto disrupt our economy or those of our trading partners. We recognizefully our obligation in this regard, and we have taken steps to fulfill it.

Although substantial progress can be made toward a balanced worldeconomy, some imbalances will persist for a substantial period of time.Financing requirements will remain large while adustments occur. Theprivate markets can and will continue to channel the bulk of the financ-ing from surplus to deficit countries. But it is essential that adequateofficial financing also be available, in case of need, to encourage countrieswith severe payments problems to adopt orderly and responsible correc-tive measures. To meet this critical need the United States has stronglysupported a proposal to strengthen the International Monetary Fund bythe establishment of a new Supplementary Financing Facility.

The United States also will continue to contribute resources to promotegrowth in the economies of the developing nations. International assist-ance efforts—through bilateral aid and multilateral institutions—mustcontinue to expand. We must also keep our doors open to imports fromdeveloping countries, so that their economies can grow and prosperthrough expanded trade.

A keystone of our international economic policy is to work with ourtrading partners to protect a free and open trading system. The Americaneconomy benefits by exporting those products that we make efficiently,and by importing those that we produce least efficiently. An open tradingsystem increases our real incomes, strengthens competition in our markets,and contributes to combating inflation.

The United States will firmly resist the demands for protection thatinevitably develop when the world economy suffers from high unem-ployment. The ensuing decline in world trade would worsen our problemof inflation, create inefficiencies in American enterprise, and lead to fewerjobs for American workers. But international competition must be fair.We have already taken and we will, when necessary, continue to take

22


steps to ensure that our businesses and workers do not suffer from unfairtrade practices.

I place great importance on the Multilateral Trade Negotiationsnow under way in Geneva. I believe our negotiators will bring homeagreements that are fair and balanced and that will benefit our economyimmensely over the years to come. The importance of these discussionscan hardly be overemphasized. The trading system that emerges fromthe negotiations will set the tone for international commerce well intothe 1980s. Our commitment to a successful conclusion to these talksunderscores our long-term emphasis on the retention and expansion ofopen and fair trade among nations.

The Challenge Before Us

In this message I have outlined my fundamental economic goals andthe strategy for attaining them. It is an ambitious, but I believe a realistic,agenda for the future. It calls for a broad range of actions to improve thehealth and fairness of the American economy. And it calls upon theAmerican people to participate actively in many of these efforts.

I ask the Congress and the American people to join with me in a sus-tained effort to achieve a lasting prosperity. We all share the same funda-mental goals. We can work together to reach them.

January 20, 1978.

23



THE ANNUAL REPORT

OF THE

COUNCIL OF ECONOMIC ADVISERS

25



LETTER OF TRANSMITTAL

COUNCIL OF ECONOMIC ADVISERS,

Washington, D.C., January 27, 1978.

MR. PRESIDENT:

The Council of Economic Advisers herewith submits its 1978 AnnualReport in accordance with the provisions of the Employment Act of 1946.

Cordially,

(<? &ea*<ut. ^ \

CHARLES L. SCHULTZEChairman.

f

USU4***»

LYLE E. GRAMLEY

WILLIAM NORDHAUS

27



CONTENTS

CHAPTER 1. PROGRESS DURING 1977—THE THIRD YEAR OF pageRECOVERY 35

Developments During the Year 36The Roles of the Major Sectors of Demand 39

Personal Consumption 39Housing 40Inventories 41Net Exports 42Business Fixed Investment 42Government Spending 43

Employment and Unemployment 44Prices and Wages in 1977 46

Wages, Productivity, and Unit Labor Costs 46Food Prices in 1977 48Other Price Developments 49

The Federal Budget and Fiscal Policy 50The President's Stimulus Package 50The Stimulus Program Actually Enacted 51Federal Expenditures in 1977 52Federal Receipts and the Deficit in 1977 53The High-Employment Budget 54

Monetary Policy. 56Interest Rates and Security Yields 57Savings Flows, Credit Availability, and Uses of Funds . . . . 58

The State of the Economy at Year-End 60Special Issues 61

Money Growth and Velocity 61Federal Spending Shortfalls 64Business Fixed Investment 66

CHAPTER 2. ECONOMIC OUTLOOK AND POLICY 73

Economic Policy in the Near Term 73The Need for Tax Reduction 73The Administration's Tax Proposals 74Monetary Policy 75

29

248-947 O - 78 - :Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

CHAPTER 2. ECONOMIC OUTLOOK AND POLICY—Continued pageThe Outlook for 1978. 75

Business Fixed Investment 76Government Demand 77Personal Consumption 77Housing 78Inventories 78Net Exports 79Labor Force and Employment 79Inflation 80Income and Saving Flows 81

The Outlook for 1979 81Policy Requirements for the Longer Term 83

Achieving the U.S. Economy's Potential 83Long-Run Budgetary Strategy 85The Budget and the Economy Over the Longer Run 88The Role of Money and Credit in Reaching High Em-

ployment 91Economic Goals Beyond 1981 93

CHAPTER 3. THE WORLD ECONOMY—A HESITANT RECOVERY 96

Origins of the Current World Economic Disorders 96Inflation 97Current Account Imbalances 101Recession 102

The World Economy in 1977 103Aggregate Real Growth 106Inflation in 1977 108Current Account Positions in 1977 110Foreign Exchange Markets I l l

Unfinished Business I l lTo Restore Health to the International Economy 112To Deal With External Imbalances 115To Achieve Greater Stability cf Commodity Prices 129To Maintain the Growth of World Trade 133

CHAPTER 4. INFLATION AND UNEMPLOYMENT 138

A Review of the Past 10 Years 139Episode I: Excess Demand in the Late 1960s 139Episode II : The Acceleration of Inflation in 1973-74 140The Current Situation 141

The Momentum of Inflation 142

Other Factors Affecting the Current Inflation 146

30


CHAPTER 4. INFLATION AND UNEMPLOYMENT—Continued page

Growth and Inflation 149Using the Tax System to Reduce the Momentum of In-

flation 150A Deceleration Strategy 152Capacity Utilization 157

Past Trends in the Utilization of Capital 158Capacity Utilization Through 1981 161

The Labor Market 161The Structure of Unemployment 162Unemployment and Inflation 168Policies to Reduce Structural Unemployment 172

CHAPTER 5. MAJOR ECONOMIC POLICY ISSUES OF 1977 179

Energy Developments and Policy 179Energy Before 1973. . . 180The 1973-74 Price Shock 181Developments After the Price Shock 182The National Energy Plan 188Other Energy Policies 194

Food and Agricultural Policy 195The Policy Problem 195Incomes in Agriculture 196Instability of Prices and Incomes 199Price and Income Measures 201Policy Developments in 1977 203

Regulatory Reform 206Economic Regulation 207Social Regulation 209

Tax Reduction and Reform 216Major Individual Income Tax Changes 216Major Business Tax Changes 218Tax Treatment of Municipal Bonds 219Distributional Aspects of Income and Social Security

Tax Changes 219Income Maintenance 221

The Federal Welfare System 221Problems With the Present Welfare System 224Changes in the Food Stamp Program 228The Program for Better Jobs and Income 228The Social Security System 232

APPENDIXES:

A. Report to the President on the Activities of the Council ofEconomic Advisers During 1977 239

B. Statistical Tables Relating to Income, Employment, andProduction 251

31


List of Tables and ChartsTables Page1. Growth of Real GNP and Final Sales in 1977 362. Changes in Retail Food Prices, 1976-77 483. Budgetary Impact of the Economic Stimulus Program, National

Income and Product Accounts, Calendar Years 1977-78 . . . . 524. Federal Government Receipts and Expenditures, National

Income and Product Accounts, Calendar Years 1976-77: . . . 535. Actual and High-Employment Federal Receipts and Expendi-

tures, National Income and Product Accounts, CalendarYears 1970-77 55

6. Mortgage and Consumer Debt Outstanding as Percent ofDisposable Personal Income, 1974-77 60

7. Comparison of Projected and Actual Federal Expenditures,National Income and Product Accounts, Fiscal Years1970-77 64

8. Determinants of Business Fixed Investment, 1955-77 689. Key Economic Measures, 1977-78 76

10. Potential Gross National Product and Benchmark Unemploy-ment Rate, 1952-77 84

11. Projected Effects on Federal Receipts of Selected Tax Changes,National Income and Product Accounts, Calendar Years1978-81 87

12. Projected High-Employment Federal Receipts and Expendi-tures, National Income and Product Accounts, CalendarYears 1977-81 87

13. Net Saving by Sector, National Income and Product Accounts,Selected Calendar Years, 1955-77 89

14. World Current Account Patterns, 1973-77 10215. Real GNP Growth in Major Industrial Countries, 1976-77. . . . 10616. National Forecasts and Realized Real GNP Growth for 1977. . 10717. Inflation in Major Industrial Countries, 1976-77 10918. OECD Current Account Estimates for 1977 11719. Changes in Consumer Prices, All Items and Selected Com-

ponents, 1970-77 14020. Wage and Price Changes and Unemployment Rates Over the

Business Cycle .T. 14521. Annual Rate of Change in Selected Components of the Con-

sumer Price Index and Employment Costs, 1960-77 15522. Capacity Utilization in Manufacturing and Materials Indus-

tries, Selected Periods, 1955-77 15823. Unemployment Rates by Race, Sex, and Age, Selected Periods,

1956-77 iT 16224. Unemployment Rates by Reasons for Unemployment, 1977. . 16325. Unemployment Rates of Black and White Men by Age, 1977. . 16826. Alternative Unemployment Rates, Selected Years, 1956-77. . 170

32


List of Tables and Charts—ContinuedTables27. Estimated Federal Outlays and Participation in Training and page

Employment Programs During Fiscal Year 1978 17328. Federal Minimum Wage and Average Hourly Earnings in

Manufacturing, Selected Years, 1938-81 17729. Trends in Energy Consumption and Deflated Energy Prices. . 18130. Growth of GNP, Energy Consumption, and Oil Imports in

Major Industrial Countries, 1967-76 18731. Real Income and Returns to Agriculture, 1970-77 19732. Real Income Per Farm and Per Capita Disposable Personal

Income of Farm Population as Percent of Nonfarm, 1961-76. 19833. Trends and Variability in Real National Income Components,

1961-77 19934. Income Tax Liability for One-Earner Four-Person Families. . . 22035. Estimated Tax Changes Resulting From Tax Reform Proposals

and Social Security Amendments 22036. Government Income Maintenance Programs 22237. Families Below the Poverty Level Before and After the Effects

of Income Maintenance Programs and Taxes, Fiscal Year1976 225

38. Compaiiscn of Public Assistance Benefit Levels With Alterna-tive Income Standards, Family of Four, 1976 226

39. Social Security Benefit Payments and Beneficiaries, 1977 23340. Tax Rates for Social Security Trust Funds, Old and New Laws,

Calendar Years 1977-2011 23541. Social Security Contribution and Benefit Base, Old and New

Laws, Calendar Years 1977-83 236Charts

1. Velocity and Interest Rates Over the Business Cycle 622. Investment and Capacity Utilization Over the Business Cycle. . 673. Actual and Potential Gross National Product 854. High-Employment Federal Surplus as Percent of High-

Employment GNP 885. Rates of Interest or Return and the Rate of Inflation 926. Consumer Prices and Hourly Earnings in Major Industrial

Countries: 987. Unemployment Rates in Major Industrial Countries 1048. Relative Wholesale Prices Unadjusted and Adjusted for Ex-

change Rates 1229. Price and Wage Trends 143

10. Productivity in the Private Nonfarm Business Economy 14611. Relationship Between Capital and Labor Utilization 16012. New Crude Oil Prices and Drilling Activity 183

33


List of Tables and Charts—ContinuedCharts Page13. Oil Consumption and Imports Relative to Real GNP 18514. Cross-Country Comparison of Motor Gasoline Demand in

1975 18915. World Wheat and Coarse Grains: Export Prices and Ratio of

Stocks to Consumption 200

34


CHAPTER 1

Progress During 1977—The ThirdYear of Recovery

AS THE NEW ADMINISTRATION took office at the beginning ofL 1977, the economy was turning up strongly from a period of very slow

real growth during the latter part of 1976. With the unemployment ratehovering near 8 percent and with inflation still a serious problem, however,the Nation was far from the goals of "maximum employment, production,and purchasing power" established in the Employment Act of 1946. Prog-ress toward these goals was essential to the achievement of rising livingstandards and greater equality of income and of opportunity. Strong andsteady growth in the U.S. economy was also needed to help sustain the paceof economic expansion among the nations of the Western world. An eco-nomic stimulus program was therefore designed by the new Administrationto keep the economy on a path of recovery at a pace sufficient to reducethe unemployment of labor and capital resources significantly.

In the course of the year, continuing progress was made in closing thesubstantial gap between actual and potential real output that existed atthe beginning of 1977. Real gross national product (GNP) expanded ineach quarter at a pace above its long-term potential growth, and the gainin 1977 as a whole amounted to 4.9 percent. By the fourth quarter, realGNP was 5.7 percent higher than it had been a year earlier.

This increase in real output made possible a 4.1-million increase inemployment between the end of 1976 and the end of 1977. A temporaryslackening in the rate of expansion around midyear limited the midyearreduction in unemployment, but unemployment fell significantly early inthe year and again in the later months. The unemployment rate fell to 7.0percent for 1977 as a whole and reached 6.4 percent at year-end.

The expansion in total output was large enough to permit a substantialimprovement in living standards. Real per capita disposable income roseby 4.9 percent during the year. At the same time, the increase in industrialproduction of 5.6 percent lifted capacity utilization in manufacturing from81 percent at the end of 1976 to 83 percent at the end of 1977. This increaseplayed an important role in the 9.5-percent advance of corporate profits forthe year as a whole.

35


DEVELOPMENTS DURING THE YEAR

The pace of economic expansion was exceptionally strong during the earlypart of 1977. As the year opened, businesses were increasing their productionschedules in an effort to rebuild stocks depleted by the unexpectedly sharp riseof consumer spending in the latter months of 1976. The rate of nonfarm in-ventory investment rose from near zero in the fourth quarter of 1976 to 1 per-cent of real GNP by the second quarter of 1977, accounting for almost 30percent of the expansion in real output during the first half of the year. Therise in consumer spending that began in late 1976 continued in the openingmonths of 1977. With final sales and inventory accumulation both movingup briskly, real GNP in the first quarter increased at an annual rate of 7 l/ipercent (Table 1).

The pace of advance in economic activity early in the year was so rapidthat an abnormally cold winter had only a mild transitory effect on overalleconomic performance. January temperatures were as much as 20 percentbelow normal in some parts of the country, causing shortages of natural gasand numerous plant shutdowns. Plant closings typically lasted only one toa few days, however, and most of the loss in output was made up before theend of the first quarter.

Construction activity was significantly depressed by the winter weatherbut rebounded in the second quarter. Government spending also rosesharply. The strength of these two sectors offset a developing weakness inconsumer spending, and growth of real GNP in the second quarter remainedat a relatively rapid 6-percent annual rate.

During these 2 quarters of large gains in real output substantial progresswas made in reducing unemployment. From December to April total civil-ian employment rose by almost 1 l/z million, and the unemployment rate fellby 0.7 percentage point. Job gains were widespread among manufacturing,

TABLE 1.—Growth of real GNP and final sales in 1977

[Percent change, seasonally adjusted annual rate]

Component

GNP..

Final sales:Total2

Domestic3

Private domestic4. _

Change in inventory accumulation (billions of1972 dollars)

1

7.5

3.84.96.7

11.5

II

6.2

5.15.54.2

3.5

1977

III

5.1

4.43.62.9

2.5

IV i

4.2

6.87.38.2

- 8 . 0

Year*

4.9

4.75.25.9

3.1

1976 IVto

1977 IV i

5.7

5.05.35.5

9.5

1 Preliminary.2 GNP other than inventory accumulation.3 GNP other than inventory accumulation and net exports.* Personal consumption expenditures, business fixed investment, and residential construction.

Note.—Percent changes based on data in 1972 dollars.

Source: Department of Commerce, Bureau of Economic Analysis.

36


construction, retail trade, services, and other industries. The length of theworkweek in manufacturing also increased.

The rapid pace of expansion in the first half could not have been expectedto continue since it was based, in part, on a rebuilding of stocks and a resto-ration of inventory investment to a more normal relationship with GNP.The slowdown in the rate of expansion during the middle of the year wasmore widespread and prolonged, however, than could be accounted forsolely by patterns of inventory accumulation.

The rise of consumer spending slowed abruptly in the second quarterwhen the personal saving rate rose substantially. During the first 2 yearsof the recovery, consumers' purchases of goods and services had risen muchfaster than their after-tax incomes, so that by early 1977 the fractionof disposable income devoted to saving had fallen to the lowest level in25 years. Restoration of a more normal allocation of consumer incomes be-tween consumption and saving was inevitable, and the major part of the ad-justment took place in the second quarter.

As retail sales faltered, manufacturers adjusted their production sched-ules promptly to avoid an undesired buildup of inventories—as they hadin 1976, when consumer spending also slowed temporarily. As a conse-quence, demands for labor moderated, and the unemployment rate stoppeddeclining. Total hours worked in nonfarm establishments, which had beenrising strongly in the first 4 months of the year, topped out and remainedessentially unchanged from May through September; the rise of industrialoutput during this period slowed to about half the pace recorded in the first5 months of the year.

The caution exhibited by businesses in their inventory policies was evenmore evident in their willingness to make longer-term investment commit-ments. Plans for business capital outlays normally gain increasing strengthas rates of capacity utilization and profits rise during the course of an eco-nomic recovery. For a time in late 1976 and early 1977 it appeared that theusual cyclical processes were occurring: the real value of contracts andorders for plant and equipment was improving vigorously. Around the mid-dle of the year, however, the rise of this indicator of business fixed invest-ment slowed, and production of business equipment, though continuingto advance, increased at a more moderate pace than earlier in the year.

The hesitancy of business capital spending (which is examined later inthis chapter) was singularly disappointing. These outlays, in real terms,have yet to recover their peak levels reached in late 1973 and early1974. Industrial capacity has therefore been expanding at a very sluggishpace—and at a time when the labor force is increasing rapidly. Over thelong run, continuing growth of real output and a stronger rise of produc-tivity will depend heavily on restoring a more vigorous rate of expansionin business outlays for new plant and equipment.

37


Developments in the foreign sector also restrained the rate of economicexpansion. Imports of oil rose substantially early in the year, partly as a con-sequence of the effects of the cold winter on fuel consumption; and otherimports increased more than would have been anticipated on the basis ofhistorical relationships between growth of real output and these imports.U.S. exports meanwhile increased scarcely at all in real terms because ofthe very slow rate of economic expansion among most of our major tradingpartners.

The midyear slowdown of economic expansion would have been moreserious had it not been for the effects of the Administration's stimulus pro-grams. These programs began to increase government spending and dis-posable personal incomes by midyear, and their stimulative effects con-tinued to build over the remainder of 1977. Fiscal policy was thus instru-mental in the quickening tempo of activity late in 1977.

Signs of an emergence from the pause of 1977 first became evident latein the fall, when new retail sales figures indicated that consumers hadbegun to increase their purchases of goods in the third quarter. A combina-tion of factors led to a further strengthening of consumer spending duringthe fourth quarter. Growth in personal income was sustained by risingoutput and employment in other sectors and was further bolstered by theFederal pay raise in October and by the growing effects of the stimulusprograms. With consumer prices increasing at a relatively moderate rateduring this period, gains in nominal income were translated into greater pur-chasing power and rising consumer spending. In the fourth quarter, con-sumer outlays for durable and nondurable goods, adjusted for inflation,rose at an annual rate of over 10 percent.

This surge of consumer buying—coupled as it was with some improve-ment in the pace of fixed investment—was not fully anticipated by busi-nesses, whose production schedules were still geared to the slower pace ofretail sales that had prevailed earlier. The rate of inventory accumulationtherefore declined steeply in the fourth quarter, holding down overall GNPgrowth to an annual rate of 4.2 percent. It is clear, however, that activitywas strengthening as the year came to a close. Employment in the final 2months rose rapidly, and the unemployment rate fell to 6.4 percent inDecember.

Failure to make any significant progress on the inflation front in 1977was a disappointment. (A more detailed analysis of this difficult problem ispresented in Chapter 4.) Consumer prices of goods and services other thanfood and energy, a measure of the underlying rate of inflation, increased by6.4 percent in the 12 months ending in December 1977, about the same rateas in 1976.

An underlying inflation rate of 6 to 6/2 percent has persisted since mid-1975 and is deeply embedded in the wage-cost-price structure. In the non-farm business sector, compensation per hour-—which includes bothwages and fringes—in the fourth quarter of 1977 was about 8/2 percent

38


more than a year earlier. This increase in labor cost exceeded productivitygains by about 6 percent and therefore put strong upward pressures onprices. These price increases, in turn, wiped out most of the rise in workers'nominal earnings.

Changes in food and fuel prices during 1977 caused substantial vari-ation in the overall rate of price change from the underlying rate of inflation.In the first half, both food and energy prices were rising rapidly, reflectingthe cold winter and the increasing prices of imported foods (particularly cof-fee, tea, and cocoa). Overall consumer prices increased during this periodat an annual rate of 9 percent. As food supplies improved, the rise of con-sumer prices slowed materially to an annual rate of around 4/2 percent inthe second half of 1977.

THE ROLES OF THE MAJOR SECTORS OF DEMAND

The sources of economic expansion shifted somewhat during 1977. Duringthe first 2 years of the current economic recovery, household spending forpersonal consumption and new housing were the principal dynamic elements.In turn, the increase in final demand stemming from these sources prompteda pronounced swing from decumulation to rebuilding of inventories duringthe first year of the upturn. As the rise of consumer spending moderatedlast year, growth in business fixed investment and particularly acceleratedgovernment spending assumed more important roles in determining thepace of expansion.

PERSONAL CONSUMPTION

The saving rate during 1977 rose considerably, marking a reversal of thepattern of the preceding 3 years. This reversal and the pronounced midyearweakness of consumer spending were due to a number of causes. Someof them have their roots in the forces that had disturbed the economy gen-erally, and the household sector in particular, earlier in the 1970s. Highinflation rates eroded the real value of household wealth held in savings atdepository institutions and in other nominally denominated forms. Employ-ment growth in the early 1970s was also less steady than during most of the1960s. These two developments may well have prompted somewhat morecautious consumer behavior and caused higher saving rates. The saving ratereached an exceptionally high level in 1973—the cyclical peak year, whichwas marked by accelerating inflation and a sharp and largely unanticipatedrise in farm income. In the following year of recession, households held thereal value of consumption of nondurables and services level while the realvalue of both durable purchases and saving declined in the face of fallingreal incomes.

By late 1975 the economy was moving up again, the pace of inflationhad abated somewhat from double-digit rates, and household income hadbeen bolstered by tax cuts. As confidence was renewed, consumers were

39


apparently attempting to regain previously planned consumption levels andto rebuild their stocks of durable goods. Although spending for durablegoods rose somewhat erratically during 1976, the overall gain was strong,and the saving rate dropped sharply further from its recession level, reach-ing a 25-year low in the first quarter of 1977. By then, real per capita con-sumption was almost 8 percent higher than its cyclical peak in the thirdquarter of 1973. Once consumption levels had been brought more closelyinto balance with individuals' plans and anticipated earnings, it becamenatural for households to resume a historically more normal balance betweencurrent consumption and saving for future needs.

A number of nonrecurring factors contributed to the final phase of declinein the saving rate in the first quarter of last year: deferred automobile pur-chases because of the strike at the Ford Motor Company late in 1976, un-usually large estate and gift tax payments, and exceptionally large homeheating expenses. The extent of the decline during 1976 and in the firstquarter of 1977 was underestimated, however, in preliminary data. Morecomplete data becoming available later in the year made it more apparentthat the slowing in consumption growth, which began in the spring, wasan inevitable result of the restoration of more customary spending and sav-ing patterns.

The saving rate rose abruptly in the second quarter and more graduallyin the following quarters. Surveys of consumers' attitudes showed only asmall reduction in consumer confidence in this period. The pattern of con-sumer expenditures last year also implies sustained confidence. Householdscontinued to invest in durable goods and houses, committing future incometo repayments of consumer and mortgage credit. Automobile sales increasedto an 11.7-million unit annual rate in the second quarter, just 6 percentshort of the rate at the all-time quarterly peak in 1973. New private homesales through the middle quarters of the year were virtually unchangedfrom the very strong 800,000 annual rate of late 1976 and early 1977, andsales of existing houses also rose substantially during the year. The strengthof home purchases and increases in mortgage credit undoubtedly contrib-uted to increased outlays for household durables.

The slower rise in the saving rate in the fourth quarter was coupled withresumption of strong growth in disposable income. These forces led to avigorous increase in consumption.

HOUSING

The pace of single-family homebuilding was at a record level last year,although the rate of increase of aggregate residential construction expendi-tures slowed to 15 percent from 22 percent in 1976. Housing starts for theyear came to almost 2 million units. Single-family starts totaled a recordV/2 million—150,000 more than in any previous year—and the rate washigher at year-end. The demographic determinants of housing demand are

40


increasingly favoring a high rate of single-family home construction as thepost-World War II baby boom population is reaching the childbearing age.Furthermore the demand for single-family homes, which are predominantlyowner-occupied, appears to reflect the belief that homeownership is valuableas an investment. The rate of increase of new home prices, exclusive ofchanges due to quality or size differences, is currently about 11 percentannually, or about 5 percentage points greater than the average increase ofother prices. Although part of this price pattern is a temporary response ofthe prices of new construction materials to strong demand, land prices havealso been rising substantially.

In California particularly, and to a lesser extent elsewhere in the country,there was an element of speculation in the housing markets in the earlypart of the year. An increasing number of homes were being bought by indi-viduals who could not indefinitely carry the mortgages, but who anticipateda speculative profit from a near-term resale. In some areas of SouthernCalifornia the inflation in new home prices reached a 25-percent annualrate. At first, lenders' willingness to grant mortgages in such cases fueledthe speculative surge of construction that was evident early in 1977. TheFederal Home Loan Bank of San Francisco, however, took effective steps todampen the expansion of mortgage credit, and lenders were encouraged torequire a commitment from home purchasers to occupy the homes theybought. By midyear both price increases for new homes and new housingstarts had slowed in the West.

New starts of multifamily units last year came to 535,000, up 43 percentfrom 1976 but still well below the 1972 peak of 1 million units. The lower levelof unsubsidized multiunit building in recent years results, in part, from theoverbuilding that occurred in some regions of the country from 1971 to1973. Since 1976, multifamily construction has turned up in most of thecountry as vacancy rates have declined. The Northeast was an exception asoutmigration and the prevalence of rent controls have curbed expansion.

INVENTORIES

Inventory accumulation contributed substantially to growth of real GNPin the first quarter of 1977. The rate of accumulation in nonfarm inven-tories, in 1972 dollars, rose from near zero in the last quarter of 1976 toabout $10 billion. Thereafter the rate of nonfarm inventory accumulationrose only moderately further in the second and third quarters and then de-clined sharply at year-end.

Businesses continued in 1977 to follow the very cautious inventory policiesthat have typified this expansion. Book values of inventories of nondurablegoods rose slightly more rapidly than sales in the second quarter as consump-tion of nondurable goods slackened. In the summer months, new orders andthe growth of production slowed sharply, preventing substantial undesiredaccumulation of stocks during a period of sluggish sales. The book value

41


of business stocks therefore rose only two-thirds as much in the third quarteras in the second. Part of this slowdown, however, was due to a reduced rateof increase in prices, particularly for farm products and foods.

NET EXPORTS

The foreign sector has acted as a drag on the speed of expansion in theU.S. economy throughout the past 2 years. In constant dollar terms, U.S.imports in the GNP accounts rose 9 percent last year while exports rose lessthan 2/2 percent. The rise in U.S. real income was, of course, an importantfactor. Automobile imports rose especially rapidly, reflecting near-recordtotal car sales in the United States. The slow pace of recovery in othercountries led foreign producers to compete more aggressively in externalmarkets given their weak demand at home. This also contributed to thestrength of U.S. imports and to the weakness of U.S. exports. Hesitantinvestment abroad lowered demand for capital goods, particularly affectingU.S. export volume, which is heavily dependent on sales of capital goods.

In nominal terms the deterioration of net exports last year was evenmore dramatic than it was in real terms because of the very high growth ofimported oil, whose price has moved up more since the 1972 base date thanthe average price of other imports or exports. The combination of cold win-ter weather, petroleum inventory building during much of the year, flat do-mestic energy output, and rising demand generated a 20-percent increasein oil imports. The cost to the United States for imported oil rose about $10billion from 1976 to 1977. This increase accounted for approximately 60percent of the deterioration in the nominal net export position, whichswung $9 billion into deficit last year. In addition, price increases in late1976 and early 1977 raised the cost of commodity imports, particularlycoffee, tea, and cocoa.

BUSINESS FIXED INVESTMENT

Business investment in plant and equipment played an important role inthe 1977 pattern of expansion. It moved up strongly in the first quar-ter, rebounding from the effects of strikes at automotive and equipmentfirms in the fourth quarter of 1976. In the third quarter, the pace slackened,contributing to the midyear pause, but it quickened again in the final quarterof the year. Abstracting from erratic quarter-to-quarter movements, businessfixed investment rose, in real terms, by close to 8 percent during the yearas a whole—about the same as in 1976.

This component of demand did not begin to recover from the 1974 reces-sion until the final quarter of 1975—one-half year after the upturn in totaloutput. Although investment continued to grow more rapidly than totaloutput during 1977, it had regained by the end of the year only about three-fourths of the ground lost during the recession. This is a weaker performancethan in the typical postwar cyclical upswing. The shortfall is discussed in aseparate section later in this chapter.

42


GOVERNMENT SPENDING

Spending by both the Federal and State and local governments was aparticularly important source of economic expansion in mid-1977 whenthe contribution of other sectors to continued growth of output was mod-erating. The real value of Federal Government purchases had been essentiallyunchanged during 1976, and in the fourth quarter of that year was only 1percent above its level at the cyclical trough 7 quarters earlier. In con-trast, the real value of Federal purchases rose by 7.2 percent in 1977; themost significant increases occurred in the second and third quarters.

Both the defense and nondefense components of Federal purchases ac-celerated sharply. The upswing in real defense purchases marked the endof the decline that began in 1969. While defense procurement rose strongly,however, the number of military personnel remained about constant.

The increase of nondefense Federal purchases at midyear was significantlyaffected by Commodity Credit Corporation (CCC) transactions. Steep de-clines of farm crop prices led to a large increase from a year earlier in CCCpurchases for crops under loan agreements. CCC purchases added about$4j/2 billion, at an annual rate, to the value of Federal purchases by thethird quarter; the pace leveled off in the fourth quarter. These acquisitionsrepresent a transfer from private inventory accumulation to governmentpurchases and do not contribute directly to expanded output. Other Fed-eral nondefense purchases from the private sector, however, also rose inreal terms during 1977.

State and local government purchases grew at an annual rate of only 1.4percent, in real terms, from the recession trough through the end of 1976;but these purchases increased by 3.2 percent during 1977. Earlier in the cur-rent cyclical upswing. States and localities were recovering from substan-tial operating account deficits that had accumulated during the previousdownturn. Fiscal positions improved as the recovery proceeded, reflectingincreased revenues generated by rising incomes and adjustments in both taxrates and spending patterns. These lagged adjustments moved budgets intosubstantial surplus by mid-1976.

Beginning in 1977, real purchases by State and local governments rosemore notably as a result of their stronger fiscal positions. Their fiscal situa-tions were further improved during the year by significant increases in Fed-eral grants as part of the Administration's stimulus package. This packageincluded an expansion of public service jobs from about 310,000 in thespring to 615,000 positions at the end of the year. About 80 percent of thesejobs were with State and local government units. At the same time therewere indications that State and local capital formation, which dropped offsharply in 1975 and 1976, was reviving. Construction of educational facili-ties continued to decline, as children born in the late stages of the babyboom reached adulthood and left school, but housing and redevelopmentbuilding, and sewer and water supply construction rose vigorously during

43


the second half of last year. Many of these projects were assisted by anincrease in Federal grants for local public works.

EMPLOYMENT AND UNEMPLOYMENT

Growth in economic activity over the 4 quarters of 1977 was sufficient togenerate over 4 million new jobs. Employment increased rapidly in thefirst half of the year as a result of the strong growth in total output; but asthe pace of expansion moderated in the third quarter, employment growthslackened. The midyear slowdown wras also evident in total hours of workat nonagricultural establishments in the private goods-producing businesssector, which declined during the third quarter when manufacturing pro-duction and employment flattened out temporarily. Strong expansion ofemployment resumed again late in the year.

Gains in employment in the first half of the year lowered the unemploy-ment rate from 7.9 percent in the last quarter of 1976 to 7.1 percent in thesecond quarter of 1977. Only moderate further progress was made untilthe fourth quarter, when unemployment began declining again, reachinga 3-year low of 6.4 percent in December.

A major disappointment with respect to our economic performance in1977 was the unemployment situation of black Americans. Total black em-ployment increased by 4.8 percent from the fourth quarter of 1976 to thefourth quarter of 1977, exceeding the 4.4-percent increase in white employ-ment, but the black unemployment rate remained unchanged at 13.4 per-cent as the labor force grew rapidly. The unemployment rate for blackteenagers rose, however, from 36.6 percent to 38.3 percent. Although laborforce growth explains the failure of these unemployment rates to fall, itdoes not dispel the problem of high unemployment among minorities. Fur-thermore, the problem for teenagers in particular is unlikely to be correctedmerely by expansion of the total economy. Effective structural measures areneeded as the recovery continues. This problem is discussed more exten-sively in Chapter 4.

The distribution of employment gains among sectors was in many re-spects typical for periods of fairly balanced cyclical recovery. During theyear employment in manufacturing establishments grew 4.0 percent, anincrease of 762,000 jobs. Contract construction employment grew at a rapid10.0-percent pace, providing an increase of 359,000 jobs as expansion in thatsector remained strong throughout the year. The 3.6-percent rise in employ-ment in the private service-producing industries was slightly slower thanthe growth in manufacturing, but secular growth in this sector provided anincrease of 2 million jobs.

Employment in the government sector grew 2.6 percent during 1977,considerably less rapidly than in the private sector. Federal employment hasaccounted for a dwindling share of total employment in the past decade and

44


was virtually unchanged during the year. State and local employment,on the other hand, has been the fastest growing major sector of theeconomy for the past two decades. From 1953 to 1973 the average annualrate of growth was 4.8 percent. This growth rate declined to 3.3 percentfrom 1973 to 1976, when the expansion of State and local expenditures wasrelatively slow. State and local employment grew by 3.1 percent, or 392,000jobs, in 1977; much of the increase was in the second half of the year. Over200,000 of the additional jobs on State and local payrolls were financedunder the expansion of Comprehensive Employment and Training Act(CETA) jobs that was part of the Administration's stimulus package.

An unusual aspect of employment growth in the past year was a suddenspurt in the number of self-employed workers. After growing at a fairlysteady 1.1 percent per year from 1967 to 1976, the number of self-employedworkers in the nonagricultural sector increased by 5.6 percent in 1977, ac-counting for over 10 percent of the net employment growth for the year.

Improvement in the employment situation is also apparent in indicatorsother than the overall unemployment rate. As jobs became more available,the number of workers who had been unemployed for 27 weeks or more fellfrom 1.3 million, or 1.4 percent of the civilian labor force, in the final quarterof 1976 to 920,000, or 0.9 percent of the labor force at the end of 1977. Theaverage duration of unemployment fell gradually from 15.5 to 13.9 weeks.Similarly, improvement in labor market conditions resulted in a decline inthe fraction of the labor force that were unemployed because they lost theirjobs—rather than being unemployed because they were entering or reenter-ing the labor force or had left their jobs voluntarily. The unemployment rateattributable to job loss fell from 3.8 percent at the end of 1976 to 3.0 percentin the fourth quarter of 1977.

The labor force grew very rapidly during 1977, rising by 3.1 percent or3 million persons between the fourth quarter of 1976 and the fourth quarterof 1977. The number of adult men in the labor force increased 1.9 percent,closely in line with the long-term trend. Unemployment for this group fellfrom 6.0 percent to 4.8 percent. Employment developments for adult womenwere sharply different. As their number in the labor force increased by4.5 percent, the unemployment rate of adult women fell by only 0.7 per-centage point to 6.8 percent in the fourth quarter. The teenage labor forcegrew by 4.6 percent; the unemployment rate of teenagers fell during 1977,but remained a distressingly high 16.7 percent in the fourth quarter.

The role of high labor force participation in rapid labor force growth andslower decline in aggregate unemployment is shown by the rising ratio of em-ployment to the total civilian noninstitutional population of working age—•up 1.7 percentage points during 1977 to 58 percent in December. This is apost-World War II record. At the cyclical peak in the fourth quarter of1973, this ratio was 57.3 percent, when unemployment was 4.8 percent. In1968, when the unemployment rate was 3.6 percent, the employment topopulation ratio was considerably lower than in either 1977 or 1973. Hence,

45


given the income and career aspirations of broad segments of the population,the economy is confronted with a challenge not only to create jobs but tomatch workers to employment opportunities.

PRICES AND WAGES IN 1977

The pace of inflation last year was essentially unchanged from 1976,excluding the effects of a few especially volatile factors. The rise in theconsumer price index accelerated to 9 percent in the first half of the year,from a 4.8-percent rate during 1976, in response to short supplies of foodand strong demands for energy caused by the harsh winter weather. In thesecond half, however, these forces were absent. Indeed, as the new spring-crops came in, wholesale prices of food and farm products declined sharply.As the benefits were passed on to consumers, the rise in consumer pricesslowed to an annual rate of 4 / 2 percent in the second half.

Farm supplies are subject to disturbances from weather and these showup in volatile price movements because of relatively inelastic demand forfood products. Other prices may also be subjected to shocks that have littleto do with the overall balance of supply and demand in the economy.Energy prices are a current example of this phenomenon. For this reason,it is important to look at the movements of price indexes after these specialfactors have been removed—that is, to look at the "underlying rate" of infla-tion. This underlying rate, measured by the consumer price index exclusiveof food and energy prices, has remained relatively steady in the range of6 to 6/2 percent during almost the entire 3 years of expansion.

The stability of the underlying inflation rate reflects, on the one hand,the continued high levels of unemployment and excess capacity, which haveforestalled the acceleration of inflation that has often occurred in the courseof extended cyclical expansion. On the other hand, inflationary expectationsand institutional characteristics of modern economies have kept the inflationrate from declining. These characteristics are discussed more extensively inChapter 4.

WAGES, PRODUCTIVITY, AND UNIT LABOR COSTS

During the first year of the recovery, productivity rose faster than itslong-run trend, as it typically does in such periods. Since businesses tend tocalculate costs on the basis of secular trends in productivity and set theirprices accordingly, the rise in prices exceeded that of unit labor costs, andprofits per unit of output improved markedly. Since then, the growth ofproductivity has slowed, and the movements of prices and unit labor costshave been more nearly parallel.

On a year-over-year basis, the rate of change in hourly compensation wasessentially the same last year as in 1976. Compensation per hour in the pri-vate nonfarm sector showed an 8.5 percent increase, about 0.2 percent less

46


than in 1976. The rate of growth of private nonfarm productivity, however,slowed substantially to 2 percent. The rise in labor cost per unit of outputtherefore increased to about 6/2 percent.

Hourly compensation increased about 1 percentage point faster than theindex of average hourly earnings during the year. The latter measure showsthe change in wages exclusive of the effects of shifts of employment amongindustries and changes in manufacturing overtime; it is often used as ameasure of the basic rate of wage increases, though it is only an approxima-tion. About one-half of the difference in 1977 between hourly compensa-tion and average hourly earnings was accounted for by the shift of employ-ment toward high-wage industries. The remaining difference was primarilydue to the increase of fringe benefits, included in compensation but notcounted in the earnings index. Fringe benefits per hour have risen morerapidly than wages but rose at about the same rate last year as in 1976.

Data on collective bargaining agreements show about 1 percent greatereffective wage-rate adjustments than the data for all nonfarm hourly earn-ings, but also show a rate of increase that was approximately stable between1976 and 1977. (Effective wage-rate adjustments include wage changes re-sulting from current settlements, prior settlements, and cost-of-living clauses.)In the 12 months ending in September of last year, the latest span for whichdata are available, the average effective wage increase for workers includedin major agreements covering 1,000 or more employees was 8.3 percent,compared with 8.1 percent in all of 1976.

New collective bargaining agreements concluded last year generally pro-vided for wage increases greater than the 1977 rate of increase of averagehourly earnings. Those that were concluded in the first 9 months of lastyear and included cost-of-living adjustment clauses provided an averageannual basic wage increase of 5.0 percent, plus the augmentation from theescalators. If inflation continues at a 6-percent rate, the total annual wageincrease would be about 8 percent. Wage increases in contracts withoutescalator clauses averaged 6.9 percent annually over the life of the contract.These data, however, omit increases in fringe benefits. The data on com-bined changes in wages and fringe benefits, which are limited to agree-ments covering 5,000 or more workers, suggest that total labor compensationunder collective bargaining agreements probably continued to rise morerapidly than compensation for all nonfarm employees. First-year negotiatedadjustments of wages and benefits averaged 9.6 percent last year.

The productivity increase of 2 percent in the private nonfarm economyin 1977, on a year-over-year basis, is approximately in line with the long-runtrend. This rate is down from 4 percent in 1976 and during the first stageof recovery in 1975. The growth of productivity is typically greatest in theearly quarters of expansion, when overhead labor becomes more fully uti-lized and the cyclically sensitive and high-productivity industries recoverfaster than the rest of the economy. The progressive decline in recent produc-

47


tivity growth was therefore consistent with the usual cyclical pattern. Ananalysis of long-term trends in productivity growth is presented in Chapter 4.

FOOD PRICES IN 1977

Movements of food prices exerted a major effect on the overall rate ofprice change during the past year. Between the fourth quarter of 1976 andthe fourth quarter of 1977 the consumer price index for food increased7.7 percent.

The severe freeze in July 1975 that reduced the 1976-77 Brazilian coffeecrop by 60 percent was reflected in U.S. food prices in early 1977. Reducedsupplies from Brazil, normally the world's largest coffee producer, causedwrorld supplies to decline 17 percent and average retail coffee prices inthe United States to increase 54 percent during the first 6 months of lastyear.

During the middle of last January temperatures in Florida were belowfreezing for several days, reducing the fruit crop and heavily damaging thevegetable crop. Prices of these commodities escalated rapidly until suppliesbecame available from other areas. Fruit and vegetable prices increased atan annual rate of 24 percent in the first quarter but declined in the thirdquarter (Table 2).

Abundant supplies of all other food products helped to restrain pricechanges over the year. Food grain prices declined throughout the year asU.S. farmers harvested a third consecutive large crop. The lower food grainprices wrere reflected in the modest 4-percent increase from the fourthquarter of 1976 to the fourth quarter of 1977 in the cereal and bakery com-ponent of the consumer price index.

Declining feed grain prices prompted significantly increased cattle feedingin the latter months of the year. Total beef and veal production nonethelessdeclined 4 percent in 1977. The decline would have been larger if thedrought conditions in the West and Southwest had not encouraged morerapid slaughtering. Last year marked the third consecutive year of a cyc-lical reduction in the U.S. cattle herd that has been the deepest in history.

TABLE 2.—Changes in retail food prices, 1976—77

[Percent change, seasonally adjusted annual rate)

Consumer price component

All foodFood away from home.Food at home

MeatsCereals and bakery productsFruits and vegetablesBeverages (nonalcoholic)1

1976IV

0.43.4

- . 4-16 .7- 6 . 222.332.0

1977

1

10.09.2

10.46.6

- 1 . 323.771.0

II

13.812.114.411.96.93.8

119.0

III

4.27.43.2

- 6 . 48.1

-12 .820.3

IV

2.93.82.76.43.3

19.0- 1 0 . 0

1976 IVto

1977 IV

7.78.07.54.44.17.5

41.9

1 Not seasonally adjusted.

Source: Department of Labor, Bureau of Labor Statistics.

48


Total meat production, however, was unchanged from 1976, as produc-tion of competing meat and poultry products rose to offset declines in beefoutput. Consumers substituted more abundant pork and poultry for beefproducts during 1977; as a result there were only modest increases in pricesfor meat products in general. From the fourth quarter of 1976 to the finalquarter of 1977, beef prices rose only 4 percent, pork prices rose 6 percent,and poultry prices increased by 7 percent. Retail prices of dairy productsincreased 5 percent, largely reflecting the March increase in the supportprice of milk.

Consumer expenditures on food, exclusive of alcoholic beverages, totaled$218 billion in 1977, of which $180 billion was for domestically producedfood products. The value at the farm of the domestically produced foodswas $56 billion, unchanged from 1976. The marketing bill—the cost ofprocessing, transporting, wholesaling, and retailing—was $124 billion, morethan double the farm value.

The largest expense component of food marketing firms is labor; hourlycompensation in this sector increased 8 percent in 1977. Total labor costs($58.8 billion) exceeded the farm value of domestically produced foods forthe first time last year. Costs for packaging materials, transportation, energy,and all other inputs increased over the levels of a year earlier.

OTHER PRICE DEVELOPMENTS

Prices in 1977 for most goods and services other than food and agricul-tural products moved in a fairly homogeneous fashion. A few exceptionsshould be mentioned.

At the retail level, energy prices again posed a special problem early in theyear, as noted above, although the pace of increase in energy prices slowedslightly later in the year. Prices of houses, both new and old, rose sharply.On the other hand, prices of apparel and household appliances lagged behindthe aggregate indexes.

Medical costs, led by physicians' fees and hospital charges, continued torise at rates substantially above those of other items, and insurance costshave also risen rapidly. This Administration has proposed to try to reduceinflation in hospital costs by negotiation between representatives of hospitalsand physicians, insurers, and the government, which now pays more thanhalf of all hospital charges. The initial goal is to reduce cost increases peradmission to 9 percent in fiscal 1978.

At the wholesale level, costs of construction materials rose rapidly duringmost of the year as prices of lumber and other building materials, especiallyinsulation, moved up sharply. These, of course, contributed to the rise in theprice of houses. The rise in lumber prices seem clearly associated with thestrength in single-family construction activity, which is particularly lumberintensive. Wholesale and retail fuel prices rose significantly early in theyear. Paralleling the moderate rise in retail prices of apparel, textile pricesrose less rapidly than the overall average, possibly as a consequence of weak

49


consumer demand and strong worldwide competition as w7ell as of goodcotton crops. The pace of inflation has also been relatively moderate fornonpetroleum chemicals, rubber, scrap metals, and most internationallytraded commodities. Although many raw industrial commodity prices roseearly in the year, possibly as a result of speculation occasioned by fears thatinflation would accelerate, increases tapered off and some prices fell in thelatter half of 1977. Excess world capacity undoubtedly helped to keep theseprices in check.

THE FEDERAL BUDGET AND FISCAL POLICY

Soon after the new Administration came into office, it proposed a seriesof measures intended to raise the rate of growth in real output in 1977 and1978 to a pace that would lead to significant reductions in the unemploy-ment rate. The package of stimulative measures that was proposed wouldhave had a 2-year budgetary impact of $31 billion.

Given the lags inherent in the implementation of fiscal policy, however,the new measures did not have an effect until early summer. Indeed, in thefirst quarter of 1977, fiscal policy was actually contractionary by almost anymeasure because of the unusually slow growth in Federal spending incombination with a sharp upturn in receipts. For the rest of 1977, however,fiscal policy was more expansive, as expenditures resumed their normalgrowth and the initiatives in the stimulus package began to take effect.

THE PRESIDENT'S STIMULUS PACKAGE

The Administration's stimulus program had seven components:1. A one-time $50 rebate on 1976 taxes and $50 payments to social

security, supplemental security income, and railroad retirement bene-ficiaries. The proposed rebates and payments totaled $11.4 billionand were to be payable in the spring of 19*7*7.

2. A simplification and a permanent increase in the personal standarddeduction. The existing percentage standard deduction was to be con-verted to a flat deduction of $2,800 for couples filing jointly and $2,400for single individuals. This change would have reduced personal taxesby $4 billion a year once it was fully in effect.

3. A choice for business firms between a 2-percentage point increase inthe investment tax credit and a new 4-percent credit against employer-paid social security taxes. The business tax cut would have been worth$2J/2 billion annually when fully implemented.

4. An increase in the number of public service jobs funded under TitlesII and VI of the Comprehensive Employment and Training Actfrom the existing 310,000 to 725,000 by mid-1978.

5. An additional 346,000 positions to be added to the various specializedemployment, training, and youth programs under other titles of CETA.

50


6. A $4-billion increase in the authorization for emergency public worksspending beyond the $2 billion already authorized in 1976 by the LocalPublic Works Capital Development and Investment Act.

7. An increase in the amount of Federal grants made available to Statesand localities in periods of high employment under the countercyclicalrevenue sharing program.

These various components of the President's proposal were designed toprovide stimulus in both 1977 and 1978. A 2-year program wras needed fora continuing improvement in sales and income. Yet it was necessary topreserve sufficient policy flexibility so that the program could be adjustedup or down as circumstances required. The rebate would add immediatelyto consumer income and therefore allow the stimulus to take effect quickly.The other tax cuts, together with the expansion of CETA jobs, State andlocal fiscal assistance, and public works, would take effect more gradually,spreading across the last half of 1977 and into 1978. The increases in spend-ing were designed to phase down as unemployment declined; and perma-nent tax reductions were held to a minimum to allow more time to con-sider longer-run budget priorities and the desirability of additional tax cutsin conjunction with tax reform.

THE STIMULUS PROGRAM ACTUALLY ENACTED

Review of the economic situation and the stimulus measures by both theCongress and the Administration in the late winter and early spring led tosome revisions in the original proposal. In view of the substantial improve-ment in the rate of expansion of total output and consumer spending in theearly part of the year, it was felt that the one-time rebate, which had beendesigned to give a quick boost to spending, was no longer necessary. TheAdministration withdrew the proposal in April. In the absence of the rebatefor individuals, it was felt that the optional business tax credits were nolonger appropriate. The removal of these two items reduced the total size ofthe Administration's proposed stimulus package by $14 billion.

The tax reduction components of the stimulus program that was enactedwere incorporated in the Tax Reduction and Simplification Act of 1977.This bill, which became law in late May, included the following items:

1. A permanent increase in the personal standard deduction to a flat$2,200 for single individuals and heads of households and a flat $3,200for married couples filing jointly.

2. A nonrefundable employment tax credit for 1977 and 1978 equal tothe lesser of one-half the wage or $2,100 for each new employee hiredafter growth in the firm's wage bill, as specified in the act, exceeds2 percent. (The wage bill is total wages paid up to $4,200 per em-ployee.) The total credit available for any one year cannot exceedeither $100,000 or 25 percent of the firm's Federal unemploymenttax base. Unused credits are subject to carry-back and carry-forwardrules in effect for the investment tax credit. The employer's normal

51


tax deduction for wage costs is reduced by the amount of the employ-ment credit.

3. Extension through the end of 1978 of several tax reduction measuresenacted in 1975 and 1976: the general personal income tax credit,the 10-percent earned income tax credit for low-income families withdependents, and the reduction in the corporate tax rate from 22 to20 percent on the first $25,000 of corporate income and from 48 to22 percent on the second $25,000 (the rate remains at 48 percent forearnings above $50,000).

4. An increase in funds for countercyclical revenue sharing in 1977 and1978, and an adjustment of the formula under which the funds aredistributed to State and local governments to emphasize local unem-ployment rates.

5. Several miscellaneous changes in the tax code and modifications ofprovisions in the Tax Reform Act of 1976.

The remaining parts of the stimulus program—the expansion of publicworks, public service employment, and other employment and training pro-grams—were generally approved as requested in authorizing legislationenacted during the spring of 1977 and funded by the Economic StimulusAppropriations Act. Table 3 shows the budgetary impact of the programpassed by the Congress, on a basis consistent with the Federal budget docu-ment submitted in January 1978.

TABLE 3.—Budgetary impact of the economic stimulus program, national incomeand product accounts, calendar years 1977—78

[Billions of dollars)

Program 1977 1978

TotaL

Tax programs:Change in standard deduction and other.Business tax incentives

Expenditure programs:Grants-in-aid to State and local governments.

Training and youth programsPublic service employmentCountercyclical assistanceLocal public works

6.1 16.9

4.93.31.6

1.2.0.7.5.0

9.97.42.6

7.<f1.33.5.6

1.6

Sources: Department of Commerce (Bureau of Economic Analysis) and Office of Management and Budget.

FEDERAL EXPENDITURES IN 1977

Total Federal Government expenditures rose by 9J/2 percent in 1977(Table 4), up slightly from the growth in 1976.* As noted earlier, beginningin the second quarter, growth in real Federal defense and nondefense pur-chases was the most rapid since the mid-1960s and was an important factorin sustaining real growth in the economy during the year.

^Unless otherwise noted, reference is to calendar years and to the Federal sectorin the national income and product accounts (NIPA).

52


Grants to State and local governments grew somewhat less rapidly thanpurchases. Most of the growth in grants occurred in the second half of theyear, in part as a result of the expenditure components of the President'sstimulus program. The growth in Federal transfer payments in 1977 wasslowed by declining outlays for unemployment insurance; other social insur-ance expenditures rose enough for benefits to keep pace with the increase inthe general price level.

TABLE 4.—Federal Government receipts and expenditures, national income andproduct accounts, calendar years 1976-77

[Billions of dollars]

Receipt or expenditure category 1976 19771

Federal Government receipts. 332.3 373.9

Personal tax and nontax receiptsCorporate tax accruals - _Indirect business tax and nontax accruals..Contributions for social insurance..

Federal Government expenditures

Purchases of goods and services-

National defense.Nondefense

Transfer payments..

To personsTo foreigners..

Grants-in-aid to State and local governmentsNet interest paidSubsidies less current surplus of government enterprises.

147.355.923.4

105.7

386.3

130.1

86.843.3

162.0

158.83.2

61.027.25.9

170.759.524.8

118.9

423.5

145.4

94.351.1

173.1

169.83.2

67.629.57.9

Surplus or deficit ( - ) . - 5 4 . 0 - 4 9 . 6

1 Preliminary.Note.—Detail may not add to totals because of rounding.Source: Department of Commerce (Bureau of Economic Analysis).

FEDERAL RECEIPTS AND THE DEFICIT IN 1977

Federal receipts rose by $41.6 billion in 1977, a somewhat smaller increasethan occurred in 1976. The growth was unevenly distributed over theyear, with a very large increase in the first quarter and much smaller onesin subsequent quarters. The abnormally large $20.4-billion (annual rate)increase in the first quarter was due to an extra $4 billion in payroll taxincreases and a nonrecurring $5.5-billion increase in estate and gift taxes.The additional payroll taxes were the result of the temporary 0.2 per-centage point increase in the Federal unemployment insurance (UI) taxrate mandated by the Unemployment Compensation Amendments of 1976,increases in State unemployment insurance taxes—which are counted inthe Federal sector—to meet the higher costs of unemployment benefits paidduring the recession, and an automatic rise in the taxable wage base for socialsecurity. The increase in estate and gift tax collections occurred in responseto the revisions made in the Tax Reform Act of 1976. Since gifts were treatedmore liberally under the old law, there was an incentive to cluster gifts at

53


the very end of 1976, before the new law came into effect. The receipts werecollected in early 1977.

The reduction in the rate of increase in receipts during the remainder ofthe year reflected the personal and corporate tax cuts enacted as part ofthe stimulus package. For the year as a whole personal taxes and contribu-tions for social insurance grew the most rapidly. Together they now accountfor 77 percent of total Federal receipts, compared with 60 percent in 1957.Most of this increase results from legislated increases in social insurancetaxes. Periodic tax reductions have maintained the share of personal taxesin total Federal receipts at a fairly constant 45 percent over the past 20years, offsetting the rise that would have resulted otherwise because of theprogressivity of this tax. The total Federal tax share of GNP rose from 19.5percent in 1976 to 19.8 percent in 1977.

The Federal deficit on a national income and product accounts (NIPA)basis declined in 1977 for the second year in a row, falling to $49.6 billion forthe year. This was $9.5 billion smaller than the deficit projected in Feb-ruary, even after adjusting for withdrawal of portions of the stimuluspackage.

Several tax changes became effective on January 1, 1978, as a result ofpreviously enacted legislation. The wage base subject to unemployment in-surance taxes increased from $4,200 to $6,000 per worker. This change isnecessary to keep receipts rising in line with the higher unemployment insur-ance expenditures. The maximum amount of wages subject to social securitytaxes was also raised from $16,500 to $17,700 and the total tax rate increasedfrom 11.7 to 12.1 percent. The Social Security Amendments of 1977 providefor major increases in social security taxes, but they are not to take effectuntil 1979 and subsequent years. Finally, the Federal excise tax on telephoneservice was reduced from 5 to 4 percent.

THE HIGH-EMPLOYMENT BUDGET

Table 5 shows the high-employment Federal budget for recent years. Thisbudget shows the difference between total receipts and expenditures underthe assumption that the economy is operating at a constant high-employ-ment level. The use of high-employment GNP as the level of activity under-lying this hypothetical budget is a convenient but arbitrary convention. Thepurpose is to adjust the budget for cyclical changes in the economy, andthis could as well be accomplished using any other trend path of GNP. Thehigh-employment budget eliminates changes in receipts that occur auto-matically in response to the cyclical behavior of output and employmentleaving only those changes due to discretionary fiscal policy and to thesecular growth of output and prices. Automatic changes in unemploymentcompensation payments are excluded from high-employment expenditures;expenditures resulting from new programs, including those explicitly forcountercyclical purposes, are included.

54


TABLE 5.—Actual and high-employment Federal receipts and expenditures, nationalincome and product accounts, calendar years 1970-77

[Billions of dollars; quarterly data at seasonally adjusted annual rates]

Calendar year

1970—19711972 .197319741975....197619771

1977: 1IIIII

Actual

Receipts

192.1198.6227.5258.3288.6286.9332.3373.9

364.9371.2373.2

Expendi-tures

204.2220.6244.7265.0299.3357.1386.3423.5

403.7411.5432.1

Surplus or deficit (—)

Amount

-12 .1- 2 2 0-17 .3- 6 . 7

-10 .7-70 .2-54 .0-49 .6

-38 .8- 4 0 . 3-58 .9

PercentofGNP

- 1 . 2- 2 . 1- 1 . 5- . 5- . 8

- 4 . 6- 3 . 2- 2 . 6

- 2 . 1- 2 . 2- 3 . 1

High-employment

Receipts

201.1209.5232.1256.6306.1326.0363.8401.9

397.1398.8399.3

Expendi-tures

203.8219.4243.9264.9298.3350.3381.1419.8

399.2407.8428.4


Amount

- 2 . 7- 9 . 9

-11 .8- 8 . 3

7.8-24 .2- 1 7 . 3-17 .9

- 2 . 1- 9 . 0

-29 .1

Percentof GNP2

- 0 . 3- . 9

- 1 . 0- . 6

.5- 1 . 4- 1 . 0- . 9

- . 1- . 5

- 1 . 4

1 Preliminary.2 High-employment surplus or deficit as percent of high-employment GNP.Note.—Detail may not add to totals because of rounding.Sources: Department of Commerce (Bureau of Economic Analysis), Office of Management and Budget, and Council of

Economic Advisers.

The restrictive shift of fiscal policy in the first quarter of 1977 and thesubsequent expansionary swing are reflected in the high-employment budget.Even excluding the nonrecurring increase in gift taxes, the high-employ-ment deficit fell by $8.4 billion to $2.1 billion in the first quarter. Thereafterit rose to $29.1 billion in the third quarter. From the end of 1976 to the thirdquarter of 1977 the high-employment deficit rose by $13.0 billion, while theactual deficit rose by only $3.0 billion. The difference is a measure of theextra increase in receipts and reduction in expenditures generated by thecyclical increase in GNP toward its high-employment path.

The change in the high-employment surplus is a convenient measure ofwhether fiscal policy is moving in a contractionary or expansionary direction.A shift in fiscal policy may result either explicitly from discretionary changesin taxes or expenditures, or implicitly from normal growth in real outputand prices, which automatically lifts revenues by more than expenditures.Hence, if fiscal policy is to remain unchanged in its effects on the privateeconomy, regular discretionary reductions in taxes or increases in expendi-tures are necessary to neutralize this fiscal drag.

The level of the high-employment surplus or deficit consistent with main-taining high-employment output depends on the balance between non-Federal saving and investment that would occur at that level of economicactivity. An imbalance must be accommodated by the Federal surplus ordeficit, or be corrected by the effects of monetary policy or other measures.There is no given level of the high-employment surplus that is suitable inall situations. In particular, just as a balanced actual budget is often nota desirable objective of fiscal policy, a balanced high-employment budget

55


will only on occasion be appropriate. As discussed in more detail in Chap-ter 2, the appropriate level of the high-employment surplus or deficit in theFederal budget depends on the spending decisions of the private sector andof State and local governments, and on the factors affecting the foreigntrade balance.

The appropriate path of the high-employment surplus must take intoaccount the movements of actual output relative to the high-employmenttrend. When the economy is recovering from recession, investment tends tobe restrained by both current and past levels of excess capacity, and a morestimulative fiscal policy is necessary to raise capacity utilization. As privatedemand gains momentum and the economy approaches high employment,the high-employment Federal budget should move closer toward, or into,balance to make room for accelerating private investment. The desirablelevel and rate of change of the high-employment budget also depend, ofcourse, on the stance of monetary policy and other circumstances specific toany given period.

The high-employment budget should not be interpreted as a precise meas-ure of the Federal sector's impact on the economy. In the first place, differenttypes of taxes and expenditures have widely differing impacts on income andoutput. For example, an increase in Federal purchases yields larger gains inoutput than an increase in transfer payments or a reduction in taxes. Simi-larly, some kinds of tax reductions tend to have a larger stimulative effectthan others. Secondly, the effects on aggregate demand of a given tax changewill depend on the stage of the business cycle because of the cyclical vari-ability of income shares. Nevertheless, the high-employment budget is a use-ful simple indicator of the direction of fiscal thrust.

MONETARY POLICY

Short-term interest rates rose fairly sharply from April through Octoberof last year, following an unusual period of downward drift during thefirst 2 years of the current expansion. Nonetheless, financial markets showedfew signs of stress during 1977. Deposit flows to thrift institutions remainedfairly high, although some slowing was apparent late in the year. Mortgagecredit rose rapidly and there were few signs of tightening of mortgage terms.The volume of new corporate bond issues was down slightly from the pre-ceding year as businesses shifted somewhat toward mortgages and shorter-term borrowing. The yields on new corporate bonds and on long-termTreasury issues rose in the first quarter but then remained stable untillate in the year, when a further increase occurred. State and local bondyields drifted slightly lower in 1977, despite a considerable increase inofferings. On balance, the strong liquidity positions and ample cash flowof major lending institutions early in the year limited the upward move-ment of long-term rates and accommodated substantial credit flows, thoughat rising costs to many borrowers.

56


The sharp increase of almost 2 percentage points in the Federal fundsrate between April and October was unsettling, however, both because of itsspeed and because of uncertainties about its implications for the future ofinterest rates. From March through October the narrowly defined moneysupply (M b the sum of demand deposits and currency) grew erratically butrapidly, averaging a 10-percent annual rate. This was substantially fasterthan the 6 l/i -percent upper limit of the target growth range announced bythe Federal Reserve at the end of 1976 for the year ahead. Consequently, theFederal Reserve moved to tighten the availability of bank reserves, whichled to increases in the Federal funds rate and other short-term interest rates.

The unusually rapid growth of Mi in 1977 was sharply at variance withthe pattern of growth during the first 2 years of the current expansion.During that earlier period money growth had been unusually slow relativeto nominal GNP. The resulting rapid rise in velocity (the ratio of GNPto Mi) was accompanied by stable or slightly declining interest rates, in-dicating that the private sector was developing new means for economizingon cash balances (see discussion later in this chapter). Questions arose dur-ing the year concerning the possibility that the unusual velocity patternwould not continue. If velocity growth were returning to a historically morenormal pattern, further increases in interest rates would be required to holdgrowth of the monetary aggregates within the Federal Reserve's targetranges.

INTEREST RATES AND SECURITY YIELDS

Movements of virtually all short-term interest rates tended to follow theFederal funds rate during the year, rising from late spring through earlyfall and then leveling out through December. During the year as a wholethe rate on 3-month Treasury bills rose from 4.5 to 6.1 percent. The primerate charged by banks on short-term business loans followed, rising from6*4 percent to 7% percent. There were, however, reports of shading ofthe prime rate, as banks sought to expand their business loans.

Long-term interest rates were relatively stable during the year, afterdeclining rapidly in the preceding 2 years. The yield on newly issued Aaa-rated utility bonds averaged 8.2 percent, compared with an average 8.5 per-cent during 1976. The yield for 20-year Treasury securities rose unevenlyfrom a January low of 7.5 to 7.9 percent in December, but averaged 7.7percent for the year, compared with 7.9 percent in 1976.

Corporations had no apparent difficulties in marketing new debt issues,for there was ample demand from both financial institutions and individualswary of common stocks. Although the yield curve became substantiallyflatter, as short rates rose relative to long, the curve remained positivelysloped particularly within the 1-year range. This resulted in part from thefact that bond market participants expected some further rise in short rates.

Interest rates on municipal bonds were an exception to the general patternof interest rates: yields on lower-rated tax exempt bonds continued to fall.Yields on Baa-rated municipal bonds fell from 6.7 percent in December 1976

57


to 5.8 percent in December 1977. as investors' fears of municipal bank-ruptcies abated. Inflation also pushed more incomes into the range wherethe tax exemption is valuable, and the growth of tax exempt mutual fundsoffered individuals greater access to the municipal bond market. This down-ward movement of yields was not shared by the more highly rated munic-ipals: the yield on Aaa bonds fluctuated in a narrow band of 5.1 to 5.3percent.

Despite relatively stable long-term interest rates and rising profits, manystock prices fell in 1977. The widely quoted Dow-Jones average of selectedindustrial stock prices fell from 1005 at the end of 1976 to a 1977 low of801 in early November. The broader New York Stock Exchange compositeindex fell by 14 percent over the same period. Stocks with low price-earningsratios and high dividend yields generally did better than others. The securi-ties dealers' index (NASDAQ) rose during 1977 by over 7 percent. Therehave been a number of reasons for the decline in many stock prices in theface of rising corporate earnings. Fears of unfavorable changes in tax laws,particularly with respect to capital gains taxes, and uncertainties about thefinal form of other policy measures, such as the energy bill, undoubtedlyplayed a part. The dominant factors affecting stock prices, however, wereprobably rising interest rates and fears of an economic slowdown.

The condition of the stock market is both a symptom of economic uncer-tainties and a source of economic problems. A lower value of corporateshares makes it expensive for corporations to raise new equity to financenew plant. It also creates an incentive to use internal funds to buy debt orequity investments, rather than make new investment in real assets. Thereduction in wealth may also reduce other components of aggregate demand,and this in turn further reduces the incentive for investing in new plant.

SAVINGS FLOWS, CREDIT AVAILABILITY, AND USES OF FUNDS

Business credit availability remained ample at commercial banks, insur-ance companies, and pension funds. The latter two classes of institutionshave been active lenders in the new issues markets, as the funds available tothem rose during 1977.

Although new corporate long-term bond issues were down slightly from1976, the rise in new commercial mortgages offset this decline. Short-termcorporate borrowing from commercial banks and finance companies rosemore rapidly in 1977 than earlier in the recovery. Nevertheless, total busi-ness borrowing needs remained moderate.

While M1 growth rates rose during the course of 1977, the growth rateof time and savings deposits at commercial banks (other than negotiablecertificates of deposit at large commercial banks) fell. For the 6 monthsending in March 1977, the growth rate of these deposits was 15.8 percent,at an annual rate. For the 9 months ending in December the growth rateslowed to 9.3 percent. There was some outflow from State and local savingsaccounts and growth in personal savings accounts slowed. The rate of sav-

58


ings flows at thrift institutions slowed late in the year, falling from a 14.8percent anual rate through October to about 11 percent in the final 2months of the year. It might have slowed earlier but for the success of thethrift institutions in capturing funds previously held at banks in the "wildcard" certificates that were issued in 1973 and matured last summer. As aconsequence of continued inflows during the major part of the year, mort-gage credit remained readily available.

The continuation of strong savings flows at thrift institutions duringmost of the year was attributable to several causes. Short-term rates re-mained below the levels of the previous business cycle peak in November1973 and were generally below the regulatory ceilings on deposits until latein the year. The response of the public to changes in relative interest rates islikely to be gradual at first and then to gain momentum when interestrates approach or surpass previous peaks.

It is also important that the deposit and liability structure of financialintermediaries has changed substantially since 1973, the last period of creditmarket tightness. On the deposit side, the institutions rely less on pass-book accounts, and more on long-term certificates of deposit. At savingsand loan associations, for example, passbook accounts fell from over 50percent of deposits in late 1972 to under 40 percent in 1977. At the otherend of the maturity range, long-term certificates have become moreimportant.

This movement to longer maturities has created a more stable depositstructure. Most obviously, certificate deposits are virtually locked in untilthe certificate matures, since the penalties for early withdrawal are severe.In addition, the yield curve embodied in the interest rate ceilings imposedby the Federal Reserve (Regulation Q) , the Federal Deposit Insurance Cor-poration, and the Federal Home Loan Bank Board is somewhat steeperthan the current yield curve on market securities. As a result, althoughmarket rates were above effective ceilings at the shorter end of the maturityrange late in the year, ceilings on the long maturity certificates were stillabove market yields on comparable-maturity government securities.

In previous periods of credit stringency, thrift institutions were also in apoor position to pay rates high enough to attract funds. The average mort-gage held by savings and loan associations yielded only 7 percent at the endof 1972. By mid-1977 this had risen to over 8 percent. As a result thrift in-stitutions are better positioned to attract high-cost funds than they werepreviously.

Reflecting the ready availability of mortgage credit, mortgage borrowingsrose sharply in 1977. The substantial excess of mortgage borrowings overthe value of new residential construction may indicate that some funds werepulled out of the housing market and used to support consumption ex-penditures or buy financial assets. By mid-1977, mortgages outstanding hadreached 45 percent of personal income, above the historic peak of 44.3percent reached in 1965 (Table 6). Consumer credit outstanding reached

59


TABLE 6.—Mortgage and consumer debt outstanding as percent of disposablepersonal income, 1974—77

Period

1974

1975

1976

1977: First 3 quarters.

[PercentJ

Debt

Total

62.4

60.3

61.3

63.5

Mortgage

43.5

42.6

43.4

45.1

Consumer

18.9

17.7

17.8

18.4

Sources: Department of Commerce (Bureau of Economic Analysis) and Board of Governors of the Federal ReserveSystem.

I8J/2 percent of disposable income in mid-1977, up substantially from 1976but still below the 1973-74 peak.

Although the total Federal deficit of $45 billion in fiscal 1977, on aunified budget basis, was down from the $61 billion of fiscal 1976, theFederal Government remained a large borrowing sector. This large Federaldeficit was substantially offset, however, by the $27-billion surplus of Stateand local governments (including both operating and social insurancefunds) during the same 4 quarters. The total government deficit (on aNIPA basis) was $18 billion for fiscal 1977. In addition, about $25 billionof Federal debt was purchased for foreign official accounts.

State and local government issues continued to grow as marketing becameeasier. These governments, however, bought more financial assets, primarilyTreasury securities, than they sold. Some of the securities purchased werespecial issues, as State and local governments utilized the limited legal oppor-tunities to issue new tax exempt securities of their own, in advance ofmaturing issues, investing the proceeds in special taxable Treasury issues.

THE STATE OF THE ECONOMY AT YEAR-END

Prospects for continued expansion were favorable as 1977 came to a close.The sectors of the economy were in good balance, inventories were relativelylean, and the balance sheets of businesses and financial institutions werestrong. Nevertheless much remains to be accomplished to achieve theNation's economic goals. The great resources of the U.S. economy are stillincompletely utilized. Since the cyclical peak in the fourth quarter of 1973,growth in real output has averaged 2.3 percent per year. This is an ab-normally slow rate of growth for a 4-year period. Capacity utilization inmanufacturing still hovers 4 to 5 percentage points below levels that, in thepast, have been consistent with high employment, and its low level is con-tributing significantly to lagging profit growth and a rate of investment thatis too low to meet long-run needs.

60


The unemployment problem remains one of the most critical facingthe Nation. Not only is the aggregate rate too high, but the composition ofunemployment implies that recovery is bypassing some segments of society.Young people and minorities, in particular, continue to account for a dis-proportionate share of the unemployed, and continued rapid growth ofdemand may make only small inroads into this problem. It is important toidentify and correct the imperfections in labor markets that limit the employ-ment opportunities of these groups if prosperity is to be equitably shared.

Progress in curbing inflation has also been painfully slow because it hasproved difficult to reverse the momentum that develops when past inflationcomes to be expected. Stabilizing the rate of inflation is an important firststep. Reducing the rate further remains a challenging goal.

Continued and accelerated growth in productivity is also required bothas a major contributor to the reduction of inflation, and in order to sustain orenhance the U.S. position in international trade. Stronger growth of invest-ment will be required to achieve this objective, as well as to avoid capacitybottlenecks at future levels of high employment, to accommodate needs forenvironmental control equipment, and to adapt to changing technologicaland cost conditions affecting particular areas and industries.

A critical challenge remaining at the end of 1977 is a successful shifttoward greater energy self-sufficiency. This must entail both conservation ofexisting resources of oil and gas and conversion to more abundant alternativeenergy sources. Passage of the Administration's National Energy Plan andthe help of all sectors of our economy in its implementation are the first stepsin laying the foundation for secure economic growth over the comingdecades.

SPECIAL ISSUES

A number of special issues occupied the attention of economic policymakers and observers during the past year. These issues require separateconsideration not only because of their importance for interpreting theevents of 1977 but also because of their significance for the entire recoveryand for its continuation. These issues include developments in financial mar-kets that affect the uses of money balances and their implications for mone-tary policy, the ability accurately to control and forecast Federal Govern-ment expenditures, and the underlying strength of investment propensitiesin the U.S. economy.

MONEY GROWTH AND VELOCITY

Velocity, the ratio of GNP to Mi, rose by 8.3 percent in the first year ofrecovery, and by 3.5 percent in the second year, which ended with thefirst quarter of 1977. These are exceptional increases for a period wheninterest rates were not increasing. Customarily the increases in velocity dur-ing cyclical expansions are in part the result of rising interest rates that lead

61


to economizing of money balances. Velocity increases during the first 2 yearsof the current expansion occurred despite declines in short-term interestrates. Thus the behavior of velocity in the current recovery stands in sharpcontrast to previous cyclical patterns. This contrast is shown in Chart 1.

Shifts in velocity, or the relation of money demand to income and interestrates, complicate the implementation of monetary policy. For example, adecline in interest rates could indicate a reduction in the public's preferencesfor money holdings or a weakening in the pace of economic activity. Theappropriate response to the former shift might be slower growth in the moneysupply, while the response to the latter might be more stimulative monetarypolicy. Developments influencing the relation of money balances to theusual determinants of money demand consequently have significant policyimplications.

Chart 1

Velocity and Interest Rates Overthe Business Cycle

CYCLICAL PEAK=100

90 J L

AVERAGE OF 4PRECEDING CYCLES^/

l I I I J LPEAK 4 8

CHANGE FROM CYCLICAL PEAK (PERCENTAGE POINTS)

4

2

12 16

TREASURY BILL RATE^

CURRENT CYCLE

-2AVERAGE OF 4

PRECEDING CYCLES-2^

- 4 I l I I J_PEAK 4 8 12 16

QUARTERS AFTER PEAK

U RATIO OF GNP TO Mi (DEMAND DEPOSITS PLUS CURRENCY); SEASONALLY ADJUSTED.U SINCE THE SHORTEST PEAK-TO-PEAK PERIOD IS FROM 1957 III TO 1960 II, THE AVERAGE OF THEPRECEDING CYCLES IS CUT OFF ELEVEN QUARTERS AFTER THE PEAK.1/ MARKET YIELD ON 3-MONTH BILLS.

SOURCES: DEPARTMENT OF COMMERCE AND BOARD OF GOVERNORS OF THE FEDERALRESERVE SYSTEM.

62


The behavior of velocity in the current recovery cannot be completelyexplained by the behavior of the factors that usually determine moneydemand. Most statistical analyses that served to explain money demand inthe 1950s and 1960s overpredict money demand for the period from late1974 through early 1977. Many reasons have been suggested for the apparentdownward shift in money demand relative to GNP. The principal causeappears to be changes in cash management techniques of businesses andindividuals. Some of the more frequently suggested factors are summarizedbelow:

1. The high interest rates of 1973-74 encouraged the public to instituteprograms to conserve on money balances. When rates fell, these pro-grams were not dismantled. As a result the amount of money de-manded did not return to its earlier relation to GNP.

2. The growth of cash management services offered by banks has reducedcorporations' demand for cash. These services allow corporations tokeep demand deposits at minimal levels. For example, some banksautomatically invest any excess funds in overnight repurchase agree-ments for some large corporate customers.

3. The growth of negotiable order of withdrawal (NOW) accounts,money market mutual funds, and credit union share drafts has ab-sorbed funds that would otherwise have gone into demand deposits.

4. The growth of corporate and State and local government savings ac-counts may have absorbed funds from demand deposits.

5. The growing availability and use of overdraft accounts and credit cardshave reduced individuals' needs to keep large demand deposit bal-ances. Growing use of telephonic transfers of funds from savingsaccounts to demand balances and third-party transfer arrangementshave worked in the same direction.

The size of these influences is difficult to determine. The volume of newdeposit instruments (NOW accounts, money market funds, credit unionshare drafts, and corporate and State and local government savings accounts)is between 5 and 10 percent of M1? but some portion of these funds wascertainly drawn from sources other than demand deposits. The size of theimpact of the other potential causes is largely conjectural.

The broader definitions of the money supply, ML> and M3, have shownmuch less evidence of a shift in money demand. M2 includes, in addition toMi, time and savings deposits at commercial banks, other than large negoti-able certificates of deposit at large banks. M3 includes, in addition to M^,deposits at thrift institutions (mutual savings banks, savings and loan asso-ciations, and credit unions).

The growth rates of the more broadly defined money stocks have generallybeen closer than Mi to the target ranges set by the Federal Reserve for 1977From the fourth quarter of 1976 to the fourth quarter of 1977, M2 grew by9.6 percent, at the high end of the target range of 7 to 10 percent, and M3 by11.6 percent, slightly above its range of 8^2 to 11 l/i percent.

63


Since April, the behavior of velocity of Mi has been more generally inline with the trend from the early post-World War II years to 1974. Fol-lowing the sharp growth of Mi in the second and third quarters, moneygrowth in the fourth quarter slowed to a 7-percent annual rate. Given theincrease of about three-fourths percentage point in short-term interest rates,and the 10.7-percent rate of growth of nominal GNP, this growth in M3

appears consistent with the relationship between money demand and GNPthat prevailed prior to 1974. The pattern of velocity in the last 3 quartersof 1977 may indicate that the effects of structural changes in financialmarkets are no longer growing, though it is too early to be certain.

FEDERAL SPENDING SHORTFALLS

Federal spending in 1977 fell short of the levels projected in the newAdministration's budget. This is consistent with a tendency for the Federalbudget in January of each year to overestimate the level of expendituresfor the current year. In 6 of the last 8 years, actual spending, as measured inthe NIPA accounts, has fallen below the level projected in the Januarybudget by amounts ranging from $0.4 billion to $7.6 billion (Table 7).In fiscal 1977 the shortfall was $13.7 billion, measured from the new Admin-istration's projections sent to the Congress in February. This was 3.3 percentof actual spending.

Although it is desirable to increase efficiency and minimize costs in theprovision of Federal Government services, unanticipated shortfalls in ex-penditures can undermine effective implementation of fiscal policy. Short-falls may have adverse effects on real economic activity because fiscal policybecomes less expansionary, or more restrictive, than was intended when thebudget was planned. A number of steps are involved in the formulation andimplementation of fiscal policy. Projections are made of the likely course ofprivate demand and nondiscretionary government spending. These are bal-anced against the economy's supply capabilities. The discretionary changes

TABLE 7.-—Comparison of projected and actual Federal expenditures, nationalincome and product accounts, fiscal years 1970-77

[Billions of dollars, except as noted]

Fiscal year

19701971197219731974197519761977 . . . . .

Projection *

196.0212.4238.2259.7286.4324.3378.7425.5

Actual

195.6212.7232.9256.2278.8328.7372.3411.8

Actual less projection

Amount

- 0 . 4.3

- 5 . 3- 3 . 5- 7 . 6

4.4- 6 . 4

- 1 3 . 7

Percent ofactual

- 0 . 2. l

- 2 . 3- 1 . 4- 2 . 7

1.3- 1 . 7- 3 . 3

1 Projections made in the Budget of the United States Government published in January of the current fiscal year,(February Budget used for 1977), adjusted for revisions by applying projected percent changes to revised data.

Sources: Department of Commerce (Bureau of Economic Analysis), Office of Management and Budget, and Council ofEconomic Advisers.

64


in taxes or spending required to achieve the desired fiscal stance must bedetermined in light of these projections. Adjustments are, of course, madein the fiscal program by both the Congress and the Administration betweenpresentation of the budget in January and the period to which it applies,which begins 9 months later and ends 21 months later. Nevertheless theprocess of changing taxes and expenditures is not sufficiently flexible toallow rapid adjustments to unanticipated fluctuations in Federal outlaysfor basic activities. Reliable expenditure projections are necessary if fiscalmeasures are to be controllable and effective policy tools.

The magnitude of the effects of shortfalls on the real economy depends onwhich categories of spending are affected. A shortfall in purchases will havethe strongest negative impact because they directly affect economic activity.Underspending in transfers and grants will have a smaller effect, since theyare received by individuals and State and local governments, who spend onlya part of their receipts. Shortfalls in financial transactions and other assettransfers—which are included in the unified budget, but not in the Federalsector in the national income and product accounts shown in Table 7—haveonly an indirect effect on aggregate demand. Nevertheless shortfalls infinancial transactions do directly affect the size of the total Federal deficitthat must be financed by the Treasury. Uncertainties about borrowingrequirements resulting from inaccurate estimates of the Federal deficit maybe unsettling to financial markets.

The existence of periodic shortfalls may be explained partly by difficultiesin forecasting with precision certain key economic and demographic vari-ables that determine spending levels—for example, the rate of inflation andthe numbers eligible for various transfer programs. In addition, the timingof legislation necessary to implement parts of the budget may be hard toforecast. In principle, however, there should be no reason why these prob-lems should cause a systematic bias in expenditure estimates.

Nonetheless, there is an apparent upward bias in Federal spending pro-jections. There are several possible explanations for this phenomenon. First,agencies naturally tend to be overly optimistic about their current-yearspending estimates, because authorizations for the following year oftendepend on actual outlays for the current year. Second, there is also a tend-ency to overestimate the spend-out rates for new program initiatives, bothbecause of the lack of experience with the new programs and because ofoptimism about their likely success. For example, it was originally estimatedthat $0.6 billion would be spent on public works in 1977 under the in-creased authorization contained in the stimulus package. In fact, spendingwas negligible, although commitments by the Federal Government for specificlocal projects were completed on schedule. Finally, there are no formalpenalties in the Federal budget system for errors in estimating outlays. Thespending ceilings in the Congressional Budget Resolutions are a constrainton legislative appropriations but they do not constrain Administration esti-mates of outlays.

65


Since these institutional forces are largely beyond effective control, it islikely that administrative agencies will always tend to overestimate outlays.Nevertheless steps are being taken to mitigate this problem. First, there mustbe regular monitoring and scrutiny of agency budgets by the Office of Man-agement and Budget (OMB) to ensure that their outlay projections reflectthe best information available. Revised outlay estimates for fiscal 1978 pub-lished last November identified $11 billion in reductions from estimatesmade the previous July. Second, to the extent that a regular pattern remainsin the difference between actual and predicted levels of Federal spending,adjustments can be made to reflect this in fiscal policy decisions. Continuingefforts by OMB, in cooperation with Federal agencies, can result in morereliable estimates and will improve fiscal management.


Real business fixed investment has grown very slowly over the past 4years in comparison with its performance in earlier business cycles in thepost-World War II period. In the final quarter of last year, real investmentoutlays were 2 percent below their level at the business cycle peak in thefinal quarter of 1973. At the comparable stage in four previous cyclicalrecoveries (excluding the 1957-60 cycle, which is too short for comparison),real business fixed investment averaged 14 percent above its level at theprevious cyclical peak.

In large measure, the lag of business capital outlays results from the depthof the last recession—the most severe in the post-World War II period—and its effects on many of the determinants of investment. Investment instructures, however, has been significantly below expectations and has pulleddown the investment total. Furthermore, surveys of plans for investmentin 1978 do not at the present time suggest the strength that would normallyhave developed after a sustained period of increases in capacity utilizationand in profits.

The investment performance in the current expansion is disturbing fortwo reasons. First, strong investment is needed to sustain economic expan-sion and keep the economy moving toward high employment. Higher levelsof investment spending during the expansion to date would have made awelcome contribution to total demand. Second, sluggish investment impliesslow growth of capacity. Although measurement of capacity is necessarilyimprecise, estimates of the growth of capacity in manufacturing industriesindicate that growth has slowed in recent years. This growth averaged 4.0percent from 1968 to 1973 and has fallen to 2.9 percent from 1973 to 1977.In view of the large growth of employment needed in the years ahead toreach unemployment targets in the face of rapid labor force growth, a fasterexpansion of capacity than the 1973-77 pace will be required to avoidcapacity bottlenecks at high employment. Investment must rise as a share oftotal GNP in coming years in order to achieve adequate growth of capacity.

66


Chart 2 compares the ratio of real business fixed investment to realGNP with its average over four previous recoveries. There has been a sharpdecline in this ratio from the unusually high 1973-74 peak. This peakoccurred when capacity shortages were providing a strong incentive forinvestment spending. Investment spending declined more slowly relativeto real GNP in the 1974-75 recession than in previous downturns, but itsultimate decline was greater. The recovery of investment relative to GNPwas also slower than normal through the end of 1976, 12 quarters after thecyclical peak. The ratio at the end of 1977, however, was 9.6 percent, or0.1 percentage point above the average of this ratio at a comparable stageof four previous cycles. This comparison overstates the amount of invest-

Chart 2

Investment and Capacity UtilizationOver the Business Cycle

PERCENT12

REAL BUSINESS FIXED INVESTMENT ASPERCENT OF REAL GNP

10

AVERAGE OF 4S PREVIOUS CYCLES

0 I I i i i I I I I I I I I iPEAK

PERCENT12 16

90

80

MANUFACTURING CAPACITY UTILIZATION

AVERAGE OF 4PREVIOUS CYCLES

I I I I I I I

CURRENT CYCLE

J I I I I iPEAK 4 8 12 16

QUARTERS AFTER PEAKNOTE: SEASONALLY ADJUSTED. AVERAGE OF 4 PREVIOUS CYCLES INCLUDES THOSE EXTENDING FROMPEAKS OF 1948 IV, 1953 II, 1960 II, AND 1969 IV.SOURCES: DEPARTMENT OF COMMERCE AND BOARD OF GOVERNORS OF THE FEDERALRESERVE SYSTEM.

67


merit that added to capacity, however, because purchases of mandatedpollution abatement equipment comprise a larger share of investment thanin the past. The ratio of real busines fixed investment, excluding pollutioncontrol equipment, to real GNP was about 9.2 percent in 1977.

The bottom panel of Chart 2 suggests that the effect of the recessionon capacity utilization is important in explaining the sluggishness in invest-ment. Capacity utilization fell dramatically in 1974-75, to the lowest levelfor any recession in the postwar period, and it remained at depressed levelslonger than in previous cycles. An improvement began in 1975, and the1976-77 upturn in investment was clearly associated with the further risein capacity utilization, although the utilization rate remained slightly belowits 1955-70 average (Table 8).

Many other determinants of investment also remain below their 1955-70averages, although they have improved considerably during the expansion.Corporate cash flow fell markedly in 1974 but recovered quite quickly andstrongly. Its ratio to GNP in 1976 and 1977 was very close to the pre-1970s

TABLE 8.—Determinants of business fixed investment, 1955—77

[Percent]

Year

19551956195719581959

19601961196219631964

19651966196719681969

197019711972..19731974

197519761977«

1955-70 average

Ratio of realinvestment to

real GNP

9.49,89.78.78.7

9.08.78.98.99.3

10.310.810.310.310.6

10.29.7

10.010.610.7

9.49.29.5

9.6

Capacity utili-zation rate inmanufactur-

ing i

87.086.283.675.081.7

80.177.381.483.585.7

89.691.186.987.086.2

79.278.183.187.684.2

73.680.282.3

83.8

Nonfinancial corporations

Cash flow aspercent of

GNP2

9.38.98.98.79.2

8.98.89.49.6

10.0

10.410.39.99.48.6

7.98.28.68.06.9

8.89.19.0

9.3

Net rate ofreturn on

depreciableassets2

15.013.311.79.5

12.3

11.211.112.713.614.7

16.216.114.014.212.8

9.910.411.512.311.3

9.510.810.6

13.0

Rate of returnon stock-holders'equity *

6.55.84.93.84.9

4.44.35.66.17.1

8.18.87.77.06.3

5.04.56.25.89.9

6.15.85.9

6.0

Ratio ofmarket valueto replace-

ment cost ofnet assets'

0.931.923.857.873

1.047

1.0221.1511.0921.2051.292

1.3561.2031.2141.2591.127

.9111.0061.0891.026.762

.750

.838

.788

1.091

1 Federal Reserve Board index.2 Cash flow calculated as after-tax profits plus capital consumption allowance plus inventory valuation adjustment.3 Profits before taxes plus capital consumption adjustment plus net interest paid divided by the stock of depreciable

assets valued at current replacement cost.* After-tax profits corrected for inflation effects divided by net worth (physical capital component valued at current

replacement cost).5 Equity plus interest-bearing debt divided by current replacement cost of net assets.6 Preliminary.

Sources: Department of Commerce (Bureau of Economic Analysis), Board of Governors of the Federal Reserve System,and Council of Economic Advisers.

68


average. This enlarged cash flow was not devoted to increased investmentearly in the expansion, however, but was used instead to reduce debt thathad risen because of heavy external financing in 1972-73 and the drop inearnings in 1974. By 1977, short-term corporate debt was much lower andliquidity was much improved.

Despite the strong rise in cash flow, the rate of return on depreciable assetsshown in the fourth column of the table did not rise correspondingly. Animportant factor in the early growth of cash flow was a strong increase indepreciation allowances, which contribute to internal funds but are notpart of net return. The rate of return on depreciable assets is also lowerrelative to cash flow in 1975-77 because depreciation allowable for taxpurposes falls below replacement cost in periods of inflation. There is a gapof about 2*/<2 percentage points between current levels of the net rate ofreturn on nonfinancial corporate capital and the 1955—70 average of 13percent. Much of the gap exists, however, because recovery is stillincomplete.

Cyclical adjustments can only approximate the effect of differing capacityutilization rates on the rate of return. They suggest, however, that if the rateof capacity utilization in 1977 had been at a high-employment level, the rateof return would also have been improved, though still below high-employment levels prior to 1970. The rate of return has fallen from thehigh level attained during the mid-1960s, but it appears to be recoveringfrom the depressed periods of the early 1970s, when profits may have beenaffected not only by slack capacity but also by price controls. Thus, strongeroverall performance of the economy holds the promise of raising the returnto capital.

Corporation taxes and interest payments are subtracted from the rate ofreturn on depreciable assets to obtain profits earned on stockholders' equity,shown in Table 8. This measure of profits differs from "book value" profitsreported by corporations, by excluding inventory profits and measuring de-preciation on a replacement-cost basis. In periods of rising prices, profitsmust also be adjusted to reflect the reduction in the real value of corporatedebt that is induced by inflation. This reduction in the real value offsetsthe part of nominal interest costs that is a premium to compensate lendersfor anticipated continuation of inflation. Although these adjustments involvea number of statistical problems, reasonable approximations can be made.As shown in the table, the after-tax return on corporate equity in 1977approximately matched the 1955-70 average. On a cyclically adjustedbasis this profit rate appears to be slightly above the 1955-70 average.

The ratio of the market valuation of the assets of nonfinancial corpo-rations to their replacement cost is a way of formulating the joint roles offinancial and nonfinancial influences on investment decisions. The re-current weakness of stock market values during the recovery, despite risingcorporate profits, has strongly influenced this ratio and may indicate un-favorable expectations shared by business managers and investors in

69


equities. A great variety of factors influence the stock market—including,of course, anticipations of economic growth and profitability and the pros-pects for all the policies that will influence them. Monetary policy may havean additional, more direct, effect through its influence on the rate of returnon alternatives to equity investment.

The ratio of market values to replacement cost has remained considerablybelow 1 throughout this recovery. This may be an indication that it is moreprofitable, on average, to buy existing financial assets than to invest in newplant and equipment. At the margin, of course, the ratio of market valueto replacement cost may be greater than the average in particular indus-tries or for particular types of equipment. For example, this is likely tobe true now for energy-intensive production processes. Old capital mayhave lost considerable value as energy prices rose, but new energy-conservingequipment could have a much higher value. Thus, enactment by theCongress of a national energy policy that clarifies the long-range relationbetween fuel prices and the prices of other inputs to production could leadto substantially greater investment than the current average ratio of marketvalue to replacement cost would indicate. Other economic policy measuresbeing proposed, tax measures in particular, may also create more favorableattitudes toward investment in both real and equity assets.

Interest rates on short- and long-term corporate debt and the earnings-to-price ratio on equities both influence the cost of funds to business, and bothare likely to influence investment decisions. In the case of interest rates,however, it is the real rate, exclusive of inflation premiums, that is relevant.On an annual average basis the interest rate on long-term bonds less therate of inflation (an approximation of the real rate of interest) and theearnings-to-price ratio on equities were both higher in 1977 than in 1973.(See Chart 5 in Chapter 2.) They moved in divergent directions between1976 and 1977—the real interest rate declined slightly while the earnings-to-price ratio rose—but parallel upward movements occurred in the courseot 1977.

Studies of investment behavior conducted by the Council in the past yearhave explored the relation of investment to a number of its measurabledeterminants—growth of output, capacity utilization, cash flow, the rentalprice of capital services, and the ratio of the market value of assets to theirreplacement cost. In order to test whether the relationship of investment tothese determinants has changed in the recent period, statistical relationshipswere estimated by econometric methods for the 1957-73 period. Projectionsfor the period from 1974 through 1977 were generated from many of theseearlier relationships. (Not all could be extended through 1977 because of lagsin data availability.) These projections produce a wide range of estimates,and all the alternative formulations involve a substantial margin of error.Conclusions about the performance of investment therefore remain uncertain.

It appears, however, that total investment outlays during the expansionhave fallen somewhat short of those implied by historical relationships of

70


investment to its determinants. Investment expenditures fell much moresharply in 1975 than would have been expected and remained depressed fora longer time. Once the upturn occurred, late in 1975, the rate of growthof investment was for a time approximately in line with econometric pro-jections. An unusually rapid acceleration would have been required, how-ever, to make up for the 1975 shortfall and this did not occur. Indeed, therate of growth appears to have drifted below the projections in the latterpart of last year, and surveys taken late last year of the investment plannedfor 1978 suggest a widening gap.

The components of business fixed investment have differed widely intheir behavior during the expansion, The level of investment in equip-ment was largely consistent with the econometric projections through early1977. Excluding the effects of strikes in the fourth quarter of 1976, thedivergence between actual and projected growth rates was probably wellwithin the margin of error for these projections. Later in 1977, however, theincrease in equipment investment appeared to be a bit slower than mostof the econometric projections would suggest.

The investment level for structures during the past few years, however,has fallen consistently and substantially below what would have been ex-pected on the basis of all of the econometric projections. Not only was thedecline extraordinarily sharp in 1975 but the subsequent recovery was slowerthan might have been expected. The result has been a widening gap betweenthe actual level of investment in structures and the level that would have beenprojected on the basis of historical patterns. Since investment in structuresaccounts for approximately one-third of business fixed investment, its slowgrowth has had an important impact on the total. In the fourth quarter oflast year, real outlays for private nonresidential construction were 13 percentbelow their level at the end of 1973, while outlays for producers' durableequipment were about 4 / 2 percent higher than at the end of 1973.

A number of possible reasons exist for the lagging investment perform-ance. The perceived risk of investment may have increased in the 1970s as aresult of higher inflation rates and larger cyclical fluctuations in output.Although a steady and fully anticipated inflation rate of 6 percent is notinherently riskier than price stability, high inflation rates have historicallybeen associated with larger variations in the rate of price increase, bothhere and abroad. For this reason, measures to control inflation areimportant.

Uncertainties about future rates of change of specific output prices andcosts are even more likely to affect investment behavior adversely. Changesin energy costs are an obvious example. At least during a period of adjust-ment, flexibility of foreign exchange rates may also have caused increaseduncertainties. Apart from these examples, it is unlikely that other relativeprices and costs have become substantially more volatile in recent years.

Uncertainties about future expansion of sales were undoubtedly increasedby the depth of the last recession, but they should be abating as the expan-

71


sion in the United States continues. Excess capacity and slow growth inother industrial countries, together with deep import penetration into a fewkey industries, may, however, be continuing to restrain business optimism.

Environmental and safety regulations have also been assuming a largerrole in decisions regarding investment. The effect is hard to quantify, butthere is direct evidence that environmental regulations are more stringentfor new installations and may have a particularly inhibiting effect on invest-ment in structures. On the other hand, mandated antipollution investmentsmay actually have raised investment levels from what they would otherwisehave been in some industries; this increases aggregate demand but does notenlarge productive capacity.

Finally, it should be noted that during a substantial part of the 1950sand 1960s heavy investments were made in fuel and power facilities thatare long lived. Demand for electricity was growing extremely rapidly, stimu-lating continuous expansion in generating capacity, and the network ofnatural gas pipelines was also considerably extended. Investment in struc-tures from 1973 to 1976 included outlays for the Alaska pipeline thathave now ended. Increased investment by energy-producing industries canbe expected in the future; but the timing is uncertain, and in the case ofelectricity higher energy prices may limit the growth in demand and capacityexpansion.

At a time when strong growth in the capital stock is needed to meetfuture goals, investment appears to be drifting below normal trends. Thisdrift must be reversed. A stable financial environment and tax measuresspecifically directed to enhancing investment incentives are particularly im-portant. The situation should also be especially helped by progress in thefields of energy and regulation. These measures will be most effective inthe context of a steady continuation of overall expansion.

72


CHAPTER 2

Economic Outlook and Policy

HP1 HE ECONOMY is entering its fourth consecutive year of sustained-*- growth, and the prospects for continuation of the recovery in the near

term are quite favorable. Final sales were up strongly at the end of 1977,and the effects of last year's stimulus package continue to build, setting thestage for a resumption of healthy production gains in the early part of 1978.

Over the longer term, however, without additional fiscal measures, eco-nomic growth would slow below the rate necessary to maintain satisfactoryprogress toward our goal of returning to high employment. The non-Federalsectors of the economy do not appear to possess sufficient strength on theirown to support a sustained high rate of real output growth throughout 1979.In addition, Federal fiscal policy would itself gradually become more re-strictive as the spending increases contained in the 1977—78 stimulus packagegradually diminish, and as Federal receipts show rapid gains because ofincome growth and payroll tax increases. While it is difficult to determineprecisely when economic growth would slow, the underlying trends in theeconomy—together with the effects of fiscal policy—point clearly to a reduc-tion in the pace of expansion later this year or early in 1979. Therefore, toensure that the economy continues to grow at a satisfactory rate in 1979 andbeyond, the Administration is proposing a $25-billion tax cut for individualsand businesses to take effect in the fourth quarter of 1978.

ECONOMIC POLICY IN THE NEAR TERM

THE NEED FOR TAX REDUCTION

Personal consumption and housing have been the key sectors leading theeconomic recovery since 1975. In 1976 and early 1977 the personal savingrate fell well below its average over the past 20 years, and housing starts roseto more than 2 million units at an annual rate by the middle of last year.However, the saving rate has now returned to just under 6 percent and isexpected to remain in this vicinity during 1978 and 1979. The boom inresidential construction may also be reaching a peak, as interest rates arelikely to be somewhat higher in 1978 than in 1977. Hence, these sectorscannot be counted on to sustain above-trend growth in total demand.

73


Both the foreign and the State and local sectors are currently withdrawingmuch more from the spending stream than they are returning to it. Ourinternational current account balance is likely to remain in substantialdeficit in the near term. Oil imports will continue at high levels over the nextseveral years, and the economies of our major trading partners are expectedto show only moderate improvement. In the State and local sector, budget-ary surpluses have been rising as receipts have grown more rapidly thanexpenditures, particularly during the last 2 years. These surpluses are ex-pected to decline gradually, but they will remain high—partly because asignificant proportion is the result of secular growth in State and local em-ployee pension funds.

The Federal sector would also have a restraining influence on the econ-omy if there were no further adjustments in fiscal policy. Federal outlaysare rising strongly in fiscal 1978, but the increase in fiscal 1979 will be small—less than 2 percent in real terms. Moreover, the combination of higher pay-roll taxes and rising effective personal tax rates due to inflation and realgrowth will increase Federal receipts substantially in 1978 and 1979. Hencesignificant tax reductions are needed just to neutralize the fiscal restraintbuilt into the Federal budget.

Finally, a major uncertainty in the near-term outlook concerns the be-havior of business fixed investment. Strong and steady growth of capitalspending is essential to continuation of satisfactory growth in aggregatedemand and new productive capacity. But the performance of investmenthas been disappointing thus far in the recovery and plans for increasedspending remain modest. In the absence of tax reductions, the usual strength-ening of investment plans that takes place during an economic upswingmight not occur.

THE ADMINISTRATION'S TAX PROPOSALS

There are three main components of the Administration's proposed taxreduction.

1. A $17-billion net reduction in individual income taxes, effectiveOctober 1, 1978. Tax reduction is achieved by substituting a $240 percapita credit for the existing $750 personal exemption and the gen-eral tax credit, and by reducing personal tax rates.

2. A $6-billion net tax reduction for businesses in the form of permanentrate cuts on corporate profits and a liberalization of the investmenttax credit. The corporate tax rate would be lowered from 20 percentto 18 percent on the first $25,000 of profits, from 22 percent to 20percent on the next $25,000, and from 48 percent to 45 percent onprofits above $50,000. These changes would take effect on October 1,1978. There would be a further 1-percentage point reduction in the taxrate on corporate profits above $50,000 on January 1, 1980, therebylowering this rate to 44 percent. In addition, the 10-percent invest-ment tax credit on investment in equipment would be made perma-

74


nent and extended to industrial and utility structures; the full 10-per-cent credit would be available for investment in specified pollutionabatement facilities that also qualify for accelerated depreciation;and the investment credit could be used to offset 90 percent of taxliability in any one year. Except for the last proposal, these changes inthe investment credit would become effective January 1, 1978.

3. A $2-billion cut in payroll and excise taxes. The 4-percent telephoneexcise tax, already being phased out, would be repealed on October 1,1978. In addition, the Federal unemployment insurance tax rate wouldbe lowered from 0.7 percent to 0.5 percent on January 1, 1979.

The $25 billion in tax reductions proposed by the Administration is netof $9 billion in revenue-increasing reforms of the tax structure. The reformelements of the program are discussed in detail in Chapter 5 of this Report.

The proposed tax reductions, together with the projected increasesin Federal expenditures and the effects of the 1977 tax cut, will result ina $5-billion net increase in the high-employment Federal budget deficit be-tween calendar years 1977 and 1979. The personal tax reduction will aug-ment after-tax incomes of individuals and increase the demand for consumergoods. The strengthening of these markets will in turn improve the pros-pects for business investment spending. Moreover, the cut in corporate taxrates will increase cash flow of business enterprises, and the changes in theinvestment credit will directly lower the cost of new capital investment. Thereduction in excise and payroll taxes will lead to a modest lowering of pricelevels, as well as providing fiscal stimulus.

MONETARY POLICY

Under current economic conditions, monetary and fiscal policy can rein-force each other in fostering stable economic growth and the increased rateof investment needed to avoid the emergence of capacity limitations in thefuture. Interest rates moved up early in 1978; a level of short-term interestrates moderately higher than in 1977 would be consistent with a normalcyclical expansion of demands for money and credit relative to supplies. Ifthe rise in short-term interest rates is limited, long-term interest rates maychange very little. The prospects for relatively stable long-term rates aregreatly enhanced by the fact that supplies of both labor and capital are suf-ficiently ample to permit rising aggregate demand to be translated into realgrowth in output rather than a higher rate of inflation. The growth inmonetary aggregates that will be consistent with this favorable interest rateenvironment will depend significantly on factors affecting velocity, whichwere discussed in Chapter 1.

THE OUTLOOK FOR 1978

Growth of real output during 1978 is expected to be in the 4x/2- to 5-percent range if the proposed tax cut is approved by the Congress (Table9). Expansion in the first half of the year will be sustained by higher spend-

75


ing for public service employment and public works programs and by largerthan normal tax refunds. By midyear the effects of the jobs programs willhave reached their peak, but consumer spending and business investmentare expected to accelerate in the second half in response to the taxreduction.*

TABLE 9.—Key economic measures, 1977—78

[Seasonally adjusted, except as noted]

Measure

RealGNP

Real personal consumption

Real business fixed investment-

Real residential construction. _

Real government purchases

Unemployment rate

Consumer price index4

Unit

Billions of 1972 dollars 2 . . . .

.—_do

.do. .

. do .

do

Percent

1967 = 100.

1977 IV i

1,361

876

130

60

111

6.6

185

Forecast range1978 IV

1, 422 to 1, 429

914 to 918

139 to 141

59 to 61

287 to 289

6 to 6M

196 to 197

Percent change

4H to 5

7 to 8

- 1 to \H

ZH to4H

(3)

53/4 to VA

1 Preliminary.2 Annual rates.3 Not applicable.4 Not seasonally adjusted.

Sources: Department of Commerce (Bureau of Economic Analysis), Department of Labor (Bureau of Labor Statistics),and Council of Economic Advisers.

The rate of inflation is expected to be close to 6 percent in 1978.Food and fuel prices, which rose sharply in the first half of last year be-cause of the severe winter weather, will contribute much less to theincrease in prices this year. Continued slack in labor markets and theabsence of a large number of significant collective bargaining settlementswill help moderate the rate of increase in workers' average hourly earnings.On the other hand, federally mandated increases in labor costs will addabout one-half percentage point to the price level during the year. Wide-spread cooperation with the President's program of deceleration would makeit possible to reduce inflation to the lower end of the range shown inTable 9.

The projected growth of output this year should expand the numberof jobs by about 2 $4 million. The extent to which this increase in employ-ment is translated into a reduction in the unemployment rate will, of course,depend on how rapidly the labor force "grows. It is expected that laborforce growth will remain relatively high, at a rate between 2 54 and 2/2 per-cent in 1978. The unemployment rate should decline by about one-half per-centage point over the year.


Business fixed investment is expected to become a stronger force in theexpansion of output during the course of 1978 as a consequence of the

* Unless otherwise noted, growth rates in this chapter are measured from fourthquarter to fourth quarter.

76


stimulative effects of the proposed liberalization of the investment taxcredit, and the reductions in personal and corporate income taxes. Anincrease of 7 to 8 percent in real terms is anticipated over the course ofthe year. The most recent Department of Commerce survey of plans for newplant and equipment expenditures indicates that investment spending innominal terms will rise only 10 percent in 1978, year over year. However, ifallowances are made for increases in capital goods prices of about bl/i per-cent and for underestimates in the last two surveys, this survey would implya real increase in spending for plant and equipment of 6 to 7 percent. Therecent behavior of some important leading indicators of investment activitysuggests a stronger investment performance than the plant and equipmentsurvey does. Data on the value of new orders for nondefense capital goods,new plant and equipment projects started by manufacturers, and their newcapital appropriations all show increases of 20 percent or more (annualrate) over the last half year.

As the dimensions of the energy program become more certain and thenew tax proposals increasingly influence business expectations, it is antici-pated that plans for plant and equipment outlays will be raised above theircurrent levels.

GOVERNMENT DEMAND

Government purchases will be an important source of support to theexpansion this year. In real terms, they are expected to rise about 4 percent.Though defense purchases in real terms were up last year and may risefurther, the principal sources of strength this year will be in the Federal non-defense and State and local government areas. Nondefense Federal pur-chases (excluding Strategic Petroleum Reserve and Commodity CreditCorporation expenditures) are projected to rise 16 percent in current dol-lars. The real increase in these expenditures should also be large, though itmay fall short of the level implied by the nominal projection.

State and local purchases will continue to rise rapidly in the first half of1978, as Federal grants for local public works and employment programs inthe 1977-78 stimulus package increase to their peak levels. Some slowingin the rate of expenditure growth may occur in the second half of 1978; butState and local operating surpluses are large, and these governmental unitsare therefore likely either to increase purchases or reduce taxes.

PERSONAL CONSUMPTION

Real disposable income will rise more than 5 percent during 1978, afterallowing for the impact in the last quarter of the proposed reductions inpersonal taxes. However, since personal consumption does not fully reflectthe impact of tax reductions for several quarters, the saving rate is likelyto increase considerably in the fourth quarter. Consumption during theyear should therefore grow somewhat more slowly than disposable income—increasing about 4*/2 percent in real terms; but a strong upswing at year-end

77


will continue into the first half of 1979. Real growth of demand for durablegoods in 1978 will slow somewhat from the 7%-percent rate of last year, andthen strengthen again after the tax cuts.

Smaller projected food price increases in this year, together with generousworldwide supplies of natural and manmade fibers, suggest that price in-creases for nondurable goods will be modest in 1978. These developmentswill help stimulate an increase in demand for nondurable goods above the3J/2 percent of last year. The demand for heating services is expected toreturn to more normal levels this winter, a change that could also contributeto the growth of sales of both durable and nondurable goods.

HOUSING

Residential investment is expected to be relatively flat during the yearat a level about 5 percent higher in real terms than the average of 1977.New housing units are currently being started at an annual rate of 2/4million, including a record 1.6 million single-family units. Housing startsshould remain at relatively high levels early in the year, but some reductionin single-family starts is expected by year-end. However, favorable demo-graphic factors and relatively moderate changes in the availability of mort-gage credit should limit the extent of any decline. Multifamily starts areexpected to continue growing throughout the year, as the problems thathave recently plagued this sector—low profitability caused in part by rentcontrols in some areas of the Northeast, and the legacy of overbuilding inother areas, particularly the South—are gradually overcome.

Two other components of residential investment are likely to rise sig-nificantly this year: additions and alterations to existing structures, and salesof mobile homes. Additions and alterations represent 14 percent of totalresidential investment and are responsive to sales of new and existing homes,which have risen about 50 percent since 1975. Mobile home shipments,which peaked at 575,900 in 1972 and declined to 212,700 in 1975, haverecently been growing more strongly, reaching a rate of over 300,000 peryear at the end of 1977. Further increases above this level are expected in1978.

INVENTORIES

Production has responded promptly to changes in final sales in this ex-pansion. Hence, except for moderate, unintended increases in nondurablegoods inventories in each of the past two summers, the ratio of stocks tofinal sales in 1976 and 1977 was maintained at a fairly constant level, justunder the historical average. Improved inventory monitoring techniquesand short delivery lags due to excess capacity will be conducive to stablerates of inventory investment this year. However, accelerated final salesand a downturn in the rate of stockbuilding in the last quarter of 1977will lead to an upswing of inventory investment in the first half of the year.This will be temporary, and the resulting stimulus is unlikely to beas large as that attributable to the restocking that occurred early in 1977.

78


The rate of accumulation for all of 1978 is anticipated to average about 1percent of real gross national product, or just sufficient to expand stocks inline with the growth of sales.

NET EXPORTS

The foreign sector is not expected to contribute significantly to thegrowth of output in 1978, but neither should it detract from the expansionas it has done in the past 2 years. Since approximately one-third of U.S. ex-ports are capital goods, the generally weak performance of investment inother industrial economies has restrained the demand for U.S. exports.Though real growth in the economies of our major trading partners was dis-appointing in 1977, it should pick up somewhat this year and improve theprospects for U.S. exports. Growth outside the OECD area is also expectedto show some acceleration this year, which should have a beneficial effect onour exports. In addition, there should be a resumption of growth in demandfrom countries such as Brazil and Mexico, where restrictive actions weretaken in the last 2 years to reduce large trade deficits caused by the recessionand oil price increases. Given these modest improvements in the world econ-omy, U.S. merchandise exports, after adjustment for inflation, are expectedto rise 4 to 5 percent in 1978.

Growth of imports should slow in 1978. Imports other than fuel rose morein 1977 than would have been forecast on the basis of historical relationshipsbetween imports and GNP, but this phenomenon is not expected to continuein 1978. The volume of U.S. oil imports should be unchanged this year,compared with a rise of 20 percent last year. Cold weather in the earlymonths of 1977 and a buildup of petroleum inventories last summer con-tributed to the sharp rise of fuel imports in 1977, but these developmentsare unlikely to recur this year. Production of North Slope oil averagingabout 1 million barrels a day, four times the output available last year, willalso restrain the growth of petroleum imports in 1978. The decision of theoil-exporting countries to freeze prices will mean that the value of oil im-ports will show little change this year. The high level of oil imports willnevertheless continue to be an important factor in the United States' per-sistent foreign trade deficit.

LABOR FORCE AND EMPLOYMENT

The 4^2- to 5-percent expansion of output should increase employ-ment during the year by nearly 3 percent. Given the projected increasein the labor force of 2^4 to 2/2 percent, the unemployment rate should fallto a range of 6 to 65/4 percent by year-end. The projections for labor forceparticipation rates of women and teenagers assume continued increasesthat are above previous historical trends, but somewhat below the unusuallylarge increases of the past 2 years.

It should be noted that projections of labor force growth have not beenvery reliable in recent years. For example, the 3.1-percent increase in the

79


labor force in 1977 was substantially larger than most estimates of a yearago. Consequently, unemployment rate forecasts can prove inaccurate evenwhen projections for the growth of output and employment are correct.

INFLATION

Before allowing for the Administration's program for the deceleration ofinflation^ prices would be expected to rise this year at a rate of 6 percent orsomewhat above—the underlying rate for the past 2/2 years. The underlyingrate is measured by consumer prices excluding food and energy, and itparallels the difference between the rates of increase of productivity andcompensation per hour worked. Average hourly earnings and productivitywould rise this year by about 7J/4 and 2 percent respectively. However, totalunit labor costs would rise by more than the 5T/4 percent that these figuressuggest, partly because privately negotiated fringe benefits are increasingmore rapidly than basic wages, and partly because of government-mandatedadditions to payroll costs. The 15-percent step-up of the minimum wage to$2.65 an hour, and the $6 billion in higher payroll taxes for employers in1978, will add about 1 percent to labor costs of the private sector. Totalcompensation per hour including fringes and employer payroll taxes wouldtherefore rise about 8 ^ percent in 1978, and unit labor costs by 6 to 6l/percent.

A number of special factors will also influence the actual rise of pricesin 1978. Implementation of the first stage of the crude oil equalization taxwill add 0.2 percent to the aggregate price level at year-end. The recentdecline in the value of the dollar in foreign exchange markets will alsoadd to pressures on prices. On the other hand, highly competitive marketsfor many goods, caused by the weakness of economic recovery abroad andby generally low capacity utilization rates at home, will work against anyacceleration of inflation. The food price outlook should also lead to modera-tion in the rate of inflation this year. Retail food prices rose by 7% percentlast year, but are expected to increase in 1978 by less than the rise in pricesof nonfood commodities and services. This deceleration will help to mod-erate the increase in the general price level, offsetting the effects of the man-dated cost and price increases.

Ample grain stocks and depressed crop prices are currently stimulat-ing pork and poultry production and hence will restrain retail price in-creases for these items. Large harvests of fruits and vegetables in the secondhalf of last year should assure abundant supplies of these commoditiesthrough mid-1978. On the other hand, because cattle herds have been cutdrastically and the cost of feed grains is extremely low, increased cattlefeeding is likely. This should be reflected in reduced marketing of cattle andmore rapid increases in retail prices for red meat in the second half of 1978.

The action of the oil-producing countries in not increasing the price ofcrude oil will provide modest additional restraint on inflation this year.Repeal of the Federal excise tax on telephone service in the last quarter

80


of 1978 and the 0.2-percentage point reduction in the Federal unem-ployment insurance tax in January 1979 will also ease the pressure onprices next year.

The President's request to business and labor to cooperate in a voluntaryprogram to decelerate wage and price increases, discussed in Chapter 4,is expected to help moderate the rate of inflation in 1978. With success of theprogram, the rate of price increase in 1978 could fall below the level of 6percent or more that would otherwise occur.

INCOME AND SAVING FLOWS

The combination of 4J4- to 5-percent real growth and about 6 percentinflation will cause nominal GNP to grow approximately 11 percent in1978. Both personal income and corporate profits are expected to rise atabout the same rate as GNP.

In the year ahead, the household sector will contribute an increasedvolume of saving to credit markets, while the growth of household creditdemands should moderate. Personal saving will expand by approximatelyone-third as a result of the projected increase in after-tax income and anincrease in the saving rate. Though part of this increased saving will beabsorbed by home mortgage and consumer credit, growth in these uses offunds will be less than in 1977. Business credit needs will expand in 1978,but an adequate growth of profits should sustain the flow of internal funds.In the past 2 years gross internal funds have amounted to more than 75percent of capital expenditures of nonfinancial corporate businesses.

Apart from the usual seasonal fluctuations, the Federal Government'snet new issues of securities are likely to change very little between thelatter half of 1977 and the first half of this year. Toward the end of 1978,however, new funds raised by the Federal Government will increase, sincethe decline in receipts resulting from the proposed tax reduction willbe only partially offset by the growth of revenues that normally occurs in anexpanding economy.

A greater volume of funds will flow through credit markets this year,primarily because the higher net household saving must be channeled tothe debtor sectors to meet growing financial needs. As noted earlier, theseincreased credit flows are likely to be accompanied by a somewhat higherlevel of interest rates than in 1977, particularly on short-term securities.Given current economic prospects, however, there need not be large orunsettling changes in interest rates during 1978.

THE OUTLOOK FOR 1979

Forecasting more than a year ahead is a hazardous exercise, sinceuncertainties about probable economic developments grow with the pas-sage of time. Nevertheless some general comments can be made about the

81


likely state of the economy in 1979 and its response to the Adminis-tration's tax proposal.

The $25-billion tax cut effective in October 1978 will provide thenecessary impetus to extend the recovery into its fifth successive year.Business investment should be particularly strong in 1979, since capacityutilization rates will have risen further, and the effects of the tax cutswill have been incorporated into plans for plant and equipment expend-itures. Consumer spending will be supported by the $17-billion reductionin personal taxes. And there is likely to be a further reduction of State andlocal surpluses.

If the recovery proceeds along these lines, and there are no severeunexpected shocks, real output in 1979 should increase at about the samerate as in 1978—that is, by 4l/2 to 5 percent. Moreover the unemploymentrate should continue to decline to a range of 5/2 to 6 percent by year-endas a result of another 2%-million increase in the number of jobs.

Price forecasting beyond a year is even more difficult than projectingoutput. Before taking into account any effects of the Administration'sdeceleration program, the underlying rate of inflation would be close to 6percent or slightly above in 1979. Government-mandated cost and priceincreases will be smaller than in 1978. The proposed repeal of the telephoneexcise tax and the reduction in the Federal unemployment insurance taxwould also help restrain price increases.

On the negative side, there are other factors that could lead to strongerpressures on wages and prices in 1979. First, labor markets may tightensomewhat as a result of continued economic expansion, and this couldincrease the upward momentum of wages. Moreover, 1979 will also bea heavier year of collective bargaining: agreements covering 3 5/2 millionworkers will expire or will be open to negotiation in 1979, compared withagreements covering 1% million workers in 1978. Second, healthy domes-tic demand could push the manufacturing capacity utilization rate tohigher levels by late 1979 and encourage firms to increase their profitmargins by raising prices. The stronger growth of investment projected forlate 1978 and 1979 should moderate the rise in utilization rates, however,and the availability of ample capacity abroad for production of most majormaterials should also act as a restraint on price increases above general costtrends.

Most important to the long-run improvement of inflation will be thecooperation of business and labor in the program of gradual decelerationof prices and wages. There must be a well-coordinated, good-faith effort onthe part of both sides if progress is to be made in unwinding the inflationarypressures inherited from the past. Next year will pose a critical test forthe new program because of the heavy calendar of collective bargaining andthe fact that utilization rates for both labor and capital will have risensubstantially.

82


POLICY REQUIREMENTS FOR THE LONGER TERM

Upon taking office in early 1977, this Administration set out specificobjectives for economic growth and the reduction of unemployment. Put-ting these goals explicitly on the record serves the important purposes ofinforming the Congress and the public of the Administration's policy objec-tives and identifying the means by which they will be pursued. Settingexplicit goals also disciplines the formulation and execution of policies, andcreates a system of early warning signals for midcourse policy adjustments.

The Administration's longer-term goals for the domestic economy canbe simply stated: steady progress toward the achievement of a high-em-ployment economy, with the benefits shared widely by all major groups insociety; principal reliance on growth in the private sector to promote eco-nomic expansion; and a gradual reduction in the rate of inflation. ThePresident's budget for fiscal 1979 sets out annual projections for real grossnational product, the unemployment rate, and the rate of inflation through1983. For 1978 and 1979 these numbers represent the Administration's"best-guess" forecast and are consistent with the tax and spending policiesproposed in the budget. Beyond 1979 they are not a forecast, but projectionsof the path of real output necessary to achieve steady reductions in the unem-ployment rate of about one-half percentage point per year.

Projections in the budget show real GNP reaching its potential bylate 1981 and the unemployment rate dropping below 5 percent. If theeconomy is to achieve high employment by 1981, a sustained expansion ofreal output of nearly 5 percent a year will be required.

ACHIEVING THE U.S. ECONOMY'S POTENTIAL

Potential output is an estimate of what the economy could produce athigh rates of utilization of the factors of production—labor, capital, andnatural resources. The historical series for potential GNP was completelyrevised in the 1977 Economic Report by the previous Council of EconomicAdvisers, and the level in 1976 was lowered by 4 percent. There were twoprincipal reasons for this downward revision. First, the rate of secular pro-ductivity growth implicit in the earlier estimates was substantially reduced.This change reflects the deceleration of productivity since the late1960s. Second, the high-employment unemployment rate was adjusted forchanges in the age-sex composition of the labor force. This benchmarkunemployment rate is calculated to be 4.9 percent in 1977, compared with4.0 percent in 1955 (Table 10). The present Council has reviewed the newestimates and concluded that they are a major improvement. Through addi-tional research, the quality of our potential GNP estimates should continueto improve in the future.

For the next 4 years, real potential GNP is projected to grow at a ratebetween 3.3 percent and 3.8 percent per year, and to rise to between $1561Obillion and $1,640 billion in 1981 (Chart 3). The benchmark unemploy-

83


TABLE 10.—Potential gross national product and benchmark unemployment rate, 1952—77

[Billions of 1972 dollars, except as noted]

Year

195219531954 . .

1955 .195619571958 .1959

1960196119621963 . . . . .1964

19651966 _19671968 . . _ „ .1969

19701971 . . . . _..19721973 . __ . _ .1974

197519761977

PotentialGNP

584.9608.2629.7

651.4673.9697.2721.3746.2

771.9798.6826.4857.1890.3

925 0960.8996.3

1,031.71,068.3

1,106.21,145.51,186.11,228.21,271.7

1,316.91,363.61,412.0

ActualGNP

598.5621.8613.7

654.8668.8680.9679.5720.4

736.8755.3799.1830.7874.4

925.9981.0

1,007.71,051.81,078. 8

1,075.31,107.51,171.11,235.01,217.8

1,202.11,274.7

2 1,337.6

GNP gap(potential

less actual)

-13 .6-13 .6

16.0

- 3 . 45.1

16.341.825.8

35.143.327.326.415.9

- . 9-20.2-11.4-20 .1-10 .5

30.938.015.0

- 6 . 853.9

114.888.9

2 74.4

Benchmarkunemploymentrate (percent)

oo

o o

oo

o

4.1

4.14.14.14.24.3

4.44.5

U.44.44.4

4.54.64.74.84.8

4.84.94.9

1 Shift in benchmark unemployment rate from 1966 to 1967 because of 1967 change in sampling procedure in the CurrentPopulation Survey.

2 Preliminary.Sources: Department of Commerce (Bureau of Economic Analysis) and Council of Economic Advisers.

ment rate associated with this range of potential GNP estimates wouldfall slightly from its current level to about 4.8 percent.

In addition to the usual uncertainties about the future, forecasts of poten-tial GNP under current conditions are subject to a wide margin of error.The principal source of uncertainty in projecting potential output lies inestimates of productivity. The abrupt decline in the level of productivity in1973-74, which is much larger than can be explained by cyclical factors,has not been reversed. Improvements in productivity since the recoverybegan early in 1975 have followed normal cyclical patterns: gains have ex-ceeded long-term trend rates of growth, but have not been large enough toclose the gap opened up by the 1973-74 recession. Future productivitygrowth will be strongly influenced by additions to the capital stock. Unlessinvestment shows a marked acceleration in the next few years, the trendrate of productivity growth is unlikely to regain the pace of the 1950s and1960s. If the recent modest increases in output per hour persist over thenext 4 years, potential GNP growth will probably be nearer the low end ofthe projected range. On the other hand, if labor force participation shouldcontinue to rise at unusually rapid rates, as it did in 1977, or if productivitygrowth should resume its earlier pace, the rate of potential GNP growthwould be closer to the upper end of the range.

84


Chart 3

Actual and Potential GrossNational Product

BILLIONS OF 1972 DOLLARS (RATIO SCALE)1,700

1,600

1,500 -

1,400

1,300 -

POTENTIAL GNP

\ ,V

I I I I I I I I I i i I I i I I I I i I i i I I i i i I i i i 1

•

PROJECTED POTENTIAL ' f "

GNP RANGE- - / , ' /

T \ACTUAL

1 I 1 1 1 l I

PROJECTEDACTUAL GNP

GNP

! I ! 1 ! ! 1 1 1 1 1 ! 1 1 1 1

1,100 -

1,0001968 1970 1972 1974 1976 1978 1980

SOURCES: DEPARTMENT OF COMMERCE AND COUNCIL OF ECONOMIC ADVISERS.

LONG-RUN BUDGETARY STRATEGY

The Administration has frequently indicated its determination to maintaincontrol over the growth of Federal expenditures, and to rely principally upongrowth in the private sector as the major source of economic expansion inthe years ahead. The share of Federal outlays in GNP during the past 3years has been between 22 and 23 percent—well above the 18- to 21-percentshare that characterized the previous two decades. In part, the higher sharein recent years reflects the fact that GNP is still well below its potentiallevel. But the increase is also a result of rapid growth in Federal transferpayments and grants to State and local governments during the last 10 years.

Decisions about the level and composition of Federal expenditures areparticularly difficult. Many essential national goals—such as national de-fense, equal opportunities, a fair distribution of income, support for basicresearch, and preservation of natural resources—can only be reached

85


through Federal programs. Government expenditures, however, are notsubject to the discipline of the market place. Private markets are imperfect,but they do tend to encourage efficiency in the use of resources by rewardingfirms that are most efficient and eventually weeding out those that cannotperform effectively. These market functions must be accomplished in gov-ernment by budgetary planning that stresses careful choice of priorities andefficiency in the use of our Nation's scarce resources. Placing limits on theoverall growth of Federal expenditures is an effective tool for maintainingsuch control.

This Administration, after careful review of national priorities, has con-cluded that the Federal Government can respond effectively and compas-sionately to the needs of the country within a carefully managed and closelycontrolled budget. The path of expenditures projected in the fiscal 1979budget reflects this judgment. Budget outlays are projected to increase byless than 2 percent in real terms between fiscal 1978 and 1979. This restrainton expenditures is also carried into the future; over time, outlays will besteadily reduced to about 21 percent of GNP.

