Economic Report of the President

Economic Reportof the PresidentTransmitted to the CongressFebruary 1975TOGETHER WITHTHE ANNUAL REPORTOF THECOUNCIL OF ECONOMIC ADVISERSUNITED STATES GOVERNMENT PRINTING OFFICEWASHINGTON : 1975For sale by the Superintendent of Documents, U.S. Government Printing OfficeWashington, D.C. 20402 - Price $3.25

CONTENTSPageECONOMIC REPORT OF THE PRESIDENT 1ANNUAL REPORT OF THE COUNCIL OF ECONOMICADVISERS* 9CHAPTER 1. ECONOMIC POLICY AND OUTLOOK 19CHAPTER 2. ECONOMIC DEVELOPMENTS AND POLICY IN 1974 35CHAPTER 3. UNEMPLOYMENT 86CHAPTER 4. INFLATION DURING THE PAST DECADE , . 128CHAPTER 5. GOVERNMENT REGULATION 147CHAPTER 6. FOOD AND AGRICULTURE 160CHAPTER 7. THE INTERNATIONAL ECONOMY IN 1974 187APPENDIX A. INFLATION CONTROL UNDER THE ECONOMIC STABILIZA-TION ACT 219APPENDIX B. REPORT TO THE PRESIDENT ON THE ACTIVITIES OF THECOUNCIL OF ECONOMIC ADVISERS DURING 1974 231APPENDIX C. STATISTICAL TABLES RELATING TO INCOME, EMPLOY-MENT, AND PRODUCTION 243*For a detailed table of contents of the Councils Report, see page 13.(Ill)

ECONOMIC REPORT OF THE PRESIDENTTo the Congress of the United States:The economy is in a severe recession. Unemployment is too high andwill rise higher. The rate of inflation is also too high although someprogress has been made in lowering it. Interest rates have fallen fromthe exceptional peaks reached in the summer of 1974, but they reflectthe rate of inflation and remain much too high.Moreover, even as we seek solutions to these problems, we must alsoseek solutions to our energy problem. We must embark upon effectiveprograms to conserve energy and develop new sources if we are to reducethe proportion of our oil imported from unreliable sources. Failure ordelay in this endeavor will mean a continued increase in this Nation'sdependence on foreign sources of oil.We therefore confront three problems: the immediate problem ofrecession and unemployment, the continuing problem of inflation, andthe newer problem of reducing America's vulnerability to oil embargoes.These problems are as urgent as they are important. The solutions wehave proposed are the result of careful study, but they will not produceswift and immediate results. I believe that these programs and proposalswill be effective. I urge the Congress to adopt them and to help mefollow through with further measures that changing circumstances maymake desirable. In our efforts we must recognize that the remedies wedevise must be both effective and consistent with the long-term objectivesthat are important for the future well-being of our economy. Forthe sake of taking one step forward we must not adopt policies whichwill eventually carry us two steps backward.As I proposed to you in my State of the Union message, the economyneeds an immediate 1-year tax cut of $16 billion. This is an essentialfirst move in any program to restore purchasing power, rebuild the confidenceof consumers, and increase investment incentives for business.Several different proposals to reduce individual taxes were consideredcarefully in our search for the best way to help the economy. We chosethe method that would best provide immediate stimulus to the economywithout permanently exacerbating our budget problem. Accordingly, Irecommended a 12 percent rebate of 1974 taxes, up to a maximum of

$1,000. The rebate will be paid in two large lump-sum payments totaling$12 billion, the first beginning in May and the second by September.I have also proposed a $4-billion investment tax credit which wouldencourage businessmen to make new commitments and expenditures nowon projects that can be put in place this year or by the end of next year.The prompt enactment of the $16-billion tax reduction is a matter ofutmost urgency if we are to bolster the natural forces of economic recovery.But in recognizing the need for a temporary tax cut, I am not unmindfulof the fact that it will increase the size of the budget deficit. Thisis all the more reason to intensify our efforts to restrain the growth inFederal spending. I have asked Congress to institute actions which willpare $17 billion from the fiscal 1976 budget. Even so, we foresee a deficitof more than $50 billion for the fiscal year beginning July 1. Moreover,even without new expenditure initiatives, the budget deficit is likelyto remain excessively large in fiscal 1977. As a consequence, I will proposeno new expenditure programs except those required by the energyprogram.I am also asking the Congress to join me in finding additional ways toslow the rate of increase in Federal spending. Budget outlays for newprograms or for expansion of existing ones would have their economiceffect long after the economic recovery gets under way. It is essential thatthe deficit be reduced markedly as the economy begins to return towardfull employment. Control of expenditures is the only way we can halt anextraordinary increase in the portion of our incomes which Governmentwill take in the future.A simple calculation shows the size of the problem which we face.Transfer payments to individuals by the Federal Government have increased,after adjustment for inflation, by almost 9 percent annually duringthe past two decades. A continuation of this trend for the next twodecades, along with only modest increases in other Federal expendituresand in those of State and local governments, would lift the expendituresby government at all levels from about one-third of the gross nationalproduct to more than one-half. Spending on this scale would requirea substantial increase in the tax burden on the average American family.This could easily stifle the incentive and enterprise which is essential tocontinued improvements in productivity and in our standard of living.The achievement of our independence in energy will be neither quicknor easy. No matter what programs are adopted, perseverence by theAmerican people and a willingness to accept inconvenience will berequired in order to reach this important goal. The American economywas built on the basis of low-cost energy. The design of our industrialplants and production processes reflect this central element in the Amer-

The reduction in our dependence on unreliable sources of oil will requireGovernment action, but even in this vital area the role of Governmentin economic life should be limited to those functions that it can performbetter than the private sector.There are two courses open to us in resolving our energy problem: thefirst is administered rationing and allocation; the second is use of theprice mechanism. An energy rationing program might be acceptable fora brief period, but an effective program will require us to hold downconsumption for an extended period. A rationing program for a periodof 5 years or more would be both intolerable and ineffective. The costsin slower decision making alone would be enormous. Rationing wouldmean that every new company would have to petition the Governmentfor a license to purchase or sell fuel. It would mean that any new plantexpansion or any new industrial process would require approval. Itwould mean similar restrictions on homebuilders, who already find itimpossible in much of the Nation to obtain natural gas hookups. After5 or 10 years such a rigid program would surely sap the vitality of theAmerican economy by substituting bureaucratic decisions for those of themarket place. It would be impossible to devise a fair long-term rationingsystem. The only practical and effective way to achieve energy independence,therefore, is by allowing prices of oil and gas to move higher—high enough to discourage consumption and encourage the explorationand development of new energy sources.I have, therefore, recommended an excise tax on domestic crude oiland natural gas and an import fee on imported oil, as well as decontrolof the price of crude oil. These actions will raise the price of all energyintensiveproducts and reduce oil consumption and imports. I haverequested the Congress to enact a tax on producers of domestic crude oilto prevent windfall profits as a result of price decontrol.Other aspects of my program will provide assurances that importswill not be allowed to disrupt the domestic energy market. Amendmentsto the Clean Air Act to allow more use of coal without major environmentaldamage, and incentives to speed the development of nuclearenergy and synthetic fuels will simultaneously increase domestic energyproduction.Taken as a whole, the energy package will reduce the damage fromany future import disruption to manageable proportions. The energyprogram however will entail costs. The import fee and tax combinationwill raise approximately $30 billion from energy consumers. However,I have also proposed a fair and equitable program of permanent taxreductions to compensate consumers for these higher costs. These willinclude income tax reductions of $16 billion for individuals, along

