Economic Report of the President 1994 - The American Presidency ...

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ingredient that should allow the economy to grow in the face of futurelarge deficit reductions, which would otherwise tend to contractthe economy. Expected growth in the 2^2- to 3-percent rangefor 4 years should create about 8 million new jobs and steadily reducethe unemployment rate from its currently unacceptable leveltoward a rate that is close to noninflationary full employment.STRUGGLING TO GROWGDP growth over the current expansion has been much slowerthan usual. In the first year after a recession trough, output typicallygrows by 6 percent in real terms; in this recovery, outputgrowth over the first year after the trough was less than 2 percent.Even though potential GDP growth is lower today than it was inthe 1960s and 1970s—mainly because of slower productivitygrowth—this factor can only explain a small part of the slower rebound.Not surprisingly, given the well-established linkage between outputgrowth and employment growth, job growth in this expansionhas also been atypically slow. The decline in employment duringthe recent contraction did not bottom out with the rest of the economy,and no rebound in job growth was evident until a year afterthe recession's trough. By late 1993 the growth path of employmentwas still well below the typical postwar recovery path (Chart 2-1).After 11 quarters, we have had the employment gains normally expectedafter just three quarters. Adjusted for the sluggish pace ofoutput growth, however, employment growth has been closer tonormal. (For further discussion, see Chapter 3.)A number of special factors have combined to induce this sluggisheconomic performance. These "headwinds" include defense cutbacks,weak foreign economies, an oversupply of commercial buildingsin the wake of the 1980s, the credit crunch, debt overhang,and a wave of corporate downsizings. None of these factors by itselfexplains why the recovery has run so far behind historical levels,but there is evidence that together they have retarded economicgrowth significantly.THE END OF THE COLD WARThe end of the cold war was a major geopolitical event for theUnited States, and the ensuing defense builddown has had profoundeconomic effects. In 1986 defense spending accounted for 6.5percent of U.S. GDP. By 1993 its share had fallen to about 4.8 percent,and by 1997 it is predicted to drop to about 3.2 percent (Chart2-2). This massive shift of national resources away from defensehas meant numerous base closings, cancellations of major weaponsprograms, scaled-back procurement plans, and attendant layoffs in56
Chart 2-1 Recovery Pattern of Nonfarm Payroll EmploymentEmployment growth in this recovery has been much weaker than in the averagepostwar recovery.Index, trough=100110108 -Average Postwar Recovery104Current Recovery10098I-4 -2 T 2 4 6 8 10Quarters from TroughNote: "Average" includes all recoveries from 1954 to 1982, except 1980. The trough quarter for thecurrent recovery is first quarter 1991.Sources: Department of Labor and National Bureau of Economic Research.the whole defense sector. For example, total defense-related jobsare projected to number 4.5 million by 1997, down from 7.2 millionjobs in 1987. In a purely arithmetical sense, reduced defensespending subtracted roughly 0.5 percentage point off the real GDPgrowth rate in 1993. Moreover, the defense cutbacks have had afurther adverse impact on aggregate demand through the expendituremultiplier. Moving resources out of the defense sector freesthem up for use in the production of consumption and investmentgoods and services, improving living standards. But this is a longerterm effect. The conversion process takes time, and although thedefense scaledown is not as large relative to the size of the economyas it was at the end of several wars, reconversion will causepainful dislocations in the short run.WEAK FOREIGN ECONOMIESWeak economic performance in the rest of the industrializedworld over the past few years has also taken a toll on the U.S.economy by slowing export growth. The period 1991-93 will godown in history as the worst for economic performance in foreignindustrial countries since at least 1960. During this 3-year period,57
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unitedminds
Page 9 and 10:
Economic Report of the PresidentTo
Page 11: the Technology Reinvestment Project
Page 14: formed health care system, increase
Page 19 and 20: CONTENTSPageCHAPTER 1. A STRATEGY F
Page 21: PageProviding Comprehensive Benefit
Page 24 and 25: LIST OF CHARTS—CONTINUEDPage3-5 L
Page 27 and 28: CHAPTER 1A Strategy for Growth and
Page 29 and 30: which have left consumers and busin
Page 31 and 32: that growth in both real compensati
Page 33 and 34: for inflation was on average roughl
Page 35 and 36: Box 1-2.—Saving, Investment, and
Page 37 and 38: investments in human capital; inves
Page 39 and 40: of the income distribution (Table 1
Page 41 and 42: Box 1-3.—Credible Deficit Reducti
Page 43 and 44: Chart 1-7 Correlation of Investment
Page 45 and 46: Box 1~4*~-A Balanced Budget Amendme
Page 47 and 48: This educational record is not good
Page 49 and 50: fallen markedly since the 1960s (Ch
Page 51 and 52: The development and deployment of n
Page 53 and 54: Earlier rounds of GATT talks had fo
Page 55 and 56: Chart 1-10 Projected Real Growth Ra
Page 57 and 58: are therefore on the public dole. M
Page 59: prise communities and be granted sm
Page 64 and 65: Chart 2-2 National Defense Purchase
Page 66 and 67: Chart 2-3 Growth of U.S. Merchandis
Page 68 and 69: Chart 2-5 Households: Credit Market
Page 70 and 71: THE HEADWINDS ARE MOSTLY CALMINGAs
Page 72 and 73: 1993, real consumer spending increa
Page 74 and 75: RESIDENTIAL INVESTMENTResidential i
Page 76 and 77: smallest annual increase in 20 year
Page 78 and 79: ments with the Internal Revenue Ser
Page 80 and 81: safe-harbor rules for underpayment
Page 82 and 83: Chart 2-9 Alternative Measures of t
Page 84 and 85: Meanwhile, the Mountain States were
Page 86 and 87: inflation is measured by the Blue C
Page 88 and 89: Saving, Investment, and Capital Acc
Page 90 and 91: the future should be reflected in l
Page 92 and 93: Chart 2-15 Dynamic Effects of Defic
Page 94 and 95: joyed healthy average real GDP grow
Page 96 and 97: Chart 2-16 Personal Income Taxes as
Page 98 and 99: TABLE 2-2.— Administration Foreca
Page 100 and 101: TABLE 2-3.— Accounting for Growth
Page 103 and 104: CHAPTER 3Trends and Recent Developm