Managing the Federal budget to meet national needs, while graduallyreducing the share of Federal outlays in GNP, has important implicationsfor economic policy. If the course of Federal spending is determined by theseprinciples, tax reductions then become an important device for maintaininga stable rate of growth in the private sector. Tax reductions workquickly to stimulate spending, and the effects tend to spread quite broadlyover the various sectors of the economy. Moreover, they can be designed toemphasize either stimulus to consumer spending or growth of business in-vestment, depending on the particular circumstances that prevail. Taxreductions are thus a powerful and flexible instrument of economicstabilization policy.

Over the course of the next several years, the amount of reduction in in-come taxes needed to keep the economy moving ahead steadily will dependon a variety of factors, including the course of monetary policy, the degreeof drag from the foreign and State and local sectors, and the willingness ofconsumers and business to spend. It will also depend on other aspects of theFederal budget. Higher payroll taxes for social security and unemploymentinsurance are scheduled to take effect in 1978 and 1979, as shown in Table11. In addition, inflation and economic growth will push individual tax-payers into higher tax brackets, raising the effective tax rate on personalincome. The Administration's proposed reduction in personal incometaxes would approximately offset the effects of these increases on individualtax payments. In 1977 the share of personal income absorbed by Federalpersonal taxes and the contributions of employees and the self-employed tothe social security system was 14.3 percent. This share will show a smalldecline by 1979 if the Administration's tax proposals are enacted. TotalFederal revenues as a percentage of GNP, on the other hand, will riseslightly over this period. The size of the new tax package, however, was not

86


T A B L E 11.—Projected effects on Federal receipts of selected tax changes, national income and

product accounts, calendar years 1978—81 l


Tax increases or reductions2

Payroll tax increases.

Social security and unemployment insurance 3

Social Security Amendments of 1977

Proposed U.x reductions.

Individuals *Business 5

Unemployment insurance-Telephone excise

1978

7.0

6.9.1

6.9

4.12.40.4

1979

14.9

7.57.4

27.4

19.75.7.8

1.2

1980

15 0

5.010.0

27.9

18.97.2.9.9

1981

29.6

8.920.7

29.2

21.06.71.0.5

1 All projections based on the path of GNP, incomes, and unemployment assumed in the Budget of the United StatesGovernment, Fiscal Year 1979.

2 Entries are cumulative differences in tax levels above those that would prevail under 1977 tax rates.3 Social security rate increases of 0.4 percent in 1978 and 0.5 percent in 1981. Increases due to automatic socicl security

base changes are not included. Changes in unemployment insurance (Ul) taxes are due to 1978 increase in the Federaltaxable wage base, expanded coverage of the Ul system, and estimated adjustments in effective State Ul tax rates.

4 The amount of tax reduction for individuals shown here differs from the amount estimated by the Treasury on a liabilitybasis. The principal reason for this is that the tax reduction provisions of the proposal would take effect on October 1, 1978,while the reform provisions would not take effect until January 1,1979. Since withholding schedules would be adjusted inOctober 1978 to reflect the amount of net tax reduction, refunds would be required in 1979 to compensate for over-withholding in 1978. Refunds are treated in the national income and product accounts on a collections rather than a liabilitybasis.

51 ncludes tax reductions for individuals due to changes in the investment tax credit.

Sources: Department of Health, Education, and Welfare, Department of Labor, Department of the Treasury, Office ofManagement and Budget, and Council of Economic Advisers.

designed to achieve a particular ratio of tax revenue to income, but toensure satisfactory progress toward our economic goals. This requires takinginto account a number of factors, including developments on the expendi-ture side of the Federal budget.

As noted in Chapter 1, the simplest measure of the total fiscal impact ofthe Federal sector on the economy is the change in the high-employmentbudget. As shown by the $9-billion increase in the high-employment deficit incalendar 1978 (Table 12), the Administration's enacted and proposed tax

TABLE 12.—Projected high-employment Federal receipts and expenditures,national income and product accounts, calendar years 1977—81


Item

Receipts

Expenditures. __


1977

401.9

419.8

-17 .9

1978

447.0

473.9

- 2 6 . 9

1979

488.5

511.1

-22 .6

1980

547.7

557.3

- 9 . 6

1981

619.9

594.8

25.1

Sources: Department of Commerce (Bureau of Economic Analysis), Office of Management and Budget, and Council ofEconomic Advisers.

reductions, together with the expenditure path projected in the budget, re-sult in a substantial net increase in fiscal stimulus. In 1979 the high-employ-ment deficit declines slightly, indicating a moderately less expansive fiscalstance as the economy improves. Over the 2-year period 1977—79, theFederal budget provides $5 billion of net fiscal stimulus. Beyond 1979, total

87


tax revenues would rise more rapidly than expenditures; and in the absenceof additional tax reductions or changes in expenditure programs, a high-employment surplus of $25.1 billion would exist by 1981 (Table 12 andChart 4). The actual path of the high-employment budget after 1979 will,of course, depend on fiscal policy decisions yet to be made.

THE BUDGET AND THE ECONOMY OVER THE LONGER RUN

Whether the economy can actually achieve high employment in 1981with a balanced Federal budget depends upon the strength of the non-Federal sectors of the economy. Our ability to forecast economic develop-ments over a period of 4 years is, however, extremely limited. One al-ternative to developing an explicit economic forecast for 1981 is toexamine the distribution of saving and investment by sector in past periodsof high employment. For the economy as a whole, the net saving (excess ofreceipts over expenditures) in one or more sectors must be offset by net in-vestment (excess of expenditures over receipts) in the remaining sectors.What one economic unit saves, another unit must invest. An analysis ofhow saving and investment might be distributed at high employment pro-vides some insights about the prospects for balancing the budget over thenext several years.

Chart 4

High-Employment Federal Surplusas Percent of High-Employment GNP

PERCENT

4S U R P L U S

-2

-4

PROJECTED

D E F I C I Ti I l 1 i 1 i 1 I 1 I I i I I I i I i 1 I I I 1 l I i 1 1 1 1 1 1 1 1l I i I I i i I l I l I

1955 1960 1965 1970 1975 1980NOTE: HALF-YEARLY DATA ON NATIONAL INCOME AND PRODUCT ACCOUNTS BASIS,SEASONALLY ADJUSTED.SOURCES: DEPARTMENT OF COMMERCE, OFFICE OF MANAGEMENT AND BUDGET. ANDCOUNCIL OF ECONOMIC ADVISERS.

88


Table 13 shows net saving by major sectors of the economy in threepast periods of relatively high employment and in 1977. Some interestingpatterns emerge from these data.

First, net private saving in a high-employment economy has typicallybeen rather small. Investment in plant, equipment, and inventories by busi-nesses, together with investment in new residences, is generally about equal tototal saving by individuals and business enterprises.

TABLE 13.—Net saving by sector, national income and product accounts, selectedcalendar years, 1955-77


Sector

Non-Federal sectors.

Private sector...

Personal...Business2.

Other sectors.

State and local government-Foreign 3

Federal sector..

1955-56average

-5 .2

-3 .5

17.3-20.7

-1 .8

-1 .1- . 7

5.2

1965-66average

0.6

3.3

31.6-28.3

-2 .7

.2-2 .9

-0 .6

1972-73average

12.0

-6 .6

59.8-66.4

18.5

13.45.2

-12.0

1977 i

49.6

1.4

67.8-66.4

48.3

29.219.1

- 4 9 . 6

1 Preliminary.2 Corporate and noncorporate business saving, plus the statistical discrepancy, less gross private domestic investment.3 Net capital grants received by the United States less net foreign investment.Source: Department of Commerce, (Bureau of Economic Analysis).

Second, in 1955-56 and again in 1965-66, the total net saving attribut-able to State and local governments and the foreign sector wras also nearzero. As a result, in these periods a Federal budget that was approximatelyin balance was consistent with a high-employment economy. Indeed, 1965—66 was a period in which real GNP was above its potential level and pressureson prices were mounting. In this situation a surplus in the Federal budgetwould have been appropriate.

Third, in recent years the aggregate net saving by State and local govern-ments and the foreign sector has become very large. In 1977, net private sav-ing was again near zero, but a Federal deficit of nearly $50 billion wasrequired to counterbalance the aggregate surpluses of State and local gov-ernments and the excess of receipts over expenditures stemming from ourinternational trade and payments. Since economic activity in 1977 was wellbelow its potential, an even larger Federal deficit would have existedin a high-employment economy last year, given the substantial volume of netsaving in the non-Federal sectors.

The trend toward significant positive net saving by State and local gov-ernments developed in the early 1970s, when the secularly rising surplusesin their employee retirement accounts began to dominate their aggregatebudget positions. In addition, surpluses in their operating accounts (ex-clusive of the social insurance trust funds) have risen sharply in the last 2

89


years as a result of rapid increases in Federal grants, growth in tax receiptsfrom economic recovery, and slow growth in expenditures. Economic anddemographic factors are such that continued growth of the trust fund sur-pluses in the foreseeable future may be expected. Moreover, a sudden re-versal of the conservative budgetary policies in evidence since the lastrecession is unlikely, so that operating surpluses of State and local govern-ments will decline slowly. Hence, the restraint on the economy resultingfrom net saving in this sector will persist, though it will probably diminishsomewhat over the next few years.

The excess of receipts over expenditures in the foreign sector stems prin-cipally from two sources: the continuing heavy dependence of the UnitedStates on foreign sources of energy, and differences in the pace of economicexpansion at home and abroad that have resulted in a much more rapid in-crease in nonfuel imports than exports. The National Energy Plan, discussedin Chapter 5, is designed in part to reduce the outflow of dollars, but thereduction will require a period of years. The growth rate differentialsbetween the United States and its major trading partners have persistedsince the last recession, and they became especially pronounced last year.These differentials are expected to narrow in 1978 as recovery abroad im-proves. Recent alignments of exchange rates and the steps announced byJapan to reduce its current account surplus should also help reduce ourdeficit. However, while some improvement in our external balance may beforthcoming, the foreign sector is very likely to continue to act as a net drainon U.S. income for some years.

Whether we can reduce the Federal deficit to zero by 1981 and stillachieve a high-employment economy will depend on how sectoral saving-investment balances change over the next few years—something that cannotbe known with certainty at present. Developments in a variety of areas—including monetary policy, fiscal behavior of State and local governments,oil prices, growth rates of the economies of our major trading partners, andforeign trade policies of other countries—will influence the outcome. As thefigures in Table 13 indicate, rather marked shifts in net saving by the non-Federal sectors would be required to reach high employment with a balancedbudget in 1981. Recognizing that fact means that we must stand ready toprovide additional tax reductions if they are needed to keep the pace ofeconomic activity advancing strongly. Should further cuts of significantsize prove necessary, the return to a balanced budget would have to bepostponed until after 1981.

These fiscal policy decisions for the longer term should not be madeat this time. If developments are favorable—if business capital spendinggrows fast enough to generate significant net investment in the private sector,if State and local surpluses diminish substantially, if the foreign sector deficitimproves materially—the need for further tax reductions to sustain con-tinued economic expansion would be greatly reduced. Developments in these

90


areas would be difficult to predict. Responsible budgetary policy must re-tain the flexibility to cope with a range of outcomes.

THE ROLE OF MONEY AND CREDIT IN REACHING HIGH EMPLOYMENT

As noted above, the amount of fiscal stimulus required over the next fewyears will be significantly influenced by the pace of investment in businessplant and equipment and in housing.

Investment in business plant and equipment will only be undertaken ifrates of return on these assets are favorable in relation to the cost of financingand the returns from alternative financial investments. Among the deter-minants of business fixed investment discussed in Chapter 1, the rental priceof capital services and the ratio of market valuation to the replacementcost of capital assets are the most directly affected by monetary policy,and they are a principal channel through which monetary developmentsare linked to the real sector of the economy. Monetary policy directly af-fects the interest rates on short-term and highly liquid obligations, such asFederal funds, Treasury bills, and commercial paper. The rates of return onlonger-term debt instruments and equities vary in relation to each otherand to short-term interest rates, depending on cyclical developments, infla-tion, and expectations about the future. Nevertheless these rates tend to in-fluence each other because of the opportunities for both lenders and borrow-ers to shift their holdings among different types and maturities of financialinstruments (Chart 5). Monetary policy, through its direct impact on interestrates for short-term obligations, can influence, but not determine, the costof financing business investment and hence affect its growth in the years tocome.

Monetary policy is also important for the housing sector. Residentialconstruction is highly sensitive to financial conditions—both on the demandside through the mortgage market and on the supply side through con-struction loans to builders. For the average buyer of a single-family home,the purchase price is about 2 times income. For such a family, an increase of1 percentage point in mortgage rates would raise the share of income com-mitted to interest payments by about 1 / 2 percent. Hence the state of finan-cial markets will significantly influence the demand for housing and the paceof residential construction.

Maintenance of a financial environment conducive to significant increasesin investment during a prolonged period of economic expansion is a diffi-cult task, and will require an appropriate balance between monetary andfiscal policy; but it is not without precedent. Between 1960 and 1965, realoutput grew at a fairly steady rate from a level about 5 percent below poten-tial to a level that was approximately equal to potential. Fiscal policy wasstimulative throughout this period, and monetary policy was supportive.The inflation rate was very moderate—1.3 percent per year during theperiod—and interest rates were quite stable; the short-term Treasury bill

91


rate rose only 1.02 percentage points during the entire period, while rateson long-term Treasury bonds rose only 0.1 percentage point. This pat-tern of interest rates was associated with growth in the money supply(Mi) at an average annual rate of 3.5 percent, so that velocity grew about3 / 2 percent per year, a rate slightly above postwar trends.

Careful management of economic policy will be necessary to reach andmaintain high employment in the years ahead. At the present time thereare still ample supplies of idle labor and capital resources available. In theperiod immediatey ahead, growth in real output can therefore proceed at arate above its long-term trend without risking a resurgence of demand-in-duced inflation. But fiscal and monetary policies should not attempt toclose the remaining output gap at an excessively rapid pace, since thiscould lead to an unbalanced and unsustainable pattern of recovery. And

Chart 5

Rates of Interest or Returnand the Rate of Inflation

PERCENT PER ANNUM

12

10

8 -

2 -

-

V A/

^y

v — * TREASURY BILL >RATE^ /

I I I I I

CORPORATE AaaBOND YIELDS

\

I . I I

&

EARNINGS/PRICE / / ^RATION / /

\ »'

\

. . fi

\ VV 7

vCHANGE IN

CONSUMER PRICEINDEX */

l i i . 1

V\\

i i

/ _

-

-

1960 1965 1970 19751/ STANDARD & POOR'S SERIES FOR 500 COMMON STOCKS.

i / MOODY'S.

£/ RATE ON 3-MONTH NEW ISSUES.

t/ CHANGE FROM YEAR AVERAGE TO YEAR AVERAGE.

SOURCES: DEPARTMENT OF LABOR, BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM,MOODY'S INVESTORS SERVICE, AND STANDARD & POOR'S CORPORATION.

92


as the economy approaches its potential, macroeconomic policies must ad-just in order to avoid the creation of excess aggregate demand.

The inflation problem for the immediate future does not stem from ex-cess aggregate demand, but from the momentum of inflation inherited fromthe past. An inflation rate in the 6- to 65/2 -percent range is a serious prob-lem and it needs to be lowered while slack remains in the economy. Whenhigher rates of inflation become built into the expectations of the public,however, the process of unwinding the inflationary momentum is a slowand arduous task and one that is only partially amenable to the tools of de-mand management. If the anti-inflation proposal by the President is widelysupported and succeeds in lowering inflation rates, gradually slower growthof the monetary aggregates will be consistent with a strong and healthy eco-nomic expansion. Efforts to hasten the process of reducing this inherited in-flation rate through restrictive fiscal and monetary policies would, however,be unproductive. Such measures would result mainly in a slowing of realgrowth rather than a reduction in the rate of price increase.

ECONOMIC GOALS BEYOND 1981

The projections in the budget show the unemployment rate continuingto decline to 4 percent in 1983, in line with the targets embodied in theproposed Full Employment and Balanced Growth Act. A primary objectiveof this legislative proposal (popularly called the Humphrey-Hawkins bill)is to modify and extend the general principles enunciated in the Employ-ment Act of 1946. That act, which also established the Council of EconomicAdvisers and requires the President to submit an annual Economic Report,gave the Federal Government the responsibility for promoting high levelsof employment and output. It established broad economic objectives thathave served as useful guidelines for the formulation of macroeconomicpolicy during the past 30 years. However, the economy has changed in manyrespects since 1946; the task of making economic policy has become morecomplex; and the standards for acceptable economic performance havebeen raised. The Administration therefore believes that an updating of theEmployment Act of 1946 is appropriate to deal with the changing economicenvironment and a new set of policy requirements.

The Full Employment and Balanced Growth Act would require thePresident to enunciate explicit short-term (2-year) goals and to recommendthe fiscal policies necessary to achieve them. It would also require thePresident to set forth intermediate-term (5-year) goals each year and topresent projections of Federal receipts and outlays consistent with them.The target for the overall unemployment rate in 1983, assuming thebill is enacted in 1978, would be 4 percent.

The bill would for the first time explicitly establish the goal of reasonableprice stability as a high priority objective of national policy. Moreover it

93


directs the President to pursue this goal by a variety of measures: an early-warning system to detect emerging capacity problems, stockpiling of agricul-tural commodities and other critical raw materials to dampen price fluctua-tions, regulatory reform, vigorous enforcement of the antitrust laws, and thepromotion of labor-management cooperation in efforts to boost productivity.

Though the bill sets ambitious economic goals, it is designed to achieve acareful balance among various competing objectives. The potential conflictbetween low rates of unemployment and inflation is implicitly recognized,and flexibility is retained to adjust the economic strategy. In the third Eco-nomic Report after passage of the bill, and in any subsequent ones, the Presi-dent may modify the numerical unemployment goal contained in the bill, orthe timetable for achieving it, if he finds such changes necessary.

In recognition of the fact that macroeconomic policies alone are not ableto reduce unemployment to acceptable levels, the President is directed todevelop, as appropriate, supplementary employment programs to helpachieve the long-run unemployment target. There is no requirement thatany specific programs be introduced, but those recommended to the Presi-dent for his consideration include the following: countercyclical employmentprograms, including public works projects, countercyclical public serviceemployment, and countercyclical revenue sharing; regional and structuralemployment policies designed to reduce unemployment among specific dem-ographic groups and within depressed geographic areas; youth employmentprograms; job training and counseling programs to prepare persons for em-ployment in the private sector; and finally, establishment of such additionalpublic or private nonprofit employment projects as are needed to meet thelong-term target for the unemployment rate. These additional projects maybe created only after an official finding by the President that all other meansof reducing unemployment are insufficient. Any new programs would requireauthorization and funding by the Congress.

The bill requires the Congress to evaluate the President's economic strategyand adopt its own set of goals and policies, which may or may not coincidewith those of the President. The Federal Reserve would be required to submitits own plan for monetary policy to the Congress and to explain the relation-ship between its intended policies and the President's short-term goals. Theseprocedures for establishing and reviewing goals and policies are designed toachieve a better coordination of the actions of the President, the Congress,and the Federal Reserve, and to produce a more coherent set of macro-economic policies.

The procedures established by the Full Employment and Balanced GrowthAct are an important advance beyond the Employment Act of 1946. The billdoes not authorize massive new Federal programs. Nor does it impose con-trols on the economy or create additional governmental institutions. On thecontrary, it reaffirms the critical importance of a healthy and dynamic pri-vate sector in achieving our long-term goals, and it relies on existing institu-

94


tions to improve the formulation and coordination of economic policy.While this new framework cannot guarantee a return to full employmentand price stability, it should help identify the most serious obstacles andpoint the way toward rational solutions.

A 4-percent rate of unemployment in 1983 is a very ambitious objective,for it would imply that actual GNP would exceed our present estimates ofpotential GNP. The major unanswered question regarding this target iswhether it can be achieved without creating pressures in labor and productmarkets that would touch off a new round of inflation. Given the presentstructure of these markets, it is unlikely that a 4-percent unemployment ratecould be achieved through aggregate demand policies alone without at thesame time causing a significant increase in the rate of inflation. Responsiblepolicy, however, requires not that we abandon efforts to reach the 1983 un-employment goal, but that we work steadily to reduce the conflict betweenlow unemployment and inflation by developing structural measures to im-prove the functioning of markets. Chapter 4 discusses in some detail therole of such policies in improving the efficiency of labor markets.

95


CHAPTER 3

The World Economy—a Hesitant Recovery

THE WORLD ECONOMY in 1977 continued to feel the aftershocksof the 1972-75 period: output remained well below productive

potential while unemployment reached new peaks in many countries, infla-tion continued at high levels, and unusually large imbalances in currentaccounts persisted. These are problems that are likely to continue to com-mand the attention of policy makers in the coming year. Economic growthin the United States was stronger than that in industrial countries abroad.This difference in growth rates and strongly rising oil imports contributed tothe emergence of an unprecedented U.S. deficit on current account transac-tions. Concern over the U.S. deficit was a major factor leading to a sub-stantial depreciation of the dollar against many foreign currencies, whichwas especially rapid toward the end of the year.

This chapter focuses on the causes of the hesitant recovery of the worldeconomy from the 1974—75 recession, and on the challenge to the conductof national economic policies that it represents. Developments in the worldeconomy over the past 5 years are assessed. Then a closer look is taken atdevelopments in 1977—concentrating on the largest foreign industrial coun-tries, which along with the United States set the pace for the worldeconomy as a whole. Finally, the major continuing problems in the worldeconomy that grew out of the disturbances in the first half of the 1970s areassessed, and the Administration's approach to these problems is set forth.Thus the discussion is not a complete catalog of world economic problemsor of U.S. international economic policies. One important omission is thelong-standing challenge to raise incomes in the poorer countries. U.S.programs specifically directed toward this goal are not examined. Never-theless, solutions to the problems that are examined—hesitant world re-covery, imbalanced international payments, volatile commodity prices, andslow growth of world trade—are crucial to the success of developmentprograms.

ORIGINS OF THE CURRENT WORLD ECONOMIC DISORDER

Although individual countries have from time to time faced conditionssimilar to today's, the combination of prolonged inflation along with un-employment in many countries and large current account imbalances is anew experience. A first step toward developing policies to deal with the

96


present constellation of problems is to study how they arose and to sort outwhat has changed in the world economy and what has not.

The period from the late 1940s to the late 1960s counts as one of themost successful periods of modern world economic history. Successive stepswere taken to liberalize world trade. Real incomes in Western Europegrew at an average rate of 4.6 percent between 1955 and 1970. The economyof Japan grew an average of 9.5 percent per year as that economyjoined the front ranks of the industrial economies. Major economic gainswere also made in many developing countries, and growth in this groupaveraged 5.1 percent per year. Problems with inflation and with internationalpayments tended to be isolated in individual countries and were tractable.Consumer price increases in the group of developed countries making upthe Organization for Economic Cooperation and Development (OECD)were brought under increasingly better control and averaged only 2.6 percentper year from 1961 to 1966.

During the late 1960s problems began to appear. Inflationary tendenciesgradually developed as labor and product markets tightened in some coun-tries and wage pressures increased even in economies that appeared to havesome slack. The mild recessions that occurred in various countries seemedless able to eliminate the inflationary momentum that had built up in thepreceding expansions. In addition, the mechanisms of the Bretton Woodssystem of par value exchange rates were increasingly unsuited to deal with theimbalances that arose in countries' payments positions. Although these de-velopments posed serious puzzles for policy makers in the late 1960s andearly 1970s, the problems seemed manageable. In retrospect, they weredwarfed by later events.

INFLATION

The slow upward drift of inflation rates in the late 1960s quickened after1971, carrying inflation in most industrial countries above 10 percent peryear in 1974 and more than twice that high in some countries. Althoughinflation rates have since receded, they remain well above those previouslyexperienced, and further declines are now coming only slowly in most coun-tries (Chart 6).

The upward movement of inflation rates was the consequence of a seriesof events that culminated with the oil embargo and oil price increases oflate 1973. Economic policies in virtually all industrial countries were orientedtoward expansion in 1972. As a result, growth was strong virtuallyeverywhere that year and the next year. Although aggregate capacity utiliza-tion and unemployment data indicate that demand had been pushed beyondpotential output in only a few national economies, the nearly simultaneousexpansions outran available supplies of many raw materials and strainedworldwide capacity in a number of basic industries. Industrial commodityprices climbed rapidly. The nonfood component of The Economist index of

97


Chart 6

Consumer Prices and Hourly Earningsin Major Industrial Countries

PERCENT CHANGE FROM YEAR EARLIER

20

15

10

5

UNITED STATES

HOURLY EARNINGS

CONSUMER PRICES

LI C

I I I I I I I I I I 1 I I I 1 I I 1 1 I I I 1 I I 1 1 I I I I I I I 1 I I [ I I I

1966 67 68 69 70 71 72 73 74 75 76 77

20

Ib

10

5

0

CANADA

-

I I I I I I I I I

HOURLY EARNINGS

111111 M i rTi 111 M

*y CONSUMER PRICES

I i i i I i i i ! i i i I i I t i l l1966 67 68 69 70 71 72 73 74 75 76 77

25

20

15

10

5

0

FRANCE

i hi

Ji I i

rf

11

\

i i I

HOURLY

I I I I I I

EARNINGS

I I I I I

/ " \

CONSUMER

I I I I I I

PRICES

I I I I I

1966 67 68 69 70 71 72 73 74 75 76 77

20

10

5

0

WEST GERMANY

i i i l T T > v i I i

f \CONSUMER

PRICES

1 1 1 i I 1 1

u—*~1 1 1 I 1 1 1 1

HOURLY

1 1 1 1 1 1 1

EARNINGS

^*~

1 1 1 1 1 1 1 1 1

1966 67 68 69 70 71 72 73 74 75 76 77SOURCE: ORGANIZATION FOR ECONOMIC COOPERATION AND DEVELOPMENT.

98


Chart 6—Continued

Consumer Prices and Hourly Earningsin Major Industrial Countries

PERCENT CHANGE FROM YEAR EARLIER

CONSUMER PRICES

I I I I I I I I M^iH'^T I I 1 I I I 1 I I I I I I I 1 I I I I I I I 1 I I I 1 I I I I I I I

1966 67 68 69 70 71 72 73 74 75 76 77

35

30

25

20

15

10

5

0

JAPAN

-

^ \ j

I I I I I I I I I I I

AHOURLY EARNINGS A / \A

yv/\ A ^ / \ K

^ V v N ^ - - y CONSUMER PRICES

I I I I I I I I I I I I I I I I I I I I I I M I I l I I

-

-

I I I I I I I

1966 67 68 69 70 71 72 73 74 75 76 77

3b

30

25

20

15

10

5

0

UNITED KINGDOM

-

-

i i i r f i " i i I i i i

J

M i l

J

/HOURLY EARNINGS / /

CONSUMER

M l I I I I I I I I

A

PRICES

I I I

-

-

VI I I I I

1966 67 68 69 70 71 72 73 74 75 76SOURCE: ORGANIZATION FOR ECONOMIC COOPERATION AND DEVELOPMENT.

77

99


commodity prices (measured in dollars and excluding petroleum) rose 158.5percent from December 1971 to December 1973. Less than one-twentieth ofthis increase can be attributed directly to the depreciation of the dollar inthe early 1970s.

Grain prices also began to rise following declines in world harvests ofwheat, corn, and rice in 1972 from year-earlier levels. World grain stocks(held mainly in the United States) had been whittled down from mid-1960s levels, so that poor harvests had a greater effect on prices than earlier.The food component of The Economist index rose 142.5 percent fromDecember 1971 to December 1973.

Prices of manufactures also began to move up at a faster clip in 1973,reflecting higher input costs and strong demand. Consumer price increasesin the large countries ranged from 7.3 percent in Germany to 15.0 percentin Japan over the 4 quarters ending in the fourth quarter of 1973. Wagepressures built up steadily in most countries. Trends in consumer prices andhourly earnings for the seven largest industrial countries are shown inChart 6.

Although inflation rose in all countries during this period, there was con-siderable divergence of inflationary experience across countries. This diver-gence partly reflected differences in demand pressure and the extent andspeed of wage responses to increases in the cost of living. The exchange raterealignments that began in 1971 also contributed to widening differences ininflation rates. Countries that had recorded above average inflation in theyears up to 1971 and consequently experienced declines in their currenciesfaced additional inflationary pressure from rising import prices. Countrieswhose prices had been more stable, and whose currencies therefore tendedto appreciate, received a dividend from slower import price increases. Theshift to flexible rates among major currencies over the 1971-73 period alsoprovided countries with more freedom to pursue policies with differentconsequences for inflation.

Inflation was already recognized as a serious problem in late 1973, whenthe world was surprised by the Arab oil embargo and a series of oil priceincreases that more than quadrupled the 1972 world price of crude oil.Of all the shocks of the early 1970s, the oil price increases have hadthe most profound and persistent effects. The direct effect alone addedabout 1 2 percent to the price level in developed countries in 1974. Pricesof substitute fuels were also bid up, thus further increasing price levels.

Coming at a time when upward price pressures were already intensifying,the oil price increases touched off an inflationary chain reaction. Fears thatthose who controlled supplies of other raw materials might succeed in emu-lating the Organization of Petroleum Exporting Countries (OPEC), spec-ulation fed by fluctuations in exchange rates for major currencies, and avery tight supply situation led to another burst of industrial commodity

100


price increases. With stocks of grains having already reached very lowlevels, a second poor world harvest in 1974 contributed to further largeincreases in food prices.

The rise in oil, food, and other commodity prices reduced real incomesfrom wages and profits in manufacturing and service sectors. Attempts byworkers and firms to restore previous positions put added upward pressureon wages and prices. The extent of these secondary wage-price forces variedwith conditions in individual economies. Where automatic wage adjust-ments to compensate for consumer price rises were widespread, as inItaly or the United Kingdom, or where wages were adjusted annually, asin Japan, the pressures were greatest. Average increases in hourly earningsover 12-month periods reached 30 percent or more in these countries. Evenin Germany, where wage pressures were more moderate, increases in hourlyearnings approached 12 percent over a 12-month period.

The direct upward pressures from commodity prices abated as the worldmoved into recession in late 1974 and early 1975. Indeed, most non-oilcommodity prices moved sharply downward. As a result, inflation rates re-ceded, but the wage-price momentum that had been built into economiessustained rates of consumer price increase that continued to be roughlydouble what they had been in the late 1960s. In some countries such as Italy,the upward shift in the ongoing rate of price increase was substantiallygreater. The persistent high unemployment and low capacity utilization inthe world since 1975 has had a relatively small effect in dissipating themomentum of the wage-price spiral.

CURRENT ACCOUNT IMBALANCES

The oil price increases of 1973 led to huge surpluses in the currentaccounts of most OPEC countries, and to their mirror image—largedeficits—elsewhere. The OPEC countries could not immediately increasetheir imports to match their higher revenues. Hence their combined cur-rent account surplus, which measures the amount by which export receipts(including investment earnings) exceed payments for imports and net trans-fer payments, climbed from less than $10 billion in 1973 to over $60 billionin 1974. A large part of the corresponding shift in the position of the restof the world was seen in the emergence of a combined deficit of more than$30 billion in the OECD countries, including the United States, after sur-pluses averaging $4.3 billion for 1971-73. The deficit of the non-OPECdeveloping countries widened to about $25 billion, from an average of $8billion in 1971-73 (Table 14).

After being compressed by reduced oil consumption during the recessionof 1975, the combined OPEC surplus expanded to the neighborhood of $40billion in 1976 and 1977 as demand for oil picked up again. This surplushas become concentrated in the Persian Gulf states, whose revenues con-tinue to outstrip their ability to absorb goods and services. The deficit ofthe non-OPEC developing countries has receded from a peak of $40 billion

101


in 1975 to less than $25 billion in 1977, while the deficit in the OECDcountries has risen to more than $30 billion again.

TABLE 14.—World current account patterns, 1973-77 *[Billions of U.S. dollars]

Area and country

OECD

United States . .CanadaJapan.. . . .European Community

West Germany

Developing countries:

OPECNon-OPEC

Other <

Residuals

1973

2.8

- . 40

- . 11.74.3

9.0- 8 . 0

- 5 . 5

1.7

1974

- 3 2 . 8

3 - 2 . 3- 1 5- 4 . 7

- 1 1 . 39.7

61.8- 2 4 . 5

- 9 . 8

5.3

1975

- 6 . 3

11.6- 4 7- . 7

.73.8

30.8- 4 0 . 0

- 1 8 . 0

33.5

1976

- 2 6 . 5

- 1 . 4- 4 . 2

3.7- 7 . 8

3.4

42.3- 2 6 . 3

- 1 3 . 3

23.8

1977 2

- 3 2

- 1 8- 41002

40- 2 3

- 1 1

26

1 Data are on the OECD basis.2 Preliminary estimates.3 Excludes cancellation of Indian debt (—$2.0 billion) and extraordinary grants (—$0.7 billion).« Includes the Communist countries, South Africa, and non-OECD Europe.• Residual arises from timing differences and inconsistencies in nationally collected data.

Source: Organization for Economic Cooperation and Development (OECD).

RECESSIONThe massive increase in commodity prices—especially oil—led directly

and indirectly to the worst recession since the 1930s. The direct effects werethe result of a transfer from consumer incomes in the industrial countries tothe revenues of oil-exporting countries. Spending generally declined inimporting countries in response to the change in real incomes, while theOPEC countries increased their spending only slowly at first. Even afterthe OPEC countries made the initial adjustment of their spending to theirincreased wealth, their saving remained high. The result was a massivechange in world saving patterns, as is dramatically shown in Table 14by the pattern of current accounts in 1974. The change became increasinglyevident as the total real gross national product (GNP) of the seven largestOECD countries fell at an increasingly rapid rate starting in the first halfof 1974.

Two less direct responses added to the contractionary impetus of the priceincreases. First, consumers and business became progressively more pessimis-tic as 1974 wore on. There were extraordinary rises in saving rates in allmajor foreign countries, while sharp declines in real investment occurredin most areas.

A second depressing effect came in the reactions of policy makers. Vir-tually every country was faced with the dilemma of how to respond to thesimultaneously inflationary and contractionary effects of the oil price rise. Onthe one hand, there was widespread reluctance to accommodate the infla-tionary effects by allowing nominal demand to grow at a sufficient pace tokeep unemployment from rising. Many felt that such an accommodativepolicy would allow the new wage-price spiral to continue unchecked. On

102


the other hand, most analysts perceived that a continuation of restrictivepolicies—initiated to counter the tight markets in 1973—would lead to asharp decline in real incomes and to a serious contraction.

Faced with this dilemma, countries chose different routes. The predomi-nant response was to continue the restrictive policies initiated in 1973 into1974. When the full contractionary force of the oil price increase was notfelt immediately, monetary policy in some countries was made even .morerestrictive. Fiscal policy automatically became more restrictive wheninflation raised tax liabilities by pushing individuals into higher personalincome tax brackets and caused real corporate profits to be overstated.

By late 1974 the cumulative effects of the oil price increases and contrac-tionary monetary and fiscal policies began to be felt more strongly. Risingsaving rates added to contractionary forces as consumers became more cau-tious. Real investment fell with firms' growing concerns about the outlookfor sales, high interest rates, and the structure of their balance sheets. Firmsalso moved to reduce inventories of materials that had been built up as ahedge against further commodity price increases. The combination of theseforces produced the deepest recessions of the postwar period. Those fewcountries that were less affected by the oil price increase, like Canada, or thatmoved to counter its contractionary effects, like Sweden, had milder reces-sions. They were seriously affected by the subsequent prolonged period ofweak demand in other industrial countries, however. Governments in thesecountries also ultimately adopted more restrictive policies to control inflation.

In 1975 authorities in most countries moved to counter their deepeningrecessions with expansionary fiscal policies. The view that increased ratesof monetary expansion would raise inflationary expectations even underdepressed conditions inhibited most countries from taking similar steps onthe monetary side. The expansionary fiscal measures and the completion ofinventory adjustments provided an initial burst of growth in most countriesafter the trough was passed. Since then real private spending has been rela-tively sluggish in most countries, and fiscal policies have become more restric-tive. Hence output growth in industrial countries has slowed markedly out-side the United States. Unemployment rates in most foreign countries nowstand at or above the levels reached in 1975 and are rising (Chart 7).

THE WORLD ECONOMY IN 1977

Outside the United States, the major industrial countries virtually stag-nated after the first quarter of 1977 (Table 15). Growth in the smaller indus-trial countries averaged even less than in the larger ones. Unemploymentreached new highs in many countries. Commodity prices surged upward atthe beginning of 1977, but the rise was short lived. Wage increases weresmaller than a year earlier, and the momentum of inflation edged slowlydownward. Sharply declining prices for food and many industrial commodi-ties helped to bring inflation rates below underlying rates for most of thesecond half of the year.

103


Chart 7

Unemployment Rates inMajor Industrial Countries

PERCENT; ADJUSTED TO U.S. CONCEPTS

2 -

1960

1960

1965 1970 1975

10

8

6

4

2

0

CANADA

-

I I I I

-

i i i i ! i i i i I i i

1965 1970 1975

6

4

2

0

FRANCE

-

' •

I I I I i i i i

, • —

I I l i I I

1960 1965SOURCE: DEPARTMENT OF LABOR.

1970 1975

104


Chart 7—Continued

Unemployment Rates inMajor Industrial Countries

PERCENT; ADJUSTED TO U.S. CONCEPTS

WEST GERMANY

I I I I I I I I I I I

1960 1965 1970 1975

I i i i i I i i i i I i

2 —

1960 1965 1970 1975

i i i i I i i i i I i i i i i i

1960 1965 1970 1975

8

6

4

2

0

UNITED KINGDOM^

-

-

I I I I I I I I I I I I I

1960 1965

1/ EXCLUDES NORTHERN IRELAND.SOURCE: DEPARTMENT OF LABOR.

1970 1975

105


TABLE 15.—Real GNP growth in major industrial countries, 1976-77[Percent change at seasonally adjusted annual rate]

Country

United StatesCanada .- .France2

West GermanyItaly sJapanUnited Kingdom 3

8.813.37.48.9

10.012.010.8

1976

II

5.13.64.94.05.56.0

- 2 . 2

III

3.9- 1 . 3

1.61.01.01.6.7

IV

1.2- . 81.65.87.63.43.7

1977

1

7.57.88.83.97.58 8

- 3 . 6

II

6.2- 1 . 2- 5 . 1- . 8

- 9 . 96 8.4

III i

5.15.3.94

- 2 . 41 8

- . 4

1 Preliminary.2 Gross domestic product excluding nonmarket activity such as compensation of employees in the government sector.3 Gross domestic product.

Source: Department of Commerce (Bureau of Economic Analysis), Organization for Economic Cooperation and Develop-ment, and national sources.

As inflationary fears receded, current account imbalances became themost serious constraint on expansion in many economies. Persian Gulf oilproducers and several industrial countries continued to have large surpluses.Other governments were inhibited from adopting the more stimulativeeconomic policies that were needed to restore the momentum of economicexpansion, in part because of concerns that they would be unable to financethe larger current account deficits that would result. The emergence of alarge current account deficit in the United States in 1977 was associated withsome improvement in the positions of industrial and developing countries thathad been hard pressed in 1976, but more than one-third of the U.S. deficitwas offset by a jump in the surplus of Japan.

AGGREGATE REAL GROWTH

The growth of real economic activity in 1977 was disappointing—especially in Western Europe. Real output in OECD Europe increased onlyan estimated 2 percent. By the third quarter, the number of unemployedin these countries excluding Portugal and Turkey stood at about 7 million,or 900,000 above the figure a year earlier. This performance was, in part,the consequence of the restrictive policies adopted by a number of countriesas a means of slowing inflation and reducing current account deficits. Italyand the United Kingdom accepted restrictions on their economic policiesas part of the establishment of standby credits with the International Mone-tary Fund (IMF). Other countries—France, many smaller industrial coun-tries, and many developing nations—also assigned high priority to reducinginflation and current account deficits, and maintained or adopted restrictivemonetary and fiscal policies in 1977.

Because of the constraints on policies felt by many governments, hopes forsustaining a global recovery in 1977 were pinned to a group of "strongcountries," those with relatively moderate inflation rates and favorablebalance of payments positions. The United States, Germany, and Japanwere the major states in this group, but Switzerland and the Netherlands

106


also fit the description. The United States was in a somewhat different posi-tion from the others in that it had moved to approximate current accountbalance in 1976. A deficit was seen as an acceptable position for the UnitedStates and, given the continuing OPEC surplus, even a desirable one froma global standpoint. It was expected that the other strong countries wouldalso move toward and into current account deficit.

For world growth to be maintained at a satisfactory rate, it was neces-sary that growth in domestic demand in these strong countries be vig-orous, thereby counteracting the restrictive measures taken in the "policy-constrained" countries. Reduction of current account deficits in the policy-constrained countries would be facilitated by such a strategy, and these coun-tries would soon be able to move back to quicker recoveries.

A comparison of major countries' publicly announced forecasts for 1977with what now appears the likely outcome (Table 16) shows that, exceptfor the United States, countries have fallen below their governments' growthexpectations. Germany has probably fallen 2 to 2 ^ percentage points shortof the 4*4 to 5 percent growth rate discussed early in the year. Germanauthorities had counted on strong private demand at home and growingexports to achieve satisfactory growth. Investment and exports did not riseas much as expected, however, and the government budget deficit wassmaller than projected. As a result, output growth stalled after the firstquarter. The government responded by postponing measures intended toreduce the public sector deficit and by adopting a small fiscal stimuluspackage in November. However, the package came too late to affect theoutcome for 1977.

The Japanese announced a growth target of 6.7 percent for the fiscal yearending in March 1978. Although the Japanese economy fell well behindthe pace needed to achieve this, stimulative measures adopted in Septemberand a second set of measures taken at the end of the calendar year willmake the gap less than it would have been. Japanese GNP growth wassupported mainly by strong exports. Domestic demand expanded at anaverage rate of less than 4 percent for the first 3 quarters of calendar year1977. Thus the pattern of Japanese growth in 1977, and the resulting in-

TABLE 16.—National forecasts and realized real GNP growth for 1977

[Percent]

Country Change fromEarly 1977forecast Realized 1

United States....CanadaFranceWest Germany...ItalyJapanUnited Kingdom.

Fourth quarter to fourth quarter.Year to year

.do.

.do.,

.do..Fiscal year to fiscal year.Year to year

3-44.6

2.66.71.2

V/i2%

i Preliminary estimates.

Sources: Forecasts from public statements of government officials and other official sources; estimates of realizedgrowth from Department of Commerce, Organization for Economic Cooperation and Development, and Council of Eco-nomic Advisers.

107


crease in the current account surplus by nearly $7 billion, served to tightencurrent account constraints on other countries.

Economic growth in all other major foreign countries also fell short ofexpectations. The pervasively weak element in the growth of demandin 1977 was business fixed investment. Among the seven largest coun-tries, only in Canada was real business fixed investment above 1972-73levels. Business fixed investment has slowed in most countries since 1976,and virtually no growth appears to have occurred in the second half of 1977in any of the large foreign countries.

Real private consumption expenditures rose only moderately in mostcountries in 1977. Consumption declined in the United Kingdom, wherefalling real wages depressed disposable income and hence real consump-tion, and was virtually unchanged in Italy because of sharply increased per-sonal tax collections. In Germany and France, taxes net of governmenttransfer payments also took an increased share of household income in1977. Saving rates in the large foreign countries were lower than in 1976,except for Japan, but the declines since the recovery began were generallyless than in the United States.

Government spending made only a modest contribution to demand growthin most countries. Authorities in Italy and the United Kingdom followedstrongly restrictive demand management policies. Limiting the governmentshare of total spending over the medium term is an independent policy ob-jective in these and other countries. Authorities have therefore been reluc-tant to increase spending in the short run as an aggregate demand measure.Japan, where the government sector is still substantially smaller than inother countries, was an exception to the general pattern of slow growth inreal government spending.

Despite the slower growth of world trade in 1977, the growth of realexports was relatively strong in Japan, Canada, Italy, and the UnitedKingdom. Except for Japan, these are countries whose exports benefitedfrom substantial exchange rate depreciations, although in Canada the growthof the U.S. market was undoubtedly more important for exports, andpetroleum exports played a role for the United Kingdom. In Germany andFrance exports grew more slowly, and in the smaller OECD countries theycontracted, on average. Thus the smaller countries were most adverselyaffected by external developments, and these countries were the ones regis-tering the slowest real growth—with output declining in many of them.

INFLATION IN 1977

While inflation rates in most countries remained high in 1977 (Table17), they did come down somewhat—particularly in those countries whereinflation had been highest. A surge in world commodity prices in late 1976and early 1977 pushed up consumer prices in the first half of the year. How-ever, these prices turned around by midyear. In some countries—the UnitedKingdom, Italy, France, and a number of smaller countries—price pressures

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continued to be exacerbated in the first half of 1977 by large exchange ratedepreciations that had occurred in 1976. These currencies were stable, evenrising somewhat in 1977, and this source of price pressure abated or wasreversed as 1977 progressed.

TABLE 17.—Inflation in major industrial countries, 1976—77

[Percent change in the consumer price i ndex; seasonally adjusted annual rate]

Country

United States ._CanadaFranceWest GermanyItalyJapanUnited Kingdom

1976

1

5.26.2

10.24.4

15.17.9

14.6

II

4.96.08.74.5

26.910.88.8

III

5.74.4

10.43.3

14.69.6

15.1

IV

4.47.0

10.53.1

28.28.9

21.7

1

8 49.96.55.2

20.87.8

21.0

1977

II

8.89.4

12.23.8

16.48.9

12.4

III

5.37.3

10.43.7

14.56.1

11.6

Sources: Department of Labor (Bureau of Labor Statistics) and Council of Economic Advisers.

A significant decline in inflation was achieved in 1977 in the United King-dom, where a wage restraint program prevented import price increases frombeing reflected in wage settlements. Although no wrage norm was agreed tofollowing the end of the second year of wage restraint in August 1977, thegovernment has been largely successful in preventing contracts from beingreopened until 12 months after the previous settlement. Increases sinceAugust have not averaged substantially more than the 10-percent figure thatthe government views as consistent with controlling inflation.

Inflation also declined in 1977 in Italy. Italian wages, which are indexedto the cost of living, did respond to import prices and rose sharply throughthe first half of 1977. With the stabilization of the lira and the turnaroundin commodity prices, cost-of-living increases in wages are now decliningrapidly. The declining trend has been reinforced by some shrinkage of wageincreases granted in addition to cost-of-living increases.

Thus inflation has been moderating in the two large countries where ithad been most rapid. Elsewhere, however, wrages and prices appear to belocked in a stable pattern of increases. Price increases in Japan have beenheld down by the appreciation of the yen in 1977; and other countries whosecurrencies appreciated substantially late in the year should post lower priceincreases in early 1978. It remains to be seen, however, to what extent thesesmaller price increases will lower inflation rates over the longer term by hold-ing down money wage increases. In other countries there appears to be littlerisk that inflation will accelerate markedly, but also little hope that it can bebrought down quickly from current levels. Wage settlements and prices ofmanufactured goods have proved to be relatively insensitive to the high un-employment and low capacity utilization now prevailing. Wage and pricecontrols have been effective only when combined with very restrictive de-mand management policies and only for limited periods of time. The Cana-

109

248-947 O - 78 - i


dian government is in the process of phasing out one of the few remaininggeneral programs of wage and price controls. In addition, there have beententative experiments with the use of taxes as measures to slow inflation. Inone approach, governments have proposed general tax reductions in returnfor agreements by labor unions to accept lower money wage settlements.When tax relief is warranted on other grounds and labor negotiations arehighly centralized, something may be gained through such a bargainingprocess. An alternative set of approaches, discussed in Chapter 4, would usedecentralized tax incentives for reducing inflation. These approaches arenovel and raise important substantive questions that must be answeredbefore they could be responsibly proposed.

CURRENT ACCOUNT POSITIONS IN 1977

Four industrial countries that have had persistent surpluses—Japan, Ger-many, Switzerland, and the Netherlands—had a combined surplus of about$16 billion in 1977. The United Kingdom and Italy moved from deficitinto surplus.

Efforts by other OECD countries to reduce their sizable deficits in 1976met with little success because of slow growth in their export markets. Somecountries within this group—Portugal and Turkey, for example—haveencountered difficulties in continuing to finance deficits. The non-OPEGdeveloping countries appear to have reduced slightly their combined currentaccount deficit in 1977. Their export earnings were boosted by commodityprice increases early in the year, and some of them had sharply curtailedimports as well. Brazil and Mexico achieved substantial reductions in theirdeficits and a number of Asian countries appear to have realized smallershifts.

The $l7-billion rise in the U.S. current account deficit from $1 billion in1976 to about $18 billion in 1977 reflected a $20-billion increase in our tradedeficit. Although an increase in the deficit was widely expected, the mag-nitude of the shift proved to be much greater than anticipated, since growthabroad failed to develop as strongly as expected and U.S. oil importswere pushed up by a series of unforeseen developments. Rising payments foroil accounted for more than one-half of the increase in our trade deficit in1977. The weak U.S. export performance and rise in the trade deficit in1977 does not appear to stem from trends in relative domestic prices. U.S.and foreign prices measured in dollars held about the same relationshipin early 1977 as in mid-1974, although there have been fluctuations in theinterim. There has been some shift in relative export prices for manufac-tured goods, however, suggesting a greater willingness on the part of export-ers in some foreign economies to compete on the basis of price. Neverthelessthe depreciation of the dollar in late 1977 should result in a noticeable im-provement in U.S. competitiveness, with the trade volume response occurringafter a lag of 1 or 2 years.

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FOREIGN EXCHANGE MARKETS

The most notable development in foreign exchange markets in the first halfof 1977 was the strength of the U.K. pound and the Italian lira after thesecountries completed standby financing agreements with the IMF. As theyear progressed, exchange market attention focused increasingly on thedollar.

Concern over the large U.S. current account deficit generated downwardpressure on the dollar—particularly vis-a-vis the currencies of countries withlarge surpluses. As market uncertainties grew over what measures wouldbe enacted by the United States to control the rise in oil imports, and asdemand in foreign economies showed few signs of strengthening, thepressures intensified. The decline of the dollar from December 1976 toDecember 1977 against a weighted average of the currencies of ten majorforeign countries (Belgium, Canada, France, Germany, Italy, Japan, theNetherlands, Sweden, Switzerland, and the United Kingdom) was 5.5 per-cent, weighting currencies by countries' shares of the total trade of the group.Weighting the same currencies by countries' trade with the United Statesgives a depreciation of only 2.4 percent during 1977. The difference ismainly due to the much larger weight of the weak Canadian dollar in thelatter index. Indexes including more currencies also tend to show smallerdepreciations of the dollar, since currencies excluded from the index of tencurrencies were virtually all weaker than the average of those included.

The yen appreciated against the dollar by 22.3 percent from December1976 to December 1977, the largest appreciation of any currency. In-creases in the dollar value of several other currencies were also sizable:German mark, 10.8 percent; Swiss franc, 18.0 percent; and U.K. pound,10.5 percent. On the other side, the Canadian dollar fell 7.2 percent.

The magnitude of these movements was not unusual for the floatingrate period. In the period since the dollar floated, it has twice depreciatedby more than 7 percent on a weighted average basis in 12 months or less.Three times the dollar appreciated by 7 percent or more, with the appre-ciation exceeding 13 percent in two cases. Individual rate changes of10 percent have been common, and even the change in the yen rate thisyear has been matched several times by movements of other currencies.Rapid movements at the end of the year occurred under disturbed marketconditions, however, with wide spreads between bid and ask quotations andlarge intraday gyrations in rates. Thus the efficiency of the current system ofrate determination was called into question—a topic pursued below.

UNFINISHED BUSINESS

At the beginning of 1978, the world economy faces the same problemsthat have confronted policy makers since 1975—unemployment is high,margins of unused productive capacity are substantial, inflation continuesat excessive rates, protectionist forces are strong, and current accounts are

111


extremely unbalanced. On the brighter side, the virulence of underlyingcontractionary and inflationary forces has abated as governments have takencautious, and for the most part cooperative, steps to improve economic per-formance. The international financial system has adapted to the need tochannel the large accumulation of savings in OPEC countries to countriesin deficit.

The serious problems that have beset the world economy have led someto argue that we must permanently set more limited economic objectives.In some respects this is true—we must plan for a world of less secure andmore expensive energy. Nevertheless, higher employment and output areachievable virtually everywhere without creating new inflationary pres-sures. The problems are global and the pursuit of appropriate domesticpolicies is constrained in many countries by international payments im-balances. Achieving the potential of the world economy will require boldpolicies and close international economic cooperation.

Four major economic challenges are discussed below. International co-operation is essential to meeting each one of them. If, instead of workingtogether to sustain economic recovery and solve our other problems, govern-ments accept a continuation of the poor performance of 1977 as inevitable,the world may well face a darkening economic future. Unilateral protection-ist trade policies will flourish. Pressures for international arrangements toallocate markets in especially depressed sectors will grow stronger. The resultwill be a more rigid world economy, no longer capable of generating therapid growth of trade and incomes that has characterized the post-WorldWar II period. The developing countries, which are looking for opportunitiesto participate more broadly in world trade, will be particularly hurt bysuch an outcome.

TO RESTORE HEALTH TO THE INTERNATIONAL ECONOMY

Foreign industrial economies as a group have shown only scattered signsof renewed strength following their extreme weakness in mid-1977. TheJapanese economy is experiencing very slow growth. Even with the stimu-lative measures announced at the end of 1977, the appreciation of the yen,together with a high personal saving rate and depressed investment, raisesquestions whether growth in 1978 will exceed 1977. In Europe, the eco-nomic outlook with existing policies is for rising unemployment of labor andfalling capacity utilization. For the OECD as a whole, GNP growth islikely to average 3*/2 to 4 percent in 1978, unless there are major policychanges in addition to those announced for Japan and those proposed for theUnited States in this Report.

At the same time, most forecasts indicate that the rate of increase ofconsumer prices in the OECD should slow somewhat from about 8 per-cent in 1977 to around 7 percent in 1978. There continues to be sufficientslack in most economies to permit growth at rates moderately higher than

112


current forecasts without forgoing a gradual reduction in average inflationrates.

Governments recognize the need for stronger expansion. In November 1977the member countries submitted their preliminary objectives for 1978 tothe OECD. In the aggregate these goals would lead to 4^2 percent real GNPgrowth for the OECD as a whole. Such an outcome would be the minimumthat could be expected to arrest the rise of unemployment abroad.

The generally sluggish behavior of business fixed investment has been amajor factor keeping countries from achieving their goals. Stronger invest-ment is important in the short run to provide stimulus for sustained recovery.Over the longer run, some are concerned that capacity constraints may havebecome relatively more important limitations on noninflationary expansion.Thus when capacity limits are reached, unemployment may still be abovelevels that would be inflationary on the wage side. Greater business fixedinvestment during the recovery period would reduce the potential for capac-ity constraints and make possible a further reduction in unemployment.

A number of explanations have been offered for the weakness of invest-ment. No single explanation will suffice for all countries. Nevertheless asubstantial portion of the current weakness of investment in every countryis accounted for by the low current and prospective rates of capacity utiliza-tion and the effects of low levels of output on profits. In addition, the per-sistence of inflation has undoubtedly added to concerns that recoveries maynot be sustained. Much investment that has occurred has been for mod-ernization projects that promise to save more in labor, energy, and otherinputs than their capital costs; projects that would add to capacity havein many instances been deferred.

Considerable attention has been focused, as well, on lowr after-tax returnson capital and the poor outlook for improvement as explanations for sluggishinvestment. Measures of profits and the total return on capital must be treatedwith some reservations, but there is substantial evidence that over the past15 to 20 years they have declined relative to GNP and relative to capital stocksin many foreign countries. Moreover it appears—in contrast to the U.S.experience—that the fall in the return on capital has been too large and tooprolonged to be entirely attributable to the recent recessions, at least in Ger-many, the United Kingdom, and Italy.

Investment is not being held back by insufficient savings. Given the savingsrepresented by the OPEC current account surplus and with consumer savingrates in most foreign economies high by historical standards, there is noshortage of savings in the world today. Thus a higher return on capital isnot required today to assure an adequate supply of funds for investment.Rather, to encourage firms to make use of the available pool of savings forproductive investment, what is needed is a sufficient margin of the expectedreturn on capital over the cost of capital.

One way to increase this margin and call forth more investment is to raiseexpectations and reduce uncertainties concerning after-tax returns on capital.

113


Many government actions can have an effect on these expectations by achiev-ing continued economic recovery, reducing tax liabilities associated with newinvestment, and reducing uncertainties and inefficiencies that result from thegovernment regulatory process. A second way to increase the margin is tomaintain an expansionary monetary policy, which reduces the cost of capital.Monetary policy is more flexible than policies that work by raising the rateof return on capital, but there is a role for both kinds of policies. Each gen-erates higher expected incomes for those who are willing to accept the riskof new investment. But the two kinds of policies do, of course, have differenteffects on the distribution of income, and these must be taken into account.

To some extent, views concerning the indicators of macroeconomic man-agement threaten to prevent some countries from reaching their goals. Asdiscussed below, the significance of current account positions has changedin view of the OPEC surplus. In addition, attitudes about budget deficitsand the growth of monetary aggregates should be formulated in the lightof current economic conditions. As noted in Chapter 2, it is difficult to holddown deficits in government budgets when the drag on industrial economiesfrom external deficits is as high as it is now, and especially so when invest-ment is weak as well. Similarly, rates of monetary expansion must makerealistic allowance for the inherited momentum of price and wage increasesand the rate at which this momentum can be dissipated. It is important toavoid such a progressive tightening of monetary conditions that investmentobjectives are thwarted.

In recent years, the appropriate use of monetary and fiscal policies hassometimes been constrained by views on their significance and impact. Theprincipal tools of macroeconomic policy are not themselves the ultimateobjectives of policy. In reality, monetary growth rates and budget deficitsare strategic variables, and they must adapt to economic conditions. Thesignificance of these strategic variables lies in their effects on output, unem-ployment, and inflation.

Sometimes it has been suggested that monetary growth or budget deficitsaffect inflation rates directly through expectations, aside from their effectthrough actual or expected demand. Expectations of inflation are indeedimportant determinants of economic behavior, but these expectations arelinked to actual price pressures that are expected to develop in markets.It is difficult to see how inflation (or the expectation thereof) would beraised significantly more by monetary or fiscal policy measures that movedan economy toward full utilization of its productive potential, comparedwith a fortuitous shift in exports or in saving behavior that had the sameeffect on demand. A more carefully articulated view is that monetary andfiscal policy affect the level and composition of economic activity—and thusaffect inflation through this linkage.

A program for achieving full recovery in the industrial economies mustbegin with measures to raise domestic demand and capacity utilization. Onlythen is sufficient investment likely to be forthcoming to achieve structural

114


objectives such as reducing dependence on export demand and forestallingpotential imbalances between capital stocks and labor forces. Both mone-tary and fiscal policy can make a contribution. With excess capacity every-where, world recovery can proceed without undue concern that reasonableexpansionary policies will trigger a new round of inflation. As recovery con-tinues and utilization of capacity reaches high levels, unemployment maystill remain unacceptably high in some countries. A more cautious approachto further reductions in unemployment would then have to be taken. It maybe necessary to move progressively toward fiscal restraint to keep demandwithin the productive potential of the economy, and meanwhile continue topromote investment with continued stimulative monetary policy and specialincentives for investment.

Improved cooperation in economic policy making will be essential if coun-tries are to succeed in carrying out such a program. The consequences ofinsufficient attention to the global implications of national policies are seenin the inflationary pressures generated by the simultaneous expansion of 1973and in the poor performance resulting from too great a reliance on export-led growth in 1977. The mechanisms for international cooperation have im-proved in recent years.

The heads of state of the largest industrial countries have met three timessince 1974 to address economic problems. At the London Summit last Maythe heads of state discussed their domestic economic goals and agreed tomonitor progress toward them.

While not all of the specific goals for 1977 that were laid down at theLondon Summit have been achieved, the exercise has proved a useful tool inimproving international economic cooperation. When the German and Jap-anese economies proved to be weaker than officials in those countries hadexpected, the Summit commitments reinforced domestic considerations thatled both governments to implement stimulative measures in the fall. Summitcommitments also supported the efforts of other governments to maintainpolicies directed primarily at reducing inflation and current account deficits.

The process of setting economic objectives and examining their consist-ency and desirability is being extended in the Economic Policy Committee(EPC) of the OECD. The EPG will continue to monitor economic activ-ity in 1978 relative to countries' own internal goals and to the overallbalance of demand and supply in the world economy. The internationaldiscussion of goals and the means to achieve them is necessary to assess theconsistency of individual countries' aims, to guide the formation of policiesthat have good promise of achieving them, and to respond to developmentsthat push economies off their desired courses.

TO DEAL WITH EXTERNAL IMBALANCES

A country's current account balance measures its net receipts from trade ingoods and services (including investment income) plus net transfers fromthe rest of the world. It is closely related to the level of economic activity.

115


Higher demand at home generally leads to more imports and thereby to asmaller surplus or larger deficit. Moreover, a decline in the balance generatedby external forces must be offset by stronger domestic demand if GNP growthis to remain unchanged. Thus a country's current account position is animportant indicator for setting demand management policies.

A country's current account balance is a useful economic indicator for asecond reason. A current account surplus must by definition be matched bya net outflow of private and official investment to the rest of the -world, whilea deficit must be matched by a net inflow of investment. Policy makers mustconsider the sustainability of a current account deficit—whether the willing-ness of foreign investors to acquire claims on a country or the willingnessof domestic investors to reduce claims on foreigners will remain strongenough to finance a given deficit. Changes in a country's current accountposition may require exchange rate changes to reconcile domestic objectiveswith a current account position that can be sustained. But neither the cur-rent account nor the exchange rate should be viewed as an ultimate objec-tive of policy in the same sense that real income and the rate of unemploy-ment are. These external variables do not directly affect the welfare ofcitizens, although they have important effects on variables that do.

The presumption in the past has been that a mature industrial countrylike the United States would normally be in current account surplus, thussupporting a private capital outflow to capital-poor developing countrieswhere the productivity of capital was thought to be relatively high. Theemergence of the OPEC countries as major capital exporters and thetroubled state of the world economy have altered this presumption, at leastfor the present. Although developing countries continue to welcome smallcurrent account deficits—that is, an inflow of capital—large deficits are notwelcome, since these countries' export earnings are insufficient to meet theresulting increase in debt service. Thus industrial countries following ap-propriate policies are more likely to have current account deficits undertoday's conditions. Surpluses most often occur when domestic demand isparticularly weak, when the currency is undervalued, or when there arebarriers to imports or inducements to exports which are disruptive to worldtrade.

Over the last 4 years, there has been an extraordinary divergence incountries' current account positions. Surpluses have been common amongthose countries best able to finance a deficit—including the United Statesin 1975. As a result, borrowing by many weaker countries with large deficitsstrained the limits of international lenders' willingness to extend credits tothem, and the fabric of the international financial system was stretched thin.The movement of the United States into deficit has relieved these strainssomewhat but has led to new strains in exchange markets.

Some perspective on the relative current account positions of the OECDcountries in 1977 is given in Table 18. The current account positions of

116


the OECD countries in 1977 (as projected by the OECD) are shown, aswell as the size of the surpluses or deficits relative to gross domestic prod-uct (GDP). The scaling by GDP is intended to facilitate comparisons ofcountries of different size, not to suggest a norm for current account posi-tions. As can be seen in the table, the relative size of the estimated deficit issomewhat larger for the United States than for the OECD countries as awhole. Several major countries and many smaller countries have relativedeficits substantially larger than the U.S. deficit, however. The table alsoshows clearly the extreme positions of many small countries.

In time, as the United States and others finally accept the need to takeeffective measures to limit oil consumption, the OPEC surplus will dwindleand the corresponding deficits will shrink. But in the interim only actionby OPEC members to reduce oil prices or dramatically raise imports, or arepetition of the 1975 world recession, would significantly reduce the OPECsurplus. The latter would be an extraordinarily costly way to reduce oilimports. Hence, for some time to come, appropriate national policies andinternational cooperation will be particularly important to ensure that theinternational financial system remains adequate to the demands that willbe made on it and to reduce the large imbalances that exist aside from theOPEC surplus.

TABLE 18.—OECD current account estimates for 1977

Country

Percent of1976 grossdomesticproduct

SwitzerlandJapanBelgium-LuxembourgItalyNetherlands

West GermanyUnited KingdomIceland

TOTAL OECD

FranceFinlandUnited StatesCanadaSpain

AustraliaSweden »DenmarkGreeceNew Zealand

IrelandAustriaTurkeyPortugalNorway

5HIX

-H

-2X

-VA

1 Estimates not comparable with those shown in national sources because of an OECD correction for aonce-and-for-all negative impact of $V* billion on the current account balance due to a change in Sweden'smethod of statistical reporting.

- Calculated using 1975 gross domestic product.

Sources: Organization for Economic Cooperation and Development (OECD) and Council of Economic Advisers.

117


When current account imbalances arise for a given country, there are sev-eral alternative courses of action. If a deficit appears temporary—from, say, about of cold weather or a sharp cyclical movement—one would expectextraordinary deficits to be financed by private and official capital flows. Forlarge and unsustainable surpluses or deficits, which are likely to persist andreflect underlying trends, adjustment must come either through adjustmentof macroeconomic variables, such as a change in interest rates or economicactivity, or through changes in the exchange rates. Finally, there are a num-ber of "microeconomic measures" that can be pursued, such as tradepolicy, protective actions, changes in the tax structure, or export promotion.By and large these latter measures are not appropriate to promoting adjust-ment between regions: they greatly distort the underlying priorities of aneconomy with little payoff in adjusting imbalances. The roles of exchangerate adjustment, macroeconomic measures, and financing are explored fur-ther in the following sections.

Exchange Rates and Current Account Adjustments

During the first half of the 1970s, the industrial world moved from theBretton Woods system of predominantly par value exchange rates to onein which the exchange rates between major currencies are determinedprimarily by market forces. The role of the exchange rate in the adjustmentof countries' current account positions is potentially a powerful one. Ex-change rate changes can help to eliminate persistent current account imbal-ances, and they can forestall imbalances that otherwise would arise in aworld where inflation rates and real growth rates differ widely. Now thatwe have several years of experience operating with more flexible exchangerates, it is useful to review events and ask how, and how well, the system hasfunctioned.

The present system of flexible exchange rates is not a pure floating ratesystem. Many smaller countries have continued to maintain the exchangerates of their currencies within specified limits with respect to one or moremajor currencies. The European Joint Float (the so-called "Snake," cur-rently consisting of the currencies of Belgium, Denmark, Germany, theNetherlands, and Norway) is a significant regional arrangement for keepingexchange rate movements among members within fixed limits. The existingexchange rate system is also distinguishable from a pure floating rate systemin that governments and central banks buy or sell foreign currencies inintervention operations to counter disorderly market conditions, to slowmovements in rates, and occasionally to prevent rates from moving.

In the period since the dollar floated in March 1973 exchange marketshave gradually adjusted to the new regime. Although there have been largerate movements during this period, these movements have generally re-flected fundamental developments. The historical record indicates, however,

118


that exchange market attention has focused on different factors at differenttimes.

Soon after it was allowed to float in March 1973, the dollar came underdownward pressure once again, and by July it had fallen to levels that withhindsight appear too depressed. To a certain degree, the further decline wascaused by those forces that had generated pressure under the par valuesystem—at the old exchange rate the United States was not competitive.Also important, however, was the desire of foreign holders of dollars todiversify their foreign exchange positions, given the initial uncertainty inthe market about how the new system would function and the likelihood oflarger, more frequent, and less predictable changes in exchange rates. Onepiece of evidence for this diversification is the substantial decline in thedollar share of gross Eurocurrency assets that occurred in 1973. Evidencethat central banks stood willing to enter the market forcefully to counterdisorderly market conditions helped to dispel some of the uncertainties andcontributed to a stabilization of the dollar in July 1973.

Following the Arab oil embargo and the announcement of higher OPECoil prices in late 1973, exchange markets focused on individual countries'dependence on foreign oil. In view of the United States' relatively highdegree of self-sufficiency in energy, as well as the central role of the dollaras an investment vehicle for OPEC surpluses, the dollar appreciated by12.7 percent on a weighted-average basis from October 1973 to January 1974.

During the recession and early recovery period from mid-1974 throughthe end of 1975, exchange rate movements were dominated by differencesin interest rates. U.S. short-term interest rates fell relative to rates in othermajor countries during the U.S. recession. The decline in interest yields ondollar assets relative to yields available in other currencies caused investorsto attempt to shift out of dollars, and the dollar depreciated over a 6-monthperiod by 8.1 percent against a multilateral weighted average of ten cur-rencies. Short-term dollar interest rates turned around as the U.S. recessionbottomed out in the second quarter of 19753 while rates in other countriescontinued to fall. As a result, the dollar rose, wiping out the earlier depre-ciation by September. It is interesting to note that neither the swing in theU.S. current account from a deficit in 1974 to a surplus at an annual rateof $16 billion in the second quarter of 1975, nor the subsequent turnaroundin the current account—developments that were largely the result of thedepth and timing of the recession in the United States and in major foreigneconomies—had a major impact on the value of the dollar during thisperiod.

In 1976, exchange market participants seemed most influenced by differ-ential rates of inflation. Market commentary, at least, was preoccupiedby these differences although countries whose currencies depreciated alsohad current account deficits. The dollar appreciated by a small amountduring the year, in line with the better-than-average U.S. price performance.

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The currencies of the two major countries with the highest inflation rates—the United Kingdom and Italy—depreciated against the dollar by 17.0 per-cent and 21.3 percent respectively.

Most accounts of exchange rate movements in 1977 relate these move-ments to trade and current account developments. Indeed the initial pres-sures on the dollar developed in the wake of a string of record monthly tradedeficits—reflecting a major increase in oil imports and differences in growthrates between the United States and other OECD countries. As it becameclear that these deficits were unlikely to shrink over a reasonable periodof time, the pressure on the dollar intensified. The countries with the largestappreciations, Japan, Germany, and Switzerland, were those with the largestand most persistent current account surpluses. The turnaround in the poundsterling also coincided with the turnaround in the U.K. current account.

Although Germany and Switzerland had somewhat lower inflation thanthe United States, only a small fraction of the appreciation of these cur-rencies could be attributed to actual differences in inflation rates. More-over, developments during the year did not warrant a shift in expectations offuture inflation large enough to account for a substantial part of the move-ment in exchange rates.

The dollar depreciation in 1977 ran counter to a strong rise in U.S. interestrates and declines in most foreign interest rates. During the year, U.S. short-term interest rates rose about 350 basis points relative to those in majorEuropean countries. In the past, interest rate movements of this magnitudegenerated substantial private capital inflows or exchange rate changes.

The size and timing of the exchange rate changes in the episodes recountedabove illustrate some implications of the fact that trade and price develop-ments affect exchange rates through their effects on the supply and demandfor assets denominated in different currencies. Among the most importantdeterminants of the price of any asset are portfolio risk, current return—forexample, interest—and expectations concerning its own future value. Interestrates and perceptions of risk have been major determinants of exchange rates,as seen in the 1973 and 1975 episodes. Moreover, relative price and currentaccount developments have strongly affected exchange markets, primarilyby altering expectations concerning future exchange rates. Thus exchangerates have responded to inflation and current account developments asmarket participants have concluded they would persist. Rate changes havesometimes led to actual changes in underlying variables and often followedthem. When nonfinancial developments have been viewed as temporary,such as the U.S. current account surplus in 1975, they have had little effecton expectations and therefore on exchange rates.

While exchange rate movements during the flexible rate period havebroadly reflected underlying developments, sustained large movements inone direction, followed by reversals, have occurred surprisingly often. These

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movements have often not corresponded to discounts or premia on forwardexchange rates. They have been of sufficient regularity and magnitude to castdoubt on whether large exchange rate changes have always reflected theworkings of a market in which new information is efficiently incorporatedinto currency prices. Markets have also been characterized from time to timeby very thin trading, much wider than normal bid-ask spreads, and largeintraday rate movements in the absence of significant fundamental devel-opments. When these disorderly conditions prevail in the market, there isa question whether the longer-run prospects for currencies may be lostfrom sight. Critics of floating exchange rates have pointed to these featuresof the current regime to underscore the need for more active intervention bycentral banks and governments.

Responding in part to these concerns, as well as to domestic policy needs,,foreign central banks in 1977 made heavy purchases of dollars to smooth,and in some cases to limit, the appreciations of their currencies against thedollar. These activities are crudely indicated by reserve movements over theyear. British official reserves rose $16.2 billion through October, when large-scale intervention was suspended. Japanese reserves rose $6.6 billion andGerman reserves $5.3 billion for the full year.

It is unlikely that intervention had a major lasting impact on exchangerates. The large volume of liquid funds in international financial markets andthe one-sided risks that arise when central banks come into the market heavilyon one side have meant that a large and continuing flow of interventionwould be needed to keep rates from moving in response to changing ex-pectations among managers of private foreign exchange positions. Thus thevolume of intervention required to keep a rate from moving is not a reliableindicator of how far the rate would go if it were permitted to adjust freely.When the Bank of England suspended its massive intervention on October 31,1977, the pound moved to a level only 1.8 percent higher against a weightedaverage of foreign currencies than the level at which it had been held. Evenwith the later weakness in the dollar the weighted average pound was only5.0 percent above its October level in mid-January. While intervention canbe a useful tool in restoring order to exchange markets, substantially largerintervention than seen in 1977 would be necessary to have a large effect onrates for any time.

Eliminating most cumulative rate movements would not be desirable evenif it were easier. Flexible exchange rates have been beneficial because theyhave helped to reduce the large changes in countries' relative price levels thatwould have occurred as a consequence of differential price movementsamong trading partners (Chart 8). Some significant and lasting changes inrelative price levels have resulted from exchange rate changes, however.These changes have generally helped to reduce unsustainable current accountsurpluses or deficits.

It is not an indictment of flexible exchange rates that current accountimbalances have continued to occur and in some cases have proved to be

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Chart 8

Relative Wholesale Prices Unadjustedand Adjusted for Exchange Rates

INDEX, MARCH 1973=100 (RATIO SCALE)

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Chart 8—Continued

Relative Wholesale Prices Unadjustedand Adjusted for Exchange Rates

INDEX, MARCH 1973=100 (RATIO SCALE)

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NOTE: RELATIVE WPIs ARE DOMESTIC WPIs DIVIDED BY AVERAGE OF WPIs IN TEN OTHER COUNTRIES.ADJUSTED RELATIVE WPIs ARE RELATIVE WPIs MULTIPLIED BY WEIGHTED AVERAGE EXCHANGE RATEOF DOMESTIC CURRENCY.SOURCE: BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM.

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persistent. Not all imbalances can or should be dealt with through exchangerate adjustment. As noted above, it is normal and sustainable for somecountries that have especially attractive investment opportunities to becapital importers, and therefore to have a deficit while others have surpluses.In addition, the aggregate deficit that is the counterpart of the OPEC surpluscannot be eliminated by exchange rate changes, although exchange ratescan play a role in allocating this deficit among countries.

Finally, while exchange rate changes can have a significant impact oncurrent account balances after 1 to 2 years, their effect initially may beperverse, since the strongest immediate effect of an exchange rate change is toraise many import prices and thereby increase the size of the deficit. This facthas two important implications. First, if imbalances seem to be tempo-rary—owing to demand conditions that are likely to be reversed or to supplydisruptions such as droughts—expectations will not be changed, and suchimbalances normally will be financed by private capital flows. Exchangerates need not change. Second, when exchange markets are orderly andfunctioning efficiently, exchange rates will respond quickly, even abruptly,whenever it becomes clear that a country's underlying position has movedaway from what is sustainable over the longer term. Once exchange marketshave moved to reflect the new assessment, a return to exchange rate stabilityis possible even though the adjustment in trade flows may take considerabletime. Capital flows can be expected to finance imbalances during the periodof transition without the need for significant changes in interest rates.

The Administration's policy toward dollar exchange rates has been tolet market forces determine them but to intervene when necessary tocounter disorderly market conditions. This approach is based on the viewthat it is better to give market forces continuous influence on rates, ratherthan to have a period of officially determined rates followed by a sharp anddisruptive adjustment. The historical experience with attempts to fixexchange rates is not an enviable one. Such policies more often than notsustained inappropriate exchange rates rather than correcting the underlyingvalues of currencies; more often than not they generated large private capitalflows that led to serious dislocations in financial markets and spilled overto afTect other policy objectives.

While the Administration does not believe it is appropriate to maintain any-particular value for the dollar, it recognizes its responsibility to act force-fully when market conditions become disorderly. Many managers of privateforeign exchange positions normally help to stabilize the market by adjustingtheir positions on the basis of careful assessments of factors affecting currencyvalues over the medium term. These managers tend to cover more of theirforeign exchange exposure in the face of the increasing risks associated withmarket disorder. Rates are buffeted by the flow of commercial transactionsand the buy and sell orders of traders whose time horizon is measured in daysor at most weeks. Under these circumstances, intervention can help to restore

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markets to their normal functioning. It is not the objective of such interven-tion to maintain a particular rate. To fix a rate would endanger the leewaythat a flexible exchange rate system has provided for countries to pursuedomestic objectives.

In summary, while exchange rate fluctuations sometimes have been un-desirably large and are often unpleasant reminders about unsatisfactoryaspects of underlying economic conditions, the evolution of the system ofmarket-determined exchange rates has been a major achievement of thisdecade.

Macroeconomic Policy and Current Account Adjustment

In setting policies to achieve domestic objectives, authorities must considerthe strong two-way interactions between domestic growth and inflation onthe one hand, and the current account balance and exchange rate on theother. Going one way, stronger domestic demand tends to result in a largercurrent account deficit within a short time. Going the other way, an increasein the current account balance resulting from an exchange rate change orexternal factors will raise domestic output and employment.

In considering policies to achieve domestic goals, authorities sometimesfind that policies appropriate for achieving domestic objectives also movethe current account toward a more sustainable position. At other times, theyface a dilemma. Two easy cases present no dilemma. One of these occurswhen a country is falling short of its domestic goals and has a current accountbalance that is in surplus. Authorities should then view the current accountposition as an additional signal to adopt expansionary measures. The secondeasy case occurs when demand threatens to strain the potential of theeconomy. A current account deficit then reinforces the need to adopt restric-tive measures. In both cases current account adjustment may take placewithout sacrificing domestic objectives and with policy actions reducing theneed for exchange rate adjustment.

The dilemma arises when there is conflict between domestic goals andthe requirement for the current account to be maintained in a sustainablerange. This may occur when an economy with inflationary demand pressureshas a surplus. In the world economy today, however, nations more often facethe dilemma of a sluggish economy with an unsustainable current accountdeficit. In this case, the appropriate response is to use domestic fiscal andmonetary policy to attain domestic objectives, while allowing exchange rateadjustment to restore sustainable external positions. Especially for largecountries like the United States, where the economic cost of changing domes-tic growth is large relative to the improvement in the current account thatwould result, it is not appropriate to modify domestic objectives for economicgrowth in order to reduce the current account deficit.

A second way in which macroeconomic policy can affect the externalbalance is through a shift in the mix of policies. Thus a country might shiftto a tighter monetary policy and a more expansionary fiscal policy when

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faced with a large current account deficit and a weak currency. In principle,such a change in the policy mix could be made with an unchanged GNPgrowth target. If investment were undesirably strong, and if it were thoughtthat the current account deficit would soon improve, such a change in themix of policies might be appropriate. In practice, however, differences in thelags with which each policy works and the uncertainties surrounding theireffects make a shift of this kind difficult to achieve. Such policies also haveeffects on the composition of demand and output. First, to the extent thatthey strengthen the currency they reduce exports and increase imports witha significant time lag. Second, they tend to shift demand away from privateinvestment and toward other forms of spending, thus reducing the rate ofcapacity growth.

It should be noted that allowing exchange rates to adjust when a country'sdomestic objectives and external positions are inconsistent has effects on thedomestic economy that must be taken into account in setting domestic ob-jectives and policies. Appreciation of a country's exchange rate tends todepress demand. Depreciation tends to add to inflationary pressures byraising import prices, and to reduce real incomes as imports become moreexpensive.

Thus, when exchange rate changes do occur, they must be supportedwith monetary and fiscal policy if an unchanged domestic growth targetis to be met and if the full adjustment of the current account is to be realized.Countries with appreciating currencies will face a slowing of demand growthas exports are reduced and imports rise. If these effects are not offset bystimulative policies, the economy will slow and some of the potentialadjustment will not be realized, since import growth will be retardedalong with the slowing of domestic demand. Countries with depreciatingcurrencies will experience a stimulus to demand that may also have to beoffset. Whether the adjustment of policies should be greater in countrieswith appreciating or with depreciating currencies should depend on whetherthe countries are undershooting or overshooting their internal goals for out-put and employment.

It should also be noted that adjustment through exchange rate movementssucceeds only if the improvement in competitiveness of countries withdepreciating currencies is not undone by higher wage and price increasesto maintain workers' purchasing power or to obtain higher profit rates.In those economies where such wage and price adjustments are rapidand nearly proportional to exchange rate changes, gains in competitivenessfrom exchange rate depreciation evaporate quickly. Adjustment throughexchange rate change is much more difficult and costly in terms of inflation.Such countries may be forced to accept depressed demand as the onlyeffective way of reducing a deficit. Hence structural measures by authoritiesthat retard the pass-through of import price increases into domestic pricesand wages have a high payoff in allowing less costly external adjustment.

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Strengthening International Financial Institutions

Private financial institutions have been the main source of financing forthe large current account deficits since the oil crisis—accounting for roughlythree-fourths of the total flows from 1974 to 1976. During this period,current account deficits totaled $225 billion, and countries in deficit borrowedover $300 billion. Some inflows, particularly in industrial countries, havebeen a private response to market incentives. A large share of the financingfor many countries, however, has been raised by governments or bygovernment-controlled corporations from private international banks. Privateand official net borrowing from international banks by countries in deficittotaled an estimated $160 billion over the 1974 to 1976 period. These banksin turn received funds directly or indirectly from countries in surplus. Fundsraised by countries in deficit from other private sources, including interna-tional bond issues and direct investment inflows, totaled about $100 billion.

About one-fourth of all current account financing, or more than $50 bil-lion, was financed through official credits. These credits have played a cru-cial role in the overall financing process by providing assistance to coun-tries with limited access to financial markets. Without official financing anumber of countries would have been forced to take overly drastic measuresand reduce their current account deficits at an excessively rapid pace. Suchmeasures would have been disruptive to their own economies and to theworld trading system. Moreover, in the absence of official financing, deficitswould become concentrated in fewer countries. Some countries that havebeen able to meet their needs from private markets would find their accessto private credit jeopardized by larger deficits. Thus the availability of acontinuing flow of official financing to countries has been essential to thestability of the world financing system and to the continued flow of financingthrough private financial institutions.

Two long-established sets of multilateral institutions have played a majorrole in providing financing during the recent period: the international de-velopment banks and the International Monetary Fund. The interna-tional development banks—the World Bank group and regional develop-ment banks—provide financing for sound development projects and assistdeveloping countries to formulate appropriate development strategies. Indoing so they help meet countries' overall financing needs while fosteringinvestment in productive activities that will generate the funds needed toservice the debts. Their new credits totaled $9.2 billion in the year endingJune 30, 1977. These institutions had more than $60 billion in loans out-standing then.

Part of the resources of these institutions are provided by governments inthe form of capital subscriptions and direct contributions. For their non-concessionary activities, however, the development banks rely heavily onsecurities issued in international markets and this reliance on debt has beenincreasing. In order to preserve their well-deserved reputation for pru-dent and sound financial management and their key role as a source of

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capital to developing countries for productive long-term investment, anincrease in resources contributed by governments is needed.

Strong U.S. support for the development banks is essential to their con-tinued ability to assist developing countries. Through such support, theUnited States can both enhance the stability of the international finan-cial system and respond to the needs of the developing countries. Moreover,U.S. resources devoted to these institutions are multiplied by contributionsfrom other countries and by funds raised from markets. In 1977, legislationwas enacted authorizing over $5 billion for increased U.S. participation inthese institutions. Appropriations in support of the development banks forfiscal 1978 were $1.9 billion, an increase of 70 percent over the year before.This demonstrates strong U.S. commitment to these institutions, but furtherlarge sums will be needed in the years ahead to maintain their strength.

The International Monetary Fund was established at the end of WorldWar II specifically to augment the resources available to finance temporarypayments imbalances in a par value system of exchange rates. While thenature and circumstances of countries' needs have been altered by the intro-duction of more flexible exchange rates, the need for official financing ofdeficits has continued. A country that draws on Fund resources must satisfyconditions laid down by the Fund to assure that policies are consistent withadjustment of the country's external position. The goals are a currentaccount that is sustainable without continued official support and repaymentof the drawing. Thus the operations of the Fund not only finance deficitsbut also constructively influence policies.

The large current account imbalances since 1974 have resulted in heavydemands on the Fund. It provided about $15 billion of financing in the1974—76 period. The IMF has also found it necessary to broaden its view ofappropriate adjustment. Whereas the previous expectation had been thatadjustment could take place and drawings could be repaid within 3 to 5years, it has not been possible to eradicate the aggregate oil deficit so quickly.The IMF membership has responded to the new circumstances by increasingthe resources of the Fund's general account and raising the limitations oncountries' drawings. In addition, a temporary "oil facility" was set up in 1974to help countries meet their larger oil bills. The resources for this facility,which concluded its lending program in 1976, were provided primarily byoil-exporting countries, but several industrial countries also contributedsubstantially.

As OPEC countries have continued to pile up assets, a continuous flowof new financing has been needed. The IMF's usable resources have fallento about $5 billion, with another $3 billion available from larger countriesonly for lending to other large countries under the General Arrangementsto Borrow. These resources will be increased by another $6 to $7 billionwhen the sixth quota review has been ratified by enough member govern-ments. Even with these additions, however, the Fund's resources will be in-

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adequate to assure available financing for those countries that need it. More-over, there is a particular need for long-term funds.

To meet this need the decision was made to seek to establish the Supple-mentary Financing Facility, which initially would have about $10 billionprovided by seven industrial countries and seven OPEC members. Thesefunds would be available over the next 2 to 3 years to countries whosebalance of payments needs exceed the amount available under the IMF'sregular policies and require a longer period of adjustment than providedfor under regular IMF policies. Borrowing countries must undertake toadopt corrective economic policy measures to deal with their balance ofpayments problems. When established, the Supplementary Financing Facil-ity can make an important contribution to the stability of the internationalfinancial system for the next several years.

There will be a continuing need for growth in IMF resources, however,even if the Supplementary Financing Facility is established. Discussions arenow under way in a seventh review of quotas. A further increase in quotaswall be required to ensure that the IMF has sufficient resources to meet thelegitimate demands on it over the longer term.

TO ACHIEVE GREATER STABILITY OF COMMODITY PRICESThe central role of food, fuel, and other raw materials in the domestic

and world economies in recent years has been noted in every chapter ofthis Report. Although price fluctuations are always the norm, commodityprices have shown more than normal volatility over the last 5 years. The 56.4-percent rise in The Economist index during 1973 was the largest rise in thelast 80 years. Nonfuel commodity prices have leveled off since 1974, but theeconomic aftershock and fears of renewed bursts continue to be of concerntoday.

The increased volatility of commodity prices has caused serious economicdislocations in virtually all countries. In consuming countries, rising com-modity prices in 1973 and 1974 were reflected in final product prices, fuel-ing an inflationary wage-price spiral. Yet because of asymmetries in response,the subsequent decline in several key commodity prices did not evoke acomparable downward movement of wages and prices. Periodic declinesin the prices of certain commodities over the past few years placed severeexternal constraints on developing countries that derive a substantial frac-tion of export earnings from sales of those commodities. Consequently, thesecountries have borrowed heavily on world markets and have been forced tocurtail their purchases of goods from industrial countries in an effort toconserve their foreign exchange reserves.

The Need to Reduce Volatility

Random variations in weather, cyclical movements in demand, and polit-ical disturbances, along with the relative insensitivity of supply and demandto price changes, have made sharp price movements the rule rather than the

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exception for primary commodities. Private precautionary and speculativestockpiles and the development of organized commodity markets have ingeneral allowed these fluctuations to be partially buffered. Private partici-pants in these markets who sell their stocks when prices are relatively highand accumulate stocks when prices are relatively low exert a price stabilizinginfluence. The importance of these stocks is illustrated in the case of grains,where prices are more closely related to stock levels than to production flows(Chart 15, Chapter 5).

A reduction in the volatility of commodity prices would serve a numberof useful purposes. Aside from the relatively modest advantage to consumersof having more predictable price movements, moderation of price fluctua-tions lowers inflation by reducing the impact of the asymmetries in the rela-tionship between commodity prices and general inflation. Producers alsobenefit, as countries in which price movements in a single commodity havea major impact on national income can achieve more stable economies.Furthermore, a lower level of price volatility would reduce producers' risksand remove an important deterrent to the development of greater supplies.Finally, major price movements sometimes induce governments to intro-duce rigid price and income support programs, with the kinds of problemsdiscussed in Chapter 5. Once introduced, these programs develop their ownmomentum and can engender a new set of inefficient and price-raising sideeffects.

Unfortunately commodity price stabilization is neither politically easy noreconomically costless. The economic costs of stabilization schemes are oftenpaid through direct government outlays. Alternatively, the costs of stabiliza-tion may be paid directly by consumers through higher average prices. Sometypes of programs require capital outlays that could otherwise be used forinvestment in productive equipment. The benefits of any proposed programto reduce volatility must be weighed against these costs.

One price stabilizing technique is to encourage large stockholdings by theprivate sector. In the United States this is done for grains by subsidizing in-terest and storage costs, as in the Administration's farmer-held reserve dis-cussed in Chapter 5. The costs are direct budgetary outlays that can becompared to the benefits of holding larger stocks. Outside of agriculture theUnited States has no major programs to encourage stockholding; but someEuropean countries have instituted tax preferences for inventories, therebyencouraging larger commodity stocks and smaller price fluctuations.

Publicly held buffer stocks are another widely recognized stabilizationtool. These usually require purchases and sales of the commodity to defendpredetermined floor and ceiling prices within the limits of available financialresources or commodity stocks on hand. The effectiveness of such programsdepends largely on the financial resources available for the programs, andon the rules governing the prices at which buffer stocks are bought or sold.In international discussions the United States has therefore favored pure

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buffer stock programs, which, if properly designed, would not raise theaverage of the price over time.

Commodity stabilization programs may include production and exportcontrols to defend established price floors. While direct budget outlays arethereby avoided, systems involving production controls are likely to involveserious economic inefficiencies. While the ability of a buffer stock to affectprices is limited by its financial resources, production and export controls canindefinitely hold prices higher than they would be without them. Becausethe productive potential is unused rather than used to build buffer stocks,such programs can prevent prices from falling, but they cannot be usedeffectively to keep prices from rising.

Producers' vulnerability to sharp changes in income because of commodityprice and quantity fluctuations can also be reduced through internationalefforts providing loans or grants to producer nations. Such transfers do notaffect the price of commodities in the market place, but they can amelioratethe adverse impact of sharp price declines on producing countries. Com-pared to actions that raise the level of commodity prices, these compensa-tory measures are a more efficient and less inflationary way to transfer re-sources between countries. The Compensatory Financing and Buffer Stockfacilities of the IMF and the STABEX system of the European EconomicCommunity are operating at present to mitigate the impact of commodityprice instability.

Recent Policy Developments

Since 1972, increased attention has focused on arrangements to stabilizecommodity prices through internationally managed stockpile programs. In-ternational discussions under the auspices of the United Nations Conferenceon Trade and Development (UNCTAD) led in 1976 to enunciation of theUNCTAD Integrated Commodities Program. This program has providedthe framework for discussions on a number of commodities of interest to thedeveloping countries and on a "common fund" for international com-modity agreements.

In 1976, and again in 1977, the idea of a common fund to provideadditional financial support for international commodity agreements was afocal point of the North-South economic dialogue. As envisioned by thedeveloped countries, the common fund would pool the resources of indi-vidual commodity agreements (ICAs) and enable those ICAs needing addi-tional funds for stock accumulation to borrow through the common facilityfrom other ICAs and from the private market. By pooling resources in acommon fund, overall financial contributions by member nations to indi-vidual stockpiling agreements could be reduced because all ICAs wouldgenerally not be accumulating stocks at the same time. Moreover, because itwould have broader-based financial backing, a common fund would probablyfind more ready acceptance in world credit markets than individual com-

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modity agreements. The United States is prepared to participate in a com-mon fund that is structured along these lines.

At the London Economic Summit in May 1977, the seven heads of statenoted that it was their goal "to secure productive results from negotiationsabout the stabilization of commodity prices and the creation of a commonfund for individual buffer stock agreements."

Developing countries envision a broader common fund financed by directgovernment contributions. Such a fund would serve as a source of finance forcommodity agreements and would also supplement the functions of existinginternational financial institutions. Negotiations during 1977 were unableto bridge the conceptual gap between alternative versions of the commonfund. However, negotiations will continue in 1978.

The United States attaches great importance to talks on individual com-modities. While discussions on a common fund proceed, the United Statesis participating in talks involving several individual commodities. The UnitedStates joined the International Tin Agreement in 1976. Discussions on acommodity agreement for natural rubber, in which the United States hastaken part, have made progress, and preliminary discussions on othercommodities are getting under way.

Discussions on a system of nationally held wheat reserves, begun in June1975 under the auspices of the International Wheat Council, are continuingin 1978. The United States favors a new International Wheat Agreementwith a reserve system to replace the expiring agreement, which has no suchprovisions. In the U.S. proposal, each participating country would releaseor acquire reserve stocks at specified target price levels. Member consulta-tions on additional measures would also be required in the event of extremeoversupply or shortage situations.

There were several major policy developments for sugar in 1977. In Marchthe U.S. International Trade Commission (ITC) found, upon petition,that the domestic sugar industry was being threatened with serious injury byincreased imports. It recommended a 5-year annual quota on sugar importsof 4.275 million tons. The President rejected the recommendation, however,and established an interim program of direct payments to U.S. producers.Congress-later mandated a program to support the price of sugar in the U.S.market at a minimum of 13.5 cents per pound, but stipulated that it couldbe terminated if an international sugar agreement would achieve the sameobjective.

The Sugar Conference sponsored by the United Nations concluded anagreement in October 1977, which comes before the U.S. Congress for ratifi-cation early in 1978. The agreement sets minimum and maximum price tar-gets of 11 and 21 cents, respectively. These targets will be defended through asystem of export quotas and reserve stocks held by exporting countries. Thecarrying costs of the stocks will be financed through a fee levied against allsugar traded by member countries. Export quotas will remain in effect until

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the world market price rises above 15 cents, a feature that may lead toproduction cutbacks after exporting countries have accumulated theirmandated stockpiles.

This review of the analytical aspects of commodity price stabilization,alongside the reality of actual agreements, highlights critical issues of theirdesign. On the one hand, policies to increase the size of private stockpilesor to develop public buffer stocks can help reduce long-run infla-tionary pressures. The history of the last 5 years has shown that drasticcommodity price movements can hinder economic growth. Yet these com-modity programs prevent prices from falling as stocks are acquired, andthey absorb scarce capital in stocks that are essentially sterile outlets for anation's savings. In addition, an agreement that restricts output will raisethe long-run average price of a commodity and should be avoided. Higherlong-run prices impose costs on commodity-importing developing countriesthat rank among the world's poorest nations. Alteration of the long-runprice trend would also impair the ability of the price system to allocateresources efficiently. For these reasons, the United States will continue togive priority to pure buffer stocks as a price stabilizing technique. Eachprospective commodity agreement must be examined in great detail todetermine whether it contributes to or detracts from economic performance.

TO MAINTAIN THE GROWTH OF WORLD TRADE

Over the past 25 years world trade has grown more rapidly than worldoutput, playing a key role in economic expansion by widening available mar-kets for raw materials, industrial products, and agricultural goods. Duringthis period the volume of world trade showed a fivefold increase—an averagegrowth of 6.6 percent per year. This growth was facilitated by a majormovement to reduce tariffs and other trade restrictions under the auspicesof the General Agreement on Tariffs and Trade (GATT). The KennedyRound of tariff negotiations, which was completed in 1967, resulted in anaverage reduction of one-third in the tariffs set by industrial countries on in-dustrial products. The growth of world trade was also supported by the reduc-tion of trade barriers on a regional basis, such as the elimination of tariffswithin the European Common Market. In 1970 agreement was also reachedon a generalized system of preferences for industrial countries' imports fromdeveloping countries.

The growth of world trade has slowed since 1974; trade volume was es-timated to have expanded only 4 percent in 1977. The slower growth oftrade is mainly attributable to the general weakness in the world economy.However, there has been a disturbing reversal of the trend toward tradeliberalization; this development has also contributed to the slowing growthof trade. The GATT Secretariat has estimated that new restrictive trademeasures have been imposed on 3 to 5 percent of world trade since 1974.

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The worldwide pressure for protection from imports was also evident inthe United States. In 1977 the ITC investigated petitions for import reliefby over 20 industries, covering imports of nearly $5 billion. The ITG recom-mended increased protection in the form of tariffs or quantitative restric-tions on $3 billion of trade, including shoes, color television receivers,mushrooms, and above-ground swimming pools.

The Benefits of an Open Trading System

Despite rising domestic pressures for protection from imports at homeand abroad, the Administration remains committed to a policy of openmarkets for both U.S. exports and imports. The case for open markets andagainst import restrictions is strong. In an open trading system a countrywill export those goods it can produce at relatively lower cost than othercountries and import goods that other countries can produce at lower cost.Countries thereby realize gains from trade that make possible higher levelsof consumption and investment. Import restrictions reduce these gains.Through an open trading system the United States can obtain larger quanti-ties of goods for consumption and investment than it could by restrictingimports and diverting resources from export industries to import-competingindustries.

In addition to reducing the gains from trade, the imposition of import re-strictions has an immediate inflationary impact. Consumers pay higherimport prices and usually higher prices for domestic substitutes as well. Com-petition from imports not only helps to keep prices down but fosters effi-ciency and responsiveness among domestic producers. For example, produc-tion of attractively priced American small cars has obviously been has-tened by the availability of small, low-priced, fuel-efficient imports.

Import restrictions do not increase employment, even if potential retalia-tion against exports is ignored. As a result of decreased imports and higherdomestic prices, there may be an increase in domestic output and employ-ment in the industry that is granted protection from imports. But the higherprices associated with reduced import competition reduce real consumerincomes and hence tend to reduce real consumption and output. In theabsence of changes in overall economic policy, the net effect of these op-posing tendencies in the protected industry and in the rest of the economyis usually a reduction of real output and employment. Only in the rare in-stances when import protection results in very small price increases and verylarge import reductions will protective measures increase employment.

Responses to import restrictions will make the net employment reductionlarger. Unilateral imposition of new tariffs or quotas invites retaliationthrough higher barriers for our exports. Indeed GATT rules allow tariffsto be raised on imports from a country that imposes unilateral trade restric-tions. Induced upward exchange rate adjustment also decreases the demandfor exports. Thus, in most cases, import protection has the effect of shifting

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employment from dynamic export industries to contracting import-compet-ing industries, while reducing aggregate employment.

Recent restrictions have primarily taken the form of quotas, import licens-ing requirements, and other nontariff barriers to trade. Quantitative re-strictions are more damaging than equivalent tariffs to an open system ofworld trade. During recessions they provide less protection from imports ata time when business and labor are in a weaker position; during expansionsthey do not permit imports to play their role as safety valves, limiting sharpprice increases when supplies are tight.

Dealing with Trade Problems

Although the advantages of an open trading system are widely understood,two conditions give rise to demands for protection. First, as markets evolve,countries lose comparative advantage in some products and gain compara-tive advantage in others. For example, as developing countries have enteredmarkets for products that rely primarily on well-established technologies,the more advanced industrial countries have found their comparative advan-tage shifting to products using more skilled labor and more sophisticatedtechnology. However, firms in industries that have lost markets to newcompetitors have capital in place, and their workers have specialized skillsthat make shifting to new industries costly for them. Their demands forprotection from imports are often more effectively voiced than the demandsof consumers for lower prices, even though the gains to consumers from anopen trading system outweigh the costs to domestic firms and workers.

Second, excess capacity and high unemployment increase domestic sen-sitivity to competition from imports. Under these conditions, displaced laborand capital are less likely to be absorbed in industries where the UnitedStates has a comparative advantage. Moreover, imports that might havebeen considered a welcome supplement to limited domestic production insome industries during periods of high employment are blamed for domesticunemployment during periods of low utilization. Economic slack abroadalso adds to trade tensions because it provides an incentive for some foreignproducers to increase exports by cutting prices in the U.S. market. Sellingabroad at less than home market prices constitutes grounds for assessingcountervailing duties under GATT rules if the domestic industry is injured.

Adjustment assistance. The Federal trade adjustment assistance programsare designed to facilitate the adjustment of workers, firms, and communi-ties injured by import competition. They provide readjustment allowances,training, and relocation payments for workers displaced by import competi-tion. Technical and financial assistance is provided to affected firms, and pub-lic works money is allocated to trade-impacted communities. The Adminis-tration reviewed these programs in 1977 and is implementing a number ofadministrative improvements. A major effort has been undertaken to speedup and improve the delivery of assistance, and efforts have also been madeto tailor assistance to the needs of particular industries.

135


Import relief. Problems created by rapid growth of imports in several in-dustries were so acute that the Administration established temporary importrestrictions. These restrictions were intended to provide an opportunity forthe affected domestic industries to stabilize, to permit firms to take measuresto restore competitive positions, and to allow for more orderly adjust-ment. In two major cases—footwear and color television receivers—where the International Trade Commission had found that increased im-ports were a substantial cause of serious injury to the domestic industry, theAdministration decided to provide temporary import relief. Temporary or-derly marketing agreements (OMAs), which are negotiated quotas, wereestablished with major exporting countries. These OMAs will halt therapid rise of imports and give domestic producers an opportunity to adjustto import competition over the longer term.

Steel trigger prices. Developments in the carbon steel industry presentedthe Administration with a particularly difficult trade policy problem. Steelindustries throughout the world have been especially hard hit by the pro-tracted weakness of economic activity in the industrial countries. Even undermoderately optimistic assumptions about the growth of demand, excess steel-making capacity is likely to persist through 1980.

The cost of production of steel in the United States rose by 89 percentover the past 5 years, according to a study by the Council on Wage andPrice Stability (CWPS). The increase in costs was to a significant extentthe result of developments within the industry itself. In part, they werethe reflection of broader economic forces. Steel wages have risen 27 percentfaster than the average manufacturing wage from 1972 to 1977. Raw mate-rial and energy costs—particularly coal—have shown very sharp price in-creases, while pollution abatement costs have risen sharply and will be anincreasingly important component of costs in the future. According toCWPS, however, costs have also risen rapidly abroad and the domestic costof production is not significantly above that of efficient foreign producersplus transportation and tariffs.

Poor domestic sales, reflecting sluggish demand and an increase in the im-port share, led to a drop in steel production in 1977. This development andother factors led to a series of layoffs and plant closings in 1977. These wereconcentrated in older steel plants in Ohio, Pennsylvania, and New York.This pattern was dictated by the desire of domestic firms to consolidate theiroperations in their most efficient installations. The timing and allocation ofthe layoffs were also affected by provisions in the new labor contract thatwill increase the cost of layoffs after 1977. The cost of meeting environmentalstandards at older facilities also played an important role. Thus, the layoffsreflected efforts by the industry to reduce costs over the long term, as well asto respond to the immediate problem of weak demand and import competi-tion. Although several factors contributed to the layoffs, public attentionfocused on the problem of imports.

The industry filed a series of dumping cases in 1977, some of which ledto findings that foreign steel was being sold in the United States below full

136


costs of production. In light of evidence that significant volumes of foreignsteel may have been dumped, the Administration developed a programdesigned to respond to the problems of the steel industry. The centerpieceof the program is a system of trigger prices for steel imports, based onthe cost of production in the most efficient foreign country—currentlyJapan. If imported steel is sold in the United States below the trigger pricefor that product, an antidumping investigation will be initiated immediatelyby the Department of the Treasury. The industry maintains the right to filepetitions under the regular procedure. Nevertheless, it is hoped that thesystem will eliminate the necessity for anti-dumping actions.

The trigger price concept has significant advantages over alternativemeasures. Although in a static and certain world of perfect competition atrigger price, a quota, and a tariff that gave the same protection would havethe same effects on prices, their effects differ in practice. A tariff that assuredthe same protection would have directly increased steel prices by more thanthe trigger prices will. A quota would have resulted ultimately in an evenlarger rise in the price of imported steel and reduced competition in steelmarkets; it would also have undermined incentives for domestic producersto control costs and prices. Under the trigger price system, domestic pro-ducers will continue to face foreign competition at prices that reflect thecosts of effiicent foreign producers. If domestic steel prices are set to meetthis competition, domestic producers should be able to regain the marketshare they lost in 1977.

Progress in Multilateral Trade Negotiations

The Administration has been working with foreign governments to re-verse the worldwide slip toward more restrictions on imports and restore thetrend toward trade liberalization. These efforts are centered in the roundof multilateral trade negotiations now being held in Geneva. Afterbeing stalled for some time, the negotiations made significant progress in1977 with agreement among the major participants on key proceduresthat will guide the negotiations during 1978. A working hypothesis wasdeveloped calling for an average reduction of tariffs on industrial productsof about 40 percent. Procedures were established for participants to ex-change requests for the reduction of agricultural tariffs and of specificindustrial and agricultural nontariff barriers to trade. Draft texts aimedat improving international trading rules were prepared for use as the basisfor further negotiation. In January 1978 countries are exchanging specificoffers for reductions of tariff and nontariff barriers. This exchange marksthe beginning of the final phase of the negotiations.

The trade negotiations are being conducted under difficult conditions inthe world economy. These same conditions make it essential that agreementon significant liberalization be reached, however, so that further steps to-ward protection can be averted, the dynamism of world trade can berestored, and the potential contribution of trade expansion to overall eco-nomic growth can be realized.

137


CHAPTER 4

Inflation and Unemployment

THE HISTORY OF INFLATION during the past 10 years has beendominated by two major episodes. In each of them a series of events set

off a burst of inflation, followed by a period of economic slack during whichthe rate of price increase subsided only partially. The end result in both in-stances was a persistently higher rate of inflation. For the last 3 years, theunderlying rate of inflation has remained in the 6- to 6^-percent rangedespite very high rates of unemployment.

Since 1970 similar developments have characterized the economies ofother industrial nations. Throughout the industrial world, economic policyis now confronted with the simultaneous existence of substantial unemploy-ment and strong inflationary momentum.

It is not difficult to identify the sources of the two inflationary episodesduring the past decade, nor is it surprising that the resulting inflations wereserious, given the magnitude of the initiating forces. What does pose majorproblems for both economic theory and policy is the persistence of inflation:why it keeps its momentum long after the initial shocks have disappearedand in the face of idle plant and unemployed workers.

Over the next several years, even as recovery proceeds, some slack willremain in our economy. The central task in dealing with inflation in theperiod immediately ahead will be to find ways to reduce the persistenceof the inflation inherited from earlier years. Looking further ahead, a sec-ond major task will be to avoid a renewal of inflationary pressures or shocksas we regain a high-employment economy.

The two tasks are related. Unless we succeed in reducing the current rateof inherited inflation over the next several years—while some slack remainsin the economy—any tendency for price and wage increases to acceleratein later years will raise the inflation rate from an already high base. If thatshould occur, prospects for maintaining a stable rate of economic growthwith high employment would be endangered.

The problem of inflation amidst unemployment is dealt with here in threeparts. The first reviews the two inflationary episodes of the past 10 yearsand emphasizes the distinction between the initiation and the perpetuationof inflation. The second addresses the particular problem of the present and

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the immediate future: the momentum of inflation inherited from the past.In doing so, it discusses the forces producing that momentum in the face ofeconomic slack, reviews alternative ways of reducing the inflation rate,points up the advantages and disadvantages associated with each alterna-tive, and outlines a "deceleration standard" for reducing inflation. Thethird part of the chapter looks farther ahead to the task of preventing therecurrence of renewed inflationary pressures as high employment is ap-proached, focusing on the role of structural employment policies to improvethe operation of the labor market and thus to reduce the inflationary pres-sures associated with an economy near capacity. This section also discussesthe need for rapid investment growth to avoid inflationary bottlenecks andscarcities as industrial capacity utilization increases.

A REVIEW OF THE PAST 10 YEARS

EPISODE I: EXCESS DEMAND IN THE LATE 1960s

The current inflation had its roots in the late 1960s. During this periodthe economy reached very high levels of employment and resource uti-lization. The unemployment rate was less than 4 percent in every yearfrom 1966 through 1969, when it reached 3.5 percent, the lowest ratesince the Korean war. The major factor initiating inflation was the tra-ditional one of excess demand. The economic stimulus from expenditures forthe Vietnam war was added to an economy already approaching highemployment. The rate of inflation in consumer prices rose from less than2 percent in 1965 to over 6 percent in 1969.

If the Vietnam war had been financed out of increased taxes, the eco-nomic consequences of the added war expenditures would have been lessserious. But the temporary increase in taxes in 1968 came well after strongdemand pressures had already triggered a significant acceleration in priceand wage inflation. Moreover when taxes were raised, monetary policy be-came more expansive for a brief period, offsetting some of the contractionaryimpact of the tax increase.

The 1970 Recession

The recession which began in late 1969 undid much of the reduction inunemployment that had been achieved over the prior decade, as the unem-ployment rate rose to 6 percent by the end of 1970. Yet inflation continuedat a rapid pace. The advance of consumer prices did slow, but much of thisreduction was due to the impact of declining mortgage interest rates on theconsumer price index (CPI). If mortgage interest is excluded, the consumerprice index showed little deceleration—from 5.7 percent in 1969 to slightlyover 5 percent in 1970 and the first half of 1971 (Table 19). The increase inaverage hourly earnings in the private nonfarm sector actually acceleratedduring this period.

139


TABLE 19.—Changes in consumer prices} all items and selected components, 1970—77[Percent change 1]

Component

All items

FoodEnergy 3

Mortgage interest.Other items

Medical care

Relativeimpor-tance,

December1977

(percent)2

100 0

24 07.44.3

64.3

6.9

1970

5.5

2.24.56.96.0

7.3

1971

3 4

4 33.1

- 1 1 . 03.8

4.8

1972

3 4

4 72.8

- . 93.1

3.3

1973

8 8

20.116.814.73.8

5.2

1974

12 2

12 221.610.510.7

12.4

1975

7.0

6.511.6

- 3 . 16.7

9.9

1976

4.8

.66.9

- 4 . 86.6

10.1

1977

6.8

8.07.21.95.9

8.8

1 Change from December to December, not seasonally adjusted.2 Detail may not add to total due to rounding.3 Gas and electricity, fuel oil and coal, and gasoline and motor oil.


The inflation would not have persisted during the 1970 recession if wagesand prices were very sensitive to economic slack. On the basis of the experi-ence of that period, and the similar one more recently, estimates of the sizeand duration of the demand restraint and output loss that it takes to slowinflation have been revised sharply upward.

Wage and Price Controls

In reaction to the failure of inflation to abate, a wage and price freezewas announced on August 15, 1971, and was followed by wage and pricecontrols. The initial price freeze and the subsequent Phase II of controls didreduce the rate of inflation during the final months of 1971 and throughout1972. The rise in consumer prices moderated substantially, to about 3percent in the last half of 1971 and throughout 1972. But the controls hadno lasting effect on the rate of inflation. Their relaxation in 1973 coincidedwith the beginning of a series of developments that inaugurated a new roundof inflation. And the increase in business profit margins, which had beensqueezed during the control period, contributed to the renewed upsurge inprices.

EPISODE II: THE ACCELERATION OF INFLATION IN 1973-74

The second inflationary episode stemmed in part from excess demand.Between the fourth quarter of 1971 and the first quarter of 1973 the econ-omy grew very rapidly—real gross national product (GNP) increased at anannual rate of 7% percent. Among other reasons for this growth was theexpansive economic policy pursued. The high-employment budget movedfrom a $2.7-billion deficit in 1970 to an $11.8-billion deficit in 1972;monetary policy was also eased significantly and remained easy through1972. Unemployment dropped sharply in 1972, and capacity utilizationreached high levels, especially in the materials sector. The phased disman-tling of controls during 1973 coincided with and contributed to the openingof a new episode of inflationary events.

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The major inflationary pressures in 1973 and 1974, however, were notcaused by domestic monetary and fiscal policy. The fall of over 20 percent inthe value of the U.S. dollar from mid-1971 to mid-1973 helped to cause arapid rise in exports. Demand for U.S. goods was also increased by the simul-taneous economic expansion in all industrial countries. The high operatingrates in the rest of the world accentuated the problem of tight domesticcapacity, as imports were not available to augment domestic supplies. Themost obvious result of this expansion was a rapid rise in prices of industrialcommodities. On world markets, prices of basic industrial commodities otherthan oil more than doubled between mid-1972 and mid-1974. Prices of inter-mediate products such as primary metals and chemicals also rose sharplyin response to worldwide demand.

Other special factors were also at work. Food prices surged in 1973and 1974 as a consequence of conditions that had been evolving slowly,but were brought into prominence by a series of poor world harvests begin-ning in 1972. The steep increase in oil prices put into effect by the Orga-nization of Petroleum Exporting Countries (OPEC) in late 1973 causedthe energy component of the CPI to rise by nearly 22 percent in 1974 alone;from the end of 1972 through 1975 it rose by nearly 60 percent.

Although each of these special events was sufficiently important to exert amarked impact on the overall price level, the dominant influence was therise in fuel and food prices. Its force was not limited to direct effects. Thepass-through of cost increases into other prices broadened the inflation, andthe rise in consumer prices led to efforts by wage earners to recover lost realincomes. The inflation in prices for consumer items other than food, energy,and mortgage interest accelerated from 3.1 percent in 1972 to 3.8 percent in1973 and to 10.7 percent in 1974. The rate of increase in hourly earningsremained relatively stable at around 6 to 7 percent until controls were re-moved in April 1974, but then rose sharply to .an annual rate of about 10 per-cent during the remainder of the year. While the rise played a part in spread-ing the initial shocks through the rest of the economy, it was less than theincrease in prices and represented a loss in real wages for workers.

The 1973-74 experience provided vivid evidence of the potential infla-tionary effects of factors other than aggregate demand pressures. It was, aswell, an example of the effects of the downward insensitivity of prices andwages. Price increases in one sector exerted upward pressures in others,rather than leading to a readjustment of relative prices around a stableoverall rate of inflation.

THE CURRENT SITUATIONInflation has moderated substantially from the 12-percent rate of 1974.

Improved weather and agricultural production reduced prices of agricul-tural products at the farm. Despite higher processing costs, the rise in retailfood prices during 1976 was limited to less than 1 percent. Energy prices areno longer rising at the extreme rates of earlier years. The rapid growth inprices of other materials has also moderated.

141

248-947 O - 78 - 10


The slowing or reversal of price increases in these sectors, together withthe severity of the 1974—75 recession, did result in a significant moderationof other price increases and wage gains. In 1973 and 1974 compensationper hour rose less than prices, but still climbed sharply. The rate of increasesubsequently declined from an annual rate of almost 11 percent in 1974 toabout 8 percent in 1975, but has not receded further.

After initial moderation in 1975, the rate of inflation remains high andrelatively stable. The rate of increase of consumer prices fell from 1975to 1976, but then rose again in 1977. These fluctuations were principallydue to erratic variations in food and energy prices. Excluding those twocategories, consumer prices rose at almost the same 6- to 6 J/i-percent rate ineach year from 1975 through 1977 (Chart 9).

Even allowing for delays in the response of wages and prices to underly-ing changes in demand, the failure of prices and wages to decelerate overthe past several years starkly illustrates the strength of the forces that supportinflation in the face of substantial economic slack.

THE MOMENTUM OF INFLATION

An inflationary momentum becomes built into the structure of the econ-omy in several ways. Expectations of inflation and workers' desires to main-tain their real wages lead to indexing of wage rates to price increases in botha formal and an informal fashion. Workers as well as their employers areconcerned with their wages relative to other workers'. As a result, a wageincrease won in one sector of the economy can generate demands for equiva-lent increases elsewhere, even though economic conditions in individual labormarkets may vary significantly. Since an acceleration of inflation is usuallyuneven in its initial stages, the wage structure becomes distorted, intensifyingthe conflict over relative wages. The normal reaction is larger wage gainsin lagging sectors rather than smaller increases in leading sectors. Thisprocess of adjustment makes it difficult to stop the inflation, even after theinitiating forces have disappeared.

Widespread belief that inflation will continue also leads businesses to ac-cede to cost increases in the expectation of being able to pass the costs for-ward into higher prices. These price increases become the basis for stillfurther rounds of wage increases.

In this process of ongoing wage and price increases, it is fruitless to tryto identify a villain. While there are winners and losers—some groups doa little better and some a little worse in defending their standard of living—the actual changes in the distribution of income between profits and wageshave been relatively small lately. The poor performance of real wages inrecent years has been the result of poor productivity gains and the higherprice of imported oil, not of a shift in income away from workers to otherAmericans. Poor profits have stemmed principally from low capacity utiliza-

142


Chart 9

Price and Wage TrendsPERCENT CHANGE, END OF YEAR TO END OF YEAR

_ CONSUMER PRICES-ALL ITEMSJ/

1966 1968 1970 1972 1974 1976

CONSUMER PRICES-ALL ITEMS LESS FOOD AND ENERGY /

5 -

1966 1968 1970 1972 1974 1976

20 -

15 -

10 -

COMPENSATION PER HOUR^(PRIVATE NONFARM BUSINESS)

1H I

m

1966 1968 1970 1972 1974J/CHANGE FROM DECEMBER TO DECEMBER, NOT SEASONALLY ADJUSTED.

-^CHANGE FROM FOURTH QUARTER TO FOURTH QUARTER, SEASONALLY ADJUSTED.

SOURCE: DEPARTMENT OF LABOR.

1976

143


tion and higher energy costs rather than from the pressure of wages onprices. The principal result of the struggle to defend living standards hasbeen continued inflation.

Some of the factors that explain the inflexibility of prices and wages in theface of slack demand can be identified. Complex technology, specializa-tion, and economies of scale have limited price competition in manyindividual markets. Price reductions are not seen as a means of sustainingrevenues and profits during periods of decline in the total market, since eachfirm perceives that its competitors will match any price cuts. Competitiontends to concentrate on other strategies than pricing: quality adjustment, forexample, and the introduction of new products. The responsiveness of supplyto changing demands is also reduced by the importance of fixed costs inmany industries; decisions to expand capacity or enter into new markets mustbe based on long-term considerations rather than on more immediatechanges in market conditions. The cost of entry into many major industriesby new firms is often great enough to allow some pricing discretion by thosealready there.

The existence of formal escalator clauses tends both to increase the speedwith which an inflation spreads through the economy and to perpetuate theinflation when it becomes established. In 1970 only one-fourth of workerscovered by major collective bargaining agreements were protected bycost-of-living clauses; today 60 percent are (although virtually none of theseclauses provide an automatic full escalation of wages to prior inflation).Many employers whose unions have escalator clauses extend the same pro-tection to their nonunion employees. And employers without such escalatorsface strong pressures to grant wage rate increases that protect workersagainst inflation to maintain morale and productivity.

The structure of labor markets in modern industrial societies differssignificantly from simple models of competitive behavior. Workers do notcompete freely for all jobs. Some are denied the most attractive opportu-nities because of discrimination. Unemployment rates show a wide disper-sion among different subgroups of the population, and the search for jobs bysome workers does not fully restrain wage increases of others. Entry into themost attractive job markets is also sometimes limited by rules and practicesthat have often been successful in preventing increases in overall unemploy-ment from putting downward pressures on rates of increase of wages orprofessional fees. Many firms, because of their interest in maintaining astable, high-quality labor force, base wage policy on longer-term considera-tions. Wage rates are often determined by what is considered equitable,and prices are often set on the basis of traditional markups over cost,rather than being based on short-run demand and supply conditions inindividual labor and product markets.

These characteristics of wage and price determination have been withus for a long time. Several recent developments, however, may have made thesetting of wages and prices even less flexible. The cost of doing business has

144


been steadily increased, in good times and bad, by regulations designed tomeet objectives such as clean air and water and improved health and safetyof consumers and workers. Another factor may have been the substantialgrowth of the noncompetitive sector of the economy. This sector (govern-ment and nonprofit establishments) represents about 26 percent of totalemployment today as against less than 20 percent in 1960. Although employ-ment in the regulated industries whose prices are sheltered to a large degreefrom competitive forces—electric and gas utilities, communications, and mostforms of commercial transportation—has not grown as rapidly, wage andprice behavior in this sector also differs importantly from the competitivemodel. By 1977 the government, regulated, and nonprofit sectors togetheraccounted for 31 percent of total employment.

Although we cannot measure the extent to which most of these factorsimpede the downward flexibility of wages and prices, that flexibility doesappear to have been reduced during the postwar period, especially in thecase of wages. As Table 20 shows, deceleration in wages has been less andless evident with each succeeding contraction. The table exaggerates theproblem, since there were strong exogenous forces driving price and wageincreases up in the year preceding the cyclical peak in 1948, and evenstronger forces driving them up in the recent recession. Nevertheless, somelonger-term decrease in downward flexibility, especially of wages, seemsevident.

TABLE 20—Wage and price changes and unemployment rates over the business cycle

[Percent!

Cycle

1948-49....1953-54....1957-58....1960-61 — .1969-70....1973-75....

Average hourly earnings index,manufacturing1

At cyclicalpeak

2 quar-ters after

troughChange

Consumer price index

At cyclicalpeak

2 quar-ters after

troughChange

Change from 4 quarters earlier

9.15.85.03.16.06.6

I

1.92.43.62.66.89.5

-7 .2-3 .4-1 .4- . 5

.82.9

4.5.9

3.51.85.88.4

-0 .6- . 61.91.24.48.7

- 5 . 1-1 .5-1 .6- . 6

-1 .4.3

Unemployment rate, wage andsalary workers in manufacturing

At cyclicalpeak

2 quar-ters after

troughChange

4-quarter average

4.22.84.65.83.34.3

8.27.19.38.06.7

10.4

4.04.24.72.23.46.1

1 Adjusted for ov ertime and interindustry shifts.


At the same time, the acceleration of the inflation rate during the past10 years cannot chiefly be blamed upon an increasing downward rigidityof wages and prices. Rather it appears to result from the relatively greatermagnitude and frequency of the inflationary shocks that have occurredduring the recent period, impinging upon an institutional structure of wageand price setting which, for some time, has allowed only very limited down-ward flexibility, especially in wage determination.

145


OTHER FACTORS AFFECTING THE CURRENT INFLATION

Among the factors contributing to the high inflation rates of the last decadeare changes in the behavior of labor productivity, basic material costs, andprice-cost margins.

Productivity

There has been only a small improvement in real incomes throughout theeconomy in recent years. This can be attributed to the slow growth inproductivity (and the large increase in imported oil prices) rather than to afailure to gain large increases in nominal income. From 1950 through 1968private nonfarm productivity expanded by about 2.6 percent annually (Chart10). From 1968 through 1977 it rose by about 1.4 percent per year. Part ofthis difference in performance is caused by the incomplete recovery from therecession: productivity tends to grow faster than its longer-run trend whenthe economy is on the upswing of a cycle and slower during the downswing.But correcting for cyclical factors still leaves a difference: 2.5 percent in the

Chart 10

Productivity in the PrivateNonfarm Business Economy

INDEX, 1967=100 (RATIO SCALE)

130

120

110

100

90

80

70

60

-

i i

- *

i i I I I !

/

<

ACTUAL

I I I I I I I

yy

y

TREND / y

/

/CYCLICALLY /ADJUSTED^ /

\ / / /

/\ff///^

I I I i I I I I I

130

- 120

- 110

1001950 1955 1960 1965 1970 19752/THE CYCLICAL ADJUSTMENT IS BASED ON A REGRESSION OF PRODUCTIVITY ON THE CURRENT

AND LAGGED UNEMPLOYMENT RATE FROM 1950 TO 1968.

SOURCES: DEPARTMENT OF LABOR AND COUNCIL OF ECONOMIC ADVISERS.

146


earlier period against 1.6 percent in recent years. This slowdown is one ofthe most significant economic problems of recent years. Gains in real livingstandards must come primarily from improved productivity. Without gainsin productivity, improvement in real incomes for some Americans can comeonly at the expense of others.

In the short run, rapid productivity growth also helps to contain inflation.To the extent that nominal wage gains are determined by the inertia andexpectations discussed earlier, productivity growth provides a marginbetween rising money wages and unit labor costs and thus contributes tolower inflation rates. The substantial growth in productivity was a majorfactor in the stable price environment of the 1950s and 1960s. A continuationof the slower growth in productivity that has prevailed since 1968 wouldimply a very stringent limitation on real income growth. It would alsoincrease the difficulty of achieving moderation in the inflation rate.

The causes of the apparent decline in the rate of productivity growth arevaried and their effects hard to quantify. Some of the decline may resultfrom the gradual adjustment of the economy to higher energy prices, asmore costly resources are substituted for previously cheap energy inputs.But this explanation cannot account for the slower growth before 1974.There is, of course, no reason why productivity should follow a constantupward trend. Since its growth represents the combined effects of techno-logical innovations, changes in skills and education of the work force, im-provements in organizational techniques, and a host of other factors,changing patterns should be expected.

The change in the demographic composition of the labor force has alsobeen proposed as an explanation of the slow growth of productivity in recentyears. The rise in the proportion of women and younger workers has beena factor in the rise of the unemployment rate, and it might be natural toattribute some slowing of productivity growth to the same phenomenon. Butthe facts do not support this conclusion. What is important for the growthof productivity is not the share of a particular group in employment, but thegrowth of that share. Although the percentages of younger workers and ofwomen in total employment have been growing since 1968, the percentageswere also growing before 1968. The percentage of younger workers (aged16 to 24) grew by 0.4 percent a year from 1955 to 1968, and at the samerate since 1968. The growth of the percentage of women in total employ-ment has also remained virtually unchanged, at 0.4 percent. Since theseincreases have been stable, they cannot have accounted for any significantreduction in the growth rate of productivity.

A more promising explanation may be the behavior of the capital stock.From 1947 to 1968 the capital-labor force ratio grew at .an annual rate ofabout 3 percent. Since then it appears to have grown more slowly, by about1 percent a year. If one adjusts for the proportion of capital required to meetpollution abatement and safety regulations, the capital-labor ratio would

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show even less growth. This apparently explains at least some of the slowergrowth in productivity since 1968.

The accelerated introduction of governmental regulations dealing withenvironment, health, and safety may also have been responsible for some ofthe slowdown in official measures of productivity growth. To the extent thatadditional resources are devoted to specific identifiable activities required tomeet environmental, safety, and other social regulations, the effects on pro-ductivity are, at least conceptually, measurable. But much of the effect mayhave come indirectly, through increased limitations on the choice of sitesand raw materials, delays in construction, and constraints on productionprocesses. The effect of these is virtually impossible to quantify. Increasedregulation has undoubtedly had an impact, but its magnitude remains amatter of conjecture. Insofar as these programs result in improvements inpublic well-being, we may simply have taken part of our productivity gainsin forms that are not measured in GNP.

Much of the low recent growth in productivity may come from theeffect the extreme instability of the economy since 1968 has had on invest-ment. Sustained balanced growth may make a substantial contributiontoward restoring a more rapid growth of investment, and thus of produc-tivity.

Profit Margins

Firms seemed to absorb part of their cost increases during the late 1960sand the early 1970s, rather than passing them on fully to purchasers. Con-sequently profit margins declined substantially. Profit margins, adjusted forthe effects of inflation, have improved since 1974, however, and appear to beclose to their post-World War II average when allowance is made for capacityutilization. (See Chapter 1.) This situation does not characterize all indus-tries, of course, and some movements in prices relative to costs will take place.But as far as the economy as a whole is concerned, attempts to increase profitmargins by increases in prices relative to costs should not seriously affectinflation in the near future.

Costs of Materials

From the end of the Korean war until the late 1960s the prices of rawmaterials declined relative to the general price level. This was an importantfactor in moderating inflation during this period. The decline was due to avariety of factors, including a large overhang of excess processing and miningcapacity, the discovery of large low-cost oil fields abroad, expansion of capac-ity in foreign countries, major technological improvements in agriculture andmining, ,a more extensive global search for raw materials, and a major reduc-tion in overseas transport charges. For example, yields per acre of corn in theUnited States increased by 125 percent from 1950 to 1969, largely becauseof improved hybrid seeds, better fertilization and pest control, and improvedcultural practices.