with direct rebates of $2 billion to low-income citizens who pay little orno taxes, corporate tax reductions of $6 billion, a $2-billion increase inrevenue sharing payments to State and local governments, and a $3-billionincrease in Federal expenditures.Although appropriate fiscal and energy policies are central to restoringthe balance of our economy, they will be supplemented by initiatives ina number of other areas. I was pleased to sign into law in Decemberunemployment compensation legislation which provides extended benefitsand expanded coverage for the unemployed. The budget also provides fora significant expansion in public service employment. I also urge theCongress to remove the remaining restrictions on agricultural productionand enact legislation to strengthen financial institutions and assist thefinancial position of corporations. I have also asked for actions tostrengthen the Administration's antitrust investigative power and topermit more competition in the transportation industry.We sometimes discover when we seek to accomplish several objectivessimultaneously that the goals are not always completely compatible.Action to achieve one goal sometimes works to the detriment of another.I recognize that the $16-billion anti-recession tax cut, which adds to analready large Federal deficit, might delay achieving price stability. Buta prompt tax cut is essential. My program will raise the price of energyto consumers; but when completed this necessary adjustment should nothamper our progress toward the goal of a much slower rate of increasein the general price level in the years ahead.As we face our short-term problems, we cannot afford to ignore thefuture implications of our policy initiatives. Fiscal and monetary policiesmust support the economy during 1975. In supporting the economy,however, we must not allow victory in the battle against inflation to slipbeyond our grasp. It is vital that we look beyond the unemployment problemto the need to achieve a reduction in inflation not only in 1975 butalso in 1976 and beyond.The future economic well-being of our Nation requires restoring agreater measure of price stability. This will call for more responsiblepolicies by your Government. The stakes are high. Inflation reduces thepurchasing power of our incomes, squeezes profits, and distorts our capitalmarkets. The ability of our free economy to provide an ever higherstandard of living would be weakened. We must not be lulled into a beliefthat inflation need no longer be a major concern of economic policy nowthat the rate at which prices are increasing appears to be slowing.The proposals I have made to deal with the problems of recession,inflation, and energy recognize that the American economy is more andmore a part of the world economy. What we do affects the economies of

other nations, and what happens abroad affects our economy. Closecommunication, coordination of policies, and consultations with theleaders of other nations will be essential as we deal with our economicand financial difficulties, many of which are common to all the industrialcountries of the Western World.We are already cooperating to ensure that the international monetarysystem withstands the pressures placed on it by higher oil prices. Thepassage of the Trade Reform Act of 1974 will make it possible to begincritical negotiations this year on further liberalizing the internationaltrading system, and we will continue to work with other countries towardsolutions to the special problems of food and energy.The economic problems that have emerged during the 1970's are difficult.Some of them reflect years of misdirection. Our efforts to solve theNation's economic difficulties must be directed toward solutions that willnot give rise to even bigger problems later. The year 1975 must be theone in which we face our economic problems and start the course towardreal solutions.FEBRUARY 4, 1975.

THE ANNUAL REPORTOF THECOUNCIL OF ECONOMIC ADVISERS

LETTER OF TRANSMITTALCOUNCIL OF ECONOMIC ADVISERS,Washington, D.C., January 31,1975.THE PRESIDENT:SIR: The Council of Economic Advisers herewith submits its AnnualReport, January 1975, in accordance with Section 4(c) (2) of the EmploymentAct of 1946.Respectfully,ALAN GREENSPAN,Chairman.bWILLIAM J. FELLNER.GARY L. SEEVERS.11

CONTENTSPageCHAPTER 1. ECONOMIC POLICY AND OUTLOOK 19The Programs to Stimulate the Economy and Conserve Energy. 20The Energy Tax Offsets 22Summary 23The Fiscal 1976 Budget 24Financing the Deficit 25Aid to the Unemployed 26The Outlook With New Policies 26Nonresidential Fixed Investment 27Inventories 28Housing 28Government Purchases 28Consumption 29Economic Aspects of the Energy Program 29Short-Run Policies 30Longer-Run Measures 31International Economic Relations 32CHAPTER 2. ECONOMIC DEVELOPMENTS AND POLICY IN 1974 35Demand and Output 37Business Fixed Investment 38Inventory Investment 40Housing 41Consumer Income and Spending 41Net Exports 45Comparisons of Output Change 45Prices, Wages, and Profits 47Prices 47Wage Rates 50Nonfinancial Corporations 52Real Income 54Labor Market Developments 5613563-280 O - 75 - 2

PageCHAPTER 2. ECONOMIC DEVELOPMENTS AND POLICY IN 1974—ContinuedFiscal Policy in 1974 59Federal Expenditures 60Federal Receipts 61Balances of the Federal Budget 62The State and Local and the Combined Budget Balances. 65Money and Credit 66Monetary Aggregates 66Interest Rates 68Credit Markets 70Assistance to the Mortgage Market 72Energy Developments in 1974 73Costs of Higher Energy Prices 73Prices 75Production 77Consumption 80Imports and Exports 81Inventories 82Natural Gas: A Special Case 83CHAPTER 3. UNEMPLOYMENT 86Definition and Measurement of Unemployment 87Sources and Nature of Unemployment 88Frictional Unemployment 88Structural Unemployment 89Seasonal Unemployment 91Cyclical Unemployment 91Inflation and Unemployment 94Duration of Unemployment 97International Comparisons 98The Distribution of Unemployment 102Differentials Due to Labor Force Turnover 102The Male-Female Differential for Experienced Workers. . 105Student and Nonstudent Teenagers 106Veterans and Nonveterans 107Unemployment Differentials by Education 108Unemployment Differences by Race 110Unemployment of Persons of Spanish Origin 114Unemployment and Income Maintenance Programs 116Unemployment, Income, and Poverty 116Unemployment Insurance System 119Public Service Employment 12414

PageCHAPTER 4. INFLATION DURING THE PAST DECADE 128Periods of Price Instability 130Excessive Growth in Aggregate Demand, 1965-74 131The Unstable Tradeoff 136Special Factors and the Lagged Price Response 139Indexation and the Tax Structure 141CHAPTER 5. GOVERNMENT REGULATION . 147The Rationale for Regulation 147The Federal Antitrust Laws 149Regulation of Monopoly 150Regulation of Competition .. 151Examples of Economic Regulation 152Transportation 152Financial Institutions 155Natural Gas 156Regulatory Reform 159CHAPTER 6. FOOD AND AGRICULTURE 160Developments in 1974 161Long-Term Changes in Agriculture 165The Decline in Excess Capacity 165A Changing World Agriculture 170Greater Price Instability 173Policy Challenges and Options 177Agricultural Development 178The Instability Problem 180Food Assistance 183Guidelines for Domestic Farm Policy 184Farm Policy in 1975 and Beyond 185CHAPTER 7. THE INTERNATIONAL ECONOMY IN 1974 187Stagnation and Inflation in the Industrial World in 1974 188International Repercussions of the Oil Price Increases 190The Less Developed Countries in 1974 196Recent Developments in International Finance 197Managed Floating 200Recent Exchange Rate Developments 203Changes in International Reserves 205U.S. International Transactions in 1974 208The Balances 212Supplement—The Eurocurrency and Eurodollar Markets 212APPENDIXES:A. Inflation Control Under the Economic Stabilization Act.... 219B. Report to the President on the Activities of the Council ofEconomic Advisers During 1974 231C. Statistical Tables Relating to Income, Employment, andProduction 24315

