Economic Report of the President

Economic Reportof the PresidentTransmitted to the CongressJanuary 1967TOGETHER WITHTHE ANNUAL REPORTOF THECOUNCIL OF ECONOMIC ADVISERSUNITED STATES GOVERNMENT PRINTING OFFICEWASHINGTON : 1967For sale by the Superintendent of Documents, U.S. Government Printing OfficeWashington, D.C. 20402 - Price $1.25

CONTENTSECONOMIC REPORT OF THE PRESIDENTPageRECENT ECONOMIC GAINS 3OUR ECONOMIC PROBLEMS 4Some Leading Problems 5Finding Solutions 6USING THE GAINS OF GROWTH 8Realizing the Growth Dividend 8Fiscal Policy for 1967 9Using the Growth Dividend 10RESTORING PRICE STABILITY 11INTERNATIONAL ECONOMIC POLICIES 13Trade 13Aid 13Balance of Payments 14Improving the International Monetary System 16HELPING THE DISADVANTAGED 16Income Guarantees 17Public Assistance 17Training and Employment 18Social Security 18Unemployment Insurance 18CITIES AND HOUSING 19EDUCATION AND HEALTH 20ABATING POLLUTION 20IMPROVING OUR TAX SYSTEM 21IMPROVING GOVERNMENT ORGANIZATION 21OTHER ECONOMIC POLICIES 22AFTER VIETNAM 23CONCLUSION 24ANNUAL REPORT OF THE COUNCIL OF ECONOMIC ADVISERS*CHAPTER 1. EXTENDING THE RECORD OF PROSPERITY 37CHAPTER 2. PRICES AND WAGES IN 1966 72*For a detailed table of contents of the Council's Report, see page 81.m

PageCHAPTER 3. MAINTAINING PRICE STABILITY AND REDUCING UN-EMPLOYMENT 99CHAPTER 4. SELECTED USES OF ECONOMIC GROWTH 135CHAPTER 5. GROWTH AND BALANCE IN THE WORLD ECONOMY 170APPENDIX A. REPORT TO THE PRESIDENT ON THE ACTIVITIES OFTHE COUNCIL OF ECONOMIC ADVISERS DURING 1966 199APPENDIX B. STATISTICAL TABLES RELATING TO INCOME, EMPLOY-MENT, AND PRODUCTION 207IV

ECONOMIC REPORTOF THE PRESIDENT

ECONOMIC REPORT OF THE PRESIDENTTo the Congress of the United States:A healthy and productive economy is a bulwark of freedom.Around the world and here at home, our trials of strength, our worksof peace, our quest for justice, our search for knowledge and understanding,our efforts to enrich our environment are buttressed by anamazing productive power.Americans have confronted many challenges in this century. The oneswe face in 1967 are as trying of men's spirits as any we have known. Butthe overwhelming majority of us face our challenges in comfort, if notaffluence. The sacrifices required of most of today's generation are notof income or security; rather we are called on to renounce prejudice,impatience, apathy, weakness, and weariness.In purely material terms, most Americans are better off than everbefore. That fact expands our responsibilities, as it enlarges our resourcesto meet them.RECENT ECONOMIC GAINSAn average of 74 million persons were at work in 1966—2 millionmore than in 1965. Nonfarm payrolls averaged 64 million, a gain of3 million. On the whole, these jobs were better paying than ever, andmore regular and more secure than most workers can remember.The value of our total production of goods and services in 1966 was$740 billion—$58 billion, or 8/ 2 percent, higher than in 1965. Moreof the increase than we wanted represented higher prices. Still, thegain was nearly 5 1 / 2 percent after correction for price changes.Labor, business, and the farmer all contributed to this major gain inproduction, and they rightly shared the benefits.Aggregate compensation of employees rose 10.3 percent. Averagecompensation per man-hour in the private economy rose 6.5 percent, reflectingincreased wages and fringe benefits, more overtime, the shift tohigher-paying jobs, and increased employer contributions to Social Security.Corporate profits after taxes advanced more than 8 percent; per

dollar of sales they were roughly unchanged from the high rate of 1965.Net income per farm rose more than 10 percent.The single most meaningful measure of economic well-being is realdisposable income per person—the after-tax purchasing power in stabledollars, available on the average to every man, woman, and child. Itrose 3/ 2 percent or $89 per person in 1966. Although this advance wassomewhat smaller than in 1965, it was still three times as large as theaverage yearly gain in the 1950's.February 1961 launched the strongest and most durable economicexpansion in our economic annals, and it still continues.• Almost 9 million jobs have been added in the last 6 years.• The rate of unemployment has fallen from 7 percent in early 1961to under 4 percent. The rate for white adult males fell from 5percent to 2 percent; for Negro men, from nearly 12 percent toless than 5 percent.• Early in 1961, more than two-thirds of our major labor marketswere "areas of substantial unemployment"; today only 8 of the150 are so classified, and 66 have unemployment below 3 percent.• While total population rose 11 million between 1961 and 1965,the number of Americans in poverty declined 5^4 million, andprobably fell at least another 1*4 million in 1966. (The povertydefinition is adjusted for the increase in living costs.)• Our gross national product (GNP) has grown 50 percent in 6years. In constant prices, the gain has averaged 5J/2 percent ayear. The physical output of our factories and mines is up over50 percent.• Private output per man-hour in 1966 was 19 percent higher thanin 1961.• The 6-year addition to our gross stock of private productivecapital—machines, buildings, transportation equipment, landimprovements, and inventories—is valued at $220 billion.• American families have added $470 billion to their accumulatedfinancial assets. They have added $150 billion to their debts.So their net financial position is $320 billion stronger than 6 yearsago.OUR ECONOMIC PROBLEMSProsperity is everywhere evident. But prosperity is never withoutproblems, and—in 1966—some of them were serious.

SOME LEADING PROBLEMS1. Economic progress still left far too many behind.• Nearly 3 million workers were without jobs at the end of 1966.Perhaps two-thirds of them were "frictionally" unemployed:new entrants to the labor force in the process of locating a job;persons who quit one job to seek another; workers in the "off"months of seasonal industries; those temporarily laid off but withinstructions to return. Their unemployment will be temporary;many were drawing unemployment insurance.# But most of the remaining third will wait a long time for a steadyjob. They are the "hard-core" unemployed—lacking the necessaryskills to find other than intermittent work; the victims of pastor present discrimination; those unable or unwilling to movefrom depressed areas and occupations; the physically or emotionallyhandicapped.# Another half million to one million potential workers were noteven counted as unemployed. Many had long ago abandonedany search for a job. Some had never tried.• But even among those who worked year-round, some 2 millionbreadwinners—particularly the low-skilled with large families—earned incomes insufficient to support a minimum standard ofdecent subsistence.* And 63/2 million families were poor because the heads of theirhouseholds were unable to work: either aged, severely handicapped,or a widowed or deserted mother with young children.Those left behind used to be called the "invisible poor." But anawakened public conscience has sharpened the vision of most Americans.2. Price increases—although less than in many comparable periods—still were greater than we wanted or should long tolerate.It is tempting to blame the creep of prices on the greed of producers—or the irresponsibility of labor—or Government policies—or badweather—or economic disturbances abroad. Some of the price rise mayhave been due to each. But the main causes lay elsewhere:• Some can be traced to imbalances created by the special pressuresof Vietnam procurement and booming private investment.# The spurt of demand—partly real, partly psychological—that followedthe step-up of our Vietnam effort in mid-1965 simply exceededthe speed limits on the economy's ability to adjust. Ourresources were sufficient for the task; but the sheer speed of theadvance strained the ability of industrial management to mobilizeresources at the required pace.

• Some price advance was the inevitable cost of the adjustmentsrequired in recovering from a decade of slack:—Wages had to be raised sharply in underpaid occupations,which previously held their labor only because the alternativewas no job at all.—Producers in once stagnant, low-profit industries saw opportunitiesfor expansion and found it possible to raise prices andearnings in order to attract needed capital.—Demand pressed harder on skilled occupations and professionalservices where we had trained too few persons tomeet the needs of a high employment economy.Some price increases would still have occurred had we moved at asteadier pace.But these price increases could have come slowly enough and have beensmall enough not to threaten a chain reaction of wages chasing otherwages—wages chasing prices—prices chasing wages—and prices chasingother prices.It is this spiral we must and can avoid. But it will require responsibleaction on the part of all.3. Achieving equilibrium in our balance of payments remained a problem,in spite of strong new measures.The costs of Vietnam required us to spend many more hundreds ofmillions of dollars beyond our shores. At the same time, the spurt ofdemand caused our imports—especially of capital goods—to soar.We are determined to continue our progress toward equilibrium.4. Tight money and high interest rates concentrated the burdenof restraint on housing.Interest rates in 1966 were as high as at any time in 40 years. Theywere pushed there by an insatiable demand for credit, straining against adeliberately restricted supply. Monetary policy in 1966—like taxpolicy—was properly aimed at slowing down an economy expanding toofast.The brakes applied last year worked. But tight money worked painfullyand inequitably. It cut construction by more than $8 billionduring 1966. Its impact was equivalent to a heavy across-the-board taxincrease, but with most of its effect concentrated on a single industry.FINDING SOLUTIONSWe will move this year toward solutions for these problems and others.But they cannot all be completely solved in 1967.

Lifting the Burden on HousingNow that the economy's advance is again more moderate, the burdenof tight money is being lifted. Interest rates are still extremely high—but they are moving down from their peaks. Credit is still not readilyavailable to all who can make sound and productive use of it—but it isbecoming easier to get. More savings are flowing into our thrift institutionsand are beginning to be available to builders and homebuyers.The steps we took last year and those I am now proposing, the stepsthe Federal Reserve has recently taken and is continuing to take to increasecredit availability and lower interest rates, should have our housingindustry moving smartly forward by the end of 1967, and ready for oneof its best years in 1968.Restoring Price StabilityThe advance of prices has already begun to slow. Wholesale pricesin December were below their levels of August.The more moderate pace of economic advance, now underway, whichthe policies I am recommending are designed to maintain, shouldfurther diminish inflationary pressures.We cannot rescind all of last year's increases in costs, some of whichare still spreading through our structure of prices. Price stability cannotbe restored overnight. But we will be making good progress towardprice stability this year.Improving Our International PaymentsWe have recently announced stronger voluntary balance of paymentsprograms for 1967. Our policies to constrain economic expansion to asustainable pace should permit an improved export surplus.I am now recommending further steps to strengthen our external payments.Yet so long as we remain heavily engaged in Southeast Asia,we will have a balance of payments problem.Combating PovertyWe will continue to attack poverty and deprivation through suchweapons as—Community Action and Head Start;—rent supplements and child nutrition;—aid to elementary and secondary education in poverty areas andthe Teachers Corps;—the Manpower Development and Training Act, the Job Corps,the Neighborhood Youth Corps;—Medicare, Medicaid, and neighborhood health centers;—measures to end discrimination in jobs, education, and publicfacilities;

—the expanded coverage enacted last year for a higher minimumwage.I am proposing that our attack be reinforced with new weapons in1967.Yet, with old weapons and new, the war on poverty will not be wonin 1967—or 1968. There is no wonder drug which can suddenly conquerthis ancient scourge of man. It will be a long and continuingstruggle, which will challenge our imagination, our patience, our knowledge,and our resources for years to come. Our capacity to stay withthe task will be a test of our maturity as a people.USING THE GAINS OF GROWTHFrom early 1961 to the end of 1966, our GNP rose an average of $44billion a year. About $9 billion a year was price increase. Of thebalance• An average real gain of $10 billion a year (in 1966 prices) camefrom putting idle men and machines back to work.• An average real gain of $25 billion a year (in 1966 prices) camefrom the growth of our resources: a larger work force, more andbetter capital and management, higher productivity.Further gains from putting idle resources to work will now be harderto achieve.But our annual dividend from growth has meanwhile become moregenerous. In 1967 it will add $30 billion at today's prices to our potentialoutput.Our economic policies must assure that we realize this potentialdividend—and use it wisely.REALIZING THE GROWTH DIVIDENDTo ensure our full dividend from economic growth requires thatmarkets for goods and services expand steadily and adequately—butnot excessively. In recent years, we have tested and refined the powerof fiscal and monetary policy to stimulate or moderate the expansionof total demand.During 1966, Federal expenditures were expanding rapidly. But taxpolicy worked to counter their impact.Federal expenditures in our national income accounts grew $19billion in calendar year 1966, reflecting the step-up in national defense;in Social Security, Medicare, and related payments; and in grants toState and local governments. They added strongly to private pur-8

chasing power. They would have added more but for the substantialexpenditure cutbacks put into effect during the year.On the other side, taxes restrained demand. Higher payroll taxes,the restoration of some excise taxes, the institution of graduated withholding,and the suspension of tax incentives to investment all representednew measures that were draining off more than $9 billion ofspendable incomes by year-end. In combination, and for the full year,these measures and an expanding economy produced $18 billion morein revenues than in 1965. Prompt action by Congress in response to mytax proposals of January and September made tax policy an importantforce for economic restraint.Taking the two sides together, our national income accounts budgetwas in surplus in the first half and in balance for 1966 as a whole.But as private investment threatened to outrun private saving, sharpmonetary restraint was also applied. In response to both fiscal andmonetary restraints, the economy shifted gears from excessive speed toa moderate advance.FISCAL POLICY FOR 1967In the year ahead we are determined to maintain that moderateadvance; we need no further slowdown; we can tolerate no new spurtof demand. After midyear, the tax increase I have proposed and amore moderate growth of Federal spending will increase the freedom ofmonetary policy to support expansion. I am confident that the opportunitywill be used.The specific fiscal program I am recommending includes—a surcharge of 6 percent on the tax liabilities of individuals,exempting persons in the lowest income brackets;—the same 6 percent surcharge on the tax liabilities of corporations.Here are some examples of the effect of this proposal, as applied toa married couple with two dependents, using typical deductions:• With $5,000 income, their tax will be unchanged—still $130lower than they would have paid in 1963.• With $10,000 income, their tax in 1968 will rise $67, or $1.30a week. Their annual tax will still be $190 less than they wouldhave paid in 1963.• With $20,000 income, their tax in 1968 will rise $190, or $3.65a week. But their annual tax will still be $450 less than theywould have paid in 1963.A corporation with profits before tax of $100,000 will pay an extra$2,490. It will still pay $2,510 less than it would have paid in 1963.

One with profits of $1,000,000 will pay an extra $28,410, still $12,590less than it would have paid in 1963.The surcharge will provide for $5.1 billion of extra revenues in fiscalyear 1968 on a national income accounts basis, substantially offsettingthe expansion of $5.8 billion in defense purchases.The national income accounts budget will also be affected by my proposalsfor Social Security benefits and taxes.After allowance for these changes, the national income accounts deficitfor fiscal year 1968 is now estimated at $2.1 billion, compared with$3.8 billion in fiscal year 1967.I am also recommending two further accelerations of corporate taxpayments, to begin in 1968:—requiring quarterly payment of estimated tax on the basis of 80percent rather than 70 percent of liability;—requiring, over a 5-year period, that small corporations, as wellas large, become current in their tax payments, in the same wayas individual proprietors.We have fashioned a fiscal program for sustainable expansion. Withthat program, we now see a rise of about $47 billion in our GNP in1967—a growth dividend close to 4 percent in real terms.USING THE GROWTH DIVIDENDThe first priority for the use of our growth dividend must, as always,be the defense of freedom. But it will take only a small part of our $47billion of added production.These will be the public claims on our growth dividend:* $10 billion more of our output in 1967 will go for the support ofour men in Vietnam and other urgent needs of defense.• $1 y 2 billion will go for the expansion of other Federal purchases,including adjustments in Federal civilian and military pay.# State and local governments will use about $8 billion more of theNation's resources in 1967. In this, they will be aided by Federalgrants totaling nearly $15 billion.The remaining $27^ billion of our GNP gain in 1967—nearly 60percent of it—will be used in the private sector. And the flow of goodsand services to consumers will expand this year by even more than that.• In the past several years, an unusually large part of our outputgrowth has gone to expand the productive capacity of businessand to build up inventories to support high and growing productionand sales. On balance, a slightly smaller portion of our resourceswill be used for these purposes in 1967 than in 1966.IO

• For the year as a whole, slightly less of our resources than lastyear will be used to build new homes, although a sharp recoveryin residential construction from its current deep recession isexpected during the course of the year.As the flow of goods and services to consumers expands, the ability ofour elderly citizens to share in these gains will be supported by a rise ofmore than $6 billion in Social Security and Medicare payments.In 1967, we will have no bonus dividend from using previously idleresources. But the dividend from growth alone is a big one. We mustbe sure we get it; and we must use it wisely.RESTORING PRICE STABILITYFrom the beginning of 1961 until 1965, the United States enjoyedboth price stability and a strongly expanding economy. The average ofwholesale prices hardly moved, and consumer prices rose only a littlemore than 1 percent a year. Last year, that record was blemished.Consumer prices rose 2.9 percent between 1965 and 1966, wholesaleprices 3.2 percent.When we were involved in Korea, consumer prices rose 8.0 percentbetween 1950 and 1951, wholesale prices 11.4 percent. And we hadprice controls during most of 1951.Even when we were not at war, consumer prices rose 3.5 percentbetween 1956 and 1957, wholesale prices 2.9 percent.Nevertheless, we are not satisfied with our record on prices. And weexpect to improve on it this year.There are many reasons why we refuse to tolerate rapidly rising prices:• They injure those with fixed incomes, especially older people.• They can lead to speculation and economic distortions whichcould undermine prosperity.• They weaken our competitive position in world markets.• As they persist, they become harder to stop without throwing theeconomy into reverse.Restoring price stability is one of our major tasks. It will not be accomplishedall at once, or all in 1967. That could be done—if at all—only at the cost of mass unemployment, idle machines, and intolerableeconomic waste. But a gradual return to stability can go hand in handwith steady economic advance.Such an improvement will require—prudent fiscal and monetary policies;—Government efforts to help relieve the key points of pressure onprices;II

—the responsible conduct of those in business and labor who havethe power to make price and wage decisions.With steady, sustainable, and balanced growth, we can look forwardto—relief of pressures on capacity in such strained areas as machineryand metals;—adjustments of raw materials supplies to demand;—the end of labor shortages in key areas.Other efforts of the Federal Government can help to relieve particularpressures on prices and wages. We will continue—to develop manpower training programs to meet skill shortages;—to increase the efficiency of the employment services in matchingjobs and men;—to handle Government procurement so as to minimize its pressureon prices;—to dispose of surplus Government stockpiles to alleviate shortagesof raw materials;—to manage farm programs to assure adequate supplies as wellas equitable returns.But efforts of the Government alone will not be enough. The cooperationof business and labor is essential for success.In the past year, most businessmen who had a choice in setting pricesand most trade unions that negotiated wage contracts acted responsibly.They did so because they took account of the national interest andsaw that it was also their own.If business and labor were to consider only their own short-run interests—each union might seek a wage increase which exceeds the mostrecent settlement by some other union;—each business might strive to achieve a new profit record by translatingstrong demand into higher prices, whether or not costshave increased.But when business and labor consider the national interest—and theirown longer-run interests—they realize that such actions would have onlyone result: a wage-price spiral which is in the interest of neither.• If unions now attempt to recoup in wages all of the past or anticipatedadvance in the cost of living—in addition to the productivitytrend;• If businesses now seek to pass along rising costs when it would bepossible to absorb them or do not reduce prices when costs fall;then the result will be just such a spiral—damaging to business, damagingto labor, and disastrous to the Nation.12

Once again, I appeal to business and labor—in their own interest andthat of the Nation—for the utmost restraint and responsibility in wageand price decisions.INTERNATIONAL ECONOMIC POLICIESThe current year is a critical one for our international economic policiesand for the economic progress of the world community.As the largest single market and source of capital, the United Statescarries special responsibilities.TRADEThis Administration is committed to reducing barriers to internationaltrade, as demonstrated by my recent action terminating the 1954escape clause action on watches, and rolling back the special tariff onimports of glass.The Kennedy Round of trade negotiations is now entering its final andmost critical phase. I emphasize once more how important this greatattempt to liberalize world trade is for all the developed and developingnations of the free world.After more than 4 years of discussion, it is essential that the participantsnow resolve the many complex problems that still remain. It wouldindeed be a tragedy if the wide authority granted to the President by theTrade Expansion Act of 1962 were allowed to lapse unused. Neverbefore has there been such a splendid opportunity to increase world trade.It must not be lost.But the Kennedy Round is not the end of the road. We must lookbeyond the negotiations in Geneva to further progress in the years ahead.We must begin to shape a trade policy for the next decade that is responsiveto the needs of both the less developed and the advanced countries.We should seize every opportunity to build and enlarge bridges ofpeaceful exchange with the countries of Eastern Europe and the SovietUnion. We should have the ability to adapt our policies to whateverpolitical circumstances or commercial opportunities may present themselves.I again urge the Congress to provide authority to expand ourtrade relations with Eastern Europe and the Soviet Union.AIDAlthough 1966 was a relatively good year for world economic growth,average output in developing countries rose by less than $3 a person.240-782 0—67—213

There were, however, encouraging signs of progress. Developingnations demonstrated a willingness to take difficult but necessary stepsto help themselves. India, for example, revised her foreign exchangeand agricultural policies to promote more rapid growth.Among the wealthier nations, stronger efforts were made to assist thedevelopment of the poorer countries. Canada and Japan increasedtheir assistance programs. Major free world aid donors joined in newgroups to coordinate their flowof aid.The United States will continue to respond constructively to the aspirationsof the developing nations. We will give first priority to fighting theevils of hunger, disease, and ignorance in those free world countrieswhich are resolutely committed to helping themselves.There should, however, be increasing efforts to make both the receivingand giving of aid a matter for creative international partnership.We shall therefore—continue to support enthusiastically, in a manner consistentwith our balance of payments position, such promising cooperativeregional efforts as the Alliance for Progress, the Inter-American,the Asian, and the African Development Banks, and theMekong Development Fund of the United Nations;—further encourage the coordinated extension and expansion ofaid by the major donor countries in ways that result in anequitable sharing of the burden;—seek the cooperation of other major donor countries this year inreplenishing the resources of the International Development Association.BALANCE OF PAYMENTSWe can take some satisfaction in the fact that our balance of paymentsin 1966 may prove to have been in surplus on official reserve settlements.Despite the added costs of the war in Vietnam and the rapid growth ofimports, our deficit on a liquidity basis increased only slightly in 1966.But we cannot relax our efforts to seek further improvement.Our goal in the coming year is to continue to move toward balance ofpayments equilibrium as rapidly as the foreign exchange costs of theVietnam conflict may permit. This goal will be supported throughmeasures and policies consistent with healthy growth at home and ourresponsibilities abroad.We already have extended and reinforced the voluntary restraint programsfor corporate investment abroad and for foreign lending byfinancial institutions. I am counting on the continued full cooperationof businesses and banks with these programs in 1967. And I have14

instructed all agencies of the Government to intensify their efforts to limitthe dollar drain resulting from their activities.But more is needed. I now recommend the following steps:1. The Congress should extend the Interest Equalization Tax, instrengthened form, to July 31, 1969. This tax has proved extremelyuseful in limiting the borrowing of developed countries inour capital markets and in reinforcing the Federal Reserve voluntaryprogram. As we move toward easier money in the UnitedStates, foreign borrowing in our financial markets may tend toincrease. I am therefore requesting authority to adjust therates of the Interest Equalization Tax as monetary conditionswarrant, so that the effective impact on interest costs can be variedbetween zero and 2 percent. This would replace the present flat1-percent impact.Moreover, to ensure against possible anticipatory increases inforeign borrowing, I am also requesting that the tax be imposedat rates which provide an impact of 2 percent on interest costswhile the legislation is under consideration by Congress.2. The most satisfactory way to arrest the increasing gap betweenAmerican travel abroad and foreign travel here is not to limitthe former but to stimulate and encourage the latter. I shallappoint in the near future a special industry-Government taskforce to make specific recommendations by May 1, 1967, onhow the Federal Government can best stimulate foreign travelto the United States. After a careful review of their advice,I shall ask the U.S. Travel Service and other appropriate agenciesto take the steps that seem most promising.3. As part of our long-run balance of payments program, I shallalso—request continuation and expansion by $4.5 billion of thelending authority of the Export-Import Bank in order tosupport the expansion of exports;—continue to urge other countries to participate in the developmentof better means both of sharing the resourceburdens and of neutralizing the balance of payments effectarising from the common defense and foreign assistanceefforts.4. For the longer run strength of our payments balance, we shouldintensify efforts to—stimulate exporters' interest in supplying foreign markets;—enlist the support of the financial community to attractadditional foreign investment in the United States;—encourage further development of foreign capital markets.15

IMPROVING THE INTERNATIONAL MONETARY SYSTEMIn 1966, significant progress was made toward a better internationalmonetary system. Through close consultation and cooperation amongthe financial authorities of major countries, temporary strains were metpromptly and effectively.Two large forward steps were taken on the road to international monetaryreform: wide consensus was reached on basic principles for thedeliberate creation of additional reserve assets; and the negotiationsadvanced to a second stage in which all members of the InternationalMonetary Fund are participating.An even greater effort must be made in the coming year to improveour monetary system. In particular, I urge that—all countries participate in the continuing task of strengtheningthe basic monetary arrangements that have served the world sowell;—both surplus and deficit countries assume their full responsibilityfor proper adjustment of international payments imbalances, andcooperate in efforts to lower world interest rates;—full agreement be reached on a constructive contingency planfor the adequate and orderly growth of world monetary reserves.HELPING THE DISADVANTAGEDThe United States is the first large nation in the history of the worldwealthy enough to end poverty within its borders. There are manyfronts in the War on Poverty. We are moving forward on them all.• There must be full employment so that those qualified and ableto work can find jobs. . . . The unemployment rate last yearwas the lowest in 13 years.• Those not now fully qualified must be given the education andtraining, the health and guidance services which will enable themto make their full contribution to society. . . . We have greatlyincreased our aid to education and enlarged our training programs,and we will expand them further.• For those who will be unable to earn adequate incomes, theremust be help—most of all for the benefit of children, whosemisfortune to be born poor must not deprive them of future opportunity.. . . We have increased our income support, and wewill increase it further.• Wherever the poor and disadvantaged are concentrated, intensiveand coordinated programs to break the cycle of deprivation16

and dependency must continue and be reinforced. . . . Weinstituted these programs in hundreds of cities and rural areas;we are expanding them and designing others.INCOME GUARANTEESCompletely new proposals for guaranteeing minimum incomes arenow under discussion. They range from a "negative income tax" to acomplete restructuring of Public Assistance to a program of residualpublic employment for all who lack private jobs. Their advocatesinclude some of the sturdiest defenders of free enterprise. These plansmay or may not prove to be practicable at any time. And they arealmost surely beyond our means at this time. But we must examine anyplan, however unconventional, which could promise a major advance.I intend to establish a commission of leading Americans to examine themany proposals that have been put forward, reviewing their merits anddisadvantages, and reporting in 2 years to me and the American people.PUBLIC ASSISTANCEOur system of public assistance is now 30 years old and has obviousfaults. The standards of need set by many States are unrealisticallylow; benefits are further restricted by excessively stringent eligibility conditions.In some respects the system perpetuates dependency.1. State standards of need are miserably low. In 18 States a familyof 4 is presumed able to manage for a month on $45 a person—or less.And in many States, actual payments average far below their own standardsof need.It is time to raise payments toward more acceptable levels.As a first step, I ask the Congress to require that each State's paymentsat least meet its own definition of need; and that its definitionshould be kept up to date annually as conditions change.2. With minor exceptions, payments under public assistance are reduceddollar for dollar of earnings by the recipient, removing any incentiveto accept part-time work. We should encourage self-help, notpenalize it.It is time to put an end to this 100 percent tax on the earnings ofthose on public assistance.I shall therefore ask Congress to enact payment formulas whichwill permit those on assistance to keep some part of what they mayearn, without loss of payments.3. Many recipients of public assistance are capable of receiving trainingwhich would ultimately make them self-supporting.17

I therefore urge the Congress to make permanent the UnemployedParent and Community Work and Training programs associatedwith Aid to Families with Dependent Children (AFDC), and torequire all States receiving Federal support under AFDC to cooperatein making Community Work and Training available for theunemployed parents of dependent children.TRAINING AND EMPLOYMENTThe coexistence of job vacancies and idle workers unable to fill themrepresents a bitter human tragedy and an inexcusable economic waste.One of society's most creative acts is the training of the unemployed, theunderemployed, or the formerly unemployable to fill those vacancies.A dynamic economy demands new and changing skills. By enablingworkers to acquire those skills, we open opportunities for individual developmentand self-fulfillment. And we make possible higher productionwithout inflationary pressures.I shall ask the Congress for funds to support a new and special effortto train and find jobs for the disadvantaged who live in urban ghettos.I shall also propose legislation to improve the effectiveness of theFederal-State employment service.SOCIAL SECURITYMillions of aged still live in poverty. Millions of younger Americansare willing to pay for more adequate retirement benefits in the future.I ask the Congress to approve an over-all 20 percent increase in ourSocial Security program. We can increase benefits for all Social Securitybeneficiaries by at least 15 percent, raise the minimum benefit by59 percent to $70 a month, assure workers with 25 years of coverageat least $100 a month, extend Medical Insurance to disabled beneficiaries,and allow larger earnings without loss of benefits.UNEMPLOYMENT INSURANCEOur system of unemployment insurance was created in a world ofmassive unemployment. The needs of a high employment economy aredifferent. Today, when jobs are available, the jobless who exhaust theirbenefits typically need training, guidance, or other supportive services.Therefore, I am asking the Congress to consider legislation to providesuch services in conjunction with extended benefits to the long-termunemployed, to extend the protection of the system to additional workers,to establish more uniformly adequate benefits, and to correct abuses.18

CITIES AND HOUSINGThe American city is not obsolete; it is still a great engine for economicand social progress. But cities are in trouble, threatened by congestion,pollution, crime, poverty, racial tension, slums, and blight.Yesterday's rural poor have been moving to the city just as many ofthe jobs they seek and need have been moving to the suburbs. Inadequatetransportation and discrimination in housing make it difficultfor them to follow the jobs; and deficiencies of education, health,and skills compound their disadvantages.Most cities cannot afford the massive expenditures necessary to solvethese problems. The flight of higher income families and businessesto the suburbs erodes sources of revenue for the cities, even as expendituredemands escalate. Inflexible city limits have created a hodgepodgeof local taxing jurisdictions, often dividing the tax base from the need.The cities cannot collect for the many benefits they supply to residentsof the suburbs.The problems of the cities flow across irrelevant boundaries establishedby historical accident. So solutions must draw on the resources andimagination of a larger area. Our efforts have been aimed to encouragea metropolitan approach to metropolitan problems.We must also find ways to enlist more fully the resources and. imaginationof private enterprise in the great task of restoring our cities.I have just appointed a Commission, under the chairmanship ofSenator Paul H. Douglas, to work with the Department of Housingand Urban Development to examine problems of codes, zoning, taxation,and development standards and to recommend ways to increasethe supply of low-cost housing. I am convinced that this study canmake a major contribution to the solution of urban problems.Last year, the Congress enacted the pathbreaking Model Cities legislation.The Federal Government will help cities to focus all availableprograms on their needs—eventually to overwhelm the problems thathave heretofore overwhelmed the cities.More than 70 cities will have completed their plans and be eligible tostart receiving assistance in 1968. Federal aid for water and sewerprojects, open land conservation, and urban mass transportation is encouraginga more coordinated approach to metropolitan problems. Iseek increased appropriations for all of these programs. And I shallseek authorization and resources for a greatly expanded program ofresearch on urban problems.19

Growth in the number and incomes of American families will requireus to build about 2 million new houses a year for the next decade,most of them in and around cities. Last year, housing bore a disproportionatepart of the burden of needed restraint. But we are now movinginto a period of renewed homebuilding. I look for construction torise briskly during 1967.Federal programs for fiscal 1968 will assist in construction or renovationof 165,000 housing units for the urban poor, the elderly, and thehandicapped. The Rent Supplement program will contribute to thisgoal.This year will be a brightening one for the housing industry; it canalso be a landmark year in the progress and evolution of our cities.EDUCATION AND HEALTHIndividually and collectively, Americans have insatiable appetites formore education and better health. Education and health contributeboth to individual well-being and to the Nation's productivity. But fartoo many of our urban and rural poor are denied adequate access toeither. The efficiency of our methods of education and of providingmedical care can and should be strengthened.History will record these years as the time when this Nation awoke toits needs—and its limitations—in education and health. The Elementaryand Secondary Education Act, Head Start, the Teachers Corps,Medicare, Medicaid, and the Partnership in Health will be landmarksin our social and economic development.I shall propose—an expanded Head Start program; a Follow-Through programin the early years of school; and the opening of other new educationalopportunities for children;—both legislative and administrative changes to accelerate researchand development on more efficient and effective ways of providinghealth resources;—an expanded child health program, including early diagnosis andtreatment, a pilot program of dental care, and the training of additionalhealth personnel to provide services to children.ABATING POLLUTIONA polluted environment erodes our health and well-being. It diminishesindividual vitality; it is costly to industry and agriculture; it has20

debilitating effects on urban and regional development; it takes some ofthe joy out of life.The 89th Congress enacted important legislation to improve the qualityof our environment. All 50 States have now signified their intentionto establish water quality standards for their interstate and coastal waters.The Federal Government is assisting State and local governments throughcomprehensive water basin planning, and is providing financial help toStates for the administration of water pollution control and to local areasfor the construction of sewage treatment facilities. In addition, we arestudying appropriate methods to encourage industry to control its dischargeof pollutants.The foundation for abating air pollution was laid in the Clean AirAct of 1965. But the air over every city proves that further steps arenecessary.I propose that we get on with the jobs of preserving and restoring ourenvironment. I will present detailed proposals on control of air pollutionin another message.IMPROVING OUR TAX SYSTEMOur tax system is one in which we can take pride. In terms offairness, revenue productivity, and balanced economic impact, it isunsurpassed by any other tax system in the world today.Nevertheless, it can be improved. As they now stand, our tax lawsimpose undue burdens on some and grant unfair benefits to others.A system as complex as ours cannot be perfected in a single bill.Rather, the process of tax reform must be continuous, with everyprovision of the law subject to constant examination and adjustmentwhere needed. Moreover, this work of basic reform should proceedindependently of the requirements for raising taxes or the opportunitiesfor tax reduction.I therefore plan to submit proposals to the Congress to improve theequity of our tax system and reduce economic distortions. These proposalswill be designed to avoid significant budgetary effects.As one specific reform, I will urge changes to deal with abuses bytax-exempt private foundations.IMPROVING GOVERNMENT ORGANIZATIONSeparate Departments of Labor and Commerce perpetuate the obsoletenotion that there is fundamental conflict between the interests of businessand labor, or between the interests of either and that of the Nation.21

A single department of labor and business can more effectively carryout those national programs which affect the private productive sectoras a whole. The two departments share many common objectives; theirinterests and activities coincide or overlap in—fostering economic and regional development;—matching the skills of labor with the needs of employers;—providing more jobs at better wages;—avoiding labor disputes;—maintaining a fair distribution of private incomes without inflation;—providing stability of production and jobs;—providing basic economic and social information and technicalservices needed by both private and public sectors;—supporting expansion of international trade and considering itsimpact on the domestic economy.By combining these activities, we can greatly improve efficiency, reducecosts, simplify the reporting burden on business, provide betterand more uniform statistics, and assure that the views and the problemsof the private sector enter more effectively into decisions on general economicpolicy.I urge the Congress to support my recommendation for a new departmentof labor and business.OTHER ECONOMIC POLICIES1. I renew four recommendations made in my Economic Report of1966 and not acted upon by the 89th Congress:—a fair system of charges for users of highways, aviation facilities,and inland waterways, to improve efficiency in the use of transportationresources, and to reimburse the Federal Governmentfor a part of its expenditures on facilities which directly benefitthose who use them;—truth-in-lending legislation, to provide consumers with a full andclear statement of the true cost of credit;—stronger regulation of savings and loan holding companies;—provision of Federal charters for mutual savings banks, to enlargeand strengthen our system of thrift institutions.2. To aid the advance of technology on which economic progress depends,I now urge Congressional support for—a long-overdue modernization of our patent system;—a large-scale program of research in transportation.22

3. Total holdings in the Nation's stockpile of strategic and criticalmaterials now stand at $6.5 billion. Of this amount, $3.4 billion are excessto our defense needs as presently determined.During the last fiscal year, the Administrator of General Services disposedof excess stockpile materials valued at slightly more than $1 billionwithout disruption of the domestic economy or the normal channels oftrade.The last session of the Congress authorized disposal of excess stockpilematerial valued at $782 million. I will ask the Congress for authorityto dispose of additional stockpile excesses, bringing to about $2 billion thepresent value of excess stockpile material available for disposal.I believe that we should relieve taxpayers of the burden of carrying unneededsurplus stocks, and provide businesses and workers with the materialsnecessary to assure continued high levels of production.4. The responsibility which we share with the States to ensure thatour banks and thrift institutions are honest, competent, and competitiveis a continuing function demanding constant attention. We must continueto encourage the orderly and progressive development of a financialsystem adequate to meet the needs of a growing and dynamic economy.I urge the Federal Reserve Board, the Federal Deposit InsuranceCorporation, the Comptroller of the Currency, and the Federal HomeLoan Bank Board to continue and to intensify their efforts to coordinatetheir regulatory policies and procedures, and to improve their examinationmethods.AFTER VIETNAMDespite all our efforts for an honorable peace in Vietnam, the warcontinues. I cannot predict when it will end. Thus our plans mustassume its long duration.But peace will return—and it could return sooner than we dare expect.When hostilities do end, we will be faced with a great opportunity,and a challenge how best to use that opportunity. The resources nowbeing claimed by the war can be diverted to peaceful uses both at homeand abroad, and can hasten the attainment of the great goals upon whichwe have set our sights.If we keep our eyes firmly fixed on those goals—and if we planwisely—we need have no fear that the bridge from war to peace willexact a wasteful toll of idle resources, human or material.But when that welcome day of peace arrives, we will need quick adjustmentsin our economic policies. We must be prepared for those23

adjustments, ready to act rapidly—both to avoid interruption to ourprosperity and to take full and immediate advantage of our opportunities.Planning for peace has been an important activity in many executiveagencies. But the effort needs to be stepped up and integrated.Accordingly, I am instructing the heads of the relevant agencies in theExecutive Branch, under the leadership of the Chairman of the Councilof Economic Advisers, to begin at once a major and coordinated effortto review our readiness. I have asked them—to consider possibilities and priorities for tax reduction;—to prepare, with the Federal Reserve Board, plans for quickadjustments of monetary and financial policies;—to determine which high priority programs can be quicklyexpanded;—to determine priorities for the longer range expansion of programsto meet the needs of the American people, both throughnew and existing programs;—to study and evaluate the future direction of Federal financialsupport to our States and local governments;—to examine ways in which the transition to peace can be smoothedfor the workers, companies, and communities now engaged insupplying our defense needs, and the men released from ourarmed forces.I have directed that initial reports be prepared on all of these and relatedproblems, and that thereafter they be kept continuously up to date.CONCLUSIONOur task for 1967 is to sustain further sound and rewarding economicprogress while we move toward solutions for the problems we met in1966. It will require a flexible and delicate balance of economicpolicies.Above all, we must guard against any interruption of our prosperity.The steady advance of jobs and incomes is our most powerful weaponin the battle against poverty and discrimination at home. And it undergirdsour policy around the world.Yet we must be equally alert to the dangers of inflation.In his Economic Report of January 1956, President Eisenhower wrote:The continuance of general prosperity cannot be taken for granted.In a high-level economy like ours, neither the threat of inflation northe threat of recession can ever be very distant. . . . The only rigid24

ule we can afford to admit to our minds is the principle that the bestway to fight a recession is to try to prevent it from occurring.Only 18 months later, the sharpest recession of the entire postwarperiod began—which also led to the largest peacetime budget deficit inour history. Over the same 18 months, both consumer prices and wholesaleprices advanced 5J/2 percent—considerably faster than in the 18months since June 1965.That history does not invalidate but rather reinforces President Eisenhower'sproposition. Neither the threat of inflation nor of recession isever distant in a high level economy.How can we steer between these dangers, and—at the same time—supply the needs of national defense, strengthen our overseas payments,relieve the inequities of tight money and high interest rates, maintainthe momentum of social progress, and provide the growth of incomeswhich lets each of us move toward fulfilling his private aspirations?I am confident that we can find such a course. We will continue tocoordinate the tools of monetary and fiscal policy to the common goal—the sound, balanced, and noninflationary advance of production and incomes.We are steering toward lower interest rates, a better balancein our economy, a budget and a Social Security program that reflectnational priorities.There will be surprises in store along the way. We must be preparedto meet them swiftly and flexibly. And I think we are. The tools ofeconomic policy are not perfect; but they are far better understoodand accepted—in the Government and in the private community—thanever before.We have surely proved over recent years that economic progressdoes not need to be interrupted by frequent recessions. And, althoughprices have risen faster in the past year and a half than we expected orwished, we have done better than in most similar periods of our economichistory. And we have done it without burdensome controls on prices orwages.The Federal Government cannot do the whole job—or even verymuch of it. Production and incomes arise from the strength and skillof workers, the ingenuity of managements, the willingness of savers torisk their capital, the genius of inventors and engineers, the patience ofteachers, the devotion of local public servants—the contributions of allwho participate in our economy.Yet the Federal Government has a role of leadership and a responsibilityfor coordination.25

The Congress defined that role in the Employment Act of 1946:... it is the continuing policy and responsibility of the FederalGovernment . . .. . . with the assistance and cooperation of industry, agriculture,labor, and State and local governments,to coordinate and utilize all its plans, functions, and resources forthe purpose of creating and maintaining,in a manner calculated to foster and promote free competitiveenterprise and the general welfare, . . .. . . useful employment opportunities . . . for those able, willingand seeking to work,and to promote maximum employment, production, and purchasingpower.Our economic policies for 1967 respond to that mandate.January 26, 1967.26

THE ANNUAL REPORTOF THECOUNCIL OF ECONOMIC ADVISERS27

LETTER OF TRANSMITTALTHE PRESIDENT:COUNCIL OF ECONOMIC ADVISERS,Washington, D.C., January 19,1967.SIR: The Council of Economic Advisers herewith submits its AnnualReport, January 1967, in accordance with Section 4(c) (2) of the EmploymentAct of 1946.Respectfully,GARDNER ACKLEY,Chairman.JAMES S.DUESENBERRYARTHUR M.OKUN240-782 O—6729

CONTENTSPageCHAPTER 1. EXTENDING THE RECORD OF PROSPERITY 37Achievements of an Expanding Economy 38Employment Gains 38Productivity 40Gains in Real Income 41The Realization of Economic Potential 42Strains and Restraint in a Surging Economy 45The Economy in Mid-1965 45Spurt in Economic Activity 46Moderation in the Pace of Advance 48Retrospect 49The Pattern of Output 50Uneven Shares in Investment 50Inventory Investment 52Money and Credit 52Promoting Expansion, 1961 to 1965 53Shift to Restraint 54Competition Among Financial Institutions 55Actions to Reduce Financial Pressures 58Signs of Relaxation 59Evaluation of Monetary Restraint 60Prospects and Policies for 1967 61Fiscal Program for 1967 61Economic Outlook 62Improving Stabilization Tools Over the Longer Run 65Uses of Monetary Policy 65Need for Fiscal Flexibility 68Appendix: The Federal Budget, National Income AccountsBasis 69CHAPTER 2. PRICES AND WAGES IN 1966 72The Recent Price Record 74Labor Compensation and Labor Costs 77Supply and Demand in the Labor Market 78Prices in Major Sectors 86Farm Products and Food 87Raw Materials 89Manufactured Goods 90Consumer Services 9331

CHAPTER 2. PRICES AND WAGES IN 1966—Continuedp ag ePrices and the Distribution of Real Income 95Outlook for Prices 97CHAPTER 3. MAINTAINING PRICE STABILITY AND REDUCING UNEM-PLOYMENT 99Improving U.S. Labor Markets 100Composition of the Unemployed 101"Frictional" Unemployment 104Improving the Operation of Labor Markets 106"Structural" Unemployment 107Federal Manpower Training 108Improving the Performance of Product Markets 113Strengthening Competition 113Resale Price Maintenance 115Restrictions on International Trade 116Regulatory Policies 116Direct Government Actions Affecting Supply 117Wage-Price Policies 119The Council's Wage-Price Guideposts 120Government Activities to Promote Guidepost Adherence. . 125Basic Problems for Wage-Price Policy in 1967 127A Wage-Price Policy for 1967 128CHAPTER 4. SELECTED USES OF ECONOMIC GROWTH 135Private and Public Goods 135Consumer Choice 136External Effects 136Income Maintenance 138Poverty and Work 138Income Maintenance and the Poor 139Toward Improved Income Maintenance for the Poor 142Social Security 142Education 143Value of Education 143Trends in Demand and Costs 146Health Care 149Demand for Medical Care 150Cost Factors 152Prospects for the Coming Decade 152Cities 153Elements of the Urban Problem 154Meeting the Cities' Problems 157Federal, State, and Local Fiscal Relations 161Taxation 161State and Local Fiscal Problem 162Categorical Federal Aid 16332

CHAPTER 4. SELECTED USES OF ECONOMIC GROWTH—Con.Federal, State, and Local Fiscal Relations—Continued PageGeneral Support Grants 165Credit for State Income Taxes 166Joint Revenue Collection 166Other Issues of Tax Coordination 166Conclusion 167CHAPTER 5. GROWTH AND BALANCE IN THE WORLD ECONOMY 170World Economic Growth in the 1960's 170Developed Countries 171Less Developed Countries 172Trade Policies 175U.S. Balance of Payments 177Recent Developments 179Prospects and Policies for 1967 185Balance of Payments Adjustment Policies 187Report on the Adjustment Process 187U.S. Adjustment Policies 188Adjustment Policies of Other Developed Countries 191International Monetary Reform 195APPENDIXES:A. Report to the President on the Activities of the Council ofEconomic Advisers During 1966 199B. Statistical Tables Relating to Income, Employment, andProduction 207List of Tables and ChartsTables1. Changes in Economic Activity Since 1961 392. Changes in Measures of Income Since 1961 423. Changes in Gross National Product During Two Periods SinceMid-1965 474. Net Funds Raised by Domestic Nonfinancial Sectors, 1961-66. 535. Relation of Two Measures of Federal Budget Surplus or Deficit,Calendar Year 1966 706. Changes in Wholesale and Consumer Prices, 1964-66 757. Changes in Wholesale Prices, December 1965 to December 1966. 778. Changes in Consumer Prices, 1960-66 779. Changes in Employment, by Industry, 1960-66 7910. Wage Changes in Major Collective Bargaining Situations,1961-66 8111. Changes in Average Hourly Earnings, by Industry, 1960-66.... 8212. Changes in Compensation, Productivity, and Unit LaborCost in the Private Economy Since 1947 8313. Manufacturing Capacity Utilization, 1965-66 9114. Changes in Consumer Prices for Services During 1966 9433

Tables15. Changes in Consumer Prices for Typical Labor-intensive PageServices Since 1959 9516. Unemployment Rates, by Major Occupation Groups, 1961and 1966 10217. Unemployment, by Age, Sex, and Color, 1966 10218. Training Opportunities, Fiscal Years 1966-67 10919. The Poor and Their Work Experience, 1965 13920. Number of Poor Households and Incidence of Poverty, 1959,1962, and 1965 14021. Costs of Formal Education, 1966-67 14422. Earnings of Males, by Years of School Completed and OtherCharacteristics, 1959 14423. The Nation's Health Budget, 1965 14924. Physician and Dental Visits Per Year, by Age and FamilyIncome, 1963-64 15125. Characteristics of Population by Area 15526. Federal and State and Local Government Receipts, by Source,National Income and Product Accounts, 1965 16227. Federal and State and Local Government Expenditures, byMajor Function, National Income and Product Accounts,1965 16228. Growth of Federal Aid to State and Local Governments, FiscalYears 1930-68 16329. Changes in Total and Per Capita Real GNP in OECD and LessDeveloped Countries Since 1955 . 17130. United States Balance of Payments, 1960-66 18131. United States Balance of Payments: Capital Transactions,1960-66 .* 183Charts1. Gross National Product, Actual and Potential, and UnemploymentRate 432. Selected Shares of Gross National Product 513. Investment and Gross Saving of Nonfinancial Corporations.. . 544. Selected Interest Rates 565. Interest Rate Differentials and Household Security Purchases. 576. Wholesale Prices 757. Consumer Prices 768. Employment in Durable Goods Manufacturing 809. Unit Labor Costs in Manufacturing Since 1948 8610. Farm and Food Prices 8811. Shares of Gross Corporate Income 9712. Unemployment Rates 10313. Educational Attainment 14734

ChartsPage14. Age Adjusted Death Rates 15015. Municipal Expenditures, Per Capita 15716. U.S. Balance of International Payments 18017. Interest Rates in Selected Countries 19435

Chapter 1Extending the Record of ProsperityTHE UNITED STATES in 1966 enjoyed the benefits of the fullest employmentin more than a decade. The unemployment rate reached a13-year low of 3.9 percent. At that level, demand finally matched supply inmost labor markets, a situation which economists define as essentially "fullemployment."Real incomes of all major groups registered sizable gains. Expansioncontinued for the sixth straight year. For the third successive year, growthexceeded 5}4 percent, a record unparalleled in our postwar experience.By any standard, then, 1966 was a big year for the economy. Gross nationalproduct (GNP) expanded by a record $58 billion in current pricesand reached $740 billion. As in the 2 preceding years, a major advance inbusiness fixed investment was a key expansionary force. And the risingrequirements of Vietnam ddded $10 billion to defense outlays. State andlocal spending and inventory investment also rose strongly.As a result, 1966 was in some respects too big a year, especially in the earlymonths. Spurred by the defense buildup, total demand—public andprivate— forged ahead at an extraordinarily rapid rate in late 1965 and early1966. Strains developed in financial markets. Demand outstripped supplyin several sectors which were already near full utilization. As Chapter 2explains, many of the new orders simply added to backlogs and put upwardpressures on prices. Some of the excess demands were met by imports, reducingthe U.S. foreign trade surplus and retarding progress toward equilibriumin the balance of payments, as Chapter 5 indicates.After years of stimulating demand, policy was called upon to restrainthe economy. The need for restraint was recognized at the start of theyear. Monetary policy assumed a restrictive stance. In anticipation oflarge increases in private expenditures and defense outlays, tax policieswere applied to curb private demand. In 1964 and 1965, an expansionarytax policy had stimulated the economy; but in March 1966, restrictive taxchanges were enacted at the President's request. Excise tax cuts werepostponed, and income tax payments were accelerated. Moreover, thePresident's budget program in January stringently held down nondefenseoutlays. These measures produced a Federal surplus in the national incomeaccounts budget and a net restrictive fiscal impact in the first half of1966, despite the strong advance in defense spending.37

But the magnitude of the task was not fully appreciated at the beginningof 1966. As private demand and Vietnam requirements exceeded forecasts,policy was adjusted to the new developments. Monetary policy tightenedfurther, causing a major cutback in homebuilding. In September, thePresident proposed additional selective fiscal measures to alleviate excessivedemands for funds and for capital goods.The initial restraining measures, reinforced by the previously enacted risein payroll taxes, began to take effect in the spring. By the closing months of1966, it was clear that the brakes had worked. The economy had shoulderedthe burden of active hostilities without the need for cumbersome andinefficient controls and without losing its basic health and stability. It wasshown that policy could work both ways; it could restrain the economy, muchas it had been able to provide stimulus during the preceding 5 years. Inparticular, the power of tight money as a tool of restraint—as well as itsuneven impact—was demonstrated beyond any reasonable doubt.As 1967 opens, inflationary forces set in motion during the period ofoverly rapid expansion are still alive, although their strength is waning.But now there is also a renewed challenge to sustain expansion; any furtherslowdown would be undesirable.A healthy advance of demand in pace with the growth of potential outputwould permit gradual restoration of price stability. It would also promotea recovery in our foreign trade balance, thereby aiding the pursuitof equilibrium in the balance of payments. The fiscal program for 1967is designed to meet these objectives and to assure that the easing of monetaryconditions, presently underway, can be extended.ACHIEVEMENTS OF AN EXPANDING ECONOMYLast year's record of economic gains added in length and strength to theremarkable uninterrupted expansion that began early in 1961 (Table 1).This advance can be viewed in many dimensions. Prosperity has conferredits benefits on nearly every sector, industry, and region in almost every year.EMPLOYMENT GAINSOf all its facets, the growth of employment may be of greatest significance.Increasing numbers of Americans have obtained opportunities to earnsecure livelihoods and to contribute to the material welfare of society.Employment in 1966Employment gains in 1966 were the largest of any year in the expansion.Civilian employment increased by 1.9 million, and 400,000 persons wereadded to the Armed Forces. The civilian unemployment rate fell from 4.6percent in 1965 to 3.9 percent in 1966, the lowest since 1953. During theyear, the seasonally adjusted rate remained essentially on a plateau, fluctuatingbetween 3.7 and 4.0 percent. The number of persons unemployed38

TABLE 1.—Changes in economic activity since 1961Percentage change per yearMeasure of economic activity1961to19661961to19621962to19631963to19641964to19651965to19661Production:Gross national product, constant prices 2Personal consumption expendituresBusiness fixed investmentResidential structuresGovernment purchases of goods and services..Federal ._State and localIndustrial productionPrices: GNP deflator_5.45.29.74.23.35.27.31.86.64.99.210 27.09.93.57.81.14.04.44.44 22.0-.85.55.11.35.35.810.6—.81.6-2.96.66.41.65.96.013.1—2.02.5(3) 5.48.41.85.44.911.2-10.88.010.95.09.03.0Employment:Total civilian employmentNonagricultural payroll employment2.23.41.82.91.42.02.22.92.64.22.65.11 Preliminary.2 Includes change in business inventories and net exports of goods and services, not shown separately.3 Less than .05 percent.Sources: Department of Commerce, Department of Labor, Board of Governors of the Federal ReserveSystem, and Council of Economic Advisers.dropped by 500,000 in 1966. Nearly all groups shared in the reduction,the only exceptions being nonwhite females in two age groups, 14-19 and 45years and over. Although employment in both of these groups expanded,the increase was not enough to keep pace with the rapid growth of thesegroups in the labor force.The expansion in the demand for labor extended to every nonagriculturalsector of the economy. The most remarkable gains were in manufacturingwhere the number of jobs rose 1 million from 1965 to 1966. Since mostmanufacturing employment consists of. high-productivity, high-wage jobs,the gain contributed to a major advance in real income. Employment intrade and services and State and local governments also expanded substantially,rising by about V/2 million workers in 1966.The mirror image of the rapid increase in nonagricultural jobs was a remarkabledecline of 400,000 in agricultural employment in 1966. Thisdecrease of 8J/4 percent was the largest percentage drop on record, as higherpayingnonfarm job opportunities attracted farmers and hired workers outof agriculture.Labor SupplyThe labor force expanded by 1.8 million workers last year, nearly 500,000more than demographic trends alone would have indicated. In particular,a larger fraction of women and teenagers participated in the labor force.Low unemployment encourages entry into the labor force. Some people,especially women and teenagers, who would be interested in working if jobswere plentiful, do not actively search for jobs when they believe none areavailable. At such times, these persons are considered neither as employed39

nor unemployed, and are not counted in the labor force. When job opportunitiesimprove, they enter the labor force, seeking and frequently findingjobs. The evidence of 1966 suggests that nearly 500,000 of "hiddenunemployed" or "discouraged workers" entered the labor force. Probably,additional workers, who did not respond fully to improved job opportunitieslast year, will enter the labor market if it remains buoyant.The Record Since 1961The number of unemployed today is about 2 million lower than 6 yearsago. Over the same period, nearly 9 million additional Americans havegained employment. Millions more moved into higher paying, more secure,and better jobs, and out of declining areas and low-wage industries. Thebenefits of full employment have extended far beyond the important gainsin real income and material welfare. By reducing poverty and hardship, theopportunities for productive employment have contributed to human dignityand self-esteem and to freedom of choice.The decline in unemployment in a vigorous and buoyant economy haschanged the diagnoses and the proposed remedies for our labor market problems.Allegations that a substantial fraction of the labor force lacks themotivation to work have been refuted by the facts. Proposals to cut unemploymentby artificially shortening the workweek, or by instituting practicesdeliberately designed to hold down productivity, are no longer seriouslyadvanced.The marked decline in unemployment in the past 6 years has been sharedby nearly all groups. In some instances, improvement has been dramatic.Only one-third as many Americans were unemployed for 15 consecutiveweeks or longer in 1966 as in 1961. Over the same period, the unemploymentrates for nonwhite adult males, blue collar workers, and married menfell by more than half.Many of the previously hard core depressed areas are no longer sufferingfrom high unemployment. In early 1961, 101 of the Nation's 150 majorlabor market areas were classified as areas of substantial unemployment, withrates in excess of 6 percent. Today, there are only 8 labor market areas inthat category. There are now 66 areas that have unemployment rates of lessthan 3 percent; for most of 1961, there were none.Of course, some groups have gained less than others. Unemploymentremains high among nonwhites, teenagers, and, especially among workerswith few skills and little training. As Chapter 3 indicates, inexperience,inadequate education, and racial discrimination unfortunately penalize thesegroups, placing their members at the end of all too many hiring lines.PRODUCTIVITYProductivity increases during the expansion have been excellent. Theslow growth in the number of adult male workers was often cited as a reasonfor expecting bottlenecks in the labor market and a sluggish productivity40

performance during the expansion. However, from 1961 to 1966, the averageannual growth of private output per man-hour was 3.5 percent, exceedingthe long-term trend of a little over 3 percent a year.One factor making for good productivity performance in recent years hasbeen the high level of business investment expenditures. As a result, capitalhas not been a bottleneck to the expansion of production and employmentin most areas and industries. Moreover, high investment rates have helpedto modernize the capital stock and thereby speed technological progress.In large part, however, the above-normal growth of productivity is typicalof economic recoveries. A slack economy does not make full use of itscapital stock or overhead labor. As activity expands, both are utilized moreefficiently and productivity increases. But this cannot go on indefinitely.In 1965 and 1966, average use of plant and equipment approached "preferred"rates, and overhead labor had to be expanded. As a result of thesefactors and need for major, rapid adjustments in the composition ofemployment, growth of productivity slowed in 1965 and 1966 to just under3 percent, slightly below the long-term trend.GAINS IN REAL INCOMEAdvances in employment and productivity have generated unprecedentedgains in the real income and the standard of living of the American people.Farmers, wage earners, businessmen, and professional workers have allshared in the impressive advance. Real disposable income per capita—thebest single measure of consumer welfare—has risen by 24 percent over thepast 6 years, matching the increase in the preceding 13 years.Gains have been particularly rapid in recent years. In 1964 and 1965,real disposable income per capita increased by 5 percent a year—the equivalentof more than 2 extra weekly paychecks annually. Despite the disturbingrise in consumer prices in 1966, real disposable income per capita continuedto grow strongly—by Z l /i percent. The higher incomes of 1966included a 12 percent increase in social insurance transfer payments,which aided some of the needier groups.Since 1961, there have been impressive advances in each type of incomeas well as in total income, as shown in Table 2. Through 1965, thegrowth of corporate profits outpaced GNP and most other types of income.In 1966, however, profits rose in line with GNP and less rapidly than employeecompensation.The full story of the welfare gains from economic expansion cannot beconveyed by any array of statistics. Other data—such as the rapid growthin the number of families owning durable goods and the greater percentageof families enjoying adequate diets and medical facilities—could be presentedto document various trends. But they all add up to the single story

TABLE 2.—Changes in measures of income since 1961Measure of income1961 1965 19661Billions of dollarsPercentage changeper year»1961to19661965to1966Compensation of employeesCorporate profits:Before taxes..After taxes302.650.327.2392.975.744.5433.381.848.17.410.212.110.38.18.1Disposable personal income:Current prices1958 pricesFarm income per farm:Current prices1966prices364.4350.73,3893,684469.1430.8Dollars4,4934,632505.3451.54,9554,9556.85.27.96.17.74.810.37.0» Preliminary.Sources: Department of Commerce, Department of Agriculture, and Council of Economic Advisers.that sustained prosperity means more comfort, more freedom, and moresecurity for the overwhelming majority of Americans.THE REALIZATION OF ECONOMIC POTENTIALA major economic accomplishment of 1966 is that the United States madeessentially full use of its productive potential. Gone were the chronic underutilizationof resources, general excess supply in labor markets, and wastefullyidle industrial capacity that had blemished the performance of the economyfor a decade. Because of the excessive unemployment and idle capital inprevious years, the Nation sacrificed the opportunity to consume and invest alarge amount of the output that it was capable of producing. At the troughof the recession in the first quarter of 1961, the "gap" between actual andpotential GNP amounted to $57 billion (1966 prices). From 1958 to 1965,the cumulative gap totaled $260 billion (Chart 1).Five years ago, when unemployment was 6 percent of the labor force, therewas clearly an excess supply of labor. Nobody could be sure where balancebetween supply and demand would be reached. The Council of EconomicAdvisers, among others, judged that an unemployment rate near 4 percentwould (with the existing structure of labor markets) yield approximate balancebetween the supply and demand for labor. Other experts argued,however, that the economy would run into substantial and significant laborbottlenecks when unemployment fell to 5 percent. Another group contendedoptimistically that a sufficient expansion of aggregate demand mightpush unemployment down as low as 3 percent without creating excess demandpressures. The experience of the past year provides a partial answer,suggesting that the 4 percent judgment was nearest to the mark. In 1966,42

Chart 1Gross National Product, Actual and Potential,and Unemployment RateBILLIONS OF DOLLARS* (ratio scale)700650GROSS NATIONAL PRODUCTIN 1958 PRICES600550500POTENTIAL-*/\FACTUAL*450400I I I I 1 1 I I I I1956 1958 I960 1962 1964 1966PERCENTPERCENT• 6NP GAP AS PERCENT OF POTENTIAL (Left scab)•—• UNEMPLOYMENT RATE-2/(Right scab)126^rffc\0-61956 1958 1960 1962 19641966•SEASONALLY ADJUSTED ANNUAL RATES.J/TREND LINE OF y/i% THROUGH MIDDLE OF 1955 TO 1962 IV, 3%% FROM 1962 IV TO 1965 IV, AND 4%*FROM 1965 IV TO 1966 IV.^UNEMPLOYMENT AS PERCENT OF CIVILIAN LABOR FORCE; SEASONALLY ADJUSTED.SOURCES: DEPARTMENT OF COMMERCE, DEPARTMENT OF LABOR, AND COUNCIL OF ECONOMICADVISERS.43

labor markets were generally in balance, although there were shortages ofcertain labor skills and a few remaining pockets of unemployment. Theareas of shortages seemed largely to reflect the speed of the economy'sadvance rather than the level of utilization attained. With the return ofa more moderate advance, those pressures have begun to subside.The economy caught up with its economic potential in 1966. But totaldemand must continue to rise to keep pace with a growing potential GNP.Indeed, primarily as a result of faster growth of the labor force, potentialoutput itself has been accelerating somewhat. From the mid-1950's intothe early 1960's, it advanced by about 3 J/2 percent a year. More recently,the rate of growth moved up to 3% percent a year; and at present, it seemsto be advancing at an annual rate of about 4 percent.The growth of potential stems from three principal determinants: therise in the labor force; changes in annual average hours worked per man;and the growth of average output per man-hour—that is, of productivity.Because of the low birth rates during the depression of the 1930's and WorldWar II, the working-age population expanded slowly in the 1950's. However,high postwar birth rates have recently led to accelerated growth ofthe labor force from 1*4 percent annually in earlier years to 1 ^4 percent.Under steady full employment conditions, longer vacations and shorterworkweeks would lead to an annual decline of about *4 percent in hoursworked per man, thereby reducing the growth in total man-hours to about15/2 percent a year.Labor productivity in the private economy has grown at a trend ratesomewhat over 3 percent a year during the postwar period. But, since themethod of measuring productivity of Government workers ignores anychange in their efficiency, the trend rate of increase in output per man-hourin the total economy is just over 2}4 percent a year. Thus, with GNP perman-hour advancing at that rate and total man-hours at about 1 Y /i percent,potential output advances at 4 percent.The Nation's economic potential may grow even more rapidly in thefuture if the trend advance of productivity quickens. Two recent developments,in particular, could speed the growth of productivity. First, thecurrent investment boom has led to a significant modernization of ourcapital stock. About one-third of manufacturing equipment in use todayis less than 3 years old, compared with one-fourth at the beginning of 1964.When much of our capital stock is new, the production process will incorporatemany of the latest technological advances. However, new investmentdoes not confer its productivity benefits immediately. Projects must firstbe completed and, even then, there are important start-up and break-incosts until new plant and equipment work smoothly. Hence, much of theproductivity bonus of the recent capital boom may still lie ahead. Second,the use of active manpower policies can make a significant contribution tothe improvement of the quality of the labor force, and thus to productivity.44

Manpower policies may also increase growth rates over the long run bylowering the level of unemployment consistent with price stability. In fact,significant further reductions in unemployment will depend primarily onmanpower programs, particularly those aimed at disadvantaged groups, asdiscussed in Chapter 3.The closing of the gap in 1966 was a great achievement. But it necessarilymeans that the 5J/2 percent rate of advance of real output registered in recentyears cannot be matched in the near future. That rapid expansion waspossible because idle resources were ready and able to make a productivecontribution. The growth of employment outpaced the expansion of thecivilian labor force; many new employees were put to work on previouslyidle or underused machines; improved utilization rates yielded a bonus ofextra gains in productivity. But now that full employment has beenessentially attained, output cannot continue to rise faster than productivecapacity.STRAINS AND RESTRAINT IN A SURGING ECONOMYThe major theme of recent economic developments is the continuationof progress. But there is also a secondary theme of problems and imbalances,many of which can be traced back to mid-1965, when the sudden increasein defense requirements for Vietnam led to a marked acceleration in economicactivity. By the time measures of fiscal and monetary restraint tookhold and slowed down the economy, significant problems had developed—aninterruption of price stability, a deterioration in international trade performance,acute pressures in financial markets, and sharply divergent movementsamong the various sectors of the economy.THE ECONOMY IN MID-1965As of mid-1965, the economy was advancing steadily and healthily towardfull employment. GNP had risen by $11 billion a quarter, on the average,for the preceding 2 years; the annual rate of real growth over that periodhad been 5}4 percent. Unemployment was down to 4^2 percent of thecivilian labor force, and the average operating rate of manufacturing capacitywas up to 89 percent. The price record showed few blemishes: averageconsumer prices in July 1965 were only 6 percent higher than they had beenin early 1961, and prices of nonfood commodities had risen by only 3 percent.Prices of manufactured finished products at wholesale had advanced by1 percent in 5 years.Expansionary fiscal policy had contributed actively to the record of 52months of advance. The reform of depreciation rules and the investmenttax credit, both initiated in 1962, encouraged business to expand andmodernize plant and equipment. Furthermore, as a result of these measuresand the much larger tax reductions granted by the Revenue Act of240-782 0—67- 45

1964, both corporate and individual income recipients were enjoying anaverage reduction of one-fifth in their tax liabilities. Monetary policy continuedto meet the credit needs of a brisk expansion and thereby contributedto the relative stability of long-term interest rates that was unusual for aperiod of rapid economic advance. Meanwhile, Federal spending on goodsand services was essentially level after mid-1962. As a share of the growingGNP, defense purchases fell steadily from 9.2 percent in 1962 to a post-Korean low of 7.3 percent by mid-1965. Defense spending was clearlynot the fuel that was propelling the economy toward full employment. Butneither was the decline in the defense share permitted to retard the growthof total demand; some economic stimulus was provided by spending on newFederal civilian programs, and major reductions in taxes encouraged privatespending.New stimulative policies were being prepared in the spring of 1965 tocomplete the advance to full employment. Congress enacted a major phasedreduction of excise taxes, in line with the President's proposals, and its firststage took effect in June 1965, cutting taxes by $1% billion (annual rate).A liberalization of social insurance benefits, designed to help the aged, wasenacted to take effect retroactively. The larger benefits were to be financedby a payroll tax increase at the beginning of 1966. Meanwhile, the liberalizationof benefits was expected to give the economy a significant stimulus inthe fall of 1965 when an anticipated liquidation of steel inventories mightotherwise have threatened a slowdown. The retroactive portion, which wasdisbursed in September, amounted to $900 million. Thereafter, annualbenefits were raised by about $2 billion.SPURT IN ECONOMIC ACTIVITYThe economic environment was significantly changed by the expansionof defense requirements. On July 28, 1965, the President requested additionalfunds for defense and indicated that further increases would berequired in January. Military outlays, at an annual rate, rose by nearly$2 billion a quarter in late 1965 and early 1966 (Table 3). Defense ordersexpanded very rapidly, spurring demands for labor and inventories bycontractors.Yet the defense buildup itself was not enough to account directly for theacceleration in the over-all economic advance. Rather, it reinforced thepreviously planned fiscal stimuli and the forward momentum of a strongeconomy close to full employment. Furthermore, the expansion of defensespending contributed to a significant change in the climate of opinion.The Vietnam buildup virtually assured American businessmen that no economicreverse would occur in the near future. The impact on businessattitudes was intensified by unwarranted fears that the Vietnam conflictmight have consequences like those of the Korean conflict: direct controls,excess profits taxes, and a huge jump in prices of raw materials.4e

TABLE 3.—Changes in gross national product during two periods since mid-1965[Billions of dollars, seasonally adjusted annual rates]Expenditure category1965 IIto1966 IChange1966 Ito1966 IV iGross national product _ _.Personal consumption expendituresDurable goodsNondurable goods _ __.Services_Gross private domestic investmentFixed investmentBusiness fixedinvestment 2Residential structuresChange in business inventories..Net exports of goods and servicesGovernment purchases of goods and servicesFederal.National defense.. _ _Other_State and local. _1 Preliminary.2 Nonresidential structures and producers' durable equipment.NOTE.—Detail will not necessarily add to total because of rounding.Sources: Department of Commerce and Council of Economic Advisers,___.48.328.85.912.510.410.89.69.1.51.3-2.210.76.35.5.94.437.918.8-.26.812.23.5-2.04.7-6.75.5-1.216.910.610.9-.46.3The increase in defense spending swelled an already strongly risingtide of business investment expenditures. From the second quarter of 1965to the first quarter of 1966, business spending for new structures and equipmentrose by $9 billion. Defense, investment, and social security liberalization,in combination, speeded the growth of disposable income. Consumerspending responded strongly, growing by $29 billion over this three-quarterinterval. All in all, GNP advanced at an average of $16 billion a quarter.Real output grew at a phenomenal annual rate of 7.2 percent, and industrialproduction rose at an annual rate of 9.7 percent.Unemployment fell from 4.7 percent to 3.8 percent of the civilian laborforce during this period. New orders for durable manufactured goods rosemarkedly (12 percent), with orders for electrical machinery (20 percent)and defense products (19 percent) increasing especially rapidly.The surge in demand for goods and labor created pressures on pricesin many areas. From October 1965 to July 1966, the annual rate of advancefor industrial wholesale prices stepped-up to 3 percent. Prices ofindustrial crude materials moved sharply upward—at an annual rate of 8percent from October to April. At the consumer level, demand pressuresraised prices of services and nonfood commodities and combined with specialsupply factors in agriculture to push up food prices. These price movementsand their consequences are discussed in detail in Chapter 2. All inall, the economy exceeded reasonable speed limits in the period from mid-1965 through the first quarter of 1966.47

MODERATION IN THE PACE OF ADVANCEAfter years of providing stimulus to the economy, policy changed directionat the turn of the year. Monetary policy accounted for a major shareof the restraint during most of 1966. As described in detail below, the{Federal Reserve restrained the growth of credit supply in the face of extremelystrong demands for borrowing by business. With intense competitionfor funds, interest rates rose sharply. Institutions which supply mortgagefunds to the homebuilding industry lost deposits both to the commercialbanks and to the market for new corporate securities. As a result,residential construction was starved for funds, and the sharp decline in thissector was one of the principal moderating influences during the secondhalf of 1966.Fiscal policy also responded effectively. Although the special defense costsnecessarily swelled Federal outlays and were highly stimulative, restrictiveactions were taken in other areas. Increases in nondefense purchaseswere held to $300 million from 1965 to 1966. Several restrictive tax measureswere proposed in January 1966, and were enacted in mid-March. Theseincluded a reinstatement of some of the earlier excise tax reduction, restoringabout $1 billion to the annual rate of Federal revenues; and a system of graduatedwithholding for individual income taxes that drew off $1J4 billion (annualrate) from disposable income beginning in May. These new measuresfollowed the $6 billion increase in payroll taxes that took effect at the start of1966. In addition, revenues were increased in the spring by unusually largepayments on 1965 income tax liabilities.The national income accounts budget for the Federal sector shifted froma deficit at an annual rate of $1^2 billion in the second half of 1965 to asurplus at an annual rate of $3 billion in the first half of 1966. (As explainedin the Appendix to this Chapter, Federal fiscal policy is discussed throughoutthis Report in terms of the national income accounts budget.)These monetary and fiscal actions helped to bring the rate of over-alleconomic expansion in line with the growth of capacity. After the firstquarter of 1966, gains in GNP slowed to an average of $12^2 billion aquarter, no longer outstripping the growth of potential GNP. The unemploymentrate leveled off, as employment gains essentially matched thegrowth of the labor force. Manufacturing output actually rose less thanthe growth of manufacturing capacity, and average operating rates at yearendwere below the 91 percent that had been reached in the first quarter.The change of pace was first clearly noticeable in the spring. Fiscalrestraint appreciably slowed the growth of disposable income in the secondquarter and contributed to a marked slowdown in consumer spending.During the summer, consumer demand perked up again. But homebuilding,which had declined moderately in the second quarter, was hit hard bythe shortage of mortgage financing and took a sharp plunge, holding downthe increase in economic activity.4s

Business demand for capital goods, on the other hand, continued to expandrapidly during the spring and summer. Although tight money, risingcosts of machinery and construction, declining prices of common stock, andappeals for voluntary restraint had moderating effects in particular firmsand industries, total business investment forged ahead. In August, boththe Commerce-SEC anticipations survey and the National Industrial ConferenceBoard appropriations survey confirmed the vigor of the capital boom.Commercial construction was the only type of business investment thatshowed weakness; it was restrained by the shortage of mortgage funds.The capital boom, in fact, was proving too vigorous. In view of thegrowing backlogs of orders, shortages of certain types of skilled labor, risingprices in capital goods industries, and acute pressures of business credit demandson financial markets, there was a clear need to moderate investmentdemand. On September 8, the President asked Congress to suspend,until January 1, 1968, the 7 percent tax credit on investment in machineryand equipment and accelerated depreciation provisions on new buildings.At the same time, he initiated a program to reduce nondefensespending.The Commerce-SEC survey in November showed that only moderatefurther increases in plant and equipment spending were planned throughthe second quarter of 1967. It also revealed that the actual increase incapital outlays in the third quarter was somewhat smaller than the plannedadvance reported in August; this was the first downward revision of plansin 3 years. The results of the survey no doubt reflected several factors, includingthe moderation of economic expansion, the financial pressures onbusiness, and the suspension of the investment tax incentives. Even thoughorders for machinery and equipment continued to outrun shipments throughDecember, there were favorable prospects that the pressures of excess demandon capital goods industries would be lessened in the months ahead.RETROSPECTDespite the moderation after the first quarter, expansion for 1966 wasmore rapid than virtually anyone expected at the outset. At the time itwas presented last January, the Council's forecast that GNP in 1966 wouldrise strongly by $46^4 billion was somewhat above the typical forecast ofprivate economists. Yet it turned out to be $12 billion too low. In part, theunderestimate reflected the difference between the predicted real growthof nearly 5 percent and the actual rate of 5*4 percent. In addition, theover-all price deflator rose by 3 percent—about 1 percentage point morethan projected.The primary sources of the underestimate were in Federal defense purchasesand business fixed investment. While both had been expected tobe key sources of strength, they were even stronger than anticipated. Asthe prospective duration of Vietnam hostilities and the intensity of our militarycommitment exceeded those assumed in the budget, Federal spending49

for defense in the calendar year ran above last January's estimate by $4billion. Spurred in part by defense outlays, expenditures on plant andequipment topped the Council's expectations by $2 billion to $3 billion. Stateand local purchases and inventory investment also were above the projections,while homebuilding and net exports fell below the estimates.As it became clear that public and private demand was exceedingexpectations, the desirability of further increases in taxes came under publicdiscussion. Continuing and careful consideration of this issue within theAdministration, sharpened by the increasing strain on financial markets, ledto the fiscal program of September 8. In retrospect it is clear that, afterMarch, monetary and fiscal policy in combination provided adequate totalrestraint. It may be debated whether a better balance of demands andpolicies would have been achieved if a program of additional fiscal restrainthad been undertaken earlier in order to relieve the pressure on monetarypolicy. It may also be argued that the capital boom could have been cooledoff sooner if the investment tax credit had been suspended earlier in theyear. The question of whether a different timing or different magnitudeof fiscal actions might have produced a more favorable balance in 1966 willlong interest and challenge analysts of economic policy. But the main lessonis clear from the record: economic policy was used effectively to restrainthe economy during 1966, much as it had been used during the preceding5 years to stimulate demand.THE PATTERN OF OUTPUTIn contrast to the reassuring balance of the expansion from 1961 to 1965,the advance in 1966 was uncomfortably uneven among sectors. The natureof these imbalances is illustrated by Chart 2, which shows the shares ofGNP absorbed by various types of expenditures since 1954.It is striking that the portion of GNP devoted to Federal purchases in1966 was much the same as in earlier years. Indeed, despite the sharpgrowth of defense outlays, Federal expenditures represented a smaller shareof national product than in any other post-Korean year except 1964 and1965. The share of defense purchases was 8.1 percent, also lower than inany year from 1954 to 1963. State and local government purchases continuedtheir secular rise as a share of GNP.The share of private domestic and foreign investment in 1966, 16 percentof GNP, was quite typical for a full-employment year. Private investmentexceeded private saving at full employment, leaving room for moderatesurpluses in government budgets (national income accounts basis).UNEVEN SHARES IN INVESTMENTAlthough the share of investment in GNP was normal, the pattern of themajor investment components was unusual when compared with other post-50

Chart 2Selected Shares of Gross National ProductPERCENT OFGNPDOMESTIC INVESTMENTGOVERNMENT PURCHASESAND NET EXPORTS1412BUSINESS FIXEDINVESTMENTXFEDERAL PURCHASESSTATE AND LOCALPURCHASESRESIDENTIAL STRUCTURESCHANGE INBUSINESSINVENTORIESNET EXPORTS-21954 56 58 60 62 64SOURCE: DEPARTMENT OF COMMERCE.I I I I66 1954 56 58 60 62 64 66Korean years. Business fixed investment was at a record high of 10.7 percentof GNP, surpassing its previous peak of 10.5 percent in 1957 and considerablyabove its post-Korean average of 9.8 percent. Because of thescarcity of mortgage funds, housing starts fell steadily from an average of1.5 million units in the first quarter of the year to 1.0 million in the fourth;at 3.5 percent, the share of residential construction was at a post-Korean low.Inventory investment, at 1.5 percent, matched its previous post-Korean highof 1955. Excess demand at home generated a spurt in demand for goodsfrom abroad, pulling down the share of net exports to the lowest level since1959.

The record share of business fixed investment in 1966 occurred despite theneed for a much greater volume of external financing at unusually highborrowing costs. Incentives to invest were provided by a continuation ofthe forces that had spurred business to expand and modernize facilities in1964 and 1965: growing sales, orders, and profits, and high operating rates.These were further strengthened by the rise in defense spending.INVENTORY INVESTMENTA high rate of inventory investment in relation to GNP during 1966 reflectedmany of the same factors that stimulated business fixed investment.Inventory-sales ratios generally crept up after years of stability or decline.Nonfarm stocks expanded by 8 percent over the year, considerably abovethe rate of growth of real output or sales. Inventories rose especiallyrapidly in durable goods manufacturing; these stocks grew by nearly $7 billionduring the first 11 months of 1966. Within durables, goods-in-processinventories rose by about $4 billion over the period, reflecting, in part, thebuild-up of defense and business equipment in the pipeline.The long production times that are essential for many durable goods werelargely responsible for the growth of stocks of goods-in-process. From thetime a company begins to build an airplane or a machine, it may take 6months or a year to produce a finished good and complete a shipment.While the piece of equipment is being fabricated, the value of the completedportion shows up in inventories of goods-in-process. Thus, if orders risesharply for items with long production times, inventories grow; the ratioof inventories to shipments also tends to increase until shipments can catchup.In late 1965 and in 1966, orders for business equipment and defense hardgoodsrose sharply, and shipments did not keep pace. The economic impactof this step-up in orders was not fully reflected in Government purchases orin business fixed investment; some of it showed up as inventory investment.The impact of defense orders on inventories cannot be quantified precisely.But it can be estimated by two approaches: one uses data on progress paymentsmade by the Department of Defense, and the other rests mainly onthe statistics of defense-oriented industries. Both approaches suggest that,from the beginning of the fourth quarter of 1965 through the third quarterof 1966, defense contractors and their suppliers added about $2 billion totheir stocks as a result of defense orders.MONEY AND CREDITThe composition of output and the pace of advance last year were muchinfluenced by financial and credit developments. In 1966, monetary policymoved to the center of the stage. Previously, it had played a significantrole in support of an active fiscal policy to stimulate economic expansion.52

PROMOTING EXPANSION, 1961 TO 1965From 1961 through 1965, Federal Reserve policy permitted a sufficientexpansion of credit to accommodate expanding demands for funds at onlymoderately rising interest rates. As in any period of economic advance,greatly increased credit was demanded by consumers to purchase homes anddurable goods, businesses to finance investment in plant and equipment andinventories, and State and local authorities to support their expenditures.In 1965, the net flow of new credit to these groups was $66 billion—nearlydouble the amount in 1961 (Table 4).The pattern of credit flows had several outstanding characteristics. Thevolume of corporate security issues actually declined; with the very rapidgrowth of corporate profits, internal funds nearly kept pace with the expansionof business investment until mid-1965 (Chart 3). Also, thevolume of security issues was held down by the ready availability of bankloans to business.The share of commercial banks in total lending rose by nearly one-thirdfrom 1961 to 1965, while the share of thrift institutions (savings and loanassociations and mutual savings banks) declined by nearly one-third. Followinga series of upward adjustments by regulatory authorities in the maximuminterest rates allowed on time and savings deposits, commercial bankscompeted aggressively for time deposits and acquired funds to meet growingdemands for loans. They developed and made effective use of some newfinancial instruments, especially the negotiable certificate of deposit (CD).Because these certificates, unlike ordinary time deposits, can be readilysold, holders can earn interest on idle deposits without sacrificing liquidity.These innovations helped to hold down long-term interest rates in the face ofTABLE 4.—Net funds raised by domestic nonfinancial sectors, 1961-66Type of credit1961[Billions of dollars]1962196319641965Total i1966FirsthalfSecondhalf*Private domestic nonfinancial sectorsConsumer creditBank loans 2State and local obligationsCorporate securitiesHome mortgages 8Other*U.S. Government33.91.72.24.97.111.46.77.744.25.54.85.05.113.010.97.950.27.35.46.73.615.212.05.055.68.06.55.95.415.714.27.066.09.413.67.45.416.014.23.558.77.07.45.710.912.315.47.4Seasonally adjustedannualrates70.07.811.46.413.614.416.19.047.86.23.75.18.210.214.65.81 Preliminary estimates.2 Bank loans not elsewhere classified.3 Mortgages on 1- to 4-family homes.4 Acceptances, commercial and finance company paper, U.S. Government loans, and mortgages on multifamilydwellings and on farm and commercial land and buildings.Source: Board of Governors of the Federal Reserve System.53

Chart 3BILLIONS OF DOLLARS80Investment and Gross Saving ofNonfinancial CorporationsSEASONALLY ADJUSTED ANNUAL RATES60~ ~ CROSS JAVWG2/ni i i 1 1 i i 1 1 i i 1 1 i i 1 1 i i 1 1 i i r1961 1962 1963 1964 1965 1966J/FIXED INVESTMENT PLUS CHANGE IN INVENTORIES.2/CORPORATE PROFITS AND INVENTORY VALUATION ADJUSTMENT, LESS PROFITS TAX ACCRUALS ANDDIVIDEND PAYMENTS, PLUS CAPITAL CONSUMPTION ALLOWANCES,SOURCE: BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM.growing credit demands, and supported continued expansion of economicactivity.SHIFT TO RESTRAINTConditions changed dramatically in the closing months of 1965. Therapid rise of business investment far exceeded the growth of corporatecash flow. This widening gap, shown in Chart 3, was the major drivingforce behind the rising demand for credit that continued into the firsthalf of 1966. Given the intensity of this demand, monetary policy couldhave prevented an increase in interest rates and a tightening of credit availabilityonly by creating bank reserves at an extremely rapid rate. Such apolicy would have contributed to inflation by removing financial limitationson the surging demands for goods and services. Under the circumstances,it was desirable to curb the growth of credit. The appropriate degree ofrestraint had to take into account the volume of pressure on financial54

markets and the magnitude of the upward movement in interest rates thatcould be tolerated.In December 1965, the Federal Reserve signaled the forthcoming tighteningof monetary policy by increasing the discount rate from 4 percent to4J4 percent. At the same time, the maximum allowable interest rate ontime deposits of commercial banks was raised from 4^4 to 5}4 percent.During the first half of 1966, business demands for credit rose rapidly. Suppliesof credit did not keep pace, as the Federal Reserve held the expansionin bank reserves somewhat below that of 1965, when credit demands wererising less strongly.In order to maintain the good will of valued business customers, banksmade every effort to satisfy the mounting demands for business loans. Theyobtained additional loanable funds by increasing their borrowings from theFederal Reserve, reducing their investments in securities, bringing backfunds from their foreign branches, and attracting additional time depositsthrough higher interest rates. As a result, they were able to expand businessloans at an annual rate of about 20 percent in the first half of 1966, even morerapidly than the 18 percent increase in 1965.Corporate demands for credit were so strong that even this extraordinaryincrease in bank lending provided less than half of the external fundsraised by corporations. To finance their investment expenditures, firms beganto issue large amounts of new securities. Sales of securities by theGovernment, particularly Government agencies, were also large duringthis period.The large volume of corporate and Government securities could be soldonly at much higher yields. After November 1965 interest rates on highgradesecurities increased sharply (Chart 4). As in the past, the rise inmarket yields, relative to the rates paid on deposits, permitted security issuesto absorb a larger proportion of total household lending (Chart 5). As inother periods of tight money and rising security yields, funds deposited infinancial institutions declined relative to funds provided directly to thesecurity markets.COMPETITION AMONG FINANCIAL INSTITUTIONSCommercial banks competed strongly and rather successfully to holdtheir own as the total flow of funds into depository institutions declined.By raising yields on CD's, the banks attracted corporate time deposits inlarge volume. In addition, through the expanded use of savings certificatesand other types of nonnegotiable certificates of deposit, they inducedan increasing flow of household time deposits.The impact of the increased direct flow of savings to security marketsfell heavily on the thrift institutions. Thrift institutions continued to receivethe deposits of the steady savers who represent a major part of their clientele.55

Chart 4PERCENT8Selected Interest Rates- J^CONVENTIONAL MORTGAGESON HOMESV m —^ ^ ••••» •" «^ ^ mmm ^ «.* *PRIME BANKRATE\ CORPORATE Aao BONDS(New Issues)/ V3-MONTH TREASURY BILLS(New Issues)I lilt . I; 1 I , . 1 . • l u l l . 1 , ,1 • I I Ml, , I.H1959 1960 1961 1962 1963 1964 1965 1966Jl/NEW AND EXISTING HOMES THROUGH 1960 I, AND NEW HOMES ONLY THEREAFTER.NOTE.-DATA PLOTTED ARE QUARTERLY THROUGH 1963, MONTHLY THEREAFTER.SOURCES: FEDERAL HOUSING ADMINISTRATION, BOARD OF GOVERNORS OF THE FEDERAL RESERVESYSTEM, MOODY'S INVESTORS SERVICE, AND TREASURY DEPARTMENTIndeed, the gross inflow to savings and loan associations actually was largerin 1966 than in 1965. But, funds of interest-sensitive depositors (so-called"hot money") were withdrawn and invested in higher-yielding securities.These withdrawals dominated the net inflow. By mid-1966, the net inflowhad fallen to a rate less than one-fourth that of 1965.Unlike banks, thrift institutions were unable to prevent withdrawals effectivelyby raising interest rates paid on deposits. Because the portfolios ofthese institutions were invested primarily in mortgages (assets with a fixedyield and a very slow turnover), they had relatively little flexibility in adjustingthe rates paid on ordinary deposits. Nor have thrift institutions madeeffective use of special savings certificates, which—like bank CD's—offer

Chart 5PERCENTAGE POINTSInterest Rate Differentials and HouseholdSecurity PurchasesPERCENT2.00 | 11001.50EXCESS OF. CORPORATE Aaa RATE OVERTIME AND SAVINGS RATE-U(Left scale)751.0050.5025-50HOUSEHOLD INVESTMENT IN SECURITIES ASPERCENT OF TOTAL HOUSEHOLD GROSSFINANCIAL. INVESTMENT(Right scale)I I I I I I I I I I I I-251952 1954 1956 1958 1960 1962 1964 1966-^EXCESS OF CORPORATE Aaa BOND RATE (NEW ISSUES) OVER WEIGHTED AVERAGE OF INTERESTRATES PAID ON TIME AND SAVINGS DEPOSITS AND SHARE ACCOUNTS AT COMMERCIAL BANKSAND SAVINGS INSTITUTIONS.SOURCES: BOARD. OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM, FEDERAL DEPOSITINSURANCE CORPORATION, FEDERAL HOME LOAN BANK BOARD, AND COUNCIL OFECONOMIC ADVISERS.higher interest rates marginally without increasing the yield to all depositors.If they had tried to remain competitive with banks by raising the rates paidon all deposits, their expenses would have risen much more rapidly thantheir income.With a greatly reduced inflow of funds, thrift institutions had to curtailmortgage lending sharply in 1966. Net acquisitions of residential mortgagesdecreased by 25 percent in the first two quarters of 1966. This reductionoccurred despite significant Government aid: the Federal National MortgageAssociation purchased nearly $4/ 2 billion of mortgages (annual rate) duringthe period, and the Home Loan Banks provided funds to offset deposit lossesof savings and loan associations. In the third quarter, only $9.4 billion (annualrate) went into residential mortgages—more than 40 percent below theamount provided a year earlier. The net flow into home mortgages fromsavings and loan associations was virtually zero. The result of all this wasthe marked decline in residential construction described earlier.57

In the first half of the year, Federal Reserve policy restrained bank lendingonly moderately but placed other financial institutions under severe pressure.If monetary policy had been applied more restrictively to banks byproviding a smaller increase in reserves through open market operations,banks would have sold more securties and bid more aggressively for timedeposits. In that event, pressure on thrift institutions would have been evenmore extreme than it was in fact. In view of this, monetary policy wastempered by the intense competition among financial institutions.ACTIONS TO REDUCE FINANCIAL PRESSURESThe Federal Reserve acted after midyear to curb this intense competition.In July, interest rate ceilings were lowered on selected types of time deposits,and reserve requirements on time deposits were raised.Banks were also put under pressure during the summer as market interestrates rose further and those on CD's moved up to the permissible 5^ percentceiling, curtailing the ability of banks to retain corporate time deposits.Meanwhile the Federal Reserve tightened its open market operations, reducingnonborrowed reserves by $300 million between July and August. Interestrates rose sharply and, by late August, all sectors of the financial marketswere under severe pressure. Banks, faced with a declining reserve baseand unable to obtain corporate funds through CD's, were obliged to slowdown their lending. Thrift institutions, fearing a loss of funds, sharply curtailednew mortgage commitments.In September, the Administration, the Congress, and financial regulatoryagencies all took actions to improve the balance of demands for bothfunds and goods.The Federal Reserve, on September 1, asked member banks to cooperatein moderating the rate of lending to business and spelled out its own currentpolicies regarding lending to member banks. Banks that cooperated in holdingdown business loan commitments and refrained from liquidating securitieswould be permitted to borrow funds from the Federal Reserve forsomewhat longer periods than usual, while making necessary adjustments.The Federal Reserve further increased the reserve requirement on timedeposits.The President's proposal for temporary suspension of tax incentives toinvestment was designed to reduce corporate demands for long-term funds.The Administration also buoyed financial markets by indicating that Federalagencies would hold down stringently their issues of securities in thefinancial markets, even for purposes of refunding maturing issues.On September 21, the President signed a bill allowing Federal regulatoryauthorities to impose new interest rate ceilings on time and savings accounts.In order to restrain excessive rate competition among different types offinancial institutions, the agencies involved announced new interest rateregulations on the same day that the bill was signed.58