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This downward trend in relative prices of materials came to an abruptend in 1973. In that year alone raw materials prices rose 40 percent. Thisexplosive rise can be attributed to lagging growth of capacity during prioryears, a series of crop failures in several areas of the world, the enormousgrowth in demand created by the simultaneous economic expansion in theindustrial countries, the development of speculation and a "shortage mental-ity," and above all the actions of OPEC. This explosion appears to haveended. Although there is no reason to believe that prices of raw materialswill climb as abruptly in the near future as they did in 1972-74, neithershould one expect them to decline relative to other prices, as they did priorto 1970.

Government Policies

Government policies directly affect the price level. The most obviousexamples are increases in sales or payroll taxes, since they add to prices andcosts. A rise of 1 percentage point in the sales tax rate shows up fairly directlyin prices. Changes in payroll taxes have a similar effect by raising labor costs,which are then passed on in higher prices. The employer's share of socialinsurance contributions (including social security and unemployment insur-ance) has risen from only 2.7 percent of total employee compensation in1950 to over 6.8 percent in 1977, and to over 7 percent in 1978, when higherunemployment insurance and social security taxes take effect.

The government may also add to prices through other forms of legisla-tion or through regulation. A change in the minimum wage law is an ex-ample. Mandating an increase in the wage paid by the employer raises thecost of production and increases prices. Expenditures that are required tomeet environmental and safety regulations add to costs. The environmentalbenefits or added safety may be well worth the resources devoted to them,but the rate of inflation is affected. Government regulations may also havean unfavorable effect on prices by restricting competition. When interna-tional competition is restricted through tariffs or quotas, domestic producersare able to raise their prices. Domestic competition is also restricted byvarious regulatory agencies that set uniform rates and hamper the entryof new firms. Some of these issues are discussed further in Chapter 5.

GROWTH AND INFLATION

In the traditional view, the cure for inflation is a dose of fiscal and mone-tary restraint designed to reduce aggregate demand and thereby eliminatethe conditions generating the inflation. When inflation is being fed by excessdemand—tight labor markets and intensive use of industrial capacity—elimination of that excess is indeed a prerequisite to controlling inflation andpreventing it from accelerating further. Moreover, if the rate of increase inwages and prices responded readily to excess supply, a reduction in demandsufficient to produce a modest and short-lived amount of economic slack

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would eliminate the inflation quickly. As we have seen, however, the essenceof the present inflation problem is that the rate of wage and price increasereacts very slowly to idle resources and excess supply. Given this fact, anattempt to purge inflation from the system by sharp restrictions on demandwould require a long period of very high unemployment and low utiliza-tion of capacity.

Most current estimates of the reaction of inflation to economic conditionsindicate that a continuation of the current degree of slack (an unemploy-ment rate near 6^2 percent) would reduce inflation by amounts that at theupper end of the range are no more than one-half percentage point a year. Inthe absence of future inflationary shocks (for example, a rise in worldmaterials prices), it would take at least 6 years of the current degree ofeconomic slack to cut the inflation rate from 6 to 3 percent. To achieve thesame results in less time would require even higher unemployment rates.

Not only would this policy entail a prolonged effort, it would also be ex-tremely expensive in terms of lost output. Maintaining the current level ofeconomic slack means producing approximately $100 billion a year lessthan the potential output of the economy.

To cut the current inflation rate in half, the lost output would amount toat least $600 billion (at 1977 prices). Moreover, to the extent that sucha policy kept the rate of investment low, any attempt to restore highemployment promptly, after the slack had disappeared, would probablysoon encounter inflationary shortages of plant capacity.

USING THE TAX SYSTEM TO REDUCE THE MOMENTUM OF INFLATION

Various proposals have been offered in recent years to utilize changesin taxes to influence wage and price behavior directly. One set of proposalsinvolves an attempt to break the momentum of the current inflation throughone-time reductions in sales taxes or employer payroll taxes. Since thepersistence of inflation during periods of economic slack stems partly fromthe sequence in which price increases induce wage increases that inducestill further price increases, even a one-shot slowdown in the rate of priceincrease might halt the momentum and start unwinding the spiral.

The Federal Government has no general sales tax. It does have a seriesof specific excise taxes. Eliminating those on alcohol and tobacco hardlyseems an appropriate measure to combat inflation, if only because the initialimpact would be so unevenly distributed across the population. Most of theother excise taxes are earmarked for particular purposes, such as the high-way and airport trust funds. The only sizable excise that remains, the taxon telephone service, is marked for elimination in fiscal 1979 under thePresident's proposed tax program.

State governments are the principal units that levy general sales taxes.Conceivably, the Federal Government could make grants to the Statesconditioned on their using the funds to reduce sales taxes. Serious prob-

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lems of equity and administration must be solved before such an approachcould be made to work. Five States have no sales tax. The taxable basevaries widely among the States—some, for example, include food whileothers do not. Unless the grants were permanent, their cutoff could lead toa sudden return of sales tax rates to higher levels with the consequent addi-tion to inflation. And even if the grants were continued indefinitely, the Statescould hardly be asked never to raise sales taxes once they had been lowered.

Payroll taxes are levied by the Federal Government, and the receiptsflow into several trust funds to pay for various social insurance programs.That part of the taxes that is levied on employers is a direct additionto payroll costs and tends to be passed on in the form of higher prices.

Reducing employer payroll taxes would lead to a one-time reductionin costs and prices. The President has proposed, as a modest step in thisdirection, reducing the Federal portion of the unemployment insurance taxfrom 0.7 to 0.5 percent of covered payrolls. This reduction would lower taxliability by $800 million per year. But a cut large enough to produce a sig-nificant reduction in costs and prices would require a substantial change innational policy with respect to large-scale general revenue financing of thesocial insurance trust funds. While such a change in national policy mightindeed be worth considering, it cannot be made without lengthy debate andappraisal encompassing far more than its merits as an anti-inflation tool.

One-time reductions in sales or payroll taxes to combat inflation needcareful evaluation with respect not only to their administrative and relatedaspects, but also to their efficacy as anti-inflation measures. Roughly speak-ing, a $15- to $18-billion permanent reduction in sales taxes or payroll taxeswould be needed to reduce the level of costs and prices by 1 percent. Wouldsuch a one-time reduction be enough to turn the momentum of inflationdownward? That is, would the secondary effects—the effect of lower pricesin slowing wage increases that in turn lead to still smaller price increases—be sufficient to affect the rate of inflation during subsequent periods? Inpart the answer would depend on what happened to expectations aboutfuture price and wage increases. No answer can be made with confidence,however, so long as we cannot quantify the strength of the various mecha-nisms that perpetuate inflation.

Another quite different set of proposals would use taxes as an incentivefor workers and business firms to moderate wrage and price increases. Inone variant the government would levy a special tax upon wage increasesin excess of some standard, and—in some versions—upon increases in price-cost margins of business firms. In another variant, instead of levying a taxincrease, the government would offer a tax reduction to firms and groupsof workers whose wage increases were held at or below the standard.Given the recent history of inflation, the chosen standard would not beexpected to result in an immediate return to price stability, but would besufficiently far below recent increases in wages to produce a significant decel-

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eration in inflation. To continue the deceleration the tax (or subsidy) couldbe repeated, at least for a few years, with a lower standard each year.

Significant administrative problems are obviously entailed in any suchproposal. How are wage rates (and fringe benefits) to be measured? Whatabout multiyear union contracts, with low increases in the first year to avoidthe tax or reap the subsidy, followed by large increases in the second year?Important economic questions also arise. Would a tax on the wage increasesthat are considered excessive simply be passed along by firms with substantialmarket power and strong unions and thus actually increase inflation? (Thetax reduction variant would not suffer from this particular problem.) Ifcarried on for a number of years, such measures could place a penalty onneeded changes in relative wages and prices and could impede therestoration of equitable wage relationships for those who had been laggingin the adjustment to inflation. If imposed for only 1 year, they might not besufficiently effective to break the momentum of inflation. And from thestandpoint of labor and management, such measures might be viewed asgiving the Internal Revenue Service some of the characteristics of a separatewage and price control agency.

It is not difficult to find administrative and equity problems and to raiseunanswered questions about all these proposals. They are relatively noveland have not been fully evaluated or widely discussed. It would be impru-dent to propose introducing any of them on a major scale before subject-ing them to a much more complete evaluation and wider discussion withrespect to their economic effectiveness, administrative feasibility, and socialequity. On the other hand, the momentum of inflation is so strong,and the consequences of either allowing it to continue or trying towring it out with excessively slow economic growth are so serious, that theyshould not be dismissed out of hand. Further economic evaluation and amuch broader public debate would be very healthy, whatever its outcome.

A DECELERATION STRATEGY

While the forces at work in the economy are not likely to produce anacceleration of inflation in the next year or two, neither are they likely tolead to a deceleration. Supplies of labor and industrial capacity will beample, but unemployment and excess capacity will be less than in the past2 years, during which the underlying inflation rate did not diminishsignificantly. Bringing inflation down gradually in the next several yearswill clearly require a special effort.

If inflation is to decelerate, reliance cannot be placed on sharply lowerprice increases in one or two markets. The acceleration of inflation has beenpervasive across all major sectors of the economy. Significant variations inrates of price increase have occurred among the various sectors—reflectingdifferences in productivity growth rates and underlying cost trends. But all

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of the major components of the consumer price index have experienced alarge rise in the rate of increase since the early 1960s.

Progress in moderating overall inflation must involve deceleration ofwages and prices simultaneously. To bring this process about the Presidenthas asked business and labor to undertake voluntarily a program of priceand wage deceleration.

This new program starts from the presumption that significant decelera-tion should be achieved in each market. Individual industries are asked toaim in 1978 at smaller price and wage increases than the average for thepast 2 years. The amount of deceleration that can be achieved will varyfrom situation to situation, however, because individual industries facedifferent circumstances. The accumulated experience of the recent past—high unemployment and sharp inflation—has distorted the structure ofwages, prices, and profits compared to what they would have been in aperiod of price stability. Deceleration must be widespread, but allowancesmust be made for variations in the degree of moderation.

On the wage side, there has been a wide dispersion of wage rate increasesin recent years. In those sectors of the economy characterized by large enter-prises and union organizations, rates of increase in wages and private fringestypically have been in the range of 8 to 9 percent annually, with littlechange since 1975. On the other hand, the high level of unemployment hashad a moderating influence on wage settlements in more fragmented labormarkets composed of smaller firms, smaller unions, and unorganized labor.As a consequence, there has been a significant widening of wage rate differ-entials among groups in the labor force.

These wage differentials would under normal circumstances result inlarger wage increases in the more competitive labor markets and a gradualnarrowing of these wage differences. But such an outcome would imply ahigher overall rate of wage inflation. Thus, an equitable effort to moderatethe average rate of wage increase must be based on a greater degree of decel-eration by those who have received the largest increases in recent years.There may be very special situations in which wage gains have lagged sofar behind the rest of the economy that deceleration is not possible.

Some guidance in analyzing recent shifts in the wage structure can beobtained from an examination of historical trends in relative wages. Butvariations in the wage structure should be expected in response to evolvingmarket conditions. Such changes in the structure will be associated withskill changes, locational shifts of firms, changes in productivity trends, andother factors that affect the competitive position of a specific industry.Deceleration in the rate of price inflation will contribute to moderation of theincrease in employment costs directly through cost-of-living adjustments inwage contracts and indirectly through its effect on wrage bargains. However,more than a passive response is needed to achieve significant deceleration ofwage increases.

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On the price side, there are similar reasons why a uniform degree of pricedeceleration is not feasible. Firms that previously had lowered their price-cost margins in response to slack demand must restore them to more normallevels as the economic recovery continues. But in those cases where profitshave declined primarily in response to a low level of sales and capacityutilization, improvements in profits should come from higher volume ratherthan increased prices. The degree of price deceleration that is achievable inindividual situations also will be affected by variations in raw material prices,by costs mandated by government—for example, changes in payroll taxes,minimum wages, or regulatory programs—and by the magnitude of cost in-creases incurred under labor and material contracts signed in prior years.Adherence to the goal of price deceleration can contribute to improvedproductivity by intensifying efforts to reduce costs.

If a program for deceleration of inflation is to succeed, it will requirestrong efforts and cooperation at the level of individual industries. Thus,early discussion between government and individual industry and laborgroups with respect to specific inflation problems would be an importantpart of the deceleration effort. On the price side, the staff of the Councilon Wage and Price Stability will undertake an analysis of the outlook formarket conditions and cost trends in those specific situations where difficul-ties can be anticipated in achieving the deceleration objective over thecourse of the year. Members of the Administration will participate in in-formal private discussions with firms or industry groups based upon staffreview of the price-cost outlook and major problems of the industry. Thediscussions would seek to identify problem areas in such matters as costs,capacity, productivity, regulatory measures, and government policies, andwould examine specific actions the parties could take to help in the modera-tion of price and cost increases. Implicit criteria for selecting industries forsuch study and discussions would include their broad impact on costs, theirpotential for setting wage or price patterns, and the occurrence of othermajor developments affecting prices or costs.

Similar informal discussions with union leaders should occur well beforethe beginning of bargaining. They would focus on a review of past trends inrelative wages, effects of the previous settlement, productivity, and othereconomic conditions. These discussions would provide an opportunity toemphasize the importance of deceleration and improvements in productivity,and to review potential barriers to achieving deceleration.

Developments with regard to food prices are likely to be helpfulto the deceleration process. As noted in Chapter 2, the rise of food prices islikely to be considerably smaller in 1978 than it was in 1977. Also, if presentindications of no change in world petroleum prices during 1978 are borneout, the prices paid by consumers for energy will continue to reflect a gradualadjustment of domestic prices to world levels. If a one-half percentage pointannual deceleration could be achieved in the rate of price increase for

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consumer prices excluding food and fuel, then the reduction in the infla-tion rate for the consumer price index as a whole would be larger if foodand fuel prices move as expected.

Table 21 traces the history of changes in broad categories of the consumerprice index, and in the major components of unit labor costs since 1960.The table shows separately the rate of increase in consumer prices for allitems other than food and energy since short-run changes in the volatilefarm component of the retail food basket and in energy prices are not anindication of longer-term trends.

TABLE 21.—Annual rate of change in selected components of the consumer priceindex and employment costs, 1960—77

[Percent]

Item

Consumer prices

All items

FoodEnergyAll items less food and energy _

Commodities . _ - _ __Services

Private nonfarm business

Compensationper hour

Contribution of:

Wages and private fringes . . .Employment taxes

Productivity

Unit labor costs

Relativeimpor-tance,

December1977

(percent)1

100.0

24.07.4

68.6

33.735.0

1960to

1965

1.3

1.5.4

1.4

.82.2

4.0

3.8.2

4.0

.0

1965to

1970

4.5

3.72.55.0

3.76.4

6.5

6.0.5

1.2

5.2

1970to

1975

6.9

9.410.95.7

5.16.4

7.9

7.1.8

1.4

6.4

1976

4.8

.66.96.1

5.36.9

9.2

8.5.7

3.2

5.8

1977 2

6.8

8.07.26.4

4.77.9

8.6

8.1.5

2.7

5.7

1 Detail may not add to total due to rounding.2 Preliminary.

Note.—Changes are measured from December to December for prices and frcm fourth quarter to fourth quarter foremployment costs.

Sources: Department of Labor (Bureau of Labor Statistics) and Council of Economic Advisers.

For all items except food and energy, the inflation rate was stable at justover 6 percent during 1976 and 1977. If an average deceleration of one-halfa percentage point could be achieved in 1978 for this broad category ofconsumer prices, the decline in the rate of inflation for the CPI as a wholecould be somewhat larger because of developments in food and energyprices. Food prices in 1978 should rise by significantly less than in 1977, morethan offsetting a possible faster rise in energy prices. Excluding used cars,whose prices fell sharply in 1977, the degree of achievable deceleration forthe consumer commodity group should be roughly similar to that of services.Actual rates of price increase would, of course, vary among major categories,

155


as they normally do. Prices of consumer commodities should rise by lessthan prices of services because of the larger productivity gains.

Since the degree of deceleration will not be the same in all cases, theachievement of one-half percentage point deceleration for the underlyingrate of inflation will require that a larger deceleration occur in most situa-tions. Unless that is done, the end result will be a deceleration substan-tially less than the one-half percentage point.

Determining the degree of deceleration in costs consistent with theassumed deceleration of prices requires consideration of what has hap-pened to profit margins. Profit margins, adjusted for capacity utilization,are close to the postwar average. Without that adjustment, profits arebelow average. Cyclical deviations in productivity from the long-run trend—which are closely related to rates of capacity utilization—are typically re-flected in variations in profits rather than in prices, actual unit labor costsrising relative to prices in recession and falling in recovery. On average,standard unit labor costs should decelerate at about the same rate as theunderlying rate of inflation, since a greater deceleration of prices than costswould reduce profit margins below long-run average levels.

Payroll taxes for social security and unemployment insurance will increasesharply in 1978 and 1979. Achieving a one-half percentage point decelerationin unit labor costs will therefore require a larger moderation of increasesin wages and private fringe benefits. At the same time, however, becauseof the larger than average deceleration in food prices, the rise in the overallconsumer price index would slow down more than the underlying rate ofinflation. As a consequence, significant gains in real wages and fringes wouldbe achieved.

A focus upon the objective of decelerating inflation at the level of indi-vidual markets has several advantages. First, it is an explicit and easily under-stood standard for individual price and w7age situations, set forth well in ad-vance of any specific decision. It recognizes that basic rates of price increasemust vary among markets because of differences in productivity growth andmaterial cost trends. Yet virtually all should be able to achieve some deceler-ation. This objective does not interfere unduly with normal market functions.Individual firms continue to be responsible for their own cost increasesrather than being subjected to some vague concept of cost pass-through.Finally, it provides a conceptual basis as a guide in identifying the specificsectors where efforts to reduce inflation should focus. For regulated indus-tries and governmental operations, it would provide a framework for eval-uating and coordinating a wide range of government policies that affectprices and costs. On the wage side, it recognizes that recent increases havevaried substantially among different groups of workers, but it seeks to mod-erate distortions in the wage structure principally by different degrees ofdeceleration rather than by a speeding up of wage increases in laggingsectors.

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CAPACITY UTILIZATION

Reduction of the ongoing rate of inflation during the expected economicslack in the next few years would do much to prolong the recovery. But wemust also deal with another challenge—ensuring that we do not incur anew round of inflationary pressures as we return to high employment andcapacity utilization.

In 1973, shortages of capacity, principally in materials-producing indus-tries, contributed to the acceleration of inflation. At present, capacity rela-tive to output is ample in virtually every industry; but as unemploymentdeclines between now and 1981, output and employment will rise faster thantrend. And since 1973 the labor force has grown more rapidly than thestock of fixed business capital. Will industrial capacity be sufficient toprevent shortages from setting off a new round of inflation as the economyapproaches high employment?

The capacity shortages in 1973 developed at the end of a period in whichindustrial capacity had increased fairly rapidly. Between 1965 and 1973 thenet real stock of fixed business capital excluding pollution abatement equip-ment grew at 4.4 percent per year. During the same period, the labor force(minus employment in the government sector) grew at a 1.9-percent annualrate. Even with this difference between the growth rates of labor and capi-tal in the private sector, a number of industries experienced shortages incapacity in 1973. By contrast, in the 1973-76 period the annual growthrate of fixed capital stock, excluding that part devoted to pollution abate-ment, decreased substantially to 1.9 percent, while the private labor supplygrew at 2.3 percent annually. This comparison of growth rates of labor andcapital and the observed capacity shortages in 1973 are in themselves enoughto arouse concern about capacity constraints in 1981 or even sooner.

The capacity shortages in 1973 were made more critical, however, by twofactors that are not likely to recur in the next 4 years. First, output invirtually all industrial countries reached a peak simultaneously in 1973. Thismeant that substantial pressure was placed on world markets for manydifferent industrial products and raw materials. Shortages in the UnitedStates could not be relieved by imports at existing or only slightly increasedprices. Second, the price rise associated with the simultaneous surge in de-mand generated speculative building of inventories across a wide range ofcommodities both here and abroad. This inventory accumulation remaineda profitable activity as long as prices rose faster than the sum of storagecosts plus the nominal rate of interest. Economic growth is now below trendin all industrial countries. This slow growth and the worldwide persistenceof excess capacity in most major industries make a recurrence of worldwide

capacity problems unlikely. In steel, for example, the capacity utilizationrate in 1973 was 97 percent in the United States, 92 percent in Japan, and85 percent in Europe. Currently the average of these rates is less than 75percent, and there is little chance that levels similar to those in 1973 will be

157


reached by 1981, even under optimistic assumptions about the growth ofdemand in Europe and Japan. The availability of many basic commoditiesfrom foreign sources to supplement domestic output when it approachescapacity reduces the probability of price-raising shortages and speculativeinventory accumulation.

PAST TRENDS IN THE UTILIZATION OF CAPITAL

Table 22 summarizes capacity utilization estimates prepared by the Fed-eral Reserve Board for manufacturing and major industrial groupings. Ingeneral the current capacity utilization measures indicate sufficient industrialcapacity to accommodate above-trend growth in output for at least 2 years.

TABLE 22.—Capacity utilization in manufacturing and materials industries, selectedperiods, 1955-77

(Percent; seasonally adjusted]

Period

1955: 1IIIIIIV

1966: 1 . . .IIIIIIV..

1969: 1 . . .IIIIIIV

1973: 1 . .IIIILIV

1976: 1IIIII.IV

1977: 1 . . .IIIII..IV

Manufacturing

Total

84.587.487 588.6

91.191.691.290.6

87.286.586.484.8

87.187 687.887.7

79.180.380.880.6

81.282.783.082.8

Advancedprocessing

82 484.684 385 6

91 091.591 090.9

86 385.485.282.9

84.585 285.085 0

78.079.179.579.7

80.581.481.981.8

Primaryprocessing

88.392.493 493.9

91.892.091.990.1

88.988.488.688.4

91.892.192.793.0

81.082.583.182.2

82.385.184.984.8

Industrial materials

Total

89.489.690.489.6

92.192 592.992.1

79.380.781.280.3

80.482.682.382.3

Durablematerials

87.987.789.488.2

90.691 692.391.4

73.876.778.476.5

76.579.479.279.6

Nondurablematerials

91.091.290.789.8

93.993.693.493.7

85.686.084.884.4

85.187.286.386.3

Energymaterials

91.192.492.293.2

93.893.494.192.0

85.684.183.884.8

84.584.885.00)

i Not available.Source: Board of Governors of the Federal Reserve System.

Capacity utilization for all manufacturing industries was 82.8 percent in thefourth quarter of 1977, 5 percentage points below the level attained in 1973and nearly 9 percentage points below the 1966 peak. Capacity utilization inmaterials, a category that contains mining and utilities as well as unfinishedmanufacturers, was almost 11 percentage points below its previous peak in1973.

The interpretation of capacity utilization statistics is complicated, how-ever, by a number of factors. First, no measure of the utilization of capitalcovers the entire economy. The broadest-based measure obtainable is for the

158


manufacturing sector, which in 1977 accounted for only about 25 percent ofprivate GNP and 20 percent of the fixed private nonresidential capital stock.While it is reasonable to assume that capacity utilization outside of manufac-turing is strongly correlated with the manufacturing capacity utilization rate,substantial variation between disaggregated measures of capacity utilizationdoes exist. For example, between 1962 and 1966 capacity utilization rosemore rapidly than might have been expected because the share of manu-facturing output in the total increased. Between 1966 and 1968 the manu-facturing share fell and capacity utilization declined, even though GNPremained high relative to potential. Only tentative conclusions about theadequacy of aggregate capital formation can be reached from relativelynarrow measures of capacity utilization.

In industries except those with continuous processes (like chemicals, paper,and steel), the possibility of adding a second or third shift to increase outputwithout adding to the physical capital stock creates additional ambiguity.In many sectors of the economy, particularly ones producing finished goods,production is relatively labor-intensive; in a given plant, output can be in-creased by adding employment with very little deterioration in productivity.In these sectors, measured capacity utilization may rise very slowly in relationto output when output is high.

Advanced-processing Versus Materials-producing Industries

The data in Table 22 show a sharp difference between the advanced-processing industries and the primary-processing and materials industries.During the fourth quarter of 1977 capacity utilization rates in advanced-processing industries were only 3 percentage points below those reached in1973. But in 1973 capacity shortages were not apparent in such industries,nor did price pressures originate in those areas; indeed, utilization rateswere substantially lower, by about 6 percentage points, than they had beenin 1966. Capacity utilization in primary-processing and materials industries,however, which was quite high in 1973, was well below those levels in late1977, by about 8 points for primary-processing industries and 11 pointsfor materials. Many of these industries created additional capacity inresponse to the high utilization rates of 1973. The 4/2-point difference incapacity utilization for manufacturing as a whole between 1973 and late1977 thus understates the extent that capacity is available to accommodateabove-trend gains in output in the next several years without generatinginflationary shortages. Most advanced-processing industries should be ableto add extra shifts to expand capacity without extraordinary price increases.

Labor Utilization Versus Capital Utilization

While the growth in domestic output now in prospect for 1978 and 1979and projections of excess capacity in other industrial nations make wide-spread capacity bottlenecks unlikely in the next 2 years, a longer-run imbal-ance between capital and labor resources remains a question. The relation

159


of unused labor services to unused capital services is illustrated in Chart 11.The capacity gap is the difference between the Federal Reserve Boardcapacity utilization index and 87.5 percent, the level attained at timeswhen the unemployment rate was close to high employment. The em-ployment gap is the difference between the overall unemployment rate andthe high-employment benchmark. During the 1960s very large investmentexpenditures increased the capital stock substantially. As a consequence, in1967-69, when the labor market became very tight, with a negative employ-ment gap, the capacity utilization rate remained at or below 87 percent.Since then, however, the employment gap has drifted upward relative tothe capacity gap; for any given unemployment rate the observed capacityutilization rate has increased.

A related measure of this capital-labor imbalance is the high-employmentcapacity utilization rate shown in Chart 11. By estimating the average rela-tion between changes in the unemployment rate and changes in thecapacity utilization rate, one can obtain the capacity utilization that wouldbe achieved in any period if unemployment were at its high-employment

Chart 11

Relationship Between Capitaland Labor Utilization

PERCENTAGE POINTS PERCENTAGE POINTS24

UNUSED CAPITAL AND LABOR

CAPACITY GAP(Right scale)

J EMPLOYMENT GAP~~~ (Left scale)

i 1 1 1 I I I I l l I 1 i I l 1 1 I l I i l i 1 i I l I l 1 l I I I i I l I I 1 i I i I l i 1 1 i I I I i I i I i l I I i I I I I i i I I i l- 21960 62 64 66 68 70 72 74 76

PERCENT

-8

100

90

80

HIGH-EMPLOYMENT CAPACITY

\ /

Vi

I l l l l ml

^ ^ - \

I I I I I I II I I ! I I I

UTILIZATION

MATERIALS

I l l l l I I n i

^ \ v

M A N U F A C T U R I N G

I l I I I I I I l I I I I I I I ! I1960 62 64 66 68 70 72 74 76SOURCE: COUNCIL OF ECONOMIC ADVISERS.

160


benchmark. The concept of high-employment capacity utilization isan attempt to provide a cyclically adjusted measure of the balance betweencapital and labor resources. As Chart 11 indicates, high-employment capac-ity utilization for manufacturing, currently at 90 percent, is significantlyhigher than it has been in the past; the postwar average is 86 percent.

For materials, data prior to 1967 are not available. The high-employmentcapacity utilization rate did move up between then and 1973. After somefluctuations, the rate in the fourth quarter of 1977 was at about the 1973level. In general, the rise in the high-employment capacity utilization ratesuggests that there could be pressures on capacity as the economy returnsto high employment if business fixed investment does not increasesubstantially.

The estimates in Chart 11 also provide some comfort. In the early 1960sthe high-employment capacity utilization rate was also high. The prior periodof slack demand and underutilized resources had resulted in poor investmentperformance and the slowing of growth in the capital stock relative to thelabor force. But the subsequent period of high investment did succeed inincreasing the availability of capacity, so that by the second half of the decadethe high-employment capacity utilization rate had fallen significantly.

CAPACITY UTILIZATION THROUGH 1981

The fact that measures of existing capacity utilization cover only part ofthe capital stock, and the conceptual problems noted earlier, mean that onlytentative conclusions about the adequacy of the capital stock can be drawnfrom available utilization statistics. A rough indication of the rise in manu-facturing capacity utilization that may accompany the projected real GNPgrowth of 4.8 percent per year between 1977 and 1981 can be obtained byobserving the capacity utilization growth experienced in 1962-68, when realoutput grew steadily at above-trend rates, and real investment grew morerapidly than real output. If the relation between real GNP growth andcapacity utilization in 1962-68 is matched in 1977-81, an annual 4.8 per-cent growth in real GNP would raise the manufacturing capacity utiliza-tion rate by 1.5 percentage points a year. By 1981 the utilizationrate would reach 89 percent, slightly above 1973 but less than the 1966level. In view of the current capacity utilization differences among indus-tries and particularly the current large unused capacity in materials indus-tries, such an outcome should be consistent wTith the avoidance of inflationstemming from capacity shortages. If, on the other hand, investment andcapacity growth proceed at a significantly lower rate, capacity utilizationwould rise to levels previously associated with inflation.

THE LABOR MARKET

Monetary and fiscal policies can provide the conditions under which eco-nomic growth proceeds fast enough to reduce the overall unemployment

161


rate. Such policies alone, however, cannot reduce unemployment to accept-able levels without a significant risk of accelerating inflation.

The incidence of unemployment differs widely throughout the popula-tion. In both good and bad times, youth, minorities, women, and those withless education face a much greater likelihood of being unemployed thanwhite male adults with good education. As a consequence, when the overallunemployment rate declines to low levels, unemployment among the morefavored groups becomes very small, labor shortages occur, and the rate ofwage and price increase accelerates. Yet less favored groups continue tosuffer high though diminished unemployment.

The uneven incidence of unemployment requires that monetary and fiscalpolicies to deal with aggregate unemployment be accompanied by structuralpolicies to deal directly with the labor market problems of groups with per-sistently high unemployment.

THE STRUCTURE OF UNEMPLOYMENT

Although unemployment rates have recovered to a great extent from the1975 recession, they have not yet reached the levels normally associated withhigh employment. As is seen in Table 23, all of the unemployment ratesby age, race, and sex were higher in 1977 than in 1956, 1965, and 1973—years of low overall unemployment in which labor markets were apparentlyclose to balance. It would thus be wrong to conclude that all of thecurrent high rate of unemployment is frictional or structural (i.e.,that the present unemployment rate could not be lowered through an in-crease in aggregate demand without increasing the rate of inflation).There are, however, a number of structural problems revealed in Table23, and it is useful to examine each of them in detail.

Unemployment differentials have been persistently observed in our econ-omy. They exist between blacks and whites, teenagers and adults, andwomen and men. Part of the explanation of such differentials has to dowith different patterns of turnover, skill level, labor market attachment,

TABLE 23.—Unemployment rates by race, sex, and age, selected periods, 1956-77

[Percent*]

Group

Total

White:Males 20 years and overFemales 20 years and over . . . - __Teenagers

Black and other: 3Males 20 years and overFemales 20 years and overTeenagers. .. .

1956 2

4.2

2.73.99.1

6.79.4

16.6

1965 2

4.6

2.64.2

12.3

5.49.0

24.6

1968

3.6

2.03.4

11.0

3.96.3

25.0

1973III

4.8

2.84.4

12.2

6.08.1

31.5

1975II

8.9

6.58.0

18.3

12.011.836.7

1977IV

6.6

4.26.0

14.1

10.111.838.3

1 Percent of civilian labor force in group specified; quarterly data seasonally adjusted.2 Data adjusted for change in definitions in 1967.s Blacks comprise about 89 percent of total black and other in the labor force.


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location, and other factors that may be quantified. Differentials may alsobe due to factors, such as discrimination, that are less quantifiable butalso important in understanding the structure of unemployment.

Youth Unemployment

Teenagers comprised only 10 percent of the labor force in the fourthquarter of 1977, but they accounted for 24 percent of all unemployment.This problem is better understood by examining two separate questions:Why is teenage unemployment different from adult unemployment? Andwhy is black teenage unemployment much higher than white teenageunemployment ?

White teenagers, like other groups, still suffer from cyclical unemploy-ment, but there is less structural unemployment than would appear simplyfrom a comparison of white teenage unemployment rates with those of whiteadults. During periods of general economic prosperity much of the unem-ployment of white teenagers results from decisions to leave and reenterthe labor force. For most younger teenagers—those 16 to 17 years old—em-ployment is a secondary (or tertiary) activity, and jobs are considered only astemporary. For older teenagers there also is much turnover in the trial anderror process of finding a long-term career job. A recent study has shownthat between 1967 and 1973 the average number of teenagers who left em-ployment and withdrew from the labor force in any given month ranged fordifferent race-sex groups from 12 to 20 percent of total teenage employment.The corresponding figure for males aged 25 to 59 was 0.4 to 1.1 percent.

The higher labor force turnover rates for teenagers are shown in Table24, where unemployment rates of teenagers and adult males and femalesare classified according to the reason for unemployment. The proportion ofthe total teenage labor force that is unemployed because they lost their lastjob is not much higher than for adults, but the fraction unemployed as aresult of either leaving their last job or entering or reentering the labor forceis a great deal higher than for adults. The data in Table 24 may to someextent understate the relative importance of unemployment among adultfemales and teenagers associated with job loss. Some of those in the re-entrant category may have been discouraged workers who previously droppedout of the labor force after losing their last job.

TABLE 24.—Unemployment rates by reasons for unemployment, 1977

[Percent]

Group

TotalJob losersJob leaversNew entrants to the labor forceReentrants . . _..

Total *

7.03.2.9

1.02.0

Vlales 20 yearsand

over2

5.23.4.6.2

1.0

Females 20years and

over2

7.02.81.2.4

2.6

Teenagers 2

17.73.41.77.65.1

1 Percent of civilian labor force.2 Percent of civilian labor force in sex/age group specified.Source: Department of Labor, Bureau of Labor Statistics.

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If labor markets were tighter, as in the late 1960s and 1973, the durationof job search, and therefore the unemployment rate of teenagers, wouldfall. The instability of the teenage labor force, however, would prevent therate from falling to a level comparable to that of adults. Thus, the whiteteenage unemployment rate was 12.2 percent during the 1973 boom andaveraged 11.0 percent in the midst of the Vietnam war boom of 1966-69.

This is not to say that such search is a necessary characteristic of theteenage labor market. Improved labor market information and job counsel-ing programs for teenagers might reduce search time as well as job turnover.The evidence does not rule out the existence of some structural unemploy-ment among white teenagers. But a large part of the differential betweenwhite teenagers and adults clearly reflects a high rate of voluntary jobmobility prior to settling on a stable career.

The differential between unemployment rates of black and white teen-agers cannot, however, be explained by turnover behavior. The proportionof black teenagers who quit jobs and leave the labor force is only slightlyhigher than for whites. Instead, the evidence suggests that black teenagers(as well as black adults of both sexes) have a much more difficult timefinding jobs than their white counterparts do. Moreover, this relative dif-ficulty in finding employment has apparently increased during the past 4years.

Large numbers of black teenagers are very likely not to be in the laborforce because they were unable to find jobs within a reasonable period oftime. As evidence of that fact, the civilian labor force participation rate ofblack teenagers (the "black" category refers throughout this chapter to the"black and other" grouping in Bureau of Labor Statistics data) was only40.8 percent in the fourth quarter of 1977, compared with 60.0 percent forwhite teenagers. A "discouraged wrorker" effect may explain a large part ofthis difference. Black teenagers have slightly higher school attendance ratesthan white teenagers, a fact that would tend to reduce their labor force par-ticipation rate, while the much lower average family income for blacks thanfor whites should increase participation rates among black youth. If these twofactors balance each other, then the percentage of black teenagers who areactually available for work would equal that of white teenagers, and the truerate of black teenage unemployment might approach 57 percent instead ofthe reported 38 percent. This would represent an additional 500,000 unem-ployed persons, or an increase in the overall unemployment rate of0.5 percentage point.

An alternative index of the economy's success in providing jobs for teen-agers is the ratio of employment to the teenage population. At the peak ofthe 1973 boom the employment-population ratio was 49.0 percent for whiteteenagers and 28.2 percent for black teenagers. These ratios fell to 46.2 and25.1 percent, respectively, in the trough of the 1975 recession. From 1975 tothe fourth quarter of 1977 the employment-population ratio for white teen-agers increased to 51.5 percent, but for black teenagers it continued to fall

164


in 1976 and did not increase until 1977, returning to 25.1 percent in thefourth quarter. Thus, by this measure white teenagers are doing better thanat the peak of the last business cycle, but black teenagers are doing no betterthan before the current upswing began.

The gaps between black and white teenage unemployment rates andemployment-population ratios have been increasing steadily for the past30 years. Even in 1968, at the height of the boom induced by the Vietnamwar, the black teenage unemployment rate was 25 percent, compared with11 percent for whites. This worsening coincides with what was until 1975 ageneral improvement in adult black unemployment rates relative to those ofwhites—especially for males—as well as a general increase in the relativeincomes and skill levels of adult blacks.

Several plausible explanations of why black youth have fared so badly inthe labor market during the current upswing have been advanced by econ-omists. A popular hypothesis is that blacks reside in central cities in pro-portionately greater numbers than whites and that central cities have notshared in the recovery. This, however, cannot explain very much of thefailure of the employment-population ratio of black teenagers to increaseduring the recovery. From 1975 to 1977 the proportion of black teenagersliving in central cities held constant at 55 percent; for whites the pro-portion fell from 23 to 22 percent. The employment-population ratio ofblack teenagers residing in central cities fell by 0.9 percentage point, but forwhite teenagers in central cities it increased by 3.0 points. Moreover, whereasthe employment-population ratio of white teenagers residing in suburbsincreased by 3.8 percentage points, the ratio for black teenagers in suburbsfell by 0.8 point. In nonmetropolitan areas the white teenage employment-population ratio rose by 3.9 percentage points while the ratio for blacksdecreased 1.5 points. Thus, the worsening situation for black teenagers doesnot appear to be urban-specific. The black unemployment problem is anurban problem, but principally because so many blacks live in cities.

Another explanation of why the black teenage labor market has beendeteriorating both relatively and absolutely is the large increase in the poten-tial labor force of black teenage labor relative to other kinds of labor.From 1964 to 1976 the black teenage population grew at an annual rate of4.3 percent compared with 2.3 percent for white teenagers and 1.7 percentfor all adults. To the extent that the wages of teenagers relative to those ofadults are fixed through institutional arrangements such as legal minimumwages, collective bargaining agreements, custom, or a tailoring of jobs to aparticular mix of worker skills and characteristics, an increase in the rela-tive supply of teenagers will lead to an increase in their relative unemploy-ment. Black teenagers would be especially affected because black adults havegenerally been attached to low-paying, low-skill occupations in which theyare more likely to compete with teenagers than is the case with white adults.This explanation also rests on the proposition that the labor markets for

165


black and white youth are to a large extent separated, perhaps because of ageographical separation within particular areas or because of labor marketdiscrimination against black youth.

The recent worsening of the black teenage labor market, both absolutelyand relative to the labor market situation of white teenagers, is consistentwith this explanation. From 1972 to 1976 the annual rate of growth of thewhite teenage population was 1.3 percent, while the black teenage popula-tion grew at the rate of 3.2 percent annually. The combination of a slowgrowth in demand and a rapid growth of supply caused a rise in the unem-ployment rate and a decline in the employment-population ratio.

Some economists suggest that the black teenage unemployment rate ishigh because the unemployed are reluctant to accept available jobs at therelevant prevailing wage levels. According to this view, a large increase inthe number of teenage jobs at approximately the minimum wage in blackcommunities would have little impact on either employment or unemploy-ment among black teenagers. There is no evidence to warrant acceptanceof this hypothesis.

We can identify some of the reasons for the high and worsening unem-ployment rates for black youth, but we know these reasons do not constitutea full explanation. It is clear, however, that most of the differential unem-ployment between black and white youth does not reflect different searchand turnover patterns. It is a major structural problem.

Unemployment of Women

One of the more positive facts about the performance of the labor marketis that it continues to accommodate the rapid increase in the female laborforce that has occurred over the past two decades. In 1956, women com-prised 31.5 percent of the adult labor force and 31.3 percent of adultemployment, but by the third quarter of 1973 these percentages had risento 38.4 and 37.9, respectively. From the third quarter of 1973 (the peak ofthe previous cycle) to the fourth quarter of 1977, employment of adultwomen increased by 15 percent compared with a 5-percent increase for men.

While more women have entered the labor force, unemployment dif-ferentials between men and women persist. One reason for the sex differen-tial in unemployment rates is that married women with children, a signifi-cant part of the female labor force, have historically been less attached thanmen to a career outside the home. (Single women's labor market behaviorand attachment are not markedly different from the record for single men.)Whether their children are old or young, mothers whose husbands arepresent tend to have much lower participation rates than those withouthusbands present. But attachment to the labor force is not the sole explana-tion for the sex differential in unemployment rates. Inflexibility in labormarket arrangements, that is, the relative scarcity of part-time work, mayalso be a factor. So may skill differentials between men and women. Finally,

166


the "statistical discrimination" that once associated women with secondarylabor market habits, while possibly a factor, is no longer as important as itonce was.

From 1967 to 1973 the proportion of women aged 25 to 59 who left thelabor force from a job averaged between 4.3 and 4.8 percent per month.This is much less than the corresponding figures for teenagers, mentionedabove, but much higher than the labor force turnover rates for men, 0.4 to1.1 percent. In 1977, as shown in Table 24, of the 7.0 percent of adultwomen in the civilian labor force who were unemployed, three-fifths wereunemployed because they had either left their jobs or were entering the laborforce; only a third of the adult male unemployed were in the same category.Subject to the qualification made earlier about the nature of unemploymentamong reentrants, the difference in turnover appears to account for mostof the difference in total unemployment rates between the sexes.

Part of the reason why women are less attached to the labor marketthan men is that husbands commonly have been regarded as the "prin-cipal" earners in husband-wife families, and wives as the "secondary" earn-ers. In 1977, 21 percent of all unemployed persons were wives with husbandspresent, and 79 percent of these were in family units where at least one per-son was employed full time. For unemployed husbands the figure was only37 percent. The proportion of unemployed wives in families with at leastone full-time earner was 81 percent for whites, compared with 73 percent forblacks. The burden of a given level of unemployment is thus greater for blackthan for white women. The unemployment burden is also made heavier forblack females than for whites because black women have historically hadsignificantly higher labor force participation rates than white women.(The gap has been narrowed somewhat since the late 1960s with the risein white women's participation.) Despite this stronger attachment to thelabor force, black women experience unemployment rates that are overone and one-half times those of white women.

In general, a significant part of the unemployment differential betweenadult women and men is explained by high labor force turnover, as is thecase for teenagers. Institutions seem to be changing, however, in a mannerthat should reduce this differential in the future. The large increase inthe labor force participation rates of younger married women implies thatwomen will have a greater average degree of labor force attachment in thefuture, and this should lower their unemployment rate over time as theirturnover rate decreases.

Unemployment of Adult Males

The unemployment rate of adult black men has clearly not recoveredfrom the 1975 recession as much as w7ould be expected. Between 1954 and1973 their unemployment rate, when adjusted for definitional changes,averaged 7.2 percent, compared with 3.3 percent for adult white males, aratio of 2.2 to 1. After adjustment for cyclical factors (the black rate is more

167


cyclically sensitive than the white rate), this ratio declined steadily overtime, by approximately 0.4 percentage point from 1954 to 1973. In thefourth quarter of 1977, however, the black-white adult male unemploy-ment ratio was 2.4 instead of the 1.8 that would be predicted on the basisof trend and cycle. Had this earlier trend continued, the adult black maleunemployment rate would have been 7.6 percent in the fourth quarterof 1977 instead of its actual value of 10.1 percent. Not only did the unem-ployment rate of adult black males increase sharply over the past 4 years,but also their civilian labor force participation rate fell by 2.8 percentagepoints, compared with a drop of only 1.3 points for white males. This dropitself may have been caused by the increase in relative unemploymentrates for black males.

It is possible that part of the cause of the high unemployment ratesof adult blacks is related to the black youth unemployment problem. Thefact that black youth face such enormous difficulties in obtaining steadyemployment may establish a pattern that is difficult to break. Table 25

TABLE 25.—Unemployment rates of black and white men by age, 1977[Percent *]

Age Whitemen

18-19 years,20-21 years..

22-24 years.25-34 years.

35-44 years.45-54 years.

55-64 years65 years and over.

13.010.7

8.35.0

3.13.0

3.34.9

i Percent of civilian labor force in group specified.Source: Department of Labor, Bureau of Labor Statistics.

shows the pattern of average unemployment for black and white men byage in 1977. The extremely large differential in unemployment rates betweenblacks and whites in the 18 to 24 age range implies that whites are able tofind secure jobs much more easily than blacks. As they get older, black malesare more likely than whites to be in jobs that are subject to termination.

UNEMPLOYMENT AND INFLATIONHow well wre deal with structural aspects of unemployment has important

implications for the equity with which the benefits of prosperity are dis-tributed. In addition, it will play an important part in determining how farwe can go in reducing unemployment without risking a new episode ofinflation. Large increases in aggregate demand and production cause a risein the demand for labor. Initially the resultant job vacancies are filled fromthe ranks of the unemployed. But as unemployment falls below some pointthe number of job vacancies begins to exceed the number of qualifiedjob seekers. Firms increasingly try to meet their labor force needs by large

168


wage increases, a process that causes the overall rate of wage advance torise and thus leads to a rise in the rate of inflation.

The precise details of this process are not fully understood, partly becauseit does not always work the same way. For example, the responsiveness ofwages to changes in the degree of labor market tightness depends uponhow long the inflationary process has been under way, and how expectationsabout future inflation have been affected. There is considerable controversyabout how important unions are in initiating and perpetuating wage in-creases. Some evidence suggests that in the early stages of a new inflationaryprocess union wage increases lag those in the nonunion sector. Despite ourignorance about many specific parts of the process, there is no question butthat low unemployment rates imply a high degree of labor market tightnessand that this eventually results in a strong upward pressure on wages andprices.

From the point of view of dealing with the relationship between inflationand unemployment there are two major questions:

1. What is the overall rate of unemployment at which wage increasesaccelerate?

2. Is this level changing over time?These questions are difficult because there are several "submarkets" for

labor rather than a single market. Job seekers in one market are only partlycompetitive for vacancies in another. The boundaries of these individualmarkets are determined by a number of factors: geographic, demographic,occupational, and those arising from discrimination. If some groups havevery high unemployment rates but cannot be drawn upon to fill certain jobs,wage pressures and inflationary problems can begin to arise even when thereis high unemployment.

Three alternative measures of labor market tightness for selected yearsfrom 1956 to 1957 are shown in Table 26 and illustrate the major issuesassociated with these questions.

The overall rate of unemployment receives the most public attentionbecause it is often interpreted as a major index of the economy's perform-ance. The problem with its use as an index of labor market tightness is thatduring the past 20 years the composition of the labor force has shiftedtoward those demographic groups that experience the highest labor forceturnover and unemployment. For example, because of the turnover behaviordiscussed above, a 10- to 12-percent rate of unemployment among teenagersmay be roughly equivalent, in terms of labor market tightness, to a 3-percentrate for adult males. Thus, if the share of young persons in the labor forceincreased, the overall unemployment rate associated with a given degree oflabor market tightness would also increase. In fact, from 1956 to 1977, theproportion of the civilian labor force under age 25 did increase from 15 to24 percent. This implies that the overall rate of unemployment correspondingto any degree of labor market tightness is higher now than it was two decadesago.

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TABLE 26.—Alternative unemployment rates, selected years, 1956—77

Period

19562

1965 2..

1968

19701971197219731974

1975 . .19761977: Fourth quarters _ .

Overall rate Fixed-weightrate

Prime-agemale rate

Percent l

4.0

4.4

3 6

4.95.95.64 95.6

8.57 76.6

4.0

4.1

3 3

4.45.24.84. 14.8

7.46 75.8

2.6

2.3

1 7

2.83.53.12.53.1

5.74.93.9

Overall lessfixed-weight

Overall lessprime-age male

Percentage points

0.0

.3

.3

.5

.7

.8

.8

.8

1.11.0.8

1.4

2.1

1.9

2.12.42.52.42.5

2.82.82.7

1 Percent of civilian labor force.2 Data adjusted for change in definitions in 1967.3 Seasonally adjusted.


One way to adjust the overall unemployment rate for changes in thedemographic composition of the labor force is to use the same set of weightsfor each group over time. This is reported in Table 26 as the fixed-weightunemployment rate, for which it is assumed that the composition of thelabor force with respect to seven demographic groups (teenagers, and malesand females aged 20-24, 25-54, and 55 4-) remained identical to the com-position in 1956. Because of the long-term increase in the relative numberof young persons and adult women in the labor force, the fixed-weight unem-ployment rate has fallen relative to the overall rate. Thus, if in the fourthquarter of 1977 the composition of the labor force were the same as it wasin 1956, and each group had its unemployment rate of the fourth quarterof 1977, the overall unemployment rate would have been 5.8 rather than6.6 percent.

Adjusting the unemployment rate for changes in the demographic com-position of the labor force implies that the value of the overall unemploy-ment rate at which wage changes tend to accelerate has increased by1 percentage point during the past two decades. On the other hand, the shiftin the demographic composition of the labor force toward high unemploy-ment groups has slowed and is expected to turn in the other direction in themid-1980s.

Another way to adjust the overall unemployment rate is based on thehypothesis that the wage rates of some demographic groups are relativelyinsensitive to their own unemployment rates. According to this view in itsmost extreme form, unemployment rates of experienced workers with ahistory of continuous labor market attachment are likely to offer the bestexplanation of the rates of change of all wage rates. For example, because ofunion bargaining or for reasons of equity, firms might adjust wage rates by auniform percentage for all skill levels even though some of these are in excess

170


supply. Another source of relative wage rigidity is legal minimum wages.Because the high-skill, short-supply jobs in the economy have historicallybeen held by men between the ages of 25 and 54, the (so-called) prime-age male unemployment rate has often been used as an index of labor mar-ket tightness. As seen in Table 26, however, the prime-age male rate isclosely correlated with the fixed-weight rate with respect to cyclical changes,so it is next to impossible to discern which is the better index of short-runchanges in labor market tightness through aggregate analysis.

Quantifying the inflationary effect of changes in the unemploymentrates of various demographic groups is nevertheless extremely important forpolicy purposes. If prime-age males were the only group that mattered indetermining wage inflation, programs could be directed toward increasingthe employment of other groups without any inflationary consequences.Recent research, however, has shown that over long periods of time therelative wages of different demographic groups have moved in the direc-tion that would be expected on the basis of changes in relative supplies.This finding implies that the unemployment of groups other than prime-agemales does contribute to overall wage changes, but it does not tell us muchabout the magnitude of the relationship.

While the prime-age male unemployment rate is closely correlated withthe fixed-weight measure for short-run cyclical movements, it has behaveddifferently over the past two decades taken as a whole. Since 1956 it hasfallen by almost I/2 percentage points relative to the overall unemploy-ment rate, while the fixed-weight index has fallen by only about 1 percentagepoint (Table 26). Use of the prime-age male rate as an index of labormarket tightness therefore implies that the overall unemployment rate atwhich inflation is likely to accelerate has risen by 1J/2 percentage points ratherthan 1 percentage point over the past 20 years.

The unemployment rates of some or all demographic groups associatedwith any given degree of labor market tightness may have increased to someextent because of the growth of income transfer programs. In particular,many economists have argued that the more liberal provision of unem-ployment insurance, food stamps, and other such programs, while achievingthe desirable end of mitigating the hardship of unemployment, may alsohave allowed people to search more carefully for the jobs they will accept.This would cause vacancies to rise relative to the number of unemployedpersons, causing greater inflationary pressures at a given rate of overallunemployment. The evidence on the quantitative importance of these pro-grams is mixed and controversial. But the direction of their effect on theunemployment rate at which inflationary pressures emerge is clear.

A number of forces have been at work over the past several decades toraise the overall unemployment rate at which inflationary pressures beginto appear above the neighborhood of 4 percent that seemed to prevailduring the mid-1950s. Because of the complexity of the problem, thereare no precise answers to the question of where the zone now lies. Demo-

171


graphic changes that reduce the proportion of teenagers in the labor forceshould begin lowering the inflationary threshold during the early 1980s.For institutional reasons, the speed with which inflationary problemsdevelop as the threshold is crossed is relatively sluggish. Nevertheless, it isclear that achievement of the Administration's long-run goals for unem-ployment in 1981 and later years cannot rely solely upon monetary andfiscal policies. These policies, which affect aggregate demand, will have tobe supplemented by effective employment and training policies targeted toreduce structural unemployment if socially desirable levels of overall unem-ployment rates are to be reached without the appearance of inflationarypressures in the labor market.

Measures that are successful in improving the operation of the labor marketcan reduce the overall unemployment rate at which inflationary pressuresarise. The general object of such policies should be to provide a bettermatching of the unemployed with available job vacancies. In principle,this can be accomplished by three major types of actions: training; find-ing jobs for groups with very high unemployment; and improving infor-mation and career choices for new entrants into the labor force.

POLICIES TO REDUCE STRUCTURAL UNEMPLOYMENTReaching a low rate of unemployment without initiating increases in

the rate of inflation will require effective structural programs as well as over-all monetary and fiscal policy. Programs that increase access to jobs forgroups with high unemployment not only serve the interests of economicjustice, but help us avoid the excessively tight labor markets and inflationarypressures that might otherwise arise in a period of high unemployment.

Policies designed to alleviate structural unemployment include the fol-lowing: (1) Manpower training; (2) public service employment (PSE) ;(3) labor market information; (4) incentives for private industry to hirethe disadvantaged; and (5) elimination of restrictive practices in the labormarket. The primary focus of labor market policy in the United Statesover the past several years has been on the first two. We also spend about$700 million per year on the U.S. Employment Service, an exampleof the third approach, and we have made some limited attempts to institutepolicies of the fourth kind. Equal employment opportunity programs, whichare currently in the process of being strengthened and improved, are anexample of the fifth policy.

Since the achievement of our long-term economic objectives dependspartly on the success of these structural policies, it is useful to review themajor Federal programs that are in operation, the changes that have re-cently been made in them, and the effect that these policies are likely tohave.

Manpower Training Programs

A wide range of programs designed to increase the labor market skills ofpersons who have chronic difficulties in finding or holding jobs has been

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offered since the early 1960s. During 1978 approximately $1.9 billion willbe spent on classroom and on-the-job training programs (Table 27). Tothe extent that training programs can raise the skills of the unemployed sothat they correspond more closely to those needed in vacant jobs they shouldlower the unemployment rate at which excessive labor market tightnessbegins to appear. Since the benefits of these programs accrue for some timeafter the training period, it is difficult to find out whether they are havingtheir intended impact until the work experience and earnings of traineeshave been observed for many years. Scattered evidence based on the pro-grams of the 1960s, however, suggests that the return on classroom trainingprograms is approximately comparable to returns on other types of invest-ment in our economy. Moreover, the training programs do appear to bemoderately well targeted to the least skilled participants in the labor force.

TABLE 27.—Estimated Federal outlays and participation in training andemployment programs during fiscal year 1978

Program

Total training and employment.

Training

Institutional.On-the-job. .

Public service employment (PSE).

Regular PSEWork experience (principally youth).Summer youthOlder Americans...

Outlays(millions of

dollars)

10,317.0

1, 890. 7

1, 345. 7545.0

8, 426. 3

5, 809.11, 794.9

672.0150.3

Person-years

(thousands)

1, 865. 3

487.8

350.2137.6

1, 377. 5

681.4403.5255.037.6

Source: Office of Management and Budget.

The extent to which these programs do in fact improve the inflation-unemployment tradeoff is not known. The observed increases in the earningsof participants in these programs arise from a combination of reducedunemployment and increased productivity, but the evidence necessary todetermine the importance of each factor is lacking. Under the assumptionthat half of the benefits to training come in the form of increased employ-ment and the other half from increased productivity, an additional $1 billionspent each year on training would, ignoring population growth, lower theunemployment rate, for a given degree of labor market tightness, by about0.05 percentage point after 5 years and slightly more thereafter. Accordingly,the scale of training programs would need to be many times greater thanit now is before it would have a significant impact on the unemployment rate.Moreover, it is likely that the average effectiveness of these programs interms of reducing unemployment would decline as they were expanded toreach a much wider portion of the population.

Training programs are a good investment, but on the basis of presentevidence their potential role is modest in relation to the total unemploy-ment problem.

173

248-947 O - 78 - 12


Public Service Employment

Since 1971 the principal emphasis of manpower policy has shifted fromtraining toward the direct provision of federally funded employment throughState and local government. This shift resulted partly from the slack labormarkets of most of the 1970s and partly from the lack of definitive evidenceconcerning the impact of training programs.

This Administration's first major economic action on taking office was topropose legislation, which the Congress enacted by mid-1977, calling for asubstantial expansion of PSE. During fiscal 1978 approximately $8.4 billionwill be spent on various forms of PSE. Under the enlarged programs anaverage of 1.4 million people will be employed over the year, a 60-percentincrease over the previous year. These jobs are supposedly targeted primarilytoward the low-income, long-term unemployed and unemployed youth.

The stated goals of PSE programs have been quite varied: countercyclicalstimulus, reduction of structural unemployment, and fiscal relief for hard-pressed local governments. For the present purposes, however, the secondof these objectives is of major interest. Can PSE programs help improve theinflation-unemployment tradeoff?

Two factors are involved in answering this question. First, in order tobe an effective instrument for mitigating structural unemployment, PSEprograms must concentrate on individuals who would have special diffi-culty obtaining employment in the private sector. If, for example, a cityhired accountants or registered nurses with its PSE funds, it would onlybe bidding them away from other jobs. Prior to the recent program expan-sion, adult participants in PSE programs came from approximately themiddle of the skill distribution. Relatively few of the structurally unem-ployed were reached.

Under the new programs for adults, eligibility is being progressively re-stricted to individuals who have been out of work for 15 of the last 20 weeks,and to those with low incomes prior to participating in the program. Takenin combination with the special projects requirement, these new eligibilityconditions are changing the PSE programs in such a way that they shouldnow serve more of the disadvantaged than formerly. Ignoring loop-holes in the law (for example, a local government can hire recent collegegraduates whom it would have hired anyway and still be within the pro-gram regulations), these eligibility requirements should also help to reducesubstitution of PSE funds for regular government revenues.

In periods of generally high employment, PSE programs for youthcan more easily be directed toward increasing public employment withouttightening the labor market for private employment. This is certainly truefor minority youth, who suffer extremely high unemployment rates. It maybe less true of programs for youth administered in largely white communi-ties, for the labor market for most white teenagers appears to work reason-

174


ably well. The proportion of participants in the PSE youth programs whoare black or belong to other minority groups is close to 50 percent, a show-ing that favors a positive judgment of these programs.

A second requirement if PSE programs are to reduce longer-term struc-tural unemployment is that they provide a work experience that preparesparticipants for subsequent transfer to regular jobs. Programs that satisfythis condition can instill good working habits in their participants andpossibly lower structural problems in the long run. PSE jobs must be realtasks rather than make-work activities, for it would be difficult to main-tain discipline in a particular project if the work had little intrinsicvalue. This requires that PSE jobs be characterized by adequate supervisionand on-the-job training. At present there is little evidence on this point foreither adult PSE or for youth wrork experience. As the total number ofPSE slots increases during 1978, much can be learned about the absorptivecapacity of the State and local sector with respect to the provision of mean-ingful jobs to disadvantaged persons.

Do PSE programs have a significant effect on the inflation-unemploymenttradeoff? This question is difficult to answer because the various PSEprograms in existence have different effects on the rate of unemploymentas well as on wage rates.

Suppose, for example, that participants in PSE programs w ould otherwisehave been in the labor force but unemployed, and that the projects wouldnot have been financed from regular State and local sources—that is, thereis no "fiscal substitution." Unemployment would then be reduced by thenumber of persons working in PSE jobs. To the extent that those workerscome from among the structurally unemployed, tightness in the labormarket and inflationary pressures would not increase, and the improvementin the unemployment-inflation tradeoff would be substantial. If, on the otherhand, the wage on PSE jobs is relatively attractive and the skills required toperform PSE jobs are about average for the work force in general, the pro-grams are likely to attract persons who are not structurally unemployed orothers who are not in the labor force.

In general, therefore, the effect on the unemployment-inflation tradeoffwill be favorable if PSE programs are targeted toward persons whose skillsare below those of the average person in the labor force, and if the wagerates on PSE jobs are not strongly competitive with those paid in theprivate sector.

The youth programs, especially those in which minorities participate sig-nificantly, probably offer more possibility of lowering the overall unemploy-ment rate for a given amount of general labor market tightness than thosegeared toward adults. PSE can be an efficient method of introducing individ-uals into a structured work environment who would otherwise be passedover by the private sector.

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Recognizing particularly this last potential of PSE, the Administration hasproposed that a jobs program be made an integral part of the reformedwelfare system under the Program for Better Jobs and Income (PBJI).The Administration proposal calls for 1.2 to 1.4 million PSE jobs designedto provide an alternative to total reliance on cash assistance. Eligibilityfor these new PSE jobs would be restricted to principal earners in familieswith children, who cannot be placed in private sector jobs. The jobs wouldlast for no more than 1 year. The rate of compensation for the jobs underPBJI would generally be no more than 10 percent above the Federal mini-mum wage, but families without sufficient additional income could receivea cash supplement, and hence their total income could significantly exceedthat which they would receive solely with the cash assistance they mightqualify for without a PSE job.

The PSE component of this new program can do much toward reducingthe cycle of poverty by introducing welfare recipients and other poor peopleinto a structured work environment from which they can subsequentlyadvance to steady private sector jobs. One key element in the program isthat it proposes to pay wages at or slightly above the Federal minimum.If such a program offered higher wages (as does the current counter-cyclical PSE program, which pays an average wage about 60 percentabove the minimum), the jobs would be attractive to persons with higherskills and greater ability to find private jobs. Many, perhaps most, partici-pants would come from outside the welfare system, and the jobs com-ponent of PBJI would lose much of its ability to mitigate poverty.

Side Effects of Other Programs

In addition to these programs that are intended to lower the unemploy-ment rate for a given amount of labor market tightness, the governmentruns several programs that are designed to accomplish other social objectivesbut have the additional, unintended consequence of increasing the unem-ployment rate. While the other objectives may be desirable, it is useful to beaware of their potential effects on unemployment.

As seen in Table 28, the Federal minimum wage relative to averagehourly earnings has fluctuated widely over time, but at the points at whichthe Fair Labor Standards Act (FLSA) has been amended the minimumwage has in recent years averaged approximately 45 percent of the averagemanufacturing wage. The 1977 changes in the minimum wage through 1981would roughly maintain this ratio if the average manufacturing wagegrew by 7 percent annually. However, FLSA coverage has increased sub-stantially, especially beginning in the mid-1960s. The major impact ofminimum wages is on the employment of teenagers, for the market wagesof most adults are considerably above the legislated minimum. There is,however, no conclusive evidence on how much of the youth unemploymentproblem is directly attributable to FLSA. As pointed out earlier in the chap-

176


TABLE 28.—Federal minimum wage and average hourly earnings in manufacturing,selected years, 1938-81

19381939

1945

19501956

1961196319671968

197419751976

1978197919801981 . .

Year Minimumwage

$0.25.30

.40

.751.00

1.151 251.401.60

2.002 102.30

2.652.903 103.35

Averagehourly

earnings inmanufac-turing l

$0.62.63

1.02

1 441.95

2.322 462.833.01

4.414.815.19

2 5.942 6.362 6.802 7.28

Minimumwage as

percent ofmanufacturing

averagehourly

earnings

40.347.6

39.2

52 151.3

49.650 849.553.2

45.443 744.3

44.645.645.646.0

1 Relates to production workers.2 Assumes a 7 percent growth rate.


ter, most of the unemployment of white teenagers during periods of pros-perity is caused by their high rates of labor force turnover. But it is quitepossible that minimum wages are a contributing cause of the black youthunemployment problem.

The unemployment insurance (UI) system has both a real effect and ameasured effect on the overall unemployment rate. The real effect occursbecause the reduced cost of job search leads to an increase in both theduration and frequency of spells of unemployment. The measured effectoccurs because some workers report themselves as unemployed in orderto obtain UI benefits when, without the benefits, they would have droppedout of the labor force. Some form of unemployment insurance is, on equitygrounds, absolutely necessary to mitigate the hardship of involuntaryunemployment. Moreover, UI increases economic efficiency by making itpossible for the unemployed to search for jobs for which they are wellsuited rather than being forced to take the first job that becomes available.But it does tend to increase the overall unemployment rate. In the pasttwo decades, liberalizations in coverage, benefits, and benefit durations havecaused the officially measured unemployment rate to increase, although anaccurate estimate of the magnitude is uncertain. Some of the most notablechanges in benefit duration and coverage have occurred in the 1970s.

Directions for Improvements

To reach substantially lower unemployment rates without initiating anew round of inflation, structural programs will have to be continually

177


improved. The first priority is better targeting of the programs sothat they more effectively improve long-term job opportunities for thosegroups with the most severe structural unemployment problems. Althoughthe record is far from perfect, the training and employment programs foryouth have been fairly successful in this regard. Until recently, however,regular PSE programs for adults have not focused significantly on the struc-turally unemployed to the extent that they should. As the overall unem-ployment rate declines, employment and training programs should be care-fully directed demographically and geographically toward this goal.

Some demographic groups have high unemployment rates, even in periodsof generally tight labor markets, because many employers seek to hire newemployees only from among those applicants with prior experience and ahistory of job stability. The high cost of labor turnover to business firmsand the existence of wage floors or other barriers to hiring the inexperi-enced are major factors behind this tendency. Accordingly, one approachto reducing unemployment is to provide incentives for private employersto hire from among those groups with the most severe incidence of structuralunemployment. This approach is sometimes criticized because it wouldcause a substitution of low-skilled youths for highly skilled adults and thusraise the unemployment rates of adult males. This criticism, however,ignores the fact that such a program, if successful, could induce a greaterincrease in aggregate demand and thus lower the overall unemploymentrate. Moreover most occupations composed primarily of highly skilled adultshave very low unemployment rates in the first place and tend to adjustvery quickly to excess supply.

This country's experience with incentive schemes to hire the structurallyunemployed is not very extensive—although similar programs are quitecommon in Western Europe. Since five out of every six jobs in the economyare in the private sector, a successful labor market policy must rely prin-cipally on the private sector to enlarge job opportunities for the structurallyunemployed. To this end the Administration is currently designing a set ofoptions for programs under which employers will have incentives to hirepersons with severe unemployment difficulties.

A third priority for the improvement of labor market policy is the col-lection of better data that will permit an assessment of the extent to whichits component programs are actually having a beneficial impact. At presentour ability to lower unemployment without adding to inflation is severelyhampered by uncertainty about the effectiveness of various approaches.Evaluative research is not easy, but without such information it is difficultto justify major expansions of incumbent programs. A principal goal ofnew labor market programs, like those provided under the Youth Employ-ment and Demonstration Projects Act of 1977, is to find out whichapproaches are successful. This emphasis should be extended to otherprograms.

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CHAPTER 5

Major Economic Policy Issues of 1977

T N 1977, THE NEW ADMINISTRATION INTRODUCED a number•*• of legislative initiatives whose economic impacts will be far reaching—energy, agriculture, social security, and welfare reform. The Administrationis now proposing that the Congress consider a series of fundamental taxreforms. In addition, there have been a number of proposed reforms toimprove the efficiency of our regulatory programs. The present chapteranalyzes these programs. Although the details differ, the central theme thatruns through these programs is the same—enhancing the effectiveness ofFederal programs and reducing their costs, while improving the fairnessof our economic system.

ENERGY DEVELOPMENTS AND POLICY

The economic consequences of the 1973 oil embargo and the quadruplingof world oil prices by the Organization of Petroleum Exporting Countries(OPEC) have dramatically demonstrated the importance of energy to theU.S. and world economies. In the United States, higher prices of importedcrude oil prompted major increases in the prices of all domestic fuels,aggravated inflationary pressures, and contributed to the deepest recession,since the Depression. Moreover, mounting oil import payments have con-stituted an enormous drain on domestic incomes, causing a severe imbalancein our external deficit.

Nonetheless, U.S. dependence on foreign sources of energy has continuedto grow. Oil imports in 1977 nearly doubled those of 1972 and suppliedalmost half of domestic petroleum demand. Unless we adopt effective poli-cies to reverse underlying forces, still further growth in oil imports is likelyover the coming decades.

How did this situation arise? Although the answer is by no means simple,an important element is that the current economic infrastructure—build-ings, factories, machines, and automobiles—was largely designed for an eraof low-cost oil and natural gas. Significant changes in patterns of energy usewill occur only when more energy-efficient capital has been installed andas the existing capital stock is replaced. This is a time-consuming process,and only modest progress has been made in the last 4 years.

179


Of equal importance are Federal tax and regulatory policies that haveencouraged low energy prices throughout the postwar era. Apart from theimposition of import quotas, energy consumption has been subsidized by taxincentives for energy production that have lowered consumer prices and,over different periods, by price controls on crude oil and natural gas. Thoughthe various controls have generally mitigated the inflationary impact of therise in the price of imported oil and prevented domestic producers fromrealizing additional gains on oil already discovered, they have contributedto imbalances between the supply and demand for major sources of energy.The disequilibrium has been evidenced in the natural gas market by growingcurtailments, and in the case of oil, by rapidly rising imports.

Unless these imbalances are soon curbed, the United States may faceserious economic risks. Though world oil prices have recently been stable—because of weak recoveries in most industrial nations and large discoveries innon-OPEC countries—growing world demand for oil and gas could strainworld productive capacity, creating the danger of substantially higher oilprices in the years ahead. The United States can avoid the consequences ofhigher prices, however, by gradually converting from oil and gas to moreabundant domestic sources of energy—nuclear fuel, coal, solar, and perhapsother energy sources. Because, long leadtimes are required, an early transi-tion would be less costly and would lead to less risk from higher oil pricesor sudden supply interruptions in the future.

ENERGY BEFORE 1973

The principal sources of primary energy in the postwar period have beenoil and natural gas. In 1950, they accounted for 58 percent of total energyconsumption, while by mid-1973 the fraction had grown to 77 percent.After an earlier period of dominance before World War II, coal productionfell during the postwar period. Electricity produced by these primary fuelsgrew rapidly owing to economies of scale and advances in technology.

Both economic growth and the declining relative prices of energy productsheightened the demand for energy (Table 29). From 1950 to 1970, forexample, the wholesale price of energy fell by 13 percent relative to allfinished goods (though it advanced in the latter part of the period). Con-sumers responded by purchasing homes, automobiles, and appliances thatrequired substantial inputs of energy; firms substituted energy and capitalfor labor in constructing buildings and factories and in manufacturing theirgoods. The entire American way of life, from the spread of the suburbs tothe popularity of large automobiles, has been conditioned by low-cost energy.

Aside from the imposition of oil import quotas, Federal Government poli-cies stimulated energy demands. Percentage depletion allowances in excessof cost reduced all energy prices by lowering producer tax liabilities. Pricecontrols on natural gas sold to interstate pipelines have long held prices belowthe energy equivalent prices of substitute fuels. In addition, governmentregulation of the motor carrier and air transportation industries promoted

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TABLE 29.—Trends in energy consumption and deflated energy prices

ItemAverage annual percent change

1958 to 1973 1973 to 1976 1976 to 1977

Energy consumption:

Total.Petroleum and natural gas liquids..Natural gasCoalNet electric power generated

Average producer prices:2

Crude oilNatural gas..Coal

Wholesale prices: 2

AH energyPetroleum products.Natural gas __CoalElectric power

Consumer prices:3

All energyFuel oil and coalGasoline and motor oil..Natural gasElectricity

4.04.14.92.07.3

- . 41.91.7

.2- . 11.63.4

- . 4

- . 8.0

-1 .0- . 4

-1 .2

-0 .1.2

-3 .41.13.2

16.526.319.6

14.117.318.68.36.4

6.212.95.17.13.5

4.36.11.18.46.1

2.026.7

-1 .7

7.94.8

38.0.6

6.9

2.96.1

gll! 6

.1

* Changes for energy consumption and wholesale prices computed from third quarter 1976 to third quarter 1977.Other changes are from year to year.

2 Prices deflated by the wholesale price index for all finished goods.3 Prices deflated by the consumer price index for all items.Sources: Department of Energy, Department of Labor, Federal Power Commission, and Edison Electric Institute.

energy consumption by encouraging excess transportation mileage throughartificial route restrictions and prohibitions on price competition. Finally,government support favoring highways over mass transit contributed toincreased gasoline consumption.

The absence until recently of significant environmental legislation alsoencouraged energy consumption. Energy industries tend to produce rela-tively large environmental side effects whose costs are not reflected in energyprices. Not until the late 1960s did the U.S. Congress begin to take majorsteps to deal with this problem.

At the close of 1972, therefore, the United States found itself locked intoa capital stock tailored to low-cost oil and natural gas. Oil demand, whichhad grown at an average annual rate of 4.4 percent since World War II,had outstripped production growth, requiring oil imports of nearly 5 millionbarrels a day. A significant portion of our low-cost oil and natural gas re-sources had been depleted, portending higher costs of discovery and pro-duction. The market, however, provided no signs of a reversal: Americanswere accustomed to cheap energy and expected it in the future.

THE 1973-74 PRICE SHOCK

Events during 1973 and 1974 dramatically altered prior energy pricepatterns. In November 1973 the Arab members of OPEC placed an em-

181


bargo on oil exports to a number of other countries, including the UnitedStates. Following previous substantial price increases, OPEC quadrupled theworld oil price to levels far in excess of its costs and cut back production tosupport the action.

In the events that followed, it is important to distinguish between theeffects of the embargo and those produced by the rise in oil import prices.The embargo itself lasted only 5 months and generated shortages withinthe United States, in part because petroleum product prices were controlled.Gold weather and previous curtailments of natural gas supplies exacerbatedthe problem. Shortages would have been mitigated without price controls,but the resulting high prices would have created substantial windfall profitsand added to inflation.

Whereas the economic consequences of the embargo were limited andconfined to a relatively short period, the economic costs of adjusting to higherprices of imported oil were enormous and persist to this day. The adjustmenthas been accompanied by significant advances in the prices of other fuels(Table 29). Both the embargo and the price rise have taught a common les-son, however: vulnerability to supply interruptions and price increases canonly be reduced through a fundamental reorientation in patterns of energyuse.

DEVELOPMENTS AFTER THE PRICE SHOCK

Though the price shock has had important effects around the world, theimpacts have differed between countries.

Domestic

Prices of all fuels in the United States increased sharply following therise in oil import prices (Table 29). Except for natural gas prices, however,rates of price increase generally slowed, or in some cases, fell in 1976 and1977.

Though consumers have had only a short time to adapt, energy consump-tion patterns have already evidenced some response to the higher prices.The ratio of total energy consumption to real gross national product, GNP,for example, stood 5 percent lower in mid-1977 than in 1973. More sig-nificantly, the ratio dropped as the economy pulled out of its 1973-75recession, an important sign that higher prices had discouraged consumption.

Nevertheless, after falling in 1974 and 1975, total energy consumption re-sumed its upward climb in 1976 and 1977 as real GNP advanced. Consump-tion of petroleum products, in particular, rose rapidly in 1977, as a result ofseveral factors that outweighed the dampening effects of higher prices. Thecold winter in 1977 increased heating demands generally and oil demandspecifically because many users of natural gas switched to oil when gas sup-plies were curtailed. Demand for distillate and residual fuel oils in the first2 months of the year, for example, was up by 1.6 million barrels per daycompared with the same period in 1976. The West Coast drought added

182


especially to residual oil demands by inducing many utilities to turn fromhydroelectric power to oil-based generation.

In contrast, energy production has declined since 1973, although theresponses to higher producer prices have varied between fuels. For exam-ple, after falling in 1973, coal production rose, largely because the sharprise in oil prices encouraged some oil users to switch to coal and becauseof the rapid growth in electricity production. Environmental restrictionson coal burning under the Clean Air Act, however, restrained both coaldemand and production. Electricity production, too, continued to advance,although at rates below those experienced prior to 1973. Sharply increasedprimary fuel prices raised final electricity prices to consumers, and thereforediscouraged consumption.

Production of crude oil and of natural gas, on the other hand, has fallenfrom 1973 levels. In the case of crude oil, though drilling activity respondedto a sharp rise between 1973 and 1976 in the new wellhead price (Chart 12),the average depth of wells drilled fell. Declining output from existing wellsmore than offset the rise in new discoveries, producing a decline in totalcrude oil production in the lower 48 States between 1970 and 1977.

Chart 12

New Crude Oil Prices and Drilling Activity1972 DOLLARS PER BARREL

8.00

700

6.00

5.00

4.00

3.00

2.00

OIL AND DRYWELLS DRILLED

(Right scale)

REALNEW CRUDEOIL PRICED(Left scale)

NUMBER40,000

35,000

30,000

25,000

20,0001960 1965 1970 19751/ NOMINAL PRICE DEFLATED BY WHOLESALE PRICE INDEX FOR FINISHED GOODS.SOURCES: DEPARTMENT OF ENERGY, DEPARTMENT OF LABOR, AND AMERICANPETROLEUM INSTITUTE.

183


In 1977 the declining trend in national crude oil production was reversedby the September opening of the Trans-Alaska Pipeline System (TAPS).Alaskan production was slowed, however, by a fire at a major pump stationin July and by difficulties with others, which reduced present TAPS capacityfrom 1.2 to approximately 0.7 million barrels per day. The lack of a pipelinelinking the West Coast to the Midwest threatened to force shipment of addi-tional volumes of Alaskan oil through the Panama Canal. Such an outcomewould raise transportation costs substantially and possibly discourage futureincreases in deliveries or expansion of TAPS capacity.

Production of natural gas has followed a similar course, declining grad-ually between 1973 and 1976 and leveling off through the third quarter of1977. Like oil production, gas drilling activity responded to recent priceincreases in both the interstate and intrastate markets; declining output ofexisting wells, however, had until 1977 more than offset new production. Theproduction trend since 1973 represents a particularly dramatic reversal:from 1950 to 1973 natural gas was the fastest growing domestic source ofprimary energy.

With energy consumption registering a small increase between 1973 and1977, the decline in energy production has created a growing imbalancebetween production and demand, particularly for oil and natural gas. In thecase of natural gas, the excess of demand over production has remainedlargely unsatisfied. Until the quadrupling of oil prices, the importation ofsignificant quantities of liquefied natural gas (LNG) was not economic, limit-ing the import market to contiguous nations, Canada and Mexico. As aresult, natural gas imports have remained less than 5 percent of domesticconsumption.

The inability of domestic and imported natural gas to satisfy demandshas resulted in curtailments of natural gas supplies. Since 1971, despite adecline in total consumption of natural gas, the volume of gas curtailed tousers with firm supply contracts has increased by a factor of over 10. Theshortage reached a peak owing to the cold weather in the first quarter of1977, when net curtailments to firm users rose to nearly 1 trillion cubic feet,or almost 16 percent of total gas consumption.

Curtailments have grown largely because of the way in which natural gasprices have been controlled. Since 1954, prices of natural gas sold to inter-state pipelines, have been subject to Federal regulation. Natural gas sold tointrastate pipelines, however, has remained unregulated. During the 1960s,when intrastate prices were generally below interstate prices, new commit-ments to interstate pipelines exceeded those to the intrastate market. Duringthe 1970s, however, intrastate prices increased at a much faster rate despiteseveral increases allowed in the price for new interstate commitments. For ex-ample, although the 1977 interstate price ceiling of $1.47 per thousand cubicfeet (mcf) for new contracts stood nearly triple its level of 1975, new long-term intrastate contract prices ranged between $1.41 and $2.19 per mcf inthe major gas-producing States, according to a survey made by the Federal

184


Energy Regulatory Commission. The higher intrastate prices have en-couraged producers to commit most new gas to the intrastate market, creat-ing growing shortages in net consuming regions, such as the Northeast.

At the end user level, pricing policies by state regulatory commissions haveexacerbated the shortage by encouraging consumption. Faced with gascontracts at a wide range of prices, commissions have allowed distributioncompanies to charge their customers the average of all wellhead contractprices. New, higher-cost gas has consequently been "rolled-in" with theaverage cost of all previously discovered gas. Although rolled-in pricingcaused only minor problems when average and marginal gas prices wererelatively close, today it introduces major distortions in energy pricing.Consumers are faced with low average historical costs when new suppliesare often substantially more expensive. This distortion could worsen ifhigh-cost gas (such as LNG or synthetic gas) is also priced on a rolled-inbasis.

With crude oil, unlike gas, the excess of demand over domestic supply hasbeen met by a mounting volume of imports. Between 1972 and 1977, oil im-port levels rose 92 percent. Import costs increased from nearly $5 billion in1972 to about $45 billion in 1977. Most significantly perhaps, oil importsclimbed relative to GNP, although total oil consumption as a fraction ofGNP has remained nearly constant during the last 20 years (Chart 13).

Chart 13

Oil Consumption and ImportsRelative to Real GNP

CONSUMPTION INDEX, 1960=100^140

120 -

100 -

80

60

40

20

/— TOTAL CONSUMPTION

DOMESTIC PRODUCTION

IMPORTS

1960 1965 19702/INDEX OF BARRELS/REAL GNP (1972 DOLLARS).SOURCES: DEPARTMENT OF COMMERCE AND DEPARTMENT OF ENERGY.

1973 1974 1975 1976

185


As with the natural gas shortage. Federal policies have also encouragedthe growth of oil consumption and consequently of oil imports. Controls onthe prices of crude oil, in particular, have played instrumental roles in thisprocess. Created in 1971 to soften the macroeconomic and distributionalimpacts of oil price increases, the system of oil price controls has evolvedover time so that it now covers three categories of oil: (1) "old oil," definedas 1972 base period production, (2) "new oil," defined as oil produc-tion above 1972 base period levels or oil discovered after May 15, 1973,and (3) oil recovered through tertiary production methods. Higher priceshave been allowed for the latter two categories to encourage domesticexploration and production. Price controls do not apply to "stripper wells"(those producing less than 10 barrels per day) for the same reason.

The control system has been administered to meet statutory requirementsthat the average price of all domestic crude not exceed a "composite" (orweighted-average) price. For the first half of 1977 the prices of old, new, andstripper oil averaged $5.16, $11.12, and $13.29 per barrel respectively, pro-ducing an imputed domestic average of $8.22 per barrel. This average waswell below the composite price ceiling of $8.47 and the average landed oilimport price of $14.21.

By creating different prices for oil of different vintages and sources,the control system, in the absence of other measures, would have placedoil refiners having access to predominantly high-priced crude at a dis-vantage compared to other refiners. Since November 1974, however, refinershave generally been placed on the same footing through an entitlementsprocedure ensuring that each refiner effectively pays only the average costof both imported and domestic crude. Separate allowances have been madeto enable small refiners to remain competitive. Nevertheless, by confrontingconsumers with prices below those the United States must pay for additionaloil, the control and entitlements system has subsidized oil consumption. Withdomestic crude production at or near capacity, the added consumption hasincreased the demand for oil imports.

Federal price regulation of natural gas and environmental restrictions onthe burning of coal have also done much to stimulate the growth of oilimports. Specifically, rising gas supply curtailments resulting from the waynatural gas prices have been regulated have prompted many industrial andutility users to look to alternative fuels. Because of limitations placed on coalburning by many State air quality implementation plans, however, userswho have wished to convert their existing facilities have been restricted tooil. Air quality regulations have also dictated the use of either oil or gasfor many new facilities as well.

The only major policy initiative passed after the embargo that shouldreduce petroleum consumption was contained in the Energy Policy and Con-servation Act (EPCA). Passed in 1975, EPCA established fuel efficiencystandards for automobiles and trucks, beginning with 1978 models. The act

186


will have a gradual impact on oil consumption, as the current generation ofautomobiles and trucks is replaced by more energy-efficient vehicles.

International

The oil price rise in 1973-74 had major effects on all oil-importing na-tions, some of which are discussed in Chapter 3. As in the United States,economic growth slowed considerably or even declined in the major indus-trial countries (Table 30). Total energy consumption, however, fell muchless rapidly in the United States between 1973 and 1976 than in any of thelisted countries except Japan. Correspondingly, though crude oil importsfell elsewhere, they rose more than 60 percent in the United States duringthe period.

TABLE 30.—Growth of GNP, energy consumption, and oil imports in major

industrial countries, 1967-76

[Average annual percent change]

Country

United States...CanadaFranceWest Germany..JapanUnited Kingdom

1967 to 1973

PIMPUlir

3.75.35.85.5

10.22.9

Energyconsumption

4.28.16.46.29.63.1

Crude oilimports .

19.412.110.87.4

14.57.4

PIMP

0.82.72.5.9

2.4.0

1973 to 1976

Energyconsumption

- 0 . 1- 3 . 5- . 7

- 1 . 3.5

- 2 . 8

Crude oilimports

22.7- 7 . 2- 3 . 5- 3 . 5- 2 . 2- 8 . 6

Sources: Department of Commerce, Organization for Economic Cooperation and Development, and British PetroleumCompany, Limited.

Throughout the postwar period many of these countries have used varioustaxes that have discouraged consumption. For example, prior to 1973-74,gasoline excise taxes in Japan, France, the United Kingdom, and Italystood between 32 cents per gallon (United Kingdom) and 65 cents pergallon (France), well above the average excise tax of 12 cents per gallon ongasoline in the United States. Since 1973 each of these countries has againraised its gasoline tax. By 1977, although the average tax had remained un-changed in the United States, it ranged between $.55 and $1.48 in the coun-tries just indicated.

Two countries that have taken particularly far-ranging actions since1973 have been Sweden and France. In Sweden, where foreign sources ofenergy supply 80 percent of fuel demands, a substantial gasoline tax hassince been supplemented by a fee on automobiles based on gasoline mileageefficiency. Excise taxes levied on coal, heavy and light fuel oil, and elec-tricity have been changed. New or expanded government subsidies, loans,and taxes also provide incentives for uncovering new energy sources as wellas innovative energy-efficient processes.

In France, higher prices and increased taxes have been combined withmandatory measures to lower the use of oil from 1973 pre-embargo levels,

187


in sharp contrast to the rapid growth in such use that France experiencedbetween 1967 and 1973. In the residential sector these measures have beensupplemented by metering requirements for central heating and hot waterand by tax credits for installing insulation.

The policy initiatives and oil import trends in these industrial countriescontrast sharply with energy developments in the United States since 1973.To some degree, differences in economic and cultural conditions haveaccounted for the variations in both energy policies and oil imports; policyactions taken in one country are not necessarily appropriate for others.Nevertheless it is significant that the steps taken by several major indus-trial nations have emphasized measures discouraging consumption byallowing prices to reflect social costs. Until the National Energy Plan (NEP)efforts in the United States have tended to do just the opposite.

THE NATIONAL ENERGY PLAN

Upon assuming office, the new Administration faced the dual concernsof rapidly rising oil imports and growing natural gas shortages. Bothposed risks of future supply interruptions. The high level of oil imports alsothreatened the independence of U.S. foreign policy and imposed a sub-stantial drain on the U.S. economy. Over the longer run the Nation facedthe need to begin the transition from oil and gas toward more abundantenergy resources. The new Administration recognized the critical importanceof a comprehensive energy policy that would address these concerns and inApril proposed to the Congress a National Energy Plan.

Economic Principles

To achieve both its short- and long-run energy objectives, the energy planrelies principally on mechanisms that bring prices and social costs of energytogether. Social costs represent the sum of private costs (energy produc-tion costs and the cost of oil imports) and the costs of important side effects(environmental damage and the risks to national security and to future eco-nomic activity posed by energy imports). Although the high price of oilimports exceeds the costs of production in the OPEC countries, it never-theless represents the social cost to the United States of acquiring additionalsupplies. At the same time, each component of the plan balances the im-portant principle of efficient use of energy with the goals of fairness, sus-tained economic growth, reduced inflation, and a clean environment.

Raising energy prices to reflect costs more closely should have signif-icant effects, and these will grow over time. In the short run, energy con-sumption is largely determined by the utilization of existing energy-usingdevices—machines, vehicles, and buildings. Short-run movements inenergy prices are therefore likely to have only limited effects on energyconsumption. After a short lapse of time, the effects grow as users respondto higher prices by adjusting the current capital stock—installing, for exam-

188


pie, insulation or electrical management devices. As the existing capitalstock is gradually redesigned and replaced and as the higher prices inducechanges in consumption patterns and lifestyles, even greater changes shouldbe seen in energy usage patterns.

Since the policies proposed in the NEP are designed to affect energyuse over an extended period, the long-run response of energy consumptionto higher prices is of particular interest. There is now a large body of econo-metric and engineering evidence indicating very substantial responses ofenergy demand to changes in price over time. An oversimplified but reveal-ing way of demonstrating the long-run response is to show for a single yearconsumption differences across countries that have had wide and long-stand-ing differences in the levels of energy prices. If differences in the energy pricelevels have persisted for some time, the consumption variations (controllingfor variations in incomes) should reveal long-run responses.

Availability of data allowed such an experiment for petroleum use intransportation in 1975 (Chart 14).

Chart 14

Cross-Country Comparisonof Motor Gasoline Demand in 1975

220

200

180

160

rr

sw 1402UJ(JuL 120

s 100

80

60

40

#WG •UK

• i

• A

AAuBCD

FFrGIIt

JNNoPS

SwSwiTUKUS

WG

LEGENDAustraliaAustriaBelgium-LuxembourgCanadaDenmark

FinlandFranceGreeceIrelandItaly

JapanNetherlandsNorwayPortugalSpain

SwedenSwitzerlandTurkeyUnited KingdomUnited States

West Germany

20 40 60 80 100RATIO OF TRANSPORTATION MOTOR GASOLINE DEMAND

TO REAL GDP (THOUSAND BTU/1975 US $)

SOURCE: ORGANIZATION FOR ECONOMIC COOPERATION AND DEVELOPMENT.

189

248-947 O - 78 - 13


Recent studies have shown that the greatest international difference inratios of energy to total output is due to variations in transportation use.Though the cross-country comparison here cannot reflect differences inhighway and mass transit availabilities between countries, in cultural fac-tors, or in other tax policies, the marked variations in transportation pat-terns are particularly striking. Countries that charged their consumers thehighest prices for motor gasoline showed the lowest transportation petro-leum use relative to their national income. In the United States and Canada,on the other hand, where gasoline prices were less than 50 percent of levelselsewhere, the intensity of oil consumption was approximately double thatof the other countries. These results are particularly significant because thevariation in prices between these countries is largely due to differences ingasoline tax levels, thereby indicating that differences in consumption pri-marily reflect demand rather than supply responses. Finally, though uncor-rected for other salient differences between countries, these responses oftransportation petroleum demand to price changes are indicative of thepotential long-run effects of more rational energy prices.

The NEP also recognizes the role played by prices in producers' decisions.Under current law, domestic oil and natural gas prices are controlled at levelswell below the prices of either imported oil or intrastate gas. While theplan recognizes the importance of encouraging exploration, it also recog-nizes the central importance of raising prices only for new production. In-creasing prices for existing production to levels artificially inflated by acartel would primarily transfer very large sums from consumers to resourceowners without generating significant additional supplies.

Specific Proposals

The NEP contains seven principal elements:1. Crude oil pricing. To eliminate both the subsidy of imported oil and

the administrative difficulties of the entitlements system, the NEP calls for awellhead or a crude oil equalization tax (COET) to be phased in over 3years. By 1980 each barrel of controlled oil would be taxed at the differencebetween the import price and its controlled price. Domestic and importprices would be equalized, and the need for the cumbersome entitlementssystem would vanish.

In addition, through administrative actions certain categories of oil wouldreceive higher prices to encourage exploration and development. "Brandnew oil" (that is, oil discovered after April 20, 1977, in wells meetingcertain geographical and depth criteria) would receive the 1977 worldprice, adjusted thereafter for increases in the general price level. Thisrepresents a 20-percent increase over the present new oil price. Oil recoveredthrough new tertiary recovery would be decontrolled as is now the case forstripper well production.

Coupled with the wellhead tax, these new incentives raise purchaseprices of all domestic oil to world levels—that is, to the cost to the Nation

190


of meeting added oil demands. The receipts from the COET, estimated torange between $11 billion and $14 billion by 1980, would be rebated toconsumers on a per capita basis. Rebates would restore the loss in consumerpurchasing power caused by the tax.

At the user level, the plan adds a tax on industrial and utility use of oil,beginning in 1979 for industrial users and in 1983 for utilities. Over a5-year period, the tax would increase petroleum costs by up to $3.00 perbarrel for industrial and $1.50 for utility use. The user tax is designed toincrease the user price of oil to reflect the social costs posed by the risk ofcontinued high levels of imports, and is targeted to the users most easilyable to conserve and convert to other fuels.

2. Natural gas pricing. Because the market is so far from equilibrium, theproblems of natural gas have been among the most difficult to solve. Onecommonly suggested solution would decontrol the prices of all new gas.Though such a step would eventually clear the natural gas market, it wouldmake available relatively small quantities of additional gas—at the costof substantial inflation and inequity. The inflationary impact of decontrolcould be especially severe under the current system of rolled-in pricing.The decontrolled prices of new gas would be averaged with much lowercost production, allowing the prices of unregulated gas to rise well abovethe oil price equivalent.

The natural gas pricing provisions of the NEP address the major prob-lems—geographic supply imbalances, insufficient producer incentives, andexcessive natural gas consumption—without imposing severe inflationaryconsequences or generating inequitable transfers of income. Thus the planproposes an increase in the current price allowed for new interstate com-mitments, and replacement of the present system of "vintaging" new con-tracts with a single price for all new gas discovered after April 20, 1977.Regional imbalances between gas supply and demand would be correctedby a price ceiling applicable to both the interstate and intrastate markets.

Two proposals at the user level would further improve the efficiency ofnatural gas pricing. First, the present rolled-in pricing structure would bereplaced by a system designed to economize on natural gas use. Specifically,all utilities distributing natural gas would be required to pass on the costs ofmore expensive replacement gas to low priority (largely industrial) users,many of whom currently face the lowest tariffs. Over time, this wouldencourage conversions from gas by those most able to respond to the pricechange.

The end user pricing reforms would be supplemented by a tax on the in-dustrial and utility use of natural gas. Like the user tax on oil, the gas usertax would be implemented in 1979 for industrial users and in 1983 forutilities, and phased in gradually. The price of gas to industrial users wouldeventually be raised to the equivalent price of oil. Together with the othernatural gas proposals, the gas user tax would, over the long run, substantially

191


reduce curtailments by raising prices of natural gas to levels that reflect theopportunity costs of gas use.

3. Coal conversion. Provisions in the NEP that increase the prices of oiland gas will encourage a search for alternative fuels. Though the low costand relative abundance of coal make it a particularly attractive alternative,the continued vulnerability of the United States to oil price increases andsupply interruptions suggests that further acceleration of the coal conver-sion process would be in the national interest.

Toward that end the NEP proposes two important measures. To supple-ment the taxes on oil and gas use, the plan proposes that firms be eligiblefor either an additional 10-percent investment tax credit for conversionexpenditures or a rebate of any user taxes paid, up to the amount of anyexpenditures incurred for conversion to coal or other fuels. Under proposedregulations, the burning of oil and gas in all major new utility and industrialboilers would be prohibited, with some environmental exceptions. Authoritywould also exist to prohibit the burning of oil or gas in non-boiler facilitiesor in existing facilities with coal-burning capabilities. The plan proposesFederal monitoring of the coal transportation system to ensure that it willaccommodate the expected growth in coal production and use.

4. Conservation. A major feature of the plan is its fuel conservation pack-age, which includes a blend of taxes, tax incentives, and regulatory require-ments. The principal tax measure, in addition to those discussed above,proposes a graduated "gas guzzler" tax on new automobiles with fuel effi-ciencies below the fleet average levels required under EPCA. Significanttax incentives include tax credits for home and building insulation and alarge credit for solar heating and cooling equipment. Finally, the plan en-courages cogeneration and district heating and proposes the establishmentof mandatory minimum energy efficiency standards for major appliances.

5. Utility rate reform. The NEP proposes a series of initiatives to confrontelectricity users with prices that reflect incremental costs of production moreclosely than has been true under current modes of regulation. For example,promotional declining block rates and other rates that do not reflect mar-ginal costs could be phased out. Such rates are particularly inappropriatenow that electricity in many areas is no longer produced under conditions ofdeclining costs.

Under the NEP, utilities would be required either to offer daily off-peakrates to customers willing to pay metering costs or to provide a direct loadmanagement system. In addition, they would be required to offer lower ratesfor interruptible service. Finally, master metering, which removes incen-tives to conserve, would be prohibited in new structures.

6. Nuclear power policy. Though the plan envisions growing reliance onnuclear power, advanced nuclear technologies that are uneconomic or posesignificant risks of nuclear proliferation are deemphasized. In particular, theAdministration in 1977 proposed to cancel the commitment to the construc-tion of the Clinch River Breeder Reactor Demonstration Project and indef-

192


initely defer the reprocessing of nuclear fuel, a necessary part of a com-mercial breeder system. In part, these decisions were based on the revisedeconomic outlook—slower growth of electricity demand and higher ex-pected capital costs for the breeder. In addition, the Administration wasdetermined to push forward with plans to develop a second-generationpower reactor that would have a smaller risk of proliferation.

Common to all nuclear technologies are the problems of safe long-termwaste disposal. The plan emphasizes the importance of safe waste disposal,which is receiving more top management attention and larger budgets thanpreviously.

7. Oil supply interruption insurance. To the extent that the above ele-ments of the NEP successfully discourage oil consumption, the United Stateswill be less vulnerable to possible future oil supply interruptions. Neverthe-less, even under the most favorable circumstances, the United States is ex-pected to continue importing oil. To provide added insurance, therefore, theplan proposes the creation of a Strategic Petroleum Reserve (SPR), whichreceived its first oil shipments in July 1977. Current policy calls for storageof 500 million barrels by the end of 1980—enough oil to cover a 4-monthinterruption of 4 million barrels a day.

By the end of the year the House-Senate Energy Conference Committeereached compromise agreements on three of the principal elements of theplan. The agreements included coal conversion regulations much like thoseproposed in the NEP but with a greater number of exemptions, utility re-forms that State regulatory commissions would be required to consider butnot to adopt, and requirements that utilities "audit" buildings to determinetheir energy conservation potential (but not to finance the installation ofinsulation as the NEP had proposed). Also approved was a system of grantsand loans for energy conservation and solar energy.

The other elements of the plan, including the oil and natural gas pricingprovisions and the proposed energy taxes, await further considerationand final action by the committee. Passage of this legislation is criticallyimportant if the United States is to lay the foundation for secure economicgrowth over the coming years.

Projected Impact of the NEP

Though long-run projections are difficult to make, the Department ofEnergy (DOE) projects that 1978 passage of the NEP, as originally pro-posed, would reduce oil imports by approximately 4.5 million barrels perday by 1985, compared to the effects of current policy. Natural gas pricingprovisions are projected to reallocate natural gas to high priority uses and tostimulate additional production through higher prices. The incentives forconversion to coal and the equalization of intrastate and interstate prices areexpected over the long run to reduce curtailments substantially.

In addition the coal conversion program and rationalization of pricing inalternative fuel markets are projected to increase the use of coal by 1985 by

193


approximately 200 million tons over projected levels without the plan (theequivalent of over 2.4 million barrels of oil per day).

The short-run effect of the plan on the aggregate demand for goods andservices is expected to be quite small because it has been designed to changethe prices of energy relative to other products, without changing the overalllevel of demand for goods and services. Energy taxes, for example, arelargely offset by both tax rebates and new expenditures to prevent reduc-tions of consumer purchasing power. As a result the plan is expected tochange aggregate demand in the short run by no more than a few tenths of apercent in either direction. Over the long run, because the plan willimprove economic efficiency by rationalizing patterns of use in the energysector, it should produce a more rapid growth in potential output.

The major foreseeable economic consequences of the program will followfrom the effect of the increased prices for petroleum and petroleum productsand for natural gas. The annual rate of inflation in 1978 and 1979 is ex-pected to be 0.3 to 0.4 percent higher with the program than without it.In the subsequent 2 years, the inflationary impact of the program is pro-jected to subside to between 0.1 and 0.3 percent.

OTHER ENERGY POLICIES

Policies aside from the NEP concentrated principally on supply measures.Long-term prospects for gas supply were substantially improved by Presi-dential and congressional approval of the Alaska Natural Gas Pipeline.Expected to be operational in 1983, the pipeline will cross both Alaska andCanada (following the "Alcan" route) before connecting with the inter-state pipeline system in the United States. At capacity, it will transport 0.8trillion cubic feet per year and supply approximately 5 percent of total U.S.gas consumption.

Though imports of natural gas are now relatively small, substantial addi-tions could be made by Mexican imports and new liquefied natural gasprojects. Pending before the Economic Regulatory Administration (ERA)of the Department of Energy at the close of the year were several proposalsthat, if eventually approved, could permit importation of over 4 billion cubicfeet per day by 1985. ERA must decide on a multitude of issues—reliability,independence, siting safety, accident liability, and pricing—'before giving itsfinal approval.

The pricing issue, in particular, raises the important question whether thepresent method of rolling-in new gas prices will continue or whether anothermethod will be found of moving to a system where users face more realisticprices for higher-cost gas. Because continuation of rolled-in pricing wouldconfront consumers with prices below the costs of replacing the gas theyconsume, policy makers face a challenge in arriving at feasible and economi-cally efficient policies for pricing LNG in the future.

194


FOOD AND AGRICULTURAL POLICY

Since the end of the 1920s the United States has undertaken a varietyof programs directed at mitigating problems in agriculture. For much ofthis time the major problem has been chronically low returns to theresources employed in agriculture. The problem was evident in decliningrelative prices and in the lower incomes of farm people compared withthose of nonfarm people. The pattern of low returns was recently inter-rupted for a brief period from 1973 to 1975, during which prices and incomeswere substantially higher. Since then, however, prices and rates of returnhave declined sharply, and the policy concerns of earlier years returned in1977.

THE POLICY PROBLEM

From the mid-1950s until 1973 the agricultural sector was plagued withchronic surpluses. During that period, productive potential substantiallyexceeded consumption. The adoption of new technology and the substitu-tion of machinery, fertilizer, pesticides, and energy for human labor pro-duced major increases in farm productivity, yet prices were not allowed tofall to clear markets. The exodus from farming, the increasing size of farms,and the net population outflow from rural areas that had begun muchearlier accelerated. Only in recent years have these forces subsided.

The government has employed a variety of policy instruments in effortsto maintain farm incomes at socially acceptable levels. Such instrumentshave included supply control through production restrictions (such asacreage set-asides), direct income transfers, and a government-providedmarket of last resort to support commodity prices.

Beginning in 1972 the situation in agriculture began to change. A num-ber of forces were gradually evolving in the world economy and acting tocreate a better balance between demand and supply for the output ofAmerican farms. Rapid growth in worldwide population and income, to-gether with a growing sensitivity to hunger and malnutrition in many partsof the world, were leading to increased demands for U.S. agricultural output.The shift of some centrally planned economies from being food exporters tobeing net food importers worked in the same direction. The supply of U.S.farm output, meanwhile, was rising less rapidly. Yield increases fell behindthe impressive gains of the 1960s. Accompanying these long-run develop-ments were several events of the early 1970s that also resulted in abruptchanges in the supply-demand balance for food. These included major re-alignments of foreign exchange rates, poor crop harvests due to adverseweather, and changes in the policies of major countries, especially the SovietUnion, toward responding to food shortages.

195


As a result, from 1973 to 1975 the agricultural sector enjoyed nearlyunparalleled prosperity, with record volumes of exports pushing commodityprices to new highs. But this economic boom was not without side effects.Domestic food costs increased sharply, and such concerns led to the imposi-tion of export embargoes that strained long-standing trading relations. Thedomestic livestock industry endured one of the most unprofitable periods inits history, land prices were bid up substantially, and debt for farmlandpurchases was incurred on the basis of unsustainable conditions.

By the end of 1977, however, conditions in the farm sector had againbecome similar to those of the pre-1972 era. U.S. farmers had harvestedtheir third consecutive bumper crop, and grain stocks were rebuilt signifi-cantly from the low levels reached in 1974-75. Production expenses con-tinued to increase while commodity prices were falling, and the volume offarm debt soared. The crop commodity price index had declined 27 percentfrom the peak in 1974, and large government price support activity was inprospect. Aggregate real net farm income was approaching the levels of the1960s. The unrest among producers was manifest in the widely publicizedfarmers' strike that started in late 1977.

With the apparent return of the farm income problem, the deeper ques-tion remains whether there has been a fundamental shift in the patterns ofprice and utilization in agriculture. There is no doubt that with only afew successive years of favorable weather, the U.S. agricultural machinehas the capacity to create again the "surpluses" with which agriculturehas so long been associated. It is not clear whether the current period is onlya short-term reaction to low worldwide incomes and abnormally goodweather, or evidence of a return to chronic conditions of oversupply. Asnoted below, some signs indicate serious global risks of a return to highprices, given the margin of stocks over consumption.

Thus, while the familiar problem of low incomes in agriculture hadreturned in 1977 and its end was not in sight, the context was new and stillunfamiliar. American farmers are now increasingly dependent on volatileworld markets, while both producers and consumers are more vulnerableto wide price fluctuations and renewed inflationary pressures.

INCOMES IN AGRICULTURE

It is no longer possible to generalize meaningfully about the economicstatus of the agricultural sector. Farms are not uniform; a wide diversity oftypes and sizes of farms exists in every region of the country. Furthermore,the economic health of the farm sector must be distinguished from theeconomic well-being of the farm people. The commercialization of farmingand the emergence of dependence on both farm and nonfarm sources ofincome have altered the meaning of comparisons based on aggregate meas-ures of agricultural income.

196


Real net farm income in 1973 reached the highest level since World WarII. Though down sharply from that peak in 1974-75, it remained well abovethe average of the previous decade. Gross income has since declined fur-ther with recent large crops and falling prices. Combined with escalatingproduction expenses, this reduced the real net income from farming in 1977to the lowest level of this decade (Table 31).

TABLE 31.— Real income and returns to agriculture, 1970—77

Year

19701971197219731974197519761977 4

1970-76 average

Total netfarm income *

Billions of

12.212.014.925.017.715.11L711.5

15.5

Capital gains2

967 dollars

- 3 57.6

24.358 68.7

10 018.9

17.8

Rate of return on equitycapital

With capitalgains included

With capitalgains excluded

Percent

3.57.7

14.325.47.97.48.7

10.7

4 94.75.47.65.34.43.3

5.1

Off-farmincome

(billions of1967

dollars)»3

12.412.614.014.714.614.114.214.3

13.8

1 Deflated by the consumer price index.2 Calculated as the change in physical asset value less net investment plus the change in net financial liability, where

each component is first deflated by the consumer price index.3 Off-farm income includes all income received by farm residents from nonfarm sources such as wages and salaries

from nonfarm employment, nonfarm business and professional income, rents from nonfarm real estate, dividends, interest,royalties, unemployment compensation, and social security payments.

« Preliminary.

Sources: Department of Agriculture and Department of Commerce.

The level of aggregate real income must be viewed in a historical context.Claimants to farm income have become fewer each year. Today the numberof Americans who earn their living from farming is about half the figuretwo decades ago, and they no longer perform many of the production servicesonce carried out on the farm. Moreover the distribution of total earnings isheavily skewed to the largest farms. In 1976, 63 percent of realized net farmincome was earned by 17 percent of the farms.

An aspect of the returns to farming that is often overlooked is capitalgains. Asset values in real terms were relatively stable during the 1960s, butthey increased markedly in 1972-73 with buoyant expectations of futureearnings. Though the pace has slowed since 1973, the increase in real capitalgains has continued, averaging $18 billion annually in this decade. However,these gains accrued largely to owner-operators and landlords, not to thetenants who utilize almost half of the total farm land.

If the expectations generated during 1973-74 are discounted, resourceearnings to equity capital through 1976 do not appear abnormally low rela-tive to historical experience in agriculture (Table 31). The real rate ofreturn to farmers' equity capital from 1970 to 1976 averaged 10.7 percent

197


annually before income taxes but including capital gains. Excluding capitalgains, the rate of return averaged 5.1 percent. The farm sector rates ofreturn for the 1970s are not far from rates in the nonfarm economy. Forexample, the average annual rate of return to nonfinancial corporatecapital for 1970-76 was 6.9 percent. Slight definitional differences precludestrict comparison, however. It should be recognized that the aggregate dataconceal a wide variation among farm operators; extreme hardship is beingexperienced in many individual cases, particularly in 1977.

Another component of the economic well-being of the farm population isoff-farm income. The real income of farm people from nonfarm sourcescontinues to increase over time and accounts for an increasing proportion ofthe total income of the farm population (Table 32). Nonfarm incomeaccounted for three-fifths of total income to the sector in 1976.

TABLE 32.—Real income per farm and per capita disposable personal income offarm population as percent of nonfarm, 1961—76

1961-65 average1966-70 average .

19711972

19731974

19751976

Period

Totalincome

per farm(1967

dollars) i

6 8208,852

9 07810, 669

14 17612^951

10, 88911,178

Income fromfarming aspercent of

farmoperators'

totalincome

51.245.9

41.346.4

55.851.2

42.241.4

Per capitadisposablepersonalincome,

farm pop-ulation aspercent ofnonfarm

population

61.772.0

74.783.4

109.392.4

88.081.4

1 Net farm income excluding inventory change plus off-farm income of farm households, deflated by the consumerprice index.

Sources: Department of Agriculture and Department of Labor.

Income estimates per farm provide a rough measure of the relative eco-nomic well-being of farm households compared with their nonfarm coun-terparts (Table 32). The comparison is not completely apt, however, be-cause of differences in the cost of living and in the number of persons perhousehold, as well as differences in amenities between farm and nonfarmliving. Although the per capita disposable income of farm households haslong been below that of nonfarm households, there has been a slow butsteady convergence of incomes in farming to those of the rest of the workforce. In 1973 income of farm households actually reached and temporarilyexceeded that of nonfarm households, but since then the ratio of farmto nonfarm incomes has fallen sharply.

Because they are so numerous, agricultural producers are "price takers/5

and are especially vulnerable to the adverse impacts of uneven rates ofchange in prices. During a period of inflation led by food prices, producers

198


initially benefit from large runups in prices of raw farm products, but theincreased earnings are generally capitalized into land prices. The ownersof such assets enjoy a gain in real wealth, but total rates of return fall back tohistorical levels. Moreover the return of more nearly balanced supply anddemand conditions brings commodity prices down again, and farm incomesfall, while debt incurred during the boom remains.

INSTABILITY OF PRICES AND INCOMES

The average annual export volume of U.S. agricultural products for1971-76 was one and one-half times greater than the annual average for the1960s. Average export earnings in the same period reflected a nearly three-fold increase over the annual average for a decade earlier. This increasedaccess to world markets has been beneficial not only to agriculture but alsoto the Nation's economy. The increased export earnings have contributed toa more favorable trade balance, helping to offset the large external deficit.However, this increasing reliance on foreign markets poses new problemsfor U.S. farmers and consumers as well as for the domestic economy moregenerally.

Markets for agricultural products have long been subject to variability indomestic production and consumption. In recent years, however, they havebecome increasingly vulnerable to the random fluctuations of weatherthroughout the world and to changes in consumption or in the policies ofother trading nations. Moreover, many nations attempt to insulate theirinternal food prices from world supply and demand fluctuations. To theextent that they are successful, a disproportionate share of the short-run

TABLE 33.—Trends and variability in real national income components, 1961—77rl

Component

National income .

Compensation of employeesNonfarm proprietors' incomeRental income of personsCorporate profitsNet interest

Farm income:With Government paymentsWithout Government payments

Per capita personal income:Total populationFarm population

From farm sources.

1961-70

Averageannualchange

4.5

5.21.6.4

2.410.3

- . 7- 2 . 9

3.56.13.4

Indexof vari-ability

1971-77

Averageannualchange

Percent

3 4

1 85.36.9

16.02.8

7.48.5

1.63.34.5

2.0

2.1- 1 . 7- 4 . 1

1.58.0

- 4 . 4- 1 . 0

1.61.8

- 1 . 3

Indexof vari-ability

3.6

3.15.64.5

12.83.2

29.434.7

2.413.625.0

1 These estimates were calculated from regressions of the natural logarithms of the various deflated components of nationalincome on a linear time trend. The deflator was the consumer price index. The average annual change refers to thecoefficients of time and the index of variability refers to the standard errors of the regressions. Data for 1977 are preliminary.

Source: Council of Economic Advisers, based on data from Department of Agriculture, Department of Commerce,and Department of Labor.

199


adjustment to changing market conditions is forced upon market-orientedcountries such as the United States and on developing countries with fooddeficits.

These sources of instability are reflected in the increased variability offarm income in recent years. Variability in farm income during the 1970swas about four times greater than in the 1960s (Table 33). In fact,during 1971-76 income from farming was by far the most volatile ofthe major components of national income. This increased variability is alsomanifested in the per capita incomes of the farm population. Although thevariability is considerably reduced when one includes income of the farmpopulation from nonfarm sources, the total is still much more volatile thanthe per capita income for the population as a whole. On the other hand, theaverage rate of growth of per capita farm income from all sources has out-paced the growth of per capita personal income during both periods.

Instability in agricultural product prices has a significant impact on theentire domestic economy. Sharply increasing prices of raw farm products

Chart 15

World Wheat and Coarse Grains:Export Prices and Ratio of Stocks

to Consumption

160

IEt

B 120

o

I 80 -

2XULJ

40 -

• 1975

• 1974

• 1976

• 1973

I i

• 1977

1966/ 1 9 6 7

• 1971

I |

• 1968

• 1972

I

-

-

1970* # 1 9 6 9

I

.12 .14 .16 .18 .20 .22 .24RATIO OF ENDING STOCKS TO CONSUMPTION

NOTE: DATA RELATE TO MARKETING YEAR ENDING IN YEAR SHOWN AND EXCLUDE THE U.S.S.R.

SOURCE: DEPARTMENT OF AGRICULTURE.

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soon lead to increases in food prices that affect all consumers—but mostseverely those near the bottom of the income distribution.

The instability of food prices was clear during the last few years, whenlow worldwide stocks of grain and poor harvests led to sharp increasesin domestic food prices. From 1972 to 1976 the ratio of world stocks toworld consumption, excluding the U.S.S.R., fell from 19 percent to the12- to 14-percent range. Prices more than doubled (Chart 15). World stockswere increasing by 1977 as the second consecutive large global crop washarvested.

World stocks of grain will have to increase along with continued growthof world population and income to provide a cushion against another foodcrisis. The stocks-consumption ratio in 1977 was ,at a level of 17 percent. Athird successive large crop for the world would result in a ratio in the morecomfortable 18- to 20-percent range, and an average crop would providesome buildup in stocks. On the other hand, a very poor world crop, whichhas .about a 1 in 12 probability of occurring, or two consecutive moderatelypoor crops, could again reduce the ratio of ending stocks to consumption tothe 13- to 14-percent range and cause sharp price increases. The recent largefluctuations demonstrate the importance of developing ample world foodreserves.

PRICE AND INCOME MEASURES

It is generally recognized that farm commodity programs through theyears have impaired economic efficiency by regulations preventing theproduction, resource use, pricing, and trade that could flow from unbufferedmarkets. Once inaugurated, programs have seldom achieved the intendedresult; and it has often been politically difficult to reform or terminate them,even when their economic inefficiencies are recognized.

From their beginnings and for three decades afterward, farm programstended to be inflexible, restrictive, oriented toward individual commodities,and poorly adapted to prevailing market conditions. Beginning in themid-sixties, some reform was introduced, and the 1977 legislation continuedthis recent trend in agricultural and food legislation. It is a further stepin the process of bringing policies and programs in closer accord withthe economic realities of a modern farm sector operating in a worldwidecontext.

The most heavily used policy tool for improving farm income hasbeen market price support for individual commodities. This has been accom-plished primarily through Commodity Credit Corporation (CCC) non-recourse loans under which the commodity is pledged as collateral. His-torically the support level, known as the loan rate, was generally inflexibleand pegged to "parity" prices. Because of rapid technological change infarming, parity and therefore support prices were generally above market-clearing levels, encouraging uneconomic output, discouraging consumption,and thereby aggravating the surplus problem. This situation, in turn, gen-

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erated political pressures from the farm sector to curtail output. Quotas,allotments, and other measures for production control were then applied toindividual commodities. With no coordination across commodities, supply-demand imbalances soon arose in other commodities.

Because of slow but significant changes in farming, these policies becameincreasingly inappropriate. It became uneconomic for a major exportingcountry to strengthen farm income by high support prices because the de-mand for U.S. exports was more price sensitive than domestic consump-tion. With inflexible U.S. price supports above market-clearing levels,competitors could gain an increasing share of the world market, and as aconsequence the United States became the residual supplier in world mar-kets. In addition to the economic losses of inefficient resource allocation, thelarge transfer payments to the farm sector had become burdensome, andpolitical pressures to reduce the transfers became greater.

The first steps toward reform—to make farm programs more responsiveto market conditions—were taken in the mid-sixties. As a supplement to theCCC price support loans, small "price support payments" were also pro-vided for certain commodities produced under allotments or quotas. Thisrepresented the first move toward divorcing price support from income sup-port and toward the use of different measures to attain these dual goals.

More significant changes in the traditional tools were later effected. Theindividual commodity approach to production control was discarded infavor of restraining production capacity generally. Price support eligibilitywas contingent only upon producers' idling a specified proportion of theircropland. Except for quota crops (rice, sugar, peanuts, tobacco, and extralong staple cotton), producers were free to plant whatever they wished onthe remaining acres.

Farm program subsidies have traditionally been based on volume of pro-duction. As a result the relatively few large producers with greater volumetended to receive a greater share of total program benefits than the morenumerous smaller farmers. To the extent that this occurred, the programsimplicitly contributed to a widening disparity of income distribution in agri-culture. Partly in recognition of this fact, a $55,000 limit on the amount ofpayments which a producer could receive under the major commodityprograms was imposed for the first time in 1971.

Legislation in 1973 continued the movement toward fewer programrestrictions and greater reliance on market signals to guide producers'decision making. An important step was taken in the Agriculture and Con-sumer Protection Act of 1973 when, by including a target price-deficiencypayment system, income support was fully separated from price support.Following the concept first proposed in the late 1940s as the Brannan Plan,income transfers were provided to producers in addition to the price supportloans. These income transfers vary inversely with the market price. No pay-ments are made if the market price is at or above the target price; but ifthe market price is below the target price, support payments are based upon

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the differential. The payment limitation was reduced to $20,000 in the1973 act.

Economic conditions after 1972, when increased world demand causedprices to be well above the price and income support levels, allowed thecommodity programs legislated in the 1973 act to be essentially inoperative.No production restrictions on the major commodities were employed during1974-77. However, as U.S. and world stocks returned to more normal levels,prices declined and there were growing political pressures in this countryfor increased government price and income support.

POLICY DEVELOPMENTS IN 1977

When the Carter Administration took office in 1977, it faced thereemerging farm income problem, the potential instability problem, andthe expiration of major legislation affecting agriculture and food. In addi-tion, other policy proposals—including establishment of grain reserves andexamination of the organization and funding for agricultural research—-were advanced. The challenge thus facing the new Administration wasto work with the Congress in developing legislation that would meet theincomes objective but reduce economic efficiency as little as possible. Forthe first time in over a decade, the Administration authored a comprehen-sive food and agricultural bill and presented it for consideration by the Con-gress. The congressional action resulted in passage of the omnibus Foodand Agricultural Act of 1977 (Public Law 95-113).

The 1977 act further modifies and extends the available policy tools—providing for flexible price-support levels, increased reliance on direct incomesupport, abolition of allotments, and a managed grain reserve.

Price Support

The act contains price supports at levels that afford price protection tofarmers, yet are low enough not to interfere with markets except in years ofexcessive stocks. The price support programs therefore provide an interimfinancing arrangement whereby producers may even out their cash flow buteventually return their products to the market. One important change inthe act, included largely in recognition of the increased importance of worldmarkets, is downward flexibility in the support prices for the major commodi-ties. Whenever season average prices are within 5 percent of the loan leveland the price support interferes with the competitiveness of U.S. productsin world markets, the loan level may be reduced by amounts up to 10 percentper year (with absolute minimum loan levels specified).

Income Support *

Divorcing price support from income support in farm commodity pro-grams allows income distribution objectives to be pursued with less economicdistortion than if price supports alone are used as a means of bolsteringfarm income. If minimal supports do not interfere substantially with thefunctioning of the market, then production and use may be largely unaf-

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fee ted. In this case the only noteworthy cost of the programs to society wouldbe direct income transfers.

Parity, the long-used concept for determining needed income supportfor agriculture, was discarded for the major crops in the 1973 act becausetechnical flaws—failure to account for productivity changes is a major one—made it inappropriate for modern conditions. Instead, the 1973 act adopteda "cost of production" concept for target price escalation. Lack of adequatecost data at that time forced the use of a broad-based index of prices foragricultural inputs, but individual commodity cost estimates have beendeveloped in the intervening years.

The 1977 act completed the move to cost of production, using individualcommodity cost as the basis for the target prices. However, just as withparity, this approach also has serious limitations. One is that the averagecost of production is not a measure of equilibrium price, since it reflectsonly supply and not product demand conditions. Further, an inherentpotential for an artificial target price spiral exists in the cost of productionapproach if fixed asset (primarily land) costs are included. Producersearning high returns at a given target price level will bid up the price ofland. Since the land price increase is reflected in the cost of production, thetarget prices are raised accordingly, and the spiral continues. The 1977act bases the initial (1978) target prices on a proportion of total cost.Adjustment of the target prices in the next 3 years will reflect only variable,machinery, and overhead costs—the land and management components areexcluded—thus largely avoiding the price spiral problem.

Acreage Allotments

As has been noted, prior to the 1977 act the criterion for determiningthe compliance required of producers and for disbursing benefits was theacreage allotment. In principle the allotments reflected each producer'shistorical share of national production of the crop, the shares being assignedon the basis of production patterns prevailing in a particular historicalperiod, which for some crops was as long as 25 years ago. The rights to pro-duce and market the crops became valuable assets, in effect representing afinancial grant from government to the owner merely because in the past aparticular crop happened to have been grown on the farm. Program benefitsover the years were thus largely capitalized into land values. Because pay-ments were conditioned on existing use patterns, these acreage allotmentsimpeded a rapid geographic shift in production patterns. During the 1974—76 period, when the allotment system lay fallow, production shifted signifi-cantly to those farms and regions of the country where the particular cropscould be produced most efficiently.

During development of the 1977 act, the Administration proposed abol-ishing the antiquated allotment system. Compliance and benefits based onthe old allotment system would have been inequitable and would havedrastically lessened the efficiency of the programs in achieving their objec-

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tives. Overall economic losses would have been substantial if farmers hadreturned to the old production patterns in order to receive program bene-fits, rather than planting those crops that they could produce most efficiently.

The Congress adopted the Administration's proposal to abolish allotmentsand base the programs upon a "current plantings" concept. Under thisapproach, farmers can make decisions regarding current year production onthe basis of costs and anticipated market prices. Any compliance require-ment (such as the acreage set-asides for the 1978 wheat and feed grain crops)and price and income support are then based on decisions that are reflectedin current year plantings. While still not a perfect program tool, the cur-rent plantings concept offers hope of avoiding rigidities in production pat-terns, and in the associated losses of economic efficiency, and it removes muchof the inequity of the allotment system.

The concept may, however, create a new source of resource misallocationif producers respond to the target prices in those years when they are sub-stantially above market prices. Basing income support on current plantingscould lead to production distortions, an uneconomic product mix, rapidlyincreasing support levels, and a need for stringent production controls toavoid unacceptably large Treasury outlays for the support programs. The1977 act thus improves the efficiency of farm programs but does not fullyresolve the fundamental dilemma: how to provide income protection tofarmers in a way that is equitable yet does not lead to uneconomic productiondecisions.

Stabilization Measures—Domestic Grain Reserves

The establishment of a domestic grain reserve began to receive seriousconsideration soon after the 1972-73 experience with sudden shortages.Numerous proposals for reserves entailing various forms, sizes, and operatingrules had been advanced, but support for reserve schemes was mixed. Farm-ers who associated the large government-held stocks of past years with lowcommodity prices were at first opposed; but as grain prices continued todecline, the opposition from many gradually diminished. Consumer advo-cates, on the other hand, remembering the post-1972 increases in food prices,generally favored a reserve system.

The Administration announced in April the formation of a small foodgrain reserve of 8 million metric tons of wheat and rice from the 1976-77crop. The 1977 act then mandated such a reserve specifying minimum andmaximum quantities and also authorized a feed grain reserve. In late Augustthe Administration announced its intentions to enlarge the reserve to 30 to35 million metric tons of food and feed grains.

This reserve system is to be owned and held to a large extent by farmers.Rules for its operation are explicit, thus precluding stock releases not moti-vated by economic considerations. A set of release prices has been estab-lished and grain enters the reserve at the loan level. The government willshare the cost of holding the reserve.

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248-947 O - 78 - 14


The reserve of 30 to 35 million metric tons has three major components: 9million metric tons of wheat and rice; 17 to 19 million metric tons of feedgrains; and an international emergency wheat reserve of 6 million metric tons.The exact size of the reserve within the range given will depend upon theamount of grain acquired by CCC through the nonrecourse loan program.The first two components, totaling 26 to 28 million metric tons (the pro-ducer-held portion of the reserve), are being established through ex-tended loans by the CCC Upon expiration of the regular price support loan,producers may enter into a contract with the government to hold the grainfor 3 to 5 years. Storage payments are provided until the first price trigger(140 percent of the loan level for wheat and 125 percent for corn) is reached.If the second price release point (175 percent for wheat, 140 percent forcorn) is reached, repayment of the loans may then be required.

The Administration is submitting proposed legislation to the Congress in1978 to authorize establishment of the government-owned InternationalEmergency Wheat Reserve of 6 million metric tons. The legislation stipulatesthat the reserve is to be used for humanitarian purposes in meeting contin-gency food needs or as part of any U.S. commitment to an internationalreserves scheme that may be negotiated.

A domestic grain reserve can be operated in accord with a price-supportprogram. Stocks will be insulated from the market when prices are lowand released back into the market when supplies are short. The plannedreserve should: (1) provide a beneficial price effect to farmers when thereserve is established; (2) not "overhang" the market at low price levelsas in past years by virtue of the contract release prices and CCC releaseprices; (3) provide buffer stock protection against severe market disrup-tion; and (4) provide a reasonably wide price corridor—containing thelong-run price comfortably away from either ceiling or floor—which allowsprice to perform its allocative function.

REGULATORY REFORM

In a mixed market economy like that of the United States, governmentregulations of the marketplace sometimes play a vital role in meeting socialgoals, curbing abuses, or mitigating the hardships that would flow from theunconstrained play of economic forces. Economic regulatory programs, forexample, control entry of firms into particular lines of business, set pricesthey may charge, and sometimes specify the standards of service the firmscan offer. Under certain circumstances the regulations can be useful in regu-lating natural monopolies or providing income support. Social regulatoryprograms, on the other hand, are designed to correct a variety of undesir-able side effects in our economy that relate to safety, health, and the en-vironment—effects that markets, left to themselves, often ignore. Whereaseconomic regulatory programs typically govern the conditions of doing busi-ness in one or more industries, social regulations frequently dictate some ofthe operating conditions required of a wide range of industries.

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The scope of economic activity covered by Federal regulation has widenedas programs have grown and the number of explicitly recognized social goalshas increased. Today the economic significance of regulatory activities of theFederal Government approaches that of direct tax and expenditure deci-sions. But while detailed and critical attention is given to budgetary action,regulatory efforts are poorly coordinated with other economic or socialobjectives. Moreover difficulties in the design of many programs frustrateattempts to attain the very goals for which the programs were formed.