List of Tables and ChartsTablesp a ge1. Federal Budget Receipts and Expenditures Associated WithStimulus and Energy Programs, National Income AccountsBasis, 1975-76 242. Changes in Gross National Product in Current and ConstantDollars, 1968 to 1974 383. Change in Nonfarm Business Inventories in Constant (1958)Dollars, 1973-74 404. Personal Consumption Expenditures in Constant Prices, 1973-74. 435. Disposition of Real Disposable Personal Income, 1960-74 456. Changes in Industrial Production and Nonfarm Payroll Employmentand Man-Hours Associated With Two- and Three-Quarter Declines in Real Gross National Product, SelectedPeriods, 1948-74 467. Changes in Selected Price Measures During 1974 488. Components of Percent Change in Compensation Per Man-Hour in the Private Nonfarm Sector, 1965-74 519. Changes in Major Collective Bargaining Settlements, 1973-74. . 5210. Changes in Prices, Costs, and Profits Per Unit of Output forNonfinancial Corporations, 1969 to 1974 5311. Changes in Selected Measures of Income, Earnings, and Taxes,1969-74 5512. Labor Market Indicators, 1973-74 5713. Changes in Employment in the Private Nonfarm Economy:Total and Selected Energy-Related Industries, November1973 to March 1974 5914. Federal Government Receipts and Expenditures, National IncomeAccounts Basis, Calendar Years 1973-74 6015. Actual and Full-Employment Federal and State and LocalGovernment Receipts and Expenditures, National IncomeAccounts Basis, Calendar Years 1971-74 6416. Measures of Monetary Growth and Monetary Policy, 1972-74. 6817. Net Funds Raised in U.S. Capital Markets by NonfinancialSectors, 1968-74 7118. Refiner Acquisition Cost of Crude Petroleum and Percent ofImported and Domestic Crude Petroleum in RefineryInputs, 1973-74 7619. Changes in Wholesale Prices of Selected Fuels, 1964 to 1974... 7720. Indicators of Domestic Petroleum Industry Investment, 1969-74 7821. Gross Consumption of Energy by Major Source, 1965-74 8022. Petroleum Inventories Expressed as Days of Consumption,1972-74 8323. Average Price Paid by Utilities for Major Fuels, 1972-74 8416

Tables24. Dimensions of Unemployment and Weekly Hours Worked:Comparison of Selected Years of High and Low Unemployment,1957-74 9225. Unemployment Rates by Selected Demographic and IndustrialGroups: Comparison of Selected Years of High and LowUnemployment, 1957-74 9326. Unemployment Rates in the United States and Seven OtherDeveloped Countries, Selected Periods, 1969-74 9927. Long-Term Unemployment in the United States and Six OtherDeveloped Countries, Selected Periods, 1970-74 10028. Distribution of Unemployed by Reason for Unemployment, byAge and Sex, 1973-74 10329. Civilian Unemployment Rates by Age and Sex, Under AlternativeDefinitions, 1969-74 10330. Reason for Separation From Last Job for Persons Not in theLabor Force but who Worked During the Previous 12 Months,by Age and Sex, 1973... 10431. Unemployment Rates for Male Vietnam Era Veterans andNonveterans 20 to 34 Years, by Age, 1970-74 10832. Unemployment Rates by Education, Sex, and Age, 1962 and1972 10933. Unemployment Rates by Race, Spanish Heritage, and Sex,March 1970Ill34. Unemployment Rates for Males in the Urban South and UrbanNon-South, by Race and Age, Selected Years, 1940-70 11335. Work Experience of Family Heads Below the Low-IncomeLevel, by Sex, 1959 and 1972 11836. Insured Unemployment as Percent of Total Unemploymentand Unemployment Benefits as Percent of Average WeeklyEarnings, 1948-73 12237. Changes in the GNP Implicit Price Deflator and the ConsumerPrice Index, 1930-74 13038. Growth Rates of Consumer Prices and Money Stock for theUnited States and Five Other Developed Countries, 1965-74. 13339. Comparisons of Behavior of Selected Variables Before andAfter Cyclical Peaks, 1947-74 14040. Profits of Nonfinancial Corporations, Selected Periods, 1965-73. 14441. Farm Output and Productivity, Selected Years, 1940-71 16642. Farm Population and Farm Employment, Selected Years,1930-74 16843. World Net Imports and Exports of Grain, Selected Periods,1934-73 17244. Indicators of the Variance of Farm Prices in Constant Dollars,Selected Periods, 1910-71 17617

TablesPage45. Changes in Real Gross National Product and Major Componentsfor Selected Industrial Countries, 1962 to 1974 18946. Balance on Current Account of Major Areas, 1973-74 19247. Composition and Distribution of International Reserve Assets,Selected Months, 1973-74 20648. U.S. Merchandise Trade by Principal End Use Categories,1973-74 20949. U.S. Balance of Payments Transactions, 1973-74 21050. External Liabilities Denominated in Foreign Currencies ofBanks in Selected Countries, 1970-73 21551. Foreign-Currency Denominated Claims of Banks in ReportingEuropean Countries, 1973 216Charts1. Changes in GNP, Real GNP, GNP Price Deflator, and theUnemployment Rate 362. Prices of Raw and Crude Industrial Commodities 493. Changes in Wholesale Industrial Prices 494. Unemployment Rate 585. Interest Rates 696. Domestic Energy Production 797. Unemployment Rate and Prices 958. Inflation and the Unemployment Rate 1389. Farm Prices of Wheat and Corn in Constant Dollars 17410. Farm Prices of Beef Cattle and Hogs in Constant Dollars 17511. Change in the Value of the U.S. Dollar Relative to Select dForeign Currencies 20518

CHAPTER 1Economic Policy and OutlookTHE STORY OF THE PAST YEAR was one of inflation andrecession. Several of the forces that added to the rate of inflation alsoexerted downward pressure on economic activity. The sharp rise in oilprices resulted in a large transfer of purchasing power to the oil-producingcountries. Inflation, strong demands for credit, and the unwillingness of themonetary authorities to underwrite a continued acceleration of inflationdrove interest rates upward, causing a slump in housing. Another debilitatingeffect of the higher and variable rate of inflation was the sharp rise inuncertainty regarding future rates of price increase. The general rise inprices was instrumental in reducing real incomes in another way. Inflationpushed individuals into higher tax brackets thereby causing a significanttransfer of real income from individuals to the government sector. Inflationalso caused a similar updrift in the tax liabilities of business. The resultwas to shift the budget in the direction of restraint, by considerably morethan had been anticipated at this time last year.As 1975 begins, the unemployment rate stands at its highest level since1958 and production and employment are declining sharply. The declinein activity during the closing months of the year gathered so much momentumthat developments beyond the current quarter are difficult to gauge.It is quite likely, however, that the contraction of business activity andrising unemployment will continue for several more months. Although therate of inflation is still high, it has begun to moderate. One can observeactual declines in prices of crude industrial materials and a slowdown inthe rate of price advance among important categories of goods sold inwholesale and retail markets.The most pressing concern of policy is to halt the decline in productionand employment so that growth of output can resume and unemploymentcan be reduced. The momentum of the decline is so great that a quick turnaroundand a strong recovery in economic activity are not yet assured. Butprompt action on the Administration's proposals to stimulate the economyshould hasten the end of the recession and contribute to the pace of recoveryduring the second half of the year. The policies that we use to supportthe economy in 1975 must be consistent with a further reduction in inflationin 1976 and thereafter. This will obviously require discipline both in theFederal budget and in the monetary policies of the Federal Reserve.19

