Economic Report of the President

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Looking ahead, stronger growth in U.S. trading partners appears to favorcontinued gains in export growth. Growth among the non-U.S. members ofthe OECD is projected to increase from 2.7 percent during the four quartersof 2004 to 3.0 percent during the four quarters of 2005. This growth shouldsupport growth in U.S. exports. This effect will likely be augmented by anexpected rise in the U.S. share of world exports, owing in part to recentdeclines in the value of the dollar against other major currencies. Overall, theAdministration projects real exports to grow noticeably faster than GDP in2005. The projected moderation of U.S. GDP growth in 2005 and 2006together with the recent change in the exchange value of the dollar suggestthat growth in real imports will slow in the future.EmploymentNonfarm payroll employment increased about 2.2 million during 2004,the largest annual gain since 1999. The unemployment rate declined to5.4 percent in December 2004, well below the 6.3 percent peak of June 2003.The unemployment rate in 2004 was below the averages of the 1970s, the1980s, and the 1990s.Job gains were spread broadly across major industry sectors in 2004. Theservice-providing sector accounted for 85 percent of job growth during theyear, in line with its 83 percent share of overall employment. The goodsproducingsector accounted for the remaining 15 percent of the gains, in linewith its 17 percent share of overall employment. Within the goods-producingsector, employment growth was concentrated in construction; manufacturingemployment also increased, the first such gain since 1997.These employment figures reflect the benchmark adjustment of theemployment data in early February 2005. The employment data for 2004 willalso be affected by next year’s benchmarking process, which will cover theperiod from March 2004 to March 2005.The Administration projects that employment will increase at a pace ofabout 175,000 jobs per month on average during the 12 months of 2005—aprojection that is in line with the consensus of private forecasters. The unemploymentrate is projected to edge down to 5.3 percent by the fourth quarterof 2005. Employment growth is not expected to slow by as much as outputgrowth because productivity (output per hour) is projected to increase at aslower pace than in 2004, and more of the projected output growth may betranslated into labor demand and employment in 2005 than in 2004.38 | Economic Report of the President
ProductivityRecent productivity growth has been extraordinary. Nonfarm productivityhas grown at a 4.2 percent annual rate since the business-cycle peak in the firstquarter of 2001, a period that includes both recession and recovery. This is a1.8 percentage point acceleration from the already rapid 2.4 percent annualgrowth rate recorded from 1995 to 2001 (Chart 1-4).Although the cause of the 1995 acceleration is not well understood,plausible explanations have been offered relating to capital deepening, especiallyof informational and organizational capital. But none of theseexplanations helps to explain the post-2000 productivity acceleration, whichoccurred despite a slowing of investment in both conventional capital goodsand information technology (IT).Wages and PricesFollowing very low inflation during 2003, most measures of inflationincreased during 2004, with the largest increases in those price indexes thatinclude energy. For example, the consumer price index (CPI) increased3.3 percent over the 12 months of 2004, well above the 1.9 percent riseChapter 1 | 39
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 and 30: C H A P T E R 1The Year in Review a
Page 31 and 32: Consumer SpendingConsumer spending
Page 33 and 34: easons for this correlation are dis
Page 35: 2003, a number of countries that to
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
Page 81 and 82: of being collected all at once at t
Page 83 and 84: would have to differ from state tax
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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
Page 242 and 243:
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 (
Page 248 and 249:
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
Page 332 and 333:
TABLE B-110.—Foreign exchange rat
Page 334:
TABLE B-112.—Growth rates in real
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