ECONOMIC REGULATION

Regulatory programs that govern entry and pricing in individual lines ofbusiness were primarily designed to supplement or replace market mecha-nisms. As new areas were observed where the market outcome was judgedunsatisfactory, the scope of Federal economic regulation expanded. Majorindustries that are now regulated include agriculture, airline and surfacetransportation, banking, communications, and energy.

At the same time, growth of the economy and technological progress haveeroded many former natural monopolies, converted infant industries intomature ones, and created conditions conducive to reliable competitive serv-ices. Though economic conditions in some industries may continue to requiresome degree of regulation, rapid changes in others suggest that a greaterrole for market forces may be desirable.

Current Problems

An important reason for reexamining the rationale for economic regula-tion is that, in many industries, the rules are ill suited to present economicconditions. In some instances early goals that prompted regulatory actionhave been rendered obsolete by new economic conditions, but the regula-tions that promoted those early goals continue in force. In other cases theoriginal goals were contradictory and at least one of them has been aban-doned. Pursuit of almost all the goals has required that a growing numberof activities be subject to regulation.

The history of airline regulation illustrates the growth of a regulatorystructure from origins bearing little resemblance to current institutions.Federal regulation of passenger fares under the Air Mail Act of 1934 wasintroduced chiefly to prevent airlines from lowering passenger fares andreceiving larger subsidy payments for airmail carriage. Economic regula-tions mandated by this act were expanded under later legislation that stillgoverns the airline industry, despite the fact that airmail charges provideminimal subsidies to airlines and constitute a very small proportion of totalairline revenues.

Surface transportation demonstrates how pursuit of a goal hasexpanded the scope of regulation. Early regulation of railroads had thedual aim of providing services at fair prices and stabilizing railroad profits.

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When oil pipelines, trucks, and water traffic threatened the solvency ofrailroads, these competitors were made subject to regulation in an attemptto maintain the railroads' profitability. Today all these, and intercity bustransportation as well, are regulated.

The continuation of regulation in markets that would otherwise becompetitive has only deflected competition, not prevented it. In the airlineindustry, for example, service competition—particularly frequency of serv-ice but also such in-flight amenities as food, drinks, leather seats, andmovies—has replaced the price competition that regulation preempted.

The prohibition on the payment of interest on demand deposits hasinduced individuals and businesses to limit the amount of funds heldin this form. From the standpoint of society as a whole, this is an unpro-ductive activity. It has also spawned the development of new businesspractices (some of which are discussed in Chapter 1) that are imperfectsubstitutes for interest-bearing demand deposits. These include telephonetransfer systems that allow funds held for transactions purposes to be keptin interest-bearing deposits until the last possible moment, and the introduc-tion of interest-bearing negotiable orders of withdrawal, or NOW, accounts,usable in virtually the same ways as checking accounts, by both banks andnonbank financial institutions in a number of states. The prohibition oninterest payments on demand deposits has, therefore, largely been circum-vented in indirect ways that are often inefficient.

Continued regulation has also imposed costs by delaying the introductionof new technology and services. Examples include the slow rate at whichcable TV and railroad-truck piggybacking services have been introduced,the slow rate of expansion of radio services in particular markets becauseof licensing requirements, and the years of delay in the Civil AeronauticsBoard's (CAB) approval of low-fare international standby service.

Movement away from regulation in any industry imposes costs on somewho were previously protected. For example, though expanded competitionin the trucking industry may increase economic efficiency and bring lowerprices, it also would impose capital losses on truckers who purchasedoperating certificates from other truckers.

Administration Effort

The problems inherent in the present regulatory structure, the uncer-tainties posed by the complexities of many of the regulated industries, andthe importance of avoiding unnecessary hardships prompted the Admin-istration to take an active role in 1977 in promoting regulatory reformsto improve the present system.

The Administration strongly supported domestic airline reform initiatives,currently before the Congress, that promise a smooth transition to a lessregulated environment. At the center of the initiatives is relaxation of con-trols over entry and pricing, although control of entry would be phased

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out over several years to allow existing firms to adjust. In the unlikely eventthat a community would lose service entirely under the new regulations, atransitional subsidy for such service could be provided.

Increased competition in the domestic airlines industry should benefitconsumers by a lowering of fares similar to the dramatic declines in inter-national air fares. The Civil Aeronautics Board and foreign governmentshave authorized a much wider range of services that involve fewer amenitiesbefore and during flights in exchange for appreciably lower fares. Theseactions have made foreign travel available to many people who wereformerly unable to afford it. For example, the lowest available individualfare from New York to London was $350. Under newly authorized standbyplans, the same trip can be made for $236, about two-thirds of the former cost.At home the results of easing entry in the intrastate airline markets inTexas and California have shown that significantly lower prices can beobtained without service disruptions.

The Administration also proposed changes rationalizing regulatory pro-grams governing agriculture and energy, as discussed earlier in this chapter.Allowing expanded competition in other regulated industries where thereare no significant scale economies, or where the original rationale forregulation no longer prevails, should offer similar consumer benefits andhelp to control inflation. The Administration has begun to examine in-tensively the current regulatory controls over the motor carrier industry,and other economic regulatory programs are slated for future study.

SOCIAL REGULATION

Social regulation of the market place has arisen in response to pervasiveproblems that have affected nearly all Americans at work and at home.In 1976 one of every 11 workers in private industry suffered from anaccident or illness related to the job; 4,500 workers lost their lives fromsuch causes. The Bureau of Labor Statistics estimated that over 39 millionworkdays were lost in the private sector in 1976 because of nonfatal occupa-tional illness or accidents; and in the mining and construction trades, workerson the average lost more than one workday per year because of accidents andillness occasioned by the job. Because of the uncertain links between occu-pational hazards and illness, data that are readily available may well under-state the problems.

Environmental problems are even more pervasive. Air pollution,produced by numerous industrial processes and the operation of transporta-tion vehicles, has been clearly linked to many different illnesses. Adversewater quality has also proved to be dangerous. A recent study made by theEnvironmental Protection Agency (EPA) found the water of 80 cities tocontain chemicals that are known to cause cancer in animals. To theseknown problems must be added the rapid growth in the use of pesticides andpossibly toxic chemicals, which continues to outstrip current knowledge abouttheir long-run effects.

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Markets do not respond well to these problems, primarily because only avery small fraction of any benefits from abatement efforts accrues to thosewho produce side effects—air or water pollution, for example. Incentivesto take actions or collect information leading to environmental or safetyimprovements are therefore lacking. Until more positive steps are taken,environmental, safety, or health risks will be needlessly high.

If society wishes to mitigate this situation, government actions arerequired. The government has focused on many of the problems for onlya very short time. Although the Food and Drug Administration wasformed in 1931, and pesticides have been regulated since 1910, the Environ-mental Protection Agency (EPA) was formed in 1970, the OccupationalSafety and Health Administration (OSHA) in 1970, and the ConsumerProduct Safety Commission (CPSC) in 1972. In addition, many of the sub-stantive laws that these agencies administer have been in effect only as longas the agencies, or for an even shorter time.

Despite their newness these regulatory programs are likely to expand withour growing knowledge of the social problems involved, as has happenedwith the older social regulatory programs. One example of this growthcan be seen in Federal pesticide regulation, which was begun to protectfarmers from fraudulent claims by salesmen. In 1947 Congress passed theFederal Insecticide, Fungicide, and Rodenticide Act (FIFRA) to meet newconcern about direct poisoning by requiring the registration of such prod-ucts. FIFRA was amended in 1967 and 1972 after the discovery of environ-mental dangers in DDT and other pesticides that were developed in the 1940sand 1950s. The new amendments provided new authority to license users ofpesticides.

The same growing awareness of problems and expanded scope of pro-grams have occurred in many other areas. As production techniques andproducts have become more complex, society has demanded protectionagainst whatever hazards to health, safety, and the environment may accom-pany the benefits from the changes.

During the short time since their inception the social regulations haveimproved the conditions affecting the environment, health, and safety ofAmericans. For example, while the Nation's efforts to control water pollu-tion are behind schedule and face some difficult problems, numerous bodiesof water have been demonstrably improved. Because of mandated munici-pal and industrial waste treatment, aquatic life and recreational amenitieshave reappeared, and foul odors and visibly dirty water have disappeared ina number of the Nation's waterways.

Similarly marked progress has been achieved in reducing air pollution.Data collected by EPA and the Council on Environmental Quality (GEQ)at 280 locations around the country show significant improvements inambient air quality between 1970 and 1976. The number of these locationsthat failed to meet national ambient air quality standards for sulfur

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dioxide fell by 27 percent, for carbon monoxide levels by 20 percent, andfor particulates by 12 percent. Nevertheless in all areas progress is oftenslower than expected because the social regulatory process has difficultykeeping pace with the rapidly expanding number of products and processesthat pose possible hazards to society.

The social regulatory programs have produced clear benefits to societyin the short time they have existed. But their costs have also been substan-tial—larger than were originally anticipated. The national interest requiresnot only that we achieve the goals of social regulation, but that we do so atminimum cost. Two broad sets of factors are important in determining thecost of our social regulations: the level of our ultimate goals and the pace atwhich we try to achieve them; and the design of the regulatory mechanism.

The Pace of Regulation

The level at which society sets its goals is an important factor in determin-ing the cost of achieving those goals. Over the next few years, however, costswill be largely determined by the pace at which we pursue our goals. Thereis a major tradeoff to be faced between the pace at which the goals are at-tained and the costs of their attainment. Ideally we should set the pace ofmoving toward our objectives at the point where any step-up would addmore to costs than to the social benefits. In practice we have only limitedand imprecise information on the benefits of many social programs, althoughwe know considerably more about how changes in pace affect costs. In manycases more rapid implementation is quite costly. For example, the Councilon Wage and Price Stability studied the water pollution effluent guidelines forthe iron and steel industry, proposed by EPA in 1976. It found that a relaxa-tion of the 1977 standard for water pollution control in this industry with nochange in the more stringent 1983 standard would permit savings in capitalcosts of $200 million. We cannot measure the dollar value of the gains fromearlier achievement and compare them with those costs. But in makingregulatory decisions on the speed of attaining standards, we should ex-plicitly make a qualitative judgment about whether the gains from earlierattainment are worth the costs.

The pace at which regulatory goals must be met may also indirectlyaffect costs. Deadlines that are excessively short, combined with detailedprescriptions of technological solutions, can discourage firms from search-ing for less well-proved but ultimately more efficient approaches. Altera-tions in initial technological solutions become costly and meet with resist-ance. On the other hand, regulatory authorities must cope with the naturalinclination of those who are regulated to overemphasize the costs entailedin rapid progress toward meeting the standards. No mechanical formulacan guide decisions in this area. A constant awareness of the relationbetween pace and costs in decisions about individual cases should never-theless help to reduce the overall costs of regulation.

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The Design of the Regulations

The degree of detail with which regulations are specified is one of themost important elements affecting costs. Excessively detailed and inflexiblespecifications can increase costs by making it impossible for producers toadopt the least expensive route to meet regulatory goals. The study bythe Council on Wage and Price Stability of the proposed guidelines to reduceeffluents in the iron and steel industry, for example, found that the in-cremental costs the 1983 standard imposed for removing one unit of pollu-tant differed widely for each of a number of processes in a single plant. Oneprocess for making integrated seamless piping and tubing required annualincremental expenditures of $18,000 to remove the last ton of total suspendedsolids; in hot forming processes with scarfing, the last ton to be removedhad an incremental annual cost of only $2,000. Applying the guidelinesthroughout the plant instead of process by process would allow pollutionreductions to be concentrated on processes having lower incremental abate-ment costs. The same level of abatement could thus be reached at muchlower costs.

A difficult problem of regulatory design concerns the extent to whichold and new sources of pollution should be governed by different standards.Some differentials are appropriate, since the incremental costs of meetinga given standard for emissions tend to be lower when the necessary measuresare being incorporated in new rather than old facilities. But regulations caninadvertently add to the economic costs of an industry by applying excessivelylarge differentials to new processes compared with existing ones. If thedifferential is too large, firms deciding between continuing production inolder facilities or converting to new ones may be biased against the newones. Since investment in new and expanded facilities strongly affects therate at which productivity grows, overly large differences in standards canslow productivity gains and raise costs.

Costs can also be appreciably affected by whether the regulatory agencyadopts technical or performance standards. A technical standard specifiesthe equipment or process that producers must adopt, such as a particularengineering approach to reduce coke oven emissions or a specific treatmentto remove industrial wastes from discharged water. A performancestandard sets the expected outcome—in terms of such things as allowableemissions or quality of discharges—but leaves the choice of method up tothe firm. Technical standards give producers little flexibility or incentive tosearch for less costly approaches; instead they must rely on the technologicaldecisions of the regulatory agency. Performance standards provide greaterfreedom for firms to serve their own interest in increasing their profits byfinding less costly approaches. The efficacy of performance standards, how-

.ever, is sometimes limited by shortcomings in monitoring techniques. Suchstandards are only feasible if performance can be monitored with reasonablereliability and costs.

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Regulations and Incentives

Running through the earlier discussion of regulatory design was the themeof flexibility. To the extent that firms can satisfy requirements by meetingenvironmental, health, and safety standards—the choice of techniques beingleft to them—the national costs of regulation will tend to be reduced, sinceeach firm wishes to reduce its own costs.

An even broader application of this concept lies in the use of marketincentives as a substitute for or supplement to particular regulatory struc-tures. Regulations are commands to firms and individuals from government,enforced by civil or in some cases criminal penalties, to undertake particularactions: meeting a specific performance or technical standard related toenvironment, health, or safety by a particular date. An alternative approachwould modify the monetary incentives of the market place to give eachfirm an interest in achieving specified standards. Various incentives can beconsidered: a fee system that imposed a charge on each pound of pollutantdischarge or on the rate of injuries to workers in industrial plants, for exam-ple, or government auctioning of permits to emit a fixed quantity of pollu-tants within a locality or along a river.

Basically, market incentives impose prices upon unwanted outcomes.Firms find that creating such outcomes is costly and will seek ways to reducethem. In the process, decisions on how to correct unwanted side effects andthe pace of corrections are decentralized.

Both the advantages and the problems associated with various incentive-oriented approaches have been extensively discussed elsewhere. For manyreasons these approaches are now used only to a very limited extent. Our Na-tion has approached the problems of environment, health, and safetychiefly through reliance on detailed regulation. A body of law and precedenthas thus been established, and administrative mechanisms created on thebasis of this approach.

The advantages of incentive-oriented approaches seem in this light tolie in supplementing and gradually modifying the regulatory approach,rather than seeking a wholesale substitution of one system for the other. Anexample of a supplemental use of the incentive-oriented approach is thestructure of penalties for violating the automobile fuel efficiency standards.These penalties follow the principle that the size of the fine should corre-spond to the costs imposed on society when a firm violates a standard. Inthis case, the fine on fuel-inefficient automobiles is related to the social costsof the extra gasoline that will be required to operate them.

New Directions in Social Regulation

The Administration is now exploring ways to achieve a better mix ofeconomic and regulatory incentives in several different areas.

In occupational health and safety, the Administration has formed an in-teragency task force to search for better means of achieving goals of the

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Occupational Safety and Health Act. The task force has been asked to ex-amine the use of economic incentives, particularly to promote worker safety.The interagency Resource Conservation Committee is currently studyingthe feasibility and desirability of mandatory deposits on beverage containersto reduce litter. It also is investigating whether fee systems could cut downthe amount of solid waste.

The major use of economic incentives in our current regulatory frame-work is to enforce standards set by legislative or regulatory bodies. Incen-tives take the form of fines or penalties for violations of regulations. Themost effective are those in which the size of the fine and the frequency ofinspection are such that firms will comply before the inspector arrives.

The present penalty structures do not always have this result. Fines forviolations of air and water quality standards have generally been smallcompared with the costs that the violations impose on society. Under theseconditions the penalties can serve their purpose only with frequent enforce-ment. Yet the number of inspectors cannot keep pace with the growth inthe regulations. With generally low penalties and infrequent monitoring,regulatory agencies have turned to such drastic remedies as threateningplant or mine shutdowns to enforce the rules.

Use of penalty fees based on levels of emissions could supplement thepresent arsenal of enforcement techniques and at the same time improvethe efficiency of the regulatory system. For example, properly designed feeswould make processes and commodities entailing severe pollution or serioushazards more expensive, discouraging their use relative to cleaner or saferprocesses. They would also encourage rather than stifle the discovery ofmore effective technologies for curbing socially undesirable side effects.Equally important, fees allow firms more flexibility to plan for the future ina way that threats of more drastic action do not.

The potential advantages of fees in inducing compliance with regula-tions suggest that they should receive greater attention by policy makersthan they have done in the past. Administration efforts last year in thisdirection included a proposed noncompliance fee for industrial point

sources. The current standards of the Federal Water Pollution Control Actare based on the installation of discharge-reducing equipment, but theincentives to maintain that equipment in working order are weak. A non-compliance fee, on the other hand, based on the amount by which actualdischarges exceed allowed amounts, would give firms a strong inducement tooperate the machinery properly. In a similar effort, the Administration ini-tiated a study of economic incentives to control nitrogen oxides as providedfor in the 1977 amendments to the Clean Air Act.

Review and Evaluation of the Regulatory Process

The economic effects of social regulations have rapidly grown more im-portant during recent years, as their number and scope have increased.Regulatory decisions not only determine the speed at which the Nation

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advances toward important achievements in environmental protection,health, and safety; they also substantially affect costs of production, pat-terns of investment, flows of capital, and locational decisions. Indeed, asnoted earlier, the effects of these decisions on the economy now merit asmuch notice as the effects of Federal budgetary decisions.

Improving Federal performance in the regulatory area to minimize thevarious costs of achieving our social goals requires improvements in thedesign and structure of regulations as well as in the way they are arrived atand evaluated. The first necessity is a careful analysis and review of theeconomic issues in the individual regulations, especially the cost-effectivenessof various alternatives. Second, a system must be developed through whichthe total effect of regulations on social objectives and on the economy can bebrought together and assessed.

To improve the economic analysis and review of individual regulations,the Administration has instituted a program that will allow the President'sadvisers to review the consequences to the economy of major proposed reg-ulations. The program requires the preparation of a Regulatory Analysis(RA) for each major regulatory proposal. A review group will examine alimited number of such analyses each year to ensure that full attention isgiven to all feasible alternatives before a regulation is issued. Peer reviewof the regulatory agencies' decisions should improve the effectiveness andeconomic efficiency of the final regulations.

It is not enough, however, to deal solely with individual regulations.Regulatory requirements from different agencies have sometimes conflictedwith each other, and particular industries, firms, or communities are con-fronted with a series of regulatory requirements imposed by different Federalagencies. No one of these may pose serious problems, but taken together theymay have serious economic consequences: increasing costs or requiring largecapital outlays in a short time. There is now no mechanism to assess thesecombined effects and take them into account in regulatory decisions. On alarger scale, there is no institutional framework within the Federal Govern-ment—analogous to the budget for Federal spending programs—in whichthe total costs of regulations are brought together, to permit the evaluationof economic impacts, setting of priorities, and the like.

Several steps are planned or already being taken to develop a carefuland appropriate means of reviewing the comprehensive effects of the regula-tory process. Last year the heads of the four regulatory agencies concernedwith toxic chemicals—the Environmental Protection Agency, the Occupa-tional Safety and Health Administration, the Food and Drug Administra-tion, and the Consumer Product Safety Commission—formed workinggroups that meet regularly to seek a consistent approach to regulation. Earlythis year the President will issue an Executive Order that directs Federalregulatory agencies twice a year to give public notice of the major plannedregulations. Members of the public and senior government officials will thus

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be able to make orderly preparations for participating in the developmentand analysis of the proposed regulations.

Finally, the President has directed his advisers to explore means by whichthe overall effects of Federal regulations can be regularly reviewed andjudged within the executive branch. Particular attention must be paid toavailability of data and to the legal and institutional characteristics of reg-ulatory programs. In view of the importance of regulatory programs, how-ever, improving the Government's ability to understand both their economicand their social effects is a crucial need.

TAX REDUCTION AND REFORM

The Administration's tax proposals are designed to aid continued eco-nomic recovery and achieve important tax reforms. The tax relief thatthese proposals provide is tied closely to the tax reform elements of thepackage. In general the reform measures increase the amount of incomesubject to taxation by eliminating various forms of deductions and exclu-sions. The attendant tax increases are more than offset by lower tax rates.The net result for calendar year 1979 will be a reduction in Federal taxliabilities of about $25 billion. Individual tax liabilities will decline by $16.8billion, the net effect of $23.5 billion of gross tax reductions and $6.7 billionof revenue-raising reform. Business tax reforms are expected to raise reve-nues by $2.6 billion. These reforms are offset by cuts in the corporate incometax and liberalization of the investment tax credit worth $8.3 billion, thusproviding a net corporate tax cut of $5.7 billion. Special tax reductions ofover $2.0 billion are proposed on excise taxes for telephone services andFederal unemployment insurance taxes in order to reduce prices for con-sumers and costs for businesses. Chapter 2 contains a discussion of the fiscalpolicy issues associated with these tax reductions.

MAJOR INDIVIDUAL INCOME TAX CHANGES

The most fundamental change proposed in the individual income tax isthe replacement of the $750 personal exemption and the general tax creditwith a single per capita tax credit of $240. This change is accompaniedby an across-the-board reduction in tax rates. The new system of personalcredits will replace the current confusing combination of a personal exemp-tion and a credit of $35 per dependent or 2 percent of the first $9,000 oftaxable income and thus simplify tax returns. Moreover, since the tax ratereduction is proportionately larger in low- and middle-income brackets,progressivity of the tax system will be increased. The system of personalcredits also alters the way taxes change with family size. Unlike the currentdeductions for exemptions, under which families in high brackets gain morefrom an additional dependent than those in low brackets, the new credit willprovide the same benefit for an additional dependent at all income levels.

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For a taxpayer with three dependents the personal credit will be worth $960regardless of the income of the family.

Additional personal tax reductions may be enacted as part of the Adminis-tration's energy plan. Under the Administration's crude oil equalization tax(COET) proposal of April 1977, the net proceeds are rebated on a percapita basis to protect consumers' real incomes and to avoid a new source ofrestraint on economic activity. If the final energy bill allows only for a rebatein 1978—as provided in the House version—the Administration intends tosend to Congress a supplemental message recommending that the proposedindividual tax reduction be increased by the amount of the net proceeds ofthe COET.

The tax reform package restructures the system of itemized deductions.Deductions for medical care and casualty losses would be allowed onlyfor extraordinary expenses—combined medical payments and uninsuredcasualty losses in excess of 10 percent of adjusted gross income. Medical andcasualty expenditures should properly be deductible only when they areunusually large and have a significant impact on the taxpayer's ability to pay.The deductions for medical care were originally intended to meet thisstandard, but the changing relation between medical costs and income hasresulted in the deductibilty of amounts that can no longer be consideredextraordinary. Moreover, the current casualty loss provision is a form ofcostless coinsurance that particularly benefits taxpayers in high tax brackets.The new extraordinary expense provision will restore the law to its originalintent and simplify tax computations for many middle-income taxpayers.

Itemized deductions for State and local sales, gasoline, and miscellaneoustaxes are eliminated. Since these deductions are very closely related to in-come, a rate reduction may be substituted for them with very little equity loss.In any case, deductions for gasoline taxes are contrary to our energy goals.

Several reform proposals are directed toward reducing the use of taxshelters and eliminating other means by which high-income individuals avoidtheir fair share of tax. The minimum tax first enacted in 1969 will be strength-ened. Under current law, many tax preferences are subject to the minimumtax of 15 percent, but preference income may be reduced by $10,000 orone-half of ordinary tax liability, whichever is greater, before the minimumtax is applied. The proposed elimination of the optional offset of one-half ofordinary tax liability will increase the ability of the minimum tax to reachsheltered incomes of high-income taxpayers. In addition, the preferential taxrate of 25 percent on the first $50,000 of capital gains will be abolished.Real estate depreciation practices will also be reformed by generally limitingdepreciation deductions to straight line rather than accelerated methods.These and other related proposals will be directed toward broadening theprovisions of the Tax Reform Act of 1976 that were intended to create amore equitable tax structure.

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The Administration's tax package also introduces for the first time a pro-vision for the taxation of unemployment insurance benefits received by high-income families. Unemployment benefits would be taxable for single individ-uals with total income, including unemployment insurance benefits, above$20,000 and for married couples with income above $25,000. For each dollarof income above the threshold, 50 cents of the taxpayer's unemploymentcompensation would be taxable. The current system provides an unwarrantedtax advantage for high-income households in which one family member re-ceives unemployment compensation. Since unemployment compensation isintended to replace lost earnings, it should be taxed in the same way as earn-ings. At the same time, the high threshold for taxation assures that benefitswill not be taxed when a family's income is low.

MAJOR BUSINESS TAX CHANGES

As discussed in Chapter 2, the most important proposal designedspecifically to aid businesses is the 4-percentage point reduction in thecorporation tax rate. As an additional incentive for investment, thepackage also contains proposals to increase the limit on investment taxcredits from 50 percent to 90 percent of tax liability and to extend thecredit to industrial and utility structures as well as equipment. It is furtherproposed that the current 10-percent level be made permanent instead ofreverting to 7 percent in 1981. These changes in the investment tax creditwill reduce the cost of new investment and make future tax treatment lessuncertain, thereby creating incentives for additional capital formation. Be-cause investment in industrial structures has grown much more slowly thaninvestment in equipment since 1973, the move toward equal treatment ofstructures and equipment should be particularly beneficial. As a means ofpromoting investment in urban areas, rehabilitation expenses for qualifiedstructures will be eligible for the tax credit.

Business tax reforms include the repeal of business deductions for alarge class of expenses, covering such items as yachts, club dues, tickets to thetheater and sporting events, and the difference between first-class and coachairfare. The deduction for business meals would be reduced from 100 per-cent to 50 percent. In many cases these expenditures are a form of taxexempt compensation that provides little or no business benefit. Elimina-tion of these deductions will be a highly visible improvement in tax equityand wall ultimately improve overall economic efficiency.

Financial institutions now have a favored tax status that is greatly in needof revision. Deductions that commercial banks, mutual savings banks, andsavings and loan associations are permitted to make for deposits into baddebt reserves are considerably higher than the amount necessary to coveractual losses; credit unions are totally exempt from income taxes. The pro-posed reforms will reduce excessive deductions for bad debt reserves and willtax credit unions in the same manner as mutual savings banks and savingsand loan associations.

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The tax reforms of international business include phasing out preferentialtax treatment for domestic international sales corporations (DISCs) over a3-year period and also gradually eliminating the deferral of taxes on profits ofdomestically controlled foreign corporations. A DISC is a subsidiary setup to receive export-related income; current law allows a DISC to defertax on half its income. This tax preference—enacted in the waning days ofthe fixed exchange rate system in 1971—was originally intended to encour-age increased exports. But since most of the benefits accrue to corporationsthat would export in any case, the small export benefits generated by DISCsare extremely costly. A recent Treasury study estimated that the tax prefer-ence for DISCs contributed only $1 billion to $3 billion to U.S. exports in1974 at a cost of $1.2 billion. Such a special tax preference is particularlywasteful in a world with flexible exchange rates. Its overall effect on thetrade balance will eventually be offset by induced exchange rate changes.The only lasting effect is an increase in production by industries that cantake advantage of the DISC tax preference and a reduction in the outputof all other industries.

Disallowing the deferral of taxes on income of U.S. controlled foreign cor-porations will equalize the tax treatment of domestic and overseas branchesof U.S. businesses. It will allow the repeal of the complex legislation con-trolling tax havens and reduce the incentive to distort the allocation of profitsbetween parent companies and their subsidiaries.

TAX TREATMENT OF MUNICIPAL BONDSThe Administration's tax package also proposes a fundamental change in

the treatment of debt instruments issued by State and local governments.Under the taxable bond option State and local governments will be given thechoice of issuing either taxable bonds that will receive an interest subsidyfrom the Federal Government or conventional tax exempt bonds. The sub-sidy rate on taxable interest, 35 percent in 1979 and 1980 and 40 percentthereafter, will lower the borrowing costs of State and local governments.Currently, issuers of tax exempt bonds pay 30 to 35 percent less interest thanthat on comparable taxable bonds. The taxable bond option will increase thisdifference to 40 percent in 1981. The larger difference between the yields oftaxable and tax exempt bonds will reduce the value of this tax preference towealthy holders of the tax exempt issues.

DISTRIBUTIONAL ASPECTS OF INCOME AND SOCIAL SECURITY TAXCHANGES

The tax reform package has been designed to improve the distributionof the individual income tax burden. The three major elements—the per-sonal credit, the revised rate structure, and the reduction in itemized deduc-tions—significantly increase the progressivity of the individual income taxstructure. The effect of these three changes is illustrated in Table 34, whichshows tax reductions for a family of four at several levels of adjusted grossincome. Under current law, a four-person family claiming only the standard

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TABLE 34.—Income tax liability for one-earner four-person families

{Dollars, except as noted]

Adjusted gross incomePresent

law tax *Proposed

tax 2Changein tax

Change in taxas percent

of before-taxincome

5,000.10,00015,00020,00025,00030,00040,000

- 3 0 0446

1,3302,1803,1504,2326,848

- 3 0 0134

1,0721,9102,8303,9106,630

0- 3 1 2- 2 5 8- 2 7 0- 3 2 0- 3 2 2- 2 1 8

0- 3 . 1- 1 . 7- 1 . 4- 1 . 3- 1 . 1- . 5

1 Assumes the greater of the standard deduction or deductible expenses equal to 23 percent of income.2 Assumes the greater of the standard deduction or deductible expenses equal to 20 percent of income.Source: Department of the Treasury.

deduction begins paying income tax when its income rises above $7,200per year. With the proposed changes, the same family would pay no taxif its yearly income was $9,256 or less. The greatest relative reductionsoccur in the low-income brackets. For a four-person family earning $10,000,income tax liability falls 70 percent from $446 to $134 a year. A family offour earning $15,000 annually would have its taxes cut from $1,330 to $1,072,or 19 percent.

Table 35 illustrates the combined effects that the tax reform package andthe recently enacted changes in social security taxes will exert on aggregatetax liabilities by income class. Tlje combined effect is progressive, as shownby the final column of the table. Taxpayers with expanded incomes below$20,000, who earn approximately 56 percent of income, will receive 77 per-cent of the net tax reduction. This calculation ignores the progressivity of

TABLE 35.—Estimated tax changes resulting from tax reform proposals and socialsecurity amendments

(Billions of dollars, except as noted]

Expanded incomeclass

(thousands ofdollars)

55-1010-1515-2020-3030-5050-100100-200200 and over

Total

Tax liability undercurrent law:

individual incometaxes and socialsecurity taxes1

Amount

3.015.027.532.342.125.317.48.36.5

177.4

Percentdistribution

1.78.5

15.518.223.714.39.84.73.7

100.0

Individual and social security taxchanges

Total taxchange

- 0 . 3- 1 . 5- 2 . 3- 2 . 3- 2 . 1- . 5

.0

.2

.4

- 8 . 3

Tax reform

- 0 . 4- 1 . 9- 2 . 7- 2 . 9- 3 . 2- 1 . 0- . 1

.2

.4

-11.7

Socialsecurity2

0.1.3.5.5

1.1.6.2.0.0

3.3

Tax liability underproposed individual

income tax andsocial security tax

Amount

2.713.525.230.040.024.817.58.56.9

169.1

Percentdistribution

1.68.0

14.917.723.714.710.35.04.1

100.0

1 Employees' share of social security taxes calculated assuming former wage ceiling for 1979 ($18,900) andformer tax rate (5.85 percent). Employers' share of social security tax not included.

2 Employees' share calculated assuming current wage ceiling for 1979 ($22,900) and 1979 tax rate(6.13 percent). Employers' share of social security tax not included.

Note.—Calculations based on 1976 levels of income and 1979 tax law.

Source: Department of the Treasury.

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social security benefits and the income distribution effect of business taxchanges. At least as important as this gain in progressivity, however, is theprogress toward other goals that the Administration's tax program will helpto achieve: tax reform, tax simplification, solvency for the social securitysystem, stimulation of aggregate demand, incentives for investment, andmaintenance of the economic expansion.

INCOME MAINTENANCE

The publicly financed income maintenance system in the United Statesis composed of two essential elements: social insurance programs that pro-vide partial replacement of earnings lost because of retirement, disability, ortemporary unemployment; and public assistance, or welfare, programs forthose unable to earn their own living—that is, the aged, the blind, thepermanently disabled, and dependent children whose parents are unableto support them. The social insurance programs—principally social securityand unemployment compensation—are financed on a pay-as-you-go basiswith earmarked payroll taxes. While these programs are not funded onstrictly actuarial principles and certain of their benefits have the character-istics of public assistance, they have traditionally been viewed by the publicas insurance systems. Apart from limitations on earnings, recipients arenot subjected to an income test as a condition of payment, and benefits aregenerally considered to be an earned right and carry no stigma of publiccharity. Public assistance programs, on the other hand, are financed out ofgeneral revenues. The benefits are income-tested and hence generally avail-able only to the low-income population.

Total expenditures for income maintenance have risen from about 4percent of GNP in 1940 to nearly 10 percent in fiscal 1977. The socialinsurance programs account for about three-fourths of this total, andsocial security is by far the largest single program. The Federal Gov-ernment finances nearly all the expenditures for social insurance and abouttwo-thirds of those for public assistance.

Two important changes in the income maintenance system were enactedduring 1977. The Food and Agriculture Act of 1977 made certain structuralmodifications to the food stamp program, and the Social Security Amend-ments of 1977 assured the continued financial viability of the social securitysystem. In addition, the Administration proposed a major new initiative—the Program for Better Jobs and Income—to consolidate and rationalizethe several disparate components of the welfare system.

THE FEDERAL WELFARE SYSTEM

The principal public assistance programs created by the Social SecurityAct of 1935 were aid to families with dependent children, aid to the blind,and old age assistance. Since then, these programs have been expandedand new ones have been enacted. Following is a brief summary of the majorFederal welfare programs in existence today (Table 36).

221

248-947 O - 78 - 15


TABLE 36.—Government income maintenance programs

Program

Social insurance:

Old age and survivors insurance...MedicareUnemployment insuranceDisability insuranceWorkmen's compensationVeterans' compensationRailroad retirementBlack lung

Public assistance:

MedicaidAid to families with dependent

childrenSupplemental security incomeFood stamp programChild nutritionVeterans' pensionsHousing assistanceBasic opportunity grantsGeneral assistance.Earned income tax credit

Dateenacted

19351965193519561908191719371969

1965

1935197219641946193319371972

<2>1975

Form of aid

Cash _In-kindCashCashCashCashCashCash

In-kind

CashCashIn-kindIn-kindCashIn-kindCashCashCash

Source of funds

FederalFederalFederal-StateFederal . . .Federal-State...FederalFederalFederal

Federal-State

Federal-StateFederal-StateFederalFederalFederalFederal .Federal . . _State.Federal

Fiscal year 1977

Benefltpayments

(billions ofdollars)

71.320.814.311.16.75.73.81.0

16.3

9.86.25.03 53.13.01.41.31.3

Beneficiaries(millions)

28.5125.4

9.84.72.63.51 0

21.6

11.24.3

17.128.03.47.12.0.9

6.3

1 Eligible to receive benefits as of July 1,1977.2 Varies by State.

Sources: Department of Agriculture, Department of Health, Education, and Welfare, Department of Housing and UrbanDevelopment, Department of Labor, Department of the Treasury, and Office of Management and Budget.

Aid to Families with Dependent Children

Aid to families with dependent children (AFDC) is a joint Federal-State program that provides cash assistance to families with children under18 years of age needing support because of the death, prolonged absence,or incapacity of one or both parents. At the States' option, and provided cer-tain conditions are met, assistance may also be made available to familieswhere both parents are present but the father is unemployed (AFDC-UF).As of 1977, 26 States and the District of Columbia operated such programs;the total number of participating families averaged about 170,000 permonth during fiscal 1977. AFDC payment standards for basic needs are de-termined separately by each State; in July 1977 the largest payments for afamily of four ranged from $720 a year in Mississippi to $6,396 in Hawaii.Benefits are reduced by 67 cents for each dollar of monthly earnings over$30 and after liberal deductions for work expenses. Certain recipients ofAFDC are required to register with the work incentive (WIN) programand must accept suitable offers of employment or training. The FederalGovernment finances about 54 percent of total AFDC expenditures; theremainder is paid for by the States and a few localities.

Supplemental Security Income

Supplemental security income (SSI) is a Federal program that furnishescash assistance to the aged, blind, and disabled. SSI was created in 1972 toreplace the existing joint Federal-State programs providing assistance to

222


these groups. Basic annual SSI payments are about $2,100 for an individualand about $3,200 for a couple; benefits are reduced by 50 cents for eachdollar of earnings in excess of $65 a month. The basic SSI benefit is uniformacross the country and entirely paid for by the Federal Government; manyStates, however, continue to provide supplementary support to SSIrecipients.

Food Stamps

The food stamp program provides the needy with a monthly allotmentof coupons that can be used only to purchase food. This program is the onlyform of public assistance that is universally available to all low-income in-dividuals, regardless of their family or employment status. The maxi-mum allotment of food stamps for a family of four with no other incomewas $2,088 in 1977, and this is reduced by 30 cents for each dollar of netincome received. With certain exceptions, able-bodied adult recipients offood stamps are required to register for work and must accept suitable offersof employment. The Federal Government bears the entire cost of food stampbenefits and shares administrative expenses with the States.

Medicaid

Medicaid is a Federal-State program that provides free medical servicesto the low-income population. Individuals are categorically eligible formedicaid benefits if they also participate in AFDC or SSI—or, in States withprograms for the "medically indigent," if they meet an income test. InStates without programs for the medically indigent, once individuals becomeineligible for public assistance, they also lose all medical benefits. Benefitsvary significantly among the States, ranging from an estimated average in1975 of $334 per family in Mississippi to $1,824 in New York. The Fed-eral share of medicaid payments is always at least 50 percent but may besubstantially higher in States with low per capita income.

Housing Assistance

A variety of Federal programs provide housing assistance to low-incomefamilies, including low-rent public housing, interest rate subsidies for homeownership, and rental subsidies. The newest and most active program wascreated in 1974 by an amendment to the Housing Act of 1937 (section 8).This program provides subsidies to families who occupy new or existingrental units, and whose incomes are less than 80 percent of the medianincome for the area at the time of application. Of the families that meet theincome test, those that belong to specified categorical groups or meet certainother criteria actually participate in the program. About 8 percent of thefamilies potentially eligible in 1976 on the basis of their incomes were esti-mated to have received section 8 assistance. In general, participating familiespay 25 percent of their gross income in rent to eligible landlords, and theFederal Government makes up the difference between this amount and the

223


local area "fair market rent/5 as established by the Department of Housingand Urban Development. Because of large geographic differentials in housingcosts, section 8 subsidies vary significantly among the States and may reachseveral thousand dollars in some areas.

Earned Income Tax Credit

The earned income tax credit (EITC) was enacted by the Tax Reduc-tion Act of 1975, principally to ease the burden of rising payroll taxes onlow-income taxpayers. The EITC is available only to families with at leastone dependent child or a disabled adult claimed as an exemption. The creditis equal to 10 percent of the first $4,000 of earnings, and it is reduced by 10percent of the difference between total income and $4,000. Hence theEITC reaches a maximum of $400, and it phases out completely for thosewith incomes above $8,000. If the amount of the credit exceeds total taxliabilities, the difference is refunded to the eligible family, provided it filesa tax return.

PROBLEMS WITH THE PRESENT WELFARE SYSTEM

Adequacy

Some critics of the welfare system contend that it provides inadequate sup-port, while others believe it is too generous. The official poverty income levelwas defined by the U.S. Census Bureau to average $5,815 for a nonfarmfamily of four in 1976. Though this concept suffers from certain difficulties indefinition and measurement, it is the most widely accepted indicator of mini-mum income adequacy in the United States. According to estimates of theCongressional Budget Office, some 21.4 million families would have hadincomes below the poverty level in fiscal 1976 if no income transfer programshad been in existence (Table 37). If cash benefits of both the social insur-ance and the public assistance programs are added to other sources of income,the number of families with incomes below the poverty level is reduced byabout 50 percent to 10.7 million. If in-kind transfers (for example, foodstamps, medicaid, housing assistance) are also counted as income and taxesare netted out, the decline in the number of poor families is even more strik-ing. Under this comprehensive definition of income, 6.6 million familiesremained below the poverty line in 1976.

Inclusion of in-kind benefits in the measure of income is controversialand almost certainly overstates the value of such transfers to recipients.Recipients have been found to value cash more highly than in-kind benefitsbecause it affords relatively greater freedom of choice in the disposition oftheir income. Medical benefits are a particularly controversial item becauseof the difficulties in allocating them to the low-income population and be-cause their inclusion seems to imply that the more illness people suffer, thebetter off they are. Nevertheless, those who are entitled to receive freemedical assistance are undoubtedly made better off as a result, and it wouldbe inappropriate to ignore such benefits in a comprehensive measure of

224


TABLE 37.—Families below the poverty level before and after the effects ofincome maintenance programs and taxes, fiscal year 1976x

Kind of family

All families:

Number (millions)Percent of all families _.

Single-person families:

Number (millions)Percent of single-person

families

Multiple-person families:

Number (millions) _Percent of multiple-person

families

Families below the poverty level, based on income

Before taxesand beforetransfers

21.427.0

10.3

47.8

11.1

19.2

Before taxesand after

cashtransfers2

10.713.5

5.4

25.0

5.3

9.2

Before taxes and after cashand in-kind transfers3

Excludingmedicalbenefits

9.011.3

5.0

23.2

4.0

6.9

Includingmedicalbenefits

6.48.1

3.5

16.4

2.9

5.0

After taxes and after cashand in-kind transfers4

Excludingmedicalbenefits

9.211.5

5.1

23.8

4.0

7.0

Includingmedicalbenefits

6.68.3

3.7

17.0

2.9

5.1

1 Data based on 1975 Current Population Survey, with adjustments to reflect underreporting of income and changes inthe characteristics of the population between the survey year (calendar year 1974) and fiscal year 1976.

2 Cash transfers include payments under government-financed social insurance and public assistance programs.3 In-kind transfers include food stamps, child nutrition assistance, housing assistance, medicare, and medicaid.4 Taxes include Federal personal income and employee payroll taxes and State income taxes.

Source: Congressional Budget Office.

income. Table 37 presents changes in the number of families below thepoverty level when medical benefits are included in income and when theyare not. Exclusion of medicaid and medicare increased the total number offamilies below the poverty line in 1976 by an estimated 2.6 million.

On balance, regardless of whether in-kind transfers are included inincome, the present income maintenance system significantly improves thedistribution of income that would otherwise exist. Nevertheless, furtherprogress is still necessary before poverty in the United States is completelyeradicated.

Equity

Even among those who consider benefit levels to be adequate, it is gen-erally agreed that a serious fault of the present welfare system is the differenttreatment it accords to people with similar needs. Benefit levels vary widelyamong States and among different demographic and family groups. Geo-graphic differentials arise primarily because benefits under the two majorpublic assistance programs—AFDC and medicaid—are essentially controlledby the States. As a result, sharp disparities in benefit levels exist between thepoorer, rural States and the wealthier, more urban areas. These differ-ences are mitigated somewhat by the existence of the Federal food stamp

225


program, which adds substantially to AFDC benefit levels in low-incomeStates. Nevertheless, Table 38 shows that in 1976 a single-parent familyof four with no earnings could obtain combined welfare benefits in New YorkCity that were more than 2J/2 times larger than those available to thesame family in Mississippi. This disparity is much greater than can be ex-plained by regional differentials in the cost-of-living. Such disparities inthe distribution of benefits are inequitable in and of themselves and createincentives for migration from low-benefit to high-benefit States.

The variety of public assistance programs and the ways in which they cate-gorize recipients also result in differential treatment of families and demo-giaphic groups. Since AFDC payments are restricted to families in which thefather is absent (or, in 26 States, unemployed), the income of a two-parentfamily of four, with one parent working full time at the minimum wage, was

TABLE 38.—Comparison of public assistance benefit levels with alternative incomestandards, family of four, 1976

Item

Median four-person family income... __. _

Bureau of Labor Statistics low-income budget __

New York City family with AFDC, food stamps, medicaid _

Illinois family with AFDC, food stamps, medicaid _

Family earning full-time minimum wage, plus food stamps and earned income tax credit

Official poverty line

Texas family with AFDC, food stamps, medicaid

Mississippi family with AFDC, food stamps, medicaid

Two-parent family with food stamps only (all States). _.

Level (dollars)

17,315

10,040

8,302

6,412

5,958

5,815

4,174

2,914

1,992

Note.—Data relate generally to mid-1976.

Sources: Department of Ccmmerce, Department of Health, Education, and Welfare, and Department of Labor.

only slightly above the poverty level in 1976, even after supplementationthrough food stamps and the EITC. In contrast, in many States a motherwith three children can receive welfare benefits that are well above thepoverty line (Table 38). Moreover, if the two-parent family of four has noearnings and resides in a State without an AFDC-UF program, it is eligibleonly for food stamps, unless the father should desert the family. Needlessto say, such disparities are highly inequitable, discourage work effort, andcreate incentives for disintegration of families.

The welfare system also discriminates against childless couples and singleindividuals who are not aged. Federal income support for these groups islimited to food stamps worth a maximum of $624 per year per individual.Hence, the level of public assistance for many poor people is clearly inade-quate. Finally, access to certain in-kind programs is restricted by categoricaleligibility requirements (medicaid) or by limited supplies (section 8 housing

226


allowances and day care), and inequities therefore arise. Since the cashvalue of in-kind assistance can amount to several thousand dollars, theresulting differences in benefits can be very large.

Work Incentives

The current welfare system discourages work in several ways. First, in-adequate employment and training opportunities for the poor severely limittheir chances to enter the work force and become fully productive mem-bers of society. Second, as already noted, in many States earnings from aminimum wage job plus food stamps amount to less than the welfare bene-fits available to a family of equal size where no one works. Third, both themedicaid and AFDG programs have severe "notches," creating situationswhere a small increase in earnings can cause recipients to lose their bene-fits entirely and thus to be worse off as a result of their extra work. Finally,since all the welfare programs are income tested, an extra dollar of earnings(after deductions for work-related expenses) yields less than a dollar of netincome. This loss in benefits per dollar of additional earnings is called thebenefit reduction rate, or marginal tax rate, and the higher this rate is,the smaller the reward for working. No single program has a benefit reduc-tion rate on earned income that exceeds 70 percent. But for poor peoplewho participate in more than one program, the benefit reduction rates ofall the programs cumulate to yield a much higher total rate. In addition,workers must pay social security taxes on the first dollar of earnings, andeventually Federal (and perhaps State) income taxes as well. The net resultin some cases can be marginal tax rates that exceed 100 percent, so thatdisincentives to work are strong.

Administrative Inefficiency and Complexity

The welfare system is both inefficient and exceedingly complex. Admin-istrative expenses account for large portions of the total budgets for thevarious programs, and error rates are high. Because the system is slow to re-spond to the needs of recipients, they become frustrated and their rates ofparticipation may decline as a result. In addition, administration of the wel-fare system is split among several units of government, and the programsoperate with a variety of different benefit structures, accounting periods,filing unit definitions, and work requirements.

Fiscal Burdens

The Federal Government currently pays about two-thirds of total* welfarecosts, the remainder being spread over State and local governments, prin-cipally in the AFDC and medicaid programs. However, a small number ofStates and localities (mainly in the North and Northeast) bear a heavy shareof this burden, a development that has contributed to their precariousbudgetary situations. The variation in benefit levels that exists has also en-couraged migration of poor people to areas where the payments are highest,

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This in turn has led to a further deterioration of the financial condition ofthese governmental units. Of course, these differences in welfare expendituresimplicitly reflect the particular preferences of States and localities regard-ing the level of income support they wish to provide. Nevertheless, if asystem of income maintenance for the poor is viewed as a truly nationalresponsibility, the burden of supporting it should be equitably distributedamong the States on the basis of ability to pay.

Policy Control and Responsiveness

As noted above, control over the income maintenance system is frag-mented and many low-income persons do not receive satisfactory coverage.As a result, the Nation does not have a tool to deal with the effectsof other national policies on the distribution of income. For example, theproposed tax on crude oil contained in the National Energy Plan would, byraising prices of energy, have a significant impact on real incomes of thepoor. Yet there exists no simple and efficient mechanism to neutralize theseadverse effects. While little thought has been given to this shortcoming inour income security system, it may be the one that causes the most hardshipto the poor.

CHANGES IN THE FOOD STAMP PROGRAM

The Administration proposed significant changes in the food stampprogram as a first step toward reform and rationalization of the welfaresystem. The Congress adopted most of the proposals and extended theprogram for 4 years in the Food and Agriculture Act of 1977. The changesincluded in the 1977 act are generally designed to achieve a more efficientoperation of the food stamp program, to permit more individuals who aregenuinely poor to participate in the program, and to reduce the availabilityof food stamps to those with higher incomes. Eligibility for food stamps isdefined more clearly in the 1977 act than previously, and participation islimited to those households whose income net of certain deductions is belowthe poverty level. In addition, the system of deductions used to arrive atnet income is simplified. The most significant reform in the 1977 legisla-tion was the elimination of the purchase requirement. This feature of the oldprogram required recipients to pay cash for their food stamp allotments.The net benefit, or "bonus value," was the difference between the facevalue of the stamps and their purchase price. Under the new law, thebasic allotment is simply equivalent to the bonus value. Because recipientsno longer have to buy their food stamps, for a given total income, includingfood stamps, the amount of their disposable cash income will increase andthe amount of coupons exchangeable only for food will decline.

THE PROGRAM FOR BETTER JOBS AND INCOME

The Administration's Program for Better Jobs and Income (PBJI)is a job-oriented proposal designed to replace the existing welfare system

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with a comprehensive approach to income security for the low-incomepopulation. The new program would provide jobs and employmentservices for those who are able to work, income supplementation and strongwork incentives for those who work but whose incomes are inadequate tosupport their families, and cash assistance for those who cannot work becauseof age, disability, or family circumstance. If enacted, the program wouldbecome fully operational in fiscal 1982. The major features of PBJI aredescribed below.

Employment Opportunities

A central element of the proposed PBJI is to be an expanded effort to findjobs in the private and regular public sectors for low-income persons whoare able to work. Prime sponsors under the Comprehensive Employmentand Training Act (CETA), State employment service agencies, and com-munity based organizations are expected to play important roles in assuringthat a full array of employment and training services is made available tothese individuals. When principal wage earners in low-income familieswith children cannot find regular employment, PBJI would provideup to 1.4 million full- and part-time special public service jobs and trainingslots. The new public service job program is carefully structured to avoiddisruptive effects on the private economy. Applicants would be requiredto engage in an intensive 5-week search for regular employment beforebecoming eligible for a special public service job. The jobs themselves wouldbe temporary and participants must continue to search for a regular job.To minimize adverse effects on private labor markets and ensurethat jobs in the private sector are more attractive than the specialpublic service jobs, the basic wage rate would be kept at or slightly abovethe minimum wage. Moreover, holders of these jobs would not be eligiblefor the earned income tax credit. Finally, it is intended that the job andtraining opportunities in this new program would provide useful skills andwork experience to the participants, thus making them better able to obtainemployment in the regular economy. Additional discussion of the publicservice employment component of PBJI is contained in Chapter 4 of thisReport.

Cash Assistance and Work Incentives

SSI, food stamps, and the Federal share of AFDC would be consolidatedinto a single Federal system of cash assistance. The Federal benefit structurewould be divided into two tiers: an upper tier for those not expected to work(i.e., the aged, blind, disabled, and single-parent families with children under7 years), and a lower tier for those who are expected to work (two-parentfamilies, single-parent families with older children, single individuals, andchildless couples). Families in the second category could move to the uppertier if neither parent could find work after 8 weeks of search. If a job were

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found but refused, the family would remain on the lower tier. Adults insingle-parent families where the youngest child is between 7 and 13 yearsof age would be expected to work during school hours. They would initiallyreceive the upper-tier benefit, but if they refused an appropriate part-timejob they would receive the lower-tier benefit.

On the upper tier, the basic Federal benefit in 1978 dollars would be$2,500 for an aged, blind, or disabled individual, and $4,200 for both asingle-parent family of four and a two-parent family of four, if after a periodof intensive job search the family head was unable to find a regular job.The level of benefits for a family of four is approximately 65 percent of theprojected poverty threshold in 1978; it exceeds the value of food stampsplus the Federal share of AFDC in all but one State. The four-personfamily on the upper tier would cease to be eligible for benefits whenearned income reached $8,400. On the lower tier, the basic benefit wouldbe $1,100 for a single individual and $2,300 for a two-parent family offour. Single individuals would become ineligible for cash assistance atincomes above $2,200, while working families of four would become in-eligible at incomes above $8,400.

The two-tier benefit structure is designed to encourage work and ensurethat the focus of aid to needy families is on employment, not welfaredependency. The minimum income guarantee on the lower tier providesstrong incentives to work, while successful implementation of the employ-ment aspects of the program would assure that the incomes of families inthese categories need not remain at such low levels. Adults in families inthe expected-to-work category would be given lower cash benefits if theydo not work or if they refuse an appropriate job offer. Once a job is taken,the first $3,800 of earnings would be disregarded in calculating their Federalbenefit; that is, recipients would face a zero marginal tax rate on those earn-ings. Thereafter benefits are reduced by no more than 50 cents for eachadditional dollar earned above $3,800, or by no more than 52 cents foreach additional dollar in States that supplement the basic benefit level.For those who are not expected to work, there would be no earnings dis-regard, and benefit reduction rates could range from 50 percent to 70 per-cent, depending on the benefit reduction rates applied by States that supple-ment the Federal benefit. Single-parent families with young children wouldbe permitted a special deduction to pay for child care.

In addition to the incentives built into the cash benefit structure, theearned income tax credit would be expanded to increase the re-wards for working and to achieve better integration of the welfare systemand the personal income tax structure. For a family of four, the existing10-percent credit on earnings up to $4,000 would be supplemented by anadditional 5-percent credit on earned income between $4,000 and $9,100,approximately the point at which such a family would become liablefor Federal income taxes as a result of the proposed tax reform measures

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discussed in this chapter. The credit would then decline by 10 percentof the excess of actual income over $9,100. Hence the new EITC wouldreach a maximum of about $650 and phase out entirely at an incomeof about $15,650 for a family of four. As already noted, those working in thespecial public service jobs would not be eligible for the E I T C This exclu-sion creates an incentive for holders of the special public service jobs tosearch for work in the private or regular public sector.

Existing eligibility criteria for medicaid are to be preserved temporarily byPBJL While the medicaid notch would therefore remain as a disincentiveto work, the forthcoming national health insurance proposals are expectedto address this issue.

To summarize, the Program for Better Jobs and Income is designed toprovide employment opportunities and strong incentives for those who canwork, and adequate cash assistance to those who cannot find a job or areotherwise unable to work. Consolidation of the three public assistance pro-grams into a uniform Federal system would improve administrative efficiencyand create a structure where error and fraud are less likely. Federal incomesupport would be extended for the first time to all needy two-parent families,single individuals, and childless couples, thereby eliminating a major inequityin the current system and reducing the incentives for families to separate. Byinstituting a Federal floor under the incomes of the poor, benefit disparitiesamong the States would be substantially diminished. Finally, the provisionof cash supplements would be fully integrated with employment and train-ing programs.

State Supplementation and Fiscal Relief

While an important long-run dbjective of welfare reform is to create auniform system of benefits, it cannot be achieved overnight. Raising allbenefits to the levels in the high-benefit States would be too costly, andlowering all benefits to the levels in the low-benefit States would cause severehardship. Hence there is a strong case for allowing States to supplement thebasic Federal benefit. To provide fiscal relief for States and localities, whileencouraging a more uniform national system, the Federal Governmentwould share in the cost of supplementation. The new program providesthat, under certain conditions, the Federal Government would pay 75 per-cent of the cost of supplementing the benefits of a family of four between$4,200 and $4,700, and 25 percent of the cost of supplementing from $4,700to the poverty line. The conditions are that the supplements must employthe new Federal eligibility standards and that the benefit reduction rateafter supplementation must not exceed 52 percent for those expected to work,and 70 percent for those not expected to work. Federal sharing in the costof such matching supplements would help States maintain existing benefits,while encouraging them to move toward a structure that embodies the goalsof the new Federal program.

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It is estimated that State and local governments would realize savingsof about $2 billion on their 1978 welfare expenditures if the Programfor Better Jobs and Income were fully operative this year. The States thathave traditionally had the highest welfare expenditures—California, Illinois,Massachusetts, Michigan, New York, and Pennsylvania—would realize sav-ings of more than 20 percent on their outlays.

Distributional Implications

The three main components of PBJI—employment opportunities,cash assistance, and expansion of the EITC—would have differenteffects on the distribution of income. Because disparities in benefitlevels among States and demographic groups would be reduced, overtwo-thirds of the cash assistance benefits would go to families withincomes below $5,000. The public service jobs and training programs wouldprovide a higher fraction of benefits to families farther up the income dis-tribution because these jobs are available to primary earners in families withchildren. Nonetheless about half of the wages paid to holders of specialpublic service jobs would go to families with income under $5,000. Theexpansion of the earned income tax credit would provide benefits to familieswell up in the income distribution. In fact the maximum benefit for afamily of four is reached when annual earnings are $9,100. The purposeof this component, however, is not to provide basic income support but toalleviate the burden of payroll taxes and generally improve work incen-tives for low- and middle-income families. It is estimated that all threecomponents combined would reduce the number of families with incomesbelow the poverty line by about 1.6 million.

THE SOCIAL SECURITY SYSTEM

Four separate programs together comprise the social security system: oldage and survivors insurance (OASI), disability insurance (DI), hospitalinsurance (HI), and supplementary medical insurance (SMI). OASI andDI are cash benefit programs that replace earnings lost because of retire-ment, disability, or death; HI and SMI, which are also known as medicare,provide payments for medical services to the elderly and to disabled work-ers. OASI, DI, and HI are financed by specific payroll taxes levied onemployees, their employers, and the self-employed. For 1978 the combinedsocial security tax rate (OASDHI rate) is 12.1 percent and is appliedagainst earnings of covered workers up to a maximum of $17,700. About90 percent of all wage and salary earners are currently covered by socialsecurity and therefore subject to mandatory payroll taxes. The major excep-tions are Federal Government employees, about 25 percent of State andlocal government employees, and some employees of nonprofit institutions.Approximately 106 million workers contributed to the system in 1977 and

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total OASDHI tax revenues were $93 billion. Participation in the SMIprogram is voluntary; benefits are financed partly through premiums paidby current beneficiaries and partly out of general revenues.

Benefits under the OASDI programs are calculated according to a pro-cedure that takes into account the average lifetime earnings, age, and othercharacteristics of recipients. The benefit formula is progressive and pro-duces proportionately smaller benefits as earnings rise. That is, while high-wage workers receive larger dollar benefits than low-wage workers, benefitsas a percentage of preretirement earnings decline as a worker's average wageincreases. For example, the "replacement rate" (first-year benefit as a per-centage of earnings in the year before retirement) of a 65-year-old maleretiree wrho has a dependent spouse, and always earned one-half the medianwage for males, was 90 percent in 1977; the replacement rate for a similarretiree who always earned the maximum wage subject to social security taxeswas only 50 percent. Benefits under the two medical insurance programs arenot tied to earnings histories but provide reimbursement for medical ex-penses incurred. Table 39 shows the distribution of social security benefitsand recipients among the four programs.

TABLE 39.—Social security benefit payments and beneficiaries, 1977

ProgramNumber of

beneficiaries(millions)2

Total social security..

Old age and survivors insurance (OASI).Reti red workersDependents and survivorsOther

Disability insurance (Dl)Medicare (HI and SMI)

1 Benefits paid in fiscal year 1977.2 OASI and Dl beneficiaries as of September 30, 1977. For medicare, entry represents number eligible to receive

benefits as of July 1, 1977.3 Not applicable.

Source: Department of Health, Education, and Welfare.

The Social Security Financing Problem

In recent years, the OASDI trust funds have been faced with seriousshort- and long-run financial problems. Assets in these two trust funds as apercentage of annual outlays have fallen steadily from slightly over 100percent in 1970 to 41 percent at the end of 1977. Moreover, since 1975current expenditures have exceeded receipts, so that the level of assets hasactually declined. It was estimated that without remedial action, Dl trustfund assets would be exhausted by 1979 and assets in the OASI funddepleted by 1982 or 1983. Since benefits can only be paid out of the trustfunds, depletion would have required new legislation to prevent OASDIrecipients from receiving less than the full amount of benefits to which theywere entitled.

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Several factors explain the recent decline in OASDI trust fund balances.First, since 1972 the benefits for people already retired have beenautomatically indexed to changes in consumer prices and as a result haveincreased sharply and regularly because of the recent high rates of inflation.Second, because of high unemployment and the slow growth in real wagessince 1973, payroll tax receipts have not grown as rapidly as benefit pay-ments. Third, since the late 1960s the number of beneficiaries in the disabilityinsurance program has consistently been higher than expected. Finally, anunintended consequence of the provision in the Social Security Amend-ments of 1972 that adjusts benefit schedules automatically for inflation hasbeen to cause the initial benefits of newly retiring workers to rise somewhatmore rapidly than wages. As a result, initial benefit levels grew by about6 percent more than preretirement wages between 1973 and 1977.

Over the longer term the cash benefit programs were even more seriouslyunderfinanced. Under the intermediate set of assumptions in the 1977 reportof the Social Security Trustees, average OASDI expenditures over the next75 years were estimated to exceed projected payroll taxes by an amountequivalent to about 8 percent of taxable earnings. This outcome wouldhave required a tripling of current OASDI tax rates by the year 2050 tofinance benefits provided under the old law.

Roughly half of the long-range deficit in the OASDI programs wasdue to the interaction between high rates of inflation and a technical flawin the benefit formula under which future retirees received a double adjust-ment for cost-of-living increases. Benefits were first increased as higher pricesproduced higher lifetime earnings.—and therefore higher benefits at retire-ment—and again as the formula used to compute benefits was also adjustedupward to account for inflation. As noted above, this double-indexing pro-cedure was made automatic in 1972; it not only raised the level of newbenefits faster than the growth in average wages, but caused the relationbetween future benefits and preretirement earnings to vary erratically,depending on the relative movements of wages and prices. Under plausibleassumptions about projected rates of wage and price inflation, double-indexing would eventually have caused benefits to exceed preretirementwages for some workers.

The other half of the 75-year deficit was due to a combination of thefuture consequences of the short-run deficit, continued increases in theincidence of disability, and the sharp projected expansion of the retiredpopulation relative to the working population after the year 2010. Todaythere are about 19 persons aged 65 or over for every 100 persons aged20 through 64. In 2030, under the trustees' assumptions, there will beabout 34 persons aged 65 and over for every 100 persons aged 20 through 64.This dramatic change is a result of the combined effects of the decline in thefertility rate (the average number of births a woman can expect to have

234


over her lifetime) and the fact that those born during the post-World WarII baby boom will begin retiring after 2010.


The Social Security Amendments of 1977 were designed primarily toprevent the assets of OASDI trust funds from being depleted in the nextfew years and to eliminate most of the long-range deficit. Since the Con-gress has always believed that the social security system should be fullyfinanced by earmarked payroll taxes, substantial increases in OASDHI taxeswere necessary. The major features of the new legislation are outlined below.

While little could be done to offset the effects of the shifting age dis-tribution of the population, the provision in the old law that double-indexedbenefits for future retirees was corrected. Under the new law, the proceduresthat automatically adjust benefits of current and future retirees for infla-tion are separated, or "decoupled." This change has the effect of eliminatingthe extreme sensitivity of projected benefit levels to assumptions about in-flation and real wage growth. The new system would stabilize initial benefitlevels for a 65-year-old retiree who always earned the average wage atabout 42 percent of earnings in the year prior to retirement, regardless ofthe behavior of wages and prices. As a result, the long-run deficit is cut byabout one-half.

TABLE 40.—Tax rates for social security trust funds, old and new laws, calendaryears 1977-2011

[Percent]

Calendar year

19771978

1979-801981. .1982-8419851986-891990-2010...2011 and after.

1977 .19781979-80 ..19811982-841985...1986-891990-2010....2011 and after.

Total OASI

Prior law

Dl


OASITotal Dl HI

5.856.056.056.306.306.306.456.457.45

4.3754.3504.3504.3004.3004.3004.2504.2505.100

Employer and employee, each

0.575.600.600.650.650.650.700.700.850

0.9001.1001.1001.3501.3501.3501.5001.5001.500

5.856.056.136.656.707.057.157.657.65

iI. 3751.2751.3301.5251.5751.7501.7505.1005.100

0.575.775.750.825.825.950.950

1.1001.100

0.9001.0001.0501.3001.3001.3501.4501.4501.450

Self-employed persons

7.908.108.108.358.358.358.508.508.50

6.1856.1506.1506.0806.0806.0806.0106.0106.000

0.815.850.850.920.920.920.990.990

1.000

0.9001.1001.1001.3501.3501.3501.5001.5001.500

7.908.108.109.309.359.'90

10.0010.7510.75

6.1856.0106.0106.76256.81257.1257.1257.6507.650

0.8151.0901.0401.23751.23751.4251.4251.6501.650

0.9001.0001.0501.3001.3001.3501.4501.4501.450


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To prevent the assets of the DI trust fund from being exhausted, thenew law provides for a reallocation of current-law tax rates among the trustfunds in 1978. To cover the deficits caused by demographic changes and therecent recession and inflation, social security tax rates on employers andemployees are to be raised above those in the old law, beginning in 1979(Table 40). In addition, beginning in 1981 the OASDI rate for the self-employed is to be adjusted to restore its original relationship of one andone-half times the OASDI rate for employees. Finally, the taxable wagebase for employers, employees, and the self-employed is to be increasedabove the levels provided in the old law, beginning in 1979 (Table 41). Thenew legislation maintains the parity principle whereby employers and em-ployees pay taxes on the same amount of earnings.

In 1981, under the new law, a worker with earnings at the taxable maxi-mum of $29,700 would pay social security taxes of $1,975, while a workerearning the projected average wage in covered employment (about$12,000) would pay $797. Altogether the higher tax rates and wage basesare expected to yield $89 billion in new social security tax revenues in the 5years between 1979 and 1983. As noted in Chapter 2, these increases arean important component of the fiscal restraint on the economy that mayhave to be offset by tax reductions if we are to achieve our long-termeconomic goals.

TABLE 41.—Social security contribution and benefit base, old and new laws,calendar years 1977-83

1977197819791980 _.1981 . .19821983

Calendar year

Contribution and benefit base l

Prior law

$16, 50017, 70018,90020,40021,90023,70025,800

Social SecurityAmendments

of 1977

$16, 50017, 70022,90025,90029, 70032,10034,800

i After 1978 under the old law and after 1981 under the new law, based on path of wages projected in the Budget of theUnited States Government, Fiscal Year 1979.


Several changes were also made in the OASDI benefit structure: anincrease in the amount of earnings allowed to retirees aged 65 and overbefore their benefits are reduced; an increase in the bonus for postponingretirement beyond age 65; and a freezing of the regular minimum benefitfor future beneficiaries at its January 1979 level. The bill also provides fora one-time $187-million payment to State and local governments in fiscal1978 to help relieve the cost of their public assistance programs.

Some longer-term issues were not addressed by the 1977 legislation—for example, the differential treatment of one- and two-earner households

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in the benefit structure and the interaction between the cash benefitprograms and private retirement systems. But the Social Security Amend-ments of 1977 nonetheless did remove the threat that the cash benefitprograms would actually run out of funds; they corrected an obvious flawin the benefit computation formula; and they reduced the average deficitover the next 75 years from 8 percent to an estimated 1 l/<x percent of payroll.

237

248-947 O - 78 - 16



Appendix A

REPORT TO THE PRESIDENT ON THE ACTIVITIES

OF THE

COUNCIL OF ECONOMIC ADVISERS DURING 1977

239



LETTER OF TRANSMITTAL

COUNCIL OF ECONOMIC ADVISERS,

Washington, D.C., December 30,1977.MR. PRESIDENT:

The Council of Economic Advisers submits this report on its activitiesduring the calendar year 1977 in accordance with the requirements of theCongress, as set forth in section 4(d) of the Employment Act of 1946.

Cordially,CHARLES L. SCHULTZE, Chairman.LYLE E. GRAMLEY.

WILLIAM D. NORDHAUS.

241



Report to the President on the Activities of theCouncil of Economic Advisers during 1977

The membership of the Council of Economic Advisers changed entirelyin January 1977 when the Garter Administration took office. Charles L.Schultze became Chairman of the Council on January 22, 1977, replacingAlan Greenspan, who returned to Townsend-Greenspan, New York. Mr.Schultze had been a senior fellow at the Brookings Institution in Washington,D.C.

Lyle E. Gramley and William D. Nordhaus became Members onMarch 18, 1977, succeeding Burton G. Malkiel, who returned to PrincetonUniversity. Mr. Gramley came to the Council from the Board of Governorsof the Federal Reserve System. Mr. Nordhaus is on leave of absence fromYale University, where he is Professor of Economics and a member of theCowles Foundation for Research in Economics.

Past Council Members and their dates of service are listed below

Name

Edwin G. NourseLeon H. Keyserling

John D. Clark.

Roy Blough..Robert C. TurnerArthur F. BurnsNeil H. JacobyWalter W. Stewart...Raymond J. Saulnier

Joseph S. Davis.Paul W. McCracken...Karl BrandtHenry C. WallichWalter W. HellerJames Tobin _Kermit Gordon..Gardner Ackley

John P. LewisOtto EcksteinArthur M. Okun.

James S. DuesenberryMerton J. PeckWarren L. SmithPaul W. McCracken-...Hendrik S. HouthakkerHerbert Stein.

Ezra SolomonMarina v.N. WhitmanGary L. SeeversWilliam J. FellnerAlan Greenspan..Paul W. MacAvoyBurton G. Malkiel

Position

ChairmanVice ChairmanActing ChairmanChairmanMemberVice ChairmanMemberMemberChairmanMember..MemberMember _ChairmanMemberMember..MemberMemberChairman..MemberMember.MemberChairmanMember.Member.MemberChairman...MemberMemberMember..ChairmanMemberMember.Chairman..MemberMember.MemberMemberChairmanMember..Member

Oath of office date

Augusts 1946.Augusts 1946November 2,1949May 10,1950Augusts 1946May 10,1950June 29,1950September 8,1952March 19,1953...September 15,1953December 2,1953April 4,1955December 3,1956May 2,1955December 3,1956November 1,1958.May 7,1959January 29,1961January 29,1961January 29,1961August 3,1962November 16,1964May 17,1963September 2,1964November 16,1964February 15,1968February 2,1966February 15,1968July 1,1968.February 4,1969February 4,1969February 4,1969January 1,1972September 9,1971March 13,1972...July 23,1973October 31,1973September 4,1974..June 13,1975.July 22,1975. . . .

Separation date

November 1,1949.

January 20,1953.

February 11,1953.August 20, 1952.January 20,1953.December 1,1956.February 9, 1955.April 29, 1955.

January 20,1961.October 31,1958.January 31,1959.January 20,1961.January 20, 1961.November 15,1964.July 31,1962.December 27, 1962.

February 15,1968.August 31,1964.February 1,1966.

January 20,1969.June 30, 1968.January 20,1969.January 20,1969.December 31,1971.July 15,1971.

August 31,1974.March 26,1973.August 15, 1973.April 15,1975.February 25,1975.January 20,1977.November 15,1976.January 20,1977.

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RESPONSIBILITIES OF THE COUNCIL

The principal directive of the Employment Act is that the FederalGovernment "use all practicable means consistent with its needs and obli-gations . . . for the purpose of creating and maintaining . . . condi-tions . . . to promote maximum employment, production, and purchasingpower."

To this end, the Council of Economic Advisers analyzes economic prob-lems and interprets trends and changes in the economy in order to helpthe President develop and evaluate national economic policies. The Councilprepares regular reports on current economic conditions in the UnitedStates and abroad and prepares forecasts of future economic developments.The Council also performs an advisory role within the Executive Officeof the President and participates in interagency groups that analyze eco-nomic problems and develop programs to address them.

During 1977 the Council and its staff contributed to the study of a widevariety of economic issues. An important part of the Council's work duringthe year was to analyze current developments in business activity and eval-uate alternative macroeconomic policies in keeping with the President'sefforts continually to assess his decisions on taxation and expenditures withinthe context of long-run budgetary and economic requirements. The Councilparticipated in the development of such Administration initiatives as wel-fare reform, tax reform, social security financing proposals, the NationalEnergy Plan, agricultural legislation, minimum wage legislation, and urbanpolicy proposals, and played a major role in the development of the Admin-istration's international economic policies.

The Council, in cooperation with other Government agencies, becameactively involved in many different regulatory reform issues. The Regula-tory Analysis Program authorized by the President in 1977 called upon theCouncil to establish and chair an interagency group to review analysesprepared by regulatory agencies of the economic consequences of majorregulatory proposals. This review is intended to assure that the costs ofregulatory proposals have been considered, including the costs of all alter-native methods of regulation, so that the least-cost approach to regulationmay be found and applied.

Early each year the President submits the Economic Report of the Presi-dent to the Congress as required by the Employment Act. The Councilassumes major responsibility for the preparation of the Report, which to-gether with the Annual Report of the Council of Economic Advisers reviewsthe progress of the economy during the preceding year and outlines theAdministration's policies and programs.

The Chairman of the Council of Economic Advisers is a member of theEconomic Policy Group (EPG) and of its Executive Committee and Steer-ing Committee. The EPG was formed in January 1977 to direct the formula-tion and coordination of economic policy. The Steering Committee meetsweekly to address current issues of economic policy.

244


The Chairman of the Council also heads the U.S. delegation to the Eco-nomic Policy Committee of the Organization for Economic Cooperation andDevelopment (OECD). Council Members and staff economists meet withvarious working parties of the committee and attend other meetings of theOECD during the year.

The review and analysis of the overall performance of the economy isconducted and coordinated through interagency working groups comprisingrepresentatives from the Council, the Treasury, the Office of Managementand Budget, and the Departments of Commerce and Labor. At regularintervals representatives of these agencies, chaired by the Council, meet toevaluate recent economic performance and formulate economic forecasts.The analysis and projections developed at these sessions are finally reviewedand cleared through the Chairman of the Council for presentation to andconsideration by the Economic Policy Group and the President.

The Joint Economic Committee of the Congress (JEC), like the Council,was created by the Employment Act of 1946 to make a continuing study ofmatters relating to the economy and to submit its own report and recom-mendations to the Congress. During 1977 the Chairman and Members of theCouncil appeared twice before the JEC and once before its Subcommitteeon International Economics. The Chairman and Council Members alsopresented testimony before the House Budget Committee; the House Appro-priations Committee; the House Ways and Means Committee and its Sub-committee on Trade; the House Committee on Banking, Finance, andUrban Affairs and its Subcommittee on Economic Stabilization; the HouseAd Hoc Committee on Energy; the House Committee on Public Works andTransportation and its Subcommittee on Investigations and Review; theHouse Appropriations Committee's Subcommittee on Treasury, Postal Serv-ices, and General Governmental Affairs; the House Committee on Inter-state and Foreign Commerce and its Subcommittee on Energy and Power;the Senate Budget Committee; the Senate Finance Committee; the SenateAppropriations Committee; the Senate Commerce Committee and its Sub-committee on Aviation; and the Senate Committee on Banking, Housing,and Urban Affairs.

PUBLIC INFORMATION

The annual Economic Report of the President and the Annual Report ofthe Council are the principal publications through which the public is in-formed of the Council's work and views. These publications are also an im-portant vehicle for presenting and explaining the Administration's overalleconomic policy, both domestic and international. Distribution of Reports inrecent years has averaged about 50,000 copies. The Council also assumesprimary responsibility for preparing Economic Indicators, a monthly publi-cation prepared by the Council's Statistical Office and issued by the JointEconomic Committee. Economic Indicators has a monthly distribution ofapproximately 10,000 copies.

245


Information is also provided to members of the public through speechesand other public appearances by the Chairman, the Members, and thesenior staff economists. Each year the Council answers numerous requestsfrom the press and provides information in response to inquiries from indi-vidual citizens. In addition, the Council and staff receive frequent visitsfrom business, academic, and other groups and individuals.

ORGANIZATION AND STAFF OF THE COUNCIL

OFFICE OF THE CHAIRMAN

The Chairman is responsible for communicating the Council's views tothe President. This duty is performed through direct consultation with thePresident, and through written reports on economic developments and onparticular programs and proposals. The Chairman represents the Council atmeetings of the Cabinet and in many other formal and informal contactswith Government officials.

COUNCIL MEMBERS

The two Council Members are responsible for all subject matter coveredby the Council, including direct supervision of the work of the professionalstaff. Members represent the Council at a wide variety of meetings andassume major responsibility for the Council's involvement in many activities.

In practice, the small size of the Council's staff permits the Chairmanand Council Members to work as a team in most circumstances. There is,however, an informal division of subject matter between them. Mr. Gramleyassumed primary responsibility in 1977 for macroeconomic analysis, includ-ing the preparation of economic forecasts. Mr. Nordhaus is primarilyresponsible for international economic analysis and for microeconomicanalysis, including such policy areas as energy, agriculture, labor markets,social welfare, and regulated industries.

PROFESSIONAL STAFF

At the end of 1977 the professional staff consisted of the Special Assistantto the Chairman, 10 senior staff economists, 2 staff economists, 1 statistician,and 6 junior staff economists. Members of the professional staff wereresponsible for economic analysis and policy recommendations in majorsubject areas involving the Council's interests and responsibilities.

The professional staff and their special fields at the end of the year were:

Peter G. Gould Special Assistant to the Chairman

246


Senior Staff Economists

Roger E. Brinner Business Conditions Analysis, Econometrics,and Forecasting

Peter K. Clark Macro- and Microeconomic Analysis, Econo-metrics, Trade, and Aggregate Supply

Nina W. Cornell Regulated Industries, Transportation, Envi-ronmental, and Health and Safety Issues

George E. Johnson Labor Policy, Human Resources, Welfare, andHealth Issues

Susan J. Lepper Monetary Policy, Financial Institutions, Capi-tal Markets, Housing, and State and LocalFinances

David C. Munro Business Conditions Analysis, Econometrics,and Forecasting

J. B. Penn Agriculture and Food PolicyJeffrey R. Shafer International Finance and TradeWilliam L. Springer Fiscal Policy, Public Finance, Income Distri-

bution, Human Resources, Welfare, andHealth Issues

David A. Wyss Macro- and Microeconomic Analysis, Econo-metrics, and Prices and Wages

Statistician

Catherine H. Furlong Senior Statistician

Staff EconomistsArthur E. Blakemore Labor MarketsRobert E. Litan Energy Analysis and Policy, Science and Tech-

nology, and Natural Resources

Junior Staff EconomistsMichael S. Golden Agriculture and Food Policy, Econometrics, and

ForecastingHoward K. Gruenspecht Regulation, Monetary Developments, and In-

dustry AnalysisRichard I. Kolsky Regulation, Energy Policy, and Industry An-

alysisRichard A. Koss Econometrics and ForecastingJulianne M. Malveaux Labor Markets and Monetary DevelopmentsMartha M. Parry International Economics

Catherine H. Furlong, Senior Statistician, is in charge of the Council'sStatistical Office. In 1977 Mrs. Furlong replaced Frances M. James, whoretired after 31 years of service as Senior Statistician for the Council. Mrs.Furlong has primary responsibility for managing the Council's statisticalinformation system. She supervises the publication of Economic Indicatorsand the preparation of the statistical appendix to the Economic Report. Shealso oversees the verification of statistics in memoranda, testimony, andspeeches. Natalie V. Rentfro and Earnestine Reid assist Mrs. Furlong.

247


George C. Eads (The Rand Corporation), Murray F. Foss (NationalBureau of Economic Research), and John B. Shoven (Stanford University)served as consultants to the Council.

In preparing the Economic Report the Council relied upon the editorialassistance of Rosannah C. SteinhofT. Also called on for special assistance inconnection with the Report was Dorothy L. Reid, a former member of theCouncil staff.

SUPPORTING STAFF

The Administrative Office provides administrative support for the Coun-cil. Nancy F. Skidmore, Administrative Officer, prepares and analyzes thebudget and provides general administrative services. Duplicating, mail, andmessenger services were the responsibility of James W. Gatling and FrankC. Norman. Elizabeth A. Kaminski serves as Staff Assistant to the Council.

Members of the secretarial staff for the Chairman and Council Membersduring 1977 were Patricia A. Lee, Linda A. Reilly, Florence T. Torrison,and Alice H. Williams. Secretaries for the professional staff were M.Catherine Fibich, Bessie M. Lafakis, Joyce A. Pilkerton, Bettye T. Siegel,Margaret L. Snyder, and Lillie M. Sturniolo.

DEPARTURES

The Council's professional staff members are drawn primarily from uni-versities and research institutions. Senior staff economists who resignedduring the year were Barry P. Bosworth (Council on Wage and PriceStability), Barry R. Chiswick (Hoover Institution, Stanford University),John M. Davis, Jr. (Federal Reserve Bank of Cleveland), Bruce L. Gardner(Texas A&M University), Helen B. Junz (Department of the Treasury),Michael D. McCarthy (Wharton Econometric Forecasting Associates, Inc.),John J. Siegfried (Vanderbilt University), John B. Taylor (Columbia Uni-versity), and Philip K. Verleger, Jr. (Department of the Treasury). DoralS. Cooper, staff economist, resigned to accept a position with the SpecialRepresentative for Trade Negotiations.

Frances M. James, Senior Staff Statistician of the Council, retired in1977 after having served on the staff since 1946. More than any otherperson she was responsible for establishing and maintaining a standard ofrigorous accuracy in the data used by the Council and published in theCouncil's Annual Report and monthly Economic Indicators. A generationof economists who have been members of the Council of Economic Ad-visers have been indebted to her for wise guidance in the exercise of theirduties. All future Councils, although they will not have the privilege ofworking with her, will nevertheless be the beneficiaries of the tradition sheleft behind.

248


Junior economists who resigned in 1977 were Richard E. Browning(Georgetown University), Timothy H. Quinn (University of California,Los Angeles), Barbara A. Smith (Mathematica Policy Research, Inc.),Paul G. Westcott (Department of Agriculture), and Benjamin Zycher (Uni-versity of California, Los Angeles). Retired during the year were DorothyBagovich, statistical assistant, and Dorothy L. Green, secretary. Margaret A.Bocek, secretary, resigned from the Council staff.

249



Appendix B

STATISTICAL TABLES RELATING TO INCOME,EMPLOYMENT, AND PRODUCTION

251



CONTENTS

NATIONAL INCOME OR EXPENDITURE: P a g e

B-l. Gross national product, 1929-77 257B-2. Gross national product in 1972 dollars, 1929-77 258B-3. Implicit price deflators for gross national product, 1929-77 260B-4. Implicit price deflators and alternative price measures of gross

national product and gross domestic product, 1929-77 262B-5. Gross national product by industry in 1972 dollars, 1947-76 263B-6. Gross national product by major type of product, 1929-77 264B-7. Gross national product by major type of product in 1972 dollars,

1929-77 265B-8. Gross national product: Receipts and expenditures by major eco-

nomic groups, 1929-77 266B-9. Gross national product by sector, 1929-77 268B-10. Gross national product by sector in 1972 dollars, 1929-77 269B-ll . Gross domestic product of nonfinancial corporate business, 1929-77. . 270B-l2. Output, costs, and profits of nonfinancial corporate business, 1948-77. 271B-l 3. Personal consumption expenditures, 1929-77 272B-14. Gross private domestic investment, 1929-77 273B-l5. Inventories and final sales of business, 1946-77 274B-16. Inventories and final sales of business in 1972 dollars, 1947-77 275B-l7. Relation of gross national product and national income, 1929-77.... 276B-18. Relation of national income and personal income, 1929-77 277B-19. National income by type of income, 1929-77 278B-20. Sources of personal income, 1929-77 280B-21. Disposition of personal income, 1929-77 282B-22. Total and per capita disposable personal income and personal con-

sumption expenditures in current and 1972 dollars, 1929-77 283B-23. Gross saving and investment, 1929-77 284B-24. Saving by individuals, 1946-77 285B-25. Number and money income (in 1976 dollars) of families and unrelated

individuals by race of head, 1947-76 , . 286

POPULATION, EMPLOYMENT, WAGES, AND PRODUCTIVITY:B-26. Population by age groups, 1929-77 287B-27. Noninstitutional population and the labor force, 1929-77 288B-28. Civilian employment and unemployment by sex and age, 1947-77. . 290B-29. Selected employment and unemployment data, 1948-77 291B-30. Unemployment rate by demographic characteristic, 1948-77 292B-31. Unemployment by duration, 1947-77 293B-32. Unemployment by reason, 1967-77 294B-33. Unemployment insurance programs, selected data, 1946-77 295B-34. Wage and salary workers in nonagricultural establishments, 1929-77. 296B-35. Average weekly hours and hourly earnings in selected private non-

agricultural industries, 1947-77 298B-36. Average weekly earnings in selected private nonagricultural indus-

tries, 1947-77 299B-37. Productivity and related data, private business economy, 1947-77. . . 300B-38. Changes in productivity and related data, private business economy,

1948-77 301

253

248-947 O - 78 - 17


PRODUCTION AND BUSINESS ACTIVITY: Page

B-39. Industrial production indexes, major industry divisions, 1929-77. .. . 302B-40. Industrial production indexes, market groupings, 1947-77 303B-41. Industrial production indexes, selected manufactures, 1947-77 304B-42. Capacity utilization rate in manufacturing, 1948-77 305B-43. New construction activity, 1929-77 306B-44. New housing units started and authorized, 1959-77 308B-45. Business expenditures for new plant and equipment, 1947-78 309B-46. Sales and inventories in manufacturing and trade, 1947-77 310B-47. Manufacturers' shipments and inventories, 1947-77 311B-48. Manufacturers' new and unfilled orders, 1947-77 312

PRICES:

B-49. Consumer price indexes by expenditure classes, 1929-77 313B-50. Consumer price indexes by commodity and service groups, 1939-77 . 314B-51. Consumer price indexes, selected commodities and services, 1939-77. 315B-52. Consumer price indexes for commodity groups, seasonally adjusted,

1974-77 316B-53. Consumer price indexes for service groups and selected expenditure

classes, seasonally adjusted, 1974-77 317B-54. Percent changes in consumer price indexes, major groups, 1948-77. . 318B-55. Wholesale price indexes by major commodity groups, 1929-77 319B-56. Wholesale price indexes by stage of processing and by special group-

ings, 1947-77 321B-57. Wholesale price indexes for selected groupings, seasonally adjusted,

1974-77 323B-58. Percent changes in wholesale price indexes, major groups, 1948-77. . 324

MONEY STOCK, CREDIT, AND FINANCE:

B-59. Money stock measures, 1947-77 325B-60. Commercial bank loans and investments, 1930-77 326B—61. Liquid asset holdings, private domestic nonfinancial investors, 1952—77. 327B-62. Total funds raised in credit markets by nonfinancial sectors, 1969-77. 328B-63. Federal Reserve Bank credit and member bank reserves, 1929-77. . . 330B-64. Aggregate reserves and deposits, member banks, 1959-77 331B-65. Bond yields and interest rates, 1929-77 332B-66. Instalment credit extensions and liquidations, 1971-77 334B-67. Mortgage debt outstanding by type of property and of financing,

1939-77 335B-68. Mortgage debt outstanding by holder, 1939-77 336B-69. Net public and private debt, 1929-76 337

GOVERNMENT FINANCE:

B-70. Federal budget receipts, outlays, and debt, fiscal years 1969-79 338B-71. Federal budget receipts and outlays, fiscal years 1929-79 340B-72. Relation of the Federal budget to the Federal sector of the national

income and product accounts, fiscal years 1977-79 341B-73. Receipts and expenditures of the government sector of the national

income and product accounts, 1929-77 342B-74. Receipts and expenditures of the Federal Government sector of the

national income and product accounts, 1952-79 343B-75. Receipts and expenditures of the State and local government sector of

the national incoms and product accounts, 1946-77 344B-76. State and local government revenues and expenditures, selected fiscal

years, 1927-76 345B-77. Interest-bearing public debt by kind of obligation, 1967-77 346

254


GOVERNMENT FINANCE—Continued PageB-78. Estimated ownership of public debt securities, 1967-77 347B-79. Average length and maturity distribution of marketable interest-

bearing public debt held by private investors, 1967-77 348

CORPORATE PROFITS AND FINANCE:B-80. Corporate profits with inventory valuation and capital consumption

adjustments, 1946-77 349B-81. Corporate profits by industry, 1929-77 350B-82. Corporate profits of manufacturing industries, 1929-77 352B-83. Sales, profits, and stockholders' equity, all manufacturing corpora-

tions, 1947-77 354B-84. Relation of profits after taxes to stockholders' equity and to sales, all

manufacturing corporations, 1947-77. . . 355B-85. Relation of profits after taxes to stockholders' equity and to sales, all

manufacturing corporations, by industry group, 1976-77 356B-86. Sources and uses of funds, nonfarm nonfinancial corporate business,

1946-77 357B-87. Current assets and liabilities of U.S. corporations, 1939-77 358B-88. State and municipal and corporate securities offered, 1934-77 359B-89. Common stock prices and yields, 1949-77 360B-90. Business formation and business failures, 1929-77 361

AGRICULTURE:B-91. Income of farm people and farmers, 1929-77 362B-92. Farm production indexes, 1929-77 363B-93. Farm population, employment, and productivity, 1929-77 364B-94. Indexes of prices received and prices paid by farmers and selected farm

resource prices, 1929-77 365B-95. Selected measures of farm resources and inputs, 1929-77 366B-96. Comparative balance sheet of the farming sector, 1929-78 367

INTERNATIONAL STATISTICS:B-97. U.S. international transactions, 1946-77 368B-98. U.S. merchandise exports and imports by principal end-use categories,

1965-77 370B-99. U.S. merchandise exports and imports by area, 1971—77 371B-100. International investment position of the United States at year-end,

1970-76. 372B-101. Summary of major U.S. Government net foreign assistance, July 1,

1945 to December 31, 1976 373B-102. International reserves, 1952, 1962, and 1973-77 375B-103. World trade: Exports and imports, 1965, 1970, and 1973-77 376B-104. World trade balance and current account balances, 1965, 1970,

and 1973-77 377B-105. Consumer prices and hourly compensation, major industrial coun-

tries, 1960-77 378B-106. Industrial production and unemployment rate, major industrial

countries, 1960-77 379B-107. Growth rates in real gross national product, 1961-77 380B-108. Exchange rates, 1970-77 381

255


General Notes

Detail in these tables may not add to totals because of rounding.Unless otherwise noted, all dollar figures are in current dollars.

Symbols used:* Preliminary._ . Not available (also, not applicable).

256


NATIONAL INCOME OR EXPENDITURE

T A B L E B-l.—Gross national product, 1929-77

IBillicns of dollars, except as ncted; quarterly data at seasonally adjusted annual rates]

Year or quarter

1929 .

1933

1939

194019411942.194319441945 .1946194719481949

1950195119521953195419551956 . .195719581959 .

1960196119621963196419651966196719681969

197019711972197319741975 . . _ „19761977 P

1975- 1IIIIIIV

1976: 1IIIIIIV . .

1977: 1IIIIIIV v

Grossnationalproduct

103.4

55.8

90.8

100.0124.9158.3192.0210 5212.3209.6232.8259.1258.0

286.2330.2347 2366.1366.3399 3420.7442.8448.9486.5

506 0523.3563.8594.7635 7688.1753.0796.3868.5935.5

982.41, 063.41.171.11, 306.61,412.91, 528.81, 706. 51,890.4

1, 453 01,496. 61,564.91,600.7

1, 651. 21,691.91, 727. 31,755.4

1,810.81, 869. 91.915.91,965.1

Per-sonalcon-

sump-tionex-

pend-itures

77 3

45.8

67.0

71.080 888.699.4

108 2119 5143.8161.7174 7178.1

192 0207.1217 1229 7235.8253 7266.0280.4289.5310.8

324 9335.0355.2374.6400 4430 2464.8490 4535.9579.7

618.8668.2733 0809.9889 6980.4

1, 094 01,210 1

936 5965.9995.1

1, 024.1

1, 056.01, 078. 51,102.21,139. 0

1,172 41,194.01,218.91,255.3

Grossprivate

do-mesticinvest-ment

16.2

1.4

9.3

13.117 99.95.87 2

10.630.734.045.935.3

53.859.252.153.352.768 471.069.261.977.6

76 474.385.290.296 6

112.0124.5120 8131.5146.2

140.8160.0188 3220.0214.6189.1243.3294 3

175 1171.2205.4204.7

231.3244.4254.3243.4

271 8294.9303.6307.0

Net exports of goodsand services

Netexports

1.1

.4

1.1

1.71.3.0

- 2 . 0- 1 . 8- . 67.6

11.66.56.2

1.93.82.4.6

2.02.24.36.12.5.6

4.45.85.46.38.97.65.14.92.31.8

3.91.6

- 3 . 37.16.0

20.47.8

- 9 0

15 424.320.820.8

10.210.27.93.0

- 8 2- 9 . 7- 7 . 5

-10 .8

Ex-ports

7.0

2.4

4.4

5.45.94.84.45.37.2

14.819.816.915.9

13.918.918.217.118.020.023.926.723.323.7

27.628.930.632.737.439.542.845.649.954.7

62.565.672.7

101.6137.9147.3162.9175 6

147 4142.7146.9152.1

153.9160.6168.4168.5

170 4178.1179.9174.3

Im-ports

5.9

2.0

3.4

3.64.64.86.57.17.87.28.2

10.49.6

12.015.115.816.616.017.819.620.720.823.2

23.223.125.226.428.432.037.740.647.752.9

58.564.075.994.4

131.9126.9155.1184.7

131.9118.3126.1131.3

143.7150.4160.6165.6

178 6187.7187.4185.1

Government purchases of goods andservices

Total

8.8

8.2

13.5

14.224.959.888.997.082.827.525.532.038.4

38.560.175.682.575.875.079.487.195.097.6

100.3108.2118.0123.7129.8138.4158.7180.2198.7207.9

218.9233.7253.1269.5302.7338.9361.4395.0

326.0335.2343.5351.0

353.6358.9363.0370.0

374 9390.6400.9413.6

Federal

Total

1.4

2.1

5.2

6.116.952.081.389.474.617.612.716.720.4

18.738.352.457.547.944.545.950.053.953.9

53.757.463.764.665.267.378.890.998.097.5

95.696.2

102.1102.2111.1123.3130.1145.4

119.6121.8123.8128.1

127.6128.5130.2134.2

136.3143.6148.1153.8

Na-tional

de-fense i

1.2

2.213.749.479.787.473.514.89.0

10.713.2

14.033.545.848.641.138.440.244.045.645.6

44.547.051.150.349.049.460.371.576.976.3

73.570.273.573.577.083.986.894.3

81.683.084.486.7

86.386.086.488.4

89 793.495.698.6

Non-defense

3.9

3.93.22.61.62.01.12.83.76.07.2

4.74.86.58.96.86.05.75.98.38.3

9.310.412.714.316.217.818.519.521.221.2

22.126.028.628.734.139.443.351.1

38.038.839.441.4

41.342.543.845.8

46.750.252.555.2

Stateandlocal

7.4

6.1

8.3

8.18.07.87.57.68.29.9

12.815.318.0

19.821.823.225.027.830.633.537.141.143.7

46.550.854.359.064.671.179.889.3

100.7110.4

123.2137.5151.0167.3191.5215.6231.2249.5

206.4213.3219.7222.9

225.9230.4232.7235.8

238.5247.0252.9259.8

Per-cent

changefrompre-

cedingperiod,grossna-

tionalprod-uct »

- 4 . 2

6.9

10.124 926.821.39 6.9

- 1 . 311.111.3- . 4

10.915.45 15.5.0

9.05.45.21.48.4

4.03.47.75.56 98.29.45.89.17.7

5.08.2

10.111.68.18.2

11.610.8

.212.519.59.5

13.210.28.66.7

13.213.710.210.7

1 This category corresponds closely to the national defense classification in "The Budget of the United States Govern-ment, Fiscal Year 1979."

' Changes are based on unrou nded data and therefore may differ slightly from those obtained from data shown here.


257


T A B L E B-2.—Gross national product in 1972 dollars, 1929-77

[Billions of 1972 dollars; quarterly data at seasonally adjusted annual rates]

Year or quarter

1929

1933

1939

19401941..19421943...1944.19451946194719481949

19501951195219531954195519561957 .19581959.

1960196119621963196419651966196719681969

19701971197219731974 . .197519761977 P _. .

1975:1IIIIIIV

1976: 1IIIIIIV . .

1977:1..IIIIIIV v . . .


314 7

222.1

319.7

343.6396.6454 6527.3567.0559 0477.0468 3487 7490.7

533 5576.5598 5621.8613 7654.8668.8680 9679.5720.4

736 8755.3799 1830.7874.4925.9981 0

1,007. 71051.81, 078. 8

1,075.31,107.51,171.11,235.01,217.81, 202.11,274.71,337.6

1,169.81,188. 21,220.71,229.8

1,256.01,271.51, 283 71, 287. 4

1,311.01 330 71,347.41,361.4

Personal consumption expenditures

Total

215.6

170.7

220.3

230.4244.1241.7248.7255.7271.4301.4306 2312.8320.0

338.1342.3350.9364.2370 9395.1406.3414.7419.0441.5

453 0462.2482 9501.4528.7558.1586 1603.2633.4655.4

668.9691.9733.0767.7760.7775.1821.3860.3

756.9770.4780.2792.8

807.2815.5822 7839.8

850.4854 1860.4876.4

Durablegoods

21.5

10.9

19.1

21.824.716 314.513.514.825.830 633.136.3

43.439.938 943.143 552.2'49.849.746.451.8

52 550.355 760.765.773.479 079.788.291.9

88.998.1

111.2121.8112.5112.7127.5138.0

106.2109.0115.4120.2

125.4126.6127 1130.7

136.9137 9136 5140.8

Non-durablegoods

98 1

82.9

115.1

119.9127.6129 9134.0139.4150.3158.9154 8155.0157.4

161.8165.3171.2175.7177 0185.4191.6194.9196.8205.0

208 2211.9218 5223.0233.3244.0255 5259.5270.2276.4

282.7287.5299.3309.3303.9307.6321.6333.3

301.8308.4308.6311.5

316.1319.3321 5329.4

329.7330 0332 4340.9

Services

96.1

76.8

86.1

88.791.895.5

100.1102.7106.3116.7120 8124.6126.4

132.8137.1140 8145.5150 4157.5164.9170.2175.8184.7

192 3200.0208.7217.6229.7240.7251 6264.0275.0287.2

297.3306.3322.4336.5344.3354.8372.2389.0

349.0353.0356.2361.2

365.6369.6374 0379.7

383.8386 3391 4394.7

Gross private domestic investment

Total

55.9

8.4

33.6

44.655.829.618.119.827.871.070.182.365.6

93.794.183.285.683.4

104.1102.997.287.7

107.4

105.4103.6117.4124.5132.1150.1161.3152.7159.5168.0

154.7166.8188.3207.2183.6141.6173.0195.6

133.0130.9153.1149.2

168.1175.2179 4169.2

186.7197 2200.8197.6

Fixed investment

Total

51.3

13.3

32.0

38.443.824.418.022.131.458.870.476.870.0

83.280.478.984.185.696.397.195.789.6

101.0

101.0100.7109.3116.8124.8138.8144.6140.7150.8157.5

150.4160.2178.8190.7175.6151.5164.5184.0

152.9148.9150.2153.8

158.4163.1165 6171.0

177.0184 0185 1190.0

Nonresidential

Total

37.0

10.4

20.7

25.730.317.614.018.727.642.048.951.046.0

50.052.952.156.355.461.265.266.058.962.9

66.065.670.973.581.095.6

106.1103.5108.0114.3

110.0108.0116.8131.0130.6112.7116.8127.1

116.6112.0111.0111.3

113.7115.9118 5119.0

124.3126 4127.6130.2

Struc-tures

20.6

4.9

8.6

9.911.96.74.25.58.3

18.817.318.417.8

19.120.620.622.523.525.328.128.126.426.8

28.829.330.830.833.339.642 541.142.044.0

42.841.742.545.542.536.337.138.4

37.235.836.036.1

36.837.137 137.3

37.038 238.939.6

Pro-ducers'durableequip-ment

16.4

5.5

12.1

15.818.510.99.8

13.219.223.231.632.728.2

30.932.331.533.831.835.937.137.932.536.1

37.236.340.142.747.756.063 662.466.170.3

67.266.374.385.588.176.579.788.7

79.576.275.075.2

* 76.878.981.481.7

87.388.188.790.7

See footnotes at end of table.

258


TABLE B-2.—Gross national product in 1972 dollars, 1929-77— Continued

[Billions of 1972 dollars, except as noted; quarterly data at seasonally adjusted annual rates]

Year orquarter

1929

1933

1939

1940194119421943 . .194419451946194719481949.. .

1950195119521953195419551956..19571958..1959

196019611962.1963196419651966196719681969..

19701971197219731974197519761977 v

1975: 1III I I . . -IV

1976:1III I I . . -IV. . . . .

1977:1III I I . . . .IV p . . _

Gross private domesticinvestment—continued

Fixed investment—continued

Residential

Total

14.3

2.9

11.3

12.813.56.84.03.43.8

16.821.525.824.0

33.227.526.827.830.235.131.929.730.638.1

35.035.138.443.243.843.238.537.242.843.2

40.452.262 059.745.038.847 756.9

36.336.939.342.6

44.847.147.152.0

52.757.657.559.8

Non-farmstruc-tures

13.6

2.6

10.6

11.812.56.13.53.03.5

15.519.823.922.3

31.525.925.326.328.833.830.428.329.236.5

33.733.636.941.742.241.636.935.541.141.5

38.950.560 357.943.037 146 055.1

35.035.437.540 7

42.945.445.450.2

50.955.755.758.0

Farmstruc-tures

0.6

. 2

.6

.8

.9

.6

.4

.4

.3

1.31.51.4

1.31 31.21.21.1.9

1.01.0.9

1.0

.81.0.9. 9.9.8.9.9.8.9

.6

.77

.5

.9

.77

.7

.4

.6

.9

.9

.9

.7

.6

.7

.7

.8

.7

.6

Pro-duc-ers'dur-able

equip-ment

0.1

.1

.1

.1

.2

.1

.0

.0

'.2.3. 3. 3

.3

.3

.3

.3

.3

. 4

.4

.4

.5

.6

.5

.5

.6

.6

.7

. 7

.8

.8

.9

. 9

.91.01 l1.21.1.9

1 01.1

.9

.9

.91.0

1.01.01.01.1

1.11.11.11.2

Changein

busi-ness

inven-tories

4.6

- 4 . 9

1.6

6.212.05.2.1

- 2 . 3- 3 . 612.2- . 25.5

- 4 . 4

10.613.74.31.5

- 2 . 27.75.81.5

- 1 . 86.5

4.42.98.17.87.3

11.316.712.08.7

10.6

4.36.69.4

16.58.0

-9 .98 5

11.6

-20.0-18.0

2.9-4 .6

9.712.113.8

- 1 . 8

9.713.215.77.7


Netex-

ports

2.2

. 2

2.0

3.0.8

- 2 . 5- 7 . 3- 7 . 2- 4 . 511.616.68.58.8

4.07.44.92.04.54.77.38.93.5.9

5.56.75.87.3

10.98.24.33.5

- . 4- 1 . 3

1.4- . 6

- 3 37.6

15.922.516 010.7

20.524.522.722.3

16.816.417.013.8

10.69.4

12.210.6

Ex-ports

15.6

9.4

13.3

14.614.710.39.0

10.013.526.130 224.224.2

21.725 924.923.825 327.932.334.830.731.5

35 837.039.642.247.849.151.654.258.562.2

67.167.972 787.493.089.995 898.0

89.787.489.792.8

93.195.297.996.9

96.998.599.896.8

Im-ports

13.4

9.3

11.4

11.514.012.816.317.318.014.613.615.715.4

17.718.520.021.820.823.225.026.027.230.6

30.330.333.935.036.941.047.350.758.963.5

65.768.575.979.977.167.479 887.3

69.262.967.070.6

76.378.980.983.1

86.389.187.686.2

Government purchasesof goods and services

Total

40.9

42.8

63.8

65.595.9

185.8267.9298.8264.393.175.484.196.2

97.7132.7159.5170.0154.9150.9152.4160.1169.3170.7

172.9182.8193.1197.6202.7209.6229.3248.3259.2256.7

250.2249.4253.1252.5257.7263.0264.4271.1

259.4262.3264.8265.4

263.9264.4264.6264.6

263.3270.0274.0276.8

Fed-eral

6.9

10.8

22.6

26.358.6

151.5236.3268.2232.758.436.142.448.9

47.081.3

107.0114.695.286.985.989.892.891.8

90.895.6

103.1102.2100.6100.5112.5125.3128.3121.8

110.7103.9102.196.695.896.796 5

101.4

96.096.596.997.4

96.496.196.797.1

97.0101.1103.3104.1

Stateandlocal

33.9

32.0

41.2

39.237.334.331.630.631.634.839.341.847.4

50.751.352.555.459.764.066.570.376.478.9

82.087.190.095.4

102.1109.1116.8123.1130.9134.9

139.5145.5151.0155.9161.8166.3167.9169.7

163.4165.8167.8168.0

167.5168.4168.0167.5

166.4168.9170.7172.8

Percentchange

frompre-

cedingperiod,gross

nationalproduct1

- 2 . 1

7.6

7.515.414.616.07.5

- 1 . 4-14.7- 1 . 8

4.1.6

8.78.13.83.9

- 1 . 36.72.11.8

- . 26.0

2.32.55.84.05.35.95.92.74.42.6

- . 33.05.75.5

- 1 . 4- 1 . 3

6.04.9

- 9 . 66.4

11.43.0

8.85.13.91.2

7.56.25.14.2

1 Changes are based on unrounded data and therefore may differ slightly from those obtained from data shown here.


259


TABLE B-3.—Implicit price deflators for gross national product, 1929-77

[Index numbers, 1972=100, except as noted; quarterly data seasonally adjusted]

Year orquarter

1929

1933

1939

194019411942194319441945 . .1946194719481949

195019511952...195319541955.1956195719581959...

19601961196219631964 .19651966196719681969 . . . .

1970 . . . .19711972 . . .19731974197519761977 v, _

1975: 1I I . . .

IV.".""

1976: 1IIIIIIV

1977: 1III I I . . . .IV p . . .

Grossnational

uct1

32 87

25.13

28.40

29.1031 4934 8236.4137 1337.9943.8849 7053.1352.59

53 6457.2758.0058 8859.6960.9862 9065.0266.0667.52

68.6769.2870.5571 5972.7174.3276.7679.0282.5786.72

91.3696 02

100.00105 80116 02127.18133 88141.32

124.21125.96128. 20130.17

131.47133. 06134.56136.35

138.13140. 52142.19144.34


Total

35.8

26.8

30.4

30.833.136.740.042.344.047.752.855.955.7

56.860.561.963.163.664.265 567.669.170.4

71.772.573.674 775.777.179.381.384.688.5

92.596.6

100.0105 5116 9126.5133 2140.7

123.7125.4127.5129.2

130.8132.3134.0135.6

137.9139.8141.7143.2

Dur-able

goods

43.1

31.7

34.9

35.739 142.145.049.553.761.166 869.169.1

70.874.774.875 573.274.076 079.279.481.9

82.182.783.984.885.785.685.787.490.793.1

95.599.0

100.0101 6108 4117.9124 7130.0

115.6117.2118.4120.1

122.2123.8125.3127.2

129.3129.5130.0131.2

Non-durablegoods

38.4

26.8

30.5

30.933.639.143.746.247.852.158.762.360.3

60.765.866.666 366.666.367 369.471.071.4

72.673.373.974.975.877.380.181.985.389.4

93.696.6

100.0107.9123.8133.1137 7144.1

130.6131.8134.5135.5

136.2136.9138.3139.3

141.5143.8144.9146.0

Serv-ices

31 6

26.1

29.2

29.530 832.434.236 137.338.941 744.446.1

47.449.952.655 457.258.560 262.264.266.0

68.069.170.471.772.874.376.578.882.086.1

90.595.8

100.0104.7113.6123.5132.3141.5

120.3122.3124.5126.8

129.2131.1133.2135.4

137.8140.1142.9145.1

Gross private domestic investmentl

Fixed investment

Total

28.2

22.4

27.6

28.530.633.435.636.937.141.348.953.654.8

56.560.862.162.963.464.868.370.970.871.6

71.971.672.072.172.873.876.278.782.186.9

91.195.9

100.0106.0117.1132.4139.8150.3

128.9131.8133.5135.5

136.9138.6140.6142.9

145.8148.5151.3155.3

Nonresidential

Total

28.2

22.8

28.2

29.130.933.835.736.636.639.946.851.352.8

54.358.959.961.061.462.667 070.770.672.0

72.271.872.372.973.674.576.879.382.686.6

91.396.4

100.0103.8115.3132.3138.7146.0

128.5131.8133.6135.5

136.8137.8139.2140.9

142.5144.4146.9150.2

Struc-tures

24 1

19.1

22.8

23.124 728.132.033 433.636.343 748.448.0

48 854.755.856 855.957.061 864.463.363.6

63.162.763.063.564.465.968.871.875.381.1

88.094.4

100.0107.8128.1145.8150.7160.3

143.5145.1146.7147.9

148.5150.4150.9152.8

156.6159.7160.9164.0

Pro-ducers'durableequip-ment

33.4

26.2

32.0

32.834.937.337.338 037.942.848 552.955.9

57 661.662.563.765.466.571.075.476.578.2

79.379.279.479.680.180.682.184.387.390.0

93.497.6

100.0101.7109.2125.9133.1139.8

121.4125.6127.2129.5

131.2131.9133.9135.4

136.5137.7140.8144.1


260


TABLE B-3.—Implicit price deflators for gross national product, 1929-77—Continued[Index numbers, 1972=100, except as noted; quarterly data seasonally adjusted]

Year orquarter

1929

1933

1939 . . .

1940194119421943194419451946194719481949 . . . .

1950195119521953195419551956195719581959

1960 . .196119621963196419651966196719681969

19701971197219731974197519761977 v

1975: 1 __ -IIIIIIV

1976: 1IIIIIIV

1977: 1IIIIII V P _ _ . _

Gross private domesticinvestment*—continued

Fixed investment—continued

Residential

Total

28.2

20.7

26.6

27.429.932.434.938.140.844.653.758.158.7

60.064.466.466.967.168.770.971.371.271.0

71.471.371.570.971.272.374.677.080.787.7

90.694.9

100.0110.8122.3132.8142.5159.9

130.3131.7133.2135.4

137.1140.7144.1147.5

153.7157.6160.9166.5

Non-farmstruc-tures

27.8

19.8

26.3

27.229.731.834.337.340.043.953.057.4i,3.1

59.563.865.866.366.668.270.570.870.770.6

70.970.971.170.570.872.074.276.780.487.5

90.494.8

100.0111.0122.7133.2143.0160.5

130.7132.1133.6135.8

137.5141.0144.5148.0

154.3158.2161.5167.3

Farmstruc-tures

28.6

19.5

23.4

23.626.630.735.740.842.946.652.857.358.0

59.463.865.766.266.568.370.670.970.870.8

71.270.771.370.771.072.374.376.780.587.5

90.595.0

100.0110.7122.7132.9142.9159.4

129.6131.2133.0135.4

137.4141.3145.3148.9

153.7157.7160.6166.5

Pro-ducers'dur-able

equip-ment

77.2

58.8

61.1

59.663.871.371.475.084.695.2

105.6111.5107.9

107.4114.9114.6114.2112.4109.1104.3103.4101.9101.8

100.899.196.895.394.392.190.891.093.295.2

97.599.3

100.0100.1105.3116.7122.6126.8

114.0115.9117.4119.0

120.8122.4123.4123.8

125.2126.6127.6127.9

Exports andimports ofgoods andservices i

Ex-ports

45.0

25.5

33.3

36.840.246.549.252.653.656.765.869.865.5

64.073.173.071.971.271.873.976.475.775.4

77.178.077.377.578 380.582.884.085.387.9

93.196.6

100.0116.2148.3163.8170.0179.2

164.4163.2163.9163.8

165.3168.6172.0174.0

175.9180.8180.2180.0

Im-ports

43.8

22.1

29.6

31.533.237.439.641.143.649.760.766.162.7

67.881.879.175.876.976.878.379.576.575.7

76.776.174.575.677.178.079.780.180.983.3

89.193.5

100.0118.2171.0188.2194.3211.5

190.7188.1188.1186.0

188.2190.7198.4199.3

207.0210.6213.9214.6

Government purchasesof goods and services

Total

21.6

19.3

21.2

21.626.032.233.232.531.329.433.838.039.9

39.445.347.448.548.949.752.154.456.157.2

58.059.261.162.664.066.069.272.676.781.0

87.593.7

100.0106.7117.5128.9136.7145.7

125.7127.8129.7132.3

134.0135.7137.2139.8

142.3144.6146.3149.4

Fed-eral

20.7

19.6

22.9

23.128.934.334.433.332.129.935.139.441.8

39.947.148.950.250.451.153.455.758.158.7

59.160.061.863.364.867.070.172.676.480.0

86.492.6

100.0105.8115.9127.5134.8143.5

124.5126.3127.7131.5

132.4133.7134.7138.2

140.6142.0143.3147.8

Stateandlocal

21.8

19.1

20.2

20.621.422.823.824.925.928.632.536.638.0

39.042.444.245.146.647.850.452.853.855.4

56.858.360.361.963.365.168.472.576.981.9

88.394.5

100.0107.3118.4129.7137.7147.1

126.3128.6130.9132.7

134.9136.8138.6140.7

143.4146.2148.1150.4

Grossdo-

mesticprod-uct

32.8

25.2

28.4

29.131.534.836.437.138.043.949.753.152.6

53.657.257.958.859.660.962.865.066.067.5

68.669.270.571.672.774.376.879.082.686.8

91.496.0

100.0105.7115.6126.8133.4140.8

123.8125.6127.8129.8

131.0132.7134.1135.9

137.6140.0141.7143.8

Percentfrom pr

peri

Grossnationalproductimplicitprice

deflator

- 2 . 2

- . 7

2.58.2

10.64 62.02.3

15 713 16.9

- 1 . 0

2.06.81.31.51.42.23.23.41.62.2

1.7.9

1.81.51.62.23.32.94.55.0

5.45.14.15.85.69.65.35.6

10.85.77.36.3

4.14.94.65.4

5.37.14.86.2

changeseeding)d2

Grossdo-

mesticproductimplicitprice

deflator

- 2 . 1

- . 7

2.58.2

10.64 52.02.3

15 613.16.9

- 1 . 0

2.06.71.31.51.42.23.23.41.62.2

1.7.9

1.91.51.62.23.33.04.55.1

5.35.14.15.75.59.75.25.5

11.45.87.46.4

3.85.04.45.5

5.07.14.96.3

1 Separate deflators are not available for gross private domestic investment, change in business inventories, and netexports of goods and services.

2 Changes are based on unrounded data and therefore may differ slightly from those obtained from data shown here.Quarterly data are at annual rates.


261


TABLE B-4.—Implicit price deflators and alternative price measures of gross national productand gross domestic product, 1929-77

[Quarterly data seasonally adjusted]

Year orquarter

1929

1933 . .

1939

1940194119421943.194419451946194719481949

19501951 .195219531954 .19551956195719581959

1960196119621963196419651966196719681969

19701971197219731974197519761977 v,

1975:1I I . - .I I I . . .IV....

1976:1I I . - .I I I . . .IV....

1977:1ll.__.I I I . . .IV p . .

Index numbers, 1972=100

Gross nationalproduct

Implicitprice

deflator

32.87

25.13

28.40

29.1031.4934.8236.4137.1337.9943.8849 7053.1352.59

53.6457.2758.0058.8859.6960.9862.9065.0266.0667.52

68.6769.2870.5571.5972.7174.3276.7679.0282.5786.72

91.3696.02

100. 00105.80116.02127.18133. 88141.32

124.21125.96128.20130.17

131.47133.06134.56136. 35

138.13140. 52142.19144.34

Fixed-weighted

price index(1972

weights)

68.169.1

70.371.172.072.873.775.077.279.583.087.1

91.696.1

100.0106.0116.8127.7134.9143.2

124.5126.5128.8130.8

132.3133.9135.5137.5

139.9142.3144.0146.1

Gross domesticproduct

Implicitprice

detlator

32.8

25.2

28.4

29.131.534.836.437.138.043.949 753.152.6

53.657.257 958.859.660.962.865 066.067.5

68.669.270.571.672.774.376.879.082.686.8

91.496.0

100.0105.7115.6126.8133.4140.8

123.8125.6127.8129.8

131.0132.7134.1135.9

137.6140.0141.7143.8

Fixed-weighted

price index(1972

weights)

68.069.1

70.271.172.072.873.775.077.279.683.087.1

91.796.2

100.0105.9116.4127.3134.4142.6

124.1126.0128.3130.4

131.9133.5135.1137.1

139.4141.8143.4145.6

Percent change from preceding period »

Gross national product

Implicitprice

deflator

- 2 . 2

- . 7

2.58.2

10 64.62.02 3

15.713 16 9

- 1 . 0

2.06.81 31.51.42 23.23 41.62.2

1.7.9

1.81.51.62.23.32.94.55.0

5.45.14.15.89.79.65.35.6

10.85.77.36.3

4.14.94.65.4

5.37.14.86.2

Fixed-weighted

price index(1972

weights)

1.6

1.71.11.31.11.21.82.93.0

5.0

5.24.94.06.0

10.29.45.66.1

8.86.47.46.4

4.65.24.86.0

7.17.04.86.1

Chainpriceindex

1.6

1.71.21.41.31.41.93.13.0

5.0

5.35.04.16.09.99.55.66.0

9.56.57.46.1

4.95.34.65.9

6.97.04.36.0

Gross domestic product

Implicitprice

deflator

- 2 . 1

- . 7

2.58.2

10.64.52.02.3

15.613.16.9

- 1 . 0

2.06.71 31.51.42.23.23 41.62.2

1.7.9

1.91.51.62.23.33.0

5.1

5.35.14.15.79.39.75.25.5

11.45.87.46.4

3.85.04.45.5

5.07.14.96.3

Fixed-weighted

price index(1972

weights)

1.6

1.71.21.31.11.21.83.03.0

5.0

5.24.94.05.99.99.45.66.1

8.86.57.56.6

4.65.24.66.1

7.07.04.86.2

Chainpriceindex

1.6

1.71.2

l!31.41.93.13.1

5.0

5.35.04.15.99.69.55.65.9

9.66.67.46.2

4.85.44.56.0

6.77.04.36.0

i Changes are based on unrounded data and therefore may differ slightly from those obtained from published indexesshown here. Quarterly data are at annual rates.


262


TABLE B-5.—Gross national product by industry in 1972 dollars, 1947-76

[Billions of 1972 dollars]

Year

194719481949

19501951195219531954

19551956195719581959

19601961196219631964

1965..196619671968.. ..."...1969

19701971197219731974

19751976

Grossna-

tionalproduct

468.3487.7490.7

533 5576.5598.5621.8613 7

654.8668.8680.9679.5720.4

736.8755.3799 1830.7874.4

925.9981.0

1,007.71,051.81, 078.8

1, 075.31,107.51.171.11,235.01,217.8

1, 202.11,274.7

Agri-culture,fores-

try,andfish-eries

26.128.027.8

29 128.229.030.331 1

31.931.430.832.030.9

32.232.332 332.832.1

33.031.332.632.433.0

34.336.135.435.935.7

37.136.8

Con-struc-tion

22.926.526.5

29.332.533.834.836.0

38 240 940 942 145.5

46 146.648 349 853 7

57.059 059.562.561.2

57.157.158.058.356.0

50.555.3

Manufacturing

Total

114.9121.5115.0

131.3146.0150.7161.2149.6

165.8166.9167.8153.3170.7

172.0171.2186.2201.0215.7

235.1254.0254.1268.4276.2

260.6264.1288.8313.0291.9

273.3304.9

Du-rablegoodsindus-tries

68.572.066.3

78.189.994.3

102.691.7

103.4102.5102.988.8

100.7

101.599.3

110.1119.0129.3

144.1157.0157.2165.5169.1

154.4155.3171.9189.0176.0

161.1180.6

Non-durablegoodsindus-tries

46.449.648.8

53.256.156.458.657.9

62.464.464.964.570.0

70.572.076.282.186.4

91.097.096.9

102.9107.2

106.2108.7116.8124.1115.9

112.1124.3

Trans-porta-tion,com-muni-cation,

andutili-ties

38.338.736.4

39.644.244.345.945.6

49.452.353.452.255.7

58.059.162.165.668.9

74.380.082.388.292.9

95.197.3

103.6112.6112.4

112.8116.9

Whole-saleand

retailtrade

76.178.079.9

87.688.391.194.094.6

103.2106.2108.0107.9115.8

117.9119.2126.7131.7139.7

148.6156.9160.7170.6174.5

178.4186.8201.2212.0205.7

208.7219.5

Finance,insur-ance,andreal

estate

55.457.160.7

64.466.771.174.077.7

82 085.789 893 598.1

101 9106.8115 3115 3119 3

127 2131 4136.5142 9149 3

152 9160.6167 3171.1180.3

182.6193.9

Serv-ices

55.156.757.2

59.460.661.663.063.1

67.571.173.375.880.3

82.285.488 692.296.9

101.2106.5112.7116.3121.4

124.7126.6134.5143.1144.7

145.0152.3

Gov-ern-mentand

govern-mententer-prises

68.569.073.1

75.489.896.696.494 9

95.497.6

100.1101.7103.6

107.2111.1115 1118.3122.6

127.4136.4143.5148.1151.8

152.0153.1154.9157.3160.0

162.7164.0

Allother i

11.112.014.1

17.520.220.222.321.1

21.416.616.821.020.0

19.423.624.524.125.6

22.125.425.722.418.4

20.425.727.731.631.1

29.531.1

i Mining, rest of world, and residual (GNP in 1972 dollars measured as the sum of final products less GNP in 1972 dollarsmeasured as the sum of gross product by industry).

Note.—The industry classification is on an establishment basis and is based on the 1972 Standard Industrial Classification.Source: Department of Commerce, Bureau of Economic Analysis.

263


T A E L E E-6.—Gross natioral product by major type of product% 1929-77

[Billions of dollars; quarterly data at seasonally adjusted annual ratesl

Yearor

quar-ter

1929..

1933..

1939..

1940..1941..1942..1943..1944..1945..1946..1947..1948..1949..

1950..1951..1952..1953..1954..1955..1956..1957..1958..1959..

1960..1961..1962..1963..1964..1965..1966..1967..1968..1969..

1970..1971..1972__1973..1974..1975..1976.,1977 v

1975:l__.II . . .III..IV..

1976:L -II. . .III..IV..

1977:L -IL -III..IV v


103.4

55.8

90.8

100.0124.9158.3192.0210.5212.3209.6232.8259.1258.0

286.2330.2347.2366.1366.3399.3420.7442.8448.9486.5

506.0523.3563.8594.7635.7688.1753.0796.3868.5935.5

982.41,063.41,171.11,306.61,412.91, 528.81, 706. 51,890.4

1,453.01,496.61,564. 91, 600. 7

1,651.21,691.91,727.31, 755. 4

1,810.81, 869. 91,915.91, 965.1

Finalsales

101.7

57.4

90.4

97.8120.4156.5192.5211.5213.4203.2233.2254.4261.1

279.4319.9344.0365.7367.8393.3416.0441.4450.4481.2

502.2521.1557.3588.8629.9678.6738.7786.2860.8926.2

978.61,057.11,161.71,288.61,404. 01, 540. 31, 693.11,872.7

1,475.01,521.71, 560.01,604.4

1,636.71, 673. 71,705.81,756. 3

1,797.01, 848. 21, 892. 21,953.2

Inven-tory

change

1.7

- 1 . 6

.4

2.24.51.8

- . 6- 1 . 0- 1 . 0

6.4- . 54.7

- 3 . 1

6.810.33.1.4

- 1 . 56.04.71.3

- 1 . 55.2

3.82.26.56.05.89.5

14.310.17.79.4

3.86.49.4

17.98.9

-11.513.317.8

-22.0-25 .1

4.9- 3 . 6

14.518.321.5- . 9

13.821.723.611.9

Goods

Total

56.1

27.0

49.0

56.072.593.7

120.4132.3128.9125.3139.8154.4147.7

162.4189.5194.6203.1196.1214.5223.3232.3228.2247.4

254.3256.5278.0289.7309.0336.6373.9387.3418.9446.2

456.2479.8526.0598.8638.6686.2764.2834.5

643.8667.8711.5721.6

744.6761.7776.0774.7

805.9827.1843.5861.5

Total

Finalsales

54.4

28.6

48.6

53.868.091.9

121.0138.3129.9118.9140.3149.7150.8

155.6179.2191.5202.7197.6208.5218.6231.0229.7242.2

250.6254.3271.5283.7303.2327.1359.6377.2411.2436.8

452.4473.5516.6580.9629.7697.7750.9816.8

665.8692.9706.6725.2

730.0743.4754.5775.6

792.1805.4819.9849.6

Inven-tory

change

1.7

- 1 . 6

.4

2.24.51.8

- . 6- 1 . 0- 1 . 0

6.4- . 54.7

- 3 . 1

6.810.33.1.4

- 1 . 56.04.71.3

- 1 . 55.2

3.82.26.56.05.89.5

14.310.17.79.4

3.86.49.4

17.98.9

-11.513.317.8

-22.0-25.1

4.9- 3 . 6

14.518.321.5- . 9

13.821.723.611.9

Dur<goo

Finalsales

16.1

5.4

12.4

15.423.834.554.258.550.131.844.146.948.3

54.762.567.671.569.078.282.387.380.587.4

89.190.298.4

105.4115.0127.0139.0143.5157.4169.2

170.7179.8202.1229.6240.8267.5299.3333.2

250.6263.8272.5283.1

287.6294.9302.7312.0

326.6329.5332.1344.9

bleds

Inven-tory

change

1.4

- . 5

.3

1.23.11.0.0

- . 6- 1 . 3

5.31.7.7

- 2 . 1

4.16.91.1.9

- 2 . 53.02.81.3

- 2 . 82.7

2.4- . 13.62.73.96.6

10.05.35.06.1

.01.86.3

10.97.1

- 9 . 24.18.8

- 1 2 . 8- 1 1 . 7- 2 . 1

-10 .3

- 2 . 07.0

10.7.6

7.811.510.35.5

Nondigoc

Finalsales

38.3

23.2

36.2

38.444.257.466.874.879.887.196.2

102.8102.5

100.9116.7123.9131.2128.7130.3136.3143.7149.2154.8

161.4164.1173.2178.3188.2200.1220.6233.7253.8267.6

281.7293.7314.5351.3389.0430.2451.6483.5

415.2429.1434.2442.1

442.4448.5451.8463.6

465.6475.9487.8504.8

rableds

Inven-tory

change

0.3

- 1 . 1

.1

1.01.4.7

- . 6- . 3

.21.1

- 2 . 24.0

- 1 . 0

2.73.42.0

- . 51.02.91.9.0

1.32.5

1.42.32.93.31.92.94.34.82.83.3

3.74.63.27.01.8

- 2 . 29.39.0

- 9 . 2-13.4

7.06.7

16.611.210.9

- 1 . 6

6.010.213.46.4

Serv-ices

35.9

25.9

34.3

35.740.650.662.972.276.968.671.376.781.9

88.2102.9113.1121.0125.7135.3145.2157.5166.9179.5

193.2206.7221.5236.2254.4272.7297.7326.1356.6388.7

424.6465.5510.8560.5626.8699.2782.0868.4

670.5689.5708.4728.3

751.6770.8791.8813.8

833.7855.3881.6903.1

Struc-tures

11.4

2.9

7.5

8.311.814.08.76.16.5

15.721.728.028.4

35.637.839.442.044.549.552.253.053.859.5

58.460.164.368.972.478.881.482.993.0

100.7

101.6118.1134.3147.2147.4143.5160.2187.5

138.8139.3145.0150.8

155.0159.4159.6166.9

171.2187.5190.7200.4

Autoout-put

" 7 . 18.9

12.0

15.513.412.216.314.921.517.219.614.619.6

21.618.122.925.626.531.831.128.836.636.8

30.642.245.150.742.946.262.972.8

36.244.051.952.5

61.163.560.966.1

74.173.270.873.2


264


TABLE B-7.—Gross national product by major type of product in 1972 dollars, 1929-77

[Billions of dollars; quarterly data at seasonally adjusted annual ratesl

Yearor

quar-ter

1929..