The interest rate that commercial banks were permitted to pay on depositsof less than $100,000 was reduced from 5 J4 percent to 5 percent. A 5 percentinterest rate ceiling was also imposed on the deposits of mutual savingsbanks. Because the rates paid by savings and loan associations varied widelyamong different parts of the country, the regulations governing these institutionswere considerably more complicated, but in general the ceilings wereset somewhat above the comparable ones for commercial banks.The flow of funds into mortgages was also supported by another piece oflegislation signed the same month, which increased the lending ability of theFederal National Mortgage Association by a total of $4.8 billion.These various actions reflected widespread concern over the uneven impactof monetary policy actions and changing credit demands on differentsectors of the market.SIGNS OF RELAXATIONSince September, financial conditions have improved considerably. Themoderation in the pace of economic activity began to be reflected in lessintense demands for credit. As inflationary pressures abated, monetarypolicy responded promptly to the changing economic climate, and nonborrowedreserves resumed their growth in November and December.Moreover, the Federal Reserve in late December rescinded the Septemberletter requesting banks to restrict business loans.After touching in late August and early September the highest levels inmore than 40 years, interest rates fell steadily. By the end of the year,most major interest rates on securities were appreciably below their earlierpeaks. The Treasury bill rate fell to about 4% percent, from more than5 J/2 percent in September. Rates on new issues of high grade corporate andmunicipal bonds declined by about one-half percentage point.The reduction in market interest rates and in the ceilings on rates ofdepository institutions has begun to restore balance among financial intermediaries.Mutual savings banks gained deposits at an annual rate ofmore than 6}4 percent in the latter part of 1966. Savings and loan associationstook longer to recover, but by December there was definite improvement.In the first 11 months of 1966, the net inflow of funds was 72 percentbelow a year earlier. In December, however, a substantial net inflow of$1.7 billion exceeded that of December 1965.Commercial bank credit fell from August to October, bottomed out inNovember; in December it rebounded at an annual rate of 9 percent, returningto its August level. However, bank lending continued to be conservativeat year end, as many banks felt a need to rebuild their liquidityposition before expanding their loan commitments.As a result of the moderation in economic activity and the flexible responseof monetary policy, a welcome movement toward easier monetaryconditions began to emerge as 1966 closed.59

EVALUATION OF MONETARY RESTRAINTThe credit squeeze of 1966 had an impressive and beneficial restrainingeffect on over-all demand. Its side effects were equally impressive but farless beneficial.These side effects explain in part why relaxation of credit conditions isand has been an objective of policy. The cause of equity was not served bythe arbitrary redistribution of income produced by very high interest rates orby the adversity experienced in the homebuilding industry. Moreover, thestability of financial markets was at times endangered. While the insuranceof deposits and the powers of "lenders of last resort" gave full protectionagainst any recurrence of the financial panics experienced in previous generations,the liquidity of portfolios was impaired by rapidly rising interest rates.Last August, monetary policy was probably as tight as it could get withoutrisking financial disorder. Any further increase in over-all demand couldnot have been effectively countered by general monetary policy. In sucha situation, the flexibility of over-all stabilization policy is impaired. It isdesirable for both fiscal and monetary policies to be operating from positionswhere they can move freely either way—toward stimulus or restraint in theevent of unanticipated developments.The main effect of tight money on over-all activity worked primarilythrough the mortgage market, curtailing homebuilding and other mortgagefinancedconstruction. In December, expenditures for residential structureswere $7 billion (annual rate) below the first quarter level. Homebuildinghad been on a plateau during most of 1965 and was risingmoderately at the start of 1966. Demand conditions for housing lookedfairly encouraging as excess supplies of new housing (especially apartments)that had earlier appeared in certain areas were reduced moderately during1965. In the absence of tight money, residential construction might haverisen slightly further or retreated modestly during the course of 1966; thedecline that actually occurred is a reasonable estimate of the impact of thechange in credit conditions. By similar reasoning, the performance of commercialand other mortgage-financed types of construction suggests an impactof perhaps $1 billion or more. Monetary restraint probably also had somemodest effect on expenditures for producers' durable equipment and consumerdurables, but the amount is not evident in aggregate data.All in all, it seems reasonable—perhaps even conservative—to estimatethat credit-financed expenditures may have been held down directly byas much as $8 billion at year-end as a result of tight money, compared withwhat would have happened had monetary policies continued supportive,as during 1964 and most of 1965. This direct impact of $8 billion onGNP is roughly as great as the estimated direct impact from a 10 percent surchargeon personal and corporate tax liabilities. (By restraining incomes,both tax increases and tight money have further indirect "multiplier" effectson GNP.) Thus, when monetary restraint is taken into account, it becomes6o

clear that the combined impact of monetary and fiscal policy was markedlyrestrictive.PROSPECTS AND POLICIES FOR 1967As 1967 begins, over-all demand is reflecting the restraint of last year'smonetary and tax actions. Excessive demand is not now a serious threat.The economy's advance is being stimulated by a continuing rise in Federaldefense and State and local purchases. In the private sector, significantincreases should be registered in consumption. Modest advances are indicatedfor business fixed investment and for net exports, which reversed along decline in the fourth quarter of 1966.Data on housing starts and permits for the closing months of 1966 provideencouraging, although not conclusive, evidence that homebuilding activityhas touched bottom. But the recovery of homebuilding will take considerabletime, and the effects of last year's monetary restraint will still befelt for many months. Interest rates on securities have declined; but revitalizedflowsof funds into banks and thrift institutions have just begun. Financialinstitutions are relaxing their lending policies only gradually as theyrebuild liquidity. Interest rates on bank loans and mortgages have not yetreflected the easing in financial markets. Finally, construction expenditureswill take place only after contracts are placed and work is initiated.Inventory investment is bound to be considerably below the unusually highrate in the closing months of 1966. The rate of accumulation in the fourthquarter was about double that required to keep stocks advancing in pacewith the trend growth of sales. As in the earlier months of 1966, much ofthe latest advance in inventories seems to have taken place in goods-inprocessheld by industries producing defense and business equipment; thebuildup may continue but probably at a diminished rate.Thus, the economy faces a transition to a lower rate of investment ininventories. The strength elsewhere in the economy offers important evidencethat the inventory adjustment need not cumulate into an excessiveslowdown of activity. The over-all assessment does suggest, however, thatprivate demand is not likely to be particularly buoyant in the first half of1967 and that a stimulative stabilization policy is appropriate to supportsteady expansion during this period.FISCAL PROGRAM FOR 1967The budget will be appropriately stimulative in the first half of 1967.The annual rate of deficit (national income accounts basis) is expected to bemore than $5 billion, compared with a $2/ 2 billion deficit rate in the secondhalf of 1966. Although nondefense spending has been held down, both thespecial costs of Vietnam and further increases in transfer payments forMedicare will add substantially to Federal outlays. Revenues will continue240-782 O—67^—56i

their normal growth in the first half of 1967; but, unlike 1966, no significantnet changes in tax payments will result from recent legislation. An increasein payroll taxes of $l*/2 billion (annual rate), which went into effect at thebeginning of 1967, will be nearly offset by the effect of the system ofgraduated withholding on income tax collections. As a result of thissystem, which was instituted last May, an additional $1 billion in personaltaxes was collected during 1966. Reflecting this, net final paymentsthis spring on personal tax liabilities for 1966 are expected to be correspondinglysmaller.By midyear, construction should be recovering with the stimulus of monetaryease; and inventory investment should be leveling off at a moderaterate. In combination, these two sectors should significantly strengthenover-all private demand. A shift toward restraint in fiscal policy is appropriateat that time to assure that demand does not outrun capacity, thatmovement toward restoration of price stability is maintained, and thatmonetary policy does not have to be tightened again.In line with this set of aims, the President is asking the Congress to enact,as of midyear, a 6 percent surcharge on personal and corporate income taxliabilities with an exemption for low-income families. The tax will remainin effect for 2 years or as long as the unusual special Vietnam costs continue.The form of this proposed temporary tax increase parallels the conclusionof the Subcommittee on Fiscal Policy of the Joint Economic Committeethat "... a uniform percentage addition to ... corporate and personalincome tax liabilities . . ., to be effective for a stated period, best satisfiescriteria for shortrun stabilizing revenue changes." Once fully in effect, thesurcharge will drain off an estimated $5.8 billion (annual rate) of privateincomes—$3.9 billion from individuals and $1.9 billion from corporations.On the expenditure side, defense purchases will continue to rise butat a diminishing rate during the course of the year. Transfer paymentsin the second half of 1967 will exceed the rate in the first half by $4j/ibillion, reflecting primarily the proposed increase in Social Security benefits.The President is requesting benefit liberalization amounting to $4 billion(annual rate) to begin by midyear, to support the needs of the elderly.The liberalization will be followed by an increase in the payroll tax base atthe beginning of 1968. Reflecting the income tax surcharge, normal revenuegrowth, and increased expenditures, the rate of budget deficit will bereduced to about $3 billion in the second half of the year, and the budgetis expected to be approximately in balance in the first half of 1968.ECONOMIC OUTLOOKWith Congressional enactment of the President's key fiscal proposals,GNP for 1967 is expected to reach $787 billion, given the $740 billionnow estimated for 1966. In the nature of economic forecasting, the projectedadvance of $47 billion must be viewed as the midpoint of a rangeof possible outcomes, rather than a precise estimate.62

Like any quantitative forecast, the estimated rise of $47 billion is meantto convey important qualitative judgments. The advance will be considerablyless rapid than the record increase of $58 billion in GNP in 1966.Healthy forward motion will nevertheless be maintained. Real outputshould expand nearly in line with the 4 percent growth of potential. As explainedin Chapter 2, the price record should improve; over-all prices mayincrease slightly more than 2 l /% percent. Finally and most important, theNation should continue to experience substantially full employment in 1967.The unemployment rate should be essentially the same as in 1966, when itaveraged 3.9 percent. After allowance for an increase of more than 300,000in the Armed Forces, the civilian labor force should expand by about 1J4million, and civilian employment should approximately keep pace.Outlook by SectorsA more balanced composition of output is expected in 1967, reflectingthe aims and effects of policy. Neither business fixed investment nor inventoryinvestment will, or should, be strong stimulating forces. On theother hand, housing should gain as the year develops, and defense outlayswill continue to provide economic stimulus.Business Fixed Investment. After increasing by an average of 13^2percent annually over the past 3 years, business fixed investment shouldexpand much more slowly in 1967. Evidence of this is already providedin the November survey of intentions for plant and equipment spending.Investment should increase only slightly from its level in the fourth quarterof 1966, and should show a rise of about $3 billion from 1966 to 1967. Thispace would be a welcome respite, permitting pressures on capital goods industriesto abate. The ratio of business investment to GNP should declineslowly to a more sustainable level near 10*4 percent by year end.Business Inventories. Inventory investment was at a record high lastyear, partly because of the rise in goods-in-process stocks of industriesproducing business and defense equipment. Any further buildup of thesestocks will be small. Stocks in most areas are expected to rise in line withsteady and moderate advances in sales. Inventory investment for 1967 maybe about half the $11 J/a billion rate experienced in 1966. Most of the declineto a sustainable rate should occur in the first half of the year, with a levelingoff thereafter.Homebuilding. As monetary policy continues to ease, housing startsshould begin to rise above their current depressed level. Additional helpshould come from actions of the Federal Home Loan Bank Board(FHLBB) and the Federal National Mortgage Association (FNMA).Because of the lag between mortgage commitments and construction expenditures,activity should begin to increase very gradually in the first halfof the year and gain considerable momentum in the latter part. Demo-

graphic factors and low vacancy rates point to latent strength in homebuilding,which should become evident during the course of 1967.Residential construction expenditures are expected to increase by about$5 billion to $6 billion from the fourth quarter of 1966 to the fourth quarterof 1967. Even so, for the year as a whole, they would still be about $1billion below the 1966 average.Government. State and local government purchases, which grew by 10percent, or $7 billion in 1966, should expand in 1967 by about $8 billion inresponse to growing needs and strongly increasing revenues. The increasein Federal purchases from 1966 to 1967 is expected to be $12 billion, mostlyfor defense. But the rate of advance will taper off during the course ofthe year.Net Exports. As the growth of imports moderates and exports showstrength, net exports should expand throughout the year, rising about $1billion from 1966 to 1967.Consumption. The fiscal program for 1967 will have a direct impact onafter-tax incomes of households and thus on their consumption outlays. Thegrowth in transfer payments will increase disposable income, while the proposedsurtax on individual incomes and the payroll tax that just took effectwill restrain it. The more moderate growth expected in employment andthe net effect of these policy measures will hold the growth of disposablepersonal income in 1967 somewhat below the gain in 1966.This advance in disposable income should make possible a gain in consumptionof more than $30 billion in 1967, compared with a rise of $33^4billion in 1966. In real terms, the expected gains in consumption anddisposable income in 1967 are expected approximately to match those of1966. The saving rate in 1967 should remain close to the 1966 level of 5}4percent, a little below the average of recent years.FlexibilityThe program and the outlook for 1967 provide good prospects for agrowth of demand that keeps pace with capacity. But the experience of 1966is a clear reminder that surprises can develop and that policy must be alertto them. This year, the risks are on both sides: demand could grow toosluggishly or too strongly. A balance of risks is a necessary feature of afull employment economy moving ahead essentially in line with potential.In the first half of 1967, there are forces which could make for sluggishprivate demand, but a sizable stimulus from fiscal policy will help to clearthe hurdles. Then, in the second half, housing should move up strongly,the rate of inventory investment should stop declining, and transfer paymentswill rise. Indeed, with these developments, private demand couldonce again move ahead rapidly, perhaps even too rapidly. But, by that time,the President's tax program will be moderating the advance.At any time in the year, the outlook for plant and equipment demandcould be upset if the recent signs of moderation should prove illusory or

if a sharp and pronounced decline should occur. Either development couldcall for a response by stabilization policies.Cessation of hostilities in Vietnam would be the most welcome surprisethat could develop in 1967. It would challenge economic policy to smooththe transition—and policy will be ready to meet the challenge. On the otherhand, an unexpected increase in outlays required for defense would haveimportant consequences, pointing toward further measures of restraint, particularlyfrom fiscal policy.A firm set of attainable objectives, a program that fits the present outlook,alertness to changing circumstances, and flexible and well-coordinated useof policy instruments are the necessary means for maintaining full employmentand achieving a sustainable advance in 1967.IMPROVING STABILIZATION TOOLS OVER THE LONGER RUNThe tools of economic stabilization now at our disposal can cope quiteeffectively with the problems that lie immediately ahead. Over the comingyears, however, there is a continuing need to sharpen and improve thesepolicy tools—as well as the institutional framework within which theyoperate—so that short-term policy can respond efficiently and flexibly toeconomic fluctuations and simultaneously promote progress along a path ofsustainable long-term growth.USES OF MONETARY POLICYAs a stabilization tool, monetary policy has some distinct advantages.Policy changes can be made quickly in response to changing signals. Furthermore,as was evident in 1966, a restrictive monetary policy can reduceaggregate demand fairly promptly and very sharply.But there are also distinct limitations on the uses of monetary policy.As demonstrated in 1966 its impact on different sectors of the economy canbe highly uneven, both in magnitude and in timing. Moreover, if monetarypolicy is used repeatedly and in large doses to restrain inflation, it maybe difficult to avoid a long-term upward trend in interest rates. And thescope for monetary policy may at times also be limited by balance of paymentsconsiderations.The uneven impact of changes in credit conditions is unavoidable to acertain extent. Monetary policy inevitably has its principal effect on thosesectors that are particularly dependent on credit. But the special vulnerabilityof some sectors to tightening is also importantly related to certainstructural characteristics of our financial institutions. Over time, thereshould be scope for reducing the uneven impact of monetary policy throughvarious modifications in these institutional arrangements. This is particularlytrue with respect to homebuilding.In the postwar period, changing monetary conditions have contributed toseveral major swings in residential construction. This particularly sensi-65

tive reaction to monetary conditions reflects the reliance of mortgage financingon institutional rather than open market sources of credit and its specialreliance on one particular type of institution, namely savings and loan associations.The most recent example of this sensitivity, reviewed earlier, was in1966, when the associations suffered major withdrawals of funds.Until 1957, savings and loan associations were largely sheltered fromcompetition with commercial banks. Bank interest rates for time depositswere fixed at a low level, and most banks were not interested in competingfor savings funds. At that time, however, a series of increases was initiatedin the administrative ceilings on the interest rates that banks could pay ontime deposits. This led to a gradual narrowing in the differential betweenrates paid by the associations and by the banks; and the share of depositsgoing into savings and loan associations declined, even though the totalamount advanced rapidly, at least until 1966. Given the respective legallimitations on the portfolios of banks and of thrift institutions, such a shiftgradually tended to curtail the flow of funds to the mortgage market.There is every reason to believe that thrift institutions will continue to facestrong competition from banks, and must hereafter operate in a verydifferent environment from that prior to 1957.The supply of mortgage funds might be better protected in future periodsof tight credit conditions if techniques could be devised to give the mortgagemarkets new and better forms of access to the open capital markets,either directly or through the thrift institutions. A number of possible arrangementsare now under discussion in the industry. With such arrangements,funds would be available only at competitive rates; but they would beavailable. At present, some access is obtained indirectly, when banks, insurancecompanies, and savings banks sell bonds in periods of tight moneyin order to buy mortgages. FNMA secondary market operations andFHLBB advances to savings and loan associations also provide an indirectlink between mortgage financing and the national capital market.Some additional stability in the flow of funds to the mortgage marketcould also be achieved through changes in the practices of savings and loanassociations. They could partially stabilize their mortgage lending activityin the face of fluctuations in deposit flows if they held secondary reservesas commercial banks normally do. They can also place themselves in abetter position to hold on to interest-sensitive deposits in a period of tightcredit by issuing special instruments, like CD's, returning a higher yield toinvestors. Comprehensive authority to issue such instruments has beengranted only recently and should be of additional help in the future. Inparticular, the associations reduce their exposure to abrupt changes in depositflows by issuing such instruments for longer maturities.It would also be desirable to strengthen thrift institutions by legislationpermitting the Federal chartering of mutual savings banks. Such institutionswould have powers to invest in corporate securities and con-66

sumer loans as well as mortgages. While broadened investment privileges offederally chartered mutual savings banks might initially divert some fundsfrom the mortgage market, such chartered banks would improve the efficiencyof thrift institutions, strengthen them in competition with banks, andthereby ultimately benefit the mortgage market.If the ability of the thrift institutions to compete with commercial bankscan be strengthened, continuous reliance on interest rate ceilings onsavings accounts may no longer be desirable. But there could still be occasionswhen rate ceilings would serve a genuine need. This contingencycould be provided for in either of two ways: (1) through standby authorityto impose rate ceilings under particular circumstances; or (2) throughpermanent ceilings set sufficiently high that they would become effectiveonly in unusual instances. Pending agreement on the most suitable formof permanent legislation for regulating rates, the present legislation (whichexpires in September) should be continued for a limited period.The kinds of financial innovations sketched above could increase thescope for the active use of monetary policy as a tool of stabilization. Withsuch changes, a restrictive monetary policy might have a broader and lessuneven impact.There are, however, other possible limitations on the use of monetarypolicy. There is the danger that under some circumstances, employment ofthe monetary instrument for short-run stabilization purposes can producean upward ratcheting of interest rates which could interfere with long-termeconomic growth.Indeed, in the postwar period, cyclical movements in rates have beensuperimposed on a distinct upward rate trend. Every period of businessexpansion has brought new postwar peaks in interest rates. Of course,rates were abnormally low at the start of the postwar era, reflecting theunusually large liquid balances of businesses and households. But thisinitial situation cannot explain the continuing upward trend in ratessince the mid-1950's. During each period of economic expansion in the1950's, credit was tightened sharply to restrain demand. The resulting increasesin interest rates were not fully offset during the subsequent mildrecessions. With each advance, expectations became adjusted to thenew level. Rigidities retarded declines, once higher rates were built into thedeposit and loan practices of financial institutions.But an upward ratchet of interest rates is not an inherent or necessaryresult of a flexible monetary policy. There is now a welcome opportunityfor monetary policy to demonstrate its reversibility in a period of prosperity;indeed, that opportunity has already begun to be converted into reality.A variety of approaches can also be used to reduce some of the obstacles toa flexible use of monetary policy which may be imposed by balance of paymentsconsiderations, as discussed more fully in Chapter 5.Monetary policy is an indispensable tool; and there is important scope formaking it more useful. But the measures that can be taken to this end can-

not fully overcome its inherent limitations. It needs, and has, a powerfulally in fiscal policy.NEED FOR FISCAL FLEXIBILITYIn any over-all stabilization program, fiscal policy must play a majorrole. Fiscal policy is generally more even in its impact than monetary policy.Its effects tend to be more readily predictable and less subject to time lags.Fiscal policy, too, can be used with a great deal of flexibility.In principle, a fiscal program for short-term stabilization can involveadjustment of budget expenditures, of tax rates, or of both. A limitedamount of discretionary expenditure variation within a given year canbe very useful to deal with unanticipated economic developments. Butmost economists now agree that the selection of appropriate expenditurelevels for various public programs in the budget should be made in light ofthe relative merits of alternative programs, and of the benefits of addedpublic expenditures, compared with private ones, at the margin. Althoughthe timing of some Federal expenditures can be flexibly adjusted, only gradualchanges can be made in other programs without compromising theirefficiency, at least to a degree. For such reasons, it is preferable to emphasizechanges in tax rates (suitably coordinated with changes in monetarypolicy) for stabilization purposes, and to take full account of the possibilitiesof tax and monetary adjustments in determining patterns and levels ofpublic expenditures.A change in tax rates can have a powerful impact; but it usually neednot be applied in heavy doses. A large downward adjustment in tax rateswas needed in 1964, because fiscal policy had been permitted to tighten undulyover a period of many years. But if active fiscal policy is pursued continuously,only small adjustments in tax rates at any given time should beneeded in most peacetime situations. Willingness to consider making suchsmall adjustments frequently would contribute substantially to the effectivenessof stabilization policy and to efficient planning of Government programs.Indeed, this willingness seems already established: in each of thepast 6 years, Presidents Kennedy and Johnson have called for significantchanges in tax laws. Annual tax changes have, in fact, become the rulerather than the exception.The very fact that tax rates are less stable than in the past helps to makefor a more stable economy. Far from being a source of increased uncertainty—asis sometimes alleged—the flexible and coordinated use of stabilizationpolicies should enable both business firms and individuals to make theireconomic decisions in a climate of greater confidence. A knowledge thatpolicies are alert to changing developments should help to reduce the importantuncertainties about possible fluctuations in sales, profits, and employmentopportunities.68

AppendixTHE FEDERAL BUDGET, NATIONAL INCOME ACCOUNTS BASISThroughout this Annual Report, Federal receipts and expenditures andbudget surpluses or deficits are referred to in terms of the national incomeaccounts (NIA) budget. This is a set of accounts devised by the Departmentof Commerce, as part of the national income statistics, to register theway that Federal fiscal transactions affect the income stream.The principles followed in the NIA budget are relatively simple. In thefirst place, this budget is comprehensive and records all Federal transactionsthat directly alter private spendable income including that of State and localgovernments. It incorporates the fiscal transactions of all Federal agencies,regardless of the legal arrangements applying to these agencies. Thus, theaccounts include operations of trust funds and other Government-ownedagencies as well as regular Government departments.Second, Federal transactions are counted at the time that they add to orsubtract from private spendable income, which often is different from thetime when funds are actually withdrawn from or deposited into Treasuryaccounts.Third, all transactions involving loans or exchanges in assets are excluded.The Government engages in numerous lending and swapping transactionsinvolving billions of dollars a year. These are extremely important tothe operation of the economy, but they are not to be regarded as fiscaltransactions because they do not affect disposable incomes directly.In following these principles, the NIA budget differs in several importantrespects from the more familiar administrative budget. The administrativebudget is the traditional vehicle for the management and control of mostof the Federal programs which operate through regular Congressional appropriations.But it does not, and was not designed to, reflect even approximatelythe economic impact of fiscal policy.For the calendar year 1966, the NIA budget was essentially balanced witha tiny surplus of $0.2 billion. But, in the administrative budget, expendituresoutran receipts by $7.3 billion. The main elements accounting for this verylarge difference are shown in Table 5. Particularly important were Federalnet loans and the net surplus of trust funds.Trust funds. The administrative budget generally excludes both the revenuesand expenditures of Federal trust funds. These funds include the

TABLE 5.—Relation of two measures of Federal budget surplus or deficit,calendar year 1966DescriptionSurplus or deficit (—), national income accounts budget.Plus: SeigniorageExcess of taxes received over taxes accruedMiscellaneous adjustments (net)Less: Excess of cash payments over goods received...Net loans and financial transactionsSurplus, Federal trust fundsEquals: Surplus or deficit (-), administrative budget....Billions ofdollars0.2.91.41.01.06.63.2-7.3Sources: Bureau of the Budget and Department of Commerce.various Social Security, hospital insurance, and Medicare funds, unemploymentinsurance, railroad and civil service retirement funds, the highwaytrust fund, veterans life insurance, and many others. Most transactions oftrust funds directly affect the private income stream. Both expenditures andreceipts are very large, approximately $40 billion. Moreover, the funds canbe in substantial surplus or deficit in any year. In calendar 1966, theyshowed a net surplus of $3.2 billion. That surplus is properly reflected in theNIA budget, although ignored in the administrative budget. A third measureof Government financial transactions—the consolidated cash budget—corresponds in this respect with the NIA budget.Timing. In business accounting, which provides the framework fordecision-making by firms, purchases and sales of goods and services aretypically recorded when liabilities are incurred rather than when cashchanges hands. The NIA budget generally follows the same procedure.On the revenue side, withholding of personal income taxes is counted as acollection when the taxes are actually taken from the paychecks of employeesrather than when employers pay the Government; excise and sales taxesare counted when the sales of taxable goods are actually made; and corporateincome taxes are counted when they accrue. Similarly, on the expenditureside, Government purchases of goods from businesses are recorded at the timeof delivery rather than at time of payment. In this respect, both the administrativebudget and the consolidated cash budget differ from standard businessaccounting treatment by adopting a cash basis for the timing oftransactions.In 1966, cash collections of taxes exceeded accruals by about $1.4 billion,while cash disbursements for goods and services exceeded deliveries by$1.0 billion.Seigniorage. The NIA budget and the administrative budget also differin their treatment of Treasury profits on coinage operations (seigniorage),which amounted to $0.9 billion last year. When the face value of newcoins minted exceeds the cost of metal used to produce them, the profit iscounted as a receipt in the administrative budget. But it is not a Governmentreceipt in the NIA budget, because the increase in Treasury cash bal-70

ances which results is a purely internal Government bookkeeping entry whichdoes not reduce or drain off private purchasing power.Lending. A further and vital difference between the NIA budget, on theone hand, and the consolidated cash and administrative budgets, on theother, involves the treatment of lending, loan repayment, and sales of financialassets. Such financial transactions are excluded from the NIA budgetbecause they do not change the net worth or incomes of private parties, butonly their liquidity. The reasoning follows the same line applied above totax accruals and profits on coinage. Just as businesses do not regard themselvesas becoming poorer at the time they actually pay taxes they alreadyowe, neither do they consider repaying a Government loan as a currentexpense. Nor conversely, do their incomes rise when they obtain loans fromthe Federal Government. Yet, in the administrative budget a new Federalloan increases the deficit as much as an outlay that directly raises privateincome, and sale or repayment of the loan diminishes it just as much as atax payment.To be sure, many Federal loan transactions have important effects onprivate spending. But they work in a less direct way than the incomegeneratingtransactions. They channel funds at low costs to various activitiesdeemed to be of particular social or economic importance, such asexports, college, housing, and farm production. Given the level of taxrevenues, when the Government lends more, it must also borrow more. Thenet impact of a Federal loan financed by Government borrowing is thatGovernment liabilities—Treasury and agency issues—are substituted forprivate debts.Such substitution is likely to improve the terms and • lower the interestrates available to some borrowers. But other borrowers may be displaced,depending on credit conditions and monetary policy. Federal lending isbest regarded as an aspect of monetary, credit, and debt managementpolicy—not of fiscal policy. When it lends borrowed funds, the Governmentis acting as a financial institution, much like private financial institutions.Borrowers from private financial institutions also increase their liquidity.They acquire cash by incurring debts. They are, indeed, better off for theopportunities to borrow, and they may spend more as a result; but they donot regard the borrowing as an addition to their incomes.In the past year, the Federal Government was a net lender, partly becauseof the scarcity of funds in private financial markets. The difference betweenthe two budgets on this account amounted to $6.6 billion.

Chapter 2Prices and Wages in 1966Expanding production and fuller employment brought gratifying advancesin the incomes of most Americans in 1966. But satisfactionwith higher incomes was marred by concern over the first significant rise inprices in 7 years.The shift away from price stability actually began early in 1965, whensagging farm prices suddenly reversed direction, followed shortly by a climbin food prices, first at wholesale and then at retail. During the course ofthe year, prices of many other items turned upward. But it was only in 1966that price movements were sufficiently disturbing to arouse public concern.The public sensed what every economist knows—that a reasonably stableprice level is essential if balanced prosperity and full employment are to becontinued at home and if the strength of the dollar is to be maintainedabroad. Experience proves that rising prices can generate distortions thatcan eventually topple an economy from boom to recession. Experiencealso shows that rapidly rising prices can quickly erode a country's competitiveposition in international markets. The critical economic problem to besolved in the year ahead is that of maintaining income growth and fullutilization of resources without becoming trapped in an inflationary pricewagespiral.The recent advance in prices was due in large measure to the accelerationin the growth of demand which began in mid-1965 and to the particularlyrapid increase in output of capital goods and defense products. The step-upin the rate of price increase cannot be explained by any simple formula.It was a by-product of the complex process by which additional resourcesare drawn into production and adapted to the changing composition ofdemand. That process is now largely completed, leaving the economy witha much higher rate of utilization of resources. But in the process of adjustment,forces were set in motion which will continue to push up prices for atime even though the pressure on resources has now relaxed.Demand had, of course, been rising steadily since 1961. But that risebegan when there were abundant supplies of idle labor and unused equipment.In addition, productive capacity was being steadily increased throughthe installation of new plant and equipment; accretions to the labor force;72

and the steady rise of productivity as a result of better management, anincreasingly educated and skilled work force, new industrial processes, andincreased capital per worker. Thus, throughout the early 1960's productioncould expand freely to match growing demand. Moreover, the patternof expansion of industrial capacity was well balanced with the pattern ofrising demand, so that few specific points of pressure on the price structuredeveloped.By mid-1965, prices of farm products and of some industrial raw materialswere already rising, partly because of growing demand, but alsofor such unrelated reasons on the supply side as the stage of the hog productioncycle or impediments to minerals production abroad. Moreover, bythat time, margins of idle labor and underutilized plant and equipmentwere shrinking. Under these circumstances, the rapid spurt in demandand production that began in mid-1965 could not fail to affect prices.The sharp rise in demand for defense products and capital goods imposedspecial pressures on the metals and machinery industries. In somebranches of these industries, the limits of efficient utilization were surpassed,and, in a few, output was close to absolute limitations on capacity.Even where productive resources were not fully used, it was often difficultto adjust production rapidly enough to keep pace with soaring demands.Time is needed, even when there are no special problems affecting supply,to increase the output of farm products and of industrial raw materials,especially metals. It takes time to hire workers, activate additional machines,or increase the rate at which purchased supplies are delivered. In thesecond half of 1965 and in early 1966, the expansion of demand for manyproducts and services was pushing against these speed limits on the expansionof output. Moreover, the growth of demand was less balanced thanpreviously, so that pressure points multiplied. For some products andservices, production could keep up with demand only at somewhat highercosts—using standby, semi-obsolete equipment, paying overtime rates,mining lower grade ores, and so on.There were also imbalances in labor markets which created increasingdifficulties as unemployment declined. Workers in low-paid occupationscould not be retained without substantial upward adjustments of wagescales. Moreover, reduced unemployment strengthened the bargainingposition of unions and weakened that of employers. Wages generally beganto rise faster at a time when productivity gains were slowing down. Pricesof services of all kinds continued to rise, and at an accelerated rate, as wagesin many service occupations were increased substantially.The broad upswing in prices must therefore be explained in terms of acomplex interaction between a general increase in the pressure on productiveresources and special factors impinging on a limited range of product andlabor markets. Had the increase in demand been slower and more evenly73

alanced, the rise in the price level would certainly have been less, althoughsome increase would still have occurred. Farm products and raw materialswould surely have risen in any event, given the supply problems at home andabroad. Wage adjustments for low-paid occupations would still have beennecessary, though they could have been more gradual.Although the pressures that developed in early 1966 have now abated somewhat,they have left their mark on the structure of costs and prices. Pricesof most farm products and of many industrial raw materials move more orless freely in both directions. The same is true, though to a lesser degree, ofmany products at early stages of fabrication. But it is unlikely that past priceincreases in most other parts of the economy will be reversed so long as theeconomy remains strong. Moreover, price advances for such items asmetals and industrial equipment tend to fan out and become built into thestructure of industrial costs. And even temporary increases in farm and foodprices, through their impact on consumer prices, materially affect the patternof wage negotiations. The resulting higher wage settlements also tend to bepermanently built into the cost structure.Consequently, the return to price stability can only be gradual. However,as 1966 drew to a close, there were signs of progress. Prices of farm productsand some raw materials had leveled off. Thanks to the enormous strengthand adaptability of the economy and the skill and ingenuity of workers andmanagements, many of the industrial pressure points had been alleviated.With the slower pace of growth in the second half of 1966, much of the necessaryadaptation was accomplished. More of it will be accomplished in 1967.THE RECENT PRICE RECORDThe year 1965 marked the end of a long period of price stability (Charts6 and 7). After having remained virtually constant since 1958, the wholesaleprice index rose by 3.4 percent during 1965 (i.e., December 1964 toDecember 1965) and 1.7 percent during 1966. Consumer prices increased by2.0 percent during 1965 and by 3.3 percent during 1966.Between December 1964 and September 1966, the wholesale price indexwas dominated by a rise of 14/ 2 percent in the average price of farmproducts, foods, and feeds (Table 6). This group of products accountedfor over 60 percent of the total increase in the index over this period. Inthe fourth quarter of 1966, wholesale prices of farm products and foodsdropped sharply and by the end of the year were only 1 percent higher thanat the end of 1965. Prices of the other commodities included in the wholesaleprice index increased by 1.8 percent during 1966 (Table 7). Because of thestrong demand for investment goods, the largest price increases came in themachinery producing sector, though prices of metals and metal productsalso rose appreciably.74

Chart 6Wholesale Prices1957-59=10010095FARM PRODUCTS9011 HI I I I 11 I 11 11 I I I M I I I 11 I I I 111 11 I 1111 II I I 11 I I 11 I 11 11 I I I 11 M I I 11 11 I1961 1962 1963 1964 1965 1966J/COMMODITIES OTHER THAN FARM PRODUCTS AND PROCESSED FOODS.SOURCE: DEPARTMENT OF LABOR.TABLE 6.—Changes in wholesale and consumer prices,1964-66GroupDecember1964 toDecember1965Percentage changeDecember1965 toSeptember1966September1966 toDecember1966December1965 toDecember1966Wholesale prices:All commodities.3.42.6-0.81.7Farm products, processed foods, and manufacturedanimal feeds ,.Metals and metal productsNonelectrical machineryElectrical machinery and equipmentA ll other commodities., „.,Consumer prices:9.01.82.3.31.25.21.73.22.71.2-4.1.51.32.20)1.02.24.65.01.2All items.2.02.8.53.3All commodities1.62.4.12.5FoodOther commoditiesServices3.5.82.74.51.23.5-.7.71.43.81.94.9i Less than .05 percent.Sources: Department of Labor and Council of Economic Advisers.75

Chart 7Consumer Prices1957-59=100125120SERVICESCOMMODITIES LESS FOODi ii II h i m I n i n i l i ii ilii 111 h i 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 i 1 1 1 1 1 1 11961 1962 1963 1964 1965 1966SOURCE: DEPARTMENT OF LABOR.From 1960 to 1964, the consumer price index rose at an average rateof 1.2 percent a year—with commodity prices rising by less than 1 percentand service prices increasing by about 2 percent a year (Table 8). Muchof the acceleration in consumer prices during 1965 was directly attributableto food prices, but, by the following year, prices of all major componentshad begun to rise more rapidly. Prices of services, especially in the medicaland financial areas, increased most and accounted for half of the total risein the index during 1966. There were further increases in foods and othernondurables, including a 3.7 percent rise in apparel prices. After decliningthrough 1965, prices of consumer durables began to rise in the secondquarter of 1966.Perhaps the most comprehensive measure of price movements is the implicitprice deflator for gross national product (GNP). Although consumerprices are its largest component, the deflator also reflects changes in theprices of structures, producers' durable equipment, exports and imports, andgovernment purchases. The over-all GNP deflator rose by 3.6 percentbetween the fourth quarter of 1965 and the fourth quarter of 1966. Overthat same period, prices of structures and of government purchases increasedmore than the average price of consumer expenditures, prices of producers'durables rose less, and prices of exports and imports remained unchanged.

TABLE 7.—Changes in wholesale prices, December 1965 to December 1966All commoditiesCommodity groupFarm products, foods, and feeds ..Farm products..-Processed foodsManufactured animal feedsOther commoditiesTextile products and apparelHides, skins, leather, and leatherproductsFuels and related products, andpower _Chemicals and allied productsRubber and rubber productsLumber and wood productsPulp, paper, and allied products...Metals and metal productsMachinery and motive products..Nonelectrical machinery __.Electrical machinery andequipmentMotive products..Furniture and other householddurablesNonmetallic mineral productsTobacco products and bottledbeveragesM iscellaneous products *_.Relativeimportancein index(percent) 1100.0026.1910.2413.971.9973.817.831.437.716.411.382.684.8013.0117.707.784.575.343.952.882.601.46Indexes, 1957-59 = 100December1965104.1107.6103.0109.4118.0102.9102.0114.6100.697.693.5101.9100.9106.6104.2111.996.6100.798.2101.6107.9104.21 As of December 1963.2 Preliminary.3 Less than 0.5 percent.* Excludes manufactured animal feeds.Note.—Detail will not necessarily add to totals because of rounding.Sources: Department of Labor and Council of Economic Advisers.December1966 2105.9108.7101.8110.6132.0104.8101.9117.5102.198.295.0102.5103.0108.9107.9117.0101.4101.8100.4103.2110.1104.8TABLE 8.—Changes in consumer prices, 1960-66Percentage Contributiontochange,December total1965 to changeDecember in 19661966 2 (percent) 21.7 1001.017-1.2 -51.11111.3111.883-.12.51.5.61.6.62.162.2163.6384.6215.0111.12.21.62.0.6ItemRelativeimportanceinindex(percent) lPercentage change per year1960to1964December1964 toDecember1965December1965 toDecember1966Contributiontototalchange in1966(percent)AllitemsFoodNondurable commodities less foodDurable commodities- .. . .,Services* TotalLess rent100.022.824.618.134.529.11.21.2.7.52.02.22.03.52.0-1.02.72.93.33.82.8.74.95.51002621350481 As of December 1965.Note.—Detail will not necessarily add to totals because of rounding.Source: Department of Labor.LABOR COMPENSATION AND LABOR COSTSCompensation of employees increased by $40 billion from 1965 to 1966,more than two-thirds of the increase in GNP. Much of the increase inmoney compensation represented labor's share of the added output produced240-782 0—67- 77

y added employment. Some of it represented labor's share of the addedoutput which resulted from the growth of productivity. But some of thegain in employee compensation reflected increases in wage rates in excessof the growth of productivity. That part of the increase in labor compensationserved to increase unit labor costs and thereby to push prices up.Compensation per man-hour grew more rapidly in 1966 than in earlieryears. At the same time, productivity grew more slowly than usual. As aresult, unit labor costs in manufacturing showed the first significant rise since1960. For the private nonfarm economy, the rate of increase of labor costsaccelerated.The tight labor markets generated by rising demand were mainly responsiblefor the rapid rise in hourly compensation, although collective bargainingpower was important in a few sectors.SUPPLY AND DEMAND IN THE LABOR MARKETThe accelerated growth of output that began in mid-1965 was accompaniedby record increases in employment throughout the economy. Asindicated in Chapter 1, the rising demand for workers also induced an increasein the supply, with nearly 500,000 more workers entering the laborforce in 1966 than demographic trends would have indicated. The numberof workers on part-time schedules "for economic reasons" droppedsharply for the second year in a row, and the unemployment rate fell tothe lowest level since 1953.Although no general labor shortage resulted, labor markets in almostevery industry, occupation, and area tightened appreciably, and shortagesappeared at a number of points. The abruptness of the increase in demanditself strained the normal processes of adjustment, and contributed to morepressure on wages and on costs than would have occurred had the sameover-all level of employment been reached more slowly.Pattern of DemandThe gains in employment were distributed unevenly among industriesand occupations (Table 9). In many industries, the expansion sincemid-1965 simply accentuated long-run employment trends, such as thegrowth in trade and services and the decline in agriculture. After years oflittle change, manufacturing employment rose sharply, particularly in thedurable-goods sector, reflecting the sharp increase in defense and capitalgoods spending (Chart 8).For the same reasons, the increase in the demand for workers in variousoccupations was also uneven. Many of the occupational labor shortages reportedduring the past 18 months were an intensification of longstandingimbalances between supply and demand—for example, for teachers, doctors,nurses, and engineers. But new shortages appeared in a number of skilledoccupations—machinists, toolmakers, modelmakers and patternmakers,aircraft mechanics, and setup operators for various metalworking ma-78

TABLE 9.—Changes in employment, by industry, 1960-66IndustryPercentage change per year1960 to 1964 1964 to 1965 1965 to 1966Nonagricultural payroll employment: TotalManufacturingDurable.__NondurableMining _Contract constructionTransportation and public utilitiesRetail tradeWholesale tradeFinance, insurance, and real estate-Service and miscellaneousGovernmentFederal.State and localAgricultural employment *1.8.7.9.4-2.81.4-.31.71.52.64.13.5.84.5-4.14.24.45.82.5—.34.32.14.44.02.14.55.21.36.4-3.75.15.87.73.3—.63.12.64.24.32.25.37.57.97.4-8.3i Labor force basis.Source: Department of Labor.chines—which clearly resulted from the rapid expansion in durable manufacturing.Until the closing months of 1966, there were, in addition, shortagesof skilled construction labor in many parts of the country.Meeting the Demand for LaborSome of the increase in the demand for labor could be easily met by hiringworkers previously unemployed. For the reasons set forth in Chapter 3,however, the pattern of skills and residence of the unemployed did not fullymatch the pattern of hiring needs. Employers often were forced to makeother adjustments. They recruited at longer distances than before—in somecases even abroad; searched their rolls for workers who could be upgraded;redesigned jobs and even altered production methods to make better use ofavailable workers. Hiring standards were lowered, and training programsfor both new and previously employed workers were expanded. Particularlyin manufacturing, employers lengthened the workweek to meet their productionschedules.But such adjustments become increasingly costly the further they arepushed. Moreover, for highly skilled occupations—at the extreme, professionalworkers—several years are needed to increase the supply. Employerstherefore were willing to increase what they would pay for a worker whoalready met their preferred specifications. The result was a bidding up ofwages for scarce skills and a rapid rise in quit rates.Competitive market pressures also extended to many low-paid types oflabor. Many farm laborers, unskilled or semiskilled service workers, andfactory workers in the low-wage industries were attracted by the jobs openingup in higher wage industries and areas, and new entrants to the laborforce naturally preferred jobs in the high-wage sectors. Employers in lowwageindustries were thus forced to give larger wage increases than otheremployers in order to hold experienced workers and to recruit new ones.79

Chart 8Employment in Durable Goods Manufacturing1962 = 100, SEASONALLY ADJUSTED140120801401 1,,,,,,,,,,,),, ,,,1 n HI niminiinMiiiTiitmitniiittiNtiniI mutt tin1962 1964 1966 1962 1964 1966FABRICATEDMETALS/•AUTOS\ j /CONSTRUCTION• ' MATERIALS!/PRIMARY METALS80IIIII mi i ill i ii ii n nil 111 ii i III n I inn nun I in in in n1962 1964 1966 1962 1964 1966•STRIKE.VLUMBER AND WOOD PRODUCTS, AND STONE, CLAY, AND GLASS.SOURCES: DEPARTMENT OF LABOR AND BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM.8o

Collective BargainingMoreover, tight labor markets enhanced the bargaining power of organizedworkers and reduced that of employers. When prices and profitsare rising throughout the economy, workers expect to receive largerincreases than before. Also, workers are more willing to strike when jobshave been and are expected to remain plentiful. On the employers' side,wage increases are less vigorously opposed at a time when they can easily berecovered in higher prices. In addition to the market forces that putpressure on wages, the rise in consumer prices associated with the strongexpansion of demand—as well as the high profits of many employers—understandably strengthened organized labor's demands for larger wageincreases generally.As a result of the changed bargaining situation and of workers' moremilitant attitudes, more workers struck in 1966 than in any year since 1959.Also, the available information on mediated contracts indicates that in 1966union members voted down a higher proportion of tentative agreementsmade by their representatives than in other recent years.Only a limited number of contracts were negotiated during 1966, butthey provided for wage increases substantially higher than those obtainedin earlier years (Table 10). Moreover, the size of wage and fringe benefitgains tended to increase as the year progressed. A number of importantnegotiations in the second half of the year resulted in compensation gainswell above those typical of earlier contracts.As a result of deferred wage increases and cost-of-living escalator adjustments,wages paid under existing contracts also rose. But these wagegains were substantially lower than the increases obtained from contractsnewly negotiated in 1966. The median 1966 union wage increase (excludingfringes) in all nonconstruction contracts, new and existing, wasTABLE 10.—Wage changes in major collective bargaining situations, 1961-66 1Type of wage changeChanges in wage rates as percent of straight-timehourly earnings1961 1962 1963 1964 1965 1966 2Median of first-year changes negotiated during specifiedyear:All industries..ManufacturingNonmanufacturing _Median adjustment effective during specified year,regardless of date of negotiation: 3All industries-ManufacturingNonmanufacturing.1 All contracts affecting 1,000 or more workers in all industries except construction, services, finance, andgovernment.2 Based on preliminary data available in early January 1967.3 Includes changes in wage rates negotiated during specified year, plus increases decided upon in earlieryears, cost-of-living escalator adjustments, and no wage changes.Source: Department of Labor.8i2.82.43.62.72.72.62.92.44.02.82.63.53.02.53.42.92.73.23.22.03.62.72.03.53.84.03.73.43.43.44.44.25.03.33.03.4

3.3 percent, about the same as in 1965, although higher than in otherrecent years.Construction workers obtained considerably larger increases in both wagesand fringe benefits than did other workers. The available informationindicates that the average annual increase in hourly compensation (wagesplus fringe benefits) in major construction settlements was over 6J/2 percentin both 1965 and 1966.CompensationThe pressures on the labor supply in areas other than manufacturingduring the past year resulted in a sharp acceleration in wage rates. Asshown in Table 11, the increases in average hourly earnings in the manufacturingindustries were exceeded by the gains in most other sectors.The substantial wage gains outside manufacturing extended through thewhole spectrum of occupations though, as noted above, the intensity of wagepressures varied widely. Professional and semiprofessional workers were incontinued short supply. In fact, there was a general shortage of personswith a college education. The salary offers made to graduating collegestudents in 1966 increased by about 6 percent, compared with an increaseof 3^2 percent in 1965. There were also notable wage increases for nursesin many areas in the last half of the year. At the other end of the spectrum,wage rates rose rapidly in low-wage service occupations; and agriculturalwages, which are generally low, rose by a spectacular 8.3 percent.For the entire private economy, average hourly compensation, includingfringe benefits, increased 6*/ 2 percent (Table 12). About 0.8 percentwas due to increased employer contributions for social insurance. Anda significant part of the increase reflected a shift of workers from the farmTABLE 11.—Changes in average hourly earnings, by industry, 1960-66IndustryPercentage change per yearManufacturing:Durable goods.._Nondurable goodsBituminous coal miningContract constructionTransportation and public utilities:Telephone communicationElectric, gas, and sanitary servicesLocal and suburban transportationWholesale tradeRetail trade 2Finance, insurance, and real estateService and miscellaneous:Hotels, tourist courts, and motelsLaundries and cleaning and dyeing plants 4Agriculture ._ _._1 Preliminary.2 Excludes eating and drinking places.3 Not available.4 Prior to January 1964, data relate to production workers.NOTE.—Data are for production workers in manufacturing and mining, for construction workers in con"tract construction, and for all nonsupervisory employees in other industries (except as noted).Sources: Department of Labor and Department of Agriculture.82

TABLE 12.—Changes in compensation;, productivity, and unit labor cost in theprivate economy since 1947Percentage change per yearItem1947to19651960to19641964to19651965to19661Total private, all persons:Average hourly compensation 2.Output per man-hourUnit labor costPrivate nonfarm, all persons:5.03.41.64.33.8.43.72.81.06.52.83.6Average hourly compensation 2Output per man-hourUnit labor costManufacturing, all employees:4.82.81.93.93.5.33.32.11.05.62.43.2Average hourly compensation 2Output per man-hourUnit labor cost5.13.51.53.84.0-.22.53.44.83.11.71 Preliminary; based on averages of quarterly data; not strictly comparable with changes for prior years.2 Wages and salaries of all employees and supplements to wages and salaries such as employer contributionsfor social insurance and for private pension, health, unemployment, and welfare funds, compensationfor injuries, pay of the military reserve, etc. For total private and private nonfarm, also includes anestimate of wages, salaries, and supplemental payment part of the income of the self-employed.Sources: Department of Commerce, Department of Labor, Board of Governors of the Federal ReserveSystem, and Council of Economic Advisers.to the nonfarm sectors. Because wages are generally higher in the nonfarmsector, this shift of workers raises the average level of wages in the privateeconomy. In fact, it is the main reason why the over-all gain is so muchhigher than the gain in the nonfarm sector alone.Compensation per man-hour for manufacturing workers rose by 4.8percent in 1966—a significant increase over the 3.5 percent average annualgain from 1960 to 1965—but considerably less than the 5.7 percent gain forother nonfarm workers. Furthermore, much of the acceleration in manufacturingcompensation was due to the increased employer contributionsfor social insurance, the rise in overtime work, and the relative shift ofworkers into the higher-wage durable manufacturing sector. In spite of someskill shortages and the rapid increase in general employment, manufacturersgenerally had less difficulty in recruiting than employers in some other sectors,because manufacturing wages are relatively high. Of course, the smallproportion of new union contracts in manufacturing negotiated during 1966also served to hold down wage increases.Productivity and Unit Labor CostsOutput per man-hour has shown a long-term upward trend but annualadvances in productivity often deviate significantly from the trend. Thetrend rate of growth of productivity largely determines the long-term trendin real wage rates. And the changes in unit labor costs which result fromthe movements of employee compensation in relation to the movements ofproductivity play a major role in determining price level movements.The long-term advance in output per man-hour is attributable to severalfactors: an increase in the abilities of the average worker; additional capital

per worker; technological progress; and improved management and organization.A major element underlying the increased average quality of thework force has been a steady gain in educational achievement. The expansionof private and Government training programs, better health, andimproved working conditions have also contributed to the efficiency ofworkers.Gains in labor skills have been accompanied by additions to the economy'sstock of productive capital. Business investment has continually providedthe average worker with more and better machines to increase the speed,accuracy, and ease of his production. The rapid pace of technologicalprogress has been made possible through large and increasing investmentsin research and development.Over any reasonably long period of time, these changing characteristicsof the labor force and the capital stock are the basic determinants of theeconomy's total productive capacity and of the productivity of its workers.But, in the short run, much of the fluctuation in productivity is due tocyclical variations in business operating rates. During an expansion, asoperating rates pick up, firms utilize their capital and labor more efficiently.Until full capacity is reached, output can be increased with little or no increasein overhead labor (supervisors, clerical and maintenance workers,etc.). Furthermore, since it is difficult and costly to adjust the work forcein response to each fluctuation in demand, changes in employment tend tolag somewhat behind production. For these reasons, productivity gains aregenerally higher than average during periods of rising utilization rates.However, once output begins to press against capacity, less efficient equipmentis brought into use, less skilled labor is hired, and employment begins tocatch up with output. Productivity gains drop back to, and temporarilydrop below, their long-run rate of increase.The substantial, and sometimes erratic, short-run movements in productivitymake it impossible to provide a single, unambiguous estimate of thetrend in productivity. But a variety of statistical techniques has been usedto adjust as completely as possible for the effects of the short-run factors.The results for the private economy as a whole consistently indicate a trendrate of increase in real output per man-hour of somewhat over 3 percent ayear. The comparable trend for the private nonfarm economy is about halfa percentage point lower. Of course, the trends themselves are likely tochange slowly over time.Because of the technological advances in agriculture, productivity gains inthat sector far exceed those in the nonfarm sector. This accounts in part forthe fact that productivity grows faster in the total private economy than in thenonfarm sector alone. An even more important factor is the continuing shiftof workers from farming into nonfarm occupations. Although productivityis growing faster in the farm sector, average output per man-hour isappreciably higher in the nonfarm sector. When a worker shifts from a farm8 4

to. a nonfarm occupation he generally increases his productivity and, thus,the average productivity in the private economy.From 1960 to 1965, as the economy moved toward full utilization of resources,it made more efficient use of its productive plant and overheadlabor. As a result, output per man-hour rose at a faster rate than the longtermtrend (Table 12). By 1965, however, productivity gains in some sectorsbegan to weaken despite the very rapid growth in output. After some5 years of rapid expansion, the deferred adjustments in employment beganto catch up with output. Furthermore, in some industries, productionbegan to press against capacity and firms were forced to use semi-obsoleteequipment, run extra shifts, hire untrained workers, and struggle withsupply bottlenecks.As output grew at a more moderate pace in 1966, firms continued to makeadjustments in their work force. Productivity gains remained somewhatbelow trend in all sectors, and there was a further slowdown in manufacturingproductivity. After showing strong gains in the first half of 1966, manufacturingproductivity remained virtually unchanged after midyear. Forthe year as a whole, output per man-hour increased by 3.1 percent—somewhatbelow the average annual increase in the postwar period.Unit Labor CostsBecause productivity gains between 1960 and 1964 were above normal, andcompensation gains relatively moderate, unit labor costs remained essentiallystable in that period. Then as productivity gains began to slacken in1965, unit labor costs were held to a modest increase by the slowdown in thegrowth of compensation per man-hour. For the entire private economy,unit labor costs in 1965 averaged only 2 percent higher than in 1961. In1966, however, tight labor markets pushed compensation up more rapidly,and there was no surge in productivity to maintain stable costs. As a result,unit labor costs rose an average of more than 3y 2 percent in the privateeconomy and nearly 2 percent in manufacturing, the first appreciable increaseduring the entire period of expansion.Although the rise in unit labor costs in 1966 in the crucial manufacturingsector represents a serious break with the earlier record of stability, it waswell below the increase experienced in every other postwar expansion(Chart 9). Hourly compensation in manufacturing grew steadily and quiterapidly throughout the entire year. From the fourth quarter of 1965 to thefourth quarter of 1966, compensation per man-hour increased by nearly 6percent. Because of the uneven rates of growth of output and productivity,most of the rise in unit labor costs in manufacturing was concentrated in thesecond half of 1966. During the first half of 1966, unit labor costs rose at arate of about 2 percent, but then accelerated to an annual rate of nearly 5percent in the second half of the year. Since this sharp upturn was in parta reflection of the very uneven pattern of growth of output during the year,it should be regarded as temporary in nature.85

Chart 9Unit Labor Costs in Manufacturing Since 1948PREVIOUS PEAK = 100J/120115SEASONALLY ADJUSTEDA/ rv110 —/ ^^A / ! **^1948-54105/\\/ft/* 1953-58I) is/ W^—1957-6110095-\V/J ^* 1960-66V901 1 11 1 M I 11 11 11-12 12 24 36 48MONTHS FROM CYCLICAL TROUGH60 72P=CYCLICAL PEAK: JULY 1953, JULY 1957, AND MAY I960.•^PREVIOUS PEAKS ARE NOVEMBER 1948, JULY 1953, JULY 1957, AND MAY I960.^CYCLICAL TROUGHS ARE OCTOBER 1949, AUGUST 1954, APRIL 1958, AND FEBRUARY 1961.NOTE.-PERIODS COVERED ARE NOVEMBER 1948-AUGUST 1954, JULY 1953-APRIL 1958, JULY 1957-FEBRUARY1961, AND MAY 1960-DECEMBER 1966 (LATEST DATA AVAILABLE).SOURCES: DEPARTMENT OF COMMERCE AND BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM.In summary, all major sectors of the economy experienced higher unitlabor costs during 1966, particularly in the latter half of the year. Thisupswing broke a long record of relative stability. Productivity gains, whichhad been above trend during previous years, slowed down in 1965 and 1966while the rise of compensation accelerated. The trend of prices, describedin the following sections, could not be insulated from the resulting rise inunit costs.PRICES IN MAJOR SECTORSIn view of the critical significance of prices in the 1966 economic recordand in the outlook for 1967, a fuller review than usual of the price situationin major sectors is called for in this Annual Report. This review concentrateson four sectors: farm and food products; raw materials; manufacturedproducts; and consumer services.86

FARM PRODUCTS AND FOODAs indicated earlier, farm prices rose sharply in 1965 and continued torise during the first three quarters of 1966. Prices declined sharply in thefinal quarter of the year and by December showed little change from a yearearlier. However, they remained well above the levels of early 1965. Theseincreases were reflected at wholesale in the prices of processed foods, andat retail in the consumer price index.The rise in farm prices was due to the strong expansion of domesticand export demand, combined with only slightly increased or in some casesreduced supplies of important farm commodities. Given adequate time forthe adjustment of production, America's farmers are capable of expandingtotal farm output to meet any foreseeable expansion of domestic demandand to provide substantial surpluses for export, in most instances at essentiallyconstant costs. To be sure, for some highly labor-intensive products—particularly dairy products and some fruits and vegetables—rising pricesmay be necessary to attract or hold the necessary labor services. But thisis the exception rather than the rule. However, an expansion of farmoutput necessarily takes time—ranging from a few months for broilers, atleast a year for most field crops, 1 or 2 years for hogs, and even longer forcattle or tree crops. To expand production of some of these commoditiesalso requires changes in Federal farm programs.Because of relatively long production cycles, supplies of some farm productsreflect past rather than current prices. In 1965, hog supplies weredeclining in response to the low prices of 1963 and 1964. The resulting risein livestock prices was intensified by strong consumer demand. The pricerise which began in 1965 continued into early 1966. After February suppliesbegan to expand, and by December wholesale livestock prices were 12.5percent below the unusually high levels of December 1965.Meanwhile, however, grain prices began to rise. At the beginning of1966, grain prices stood 2.2 percent above their levels of a year earlier.During 1965, demand had expanded sharply but so had production. In1966, strong domestic demand was supplemented by a jump in exports buttotal production was essentially unchanged from 1965 levels. Export demandwas particularly buoyant for wheat, as reduced supplies from Argentinaand Australia led to a rise in the volume of U.S. exports estimated atabout 20 percent.Prices for wheat, feed grains, and soybeans rose sharply during the latespring and summer. The rise was accentuated by speculation based onuncertain crop prospects and the strength of export demand. In thefall, harvests having proved somewhat better than had been expected, pricesfor grains and soybeans declined sharply. However, grain prices averaged12.6 percent higher for December 1966 than a year earlier.87

In contrast to both grain and livestock prices, dairy prices moved upsharply in the second half of 1966 as growing demands were matched witha decline in production. This decline in turn was related to general economicconditions as high beef prices induced farmers to cull and sell dairycows while excellent off-farm employment opportunities encouraged somefarmers to abandon dairying altogether.Thus the major factors involved in rising farm product prices in 1966 were:(1) the hog production cycle which led to reduced marketings until mid-1966 when numbers shipped began to increase;(2) poor weather here and abroad which caused some decline in U.S. productionand increased the demand for U.S. wheat exports;(3) high cattle prices which resulted in reduction in dairy herds and goodemployment opportunities which induced farmers to leave dairying;(4) strong demand for food based on rising consumer incomes.Chart 10Farm and Food Prices1957-59 =120100115 -f'\-110 -105 -95WHOLESALE FARM PRODUCTS 1/908 5 1 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 I I I I M I I I I 1 I I I I 1 I I I I M I I 1 I I1961 1962 1963 1964 19651111111 111 111966J/FARM PRODUCTS INCLUDE DOMESTIC AND IMPORTED TEXTILE FIBERS, TOBACCO, AND SOME PRODUCENOT SUBJECT TO PROCESSING.SOURCE: DEPARTMENT OF LABOR.88

Processed Foods and Foods at RetailChanges in food prices at subsequent levels of processing and distributiongenerally follow changes in the costs of raw farm products. These costs,however, account for only about 40 percent of the price of delivered foodswith the remainder reflecting costs of transportation, processing, distribution,and marketing. Over time these latter costs have risen steadily reflecting, inpart, increases in labor costs and, in part, higher quality and better packaging.As a result, even when farm prices are stable, food prices, especially at retail,tend to rise.Chart 10 shows the relation between farm and processed food prices andretail food prices. As expected, changes in farm product prices are moredirectly reflected in processed food prices. Changes in retail food pricestend to lag behind farm prices and fluctuate with less amplitude.Following the decline in farm prices, processed food prices ended the yearonly slightly above the levels of December 1965. But retail prices remained3.8 percent above the level a year earlier. The spread between farm andretail food prices narrowed during 1965, but then widened late in 1966.On the average, there is little evidence of an increase in processing anddistribution margins. In the months ahead there may be some furtherdecline in retail prices, but the rising trend in intermediate costs suggeststhat a full reversal cannot be expected.RAW MATERIALSThe rise in raw materials prices which began in 1965 continued through1966, although the prices of hides, secondary copper, and softwood lumber,which had risen rapidly during 1965 and early 1966, declined in the last halfof the year. Prices rose for a wide range of mineral products, includingsulphur, nickel, vanadium, and a number of other alloy metals. Somenonmineral raw materials used in industry—such as tobacco and wool—also rose.Over long periods, the relative price of mineral products reflects a racebetween the improvement of the technology of discovery, mining, andrefining and the gradual deterioration in the quality of available ores.Despite the fact that use is now made of ores which would have beendiscarded 30 years ago, the average price of minerals has not generallyrisen relative to other commodities.In the short run, however, sharp increases in demand almost always meanhigher prices for both ores and metals. Since it takes several years to developnew mines, increased requirements can only be met from inventories, andby stepping up output from existing capacity and from an expansion ofcapacity which is already under way. Once these limits are exceeded, asthey have been for many of the minerals, pressures on price become severe.Even when primary producers do not raise their prices, or do not raise themenough to balance the market, secondary market prices will rise. Theinitial advance is likely to be accentuated by inventory speculation. Cor-89

espondingly, a relatively small improvement in the supply and demandbalance can reverse the speculative movement and produce a sharp declinein price. These characteristics are shared by many nonmineral rawmaterials.The upward pressure on raw materials prices in 1965 and 1966 reflectedthe slow response of supply to a sharp increase in demand. It was accentuatedby the fact that the increase in demand was heavily concentrated indefense and capital goods which use large amounts of mineral raw materials.Random factors such as strikes and interruptions in foreign suppliesalways influence raw materials prices. Copper and hides were particularlyaffected by changes in foreign markets. However, in 1966 the strength ofdemand and the basically tight supply situation magnified the impact offluctuations in supplies.In the case of copper, strong demand drove domestic consumption upby more than 200,000 short tons from the first half of 1965 to the first half of1966. Foreign supplies were reduced by strikes and political disturbancesin the principal producing nations. While this loss was largely offset bysales from the government stockpile, prices in the United States were influencedby changes in the outlook for foreign supplies. The price of primarydomestic copper was not raised significantly until early 1967, but theprice in the secondary market, which supplies about one-third of domesticconsumption, rose sharply to a peak of nearly $1.00 a pound early in 1966,compared with 36 cents for the primary refined metal. It then eased to arange of 50 to 60 cents during the summer and fall.The influence of demand pressures was also clearly shown in the case ofsoftwood lumber prices, which rose rapidly early in the year under thepressure of rising defense and construction demand, and then sank as residentialconstruction declined.As indicated below, the rise in raw material prices played a significant rolein the increase in prices of manufactured products during 1966.MANUFACTURED GOODSIn contrast to some farm products and raw materials, price changes inmost manufacturing industries do not reflect an automatic balancing ofsupply with demand through the operation of impersonal market forces.Producers in many industries have some degree of discretion in setting prices,although the range of discretion varies with competitive conditions fromindustry to industry.Firms with considerable market power are often able to maintainmarkups over unit costs that are largely independent of changing marketconditions. In other industries, the effectiveness of market power is morelimited. When utilization rates are low, markups often have to be shaded.By the same token, when demand and capacity utilization rates are high,competitive pressures are weakened, presenting the opportunity to restoretemporarily depressed markups to desired levels or even to raise sights on90

what is desired. In a few industries, market power is insignificant andmarkups over cost vary widely with demand conditions.On the whole, the markup of prices over "standard costs" (based onassumed or standardized capacity utilization) appears to have been relativelystable in the past few years. Actual costs tend to decline as capacityutilization rises. The general improvement in capacity utilization between1961 and 1965 would have produced very substantial increases in profitmargins even if prices had been adjusted only enough to maintain a constantmarkup over costs calculated on a fixed volume. But as markets strengthened,some prices were raised even though costs had not increased. Andsome firms failed to reduce prices even when standard costs were falling.After remaining stable from 1961 to 1964, prices of finished nonfoodmanufactures rose by 1.2 percent during 1965 and then moved up by 2.5percent during 1966. Some part of the increase in prices was, of course,directly attributable to the rise in raw materials prices and unit labor costs.But the basic factor underlying the general price rise was the strength ofdemand and, in particular, the sharp increase in demand in late 1965 andearly 1966.Though demand pressures cannot be measured precisely, the relationbetween capacity utilization and the preferred rate of operation provides acrude measure. Capacity utilization in manufacturing has been increasingsince 1961 and the average rate in 1966 was exceeded only in 1951 and1953 in the postwar period. At the end of 1966, manufacturing industrieswere operating at an estimated 89 percent of capacity, compared with anaverage preferred rate of 93 percent (Table 13). The end-of-year capacityutilization was lower than the average for the year as a whole. Even so,TABLE 13.—Manufacturing capacity utilization, 1965-66IndustryOutput as percent ofcapacity 1December1965December1966Total manufacturing 3.9089Preferredrate(percent) 2 93Iron and steelNonferrous metalsMachinery__Electrical machineryAutos, trucks, and partsOther transportation equipmentFabricated metals and instruments _Stone, clay, and glass.Chemicals .PapRubber..Petroleum and coal products. _Food and beveragesTextiles ....Miscellaneous manufacturing.759990OQ OV9695878684969694859990809592QQo\)84 102898083949897859685919593909993929290979398901 Data for 1965, except iron and steel, from McGraw-Hill; estimates for iron and steel for 1965 and allindustries for 1966 by Council of Economic Advisers after consultation with McGraw-Hill.2 From McGraw-Hill survey of Business Plans for New Plants and Equipment, 1966-69, April 1966.3 Not comparable with data in Table B-35 because of differences in methods of computation.Sources: McGraw-Hill, Board of Governors of the Federal Reserve System, and Council of EconomicAdvisers.

operations were close to or above preferred rates in 9 important sectors:nonferrous metals, nonelectrical machinery, electrical machinery, "other"transportation equipment (aerospace and railroad equipment), fabricatedmetal products and instruments, paper and pulp, rubber, petroleum andcoal products, and textiles. Furthermore, in 6 of these 9 sectors (allexcept nonferrous metals, paper, and textiles), operating rates eitherincreased or held steady between December 1965 and December 1966.The pressure of demand for finished goods is in itself a major elementcontributing to the rise in wages and in raw materials prices. Translatedinto a demand for labor, it can create shortages which bid up wages, or atleast strengthen the bargaining power of unions. And, after being transmittedthrough a chain of suppliers and processors, the increased productionrequirements can pull up the prices of raw materials. Thus, byforcing up wages and raw materials prices, an increase in demand in onesector can raise production costs in other sectors. If aggregate demand isstrong, producers in these latter sectors will tend to increase their prices tocover the higher costs. Thus, while it may at times be useful to describea price increase in terms of cost factors only or demand factors only, in generalboth elements will be present.The direct impact of materials costs is, of course, most evident forproducts requiring relatively little fabrication. For example, in 1966, copperpipe, brass fittings, and wire prices rose sharply in response toincreased copper prices. But the effect of higher costs continued to spread,though somewhat more slowly, to products at more advanced stages offabrication. Ultimately, increased raw materials prices exercised a pervasiveinfluence on industrial prices, although their direct impact was notablein only a few cases. Similarly the rise in unit labor costs in manufacturingeventually influenced prices over a wide range of manufactured goods.But, without strong demand conditions, the rise in prices and costs wouldnot have spread so quickly nor, of course, been so large.Most manufacturing industries were affected to a greater or lesserdegree by all these factors—rising unit labor and materials costs and pressureson capacity. However, in a few cases where demand pressures wereconspicuously absent, prices did not rise or actually declined. Thus pricesof synthetic fibers dropped during 1966 because capacity had outrun demandby a considerable margin.The machinery industries afford the outstanding example of the problemsinvolved in operations at rates close to full capacity and their reflection inthe price movements. The demand for machinery grew rapidly while outputwas limited by shortages of skilled labor and some types of equipment,in part because the machinery sector had to compete with expanding defenseproduction for labor, materials, and components.Spurred by the capital boom of the past 5 years and the sharp rise in defensedemands, production of machinery expanded by 67 percent between1961 and 1966, an average annual growth of more than 10 percent. For92

the first time in many years both the electrical and the nonelectrical machineryindustries were operating in 1966 at about their preferred rates and,in each segment, order backlogs grew by about one-quarter.In the nonelectrical sector, there appears to have been sufficient plantcapacity and manpower to meet the growing demand without much strainuntil early 1965. Then, beginning around mid-1965, some segments of theindustry, especially machine tool producers, began to report increasing difficultiesin recruiting and training skilled labor. After rising at an averageannual rate of only 1.1 percent between 1961 and 1964, prices of nonelectricalmachinery rose by 2.3 percent during 1965 and then 4.6 percent during1966. Similar strains on capacity developed in the electrical machinery industryand prices, which had been declining for a number of years, changedlittle in 1965 and then rose by about 5 percent during 1966.SummaryThe moderate but persistent upward trend in manufacturing pricesreflected the interaction of many factors, of which the most pervasivewas the rapid increase in demand at a time when the economy wasoperating close to capacity. The actual course of prices varied considerablyfrom industry to industry, depending upon the degree to whicheach was affected by changes in costs of materials, supplies, fuel, andlabor, the balance between demand at prevailing prices and the capacityto meet that demand without undue strain, and the extent and exercise ofdiscretion in the pricing policies of leading concerns.On the average, the 2/ 2 percent increase in manufacturing pricesduring 1966 was probably about commensurate with the average percentageincrease in all elements of cost. This seems a reasonable inferencefrom the over-all profit record in manufacturing. During the first threequarters of 1966, after-tax profits for all manufacturing averaged 5.6 percentof sales, the same as in the first three quarters of 1965. As a percentageof equity, however, they were higher—13.4 percent for the first three quartersof 1966 against 12.7 percent a year earlier.CONSUMER SERVICESSince 1947, the cost of consumer services has risen at an average rateof about 3J/2 percent a year, more than twice as fast as for commodities atretail; between 1960 and 1964, the rate of increase was a little over 2 percenta year; and in 1965 it was about 2 l / 2 percent.Between December 1965 and December 1966, the rate of increase jumpedto 4.9 percent, accounting for half the total rise in the consumer price index.This acceleration reflected partly an intensification of existing long-run trendsand partly the appearance of new factors.The services included in the index are a highly diversified group, butthey can be regarded as comprising three very broad and somewhat over-240-782 0—67- 93

simplified categories: (1) rents and utility rates, (2) labor intensive services,and (3) financial charges.The behavior of prices in the first of these categories differed little during1966 from earlier trends, and increases were relatively small (Table 14).The second group—labor intensive services—is quite heterogeneous; butin most cases the scope for significant improvements in productivity islimited, and therefore costs and prices are sensitive to changes in wage rates.This is true whether the labor involved is relatively highly skilled (as forprofessional services, repair mechanics, barbers, and beauticians) or relativelyunskilled (as for domestic services, hotels, motels, or laundry and drycleaning).As already indicated, wage increases in the service industries acceleratedduring 1966. This was also true of fees for professional services. The resultingrise in personnel costs was aggravated, in some instances, by increasesin other cost elements, such as commercial rents and hospital equipment.While prices for virtually all these services had been rising for years, theadvance was particularly sharp during 1966. Examples are shown inTable 15.The third category of services—financial costs—had received relativelylittle attention in the past, though property taxes had been rising slowlyand property insurance rates more rapidly. Both accelerated considerablyduring 1966, and a major new element was added: mortgage interest rates,which had remained quite stable in preceding years, rose by 12.4 percent.As shown in Table 14, these higher financial costs accounted for overone-third of the total advance in prices of services during 1966. A largepart of this advance reflected increased mortgage costs. The fact thatthe increase in mortgage interest rates had such an impact on prices reflectsTABLE 14.—Changes in consumer pricesfor services during 1966All servicesType of serviceInterest and property insurance, and taxes.Public transportation and labor-intensive servicesPublic transportationMedical servicesSkilled labor services 1Other2Rent and utilities-.RentUtilitiesAll other services

TABLE 15.—Changes in consumer prices for typical labor-intensive servicessince 1959Type of servicePercentage increase per year1959in1965December1965 toDecember1966Physicians' feesDaily service charges in hospitals..Men's haircutsDry cleaning.Local transit faresHousing maintenance services.2.76.42.81.6a. 2l3.07.816.57.76.C9.16.81 Data for 1959 not available; increase from December 1963 to December 1965 used.Source: Department of Labor.the system of measurement used in constructing the index. The indexis designed to measure the change in prices associated with commitmentscurrently entered into, rather than the change in the cost of current expendituresrelated to commitments entered into in the current and past periods.Had weighting been based on current expenditures rather than commitmentsentered into during the year, the increase in the over-all consumer priceindex would have been about 0.4 percentage points less.There are other difficulties in measuring service prices. Changes in thequality of services are difficult to assess. This is particularly true of medicalservices because of the progress in medical techniques. It is impossible tomake a statistical correction for the changing quality of medical care, butit is clear that the cost of a given standard of health care has risen less thanthe indexes indicate.PRICES AND THE DISTRIBUTION OF REAL INCOMEThe significance attached to price movements varies with the perspectiveof the observer. A trade association usually reports a price rise for theproducts of its members as an improvement in prices. But the firms in anotherindustry using those products describe the same price increase as anunfortunate rise in costs. A rise in the price of haircuts is a rise in the costof living to most of us, but it means an increase in income to barbers. Wagesare incomes to workers but costs to employers.In 1966, wages, profits, and farm incomes all rose rapidly in moneyterms. But the gains in money income could not have been so large withoutprice increases. Those increases turned very large money gains into smaller,though still substantial, increases in real income.In 1966, the nominal increases in hourly compensation were unusuallylarge—4.8 percent for manufacturing employees and 5.7 percent for othernonfarm workers. Farm wages rose by 8.3 percent and net income perfarm by 10.3 percent. But after adjustment for price increases, hourlycompensation in the nonfarm sector increased by only 2.6 percent and netincome per farm rose by 7.0 percent. In manufacturing, real hourly com-95

pensation rose by less than 2 percent. Because some of that gain representedincreased employer contributions to social security, real hourly take-homepay for manufacturing workers increased even less for the year as a wholeand actually declined between the end of 1965 and the end of 1966.The disparity between the large nominal gains in hourly compensationand the very moderate increase in real compensation per man-hour in 1966emphasizes again the fact that more cannot be taken out of the economy thanis produced. On the average, labor productivity in the private economy canbe expected to increase by somewhat over 3 percent a year. Real hourlycompensation cannot rise more rapidly than that except at the expense ofother incomes. In conditions of strong demand and full utilization of resources,a general increase in money wages in excess of productivity growthis more likely to result in a rise in prices than in a corresponding increase inreal wages.When producers pursue pricing policies designed to increase the shareof income going to profits or to maintain that share at excessively highlevels, this too is likely to be self-defeating. Despite sizable short-run fluctuationsdue to changing utilization rates, the profit share of income hasshown no perceptible trend over the long-run (Chart 11). When profitsare unusually high, they encourage workers to demand higher wages. Bypushing up the cost of living, the price increases necessary to sustain a highprofit share provide further incentive for increased wage demands.Thus, in 1966, price increases were no more successful in raising theprofit share than nominal wage increases were in accelerating real wagegains. The share of gross profits in corporate gross income had been risingsteadily throughout the expansion. This was of course a normal responseto the rise in capacity utilization. The profit share reached a peak in thefirst quarter of 1966 and then, despite rising prices, began to decline slowly.Within the manufacturing sector, the decline in profits after the firstquarter of 1966 resulted in a decline of 1J4 percentage points in the profitshare of gross manufacturing income. Nonmanufacturing corporationsexperienced a similar though less pronounced decline in share.The decline in the profit share reversed the upward movement whichhad continued since 1961. That movement was, as noted earlier, primarilydue to the improvement of capacity utilization from the low levels rulingin 1961. In spite of the small decline during 1966, the corporate profit shareremained substantially above the post-Korean average, though somewhatlower than in 1955.The relatively minor change in the aggregate share of labor income wasaccompanied by significant differences in the wage gains in particularsectors. In general, wages increased more rapidly in the nonmanufacturingsectors than in manufacturing. Construction workers made notable gains,as did medical workers from the professional level on down. Other professionals,such as teachers, enjoyed sizable increases in compensation, andtrade and service wages continued to advance relatively rapidly.96

Chart 11Shares of Gross Corporate IncomePERCENT OF GROSS CORPORATE INCOMEl/1008060COMPENSATION OF EMPLOYEES40NET INTEREST201954 1956 1958 1960 1962 1964 1966J/lNCOME ORIGINATING IN" BUSINESS PLUS CAPITAL CONSUMPTION ALLOWANCES; BASED ON SEASONALLYADJUSTED DATA.J/CORPORATE PROFITS PLUS INVENTORY VALUATION ADJUSTMENT.NOTE.-DATA RELATE TO DOMESTIC ACTIVITY OF NONFINANCIAL CORPORATIONS.SOURCES: DEPARTMENT OF COMMERCE AND COUNCIL OF ECONOMIC ADVISERS.Of course, the most dramatic income movement was the 7 percent gainin real income per farm. The relative improvement in farm income waslargely a result of the sharp rise in prices of farm products in 1965 and early1966. By the last quarter of 1966, farm prices had begun to fall and incomeper farm declined substantially from the peak in the first quarter. However,for 1966 as a whole, real income per farm still showed a gain of more thanone-third over 1964.OUTLOOK FOR PRICESWhile forecasts of price trends are even more hazardous than other formsof economic prediction, there is good ground for anticipating that 1967 willwitness progress toward greater price stability. That view is based on theexpectation, reviewed in Chapter 1, that the growth of the real GNP in 1967will not exceed the growth of productive resources.Average wholesale prices in the farm and food sector should be relativelystable, if weather is normal, with advances for some items approximately97

alanced by reductions for others. However, retail food prices will probablycontinue to rise, although more slowly than in 1966.The sharp increase in mortgage interest rates, which significantly affectedthe average level of consumer service prices in 1966, should not be repeatedin 1967. Costs for medical care will continue to increase and prices of otherlabor intensive services may also rise, although less rapidly.Demand pressure on manufacturing prices should be significantly reducedin 1967. With capacity increasing by an estimated 7 percent, there will bea slight reduction in average capacity utilization as well as a better balanceamong industries. A small decline in manufacturing capacity utilizationmay have an adverse effect on productivity in some industries, but, in others,such a decline will reduce the need to use obsolete facilities. Moreover, thelarge amount of new capital coming into use should improve productivity.The movement of employment costs will be affected by a number of conflictingfactors. The pressure of demand on wages in unorganized labormarkets will be somewhat weaker. Although employment will grow inpace with the growth of the labor force, the balance between the skills indemand and those available will improve. However, there will be continuedupward pressure on the compensation of some groups of professional andtechnical workers. At the other end of the scale, the scheduled increase inminimum wage rates will raise employment costs in some sectors.During 1966, negotiated wage settlements had only a limited influenceon the over-all movement of employment costs. In 1967, the average size ofnegotiated wage increases will tend to increase and the number of workersaffected will also be larger. These increases will have a significant influenceon the costs of the particular industries involved. However, only about 7million workers—less than 10 percent of all private employees—will be involvedin this year's wage negotiations. Consequently, taken by itself, thedirect and immediate effect of higher union wage settlements will be relativelysmall. However, increases obtained by organized workers tend topull up the wages of unorganized workers in the same labor market. Thisprocess will broaden the impact of union settlements on wages and costs in1967 and will continue to affect wage costs for a much longer time.The increase in employer contributions for social security in 1967 willbe much smaller than in 1966. That will more or less offset other factorstending to push up the rate of increase of hourly employment costs.Unit labor costs will doubtless continue to rise this year. But with greaterstability in the farm and food sector, and with less acute demand pressuresin product markets, the rise in the general price level in 1967 should bemore moderate than in 1966.