Page 105 and 106: first quarter of 1991, nonfarm payr
Page 107 and 108: cause defense cutbacks have caused
Page 109 and 110: UNEMPLOYMENT AND NONEMPLOYMENTThe U
Page 111 and 112: Chart 3-3 Civilian Unemployment Rat
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Chart 3-6 Employment-to-Population
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Chart 3-8 Ratio of White-Collar to
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than would be expected given its hi
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that the natural rate is falling? M
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SLOW INCOME GROWTHIncome trends hav
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Chart 3-10 Average Annual Growth of
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Box 3-3.—Consequences of Producti
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likely that immigration could expla
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We do, however, know how many worke
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size. No data are available on vola
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BENEFITSOne of the concerns raised
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edented partnership to develop a nu
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CHAPTER 4Health Care ReformTHE UNIT
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make cost-conscious decisions. In a
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A third rationale for universal cov
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Box 4-1.—Moral Hazard and Adverse
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ies depending on one's health statu
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than people in other countries do,
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sumers are ill equipped to bring st
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By itself, the aging of the populat
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TABLE 4-3.- Sources and Uses of Hea
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about 65 to 70 cents for a typical
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THE ARCHITECTURE OF THE HEALTHSECUR
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etary savings for the Federal Gover
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contribution, within limits. Outsid
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salary income, payments from the em
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TABLE 4-6.—Caps on Premiums by Fi
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An example will illustrate the proc
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TABLE 4-9.—Sources and Uses of Fe
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Chart 4-9 Business Spending on Heal
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Health care reform should set the s
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and private sectors, addressing env
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Box 5-1.—Selected National Perfor
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Box 5-2*—Market PowerFirms are sa
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ate regulation. For example, State
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competitiveness of U.S. industry, a
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Box 5-4.—ExternalitiesAn external
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in the habitat of the spotted owl r
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CLIMATE CHANGE ACTION PLANCertain g
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eral, lays a foundation for broader
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The Administration's proposal seeks
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vances in technical know-how have a
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Investments in R&D are risky. Like
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1950s and 1960s, and American compa
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ico and Lawrence Livermore in Calif
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of industry. MOCs will be affiliate
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tiveness. Again, the hoped-for resu
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forts to cut the massive Federal bu
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TECHNOLOGY POLICY, GROWTH, ANDCOMPE
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mitment to an open international tr
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ses, which take such intersectoral
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An important sectoral development i
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TABLE 6-3.—Stock of U.S. Outward
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technical change has been offered a
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ent account is a broader measure of
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TABLE 6-6.—Intrafirm Trade as Sha
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greater access to the Japanese mark
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the transparency of its trade regim
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that if the states of the former So
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Box 6-3.—Mexican Economic Reforms
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1998, while nontariff barriers on a
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ward convergence in environmental a
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Box 6-4.—The Asian "Miracle"Per c
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Box 6-5.—The Economic Impact of t
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development, and environmental clea
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THE TRADE POLICY AGENDABy lowering
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ignated monopolies. It also establi
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The dollar ended 1993 roughly where
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Box 6-7.—Exchange-Rate Volatility
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Chart 6-5 French Franc-Deutsche Mar
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Besides bringing these endeavors to