1933..

1939..

1940..1941. .1942..1943..1944..1945..1946..1947..1948..1949..

1950..1951. .1952..1953. .1954..1955..1956..1957..1958..1959..

I960 . .1961. .1962. .1963. .1964..1965. .1966..1967..1968..1969..

1970..1971.1972..1973..1974..19751976..1977 v.

1975:

if".III..IV..

1976:1 . . .II —III.IV..

1977:1 . . .IL_.III..IV v.


314.7

222.1

319.7

343.6396.6454.6527.3567.0559.0477.0468.3487.7490.7

533.5576.5598.5621.8613.7654.8668.8680.9679.5720.4

736.8755.3799.1830.7874.4925.9981.0

1,007.71,051.81,078.8

1,075.31,107.51,171.11,235.01,217.81 202 11,'274.71,337.6

1,169.81,188.21,220.71,229.8

1,256.01,271.51,283.71,287.4

1,311.01,330.71,347.41,361.4

Finalsales

310.0

227.0

318.1

337.4384.6449.4527.3569.3562.6464.9468.5482.2495.1

522.9562.8594.2620.3615.8647.1663.0679.4681.3714.0

732.4752.4791.0823.0867.1914.6964.3995.7

1,043.11,068.2

1,071.01,100.91,161.71,218.51,209.91 212 f)I] 266.21,326.1

1,189.71,206.21,217.81,234.4

1,246.31,259.41,269.81,289.2

1,301.21,317.51,331.81,353.8

Inven-tory

change

4.6

- 4 . 9

1.6

6.212.05.2.1

- 2 . 3- 3 . 612.2- . 25.5

- 4 . 4

10.613.74.31.5

- 2 . 27.75.81.5

- 1 . 86.5

4.42.98.17.87.3

11.316.712.08.7

10.6

4.36.69.4

16.58.0

- 9 98.5

11.6

-20.0-18.0

2.9- 4 . 6

9.712.113.8

- 1 . 8

9.713.215.77.7

Goods

Total

143.9

97.2

153.9

171.2197.4221.1263.5286.8279.2238.0236.8244.2239.9

261.5283.1292.3306.9292.2316.3320.9321.8312.0332.5

337.1338.1362.0373.0394.0421.5455.6461.9481.1492.3

483.4491.6526.0569.0554.2538.8580.1612.9

516.8529.7553.9554.7

571.8579.8586.9581.9

602.4608.5617.0623.7

Total

Finalsales

139.3

102.1

152.3

165.0185.4215.9263.4289.1282.8225.8237.0238.7244.3

250.9269.4288.0305.4294.4308.6315.1320.3313.8326.1

332.8335.2353.8365.2386.7410.2438.9449.9472.4481.7

479.1484.9516.6552.5546.2548.7571.6601.3

536.7547.8551.0559.3

562.1567.6573.0583.7

592.7595.3601.3616.1

Inven-tory

change

4.6

- 4 . 9

1.6

6.212.05.2.9

- 2 . 3- 3 . 612.2- . 25.5

- 4 . 4

10.613.74.31.5

- 2 . 27.75.81.5

- 1 . 86.5

4.42.98.17.87.3

11.316.712.08.7

10.6

4.36.69.4

16.58.0

- 9 . 98.5

11.6

-20.0-18.0

2.9- 4 . 6

9.712.113.8

- 1 . 8

9.713.215.77.7

Durablegoods

Finalsales

40.7

17.6

35.6

43.157.576.0

119.3135.9121.960.574.975.676.1

84.492.6

100.6105.9101.7112.9113.5114.6104.8110.6

111.6112.6121.1128.4139.2152.6165.2166.6175.7183.3

179.1181.5202.1225.9222.7219.2232.4248.4

212.9216.9221.0226.1

228.1230.9233.5237.0

246.7247.4246.8252.7

Inven-tory

change

3.5

- 2 . 1

.7

3.48.23.5.7

- 1 . 8- 3 . 710.81.81.5

- 3 . 7

6.39.81.81.4

- 3 . 64.23.71.5

- 3 . 43.3

2.9- . 14.43.45.08.0

11.96.45.66.8

.11.86.2

10.65.6

- 7 . 22.85.9

-11 .4- 9 . 3- 1 . 1- 7 . 3

- 1 . 25.07.2.1

5.67.36.73.8

Nondurablegoods

Finalsales

98.6

84.5

116.7

121.8127.9140.0144.1153.2161.0165.3162.1163.1168.2

166.5176.8187.4199.5192.7195.7201.6205.6209.0215.5

221.2222.7232.7236.8247.5257.7273.7283.3296.7298.4

300.0303.4314.5326.6323.5329.5339.3353.0

323.8330.9330.0333.2

334.0336.8339.5346.7

346.0347.9354.5363.4

Inven-tory

change

1.1

- 2 . 8

.9

2.83.81.7

- . 6- . 5

.11.3

- 2 . 04.0

- . 8

4.23.92.5.1

1.43.52.1.0

1.63.2

1.53.03.74.32.33.34.85.63.23.7

4.24.83.25.92.4

- 2 . 75.75.7

- 8 . 6- 8 . 8

3.92.7

10.87.16.6

- 1 . 9

4.25.89.03.8

Serv-ices

126.8

110.9

134.6

139.5157.6192.7240.9263.6261.9199.7186.9190.9197.0

206.0229.0240.6245.5247.0257.6267.2279.3285.6298.0

310.7325.5339.9354.0372.2389.1410.2432.7449.9465.4

477.2491.1510.8531.1546.4560.7584.7606.7

552.3558.3563.5568.5

575.4581.7587.9593.6

597.1602.9611.1615.6

Struc-tures

44.0

14.0

31.2

32.941.540.723.016.617.939.444.752.553.7

66.064.465.669.474.580.980.779.981.989.9

89.091.797.2

103.8108.1115.3115.2113.1120.9121.1

114.6124.9134.3134.8117.2102.7109.9118.0

100.7100.1103.3106.6

108.7110.1108.8111.9

111.5119.3119.4122.1

Autoout-put

~

12.914.718.9

24.020.418.423.922.931.324.425.820.024.7

26.822.627.530.331.137.436.733.540.640.0

32.542.145.150.640.139 850.155.7

32.238.444.744.0

49.951.148.251.2

56.856.454.654.9


265


T A B L E B—8.—Gross national product: Receipts and expenditures by majoreconomic groups, 1929-77


Year orquarter

1929 .

1933

1939

19401941 . . .19421943 .194419451946 . . .194719481949

19501951195219531954 .19551956195719581959 . . .

1960196119621963196419651966196719681969 . . .

19701971197219731974 . .197519761977 v

Persons

Disposable personalincome

Total«

82.3

45.5

69.9

75.292.0

116.5132.9145.5149.0158.6168.4187.4187.1

205.5224.8236.4250.7255.7273.4291.3306.9317.1336.1

349.4362.9383.9402.8437.0472.2510.4544.5588.1630.4

685.9742.8801.3901.7984.6

1,084.41,185.81,308.6

Less:Inter-

estpaidand

trans-fers a

1.9

.7

.9

1.0

'.B.7.8.9

1.41.72.12.3

2.72.93.34 04.34.85.65.96.06.5

7.47.78.39.4

10.511.712.613.314.115.6

16.617.318.921.523.423.825.930.7

Equals'.Total

exclud-ing in-terestpaidand

trans-fers

80.4

44.8

69.1

74.391.0

115.6132.1144.6148.0157.3166.7185.3184.9

202.8221.9233.1246.6251.4268.6285.7301.0311.1329.6

342.0355.2375.6393.4426.5460.4497.8531.2574.0614.8

669.4725.5782.4880.2961.3

1, 060.61,159.91,277.9

Per-sonalcon-

sump-tionex-

pendi-tures

77.3

45.8

67.0

71 080.888.699.4

108.2119.5143.8161.7174.7178.1

192.0207.1217.1229.7235.8253.7266.0280.4289.5310.8

324 9335.0355.2374.6400.4430.2464.8490.4535.9579.7

618.8668.2733.0809.9889.6980.4

1, 094.01,210.1

Per-sonalsaving

ordis-

3.1

- 1 . 0

2.1

3 310.227.032 736.528 513.44.9

10 66.7

10.814 816.017 015.614.919.720.621 718.8

17.120.220.418.826.130 333.040.938.135.1

50.657.349.470.371.780.265.967.8

Government

Net receipts

Taxandnon-taxre-

ceiptsor ac-cruals

11.3

9.3

15.4

17 725.032.649.251.253.251.056.958.955.9

69.085 290.194.689.9

101.1109.7116.2115 0129.4

139.5144.8156.7168.5174.0188.3212.3228.2263.4296.3

302.6322.2367.4411.2455.1468.0535.9600.8

Less:Trans-fers,inter-estandsub-

sidies*

1.5

2.5

4.1

4 33.84.24.46.09 9

18.017.118.520.9

22.519 118.319 021.323.025.128.232.633.4

36.140.942.444.146.549.554.962.270.277.8

93.1106.8117.8135.4155.6193.4210.1226.2

Equals:Netre-

ceipts

9.8

6.9

11.3

13 521.228.444.745.243 333.039.940.435.0

46.566 271.875 668.678.184.688.082.496.0

103.4103.9114.3124.4127.5138.9157.4166.0193.2218.5

209.5215.5249.6275.8299.5274.6325.8374.6

Expenditures

Totalex-

pendi-tures

10.3

10.7

17.6

18 428.864.093.3

103.092.745.642.550.559.3

61.079 293.9

101 697.098.0

104.5115.3127.6131.0

136.4149.1160.5167.8176.3187.8213.6242.4268.9285.6

311.9340.5370.9404.9458.2532.3571.5621.2

Less:Trans-fers,inter-estandsub-

sidies*

1.5

2.5

4.1

4 33.84.24.46.09.9

18.017.118.520.9

22.519.118.319 021.323.025.128.232.633.4

36.140.942.444.146.549.554.962.270.277.8

93.1106.8117.8135.4155.6193.4210.1226.2

Equals:Pur-

chasesof

goodsand

serv-ices

8.8

8.2

13.5

14 224.959.888.997.082.827.525.532.038.4

38.560 175.682 575.875.079.487.195.097.6

100.3108.2118.0123.7129.8138.4158.7180.2198.7207.9

218.9233.7253.1269.5302.7338.9361.4395.0

Sur-plusor

deficit

na-'tional

in-comeand

prod-uct ac-counts

1.0

- 1 . 4

- 2 . 2

- 7- 3 . 8

-31.4-44.1-51.8-39.5

5.414.48.4

- 3 . 4

8.06.1

- 3 . 8- 6 . 9- 7 . 1

3.15.2.9

-12.6- 1 . 6

3.1- 4 . 3- 3 . 8

- 2 . 3.5

- 1 . 3-14.2- 5 . 510.7

- 9 . 4-18 .3- 3 . 5

6.3- 3 . 2

-64.3-35.6-20 .4


266


TABLE B-8.—Gross national product: Receipts and expenditures by majoreconomic groups, 1929-77—Continued


Yearor

quarter

1929

1933

1939

1940. .1941 .1942194319441945 .1946194719481949

195019511952 .195319541955195619571958.. . .1959

196019611962.. . .19631964 .1965...19661967.19681969.. .

19701971 .19721973.19741975. .19761977 p__

Grossre-

tainedearn-ings*

11.7

3.2

8.8

10 912.014 816.717.716 015.821.830 031.4

30.834 637 138.041 047.548 751.151.358 5

58 759 867.070 176 284 691.293 798 2

101.7

101.4115.7131.0140.2137.9179.2206 6226.9

Busines

Grosspri-vatedo-

mesticinvest-ment5

16.2

1.4

9.3

13 117.99 95.87.2

10 630.734.045 935.3

53.859 252 153.352 768.471 069.261.977 6

76 474.385.290.296.6

112.0124.5120.8131 5146.2

140.8160.0188.3220.0214.6189.1243 3294.3

j

Excessof earn-ings orof in-vest-ment(-)

-4.4

1.8

- .5

-2 2-5.8

4 910.910.55 4

-14.9-12 .1- 1 5 8- 3 . 8

-23 .0- 2 4 6-15 .1-15 .3-11 7-20 .8- 2 2 3-18 .1-10 .6-19.0

-17.7-14.5-18.2-20.1-20.4-27.4-33 .3-27 .1- 3 3 3-44 .5

-39 .5-44 .3-57 .3-79 .8-76.7- 9 . 9

-36.8- 6 7 . 4

International

Nettrans-

fers andinter-

estpaid to

for-eigners

(6)

0.4

.2

.2

2.2

2.2

'82.92.64 55.6

4.03 52.62.52 32.52 52.52.42.6

2 62.83.03.13.23.33.53.73 63.8

4.35.56.57.78.58.58.7

10.0


Ex-ports

7.0

2.4

4.4

5 45.94 84.45.37.2

14.819.816.915.9

13.918 918.217.118.020.023.926.723.323.7

27.628.930.632.737.439.542.845.649.954.7

62.565.672.7

101.6137.9147.3162.9175.6

Less:Im-

ports

5.9

2.0

3.4

3.64.64.86.57.17.87.28.2

10.49.6

12.015.115.816.616.017.819.620.720.823.2

23.223.125.226.428.432.037.740.647.752.9

58.564.075.994.4

131.9126.9155.1184.7

Equals:Netex-

ports

1.1

. 4

1.1

1 71.3

0- 2 . 0- 1 . 8- . 67.6

11.66 56.2

1.93 82.4

.62.02.24.36.12.5.6

4.45.85.46.38.97.65.14.92.31.8

3.91.6

- 3 . 37.16.0

20.47.8

- 9 . 0

Excessof

nettrans-fersand

inter-est

or ofnet ex-ports( - ) 7

-0 .7

- . 2

- . 9

-1 .5-1 .1

22.22.11.4

- 4 . 6- 9 . 0- 2 . 0- . 6

2.1- . 3

.21.9.3.3

- 1 . 8- 3 . 6- . 12.0

- 1 . 7- 3 . 0-2.4-3.2-5.7-4.3- 1 . 6- 1 . 2

1.42.0

.33.99.8

.62.5

-11 .8.9

19.1

Totalincomeor re-ceipts

102.3

55.1

89.4

98 9124.3159 1193.8207.8208 2208.9231.0260 3257.0

284.1326 2344.5362.8363.3396.8421.5442.6447.2486.7

506.7521.7559.8591.0633.5687.2749.8794.6869.1938.8

984.51,062.11,169.41,303.91, 407.11, 523.01,701.01,889.4

Statis-ticaldis-

crep-ancy

1.1

.7

1.4

1 i.5

— 8- 1 . 8

2.74.1.7

1.8- 1 . 2

1.0

2.04.02.73.33.02.5

- . 8.2

1.7- . 2

- . 71.64.03.72.2.9

3.21.7

- . 6- 3 . 3

- 2 . 11.31.72.65.85.95.51.0

Grossna-

tionalprod-uct

or ex-pendi-ture

103.4

55.8

90.8

100 0124.9158 3192.0210.5212 3209.6232.8259.1258.0

286.2330.2347.2366.1366.3399.3420.7442.8448.9486.5

506.0523.3563.8594.7635.7688.1753.0796.3868.5935.5

982.41,063.41,171.11, 306.61,412.91, 528.81,706. 51,890.4

1 Personal income less personal tax and nontax payments (fines, penalties, etc.).2 Interest paid by consumers to business and net personal transfer payments to foreigners.3 Government transfer payments to persons and foreigners, net interest paid by government, subsidies less current

surplus of government enterprises, and disbursements less wage accruals.4 Undistributed corporate profits with inventory valuation and capital consumption adjustments, corporate and non-

corporate capital consumption allowances with capital consumption adjustment, and private wage accruals lessdisbursements.

s See Table B-14.6 Net transfers to foreigners by persons and government and interest paid by government to foreigners.7 Capital grants received by the United States (net) less net foreign investment.


267


T A B L E B-9.—Gross national product by sector, 1929-77

[Billions of dollars, except as noted; quarterly data at seasonally adjusted annual rates]

Year or quarter

1929.. . .

1933

1939

1940194119421943 . .1944194519461947 .19481949

1950195119521953195419551956195719581959 . . .

I960 . . .196119621963196419651966196719681969 . .

19701971197219731974 .197519761977 P

1975: 1IIIIIIV

1976: 1IIIIIIV

1977: 1IIIII


103.4

55.8

90.8

100.0124.9158.3192.0210.5212.3209.6232 8259.1258.0

286.2330.2347.2366 13b6. 3399.3420 7442.8448 9486.5

506.0523.3563.8594.7635.7688.1753.0796.3868.5935.5

982.41, 063. 41,171.11,306.61,412.91, 528.81, 706. 51,890.4

1,453.01,496.61, 564.91,600. 7

1,651.21,691.91,727.31, 755.4

1,810.81,869.91,915.91,965.1


Total

102.6

55.5

90.5

99.6124.5157.9191.6210.1212.0209.0231.8257.9256.9

284.8328.7345.7364.6364.5397.3418.5440.5446.6484.0

503.5520.2560.259L1631.4683.4748.8791.8863.7931.1

977.81, 056.81,164.11, 297. 51, 399.81,518.31, 692.11, 872.9

1, 443.21, 486.11,553.91, 590.0

1,637.01,678.41,712.01, 740. 9

1, 793. 21,851.41, 898. 21,948.8

Business

Total

95.4

49.1

80.6

89.4112.6139.9162.8174.2172.8183.8210.0234.9231.5

257.5294.4307.3324 9323.9354.0372.1390.8393.1427.7

442.5455.3490.4516.5550.7596.6651.1682.7742.2798.1

831.5896.9989.5

1,108.01, 193. 71, 289 61, 444.31,604.1

1, 222. 31, 260.11, 323.11, 353.1

1, 395. 81, 433. 31, 463.01, 485.1

1, 532. 31, 586. 41, 628.11,669. 5

Non-farm l

84.7

43.8

72.9

81.8103.1127.7149.3156.2152.7164.2188 0212.7211.7

235.5267.4282.5301 2301.3332.8354.3372.3370 7408.9

423.0433.4465.9492.2529.2573.8625.0658.8720.2776.2

807.6867.9955.8

1, 055. 21,139.91, 234.61, 390.91,552.8

1,173.21, 208. 41, 262. 81, 294.1

1, 343.11, 378. 01, 409. 41, 433. 4

1, 478.01, 536. 71, 580. 0

Farm

9.7

4.6

6.3

6.58.9

13.015.315.316.018.920.223.318.8

20.022.922.220 319.618.818.618.420.719.1

20.220.220.520.519.322.022.922.222.625.2

25.927.732.050.148.049 247.950.3

43.148.252.353.1

48.650.945.646.4

51.050.847.252.0

Sta-tis-ticaldis-

crep-ancy

1.1

.7

1.4

1.1.5

- . 8- 1 . 8

2.74.1

.71.8

- 1 . 21.0

2.04.02.73.33.02.5

- . 8.2

1.7- . 2

- . 71.64.03.72.2.9

3.21.7

- . 6- 3 . 3

- 2 . 11.31.72.65.85.95.51.0

6.03.58.05.9

4.24.58.05.3

3.3- 1 . 2

.9

House-holdsand

insti-tutions

2.9

1.7

2.3

2.42.52.93.23.74.14.55.15.65.9

6.46.97.27.88.19.19.8

10.511.412.3

13.814.415.516.617.819.221.123.926.429.2

31.634.737.240.544.850.456.263.0

48.549.551.052.7

54.455.556.458.3

60.462.063.666.0

Government 2

Total

4 3

4.7

7.6

7.89.4

15.125.632.235.220.816.717.419.4

20.927.431.231.932.534.236.639.142.144.0

47.150.554.358.062.967.676.585.195.2

103.7

114.7125.2137.4149.1161.4178.2191.6205.8

172.4176.5179.8184.2

186.8189.6192.6197.5

200.5203.1206.5213.2

Fed-eral

0.9

1.2

3.4

3.55.0

10.620.927.229.814.69.48.9

10.0

10.716.218.918.617.818.419.019.620.520.9

21.722.624.125.227.028.332.435.639.341.8

44.746.850.151.954.959.062.466.5

58.058.358.761.1

61.461.661.864.7

65.465.565.869.2

Stateandlocal

3.5

3.5

4.2

4.34.44.54.74.95.46.27.38.59.4

10.111.212.313 314.715.817.619.621.623.1

25.527.930.232.935.939.344.149.555.961.9

70.078.587.397.1

106.5119.2129.2139.4

114.4118.2121.1123.2

125.4128.1130.7132.8

135.1137.6140.7144.1

Restof theworld

0.8

.3

.3

4.4.4.3.4.3.59

1.21.1

1.31.51.51 51.82.02 22.32 22.4

2.53.13 63.74.34.74.24.64.84.5

4.66.67.09.1

13.110.514.417.5

9.810.511.010.8

14.213.515.314.4

17.618.417.716.3

Percentchangefrom

preced-ing

period,gross

domes-tic

prod-uct*

- 4 . 1

7.0

10 125.026.821.49.6

.9- 1 . 410 911.3

10.915.45.25 5

- . 09.05 35.21 48 4

4 03.37 75. 56.88 29.65.79.17.8

5.08.1

10.111.57.98.5

11.410.7

1.612.419.59.6

12.410.58.26.9

12.613.610.511.1

i Includes compensation of employees in government enterprises.* Compensation of government employees.3 Changes are based on unrounded data and therefore may differ slightly from those obtained from data shown here.

See Table B-l for percent changes in gross national product.Source: Department of Commerce, Bureau of Economic Analysis.

268


TABLE B-10.—Gross national product by sector in 1972 dollars, 1929-77

[Billions of 1972 dollars, except as noted; quarterly data at seasonally adjusted annual rates]

Year or quarter

1929

1933

1939

19401941194219431944... .19451946194719481949

195019511952195319541955 .1956195719581959

196019611962196319641965 . .1966196719681969

1970197119721973 .1974 _1975 . .19761977 v .

1975: 1IIIII.IV

1976: 1II—IIIIV

1977: 1 . . .II.. . .IIIIVP


314.7

222.1

319.7

343.6396.6454.6527.3567.0559.0477.0468.3487.7490.7

533.5576.5598.5621.8613.7654.8668.8680 9679.5720.4

736.8755.3799.1830.7874.4925.9981.0

1,007. 71,051.81,078.8

1,075.31,107.51,171 11,235.01,217.81, 202.11, 274.71,337.6

1,169.81,188.21,220.71, 229.8

1,256.01,271.51,283.71, 287.4

1,311.01,330.71, 347.41,361.4

Total

312.8

220.5

318.6

342.3395.4453.5526.4566.0558.1475.9466.7485.9488.8

531.5574.7596.7619.9611.4652.2666.1678.0676.5717.3

733.6751.2794.3825.8868.7919.9975.6

1, 001.91,045.71,073.1

1,069.81,100.31,164.11,227.41,211.01,197.31,268.01,330.2

1,165. 51,183.41,215.61, 224.6

1, 249 21, 265.11, 276.71, 280.9

1, 303.31, 322.81, 340.11,354.8


Business

Total

271.1

179.7

261.5

282.4324.4355.3381.9401.9396.9385.1392.8411.2409.4

448.6477.2492.8515.6508.0546.5557.2566 0561.9600.5

611.8625.6663.9692.0730.4776.4822.4839.8878.2901.5

898.3927.6989 5

1,050.41,031.21,013.71, 082.01,141.4

983.3999 8

1, 031. 51,040.1

1, 064 21, 079.31, 090.51, 093.9

1,116.21,134.91,150. 51,163.9

Non-farm i

244.2

152.1

231.6

254.1297.2330.3360.6371.2365.3362.3370.8387.2382.1

417.9445.9460.7480.6473.4512.5529.3538.7528.2569.6

580.5590.9629.6658.4697.1746.7791.1807.8850.6877.4

871.3894.9955.8

1,013.2993.7974.3

1, 043. 81,103.8

946.2961.7989.4999.8

1, 026.41, 042.51,051.21,054.8

1, 077.81,099.81,112.71,125.0

Farm

23.8

25.0

25.3

24.726.328.727.827.325.825.823.925.725.5

26.925.826.327.628.329.228.828.129.328.2

29.529.629.530.029.230.128.529.629.429.9

31.132.832 032.332.233.833.035.9

31.834.334.634.4

33.332.332.234.1

35.134.936.237.4

Resid-ual 2

3.1

2.6

4.7

3.6.9

- 3 . 8- 6 . 6

3.55.8

- 3 . 0- 1 . 9- 1 . 7

1.8

3.85.55.77.36.24.8

- . 9- . 84.42.7

1.85.14.83.64.0

- . 42.82.4

- 1 . 8- 5 . 9

- 4 . 2- . 11.74.95.35.65.21.7

5.33.87.55.9

4.54.57.04.9

3.4.2

1.61.6

House-

andinsti-utions

15 6

12.2

15.1

16 115.916.415 215.115.015.116 016 717.3

18 318.718 619 319.421 422.523 124*224.9

26 827.228 329.029.931 132.834.835 936 6

36 336 637 238 138.038.940 241.4

38.538 839.139.4

40 140.340.040 6

40.641.241.742.1

Government3

Total

26.1

28.7

42.0

43.955.181.8

129.3149.0146.275.857 958.062.2

64 678.885 385.083.984 486.538 990 491.8

94.998.5

102 1104.8108.4112 4120.4127.2131 7135 0

135 2136.0137 4138 9141.9144.6145 8147.5

143.7144 7145.0145.1

144 9145.5146.2146.4

146.5146.7147.9148.8

Fed-eral

5 2

6.6

16.9

18 629.656.7

105 0125.2121.849.729 829 231.3

32 746.251 649 647.245 945.645 844 544.5

45 246.248 348.248.548 753.057.258 158 2

55 252 550 148 348.648.548.448.6

48.748 548.548.4

48.348.348.548.6

48.648.648.748.7

Stateandlocal

20.9

22.0

25.1

25.325.525.024.423.824.526.128 128 830.9

31 932.633 735.536.738 440.843 145 847.3

49.7b2.353 956.660.063 667.570.073 676 8

80 183.587 390.693.396.197.398.8

95.096.296.596.7

96.697.297.797.8

97.998.199.2

100.1

Restof theworld

1 9

1.6

1.2

1 31.21.11 01.0.8

1.11 61 81.9

1 91.81 82 02.32 52.72 93 03.2

3 24.14 84.95.76 15.45.86 15.7

5 57 27 07.66.84.96 77.4

4.34 85.15.2

6.86.47.06.5

7.77.97.46.6

Percentchangefrom

preced-ing

period,gross

domesticproduct«

- 2 . 1

7.7

7 515.514.716 17.5

- 1 . 4- 1 4 . 7- 1 9

4 1.6

8 78.13 83 9

- 1 . 46 72.11 8

_ 26.0

2.32.45 74.05.25 96.12.74 42 6

_ 32 85 85 4

- 1 . 3- 1 1

5 94.9

- 8 . 96 3

11.33.0

8 35.23.71.3

7.26.15.34.5

i Includes compensation of employees in government enterprises.* The difference between gross product in 1972 dollars measured as the sum of final products and that measured as the

sum of gross product by industry.3 Compensation of government employees.* Changes are based on unrounded data and therefore may differ from those obtained from data shown here. See Table

B-2 for percent changes in gross national product in 1972 dollars.


269

248-947 O - 78 •


TABLE B-ll.—Gross domestic product of nonfinancial corporate business, 1929—77


Yearor

quar-ter

1929..

1933..

1939..

1940..1941..1942..19431944..1945.1946..19471948..1949..

1950.1951..19521953..1954..1955..1956..195719581959..

19601961..1962..196319641965..1966..1967..1968..1969..

1970..19711972..1973..1974..1975..1976..1977 p.

1975:l-_-II . . .III..IV

1976:1 . - -11...III..IV..

1977:1 . . .II —IIL.

Grossdo-

mes-tic

prod-uctof

non-finan-cialcor-po-ratebusi-ness

50.1

24.4

43.7

50.465.682.998.7

102.195.399.3

120.0137.3133.5

151.9174.5182 3195.0191.9216.7231.6242.3236 3265.7

277 3284.5311.0330 9357 6392.1430.7452.9498.4541.8

560.6602 5671.0752.0808.8875.2991.0

1,104.9

824.8855.3899.5921 3

958.4983.6

1,004.71,017.2

1, 049. 31,094.91,124.8

Cap-ital

con-sump-

tionallow-anceswithcapi-tal

con-ump-tionad-

just-ment

5.4

4.2

4.7

4.85.36.06 16.26.47 39.1

10.711.6

12.614.615 717.017.919.221.523.724 926.0

27 027.828 729 831 032.835.739.343.047.8

53.158 262.668.780.897.3

107.0116.6

91.696.199.4

102 1

104.0105.6108.0110.2

112.5114.2118.2

Net domestic product

Total

44.7

20.2

39.1

45.660.477.092.695.988.992.1

110.9126.5121.9

139.3159.9166 7178.1174.1197. 5210.1218.5211 4239.7

250 3256.7282 3301.1326 6359.3394.9413.6455.4494.0

507.5544 2608.4683.3728.0778.0884.0988.3

733.2759.3800.2819 2

854.4877.9896.7907.0

936.8980.7

1, 006. 6

Indi-rect

busi-nesstax,

etc. i

3.4

3.8

5.1

5.56.46.87.38.18.9

10.111.212.112.6

14.115.216 818.217.419.220.822.422 825.4

28 330.133 035 638 441.142.945.851.657.1

61.868 273.580.585.792.199.4

108.5

87.690.894.295 9

96.198.8

100.0102.5

105.3107.5109.4

Domestic income

Total

41.3

16 4

34.0

40.153.970.185.387.880.081.999.8

114.4109.3

125.2144.7149 8159. S156.6178.3189.2196.2188 6214.4

222 C226.5249 2265 6288 3318.2352 0367.9403.8437.0

445.7476 0534.8602.8642.3685.8784.6879.8

645.6668.5705.9723 2

758.3779.1796.6804.5

831.6873.3897.2

Com-pen-

sationof

em-ploy-ees

32.3

16.7

28.2

31.239.851.062.265.161.967.279.187.885.3

94.7110.2118 3128.7126.5138.5151.4159.1155 9171.6

181 1185.1199 8210 7226 3246.1273 5291.9321.6357.4

377.1399 4443.8503.8552.9576.6650.3732.7

561.7565.2580.3599 3

626.1643.3657.3674.4

700.6727.4741.2

Corporate profits with inventory valuation and capitalconsumption adjustments

Total

7.6

- 2 . 0

4.3

7.512.817.922.021.717.214.119.925.823.0

29.633.430.329.928.638.236.135.030.139.7

37 437.444 950.056 766.171 267.272.166.4

51.658 772.076.059.578.3

101.9110.4

53.072.494.992 9

100.2103.6106.897.1

96.3109.8118.5

Profits before tax

Total

8.4

.6

6.1

8.816.420.123.622.217.822.029.131.824.9

38.539.133.834.932.142.041.839.833.743.1

39 539.243 748.354 664.469 565.471.968.4

55.163 375.992.7

102.9102.3130.6141.9

80.593.4

116.6118 9

127.0133.5133.0128.7

132.4143.4142.0

Profitstaxiabil-'ty

1.2

.5

1.4

2.77.5

11.213 812.610.28.6

10 811.89.3

16.921.217.818.515.620.220.119.116 220.7

19 219.520 622.824 027.229 527.733.633.3

27.329 933.539.642.740.853.757.0

31.336.747.248 0

52.155.154.852.7

52.857.756.9

Profits after tax

Total

7.3

. 1

4.7

6.19.08.99.89.67.6

13.418.320.015.6

21.617.916.016.416.421.821.820.717.522.3

20.319.723 125.530 737.240 037.738.335.1

27.933 342.453.160.261.676.984.9

49.156.769.570 9

74.978.478.276.0

79.585.785.1

Divi-dends

5.2

2.0

3.3

3.64.03.84.04.24.25.15.96.56.5

7.97.87.88.08.29.4

10.110.410.210.8

11.511.712 714.115 317.218 118.920.720.7

19 920 021.723.926.029.032.438.2

29.128.929.228.8

28.332.133.236.0

35.237.239.4

Undis-tribu-

tedprofits

2.0

- 1 9

1.4

2.54.95.15.75.43.48.3

1? 413.59.1

13.610.18 18.48.2

12.411.610.37 3

11.5

8.78.0

10 311.415 420.021 918.817.614.4

8.013 320.729.234.232.544.546.6

20.127.840.242.1

46.546.345.040.0

44.348.545.7

Inven-toryvalu-ationad-

just-ment

0.5

- 2 1

-j

- . 2-2 .5-1 .2- . 8

- ! 6- 5 . 3-5 .9-2 .2

1.9

-5 .0-1 .2

1.0-1 .0

- l ! 7-2 .7-1 .5

5

!i.1

—. 2

- 1 . 9- 2 1

-3^4- 5 . 5

- 5 . 1- 5 0- 6 . 6

-18 .6-40 .4-12 .0-14 .1- 1 4 . 5

-18 .3- 9 . 3- 8 . 8

-11 .8

-12.4-15 .5-11.7-16.9

-20.6-17.1

Capi-tal

con-sump-

tionad-

just-ment

- 1 . 3

- 5

- 1 . 0

- 1 . 1- 1 . 1- 1 . 0

g- . 2- . 1

- 2 . 7- 3 . 3- 3 . 9- 3 . 8

- 3 . 9- 4 . 5- 4 4- 4 . 0- 3 . 2- 2 . 1- 3 . 0- 3 . 3- 3 4- 2 . 9

- 2 . 3- 1 . 8

1 01.92 63.63 83.63.63.5

1.5

2.71.8

- 3 . 0-12.0-14 .5-17 .0

- 9 1-11.7-13.0-14 .3

-14 .3-14.4-14 .5-14.7

-15.5-15.8-17.6

Netinter-

est

1.4

1 7

1.5

1.41.31.31.11.01.0.7.8.9

1.0

.91.11.21.31.61.61.72.22.73.1

3.53.94.54.85.36.17.48.7

10.113.1

17.017.919.123.129.930.932.436.7

30.930.830.831.0

31.932.232.633.0

34.636.137.5

1 Indirect business tax and nontax liability plus business transfer payments less subsidies.


270


T A B L E B-12.—Output, costs, and profits of nonfinancial corporate business, 1948—77

[Quarterly data at seasonally adjusted annual rates]

Year orquarter

1948__ _1949

1950__ .1951195219531954 _

19551956195719581959

19601961196219631964 . _.

19651966 _ . .1967__ „19681969

19701971197219731974. . . .

19751976 _1977 p

1975:1 . . . .I I . . .III . .IV..

1976: 1 . . .IIIIIIV..

1977:1 . . .IIIII.

Gross domesticproduct of

nonfinancialcorporatebusiness

(billions ofdollars)

Cur-rent

dollars

137.3133.5

151.9174.5182.3195.0191.9

216.7231.6242 3236.3265.7

277.3284.5311.0330.9357.6

392.1430.7452.9498.4541.8

560.6602.5671.0752.0808.8

875.2991.0

1,104.9

824.8855.3899.5921.3

958.4983.6

1004.71017.2

1049.31094.91,124.8

1972dollars

229.7219.9

247.5270.2275.2292.0283.5

315.1324.1328 3313.4347.3

358.9366.7399.7425.4455.2

494.6532.9545.8581.6607.3

600.6619.3671.0720.4695.0

678.9731.0774.1

654.0669.4692.7699.5

719.4731.3736.6736.5

753.3771.7781.2

Current-dollar cost and profit per unit of output (dollars)

Totalcostand

profit2

0.598.607

.614

.646

.663

.668

.677

.688

.715

.738

.754

.765

.773

.776

.778

.778

.786

.793

.808

.830

.857

.892

.933

.9731.0001.0441.164

1.2891.3561.427

1.2611.2781.2991.317

1.3321.3451.3641.381

1.3931.4191.440

Capitalcon-

sump-tion

allow-anceswith

capitalcon-

sump-tion

adjust-ment

0.047.053

.051

.054

.057

.058

.063

.061

.066072

.080

.075

.075

.076

.072

.070

.068

.066

.067

.072

.074

.079

.088

.094

.093

.095

.116

.143

.146

.151

.140

.144

.143

.146

.145

.144

.147

.150

.149

.148

.151

In-directbusi-nesstax

etc. 3

0.053.057

.057

.056

.061

.062

.061

.061

.064

.068

.073

.073

.079

.082

.083

.084

.084

.083

.080

.084

.089

.094

.103

.110

.110

.112

.123

.136

.136

.140

.134

.136

.136

.137

.134

.135

.136

.139

.140

.139

.140

Com-pen-

sationof

em-ployees

0.382.388

.383

.408

.430

.441

.446

.439

.467

.484

.497

.494

.505

.505

.500

.495

.497

.497

.513

.535

.553

.589

.628

.645

.661

.699

.796

.849

.890

.947

.859

.844

.838

.857

.870

.880

.892

.916

.930

.943

.949

Netin-

terest

0.004.004

.004

.004

.004

.004

.006

.005

.005

.007

.009

.009

.010

.011

.011

.011

.012

.012

.014

.016

.017

.022

.028

.029

.028

.032

.043

.045

.044

.047

.047

.046

.044

.044

.044

.044

.044

.045

.046

.047

.048

I

Corporate profits withinventory valuation

and capitalconsumption adjust-

ments

Total

0.112.105

.120

.124

.110

.102

.101

.121

.112

.106

.096

.114

.104

.102

.112

.118

.125

.134

.134

.123

.124

.109

.086

.095

.107

.105

.086

.115

.139

.143

.081

.108

.137

.133

.139

.142

.145

.132

.128

.142

.152

Profitstax

lability

0.051.042

.068

.079

.065

.063

.055

.064

.062

.058

.052

.060

.053

.053

.052

.054

.053

.055

.055

.051

.058

.055

.045

.048

.050

.055

.061

.060

.073

.074

.048

.055

.068

.069

.072

.075

.074

.072

.070

.075

.073

Profitsaftertax*

0.061.062

.051

.045

.046

.039

.046

.057

.050048

.044

.055

.051

.049

.061

.064

.072

.079

.078

.072

.066

.055

.041

.046

.057

.050

.024

.055

.066

.069

.033

.053

.069

.064

.067

.066

.071

.060

.058

.068

.079

Outputper

hour ofall em-ployees(1972

dollars)

5.1105.333

5.4555.6345.9126.1676.427

6.6256.7776.8737.1057.139

7.1327.3747.5957.7817.506

7.7668.055

7.4907.7497.9357.892

7.9878.0678.1098.057

8.1718.2028.278

Compen-sationper

hour ofall em-ployees(dollars)

2.5412.635

2.7522.8442.9563.0543.195

3.2963.4783.6763.9294.198

4.4784.7575.0245.4415.972

6.5967.166

6.4326.5436.6476.761

6.9527.0967.2367.378

7.5997.7317.871

1 Output is measured by gross domestic product of nonfinancial corporate business in 1972 dollars.3 This is equal to the deflator for gross domestic product of nonfinancial corporate business with the decimal point

shifted two places to the left.3 Indirect business tax and nontax liability plus business transfer payments less subsidies.4 With inventory valuation and capital consumption adjustments.

Sources: Department of Commerce (Bureau of Economic Analysis) and Department of Labor (Bureau of Labor Statistics)

271


TABLE B-13.—Personal consumption expenditures, 1929-77


Yearor

quarter

1929. .

1933

1939

1940...1941194219431944. . .1945194619471948-.- .1949

1950195119521953 . .1954195519561957-.19581959

19601961.196219631964..196519661967 . .19681969 . .

1970 . .19711972 .19731974197519761977P

1975:1II.III.. .IV. . . .

1976:1IIIII. .- .

1977:1IIIII

Per

son

al c

on

sum

pti

on

exp

end

itu

res

77.3

45.8

67.0

71.080.888.699.4

Durable goods1

2

9.2

3.5

6.7

7.89.76.96.5

108.2 6.7119.5143 8161 7174.7178.1

192.0207.1217 1229 7235.8253.7266.0280.4289 5310 8

324.9335.0355.2374 6400.4430.2464.8490.4535.9579.7

618.8668.2733.0809.9889.6980.4

1,094.01,210.1

936.5965.9995.1

1, 024.1

1,056.01,078.51,102.21,139.0

1,172.41,194.01,218.91,255.3

8.015 820 422.925.0

30.829.829 132.531.838.637.939.336 842.4

43.141.646.751.456.362.867.769.680.085.5

84.997.1

111.2123.7122.0132.9158.9179.4

122.8127.8136.7144.3

153.3156.7159.3166.3

177.0178.6177.6184.6

Q. .

T3

<D

O

Id

o"o

3.3

1.1

2.3

2.83.5.7.8.8

1.04.16.68.0

10.6

13.712.211.313.913.017.815.817.214.818.9

19.717.821.524.426.029.830.129.735.837.7

34.943.850.655.248.053.971.983.8

48.049.956.561.3

68.871.072.175.7

85.384.581.284.1

o

1o

J=

« E3 Q-

E °"

4.7

1.9

3.4

3.84.84.63.93.84.58 4

10 611.511.3

13.714.014 0i4 614.616.217.116.916 617 8

17.717.918.920 322.824.727.729.532.635.0

36.739.444.850.754.958.063 970.3

54.857.458.761.0

61.963.063.966.5

67.469.370.973.4

Nondurable goodsl

137.7

22.3

35.1

37.042.950.858.664.371.982.790.996.694.9

98.2108.8113 9116 5118.0122.9128.9135.2139 8146.4

151.1155.3161.6167.1176.9188.6204.7212.6230.4247.0

264.7277.7299.3333.8376.3409.3442 7480.1

394.0406.4415.0421.9

430.4437.1444.7458.8

466.6474.4481.8497.7

Lu

19.5

11.5

19.1

20.223.428.433.236.740.647 452.354.252.5

53.960.463 464.465.467.269.973.676 479.1

81.183.285.587.892.798.9

106.6109.6118.3126.1

136.3140.6150.4168.1189.8209.5225 5246.3

202.6207.9212.1215.4

219.3223.8227.0232.0

237.9244.8248.3254.2

1CO

DO

c

"oO

9.4

4.6

7.1

7.58.8

11.013.414.616.518 218.820.119.3

19.621.221 922.122.123.124.124.324.726.1

26.727.428.729.531.933.536.638.241.845.1

46.650.555.161.365.370.276.382.6

66.669.871.573.0

74.274.376.979.9

79.380.483.387.5

o

c

e>

1.8

1.5

2.2

2.32.62.11.31.41.83.44.04.85.3

5.56.16 87 47.88.69.4

10.210 611.3

12.012.012.612.913.514.716.017.018.420.4

22.023.424.927.836.439.141 444.8

38.239.139.139.8

40.640.341.243.5

44.144.344.246.4

So

IDtzCO

o

3u_

1.6

1.2

1.4

1.51.71.92.02.02.22.53 03.43.1

3.43.53 43 43.53.83.94.14 24.0

3.83.73.74.04.14.44.74.85.05.2

5.45.56.37.79.6

10.112 012.9

9.610.010.810.2

11.411.312.013.3

13.712.312.313.4

Services i

130.3

20.1

25.2

26.228.231.034.337.139.645 350 455.358.2

63.068.574 080 686.192.199.2

105.9112 8121.9

130.7138.1147.0156.1167.1178.7192.4208.1225.6247.2

269.1293.4322.4352.3391.3438.2492 3550.6

419.7431.7443.4457.9

472.4484.6498.2513.9

528.8541.1559.5572.9

O

11.7

8.1

9.4

9.710.411.211.812.312.814 216 017.919.6

21.724.327 029 832.234.336.739.342 045.0

48.151.254.758.061.465.569.574.179.986.8

94.0102.7112.3123.2136.5150.8167.9184.5

145.1148.5152.4157.2

161.5166.2170.4173.7

177.6181.9186.7191.6

Householdoperationl

I4.0

2.8

3.8

4.04.34.85.25.96.46 87 58.18.5

9.510.411 112 012.614.015.216.217 318 5

20.121.022.223 424.826.328.030.632.735.5

38.341.645.950.256.164.273.083.1

61.463.765.366.3

69.570.473.178.8

80.779.285.287.2

aT3

co

"o<uLU

1.2

1.1

1.4

1.51.51.61.71.81.92 12 32.62.9

3.33.74 14 55.05.56.16.57 17.6

8.38.89.49.9

10.410.911.512.213.114.2

15.517.018.920.624.129.033.339.4

27.629.029.729.8

31.531.432.837.6

38.736.141.041.7

c

o

c2

2.6

1.5

2 0

2.12.42.73.43.74.05 05 35.85.9

6.26.77 17 87.98.28.69.09 3

10 1

10.711.211.712.212.813.715.016.217.418.9

21.123.826.027.930.732.236.841.4

31.631.632.233.2

34.836.337.638.7

39.540.542.343.2

1 Total includes "other" category, not shown separately.2 Includes imputed rental value of owner-occupied dwellings.Source: Department of Commerce, Bureau of Economic Analysis.

272


TABLE B—14.—Gross private domestic investment, 1929-77

(Billions of dollars; quarterly data at seasonally adjusted annual rates]

Year orquarter

1929..

1933

1939

1940..194119421943.1944 . . .1945 . . . . .1946 . .19471948 .1949

195019511952 .195319541955 . . .19561957 .19581959

1960 . . .1961 . . . .196219631964 . .19651966 . .1967 . .1968 . . .1969

1970197119721973197419751976..1977 v

1975: 1 . .IIIII — .IV

1976: 1III I I . . . .IV

1977: 1III I I . . . .IV». . .

Grossprivatedomes-

ticinvest-ment

16.2

1.4

9.3

13.117.99 95.87.2

10.630.734 045 935.3

53.859 252 153.352 768.471.069 261.977.6

76.474.385.290 296.6

112.0124.5120.8131.5146.2

140 8160.0188 3220 0214 6189.1243.3294 3

175.1171.2205.4204.7

231.3244.4254.3243.4

271.8294.9303.6307.0

Total

14.5

3.0

8.8

10.913.48 16.48.1

11.724.334.441.138.4

47.048 949.052.954.362.466.367.963.472.3

72.772.178.784.290.8

102.5110.2110.7123.8136.8

137.0153.6178.8202 1205.7200.6230.0276.6

197.1196.3200.5208.4

216.8226.1232.8244.3

258.0273.2280.0295.1

\"ixed in vest men

Nonresidential

Total

10.5

2.4

5.8

7.59.46.05.06.8

10.116.822.926.224.3

27.131.131.234.334.038.343.746.741.645.3

47.747.151.253.659.771.381.482.189.398.9

100.5104.1116.8136.0150.6149.1161.9185.6

149.8*147.7148.2150.7

155.4159.8164.9167.6

177.0182.4187.51S5.5

Structures

Total

5.0

.9

2.0

2.32.91.91.31.82.86.87.68.98.6

9.311 311.512.813 214.417.418.116.717.0

18.218.419.419.621.526.129.229.531.635.7

37.739.342.549.054.552.955.861.6

53.351.952.853.4

54.755.856.057.0

57.961.062.664.9

Non-farm

4.8

.9

1.9

2.22.81.81.21.72.66.16.88.17.8

8.610.510.612.012.413.716.617.416.016.1

17.317.518.518.620.525.128.128.230.434.3

36.137.841.146.951.850.453.458.9

50.749.450.451.1

52.153.453.654.4

55.158.260.162.1

Producers'durable

equipment

Total

5.5

1.4

3.9

5.26.44 13.75.07.39.9

15.317.315.7

17.819.919.721.520.823.926.328.624.928.3

29.528.731.834.038.245.152.252.657.763.3

62.864.774.387 096.296.3

106.1124.0

96.595.795.497.4

100.8104.0109.0110.6

119.2121.4124.9130.7

Non-farm

4.8

1.3

3.3

4.55.53 53.24.26.39.0

13.414.712.8

14.916.917.118.718.421.324.126.221.925.2

27.026.128.930.634.641.247.948.053.458.9

58.159.969.180.188.287.195.9

112.9

87.686.586.687.7

90.593.898.4

100.7

107.8110.0114.0119.7

t

Residential

Total

4.0

.6

3.0

3.54.02.21.41.31.67.5

11.515.014.1

19.917.717.818.620.324.122.621.221.827.0

25.025.027.430.631.231.228.728.634.537.9

36.649.662.066.155.151.568.090.9

47.348.652.357.6

61.466.367.876.7

81.090.892.599.5

Non-farmstruc-tures

3.8

.5

2.8

3.23.71 91.21.11.46.8

10.513.812.9

18.716.616.617.519.223.021.420.020.725.8

23.923.826.329.429.929.927.427.233.136.3

35.147.960.364 352.749.565.788.4

45.746.850.155.3

58.964.165.774.3

78.588.289.997.0

Farmstruc-tures

0.2

.0

.1

2.2

.2

.1

.1

.57

.9

.8

.88

.3

.87

.6

.77

.7

.7

.6

.7

.6

.7

.7

.6

.7

.7

.6

.7

.6

.7

.7

.61.2.9

1.01.1

.5

.81.11.2

1.21.0.9

1.1

1.11.21.11.0

Pro-ducers'dur-able

equip-ment

0.1

.0

.1

.1

.1

.1

.0

.0

.0

.23

.3

.3

!5. 5.5.6

.5

.5

.5

.6

.6

.7

.7

.7

.8

.9

.91.01.11.21.21.11.31.4

1.01.01.11.2

1.21.21.21.3

1.41.41.51.5

Change inbusiness

inventories

Total

1.7

- 1 . 6

.4

2 24.51 8

- 6- 1 . 0- 1 . 0

6.4- 54.7

- 3 . 1

6.810 33.1

- 1 56.04.71.3

- 1 . 55.2

3.82.26.56.05.89.5

14.310.1

7.79.4

3.86.49.4

17.98.9

- 1 1 . 513.317.8

- 2 2 . 0- 2 5 . 1

4.9- 3 . 6

14.518.321.5- . 9

13.821.723.611.9

Non-farm

1.8

- 1 . 4

.3

1.94.0.7

- . 6- . 6- . 66.41.33.0

- 2 . 2

6.09.12.11.1

- 2 . 15.55.1

- 2 . 35.3

3.51.95.85.26.48.5

14.59.47.69.2

3.75.18.8

14.710.8

- 1 5 . 114.917.5

- 2 5 . 9- 2 6 . 5

1.4- 9 . 2

15.920.422.0.14

14.122.423.110.4


273


TABLE B—15.—Inventories and final sales of business, 1946-77

[Billions of dollars, except as noted; seasonally adjusted]

Year andquarter

Fourth quarter:1946194719481949

19501951195219531954

195519561957 . .19581959 . .

1960196119621963 .1964

1965196619671968 . . . .1969

1970 . . .1971197219731974

197519761977 v

1975:1IIIIIIV

1976:1IIIIIIV

1977:1IIIllIV v

Total

73.786.990.681.0

98.8112.1109.4110.1107.2

112.1121.8126.7128.9132.3

136.2138.4145 2151.5157.6

172.7189.1202.2215.3236.2

244.2261.9288.6355.8425.6

427.3461 5504.7

417.9417 9427.3427.3

436 2449.1455.5461.5

478.6482.5492.0504.7

Farm

21.825.823.419.5

24.226.523.121.620.5

17.618.320.924.923.6

24.825.026 626.925.7

29.728.929.230.433.4

31.736.844.666.261.9

63.959.860.5

58.863 566.963.9

63 965.761.359.8

62.860.057.660.5

Inventories

Nonfarm

Total

51.961.167.261.4

74.685.686.388.586.7

94.6103.5105.8103.9108.7

111.3113.4118 6124.6131.8

143.0160.2173.0184.9202.8

212.5225.1243.9289.6363.7

363.4401 7444.1

359.1354.4360.4363.4

372.3383.4394.2401.7

415.8422.5434.4444.1

Manufac-turing

26.731.834.831.0

37.446.247.349.347.0

51.457.557.956.057.5

58.159.562 564.868.5

73.783.491.197.4

107.1

110.8113.6120.4143.6186.4

187.6206 1223.7

186.2183.7185.4187.6

190.7196.3201.7206.1

210.8213.7219.3223.7

Wholesaletrade

9.610.612.111.7

14.314.914.915.115.4

16.717.818.118.119.2

19.620.220.922.423.6

25.328.630.632.435.3

38 341.245 755.269.8

67.775 282.6

68.666 968.167.7

69 872.874.375.2

78.879.580.882.6

Retailtrade

11.914.115.314.3

17.718.317.918.518.7

20.921 822 922.924.1

25.625.126.728.229.8

33.136.637.840.744.4

45 651.055 964.472.3

72.681 294.5

69.969 772.572.6

75.777.780.481.2

86.088.591.994.5

Other

3.74.64.94.4

5.26.26.25.55.6

5.66 46.96.98.0

8.18.78.69.29.9

10.911.613 514.416.1

17.719.221.826.435.2

35.539 143.4

34.434.034.535.5

36.236.537.939.1

40.240.842.443.4

Finalsales»

192.0219.6235 7234.6

259 8295.6313.3325.8330.1

356.5377 0392 7405.0426.7

442 1465.3492 7524.2553.1

610.7647.5688 0757.6804.5

839.4915.2

,019.9,120.5,216.0

, 356.7,486 1,657.6

, 244.3, 285.2,318.2, 356.7

, 381.3,415.01,441.5I, 486.1

I, 518. 5L, 564.71,604.41,657.6

Inventory-finalsales ratio

Total

0.384.396.384.345

.380

.379

.349

.338

.325

.315

.323

.323

.318

.310

.308

.297

.295

.289

.285

.283

.292

.294

.284

.294

.291

.286

.283

.318

.350

.315

.311

.304

.336

.325

.324

.315

.316

.317

.316

.311

.315

.308

.307

.304

Non-farm 3

0.270.278285

.262

.287

.290

.275

.272

.263

.265274269

.257

.255

.252

.244241

.238

.238

.234

.247

.251

.244

.252

.253

.246

.239

.258

.299

.268

.270

.268

.289

.276

.273

.268

.270

.271

.273

.270

.274

.270

.271

.268

1 End of quarter.3 Annual rates.3 Ratio based on total final sales, which include a small amount of final sales by farms.

Note.—The industry classification of inventories is on an establishment basis and is based on the 1972 Standard Indus-trial Classification (SIC) beginning in 1948 and on the 1942 SIC prior to 1948.


274


TABLE B-16.—Inventories and final sales of business in 1972 dollars, 1947-77

[Billions of 1972 dollars, except as noted; seasonally adjusted]

Year andquarter

Fourth quarter:194719481949

1950..1951..1952..1953..1954..

1955..1956..1957.1958.1959.

I960..1961..1962..1963..1964..

1965..1966..1967..1968..1969..

1970..1971.1972..1973..1974..

1975..1976..1977 ^

1975: I. . .II..III.IV..

1976: I. . .

IV..

1977: I.IIIIIIV v

Inventories1

Total

118.6124.1119.7

130.2143.9148.2149.7147.5

155.3161.1162.6160.8167.2

171.6174.5182.6190.4197.7

209.0225.7237.7246.4257.0

261.3267.9277.4293.9301.8

291.9300.4312.0

296.9292.3293.1291.9

294.3297.4300.8300.4

302.8306.1310.0312.0

25.726.726.2

27.529.130.430.231.1

31.530.731.432.432.4

32.833.234.535.735.1

36.236.036.837.037.3

37.739.239.842.141.8

43.041.441.6

42.142.242.643.0

42.742.42.041.4

41.341.241.341.6

Nonfarm

Total

93.097.393.5

102.7114.8117.9119.6116.5

123.7130.3131.2128.4134.8

138.8141.2148.1154.7162.6

172.8189.7200.9209.4219.7

223.6228.8237.6251.8260.1

248.9259.0270.4

254.8250.1250.5248.9

251.7255.2258.8259.0

261.5264.9268.7270.4

Manufac-turing

49.951.348.6

51.862.565.266.963.3

66.771.671.168.671.1

72.474.278.480.884.7

89.199.0

105.9110.7115.8

117.1115.4117.5123.6128.6

124.0128.1131.8

127.6125.7124.7124.0

124.4126.1127.7128.1

128.7130.3131.4131.8

Wholesaletrade

13.816.116.1

18.318.919.219.419.7

21.422.021.921.823.7

24.325.025.927.829.1

30.533.735.536.638.2

40.442.44.447.450.6

47.149.751.9

49.347.847.747.1

47.949.049.849.7

50.551.151.751.9

Retailtrade

20.521.320.9

23.923.923.924.524.6

27.227.528.428.229.6

31.530.632.534.136.0

39.442.743.145.347.7

47.351.954.458.256.5

54.557.762.9

54.053.454.754.5

55.956.758.057.7

58.860.062.062.9

Other

8.78.67.8

8.79.59.68.78.8

8.49.29.89.8

10.5

10.711.411.412.012.8

13.814.316.316.818.0

18.819.521.322.724.5

23.423.623.8

23.923.323.323.4

23.523.523.423.6

23.523.623.723.8

Finalsales 2

397.2412.0415.1

442.6476.5499.1516.2517.0

547.4557.6565.3577.2596.8

609.0636.6664.2699.3730.7

791.3809.2837.2882.8892.2

891.7935.0

1,007.61,031.81, 005. 3

1, 044. 71, 095.71,156.3

1.003.21,017.91,028.61, 044.7

1, 054.51, 067.21,076.61,095.7

1,106.51,121.71,134. 81.156.3

Inventory-finalsales ratio

Total

0.299.301.288

.294

.302

.297

.290

.285

.284

.289

.288

.279

.280

.282

.274

.275

.272

.271

.264

.279

.284

.279

.288

.293

.287

.275

.285

.300

.279

.274

.270

.296

.287

.285

.279

.279

.279

.279

.274

.274

.273

.273

.270

Non-farm 3

0.234.236.225

.232

.241

.236

.232

.225

.226

.234

.232

.222

.226

.228

.221

.223

.221

.223

.218

.234

.240

.237

.246

.251

.245

.236

.244

.259

.238

.236

.234

.254

.246

.244

.238

.239

.239

.240

.236

.236

.236

.237

.234

1 End of quarter.3 Annual rates.3 Ratio based on total final sales, which include a small amount of final sales by farms.

Note.—The industry classification of inventories is on an establishment basis and is based on the 1972 Standard In-dustrial Classification (SIC) beginning in 1948 and on the 1942 SIC prior to 1948.


275


TABLE B-17.—Relation of gross national product and national income, 1929-77


Year or quarter

1929

1933

1939

1940194119421943194419451946194719481949 . .

1950195119521953 . . . .195419551956195719581959 . .

1960196119621963196419651966196719681969

19701971197219731974 . _ _ _ _ _19751976 . __1977 v

1975:1| |IIIIV

1976:1IIIIIIV

1977:1IIIIIIV v


103.4

55.8

90.8

100.0124.9158.3192.0210.5212.3209.6232.8259.1258.0

286.2330.2347.2366.1366.3399.3420.7442.8448.9486.5

506.0523.3563.8594.7635.7688.1753.0796.3868.5935.5

982.41, 063.41,171.11,306.61,412.91, 528.81, 706. 51, 890.4

1, 453.01, 496.61, 564.91, 600. 7

1,651.21,691.91, 727.31, 755.4

1,810.81,869.91,915.91, 965.1

Less:Capital

consump-tion allow-ances with

capitalconsump-

tion adjust-ment

9.7

7.5

8.7

9.010.011.211.511.812.313.817.220.322.0

23.927.629.631.633.135.338.942.044.146.1

47.749.150.552.254.657.561.767.073.882.5

90.898.8

105.4117.7137.7162.5179.0197.0

153.9160.4165.6170.2

173.8177.0180.9184.5

189.0193.3199.8205.9

Equals:Net

nationalproduct

93.7

48.3

82.1

91.0114.9147.1180.5198.7200.0195.7215.6238.8236.1

262.3302.6317.6334.5333.2364.0381.8400.8404.8440.4

458.3474.2513.3542.5581.2630.6691.3729.3794.7853.1

891.6964.7

, 065.8,188.9,275.2

I, 366.3I, 527.4, 693.4

I, 299.1L, 336.21,399.21.430.6

1, 477.41,514.91, 546. 51, 570.9

1,621.81,676.61,716.01, 759.1

Plus:Subsidies

lesscurrentsurplus

of govern-mententer-prises

- 0 . 2

- . 0

.4

.4

.1

.1

.1

.6

.7

.9- . 2- . 1- . 3

.1- . 1- . 3- . 5- . 3- . 0

.7

.71.1.1

.478176

> 5638

2.72.43.63.91.02.3.8

2.1

1.92.02.32.9

1.0.5

1.1.5

.5

.11.46.3

Less:

Indirectbusinesstax andnontaxliability

7.1

7.1

9.4

10.111.311.812.814.215.517.118.420.121.3

23.425.327.729.729.632.235.137.538.741.8

45.448.051.654.658.862.665.370.278.886.4

94.0103.4111.0120.2128.6138.7150.5165.2

132.7136.5141.4144.2

145.5149.1151.8155.5

160.1163.3166.9170.4

Businesstransfer

payments

0.6

.7

.5

.4

.5

.5

.5

.5

.5

.5

.6

.7

.8

.8

.91.0

?1?4

,568

2.02.02.12.42.72.83.03.13.43.8

4.04.24.75.45.97.08.19.0

6.36.87.37.6

7.88.08.28.4

8.78.99.19.4

Statisticaldiscrep-

ancy

1.1

.7

1.4

1.1.5

- . 8- 1 . 8

2.74.1.7

1.8- 1 . 2

1.0

2.04.02.73.33.02.5

- . 8.2

1.7- . 2

- . 71.64.03.72.2.9

3.21.7

- . 6- 3 . 3

- 2 . 11.31.72.65.85.95.51.0

6.03.58.05.9

4.24.58.05.3

3.3- 1 . 2

.9

Equals:Nationalincome

84.8

39.9

71.3

79.7102.6135.7169.1181.9180.6178.3194.6219.0212.7

236.2272.3285.8299.7299.1328.0346.9362.3364.0397.1

412.0424.2457.4482.8519.2566.0622.2655.8714.4767.9

798.4858.1951.9

1,064.61,136.01,217.01, 364.11,520.3

1,156.01,191.41,244.91, 275.7

1,321.01, 353.91, 379.61, 402.1

1,450.21,505.71, 540.5


276


TABLE B-18.—Relation of national income and personal income, 1929-77


Year orquarter

Nationalincome

Less:

Corpo-rate

profitswith

inven-tory

valuationand

capitalcon-

sumptionadjust-ments

Netinterest

Contri-butions

forsocialinsur-ance

Wageaccruals

lessdis-

burse-ments

Plus:

Govern-ment

transferpay-

mentsto

persons

Personalinterestincome

Divi-dends

Businesstransfer

pay-ments

Equals:

Personalincome

1929

1933

1939

194019411942194319441945 ___1946...."19471948 ...1949....:

1950....19511952195319541955....1956J9571958....1959

1960196119621963196419651966196719681969

1970197119721973 ;1974197519761977*

1975: L._.II._III..IV..

1976: L._II._ML.IV..

1977: I...II._III..IV*.

84.8

39.9

71.3

79.7102.6135.7169.1181.9180.6178.3194.6219.0212.7

236.2272.3285.8299.7299.1328.0346.9362.3364.0397.1

412.0424.2457.4482.8519.2566.0622.2655.8714.4767.9

798.4858.1951.9

1, 064.61,136.01,217.01,364.11,520.3

1,156.01,191.41, 244.91, 275.7

1,321.01,353.91,379.61, 402.1

1, 450.21,505.71,540.5

9.2

-1.7

5.3

8.714.119.323.523.619.016.622.229.126.9

33.738.135.435.534.644.642.942.137.548.2

46.646.954.959.667.077.182.579.385.881.4

67.977.292.199.183.699.3128.1140.3

74.092.7115.6114.7

126.5129.2133.5123.1

125.4140.2149.0

4.7

4.1

3.6

3.33.33.12.72.42.21.62.12.12.2

2.32.73.03.44.34.85.26.58.08.8

9.811.212.814.315.918.521.924.326.830.8

37.542.847.052.369.079.188.4

100.9

76.477.679.982.3

85.086.590.192.0

95.398.9103.1106.4

0.2

.3

2.1

2.32.83.54.55.26.16.15.85.45.9

7.18.59.09.110.111.512.914.915.218.0

21.121.924.327.328.730.038.843.448.154.9

58.764.873.691.5103.8110.1123.8139.0

108.0108.5110.7113.3

120.3122.8124.7127.5

135.0138.0139.9143.1

0.9

1.5

2.5

2.72.62.72.53.15.6

10.811.210.611.7

14.411.612.112.915.116.217.320.124.325.2

27.030.831.633.434.837.641.649.556.562.7

75.989.999.4

113.5134.9169.8184.7197.8

157.6169.9174.2177.5

182.5180.8186.2189.5

194.8194.0199.5203.1

6.9

5.5

5.4

5.35.35.25.1b.25.96.47.37.78.2

8.99.6

10.311.412.713.815.317.418.820.9

23.324.627.130.233.337.241.845.049.655.9

64.369.374.684.1

103.0115.6130.3147.9

111.5113.3116.6121.0

125.0127.5132.2136.4

140.3145.4150.3155.6

5.8

2.0

3.8

4.04.44.34.44.64.65.66.37.07.2

8.88.58.58.89.1

10.311.111.511.312.2

12.913.314.415.517.319.119.420.12L922.6

22.923.024.627.831.032.435.841.2

32.032.232.932.5

33.635.036.038.4

38.540.342.343.6

0.6

.7

.5

.4

.5

.5

.5

.5

.5

.5

.6

.7

.91.01.21.11.21.41.51.61.8

2.02.02.12.42.72.83.03.13.43.8

4.04.24.75.45.97.08.19.0

6.36.87.37.6

7.88.08.28.4

8.78.99.19.4

84.9

46.9

72.4

77.895.3

122.4150.7164.4169.8177.3189.8208.5205.6

226.1253.7270.4286.1288.2308.8330.9349.3359.3382.1

399.7415.0440.7463.1495.7537.0584.9626.6685.2745.8

801.3859.1942.5

1,052.41,154.91,253.41,382.71,536.1

1, 205.11,234.71,269.71, 304.0

1,338.11,366.71,393.91,432.2

1, 476.81,517.21,549.81,600. 5


277


TABLE B-19.—National income by type of income, 1929-77


Year orquarter

1929

1933

1939

1940194119421943194419451946194719481949 . . . .

1950195119521953 . .195419551956195719581959

196019611962196319641965196619671968 .1969

1970197119721973197419751976.1977 v

1975: 1III I I . . -IV

1976: 1III I I . . . .IV

1977: 1IIIII. „IV v

Na-tional

in-come^

84.8

39.9

71.3

79.7102.6135.7169.1181.9180.6178.3194.6219.0212.7

236.2272.3285.8299.7299.1328.0346.9362.3364.0397.1

412.0424.2457.4482.8519.2566.0622.2655.8714.4767.9

798.4858.1951.9

1,064.61,136.01,217.01, 364.11,520.3

1,156.01,191.41, 244.91, 275. 7

1,321.01, 353. 91, 379.61, 402.1

1, 450.21, 505.71, 540. 5

Compensation ofemployee

Total

51.1

29.5

48.1

52.164.885.3

109.5121.2123.1118.1129.2141.4141.3

154.8181.0195.7209.6208.4224.9243.5256.5258.2279.6

294.9303.6325.1342.9368.0396.5439.3471.9519.8571.4

609.2650.3715.1799.2875.8930.3

1,036.31,155.8

904.6914.4936.7965.6

999.61,024.91,046.51,074.2

1,109.91,144.71,167.41,201.3

Wagesand

sala-ries

50.5

29.0

46.0

49.962.182.1

105.8116.7117.5112.0123.1135.5134.7

147.0171.3185.3198.5196.8211.7228.3239.3240.5258.9

271.9279.5298.0313.4336.1362.0398.4427.5469.5514.6

546.5580.0633.8701.2764.1805.7891.8989.5

785.1792.4810.5834.9

861.5882.4900.2923.2

951.3980.9998.9

1,027.1

i

Sup-ple-

mentsto

wagesand

sala-ries 2

0.6

.5

2.1

2.32.73.23.84.55.66.06.15.96.6

7.89.7

10.411.011.613.215.217.217.720.6

23.024.127.129.531.834.540.944.450.356.8

62.770.381.498.0

111.7124.6144.5166.3

119.6122.1126.3130.7

138.1142.5146.3150.9

158.6163.8168.5174.2

Proprietors

Total

14.9

5.8

11.7

12.917.424.029.030.231.736.635.840.736.1

38.442.842.941.340.842.543.645.047.447.2

47.048.349.650.352.256.760.361.063.466.2

65.167.776.192.486.286.088.097.9

78.984.390.490.4

86.990.486.288.7

95.197.095.5

104.2

1 income with inventory valuation and capitalconsumption adjustments

Farm

Total

6.2

2.6

4.4

4.56.49.8

11.711.612.214.915.217.512.7

13.515.814.912.912.311.311.211.013.110.7

11.411.811.911.610.312.613.612.112.013.9

13.914.318.032.025.423.218.619.5

18.322.726.225.5

20.021.616.216.6

20.719.715.522.1

In-come'

6.3

2.5

4.4

4.56.5

10.312.212.212.615.115.618.113.4

14.116.615.713.712.911.911.811.813.911.6

12.312.712.812.511.213.514.613.213.315.4

15.316.020.034.227.926.822.824.2

21.326.130.129.7

24.125.820.320.8

25.024.220.327.4

Capi-tal

con-sump-

tionad-just-ment

- 0 . 1

.1

- . 0

- . 0- . 0- . 5- . 5- . 6- . 4- . 2- . 4- . 6- . 7

- . 7- . 8- . 8- . 7- . 6- . 6- . 6- . 8- . 8- . 9

- . 9- . 9

- 1 . 0- . 9

- 1 . 0- . 9

- 1 . 0- 1 . 2- 1 . 3- 1 . 4

- 1 . 4- 1 . 7- 2 . 0- 2 . 2- 2 . 5- 3 . 6- 4 . 2- 4 . 7

- 3 . 1- 3 . 5- 3 . 8- 4 . 2

- 4 . 2- 4 . 2- 4 . 2- 4 . 2

- 4 . 2- 4 . 5- 4 . 8- 5 . 2

Nonfarm

Total

8.8

3.2

7.3

8.410.914.317.318.619.421.620.623.223.5

24.927.028.028.428.531.232.433.934.336.6

35.636.437.738.742.044.146.748.951.452.3

51.253.458.160.460.962.869.478.4

60.661.664.264.9

66.968.870.072.0

74.377.380.082.0

In-come4

8.8

3.9

7.6

8.611.714.417.118.319.323.321.823.122.2

25.126.426.927.627.630.531.833.133.235.3

34.235.336.437.240.242.745.347.550.451.3

50.752.856.460.362.963.470.479.9

61.262.064.865.5

67.670.170.773.2

76.178.980.783.9

Inven-tory

valua-tionad-

just-ment

0.1

- . 5

- . 2

- . 0- . 6- . 4

- . 1__ |

-1 .7- 1 . 5- . 4

.5

-1 .1

.2

- . 0- . 2

- . 3- . 1

.1- . 1- . 0- . 0- . 0- . 2- . 3- . 3- . 4- . 5

- . 5- . 4- . 7

-1 .7-3 .6-1 .2-1 .3- 1 . 4

-1 .6-1 .1-1 .1-1 .0

-1 .0-1 .5-1 .1-1 .7

-2 .0-1 .7—. 6

-1 .4

Capi-tal

con-sump-tionad-

just-ment

- 0 . 2

- . 2

- . 1

- . 1- . 1

.2

.3

.4

.2

.0

.4

.5

.8

.9

.9

.9

.91.01.01.11.21.11.3

1.31.21.41.61.81.61.61.71.51.4

1.01.12.51.81.6.6.3

- . 1

.9

.6

.5

.5

.3

.2

.4

.5

.3

.0- . 1- . 4


278


TABLE B-19.—National income by type of income, 1929-77—Continued


Year orquarter

1929

1933

1939

1940194119421943194419451946194719481949

1950195119521953195419551956195719581959

1960196119621963196419651966196719681969

19701971197219731974 .197519761977 P . . . .

1975:1. . .II —III.IV..

1976:1. . .IIIII.IV..

1977:1. . .II._III.IV v

Rental i ncome of per-sons with capital

consumptionadjustment

Total

4.9

2.2

2.6

2.73.14.04.44.54.65.55.35.76.1

7.17.78.8

10.011.011.311.612.212.913.2

13.814.315.015.716.117.118.219.418.618.1

18.620.121.521.621.422.323.325.3

22.122.322.222.6

23.022.923.324.1

24.524.925.526.4

Rentalincome

ofpersons

5.7

2.3

3.1

3.33.95.05.65.96.27.37.78.58.9

10.011.012.213.414.414.815.215.916.717.3

17.818.319.019.620.121.022.123.423.824.8

25.827.729.431.333.736.840.045.3

35.836.637.037.9

38.939.440.341.5

42.944.645.748.1

Capitalcon-

sump-tion

adjust-ment

- 0 . 8

- . 1

- . 6

- . 6- . 8

- 1 . 0- 1 . 2- 1 . 4- 1 . 6- 1 . 8- 2 . 5- 2 . 8- 2 . 8

- 2 . 9- 3 . 3- 3 . 4- 3 . 4- 3 . 3- 3 . 5- 3 . 6- 3 . 6- 3 . 8- 4 . 0

- 4 . 1- 4 . 0- 4 . 0- 3 . 9- 4 . 0- 3 . 9- 3 . 9- 4 . 0- 5 . 2- 6 . 7

- 7 . 1- 7 . 6- 7 . 9- 9 . 8

-12.3-14.5-16.7-20.0

-13.7-14.3-14.8-15.3

-15.9-16.4-16.9-17.3

-18.4-19.7-20.2-21.7

Corporate profits with inventory valuation and capital consumptionadjustments

Total

9.2

-1 .7

5.3

8.714.119.323.523.619.016.622.229.126.9

33.738.135.435.534.644.642.942.137.548.2

46.646.954.959.667.077.182.579.385.881.4

67.977.292.199.183.699.3

128.1140.3

74.092.7

115.6114.7

126.5129.2133.5123.1

125.4140.2149.0

Profits with inventory valuation adjustment and withoutcapital consumption adjustment

Total

10.5

- 1 . 2

6.3

9.815.220.324.423.819.219.325.633.030.8

37.642.739.839.537.846.745.945.440.851.2

48.948.753.757.664.273.378.675.682.177.9

66.476.989.697.286.5

111.5142.7157.5

83.2104.6128.9129.2

141.1143.7148.2137.9

141.0156.2166.9

Profits before tax

Total

10.0

1.0

7.0

10.017.721.525.124.119.724.631.535.228.9

42.643.938.940.538.148.448.646.941.151.6

48.548.653.657.764.775.280.777.385.683.4

71.582.096.2

115.8126.9123.5156.9172.1

101.5113.9137.7141.0

153.5159.2159.9154.8

161.7174.0172.8

Profitstax

lability

1.4

.5

1.4

2.87.6

11.414.112.910.79.1

11.312.410.2

17.922.619.420.317.622.022.021.419.023.6

22.722.824.026.228.030.933.732.539.439.7

34.537.741.548.752.450.264.769.2

40.845.756.357.9

63.166.165.963.9

64.469.769.3

Profits after tax

Total

8.6

5.6

7.210.110.111.111.29.0

15.520.222.718.7

24.721.319.520.220.526.426.625.522.128.0

25.825.829.631.536.744.347.144.946.243.8

37.044.354.667.174.573.492.1

102.9

60.868.281.483.1

90.493.194.090.9

97.2104.3103.6

Divi-dends

5.8

2.0

3.8

4.04.44.34.44.64.65.66.37.07.2

8.88.58.58.89.1

10.311.111.511.312.2

12.913.314.415.517.319.119.420.121.922.6

22.923.024.627.831.032.435.841.2

32.032.232.932.5

33.635.036.038.4

38.540.342.343.6

Undis-tributedprofits

2.8

- 1 . 6

1.8

3.25.75.96.66.54.49.9

13.915.711.5

15.912.811.011.511.416.115.514.010.815.8

13.012.515.216.019.425.227.624.724.221.2

14.121.330.039.343.641.056.461.7

28.836.048.550.6

56.858.158.052.5

58.864.161.2

Inven-tory

valua-tion

adjust-ment

0.5

- 2 . 1

- . 7

2-2. 5- 1 . 2- . 8

3- ! 6

- 5 . 3- 5 . 9- 2 . 2

1.9

- 5 . 0- 1 . 2

1.0- 1 . 0

- L 7- 2 . 7- 1 . 5

.3

.1

.1- . 2- . 5

- 1 . 9- 2 . 1-1 .7- 3 . 4- 5 . 5

- 5 . 1- 5 . 0- 6 . 6

-18.6-40.4-12.0-14.1-14.5

-18.3- 9 . 3- 8 . 8

-11.8

-12.4-15.5-11.7-16.9

-20.6-17.8- 5 . 9

-13.8

Capitalcon-

sump-tion

adjust-ment

- 1 . 3

- . 5

- 1 . 0

- 1 . 1- 1 . 1- 1 . 0- . 8

2-".1

- 2 . 7- 3 . 4- 3 . 9- 3 . 8

- 4 . 0- 4 . 6- 4 . 5- 4 . 1- 3 . 2- 2 . 1- 3 . 0- 3 . 3- 3 . 4- 2 . 9

- 2 . 3- 1 . 8

1.22.12.83.83.93.73.73.5

1.5.3

2.51.9

- 2 . 9-12.2-14.7-17.0

- 9 . 2-11.9-13.3-14.5

-14.6-14.6-14.7-14.8

-15.6-15.9-17.9-19.4

Netinter-est

4.7

4.1

3.6

3.33.33.12.72.42.21.62.12.12.2

2.32.73.03.44.34.85.26.58.08.8

9.811.212.814.315.918.521.924.326.830.8

37.542.847.052.369.079.188.4

100.9

76.477.679.982.3

85.086.590.192.0

95.398.9

103.1106.4

! National income is the total net income earned in production. It differs from gross national product mainly in that itnd other allowances for business and institutional consumption of durable capital goodsk Tohlo D_17

! National income is the total net incoexcludes depreciation charges and other alloand indirect business taxes. See Table B-17.

2 Employer contributions for social insurance and to private pension, health, and welfare funds; workmen'scompensation; directors' fees; and a few other minor items.

3 With inventory valuation adjustment and without capital consumption adjustment.* Without inventory valuation and capital consumption adjustments.


279


TABLE B-20.—Sources of personal income, 1929-77


Year or quarter

1929

1933

1939 . .

1940194119421943194419451946194719481949

1950195119521953195419551956 .1957 . . . .19581959

196019611962196319641965196619671968.1969

19701971. .197219731974197519761977*

1975: 1IIIIIIV

1976: 1IIIII .IV

1977: 1IIIIIIV p

Per-sonal

income

84.9

46.9

72.4

77.895.3

122.4150.7164.4169.8177.3189.8208.5205.6

226.1253.7270.4286.1288.2308.8330.9349.3359.3382.1

399.7415.0440.7463.1495.7537.0584.9626.6685.2745.8

801.3859.1942.5

1,052.41,154.91, 253. 41, 382. 71, 536.1

1 205 11, 234. 71, 269. 71, 304.0

1, 338.11, 366.71, 393.91, 432. 2

1, 476. 81,517.21, 549.81,600.5

Wage and salary disbursements1

Total

50.5

29.0

46.0

49.962.182.1

105.6116.9117.5112.0123.1135.5134.8

147.0171.3185.4198.6196.8211.7228.3239.3240.5258.9

271.9279.5298.0313.4336.1362.0398.4427.5469.5514.6

546.5579.4633.8701.3764.6805.7891.8989.5

785 1792.4810.5834.9

861.5882.4900.2923.2

951.3980.9998.9

1,027.1

Commodity-producingindustries

Total

21.5

9.8

17 4

19 727 539 149 050.445 946.054.261.157.8

64.876.382 089.685.793.1

100 6104.2100.0109.6

113.1113 7121.8126.9135 4146.0161.0168.3183.4199.6

202.9208.3227.3254.3274.6275.0308.5346.3

269.0269.0276.0285.9

298.6306.7310.8317.7

329.0345.4351.0359.7

Manu-factur-

ing

16.1

7.8

13.6

15.621.730.940.942.938.236.542.547.144.6

50.359.364.171.267.573.879 482.478.686.8

89.789 896.7

100.6107 1115.5128.0134.1145.8157.5

158 2160.3175 4196.2211.4211.0238.2267.2

205 8206.6212.1219.6

230.6236.7240.2245.1

255.4265.9270.0277.5

Distrib-utive

indus-tries

15.6

8.8

13.3

14.216.318.020.122.724.831.035.237.537.7

39.844.346.949.750.153.457.760.560.864.8

68.269.372.876.381.487.294.4

100.9109.9120.7

130.1139.3151.9168.1184.3195.4217.1242.5

191 1192.2196.7201.6

208.2213.7220.2226.4

234.5240.5244.4250.7

Serviceindus-tries

8.4

5.2

7 1

7 58 19.09 9

10.911 914.316.117.918.5

19.821.523 124.926.128.631.333.635.638.5

41.444.147.250.254.458.964.771.879.889.4

97.5106.2117.2130.3145.1159.9179.0200.8

155.1157.5160.8166.3

172.0176.6180.9186.7

193.0197.7202.8209.7

Govern-mentand

govern-mententer-prises

5.0

5.2

8.2

8 510.216.026.633.034.920.717.519.020.8

22.629.233 334.434.936.638 841.044.146.0

49.252.456.360.064.969.978.386.496.4

104.9

116.0125.6137.3148.6160.5175.4187.2199.9

169.8173.7176.9181.2

182.7185.4188.2192.5

194.8197.2200.6206.9

Otherlaborin-

come1

0.5

.4

.6

.6

.7

.91.11.51.82.02.42.72.9

3.74.65.25.96.17.08.09.09.4

10.6

11.211.813.014.015.717.819.921.725.128.2

32.036.242.048.755.664.975.988.6

61.263.366.169.0

71.774.577.380.0

83.286.790.394.0

Proprietors' in-come with inven-tory valuation andcapital consump-tion adjustments

Farm

6.2

2.6

4.4

4 56 49.8

11 711.612 214.915.217.512.7

13.515.814 912.912.311.311 211.013.110.7

11.411.811.911.610.312.613.612.112.013.9

13.914.318.032.025.423.218.619.5

18.322.726.225.5

20.021.616.216.6

20.719.715.522.1

Non-farm

8.8

3.2

7 3

8 410.914.317 318.619 421.620.623.223.5

24.927.028 028.428.531.232 433.934.336.6

35.636.437.738.742.044.146.748.951.452.3

51.253.458.160.460.962.869.478.4

60.661.664.264.9

66.968.870.072.0

74.377.380.082.0


280


T A B L E B-20.—Sources of personal income, 1929-77—Continued


Year orquarter

1929

1933

1939....

1940....1941 . . . .1942..1943 . . . .1944....19451946 .1947....1948....1949....

1950....1951.. . .1952....1953.. . .1954....1955... .1956....1957.....1958....1959....

I 9 6 0 . . . .1 9 6 1 . . . .1962 . . . .1963.. . .1964 . . . .1965 . . . .1966 . . . .1967 . . . .1968 . . . .1969 . . . .

1970 . . . .1971. . . .1972....1973197419751976____1977P.._

1975: LI I .IllIV.

1976:1.I I .illIV.

1977:1.11.IllIVr

Rentalincomeof per-

withcapital

con-sump-

tion ad-just-ment

4.9

2.2

2.6

2.73.14.04.44.54.65.55.35.76.1

7.17.78.8

10.011.011.311.612.212.913.2

13.814.315.015.716.117.118.219.418.618.1

18.620.121.521.621.422.323.325.3

22.122.322.222.6

23.022.923.324.1

24.524.925.526.4

Divi-dends

5.8

2.0

3.8

4.04.44.34.44.64.65.66.37.07.2

8.88.58.58.89.1

10.311.111.511.312.2

12.913.314.415.517.319.119.420.121.922.6

22.923.024.627.831.032.435.841.2

32.032.232.932.5

33.635.036.038.4

38.540.342.343.6

Personalinterestincome

6.9

5.5

5.4

5.35.35.25.15.25.96.47.37.78.2

8.99.6

10.311.412.713.815.317.418.820.9

23.324.627.130.233.337.241.845.049.655.9

64.369.374.684.1

103.0115.6130.3147.9

111.5113.3116.6121.0

125.0127.5132.2136.4

140.3145.4150.3155.6

Total

1.5

2.1

3.0

3.13.13.13.03.66.2

11.311.711.312.5

15.212.613.114.116.217.518.721.625.927.0

28.932.833.835.837.440.444.752.659.966.5

79.994.1

104.1118.9140.8176.8192.8206.9

163.9176.8181.5185.2

190.3188.7194.3198.0

203.5203.0208.7212.5

Old age,survivors,disability,and healthinsurancebenefits

0.0

.0

. 1

.1

.2

.2

. 3

.4

.5

.6

.7

1.01.92.23.03.64.95.77.38.5

10.2

11.112.614.315.216.018.119.825.530.232.9

38.544.549.660.470.181.492.9

105.0

76.777.984.886.3

88.189.395.898.4

99.9101.8108.5109.8

Transfer payments

Govern-ment

unem-ploy-

ment in-surancebenefits

0.4

.5

.4

.4

.1

.1

.41.1.8. 9

1.9

1.5.9

1.11.02.21.51.51.94.12.8

3.04.33.13.02.72.31.92.22.12.2

4.05.85.64.36.6

17.415.712.7

14.817.918.718.2

17.515.015.115.0

15.112.311.611.8

Vet-eransbene-

fits

0.6

.6

.5

.5

. 5

. 5

. 51.03.07.07.05.95.3

7.74.64.34.14.24.44.44.54.74.6

4.65.04.74.84.74.94.95.65.96.7

7.78.89.7

10.411.814.514.413.8

14.213.914.615.1

15.914.413.613.9

14.313.713.313.8

Govern-mentem-

ployeeretire-ment

benefits

0.1

.2

. 3

. 3

.3

. 3

.4

.4

.5

.7

.7

.7

. 9

1.01.11.21.41.51.71.92.22.52.8

3.13.43.74.24.75.26.16.97.78.6

10.111.713.515.618.822.625.728.8

21.522.123.024.0

24.525.726.126.4

27.128.429.230.5

Aid tofamilieswith de-pendentchildren(AFDC)

0.

1

1

11.1.1.2.2.2.

. 3

.4

.5

.6

.6

.5

.5

.6

.6

.6

.7

.8

.9

1.01.11.31.41.51.71.92.32.83.5

4.86.26.97.27.99.29.9

10.3

8.89.09.49.7

9.89.9

10.010.0

10.010.210.310.5

Other

g

4

7

7888001

2.52.93.3

3.53.63.84.14.14.34.54.95.35.8

6.26.46.77.37.88.3

10.210.211.112.5

14.917.218.921.025.531.734.336.3

28.035.831.031.9

34.634.533.834.3

37.036.635.636.0

Less:Personalcontri-butions

forsocialinsur-ance

0.1

.2

.6

.7

.81.21.82.22.32.02.12.22.2

2.93.43.84.04.65.25.86.76.97.9

9.39.7

10.311.812.613.317.820.622.826.3

28.030.834.242.2M.I50.455.261.2

49.649.850.551.6

53.954.855.656.6

59.660.861.762.9

Non-farmper-sonal

in-come2

159.6171.5187.7189.9

209.3234.4252.0269.9272.7294.3316.4335.0342.6367.7

384.4399.0424.5447.0480.7519.5566.1609.1667.5725.8

780.7838.0917.3

1,011.91,119.31,218.81,351.31,502.3

1,175.61, 200. 81, 232.11,266.7

1,305.91,332.51, 364. 71, 402.1

1, 442. 41, 483. 51,519.91.563.4

1 The total of wage and salary disbursements and other labor income differs from compensation of employees in TableB-19 in that it excludes employer contributions for social insurance and the excess of wage accruals over wage disburse-ments.

3 Personal income exclusive of farm proprietors' income, farm wages, farm other labor income, and agricultural netinterest.

Note.—The industry classification of wage and salary disbursements and proprietors' income is on an establishmentbasis and is based on the 1972 Standard Industrial Classification (SIC) beginning 1948 and on the 1942 SIC prior to 1948.


281


T A B L E B—21.—Disposition cf personal income, 1929-77

[Billions of dollars; quarterly data at seasonally adjusted annual rates, except as noted]

Year orquarter

1929

1933 . .

1939

194019411942 .1943194419451946..194719481949

1950195119521953195419551956. .195719581959.

1960.1961196219631964... .1965196619671968... .1969

1970... .1971197219731974197519761977 v

1975: 1I I . . .III...IV...

1976: l . ._ .I I . . .III...IV.__

1977: I . . . .IL . . .III.. .IV P .

Per-sonal

income

84.9

46.9

72.4

77.895 3

122.4150.7164.4169.8177.3189 8208 5205.6

226.1253.7270 4286.1288.2308 8330.9349.3359.3382.1

399.7415.0440.7463.1495.7537.0584 9626.6685.2745.8

801.3859.1942.5

1, 052. 41,154.91,253.41,382.71,536 1

1, 205.11, 234. 71, 269. 71,304.0

1, 338.11, 366.71, 393.91, 432.2

1, 476.81,517.21, 549.81,600.5

Less:Per-sonaltaxand

nontaxpay-

ments

2.6

1.4

2.4

2.63 35.9

17.818.920.818.721 421 018.5

20 628.934 035.532.535 439.742.442 146.0

50.452.156 860.358.664.974 582.197.1

115.4

115.3116.3141.2150.8170.3169.0196.9227.5

179.6142.5173.9179.9

184.8192.6200.6209.5

224.4224.8226.1234.6

Equals:Dispos-

ableper-sonal

income

82.3

45.5

69.9

75.292 0

116.5132.9145.5149.0158.6168 4187 4187.1

205 5224.8236 4250.7255.7273 4291.3306.9317.1336.1

349.4362.9383 9402.8437.0472 2510 4544 5588.1630.4

685.9742.8801.3901.7984.6

1, 084. 41,185.81,308.6

1, 025. 41, 092.21, 095. 71,124.1

1,153. 31,174.11,193.31, 222.6

1, 252.41, 292. 51, 323.81,365.9

Less: Personal outlays

Total

79.1

46.5

67.8

72.081 889.4

100.1109.0120.4145.2163 5176.9180.4

194.7210.0220 4233.7240.1258.5271.6286.4295.4317.3

332.3342.7363.5384.0410.9441.9477 4503.7550.1595.3

635.4685.5751.9831.3913.0

1, 004.21,119.91, 240. 9

960.1989.1

1, 019.11, 048.6

1, 080.91,103.81,128.51,166. 3

1,201.01, 223.91, 250. 51, 288.1

Per-sonalcon-

sump-tion

expend-itures

77.3

45.8

67.0

71.080 888.699.4

108.2119.5143.8161 7174 7178.1

192.0207.1217 1229.7235.8253 7266.0280.4289.5310.8

324.9335.0355 2374.6400.4430 2464 8490 4535.9579.7

618.8668.2733.0809.9889.6980.4

1, 094.01,210.1

936.5965.9995.1

1, 024.1

1, 056.01,078. 51,102.21,139. 0

1,172.41,194.01,218.91,255.3

Interestpaid by

con-sumers

tobusi-ness

1.5

.5

.7

.89

.7

.5

.5

.5

.71 01.41.7

2.32.52.93.63.84.45.15.55.66.1

7.07.37.88.89.9

11.112 012.513.314.7

15.516.217.920.222.422.925.029.6

22.622.423.023.6

23.824.425.526.3

27.528.930.431.6

Per-sonal

transferpay-

mentsto for-eigners(net)

0.3

.2

.2

.22

.1

.2

.4

.5

.77

.7

.5

.4

.44

.5

.5

.4

.5

.5

.4

.4

.4

.4

.5

.6

.6

.76

.9

.8

.9

1.11.11.01.31.0.9.9

1.2

1.0.8

1.0.9

1.0.9.9

1.0

1.11.01.31.2

Equals:Per-

sonalsaving

3.1

- 1 . 0

2.1

3.310 227.032.736.528.513.44 9

10 66.7

10.814.816 017.015.614.919.720.621.718.8

17.120.220 418.826.130.333.040.938.135.1

50.657.349.470.371.780.265.967.8

65.4103.176.775.5

72.470.364.856.3

51.468.573.377.8

Percent of disposablepersonal income

Personaloutlays

Total

96.2

102.2

97.0

95.688 976.875.474.980.891.597 194.396.4

94.793.493.293.293.994.693.293.393.294.4

95.194.494 795.394.093.693.592.593.594.4

92.692.393.892.292.792.694.494.8

93.690.693.093.3

93.794.094.695.4

95.994.794.594.3

Con-sump-

tionexpend-itures

93.9

100.7

95.8

94.387 776.174.874.480.290.696 193.295.2

93.492.191.891.692.292.891.391.491.392.5

93.092.392.593.091.691.191.190.091.192.0

90.290.091.589.890.390.492.392.5

91.388.490.891.1

91.691.992.493.2

93.692.492.191.9

Per-sonalsaving

3.8

- 2 . 2

3.0

4.411 123.224.625.119.28.52 95 73.6

5.36.66 86.86.15 46.86.76.85.6

4.95.65 34.76.06.46.57.56.55.6

7.47.76.27.87.37.45.65.2

6.49.47.06.7

6.36.05.44.6

4.15.35.55.7


282


T A B L E B—22.— Total and per capita disposable personal income and personal consumption expendi-

tures in current and 1972 dollars, 1929-77

[Quarterly data at seasonally adjusted annual rates, except as noted]

Year or quarter

1929

1933 . .

1939

1940.19411942 .1943194419451946194719481949

1950195119521953195419551956195719581959 . .

1960196119621963 . .196419651966 . .196719681969

197019711972197319741975 _ _19761977*

1975: 1II.IIIIV

1976: 1IIIIIIV

1977:1 . . _.IIIIIIVP . . _

Disposable personal income

Total (billionsof dollars)

Currentdollars

82.3

45.5

69.9

75.292.0

116.5132.9145.5149.0158.6168.4187.4187.1

205.5224.8236.4250.7255.7273.4291 3306.9317.1336.1

349 4362 9383 9402 8437.0472 2510 4544.5588 1630.4

685 9742.8801.3901.7384 fi

, 084.4,185 8, 308.6

, 025.4,092.2, 095.7, 124.1

1,153.31,174.11,193.31,222.6

1,252.4L 292.5I, 323.8L, 365.9

1972dollars

229.8

169.7

230.1

244.3278.1317 3332.2343.9338 6332.4318.8335.5336.1

361 9371 6382.1397 5402.1425.9444 9453.9459.0477.4

487 3500 6521 6539 2577.3612 4643 6669.8695 2712.3

741 6769.0801.3854.7842 0857.3890 3930.3

828.8871.1859.1870.2

881.5887.8890.7901.5

908.4924.5934.4953.6

Per capita(dollars)

Currentdollars

675

362

534

570690863972

1,0511,0651,1221,1681,2781,254

1,3551,4571,5061,5711,5741,6541,7311,7921,8211,898

1,9341,9762 0582,1282,2782 4302 5972,7402 9303,111

3 3483,5883,8374,2854 6465,0775 5116|035

4,8175,1205,1255,247

5,3745,4625,5405,665

5,7935,9676,0986,279

1972dollars

1,886

1,350

1,756

1,8492,0842 3532,4292,4852 4202,3512,2122,2882,253

2 3862,4082,4342 4912,4762,5772,6432,6502,6362,696

2,6972,7252 7962 8493,0093 1523 2743,3713 4643,515

3 6193,7143 8374,0623 9734,0144 1374,290

3,8934,0844,0184,062

4,1074,1304,1354,177

4,2024,2684,3054,383


Total (billionsof dollars)

Currentdollars

77.3

45.8

67.0

71.080.888 699.4

108.2119 5143.8161.7174.7178.1

192 0207 1217.1229 7235 8253.7266 0280 4289.5310.8

324 9335 0355 2374 6400.4430 2464 8490.4535 9579.7

618.8668.2733.0809.9889 6980.4

1,094.01,210.1

936.5965.9995.1

1,024.1

1.056.01,078.5L, 102.21,139.0

1,172.41,194.01,218.91,255.3

1972dollars

215.6

170.7

220.3

230.4244.1241 7248.7255.7271 4301.4306.2312.8320.0

338 1342.3350.9364 2370.9395.1406 3414.7419.0441.5

453 0462.2482 9501 4528.7558 1586.1603.2633.4655.4

668.9691.9733.0767.7760.7775.1821.3860.3

756.9770.4780.2792.8

807.2815.5822.7839.8

850.4854.1860.4876.4

Per capita(dollars)

Currentdollars

634

364

511

537605657727781854

1,0171,1221,1921,194

1,2661,3421,3831,4391,4521,5351,5811,6371,6621,755

1,7981,8241 9041,9792,0872,2142,3652,4682,6702,860

3,0203,2273,5103,8494,1974,5915,0845,580

4,3994,5294,6544,780

4,9215,0185,1175,278

5,4225,5135,6155,770

1972dollars

1,769

1,358

1,681

1,7441,8301,7921,8191,8471,9392,1312,1242,1332,145

2,2292,2192,2362,2832,2842,3912,4152,4212,4062,493

2,5072,5162,5892,6492,7552,8722,9823,0353,1563,234

3,2653,3423,5103,6483,5893,6293,8173,967

3,5553,6123,6493,700

3,7613,7943,8203,891

3,9333,9433,9644,028

Popu-lation(thou-

sands) *

121, 875

125,690

131,028

132,122133, 402134, 860136,739138, 397139,928141,389144,126146,631149,188

151,684154,287156,954159,565162,391165,275168,221171,274174,141177,073

180,671183,691186,538189,242191,889194,303196,560198,712200,706202,677

204,878207,053208, 846210,410211,945213, 566215,191216, 856

212, 895213,298213,816214,258

214,608214, 948215,38C215, 827

216,206216,603217,073217,542

i Population of the United States including Armed Forces overseas; includes Alaska and Hawaii beginning 1960. Annualdata are for July 1 through 1973 and are averages of quarterly data beginning 1974. Quarterly data are average for theperiod.

Source: Department of Commerce (Bureau of Economic Analysis and Bureau of the Census).

283


T A B L E B-23.—Gross saving and investment, 1929-77


Year orquarter

1929

1933

1939

1940194119421943194419451946194719481949

1950195119521953195419551956195719581959

19601961....196219631964196519661967 119681969

19701971 . .1972197319741975....19761977 v

1975: I . .I I . . .III...-IV... .

1976: 1IIIII. . . .IV... .

1977: 1I L . . .I IL. . .IV v--

Gross saving

Total

15 9

9

8 7

13.518 510.55 32.35.1

34.641 249 034.8

49 755.549.348.149.465.673 672.660 475.8

78.975.883 689 6

100 1115.4122.9120.3130 8147.5

143.4155.4177 5216.8204 4195.1237.0274.3

175.6183.6209.8211.4

228.9242.1244.8232.2

251.4277.2284.5

Gross private saving

Total

14.9

2 2

10.9

14.222 241.949 454.144.629.226 840 638.2

41 649.453.155.056.562.468 471.773 077.3

75.880.087 488 9

102 4114.9124.2134.6136 3136 8

151.9173 0180 4210.5209 5259.4272 5294.7

220.5278.3268.8270.0

276.0275.4277.2261.6

262.9292.1310.5

Per-sonalsaving

3.1

— 1 0

2 1

3.310 227.032 736.528.513.44 9

10 66.7

10 814.816.017.015.614.919 720.621 718.8

17.120.220 418 826 130.333.040.938 135 1

50 657 349 470.371 780.265 967.8

65.4103.176.775.5

72.470.364.856.3

51.468.573.377.8

Grossbusi-ness

savingi

11.7

3.2

8.8

10.912.014.816.717.716.015.821.830.031.4

30.834.637.138.041.047.548.751.151 358.5

58.759.867 070 176 284.691.293.798 2

101.7

101.4115 7131 0140.2137 9179.2206 6226.9

155.1175.2192.1194.5

203.6205.1212.4205.3

211.5223.6237.2

Government surplus ordeficit (—), nationalincome and product

accounts

Total

1.0

- 1 . 4

- 2 . 2

- . 7- 3 . 8

-31.4-44 .1-51.8-39.5

5.414.48.4

- 3 . 4

8.06.1

- 3 . 8- 6 . 9- 7 . 1

3.15.2.9

-12.6- 1 . 6

3.1- 4 . 3- 3 . 8

.7—2.3

.5- 1 . 3

-14.2- 5 . 510.7

- 9 . 4-18 .3- 3 5

6.3- 3 2

-64 .3-35.6-20.4

-44.9-94.7-59.0-58.7

-47.1-33 .3-32.4-29.4

-11.5-14.9-26.0

Fed-eral

1.2

- 1 . 3

- 2 . 2

- 1 . 3- 5 . 1

-33 .1-46 .6-54 .5-42 .1

3.513.48.3

- 2 . 6

9.26.5

- 3 . 7- 7 . 1- 6 . 0

4.46.12.3

-10 .3- 1 . 1

3.0- 3 . 9- 4 . 2

.3—3.3

.5- 1 . 8

-13.2- 5 . 8

8.5

-12.1-22.0-17 .3- 6 . 7

-10.7-70.2-54.0-49.6

-48.5-99.2-85.5-67.6

-60 .3-46.2-53 .5-55.9

-38 .8-40 .3-58 .9

Stateandlocal

- 0 . 2

- . 1

.0

.61.31.82.52.72.61.91.0.1

- . 7

- 1 . 2- . 4- . 0

.1- 1 . 1- 1 . 3- . 9

- 1 . 4- 2 4- . 4

.1- . 4

55

1.0- . 0

.5- 1 . 1

2.1

2.83 7

13 713.07 65.9

18 429.2

3.74.56.68.9

13.312.921.126.5

27.325.432.9

Capitalgrants

receivedby theUnitedStates,(net) 2

-------

0.9

7.0

4 - 2 . 0.0.0.0

.0

.0

.0

.0

.0

.0

.0

.0

.0

.0

.0

.0

Gross investment

Total

17.0

1.6

10.1

14.619 09.73.55.19.2

35.342.947.835.9

51.759.551.951.452.468.072.872.862 075.5

78.277.387 693 4

102 3116.3126.1122.1130 2144.2

141.4156 8179 2219.4210 1201.0242 5275.3

181.6187.2217.8217.2

233.1246.5252.8237.5

254.7276.1285.4284.9

Grossprivatedomes-tic in-vest-ment

16 2

1.4

9 3

13.117 99.95 87.2

10.630.734 045.935.3

53.859.252.153.352.768.471.069.261.977.6

76.474.385.290.296.6

112.0124.5120.8131.5146.2

140.8160.0188 3220.0214.6189.1243.3294.3

175.1171.2205.4204.7

231.3244.4254.3243.4

271.8294.9303.6307.0

Netforeigninvest-ment 3

0.8

.2

.9

1.51 l

- . 2- 2 . 2- 2 . 1- 1 . 4

4.69 02 0.6

- 2 1.3

- . 2- 1 . 9- . 3- . 31 83.6

1- 2 . 0

1.73.02 43 25.74.31.61.2

- 1 4- 2 . 0

.5—3 2- 9 0- . 6

- 4 . 511.8- . 9

-19.1

6.516.012.412.5

1.82.2

- 1 . 5- 5 . 9

-17 .1-18 .8-18.2-22 .1

Statis-ticaldis-

crep-ancy

1 l

.7

1.4

1.15

- . 8- 1 . 8

2.74.1.7

1 8- 1 . 2

1.0

2 04.02.73.33.02.5

- . 8.2

1 7

- . 71.64 03.72.2.9

3.21.7

- . 6- 3 . 3

- 2 . 11.31 72.65 85.95.51.0

6.03.58.05.9

4.24.58.05.3

3.3- 1 . 2

.9

1 Undistributed corporate profits with inventory valuation and capital consumption adjustments, corporate and non-corporate capital consumption allowances with capital consumption adjustment, and private wage accruals less disburse-ments.

2 Allocations of special drawing rights (SDR), except as noted in footnote 4.3 Net exports of goods and services less net transfers to foreigners and interest paid by government to foreigners plus

capital grants received by the United States, net.* In February 1974, the U.S. Government paid to India $2,010 million in rupees under provisions of the Agricultural

Trade Development and Assistance Act. This transaction is being treated as capital grants paid to foreigners, i.e., a —$2.0billion entry in capital grants received by the United States (net).


284


TABLE "R-24.—Saving by individuals, 1946-771


Year orquarter

1946194719481949

19501951195219531954

19551956195719581959

19601961196219631964

19651966196719681969

19701971197219731974

19751976

1976: l.._.II._.III. .IV._

1977: l.._II . .III.

Total

22.321.025.221.4

30.434.029.931.527 8

33.236.336.133.537.4

34.934.740.245.254.9

62.072.072.778,069.6

82.697.9

112.8132.0127.6

143.0149.6

148.6158.6146.4144.5

139.9154.7165.2

Increase in financial assets

Total 2

18.913.29.09.9

13.719.123.122.622 1

27.930.028.631.637 1

31 935.739.646.555.2

58.360.167.873.462.7

77.7103.7128.1142.8140.5

165.1191.4

186.7196.0194.0188.6

213.6220.5242.9

Cur-rencyandde-

mandde-

posits

5.6.1

- 2 . 9- 2 . 0

2.64.61.61.02 2

1.21.8

- . 43.8.8

1.0- . 9

- 1 . 2- . 54.9

7.52.49.9

11.12.5

8.99.1

14.812.95.6

7.18.0

14.41.68.77.3

8.522.65.7

Sav-ingsac-

counts

6.33.42.22.6

2.54.87.88.29.2

8.69.5

12.013.911.1

12 118.326.226.326.2

28.019.135.331.19.1

43 667.871.067.857.2

84.9108.8

96.3101.8114.3122.8

116.688.9

123.4

Securities

Gov-ern-mentsecu-rities a

- 1 . 41.61.31.8

- . 1- . 62.52.51.0

5.83.92.3

- 2 . 59.1

3.41.81.36.45.4

3.911.7- . 75.7

20.3

- 9 . 2- 9 . 9

1.922.822.6

20.73.2

7.07.0

- 1 . 4.1

23.55.5

31.0

Corpo-rateandfor-eign

bonds

- 0 . 9- . 8- . 1- . 4

- . 8.2

- . 0

- ! 9

.71.0.9

1.2.4

.7- . 1- . 4

.1- . 5

.51.44.G4.25.4

9.58.34.41.34.7

8.24.0

5.24.66.8

- . 7

- 6 . 77.41.2

Corpo-rate

equi-ties*

1.11.11.0J

.71.81.61.0.8

1.02.01.51.5.6

- 5.3

- 2 . 1- 2 . 5

- 2 . 1- . 7

- 4 . 2- 6 . 5- 3 . 7

- 1 6- 5 . 1- 4 . 5- 6 . 9- 2 . 2

- 4 . 1- 3 . 8

- 9 . 1.0

- 4 . 1- 2 . 1

- . 42.0

- 5 . 6

Insur-anceandpen-sionre-

serves(5)

5.35.45.35.6

6.96.37.77.97.8

8.59.59.5

10.411.9

11.512.112.713.916.1

16.919.219.020.221.3

24.427.329.333.036.0

42.853.6

53.454.451.055.4

55.373.265.9

Net investment in

Non-farmhomes

3.66.79.18.4

11.811.711.312.312.7

16.715.613.212.115.9

14.312.012.813.413.9

13.412.610.914.314.2

11.718.825.928.223.1

20.832.8

28.531.633.537.9

40.346.252.7

Con-sumer

du-rables

3.99.5

10.410.9

14.210.47.59.67.0

11.68.47.83.58.0

7 44.89.1

12.215.3

19.121.218.724.323.8

17.425.133.639.027.0

22.742.3

39.542.442.444.8

50.948.242.8

Non-cor-po-ratebusi-ness

assets

i\2:07.12.0

7.04.42.0.8

1 5

2.4.5

2.12.33 4

3 13.36.38.57.7

11.29.48.59.4

11.4

9 813.517.820.32.8

- . 8- 2 . 5

- 1 . 9- 2 . 6- 1 . 4- 4 . 3

- 1 . 1- . 4

- 4 . 7

Less: Net increasein debt

Mort-gagedebton

non-farmhomes

3.64.74. a4.4

6.76.66.27.68.7

12.211.28.99.5

12 8

11 712 214.116.217.5

17.013.812.517.118.5

14 127.041.647.135.4

38.061.2

54.854.166.969.3

73.490.396.4

Con-sumercredit

2,73.22.92.9

4.11.24.83.91.1

6.43.52.6.2

6.4

4 61 85.87.98.5

9.66.44.5

10.010.4

5 913.118.922.010.2

9.423.6

22.723.123.325.1

35.534.832.1

Otherdebt*

-O.02.63.02.4

5.43.83.02.25.8

6.93 54.06.37.8

5 57 17.5

11.211.2

13.411.116.116.213.6

13 923.032.129.120.2

17.429.6

26.731.731.928.2

55.034.840.0

1 Saving by households, personal trust funds, nonprofit institutions, farms, and other noncorporate business.2 Includes commercial paper and miscellaneous financial assets, not shown separately.3 Consists of U.S. savings bonds, other U.S. Treasury securities, U.S. Government agency securities and sponsored

agency securities, and State and local obligations.4 Includes investment company shares.5 Private life insurance reserves, private insured and noninsured pension reserves, and government insurance and

pension reserves.6 Security credit, policy loans, noncorporate business mortgage debt, and other debt.

Source: Board of Governors of the Federal Reserve System.

285

248-947 O - 78 - 19


TABLE B-25.—Number and money income {in 1976 dollars) oj'families and unrelated individualsby race of head, 1947-76

Year

FAMILIES

19471948 -1949195019511952195319541955195619571958195919601961 _ _ „19621963196419651266196719681969197019711972197319741974 219751976

UNRELATEDINDIVIDUALS

1947194819491950195119521953195419551956195719581959196019611S621S6319641S65 ._1S66196719681969197019711972 . _197319741974 -'19751976

Total

Totalnum-ber

(mil-ions)

37.238.639.339.940.640.841.242.042.943.543.744.245.145.546.447.147.548.048.549.250.150.851.652.253.354.455.155.755.756.256.7

8 28.49.09.49 19.79 59.79 99.8

10.410 910 9

111.1i l l 2ill.OiH.2

U2! 2U2.5113.2113.9il4.6115.5

16 316.818.318.918.920.221.5

Medianincome

$7, 7247,5387,4217,8508,1288,3439,0298,8269,393

10,01210, 04410,01510, 58010, 80310,91311,20811,61812,05612, 55213,21213, 52614, 12414, 64814, 46514, 45715,12615, 43714,81714, 89414, 51014,958

$2 4982,3562,5072,4702 6183,0232 9712,5892 8012,9863,0212 9263'0413,3063 3373,2993,3483,6393,8844,0174,0564,5594,5514,5994,6614,7915,2965,1245,3135,1645,375

Percent withincomes

Be-low

$5,000

26.827.829.127.025.223.922.524.021.619.619.919.918.618.518.517.216.415.514.512.712.210.710.511.011.010.39.8

10.410.011.010.3

Be-low

$3, 000

56 458.355.755.453 550.350 754.652.950.549.950 849 847.947.247.346.844.741.740.640.336.335.935.334.132.028.528.827.327.727.2

Belowpov-ertylevel

18.518.118.117.215.915.013.911.811.410.09.7

10.110.09.38.89.28.89.79.4

Belowpov-ertylevel

46.145.245.945.444.242.739.838.338.134.034.032.931.629.025.625.524.125.124.9

White

Totalnum-ber

(mil-lions)

34.135.3

38.239.039.539.740.240 941.141.942.442.743.143.544.144.845.446.046.547.648.548.949.549.449.950.1

7 27.3

8.38.58.58.99 29.39.69.69.59.7

10.410.510.711.312.012.513.414.214.515.816.316.317.518.6

Medianincome

$8 0467,8277,7178 1468,4578,8249,3629,1889,806

10, 47710, 45210, 43511 02111,21611,38011,73812,17612, 58613, 08313, 72614, 03914, 62315, 20815, 00615,00115,71516,13415,41815,47815, 09115, 537

$2 6392,4902,7072,6362 7563,2573 1352,7862,9773,0663,2313 1353 2493,5753,5873,5303,5093,8334,0514,2244,2114,8304,7804,8134,8705,0035,4705,3515,5055,3935,606

Percent withincomes

Be-low

$5,000

23.424.826.224.422.220.820.121.519.016.917.217.015.916.015.914.813.913.512.510.910.69.29.19.59.38.68.18.78.39.38.4

Be-low

$3,000

54.456.653.653.952.447.949.252.650.849.648.049.047.945.744.745.045.043.140.338.738.934.634.233.632.230.326.826.525.225.425.1

Belowpov-ertylevel

15.214.914.813.912.812.211.19.39.08.07.78.07.97.16.67.06.87.77.1

Belowpov-ertylevel

44.143.043.242.742.040.738.136.136.532.232.130.829.627.123.723.221.822.722.7

Black and other races

Totalnum-ber

(mil-lions)

3 13 3

3 83.94 04 04.04 24.34.54.64.84.84.85.05.05.15.25.45.75.96.16.36.36.46.6

1 01.0

.44

!566

fi1.51.51.61.71.61.81.82.01.92.12.3? 52.62.6? 12.9

Medianincome

$4 1124 1813,9414 4194 4535 0145 2495 1185 4085 5125 5895 3455 6936,2096,0726,2626,4427,0447,2058,2298,6859,1479,6149,5539,4379,6699,7309,5419,9029,8599,821

$1 9011,8661,9571,9312 0362,2532,4651,8501,9882,2762,0532 1262,0992,0522,2032,3572,4082,6262,9542,6563,1123,2713,3703,2883,2683,7164,0883,6353,8493,5883,882

Percent withincomes

Be-low

$5,000

61 559 962 557 156 650 547 949*446 945 745 847 644 841.442.339.438.433.832.328.226.823.623.024.224.424.423.124.623.824.424.5

Be-low

$3,000

69 970.067.765.960.164.157.564.664.856.261.262.261.061.761.761 758.654.650.953, 649.447.146.547.146.84? 639.242.940.542.340.8

Belowpov-ertylevel

50 449.049.048.043.740.039.733.932.128.226.928.127.427.726.226.025.125.326.4

Belowpov-ertylevel

57.459.362.76?.l58.355.050.753.148.245.745.546.744.940,937.840. Q38.040.939.5

1 Revised using population controls based on the 1970 census. Such controls are not available by race.2 Based on revised methodology procedures.Note.—The poverty level is based on the poverty index adopted by a Federal interagency committee in 1969. That

index reflects different consumption requirements for families based on size and composition, sex and age of family head,and farm-nonfarm residence. The poverty threshold is updated every year to reflect changes in the consumer price index.For further details, see "Current Population Reports", Series P-60, No. 107, Bureau of the Census.

Source: Department of Commerce, Bureau of the Census.

286


POPULATION, EMPLOYMENT, WAGES, ANDPRODUCTIVITY

TABLE B-26.—Population by age groups, 1929-77

[Thousands of persons]

July 1

1929

1933

1939

194019411942 . .19431944

19451946194719481949

195019511952 .19531954

19551956 .195719581959

19601961196219631964

19651966196719681969

19701971..197219731974 .

1975 _19761977__

Total

121,767

125, 579

130, 880

132,122133,402134, 860136, 739138, 397

139,928141,389144,126146,631149,188

152 271154,878157, 553160 184163, 026

165 931168, 903171,984174 882177, 830

180,671183,691186,538189, 242191,889

194,303196,560198,712200, 706202,677

204, 878207,053208, 846210,410211,901

213,559215, 142216,817

Age (years)

Under 5

11,734

10,612

10,418

10, 57910,85011,30112,01612,524

12,97913, ?4414,40614,91915,607

16 41017,33317,31217, 63818, 057

18, 56619, 00319, 49419, 88720,175

20,34120, 52220, 46920, 34220,165

19,82419,20818,56317,91317,376

17,14817,17716,99016,69416, 288

15, 87915, 34315,236

5-15

26, 800

26, 897

25,179

24,81124,51624, 23124, 09323, 949

23, 90724,10324, 46825, 20925, 852

26, 72127,27928, 89430, 22731, 480

32,68233, 99435, 27236, 44537, 368

38,49439, 76541,20541,62642,297

42,93843,70244, 24444,62244,840

44, 77444, 44143,94843,22742, 538

41,95641, 45940, 572

16-19

9,127

9,302

9,822

9,8959,8409,7309,6079,561

9,3619,1199,0978,9528,788

8,5428,4468,4148,4608,637

8,7448,9169,1959,54310,215

10,68311,02511,18012,00712,736

13,51614,31114,20014,45214,800

15,27515,63515,94616,31016, 590

16, 79316, 92816, 966

20-24

10,694

11,152

11,519

11,69011,80711,95512,06412,062

12,03612,00411,81411,79411,700

11,68011,55211,35011,06210,832

10,71410,61610,60310,75610, 969

11,13411,48311,95912,71413,269

13,74614,05015,24815,78616,480

17,18418, 08918,03218,34518,741

19, 22919, 62920, 073

25-44

35, 862

37,319

39, 354

39, 86840, 38340, 86141,42042,016

42, 52143, 02743,65744, 28844,916

45, 67246,10346, 49546, 78647, 001

47,19447, 37947,44047, 33747, 192

47,14047, 08447,01346,99446,958

46,91247,00147,19447,72148, 064

48, 43548,81150,25451,41152, 593

53, 73555, 13056, 692

45-64

21,076

22, 933

25, 823

26, 24926,71827,19627,67128,138

28,63029, 06429, 49829, 93130, 405

30, 84931,36231, 88432,39432,942

33, 50634, 05734,59135, 10935, 663

36, 20336,72237,25537,78238, 338

38,91639, 53440,19340, 84641,437

41,97542,41342,78543, 07743, 319

43, 54643, 70543, 784

65 andover

6,474

7,363

8,764

9,0319,2889,5849,86710,147

10, 49410,82811,18511,53811,921

12,39712,80313, 20313,61714, 076

14,52514, 93815, 38815, 80616, 248

16,67517, 08917,45717,77818,127

18,45118,75519,07119, 36519,680

20, 08720, 48820, 89221,34621,833

22, 42022, 94723, 494

Note.—Includes Armed Forces overseas beginning 1940. Includes Alaska and Hawaii beginning 1950.


287


TABLE B-27.—Noninstitutional population and the labor force, 1929-77

[Monthly data seasonally adjusted, except as noted]

Year ormonth

1929

1933

1939

19401941194219431944

194519461947

194719481949

195019511952195331954

19551956 _1957 . .19581959

I960 3 . . . . .19611962 319631964

1965....__1966196719681969

197019711972 3 ____197331974

197519761977

Nonin-stitu-tionalpopu-

lation *

100, 380101,520102,610103,660104,630

105,530106,520107,608

ArmedForcesi

Civilian labor force

Total

Employment

TotalAgri-cul-tural

Non-agri-cul-tural

Thousands of persons 14 years of age and over

260

250

370

5401,6203,9709,020

11,410

11,4403,4501,590

49,180

51, 590

55, 230

55,64055,91056,41055,54054,630

53,86057,52060,168

47,630

38, 760

45, 750

47,52050,35053,75054,47053,960

52,82055,25057,812

10,450

10, 090

9,610

9,5409,1009,2509,0808,950

8,5808,3208,256

37,180

28, 670

36,140

37,98041,25044,50045,39045,010

44,24046,93049,557

i

Unem-ploy-ment

1 550

12, 830

9,480

8,1205,5602,6601,070

670

1,0402,2702,356


103,418104,527105,611

106,645107,721108,823110,601111,671

112 732113,811115,065116,363117,881

119,759121,343122,981125,154127,224

129,236131,180133,319135,562137,841

140,182142,596145,775148,263150, 827

153,449156,048158, 559

1,5911,4591,617

1,6503,1003,5923,5453,350

3 0492,8572,8002,6362,552

2,5142,5722,8282,7382,739

2,7233,1233,4463,5353,506

3,1882,8172,4492,3262,229

2,1802,1442,133

59,35060,62161,286

62,20862,01762,13863,01563,643

65 02366,55266,92967,63968,369

69,62870,45970,61471,83373,091

74,45575,77077,34778,73780,734

82,71584,11386, 54288,71491,011

92,61394,77397, 401

57,03858,34357,651

58,91859,96160,25061,17960,109

62 17063,79964,07163,03664,630

65,77865,74666, 70267,76269,305

71,08872,89574,37275,92077,902

78, 62779,12081,70284,40985,935

84,78387,48590, 546

7,8907,6297,658

7,1606,7266,5006,2606,205

6 4506,2835,9475,5865,565

5,4585,2004,9444,6874,523

4,3613,9793,8443,8173,606

3,4623,3873,4723,4523,492

3,3803,2973,244

49,14850,71449,993

51,75853, 23553,74954,91953,904

55 72257,51458,12357,45059,065

60,31860,54661,75963,07664,782

66,72668,91570,52772,10374, 296

75,16575,73278,23080,95782,443

81,40384,18887, 302

2,3112,2763,637

3,2882,0551,8831,8343,532

2 8522,7502,8594,6023,740

3,8524,7143,9114,0703,786

3,3662,8752,9752,8172,832

4,0884,9934,8404,3045,076

7,8307,2886,855

Unem-ploy-mentrate

(percentof

civilianlaborforce)

Civilian labor forceparticipation rate2

Total Males Females

Percent

3.2

24.9

17.2

14.69.94.71.91.2

1.93.93.9

3.93.85.9

5.33.33.02.95.5

4.44.14.36.85.5

5.56.75.55.75.2

4.53.83.83.63.5

4.95.95.64.95.6

8.57.77.0

55.756.057.258.758.6

57.255.856.8

58.358.858.9

59.259.359.058.958.8

59.360.059.659.559.3

59.459.358.858.758.7

58.959.259.659.660.1

60.460.260.460.861.2

61.261.662.3

83.784.385.686.487.0

84.882.684.0

86.486.686.4

86.486.586.386.085.5

85.385.584.884.283.7

83.382.982.081.481.0

80.780.480.480.179.8

79.779.179.078.878.7

77.977.577.7

28.128.731.336.036.5

35.931.231.0

31.832.733.1

33.934.634.734.434.6

35.736.936.937.137.1

37.738.137.938.338.7

39.340.341.141.642.7

43.343.343.944.745.6

46.347.348.4


288


TABLE B-27.—Noninstitutional population and the labor force, 1929-77—Continued

[Monthly data seasonally adjusted, except as noted]

Year or month

1975:Jan. ._.F e b . . . .Mar . . . .Apr . . . .May. . . .June.. .

July... .Augs o e c ? ! : : :Nov.. . .Dec. . ! .

1976:Jan. . . .Feb. . . .Mar. . . .AprMay....June...

July...Aug. . .Sept. . .O c t . . .Nov...Dec. . .

1977: Jan . . .Feb...Mar . .Apr. . .May . .June..

July..Aug. .Sept..Oct . . .Nov. .Dec...

Nonin-stitu-tionalpopu-

lation^

ArmedForcesi

Civilian labor force

Total

Employment

TotalAgri-cul-tural

Nqn-agri-cul-tural


Unem-ploy-ment

152,230152,445152,646152,840153,051153,278

153, 585153,824154,052154, 256154,476154,700

154,915155,106155,325155, 516155,711155,925

156,142156,367156,595156,788157,006157,176

157, 381157,584157, 782157,986158,228158,456

158,682158,899159,114159,334159,522159,736

2,1932,1982,1982,1952,1812,178

2,1862,1852,1702,1642,1552,157

2,1402,1462,1482,1442,1422,137

2,1402,1472,1452,1472,1492,146

2,1332,1372,1382,1322,1282,129

2,1352,1372,1312,1342,1322,129

92,00891,69492,05392,23492,82192,433

92,83392,87792,97993, 00292,96693,182

93,65293,75793,93694,39194, 56894, 549

95,17695,20895,08995,19795,74195,936

95,71996,32096,62396,74697,16197, 552

97,30797,61497,75698,07198,87798,919

84,64284,26384,18084,15384,37984, 382

84,81385,06385,12085,18885,28185,495

86,29386, 55286,82887,21787, 52787,432

87,80187,80687,77787,84488,25588,446

88,65389,04789,47889,87790,26790,648

90,58890,79391,08891,38392, 21492,609

3,3613,3403,3323,2783,5043,350

3,4283,4053,4933,3743,3053,244

3,3373,2653,2663,3923,2953,298

3,3243,3533,2653,2903,2383,240

3,1213,1643,1793,2563,3353,330

3,2063,2243,1993,2433,3573,323

81,28180,92380,84880,87580,87581,032

81, 38581,65881,62781,81481,97682,251

82,95683,28783, 56283,82584, 23284,134

84,47784,45384,51284, 55485,01785,206

85, 53285,88386, 29986,62186,93287,318

87,38287, 56987,88988,14088,85789,286

7,3667,4317,8738,0818,4428,051

8,0207,8147,8597,8147,6857,687

7,3597,2057,1087,1747,0417,117

7,3757,4027,3127,3537,4867,490

7,0667,2737,1456,8696,8946,904

6,7196,8216,6686,6886,6636,310

Unem-ploy-mentrate

[percentof

civilianlaborforce)

Civilian labor forceparticipation rate 2

Total Males Females

Percent

8.08.18.68.89.18.7

8.68.48.58.48.38.2

7.97.77.67.67.47.5

7.77.87.77.77.87.8

7.47.67.47.17.17.1

6.97.06.86.86.76.4

61.61.61.61.61.61.

61.61.61.61.61.61.

61.61.61.61.6161

616161616161

6162626262

302252

322101

333565

876689

70112

62.4

62.262.362626262

3.4.8.8

78.278.078.178.078.377.9

78.177.877.877.577.577.3

77.577.477.477.777.677.4

77.677.577.477.577.677.7

77.477.777.677.577.677.9

77.577.577.277.878.178.1

46.245.846. 146.246. 546.3

46.446.446.446.546.346.6

46.846.947.047.147.247.3

47.647.647.447.347.747.7

47.547.948.148.348.548.5

48.448.648.948.649.249.0

1 Not seasonally adjusted.2 Civilian labor force as percent of civilian noninstitutional population.3 Not strictly comparable with earlier data due to population adjustments as follows: Beginning 1953, introduction of

1950 census data added about 600,000 to popu\ation and about 350,000 to labor force, total employment, and agriculturalemployment. Beginning 1960, inclusion of Alaska and Hawaii added about 500,000 to population, about 300,000 to laborforce, and about 240,000 to nonagricultural employment. Beginning 1962, introduction of 1960 census data reduced popu-lation by about 50,000 and labor force and employment by about 200,000. Beginning 1972, introduction of 1970 censusdata added about 800,000 to civilian noninstitutional population and about 333,000 to labor force and employment. Asubsequent adjustment based on 1970 census in March 1973 added 60,000 to labor force and to employment. Overallcategories of the labor force other than those noted were not appreciably affected.

Note.—Labor force data in Tables B-27 through B-32 are based on household interviews and relate to the calendarweek including the 12th of the month. For definitions of terms, area samples used, historical comparability of the data,comparability with other series, etc., see "Employment and Earnings."


289


TABLE B-28.—Civilian employment and unemployment by sex and age, 1947—77

[Thousands of persons 16 years of age and over; monthly data seasonally adjusted]

Year ormonth

1947...1948...1949._.

1950...1951...1952...19531..1954...

1955...1956._.1957...1958...1959...

I9601..1961...19621..1963...1964...

1965...196619671968___1969...

1970...1971...1972119731..1974...

1975. .1976...1977...

1976:Jan_.Feb._Mar..Apr..May..June.

July..Aug..Sept.Oct..Nov..Dec.

1977:Jan..Feb..Mar..Apr..May..June.

July..Aug_.Sept.Oct..Nov..Dec.

