ECONOMIC

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eign central banks in exchange markets (Chart 7). The strains experiencedwithin the European snake arrangement were a major factor in the heavyintervention activity. Early in the year heavy pressure on the French francled the authorities to break the link with the currencies adhering to the snake.Upward pressures on the German mark, reflecting both the large Germancurrent account surplus and the continued significantly better inflationperformance of the German economy compared with its trading partners,caused considerable strain among the currencies remaining in the snake. Inthe fall of 1976, therefore, the central values of the currencies within thesnake were realigned, with the mark appreciating by 2 percent, the Swedishkrona and Norwegian krone depreciating by 1 percent, and the Danish kronedepreciating by 4 percent. The largest changes in the foreign currency markets,however, involved the pound sterling, the Italian lira, and the Mexicanpeso, which depreciated by 16 percent, 2134 percent and 37J/i percentrespectively against the U.S. dollar between the end of 1975 and the endof 1976.INTERNATIONAL FINANCIAL MARKETSThe unrest in the exchange markets and the financing difficulties thatsurfaced during the year for a number of industrial and developing countriesobscured the relative ease with which deficits of many other countriescontinued to be financed. Activity in the international capital market wasbrisk during 1976. On the demand side, expectations that borrowing costswould rise in 1977 buoyed activity; in addition, there was an exceptionallystrong surge in Canadian demand for long-term funds. Concurrently thesupply of funds to the bond markets was encouraged by low demand fordomestic credit in the United States and Europe resulting in declines inshort-term interest rates during the year. As funds became more abundant,bond yields began to fall. Medium-term credits arranged in the Eurocurrencymarket also showed a substantial increase last year, as risingdemands for finance from almost all the main categories of borrowers weremet by increases in supply sufficiently large to allow borrowing costs to decline.Total borrowing in the markets for medium-term Eurocredits, Eurobonds,and foreign bonds amounted to $48 billion in the first 10 months ofthe year, representing an annual rate of $58 billion, an increase of more thanone-third from the 1975 total.New issues of Eurobonds during the first 10 months of the year at $12j/2billion were well above the volume issued in the corresponding period of1975, a previous peak for the Eurobond markets. Industrial countries issued69 percent of all bonds during the first 9 months of 1976, taking a considerablylower share of loanable funds than in 1975. Japan was very active in themarket, but some borrowers from countries in deficit—for example, theFrench, the British, and especially the Canadians—also increased their use ofthe Eurobond markets. Canadian issues of $2% billion in the first 10 monthsof last year were more than twice as large as in all of 1975 because ofexceptional needs for long-term finance, relatively high domestic interest128
ates, and tax changes that facilitated foreign issues by private companies.Developing countries floated loans whose volume in the first 3 quarters of1976 was more than twice that of the preceding year; their share of themarket consequently rose to 20*4 percent, 5 percentage points of which wereaccounted for by oil-producing countries (Table 33).TABLE 33.—Borrowing in international capital markets, 1974-76[Billions of dollars]19751976Capital market1974TotalFirsthalfSecondhalfFirsthalfThirdquarter *October *Total borrowing40.842.719.223.530.311.26.9Medium-term Eurocredits 228.520.68.512.012.34.75.0Industrial countries..DenmarkFranceSpain _. _United KingdomOther19.0.43.31.15.78.56.4.3.51.0.64.02.80'.5.31.63.6.3'.6.42.23.6.31.01.22.50ilḷ 31.01.500.1.68Oil-exporting countriesAlgeria .IndonesiaIranVenezuelaOtherOther developing countries.ArgentinaBrazil __MexicoPhilippines .Other.8o .4.1.1.27.2.51.61.5.92.73.251.6.3.2.67.9f] 2.2.33.31.4.11.10.202.6( 3 ).7.11.11.8620.65.3n1 5.12.31.74.3 .704.7.11.2.72.0.4120.11.6.1.7.4.1.31.100.11.002.0( 3 )9.1.5Nonmarket countries andorganizations1.12.71.11.61.4.2.3International organizationsand other _ __.4.4.3.1.9.1Eurobonds.. _ _CanadaFranceJapanOther4.5.433.610.21.21.31.26.55.6.3.8.63.94.6.95.62.68.41.9.8.75.03.1.6.3.31.91.0.2.1.1.6Foreign bonds __ ._Canada.IBRD .Other7.82.03.12.711.93.42.46.15.11.3.63.26.92.01.73.29.63.41.64.63.41.1.51.8.9.30.6i Preliminary.3 Publicized credits of over 1-year maturity; represents commitments.3 Less than $50 million.Source: International Bank for Reconstruction and Development (IBRD).The brisk activity in the Eurobond market was in part related to a shiftin interest rate differentials that may have contributed to the willingness ofinvestors to reduce their liquidity positions and extend the maturity of theirholdings. Short-term rates exhibited a sharp cyclical decline, while long-termrates fell relatively little, partly because inflationary expectations appearedto change slowly. Thus yield differentials changed greatly. Whereas at thetime of historically high short-term interest rates the differential betweenEurodollar deposit rates and Eurobond yields had been as high as 3 percentagepoints, Eurodeposit rates in 1976 were generally below Eurobond yields.129