The formulation of economic policy is complicated by the need formuch stronger actions to tackle the Nation's energy problems. New energypolicies have been proposed which will provide an enduring framework forthe adjustment that began after the oil embargo. The adjustment to lowerlevels of consumption and importation will impose further costs upon theeconomy in the short run in order to avoid mounting political and economiccosts in the long run. The energy program will raise prices at a time wheninflation is serious. On balance, however, the program will provide importantbenefits. Moreover, as formulated it is consistent with the values andthe objectives of an efficient market-oriented economy.THE PROGRAMS TO STIMULATE THE ECONOMY ANDCONSERVE ENERGYTo provide support for the economy, the President on January 13 proposedtax relief for individuals and business. For individuals the programcalls for a tax rebate equivalent to 12 percent of total 1974 personal taxliabilities up to a limit of $1,000 per return. The rebate would totalapproximately $12 billion and would be paid in two instalments, the firstin May and the second in September.For business the President proposed a 1-year increase in the investment taxcredit to 12 percent. Except for utilities, which now have a 4 percent credit,the present credit is equal to 7 percent of investment in equipment. Forelectric utility investment in generating capacity that does not use oil orgas, the higher tax credit would remain in force through 1977. The increasein the tax credit is expected to reduce tax liabilities of businesses by approximately$4 billion during 1975. The credit will apply to machinery andequipment put into service during 1975, as well as to orders placed during1975 and put into service by the end of 1976.The tax cut will not prevent a decline in real output from 1974 to1975 but it will reduce the extent of the year-over-year decline—perhaps byone-half of 1 percent to 1 percent in terms of real GNP—and will contributeto the recovery in the second half of 1975. An assessment of theeconomic effects of the stimulus program is complicated by a number offactors. We cannot be certain 'how much of the tax cut will be saved ratherthan spent, but past experience suggests that most of the tax cut will be spent,and a large fraction of it this year. Saving will be high initially, but as theyear progresses spending will increase.The investment tax credit may have some immediate effect in stimulatingpurchases of certain types of equipment, but it is most likely to begin to affectspending appreciably in the second half of 1975. Because of the time limitationsapplicable to the tax credit, businessmen have an incentive to undertakesome investment now that they would otherwise have undertaken only later.In view of the fact that new orders for durable goods generally and formachinery and equipment specifically have fallen rapidly in recent months,20

any addition to orders at the present time is quite important in itself, even ifit does not raise fixed investment immediately.The Administration's energy program aims at discouraging energy consumptionand encouraging domestic production by raising the relative priceof energy. Prices are increased through removal of controls in combinationwith a series of taxes, but the tax proceeds are refunded so as to keep consumerpurchasing power roughly unchanged once the program has becomefully effective. The major components of the Administration's energy programare:—Price decontrol for crude oil and deregulation for new natural gas.—A windfall profits tax on crude oil.—An import fee which will rise to $2 per barrel on imported oil, accompaniedby an excise tax of $2 per barrel on domestic oil and an equivalenttax of 37 cents per thousand cubic feet on natural gas.—Creation of a strategic oil reserve of up to 1.3-billion barrels with earlyaction to require the stepped-up holding of private oil inventories.—Protection of domestic energy producers against excessive risks fromabrupt declines in prices of imported petroleum.—Expanded production from the Naval Petroleum Reserves and otherFederal oil deposits.—Expanded production and use of coal and nuclear energy.—Development of a synthetic fuels industry.—Various measures designed to increase the efficiency of energy 7consumption.An important source of uncertainty regarding the stimulus program concernsthe timing of the energy package. The reasoning behind the decisionto embark on an energy conservation program is outlined further on. Herewe note some of the price and fiscal aspects of the energy program.It is estimated that the imposition of import fees, excise taxes on crudeoil and natural gas, and the decontrol of domestic crude oil by April 1, 1975,will directly add about $30 billion (annual rate) to the Nation's oil and gasbill. Ultimately prices should rise by an equivalent amount. The windfallprofits tax (WPT) is designed to capture the increase in profits of domesticoil producers attributable to decontrol. The increase in receipts from importfees, excise taxes, and the windfall profits tax will be returned to individuals,businesses, and governments mainly through a set of tax reductions, with aportion taking the form of increased Federal Government expenditures.The energy program will be introduced gradually. On February 1 animport fee of $1 per barrel was imposed through Presidential action. Thisfee will rise to $2 on March 1 and to $3 on April 1. However, for purposesof economic projections the Administration has assumed that Congresswill levy a $2 tax on domestic crude oil and pass the balance of the energy programwith an effective date of April 1 of this year. This would make thefinal increase in the import fee unnecessary.21

The initial effect of the import fee will be to raise prices of imported oiland of domestic oil that is now uncontrolled. Together these constitute some60 percent of total U.S. oil consumption. This effect will be reinforced onApril 1 by the decontrol of the remaining part of domestic petroleum production.In the second quarter of the year, the average price of crude oilis expected to rise by approximately $4.20 per barrel over current levels as aresult of decontrol and the $2 per barrel excise tax. It is expected that theincrease will be reflected with a lag in higher prices for gasoline, fuel oil, andother petroleum products and eventually in higher electricity prices. By theend of the second quarter of 1975, when all of the program will be effective,the consumer price index is estimated to be 1.3 percent higher than itwould be without the proposed program. Not all of the higher price of crudeoil and natural gas will affect prices in final markets this quickly. At firstsome of the higher petroleum prices will reduce profits rather than increasethe prices charged by users of refined petroleum inputs, especially whereprices are regulated. The profits squeeze is not expected to last long, however,and by the latter part of 1976 all of the increased cost should show upin the form of higher prices of those goods and services that consume crudeoil and natural gas directly and indirectly. The $30-billion impact is estimatedto be about 2 percent of GNP. About 90 percent of it will be reflectedin higher prices by the fourth quarter of this year. For all of 1975 we estimatethat the GNP deflator will be about 1 percent higher than it wouldhave been without the program.Rising prices not compensated for by offsetting tax cuts will reduce realincomes to a slight extent in the first half of 1975. Consequently, the effectof the stimulus proposals will be partially offset by the energy proposalsduring the first half of the year. On the other hand, to the extent that oilimports and hence the transfer of purchasing power to foreign oil producersare reduced the demand for domestic goods would be increased.By the third quarter the stimulus from both programs will be substantiallygreater.THE ENERGY TAX OFFSETSThe energy taxes are to be turned back to the economy in a variety ofways. (Estimates below are annual rates based on calendar year 1975.)—For individual taxpayers, rates are being reduced and the lowincomeallowance is being raised in such a way that total taxeswill be cut by an estimated 12 percent from what they wouldotherwise be in 1975. The increase in the low-income allowanceto $2,600 for joint returns from its present level of $1,300 meansthat a family of four will pay no taxes if its income is $5,600or less. This part of the program, which would involve a reductionin withholding schedules starting June 1, would return anestimated $16 billion.22