Chapter 3Maintaining Price Stability and ReducingUnemploymentTHE OUTPUT AND EMPLOYMENT gains of 1966 brought theU.S. unemployment rate to the lowest point since 1953. But thesegains were accompanied by the fastest rise of prices since 1957. Onceagain, after years of absence, an old set of questions reappeared:(1) How far can unemployment be reduced without inflation?(2) If there is a "trade-off" between lower unemployment and pricestability, how do we choose between them?(3) What ways are available to change the terms of such a trade-off;how can we reduce unemployment further and maintain reasonableprice stability?An analysis of recent U.S. experience throws some light on these importantquestions, but it provides no simple answers.The remarkable economic record of the years 1961-65 demonstratesclearly that, when surplus labor and plant capacity abound, fiscal andmonetary policies to expand demand can reduce unemployment substantially,and at stable prices. But, in 1966, as unemployment hovered justbelow 4 percent of the labor force, prices rose at a clearly unacceptablerate. As shown in Chapter 2, some of this rise can be attributed to temporaryand nonrecurring factors. Some was the result not of getting to4 percent unemployment but of getting there too fast. There is good reasonto expect that, this year, an expansion of production which will holdunemployment at the present level will be consistent with a substantiallysmaller price advance. Nevertheless, the experience of 1966 clearly suggeststhat expanding demand cannot lower the unemployment rate muchbelow the present level without bringing an unacceptable rate of price increase.Under present conditions, an over-all unemployment rate closeto 4 percent appears to be associated with an approximate balance betweensupply and demand in most labor markets. A higher level of demandfor goods and services would create inflationary pressures in both productand labor markets.If the economy is now in the range of trade-off between falling unemploymentand rising prices, then the second question above needs to befaced: how should we rank the advantages of fuller employment againstthe disadvantages of rising prices?99

In a meaningful sense, any involuntary unemployment is too much.Ideally, everyone who wants work should be able to find it. To tolerateany unemployment, other than temporary, means subjecting individuals toconcentrated hardship, both economic and psychological. On the otherhand, it is clear that the overwhelming majority of Americans would alsosay that any rise of prices is too much. Rising prices create hardships forthose on fixed incomes or with savings fixed in money value, and windfallsfor others. Moreover, more than a very slow rise of prices can createeconomic distortions that threaten continued prosperity. And a significantrise in prices would surely worsen the U.S. balance of payments, not onlyin the short run but for some time to come. Surely, at the present juncture,when the payments balance remains in persistent deficit, inflation couldundermine the ability of the United States to carry out its objectives aroundthe world.Faced with a desire for both lower unemployment and price stability,the third question thus becomes the really relevant one: How can theterms of the trade-off between lower unemployment and greater pricestability be altered?This chapter does not attempt to deal with all of the answers to thisquestion; but it deals with three.First, the pattern of skills and related attributes of the unemployed canbe more closely adapted to the pattern which employers seek; and thefunctioning of the labor market can be improved so that qualified workersand suitable vacancies can be brought together more expeditiously.Second, all Government policies affecting markets for goods and servicescan be directed toward the objective of achieving general price stability inan economy with sustained full employment.Third, producers and labor unions can learn to use their market powermore responsibly.Public policies to improve the performance of labor and product markets,and private policies of voluntary restraint in price and wage decisions, willtogether enable the American economy to move gradually in the comingyears toward lower unemployment with stable prices.IMPROVING U.S. LABOR MARKETSDuring each of the three recessions since 1950, unemployment rose sharply,then returned to a rough plateau—at about 3 percent in 1952-53, 4 percentin 1955-57, and 5J/2 percent in 1959-60. There were many who readinto this record an ominous and irreversible trend toward ever higherrates of unemployment, even in "prosperity." Profound structural changesin the economy during the 1950's, they argued, had rapidly and radicallyaltered the pattern of the demand for labor. The new pattern was notmatched within the ranks of the labor force.This thesis found many supporters in early 1961, when, with an unemploymentrate of about 7 percent, a new national administration was deter-IOO

mining its economic targets and the means to achieve them. Most economistsadvising the new Administration argued that an adequate increasein the total demand for goods and services could restore unemployment tomoderate levels. The advocates of the structural change thesis agreedthat more demand for goods and services would create more job openings,but predicted that before unemployment was reduced very much, the economywould experience serious labor shortages and a resulting inflation ofwages and prices.It is obvious now, if it was not obvious in 1961, that there were thenplenty of unemployed workers available to fill almost every job that could becreated by a general expansion of demand. Labor shortages, except in afew professional areas, were only a distant threat. Chapter 1 has shown howthe long economic expansion that began in 1961 produced a sharp andsteady decline in unemployment. But as the unemployment rate approached4 percent in late 1965, and dipped below it in early 1966, significantlabor shortages appeared.Shortages of professional and subprofessional personnel in medicine andeducation, which have existed for a number of years, continued and wereintensified. New shortages appeared in a number of highly skilled occupations,particularly in defense and capital goods industries. And there wasa more general excess demand for workers who could fully meet employers'minimum standards for work experience and education. To be sure, employerslowered hiring standards and expanded training activities significantly,and made numerous other adjustments of the kind outlined inChapter 2. But the rapid expansion of the demand for labor strained thecapacity of employers to adapt their employment requirements to thecharacteristics of the available labor force or, through training or othermeans, to adapt the available labor force to the requirements of the vacantjobs.The unemployment remaining today is not of the same character as thatof 1961. Plans for further reduction of unemployment must be geared tothe nature of the present problem. This requires a careful examination ofthe composition of today's unemployed.COMPOSITION OF THE UNEMPLOYEDUnemployment rates for almost every category of workers have beensharply reduced in recent years; yet the incidence of unemployment—byoccupations, by age, by sex, and by other characteristics—is still highlyuneven. By occupation, rates in 1966 varied from 7.3 percent for nonfarmlaborers to 1.3 percent for professional and technical workers (Table 16).By age, unemployment rates were high for teenagers, very much loweramong workers aged 20-44, and still lower among older workers. Rates forwomen at all ages were higher than for men (Table 17). The pattern ofunemployment rates by age and sex for nonwhite workers was similar tothat for white workers. But unemployment among nonwhite workers wasIOI

TABLE 16.—Unemployment rates, by major occupation groups, 1961 and 1966[Percent *]Occupation group19611966TotalWhite-collar workers:Professional and technical workersManagers, officials, and proprietors, except farmClerical workers. _Sales workersBlue-collar workers:Craftsmen and foremenOperativesNonfarm laborersService workers:Private household workersOther service workers __Farm workers:Farmers and farm managersFarm laborers and foremen_6.72.01.84.64.76.39.614.55.97.4.45.73.91.31.02.82.72.84.37.33.64.8.44.1i Number of unemployed in each group as percent of labor force in that group; data relate to persons 14years of age and over.Source: Department of Labor.TABLE 17.—Unemployment, by age,sex, and color, 1966UnemploymentGroupPercentageNumber(thousands) distributionRate(percent) iAdults 45 years of age and over:Males.. _ _ _442152.3White __3711222.1Nonwhite714.2Females28610 2.7White -- __23482 2.5Nonwhite52 4.4Total_-_2,9761003.9Teenagers (14-19 years of age):Males5031711.2White39413 9.9Nonwhite109421.2Females..___ 4351513.0White33011 11.0Nonwhite_.104331.1Adults 20-44 years of age:Males 678232.6White5301852.3Nonwhite _ _ _1485.3Females632214.6White4671664.0Nonwhite__.,__ _ 1657.81 Number of unemployed in each group as percent of labor force in that group.NOTE.—Detail will not necessarily add to totals because of rounding.Source: Department of Labor.IO2

more than twice as high as among white workers, ranging between 1 ^ and 3times as high in each of the various age and sex groups. As total unemploymenthas fluctuated, these relative patterns of unemployment rates havebeen fairly stable (Chart 12).Unemployment averaged 3.5 million persons in 1965 (the latest yearfor which the following data are available), but more than 12.3 million, or14 percent of all persons who were in the labor force at some time duringthe year experienced some unemployment. Most of those unemployed wereout of work only once during the year, and then only briefly. But 16 percenthad two spells of unemployment, and nearly 20 percent had three ormore.Much of the unemployment during the years 1957 through 1965 was theresult of an inadequate total demand for goods and services. This issometimes referred to as "cyclical" unemployment; but since a large partof it persisted through the post-recession expansions of 1958-60 and 1961-65,the cyclical label is clearly unsatisfactory.With the virtual elimination of cyclical unemployment in 1966, mostof that which remains can usefully be described as either "frictional" or"structural." But these terms are not entirely precise; often, a particularChart 12Unemployment RatesPERCENT 31302010MENI I I I I I I1956 1958 1960 1962 1964 1966* PERCENT OF CIVILIAN LABOR FORCE IN EACH GROUP.SOURCE: DEPARTMENT OF LABOR.IO3

worker who is without a job cannot easily be classified as either frictionallyor structurally unemployed. Moreover, whenever there is also unemploymentthat is due to inadequate demand, it becomes impossible in many casesto say which particular workers are unemployed for frictional, structural, orcyclical reasons. It is obvious, for instance, that not all unskilled workersor older workers who were unemployed in 1961 were structurally unemployed;very large numbers of them found jobs in the subsequent period ofexpansion. The reason why many of the unskilled workers or older workerswho were without jobs in 1966 could be called structurally unemployed is notthat they were necessarily different from those millions of unskilled or olderworkers who were at work. Rather, in many cases more unskilled workerscould be hired only if employers could readily find the necessary complementof skilled workers who were in relatively short supply. There isno need for construction laborers if construction is held up by the absenceof bricklayers or pipefitters. But a great many of the "structurally unemployed"have characteristics that make employers reluctant to hire themexcept under conditions of rather severe labor shortage."FRICTIONAL" UNEMPLOYMENTEven in an economy characterized by steady high-level employment, someinvoluntary unemployment is bound to occur. New workers need time tofind jobs even when jobs are available. Continuous changes in the compositionof demand cause fluctuations in the output and manpower requirementsof individual plants though the total level of demand in the economymay be growing steadily. There are seasonal variations in activity inmany sectors of the economy, such as construction, recreation, and agriculture.The secondary effects of strikes in some plants or industries maycause workers in other plants or industries to be laid off temporarily.Whether unemployment from these causes is called—or in fact is—frictional,depends on whether the workers involved have the skills and othercharacteristics to qualify for available jobs and on the availability of jobs.In 1966, more than 40 percent of the unemployment among men over25, nearly 56 percent of the unemployment among women over 25, and 82percent of unemployment among teenagers was associated with either entry,reentry, or voluntary job change. Workers entering the labor force foundjobs more quickly than in 1965; but the number entering was also considerablygreater. As a result, unemployment associated with these causeschanged little. Since unemployment from other causes declined, the proportionof total unemployment associated with entry and job changeincreased during 1966.In most cases, unemployment due to entry or reentry is of short duration;but a small percentage of new entrants may not be able to find their firstjobs for some months. They account for a substantial fraction of the totalunemployment associated with entry.104

The primary reason why unemployment rates are consistently higher forteenagers and women than for male adults is the higher proportion of teenagersand women who are new entrants or reentrants into the labor force.Moreover, the voluntary turnover rate of young workers is particularly high,as they often try several jobs in search of one they like.The rising trend of unemployment rates among teenagers relative to otherworkers in recent years reflects the further fact that the size of the teenagelabor force—which had been stable or contracting in the early postwarperiod—more recently has been sharply expanding. New entrants obviouslymake up a larger proportion of the teenage labor force when that force israpidly growing. Thus, in 1953, when the over-all unemployment rate was2.9 percent, teenage unemployment averaged 7.1 percent. At that time, thetotal teenage labor force was actually declining slightly. The higher teenageunemployment rate of 12 percent in 1966 largely reflected the fact thatthe teenage labor force is now increasing rapidly—by 11 percent in 1966.The rising proportion of women in the labor force also tends to increasethe amount of unemployment associated with entry, reentry, and departure.A rather high rate of voluntary turnover is an important characteristicof the restless, mobile American worker, compared with workers in mostother countries. Moreover, voluntary turnover rises as labor markets tighten,and workers feel more secure in their ability to find other jobs. Of course,not all voluntary job changes involve any intervening unemployment. Whilefrictional unemployment associated with causes other than entry and turnoveris substantial, no useful data regarding its extent are available.Frictional unemployment could be reduced somewhat if the demand forlabor were to continue to expand more rapidly than the normal growth ofthe labor force. Workers in seasonal occupations would find it easier toobtain other jobs in their off season. New entrants to the labor force wouldfind first jobs somewhat more quickly. There would be fewer temporarylayoffs to "adjust inventories." Such a reduction of frictional unemploymentwould not only make jobs easier to find, but it would also make jobvacancies more widespread. Frictional unemployment might be reduced;but only by a further tightening of labor markets, creating greater upwardpressure on wages and prices.It is impossible to eliminate frictional unemployment completely andundesirable to try. The efficient allocation of labor depends on the movementof experienced workers to better jobs. The frequent entry and reentryof women into the labor force in response to improving job opportunitiesis an important source of flexibility. The interval between leavingschool and the first job could be reduced, although it cannot be entirelyclosed in all cases. The freedom to change jobs—if only for the sake ofvariety—is a right that Americans cherish. The seasonally of many typesof activity can be reduced, but not eliminated. And the rapid pace oftechnological change that contributes to the rapid advance of living standardsalso requires some involuntary job changes. Yet there are ways to105

educe frictional unemployment without increasing the tightness of job markets.IMPROVING THE OPERATION OF LABOR MARKETSUnemployed workers often fail to find vacancies which they are capableof filling, because they are unaware of such vacancies, because they are inthe wrong location, or because of artificial job entrance requirements.The U.S. Employment Service and its affiliated State employment servicesperform an important function by bringing jobs and workers together,and thus reducing frictional unemployment. During recent years, theyhave sought to improve their effectiveness in matching jobs and men throughimproving the quantity and quality of their job market information (includingthe experimental development of job vacancy data) and throughmore effective dissemination of this information to job seekers, employers,schools, and community groups; through working more closely with employersto alleviate occupational shortages and to meet defense manpowerneeds; and through developing an experimental automated systemfor matching available jobs with characteristics of applicants in both interareaand interstate recruitment. They have also sought to improve theirservice to disadvantaged workers through cooperating with CommunityAction agencies and other community groups, through sending mobile teamsto rural and smaller urban areas, through making greater efforts to reachthe disadvantaged in slum sections of metropolitan areas and through YouthOpportunity Centers. A detailed report on methods for improving theeffectiveness of public employment services has recently been made by apublic Task Force on the Employment Service. Legislation will be proposedincorporating many of the recommendations of this report.General expansion in the economy has reduced unemployment remarkablyin many areas formerly considered to be "depressed areas." Nevertheless,a few areas of regional depression or underdevelopment remain. Theactivities of the Department of Commerce under the Economic DevelopmentAct and of the Appalachian Regional Commission established in1965 are continuing to assist such areas in developing new industries byproviding loans, public works, technical assistance, and manpower training.Whenever the effects of general prosperity and of new development programscannot promise adequate local employment for all workers, migrationof workers is clearly called for. Often those who should migrate inorder to find jobs either fail to do so—sometimes because of financial inability—ormove with inadequate knowledge of where jobs are availablefor which they might be suited. The Department of Labor has operatedan experimental program of relocation allowances and relocation counseling,the results of which need to be thoroughly evaluated in order to determinehow relocation assistance might usefully become an expanded element inU.S. manpower policies. Relocation programs appear to have been highlysuccessful in reducing frictional unemployment in several other countries.106

"STRUCTURAL" UNEMPLOYMENTDuring 1965, nearly 3.5 million workers were unemployed for more than15 weeks during the year, and about 1.2 million of those workers were unemployedfor 27 weeks or more but, of course, not all at the same time.These 3.5 million workers accounted for nearly two-thirds of the total numberof man weeks of unemployment. On the basis of monthly data on thelong-term unemployed, it can be estimated that the number of workers wholost 15 or more weeks of work during 1966 fell to about 2.5 million. Ofthat number about 1.3 million workers were unemployed for more than 15consecutive weeks, over twice the number of persons appearing in themonthly statistics of long-term unemployment. An additional 1.2 millionworkers lost at least 15 weeks of work in several spells of joblessness. Workersexperiencing severe unemployment are found most frequently amongfarm and nonfarm laborers, operatives, and service workers—generally, theleast skilled. By industries, long-term unemployment is most heavily concentratedin agriculture, construction, mining, entertainment and recreation,food and kindred products manufacturing, and private households.Several of these sectors have a strongly seasonal character.Classified by their demographic characteristics, those most exposed tosevere unemployment were youths out of school, nonwhite workers, or olderworkers. Each of these groups suffers from some special disadvantage.Over-all unemployment rates for older men are relatively low, becausethey do not leave jobs readily and seniority often protects them from layoffor dismissal. But older workers who do become unemployed because ofplant closings or relocations or technological change often have severe problemsin finding new jobs. They are less mobile than new workers; it isoften more difficult for them to learn new skills; and the cost of trainingis higher per year of their remaining working career. Employers may alsohave to assume higher pension costs when they employ older workers.Nonwhite workers suffer from discrimination, as well as from the pooreducation and lack of skills which are in large measure the result of pastdiscrimination. Some ghetto areas are located far from areas of expandingemployment in the same metropolitan complex, and transportation facilitiesare often inadequate. Nonwhite teenagers make up a large proportionof the out-of-school youths unemployed for long periods. They suffer thedisadvantages of other nonwhite workers. Like all teenagers in this group,many cannot get jobs because they have little or no work experience, andcannot get experience because they cannot get jobs.Other concentrations of long-term unemployment are found in depressedareas, or areas where job opportunities for workers with particular skills areno longer available.Many individuals with serious unemployment problems suffer personaldisadvantages which make it difficult for them to get or hold jobs even ina tight labor market. Special studies of the unemployed in ghetto areasindicate that many of the long-term unemployed are functionally illiterate.107

Many fail entrance tests for military service. Poor health and physicaldefects are common. Some are mentally retarded or physically handicapped.Some suffer from emotional instability. Others have prisonrecords. Many have poor work habits, and lack motivation and discipline.They lose jobs because of absenteeism, tardiness, and inability to followinstructions. Some are younger workers who are unwilling to take lowpaying, "dead-end" jobs, but lack the patience, discipline, or opportunityto acquire training for better ones.While an expansion in the number of jobs available would surely causesome reduction in unemployment among these workers, it is clear that manyof them will not be steadily employed—except under conditions of severeand general labor shortage—until a heavy investment has been made inimproving their skills and education and in helping them to solve theirpersonal problems.A concentrated attack on the causes of "structural" unemployment is obviouslyessential if we are to move toward continually lower unemploymentwhile maintaining reasonable stability of prices. However, this statementof the need for attacking these social problems is obviously far too narrow.We need to attack discrimination not only because it stands in the way offuller utilization of our economic potential, but because it is morally wrong.We would need to assist the handicapped and the disadvantaged—even ifwe were not able to lower the over-all unemployment rate—in order tomake it possible for them to compete on more equal terms for whatever jobsare available. We need to open the doors of opportunity for individual developmentand self-fulfillment through useful employment .even if we shouldconclude that, on purely economic grounds, it would be cheaper merely toprovide guaranteed incomes regardless of contribution to production.FEDERAL MANPOWER TRAININGIn recent years, the Federal Government has launched a major effortto provide training and retraining designed to develop the large reservoirof unused or underutilized talent in the labor force, with emphasis on thedisadvantaged. These include the Manpower Development and TrainingAct (MDTA), Job Corps, Neighborhood Youth Corps, Work Experience,the Office of Economic Opportunity (OEO) Adult Work Program, and theOEO Special Impact Program for retraining and employing residentsof blighted urban areas. The distribution of trainees for the last and thecurrent fiscalyear is shown in Table 18.Under the MDTA program, 175,000 persons were enrolled in training forproductive employment in fiscal 1966; and from its inception in 1962through December 1966, 613,000 persons were enrolled in training for1,300 occupations. The typical MDTA trainee was a white male, highschool graduate. Only one-third of the trainees were from the disadvantagedgroups that form the bulk of the hard-core unemployed. Experienceunder the Act has led to an altered program emphasis which will ex-108

TABLE 18.—Training opportunities, fiscal years 1966-67ProgramManpower Development and Training Act Program _Institutional trainingOn-the-job training and other .Job CorpsNeighborhood Youth Corps: 2In-schoolOut-of-schoolSummerWork experienceAdult work program.Special impactNumber of trainees(thousands)196627316011310106552096119671250125125311256016546251 Estimates.2 Each position may be occupied by more than one person in the course of a training period, since traineesoften do not occupy positions for the full period.Source: Bureau of the Budget.pand the highly succesful on-the-job training component and raise to twothirdsthe proportion of the disadvantaged in MDTA programs—particularlyolder workers displaced by technological change, persons in correctionalinstitutions, handicapped workers, the paroled, the illiterate, and theyoung. Special assistance will be given for intensive on-the-job trainingto prepare disadvantaged persons for jobs with private firms.The remaining Federal programs are wholly aimed at the disadvantaged.In 1966, the Neighborhood Youth Corps program reached 220,000 needystudents, who received an average of $500 of aid fronr iri-school and summerprograms which helped them to continue in school, and 100,000 youthsno longer in school, who received an average of 7 months of training. Sinceits inception, the Job Corps has provided training and work experience for61,500 of the most disadvantaged youths. When first enrolled, more than50 percent of Job Corps enrolles fail to read at the 5th grade level, and 30percent cannot read a simple sentence. Despite this handicap, the retentionrate for the Job Corps is superior to that of vocational training programsnationally. However, the difficulty of reaching these hard-core unemployedyouth and the need for residential training facilities result in highunit costs.Other Training ProgramsIn addition to these programs which emphasize immediate impact, thelonger-range objective of continuing improvement in available skills is animportant component of other Federal programs. This objective underliesFederal support of education ranging from the basic Elementary and SecondaryEducation Act of 1965 and the Higher Education Act of 1965 tothe more specific Allied Health Professions Personnel Training Act of1966.240-782 0—67-IO9

About 5.8 million persons were enrolled in vocational education programsin 1966. Although some reorientation of these programs has occurred, theiroccupational distribution continues to stress traditional areas of homeeconomics and agriculture, along with office and industrial occupations. Itis essential that vocational training programs be more rapidly transformed toconform with the changing pattern of the economy and of its laborrequirements. A comprehensive evaluation of the role and effectiveness ofvocational education is a necessity for developing sound national manpowerpolicies. The establishment of the Advisory Council on Vocational Educationto appraise the results of the Vocational Training Act of 1963 is astep in the right direction. Its evaluation and recommendations must beplaced in the perspective of the future manpower needs of the Nation andthe various alternative methods of meeting these needs.The apprenticeship programs operated in cooperation with the FederalGovernment are more directly focused on providing the skills needed byindustry. In the past year, 25,000 workers completed apprenticeship programs,primarily in the construction trades. There are currently 237,000federally registered apprentices. The completion rate in these programswas 60 percent, but many dropouts found other work or returned to school.The rapid growth in the demand for skilled craftsmen in factories andconstruction requires an expansion of apprentice training. However, thereis some question whether the expanding needs of the construction industrycan better be met by traditional apprenticeship training aimed at the productionof fully qualified craftsmen rather than by training specialistswith a more limited range of skills. A great deal needs to be done toincrease the enrollment of minority groups in apprenticeship programs.Encouraging signs have been observed in certain major northern cities, particularlyin the form of cooperation with trade unions and civil rightsgroups in New York City, Cleveland, and Chicago, but they are only abeginning.Issues in Manpower TrainingThe large and rapid expansion of Federal training activities obviouslyresponds to a major need, and it is clear that such programs will be andshould be further expanded in the years to come. In recognition of thisfact, it is important that a number of issues be clearly faced.(1) Manpower training has several interrelated objectives. Differentkinds of training programs are needed for pursuing each of these objectives,and decisions need to be made as to the relative emphasis to be placed oneach. Broadly speaking, training is needed for three purposes. First,training is needed for the disadvantaged who are barely, if at all, employablewithout it. Second, training or retraining is needed for workers whosuffer no special deprivation or disadvantage other than that they lack theIIO

specific skills now in demand by employers. This is a need which will continue—andincrease—in an economy marked by rapid technologicaladvance. Third, training is needed to help break immediate skill bottlenecks.To the extent that expanded employment of unskilled workersis held back by shortages of special skills, breaking these bottlenecks canadvance the prospects of noninflationary expansion of total employment.The other issues, discussed below, may be resolved differently dependingon which purpose is to be served by a particular training program.(2) The relative responsibilities of public agencies and private employersneed to be evaluated. Despite the large expansion of public manpowertraining, private training activities greatly exceed public. Obviously, theincentive for employers to provide training varies, depending on the natureof the skills involved, the character of the industry and the characteristicsof the trainees. In many cases, no single employer in an industry may havean economic incentive to train workers many of whom will work for hiscompetitors or employers in other industries. Devising special forms ofincentive or subsidy which would induce private employers to expand theirown training programs is a challenging problem. So far as possible suchincentives should avoid rewarding employers for what they are already doingand what is already advantageous for them to do.(3) Further study is needed of the relative merits—in public training programs—ofinstitutional versus on-the-job training, and—within institutionaltraining—of the contribution that can be made by regular educationalinstitutions of various types.(4) The relative importance to be given to the work and the trainingaspects of work-training programs needs to be specifically considered.There may be clear public purposes to be served in employing the disadvantagedin such programs, particularly in the city ghettos, whether ornot any significant training emerges as a byproduct, and even if the jobshave something of a "make-work" character. Advocates of certain typesof work-training programs are proposing a system of residual public employmentfor persons otherwise unemployable, with training as one ostensiblepurpose. Yet the design of a program may be such that many of thoseinitially enrolled are unlikely ever to be prepared to move on to regularjobs. There may well be a useful role for such programs, but the issuesand purposes involved need to be frankly faced.(5) The proliferation of Federal, local government, and private trainingprograms—often designed to serve the same or overlapping clienteles—has led to a number of problems and some inefficiency and duplication, particularlyat the local level. Recent Federal efforts have been devoted toimproving this coordination, and good results are being achieved in a numberof cities under the leadership of the President's Committee on Manpower.There are also problems of coordinating training activities in local areaswith other programs designed to serve disadvantaged groups. There haveIII

also been problems, now being resolved, of coordinating program planningand management at the national level of the Federal Government.(6) New methods need to be developed for finding, reaching, andmotivating more of the unemployed to undertake training. This requiresanalysis of incentives, such as training bonuses, earnings allowances for personsreceiving public assistance, provision of day care centers for mothers ofdependent children, training allowances for long-term unemployed whohave exhausted their unemployment insurance benefits, and many otherissues.(7) Most generally, a great deal more study and evaluation of theeffectiveness of existing training programs is needed. Very little systematicstudy and evaluation has yet been made of the rapidly expandingFederal activity in this field. Most of the programs are still very new.Moreover, since some of them are intended to solve problems of specialdifficulty, there is no traditional standard against which to measure effectiveness.It may cost several times as much to prepare an illiterate youthfrom the slums for employment as it does to improve the skills of a literateadult with previous work experience. Yet the investments may well beequally rewarding for society. The increase in productivity which canresult is only one of the economic benefits, and the benefits are not onlyeconomic. Nevertheless, the objectives and benefits should, as far as possible,be quantified and compared with the costs. This is surely importantwhere alternative programs serve essentially the same objectives. Substantialresearch is needed on the effectiveness of different, and particularlyof new, training techniques.Considerably more knowledge of the population that can benefit fromthe various kinds of training can help in designing more effective programs.The Government plans a large sample survey early in 1968 to collect moredetailed information on the nature, extent, causes, and concentration of unemploymentand poverty throughout the United States. In addition, specialsurveys of ghettos and depressed areas in large metropolitan cities areplanned by the Department of Labor. The information will be extremelyuseful for improving the effectiveness of existing manpower programs, andfor designing new programs to combat the unemployment and poverty thatremain during a period of extended prosperity.It is now clear that large sums will be spent for training, over a considerableperiod of years. Because the objectives are vitally importantand their attainment costly, every possible effort must be made to increasethe effectiveness of training programs. The Federal Government willundertake this year an intensive general review and assessment of the Nation'sneeds for training and retraining, of the effectiveness of variousmethods, of the organization of training efforts, and of the relative responsibilitiesof Government and industry.Expanded and improved manpower training—both public and private—is an essential requirement for achieving further reductions of unemployment112

in a context of general price stability. Through providing the skillsneeded by an economy undergoing rapid technological change, and helpingthose who are presently unemployable or only marginally employable tobecome productive workers, manpower training—along with improved jobplacement and job counselling, and a reduction of discrimination—canpermit a more rapid rate of economic growth involving progressively fulleruse of human resources. It can help the Nation avoid the painful choicebetween the two goals of lower unemployment and stable prices. Moreimportantly, it serves larger human purposes.Although precise targets cannot be set for the ultimate minimum levelof unemployment or the speed of the downward movement, it is clearlyunnecessary and undesirable to accept 4-percent unemployment as a permanentobjective of U.S. economic policy.IMPROVING THE PERFORMANCE OF PRODUCT MARKETSProgress toward the goal of fuller utilization of resources along with pricestability will require improving the performance not only of labor marketsbut of product markets as well.Active and vigorous competition offers the strongest defense against thetendency for prices to rise as full utilization of resources is approached.When competition is weak, profit margins in a prosperous economy arelikely to be high. To be sure, high profit margins, once established, makeno further direct contribution to rising prices. But to the extent that thehigher profit margins of a strong economy are initially achieved throughprice increases, the price level is directly affected. Moreover, high profitsunderstandably provide inviting targets for union wage demands. Firmswith strong market power may grant large wage increases, maintaining theirprofit margins by raising prices. To minimize such upward ratcheting ofthe price structure, it is essential to maintain and strengthen the forces ofcompetition wherever possible.Government action can improve the operation of product markets inother ways. Effective regulation can increase efficiency and reduce pricesfor essential utility services. And the numerous programs of the FederalGovernment which directly or indirectly affect costs or prices can andshould be administered in a way which attempts to avoid unnecessary orunintended upward pressure on prices, and where possible to alleviate suchpressures.STRENGTHENING COMPETITIONThe virtues and benefits of free competition have long been among thefundamental premises of the American system. The dynamic growth andvigor of the U.S. economy and this country's position of industrial leadershipin the world have in good part reflected the emphasis which publicpolicy has placed on encouraging and strengthening competition.

The promotion of competition reflects values other than purely economicones, and economic values other than those related strictly to costs andprices. However, one principal reason why competition in product marketsis supported is that it spurs firms to control or reduce costs, and insuresthat the benefits of cost stability or cost reduction are passed on to consumers.The intensity of competition among the firms producing a given line ofproducts or services varies widely among the many sectors of the Americaneconomy. In many lines individual firms have virtually no control overprices. Their product prices are set by the market in almost the same wayas are prices for soybeans or livestock. At the other extreme there are sectorswhere strong market power makes it possible for firms to establish priceswhich yield good profits even when capacity utilization is low, and rapidlyexpanding profits as utilization rates move up. In many other product lines,producers have some degree of market power, the effectiveness of whichvaries with the state of capacity utilization.The market power of firms is limited not only by the competition of existingrival producers of the same product but also—though again in varying degrees—bythe potential entry of new producers (sometimes including theindustry's own customers) and by competition from producers of otherproducts and services. In today's world of rapid technological change, completelynew products or services—often produced by firms in another industry—mayprovide the strongest competition for established products (forexample, plastics with metals, automatic washers with laundries, televisionwith movies).The intensity of competition has been substantially increased in recentyears by the growth of international trade and the gradual reduction of barriersto such trade. U.S. firms seek markets all over the world and foreignfirms are increasingly active in U.S. markets.Actual and potential competition is a powerful force restraining unnecessaryprice increases, promoting product improvement, and inducing firmsto seek efficiency and to find new methods for producing at lower cost.The effectiveness of competition is maintained and increased through vigorousenforcement of the antitrust laws.It is essential to apply the law against collusion among competitors to fixprices or to share markets. Antitrust efforts are also designed to combatpractices which strengthen market power through reducing the number offirms in an industry, which erect artificial barriers to the entry of potentialcompetitors, which delay the introduction of superior products or cost reducingtechniques, or which serve to blunt the effectiveness of competitiveprice changes. Such practices raise prices for consumers or reduce thequality of goods which people can buy.The antitrust statutes assume particular importance in an economy operatingnear the limits of its capacity. Their vigorous enforcement cancounter a possible inflationary bias in product markets by sustaining andstrengthening competition. Antitrust activities should continue to be fo-114

cused on this main purpose. In particular, effective antitrust cannotprovide for the protection of individual competitors at the expense of theprotection of competition.In some areas, unfortunately, the thrust of protective efforts has beendiverted. For example, during the early 1930's many States acted to restrictcompetition in the field of retail distribution when the pervasive economicdistress bankrupted many small firms and threatened countless others withfailure. Relief was sought, and frequently obtained, in the form of restrictionson the pricing policies of larger and more efficient firms—especiallychain stores and mail order houses.RESALE PRICE MAINTENANCEResale price maintenance is such a device, largely born in the 1930 J s,which can impair the competitive forces of free markets. It permits themanufacturer of a branded product to enter into agreements with one ormore retailers in a State, establishing a minimum resale price for that product.These agreements then become binding on all retailers in that State,regardless of whether they have signed them. Today, resale price maintenancelaws are on the books of 40 States but, as the result of a series ofadverse legal decisions, the nonsigner clause has been nullified in some States,and the laws are now fully effective in less than 20 States. In those States,firms entering into and affected by price maintenance agreements are exemptedfrom the Federal antitrust statutes as a result of amendments adoptedfor that specific purpose. In recent years, proposals have been made inCongress to amend further the antitrust laws so as to exempt resale pricemaintenance agreements from the antitrust laws throughout the UnitedStates. The Administration has consistently opposed such legislation.Resale price maintenance permits manufacturers to guarantee attractivemargins to retailers in order to encourage them to promote their productsrather than those of competitors. But by providing a shield from competition,price maintenance agreements often raise prices to consumers. Moreover,they can induce the development of excess capacity in some branchesof retailing, as well as blunt price competition in manufacturing industriesdominated by a small number of large firms.While resale price maintenance is used for many products, includinghousehold appliances, cosmetics, beverages, and many other items, it is mostextensively used in the sale of pharmaceutical supplies and proprietarydrugs. Because of the adoption of Medicare and the growing public concernwith improvement in health standards, it is particularly important toevaluate the impact of resale price maintenance for this group of products.A basic purpose of the antitrust laws is the maintenance of a market systemin which many firms can operate effectively. But protection of inefficientfirms is not a purpose of the antitrust laws. A small number of verylarge firms will not dominate retail markets in a competitive environment.For one thing, entry costs in retailing are typically low, so that any attempt"5

to seize and hold a dominating market share in any major retail marketwould be futile.Whatever the case may have been in the 1930's for depression-bornmodifications of the basic competitive philosophy, that case does not applyin today's and tomorrow's expanding economy. In a healthy and viablemarket economy, effective competition will inevitably see some enterprisesfalter and go under. But vigorous new firms will be created, and thosewith effective managements will survive, prosper, and grow. Prices in marketsprotected from competition will be higher on the average and lessresponsive to changes in economic conditions and consumer demands.RESTRICTIONS ON INTERNATIONAL TRADEForeign competition can be as effective as domestic competition in forcingproducers to hold down costs and prices. This is one of the reasons why,for many years, U.S. policy has been directed toward a free and open worldtrading system with a minimum of restrictions on the flow of goods andservices across national boundaries. In such a system, the spur to specializationand productivity which is provided by international competition servesnot only U.S. commercial interests but those of the U.S. consumer as well.While the reduction of trade barriers will, in time, benefit all, it can raisetemporary problems for both industry and labor. These problems areobviously considerably less serious during periods of full employment.Nevertheless, they exist even then. The burden of these problems can bereduced in several ways. First, barriers to trade can be relaxed gradually.The tariff cuts expected under the Kennedy Round will be made over a5-year period. Second, where an industry or its workers or both are seriouslyinjured through a reduction of protection, they can either receive renewedprotection from import competition through an "escape clause" action, orthey can qualify for "adjustment assistance"—temporary financial and otherassistance to help them adjust to the new situation. The latter approach isto be preferred, since the costs to the economy of such support are generallyconsiderably lower than those of trade restrictions, and the assistance dealswith the underlying problem rather than with its symptoms. The Presidentrecently lifted escape clause protection on watches, which had been in effectsince 1954, and reduced it for glass.REGULATORY POLICIESSome major sectors of the economy are subject to extensive Governmentregulation. In these sectors where competition is not considered feasiblebecause of the wastes of duplicative service, regulation substitutes for competitionin keeping prices reasonable and service adequate. These regulatedindustries are vitally important; they not only originate about one-fifth ofthe national income, but they include the very sinews of a modern economy—electric power, communications, and transportation. The markets and116

technologies of these industries are subject to the forces of persistent change,which requires that existing policies be continually reexamined.The broad issues are often the same as for the nonregulated sectors. Regulation,like other Government policies, must not be diverted to protectingthe established positions of particular firms or industries at the expense ofeconomic efficiency. Nor must excessive reliance on uniform prices precludethe use of price differences to achieve the best use of capital intensive technologies.Finally, regulatory policy must not forego the possibilities ofintroducing competition when technological change makes this economicallydesirable.A vigilant program of regulation makes a special contribution to pricestability by holding the prices of essential utility services at the lowest levelsconsistent with their costs (including necessary profits), thereby helpingdirectly to stabilize or reduce the cost of living and the costs of other businesses.The opportunities for price reduction are particularly promising becauseof the special economic characteristics of at least some of the regulatedindustries. In several of them, a high elasticity of demand (price reductionsincrease volume greatly) coexists with large economies of scale (increasedvolumes lower unit costs). As a result, significant price reductions maysometimes be achieved with little adverse effect on profits and in some caseswith a favorable effect.Further, public utilities, communications, and some sectors of transportationhave experienced particularly rapid productivity gains. In somecases, wage increases have exceeded those elsewhere in the economy, andmay well have been inconsistent with the standards for wage-price behaviordiscussed in the next section.In these circumstances, regulation is not adequate if it merely protectsconsumers against excessive price increases. It must be alert to make certainthat the economy realizes the opportunities for lower prices and improvedservice. In so doing, of course, regulation must vigilantly preserve thestrength of the regulated industries and their highly skilled labor force.Low prices at the expense of profits insufficient to attract the necessarycapital, or wages inadequate to attract the necessary labor, in the long runbenefit no one. Regulation must be flexible to take prompt advantage ofchanging technology such as new sources of power, new channels of communication,new modes of transportation, and new ways of using old modes.At times, such innovations will permit the scope of Government regulationto shrink in favor of greater emphasis on competition.Well conceived regulatory activities can contribute to the goal of maintainingreasonable price stability in a high level economy moving steadilytoward fuller use of its human resources.DIRECT GOVERNMENT ACTIONS AFFECTING SUPPLYThe rapid expansion of demand during the last half of 1965 and thefirst part of 1966 resulted in numerous bottlenecks which impeded the117

smooth flow of production. In some cases, the supply of raw materials—especially minerals—could not keep pace with the needs of industry. Inothers, an essential piece of equipment could not be delivered promptly. Instill others, transportation facilities were overloaded. All these impedimentsnaturally aggravated pressure on the prices of either the scarce material orcomponent, or the finished product, or both.Many of these problems could only be alleviated by the passage of time,and some still persist. In a considerable number of instances, however,Government could and did find ways of assisting.Scarcities of mineral raw materials were especially prevalent as requirementsfor military hardware and capital equipment of all kinds rose sharply.Increases in domestic production of minerals take considerable time, andfor many the United States is dependent in whole or substantial part onimports. Fortunately, there were substantial supplies of such metals ascopper, aluminum, tungsten, vanadium, and columbium in the strategicstockpile. As a result of changing military technology, the necessary securityobjectives for some stockpile commodities could be and had been reduced.Disposal of the indicated surpluses was phased and accelerated so as to augmentthe supplies of some of these critically short materials. Therebymany interruptions of production were avoided.Another area which received increasing attention during 1966 was thatof Government procurement. Intensive efforts were made to phase procurementand adjust specifications for both military and civilian purchasesso as to minimize the impact on productive facilities and product markets.Arrangements were worked out to this end for the closest possible cooperationand consultation between the Department of Defense and the Departmentsof Commerce and Agriculture.The Government also sought to smooth out irregularities in the supplyof farm products by appropriate sales of farm commodities from governmentstocks, through judicious programing of the timing of P.L. 480 exports,and through the adjustment of the timing of purchases by Governmentagencies. In response to increased export demands and in order to rebuilddepleted stocks, the Department of Agriculture adjusted productionprograms to elicit increased production of wheat, feed grain, and soybeansduring 1967.As specific problems developed, other possible forms of Government actionwere explored and taken. Thus, the Business and Defense Services Administrationof the Department of Commerce was able to expedite deliveryof critical items of equipment on a number of occasions. The ForestService of the Department of Agriculture took steps to increase the cuttingof timber in the Northwest. The Interstate Commerce Commission, workingwith the railroads, alleviated freight-car shortages by speeding up theturnaround of cars at ports and other delivery points and by pressing for amore appropriate distribution of the cars available.n8

It is likely that 1967 will bring more problems of this kind, though theywill not recur in exactly the same form. However, the experience of 1966demonstrates that Government can make a significant contribution tosmoothing the flow of production and thereby lessening pressures on prices.WAGE-PRICE POLICIESVigorous competition is essential to price stability in a high employmenteconomy. But competitive forces do not and cannot operate with equalstrength in every sector of the economy. In industries where the numberof competitors is limited, business firms have a substantial measure ofdiscretion in setting prices. In many sectors of the labor market, unionsand managements together have a substantial measure of discretion insetting wages. The responsible exercise of discretionary power over wagesand prices can help to maintain general price stability. Its irresponsibleuse can make full employment and price stability incompatible.When demand outruns the growth of productive resources, prices andwages will rise even in the most highly competitive markets. (Indeed, theymay rise faster and farther than where large firms and long-term labor contractsgive some degree of stability.) That kind of "demand-pull" inflationcan be held in check by fiscal and monetary policies which keep demand inline with productive capabilities. If labor markets are efficient, control ofdemand-pull inflation will not require restraints on demand that wouldlead to a high unemployment rate.But businesses and unions can push prices up even when resources are notfully utilized. That kind of "cost-push" inflation, too, can be controlled bylowering demand, but only at the cost of an unacceptable degree of economicslack. Frequent recessions, chronically high unemployment, idlecapacity, and a low rate of investment may purchase price stability—butthe cost is too high.The problem of cost-push inflation has been a matter of concern inthis country and abroad ever since the end of World War II. Shortly afterthe war, when many governments, including our own, declared their determinationto maintain high employment, many economists predicted thatthe irresponsible exercise of market power in an era of high employmentwould lead to progressively faster rates of inflation.These fears were exaggerated. But cost-push inflation has been aproblem in many countries. A number of them have adopted formal"incomes policies" as a means of limiting inflation. In the United States,efforts to influence the general level of prices through a national wage-pricepolicy have emerged gradually during the period since World War II.These efforts have relied on education, persuasion, and voluntary coopera-

tion. For example, the 1957 Economic Report of the President (pp. 2-3)included the following paragraphs:A further responsibility of leaders of management and labor in a freeeconomy derives from the fact that concentrations of power place in theirhands the ability to take actions that, through the sensitive network of oureconomic system, significantly affect the Nation as a whole.Specifically, business and labor leadership have the responsibility to reachagreements on wages and other labor benefits that are fair to the rest ofthe community as well as to those persons immediately involved. Negotiatedwage increases and benefits should be consistent with productivity prospectsand with the maintenance of a stable dollar. And businesses must recognizethe broad public interest in the prices set on their products and services.In the introduction to his 1958 Economic Report (p. v), PresidentEisenhower wrote:Business managements must recognize that price increases that areunwarranted by costs, or that attempt to recapture investment outlays tooquickly, not only lower the buying power of the dollar, but also may beself-defeating by causing a restriction of markets, lower output, and anarrowing of the return on capital investment. The leadership of labormust recognize that wage increases that go beyond over-all productivitygains are inconsistent with stable prices, and that the resumption of economicgrowth can be slowed by wage increases that involve either higher prices ora further narrowing of the margin between prices and costs.These injunctions were given more precise content in the "Wage-PriceGuideposts" of the 1962 Report of the Council of Economic Advisers.THE COUNCIL'S WAGE-PRICE GUIDEPOSTSThe 1962 Report started from the premise that there are important segmentsof the economy in which large firms or well-organized groups of employeeshave some discretionary ability to affect the levels of their pricesand wages. Such decisions affect the public interest. An informed publictherefore should have standards by which to judge—and, by judging, toinfluence—those decisions. The Council proposed a set of standards forthis purpose as a contribution to public discussion.These standards—like those more generally described in the statementsquoted above—are based on certain arithmetical relationships among outputper man-hour (productivity), wage rates, and prices. These relationshipsshow that, if wage rates increase in line with output per man-hour,prices can be stable while the distribution of income between labor andothers contributing to production remains unchanged.Since this arithmetic is frequently not understood, it will be useful to givean example. If a worker in a particular firm is paid $2 an hour—$80 aweek—and contributes to the production of 200 units a week, output perman-hour is 5 units (200 units divided by 40 hours) and unit labor cost is$.40 ($80 divided by 200 units). If, for whatever reason, output rises by 3percent, to 206 units a week—with no extra labor time required—outputper man-hour is also up 3 percent, to 5.15 units (206 units divided by 40hours). If the wage rate also rises by 3 percent, to $2.06 an hour ($82.40 aweek), unit labor costs will remain at $.40 ($82.40 divided by 206 units). Ifthe price of the product is unchanged, the margin between price and unitI2O

labor cost—available to pay for others' contributions to production—will bethe same. But with 3 percent more units sold, the total amount availableto pay others, including owners, will also rise by 3 percent.If productivity were to advance at the same pace in every industry, thesame result would apply to the whole economy. But productivity grows atdifferent rates in different industries. If the wage rate in each industryshould rise at the same rate as productivity in that industry, the prices ofeach industry's products could be stable, and the distribution of income betweenwages and profits would be unchanged both within each industry andin the entire economy. But some wage rates would rise hardly at all whileothers would rise rapidly. That result would clearly be unsatisfactory, for,after a time, workers with similar skills in different industries would bereceiving widely different wages.Alternatively, the yearly percentage increase in hourly wages and fringebenefits in each industry could be the same, equal to the average yearly percentagerise in output per man-hour over the whole economy. Then theaverage of unit labor costs in the whole economy would be stable, althoughrising in some industries and declining in others. If prices in each industrywere to change correspondingly, rising in some and falling in others, they,too, would be stable on the average. The sharing of gross income betweenlabor and ownership would then be unchanged in each industry, and forthe economy as a whole. This is the arithmetic which underlies the Council's1962 guideposts.The advance of productivity from year to year is far from uniform, eventhough its general trend is reasonably clear. The 1962 Report related theguideposts to the trend of productivity over a period of years, rather thanto year-to-year changes. This meant that the rise in average hourly wagesand fringes should be steady and smooth, not erratic. Moreover, theproblem of trying to estimate the particular movement of average productivityover the period to be covered by a given wage agreement was avoided.Consequently, profits would vary with short-run movements in productivity;and the stable distribution of income between labor and ownership wouldthen be achieved only on the average over a period of years.The 1962 Wage GuidepostThe Report proposed as a general rule that hourly labor compensationshould advance in accordance with the trend increase in productivity in theentire economy. No specific estimate was given of that trend, althougha summary of statistical evidence on the long-run growth of output perman-hour was provided.The general guidepost rule was subject to various exceptions—some explicitlystated and others only suggested. The stated exceptions were these:In the interest of equity, wages of workers who are underpaid because ofweak bargaining power (or other reasons) should rise faster than theaverage, while wages of workers who are overpaid because of exceptionally121

strong bargaining power should rise more slowly than the average. In theinterest of efficiency, wages should rise somewhat faster than the average inindustries with a rapidly growing employment (in order to aid recruitment),and more slowly in industries with labor surpluses. Moreover, workers whocontributed to an extra rise in their own productivity—for example, byconsenting to the relaxation or removal of restraints on the freedom of theiremployers to change work rules or introduce new methods—should beallowed to share in the benefits of that extra productivity gain.The Report suggested, without listing them, that there were other factorswhich could justify deviations from the general rule. One such factormay be the recent history of wage movements: if wages for one group ofworkers have increased faster than the productivity trend in the recentpast, they should rise more slowly now, and vice versa. Moreover, theremight be occasions for the removal of glaring inequities between wages indifferent plants, areas, or occupations which—although they created noimmediate labor supply problems—might do so in the long run if notcorrected. Presumably this would be accomplished both by slower increasesfor the favored groups as well as by faster increases for the disadvantaged.No reference was made to any deviation from the general rule becauseof a rise in consumer prices—an issue to be discussed below.If the wage guidepost were generally observed by organized groups ofworkers with discretion over their wage rates, and there were no excessdemand in the economy, the 1962 Report assumed that compensation inunorganized sectors would rise at the same average rate, equal to the gainin over-all productivity. If this were the case, then hourly wages plusfringes in all industries would rise by about the same percentage, and byabout that same percentage every year. The average of unit labor costs inthe economy Would be unchanged in the average year.But unit labor costs would not be unchanged in each industry. In someindustries—in which the trend of productivity exceeded the generalaverage—unit labor costs would show a downward trend. In others—where the trend of productivity was below the over-all average—unit laborcosts would show an upward trend.The 1962 Price GuidepostThe general guidepost rule for prices was that—in industries in which the trend of productivity about equaled theaverage for the economy, prices should be stable;—in industries in which the trend of productivity was steeper than theaverage, prices should fall; and—in industries in which the trend of productivity was below theaverage, prices could appropriately rise.It has been noted, however, that the over-all productivity gain of anygiven year will diverge from the trend. Such divergences from trend arceven more pronounced in individual industries. Thus in particular years,122

unit labor costs might rise or fall for a particular industry without affectingthe recommended trend of prices for that industry. This would result inyear-to-year changes in the sharing of gross business income between laborand ownership—both in individual industries and in the whole economy.Corresponding to the exceptions to the general wage guidepost, therewere exceptions to the general rule for prices. Prices could rise more thanthe general rule would indicate in an industry in which profits were inadequateto attract the capital to finance a needed expansion in capacity,or costs other than labor costs had risen. Prices should fall, in comparisonwith the general guidepost rule, in industries where productive capacity wasexcessive or where costs other than labor costs had fallen. Prices shouldalso fall, in comparison with the general rule, where "excessive marketpower had resulted in rates of profit substantially higher than those earnedelsewhere on investments of comparable risk."Although the price guidepost was directed only at industries in whichfirms possessed some pricing discretion, the 1962 Report assumed that ifprices in these industries conformed to the guideposts, the average of priceswould also be stable in the other, highly competitive industries (includingagriculture and most services) where firms had no discretion. If this weretrue, then the average of all prices would be stable. And since moneywages would have advanced by the same percentage as productivity, theadvance of real wages would equal the advance in productivity.The Guideposts in Subsequent Council ReportsReports of the Council since 1962 have preserved the general conceptsof wage and price guideposts presented in the 1962 Report. However, theCouncil has given increasingly clear indications of what it regarded as thetrend of productivity which should govern wage movements. In the 1966Report the Council specifically recommended that the general wageguidepost be 3.2 percent a year.Most of the exceptions to the general guideposts, both for wages andfor prices, that were explicitly stated in the 1962 Report have continued toappear in subsequent Reports. However, the possible applicability of theseexceptions has been less emphasized. And the possibility of other, unspecifiedexceptions has not been mentioned. Moreover, whereas the 1962 Report hademphasized that the guideposts were "guides" not "rules," and werepresented as a "basis for discussion," subsequent statements by the Counciland others in the Administration have been interpreted as treating theguideposts as firm, though voluntary, rules, and those who fail to adhereto them as "violators."How the Guidepost Policy Has WorkedIn the areas in which the guideposts were expected to apply—amongstrongly organized groups of workers and in firms which have appreciable123

discretion with regard to their prices—the guideposts were reasonably wellobserved, at least until mid-1966.Strong labor unions are concentrated in manufacturing, mining, construction,and transportation. Data on the average change in hourly earningsor in total compensation for the total private economy are therefore notparticularly helpful in appraising adherence to the wage guidepost.The most relevant figures are the fragmentary data on important newcollective bargaining settlements referred to in Chapter 2. These indicatethat until the second half of 1966 the median of such settlements (excludingconstruction) was only modestly in excess of the general wage guidepost.(However, since many were below the median, there were also some appreciablyabove.) Construction settlements, on the other hand, consistentlyand significantly exceeded the general guidepost. Especially in 1966, transportationsettlements (for example, airlines and New York subways) werefar above the guidepost. Within manufacturing, automobile wages advancedat a rate much above the guidepost, and recent settlements in theelectrical equipment manufacturing and telephone industries also wereabout 1 /2 percentage points in excess.Nevertheless, a number of the most significant union settlements—includingthe key steel bargain of 1965—were at or close to the generalguidepost.It is difficult to generalize about the extent to which the price decisionsof firms with price discretion have adhered to the guidepost. It is clear thatsome significant price reductions which the guidepost would have suggestedhave not occurred. Automobile prices are doubtless such a case. Steelprices have edged up only moderately, on the average, but it is possible thatthe guidepost would have permitted some slight increase. The pricing ofaluminum—particularly of fabricated aluminum products—could surelynot have been consistent with the general guidepost. Producers of steel andaluminum have argued, however, that their relatively low profit positionscalled for some price increase in order to retain or attract needed capital.Other important price increases about which guidepost questions might beraised include those for newsprint, gasoline, alloy and specialty steels, somechemicals, and agricultural machinery.For cotton textiles, a sharp decline in the cost of raw cotton would havesuggested price reductions; but it can be argued that no individual producerin this highly competitive industry has significant discretion about hisprices, and that what happened was a purely supply-demand response. Thisargument will be tested by what happens to cotton textile prices in themonths ahead. Prices of machine tools and of many other types of industrialequipment have undoubtedly risen substantially faster than costs. However,in view of the excess demand for this category of goods, it seems clearthat producers have practiced restraint, and that—in a purely competitivemarket—prices would have risen faster and farther.124

In the minerals industries, increases in sulphur and the small increase incopper (until January 1967) again are cases in which price restraint hasclearly held prices below levels which would clear the market, even thougha pure guidepost policy might not have implied any price increase. Moreover,in these cases, the possible need for higher prices to encourage the useand development of marginal resources complicates any judgment of thepublic interest in these prices.In general terms, the greatest failure of observance of the price guidepostlies in the failure to reduce prices on a considerable number of the productlines of a large number of industries. As Chapter 3 has indicated, a numberof the price increases that have occurred in manufacturing and miningindustries undoubtedly had some justification in higher costs. But offsettingprice decreases have been far too few.GOVERNMENT ACTIVITIES TO PROMOTE GUIDEPOST ADHERENCEThe 1962 Report proposed the guideposts as a standard for the publicto use in judging the extent to which private price and wage decisions wereconsistent with the public interest in a noninflationary economy. However,the message was directed not merely to the public but also to labor and tobusiness. The guideposts were designed to define more precisely to laborand business the Government's view as to what the public interest requiredof them. And it was obviously important that labor and business—as wellas the public—should understand why observance of these standards wasin the public interest, and why it was also in the long-run interest of bothlabor and business.Clearly, it was not enough merely to publish these standards and assumethat the job was done. The public does not have the information that wouldpermit it to apply the guidepost standards to particular cases of wage or pricemovements. Some reporting is necessary to help the public make intelligentjudgments of labor and business behavior. Likewise, so far as businessand labor are concerned, the educational process is not achieved by asingle annual statement.Thus, it is clear that the Government must take an active and continuinginterest in interpreting and explaining the guideposts to both labor and industryon the one hand, and to the general public on the other. Indeed,there may even be some conflict between the objective of effectively persuadinglabor and industry to accept voluntarily the disciplines implied by theguideposts, and that of informing the public so that it can focus its judgments,favorable or unfavorable, concerning particular wage settlementsor price changes. The Administration has been gradually feeling its waytoward a proper definition of Government's role in the process of informationand persuasion. Undoubtedly some mistakes have been made. Butsome real progress has been achieved.Three major types of activities have been undertaken. First, the membersof the Council of Economic Advisers, various Cabinet and sub-Cabinet240-782 O—67- 125

officials, and the President himself have made numerous addresses about theguideposts to business and labor groups and to the general public. As mightbe expected, the Council of Economic Advisers has taken a leading part inthis activity, with literally dozens of speeches, articles for the popular press,and radio and television appearances. Many of these have received substantialcoverage in both the general press and in the specialized press of anumber of industries.The second type of activity has been an increasing number of privatecommunications and meetings between Government officials and leadersof business and labor designed to underscore the public interest factor inwage and price decisions and to solicit the cooperation of union and corporateleadership in specific situations. With labor organizations, most of thisactivity has been carried on by the Secretary of Labor and his associates.With industry, the Council of Economic Advisers, the Secretaries of Commerce,Treasury, Agriculture, Interior, Defense, and others have participated.However, since the largest number of these contacts has been madeby the Council of Economic Advisers, it seems appropriate that the Councilshould provide a report on these activities.In the past year, the Council became involved in regard to perhaps 50product lines for which price increases were either imminent or had beenannounced by one or more firms. In the typical case, the Council learnedin one way or another of a price increase that was contemplated or thathad been announced by one or more producers. In some instances, companiescontemplating price changes themselves brought the subject to theCouncil's attention. Where the Council learned of an important actual orimpending price increase, its procedure was to send letters-or telegrams toall principal producers of the product. In urgent cases, telephone callssubstituted for letters or telegrams. If some firms had already announcedprice increases, they were asked to reconsider. Those who had not so announcedwere asked to avoid them if possible. In all cases, an invitationwas extended to meet with the Council to discuss the matter.In the private discussions which often followed these communications,the companies explained the reasons why a price increase was consideredappropriate, and the Government representatives presented any informationavailable to them which appeared relevant to the price decision.The Council recognizes in these meetings that it ordinarily does not havethe detailed information which would permit a clear judgment as to theappropriateness of the proposed price change on either the basis of theguidepost standards or other relevant considerations. But it explains thepublic interest in price stability, and the company is urged to take thisinterest fully into account in making its decision. These meetings areordinarily not reported publicly, unless revealed by the company involved.In a few of the cases that arose in 1966, in which the price problems ofan industry appeared to be rather general, a number of the leading producerswere invited to meet with Government representatives to discuss the price126

situations in their industries. Some of these meetings were publiclyreported.The outcome of these activities cannot be fully known. In a number ofcases, it is clear that price increases which were announced or contemplatedhave been rescinded, reduced in amount or coverage, or delayed. Somecompanies have indicated that their subsequent price decisions were affectedeven where their decision in the immediate case was not changed.The response on the part of the businesses involved has been extremelyencouraging. Only in rare cases has the Council been told that it had noright to question private decisions. Almost invariably the companiesinvolved have recognized a larger public interest in their pricing decisionsand have made a sincere effort to take that interest into account. Somelarge companies agreed to give the Council advance notice of their intentionto change prices.This activity will be continued by the Council. It helps to make clearthe rationale of the guideposts to business managements in situations wheretheir interpretation may be unclear. And it provides the Council a betterunderstanding of the problems faced by responsible business leaders.As a third type of activity, the Council has, on occasion, issued formalstatements to the public commenting on particular wage or price decisions.In the past year, these included statements on wage increases for employeesof the New York Transit Authority, the five airlines involved in the July-August strike, and the American Airlines case. It issued public statementson price increases for steel (on several occasions), aluminum, copper, andmolybdenum. It responded informally to press questions in other cases.BASIC PROBLEMS FOR WAGE-PRICE POLICY IN 1967Two important developments have created the major problems for wagepricepolicy today. The first is that consumer prices have risen by 3.3percent in the past 12 months, which makes organized workers—evenin unions which were previously disposed to cooperate with the Government'spolicy—unwilling to contemplate settlements at or close to theguideposts. And it gives unions which were never disposed to cooperatean additional reason for not doing so. The second development is thatcorporate profits have increased considerably more than aggregate laborincome, especially when measured from the slack years of the late 1950'sor the recession year of 1961. This provides a second reason for labor'sresistance to the guidepost.There can be no question that some part of the rise in consumer pricesis due to past failure to observe the guideposts, both by organized laborand by business. And some part of the faster rise of corporate profits hasbeen due to.the failure of some businesses to make their price decisionsconform to the guidepost principles (particularly by not reducing someprices when costs fell).127

But it is clear from Chapter 2 that the primary source of the rise in consumerprices lies in areas to which the guideposts have no applicability: infarm products, where prices have risen considerably, despite rapid productivitygains; and in services, where wages and professional incomes of unorganizedworkers have also risen rapidly.So far as the rise in corporate profits is concerned, much of it would haveoccurred had the guideposts been precisely followed. As noted above,the year-to-year advance of productivity frequently diverges from the longtermtrend during years of rapid expansion, and did from 1962 at leastthrough 1965. Moreover, greater sales volume and higher operating ratesmeant lower unit capital costs, thus adding to profits. Consequently, evenif guidepost principles on wages and prices had been literally observed,profit margins during such a period would have increased sharply, andaggregate profits even more so. Likewise, the leveling off of profits in1966—when productivity gains slowed down—is consistent with the guidepostexpectation.Nevertheless, the rise in consumer prices and the increasing share of profitsuntil the first quarter of 1966 are facts that cannot be disputed nor explainedout of existence. And they cannot fail to influence the behavior of wagesin 1967. Through the effect of wages on costs, they will also influence prices.A WAGE-PRICE POLICY FOR 1967The main issues for wage-price policy in 1967 are these:(a) Should the guidepost for wages be adjusted to recognize in someway the recent increase in living costs?(b) Should further recognition be given to special factors—otherthan those previously recognized—which appropriately justify exceptionsto the general guidepost principles?(c) To what extent should profit margins absorb cost increases?Recognition of Higher Living CostsThe Council recognizes that the recent rise in living costs makes it unlikelythat most collective bargaining settlements in 1967 will fully conformto the trend increase of productivity. But it sees no useful purpose to beserved by suggesting some higher standard for wage increases, even on atemporary basis.The only valid and noninflationary standard for wage advances is" the productivityprinciple. If price stability is eventually to be restored and maintainedin a high-employment U.S. economy, wage settlements must onceagain conform to that standard.While it can be expected that many wage settlements in 1967 will exceedthe trend increase of productivity, it is obvious that if, on the average, theyshould exceed it by the amount of the recent increase in living costs, pricestability could never be restored. If the average wage increase in 1967were to include a full allowance for productivity plus an additional margin128

to "compensate" for past increases in living costs, unit labor costs would riseat a rate which would require living costs to continue their rapid rise.In this connection, it must be recognized that some part of the advanceof consumer prices represents a transfer of income to public uses. MostState and local governments are compelled repeatedly to raise indirect taxrates to finance the expansion of essential services. These indirect taxesenter into prices, accounting for 0.2 percentage point of rise in the consumerprice index in 1966. And in 1967, there will be no offset to the rise in theseindirect taxes (as in 1965 and 1966) from reduced Federal excises. If everygroup attempted to offset the burden of these higher indirect taxes by a compensatingrise in money incomes, no transfer of real resources to publicpurposes could be achieved.It is not expected that market forces in 1967 will again require that averagewages in the largely unorganized sectors—agriculture, trade, and services—should rise faster than in the organized segments—manufacturing, mining,construction, and transportation—in order to promote an efficient allocationand use of labor. But the higher minimum wage effective in 1967 willhave its principal impact on wages in the unorganized sectors, and in thelargely unorganized low-wage segments of manufacturing. Thus there willbe some continued pressure on costs and prices originating in wage increasesoutside of the organized sectors.In 1967, the national interest continues to require restraint in wagesettlements; indeed, it is more essential than ever that restraint be practicedin order to turn the trend of prices back toward stability. If restraintcannot mean an average wage advance only equal to the rise in productivity,it surely must mean wage advances which are substantially less than theproductivity trend plus the recent rise in consumer prices.Although the Council recognizes that some allowance will frequently bemade for higher living costs in 1967 settlements, it continues to believethat arrangements which automatically tie wage rates to changes in consumerprice indexes will contribute to inflation. One union may be able toprotect its members in this way against any deterioration in its real wage orany real impact from increased indirect taxes. But it does so only by imposingmore of the burden on others. And if all unions—and other groups insociety—were to succeed in tying compensation to consumer prices, thearrangement would become a vast engine of inflation, which, once it beganto roll, would continue to gain speed.Guidepost ExceptionsThe most frequent criticism of the present wage guidepost—after thecriticism that it fails to allow for the rise in consumer prices—is that it failsto provide sufficient exceptions for the many special and individual circumstancesof which account must be taken in wage negotiations. This criticismrequires consideration.129

A guidepost exception has always been made for low wages. In a yearin which the minimum wage will advance 11 percent, from $1.25 to $1.40an hour, with an inevitable impact on wages previously near the newminimum, this exception is obviously significant. The fact, however, thatfew strong unions exist among low-wage workers gives the exception onlylimited relevance for collective bargaining.It surely does not justify large wage increases for high-wage unions.Indeed, the productivity arithmetic suggests that, if an exception for lowwageworkers is to be meaningful in permitting low-wage workers to receiveincreases in real wages, high-wage workers who have profited in thepast from exceptionally strong bargaining power must respect the counterpartexception that their wage increases should be less than the average.Second, the guidepost principle has always contained a clear exceptionfor wage changes that serve an economic function by assisting in the reallocationof labor toward shortage occupations and industries. Thus, forexample, no complaint has ever been made in the name of the guidepostswith respect to the large wage increases recently received by nurses.Indeed, in a high-employment economy, the importance of differentialwage changes as an instrument of labor reallocation is greatly increased,and, this exception is more important today than in earlier years. However,the Council suggests that, as a general principle, an exception to theguideposts for workers in a shortage occupation should be claimed onlywhere the union involved stands ready to lift every artificial barrier toentry into the occupation, and to cooperate fully in public and privateefforts to train whatever numbers of workers may desire to enter the occupation.Moreover, as indicated in Chapter 2, the remaining labor shortagesthis year will be concentrated in unorganized professional and technicaloccupations.Other exceptions have frequently been proposed for incorporation ina national wage policy.One such proposal is to allow for the narrowing of differentials betweenwage rates paid in different industries or by different employers for similarwork—the so-called issue of "comparable wages." To the extent that suchdifferentials may interfere with a rational allocation of labor, their correctionis already encouraged by the exception just discussed.The public interest obviously requires that wage settlements pay appropriateattention to factors of comparability. But it cannot accept inflationarysettlements ever)' time this justification is alleged.At least within a single labor market area, it is surely desirable that workersin occupations requiring similar training, skill, education, and responsibilityshould be paid the same wage. This is less obvious as between labor markets.Even within labor markets, some wage differentials may reflect the factthat one employer finds it worthwhile to pay above-average rates in orderto insure low turnover, good morale, and greater selectivity in hiring, whileanother prefers to pay lower rates and forego these advantages.130

It is probably true, on the whole, that the dispersion of wages for similarwork by similar workers is larger than it should be from the point of view ofeither efficiency or equity. But the wage comparisons made in collectivebargaining disputes often have little or no relevance either to resource allocationor to equity. Very often the wage comparisons in collective bargainingare only part of a game of follow-the-leader which, at best, is irrelevantto resource allocation and, at worst, speeds up a wage-price spiral.Many recent instances in which outsized wage agreements have emergedfrom collective bargaining—based on claims that such increases were necessaryin order to achieve wage comparability—have created more problemsof inequity and inefficiency than they have resolved. Meaningfulwage comparisons should be made not only with wages that are higherbut also with those that are lower. Otherwise, wage increases to achievec 'comparability" may actually reduce it. Unions can always find somegroup of workers more highly paid than they—whether or not all otherconditions are similar. If all corrections of such "inequities" are upward,labor cost inflation is inevitable.One recent important collective bargaining dispute produced a highlyinflationary uniform percentage increase for the entire work force involved.The justification was that an increase of this magnitude was necessaryto correct what may have been genuine disparity between the wagesof a small group of specialized workers and similar workers in other employments.The mediation committee which recommended the settlementrecognized that, for the great majority of the work force involved, wagerates were already as high as or, higher than those for comparable workers.But they could not recommend des#oying the customary relationshipbetween the wages of those workers for whom the disparity wasfound to exist and the wages of all other members of the work force.This is a clear recipe for inflation.Another exception frequently urged is that, in industries with rapid productivitygains, wages should rise faster than the average. If such an exceptionwere made, it would necessarily impart an inflationary bias to thesystem—for no one argues that wages will or should rise less rapidly or notat all in industries with little or no productivity gain.It is clearly in the public interest for unit labor costs and prices to fall inindustries with relatively high productivity gains. In the long run, fallingunit labor costs do result in falling prices (except where there are offsettingincreases in other costs). But the long run may be too long for labor's andthe public's patience. And sometimes the very factors that produce fallingcosts may work against price reduction. For example, the industries inwhich labor costs are falling are often those in which demand, and thus production,is expanding most rapidly—a situation which weakens rather thanstrengthens the competitive forces driving down prices.If there is a long lag between a reduction in labor costs and a reductionin prices, it is difficult to make a convincing case that high wage settlements

in industries with high productivity growth are not in the public interest.As the 1964 Report (p. 120) put it:Such circumstances pose a most unattractive dilemma from the viewpointof the public interest. On the one hand, extra increases in wages or fringebenefits might tend to spread to other industries, creating a general cost-pushfrom the wage side. On the other hand, there is no justification, on eithereconomic or equity grounds, for distributing above-average gains in productivityexclusively through the profits channel. The real way out of thisdilemma is for the firms involved to remove its cause by reducing prices.That statement is as important in 1967 as it was in 1964. Indeed, it formsone of the most significant elements of a national price policy for 1967.Another of the reasons given for an exception to the wage guidepost isability to pay. In practice, this refers to the profits of the bargainingemployers. Ability-to-pay considerations are, of course, often related tothe industry's own productivity trend. Industries with rapid productivitygains, falling labor costs, and stable prices are industries in which profits haverisen.But ability-to-pay considerations arise independently in another context.In any period of rapid expansion toward full utilization, profits inevitablyrise faster than total employee income—just as profits fall more rapidly whenutilization rates decline. The past 5 years have been such a period of risingprofits. It is not surprising that trade unions seek to share in the profits generatedby prosperity.The record shows, however, that attempts on the part of unions to redistributeincome from profits to wages through excessive wage increasesin high-profit industries results primarily in higher prices in those industries.When this happens, the effect is to redistribute real income from the restof the community—who are mostly other wage earners—to the workers inquestion, with very little redistribution from profits to wages.To avoid a wage-price spiral it is therefore essential that firms withdiscretion over prices—and particularly those with unusually high profits—pursue price policies which will not invite excessive wage demands.Price Policy for 1967The foregoing discussion (and that of Chapter 2) has indicated theessential character of the problems which businesses with pricing discretionwill face in 1967:(1) Wage contracts newly negotiated in 1967 will tend to raise the unitlabor costs of many firms and industries.(2) Nevertheless, many important industries will continue to operate in1967 under labor contracts negotiated in 1965 or 1966, which often will beconsistent with declining unit labor costs.(3) Although the cost of purchased industrial products may frequentlybe higher in 1967 than in 1966, the^purchase cost of some raw materialswill be lower.132

(4) Many firms in 1967 will be using new and modern capital equipmentinstalled during the past year, and will be under less pressure to operatemarginal units. Often this will involve substantially lower costs.In short, the cost picture for price setters in 1967 will continue to be amixed one.Although average profit margins of manufacturers declined in the secondhalf of 1966, they were higher for the entire year—at least as a percentageof equity—than in any prior year since the highly inflationary year of 1950.In the past, profit rates like those recorded in 1966 endured only for briefperiods. Profits rose rapidly in cyclical expansions. But as the economyreached and quickly passed a cyclical peak, reductions in capacity utilizationretarded the growth of productivity and intensified competitive pressures,with a resulting erosion of profit margins. If public and private policiesnow succeed in maintaining a steadily expanding economy, it followsthat the profit margins which were feasible only in the boom stage of aboom-bust economy—and therefore may have been appropriate in thatstage—are inappropriate in a steadily prosperous economy.Once firms can become accustomed to operating in a more stable environment,the profit margins which they now seek to achieve in periods of highutilization can be reduced, as no longer necessary to make up for the low andfrequently inadequate profits of periods of slack and recession. In fact,profit margins not only should be lower than in the boom phase of a cyclicaleconomy, but should be reduced on the average because operations in suchan environment carry lesser risk.It is true that an adjustment to lower profit margins may be feasible andappropriate only if steady economic advance can be maintained. But it isequally true that such an adjustment of margins may itself be required if asteadily high employment economy is to be maintained.In an economy which grows steadily but does not outrun the growth ofcapacity, there will be vigorous competition, and, ultimately, profit marginsin most industries should seek an appropriate level. But competitive pressureswork slowly. In industries where a small number of leading firmspossess strong market power, they work very slowly indeed. Firms in thoseindustries in which market power, combined with strong demand, has pushedprofit margins to record levels, have a special responsibility in price-makingat this critical time.If, in 1967, firms with discretion as to their prices should follow pricingpolicies which even maintain present margins, the opportunity for a significantlyimproved price record will be compromised. It would speed upthe rise in living costs, and it would again pose inviting targets for inflationarywage demands by unions.To assume steady movement toward price stability in 1967, the publicinterest requires that producers absorb cost increases to the maximum extentfeasible, and take advantage of every opportunity to lower prices.133

In so doing, they will make an important contribution to strengtheningAmerica's international competitive position and to a climate that willpermit the economy to maintain the forward momentum which will preserveand enlarge the gains of the past 6 years of rewarding prosperity.134

Chapter 4Selected Uses of Economic GrowthAGREAT FINANCIER is said to have remarked that compoundinterest is the eighth wonder of the world. No doubt he was referringto its remarkable properties in enhancing private fortunes. However, thoseconcerned with national policies for economic growth have also becomeaware of the power of compound interest. If the American economy continuesto grow at 4 percent a year, output will double in 18 years, triple in28, quadruple in 35. If that potential is wisely and efficiently shared amongcompeting uses, great advances in the economic well-being of all Americansare assured.Literally billions of private and public decisions determine the distributionof the growing gross national product (GNP) among consumption, investment,and Government purchases, and—within each of these categories—among the myriad of individual goods and services the economy can provide.Consumption decisions of households and the investment decisions ofbusiness firms determine the uses of output in the private sector. But thesedecisions are inevitably affected by public policies. Monetary and creditpolicies and changes in tax rates and tax incentives restrain or encourageconsumer and business outlays and influence their composition.The budget-making process at Federal, State, and local levels determinesthe share of output used to meet public needs. Taxes and public spendingrepresent a substantial share of the national product. Moreover, in agrowing economy with given tax rates, tax revenues move upward stronglyover time and call for continued decisions on increases in public expenditures,tax reductions, and debt management. Public policy cannot beneutral in its impact on the allocation of the gains from economic growth.How these gains should be distributed must be squarely faced as an issue ofpublic policy.PRIVATE AND PUBLIC GOODSHouseholds directly purchase the greater part of our national outputto meet their wants and needs as consumers. Personal consumption expendituresnow constitute 63 percent of GNP. The share has been as low as52 percent in World War II and as high as 83 percent in the depression135

year 1932, but has recently been relatively stable. Most of the futureincrease in output will surely take the form of more goods and services forconsumers.CONSUMER CHOICEGrowing incomes will enable households to enjoy continuing increases intheir standards of living. For those families which are now poor, higherincomes will mean more of those types of goods and services which mostAmericans now regard as necessities—adequate and varied diets, sufficienthealth care, satisfactory housing, a good education for their children.Even for Americans well above the poverty line, a significant share of thegrowth in incomes will be devoted to these basic items. With higher incomes,the proportion of the budget spent for various types of goods shifts in fairlypredictable ways—toward consumer durable goods, travel, recreation, andother leisure-time activities. Rising incomes provide for more freedom, moresecurity, more comforts, more cultural opportunity, and more variety in life,permitting the greater fulfillment of personal aspirations.EXTERNAL EFFECTSThe buyer receives satisfaction from most purchases he makes, and hepays the cost. Society as a whole has no important concern about whetherthe individual chooses to eat more steak and to buy fewer new clothes,or the reverse. But there are many instances in which one man's consumptionmay affect his neighbors significantly. In the technical language ofeconomists, many economic actions have important "external effects" onpersons who are not decision-makers in the transaction and whose interestsare not normally reflected. Indeed, these actions are increasing in numberas the size, complexity, and interdependence of the American economyincreases.An extreme form of external effects occurs in the category of commoditiescalled "public goods." Once created, their use cannot be effectively limitedto a group of paying customers or subscribers. A health program to eradicatecommunicable diseases is an example of a public good. Police protectionand national defense are other examples—where everyone can benefitwithout reducing benefits available to others. Since no one can be excludedfrom the enjoyment of public goods, each person would be temptedto let his neighbor pay for them, while he spent his own income on goodswhich he enjoys exclusively. For this reason, decisions to supply publicgoods are everywhere made collectively and paid for collectively by taxes.In less extreme, but more typical cases of external effects, private decisionswould lead to some production and consumption of goods, but not theright amount from the standpoint of society as a whole. The modernizationof one house may help to upgrade an entire block, but might not be undertakenif the homeowner had to pay the full cost. The smoke from one136

man's chimney can spread soot far and wide—and might be stopped if theoriginator paid the full costs he is imposing on others. Such cases of externalbenefits, which extend to roads, parks, and education, are important reasonsfor the growing responsibilities of Federal, State, and local governments.Another part of these responsibilities stems from a social concern forequality of opportunity and relief of human misery. There is growingrecognition that many Americans, due to accident of birth or circumstance,do not share in the blessings of a rich society, have little opportunity of eversharing, and moreover, may well see their children, too, denied an opportunityto compete on an equal footing. Programs for income maintenance,health, education, and cities reflect this recognition and social concern, aswell as awareness of the external costs and benefits.In meeting social responsibilities of all kinds, there is often a choicebetween public production and public encouragement to private productionthrough subsidies, regulation, or financial aids to purchasers. Forexample, a comprehensive medical insurance system may reduce theneed for public hospitals for the poor. Decisions in such matters have beenmade pragmatically; many are perhaps accidents of history. The postalservice is nationalized while telephone and telegraph service is provided byregulated private enterprise. Yet these decisions have produced viableresults. In contrast with experience abroad and our own experience inprevious generations, there is no major ideological battle in the United Statestoday over the scope of the Government sector. Public policy now faces upto questions of the Government-private mix in a flexible manner, endeavoringto meet the aspirations of our citizenry with greatest efficiency whilemaintaining an appropriate preference for decentralization in decisionmaking.The increased wealth of the United States permits us to face directlythe problems of poverty, lack of education, ill health, and urban decay asnational issues requiring a coordinated policy effort. Many of theseproblems can be solved most efficiently by State and local governments ifthey have the resources. Other problems require national policies. Thepace of progress in meeting them will be held back as long as our commitmentsin Vietnam absorb a substantial share of our economic growth.But, even in this period, progress can and will be made. And, when thewelcome opportunities of peace arise, we will be ready to intensify ourefforts to build a better America.The following sections of this chapter discuss selected areas in whichthe provision of public goods, the external effects of economic decisions, orthe achievement of humanitarian goals will absorb part of the additionaloutput which constitutes economic growth. The conquest of poverty,improvements in education, better health, and the rebuilding of Americancities are expensive. They will make substantial claims even on our growing137

affluence. Choices will have to be made—not to solve one problem at theexpense of another, but rather to allocate resources in such a way as to permitbalanced progress on many fronts.INCOME MAINTENANCEPoverty in the United States today afflicts 32.7 million Americans directlyand every American indirectly. But poverty is curable, and the Nation isnow committed to using a share of the fruits of growth to stamp out thismalady.POVERTY AND WORKBy definition, the poor have incomes inadequate to provide even the basicessentials of a decent life in our society. A household is statistically classifiedas poor if its total money income falls below levels specified by the Social SecurityAdministration, currently $1,570 for an unrelated individual, $2,030for a couple, and $3,200 for a family of four. Obviously, any such statisticalclassification ignores such factors as assets, particular family needs, andthe variability of income. But it helps to illuminate the extent and characterof poverty.In the broadest sense, the poor comprise two general categories. Thefirst, but smaller, includes families headed by an able-bodied male breadwinnerwhose wages are low or whose employment is irregular. Amongnonwhite families in the South, even breadwinners holding full-time jobsoften do not earn living wages (Table 19). For the entire Nation, however,only 6 percent of all families headed by a fully employed male workerwere below the poverty line in 1965, but this group includes 26 percent ofall poor families. Large family size was a characteristic of many of thesehouseholds. Another group—15 percent of all poor families—was headedby a chronically unemployed man or by one who worked only part-time.Poverty among families with able-bodied male breadwinners has declinedsubstantially in recent years. For example, improving nonfarm job opportunities,which facilitated migration from the farm, also meant a welcomemigration out of poverty for many rural families. The number ofpoor farm households fell by 53 percent between 1959 and 1965 (Table 20)and represented only 6 percent of all poor households in 1965, althoughsome of the formerly poor farm families who acquired urban addressesremained poor.But most poor families are headed by persons who cannot or should notbe in the labor force, at least on a full-time basis. The aged, the familyconsisting of a female head with children, and the disabled are increasinglybecoming the dominant groups of "hard-core poor," accounting for abouthalf of all poor families in 1965. Rapid economic growth and full employ-138

TABLE 19.—The poor and their work experience, 1965 *Work experience of head of householdPoor households(millions) %Number(millions)Poor familiesIncidence ofpoverty(percent) 3MaleheadFemaleheadMaleheadFemaleheadMaleheadFemaleheadTotal.Aged (65 years and over).All other...... ...Did not work in 1965..Ill or disabledOther reasonsWorked at part-time jobs.Worked at full-time jobsEmployed 39 weeks or less...Employed 40-49 weeksEmployed 50 weeks or more.0-3 children4 or more children.SouthsWhite*Nonwhite "..Rest of country«6.11.84.3.53.0.41.81.0.75.4 4.82.4 1.23.0 3.61.5 .5.2 .31.3 .2.5 .41.0 2.7.4 .6.1 .4.4 1.7.1 1.0.1 .7.2 .9.1 .5.1 .41.91.5.8.1.811372940664423492415116524115110White«Nonwhite8221 Numbers in this table are based on the Current Population Survey. An enlarged survey of the poor,now in progress, may show somewhat different results due to sampling error and the use of different interviewingtechniques.2 Households are defined here as the total of families and unrelated individuals.3 Poor families as percent of the total number of families in the category.* Percent not shown because of small number of families.« Estimated by Department of Health, Education, and Welfare.«Less than 50,000.NOTE.—Poverty is defined by the Social Security Administration poverty-income standard; it takesinto account family size, composition, and place of residence.Detail will not necessarily add to totals because of rounding.Sources: Department of Commerce and Department of Health, Education, and Welfare.ment can do little to solve their problems. For them, cash benefits areessential.For those of the poor who can work full time, economic growth and fullemployment will continue to erode poverty. But for them, too, cashbenefits are required to alleviate the immediate rigors of poverty, whilethey take training, while they are being relocated, while they seek andfind jobs.INCOME MAINTENANCE AND THE POORIncome maintenance programs financed by Federal, State, and localgovernments provide some support for millions of the poor. The poor,like others, enjoy protection under major social insurance programs,such as Old-Age, Survivors, and Disability Insurance (OASDI),Health Insurance for the Aged, and Unemployment Insurance. Roughlyone-third of OASDI benefits, which totaled $18 billion in 1965, went139

TABLE 20.—Number of poor households and incidence of poverty, 1959, 1962,and 1965TotalCharacteristics of head of householdAged (65 years and over) 3WhiteMaleFemaleNonwhiteMale..Female.All other *FarmAddendum:WhiteMaleFemaleNonwhiteMaleFemaleNonfarmWhiteMaleFemale_ __-NonwhiteMale .FemalePoverty income gap 7Number of poor households(millions)»195913.43.93.51.61.9.4.2.29.41.51.11.0.1.4.4.18.05.73.52.22.21.31.0196212.63.83.31.41.9.4.2.28.9.9.7.6.1.2.27.95.53.52.02.41.31.0Billions of dollars196511.53.83.41.32.1.5.2.37.6.7.5.4.1.2.27.04.92.92.02.01.1.913.7 12.8 8 11.01959Incidence of poverty(percent) 247 47 3738 38 2968 68 581962 196524492241193947 39 3736 28 2463 56 5573 64 6566 54 5475827818201531402434 25 1832 24 1757 39 4086861881791776761515 14 1210 10 837 34 30Percent of GNP2.8 2.3 | 81.61 Households are denned here as the total of families and unrelated individuals..2 Poor households as percent of the total number of households in the category.3 Includes only one- and two-person households with head aged 65 years and over.4 Includes all households headed by a person under 65 years of age and families of three or more headedby an aged person.»Less than 50,000.e Percent not shown because of small number of households.7 The poverty income gap is the amount which would raise money income of all poor households over thepoverty threshold.s Preliminary.NOTE.—Poverty is denned by the Social Security Administration poverty-income standard; it takes intoaccount family size, composition, and place of residence. Poverty-income lines are adjusted to take accountof price changes during the period.Detail will not necessarily add to totals because of rounding.Sources: Department of Commerce and Department of Health, Education, and Welfare.to the poor and another two-fifths went to households which otherwisewould have been poor. Other programs, such as Public Assistance, FoodStamps, and Commodity Distribution, provide most of their benefits to thepoor. Expenditures under these programs totaled nearly $7 billion in fiscalyear 1966.Public AssistanceThe major income maintenance program aimed directly at the poor isPublic Assistance. In many respects, this program still reflects conditionsthat surrounded its adoption in the depression years of the 1930's, whenPresident Roosevelt saw one-third of the Nation as economically deprived.140

At that time it was designed to make cash payments to those who were unemployableand unable to help themselves because of identifiable family orpersonal characteristics, including old age, death or absence of the breadwinner,disability, and blindness. But the program has never been adequate,and with the Nation's growing affluence its shortcomings are even lesstolerable.The States pay 41 percent of the costs of Public Assistance, and they establishstandards of eligibility. In response to general financial pressures,many States have cut costs by establishing low standards of need and imposingstringent requirements relating to length of residence, other incomeand assets, and relatives' responsibility. Less than half of the poor fall withinthe Public Assistance categories; as a result of State eligibility requirements,only 22 percent actually receive any help; and for those on the rolls actualpayments typically fall far below need even as defined by the State itself.One of the Public Assistance programs, Aid to Families with DependentChildren (AFDG) can actually promote family dissolution. Because it excludesfamilies in which there is an employed (or in some States, employable)adult male, a man unable to provide adequately for his wife and childrencan make them eligible for cash payments only by deserting them. TheUnemployed Parent Program under AFDC, introduced in 1962 and now inoperation in 21 States, therefore represents a gratifying step toward improvingthe present Public Assistance system.However, other problems with Public Assistance remain. For example,some of those who receive aid may be discouraged from helping themselves.The cash payments are intended for those with no earning capacity andare curtailed to the extent that recipients have earnings. While relativelyfew recipients of Public Assistance can work, some mothers with dependentschool-age children and most fathers under the Unemployed Parent program,who might supplement their benefits with earnings, are discouragedfrom making the effort by knowledge that their assistance payments will bereduced one dollar for every dollar of earnings.The President is proposing important amendments to the Public Assistancesystem this year. They would require each State, as a condition for Federalsupport, to make assistance payments at least sufficient to bring householdsup to the needs standards which the State has established and toupdate these standards as conditions change. The proposed legislationwould also alter the payment formulas to encourage self-support.The categories of persons eligible for aid under Public Assistance were setup in the 1930's. At that time, poverty was so extensive that benefits couldbe provided only to those obviously unable to support themselves.But these categories no longer seem adequate for a rich and prosperoussociety. In particular, it is necessary to consider the plight of one group excludedfrom virtually all existing programs—the 4 million poor households240-782 0—67 10141

headed by an able-bodied male under 65 who is, nevertheless, an inadequatebreadwinner. In the longer run, education, training, health and rehabilitationservices, counseling, employment information, and other supportiveservices are the key escape routes from poverty for potential full-time workerswith currently inadequate earning capacity. In the interim, ample benefitsto families with children have particular priority because they can help toend the poverty cycle in which blighted environment denies poor childrenthe skills and the attitudes they need to break out of poverty as adults.Mothers with dependent children have particular needs for day-care schools,family management education, and transportation. Special programs, keyedto special problems, can reinforce a more general program of cash paymentsbased on need.TOWARD IMPROVED INCOME MAINTENANCE FOR THE POORIdeally, an income maintenance system should provide benefits on thebasis of need, without degrading means tests, while preserving incentivesfor self help. These goals could be achieved through broadeningthe Public Assistance program or through new techniques, such as a minimumincome allowance or negative income tax. Much public attentionrecently has been focused on methods of guaranteeing a minimumincome, perhaps sufficient to eliminate poverty altogether.In considering these or any other new approaches, the question of incentiveshas to be faced squarely. The poor cannot be expected to workwithout pay, any more than can the rich. If sufficient cash support wereoffered to raise each poor household's income to a fixed minimum, such asthe poverty threshold, then recipients would have no incentive to obtainoutside earnings up to the level of the income guarantee. Every dollarearned would be offset by a dollar of cash support lost. Indeed, somepersons whose incomes were only slightly above the poverty threshold mightfind it attractive to reduce their work effort and to receive cash benefits.Incentives for self help would thus be dulled. But if benefit payments werecut back by only a fraction of any additional outside earnings, some benefitswould be paid to families with total incomes above the poverty level, increasingthe cost. There is an abundance of assertion and anecdote regarding theimpact of work incentives on low-income Americans, but little real knowledge.The Office of Economic Opportunity and the Department of Health,Education, and Welfare are each planning to undertake some pilot studiesin the coming year.SOCIAL SECURITYUnder the Social Security Act of 1935 and successive amendments,spectacular advances have been made toward providing all Americans withbasic social insurance protection against loss of income due to old age andretirement, long-term disability, and joblessness. Most social insuranceprograms provide protection against these designated risks for the whole142

population, not just for the poor. Old-Age Insurance under the SocialSecurity Act is the basic retirement system for nearly all Americans. Itinsures many Americans against the risk of poverty in their old age:30 percent of the aged would be in poverty but for Social Security. Nevertheless,nearly two-fifths of all aged remain poor. This proportion willdecline under existing law, since new retirees will have longer and higherwage histories which will entitle them to greater benefits.Further liberalization in benefits—particularly in minimum benefits—canhasten the day when all Americans will be assured, upon retirement, of apension adequate to prevent poverty. Americans with incomes well abovepoverty levels also want and are willing to pay for increasing social insuranceprotection. Therefore, the President is proposing a substantial liberalizationof retirement benefits under Social Security, involving an increase in theminimum benefit from the present $44 a month to $70 a month, and a 15percent increase in all other benefits coupled with an increase in the earningsbase. Modernization and improvement of the Federal-State unemploymentinsurance system is also being proposed, in which extended benefits for thelong-term unemployed will be coupled with automatic access to trainingand retraining and other rehabilitative services.In the last Congress, important amendments to the Social Security Actwere enacted to provide health protection for the aged through Medicareand to liberalize Social Security benefits. With enactment of the new proposals,retirement, disability, and unemployment will have been transformedfor most Americans who have worked from risks which had to be borneunaided into contingencies against which a substantial measure of publicprotection is afforded.EDUCATIONOutlays for education have been rising by IOJ/2 percent a year for the lastdecade, making it one of the major U.S. growth industries. Direct costs forformal schooling in the current school year will total $49 billion (Table 21),nearly 6^2 percent of GNP.Education in the United States is both a public and a private undertaking.About three-fourths of the costs of education are paid through governmentbudgets; tuition, endowments, and earnings of private institutions meet theremainder of the bill. The Federal Government has long played a role incertain phases of education and has recently taken new large steps. Still,the bulk of public costs are borne by State and local governments.VALUE OF EDUCATIONEducation provides benefits both for the person receiving it and forsociety at large. For the individual, education produces both quantifiable143

TABLE 21.—Costs of formal education, 1966-67[Billions of dollars]ItemTotalElementaryandsecondaryeducationHighereducationDirect outlays-Student tuition and feesState governmentsLocal governmentsFederal GovernmentEndowment, charity, and earnings of institutions..48.83.614.715.76.18.732.010.715.32.32.816.82.74.0.43.85.9Indirect costs: Forgone student earnings i_.20 to 308 to 1212 to 18i Assuming 75 to 85 percent of students 16 years and over could find empoyment at from $1,000 to $4,500per annum depending on age and previous amount of schooling.NOTE.—Includes current and capital costs of public and private schools; excludes such items as on-thejobtraining and other education outside the school. Data are estimates for school year 1966-67.Detail will not necessarily add to totals because of rounding.Sources: Department of Health, Education, and Welfare and Council of Economic Advisers.benefits, such as the chance for a higher paying job, and intangible rewards,such as the ability to live a fuller life in every sense. Some of these benefitsare private consumption; others are "investment in human capital" which,like investments in machinery or plant, yield profits over a period of years.Increase in Earning PowerMany studies show that the quantity of education a person has receivedand his earning power are closely correlated. Of course, family incomeand family connections, and place of birth or residence—to say nothing ofnative ability and motivation—all tend to result in both higher educationalattainment and higher income. However, even after taking account ofsuch factors, a dramatic story of the net contribution of additional schoolingTABLE 22.Earnings of males, by years of school completed and other characteristics,1959 *Age group by years of school completedNorthWhite malesSouthNonwhite malesNorthSouth27-37 years of age:0-4 years8 years12 years16 years$3,1804,2275,3577,244$2,3613,6324,7826,554$3,0902,7463,6184,229$1,7172,0172,3093,15542-52 years of age:0-4 years8years12 years16 years3,7034,9286,2579,9752,7373,8955,7339,0062,8393,4694,2204,4771,8002,1992,7883,289i Unweighted average of the earnings of single-age groups of 27, 32, and 37 years of age and 42, 47, and 52years of age, respectively.In computing the earnings, the following variables were held constant: rural or urban origin, size of family,marital status, 5-year residence in one State or not, and foreign or domestic born parents.Source: Calculated by Council of Economic Advisers from tables in Giora Hanoch, Personal Earningsand Investment in Schooling, an unpublished Ph. D. dissertation, University of Chicago, December 1965.144

to earnings emerges. Table 22 records some of the results of a study of theincome and education of 34,180 employed males, classified according toa variety of personal characteristics. It shows, for example, that in 1959 awhite, male, high school graduate living in the North (aged 42 to 52) earned27 percent more than an elementary school graduate whose other measuredcharacteristics were identical, and a college graduate earned 59 percentmore than a high school graduate.Social BenefitsSome scholars have used evidence on private returns from education toestimate the returns on investments in education for the society as a whole.Some studies suggest that more than one-fifth of economic growth in theUnited States during the last three or four decades is attributable to increasesin the average educational attainment of the labor force, with perhaps anotherone-fifth attributable to the general advance of knowledge.But many qualifications are required in any attempt to estimate the returnsto society from the benefits to individuals who receive education.For example, employers often use educational achievement as a kind of intelligenceor ability test in selecting employees—as a "ticket of admission"to better paying jobs. To this extent, education tends to yield higher returnsto the individual than to society.On the other hand, education yields substantial external benefits whichwill not show up explicitly in the incomes of the educated. Our economyand our society are built on the assumption of virtually universal literacy,which permits information to be transmitted immediately and directlyto everyone. Well-educated workers are more adaptable to changing economicconditions. Education can help to reduce antisocial and criminalbehavior. It is essential for political democracy.Education and the DisadvantagedIn the absence of public expenditures to provide schooling at reducedprices to all persons, education—like other commodities—would be purchasedin largest quantities by the well-to-do. Since education in turnraises the capacity to earn, this would tend to perpetuate and aggravateincome inequality. Poverty would run through generations in avicious circle. The importance of education as a qualification for wellpayingjobs and the recognition that all Americans must be provided withthe opportunity to join the economic mainstream together emphasize theresponsibility of governments to help finance education.Many of the underprivileged, particularly members of ethnic and racialminorities, have received less than their share of education. Measured byaverage years of schooling completed, nonwhites are today about wherethe white population was at least two decades ago. Some of the gaps145

are being reduced or even eliminated (Chart 13). Nearly all whites andnonwhites now complete elementary school, but the gap in high schoolcompletion rates remains large even among the 20-24 year old group.Moreover, nonwhites often receive not only less, but also poorer, formaleducation. Also, education acquired in pre-school years and outside theschool is impaired when parents and companions suffer from educationalgaps. Hence, far larger efforts for the educationally disadvantaged arenecessary to bring about true equality of educational opportunity.It was in recognition of the national importance of education that theFederal Government undertook a major new initiative with the Elementaryand Secondary Education Act of 1965, which provides financial help on thebasis of the number of children from low-income families. Under thisAct, the Federal Government is spending $1.2 billion in support of elementaryand secondary education in the current fiscal year, tripling thesupport it provided only 2 years ago. The "Head Start" program hasdemonstrated great capacity for benefiting disadvantaged, pre-school children.The Administration is therefore proposing that the benefits of thisprogram be extended by providing a follow-up program in the early elementarygrades.TRENDS IN DEMAND AND COSTSBetween 1956 and 1966, enrollment in full-time elementary and secondaryday schools in the United States increased by 33 percent, from 37.2 millionto 49.7 million. This sharp increase is attributable to the postwar spurtin birth rates and to greater school attendance by teenagers. Becauseroughly half of high school graduates continued on to college while thenumber of students graduating from high school rose sharply, college anduniversity enrollment doubled from 2.9 million in 1956 to 6.0 million in 1966.In the next decade, elementary and secondary school enrollments will increaseonly about one-fourth as much as in the past decade. Demand forcollege education, on the other hand, is expected to continue increasing rapidly,as the proportion of youths completing high school rises and as somewhatmore than half of high school graduates go to college. Projectionsfor the future also point to a continued very rapid rise in the fraction of laborforce entrants with a college education, which could reduce the returnsfrom higher education.Outlays per student-year of formal education at all levels have risen bynearly 90 percent during the past decade. The increase may reflect, inpart, improvements in the quality of education, but it also reflects highercosts of education. A major factor in the increase in costs has been thedramatic rise in professional salaries at all levels, as increased demand forteachers outran the growth of supply, especially since entry requirementsfor teachers were raised in many areas. Salaries rose substantially faster146

Chart 13Educational AttainmentPERCENT OF AGE GROUP*AT LEAST 8 YEARS OF ELEMENTARY SCHOOL402065 and Over 55-64PERCENT OF AGE GROUP*100AT LEAST 4 YEARS OF HIGH SCHOOL45-54 35-44 30-34AGE GROUP (YEARS)25-29 20-24802065 and Over 55-64 45-54 35-44 30-34AGE GROUP (YEARS)25-29 20-24*BASED ON AVERAGES OF MARCH DATA, 1964-66.SOURCE: DEPARTMENT OF COMMERCE.147

than wages generally, and, in response, an unusually large number of formerelementary and secondary teachers returned to the classroom.Enrollments are expected to rise less rapidly over the next decade thanthe number of college graduates available to teach in elementary and secondaryschools or than the number with advanced degrees available toteach in colleges and universities. However, it may take special efforts tomeet acute present shortages of teachers with specialized skills, such asnursery school instructors, teachers of remedial reading, and teachers of theemotionally handicapped. In the recently initiated Teacher Corps, theFederal Government helps to support teams of specialized teachers who workin slum areas at the request of the city. The expansion of special programs forthe disadvantaged will require a major increase in the supply of teachers inthese specialties.New MethodsLearning can be improved and the costs of education lowered by avariety of changes in techniques and technology: new curricula and methodsof instruction including team teaching, more job specific and employmentoriented curricula; upgraded and more flexible school systems; greater applicationof learning theory; incentive pay systems; full utilization of physicalplant, especially during nights and summers; and use of subprofessionalaides to economize on professional time. The Joint Economic Committeelast year surveyed professional opinion on these and other technologicaldevelopments. Educational television, teaching machines, computerizededucation, and programmed learning promise future educational breakthroughs—perhapsmore quality improvement than cost reduction for sometime. Many of the newer techniques remain to be tested in practice, andfurther research is required.Forgone Earnings as a CostFrom the private point of view, forgone earnings (the sacrifice of opportunityto work full-time) are a significant part of the costs of secondary and,particularly, of higher education. Many potential students forgo educationbecause they are unwilling or unable to defer careers, marriage, andpresent earnings. But society can afford to wait for the returns morepatiently than many of the young, especially the poor. Thus, the privatecosts of forgone earnings may exceed the social costs, thereby creating adeficiency of demand from a social point of view.College students could afford to wait more readily for future earnings if investmentin human capital could be financed as other forms of investment arefinanced, by borrowing against future earnings. In particular, students encounterproblems of raising sufficient funds without collateral. To fill gapsin private financial markets, a number of Federal and State student loan pro-148

grams have been initiated since 1958. A guaranteed student loan programrelying on private bank participation was provided in the Higher EducationAct of 1965, but its launching was slow, partly because of the tight moneyconditions of 1966. Additional steps are underway to strengthen and expandthis program. However, proposals for new financing techniques overthe longer run need and deserve careful exploration. Some interestingproposals would provide for student loans with repayment scaled to theborrower's earnings after graduation.Over the next decade education will claim an increasing share of our growingincomes in a number of ways. First, throughout the society, averageeducational attainment is likely to increase. Second, significant efforts willbe made to improve the content and quality of education. Finally, societywill endeavor to assure that those disadvantaged groups now receiving educationof below average quality and quantity should have full access to educationalopportunities. The distribution of responsibility between the publicand private sectors varies among these areas. Private choices will largelydetermine the increases in average educational attainment, mainly throughgreater enrollments in colleges. Both private and public efforts will berequired to improve quality. The achievement of equality in educationalopportunity will be a top priority public responsibility.HEALTH CAREAmericans are demanding, receiving, and paying for more and bettermedical care every year, both as consumers and as taxpayers. Despite risingcosts, the Nation is demanding for everyone—whether he can personallyafford the costs or not—medical services which a few decades ago wereavailable only for the well-to-do.Health care has become one of the largest industries in the United States.It employs over 3 million people, more than do the steel, automobile, and aircraftmanufacturing industries combined. In 1965, total expenditures forhealth services, medical research, and new facilities totaled $40.8 billion,about 6 percent of GNP (Table 23). Public expenditures account for one-Total expendituresTABLE 23.—The Nation's health budget, 1965Expenditure categoryHospital and nursing home careServices of physicians, dentists, and other professionalsDrugs and eyeglasses, and appliances. _ _ResearchConstructionAllother[Billions of dollars]Totalexpendituresi40.814.712.76.01 52 03.8Consumers28.18.912.05.81.3FederalGovernment5.32.2.2.11.3.31.25.03.2.5.1.1.3.8State andlocalgovernmentsPhilanthropy1 Direct outlays for health care, including net cost of medical insurance. Excludes indirect costs of illness,such as income lost through illness.2 Less than $50 million.NOTE.—Detail will not necessarily add to totals because of rounding.Source: Department of Health, Education, and Welfare.149other2.5.3.21.3.6

fourth of the total health budget of the Nation, just the reverse of thesituation in education.The methods by which health care is produced, distributed, and financedhave been changing rapidly. Home visits by physicians have become unusual.The total number of doctors has changed little, but the number ofspecialists is increasing while that of general practitioners is falling. Moreservices are being dispensed through hospitals, where specialists are aided byelaborate equipment and auxiliary health technicians. Group practice isbecoming more common and medical insurance more important. Thesechanges will continue and will influence the quality and cost of medicalcare in the coming decade.DEMAND FOR MEDICAL CAREHealth research and the control of contagious disease are prime examplesof public goods which would not be produced in adequate amounts withoutGovernment subsidy. Health care outlays which increase the Nation'sproductivity are investments in human capital—like outlays for education.But the major part of health care is a consumption item, reflecting the valueChart 14Age Adjusted Death RatesRATE PER 1,000 POPULATION3020AANONWHITE\10 —jWHITE^ ." * ^ i - -0J 1 1 111 J LL1 11 1 1 11 A (1 1 1 1 I_L±LLJ 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1NOTE.-AGE ADJUSTED DEATH RATES ARE RATES BY AGE, WEIGHTED BY THE 1940 AGE DISTRIBUTIONOF THE POPULATION. THE NUMBER OF STATES COVERED INCREASED FROM 10 STATES ANDTHE DISTRICT OF COLUMBIA IN 1900 TO THE ENTIRE UNITED STATES IN 1933.SOURCE: DEPARTMENT OF HEALTH, EDUCATION, AND WELFARE.150

which individuals place on their own and others' comfort and, indeed, on lifeitself. Like food, clothing, and shelter, some medical care is a necessity.But the notion of what is necessary changes as society becomes increasinglywealthy and technologically advanced. Medical research generates newcures or treatments of illnesses previously considered incurable, and thisadds further to demands. And habits such as cigarette smoking, increaseduse of automobiles and pesticides, and growing urbanization and industrializationhave aggravated various health hazards.American performance in medical research has been outstanding. Butthe spread of knowledge and best practices has been slow and spotty. Thehealth care of sizable groups of Americans lags seriously behind that of themajority. For example, the average life of nonwhites is 7 years shorter thanthat of whites; a newborn nonwhite child is nearly twice as likely to diein its first year as a newborn white child; and maternal mortality is fourtimes as high for nonwhites as for whites. There are also important disparitiesamong areas and regions. Low-income States have fewer doctorsand nurses than high-income States. Infant mortality in Mississippi is twicethat in Massachusetts. The poor and especially poor children receive lesshealth care than other Americans (Table 24).TABLE 24.—Physician and dental visits per year, by age and family income, 1963-64Family incomePhysician visits per year by age groupUnder 1515-64 years65 yearsand overDentalvisitsper yearUnder $2,000. ...$2,0Q0-$3,999____.$4,QG0-$6,999$7,000 and over..2.03.03.84.54.54.44.74.96.16.77.07.30.81.42.3NOTE.—Data are based on household interviews during the period July 1963 to June 1964.Source: Department of Health, Education, and Welfare.Although U.S. health expenditures have risen steeply, mortality rates,which fell sharply in the first half of the century, did not decline significantlyduring the last decade (Chart 14). Moreover, our record with respect tolife expectancy and infant and maternal mortality lags behind that of otheradvanced countries, which have lower average incomes.Expansion of InsuranceThe expansion of medical insurance coverage has had a major impact onthe demand for medical services. About 81 percent of the population under65 has some private hospital insurance coverage today, and 76 percent somesurgical coverage, compared with 9 percent of the population in 1940. In1965, about $8.7 billion—nearly one-third of consumer outlays for health—

was reimbursed by private medical insurance. However, most of the poorand many of the aged remained completely unprotected until last year.Legislation enacted in 1965 closed the biggest remaining gaps. With theenactment of Medicare, practically all of the aged now have hospital insurance,and about 94 percent have insurance covering part of the cost of doctors5 and other bills. Under the same legislation, medical payments underPublic Assistance are to be replaced by 1970 with new State programs ofmedical assistance for the poor under Medicaid.COST FACTORSThe costs of medical care, which have been rising about twice as rapidlyas average consumer prices over the past decade, jumped 6^2 percent during1966. The most rapid increases have been in hospital rates and, morerecently, in doctors' fees. Prices of drugs and medicines have not risen inrecent years. But neither have they been reduced.The shift to hospital treatment, the increasing use of outpatient and emergencyfacilities, and the spread of group practice have enabled physiciansto use their time more efficiently. Prepaid medical care encourages earlydiagnosis and prompt treatment, which can save both money and lives. Newdrugs and medical practices, which shorten hospital stays, have partly offsetthe increases in costs per hospital day. But hospital rates have soared aspatients have received more professional services, more laboratory work,more drugs, more treatment by increasingly complex and costly equipment.In many areas, duplication of expensive and seldom used equipmentin several hospitals has contributed to rising costs. Labor requirements inhospitals have also risen sharply. The number of employees per patient hasalmost doubled in the last 20 years. Simultaneously, the wage gap betweenhospital workers and employees with corresponding skills elsewhere hasnarrowed in response to strong demands for workers in health occupations.PROSPECTS FOR THE COMING DECADEWith both costs and demand rising strongly, it seems likely that publicand private health expenditures, which rose from 4J4 percent to 6 percentof GNP in the past decade, will continue to command an increasing shareof the Nation's resources. The bulk of these outlays will be made by consumers,as they have been in the past. Public expenditures will be particularlyimportant to break supply bottlenecks, and to close gaps in healthcare associated with poverty.Actions to Improve Health CareA serious obstacle to the improvement of health care is the shortage ofdoctors, nurses and other professional health workers. The Public HealthService estimates that about one-half million professional and subprofessionalhealth workers are needed to bring standards throughout the countryup to those of the northeastern region. Several recent Federal legislative152

actions have been designed to help to meet the growing need. The HealthProfessions Educational Assistance Act of 1963 extended grants for constructionof medical and dental training facilities and initiated programs ofstudent loans. Subsequent legislation expanded the scope of Federal assistanceto cover the training of nurses and subprofessional health personnel,and added scholarships, assistance for school operations, and traineeshipsfor teachers in the health professions. Other general Federal manpowerprograms are also engaged in training subprofessional health personnel.Last year, the President appointed a National Commission on Health Manpower,due to report this June, to review remaining needs and to recommendfurther remedies.These new directions in Federal programs are a much-needed complementto long-established support in the areas of research and construction. Underthe Hill-Burton Act, enacted in 1946, more than $8.2 billion, including$2.6 billion of Federal funds, have been earmarked or spent for constructionor modernization of hospitals or extended care facilities with a capacity of358,000 beds.Although the shortage of nursing homes and other facilities for the agedis acute in some areas, a considerable number of vacancies exists in otherareas. The development of needed additional centers for group medicalpractice will be assisted by legislation enacted in 1966 to permit Governmentmortgage insurance for group practice facilities.Considerable private and public effort is needed to hold down costs.Most health care is now dispensed either in a physician's office or throughhospitals. Decreases in costs are possible through the increased use of clinicstations, outpatient facilities, diagnostic and treatment centers, supervisedhome care, and group practice. Careful study of new arrangements to makebetter use of scarce skills and facilities must be followed up by incentives formore efficient operation and distribution of health services. Hospital costaccounting and average cost pricing should be reexamined, particularly toassure that capital costs are rationally allocated over time and among uses.It is essential to avoid any tendency to control costs less carefully as a resultof the increasing scale of insurance and prepayment.As long as poverty persists, Federal, State, and local governments havea major commitment to help those unable to purchase their own care. Andprograms to promote the training of health personnel, support medical research,and improve health care systems impose particular responsibilitieson governments at all levels.CITIESAmericans have been flocking to urban areas since the RevolutionaryWar, when 95 percent of them earned their livelihood on the farm. Today,about two-thirds reside in metropolitan areas, roughly half in centralcities and half in suburbs. Almost all the growth in the total U.S. popu-

lation over the next decade will be in metropolitan areas and, as in thelast decade, in suburbs rather than in central cities. But suburbanites alsohave a major stake in the quality of central cities, since they continue to lookto the city for jobs, recreation, and culture,Throughout history, people and jobs have congregated in cities: the peoplecame in search of jobs; and the jobs came because employers found benefitsin urban location. Firms could pool costs with other firms and shareoverhead facilities. Specialized services were available to cater to thesporadic and unpredictable demands of a large number of enterprises.Firms could locate close to their suppliers' warehouses and could count onbeing able to meet unanticipated requirements on very short notice, therebyeconomizing on inventories. It was highly advantageous to locate nearports and rail hubs, which in turn became virtually the center of the city'seconomic organization.The city has lost some of its economic advantages, however. Many of thebenefits from urban location arose from savings in transportation and communicationscosts, but the automobile and truck have drastically reduced thecost advantage of the central city. The automobile increased congestion onold city streets, laid out for other transportation modes, and simultaneouslymade the location of factories and warehouses near beltways and interurbanhighway connections more advantageous. The development of moreefficient, faster communications media has also reduced the advantages ofcentral city locations, especially for factories and goods-handling enterprises.The city has made vital contributions to economic growth in thepast, and can continue to do so in the future. But the city needs modernizationand revitalization to become a more pleasant place in which to live andwork, and a more effective contributor to economic growth and productivity.Both aspects will involve private investment in housing and in plant andequipment, and a variety of public actions and expenditures.ELEMENTS OF THE URBAN PROBLEMDespite their earlier advantages and the continued preference of manyAmericans for urban life, cities today suffer from a wide range of economic,financial, and social problems.Cities have become congested and noisy. Traffic jams, packed subwaysand buses, and crowded airports are not only unpleasant but impose realeconomic costs in the form of wasted time, reduced efficiency, and, in somecases, personal injury and property damage. Noise causes distraction anddiscomfort. Crime and delinquency seem to be increasing. The problemsof air pollution are becoming more and more acute. City water systems haveto remove increasing amounts of chemicals and wastes. Trash, junk, anddirt make life in cities both more expensive and less pleasant. The problemsof poverty and unemployment among the young and disadvantaged are onoccasion brought to national attention through mass protest or social unrest.It is true that important progress is being made. Housing is better thanat any time in the past; communication is faster; city dwellers are healthier,154