Employment

Total

57,03858,34357,651

58,91859,96160, 25061,17960,109

62,17063,79964,07163,03664,630

65,77865,74666,70267,76269,305

71,08872,89574,37275,92077,902

78,62779,12081,70284,40985,935

84,78387, 48590, 546

86, 29386, 55286, 82887,21787, 52787, 432

87,80187,80687, 77787, 84488, 25588, 446

88,65389, 04789, 47889, 87790, 26790, 648

90, 58890, 79391, 08891, 38392, 21492,609

Total

40,99441,72640,926

41,58041, 78041,68442,43141,620

42,62143,38043,35742,42343,466

43,90443,65644,17744,65745,474

46,34046,91947,47948,11448,818

48,96049,24550.63051,96352, 518

51,23052, 39153, 861

51,81951, 99052, 08452, 34152,43252,286

52, 48552, 56752, 54352,62252,67952,816

52,96253, 09453, 30153, 48253, 64454, 006

53, 90153, 94253,96454,34154, 74555, 012

Males

16-19years

2,2182,3452,124

2,1862,1562,1062,1351,985

2,0952,1642,1172,0122,198

2,3602,3142,3622,4062,587

2,9183,2523,1863,2553,430

3,4073,4703,7504,0174,074

3,8033,9044,124

3,8573,8853,8893,9103,9083,877

3,9843,9703,8563,9063,8843,953

3,9553,9584,0044,0634,1394,156

4,1734,1554,0764,2234,2864,324

20yearsandover

38,77639,38238,803

39,39439,62639,57840,29639,634

40,52641,21641,23940,41141,267

41,54341,34241,81542,25142,886

43,42243,66844,29344,85945,388

45,55345,77546.88047,94648,445

47.42748, 48649, 737

47, 96248,10548,19548,43148, 52448, 409

48, 50148, 59748, 68748, 71648, 79548, 863

49, 00749,13649, 29749, 41949, 50549, 850

49, 72849, 78749, 88850,11850,45950,688

Total

16,04516,61816,723

17,34018,18218,57018,75018,490

19,55020,42220,71420,61321,164

21,87422,09022, 52523,10523,831

24,74825,97626,89327,80729,084

29,66729,87531.07232,44633,417

33,55335,09536, 685

34, 47434, 56234, 74434,87635, 09535,146

35, 31635,23935,23435,22235, 57635, 630

35, 69135, 95336,17736, 39536, 62336, 642

36, 68736,85137,12437, 02437, 46937, 597

Females

16-19years

,691,6831,588

1,5171,6111,6121,5841,490

1,5481,6541,6631,5701,640

1,7691.7931,8331,8491,929

2,1182,4692,4972,5252,686

2,7342,7252.9723,2193,329

3,2433,3653,486

3,3083,2913,3393,3703,4543,380

3,4983,3623,3233,3633,3743,301

3,3193,4213,4353,4413,3743,563

3,5273,6883,4343,5053,5463,588

20yearsandover

14,35414,93715,137

15,82416,57016,95817,16417,000

18,00218.76719,05219,04319,524

20,10520,29620,69321,25721,903

22.63023,51024,39725,28126,397

26,93327,14928.10029,22830,088

30,31031, 73033,199

31,16631,27131, 40531, 50631,64131, 766

31,81831, 87731,91131, 85932, 20232, 329

32, 37232, 53232,74232, 95433, 24933, 079

33,16033,16333,69033, 53733,92334, 009

Unemployment

Total

2,3112,2763,637

3,2882,0551,8831,8343,532

2,8522,7502,8594,6023,740

3,8524,7143,9114,0703,786

3,3662,8752,9752,8172,832

4,0884.9934.8404,3045,076

7,8307,2886,855

7,3597,2057,1087,1747,0417,117

7,3757,4027,3127,3537,4867,490

7,0667,2737,1456,8696,8946,904

6,7196,8216,6686,6886,6636,310

Total

1,6921,5592,572

2,2391,2211,1851,2022,344

1,8541,7111,8413,0982,420

2,4862,9972,4232,4722,205

1,9141,5511,5081,4191,403

2,2352,7762.6352,2402,668

4,3853,9683,588

4,0733,9233,8983,9333,8543,902

3,9773,8813,9493,9724,1254,113

3,8393,9783,8123,5923,6383,543

3,4983,5333,3543,4693,3523,213

Males

16-19years

270255352

318191205184310

274269299416398

425479407500487

479432448427441

599691707647749

957928861

946924922

1,009948828

901910918952943939

829905914864870882

851875876848840779

20yearsandover

1,4221,3052,219

1,9221,029980

1,0192,035

1,5801,4421,5412,6812,022

2,0602.5182,0161,9711,718

1,4351,1201,060993963

1,6362,0861.9281,5941,918

3,4283,0412,727

3,1272,9992,9762,9242,9063,074

3,0762,9713,0313,0203,1823,174

3,0103,0732,8982,7282,7682,661

2,6472,6582,4782,6212,5122,434

Total

619717

1,065

1,049834698632

1,188

9981,0391,0181,5041,320

,3661,7171,4881,598L.581

1,4521,3241,4681,3971,429

1,8532,2172.2052,0642,408

3,4453,3203,267

3,2863,2823,2103,2413,1873,215

3,3983,5213,3633,3813,3613,377

3,2273,2953,3333,2773,2563,361

3,2213,2883,3143,2193,3113,097

Females

16-19years

144152223

195145140123191

176209197262296

286349313383386

395404391412412

506567595579660

795773781

760781769766752751

761873750758772791

811783797803794811

762765801

m783688

20yearsandover

475564841

854689559510997

823832821

1.2421,063

1,0801,368L. 1751,2161,195

1,056921

1,078985

1,016

1,347.6501.610,4851,748

2,6492,5462,486

2,5262,5012,4412,4752,4352,464

2,6372,6482,6132,6232,5892,586

2,4162,5122,5362,4742,4622,550

2,4592,5232,5132, 4472,5282,409

iSee footnote 3, Table B-27.

Note.-See Note, Table B-27.


290


TABLE B-29.—Selected employment and unemployment data, 1948-77

(Percent1; monthly data seasonally adjusted]

Year or month

1948.1949

1950195119521953195419551956195719581959

196019611962196319641965 . . . .1966196719681969

19701971197219731974197519761977 . .

1976: JanFeb_ . .MarAprMayJune

JulyAugSeptOctNovDec

1977: JanFebMarApr _ __MayJune

JulyAugSeptOctNov . . _Dec

Unemployment rate1

Allwork-

ers

3.85.9

5.33.33 02.95.54.44.14.36.85.5

5.56.75.55.75.24.53.83.83.63.5

4.95.95.64.95.68.57.77.0

7.97.77.67.67.47.5

7.77 87.77.77 87.8

7.47.67.47.17.17.1

6.97.06.86.86.76.4

By sex and age

Bothsexes16-19years

9.213.4

12.28.28.57.6

12.611.011.111.615.914.6

14.716.814.717.216.214.812.812.812.712.2

15.216.916.214.516.019.919.017.7

19.219.219.019.618.817.9

18.219 618.919.019 119.3

18.418.618.718.218.118.0

17.317.318.317.317.215.6

Males20

yearsandover

3.25.4

4.72.52.42.54.93.83.43.66.24.7

4.75.74.64.53.93.22.52.32.22.1

3.54.44.03.23.86.75.95.2

6.15.95.85.75.76.0

6.05 85.95.86 16.1

5.85.95.65.25.35.1

5.15.14.75.04.74.6

:emales20

yearsandover

3.65.3

5.14.03.22.95.54.44.24.16.15.2

5.16.35.45.45.24.53.84.23.83.7

4.85.75.44.85.58.07.47.0

7.57.47.27.37.17.2

7.77 77.67.67 47.4

6.97.27.27.06.97.2

6.97.16.96.86.96.6

By selected groups

Expe-riencedwageand

salarywork-

ers

4.36.8

6.03.73 33.26.24.84.44.67.25.7

5.76.85.65.55.04.33.53.63.43.3

4.85.75.34.55.38.27.36.6

7.67.37.27.27.17.2

7.57 57.37.47 47.4

7.07.16.96.66.76.5

6.46.56.36.56.36.0

House-hold

heads

3.73.22.72.22.11.91.8

2.93.63.32.93.35.85.14.5

5.35.05.05.04.95.1

5.45 25.35.25 25.1

4.94.94.74.54.54.3

4.44.54.44.44.23.9

Mar-ried

men?

4.61.51.41.74.02.82.62.85.13.6

3.74.63.63.42.82.41.91.81.61.5

2.63.22.82.32.75.14.23.6

4.24.24.24.14.14.3

4.44.24.44.34 44.2

3.84.13.83.73.63.4

3.43.53.33.63.33.2

Full-time

work-ers 3

"~5.T

5.02.62.5

5.23.83.74.07.2

6.7

5.54.94.23.53.43.13.1

4.55.55.14.35.18.17.36.5

7.47.27.17.17.07.3

7.27 47.47.47 37.4

6.96.96.86.66.66.5

6.56.66.46.46.25.9

Blue-collarwork-ers*

4.28.0

7.23.93.63.47.25.85.16.2

10.27.6

7.89.27.47.36.35.34.24.44.13.9

6.27.46.55.36.7

11.79.48.1

9.59.49.29.09.09.4

9.69.79.89.59 49.6

8.58.88.57.98.07.8

8.18.37.88.07.67.2

Employment as percentof population 5

Total

55.854.6

55.255.755 455.353.855.156.155.754.254.8

54 954.254.254.154.555.055.655.856.056.5

56.155.556.056.957.055.356.157.1

55.755.855.956.156.256.1

56.256.256.156.056.256.3

56.356.556.756.957.057.2

57.157.157.257.457.858.0

White

54.054.354.8 '55.455.755.956.5

56.255.756.457.357.555.956.857.9

56.456.656.656.856.956.9

57.056 956.856.956 957.1

57.157.357.557.757.958.0

57.958.058.158.358.758.7

Blackand

other

55.256.156.857.256.956.656.7

55.553.753.053.953.050.050.551.1

50.349.451.051.050.250.5

50.550.550.550.350.950.8

50.951.050.950.950.851.3

50.450.651.050.851.352.7

1 Unemployment as percent of civilian labor force in group specified.2 Married men living with their wives. Data for 1949 and 1951-54 are for April; 1950, for March,s Data for 1949-61 are for May.4 Includes craft and kindred workers, operatives, and nonfarm laborers. Data for 1948-57 are based on data for

January, April, July, and October,s Civilian employment as percent of total noninstitutional population.

Note—See footnote 3 and Note, Table B-27.

Sou rce: Department of Labor, Bureau of Labor Statistics.

291


T A B L E B—30.—Unemployment rate by demographic characteristic, 1948—77

[Percent •; monthly data seasonally adjusted]

Year or month

19481949

19501951195219531954

19551956195719581959

19601961196219631964

19651966196719681969

19701971197219731974

197519761977

1976: JanFebMarA p r . . . .May. . . .J u n e . . .

JulyAugSept. . . .OctNov. . . .D e c . . .

1977: JanF e b . . . .Mar. . . .Apr . . . .May.—J u n e . . .

JulyAugSept.. . ,OctNov.—D e c . . .

White

Total

3 55.6

4 93.12.82 75.0

3.93.63.86.14.8

4.96.04.95 04.6

4.13.33.43.23.1

4.55.45.04.35.0

7.87.06.2

7.97.77 67.67.47.5

7 77.87.77.77.87.8

7.47.67.47.17.17.1

6.97.06.86.86.76.4

Males

Total

4.8

3.73.43.66.14.6

4.85.74.64 74.1

3.62.82.72.62.5

4.04.94.53.74.3

7.26.45.5

7.26.96 86.96.86.8

7 l7.17.17.17.17.0

6.76.86.66.46.36.3

6.16.16.06.05.95.5

16-19years

13.4

11.310.511.515.714.0

14.015.713.715 914.7

12.910.510.710.110.0

13.715.114.212.313.5

18.317.315.0

18.617.317 718.417.615.5

16 916.616.817.517.917.2

15.916.216.315.515.115.6

13.714.815.514.514.012.5

20yearsandover

4.4

3.33.03.25.54.1

4.25.14.03 93.4

2.92.22.12.01.9

3.24.03.62.93.5

6.25.44.6

5.55.15 25.15.25.4

5 55.45.65.55.55.4

5.25.35.04.84.74.5

4.54.44.24.44.14.0

Total

5.5

4.34.24.36.25.3

5.36.55.55 85.5

5.04.34.64.34.2

5.46.35.95.36.1

8.67.97.3

8.17.97 77.87.57.6

8 08.37.98.08.07.9

7.77.67.67.47.27.5

7.27.37.37.17.16.6

Females

16-19years

10.4

9.19.79.5

12.712.0

12.714.812.815 114.9

14.012.111.512.111.5

13.415.114.213.014.5

17.416.415.9

16.517.116 216.015.215.8

15 418.016.216.216.417.3

17.716.7-16.917.016.915.7

15.014.516.215.415.512.8

20yearsandover

5.1

3.93.73.85.64.7

4.65.74.74 84.6

4.03.33.83.43.4

4.45.34.94.35.0

7.56.86.2

7.06.76 76.76.56.6

7 07.06.97.06.96.8

6.46.46.56.26.06.5

6.26.36.26.16.15.9

Black and other

Total

5.98.9

9.05.35.44.59.9

8.78.37.9

12.610.7

10.212.410.910.89.6

8.17.37.46.76.4

8.29.9

10.08.99.9

13.913.113.1

13.313.612.713.012.313.4

13 013.412.813.313.313.5

12.613.112.912.312.913.2

13.314.313.113.713.712.7

Males

Total

10.3

8.87.98.3

13.711.5

10.712.810.910 58.9

7.46.36.15.65.3

7.39.18.97.69.1

13.712.712.4

13.013.112 312.411.913.1

12 312.512.212.913.413.4

12.112.212.110.612.311.8

13.014.212.613.512.611.6

16-19years

14.4

13.415.018.426.825.2

24.026.822.027.324.3

23.321.323.922.121.4

25.028.929.726.931.6

35.435.437.0

33.135.232.635.936.139.3

29.836.938.437.735.235.2

34.538.440.034.438.535.7

40.037.934.535.838.436.1

20yearsandover

9.9

8.47.47.6

12.710.5

9.611.710.09.27.7

6.04.94.33.93.7

5.67.26.85.76.8

11.710.610.0

11.111.010.410.19.6

10.8

10.710.29.8

10.511.311.3

10.19.99.68.6

10.09.6

10.211.710.511.310.09.1

Total

9.2

8.58.97.3

10.89.4

9.411.911.011.210.7

9.28.79.18.37.8

9.310.811.310.510.7

14.013.614.0

13.514.213.113.712.813.9

13.914.413.513.713.313.6

13.214.113.814.213.614.7

13.614.313.713.914.913.9

-"emales

16-19years

20.6

19.222.820.228.427.7

24.829.230.234.731.6

31.731.329.628.727.6

34.435.438.534.534.6

38.539.039.9

37.836.539.041.339.943.1

39.042.737.438.537.635.3

38.236.337.437.438.444.8

41.741.440.840.539.940.4

20yearsandover

8.4

7.77.86.49.58.3

8.310.69.69 49.0

7.56.67.16.35.8

6.98.78.88.28.4

11.511.311.7

11.212.110.611.010.211.3

11.611.711.411.511.111.7

11.012.211.812.211.611.8

11.111.811.211.412.611.5

i Unemployment as percent of civilian labor force in group specified.

Note.—See Note, Table B-27.


292


TABLE B-31.— Unemployment by duration, 1947-77

[Monthly data seasonally adjusted!]

Year or month

1947.1948..1949

19501951..195219531954

1955195619571958 . .1959

19601961196219631964

1965 .1966196719681969

197019711972 . .19731974

1975..1976.1977

1976: JanFebMar ._AprMayJune

JulyAugSeptOct . .NovDec . - . ._

1977:JanFebMarAprMay. __ ._June _ ._

July „AugSeptOctNov _.._ _ „Dec

Total un-employ-

ment Less than5 weeks

Duration of unemployment

5-14weeks

Thousands of persons 16 yean

2,3112 2763,637

3,2882 0551,8831,8343,532

2,8522 7502,8594 6023,740

3,8524,7143,9114,0703,786

3 3662,8752 9752,8172,832

4 0884,9934,8404,3045,076

7 8307,2886,855

7,3597,2057,1087 1747,0417,117

7,3757,4027,3127,3537 4867,490

7,0667,2737,1456,8696,8946,904

6,7196,8216,6686,6886,6636,310

1,2101 3001,756

1,4501 1771,1351,1421,605

1,3351,4121,4081 7531,585

1,7191,8061,6631,7511 697

1 6281,5731 6341,5941,629

2 1372,2342,2232 1962,567

2 8942,7902,856

2,6652,6872,5862 9342,8132,729

2,9232,8552,8492,8812,7612,843

2,7842,8632,9443,0412,7893,076

2,8202,8652,7842,8042,8512,628

704669

1 194

1 055'574516482

1,116

815805891

1 3961,114

1,1761,3761 1341,2311,117

983779893810827

1 2891,5781,4591,2961,572

2,4522,1592,089

2,0961,9211,9461 9392,0042,249

2,1592,3422,3372,2742,4202,298

2,1182,1422,1401,8992,1282,050

2,0502,2372,1522,1172,0371,937

15-26weeks

27 weeksand over

of age and over

234193428

425166148132495

366301321785469

503728534535491

404287271256242

427665597475563

1,2901,003

896

1,145981963721860930

1,0231,0851,0781,0951,1101,124

1,020959859720812826

881933908920936941

164116256

3571378478

317

336232239667571

454804585553482

351239177156133

235517562337373

1,1931,3361,015

1,5931,5351,4491,3961,2111,306

1,2211,2481,1941,2431,2791,338

1,2241,2091,1491,1081,057

962

943867926928893856

Average(mean)durationin weeks

8 610.0

12.19 78.48.0

11.8

13.011.310.513.914.4

12.815.614.714.013.3

11.810.48.88.47.9

8.711.312.010.09.7

14.115.814.3

16.716.316.415.915.116.8

15.615.515.315.315.415.3

15.314.714.414.414.914.3

14.113.714. C13.813.713.8

1 Because of independent seasonal adjustment of the various series, detail will not add to totals.

Note.—See footnote 3 and Note, Table B-27.Source: Department of Labor, Bureau of Labor Statistics.

293


TABLE B-32.—Unemployment by reason, 1967-77

[Monthly data seasonally adjusted']

Year or month

196719681969

19701971197219731974

197519761977

1977•JanFebMarAprMay. .June


1967 . . .19681969

19701971197219731974

197519761977

1977-JanFebMarApr .,MayJune

JulyAugSept . . . -OctNovDec

Totalunemployment

Joblosers

Jobleavers Reentrants New

entrants


2,9752,8172,832

4,0884,9934,8404,3045,076

7,8307,2886,855

7,0667,2737,1456,8696,8946,904

6,7196,8216,6686,6886,6636,310

1 2291,0701,017

1,8092 3132,0891,6662,205

4 3413,6253,103

3,2643,4253,2123,0433,0802,972

3,0423,1973,0553,0352,9692,748

438431436

549587635674756

812886889

932881916868913938

842891869876881877

945909965

1,2271 4661,4441,3231,441

1 8651,8951,926

1,9811 9722,0001 9931,9611,917

1,8601,8721,8791,9061,8911,886

396407413

503627672642672

812882938

915942999985890

1,087

973947935857901820

Percent of civilian labor force

3.83.63.5

4.95.95.64.95.6

8.57.77.0

7.47.67.47.17.17.1

6.97.06.86.86.76.4

1.61.31.2

2.22.82.41.92.4

4.73.83.2

3.43.63.33.13.23.0

3.13.33.13.13.02.8

0.6

.5

.7

.7

.7

.8

.8

.9

.9

.9

1.0.9.9.9.9

1.0

.9

.9

.9

.9

.9

.9

1.21.21.2

1.51.71.71.51.6

2.02.02.0

2.12.02.12.12.02.0

1.91.91.91.91.91.9

0.5.5.5

.6

.7

.8

.7

.7

.9

.91.0

1.01.01.01.0.9

1.1

1.01.01.0.9.9.8

1 Because of independent seasonal adjustment of the various series, detail will not add to totals.

Note.—See footnote 3 and Note, Table B-27.


294


T A B L E B—33.—Unemployment insurance programs, selected data, 1946—77

Yearor month

All programs

Coveredemploy-ment1

Insuredunem-ploy-ment

(weeklyaver-a g e ^

Totalbenefits

paid(millionsof dol-lars^*

State programs

nsuredunem-ploy-ment

Initialclaims

Ex-haus-tions'

Insuredunem-ploy-

ment aspercentof cov-ered

employ-ment

Benefits paid

Total(mil-lions

ofdol-lars) *

Averageweeklycheck(dol-lars) s

1946...1947...1948...1949...1950...1951...1952...1953...1954...1955...1956...1957...1958...1959...1960...1961...1962...1963...1964...1965...1966...1967...1968...1969...1970..1971...1972...1973...1974...1975...1976 p..1977 v..

1976: Jan__.Feb...Mar...Apr...May..June..

July..Aug...Sept..Oct...Nov...Dec...

1977: Jan...Feb...Mar...Apr...May..June..

July..Aug...Sept..Octp..NOVP_.Dec p..

Thousands Weekly average; thousands

31,85633,87634,64633,098

34,30836,33437,00638,07236,62240,01842,75143,43644,41145,72846,33446,26647,77648,43449,63751,58054,73956, 34257,97759,99959,52659,37566, 45869, 89772,45171,037

8 73,459

2,8041,7931,4462,4741,6051,0001,0691,0672,0511,3991,3231,5713,2692,0992,0712,9941,946

71,9731,7531,4501,1291,2701,1871,1772,0702,6082,1921,7932,5584,9373,8463,112

4,9624,7214,3663,9173,5643,457

3,6423,4463,2353,2173,4533,884

4,4424,4483,9723,5063,1052,939

3,0652,7512,6432,6492,8533,225

2,878.51,785.51,328.72,269.8

1,467.6862.9

1,043.51,050.62,291.61,560.21,540.61,913.04,290.62,854.33,022.84,358.13.145.13,025.92.749.22,360.41,890.92,221.52,191.02,298.64, 209.36.154.05.491.14,517.36,933.9

16,802.412,344. 8

1, 344.91,231.91, 338.71,141.5

938.3977.8

950.4947.8886.3821.2909.2

1,074. 8

1,212.01, 214. 51,322.0

998.5887.0882.8

784.5824.8712.2774.6

1,295997980

1,9731,513

9691,044

9901,8701,2651,2151,4462,5261,6841,9082,2901,783

11,8061,6051,3281,0611,2051,1111,1011,8052,1501,8481,6322,2623,9862,9912,473

3,0122,8652,8152,8072,8882,950

3,0173,1103,1343,1273,0852,915

2,8232,8222,6362,5652,5652,568

2,6262,7332,6642,6242,6022,516

189187200340236208215218304226227270369277331350302

*298268232203226201200296295261247363478386375*367

345354373394401

404403409411391365

407430344374383372

385385368361354346

4.33.13.06.24.62.82.92.85.23.53.23.66.44.44.85.64.44.33.83.02.32.52.22.13.44.13.52.73.56.04.63.6

*4.64.44.34.24.34.4

4.54.74.74.74.64.4

4.24.24.03.83.83.8

3.94.03.93.83.83.7

1,094.9775.1789.9

1,736. 0

1, 373.1840.4998.2962.2

2,026.91.350.31,380.71,733.93,512.72,279.02,726.73,422.72.675.42,774.72,522.12,166.01,771.32,092.32,031.62,127.93.848.54,957.04,471.04,007.65,974.9

11,754.78,974. 5

1,018.6945.1

1,022.4860.5691.3715.2

703.0695.8633.7590.6666.7819.0

955.3975.6

1, 038. 5763.1666.0658.3

592.4671.3565.2584.2604.6

18.5017.8319.0320.4820.7621.0922.7923.5824.9325.0427.0228.1730.5830.4132.8733.8034.5635.2735.9237.1939.7541.2543.4346.1750.3453.2356.7659.0064.2570.2375.16

74.7175.6675.7175.5074.9774.27

73.6673.9174.4075.4775.9577.29

78.6180.4879.6078.6377.6976.90

75.9177.1677.7577.0879.37

* Monthly data are seasonally adjusted.1 Includes persons under the State, UCFE (Federal employee, effective January 1955), and RRB (Railroad Retirement

Board) programs. Beginning October 1958, also includes the UCX program (unemploymentcompensation for ex-servicemen).2 Includes State, UCFE, RR, UCX, UCV (unemployment compensation for veterans, October 1952-January 1960), and

SRA (Servicemen's Readjustment Act, September 1944-September 1951) programs. Also includes Federal and Stateextended benefit programs. Does not include FSB (Federal supplemental benefits) and SUA (special unemploymentassistance) programs.

3 Covered workers who have completed at least 1 week of unemployment.4 Annual data are net amounts and monthly data are gross amounts.5 Individuals receiving final payments in benefit year.6 For total unemployment only.7 Programs include Puerto Rican sugarcane workers for initial claii lusiamo muuuc rucnu r\n,du sugarcane workers for initial claims and insured unemployment beginning July 1963.«Latest data available for all programs combined. Workers covered by State programs account for about 94 percent of

the total.

Source: Department of Labor, Employment and Training Administration.

295


T A B L E B—34.—Wage and salary workers in nonagricultural establishments, 1929—77

[Thousands of persons; monthly data seasonally adjusted]

Year ormonth

Totalwageand

salarywork-

ers

Manufacturing

TotalDura-

blegoods

Non-dura-

blegoods

Min-ing

Con-tractcon-

struc-tion

Trans-porta-tionandpub-

licutili-ties

Whole-saleand

retailtrade

Fi-nance,insur-ance,andreal

estate

Serv-ices

Government

Fed-eral

Stateandlocal

1929

1933

1939

19401941194219431944

19451946194719481949

19501951195219531954

19551956195719581959

19601961196219631964

19651966196719681969

19701971197219731974

197519761977*

31,339

23,711

30,618

32,37636,55440,12542,45241,883

40,39441,67443,88144,89143,778

45, 22247,84948,82550, 23249,022

50,67552,40852,89451,36353,313

54,23454,04255, 59656,70258,331

60,81563,95565, 85767,95170,442

70,92071,22273,71476, 89678, 41377, 05179, 44382,140

10,702

7,397

10, 278

10,98513,19215, 28017,60217,328

15, 52414,70315, 54515,58214,441

15,24116, 39316,63217,54916,314

16,88217,24317,17415, 94516,675

16,79616, 32616,85316,99517, 274

18, 06219,21419,44719,78120,167

19, 34918, 57219, 09020,06820, 046

18, 34718,95619, 555

4,715

5,3636,9688,823

11,08410, 856

9,0747,7428,3858,3267,489

8,0949,0899,34910,1109,129

9,5419,8349,8568,8309,373

9,4599,0709,4809,6169,816

10,40611,28411,43911,62611,895

11,19510,59711,00611,83911,895

10,67911, 02611,480

5,564

5,6226,2256,4586,5186,472

6,4506,9627,1597,2566,953

7,1477,3047,2847,4387,185

7,3407,4097,3197,1167,303

7,3367,2567,3737,3807,458

7.6567; 9308,0088,1558,272

8,1547,9758,0848,2298,151

7,6687,9308,075

1,087

744

854

925957992925892

836862955994930

901929898866791

792822828751732

712672650635634

632627613606619

623609625644694

745783831

1,497

809

1,150

1,2941,7902,1701,5671,094

1,1321,6611,9822,1692,165

2,3332,6032,6342,6232,612

2,8022,9992,9232,7782,960

2,8852,8162,9022,9633,050

3,1863,2753,2083,3063,525

3,5363,6393,8314,0153,957

3,5123,5943,845

3,916

2,672

2,936

3,0383,2743,4603,6473,829

3,9064,0614,1664,1894,001

4,0344,2264,2484,2904,084

4,1414,2444,2413,9764,011

4,0043,9033,9063,9033,951

4,0364,1514,2614,3114,435

4,5044,4574,5174,6444,696

4,4984,5094,590

6,123

4,755

6,426

6,7507,2107,1186,9827,058

7,3148,3768,9559,2729,264

9,3869,74210,00410, 24710, 235

10, 53510, 85810,88610, 75011,127

11,39111,33711,56611,77812,160

12,71613,24513,60614,09914, 704

15,04015,35215,97516,67417,017

17, 00017, 69418,281

1,509

1,295

1,462

1,5021,5491,5381,5021,476

1,4971,6971,7541,8291,857

1,9191,9912,0692,1462,234

2,3352,4292,4772,5192,594

2,6692,7312,8002,8772,957

3,0233,1003,2253,3813,562

3,6873,8023,9434,0914,208

4,2234,3164,509

3,440

2,873

3,517

3,6813,9214,0844,1484,163

4,2414,7195,0505,2065,264

5,3825,5765,7305,8676,002

6,2746,5366,7496,8067,130

7,4237,6648,0288,3258,709

9,0879,55110,09910,62211,228

11,62111,90312,39213,02113,617

14, 00614, 64415,334

533

565

905

9961,3402,2132,9052,928

2,8082,2541,8921,8631,908

1,9282,3022,4202,3052,188

2,1872,2092,2172,1912,233

2,2702,2792,3402,3582,348

2,3782,5642,7192,7372,758

2,7312,6962,6842,6632,724

2,7482,7332,727

2,532

2,601

3,090

3,2063,3203,2703,1743,116

3,1373,3413,5823,7873,948

4,0984,0874,1884,3404,563

4,7275,0695,3995,6485,850

6,0836,3156,5506,8687,248

7,6968,2278,6799,1099,444

9,83010,19210, 65611,07511,453

11,97312,21512,468


296


TABLE B-34.—Wage and salary workers in nonagricultural establishments,1929-77— Continued

[Thousands of persons; monthly data seasonally adjusted!

Year ormonth

1975: Jan._.Feb...Mar...Apr...May__June..

Ju ly . .Aug...Sept..Oct—Nov...Dec...

1976: Jan.._Feb...Mar...Apr...May..June..

Ju ly . .Aug...Sept..Oct—Nov...Dec...

1977:Jan.. .Feb._.Mar...Apr. . .May...June. .

July...Aug...Sept. .Oct . . .Nov p.Decp.

Totalwageand

salarywork-

ers

77,28076, 83276, 50776, 44176, 52476, 460

76, 72077, 06477, 38477, 62677, 74978, 032

78, 41378, 65078, 92979, 22879, 26379, 402

79, 52079, 60679, 89579, 83580,12780, 370;

80, 57480, 87081,33181, 62081, 83782,157

82, 40782, 47482, 76382, 90283, 22283, 439

Manufacturin

Total

18, 78318, 39418, 23718,16618,17518,118

18,11418, 25418, 39618, 47718, 47918, 570

18, 70718, 79718, 89718, 98318, 97518, 973

18, 95618, 95819, 06418,97019, 07019,114

19, 21919, 27819,41719, 49919, 56619,611

19, 66619, 59419, 61219, 66619,71719, 876

Dura-ble

goods

11,08810, 82810, 73510, 64210, 59710, 533

10, 49110, 56310, 64910, 66410, 65210,713

10, 80910, 87010, 95011,00411,05211,053

11, 04611,06911,11911, 04611,12611,165

11,23611,26111,37311,40411,45111,484

11, 54811, 52711,5451.1, 60411,62711, 746

g

Non-dura-

blegoods

7,6957,5667,5027,5247,5787,585

7, 6237,6917,7477,8137,8277,857

7,8987,9277,9477,9797,9237,920

7,9107,8897,9457,9247,9447,949

7,9838,0178,0448,0958,1158,127

8,1188,0678,0678,0628,0908,130

Min-ing

725729731734741743

745750752759762767

767767772775776782

790753798800805809

817824841847845856

833818856859863713

tractcon-

struc-tion

3,7243,6053,4793,4483,4423,412

3,4343,4743,5173,5233,5483,571

3,5953,5793,5753,6133,6023,602

3,6053,5823,5723,5863,6093,605

3,5493,6613,7593,8303,8533,888

3,9133,8933,8923,9113,9463,964

Trans-porta-tionandpub-

licutili-ties

4,5944,5564,5064,5084,4964,478

4,4734,4714,4674,4764,4874,473

4,4854,5044,5034,5104,5034,491

4,5084,5064,5244,5114,5234,549

4,5444,5534,5634,5754,5864,588

4,5724,5814,6164,6104,6304,660

Whole-saleand

retailtrade

16, 90316, 86516, 85116, 83016, 84816, 899

16,97917,05517,13317,15017,18817, 282

17, 40117, 46917, 53717, 60817,64517,682

17, 73717, 77817, 83917, 80717, 84817,925

17, 99418,03918,11818,17518, 20218, 264

18, 32218, 37718, 43118,41418, 48618,511

Fi-nance,insur-ance,andreal

estate

4,2154,2104,2084,2054,2124,206

4,2114,2224,2354,2424,2484,256

4,2614,2664,2764,2894,2824,305

4,3124,3164,3384,3594,3814,398

4,4194,4314,4534,4634,4814,494

4,5064,5244,5454,5724,6004,618

Serv-ices

13,84313, 86513, 86413,87813, 90313, 898

13,99714, 04914,11814,18214,21814, 265

14, 34214, 39714, 46014, 53614, 56714, 625

14, 66414, 73614, 78314, 80514,85814,936

15,01015,06815,14915,18215,19715, 260

15, 37215, 44815, 48215, 53315,60115,676

Government

Fed-eral

2,7362,7352,7352,7352,7362,741

2,7502,7532,7572,7592,7562,752

2,7492,7422,7352,7352,7322,728

2,7232,7292,7282,7272,7312,720

2,7212,7212,7252,7212,7252,735

2,7212,7322,7282,7302,7272,722

Stateandlocal

11,75711,87311,89611,93711,97111,965

12,01712, 03612, 00912, 05812, 06312, 096

12,10612,12912,17412,17912,18112,214

12,22512, 24812,24912,27012, 30212, 314

12, 30112,29512, 30612, 32812, 38212, 461

12, 50212, 50712, 60112, 60712,65212,699

Note.—Data in Tables B-34 Ihrough B-36 are based on reports from employing establishments and relate to full- andpart-time wage and salary workers in nonagricultural establishments who received pay for any part of the pay period whichincludes the 12th of the month.

Not comparable with labor force data (Tables B-27 through B-32), which include proprietors, self-employed persons,domestic servants, and unpaid family workers; which count persons as employed when they are not at work because ofindustrial disputes, bad weather, etc., even if they are not paid for the time off and which are based on a sample of theworking-age population, whereas the estimates in this table are based on reports from employing establishments.

For description and details of the various establishment data, see "Employment and Earnings."


297


TABLE B-35.—Average weekly hours and hourly earnings in selected private nonagriculturalindustries, 1947-77

(For production or nonsupervisory workers; monthly data seasonally adjusted)

Yearor

month

Average weekly hours

Totalprivatenonag-ricul-tural1

Manu-factur-

ing

Con-tractcon-

struc-tion

Whole-saleand

retailtrade

Average gross hourly earnings,current dollars

Totalprivate

non-agri-cul-

tural i

Manu-factur-

ing

Con-tractcon-

struc-tion

Whole-saleand

retailtrade

Adjusted hourly earnings,total private nonagricultural J

Index,1967 = 100

Cur-rentdol-lars

1967dol-lars 3

Percentchangefrom

a yearearlier4

Cur-rentdol-lars

1967dol-lars

19471948.1949

19501951195219531954

19551956195719581959

1960196119621963.1964.

196519661967. . . . . . .19681969

19701971197219731974

197519761977 v

1976: Jan..Feb..M a r -Apr-.May.June.

July.Aug.

8£

1977:

Nov....Dec.._.

Jan_._.Feb....Mar....AprMay...June...

July.. .Aug...Sept.-.Oct.__.Nov p..Dec*...

40.340.039.4

39.839.939.939.639.1

39.639.338.838.539.0

38.638.638.738.838.7

38.838.638.037.837.7

37.137.037.137.136.6

36.136.236.1

36.436.436.136.136.336.1

36.136.136.036.236.236.2

35.836.236.236.236.336.2

36.136.036.036.236.136.0

40.440.039.1

40.540.640.740.539.6

40.740.439.839.240.3

39.739.840.440.540.7

41.241.340.640.740.6

39.839.940.640.740.0

39.440.040.3

40.440.340.239.440.340.2

40.140.039.739.940.140.0

39.540.340.440.340.440.5

40.240.340.340.440.540.3

38.238.137.7

37.438.138.937.937.2

37.137.537.036.837.0

36.736.937.037.337.2

37.437.637.737.337.9

37.337.236.937.036.9

36.637.136.8

37.637.636.037.437.037.3

37.036.936.137.337.337.2

35.437.537.237.337.436.8

36.936.536.436.836.936.5

40.540.440.5

40.540.540.039.539.5

39.439.138.738.638.8

38.638.338.238.137.9

37.737.136.536.035.6

35.335.135.134.734.1

33.833.633.7

33.933.833.533.933.733.5

33.633.633.633.633.433.6

33.333.433.433.433.533.3

33.333.233.233.533.333.2

$1,1311.2251.275

1.3351.451.521.611.65

1.711.801.891.952.02

2.092.142.222.282.36

2.452.562.682.853.04

3.223.443.673.924.22

4.544.875.24

4.724.754.774.794.834.85

4.884.904.934.965.005.02

5.075.105.135.175.205.22

5.275.285.325.385.395.41

$1,2171.3281.378

1.4401.561.651.741.78

1.861.952.052.112.19

2.262.322.392.462.53

2.612.722.833.013.19

3.363.573.814.084.41

4.815.195.63

5.005.055.085.085.135.16

5.215.245.295.295.345.38

5.435.455.495.535.575.61

5.665.685.735.795.815.82

$1,5411.7131.792

1.8632.022.132.282.39

2.452.572.712.822.93

3.083.203.313.413.55

3.703.894.114.414.79

5.245.696.036.376.75

7.257.688.04

7.467.487.607.577.667.67

7.737.737.717.777.817.83

7.927.907.917.957.978.04

8.068.088.098.178.168.17

$0.9401.0101.060

1.1001.181.231.301.35

1.401.471.541.601.66

1.711.761.831.891.96

2.032.132.242.402.55

2.712.863.013.203.47

3.753.974.28

3.873.883.903.913.943.95

3.984.004.034.054.084.11

4.154.174.204.234.244.26

4.304.314.334.374.384.42

42.646.048.2

50.053.756.459.661.7

63.767.070.373.275.8

78.480.883.585.988.2

91.295.3

100.0106.2113.2

120.7129.2137.7146.5158.5

172.5185.0198.5

179.6180.5181.4182.4183.6184.2

185.5186.6187.5188.4189.7190.7

192.6193.2194.2195.6196.4197.4

199.4199.9201.2203.3204.0204.8

63.763.867.5

69.369.070.974.476.6

79.482.383.484.586.8

88.490.292.293.795.0

96.698.0

100.0101.9103.1

103.8106.5109.9110.0107.3

107.0108.5109.4

107.5107.9108.2108.3108.3108.2

108.5108.6108.7108.9109.3109.5

109.7109.0108.8108.8108.6108.5

109.2109.1109.5110.3110.1110.2

8.04.8

3.77.45.05.73.5

3.25.24.94.13.6

3.43.13.32.92.7

3.44.54.96.26.6

6.67.06.66.48.2

8.87.27.3

8.17.87.37.67.77.1

7.37.17.16.86.76.9

7.27.07.07.27.07.1

7.57.17.37.97.57.4

0.25.8

2.7- . 42.84.93.0

3.73.71.31.32.7

1.82.02.21.61.4

1.71.42.01.91.2

.72.63.2

- 2 . 5

- . 31.4

1.41.11.5

•1.31.1

1.81.41.51.51.62,0

2.01.0.6.4.2.3

.7

.4

.71.3.7.6

1 Also includes other private industry groups shown in Table B-34.2 Adjusted for overtime (in manufacturing only) and for interindustry employment shifts.3 Current dollar earnings index divided by the consumer price index.* Monthly data are computed from indexes to two decimal places.Note—See Note,Table B-34.Source: Department of Labor, Bureau of Labor Statistics.

298


TABLE B-36.—Average weekly earnings in selected private nonagricultural industries, 1947-77

[For production or nonsupervisory workers; monthly data seasonally adjusted]

Year or month

194719481949

19501951195219531954

19551956..195719581959.

19601961.196219631964

19651966196719681969

19701971197219731974

197519761977 v

1976: JanFebMarAprMayJune

JulyAug.SeptOctNovDec

1977:JanFebMarAprMayJune

JulyAugSeptOctNOVPDec p

Average gross weekly earnings

Total privatenonagricultural i

Currentdollars

$45.5849.0050.24

53.1357.8660.6563.7664.52

67.7270.7473.3375.0878.78

80.6782.6085.9188.4691.33

95.0698.82

101.84107.73114.61

119.46127.28136.16145.43154. 45

163.89176. 29189.16

171.81172.90172. 20172. 92175. 33175. 09

176.17176. 89177. 48179. 55181. 00181. 72

181.51184. 62185. 71187.15188. 76188. 96

190. 25190. 08191. 52194. 76194. 58194.76

1967dollars 2

$68.1367.9670.36

73.6974.3776.2979.6080.15

84.4486.9086.9986.7090.24

90.9592.1994.8296.4798.31

100.59101.67101.84103.39104.38

102.72104.93108.67109.26104.57

101.67103. 40104.22

102.82103.35102.68102. 68103. 44102. 87

103. 02102.96102.95103. 79104. 32104. 32

103. 37104.13104.10104. 09104. 34103. 88

104.19103. 76104. 20105. 68105.06104.77

Manu-facturing

$49.1753.1253.88

58.3263.3467.1670.4770.49

75.7078.7881.5982.7188.26

89.7292.3496.5699.63

102.97

107.53112.34114.90122.51129.51

133.73142.44154,69166.06176.40

189. 51207. 60226. 89

202.00203.52204. 22200.15206. 74207. 43

208.92209. 60210. 01211.07214.13215. 20

214. 49219. 64221. 80222. 86225. 03227. 21

227. 53228. 90230. 92233. 92235. 31234.55

Contractconstruc-

tion

Current dollars

$58.8765.2767.56

69.6876.9682.8686.4188.91

90.9096.38

100.27103.78108.41

113.04118.08122.47127.19132.06

138.38146.26154.95164.49181.54

195.45211.67222.51235.69249.08

265.35284.93295. 87

280. 50281.25273. 60283.12283. 42286. 09

286. 01285. 24278. 33289. 82291. 31291. 28

280. 37296. 25294. 25296. 54298. 08295. 87

297. 41294. 92294. 48300. 66301.10298. 21

Wholesaleand retail

trade

$38.0740.8042.93

44.5547.7949 2051 3553 33

55 1657 4859.6061.7664 41

66.0167 4169.9172 0174.28

76 5379.0281.7686 4090.78

95.66100.39105.65111.04118.33

126.75133. 39142. 52

131.19131.14130. 65132. 55132. 78132. 33

133. 73134. 40135.41136. 08136. 27138.10

138. 20139. 28140. 28141. 28142. 04141. 86

143.19143. 09143. 76146. 40145. 85146. 74

Percent change from ayear earlier, total private

nonagricultural 3

Currentdollars

7.52.5

5.88.94.85.11.2

5.04.53.72.44.9

2.42.44.03.03.2

4.14.03.15.86.4

4.26.57.06.86.2

6.17.67.3

8.28.18.17.58.77.8

7.97.06.66.96.56.7

5.67.17.78.37.57.6

7.77.38.18.47.97.2

1967 dollars

- 0 . 23.5

4.7.9

2 64.3

5.42.9

- . 34.1

.81.42.91.71.9

2.31.1.2

1.51.0

- 1 . 62.23.6.5

- 4 . 3

- 2 . 81.7.8

1.31.7l.S1.32.4l.S

2.31.3l.C1.51.51.8

.4l.C1.21.5.7.7

1.0.6

1.41.81.1A

1 Also includes other private industry groups shown in Table B-34.2 Earnings in current dollars divided by the consumer price index.> Based on unadjusted data.

Note.—See Note, Table B-34.


299


T A B L E B-37.—Productivity and related data, private business economy^ 1947—77

[1967 = 100; quarterly data seasonally adjusted]

Year or quarter

1947 .19481949

1950—1951195219531954-

1955195619571958...1959

19601961.. .196219631964

19651966 . . . .196719681969.

19701971 .197219731974

1975 . . . .19761977 v

1975: 1IIIIIIV . . .

1976: 1IIIIIIV

1977: 1IIIIII V P

Output1

Privatebusi-ness

sector

48.650.849.9

54.557.759.161.960.8

65.667 568.466.971.8

73.174.178.882.286.8

92.998.0

100 0105.1108.3

107.4110.3117.6124.5121.5

118.7126.9134 6

115.1117.2120 6121.8

124.9126.7127.7128 4

131.3134.0135.7137.3

Non-farmbusi-ness

sector

47.549.548.7

53.256.758.460.859.6

64.566.567.565.871.0

72.273.378.181.686.4

92.698.1

100.0105.4108.6

107.4110.3117.9125.0121.9

118.7127.4134.9

115.3117.1120 6121.8

125.2127.2128.3128.7

131.6134.5136.0137.5

Hours of allpersons2

Privatebusi-ness

sector

92.993.590.3

91.293.993.994 791.5

94.896 294.690.293.4

93.692.093.493.895.1

98.1100.3100.0101.7104.5

102.8102.3106.0110.1110.6

106.1108.9112.8

105.7104.9106 0107.5

108.2108.9109.0109.6

110 4113.0112.9113.9

Non-farmbusi-ness

sector

80.982.178.9

81.385.085.887 984.8

88.190.389.785.889.3

89.988.790 591.493.3

96.8100.0100 0102.1105.3

104.0103.7107.6112.2112.7

108.1111.4115.7

107.8106.8107.7109.7

111.0111.2111.4112.3

113.4115.6115.9116.8

Output perhour of all

persons

Privatebusi-ness

sector

52.354.455.3

59.761.563.065.366.5

69.270.272.374.276.8

78.180.684.487.791.3

94.797.8

100.0103.3103.7

104.5107.8111.0113.1109.9

111.8116.5119.3

108.9111.7113.8113.3

115.4116.4117.2117.2

118.9118.6120.2120.6

Non-farmbusi-ness

sector

58.760.361.7

65.566.768.169 270.3

73.273.675.376.879.6

80.382.686.289.392.6

95.798.1

100.0103.2103.1

103.3106.3109.5111.4108.1

109.9114.3116.7

106.9109.6112.0111.0

112.9114.5115.2114.6

116.1116.3117.4117.8

Compensationper hour3

Privatebusi-ness

secto r

35.138.138.8

41.645.648.651.853.5

54.958.662.565.468.5

71.474.277.780.785.1

88.494.7

100.0107.6115.1

123.3131.5138.9150.3164.3

180.2196.5213.6

176.2179.2181.1184.6

190.5194.5198.6202.7

208.4211.7216.0219.7

Non-farmbusi-ness

sector

37.540.742.0

44.548.451.054.055.8

57.861.465.067.670.6

73.776.279.482.386.2

89.194.5

100.0107.3114.3

121.9129.9137.4148.1162.0

177.6193.1209.6

173.2176.3179.1181.9

186.9191.3195.2198.7

204.3208.1211.9215.7

Unit laborcosts

Privatebusi-ness

sector

67.170.170.2

69.674.377.179 380.5

79.383.586.588.289.1

91.492.192.192.093.2

93.496.8

100.0104.1111.0

118.1121.9125.2132.9149.5

161.1168.7179.0

161.7160.4159.1163.0

165.1167.1169.4173.0

175.2178.5179.7182.2

Non-farmbusi-ness

sector

63.967.568.1

67.972.575.078.079.3

79.083.386.488.188.8

91.792.392.092.293.1

93.296.4

100.0103.9110.9

118.1122.2125.5133.0149.8

161.7168.9179.7

162.0160.9160.0163.9

165.6167.1169.5173.3

176.0178.9180.5183.2

Implicit pricedeflator4

Privatebusi-ness

sector

65.170.669.8

70.876.077.477 978.6

79.882 284 886.488.1

89.389.890 691.492.7

94 297.2

100 0103 9108.8

113 9118.9123.2130.3143.1

158.0165.6174 2

154.2156.5159.4161.6

162.9164.8166.5168.3

170.1173.1175.4177.7

Non-farmbusi-ness

sector

62.367.568.0

69.173.775.276 877.8

79.481 984 685.988.0

89 289.890 591.592.9

94 196.8

100 0104 0108.7

114 0119.2122.9128.0141.5

156.9165.0174 0

153 4155.6158 1160.3

162.1163 6166.0168 1

169 6172.7175.6177.7

1 Output refers to gross domestic product originating in the sector in 1972 dollars.2 Hours of all persons in private industry engaged in production, including hours of proprietors and unpaid family

workers. Estimates based primarily on establishment data.3 Wages and salaries of employees plus employers' contributions for social insurance z.id private benefit plans. Also

includes an estimate of wages, salaries, and supplemental payments for the self-employed.* Current dollar gross domestic product divided by constant dollar gross domestic product.Source: Department of Labor, Bureau of Labor Statistics.

300


TABLE B-38.—Changes in productivity and related data, private business economy, 1948-77

[Percent change from preceding period; quarterly data at seasonally adjusted annual rates]

Year or quarter

19481949

19501951. .195219531954. . . .

19551956..1957...19581959

19601961 .196219631964

19651966196719681969

19701971197219731974

197519761977P

1975:1IIIIIIV

1976:1... .11IIIIV

1977:1IIIIIIVP

Output*

Privatebusi-ness

sector

4.6- 1 . 8

9.25.92.54.6

- 1 . 7

8.02.81.3

- 2 . 17.3

1.81.56 24.45.6

7.05.52.05.13.0

- . 92.86.65.9

- 2 . 4

- 2 . 47 06 0

-11 .67.5

12.23.9

10.85.93.12.1

9.68.55.24.8

Non-farmbusi-nesssector

4.4- 1 . 7

9.46.53.04.1

- 1 . 9

8.23.11.5

- 2 . 47.9

1.61.56 54.55.9

7.16.01.95 43.0

- 1 . 12.76.96.0

- 2 . 5

- 2 . 67 35 9

-11 .66.5

12.54.1

11.76.63.21.3

9.58.84.84.5

Hours ofall persons ^

Privatebusi-ness

sector

0.6- 3 . 4

i . l2.9.0.9

- 3 . 5

3.71.4

- 1 . 6- 4 . 7

3.6

.2- 1 . 7

1 5.4

1.4

3.12.3

- . 31.72.7

- 1 . 6- . 43.63.9.4

- 4 . 12 73.6

-12 .7- 2 . 8

4.25.9

2.82.3.3

2.2

3.39.5

- . 23.4

Non-farmbusi-ness

sector

1.6- 4 . 0

3.14.61.02.4

- 3 . 6

4.02.4

- . 7- 4 . 3

4.1

.6- 1 . 3

2 1.9

2.1

3.73.3

- . 02.13.2

- 1 . 20

3'. 74.3.4

- 4 . 13 13 8

-12 .5- 3 . 6

3.37.6

4.6.8.6

3.3

4.27.9.9

3.2

Output per hourof all persons

Privatebusi-ness

sector

3.91.7

8.02.92.53.71.8

4.11.43.02.73.6

1.63.34 64.04.1

3.73.22.33.3.3

.73.22.91.9

- 2 . 8

1.84 22 4

1.310.67.7

- 1 . 9

7.83.52.8

- . 1

6.1- 1 . 0

5.41.4


2.82.3

6.11.82 01.61.7

4.1.6

2.22.03.7

1.02 84 43.53 7

3.32.51.93 2

2

.22.93.01.7

- 2 . 9

1.64 12 0

1.010.58.9

- 3 . 3

6.85.72.6

- 1 . 9

5.1.8

3.81.2

Compensationper hours

Privatebusi-ness

sector

8.61.8

7.19.86.46.63.4

2.66.76.74.74.6

4.24.04 73.95.4

3.97.05.67.67.0

7.26.65.78.29.4

9.69 18.7

13.16.94.48.1

13.38.68.78.5

11.86.58.57.0

Non-farmbusi-ness

sector

8.73.2

5.88.75.65.73.3

3.76.25.94.04.4

4.33.54 13.74.8

3.46.15.87.36.5

6.76.65.87.89.4

9.68.78.5

12.17.46.56.4

11.49.78.57.3

11.77.77.57.5

Unit laborcosts

Privatebusi-ness

sector

4.5.1

- . 86.73.82.91.5

- 1 . 55.23.71.91.0

2.6.71

- . 11.3

.23.73.34.16.6

6.43.22.76.2

12.5

7.74 76 1

11.7- 3 . 3- 3 . 010.2

5.14.95.88.6

5.47.62.95.6


5.8.8

- . 36.73.54.01.6

- . 45.53.72.0.7

3.3.6

_ 3.1

1.0

.13.43.83.96.6

6.53.52.76.0

12.7

7.94 56 4

10.9- 2 . 8- 2 . 210.0

4.33.85.79.4

6.36.83.56.1

Implicit pricedeflator*

Privatebusi-ness

sector

8.4- 1 . 1

1.57.31.9.6.9

1.53.03.21.92.0

1.4.69

.91.4

1.63.22.93.94.7

4.74.43.65.89.8

10.44 85.1

12.96.27.55.9

3.14.84.14.6

4.47.25.25.5

Non-farmbusi-ness

sector

8.3.7

1.66.52.12.11.3

2.13.23.31.52.4

1.4.68

1.01.5

1.32.93.34 04.5

4.94.53.14.1

10.5

10.95.15.5

14.25.76.65.8

4.43.86.05.3

3.57.57.04.8

1 Output refers to gross domestic product originating in the sector in 1972 dollars.» Hours of all persons in private industry engaged in production, includ ing hours of proprietors and unpaid family workers.

Estimates based primarily on establishment data.'Wages and salaries of employees plus employers' contributions for social insurance and private benefit plans. Also

includes an estimate of wages, salaries, and supplemental payments for the self-employed.* Current dollar gross domestic product divided by constant dollar gross domestic product.

Note.—Percent changes are based on original data and therefore may differ slightly from percent changes based onindexes in Table B-37.


301

(248-947 O - 78 - 20


PRODUCTION AND BUSINESS ACTIVITY

TABLE E-39.—Industrial production indexes, major industry divisions, 1929-77

[1967=100; monthly data seasonally adjusted]

Year or month

1967 proportion

1929

1933

1939 .

1940194119421943194419451946194719481949

1950195119521953 . . . .195419551956195719581959

1960 - -1961196219631964 .19651966196719681969...

19701971 .19721973 .19741975... . „19761977 1



1977: JanFeb.MarAprMay_June

JulyAugSeptOct .Nov PDec*

Totalindustrialproduction

100.00

21.6

13.7

21.7

25.031.636.344.047.440.735.039.441.138.8

44.948.750.654.851.958.561.161.957.964.8

66.266.772.276.581.789.897.8

100.0106.3111.1

107.8109.6119.7129.8129.3117.8129.8137.1

125.9127.6128.3128.7129.7129.8

130.7131.3130.6130 2131.5133.0

132.3133.2135 3136.1137.0137.8

138. 7138.1138.5138.8P9.3139.6

Manufacturing

Total

87.95

22.8

14.0

21.5

25.432.437.847.050.942.635.339.440.938.7

45.048.650.655.251.558.260.561.257.064.2

65.465.671.575.881.089.797.9

100.0106.4111.0

106.4108.2118.9129.8129.4116.3129.5137.1

124.8127.1128.0128.4129.7129.8

130.7131.2130.5129.8131.4132.5

131.6132.6135.1135.8137.1137.8

138.5138.6139.0139.2139.6140.4

Durable

51.98

22.5

9.1

17.7

23.531.439.954.259.945.231.637.739.335.7

43.548.951.958.751.859.261.161.653.961.9

62.961.868.673.178.389.098.9

100.0106.5110.6

102.3102.4113.7127.1125.7109.3121 7129.4

116.0118.4119 5120.3122.2122.4

124 0125.0122.4121 4123.4125.0

123.4124.0126 8128.0129.3130 5

131.6131.3131.7132.3132 2133.0

Nondurable

35.97

23.2

19.9

26.1

27.533 334.637.138.638.539.741.342.742.0

46.748.349.251.251.657.260.161.161.667.7

69.371.575.880.085.290.996.7

100.0106.2111.5112.3116.6126.5133.8134.6126.4140.9148.1

137.5139.9140.3140.4140.6140.6

140.3140.4142.3141.9143.0143.3

143.4145.3147.0147.0148.5148.4

148.6149.4149.5149.4150.3151.1

Mining

6.36

43.1

30.6

42.1

46.849 751.352.556 255.154.261.364.457.1

63.870.069.471.269.977.982.082.175.378.7

80.380.883.186.489.993.298.2

100.0104.2108.3112.2109.8113.1114.7115.3112.8114.2117.8

113.2113.6113.8112.6113.8114.6

112.7114.0115.5116.1115.3115.4

112.8116.3120.6119.2119.5122.8

119.8115.4118.0119.1118.3113.4

Utilities

5.69

7.4

6.7

10.7

11.813 314.916.517 517.818.620.122.423.9

27.231.033.736.539.343.948.251.553.959.3

63.467.072.077.083.688.795.5

100.0108.4117.3124.5130.5139.4145.4143.7146.0151.0156.8

151.9152.4149.5147.6149.1148.7

150.0150.5149.6150.8154.6157.9

163.8160.3154.8154.0156.7156.8

161.4155.7154.1153.5155.7157.4

1 Preliminary; annual by Council of Economic Advisers.


302


TABLE B-40.—Industrial production indexes, market groupings, 1947-77


Year ormonth

Totalindus-trialpro-duc-tion

Final products

Total

Consumer goods i

Total

Auto-motiveprod-ucts

Homegoods

Equipment

TotalBusi-ness

Inter-mediate

prod-ucts

Materials 2

TotalDura-

blegoods

Non-dura-

blegoods

1967 pro-por t ion . . .

1947.19481949

19501951195219531954

19551956195719581959 ,

1960196119621 9 6 3 . . . . . . .1964

19651966196719681969

19701971197219731974

19751976

1976: J a n . .F e b . .M a r . .A p r . .May . .June.

July._A u g . .Sept. .O c t . .Nov . .D e c

1977: Jan..Feb..Mar..Apr..May..June.

July_.Aug__Sept. .O c t . .Nov p.Dec p.

100.00

39.441.138.8

44.948.750.654.851.9

58.561.161.957.964.8

66.266.772.276.581.7

89.897.8

100.0106.3111.1

107.8109.6119.7129.8129.3

117.8129.8

125.9127.6128.3128.7129.7129.8

130.7131.3130.6130.2131.5133.0

132.3133.2135.3136.1137.0137.8

138.7138.1138.5138.8139.3139.6

47.82 27.68 2.83 5.06 20.14 12.63 12.89 39.29 20.35

38.640.038.8

43.747.250.754.151.3

55.458.660.357.663.2

65.365.871.475.579.7

87.695.9

100.0106.2109.6

105.3106.3115.7124.4125.1

118.2127.2

124.1125.6126.1126.1126.9126.8

127.4128.0126.9126.7129.3131.5

130.8131.6133.3134.1134.7135.4

136.8136.3136.8136.6137.0137.6

42.443.743.4

49.649.150.253.252.9

59.061.262.662.168.1

70.772.277.181.385.9

92.697.3

100.0105.9109.8

109.0114.7124.4131.5128.9

124.0136.2

132.6134.6135.2135.4136.5136.0

136.1137.0135.7135.9138.4141.3

139.9140.5142.9142.9143.1143.8

145.4144.7144.9145.2145.7146.2

45.347.447.0

59.152.347.159.555.4

73.660.663.550.563.3

72.566.180.187.791.9

113.3112.8100.0119.4118.1

124.4141.4153.0132.8

125.8154.8

142.5149.6155.0155.5153.5155.9

156.1157.8147.6147.8161.6178.8

164.2161.7178.3173.9172.8179.8

184.8177.2177.0180.1173.7173.5

37.539.136.2

49.943.043.048.644.9

53.055.754.551.459.0

59.461.366.571.878.4

88.997.9

100.0106.4113.2

110.2115.6129.5142.5136.8

118.8133.9

130.9131.5132.3133.0137.0135.3

133.4136.5133.8133.9133.7134.5

134.8137.3137.9138.8140.6142.3

142.9142.1143.6144.4145.3146.2

30.632.228.7

31.143.351.956.349.3

50.455.357.551.556.5

58.157.363.767.571.4

80.794.0

100.0106.5109.3

100.194.7

103.8114.5120.0

110.2114.6

112.4113.2113.8113.5113.7114.2

115.3115.6114.8114.2116.8118.0

118.4119.2120.0122.1123.2124.1

124.8124.9125.6124.9125.3126.0

38.039.534.5

37.045.251.253.346.8

50.858.861.151.557.9

59.457.762.765.873.7

84.497.7

100.0105.5112.5

107.0104.1118.0134.2142.4

128.2136.3

131.4132.8134.2134.4134.8136.2

137.9137.6137.0135.7140.1142.3

142.3143.5144.8147.1148.9150.1

151.2151.1152.1152.3152.7153.3

41.944.342.0

48.851.350.954.554.3

61.764.464.463.069.5

70.071.475.779.985.2

90.696.2

100.0106.3112.9

112.9116.7126.5137.2135.3

123.1137.2

134.1136.0134.6135.1136.2136.7

138.4138.4138.7138.8139.0140.5

142.2141.6141.8142.3143.5144.7

146.3146.1146.5147.0147.9149.2

39.541.237.6

45.049.850.556.151.8

61.362.862.856.565.2

66.166.272.176.782.9

92.4100.7100.0106.5112.5

109.2111.3122.3133.9132.4

115.5130.6

125.4127.6129.0129.7130.8131.0

132.1133.0132.4131.8131.9132.0

131.1132.7135.5136.5137.8138.7

138.9137.6137.9138.8139.2139.1

38.339.435.3

44.450.551.660.352.0

63.763.963.853.764.0

64.863.370.475.181.9

93.8103.3100.0106.2112.1

103.8104.9117.7134.6132.7

109.1126.8

118.4121.9123.6125.4127.3128.0

131.0131.4129.9128.3128.2128.7

127.4128.4131.9133.8135.2136.4

136.8135.4135.7137.0137.3138.3

10.47

45.9

52.554.954.754.462.1

63.265.871.375.682.2

90.397.5

100.0108.8115.7

115.4120.2132.9142.2142.6

126.6146.3

142.8144.8147.2147.3147.1146.5

145.1146.3147.6147.5147.3145.8

144.8150.4153.3153.7155.4154.7

154.1155.1153.9154.7155.7156.7

* Also includes clothing and consumer staples, not shown separately.3 Also includes energy materials, not shown separately.


303


TABLE B-41.—Industrial production indexes, selected manufactures, 1947-77


Yearor

month

1967 proportion.

1947..1948..1949..

1950.1951.1952..1953.1954..

1955..1956..1957..1958..1959..

I960..1961..1962..1963..1964..

1965..1966..1967..1968..1969.

1970..1971..1972..1973..1974..

1975..1976..

1976: Jan . . .Feb....Mar . . .Apr. . .May. .June..

July . .Aug . .Sept._Oct___Nov..Dec...

1977: Jan.._Feb...Mar.. .Apr. . .May. .June

July . .Aug . .Sept. .Oct . . .N O V P .Dec p.

Durable manufactures

Primary metals

Total

6.57

63.358

63.365.855.4

69.775.869.278.563.5

82.582.078.562.372.7

72.471.176.382.392.8

102.1108.4100.0104.3113.8

106.6100.2112.1126.7123.1

96.4108.9

98.2104.0104.9107.9113.9113.5

117.7118.3113.0109.9104.6101.5

100.8100.2108.3112.2117.1114.7

114.4112.5109.0113.7111.9111.2

Ironandsteel

4.21

70.1

93.291.588.266.576.5

77.774.277.384.395.9

105.2108.4100.0103.2112.6

104.796.1

107.1122.3119.8

95.8104.9

92.8100.799.4

105.0111.2112.5

115.0116.0108.6105.1100.393.4

89.791.397.9

103.9111.0109.2

110.9110.6104.6108.1105.6

Fabri-catedmetalprod-ucts

5.93

49.950.845.8

56.159.958.566.059.4

67.868.870.663.371.0

71.169.475.477.882.6

90.897.2

100.0105.6107.9

102.4103.5112.1124.7124.2

109.9123.3

116.6120.9120.3121.4121.4124.0

124.6125.8126.5123.5126.7128.1

125.7125.8127.5127.6128.2130.8

132.0134.0133.6134.4135.2136.0

Non-elec-tricalma-

chin-ery

9.15

39.039.233.4

37.547.751.954.046.1

50.658.057.948.656.7

56.955.462.166.375.6

85.098.8

100.0101.8109.3

104.4100.2116.0133.7140.1

125.1135.0

129.4131.5133.0133.5134.1134.1

137.9136.4136.8134.3137.5141.5

139.9139.8139.8142.9142.6144.0

145.7145.2147.4148.2148.9150.4

Elec-tricalma-

chin-ery

8.05

22.223.021.6

29.629.834.039.034.7

39.943.142.839.247.6

51.654.862.964.768.4

81.797.9

100.0105.5111.9

108.1107.7122.2143.1143.8

116.5131.6

125.1126.6127.9129.9131.7131.5

131.4135.4133.9135.0135.7135.1

134.0137.6137.6139.6141.8142.6

143.6143.9144.6144.2145.1146.6

Transportationequipment

Total

9.27

31.834.834.9

41.846.654.268.059.2

68.066.070.755.863.2

65.461.571.178.080.0

95.1102.0100.0111.1108.4

89.597.9

108.2118.3108.7

97.4110.6

105.8109.1111.0110.8112.6112.8

112.8114.6104.7104.3112.7117.4

113.5113.4120.5119.8120.3123.7

125.6124.3125.5124.1121.9122.2

Motorve-

hiclesand

parts

4.50

60.5

81.265.869.051.066.2

74.765.579.888.390.7

115.9113.9100.0120.3116.5

92.3118.6135.8148.8128.2

111.1140.7

127.0135.3140.5141.4144.1146.9

147.5149.7130.6128.4145.5155.0

145.5145.4161.2158.1157.7163.2

166.2164.4165.6167.9163.0161.9

Lum-berand

prod-ucts

1.64

58.961.354.1

65.765.564.768.468.0

75.975.068.869.979.3

74.778.282.586.392.7

96.3100.0100.0105.5107.9

105.6113.8120.8126.0116.2

107.6125.1

122.5123.3121.1122.8123.0120.3

124.6127.9128.7129.6129.5128.1

132.7132.2132.1130.6133.0132.4

132.9131.8137.1136.2137.4

Nondurable manufactures

Ap-parelprod-ucts

3.31

57.860.359.7

64.363.166.367.266.4

73.375.074.972.880.1

81.782.285.589.192.2

97.499.9

100.0102.9106.7

101.4104.7109.4117.3114.3

107.6122.2

120.6122.0121.2122.7126.9124.5

120.2117.5119.5122.9122.7124.9

123.0124.4122.2121.4123.5122.1

121.1124.1127.7129.2

Print-ingandpub-

lishing

4.72

43.345.446.6

48.949.749.752.054.1

59.563.265.463.968.2

71.071.373.977.882.6

87.994.6

100.0103.2107.4

107.0107.1112.7118.2118.2

113.3120.6

120.0121.0121.0122.0120.5119.7

121.2120.6120.6119.3119.7123.0

124.7122.4124.8123.4124.4124.1

124.9125.0124.2124.8124.7126.5

Chem-icalsand

prod-ucts

7.74

19.721.321.0

26.229.731.133.634.1

39.842.745.246.654.3

56.459.265.771.878.8

87.895.7

100.0109.5118.4

120.4125.9143.6154.5159.4

147.2169.3

163.4166.5169.6168.7167.2169.2

167.6169.7171.3170.7173.7173.1

172.2174.9180.0180.6182.8183.5

182.6182.6181.3180.8183.0

Foods

8.75

55.855.255.9

57.959.060.261.462.7

66.370.171.172.976.5

78.680.983.486.490.4

92.496.0

100.0102.6106.1

108.9112.8116.8120.9124.0

123.4132.3

129.2130.7128.7129.4132.0131.4

134.5134.8134.6134.8134.3132.9

134.2136.4138.7138.0138.3136.9

138.3139.3138.3137.6138.4


304


TABLE B-42.—Capacity utilization rate in manufacturing, 1948-77

[Percent; quarterly data seasonally adjusted]

Year orquarter

FRB series 1

Totalmanu-fac-

turing

Primaryproc-essing

Ad-vancedproc-essing

Commerce series2

Totalmanu-fac-

turing

Dur-able

goods

Non-dur-able

goods

Pri-mary-proc-essedgoods

Ad-vanced-

proc-essedgoods

Wharton series»

Totalmanu-fac-

turing

Dur-able

goods

Non-dur-able

goods

19481949

19501951195219531954

19551956195719581959

19601961196219631964

19651966196719681969

19701971197219731974

197519761977 »_.__

1972: I . . .I I . .III.IV.

1973: I . . .IL_III.IV.

1974: I . . .

IV. . . .

1975: Il l_-_.I I I . . .IV.. . .

1976: IIL._.III...IV...

1977: l . . _ _I I . . .I I I . . .IV p . .

82.574.2

82.885.885.489.280.1

87.086.183.675.081.6

80.177.381.483.585.7

89.591.186.987.086.2

79.278.083.187.584.2

73.680.282.4

80.982.483.485.8

87.187.687.887.7

85.785.885.579.7

70.971.375.376.9

79.180.380.880.6

81.282.783.082.8

87.376.2

88.590.284.989.480.6

92.089.484.775.483.0

79.877.981.583.887.8

91.091.485.787.688.6

82.882.088 092.487.7

73.882.284.3

85.287.288.691.1

91.892.192.793.0

90.690.189.380.7

69.970.476.378.6

81.082.583.182.2

82.385.185.084.8

80.073.2

79.883.485.989.380.0

84.284.483.174.981.1

80.577.281.683.484.6

88.991.187.686.885.0

77.375.980.584.982.2

73.579.181.4

78.679.880.683.1

84.585.285.085.0

83.083.383.579.1

71.371.974.875.9

78.079.179.579.7

80.581.481.981.8

88.990.388.492.482.9

91.490.888.077.584.0

82.179.182.584.086.8

92.496.693.595.095.3

87.986.491.897.193.0

80.487.590.2

89.390.992.194.9

96.497.197.497.5

94.794.894.687.8

77.377.982.484.0

86.387.988.287.7

88.490.490.991.0

83.787.286.093.379.5

90.289.186.170.878.6

77.072.977.779.682.9

90.696.091.893.794.0

84.282.388.996.691.9

77.184.788.1

85.687.789.393.1

95.496.497.197.4

93.393.593.986.9

74.874.778.880.0

82.785.186.085.0

85.688.389.289.4

96.194.891.891.287.7

93.193.490.887.492.0

88.589.890.892.8

95.397.596.097.097.2

93.592.996.398.094.6

85.992.293.6

95.196.096.497.8

98.198.497.897.6

96.896.895.789.2

81.483.288.390.6

92.392.591.892.1

93.193.893.893.7

1 For description of the series, see "Federal Reserve Bulletin," November 1976.2 Quarterly data are for last month in quarter. Annual data are averages of the four indexes, except for 1965 (December

index) and 1966-67 (averages of June and December indexes). For description of the series, see "Survey of Current Busi-ness," July 1974.

3 Annual data are averages of quarterly indexes. For description of the series, see F. Gerard Adams and Robert Summers,"The Wharton Index of Capacity Utilization: A Ten Year Perspective," 1973 Proceedings of the Business and EconomicStatistics Section, American Statistical Association.

Sources: Board of Governors of the Federal Reserve System, Department of Commerce (Bureau of Economic Analysis),and Wharton School of Finance.

305


T A B L E B-43.—New construction activity, 1929-77

(Value put in place, billions of dollars; monthly data at seasonally adjusted annual rates]

Year or month

1929

1933

1939

1940194119421943.1944

19451946New series

19471948 . .1949

19501951. .- . . .1952 . .19531954

1955 . . .1956 . .1957 . .1958 .1959

1960 _19611962. .19631964 _

1965 .1966196719681969

19701971 -197219731974 .

19751976

Totalnewcon-

struc-tion

10.8

2.9

8.2

8.712.014.18.35.3

5.814.3

20.026.126.7

33.635.436.839.141.4

46.547.649.150.055.4

54.756.460.264 867.7

73.776 478.187.193.9

94.9110.0124.1137.9138.5

134.3147.5

Private construction

Total

8.3

1.2

4.4

5.16.23.42.02.2

3.412.1

16.721.420.5

26.726.226.027.929.7

34.834.935.134.639.3

38.939.342.345.547.3

51.752.452.559.566.0

66.880.193.9

105.4100.2

93.6109.5

Residentialbuildings1

Total a

3.6

.5

2.7

3.03.51.7.9.8

1.36.2

9.913.112.4

18.115.915.816.618.2

21.920.219.019.824.3

23.023.125.227.928.0

27.925.725.630.633.2

31.943.354.359.750.4

46.560.5

Newhous-

ingunits

3.0

.3

2.3

2.63.01.4.7.6

.74.8

7.810.510.0

15.613.212.913.414.9

18.216.114.715.419.2

17.317.119.421.721.8

21.719.419.024.025.9

24.335.144.950.140.6

34.447.3

Nonresidential buildings and otherconstruction1

Total

4.7

.8

1.7

2.12.71.71.11.4

2.15.8

6.98.28.0

8.610.310.211.311.5

12.914.716.114.815.1

15.916.217.217.619.3

23.826 727.028.932.8

34.936.839.645.749.8

47.249.0

Com-mer-cial

1.1

.1

.3

.3

.4

.2

.0

.1

.21.2

1.01.41.2

1.41.51.11.82.2

3.23.63.63.63.9

4.24.75.15.05.4

7.89.4

9.811.613.515.515.9

12.812.8

In-dus-trial

0.9

.2

.3

.4

.83

.2

.2

.61.7

1.71.41.0

1.12.12.32.22.0

2.43.13.62.42.1

2.92.82.82.93.6

6.06.8

6.55.44.76.27.9

8.07.2

Other*

2.6

.5

1.2

1.31.51.2.9

1.1

1.33.0

4.25.55.9

6.16.76.87.37.2

7.38.09.08.89.0

8.98.79.29.7

10.3

15.116.6

18.619.821.524.025.9

26.329.0

Public construction

Total

2.5

1.6

3.8

3.65.8

10 76.33.1

2.42.2

3.34.76.3

6.99.3

10.811.211.7

11.712.714.115.516.1

15.917.117.919.420.4

22.124.025.527.628.0

28.129.930.232.538.3

40.738.0

Fed-eral

0.2

.5

.8

1.23.89 35.62.5

1.7.9

.81.21.5

1.63.04 24.13.4

2.82.73.03.43.7

3.63.93.94 03.9

4.04 03.53.43.3

3.34.04.44.95.3

6.16.4

Stateand

local »

2.3

1 l

3.1

2.42.01 3.7.6

.71.4

2.53.54.8

5.26.36.67.18.3

8.910.011.112.112.3

12.213 314.015 416.5

18.020 022.124.224.7

24.825.925.827.733.0

34.631.6


306


T A B L E B-43.—New construction activity, 1929-77—Continued

[Value put in place, billions of dollars; monthly data at seasonally adjusted annual rates]

Year or month


July . . . .Aug. . . . .Sept . . . .OctNovDec

1977:JanFebMarAprMay. . . .June

July . . . .AugS e p t . . -OctN o v . . . .

Totalnewcon-

struc-tion

141.9144.5148.0147.2147.8149.6

145.8141.8145.2150.1153.8155.4

148.1156.9163.8167.5172.1174.6

173.0172.0175.9177.9178.0

Private construction

Total

101.8104.7107.9107.2108.2109.7

107.1103.6107.4114.8119.0121.2

116.2122.4128.4131.3133.7135.2

133.8133.8136.7140.2142.1

Residentialbuildings i

Total >

53.556.358.658.759.261.0

59.254.557.765.569.671.1

66.572.176.779.582.482.5

80.880.782.485.887.9

Newhnucnous-

inoingunits

40.142.444.445.145.445.8

46.347.148.750.952.754.8

52.158.362.263.565.866.0

65.165.166.468.970.7

Nonresidential buildings and other

Total

48.348.449.348.549.048.7

47.949.049.749.349.450.1

49.650.351.751.951.352.7

53.053.154.354.454.2

construction i

Com-mer-cial'

12.112.613.112.812.812.6

13.012.912.812.712.612.8

12.512.513.713.913.815.2

15.515.316.115.815.5

In-dus-trial

7.87.97.87.67.27.2

6.67.27.16.96.76.6

6.26.37.27.37.27.1

7.27.67.57.67.3

Other'

28.427.928.428.129.028.9

28.329.029.729.730.130.7

30.931.530.930.730.430.4

30.230.230.831.031.3

Public construction

Total

40.239.840.140.139.639.9

38.738.237.935.334.934.3

32.034.535.436.238.439.4

39.238.239.337.735.9

r6Q-

eral

6.57.06.46.66.26.4

6.46.37.45.56.66.3

6.77.26.97.26.86.3

7.57.68.56.16.8

Stateand

local «

33.632.933.733.433.433.5

32.331.930.429.828.328.0

25.227.328.529.031.633.0

31.730.630.731.629.2

* Beginning I960, farm residential buildings included in residential buildings; prior to I960, included in nonresidentialbuildings and other construction.

2 Total includes additions and alterations and nonhousekeeping units, not shown separately.3 Office buildings, warehouses, stores, restaurants, garages, etc.« Religious, educational, hospital and institutional, miscellaneous nonresidential, farm (see also footnote 1), public

utilities, and all other private.5 Includes Federal grants-in-aid for State and local projects.

Source: Department of Commerce (Bureau of the Census).

307


TABLE B—44.—New- housing units started and authorized, 1959—77

[Thousands of units]

Year or month

New housing units started

Private andpublic 1

Total(farmandnon-

farm)

Non-farm

Private»

Total (farm and nonfarm)

Total

Type of structure

Oneunit

2 to 4units

5 unitsor

more

New private housing unitsauthorized2

Total Oneunit

938.3

> 746.1722.8716.2750.2720.1

709.9563.2650.6694.7625.9

646.8906.1

1, 033.1882.1643.8

675.5893.6

1,125.8

2 to 4units

77.1

64.667.687.1118.9100.8

84.861.073.084.385.2

88.1132.9148.6117.064.3

63.993.1114.6

5 unitsor more

1959_.

I960..1961..1962.1963.1964.

1965.1966.1967.1968-1969.

1970-1971_1972.1973-1974.

1975.1976.1977*

1,553.7

1, 296.11,365.01,492.51,634.91,561.0

1, 509.71,195.81,321.91, 545.41, 499.5

1, 469.02, 084. 52, 378. 52, 057.51,352.5

1,171.41,547.61, 989.1

1,531.3

, 274.01,336.81,468.71,614.81, 534.0

1, 487.51,172.81, 298.81,521.41,482.3

1,517.0

1, 252.21,313.01,462.91, 603.21, 528. 8

1,472.81,164.91,291.61, 507.61,466.8

1,433.62, 052.22,356.62,045.31,337.7

1,160.41, 537.51,986.4

1,234.0

994.7974.3991.4

1,012.4970.5

963.7778.6843.9899.4810.6

812.91,151.01,309.21,132.0

888.1

892.21,162.41,451.3

283.0

257.4338.7471.5590.8

108.4 450.0

86.661.171.680.985.0

84.8120.3141.3118.368.1

64.085.9

122.0

422.5325.1376.1527.3571.2

535.9780.9906.2795.0381.6

204.3289.2413.1

1,208.3

998.01,064.21,186.61,334.71,285.8

1,239.8971.9

1,141.01,353.41,323.7

1,351.51,924.62,218.91,819.51,074.4

939.21,296.21,680.0

192.9

187.4273.8383.3465.6464.9

445.1347.7417.5574.4612.7

616.7885.7

1,037.2820.5366.2

199.8309.5439.7

Seasonally adjusted annual rates

1976: Jan...Feb...M a r -Apr.-.May..June..

July..Aug..Sept..Oct...Nov..Dec...


July..Aug..Sept.Oct..NOVPDec*

72.991.6

118.8137.4148.3155.1

137.5146.8153.1149.8128.2108.1

81.5112.7173.6182.4201.3197.8

189.8194.2177.8193 2If6.0128.6

1,1,1,1,1,1,

1,1,1,1,1,1,

1,1,2,1,1,1,

2,2,2,2,2,2,

259476426385435494

413530768715706889

384802089880937897

083029065203121295

1,1,1,1,1,

1,1,1,1,1,1,

1,1,1,\\,1,

1,1,1,1,1,1,

973216124071091122

129172254269236324

006424503413455389

437453523562543605

766480778875

72831069898120

103120113116120105

127113128132136169

210196111237256297

212275408348372445

275258473351362403

519463414509442521

1,1,1,1,lf1,

1,1,1,1,1,1,

1,1,1,1,1,1,

1,1,1,1,1,1,

185176181120183170

229308481481583532

333526687605615678

639772695850893858

854858866819817834

866876914987

1,0551,047

9301,0601,1881,0511,0771,105

1,0891,1561,1351,2161,2571,223

788282778281

79102114116124114

10110711210599105

112127114131151125

253236233224284255

284330453378404371

302359387449439468

438489446503485510

1 Units in structures built by private developers for sale upon completion to local public housing authorities under theDepartment of Housing and Urban Development "Turnkey" program are classified as private housing. Military housingstarts, including those financed with mortgages insured by FHA under Section 803 of the National Housing Act, are includedin publicly owned starts and excluded from total private starts.

2 Authorized by issuance of local building permit: in 14,000 permit-issuing places beginning 1972; 13,000 for 1967-71;12,000 for 1963-66; and 10,000 prior to 1963.

3 Not available separately beginning January 1970.

Note.—Only the series on private and public nonfarm housing units started is available prior to 1959. See 1976 "Eco-nomic Report" for this earlier series.


308


TABLE B-45.-—Business expenditures for new plant and equipment, 1947-78 l


Yearor quarter Total

Manufacturing

TotalDura-

blegoods

Non-durablegoods

Nonmanufacturing

Total Mining

Transportation

Rail-road Air Other

Publicutili-ties

Com-muni-cation

Com-mer-cialand

other 2

194719481949

19501951195219531954

19551956195719581959

19601961196219631964

19651966196719681969

19701971197219731974

197519761977 3....1978 3...

1975: I

1 9 7 6 : IIII I I . . - .

1977: I

IV 3___

1978:

19.3321.3018.98

20.2125.4626.4328.2027.19

29.5335.7337.9431.8933.55

36.7535.9138.3940.7746.97

54.4263.5165.4767.7675.56

79.7181.2188.4499.74112.40

112.78120. 49137. 02150.89

114.57112.46112.16111.80

114.72118.12122.55125. 22

130.16134.24140. 38142.38

146.26149. 86

8.449.017.12

7.3910.7111.4511.8611.24

11.8915.4016.5112.3812.77

15.0914.3315.0616.2219.34

23.4428.2028.5128.3731.68

31.9529.9931.3538.0146.01

47.9552.4861.0367.35

49.0548.7847.3946.82

49.2150.6454.7854.44

56.4359.4663.0264.42

64.1467.73

3.253.302.45

2.944.825.215.314.91

5.417.457.845.615.81

7.236.316.797.539.28

11.5014.0614.0614.1215.96

15.8014.1515.6419.2522.62

21.8423.6828.2631.57

22.8622.5921.0121.07

21.6322.5424.5925.50

26.3027.2629.2329.88

30.4631.82

5.195.714.68

4.455.896.246.566.33

6.487.958.686.776.95

7.858.028.268.70

10.07

11.9414.1414.4514.2515.72

16.1515.8415.7218.7623.39

26.1128.8132.7735.78

26.2026.1926.3825.75

27.5828.0930.2028.93

30.1332.1933.7934.54

33.6835.91

10.8912.2911.86

12.8214.7514.9816.3415.95

17.6420.3421.4319.5120.78

21.6621.5823.3324.5527.62

30.9835.3236.9639.4043.88

47.7651.2257.0961.7366.39

64.8268.0175.9983.54

65.5263.6864.7664.98

65.5167.4867.7670.78

73.7474.7877.3677.96

82.1282.13

0.69.93

.841.111.211.251.28

1.311.641.691.431.36

1.301.291.401.271.34

1.461.621.651.631.86

1.892.162.422.743.18

3.794.004.445.27

3.763.783.823.82

3.833.834.214.13

4.244.494.744.30

4.61

0.911.371.42

1.181.581.501.42.93

1.021.371.58.86

1.02

1.16.82

1.021.261.66

1.992.371.861.451.86

1.781.671.801.962.54

2.552.522.903.34

2.392.702.752.39

2.082.642.692.63

2.712.573.203.18

3.80

0.17.10.12

.10

.14

.24

.24

.24

.26

.35

.41

.37

.78

.66

.73

.52

.401.02

1.221.742.292.562.51

3.031.882.462.412.00

1.841.301.682.17

2.091.602.121.65

1.181.441.121.41

1.621.431.692.01

2.39

1.131.17.76

1.091.331.231.291.22

1.301.311.301.061.33

1.301.231.651.581.50

1.681.641.481.591.68

1.231.381.461.662.12

3.183.632.411.88

2.822.752.993.56

3.294.163.443.49

2.962.961.961.98

1.83

1.542.543.10

3.243.563.744.343.99

4.034.525.675.525.14

5.245.004.904.985.49

6.137.438.74

10.2011.61

13.1415.3017.0018.7120.55

20.1422.2826.1429.27

20.2819.5219.7920.91

21.9121.8521.6723.46

25.3525.2926.2227.41

28.72

1.401.741.34

1.141.371.611.781.82

2.112.823.192.792.72

3.243.393.854.064.61

5.306.026.346.838.30

10.1010.7711.8912.8513.96

12.7413.3015.36

41.61

5.054.424.24

5.225.675.456.026.45

7.638.327.607.488.44

8.759.139.99

10.9912.02

13.1914.4814.5915.1416.05

16.5918.0520.0721.4022.05

20.6020.9923.06

13.3612.5012.9512.22

12.5412.6213.6414.30

14.1915.3216.40

39.09

40.76

20.8220.8320.3420.44

20.6820.9420.9921.36

22.6722.7323.14

1 Excludes agricultural business; real estate operators; medical, legal, educational, and cultural services; and nonprofitorganizations. These figures do not agree precisely with the nonresidential fixed investment data in the gross nationalproduct estimates, mainly because those data include investment by farmers, professionals, nonprofit institutions, andreal estate firms, and certain outlays charged to current account.

2 Commercial and other includes trade, service, construction, finance, and insurance.3 Estimates based on expected capital expenditures reported by business in October-December 1977. Includes adjust-

ments when necessary for systematic tendencies in expectations data.Source: Department of Commerce, Bureau of Economic Analysis.

309


TABLE E-46.—Sales and inventories in manufacturing and trade, 1947-77

[Amounts in millions of dollars; monthly data seasonally adjusted]

Year or mcnth

Total manufacturingand trade

Sales tInven-tories 2 Ratio

Manufacturing

SalesInven-tories 2 Ratio»

Merchant wholesalers

Sales »Inven-tories 2 Ratio s

Retail trade

Sales » Inven-tories 2 Ratio i

1947..1948..1949..

1950..1951..1952..1953..1954..

1955...1956...1957...1958...1959...

1960...1961. .1962...1963...1964...

1965...1966...1967...1968...1969...

1970.. .1971.. .

mi...1973.. .1974.. .1975.. .1976...1977*..

1 9 7 6 : J a n . . .Feb__.Mar . . .A p r . . .M a y . .June..

July. .Aug . .Sept . .O c t . .Nov__Dec__

1 9 7 7 : J a n . .Feb__.Mar . . .Apr__.May . .June..

July _Aug _SeptOct _NovD e c *

35,26033,788

38, 59643,35644,84047,98746,443

51,69454,06355, 87954, 20059, 728

60, 82861,16065, 66068,99573,682

52,50749,497

59,82270,24272,37776,12273,175

79,51687,30489,05287, 09492,132

94,71895, 596101,064105,482111,501

80, 28387,18690,34998,207105,190

120, 912136,789146,154

207 156,641170,116

107,697116,351130,049151,647174, 991

.78,28188,180202,291233,340285,275

180,229200,118221,668

281,837118 306,325

332,049

191,810194, 335196, 915 287]198,492197,848200,067

283,369285, 273287, 634289,807292,554296,083

200,482 2 ,200,823 300,201, 093 303,199, 569 305,203, 731212, 095 3O6i

297,899"1,428

1,468i, 234

306,151~\ 325

209,950 309,215, 281221,903 314;221,167221, 327 320',222,240 322,

J, 063311,232314, 875317,873"1,492

,899

221,255 324223,604224,242227, 536 330;229, 848

,, 107326,849329, 510330,460332,049

1.421.53

1.361.551.581.581.60

1.471.551..591.601.50

1.561.541.501.491.47

1.451.481.571.541.56

1.621.581.491.431.48

1.571.471.45

1.481.471.461.461.481.48

1.491.501.511.531.501.44

15,51317,31616,126

18, 63421,71422, 52924, 84323,355

26,48027, 74028, 73627, 24730, 286

30,87930,92333,35735,05837, 330

40,99544,86946,48750, 26953,540

25,89728, 54326,321

31,07839,30641,13643,94841,612

45,06950,64251,87150, 24252,948

53,78554,88758,18760,04863,407

68,19077,95184,52790,39498,011

52,831 ,55,925 102,63,042 108,07272, 954 124, " "84,612

101,502"!,490

1,072i,395

157,971

155,69398', 168 166, 587

177,162

87,22698,168.09,962

93,88495,26297,502 157;98,17898,19198,597

156,120156,458157,560158,134159,488161,118

98,93299, 07898,387 ,97, 043 166,99,919 167,LO4, 475

162,144163,184164, 966'-1,674

,114166, 587

167,482168,449169, 379

640 170, 747172, 629

03, 569LO6, 133111,241.09,""" 1 , 458

1.471.451.421.441. 45 109;1.45 110, 680 173; 818

46109,208 174,57146111,376 175,10447 111, 921 176,16445113,119 176,789

177,162

1.

L47

l'. 44 113;

1.581.571.75

1.481.661.781.761.81

1.621.731.801.841.70

1.761.741.70

.69

.64

6062767476

8983675866

64,57

666462616263

1.64L. 65.68.72

, 6 7.59

.62

.59

.52

.56

.58

.57

.60

.57.57.56

1.56

6,8086,514

7,6958,5978,7829,0528,993

9,89310, 51310, 47510,25711,491

11,65611,98812,67413, 38214,529

15,61116,98719,44820,84622,609

23,94326,25729, 58436,82245,836

44,63348, 40853,179

46,25746,99747,23947,71447,35948, 554

48,60448,54849, 33648, 35548,99050,935

50,67851,85752,67253, 38553, 86653,735

53,49553,20853, 30753, 63955,126

7,9577,706

9,2849,88610, 21010,68610,637

11,67813,26012, 73012, 73913,879

14,12014,48814,93616,04817,000

18,31720,76525,37726,60429,114

32,80335,82339,78646,25456,537

55,11361,30766,422

55,68356, 26356, 53157,32658, 30859,427

59,70359, 91360, 44060, 55361,04961, 307

62,12363,06264,30065, 30164, 83864,947

64,21065,09566,11966, 20966,422

1.131.19

1.071.161.121.171.18

1.131.191.231.241.15

1.221.201.161.151.14

1.151.151.251.251.23

1.291.301.271.171.12

1.241.211.22

1.201.201.201.201.231.22

1.231.231.231.251.251.20

1.231.221.221.221.201.21

1.201.221.241.231.20

10, 20011,13511,149

12,26813,04613,52914,09114,095

15,32115,81116,66716,69617,951

18,29418,24919,63020, 55621,823

23,67725,33024,41327,09229,041

30,92434,16937,42241,87144,543

48,37053, 54258, 527

51,66952,07652,17452,60052,29852,916

52,94653,19753, 37054,17154,82256,685

55,70357,29157, 99058,14258,00357,825

58,55259,02059, 01460, 77861,48261,048

14,24116,00715,470

19,46021,05021,03121,48820,926

22,76923,40224,45124,11325,305

26,81326,22127,94129,38631,094

34,40538,07336,25039,64342,991

43,97649,86754, 43362,69170,767

71, 03178,43188,465

71,56672,55273,54374, 34774,75875, 538

76,05277, 33178,06278,00777,98878,431

79,45879,72181,19681, 82583,02584,134

85,32686,65087,22787,46288,465

1.261.391.41

1.381.641.521.531.51

1.431.471.441.431.40

1.451.431.381.391.40

1.391.441.471.411.42

1.411.391.381.401.49

1.451.411.43

1.391.391.411.411.431.43

1.441.451.461.441.421.38

1.431.391.401.411.431.45

1.461.471.481.441.44

1 Monthly average for year and total for month.3 Seasonally adjusted, end of period.3 Inventory/sales ratio. For annual periods, ratio of weighted average inventories to average monthly sales; for monthly

data, ratio of inventories at end ot month to sales for month.4 Based on seasonally adjusted data through November.

Note.—The inventory figures in this table do not agree with the estimates of change in business inv entories includedin the gross national product since these figures cover only manufacturing and trade rather than all business, and showinventories in terms of current book value without adjustment for revaluation.

Source: Department of Commerce (Bureau of Economic Analysis and Bureau of the Census).

310


TABLE B-47.—Manufacturers' shipments and inventories, 1947-77

[Millions of dollars; monthly data seasonally adjusted]

Year or month

Shipments1

Total

Dura-ble

goodsindus-tries

Non-durablegoodsindus-tries

Inventories2

Total

Durable goods industries

Total

Mate-rialsandsup-plies

Workin

process

Fin-ishedgoods

Nondurable goods industries

Total

Mate-rialsandsup-plies

Workin

process

Fin-ishedgoods

19471948...1949

1950..195119521953..1954

1955.1956195719581959

19601961196219631964

19651966196719681969

1970197119721973.1974

1975197619773

1976: JanFebMarAprMay . .__June


1977: Jan ___FebMarAprMay . .__June

JulyAugSept_.__OctNov

15,51317,31616,126

18, 63421,71422,52924, 84323, 355

26, 48027, 74028, 73627, 24730, 286

30, 87930, 92333, 35735, 05837, 330

40, 99544, 86946, 48750, 26953, 540

52, 83155, 92563, 04272, 95484, 612

87, 22698,168[09, 962

93, 88495, 26297, 50298, 17898,19198, 597

98, 93299, 07898, 38797, 04399, 919.04, 47503, 56906, 13311,24109, 64009, 45810, 680

09, 208.11,37611,92113,11913, 240

6,6947,5797,191

8,84510, 49311,31313, 34911,828

14,07114,71515, 23713, 56315, 609

15, 88315,61617, 26218, 28019, 637

22, 22124, 64825, 26727, 69829, 477

28, 21529, 97334, 04239, 70444, 043

43, 91250, 37657, 261

47, 28948, 43050, 38250, 14650, 55850, 606

51, 09051, 64850, 06049, 02951,23855, 295

53, 34154, 70358, 84956, 76456, 71757, 570

56, 82058, 08758, 60859, 26259,154

8,8199,7388,935

9,78911,22111,21611,49411,527

12, 40913, 02513, 49913, 68414, 677

14, 99615, 30716, 09516,77817, 693

18, 77320, 22021,22022, 57024, 064

25, 89728, 54326, 321

31, 07839, 30641, 13643, 94841,612

45, 06950, 64251,87150, 24252, 948

53, 78554, 88758, 18760, 04863, 407

68,19077,95184, 52790, 39498,011

24, 61625, 953 102i28, 99933, 250 124;40, 569

101, 502' 1,490

108, 072124, 395157, 971

13, 06114,66213,060

15, 53920, 99123, 73125, 87823, 710

26, 40530, 44731, 72830, 25932, 077

32,37532, 54434, 63235, 86738, 506

42, 26449, 92254, 88558, 67564, 561

66, 64866,14970, 09881,218101, 780

43, 313 155, 693 100,47, 79252, 701

166, 587177, 162

1,310105, 729112,548

46, 59546, 83247,12048, 03347, 63447, 990

47, 84247, 43048, 32848, 01448, 68149, 180

50, 22851, 43052, 39252,87652, 74153,110

52, 38853, 28953, 31353, 85754, 086

156,120156, 458157, 560158, 134159, 488161,118

162, 144163, 184164, 966166, 674167,114166, 587

167, 482168, 449169, 379170, 747172,629173, 818

174,571175,104176,164176, 789177,162

99, 98099, 942100, 740101,033101, 502102, 429

.02, 856

.03, 282

.04,117

.05, 589

.06,128

.05, 729

.06, 562

.07, 22207, 68508, 19009,15410,421

10,97811,45211,78711,90412,548

12, 83613,88113, 261

15, 53918, 31.r

8,9667,894

9,19410,41710, 60810,04110, 781

10, 35410, 27610, 80211,06211,958

13,31115, 03316, 39717,31418, 638

19,12319, 68120, 75225, 89235, 809

33,14534, 62137, 147

33, 55133, 26933, 54133, 41633, 66933, 927

34, 06433, 82234,11335, 04735, 32034, 621

35, 14135, 22935, 79835, 75836,61537, 289

37, 20937, 31237, 53837, 39437,147

10, 7209,721

10, 75612,31"12, 8312,39113, 065

12, 77713,21014, 17014, 88516, 209

18, 09822, 58324, 98427, 26r

30, 329

29, 78528, 58630, 73835, 44041,254

41, 30443, 02044, 938

40, 91040, 56840, 74540, 91040, 97841,411

41, 49941, 74341, 98742, 62743, 00543, 020

43, 23543,61143, 34343, 80543, 33943, 584

44,12044, 52944, 75044, 43044, 938

6,2066,040

6,3487,5658,1257,8298,232

9,2439,0589,6599,92010, 342

10, 85312, 30513, 50514,12115, 606

17,71417, 83918, 55619, 81224, 613

25, 74728, 08830, 463

25,37125, 43825, 55825, 85526, 04526, 344

26, 49526, 86227,11427,91527, 80328, 088

28, 18628, 38228, 54428, 62729, 20029, 548

29, 64929,61129, 49930, 08030, 463

17, 40518, 07017, 902

18, 66420,19520,14319, 98320, 871

21,41022, 34323, 55524,18224, 901

25, 92628, 02929, 64131,71933, 450

34, 85436, 34137, 97443, 17756,191

55, 38260, 85864,614

56,14056, 51656, 82057, 10157, 98658, 689

59, 28859, 90260, 85061, 08560, 98660, 858

60, 92061,22761, 69462, 55763, 47563, 397

63, 59363, 65264,37764, 88564, 614

8,3178,167

8,5568,9718,7758,6749,097

9,1049,5199,84410, 00510,151

10,46411,16311,71412, 28712,718

13,13913,66114, 65517, 88223, 963

23,02326, 01326, 353

23, 28823, 46023, 66623, 76524, 36624, 453

24, 90025, 02325, 50226, 88025, 84326, 013

25,67825, 98826, 40526, 81027, 06826, 842

26, 70126, 57926, 76526, 69626, 353

2,47!2,440

2,5712,7212,2,8352,950

2,9493,1093,2973,4103,522

3,8204,2224,4324,8515,117

5,2695,6766,0096,7518,503

8,2349,1829,761

8,3918,5208,6408,6778,7058,873

8,9299,0049,0968,5249,1719,182

9,0679,1419,3569,3799,4229, 429

9,5749,5479,6299,7419,761

7,4097,415

7,6668,6228,6248,4748,825

9,3579,71510,41410, 76411,229

11,64312, 64513, 49614, 58115,612

16, 44717, 00317, 30618, 54523, 726

24,12425, 66328, 500

24, 46124, 53624, 51224, 66024,91325, 364

25, 46025, 87526, 25025, 68125, 97225, 663

26,17526, 09825, 93326, 36826, 98527,126

27,31827, 52627, 98328, 44828, 500

1 Monthly average for year and total for month.2 Book value, seasonally adjusted, end of period, except as noted.3 Based on seasonally adjusted data through November.

Note.—Data are as published by Bureau of the Census, but for 1968-75 detail for durable goods inventories does notadd to totals. Correction will be published later by Census.


311


TABLE B-48.—Manufacturers1 new and unfilled orders, 1947-77

[Amounts in millions of dollars; monthly data seasonally adjusted!

Year or month

194719481949

19501951195219531954

19551956195719581959

19601961196219631964

19651966196719681969

1970197119721973 .1974

1975197619774

1976:Jan .Feb..Mar_.Apr..May..June.

July.Aug..Sept.Oct..Nov.Dec.

1977: Jan.Feb.Mar.Apr.May.June

July.Aug.SeptOct..Nov.

New orders i

Total

15,25617,69315,614

20,11023,90723,20423,58622,335

27,46528, 36827, 55927, 00230, 724

30,23531,10433, 43635, 52438, 357

42,10046, 40247, 06250, 72054,014

52,09655, 93764, 24676, 21786, 988

85, 65998, 497111,233

92, 63994,75598, 26798, 41599, 02599,135

98, 81197, 55498, 47699, 006

100, 784106, 600

105, 288106, 575111,788111,547111,693111,524

108, 598111,494112,441116, 543116, 068

Durable goodsindustries

Total

6,3888,1266,633

10,16512,84112, 06112,14710, 768

14,99615,36514,11113, 29016, 003

15,30315,75917, 37418, 70920, 652

23, 27826,17725,83128,14929, 934

27, 44729, 95135,14242, 88846, 570

42,16450, 68158, 488

45, 90447, 93051,11150, 24551, 35451, 249

51,18050, 38050, 06850, 75452,23557, 040

55, 03755,13359,16058, 65259,17658, 378

56, 03158, 27059, 04862, 50361, 984

Capitalgoodsindus-tries,non-

defense

7,0797,821

7,0537,5758,94711,16912,656

10, 89912, 82015,119

11,66311,90012,17312, 47612, 66612, 607

13,77812, 69013, 46814,12412, 73413, 835

14, 62114, 24914, 56114, 67915, 00015, 535

14, 40914, 67816,18916, 50215, 883

Non-dura-

blegoodsindus-tries

9,5668,981

9,94511,06611,14311, 43911,566

12,46913, 00313.44813,71214, 720

14,93215,34516, 06116,81517, 705

18, 82320, 22521,23222, 57124,079

24, 64925,98629,10433, 32940, 418

43, 49547,81652,744

46, 73546, 82547, 15548,17047, 67047, 886

47, 63147,17448, 40948, 25248, 54949, 560

50, 25151,44252, 62852, 89552, 51753,146

52, 56753, 22453, 39354, 04054, 084

Unfilled orders 2

Total

34,47330,73624,045

41,45667,26675, 85761,17848,266

60,00467,37553,18347, 28052, 571

45, 06147, 38448,60054,38467,001

80,17498, 519105,114110, 537116,330

107, 460107, 656122,362161,766190,271

171,438175,453189,416

170,193169, 686170, 450170, 687171,520172,059

171,938170, 414170, 503172,468173, 333175, 453

177,179177,623178,167180, 065182, 301183,150

182,541182, 646183,166186, 590189,416

Dura-ble

goodsindus-tries

28, 57926,61919, 622

35,43563, 39472,68058,63745,250

56,24163,88050,35244,46549, 207

42, 49144,34545, 98351,32163,806

76, 39594, 689101,144106, 563112,158

102,867102,623116,004154, 361184,697

163, 582167,261180, 750

162,197161, 697162,426162, 525163, 322163, 965

164, 055162, 787162, 795164, 522165,519167, 261

168, 962169, 394169,704171,587174, 047174, 859

174, 072174, 245174, 682177, 923180, 750

Non-dura-ble

goodsindus-tries

5,8944,1174,423

6,0213,8723,1772,5413,016

3,7633,4952,8312,8153,364

2,5703,0392,6173,0633,195

3,7783,8303,9703,9744,172

4,5935,0336,3587,4045,575

7,8568,1928,666

7,9967,9898,0248,1628,1988, 094

7,8837,6277,7087,9467,8148,192

8,2178,2298,4638,4788,2548,291

8,4698,4018,4848,6678,666

Unfilled orders-shipments ratio s

Total

3.42

3.633.873.353.073.00

2.782.642.682.813.10

3.343.803.733.853.76

3.703.393.353.944.23

3.633.283.22

3.533.463.373.393.353.38

3.383.313.333.453.393.28

3.343.293.113.203.233.22

3.233.173.153.193.22

Dura-ble

goodsindus-tries

4.12

4.274.554.003.673.53

3.363.143.213.383.71

3.974.544.444.644.50

4.454.063.964.665.09

4.403.933.85

4.264.194.064.084.024.06

4.043.974.024.144.073.93

4.023.963.713.863.893.88

3.883.813.783.813.85

Non-dura-ble

goodsindus-tries

0.96

1.121.04.85.86.94

.72

.79

.68

.73

.72

.76

.73

.69

.69

.77

.78

.88

.93

.64

.78

.75

.73

.79

.77

.77

.77

.78

.77

.76

.73

.72

.77

.75

.75

.75

.73

.73

.72

.70

.71

.73

.70

.71

.73

.73

1 Monthly average for year and total for month.2 Seasonally adjusted, end of period.3 Ratio of unfilled orders at end of period to shipments for period; excludes industries with no unfilled orders. Annual

figures relate to seasonally adjusted data for December.* Based on seasonally adjusted data through November.


312


PRICES

TABLE B-49.—Consumer price indexes by expenditure classes, 1929-77

For urban wage earners and clerical workers

[1967=100]

Year or month

1929

1933

1939

1940194119421943194419451946194719481949 .

1950195119521953195419551956195719581959

19601961 . . .1962196319641965 . . .196619671968 .1969

19701971197219731974197519761977 _

1976: JanFebMarAprMay _June

July .AugSeptOctNovDec

1977: JanFebMar .AprMayJune

JulyAugSeptOct __NovDec

Allitems

51.3

38.8

41.6

42.044 148 851.852.753 958 566.972.171.4

72.177 879.580.180 580 281.484.386 687.3

88 789 690.691.792 994 597.2

100 0104 2109.8

116 3121 3125.3133 1147 7161 2170 5181.5

166.7167 1167.5168 2169.2170.1

171.1171.9172 6173.3173.8174.3

175.3177 1178 2179.6180.6181.8

182.6183.3184 0184.5185.4186.1

Food

48.3

30.6

34.6

35.238.445.150.349.650 758.170.676.673.5

74.582 884.383.082 881.682.284.988 587.1

88 089 189.991.292 494.499.1

100 0103.6108.9

114.9118.4123.5141.4161.7175.4180 8192.2

180.8180.0178.7179.2180.0180.9

182.1182.4181 6181.6181.1181.7

183.4187 7188 6190.9191.7193.6

194.6195.2194 5194.4195.6196.3

Housing

Total

52.2

52.453 756 256.858.159 160 665.269.870.9

72.877 278 780.881 782 383.686.287 788 6

90 290 991.792.793 894 997.2

100 0104 2110.8

118 9124.3129.2135.0150 6166 8177 2189.6

173.2173 8174.5174 9175.6176.5

177.5178.4179 5180.1180.7181.6

183.1184 3185 5186.7187.6189.0

190.5191.4192 7193.6194.6195.7

Rent

76.0

54.1

56.0

56.257 258 558.558.658 859 261.165.168.0

70.473 276 280.383 284 385.987.589 190 4

91 792 994.095.095 996 998.2

100 0102.4105.7

110 1115.2119.2124.3130 6137.3144 7153.5

141.2142 1142.7143 2143.8144.4

145.0145.6146 2146.9147.5148.3

149.5150 2150 8151.6152.2152.9

153.6154.4155 3156.1157.0157.9

Appareland

upkeep

48.5

36.9

42.4

42.844.852.354.658.561 567.578.283.380.1

79.086 185.384.684 584 185.887.387 588.2

89 690.490.991.992 793.796.1

100 0105.4111.5

116.1119.8122.3126.8136 2142.3147 6154.2

143.3144 0145.0145 7146.8146.9

146.5148.1150 2150.9151.9151.8

150.0150 8151 7152.3153.4153.9

153.4154.8156 2157.2158.5158.2

Trans-porta-tion

43.0

42.744 248 147.947.947 850 355.561.866.4

68.272 577 379.578 377 478.883.386 089 6

89 690 692.593.094 395 997.2

100 0103 2107.2

112.7118.6119.9123.8137 7150.6165 5177.2

158.1158 5159.8161.3163.5165.9

167.6168.5169 5170.9171.4171.4

172.2173 2174 7176.7178.1179.1

179.2178.8178 4178.6178.7178.8

Medicalcare

36.7

36.837 038 039.941.142 144 448.151.152.7

53.756 359 361.463 464 867.269.973 276.4

79 181 483.585.687 389.593.4

100 0106.1113.4

120.6128.4132.5137.7150.5168.6184 7202.4

176.6178.8180.6181.6182.6183.7

185.5186.8187 9188.9191.3192.3

194.1195 8197 6199.1200.5201.8

203.5204.9206.3207.2208.1209.3

Personalcare

40.3

40.241 245.249.953.455.159.066.068.568.3

68.374 775.676.376 677.981.184.186 988.7

90 190.692.293.494 595.297.1

100 0104.2109.3

113.2116.8119.8125.2137.3150.7160.5170.9

155.7157.0157.4158.3158.9159.8

160.5161.6162.8163.91P4.8165.2

166.2166.7167.3168.4169.5170.6

171.3172.1172.8173.9175.5176.3

Readingand

recrea-tion

45.3

46.147 750 054.160.062.464 568.772.274.9

74.476 676.977.776 976.777.880.783 985.3

87.389.391.392.895.095.997.5

100.0104.7108.7

113.4119.3122.8125.9133.8144.4151.2157.9

148.2148.5149.0149.51^0.3150.9

151.2151.4152.8153.5154.1154.4

154.9155.5155.8156.0156.8157.6

157.7158.1159.8160.6160.9161.3

Othergoodsand

services

46.9

48.349 250.753.354.756.958.863.866.868.7

69.972.876.678.579.879.881.083.384.486.1

87.888.589.190.692.094.297.2

100.0104.6109.1

116.0120.9125.5129.0137.2147.4153.3159.2

150.5151.3151.8152.5152.9153.2

153.6153.8153.9154.4155.3155.9

156.7156.9157.3157.7158.0158.4

159.1159.1160.6161.5162.4162.7


313


TABLE B-50.—Consumer price indexes by commodity and service groups, 1939-77


[1967=1001

Year ormonth

1939

1940194119421943194419451946194719481949

1950195119521953195419551956195719581959

I960196119621963196419651966 . . .196719681969

19701971197219731974197519761977




July. . . .AugSept_._.OctNovDec

Allitems

41.6

42.044 148.851.852.753 958.566.972 171.4

72.177.879.580.180.580.281.484.386.687.3

88.789.690.691.792.994.597.2

100.0104.2109.8

116.3121.3125.3133.1147.7161.2170.5181.5

166.7167.1167.5168.2169.2170.1

171.1171.9172.6173.3173.8174.3

175.3177.1178.2179.6180.6181.8

182.6183.3184.0184.5185.4186.1

Commodities

Allcom-modi-ties

40.2

40.643 349.654.054.756 362.475.080 478.3

78.885.987.086.785.985.185 988.690.690.7

91.592.092.893.694.695.798.2

100.0103.7108.4

113.5117.4120.9129.9145.5158.4165.2174.7

162.4162.3162.3163.1164.2165.2

166.0166.6167.0167.4167.7168.1

168.7170.9171.8173.3174.3175.4

175.8176.3176.6177.0177.9178.3

Food

34.6

35.238 445.150.349.650.758.170.676.673.5

74.582.884.383.082.881.682.284.988.587.1

88.089.189.991.292.494.499.1

100.0103.6108.9

114.9118.4123.5141.4161.7175.4180.8192.2

180.8180.0178.7179.2180.0180.9

182.1182.4181.6181.6181.1181.7

183.4187.7188.6190.9191.7193.6

194.6195.2194.5194.4195.61S6.3

Commodities less food

All

47.7

48.050.456.058.461.664.168.176.882.781.5

81.487.588.388.587.586.987.890.591.592.7

93.193.494.194.895.696.297.5

100.0103.7108.1

112.5116.8119.4123.5136.6149.1156.6165.1

152.3152.7153.3154.2155.5156.5

157.1158.0158.9159.6160.3160.6

160.6161.6162.6163.6164.7165.4

165.6166.0166.7167.4168.1168.4

Dura-ble

48.5

48.151.458.460.365.970.974.180.386.287.4

88.495.196.495.793.391.591.594.495.997.3

96.796.697.697.998.898.498.5

100.0103.1107.0

111.8116.5118.9121.9130.6145.5154.3163.2

149.0149.3150.4151.9153.5154.7

155.8156.4156.9157.8158.0158.4

158.9159.7160.8162.2163.4163.9

164.3164.3164.5165.0165.5165.9

Non-dura-

ble

44.3

44.746.751.653.856.658.662.972.277.876.3

76.282.082.483.183.583.585.387.688.289.3

90.791.291.892.793.594.897.0

100.0104.1108.8

113.1117 0119.8124.8140.9151.7158.3166.5

154.7155.2155.5156.0157.0157.9

158.1159.1160.4161.0161.9162.3

161.9163.1163.9164.7165.7166.6

166.6167.3168.4169.2170.1170.3

Services

Allservices

43.5

43.644 245.646.447.548 249.151.154.356.9

58.761.864.567.369.570.972 775.678.580.8

83.585.286.888.590.292.295.8

100.0105.2112.5

121.6128 4133.3139.1152.1166.6180.4194.3

174.9176.1177.2177.7178.4179.5

180.7181.8183.2184.1185.1185.8

187.4188.7190.0191.2192.2193.7

195.3196.3197.7198.5199.5200.5

Rent

56.0

56.257.258.558.558.658.859.261.165.168.0

70.473.276.280.383.284.385.987.589.190.4

91.792.994.095.095.996.998.2

100.0102.4105.7

110.1115 2119.2124.3130.6137.3144.7153.5

141.2142.1142.7143.2143.8144.4

145.0145.6146.2146.9147.5148.3

149.5150.2150.8151.6152.2152.9

153.6154.4155.3156.1157.0157.9

Serv-iceslessrent

38.1

38.138.640.342.144.245.146.749.051.954.5

56.059.362.264.866.768.270.173.376.479.0

81.983.985.587.389.291.595.3

100.0105.7113.8

123.7130.8135.9141.8156.0171.9186.8201.6

181.0182.2183.4184.0184.7185.8

187.2188.4189.8190.8191.8192.6

194.3195.6197.0198.4199.4201.1

202.8203.8205.3206.2207.2208.2

Special indexes

Allitemslessfood

47.2

47.348.752.153.655.756.959.464.969.670.3

71.175.777.579.079.579.781.183.885.787.3

88.889.790.892.093.294.596.7

100.0104.4110.1

116.7122.1125.8130.7143.7157.1167.5178.4

162.6163.4164.2165.0166.0167.0

167.9168.9170.0170.8171.6172.2

172.9174.0175.1176.2177.3178.4

179.1179.8180.9181.6182.5183.1

Allitemsless

shel-ter

39.7

39.942.447.751.352.253.659.068.573.972.6

73.179.280.881.081.080.681.784.486.987.6

88.989.990.992.193.294.697.4

100.0104.1109.0

114.4119.3122.9131.1146.1159.1168.3179.1

164.4164.9165.3166.1167.1168.1

169.0169.7170.4171.0171.6172.2

173.0175.0176.1177.5178.4179.6

180.2180.8181.2181.7182.5183.0

Non-dura-ble

com-mod-ities

38.4

38.941.647.651.852.253.759.671.977.274.9

75.482.583.483.283.282.583.786.388.688.2

89.490.290.992.093.094.698.1

100.0103.9108.9

114.0117.7121.7132.8151.0163.2169.2178.9

167.3167.2166.7167.2168.2169.0

169.7170.4170.7171.0171.3171.7

172.4175.0175.9177.4178.3179.7

180.1180.8181.0181.4182.4182.9


314


TABLE B-51.—Consumer price indexes, selected commodities and services, 1939-77

For urban wage earners and clerical workers[1967 = 100]

Year or month

1939

194019411942 . .1943194419451946 .194719481949

195019511952 .1953195419551956195719581959

1960 . .19611962196319641965 . . .19661967196819691970 .1971.197219731974197519761977

1976:JanFebMarAprMayJuneJulyAugSeptOct

Dec I"


July.AugSeptOctNovDec

Durable commodities

Total i

48.5

48.151.458.460.365.970.974.180.386.287.488.495.196.495.793.391.591.594.495.997.396.796.697.697.998.898.498.5

100.0103.1107.0

111.8116.5118.9121.9130.6145.5154.3163.2149.0149.3150.4151.9153.5154.7155.8156.4156.9157.8158.0158.4

158.9159.7160.8162.2163.4163.9

164.3164.3164.5165.0165.5165.9

Newcars

43.2

43.346.6

69.275.682.883.487.494.995.894.390.993.598.4

101.5105.9104.5104.5104.1103.5103.2100.999.1

100.0102.8104.4107.6112.0111.0111.1117.5127.6135.7142.9134.2134.3134.5134.4134.5134.5134.4134.4134.2139.1139.7140.4141.1140.7140.9140.6141.4141.7141.6141.6141.1145.7148.2150.5

Usedcars

89.275.971.869.177.480.289.5

83.686.994.896.0

100.199.497.0

100.0(3)

103.1104.3110.2110.5117.6122.6146.4167.9182.8144.6144.9150.9159.4167.8173.4177.5179.6180.1179.9179.0178.0177.7179.1182.7187.8191.4192.2190.6186.4182.5178.0175 o170.7

House-holddura-bles

56.6

55.959.866.969.576.081.886.595.6

101.799.0

100.2109.8106.9105.7102.9100.199.7

101.4102.1102.0101.9100.7100.6100 3100.298.798.6

100.0103.3107.4110.2112.9115.0118 8128.9140.3146 0151.5143.3144.0144.8145.5145.8146.1146.5146.3146.7147.2147.8148.2148.4148.8149.7150.7151.2151.6151.8152.3152.8153 2153.7154.2

Nondurable commod-ities less food

Total

44.3

44.746.751.653.856.658.662.972.277.876.376.282.082.483.183.583.585.387.688.289.3

90.791.291.892 793.594.897.0

100.0104.1108.8

113.1117.0119.8124 8140.9151.7158 3166.5154.7155.2155.5156.0157.0157.9158.1159.1160.4161.0161.9162.3161.9163.1163.9164.7165.7166.6166.6167.3168.4169 2170.1170.3

Ap-parelcom-mod-ities

43.0

43.545.853.555.959.863.069.580.485.482.081.188.787.786.786.385.887.388.288.289.090.390.891.292.092.893.696.0

100.0105.6111.9

116.5120.1122.7127.1136.1141.2145.8151.6141.5142.2143.1143.9145.1145.0144.4146.2148.5149.2150.1149.9147.6148.5149.3149.8150.9151.3150.6152.1153.5154.6155.9155.3

Non-dura-bleslessfoodand

apparel

46.3

46.848.451.153.254 755.858.266.272.372.4

72.977 579.081.081.882.184.187.488 389.690.991.392.193 193 995 597.5

100.0103 3107.0111.2115.2118.2123 4143.8157.9165 7175.3162.6162.9162.8163.2164.2165.6166.3166.8167.4168.1169.0169.7170.5171.8172.6173.5174.5175.6176.1176.3177.2177.9178.6179.3

Services less rent

Total

38.1

38.138.640.342.144.245.146.749.051.954.5

56.059.362.264.866.768.270.173.376.479.081.983.985.587.389.291.595.3

100.0105.7113.8123.7130.8135.9141.8156.0171.9186.8201.6181.0182.2183.4184.0184.7185.8187.2188.4189.8190.8191.8192.6194.3195.6197.0198.4199.4201.1202.8203.8205.3206.2207.2208.2

House-holdserv-iceslessrent

~~71.T75.479.481.685.086.087.189.090.492.195.7

100.0105.9115.3126.8132.6139.2146.8166.0184.7198.4213.8193.7194.4195.1195.4196.1197.3198.7200.1201.5202.3202.6203.5205.7206.8208.4209.7210.8212.9215.4216.6218.1219.2220.4221.4

Trans-porta-tion

serv-ices

36.1

36.136.338.238.238 238.239.040.344.950.053.358.362.466.469.269.470.573.878 581.283.385.386.687.589.692.996.8

100.0104.0111.3123.1133.0136.0136.9141.9152.7174.3188.4167.0168.9171.1171.7172.3173.2174.7175.5177.3178.9180.2180.8182.9183.3184.8186.7187.4188.7189.4190.0191.0191.3192.0192.9

Med-icalcareserv-ices

32.5

32 532 733.735.436 937.940.143.546.448.149.251.755.057.058.760.462.865.568 772.0

74.977.780.282 684 687.392.0

100.0107.3116.0

124.2133.3138.2144 3159.1179.1197.1216.7188.0190.4192.5193.5194.6195.8

197.9199.4200.6201.7204.5205.7

207.6209.4211.5213.1214.6216.0

217.9219.6221.1222.0223 0224.2

Other 2

. . . . . . .

73.976.278.080.883.485.687.790.192.696.2

100.0105.6110.6116.7122.5125.8131.6141.6152.1161.1171.1156.6157.4158.4159.1159.7160.5161.2162.0163.6164.3165.2165.7166.7167.5168.1168.9169.6170.5171.2171.8173.6174.3175.3176.0

1 Also includes the "other durables" group.»Includes the services components of apparel, personal care, reading and recreation, and other goods and services.3 Not available.Source: Department of Labor, Bureau of Labor Statistics.

315


TABLE B—52.—Consumer price indexes for commodity groups, seasonally adjusted, 1974-77


!I"967-100, seasonally adjusted]

Year andmonth

1974:Jan...F e b _Mar...

May."June..

July.Aug . .Sept. .Oct . . .Nov. .Dec. . .

1975:Jan...F e b , .Mar..

May."June..

July. .Aug . .Sept..Oct. . .Nov...Dec. . .

1976:Jan...Feb.. .Mar..Apr...May..June..

July..Aug . .Sept. .Oct . . .Nov. .Dec.. .

1977:Jan...Feb.. .Mar..Apr...May..June..

July. .Aug_.S e p t .Oct. . .Nov. .Dec.. .

Allcom-mod-ities

137,413&5141.114*. *143.4144.5

145.2147.3149.1150.4151.8152.9

153.9154.7155.2155.8156.6157.8

159.6160.0160.4161.3161.9162.5

163.0162.7162.6163.3164.4165.0

165.5166.2166.6167.1167.4168.0

169.4171.4172.2173.6174.5175.3

175.5176.0176.3176.7177.6178.3

Food

154.0157.3158.81516160.1160.3

159.8162.1165.1166.6168.4170.0

171.1171.2171.0171.3172.5174.6

177.8177.5177.9179.5180.3181.0

181.1179.5178.5179.4180.8181.2

181.4181.8181.9182.2181.7181.9

183.5187.1188.2191.0192.4193.9

194.0194.5194.7194.9196.1196.5

Commodities less food

Total

128.5129.913L6132.8134.4136.0

137.4139.2140.5141.6142.8143.7

144.7145.8146.7147.5148.0148.6

149.8150.5151.0151.6152.0152.6

153.2153.7154.1154.6155.6156.2

156.9157.8158.3159.0159.6160.5

161.6162.7163.4164.0164.7165.1

165.3165.8166.2166.7167.5168.3

Durable commodities

Total i

123.7124.2125.1126.1127.5129.4

130.9132.7134.4135.9137.4138.7

140.0141.6143.3144.3144.9145.5

146.2146.9147.6147.9148.5149.2

149.9150.7151.8152.7153.7154.2

155.0155.6156.1156.6157.3158.4

159.9161.4162.4163.2163.5163.4

163.4163.5163.8163.8164.8165.9

House-holddur-ables

122.1123.0124.0125.1126.3128.0

129.3131.3132.7133.8135.2136.1

137.3138.0138.7139.4139.9140.1

140.4140.8141.4142.0142.6143.1

143.8144.7145.2145.5145.7145.9

146.3146.2146.4146.9147.5148.4

148.8149.5150.2150.7151.0151.4

151.6152.1152.5152.9153.4154.4

Newcars

111.7112.0112.5113.1114.7116.6

118.5119.3120.9123.0123.6123.9

122.3123.9127.0127.3127.0127.3

127.2128.1129.1129.1130.2132.8

133.1133.8134.3134.2134.8134.8

135.1135.9136.9138.2138.6139.2

140.0140.1140.6140.5141.7142.0

142.3143.2144.0144.8147.0149.2

Usedcars

111.0109.4108.1110.6114.7119.7

123.4127.3130.6134.2138.2138.7

140.5142.5143.7143.3142.9144.6

147.5150.0149.9150.3150.0149.9

150.9155.0160.6165.7168.8170.0

170.7172.3172.1172.6174.8178.7

185.5191.6194.4195.2192.6188.4

183.3178.9174.5170.8170.9171.4

Nondurables less food

Total i

131.9133.9136.2137.6139.3140.8

142.1143.9144.9145.7146.6147.3

148.0148.8149.1149.8150.3150.9

152.3153.2153.4154.2154.5155.0

155.6155.8155.7156.0156.9157.6

158.4159.3159.9160.6161.3162.0

162.8163.7164.2164.7165.6166.3

166.8167.5168.0168.8169.5170.1

Apparelcom-mod-ities

130.1131.4132.5133.7134.7135.7

136.3139.0139.0139.4140.2140.1

140.4140.6140.5140.5140.6140.5

141.3142.1141.4141.8142.2142.5

143.4143.7143.7144.2144.9145.3

145.9147.2147.5147.5147.8148.5

149.4150.0149.9150.1150.7151.6

152.1153.1152.5152.8153.5153.8

Gaso-line andmotor

oil

140.6148,0157.9160.2163.3163.8

163.8163.1162.8161.1160.6160.9

161.1161.3161.2162.2164.4167.4

173.2174.8176.4178.3178.4178.1

176.5174.5171.7170.4172.2174.7

175.8177.5179.0181.7183.0183.1

181.8183.5184.3185.4186.9186.2

185.7186.1187.2189.8191.3192.0

Fueloilandcoal

191.1197.6198.6204.8210.6215.3

221,0225.2in A228.9228.9226.7

224.8224.5225.4227.5230.2232.2

236.9240.3243.7246.7245.7245.9

244.3243.8244.7245.3246.5249.3

251.2254.2256.0256.5257.0261.4

266.6272.0278.1280.6282.9285.4

287.1289.6290.9291.0288.7288.4

i Includes certain groups not shown separately.


316


TABLE B-53.—Consumer price indexes JOT service groups and selected expenditure classes,seasonally adjusted, 1974-77

For urban wage earners and clerical workers(1967=100, seasonally adjusted]

Yearand month

1974: J a n . . .Feb. . .Mar...Apr.. .May..June..

July...Aug...Sept . .Oct . . .Nov...Dec.._

1975: J a n . . .Feb. . .Mar...Apr._.May..June..

July...Aug...Sept. .Oct . . .Nov...Dec . . .

1976: J a n . . .Feb.._Mar...Apr. . .May..June..

July...Aug.. .Sept . .Oct.._Nov...D e c -

1977: Jan . . .Feb.. .Mar...Apr.__May...June..

July...Aug.. .Sept . .O c t - -Nov...Dec . . .