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LETTER OF TRANSMITTALCOUNCIL OF ECO
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Report to the President on the Acti
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duction budget package, the North A
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Working Group studying cost-benefit
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prepares the Economic Indicators an
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Appendix BSTATISTICAL TABLES RELATI
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POPULATION, EMPLOYMENT, WAGES, AND
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AGRICULTURE:PageB-96. Farm income,
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NATIONAL INCOME OR EXPENDITURETABLE
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TABLE B-2.—Gross domestic product
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TABLE B-3.—Implicit price deflato
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TABLE B-4.—Fixed-weighted price i
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TABLE B-5.—Changes in gross domes
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TABLE B-7.—Cross domestic product
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TABLE B-9.—Gross domestic product
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TABLE B-ll.—Gross domestic produc
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TABLE B-13.—Gross domestic produc
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TABLE B-15.—Personal consumption
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TABLE B-17.—Gross and net private
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TABLE B-19.—Inventories and final
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TABLE B-21.—Foreign transactions
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TABLE B-23.—Relation of gross dom
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TABLE B-25.—National income by ty
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TABLE B-26.—Sources of personal i
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TABLE B-27.—Disposition of person
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TABLE B-29.—Gross sating and inve
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TABLE B-31.—Median money income (
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TABLE B-33.—Population and the la
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TABLE B-34.—Civilian employment a
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TABLE B-36.—Unemployment by demog
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TABLE B-38.—Civilian labor force
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TABLE B-40.—Civilian unemployment
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TABLE B-42.—Unemployment by durat
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TABLE B-44.—Employees on nonagric
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TABLE B-45.—Hours and earnings in
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TABLE B-47.—Productivity and rela
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PRODUCTION AND BUSINESS ACTIVITYTAB
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TABLE B-51.—Industrial production
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TABLE B-53.—New construction acti
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TABLE B-54.—New housing units sta
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Year or monthTABLE B-56.—Manufact
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TABLE B-58.—Manufacturers' new an
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TABLE B-60.—Consumer price indexe
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TABLE B-61.—Consumer price indexe
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TABLE B-63.—Changes in consumer p
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TABLE B-64.—Producer price indexe
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TABLE B-66.—Producer price indexe
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TABLE B-67.—Changes in producer p
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TABLE B-69.—Components of money s
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TABLE B-70.—Aggregate reserves of
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TABLE B-72.—Bond yields and inter
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TABLE B-73.—Total funds raised in
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TABLE B-74.—Mortgage debt outstan
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TABLE B-76.—Consumer credit outst
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TABLE B-78.—Federal receipts, out
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TABLE B-79.—Federal budget receip
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TABLE B-81.—Federal and State and
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TABLE B-83.—State and local gover
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TABLE B-85.—Interest-bearing publ
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TABLE B-87.—Estimated ownership o
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TABLE B-89.—Corporate profits by
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TABLE B-91.—Sales, profits, and s
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TABLE B-93.—Sources and uses of f
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TABLE B-95.—Business formation an
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19481949195019511952195319541955195
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TABLE B-99.—Indexes of prices rec
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TABLE B-101.— Farm business balan
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TABLE B-103.—U.S. international t
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TABLE B-104.—U.S. merchandise exp
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TABLE B-106.—U.S. merchandise exp
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TABLE B-108.—Industrial productio
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TABLE B-110.—Foreign exchange rat
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NATIONAL WEALTHTABLE B-l 12.—Nati
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SUPPLEMENTARY TABLETABLE B-114.—S
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