TABLE 25.—Characteristics of population by areaCharacteristicAll areasMetropolitanCentralcitiesOutsidecentralcitiesXonmetropolitannonfarmFarmPopulation (millions) 1Percent of population:Children under 18 years of age 2A ged (65 years and over)Non whitePoorsMedian family income (dollars).191.536.49.411.817.16,56958.333.610.421.618.264.337.67.34.49.67,77257.137.610.69.422.45,54211.838.79.912.426.53,5581 Excludes inmates of institutions and all members of the armed forces except those living off post orwith their families on post. Metropolitan data exclude and farm data include the relatively few farmswithin Standard Metropolitan Statistical Areas.2 Never married children living in families.3 Poverty is defined by the Social Security Administration poverty-income standard; it takes into accountfamily size, composition, and pla'ce of residence.Note.—All data from Current Population Survey, March 1966, except median income from March 1965Survey.Sources: Department of Commerce and Department of Health, Education, and Welfare.better educated, and wealthier. Incomes in cities are lower than in suburbsbut higher than in rural areas (Table 25). But concern about cities is growingbecause the standards of all Americans are rising and because the poorrightly insist on sharing access to the bounty that most Americans enjoy.In particular, the concentration of poverty among racial and linguistic minoritiesin congested areas leads to a problem which is considerably largerthan the sum of its parts.Shifts in Jobs and PopulationAs industry has moved to the suburbs, so have job opportunities. In7 large metropolitan areas, for example, 975,000 new jobs became availablein the suburban ring in the period 1948-62, while the central citiesof the same metropolitan areas were gaining only 60,000 new jobs. Thecentral city gains were all in finance, insurance, real estate, and services.In manufacturing, the 7 central cities lost 150,000 jobs while their suburbanrings gained 250,000.Throughout the 19th century and the early part of the 20th century, thegrowth of cities was spurred by immigration from abroad. The city providedthe immigrant with his basic requirements at low cost—neighbors ofsimilar origin, inexpensive housing near his job, schools, health services, andconvenient shopping. Since the 1920's immigration from abroad has beenreplaced by migration from rural areas. With flagging demand for lowskilledworkers, the cities have been relatively less successful with the newmigrants. And for the Negro migrant into the city, racial discriminationin housing and inadequate commuter transportation facilities have made itdifficult to follow the jobs to the suburbs.155

Urban BlightMeanwhile, the physical plants of cities have been aging and deteriorating.Because the very heart of the city is still highly attractive to many kinds ofenterprises, it frequently pays to tear down old buildings and replace themwith new and more suitable structures. But, outside the very heart of thecity, private demand for replacement is inadequate to bring about therenewal of the large nearby "gray areas" of housing which were yesterday's"suburbs" and are today's slums. Once blight begins, natural market forcesquicken the decay over a large area, as the deterioration of neighborhoodsweakens incentives for any one landlord to maintain the condition of hisproperty.Mismatch Between Costs and BenefitsUrban blight is only one example of how external effects of private actionsaffect the modern city. The man who drives to work considers that theconvenience of driving his own car outweighs the inconvenience of congestion.But his reckoning neglects the costs he imposes on other commutersby increasing the congestion on the highway. In making locationdecisions, an industrialist will not necessarily consider the pollution of airand water which his factory causes. Should he decide to leave the city,his calculation will ignore the impact of his departure on city revenues orthe local rate of unemployment. In these cases, private benefits exceedprivate costs; but because costs to the city, or even to society at large, arenot adequately considered in the decision, the action may be harmful.These discrepancies between private and social calculations distort choicesamong alternatives and constitute an important part of the cities' problems.All too often, the benefits accrue privately while the costs appear in a city'sbudget.City FinancesThe sheer proximity of large numbers of people brings special problemsand costs to city governments. Cities must supply services to commuters aswell as to residents: transportation, clean water, opportunities for recreation,and, perhaps most vital of all, economic opportunity. The city's inhabitantsdemand services from government that may be provided privately,or even be unnecessary, in the countryside. All these requirements placeheavy burdens on public finance in the city. Thus, more is spent for governmentin cities than in other areas; on a per capita basis, medium-size citiesspend more than small ones, and large cities still more (Chart 15). Therelatively high per-capita tax base in cities is more than eaten up by highercosts and outlays.On the revenue side of the ledger, there are few taxes which cities caneffectively collect. Heavy property taxes can drive wealthier homeownersinto the suburbs. When applied to business property, such taxes can156

Chart 15Municipal Expenditures, Per CapitaDOLLARS400300-HEALTH, EDUCATION,AND WELFARE^ADMINISTRATION ANDCIVILIAN SAFETY-^Under 50- 100- 200- 300- 500- 1,00050 99 199 299 499 999 and overCITY POPULATION (THOUSANDS)_L/PUBLIC WELFARE,'EDUCATION, HOSPITALS, HEALTH, LIBRARIES, AND HOUSING AND URBAN RENEWAL._2yP0LICE AND FIRE PROTECTION, FINANCIAL ADMINISTRATION, GENERAL CONTROL, GENERAL PUBLICBUILDINGS, INTEREST ON GENERAL DEBT, AND OTHER.J7HIGHWAYS, SEWERAGE, SANITATION, PARKS AND RECREATION, AND UTILITIES.SOURCE: DEPARTMENT OF COMMERCE.accelerate the loss of jobs. Income taxes that can be administered by acity government are apt to be crude and unprogressive payroll taxes. Andretail sales taxes administered by cities can sometimes be evaded on largepurchases.Finally, the historical boundaries of the city government's jurisdictionhave become increasingly inadequate for planning, financing and executingefficient programs and policies in water supply, air and water pollutionabatement, transportation, and many other fields.In short, too many cities realize the worst of all possible worlds, withstrained budgets, inadequate expenditures for public services ranging fromeducation to law enforcement, burdensome property taxes which spur theexodus of wealthier taxpayers and discourage job-creating business, andpartial, excessively costly solutions to problems that extend far beyond thecity's jurisdiction and control.MEETING THE CITIES' PROBLEMSBoth public and private investment will be required on a large scale overthe next decade to improve the quantity and quality of city housing, to240-782 0—67- -11

modernize public transportation, and to upgrade other services provided bycity governments to their residents. But money is by no means the onlyrequirement.Eliminating Racial DiscriminationThe removal of the barriers of racial discrimination in housing and jobswill pay large returns at little cost. If the Negro could secure the kindof housing that he is willing and able to pay for in the location of his choice,and if he could compete on equal terms for employment, the ordinaryprocesses of the market would lead to substantial improvements in thehousing stock and would eliminate some of the worst manifestations ofpoverty. Racial discrimination imposes large costs on the city. Unemploymentis higher, income is lower, housing conditions poorer, andwelfare budgets larger than they would be if the Negro were free to seekhis best options. To begin to unlock the resources of the city, the resourcesof individuals must be unchained. The only cost entailed will bethe sacrifice of prejudices.The human resources of the city are also wasted by inadequate trainingand education and by outmoded public transportation systems. Thedemand for unskilled labor is rising very slowly, and jobs of all descriptionsare increasingly located outside the city. Training and education, as well asbetter public transportation, are therefore indispensable in bringing enoughjobs within reach of the city's labor force.Improvements in income maintenance programs, discussed earlier in thischapter, are especially urgent in the city, where the physical concentrationof poverty magnifies health, welfare, and safety hazards. The eliminationof racial discrimination in jobs and housing, the alleviation of extremepoverty, and more adequate education and training for the city's populationwould, in combination, gradually cure many of the city's present ills.But some ailments require more than this.Housing and Urban RenewalHousing is a key additional requirement. It has been estimated that,for the Nation as a whole, about 2 million housing units a year will have tobe built over the next decade to meet population growth and to replaceunits too dilapidated to be worth repairing. It is clear that mosthousing will be built either in cities or their suburbs, and that muchreplacement building will be in the central cities themselves. Most of thisnew construction will be financed privately, as it is now. But public effortswill also be needed to assist the poor—urban and rural—to acquire thehousing they need.While the Federal Government has been assisting local highway constructionand urban renewal for many years and has helped to removemany unsightly slums, it has been slow in aiding those displaced by some158

of the projects. After the demolition of unsatisfactory housing, the poorhave sometimes been worse off, having to crowd into the reduced supplyof cheap housing still available.Public policies for housing the city's poor have advanced throughseveral stages. Newly constructed public housing has been made availableat low cost to those with incomes below a fixed level. To assure that onlythe poor occupy such housing, families are required to vacate if their incomesrise substantially and if there is other good housing they can afford in thecommunity. This tends to leave in public housing the chronically poorfamilies, least able to help themselves. Moreover, local public authoritieshave had difficulty producing an adequate number of housing units throughthis approach.Rent Supplements. The newly adopted Rent Supplement program offerspromise of increasing the supply of low-income housing by tapping privateresources. Under this program, multifamily housing will be constructedand operated by approved nonprofit or limited profit private sponsors.Subsidies to tenants are provided for the difference between a fair marketrental of such apartments and 25 percent of the assisted tenant's income.The recipient pays more of his rent as his income rises, but he is not obligedto move out.Model Cities. Public programs for renovating the cities have long takencognizance of the fact that a blighted residential area cannot effectively berestored one house at a time. But these programs have not often beenapplied to the full area for which integrated advance planning is required,and have not included a full range of public services which must be coordinatedin an effective area-wide attack. The Model Cities legislation,enacted last year, was drafted in recognition of the need for an integratedassault on urban blight. It provides for the coordinated use of alreadyexisting Federal grant and loan programs—for planning, housing, waterand sewers, health and social services, education and training, and employmentservices—and perhaps even more important, it pays for part of thecost of locally designed and administered programs in the demonstrationarea which are not covered by other programs. As funding increases, itwill become a major forward step in a cooperative Federal-local coordinatedeffort toward urban renovation.Community Action Programs. Solution of the problem of poverty, likethat of urban blight, requires a coordinated attack. Especially in cities, theinteraction of people and the interrelations among such problems as lowincomes, lack of education, substandard housing, and ill health mean thata piecemeal approach is inadequate. More than 1,000 Community ActionAgencies supported by the Office of Economic Opportunity, now providethis coordination, bringing together needy clients and available services.Neighborhood centers are serving as a vehicle for decentralizing and im-159

proving the delivery of social services to disadvantaged people. The Administrationis requesting that funds be provided to increase the serviceswhich can be made available in rural areas as well as in cities.Cost Reduction. Opportunities to reduce the cost of housing improvementsmust be sought and pursued. The high cost of construction laborputs a premium on the use of labor-saving devices. But institutional barriersto the introduction of new techniques must be overcome. More needs tobe done in research and experimentation leading to the development andperfection of new techniques. And new ways must be sought to use publicfunds to harness private initiative and private resources.Pricing PoliciesFinally, the potential efficiency of the market should be recognized in allareas of city life. Transportation is a notable case where the logic of theprice system is often violated. Bridge and tunnel tolls typically remain thesame whether the road is jammed or empty. If polluters were forced tobear the costs imposed by their actions, the quantity of pollution wouldbe substantially reduced. Subsidized airport landing fees may encourageexcessive private use of crowded facilities. The pricing of public transportationoften fails to take into account the external benefits arising fromdecongestion of highways. Similiarly, more rational pricing systems forwater and sewer service in many of our cities could both increase efficiencyin the use of existing capacities and reduce the planning and financialburdens of city governments.SummaryThe fundamental challenge to the city is to achieve an orderly transitionto a new pattern of land use which reflects the new requirements of industryand people. All of its policies (zoning, taxation, transportation)and all of its investments (in housing, public buildings, and education)must be geared to encourage the emergence of the new patterns. This isessentially what is meant by comprehensive planning, and it is the kind ofobjective which is sought in the Model Cities program and planned metropolitandevelopment incentive grants. The recently established NationalCommission on Codes, Zoning, Taxation and Development Standards willexplore ways by which cities can undertake creative change.The cost of dealing with the overwhelming problems of poverty, housing,physical and human renewal exceeds the revenue potential of many cities.If each city were required to achieve a financial balance within its ownborders, it would be forced to neglect some of the most pressing social problemsof our time. There is no escape from the conclusion that the FederalGovernment must continue to provide a share of the resources cities need toremain engines of economic and social progress.160

FEDERAL, STATE, AND LOCAL FISCAL RELATIONSSince World War II, State and local expenditures have been growing farmore rapidly than Federal outlays. To finance their budgets, these governmentshave increased tax rates and assessments frequently; yet State andlocal debt has increased sevenfold. Over the same period, Federal receiptshave generally kept pace with expenditures in peacetime, despite reductionsin tax rates; and the net Federal debt has risen only one-fifth, falling sharplyin relation to GNP.The problem of matching revenues with expenditure responsibilitiesis a never-ending one in our Federal system. Partly by historical accident,the Federal Government has developed the best source of revenue, namelythe income tax. But increasing urbanization and other factors have swelledthe demand for public services which are regarded as primarily the responsibilityof State and local governments—both by tradition and by the preferenceof the American people for keeping government as close to home aspossible.TAXATIONThe Federal Government obtains two-thirds of its revenues from taxes onpersonal and business incomes. Despite its imperfections, the Federalindividual income tax is one of the best taxes ever devised. By taxing largerincomes at higher rates, it squares with the American notion of equity. Itsrevenue yield rises strongly as the economy grows. It serves as a built-instabilizer by varying with economic fluctuations. By comparison withother taxes, it interferes least with job choices and expenditure decisions.The States rely principally on sales and excise taxes, and local governmentson property taxes. Broad-based personal income taxes, now leviedby 33 States, were enacted in most cases before the Federal Governmentbegan to draw heavily on this source in World War II. A small number ofcities use "income" taxes—usually in the form of payroll levies. Tables26 and 27 show the relative importance of different sources of revenueand of expenditure requirements in 1965.Sales and property taxes are regressive. A poor family pays a substantialsales tax in most States even if it owes nothing under the Federal incometax. Sales taxes also discriminate among taxpayers in similar economiccircumstances. Families with the same incomes but different patterns ofconsumption may pay different amounts; and large families may bear arelatively heavier burden than small families. Moreover, the yield ofsales taxes is less responsive than that of income taxes to economic growth.Property taxes, which are the major source of financing for education, areespecially objectionable to homeowners who have no children and causehardships for those who own their own homes but have relatively low currentincomes. They can also discourage private efforts to rehabilitate andupgrade declining neighborhoods. Because so much trade and commerce161

TABLE 26.—Federal and State and local government receipts, by source, nationalincome and product accounts, 1965SourceAmount (billions ofdollars)FederalGovernmentState andlocal governmentsPercentage distributioniFederalGovernmentState andlocal governmentsTotal receipts.124.975.3100.0100.0Individual income taxes 2 ._-_Licenses, fees, and other taxes and charges on personsCorporate profits tax accrualsSales and excise taxes and customs 2Real estate and business property taxesOther business taxes, fees, and chargesContributions for social insurance___Federal grants-in-aid51.32.929.115.81.124.84.47.42.015.923.16.94.511.241.12.323.312.619.85.92.721.130.79.15.914.91 Based on receipts in millions of dollars.2 Less tax refunds.NOTE.—Detail will not necessarily add to totals because of rounding.Source: Department of Commerce.is interstate, attempts by States to tax sales and income often make administrationcomplex and costly and create problems in taxpayer complianceand frictions among States in apportioning revenue sources.STATE AND LOCAL FISCAL PROBLEMThe States and localities have not been idle in the face of mounting demandsfor public services. Since 1959, for example, the 50 States haveTABLE 27.—Federal and State and local government expenditures, by major function,national income and product accounts, 1965Amount (billions of dollars)Percentage distribution 'Total expenditures-FunctionDefense, space, veterans, and internationalEducationHealth, hospitals, and sanitationSocial security, welfare, and laborPolice, fire, and correctionHighwaysPostal services, public utilities, commerce,and nonhighway transportationHousing, community development,and recreationAgriculture and natural resourcesInterest and general governmentFederal GovernmentTotal excludinggran tsin-aid112.266.0.51.223.1.12.6.35.912.3Grantsin-aidtoState andlocal govrnments11.2.4.7.74.53.8Stateandlocalgovernments1 Based on expenditures in millions of dollars.2 Less than $50 million.NOTE.—Detail will not necessarily add to totals because of rounding.Source: Department of Commerce.l6273.7.428.97.67.15.111.31.61.61.58.8Federal Government100.058.9.51.120.6.1.12.3.25.311.0Stateandlocalgovernments100.04.0 .06.6 39.26.3 10.340.3 9.66.934.2 15.32.14.6 2.13.1 2.0.4 11.9Total excludinggrantsin-aidGrantsin-aidtoState andlocal governments

enacted about 200 increases in the rates of their major taxes, and imposed15 new taxes, including 8 new retail sales taxes.In the years ahead, the financial pressures on States and localities in theaggregate may moderate somewhat. The age category that produces the.largest per capita need for public services—school-age children—will growless rapidly than the working age population. Nevertheless, pressures willstill be strong, especially to meet the massive problems of cities imposedby decades of neglect. According to detailed estimates recently made forthe Joint Economic Committee, construction needs of State and local governmentsin the next decade will equal those of the last decade.Thus the financial problems of State and local governments will persist.Currently, increased defense expenditures dominate the Federal budget picture.But over the long run, there is every prospect of a return to the fiscalparadox of recent years—booming income tax revenues for the FederalGovernment while States and localities struggle to finance their massiveprogram requirements.CATEGORICAL FEDERAL AIDThe Federal Government now provides many grants-in-aid in supportof specific categories of State and local expenditure. Federal grants nowconstitute about one-sixth of total revenues of State and local governments.The first large Federal grant programs were for emergency reliefand public assistance during the 1930 J s. Federal grants declined duringWorld War II, but then grew rapidly in the 1950's, with highway constructiongrants producing an acceleration in the second half of the decade(Table 28).TABLE28.- -Growth of Federal aid to State and local governments, fiscal years1930-68 xFunction 1930 1940 1950 1955 1960 1965 19G8 3Billions of dollarsTotal Federal aid.Health, labor, and welfareCommerce and transportationEducation__Housing and community development...Agriculture and agricultural resourcesNatural resourcesOther( 3 )0.12.42.2.2( 3 )( 3 )( 3 )( 3 )( 3 )2.31.6.5( 3 )( 3 )( 3 )'( 3 )3.31.9.6.2.12.1.17.02.93.0.4.3.2.2.110.94.44.4.6.6.5.3.117.48.04.32.51.3.6.5.2PercentFederal aid as percent of:Federal expenditures 4State and local expenditures 4 4.31.425.625.35.310.54.810.47.714.79.215.410.318.71 Grants-in-aid and shared revenues from both administrative budget and trust funds.2 Data for 1968 are estimates.3 Less than $50 million.4 National income and product accounts basis.NOTE.—Detail will not necessarily add to totals because of rounding.Source: Bureau of the Budget.163

The last few years have seen a rapid acceleration of Federal aid througha variety of new or expanded programs—most notably for elementary andsecondary education and to combat poverty. In fact, most new legislationin areas discussed in this chapter operates through grants or loans to Stateand local governments.The grant-in-aid approach is flexible. It enables the Federal Governmentto single out the most urgent needs and to apply suitable remedies directly.Furthermore, by imposing matching formulas where appropriate, the FederalGovernment often can enlist additional State effort in neglected areas.Variable matching requirements are used by the Federal Government to payfor a greater share of costs in States and areas where needs are greatest relativeto available resources. Federal grants can encourage innovation at the locallevel, and provide for experimentation and demonstration where the problemsare more obvious than the remedies. They can be launched modestlyand expanded upon demonstration of effectiveness. The grant approachcan spur better planning and coordination among overlapping or adjacent—and sometimes conflicting—local jurisdictions where a regional or areawideproblem requires a cooperative and coordinated attack.At the same time, the categorical grant mechanism is open to somecriticisms. State and local officials are sometimes bewildered by the number,variety, and complexity of eligibility and matching provisions of differentFederal aid programs. A special effort is necessary to keep them informedof latest developments, so that all eligible units of government may shareequitably. And some localities resent Federal standards and "supervision"in grant programs.Broadening the Scope of Federal GrantsSupporters of categorical aid argue that, while there may be faults in thepresent system, they are not intrinsic. Many steps have already been takento improve grant programs. The Bureau of the Budget has undertakenrecently to improve the coordination of Federal programs at the State andlocal level. The Partnership in Health act of last year combined severalsmall, categorical grant authorizations into one and provided assistance forplanning comprehensive health services. Similarly, the Model Cities programprovides for the coordinated use of funds from a number of separatecategorical programs as well as from private and local government sources; italso authorizes Federal assistance for local government programs in thedemonstration area of the city even if these would not qualify for any categoricalaid. The Community Action Program offers cities support for abroad range of activities that fit into a coordinated attack on poverty.These new programs of broad support represent a major evolution frommany traditional types of categorical grants in which the Federal Governmentpinpoints the State and local expenditures it will support.These developments are viewed by some observers as a decisive argumentfor an evolutionary approach that continues to rely on categorical aid as the164

principle vehicle by which Federal assistance should be given to State andlocal governments. These observers would argue that effectiveness is limitedonly by the amounts that the Federal Government can afford to channel toStates and localities, rather than by any inherent defects in the mechanismof categorical aid.GENERAL SUPPORT GRANTSOthers contend, however, that broader "general support" grants areneeded as part of Federal support to States and localities. In principle,these grants would have no strings attached, and would be available for generalbudget support rather than tied to specific activities or programs. Directtransfers without supervision would leave the States and cities free to setpriorities and to design remedies for local problems. The unconditionalgrant approach lends itself readily to "equalization," to take account ofdifferences in income levels and fiscal capacity among the States. Manyproposals recommend setting the size of such grants as a percentage of collectionsunder the Federal individual income tax. One would earmark 5percent of collections from the Federal individual income tax for generalsupport grants to the States.Critics of general support grants have questioned whether State governmentswould spend the added revenues wisely, whether they would maintaintheir own revenue efforts, and whether they would provide adequately fortheir own cities. Unconditional grants to the States are viewed by some as athreat to additional Congressional appropriations for categorical grant programswhich provide direct assistance to cities and their pressing problems.Also, if States had a claim on a share of Federal revenues, they might opposeFederal tax reduction even when needed to combat recession. And if thecut were nevertheless approved, its effectiveness could be weakened by aresulting cutback in State outlays.Supporters of revenue-sharing point out that formulas can be devised tocope with cyclical swings in general support grants and to channel funds tolocalities as well as States. However, there are obvious difficulties.Under some proposed compromise arrangements, a fixed level would beestablished for total Federal financial aid to State and local government,designed to cover both categorical grants and general support. Categoricalgrants would continue to be appropriated as at present; and the balance ofthe support would take the form of untied grants going to cities as well asStates. The untied portion would serve as an "overhead" payment to beused by States and cities to strengthen their own programs and their planning.Such a compromise is intended to provide some assurance of continuedFederal support for categorical grant programs which have established theirmerit, while enlarging opportunities for State and local initiative andresponsibility.165

CREDIT FOR STATE INCOME TAXESAn additional method of enlarging State revenues in the context of animproved over-all national tax structure has been proposed by the AdvisoryCommission on Intergovernment Relations. The suggestion is that a creditagainst Federal personal income tax liability be given for up to 40 percent ofState income taxes paid. This credit would provide powerful incentives:the 17 States which do not now have broad-based individual incometaxes would be strongly induced to enact them; States which already haveincome taxes would be encouraged to rely on them more heavily. A Statecould then augment its revenues through income taxation with a net increasein the burden on State taxpayers equal to only 60 percent of addedrevenue. Through the credit device, the States would, in effect, be collectingpart of their income taxes from the Federal Government.Federal tax credits to influence local tax policy are not new. They areapplied to estate or inheritance taxes paid to States, and they are used underthe Federal-State unemployment insurance system.The tax credit device has been subjected to certain criticisms. First,by their very nature, tax credits provide more help to rich States than to poorStates, because the amount of assistance depends on the tax base of eachState. Second, the proposal does not in itself provide direct aid to the cities.Third, the Federal tax credit adds to State revenues only when and if theStates act to initiate or raise rates on income taxes; the initial impact merelylowers Federal taxes for people who now pay State income taxes.JOINT REVENUE COLLECTIONIt has also been proposed that the Internal Revenue Service (IRS) expandits current assistance to the States in their income tax collection efforts. Atpresent, there is cooperative exchange of information between Federal andState revenue officials. But the IRS could act as collecting agent for Stateincome taxes. The State rate structure would be applied against the Federaldefinition of taxable or adjusted gross income or Federal tax liability itself.Joint revenue collection is a modest proposal which could be enacted on itsown merits or as a supplement to the larger plans. It might encourage additionalStates to enact income taxes, and should certainly simplify life for bothtaxpayers and revenue officials in States which already use income taxes.It would, of course, be necessary for the States to follow Federal concepts oftaxable income, which may not always accord with their own.OTHER ISSUES OF TAX COORDINATIONAmong other problems requiring better coordination of Federal-Statelocaltaxation is one dealing with the exemption from taxation, under theFederal individual income tax, of interest paid on State and local governmentsecurities. Because of the exemption, these governments can borrowmore cheaply—paying lower rates of interest and competing more effectively166

for funds against other borrowers in capital markets. However, the exemptionalso reduces the progressivity of the Federal individual income tax,since it produces much bigger tax savings to those in high income taxbrackets than to those taxable at lower rates. This is a relatively inefficientmeans of channeling aid: the Federal Government loses far more revenuethan the States and cities gain in reduced interest costs.Apart from the general question of interest exemption, and of immediateconcern, is the use of so-called industrial development bonds. Throughthe use of these bonds, localities have passed to private industries the benefitof the exemption of their interest from Federal tax, in many cases withoutassuming any real obligation for repayment of the bonds. This questionablepractice is becoming increasingly widespread, and the lack of any obligationby the locality authorizing the bonds permits proliferation without limit.The use of the Federal tax code in this fashion is inefficient and inappropriate.Another fiscal problem concerns State taxation of corporate income.Since most corporate income is generated by interstate corporations, Statesmust establish formulas to apportion the income assumed to be earned frombusiness done in other areas. The formulas give various weights to suchfactors as location of plant, percent of payroll, sales destination, location ofsales offices, and "origin" of sales. In 1966, after several years of study, theHouse Judiciary Committee recommended legislation that would require auniform State formula based solely on two factors, property and payroll.The States have responded unfavorably to this proposal. As an alternative,additional Federal grants to the States might be used to persuade them torelinquish a tax which is more efficiently collected at the national level.CONCLUSIONExpenditures for income maintenance, health, and education, andrevenues of States and cities, have grown faster than GNP since the mid-1950's. Expenditures for educational services and health care combinedhave risen from about 8J4 percent to 12^2 percent of GNP, and expendituresof States and localities have expanded from 8J/2 percent to 11 percentof national output in the past decade. Federal transfer payments to personshave risen from 3 percent to 4^2 percent of GNP. Through their dollarvotes on the market and their votes at the polls^ Americans have reaffirmedtheir strong desires for greater expenditures in these areas.In response to the wishes of the public, these areas will continue to absorba significant fraction of the gains from economic growth. But it is impossiblereliably to forecast how rapidly these outlays will grow, or to set inadvance meaningful targets for how fast they should increase. Opportunitiesfor progress in these areas will be influenced by the urgency of competingclaims on output, ranging from national defense to the unlimited aspira-167

tions of private consumers, and from conservation of natural resources andimprovements in the quality of our environment to industrial research, development,and investment. In peacetime the Nation will face repeated anddifficult—though welcome—choices about how to distribute fiscal dividendsbetween public programs and tax reductions. These decisions should beresponsive to changing circumstances.Moreover, it is not possible to stipulate "needs" in the areas discussed inthis chapter. If needs are merely what survival requires, most of what isneeded is now available. And if needs are everything that could be reasonablydesired, then they will not be fully met for generations.A rational balancing of opportunities and alternatives, will undoubtedlycall for some progress in all of these—and other—priority areas. Mostof the choices, both public and private, will be incremental in character.The individual chooses whether or not to visit his dentist, weighing the needagainst other uses of funds; he does not decide on health in the abstractor in the large. Similarly, the Federal budgetary process is full of effortsto cut low-priority expenditures marginally in order to expedite a promisingnew program like model cities. Even major program decisions which willbe faced in the years ahead—such as whether or not to set a minimum incomefloor to combat poverty, or whether or not to select any of the proposedinnovations in the area of Federal-State-local fiscal relations—could also beapproached on an incremental basis. In making these budgetary decisions, itis vitally important that goals and objectives be defined precisely, that allalternative methods of reaching them be considered, that costs and benefitsbe quantified as far as possible; only then can the most efficient means ofachieving the objectives be chosen. The Planning-Programming-BudgetingSystem recently initiated by the Bureau of the Budget and theexecutive agencies of the Federal Government is designed to advance thissystematic approach.This chapter has attempted to raise some issues which will require difficultchoices. Collectively such decisions will determine the directions of socialprogress in the years ahead.It is clear that social progress will make important claims on the Federalbudget. There is no easy way to define the Government's appropriaterole. But the pursuit of public interest and the exercise of public responsibilityneed not add dollar-for-dollar to the bills of taxpayers or to the sizeof Government. Much of our advance in health, education, and cities willbe financed through the budgets of consumers and businesses. The energiesand outlays of private enterprise can be stimulated by wise and imaginativepublic policies relying on enlightened regulation, carefully designed feesand subsidies, appropriate tax provisions, Government loans and insuranceprograms, and improved functioning of the market economy so that actualprices become better signals for estimating social costs and benefits.Within the public sector, another set of issues arises: whether particularprograms can be administered and financed most effectively by Federal,168

State, or local governments, and how the over-all division of responsibilitiescan assure adequate financing for priority social needs through anequitable tax system.The aspirations for material and social progress are boundless; the limitsof our potential progress are set by the resource costs and the level of productivityin our society. It can be confidently forecast that the problemwill be to find the means to fulfill our public and private aspirations ratherthan to deal with any redundancy of resources. A decade from now, majorgains will have been made, but there will still be a large inventory of unmetdesires and unsolved social problems, requiring public and private effortsto channel a substantial additional portion of our growing output towardpriority uses.169

Chapter 5Growth and Balance in the World EconomyWORLD ECONOMIC EXPANSION in the first half of the 1960's hasbeen sustained and rapid. The pace has probably been surpassedonly during the period of recovery from World War II. Moreover, sincethe end of the war, the extreme fluctuations of earlier years have not beenrepeated.But continued economic progress is not assured. Many problems remain.The most difficult and important is that of overcoming poverty in manyof the less developed countries of Africa, Asia, and Latin America. A majorproblem for the developed countries is to cope with international financialimbalances in ways which do not inhibit sound economic growth.This chapter records the economic progress in both the developed andless developed countries during the first part of the 1960's and outlines somemajor issues for international consideration during the remainder of thisdecade. It deals especially with the policy issues facing the United Statesand other developed countries in their efforts to achieve a better internationalbalance and to pursue national policies that promote world economicprogress. The worldwide economic impact of their national policies placesa special responsibility on the major developed countries.WORLD ECONOMIC GROWTH IN THE 1960'STwo quantitative goals for economic growth in the 1960's have beenfixed by international organizations:The United Nations has set 5 percent a year as the minimumgrowth rate for the less developed countries over the 1960's, callingthis the "Development Decade."The Organization for Economic Cooperation and Development(OECD), which includes the countries of Western Europe, the UnitedStates, Canada, and Japan, has called for an increase in aggregateoutput of all member countries combined, amounting to 50 percentover the decade or an average annual growth rate of 4.1 percent.As can be seen from Table 29, the expansion of real output in the lessdeveloped countries, estimated at 4/ 2 percent a year, so far has fallensomewhat short of the UN target on average, and far below it in several170

TABLE 29.—Changes in total and per capita real GNP in OECD and less developedcountries since 1955CountryShare oftotaloutput(percent) 1Percentage increase per yearTotal real GNP1955to19601960to1965Per capita realGNP1955to19601960to1965OECD countries: Total100.03.25.02.03.7United States53.32.24.7.43.2Total excluding United States.46.75.05.33.74.2GermanyUnited Kingdom.FranceJapanItaly -SpainGreece. . .Less developed countries: TotalAfricaNigeria.Ghana.. .8.67.77.35.44.11.4.4100.012.51.3 .72 6.32.84.69.75.54.35.4*4.5(5)( 5 ) 6.13 4.83.35.19.75.19.28.74.63.3 5.04.02 5.12.23.78.84.93.44.3

Japan to less than 14 percent in the United Kingdom. While much of theincrease in output comes from investment in physical capital and from theincorporation of technological advances, a good deal also comes from investmentin human capital—in raising the education, skills, and health of thepopulation.The growth of output is also benefiting from the movement of labor out ofactivities of low productivity to those of higher productivity. There has beena large-scale movement of labor from Southern Europe to NorthwesternEurope—from areas of low productivity, low incomes, and high unemploymentto areas where productivity and incomes are high and unemploymentlow. Within countries, the major shift has been out of employment in agriculture.The OEGD estimates that this latter shift alone accounted forbetween 10 and 15 percent of the increase in productivity during the firsthalf of the 1960's in France, Germany, Italy, and Japan. The United Kingdom,which by 1960 already had only a small agricultural sector, did nothave this source of expanding productivity.Internal shifts of labor have been stimulated and facilitated by theexpansion of foreign trade, which has far exceeded the growth of output.The rapid growth of trade has resulted, in part, from the reduction of tradebarriers, especially within the two regional groupings—the European EconomicCommunity (EEC) and the European Free Trade Association(EFTA).For a number of European countries and Japan, a rapid rise in exportshas also directly stimulated the growth of GNP. In addition, whendomestic expansion is led by export growth, the resulting rise in importscan be readily financed; there is less chance that the government will needto apply the brakes to reverse a developing balance of payments deficit.LESS DEVELOPED COUNTRIESThe achievement of an adequate rate of self-sustaining growth in theless developed countries remains an urgent world economic problem. Overhalf of the 4J/2 percent annual growth of total output for the less developedareas has been needed just to maintain their low level of living, since theirpopulations have been rising by 2^2 percent annually. The yearly increasein per capita output has been only 2 percent, or barely $3 a person.Achieving rapid and sustainable growth in these countries is by no meansa hopeless task, however. Self-sustaining growth has been attained in certainless developed countries—including Israel, Malaysia, Mexico, Taiwan,Venezuela, and some Central American countries. Others—such as Pakistan,South Korea, Thailand, and Turkey—are approaching that objective.But the problems are formidable. Further efforts by both the developedand the less developed countries are required. The rapid growthof population in many less developed countries, already over-populated inrelation to their economic resources, must be slowed. A number of these172

nations have adopted measures to induce their citizens to limit the size oftheir families. Some of these programs—in Hong Kong, Singapore, andTaiwan—have already shown signs of success. Nevertheless, the growthrate of population in the less developed countries as a group is still rising.Another major problem area is agriculture. Agricultural output hasgrown so slowly that food output per person in many countries is belowpre-World War II levels. Unless a vigorous effort is made to redress thesituation, it is likely to deteriorate further as population and need for foodcontinue to grow rapidly. Moreover, in at least some of the less developedcountries, agricultural development may be a key to general economicgrowth. The application of improved farming techniques can substantiallyimprove agricultural productivity with relatively small increments of capital;increased agricultural output can be a major substitute for imports; risingfarm income can provide an expanding market for domestic industrialoutput.The developed countries can do much to help by providing technicalassistance, food, fertilizers, agricultural equipment, and financing. But thebasic responsibility rests on the less developed countries themselves. Theymust, among other things, improve the incentives for farmers to increaseoutput.Education also is a major field in which improvement is essential. Economicprogress requires literacy. A modern and expanding economy needsmuch more—people trained to operate farm machinery, run a lathe, operatea retail store, and keep accounts. In recognition of the importance ofeducation, the less developed countries have in recent years increased theireducation budgets by 15 percent annually. This effort has long been supportedby the United States. More Agency for International Development(AID) technicians working abroad are employed in educational projectsthan in any other field. Moreover, beginning in fiscal year 1967, AIDis sharply increasing its educational aid effort, as well as its work inagriculture and health. The educational efforts of our Peace Corpsworkers are also welcomed throughout the less developed world.The Need for CapitalThe developing countries also need capital. About one-fourth of theirdomestic investment is financed by capital imports. From 1961 to 1965,the net amount of this capital inflow rose by only 5 percent a year in moneyterms and less in real terms. Some increase continued into 1966. Since1963, the entire increase from abroad has been in private capital flows.This investment, to be sure, benefits the recipient countries, and theUnited States has taken steps to encourage it. But it has gone mainly tothe extractive industries, particularly oil. Thus, it is unevenly distributedamong countries. Further, investment in technologically advanced, some-240-782 O—67 12 ' u

times highly automated, extractive processes does not have the same stimulatingeffects on general economic activity as does investment in local manufacturing.It does, however, provide much needed foreign exchange andtechnological know-how for those countries fortunate enough to be wellendowedwith minerals.For many developing nations, a growing burden of interest and amortizationpayments on external debt absorbs a large and rising proportion ofgross aid receipts. In 1960, debt service charges amounted to 13 percent ofthe official bilateral aid receipts of less developed countries; today the figureis 19 percent. India's debt service charges on government assistance for theperiod of its Third Plan amounted to 26 percent of its foreign aid. InTurkey, debt service during 1963-66 was more than half as large as grossforeign aid.For the net inflow of aid merely to remain constant, the gross inflow mustrise to cover growing debt service. In fact, the gross flow of government aidfrom the developed countries has been rising just enough to keep net aid inflowon a plateau since 1963. Future prospects are even less encouraging.Bilateral aid commitments—pledges of actual aid disbursements to be madein the future—declined in 1965. This could foreshadow a decline in netand even in gross official aid disbursements in the years to come.The stagnation in the net flow of official capital to the less developedcountries has come at the very time that the industrial countries havereached new heights of prosperity. And it comes at a time when the paceof economic expansion achieved by the less developed countries as a groupis encouraging. They are developing the skills required for a moderneconomy. They are capable of using more capital than they can raisedomestically or borrow abroad on commercial terms. For this and otherreasons, foreign aid, both bilateral and multilateral, should have a highpriority claim on the resources of high-income countries.One of the most fruitful avenues for increased aid to the less developedcountries is through the multilateral lending agencies—the World Bankfamily and the regional development banks. The United States firmlysupports these agencies as mechanisms for mobilizing both external capitaland domestic resources of the developing countries themselves. Replenishmentof the resources of the International Development Association (IDA),which lends on easy terms, ought to be high on the agenda of the developedcountries. The IDA's resources should be substantially increased in wayswhich take into account the balance of payments situation of the contributingcountries. The recently established Asian Development Bank representsa new stage in Asian economic cooperation, in which the UnitedStates is participating with other non-Asian countries. For Latin America,the United States continues its strong support of the Inter-American DevelopmentBank, which serves as the financial arm of the Alliance for Progressand is helping to draw funds from inside and outside the hemisphere into174

Latin American development. The African Development Bank, which hasrecently begun operations, will perform similar functions in its area.Foreign aid and private foreign investment finance only one-fifth of theforeign exchange expenditures of the developing countries. The remainingfour-fifths is financed by their own export earnings. After near stagnationin the late 1950's, these earnings rose by about 6 percent a year duringthe first half of the 1960's. The increase was produced by many factors, includingstrengthened prices for many primary commodities, the growingability of the less developed countries to supply these commodities, and therapidly expanding markets in the United States, Western Europe, andJapan. Only with continued vigorous growth in the developed world andimproved access to its markets can the less developed countries earn theforeign exchange needed to support their own continuing growth.TRADE POLICIESThe less developed countries obviously have much to gain from reductionsin tariffs, quotas, and other barriers to trade in primary products, sincesuch products constitute 85 percent of their exports. Over the longer run,satisfactory growth in the export earnings of the less developed countrieswill require relatively less reliance on sales of primary products and continuationof the sharp expansion in exports of manufactured goods. Suchdiversification will also be important for their internal growth. Reductionsin tariffs and other trade barriers in developed countries can contributemuch to the needed growth of manufactured exports from developingcountries.In most of the less developed countries, internal markets are too smallto support efficient modern industrial plants. It is not geographic size orpopulation but effective purchasing power that determines the size of amarket. Regional cooperation can create larger markets so that the enterprisesof the developing countries can benefit from the economies of scaleand of specialization on which growth and efficiency depend.Encouraging progress toward regional integration is being made in anumber of areas. The Latin American Free Trade Association, despitehandicaps, can form the basis for a true Latin American common market.Particular progress has been made in the Central American Common Market.The United States supports outward-looking regional integration.The importance of trade expansion as a factor in economic growth inall countries argues strongly for more rapid trade liberalization. Thisproposition is effectively demonstrated by the recent experience in the newfree-trade areas of Europe, just as it was earlier demonstrated in the greatcommon market of the United States. Thus, it is essential that successbe achieved in the current multilateral trade negotiations, by far the mostcomprehensive in history.175

Kennedy RoundThis success is important to both the developed and less developed countries.The substantial reduction in tariff barriers which the United Statesand other countries are seeking to achieve in the Kennedy Round negotiationsshould make an important contribution to increased world trade.Expanding world trade encourages capital and labor to move out of thoseeconomic activities which are better supplied from abroad and into thosefields which provide higher real income through greater productivity. Bypermitting countries to produce efficiently and on a large scale, freer trademakes a contribution to higher incomes everywhere. And through reductionof artificial shelters to laggard domestic industries, the lowering ofbarriers to imports spurs innovation and efficiency.In the Kennedy Round, the major reductions in barriers to world tradeare expected to be made by the developed countries—the United States,EEC, EFT A, and Japan. EFT A has now virtually eliminated barriers toindustrial trade among its members while the EEC will do so for bothindustrial and agricultural products by July 1968. The reduction of barriersto trade with nonmember countries would now help these groups tocontinue their rapid pace of growth, and would avoid distortion of thenormal pattern of European trade in particular and world trade generally.The less developed countries are not being asked to grant tariff concessionsthat would endanger their economic development programs.Longer-Run TasksA successful Kennedy Round will be a great achievement, and will promoterapid and healthy economic expansion throughout the world. But the KennedyRound cannot be the end of the road for the liberalization of worldtrade. In the year ahead, further study and international consultationshould be directed at four remaining tasks in the trade field:(1) Continuing efforts to liberalize those tariff and nontariff barrierswhich will remain after the Kennedy Round;(2) Developing a better international pattern of agricultural productionand trade to speed economic growth;(3) Achieving more stable export prices and raising the export volume ofdeveloping countries;(4) Improving economic relations between the countries of EasternEurope—including the Soviet Union—and the United States.President Johnson has emphasized the importance of this last task on severaloccasions. In his recent State of the Union Message, he noted that theExport-Import Bank can now extend commercial credits to Bulgaria,Czechoslovakia, Hungary, and Poland, as we'll as to Rumania and Yugoslavia.He called again for legislative authority to extend most-favorednation—i.e.,nondiscriminatory—tariff treatment to the countries of Eastern

Europe and the Soviet Union. Their trade with Western Europe has increasedsteadily in recent years, while U.S. trade with these countries hasbeen stagnant, and constitutes less than 1 percent of all U.S. foreign trade.U.S. BALANCE OF PAYMENTSA country's foreign trade and payments are its main points of economiccontact with the rest of the world. The balance of payments of any nationis intimately dependent on policies and developments in the outside world.U.S. exports depend heavily on European, Canadian, and Japanese growthand the foreign exchange receipts of the less developed countries as well ason U.S. growth and price stability. The flow of capital from the UnitedStates depends on profit opportunities and monetary conditions abroad aswell as on those in the United States.For most of the decade following World War II, U.S. balance of paymentsdeficits provided needed international currency to support the rapid expansionof world trade and economic growth. Other countries were eager tohold more dollars; indeed, it was commonly known as a period of "dollarshortage." Recently, however, as foreign reserves have increased, U.S.deficits have been less welcome.These deficits do not, of course, contradict the unmatched strength andproductivity of the U.S. economy; neither do they mean that our competitiveposition in world markets is weak. The United States is not livingbeyond its means, increasing its net debt to foreign countries, or using up itsinternational capital. U.S. ownership of assets abroad continues to growfaster than foreign ownership of assets in the United States. U.S. assetsabroad, net of foreign assets in the United States, increased from $7 billionin 1935 to $14 billion in 1950; by 1961 they had risen to $28 billion;and in 1965 they were $47 billion.The deficits have, however, resulted in a steady erosion of the U.S. stockof reserve assets, which are needed to maintain a stable value of the dollarin international transactions. At the same time, there have been steadyincreases in U.S. liabilities to foreigners that may be considered potentialclaims against our reserve assets. This combination implies a continuingdecline in liquidity; it is clearly not indefinitely sustainable if confidence inthe safety and stability of the dollar is to be maintained.The U.S. balance of payments performance is now evaluated in terms oftwo alternative accounting definitions. Both measure an over-all U.S.deficit or surplus in terms of what is currently happening to (1) U.S. reservesand (2) certain types of claims against the United States. Both count asan increase or decrease in reserves any change in the sum of U.S. holdingsof monetary gold, U.S. "gold tranche" claims on the International MonetaryFund (IMF), and U.S. official holdings of convertible foreign currencies.177

They differ in how they treat changes in various outstanding claims againstthe United States.One measure—the "official reserve transactions" balance—treats anyincrease in foreign private claims on the United States, liquid or illiquid, asan ordinary capital inflow. Only the change in claims on the United Statesheld by foreign official agencies is counted, along with the change in U.S.reserves, as a measure of the U.S. deficit or surplus. Foreign official monetaryagencies have the privilege of converting claims on the United Statesinto gold at the U.S. Treasury; their net purchases thus add to the directclaims on U.S. reserves. Moreover, they are charged with maintainingstable exchange rates for their national currencies. They usually do thisby buying or selling dollars to close any gap between normal supply anddemand for dollars which might otherwise upset the exchange rate betweenthe dollar and their currency. In this sense, the net balance of such transactionsby other countries, together with changes in our own reserves, is oneindicator of the size of the imbalance in U.S. payments.The alternative "liquidity" balance attempts an assessment of changes inthe U.S. liquidity position. It takes account of the fact that liquiddollar holdings of private foreigners may be readily sold to foreign centralbanks. It therefore treats only increases in foreign non-liquid claims on theUnited States as ordinary capital inflows. Changes in all liquid claims areincluded along with changes in U.S. reserve assets as a measure of the U.S.balance, regardless of whether the claims are acquired or sold by an officialagency or by a private individual, bank, or business.While these measures of balance are important, they must be viewed asindicators, rather than definitions, of equilibrium. In part, the limitationarises because any measure of balance must arbitrarily divide dollar assetsinto two distinct groups—those Which are claims against our reserves andthose which are not. Such a clear division does not exist in reality. Toa degree, any marketable dollar asset can be indirectly exercised asa claim against U.S. reserves. Moreover, the likelihood that assets willbe used as a claim against U.S. reserves depends not only on their marketabilityand maturity but also on the motivation and attitude of current andprospective holders. Evidence on such attitudes, including the performanceof the dollar in foreign exchange markets, helps to interpret the U.S. position.But, however that position is assessed, the U.S. balance of paymentsclearly has not been in sustainable equilibrium in recent years and must beimproved.Where a sustainable equilibrium may lie over the long run is not completelyclear. The expansion of international transactions—most of which are settledin dollars—suggests that some growth of foreign private holdings ofdollars is natural and desirable and may be perfectly sustainable. Someincrease in official claims on the United States may also occur over the longrun, given the preference of many countries to hold all or some of their officialreserves in dollars, and the fact that transactions needs of official agencies178

will continue to expand. Regardless of the movement of dollar holdingsabroad, however, continuing U.S. reserve losses would not be compatible withsustained equilibrium. On the other hand, any growth of either official, orofficial plus private liquid, holdings of dollars need not be precisely equaledby growth of U.S. reserve assets in order that sustainable equilibrium beachieved.REGENT DEVELOPMENTSThe U.S. liquidity deficit widened slightly in 1966 while the officialsettlements balance registered a small surplus for the first time since 1957,The liquidity deficit had improved markedly in 1965 and showed a slightfurther improvement through the first three quarters of 1966. Preliminaryevidence points to a somewhat larger fourth quarter liquidity deficit whichwill bring the year's total slightly above the $1.3 billion deficit of 1965.During the year, there was an extraordinary buildup of foreign privatedollar holdings, which resulted in a small surplus on official settlements.Despite the surplus on official settlements, net gold sales continued asforeign monetary authorities reduced their dollar claims on the UnitedStates. While sales to France were $601 million in 1966, the net reductionin the U.S. gold stock for the year was $571 million.Full data on the U.S. balance of payments are available only for the firstthree quarters of 1966. Unless otherwise noted, all figures for 1966 usedbelow represent the total of these first three quarters at a seasonally adjustedannual rate.The structure of the balance of payments in 1965 and 1966 was markedlydifferent from that of previous years. The surplus on goods and services,which had been rising from 1959 to 1964, dropped sharply in 1965 and1966. On the other hand, the net outflow on capital account was alsogreatly reduced in both years (Chart 16 and Table 30).These developments can in large measure be attributed to (1) the increasein the direct costs of the war in Vietnam, (2) the sharp rise in importsinduced by the rapid economic expansion and the heightened pressure ondomestic resources, (3) the exceptionally tight monetary conditions of 1966,and (4) the balance of payments programs inaugurated in 1965. The lasttwo factors were important in accomplishing a large reduction in U.S. banklending abroad and in attracting an exceptional inflow of foreign capital.The Balance on Goods and ServicesThe U.S. surplus on goods and services more than doubled from 1960 to1964, reaching an exceptional peak of $8/ 2 billion. Subsequently, however,the surplus declined. As the combined result of a narrowing trade surplusand sharply increased military expenditures in 1966, it fell to $5/ 2 billion.Trade. The trade surplus fell through the first three quarters of 1966,to the lowest level since 1959. The most striking factor in this deterioration179

Chart 16U.S. Balance of International PaymentsBILLIONS OF DOLLARS- EXPORTS AND IMPORTS OF GOODS AND SERVICES40EXPORTS30IMPORTS200I I I I I I1958 1960 1962 1964 1966^/10CAPITAL FLOWSFOREIGN-10U.S. PRIVATE1 1 J | | I1958 1960 1962 1964 1966 J/10BALANCEOFFICIAL RESERVE TRANSACTIONS BASIS010^mmmmmmmmLIQUIDITY BASISIii II II—I1958 1960 1962 1964 1966^J/FIRST 3 QUARTERS AT SEASONALLY ADJUSTED ANNUAL RATES.J/EXCLUDING OFFICIAL RESERVE TRANSACTIONS.i/EXCLUDING LIQUID CAPITAL.SOURCE: DEPARTMENT OF COMMERCE.180

TABLE 30.—United States balance of payments, 1960-66[Billions of dollars]Type of transaction 1960 1961 1962 1963 1964 1965 1966»Balance on goods and services_Balance on merchandise trade-Military expenditures, netBalance on other services4.04.8-2.72.05.65.4-2.62.85.14.4-2.43.15.95.1-2.33.18.56.7-2.13.97.04.8-2.04.25.53.7-2.74.5Remittances and pensions-.7-.7-.9-1.0-1.0Government grants and capital, netU.S. private capital, netForeign nonliquid capital, netErrors and omissions-2.8-3.9.4-2.8-4.2.7-1.0-3.0-3.41.0-1.2-3.6-4.5.7-.4-3.6-6.5.7-1.0-3.4-3.7.2-.4-3.6-3.62.0-.5BALANCE ON LIQUIDITY BASIS-2.4-2.2-2.7-2.8-1.3-1.2Plus: Foreign private liquid capital, net 2Less: Increases in nonliquid liabilities toforeign monetary authorities».51.0-.2.3.61.6.3.1.12.3.5BALANCE ON OFFICIALTRANSACTIONS BASISRESERVEGold (decrease 4)Convertible currencies (decrease -f)IMF gold tranche position (decrease -f)-.Foreign monetary official claims (increase-f)-3.41.7......1.3-1.3-.1-.1.7-2.7.9( 4 ) .61.2-2.0.5-.11.7-1.5.1-.2.31.4-1.31.7-.3-.1.7*.6•-.5•-1.41 First 3 quarters at seasonally adjusted annual rates, except as noted.2 Includes changes in Treasury liabilities to certain foreign military agencies during 1960-62.»Included above under foreign nonliquid capital.*Less than $50 million.* First 3 quarters at unadjusted annual rates.NOTE.—Detail will not necessarily add to totals because of rounding.Source: Department of Commerce.was the sharp acceleration in the growth of merchandise imports beginningin 1965, to an annual rate of about 20 percent. In 1966, imports rose toabout 3.5 percent of GNP—the highest in the postwar period—from about3.2 percent in 1965 and an average of less than 3 percent in previous years ofthe 1960's.Imports of capital goods rose by about 50 percent, and accounted formore than 20 percent of the increase in imports in 1966. For the secondconsecutive year they rose sharply as a percentage of total domestic purchasesof capital goods. As the increasing demand for capital goods beganto strain domestic capacity in 1965, and even more in 1966, purchasersincreasingly turned to foreign suppliers to get prompt delivery. Whileless than 3 percent of domestic requirements was imported in 1964, about9 percent of the increase in domestic purchases of capital equipment between1964 and 1965, and over 12 percent between 1965 and 1966, was accountedfor by additional imports. The earlier strains and pressures continued toaffect imports, especially for long lead-time items, in the second half of 1966,after the pace of over-all economic advance had moderated.181

Export performance in 1966 was healthy despite domestic demand pressures.Exports were more than 10 percent greater than in 1965, even afteradjustment for the effects of the 1965 dock strike. The U.S. share of worldexports (excluding exports to the United States) remained stable, whilethe U.S. share of world exports of manufactured goods rose slightly.A major source of the strength of U.S. exports in the 1960's has beenthe stability of the U.S. cost-price structure, while costs and prices have beenrising elsewhere. Recent price developments in the United States, however,brought this relative improvement to a halt. Even so, unit labor costsin manufacturing have risen less rapidly in the United States during 1966than in most other industrial countries. On the whole, it appears that theU.S. competitive position with respect to prices and costs was essentiallyunchanged in 1966.Other Goods and Services. Overseas military expenditures increased in1966 by more than $700 million, after having been relatively stable for severalyears. The war in Vietnam, of course, was the cause of the increase.Expenditures in Europe still account for about 45 percent of the total, buthave been largely offset by purchases of U.S. military equipment and byvarious financial transactions.Other items in the goods and services balance behaved normally. Investmentincome receipts, expanding by 6 percent, showed continuedstrength. U.S. travel expenditures abroad also continued to increase. Foreigntravel expenditures in the United States rose faster on a percentagebasis, but by less in dollar amount, than the expenditures of U.S. nationalsabroad.The deterioration of the U.S. balance on goods and services during 1966,in summary, reflected primarily pressures stemming from the rapid advanceof the domestic economy and the foreign exchange costs of the hostilitiesin Vietnam.The Capital AccountAs shown in Table 31, net U.S. private capital outflows fell from a record$6.5 billion in 1964 to $3.7 billion in 1965 and remained essentially unchangedin 1966.U.S. Purchases of Foreign Securities. After a sharp rise in new issues offoreign securities in U.S. markets beginning in 1962, the United States inJuly 1963 imposed an Interest Equalization Tax (IET) on purchases fromforeigners of securities of issuers in developed economies other than Canada.The IET was designed as a partial offset to the lower interest rates whichprevailed in U.S. capital markets as a result of better organization andgreater competitiveness, and of the need for the United States to presstoward full employment of its resources through expansionary fiscal andmonetary policies.The IET has worked well. From 1964 through 1966, U.S. net purchasesof foreign securities averaged about $700 million annually, down182

TABLE 31.—United States balance of payments: Capital transactions, 1960-66[Billions of dollars]Type of capital transaction19601961196219631964196519661U.S. private capital, net-3.9-4.2-3.4-4.5-6.5-3.7-3.6Direct investment-New foreign security issues. __Other transactions in foreign securities 2__U.S. bank claimsOther claims _-1.7-.6-.1-1.2-.4—1.6-.5-.2-1.3-.6—1.7-1.1.1—.5-.4-2.0-1.3.1—1.5.2-2.4-1.1.4-2.5-1.0-3.4-1.2.4.1.3-3.2-1.2.7.3-.3Foreign nonliquid capital, netDirect investmentU.S. securities (excluding Treasuryissues) __Long-term U.S. bank liabilities. .Other*.4.1.3( 3 ).7.1.3(3) .31.0.1.1( 3 ) .8( 3 ).7.3.1.4( 3 ).7-.1.2.5.2.1-.4.2.42.0-.11.1.8.3Foreign nonliquid capital, netPlus: Foreign private liquid capital, netLess: Increases in nonliquid liabilities to foreignmonetary authorities 5Equals: Foreign capital excluding official reservetransactions, net0.4.5.80.71.01.71.0-.2.3.5( 3 )0.7.61.30.71.6.31.90.2.1.1.22.02.3.53.91 First 3 quarters at seasonally adjusted annual rates.2 Includes redemptions.3 Less than $50 million.4 Includes certain special government transactions.5 Included above under foreign nonliquid capital.NOTE.—Detail will not necessarily add to totals because of rounding.Source: Department of Commerce.from the average of $1.1 billion of 1962 and 1963. U.S. purchases of newissues have stabilized near $1.2 billion; virtually all new issues have beenby Canadians and other borrowers not covered by the tax.U.S. Direct Investment and Bank Lending. The outflow of direct investmentfunds from the United States began to accelerate in 1963.By 1965, the flow was more than double that in 1960-62. The years 1963and 1964 also saw a sharp rise in loans abroad by U.S. banks. The totaloutflow of U.S. capital in 1964 was more than $2^2 billion in excess of itsaverage in 1960-61.Although the outflow of portfolio capital and bank loans is largely explainedby differentials in the cost of borrowing and the efficiency of U.S.financial markets, the increase in direct foreign investment by U.S. corporationsin the last few years is somewhat more difficult to explain. Therapid increase in investment in Europe generally reflects, of course, a desireto participate in a large and rapidly expanding new market.Earnings on investments in Europe, however, have fallen since 1962.Between 1955 and 1962, rates of return on investments of U.S. manufacturingaffiliates in Europe, at 14 to 19 percent, were significantly highereach year than the 10 to 15 percent earned by U.S. manufacturers at home.However, since 1962, earnings on direct investments in Europe have variedbetween 12 and 14 percent, about the same as, or—in 1965—even below,183

those in the United States. It is possible that long-term plans for expansionof foreign operations decided upon in the earlier period have dictated thelarge investment outflows of recent years.Whatever the reasons for the sharp increase in direct investment and banklending in 1963-64, it clearly was imposing an intolerable strain on the U.S.balance of payments.Consequently, early in 1965, the United States introduced a program ofvoluntary restraint on foreign investment by U.S. corporations and banks.This program was designed to moderate the capital outflow to the developedcountries, while not interfering with the flow to the less developed.The Federal Reserve program requested that banks limit their increasein claims on foreigners in 1965 to 5 percent of the outstanding claims at thestart of the year; a further 4 percent increase was the suggested limit in 1966.Banks were asked to give priority to export financing and credits to lessdeveloped countries. Similar guidelines were applied to foreign lendingby other financial institutions. This program—together with the effectsof tight money—achieved a $2j/2 billion favorable swing in bank lendingfrom 1964 to 1965 and a further $200 million improvement in 1966.The Department of Commerce, early in 1965, asked large nonfinancialcorporations to make a maximum effort to expand their net paymentsbalances and to repatriate liquid funds. Late in 1965, corporations wereasked to limit their average annual direct investment outflows (includingreinvested earnings, but net of U.S. corporate borrowing abroad) for 1965-66to specified developed and oil exporting countries to no more than 135percent of the average annual flow in 1962-64.Under the Commerce program, firms have been encouraged to obtainmaximum foreign financing. An indication of the program's success is thesharp surge in U.S. corporate borrowing abroad. In particular, U.S. corporationsissued more than $500 million of securities in foreign capitalmarkets during the first three quarters of 1966. (These issues are includedin Table 31 under foreign investment in U.S. securities; it offsets a part ofthe debit on direct investment.) In addition, borrowing by foreign subsidiariesof U.S. corporations has increased, reducing the need for outflowsfrom the United States.With these adjustments in financing, U.S. corporations continued theirextraordinary expansion of plant and equipment expenditures abroad.Outlays in 1965 were more than 20 percent higher than in 1964; a furthersubstantial increase is estimated for 1966, to an amount nearly double theoutlays in 1962. The increase from 1965 to 1966 in U.S. manufacturinginvestment in EEC countries may have been more than one-third.Foreign Capital. Higher yields on U.S. securities in 1966 attracted a largeinflow of foreign capital, particularly into Government agency obligationsand certificates of deposit issued by U.S. banks. Foreign official agencies andinternational organizations shifted a substantial volume of liquid dollarclaims into these instruments.184

The inflow of foreign private liquid capital that occurred in the thirdquarter of 1966 was particularly large. U.S. monetary tightness provideda strong pull to such funds. Some of the inflow clearly reflected a movementout of sterling during the period of acute pressure in July and August.Although an upward trend in private foreign demand for dollar balances isto be expected, the surge that occurred in the third quarter will obviously notcontinue and may be partly reversed in the future.Most of the inflow represented borrowing by U.S. banks from theirforeign branches as the home offices of U.S. banks responded to tightnessin their reserve positions. The foreign branches, able to offer higher ratesto depositors than those allowed in the United States, gathered a substantialvolume of short-term funds abroad. Although this flow of funds did notreduce the U.S. deficit on liquidity account, it did prevent what wouldotherwise have been a larger flow of dollars into the hands of foreign officialmonetary agencies, and thereby placed the official settlements account in substantialsurplus in the third quarter. It probably held down the loss inU.S. reserve assets at a time when there was temporary deterioration inother parts of the balance of payments.iPROSPECTS AND POLICIES FOR 1967The U.S. trade surplus should resume its growth in 1967. Indeed, improvementmay have begun in the fourth quarter of 1966. Success of thedomestic economic policies described in Chapter 1 will be essential to improvementof the trade surplus. A moderate pace and more balancedpattern of domestic economic advance should lower the ratio of importsto domestic income from the peak recorded in 1966. While imports growat a slower rate, export expansion should continue to be strong, givenfavorable growth rates in foreign markets and the increase in dollar earningsenjoyed by foreigners in 1966. The easing of domestic demand pressuresand more stable prices should enable U.S. producers to take full advantageof export opportunities.In addition, the U.S. Government will undertake further active effortsto promote exports, in part through expanded credit facilities of the Export-Import Bank. Steps are also being taken to attract a substantially largernumber of tourists to the United States. The special task force on travelwhich the President will appoint in the near future should lay the groundworkfor a greatly intensified long-run effort in this area.Military expenditures abroad will continue to be large, although they willprobably grow at a slower rate than in 1966. At the same time, the excessof investment income receipts over payments should show a substantialgrowth. The surplus on goods and services, then, should improve in 1967.Just as the capital account of the U.S. balance of payments last yearbenefited greatly from the sharp tightening of monetary conditions, relaxationof credit could create pressures in 1967 for increased private capital

outflows and reduced foreign inflows. This makes it especially importantthat the programs to limit capital outflows be continued and strengthened.Strengthened Voluntary ProgramsThe 1967 guidelines for the Federal Reserve and the Department ofCommerce voluntary restraint programs, issued last December, reflect theseconsiderations. Commercial banks by late 1966 were more than $1.2 billionunder their Federal Reserve guideline ceilings. To limit the potential increasein total foreign lending during 1967, the Federal Reserve asked eachbank to continue to observe, throughout 1967, its existing ceiling of 109percent of the claims outstanding as of the end of 1964. Banks were alsoasked to use their leeway under the ceiling only gradually—not more thanone-fifth of it per quarter—beginning with the fourth quarter of 1966. Moreover,to assure that such credits as are extended will be devoted primarilyto the financing of exports or to meet the credit needs of developing countries,any increase in nonexport credits to developed countries is to be limitedto 10 percent of the leeway existing on September 30, 1966. New andgreatly simplified guidelines were also issued for nonbank financial institutions.The guidelines for the Department of Commerce voluntary program torestrain direct investment outlays of business firms abroad were also strengthened.The ceiling on direct investment outflow plus overseas retainedearnings for the average of the two years 1966-67 was lowered to 120 percentof the 1962-64 average. With the strengthened program, the total ofdirect investment outflows—net of borrowings abroad—and retained overseasearnings in 1967 is expected to be below the actual level now estimatedfor 1966. The program will continue to permit the expansion of U.S. plantand equipment expenditures in those countries covered to the extent thatthe expansion can be financed from foreign sources. It also remains a fullyvoluntary program, confined to investments in developed and oil exportingcountries.Extension of 1ETAs a further measure to strengthen existing programs, the President isrequesting a 2-year extension of the IET, now scheduled to expire inmid-196 7, and is asking for authority to vary the effective rate of the taxbetween zero and 2 percent a year. By present law, the tax adds 1 percentagepoint, in effect, to the annual interest costs of those foreignerssubject to the tax who borrow at long term in the United States or who sellsecurities to U.S. citizens.The discretionary authority sought by the President would permit arapid and flexible response to changing monetary conditions at home andabroad. Although the present 1 percent rate has virtually eliminated newsecurity issues of countries which are not exempted, the current rate couldprove ineffective, if foreign countries do not lower their high interest rateswhile U.S. monetary conditions ease.186

BALANCE OF PAYMENTS ADJUSTMENT POLICIESAs countries grow at different rates and in different ways, paymentsimbalances are bound to arise. The adjustment policies of each countrywill directly affect not only its payments balance but its own internal economicperformance and the payments balances of other countries. Therefore,payments adjustment should be pursued in ways compatible with eachcountry's major domestic objectives and with the broad interests of theentire international community.REPORT ON THE ADJUSTMENT PROCESSDuring 1966, important progress was made toward developing a greaterinternational consensus on policies best suited for adjusting payments imbalances.A report by Working Party 3 of the OECD, prepared by representativesof the ten major industrial countries, carefully explored the nature ofthe adjustment process and pointed to various possibilities for improving it.The report recommended various ways of strengthening national policyinstruments and outlined a set of informal guidelines regarding appropriateadjustment policies. In addition, it suggested a number of steps to improveadjustment procedures through greater international cooperation,including collective reviews of countries' balance of payments aims; thesetting up of an "early warning" system for prompter identification andbetter diagnosis of payments imbalances; and the strengthening of internationalconsultations with respect to the sharing of responsibilities foradjustment. These suggestions stemmed from the report's major conclusions,which included the following:First, countries need to formulate their balance of payments aims moreclearly and base their individual and joint policies on aims that are mutuallyconsistent as well as desirable from the viewpoint of a healthy world economy.Second, responsibility for adjustment must fall on both surplus and deficitcountries.Third, countries need to have available and make use of a wider range ofpolicy instruments—both general and selective—and to tailor such instrumentsmore finely to the requirements of different circumstances and multiplepolicy goals. There is particular need in many cases to place greaterreliance on fiscal policies, and less on monetary policies, in achieving internaleconomic balance, because of the important international ramifications ofchanges in monetary policy.Fourth, the proper combination of policy instruments depends on the situationsencountered and the particular characteristics of the country concerned.No single policy prescription is appropriate in all cases.Fifth, countries must take continuous account of the impact of theiractions on other countries. A special need for international consultationexists in the field of monetary policy to avoid inappropriate levels of interestrates.187

U.S. ADJUSTMENT POLICIESThe strategy adopted by the United States to improve its internationalpayments position can be viewed in the light of the adjustment principlesoutlined by Working Party 3. U.S. policy has been designed to minimizeinterference with basic domestic and international objectives of thisNation and with the healthy development of the world economy.Monetary and fiscal policies were used in 1966 to restrain demand inthe light of both domestic and balance of payments considerations. TheUnited States has continued to pursue a liberal trade policy. It hasmaintained its flow of economic assistance to the less developed countries.Direct interference with international transactions has been essentiallylimited to Government transactions and restraints on the outflow of capitalto the developed countries of the world.Policy on Goods and ServicesResort to controls over private international transactions in goods andservices has been avoided as harmful to both the United States and the worldeconomy. The long and steady progress toward trade liberalization couldwell be reversed by even "temporary" restrictions, which could threaten tobecome permanent shelters of protection for economic interest groups.Thus, U.S. actions to deal with the balance of payments problem have maintainedthe trend toward trade liberalization in which the United Stateshas taken strong and consistent leadership since 1934.On the other hand, vigorous action has been taken to minimize theforeign exchange costs of U.S. Government programs. There is noprecedent for the economic and military assistance extended to foreign countriesand the military expenditures made abroad by the U.S. Governmentsince World War II. The acceptance of these responsibilities has involveda major balance of payments drain.U.S. nonmilitary foreign aid programs—which, net of loan repayments,currently amount to $3.6 billion a year—now have only a limited net balanceof payments impact. This has been achieved by tying aid so far as feasibleto purchases of U.S. goods and services. Although tying is already broadlyapplied and probably cannot be usefully extended in any major degree, continuingeffort is required to assure the effectiveness of the techniquesemployed.U.S. offshore military expenditures have been substantial during theentire postwar period, reflecting national security requirements and commitmentsto allies in an unsettled world. The impact of these expenditureson the U.S. balance of payments was reduced from a 1958 high of$3.4 billion to less than $2.9 billion in 1965; the Vietnam war caused asharp increase, to $3.6 billion, in 1966 (first three quarters at annual rate).At the same time, deliveries of military equipment sold to foreign countriesrose from about $300 million a year in 1960 to about $1.1 billion for the fullyear 1966.188

The foreign exchange costs of the security program, even excluding Vietnam,remain high. The United States is prepared to play its full part insupplying the necessary real resources for the common defense. But it seemsreasonable to expect those allied countries whose payments positions benefitfrom U.S. expenditures for the common defense to adopt measures to neutralizetheir "windfall" foreign exchange gains—especially when their reservepositions are strong. This could be done in many ways. Specific arrangementscould be worked out within the framework of the alliance itself.Such arrangements could relieve strategic planning from balance of paymentsconstraints which, in the extreme, could jeopardize our nationalsecurity and that of our allies.Policy on Capital FlowsOver the years, the outflow of U.S. capital has made a major contributionto world economic growth. By providing capital to areas where it is relativelyscarce, U.S. foreign investment raises foreign incomes and often leadsto a more efficient use of world capital resources. U.S. direct investmenthas provided a vehicle for the spread of advanced technology and managementskills. U.S. foreign investment also has yielded handsome returns toAmerican investors and substantial investment income receipts for thebalance of payments.Despite the advantages of U.S. foreign investment both to the recipientcountries and to the United States, it can—like every good thing—be overdone.And it was being overdone in the early 1960's. Just as a person mustweigh and balance opportunities for investment that will be highly profitablein the future against his current wants, so must a nation weigh the benefitsof future foreign exchange income against current requirements. Thecosts of adjusting other elements in the balance of payments may be greaterthan the costs of sacrificing future investment income.It is often true that U.S. investment abroad generates not only a flow ofinvestment income but also additional U.S. exports. From a balance ofpayments standpoint, this is an additional dividend. Yet it is also true, insome cases, that U.S. plants abroad supply markets that would otherwisehave been supplied from the United States, with a consequent adversedirect effect on U.S. exports.It is sometimes held that the international flow of capital occurs alwaysand automatically in just the economically "correct" amount, and that anyeffort to affect this flow through government measures constitutes a subtractionfrom the economic welfare of the country of origin, the country ofreceipt, and the entire world community. Such a position cannot besustained.While much of the large flow of U.S. capital to the developed countriesis no doubt a response to a shortage of real capital there relative to the UnitedStates, the flow is also influenced by many other factors. These may include240-782 O—67—13

cyclical differences in capacity utilization, differences in monetary conditionsand financial structure, speculation on exchange rates, tax advantages, andopportunities for tax evasion—none of which necessarily leads to a morerational pattern of international investment.High prospective returns on investment in a particular country mayreflect a particular choice of policies in the recipient country that is quiteunrelated to any underlying shortage of capital. If a country chooses tochannel the bulk of its private saving into low productivity uses, if it employsa tight monetary policy, if it limits access of its own nationals to its capitalmarket, it will attract foreign capital. Restraint on such capital flows maytherefore merely mean that more of the adverse effect of such domesticpolicies on economic growth will rest—as perhaps it should—on the countrythat made the policy choice.Trade restrictions may also lead to a flow of capital that would not otherwisetake place. U.S. investment in the EEC has, at least in part, beeninduced by the desire to get within the tariff walls erected around a largeand growing market. If, however, a continued movement toward tradeliberalization may be expected, the economic justification for some part ofthese capital flows is lessened.One major stimulant for direct investment abroad is undoubtedly thesubstantial advantage in technology and managerial skills which U.S. firmsoften possess. The international transfer of these factors may be embodiedin a capital outflow independent of the relative scarcity of capital. Actionwould thus be appropriate, not necessarily to curtail the investment itself,which would interfere with the beneficial transfer of the scarce technologyand skills, but to transfer the source of financing to the area receiving thedirect investment. This, indeed, is the primary intention and the result ofthe present voluntary program on direct investment.Finally, differential monetary conditions among countries can inducecapital flows. But monetary policy is an important and useful instrumentof domestic stabilization and growth as well as of balance of payments adjustment.During 1960-65, U.S. monetary policy was oriented to servedomestic expansion. In 1966, it contributed to a desirable restraint oninternal demand and to an improved balance of payments. In 1967,relaxation of U.S. monetary policy has begun in order to help obtain abetter balance of internal demand. Appropriate use of restraints on capitaloutflows in such forms as the voluntary programs and the IET can usefullysupplement monetary policy in promoting domestic and international goals.In summary, it is clear that balance of payments policy should not exemptcapital flows from its compass. It is equally clear that the United Statesshould be a major capital exporter. The U.S. programs have been designedto maintain a reasonable flow of capital, especially to the less developedcountries. Given the alternatives and the need to improve its paymentsposition, the United States has restrained the outflow of capital as190

preferable to cutting essential international commitments, limiting internationaltrade, or restricting domestic—and world—economic growth.ADJUSTMENT POLICIES OF OTHER DEVELOPED COUNTRIESActions by the United States to improve its payments position cannot bythemselves assure that the world payments pattern will be either sustainableor desirable from an international point of view. Such a result is only possiblethrough appropriate efforts of both deficit and surplus countries.In 1966, various other countries pursued policies to reduce paymentsimbalances. The most dramatic measures were taken by the United Kingdom,following renewed severe speculative attacks on the pound in thesummer, which were initially met by drawings on swaps and other shortterminternational credit facilities cooperatively provided by the financialauthorities of the major industrial countries and the Bank for InternationalSettlements. The British increased the bank rate to 7 percent, provided astrong dose of over-all fiscal restraint, adopted selective tax measures toencourage increased productivity, and imposed a temporary freeze on wagesand prices. These measures markedly reduced the earlier deficit, and theUnited Kingdom may soon move into surplus.In Italy and Japan, resumption of more rapid growth in domestic economicactivity, together with policies favorable to increased capital exports,succeeded in reducing payments surpluses as the year progressed. Industrialexpansion in France similarly led to a shrinkage in that country's overallsurplus as the trade balance narrowed; however, there continued to be anet capital inflow.Germany, which had a payments deficit in 1965 for the first time in severalyears, swung back to a sizable surplus in 1966. Monetary policy was tightenedmainly to contain inflation. As a result, domestic investment slowedmarkedly, and the trade surplus increased sharply. The payments surpluswas still expanding at year end. In January 1967, Germany took a welcomestep toward monetary ease by lowering the central bank discount rate.Although somewhat reduced from the preceding year, payments imbalancescontinued large in 1966. In some countries, corrective policiesare clearly needed to prevent imbalances from growing still larger in thecurrent year. Moreover, considerable question remains whether the patternof adjustment in 1967 will permit a fully satisfactory rate of economic growthin the industrial countries, and an adequate flow of capital to the less developedworld.The United States will be actively pursuing policies to strengthen itspayments position in 1967. But reduction of U.S. deficits must have acounterpart in reduced surpluses or increased deficits elsewhere. If theimpact of the U.S. payments improvement were to fall largely on theUnited Kingdom or the less developed countries, the international paymentssystem would suffer rather than benefit. From the viewpoint of a viable

international payments pattern, consequently, there is no real alternative: itis the countries with strong underlying payments positions and large reserveswhich must absorb a major share of the impact of reduced U.S. and U.K.deficits. In particular, a marked reduction is needed in the chronic over-allsurplus of the major industrial countries of Continental Europe.The surplus countries also bear a significant share of the responsibilityfor assuring that the manner in which adjustment takes place is, to the greatestextent possible, consistent with the broad objectives of the internationaleconomic community as a whole.Most importantly, adjustment policies should not, in the aggregate, preventa healthy rate of worldwide economic growth compatible with reasonablystable price levels. In the United States, demand policies aiming at aslower rate of growth than that of 1966 are, of course, entirely appropriateon purely domestic grounds. But an even more marked slowdown in demandthan is needed for proper domestic balance would entail serious socialand economic costs at home and could risk a recession. Given the massiveweight of the United States in the world economy, such a policy would riska slowdown in trade and economic growth on a worldwide basis.On the other hand, the objectives of international economic expansion andpayments adjustment are simultaneously served when surplus countries withlagging internal demand take effective steps to spur the pace of economicactivity—as was, for example, true of France, Italy, and Japan during thepast year. In 1967, a number of surplus countries will be in a good positionto contribute significantly to better international payments equilibrium inthis fashion, without running serious risks of engendering inflationarypressures.Surplus countries also have a special responsibility for fostering relativefreedom in international transactions. As the report of Working Party 3pointed out, it is desirable—wherever possible—that adjustment take place"through the relaxation of controls and restraints over international tradeand capital movements by surplus countries, rather than by the impositionof new restraints by deficit countries." In the past year, Italy and Japangenerally followed policies that facilitated capital outflows; the recentlyannounced intention of the French Government to liberalize capital controlsis also a hopeful development. There is, however, scope for furthermeasures by various surplus countries to liberalize the regulations that governcapital outflows and also to ease restrictions on imports. More liberal importpolicies would both improve payments balance and counter domesticinflation.In 1966, there was an escalation of monetary restraint. The sharp tighteningof monetary policies in the United States, undertaken largely for domesticreasons, did help significantly to contain the U.S. payments deficitduring the year. Monetary action also was a key feature in the program todefend the British pound. But countries in a strong reserve position192

also placed heavy reliance on restrictive monetary policies to containdomestic demand. The net effect of all these actions, and of thefailure of most other countries to take active steps to avoid monetary stringency,was a dramatic upward movement in interest rates on a worldwidebasis (Chart 17). Between September 1965 and September 1966, rateson 90-day Eurodollar deposits increased from 4.4 percent to 6.7 percent;yields on long-term international bond issues rose by more than a fullpercentage point; and there were marked increases in long-term governmentbond yields in all major industrial countries.The extent to which the present high worldwide level of interest rates aidsthe process of balance of payments adjustment is doubtful. The substantialbenefit to the U.S. balance of payments from the tightening of U.S. monetaryconditions stemmed from differential monetary conditions here andabroad. The potential magnitude of such effects is reduced when surpluscountries simultaneously permit or even encourage their own interest ratesto rise.From the standpoint of world economic growth, it would be preferableif payments adjustment took place at a lower average level of interest ratesthan has recently prevailed. Precisely what level is appropriate is a matterthat deserves continuing international discussion.Given the key role of the United States in international financial markets,a general easing in international monetary conditions would be greatly aidedby a lessening of monetary tightness in the United States. A move in thisdirection, already under way, will have major benefits for domestic economicbalance. But if credit relaxation were confined to the United States,it would not promote a better balance of payments adjustment either forthis country or for the major surplus countries of Europe. Moreover, atleast in some important European economies, monetary easing would helpto facilitate needed domestic economic growth. It would appear, therefore,that movement toward easier credit conditions by the countries ofWestern Europe would promote their own and the general welfare. Wherenecessary for domestic reasons, demand restraint could be maintained bygreater reliance on fiscal policy.If the major surplus countries adjust mainly by permitting their tradesurpluses to decline, this can lead to a substantially improved trade surplusfor the United States and permit it to maintain and even augment its role asa major capital exporter. Alternatively, if the large surplus countries—andparticularly the EEC countries—wish to continue to maintain a substantialsurplus on current account, they should assume a larger share of the responsibilityfor providing financial capital where it is needed.Some progress in this direction has, in fact, recently been made, partlyunder the spur of the more restricted access to U.S. capital markets. Newinternational bond issues in Europe during the first three quarters of 1966,for example, were at an annual rate of about $1.4 billion—four times the193

Chart 17Interest Rates in Selected CountriesPERCENTSHORT-TERM INTEREST RATES-L/GERMANYNtf:1964 1966LONG-TERM INTEREST RATES ^7SWITZERLAND1958 1960 1962 1964 1966.S. AND U.K., 3-MONTH TREASURY BILLS; GERMANY, 3-MONTH INTERBANK LOANS; SWITZERLAND, 3-MONTH BANK DEPOSITS..S., 10-YEAR TAXABLE BONDS; U.K., WAR LOANS; GERMANY, PUBLIC AUTHORITY BONDS; SWITZERLAND,GOVERNMENT BONDS.NOTE.-DATA PLOTTED ARE ANNUAL THROUGH 1963, QUARTERLY THEREAFTER.SOURCES: TREASURY DEPARTMENT AND BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM.,• I

$360 million level in 1962, the year preceding the introduction of the InterestEqualization Tax. It is highly desirable, however, that the surplus countriestake stronger steps to enlarge the capacity of their capital marketsand to assure an adequate volume of long-term capital exports (includingforeign aid), especially to the less developed countries.INTERNATIONAL MONETARY REFORMThe avoidance or appropriate correction of large-scale payments imbalancesis of key importance in facilitating sound world economic growth andrelatively unfettered international trade and payments. But better adjustmentalone is not sufficient to attain these objectives.In the long run, most countries seek some steady increase in their internationalreserves. With growing world transactions, this has meant thatthey have generally sought to have surpluses rather than deficits in theirbalances of payments. Obviously, however, all countries cannot attain sucha goal simultaneously. At present, only the flow of new gold into monetaryreserves can permit a steady accumulation of reserve assets by some countrieswithout corresponding deficits for others.This flow of new gold has, for many years, been inadequate. For much ofthe postwar period, dollars supplied through U.S. deficits served as the majorsupplement to gold in new reserve creation. For reasons already cited, however,the dollar can no longer be expected to perform this task in the sameway; nor can it be assumed that adequate new reserves will accrue in theform of automatic drawing rights at the IMF, as the byproduct of theFund's normal lending operations. To satisfy desires for rising officialmonetary reserves over the longer run and to eliminate dependence ofthe world economy on the vagaries of gold production, deliberate generationof new reserve assets is needed on a cooperative international basis.In 1966, significant progress was made toward setting up a mechanism forsuch deliberate reserve creation. Representatives of the major industrialcountries known as the Group of Ten agreed that it is prudent to begin thepreparation of a contingency plan now. They also agreed that deliberatereserve creation should be tailored to global needs rather than the financingof individual balance of payments deficits; that decisions on the amountof reserves to be created should be made for some years ahead; and thatreserve assets should be distributed to all members of the Fund, on the basisof IMF quotas or comparable objective standards. While the negotiationsin the Group of Ten, and parallel deliberations by the Executive Directorsof the Fund, did not result in complete accord on the precise form anduse of new reserve assets, the exploration of technical details producedsubstantial agreement regarding the nature of alternative "building blocks"that might be incorporated in the final contingency plan.A major accomplishment in 1966 was the initiation of a second stage ofinternational monetary negotiations late in the year, involving joint dis-195

cussions of the Executive Directors of the Fund and the Deputies of theFinance Ministers and Central Bank Governors of the Group of Ten. It ishoped that these meetings, which have already shown great promise, willby the time of the next Annual Meeting of the Fund lead to a wide consensuson the key remaining points at issue.Differences of view on two of these points already seem to be narrowing.There now appears to be a widespread feeling that the needs of the internationalmonetary system can best be served if deliberate reserve creation iseffected through the development of an entirely new reserve unit, distributedto all Fund members. At the same time, there is increasing recognition thatsatisfactory procedures can be developed to make the new reserve asset generallyacceptable without linking its use to specified payments of gold.Probably the most important outstanding issue is the precise manner inwhich decisions on reserve creation are to be made. There is good reasonto expect, however, that this question can be resolved in a way that takesaccount of the legitimate needs and interests of all the countries representedin the negotiations.While the progress made in the negotiations thus gives ground for considerablesatisfaction, it is also true that the need for developing a contingencyplan for deliberate reserve creation has become more urgent.One reason is that it can no longer be assumed that U.S. deficits willautomatically increase world reserves. These deficits, which for muchof the postwar period were the main element in new reserve creation, havesince the end of 1964 made no net contribution to the rise in world reserves.Indeed, in September 1966, the dollar holdings in the officialreserves of other countries were actually smaller than 21 months earlier,both in absolute terms and after a rough adjustment for seasonal influences.Over this period, total U.S. gold sales to other countries were more thantwice as large as the accumulated U.S. balance of payments deficit onofficial settlements. Thus, the manner in which the U.S. deficit was financedhas tended to reduce, rather than augment, the total of worldreserves.Second, the flow of gold into monetary channels has been sharply reducedrecently. While final estimates for 1966 are not yet available, it islikely that there was virtually no net addition of gold to monetary reservesduring the year. In 1965, only $240 million of new gold entered into monetarystocks. This contrasts with an annual average of about $600 millionin the decade ended in 1964.Third, it is significant that the modest increase in over-all world reservesthat did occur in the recent past reflected very special circumstances. Duringthe 21-month period from the end of 1964 through September 1966,world reserves increased by about $1.8 billion. But the largest part of thisincrease was a byproduct of the difficulties experienced by the British pound,which caused the U.K. authorities to draw $1.4 billion from the IMF; alarge portion of this drawing, in turn, increased reserve claims on the Fund by196

other countries. Not only can transactions of this kind no longer be countedupon to add to world reserves as the British situation improves, but repaymentof Britain's debt could actually lead to a contraction of reserves.These considerations suggest that the time when deliberately created reservesare needed may be closer at hand than is often realized. In anyevent, continued uncertainty regarding the nature of a contingency plan andthe timing of its adoption can be a growing source of uneasiness in internationalfinancial markets and interfere with the smooth working of theadjustment process. Clear agreement on a contingency plan, on the otherhand, would be a major factor in strengthening confidence in the worldmonetary system and in reducing gold hoarding and would help lessen thetendency of countries to pursue unattainable balance of payments aims.The essential tasks for 1967 thus are to improve the process of paymentsadjustment through increased international cooperation and to move decisivelytoward establishing a mechanism for deliberate reserve creation. Thetwo tasks are intimately interwoven; success in both is necessary to providea sound climate for world economic growth and relative freedom in tradeand capital transactions, as well as to assure an adequate flow of long-termcapital from the developed to the less developed countries.197

Appendix AREPORT TO THE PRESIDENT ON THE ACTIVITIES OFTHE COUNCIL OF ECONOMIC ADVISERS DURING 1966199

The PRESIDENT.LETTER OF TRANSMITTALDECEMBER 31,1966.SIR: The Council of Economic Advisers submits this report on its activitiesduring the calendar year 1966 in accordance with the requirements ofCongress, as set forth in section 4(d) of the Employment Act of 1946.Respectfully,GARDNER AGKLEY, ChairmanJAMES S. DUESENBERRYARTHUR M.OKUN201