—Low-income households that pay no taxes and certain low-incometaxpayers will receive a special distribution of up to $80 per adultafter application to the Internal Revenue Service. This would return$2 billion. Disbursements are expected to start in the summer of thisyear.—The program calls for a tax credit of 15 percent of expenditures—up to a maximum expenditure of $1,000 per homeowner—for outlaysthat improve residential thermal efficiency. Credits could beclaimed during the next 3 years. This aspect of the program wouldreturn $0.5 billion per year.—The Federal Government would use $3 billion to cover its shareof the costlier energy bill, while State and local governments wouldreceive an additional $2 billion in revenue sharing grants.—Business would receive $6 billion through a reduction in the corporatetax rate from 48 percent to 42 percent.SUMMARYTable 1 brings together the various parts of the Administration's stimulusand energy programs. Receipts and expenditures, defined on the nationalincome accounts (NIA) basis, are shown as seasonally adjusted quarterlytotals, not at annual rates.The stimulus or temporary part of the combined program appears as reductionsin personal and corporate tax receipts. In addition to refunds toindividuals of part of their 1974 tax liabilities, personal tax receipts includean allowance for the investment tax credit applicable to unincorporatedbusiness. This credit is considered a reduction in liabilities for the entireyear and consequently is spread over -all quarters of 1975.The import fees, excise taxes, and windfall profits taxes, which are viewedas permanent, are all treated as indirect business taxes. The permanentoffsets to these taxes appear as reductions in personal and corporate incometaxes and as increases in Government expenditures.Proceeds from the energy taxes are returned to those individuals who payincome taxes primarily by reductions in withholding schedules. Withholdingschedules will be adjusted in the second quarter of 1975 in such a waythat an entire year's reduction in tax liabilities will be made over a 7-monthperiod. Consequently, withholding will be increased after the fourth quarterof 1975 but not up to the rates of early 1975.Low-income households, who pay less than $80 per adult in income taxes,will receive transfer payments starting in the third quarter. Governmentpurchases are increased in the budget to cover the Federal share of thehigher oil bill, while State and local governments are the beneficiaries ofincreased grants from the Federal Government.These figures are an accounting of receipts and expenditures and do notnecessarily reflect their impact on the behavior of individuals and businesses.Nonetheless they demonstrate that energy taxes partially offset tax cuts23

in the spring and that the impact of the program is greatest in the secondhalf of 1975, especially in the third quarter.THE FISCAL 1976 BUDGETBecause of concern that a too expansionary budget carries the risk ofworsening the inflation, the Administration has proposed a slower rate ofincrease in spending from fiscal 1975 to fiscal 1976 than from fiscal 1974to fiscal 1975. The new budget calls for outlays of $349.4 billion, a rise of11.5 percent compared to a rise of 16.8 percent from fiscal 1974 to fiscal1975. The President has proposed a moratorium on new spending programsexcept for energy as well as numerous actions to reduce spending in existingprograms. The reductions total $17.5 billion and embrace $7.8 billionin proposals made last year and $9.7 billion in new reductions. Taking intoaccount the $16 billion in tax cuts to stimulate the economy, receipts areexpected to total $297.5 billion, a rise of 6.7 percent over fiscal 1975.The deficit is expected to rise from an estimated $34.7 billion to $51.9billion. These are large deficits but they reflect the shortfall in receiptsand increased unemployment benefits stemming from the weak economy.TABLE 1.—Federal budget receipts and expenditures associated with stimulus and energyprograms, national income accounts basis, 1975—76[Billions of dollars; seasonally adjusted quarterly totals]Receipt or expenditure19751976IIIBy type:Total receipts.Personal taxes.Stimulus..Energy....-0.1000-1.6-7.7-5.1-2.6-9.7-15.4-7.3-8.1-3.0-8.40-8.40.4-4.8-.3-4.50.0-4.9-.3-4.6Indirect business taxes.Corporate taxes..StimulusEnergy2.2-2.2-1.48.3-2.2-.8-1.48.1-2.4-.8-1.57.9-2.5-.8-1.77.7-2.6-.8-1.87.6-2.7-.8-2.0Total expenditures.0.51.81.81.81.8Purchases of goods and servicesGrants-in-aid to State and localgovernmentsTransfer payments000o".8.5.5.8.5.5Total expenditures minus total receiptsBy program:.12.111.44.81.41.7Stimulus taxes-5.9-8.1-.8-1.1-1.1Net energy taxesImport fees, excises, and windfallprofits taxes...Tax offsets.82.2-1.44.38.3-4.0-1.58.1-9.6-2.27.9-10.11.47.7-6.31.07.6-6.6Energy expendituresTotal expenditures minus total receipts.1.52.11.811.41.84.81.81.41.81.7Note.—Detail may not add to totals because of rounding.Sources: Department of the Treasury, Department of Commerce (Bureau of Economic Analysis), and Council of EconomicAdvisers.24

For the calendar year the full-employment surplus on a national incomeaccounts basis is expected to decline by $9 billion from 1974 to 1975.FINANCING THE DEFICITThe financing of the large deficits will pose problems which are noteasy to evaluate. The economic circumstances of 1975 are quite differentfrom those encountered in past recessions, like the recession of 1958.If prices are stable, any large decline in output lowers the demand forprivate credit, and this slack is taken up only in part by the normalincrease in the budget deficit resulting from lower tax collections andhigher unemployment benefits. Even a discretionary stimulus that wouldpartly counteract rather than merely cushion a large decline of aggregatedemand would probably not create serious financing problems under suchconditions. The reason is that if unemployment is widespread and factorsof production are in highly elastic supply, cost pressures are minimal andprivate investment and credit demands are likely to be low.The present situation is far different from past recessions, but the deficitas presently estimated can probably be financed without serious problemsin 1975. The private demand for credit will decline at least somewhat, andprobably substantially, as the direct result of the low level of housing, reducedconsumer purchases of durable goods, and the sharp swing from inventoryaccumulation to inventory liquidation. The drop in real output, however,has brought less relief in the credit markets than it would have under lessinflationary conditions. Furthermore, imbalances have developed in thefinancial structure of businesses in recent years because of the disproportionatereliance on debt financing in general and short-term debt in particular.As the desired private refinancing is made more difficult by the deficitfinancing, businesses may abandon investment projects more readily thanin the past, rather than risk further unbalancing their capital structure andincreasing their credit market exposure.One way of preventing significant displacement of private investment in asubstantially underemployed economy would be to increase the rate of moneysupply growth to reduce Federal financing pressures. Under such conditions,an increase in monetary growth need not be inflationary in the shortrun, especially if there is a large unsatisfied demand for liquidity. On theother hand, should large deficits continue well after the recovery has takenhold, maintaining such a course of monetary accommodation could sparkan increase in the rate of inflation. For this reason it is essential that anymonetary accommodation to large fiscal deficits be permitted only so longas the effective underemployment of resources remains large and there isample room for above-average growth. Otherwise, future price level trendswill be affected adversely and the deficit will become increasingly "unproductive"in real terms.25