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ECONOMICTRANSMITTEDTO THE CONGRESSJ
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CONTENTSPageECONOMIC REPORT OF THE
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ECONOMIC REPORT OF THE PRESIDENTTo
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manent tax rate reductions. My prop
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will help shield us from disruption
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executive branch must undertake a c
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lasting implications of the changes
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THE PRESIDENT:LETTER OF TRANSMITTAL
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CHAPTER 2. ECONOMIC REVIEW OF 1976
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List of Tables and Charts—Continu
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CHAPTER 1Economic Policy and Outloo
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GENERAL POLICY PRINCIPLESTo assure
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3. Economic initiatives should be b
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TABLE 1.—The market value and the
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on investment would increase with i
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MONETARY POLICYThe Federal Reserve
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like the latter part of 1976. The 4
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PRIVATE CONSUMPTIONThe growth of re
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NET EXPORTSIn real terms net export
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LABOR FORGE AND UNEMPLOYMENTIt is e
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led to large first-year catchup inc
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Consumer prices of fuels during 197
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other workers. Productivity is meas
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Since the mid-1950s a dramatic chan
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women's labor force participation;
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The full-employment benchmark has b
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Chart 4Gross National Product, Actu
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groups can be a useful supplement t
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TABLE 7.—Changes in gross nationa
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Relative price movements were appar
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August was followed by a 20 percent
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main price indexes were significant
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A broader measure of labor costs, c
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TABLE 13.—Output, profits, net in
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TABLE 15.—Federal Government rece
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In the unified budget the total sho
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The permanent changes in the Tax Re
Page 83 and 84: tial output and the full-employment
Page 85 and 86: For this reason, although the rate
Page 87 and 88: quarter a year later. The actual gr
Page 89 and 90: Partly as a result of the desire of
Page 91 and 92: widespread among demographic groups
Page 93 and 94: of longer-term trends. Over the pas
Page 95 and 96: ment and earnings show little cycli
Page 97 and 98: production or real GNP, and this al
Page 99 and 100: percent from 1973. The cost of petr
Page 101 and 102: COMMODITY MARKETS AND FOOD PRICESWo
Page 103 and 104: TABLE 25.—Real income per farm an
Page 105 and 106: While circumstances have enabled a
Page 107 and 108: The policy actions taken in 1975 an
Page 109 and 110: TABLE 27.—Changes in industrial p
Page 111 and 112: States some underspending by public
Page 113 and 114: continued strong domestically gener
Page 115 and 116: GENERAL DEMAND TRENDSEconomic devel
Page 117 and 118: PUBLIC SECTOR DEFICITSThe economic
Page 119 and 120: insurance funds. The requirement th
Page 121 and 122: TABLE 29.—Export shares in trade
Page 123 and 124: Chart 7—ContinuedINDEX, 1973=100
Page 125 and 126: widened and the possibility of borr
Page 127 and 128: Chart 8—ContinuedInterest Rates i
Page 129 and 130: Where stabilization policies are pe
Page 131 and 132: Germany grew more in line with outp
Page 133: TABLE 32.—Estimated disposition o
Page 137 and 138: facility is designed to help countr
Page 139 and 140: is necessary that the strongest eco
Page 141 and 142: A freezing of relative prices, eith
Page 143 and 144: implicit and explicit subsidies bui
Page 145 and 146: qualitative conclusions. For exampl
Page 147 and 148: For some youths unemployment is inv
Page 149 and 150: may be as low as 10 percent. Thus t
Page 151 and 152: large subsidies through the tax cre
Page 153 and 154: in the transportation and public ut
Page 155 and 156: trust exemption permits motor carri
Page 157 and 158: purchase less expensive air travel.