Report to the President on the Activities of theCouncil of Economic Advisers During 1966Throughout 1966 the Council of Economic Advisers was confronted withthe challenge of analyzing the problems and opportunities of a prosperouseconomy, now at full employment for the first time in more than a decade.The problem of reconciling full employment and price stability introduced anew emphasis into every area of the Council's work—fiscal and monetaryanalysis, examination of manpower problems and of programs for efficiencyin industry, and study of balance of payments issues. Some of our specificactivities in the price area are described more fully in our Annual Report.In recent months the pressures on prices seem to have been more restrained,as economic policies have sought to turn the expansion along the path offull employment growth. The challenge for the Council in 1967 is to contributeto the shaping of policies that will maintain expansion along thatpath.COUNCIL MEMBERSHIPGardner Ackley and Arthur M. Okun continued to serve as Council membersin 1966, with Mr. Ackley as Chairman. James S. Duesenberry joinedthe Council on February 2, replacing Otto Eckstein who returned to hisposition as Professor of Economics at Harvard University. Messrs. Ackley,Okun, and Duesenberry are on leave from the University of Michigan, YaleUniversity, and Harvard University, respectively.Following is a list of all past Council members and their dates of service:NamePositionOath of office dateSeparation dateEdwin G. NourseLeon H. KeyserlingJohn D. ClarkRoy BloughRobert C. TurnerArthur F. BurnsNeilH.JacobyWalter W. StewartJoseph S. Da vis _.Raymond J. SaulnierPaul W. McCrackenKarl BrandtHenry C, WallichJames Tobin ...Kermit GordonWalter W. HellerJohn P. LewisOtto EcksteinChairman .. . .Vice C hairmanActing ChairmanChairmanMember .. ..Vice C hairmanMemberMemberChairmanMemberMember. .MemberMemberChairman . ... .MemberMemberMemberMemberMemberC hairmanMember . ..MemberAugust 9,1946August 9,1946November 2,1949May 10,195CAugust 9,1946May 10,1950June 29,1950Septembers, 1952March 19,1953September 15,1953December 2,1953May 2,1955April 4,1955December 3,1956December 3,1956November 1,1958May 7,1959January 29, 1961January 29,1961January 29,1961May 17,1963September 2,1964November 1,1949.January 20,1953.February 11,1953.August 20,1952.January 20,1953.December 1,1956.February 9,1955.April 29,1955.October 31,1958.January 20,1961.January 31,1959.January 20,1961.January 20,1961.July 31,1962.December 27,1962.November 15,1964.August 31,1964.February 1,1966.203

COUNCIL STAFFAt the end of 1966, members of the Council's professional staff wereHenry J. Aaron, Shirley M. Almon, G. Paul Balabanis, Guy Black, Jack W.Carlson, Donald E. Cullen, Stanley L. Friedlander, Catherine H. Furlong,Stephen M. Goldfeld, Frances M. James, David T. Kresge, Wilfred Lewis,Jr., David W. Lusher, Carey P. Modlin, Jr., Saul Nelson, Alfred Reifman,Frank W. Schiff, and Charles B. Warden, Jr.Each year a number of staff members who have joined the Council on atemporary basis return to their posts in private life or in government. Thoseleaving the Council in 1966 were John J. Arena, Stanley W. Black, JohnW. Dorsey, Jr., Theodore J. Goering, Susan J. Lepper, Paul W. MacAvoy,Benjamin A. Okner, Theodore K. Osgood, R. Robert Russell, MartinSegal, Lewis J. Spellman, and Paul J. Taubman.Continuing its practice of discussing economic developments and problemswith leading members of the economics profession, the Council in 1966called on the following consultants: W. H. Locke Anderson, G. LelandBach, James T. Bonnen, William G. Bowen, William H. Branson, WilliamM. Capron, Benjamin Chinitz, Gerhard Colm, Richard N. Cooper, Peter P.Dorner, John T. Dunlop, Otto Eckstein, R. Aaron Gordon, Kermit Gordon,Walter W. Heller, Myron L. Joseph, Carl Kaysen, Stanley Lebergott,Allen H. Lerman, Harold M. Levinson, John V. Lintner, Jr., Edwin S.Mills, Richard A. Musgrave, Joseph A. Pechman, Merton J. Peck, Frank C.Pierson, George L. Perry, Albert E. Rees, Melvin Rothbaum, Paul A.Samuelson, Robert M. Solow, Daniel B. Suits, Charles A. Taff, Lester D.Taylor, Lester C. Thurow, James Tobin, and Robert C. Turner.The Council extended into the winter months its graduate student internprogram, which was started in 1961 and, until 1966, had been carried onin only the summer months. Graduate students working with the Councilfor various periods in 1966 were Arthur J. Alexander, Barry P. Bosworth,Terrence R. Colvin, Robert J. Flanagan, E. Duncan Moose, Larry B.Morse, Ralph E. Pochoda, and Kenneth R. Smith.As in the past, the Council received loyal and energetic assistance from itsnonprofessional staff. Members of this staff at the end of 1966 wereDorothy Bagovich, Teresa D. Bradburn, Louis P. Brighthaupt, Carrie E.Bryant, Carol S. Burke, Gladys R. Durkin, Catherine Fibich, CharlotteFremon, James W. Gatling, Laura B. Hoffman, Christine L. Johnson,Constance R. King, Bessie M. Lafakis, Patricia A. Lee, June A. Liverman,Dorothy L. Reid, Earnestine Reid, Gail Roberts, Bettye T. Siegel, Daisy M.Sindelar, Nancy F. Skidmore, Roselle Smith, Margaret L. Snyder, MaryAlice Spriggs, Miriam E. Vincent, and Elizabeth A. Zea.In 1966, as in earlier years, the Council relied upon the editorial skillsof Miss Dorothy Wescott in preparing the Annual Report.204

COUNCIL ACTIVITIESThe Council of Economic Advisers was established as an agency of theFederal Government nearly 21 years ago by the Employment Act of 1946.Under the Act, the Council is charged with the responsibility of analyzingand interpreting economic developments and of recommending economicpolicies that will promote the goals of "maximum employment, production,and purchasing power."The Council's chief responsibility is to keep the President fully informedof economic developments and emerging problems which may affect theNation's economy. To meet this responsibility, the Council continuouslyreviews economic conditions, undertakes special studies of particular problemareas, and makes recommendations concerning Government programsand policies. The Council confers regularly with all major Governmentagencies having responsibilities in the economic field.The Secretary of the Treasury, the Director of the Bureau of the Budget,and the Chairman of the Council and their respective staffs (the "Troika")provide the President with a continuous joint assessment of the economicand budgetary outlook for the current and subsequent fiscal years, and,where appropriate, analyze the effects of alternative fiscal policies. Theheads of the "Troika" agencies and their associates, together with the Chairmanof the Board of Governors of the Federal Reserve System, meetperiodically as the "Quadriad" with the President to discuss domestic andinternational monetary problems. Joint staff work among the "Quadriad"agencies contributed in 1966 to improved coordination of fiscal and monetarypolicies.In addition to its regular and informal consultations with other Governmentagencies, the Council and its staff in 1966 participated with otheragencies in a large variety of more formal committees, task forces, andstudies. Although the results of most of these activities are for use onlywithin the Government, two studies in which the Council participated werepublished in 1966—the reports of the Northeast Desalting Team and of theInteragency Energy Study. Other projects and studies related to suchdiverse problems as environmental pollution, income maintenance, highenergy transmission, cost effectiveness in the Federal Government, economicimpact of disarmament, manpower activities, balance of payments problems,and the operation of financial institutions.The Council and its staff represent the United States in a number ofimportant international conferences. The Council Chairman heads theU.S. delegation to the meetings of the Economic Policy Committee of theOrganization for Economic Cooperation and Development (OECD), andmembers of the Council and its staff this year participated in a dozen ormore other international meetings under the auspices of the OECD. TheChairman and Mr. Okun were members, respectively, of the U.S. Cabinetleveldelegations which meet annually with similar delegations of the Cana-205

dian and Japanese governments. The Council also was involved in activitiesof the UN Economic Commission for Europe.An important responsibility of the Council is to explain and clarify theAdministration's economic policies, both within the Government and tothe public at large. This is done through numerous speeches, articles,press briefings, statements, Congressional testimony, its Annual Report, andby assisting the President in the preparation of his Economic Report. TheCouncil meets frequently and informally with many visiting scholars, officialsof foreign countries, men and women from the press corps, businessmen,labor leaders, State officials, bankers, and interested private citizens,and more formally with a number of advisory groups, including the President'sAdvisory Committee on Labor-Management Policy and the BusinessCouncil's Liaison Committee with the Council of Economic Advisers.The Council prepares two documents for publication. One is the EconomicReport of the President, together with the Annual Report of theCouncil of Economic Advisers. Over 70,000 copies of the 1966 Reportwere distributed to members of the Congress, Government officials, thepress, depository libraries, or sold to the public by the Superintendent ofDocuments. The second is the monthly Economic Indicators. This importantcompilation of current economic statistics has been prepared since1948 at the Council under the direction of Miss Frances M. James, and ispublished by the Joint Economic Committee of the Congress. More than9,000 copies are furnished to members of Congress, depository libraries, orsold to the public every month.206

Appendix BSTATISTICAL TABLES RELATING TO INCOME,EMPLOYMENT, AND PRODUCTION207

CONTENTSNational income or expenditure:B-l. Gross national product or expenditure, 1929-66 213B-2. Gross national product or expenditure, in 1958 prices, 1929-66 214B-3. Implicit price deflators for gross national product, 1929-66 216B-4. Gross national product by major type of product, 1929-66 218B-5. Gross national product by major type of product, in 1958 prices,1929-66 219B-6. Gross national product: Receipts and expenditures by major economicgroups, 1929-66 220B-7. Gross national product by sector, 1929-66 222B-8. Gross national product by sector, in 1958 prices, 1929-66 223B-9. Personal consumption expenditures, 1929-66 224B-10. Gross private domestic investment, 1929-66 225B-l 1. National income by type of income, 1929-66 226B-l 2. Relation of gross national product and national income, 1929-66. .. . 227B-l 3. Relation of national income and personal income, 1929-66 228B-14. Disposition of personal income, 1929-66 229B-15. Sources of personal income, 1929-66 230B-l 6. Total and per capita disposable personal income and personal consumptionexpenditures, in current and 1958 prices, 1929-66 232B-l 7. Number and money income of families and unrelated individuals,1947-65 233B-18. Sources and uses of gross saving, 1929-66 234Population, employment, wages, and productivity:B-l9. Population by age groups: Estimates, 1929-66, and projections,1970-85 235B-20. Noninstitutional population and the labor force, 1929-66 236B—21. Civilian employment and unemployment, by sex and age, 1947—66. . . 238B-22. Selected unemployment rates, 1948-66 239B-23. Unemployment by duration, 1947-66 240B-24. Unemployment insurance programs, selected data, 1940-66 241B-25. Number of wage and salary workers in nonagricultural establishments,1929-66 242B-26. Average weekly hours of work in selected industries, 1929-66 244B-27. Average gross hourly earnings in selected industries, 1929-66 245B-28. Average gross weekly earnings in selected industries, 1929-66 246B-29. Average weekly hours and hourly earnings, gross and excluding overtime,in manufacturing industries, 1939-66 247B-30. Average weekly earnings, gross and spendable, in manufacturingindustries, in current and 1957-59 prices, 1939-66 248B-31. Indexes of output per man-hour and related data, private economy,1947-66 249Page209

Production and business activity:PageB-32. Industrial production indexes, major industry divisions, 1929-66. . . . 250B-33. Industrial production indexes, market groupings, 1947-66 251B-34. Industrial production indexes, selected manufactures, 1947-66 252B-35. Manufacturing capacity, output, and utilization rate, 1948-66 253B-36. New construction activity, 1929-66 254B-37. New housing starts and applications for financing, 1929-66 256B-38. Business expenditures for new plant and equipment, 1939 and 1945-67 258B-39. Sales and inventories in manufacturing and trade, 1947-66 259R-40. Manufacturers' shipments and inventories, 1947-66 260B-41. Manufacturers' new and unfilled orders, 1947-66 261Prices:B-42. Consumer price indexes, by major groups, 1929-66 262B-43. Consumer price indexes, by special groups, 1935-66 263B-44. Wholesale price indexes, by major commodity groups, 1929-66 264B-45. Wholesale price indexes, by stage of processing, 1947-66 266Money supply, credit, and finance:B-46. Money supply, 1947-66 , 268B-47. Selected liquid assets held by the public, 1946-66 269B-48. Financial saving by individuals, 1939-66 270B-49. Bank loans and investments, 1929-66 271B-50. Bond yields and interest rates, 1929-66 272B-51. Federal Reserve Bank credit and member bank reserves, 1929-66 274B-52. Short- and intermediate-term consumer credit outstanding, 1929-66.. 275B-53. Instalment credit extended and repaid, 1946-66 276B-54. Mortgage debt outstanding, by type of property and of financing,1939-66 277B-55. Net public and private debt, 1929-66 278Government finance:B-56. U.S. Government debt, by kind of obligation, 1929-66 279B-57. Estimated ownership of U.S. Government obligations, 1939-66 280B-58. Average length and maturity distribution of marketable interest-bearingpublic debt, 1946-66 281B-59. Federal administrative budget receipts by source and expenditures byfunction, fiscal years 1939-68 282B^60. Federal administrative budget receipts and expenditures and thepublic debt, 1929-68 284B-61. Government cash receipts from and payments to the public, 1946-68.. 285B-62. Government receipts and expenditures in the national income andproduct accounts, 1929-66 286B-63. Federal Government receipts and expenditures in the national incomeand product accounts, 1946-68 287B-64. Relation of three measures of Federal Government receipts and expenditures,fiscal years 1964-68 288B-65. State and local government revenues and expenditures, selected fiscalyears, 1927-65 289210

Corporate profits and finance: PageB-66. Profits before and after taxes, all private corporations, 1929-66 290B-67. Sales, profits, and stockholders' equity, all manufacturing corporations(except newspapers), 1947-66 291B-68. Relation of profits after taxes to stockholders' equity and to sales,all manufacturing corporations (except newspapers), by industrygroup, 1947-66 292B-69. Sources and uses of funds, nonfarm nonfinancial corporate business,1955-66 294B-70. Current assets and liabilities of United States corporations, 1939-66. . 295B-71. State and municipal and corporate securities offered, 1934-66 296B-72. Common stock prices, earnings, and yields, and stock market credit,1939-66 297B-73. Business formation and business failures, 1929-66 298Agriculture:B-74. Income from agriculture, 1929-66 299B-75. Farm production indexes, 1929-66 300B-76. Farm population, employment, and productivity, 1929-66 301B-77. Indexes of prices received and prices paid by farmers, and parity ratio,1929-66 302B-78. Selected measures of farm resources and inputs, 1929-66 304B^-79. Comparative balance sheet of agriculture, 1929-67. 305International statistics:B-80. United States balance of payments, 1947-66 306B-81. United States merchandise exports and imports, by commodity groups,1958-66 308B**82. United States merchandise exports and imports, by area, 1960-66. . . 309fr-83. United States foreign assistance, by type and area, fiscalyears 1946-^66. 310B-84. International reserves, 1949, 1953, and 1961-66 311B-85. United States gold stock and holdings of convertible foreign currenciesby U.S. monetary authorities, 1946-66 312B-86. Price changes in international trade, 1958-66 313B-87. Consumer price indexes in the United States and other major industrialcountries, 1960-66 314General NotesDetail in these tables will not necessarily add to totals because of rounding.Data for Alaska and Hawaii are not included unless specifically noted.Unless otherwise noted, all dollar figuresare in current prices.Symbols used:* Preliminary... Not available (also, not applicable).* Amount insignificant in terms of the particular unit (e.g., less than$50 million where unit is billions of dollars).211

NATIONAL INCOME OR EXPENDITURETABLE B-l.—Gross national product or expenditure, 7929-66[Billions of dollars]Year or quarterTotalgrossnationalproductPersonalconsump-expend-itures lGrossprivatedomesticinvestment2Netexportsof goodsandservices3Governrnent purehases of goods and servicesTotalTotalFederal *Nationaldefense 5OtherStateandlocal1929103.177.216.21.18.51.31.37.2193019311932 ._193319341935193619371938 .-193990.475.858.055.665.172.282.590.484.790.569.960.548.645.851.355.761.966.563.966.810.35.61.01.43.36.48.511.86.59.31.0.5.4.4.6.1.1.31.31.19.29.28.18.09.810.012.011.913.013.31.41.51.52.03.02.94.94.75.45.11.41.51.52.03.02.94.94.75.41.23.97.87.76.66.06.87.17.07.27.68.2194019411942 ..1943194419451946194719481949 ..99.7124.5157.9191.6210.1211.9208.5231.3257.6256.570.880.688.599.3108.3119.7143.4160.7173.6176.813.117.99.85.77.110.630.634.046.035.71.71.3-2.0-1.8-.67.511.56.46.114.024.859.688.696.582.327.025.131.637.86.016.951.981.189.074.217.212.516.520.12.213.849.479.787.473.514.79.110.713.33.83.12.51.41.6.72.53.55.86.88.07.97.77.47.58.19.812.615.017.71950195119521953 . -.1954 -.195519561957 . ...1958 --.1959284.8328.4345.5364.6364.8398.0419.2441.1447.3483.7191.0206.3216.7230.0236.5254.4266.7281.4290.1311.254.159.351.952.651.767.470.067.860.975.31.83.72.2.41.82.04.05.72.2.137.959.174.781.674.874.278.686.194.297.018.437.751.857.047.444.145.649.553.653.714.133.645.948.741.238.640.344.245.946.04.34.15.98.46.25.55.35.37.77.619.521.522.924.627.430.133.036.640.643.3196019611962—196319641965 . _.1966 *»503.7520.1560.3590.5631.7681.2739.5325.2335.2355.1375.0401.4431.5465.074.871.783.087.193.0106.6116.54.05.65.15.98.57.04.999.6107.6117.1122.5128.9136.2153.153.557.463.464.265.266.877.044.947.851.650.850.050.160.08.69.611.813.515.216.717.046.150.253.758.263.769.476.2Seasonally adjusted annual rates1964: IIIIIIIV_. _.616.8627.7637.9644.2391.1398.0407.5408.890.291.892.597.49.07.98.48.6126.5130.1129.5129.464.966.665.164.150.151.649.848.514.815.115.315.661.663.464.465.31965: III.IllIV660.8672.9686.5704.4418.9426.8435.0445.2103.8103.7106.7111.96.48.27.16.1131.6134.3137.7141.264.465.667.569.848.249.150.752.516.216.516.817.367.368.770.271.41966: IIIIII. .IV P721.2732.3745.3759.1455.6460.1469.9474.4114.5118.5115.0118.06.04.74.24.8145.0149.0156.2161.971.974.079.082.554.657.162.065.517.416.917.017.073.175.077.279.41 See Table B-9 for major components.2 See Table B-10 for further detail and explanation of components.3 See Table B-6 for exports and imports separately.4 Net of Government sales.5 This category corresponds closely to the national defense classification in the Budget of the United StatesGovernment for the Fiscal Year ending June SO, 1968.NOTE.—Data for Alaska and Hawaii included beginning 1960.Source: Department of Commerce, Office of Business Economics.213

TABLE B-2.—Gross national product or expenditure, in 1958 prices, 1929-66[Billions of dollars, 1958 prices]Year orquarter19291930193119321933193419351936193719381939194019411942194310441945194619471948-19491950195119521953195419551956195719581959196019611962196319641965-1966 v1964: I II—III—IV...1965: I II—III...IV...1966: I II—III—IV P..Totalgrossnationalproduct203.6183.5169.3144.2141.5154.3169.5193.0203.2192.9209.4227.2263.7297.8337.1361.3355.2312.6309.9323.7324.1355.3383.4395.1412.8407.0438.0446.1452.5447.3475.9487.7497.2529.8551.0580.0614.4647.7569.7578.1585.0587.2600.3607.8618.2631.2640.5643.5649.9657.0Personal consumptionexpendituresTotal139.6130.4126.1114.8112.8118.1125.5138.4143.1140.2148.2155.7165.4161.4165.8171.4183.0203.5206.3210.8216.5230.5232.8239.4250.8255.7274.2281.4288.2290.1307.3316.1322.5338.4353.3373.8396.2415.5365.7371.0379.5378.9387.1392.2398.9406.5412.8412.2418.3418.5Durablegoods16.312.911.28.48.39.411.714.515.112.214.516.719.111.710.29.410.620.524.726.328.434.731.530.835.335.443.241.041.537.943.744.943.949.253.759.166.470.857.259.560.958.864.864.267.269.272.268.571.671.2Nondurablegoods69.365.965.660.458.662.565.973.476.077.181.284.689.991.393.797.3104.7110.8108.3108.7110.5114.0116.5120.8124.4125.5131.7136.2138.7140.2146.8149.6153.0158.2162.2170.5178.2185.9Services54.051.549.445.946.046.147.950.552.050.952.554.456.358.561.864.767.772.173.475.877.681.884.887.891.194.899.3104.1108.0112.0116.8121.6125.6131.1137.4144.2151.6158.7Gross private domestic investmentTotal40.427.416.84.75.39.418.024.029.917.024.733.041.621.412.714.019.652.351.560.448.069.370.060.561.259.475.474.368.860.973.672.469.079.482.586.597.8104.3Fixed investmentTotal36.928.019.210.99.712.115.620.924.519.423.528.132.017.312.915.922.642.351.755.951.961.059.057.260.261.469.069.567.662.468.868.967.073.476.781.989.093.7NonresidentialTotal26.521.714.18.27.69.211.515.818.813.715.318.922.212.510.013.419.830.236.238.034.537.539.638.340.739.643.947.347.441.644.147.145.549.751.957.464.972.2Structures13.911.87.54.43.33.64.05.47.15.65.96.88.14.62.93.85.712.511.612.311.912.714.113.714.915.216.218.518.216.616.217.417.417.917.918.921.723.5Seasonally adjusted annual rates167.2168.4173.3173.1174.2177.6178.5182.5184.1185.8187.1186.5141.2143.1145.3146.9148.1150.4153.1154.8156.5157.9159.6160.984.685.685.790.295.995.397.9102.2103.5106.3102.5105.081.281.682.282.886.688.089.491.995.094.793.591.755.556.658.259.262.363.465.568.470.871.373.073.818.718.918.719.220.721.721.323.224.323.623.223.0Producers'durableequipment12.69.96.63.84.35.67.510.311.88.19.412.114.27.97.29.614.117.724.625.722.624.825.524.625.824.527.728.829.125.027.929.628.131.734.038.543.248.736.737.739.540.041.541.744.245.246.447.749.850.8Residentialstructures10.46.35.12.72.12.94.05.15.65.78.29.29.84.92.92.52.812.115.417.917.423.519.518.919.621.725.122.220.220.824.721.921.623.824.824.624.121.525.724.924.123.624.424.523.923.524.323.420.517.9Changein businessinventories3.5-.6-2.4-6.2-4.3-2.72.43.15.5-2.41.24.99.64.0-.2-1.9-2.910.0-.24.6-3.98.310.93.3.9-2.06.44.81.2-1.54.83.52.06.05.84.68.810.63.54.03.57.49.37.38.510.28.511.69.113.2See footnote at end of table.214

TABLE B-2.—Gross national product or expenditure, in 1958 prices, 1929-66—Continued[Billions of dollars, 1958 prices]Year or quarterNet exports of goods and servicesNetexportsExportsImportsGovernment purchases of goods andservicesTotalFederal iState andlocal19291.511.810.322.03.518.519301931 _ . _19321933193419351936193719381939 —1.4.9.6.3-1.0-1.2-.71.91.310.48.97.17.17.37.78.29.89.910.09.07.96.67.17.18.79.310.58.08.724.325.424.223.326.627.031.830.833.935.24.04.34.66.08.07.912.211.513.312.520.221.119.617.318.619.219.619.420.622.719401941194219431944194519461947194819492.1.4-2.1-5.9-5.8-3.88.412.36.16.411.011.27.86.87.610.219.622.618.118.18.910.89.912.613.413.911.210.312.011.736.456.3117.1164.4181.7156.448.439.946.353.315.036.298.9147.8165.4139.730.119.123.727.621.420.118.316.616.316.718.420.822.725.719501951195219531954195519561957 -..19581959 . .2.75.33.01.13.03.25.06.22.2.316.319.318.217.818.820.924.226.223.123.813.614.115.216.715.817.719.119.920.923.552.875.492.199.888.985.285.389.394.294.725.347.463.870.056.850.749.751.753.652.527.527.928.429.732.134.435.637.640.642.21960196119621963196419651966*4.35.14.55.68.56.34.827.328.030.032.136.437.341.323.022.925.526.628.031.036.494.9100.5107.5109.6111.3114.1123.251.454.660.059.557.857.864.143.545.947.550.153.456.359.1Seasonally adjusted annual rates1964: IIIIIIIV9.28.28.48.036.135.736.737.126.927.528.329.0110.3113.3111.3110.158.259.757.456.152.053.653.954.01965: I..IIIIIIV5.77.16.46.033.438.738.438.7-27.731.631.932.8111.5113.2115.0116.656.257.358.359.355.355.956.757.31966: III . _ . _IIIIV P5.94.64.24.740.140.341.842.934.235.837.638.2118.3120.4124.9128.860.461.965.568.257.958.559.460.61 Net of Government sales.NOTE.—Data for Alaska and Hawaii included beginning 1960.Source: Department of Commerce, Office of Business Economics.215

TABLE B-3.—Implicit price deflators for gross national product, 1929-66llndex numbers, 1958=100]Year or quarter1929193019311932 .. _193319341935 . . -193619371938 „19391940 .194119421943 ..1944194519461947 . _ . .19481949195019511952...195319541955 -19561957196819591960 - - --19611962 .--19631964 .19651966*.1964: I II . . ._IllIV1965: I .-IIIIIIV....1966: I IIIIIIV*Totalgrossationalproduct150.649.344.840.239.342.242.642.744.543.943.243.947.253.056.858.259.766.774.679.679.180.285.687.588.389.690.994.097.5100.0101.6103.3104.6105.8107.2108.9110.9114.2108.3108.6109.1109.7110.1110.7111.0111.6112.6113.8114.7115.6Personal consumptionTotal55.353.647.942.340.643.544.444.746.545.-645.145.548.754.859.963.265.470.577.982.381.782.988.690.591.792.592.894.897.7100.0101.3102.9103.9104.9106.1107.4108.9111.9107.0107.3107.4107.9108.2108.8109.0109.5110.4111.8112.3113.4expendituresDurablegoods56.455.349.143.241.944.743.743.645.846.746.046.550.459.364.271.575.976.882.786.386.887.894.295.494.392.991.994.998.4100.0101.4100.9100.6100.8100.4100.499.598.0100.6100.5100.3100.1100.5100.299.298.497.598.098.298.6Nondurablegoods54.551.644.137.738.042.744.544.846.444.043.243.847.755.662.566.268.774.383.688.585.686.093.394.393.994.293.694.997.7100.099.9101.2101.9102.8104.0104.9107.0110. d104.6104.8104.9105.4106.0106.7107.2107.9109.6110.7111.2111.9Services56.155.752.748.343.644.344.445.046.847.747.747.949.852.755.357.558.762.767.972.174.376.380.083.687.790.092.094.697.3100.0103.0105.8107.6109.0110.9113.2115.3119.4112.3112.9113.3114.0114.3115.0115.5116.4117.2118.7120.0121.6Gross private domestic investment *Fixed investmentTotal39.437.935.231.630.633.734.334.637.838.237.739.042.046.549.351.151.558.566.773.974.777.583.185.386.686.889.094.098.5100.0102.6103.4103.9104.9106.0107.8109.6112.1106.7107.4108.1108.7109.0109.2109.6110.4111.1112.1112.5112.9NonresidentialTotal39.938.135.832.931.634.935.935.638.839.338.740.042.747.849.951.051.056.364.570.772.874.480.482.684.084.886.792.497.9100.0102.2102.9103.4104.1104.5105.8107.4109.8104.8105.5106.1106.9107.1107.1107.2108.0108.8109.7110.0110.7Structures35.734.031.127.627.928.930.630.234.433.933.133.936.441.346.848.649.254.464.471.571.272.979.383.284.986.088.193.498.6100.0102.7104.0105.6107.1108.9111.3114.4118.8108.4110.6112.6113.6113.7113.6114.6115.5117.1118.3119.4120.4Producers'durableequipment44.643.041.139.134.538.838.738.541.443.042.243.446.351.551.151.951.757.564.670.373.675.280.982.283.584.085.991.897.5100.0102.0102.2102.1102.3102.3103.1103.8105.5103.0102.9103.0103.6103.8103.8103.6104.1104.5105.4105.6106.3Residentialstructures38.137.133.627.327.130.129.831.334.335.535.736.940.343.347.051.654.959.771.780.878.582.588.690.891.990.492.997.499.8100.0103.1104.5105.0106.7108.9112.3115.5120.0110.9111.9113.0113.4113.8114.5116.4117.3117.7119.6121.3122.2See footnotes at end of table.2l6

TABLE B-3.—Implicit price deflators for gross national product, 1929-66—Continued[Index numbers, 1958=100]Year or quarterExports and imports ofgoods and services 1ExportsImportsGovernment purchases of goodsand servicesTotalFederalState andlocalGross national productby sectorsPrivate 2Generalgovernment192959.557.338.636.039.151.734.119301931193219331934 . _ .193519361937 . .1938.1939-..52.341.034.733.740.642.343.446.543.844.149.039.331.528.833.636.036.740.737.938.637.936.333.434.536.837.037.638.438.337.934.134.531.933.137.437.040.540.740.540.838.736.633.835.036.637.035.937.136.836.350.445.740.939.943.043.543.445.344.643.934.134.533.733.534.834.736.536.537.436.819401941 - _194219431944194519461947 —_ -_1948194948.653.061.565.269.971.375.487.392.787.040.843.048.351.253.256.464.979.486.482.238.544.050.953.953.152.655.862.968.171.040.246.652.554.953.853.157.365.669.873.037.339.242.344.646.148.653.260.466.468.944.748.755.560.962.062.668.276.381.480.636.034.737.339.743.348.355.458.560.864.7195019611952195319541955195619571958195984.997.098.895.294.394.997.5101.3100.098.888.7107.2103.699.1100.8100.6102.5104.0100.099.371.878.581.081.884.187.192.196.4100.0102.472.979.481.281.483.586.991.795.8100.0102.270.876.980.682.885.387.592.797.3100.0102.681.487.489.089.690.891.694.597.9100.0101.467.170.574.476.679.584.088.793.3100.0104.21960196119621963196419651966 999.9101.9100.8100.6101.5104.5103.9101.0100.198.599.5101.9103.3104.2105.0107.1109.0111.8115.8119.4124.3104.2105.2105.6108.0112.7115.7120.1105.9109.4113.2116.3119.3123.2128.9102.8103.7104.7105.8107.1108.9111.7108.6113.6116.6121.5128.1133.3140.71964: I11IllIV101.0100.7101.4102.9101.9102.2101.6101.8114.7114.8116.3117.5111.4111.6113.4114.3118.4118.3119.5120.8106.6106.9107.2107.8126.5127.1128.7130.11965: I11IIIIV106.0104.7104.5103.9103.5102.2103.4104.2118.0118.7119.7121.1114.4114.6115.8117.8121.6122.8123.7124.6108.2108.8109.0109.4131.0131.8133.7136.51966: I11IIIIV *103.9103.9103.9103.9104.2104.2104.2104.2122.6123.7125.0125.8119.1119.6120.5121.0126.3128.0129.9131.1110.3111.5112.2113.0138.6139.3141.6143.21 Separate deflators are not available for total gross private domestic investment, change in businessinventories, and net exports of goods and services.2 Gross national product less compensation of general government employees. See also Tables B-7 andB-8.NOTE.—Data for Alaska and Hawaii included beginning 1960.Source: Department of Commerce, Office of Business Economics.217

TABLE B-4.—Gross national product by major type of product, 1929-66[Billions of dollars]Year orquarterTotalgrossnationalproductFinal InventorychangeTotalgoodsGoods outputTotalFinalDurable goodsNondurable goodsTotal Finalsales |l Total FinalServicesStructures19291930193119321933193419351936193719381939194019411942194319441945194619471948194919501951195219531954195519561957195819591960196119621963196419651966*1964: I—II—III.IV-1965: I—II-III..IV..1966: I—II-III.IV*103.190.475.858.055.665.172.282.590.484.790.599.7124.157.9191.6210.1211.9208.5231.3257.6256.5284.8328.4345.5364.6364.8398.0419.441.1447.3483.503.520.1560.590.5631.681.739.5101.490.777.060.57.265.871.81.287.985.690.197.5120.1156.:192.211.1213.0202.1231.8252.9259.6278.0318.1342.4364.1366.392.0414.5439.8448.8478.9500.2518.1554.3584.6627.0672.1728.11.7-.4-1.1-2.5-1.6-.71.11.32.5-.9.42.4.51.8-.6-1.0-1.06.4-.54.7-3.16.810.33.16.04.71.3-1.54.83.62.06.05.94.79.111.56.146.937.426.727.034.439.945.851.545.349.056.072.593.6120.4132.3128.9124.9139.7154.2147.5162.4189.7195.6204.1197.1216.4225.4234.6230.8249.1259.6262.3284.5298.6318.344.7376.754.347.338.629.228.635.138.844.548.946.48.653.868.091.9121.0133.3129.9118.5140.1149.4150.5155.6179.4192.5203.7198.6210.220.7233.3232.244.4256.0260.2278.5292.7313.6335.7365.1.7-.4-1.1-2.5-rl.6—. 71.11.32.5— 9A2.24.51.8-.6-1.0-1.06.—.54.7-3.16.810.33.16.04.71.-1.54.83.62.06.5.94.79.111.17.511.47.73.64.97.49.312.213.99.912.16.626.835.554.257.948.936.946.048.47.873.74.679.72.185.790.394.483.695.699.596.5109.0116.1125.5138.5154.916.112.59.05.75.47.38.911.13.110.812.415.423.834.554.258.550.231.644.348.049.956.366.873.578.574.682.787.593.186.497.496.6106.113.3122.2132.2145.91.4-1.0-1-2.0— 5.1!9.8-.9.31.23.01.0—.6-1.35.31.74.16.91.1.9-2.53.02.81.3-2.82.32.12.'82.83.36.39.135.529.723.122.127.030.633.637.635.436.339.345.658.166.274.80.088.093.7105.5102.0116.0121.0124.8125.0130.7135.1140.2147.2153.6160.1165.8175.5182.5192.7206.3221.838.234.829.623.623.227.829.933.335.835.436.238.444.257.466.874.879.786.995.9101.5100.699.3112.6119.1125.2124.1127.7133.2140.2145.9151.1158.6163.7172.2179.4191.3203. 5219.50.3.1— 4-1.1-.91.81.01.4-.61.1-2.24.0-1.03.42.02.91.91.31.52.13.23.11.2.2.35.634.31.27.525.27.128.331.032.33.234.035.440.350.362.571.876.568.070.275.780.887.0101.2110.8118.8123.5132.6142.3154.2163.4176.2187.199.5213.3226.2244.5262.011.49.26.73.82.93.4.05.66.76.27.58.311.814.08.76.16.515.621.27.728.335.37.539.141.744.249.051.552.353.158.356.858.362.665.768.974.576.Seasonally adjusted annual rates616.8627.7637.9644.2660.8672.9686.5704.4721.2732.3745.3759.1613.3623.5634.4636.8651.4665.3677.8694.0712.3720.0735.4744.73.54.23.67.49.57.68.710.48.912.39.914.4310.7315.6322.4324.3333.8338.8347.5358.8366.0371.6379.6389.3307.1311.4318.8316.9324.3331.2338.8348.4357.0359.3369.7374.93.54.23.67.49.57.68.710.48.912.39.914.4121.9126.1127.8126.4135.1135.2141.0142.6147.6149.6158.1164.0119.6122.4125.0122.0127.7128.8134.3137.9141.8140.6148.7152.12.33.62.84.47.46.46.74.75.89.09.511.9188.8189.6194.6197.9198.7203.6206.5216.2218.4222.0221.4225.3187.5189.0193.8195.0196.6202.4204.4210.5215.2218.7221.0222.81.2.5.82.92.11.22.15.73.13.3.52.4237.3242.7247.1251.1254.3259.8265.1268.8275.5282.1289.9297.068.869.468.568.872.774.373.976.979.878.675.872.9NOTE.—Data for Alaska and Hawaii included beginning 1960.Source: Department of Commerce, Office of Business Economics.218

TABLE B-5.—Gross national product by major type of product, in 1958 prices, 1929-66[Billions of dollars, 1958 prices]Yearorquarterotalgrossnaional?roduct1929..1930..1931..1932.1933.1934.1935.1936.1937.1938.194019411942194319441945194619471948 ...19491950 —1951195219531954195519561957195819591960 —196119621963196419651966"1964: I IIIII.....IV1965: I IIIII....IV....1966: I IIIII....203.6183.5169.3144.2141.5154.3169.5193.0203.2192.9209.4227.2263.7297.8337.1361.3355.2312.619.9323.7324.1355.3383.395.412.8407.0438.0446.452.5447.3475.9487.7497.2529.8551.580.614.647.'inalsales200.1184.1171.7150.5145.9157.0167.1197.8195.3208.2222.3254.1293.8337.3363.358.302.6310.1319.1328.1347.0372.5391.8411.8409.0431.6441.2451.2448.8471.484.2495.523.8575.4605.6637.Goods output3.5-.6-2.4-6.2-4.3-2.72.43.15.5-2.41.24.99.64.0-2.910.04! 6-3.98.310.93.3.9-2.06.44.81.2-1.54.83.55.84.8.10.TotalTotalgoods Finalsales103.990.583.268.768.877.988.6102.2110.2100.5110.7124.0143.4158.1187.4204.8198.0172.1172.2178.4174.2192.6208.4214.0225.4215.1236.1239.0239.8230.8247.7256. C257.3277.289.7307.328.351.100.491.185.774.973.280.586.299.1104.8102.9109.5119.0133.8154.1187.6206.7201.0162.1172.4173.8178.1184.3197.5210.224.5217.1229.234.2238.5232.242.9252.6255.3271.3283.9302.6319.340.Total3.5-.6-2.4-6.2-4.3-2.72.43.15.5-2.41.24.99.64.0-.2-1.9-2.910.0-.24.6-3.98.310.93.3.9-2.06.44.81.-1.54.83.52.06.05.84.68.810.6Durable goodsFinalsales22.416.38.311.716.921.528.731.021.127.635.650.057.285.695.984.354.760.161.358.073.484.184.691.081.996.596.596.283.694.097.894.9107.0114.2123.1135.5150.930.924.519.213.413.416.720.626.329.123.427.032.843.554.485.297.487.446.158.660.061.068.376.183.89.984.893.093.595.086.491.695.994.9104.111.119.9129.4142.5Total2.7•2.1•3.0•5.1•1.7.2.92.41.9•2.3.62.76.62.9.4-1.5-3.18.61.51.2-3.08.01.51.2-3.03.43.01.2-2.82.42.C2.82.83.26.18.4NondurablegoodsFinalsales70.468.067.060.457.161.067.173.579.279.483.088.493.4100.9101.7108.8113.7117.4112.117.1116.:119.1124.3129.4134.4133.2139.7142.5143.6147.2153.158.2162.3170.3,175.184.193.200.69.566.566.561.559.863.865.672.875.779.582.586.290.399.7102.4109.3113.6116.0113.8113.8117.1116.0121.4127.6134.6132.3136.140.143.6145.9151.2156.7160.3167.2172.5182.7190.3197.90.81.5.5-1.1-2.7-2.81.5.73.6-.1.62.23.11.2-.6-.4.21.4-1.73.3-.93.12.91.8-.2.93.01.8*1.32.51.52.03.13.11.42.2.267.765.861.963.065.368.173.373.974.876.980.089.8107.7131.8144.0144.3113.3106.5109.3112.4117.5130.5136.3140.3141.8147.5153.0160.1163.4171.2176.6184.0193.7200.9211.2221.1232.630.325.320.213.79.811.112.817.519.117.721.823.230.531.917.912.412.927.231.236.137.545.244.444.747.050.254.354.052.653.157.055.055.858.860.461.764.864.210.311.414.819.115.913.518.717.124.618.620.214.518.521.017.522.024.725.431.430.0Seasonally adjusted annual rates569.7578.1585.0587.2600.3607.8618.2631.2640.5643.5649.9657.0566.3574.1581.4579.9591.0600.5609.7621.0632.0631.9640.8643.73.54.03.57.49.37.38.510.28.511.69.113.2300.4305.1311.3311.9319.7322.5330.9341.0344.7346.7352.8359.7296.9301.1307.8304.6310.3315.2322.4330.7336.2335.1343.7346.53.54.03.57.49.37.38.510.28.511.69.113.2119.5123.7125.4123.9131.8131.7138.3140.3145.4146.0153.7158.4117.3120.3122.6119.4124.6125.5131.8135.7139.9137.6145.1147.42.23.52.84.47.26.26.54.75.58.48.711.0180.9181.4185.9188.1187.8190.8192.6200.6199.4200.8199.0201.3179.6180.8185.1185.2185.7189.6190.6195.1196.3197.6198.6199.11.2.5.82.92.11.12.05.63.03.2.42.3206.7210.4212.8214.6216.6220.3223.3224.0227.7230.9234.4237.362.662.660.860.664.065.064.066.268.066.062.860.026.026.226.722.932.230.631.930.732.229.128.530.1NOTE.—Data for Alaska and Hawaii included beginning 1960.Source: Department of Commerce, Office of Business Economics.219

TABLE B-6.—Gross national product: Receipts and expenditures by major economic groups.1929-66[Billions of dollars]Year orquarter1929..1930..1931..1932..1933..1934..1935..1936..1937..1938..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 P.1964: I IIIII....IV....1965: I IIIII....IV....1966: I IIIII.—IV »___PersonsDisposable personalincomeTotal83.374.564.048.745.552.458.566.371.265.570.375.792.7116.9133.5146.3150.2160.0169.8189.1188.6206.9226.6238.3252.6257.4275.3293.2308.5318.8337.3350.0364.4385.3404.6436.6469.1505.3Less:Interestpaidandtransferpaymentsto foreigners1.91.2.9.7.71.01.1.8.8.81.01.41.82.22.42.93.13.54.34.65.15.96.46.57.17.88.18.69.710.711.913.4EqualsTotalexcludinginterestandtransfers81.473.363.148.044.951.757.865.570.364.669.474.791.6116.1132.7145.5149.3158.6168.0186.9186.2204.1223.5234.8248.3252.9270.2287.2302.2312.3330.3342.3356.3376.6394.9425.8457.2491.9PersonalconsumptionexpendituresPersonalsavingordissaving77.260.548.645.851.355.761.966.563.966.870.880.688.599.3108.3119.7143.4160.7173.6176.8191.0206.3216.7230.0236.5254.4266.7281.4290.1311.2325.2335.2355.1375.0401.4431.5465.04.23.42.6.42.13.63.8.72.63.811.027.633.437.329.615.27.313.49.413.117.318.218.316.415.820.620.722.319.117.021.221.619.924.525.726.9GovernmentNet receiptsTaxandnontaxreceiptsor accruals11.310.89.58.99.310.511.412.915.415.015.417.725.032.649.251.253.260.956.858.956.068.784.889.894.389.7100.4109.0115.6114.7128.9139.8144.6157.0168.8174.2189.0212.2Less:Transfers,interest,andsubsidies21.81.93.12.62.73.13.44.13.23.84.24.44.04.44.76.510.418.517.318.821.322.919.919.019.521.923.425.528.733.034.036.541.342.844.446.749.655.7Equals:Netreceipts9.58.96.36.36.77.48.08.812.211.211.213.321.028.244.444.742.832.439.540.134.745.864.970.874.867.876.983.586.881.695.0103.3103.3114.2124.3127.5139.4«156.5ExpendituresTotalexpenditures10.311.112.410.610.712.913.416.115.016.817.618.428.864.093.3103.092.745.542.450.359.160.879.093.7101.296.797.6104.1114.9127.2131.0136.1149.0159.9166.9175.6185.8208.7Less:Transfers,interest,andsubsidiesa1.81.93.12.62.73.13.44.13.23.84.24.44.04.44.76.510.418.517.318.821.322.919.919.019.521.923.425.528.733.034.036.541.342.844.446.749.655.7Equals:Purchasesofgoodsandservices8.59.29.28.18.09.810.012.011.913.013.314.024.859.688.696.582.327.025.131.637.837.959.174.781.674.874.278.686.194.297.099.6107.6117.1122.5128.9136.2153.1Seasonally adjusted annual rates423.4435.1441.2446.6453.2461.0476.2486.1495.1499.9507.8518.210.310.610.911.211.411.812.112.412.713.213.513.9413.1424.5430.3435.4441.8449.2464.1473.7482.4486.7494.3504.3391.1398.0407.5408.8418.9426.8435.0445.2455.6460.1469.9474.422.026.622.826.622.822.429.028.526.726.624.529.9172.3170.8175.4178.3186.5188.5188.6192.6203.1209.5215.946.746.446.746.848.548.151.949.953.453.256.459.7125.6124.4128.7131.5138.0140.5136.7142.6149.7156.3159.5173.1176.5176.2176.2180.1182.4189.6191.1198.4202.2212.5221.646.746.446.746.848.548.151.949.953.453.256.459.7126.5130.1129.5129.4131.6134.3137.7141.2145.0149.0156.2161.9See footnotes at end of table.220

TABLE B-6.—Gross national product: Receipts and expenditures by major economic groups,1929-G&—Continued1929.1931.1932.1934 _1935.1937.1938.1940. .1941 __1942. .1943. .1944..1945..1946. .1947..1948. .1949..1950.19511952195319541955.195619571958195919601961.19621963.1964_19651966*.Yearorquarter1964: I—_II—III..IV- _1965: I....II—III-IV..1966: I—II...III..IVx»_Grossretainedearnings111.28.65.33.23.25.26.46.77.78.08.410.511.414.516.317.115.114.520.228.029.729.433.135.136.139.246.347.349.849.456.856.858.766.368.876.983.46 88.274.976.578.477.982.582.483.885.186.587.388.0BusinessGrossprivatedomesticinvestment416.210.35.61.01.43.36.48.511.86.59.313.117.99.85.77.110.630.634.046.035.754.159.351.952.651.767.470.067.860.975.374.871.783.087.193.0106.6116.590.291.892.597.4103.8103.7ioe 7111.9114.5118.5115.0118.0Excessof invest--5.1-1.6-.32.21.81.9*-1.8-4.01.6-.9-2.7-6.54.610.610.04.6-16.1-13.8-18.0-6.0-24.7-26.2-16.8-16.5-12.5-21.1-22.8-18.1-11.5-18.5-18.0-13.0-16.8-18.4-16.0-23.1—28.3-15.3-15.3-14.1-19.5-21.3-21.3-22.9-26.8-28.0-31.0-27.0[BiUions of dollars]0.4.2.2.2.2.2.2.2.2.2.2.2.2.3.82.92.64.55.64.03.52.52.52.32.52.42.32.42.42.42.62.72.82.82.83.0InternationalNet exports of goodsand servicesmentTransferstoforeignersby personsandGovernmentExports7.05.43.62.52.43.03.33.54.64.34.45.45.94.84.45.37.214.719.716.815.813.818.718.016.917.819.823.626.523.123.527.228.630.332.337.039.042.9Less:Imports5.94.43.12.12.02.43.13.44.33.03.43.64.64.86.57.17.97.28.210.39.612.015.115.816.615.917.819.620.820.923.323.223.025.126.428.532.038.0Equals:Netexports1.11.0.5.4.4.6.1.1.31.31.11.71.3-2.0-1.8-.67.511.56.46.11.83.72.2.41.82.04.05.72.2.14.05.65.15.98.57.04.9Excessoftransfersorof netex--0.8-.7-.2-.2-.2-.4.1.1—. 1-1.1-.9-1.5-1.1.22.22.11.4-4.6-8.9-1.9-.52.2-.2.32.1.5.5-1.5-3.4.22.3-1.7-3.0-2.5-3.1-5.7-4.2—1.9Seasonally adjusted annual rates2.82.92.82.72.63.12.82.53.42.93.12.736.436.037.238.135.140.540.140.341.741.943.444.627.428.128.829.628.732.333.034.235.637.339.239.89.07.98.48.66.48.27.16.16.04.74.24.8-6.3-5.0-5.7-5.9-3.8-5.1-4.2-3.5-2.6-1.8-1.1—2.1102.491.275.157.755.064.572.581.390.584.189.298.7124.1159.0193.6207.6208.0208.4230.4259.5256.2283.3325.1343.3361,6362.1395.9420.4441.1445.8484.5504.8520.8559.8590.8633.1682.86 739.7616.4628.3640.2647.5664.9675.0687.3704.0722.0733.2744.9Totalincomeor receiptsStatisticaldiscrepancy0.7-.8.7.3.6.5-.21.2.61.31.0.4-1.1-2.02.53.9.1.9-2.0.31.53.32.23.02.72.1-1.11.6-.8-1.0-.8.5-.3-1.4-1.66—20.4-.6-2.3-3.3-4.1-2.1-.8.4-.8-.9Grossnationalproductor expenditure103.190.475.858.055.665.172.282.590.484.790.599.7124. 5157.9191.fi210.1211.9208.5231.3257.6256.5284.8328.4345.5364.6364.8398.0419.2441.1447.3483.7503.7520.1560.3590.5631.7681.2739.5.4616.8627.7637.9644.2660.8672.9686.5704.4721.2732.3745.3759.11 Personal income less personal tax and nontax payments (fines, penalties, etc.).3 Government transfer payments to persons, foreign net transfers by Government, net interest paid bygovernment, and subsidies less current surplus of government enterprises.8 Undistributed corporate profits, corporate inventory valuation adjustment, capital consumption allowances,and wage accruals less disbursements.4 Private business investment, purchases of capital goods by private nonprofit institutions, and residentialhousing. See Table B-10.5 Net foreign investment with sign changed.8 Data for corporate profits are approximations for the year as a whole; data for fourth quarter are notavailable. All other data incorporating or derived from these figures are correspondingly approximateNOTE.—Data for Alaska and Hawaii included beginning 1960.Source: Department of Commerce, Office of Business Economics.240-782 0—67- -15221

TABLE B-7.—Gross national product by sector, 1929-66[Billions of dollars]Year orquarterTotalgrossnationalproductTotalTotalGross private product *BusinessNonfarm 2 FarmHouseholdsRest ofthe worldGrossgovernmentproduct 31929..103.198.895.185.49.72.90.84.31930..1931..1932..1933_.1934..1935..1936..1937..1938..1939..90.475.858.055.665.172.282.590.484.790.585.871.253.650.959.566.375.283.577.082.982.468.351.348.957.464.172.981.074.580.374.862.046.844.352.757.166.572.767.974.07.76.34.54.64.77.06.48.36.66.32.72.31.91.71.81.92.02.32.22.3.7.5.4.3.3.4.3.3.4.34.54.74.44.75.65.97.36.97.67.61940..1941..1942..1943..1944..1945..1946..1947..1948..1949..99.7124.5157.9191.6210.1211.9208.5231.3257.6256.591.9115.1142.8166.0177.9176.8187.7214.6240.1237.089.1112.2139.5162.4173.8172.3182.7208.6233.5230.182.6103.3126.5147.2158.5156.4163.9188.5210.2211.46.58.913.015.315.315.918.820.223.318.82.42.52.93.23.74.14.55.15.65.9.4.4.4.4.4.4.6.81.01.07.89.415.125.632.235.220.816.717.419.41950..1951_.1952..1953..1954..1955..1956..1957..1958..1959..I960..1961_.1962..1963..1964..1965..1966'284.8328.4345.5364.6364.8398.0419.2441.1447.3483.7503.7520.1560.3590.5631.7681.2739.5263.9301.0314.3332.7332.4363.8382.6402.0405.2439.4456.3469.2505.7532.4568.7613.4663.3256.3292.8305.8323.6322.7352.9370.8389.3391.7425.0440.7452.3487.4513.0547.4590.8639.3236.3269.9283.7303.3303.1334.1352.2370.9370.9405.3420.2431.4466.2491.5527.0567.1614.520.022.922.220.319.618.818.618.420.819.620/520.921.221.520.423.824.86.46.97.27.88.19.19.810.511.412.213.214.015.016.017.318.319.51.21.31.31.31.61.82.12.22.02.22.42.93.33.44.04.34.520.927.431.231.932.534.236.639.142.144.347.550.954.758.163.067.876.2Seasonally adjusted annual rates1964:1965:IIIIV.".";IIITV'".I616.8627.7637.9644.2660.8672.9686.5704.4555.5565.5574.2579.4595.2606.4618.2633.8534.6544.1552.6558.2573.0583.6595.3611.2513.8523.4532.5538.0551.6559.4570.6586.620.720.720.120.221.424.224.724.716.717.317.617.417.518.018.719.14.24.04.03.84.74.84.13.461.362.363.764.865.666.668.370.61966:jII..III.IV P721.2732.3745.3759.1648.4657.6667.7679.3624.9634.0643.5654.8599.3609.0619.1630.525.725.024.424.319.119.119.720.04.44.44.64.572.874.777.679.91 Gross national product less compensation of general government employees.2 Includes compensation of employees in government enterprises. Government enterprises are thoseagencies of government whose operating costs are at least to a substantial extent covered by the sale of goodsand services, in contrast to the general activities of government which are financedmainly by tax revenuesand debt creation. Government enterprises, in other words, conduct operations essentially commercial incharacter, even though they perform them under governmental auspices. The Post Office and public powersystems are typical examples of government enterprises. On the other hand, State universities and publicparks, where the fees and admissions cover only a nominal part of operating costs, are part of generalgovernment activities.3 Compensation of general government employees.NOTE.—Data for Alaska and Hawaii included beginning 1960.Source: Department of Commerce, Office of Business Economics.222

TABLE B-S.—Gross national product by sector, in 1958 prices, 1929-66[Billions of dollars, 1958 prices]Year orquarterTotalgrossnationalproductTotalGross private product ]BusinessTotal Nonfarm 2 FarmHouseholdsRest ofthe worldGrossgovernmentproduct 31929.203.6190.9182.1165.117.07.41.412.71930.1931.1932.1933.1934.1935.1936.1937.19381939183.5169.3144.2141.5154.3169.5193.0203.2192.9209.4170.1155.8131.0127.5138.3152.4173.1184.3172.6188.7161.4147.7123.8120.6131.1144.9165.4176.4164.6180.7145.4129.21C5.8103.0116.6128.4150.5158.5146.8162.516.118.518.017.514.616.514.917.917.818.27.16.66.05.76.26.46.87.16.87.11.61.41.31.21.01.11.0.81.113.313.513.214.016.017.119.918.920.420.61940194119421943194419451946194719481949227.2263.7297.8337.1361.3355.2312.6309.9323.7324.1205.6236.6257.3272.8286.9282.5275.1281.4295.0294.1197.1228.1248.7264.9278.9274.6267.0272.8286.0284.7179.6209.3228.0245.3259.5256.5248.6255.8267.0266.217.518.820.619.619.418.118.517.019.018.47.67.57.87.27.17.17.17.57.98.21.01.11.21.221.627.240.564.374.472.837.528.628.730.11950195119521953195419551956195719581959355.3383.4395.1412.8407.0438.0446.1452.5447.3475.9324.2344.6353.2371.1366.2397.2404.8410.5405.2433.4314.2334.5343.2360.7355.4385.4392.2397.5391.7419.4294.9316.2324.2340.7335.0364.4371.4377.2370.9398.319.418.419.020.020.420.920.820.320.821.18.78.88.89.19.210.110.610.911.411.71.31.21.21.31.61.82.02.12.02.231.138.841.841.740.940.741.341.942.142.51960196119621963196419651966487.7497.2529.8551.0580.0614.4647.7444.0452.3482.9503.2530.8563.5593.5429.5436.9466.7486.6513.3545.4574.8407.6414.8444.6463.8491.2521.7552.221.922.222.122.822.023.822.612.212.412.913.213.614.014.42.32.93.43.43.94.14.443.744.846.947.849.250.954.2Seasonally adjusted annual rates1964: IIIIIIV569.7578.1585.0587.2521.3529.1535.4537.4503.9511.5517.6520.0482.2488.8495.8497.921.722.621.822.013.213.713.913.74.14.03.93.748.549.049.549.81965: I—.IIIIIIV600.3607.8618.2631.2550.2557.3567.2579.4532.2538.9548.9561.6509.4515.1524.6537.522.823.824.324.113.413.714.214.54.64.64.03.350.150.551.151.81966: I—.II—III640.5643.5649.9657.0588.0589.9595.1601.2569.4571.4576.2582.2546.4548.4554.5559.423.022.921.722.814.314.214.514.64.34.34.44.352.553.654.855.81 Gross national product less compensation of general government employees.2 Includes compensation of employees in government enterprises. Government enterprises are thoseagencies of government whose operating costs are at least to a substantial extent covered by the sale of goodsand services, in contrast to the general activities of government which are financed mainly by tax revenuesand debt creation. Government enterprises, in other words, conduct operations essentially commercialin character, even though they perform them under governmental auspices. The Post Office and publicpower systems are typical examples of government enterprises. On the other hand, State universities andpublic parks, where the fees and admissions cover only a nominal part of operating costs, are part of generalgovernment activities.3 Compensation of general government employees.NOTE.—Data for Alaska and Hawaii included beginning 1960.Source: Department of Commerce, Office of Business Economics.223

TABLE B-9.—Personal consumption expenditures, 1929-66[Billions of dollars]Yearorquarter192919301931193219331934....1935....1936193719381939194019411942....19431944194519461947194819491950.—1951....1952.—1953....1954.—1955..__1956....195719581959I960.-.1961.—19621963196419651966 v1964:1 II...III..IV..1965:1.---II-.-III-IV .1966: I—II-.-III-IV v.•3*277.269.960.548.645.851.355.761.966.563.966.870.880.688.599.3108.3119.7143.4160.7173.6176.8191.0206.3216.7230.0236.5254.4266.7281.4290.1311.2325.2335.2355.1375.0401.4431.5465.0Durable goods9.27.25.53.63.54.25.16.36.95.76.77.86.78.015.820.422.724.630.529.629.333.232.839.638.940.837.944.345.344.249.553.959.466.169.43.22.21.6.91.11.41.92.32.41.62.22.73.4.7.8.81.04.06.27.59.913.111.611.114.213.618.416.418.315.419.520.118.422.024.325.829.830.04.83.93.12.11.92.22.63.23.63.13.53.94.94.73.93.84.68.610.911.911.614.114.414.314.915.016.617.517.317.118.918.919.320.522.225.127.130.1Nondurable goods37.734.029.022.722.326.729.332.935.234.035.137.042.950.858.664.371.982.490.596.294.598.1108.8114.0116.8118.3123.3129.3135.6140.2146.6151.3155.9162.6168.6178.9190.6206.119.518.014.711.410.912.213.615.316.515.615.716.619.223.327.429.933.239.043.746.344.846.052.154.755.556.558.160.463.966.668.470.172.174.476.580.485.491.39.48.06.95.14.65.76.06.66.86.87.17.48.811.013.414.416.518.218.820.119.319.621.221.922.122.123.124.124.324.726.427.327.929.630.633. 635.940.01.81.71.51.51.51.61.71.92.12.12.22.32.62.11.31.61.83.03.64.45.05.46.16.87.78.29.09.810.611.011.612.312.412.913.514.115.116.07.06.35.74.85.37.27.99.19.89.510.110.712.214.416.518.420.522.124.425.425.427.129.330.531.631.533.134.936.737.940.241.643.545.748.050.854.1Services30.328.726.022.220.120.421.322.824.424.325.026.028.130.834.237.239.845.349.854.757.662.467.973.479.985.491.498.5105.0112.0120.3128.7135.1143.0152.4163.1174.81.511.511.010.39.07.97.67.78.08.58.99.19.410.211.011.512.012.513.915.717.519.321.323.926.529.331.733.736.038.541.143.746.348.752.055.459.263.267.74.03.93.53.02.83.03.23.43.73.63.84.04.34.85.25.96.46.87.58.18.59.510.411.112.012.614.015.216.217.318.520.020.822.023.124.325.627.22.62.21.91.61.51.61.71.92.01.92.02.12.42.73.43.74.05.05.35.85.96.26.77.17.87.98.28.69.09.310.110.810.611.011.411.812.814.0Seasonally adjusted annual rates391.1398.0407.5408.8418.9426.8435.0445.2455.6460.1469.9474.457.659.861.158.965.164.466.768.070.367.170.270.125.326.027.124.630.129.230.229.931.428.530.130.024.125.425.325.726.026.227.328.829.629.230.731.08.28.48.78.59.09.09.29.39.39.39.49.2174. 9176.5181.7182.4184.5189.4191.4197.0201.9205.6208.1208.778.579.781.481.882.784.885.788.589.991.291.892.332.832.734.334.434.635.636.037.539.439.741.139.913.913.914.214.414.415.215.315.715.816.116.116.149.650.151.851.752.853.854.455.356.758.659.260.4158.7161.6164.7167.5169.3173.0176.9180. 2183. 4187.4191.5195.657.758.759.660.761.662.763.664.766.067.168.269.523.824.224.724.724.725.426.026.326.527.127.627.811.711.711.912.112.212.713.013.413.513.914.214.51 Quarterly data are estimates by Council of Economic Advisers.2 Includes standard clothing issued to military personnel.3 Includes imputed rental value of owner-occupied dwellings.NOTE.—Data for Alaska and Hawaii included beginning 1960.Source: Department of Commerce, Office of Business Economics (except as noted).224

TABLE B-10.—Gross private domestic investment, 1929-66[Billions of dollars]Year orquarterprivatedomesticinvestmentTotalFixed investmentTotalNonresidentialTotalStructuresTotalNonfarmProducers'durableequipmentTotalNonfarmResidential structuresTotalNonfarmFarm Change inbusinessinventoriesTotalNonfarm1929-1930..1931-1932..1933-1934..1935-1936-1937-1938-1939-1940-1941-1942..1943-1944..1945-1946-1947-1948-1949-1950-1951-1952_.1953-1954-1955..1956-1957-1958..1959..I960-1961-1962..1963..1964...1965...1966 P.1964: I II—III...IV...1965: I II—III...IV...1966: III—IV K".16.210.35.61.01.43.36.48.511.86.59.313.117.99.85.77.110.630.634.046.035.754.159.351.952.651.767.470.067.860.975.374.871.783.087.193.0106.6116.590.291.892.597.4103.8103.7106.7111.9114. 5118.5115. 0118.014.510.66.83.43.04.15.37.29.27.48.911.013.48.16.48.111.624.234.441.338.847.349.048.852.153.361.465.366.562.470.571.369.777.081.388.397.5105.110.68.35.02.72.43.24.15.67.35.45.97.59.56.05.06.810.117.023.426.925.127.931.831.634.233.638.143.746.441.645.148.447.051.754.360.769.779.35.04.02.31.2.91.01.21.62.41.92.02.32.91.91.31.82.86.87.58.88.59.211.211.412.713.114.317.218.016.616.718.118.419.219.521.024.927.94.83.92.31.2.91.01.21.62.41.81.92.22.81.81.21.72.76.16.78.07.78.510.410.511.912.313.616.517.215.815.917.417.718.518.820.324.227.35.64.32.71.51.52.22.94.04.93.54.05.36.64.13.75.07.310.215.918.116.618.720.720.221.520.623.826.528.425.028.430.328.632.534.839.744.851.44.93.72.41.31.31.82.43.34.12.93.44.65.63.53.24.26.39.214.015.513.715.717.717.618.618.021.224.225.922.025.427.725.829.431.235.940.646.24.02.31.7.71.21.61.92.02.93.43.92.11.41.31.57.211.114.413.719.417.217.218.019.723.321.620.220.825.522.822.625.327.027.627.825.83.82.21.6.7.5.81.11.51.81.92.83.23.71.91.21.11.46.710.413.612.818.616.416.417.219.022.720.919.520.124.822.222.024.826.427.027.225.30.2 1.7-.4-1.1-2.5-1.6-.71.11.32.5-.9.42.24.51.8-.6-1.0-1.06.4-.54.7-3.16.810.33.1.4-1.56.04.71.3-1.54.83.62.06.05.94.79.111.4Seasonally adjusted annual rates86.687.688.990.094.496.098.0101.5105.6106.2105.1103.658.159.761.763.366.767.970.273.977.078.280.381.720.320.921.021.823.624.624.426.828.527.927.727.619.620.220.321.222.924.023.826.127.827.227.027.037.938.840.741.443.143.345.847.148.550.352.654.134.035.236.937.739.339.441.342.343.745.447.548.228.527.927.226.727.728.127.827.628.628.024.821.927.927.326.626.227.227.527.327.028.027.424.321.30.6.6.6.6.6.6.5.5.5.6.6.63.54.23.67.49.57.68.710.48.912.39.914.41.8-.1-1.6-2.6-1.4.2.42.11.7-1.0.31.94.0.7-.6-.6-.66.41.33.0-2.26.09.12.11.1-2.15.55.1.8-2.34.83.31.75.35.15.38.111.73.65.14.67.99.46.77.29.08.512.110.415.6NOTE.—Data for Alaska and Hawaii included beginning 1960.Source: Department of Commerce, Office of Business Economics.225

Year orquarterTotalnationalincome1TABLE B-l 1.—National income by type of income, 1929-66Compensation ofemployeesTotalWagesandsalariesSupplementstowagesTotalandsala-[Billions of dollars]Business and professionalincomeand inventoryvaluationadjustmentIncomeofunincorporatedenterprisesInventoryvaluationadjustmentIncomeoffarmproprietors3RentalincomeofpersonsTotalCorporate profitsand inventoryvaluationadjustmentCorporateprofitsbeforetaxes 4InventoryvaluationadjustmentNetinterest1929...1930...1931...1932...1933...1934...1935...1936...1937...1938...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 »..1964: III....III...IV...1965: III....III...IV...1966: III....III...IV.86.875.459.742.840.349.557.265.073.667.472.681.1104.2137.1170.3182.6181.5181.9199.0224.2217.5241.1278.0291.4304.7303.1331.0350.8366.1367.8400.0414.5427.3457.7481.9517.3559.0«609.7504.0513.7522.9528.5543.3552.2562.7577.8595.7604.1613.851.146.839.831.129.534.337.342.947.945.048.152.164.885.3109.5121.2123.1117.9128.9141.1141.0154.6180.7195.3209.1208.0224.5243.1256.0257.8279.1294.2302.6323.6341.0365.7392.9433.3355.3362.2369.8375.3381.7387.8395.6406.5419.6427.9438.3447.550.446.239.130.529.033.736.741.946.143.045.949.862.182.1105.8116.7117.5112.0123.0135.4134.5146.8171.1185.1198.3196.5211.3227.8238.7239.9258.2270.8278.1296.1311.1333.6358.4392.3324.4330.6337.4342.2348.2353.7360.8370.8380.0387.4396.7405.00.7.7.5.6.61.01.82.02.22.32.73.23.84.55.65.95.95.86.57.89.610.210.911.513.215.217.317.920.923.424.627.529.932.034.541.031.031.732.433.133.534.134.835.739.640.541.542.59.07.65 83.63.34.75.56.77.26.97.48.611.114.017.018.219.221.620.322.722.624.026.127.127.527.630.331.332.833.235.134.235.637.137.939.940.741.88.86.85.13.33.94.85.56.87.26.77.611.714.417.118.319.323.321.823.122.225.126.526.927.627.630.531.833.133.235.334.335.637.137.939.941.042.20.1-.1*.2-.2-.4-.2-.1-.1-1.7-1.5-.4.5-1.1-.3.2-.2_ o-'.5-.3-.1-.1-.4-.46.24.33.42.12.63.05.34.36.04.44.44.56.49.811.711.612.214.915.217.512.713.515.815.013.012.411.411.411.313.411.412.012.813.013.112.015.116.0Seasonally adjusted annual rates39.139.940.340.340.540.440.741.141.441.641.942.239.140.240.340.240.640.941.041.742.042.242.442.2-0.2-.1.1-.2-.5-.3-.6-.6-.6-.5*12.212.211.711.912.915.516.016.017. G16.315.415.25.44.83.82.72.01.71.71.82.12.62.72.93.54.55.15.45.66.67.18.08.49.410.311.512.713.613.914.314.815.415.615.816.016.717.117.718.318.917.417.617.817.918.118.318.418.518.718.818.919.110.57.02.0-1.3-1.21.73.45.66.84.96.39.815.220.324.423.819.219.325.633.030.837.742.739.939.638.046.946.145.641.151.749.950.355.758.966.674.279.865.366.567.866.873.272.774.076.980.079.979.110.03.7-.4-2.31.02.33.66.36.84.07.010.017.721.525.124.119.724.631.535.228.942.643.938.940.638.348.648.847.241.452.149.750.355.459.467.075.781.865.866.867.867.774.574.575.078.782.782.881.90.53.32.41.0-2.1-.6-.2-.71.0-.7-.2-2.5-1.2-.8-.3-.6-5.3-5.9-2.21.9-5.0-1.21.0-1.0-.3-1.7-2.7-1.5-.3-.5.2-.1.3-.4-1.5-2.04.74.95.04.64.14.14.13.83.73.63.53.33.23.12.72.32.21.51.91.81.92.02.32.62.83.64.14.65.66.87.18.410.011.613.815.517.820.0.5-0.5-.3*-.9-1.3-1.8-1.0-1.8-2.8-2.9-2.814.715.115.716.316.917.518.118.719.119.620.221.01 National income is the total net income earned in production. It differs from gross national productmainly in that it excludes depreciation charges and other allowances for business and institutional consumptionof durable capital goods, and indirect business taxes. See Table B-12.2 Employer contributions for social insurance and to private pension, health, and welfare funds; compensationfor injuries; directors' fees; pay of the military reserve; and a few other minor items.3 Excludes income resulting from net reductions of farm inventories and gives credit in computing incometo net additions to farm inventories during the period.4 See Table B-66 for corporate tax liability and profits after taxes.5 Data for corporate profits are approximations for the year as a whole; data for fourth quarter are notavailable. All other data incorporating or derived from these figures are correspondingly approximate.NOTE.—Data for Alaska and Hawaii included beginning 1960.Source: Department of Commerce, Office of Business Economics.226

TABLE B-12.—Relation of gross national product and national income, 1929-66[Billions of dollars]Year or quarterGrossnationalproductLess:CapitalconsumptionallowancesEquals:NetnaproductLess:Indirect business taxesTotalStateandlocalPlus:Subsidieslesscurrentsurplusof governmententerprisesFederalBusinesstransferpaymentsStatisticaldiscrepancyEquals:Nationalincome1929103.1 7.9 95.2 -0.1 7.0 1.2 5.8 0.6 0.7 86.8193090.4 8.0 82.4 -.1 7.2 1.0 6.1 .5 -.8 75.4193175.8 7.9 68.0 * 6.9 .9 6.0 .6 .7 59.7193258.0 7.4 50.7 * 6.8 .9 5.8 .7 .3 42.8193355.6 7.0 48.6 * 7.1 1.6 5.4 .7 .6 40.3193465.1 6.8 58.2 .3 7.8 2.2 5.6 .6 .5 49.5193572.2 6.9 65.4 .4 8.2 2.2 6.0 .6 -.2 57.2193682.5 7.0 75.4 * 8.7 2.3 6.4 .6 1.2 65.0193790.4 7.2 83.3 .1 9.2 2.4 6.8 .6 * 73.6193884.7 7.3 77.4 .2 9.2 2.2 6.9 .4 .6 67.4193990.5 7.3 83.2 .5 9.4 2.3 7.0 .5 1.3 72.6194099.7 7.5 92.2 .4 10.0 2.6 7.4 .4 1.0 81.11941124.5 8.2 116.3 .1 11.3 3.6 7.7 .5 .4 104.21942157.9 9.8 148.1 .2 11.8 4.0 7.7 .5 -1.1 137.11943191.6 10.2 181.3 .2 12.7 4.9 7.8 .5 -2.0 170.31944210.1 11.0 199.1 .7 14.1 6.2 8.0 .5 2.5 182.61945211.9 11.3 200.7 .8 15.5 7.1 8.4 .5 3.9 181.51946208.5 9.9 198.6 .9 17.1 7.8 9.3 .5 .1 181.91947231.3 12.2 219.1 -.2 18.4 7.8 10.6 .6 .9 199.01948257.6 14.5 243.1 -.1 20.1 8.0 12.1 .7 -2.0 224.2i1949256.5 16.6 239.921.3 8.0 13.3 .8 .3 217.51950284.8 18.3 266.4 .2 23.3 8.9 14.5 .8 1.5 241.11951328.4 21.2 307.2 .2 25.2 9.4 15.8 .9 3.3 278.01952345.5 23.2 322.3 -.1 27.6 10.3 17.3 1.0 2.2 291.41953364.6 25.7 338.9 -.4 29.6 10.9 18.7 1.2 3.0 304.71954364.8 28.2 336.6 -.2 29.4 9.7 19.7 L.I 2.7 303.11955398.0 31.5 366.5 -.1 32.1 10.7 21.4 L.2 2.1 331.01956419.2 34.1 385.2 .8 34.9 11.2 23.6 L.4 -1.1 350.81957441.1 37.1 404.0 .9 37.3 11.8 25.5 L.5 * 366.11958447.3 38.9 408.4 .9 38.5 11.5 27.0 L.6 1.6 367.81959483.7 41.4 442.3 .1 41.5 12.5 28.9 L.7 -.8 400.01960503.7 43.4 460.3 .2 45.2 13.5 31.7 1.9 -1.0 414.51961520.1 45.2 474.9 1.4 47.7 13.6 34.1 2.0 -.8 427.31962560.3 50.0 510.4 1.4 51.5 14.6 36.9 2.1 .5 457.71963590.5 52.6 537.9 .8 54.7 15.3 39.4 2.3 -.3 481.91964631.7 56.0 575.7 1.3 58.5 16.2 42.3 2.5 -1.4 517.31965681.2 59.6 621.6 1.0 62.7 16.8 45.8 2.6 -1.6 559.01966739.5 63.1 676.4 1.3l _ # 265.5 16.0 49.5 51.61609.7Seasonally adjusted annual rates1964: I_616.8 54.6 562.2 1.0 56.4 15.5 40.8 2.4 0.4 504.0II627.7 55.5 572.2 1.3 57.9 16.1 41.9 2.5 -.6 513.7III_-_ 637.9 56.6 581.4 1.4 59.5 16.6 42.9 2.6 -2.3 522.9IV644.2 57.5 586.6 1.4 60.2 16.5 43.7 2.6 -3.3 528.51965: I660.8 58.2 602.7 1.2 62.0 17.5 44.6 2.6 -4.1 543.3II672.9 59.1 613.8 1.0 62.2 16.8 45.4 2.5 -2.1 552.2III___. 686.5 60.2 626.3 .9 62.7 16.3 46.4 2.5 -.8 562.7IV____ 704.4 60.8 643.6 .9 63.6 16.7 47.0 2.6 .4 577.81966: I721.2 61.6 659.7 .8 63.0 15.2 47.8 2.6 -.8 595.7II732.3III____IV P— 759.1745.362.764.663.7 681.6669.6 .9 64.71.5694.666.316.11.8 68.116.248.716.5 51.650.02.6 -.9 604.12.6 .4 613.82.6\1 Data for corporate profits are approximations for the year as a whole; data for fourth quarter are notavailable. All other data incorporating or derived from these figures are correspondingly approximate.NOTE.—Data for Alaska and Hawaii included beginning 1960.Source: Department of Commerce, Office of Business Economics.227

TABLE B-13.—Relation of national income and personal income, 1929-66[Billions of dollars]Less:Plus:Equals:Year or quarterNationalincomeCorporateprofitsand inventoryvaluationadjustmentContributionsforsocialinsuranceWageaccrualslessdisbursementsGovernmenttransferpaymentsto personsInterestpaidbygovernment(net)and byconsumersDividendsBusinesstransferpaymentsPersonalincome1929 -193019311932193319341935193619371938193986.875.459.742.840.349.557.265.073.667.472.610.57.02.0-1.3-1.21.73.45.66.84.96.30.2.3.3.3.3.3.3.61.82.02.1****** **0.91.02.11.41.51.61.82.91.92.42.52.51.81.81.71.61.71.71.71.91.91.95.85.54.12 52.02.62 84.5• 4.73.23.80.6.5.67.7.6.6.6.6.4.585.977.065.950 247.054.060 468.674.168 372.8194019411942194319441945194619471948 .194919501951 -. -.195219531954 __19551956195719581959I960 .1961196219631964 -__19651966 P81.1104.2137.1170.3182.6181.5181.9199.0224.2217.5241.1278.0291.4304.7303.1331.0350.8366.1367.8400.0414.5427.3457.7481.9517.3559.01609.79.815.220.324.423.819.219.325.633.030.837.742.739.939.638.046.946.145.641.151.749.950.355.758.966.674.22.32.83.54.55.26.16.05.75.25.76.98.28.78.89.811.112.614.514.817.620.721.424.026.928.029.237.80 2-.2****.1*-.1 ********2.72.62.62.53.15.610.811.110.511.614.311.512.012.814.916.117.119.924.124.926.630.431.233.034.237.141.92.12.22.22.63.34.25.25.56.16.57.27.68.19.09.510.111.212.012.113.615.115.016.117.619.120.622.84.04.44.34.44.64.65.66.37.07.28.88.68.68.99.310.511.311.711.612.613.413.815.216.517.319.220.9.4.5.5.5.5.5.5.6.7.8.8.91.01.21L.456]71.92.02.12.32.52.62.678.396.0122.9151.3165.3171.1178.7191.3210.2207.2227.6255.6272.5288.2290.1310.9333.0351.1361.2383.5401.0416.8442.6465.5496.0535.1580.4Seasonally adjusted annual rates1964: I IIIIIIV504.0513.7522.9528.565.366.567.866.827.427.728.228.60.1-.134.633.934.134.418.618.919.419.617.117.317.417.72.42.52.62.6484.0492.0500.3507.51965' I II -.- .IIIIV543.3552.2562.7577.873.272.774.076.928.829.029.229.8*36.035.239.437.920.020.520.921.018.118.819.520.22.62.52.52.6518.0527.6541.9552.81966: I IIIIIIV p595.7604.1613.880.079.979.136.537.038.539.3**40.040.142.345.321.922.523.023.820.921.121.120.72.62.62.62.6564.6573.5585.2598.11 Data for corporate profits are approximations for the year as a whole; data for fourth quarter are notavailable. All other data incorporating or derived from these figures are correspondingly approximate.NOTE.—Data for Alaska and Hawaii included beginning 1960.Source: Department of Commerce, Office of Business Economics.228

TABLE B-14.—Disposition of personal income, 7920-66Year orquarter1929 _1930.1931.1932.1933.1934.1935.1936..1937.1938.1940..1941..1942..1943..1944..1945..1946..1947-1948..1949..1950.1951.1952.1953.1954.1955.1956.1957.1958.1959.1960...1961.-.1962 ...1963..._19641965....1966 P1964:IIIII-IV..1965: I_.II,IIIIV..1966: I...II—IIIIV P.PersonalincomeLess:PersonaltaxandnontaxpaymentsEquals:DisposablepersonalincomeLess: Personal outlaysTotaloutlaysPersonalconsumptionexpendituresInterestpaid byconsumersPersonaltransferpaymentsto foreignersEquals:PersonalsavingBillions of dollars85.977.065.950.247.054.060.468.674.168.372.878.396.0122.9151.3165.3171.1178.7191.3210.2207.2227.6255.6272.5288.2290.1310.9333.0351.1361.2383.5401.0416.8442.6465.5496.0535.1580.42.62.51.91.51.51.61.92.32.92.92.42.63.36.017.818.920.918.721.421.118.620.729.034.135.632.735.539.842.642.346.250.952.457.460.959.466.075.183.374.564.048.745.552.458.566.371.265.570.375.792.7116.9133.5146.3150.2160.0169.8189.1188.6206.9226.6238.3252.6257.4275.3293.2308.5318.8337.3350.0364.4385.3404.6436.6469.1505.379.171.161.449.346.552.056.462.767.464.867.771.881.789.3100.1109.1120.7144.8162.5175.8179.2193.9209.3220.2234.3241.0259.5272.6287.8296.6318.3333.0343.3363.7384.7412.1443.4478.477.269.960.548.645.851.355.761.966.563.966.870.880.688.599.3108.3119.7143.4160.7173.6176.8191.0206.3216.7230.0236 5254.4266.7281.4290.1311.2325.2335.2355.1375.0401.4431.5465.01.5.9.7.5.5.5.5.6.7.7.7.8.9.7.5.5.5.81.11.51.92.42.73.03.84.04.75.45.85.96.57.37.68.19.110.111.312.70.3.3.3.2.2.2.2.22.2.2.2.2.1.2.4.5.7.7.7.5.5.4.4.5.5.5.6.6.6.6.5.5.5.6.6.6.7Seasonally adjusted annual rates484.0492.0500.3507.5518.0527.6541.9552.8564.6573.5585.2598.160.756.959.160.964.966.665.766.769.573.677.479.9423.4435.1441.2446.6453.2461.0476.2486.1495.1499.9507.8518.2401.4408.5418.4420.0430.3438.6447.1457.6468.4473.3483.3488.4391.1398.0407.5408.8418.9426.8435.0445.2455.6460.1469.9474.49.710.010.310.610.811.211.511.812.112.512.813.20.6.6.6.6.6.6.6.6.6.7.7.7 4.23.42.6-.6Q!42.13.63.8.72.63.811.027.633.437.329.615.27.313.49.413.117.318.118.316.415.820.620.722.319.117.021.221.619.924.525.726.922.026.622.826.622.822.429.028.526.726.624.529.9Percent of disposablepersonal incomePersonaloutlaysTotalConsumptionexpendituresPersonalsavingPercent95.095.495.9101.3102.099.396.394.694.798.996.394.988.276.475.074.580.390.595.792.995.093.799. 492.492.893.694.393.093.393.094.495.194.294.495.194.494.594.794.893.994.894.094.995.193.994.194.694.795.294.292.793.894.499.8100.698.095.293.393.497.695.093.686.975.774.474.079.789.694.691.893.892.391.090.991.191.992.491.091.291.092.392.992.092.292.791.992.092.092.491.592.491.592.492.691.391.692.092.092.591.55.04.64.1-1.3-2.0.73.75.45.31.13.75.111.823.625.025.519.79.54.37.15.06.37.67.67.26.45.77.06.77.05.64.95.85.64.95.65.55.35.26.15.26.05.04.96.15.95.45.34.85.8NOTE.—Data for Alaska and Hawaii included beginning 1960.Source: Department of Commerce, Office of Business Economics.229

TABLE B-15.—Sources of personal income, 1929-66[Billions of dollars]Year or quarterTotalpersonalincomeWage and salary disbursements iTotalCommodityproducingindustriesTotalManufacturingDistributiveindustriesServiceindustriesGovernmentOtherlaborincomelProprietors'incomeBusinessandprofessionalFarm 21929-1930..1931..1932..1933..1934-1935-1936-1937-1938-1939-1940..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 *,1964: I...II..III.IV..1965: I...II..III.IV..1966: I...II..III.IV*85.977.065.950.247.054.060.468.674.168.372.878.396.0122.9151.3165.3171.1178.7191.3210.2207.2227.6255.6272.5288.2290.1310.9333.0351.1361.2383.5401.0416.8442.6465.5496.0535.1580.450.446.239.130.529.033.736.741.946.143.045.949.862.182.1105.6116.9117.5112.0123.0135.3134.6146.7171.0185.1198.3196.5211.3227.8238.7239.9258.2270.8278.1296.1311.1333.6358.4392.321.518.514.39.99.812.113.515.818.415.317.419.727.539.148.950.345.846.054.361.057.764.676.181.889.485.492.8100.2103.899.7109.1112.5112.8120.8125.7134.0144.3158.216.113.810.87.77.89.610.812.414.611.813.615.621.730.940.942.938.236.542.547.244.750.359.464.271.267.673.979.582.578.786.989.789.896.7100.6107.2115.5127.215.614.512.59.88.89.910.711.813.212.613.314.216.318.020.122.724.831.035.237.637.739.944.346.949.850.253.457.760.560.864.868.169.172.576.081.286.793.18.48.07.15.85.25.75.96.57.16.87.17.58.19.09.910.912.014.416.117.918.619.921.723.325.126.428.931.633.935.938.741.544.046.849.954.158.163.54.95.25.35.05.16.16.57.97.58.28.28.410.216.026.633.034.920.717.418.920.622.428.933.134.134.636.238.340.443.545.648.752.256.059.564.369.277.40.6.7.7.91.11.51.81.92.32.73.03.84.85.36.06.37.38.49.59.911.312.012.713.914.916.618.520.8Seasonally adjusted annual rates9.07.65.83.63.34.75.56.77.26.97.48.611.114.017.018.219.221.620.322.722.624.026.127.127.527.630.331.332.833.235.134.235.637.137.939.940.741.8484.0492.0500.3507.5518.0527.6541.9552.8564.6573.5585.2598.1324.4330.6337.2342.3348.2353.7360.8370.8380.0387.4396.7405.0130.2132.9135.5137.4140.9142.6144.8148.9153.8157.0159.6162.3104.2106.2108.6109.7112.6114.0116.2119.2123.0126.0128.6131.279.180.581.983.184.686.087.189.190.892.193.995.852.653.754.855.455.757.259.260.561.362.564.465.862.663.565.066.367.068.069.772.374.175.978.881.015.916.416.917.317.818.218.819.420.020.621.121.739.139.940.340.340.540.440.741.141.441.641.942.2See footnotes at end of table.230

TABLE B-15.—Sources of personal income, 1929-66—Continued[Billions of dollars]Transfer paymentsYear orquarterRentalincomeof personsDividendsPersonalinterestincomeTotalOld-ageand survivorsinsurancebenefitsStateunemploymentinsurancebenefits-Veterans'benefitsOtherPersonalcontributionsfor socialinsuranceNonagriculturalpersonalincome 31929..5.45.87.21.50.60.90.177.61930..1931..1932..1933..1934..1935..1936..1937..1938..1939-4.83.82.72.01.71.71.82.12.62.76.54.12.52.02.62.84.54.73.23.86.76.35.75.85.75.55.65.55.51.52.72.22.12.22.43.52.42.83.00.4.4.61.6.8.5.4.51.9.6.5.51.11.41.61.81.91.61.81.92.0.1.2.2.2.2.2.2.670.860.846.743.249.853.963.066.762.666.91940..1941..1942..1943..1944..1945..1946..1947_.1948..1949..2.93.54.55.15.45.66.67.18.08.44.04.44.34.44.64.65.66.37.07.25.45.55.35.35.66.36.87.57.98.53.13.13.13.03.66.211.311.711.212.40.1.1.2.2.3.4.5.6.7.5.1.1.41.1.8.81.7.5.5.5.5.92.86.76.75.85.12.02.22.22.22.42.73.13.74.14.9.7.81.21.82.22.32.02.12.22.272.387.8111.0137.3151.2156.4161.0173.0189.4191.31950_.1951...1952..1953-.1954..1955-1956..1957..1958..1959..9.410.311.512.713.613.914.314.815.415.68.68.68.99.310.511.311.711.612.69.29.910.611.813.114.215.717.618.920.715.112.513.014.016.017.318.521.425.71.01.92.23.03.64.95.77.38.510.21.4.81.01.02.01.41.41.83.92.54.93.93.93.73.94.34.34.44.64.67.95.96.06.36.56.87.27.98.79.42.93.43.84.04.65.25.86.76.97.9210.9236.4254.1271.9274.7296.4318. 5336.6344.3368.519601961. _____19621963196419651966 p15.816.016.717.117.718.318.913.413.815.216.517.319.220.923.425.027.731.434.638.442.828.532.433.335.336.839.744.511.112.614.315.216.018.121.04.02.92.82.62.21.84.64.84.85.05.35.66.110.010.911.212.212.913.815.79.39.610.311.812.513.217.6385.2400.0425.5448.1479.7515.6559.7Seasonally adjusted annual rates1964: I___.II —III..IV..17.417.617.817.917.117.317.417.733.334.035.135.937.136.436.637.015.815.916.116.32.72.62.52.45.25.35.35.313.312.712.813.012.312.412.612.8467.7475.5484.4491.31965: I—.II—III—IV-.18.118.318.418.518.118.819.520.236.938.038.939.738.637.842.040.516.716.620.418.62.42.22.22.05.55.65.75.814.113.313.714.113.113.213.213.5500.9507.7521.5532.21966: I—.II—III-IV v.18.718.818.919.120.921.121.120.741.042.143.244.842.642.844.947.919.519.721.223.52.01.61.81.75.96.06.16.315.215.415.816.416.917.118.118.5542.9552.5565.1578.21 The total of wage and salary disbursements and other labor income differs from compensation of employeesin Table B-ll in that it excludes employer contributions for social insurance and excludes the excessof wage accruals over wage disbursements.2 Excludes income resulting from net reductions of inventories and gives credit in computing income tonet additions to inventories during the period.3 Nonagricultural income is personal income exclusive of net income of unincorporated farm enterprises,farm wages, agricultural net interest, and net dividends paid by agricultural corporations.NOTE.—Data for Alaska and Hawaii included beginning 1960.Source: Department of Commerce, Office of Business Economics.231

TABLE B—16.— Total and per capita disposable personal income and personalexpenditures•, in current and 1958 prices, 7929-66consumptionDisposable personal incomePersonal consumption expendituresYear or quarterTotal (billionsof dollars)Currentprices1958pricesPer capita(dollars)Currentprices1958pricesTotal (billionsof dollars)Currentprices1958pricesPer capita(dollars)Currentprices1958pricesPopulation(thousands)*1929.83.3150.66831,23677.2139.66341,145121,8751930.1931.1932.1933.1934.1935.1936.1937.1938.1939.74.564.048.745.552.458.566.371.265.570.3139.0133.7115.1112.2120.4131.8148.4153.1143.6155.96055163903624144595185525045371,1281,0779218939521,0351,1581,1871,1051,19060.548.645.851.355.761.966.563.966.8130.4126.1114.8112.8118.1125.5138.4143.1140.2148.25674873893644064374835164925101,0591,0169198979349851,0801,1101,0791,131123,188124,149124. 949125,690126,485127.362128,181128,961129,969131,0281940.1941.1942.1943.1944.1945.1946.1947.1948.1949.75.792.7116.9133.5146.3150.2160.0169.8189.1188.6166.3190.3213.4222.8231.6229.7227.0218.0229.8230.85736958679761,0571,0741,1321,1781,2901,2641,2591,4271,5821,6291,6731,6421,6061,5131, 5671,54770.880.688.599.3108.3119.7143.4160.7173.6176.8155.7165.4161.4165.8171.4183.0203.5206.3210.8216.55366046567267828551,0141.1151,1841,1851,1781,2401,1971,2131,2381,3081,4391,4311,4381,451132.122133, 402134,860136, 739138,397139,928141,389144,126146,631149,1881950.1951 _1952 _1953.1954.1955-1956-1957.1958.1959-206.9226.6238.3252.6257.4275.3293.2308.5318.8337.3249.6255.7263.3275.4278.3296.7309.3315.8318.8333.01,3641,4691,518'. t 583,585,666,743,801,831,9051,6461,6571,6781,7261,7141,7951,8391,8441,8311,881191.0206.3216.7230.0236.5254.4266.7281.4290.1311.2230.5232.8239.4250.8255.7274.2281.4288.2290.1307.31,2591,3371,381, 441,456,539,585,643,666,7581,5201,5091,5251,5721,5751,6591,6731,6831,6661,735151,684154,287156,954159.565162,391165,275168,221171,274174,141177,0731960-1961.1962.1963.1964.1965-1966 i350.0364.4385.3404.6436.6469.1505.3340.2350.7367.3381.3406.5430.8451.5,937,9832,0642,1362,2722,4112,5671,8831,9091,9682,0132,1162,2142,294325.2335.2355.1375.0401.4431.5465.0316.1322.5338.4353.3373.8396.2415.5,800,8241,9021,9802,0892,2182,3621,7491,7551,8131,8651,9462,0362,111180,684183, 756186,656189,417192,120194,572196,842Seasonally adjusted annual rates1964: I—.II...III..IV..1965: I...II...III..IV...1966: I....II...III..IV v.423.4435.1441.2446.6453.2461.0476.2486.1495.1499.9507.8518.2395.7405.5410.8413.9418.8423.7436.8443.9448.4447.9452.2457.02,2152,2692,2922,3122,3392,3732,4432,4862,5252,5432,5762,6212,0702,1142,1342,1422,1622,1812,2412,2702,2872,2782,2942,311391.1398.0407.5408.8418.9426.8435.0445.2455.6460.1469.9474.4365.7371.0379.5378.9387.1392.2398.9406.5412.8412.2418.3418.52,0462,0752,1172,1162,1622,1972,2322,2772,3242,3402,3842,3991,9131,9341,9721,9611,9982,0192,0472,0792,1052,0972,1222,117191,163191,781192,492193,196193,731194, 268194,898195, 543196,082196, 585197,124197,717i Population of the United States including armed forces abroad. Annual data are for July 1; quarterlydata are for middle of period, interpolated from monthly data.NOTE.—Data for Alaska and Hawaii included beginning 1960.Sources: Department of Commerce (Office of Business Economics and Bureau of the Census) and Councilof Economic Advisers.232