Monetary policy faces great difficulties in the year ahead and will requirecareful and continuous evaluation by the Federal Reserve. The uncertaintiesthat underlie the outlook for 1975 add to the importance of a flexiblemonetary policy. Monetary policy must be conducted so as to encouragea near-term recovery in the economy and a resumption of sustainableeconomic growth. Toward this end, reasonable growth in money and creditwill be required—growth which, one hopes, will encourage a freer flow ofcredit and lower interest rates in private credit markets. Whether moreaccommodating credit conditions will in fact develop depends importantlyon the ease with which the enlarged Federal deficit is financed, and also onthe progress that is achieved in moderating the Nation's rate of inflation as1975 progresses.A special problem for monetary policy is posed by the energy conservationprogram, the initial effects of which will be to raise the price level. To adegree, this one-time increase in prices will require additional financing,so as to avoid a contractive effect on the real economy. However, rapidmonetary growth would run the risk that inflationary pressures would onceagain be increased, later on if not in 1975, undermining the Nation'sfundamental need to regain the basis for reasonable price stability. Thatmust not be permitted to happen.AID TO THE UNEMPLOYEDIn response to the sharp rise in unemployment in the latter part of1974, and in anticipation of further increases in 1975, the Administrationinitiated legislation to increase the duration and coverage of unemploymentinsurance benefits and to create employment by funding additional publicservice jobs. In December 1974, the President signed the Emergency UnemploymentCompensation Act, which extends the duration of benefits by 13weeks beyond the prevailing limits. Unemployed workers can now receiveup to 52 weeks of benefits. The Emergency Jobs and Unemployment AssistanceAct, also signed in December, grants unemployment benefits, for upto 26 weeks, for the first time to workers in occupations and industries thatwere not covered by the regular State or Federal programs. This act providescoverage for an estimated 12 million workers, primarily agricultural,domestic, and State and local government employees. While these programsare administered by the States, the funds are entirely from Federal sources.The Emergency Jobs and Unemployment Assistance Act also amendsthe Comprehensive Employment and Manpower Training Act (1973) toexpand Federal funding for State and local public service jobs. The budgetprovides funds that will permit an increase in the number of public servicejobs from 85,000 in fiscal 1974 to 280,000 in 1975 and 1976.THE OUTLOOK WITH NEW POLICIESGiven the above assumptions regarding energy, fiscal, and monetarypolicies, the economy is likely to continue its downward course in the firsthalf of 1975 and to move onto the road of recovery in the second half. The26

first-half decline is likely to be severe, however, and the subsequent recoverywill still leave the level of output in the fourth quarter about the same asa year earlier. For 1975 as a whole real GNP will probably be about3 percent below the average of 1974. The rate of inflation will be very highin the first half of the year—higher than it would be in the absence of theenergy policy—but it should subside in the second half. For all of 1975,prices as measured by the GNP deflator should be 11 percent higher thanprices in 1974. By the final quarter an inflation rate of about 7 percent isprojected, not counting the pay increase scheduled for Federal civilianand military personnel. The projections of real GNP and the deflator yielda nominal GNP of about $1,500 billion, which is some 7% percent greaterthan the 1974 figure. Given the large decline in real output, the unemploymentrate should average about 8 percent for the year, moving abovethat level before midyear but coming down from the peak in the secondhalf.The uncertainties are so great at the present time that the projectionscited above, although presented as specific numbers, are subject to anunusually wide margin of error. The past several months have witnessed aprogressive scaling down of output projections and a scaling up of unemploymentprojections.NONRESIDENTIAL FIXED INVESTMENTEarly in January the Department of Commerce published a survey ofplant and equipment plans that projected a rise of 4J4 percent in nominaloutlays from 1974 to 1975. In view of the prospective rise in capital goodsprices the survey results imply a sizable decline in real outlays. Large nominalincreases ranging from 14 to 28 percent were scheduled by producers ofbasic materials, such as steel, paper, chemicals and petroleum, and by miningfirms, railroads, and gas utilities. Very small rises or decreases wereprojected by electric utilities, air transport, and commercial firms. Thedeterioration of sales, output, and profits since this survey was taken willprobably lead to a scaling down of even this small overall planned increase,although the large expansion plans of a number of basic industries willprovide an element of stability. The plans reported in this survey camein too early to be affected by the proposed investment tax credit.There seems little likelihood of preventing a decline in real nonresidentialinvestment in the first half of 1975. The pronounced slump in real outlaysfor producers' durable equipment in the final quarter of 1974 was heavilyconcentrated in outlays for automobiles and trucks. But the closing monthsof the year also witnessed decreases in the production of a broad range ofmachinery and equipment as businessmen canceled orders or delayed deliverieson contracts made earlier. These cutbacks will take the form ofreduced deliveries in the first half. The liberalization of the investmenttax credit, coupled with the turnaround in economic activity and a reboundin profits, should bring rising real outlays in the second half. The mainimpact of a liberalized investment tax credit will be felt late in the year. For27

1975 the projection foresees nominal investment about 4 percent above the1974 total but real investment down approximately 9 percent.INVENTORIESThe behavior of inventory investment is likely to be the dominant influenceon the course of production over the coming year. At the start of 1975the ratio of nonfarm inventories to GNP in real terms was the highest sincethe end of World War II. It seems fairly likely that the physical volume ofinventories will fall during most and perhaps all of the coming year, withespecially large reductions in the first half. Even with a decline in stocks andabove average growth in demand in the second half of the year, the ratio ofstocks to output at year-end would still be high by post-World War II standards.Although stocks may well decline throughout the year, the impact ofinventory behavior on the change in output should be greatest early this year,when inventory investment turns negative following a high rate of involuntaryaccumulation in the fourth quarter of 1974. What is already happeningto automobile stocks will be reinforced by similar but less pronounced adjustmentsin other industries. By midyear, shifts in inventory investment shouldbe contributing to rising overall production. All told, current dollar inventoryliquidation could approach $5 billion in 1975.HOUSINGUnderlying conditions seem ripe for a reversal of the housing decline, eventhough the prospect of a sharp upturn appears small at this time. The stockof housing increased very little during the past year because of the low rate ofstarts. Despite very weak demand the low rate of housing completions keptvacancy rates from rising; the vacancy rate in rental housing, for example,stabilized from the first to the fourth quarter of 1974. The rate of housingstarts in the fourth quarter of 1974 was about one-half the estimated underlyingdemand indicated by prospective household formation and replacementdemand.The projection for 1975 calls for private starts to begin rising this springup to an annual rate of 1.6 to 1.7 million units in the final quarter, withsingle-family homes likely to be in the forefront of the recovery. Because offinancing problems and reduced profitability, apartment house constructionis not likely to recover until the second half of 1975, although it may show avery weak recovery in the first half. Real outlays for residential constructionin 1975 are projected to be about 15 percent below those of 1974,and current dollar outlays, about 5 percent.GOVERNMENT PURCHASESFederal outlays for goods and services are expected to rise by about 8/ 2percent from 1974 to 1975, while State and local purchases are expected torise by about 12 percent. Each includes an allowance for the higher costof energy under the new energy program. In real terms, combined governmentpurchases are expected to show little change from 1974 to 1975, withoffsetting decreases and increases in the Federal, and State and local totals.28

