Economic Report of the President

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continued to outpace exports as U.S. domestic demand and demand forimported oil remained strong. The rise in crude oil prices reduced growthsomewhat during the year (Box 1-1).The Administration expects real GDP to grow 3.5 percent during the fourquarters of 2005, in line with the consensus of professional forecasters. Thisgrowth is forecast to be driven by continued gains in consumer spending,investment growth (although slower than in 2004), and stronger net exports.The unemployment rate, which declined 0.5 percentage point to 5.4 percentduring the four quarters of 2004, is projected to edge down further to5.3 percent by the fourth quarter of 2005. Nonfarm payroll employment,which grew about 180,000 per month during 2004, is projected to grow about175,000 per month in 2005, in line with other professional forecasts.Box 1-1: Oil Prices and the EconomyRising oil prices hindered growth in 2004. Boosted by strong worlddemand and both domestic and foreign supply disruptions, the price ofcrude oil purchased by refiners increased almost continuously from $29per barrel in December 2003 through October 2004 when it peaked at$46 per barrel. A more-widely followed (but less comprehensive)measure, the spot price of West Texas Intermediate crude oil, peakedeven higher, at $53 per barrel for the month of October. These priceswere historical highs in nominal terms, and were about 60 percent ofthe all-time high in real terms (Chart 1-1). Crude oil prices then droppedoff in November and December. For 2004 as a whole, refiners’ acquisitioncost was almost $9 per barrel above its year-earlier level.High oil prices are a headwind for the economy because they raisethe cost of production, thus weakening the supply side of the economy,and absorb income that could have been used for other purchases, thusweakening the demand side of the economy. The United States importsabout two-thirds of its crude oil (about 10 million barrels per day), andso the higher oil prices caused the bill for imported oil to increase byabout $32 billion (or 0.3 percent of GDP) in 2004. This increase actedlike a tax holding back aggregate demand.One rule of thumb is that a $10 per barrel increase in the price of oilreduces the level of real GDP by roughly 0.4 percent after four quarters.Thus the roughly $9 per barrel increase in average oil prices for 2004may have held back real GDP growth by 0.3 or 0.4 percentage point. Ifoil prices move as expected by the futures market, average oil prices in2005 will only slightly exceed the 2004 average—so oil prices areexpected to be only a minor impediment to 2005 growth.32 | Economic Report of the President
Consumer SpendingConsumer spending continued its solid growth in 2004. Real personalconsumption expenditures, which account for 70 percent of GDP, rose3.9 percent during the four quarters of 2004. Consumer spending has beenboosted by continued gains in disposable personal income and a rebound inhousehold wealth. Real disposable personal income—after-tax incomeadjusted for inflation—rose by 2.3 percent at an annual rate during the first 11months of 2004. Household net worth, meanwhile, grew at a 6 percent annualrate in the first three quarters of 2004 (on top of a 13-percent gain during2003), as equity prices moved up and housing prices continued to increase.Personal saving fell to 0.8 percent of disposable personal income in the first11 months of the year, down from an average of 1.4 percent in 2003. TheAdministration forecast assumes that the saving rate will be roughly flat in thecoming years. Consumer spending is projected to continue its solid growth in2005, supported by solid consumer sentiment (which was above averagehistorical levels in December), projected real compensation gains, and therecent rebound in household wealth. Real consumer spending is projected togrow somewhat more slowly than overall real GDP during the projectionperiod to 2010.Chapter 1 | 33
Page 1 and 2: Economic Reportof the PresidentTran
Page 3 and 4: C O N T E N T SECONOMIC REPORT OF T
Page 5 and 6: ECONOMIC REPORT OF THE PRESIDENTTo
Page 7 and 8: the playing field is level for our
Page 9 and 10: LETTER OF TRANSMITTALCOUNCIL OF ECO
Page 11 and 12: Monetary Policy ...................
Page 13 and 14: Encouraging FDI ...................
Page 15 and 16: 3-4. The Equivalence of Sales Taxes
Page 17 and 18: Real GDP expanded by 3.7 percent du
Page 19 and 20: Options for Tax ReformChapter 3, Op
Page 21 and 22: and better Nation for it. A compreh
Page 23 and 24: Innovation and the Information Econ
Page 25 and 26: ecause they do not expect family me
Page 27 and 28: The Administration has pushed aggre
Page 29: C H A P T E R 1The Year in Review a
Page 33 and 34: easons for this correlation are dis
Page 35 and 36: 2003, a number of countries that to
Page 37 and 38: ProductivityRecent productivity gro
Page 39 and 40: The projected path of inflation as
Page 41 and 42: strengthen. The forecast is based o
Page 43 and 44: The growth rate of the economy over
Page 45 and 46: In sum, potential real GDP is proje
Page 47 and 48: C H A P T E R 2Expansions Past and
Page 49 and 50: The behavior of real GDP is similar
Page 51 and 52: of faltering may be attributable to
Page 53 and 54: most recent expansions have shown r
Page 55 and 56: middle of 2003. The more moderate r
Page 57 and 58: 1.2 percent. Employment continued t
Page 59 and 60: SummaryModerate recessions are foll
Page 61 and 62: permanent cuts should permanently r
Page 63 and 64: and the Jobs and Growth Tax Relief
Page 65 and 66: Federal government revenues had bee
Page 67 and 68: Fiscal policy played an especially
Page 69 and 70: C H A P T E R 3Options for Tax Refo
Page 71 and 72: High Compliance CostsThe complexity
Page 73 and 74: a reasonable estimate is that a 10
Page 75 and 76: Excess BurdenBecause taxes distort
Page 77 and 78: Box 3-3 — continuedThe bottom 40
Page 79 and 80: more uniform or pure version of the
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of being collected all at once at t
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would have to differ from state tax
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owner claimed it was for business,
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The current set of saving incentive
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the current system. In addition, so
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C H A P T E R 4ImmigrationIn recent
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TABLE 4-1.— Foreign-Born Share of
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immigrants (also called illegal or
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largest group of immigrants was bor
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employment costs, including wage fl
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Chapter 4 | 103
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wages fall in response to immigrati
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immigrants from Latin America do re
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addition, as migrants leave the cou
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include siblings and adult children
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despite the tremendous growth in th
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The TWP would allow new foreign wor
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C H A P T E R 5Expanding Individual
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This phenomenon, known as the “tr
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producing more of that good. Simila
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In 2002, the President proposed “
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provide evidence of increased profi
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schools are four times as efficient
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low administrative costs, estimated
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Box 5-2: The Benefits of Land Title
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development plan designed by others
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C H A P T E R 6Innovation and theIn
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E-mail is the most common online ac
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Changed circumstances, such as new