TABLEB-17. —Number and money income of families and unrelatedYearNumber(millions)TotalMedianincome (1965prices)Families !individuals, 1947-65Number(millions)Poor 2Incidence(percent)19471948194937.238.639.34,2754,1784,11611.212.012.730.031.232.31950195119521953195439.940.640.841.242.04,3514,5074,6255,0024,88911.911.310.710.111.029.927.826.324.626.21955195619571958195942.943.543.744.245.15,2235,5615,5545,5435,85610.19.49.59.69.323.621.521.721.820.61960196119621963196445.546.347.047.447.85,9916,0546,2206,4446,6769.29.38.98.58.220.320.118.918.017.1196548.36,8828.016.5Number(millions)TotalUnrelated individuals 3Medianincome (1965prices)Number(millions)Poor*Incidence(percent)194719481949 . .1950195119521953195419551956195719581959I960196119621963196419658.28.49.09.49.19.79.59.79.99.810.410.910.911.111.211.011.212.112.11,4071,3651,4301,4211,4701,6921,6621,4541,5611,6701,7201,6751,7181,8571,8621,8411,8622,0172,1104.34.54.74.94.64.54.55.04.84.64.85.15.04.94.94.84.85.04.752.354.051.952.150.746.647.551.248.946.946.146.946.044.343.543.242.841.438.81 The term "family" refers to a group of two or more persons related by blood, marriage, or adoption andresiding together; all such persons are considered members of the same family.2 Poverty is defined to include all families with total money income of less than $3,000 in 1965 prices;these are also referred to as poor families. Incidence of poverty is measured by the percent that poor familiesare of all families.3 The term "unrelated individuals" refers to persons 14 years of age and over (other than inmates of institutions)who are not living with any relatives.4 Poverty is denned to include all unrelated individuals with total money income of less than $1,500 in1965 prices. Incidence of poverty is measured by the percent that poor unrelated individuals are of allunrelated individuals.NOTE.—The number of poor and incidence of poverty shown in this table differ from data shown inChapter 5, Tables 18 and 19. In Chapter 5, poverty is defined by the new Social Security Administrationpoverty-income standard; it takes into account family size, composition, and place of residence (as wellas the amount of money income).Data for Alaska and Hawaii included beginning 1959.Source: Department of Commerce, Bureau of the Census.233

TABLE B-18.—Sources and uses of gross .«• "ing, 7929-66[Billions of dollars]Gross private saving and government surplus ordeficit, national income and product accountsGross investmentYear or quarterTotalTotalPrivate savingPersonalbusi-Grosssaving nesssavingGovernment surplusor deficit (-)TotalFederalStateandlocalTotalGrossprivate Netdomesticin-invest-foreignvest-mentment iStatisticaldiscrepancy192916.315.34.211.21.01.2-0.217.016.20.80.71930...193119321933193419351936193719381939 .11.85.1.8.93.26.67.211.97.08.812.18.02.52.35.68.610.311.58.711.03.42.6-.6-.9.42.13.63.8.72.68.65.33.23.25.26.46.77.78.08.4-.3-2.9-1.8-1.4-2.4-2.0-3.1.3-1.8-2.2.3-2.1-1.5-1.3-2.9-2.6-3.6-.4-2.1-2.2-.6-.8-.3-.1.5.6.5.7.4*11.05.81.11.63.86.48.411.87.610.210.35.61.01.43.36.48.511.86.59.3.7.2.2.2.4-.1-.1.11.1.9—.8.736.5-.21 261.31940194119421..194319441945...19461947 .1948...194913.618.610.75.52.55.235.142.049.935.914.322.442.049.754.344.729.727.541.439.03.811.027.633.437.329.615.27.313.49.410.511.414.516.317.115.114.520.228.029.7-.7-3.8-31.4-44.1-51.8-39.55.414.48.5-3.2-1.3-5.1-33.1-46.6-54.5-42.13.513.48.4-2.4.61.31.82.52.72.61.91.0-.714.619.09.63.55.09.135.242.947.936.213.117.99.85.77.110.630.634.046.035.71.51.1-.2-2.2-2.1-1.44.68.91.9.51 0.4-1.1-2.02.53.9.1.9-2.0.319501951..-1952... .19531954 „____19551956.....1957...19581959.... . .50.456.149.547.548.564.872.771.259.273.842.550.353.354.455.662.167.870.571.775.913.117.318.118.316.415.820.620.722.319.129.433.135.136.139.246.347.349.849.456.87.85.8-3.8-6.9-7.02.74.9.7-12.5-2.19.16.2-3.8-7.0-5.94.05.72.1-10.2-1.2-1.2-.4*.1-1.1-1.3-.9-1.4-2.3-.851.859.551.650.551.366.971.671.260.773.054.159.351.952.651.767.470.067.860.975.3-2.2.2-.3-2.1-.5-.51.53.4-.2-2.31.53.32.23.02.72.1-1.1 *1.6-.8196019611962 .19631964 .. . _ _19651966P77.575.585.090.5100.1112.373.979.887.988.7101.4109.12 115.117.021.221.619.924.525.726.956.858.766.368.876.983.42 88. 23.7-4.3-2.91.8-1.43.22 3. 53.5-3.8-3.8.7-3.01.62.2• .2-.5.91.21.71.62 3.376.574.785.590.398.7110.7118.474.871.783.087.193.0106.6116.53.02.53.15.74.21.9-1.0-.8.5-.3-1.4-1.62 —.2Seasonally adjusted annual rate1964: IIIIIIIV96.097.4100.4106.696.9103.1101.2104.522.026.622.826.674.976.578.477.9-0.9-5.7-.82.1-1.9-6.7-3.0-.51.01.12.22.696.596.898.2103.390.291.892.597.46.35.05.75.90.4-.6-2.3-3.31965:1-_IIIIIIV111.7110.9111.8115.0105.3104.8112.8113.622.822.429.028.582.582.483.885.16.46.1-1.01.44.54.4-2.5-.21.91.71.51.6107.6108.8110.9115.4103.8103.7106.7111.93.85.14.23.5-4.1-2.1-.8.41966:1IIIII.IV P ...117.9121.2115.8113.2113.9112.526.726.624.529.986.587.388.04.77.33.32.33.8-.52.43.53.8117.1120.3116.1120.1114.5118.5115.0118.02.61.81.12.1-.8-.9.41 Net exports of goods and services less net transfers to foreigners.2 Data for corporate profits are approximations for the year as a whole; data for fourth quarter are notavailable. All other data incorporating or derived from these figures are correspondingly approximate.NOTE.—Data for Alaska and Hawaii included beginning 1960.Source: Department of Commerce, Office of Business Economics.234

POPULATION, EMPLOYMENT, WAGES, AND PRODUCTIVITYTABLE B-19.—Population by age groups: Estimates, 1929-66, and projections, 7970-85[Thousands of persons]Age (years)July 1TotalUnder 55-1314-1920-2425-4445-6465 andoverEstimates:192919301931193219331934121, 767123,077124,040124,840125,579126,37411,73411,37211,17910,90310,61210,33122,13122,26622,26322, 23822,12921,96413,79613,93713,98014,01514,07014,16310, 69410,91511,00311,07711,15211,23835,86236,30936,65437,31937,66221,07621,57322,03122,47322,93323,4356,4746,7057,1477,3637,58219351936193719381939127,250128,053128,825129,825130,88010,17010,04410,00910,17610,41821, 73021,43421,08220,66820, 25314,29614,44214,55814,68014,74811,31711,37511,41111,45311, 51937,98738,28838,58938,95439,35423,94724,44424,91725,38725,8237,8048,0278,2588,5088,76419401941194219431944132,122133,402134,860136,739138,39710,57910,85011,30112,01612, 52419,93619,67419,42719,31919, 24614,77014,68214,53414,38114, 26411,69011,80711,95512,06412, 06239,86840,38340,86141,42042,01626, 24926, 71827,19627,67128,1389,0319,2889,5849,86710,14719451946194719481949139,928141,389144,126146, 631149,18812,97913, 24414,40614,91915, 60719,32619, 62520,11820,99021, 63413,94213,59713,44713,17113,00612, 03612,00411,81411, 79411, 70042,52143,02743, 65744,28844,91628,63029,06429,49829,93130,40510,49410,82811,18511,53811, 92119501951195219531954152,271154,878157, 553160,184163, 02616,41017,33317,31217,63818,05722,42422, 99824, 50125, 70126,88712,83912,72712,80712, 98613,23011,68011, 55211,35011,06210,83245,67346,10346,49446, 78647,00230,84931,36231,88432,39332,94112,39712,80313,20313,61714,07619551956195719581959165,931168,903171,984174,882177,83018,56619,00319,49419,88720,17527,92528,92929,67230, 65131,76713, 50113,98114,79515,33715,81610,71410,61610,60310,75647,19547,38047, 44147,33647,19233, 50734,05834,59135,10935,66314,52714,93715,38715,80516,2481960196119621963196419651966Projections: 21970: Series A..Series D_.180,684183,756186, 656189,417192,1201194, 583196,842208,615204,92320,36420.65720,74620,75020, 69120,43419,85121,31717,62532,98533,29633.94334,60635,29835,88836, 52537,22437,22416,21717,56618,48319.07519,81320,63821, 57923,13623,13611,11611,40811,88912, 62013,15213,66714,047]• 17,26147,13447.06146,93346,87446,79046, 79248,27636,20836.75637,31637,86838,43439, 01139,59241,81716,65917,01317.31117,56517,85618,15618,45719,5851975: Series A...Series D..227,929215,36727,21018,32337,88434,20925,13225,132} 19,29953,88243,36321,1591980: Series A...Series D_.250,489227,66531,04020,73645,21532,69524,62124,621} 20,99762,37343,17923,0631985: Series A...Series D__274,748241,73123,03053,49735,93326,89421,699} 21,06872,08342,94124,9771 The latest estimate for total population for 1965 is 194,572,000 (as shown in Table B-16), but detail by agegroups is not yet available.2 Two of four series projected by the cohort method and based on different assumptions with regard tocompleted fertility, which moves gradually toward a level of 3,350 children per 1,000 women for Series Aand 2,450 children per 1,000 women for Series D. For further explanation of method of projection and foradditional data, see forthcoming Population Estimates, Current Population Reports, Series P-25.NOTE.—Data for armed forces overseas included beginning 1940 and for Alaska and Hawaii beginning 1950.Source: Department of Commerce, Bureau of the Census.235

TABLE B-20.—Noninstitutional population and the labor force, 1929-66Year or monthNoninstitutionalTotallaborforce(includingarmedforces)iArmedforces 1Civilian labor forceTotalEmployment 2TotalAgriculturalNonagriculturalUnemployment2Totallaborforce aspercentof noninstitutionallationUnemploymentas percentofcivilianlaborforceOld definitions 21929-1930.1931-1932-1933.1934.1935-1936.1937.1940.1941.1942.1943.1944.1945.1946.1947.New definitions 21947.1948.1949.1950-1951.1952.1953.1954.1955.1956.1957.1958-1959.Thousands of persons 14 years of age and over1960Including Alaska andHawaii19601961196231962196319641965.1966 _1965: Jan...Feb...Mar..Apr...May..June..July..Aug..Sept..Oct—Nov..Dec...100,380101,520102,610103,660104,630105,530106,520107,608107,608108,632109,773110,929112,075113,270115,094116,219117,388118,734120,445121,950123,366124,878125,368127,852130,081130,081132,124134,143136,241138,385135,302135,469135,651135,812135,982136,160136,252136,473136,670136,862137,043137,22649,44050,08050,68051,25051,84052,49053,14053,74054,32054,95055,60056,18057,53064,56066,04065,30060,97061,75861,75863,72164,74965,98366,56067,36267,81870,38770,74471,28471,94672,82073,12674,17574,84074,68175.71276,97178,35780,16475.69976,41876,61277,30778,42580,68381,15080,16378,04478.71378,59878,4772602602602502502602703003203403705401,6203,9709,02011,41011,4403,4501,5901,5901,4561,6161,6503,0993,5943,5473,3503,0482,8572,7982,6372,5522,5142,5142,5722,8272,8272,7372,7382,7223,1232,7072,7042,7032,6862,6842,6802,6932,6932,7232,7602,7952,84149,18049,82050,42051,00051,59052,23052,87053,44054,00054,61055,23055,64055,91056,41055,54054,63053,86057,52060,16860,16861,44262,10562,88462,96663,81564,46865,84867,53067,94668,64770,30670,61271,60372,01371,85472,97574,23375,63577,04172,99273,71473,90974,62175,74178,00378,45777,47075,32175,95375,80375,63647,63045,48042,40038,94038,76040,89042,26044,41046,30044,22045,75047,52050,35053,75054,47053,96052,82055,25058,02757,81259,11758,42359,74860,78461,03561,94560,89062,94464,70865,01163,96665,58166,39266,68166,79668,00067,84668,80970,35772,17974,06568,99669,49670,16971,07072,40773,71674,85474,21272,44673,19672,83772,74910,45010,34010,29010,17010,0909,90010,11010,0009,8209,6109,5409,1009,2509,0808,9508,5808,3208,2668,2567,9608,0177,4977,0486,7926,5556,4956,7186,5726,2225,8445,8365,6965,7235,4635,2595,1904,9464,7614,5854,2063,7393,8033.9894,4735,1285,6225,6265,1364,7784,9544,1283,64537,18035,14032,11028,77028,67030,99032,15034,41036,48034,53036,14037,98041,25044,50045,39045,01044,24046,93049,76149,55751,15650,40652,25153,73654,24355,39054,39556,22558,13558,78958,12259,74560,69760,95861,33362,74462,65763,86365,59667,59465,25765,69466,18066,59767,27868,09469,22869,07767,66868,24268,70969,1031,5504,3408,02012,06012,83011,34010,6109,0307,70010,3909,4808,1205,5602,6601,0706701,0402,2702,1422,3562,3253,6823,3512,0991,9321,8703,5782,9042,8222,9364,6813,8133,9133,9314,8064,0144,0074,1663,8763,4562,9763,9964,2183,7403,5523,3354,2873,6023,2582,8752,7572,9662,888Percent56.056.758.862.363.161.957.257.457.457.958.058.458.958.858.558.458.759.358.758.558.358.358.358.057.557.457.357.457.557.955.956.456.556.957.759.359.658.757.157.557.457.2See footnotes at end of table.236

TABLE B-20.—Noninstitutional population and the labor force, 7929-66—ContinuedYear or monthTotalNonin-laborstitu-tional (includ-forceArmedpopulation» armedingforces 1forces) 1TotalCivilian labor forceTotalEmployment 2AgriculturalNonagriculturalUnemployment2Totallaborforce aspercentof noninstitutionalpopulationUnemploymentas percentofcivilianlaborforceThousands of persons 14 years of age and overPercent1966: Jan..Feb.Mar.Apr.MayJune.137,394137,562137,741137,908138,100138,27577,40977,63278,03478,91479,75182,7002,8902,9242,9743,0083,0453,09974,51974,70875,06075,90676,70679,60171,22971,55172,02373,10573,76475,7313,5773,6123.7804,2044,2925,18767,65267,93968,24468,90069,47270,5433,2903,1583,0372,8022,9423,87056.356.456.757.257.759.84.44.24.03.73.84.9July.Aug_Sept.Oct..Nov.Dec.138,444138,648139,041139,237139,42982,77182,46880,05280,53080,96880,7343,1353,1783,2293,2793,3223,39079,63679,29076,82377,25177,64677,34476,41176,36974,25174,73075.00674,6125,0104,7074,3734,3013,9693,46571,40271,66269,87870,43071,03671,1473,2252,9212,5732,5212,6402,73259.557.757.958.257.94.03.73.33.33.43.5Seasonally adjusted1965: JanFebMarAprMayJune77,58877,77077,72277,98877,99078,33274,88175,06675,01975,30275,30675,65271,25271,32671,48371,68871,81672,0854,5334,6084,5884,7694,8694,65166,71966,71866,89566,91966,94767,4343,6293,7403,3,6143,4903,5674.85.04.74.84.64.7JulyAugSept.OctNovDec1966: JanFebMarAprMayJuneJulyAugSeptOctNovDec78,74778,46578,33478,60678,91679,40879,64479,27979, 31579, 67479, 31380,18580, 23380, 54980, 34280, 41481, 24981,57976,054 72,61875, 772 72,38775,611 72,29775,846 72,56176, 111 72,91476,567 73,44176,75476,35576, 34176,66676,26877, 08677,09877,37177,11377,13577,92778,18973,71573, 52173, 43573,79973,23173,99774, 07274,33874,16574,16375, 07675,2264,6394,5724,4184,5514,2734,4864,4294,4424,r4,4824,0764,2384,1444,1584,0493,9714,1084,25467,97967,81567,87968,01068,64168,95569, 28669, 07969, 07269, 31769,15569,75969,92870,18070,11670,19270.96870,9723,4363,3853,3143,2853,1973,1263,0392,8342,9062,8673,0373,0893,0263,0332,9482,9722,8512,9634.54.54.44.34.24.14.03.73.83.74.04.03.93.93.83.93.73.81 Data for 1940-52 revised to include about 150,000 members of the armed forces who were outside theUnited States in 1940 and who were, therefore, not enumerated in the 1940 Census and were excluded fromthe 1940-52 estimates.2 See Note.3 Averages adjusted by Council of Economic Advisers for comparison with preceding data. See Note.NOTE.—Civilian labor force data beginning with January 1963 are based on a 357-area sample. ForJanuary 1960-December 1962 on a 333-area sample; for May 1956-December 1959 on a 330-area sample; forJanuary 1954-April 1956 on a 230-area sample; for 1946-53 on a 68-area sample; for 1940-45 on a smaller sample;and for 1929-39 on sources other than direct enumeration.Effective January 1957, persons on layoff with definite instructions to return to work within 30 days oflayoff and persons waiting to start new wage and salary jobs within the following 30 days are classifiedas unemployed. Such persons had previously been classified as employed (with a job but not at work).The combined total of the groups changing classification has averaged about 200,000 to 300,000 a month inrecent years. The small number of persons in school during the survey week and waiting to start newjobs are classified as not in the labor force instead of employed, as formerly. Persons waiting to open newbusinesses or start new farms within 30 days continue to be classified as employed.Beginning July 1955, monthly data are for the calendar week ending nearest the 15th of the month; previously,for week containing the 8th. Annual data are averages of monthly figures.Beginning April 1962, estimating procedures make use of 1960 Census data; for January 1953-March 19621950 Census data were used, and 1940-52,1940 Census data. For the effects of this change on the historicalcomparability of the data, see Employment and Earnings, May 1962, p. xiv.Source: Department of Labor, Bureau of Labor Statistics (except as noted).240-782 O—67- -16 237

TABLE B-21.—Civilian employment and unemployment, by sex and age, 1947-66[Thousands of persons 14 years of age and over]EmploymentUnemploymentYear or monthTotalTotalMales14-19years20yearsand TotalFemales14-19years20 TotalyearsandTotalMales14-19years20yearsand TotalFemales14-19years20yearsandNew definitions *1947..1948-1949.1950.1951.1952.1953.1954.1955.1956.1957.1958.1959.1960 21961.1962 31963.1964.1965.1966.57, 812 41,552 2,776 38,776 16,259 1, , 905 14,35459,117 42,268 2,887 39,381 16,848 1, , 913 14,93558,423 41,473 2,672 38; 803 16; 947 l| 812 15,13759,748 42, 1,162 2,769 39,395 17,584 1,76115,82460,784 42, !,362 2, 738 39,626 18,421 1,85116,57061,035 42,237 . 2,659 39,578 18,798 1, .; 840 " "" 16,95861,945 42,966 2, "!, 671 40,295 18, 979 1, 813 17,16460.890 42,165 2, 530 39,634 18,724 1,724 17,00062,944 43,152 2,626 40, 527 19,790 1,78818,00264,70843,999 2,— 783 41,216 20, 707 1,940 18, 76765,011 43,990 2,750 :, 41,239 21,021 1,970 19,05063j 966 43,042 2,631 !,63140, 40,410 20,9241,881 ... 19,04365,581 44,089 2, !,821 41,268 21,492 1,96819,52344,485 2,941 41,543 22,196 2,09120,1041 2Q566,796 44,318 2,976 41,342 22,478 2,181 20,67,846 44,892 3,077 41,815 " 22,954 2,262 20,68,809 45,330 ""' 3, 1,079 42,252 23,479 2,223 21,25770,357 46,139 3, 1,253 42,886 24,218 2,316 21; ,90372,179 47,034 3,612 43,422 25,145 2,515 22,63174,065 47, 639 3,971 43, 66' 26, 426 2,919 23, 5072,3562,3253,6823,3512,0991,9321,8703,5782,9042,8222,9364,6813,8133,9314,8064,0074,1663,8763,4562,976Seasonally adjusted1,7201,5902,6022,2801,2501,2171,2282,3721,8891,7571,8933,1552,4732,5413,0602,4882,5372,2711,6222982863823592202372093383083153514734514805424725665535455031,4221,3042,2191,9221,0299801,0192,0351,5801,4421,5412,6802,0222,0582,5182,0161,9711,7181,4361,1196377351,0831,0738517156421,2071,0161,0671,0431,5261,3401,3901,7471,5191,6291,6051,4761,3541621702412201621571332101942362222842763103793444134094204354755658418546895595109978238328201,2421,0641,0781,3661,1761,2161,1951.0579191965: Jan...Feb..Mar..Apr..May.June..July....AugSeptOctNovDec1966: Jan...Feb..Mar.Apr_.May-June-July..Aug..Sept..Oct—Nov..Dec-.71, 252 46,585 3, 274 43, 31124,667 2, 280 22,387 3,629326 46, 714 3, 334 43,380 24,612 2, 300 22, 3123,7407i; 483 46,823 3,400 43,423 24,660 2, 324 22, 3363,53671,688 46,968 3,529 43,439 24,720 2, 360 22, 360 3,61471,816 47, 054 3,551 43, 503 24, 762 2,412 22,3503,49072, 085 46,962 3,484 43,478 25,123 2,409 22,714 3,56772,618 47, 228 3,736 43,492 25, 390 2, 56: 22,823 3,43672, 387 47,130 3,677 43,453 25, 257 2, 53122,7263,38572,297 46, 917 3,632 43, 285 25, 380 2,609 22, 7713,31472, 561 47, ; 051 3,817 43,234 25,510 2, 720 22,7903,28572,914 47, 185 3,855 43, 330 25,729 2,792 22,937 3,19773,44147, 500 3,921 43, 579 25,941 2, 784 23,157 3,12673,715 47,624 4, 020 43,604 26, 0912,863 23, 22873,521 47, f73,435 47,173,799 47,814 4, 042 43,772 25,985 2,852 23,13373,23147,344 3,747 *"73,997 47,754 4,133 43; 621 26; 243 2,9572,8342,9062,8673,0373,0892,1062,0992,0122,0702,0632,0092,0131,9521 r~1,7371,7291,7011,5891,6511,5491,6111,69374, 072 47,6514, 066 43,585 26,421 2,996 23,42574,338 47, 766 4, 075 43,691 26,572 3, 045 23,527 1,61374,165 47,345 3,762 43,583 26,820 2,838 23,982 2,948 1,58874,163 47,374 3,834 43,540 26,789 2,921 2,972 1,55375, 076 47, 702 4, 031 43,671 27,374 3,080 24,294 2,851 1,55075, 226 47,9114', 019 43,892 27,315 3, 064 24,2512,9631,6095285044975395705545905405285945025575174464934855475345104715054834685311,5781,5951, 5151,5311,4931,4551,4231,4121,3611,3051,2351,1721,1841,1431,1581,0641,0641,1591,1591,1421,0831,0701,0821,0781,5231,6411,5241,5441,4271,5581,4231,4331,4251^4601,397l,;1,:1,2551,3181,4261,3961,3571,4201,3601,4191,3011,354466454442475401406385380,057,187,082,069,026,1521,0381,0531,0033971 989430 1,030433 9644213744014514654564694664124274143849178718548679619409549489928879701 See Note, Table B-20, for explanation of differences between the old and new definitions.2 Beginning 1960, data for Alaska and Hawaii included.3 Beginning April 1962, not comparable with preceding data; see Note, Table B-20.Note.—See Note, Table B-20, for information on area sample used and reporting periods.Source: Department of Labor, Bureau of Labor Statistics.238

TABLE B-22.—Selected unemployment rates, 7948-66[Percent]Year or monthBoth14-19yearsBy sex and ageMen,20yearsandAllworkersWomen,20yearsandoverBy raceWhiteNonwhiteExperiencedwageandsalaryworkersBy selected groupsMarriedmen JFulltimeworkers2Bluecollarworkers3Laborforcetime lostthroughunemploymentand parttimeemployment4New definitions1948194919601951195219531954195519561957195819593.85.95.33.33.12.95.64.44.24.36.85.58.712.211.37.78.07.111.410.210.410.814.413.23.25.44.72.52.42.54.93.83.43.66.24.73.65.35.14.03.22.95.54.44.24.16.15.25.03.93.73.96.14.98.78.48.012.610.74.26.76.03.73.33.26.04.84.44.57.25.63.44.61.51.41.74.02.82.62.85.13.65.45.02.62.55.23.83.74.07.24.28.07.23.93.63.47.25.85.16.210.17.65.15.38.16.61960s19611962 61963196419651966_5.66.75.65.75.24.63.913.615.213.315.614.713.612.04.75.74.64.53.93.22.55.16.35.45.45.24.55.06.04.95.14.64.13.410.212.511.010.99.88.37.55.76.85.55.55.04.23.53.74.63.63.42.82.41.96.75.54.94.33.57.89.27.47.26.35.34.26.78.06.7

TABLE B-23.—Unemployment by duration, 1947-66Year or monthTotal unemployment4 weeksand underDuration of unemployment5-14weeks15-26weeksOver26 weeksNew definitions1947 -.1948 _1949195019511952 . _ __ -__1953195419551956 - _195719581959 __ _196011961 -1962 21963196419651966Thousands of persons 14 years of age and over2,3562,3253,6823,3512,0991,9321,8703,5782,9042,8222,9364,6813,8133,9314,8064,0074,1663,8763,4562,9761,2551,3491,8041,5151,2231,1831,1781,6511,3871,4851,4851,8331,6581,7981,8971,7541,8471,7871,7181,6367046691,1951,0555745174821,115815805890,397] 1,113,1761,3751,134,231,1169838042341934274251661481324953673013217854695027285345354914042951641162563571378479317336232239667571454804585553482351241Seasonallyadjusted1965: Jan - - -.FebMarAprMayJune3,6293,7403,5363,6143,4903,5671,6951,7761,7411,8181,8291,7881.044L, 03010291,0461.015421479439443377419403408361370338360JulyAug - - - -SeptOctNovDec - - -1966: JanFebMarAprMayJune3,4363,3853,3143,2853,1973,1263,0392,8342,9062,8673,0373,0891,7911,7221,7031,5621,6181,5321,5481,5141,5431,6251,7891,816980980858992903869738721787670856815355397384350334355354315319343261251330320344347310305307264269260275225JulyAugSeptOctNovDec3,0263,0332,9482,9722,8512,9631,7101,6661,6261,5441,5151,6269129278078988037662202492982922862732152022012281972281 Beginning January 1960, data for Alaska and Hawaii included.2 Beginning April 1962, not comparable with preceding data; see Note, Table B-20.NOTE.—See Note, Table B-20, for information on area sample used and reporting periods.Source: Department of Labor, Bureau of Labor Statistics.240

TABLE B-24.—Unemployment insurance programs, selected data, 7940-66Year or monthCoveredemployment*All programsInsuredunemployment(weeklyaverage)2 3Totalbenefitspaid(millionsof dollars)2 *[nsuredunemployment8InitialclaimsExhaustions5State programsInsured unemploymentas percentof coveredemploymentUnadjustedSeasonallyadjustedBenefits paidTotal(millionsofdollars)0)Averageweeklycheck(dollars)•1940-1941-1942-1943-1944-1945-1946-1947-1948-1949-1950-1951-1952-1953-1954..1955-1956—1957-1958-1960—196119621963196419651966 *1965: JanFeb....Mar....AprMay....June. _.July....AugSept...Oct...NovDec—1966: JanFeb...Mar...AprMay...JuneJuly.Aug.Sept.Oct..Nov.Thousands24,29128,13630,81932,41931,71430,08731,85633,87634,64633,09834,30836,33437,00638,07236,62240, 01842, 75143,43644,41145,72846,33446,26647,77648,43449,63751,58053,70049,32149,31949,83850,64051,18652,08752,28052,61152,71352,71652,81953,431"51,935*>52,127*52,894*>53,79754, 32055,5431,3318426611491117202,8041,8051,4682,4791,6051.0001,0691,0652,0481,3951,3181,5673,2692,0992,0672,9941,946? 1,9731,7531,4501,1232,1352,0661,8631,6221,3161,1821,2621,2351,0891,0301,1331,3961,7391,6791,3811,1129168421,0019808027999551,312534.7358.8350.480.567.2574.91,878.5,785.0, 328.72,269.8, 467. 6862.9, 043.51, 050. 62,291.81, 560. 21,540. 61,913. 04,209.2" 803.03,022.74,358.23,160. 03, 025.92, 749. 22,343.71,900.0273.0265.8294.9242.7179.2169.1160.6160.7150.3128.2143.0184.7226.5230.2240.0166.4136.1123.4121.0152.0114.3100.4122.6171.0Weekly average,thousands1,2828146491471055891,2951,0091,0021,9791,5039691,0249951,8651,2541,2121,4502,5091,6821,9062,2901,783'1,8061,6051,3281,0611,9961,9321,7181,4701,1791,0591,1391,1209819331,0421,3081,6441,5901,3011,0448627939479287547529031,25321416412236291161891872103222362082152183032262262683702813313503027 2982682322043552692222201861912522151731892252903292381711661521562491731451662082995030214253824203736161815342520235033314632302621152525252724221918171615171919181917151412111212135.6Percent3.02.2.5.42.14.33.13.06.24.62.82.92.85.23.53.23.66.44.44.85.64.44.33.83.02.34.64.54.03.42.72.42.62.52.22.02.33.03.73.62.92.31.91.82.12.01.61.61.92.748.83.28.2S.OS.OS.O3.12.92.72.72.72.72.62.82.12.12.1II2.12.2518.7344.3344.179.662.4445.9,094.9775.1789.9, 736. 0, 373.1840.4998.2962.22, 026.9,350.3, 380.7, 733.93, 512. 7" 279.02,726.73,422. 72, 675. 42,774.7,522.12,166. 01,780.0252.1245.7273.4224.9165.7156.3149.5148.0138.6117.8132.2172.1212.7217.2225.5155.5126.1114.4113.8143.1106.593.7114.8162.510.5611.0612.6613.8415.9018.7718.5017.8319.0320.4820.7621.0922.7923.5824.9325.0427.0228.1730.5830.4132.8733.8034.5635.2835.9637.1939.7237.1837.3937.4137.1636.4036.0736.4036.5837.2337.3238.0838.8138.7239.0540.6539.8440.5741.002.41 Includes persons under the State, UCFE (Federal employee, effective January 1955), and RRB (RailroadRetirement 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 State programs for temporary extension of benefits from June 1958 through June1962, expiration date of program.3 Covered workers who have completed at least 1 week of unemployment.4 Includes benefits paid under extended duration provisions of State laws, beginning June 1958. Annualdata are net amounts and monthly data are gross amounts.8 Individuals receiving final payments in benefit year.8 For total unemployment only.7 Programs include Puerto Rican sugarcane workers for initial claims and insured unemployment beginningJuly 1963.8 Preliminary; June 1966 is latest month for which data are available for all programs combined.Workers covered by State programs account for about 87 percent of the total.NOTE.—Data for Alaska and Hawaii included for all periods and for Puerto Rico beginning January 1961.Source: Department of Labor, Bureau of Employment Security.241

TABLE B-25.—Number of wage and salary workers in nonagi'{cultural establishments, 7929-66 l[Thousands of employees]Year ormonth19291930.1931-1932 _1933.1934.1935193619371940.1941.1942.1943.1944.1945.1946.1947.1948.1949-1950-1951.1952.1953.1954.1955.1956 _1957.1958.1959 _I960..1961. .1962..1963..1964..1965. .1966 P.Totalwageandsalaryworkers31,33929,42426,64923,62823,71125,95327,05329| 08231,02629,20930,61832,37636,55440,125142,45241,883'40,394]41,67443,88144,89143,77845,22247,84948,82550,23249,02250,67552,40852,89451,36353,31354,23454,04255,59656,70258,33260,77063,863ManufacturingTotal10,70219,5628,170|6,9317,3978,5019,82710,7949,44010,27810,98513,19215,28017,60217,32815,52414,70315,54515,58214,44115,24116,39316,632117,54916,31416,88217,24317,17415,945|16,67516,79616,32616,85316,99517,27418,03219,0841Durablegoods4,7155,3636,9688,82311,08410,8569,0747,7428,3858,3267,4898,09410; 1109,1299,5419,8349,8568,8309,3739,4599,0709,4809,616!9,81610,38611,190Nondurablegoods5,5645,6226,2256,4586,5186,4726,4506,9627,1597,2566,9537,1477,3047,2847,4387,1857,3407,4097,3197,1167,3037,3367,2567,3737,3807,4587,6457,895Miningl,087|'8737317448838979461,015891854925957992925892862955994901866791792]822828|751,732|712672650635634632628ContractconstructionTransportationandpublicutilities1,4971,3721,2149708098629121,1451,1121,0551,1501,2941,7902,1701,5671,0941,1321,6611,9822,1692,1652,3332,6032,6342,6122,8022,9992,9232,7782,9602,8852,8162,9022,9633,0503,1813,281Whole-1saleandretailtrade3,91613,6853,2542,8162,6722,7502,7862,9733,1342,8632,9363,0383,2743,4603,6473,8293,9064,0614,16614,1894,0014,0344,2264,2484,2904,0844,1414,2444,2413,9764, Oil'4,0043,9033,9063,9033,9514,0334,136Finance,insurance,andrealestate6,1235,7975,2844,683|4,755[5,2815,4315,8096,2656,1796,4266,7507,2107,1186,9827,0587,3148,3768,9559,2729,2649,74210,00410,24710,23510,53510,85810,88610,75011,12711,39111,33711,56611,77812,16012,68313,2191,509,475,407,341,295,319,432,425,462,502,549,538,502,476,497,,697,754,829,857,919,9912,0692,1462,2342,3352,4292,4772,5192,5942,6692,7312,8002,8772,9573, 019!3,085Serviceandmiscellaneous3,4403,3763,1832,9312,8733,05813,1423,5183,4733,5173,6813,9214,0844,1484,163|4,2414,7195,0505,2065,2645,3825,5765,7305,8676,0026,2746,5366,7496,8067,1307,4237,6648,0288,3258,7099,581GovernmentFederal5335265605595656527538268338299059961,3402,2132,9052,9282,808|2,2541,9081,9282,3022,4202,3052,1882,1872,2092,2172,1912,2332,2702,2792,3402,3582,3482,3782,566Stateandlocal2,5322,6222,7042,6662,6012,6472,7282,8422,9233,0543,0903,2063,3203,2703,1743,1163,1373,3413,5823,7873,9484,0984,0874,1884,3404,5634,7275,0695', 6485,8506,3156,5506,8687,2497,713See footnotes at end of table.242

TABLE B-25.—Number of wage and salary workers in nonagricultural establishments,1929-661—Continued[Thousands of employees]Year ormonthTotalManufacturingTotalwageandsalaryworkersDurablegoodsNondurablegoodsMiningContractconstructionTransportationandpublicutilitiesWholesaleandretailtradeFinance,insurance,andrealestateGovernmentServiceandmiscellaneousFederalStateandlocalSeasonally adjusted1964: JanFebMarAprMayJuneJuly....AugSeptOctNov....Dec1965: JanFebMarMay"."." IJuneJuly....AugSeptOctNov....Dec1966: JanFebMarAprJuneMayJuly....AugSeptOctNov *..-Dec*...57,33657,67657,80057,94258,06158,21158,36958,52158,74758,64959,11859,38759,48959,77760,07260,15260,36360,62360,84161,02161,18061,43761,86462,24162,46962,81163,24763,35063,51763,98364,07264,19964,16864,46664,81865,06617,08517, 11117,15917,18317,19717,23117,26817,32517,45617,19817,51317,60017,66717,72117,80717,85017,88517,99018,06918,12918,15718,24218,39218,49218,56618,72218,84018,92319,00219,16719,12819,26219,20419,31219,42219,4659,6929,7009,7529,7649,7589,7769,8169,8579,9719,7049,97810,05210,09910,14210,20310,25010,27710,34810,41810,48310,50810,55010,64110,72510,80510,91111,00711,06511,12211,22011,21011,32411,32211,38711,43411,4717,3937,4117,4077,4197,4397,4557,4527,4687,4857,4947,5357,5487,5687,5797,6047,6007,6087,6427,6517,6467,6497,6927,7517,7677,7617,8117,8337,8587,8807,9477,9187,9387,8827,9257,9887,9946306316326336306386386336336366386386366366356336306306356316226276316336356346375956286326366366286256236272,8653,0543,0563,0303,0293,0493,0573,0553,0473,0733,1103,1473,1413,1773,2053,1183,1573,1693,1323,1623,1683,1863,2343,3343,3183,3233,4193,3333,2383,3003,2973,2513,2283,2023,2123,2823,9163,9243,9203,9413,9423,9363,9523,9603,9673,9703,9794,0083,9423,9844,0154,0134,0254,0334,0364,0504,0644,0714,0804,0834,0914,1054,1094,1144,1324,1434,1224,1054,1684,1654,1934,19411,95212,00612,00912,04712,08512,13612,19212,22912,24712,28612,30712,36412,42012,48512,53012,57912,62312,67012,71412,71712,76512,80912,88012,94113,00913,04513,08513,12813,16413, 21713,25613,26413,26813,34013,38013,3902,9242,9332,9432,9472,9522,9572,9642,9632,9712,9742,9802,9802,9852,9932,9993,0023,0113,0163,0213,0303,0363,0413,0453,0493,0523,0513,0643,0683,0763,0903,0953,1003,1003,1023.1093,1198,5348,5698,5918,6318,6758,7038,7428,7658,7958,8188,8328,8628,8898,9298,9769,0059,0429,0609,1239,1529,1809,2269,2829,3299,3639,4109,4639,4849,5159,5499,6099,6479,6499,7129,7809,8142,3422,3402,3392,3412,3412,3252,3222,3282,3252,3342,3522,3512,3422,3382,3422,3442,3472,3552,3742,3792,3782,3862,4002,3972,4232,4512,4772,5012,5232,5712,6012,6102,5942,6152,6212,6387,0887,1087,1517,1897,2107,2367,2347,2637,3067,3607,4077,4377,4677,5147,5637,6087,6437,7007,7377,7717,8107,8497,9207,9838,0128,0708,1538,2048,2398,3148,3288,3248,3298,3938,4788,5371 Includes all full- and part-time wage and salary workers in nonagricultural establishments who workedduring, or received pay for, any part of the pay period which includes the 12th of the month. Excludesproprietors, self-employed persons, domestic servants, and unpaid family workers. Not comparable withestimates of nonagricultural employment of the civilian labor force (Table B-20) which include proprietors,self-employed persons, domestic servants, and unpaid family workers; which count persons as employedwhen they are not at work because of industrial disputes, bad weather, etc.; and which are based on asample survey of households, whereas the estimates in this table are based on reports from employingestablishments.NOTE.—Data are based on the" 1957 Standard Industrial Classification and March 1965 benchmark data.Data for Alaska and Hawaii included beginning 1959.Source: Department of Labor, Bureau of Labor Statistics.243

1929..1930...1931..1932 _.1933..1934..1935..1936..1937. .1938. -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...1966P...TABLE B-26.—Average weekly hours of work in selected industries, 1929-66Year or month1965: JanFeb....Mar....AprMay...June—.July....Aug.—Sept—.OctNov....Dec1966: JanFeb....Mar....AprMay...June-July..-Aug...Sept...Oct....Nov.Dec *_.Total44.242.140.538.338.134.636.639.238.635.637.738.140.643.145.045.243.540.340.440.039.140.540.640.740.539.640.740.439.839.240.339.739.840.440.540.741.241.441.141.241.341.041.241.041.041.141.041.241.441.341.441.541.541.541.541.341.041.441.541.341.341.0ManufacturingDurablegoods32.534.733.837.240.939.934.937.939.242.045.046.546.544.040.440.540.439.441.141.541.541.240.141.341.040.339.540.740.140.340.941.141.442.042.142.142.042.241.842.041.941.941.841.742.142.242.242.442.442.342.342.242.041.842.142.342.242.041.9Nondurablegoods41.940.035.136.137.737.436.137.437.038.940.342.543.142.340.540.239.638.939.739.539.739.639.039.939.639.238.839.739.239.339.639.639.740.140.238.238.137.737.438.138.937.937.237.137.537.036.837.036.736.937.037.337.237.437.5Seasonally adjusted40.140.140.239.840.040.040.040.040.140.140.340.240.240.540.440.340.340.340.140.240.240.240.240.037.637.437.537.037.437.137.437.336.437.137.238.637.838.138.537.236.137.437.836.937.737.337.138.8Retailtrade43.443.242.841.840.941.040.941.341.040.941.041.140.940.539.839.739.639.138.738.738.738.538.137.937.8«37.036.635.936.836.836.836.936.836.636.736.636.536.436.336.336.236.136.035.935.936.036.136.135.835.735.735.6ContractconstructionWholesaletrade41.642.943.142.341.841.341.141.442.343.042.841.641.141.040.840.740.840.740.640.540.740.540.340.240.640.540.540.640.640.640.840.740.840.840.840.740.940.840.840.940.840.940.840.941.040.940.840.740.740.640.940.840.740.740.640.5Bituminouscoalmining38.133.328.127.029.326.826.228.527.723.326.827.830.732.436.343.042.041.340.337.732.334.734.933.834.132.337.337.536.333.335.835.835.9

Year or month19291930193119321933193419351936193719381939194019411942194319441945194619471948_1949195019511952195319541955 _ .195619571958 _1959196019611962_ _1963196419651966v _ _ ,1965: JanFebMarAprMayJuneJulyAugSept _ .OctNovDec1966: JanFebMarAprMayJuneJuly ._ .AugSeptOctNov vDec*TABLE B—27.—Average gross hourly earnings in selected industries, 7929-66Total$0,560546.509.441.437.526.544550.617.620.627.655.726.851.flS7L.011L.016L 075.2171.328L.3781.440L.561.651.74L. 781.861.952.052.112.192.262.322.392.462.532.612.712.582.592.592.602.612.612.612.592.632.642.652.662.672.672.682.702.702.712.712.702.742.752.762.77ManufacturingDurablegoods$0,492.467.550.571580.667.679.691.716.799.9371.0481.1051.0991.144L. 278L.395L.453L.519L.65L. 751.86.901.992.082.192.262.362.432.492.562.632.712.792.892.762.772.782.782.792.792.792.772.812.822.832.842.852.862.862.882.882.882.882.872.932.942.942.95Nondurablegoods$0,412.419.505.520519.566.572.571.590.627.709.787.844.886.9951.1451.2501.2951.3471.441.511.581.621.671.771.851.911.982.052.112.172.222.292.362.452.332.332.342.342.352.352.362.362.382.382.392.402.402.412.412.432.442.452.462.452.472.482.492.50$1.5411.7131.7921.8632.022.132.282.392.452.572.712.822.933.083.203.313.413.553.693.873.633.693.663.623.663.673.653.693.753.773.753.773.793.823.803.813.833.833.853.893.963.953.953.97Retailtrade$.484.494.518.559.606.653.699.797.901.9721.015.050.13.18'. L.251.29.3440.47L52L.57L.621L. 68L.74806 L.75L82191L79.79L79.80.82.82.82.82.84.86.86.85.88.88.88.89.90.91.91.90.93.941.951.93ContractconstructionWholesaletrade$0,610628.658.674.688.711.763.828.898.948.9901.1071.2201.3081.3601.4271.521.611.701.761.831.942.022.092.182.242.312.372.452.522.612.732.562.582.582.592.612.592.602.602.622.632.652.662.662.682.692.722.732.722.732.732.752.772.782.78Bituminouscoalmining$0.659662.626.503.485651.720768.828.849.858.854.9601.0301.1011.1471.1991.3571.5821.8351.8771.9442.142.222.402.402.472.722.922.933.113.143.125 3.125 3.155 3.308 3. 493.643.463.483.463.473.503.513.523.503.503.513.513.533.543.523.433.723.723.703.743.763.76Class Irailroads*$0.730.733.743.837.852.948.9551.0871.1861.3011.4271.5721.731.831.881.931.962.122.262.442.542.612.672.722.762.803.002.993.032.972.983.012.993.002.993.013.013.012.993.093.133.053.083.083.073.09Telephonecom-$0.774.816.822.827.820.843.870.9114 .9621.1241.1971.2481.3451.3981.491.591.681.761.821.861.952.052.182.262.372.482.562.622 702.782.672.672.672.682 692.692.672.682.732.732.752.782.762.782.772.772.772.782.772.762.792.802.81munica-tionsAgriculture3$0,241.226.172.129115.129.142152.172166.166.169.206.268.353.423.472515.547.580.559.561.625.661.672661.675.705728.757.798.818834.856.880.9049511 0301.0101 For coverage of series, see footnote 1, Table B-26. '2 Prior to April 1945, data relate to all employees except executives; for April 1945-May 1949, mainly to employeessubject to the Fair Labor Standards Act; and beginning June 1949, to nonsupervisory employees only.3 Weighted average of all farm wage rates on a per hour basis.4 Nine-month average, April through December, because of new series started in April 1945.5 Eleven-month average; excludes data for July.8 Beginning 1964, data include eating and drinking places. Comparable figure excluding eating anddrinking places is $1.87 for 1964; $1.96 for 1965; and $2.04 for 1966.NOTE.—See Note, Table B-25.Data are for production workers in manufacturing and mining, for construction workers in contract construction,and for all nonsupervisory employees in other industries (except as noted). Data are for payperiod which includes the 12th of the month.Data for Alaska and Hawaii included beginning 1959.Sources: Department of Labor, Bureau of Labor Statistics, and Department of Agriculture..860.929.9841.060.9451.0101.070245

TABLE B-28.—Average gross weekly earnings in selected industries, 1929-66Year or monthTotalManufacturingDurablegoodsNondurablegoodsRetailtradeContractconstructionWholesaletradeBituminouscoalminingClass Irailroads*19291S301931193219331934193519361937193819391940194119421943194419451946194719481949195019511952 __19531954195519561957195819591960196119621963196419651966 P1965: Jan.Feb.Mar_Apr.MayJuneJuly_Aug.Sept.O£t-Nov.Dec.1966: Jan.Feb.Mar.May.JuneJuly.Aug.Sept.Oct_NovD$24.7623.0020.6416.8916.6518.2019.9121.5623.8222.0723.6424.9629.4836.6843.0745.7044.2043.3249.1753.1258.3263.3467.1670.4770.4975.7078.7881.5982.7188.2689.7292.3496.5699.63102.97107. 53112.19105. 52106.19106. 71105.82107. 53107.79107.01106.45107.83109. 03109.71110.92110.00110. 27110.95111. 24112.05112. 74111.11111. 78113. 71113.85113.99114.68$26.8424.4220.9815.9916.2018.5921.2423.7226.6123.7026.1928.0733.5642.1748.7351.3848.3646.2251.7656.3657.2562.4368.4872.6376.6376.1982.1985.2888.2689.2796.0597.44100.35104.70108.09112.19117.18121.67115.37115. 79117. 04115.93117.46117. 74116. 34115.51117.18118.72119.43120.98119.99120.69120.69121. 54121.82121.82119.81120.54123.94124.07123. 48124.79$22.4721.4020.0917.2616.7617.7318.7719.5721.1720.6521.3621.8324.3928.5733.4536.3837.4840.3046.0349.5050.3853.4856.8859.9562.5763.1866.6370.0972.5274.1178.6180.3682.9285.9387.9190.9194.6498.4992.5092.7393.6092.2094.0094.4794.8795.1195.6895.6896.3296.9695.5296.8896.8896.9698.3399.2399.1499.2399.5499.94100.10100.50$58.8765.2767.5669.6876.9686.4188.9190.9096.38100.27103.78108.41113.04118.08122.47127.19132.06138. 01145.13131.77131.73134.32132.85140.18139. 46140. 89143. 54138.75144.39136.50139.87138.34139.05143.26140. 59141. 71146.69150.15149.38151.67152.08143.39147.68$21.0121.3422.1723.3724.7926.7728.5932.9236.9439.7541.6243.1646.2247.7949.7551.2153.0654.7456,8958.8260.7662.3764.0165.9568.044 64.7566.6168.5765.3465.3465.3466.0666.4366.9868.2568.0767.1667.3366.7767.7167.4967.3067.1267.4767.6469.1470.4870.1169.0968.8768.8469.29$26.7525.1925.4425.3826.9628.3628.5128.7629.3631.3634.2837.9940.7642.3746.0550.1453.6355.4958.0862.0265.5369.0271.2874.4878.5781.4184.0288.5190.7293.5696.2299.47102.31106. 49111. 11103.94104. 49105.01105.15106. 75105.93106. 60106. 34106.90107. 57108.12109.59108.53109.08109.48110.43111.11110.70112.20111.38111. 93112.74112.87113.42$25.1122.0417.5913.5814.2117.4518.8621.8922.9419.7822.9923.7429.4733.3739.9749.3250.3656.0463.7569.1860.6367.4674.6975.0481.8477.5292.13102.00106.0097.57111.34112.41112.01114.46121.43128.91140. 23147.45138.40138. 50137.36137.07141.40145. 67137.11144. 67137.90146.30131.98146.37144. 73144.79146.08112.85155.12156.98148.03152.44154.09159.80147. 02$31.9032.4734.0339.3441.4946.3646.3250.0055.0360.1162.3664.1470.9374.3076.3378.7482.1288.4094.24101.50106.43108.84112.94115.87118.40121.80130.80126. 78133. 62130. 09129.93129.43132.16131.10129.77131. 54128.23133. 04132. 76131.94139.91135.12132.75135.83137.54134.111 For coverage of series, see footnote 1, Table B-26.2 Prior to April 1945, data relate to all employees except executives; for April 1945-May 1949, mainly toemployees subject to the Fair Labor Standards Act; and beginning June 1949, to nonsupervisory employeesonly.3 Nine-month average, April through December, because of new series started in April 1945.4 Beginning 1964, data include eating and drinking places. Comparable figure excluding eating anddrinking places is $69.94 for 1964.NOTE.—See Note, Table B-25.Data are for production workers in manufacturing and mining, for construction workers in contract construction,and for nonsupervisory employees in other industries (except as noted). Data are for payperiod which includes the 12th of the month.Data for Alaska and Hawaii included beginning 1959.Source: Department of Labor, Bureau of Labor Statistics.246

TABLE B-29.—Average weekly hours and hourly earnings, gross and excluding overtime, inmanufacturing industries, 7939-66All manufacturing industriesDurable goods manufacturingindustriesNondurable goods manufacturingindustriesAverageweeklyhoursAverage hourlyearningsAverageweeklyhoursAveragehourlyearningsAverageweeklyhoursAveragehourlyearningsYear or monthExcluding)ver-;imeGrossExcludingovertimeExcludinginter-andovertimtryshiftindus-(1957-" 100)GrossExcludingGrossovertimeExcludingGrossovertimeExcludingGrossovertimeExcludingovertime193937.710.62732.237.9&0.69137.4$0.571194019411942194319441945194619471948194938.140.643.145.045.243.540.340.40.0.655.726.851.9571.0111.0161.0751.2171.3281.378$0,691.793.881.9332 .9491.0351.181.291.34133.4137.5140.8143.7145.5150.457.863.66.139.242.045.046.546.544.040.440. c40.439.4.716.799 0.762.872.9661.0191.0311.111.9371.0481.1051.1.1441.2781.1.4531.241.351.4237.038.940.342.543.142.340.540.239.638.9.590627 $0.613.709 684.787 748.844 798.886 2.841.995 .9621.145 1.111.250 1.211.295 1.26195019511952195319541955195619571958195940.540.640.740.539.640.40.439.839.40.337.637.537.237.6.440.56.65.74..78.86.952.052.112.191.391.511.591.681.731.791.891.992.052.1273.677.481.684.86.991.596.2100.2103.541.141.541.41.40.141,41.040.39.540.738.037.937.638.01.5191.651.751.861.901.992.082.192.262.361.461.591.681.791.841.912.012.122.212.2839.739.539.739.639.039.939.639.238.837.237.036.637.0.34;.44.515862677785911.311.401.461.531.581.621.721.801.621.92I960....1961....19621963196419651966 P.-39.840.440.540.741.24137.337.437.37.37.37.637.-2.262.322.392.462.532.612.712.202.252.312.372.442.502.59106.6109.6112.3115.21180121.0124.840.140.340.941.41.42.042.37.738.038.138.38.138.137.82.432.492.562.632.712.792.892.362.422.482.542.602.672.7539.339.639.639.40.140.236.736.836.936.936.836.936.82.052.112.172.222.292.362.452.052.092.152.212.272.351965: JanFebMarAprMayJune37J37.37.37.37.37.2.582.592.592.602.612.612.482.492.492.502.502.50119.120. C120.120.4120.120.841.41.42.41.42.42.38.238.138.338.238.238.22.762.772.782.782.792.792.652.652.662.662.662.6739.739.840.039.440.040.236.936.937.036.736.937.02.332.332.342.342.352.352.252.252.252.262.262.27July.Aug.Sept.Oct..Nov.Dec.37.37.37.37.37.37.2.612.592.632.642.652.662.512.492.512.522.532.54120.120.'121.'121..122.,122.41.41.41.42.42.42.38.037.937.737.937.938.22.792.772.812.822.832.842.672.652.682.682.692.7040.240.340.240.240.340.437.137.136.36.836.37.2.362.362.382.382.392.402.282.272.292.282.292.311966: Jan...Feb..Mar..May".'June.37.37.37.37.37.37.2.672.672.6S2.702.702.712.562.562.562.582.582.58123.123.123.124.124.124.42.42.42.42.42.42.38. 2.8538. C 2.8638.0 2.8637.9 2.8837.9 2.8837.9 2.882.722.722.722.742.742.7439.840.240.239.940.340.536.36.36.636.37.2.402.412.412.432.442.452.312.312.322.332.342.34JulyAugSeptOctNov*Dec*37.37.37.37.37.37.2.712.702.742.752.762.7'2.592.572.612.622.632.64124.124.125.126.126.41.42.42.42.42.42.37.537.737.37.37.38.2.882.872.932.942.942.952.742.732.782.792.802.8140.340.40.340.40.240.36.37.36.36.36.2.462.452.472.482.492.502.352.342.362.372.382.401 Annual average not available; April used.2 Eleven-month average; August 1945 excluded because of VJ Day holiday period.NOTE.—See Note, Table B-25.Data relate to production workers and are for pay period which includes the 12th of the month.See Table B-26 for seasonally adjusted average gross weekly hours.Data for Alaska and Hawaii included beginning 1959.Source: Department of Labor, Bureau of Labor Statistics.247

TABLE B-30.—Average weekly earnings, gross and spendable, in manufacturing industries,in current and 1957-59 prices, 1939-66Year or monthAverage gross weeklyearningsAverage spendable weekly earnings 'Worker with nodependentsWorker with threedependentsCurrentprices1957-59prices 2Currentprices1957-59prices 2Currentprices1957-59prices 219391940194119421943194419451946194719481949195019511952 . . .1953195419551956195719581959I960196119621963196419651966 P1965: Jan _ _FebMarApr __ _ .MayJune - - _ .$23.6424.9629.4836.6843.0745.7044.2043.3249.1753.1253.8858.3263.3467.1670.4770.4975.7078.7881.5982.7188.2689.7292.3496.5699.63102.97107. 53112.19105. 52106.19106.71105.82107. 53107. 79$48.8451.1557.4764.5871.4374.5570.4963.7163.2063.3964.9269.5969.9972.6175.6175.3181.1483.1983.2682.1486.9687.0288.6291.6193.3795.2597.8499.2096.9097.5197.9096.8298.1197.90$23.3724.4627.9631.8035.9537.9936.8237.3142.1046.5747.2150.2652.9755.0457.5958.4562.5164.9266.9367.8271.8972.5774.6077.8679.8284.4089.0891.4587.4788.0088.4287.7189.0889.29$48.2950.1254.5055.9959.6261.9758.7254.8754.1155.5756.8859.9858.5359.5061.7962.4567.0068.5568.3067.3570.8370.3971.5973.8774.8178.0881.0680.8680.3280.8181.1280.2581.2881.10$23.4024.7129.1936.3141.3343.7642.5942.7947.5852.3152.9556.3660.1862.9865.6065.6569.7972.2574.3175.2379.4080.1182.1885.5387.5892.1896.7899.3395.0995.6596.0995.3496.7896.99$48.3550 6456.9063 9368 5471.3967.9362 9361.1662 4263.8067.2666 5068.0970.3970.1474 8076.2975 8374.7178.2377.7078 8781.1582.0885.2788.0687.8287.3287.8388.1687.2388.3088.09July. . . _ .AugSeptOctNovDec107.01106.45107.83109.03109.71110.9297.1196.7797.8598.7699.2099.9388.6688.2189.3290.2890.8391.8080.4580.1981.0581.7882.1282.7096.3495.8797.0398.0498.6199.6287.4287.1588.0588.8089.1689.751966- JanFebMarAprMayJune. _ _ .110.00110. 27110.95111. 24112.05112.7499.1098.8199.0698.8899.5199.8689.7990.0090.5190.7391.3591.8780.8980.6580.8180.6581.1381.3797.5897.8098.3498.5799.2299.7787.9187.6387.8087.6288.1288.37JulyAugSeptOct .Nov* . .Dec p111.11111. 78113.71113.85113.99114.6898.0798.2299.6699.4399.4799.9890.6391.1492.6192.7292.8293.3579.9980.0981.1780.9880.9981.3998.4799.00100.54100.65100.76101.3186.9186.9988.1287.9087.9288.331 Average gross weekly earnings less social security and income taxes.2 Earnings in current prices divided by the consumer price index on a 1957-59 base.NOTE.—See Note, Table B-25.Data relate to production workers and are for pay period which includes the 12th of the month.Data for Alaska and Hawaii included beginning 1959.Source: Department of Labor, Bureau of Labor Statistics.248

TABLE B-31.—Indexes of output per man-hour and related data, private economy, 7947-66[1957-59=100]YearOutput per man-hourTotalprivateFarm NonfarmTotalprivateOutput iFarm NonfarmEstablishment basis 3Man-hours 2Totalprivate Farm Nonfarm1947...1948...1949-1950...1951-1952...1953...1954...1955...1956-.1957...1958...1959.-.I960...1961-1962...1963..1964..1965-1966 P.69.172.174.480.582.984.488.090.094.094.196.999.8103.4105.0108.5113.6117.6122.1125.5129.049.858.056.564.464.770.379.683.784.488.093.3103.0104.8110.7119.4122.2133.1133.7148.8155.874.376.679.684.686.487.189.791.695.795.297.299.7103.1104.4107.3112.2115.6119.9122.4125.367.670.870.677.982.884.889.187.995.497.298.697.3104.1106.6108.6116.0120.8127.5135.3142.582.191.888.993.788.991.896.698.6101.0100.598.1100.5101.9105.8107.2106.8110.1106.3115.0109.266.869.869.777.082.584.588.887.495.197.198.697.2104.2106.7108.7116.5121.4128.6136.4144.397.898.294.996.899.9100.5101.397.7101.5103.3101.897.5100.7101.5100.1102.1102.7104.4107.8110.5164.8158.4157.3145.6137.5130.6121.4117.8119.6114.2105.197.697.295.689.887.482.779.577.370.189.991.187.691.095.597.099.095.499.4102.0101.497.5101.1102.2101.3103.8105.0107.3111.4115.2Labor force basis 41947.1948.194919501951.19521953195467.970.271.978.582.184.588.490.849.858.056.164.164.369.979.183.372.974.576.882.485.787.590.492.867.670.870.677.982.884.889.187.982.191.888.993.788.991.896.698.666.869.869.777.082.584.588.887.499.6100.898.299.2100.9100.4100.896.8164.8158.2158.6146.2138.3131.3122.1118.391.693.790.896.396.698.294.219551956.1957-1958-1959-1960-1961-1962-1963-1964-196594.794.697.299.4103.4104.5107.3113.0116.7120.7124.2128.484.087.593.3103.1104.7110.7119.9122.3133.5134.0149.0155.696.795.997.799.2103.1103.8105.9111.4114.4118.2120.9124.395.497.298.697.3104.1106.6108.6116.0120.8127.5135.3142.5101.0100.598.1100.5101.9105.8107.2106.8110.1106.3115.0109.295.197.198.697.2104.2106.7108.7116.5121.4128.6136.4144.3100.7102.7101.497.9100.7102.0101.2102.7103.5105.6108.9111.0120.3114.9105.297.597.395.689.487.382.579.377.270.298.3101.2100.998.0101.1102.8102.6104.6106.1108.8112.8116.11 Output refers to gross national product in 1958 prices.2 Hours worked by all persons in private industry engaged in production, including man-hours of proprietorsand unpaid family workers.3 Man-hours estimates based primarily on establishment data.4 Man-hours estimates based primarily on labor force data.NOTE.—For information on sources, methodology, trends, and underlying factors influencing the measures,see Bureau of Labor Statistics, Department of Labor, Bulletin No. 1249, Trends in Output per Man-Hour in the Private Economy, 1909-58, December 1959.Data for Alaska and Hawaii included beginning 1960.Source: Department of Labor, Bureau of Labor Statistics.249

PRODUCTION AND BUSINESS ACTIVITYTABLE B—32.—Industrial production indexes, major industry divisions, 1929—66[1957-59 = 100]Year or month1929.19301931.1932.1933.1934.1935.1936.1937.19381939.1940.1941.1942.1943.1944.19451946.19471948.1949.19501951.1952.19531954.1955195619571958195919601961196219631964196519661965: Jan.Feb.MarApr.MayJuneJuly.Aug.Sept.Oct.NovDec_1966: Jan.Feb.MarAprMayJuneJuly.Aug.SeptOct.Nov.DecTotalindustrialproduction38.432.026.520.724.426.630.736.339.731.438.343.956.469.382.981.770.559.565.768.464.774.981.384.391.385.896.699.9100.793.7105.6108.7109.7118.3124.3132.3143.4156.3ManufacturingTotal138.8139.6140.9141.0141.8143.1144.3144.9144.1145.5146.7149.0150.6152. 4153.7153.9155.3156.5157.2158.0157.7158.8158.6158.738.631.725.919.923.726.030.636.439.730.537.958.373.188.786.373.060.066.468.965.175.881.985.292.786.397.3100.2100.893.2106.0108.9109.6118.7124.9133.1145.0158.7DurableNondurable140.3141.3142.5142.5143.3144.6146.0146.4145.8147.0148.6151.0152.9154.7155.9156.6157.6158.9159.4160.1160.0161.4161.0161.038.228.419.511.915.518.824.131.235.222.631.440.057.779.9102.9100.978.254.764.367.060.974.183.588.599.988.4101.9104.0104.090.3105.6108.5107.0117.9124.5133.5148.4165.138.334.832.828.932.833.837.441.644.139.144.947.357.663.770.768.265.664.867.269.568.376.078.580.083.683.691.695.496.796.8106.5109.5112.9119.8125.3132.6140.8150.6Seasonally adjusted142.1143.5145.1145.6147.0148.4150.4150.5149.2150.8151.8155.2158.1160.7161.9162.9164.2165.4166.1167.1167.3169.1167.6167.3Mining54.2.47.040.333.638.540.343.750.356.749.053.860.164.867.069.074.273.072.279.984.074.583.291.390.592.990.299.2104.8104.695.699.7101.6102.6105.0107.9111.5114.8120.2Utilities138.1138.6139.3138.6138.7139.9140.4141.4141.5142.3144.5145.7146.4147.3148.5148.7149.4150.7151.3151.3150.9151.7152.8153.2112.9112.2112.8113.1114.2115.2115.9116.7112.5116.4116.4118.3117.3117.7120.0115.6120.7122.0122.0122.1121.0121.4120.8122.8Source: Board of Governors of the Federal Reserve System.250

TABLE B-33.—Industrial production indexes, market groupings, 1947-66[1957-59=100]Year or monthTotalindustrialproductionFinal productsTotalConsumer goods *TotalAutomotiveproductsHomegoodsEquipmentTotal,includingdefenseBusinessMaterialsTotalDurablegoodsNondurablegoods194719481949195019511952195319541955195619571958195919601961196219631964196519661965: Jan..Feb..Mar-Apr..May.June.July.Aug.Sept.Oct..Nov.Dec.1966: Jan...Feb..Mar..Apr..May.June-July..Aug..Sept..Oct...Nov..Dec65.768.464.774.981.384.391.385.896.699.9100.793.7105.6108.7109.7118.3124.3132.3143.4156.364.266.664.572.878.684.389.985.793.998.199.494.8105.7109.9111.2119.7124.9131.8142.5155.467.169.268.878.677.879.585.084.393.395.597.096.4106.6111.0112.6119.7125.2131.7140.3147.469,472.672.090.680.172.191.385.0118.397.8105.286.7108.1123.2111.8131.1141.2145.1167.2163.268.871.766.391.478.778.890.286.097.3100.996.692.8110.7110.8112.2122.2129.6141.1154.8168.855.458.352.056.478.494.1100.595.0103.7104.691.3104.1107.6108.3119.6124.2132.0147.0172.769.972.663.568.083.194.196.685.191.9104.7105.389.8104.9110.2110.1122.1128.3139.1156. 7181.267.070.264.876.983.884.392.685.999.0101.6101.992.7105.4107.6108.4117.0123.7132.8144.2157.168.271.064.279.587.888.9100.788.4104.7105.3104.890.0105.1106.6104.8114.1121.2131.2144.3157.4Seasonally adjusted138.8139.6140.9141.0141.8143.1144.3144.9144.1145.5146.7149.0150.6152.4153.7153.9155.3156.5157.2158.0157.7158.8158.6158.7138.3138.8140.2139.5140.2141.3142.1143.0143.7145.7148.0148.9150.3152.1152.5152.9153.7154.9155.3156.4156.3158.4158.4159.0138.2138.4140.0138.5138.6139.5139.8140.5141.3141.9143.7144.2144.6146.1146.2146.4146.2147.1146.5147.1146.5148.9148.4148.7165.4164.2171.5166.6167.3167.5167.1166.7165.2168.0168.5169.1168.1167.9170.0168.4160.7162.3154.5146.4150.7168.5163.3164149.7151.2153.0151.0152.6152.3153.3151.4155.3158.8159.7165.8166.8165.7164.1168.4169.9168.3168.0168.9166.0170.1168.9138.5139.7140.7141.6143.8145.2147.6148.5149.0153.9157.3159.0162.6164.8166.2166.9169.8171.4174.4176.4177.4179.0180.1181.2148.0149.5150.4151.2153.5154.9157.1158.0159.0163.8167.2169.1171.9174.0175.4175.9178.3180.0182.7184.4185.7187.4187.9189139.4140.2141.4142.5143.5145.2146.4146.5144.9145.3146.1148.8150.9152.6154.4154.5157.1158.0158.8159.6159.2159.6158.8158.4138.5139.9142.6142.8144.8146.5148.5147.3144.3144.3143.6147.3149.9152.6155.6156.7157.7159.3159.1160.1159.8159.7158.715664.968.264.273.378.879.084.183.393.097.798.995.4105.7108.7112.2120.0126.3134.4144.1156.8139.7139.9139.6141.5142.1143.8144.7145.6145.4147.1148.6150.4151.0152.1153.1152.3156.5158.0158.6159.1158.6159.6159.51611 Also includes apparel and consumer staples, not shown separately.Source: Board of Governors of the Federal Reserve System.251

TABLE B-34.—Industrial production indexes, selected manufactures, 1947-66[1957-59=100]Year ormonth1947..1948-.1949..1950..1951..1952..1953.1954.1955.1956-1957.1958.1959.1960.1961.1962.1963-1964.1965-._1966 P..1965: Jan....Feb.-Mar..Apr...May-June...July..Aug__Sept-.Oct.._Nov--Dec-_1966: Jan...Feb...Mar..May IIJune..July..Aug__Sept.-Oct...Nov_.Dec v_Durable manufacturesPrimarymetals90.794.379.4108.799.3112.591.3118.4116.4112.287.5100.4101.398.9104.6113.3129.1137.6142.8Fabricatedmetalproducts75.977.285.491.289.0100.390.298.398.8101.592.9105.5107.6106.5117.1123.4132.7147.8163.0Maihinery65.366.559.072.783.092.1100.587.796.5107.1104.288.8107.1110.8110.4123.5129.2141.4160.5183.9Transportationequipment42.946.947.156.462.973.191.783.8102.097.4106.489.5104.0108.2103.6118.3127.0130.7149.2168.1Instrumentsand relatedproducts53.755.249.257.365.778.185.382.988.795.498.092.1109.9116.5115.8123.0130.2136.4151.4176.3Clay,glass,andlumberFurnitureandmiscellaneous75.879.772.387.792.089.392.7100.7102.097.594.1108.5105.7104.5109.3114.4121.1127.6133.0Textile,apparel,andleatherproducts73.577.471.683.780.282.489.786.897.9101.097.693.3109.0113.3114.1124.5129.1138.4151.8165.1Nondurable manufacturesPaperandprintingSeasonally adjusted139.6139.5140.4142.5142.9144.5149.6146.6132.6125. 0120.6126.5131.9138.3141.8142.4146.5148.0148.6148.7146.4144.6139.4137140.3145.0144.8147.1145.7146.0148.0147.5146.7150.9153.6156.3157.7161.6161.7161.4162.9161.8162.1161.4163.0164.2164.5167151.6153.6155.4155.5157.2159.1161.0161.6164.3166.4168.3171.0174.5176.4176.1178.6180.6182.8186.6189.6188.8191.1189.8189141.2141.0144.6144.7147.5148.9149.6151.2149.8154.9157.2160.4163.0164.1166.1165.9165.8167.1166.0166.0168.3174.8172.6172143.4143.8145.4146.9147.0149.8152.1152.6155.7158.0159.0162.2166.8169.4171.9174.6176.4176.5177.0177.4179.5181.8181.3183123.2124.8125.9124.1126.1126.8127.7127.8128.4130.1130.3135.0136.2136.4138.0137.8133.3134.4131.7129.8129.8128.1126.7126145.2147.6148.4149.1150.1150.3150.5151.9152.7155.1157.8160.9158.4161.6162.9163.5166.7167.0163.5167.1165.9165.3166.216781.084.580.689.187.489.590.786.995.598.096.995.0108.1107.5108.4115.1118.5125.2135.8141.466.769.469.376.779.477.782.685.092.597.197.897.0105.2109.0112.4116.7120.1127.5135.3146.5Chemical,petroleum,andrubberproducts133.1133.8134.4134.2134.9135.4134.6134.7136.5137.3138.7140.2138.6139.8141.1142.6142.0143.4141.6140.1140.2141.0141.114147.550.849.460.767.469.975.274.791.495.695.5108.9113.9118.9131.2141.8152.5164.6181.7Foods,beverages,andtobacco80.780.080.883.685.487.388.289.893.196.696.799.4103.9106.6110.2113.3116.8120.8123.4127.6132.1132.0133.0133.3134.2134.8135.9136.9136.0136.4139.2140.6142.1142.7144.2143.5146.6148.3149.6148.6147.2147.9148.3149159.1160.9162.0160.3160.9163.2164.6166.4166.3167.9170.6172.8174.6175.1176.6177.3179.3180.1182.0182.4182.8185.5187.1188124.1123.5123.7123.0121.6122.5122.7123.1123.4123.3125.1124.8125.7126.8127.4126.9125.5126.8127.2128.5127.9126.7128.6128Source: Board of Governors of the Federal Reserve System.252

TABLE B-35.—Manufacturing capacity, output, and utilization rate, 1948—6619481949PeriodCapacity i7983Output(1957-59=100)6965Utilizationrate(percent) 2 87791950195119521953195485899499104768285938689939094831955195619571958195910911412112613097100101931069088847482I9601961196219631964135139144149155109110119125133817982848619651966 P..1631741451598991Seasonally adjusted1961' I II IIIIV138139140141103108112115757880821962- I II IIIrv1963: I IIIIIrv1964: I II IIIIV1421431451461471491501511531541561571171191201201211251261271291331351368283838282848484858687871965: IIIIIIIV159162165167141144146149898989891966: IIIIIIIV p170173176179155158160161919191901 For description and source of data see "A Revised Index of Manufacturing Capacity," Federal ReserveBulletin, November 1966, pp. 1605-1615, Frank de Leeuw, Frank E. Hopkins, and Michael D. Sherman.See also McGraw-Hill surveys on "Business Plans for New Plants and Equipment" for data on capacityand operating rates.2 Output as percent of capacity; based on unrounded data.Source: Board of Governors of the Federal Reserve System (output) and sources in footnote 1 (capacityand utilization rate).240-782 0—67-253

TABLE B-36.—New construction activity, 1929-66[Value put in place, millions of dollars]Private constructionPublic constructionYear or monthTotalnewconstructionTotalResidentialbuilding(nonfarm)Total iNewhousingunitsNonresidential building andother constructionTotalOther 3TotalCommercialsIndustrialFederalStateandfunds*localfunds192910,7938,3073,6253,0404,6821,1359492,5982,4862352,251193019311932193319341935193619371938 .19398,7416,4273,5382,8793,7204,2326,4976,9996,9808,1985,8833,7681,6761,2311,5091,9992,9813,9033,5604,3892,0751,5656304706251,0101,5651,8751,9902,6801,5701,3204852903807101,2101,4751,6202,2703,8082,2031,0467618849891,4162,0281,5701,709454223130173211290387285292532221741761911582664922322542,3831,5287494555206208601,1491,0531,1632,8582,6591,8621,6482,2112,2333,5163,0963,4203,8093135064448021,3471,3812,3631,8932,0372,1362,5452,1531,4188468648521,1531,2031,3831,673194019411942194319441945194611,95714,0758,3015,2595,80912,6275,0546,2063,4151,9792,1863,41110,3962,9853,5101,7158858151,2764, 7522,5603,0401,4407105707203,3002,0692,6961,7001,0941,3712,1355,64434840915533562031,1534428013461562086421,2791,4861,1999051,1071,2902,8023,6285,75110,6606,3223,0732,3982,2312,1284,4489,7885,8772,6311,8361,1091,5001,3038724454425621,122New series 8194619471948194919501951195219531954195519561957195819591960196119621963New series 619621963196419651966 »14,30820,04126, 07826, 72233, 57535,43539,13641,38046, 51947, 60149,13950,15355,30553,94155,44759, 57662, 75559,66762,96866, 22171,93074,60312,07716,72221,37420,45326,70926,18026,04927, 89429,66834,80434,86935,08034,69639,23538,07838,29941,70743,85941,79843,64245,91449,99950,6286,2479,85013,12812,42818,12615,88115,80316, 59418,18721,87720,17819,00619, 78924, 25121,70621,68024,29225,84324,29225,84326,50726, 68924,6164,7957,76510,50610,04315, 55113, 20712,85113,41114,93118,24216,14314,73615,44519,23316,41016,18918,63820,06418,63820,06420,61220,76518,7565,8306,8728,2468,0258,58310,29910,24611,30011,48112,92714, 69116,07414,90714,98416,37216,61917, 41518, 01617,50617,79919, 40723, 31026,0121,1539571,3971,1821,4151,4981,1371,7912,2123,2183,6313,5643,5893,9304,1804,6744,9555,2005,1444,9955,4066,7041,6891,7021,3979721,0622,1172,3202,2292,0302,3993,0843, 5572,3822,1062,8512,7802,9492,9622,8422,9063,5725,08613,6902,9884,2135,4525,8716,1066,6846,7897,2807,2397,3107,9768,9539,3419,1659,5119,8549,5209,89810, 42911, 52012,3222,2313,3194,7046,2699,25510, 77911,24211, 71211,71512, 73214,05915,45716,07015,86317,14817,86918,89617,86919, 32620, 30721,93123,9751,1091,2491,5941,9492,0783,4454,7354,8394,1033,5083,5834,2435,4936,4355,8896,3056,4697,1207,1207,3117,0681,1222,0703,1104,3204,7885,8106,0446,4037,6098,2079,1499,8169,9649,6359,97410,84311, 40G11, 77611, 40012,20612,99614,863See footnotes at end of table.254

TABLE B-36.—New construction activity, 7929-66-—Continued[Value put in place, millions of dollars]Private constructionPublic constructionYear or monthTotalResidentialbuilding(nonfarm>Total iTotalnewconstructionNewhousingunitsNonresidential building andother constructionTotalOther 3TotalCommercialIndustrialFederalfunds 4StateandlocalfundsSeasonally adjusted annual rates1965: Jan..Feb..Mar.Apr..May.June.July.Aug.Sept.Oct..Nov.Dec.1966: Jan..Feb.Mar.Apr.MayJune.July.Aug.Sept.Oct..Nov.Dec i68,82370,36171,17071,41171,97371,75670,35870,86372,83072,68774,03976, 44377,62278,92079,49978,57876,13575,89473,82773,50973,62770,30971,09470,37347,69748,92749,41449,71750,13250,31749,12249,22250,16750,08451,20953, 44553,28554,29055,06654, 34752,28452,10850,06149,66849,72546,75447,09146,56226,67626,71326,60226,67527, 07027,22426,98326,62126, 41326, 34326,24326, 68427,46027,46327, 27927, 43727, 02326,15625,11523,92723,10022,01220,77720,32020,84520,86620,73520,76221, 07721, 20320,99020,65720, 49120,41620,34020,78021,57421,55421,40021,57821,14620,24921, 02122,21422,81223,04223,06223, 09322,13922,60123,75423,74124,96626,76125,82526,82727,78726,91025,26125,95219,193 24,94618, 037 25.74117, 293 26,62516,220 24.74214,971 26,31414,536 26,2426,4156,5996,6006,7096,0916,199'5,8826,2396,9777,0567,7068,0177,8467,2947,6727,0976,1266,3436,2806,4827,0546,6087,0283,7124,4784,9694,7755,4165,4264,9074,9735,3215,0685,2916,2505,9876,6297,0737,1756,8567,5487,1637,1646,9136,2236,69810,894 21,12611,137 21,43411,243 21,75611,558 21,69411,555 21,84111,468 21,43911,350 21,23611,389 21,64111,456 22,66311,617 22,60311,969 22,83012, 494 22,99811,992 24,33712,904 24,63013,042 24,43312,638 24,23112,279 23,85112,061 23,78611,503 23,76612, 095 23,84112,658 23,90211,911 23,55512,588 24,00312,516 23,81112 Total includes additions and alterations and nonhousekeeping units not shown separately.Office buildings, warehouses, stores, restaurants, and garages.4 3 Farm, institutional, public utilities, and all other private.Includes Federal grants-in-aid for State and locally owned projects.5 New series in 1946 reflects differences due to the new higher level series of housing starts and farm constructionexpenditures and the reduced level value in place series for public utilities. See ConstructionReport 6 CSO-61 {Supplement) for a description of the differences.New series differs from old in that it reflects differences in 1962 due to the introduction of new series forprivate nonresidential buildings and differences in 1963 due to the introduction of new series for State andlocally owned public construction. See Construction Report C30-65S for a description of the differences.NOTE.—Data for Alaska and Hawaii included beginning 1959.Source: Department of Commerce, Bureau of the Census.255

TABLE B-37.—New housing starts and applications for financing, 1929—66[Thousands of units]Year ormonth192919301931193219331934193519361937 . -.193819391940 —1941194219431944New series1945.1946194719481949195019511952195319541955195619571958...19591960196119621963196419651966 »Housing startsPrivate andpublicTotal(farmandnonfarm)1,553.51,296.01,365.01,492.41,641.01,590.71,542.71,252.3Nonfarm509.0330.0254.0134.093.0126.0221.0319.0336.0406.0515.0602.6706.1356.0191.0141.8326.11,023.21,268.51,362.11,466.11,951.91,491.01,503.91,437.61,550.51,646.01,349.11,223.91,382.01,531.31,274.01,336.81,468. 71,613.41,563.71,520.41,229.0PrivateTotal(includingfarm)1,516.81,252.11,313.01,462.71,609.21,557.41,505.01,220.5NonfarmTotal i509.0330.0254.0134.093.0126.0215.7304.2332.4399.3458.4529.6619.5301.2183.7138.7324.91,015.21,265.11,344.01,429.81,908.11,419.81,445.41,402.11,531.81,626.61,324.91,174.81,314.21,494.61,230.11,284.81,439.01,581.71,530.41,482.71,197.2Onefamily316.0227.0187.0118.076.0109.0182.2238.5265.8316.4373.0447.6533.2252.3136.3114.61,212.1972.7946.2967.8993.2944.5940.0772.9Twoormorefamilies193.0103.067.016.017.017.033.565.766.682.985.482.086.348.947.424.1~~282~5257.4338.6471.2588.5585.9542.7424.3PrivateTotal(includingfarm)1,516.81,252.11,313.01,462.71,609.21,557.41,505.01,220.5NonfarmTotal509.0330.0254.0134.093.0126.0215.7304.2332.4399.3458.4529.6619.5301.2183.7138.7324.91,015.21,265.11,344.01,429.81,908.11,419.81,445.41,402.11,531.81,626.61,324.91,174.81,314.21,494.61,230.11,284.81,439.01,581.71,530.41,482.71,197.2GovernmenthomeprogramsFHA13.248.857.0106.8144.7176.6217.1160.2126.183.638.967.1178.3216.4252.6328.2186.9229.1216.5250.9268.7183.4150.1270.3307.0225.7198.8197.3166.2154.0159.9129.1VA::::::9L8160.371.190.8191.2148.6141.3156.5307.0392.9270.7128.3102.1109.374.683.377.871.059.252.540.5Newprivatehousingunitsauthorized2-------1,208.3998.01,064.21,186.61,334.71,285.81,240.6966.4Proposedhome construction3ApplicationsforFHAcommitments

TABLE B-37.—New housing starts and applications for financing, 1929-66—Continued[Thousands of units]Year ormonthPrivate andpublicTotal(farmandnonfarm)NonfarmTotal(includingfarm)Total iHousing startsPrivateNonfarmOnefamilyTwoormorelies"Total(includingfarm)PrivateTotalNonfarmGovernmenthomeprogramsFHAVANewprivatehousingunitsauthorized2Proposedhome construction3plicationsforFHAcommentsRequestsforVAappraisalsSeasonally adjusted annual rates1965: Jan..Feb..Mar..Apr..May-June .July..Aug..SeptOct.VNov.-Dec.1966: Jan__Feb..Mar..Apr..May.June.July..Aug-SeptOct..Nov*.Dec*.85.687.9124.9154.9162.1162.3143.9138.0125.9135.7118.3103.287.381.0130.9149.2139.3130.7104.8107.395.282.877.166.584.287.1123.0152.8159.8159.7141.6136.2124.3133.0117.1101.686.379.5128.7146.9136.1128.3103.1105.293.080.675.865.381.485.4120.7152.2157.5155.5141.3134.7124.3133.6116.1102.384.678.2126.3147.1135.4127.5104.0105.492.480.274.864.480.184.7118.8150.1155.2152.8139.0132.8122.7130.9114.9100.883.776.7124.1144.8132.2125.1102.3103.390.278.173.563.250.450.774.897.799.997.091.886.578.484.470.258.347.245.378.793.084.881.469.769.160.153.049.241.629.734.044.052.455.355.847.246.344.346.544.742.536.531.445.451.847.443.732.634.230.125.124.321.61,442L,4821,489: L,5521,516L,566] L,47331,427] L,4471,4091,453 1,4361,411 1,3801,547 1,5311,769 1,7351,6111,3741,5691,5021,3181,2851,0881,1071,0758481,0071,1021,4171,4681,465L,532L,5011,5391,5851,3491,5381,4811,2871,2611,0681,0841,0508269881,07916816416314615515415114816016717318918117718715112812111711396941071056761565054545248474954485340453738444235373840421,2731,2261,2451,2041,2431,2451,2341,2281,1801,2441,2801,2921,2551,1971,2681,1851,098954921844733714715772196194175187180154165186189192222219214179160168133127124119151122135203107116106100113100959597941001058972921119890991041021191031041 Military housing starts, including those financed with mortgages insured by FHA under Section 803of the National Housing Act, are included in publicly financed starts but excluded from total private startsand from FHA starts.2 Data beginning 1963 cover approximately 12,000 permit-issuing places. Data for 1959-62 are based onreports from approximately 10,000 places. In 1963, the additional 2,000 permit-issuing places accountedfor almost 50,000 new privately owned housing unit authorizations.3 Units in mortgage applications or appraisal requests for new home construction.* FHA program approved in June 1934; all 1934 activity included in 1935.5 Monthly estimates for September 1945-May 1950 were prepared by Housing and Home Finance Agency.NOTE.—Census series beginning 1945 include Alaska and Hawaii. FHA and VA series include Alaska,Hawaii, and Puerto Rico for all periods.Sources: Department of Commerce (Bureau of the Census), Department of Housing and Urban Development, Federal Housing Administration (FHA), and Veterans Administration (VA), except as noted257

TABLE B-38.—Business expenditures for new plant and equipment, 1939 and 1945-67[Billions of dollars]Year or quarterTotal iTotalManufacturingDurablegoodsNondurablegoodsMiningTransportationRailroadOtherPublicutilitiesCommercialandother 21939 _ _19451946 _ __194719481949 - -195019511952 - -19531954195519561957 _1958.1959 - -- .1960196119621963196419651966 35.518.6914.8520.6122.0619.2820.6025.6426.4928.3226.8328.7035.0836.9630.5332.5435.6834.3737.3139.2244.9051.9660.561.943.986.798.709.137.157.4910.8511.6311.9111.0411.4414.9515.9611.4312.0714.4813.6814.6815.6918.5822.4527.010.761.593.113.413.482.593.145.175.615.655.095.447.628.025.475.777.186.277.037.859.4311.4014.041.192.393.685.305.654.564.365.686.026.265.956.007.337.945.966.297.307.407.657.849.1611.0512.970.33.38.43.69.88.79.71.93.98.99.98.961.241.24.94.99.99.981.081.041.191.301.470.28.55.58.891.321.351.111.471.401.31.85.921.231.40.75.921.03.67.851.101.411.731.940.36.57.921.301.28.891.211.491.501.561.511.601.711.771.502.021.941.852.071.922.382.813.480.52.50.791.542.543.123.313.663.894.554.224.314.906.206.095.675.685.525.485.656.226.948.312 082 705 337 496 905.986.787 247 098.008.239.4711.0510.409.8110.8811.5711.6813.1513.8215.1316.7318.36Seasonally adjusted annual rates1964: IIIIIIIV1965: IIIIIIIV .1966: IIIIIIIV 31967: I 3113_ _42.5543.5045.6547.7549.0050.3552.7555.3558.0060.1061.2562.6063.4564.0517.4017.8018.8520.1520.7521.5523.0024.1525.6026.8027.5527.8027.8528.458.859.009.6010.1510.4010.8011.7512.4513.1513.8514.3514.6514.7015.108.558.809.2010.0010.4010.7011.2511.7012.4512.9513.2013.1513.1513.351.15151.203025.30L.351.40L.551.451,451.501.40L 25.5055,75L.5570951.752.001.852.152.002.302.252.402.602.552.703.003.003.303.503.403.703.6535.605.956.306.306.356.806.856.757.308.258.308.558.159.3014.3514.7515.4015.8015.8516.4017.0017.5517.7017.9518.4519.2519.151 Excludes agriculture.2 Commercial and other includes trade, service, finance,communications, and construction.3 Estimates based on anticipated capital expenditures reported by business in late October and November1966. The quarterly anticipations include adjustments, when necessary, for systematic tendencies inanticipatory data.NOTE.—Annual total is the sum of unadjusted expenditures; it does not necessarily coincide with theaverage of seasonally adjusted figures.These figures do not agree precisely with plant and equipment expenditures included in the grossnational product estimates of the Department of Commerce. The main difference lies in the inclusionin the gross national product of investment by farmers, professionals, institutions, and real estate firms,and of certain outlays charged to current account.These series are not available for years prior to 1939 and for 1940 to 1944.Sources: Department of Commerce (Office of Business Economics) and Securities and ExchangeCommission.258

TABLE B-39.—Sales and inventories in manufacturing and trade, 1947-66[Amounts in millions of dollars]Year or monthTotal manufacturingand tradeInventories2Ratio 3 Sales iManufacturingInventories2 Ratio 3MerchantwholesalersSales i Inventories2Ratio 3 Sales iRetail tradeInventories2Ratio s1947..1948..1949..1950..1951..1952..1953..1954..1955..1956..1957..1958-1959..35,26033,78838,59643,35644,84047,98746,44351,69454,06355,87954,23359,66152,50749,49759,82270,24272,37776,12273,17579,51687,30489,05286,92291,8911.421.531.361.551.581.1.601.471.551.591.601.5015,51317,31616,12618,63421,71422,52924,84323,35526,48027,74028,73627,28030,21925,89728,54326,32131,07839,30641,13643,94841,61245,06950,64251,87150,07052,7071.581.571.751.481.661.781.761.811.621.731.801.841.706,8086,5147,18,5978,7829,0529,89310,51310,47510,25711,4917,9577,7069,2849,88610,21010,63711,67813,26012,73012,73913,8791.131.191.071.161.121.171.181.131.191.231.241.1510,20011,13511,14912,26813,04613,52914,09114,09515,32115,81116,66716,69617,95114,24116,00715,47019,46021,05021,03121,48820,92622,76923,40224,45124,11325,3051.26.39.41.64.52.53.51.43.47.44.43.40I960..1961-1962-1963-1964..1965—1966

TABLE B-40.—Manufacturers' shipments and inventories, 1947—66[Millions of dollars]Year or month1947..1948-1949..1950..1951..1952-1953-1954..1955..1956..1957-1958..1959..1960-1961..1962..1963-1964-1965 -1966 3Shipments xInventories 2Durable goods industries Nondurable goods industriesDurabldurableMate-Mate-Non-Total goods goods Total rials Work Finishedindustrietriessup-process goods Total rials Work Fin-indus-Total and inand in ishedsuppliesprocess goodsplies15,51317,31616,12618,63421,71422,52924,84323,35526,48027,74028,73627,28030,21930,79630,88433,30834,77437,12940,27943,9007,5797,1918,84510,49311,31313,34911,82814,07114,71515,23713,57215,54415,81715,53217,18418,07119,23121,02022,9008,819 25,89713,0619738 9,28,543 28543 14,6628,935 26321 26,321 13,0609,789 31,078 V 15,53911,22139, 9,306 20,99111,216 41, 1,136 23,73111,494 43, 3,948 25,87811,527 41,612 23, 7105,069 26,40513; 025 50,642 30,44713,499 51,87131,72813,708 50,070 30,09514,979 53,814 32,36015,352 55,087 32,64616,124 57,753 34,32616,704 60,147 36,02817,898 62,944 38, "~19,258 68,015 42,32421, 000 76,900 49, 3008,9667,8949,19410,41710,6089,84710,58510,28610,23410,57110,87911,68812,94314,50010,7209,72110,75612,31712,83712,29412,95212,78013,22514,12914,85715,93318,10922, 00012,83613,88113,26115,53918,31517,4056,206 18,0706,040 17,9026,348 18,6647,565 20,1958,125 20,1437,749 19,9758,143 20,8689,190 21,4549,088 22,4419,593 23,42710,292 24,11910,791 24,53211, 27225,69112,800 27, 6008,3178,1678,5568,9718,7758,6719,0899,1139,5119,7709,7699,6199,96410,6002,4722,4402,5712,7212,8642,8002,9282,9353,1203,3043,4793,5223,8624,3007,4097,4157,6668,6228,6248,4988,8579,3539,70710,24610,87111,39111,86512,700Seasonally adjusted1965: JanFebMarAprMayJuneJuly.Aug..Sept_Oct..Nov-.Dec-.1966: JanFebMarAprMayJuneJulyAugSeptOctNov PDec*>_._38,885 20,41538,693 20,37440,285 21,28440,044 20,91539, 814 20, 51339,943 20,65241,45240,51840,17340, 54841,40342,62242,66542,70244,12143,54044,07144,12544,32744,20644,09144, 48744, 50321,82021,19120,92421,14621,60622,31622,30722,43323,23822,70822,91522,89823,03122,87422,97123, 45123, 34923,81318,470 63, 213 38,495 11,80218,319 63,382 38; 1,692 11,87619,001 63,708 38,972 12,06819,129 63,999) 39,233 12,40619,301 64,269 I 39,475 12,51219,291 64, t; 625 39,951 12,53719,632 65,394 40,60019,327 65,788 40,81419,249 66, 267 41,30019, 402 66, 642 41,52319,797 67,192 41,86920,306 68, 015 42, 32420,358 88,594 42, 58920,269 69,040 42,88420,883 69,648 43,27320,832 70,346 43,77921,156 71,103 44,27521,227 71,949 45, 00321,296 72,958 45,79021,332 74,110 46,81421,120 74,884 47,56821, 036 75,788 48, 35221,154 76,854 49, 24012,66412,67212,81212,88612,91412,94312,95113,00412,98813,14613,29813,50713, 65313,99714,30914, 46514, 52115,93416,00816,04116,11416,16216,53317,05317,28317,38017, 50217,76318,10918,28518,46818,80719,14119,30219,69320,23520,69820,94921, 44621,95210, 75924,71810,808 24,69010,863 24, 73610, 71324,76610,801 24,79410,881 24,67410; 88324,79410,859 24,97411,108 24,96711,135 25,11911,192 25,32311,272 25,69111,353 26, •,00511,412 26, i, 15611,478 26,37511,492 26,56711,675 26,82811,803 26,94611,902 27,16812,119 27,29612, 310 27,31612, 441 27, 43612,767 27,6149,5859,5419,5579,6609,6759,6089,5379,6459,7669,7699,8279,96410,02810,07210,15310,30910,43910,56210,50610,61510, 57910,54210,6553,5323,5313,5333,5333,5583,6113,5913,6623,7023,8253,8233,8623,8763,8773,9133,9914,0444,0624,1264,1694,2514,26311,60111,61811,64611,57311,56111,45511,66611,66711,49911,52511,67311,86512,10112,20712,32912,34512,39812,34012,60012,55512,56812,64312,6961 Monthly average for year and total for month.2 Book value, seasonally adjusted, end of period.3 Where December data not available, data for year calculated on basis of no change from November.NOTE.—Data for Alaska and Hawaii included beginning 1958.Source: Department of Commerce, Bureau of the Census.260

TABLE B-41.—Manufacturers* new and unfilled orders, 1947—66[Amounts in millions of dollars]New orders *Unfilled orders 2Unfilled orders-shipmentsratio 3Year or monthTotalDurable goodsindustriesTotalTotalMachineryandequipmentNondurablegoodsindustriesDurablegoodsindustriesNondurablegoodsindustriesTotalDurablegoodsindustriesNondurablegoodsindustries1947-1948-1949-15,25617,69215,6148,1269,5668,98134,41530,71724,50628,53226,60120,0185,8834,1164,4881950..1951-1952-1953-1954-20,11023,90723,20323,53322,31310,16512,84112,06112,10510,7432,0841,7709,94511,06611,14211,42811,57043,05569,78575,64961,17848,26636,83865,83572,48058,63745,2506,2173,9503,1692,5413,0163.424.120.961955-1956-1957-1958-1959-27,42327,51426,90130,67914,95415,38114,07313,17015,9512,4992,8702,5662,3542,87812,46913,00213,44113,73114,72860,00467,37553,18348,88254,49456,24163,88050,35245,73950,6543,7633,4952,8313,1433,8403.873.354.274.554.001.121.C4.851960-1961-1962-1963-1964-30,11531,06133,16735,03637,69715,22315,66417,08518,30019,8032,7912,8543,0903,3263,70614,89215,39716,08216,73617,89546,13348,34346,78449,79657,04443,40145,17344,09446,67653,9582,7323,1702,6903,1203,0862.522.442.362.453.012.942.852.96.76.65.66.611965..1966 f41,02345,00021,72824,1004,1404,80019,29520,90066,06879,60062,53476,2003,5343,4002.612.983.16.64.58Seasonally adjusted1965: Jan...Feb..Max..Apr..May..June..39,70439,46940,71241,12040,18140,68921,27121,13021,71422,04320,99221,3103,9583,7994,0244,0784,0694,09118,43318,33918,99819,07719,18919,37957,31758,16058,59559,46359,89760,58854,28055,09255,53156,37456,87557,4543,0373,0683,0643,0893,0223,1342.482.532.462.512.562.583.013.072.983.043.133.150.60.61.59.60.57.60July..Aug..Sept..Oct..Nov.Dec..41,84640,92641,48341,84342,23443,86822,19521,50922,16322,42522,38923,4034,3484,1594,1534,2494,3254,58319,65119,41719,32019,41819,84520,46560,98161,39162,69963,99364,82166,06857,83058,14859,38560,66461,44562,5343,1513,2433,3143,3293,3763,5342.482.572.662.692.652.613.023.123.233.283.233.16.58.62.64.63.62.64: Jan...Feb...Mar..Apr...May..June..43,98644,12945,83345,06445,32145,83323,57823,74124,88824,19724,27624,5934,4504,5844,5874,7884,8454,75320,40820,38820,94520,86721, 04521,24067,38868,81470,52772,04973,29775, 00963,80365,11066,76268,25069,60971,3083,5853,7043,7653,7993,6883,7012.652.712.692.782.792.863.213.283.253.373.403.50.65.68.66.68.64.64July..Aug__sept—Oct.—Nov *.Dec *>_45,62544,84246,31845,24344,17624,37123,51225,27424,24423,14623,8855,0924,8134,9064,8164,6854,68521,25421,33021, 04420,99921,03076,31076,94279,17079,92379,59672,65173,28675,59176,38276,17976,2533,6593,6563,5793,5413,4172.832.892.973.002.983.493.543.643.673.66.61.62.61.601 Monthly average for year and total for month.2 Seasonally adjusted, end of period.3 Ratio of shipments for period to unfilled orders at end of period. Annual figures relate to seasonallyadjusted data for December.* Where December data not available, data for year calculated on basis of no change from November.NOTE.—Data for Alaska and Hawaii included beginning 1958.Source: Department of Commerce, Bureau of the Census.26l

PRICESTABLE B-42.—Consumer price indexes, by major groups, 1929-66For city wage earners and clerical workers[1957-59=100]Year or month192919301931193219331934193519361937193819391940194119421943194419451946194719481949195019511952195319541955195619571958195919601961196219631964 ---1965 ._.19661965: Jan..Feb.Mar.Apr.MayJuneJuly.Aug.Sept.Oct..Nov.Dec.1966: Jan..Feb.Mar.Apr-MayJuneJuly.Aug.Sept.Oct..Nov.Dec.Allitems59.758.253.047.645.146.647.848.350.049.148.448.851.356.860.361.362.768.077.883.883.083.890.592.593.293.693.394.798.0100.7101.5103.1104.2105.4106.7108.1109.9113.1108.9108.9109.0109.3109.6110.1110.2110.0110.2110.4110.6111.0111.0111.6112.0112.5112.6112.9113.3113.8114.1114.5114.6114.7Food55.652.943.636.335.339.342.142.544.241.039.940.544.251.957.957.158.466.981.388.284.785.895.497.195.695.494.094.797.8101.9100.3101.4102.6103.6105.1106.4108.8114.2106.6106.6106.9107.3107.9110.1110.9110.1109.7109.7109.7110.6111.4113.1113.9114.0113.5113.9114.3115.8115.6115.6114.8114.8HousingTotal56.357.159.160.159.759.961.464.264.966.467.569.374.579.881.083.288.289.992.393.494.195.598.5100.2101.3103.1103.9104.8106.0107.2108.5111.1108.1108.2108.2108.2108.2108.2108.3108.2108.6109.0109.2109.4109.2109.4109.6110.3110.7111.1111.3111.5111.8112.2112.6113.0Rent85.483.178.770.660.857.056.958.360.962.963.063.264.365.765.765.966.166.568.773.276.479.182.385.790.393.594.896.598.3100.1101.6103.1104.4105.7106.8107.8108.9110.4108.4108.5108.7108.8108.8108.8108.9109.0109.1109.2109.3109.5109.7109.8109.9110.1110.2110. 2110.3110.6110.7111.0111.2111.3Apparelandupkeep55.354.149.243.642.146.146.546.949.349.048.348.851.159.662.266.770.176.989.295.091.390.198.297.296.596.395.997.899.599.8100.6102.2103.0103.6104.8105.7106.8109.6105.6105.8106.0106.3106.8106.9106.1106.4107.2107.8108.1108.1107.3107.6108.2108.7109.3109.4109.2109.2110.7111.5112.0112.3Transportation49.449.850.651.049.849.551.255.755.555.555.458.364.371.677.079.084.089.692.190.889.791.396.599.7103.8103.8105.0107.2107.8109.3111.1112.7111.1110.6110.6111.0111.4111.2111.5111.0111.0111.2111.5111.6111.2111.1111.4112.0112.0112.2113.5113.5113.3114.3114.5113.8Medicalcare49.449.650.050.250.250.350.652.054.556.257.560.765.769.872.073.476.981.183.986.688.691.895.5100.1104.4108.1111.3114.2117.0119.4122.3127.7120.6121.0121.4121.6121.8122.2122.7122.8122.8123.0123.4123.7124.2124.5125.3125.8126.3127.0127.7128.4129.4130.4131.3131.9Personalcare42.643.245.746.746.546.447.652.257.661.763.668.276.279.178.978.986.387.388.188.590.093.797.1100.4102.4104.1104.6106.5107.9109.2109.9112.2110.0110.1110.4110.7111.0111.0108.7109.0109.2109.2109.6110.0110.4110.8111.0111.6112.0112.2112.5112.7113.0113.3113.4113.7Readingandrecreation50.251.052.554.354.455.457.360.065.072.075.077.582.586.789.989.392.092.493.392.492.193.496.9100.8102.4104.9107.2109.6111.5114.1115.2117.1115.0115.2115.4115.9115.9115.7114.6114.3114.8115.2115.4115.4115.7115.9116.6116.8116.8117.0117.2117.4117.5118.0118.3118.4Othergoodsandservices52.752.654.054.555.457.158.259.963.064.767.369.575.478.981.282.686.190.692.894.394.395.898.599.8101.8103.8104.6105.3107.1108.8111.4114.9109.3109.4109.5110.3110.6111.0111.5112.6112.7113.3113.3113.4113.4113. e113.8114.:114.7114. £115.:115..115.'115. {116. (115.