Page 159 and 160: produced with higher-cost energy so
Page 161 and 162: of establishing efficient methods o
Page 163 and 164: in the future. Consequently current
Page 165 and 166: demand and supply at support prices
Page 167 and 168: with stringent controls on peanut a
Page 169 and 170: aspects of the tax system which imp
Page 171 and 172: TABLE 35—Change in aUer-tax inter
Page 173 and 174: and raise the return to capital inc
Page 175: come, social security encourages pe
Page 179: LETTER OF TRANSMITTALCOUNCIL OF ECO
Page 182 and 183: RESPONSIBILITIES OF THE COUNCILThe
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the Administration's economic polic
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member of the senior staff, and Rob
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CONTENTSNATIONAL INCOME OR EXPENDIT
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PageB-76. Estimated ownership of pu
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TABLE B-2.—Gross national product
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TABLE B-3.—Implicit price deflato
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TABLE B-4.—Implicit price deflato
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TABLE B~6.—Gross national product
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TABLE B-ll.—Gross domestic produc
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TABLE B-13.—Personal consumption
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TABLE B-15.—Inventories and final
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TABLE B-17.—Relation of gross nat
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TABLE B-19.—National income by ty
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TABLE B-20.—Sources of personal i
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TABLE B-21.—Disposition of person
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19291933Year orquarter1939...194019
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TABLE B~25.- -Number and money inco
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TABLE B-27.—Noninstitutional popu
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TABLE B-28.—Civilian employment a
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TABLE B-30.— Unemployment by dura
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TABLE B-32.—Wage and salary worke
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TABLE B-33.—Average weekly hours
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TABLE B-35.—Productivity and rela
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PRODUCTION AND BUSINESS ACTIVITYTAB
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TABLE B-39.—Industrial production
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TABLE B-41.—New construction acti
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TABLE B-42.—New housing units sta
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TABLE B-44.—Sales and inventories
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TABLE B-46.'—Manufacturers 1 new
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TABLE B-48.—Consumer price indexe
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TABLE B—50.—Consumer price inde
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TABLE B-52.—Percent changes in co
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19291933193919401941194219431944194
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TABLE B-54.—Wholesale price index
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TABLE B-56.—Percent changes in wh
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TABLE B-58.—Commercial bank loans
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TABLE B-60.—Total funds raised in
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TABLE B-61.—Federal Reserve Bank
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TABLE B-63.—Bond yields and inter
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TABLE B-64,—Instalment credit ext
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TABLE B-66.— Mortgage debt outsta
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GOVERNMENT FINANCETABLE B-68.—Fed
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TABLE B-69.—Federal budget receip
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TABLE B-71.—Receipts and expendit
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TABLE B-73.—Receipts and expendit
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TABLE B-75.—Interest-bearing publ
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TABLE B-77.—Average length and ma
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TABLE B-79.—Corporate profits by
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TABLE B—80.—-Corporate profits
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TABLE B1-81.—Sales, profits, and
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TABLE B-83.—Relation of profits a
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TABLE B-85.—Current assets and li
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TABLE B-87.—Common stock prices a
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192919331939Year orquarter19401941
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TABLE B-91.—Farm population, empl
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TABLI. B-93.—Selected measures of
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INTERNATIONAL STATISTICSTABLE B-95.
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TABLE B-96.—U.S. merchandise expo
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TABLE B-98.—U.S. overseas loans a
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TABLE B-100.—U.S. reserve assets,
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TABLE B-102.—Price changes in int
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