E C O N O M I C R E P O R T O F T H E P R E S I D E N T

Of course, it is premature to declare the business cycle dead. But there arereasons to believe that the economy will continue to perform as well as, if notbetter than, it has in the recent past, with less of the roller-coaster ride thatcharacterized the 1970s and early 1980s (not to mention earlier decades).Unlike in the 1980s and early 1990s, fiscal discipline is now the order of theday. Projected surpluses can now be used to pay down the debt and free upcapital for investment in education, business, and technology, spurring fastergrowth. Likewise, the Federal Reserve no longer follows the stop-and-go policiesof the 1970s, but instead practices a systematic policy that fosters pricestability and long-term growth.The Economic OutlookAs always, the growth of the supply-side components of GDP underlies theprojection of long-term growth. In particular, the prospect for continued productivitygrowth is the key issue in the economic outlook and the source ofmany of the upside and downside risks to the Administration’s projection.Labor productivity trended upward at an average annual rate of 1.4 percentfrom 1973 to 1995 but then accelerated to a 2.9 percent clip over the past 4years (Chart 2-15). The unexpected surge in productivity growth has led toseveral positive developments: it has restrained inflation, allowing the unemploymentrate to fall lower than it otherwise might; it has increased econom-Chapter 2 | 79