TABLE B-43.—Consumer price indexes, by special groups, 1935-66For city wage earners and clerical workers[1957-59=100]Year or month1935193619371938193919401941194219431944194519461947194819491950195119521953 ..19541955195619571958195919601961196219631964 _.196519661965: Jan..Feb.Mar.Apr.May.June.July.Aug.Sept.Oct..Nov.Dec.1966: Jan..Feb.Mar.Apr-MayJuneJuly.Aug.Sept.Oct..Nov.Dec.Allitems47.848.350.049.148.448.851.356.860.361.362.768.077.883.883.090.592.593.293.693.394.798.0100.7101.5103.1104.2105.4106.7108.1109.9113.1108.9108.9109.0109.3109.6110.1110.2110.0110.2110.4110.6111.0111.0111.6112.0112.5112.6112.9113.3113.8114.1114.5114.6114.7Allitemsfood52.553.054.955.555.155.356.960.962.665.066.569.475.881.382.183.188.490.592.392.893.194.797.9100.1102.0103.7104.8106.1107.4108.9110.4113.0109.8109.8109.9110.1110.3110.3110.2110.2110.6110.9111.2111.3111.1111.3111.6112.2112.5112.8113.2113.4113.8114.4114.8114.9Allitemsshelter46.146.748.246.846.046.349.155.359.560.562.168.479.485.684.184.791.893.693.993.993.494.797.8100.7101.5103.0104.2105.4106.7108.0109.6112.9108.6108.6108.7109.1109.4110.0110.1109.8110.0110.2110.4110.8110.8111.4111.9112.4112.4112.6113.1113.6113.9114.3114.4114.3CommoditiesAllcommodities45.045.647.445.644.745.148.255.260.160.862.669.483.489.487.187.695.596.796.495.594.695.598.5100.8100.9101.7102.3103.2104.1105.2106.4109.2105.6105.5105.6105.9106.2106.9106.9106.6106.6106.9107.1107.4107.4108.0108.4108.8108.8109.0109.3109.8110.0110.3110.2110.1Commodities less foodFood42.142.544.241.039.940.544.251.957.957.158.466.981.388.284.785.895.497.195.695.494.094.797.8101.9100.3101.4102.6103.6105.1106.4108.8114.2106.6106.6106.9107.3107.9110.1110.9110.1109.7109.7109.7110.6111.4113.1113.9114.0113.5113.9114.3115.8115.6115.6114.8114.8All50.250.853.053.052.152.455.061.263.867.370.074.483.990.389.095.696.496.695.694.995.998.899.9101.2101.7102.0102.8103.5104.4105.1106.5104.9104.7104.8105.0105.2105.1104.7104.7104.9105.3105.6105.7105.3105.4105.6106.0106.3106.4106.7106.6107.0107.6107.8107.7Durable47.147.850.851.750.650.253.660.962.968.773.977.383.889.991.292.299.2100.599.897.395.495.498.5100.0101.5100.9100.8101.8102.1103.0102.6102.7103.6103.3103.2103.0102.9102.6102.3101.8101.7102.1102.4102.4101.9101.8102.0102.3102.5102.6103.0103.0102.7103.5103.5103.1Nondurable48.849.251.250.950.150.652.858.460.964.066.371.181.788.086.386.292.793.294.094.494.496.599.199.8101.0102.6103.2103.8104.8105.7107.2109.7106.1106.1106.2106.8107.2107.3106.9107.1107.7108.0108.3108.4108.0108.3108.6109.0109.3109.5109.7109.6110.5110.9111.3111.4ServicesAllservices52.252.854.455.455.555.756.458.259.360.761.562.765.369.472.675.078.982.486.088.790.592.896.6100.3103.2106.6108.8110.9113.0115.2117.8122.3116.6116.9117.0117.3117.5117.6117.8117.9118.5118.7119.0119.3119.5119.7120.1121.1121.5122.0122.6123.0123.5124.1124.7125.2Rent56.958.360.962.963.063.264.365.765.765.966.166.568.773.276.479.182.385.790.393.594.896.598.3100.1101.6103.1104.4105.7106.8107.8108.9110.4108.4108.5108.7108.8108.8108.8108.9109.0109.1109.2109.3109.5109.7109.8109.9110.1110.2110.2110.3110.6110.7111.0111.2111.3Allserviceslessrent49.349.049.549.949.950.050.652.855.257.959.161.264.368.071.473.477.881.584.987.489.491.996.1100.2103.6107.4110.0112.1114.5117.0120.0125.0118.6118.9119.1119.3119.5119.7120.0120.0120.7121.0121.3121.6121.8122.0122.5123.6124.1124.8125.5125.9126.5127.1127.7128.3Source: Department of Labor, Bureau of Labor Statistics.263

TABLE B-44.—Wholesale price indexes, by major commodity groups, 7929-66[1957-59=100]Year or monthAllcommoditiesFarmproductsProcessedfoodsAll commodities other than farm productsand foods (industrials)TotalTextileproductsandapparelHides,skins,leather,andleatherproductsFuelsandrelatedproducts,andpower1929193019311932193319341935193619371938193919401941194219431944194519461947194819491950195119521953195419551956195719581959I9601961196219631964...19651966 *1965: Jan..Feb..Mar..Apr_.May..June-July..Aug..Sept..Oct..Nov..Dec...1966: Jan..Feb..Mar.Apr..May.June.July.Aug.Sept.Oct_.Nov.Dec*52.147.339.935.636.141.043.844.247.243.042.243.047.854.056.556.957.966.181.287.983.586.896.794.092.792.993.296.299.0100.4100.6100.7100.3100.6100.3100.5102.5105.8101.0101.2101.3101.7102.1102.8102.9102.9103.0103.1103.5104.1104.6105.4105.4105.5105.6105.7106.4106.8106.8106.2105.9105.963.954.039.629.431.339.948.049.452.741.939.941.350.164.674.875.378.390.6109.1117.1101.3106.4123.8116.8105.9104.497.996.699.2103.697.296.996.097.795.794.398.4105.693.094.595.497.698.4100.3100.099.199.599.4100.3103.0104.5107.4106.8106.4104.5104.2107.8108.1108.7104.4102.5101.854.349.541.633.933.739.648.346.448.642.340.240.446.754.857.256.056.471.791.198.492.6103.3100.997.097.694.394.397.9102.999.2100.0100.7101.2101.1101.0105.1111.5102.2102.1101.8102.3103.3106.1106.6106.7106.7106.9107.6109.4110.3111.8111.5110.6110.5110.6111.7113.8113.8112.4110.7110.651.748.142.439.740.244.244.044.948.146.146.046.850.353.954.755.656.361.775.381.780.082.991.589.490.190.492.496.599.299.5101.3101.3100.8100.8100.7101.2102.5104.7101.9101.9102.0102.1102.3102.5102.5102.7102.7102.8103.2103.2103.5103.8104.0104.3104.7104.9105.2105. 2105.2105.3105.5105.567.860.349.841.248.654.753.353.757.350.152.355.463.772.873.173.975.187.3105.7110.3100.9104.8116.9105.5102.8100.6100,7100.7100.898.9100.4101.599.7100.6100.5101.2101.8102.1101.5101.5101.5101.5101.6101.9101.9101.9102.1102.0101.9102.0101.9102.0102.1102.2102.2102.2102.4102.4102.2102.2102.1101.956.652.044.738.042.044.946.549.554.348.249.652.356.161.161.060.561.370.796.597.592.599.9114.892 894.189.989.594.894.996.0109.1105.2106.2107.4104.2104.6109.2119.7104.9105.1105.7106.3107.4107.7108.8112.2111.3113.3113.6114.6116.0117.8118.7120.6122.8122.9122.7121.2119.9118.7117.5117.561.558.250.052.149.354.354.556.557.556.654.253.256.658.259.961.662.366.779.793.889.390.293.593.395.994.694.597.4102.798.798.7100.7100.299.897.198.9101.398.597.997.997.698.498.798.799.099.299.4100.3100.6100.5100.399.9100.0100.4101.5101.4102.0102.2102.6102. •102.1See footnotes at end of table.264

TABLE B-44.—Wholesale price indexes, by major commodity groups, 1929-66—Continued[1957-59=100]Year or month1929 _193019311932 __.1933 _1934193519361937193819391940194119421943 .__1944194519461947 _._19481949 _.19501951 —195219531954195519561957 ._.19581959 _196019611962 ._1963196419651966 *>1965: Jan..Feb_.Mar_.Apr-May.June.July_.Aug..Sept.Oct..Nov..Dec—1966: Jan..Feb..Mar..Apr_.May.June.July_Aug-Sept.Oct._Nov_Dec*All commodities other than farm products and foods (industrials)—ContinuedRubberandrubberproducts57.650.442.837.139.045.545.849.458.157.159.355.359.669.471.370.468.368.668.370.568.383.2102.192.586.387.699.2100.6100.2100.199.799.996.193.393.892.592.994.892.392.292.292.392.993.193.093.293.393.493.593.593.794.194.395.495.495.495.195.194.794.695.095.0Lumberandwoodproducts26.424.119.616.920.023.522.623.627.925.426.128.934.537.539.742.843.449.777.488.581.994.1102.599.599.497.6102.3103.898.597.4104.1100.495.996.598.6100.6101.1105.6100.8100.8100.7100.5100.4100.3100 5101.8102.0101.6101.6101.9102.8103.7105.6108.4109.6107.7106.6106.2105.9104.8103.0102.5Pulp,paper,andalliedproducts75.378.675.277.191.389.088.788.891.197.299.0100.1101.0101.898.8100.099.299.099.9102.699.099.099.599.8100.0100.0100.0100.5100.8100.9101.2101.3101.8102.3102.7103.0103.2103.2103.1103.1103.0103.0Metalsandmetalproducts44.139.735.732.837.137.037.843.241.641.241.442.242.842.742.743.448.560.268.569.072.780.981.083.684.390.097.899.799.1101.2101.3100.7100.0100.1102.8105.7108.3104.5104.6104.8105.2105.7105.9105.8106.2106.2106.3106.7106.6107.0107.5108.0108.2108.4108.7108.8108.5108.4108.6109.0108.9Machineryandmotiveproducts43.744.245.847.747.447.447.853.661.867.571.272.679.581.282.283.285.892.197.7100.1102.2102.4102.3102.3102.2102.9103.7106.0103.3103.5103.5103.7103.7103.8103.7103.8103.8103.9104.1104.2104.4104.7105.0105.2105.8105.9106.0106.2106.3107.1107.7107.9Furnitureandotherhouseholddurables56.455.551.145.045.149.048.649.354.753.453.254.457.862.562.163.863.967.877.882.583.885.692.891.192.993.994.396.999.4100.2100.4100.199.598.898.198.598.099.198.398.298.398.098.098.097.897.797.797.898.098.298.398.498.498.698.998.999.099.199.299.7100.3100.4Nonmetallicmineralproducts53.453.249.746.549.252.652.652.753.952.251.251.252.454.554.755.858.161.869.174.776.778.683.583.586.988.891.395.2101.2101.4101.8101.8101.3101.5101.7102.6101.7101.8101.9101.9101.9102. G101.7101.6101.6101.6101.6101.6102.0102.1102.1102.3102.4102.5102.7102.7103.0103.2103.3103.2Tobaccoproductsandbottledbever-67.467.867.263.356.659.259.159.059.559.459.460.160.861.564.664.966.769.875.678.279.680.585.187.089.893.894.695.198.099.7102.2102.5103.2104.1106.1107.4107.7109.5107.5107.6107.5107.8108.1107.6107.6107.6107.7107.7107.7107.9108.1108.0109.2109.4109.4109.8110.0110.1110.1110.1110.1110.1Miscellaneousproducts108.7111.2103.5104.1113.1116.7105.4110.599.198.196.6101.5101.999.3103.9107.3110.4109.2111.0117.2110.01C9.6109.5110.3iO8.9111.0112.6111.5111.5111.2113.2112.5114.3116.0113.1113.0115.1115.7120.5121.1120.4118.2118.5120.5Source: Department of Labor, Bureau of Labor Statistics.265

TABLE B-45.—Wholesale price indexes, by stage of processing, 1947—66[1957-59=100]Year ormonth1947.1948194919501951.19521953195419551956195719581959.1960196119621963196419651966 "1965-1966:JanFebMarAprMayJuneJulyAugSeptOctNov.....DecJanFebMarAprMay....JuneJuly....AugSeptOctNovDec P--_-Allcommodities81.287.983.586.896.794.092.792.993.296.299.0100.4100.6100.7100.3100.6100.3100.5102.5105.8101.0101.2101.3101.7102.1102.8102.9102.9103.0103.1103.5104.1104.6105.4105.4105.5105.6105.7106.4106.8106.8106.2105.9105.9Crude materialsTotal100.8110.595.6104.2119.6109.9101.5100.696.797.299.4101.699.096.696.197.195.094.198.9105.394.295.595.896.998.3100.6100.5100.8100.0100.1100.8103.2105.2107.5106.9106.3105.7105.6107.8107.4106.1103.6101.1100.8Foodstuffsandfeedstuffs113.0122.2101.5108.9126.0118.6106.2106.296.294.298.4104.297.496.294.996.894.091.998.3107.291.893.593.995.497.3101.0100.9101.1100.0100.1100.7104.1106.8109.6108.3107.5106.5106.0109.1111.2109.9106.2102.5102.2Nonfoodmaterials,exceptfuel86.596.287.5100.0115.399.995.693.899.1102.8101.497.6101.096.897.997.496.297.899.8101.998.398.799.099.7100.299.899.6100.099.9100.1100.7101.3102.2103.8104.6104.5104.5105.1105.7100.298.998.297.697.4FuelIntermediate materials, supplies, and components lTotalMaterials and components formanufacturingTotalMaterialsforfoodmanufacturingMaterialsfornondurablemanufacturingMaterialsfordurablemanufacturingComponentsformanufacturingMaterialsandcomponentsforconstruction73.687.086.586.187.788.391.487.387.193.398.699.8101.6102.5102.3101.8103.0102.5103.3106.3103.5104.3103.6101.5101.5101.7101.9102.7103.7104.3104.8105.4105.6105.9105.2104.0105.0105.3105.5106.2107.0108.1108.9109.176.582.779.483.093.090.390.891.393.097.199.499.6101.0101.0100.3100.2100.5100.9102.2104.8101.6101.6101.6101.8101.9102.2102.3102.4102.5102.6103.0103.0103.4103.8103.9104.3104.8104.9105.4105.8105.6105.3105.3105.475.581.578.081.892.788.890.290.492.696.999.399.7101.0101.099.899.299.4100.4102.0104.0101.5101.4101.5101.6101.7101.9102.0102.1102.2102.4102.5102.6102.8103.2103.4103.7104.1104.1104.4104.8104.6104.3104.4104.5102.6105.891.094.7105.5101.4101.6100.797.597.999.7102.098.399.5102.6100.5105.5104.0106.6111.3106.3106.3105.6105.8104.9105.9106.2106.5106.9107.5108.1108.8109.7111.1110.8110.1109.8110.0111.9114.8113.6111.6111.2110.994.099.590.795.2110.399.398.596.997.398.8100.199.1100.8100.898.698.097.197.898.799.598.598.598.598.698.798.798.798.798.798.998.898.998.999.099.299.499.7100.0100.2100.199.899.599.299.258.866.468.272.180.180.383.985.790.095.798.899.5101.8101.9100.5100.4100.5102.5104.6106.6103.7103.9104.0104.2104.6104.8104.8105.0105.1105.1105.3105.2105.5105.8106.1106.6106.8106.7106.6106.9106.8106.8107.0107.163.068.069.371.981.681.883.383.787.495.499.199.9101.1100.699.698.898.899.7101.3104.8100.4100.5100.5100.7101.2101.4101.4101.6101.6101.9102.2102.3102.5102.9103.3104.1104.8105.0105.1105.4105.5105.9106.6107.077.077.281.288.888.289.790.193.798.599.199.1101.8101.199.799.399.6100.6101.4104.0100.9100.9100.9101.0101.2101.2101.3101.7101.7101.7101.8101.9102.3102.7103.4104.3104.8104.5104.5104.6104 6104.5104.3104.2See footnotes at end of table.266

TABLE B^45.— Wholesale price indexes, by stage of processing, 1947-66—Continued[1957-59=100]Finished goodsSpecial groups of industrialproductsYear or monthTotalTotalConsumer finishedgoodsFoodsOthernondurablegoodsDurablegoodsProducerfinishedgoodsCrudematerials2Intermediatematerials,supplies,and components3Consumerfinishedgoods excludingfoods1947194819491950195119521953195480.186.484.085.593.693.092.192.386.192.698.297.095.495.390.799.091.092.8104.2103.397.997.186.592.088.289.696.594.195.095.375.981.183.284.189.790.491.191.861.867.470.772.479.580.882.183.179.292.584.093.6102.993.192.488.073.479.877.881.491.288.389.483.188.486.587.894.292.993.794.11955195619571958195992.595.198.6100.8100.694.796.198.9101.0100.194.794.597.8103.598.795.897.799.999.3100.892.895.998.7100.1101.385.692.097.7100.2102.196.6102.3100.996.9102.392.597.099.699.4101.094.897.199.599.6100.9196019611962..19631964101.4101.4101.7101.4101.8101.1100.9101.2100.7100.9100.8100.4101.3100.1100.6101.5101.5101.6101.9101.6100.9100.5100.099.5102.3102.5102.9103.1104.198.397.295.694.397.1101.4100.199.999.6100.2101.3101.2101.0101.0100.919651966 »103.6106.9102.8106.4104.5111.2102.8104.899.6100.2105.4108.0100.9104.5101.5103.6101.7103.21965: Jan...Feb..Mar..Apr..May-June.102.3102.3102.4102.8103.2103.9101.2101.2101.4101.9102.3103.2100.8100.9101.3102.6103.5105.6102.3102.2102.2102.2102.5102.699.799.799.799.699.7104.9105.0105.1105.3105.3105.499.099.499.7100.1101.0100.5100.8100.8100.9101.1101.4101.5101.4101.3101.3101.3101.5101.6July..Aug..Sept..Oct...Nov..Dec.104.0103.8104.1104.3104.7105.3103.4103.1103.5103.7104.2104.9106.0105.3106.1106.3107.2108.9102.7102.8103.0103.3103.6103.799.699.599.599.599.6105.4105.5105.5105.6105.9106.0100.4101.7101.3102.0102.7102.6101.5101.7101.8101.9102.1102.2101.6101.6101.8102.0102.2102.31966: Jan...Feb_.Mar..Apr..May-June.105.6106.3106.4106.3106.2106.4105.2106.0106.1105.9105.6105.7109.5111.5111.5110.7109.6109.5103.9104.0104.1104.3104.5104.999.799.799.799.8100.2100.1106.2106.6106.8107.0107.6107.9104.0105.7106.6106.1105.9106.5102.4102.6102.9103.4103.8103.9102.4102.4102.5102.8103.0103.2July..Aug..Sept..Oct...Nov..Dec*107.0107.5108.1107.8107.8107.6106.4107.1107.8107.2107.0106,6111.2112.8114.5112.2111.3110.5105.0105.2105.4105.5105.7105.5100.2100.1100.0100.9101.2101.3108.1108.3108.4109.1109.8110.0106.4103.3102.8102.8102. 7101.7104.0104.2104.1104.1104.1104.1103.3103.4103.5103.9104.1104.01 Includes, in addition to subgroups shown, processed fuels and lubricants, containers, and supplies.2 Excludes crude foodstuffs and feedstuffs, plant and animal fibers, oilseeds, and leaf tobacco.3 Excludes intermediate materials for food manufacturing and manufactured animal feeds.NOTE.—For a listing of the commodities included in each sector, see Table 2B, Wholesale Prices and PriceIndexes, 1963 (BLS Bulletin 1513).Source: Department of Labor, Bureau of Labor Statistics.267

MONEY SUPPLY, CREDIT, AND FINANCETABLE B-46.—Money supply, 1947-66[Averages of daily figures,billions of dollars]Year and monthTotalMoney supplyTotalmoneysupplyandtimedepositsadjustedCurrencycomponent1Demanddepositcomponent2Timedepositsadjusted3TotalmoneysupplyandtimedeposadS -justedMoney supplyU.S.Time GovernmentCurrencmandad-de-De-positsTotal com-deposit just-ed 3 demanponent1 component2 its 4Seasonally adjustedUnadjusted1947: Dec.1948: Dec.1949: Dec.148.5147.5147.6113.1111.5111.226.425.825.186.785.886.035.436.036.4151. 0150.0150.0115.9114.3113.926.826.225.589.188.188.435.135.736.11.01.82.81950: Dec.1951: Dec.1952: Dec.1953: Dec.1954: Dec.152.9160.9168.5173.3180.6116.2122.7127.4128.8132.325.026.127.327.727.491.296.5100.1101.1104.936.738.241.144.548.3155.6163.8171.7176.3183.6119.2125.8130.8132.1135.625.426.627.828.227.993.899.2103.0103.9107.736.438.040.944.248.02.42.74.93.85.01955: Dec.1956: Dec.1957: Dec.1958: Dec.1959: Dec.185.2188.8193.3206.5209.3135.2136.9135.9141.1141.927.828.228.328.628.9107.4108.7107.6112.6113.150.051.957.465.467.4188.2191.7196.0209.3212.2138.6140.3139.3144.7145.628.428.828.929.229.5110.2111.5110.4115.5116.149.651.456.764.666.63.43.43.53.94.91960: Dec.1961: Dec.1962: Dec.1963: Dec.1964: Dec.214.0228.2245.3265.3286.3141.1145.5147.5153.1159.728.929.630.632.534.2112.1116.0116.9120.6125.472.982.797.8112.2126.6216.8231.2248.3268.3289.2144.7149.4151.6157.3164.029.630.231.233.135.0115.2119.2120.3124.1129.172.181.896.7111.0125.24.74.95.65.15.51965: Dec.1966: Dec ».314.1328.2167.2170.236.338.2130.9132.0146.9158.0317.2331.4172.0175.137.139.0134.9136.1145.2156.34.63.51965: Jan...Feb..Mar..Apr..May-June.288.4290.5292.3294.3295.3297.9159.7159.8160.3161.0160.7161.734.534.634.734.834.935.0125.3125.2125.6126.2125.8126.7128.7130.7132.0133.3134.6136.2292.7290.3291.6295.5292.9296.1164.4159.5158.9161.5157.5159.534.434.234.434.534.634.9130.1125.2124.6127.1122.9124.5128.3130.8132.7134.0135.4136.64.25.76.65.59.59.1July..Aug..Sept..Oct...Nov..Dec.300.3303.0305.7308.9311.1314.1162.4163.0164.1195.2165.6167.235.335.535.736.036.136.3127.2127.5128.5129.3129.5130.9137.9140.0141.6143.7145.5146.9299.1300.5304.5309.2311.6317.2160.8160.3163.1165.7167.3172.035.435.535.736.036.537.1125.4124.8127.5129.7130.8134.9138.3140.2141.4143.5144.3145.29.07.35.55.04.14.61966: Jan...Feb..Mar._M P a F y."June-July..Aug..Sept..Oct...Nov..Dec 9,315.8316.7318.8322.3323.25 324. 8324.9326.2327.6326.4326.1328.2168.0168.2169.3170.9170.2171.1169.6169.6170.5169.6169.2170.236.636.836.937.237.337.437.737.837.937.938.038.2131.4131.4132.3133.7132.9133.7132.0131.8132.6131.7131.1132.0147.8148.5149.5151.4153.0«153.7155.3156.6157.1156.8156.9158.0320.3316.5318.0323.8320.85 322.9323.7323.9326.4326.7326.6331.4173.0167.8167.8171.6166.9168.8167.9166.9169.5170.1171.0175.136.536.436.636.837.037.337.837.937.938.038.539.0136.5131.4131.3134.8129.9131.5130.1129.1131.5132.1132.5136.1147.3148.7150.2152.2153.9«154.1155.8157.0156.9156.6155.6156.33.85.24.63.17.26.38.25.24.54.83.73.51 Currency outside the Treasury, the Federal Reserve System, and the vaults of all commercial banks.2 Demand deposits at all commercial banks, other than those due to domestic commercial banks and theU.S. Government, less cash items in process of collection and Federal Reserve float, and foreign demandbalances at Federal Reserve banks.3 Time deposits adjusted are time deposits at all commercial banks other than those due to domesticcommercial banks and the U.S. Government.4 Deposits at all commercial banks.s Effective June 1966, balances accumulated for payment of personal loans were reclassified for reservepurposes and are excluded from time deposits reported by member banks. The estimated amount of suchdeposits at all commercial banks ($1.1 billion) is excluded from time deposits adjusted thereafter.NOTE.—Data for Alaska and Hawaii included beginning January 1959 and August 1959, respectively.Source: Board of Governors of the Federal Reserve System.268

TABLE B-47.—Selected liquid assets held by the public, 1946-66 l[Billions of dollars, seasonally adjusted]End of year or monthTotalDemanddepositsandcurrency 2Time depositsCommercialbanks 3MutualsavingsbanksPostalsavingssystemSavingsandloansharesU.S.Governmentsavingsbonds *U.S.Governmentsecuritiesmaturingwithin1 year *194619471948_ _1949239.1246.2254.1262.1108.5112.4110.5110.433.935.335.936.316.917.818.419.33.33.43.33.28.59.711.012.548.650.953.455.019.416.621.625.51950...195119521953 _1954271.4281.0296.0311.5320.3115.5120.9125.5127.3130.236.638.241.244.648.220.120.922.624.426.32.92.72.52.42.114.016.119.222.827.255.855.455.755.655.626.426.829.334.419551956195719581959332.5343.2356.0373.1393.9133.3134.6133.5138.8139.749.752.057.565.467.428.130.031.633.934.91.91.61.31.1.932.037.041.747.754.355.954.851.650.547.931.633.238.835.648.8196019611962 __19631964399.2424.6459.0495.4530.5138.4142.6144.8149.6156.773.182.598.1112.9127.136.238.341.444.549.0.8.6.5.5.461.870.579.890.9101.447.047.447.649.049.941.942.646.848.146.119651966"572.9599.6164.0168.5147.1158.452.654.8.3.1109.7113.250.550.948.653.61965: Jan..Feb—Mar..May.June.534.9536.5542.9543.4543.0550.2156.1154.8158.6156.3155.4159.7130.6131.9133.0134.1134.9136.349.449.649.850.150.450.8.4.4.4.4.4.3101.7102.6103.7103.9104.5105.150.049.949.949.949.950.046.847.347.648.647.6'48.0July—Aug.Sept—Oct—Nov.Dec —1966: Jan..Feb..Mar,.Apr..May..June_.July..Aug..Sept..Oct p.Nov pDec p550.9555.7560.7565.1568.3572.9578.5577.5585.5587.0585.78 589.1588.4592.8594.2596.0600.2599.6157.7157.8160.6161.1160.4164.0164.8162.7167.0166.4163.7166.5164.3167.0166.1166.0167.8168.5138.3139.8141.6144.0146.5147.1149.2149.4151.1152.5153.65153.9156.1156.6156.7156.6158.2158.451.151.351.652.052.352.652.853.053.153.153.353.453.753.954.254.654.854.8.4.3.3.3.3.3.3.3.3.3.3.2.2.2.2.2.1.1105.5106.5107.8108.4109.3109.7109.8110.6111.4111.0111.2111.4110.7111.3112.2112.1112.8113.250.150.150.150.150.150.550.550.350.350.450.450.450.650.650.550.650.650.947.949.848.749.149.448.651.251.052.153.353.353.452.753.354.456.055.853.61 Excludes holdings of the U.S. Government, Government agencies and trust funds, domestic commercialbanks, and Federal Reserve banks. Adjusted wherever possible to avoid double counting.2 Agrees in concept with the money supply, Table B-46, except for deduction of demand deposits heldby mutual savings banks and savings and loan associations. Data are for last Wednesday of month.3 Time deposits at all commercial banks other than those due to domestic commercial banks and theU.S. Government (same concept as in Table B-46). Data are for last Wednesday of month, except thatJune 30 and December 31 call data are used where available.4 Excludes holdings of Government agencies and trust funds, domestic commercial and mutual savingsbanks, Federal Reserve banks, and beginning February 1960, savings and loan associations.s Effective June 1966, balances accumulated for the payment of personal loans (about $1.1 billion) areexcluded from time deposits at all commercial banks and from total liquid assets.NOTE.—Series for all commercial banks include data for Alaska and Hawaii beginning January 1959 andAugust 1959, respectively, except that one national bank in Alaska and one national bank in Hawaii wereincluded in April 1954 and April 1959, respectively.Source: Board of Governors of the Federal Reserve System.240-782 O—67- -18269

TABLE B-48.—Financial saving by individuals, 1939-66 3[Billions of dollars]Year or quarterTotalCurrencyandbankdepositsSavingssharesTotalSecuritiesU.S.savingsbondsandotherOthergovernment*CorporatePrivateanceandpensionreservesNoninsuredpensionfundsGovernmentnsuranceandpensionreserves4Less:Increase indebtMortdebt*ConsumeritiesSecu-debt« loans?1939194019411942194319441945194619471948194919501951195219531954195519561957 _ - - .195819591960196119621963 -196419651966 P3.02.98.827.135.938.435.013.25.0.51.6-.38.110.49.08.55.212.215.019.714.06.318.922.124.631.833.127.83.02.94.810.916.217.519.010.62.0-1.8-1.43.55.97.04.75.43.44.84.810.24.12.49.517.718.419.425.410.00.1.3.4.3.6.91.11.21.31.31.61.72.33.34.04.75.25.35.26.47.28.29.29.911.711.39.34.3-0.8-.42.610.314.115.79.9-1.42.23.02.3.9.73.43.4.26.25.25.31.110.2-1.01.1— .41.67.04.914.90.7.92.88.011.111.86.91.02.01.61.5.3 -.1— .5 -.5.1 1.2.2 2.0.6 -1.13.73.2-I!Q 4.4-1.1-L8 11.0.8.41.2.9.6.5-0.9-.8.42.33.34.64.2-2.6-.2.5.1-.9-.6.72.55.74.212.6-0.6-.4-.5*-.3-.7-1.2.2.4.9.7.71.62.11.2.62.32.02.72.61.0.11.0-1.5-2.1.4.11.71.51.61.92.22.62.93.23.13.53.33.53.73.84.44.54.75.05.04.64.84.94.85.25.76.26.77.46.50.1.1.1.1.2.6.9.3.3.4.6.91.51.72.02.22.32.73.13.23.64.04.14.24.54.95.65.60.3.3.3.71.32.33.12.51.72.01.8-.61.71.91.71.71.82.32.62.93.03.23.23.74.04.65.04.90.59.8 1-.4-.1.23.13.94.73.96.57.06.17.28 312.010.68.18.212.510.910.912.514.615.615.413.10.81 0.7— 3 0-1.0.1. .52.32.82.42.63.71.04.43.71.06.23.32.5.26.14.21.55.06.36.59.06.9-0.2— 2-.1 3.61.41.5-2.3— 8Ạ3.2-.3.6.4.9.6-.8-.1.4.2.31.01.1.9.1*-1.61964: IIIIIIIV1965: I IIIIIIV1966* I IIIIIrv* p..6.86.08 310.76.16.010.610.35.55.19 57.61.83.85 78.11.95.08.010.4— 1.42.44 24.72.53.32 13.52.12.51.43.31.41.0— 62.51.81.92 01 21.31.91.0.64.93.74 51.71.71.51 9.91.21.1.94.22.23 82.4-.1 .31__.6i.61.4 .6—.91.51.51 72.01.71.51.92.21.81.51.51.81.11.31.41.41.31.31.71.21.31.31.8.91.21 31.31.11.31.31.31.11.21 31.34.13.83 64.13.73.34.04.44.53.02 13.5-.72.61 63 0-.33.52.43.4— .42.61 63.2-.6.63— .3-.1.7-2.01.5— .4.3— 1.0-.51 Individuals' saving, in addition to personal holdings, covers saving of unincorporated business, trustfunds, and nonprofit institutions in the forms specified.2 Includes shares in savings and loan associations and shares and deposits in credit unions.3 "Other government" includes U.S. Government issues (except savings bonds), State and local governmentsecurities, and nonguaranteed Federal agency issues.4 Includes civil service, railroad retirement, and State and local retirement systems.8 Mortgage debt to institutions on one- to four-family nonfarm dwellings.6 Consumer debt owed to corporations, largely attributable to purchase of automobiles and other durableconsumer goods, although including some debt arising from purchases of consumption goods. Policyloans on Government and private life insurance have been deducted from those items of saving.7 Change in bank loans to brokers, dealers, and others for the purpose of purchasing or carrying securities.NOTE.—In addition to the concept of saving shown above, there are other concepts of individuals' saving,with varying degrees of coverage, currently in use. The personal saving estimates of the Department ofCommerce are derived as the difference between personal income (after taxes) and personal outlays. Fora reconciliation of the two series, see Securities and Exchange Commission Statistical Bulletin, July 1966,and Survey of Current Business, July 1966.The flow-of-funds system of accounts of the Board of Governors of the Federal Reserve System includesestimates of gross saving and net financial investment of households.Data for Alaska and Hawaii included for all periods.Source: Securities and Exchange Commission.270

End of year or month l1929< .1930 *1931* _1932 41933 4193441935. _.19361937 ._ _ -1938193919401941 ___19421943194419451946 _19471948194819491950 -195119521953 - _1954 -_._19551956195719581959 -_196019611962*1963«196419651966 51§65- JanFebMarAprMayJune. - -._-- .. .JulyAugSeptOctNovDec_ _1966: JanFeb ....MarAprMayJune. ... . .JulyAugSept.-Oct pNov p . _Dec 6 ....TABLE B-49.—Bank loans and investments, 1929-66[Billions of dollars]Totalloansandinvestments2 49.448.944.936.130.432.736.139.638.438.740.743.950.767.485.1105.5124.0114.0116.3114.2113.0118.7124.7130.2139.1143.1153.1157.6161.6166.4181.2185.9194.5209.6227.9246.2267.2294.4310.7269.6272.1275.8277.0279.4281.7283.2286.1286.2289.9291.5294.4297.4297.5300.3302.9304.98 307.7309.2310.8308.7308.1308.4310.7All commercial banksInvestmentsLoans 2 U.S. GovernmentsecuritiesOthersecurities35.734.529.221.816.315.715.216.417.216.417.218.821.719.219.121.626.131.138.142.4Seasonally adjusted41.542.051.156.562.866.269.180.688.191.595.6107.5113.8120.5134.1149.7167.4192.0208.2170.2172.8175.4177.1179.4181.4182.9185.2186.2188.6189.8192.0194.5196.2198.6200.8202.36 204.0206.4206.6206.1207.3207.3208.24.95.06.06.27.510.313.815.314.215.116.317.821.841.459.877.690.674.869.262.662.366.461.160.462.262.267.660.357.256.965.157.959.865.264.561.561.157.754.360.059.459.958.758.758.257.957.756.557.457.557.758.055.956.055.955.155.154.456.154.352.452.954.38.79.49.78.16.56.77.17.97.07.27.17.47.26.86.16.37.38.19.09.29.210.312.413.414.214.716.416.816.317.920.520.520.823.929.235.038.744.848.339.540.040.541.241.342.142.443.143.443.944.244.844.945.445.746.247.46 48.648.548.148.348.448.348.3Weekly reportingmemberbanksBusinessloans*5.14.24.75.37.16.36.46.57.311.314.715.615.613.917.921.623.423.422.426.730.831.831.730.732.232.935.238.842.150.660.641.843.044.644.645.246.846.346.948.148.249.050.650.351.152.652.553.555.8New series 758.758.359.459.559.960.61 Data are for last Wednesday of month (except June 30 and December 31 call dates used for all commercialbanks).2 Adjusted to exclude interbank loans beginning 1948.3 Commercial and industrial loans and prior to 1956, agricultural loans. Beginning July 1959, loans tofinancial institutions excluded. Prior to 1943, published data adjusted to include open market paper.4 June data used because complete end-of-year data not available.* Commercial bank data are estimates for December 31.6 Effective June 1966, balances accumulated for payment of personal loans (about $1.1 billion) are excludedfrom loans at all commercial banks, and certain certificates of CCC and Export-Import Bank totalingabout $1 billion are included in other securities rather than in loans.7 See Federal Reserve Bulletin, August 1966.NOTE.—National bank data for Alaska and Hawaii included beginning April 1954 and April 1959, respectively.All other bank data for Alaska and Hawaii included beginning January 1959 and August 1959,respectively.Source: Board of Governors of the Federal Reserve System.271

TABLE B-50.—Bond yields and interest rates, 1929-66(Percent per annum]Year or monthU.S. Government securities3-monthTreasurybills i9-12monthissues 23-5yearissues »Taxablebonds 4Corporatebonds(Moody's)AaaBaaHighgrademunicipalbonds(Standard&Poor's)Averagerate onshorttermbankloansto businessselectedcitiesPrimecommercialpaper,monthsFederalReserveBankdiscountrate192919301931193219331934( 5 )(5)1.402879.5152562.662.124.734.554.585.014.494.005.905.907.629.307.766.324.274.074.014.654.714.03( 6 )(6)V(8)5.853.592.642.731.731.025.163.042.112.822.561.541935 __193619371938____1939.137.143.447.053.0231.291.111.40.83.593.603.243.263.193.015.754.775.035.804.963.403.073.102.912.76(6)(6)2.1.75.75.94.81.591.501.501.331.001.0019401941 _ __194219431944194519461947 _19481949.014.103.326.373.375.375.375.5941.0401.1020.75.79.81.82.881 141.14.50.731.461.341.331.181.161.321.621.432.462.472.482.372.192.252.442.312.842.772.832.732.722.622.532.612.822.664.754.334.283.913.613.293.053.243.473.422.502.102.362.061.861.671.642.012.402.212.12.02.22.62.4" 2.22.12.68.56.53.66.69.73.75.811.031.441.491.001.007 1.0071.007 1.007 1.007 1.001.001.341.50195019511952195319541.2181.5521.7661.931.9531.261.731.812.07921.501.932.132.561.822.322.572.682.942.552.622.862.963.202.903.243.413.523.743.511.982.002.192.722.372.693.113.493.693.611.452.162.332.521.581.591.751.751.991.6019551956195719581959196019611962 _ _ _ _ _1963196419651966 - __- — _1.7532.6583 2671 8393.4052.9282.3782.7783.1573.5493.9544.8811 892.833 532 094.113 552.913.023 283.764 095.172.503.123.622.904.333.993.603.573.724.064.225.162.843.083.473.434.084.023.903.954.004.154.214.653.063.363.893.794.384.414.354.334.264.404.495.133.533.884.714.735.055.195.085.024.864.834.875.672.532.933.603.563.953.733.463.183.233.223.273.823.704.204 624.348 5.005.164.975.005.014.995.066.002.183.313.812.463.973.852.973.263.553.974.385.551.892.773.122.163.363.533.003.003.233.554.044.501964: JanFeb-MarAprMay -__June__JulyAugSeptOct .Nov.___Dec3.5293.5323.5533.4843.4823.4783.4793.5063.5273.5753.6243.8563.663.633.673.633.673.833.683.733.823.833.883.964.064.024.154.184.074.033.993.994.034.044.044.074.154.144.184.204.164.134.134.144.164.164.124.144.374.364.384.404.414.414.404.414.424.424.434.444.834.834.834.854.854.854.834.824.824.814.814.813.233.173.323.293.213.203.183.203.253.263.183.154.994.994.985.003.973.884.003.913.894.003.963.883.894.004.024.173.503.503.503.503.503.503.503.503.503.503.624.00See footnotes at end of table.272

TABLE B-50.—Bond yields and interest rates, 7929-66—Continued[Percent per annum]Year or monthU.S. Government securities3-monthTreasurybills 19-12month3-5yearTaxableissues 3 bonds *Corporatebonds(Moody's)AaaBaaHighgrademunicipalbonds(Standard&Poor's)Averagerate onshorttermbankloansto businessselectedcitiesPrimecommercialpaper,4-6monthsFederalReserveBankdiscountrate1065: Jan..Feb.Mar.Apr.May.June.3.8283.9293.9423.9323.8953.8103.873.974.034.003.993.984.064.084.124.124.114.094.144.164.154.154.144.144.434.414.424.434.444.464.804.784.784.804.814.853.063.103.183.173.193.264.974.994.254.274.384.384.384.384.004.004.004.004.004.00July.Aug.Sept.Oct..Nov.Dec.1966: Jan..Feb.Mar.Apr.May.June.July.Aug.Sept.Oct-Nov.Dec.3.8313.8363.9124.0324.0824.3624.5964.6704.6264.6114.6424.5394.8554.9325.3565.3875.3445.0073.964.004.114.184.294.664.834.924.964.874.904.945.175.525.805.575.455.104.104.194.244.334.464.774.895.024.944.864.945.015.225.585.625.385.435.074.154.194.254.284.344.434.434.614.634.554.574.634.754.804.794.704.744.654.484.494.524.564.604.684.744.784.924.964.985.075.165.315.495.415.355.394.884.884.914.934.955.025.065.125.325.415.485.585.685.836.096.106.136.183.263.253.363.423.473.563.523.633.723.593.683.773.944.174.113.973.933.835.005.275.555.826.306.314.384.384.384.384.384.654.824.885.215.385.395.515.635.855.896.006.006.004.004.004.004.004.004.424.504.504.504.504.504.504.504.504.504.504.504.50i Rate on new issues within period. Issues were tax exempt prior to March 1, 1941, and fully taxablethereafter. For the period 1934-37, series includes issues with maturities of more than 3 months.* Certificates of indebtedness and selected note and bond issues (fully taxable).3 Selected note and bond issues. Issues were partially tax exempt prior to 1941, and fully taxable thereafter.* First issued in 1941. Series includes bonds which are neither due nor callable before a given number ofyears as follows: April 1953 to date, 10 years; April 1952-March 1953, 12 years; October 1941-March 1952,15 years.5 Treasury bills were first issued in December 1929 and were issued irregularly in 1930.«Not available on same basis as for 1939 and subsequent years.7 From October 30,1942, to April 24,1946, a preferential rate of 0.50 percent was in effect for advances securedby Government securities maturing in 1 year or less.* Beginning 1959, series revised to exclude loans to nonbank financial institutions.NOTE.—Yields and rates computed for New York City except for short-term bank loans.Sources: Treasury Department, Board of Governors of the Federal Reserve System, Moody's InvestorsService, and Standard & Poor's Corporation.273

TABLE B-51.—Federal Reserve Bank credit and member bank reserves, 1929-66[Averages of daily figures, millions of dollars]Year and monthReserve Bank credit outstandingTotalU.S.GovernmentsecuritiesAllother,mainlyfloatMember bank reservesTotalMemberbankborrowingsRequiredExcessMemberbank freereserves(excessreservesless borrowings)1929: Dec.1,6434468013962,3952,347481930: Dec__1931: Dec.1932: Dec.1933: Dec.1934: Dec _1935: Dec.1936: Dec.1937: Dec..1938: Dec.1939: Dec.1,2731,9502,1922,6692,4722,4942,4982,6282,6182,6126447771,8542,4322,4302,4302,4342,5652,5642,51033776328195106716733542924105714232585747472,4152,0692,4352,5884,0375,7166,6656,8798,74511,4732,3422,0101,909i 1,8222,2902,7334,6195,8085,5206,462736052617661,7482,0461,0713,2265,0111940: Dec.1941: Dec.1942: Dec.1943: Dec.1944: Dec.1945: Dec.1946: Dec.1947: Dec.1948: Dec.1949: Dec.2,3052,4046,03511,91419,61224, 74424,74622,85823,97819,0122,1882,2195,54911,16623, 70823, 76721,90523,00218,2879026533415722413411811418048365965470282172984260714,04912,81213,15212, 74914,16816,02716,51717,26119,99016,2917,4039,42210,77611,70112,88414,53615,61716,27519,19315,4886,6463,3902,3761,0481,2841,4919009867971950: Dec.1951: Dec.1952: Dec.1953: Dec.1954: Dec.1955: Dec.1956: Dec.1957: Dec.1958: Dec.1959: Dec.21,60625,44627,29927,10726,31726,85327,15626,18628,41229,43520,34523,40924,40025,63924,91724, 60224,76523,98226,31227,0361426571,5934412467105579061,1191,3801,3061,0271,1541,4121,7031,4941,5431,49317,39120,31021,18019,92019,27919,24019,53519,42018,8992 18,93216,36419,48420,45719,22718,57618,64618,88318,84318,38318,4501,0278267236937035946525775164821960: Dec.1961: Dec.1962: Dec.1963: Dec.1964: Dec.1965: Dec...1966: Dec *.29,06031, 21733, 21836, 61039,87343,85346,86427,24829,09830, 54633,72937,12640,88543, 740871493043272434545571,7251,9702,3682,5542,5042,5142,56719,28320,11820,04020,74621,60922, 71923,82518,52719,55019,46820,21021,19822,26723, 4307565685725364114521965: Jan...Feb...Mar...Apr...May..June.39,24539,24439,53539,88240,34041,15337,05237, 31537,63738, 11138,8402994054164715055282,2621,7871,8041,7741,7241,78521,62021,23121,24621, 51121,47221, 70921,21520,79020,90521,14521,14721,363405441341366325346July..Aug_.Sept..Oct..Nov..Dec...41,65141,50441,61042,04842,64943,85339,24939,31839,10839,60140,12840,8855245645284904524541,8781,6221,9741,9572,0692,51421,86321,61721,74021,95821,95822,71921,51321,18721,35621,61421,58922,2673504303843443694521966: Jan...Feb..Mar..Apr...May-June..43,44943,11642,94343,33943,89144,49840,62640,63540,62941,12941,6724024785516267226742,4212,0031,9942,0842,0402,15222, 75022,23322,16022,52822,48722,53422,39221,86221,85522,17022,11722,212358371305358370322July..Aug..Sept..Oct.-Nov..Dec*.45,73745,34845,63145,60446,08746,86442,22142,28042,73542,83743,34743,7407667287667336115572,7502,3402,1302,0342,1292,56723,09022,65523,24023,33323,25123,82522,68222,31722, 84223,03122,86223,4304083383983023893961 Data from March 1933 through April 1934 are for licensed banks only.2 Beginning December 1959, total reserves held include vault cash allowed.NOTE.—Data for member banks in Alaska and Hawaii included beginning 1954 and 1959, respectively.Source: Board of Governors of the Federal Reserve System.274

TABLE B-52.—Short- and intermediate-term consumer credit outstanding, 7929-66[Millions of dollars]Instalment creditNoninstalment creditEnd of year or monthTotalTotalAutomobilepaperOtherconsumergoodspaperRepairandmodernizationloans iPersonalloansTotalChargeaccountsOther 219291930 .193119321933 .193419351936 . . _1937193819391940...19411942 .194319441945..194619471948. _ _1949195019511952.1953195419551956195719581959___196019611962...1963 -__196419651966 37,1166,3515,3154,0263,8854,2185,1906,3756,9486,3707,2228,3389,1725,9834,9015,1115,6658,38411,59814,44717,36421, 47122,71227,52031,39332,46438,83042.33444,97045,12951,54256,02857,67863,16470, 46178,44287.88495,0003,5243,0222,4631,6721,7231,9992,8173,7474,1183,6864,5035,5146,0853,1662,1362,1762,4624,1726,6958,99611, 59014,70315,29419, 40323,00523, 56828,90631,72033,86733,64239,24542,83243,52748,03454,15860, 54868, 56574,7001,3849866843564936149921,3721,4941,0991,4972,0712,4587423553974559811,9243,0184,5556,0745,9727,7339,8359,80913,46014,42015,34014,15216,42017,68817,22319,54022,43325,19528,84331,0001,5441,4321,214834799889,000,290,5051,442,6201,8271,929,1958197918161,2902,1432,9013,7064,7994,8806,1746,7796,7517,6418,6068,8449,02810,63011,52511,85712,60513,85615, 59317,69319, 7002725221815372533642192182983713762551301191824057188538981,0161,0851,3851,6101,6161,6931,9052,1012,3462,8093,1393,1913,2463,4053,5323,6753,8005695795434644164595727219009271,0881,2451,3229748328691,0091,4961,9102,2242,4312,8143,3574,1114,7815,3926,1126,7897,5828,1169,38610,48011,25612,64314,46416,22818,35420,2003,5923,3292,8522,3542,1622,2192,3732,6282,8302,6842,7192,8243,0872,8172,7652,9353,2034,2124,9035,4515,7746,7687,4188,1178,3888,8969,92410,61411,10311,48712,29713,19614,15115,13016,30317.89419.31920,3001,9961,8331,6351,3741,2861,3061,3541,4281,5041,4031,4141,4711,6451,4441,4401,5171,6122,0762,3812,7222,8543,3673,7004,1304,2744,4854,7954,9955,1465,0605,1045,3295,3245,6845,8716,3006,7467,2001,5961,4961,2179808769131,0191,2001,3261,2811,3051,3531,4421,3731,3251,4181,5912,1362,5222,7292,9203,4013,7183,9874,1144.4115,1295,6195,9576,4277,1937,8678,8279,44610,43211,59412, 57313,1001965: Jan77,783Feb77,406Mar77,796Apr79,237May. _ -.-- 80,469June81,71760,44260,43660,86161,88662,80763,85025,23125,38325,69126,23526,71727,28015, 45515,21815,18015,29215,45815,6483,5053, 4793,4753,4883,5343,57616,25116,35616.51516,87117.09817,34617,34116,97016,93517,35117,66217,8675,7245,1544,9775,2105.4535,52811,61711,81611,95812,14112,20912,339JulyAugSept. __OctNov ... _Dec- -- _..82,53983,31983,80184,46585,29187,88464,70465,50865,97966, 51167,16868,56527,77928, 11128,17528,39328,61228,84315,81815,99616,22916,49216,79717,6933,6043,6483,6643,6763,6893,67517,50317,75317,91117,95018,07018,35417,83517.81117,82217,95418,12319,3195,5345,4985,4965,6455,7406,74612,30112,31312,32612,30912,38312,5731966: JanFebMarApr _May.. -_ -June87,02786,56587,05988,18489,09290,07068,31468,27968,82769,54370,20971,19428,78928,89429,24829,59729,90830,40217,56617,38617,45017,59717,73217,9593,6343,6033,5973,6023,6423,67718,32518,39618,53218.74718.92719,15618,71318,28618,23218,64118,88318,8766,1075,5055,3935,6705,8605,90812,60612,78112,83912,97113,02312,968JulyAugSeptOctNovDec 3 .90,65091,48391,63991,89992,49895,00071,86272,64072,82973,07373,49174,70030,68030,91830,79330,85230,93731,00018,16518,39018,56418. 71418,94519,7003,7113,7553,7713,7703,7723,80019,30619, 57719,70119, 73719,83720,20018,78818,84318,81018,82619,00720,3005,8885,9735,9936.1076,1997.20012,90012,87012,81712.71912,80813,1001 Holdings of financial institutions only; holdings of retail outlets are included in "other consumer goodspaper."2 Single-payment loans and service credit.3 Preliminary; December by Council of Economic Advisers.NOTE.—Data for Alaska and Hawaii included beginning January and August 1959, respectively.Source: Board of Governors of the Federal Reserve System (except as noted).275

TABLE B-53.—Installment credit extended and repaid, 7946-66[Millions of dollars]Year or monthTotalAutomobilepaperOther consumergoods paperRepair andmodernizationloansPersonalloansExtendedRepaidExtendedRepaidExtendedRepaidExtendedRepaidExtendedRepaid19461947194819498,49512,71315,58518,1086,78510,19013,28415,5141,9693,6925,2176,9671,4432,7494,1235,4303,0774,4985,3835,8652,6033,6454,6255,0604237047147342003915793,8194,2714,5422,5393,4053,9574,3351950195119521953195421,55823,57629,51431, 55831,05118,44522,98525,40527,95630,4888,5308,95611,76412,98111,8077,0119,05810,00310,87911,8337,1507,4859,1869,2279,1176,0577,4047,8928,6229,1458358411,2171,3441,2617177729171,1191,2555,0436,2947,3478,0064,6605, 7516,5937,3368,2551955195619571958195938,97239,86842,01640,11948, 05233,63437,05439,86840,34442,60316,73415,51516,46514,22617,77913,08214, 55515,54515,41515, 57910,64211,72111,80711, 74713,9829, 75210, 75611,56911, 56312,4021,3931,5821,6741,8712,2221,3161,3701,4771,6261,76510,20311, 05112,06912,27514, 0709,48410,37311,27611,74112,8571960196119621963196449,56048,39655,12661,29567,50545,97247,70050,62055,17161,12117,65416,00719, 79622,29224,43516,38416,47217,47819,40021,67614,47014, 57815,68517,10219,47313,57414,24614,93915, 85017,7372,2132,0682,0512,1982,2041,8832,0151,9962,0382,07815,22315,74417.59419,70321,39314,13014,96716,20617, 88319,6301965196675, 50879,10067,49573,00027,91428,70024,26726, 50021,45423,40019,35521,4002,2382,2002,0962,10023,90224,80021, 77723,000Seasonally adjusted1965: Jan...Feb..Mar..Apr..May.June_5,9476,0826,1076,2456,1676,1965,3325,4855,4655,5005,5115,6012,1862,2492,2682,2992,2492,2851,9161,9471,9701,9751,9872,0071,6951,7681,7021,6481,7311,7191,5271,6651,5681,4971,5691,5901851771891941911991721731741801741791,8811,8881,9482,1041,9961,9931,7171,7001,7531,8481,7811,825July.Aug.Sept.Oct-.Nov.Dec.6,3836,3856,4346,4256,5306,4895,6595,7295,7485,8055,8315,8552,3552,3722,3852,3382,4802,4432,0072,0682,0562,0802,1482,1071,8181,8161,8591,9071,8731,8621,6081,6621,6381,6701,6831,7201801941761791851851711801711711761752,0302, 0032,0142,0011,9921,9991,8731,8191,8831,8841,8241,8531966: Jan..Feb..Mar.Apr..May.June.6,5446,4926,6736,5056,4726,6755,9475,9546,0245,9745,9796,1262,3402,3402,4792,3022,2982,4192,1152,1352,2162,1452,1592,2111,9831,9571,9591,9581,9331,9441,7781,7811,7081,7291,7841,7671761711831801861891761741761751721762, 0452,0242,0522,0652,0552,1231,8781,8641,9241,9251,8641,972July.Aug_Sept.Oct._Nov.Deci6,7326,6896,5786,5226,6576,7256,1686,0876,1036,1426,2136,3002,3832,4312,3872,3782,4612,4502,2382,2232,2132,2442,2552.2802,0501,9951,9581,9411,9471,9601,8031,7921,7841,8201,8361,8501891871751661661651741721681691691702,1102,0762,0582,0372,0832,1501,9531,9001,9381,9091,9532,000i Preliminary; December by Council of Economic Advisers.NOTE.—Data for Alaska and Hawaii included beginning January and August 1959, respectively. Therefore,the difference between extensions and repayments for January and August 1959 and for the year 1959does not equal the net change in credit outstanding.Source: Board of Governors of the Federal Reserve System (except as noted).276

TABLE B-54.—Mortgage debt outstanding, by type of property and oj financing, 1939-66[Billions of dollars!Nonfarm propertiesEnd of year or quarterTotalTotal1- to 4-family housesAllpropertiesGovernment underwrittenTotalFHAinsuredVAguaranteedConventionaliMultifamilyandcommercialproperties2Farmproperties1939..1940..1941.1942..1943..1944..35.536.537.636.735.334.728.930.031.230.829.929.716.317.418.418.217.817.91.82.33.03.74.14.21.82.33.03.74.14.214.515.115.414.513.713.712.512.612.912.512.111.86.66.56.46.05.44.91945..1946..1947..1948..1949..35.541.848.956.262.730.836.943.950.957.118.623.028.233.337.64.3G.I9.312.515.04.13.73.85.36.90.22.45.57.28.114.316.918.920.822.612.213.815.717.619.54.84.95.15.35.61950...1951...1952...1953...1954...72.882.391.4101.3113.766.775.684.293.6105.445.251.758.566.175.718.922.925.428.132.18.69.710.812.012.810.313.214.616.119.326.328.833.138.043.621.623.925.727.529.76.16.77.27.78.21955..1956...1957...1958...1959...129.9144.5156.5171.8190.8120.9134.6146.1160.7178.788.299.0107.6117.7130.938.943.947.250.153.814.315.516.519.723.824.628.430.730.430.049.355.160.467.677.032.635.638.543.047.99.09.810.411.112.11960.1961.1962.1963.1964.1965.1966 p206.8226.3251.6281.2311.6341.7366.4194.0212.4236.4264.4292.7320.6343.0141.3153.1166.5182.2197.6213.5225.256.459.162.265.969.273.126.729.532.335.038.342.029.729.629.930.930.931.184.893.9104.3116.3128.3140.452.759.369.982.295.1107.0117.812.813.915.216.818.921.223.41963: IIll-IV.1964: I—.II..III-IV-257.1265.3273.4281.2287.4295.5303.6311.6241.6249.2256.8264.4270.0277.5285.1292.7169.2173.7178.2182.2185.4189.8193.9197.663.063.864.665.966.667.368.469.233.033.534.335.035.736.337.438.330.030.330.430.931.030.931.130.9106.2109.9113.6116.3118.8122.5125.4128.372.475.578.682.284.687.791.295.115.616.216.616.817.318.118.518.91965: IIII P..IV P..1966:UP...III p..IV P..317.7325.9333.9341.7348.2355.6361.4366.4298.3305.7313.2326.5333.1338.4343.0200.7205.2209.5213.5216.7220.5223.1225.270.170.772.073.174.174.675.339.039.740.942.043.043.744.431.131.031.131.131.130.930.9130.7134.4137.4140.4142.6145.8147.897.5100.5103.7107.0109.8112.7115.3117.819.520.220.721.221.822.523.023.41 Derived figures.2 Includes negligible amount of farm loans held by savings and loan associations.Source: Board of Governors of the Federal Reserve System, estimated and compiled from data suppliedby various Government and private organizations.277

TABLE B-55.—Net public and private debt, 7929-66 ][BiUions of dollars]PrivateEnd ofyear *TotalFederalGovernmentandagencyTotalTotalCorporateTotalIndividual and noncorporateFarm 3TotalNonfarmStateandlocalgovernmentsLongtermShorttermMortgageCommercialandConsumercial*1929-...1930—.1931—.1932—.1933....1934—1935—1936—1937—.1938—1939—190.9191.0181.9174.6168.5171.4174.7180.3182.0179.6183.216.516.518.521.324.330.434.437.739.240.542.613.214.115.516.616.715.916.016.216.116.016.3161.2160.4147.9136.7127.5125.1124.2126.4126.7123.1124.388.989.383.580.076.975.574.876.175.873.373.547.351.150.349.247.944.643.642.543.544.844.441.638.233.230.829.130.931.233.532.328.429.272.371.164.456.750.649.649.450.350.949.850.812.211.811.110.19.18.98.98.68.69.08.860.159.353.346.641.540.640.541.742.340.942.031.232.030.929.026.325.524.824.424.324.525.022.421.617.614.011.711.210.811.211.310.19.86.45.84.83.63.53.94.96.16.76.37.21940—1941—1942-...1943—1944—1945—1946—1947—1948--.1949—1950--.-19511952—1953—19541955—19561957—1958--.1959--.-1960.--1961 —1962-_.1963—1964—189.9211.6259.0313.6370.8406.3397.4417.4433.6448.4490.3524.0555.2586.5612.0672.3707.5738.9782.6846.2890.2947.71,019.31,096. 91,174.31965.— 1,270.31966 «... 1,368.344.856.3101.7154.4211.9252.7229.7223.3216.5218.6218.7218.5222.9228.1230.2231.5225.4224.4232.7243.2241.0248.1255.8261.0267.2269.8274.616.516.315.814.914.113.713.614.416.218.120.723.325.828.633.438.442.746.750.955.660.065.073.779.585.295.1101.1128.6139.0141.5144.3144.8139.9154.1179.7200.9211.7250.9282.2306. 5329.8348.4402.5439.4467.8499.1547.4589.2634.6689.8756.4821.9905.4992.675.683.491.695.594.185.393.5108.9117.8118.0142.1162.5171.0179.5182.8212.1231.7246.7259.5283.3302.8324.3348.2376.1402.6445.6500.943.743.642.741.039.838.341.346.152.556.560.166.673.378.382.990.0100.1112.1121.2129.3139.1149.3161.2174.4189.2207.5235.531.939.849.054.554.347.052.262.865.361.581.995.997.7101.2100.0122.2131.7134.6138.4154.0163.6175.0187.0201.7213.4238.1265.453.055.649.948.850.754.660.670.883.193.7108.8119.7135.5150.3165.6190.4207.7221.1239.5264.1286.4310.3341.6380.3419.3459.8491.79.19.39.08.27.77.37.68.610.812.012.313.615.216.917.618.819.520.323.323.025.127.530.233.236.039.342.543.946.340.940.542.947.453.062.372.481.896.6106.2120.4133.6147.9171.6188.2200.8216.2241.1261.4282.8311.4347.1383.3420.5449.226.127.126.826.126.027.032.538.845.150.659.467.475.283.894.6108.7121.3131.6144.6160.8174.5190.4210.6234.3259.5284.8304.09.510.08.19.511.814.712.111.912.913.915.816.217.818.420.824.024.424.326.528.730.834.837.642.345.447.850.28.39.26.04.95.15.78.411.614.417.321.422.627.431.432.538.942.544.845.151.556.057.763.270.578.487.995.01 Net public and private debt outstanding is a comprehensive aggregate of the indebtedness of borrowersafter elimination of certain types of duplicating governmental and corporate debt. For a further explanationof the concept, see Survey of Current Business, October 1950.2 Data for State and local government debt are for June 30.3 Farm mortgages and farm production loans. Farmers' financial and consumer debt is included in thenonfarm categories.4 Financial debt is debt owed to banks for purchasing or carrying securities, customers' debt to brokers,and debt owed to life insurance companies by policyholders.8 Estimate.NOTE.—Kevisions for 1929-39 and 1955-57 in the consumer credit data of the Board of Governors of theFederal Reserve System have not yet been fully incorporated into this series.Sources: Department of Commerce (Office of Business Economics), Treasury Department, Departmentof Agriculture, Board of Governors of the Federal Reserve System, and Federal Home Loan Bank Board.278

GOVERNMENT FINANCETABLE B-56.—U.S. Government debt, by kind of obligation, 1929-66End of year or month1929193019311932 _1933 „19341935 —_ _19361937. .1938 _ _1939194019411942 __1943194419451946194719481949_ -195019511952—19531954195519561957-1958 _ _ __ .1959I960. >1961 _19621963—1964 _196519661965: JanFebMarAprMayJune _- -JulyAug.SeptOctNovDec1966* JanFebMarAprMayJuneJulyAugSeptOctNovDecGrosspublicdebt andguaranteedissues l[Billions of dollars]Interest-bearing public debtMarketable public Nonmarketable public issuesissuesShorttermUnited TreasuryTreasury States tax and Investmentissues 2 bonds savings savingsbonds notes 3 bonds *16.316 017 820.824.031.535.139 141.944.447 650.964.3112.5170.1232.1278.7259.5257.0252.9257.2256.7259.5267.4275.2278.8280.8276.7275.0283.0290.9290.4296.5304.0310.1318.7321.4329.8318.6320.6318.4317.2319.8317.9317.1318.7317.3319.4322.2321.4322.4323.7321.5320.1322.8320.4319.8324.9325.2327.4329.9329.83.32 92 85 97.511 114.212 512 59.87 77.58.027.047.169.978 257.147.745.950.258.365.668.777.376.081.379 582.192.2103.5109.2120.5124.6121.2115.5110.4118.9111.6114.3112.0112.0108.5106.2106.2104.1104.1107.8110.4110.4113.5114.5112.0111.9111.8107.2107.2110.8111.3114.8118.1118.911.311.313.513.414.715.414.319.520.524.026.928.033.449.367.991.6120.4119.3117.9111.4104.894.076.979.877.281.881.980.882.183.484.879.875.578.486.497.0104.299.2102.8100.6100.5100.5102.5102.5102.5104.3104.3104.3104.2104.2104.2103.2103.1103.1102.0101.9101.9100.6100,5100.599.299.20.251.01.42 23.26.115.027.440.448.249.852.155.156.758.057.657.957.757.757.956.352.551.248.247.247.547.548.849.750.350.849.849.949.950.050.050.050.150.250.250.350.350.350.350.350.450.450.550.550.650.650.650.750.850.82.56.48 69.88 25.75.44.67.68.67.55.86.04.5tik|Enkkk1.01.01.01.013.013.412.912.712.311.610.39.07.66.25.14.43.73.42.82.73.43.33.33.33.33.33.33.33.22.82.82.82.82,82.82.72.72.72.72.72.72.72.72.7Specialissues s0.684.4.4.6.762.23.24 25.47.09.012.716.320.024.629.031.733.933.735.939.241.242.643.945.645.844.843.544.343.543.443.746.146.352.044.245.645.744.447.848.647.849.848.147.047,146.344.445.846.044.948.851.150.753.253.151.952.552.01 Total includes non-interest-bearing debt, fully guaranteed securities (except those held by the Treasury),Postal Savings bonds, prewar bonds, adjusted service bonds, depositary bonds, armed forces leavebonds, Rural Electrification Administration series bonds, foreign series certificates and notes, foreign currencycertificates, notes and bonds, Treasury certificates, and U.S. retirement plan bonds, not shown separately.Not all of total shown is subject to statutory debt limitation.2 Bills, certificates of indebtedness, and notes.3 The last series of Treasury savings notes matured in April 1956.4 Series A bonds through September 1965 and, beginning April 1951, series B convertible bonds.5 Issued to U.S. Government investment accounts. These accounts also held $16.4 billion of publicmarketable and nonmarketable issues on December 31,1966.Source: Treasury Department.279

TABLE B-57.—Estimated ownership of U.S. Government obligations, 1939-66End of year ormonth1939194019411942194319441945194619471948194919501951195219531954195519561957195819591960 -196119621963196419651966 8 -1965: Jan...Feb..Mar..Apr._May..June.July..Aug_.Sept..Oct_.Nov..Dec...1966: Jan...Feb..Mar-Apr..May..June~July-Aug..Sept-Oct—Nov..Dec 8 .Total47.650.964.3112.5170.1232.1278.7259.5257.0252.9257.2256.7259.5267.4275.2278.8280.8276.7275.0283.0290.9290.4296.5304.0310.1318.7321.4329.8318.6320.6318.4317.2319.8317.9317.1318.7317.3319.4322.2321.4322.4323.7321.5320.1322.8320.4319.8324.9325.2327.4329.9329.8Heldby U.S.Gov-6.57.69.512.216.921.727.030.934.437.339.439.242.345.948.349.651.754.055.254.453.755.154.555.658.060.661.968.859.160.460.759.262.763.462.364.863.662.362.861.960.061.761.760.564.566.766.469.369.268.068.968.8[Par values, 1 billions of dollars]HeldbyFederalReservebanksGross public debt and guaranteed issues 22.52.22.36.211.518.824.323.322.623.318.920.823.824.725.924.924.824.924.226.326.627.428.930.833.637.040.844.336.736.937.637.838.739.139.239.039.839.740.640.840.640.240.740.741.542.242.442.542.943.043.944.3Total38.641.152.594.0141.6191.6227.4205.2200.1192.2198.9196.8193.4196.9201.0204.2204.3197.8195.5202.3210.6207.9213.1217.6218.5221.1218.7216.8222.8223.3220.2220.3218.5215.4215.6214.9213.9217.5218.8218.7221.9221.9219.0218.9216.9211.5211.0213.1213.2216.42J7.1216.8ern-mentinvestmentaccountsCommercialbanks 315.917.321.441.159.977.790.874.568.762.566.861.861.663.463.769.262.059.559.567.560.362.167.267.264.364.000.857.162.961.760.459.758.458.357.256.457.459.659.860.860.958.757.057.055.154.753.454.754.454.955.157.1Held by "the public"Mutualsavings9.410.111.915.821.228.034.736.735.932.731.529.626.325.525.124.123.121.320.219.919.518.117.517.617.116.815.814.317.117.217.016.816.616.316.316.316.316.015.815.815.915.815.715.415.214.814.714.614.614.414.414.3banksand insurancecompaniesStateOther andcorporations< governuals6local Individments52.22.04.010.116.421.422.215.314.114.816.819.720.719.921.519.123.218.717.718.121.418.718.518.618.717.915.514.918.619.017.217.017.615.115.916.114.715.616.715.516.517.415.715.716.213.914.214.313.514.916.014.90.4.5.71.02.14.36.56.37.37.98.18.89.611.112.714.415.416.316.616.518.018.719.020.121.121.222.923.822.223.023.224.324.424.124.023.723.023.322.922.923.724.724.425.125.324.524.824.624.224.224.123.810.110.613.623.737.653.364.164.265.765.566.364.665.264.863.565.065.964.963.769.466.165.966.068.270.072.375.670.671.071.571.271.271.171.871.872.272.272.372.373.273.574.674.374.173.974.174.875.876.275.975.6Miscellaneousinvestors70.7.7.92.34.47.09.18.18.48.99.410.510.611.713.213.915.616.116.616.622.124.225.028.029.231.231.431.131.531.430.831.330.230.530.430.530.230.831.431.431.831.831.631.430.929.729.830.130.631.731.531.11 United States savings bonds, series A-F and J, are included at current redemption value.2 Excludes guaranteed securities held by the Treasury. Not all of total shown is subject to statutory debtlimitation.3 Includes commercial banks, trust companies, and stock savings banks in the United States and Territoriesand island possessions; figures exclude securities held in trust departments. Since the estimates inthis table are on the basis of par values and include holdings of banks in United States Territories and possessions,they do not agree with the estimates in Table B-49, which are based on book values and relate onlyto banks within the United States.4 Exclusive of banks and insurance companies.5 Includes trust, sinking, and investment funds of State and local governments and their agencies, and ofTerritories and possessions.6 Includes partnerships and personal trust accounts.7 Includes savings and loan associations, nonprofit institutions, corporate pension trust funds, dealers andbrokers, and investments of foreign balances and international accounts in this country. Beginning withDecember 1946, the international accounts include investments by the International Bank for Reconstructionand Development, the International Monetary Fund, the International Development Association, theInter-American Development Bank, and various United Nations' funds, in special non-interest-bearingnotes and bonds issued by the U.S. Government. Beginning with June 30, 1947, includes holdings ofFederal land banks.8 Preliminary estimates by Council of Economic Advisers.Source: Treasury Department (except as noted).280

TABLE B-58.—Average length and maturity distribution of marketable interest-bearingpublic debt, 1946-66End of year or monthAmountoutstandingWithin1 year1 to 5yearsMaturity class5 to 10years10 to 20years20 yearsandoverAverage lengthFiscal year:1946__._1947....1948...-1949...-189, 606168, 702160, 346155,14761, 97451,21148, 74248,130Millions of dollars24, 76321, 85121, 63032, 56241,80735, 56232, 26416, 74617, 46118, 59716, 22922, 82143, 59941,48141, 48134, 888YearsMonths1950...-1951...-1952...-1953....1954...-155,310137,917140, 407147, 335150, 35442, 33843, 90846,36765, 27062, 73451, 29246, 52647, 81436,16129, 8667,7928,70713, 93315, 65127, 51528, 03529, 97925,70028, 66228, 63425, 8538,7976,5941,5921,6068461955...-1956....1957..._1958...-1959....1960....1961...-1962....1963....1964....1965....1966.—1965: Jan_.Feb_.Mar_.Apr...May.June..July..Aug...Sept..Oct...Nov..Dec...1966: Jan...Feb._Mar..Apr._May.June..July..Aug...Sept..Oct...Nov_.Dec.155, 206154, 953155, 705166. 675178, 027183, 845187,148196, 072203, 508206, 489208, 695209,127214,411214,863212,507212,451210,954208,695208,664208,402208,381212,097214,619214,604217, 656217,690215,150215, 004213, 764209,127209,108211,402211,771215,313217,239218,02549, 70358, 71471, 95267, 78272, 95870,46781,12088,44285, 29481, 42487, 63789,13686,79889,82987,51788,12689,90187,63787,63592,44692,44496,49193,39293,39696,46194,22691, 70491, 82092, 231,89,13689,13892,23892,64296,656104,398105,21839,10734, 40140, 66942, 55758,30472, 84458, 40057, 04158, 02665, 45356,19860,93357,88659,70362,13561,48756,17856,19856,19255, 26655,26454,95260,59360,60260,60862, 89364,30664, 07662,45360,93360,93262,95762,95262,49559, 45959,44734, 25328, 90812, 32821, 47617, 05220, 24626, 43526,04937, 38534, 92939,16933,59643,90239,53237,12037,11639,17239,16939,16635,03235,02735,02435,02135,01335, 01335, 00833,60733,60333,60033, 59633,59230, 78330,77430, 77128,00828,00528, 61328, 57826, 40727, 65221, 62512, 63010. 2339,3198,3608,3558.4498,4396,1076,1066,1066,1068,4508,4498,4488,4488,4478,4468,4468,4458,4448,4438,4428,4418,4408,4398,4398,4378,4368,4358,4348,4333,5304,3514,3497,2087,65810, 96015, 22114, 44416, 32817, 24117, C2319,71819,69319,63019,61617,25317, 24117, 22217, 21017,19917,18417,16717,14817,13117,12017, 09217, 06517, 04017, 02317, 00716,98716,96716,95716,94016,92310493461110411544344333100101111101111101110887NOTE.—All issues classified to final maturity except partially tax-exempt bonds, which were classified toearliest call date (the last of these bonds were called on Aug. 14,1962, for redemption on Dec. 15,1962).Source: Treasury Department.281

TABLE B-59.—Federal administrative budget receipts by source and expenditures by Junction,fiscal years 1939-68 1[Millions of dollars]Fiscalyear1939—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 5-Net receiptsTotal4,9795,1377,09612,54721,94743,56344,36239,65039,67741,37537,66336,42247,48061,28764,67164,42060,20967,85070,56268,55067,91577,76377J 65981,40986,37689,45993,-072104, 727116,995126,937Individualincometaxes1,0229591,4003,2056,49019,70118,41516,15717,83519,30515,54815,74521,64327,91330,10829,54228,74732,18835,62034,72436,71940,71541,33845,57147,58848,69748,79255,44662,20073,200Corporationincometaxes1,1381,1232,0294,7279,57014,73715,14611,8338,5699,67811,19510,44814,10621,22521,23821,10117,86120,88021,16720,07417,30921,49420,95420,52321,57923,49325,46130,07334,40033,900Excisetaxes1,8611,9732,5553,3934,0934,7616,2676,9997,2077,3567,5027,5498,6488,8519,8689,9459,1319,9299,0558,6128,5049,1379,0639,5859,91510,21110,9119,1459,3008,800Employmenttaxes12716511715416020018921331450235225234256274283579322328333321339Estateandgifttaxes3573574034214425076386697708907806987088188819349241,1611,3651,3931,3331,6061,8962,0162,1672,3942,7163,0663,1003,100Customs3023313653693084173414244774033674076095335965425856827357829251,1059821,1421,2051,2521,4421,7671,9802,100Miscellaneousreceipts1882372352869243,3133,4803,4764,6143,8072,0691,4221,6201,7941,8592,3092,5623,0032,7603,2003,1604,0624,0803,2064,4354,0764,6195,8656,7806,517Interfundtransactions-17-7-7-9-39-73-113-122-109-113-33-73-88-104-154-235-181-315-467-567-355-694-654-633-513-664-870-635-766-682ExpendituresTotal8,8419,05513,25534,03779,36894,98698,30360,32638,92332,95539,47439,54443,97065,30374,12067,53764,38966,22468,96671,36980,34276,53981,51587,78792,64297,68496,5J}7106,978126,729135,033Nationaldefense1,0751,4986,05423,97063,21676,75781,27743,22614,39811,77912,92613,01822,47144,03750,44246,98640,69540,72343,36844,23446,48345,69147,49451,10352,75554,18150,16357,71870,22275, 487Internationalaffairsandfinancea20511451,8393,2993,6423,3123,1076,5364,5666,0524,6743,7362,8262,2161,7322,3102,46723,5453,5594,9803,1954,1244,5234,4124,0324,5064,1914,6084,797See footnotes at end of table.282

TABLE B-59.—Federal administrative budget receipts by source and expenditures by function,fiscal years 1939-68 *—Continued[Millions of dollars]Expenditures—ContinuedFiscalyearSpaceresearchandtechnologyAgricultureandagriculturalresourcesNaturalresourcesCommerceandtransportationHousingand Health,com-labor,mu-nity welfareanddevelopmentEducationVeteransbenefitsandservicesInterestGeneralgovernmentAllowancesInterfundtransactions1,199360662-148415609503351940 _„1941._1942. .1943 _.1944..1,5381,3141,4826101,2154714525335014024545772,6007,2117,725351292153093163,0002,5361,9261,13288141434747945525665586067451,0561,1231,2721,8252,623370409515825989-14-101-933-236-4331945._1946._1947._1948. .1949. .323538491,6077471,2435752,5123193425487431,0574,1438866551,2181,618-185-19335694295864865,148,213,433154796268672,0954,4157,3816,6536,7253.6624,8165,0125,2485,445,047,353,263,054139955196-5012391950._1951..1952..1953..1954. .54626779902,7956761,0602,9492,564,206,275,375,4841,7591,6251,8881,9261,219268531593.,790,863,9162,0522,122781031913203266,6465,4004,9334,3684,3415,8175,7145,9346,5836,470,170,307,445,461,226267-793-961-154-2351955 __1956..1957..1958..1959 _.747176891454,2464,2342,9523,0665,354,216,125,320,587,7411,2251,8921,3051,6322,025136-10-118309702,1652,4622,6313,0423,8413773434375417324,5224,8104,8705,1845,2876,8467,3077,6897,671,166,576,738,284,466-181-315-467-567-355I960..1961._1962..1963. .1964.-4017441,2572,5524,1713,4753,4984,1165,0505,1291,7982,1002,2642,5062,6581,9632,5732,7742,8433,002122320349-67-803,6504,2004,4814,7155,3819431,0761,2441,3395,2665,4145,4035,1865,4929,2669,0509,19810, 7651,5421,7091,8751,9792,280-654-633-513-6641965.-1966 .1967*.1968«-5,0935,9335,6005,3004,6963,3073,0353,1732,8513,1203,2263,5183,4992,9693,4953,089-1043478901,0235,7977,57410,38911,3041,5442,8343,3042,8165,4955,0236,3946,12411,43512,13213,50814,1522,4022,4642,7252,781100«2,150-870—635-766-6821 For administrative budget surplus or deficit, see Table B-60.2 Beginning 1957, includes agricultural commodities donated abroad through voluntary agencies; classifiedunder "Agriculture and agricultural resources" in the earlier years.3 Beginning with 1952, includes watershed projects of the Soil Conservation Service; these are classifiedunder "Agriculture and agricultural resources" in the earlier years.4 Includes adjustment to Daily Treasury Statement prior to 1953.s Estimate.6 Includes allowance of $1 billion for civilian and military pay increases, $750 million for possible shortfallin asset sales, and $400 million for contingencies.Sources: Treasury Department and Bureau of the Budget.283

TABLE B-60.—Federal administrative budget receipts and expenditures and the public debt y 1929-68[Millions of dollars]Fiscal or calendar yearNetreceipts lExpendituresSurplusordeficit (-)Publicdebt at endof year 2Fiscal year:19293,8613,12773419301931193219331934193519361937193819394,0583,1161,9241,9973,0153,7063,9974,9565,5884,9793,3203,5774,6594,5986,6456,4978,4227,7336,7658,841738-462-2,735-2,602-3,630-2,791-4,425-2,777-1,177-3,862194019411942194319441945194619471948 _.19495,1377,09612,54721,94743,56344,36239,65039,67741,37537,6639,05513,25534,03779,36894,98698,30360,32638,92332,95539,474-3,918-6,159-21,490-57,420-51,423-53,941-20,6767548,419-1,81119501951...._.1952..195319541955.......195619571958195936,42247,48061,28764,67164,42060,20967,85070,56268,55067,91539,54443,97065,30374,12067,53764,38966,22468,96671,36980,342-3,1223,510-4,017-9,449-3,117-4,1801,6261,596-2,819-12,42719601961196219631964196519661967 31968 3Calendar year1948194977,76377,65981,40986,37689,45993,072104,727116,995126,93740,80037,46476,53981,51587,78792,64297,68496.507106,978126,729135,03335,55941,0561,224-3,856-6,378-6,266-8,226-3,435—2,251-9, 734-8,0965,241-3,59219501951 _19521953195437,23552,87764,70563,65460,93837,65756,23670,54772,81164,622-422-3,358-5,842-9,157-3,6831955195619571958195963,11970,61671,74968,26272,73865,89171,15775,34979,778-2,7713,779592-7,088-7,040196019611962196319641965__-._.196679,51878,15784,70987,51688,69696,679110,80277,56584,46391,90794,18896,945101,378118,0781,953-6,306-7,199-6,672-8,248-4,699-7,2761 Gross receipts less refunds of receipts and transfers of tax receipts to the old-age and survivors insurancetrust fund, the disability insurance trust fund, the railroad retirement account, the unemployment trustfund, and the highway trust fund.2 Includes guaranteed issues except those held by the Treasury. The change in the public debt fromyear to year reflects not only the budget surplus or deficit but also changes in the Government's cashon hand, and the use of corporate debt and investment transactions by certain Government enterprises.3 Estimate.Sources: Treasury Department and Bureau of the Budget.284

TABLE B-61.—Government cash receipts from and payments to the public, 7946-68[Billions of dollars]Total] FederaliState and local 2Fiscal or calendar yearCashreceiptsCashpaymentsExcessof receiptsor ofpaymentsCashreceiptsCashpaymentsExcessof receiptsor ofpaymentsCashreceiptsCashpaymentsExcessof receiptsor ofpaymentsFiscal year:19461947194819491950195119521953195454.255.659.457.257.972.188.493.695.270.247.549.956.361.465.288.798.695.6-16.08.19.4.8-3.56.9-.3-5.0-.543.543.545.441.640.953.468.071.571.661.736.936.540.643.145.868.076.871.9-18.26.68.91.0-2.27.6-5.3-.210.712.014.015.616.918.720.422.123.68.510.613.515.818.219.420.821.823.82.21.5.5-.2-1.3-.7-.4.3_ 219551956 -1957195819591960196119621963196492.9105.0112.7114.4116.3133.8138.8146.4158.6167.997.2101.3111.5118.0131.8132.5141.2152.7161.5171.3-4.33.71.2-3.5-15.61.3-2.5-6.3-2.9-3.467.877.182.181.981.795.197.2101.9109.7115.570.572.580.083.594.894.399.5107.7113.8120.3-2.74.52.1-1.6-13.1.8-2.3-5.8-4.0-4.825.127.930.632.534.638.741.544.648.952.426.728.831.534.537.138.241.745.047.751.0-1.6— 9-!9-2.0-2.5.6-.2-.51.21.4196519661967 41968 4 _. _.176.6196.3177.7197.5-1.1-1.2119.7134.5154.7168.1122.4137.8160.9172.4-2.7-3.3-6.2-4.356.961.855.359.71.62.1Calendar year:19461947-... _ _1948194952.757.259.857.750.850.651.659.71.96.68.1-2.041.444.344.941.341.438.636.942.6.15.78.0-1.311.312.914.816.39.412.014.717.01.9.9.1—.71950 -195119521953195419551956 _-_195719581959I960196119621963 _196419651966*60.278.892.693.192.897.8109.6116.2115.3123.9138.6141.0153.3162.9169.9183.0209.961.078.193.3100.195.099.9105.0116.4124.8132.8134.8148.4158.0166.5173.6185.9212.5-.8.7—.7-7.0-2.2-2.14.7—.2-9.5-8.93.7-7.4-4.8-3.6-3.7-3.0-2.642.459.371.370.268.671.480.384.581.787.698.397.9106.2112.6115.0123.4145.142.058.072.077.469.772.274.783.489.095.694.7104.7111.9117.2120.3127.9150.9.51.2-.6-7.2-1.1-.75.61.1-7.2-8.03.6-6.8—5.7-4.6-5.2-4.5-5.717.819.521.322.924.226.429.331.733.536.440.343.147.150.354.959.664.819.020.021.322.725.327.730.233.035.937.340.143.746.249.353.458.061.6-1.3-.5m 2-1.1-1.4-.9-1.3-2.3-.92-.5.91.11.61.63.21 For derivation of Federal cash receipts and payments, see Budget of the United States Government for theFiscal Year ending June 80, 1968, and Table B-64.2 Estimated by Council of Economic Advisers from receipts and expenditures in the national incomeaccounts. Cash receipts consist of personal tax and nontax receipts, indirect business tax and nontaxaccruals, and corporate tax accruals adjusted to a collection basis. Cash payments are total expendituresless Federal grants-in-aid and less contributions for social insurance. (Federal grants-in-aid are thereforeexcluded from State and local receipts and payments and included only in Federal payments.) See TableB-62.3 Surplus of $49 million.4 Estimate.s Deficit of $13 million.Sources: Treasury Department, Bureau of the Budget, Department of Commerce (Office of BusinessEconomics), and Council of Economic Advisers.240-782 0—67- -19285