Services

AllMil

services

144.6145.6146.9148.0149.7151.2

152.9154.5155.9157.2158.4159.7

161.1162.3163.1164.2164.9166.1

167.0167.7169.0170.0171.6172.7

174.6175.8177.1177.9178.9179.9

181.1182.2183.2184.0184.8185.5

187.0188.4189.9191.4192.6194.2

195.7196.7197.7198.4199.2200.1

Rent

127.6128.1128.5129.1129.6130.2

130.7131.3131.9132.5133.2133.6

134.5134.9135.4135.8136.4136.9

137.5138.1138.5139.3139.9140.5

141.2141.8142.6143.1143.8144.5

145.2145.7146.4147.0147.6148.3

149.5149.9150.6151.6152.2152.9

153.8154.6155.5156.1157.2157.9

Total i

147.6148.8150.2151.4153.3155.0

156.8158.6160.1161.6162.9164.3

165.8167.2168.1169.3170.0171.3

172.2173.0174.4175.4177.3178.4

180.6181.9183.2184.1185.1186.2

187.5188.7189.7190.6191.4192.2

193.9195.4196.8198.6199.8201.6

203.3204.2205.3206.1206.8207.7

Services less rent

House-hold

servicesless rent

155.2156.8158.8160.5162.7164.7

167.1169.4171.4173.4174.9176.6

178.4180.1180.8182.3182.9184.7

185.5186.1186.9187.7189.9191.0

193.1194.1195.1196.0196.9198.2

199.5200.7201.5201.8201.8202.5

205.1206.4208.4210.3211.6213.8

216.3217.3218.1218.8219.5220.3

Trans-porta-tion

services

138.2138.6139.2139.7140.6141.6

142.6143.2143.8144.3145.0145.8

145.9146.8147.9149.1149.7150.6

151.5152.5156.5157.3161.7162.9

166.3168.4170.6171.2172.5173.5

175.2176.3177.8179.2180.2180.6

182.2182.8184.2186.1187.6189.1

190.0191.0191.6191.7192.0192.7

Medicalcare

services

149.9151.0152.4153.5155.5158.0

160.0162.4164.1165.6167.3168.9

171.1172.9174.4175.9177.2178.5

180.1181.2182.8184.7184.5186.3

188.4190.4192.1193.5194.9195.9

197.6198.9200.1201.9204.9206.4

208.0209.4211.1213.1215.0216.2

217.7218.9220.7222.2223.4224.9

Selected expenditure classes

Fuelandutili-ties

140.2142.2143.9146.0148.2149.5

151.5153.6155.1156.4157.5158.2

159.9160.8161.9163.7165.1167.0

168.7170.0172.0173.3174.8175.8

175.6176.4177.8178.4179.8181.9

183.3184.9186.3187.9188.7191.8

194.0194.6197.3198.4199.8202.0

204.3205.9206.9208.3208.0207.4

House-hold

furnish-ingsand

opera-tion

129.3130.6132.7133.9136.8139.0

141.4144.0146.3148.7150.7152.2

153.7155.4155.8156.7157.2157.9

158.4159.0159.8160.5161.2161.9

164.2165.9166.8167.3167.7168.3

169.0169.3169.9170.6171.4172.2

173.1174.3174.8175.4175.7176.9

177.6178.3178.5179.1179.7180.9

Appareland

upkeep

130.0131.3132.6133.7134.7135.8

136.5138.8139.2139.7140.5140.7

140.9141.3141.4141.5141.6141.6

142.4142.9142.8143.1143.5143.9

144.9145.2145.6146.0146.6147.1

147.8148.7149.4149.4149.9150.6

151.7152.0152.3152.6153.2154.2

154.8155.4155.4155.6156.3156.9

Trans-porta-tion

128.7130.3132.8134.3136.2137.9

139.4140.4141.9142.3143.1143.8

144.2144.9145.9147.0147.4148.9

151.2152.5154.9155.4157.0158.0

159.3160.1161.1162.2163.6164.8

166.0167.3168.9170.2171.0171.9

173.6174.9176.1177.8178.3178.0

177.4177.6177.7177.9178.3179.3

* Also includes the "other services" group.Source: Department of Labor, Bureau of Labor Statistics.

317

248-947 O - 78 - 21


TABLE B-54.—Percent changes in consumer price indexes, major groups, 1948-77

[Percent change]

Year or month

1948. .1949

19501951195219531954

19551956195719581959

I9601961196219631964

19651966196719681969

19701971197219731974

197519761977

1976: Jan . .FebMar.._AprMayJune

JulyAugSeptOct..._NovDec

1977: JanFebMar.Apr . . .MayJune


All items

Dec.to

Dec*

2.7- 1 . 8

5.85.9.9.6

.42.93.01.81.5

1.5

1.21.61.2

1.93.43.04.76.1

5.53.43.48.8

12.2

7.04.86.8

Yearto

year

7.8- 1 . 0

1.07.92.2.8.5

- . 41.53.62.7.8

1.61.01.1

1.3

1.72.92.94.25.4

5.94.33.36.2

11.0

9.15.86.5

Food

Dec.to

Dec*

- 0 . 8- 3 . 7

9.67.4

- 1 . 1- 1 . 3- 1 . 6

- . 93.12.82.2

- . 8

3.1- . 91.51.91.4

3.43.91.24.37.2

2.24.34.7

20.112.2

6.5.6

8.0

Yearto

year

8.5- 4 . 0

1.411.11.8

- 1 . 5

- 1 . 4.7

3.34.2

- 1 . 6

1.01.3.9

1.41.3

2.25.0.9

3.65.1

5.53.04.3

14.514.4

8.53.16.3

Commodities lessfood

Dec.to

Dec*

5.3- 4 . 8

5.74.6

.2- 1 . 4

02.52.2.8

1.5

- . 3.6.7

1.2.4

.71.93.13.74.5

4.82.32.55.0

13.2

6.25.14.9

Yearto

year

7.7- 1 . 5

- . 17.5.9

- 1 . 1

- . 71.03.11.11.3

.4

.3

.7

.8

.61.42.63.74.2

4.13.82.23.4

10.6

9.25.05.4

Services

Dec.to

Dec. i

6.13.6

3.65.24.64.21.9

2.33.14.52.73.7

2.71.91.72.31.8

2.64.94.06.17.4

8.24.13.66.2

11.3

8.17.37.9

Yearto

year

6.34.8

3.25.34.44.33.3

2.02.54.03.82.9

3.32.01.92.01.9

2.23.94.45.26.9

8.15.63.84.49.3

9.58. A7.7

Change from preceding month

Un-adjusted

0.2.2.2.4.6.5

.6

.5

.4

.4

.3

.3

.61.0.6.8.6.7

.4

.4

.4

.3

.5

.4

Seasonallyadjusted

0.6.1.2.4.7.4

.5

.5

.3

.3

.3

.4

.81.0.6.8.6.6

.4

.3

.3

.3

.5

.4

Un-adjusted

0.1- 4- . 7

.3

.4

.5

.7

.2- . 40

- . 3.3

.92.3.5

1.2.4

1.0

.5

.3

- . 1.6.4

Seasonallyadjusted

0.1- . 9- . 6

.5

.8

.2

.1

.2

.1

.2- . 3

.92.0.6

1.5.7.8

.1

.3

.1

.6

.2

Un-adjusted

- 0 . 3.3.4.6.8.6

.4

.6

.6

.4

.4

.2

.0

.6

.6

.6

.7

.4

.1

.2

.4

.4

.4

.2

Seasonallyadjusted

0.4.3.3.3.6.4

.4

.6

.3

.4

.4

.6

.7

.7

.4

.4

.4

.2

.1

.3

.2

.3

.5

.5

Un-adjusted

1.0.7.6.3.4.6

.7

.6

.8

.5

.5

.4

.9

.7

.7

.6

.5

.8

.8

.5

.7

.4

.5

.5

Seasonallyadjusted

1.1.7.7.5.6.6

.7

.6

.5

.4

.4

.4

.8

.7

.8

.8

.6

.8

.8

.5

.5

.4

.4

.5

1 Changes from December to December are based on unadjusted indexes.


318


TABLE B—55.— Wholesale price indexes by major commodity groups, 1929—77

[1967=100]

Year or month

1929

1933

1939.. . . .

1940194119421943194419451946194719481949

1950 . . .195119521953195419551956195719581959

1960196119621963 . .19641965.19661967 . . . .19681969

19701971197219731974197519761977


JulyAugSept _OctNovDec

1977- JanFebMar ___.AprMayJune

JulyAugSept.OctNovDec

All com-modities

49.1

34.0

39.8

40.545 150 953 353.654 662 376 582.878.7

81.891.188.687 487.687.890.793.394.694.8

94.994.594.894.594.796.699 8

100.0102.5106.5

110.4114 0119.1134 7160.1174 9183.0194.2

179.4179.4179 7181.3181.9183.2

184.4183 8184.8185.3185 6187.1

188.1190.2192.0194.3195.2194.5

194 8194.6195.3196.3197.0198.2

Farm products and processedfoods and feeds

Total

94 3101.589.6

93 9106.9102.796 095.791.290.693 798.193.5

93.793.794.793.893.297.1

103 5100.0102.4108.0

111.7113 9122.4159 1177.4184 2183.1188.8

184.6181.9180 0183.7184.8187.4

188.1181 7182.9179.5178 3183.9

184 8188.4190.9195.9196 8191.5

188 7184.2183.9184.2186.8189.5

Farmproducts

64.1

31.4

40.0

41.450 364 875 075.578 590 9

109.4117.5101.6

106.7124.2117.2106 2104.798.296.999 5

103.997.5

97.296.398.096.094.698.7

105 9100.0102.5109.1

111.0112 9125.0176 3187 7186 7191.0192.5

192.8190.7186 5192.9192.6196.5

196.9189 7191.9186.7183 6191.6

193 5199.1202.5208.2204 3192.8

190 2181 2181.9182.41P5 5188.3

Proc-essedfoodsand

feeds

82.988.780.6

83.492.791.687 488.985.084.987.491.889.4

89.591.091.992.592.395.5

101 2100.0102.2107.3

112.1114 5120.8148 1170 9182 6178.0186.1

174.4176.4175 8178.0179.9181.8

182.6176 7177.2174.9174 8179.0

179 3181.9183.9188.5191 9190.1

187 2185 1184.2184.5186 7189.3

Industrial commodities

Total

48.6

37.8

43.3

44.047.350.751.552.353.058.070.876.975.3

78.086.184.184.885.086.990.893.393.695.3

95.394.894.894.795.296.498.5

100.0102.5106.0

110.0114 1117.9125.9153.8171 5182.4195.1

177.4178.1179 0180.1180.5181.5

182.7183 8184.8186.3187 1187.4

188 4190.0191.7193.3194 2194.7

195 9196.9197.8199.1199 2200.0

Textileproducts

andapparel

103.6108.198.9

102.7114.6103.4100.898.698.798.798.897.098.4

99.597.798.698.599.299.8

100 1100.0103.7106.0

107.1109 0113.6123.8139.1137 9148.2154.0

145.6146.3146 8147.3147.3148.3

149.0149.5149.0149.3150 1149.9

150.8151.7152.4153.7154.0154.6

154 5154.4155.1155.2155.3155.9

Hides,skins,

leather,and

relatedproducts

48.9

36.3

42.8

45.248 452.852.752.252.961.183.384.279.9

86.399.180.181.377.677.381.982.082.994.2

90.891.792.790.090.394.3

103 4100.0103.2108.9

110.3114 1131.3143 1145.1148 5167.8179.5

158.2160.8162.9166.1170.1168.1

170.3171.6173.6170.9169.8171.5

175.3176.9177.9179.9181.9179.4

180.0180.5179.9179.6180.3181.8

Fuelsand

relatedproducts,

andpower *

59.4

47.6

52.3

51.454 656.257.859.560.164.476.990.586.2

87.190.390.192.691.391.294.099.195.395.3

96.197.296.796.393.795.597.8

100.098.9

100.9

106.2115.2118.6134.3208.3245.1265.6302.2

257.2255.6255.8257.0257.2260.5

265.3269.2271.2277.1281.6279.0

278.8289.1293.7298.8302.4304.3

307.0309.5309.7310.6310.4311.9

Chemicalsand alliedproducts i

47.4

51.5

52.457 063.364.164.865.270.593.795.987.6

88.9101.796.597.798.998.599.1

101.2102.0101.6

101.8100.799.197.998.399.099.4

100.099.899.9

102.2104.1104.2110.0146.8181.3187.2192.7

184.5185.1185.8187.0187.1187.3

187.1188.0188.6188.6188.6188.2

188.9190.1191.2192.9194.0193.9

193.6193.5193.2193.5193.8193.9

See next page for continuation of table and for footnotes.

319


TABLE B-55.— Wholesale price indexes by major commodity groups, J929-77—Continued11967=100]

Year or month

1929

1933

1939

1940194119421943194419451946194719481949

19501951195219531954 . . . .19551956195719581959

1960196119621963196419651966 . . . .196719681969

19701971197219731974197519761977-

1976: Jan _FebMarApr .May __June

JulyAugSeptOctNov _. _Dec

1977: Jan __FebMarAprMay _.June


Industrial commodities—Continued

Rubberand

plasticproducts

59.4

40.2

61.2

57.161.571.673 672.770.570.870.572.870.5

85 9105.495.589 190 4

102.4103.8103.4103.3102.9

103.199.296.396.895.595.997.8

100 0103 4105.3

108.3109.1109 3112.4136 2150 2159.2167.5

152.3154.1155 5156.7157.1157.1

158.3161.1163.9164.6164.8164.7

164.6164.2164 6165 7166.3167.5

168 9169 1169 4170 0170.0169.8

Lumberand

woodproducts

25.0

19.0

24.8

27.432.735.637 740.641.247.273.484.077.7

89 397.294.494 392 697.198.593.592.498.8

95.391.091.693.595.495 9

100.2100 0113 3125.3

113.6127.3144 3177.2183 6176.9205.6236.2

190.7196.3202.5203.3202.4199.9

203.7207.5212.8213.6214.3220.0

222.8224.4229 0229.8229.5228.8

235.6242 7252 4247 3243.2249.1

Pulp,paper,and

alliedproducts

72.575.772.4

74.388.085.785.585.587.893.695.496.497.3

98.195.296.395.695.496 298.8

100 0101.1104.0

108.2110.1113 4122.1151 7170.4179.4186.4

174.8175.7176 9178.6179.3179.6

180.5181.0181 6181 6181.5181.8

182 9183.0183 6185 3186.2187.3

187 8187 8188 5188 8188 3187.6

Metalsand

metalproducts

40.2

30.7

37.6

37.838 539.139 039 039 644.354.962.563.0

66 373 873.976 376 982.189.291.090.492.3

92.491.991 291.393.896 498.8

100 0102.6108.5

116.6118.7123 5132.8171 9185.6195.9209.0

187.8189.2190 7193.0194.2196.6

198.9199.5200 1200.0200.1200.9

202.1203.2206 5208.2208.5207.7

210.6211 7212 6211 8212.0213.3

Machin-ery andequip-ment

41.3

41.442.142.842 442 142 246.453.758 261.0

63 170.570.672 273 475.781.887.689.491.3

92.091.992 092.292.893 996.8

100 0103 2106.5

111.4115.5117 9121.7139 4161.4171.0181.7

167.1167.8168 4169.2169.6170.4

171.2171.6172.8174.0174.5175.4

176.7177.5178 2178.9180.0180.7

181.8182 8183 9185 7186.7187.3

Furni-ture andhouse-hold

durables

55.8

44.6

52.6

53.857.261.861 463 163.267.177.081.682.9

84.791.890.191 992.993.395.898.399.199.3

99.098.497.797.097.496.998.0

100.0102.8104.9

107.5110.0111.4115.2127 9139.7145.6151.4

143.3143.7144.0144.5144.9145.3

145.7146.1146.7147.2147.5147.9

148.8149.1149.6150.1150.6151.5

151.4152.4152.5153.0153.6154.0

Nonme-tallic

mineralproducts

51.2

47.2

49.1

49.150.252.352 453 555.759.366.371.673.5

75 480.180.183 385 187.591.394.895.897.0

97.297.697.697.197.397.598.4

100 0103 7107.7

112.9122.4126 1130.2153 2174.0186.3200.4

181.2181.5182.7185.4186.0186.3

187.3188.0188.6189.4189.5189.6

192.4193.6195.1198.6199.3200.6

201.7202.4204.2205.3205.6206.5

Trans-portation

equip-ment:Motor

vehiclesand

equip-ment2

41 9

34 8

39.1

40.443 247.247 247 548 356.064.170 875.7

75 379.484.083 683 886.391.295 198.1

100.3

98.898.698.697.898.398.598.6

100 0102 8104.8

108.7114.9118 0119.2129.2144.6153.8163.7

151.3151.4151.6151.8151.6151.8

151.7152.8153.5159.0159.2159.5

159.2159.4160.7161.0161.4161.9

161.9163.1163.8170.8170.6170.9

Miscel-laneousproducts

73.576 578.0

79 283.983.485 686.486.587.690.292.092.2

93.093.393.794.595.295.997.7

100 0102.2105.2

109.9112.9114.6119.7133.1147.7153.7164.4

151.9152.2152.6152.5152.7154.4

153.8153.5153.9154.1156.1157.0

160.2160.6161.0162.5163.1163.5

163.9164.2166.5168.4168.9169.6

» Prices for some items in this grouping are lagged and refer to 1 or 2 months earlier than the index month.' Index for total transportation equipment is not shown but is available beginning December 1968.


320


TABLE B-56.— Wholesale price indexes by stage of processing and by special groupings, 1947-77

[1967=1001

Year or month

19471948 .1949

1950 . _ .1951 .195219531954

19551956195719581959 _.__

I9601961..196219631964

19651966 .196719681969

1970... _. . . ___197119721973...1974

1975 _ _19761977

1976- JanFebMarAprMayJune

JulyAug _- __SeptOctNovDec

1977: Jan ._FebMarAprMayJune

JulyAug _ _SeptOctNovDec

Crude materialsfor further processing

Total

101.2110.996.0

104.6120.1110.3101.9101.0

97.197.699.8

102.099.4

97.096.597.595.494.5

99.3105.7100.0101.6108.4

112.3115.1127.6174.0196.1

196.9205.1214.3

201.2199.3198.5205.3205.7210.2

211.8206.2206.4204.1204.5207.9

208.1215.5219.9226.1224.4215.4

212.9207.3207.8208.0210.5215.6

Food-stuffsand

feed-stuffs

111.7120.8100.3

107.6124.5117.2104.9104.9

95.193.197.2

103.096.2

95.193.895.792.990.8

97.1105.9100.0101.3109.3

112.0114 2127.5180.0189.4

191.8190.1190.9

193.2191.3187.4194.5194.1197.8

196.3188.6189.0182.3178.8187.4

189.7194.0197.1203.7201.8192.0

191.2181.4182 0182.6185.4189.9

Non-food

mate-rials

exceptfuel

90.6100.791.6

104.7120.7104.6100.198.2

103.8107.6106.2102.2105.8

101.4102.5102.0100.7102.4

104.5106.7100.0102.1106.9

109.8110.7121.9161.5205.4

188.3210.2217.3

198.7196.3200.5206.9208.7214.3

222.7217.5217.3213.1213.2213.7

214.1220.8228.0232.7227.6219.0

210.6210.7210 4209.1209.6215.1

Fuel

66.678.778.3

77.979.479.982.779.0

78.884.489.290.391.9

92.892.692.193.292.8

93.596.3

100.0102.3106.6

122.6139 0148.7164.5219.4

271.5314.7400.5

279.3278.5286.1291.5293.4301.7

305.9315.8316.0356.8390.4361.3

342.8377.8383.9392.3404.5399.4

403.2412.4415 6416.8424.5432.2

Intermediate material

Total

72.478.375.2

78.688.185.586.086.5

88.192.094.194.395.6

95.695.094.995.295.5

96.899.2

100.0102.3105.8

109.9114.1118.7131.6162.9

180.0189.3201.7

183.8184.6185.7186.9187.7189.1

190.6191.1192.6192.7193.1194.0

195.0196.6198.7201.2202.1202.1

202.6203.4204 2204.4204.8205.3

$, supplies, and components •

Materials and components formanufacturing

Total

72.177.874.5

78.188.584.886.286.3

88.492.694.895.296.5

96.595.394.794.995.9

97.499.3

100.0102.2105.8

110.0112.8117.0127.7162.2

178.7185.6195.5

180.7181.6182.5183.6184.4185.3

186.8187.2188.2188.4188.7189.2

189.7190.8192.7194.6195.8195.5

196.6197.3197.8197.9198.2198.8

Materials

Forfood

manu-factur-

ing

94.096.983.3

86.796.692.993.092.2

89.389.791.393.490.0

91.194.092.096.695.2

97.6101.9100.0101.5107.1

112.9116.5119.9146.0209.2

209.4180.6181.7

186.4183.0183.6182.9183.5182.2

187.0177.6176.6174.5174.7175.5

174.5178.5182.0189.0191.1185.6

179.9179.9175.8177.5181.1185.8

Fornon-

durablemanu-factur-

ing

95.2100.891.9

96.5111.7100.699.898.2

98.6100.1101.4100.4102.1

102.199.999.398.499.1

100.0100.8100.0101.3102.4

103.8105.3109.4121.2155.2

174.7183.6189.2

180.4181.3181.9183.2183.5183.7

184.5184.9185.4184.9185.2184.8

184.9185.8187.1189.3190.7190.8

190.8190.6190.2190.4190.2190.1

Fordurablemanu-factur-

ing

54.461.463.1

66.774.174.377.679.3

83.388.591.492.094.2

94.393.092.993.094.8

96.898.6

100.0103.3109.1

114.7118.2123.8133.7171.7

188.4202.3218.9

192.7194.7196.2198.1199.6202.3

204.4205.7207.3208.4208.6210.0

211.2212.4215.0216.6217.6216.8

220.9222.2224.1223.2223.0224.0

Com-ponents

58.363.064.2

66.675.675.777.177.5

80.988.391.892.593.6

93.192.291.591.592.3

93.897.1

100.0102.3105.5

111.1114.8117.6121.4139.9

158.3165.6175.9

161.7162.2162.6163.2163.8164.4

165.0166.9168.3169.3169.7170.3

170.9171.2172.9173.4174.2175.1

176.1177.5179.0179.7180.4180.6

Mate-rialsand

com-)onentsor con-struc-tion

66.073.173.2

77 084.383.785.185.5

88 993.594.094 096.6

95.994 694.294.595.4

96.298.8

100 0104.9110.8

112.6119 7126.2136.7161.6

176.4188.0202.9

181.8183.0184.7185.5186.2186.6

188.3190.0191.7192.2192.6193.6

195.1195.9197.8199.4200.3201.3

204.1206.2208.7208.4208.3209.6


321


T A B L E B-56.—Wholesale price indexes by stage of processing and by special groupings, 1947—77—Continued

[1967=1001

Year or month

194719481949

19501951 . . . .195219531954

19551956195719581959

19601961196219631964

19651966196719681969

19701971197219731974197519761977


JulyAug...

OctNovDec

1977: JanFeb .MarAprMay...June

July..AugSeptOct...NovDec...

Finished goods

Total

74.079.977.6

79.086.586.085.185.3

85.587.991.193.293.0

93.793.794.093.794.1

95.798.8

100.0102.9106.6

110.3113.7117.2127.9147.5163.4170.3180.6

168.8168.2168.0169.0169.4169.9

170.5170.0170.7172.2172.3174.0

175.1176.6177.5178.8180.3180.5

181.3181.3181.8183.9184.5185.5

(

Total

80.586.582.5

83.991.890.789.289.1

88.589.892.494.493.6

94.594.394.694.194.3

96.199.4

100.0102.7106.6

109.9112.9116.6129.2149.3163.6169 0178.9

168.4167.4166.8168.0168.5168.9

169.6168.7169.3170.0170.1172.0

173.2175.0176.1177.5179.4179.4

180.2179 7180.2181.4181.8182.9

Consume

Foods

82.890.483.1

84.795.294.389.488.7

86.586.389.394.590.1

92.191.792.591.491.9

95.4101.6100.0103.7110.0

113.5115.3121.7146.4166.9181.0180 2189.1

183.7180.2178.6182.0183.2182.1

182.2177.8178.1177.0176.0180.9

181.5185.0186.6188.5192.3190.7

192.1190 0189.7189.8190 4192.9

r finished goods

Excluding foods

Total

79.084.082.2

83.589.588.389.189.4

90.192.394.694.795.9

96.396.296.096.095.9

96.698.1

100.0102.1104.6

107.7111.4113.4118.5138.6153.1161.8172.1

159.1159.4159.3159.3159.4160.7

161.6162.5163.2164.9165.6166.0

167.4168.3169.2170.4171.1172.0

172.5172.9173.7175.5175.8176.2

Non-dur-able

goods

80.785.882.3

83.690.087.888.688.9

89.491.193.292.694.0

94.794.794.895.194.8

95.997.8

100.0102.2105.0

108.3111.7113.6120.5146.8163.0173.3185.4

169.8170.1169.9170.1170.3172.0

173.6175.1176.0176.7177.6178.0

179.6181.0182.3183.6184.8185.9

186.6186.8188.2188.4188.7189.1

Dur-able

goods

74.679.781.8

82.788.288.989.690.3

91.294.397.198.499.6

99.298.898.397.898.2

97.998.5

100.0102.2104.0

106.9110.8113.2115.8126.3138.2144.4152.1

143.0143.1143.1143.0143.0143.6

143.6143.6144.2147.2147.5147.8

149.0149.3149.7150.6150.8151.4

151.5152.1152.1156.1156.3156.8

Pro-ducerfin-

ishedgoods

55 460.463.4

64.971.272.473 674.5

76.782 487.589.891.5

91.791.892.292.493.3

94.496.8

100.0103.5106.9

112.0116.6119.5123.5141.0162.5173.2184.5

169.5170.0170.6171.3171.4172.1

172.6173.1174.0177.2177.6178.7

179.6180.2180.7181.6182.4183.1

183.8184.7185.6189.9190.8191.5

Special

Manufacturedgoods

Total

72 378.275.5

78.487.085.185.085.7

86.690.092.893.894.6

94.894.494.594.394.8

96.399.1

100.0102.6106.3

110.2113.9117.9129.2154.1171.1179.0190.1

175.4175.6176.0177.1177.7178.9

179.8179.8180.9181.5181.9183.2

184.2185.4186.9188.9190.2190.4

190.9191.1191.9193.1193.7194.5

Dur-able

59 465 467.3

69 676 376.778 479 4

82.287 590.992.294.0

94.193.693.593.594.6

95.897.9

100 0103.5107.7

112.0117 0121.1127.4148.6165.6175.6188.0

170.7171.5172.4173.2173.8174.8

175.7176.6177.8179.7180.0181.0

182.1182.9184.3185.4186.2186.7

188.3189.5190.9192.8193.2194.0

grouping

Crudemate-rials 2

79 292 584 0

93 6102 993.192 488.0

96.6102 3100 996.9

102.3

98.397.295.694.397.1

100.9104.5100 0102.0110.6

118.9123 1131.1155.2219.1225.1249.9280.4

233.8231.7237.9245.8246.2248.6

254.2254.9252.9261.4269.6262.3

259.4273.7279.6283.1284.5279.5

279.1283.4283.7282.3284.6292.4

s

Inter-me-diatemate-rials,SUD-plies,and

com-po-

nents 3

70 076 174 2

77.787.084.385 385 7

88.392 695 094.896.4

96.895.595.395.095.6

96.998.9

100 0102.6106.1

109.9114 3118.9128.1159.5178.6189 5202.4

183.8184.9186.1187.3188.0188.8

190.1191.4192.8193.2193.6194.2

195.3196.7198.7200.7201.6202.2

203.8204.9206.0206.2206.0206.5

* Includes, in addition to subgroups shown, processed fuels and lubricants, containers, and supplies.> Excludes crude foodstuffs and feedstuffs, plant and animal fibers, oilseeds, and leaf tobacco.1 Excludes intermediate materials for food manufacturing and manufactured animal feeds.Source: Department of Labor, Bureau of Labor Statistics.

322


TABLE B-57.—Wholesale price indexes for selected groupings, seasonally adjusted\ 1974-77

[1967=100, seasonally adjusted]

Year andmonth

1974: JanFebMarAprM a y . —June


1975: JanFebMarAprMay_. . .June

JulyAugS e p t . . . .OctNovDec

1976: JanFebMar

May"-"--"June

Ju ly . . . .A u g . - - -SeptOctNovDec

1977: JanFebMar

May"---1June

JulyAugSept.—OctNovDec

Farm products andprocessed foods

and feeds

Total

77.279.876.870.968.361.5

70.982.277.785.790.686.4

83.178.875.680.382.481.6

85.788.0

188.8191.4188.3186.1

184.4181.6181.2185.4186.3187.0

185.8180.5181.1180.1180.1184.0

184.5188.2192.2197.8198.2191.0

186.4183.1182.3184.7188.9189.7

Farmprod-ucts

02.304.197.087.481.067.6

79.188.080.689.291.183.9

79.373.471.279.185.3

184.6

191.292.4

195.0199. 2195.4194.2

193.3189.8187.3195.0194.3195.3

194.2187.7189.2188.2187.1191.9

194.0198.3203.5210.4205.5191.4

187.6179.9179.6184.0189.5189.0

Proc-essedfoodsand

feeds

61.264.464.060.460.257.6

65.878.675.883.590.287.9

85.5182.3178.4181.1180.5179.7

182.3185.3184.9186.4183.8180.9

178.7176.5177.2179.5181.1181.6

180.5175.9176.0174.9175.6178.8

178.5181.9185.3190.1193.4190.1

185.0184.2183.1184.5187.7189.3

Finished goods

Consumer finished goods

Total

39.342.343.445.046.5

145.9

149.5152.0153.3155.9158.9158.6

159.3158.7158.3160.3161.9163.3

164.6165.3166.7168.0168.0168.2

168.2167.0166.7168.8169.3169.5

169.2168.5169.3169.6169.9171.9

173.0174.6176.0178.4180.3180.0

179.7179.5180.1181.0181.6182.7

Foods

61.264.963.664.063.858.5

63.967.568.471.578.075.8

175.6174.0171.9176.4179.6182.2

184.2184.0185.9186.9185.6184.9

182.7179.4178.1184.3185.5183.7

181.0177.1177.1176.4175.7180.7

180.6184.2186.2190.8194.6192.3

190.9189.2188.6189.2190.0192.8

Excluding foods

Total

25.928.330.933.536.038.5

40.842.744.346.647.248.1

49.549.750.250.751.1

151.8

152.8154.1155.1156.5157.6158.1

159.3159.2159.3159.4159.5160.7

161.5162.5163.7164.6165.5165.8

167.5168.1169.3170.5171.3172.0

172.4172.9174.1175.1175.6176.0

Non-dur-able

goods

30.634.037.841.244.247.4

50.052.454.055.756.757.2

58.858.859.1

159.7160.4161.3

162.5164.3165.8167.2168.3169.2

170.7170.1170.2170.3170.3171.8

173.1174.2175.6176.7178.0178.4

180.5181.0182.7183.8184.8185.7

186.0185.9187.8188.4189.1189.5

Dur-able

goods

18.919.720.721.923.825.3

27.128.229.632.633.334.6

35.2135.9136.6137.0137.1137.6

137.8138.5139.1140.4141.1141.4

142.1142.7142.8143.0143.3143.9

144.2144.9145.7146.5146.8146.9

148.1148.9149.4150.6151.1151.7

152.1153.5153.6155.3155.5155.9

roducerinishedgoods

127.9129.2130.9132.5136.1138.9

141.8145.4148.3151.4153.7155.0

157.0158.3159.8160.8161.4161.9

162.9163.2164.4165.9166.9167.7

169.0169.8170.7171.5171.8172.5

173.1173.6174.5176.3177.0178.4

179.0180.1180.8181.8182.8183.5

184.4185.2186.1188.9190.2191.2

Manufac-tured goods

Total

38.541.043.746.349.351.5

155.8161.0161.9165.0166.5167.2

168.2168.3168.3169.2169.7170.1

170.7171.6172.3174.2174.6174.9

175.4176.1176.7177.8178.1179.1

179.3179.1180.2181.0182.1183.4

184.2186.0187.7189.7190.6190.6

190.3190.3191.1192.5193.9194.7

Dur-able

33.935.337.941.045.248.0

51.254.356.658.459.960.9

62.3163.5163.9164.4164.6164.6

164.7165.2166.2167.9169.1170.1

171.0172.0172.7173.2173.5174.5

175.3176.2177.8179.3180.4181.7

182.5183.5184.7185.4185.8186.3

187.9189.1190.9192.4193.6194.8

rudemate-ials1

90.301.511.121.714.115.8

28.0229.3230.2230.4230.3224.3

222.0220.1217.9220.0223.7224.7

222.3225.3231.7229.7228.3234.4

237.0231.1237.6242.9244.1246.8

252.7254.4253.1262.4271.6265.9

262.6273.0279.3280.1282.3277.8

277.7283.0283.9283.2286.8296.0

niter-mediate

mate-rials,

upplies,and .

compo-nents 2

138.6141.2145.9150.5155.3159.0

163.7168.6170.1172.2173.7174.4

176.1176.6176.8177.1177.0177.1

177.3178.3179.1181.6182.7183.9

184.9185.8186.6187.2187.4188.2

189.1190.3192.0193.3194.3195.5

196.4197.6199.3200.5200.9201.5

202.7203.7205.2206.3206.7207.8

i Excludes crude foodstuffs and feedstuffs, plant and animal fibers, oilseeds, and leaf tobacco.1 Excludes intermediate materials for food manufacturing and manufactured animal feeds.


323


TABLE B-58.—Percent changes in wholesale price indexes, major groups, 1948-77

IPercent change!

Year or month

19481949

19501951195219531954

195519561957 . .19581959

19601961196219631964

196519661967 . . .19681969

19701971. - . .19721973 . .1974

197519761977

1976: JanFebMar

fc:June

JulyAu*Sept___.OcttNovDec

1977: JanFebMarApr . . . . .M a y . . . .June

J u l y . . . .A u g . . .

SfcrN o v . . . .D e c . . .

Farm productsand processed

foods and feeds

Dec.to

Dec.»

- 6 . 8- 8 . 9

17.03.5

- 8 . 2- 2 . 3- 2 . 6

- 6 . 46.04.2

- 4 . 4

3.9- . 6

.6- 2 . 1

0

9.5.2

—1 83.57.5

- 1 . 46 0

14.426 711.0

- 3- 1 1

3.0

Yearto

year

7.6- 1 1 . 7

4.813.8

- 3 . 9- 6 . 5

- 4 . 7

3*. 44.7

- 4 . 7

.201.1

- 1 . 0- . 6

4.26.6

- 3 . 42.45.5

3.42 07.5

30 011.5

3 8- . 63.1

Industrialcommodities

Dec.to

Dec.i

5 0- 5 . 0

14.0.4

- 1 . 41.4

4.34.21.1.9

1.2

- . 6- . 1- . 2

!6

1.42.21 92.73.9

3.63.43.4

10 725.6

6 06.46.7

Yearto

year

8.6- 2 . 1

3.610.4

- 2 . 3.8

2.24.52.8.3

1.8

0- . 50

- . 1.5

1.32.21.52.53.4

3.83 73.36 8

22.2

11 56.47.0

Totalfinished goods

Dec.to

Dec.i

3.0- 4 . 6

10.42.9

- 2 . 2

- . 1

1.24.23.2

- . 4

1.8- . 5

.1- . 2

.5

3.32.21.63.14.8

2.23.23.8

11.818.3

6.63.36.6

Yearto

year

8 0- 2 . 9

1 89.5

- . 6- 1 . 0

.2

.22.83.62.3

- . 2

.80.3

- . 3.4

1.73.21.22.93.6

3.53.13.19 1

15.3

10 84.26.0

Consumer finished goods

Foods

Dec.to

Dec.i

- 2 . 4- 7 . 4

13.35.3

- 5 . 9- 2 . 2- 1 . 9

- 2 . 93.65.3.4

- 3 . 7

5.2- 1 . 8

- 1 . 3.4

9.11.4

—.44.88.2

- 2 . 55.98.0

22.513.0

5.5- 2 . 5

6.6

Yearto

year

9 2- 8 . 1

1.912.4

g-5^2

— 8

- 2 . 5- . 23.55.8

- 4 . 7

2.2- . 4

.9- 1 . 2

.5

3.86.5

- 1 . 63.76.1

3.21.65.6

20.314.0

8 4- . 44.9

All except food

Dec.to

Dec.i

4.C- 4 . 5

8 2.9

- 1 . 11.6

1.72.51.7

.4- . 3- . 1

.1

.1

.91.72.12.02.9

3.92.02.07.4

20.5

6.74.96.1

Yearto

year

6.3- 2 . 1

1.67.2

- 1 . 3.9

2.42.5.1

1.3

.4- . 1

0- . 1

.71.61.92.12.4

3.03.22.14.5

16.9

10.55.76.4

Producerfinished goods

Dec.to

Dec.i

10 4- . 6

10 33 4.8

2 31.1

5.68.34.31 31.0

.1

'3

19

1.53.93.13.04.6

4.92.42.05 3

22.6

8 26.47.2

Yearto

year

9 05.0

2 49 71.71 71.2

3.07.46.22 61.9

2.14

.21.0

1.22.53 33.53.3

4.84.12.53 3

14.2

15 26.66.5

Change from preceding month

Unad-justed

- 0 . 8—1.5- 1 . 0

2.1.6

1 4

.4- 3 . 4

.7- 1 . 9

- . 73.1

.51.91.32.6

.5- 2 . 7

- 1 . 5- 2 . 7

~'.21.41.4

Sea-sonally

ad-justed

- 0 . 9- 1 . 5

- . 22.3

4

- . 6- 2 . 9

.3- . 602.2

. 32.02.12.9

-3*. 6

- 2 . 4- 2 . 1- . 4

1.32.3

Unad-justed

0.7.4.5.6.2.6

.7

.6

.5

.8

.4

.2

.5

.8

.9

.8

'.3

.6

.6

.5

.7

.1

Sea-sonally

ad-justed

0.7.2.4.4.2.6

.6

.6

'.9.6.3

.5

.7

.7

.6

.4

.3

.5

.5

.8

.6

.4

.5

Unad-justed

0.2- . 4

~ ! 6.2.3

.4- . 3

.4

.9

.11.0

.69

.5

.7

.8

.1

.40.3

1.2

'.5

Sea-sonally

ad-justed

0.2- . 401.1.22

- . 1- . 2

.5

.5

.31.0

.6

.8

1.1.9

0

0.1

'.8.4.7

Unad-justed

- 1 . 0- 1 . 9- . 91.9.7

- . 6

.1- 2 . 4

.2- . 6- . 62.8

.31.9.9

1.02.0

- . 8

.7- 1 . 2- . 2

.1

L3

Sea-sonally

ad-justed

- 1 . 2- 1 . 8- . 73.5.7

- 1 . 0

- 1 . 5- 2 . 2

0

l !8

- . 12.01.12.52.0

- 1 . 2

- . 9- . 3

.3

.41.5

Unad-justed

0.5.2

- . 10

.8

.6

.6

.41.0

\l

.8

.5

.5

'A.5

.2

.3

.51.0

'.2

Sea-sonally

ad-justed

0.8- . 1

! l.1.8

.5

.6

.7

.5

.5

.2

1.0.4.7

!5.4

.2

.3

.7

.6

.3

.2

Unad-justed

0.9.3.4.4.1.4

.3

.3

l'.8.2.6

.5

]3.5.4.4

.4

.5

.52.3.5.4

Sea-sonally

ad-justed

0.8.5.5.5.2.4

.3

.3

r.o.4.8.3.6.4.6.6.4

.5

.4

.51.5

.5

1 Changes from December to December are based on unadjusted indexes.


324


MONEY STOCK, CREDIT, AND FINANCET A B L E B-59.— Money stock measures, 1947-77

[Averages of daily figures; billions of dollars, seasonally adjusted, except as noted!

Year andmonth

1947: Dec1948: Dec1949: Dec . , .

1950: Dec1951: Dec1952: Dec1953: Dec1954: Dec1955: Dec1956: Dec1957: Dec1958: Dec. . . .1959: Dec

1960: Dec1961: Dec1962: Dec1963: Dec1964: Dec1965: Dec1966: Dec1967: Dec1968: Dec1969: Dec

1970: Dec1971: Dec1972: Dec1973: Dec1974: Dec1975: Dec1976: Dec1977: D e e p . . .


JulyAugSeptOct . .NovDec


JulyAugSeptOctNovDec p

Overall measures

Mi(Currency

plusdemanddeposits)

113.1111.5111.2

116.2122.7127.4128.8132.3135.2136.9135.9141. 1143.4

144.2148.7150.9156.5163.7171.3175.7187.3202.2208.8

219.6233.8255.3270.5283.1294.8312.4335.4

295.3296.8298.1301 8303.5303.2

305.0306.5306.9310.4310.4312.4

313.8314.0315.4320.5320.7321.9

326.8328.4330.4333.7333.3335.4

M2(Mi plus

timedepositsat com-mercialbanks

ther thanarge CDs)

210.9

217.1228.6242.9258.9277.1301.3318.1349.9382.9392.3

423.5471.7525.3571.4612.4664.3740.3806.5

670.3678.2682.6690 6695.7698.2

705.2710.4716.3725 9732.3740.3

746.3750.7756.1764.6767.6772.8

783.5787.7792.9799.6802.7806.5

M3(M 2 plusdepositsat non-

bankthrift

institu-tions)

303.8

319.3342.1369.2400.3434.4471.7495.4543.9589.6607.3

656.2742.8844.5919.6981.5

1, 092.61, 237.11, 373.9

1,103.61,117.11,126. 51,139.71,149.71,156. 5

1,168. 81,180.81,193.91,210.71,223.41, 237.1

1, 248.91,258.21, 268.11, 281. 21, 289.01, 299. 5

1,316.91, 329. 51, 343.11, 357.11, 365. 61, 373.9

Components and related items

Cur-ency l

26.425.825.1

25.026.127.327.727.427.828.228.328.628.9

29 029.630.632.534.336.338.340.443.446.1

49.152.656.961.567.873.780.588.4

74.375.075.776 677.377.5

78.178.679.279.880.280.5

81.181.882.283.183.684.0

85.185.586.487.187.888.4

Deposits at commercial

De-mand 2

86.785.886.0

91.296.5

100.1101.1104.9107.4108.7107.6112.6114.5

115.2119.1120.3124.1129.5134.9137.3146.9158.7162.8

170.5181.3198.4209.0215.3221.0231.9247.0

221.1221.8222.4225 2226.2225.6

226.9227.9227.7230.6230.2231.9

232.7232.1233.2237.4237.1238.0

241.7242.9244.0246.6245.5247.0

banks

Time and savings 3

Total

35.436.036.4

36.738.241.144.548.350.051.957.465.467.4

72.982.797.6

112.0126.2146.4157.9183.3204.3194.4

229.2271.1313.5363.9418.3451.7491.1545.8

453.3456.7457.8460.0460.7465.3

469.0468.9472.5477.8484.2491.1

495.6500.0502.8505.7509.2514.8

519.5522.5525.8532.25<0.3545.8

LargeCDs *

2.85.79.6

12.816.415.520.623.510.9

25.333.343.563.089.082.163.374.7

78.475.473.471 268.670.2

68.965.063.162.362.263.3

63.163.362.261.662.363.9

62.863.263.266.470.974.7

Other

67.4

72.979.992.0

102.3113.4130.0142.4162.6180.8183.5

204.0. 237.8270.0300.9329.3369.6427.9471.1

374.9381.3384.4388.9392.1395.1

400.1403.9409.4415.5422.0427.9

432.5436.7440.6444.1446.9450.9

456.7459.3462.6465.9469.4471.1

Depositsat non-bankthrift

institu-tions 5

92.9

102 3113.4126.4141.4157.3170.4177.3194.0206.7214.9

232.7271.1319.3348.1369.1428.3496.8567.4

433.4438.9443.9449.1454.0458.2

463.6470.5477.6484.8491.0496.8

502.6507.5512.1516.6521.4526.7

533.5541.7550.2557.5563.0567.4

U.S.Govern-

mentdemanddeposits(unad-justed) 6

1.01.82.8

2.42.74.93 85.03.43.43.53.94.9

4.74.95.65.15.54.63.45.05.05.6

7.36.97.46.34.94.14.75.5

3.84.53.93.9

3.53.75.04.04.24.7

4.24.44.55.63.85.2

3.93.75.44.13.85.4

1 Currency outside the Treasury, the Federal Reserve Banks, and the vaults of all commercial banks.2 Demand deposits other than those due to domestic commercial banks and the U.S. Government, less cash items in

process of collection and Federal Reserve float, plus foreign balances at Federal Reserve Banks.3 Time and savings deposits other than those due to domestic commercial banks and the U.S. Government. Effective

June 1966, excludes balances accumulated for payment of personal loans (about $1.1 billion).4 Negotiable time certificates of deposit (CDs) issued in denominations of $100,000 or more by large weekly reporting

commercial banks.4Average of the beginning- and end-of-month deposits of mutual savings banks, savings capital at savings and loan

associations, and credit union shares.6 Deposits at all commercial banks.


325


TABLE B-60.—Commercial bank loans and investments, 1930-77[Billions of dollars]

End of yearor month 1

1930:June1933: June1939194019411942194319441945194619471948

19481949 .1950195119521953195419551956195719581959 s

1960196119621963196419651966196719681969 6197019711972197319741975.19761977 P

1977:JanFeb . .MarApr. . .MayJune ._

July*.- .Aug »Sept*Oct*NOVPDec*

Total loansand invest-

ments *

48.930.440.743.950.767.485.1

105.5124.0114.0116.3114.2

Loans

Total»

34.516.317.218.821.719.219.121.626.131.138.142.4

Commercialand

industrial

Investments

U.S. Govern-ment securities

5.07.5

16.317.821.841.459.877.690.674.869.262.6

Othersecurities

9.46.57.17.47.26.86.16.37.38.19.09.2

Loans plusloans sold to

bank affiliates 2

Seasonally adjusted

113.0118.7124.7130.2139.1143.1153.1157.6161.6166 4181.2188.7197.4212.8231.2250.2272.3300.1

4 316.1352.0390 2401.7435.5485.7558.0633.4690.4721.1784.4865.4787.3797.9805.1815.7823.9830.5

837.0845.6848.4857.9866.1865.4

41.542.051.156.562.866.269.180.688.191 595.6

110.5116.7123.6137.3153 7172.9198.2

4 213 9231.3258 2279.4292.0

e 320.9378.9449.0500.2496.9538.9612.9541.4546.6552.9560.7566.1572.4

579.0587.0592.2602.5611.2612.9

39.442.143.947.652.158.469.578.686.295.9

105.7110.0116.1130.2156.4183.3176.0179.5

8 202.2180.4182.2184.4186.7188.2190.2

192.4194.6195.1199.3201.6

6 202.2

62.366.461.160.462.262.267.660.357.256 965.157.759.965.364.761.560.757.153.559.460 751.257.860.662.654.550.479.497.393.597.0

101.7103.8103.2105.1105.2

103.6103.1100.197.895.093.5

9.210.312.413.414.214.716.416.816.317.920.520.520.823.929.235.038.744.8

4 48.761.371.371.185.7

«104.2116.5129.9139.8144.8148.2159.0148.9149.6148.4151.8152.7152.9

154.4155.5156.1157.6159.9159.0

283.3294.7

• 323.7381.5453.3

7 505.0501.3542.7617.5545.4550.5556.9564.7570.1576.4

583.1591.1596.2606.6615.6617.5

> Data are for last Wednesday of month or year (except June 30 and December 31 call dates).1 Adjusted to exclude all interbank loans beginning 1948 and domestic bank loans only beginning January 1959.1 Beginning January 1959, loans and investments are reported gross, without valuation reserves deducted, rather than

net of valuation reserves, as in earlier periods.< Effective June 1966, balances accumulated for payment of personal loans (then about $1.1 billion) are excluded from

loans at all commercial banks, and certain certificates of CCC and Export-Import Bank (then about $1 billion) are includedin other securities rather than in loans.

* Beginning June 1969, data include all bank-premises subsidiaries and other significant majority-owned domesticsubsidiaries; earlier data include commercial banks only.

6 Beginning June 1971, Farmers Home Administration insured notes (then about $0.7 billion) are classified as othersecurities rather than as loans.

7 Beginning August 1974, reflects new definition of affiliates included and different grcup of reporting banks. Amount oftotal loans sold was reduced by $0.1 billion.

» Loan ^classifications reduced these loans by $0.3 billion in December 1977.Note.—Data may not be strictly comparable because of bank mergers, liquidations, loan ^classifications, etc.


326


TABLE B-61.—Liquid asset holdings, private domestic nonfinancial investors, 1952-77

[Month by average outstandings; billions of dollars, seasonally adjusted]

Yearand

month

1952: Dec1953: Dec1954: Dec

1955: Dec1956: Dec1957: Dec „__1958: Dec1959: Dec . . .

1960: Dec1961: Dec1962: Dec1963: Dec1964: Dec


1970: Dec1971: Dec1972: Dec1973: Dec .1974: Dec

1975: Dec .1976: Dec1977: Deep

1976: JanFebMarAprMayJune .

JulyAugSeptOctNovDec _


JulyAugSeptOctNov. _ . .Dec*

Totalliquidassets

269.1284.5295.2

314 7325.3337.9354.2373.2

386.6410.4441.8479.1515.2

559.2586.9638.0696.4722.4

769.5851.8967.4

1, 079 21,166.9

1 290 41, 423 71,599.6

1, 300 41,311.71, 320.11,333 11, 343.71, 354.1

1 367 51 376 71, 386 91 402 81, 413.01, 423. 7

1, 438. 51 453 61, 464. 31, 478 61, 486.81, 499.6

1,519.41, 534.11, 549. 71, 570.21, 585.11,599.6

Currency and deposits

Total

200 9211.0223.9

235 4246 2257 2277.4290.7

305.7326.2352.2382.2414.6

451.1474.3521.0565.3582.8

632.4718.9817.0887 5945.2

1 054 41,194. 21, 330.8

1 065.91, 079. 51, 088.41 101 41,111.71,118.0

1 130 21 142 91,155 11 171 01,182. 21,194.2

1, 207. 61 216 71, 226. 01 239 41, 246. 31, 256.0

1,273.41,284.71, 299.01, 313. 51,321.41, 330.8

Cur-rency i

27 327.727.4

27 828 228 328.628.9

29.029.630.632.534.3

36.338.340.443.446.1

49.152 656.961 567.8

73 780 588.4

74 375.075.776 677.377.5

78 178 679 279 880.280.5

81.181 882.283 183.684.0

85.185.586.487.187.888.4

De-mand

de-posits i

91 692 896.2

98 599 597 9

102.2104.2

104.6106.3106.5109.7114.3

119.3121.7130.3140.9145.0

151.8161 6176.4183 3187.2

191 7198 8214.7

192 2193.0192.9195 2196.5195.5

196 7198 0197.4199 8198.3198.8

200.9200 1200.9205 5204.5205.0

208.72C8.6209.9213.3212.4214.7

Time deposits

Com-mer-cial

banksi

39 I41 945.1

46 949 054 661.864.7

69.977.088.898.6

108.8

125.1136.9156.2174.3176.8

198.9233 6264.5294 5321.2

360 6418 1460.3

366 1372.6375.9380 6383.9386.8

391 8395 9401 0406 5412.7418.1

423.0427 2430.8434 2436.8440.4

446.1448.9452.5455.7458.5460.3

Non-bankthrift .

institu-tions 2

42 848 655.2

62 369 576 484.892.9

102.3113.4126.4141.4157.3

170.4177.3194.0206.7214.9

232.7271 1319.3348 1369.1

428 3496 8567.4

433 4438.9443.9449 1454.0458.2

463 6470 5477.6484 8491.0496.8

502.6507 5512.1516 6521.4526.7

533.5541.7550.2557.5562.7567.4

U.S. Treasurysecurities

Sav-ings

bonds3

49 249 349.9

50 250 148'347.846.1

45.746.546.948.149.0

49.650.251.251.851.7

52.054 357.660 463.3

67 271 976.6

67 668.068.368.769.069.4

69 870 470.771.171.571.9

72.372 673.073 473.874.2

74.775.175.475.876.276.6

Short-term

market-ablesecu-rities *

18 423.120.1

27 727 430 627.635.5

32.432.033.435.033.0

35.837.834.840.953.2

41.931 334.443 347.5

66 566 176.4

67 267.268.068.569.170.1

70.969 968.768.968.566.1

66.970 370.370.069.268.4

69.871.872.574.475.876.4

Nego-tiablecertifi-catesof de-posit5

2.75.39.0

11.6

15.114.418.721.78.3

21.827.736.353 870.4

59 444.255.0

56.253.752.250.749.050.6

49.746.144.644.043.444.2

43.644.243.342.542.844.3

43.443.843.546.851.355.0

Otherprivatemoneymarketinstru-ments fl

0.71.11.2

1 41 61.81.4.9

2.83.14.04.86.9

7.510.312.416.626.4

21.419.622.234 340.5

43 047.460.9

43.543.443.243.844.946.1

46.947.447.847.847.547.4

48.149.751.753.354.756.6

58.158.759.359.960.460.9

1 Money stock components (see Table B-59) after deducting foreign holdings and holdings by domestic financial institu-tions. The three columns add to M2 held by domestic nonfinancial sectors.

2 As published in money stock statistics.3 Series E and H savings bonds, other savings bonds, and savings notes held by individuals.• Short-term marketable U.S. Treasury securities excluding official, foreign, and financial institution holdings.5 Certificates over $100,000 at weekly reporting banks, except foreign holdings.e Commercial paper, bankers' acceptances, Federal funds, security repurchase agreements, and money market mutual

fund shares held outside banks and other financial institutions.


327


TABLE B-62.—Total funds raised in credit markets by nonfinancial sectors, 1969-77


Item

Total funds raised

U.S. Government

Treasury issues..Agency issues and mortgages

Foreign

Corporate equities.

Debt instruments

Private domestic nonfinancial sectors..

Corporate equities.Debt instruments..

Debt capital instrumentsState and local government obli-

gationsCorporate bondsMortgages.

HomeMulti-family residentialCommercialFarm

Other debt instruments

Consumer creditBank loans n.e.cOpen-market paperOther

By borrowing sector: Total

State and local governmentsHouseholdsNonfinancial business

FarmNonfarm noncorporateCorporate

Total funds advanced to nonfinancial sectors

Financed directly or indirectly by:

Private domestic nonfinancial sectors

Deposits

Demand deposits and currency..Time and savings accounts

At commercial banksAt savings institutions

Credit market instruments, net

U.S. Government securitiesPrivate credit market instru-

mentsCorporate equitiesLess security debt

Other sources:

Foreign fundsAt banksDirect

Change in U.S. Government cashbalance

U.S. Government loansPrivate insurance and pension re-

servesOther


1969 1970 1971 1972 1973 1974 1975 1976

93.7

-3 .7

-1 .3-2 .4

3.7

.5

93.6

3.490.2

52.5

9.912.030.618.14.95.71.8

37.8

10.415.71.89.9

93.6

10.734.448.63.07.3

38.2

93.7

48.1

5.1

7.3- 2 . 2-10.6

8.4

42.9

17.7

27.3-3 .7-1 .6

10.89.61.1

.53.1

19.711.6

100.6

11.9

12.9-1 .0

2.7

.12.7

86.0

. 5.780.3

60.2

11.219.829.214.46.97.1

20.1

5.96.82.64.8

86.0

11.324.949.82.36.8

40.7

100.6

63.4

64.2

8.955.338.716.6

-7.3

7.2-1 .6

3.0-8 .111.1

2.82.8

21.96.7

153.5

24.9

26.0-1 .1

5.2

.05.2

123.5

11.4112.0

86.8

17.418.850.528.69.79.82.4

25.3

13.18.1

- . 44.4

123.5

17.745.260.64.5

11.644.5

153.5

85.9

92.8

13.779.139.539.6

-6 .9

-10.7

11.0-5 .1

2.1

23.3-3.927.2

3.22.8

24.414.0

177.8

15.1

14.3.8

4.0

- . 44.4

158.7

10.9147.8

102.3

14.712.275.442.612.716.53.6

45.5

18.918.9

.8

158.7

14.566.677.65.8

14.157.7

177.8

119.6

105.2

21.483.838.345.4

14.4

3.9

19.4-4 .5

4.3

16.15.3

10.8

- . 31.8

26.114.3

202.0

8.3

7.9

6.2

- . 26.4

187.5

7.9179.7

105.0

14.79.2

81.246.410.418.95.5

74.6

22.039.82.5

10.3

187.5

13.279.195.29.7

12.872.7

202.0

133.3

90.4

14.376.147.728.5

42.9

19.5

26.0-6 .9- 4 . 2

10.46.93.5

-1 .72.8

30.626.6

189.6

11.8

12.0

15.4

- . 215.7

162.4

4.1158.3

98.7

17.119.761.934.86.9

15.15.0

59.6

10.229.16.6

13.7

162.4

16.249.297.07.97.4

81.8

189.6

120.2

75.7

8.966.745.021.8

44.5

18.2

27.7-2.2

26.314.511.7

-4.69.8

33.24.7

205.6

85.4

85.8- . 4

13.2

n'.o107.0

9.997.1

95.8

13.627.255.039.5

.011.04.6

1.3

9.4-14.5-2 .6

9.0

107.0

11.248.647.38.72.0

36.6

205.6

138.1

97.1

12.384.825.359.4

41.0

22.2

23.1-4 .1

10.4- . 410.7

2.915.1

39.1.1

268.3

69.0

69.1- . 1

20.3

.020.3

179.0

10.5168.4

122.7

15.122.884.863.6

1.613.46.1

45.7

23.63.74.0

14.4

179.0

14.689.874.611.05.2

58.3

268.3

166.9

130.1

17.2113.043.969.1

36.8

19.4

24.5-3.8

3.3

21.03.1

18.0

3.28.9

48.819.5

328


TABLE B-62.—Total funds raised in credit markets by nonfinancial sectors, 1969-77—Continued[Billions of dollars]

Item

1977 unadjustedquarterly flows

III

1977 seasonallyadjusted annual rates

III

Total funds raised

U.S. Government

Treasury securit ies..

Agency issues and mortgages

Foreign

Corporate equities

Debt instruments


Corporate equities

Debt instruments

Debt capital instruments

State and local government obligations.Corporate bondsMortgages

HomeMulti-familyCommercialFarm

Other debt instrumentsConsumer creditBank loans n.e.c.Open-market paperOther

By borrowing sector: Total

State and local governmentsHouseholdsNonfinancial business

FarmNonfarm noncorporateCorporate

Total funds advanced to nonfinancial sectors

Financed directly or indirectly by:


Deposits

Demand deposits and currencyTime an d savings accounts

At commercial banks . .At savings institutions

Credit market instruments, net

U.S. Government securitiesPrivate credit market instrumentsCorporate equitiesLess security debt

Other sources:

Foreign fundsAt banksDirect

Change in U.S. Government cash balance.. .U.S. Government loansPrivate insurance and pension reservesOther

65.0

17.6

17.8

.4

.2

.2

46.9

1.545.4

30.2

2.45.4

22.416.4

3".O2.2

15.2

2.65.6.8

6.1

46.9

2.221.623.13.91.4

17.8

65.0

40.4

22.7

-15.838.517.521.1

17.7

7.99.51.31.0

3.8- 4 . 4

8.2

-2 .81.2

12.79.7

81.3

-1 .1

-1 .0

2.9

.12.8

79.6

2.677.0

51.5

11.15.8

34.625.31.65.02.7

25.5

10.810.91.32.5

79.6

8.036.834.85.72.8

26.2

81.3

42.2

36.4

13.323.15.8

17.3

5.8

-6 .512.2

.1- . 1

8.51.96.7

7.41.1

16.15.9

90.0

19.6

20.1- . 5

4.3

.43.9

66.1

1.564.6

47.7

8.63.8

35.326.32.05.02.0

16.9

10.63.1

- . 03.2

66.1

9.736.619.73.81.6

14.3

90.0

47.4

21.4

-5.727.19.6

17.5

25.9

16.810.0- . 5

.4

10.81.29.6

1.14.7

14.411.6

300.4

41.4

42.1- . 7

2.2

.81.4

256.8

6.2250.7

135.8

13.118.1

104.676.53.6

15.49.1

114.9

35.553.03.4

23.1

256.8

12.1128.9115.816.712.486.6

300.4

200.5

142.7

18.2124.655.768.9

57.7

25.137.2- . 44.2

17.7-15.7

33.4

-4 .38.5

50.427.7

318.9

39.2

39.6- . 4

6.7

.46.3

273.0

10.3262.6

191.2

41.321.1

128.894.85.5

19.19.3

71.4

34.821.46.68.6

273.0

29.1130.4113.517.18.8

87.7

318.9

163.3

111.4

22.888.622.865.8

51.9

-3 .152.82.0

- . 2

37.17.5

29.5

17.53.3

64.533.1

369.9

83.8

85.8-2 .1

21.6

1.620.1

264.5

6.1258.4

186.2

32.520.5

133.297.77.8

19.38.3

72.1

32.124.3- . 516.2

264.5

37.0140.587.015.26.2

65.5

369.9

234.2

146.6

6.7139.956.883.0

87.6

57.137.7

- 5 . 61.6

38.65.4

33.2

- . 315.956.425.1


329


TABLE B-63.—Federal Reserve Bank credit and member bank reserves. 1929-77[Averages of daily figures; millions of dollars]

Year and month

1929: Dec1933- Dec1939: Dec

1940: Dec1941: Dec1942: Dec1943: Dec1944: Dec1945: Dec1946: Dec1947- Dec1948: Dec1949: Dec

1950: Dec . .1951: Dec1952: Dec1953: Dec . . .1954* Dec1955- Dec1956: Dec1957: Dec1958: Dec . . .1959- Dec

I960- Dec1961: Dec1962: Dec1963' Dec1964: Dec1965: Dec1966: Dec1967- Dec1968- Dec1969: Dec

1970: Dec . . .1971- Dec1972- Dec1973: Dec1974: Dec1975: Dec1976: Dec1977: Dec

1977: JanFebMarAprMayJune _

JulyAugSeptOctNovDec?

Reserve Bank credit outstanding

Total

1,6432,6692,612

2,3052,4046,035

11,91419,61224,74424, 74622,85823, 97819,012

21,60625,44627,29927,10726,31726, 85327,15626,18628,41229, 435

29, 06031,21733,21836,61039,87343, 85346, 86451,26856,61064,100

66,70874,25576,85185,64293, 96799, 651

107, 632116,382

108, 700109,021108, 085108, 558112,694109, 453

113,886110,886112,171113, 279110,650116,382

U.S.Govern-ment se-curities

4462,4322,510

2,1882,2195,549

11,16618,69323, 70823, 76721,90523, 00218, 287

20,34523,40924, 40025, 63924,91724, 60224, 76523,98226,31227,036

27, 24829, 09830, 54633, 72937,12640,88543, 76048,89152, 52957, 500

61,68869,15871,09479,70186, 67992,108

100, 328107,948

101, 397102,689102, 092102,129106, 282102, 649

105,970103, 389105, 037105, 426102, 776107,948

Member bankborrowings

Total

80195

3

354

90265334157224134118

142657

1,593441246839688710557906

87149304327243454557238765

1,086321107

1,0491,298

70312762

558

6179

11073

200262

3361,071

6341,319

840558

Seasonal

4132131254

81213143155

601011121148354

Other

39614299

114180482658654702822729842607

,1191,380,306

1,0271,1541,412,703,494,543,493

,7251.9702,3682,5542,5042,5142,5472,1393,3165,514

4,6994,9904,7084,6436,5857,4167,2427,876

7,2426,2535,8836,3566,2126,542

7,5806,4266,5006,5347.0347,876

Member bank reserves

Total

2,3952,588

11,473

14,04912,81213,15212,74914,16816,02716,51717,26119,99016,291

17,39120,31021,18019, 92019,27919, 24019, 53519,42018,899

2 18,932

19,28320,11820, 04020, 74621,60922,71923, 83025, 26027,22128, 031

29, 26531,329

831,3533 35,0683 36,9414 34,98935,13636, 471

36, 29034,19934,13534, 61334, 73234, 406

35, 39135,18635,15635, 86035, 78236, 471

Re-quired

2,347U,822

6,462

7,4039,422

10,77611,70112,88414,53615,61716 27519,19315,488

16, 36419,48420, 45719, 22718, 57618,64618,88318, 84318,38318,450

18,51419, 55019,46820,21021,19822, 26723,43824,91526,76627, 774

28,99331,16431,13434,80636, 60234,72734, 96436, 296

35, 79634, 23433, 87034, 60234, 46034, 293

35, 04334, 98734, 96535,52135,64736, 296

Excess

481766

5,011

6 6463,3902,3761 0481)2841,491

900986797803

1,027826723693703594652577516482

769568572536411452392345455257

272165

3 2193 2623 3394 262

172175

494-35265

11272113

348199191339135175

1 Data are for licensed banks only.2 Beginning December 1959, total reserves held include vault cash allowed.s Beginning November 1972, includes $450 million of reserve deficiencies on which Federal Reserve Banks were allowed

t o waive penalties for a transition period in connection with bank adaptation to Regulation J as amended effective Novem-ber 9,1972. Beginning 1973, allowable deficiencies included are (beginning with first statement week of quarter): firstquarter, $279 million; second quarter, $173 million; third quarter, $112 million; fourth quarter, $84 million. Beginning1974 allowable deficiencies included are: first quarter, $67 million and second quarter, $58 million. Transition periode nded after second quarter 1974.

4 Effective November 1975 includes reserve deficiencies on which penalties are waived over a 24-month period when anonmember bank merges into an existing member bank, or when a nonmember bank joins the Federal Reserve System.


330


TABLE B-64.—Aggregate reserves and deposits, member banks, 1959-77

[Averages of daily figures; billions of dollars, seasonally adjusted)

Year and month

1959: Dec

1960: Dec1961: Dec1962: Dec1963: Dec1964: Dec. _


1970: Dec1971* Dec1972: Dec1973: Dec1974: Dec

1975: Dec1976- Dec1977- Dec v


JulyAug . . . .Sept .OctNov .Dec


JulyAugSeptOctNov . .Dec v

Member bank reservesi

Total

18.63

18.9219.7519.6620.3121.19

22.1823.2824.7627.0527.94

29.1231.2231.4134.9436.60

34.7334.9536.21

34.3134.0734.0234 0534.1734.29

34.3434.5134.3434.5134.8534.95

34.7834.4034.3134.6834.7234.86

35.3535.6435.6335.9036.0136.21

Non-borrowed

17.68

18.8419.6119.4019.9820.92

21.7422.7524.5426.3126.82

28.7931.1030.3633.6435.87

34.6034.9035.64

34.2333.9933.9734.0034.0534.16

34.2134.4134.2734.4134.7834.90

34.7134.3334.2034.6134.5234.60

35.0334.5835.0034.5935.1535.64

Required

18.12

18.1719.1619.0819.8220.78

21.7622.9424.3926.6327.66

28.8731.0431.1234.6436.34

34.4634.6836.02

34.0733.8533.8033.8933.9634.07

34.1134.3134.1434.2934.5934.68

34.5134.2034.0934.4934.5134.71

35.0835.4435.4235.6935.7636.02

Member bank deposits subject to reserverequirements2

Total

158.2

162.5175.5189.0203.2218.7

238.3246.3275.7299.8287.8

321.1360.2402.1442.3486.2

505.4529.6569.8

506.0507.9508.0509.7508.1513.0

514.1514.2515.6520.0524.9529.6

532.5532.0535.2538.4537.6544.5

547.7551.4552.9559.4564.6569.8

Timeand

savings

54.3

58.867.779 992.1

103.7

120.7128.7148.9164.5150.5

178.8210.5241.6279.2322.1

337.9355.0387.7

338.1339.5339.7339.9338.7341.9

343.5341.7343.3346.2350.2355.0

357.3360.1361.3361.4363.1367.0

369.2370.8372.4377.1383.5387.7

Demand

Private

99.0

99 1102.9103 3105 9109.1

112 8113.9121 3130 5132.1

136.1144.0154 4158.1160.6

164.5171.4178.4

165.2165.6165.8167 2167.1167.5

167.9168.6168.7170.4170.7171.4

172.5169.5171.1173.4172.3173.8

175.8177.0176.9179.0177.6178.4

U.S. Gov-ernment

4.8

4 64.95 75 25.9

4 93.75 54 95.2

6 25.86 25 03.5

3.03 23.7

2.72 72.52 62 33.6

2.73.93.63.44.03.2

2.72.52.83.62.13.7

2.83.63.73.33.53.7

1 Member bank reserves series reflects actual reserve requirement percentages with no adjustment to eliminate theeffect of changes in Regulations D and M.

2 Deposits subject to reserve requirements include total time and savings deposits and net demand deposits as definedby Regulation D. Private demand deposits include all demand deposits except those due to the U.S. Government, lesscash items in process of collection and demand balances due from domestic commercial banks.


331


TABLE B-65.—Bond yields and interest rates, 1929-77

[Percent per annum]

Year or month

1929

1933

1939

19401941194219431944

19451946194719481949

19501951195219531954

19551956195719581959 . .

19601961196219631964

19651966.._19671968 . . . . .1969

1970 . . .1971197219731974

19751976. .1977

U.S. Government securities

3-monthTreas-

urybills i

0.515

.023

.014

.103

.326

.373

.375

.375

.375

.5941.0401.102

1.2181.5521.7661.931.953

1.7532.6583.2671.8393.405

2.9282.3782.7783.1573.549

3.9544.8814.3215.3396.677

6.4584.3484.0717.0417.886

5.8384.9895.265

3-5year

issues 2

2.66

.59

.50

.731.461.341.33

1.181.161.321.621.43

1.501.932.132.561.82

2.503.123.622.904.33

3.993.603.573.724.06

4.225.165.075.596.85

7.375.775.856.927.81

7.556.946.85

Taxablebonds 3

2.462.472.48

2.372.192.252.442.31

2.322.572.682.942.55

2.843.083.473.434.07

4.013.903.954.004.15

4.214.664.855.256.10

6.595.745.636.306.99

6.986.787.06

Corporatebonds

(Moody's>

Aaa

4.73

4.49

3.01

2.842.772.832.732.72

2.622.532.612.822.66

2.622.862.963.202.90

3.063.363.893.794.38

4.414.354.334.264.40

4.495.135.516.187.03

8.047.397.217.448.57

8.838.438.02

Baa

5.90

7.76

4.96

4.754.334.283.913.61

3.293.053.243.473.42

3.243.413.523.743.51

3.533.884.714.735.05

5.195.085.024.864.83

4.875.676.236.947.81

9.118.568.168.249.50

10.619.758.97

High-grademunic-

ipalbonds

(Stand-ard &Poor's)

4.27

4.71

2.76

2.502.102.362.061.86

1.671.642.012.402.21

1 982.002.192.722.37

2.532.933.603.563.95

3.733.463.183.233.22

3.273.823.984.515.81

6.515.705.275.186.09

6.896.495.56

Averagerate onshort-termbankloans

to busi-ness

2.1

2.12.02.22.62.4

2.22.12.12.52.68

2.693.113.493.693.61

3.704.204.624.34

8 5.00

5.164.975.005.014.99

5.066.00

8 6.006.688.21

8.488 6.32

5.828.30

11 28

8.657.52

Primecom-mer-cial

paper,4-6

months

5.85

1.73

.59

.56

.53

.66

.69

.73

.75

.811.031.441.49

1.452.162.332.521.58

2.183.313.812.463.97

3.852.973.263.553.97

4.385.555.105.907.83

7.725.114.698.159.87

6.335.355.60

Dis-countrate,

FederalReserve

Bankof NewYork *

5 16

2.56

1.00

1 001.001 00i on1.00

1 001.001.001.341 50

1 591 751.751.991 60

1.892.773.122.153.36

3.533.003.003.233.55

4.044.504.195.175.87

5.954.884.506.457.83

6.255.505.46

Federalfundsrates

1.782.733.111.573.30

3.221.962.683.183.50

4.075.114.225.668.22

7.174.674.448.74

10.51

5.825.055.54

New-homemort-gageyields

(FHLBB)(6)

5.935.86

5.816.256.466.977.81

8.457.747.607.958.92

9.018.999.01


332


TABLE B-65.—Bond yields and interest rates, 1929-77— Continued

[Percent per annum]

Year or month

1975: JanFebMarAprMay....June

July .AugSeptOctNov . .Dec

1976:Jan .FebMarAprMayJune

JulyAugSeptOct .NovDec

1977-JanFebMar..Apr . . .MayJune

JulyAugSeptOct . . . .NovDec

U.S. Government securities

3-monthTreas-

urybills i

6.4935.5835.5445.6945.3155.193

6.1646.4636.3836.0815.4685.504

4.9614.8525.0474.8785.1855.443

5.2785.1535.0754.9304.8104.355

4.5974.6624.6134.5404.9425.004

5.1465.5005.7706.1886.1606.063

3-5year

issues2

7.296.857.007.767.497.26

7.728.128.227.807.517.50

7.187.187.256.997.357.40

7.247.046.846.506.355. £6

6.496.696.736.586 766.58

6 676.906.927.237.287.40

Taxablebonds 3

6.686.616.737.036.996.86

6.897.067.297.297.217.17

6.946.926.876.736.996.92

6.856.796.706.656.626.39

6.687.157.207.147.176.99

6.977.006.947.087.147.23

Corporatebonds

(Moody's)

Aaa

8.838.628.678.958.908.77

8.848.958.958.868.788.79

8.608.558.528.408.588.62

8.568.458.388.328.257.98

7.968.048.108.048.057.95

7.947.987.928.048.088.19

Baa

10.8110.6510.4810.5810.6910.62

10.5510.5910.6110.6210.5610.56

10.4110.2410.129. £49.869.89

9.829.649.409.299.239.12

9.089.129.129.079.018.91

8.878.828.808.898.958.99

High-grademunic-

ipalbonds

(Stand-ard &Poor's)

6.666.306.616.836.816.76

6.947.027.237.227.217.06

6.806.916.866.626.876.85

6.646.286.206.066.055.69

5.705.755.765.615.645.53

5.505.465.375.535.385.48

Averagerate onshort-termbankloans

to busi-ness

9.94

8.16

8.22

8.29

7.54

7.44

7.80

7.28

8 7.48

7.37

7.87

Primecom-mer-cial

paper,4-6

months

7.306.336.066.155.825.79

6.446.706.866.485.915.97

5.275.235.375.235.545.94

5.675.475.455.225.054.70

4.744.824.874.875.355.49

5.415.846.176.556.596.68

Dis-countrate,

FederalReserve

Bankof NewYork*

7H-7K7 ]/-&%.6%-6J46^-6346^-66 -6

6 -66 -66 -66 -66 -66 -6

6 -5K

51^-51^5J*-5H

i l l5 J/-5 */5^-534

514-5345K-534

534-5 !4

ty~%A6 4-66 -6

Federalfundsrates

7.136.245.545 495.225.55

6 106.146.245.825.225.20

4.874.774.844.825.295.48

5 315 295.255.034.954.65

4.614.684.694.735.355.39

5.425.906.146.476.516.56

New-homemort-

yields(FHLBB)

9.339.129.068.968.908.96

8.898.898.949.019.019.01

8.998.938.938.928.978.89

8 979.029.089.079.059.10

9.058.998.958.948.968.98

9.009.029.049.079.079.08

1 Rate on new issues within period. First issued in December 1929.2 Selected note and bond issues.* First issued in 1941. Series includes bonds which are neither due nor callable before a given number of years as

follows: April 1953 to date, 10 years; April 1952-March 1953,12 years; November 1941-March 1952,15 years.4 Average effective rate for the year; opening and closing rate for the month.5 Based on seven-day averages of daily effective rates for weeks ending Wednesday. Since July 19,1975, the daily effective

rate is an average of the rates on a given day weighted by the volume of transactions at these rates. Prior to that date,the daily effective rate was the rate considered most representative of the day's transactions, usually the one at whichmost transactions occurred.

6 Effective rate (in the primary market) on conventional mortgages, refecting fees and charges as well as ccntract rateand assumed, on the average, repayment at end of 10 years. Rates beginning January 1S73 not strictly ccmparable withprior rates.

7 From October 30, 1942, to April 24, 1946, a preferential rate of 0.50 percent was in effect for advances secured byGovernment securities maturing in 1 year or less.

s Series revised. Not strictly comparable with earlier data. Beginning 1977, data are for short-term commercial andindustrial loans (other than construction and land development) and are from survey of terms of bank lending.

Sources: Department of the Treasury, Board of Governors of the Federal Reserve System, Federal Home Loan BankBoard (FHLBB), Moody's Investors Service, and Standard & Poor's Corporation.

333


TABLE B-66.—Instalment credit extensions and liquidations, 1971-77 *(Millions of dollars; monthly data seasonally adjusted]

Year or month

Extensions:1971197219731974197519761977»

1976: Jan..Feb..Mar..

May."June.

July..Aug..Sept.Oct..Nov..Dec_.

1977: Jan..Feb..Mar..Apr..May.June.

July..Aug..Sept.Oct..Nov..Oec>.

Liquidations:1971..197219731974197519761977*



1977: Jan..Feb..Mar.Apr..May.June.

July.Aug.Sept.Oct..Nov..Dec 2,

Total

123,826137,117157,863157, 200164,169193, 328225,974

15,33215,76215,69315, 42515,61615,989

15,79616,11816, 42015,84416, 71217,677

17,24117, 59518, 49618, 78418, 50318, 810

18, 63119, 20419,16419, 78719,68020,079

113,784121,926138,156147,920156,665172, 795195,115

14, 00114,00013,98913, 51413, 85514, 454

14, 34914, 58914, 58914, 75315,07715,236

15,08415,61015,52515, 88615, 84916, 388

16,16716, 55316, 81417,16016,82617,253

Auto-mobile

35,82042,70048,39945,42951,41362,98872,946

5,0795,1535,2555,2335,2235,245

5,0975,2045,2984,8345,3125,869

5,5115,8196,1996,1066,0486,063

5,9666,1586,1096,0836,3306,554

31,61437,18842,64244,92948, 40652, 75059, 526

4,1324,1944,2644,2054,1914,456

4,3894,4514,5324,5004,6304,667

4,7124,8014,8164,9014,8015,100

4,8975,1045,0055,2345,0895,066

Mobilehome

2,6305,1227,0615,7824,3234,8415,272

441421435385372410

399380393361403470

372383445479415420

455479424457464479

1,7532,9664,1824,7154,5174,6914,862

398413390372360395

391379407386406385

393412391414421386

397424392413390429

Homeimprove*

ment

3,1704,1264,7715,2115,5566,7388,110

519536545557534541

547560584549622624

571577648668636686

671733679718761762

2,9393,3963,5724,1174,6755,1516,105

390405407429387415

432443450469459463

463478480480502505

506551536517550537

Revolving

Bankcreditcard

8,37710,39013,86317,09820,42825, 86231,563

1,9162,0092,0862,0012,1062,105

2,1852,2092,2112,2662,2602,297

2,1822,4082,4062,5762,6212,640

2,5662,7112,8472,9732,8282,805

7,6799,47212,43315,65519, 20824,01228,910

1,8541,8581,9031,8441,9212,003

2,0022,0922,0072,0952,1482,228

2,1762,2012,1422,2982,4302,403

2,3822,3962,5672,6872,5852,643

Bankcheckcredit

2,0262,4893,3734,2274,0244,7835,877

361364361369385398

71,80372,28980,39679,45378,42588,117102,202

7,0177,2797,0116,8816,9967,290

404419394421430441

465465475475506521

499510485487492497

1,9012,1752,8943,6844,0104,5525,235

358367361359363399

369401356383403415

421420422415402431

459450436430466483

Allother

7,1647,3457,5397,4127,6867,977

8,1397,9428,3238,4808,2778,480

8,4768,6128,6209,067

8,982

67,89866,72972,43474,82175, 84981,63890,479

6,8696,7636,6646,3066,6326,786

6,7666,8236,8366,9207,0317,078

6,9217,2977,2747,3797,2927,564

7,5257,6287,8777,8807,7478,095

t Excludes 30-day charge credit held by retailers, oil and gas companies, and travel and entertainment companies.2 Preliminary; December by Council of Economic Advisers.Note.—Consumer instalment credit consists of short- and intermediate-term credit extended through regular business

channels to finance the purchase of goods and services for personal consumption, or to refinance debts incurred for suchpurposes, and scheduled to be repaid in two or more instalments. Mortgage credit is excluded.

Source: Board of Governors of the Federal Reserve System (except as noted).

334


TABLE B-67.—Mortgage debt outstanding by type of property and of financing, 1939-77

(Billions of dollars]

End of yearor quarter

1939

19401941194219431944 . .

19451946194719481949. .

19501951195219531954

19551956195719581959

19601961196219631964

1965196619671968 .1969

1970 .1971197219731974

19751976

1975:1I I . . . .III . . .IV....

1976:1II . . . -III. . .IV....

1977:1ll.-__III.--

Allprop-erties

35.5

36.537.636.735.334.7

35.541.848.956.262.7

72.882.391.4

101.3113.7

129.9144.5156.5171.8190.8

207.5228.0251.4278.5305.9

333.3356.5381.2410.9441.4

474 2526 5603.4682 3742 5

801 5889.1

752.2768.5785.3801.5

818.4840.6865.7889.1

911.3947.1983.2

Farmprop-erties

6.6

6.56.46.05.44.9

4.84.95.15.35.6

6.16.77.27.78.2

9.09.8

10.411.112.1

12.813.915.216.818.9

21.223.125.127.429.2

30.332.235.841 346.3

50.957.1

47.649.250.250.9

52.253.855.557.1

59.361.863.9

Nonfarm properties

Total

28.9

30.031.230.829.929.7

30.836.943.950.957.1

66.775.684.293.6

105.4

120.9134.6146.1160.7178.7

194.7214.1236.2261.7287.0

312.1333.4356.1383.5412.2

443.8494.3567.7641.1696.2

750 7832.0

704.6719.3735.1750.7

766.2786.8810.3832.0

852.1885.3919.4

1- to 4-familyhouses

16.3

17.418.418.217.817.9

18.623.028.233.337.6

45.251.758.566.175.7

88.299.0

107.6117.7130.9

141.9154.7169.3186.4203.4

220.5232.9247.3264.8282.8

298.1328.3372.2416.2449.4

490.8556.3

454.6466.6479.2490.8

503.3519.8538.8556.3

572.7599.2626.3

Multi-familyprop-erties

5.6

5.75.95.85.85.6

5.76.16.67.58.6

10.111.512.312.913.5

14.314.915.316.818.7

20.323.025.829.033.6

37.240.343.947.352.3

60.170.182.893.1

100.0

100.6104.3

100.6100.6100.6100.6

101.8102.9103.9104.3

105.0106.7108.6

Com-mer-cial

prop-erties i

7.0

6.97.06.76.36.2

6.47.79.1

10.210.8

11.512.513.414.516.3

18.320.723.226.129.2

32.436.441.146.250.0

54.560.164.871.477.1

85.695.9

112.7131.7146.9

159.3171.4

149.4152.1155.3159.3

161.2164.1167.5171.4

174.4179.4184.4

Nonfarm properties by type of mortgage

Government underwritten

Total

1.8

2.33.03.74.14.2

4.36.39.8

13.617.1

22.126.629.332.136.2

42.947.851.655.159.3

62.365.669.473.477.2

81.284.188.293.4

100.2

109.2120.7131.1135.0140.2

147.0154.1

142.0142.9145.0147.0

148.3150.5150.8154.1

155.7158.7161.5

1- to 4-family houses

Total

1.8

2.33.03.74.14.2

4.36.19.3

12.515.0

18.922.925.428.132.1

38.943.947.250.153.8

56.459.162.265.969.2

73.176.179.984.490.2

97.3105.2113.0116.2121.3

127.7133.5

123.3123.7125.7127.7

129.1131.2131.2133.5

134.9137.4139.8

FHAin-

sured

1.8

2.33.03.74.14.2

4.13.73.85.36.9

8.69.7

10.812.012.8

14.315.516.519.723.8

26.729.532.335.038.3

42.044.847.450.654.5

59.965.768.266.265.1

66.166.5

65.565.865.966.1

66.267.166.466.5

66.967.867.9

VAguar-

anteed

0.22.45.57.28.1

10.313.214.616.119.3

24.628.430.730.430.0

29.729.629.930.930.9

31.131.332.533.835.7

37.339.544.750.056.2

61.667.0

57.758.059.861.6

62.964.164.867.0

68.069.671.9

Conventional'

Total

27.1

27.728.227.125.825.5

26.530.634.137.340.0

44.649.054.961.569.2

78.086.894.6

105.5119.4

132.3148.5166.9188.2209.8

231.0249 3267.9290.1312.0

334.6373.5436.5506.0556.0

603.7677.9

562.6576.4590.1603.7

617.9636.3659.5677.9

696.4726.6757.9

1- to 4-familyhouses

14.5

15.115.414.513.713.7

14.316.918.920.822.6

26.328.833.138.043.6

49.355.160.467.677.0

85.595.6

107.1120.5134.1

147.4156.9167.4180.4192.7

200.8223.1259.2300.0328.1

363.0422.8

331.3342.9353.5363.0

374.2388.7407.7422.8

437.8461.8486.5

i Includes negligible amount of farm loans held by savings and loan associations.> Derived figures.

Source: Board of Governors of the Federal Reserve System, estimated and compiled from data supplied by variousGovernment and private organizations.

335


TABLE B-68.—Mortgage debt outstanding by holder, 1939-77



1939

19401941194219431944

19451946194719481949

19501951195219531954

19551956195719581959

I9601961196219631964

196519661967.19681969

19701971197219731974

19751976

1975: 1IIIIIIV

1976: 1IIIIIIV

1977: 1IIIII. . . .

Total

35.5

36.537.636.735.334.7

35.541.848.956.262.7

72.882.391.4

101.3113.7

129.9144.5156.5171.8190.8

207.5228.0251.4278.5305.9

333.3356. b381.2410.9441.4

474.2526.5603.4682.3742.5

801.5889.1

752.2768.5785.3801.5

818.4840.6865.7889.1

911.3947.1983.2

Major financial institutions

Total

18.6

19.520.720.720.220.2

21.026.031.837.842.9

51.759.566.975.185.7

99.3111.2119.7131.5145.5

157.6172.6192.5217.1241.0

264.6280.8298.8319.9339.1

355.9394.2450.0505.4542.6

581.2647.7

546.7558.1569.9581.2

593.2611.5630.1647.7

662.4688.8715.2

Savingsandloan

associa-tions

3.8

4.14.64.64.64.8

5.47.18.9

10.311.6

13.715.618.422.026.1

31.435.740.045.653.1

60.168.878.890.9

101.3

110.3114.4121.8130.8140.2

150.3174.3206.2231.7249.3

278.6323.1

252.4261.3270.5278.6

286.3299.3311.8323.1

333.7350.8367.0

Mutualsavingsbanks

4.8

4.94.84.64.44.3

4.24.44.95.86.7

8.39.9

11.412.915.0

17.519.721.223.325.0

26.929.132.336.240.6

44.647.350.553.556.1

57.962.067.673.274.9

77.281.6

75.275.876.577.2

77.978.880.281.6

82.384.186.1

Com-mercialbanks»

4.3

4.64.94.74.54.4

4.87.29.4

10.911.6

13.714.715.916.918.6

21.022.723.325.528.1

28.830.434.539.444.0

49.754.459.065.770.7

73.382.599.3

119.1132.1

136.2151.3

131.9133.0134.5136.2

139.6143.7147.8151.3

154.6161.1168.5

Lifeinsurance

com-panies

5.7

6.06.46.76.76.7

6 67.28.7

10.812.9

16.119.321.323.326.0

29.433.035.237.139.2

41.844.246.950.555.2

60.064.667.570.072.0

74.475.576.981.486.2

89.291.6

87.288.088.389.2

89.489.790.291.6

91.892.993.6

Other holders

Federaland

relatedagencies'

5.0

4 94.74 33 63.0

2 42.01.81.82.3

2.83.54.14.64.8

5.36.27.78.0

10.2

11.512.212.611.812.2

13.517.520.925.131.1

38.346.454.664.882.1

101.0116.6

86.391.095.9

101.0

105.0107.3112.3116.6

121.5127.0133.5

Indi-viduals

andothers

11.9

12 012 211 711 511 5

12*113 815 316.617.5

18.419 320.421.723.2

25.327.129.132.335.1

38.443.146.349.552.7

55.258.261.465.971.2

79.985.998.9

112.2117.8

119.3124.9

119.2119.4119.5119.3

120.2121.8123.4124.9

127.4131.3134.5

1 Includes loans held hy nondeposit trust companies, but not by bank trust departments.2 Includes former Federal National Mortgage Association (FNMA) and new Government National Mortgage Association

(GNMA), as well as Federal Housing Administration, Veterans Administration, Public Housing Administration, FarmersHome Administration, and in earlier years Reconstruction Finance Corporation, Homeowners Loan Corporation, andFederal Farm Mortgage Corporation. Also includes GNMA Pools and U.S.-sponsored agencies such as new FNMA, FederalLand Banks, and Federal Home Loan Mortgage Corporation. Other U.S. agencies (amounts small or current separate datanot readily available) included with "individuals and others."

Source: Board of Governors of the Federal Reserve System, based on data from various Government and privateorganizations.

336


TABLE B-69.—Net public and private debt, 1929-76 l


End of year

1929

1933

1939

1940 .1941194219431944

19451946194719481949 . . .

19501951 .195219531954 . . . .

19551956 . . . .195719581959

1960 .1961196219631964

1965 . _ . .1966196719681969

19701971197219731974

19751976

Total

191.9

168.5

183.3

189.8211.4258.6313.2370.6

405.9396.6415.7431.3445.8

486.2519.2550.2581.6605.9

665.8698.4728.3769.6833.0

874.2930.3996.0

, 070.9,151.6

1,252.5L, 349.11,450.8I, 596.8L. 753.4

1, 881.92,067. 32, 299. 82, 562. 32, 793.5

3,028.83,354.9

Public

Fed-eralGov-ern-

ment >

16.5

24.3

42.6

44.856.3

101.7154.4211.9

252.5229.5221.7215.3217.6

217.4216.9221.5226.8229.1

229.6224.3223.0231.0241.4

239.8246.7253.6257.5264.0

266.4271.8286.4291.9289.3

301.1325.9341.2349.1360.8

446.3515.8

Fed-erallyspon-soredcreditagen-cies 3

"~6.T.6.7

.71.31.31.41.3

2.92.42.42.53.7

3.54.05.37.27.5

8.911.29.0

21.530.6

38.839.941.459.876.4

78.881.4

Stateandlocalgov-ern-

ments

13.6

16.3

16.4

16.416.115.414.513.9

13.413.715.017.019.1

21.724.227.030.735.5

41.144.548.653.759.6

64.970.577.083.990.4

98.3104.7112.8122.7133.3

144.8162.7178.0192.3211.2

222.7236.3

Private

Total

161.8

127.9

124.3

128.6139.0141.5144.3144.8

140.0153.4178.3198.4208.4

246.4276.8300.4322.7340.0

392.2427.2454.3482.4528.3

566.1609.1660.1722.3789.7

878.9961.3

1,042.71,160.91, 300.2

1,397.21, 538.81,739.21,961.12,145.1

2,281.02, 521. 5

Cor-porate

88.9

76.9

73.5

75.683.491.695.594.1

85.393.5

108.9117.8118.0

142.1162.5171.0179.5182.8

212.1231.7246.7259.5283.3

302.8324.3348.2376.4409.6

454.3506.6553.6631.5734.1

797.3871.3975.3

1,106.71,223.0

1, 286.61, 414.7

Individual and unincorporated enterprise

Total

72.9

51.0

50.8

53.055.649.948.850.7

54.759.969.480.690.4

104.3114.3129.4143.2157.2

180.1195.5207.6222.9245.0

263.3284.8311.9345.8380.1

424.6454.7489.1529.3566.2

600.0667.5763.9854.4922.1

994.41,106.8

Farm*

12.2

9.1

8.8

9.19.39.08.27.7

7.37.68.6

10.812.0

12.313.715.216.817.5

18.719.420.223.223.8

25.127.530.233.236.0

39.342.247.951.755.2

57.862.568.279.089.2

98.2108.5

Nonfarm

Total

60.7

41.9

42.0

43.946.340.940.542.9

47.452.360.769.778.4

92.0100.6114.2126.4139.7

161.4176.1187.4199.7221.2

238.2257.3281.7312.6344.1

385.3412.5441.1477.6511.0

542.1604.9695.8775.5832.9

896.2998.3

Mort-gage

31.2

26.3

25.0

26.127.126.826.126.0

27.031.837.242.447.1

54.861.768.976.786.4

98.7109.4118.1128.1141.0

151.3164.5180.3198.6218.9

244.3260.9278.2298.4319.8

344.9389.3448.7510.4561.0

612.8684.1

Com-mer-cialand

finan-cial*

22.4

11.7

9.8

9.510.08.19.5

11.8

14.712.111.912.913.9

15.816.217.818.420.8

24.024.424.326.528.7

30.834.837.642.345.0

51.155.462.268.570.0

70.377.089.886.183.1

86.296.4

Con-sumer

7.1

3.9

7.2

8.39.26.04.95.1

5.78.4

11.614.417.4

21.522.727.531.432.5

38.842.345.045.151.5

56.158.063.871.780.3

89.996.2

100.8110.8121.1

127.0138.6157.2179.0188.7

197.3217.8

1 Net public and private debt is a comprehensive aggregate of the indebtedness of borrowers after eliminating certaintypes of duplicating government and corporate debt.

2 Net Federal Government debt is the outstanding debt held by the public, as defined in "The Budget of the UnitedStates Government, Fiscal Year 1979."

»Debt of agencies in which there is no longer any Federal proprietary interest. The obligations of the Federal landbanks are included beginning with 1947, the debt of the Federal home loan banks is included beginning with 1951, andthe debts of the Federal National Mortgage Association, Federal intermediate credit banks, and banks for cooperativesare included beginning with 1968.

* Farm mortgages andf arm production loans. Farmers' financial and consumer debt is included in the nonfarm categories.«Debt to banks (other than consumer credit), security credit, policy loans, and some single-payments loans.

Source: Department of Commerce (Bureau of Economic Analysis), based on data from various Federal agencies andther sources.

337


GOVERNMENT FINANCE

TABLE B-70.—Federal budget receipts, outlays, and debt, fiscal years 1969-79

[Millions of dollars; fiscal years]

Description

BUDGET RECEIPTS AND OUTLAYS:

Total receipts....

Federal fundsTrust fundsInterfund transactions..

Total outlays

Federal fundsTrust funds ~Interfund transactions.

Total surplus or deficit (—).

Federal funds.Trust funds...

OUTSTANDING DEBT, END OF PERIOD:

Gross Federal debt

Held by Government agencies..Held by the public

Federal Reserve System..Other

Actual

1969

187,784

143,32152,009

- 7 , 547

184, 548

148,81143, 284-7, 547

3,236

-5,4908,725

367,144

87,661279, 483

54,095225, 388

1970

193,743

143,15859,362-8, 778

196, 588

156,30149, 065-8, 778

-2,845

-13,14310,297

382,603

97,723284, 880

57, 714227,166

1971

188,392

133, 78566,193

-11,586

211,425

163,65159,361

-11, 586

-23,033

-29, 8666,832

409, 467

105,140304, 328

65, 518238,810

1972

208,649

148, 84672,959

-13,156

232, 021

178,10467,073

-13,156

-23, 373

-29,2595,886

437, 329

113, 559323,770

71,426252,344

1973

232,225

161, 35792,193

-21,325

247,074

186,95181,447

-21, 325

-14,849

-25, 59410,746

468, 426

125, 381343,045

75,182267,863

1974

264,932

181,219104, 846-21,133

269,620

199,92090, 833

-21,133

-4, 688

-18,70114, 013

486,247

140,194346,053

80,649265, 404

BUDGET RECEIPTS.

Individual income taxesCorporation income taxesSocial insurance taxes and contributions..Excise taxesEstate and gift taxesCustoms dutiesMiscellaneous receipts:

Deposits of earnings by Federal Re-serve System

Allother

BUDGET OUTLAYS..

National defenseInternational affairsGeneral science, space, and technologyEnergyNatural resources and environmentAgricultureCommerce and housing creditTransportationCommunity and regional developmentEducation, training, employment, and social

servicesHealthIncome securityVeterans benefits and servicesAdministration of justiceGeneral governmentGeneral purpose fiscal assistanceInterestAllowancesUndistributed offsetting receipts

187,784

87,24936,67839,91815, 2223,4912,319

2,662247

184, 548

79, 4184,5735,0161,0012,8485,779533

6,5311,545

7,53811,75837,2817,640761

1,649430

15, 793

193,743

90,41232, 82945, 29815,7053,6442,430

3,266158

196, 588

78, 5534,2954,508990

3,0035,1642,0777,0132,395

8,62413,05143,0668,677952

1,940536

18,312

188, 392

86,23026,78548, 57816,6143,7352,591

3,533325

211,425

75, 8084,0924,1801,0313,8554,2882,3398,0572,846

9,83914,71655,4239,7761,2992,159

53519, 609

208,649

94,73732,16653,91415, 4775,4363,287

3,252381

232,021

76, 5504,6744,1741,2704,1955,2792,2068,3953,413

12, 51917, 47163,91110,7301,6502,466673

20, 582

232,225

103,24636,15364, 54216, 2604,9173,188

3,495426

247,074

74,5414,0364,0301,1804,7144,855860

9,0704,593

12,73518,83272,95812,0132,1312,6827,35122,813

Composition of undistributed offsetting re-ceipts:

Employer share, employee retirement..Interest received by trust fundsRents and royalties on the Outer Conti-

nental Shelf

-5,545

-2,018-3,099

-428

- 6 , 567

- 2 , 444- 3 , 9 3 6

- 1 8 7

- 8 , 427

- 2 , 6 1 1- 4 , 765

- 1 , 0 5 1

- 8 , 1 3 7

- 2 , 7 6 8- 5 , 0 8 9

-279

-12 ,318

- 2 , 9 2 7- 5 , 4 3 6

- 3 , 9 5 6

264,932

118, 95238,62076, 78016, 8445,0353,334

4,845524

269,620

77,7505,6403,977843

5,6642,2303,9209,1764,084

12,34422, 07484, 43113,3862,4623,3276,89028,072

-16,651

-3,319-6, 583

-6,748


338


TABLE B-70.—Federal budget receipts, outlays, and debt, fiscal years 1969-79—Continued

[Millions of dollars; fiscal years]

DescriptionActual

1975 1976 ransitionquarter 1977

Estimate

1978 1979

BUDGET RECEIPTS AND OUTLAYS:Total receipts

Federal fundsTrust fundsInterfund transactions.

Total outlays.

Federal fundsTrust fundsI nterfund transactions.

Total surplus or deficit ( - ) _

Federal funds.Trust funds. . .

OUTSTANDING DEBT, END OF PERIOD:Gross Federal debt

Held by Government agencies.Held by the public

Federal Reserve System.Other

280,997

187,505118,590

-25,098

326,092

240,018111,171

-25,098

-45,095

-52,5147,419

544,131

147,225396,906

84,993311,913

299,197

200,291133,695-34,789

365, 643

269,146131,286-34, 789

-66,446

-68,8552,410

631,866

151, 566480,300

94,714385, 586

81,687

53,99932,071-4,383

94, 657

65,01734,023-4, 383

-12,970

-11,018-1,952

646, 379

148,052498,327

96,702401,625

356, 861

240, 412152, 763-36, 313

401, 902

294, 948143,267-36, 313

-45, 040

-54, 5369,496

709,138

157, 295551,843

105,004446, 839

400, 387

267, 889168,490-35,992

462,234

340, 036158,190-35,992

-61, 847

-72,14710, 300

785, 583

167, 740617,843

439, 588

289,095187,991-37,497

500,174

363, 580174,092-37,497

-60, 586

-74, 48513,899

873,668

182,826690, 843

BUDGET RECEIPTSIndividual income taxesCorporation income taxesSocial insurance taxes and contributions..Excise taxesEstate and gift taxesCustoms dutiesMiscellaneous receipts:

Deposits of earnings by Federal ReserveSystem

Allother

BUDGET OUTLAYSNational defenseInternational affairsGeneral science, space, and technologyEnergyNatural resources and environment..AgricultureCommerce and housing creditTransportationCommunity and regional developmentEducation, training, employment, and social

services...HealthIncome security.Veterans benefits and servicesAdministration of justice.General governmentGeneral purpose fiscal assistance...InterestAllowances..Undistributed offsetting receipts

280,997122,38640,62186,44116, 5514,6113,676

5,777934

326,09285,5506,8613,9892,1797,3291,6605,604

10, 3923,692

15,87027,647

108,60516, 5972,9423,0897,187

30,974

299,197130,79441,40992,71416,9635,2164,074

5,4512,575

365,64389, 4305,5674,3703,1278,1242,5023,795

13,4384,709

18, 73733,448

126, 59818,4323,3202,9277,23534, 589

81, 68738,715

25, 7604,4731,4551,212

1,500112

94,657

22,3072,1801,161794

2,532584

1,3913,3061,340

5,1628,72032,7103,962859878

2,0927,246

356, 861

156, 72554, 892108,68817, 5487,3275,150

5,908622

401, 902

97, 5014,8314,6774,17210,0005,526-31

14, 6366,283

20,98538,785137, 00418,0383,6003,3579,49938,092

400, 387

178,82858,949124,12220,1505,6185,792

6,200728

462, 234

107, 6266,7474,7577,83712,1259,1063,52316, 3109,694

27,47144, 261147,64018,9164,0194,1199,86043,841

Composition of undistributed offsettingreceipts:

Employer share, employee retirement-Interest received by trust fundsRents and royalties on the Outer Con-

tinental Shelf.

-14,075

-3 ,980-7,667

- 2 , 4 2 8

-14,704

-4,242-7,800

-2,662

- 2 , 567

-985-270

-1,311

-15,053

- 4 , 548-8,131

- 2 , 374

-15,619

-5,024- 8 , 595

- 2 , 000

439,588190,07762,487

141,88925,4756,0676,390

6,300902

500,174117,779

7,6915,0779,634

12,2225,4332,969

17, 3998,669

30, 42149,677

160,02419, 2574,2114,3049,636

48,9912,800

-16,021

-5,157-9,064

-1,800

Note.—Through fiscal year 1976, the fiscal year runs from July 1 through June 30; starting in October1976 (fiscal year 1977), the fiscal year runs from October 1 through September 30. The period July 1 , 1976through September 30, 1976 is a separate fiscal period known as the transition quarter.

Earned income credit payments in excess of an individual's taxable liability are classified as income tax refunds beginning1976 and as outlays prior to 1976.

Sources: Department of the Treasury and Office of Management and Budget.

339


TABLE B-71.—Federal budget receipts and outlays, fiscal years 1929-79

[Millions of dollars]

1929

1933

1939 .

19401941194219431944

19451946194719481949

19501951195219531954

19551956195719581959

I960196119621963..1964

19651966196719681969

19701971197219731974

19751976Transition quarter19771978119791

Fiscal year Receipts

3,862

1,997

4,979

6,3618 621

14,35023,64944,276

45,21639,32738,39441,77439,437

39 ^8551 64666,20469, 57469,719

65,46974,54779 99079,63679,249

92,49294,38999,676

106,560112,662

116,833130 856149,552153,671187,784

19^, 743188,392208, 649232,225264,932

280, 997299,19781,687

356,861400,387439,588

Outlays

3,127

4,598

8,841

9,45613,63435 11478,53391,280

92,69055,18334, 53229,77338,834

42 59745 54667!72176,10770,890

68,50970,46076,74182,57592,104

92,22397,795

106,813111,311118,584

118,430134 652158,254178,833184,548

196,588211,425232,021247,074269,620

326, 092365,64394,657

401,902462,234500,174

Surplus ordeficit ( - )

734

- 2 , 6 0 2

- 3 , 8 6 2

- 3 , 0 9 5- 5 , 0 1 3

-20,7R4- 5 4 , 8 8 4- 4 7 , 0 0 4

-47 ,474-15 ,856

3,86212,001

603

- 3 1126,100

- 1 , 5 1 7- 6 , 533- 1 , 1 7 0

- 3 , 0 4 14,0873,249

- 2 , 9 3 9-12 ,855

269- 3 , 4 0 6- 7 137- 4 , 7 5 1- 5 , 9 2 2

- 1 , 5 9 6- 3 796- 8 ! 702

-25 ,1613,236

- 2 , 8 4 5-23 ,033- 2 3 , 3 7 3- 1 4 , 849- 4 , 6 8 8

-45 ,095-66 ,446-12 ,970-45 ,040-61 ,847-60 ,586

i Estimate.Note.—Under provisions of the Congressional Budget Act of 1974, the fiscal year for the Federal Government shifted

beginning with fiscal year 1977. Through fiscal year 1976, the fiscal year ran from July 1 through June 30; starting inOctober 1976 (fiscal year 1977), the fiscal year ran from October 1 through September 30. The 3-month period fromJuly 1,1976 through September 30,1976 is a separate fiscal period known as the transition quarter.

See Note, Table B-70 regarding treatment of earned income credit payment.Data for 1929-39 are according to the administrative budget and those beginning 1940 according to the unified budget.Certain interfund transactions are excluded from receipts and outlays beginning 1932. For years prior to 1932 the amounts

of such transactions are not significant.Refunds of receipts are excluded from receipts and outlays.Sources: Department of the Treasury and Office of Management and Budget.

340


TABLE B-72.—Relation of the Federal budget to the Federal sector of the national income andproduct accounts, fiscal years 1977-79

[Billions of dollars; fiscal years]

Receipts and expenditures 1977Estimate

1978 1979

Total budget receiptsRECEIPTS

356.9 400.4

Government contribution for employee retirement (grossing).Other netting and grossingAdjustment to accrualsOther

6.43.7

- 1 . 9- 1 . 0

7.13.9.5

- 1 . 1

Federal sector, national income and product accounts, receipts

EXPENDITURESTotal budget outlays

364.0

401.9

410.8

462.2

Lending and financial transactionsGovernment contribution for employee retirement (grossing)...Other netting and grossingDefense timing adjustment.Bcnuses en Outer Continental Shelf land leases. ._.Other

-1 .36.43.72.71.5

-3 .2

-7 .17.13.9.3

1.2- 4 . 0

Federal sector, national income and product accounts, expenditures.- 411.8 463.6

439.6

7.54.41.1

-1 .2

451.4

500.2

-4 .77.54.4

- . 2.9

-4 .1

504.0

Note.-See Note, Table B-71.See Special Analysis A, "Special Analyses, Budget of the United States Government, Fiscal Year 1979" for description

of these categories.Sources: Department of Commerce (Bureau of Economic Analysis), Department of the Treasury, and Office of Manage-

ment and Budget.

341

248-947 O - 78 - 22


TABLE B-73.—Receipts and expenditures of the government sector of the national income and productaccounts, 1929-77


Calendar year or quarter

1929

1933

1939

19401941194219431944.1945194619471948.1949

19501951195219531954195519561957..19581959..

1960196119621963..19641965 .1966196719681969

19701971 . . . .197219731974..197519761977P

1975: 1.IIIII.. .IV.. . .

1976: l__IIIllIV.

1977: 1I I . . .IllIV*

Total government

Re-ceipts

11.3

9.3

15.4

17.725.032.649.251.253.251.056.958.955.9

69.085.290.194.689.9

101.1109.7116.2115.0129.4

139.5144.8156.7168.5174.0188.3212.3228.2263.4296.3

302.6322.2367.4411.2455.1468.0535.9600.8

461.1433.2482.3495.4

513.7530.7543.0556.5

583.9595.7602.2

Ex-pendi-tures

10.3

10.7

17.6

18.428.864.093.3

103.092.745 642.550.559.3

61.079.293.9

101.697.098.0

104.5115.3127.6131.0

136.4149.1160.5167.8176.3187.8213.6242.4268.9285.6

311.9340.5370.9404.9458.2532.3571.5621.2

505.9527.9541.2554.0

560.7564.0575.4586.0

595.4610.5628.1650.7

Sur-plus ordeficit(-).

nationalincome

andprod-

uct ac-counts

1.0

- 1 . 4

- 2 . 2

- . 7- 3 . 8

- 3 1 . 4- 4 4 . 1-51.8-39.5

5 414.48.4

- 3 . 4

8.06.1

- 3 . 8- 6 . 9-7 .1

3.15.2.9

-12.6- 1 . 6

3.1- 4 . 3- 3 . 8

.7- 2 . 3

.5- 1 . 3

-14.2- 5 . 510.7

-9 .4-18.3-3 .5

6.3-3 .2

-64.3-35.6-20.4

-44.9-94.7-59.0-58.7

-47.1-33.3-32.4-29.4

-11.5-14.9-26.0

Federal Government

Re-ceipts

3.8

2.7

6.7

8.615.422.939.341.042.539.143.243.238.7

50.064.367.370.063.772.678.081.978.789.8

96.198.1

106.2114.4114.9124.3141.8150.5174.7197.0

192.1198.6227.5258.3288.6286.9332.3373.9

287.4255.1298.2307.0

318.4329.1337.1344.5

364.9371.2373.2

Ex-pendi-tures

2.6

4.0

8.9

10.020.556.185.895.584.635.629.834.941.3

40.857.871.177.169.868.171.979.688.991.0

93.1101.9110.4114.2118.2123.8143.6163.7180.6188.4

204.2220.6244.7265.0299.3357.1386.3423.5

335.9354.3363.7374.5

378.7375.3390.6400.4

403.7411.5432.1446.7

Sur-plus ordeficit(->,

nationaincome

andprod-

uct ac-counts

1.2

- 1 . 3

- 2 . 2

- 1 . 3-5 .1

-33.1-46.6-54.5-42.1

3.513.48.3

- 2 . 6

9.26.5

-3 .7- 7 . 1- 6 . 0

4.46.12.3

-10.3-1 .1

3.0-3 .9- 4 . 2

.3- 3 . 3

.5-1 .8

-13.2-5 .8

8.5

-12.1-22.0-17.3-6 .7

-10.7-70.2-54.0-49.6

-48.5-99.2-65.5-67.6

-60.3-46.2-53.5-55.9

-38.8-40.3-58.9

State and localgovernment

Re-ceipts

7.6

7.2

9.6

10.010.410.610.911.111.613.015.417.719.5

21.323.425.427.429.031.735.038.542.046.4

49.954.058.563.269.575.184.893.6

107.2119.7

134.9152.6177.4193.5210.4235.7264.7294.5

223.7231.8240.8246.4

253.8258.4269.0277.5

281.0288.1301.6

Ex-pendi-tures

7.8

7.2

9.6

9.39.18.88.48.59.0

11.114.417.620.2

22.523.925.527.330.232.935.939.844.346.9

49.854.458.062.868.575.184.394.7

106.9117.6

132.2148.9163.7180.5202.8229.8246.2265.3

220.0227.3234.2237.5

240.5245.5247.9251.1

253.7262.6268.7276.2

Sur-plus ordeficit(-),

nationalincome

andprod-

uct ac-counts

- 0 . 2

- . 1

.0

.61.31.82.52.72.61.91.0.1

- . 7

- 1 . 2- . 4- . 0

.1—1.1- 1 . 3—.9

- 1 . 4- 2 . 4—.4

.1- . 4

.5

.51.0

- . 0.5

-1 .1.3

2.1

2.83.7

13.713.07.65.9

18.429.2

3.74.56.68.9

13.312.921.126.5

27.325.432.9

Note.—Federal grants-in-aid to State and local governments are reflected in Federal expenditures and State and localreceipts. Total government receipts and expenditures have been adjusted to eliminate this duplication.


342


T A B L E B-74.—Receipts and expenditures of the Federal Government sector of the national incomeand product accounts, 1952-79

[Billions of dollars; quarterly data at seasonally adjusted annual rates)

Year or quarter

Fiscal year:1952195319541955195619571958195919601961196219631964196519661967196819691970.19711972197319741975197619771978219792

Calendar year:19521953.. . .1954.. . .19551956195719581959I960. . . .19611962. .19631964.1965196619671968 . .196919701971197219731974197519761977*

1976:1.I I . . .IllIV

1977:l__ _IIIIIIVP

Total

65.269.465.867.476.381.078.185.494.895.0

104.0110.0115.6120.0132.7146.0160.0190 1194.9192.5213.5240.5271.8283.6314.1364.0410.8451.4

67.370.063.772.678.081.978.789.896.198.1

106.2114.4114.9124.3141.8150.5174.7197 0192.1198.6227.5258.3288.6286.9332.3373.9

318.4329.1337.1344.5

364.9371.2373.2

\

Per-sonaltaxandnon-taxre-

ceipts

28.831.430.329.733.636.736.338.242 543.647.349.650.751.457.564.471.490 093.687.5

100.3107.3122.6127.3137.2165.5185.5195.6

31.032.229.031.435.237.436.839.943.644.748.651.548.653.961.767.579.694.892.289.9

108.2114.6131.1125.6147.3170.7

138 0143 9150.3157.1

170.0168.6168.6175 5

Receipts

Corpo-rate

profitstaxac-

cruals

19.419.717.318.921.520.817.921.422 320 022.723.325.727.130.830.333.237 033.032.034.241.043.742.152.257.463.169.7

18 619.516.921.120 920.418.022 521.421 522.524 626.128.931.430.036.336 230.833.536 643 045.943.155.959.5

54 457 056.955.1

55.459.959.5

Indi-rect

busi-nesstaxandnon-taxac-

cru-als

9.710.710.410.010.811.711.612.013 213 314.215.015.616.915.515.817.118 619.220.019.920.721.422.124.224.628.534.8

10 310.99.7

10.711 211.811.512 513.413 614.615 316.216.515.616.318 019 019.320.420 021 221.724.023.424.8

22 723 223.723.8

24.224.625.425.2

Con-tribu-tionsfor

socialinsur-ance

7.37.67.88.7

10.311.712.313.916 718.119.922.123.624.528.935.538.444 549.252.959.171.584.292.1

100.5116.5133.7151.3

7.47.48.29.4

10 612.312.414 917.618 320.523 124 025.033.136.740.847 049.754.962 879 489.994.2

105.7118.9

103 2105 0106.2108.4

115.4118.1119.7122.4

Expenditures

TotaM

66.075.974.367.270.076.082.891.291.398.1

106.2111.7117.2118.5132.7154.9172.2184.7195 6212.7232.9256.2278.8328.7372.3411.8463.6504.0

71.177.169.868.171.979.688.991 093.1

101.9110.4114.2118.2123.8143.6163.7180.6188 4204.2220.6244 7265 0299.3357.1386.3423.5

378 7375 3390.6400.4

403.7411.5432.1446.7

Pur-chases

ofgoodsand

serv-ices

47.256.453.944.345.548.151.154.852.955.861.063.765.964.672.486.095.098.097.094.8

100.9101.7104.6117.9126.5140.7158.4171.6

52.457.547.944.545 950.053.953 953.757.463.764.665.267.378.890.998.097 595.696.2

102 1102 2111.1123.3130.1145.4

127 6128 5130.2134.2

136.3143.6148.1153.8

Transferpayments

Toper-sons

8.59.2

10.512.112.814.417.819.920.623.625.126.527.428.431.837.242.748 755.067.776.187.1

101.7131.1153.9[66.5.80. 7,98.0

8.89.4

11.51? 413.415.719.620.121.625.025.627.027.930 333.540 146.050.661.37? 780.593.2

114.4146.1158.8169.4

157 1155 0160.0163.1

167.8166.4171.2174.0

Tofor-

eign-ers

2.62.11.72-1

81.91.7

8ft

2.12.12.12.22.22.32.22.12.22.02.32.82.73.03.13.03.23.53.8

2.12.01.82.01 91.81.81.81.92.12.22.22.22.22.32.22.12.12.22.62.72.63.23.13.23.2

3 02 73.93.2

2.92.93.63.6

Grants-in-aid

to Stateandlocal

govern-ments

2.52.82.93.03.23.74.76.26.96.97.68.39.8

10.912.714.817.819.222.626.832.640.441.648.457.566.077.081.6

2.62.82.93.13.34.25.66.86.57.28.09.1

10.411.114.415.918.620.324.429.037.540.643.954.661.067.6

58 556 863.165.5

62.063.672.772.2

Netin-ter-est

paid

4.54.54.64.64.85.35.45.66.86.46.47.17.78.28.79.6

10.512.113.614.214.115.919.821.925.429.334.539.8

4.54.64.64.65.15.55.26.26.86.26.87.38.08.49.29.8

11.412.914.314.014.618.220.923.327.229.5

26 226.727.328.5

28.629.129.430.9

Subsi-dieslesscur-rentsur-plusof

gov-ern-mententer-prises

0.8.9.8

1.21.72.62.42.52 43.34.14.04.14.34.85.24.14 65.46.86.49.18.05.76.16.19.59.2

.8

.71.01.52.42.42.82.12.64.04.23.94.54.65.54,74.55.26.36.27.88.25.36.75.97.9

6.25.56.16.0

6.15.97.2

12.3

Sur-plusor

defi-cit

(->,na-

tion-al in-comeand

prod-uctac-

counts

- 0 . 8- 6 . 5- 8 . 5

.26.35.0

-4 .7- 5 . 8

3.4-3 .1- 2 . 2-1 .7-1 .5

1.4.0

-8 .9-12.2

5.4- . 6

-20.2-19.5-15.7-7 .0

-45.0-58.2-47.8-52.8-52.6

-3 .7-7 .1-6 .0

4.46.12.3

-10.3- 1 . 1

3.0- 3 . 9- 4 . 2

.3- 3 . 3

.5- 1 . 8

-13.2- 5 . 8

8.5-12.1-22.0-17.3-6 .7

-10.7-70.2-54.0-49.6

-60.3-46.2-53.5-55.9

-38.8-40.3-58.9

» Excludes wape accruals less disbursements not shown separately. These were (in billions of dollars at seasonallyadjusted annual rates) .0 in each of the quarters of 1976 and 1977.

2 Estimates.

Sources: Department of Commerce (Bureau of Economic Analysis) and Office of Management and Budget.

343


TABLE B-75.—-Receipts and expenditures of the State and local government sector of the nationalincome and product accounts, 1946—77


Calendaryear orquarter

Receipts

Total

Per-sonaltaxand

nontaxreceipts

Cor-porateprofits

taxaccruals

ndirectbusi-nesstaxand

nontaxaccruals

Contri-butions

forsocialinsur-ance

Fed-eral

grants-in-aid

Expenditures

Total i

Pur-chases

ofgoodsandserv-ices

Trans-fer

pay-ments

toper-sons

Netnterestpaid

Sub-sidiesless

currentsurplusof gov-

ern-ment

enter-prises

Surplusor

deficit<-),

nationalincome

andprod-uct ac-counts

1946...1947...1948...1949...

1950...1951—1952...1953...1954...

1955...1956...1957...1958...1959...

1960...1961..1962..1963..1964..

1965..1966..1967..1968..1969..

1970..1971..1972..1973..1974..

1975...1976...1977 *>_

1975: IIIIllIV

1976: I.IIIllIV

1977: I.IIIllIV *____.

13.015.417.719.5

21.323.425.427.429.0

31.735.038.542.046.4

49.954.058.563.269.5

75.184.893.6

107.2119.7

134.9152.6177.4193.5210.4

235.7264.7294.5

223.7231.8240.8246.4

253.8258.4269.0277.5

281.0288.1301.6

1.51.72.12.4

2.52.83.03.23.5

3.94.55.05.46.1

6.77.48.28.8

10.0

10.912.814.617.420.6

23.126.433.036.139.2

43.449.656.8

42.142.843.844.9

46.848.750.352.5

54.456.257.559.1

0.5.6.7,6

.9

'.8.8

.0

.0

.0

.0

.2

1.2

'.5

L8

2.02.22.53.13.4

3.74.25.05.76.5

7.18.99.7

5.76.48.08.2

8.69.19.08.8

9.09.89.8

9.310.712.213.3

14.615.917.418.819.9

21.623.825.727.229.3

32.034.437.039.442.6

46.149.754.060.867.4

74.783.191.099.0

106.9

114.7127.1140.3

110.8113.3116.2118.7

122.7126.0128.1131.7

135.9138.6141.5145.2

0.6.7.8.9

1.11.41.61.72.0

2.12.32.62.83.1

3.43.73.94.24.7

5.05.76.77.27.9

9.09.9

10.812.113.9

15.918.120.1

15.215.716.116.6

17.217.818.519.1

19.519.920.220.7

1.11.72.02.2

2.32.52.62.82.9

3.13.34.25.66.8

6.57.28.09.1

10.4

11.114.415.918.620.3

24.429.037.540.643.9

54.661.067.6

50.053.756.758.0

58.556.863.165.5

62.063.672.772.2

11.114.417.620.2

22.523.925.527.330.2

32.935.939.844.346.9

49.854.458.062.868.5

75.184.394.7

106.9117.6

132.2148.9163.7180.5202.8

229.8246.2265.3

220.0227.3234.2237.5

240.5245.5247.9251.1

253.7262.6268.7276.2

9.912.815.318.0

19.821.823.225.027.8

30.633.537.141.143.7

46.550.854.359.064.6

71.179.889.3

100.7110.4

123.2137.5151.0167.3191.5

215.6231.2249.5

206.4213.3219.7222.9

225.9230.4232.7235.8

238.5247.0252.9259.8

1.72.33.03.0

3.63.13.33.53.6

3.83.94.34.85.1

5.45.86.06.46.9

7.38.19.4

10.612.1

14.617.218.920.320.5

23.825.928.0

22.623.324.225.0

25.325.826.226.5

27.027.728.329.0

0.2.1.1.1

.1

.0

.0

.0

.1

.1

.1

.1

.1

.1

.1

.1

.1

.1

- . 3- . 7

g- L 2-1 .6

-2 .0-1 .8-2 .1- 2 . 9-4 .9

- 5 . 2-5 .7-6 .5

-4.7-5.0-5.2-5.6

-5.6-5.7-6.0-5.7

- 6 . 2- 6 . 3- 6 . 7- 6 . 7

-0.7- . 8

- . 9- 1 . 0- 1 . 1- 1 . 2- 1 . 3

- 1 . 5- 1 . 6- 1 . 7- 1 . 7- 2 . 0

-2.2-2.3-2.5-2.8-2.8

- 3 . 0- 3 . 0- 3 . 1- 3 . 2- 3 . 3

- 3 . 6- 3 . 8- 4 . 2- 4 . 4- 4 . 3

-4.5-5.2-5.8

-4.3-4.4-4.5-4.8

- 5 . 1- 5 . 0- 5 . 1- 5 . 5

-5.7-5.7-5.8-5.9

1.91.0.1

- . 7

- 1 . 2- . 4- . 0

- L I

- 1 . 3- . 9

- 1 . 4- 2 . 4- . 4

.1- . 4

.5

l'.O

-1 .1

2.1

2.83.7

13.713.07.6

5.918.429.2

3.74.56.68.9

13.312.921.126.5

27.325.432.9

1 Excludes wage accruals less disbursements not shown separately. These were (in billions of dollars, at seasonallyadjusted annual rates) .0 in each of the quarters of 1975,1976, and 1977.


344


T A B L E B-76.—State and local government revenues and expenditures^ selected fiscal years\ 1927-76


Fiscal year »

General revenues by source*

TotalProp-erty

taxes

Salesand

grossre-

ceiptstaxes

Indi-vidualncometaxes

Corpo-ration

netincometaxes

Reve-nue

fromederal

iovern-ment

Allothers

General expenditures by functionJ

Total Edu-cation

High-ways

Publicwel-fare

Allother«

1927...

1932...1934..1936..1938..

1940..1942..1944..1946..1948..

1950..1952..1953..1954..

1955..1956..1957-1958..1959..

I960..1961..1962..1963..

1962-63 8...1963-64 5...1964-65«...

1965-66«_.1966-67 8..1967-68«_.1968-69 5..1969-70 5..

1970-715..1971-72 5..1972-73»..1973-74 5...1974-75 5...

1975-76 5

7,271

7,2677,6788,3959,228

9,60910,41810,90812,35617,250

20,91125,18127,30729, or31,07334,66738,16441,21945,306

50,50554,03758,25262,890

62.26S68,44374,00C

83,03691,197

101,264114,55C130,756

144,92;166,35;190, 21<207, 671228,17

256,17

4,730

4,4874,0764,0934,440

4,4304,5374,6044,9866,126

7,3498,6529,3759,967

10,73511,74912,86414,04714,983

16,40518,00219,05420,089

19,83!21,2422,582

24,67126,0427, 74]30,67334,054

37,85142,13!45,28!47, 70!51,49

57,00

470

7521,0081,4841,794

1,9822,3512,2892,9864,442

5,1546,3576,9277,276

7,6438,69"9,469,829

10,437

11,84912,46313,49414,456

14,44615,76217,11

19,08!20,53122,91:26,51!30,32;

33,23:37,48!42,04;46, 09149, 81!

54, 54

70

7480

153218

224276342422543

788998

1,0651,127

1,23;1,5381,754l,75f1,99'

2,46,2,61:3,03;3,26!

3,26'3,7914,09C

4,7605,8267,30?8,90*

10,81;

ll,90C15,23717,99'19, 49!21, 45

24,57

92

7949113165

156272451447592

593846817778

744890984

1,0181,001

1,1801,2661,3081,505

1,5051,6951,929

2,03?2,22'2,51J3.18C3,73.r

3,42'4,415,42!6,016,64;

7,27:

116

2321,016

948800

945858954855

1,861

2,4862,5662,8702,966

3,1313,3353,8434,8656,377

6,97<7,13;7,8718,722

8,66310,00211,029

13,21415,37f17,18:19,15;21,85'

26,14131,25339, 25641, 82047,034

55, 589

1,793

1,6431,4491,6041,811

1,8722,1232,2692,6613,685

4,5415,7636,2526 , " "

7,5848,4659,2509,69910,516

11,63412,56313,48914,850

14,55615,95117,250

19,26921,19723,59826,lir29,97

32,3735,82i40,2H46,5451, 73*

57,19

7,210

7,7657,1817,6448,757

9,2299,1908,86311,02817,684

22,78726,09827,91030,701

33,72436,71140,37544,85148,887

51,87656,20160,20664,816

63,9769,30274,546

82,84393,350102,411116,728131,33f

150,67166,873181,227198,959230, 721

256,73:

2,235

2,3111,8312,1772,491

2,6382,5862,7933,3565,379

7,1778,3189,39010, 557

11,90713,22014,13415,91917,283

18,71920,57422,21623,776

23,72926.28628,563

33.28737,91941,15847,23852,718

59,41364,88669,71475, 83387, 858

97, 216

1,809

1,7411,5091,4251,650

1,5731,4901,2001,6723,036

3,8034,6504,9875,527

6,4526,9537,8168,5679,592

9,4289,84410,35711,136

11,15011,66412,221

12,77013,93214,48115,41"16,42

18,09519,01018,61519, 94622,528

23,907

151

444889827

1,069

1,1561,2251,1331,4092,099

2,9402,7882,9143,060

3,1683,1393,4853,8184,136

4,4044,7205,0845,481

5,4205,7666,315

6,7578,2189,85712,11014,679

18,22621,07023, 58225,08528,155

32,604

3,015

3,2692,9523,2153,547

3,8623,8893,7374,5917,170

8,86710,34210,61911,557

12,19713,39914,94016, 54717,876

19,32521,06322,54924,423

23,67825,58627,447

30,02933,28136,91541,96347,508

54,94061,90769,31678,09692,180

103,004

1 Fiscal years not the same for all governments. See footnote 5.2 Excludes revenues or expenditures of publicly owned utilities and liquor stores, and of insurance-trust activities.

Intergovernmental receipts and payments between State and local governments are also excluded.3 Includes licenses and other taxes and charges and miscellaneous revenues.' Includes expenditures for health, hospitals, police, local fire protection, natural resources, sanitation, housing and

urban renewal, local parks and recreation, general control, financial administration, interest on general debt, and un-allocable expenditures.

* Data for fiscal year ending in the 12-month period through June 30. Data for 1963 and earlier years include local govern-ment amounts grouped in terms of fiscal years ended during the particular calendar year.

Note.—Data are not available for intervening years.See Table B-69 for net debt of State and local governments.


345


TABLE B-77.—Interest-bearing public debt by kind of obligation, 1967-77


End of yearor month

Totalin-

terest-bearingpublicdebt

Marketable

Total Bills Treasurynotes

Treasurybonds *

Nonmarketable

TotalU.S.

savingsbonds

Foreigngovern-

mentseries2

Govern-ment

accountseries *

Other«

Fiscal year:1967. . . .1968. . . .1969. . . .

1970.1971.1972.1973.1974.

1975.1976.1977.

1976: Jan..Feb...Mar..Apr..May-June.

July..Aug..Sept..Oct..Nov..Dec.

1977: Jan..Feb..Mar..Apr__May..June.

July..Aug..Sept.Oct..Nov_.Dec .