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Illegal Acts on the InternetThe Int
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or develop new markets, which can l
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inflation factor for the price cap
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U.S. households connecting to local
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garbling their transmissions. To li
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from 51.3 percent in December 1999
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for their property rights. The Admi
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C H A P T E R 7The Global HIV/AIDS
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Chart 7-1 Estimated HIV Infection L
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There is no cure for HIV/AIDS, thou
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AIDS is more damaging to a househol
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and risk reduction have helped redu
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only one price, the drug companies
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Box 7-1 — continuedfocused on the
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Box 7-2 — continuedenhancing coor
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ConclusionThe United States and cou
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Good Two. In Ricardo’s simple mod
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The Impact of Trade on Labor Market
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The U.S. Advantage in Services Trad
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U.S. firms is associated with a cor
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anked the second-best country out o
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the Chinese government agreed to el
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Trade LiberalizationTariffs and oth
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ConclusionThe United States is the
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LETTER OF TRANSMITTALCOUNCIL OF ECO
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Report to the President on theActiv
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The Council continued its efforts t
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The Staff of the Council of Economi
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John List and Ted Gayer provided co
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Appendix BSTATISTICAL TABLES RELATI
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PageB-32. Gross saving and investme
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PageB-94. Relation of profits after
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NATIONAL INCOME OR EXPENDITURETABLE
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TABLE B-2.—Real gross domestic pr
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TABLE B-3.—Quantity and price ind
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TABLE B-5.—Contributions to perce
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TABLE B-6.—Chain-type quantity in
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TABLE B-7.—Chain-type price index
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TABLE B-8.—Gross domestic product
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TABLE B-10.—Gross value added by
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TABLE B-12.—Gross domestic produc
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TABLE B-13.—Real gross domestic p
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TABLE B-14.—Gross value added of
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TABLE B-16.—Personal consumption
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TABLE B-18.—Private fixed investm
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TABLE B-20.—Government consumptio
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TABLE B-22.—Private inventories a
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TABLE B-24.—Foreign transactions
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TABLE B-26.—Relation of gross dom
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TABLE B-28.—National income by ty
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TABLE B-29.—Sources of personal i
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TABLE B-30.—Disposition of person
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Year or quarterTABLE B-32.—Gross
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TABLE B-33.—Median money income (
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TABLE B-35.—Civilian population a
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TABLE B-36.—Civilian employment a
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TABLE B-38.—Unemployment by demog
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TABLE B-40.—Civilian labor force
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TABLE B-42.—Civilian unemployment
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TABLE B-44.—Unemployment by durat
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TABLE B-46.—Employees on nonagric
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TABLE B-47.—Hours and earnings in
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Year orquarterTABLE B-49.—Product
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PRODUCTION AND BUSINESS ACTIVITYTAB
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Year ormonthTABLE B-53.—Industria
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Year or monthTABLE B-55.—New cons
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TABLE B-57.—Manufacturing and tra
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TABLE B-59.—Manufacturers’ new
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Year ormonthTABLE B-61.—Consumer
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TABLE B-62.—Consumer price indexe
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TABLE B-64.—Changes in consumer p
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TABLE B-65.—Producer price indexe
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TABLE B-67.—Producer price indexe
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TABLE B-68.—Changes in producer p
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TABLE B-70.—Components of money s
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TABLE B-71.—Aggregate reserves of
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TABLE B-73.—Bond yields and inter
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TABLE B-74.—Credit market borrowi
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TABLE B-75.—Mortgage debt outstan
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TABLE B-77.—Consumer credit outst
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TABLE B-79.—Federal receipts, out
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TABLE B-81.—Federal receipts, out
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TABLE B-83.—Federal and State and
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TABLE B-85.—State and local gover
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End of yearor monthTABLE B-87.—U.
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End of monthTABLE B-89.—Estimated
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TABLE B-91.—Corporate profits by
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TABLE B-93.—Sales, profits, and s
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YearComposite(Dec. 31,2002=5,000) 3
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YearAGRICULTURETABLE B-97.—Farm i
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TABLE B-99.—Farm output and produ
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Year ormonthTABLE B-101.—Agricult
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INTERNATIONAL STATISTICSTABLE B-103
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TABLE B-104.—U.S. international t
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TABLE B-106.—U.S. international t
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TABLE B-108.—Industrial productio
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TABLE B-110.—Foreign exchange rat
Page 334:
TABLE B-112.—Growth rates in real
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