CONSUMPTIONConsumers hold the key to the strength of the economic recovery. If theyrespond as expected to the stimulus of the tax cuts proposed by the Administrationfor the spring and summer, real GNP should record a good-sizedadvance in the second half, but if not, the 1975 recovery could be a sluggishone. The effect of the tax cut on consumer incomes should be reinforced bya turnaround in gross private domestic investment, which has undergone asteep decline since the final quarter of 1973. In the meantime the loss ofearned income is being cushioned by increases in unemployment benefits.Last year such benefits totaled more than $7 billion, but with this year's highunemployment they are projected to total more than $18 billion. The latterfigure includes, in addition to regular State programs, about $2^4 billionof extended State benefits and $3j4 billion in special unemployment benefitsfor those not previously eligible for unemployment compensation.Consumer income will be bolstered on July 1, 1975, by a scheduled increaseof $3.0 billion (annual rate) in social security benefits (excludingmedicare benefits). One offset is the increase in social security taxes due tothe rise in the taxable earnings base from $13,200 to $14,100 effective January1, 1975. This tax increases Federal receipts by about $1^2 billion, abouthalf of which represents a reduction in personal income.Consumers should be aided by a slower rate of inflation in the secondhalf of 1975 compared with the first. The rate of inflation will be highestat midyear because it will reflect the main impact of the higher energyprices. The rate of increase should taper off considerably, even thoughthe energy program will be adding to the level of prices throughout theyear. The rise in disposable income and the slower rise in prices yield a substantialincrease in real income in the second half.Despite the possible negative aspects of the energy program this spring,we foresee some improvement in consumer spending in the second quarteroccasioned by the refunds of 1974 tax liabilities. To some extent the refundswill induce additional purchases of automobiles, furniture, and appliances,even though initially the greater part of the refunds is likely to be saved.In the third quarter, however, the further stimulus scheduled for September,coupled with the rebates of the windfall profits tax and thestronger recovery, should bring a step-up in consumption that carries into thefourth quarter. For all of 1975 the personal saving rate is likely to be higherthan in 1974.Real consumer spending in 1975 may fall slightly below the correspondingtotal for 1974. If so, this would mark the second year of decline in realconsumer spending. In nominal terms the increase over 1974 should be closeto 10 percent.ECONOMIC ASPECTS OF THE ENERGY PROGRAMThe economy surmounted the energy crisis with which 1974 began,but the energy problems of 1975 and beyond may prove more intransigent.29563-280 O - 75 - 3

Now, a year after the embargo, there is widespread agreement that theoil-exporting nations will maintain restrictions on oil supplies and thus beable to hold prices far above the pre-embargo level for at least the period immediatelyahead. It is also agreed that the demand for goods and services bythe oil exporters will rise, but not enough to offset the large money flowsreceived in exchange for oil exports. Finally, it is realized that supplies of oilfrom foreign sources are unreliable and will remain so into the indefinitefuture. For these reasons, the Administration's energy policy is designed tolower imports and thereby reduce our vulnerability to interruptions in thesupply of petroleum. In achieving this goal, the Administration is placingmaximum reliance on creating market conditions that will have a lasting influence,rather than relying on allocations and rationing which at best areonly short-term solutions.An acceptable level of security can be achieved in the longer run with acombination of measures, including standby domestic capacity and strategicoil reserves for an emergency, as well as reduced consumption and increasedproduction from conventional and new energy sources. Except for reducedconsumption, none of these measures will increase security quickly. Consequently,it is essential that we begin to reduce import vulnerability byreducing demand, and that we promptly initiate programs to establishstandby capacity and to increase energy production and stocks.SHORT-RUN POLICIESTo curtail petroleum imports in the short run, the energy program wouldreduce total energy consumption by raising its price to the equivalent ofthe world market price plus $2 per barrel. This policy is better thanrestricting petroleum imports directly. If petroleum imports are rigidly controlled,unexpected variations in energy supply or demand would cause largedisruptive effects because oil imports could not serve their usual role of offsettingthese fluctuations. Restraining general energy consumption byraising its price is more equitable and more efficient than restraining specificenergy uses. The diverse uses to which energy is put and the complex patternsof its consumption create extraordinary difficulties, administrativecosts, and inefficiencies when administrative allocation is attempted. Theburden falls more broadly and is handled more efficiently by the economywhen it is imposed through the operation of market forces. Purchasers ofenergy can decide for themselves where they can best reduce consumption.The elimination of price controls on crude oil (effective April 1) willincrease the price of energy and reduce its consumption. The Administrationhas renewed its recommendation that the price of new natural gas befreed from controls, and that prices of regulated gas be decontrolled whenexisting contracts expire under their own terms. This will lead to a gradualbut eventually large increase in natural gas prices. These actions will havesome effect on the price of substitute fuels, such as coal, but price increaseswill come with some delay and will gradually induce additional suppliesof energy.30

The windfall profits tax in the President's energy program is designedtc prevent increases in profits on existing oil production that would havelittle, if any, short-term impact on production. The tax is levied on thedifference between a base price and the price actually received. The marginaltax rate rises with the size of the gap, reaching 90 percent on thatportion of the price received which is more than $3 per barrel greater thanthe base price. The tax will be phased out over a period of several years,as the base is gradually adjusted upward.In the near term, oil producers will not receive additional revenues onexisting production from the combination of decontrol and the WPT. Butthey will have a powerful incentive to make new investments, because theywill receive higher prices when new ventures come into production.Decontrol of old oil will be insufficient in the short run to bring about thereduction in imports that energy security requires. The $2 per barrel taxon crude oil and the 37 cents per thousand cubic feet tax on natural gaswill raise the price paid by consumers above that received by producers inorder to reduce consumption and imports further. The revenue from thistax, like other proposed energy tax revenues, would be returned to consumersof energy so that they would have roughly as much purchasingpower as they had before the tax.LONGER-RUN MEASURESThe costs of energy security are lower in the long run than in a shortperiod because security can be achieved by measures that do not rely soheavily on demand restraint. The keystone to long-run policy is a storageprogram of up to 1.3 billion barrels, a strategic reserve which is largeenough to replace imports for an extended period. This will permit theNation to continue to import some oil from unreliable sources indefinitelywithout the potential costs of interruption.Domestic production, encouraged by eliminating both price controls andrelaxing restrictions on exploration in promising areas, would respond stillmore if investors were assured that the price they would receive for oil wouldnot be temporarily driven below the long-run supply price by events inthe world market. For this reason protection against large downside pricerisks for conventional oil production are proposed. Producers would thus beassured that large drops in the world price of oil would not disrupt thedomestic market. Businesses that invested in energy-saving equipment wouldalso be protected against competitors who avoided such expenditures.A reduction in standards of living and potential output compared to whatwe would otherwise enjoy is inevitable with a program to achieve a greaterdegree of energy security, though the program announced by the Administrationis designed to hold such effects to a minimum. The alternative approach—allocationsand rationing—would give rise to structural changes inthe economy that could have serious, long-run consequences.A productive economy is one which readily responds to change andis open to growth, development, and new initiatives. Those characteristics31