322,286344,401351,729

369,026396,289425,360456,353473,238

532,122619,254697,629

581,861592,874599, 224600,927608,077619,254

623,580632,291633,560635,062643, 643352, 457

552,980562,320568,216568, 509570,958573, 389

371, 386584, 081597,629596, 301706,973'15, 227

210,672226, 592226,107

232, 599245,473257,202262,971266,575

315.606392,581443,508

369,316378,773385,296386,444388,021392,581

397,719404, 314407,663408, 590415, 399421,276

423,995431.607435, 379434, 065431, 447431,149

430, 248438,146443, 508447, 435454, 862459, 927

58, 53564,44068,356

76,15486,67794,648100,061105,019

128,569161,198156, 091

159, 645162,088163,140161,764161, 840161,198

161, 399161,433161, 505161, 545161,711163,992

164,005164,175164,264161,977157,931155, 064

154, 227154, 283156, 091156,174156, 656161, 081

49,10871,07378,946

93,489104, 807113,419117,840128,419

150,257191,758241,692

171,110177,576183,143185.757186, 473191.758

197, 204202, 979206, 319207,275212, 986216,669

219,474225, 856229,625230,655230, 230232,885

231, 371238, 084241, 692245, 587251,104251, 800

97,41891,07978,805

62,95653,98949,13545,07133,137

36,77939,62645, 724

38,56239,11039,01438,92239,70839,626

39,11539,90239,83939, 76940, 70240, 615

40, 51641, 57641,49041, 43343, 28643, 200

44, 65045, 77845, 72445,67447,10247, 045

.11,61417,808.25,623

136,426150, 816168,158193,382206,663

216,516226,673254,121

212, 544214,100213,928214, 484220,056226,673

225,861227, 977225,897226,472228, 243231,181

228,985230,714232, 837234, 444239, 511242, 240

241,138245, 935254,121248, 866252, 111255, 300

51,21351,71251,711

51, 28153,00355,92159,41861,921

65,48269,73375,411

67,82668,17068, 56768,96869,39469,733

70, 42871,07970,75271,11371, 50671, 853

72,23472,64073, 03773, 45773, 90874, 282

74, 80375, 05975,41175, 81676, 22476,602

1,5143,7414,070

4,7559,27018,98528, 52425,011

23, 21621, 50021, 799

21,60121,68921,66921,61221,51521, 500

21,35720,96720,81422,29022, 48722, 299

22, 20922, 06922, 07821, 90321, 83121, 732

21, 54521,37021, 79921,12321,66522,187

56,15559, 52666,790

76,32382,78489,598101, 738115,442

124,173130, 557140,113

119,041120,105119,438119,453124,570130,557

128,912130,591128,640127,162127,405129,744

126,810127, 770128,192128, 992133, 029134, 754

132,447136, 329140,113136, 890138, 580139,774

2,7312,8283,051

4,0685,7593,6543,7014,289

3,6444,883

16, 797

4,0764,1384,2544,4494,5774,883

5,1645,3405,6905,9066,8447,284

7,7318,2359,52910, 09210, 74311,473

12, 34213,17616,79715, 03915,64216, 737

1 Includes Treasury bonds and minor amounts of Panama Canal and postal savings bonds.2 Nonmarketable certificates of indebtedness, notes, bonds, and bills in the Treasury foreign series and foreign-currency-

series issues.» Includes Treasury deposit funds and some special issues formerly included in "Other."< Includes depository bonds, retirement plan bonds, Rural Electrification Administration bonds, State and local bonds,

and special issues held only by U.S. Government agencies and trust funds and the Federal home loan banks.* Includes $5,610 million in certificates not shown separately.

Note.—Through fiscal year 1976, the fiscal year runs from July 1 through June 30; starting in October 1976 (fiscal year1977), the fiscal year runs from October 1 through September 30.


346


TABLE B-78.— Estimated ownership of public debt securities, 1967-77[Par values;1 billions of dollars]

End of year ormonth

Fiscal year:196719681969

19701971197219731974

197519761977

1976: Jan_FebMarAprMayJune

JulyAugSeptOct . . _._NovDec

1977: JanFebMarAprMayJune -.

July - . _Aug _. . _SeptOctNovDec*

Total public debt securities

Total 2

322.9345.4352.9

370.1397.3426.4457.3474.2

533.2620.4698.8

584.4593.9600.5602.0610 7620.4

624.5633.3634.7637.6644 6653 5

653.9663.3669.2671 0672.1674.4

673.9685.2698.8697.4708.0718.9

Held

Govern-ment

accounts

71.876.184.8

95.2102.9111.5123.4138.2

145.3149.6155.5

139.3139.8139.1139.1143.7149.6

147.6148.0146.1144.6144.9147.1

144.1144.4144.9145.5149.4151.2

148.7151.9155.5152.2153.9154.8

Held byFederalReserveBanks

46.752.254.1

57.765.571.475.080.5

84.794.4

104.7

89.889.089.891.890.594.4

90.794.096.495.791.797.0

94.195.896.099.897.4

102.2

98.698.4

104.794.696.5

101.2

Held by private investors

Total 3

204.4217.0214.0

217.2228.9243.6258.9255.6

303.2376.4438.6

355.3365.0371.7371.0376.4376.4

386.2391.3392.2397.3408.1409.5

415.7423.1428.3425.7425.3421.0

426.5434.9438.6450.6457.6462.9

Com-mercialbanks «

55.559.755.3

52.661.060.958.853.2

69.092.5

101.0

88.887.590.390.991.592.5

94.593.595.396.8

100.7103.8

102.4104.7106.3103.5102.2102.4

100.1100.0101.0100.5101.4

Mutualsavingsbanks

and in-surance

com-panies

13.212.511.6

10.410.310.29.68.5

10.616.020.6

14.915.215.715.816.016.0

16.817.517.417.918 318.2

18.118.618.818.819.020.2

20.120.120.620.721.3

Corpo-rations5

11.012.011.1

8.57.49.39.8

10.8

13.224.323.9

20.622.622.323.325.524.3

26.827.625.324.524.026.5

28.529.827.727.425.823.8

23.524.523.923.823.4

Stateand localgovern-ments «

23.625.126.4

29.025.926.928.828.3

31.739.353.5

34.835.936.836.937.039.3

37.438 238.740.541 541 6

44.843.344.448.449.147.6

47.852.753.554.555.6

Indi-viduals 7

70.474.277.3

81.875.473.275.980.7

87.196.4

103.9

91.793.994.594.795.996.4

97.199.799.7

100.0100 7100.8

101.0101.5101.9102.2102.7103.0

103.4103.7103.9104.4104.9

Miscel-laneousinves-tors 3 8

30.733.432.3

35.049.163.276.074.2

91.5107.9135.8

104.5109 9112.0109.4110 5107 9

113.7114 7115 8117 4123 0118 6

120.9125.2129.4125 4126.7123.9

131.7134.0135.8146.7151.0

1 U.S. savings bonds, series A-F and J, and U.S. savings notes are included at current redemption value.2 As of July 31, 1974, public debt outstanding has been adjusted to exclude the notes of the International Monetary

Fund to conform with the Budget presentation. This adjustment applies to the 1967-77 data in this table.3 For comparability with 1975-77 published data, published data for 1967-74 have been adjusted to exclude notes of

the International Monetary Fund. These adjustments amounted to $3.3 billion in 1967, $2.2 billion in 1968, and $0.8 billionin each year 1969 through 1974. These adjustments were necessary in order to add to the total public debt figures aspublished by the Department of the Treasury.

4 Includes commercial banks, trust companies, and stock savings banks in the United States and Territories and islandpossessions; figures exclude securities held in trust departments. Since the estimates in this table are on the basis of parvalues and include holdings of banks in United States Territories and possessions, they do not agree with the estimatesin Table B-60, which are based on book values and relate only to banks within the United States.

8 Exclusive of banks and insurance companies.e Includes trust, sinking, and investment funds of State and local governments and their agencies, and of Territories

and possessions.7 Includes partnerships and personal trust accounts.8 Includes savings and loan associations, nonprofit institutions, corporate pension trust funds, dealers and brokers,

certain government deposit accounts and government-sponsored agencies, and investments of foreign balances and inter-national accounts in the United States.

Note.—Through fiscal year 1976, the fiscal year runs from July 1 through June 30; starting in October 1976 (fiscal year1977), the fiscal year runs from October 1 through September 30.


347


TABLE B-79.—Average length and maturity distribution of marketable interest-bearingpublic debt held by private investors, 1967-77

End of year or monthAmount

out-standing

Maturity class

Within1 year

Ho 5years

5 to 10years

10 to 20years

20 yearsand over

Average length

Millions of dollars Years

Fiscal year:1967...1968..1969._

1970...1971.. .1972...1973.. .1974.. .

1975.. .1976...1977.. .

1976: Jan..Feb..Mar..Apr..May-June.


1977: Jan..Feb..Mar-Apr..May..June.

July..Aug..Sept.Oct_.Nov..Dec.

150, 321159, 671156,008

157,910161,863165,978167, 869164, 862

210,382279, 782326, 674

259, 831270, 625276, 434275,520278, 929279, 782

289,044293, 627294, 595296,211307, 309307, 820

313,497319, 982323,604318,699318, 619313, 485

316,177325, 001326,674338,290343, 870344, 314

56, 56166, 74669,311

76,44374,80379, 50984, 04187,150

115,677151, 723161, 329

152,077151,875154, 258153,441153,464151, 723

156,595153, 304153, 302155,179158, 422157, 453

162,633165, 942166,427162,419162,211157, 353

160, 332161, 932161, 329167,699169, 552172, 084

53, 58452,29550,182

57,03558, 55757,15754,13950,103

65,85289,151113,319

75,17982,48486, 21486,19886, 24289,151

91,04293, 39694,84591,795101, 684103, 742

101,626106, 685109, 983106,929106, 823107, 000

105, 255110,681113, 319115,744121, 346119,463

21, 05721,85018,078

8,28614, 50316,03316,38514,197

15,38524,16933,067

18, 31021, 70721, 53821, 59724, 33624,169

26,69431, 52331, 24733,92231, 34931, 017

33,68831, 20431,15533, 46932, 65832,442

32, 52133, 26033, 06735,91232, 85832, 796

6,1536,1106,097

7,8766,3576,3588,7419,930

8,8578,0878,428

8,4668,4178,3508,2428,1728,087

8,0597,9867,9397,8977,5117,399

7,3427,2917,236

- 7,1727,1807,092

8,4408,5128,4288,4068,3648,294

12,96812,67012,337

8,2727,6456,9224,5643,481

4,6116,652

10, 531

5,8006,1426,0746,0426,7166,652

6,6547,4187,2627,4198,3458,209

8,2088,8608,8038,7099,7469,598

9,62810, 61610, 53110,52911,75111,677

Months

631

11

87

11

565577

61099

109

9999

1110

100

11100

11

Note.—All issues classified to final maturity.Through fiscal year 1976, the fiscal year runs from July 1 through June 30; starting in October 1976 (fiscal year 1977),

the fiscal year runs from October 1 through September 30.


348


CORPORATE PROFITS AND FINANCE

TABLE B-80.—Corporate profits with inventory valuation and capital consumption adjustments,1946-77


Year or quarter

1946. . .19471948 .1949. . .

1950. . .195119521953 .1954

1955 . .1956. . .19571958.1959

1960.. .1961 .19621963. . .1964

1965. . . .19661967.. .19681969..

19701971197219731974

197519761977 P

1975: 1IIIII .IV

1976: 1II _IIIIV _

1977: l._ _II ._ _.Ill

Corporateprofits withinventoryvaluation

and capitalconsumptionadjustments

16 622.229.126.9

33.738 135 435.534.6

44.642 942.137.548.2

46 646 954.959.667.0

77 182.579 385.881.4

67 977.292.199 183.6

99.3128.1140.3

74 092.7

115.6114.7

126.5129.2133 5123.1

125.4140.2149.0

Corporateprofits

tax liability

9 111.312.410.2

17.922 619.420.317.6

22.022 021.419,023.6

22 722 824.026.228.0

30 933 732 539 439.7

34 537.741.548 752.4

50.264.769.2

40 845.756.357.9

63.166.165 963.9

64.469.769.3

Profits after tax with inventory valuationand capital consumption adjustments

Total

7 510 916.716.7

15.715 516.015.217.0

22.620 920 618.524.6

23 924 130.933.439.0

46 248 946 846 441.8

33 439.550.550 431.2

49.163.371.1

33 247.059.456.8

63.463.167 659.2

61.070.679.7

Dividends

5 66.37.07.2

8.88.58.58.89.1

10.311.111.511.312.2

12 913.314.415.517.3

19 119.420 121.922.6

22.923.024.627.831.0

32.435.841.2

32 032.232.932.5

33.635.036.038.4

38.540.342.3

Undistributedprofits withinventoryvaluation

and capitalconsumptionadjustments

2 04.69.79.5

6.97 07.56.47.9

12.29.89.17.2

12.4

11.010.816.517.921.7

27.129.426 724.419.2

10.516.525.922.6

.2

16.727.629.9

1.214.826.524.3

29.828.031,620.8

22.530.337.4


349


T A B L E B-81.—Corporate profits by industry, 1929-77


Year orquarter

1929

1933

1939 .

194019411942.. .194319441945 . . .1946194719481949

1950195119521953195419551956195719581959

196019611962196319641965196619671968.1969

197019711972197319741975 . .19761977 v

1975: 1ll_.__III. . .IV....

1976: 1IL.._III. . .IV....

1977: 1ll___.III. . .

Corporate profits with inventory valuation adjustment and without capital consumption adjustment

Total

10.5

- 1 . 2

6.3

9.815.220.324.423.819.219.325.633.030.8

37.642.739 839.537.846 745.945.440.851.2

48.948.753.757.664.273.378.675.682.177.9

66.476.989.697 286.5

111.5142.7157.5

83.2104.6128.9129.2

141.1143.7148.2137.9

141.0156.2166.9

Domestic industries

Total

10.2

- 1 . 2

6.1

9.615.020.124.123.518.918.924.932.229.9

36.741.538.738.436.445.144.143.539.149.4

47.046.351.154.961.070.175.972.678.974.2

62.672.484.790 476 9

105.4134.6147 9

77.298.4

122.6123.2

132.4136.1139.8130.2

131.0145.5157.4

Total

1.3

.3

.8

1.01.11.21.31.61.72.11.72.63.1

3.13.64.04.54.64.85.05.25.76.8

7.27.07.36.86.97.58.59.0

10.411.3

12.614.115.416.214.415.018.220.6

15.114.314.716.1

17.818.118.418.4

19.219.921.2

Financial1

FederalReservebanks

0.0

.0

.0

.0

.0

.0

.0

.1

.1

.1

.1

.2

.2

.3

.4

.4

.3

.3

.5

.6

.6

1.0.8.9

1.01.11.41.72.02.53.1

3.63.33.44.55.75.76.06.2

5.85.75.55.8

6.05.95.96.1

6.16.26.2

Other

1.3

.3

.8

.91.01.21.31.61.62.01.62.32.9

3.03.33.74.14.34.54.54.65.16.0

6.26.36.45.85.86.26.87.07.98.2

9.010.812.111.78.79.4

12.214.4

9.38.69.2

10.3

11.812.212.512.3

13.113.715.1

Nonfinancial

Total

8.9

- 1 . 5

5.3

8.614.018.922.821.917.316.823.229.626.8

33.537.934.733.931.840.339.138.333.542.6

39.839.343.848.154.162.567.463.668.562.9

50.158.269.374.162.590.3

116.4127.3

62.184.1

107.9107.1

114.6118.0121.3111.8

111.8125.5136.1

Manu-factur-ing 2

5.2

- . 4

3.3

5.59.5

11.813.813.29.79.0

13.617.616.2

20.924.621.722.019.926 024.724.019.426.2

23.923.026.028.731.938.341.637.941.236.8

27.132.440.644 136 647.966.374 7

29.443.459.659.1

65.368.768.462.9

65.276.477.6

Whole-saleand

retailtrade

1.0

- . 5

.7

1.21.42.23.03.23.33.84.65.54.5

5.05.04.83.83.85 04.54 44.65.9

4.94.95.75 97.47.98.08.9

10 110.1

9.411.713.314 712 922 127.1

17.521.325.824.0

26.525.529.127.4

24.025.431.2

Utilities 3

1.8

.0

1.0

1.32.03.44.43.92.71.82.23.03.0

4.04.64.95.04.75.65.95.85.97.0

7.47.88.49.39.9

11.011.810.710.710.2

8.28.39.08.35.69.3

11.5

5.38.5

11.112.1

11.112.112.210.4

11.611.514.1

Other

0.9

- . 7

.3

.61.11.51.61.61.52.12.93.63.1

3.63.73.33.13.43.64.14.03.63.5

3.53.63.84.24.95.36.06.16.55.8

5.35.86.47.07.4

11.011.5

9.910.911.411.9

11.711.711.611.1

11.012.213.2

Restof theworld

0.2

.0

.2

.2

.2

.2

.3

.2

.4

.7

.8

.8

1.01.21.11.11.41.61.81.91.71.8

1.92.32.62.63.13.32.83.03.23.7

3.84.64.86.89.66.18.19.6

6.06.26.36.0

8.67.68.47.7

10.110.79.6


350


TABLE B-81 .—Corporate profits by industry, 1929-77— Continued


Year orquarter

1929

1933...

1939 ,

19401941 .1942...19431944 . .19451946..194719481949 . . . .

1950 _195119521953 . .195419551956195719581959

19601961196219631964196519661967 .19681969

19701971197219731974197519761977 v

1975: 1ll_.__III..IV...

1976: l..._ll_._III .IV...

1977: I . . . .IL__IIL.

Corporate profits before deduction of capital consumption allowances

Total

14.7

2.6

10.1

13 619.525.429 729.925.524.031.440.038.7

46.553.051.352.752.864 164.966.362.974.8

74.175.384.290 098.7

110.8119.3119.7130.2130.9

123.0137.8157.4170 9168.1201.0239.9262.2

169.8193.2219.5221.4

235.2239.6246.4238.3

243.0259.7272.7

, with inventory valuation adjustment

Domestic industries

Total

14.4

2.6

9.9

13.419.325.229.529.625.323.630.739.237.9

45.551.850.251.651.462 663.164.461.273.0

72.272.981.587.495.6

107.5116.5116.7127.0127.2

119.2133.3152.6164 1158.5194.8231.8252.7

163.8187.0213.2215.4

226.5232.0238.0230.6

232.9249.0263.1

Financiall

Total

1.4

.4

.9

1 l1.21.31 41.71.72.21.82.73.3

3.33.84.24.84.95 25.45.76.17.3

7.87.78.07.67.98.59.6

10.211.813.0

14.516.318.019 518.319.322.925.7

19.218.418.920.5

22.322.723.223.3

24.225.026.4

FederalReservebanks

0.0

.0

.0

.0

.0

.0

.0

.1

.1

.1

.1

'.2

.2

.3

.4

.4

.3

.3

.5

.6

.6

.7

1.0.8.9

1 01.21.41.72.02.53.1

3.63.43.44.55.75.76.06.2

5.85.75.55.8

6.05.95.96.1

6.16.36.2

Other

1.4

.4

.9

1.11.21.31.41.61.62.11.72.53.0

3.13.53.94.44.64.84.95.05.56.5

6.86.97.16.66.77.27.98.29.39.9

11.013.014.714.912.613.616.919.5

13.412.713.514.7

16.316.817.217.2

18.118.720.3

Nonfinancial

Total

13.0

2.2

9.0

12.318.123.928.127.923.621.428.936.534.6

42.248.046.046.846.557.457.758.755.065.7

64.465.373.679.887.799.0

106.9106.5115.1114.2

104.7116.9134.6144.6140.2175.6208.9226.9

144.6168.5194.3195.0

204.2209.3214.8207.3

208.7224.0236.7

Manu-factur-

ing 2

7.1

1.3

4.9

7.211.414.216.616.513.011.216.320.819.8

24.929.126.928.327.134.333.633.929.837.1

35.535.240.243.948.055.960.558.763.961.5

53.159.869.975.070.585.0

106.3117.6

65.380.397.297.0

104.2108.0108.8104.2

107.2119.0120.8

Whole-saleand

retailtrade

1.3

- . 2

1.0

1.51.72.63.33.53.64.25.26.25.4

6.06.26.15.15.26.76.36.56.68.0

7.37.48.48.7

10.411.111.512.714.314.9

14.717.520.222.121.331.537.4

26.530.535.233.7

36.435.639.638.1

34.836.442.6

Utili-ties 3

2.9

1.1

2.0

2.33.14.85.85.54.63.03.64.74.8

6.17.17.68.18.29.8

10.310.510.912.5

13.314.015.416.817.919.621.321.021.922.4

21.423.226.327.426.732.636.9

27.931.534.736.2

35.637.437.936.7

38.338.842.0

Other

1.7

.0

1 l

1 41.92.22 42.42.32.93.84.84.6

5.25.65.45.35.96.67.47.87.68.0

8.48.89.6

10.411.412.313.614.115.015.4

15.516.418.320.221.726.628.3

24.926.327.128.0

28.128.328.528.4

28.529.931.4

Restof theworld

0.2

.0

2

2.2.22

.3

.2

.4

.7

.8

.8

1.01.2

1

4B8

.97R

1.92.32.62.63.13.32.83.03.23.7

3.84.64.86.89.66.18.19.6

6.06.26.36.0

8.67.68.47.7

10.110.79.6

1 Consists of the following industries: banking; credit agencies other than banks; security and commodity brokers,dealers, and services; insurance carriers; regulated investment companies; small business investment companies; andreal estate investment trusts.

2 See Table B-82 for industry detail.3 Consists of transportation, communications, electsic, gas, and sanitary services.Note.—The industry classification is on a company basis and is based on the 1972 Standard Industrial Classification

(SIC) beginning 1948, and on the 1942 SIC prior to 1948.Source: Department of Commerce, Bureau of Economic Analysis.

351


TABLE B-82.—Corporate profits of manufacturing industries, 1929-77


Year orquarter

1929

1933 .

1939 .

1940194119421943194419451946194719481949

1950195119521953195419551956195719581959

1960196119621963196419651966196719681969

19701971197219731974197519761977 *

1975: 1—II-III.IV.

1976: l_.II..III.IV.

1977: 1 . .II..III.

Corporate profits with inventory valuation adjustment and without capital consumption adjustment

Totalmanu-factur-

ing

5.2

- . 4

3.3

5.59.5

11.813.813.29.79.0

13.617.616.2

20.924.621.722.019.926.024.724.019.426.2

23.923.026.028.731.938.341.637.941.236.8

27.132.440.644.136.647.966.374 7

29.443.459.659.1

65.368.768.462.9

65.276.477.6

Nondurable goods

Total

2.6

.0

1.7

2.43.14.65.75.95.26.67.8

10.08.1

8.911.49.9

10.19.4

11.811.910.710.012.7

11.911.711.912.814.415.818.017.318.817.7

16.817.318.120.125.129.436.437.7

20.428.133.735.3

38.136.237.433.9

33.737.040.1

Foodand

kindredprod-ucts

1.9L.6

1.6.4.7.8.6

> 2L81.8>.i>.6

11l.ll.Z2.72.82.63.3J.I3.22.9

3.53.32.82.23.07.48.3

5.87.68.27.9

8.77.79.77.1

5.15.68.0

Chem-icalsand

alliedprod-ucts

1.71.8

2.32.82.32.22.23.02.82.82.53.4

3.13.13.23.63.94.54.84.25.04.6

3.94.25.05.85.15.97.4

3.95.46.77.4

8.07.87.36.6

7.78.38.1

Petro-leumandcoal

prod-ucts

2.81.9

2.32.72.32.82.73.03.32.62.12.5

2.52.22.12.12.42.83.23.83.63.3

3.63.63.54.9

10.27.89.9

5.67.68.79.2

10.49.99.39.9

9.210.59.9

Other

3.72.8

2.74.43.63.32.93.64.13.63.34.2

4.24.04.34.55.35.86.76.27.06.9

5.86.26.87.26.88.4

10.8

5.07.5

10.110.8

11.010.911.210.3

11.712.614.2

Durable goods

Total

2.6

- . 4

1.7

3.16.47.28.17.44.52.45.87.58.1

12.013.211.711.910.514.312.813.39.3

13.5

12.011.314.115.917.522.623.520.622.419.2

10.315.122.524.011.518.529.937.0

9.015.425.923.8

27.232.531.029.0

31.539.437.5

Primarymetalindus-tries

1.61.5

2.33.11.92.51.72.93.03.01.92.3

2.11.51.61.92.43.13.62.72.01.4

.9

.51.62.04.93.32.4

5.92.72.52.1

2.93.52.21.1

1.02.7

.3

Fabri-catedmetal

products

0.8.7

1.11.31.01.0.9

1.01.11.1.9

1.1

.91.01.21.21.42.02.42.42.42.0

1.21.32.12.61.22.93.5

1.72.93.93.2

3.43.83.73.0

3.24.14.3

Machin-ery,

exceptelectri-

cal

1.21.3

1.62.32.31.91.71.72.12.01.42.1

1.81.82.32.43.13.84.44.04.13.6

2.72.73.94.51.54.35.9

2.44.15.35.2

5.25.76.36.6

6.87.78.9

Electricandelec-

tronicequip-ment

3.7.8

1.21.31.5.4

'.\.2

'.ZL.7

.3

:;5L.51.62.53.02.92.82.2

1.11.82.92.6.3

2.03.7

.71.92.72.7

3.13.93.94.0

4.65.35.0

Motorvehicles

andequip-ment

1.42.1

3.12.42.42.62.14.12.22.6.9

2.9

3.02.54.04.94.76.15.13.95.54.8

1.44.95.95.8.2

2.07.2

- 3 . 0

5! 64.8

6.87.87.36.9

8.09.88.5

Other

1.91.7

2.62.82.62.62.93.53.23.12.93.4

2.93.13.53.94.25.05.14.75.75.2

3.03.86.06.63.44.17.2

1.33.16.15.9

5.87.77.77.4

7.99.8

10.4


352


TABLE B-82.—Corporate profits of manufacturing industries, 1929-77—Continued


Year orquarter

1929

1933

1939.

1940.1941. .1942 . . .19431944.1945. . .1946194719481949

195019511952L9531954L955L956195719581959

196019611962L963L96419651966196719681969

19701971L97219731974.. .197519761977 p

1975:1 . . .I I . .III..IV..

1976:1 . . .II..III..IV..

1977:1 . . .I I . .III..

Corporate profits before deduction of capita! consumption allowances, with inventory valuation adjustment

Totalmanu-factur-

ing

7.1

1.3

4.9

7.211.414.216 616.513.011.216.320.819.8

24.929.126.928.327.134.333.633.9?9.837.1

35.535.240.243.948.055.960.558.763.961.5

53 159.869.975.070.585.0

106.3

65.380 397.297.0

104 ?108,0108.8104.2

107.?119.0120.8

Nondurable goods

Total

3.6

1.1

2.6

3.44.15.97.17.57.07.99.3

11.810.1

11.113.91?.713.213.116.016.515.715.418.4

17.818.019.120.522.624.427.227.129.329.2

29.030.432.?35.140.846.655.2

36.94 5 ?51.353.0

56.354 856 553.3

53 557.?60.7

Food

kindredprod-ucts

2.22.0

2.12.02.32.32.32.92.52.63.03.6

3.23.43.6

.0

.2

.0

.9

.7

.91.8

5.65.55.14.85.7

10.411.7

8.710.711.211.0

11.911.013.210.6

8.79.3

11.8

Chem-icalsand

alliedprod-ucts

2.02.1

2.73.22.82.83.03.93.83.83.64.6

4.44.54.85.35.76.56.86.37.37.1

6 67.18.29.08.69.8

11.9

7.79.3

10.711.5

12.412.211.911.2

12.513.213.2

Petro-leumandcoal

prod-ucts

3.42.6

3.13.63.23.94.14.64.94.44.04.5

4.54.34.44.75.15.86.37.27.37.1

7 67.98.09.7

15.113.015.3

10.512.814.114.6

15.715.214.715.5

14.816.115.5

Other

4.23.4

3.35.14.44.13.84.65.24.94.75.7

5.85.76.26.57.58.19.28.99.9

10.2

9 29.9

10.811.611.513.416.3

9.91? 415. 316.0

16 316.316.816.0

17.618.620.2

Durable goods

Total

3 4

.2

2 3

3 87 28 49 59 06.03 36 99.09.7

13.715.314.?15.014.118.317.?18.214.418.7

17.717.?21.1?3.3?5.531.433.331.634.632.3

24 1?9.437.639.929.738 351.1

?8.535.145.944.0

47 953.?5?. 350.9

53.661.860.1

Primarymetalindus-tries

1.91.9

2.83.62.63.52.94.24.34.53.23.6

3.42.93.33.74.35.15.75.04.54.0

3 53.14.14.78.16.76.1

9.36.05.95.5

6.57.26.04.9

4.96.74.4

Fabri-catedmetal

products

1.0.9

1.31.51.31.21.21.41.41.51.31.5

1.41.51.81.92.12.73.13.33.43.0

2 32.43.33.82.64.55.2

3.24.45.44.8

5.15.55.44.7

4.95.86.1

Machin-

eryexceptelectri-

cal

1.51.6

1.92.62.72.32.22.32.82.72.22.9

2.72.83.43.54.35.25.85.76.05.7

5 25.46.8

, 7.64.97.89.6

5.97.88.98.7

8.99.3

10.010.3

10.511.512.7

Electricandelec-tronicequip-ment

6.8.9

1.41.51.71.61.51.51.62.01.82.2

1.81.92.12.22.33.33.93.94.13.7

2 83.75.14.93.04.86.6

3.54.85.55.5

6.06.86.87.0

7.68.38.0

Motor

andequip-ment

1.62.3

3.32.72.73.02.54.62.93.31.63.7

4.03.55.26.36.38.07.56.48.17.5

3 87.38.48.33.15.1

10.7

.23.78.68.1

10.011.110.810.8

11.913.612.3

Other

2.22.1

3.03.33.33.33.74.44.24.24.24.8

4.44.65.35.76.27.17.37.38.68.4

6 57.59.S

10.68.19.4

12.8

6.38.4

11.511.3

11.413.313.313.3

13.9lb.916. b

Note.—The industry classification i> on a company basis and is based on the 1972 Standard Industrial Classification(SIC) beginning 1948, and on the 1942 SIC prior to 1948.


353

248-947 O - 78 - i


TABLE B-83.-—Sales, profits, and stockholders* equity, all manufacturing corporations, 1947-77


Year orquarter

194719481949

19501951195219531954

19551956195719581959

1960 . .1961196219631964

19651966196719681969 . .

1970197119721973

1973:IV....

New series:3

1974....197519 76

19 73: IV

1974: |IIIII.. . .IV. . . .

1975:1. . .IIIII. . . .IV. . . .

1976: 1IIIII.....IV

1977: 1IIIII

All manufacturingcorporations

Sales(net)

150.7165.6154.9

181.9245.0250.2265.9248.5

278.4307.3320.0305.3338.0

345.7356.4389.9412.7443.1

492.2554.2575.4631.9694.6

708.8751.4849.5

1,017.2

275.1

1,060.61,065.21,203.2

236.6

242.0269.4272.1277.0

247.1265.8271.0281.3

284.2307.6301.6309.8

312.3339.6332.4

Profits

Beforeincometaxes *

16.618.414.4

23.227.422.924.420.9

28.629.828.222.729.7

27.527.531.934.939.6

46.551.847.855.458.1

48.153.263.281.4

21.4

92.179.9

104.9

20.6

21.225.925.020.1

15.420.221.722.6

24.529.326.224.9

25.632.427.3

Afterincometaxes

10.111.59.0

12.911.910.711.311.2

15.116.215.412.716.3

15.215.317.719.523.2

27.530.929.032.133.2

28.631.336.548.1

13.0

58.749.164.5

13.2

13.516.315.513.4

9.312.413.214.2

14.818.116.015.6

15.619.716.8

Stock-holders'equity 2

65.172.277.6

83.398.3

103.7108.2113.1

120.1131.6141.1147.4157.1

165.4172.6181.4189.7199.8

211.7230.3247.6265.9289.9

306.8320.9343.4374.1

386.4

395.0423.4462.7

368.0

379.0389.9402.7408.4

410.7420.2427.4435.5

446.5460.1468.9475.3

480.3493.5502.8

Durable goods industries

Sales(net)

66 675. 370.3

86.816.8

122.037 9?? 8

4? 159 5

166.0148.6169.4

173.9175 ?195.5209.0226.3

257.0791 7300.6335.5366.5

363.1382.5435.8527.3

140.1

529.0521.1589.6

122.7

120.3136.8134.8137.1

121.3132.4131.0136.3

137.8153.7146.2151.8

152.6171.3165.3

Profits

Beforeincometaxes 1

7.68.97.5

12.915.412.914.011.4

16.516.515.811.415.8

14.013.616.718.521.2

26.229.225.730.631.5

23.026.533.643.6

10.8

41.135.350.7

10.1

9.512.610.58.6

7.09.39.1

10.0

11.314.812.212.4

12.617.013.1

Afterincometaxes

4.55.44.5

6.76.15.55.85.6

8.18.37.95.88.1

7.06.98.69.5

11.6

14.516.414.616.516.9

12.914.518.424.8

6.3

24.721.430.8

6.2

5.77.66.25.2

4.15.75.56.2

6.79.07.47.7

7.510.37.9


31.134.137.0

39.947.249.852.454.9

58.865.270.572.877.9

82.384.989.193.398.5

105.4115.2125.0135.6147.6

155.1160.6171.4188.7

194.7

196.0208.1224.3

185.8

189.4194.1199.9200.8

201.7207.3209.7213.7

216.7223.4227.1229.9

232.5240.3244.9

Nondurable goodsindustries

Sales(net)

84.190.484.6

95.1128.1128.0128.01?f> 7

136.3147.8154.1156.7168.5

171.8181.2194.4203.6716.8

235.2262.4274.8296.4328.1

345.7368.9413.7489.9

135.0

531.6544.1613.7

113.9

121.7132.6137.3140.0

125.8133.3140.0145.0

146.3153.9155.4158.1

159.7168.4167.1

Profits

Beforeincometaxes 1

9.09.57.0

10.312.110.010.49.6

12.113.212.411.313.9

13.513.915.116.418.3

20.322.622.024.826.6

25.226.729.637.8

10.6

51.044.654.3

10.5

11.713.314.511.5

8.410.912.712.6

13.214.514.012.6

13.015.414.3

Afterincometaxes

5.66.24.6

6.15.75.25.55.6

7.07.87.56.98.3

8.28.59.2

10.011.6

13.014.614.415.516.4

15.716.718.023.3

6.7

34.127.733.7

7.0

7.88.79.48.2

5.26.87.78.1

8.19.18.67.9

8.19.58.8


34 038.140.6

43.551 153.955.758.2

61.366.470 674.679.2

83.187.792 396.3

101.3

106.3115.1122.6130.3142.3

151.7160.3172.0185.4

191.7

199.0215.3238.4

182.1

189.6195.8202.8207.6

209.0212.9217.6221.8

229.8236.7241.7245.5

247.8253.2257.9

* In the old series, "income taxes" refers to Federal income taxes only, as State and local income taxes had alreadybeen deducted. In the new series, no income taxes have been deducted.

2 Annual data are average equity for the year (using four end-of-quarter figures).3 See "Quarterly Financial Report," first quarter 1974, Federal Trade Commission.Note.—Data are not necessarily comparable from one period to another due to changes in accounting procedures,

industry classifications, sampling procedures, etc. For explanatory notes concerning compilation of the series, see "Quar-terly Financial Report," Federal Trade Commission.

Source: Federal Trade Commission.

354


TABLE B-84.—Relation of profits after taxes to stockholders' equity and to sales, all manufac-turing corporations, 1947-77

Year or quarter

19471948 .1949

19501951195219531954

1955195619571958 . .1959

19601961196219631964

196519661967 . - . .19681969

1970197119721973

1973: IV

New series: 2

19741975.1976

1973: IV . . . .

1974: 1.

III .IV

1975: 1. . . .IIIIIIV

1976: 1I I . . .IllIV

1977: 1. .

Ill

Ratio of profits afterincome taxes (annual rate)

to stockholders' equity—percent1

Allmanufacturingcorporations

15.616 011.6

15.412.110.310.59.9

12.612.310.98 6

10.4

9.28.99.8

10 311.6

13.013.411.712.111.5

9.39.7

10.612.8

13.4

14.911.613.9

14.3

14.316 715.413.2

9.011 812.413.1

13.315.713.713.1

13.016.013.3

Durablegoods

industries

14.415 712.1

16.913.011.111.110.3

13.812.811.38 0

10.4

8.58.19.6

10 111.7

13.814.211.712.211.4

8 39.0

10.813.1

12.9

12.610.313.7

13.3

12.115 612.310.4

8.110.910.511.6

12 416.113 013.4

13.017.112.9

Nondurablegoods

industries

16.616 211.2

14.111.29.79.99.6

11.411.810.69 2

10.4

9.89.69.9

10 411.5

12.212.711.811.911.5

10 310.310.512.6

14.0

17.112.914.2

15.3

16.417.818.515.8

10.012.814.114.5

14 215.414 312.9

13.015.013.7

Profits after income taxesper dollar of sales—cents

Allmanufacturingcorporations

6.77 05.8

7.14.84.34.34.5

5.45.34.84 24.8

4.44.34.54 75.2

5.65.65.05.14.8

4 04.14.34.7

4.7

5.54.65.4

5.6

5.66.05.74.8

3.74.74.95.1

5.25.95.35.0

5.05.85.0

Durablegoods

industries

6.77.16.4

7.75.34.54.24.6

5.75.24.83 94.8

4.03.94.44.55.1

5.75.64.84.94.6

3.53.84.24.7

4.5

4.74.15.2

5.0

4.85.54.63.8

3.44.34.24.5

4.95.85.15.1

4.96.04.8

Nondurablegoods

industries

6.76.85.4

6.54.54.14.34.4

5.15.34.94.44.9

4.84.74.74.95.4

5.55.65.35.25.0

4.54.54.44.8

5.0

6.45.15.5

6.1

6.46.66.85.9

4.15.15.55.6

5.65.95.65.0

5.05.65.3

1 Annual ratios based on average equity for the year (using four end-of-quarter figures). Quarterly ratios based on equityat end of quarter only.

2 See "Quarterly Financial Report," first quarter 1974, Federal Trade Commission.

Note.—Based on data in millions of dollars.See also Note, Table B-83.

Source: Federal Trade Commission.

355


TABLE B-85.—Relation of profits after taxes to stockholders9 equity and to sales, all manufactur-ing corporations, by industry group, 1976-77

Industry

Ratio of profits after incometaxes (annual rate) to stock-holders' equity—percent1

1976

III

1977

I II III

Profits after income taxes perdollar of sales—cents

1976

111 IV

1977

III

All manufacturing corporations-

Durable goods industries...

Stone, clay, and glass productsPrimary metal industries

Iron and steelNonferrous metals..

Fabricated metal productsMachinery, except electricalElectrical and electronic equipment.Transportation equipment2

Motor vehicles and equipment.Aircraft, guided missiles, and

parts

Instruments and related products..Other durable manufacturing prod-

ucts

Nondurable goods industries..

Food and kindred productsTobacco manufacturesTextile mill productsPaper and allied productsPrinting and publishingChemicals and allied products2

Industrial chemicals and syn-thetics

Drugs..

Petroleum and coal productsRubber and miscellaneous plastics

productsOther nondurable manufacturing

products

13.7

13.0

16.18.3

8.77.4

15.815.412.310.5

9.1

13.0

16.3

15.2

14.3

16.816.96.6

13.616.315.3

13.518.7

13.7

7.6

14.5

13.1

13.4

11.17.3

7.96.1

12.915.514.515.4

16.9

12.0

13.9

13.8

12.9

13.115.45.3

10.915.412.8

11.016.5

13.8

11.4

11.4

13.0

13.0

5.15.1

3.58.1

13.714.812.518.6

21.0

14.0

15.0

12.6

13.0

11.416.56.8

11.212.714.9

13.718.4

13.9

12.4

10.6

16.0

17.1

17.09.6

11.1

18.817.816.422.1

24.4

16.1

15.4

17.9

15.0

15.019.07.0

14.118.416.8

16.018.8

13.9

15.0

15.6

13.3

12.9

17.5- . 8

- 4 . 45.5

15.416.214.912.2

11.3

14.7

17.2

18.2

13.7

13.115.89.7

12.717.814.8

12.118.1

13.7

10.9

11.1

5.3

5.1

6.23.9

3.93.8

4.97.54.43.5

3.3

3.7

8.6

4.4

5.6

3.99.22.05.75.47.5

6.712.6

8.1

2.8

3.1

5.0

5.1

4.63.6

3.83.1

4.17.54.94.6

5.3

3.2

7.5

4.0

5.0

3.17.51.64.75.06.4

5.511.0

7.8

4.0

2.4

5.0

4.9

2.42.4

1.64.0

4.47.14.55.4

6.2

4.0

8.4

3.8

5.0

2.78.72.04.84.27.0

6.512.1

7.7

4.3

2.4

5.8

6.0

6.33.9

3.54.8

5.67.95.76.0

6.8

4.3

8.0

4.9

5.6

3.510.21.85.95.97.7

7.312.3

7.7

4.8

3.4

5.0

4.8

6.4- . 3

- 1 . 82.8

4.77.55.23.9

3.8

4.3

9.1

4.9

5.3

3.18.12.85.46.07.1

5.912.1

7.7

3.6

2.3

1 Ratios based on equity at end of quarter.2 Includes other industries not shown separately.Source: Federal Trade Commission.

356


TABLE B—86.—Sources and uses offunds, nonjarm nonfinancial corporate business, 1946—77


Year or quarter

1946194719481949 . . . _.

19501951 . . . .195219531954 . .

195519561957 . . _19581959

19601961196219631964

19651966 . .196719681969

19701971197219731974

19751976

1976- 1IIIIIIV

1977: 1IIIII

Total

18.426 728.519.7

41.835.929.227.329.1

52 044.042.341.355.2

47.654.358.866.072.3

90.996.993.7

114.5118.4

104.3127.1152.9180.7180.7

148.4213.5

219.8220.4204.3209.5

268.6240.4240.7

nternal1

7.812.618.819.3

17.819.721.221.123.5

28.828.730.429.635.0

34.735.341.644.550.1

56.160.561.362.361.7

58.968.680.883.875.7

107.8125.8

125.4125.0130.5122.3

125.7134.8145.3

Sources

External

Total

10.614.19.8

.4

24.016.28.06.15.7

23.215.411.911.720.2

12.919.117.221.422.2

34.936.432.452:156.7

45.558.572.296.9

105.0

40.687.7

94.495.573.887.2

143.0105.695.4

Credit market funds

Total

6.98.46.53.1

8.110.69.55.76.4

10.212.912.310.512.5

11.912.412.312.514.7

20.525.529.331.838.2

40.744.557.772.781.8

36.658.3

52.160.251.769.4

86.687.765.5

Long-term 2

3.65.46.74.9

4.26.48.06.06.7

6.47.5

10.410.58.1

7.510.89.48.48.8

9.315.921.618.820.7

32.140.640.737.039.1

49.348.6

50.146.351.046.6

42.455.849.3

Short-term 3

3.33.0

- . 2- 1 . 8

3.94.11.4

- . 3- . 3

3.85.41.9

- . 04.4

4.51.63.04.05.9

11.29.67.8

13.017.6

8.63.9

17.035.742.7

-12.79.7

2.113.4

.722.8

44.331.816.2

Other

3.75.83.3

- 2 . 7

15.95.6

- 1 . 4.5

- . 8

13.02.5

- . 41.27.7

1.06.74.99.07.4

14.410.93.1

20.318.5

4 814.114.524.223.2

4.129.4

42.33b. 322.117 8

56.317.929.9

Uses

Total

17.125.324.917.9

39.937.229.127.727.7

49 2- 41.1

39.438.751.7

40.650.454.959.164.1

82.288.389.7

105.8112.6

95.9114.6136.5162.6163.5

132.3197.2

203.2202.5192.6190.5

257.4233.6232.0

Pur-chase

ofphysi-

calassets*

18.517 019.914.4

23.629.824.525.422.8

32 737.135.227.937.5

38.037.243.844.950.7

62.075.773.077.284.3

80.386.0

100.3123.3134.7

98.6140.3

134.3143.1150.4133.4

153.7169.5173.7

In-crease

infinan-cial

assets

- 1 . 48 45.03.5

16.47.44.62.34.9

16 54.04.2

10.814.2

2.713.211.114.213.4

20.212.616.728.728.3

15.628.636.239.328.9

33.756.9

68.959.442.157.1

103.764.158.3

Discrep-ancy

(sourcesless

uses)

1 31 43.61.9

1.9- 1 3

1- . 51.4

2 83.02.92 53.5

7.03 93.96.98.2

o o8.64 08.65.8

8 412.516 518.117.1

16.216.3

16.617.911.719 0

11.36.88.7

1 Undistributed profits (after inventory valuation and capital consumption adjustments), capital consumption allowances,and foreign branch profits.

2 Stocks, bonds, and mortgages.3 Bank loans, commercial paper, finance company loans, bankers' acceptances, and Government loans.* Plant and equipment, residential structures, inventory investment, and mineral rights.


357


TABLE B-87.— Current assets and liabilities of U.S. corporations, 1939-77[Billions of dollars]


19391940194119421943194419451946194719481949195019511952195319541955195619571958195919601961

196119621963196419651966 . .196719681969197019711972 .19731974 . . . .197519761976- 1

IIIIIIV

1977: 1IIIII

Current assets

Total

Cashon

handandin

banks*

U.S.Gov-ern-ment

securi-ties 2

Re-ceiv-ablesfromU.S.Gov-ern-

ment3

Notesandac-

countsreceiv-

able

In-ven-tories

Othercur-rentas-

sets*

Current liabilities

Total

Ad-vances

andpre-pay-

ments,U.S.Gov-ern-

ment3

Notesandac-

countspay-able

Fed-eralin-

cometax

liabili-ties

Othercur-rentlia-bili-ties s

Network-ing

capi-tal

All corporations"

54.560.372.983.693.897.297.4

108.1123.6133.0133.1161.5179.1186.2190.6194.6224.0237.9244.7255.3277.3289.0306.8

254.7269.7288.2305.6336.0364.0386.2426.5473.6492.3529.6573.5643.3712.2731.6816.8753.5775.4791.8816.8845.3874.7909.8

10.813.113.917.621.621.621.722.825.025.326.528.130.030.831.133.434.634.834.937.436.337.241.1

34.837.139.840.542.841.945.548.247.950.253.357.561.662.768.177.068.470.871.177.075.077.979.1

2.22.04.0

10.116.420.921.115.314.114.816.819.720.719.921.519.223.519.118.618.822.820.120.0

16.516.816.715.814.413.010.311.510.67.7

11.09.3

11.011.719.426.421.723.323.926.427.324.124.1

0.1.6

4.05.04.72.7.7

384243

1.12.72.82.62.42.32.62.82.82.93.13.4

3.43.73.63.43.94.55.15.14.84.23.53.43.53.53.64.33.63.74.34.34.64.85.3

22.123.927.423.321.921.823.230.0

.3

.4

.055.758.864.665.971.286.695.199.4

106.9117.7126.1135.8

18.019.825.627.327.626.826.337.644.648.945.355.164.965.867.265.372.880.482.281.988.491.895.2

1.41.51.41.31.31.42.41.71.61.61.41.72.12.42.43.14.25.96.77.59.1

10.611.4

30.032.840.747.351.651.745.851.961.564.460.779.892.696.198.999.7

121.0130.5133.1136.6153.1160.4171.2

Nonfinancial corporations

94.599.5

106.9116.5130.2142.1150.2168.8192.2201.9217.6240.0266.1289.7294.6323.9307.3318.1324.2323.9342.0356.6373.8

95.0100.5106.8113.1126.6142.8153.1166.0186.4193.3200.4215.2246.7288.0285.8315.4288.8295.6302.1315.4322.1332.5343.1

10.512.114.416.318.119.722.026.931.635.043.848.154.456.660.069.863.663.966.369.874.378.884.5

123.7132.4145.5156.6178.8199.4211.3244.1287.8304.9326.0352.2401.0450.6457.5499.9465.9475.9484.1499.9516.6532.0556.3

0.6.8

2.02.21.8.9.1

31

21.922.625.624.024.125.024.831.5

.639.337

.41.32.32.22.42.32.42.31.71.71.81.8

1.82.02.52.73.14.45.86.47.36.64.94.04.35.26.47.06.46.87.07.06.85.76.2

.547.953.657.057.359.373.881.584.388.799.3

105.0112.8

82.686.794.5

102.2118.4133.1141.3162.4191.9204.7215.6230.4261.6287.5281.6295.9280.5287.0284.7295.9302.2313.2323.6

1.22.57.1

12.616.615.510.48.5

10.711.59.3

16.721.318.118.715.519.317.615.412.915.013.514.1

13.314.315.716.218.317.413.214.312.610.013.115.118.123.220.726.823.922.024.926.828.624.526.9

6.97.17.28.78.79.49.7

11.813.213.514.014.916.518.720.722.525.729.031.133.337.040.142.5

26.029.432.835.539.044.551.061.076.083.692.4

102.6117.0134.8148.8170.2155.0160.1167.5170.2179.0188.6199.7

24 527.532.336.342.145.651.65fi ?62.168.672.481.686.590.191.894.9

103.0107.4111.6118.7124.2128.6135.6

131.0137 3142 7149.0157.2164.6174.9182.4185.7187.4203.6221.3242.3?fi1 5274.1316.9287.6299.4307.7316.9328.7342.7353.5

1 Includes time certificates of deposit.* Includes Federal agency issues.3 Receivables from and payables to the U.S. Government do not include amounts offset against each other on corpora-

tions'books or amounts arisingfrom subcontracting which are not directly due from or to the U.S. Government. Whereverpossible, adjustments have been made to include U.S. Government advances offset against inventories on corporations'books.

* I ncludes marketable investments (other than Government securities and time certificates of deposit) as well assundrycurrent assets.

5 Includes commercial paper outstanding, the portion of long-term debt due in less than 1 year, and miscellaneouscurrent liabilities not elsewhere classified.

6 Excludes banks, savings and loan associations, and insurance companies.7 Excludes banks, sayings and loan associations, insurance companies, investment companies, finance companies

(personal and commercial), real estate companies, and security and commodity brokers, dealers, and exchanges.

Note.—Year-end data through 1971 are based on "Statistics of Income" (Department of the Treasury), covering virtuallyall corporations in the United States. "Statistics cf Income" data may not be strictly comparable from year to year becauseof changes in the tax laws, basis for filing returns, and processing of data for compilation purposes. All other figures shownare estimates based on data compiled from rr.any different sources, including data on corporations registered with theSecurities and Exchange Commission.

Source: Federal Trade Commision.

358


TABLE B-88. —State and municipal and corporate securities offered, 1934-77


Year or quarter

State andmunicipalsecuritiesofferedfor cash

(principalamounts)

Corporate securities offered for cash

Totalcorpo-

rateoffer-ings

Type of corporate security

Com-monstock

Pre-ferredstock

Bondsandnotes

Industry of corporate issuer

Manu-fac-

turing^

Elec-tric,gasand

water *

Trans-porta-t i on '

Com-munica-

tionOther

1934....

1939

194019411942....1943....1944....

1945....1946....1947....1948194919501951....1952....1953....1954

19551956195719581959

I960....1961....19621963....1964....

1965....1966....196719681969

19701971197219731974

19751976

1976: I.II.IIIIV

1977: I.II.Ill

939

1,128

1,238956524435661

7951,1572,3242,6902,907

3,5323,1894,4015,5586,969

5,9775,4466,9587,4497,681

7,2308,3608,55810,10710, 544

11,14811,08914,28816,37411,460

17,76224, 37022, 94122,95322, 824

29, 32633,845

8,2748,6147,8549,102

10, 53313, 35310, 891

397

2,164

2,6772,6671,0621,1703,202

6,0116,9006,5777,0786,052

6,3627,7419,534

9,516

10,24010,93912, 88411,5589,748

10,15413,16510,70512,21113,957

14,78217,38524,01421,26125,997

37,45143, 22939,70531, 68037, 729

52, 53952,161

13, 74313,91010,81113,698

12,09512, 26310,624

19

87

1081103456163

397891779614736

8111,2121,3691,3261,213

2,1852,3012,5161,3342,027

1,6643,2941,3141,0112,679

1,4731,9011,9273,8857,640

7,0379,48510, 7077,6423,979

7,4148,305

2,7892,4011,4221,693

1,8662,1671,026

98

183167112124369

7581,127762492425

631838564489816

635636411571531

409450422343412

724580881636691

1,3903,6833,3713,3412,253

3,4592,789

764720439866

751707852

372

1,979

2,3862,389917990

2,670

4,8554,8825,0365,9734,890

4,9205,6917,6017,0837,488

7,4208,0029,9579,6537,190

8,0819,4208,96910,85610,865

12,58514,90421,20616,74017,666

29,02330,06125,62820, 70031, 494

41, 66641,069

10,19110, 7878,95111,140

9,4799,3898,745

67

604

992848539510

1,061

2,0263,7012,7422,2261,414

1,2003,1224,0392,2542,268

2,9943,6474,2343,5152,073

2,1524,0773,2493,5143,046

5,4147,05611,0696,9586,346

10,64711, 6516,3984,83210, 408

18, 65115, 479

4,4973,7572,9824,244

2,7743,1822,826

133

1,271

1,2031,357472477

1,422

2,3192,1583,2572,1872,320

2,6492,4552,6753,0293,713

2,4642 5293,9383,8043,258

2,8513,0322,8252,6772,760

2,9343,6664,9355,2936,715

11,00911,72111,31410, 26912, 837

15, 89414, 395

4,0443,1403,3173,897

3,0193,8522,482

176

186

32436648161609

1,454711286755800

813494992595778

893724824824967

718694567957982

702,494,639,564,779

,253,148860811

1,005

2,6353,596

1,087605

1,200704

354357486

902571

399612760882720

1,1321,4191,4621,424717

1,0501,8341,3031,1052,189

9452,0031,9751,7752,172

5,2915,8404,8364,8723,930

4,4643,561

7651,878378541

1,4151,044644

103

15996

21109

211329293

1,008946

1,3001,0581,0682,1382,037

2,7572,6192,4261,9912,733

3,3833,5272,7613,9574,980

4,7873,1674,3965,6718,985

9,25212,86716,29810, 8979,551

10,89515,129

3,3494,5312,9364,313

4,5363,8284,184

1 Prior to 1948. also includes extractive, radio broadcasting, airline companies, commercial, and miscellaneous companyissues.

« Prior to 1948, also includes telephone, street railway, and bus company issues,s Prior to 1948, includes railroad issues only.

Note.—Covers substantially all new issues of State, municipal, and corporate securities offered for cash sale in the UnitedStates in amounts over $100,000 and with terms to maturity of more than 1 year; excludes notes issued exclusively tocommercial banks, intercorporate transactions, and issues to be sold over an extended period, such as employee-purchaseplans. Closed-end investment company issues are included beginning 1973.

Sources: Securities and Exchange Commission, "The Commercial and Financial Chronicle." and "The Bond Buyer."

359


Yearor

quarter

1949

1950195119521953195419551956195719581959

1960196119621963196419651966196719681969...

1970 .1971 . .19721973197419751976 . .1977

1976' JanFebMarAprMayJune . _




TABLE B-89.—Common stock prices and yields, 1949-77

Common stock pricesl

Com-posite

9.02

10 8713.0813 8113 6716.1921 5424 4023 6724 5630 73

30 0135.3733.4937 5143 7647.3946.1550.7755.3754.67

45.7254.2260.2957.4243.8445.7354.4653.69

51.3153 7354.0154 2853*8754.23

55 6855 1856.2954.4354 1756.34

56.2854.9354.6753.9253.9654.30

54 9453.5152.6651.3751.8751.83

New York Stock Exchange indexes(December 31,1965=50)2

Indus-trial

46.1851.9758.0057.44

48.0357.9265.7363.0848.0850.5260.4457.86

57.0059.7960.3060 6260 2260.70

62 1161 1462.3560.0759 4561.54

61.2659.6559.5658.4758.1358.44

58 9057.3056.4154.9955.6255.55

Trans-portation

50.2653.5150.5846.96

32.1444.3550.1737.7431.8931.1039.5741.09

35.7838.5339.1738 6639.7140.41

42 1240 6340.3638.3739 2841.77

41.9340.5940.5241.5143.2543.29

43 5241.0439.9938.3339.3039.75

Utility

45.4145.4344.1942.80

37.2439.5338.4837.6929.7931.5036.9740.92

35.2336.1235.4335 6935.4035.16

36 4937 5638.7738.3338 8540.61

41.1340.8640.1840.2441.1441.59

42 4441.5040.9340.3840.3340.36

Finance

44.4549.8265.8570.49

60.0070.3878.3570.1249.6747 1452.9455.25

48.8352 0652.6152 7150 9951.82

54 0654 2254.5252.7453 2557.45

57.8655.6554.8454.3054.8055.29

57 2956.5255.3353.2454.0453.85

Dow-Jones

industrialaverage 3

179.48

216.31257.64270.76275 97333.94442.72493.01475.71491.66632.12

618.04691. 55639.76714.81834. 05910. 88873. 60879.12906. 00876. 72

753.19884.76950.71923.88759. 37802.49974. 92894. 63

929. 34971 70988. 55992 51988 82985.59

993 20981 63994. 37951.95944 58976.86

970. 62941.77946.11929.10926.31916.56

908 20872.26853.30823.96828. 51818. 80

Standard& Poor's

compositeindex

(1941-43 =10)*

15.23

18 4022.3424.5024 7329.6940.4946.6244 3846.2457.38

55.8566 2762.3869.8781.3788.1785.2691.9398.7097.84

83.2298.29

109.20107.4382.8586.16

102.0198.20

96.86100 64101.08101 93101.16101.77

104. 20103 29105.45101.89101 19104.66

103.81100.96100. 5799.0598.7699.29

100 1897.7596.2393.7494.2893.82

Common stock yields(percent)«

Dividend-priceratio«

6.59

6 576.135.805 804.954.084.C94.353.973.23

3.472.983.373.173.013.003.403.203.073.24

3.833.142.843.064.474.313.774.62

3.803.673.653.663.763.75

3.643.743.713.854 043.93

3.994.214.374.474.574.60

4 594.724.824.975.025.11

Earnings-priceratio7

15.48

13.9911.829.47

10.268.577.957.557.896.235.78

5.904.625.825.505.325.596.635.735.676.08

6.455.415.507.12

11.599.048.90

8.43

8.87

9.07

9.22

10.23

10.37

1 Averages of daily closing prices, except New York Stock Exchange data through May 1964 are averages of weekly closingprices.

2 Includes all the stocks (more than 1,500) listed on the New York Stock Exchange,s Includes 30 stocks.4 Includes 500 stocks.s Standard & Poor's series, based on 500 stocks in the composite index.6 Aggregate cash dividends (based on latest known annual rate) divided by aggregate market value based on Wednes-

day closing prices. Monthly data are averages of weekly figures; annual data are averages of monthly figures.7 Ratio of quarterly earnings (seasonally adjusted annual rate) to price index for last day of quarter. Annual ratios are

averages of quarterly ratios.

Note.—All data relate to stocks listed on the New York Stock Exchange.

Sources: New York Stock Exchange, Dow-Jones & Co., Inc., and Standard & Poor's Corporation.

360


TABLE B-90.—-Business formatior

Year or month

19291933»1939»19401941 .19421943194419451946194719481949

1950 . . . .195119521953195419551956195719581959

1960196119621963 .1964 . . .19651966196719681969

1970 .1971197219731974 .19751976

1976: JanFeb. .MarAprMayJune

JulyAug."::::"":::SeptOct. .NovDec. .

1977: Jan.FebMarApr _.MayJune.. _ _July _ ._Au?Sept _OctNOVP. .

Indexof net

businessformation

(1967-100)

112.687.893.193.398.294.491.399.195.290.489.596.892.488.390.793.397.298.698.2

100.0109.8116.2108.0111.0117.9117.9112.4108.9117.6

Newbusiness

rations(num-ber)

132.916112,89796,34685,64093,09283,77892,946

102,706117,411139,915141,163137,112150,781193,067182,713181,535182,057186,404197,724203,897200,010206,569233,635274,267264,209287,577316,601329,358319,149326, 345375,766

i and business failures, 1929—77

Business failures1

nessfailurerates

103.9100.369.663.054.444.616.46.54.25.2

14.320.434.434.330.728.733.242.041.648.051.755.951.857.064.460.856.353.253.351.649.038.637.343.841.738.336.438.442.634.8

Seasonally adjusted

115.4114.5116.3115.7114.9118.6117.8117.8118.3120.1121.3121.0

123.3123.0124.3122.4123.2125.8126.6130.6129.6131 9

29,63929, 04331,02729,87628, 63731, 60030,11432, 74632, 36832,88733,49633,495

34, 51933,17335,00033, 39434,44237,22935,74939,52537,81238 94338|472

36.938.236.335.435.032.731.235.734.934.733.832.0

28.429.632.331.830.230.824.129.727.0

Number of failures

Total

22,90919,85914,76813,61911,8489,4053,2211,222

8091,1293,4745,2509,2469,1628,0587,6118,862

11,08610,96912,68613,73914,96414,05315,44517,07515,78214,37413,50113,51413,06112,3649,6369,154

10,74810,3269,5669,3459,915

11,4329,628

886867965888835775689798714745770696

664693858804724732513687560

Liability sizeclass

Under$100,000

22,16518,88014,54113,40011,6859,2823,1551,176

7591,0033,1034,8538,7088,7467,6267,0818,075

10,22610,11311,61512,54713,49912,70713,65015,00613,77212,19211,34611,34010,83310,1447,8297,1928,0197,6117,0406,6276,7337,5046,176

530572618587546498458498454496509410

418425515520440455325401342

$100,000andover

744979in219163123664650

126371397538416432530787860856

1,0711,1921,4651,3461,7952,0692,0102,1822,1552,1742,2282,2201,8071,9622,7292,7152,5262,7183,1823,9283,452

356295347301289277231300260249261286

246268343284284277188286218

Amount of currentliabilities (millions

of dollars)

Total

483.3457.5182.5166.7136.1100.845.331.730.267.3

204.6234.6308.1248.3259.5283.3394.2462.6449.4562.7615.3728.3692.8938.6

1,090.11,213.61,352.61,329.21,321.71,385.71,265.2

941.01,142.11,887.81,916.92,000.22,298.63,053.14, 380.23,011.3

257.1211.8247.7206.4233.3373.6305.6264.0250.3183.6277.6200.4

168.5194.2248.2207.3473.9305.9577.8338.397.0

Liability sizeclass

Under$100,000

261.5215.5132.9119.9100.780.330.214.511.415.763.793.9

161.4151.2131.6131.9167.5211.4206.4239.8267.1297.6278.9327.2370.1346.5321.0313.6321.7321.5297.9241.1231.3269.3271.3258.8235.6256.9298.6257.8

22.023.926.023.123.320.319.121.518.420.421.118.6

17.718.321.722.118.419.214.218.514.0

$100,000andover

221.8242.049.746.835.420.515.117.118.851.6

140.9140.7146.797.1

128.0151.4226.6251.2243.0322.9348.2430.7413.9611.4720.0867.1

1,031.61,015.61,000.01,064.1

967.3699.9910.8

1,618.41,645.61,741.52,063.02,796.34,081.62,753.4

235.1187.8221.6183.3210.0353.3286.5242.4231.9163.2256.5181.9150.9175.9226.5185.2455.4286.7563.6319.783.0

i Commercial and industrial failures only. Excludes failures of banks end railroads and, beginning 1933, of real estate,insurance, holding, and financial companies, steamship lines, travel agencies, etc.

» Failure rate per 10,000 listed enterprises.s Series revised; not strictly comparable with earlier data.Sources: Department of Commerce (Bureau of Economic Analysis) and Dun & Bradstreet. Inc.

361


AGRICULTURETABLE B-91.—Income of farm people and farmers, 1929-77

[Quarterly data at seasonally adjusted annual rates]

Year orquarter

192919331939

1940194119421943 . .1944194519461947 . . .19481949

1950195119521953195419551956 . .195719581959

1960196119621963196419651966196719681969

197019711972 . . .19731974197519761977 v

1975" 1

IIIIV

1976- 1

IIIIV

1977: 1IIIII

Personal incomereceived by totalfarm population

Fromall

sources

Fromfarm

sources1

Fromnon-farm

sources 2

Income received from farming

Realized gross

Total s

Cashreceipts

frommarket-

ings

Produc-tion ex-penses

Net to farmoperators

Exclud-ing netinven-tory

change

Includ-ing netinven-tory

change*

Billions of dollars

7.4

7.610.114.116.516.617.220.021.123.819.5

20.322.722.019.718.317.517.617.519.217.5

18.419.019.720.019.822.623.822.924.126.9

27.428.734.448.644.744.342.044.5

4.8

4.86.8

10 112.112.212.815 515 818 013.3

14.116.115.313 312.411 311 110.812.510.4

11 111.411.411.010.012.012.611.111.312.9

13.013.416.829.023.121.517.818.6

2.6

2.83.33.94.44.44.44.65.35.86.2

6.36.56.76.45.96 26.66.66.77.1

7.27.68.39.09.7

10.611.211.712.813.9

14.415.317.619.521.622.824.225.9

13.97.1

10.6

11.113.918.823.424.425.829.534.134.731.6

32.337.136.835.133.733.334.434.238.137.9

38.540.241.742.743.145.550.649.951.756.3

58.660.670.195.5

100.096.7

103.6

87.497.9

103.498.1

102 1109 6100 9101.9

105.8107 599.5

11.35.37.9

8.411.115 619 620.521.724 829.630.227.8

28.532.932.531.029.829 530.429.733.533.6

34.235.236.537.537.339.443.442.844.248.2

50.552.961.287.192.488.194.3

79.789.594.189.0

93 0100 491 592.4

96.197 789.3

7.74.46.3

6.97.8

10.011.612.313.114.517.018.818.0

19.522.322.821.521.822 222.723.725.827.2

27.428.630.331.631.833.736.538.239.542.1

44.447.452.365.672.275.981.7

72.475.778.876.7

79 184 282 381.2

83.587 583.3

6.32.74.3

4.26.18.8

11.812.112.815.017.115.913.6

12.814.814.013.611.911.111.710.512.310.7

11.111.611.411.111.311.914.011.712.214.2

14.113.217.829.927.720.821.9

15.022.224.621.4

23 025 418 620.7

22.320 016.2

6.22 64.4

4.56.59 9

11 711.712.315 115.417.712.8

13.615.915.013.012.411.311.311.113.210.7

11.512.012.111.810.512.914.012.312.314.3

14.214.618.733.326.124.320.0

19.023.727.526.9

21.523.217.618.0

21.820.517.2

Net income perfarm includingnet inventory

change

Currentdollars

1967dollars'

Dollars

945379685

7061,0311,5881,9271,9502,0632,5432,6153,0442,233

2,4172.9362,8782,6042, 5792,4292,4932,5363,1112,615

2,9073,1263,2673,2953,0353,8434,2863,9034,0134,766

4,7905,0306,504

11,7279,2328,6377,203

6,7708,4409,7909,580

7,7408,3506,3306,480

7,9207,4506,250

1,9691 1151,851

1,8582,5783 4523,7063,6113,6194 0373 5343,9032,977

3,1803,5373,4263,1003,0702,8922,9332,8823,4962,938

3,2303,4733,5903,5823,2634,0454,3733,9033,8594,372

4,2024,2$35,2888,8176,1145,2034,093

4,1805,1205,7905,600

4,5004,8003,5803,600

4,3204,0003,290

1 Net income to farm operators including net inventory change, less net income of nonresident operators, plus wages andsalaries and other labor income of farm resident workers, less contributions of farm resident operators and workers tosocial insurance.

2 Consists of income received by farm residents from nonfarm sources, such as wages and salaries from nonfarm em-ployment, nonfarm business and professional income, rents from nonfarm real estate, dividends, interest, royalties,unemployment compensation, and social security payments.

3 Cash receipts from marketings, Government payments, and nonmoney and other farm income furnished by farms(excluding net inventory change).

4 Includes net value of physical change in inventory of crops and livestock valued at average prices for the year.5 Income in current dollars divided by the index of prices paid by farmers for family livinp items on a 1S67 base. As of

January 1977 movement of the index is based on the overall change in the consumer price index (Department of Labor)Source: Department of Agriculture, except as noted.

362


TABLE B-92.—Farm production indexes, 1929-77

[1967 = 100]

Y«ar

1929....

1933....

1939....

1940...1941...1942...1943...1944...

1945...1946...1947...1948...1949...

1950...1951...1952...1953...1954...

1955...1956...1957...1958...1959...

1960...1961...1962...1963...1964...

1965...1966...1967...1968._.1969...

1970...1971...1972...1973...1974...

1975...1976...1977 P..

Farmout-put»

53

51

58

6062706971

7071697674

7476797980

8282818788

9191929695

9895100102102

101111110112106

114117121

Crops2

TotaP

62

55

64

6768767175

7377738379

7678818179

8282808989

9391929693

9995100103104

101112113119109

121121129

Feedgrains

48

44

51

5256645962

6065507263

6459636164

6868748084

8778798675

88891009599

8911611211593

114120124

Hayandfor-age

71

62

68

7675828079

8177747473

7881798181

8682898985

9090939394

989710099100

99105104109104

108102108

Foodgrains

52

36

48

5260635467

7072858170

6564837667

6366629173

8780747786

888810010698

91107102113122

142140131

Vege-tables

64

62

69

7273788480

8291808482

8378798281

8489868987

8994929289

9697100104101

100100101103102

101106107

Fruitsandnuts

74

75

95

9197

, 968396

87104999195

9698959697

9397889698

9498989697

1009810098116

109116104124125

135130136

Cot-ton

205

180

163

173148177158169

125120164206221

138209209227188

203184151157200

196196205211209

205130100148137

139145187175158

112142195

To-bacco

76

69

96

7464727199

101118107101100

103119115105114

112111858891

99105118119113

94961008791

9786888>101

11010998

Oilcrops

11

8

25

2929404136

3634394745

4647464749

5360586964

6877788181

9597100114116

117121131155127

153132171

Livestock and products'

Total 3

53

57

59

6064717773

7371706872

7578787982

8484838488

8791929597

9597100100101

105108108105106

101105108

Meatani-mals

52

58

59

6063728173

6968676669

7379797881

8583808187

8588909597

9296100101102

108112110108110

102106108

Dairyprod-ucts

75

79

81

8387919091

9493928991

9290919597

981001009998

100102103102104

1041011009998

1001011029899

98103105

Poul-tryandeggs

33

32

35

3639455252

5451504954

5759606164

6369707476

7682828487

909610098100

106107109106106

103110111

1 Farm output measures the annual volume of net farm production available for eventual human use through sales fromfarms or consumption in farm households.

3 Gross production.3 Includes certain items not shown separately.

Source: Department of Agriculture.

363


TABLE B-93.—Farm population, employment^

Year

1929

1933

1939

1940 . . . .1941194219431944

19451946194719481949 .

19501951195219531954

19551956195719581959

I9601961196219631964

19651966196719681969

19701971197219731974

197519761977 p

Farm population(April l ) i

Mum

ber(thou-sands)

30, 580

32,393

30, 840

30, 54730,11828,91426,18624, 815

24, 42025, 40325, 82924,38324,194

23, 04821, 89021,74819, 87419,019

19,07818,71217,65617,12816, 592

15, 63514,80314,31313,36712,954

12, 36311, 59510, 87510, 45410, 307

9,7129,4259,6109,4729,264

8,8648,2537,800

As per-cent of

totalpopu-

lation 2

25.1

25.8

23.5

23.122.621.419.217.9

17.518.017.916.616.2

15.214.213.912.511.7

11.511.110.39.89.4

8.78.17.77.16.8

6.45.95.55.25.1

4.74.64.64.54.4

4.23.83.6

Farm employment(thousands) 3

Total

12,763

12, 739

11,338

10,97910,66910,50410, 44610, 219

10,00010, 29510, 38210, 3639,964

9,9269,5469,1498,8648,651

8,3817,8527,6007,5037,342

7,0576,9196,7006,5186,110

5,6105,2144,9034,7494,596

4,5234,4364,3734,3374,389

4,3424,3764,140

Familyworkers

9,360

9,874

8,611

8,3008,0177,9498,0107,988

7,8818,1068,1158,0267,712

7,5977,3107,0056,7756,570

6,3455,9005,6605,5215,390

5,1725,0294,8734,7384,506

4,1283,8543,6503,5353,419

3,3483,2753,2283,1693,075

3,0262,9992,849

Hiredworkers

3,403

2,865

2,727

2,6792,6522,5552,4362,231

2,1192,1892,2672,3372,252

2,3292,2362,1442,0892,081

2,0361,9521,9401,9821,952

1,8851,8901,8271,7801,604

1,4821,3601,2531,2131,176

1,1751,1611,1461,1681,314

1,3171,3771,291

and productivity, 1929- 77

Per

unit oftotalinput

52

53

59

6062686667

6871687471

7171747576

7880808787

9091929695

10097

100102103

102111110111105

115116119

Farm output

Per hour of farm work

Total Crops

Index, 1967 =

16

16

19

2021242424

2627283132

3435383942

4447515759

6567717781

8992

100106110

112126129133129

144152155

16

15

20

2123252425

2729293333

3635394042

4548536161

6668727779

9094

100106108

110120124127117

130133134

Live-stockand

products

100

26

25

27

2728303130

3132333435

3739404143

4648505458

6266717782

8693

100105112

121130138144156

160175180

Cropproduc-

tionper

acre 4

56

50

60

6263706468

6771677570

6970737271

7476778685

8992959795

10097

100105106

104112115115103

112l i l117

1 Farm population as defined by Department of Agriculture and Department of Commerce, i.e., civilian populationliving on farms, regardless of occupation

3 Total population of United States as of July 1 including Armed Forces overseas.2 Includes persons doing farmwork on all farms. These data, published by the Department of Agriculture, Statistical

Reporting Service, differ from those on agricultural employment by the Department of Labor (see Table B-29) because ofdifferences in the method of approach, in concepts of employment, and in time of month for which the data are collected.See monthly report on "Farm Labor."

* Computed from variable weights for individual crops produced each year.

Sources: Department of Agriculture and Department of Commerce (Bureau of the Census).

364


TABLE B-94.—Indexes of prices received and prices paid by farmers and selected farmresource prices, 1929-77

(1967=100, except as noted]

Year or month

192919331939..

1940194119421943194419451946194719481949

1950195119521953195419551956195719581959

I960196119621963196419651966196719681969

1970 . .197119721973 .19741975197619771976: Jan 15

Febl5Mar 15Apr 15May 15June 15__

July 15Augl5Sept 15Oct 15Novl5Dec 15

1977: Jan 15Feb 15Mar 15Apr 15May 15June 15

July 15Augl5Sept 15Oct 15Novl5Dec 15

Prices received by farmers

Allfarm

products

592838

40496477798394110115100

1031211151029893929410096

959698979598106100102107

110113125179192185186183

186187185190191195

194186186178173178

183187190191194184

180175174178179181

Crops

603136

404864838890102117113100

1031181191071081031041009998

9910110310710610310610010097

100-108114175224201197193

191193194193198209

214201204195186190

198203211213214198

182173171178185183

Live-stockand

products

582539

4050627271778810511599

10212211197908582899993

929193898694106100104117

118118136183165172177175

181182178186185184

179175172165162169

170174171172176173

179177177177174180

Prices paid by farmers

Allitems,

interest,taxes,andwagerates

473236

36394450535661707673

75828481818181848687

88889091929499100103108

112118125144164180192202

189191191191191193

194193193192192193

198200201204204204

203202201201202203

Familylivingitems

483437

38404652545763747875

76838484848485888989

90909192939598100104109

114118123133151166176

(3)172172173174174175

17717717817918018118?

B333 3

3333

(3)

(3)

Produc-tionitems

513442

43455257606167788783

86959589898787909293

929394959496100100100104

108113121146166182193200

190192193193193196

196194194192191193

196199201204205203

201199197198199200

Selected resource prices

Tractorsandself-pro-pelledma-

chinery

9296100104111

116122128137161195217238

211

220

224

233

241

245

Fertil-izer

1031021009487

889194102167217185181

182

177

181

183

182

179

Averagehourlywagerate,allhiredfarm

workers1

$0.73.68

.6977.81.82.81.8286.88.9295

979901n1)n«14

1.23L.33L.44L.55

1.64L.73HA

2.002.292.432.66

2 75

2 66

2.53

2 80

2 96

2 82

2.77

2.99

Averagefarmreal

estatevalueperacre2

271619

19192123262932363941

40465152515355586166

68697377828693100107113

117122132150187213242283

242

267

283

296

1 Without room or board.> Average for 48 States. Annual data are for March 1 of each year through 1975 and for February 1 beginning 1976.

Monthly data are for first of month.3 Series discontinued. Consumer price index (Department of Labor) substituted in calculating total prices paid.


365


T A B L E B-95.—Selected measures of farm resources and inputs.

Year

1929

1933

1939

1940.1941194219431944

194519461947.19481949

19501951195219531954

19551956195719581959

19601961196219631964

19651966196719681969

19701971197219731974

197519761977 P. _

Cropshar-vested(mil-lionsof

acres) i

365

340

331

341344348357362

354352355356360

345344349348346

340324324324324

324302295298298

298294306300290

293305293321330

337338347

Totalhoursof

farmwork(bil-lions)

23.2

22.6

20.7

20.520.020.620.320.2

18.818.117.216.816.2

15.115.214.514.013.3

12.812.011.110.510.3

9.89.49.08.78.2

7.36.96.76.46.2

6.05.95.75.65.5

5.35.15.2

1929-77

Index numbers of inputs (1967=100)

Total

102

96

98

100100103104105

103101101103105

104107107106105

105103101100102

101100100100100

989810010099

99100100101101

100101102

Farmlabor

329

321

294

293288296292289

271260246240231

217218208200192

185174162156151

145139133129122

1101031009793

9089858583

807878

Farmreal

estate

103

97

102

1031021009898

98102103103104

105105105105105

105102102100101

100100100100100

99991009998

9896959493

939494

Me-chani-cal

powerandma-

chinery

38

32

40

4244515557

5857647280

8490949696

9798979798

9794949393

9496100101101

100102101105109

112113114

Agri-culturalchemi-cals 2

10

6

11

1314151720

2021232527

2932353637

3941414349

4953586571

7585100105111

115124131136140

127141146

Feed,seed,andlive-stockpur-

chases 3

31

28

41

4245485252

5453555661

6367696971

7275747984

8488909092

939710097101

104111113116107

100107109

Taxesand

interest

73

75

72

7273737779

8081817982

8282858685

8887868793

9495969899

100100100101100

10099100100101

101100101

Miscel-laneous

86

82

78

7879767982

8081838791

8793939290

94909498103

105105108109113

109104100106105

109108115111110

104116113

i Acreage harvested (excluding duplication) plus acreages in fruits, tree nuts, and farm gardens.* Fertilizer, lime, and pesticides.s Nonfarm constant dollar value of feed, seed, and livestock purchases.Source: Department of Agriculture.

366


TABLE B-96.—Comparative balance sheet of the farming sector, 1929-78

(Billions of dollars]

Beginning ofyear

1929

1933.

1939

194019411942.19431944

19451946194719481949

19501951195219531954

195519561957.19581959

19601961.196219631964 .

19651966196719681969 . .

1970 .1971197219731974

1975 _ .19761977

1978 P

Assets

Total

52.955.062.973.784.6

94.2103.5116.4127.9134.9

134.7154.4170 4168.0164.9

169.1174.1183.2191 6208.8

210 6211 1219.5227 9235.8

244 0261 1274.4288 3303.1

315.3326.6353.2398.2486.2

527.5592.8670.9

729.6

Realestate

48.0

30.8

34.1

33.634 437.541.648.2

53.961.068.573.776.6

77.689.598 5

100 198.7

102.2107.5115 7121 8131.1

137 2138 5144.5150 2158.6

167 5179 2189.1199 7209.2

215.9223.9241.4271.0335.4

378.7429.1497.2

546.9

Live-stock i

6.6

3.0

5.1

5.15.37.19.69.7

9.09.7

11.913.314.4

12.917.119.514.811.7

11.210.611.013.917.7

15.315.616.417.315.9

14.517.619.018.820.2

23.523.727.334.142.4

24.629.529.1

Other physical assets

Ma-chin-eryand

motorvehi-cles

3.2

2.5

3.2

3.13.34.04.95.4

6.5

H7.4

10.1

12.214.116.717.418.4

18.619.320.220.221.8

22.722.222.523.523.9

24.826.027.429.831.3

32.334.436.639.344.2

55.765.072.3

Crops*

2.73.03.85.16.1

6.76.37.19.08.6

7.67.98.89.09.2

9.68.48.37.69.3

7.78.08.89.39.8

9.29.7

10.09.6

10.6

10.910.711.814.522.1

23.321.321.8

House-hold

equip-mentand

furnish-ings

4.24.24.95.05.3

5.66.17.78.59.1

8.69.7

10.39.99.9

10.010.510.09.99.8

9.68.99.19.08.8

8.68.68.59.29.7

9.810.311.212.713.6

15.316.217.4

148.0

Financial assets

De-positsandcur-rency

3.23.54.25.46.6

7.99.4

10.29.99.6

9.19.19.49.49.4

9.49.59.49.5

10.0

9.28.78.89.29.2

9.610.010.310.911.5

11.912.413.214.014.9

15.115.615.9

U.S.savingsbonds

0.2.4.5

1.12.2

3.41.2\ 7\ 41.6

1.71.7

7161.7

U5.15.15.2

4.74.64.54.44.2

4.24.13.93.83.8

3.73.63.74.04.1

4.34.44.4

34.7

Invest-mentin co-opera-tives

0.8.9.90

?1.4

«>79

2.02.32.52.72.9

3.13.23.53.73.9

4.24.54.95.05.4

5.65.96.26.56.8

7.27.68.08.69.5

10.511.712.8

Claims

Total

52.955.062.973.784.6

94.2103.5116.4127.9134.9

134.7154.4170 4168.0164.9

169.1174.1183.2191 6208.8

210 6211 1219.5227 9235.8

244 0261 1274.4288 3303.1

315.3326.6353.2398.2486.2

527.5592.8670.9

729.6

Realestatedebt

9.8

8.5

6.8

6.66.56.46.05.4

4.94.84.95.15.3

5.66.16.77.27.7

8.29.09.8

10.411.1

12.012.813.815.116.8

18 921 223.125 127.4

29.230.332 235.741 3

46.351.156.6

64.5

Otherdebt

3.43.94.14.03.5

3.43.23.64.26.1

6.86.98.08.99.2

9.49.89.5

10.012.5

12.813.414.716.317.6

17 919 521.022.323.1

23.824.126.929.632 8

35.539.746.1

54.2

Pro-prie-tors'equi-ties

42.944 652 463 775.7

85 995.5

107 9118 6123.5

122 3141 4155 7151 9148.0

151.4155.3163 8171 2185.2

185 8184 9191.1196 5201.4

207 2220 4230.4240 9252.6

262.3272.1294 1332.9412 1

445.7502.0568.2

610.9

1 Beginning with 1961, horses and mules are excluded.2 Includes all crops held on farms and crops held off farms by farmers as security for Commodity Credit Corporation

loans. The latter on January 1,1978 totaled approximately $1.7 billion.

Note.—Beginning 1960, data include Alaska and Hawaii.


367


INTERNATIONAL STATISTICSTABLE B-97.—U.S. international transactions, 1946-77

[Millions of dollars; quarterly data seasonally adjusted, except as noted]

Yearor

quar-ter

1946194719481949

1950 ._19511952 __19531954

1955 __1956195719581959

19601961196219631964

19651966196719681969

19701971197219731974

19751976

1975: I . . . .II.__III. . .

1976: I . . . .I I . . .III.. .

1977: I . . . .I I . - .Ill p..

Merchandise'2

Ex-ports

11,76416,09713,26512,213

10, 20314,24313,44912,41212, 929

14, 42417, 55619,56216, 41416, 458

19,65020,10820, 78122,27225,501

26, 46129, 31030, 66633, 62636, 414

42, 46943, 31949, 38171,41098, 306

107, 088114, 694

27, 01825, 85126, 56227,657

27, 00028, 38029, 60329,711

29, 45830, 59030, 869

Imports

-5,067-5,973-7,557-6,874

-9,081-11,176-10,838-10,975-10,353

-11,527-12,803-13,291-12,952-15,310

-14,758-14,537-16,260-17, 048-18,700

-21, 510-25,493-26, 866-32, 991-35, 807

-39, 866-45, 579-55, 797-70, 499-103, 673

-98, 043-124, 014

-25, 563-22, 566-24, 483-25, 431

-28, 343-29, 955-32,411-33, 305

-36, 561-38, 347-38, 378

Netbal-ance

6,69710,1245,7085,339

1,1223,0672,6111,4372,576

2,8974,7536,2713,4621,148

4,8925,5714,5215,2246,801

4,9513,8173,800

635607

2,603- 2 , 260-6,416 10,161

911 13, 540-5, 367 19, 763

9, 045 17, 330-9, 320 21, 369

1,4553,2852,0792,226

-1, 343-1,575-2 , 808-3, 594

-7,103-7, 757-7, 509

Investment income3

Re-ceipts

7721,1021,3401,395

1,5931,8821,8281,9102,227

2,4442,6622,8172,8453,043

3,3503,9444,4214,6505,392

5,8995,7406,2676,9378,090

8,5759,512

4,2834,3064,4034,338

5,2985,1675,4835,421

6,1336,6606,430

Pay-ments

-212-245-280-333

-369-414-421-461-420

-568-639-669-828

-1,063-1,007-1,110-1,325-1,457

-1, 730-2,142- 2 , 307- 2 , 890-4, 438

-5, 082-4, 893-5,975-8, 744-11,019

-11,376-11,561

-3, 052- 2 , 799- 2 , 784- 2 , 741

-2 , 861-2 , 887- 2 , 816-2 , 997

- 2 , 881-3,156-3,215

Net

560857,060,062

,224,468,4071,4491,807

1,9552,0942,1782,1762,215

2,2872,9373,3113,3253,935

4,1693,5983,9604,0473,652

3,4934,6194,1864,7968,744

5,9549,808

1,2311,5071,6191,597

2,4372,2802,6672,424

3,2523,5043,215

Netmili-tary

trans-actions

-493-455-799-621

-576-1,270-2,054-2,423-2, 460

-2, 701-2, 788-2, 841-3,135-2,805

-2,752-2, 596-2,449-2,304-2,133

-2,122-2, 935-3, 226-3,143-3, 328

-3, 354-2, 893-3,621-2, 287-2, 083

-876366

-393-311-139-34

-65-39235235

516311577

Nettraveland

trans-porta-tion re-ceipts

733946374230

-12029883

-238-269

-297-361-189-633-821

-964-978,152,309,146

,280,331,750,548,763

- 2 , 023-2,315-3, 028-3, 086-3,105

- 2 , 552-2,145

-685-579-604-684

-669-337-458-681

-953-785-727

Otherserv-ices,

310145175208

242254309307305

299447482486573

579594809960

1,041

1,3871,3651,6121,6301,833

2,1902,5092,7893,1853,970

4,5944,888

1,1001,129i, 1801,184

1,1921,1761,2391,279

1,2931,3381,494

Bal-anceon

goodsand

serv-ices i *

7,80711,6176,5186,218

1,8923,8172,356

5321,959

2,1534,1455,9012,356

310

4,0405,5295,0425,8978,499

7,1054,5144,3951,6211,002

2,912-340

-6, 0883,5202,160

16,1643,596

2,7085,0314,1354,289

1,5521,505875

-337

- 2 , 995-3, 389-2 , 950

Remit-tances,

pen-sions,and

otheruni-

lateraltrans-fers i

-2,922-2,625-4,525-5,638

- 4,017-3, 515-2,531-2,481-2,280

-2,498-2,423-2,345-2,361-2,448

- 2 , 308-2,524- 2 , 638-2,754- 2 , 781

- 2 , 854- 2 , 932-3,125- 2 , 952- 2 , 994

-3, 294-3, 701-3, 854-3, 887i-7,188

- 4 , 6 1 2- 5 , 023

- 1 , 1 9 5- 1 , 1 1 0- 1 , 0 7 0- 1 , 238

- 1 , 0 2 9- 1 , 0 1 5- 1 , 9 3 6- 1 , 045

- 1 , 1 6 3- 1 , 2 1 5- 1 , 3 5 2

Bal-anceon

cur-rentac-

count

4,8858,9921,993

580

- 2 , 1 2 5302

- 1 7 5- 1 , 9 4 9

- 3 2 1

- 3 4 51,7223,556

- 2 , 1 3 8

1,7323,0052,4043,1435,718

4,2511,5821,270

-1, 331-1, 993

-382-4, 041-9,942-367

-5, 028

11,552-1, 427

1,5133,9213,0653,051

523490

-1,061-1, 382

-4,158-4, 604-4, 302

1 Excludes military grants.2 Adjusted from Census data for differences in valuation, coverage, and timing.3 Fees and royalties from U.S. direct investments abroad or from foreign direct investments in the United States are

excluded from investment income and included in other services, net.* In concept, the sum of balance on current account and allocations of special drawing rights is equal to net foreign

investment in the national income and product accounts, although the two may differ because of revisions, special handlingof certain items, etc.

(Footnotes continued on following page.)

368


TABLE B-97.—U.S. international transactions, 1946-77—Continued

[Millions of dollars; quarterly data seasonally adjusted, except as noted]

Year orquarter

1946194719481949

195019511952. _19531954

195519561957 ._19581959

19601961196219631964

19651966196719681969

19701971197219731974

19751976

1975:1I I - . . .III.. .-IV

1976:1IIIII.—IV.__.

1977:1II . . .U K .

U.S. assets abroad, net[increase/capital outflow (—)]

Total

- 2 , 8 3 3-4 .484-2 ,979- 5, 764-8 ,128

-4 ,176-5 ,530-8 ,002- 8 , 547-8 ,763

-6 ,164- 9 , 299-9 ,929

-14,666- 2 7 , 029

- 3 1 , 548- 4 2 , 959

- 8 , 749- 7 , 881-3 ,081

-11,836

-10,751- 9 , 779- 8 , 409

-14,022

331- 1 0 , 283

- 3 , 396

U.S.officialreserveassets6

- 6 2 3-3 ,315- 1 736

- 2 6 6

1,758- 3 3

- 4 1 51,256

480

182-869

- 1 1652,2921,035

2,145606

1,533377171

1,22256852

-880-1 ,187

2,4772.348

209-1 ,434

-607- 2 , 5 3 0

-325- 2 9

- 3 4 289

- 7 7 3-1 ,578

-407228

- 3 8 86

151

OtherU.S.

Govern-mentassets

-1 ,100-910

-1 ,085-1 ,662-1 ,680

-1 ,605- 1 , 5 4 3- 2 , 423- 2, 274- 2 , 200

-1 ,589-1 ,884-1 ,568- 2 , 645

5 365

- 3 , 463-4 ,213

- 8 7 4-867-745-977

- 7 2 3-944

-1 ,405- 1 , 1 4 2

-909-825

-1 ,175

U.S.privateassets

- 3 , 8 7 8-4 ,180- 3 , 426-4 ,479- 6 , 6 1 8

-3 ,793- 4 , 554-5 ,630- 5 , 393-5 ,376

- 7 , 0 5 2- 9 , 763-8 ,392

-12,230-25,960

- 27, 478- 3 6 , 216

- 7 , 550- 6 , 985-1 ,994

-10,948

-9 ,254- 7 , 257- 6 , 597

-13,108

1,627- 9 , 464-2 ,372

Foreign assets in the U.S., net[increase/capital inflow (+)1

Total

2,1202,4671,6972,9813,317

3823,3206,9389,439

12,270

5,92322, 44521,12717, 75333,612

14, 33634, 520

2,4433,6632,4165, 814

6,8567,3858,201

12, 079

2,51013, 78112, 923

Foreign officialassets

Total

1,473765

1,2701,9861,661

132-6743,450- 7 7 6

-1 ,301

6,90726, 89510,7056,299

10,981

6,96017, 945

3,4522,279

-1 ,6032,832

3,8474,0513,0706,977

5,7197,9088,243

Assetsof

foreignofficialreserveagen-cies

1,258741

1,1181,5581,363

67-7873,367-761

- 1 , 552

7,36227, 40510,3225,145

10,257

5,25913, 007

3,0241,884

-1 ,9772,328

2,3233,3081,2516,125

5,0077,4527,924

Otherforeignassets

6471,701

427995

1,656

2493,9943,488

10, 21513,571

-984- 4 , 45010, 42211,45422,631

7,37616, 575

-1 ,0091,3844,0192,982

3,0093; 3335,1315,102

-3 ,2095,8734,680

Alloca-tions ofspecialdrawing

rights(SDR)

867717710

Statisticaldiscrepancy

Total(sum of

theitemswithsignre-

versed)

-1 ,019- 9 8 8

-1 ,122-360-907

-457628

-206439

-1 ,515

-244- 9 , 822-1 ,966- 2 , 720-1 ,555

5,6609,866

4,793297

- 2 , 4002,971

3,3721,9051,2683,325

1,3171,106

- 5 , 225

OfwhichSea-sonal

adjust-ment

discrep-ancy

1,12138

- 2 , 4751,316

717129

-2 ,6221,780

524- 2 1 5

- 2 , 506

5 Includes extraordinary U.S. Government transactions with India.6 Consists of gold, special drawing rights, convertible currencies, and the U.S. reserve position in the International

Monetary Fund (IMF).

Note.—Quarterly data for changes in U.S. official reserve assets, U.S. private assets abroad, and foreign assets in theU.S. are not seasonally adjusted.


369

248-947 O - 78 - 24


TABLE B-98.—U.S. merchandise exports and imports by principal end-use categories, 1965-77

Millions of dollars; quarterly data seasonally adjusted]

Year or quarter

1965 . .196619671968 . .1969

19701971 . .197219731974

19751976

1976: 1IIIII...IV

1977: 1II.III...

Exports

Total

26,46129,31030,66633,62636,414

42,46943,31949, 38171, 41098,306

107,088114,694

27, 00028, 38029,60329,711

29,45830, 59030,869

Agricul-tural

6,3056,9496,4536,2976,096

7,3747,8309,514

17,97822,411

22,24223, 381

5,4105,8466,2395,886

6,1186,6996,019

Nonagricultural

Total

20,15622,36124,21327,32930, 318

35,09535,48939,86753,43275, 895

84, 84691, 313

21, 59022, 53423,36423, 825

23,34023, 89124, 850

Capitalgoods

8,0528,9079,934

11,11112,369

14,58815, 30216, 81621, 84830, 410

35,84138, 716

9,1059,5319,864

10,216

9,4279,728

10,233

Othergoods

12,10413, 45414, 27916, 21817,949

20, 50720,18723, 05131, 58445, 485

49, 00552,597

12, 48513, 00313,50013,609

13,91314,16314,617

Imports

Total

21,51025, 49326, 86632,99135, 807

39,86645,57955, 79770, 499

103,673

98, 043124,014

28, 34329,95532,41133,305

36, 56138, 34738, 378

Petroleumand

products

2,0342,0782,0912,3842,649

2,9293,6494,6518,414

26, 591

27, 01834, 573

7,5718,2529,4089,342

11,03211,93411, 456

Non-petroleum

Total

19,47623,41524, 77530,60733,158

36,93741,93051,14662,08577, 082

71,02589, 441

20,77221,70323,00323,963

25, 52926, 41326,922

Industrialsupplies

9,12310,2359,956

12,02711, 798

12, 51513,87816, 41319,79728, 095

24, 35530,154

6,4807,4628,0038,209

8,0709,2949,597

Othergoods

10,35313,18014, 81918,58021, 360

24, 42228, 05234,73342,28848,987

46,67059, 287

14, 29214,24115, 00015,754

17,45917,11917,325

Note.—Data are on an international transactions basis and exclude military grant shipments.Source: Department of Commerce, Bureau of Economic Analysis.

370


TABLE B-99.—U.S. merchandise exports and imports by area, 1971-77[Millions ot dollars]

Exports

Developed countries..

CanadaJapanWestern EuropeAustralia, New Zealand, and South

Africa

Developing countries

OPEC1.Other2_

Eastern Europe

Imports

Developed countries.

CanadaJapanWestern EuropeAustralia, New Zealand, and South

Africa


OPEC iOther2

Eastern Europe..

1971

43, 319

30, 262

10, 9274,05313, 589

1,693

12, 637

2,12710, 510

420

45, 579

33, 463

12,2147,27812, 813

1,158

11, 891

2,2659,626

225

1972

49, 381

34, 564 .

13,1094,96314, 950

1,542

13,917

2,55111,366

900

55, 797

40, 643

14, 4939,07615,661

1,413

14, 791

2,97411,817

363

1973

71,410

48, 529

16, 7108,35621,216

2,247

20, 834

3,41417, 420

2,047

70, 499

48, 985

17,6949,66519, 774

1,852

20, 913

5,09715, 816

601

1974

98,306

64, 487

21, 84210, 72428,164

3,757

32, 082

6,21925, 863

1,737

103, 673

61, 092

22, 39212,41424, 267

2,019

41, 604

17, 25024, 354

977

1975

107,088

66, 496

23, 5379,567

29, 884

3,508

37, 343

9,95627, 387

3,249

98, 043

55, 974

21,71111,25720, 764

2,242

41,335

18, 89722, 438

734

1976

114, 694

72, 386

26, 33610,19631, 934

3,920

38, 251

11,55826, 693

4,057

4124, 014

67, 455

26, 44215, 53123, 003

2,479

55, 375

27, 40927, 966

875

1977 3

121,223

77, 588

28, 23210,48135,080

3,795

40,922

12,96527,957

2,728

U51,048

78, 517

29,62818, 36727, 779

2,744

71,439

36,60734, 832

1,111

1 Algeria, Ecuador, Gabon, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, United Arab Emirates,and Venezuela.

2 Latin American Republic, other Western Hemisphere, and other countries in Asia and Africa, less petroleum exportingcountries and the International Monetary Fund.

3 Average of first 3 quarters at seasonally adjusted annual rate. Detail may not add to totals because of seasonal ad-justment discrepancy.

4 Includes imports of nonmonetary gold from International Monetary Fund not in area detail.Note.—Data are on an international transactions basis and exclude military grant shipments.Source: Department of Commerce, Bureau of Economic Analysis.

371


TABLE B-100.—International investment position of the United States at year-end, 1970-76


Type of investment 1970

165.5

46.6

.9

1.9.6

11.129.72.5

118.8

75.521.013.8

8.5

106.8

26.1

17.71.76.7.0

80.7

13.322.71.2

34.7

8.8

58.6

1972

199.0

49.3

2.0

.5

.210.534.12.0

149.7

89.927.620.7

11.4

161.8

63.2

52.91.68.5.2

98.7

14.921.21.2

50.7

10.7

37.1

1974

256.2

54.2

2.4

1.9.0

11.736.32.1

202.0

110.228.646.2

17.0

197.4

80.3

57.73.518.4.6

117.1

25.141.81.7

34.9

13.6

58.8

1975

295.6

58.0

2.3

2.2.1

11.639.82.0

237.6

124.235.259.8

18.4

221.0

87.5

63.35.216.32.7

133.6

27.742.54.245.3

13.8

74.6

1976

U.S. assets abroad

U.S. Government assets

Special drawing rights (SDR)Reserve position in the International Monetary

Fund (IMF)Foreign currency reservesGoldU.S. loans and other long-term assetsU.S. short-term assets other than reserves

U.S. private assets

Direct investments abroad (book value)Foreign securitiesClaims on foreigners reported by U.S. banksClaims on unaffiliated foreigners reported by U.S.

nonbanks

Foreign assets in the United States

Foreign official assets

U.S. Government securities iOther U.S. Government liabilitiesLiabilities reported by U.S. banksOther official assets

Other foreign assets

Direct investments in the United States (bookvalue)

Liabilities reported by U.S. banksU.S. Treasury securitiesOther U.S. securities2

Liabilities to unaffiliated foreigners reported byU.S. nonbanks

Net foreign wealth (including official gold holdings) of theUnited States

347.4

64.7

2.4

4.4.3

11.644.11.9

282.6

137.244.680.7

20.1

264.8

106.3

73.610.117.25.5

158.5

30.253.57.0

54.8

13.0

82.5

1 Includes Treasury and agency issues of securities.2 Corporate and other bonds and corporate stocks.Note.—Gold is valued at SDR35 per ounce, throughout. The SDR value is converted to dollars at $1/SDR before Decem-

ber 1971, at $1.08571/SDR from December 1971 through January 1973, at $1.20635/SDR from February 1973 throughJune 1974, and as measured by the basket valuation of the SDR beginning July 1974.


372


TABLE B—101.—Summary of major U.S. Government net foreign assistance, July 1, 1945 toDecember 31, 1976

[Millions of dollars] i

Type and geographic distributionYearly average or calendar year

1945-492 1950-54 1955-59 1960-64

Total.net

Investment in 6 international financial institutions3..

Under assistance programs, net

Net new military grantsGross new grantsLess: Reverse grants and returns

Other grants, credits, and other assistance (through netaccumulation of foreign currency claims), net

Net new economic and technical aid grants4.Gross new grantsLess: Reverse grants and returns

Net new credits <«New creditsLess: Principal collections

Other assistance (through net accumulation of foreigncurrency claims) «

5,540

141

5,399

325340

15

5,074

3,3123,486

174

1,7621,986

224

5,059

Currency claims acquiredSales of farm productsSecond-stage operations7

Less: Currencies disbursedEconomic grants and credits to purchasing

countryOther uses

5,059

2,4622,494

32

2,597

2,4062,512

106

148544396

42

Geographic distribution of net nonmilitary assistance

Developing countries,8 net total

Net new economic and technical aid grantsNet new creditsOther assistance (through net accumulation of foreign

currency claims)

904

752152

Developed countries,8 net total.


currency claims)

4,170

2,5601,610

1,032

772240

20

1,564

1,634- 9 2

22

4,772

7

4,764

2,4382,451

14

2,327

1,7101,759

48

210827617

407

965963

2

558

413145

2,211

1,470386

355

116

240- 1 7 6

52

4,664

124

4,540

1,5941,629

35

2,946

1,8501,872

22

8711,843

972

225

1,2301,186

44

1,005

807198

3,316

1,8171,310

189

- 3 7 1

32- 4 3 9

36

1 Negative figures (—) occur when the total of grant returns, principal repayments, and/or foreign currencies disbursedby the Government exceeds new grants and new credits utilized and/or acquisitions of foreign currencies through new salesof farm products.

2 July 1,1945, through December 31, 1949. Yearly average is for 4>£ years.3 Includes paid-in capital subscriptions and contributions to the special funds of the African Development Fund, Asian

Development Bank, Inter-American Development Bank, International Bank for Reconstruction and Development, Inter-national Development Association, and International Finance Corporation.

4 Net new grants are not adjusted for settlements of postwar relief and other grants under agreements, and net newcredits exclude prior grants converted into credits. Repayments on these settlements are included in net new credits.

s Outstanding credits on December 31, 1976, totaled $38,821 million, representing net credits extended since organi-zation of Export-Import Bank, February 12, 1S34, less chargeoffs and net adjustments due to exchange rates ($1,465million), and excluding World War I debts. The amount repayable in dollars at U.S. Government option was $36,002 mil-lion; the remainder was repayable in foreign currencies, commodities, or services, at the option of the borrowers.

373


TABLE B-101.—Summary of major U.S. Government net foreign assistance, July 1, 1945 toDecember 31, 1976—Continued

[Millions of dollarsp

Type and geographic distribution

Yearly average or calendar year

1965-69 1970-74 1975 1976

Total, net

Investment in 6 international financial institutions3

Under assistance programs, net

Net new military grantsGross new grantsLess: Reverse grants and returns

Other grants, credits, and other assistance (through netaccumulation of foreign currency claims), net

Net new economic and technical aid grants4

Gross new grantsLess: Reverse grants and returns

Net new credits *«New creditsLess: Principal collections

Other assistance (through net accumulation of foreigncurrency claims) •

Currency claims acquiredSales of farm productsSecond-stage operations7

Less: Currencies disbursedEconomic grants and credits to purchasing

countryOther uses

Geographic distribution of net nonmilitary assistance

Developing countries,* net total


currency claims)

Developed countries,* net total


currency claims)

5,899

81

5,818

2,1902,196

3,628

1,7761,780

4

1,9503,0821,132

- 9 8

814691122

912

716196

7,146

332

6,814

3,3103,314

5

3,504

2,4862,534

48

1,1903,8362,646

-171

742106635

913

709204

3,611

1,7651,926

17

-18

3,614

2,5291,233

-149

-109

-44-43

-22

8,681

654

8,027

2,9012,905

4

5,126

2,2472,249

2,8495,2932,444

30

1895

184

159

21138

5,017

2,2482,710

58

109

-1139

-28

7,940

1,102

6,838

1,3541,356

3

5,485

2,2662,266

3,2725,8232,550

-53

129

129

182

42140

5,320

2,2603,089

-31

165

6183

-23

« Equivalent value of currencies still available to be used, including some funds advanced from foreign governments andafter loss by exchange rate fluctuations ($1,355 million), was $645 million on December 31, 1976.

7 Includes foreign currencies acquired from triangular trade operations and principal and interest collections on credits,originally extended under Public Law 83-480, which—since enactment of Public Law 87-128—are available for thesame purposes as Public Law 83-480 currencies. .

s Developed countries include Australia, Canada, Japan, New Zealand, Republic of South Africa, and all countries inEurope except Malta Portugal, Spam, and Yugoslavia. Developing countries include all other countries. This classificationis on the basis of the standard list of less developed countries used by the Development Assistance Committee of theOrganization for Economic Cooperation and Development.

•Less than plus or minus $500,000.Source: Department of Commerce, Bureau of Economic Analysis, based on information made available by operating

agencies.

374


TABLE B-102.—International reserves, 1952, 1962, and 1973-77

[Millions of dollars; end of period]

Area and country 1952 1962 1973 1974 1975 19761977

November

All countries.

Industrialized countries2

United States.CanadaJapan

AustriaBelgiumFranceGermanyItalyNetherlandsScandinavian countries (Den-

mark, Norway, and Sweden).SwitzerlandUnited Kingdom

Other Europe

Australia, New Zealand, and SouthAfrica

Oil exporting countries.

IranNigeriaSaudi Arabia..Venezuela....Others

Other less developed areas

Other Western Hemisphere

Other Middle East

Other Asia _

Other Africa

U9.263

36,760

24,7141,9441,101

1061,133686960722950

8171,6671,958

1,559

1,509

1,699

177500

443579

7,276

2,175

826

3,479

796

62,585

49,248

17,2202,5612,021

1,0771,7534,0496,9574,0681,943

1,3622,9193,308

2,966

2,066

2,030

211289268583679

6,275

1,631

992

2,664

988

183,680

115,505

14, 3785,76812, 246

2,8745,1008,52933,1716,4366,547

5,4288,5206,476

16,191

7,824

14, 514

1,236583

3,8772,4126,406

29, 644

12,009

4,340

10,643

2,651

220, 600

119,908

16, 0585,82513, 519

3,4305,3458,85232, 3986,9416,957

4,6009,0116,939

15,141

6,068

46,997

8,3835,626

14, 2856,513

12,190

32, 487

11,898

4,754

12, 835

3,000

227,657

121, 880

15, 8835,326

12, 815

4,4395,797

12, 59331, 0344,7747,109

6,19110,4285,459

13, 049

4,900

56, 529

8,8975,603

23, 3198,8619,849

31, 302

10, 026

5,186

13, 287

2,804

258, 300

131, 849

18, 3205,843

16,605

4,4105,2069,728

34, 8016,65471387

5,63612,9934,230

13, 737

4,602

65, 236

8,8335,203

27,0258,578

15, 597

42, 875

15,175

5,778

18, 849

3,073

306,602

162,161

18,9334,191

22, 5514,0145,756

10,00236,83711,6848,418

8,42110,62320,695

14,897

3,770

75,025

11,5114,373

30,9048,425

19,812

50,749

18,010

6,772

22,405

3,562

1 Includes Cuba.2 Includes Luxembourg.3 Algeria, Indonesia, Iraq, Kuwait, Libya, Oman, Qatar, and United Arab Emirates.

Note.—International reserves is comprised of monetary authorities' holdings of gold, special drawing rights (SDR),reserve positions in the International Monetary Fund, and foreign exchange. Data exclude U.S.S.R., other Eastern Europeancountries, Mainland China, and Cuba (after 1960).

Source: International Monetary Fund, "International Financial Statistics."

375


TABLE B-103.—World trade: Exports and imports, 1965, 1970, and 1973-77

[Billions of U.S. dollars]

Area and country 1965 1970 1973 1974 1975 1976 19771

Developed countries 3.


European Community.

FranceWest Germany...ItalyUnited Kingdom.

Other developed countries..

Developing countries—

OPEC*.Other..

Communist countries5.

U.S.S.REastern Europe..China

TOTAL..

Developed countries3


European Community.

FranceWest Germany...ItalyUnited Kingdom..



OPECOther.


U.S.S.REastern Europe..China..

TOTAL..

Exports, f.a.s.2

129.8

27.58.58.5

64.8

10.217.97.2

13.8

20.5

35.6

11.024.6

23.2

8.211.82.0

188.5

225.7

43.216.719.3

112.8

18.134.213.219.4

33.6

54.3

17.636.8

34.7

12.818.22.1

314.8

411.0

71.326.437.1

212.0

36.767.622.230.7

64.1

106.4

39.666.8

61.0

21.331.75.0

578.4

547.5

98.534.555.6

276.4

46.389.330.538.9

82.5

215.6

118.896.8

76.0

27.438.26.6

839.0

582.8

107.634.055.8

298.0

53.190.234.844.1

87.4

203.0

109.793.3

90.0

33.345.27.0

875.8

646.3

115.040.367.3

327.9

57.2102.237.046.2

95.8

246.3

133.1113.3

96.7

37.247.57.2

989.4

Imports, c.i.f.6

136.7

23.28.78.2

69.3

10.417.67.4

16.1

27.3

37.0

6.530.5

22.6

8.111.61.8

196.3

235.3

42.414.418.9

116.6

19.129.915.021.7

43.0

56.8

10.046.8

34.2

11.718.52.2

326.3

427.2

73.624.838.4

216.4

37.754.927.838.8

74.0

99.4

20.379.1

62.0

21.032.85.1

588.6

608.2

108.034.462.1

295.3

52.969.641.154.4

108.3

162.6

32.8129.8

79.2

24.943.07.4

849.9

610.4

103.436.257.9

301.3

54.074.938.453.5

111.7

191.6

54.5137.0

100.6

36.951.27.4

902.5

700.9

129.640.364.9

345.0

64.488.443.455.9

121.2

211.1

69.2141.9

102.4

38.552.86.0

1,014.4

713.7

122.443.7

375.1

65.2116.443.356.9

91.9

282.7

147.0135.7

113.6

44.056.47.5

1,110. 0

776.5

158.842.471.8

385.6

70.2102.046.463.4

117.9

243.8

83.1160.8

110.8

42.056.86.5

1,131.1

1 Preliminary estimates.2 Free-alongside-ship value.3 Includes the OECD countries, South Africa, ane non-OECD Europe.* Includes Algeria, Ecuador, Gabon, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, United

Arab Emirates, and Venezuela.5 Includes U.S.S.R., Eastern Europe, China, North Korea, Vietnam, Albania, Cuba, Mongolia, and Yugoslavia.•Cost, insurance, and freight value.Sources: International Monetary Fund, Organization for Economic Cooperation and Development, and Council of

Economic Advisers.

376


TABLE E-1C4.— World trade balance and current account balances, 1965, 1970, and 1973-77

[Billions of U.S. dollars]

Area and country 1965 1970 1973 1974 1975 1976 1977

Developed countries3

United StatesCanadaJapanEuropean Community.

FranceWest GermanyItaly..United Kingdom


Developing countries..

OPEC*.Other...


U.S.S.REastern Europe..China

TOTAL«..

OECD.

United StatesCanada....Japan.European Community.

FranceWest Germany. _.ItalyUnited Kingdom..

Developing countries..

OPEC K.Other...

Other10..

TOTAL 8..

2.4

4.3- 1 . 0

.9

.9

.4- 1 . 6

2.2- . 2

World trade balance2

-6.9

4.3-.1

.3-4.5

- . 2.32

-2". 3-6.8-1.4

4.5-5.9

.5

.1

.2

.2

-7.9

- 9 . 6

.82.4.4

- 3 . 8

- 1 . 04.3

- 1 . 8- 2 . 3- 9 . 4

- 2 . 4

7.5-10 .0

.5

1.1- . 4- . 2

-11 .5

-16 .2

- 2 . 21.7

- 1 . 4- 4 . 4

- 1 . 112.7

- 5 . 6- 8 . 2- 9 . 9

7.0

19.3- 1 2 . 3

- . 9

.3- 1 . 1- . 2

-10 .2

-60 .7

- 9 . 5.1

- 6 . 6-18 .9

- 6 . 719.7

-10 .6-15 .5-25 .8

53.0

85.9-32 .9

- 3 . 2

2.5- 4 . 7- . 8

-10 .9

-27 .6

4.2- 2 . 2- 2 . 0- 3 . 3

- . 815.2

- 3 . 6- 9 . 4

-24 .3

11.4

55.2-43 .8

-10 .5

- 3 . 7- 6 . 0

3

-26 .7

-54 .6

-14 .6

2! 4-17 .0

- 7 . 213.7

- 6 . 5- 9 . 6

-25 .3

35.3

63.9-28 .6

- 5 . 7

- 1 . 3- 5 . 3

1.2

-25 .0

Current account balances7

4.0

41.12.03.2

.1

.91.11.6

- 4 . 8

2.0- 6 . 8

- 1 . 5

- 2 . 3

2.8

- . 4.0

- . 11.7

- . 74.3

- 2 . 7- 2 . 2

1.0

9.0- 8 . 0

- 5 . 5

- 1 . 7

-32.8

s -2 .3-1.5-4.7

-11.3

-6.09.7

-8.0-8.1

37.3

61.8-24 .5

- 9 . 8

- 5 . 3

- 6 . 3

11.6- 4 . 7- . 7

.7

- . 13.8

- . 8- 3 . 7

- 9 . 3

30.8-40 .0

-18 .0

-33 .5

-26 .5

- 1 . 4- 4 . 2

3.7- 7 . 8

- 6 . 13.4

- 2 . 8- 2 . 5

16.0

42.3-26 .3

-13 .3

-23 .8

-62 .8

-36 .41.38.8

-10 .5

- 5 . 014.4

- 3 . 1- 6 . 5

-26 .0

38.9

63.9-25 .0

2.8

2.0- . 41.0

-21 .2

-32 .0

-18 .0- 4 . 310.0

.3

- 3 . 02.31.0.7

17.5

40.0-22 .5

- 1 1 . 3

-25 .8

1 Preliminary estimates.2 Exports f.a.s. (free alongside ship) less imports c.i.f. (cost, insurance, and freight).3 Includes the OECD countries, the South Africa, and non-OECD Europe.4 Includes Algeria, Ecuador, Gabon, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Oman, Saudi Arabia, United Arab

Emirates, and Venezuela.5 Includes U.S.S.R., Eastern Europe, China, North Korea, Vietnam, Albania, Cuba, Mongolia, and Yugoslavia.e Asymmetries arise in global payments aggregations because of discrepancies in coverage, classification, timing, and

valuation in the recording of transactions by the countries involved.7 OECD basis.s Excludes cancellation of Indian debt (—$2.0 billion) and extradordinary grants (—$0.7 billion).9 Consists of countries in footnote 4 plus Bahrain.10 Includes Communist countries and non-OECD developed countries.

Sources: International Monetary Fund, Organization for Economic Cooperation and Development, and Council ofEconomic Advisers.

377


TABLE 105.—Consumer prices and hourly compensation, major industrial countries, 1960-77

[1967=100]

Year or quarter

19601961 __ .1962 __ .19631964 - -

1965196619671968 _ . .1969

1970 .__1971197219731974

197519761977 v

1976: 1II. .IllIV

1977: 1IIIII. . _ _IV*

19601961196219631964 .

19651966196719681969

19701971 ,197219731974

197519761977 v

UnitedStates Canada Japan France West

Germany Italy UnitedKingdom

Consumer prices

88.789.690.691.792.9

94.597.2

100 0104.2109.8

116.3121.3125.3133.1147.7

161.2170.5181.5

167 1169.2171.9173.8

176.9180.7183.3185.3

77.079.382.5,85.188.9

90.995 2

100.0107.0114.0

121 7129.8137.0147.0161.4

179.4194.8211.9

85.986.787.789.390.9

93.196.6

100.0104.1108.8

112.4115.6121.1130.3144.5

160.1172.1

168 3170.9173.4175.9

179.7184.0187.9

80.378.977.079.082.0

86.293.0

100.0107.4115.5

128.2142.6156.8170.7201.8

222.2257.1

67.771.376.181.985.0

91.596.2

100 0105.3110.8

119.3126.8133.0148.5183.0

204.5223.7

215 7222.6225.4230.9

236.0242.5243.5

78 881.485.389 492.5

94.897.4

100 0104.5111.3

117.1123.5131.1140.7160.0

178.9196.1

188 7192.9197.4202.4

205.7211.9216.9

82 884.787.389.892.0

94.998.3

100 0101.5103.4

107.0112.6118.9127.1136.0

144.1150.6

148.7150.9151.1151.8

154.7156.8157.1

Hourly compensation'

43 450.3,57.564 172.0

81.189.2

100.0116.9139.3

166 0198.2262.3358.2437.6

494.2538.3

56 161.868.175 280.9

87.092.5

100.0112.5114.0

119 9134.5164 3211.9232.1

308.8313.0

51.960.268.373 279.1

86.594.2

100.0105.8117.4

145 4173.8211 7288.7342.6

402.3413.4

74 175.779.285 190.1

94.296.4

100 0101.4104.1

109.2114.5121.0134.2159.8

186.9218.3

202 1214.9220.9235.0

246.0255 4

49.852.861.873.582.3

88.991 3

100.0107.3117.0

140.4167.5202.3255.0285.4

370.0344.2

78.981.685.186 889.6

93.997.6

100 0104.7110.4

117.4128.5137.6150.3174.3

216.5252.4

240.0248.8254.6266.3

279.7292.1296.7

65.970.874.677.983.2

91.298.7

100.093.3

100.6

115.6134.8152.8171.9201.1

247.4233.6

i Hourly compensation in manufacturing, U.S. dollar basis. Data relate to all employed persons (wage and salaryearners, the self-employed, and unpaid family workers) in the United States and Canada and to all employees (wageand salary earners) in the other countries. For france and United Kingdom compensation adjusted to include changesin employment taxes that are not compensation to employees, but are labor costs to employers.


378


TABLE B-106.—Industrial production and unemployment rate, major industrial countries, 1960—77

[Quarterly data seasonally adjusted]

Year or quarter

1960.1961196219631964

1965.19661967 _. _19681969

1970 _197119721973 - . ~ -1974

19751 9 7 6 . . .1977 v

1976: 1IIIIIIV

1977: 1IIIIIIV*

19601961196219631964

19651966196719681969

19701971197219731974

197519761977 P

1976* 1

IIIIV

1977: 1IIIIIIV p

UnitedStates

66.266.772.276.581.7

89.897.8

100.0106.3111.1

107.8109.6119.7129.8129.3

117.8129.8137.1

127.3129.4130.9131.6

133.6137.0138.5139.2

Canada

63.065.671.175.782.6

89.696.3

100.0106.4113.7

115.3121.5130.0141.7145.8

139.0145.4

144.5147.1146.5147.6

150.8151.3151.1

JapanEuropean

Com-munity!

France

Industrial production (1967 =

43.051.355.461.771.4

74.283.9

100.0115.2133.4

151.7155.8167.2193.3187.4

167.5190.3

181.8189.7192.7196.2

197.4199.0197.2

74.778.181.384.891.0

94.798.4

100.0107.4117.6

123.3126.1131.7141.4142.3

132.9142.4

139142142146

149146143

7175798390

9398

100104114

120128135145148

137149

147148151149

155153151

WestGermany

100)2

77.682.086.489.496.6

102.1103.0100.0109.2123.1

131.1133.6138.7147.7145.1

137.1149.1

145148149151

153152153

Italy

60.065.771.977.979.1

83.092.3

100.0106.4110.5

117.6117.5122.7134.6140.6

127.6143.5

136.4141.5141.0149.5

152.9141.8136.5

UnitedKingdom

84.084.084.888.495.0

97.799.2

100.0106.8110.3

110.9110.8113.2122.5120.3

114.5116.0

114.1116.5115.9117.6

119.1117.1117.6

Unemployment rate (percent)3

5.56.75.55.75.2

4.53.83.83.63.5

4.95.95.64.95.6

8.57.77.0

7.77.57.77.8

7.47.16 96.6

7.07.15.95.54.7

3.93.43.84.54.4

5.76.26.25.65.4

6.97.18.1

6.97.17.37.4

7.88.18.28.4

1.71.51.31.31.2

1.21.41.31.21.1

1.21.31.41.31.4

1.92.0

42.0

2.02.12.11.9

1.92.12.1

1.81.61.5

1.5

1.61.92.02.62.4

2.62.82.82.73.0

4.24.6

45.2

4.54.64.74.6

4.85.35.8

1.1.6.6

.4

.3

.31.31.4.9

.8

.8

.8

.81.7

3.73.63.5

3.83.63.63.5

3.43.53.63.5

3.83.22.82.42.6

3.53.83.43.43.3

3.13.13.63.42.8

3.23.63.3

3.43.63.73.6

3.23.23.53.3

2.22.02.83.42.5

2.22.33.43.33.0

3.13.94.23.22.8

4.76.47.0

6.26.56.56.6

6.87.07.27.2

1 Consists of Belgium-Luxembourg, Denmark, France, Ireland, Italy, Netherlands, United Kingdom, and West Germany.2 All data exclude construction.3 Unemployment rates adjusted to U.S. concepts. Data for United Kingdom exclude Northern Ireland.< 11-month average, seasonally adjusted.

Sources: Department of Commerce (Bureau of International Economic Policy and Research) and Department ofLabor (Bureau of Labor Statistics).

379


TABLE B-107.—Growth rates in real gross national product, 1961-77

[Percent change]

Area and country

OECD countries

United StatesCanadaJapan..European Community

FranceWest GermanyItalyUnited Kingdom

Other OECD

Communist countries ._

U.S.S.REastern Europe _____China

Less developed countries

OPECOther. _

TOTAL

1961to

1972annual

average

5.2

4.35.9

11.34.9

6.25.15.53.0

5.6

4.8

4.74.15.8

5.6

3 9.03 6.1

1973

5.9

5.47.29.85.2

5.35.16.86.0

4.5

7.6

7.44.5

12.8

8.2

10.76.7

1974

0.2

- 1 . 63.2

- 1 . 11.8

2.9

3. A.3

2.6

4.7

3.84.63.7

10.1

8.75.2

1975

- 0 . 9

- 1 . 31.12.4

- 1 . 8

- 1 . 0- 2 . 5- 3 . 7- 1 . 6

- . 6

3.4

2.04.56.8

3.7

3.03.4

1976

5.2

6.04.96.34.7

5.25.75.62.1

2.9

3.5

3.94.0

5.6

11.75.1

19771

3.5

4.82.36.02.3

2.72.82.1.4

1.5

3.1

U.S. dollarvalue in

1976(billions) 2

4,346.4

1 706 5189.2555.4

1, 389.9

346.8451.3170.8216.9

505.4

1,651.9

921.7316.0323.7

1,143

* 7,255

1 Preliminary estimates.2 Estimates based on conversion at average rates of exchange for 1976, except for those of the Communist countries,

which were converted at U.S. purchasing power equivalents.3 Percent change from 1967 to 1972.4 Sum of OECD, Communist countries, and less developed countries, plus an estimate of $114 billion for non-OECD

developed countries.Note.—For Italy and United Kingdom, data relate to real gross domestic product. For France, data relate to gross domes-

tic product excluding nonmarket activity such as compensation of employees in the government sector.Sources: Department of Commerce and Organization for Economic Cooperation and Development (OECD).

380


TABLE B-108.—Exchange rates, 1970-77

[May 1970 parities=100J

Year and month

May 1970 rate»

1970: MarJune __ _ _.SeptDec

1971: MarJune __ _SeptDec

1972: MarJune _ _ __ -SentDec

1973: Mar „JuneSept - _ _Dec

1974' MarJuneSeptDec

1975- MarJune _SeDtDec

1976- MarJune _ _ _SeDtDec

1977: Mar -June _SeptDec

May 1970 rate*

1970: MarJuneSeptDec

1971: Mar . .JuneSept. . .Dec

1972- MarJuneSept. _ _ _Dec



1975: Mar. .June __ _ _SeptDec

1976- MarJuneSeptDec


Belgianfranc

2.0000

2 01332.01422.01452.01372.01452.01092 09212.1986

2.27572.27582.27422.26702.53782.66432.70892.4726

2.50402.63662.53642.71582.90832.86032.54852.5311

2.54802.52202.60462.74832. 72582.77132.79102.9608

Netherlandsguilder

27.624

27.52527.58827.78527.76327.81628.06529. 30830. 503

31.38431.29630. 96930.96234.33436. 58238. 54235.615

36.35437. 75736.87039. 33142.12441. 50237.22937.234

37.14936. 52438.39040. 24040. 07940 32640.60442.955

Canadiandollar

92.50

93 21296.27398 42298.27699 36797.91398 717

100.067

100.152102.092101 730100.326100.333100.16099.181

100.058

102.877103.481101.384101.19299.95497.42697.43798.627

101.431102.71102.5698.20495.12594.54993.16891.132

Swedishkrona

19.331

19.23219.26619.22519.34019. 36919.37019.73220. 434

20. 95621.10121.14621.08022.58223.74623. 76922.026

21.91522.88522. 33323. 89725.48125. 53222.50122.685

22.70222 47522.99824. 05123.72622.62520.60221.044

Frenchfranc

18.004

18 03818.11118 11218.10718.12918.09218 11218.549

19.83519.93719 97719.65722.19123.47223.46621. 757

20.74220.40820.83122.10923.80424.97122.36722.428

21. 65721.10920.33420.05520.07520.24020.31420.844

Swissfranc

22.868

23.20223.17123.21923.18723.25424 40925.11825.615

25. 97426. 32026.40326. 52631. 08432.75733.14631.252

32.49033.44933.37138.44240.27340.08636.90537.970

38.98040 48440.43140. 82339. 20940.17042.11548.168

Germanmark

27.332

27 22527.52827 53727.43727 53828.47429 79430.593

31 54531.56031 31831. 26235.54838. 78641. 24637.629

38.21139.60337.58040.81643.12042.72638.19138.144

39. 06438 79740.16941.96541 81242.45343.03446.499

UnitedKingdom

pound

240.00

240. 58239.77238. 53239.06241. 87241 87246.94252.66

261. 81256.91244.10234. 48247. 24257.62241. 83231.74

234.06239.02231.65232.94241. 80228.03208. 35202.21

194. 28176. 40172.72167. 84171.74171.91174.31185.46

Italianlira

0.16000

15897.15897. 16005. 16039.16063. 16009

16292.16652

.17161

.1714217199

. 17146

.17604

.16792

.17691

. 15458

. 15687

.15379

.15103

.15179

.1584215982

.14740

. 14645

.1211311780

.11837

.1152111276

.11295

.11318

.11416

Japaneseyen

0.27778

28963.2786427935

.2795927971

.2797929583

.31249

33054.33070332093319638190

. 37808

. 37668

. 35692

35454. 35340. 33439. 33288. 3473134077

. 33345

.32715

.3327633424

.34800

. 339333568736652

.37486

.41491

United States dollar

Multilateraltrade-

weightedaverage

100.0

99 499.399.099.198.798 095.192.3

89.189.089.890 782.779.979.184 2

84.383.185.482.278.579.486.186.6

88.891.090.290.590.489.989.585.5

Bilateraltrade-

weightedaverage

100.0

98 898.297.397.396.796 494.991.8

89.588.989.490.384.983.883.886.8

85.785.087.586.184.386.089.589.6

89.690.389.591.591.991.591.689.3

1 Cents per unit of foreign currency.


381

U. S. GOVERNMENT PRINTING OFFICE : 1978 O - 248-947