TABLE B-62.—Government receipts and expenditures in the national income and product accounts1929-66[Billions of dollars]Calendar year or quarter1929..1930..1931-1932..1933-1934..1935-1936-1937..1938-1939..1940..1941-1942..1943-1944..1945..1946..1947..1948..1949-1950.1951.1952.1953.1954.1955.1956.1957.1958.1959.I960.1961.1962.1963-1964-1965-1966Total government11.310.89.58.99.310.511.412.915.415.015.417.725.032.649.251.253.250.956.858.956.068.784.889.894.389.7100.4109.0115.6114.7128.9139.8144.6157.0168.8174.2189.0«212.210.311.112.410.610.712.913.416.115.016.817.618.428.864.093.3103.092.745.542.450.359.160.879.093.7101.296.797.6104.1114.9127.2131.0136.1149.0159.9166.9175.6185.8208.71.0-.3-2.9-1.8-1.4-2.4-2.0-3.1.3-1.8-2.2-.7-3.8-31.4-44.1-51.8-39.55.414.48.5-3.27.85.8-3.8-6.9-7.02.74.9.7-12.5-2.13.7-4.3-2.91.8-1.43.23.5Federal Government 13.83.02.01.72.73.54.05.07.06.56.78.615.422.939.341.042.539.143.243.338.949.964.067.270.063.872.177.681.678.789.796.598.3106.4114.5115.1124.94 142. 42.62.84.23.24.06.46.58.77.48.68.910.020.556.185.895.584.635.629.834.941.340.857.871.077.069.768.171.979.688.991.093.0102.1110.3113.9118.1123.4142.2ReceiptsExpendituresSurplusordeficit(-), nationalincomeandproductaccountsReceiptsExpendituresState and localgovernmentSurplusordeficit(-), nationalReceiptpendi-Ex-incomeand turesproductaccounts1.2 7.6 7.8.3 7.8 8.4—2 1 7.7 8.5-L5 7.3 7.6-1.3 7.2 7.2-2.9 8.6 8.1-2.6 9.1 8.6-3.6 8.6 8.1-.4 9.1 8.4-2.1 9.3 9.0-2.2 9.6 9.6-1.3 10.0 9.3-5.1 10.4 9.1-33.1 10.6 8.8-46.6 10.9 8.4-54.5 11.1 8.5-42.1 11.6 9.03.5 12.9 11.013.4 15.3 14.38.4 17.6 17.4-2.4 19.3 20.09.1 21.1 22.36.2 23.3 23.7-3.8 25.2 25.3-7.0 27.2 27.0-5.9 28.8 29.94.0 31.4 32.75.7 34.7 35.62.1 38.2 39.5-10.2 41.6 44.0-1.2 46.0 46.83.5 49.9 49.6-3.8 53.6 54.1-3.857.6.762.2-3.067.91.6 75.3.2 4 84. 373.781.0Seasonally adjusted annual rates1964: I—II..III.IV.1965:II...III..IV..1966: IIIIIIIV P._172.3170.8175.4178.3186.5188.5188.6192.6203.1209.5215.9173.2176.5176.2176.2180.1182.4189.6191.2198.4202.2212.5221.6-0.9-5.7-.82.16.46.1-1.01.44.77.33.3115.3112.3115.4117.2124.0125.0123.8126.9136.0141.0145.3117.2119.1118.4117.7119.6120.6126.3127.0133.7137.1145.8152.2-1.9-6.7-3.0-.54.54.4-2.5_ 22.33.8-.566.868.770.872.073.474.675.977.380.183.285.965.767.668.669.571.572.974.475.777.779.782.184.71 See Note, Table B-63.2 Surplus of $32 million,a Deficit of $41 million.4 Data for corporate profits are.approximations for the year as a whole; data for fourth quarter are notavailable. All other data incorporating or derived from these figuresare correspondingly approximate.NOTE.—Federal grants-in-aid to State and local governments are reflected in Federal expenditures andState and local receipts and expenditures. Total government receipts and expenditures have been adjustedto eliminate this duplication.Data for Alaska and Hawaii included beginning 1960.Source: Department of Commerce, Office of Business Economics.286

TABLE B-63.—Federal Government receipts and expenditures in the national income andproduct accounts, 1946-68[Billions of dollars]Year or quarter TotalFiscal year:194619471948194919501951195219531954195519561957195819591960196119621963196419651967119681Calendar year:194619471948194919501951195219531954195519561957195819591960196119621963196419651966 PCalendarquarter:1964: IIII1965: IIIIIIIV1966: III38.442.743.640.042.060.865.169.365.867.275.880.777.985.494.895.3104.2110.2115.5120.6132.6149.8167.139.143.243.338.949.964.067.270.063.872.177.681.678.789.796.598.3106.4114.5115.1124.9142.4115.3112.3115.4117.2124.0125.0123.8126.9136.0141.0145.3Personaltaxandnon-+ LdX QYceipts16.918.820.016.316.523.228.831.430.329.733.636.736.338.242.543.647.349.650.751.357.965.576.817.219.619.016.118.126.131.032.229.031.435.237.436.839.943.644.748.651.548.654.261.950.446.248.149.653.454.953.854.757.160.763.965.8ReceiptsCorporateprofitstaxac-8.310.611.211.011.921.519.319.717.318.721.120.617.821.522.320.322.923.525.627.830.732.335.38.610.711.89.817.021.518.519.517.020.620.620.218.022.521.721.822.724.626.529.1231.526.026.426.826.728.728.728.930.331.931.931.6crualsIndirectbusinesstaxand7 47.97.98.08.29.59.710.710.410.010.811.711.611.913.213.314.215.015.616.915.916.516.97.87.88.08.08.99.410.310.99.710.711.211.811.512.513.513.614.615.316.216.816.015.516.116.616.517.516.816.316.715.216.116.216.55.85.54.64.85.56.67.37.57.88.710.211.712.213.816.718.119.922.123.624.628.135.538.1Total55.529.530.939.642.444.666.075.874.267.369.876.083.190.991.398.0106.4111.4116.9118.3132.3153.6169.2nontaxaccrualsContributionsforsocialinsurancePurchasesofgoodsandservices40.113.013.219.319.025.146.656.153.243.945.247.750.754.752.755.560.963.465.764.371.783.691.9ExpendituresTransferpaymentsTopersons8.38.78.111.38.18.59.310.512.112.814.417.819.820.623.625.126.427.328.232.037.444.0Toforeigners(net)1.82.65.04.33.12.62.11.72.11.81.91.71.81.82.12.12.12.22.22.32.42.65.5 35.6 17.2 9.2 2.25.1 29.8 12.5 8.8 1.94.5 34.9 16.5 7.6 3.84.9 41.3 20.1 8.7 5.15.9 40.8 18.4 10.8 3.67.1 57.8 37.7 8.5 3.17.4 71.0 51.8 8.8 2.17.4 77.0 57.0 9.5 2.08.1 69.7 47.4 11.5 1.89.3 68.1 44.1 12.4 2.010.6 71.9 45.6 13.4 1.912.2 79.6 49.5 15.7 1.812.4 88.9 53.6 19.5 1.814.8 91.0 53.7 20.1 1.817.7 93.0 53.5 21.5 1.918.2 102.1 57.4 24.9 2.120.5 110.3 63.4 25.5 2.223.1 113.9 64.2 27.0 2.223.9 118.1 65.2 27.8 2.224.8 123.4 66.8 30.3 2.233.0 142.2 77.0 34.2 2.3Seasonally adjusted annual rates23.423.724.024.424.524.624.725.231.732.233.634.3117.2119.1118.4117.7119.6120.6126.3127.0133.7137.1145.8152.264.966.665.164.164.465.667.569.871.974.079.082.528.327.527.627.729.228.432.530.832.632.634.537.22.22.32.22.12.02.52.21.92.82.22.42.0Grantsin-aidto Stateandlocalgovernments0.91.51.82.12.42.42.52.82.93.03.23.74.76.26.86.97.68.49.810.912.914.816.71.11.72.02.22.32.52.62.82.93.13.34.25.66.86.57.28.09.110.411.214.610.210.811.011.011.111.111.613.014.615.315.3Netinterestpaid3.74.24.24.34.44.64.84.85.04.95.15.55.75.97.06.86.87.58.18.59.110.010.54.24.24.34.44.54.74.74.95.04.95.35.75.66.47.16.67.27.78.38.79.68.28.28.48.48.68.78.88.89.39.59.710.0SurplusSubsidiesdefi-orcitless (-),currention-na-surplusinalof comegovernmentprod-anductenterprisesaccounts2.1.7.5.81.01.31.1.91.01.31.72.82.52.42.33.23.83.63.84.14.55.43.51.6.6.7.81.21.31.0.81.11.52.42.62.72.12.53.84.03.64.24.24.64.04.24.44.44.34.24.14.14.14.24.85.2-17.113.212.7.4-.516.2-1.0-6.5-8.5-.16.04.7-5.1-5.53.5-2.7-2.1-1.2-1.42.3.3-3.8-2.13.513.48.4-2.49.16.2-3.8-7.0-5.94.05.72.1-10.2-1.23.5-3.8-3.8.7-3.01.62.2-1.9-6.7-3.0-.54.54.4-2.5-.22.33.8-.51 Estimate.2 Data for corporate profits are approximations for the year as a whole; data for fourth quarter are not available.All other data incorporating or derived from these figuresare correspondingly approximate.NOTE.—These accounts, like the cash budget, include the transactions of the trust accounts. Unlikeboth the administrative budget and the cash statement, they exclude certain financial transactions. Ingeneral, they do not use the cash basis for transactions with business. Instead, corporate profits taxesare included in receipts on an accrual instead of a cash basis; expenditures are timed with the delivery insteadof the payment for goods and services; and CCC guaranteed price-support crop loans financedby banks are counted as expenditures when the loans are made, not when CCC redeems them.Data for Alaska and Hawaii included beginning 1960.Sources: Department of Commerce (Office of Business Economics) and Bureau of the Budget.287

TABLE B-64.—Relation of three measures of Federal Government receipts and expenditures,fiscal years, 1964-68•*[Billions of dollars]Receipts or expendituresFiscal years1964 1965 1966 1967 2 1968RECEIPTSAdministrative budget receiptsPlus: Trust fund receiptsLess: Intragovernmental transactionsReceipts from exercise of the monetary authorityEquals: Federal receipts from the publicLess:Exclusions from the Federal sector, national income89.530.34.2.1115.593.131.04.3.1119.7104.734.94.5.6134.5117.044.96.21.1154.7126.948.16.5.5168.1accounts:Loans repaid. __Items classified in another sector:District of ColumbiaForeign assistance, military trustPlus:Exclusions from Federal receipts from the public:Excess of accruals over collectionsEmployer/employee contributions to Federal retirementfundsPlus:Miscellaneous retting, grossing, and related adjust-.72.01.12.2.3-1.22.3.4.31.1-3.92.3.41.4.42.3ments:Receipts netted against expenditures, etcOtherEquals: Federal receipts, national income and product accounts.-1.2-.1115.5-.7-.2120.6-1.2-.5132.6-1.0-.5149.8-1.0-.7167.1EXPENDITURESAdministrative budget expendituresPlus: Trust fund expenditures 3 ...Less: Intragovernmental transactionsDebt issued in lieu of checks and other adjustments..Equals: Federal payments to the publicLess: Exclusions from the Federal sector:Loans and financial transactions:Lending: NetFederal land banks and Federal home loan banks..Acquisition of foreign currency for financing agriculturalexportsItems classified in other sectors:District of ColumbiaForeign assistance, military trustPlus: Exclusions from Federal payments to public:Excess of deliveries or accruals over paymentsEmployer/employee contributions to Federal retirementfundsPlus: Miscellaneous netting, grossing, and related adjustments:Receipts netted against expendituresOtherEquals: Federal expenditures, national income and productaccounts97.728.94.22.0120.32.01.81.1.52.0-1.21.1116.996.529.64.3-.6122.43.31.21.22.2-.7.5118.3107.034.94.5-.4137.83.21.91.02.3-1.21.0132.3126.740.96.2.6160.94.31.71.1.51.1.22.3-1.0153.6135.044.56.5.7172.41.8.21.0.61.4.42.3-1.0.1169.2* The Federal sector receipts and expenditures are identical to those published by the Department ofCommerce in the Survey of Current Business.2 Data for 1967 and 1968 are estimates.3 Includes Government sponsored enterprises, net.NOTE.—Data for Alaska and Hawaii included.Sources: Bureau of the Budget and Department of Commerce (Office of Business Economics).288

TABLE B-65.—State and local government revenues and expenditures, selected fiscal years, 1927-65[Millions of dollars]General revenues by source 2General expenditures by function *Fiscal year 1andgrossreceiptstaxesincometaxesIndividualCorporationnetincometaxesRevenuefromFederalGovernmentAllotherrevenue3TotalEducationHigh-PublicwelfareAllother«1927193219341936193819401942194419461948...19501952195319541955195619571958195919601961196219631962-63 51963-64 51964-65 57,2717,2677,6788,3959,22810, 41810,90812, 35617, 25020,91125,18127, 30729, 01231, 07334, 66738,16441, 21945,30650, 50554, 03758,25262,89068, 44374,3414,7301,487t, 076t, 093[,440t, 430[,5374,6044,9866,1267,3498,6529,3759,96710, 73511, 74912, 86414,04714, 98316,40518,00219, 05420, 08919,83321, 24122,9184707521,0081,4841,7941,9822,3512,2892,9864,4425,1546,3576,9277,2767,6438,6919,4679,82910,43711, 84912, 46313,49414, 45614, 44615, 76217,1187074801532182242763424225437889981,0651,1271,2371,5381,7541,7591,9942,4632,6133,0373,2693,2673,7914,0909279491131651562724514475925938468177787448909841,0181,0011,1801,2661,3081,5051,5051,6951,9291162321,0169488009458589548551,8612,4862,5662,8702,9663,1313,3353,8434,8656,3776,9547,1317,8718,72210,00211,0291,7931,6431,4491,6041,8111,8722,1232,2692,6613,6854,5415,7636,2526,8977,5848,4659,2529,69910, 51611,63412,56313,48914,85014, 55515, 95217,2577,2107,7657,1817,6448,7579,2299,1908,86311,02817, 68422, 78726,09827, 91030, 70133, 72436, 71140, 37544,85148, 88751, 87656, 20160,20664, 81663,97769,30274, 7862,2352,3111,8312,1772,4912,6382,5862,7933,3565,3797,1778,3189,39010, 55711, 90713, 22014,13415, 91917, 28318, 71920, 57422, 21623, 77623, 72926, 28628,8031,8091,7411,5091,4251,6501,5731,4901,2001,6723,0363,8034 ;6504,9875, 5276,4526,9537,8168,5679,5929,4289,84410,35711,13611,15011, 66412,2211514448898271,1561,2251,1331,4092,0992,9402,7882,9143,0603,1683,1393,4853,8184,1364,4044,7205,0845,4815,4205,7666,3153,0153,2692,9523,2153,5473,8623,8893,7374,5917,1708,86710,34210, 61911, 55712,19713,39914,94016,54717, 87619, 32421,06322, 54924, 42323, 67825, 58627,4471 2 Fiscal years not the same for all governments. See footnote 5.Excludes revenues or expenditures of publicly owned utilities and liquor stores, and of insurance-trustactivities. Intergovernmental receipts and payments between State and local governments are alsoexcluded.34 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, intereston 5 general debt, and other unallocable expenditures.Data for fiscal year ending in the 12-month period through June 30. Data for 1963 and earlier yearsinclude local government amounts grouped in terms of fiscalyears ended during the particular calendaryear.NOTE.—Data are not available for intervening years.Data for Alaska and Hawaii included beginning 1959 and 1960, respectively.See Table B-55 for net debt of State and local governments.Source: Department of Commerce, Bureau of the Census.289

Year orquarterCORPORATE PROFITS AND FINANCETABLE B-66.—Profits before and after taxes, all private corporations, 1929-66[Billions of dollars]Corporate profits (before taxes) andinventory valuation adjustmentManufacturingTotalAllindustriesDurablegoodsindustriesNondurablegoodsindustriesTransportation,communication,andpublicutilitiesAllotherindustriesCorporateprofitsbeforetaxesCorporatetaxliabilityiCorporate profitsafter taxesDividendTotalpaymentsUndistributedprofitsCorporatecapitalconsumptionallowances2Profitspluscapitalconsumptionallowances'192910.55.22.62.61.83.410.01.48.65.82.84.212.81930193119321933193419351936-1937193819391940194119421943.1944194519461947194819497.02.0-1.3-1.21.73.45.66.84.96.39.815.220.324.423.819.219.325.633.030.83.91.3-.5-.41.12.13.23.82.33.35.59.511.813.813.29.79.013.617.616.21.5*-1.0-.4.3.91.71.7.81.73.16.47.28.17.44.52.45.87.58.12.41.3.5*.81.11.52.11.61.72.43.14.65.75.95.26.67.810.08.11.2.5.2.4.4.7.8.51.01.32.03.44.43.92.71.82.23.03.01.9.2-.9-.8.3.91.72.22.12.03.03.75.16.26.76.78.59.912.511.63.7-.4-2.31.02.33.66.36.84.07.010.017.721.525.124.119.724.631.535.228.9.8.5.4.5.71.01.41.51.01.42.87.611.414.112.910.79.111.312.510.42.9-.9-2.7.41.62.64.95.32.95.67.210.110.111.111.29.015.520.222.718.55.54.12.52.02.62.84.54.73.23.84.04.44.34.44.64.65.66.37.07.2-2.6-4.9-5.2-1.6-1.0-.2.4.6-.21.83.25.75.96.66.54.49.913.915.611.34.34.34.03.83.63.63.63.63.73.73.84.25.05.46.16.44.75.87.07.97.23.51.34.25.26.38.58.96.69.311.014.415.216.417.215.420.226.029.726.5195019511952—195319541955 -195619571958—195937.742.739.939.638.046.946.145.641.151.720.924.621.622.019.926.024.724.019.326.312.013.211.711.910.514.312.813.39.313.68.911.49.910.19.411.811.910.710.012.74.04.64.95.04.75.65.95.85.97.012.713.513.312.613.415.215.615.815.918.442.643.938.940.638.348.648.847.241.452.117.822.319.420.317.721.621.721.219.023.724.921.619.620.420.627.027.226.022.328.58.88.68.68.99.310.511.311.711.612.616.013.011.011.511.316.515.914.210.815.98.810.311.513.215.017.418.920.822.023.533.731.831.033.535.544.446.146.844.352.01960196119621963196419651966* .49.950.355.758.966.674.279.824.423.326.628.832.437.840.712.011.414.115.817.922.123.512.411.912.513.014.515.717.27.57.98.59.510.411.112.017.919.120.520.623.825.327.149.750.355.459.467.075.781.823.023.124.226.328.431.233.726.727.231.233.138.744.548.113.413.815.216.517.319.220.913.213.516.016.621.325.327.124.926.230.131.833.936.338.851.653.561.364.872.580.886.8Seasonally adjusted annual rates1964: IIIIII65.366.567.866.832.132.433.032.218.117.718.417.514.114.614.614.710.110.210.610.523.023.924.224.)65.866.867.867.727.928.328.728.638.038.539.139.017.117.317.417.720.921.321.721.432.933.534.234.870.972.073.373.91965: IIIIIIIV73.272.774.076.937.436.737.439.621.921.221.923.215.515.515.516.410.710.911.211.525.125.125.325.874.574.575.078.730.730.730.932.443.843.844.146.318.118.819.520.225.725.024.626.135.236.036.837.279.079.880.983.51966: IIIIIIIV J>80.079.979.141.940.639.524.723.422.517.217.217.011.312.012.226.727.227.482.782.881.934.134.133.748.748.748.220.921.121.120.727.827.627.137.738.539.139.786.487.187.31 Federal and State corporate income and excess profits taxes,a Includes depreciation and accidental damages.3 Corporate profits after taxes plus corporate capital consumption allowances.4 Data for corporate profits are approximations for the year as a whole; data for fourth quarter are notavailable. All other data incorporating or derived from these figures are correspondingly approximate.NOTE.—Beginning 1962 data reflect the new depreciation guidelines issued by the Treasury DepartmentJuly 11,1962, and the investment tax credit provided in the Revenue Act of 1962.Source: Department of Commerce, Office of Business Economics.290

TABLE B—67.—Sales, profits, and stockholders* equity, all manufacturing corporations (exceptnewspapers), 7947—66[Billions of dollars]All manufacturingcorporationsDurable goods industriesNondurable goodsindustriesYear orquarterProfitsSales(net)BeforetaxesAftertaxesStockholders'equity »Sales(net)BeforetaxesProfitsAftertaxesStockholdersequity :Sales(net)BeforetaxesProfitsAftertaxesStockholders'equity l1947-1948-1949-1950-1951-1952-1953-1954-1955-1956-1957-1958-1959-1960-1961-1962-1963-1964-1965..150.7165.6154.9181.9245.0250.2265.9248.5278.4307.3320. 0305.3338.0345.7356.4389.9412.7443.1492.216.618.414.423.227.422.924.420.928.629.828.222.729.727.527.531.934.939.646.510.111.59.012.911.910.711.311.215.116.215.412.716.315.215.317.719.523.227.565.172.277.698.3103.7108.2113.1120.1131.6141.1147.4157.1165.4172.6181.4189.7199.8211.766.675.370.386.8116.8122.0137.9122.8142.1159.5166.0148.6169.4173.9175.2195.5209.0226.3257.07.68.97.512.915.412.914.011.416.516.515.811.415.814.013.616.718.521.226.24.55.44.56.76.15.55.85.68.18.37.95.88.17.06.98.69.511.614.531.134.137.047.249.852.454.958.865.270.572.877.982.384.989.193.398.5105.484.190.484.695.1128.1128.0128.0125.7136.3147.8154.1156.7168.5171.8181.2194.4203.6216.8235.29.09.57.010.312.110.010.412.113.212.411.313.913.513.91S.116.418.320.35.66.24.66.15.75.25.55.67.07.87.56.98.38.28.59.210.011.613.034.038.140.643.551.153.955.758.261.366.470.674.679.283.187.792.396.3101.3106.31964: IIIIIIV1965: IIIIIV1966: III—_III104.6111.9110.2116.5114.9124.0121.5131.9129.9141.0137.89.010.69.610.310.712.311.012.512.414.012.35.16.15.76.36.27.26.67.57.28.47.4195.2198.5201.7203.6205.4209.7213.6218.1222.4228.6233.453.358.655.259.260.066.062.069.068.075.471.14.96.14.85.46.17.25.87.17.08.26.52.53.32.73.14.03.34.03.84.63.796.297.999.5100.4102.2104.6106.4108.2110.0114.2117.151.353.354.957.354.958.059.462.961.965.666.74.14.64.84.94.65.15.25.45.45.85.82.62.93.03.22.93.23.33.53.43.73.799.1100.6102.2103.2103.2105.1107.2109.9112.4114.3116.3i Annual data are average equity for the year (using four end-of-quarter figures).NOTE.—For explanatory notes concerning compilation of the series, see Quarterly Financial Report forManufacturing Corporations, Federal Trade Commission and Securities and Exchange Commission.Data are not necessarily comparable from one period to another due to changes in accounting procedures,industry classifications, sampling procedures, etc. Specific information about the effects of the moresignificant changes and revisions is contained in the following issues of the Quarterly Financial Report:third quarter 1953, third quarter 1956, first quarter 1959, and first quarter 1965.Comparability for certain industries was affected by changes noted in the following reports: fourthquarter 1952, first quarter 1955, second quarter 1960, third quarter 1960, fourth quarter 1965, and secondquarter 1966.Data for Alaska and Hawaii included for all periods.Sources: Federal Trade Commission and Securities and Exchange Commission.291

TABLE B-68.—Relation of profits after taxes to stockholders' equity and to sales, all manufacturingcorporations {except newspapers), by industry group, 1947-66Year orquarter19471948194919501951.195219531954195519561957195819591960196119621963196419651965:1966:194719481949195019511952195319541955.1956195719581959.19601961.1962196319641965.1965:1966:IIIIIIIVI.IIIIIIIIIllIVIIIIllAllmanufacturingcorporations(exceptnewspapers)15.616.011.615.412.110.310.59.912.612.310.98.610.49.28.99.810.311.613.012.113.812.313.713.014.712.76.77.05.87.14.84.34.34.55.45.34.84.24.84.44.34.54.75.25.65.45.85.45.75.65.95.4Durable goods industriesTotaldurableMotorvehiclesandequipmentAircraftandpartsElectricalmachinery,equipmentandsuppliesMachinery(exceptelectrical)FabricatedmetalproductsPrimaryironandsteelindustriesPrimarynonferrousmetalindustriesStone,clay.andglassproductsFurnitureandfixturesLumberandwoodproducts(exceptfurniture)InstrumentsandrelatedproductsRatio of profits after Federal taxes (annual rate) to stockholders' equity—percent14.415.712.116.913.011.111.110.313.812.811.38.010.48.58.19.610.111.713.812.915.312.414.614.016.212.66.77.16.47.75.34.54.24.65.75.24.83.94.84.03.94.44.55.15.75.56.15.35.75.66.25.216.419.922.125.314.313.913.914.121.713.114.28.214.513.511.416.316.716.919.522.923.510.321.420.619.75.56.06.97.98.34.74.73.95.16.35.25.44.06.35.95.56.96.97.07.28.18.24.87.37.37.12.817.713.28.17.39.812.711.312.215.212.214.716.417.214.615.912.719.016.113.620.914.013.713.112.412.311 412.510.212.59.58.910.010.111.213.511.713.113.216.014.315.514.615.716.311.614.113.011.39.88.610.312.610.76.99.77.57.89.19.612.514.112.015.814.414.314.417.014.817.617.010.416.013.410.1*9.87.610.010.79.37.38.05.65.97.98.310.113.211.315.014.112.513.916.615.612.014.710.014.312.38.510.78.113.512.711.47.28.07.26.15.47.08.89.811.011.58.67.99.112.29.712.414.28.115.113.811.611.110.415.516.49.36.07.97.17.17.57.69.811.911.813.310.412.214.016.213.614.015.013.117.714.211.711.812.515.614.912.410.212.79.98.98.98.79.610.34.612.113.510.85.912.912.3Profits after taxes per dollar of sales—cents2.92.41.61.41.82.42.32.63.32.73.13.63.53.13.22.76.35.95.77.25.04.54.14.54.43.84.23.84.43.53.53.73.84.24.84.34.64.75.24.85.14.97.27.36.47.35.54.84.24.45.15.44.83.74.83.94.14.54.75.86.25.76.66.36.16.36.96.47.47.15.16.85.04.03.63.13.84.03.63.13.22.42.53.13.23.74.54.25.14.84.14.85.35.16.67.66.57.95.84.75.35.37.26.76.65.45.45.14.63.94.85.65.76.26.25.25.25.46.45.48.99.06.910.27.86.76.36.68.39.36.64.75.85.45.35.55.36.57.37.67.76.77.38.08.57.77.98.68.610.17.16.66.57.48.68.27.56.87.96.65.85.65.35.65.93.16.77.26.03.96.86.518.015.98.115.211.38.68.26.09.211.68.56.38.96.54.97.98.310.113.49.813.014.516.012.415.914.56.05.53.35.13.42.72.62.12.93.42.62.02.72.11.62.32.42.93.72.93.74.04.23.64.23.922.919.29.117.511.98.57.16.311.18.74.75.79.43.64.15.68.29.910.16.710.712.710.18.114.611.211.49.95.99.45.54.13.53.45.43.92.32.84.21.71.92.53.33.94.02.94.24.73.93.35.24.114.414.012.116.713.211.611.412.312.512.412.010.613.111.610.612.012.114.417.514.716.017.721.517.620.522.07.77.87.18.66.14.84.65.56.05.85.75.46.55.95.45.96.07.28.67.88.09.09.58.59.310.1Miscellaneousmanufacturing(includingordnance)14.012.27.212.39.77.08.27.58.511.67.78.29.39.29.99.48.89.510.78.710.59.414.112.213.415.76.35.63.65.63.72.72.92.83.13.62.53.03.53.53.63.43.33.63.83.63.93.44.14.24.25.1See footnotes at end of table.292

TABLE B-68.—Relation of profits after taxes to stockholders' equity and to sales, all manufacturingcorporations {except newspapers), by industry group, 1947-66—ContinuedNondurable goods industriesYear or quarterTotalnondurable^FoodandkindredproductsTobaccomanufacturesTextilemillproductsApparelandrelatedproductsPaperandalliedproductsPrintingandpublishing(exceptnewspapers)ChemicalsandalliedproductsPetroleumrefiningRubberandmiscellaneousplasticproductsLeatherandleatherproductsRatio of profits after Federal taxes {annual rate) to stockholders* equity—percent*19471948194916.616.211.217.612.811.810.113.612.619.518.77.618.912.17.522.016.410.717.214.711.415.915.813.212.412.38.714.010.46.2195019511952195319541955 —1956... _.1957 _19581959 -14.111.29.79.99.611.411.810.69.210.412.38.17.68.18.18.99.38.78.79.311.59.58.49.410.211.411.712.513.513.412.78.24.24.61.85.75.84.23.57.510.12.94.45.14.56.18.16.34.98.616.213.910.510.19.911.511.68.98.19.511.510.39.19.49.210.213.011.79.011.417.812.210.910.711.614.714.213.311.413.715.213.313.412.713.413.912.510.09.816.914.811.111.310.613.212.211.19.111.010.92.15.86.05.98.57.27.05.78.51960.1961.1962.1963.1964.1965.1965: I.IL III.IV..: I ...II...III..9.89.69.910.411.512.211.412.212.312.812.113.112.88.78.98.89.010.010.79.510.411.611.210.011.212.313.413.613.113.413.413.511.514.314.613.612.114.815.35.85.06.26.18.510.910.510.912.09.410.910.47.77.29.37.711.712.79.510.815.315.011.013.814.68.57.98.18.19.39.48.39.49.110.710.211.310.010.68.510.39.212.614.213.812.415.614.715.015.616.412.211.812.412.914.415.314.516.415.015.115.216.614.710.110.310.111.311.411.811.611.811.512.512.212.212.19.19.39.69.210.611.710.211.711.113.711.013.311.96.34.46.96.910.511.610.910.511.213.813.212.712.6Profits after taxes per dollar of sales—cents1947.1948.1949.6.76.85.44.23.33.34.15.25.18.28.34.14.63.12.110.78.56.56.15.24.58.88.88.24.44.73.84.33.32.21950.1951.1952.1953.1954.1955.1956.1957-1958.1959.6.54.54.14.34.45.15.34.94.44.93.42.01.92.02.12.32.42.22.22.44.93.83.23.74.24.85.05.25.45.45.83.41.92.21.02.62.61.91.63.02.8.61.01.21.11.31.61.31.01.58.86.65.75.45.66.16.15.04.75.24.53.73.33.43.43.64.23.73.14.010.36.56.16.16.88.38.07.67.07.911.110.110.410.611.111.610.69.59.55.84.53.63.84.04.44.44.23.54.03.7.61.81.81.92.52.12.01.72.21960.1961.1962.1963.1964.1965.1965: I....II...III.IV..1966: I....II—III.4.84.74.74.95.45.55.45.55.65.65.55.75.62.32.32.32.42.72.72.52.73.02.82.62.82.95.55.75.75.95.95.95.56.06.15.95.46.26.32.52.12.42.33.13.83.73.83.84.13.43.93.71.41.31.61.42.12.31.92.02.72.52.12.52.55.04.74.64.55.14.94.55.04.85.45.35.65.03.62.83.43.24.34.84.94.35.34.75.15.15.57.57.37.47.57.97.97.78.27.97.98.08.27.69.910.39.710.810.911.110.911.010.911.411.111.011.23.63.83.73.64.14.33.94.14.14.94.04.64.41.61.11.81.82.62.82.72.72.73.13.13.03.01 Includes certain industries not shown separately.2 Annual ratios based on average equity for the year (using four end-of-quarter figures). Quarterlyratios based on equity at end of quarter only.NOTE.—Ratios based on data in millions of dollars.For explanatory notes concerning compilation of the series, see Quarterly Financial Report for ManufacturingCorporations, Federal Trade Commission and Securities and Exchange Commission. See also Note,Table B-67.Data for Alaska and Hawaii included for all periods.Sources: Federal Trade Commission and Securities and Exchange Commission.

TABLE B-69.—Sources and uses of funds, nonfarm nonfinancial corporate business, 1955-66[Billions of dollars]Source or use of funds 195519561957195819591960196119621963196419651966Sources, totalInternal sources *Undistributed profits iCorporate inventoryvaluation adjustmentCapital consumptionallowances 1External sourcesStocksBondsMortgagesBank loans, n.e.cOther loansTrade debtProfits tax liability...Other liabilitiesUses, totalPurchases of physicalassetsNonresidential fixedinvestmentResidential structuresChange in businessinventoriesIncrease in financial assets2Liquid assetsDemand depositsand currency.-.Time depositsU.S. Governmentsecurities __.Finance companypaperC onsumer creditTrade creditOther financial assets.Discrepancysources)(uses less53.629.213.9-1.717.024.51.92.8.73.2•8.74.13.051.431.525.8.84.919.95.21.0-.14.2 -4.5.1.711.42.3-2.247.228.913.2-2.718.418.32.33.6.44.4*5.7-2.03.943.135.930.7.44.97.2-4.2.1*.1.47.53.4-4.142.030.611.8-1.520.311.42.46.3.41.1.7.5-2.12.240.034.733.4.7.6 -2.55.3-.1**-.4.3.22.62.5-2.042.229.58.3-.321.412.72.15.71.2-.6.24.3-2.62.442.127.328.41.414.82.51.5.9*.1.57.93.5-.155.535.012.6-.522.920.52.23.01.23.0.34.92.43.654.336.931.11.74.117.45.6-1.0-.46.6 -5.4.4.87.23.3-1.147.334.410.0.224.212.91.63.5.71.31.03.1-2.24.045.339.234.91.33.06.1-3.9-.51.3.7.26.33.7-2.054.735.610.2-.125.419.12.54.61.8.1.36.61.21.955.037.033.22.21.518.03.51.71.9-.2.1.110.04.663.341.812.4.329.221.5,64.62.92.5.74.51.14.761.644.737.03.04.716.94.1-.93.7.5.9.98.24.1.3 -1.665.943.913.6-.530.822.0-.33.93.52.9.56.01.54.065.846.738.63.74.319.14.3-.83.9.7.78.54.8-.170.550.818.5-.432.819.71.44.03.33.61.33.4.91.867.152.244.13.74.414.9.7-2.53.21.51.09.14.0-3.388.055.321.7-1.535.132.7*5.43.28.71.37.92.04.287.361.951.33.96.825.4.6-1.93.9.5 -1.4 -2.1.71.213.79.3-.794.058.623.0-2.037.635.4.810.12.26.22.27.8-.36.492.073.859,93.011.018.2-2.51 The figures shown here for "internal sources," "undistributed profits," and "capital consumptionallowances" differ from those shown for "cash flow,net of dividends," "undistributed profits" and "capitalconsumption allowances" in the gross corporate product table in the national income and productaccounts of the Department of Commerce for the following reasons: (1) these figures include, and thestatistics in the gross corporate product table exclude, branch profits remitted from foreigners net of correspondingU.S. remittances to foreigners; and (2) these figuresexclude, and the gross corporate productfigures include, the internal funds of corporations whose major activity is farming.2 Includes some categories not shown separately.NOTE.—Includes data for Alaska and Hawaii.Source: Board of Governors of the Federal Reserve System.-2.0-.7-1.92.11.213.26.3-2.0294

TABLE B-70.—Current assets and liabilities of United States corporations, 1939-66[Billions of dollars]Current assetsCurrent liabilitiesEnd of yearor quarterTotalCashonhandandinbanksU.S.GovernmentsecuritiesReceivablesfromU.S.Government1OthernotesandaccountsreceivableInventoriesOthercurrentassets2TotalAdvancesandprepay-ments,U.S.Government1OthernotesandaccountspayableFederalincometaxliabilitiesNetOther workcur-ingrent capilia-bili-tiestal1939194019411942164319441945194619471948194954.560.372.983.693.897.297.4108.1123.6133.0133.110.813.113.917.621.621.621.722.825.025.326.52.22.04.010.116.420.921.115.314.114.816.80.1.64.05.04.72.7.738.342.443.022.123.927.423.321.921.823.230.018.019.825.627.327.626.826.337.644.648.945.31.41.51.41.31.31.42.41.71.61.61.430.032.840.747.351.651.745.851.961.564.460.70.6.82.02.21.837.639.337.521.922.625.624.024.125.024.831.51.22.57.112.616.615.510.48.510.711.59.37.17.28.78.79.49.711.813.213.514.024.527.532.336.342.145.651.656.262.168.672.41950 161.51951 179.11952.21953 . 190.61954 194.628.130.030.831.133.419.720.719.921.519.21.12.72.82.62.455.758.864.665.971.255.164.965.867.265.31.72.12.42.43.179.892.696.198.999.7.41.32.32.22.447.953.657.057.359.316.721.318.118.715.514.916.518.720.722.581.686.590.191.894.91955195619571958195919601961New series 319611962196319641965224.0237.9244.7255.3277.3289.0306.8304.6326.5351.7372.6407.934.634.834.937.436.337.241.140.743.746.547.149.223.519.118.618.822.820.120.019.219.620.218.816.72.32.62.82.82.93.13.43.43.73.63.43.995.199.4106.9117.7126.1135.8133.3144.2156.8170.6189.672.880.482.281.988.491.895.295.2100.7107.0114.0126.34.25.96.77.59.110.611.412.914.717.818.822.1121.0130.5133.1136.6153.1160.4171.2155.8170.9188.2200.3224.52.32.42.31.71.71.81.81.82.02.52.73.173.881.584.388.799.3105.0112.8110.0119.1130.4139.6157.219.317.615.412.915.013.514.114.215.216.517.219.225.729.031.133.337.040.142.529.834.538.740.745.0103.0107.4111.6118.7124.2128.6135.6148.8155.6163.5172.3183.41964: I IIIIIIV.1965: I IIIllIV352. 2358. 6366.2372.6378.4386.3395.4407.942.744.545.147.144.445.845.649.220.819.818.818.818.316.115.816.73.33.03.23.43.33.23.63.9158.5162.9168.8170.6174.6179.9185.2189.6108.3109.3110.9114.0117.1119.4123.1126.318.719.119.518.820.621.922.122.1186.3190.1195.1200.3203.2208.6214.6224.52.62.62.72.72.82.93.13.1128.4131.3134.5139.6141.1145.8150.0157.215.915.516.317.216.816.217.219.239.440.841.740.742.543.844.345.0165.9168.4171.1172.3175.1177.7180.7183.41966: I....II...Ill413.7423.6431.446.947.746.916.915.314.63.94.04.2192.5198.4202.8130.2134.4139.423.423.723.5227.7233.1239.93.83.94.4157.5163.4167.119.116.717.947.349.150.4186.0190.4191.51 Receivables from and payables to U.S. Government do not include amounts offset against each otheron corporations' books or amounts arising from subcontracting which are not directly due from or to theU.S. Government. Wherever possible, adjustments have been made to include U.S. Government advancesoffset against inventories on corporations' books.2 Includes marketable securities other than U.S. Government.3 Generally reflects definitions and classifications used in Statistics of Income for 1961.NOTE.—Data relate to all United States corporations, excluding banks, savings and loan associations,insurance companies, and beginning with the new series for 1961, investment companies. Year-end datathrough 1963 are based on Statistics of Income (Treasury Department), covering virtually all corporationsin the United States. Statistics of 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. Allother figures shown are estimates based on data compiled from many different sources, including data oncorporations registered with the Securities and Exchange Commission.Source: Securities and Exchange Commission.295

TABLE B-71.—State and municipal and corporate securities offered, 1934-66 l[Millions of dollars]Year or quarterStateandmunicipalsecuritiesofferedfor cash(principalamounts)TotalGross proceeds sCommoferredPre-stock stockCorporate securities offered for cash 2BondsandnotesTotalProposed uses of net proceeds *TotalNew moneyPlantandequipmentWorkingcapitalRetirementof securitiesOtherpurposes193419351936193719381939194019411942194319441945194619471948194919501951195219531954195519561957195819591960196119621963196419651966 '1964: I....II...III..IV..1965: I....II...III.IV..1966: I....II-III.IV*9391,2321,1219081,1081,1281,2389565244356617951,1572,3242,6902,9073,5323,1894,4015,5585,9775,4466,9587,4497,6817,2308,3608,55810,10710,54411,14811,0732,6612,7642,6422,4782,7462,9912,7582,6532,8703,1772,4342,5933974,5722,3102,1552,1642,6772,6671,0621,1703,2026,0116,9006,5777,0786,0526,3617,7419,5348,8989,51610,24010,93912,88411,5589,74810,15413,16510,70512,23713,95715,99218,4182,5484,9652,8763,5683,0075,0433,9124,0305,0945,1154,1974,0121922272285258710811034563978917796147368111,2121,2132,1852,3012,5161,3342,0271,6643,2941,3141,0222,6791,5471,9402621,7353573242976652313535199751712753722,2244,0281,6182,0441,9802,3862,3909179902,6704,8554,8825,0365,9734,8904,9205,6917,6017,0837,4887,4208,0029,9579,6537,1908,0819,42010,87210,86513,72015,9082,2483,0762,3823,1602,5784,1233,5293,4904,3594,025962714061831671121247581,1277624924256318385644898166356364115715314094504223424127255701541371322551511872151151433,6413842,2664,4312,2392,1102,1152,6152,6231,0431,1473,1425,9026,7576,4666,9595,9596,2617,6079,3808,7559,36510,04910,74912,66111,3729,5279,92412,88510,50112,08113,79215,80118,1692,5184,9112,8373,5262,9724,9773,8695,0365,0464,1433,944572088589916813254743086571,0803,2794,5915,9294,6064,0066,5318,1807,9606,7807,95711,7849,9078,5788,75810,7158,2408,99311,23313,06316,1932,0864,4412,0772,6292,4274,1643,1773,2964,3204,6443,663321113805745041704246612871412526382,1153,4094,2213,7242,9665,1106,3125,6475,1105,3336,7099,0407,7926,0845,6627,4135,6525,4057,0037,71212,7151,1493,2301,2191,4051,5202,3242,1041,7633,2583,6682,9072,88226478417177155145207187167405442164182708,041,421_,8682,3131,6702,6242,9542,7442,1152,4943,0972,5883,5884,2305,3523,4779371,2118581,2249071,8401,0731,5331,0629767562311,865,100.206,854,5832,3894,5552.8681,3523074011,2714866642601,8751,2273642145491352718687541,52875424110317321626223418833623751725295193204148222951921721731002676105247229529845895375357098647216639158143025075618057417373302975446353116253564496653314283131 These data cover substantially all new issues of State, municipal, and corporate securities offered forcash sale in the United States in amounts over $100,000 and with terms to maturity of more than 1 year.* Excludes notes issued exclusively to commercial banks, intercorporate transactions, sales of investmentcompany issues, and issues to be sold over an extended period, such as offerings under employee-purchaseplans.> Number of units multiplied by offering price.* Net proceeds represents the amount received by the issuer after payment of compensation to distributorsand other costs of flotation.NOTE.—Data for Alaska and Hawaii included for all periods.Sources: Securities and Exchange Commission, The Commercial and Financial Chronicle, and The BondBuyer.296

TABLE B-72.—Common stock prices, earnings, and yields, and stock market credit, 1939-66Year or month19391940194119421943194419451946194719481949195019511952195319541955195619571958195919601961196219631964196519661965: Jan...Feb..Mar..Apr...May_.June-July..Aug..Sept..Oct...Nov...Dec...1966: Jan...Feb...Mar...Apr...May...June..July..Aug..Sept..Oct...Nov..Dec.Total(500stocks)12.0611.029.828.6711.5012.4715.1617.0815.1715.5315.2318.4022.3424.5024.7329.6940.4946.6244.3846.2457.3855.8566.2762.3869.8781.3788.1785.2686.1286.7587.9789.2885.0484.9186.4989.3891.3992.1591.7393.3292.6988.8891.6086.7886.0685.8480.6577.8177.1380.9981.33Standard & Poor's common stock dataPrice index *Industrials(425stocks)Publicutilities(50stocks)Railroads(25stocks)Dividendyield *(percent)Price/earningsratio 3Stock market creditCustomer credit (excludingTotalU.S. Governmentsecurities)Netdebitances 4Bankloansto'others" «1941-43=10 Millions of dollars11.7710.699.728.7811.4912.3414.7216.4814.8515.3415.0018.3322.6824.7824.8430.2542.4049.8047.6349.3661.4559.4369.9965.5473.3986.1993.4891.0991.0491.6491.7593.0894.6990.1989.9291.6894.9397.2098.0297.6699.5699.1195.0498.1792.8592.1491.9586.4083.1182.0186.1086.5016.3415.0510.937.7411.3412.8116.8420.7618.0116.7717.8719.9620.5922.8624.0327.5731.3732.2532.1937.2244.1546.8660.2059.1664.9969.9176.0868.2175.8777.0476.9277.2477.5074.1974.6374.7176.1076.6976.7275.3974.5071.8769.2170.0668.4967.5167.3063.4163.1165.4168.8268.869.829.419.398.8111.8113.4718.2119.0914.0215.2712.8315.5319.9122.4922.6023.9632.9433.6528.1127.0535.0930.3132.8330.5637.5845.4646.7846.3446.7946.7646.9846.6345.5342.5243.3146.1346.9648.4650.2351.0353.6854.7851.5252.3347.0046.3545.5042.1240.3139.4441.5741.444.055.596.827.244.934.864.173.854.935.546.596.576.135.805.804.954.084.094.353.973.233.472.983.373.173.013.003.402.992.992.992.952.923.073.093.062.982.912.963.053.023.063.233.153.303.363.373.603.753.763.663.5913.8010.248.268.8012.8413.6616.3317.699.366.906.646.639.2710.479.6911.2511.5014.0512.8916.6417.0517.0921.0616.6817.6218.0817.0817.6915.9317.1017.6116.3114.7113.921,3749761,0329681,2491,7981,8261,9802,4453,4364,0303,9843,5764,5374,4614,4155,6025,4947,2427,0537,7057,4436,9406,8726,9417,0017,0857,0846,8336,8747,0367,1177,3047,7057,7267,9507,8237,9917,9058,0017,8707,8117,5257,3027,3527,4439424735174998211,2371,2531,3321,6652,3882,7912,8232,4823,2853,2803,2224,2594,1255,5155,0795,5215,3294,9865,0075,0555,0665,1295,1144,8864,9945,0735,2095,5215,5515,7535,6455,8355,7685,7705,6675,6095,3555,1695,2175,3293534325035154694285615736487801,0481,239,161,094,252,181,193,343,369,7271,9742,184V14[,954,865,886,935,956,970,970Bankloans tobrokersanddealers 62,0422,0442,0952,1842,1752,1972,1782,1562,1372,231New series 72,2032,2022,1702,1332,1352,1147155845358501,3282,1372,7821,4717841,3311,6081,7421,4192,0022,2482,6882,8522,2142,1902,5692,5842,6143,3984,3524,7544,6314,1354,5014,0113,8514,4344,5714,4955,3253,6733,7103,3233,4803,7344,1353,9853,5073,7524,4184,2604,6543,6874,1793,5453,2683,1074,5011 Annual data are averages of monthly figuresand monthly data are averages of daily figures.2 Aggregate cash dividends (based on latest known annual rate) divided by the aggregate monthly marketvalue of the stocks in the group. Annual yields are averages of monthly data.* Ratio of quarterly earnings (seasonally adjusted annual rate) to price index for last day in quarter.Annual ratios are averages of quarterly data.4 As reported by member firmsof the New York Stock Exchange carrying margin accounts. Includesnet debit balances of all customers (other than general partners in the reporting firmand member firmsofnational exchanges) whose combined accounts net to a debit. Balances secured by U.S. Governmentobligations are excluded. Data are for end of period." Loans by weekly reporting member banks (weekly reporting large commercial banks beginning July1966) to others than brokers and dealers for purchasing or carrying securities except U.S. Government obligations.(For 1953 through June 1959 some loans for purchasing or carrying U.S. Government securitiesmay be included.) Data are for last Wednesday of period.6 Loans by weekly reporting member banks (weekly reporting large commercial banks beginning July1966) for purchasing or carrying securities, including U.S. Government obligations. Data are for lastWednesday of period.7 See Federal Reserve Bulletin, August 1966.Sources: Board of Governors of the Federal Reserve System, Standard & Poor's Corporation, and NewYork Stock Exchange.297

Year or month19291930193119321933193419351936193719381939194019411942194319441945 - - -194619471948194919501951195219531954195519561957195819591960196119621963 *1964196519661965* JanFebMarAprMayJuneJulyAugSeptOctNovDec1966* JanFebMarAprMayJuneJulvAugSeptOctNovDecTABLE B-73.—Business formation and business failures, 1929-66Business failures 3 4Index ofnet businessformation(1957-59=100) i123.196.7102.3102 8108.0103.599 8107.6103.298.397.1104.699.895.498.0100.6104.5106 0105.8106.6106 6106.1104 7105 4106.2106 5105.7lO6 1105.5106 1106.9109.1109 6109 6107 6106 8106.2IO4.810S.9102.7103. S100 6Newbusinessincorporations(number)a132,916112,63896,10185,49192,92583,64992,819102,545117,164139,651140,775136,6977150,280193,067182,713181,535182,057186,404197,724203,89717,27517, S6717,11216,60416 04316,67116,36916,96717,13816,74417,41816,99917,67717,86817,30517,02216,60S16,64116,68816,22415,66416,30516,096Businessfailurerates103.9121.6133.4154.1• 100.361.161.747.845.961.10 69.663.054.544.616.46.54.25.214.320.434.434.330.728.733.242.041.648.051.755.951.857.064.460.856.353.253.351.652.861.754.850.854.150.152.866.969.751.561.454.250.744.150.247.445.849.462.360.856.667.265.652.4Number of failuresTotal22,90926,35528,28531,822«19,85912,09112,2449,6079,49012,836•14,76813,61911,8489,4053,2211,2228091,1293,4745,2509,2469,1628,0587,6118,86211,08610,96912,68613,73914,96414,05315,44517,07515,78214,37413,50113,51413,0611,1371 1141,3321,1791 1831,0941 0741,1311,1001,0471,0331,0901,0849461 2261 1069971,0771 0171,2491,0401,1501,1121,055Liability sizeclassUnder$100,000$100,000andover22,16525,40827,23030,197•18,88011,42111,6919,2859,20312 553• 14,54113,40011,6859,2823,1551,1767591,0023,1034,8538,7088,7467,6267,0818,07510,22610,11311,61512,54713,49912,70713,65015,00613,77212,19211,34611,34010,8339509301,0971,0301 0018819069658939128938829168001 0379248478858799998679579198037449471,0551,625• 979670553322287283• 2272191631236646501273713975384164325307878608561,0711,1921,4651,3461,7952,0692,0102,1822,1552,1742,228187184235149182213168166207135140208168146189182150192138250175193193252Amount of currentliabilities (millions ofdollars)Total483.3668.3736 3928 3«457.5334 0310 6203 2183 3246 5• 182.5166 7136 1100 845 331.730.267.3204.6234 6308.1248.3259.5283.3394.2462 6449.4562.7615.3728.3692.8938.61,090.11,213.61,352.61,329.21 321.71,385.789.3112.0146.683.2133.1144.6121.5135.0105.082.171.797.6103.295.5103.5110.196.4123.669.9178.1129.2108.0106.7161.5Liability sizeclassUnder $100,000$100,000 andover261.5303.5354.2432.6• 215.5138.5135.5102.8101.9140.1«132.9119.9100.780.330.214.511.415.763.793.9161.4151.2131.6131.9167.5211.4206.4239.8267.1297.6278.9327.2370.1346.5321.0313.6321.7321.526.725.631.128.928.225.025.828.025.524.925.526.327.124.228.626.123.926.526.230.725.429.629.024.2221.8364.8382.2495.7• 242.0195.4175.1100.481.4106.48 49.746.835.420.515.117.118.851.6140.9140.7146.797.1128.0151.4226.6251.2243.0322.9348.2430.7413.6611.4720.0867.11,031.61,015.61,000.01, 064.162.586.3115.454.3104.9119.695.7107.079.457.246.271.376.071.374.884.172.597.143.6147.4103.878.477.8137.21 Monthly data are seasonally adjusted.2 Total for period. Monthly data are seasonally adjusted.3 Total for period.« Commercial and industrial failures only. Excludes failures of banks and railroads and, beginning 1933,of real estate, insurance, holding, and financial companies, steamship lines, travel agencies, etc.* Failure rate per 10,000 listed enterprises. Monthly data are seasonally adjusted.« Series revised; not strictly comparable with earlier data.7 Includes data for Hawaii beginning 1959 and Alaska beginning 1960. (Figure for 1958 comparable with1959 is 150,781; figure for 1960 comparable with 1959 is 182,374.)8 Includes data for District of Columbia beginning 1963.Sources: Department of Commerce (Bureau of the Census) and Dun & Bradstreet, Inc.298

AGRICULTURETABLE B-74.—Income from agriculture, 1929-66Year orquarterPersonal incomereceived by totalfarm populationFromallsourcesFromfarmsourcesFromnonfarmsources iRealized grossTotal 2Income received from farmingNet to farmoperatorsCashreceiptsfrommarketingsProductionexpensesExcludingnetinventorychangeIncludingnetinventorychange 3Net income perfarm, includingnet inventorychangeCurrentprices1966prices *Billions of dollarsDollars192913.911.37.76.36.2945J Q9Q1930193119321933 _19341935193619371938 ---19395.47.77.29.07.27.43.25.44.66.24.74.82.22.32.62.72.52.611.58.46.47.18.69.710.811.410.110.69.16.44.75.36.47.18.48.97.77.96.95.54.54.44.75.15.66.25.96.34.52.91.92.73.94.65.15.24.24.34.33.32.02.62.95.34.36.04.44.46515063043794317756399056686851,4151,297894L, 1151,1051,987.fi382,2071,7131,803194019411942. .19431944194519461947194819497.610.114.116.516.617.220.021.123.819.54.86.810.112.112.212.815.515.818.013.32.83.33.94.44.44.44.65.35.86.211.113.918.823.424.425.829.534.134.731.68.411.115.619.620.521.724.829.630.227.86.97.810.011.612.313.114.517.018.818.04.26.18.811.812.112.815.017.115.913.64.56.59.911.711.712.315.115.417.712.87061,0311,5881,9271,9502,0632,5432,6153,0442,2331,8582,5153,3793,6363,4823,5573,9733,4873,8052,900195019511952 .19531954195519561957 .1958195920.422.722.119.818.417.617.817.719.518.114.116.215.413.412.511.411.211.012.811.06.36.56.76.45.96.26.66.66.77.032.337.136.835.033.633.134.334.037.937.528.532.932.531.029.829.530.429.733.533.519.422.322.621.321.621.922.423.325.226.112.914.814.113.712.011.211.910.712.711.413.716.015.113.112.511.511.411.313.511.52,4212,9462,8962,6262,6062,4632,5352,5903,1892,7953,1043,4663,3673,0893,0302,8642,9142,8783,5043,0711960196119621963 _ -196419651966 P18.719.019.218.717.920.621.311.412.112.212.011.113.714.57.26.97.06.76.76.86.837.939.641.142.142.344.949.534.034.936.237.236.939.242.926.227.028.529.629.430.733.211.712.612.512.512.914.216.312.012.913.113.112.115.216.13,0433,3893,5623,6713,4794,4934,9553,3083,6843,7893,8643,6624,6324,955Seasonally adjusted annual rates1965: IIIIIIIV42.945.445.545.937.339.739.740.030.030.830.931.212.914.614.614.712.915.516.116.13,8204,5904,7704,7703,9804,7304,9204,9201966: IIIIII.IV P48.448.749.851.142.242.243.044.131.932.533.834.616.516.216.016.517.116.415.515.35,2605,0404,7704,7105,3105,0404,7204,6601 Includes all income received by farm residents from nonfarm sources such as wages and salaries fromnonfarm employment, nonfarm business and professional income, rents from nonfarm real estate, dividends,interest, royalties, unemployment compensation, and social security payments.2 Cash receipts from marketings, Government payments, and nonmoney income furnished by farms.* Includes net change in inventory of crops and livestock valued at the average price for the year.* Income in current prices divided by the index of prices paid by farmers for family living items on a1966 base.Source: Department of Agriculture.299

Year1929...1930...1931...1932...1933...1934...1935...1936...1937...1938...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 »..Farmoutputi6261666459516155696768707382808381848188878689929393969795102103106107108112112115113TABLE B-75.—Farm production indexes, 1929-66Total 2FeedHavgrainsandFood Vegetablesforagegrains7369777365547059817675787989838885898597928991959493969593104103108107107112109116112625663735633603867656566718174787582639180817579778186859310110610999100110971111117966727469648266758175868693919093878484838992909292989410110297103102105105105112110687479634745555474776369798372889295111107928685109100888387821219711510698102114116118[1957-59*100]Crops737475767380817582818183848997929410591979496899095939610298102100103110108108103109110Fruitsandnuts757392757671907093849693999884988910610192989810097989999103941021049810998102111118122CottonTobaccocropsOil TotaP78 107 165 111120113138105105788610115497961028810593100747197122131821241241341111201088993118116116121125124121889589588063766891801108473818111311413412211511411713513011913012712696100104112119134135129107131414131113211618222934375660505452556761716563637178929111198105122123128128154636465666761596362657071758491868683828085889292939699999799104102106107111113111Livestock and productsMeatanimals6263666770595360586371727687978884828179838995959498103100969810610310610811411611011175767879797878797981828489929192959493909393929297989910110110099101103104103105104101DairyproductsPoultryandeggs* Farm output measures the annual volume of farm production available for eventual human use throughsales from farms or consumption in farm households. Total excludes production of feed for horses andmules.* Includes production of feed forhorses and mules and certain items not shown separately.8 Includes certain items not shown separately.Source: Department of Agriculture.4445444444414144444548495462717174696867747881828487869495101104104112111115118122128300

TABLE B-76.—Farm population, employment, and productivity, 1929-66YearFarm population(April 1) iNumber(thousands)As percentoftotalpopulation2Farm employment(thousands) 3TotalFamily Hiredworkers workersPerunitoftotalinputFarm outputTotalPer man-hourCropsLivestockCropproductionperacre 4LivestockproductionperbreedingunitIndex, 1957-59=1001929.1931.1932.1933.1934.1935.1936.1937.1938.1940.1941.1942.1943.1944.1945.1946.1947.1948.1949.30,58030,52930,84531,38832,39332,30532,16131,73731,26630,98030,84030,54730,11828,91426,18624,81524,42025,40325,82924,38324,19425.224.924.925.225.825.525.324.824.223.823.523.122.621.419.217.917.518.017.916.616.212,76312,49712,74512,81612,73912,62712,73312,33111,97811,62211,33810,97910,66910,50410,44610,21910,00010,29510,3829,9649,3609,3079,6429,9229,8749,7659,8559,3509,0548,8158,6118,3008,0177,9498,0107,9887,8818,1068,1158,0267.7123,4033,1903,1032,8942,8652,8622,8782,9812,9242,8072,7272,6792,6522,5552,4362,2312,1192,1892,2672,3372,25263636969655969627374727275827982828582888628283030282731293335353639424244464950565728273030272731283335343739434144465050575748474747464344464648505051565856585961626669647268615166567673747677867883828682928570706862707175757580817875797879821950.1951.1952.1953.1954.1955..1956.1957.1958.1959.1960.1961.1962.1963.1964.1965...1966*..23,04821,89021,74819,87419,01919,07818,71217,65617,12816,59215,63514,80314,31313,36712,95412,36311,50015.214.213.912.511.711.511.110.39.89.48.78.17.77.16.76.45.89,9269,5469,1498,8648,6518,3797,8537,6007,5037,3427,0576,9196,7006,5186,1105,6105,2597,5977,3107,0056,7756,5706,3455,8995,6605,5215,3905,1725,0294,8734,7384,5064,1283,9022,3292,2362,1442,0892,0812,0341,9541,9401,9821,9521,8851,8901,8271,7801,6041,4821,35785868990919496961031011051061071101091121096162687174808691103106115120127135142153157636167697377839010510511411912413213315014968727476808589921001081131201271371471541618485908988919293105102109113116119116123120898993929395961001041051081081111121101141 Farm population as defined by Department of Agriculture and Department of Commerce, i.e., civilianpopulation living on farms, regardless of occupation.2 Total population of United States as of July 1 includes armed forces abroad and Alaska and Hawaiibeginning January and August 1959, respectively.* Includes persons doing farm work on all farms. These data, published by the Department of Agriculture,Statistical Reporting Service, differ from those on agricultural employment by the Departmentof Labor (see Table B-20) because of differences in the method of approach, in concepts of employment,and in time of month for which the data are collected. For further explanation, see monthly report onFarm Labor, September 10,1958.* Computed from variable weights for individual crops produced each year.Sources: Department of Agriculture and Department of Commerce (Bureau of the Census).240-782 O—67--20301

TABLE B-77.—Indexes of prices received and prices paid by farmers, and parity ratio, 1929-66[1957-59=100]Year or month192919301931 _ _19321933193419351936193719381939 .—194019411942194319441945 _1946194719481949 .1950 -195119521953195419551956195719581959I9601961196219631964 _196519661965: Jan 15Feb 15 .-Mar 15Apr 15 .May 15June 15July 15Augl5Sept 15Octl5Novl5Dec 151966' Jan 15Feb 15Mar 15Apr 15May 15June 15July 15Augl5Sept 15Octl5Novl5Dec 15Allfarmprod-61523627293745475140394251668 808 826 868 9811411910310712511910510296959710499999910110098102110989899101104105104103103103103107108112111110109109110113112110107107Prices received by fannersCropsAllrops 1615234263244464953363741486584899110211811410010411912010810810410510110099991021041071071041051051051071091111081041001009993100101104104106107108110108106104103103Foodgrains55442721314346515735344046577078819512811810310611511611111010710610698969699107106907787797978777674767676777980818281798289969493898990 Feed grainsand hayTotal746746313660686579454654587296108106127161162112122143147130128116115105979895959710310510911311011511311210810810198105108110107108110110115118120116115118Feedgrains77684428366070688445445458739710910413117117010912314715013213011611610597989394951011021061111061071081101121131111071069994101105106104106109109114117119114113116Cotton5740241926393838362728324360646669911051049410812911910210510410310197102971001041041009482908993959797979395959490868690929294976969737171 Tobacco3529201822323533413631283251667274787778828390898991909396100104103109109102101106114101103103103103103103107109109113113111112112113113113113115118116111116Oilbearingcrops62483219254555525642424560808897100114158153106120148129122133109111106989693112108113112116128120123123123119120118112107107107111117121119121124128138148133128128129Livestock and productsAlllivestockandproducts16252382827324446494341425366777682941111221061081301191049790889410610098989995911011139293939599103104105105106107112114118118113110110111116116114110109Meatanimals504330201922383842373635466066626 6710711710111013311594928076891091029697101948810411688919295104111111111108108108116120125123119117117114119115111105105Dairyucts65554333344045495145434755636776 866 104106117989711211810496969910199100101101999910010211410410210097949497101105108110110108108108106104104111117124128127125Poultryandeggs102816251475674737069616277961211121261271411531401181441301401131211121021089010192929290921028787889187889093959698104101108110102959397103106101103100See footnotes at end of table.302

TABLE B-77.—Indexes of prices received and prices paid by farmers, and parity ratio, 1929-66—Continued[1957-59=100]Prices paid by fannersYear or month19291930..-.1931.....19321933..—1934.....1935193619371938.—.1939.....194019411942.....194319441945....1946....1947....1948....1949....1950....1951195219531954..-1955...-1957..1958..1959..I960..1961..1962.196419651966 * -1965: Jan 15..—Febl5....Mar 15....Apr 15....May 15...June 15..July 15...Augl5._.Sept 15—Octl5.__Nov 15...Dec 15...1966: Jan 15.....Feb 15...Mar 15...Apr 15—May 15...June 15..July 15...Augl5...Sept 15...Octl5...Nov 15...Dec 15...Allitems,interest,taxes,andwagerates(parityindex)555244383741424245424242455258626571828986879595949598100102102103105107107110114108109109109110110110110110110110HI112112113114114114114114115115115115AllItems4345454845444548556164667285928890100100969695101101101101103104104106109104105105106107107107106106106106107108108109109109109109110111110110110livingItems5450433738434343454342424552586164718388858694959494959699100101102102103104105107110106106106106108107107107107107107108108109110110110110110111111111111111Commodities and servicesFamilyAllproductionitems565243383844464650474647505763666773859591941041049797969598100102101101103104103105108104104104105106106106106106105105106107108108108108108109109110109109109Production itemsFeed Motorvehicles61433237525355624747505466788786100118125103105118126114113106103101991001001041031041091041041041051051051041041041031021031051071051051061061101111131121111133535343436373839424040424547515355637178788387878996100104102102105109111113118113115114110111113115117116118117119118434342403940414243444343434648494951586776788386878787929610010410711011111311611912411811912112112212412685941001021031021011001001001001001001001009910010010010010010010010010010011611310810190807468646058565451464341404243454954596368748391100109120131145162182206232204204204204204204204204204204204206232232232232232232232232232232232232Taxes*Wagerates*5657565144383636363837373739434856606568717477818793100107117125132139147156165155155155155155155155155155155155156165165165165165165165165165165165165929699105109110114116119125135122122122126ite1261251251251281281281271271271S81S81S81S51S51S5HO140HOFarmmachineryFertilizerInterest^Parityratio»9283675864758892937877819310511310810911311511010010110710092898483828581807980787677807475757678797877777777808083818079798081807977771 Includes items not shown separately.2 Interest payable per acre on form real estate debt.3 Farm real estate taxes payable per acre (levied in preceding year).4 Monthly data are seasonally adjusted.5 Percentage ratio of prices received for all farm products to parity index, on a 1910-14=100 base.6 Includes wartime subsidy payments.Source: Department of Agriculture.303

TABLE B—78.—Selected measures of farm resources and inputs, 1929-66192919301931193219331934Year193519361937.1938193919401941 ,1942194319441945194619471948194919501951195219531954195519561957195819591960196119621963196419651966*Cropsharvested(millionsof acres) 1Total365369365371340304345323347349331341344348357354352355356360345344349348346340324324324324324303295300301299296Exclusiveofuse forfeed forhorsesandmules298304303311281247269295301286298304309320326322323329332326326334335335330315316317318319299291296297292LivestochoursMan-breedingoffarmunitswork(1957-(billions)59=100) 223.222.923.495 22.622.620.221.120.422.120.620.795 20.594 20.0104 20.6117 20.3114 20.2109 18.8107 18.1104 17.298 16.816.2102 15.1103 15.2103 14.5100 14.0104 13.3106 12.8104 12.0101 11.199 10.5100 10.397 9.89.59.1100 8.8101 8.4101 8.097 7.6Total98979693918688"8994919497971001011019999991001011011041031031021021019999102101101101102103103104Index numbers of inputs (1957-59=100)Farmlabor218216220213212190198192208193194192188194191190177170162158152142143136131125120113104999792898583797572MechanicalFarmreal powerestate 3 andmachinery92 3891 4089 3886 3587 3286 3288 3389 3590 3891 4092 4092 4292 4491 4889 5088 5188 5491 5892 6495 7295 8097 8698 9299 9699 97100 98100 9999 99100 100100 99100 101100 100100 97101 97101 99102 10110099101103Fertilizerandlime212116111214172024232428303438434553565761687380838890919497109110116124141155163164Feed,seed,andlivestockpurchases41 Acreage harvested (excluding duplication) plus acreages in fruits, tree nuts, and farm gardens.2 Animal units of breeding livestock, excluding horses and mules.3 Includes buildings and improvements on land.* Nonfarm inputs associated with farmers' purchases.Source: Department of Agriculture.2726232424242331293037454657636472697372697280818082869193101106109123121124123124130Miscellaneous76767879766966707273747576767677787482859191949895100105106109113115120124128304

TABLE B-79.—Comparative balance sheet of agriculture, 7929-67[Billions of dollars]AssetsClaimsOther physical assetsFinancial assetsBeginningof yearCrops 2U.S.savingsbondsTotalRealestatedebtOtherdebtMa-TotalReal chin-eryestateLivestockiandmotorvehiclesHouseholdfurnishingsandequipmentDepositsandcurrencyInvestmentin cooperativesProprietors'equities19291930193119321933193468.548.047.943.737.230.832.26.66.54.93.63.03.23.23.43.33.02.52.22.54.03.60.668.59.89.69.49.18.57.75.053.91935193619371938193933.334.335.235.234.13.55.25.15.05.12.22.42.63.03.27.67.47.27.06.8194019411942 _194319441945 -19461947...1948194952.955.062.973.784.694.2103.5116.4127.9134.933.634.437.541.648.253.961.068.573.776.65.15.37.19.69.79.09.711.913.314.43.13.34.04.95.46.55.45.37.410.12.73.03.85.16.16.76.37.19.08.64.24.24.95.05.35.66.17.78.59.13.23.54.25.46.67.99.410.29.99.60.2.4.51.12.23.44.24.24.44.6.8.9.91.01.11.21.41.51.71.952.955.062.973.784.694.2103.5116.4127.9134.96.66.56.46.05.44.94.84.95.15.33.43.94.14.03.53.43.23.64.26.142.944.652.463.775.785.995.5107.9118.6123.519501951195219531954 . -132.5151.5167.0164.3161.275.386.695.196.595.012.917.119.514.811.712.214.116.717.418.47.67.98.89.09.28.69.710.39.99.99.19.19.49.49.44.74.74.74.64.72.12.32.52.72.9132.5151.5167.0164.3161.25.66.16.77.27.76.87.08.08.99.2120.1138.4152.3148.2144.3195519561957.1958195919601961..196219631964196519661967 P165.1169.7178.0186.0202.8203.9204.3213.0220.7229.2237.9255.8273.398.2102.9110.4115.9124.4129.9131.4137.4142.8150.7159.4171.1184.211.210.611.013.917.715.615.516.417.215.714.417 518.619.320.220.222.122.322.022.522.724.125.727. R66.59.68.38.37.69.37.88.08.79.29.98.99. fi10.010.510.09.99.89.68.99.19.08.88.78.69.49.59.49.510.09.28.78.89.29.29.610.05.05.25.15.15.24.74.64.54.44.24.24.122.63.13.43.63.94.34.85.25.66.26.67.07.4165.1169.7178.0186.0202.8203.9204.3213.0220.7229.2237.9255.8273 38.29.09.810.411.112.112.813.915.216.818.921.223 59.49.89.610.012.612.813.414.816.618.118.620.422.3147.5150.9158.6165.6179.1179.0178.1184.3188.9194.3200.4214.2227.51 Beginning with 1961, horses and mules are excluded.2 Includes all crops held on farms and crops held off farms by farmers us security for Commodity CreditCorporation loans. The latter on January 1,1966, totaled $570 million.Source: Department of Agriculture.305

INTERNATIONAL STATISTICSTABLE B-80.—United States balance of payments, 1947-66[Millions of dollars]Year or quarterExports of goods and servicesTotalMerchandise!MilitaryIncome oninvestmentsPrivateGovernmentOtherImports of goods andservicesTotalMerchandise^MilitaryexpendituresOtherBalanceongoodsandservicesRemittancesandpensions1947...1948...1949...1950...1951...1952...1953...1954-1955...1956...1957...1958...1959...1960...1961...1962...1963...1964...1965...1966 ».1964: I..II_IIIIV1965: I__IIIIIIV1966: I—II 19,73716,78915,77013,80718,74417,99216,94717,75919,80423,59526,48123,06723,48927,24428,57530,27832,33936,95838,99342,68716,01513,19312,14910,11714,12313,31912,28112,79914,28017,37919,39016,26416,29519,48919,95420,60422,07125,29726,27628,9611822001613753003354026566577478441,0361,238,297,484,684,624,658,9552,1702,4682,6122,5382,6943,0013,5613,9544,1564,9325,683661021091982042522722741942053073493493804714984605122,6202,2562,2262,0972,7392,8452,5642,5512,8803,3933,6583,8494,0704,2784,5934,9575,5225,9726,5528,20810,3499,62112,02815,07315,76616,56115,93117,79519,62820,75220,86123,34223,19822,95425,14826,44228,46832,03637,2005,9797,5636,8799,10811,20210,83810,99010,35411,52712,80413,29112,95215,31014,73214,51016,18716,99218,62121,48825,2334557996215761,2702,0542,6152,6422,9012,9493,2163,4353,1073,0692,9813,0832,9362,8342,8813,5871,7741,9872,1212,3442,6012,8742,9562,9353,3673,8754,2454,4744,9255,3975,4635,8786,5147,0137,6678,38011,5296,4406,1491,7793,6712,2263861,8282,0093,9675,7292,2061474,0465,6215,1305,8978,4906,9575,487-728-631-641-533-480-571-644-597-690-729-745-815-732-757-867-879-1,000Seasonally adjusted annual rates36,44836,00437,23238,14835,10440,54440,06440,26041,98042,28843,79224,62424,36825,55626,64022,50027,19227,30428,10828,68428,44429,7567927446488048009167968647921,0408605,0804,9444,9404,7645,6885,8805,2844,7045,5245,7205,8045285325322485565845963125965965885,4245,4165,5565,6925,5605,9726,0846,2726,3846,4886,78427,40028,12828,78429,56028,65632,34832,98034,16035,70436,84839,04817,55618,31619,00819,60418,62421,92422,38023,02424,01625,04826,6362,9602,9002,7442,7322,6562,8042,9803,0843,4163,5963,7486,8846,9127,0327,2247,3767,6207,6208,0528,2728,2048,6649,0487,8768,4488,5886,4488,1967,0846,1006,2765,4404,744-848-852-896-920-908-1,152-976-940-944-944-1,112See footnotes at end of table.306

Year orquarterTABLE B-80.—United States balance of payments, 1947-66—ContinuedU.S.Governmentgrantsandnet 2U.S. private capital,netDirectinvestment[Millions of dollars]OtherlongtermShorttermForeigncapital,net 2BalanceErrorsandunrecordedtransactionsLiquiditybasis 3OfficialreservetransactionsChanges in selected liabilities(decrease (-))«To foreignofficial holders 6LiquidNonliquidTootherforeignholderssChangesin gold,convertiblecurrencies,andIMFgoldtrancheposition(increase())1947.19481949.-6,121-4,918-5,649-749-721-49-69-80-116187-432-361449491,1937864,210817136-3,315-1,736-266I960.1951.1952.1953.1954.-3,640-3,191-2,380-2,055-1,554-621-508-852-735-667-495-437-214185-320-149-103-94167-63518154052146249-11 -3,489500 -8627 —1, 206366 -2,184191 -1,5411,758-33-4151,2564801955.1956.1957.1958.1959.-2,211-2,362-2,574-2,587-1,9861,951•2,442:, 181,372-241-1,444-926-191-517-276-311-77297615545186736515 -1,242568 -9731,184 578511 -3,365423 -3,870182-1,1652,2921,0351960_1961.1962.1963.1964.-2,769-2,780-3,013-3,581-3,560,674,599,654,976-2,416-863-1,025-1,227-1,695-1,961-1,348-1,556-544-785-2,1463667071,021689685-941 -3,881-1,006 -2,370-1,159 -2,203-352 -2,670-1,011 -2,798-3,402-1,347-2,706-2,044-1,546ioi,449i»68110 4571,6731,073254-73022136191,5542,1436061,5333781711965_1966-3,375-3,608-3,371-3,151-1,-443761-531942,016-429-461-1,337-1,213-1,305655-171001321,222Seasonally adjusted annual ratesQuarterly totals unadjusted1964: I.II...III-IV..1965: I....II-..III..IV..1966: III..-3,048 -1,916-3,416 -2,144-3,540 -2,488-4,236 -3,116-3,208 -4,848-3,796 -3,436-2,972 -2,276-3,524 -2,924-3,792 -2,748-3,856 -3,904-3,176 -2,800-1.G64-1,120-2,408-3,252-2,656404-1,452-616-876-320-132-2,460 480 1,184 -992-2,276 -608 -2,208-1,460 -812 -2,468-2,388 1,2 -1,440 -5,5241,084 1,300 -2,7881,648 -524 -436 904420 -l,C04 -960 -2,136-108 1,004 -320 -1,3281,156 -1,188 -2,204-152 3,840 -668 -56480 1,052 472 -872-576-1,304-924-3,380-2,472956928-4,632-964-8563,78440021538986986010725369785158614-342322291-23-16-1815725254105227114562651203-150712-633475261,243-5130370-1518426841271424681 Adjusted from customs data for differences in timing and coverage.2 Includes certain special Government transactions.3 Equals changes in liquid liabilities to foreign official holders, other foreign holders, and changes in officialreserve assets consisting of gold, convertible currencies, and the U.S. gold tranche position in the IMF.4 Equals changes in liquid and nonliquid liabilities to foreign official holders and changes in official reserveassets consisting of gold, convertible currencies, and the U.S. gold tranche position in the IMF.3 Includes short-term official and banking liabilities, foreign holdings of U.S. Government bonds and notes,and certain nonliquid liabilities to foreign official holders.6 Central banks, governments, and U.S. liabilities to the IMF arising from reversible gold sales to, andgold deposits with the U.S. Data for years before 1960 include estimates of official transactions in marketableU.S. Government bonds and notes.7 Provisional.8 Private holders; includes banks and international and regional organizations, excludes IMF.9 Not reported separately.i° Includes change in Treasury liabilities to certain foreign military agencies; excluding these changes,data ($ millions) are 1,259 (1960), 741 (1961), 919 (1962).ii Average for the first 3 quarters on a seasonally adjusted annual rates basis.NOTE.—Data exclude military grant-aid and U.S. subscriptions to International Monetary Fund.Source: Department of Commerce, Office of Business Economics.307

TABLE B—81.—United States merchandise exports and imports, by commodity groups, 1958—66[Millions of dollars]Year or quarter1958-I960..1961-1962..1963..1964-1965-1966'1964: I-..II..III.IV..1965: I-.-II..III-IV..1966: I-...II-..III-IV9.Total,includingreexports *6,1736,1856,tf96,7895,5686,8706,9187,1067,1787,1817,5017,600Merchandise exports *.6,373 16,208.6,406 16,22226,56' 26,22429,500 28,5006,1856,4146,0367,0365,5937,1286,4367,4107,0907,4397,0387,900Seasonallad-Un-adjusteustedTo-19,638 19,43720,188 19,94320,973 20,70422,427 22,14225,67125,3186,1016,3145,9566,9475,5227,0426,3467,3146,9317,0906,7997,700Domestic exportsFood,beverages,andtobacco2,6882,8523,1453,4223,6774,0964,6384,5215,2001,1481,1341,0511,3058461,1631,1771,3351,25'1,2531,3141,400Crudematerialsand'uelsManufactured;oods3,051 11,546 13,1672,996 11,171 15,4163,89812,892 15,0163,817 13,03714,6603,32313,912 16,2444,274 17,258 21,2824,400 19,000 25,5001,0391,0201,0351,2459161,1709861,2021,0231,0901,0301,300Importsforconsumption73,74114,611: 17,002 ,4,33916,36618, i,6003,9354,1583,8874,3863,7664,7174,1074,6684,6504,8924,5354,9004,3494,5584,6735,0204,6185,4195,1586,0875,8326,2296,5556,900Merchandise importsTotal *4,8954,5814,6585,4516,2845,9446,0016,8086,6656,600General imports 3SeasonallyadjustedUnadjusted13,22015,62915,01914,71616,38217,14018,68421,36625,6004,3724,6084,6655,0394,6095,4875,1466,1245,8976,3416,5466,800Food, 3rude Manbeveragesteturedma-ufac-and rials goodsto- andbacco fuels 8 ( 6 )3,5503,5803,3923,4553,6744,0224,0134,6009679829111,1628281,0279121,2461,1121,1651,1121,2004,0624,5804,3804,6404,6934,9641,2091,2291,2791,2471,2921,3891,3001,4041,4101,4381,4561,4005,2837,0906,8466,5237,6278,0669,1085,385 11,2385,70014,4002,0502,2572,3292,4722,3322,8972,7523,2573,1873,5223,7663,900Grossmerchandisetradesurplus,seasonallyadjusted( 8 )3,1537774,6195,4724,5915,2876,9875,2013,9001,7781,6041,7841,8999151,4191,6791,1621,1778788861,0001 Data for 1964 only have been adjusted for comparability with the revised commodity classificationseffective in 1965.2 Totals exclude Department of Defense shipments of grant-aid military supplies and equipment underthe Military Assistance Program.3 Total arrivals of imported goods other than intransit shipments.4 Total includes commodities and transactions not classified according to kind.5 Includes fats and oils.8 Includes machinery, transportation equipment, chemicals, metals, and other manufactures. Exportdata for these items include military grant-aid shipments.7 Imported merchandise released from Customs custody for entry into U.S. consumption channels, entriesinto bonded manufacturing warehouses, and imported ores and crude metals which have been processedin bonded smelting warehouses.8 Exports, excluding military grant-aid, less general imports.» Totals based on data for October, November, and estimates for December.NOTE.—Data are as reported by the Bureau of the Census. Export statistics cover all merchandiseshipped from the U.S. customs area, except supplies for U.S. Armed Forces. Export values are f.a.s. portof export and include shipments under Agency for International Development and Food for Peace programsas well as other private relief shipments. Import statistics are valued f.o.b., the foreign port of export, andexclude insurance, transportation, and other charges incident to arrival in the United States. Data includetrade of Alaska, Hawaii, and Puerto Rico.Source: Department of Commerce, Bureau of International Commerce.308

TABLE B—82.—United States merchandise exports and imports, by area, 1960-66[Millions of dollars]Area 1960 1961 1962 1963 1964 1965January-November1965 1966Exports (including reexportsand special category shipments):TotalDeveloped countriesDeveloping countriesCanadaOther Western HemisphereWestern EuropeEastern EuropeAsiaAustralia and Oceania.-.AfricaGeneral imports: TotalDeveloped countriesDeveloping countriesCanadaOther Western HemisphereWestern EuropeEastern EuropeAsiaAustralia and Oceania..AfricaUnidentified countries i.20,586 20,998 21,700 23,3472,7212,960 3,192266 320 440 502627 671 754 77819 4 143,964 3,725 3,931 4,0214,188 4,062 4,544 4,73181 81 79 8113,2597,13213,5647,30013,9857,59015,1248,0563,8104,045 4,2513,875 3,849 3,679 3,6927,211 7,237 7,633 8,171195 134 125 1674,187 4,643 4,673 5,448515 450 522 565793 859 1,023 1,05315,0198,9515,9843,15314,7168,9105,7213,27016,38210,2506,04917,14010,8086,2473,82926,489 27,346 24,740 27,6334,150 4,373 3,920 4,3215,208 6,155 5,510 7,00499 138 121 1613,620 4,529 4,082 4,874440 453 416 551916 875 785 90012 11 10 817,1828,9674,91518,1839,0245,64416,4788,1455,11918,2849,1696,0784,292 4,275 3,847 4,3229,076 9,177 8,281 8,996340 139 117 1806,013 5,431 6,091804 869 808 7391,259 1,229 1,137 1,22718,68411,8946,6874,23921,36614,0687,1564,83219,20612,6716,4114,36223,32116,0077,1505,502i Consists of certain low-valued shipments and some uranium imports, not identified by country.NOTE.—Developed countries include, Canada, Western Europe, Japan, Australia, New Zealand, andthe Republic of South Africa. Developing countries include rest of the world except Communist areas inEastern Europe (except Yugoslavia) and Asia.Data include trade of Alaska, Hawaii and Puerto Rico.Source: Department of Commerce, Bureau of International Commerce.309

TABLE B—83.—United States foreign assistance, by type and area, fiscal years 1946-66[Millions of dollars]Net obligations and loan authorizationsType and fiscal periodTotalNearEastandSouthAsiaLatinAmericaFarEastAfricaEuropeOtherand nonregionalForeign assistance:Total postwar^---1962-66 average -.1966 i-Economic aid:Total postwarLoansGrants1962-65 averageLoans _Grants1966LoansGrantsAID and predecessor agencies:Total postwar1962-66 average ---.1966Food for Peace:Total postwar1962-66 average1966 —Export-Import Bank long-termloans:Total postwar—1962-65 average1966Other economic aid: 3Total postwar1962-65 average1966Military assistance: *Total postwar 1LoansGrants1962-65 averageLoansGrants1966 1LoansGrantsAddendum—Repayments andinterest:«Economic assistance:Total postwar1962-65 average1966^Military assistance:Total postwar1962-65 average122,7936,3477,0232,0921,74618,73410,5378,1971,7541,2495051,4741,2502249,7268596227,08082082498868109407186,604630 1526,451338733127252671,626204315352445086,53034,84751,6834,7862,6522,1345,6163,1272,48942,5742,2422,54314,7551,6021,7262 9,4764882 79319,7254555531,561551,5061,408841,32413,1451,1471,22411,6771,2161,47310,6547,4143,2401,1267393871,3888685303,6585446471,6491892023,6801282261,7682663121,023144879907838530562,51924927528,2061,3742,05317,3563,07014,2867361955401,2622341,0289,3612,203252293976781094,8163725«10,849*10,813«639«98 630«790«7901181623,6354434123,4191,4731,9464191642553882021861,852223170977146142420314416919332161120624*242424327353547,1397016346,7995217055,5453595,186407193886351404942,74824426941851601661402,2131131651,2551601,09411413101713512412107 74167 11730,82211,99618,826344286584684412715,2293-12,5271452053,2471832639,8191416,31712716,19035619338166151517,5575294291 Includes preliminary 1966 military assistance date from the Department of Defense.2 Excludes $238 million in guaranteed loans purchased in 1966 and not distributed by country.3 Includes capital subscriptions to Inter-American Development Bank, International Bank for Reconstructionand Development, International Development Association, International Finance Corporation,and the Asian Development Bank (1946-66, $1,915 million; 1962-65 average, $179 million; 1966, $374 million)and Peace Corps (1962-66, $359 million; 1962-65 average, $62 million; 1966, $113 million).4 Includes grant-aid and credit assistance under the Foreign Assistance Act (FAA) plus military assistancegrants under other acts. FAA military data are from the Department of Defense. Annual data arefor deliveries. "Total postwar" entries are program totals.* Excludes Australia and New Zealand, shown in "other and nonregional."« Data for certain programs from Department of Commerce (Office of Business Economics), and Departmentof Defense.Source: Agency for International Development (except as noted).310

TABLE B-84.-—International reserves, 1949, 1953, and 1961-66[Millions of dollars; end of period]Area and country1949196119621963196419651966SeptemberDecemberAll countriesDeveloped areasUnited StatesUnited KingdomSpainSwitzerlandOthersCanadaJapanOther Western Europe..AustriaBelgiumFranceGermanyItaly....,NetherlandsScandinavian countries(Denmark,Finland, Norway,and Sweden)Australia, New Zealand,and SouthAfricaLess developed areas *Latin America .Middle EastOther Asia _.Other Africa45,51537,24026,0241,7526,45592978580196( 2 )4345371*3431,197001,5828,2802,7751,4753,3953 29051,78041,39023,4582,67010.5153251,1448291,7737681,2321,0261501,7681,5001,9028921,95210,3903,4001,2003,8401,80062, 32053, 67018, 7533,31825,8138451,8133,3657,1633,7991,9581,6078862,7591,6182,2761,6661,8478,6502,6651,5052,8251,52562,62054, 23517, 2203,30826,9651,0811,7534,0496,9563,8181,9461,6101,0452,8721,8352,5472,0222,1758,3852,2001,7702,7801,55066,02056, 67516,8433,14729,2771,2291,9404,9087,6503,4062,1021,8751,1473,0781,9422,6032,0582,7489,3502,6852,2503,045'1,27068, 48058, 97016, 6722,31632,3101,3172,1925,7247,8823,8242,3492,3821,5133,1232,0042,8812,0192,7739,5102,8152,3152,9901,24569,84559, 06515, 4503,00433, 2251,3112,3046, 3437,4294,4152,4162,3261,4093,2472,0253,0272,1522,20510, 7803,2452,6903,3101,39070,30559,19014,8763,16133, 7941,3272,2946,8787,6724,5852,4092,3031,2762,9342,1152,7102,0892,55811,1202,9702,7453,7901,45514,8823,099134,4951,3332,3206,7338,0334,5662,4482,3421,2063,32712,1852,6832,1191 Estimate.2 Not available separately.8 In addition to other Western European countries, includes unpublished gold reserves of Greece andan estimate of gold to be distributed by the Tripartite Commission for the Restitution of MonetaryGold.• Includes unpublished gold holdings not allocable by area.NOTE.—Includes gold holdings, reserve positions in the International Monetary Fund, and foreign exchangeof all countries except U.S.S.R., other Eastern European countries, Communist China, Cuba (afterMarch 1964), and Indonesia (after July 1965).Beginning 1959, when most of the major currencies of the world became convertible, data exclude knownholdings of inconvertible currencies, balances under payments agreements, and the bilateral claims arisingfrom liquidation of the European Payments Union.Source: International Monetary Fund, International Financial Statistics.

TABLE B-85.—United States gold stock and holdings of convertible foreignmonetary authorities, 1946-66[Millions of dollars]currencies by U.S.End of year or monthTotalTotal aGold stock 1Treasury-Foreigncurrencyholdings194619471948194920,70622,86824,39924,56320,70622,86824,39924,56320,52922,75424,24424,427195019511952195319541955195619571958 -19591960196119621963196422,82022,87323,25222,09121,79321,75322,05822,85720,58219,50717,80417,06316,15615,80815,90322,82022,87323,25222,09121,79321, 75322,05822,85720, 58219,50717,80416,94716,05715,59615,47122,70622,69523,18722,03021,71321,69021,94922,78120,53419,45617,76716,88915,97815,51315,3881169921243219651966'1965: Jan..Feb..Mar.Apr.May.June.14,58714,55615,57215,22015,12914,88414,51114,59513,80613,23515,20814,99314,63914,48014,36214,04913,73313,15915,18514,93714,56314,41014,29013,9347811,321364227490404149546July.Aug.Sept.Oct...Nov.Dec.1966: Jan..Feb.Mar.Apr.May.June-July.Aug.Sept.Oct._Nov.Dec.14,69714,95314,88414,79514,68614,58714,45014,18814,29714,19014,21014,25114,50614,61814,50414,52414,37014,55613,96913,91613,92513,93713,87913,80613,81113,81113,73813,66813,58213,52913,41313,31913,35613,31113.26213,23513.85713,85713.85813,85713,80513,73313,73213,73013,63413,63213,53213,43313,33213,25913,25813,25713,15913,1597281,037959858807781639377559522628722:,299., 148,213,108,3211 Includes gold sold to the United States by the International Monetary Fund with the right of repurchase,which amounted to $800 million on December 31, 1966. Beginning September 1965 also includes gold depositedby the IMF to mitigate the impact on the U.S. gold stock of purchases by foreign countries for goldsubscriptions on increased IMF quotas. Amount outstanding was $211 million on Dec. 31, 1966. TheUnited States has a corresponding gold liability to the IMF.2 Includes gold in Exchange Stabilization Fund.NOTE.—Gold held under earmark at Federal Reserve Banks for foreign and international accounts is notincluded in the gold stock of the United States.Sources: Treasury Department and Board of Governors of the Federal Reserve System.312

TABLE B—86.—Price changes in international trade, 1958—66[1958=100]Area or commodity class 1958 1959 1960 1961 1962 1963 1964 19651966ThirdquarterUnit value indexes by areaDeveloped areasTotal:ExportsTerms of trade i_United States 2ExportsTerms of trade 1Developing areasTotal:ExportsTerms of tradeLatin AmericaExportsTerms of trade !Latin America excluding petroleumExportsTerms of trade100100100100100100100100100100991021001029799959594941001031011019899959695961011041031059597939593951011051021079395919391921021041021059597949795103104103104979710110310497 10510410410610697971011021041051061043 1073 105973 1033 1033 1063 106World export price indexes 4Primary commodities: Total-10097979594100103100101FoodstuffsCoffee, tea, and cocoa-Cereals10010010093839791779690729890701031037310210687105998010110085106Other agricultural commodities sFats, oils, and oilseeds.Textile fibersWool10088810510098106107941041081039710510799891011061039511212710598116131104108105110107106108119MineralsMetal ores.Nonferrous base metals.Manufactured goods *._.100100100100949711199939811410192100110102929910910292961101039410413510496110155106961081731091 Terms of trade indexes are unit value indexes of exports divided by unit value indexes of imports.2 Includes foreign trade of Alaska, Hawaii, and Puerto Rico.3 Data are for second quarter 1966.4 Data for manufactured goods are unit value indexes,s Includes nonfood fish and forest products.NOTE.—Data exclude trade of Communist areas in Eastern Europe (except Yugoslavia) and Asia.Sources: United Nations and Department of Commerce (Bureau of International Commerce).3*3

TABLE B—87.— Consumer price indexes in the United States and other major industrial countries,1955-66[1960=100]PeriodUnitedStatesCanadaJapanFranceGermanyItalyNetherlandsUnitedKingdom19551956195719581959196019611962196319641965.196611964: I....II...III..IV..1965: I....II—III..IV..1966: I....II...III..IV 2.90.591.995.197.798.4100.0101.1102.2103.5104.9106.6109.7104.5104.7105.0105.4105.6106.4106.8107.4108.2109.3110.3111.290.992.395.297.798.8100.0100.9102.1103.9105.8108.4112.3105.0105.6106.2106.3107.2108.0108.9109.4110.9112.1113.1113.692.793.095.995.596.5100.0105.3112.5121.0125.6135.2142.2122.4125.1126.1128.8131.4136.0136.2137.3139.6142.7143.1144.275.576.979.090.996.5100. C103.3108.3113.5117.4120.3123.3116.3116.6117.5118.2119.1120.4120.6121.2122.2123.1123.8124.591.493.795.697.798.6100.0102.3105.4108.5111.1114.9118.8110.3110.9111.3111.8113.0114.4115.6116.2117.8119.2119.0119.391.294.395.598.297.8100.0102.1106.9114.8121.6127.1129.9119.1120.5122.5124.3125.7126.5127.7128.5129.4129.7130.1130.7888995979810010110310711311912611011411411411512012012012312812612687.892.195.698.599.0100.0103.4107.8110.0113.6119.0123.5111.3113.4114.3115.3116.4119.3119.8120.6121.4123.8124.2125.01 Eleven month average except United States. -2 For other than United States, data are averages of October and November.Sources: Department of Labor and Organization for Economic Cooperation and Development.314U.S. GOVERNMENT PRINTING OFFICE: 1967O—240-782