are weakened when market allocation of resources is supplanted by administrativecontrol. The restrictions on individual choice that arecaused by further centralization of decision making are obvious. Not soobvious, but potentially far larger, are the economic losses if the economybecomes bound to rigid patterns by these measures. An allocation systemtends to favor large and established entities. It is likely to discriminate againstsmall firms and the potential entrants from whom innovation could otherwisebe expected. With quasi-permanent controls, the benefits of competitivemarkets would be lost, superior performance might not be rewarded; inefficiencywould not be punished by losses or bankruptcy. The Administration'sprogram emphasizes the creation of incentives for individuals and firms to actin a way consistent with energy security, rather than mandating particularbehavior.There are risks in the Administration's energy program. If the worldprice of energy were to fall dramatically, the United States would be left withhigh energy costs relative to those of other countries. If the demand andsupply response to higher energy prices is far lower than predicted, thenadditional actions may be necessary. If the response is higher, of course,the oil tax can be reduced or eliminated. If the world price of oil fell toacceptable levels, and if imports were never interrupted, the program wouldhave caused unnecessary costs. The program balances the extra costs fromlack of preparation for import disruptions against the costs of preparingfor them. The balance struck does not protect against all contingencies, butit will lead to less vulnerability to import cutoffs.The energy program will speed the transition to a new energy realitythat was started by the embargo. The energy situation in 1975 and beyondis markedly different from that of 1973 and before, because energy pricesare much higher. These higher prices will call forth substantial increasesin investment for both greater energy production and for producing lessenergy-intensive goods and services.INTERNATIONAL ECONOMIC RELATIONSRising unemployment, rapid inflation, and the energy crisis have placedheavy strains on the fabric of international economic relationships. Thepressures on the world capital markets resulting from the financing oflarge deficits of the oil-importing countries are growing and may threatento undermine the past liberalization of capital flows among the industrialcountries. The acquisition of large amounts of liquid assets bythe Organization of Petroleum Exporting Countries (OPEC) has posed arisk of financial and exchange rate instability that must be contained throughincreased cooperation among the oil-importing countries as well as with theOPEC countries. Some encouraging steps have been taken in this direction.These efforts to deal cooperatively with the international financial problemscreated by the energy crisis are discussed in Chapter 7.32

Economic problems experienced by many countries have created pressuresfor governments to adopt restrictive trade measures. The resolve of governmentleaders to avoid such self-defeating measures was considerably strengthenedby a decision 3 years ago among U.S., Canadian, Japanese, andEuropean leaders to convene a new round of multilateral trade negotiationsto continue the process of trade liberalization begun after World WarII. U.S. participation, however, was contingent upon passage of legislationby the Congress granting the President authority to undertake such negotiations.The Congress passed the Trade Reform Act of 1974 at the end oflast year, opening the way for full-scale multinational negotiations to beginlater this year.The recent decline in economic growth around the world and the parallelincrease in unemployment might make it more difficult for most governmentsto commit themselves in the coming year to major reductions intrade barriers. It is generally recognized, however, that any reductionsresulting from such commitments will be sufficiently gradual to allow firmsand workers to adjust to the change in competitive conditions over a periodof years. Finally, the major focus of a new round of multilateral negotiationsis likely to be on nontariff barriers, which are frequently motivated byobjectives other than the protection of domestic industries. While the reductionof such barriers can make an important contribution to a more efficientallocation of world resources, it will frequently not require major changesin the structure of domestic industry.33

CHAPTER 2Economic Developments and Policy in 1974LAST YEAR WAS VERY DIFFICULT for the American economy.The decline in output and the rise in prices were the greatest forany peacetime year since the early post-World War II period. Unemploymentrose and living standards fell (Chart 1). The year started with theeconomy in the grip of an energy crisis brought on by the Arab oil embargoand by the spiraling price of imported oil. The decline in output attributableto the embargo was subsequently halted and partly reversed. That recoverywas not strong enough to overcome forces of contraction, some of whichhad been present earlier and some of which emerged only late in the year.In the closing months of 1974, demand and output were falling rapidly andunemployment was climbing sharply. The overall rate of inflation continuedto be very high, although signs of a slower price rise could be seen in wholesaleand retail markets.The pronounced deterioration in demand and the severe recession havebeen the dominant events of the past few months, but for most of 1974aggregate demand reflected numerous crosscurrents. Demand by businessfor new plant and equipment was strong for a good part of the year, especiallyin industries producing basic materials that had been in short supply. Supplyshortages provided business with a potent stimulus to build up inventories,but this influence diminished as the year progressed and disappeared afterthe summer. Homebuilding suffered its worst decline in 30 years, mainlybut not entirely because of disrupted mortgage markets. Consumers sustainedlarge reductions in real income and cut back their real expenditures,especially for energy and automobiles.At the start of 1974, economic policy makers found that the scope ofpolicy had been stretched far beyond the traditional issues of demandmanagement. In the forefront was energy policy, which sought to concentratethe embargo-caused shortage within the household sector in order tominimize the impact on the industrial sector and employment. Because of theworsening inflation, demand management continued to aim at restraint,even though it was recognized that the oil embargo and the steep rise inoil prices would mean a loss of real income. Much of this loss was alreadyshowing up at the start of 1974 in the form of reduced purchases of energyand energy-related goods and services by consumers, businesses, andgovernments.35

Chart 1Changes in GNP, Real GNP, GNP PriceDeflator, and the Unemployment RatePERCENT CHANGE FROM PRECEDING YEAR4 -_ REAL GNP-4_ GNP IMPLICIT PRICE DEFLATOR4 -1965 1966 1967 1968 1969 1970 1971 1972 1973 1974SOURCES: DEPARTMENT OF COMMERCE AND DEPARTMENT OF LABOR.36

Looking at prospects for 1974 a year ago, the Administration saw a weakfirst half and a recovery setting in by midyear, led by an upturn in housingand a recovery of the automobile industry from its depressed condition atthe start of 1974. The Administration also expected a slower rate of inflationafter early 1974, associated with a deceleration of the price rise in petroleumand in farm and food products.The recovery in the homebuilding industry did not materialize despitespecial efforts by the Administration—notably in May—to bolster mortgagemarkets. Housing starts sank progressively lower as interest rates soared torecord highs in midsummer, draining funds out of thrift institutions. Consumersobtained no relief from inflation and continued to sustain cutsin real income despite an acceleration of the rise in wages. Although somerecovery in the automobile industry occurred, the upturn was abruptly reversedin the final quarter of 1974. With domestic and foreign demandsoftening during the summer, supply conditions improved noticeably. Manybasic materials that were in short supply at prices prevailing in midsummercould be obtained with little difficulty by the start of the fourth quarter,steel being a major exception.The severe weakening of demand and the sharp decline in output in thefourth quarter came suddenly. By midsummer there had been a scalingdown of expectations regarding the strength of demand in the near term; butthe common expectation, shared by the Administration, was for slow growth.For example, at the time of the Summit Conference on Inflation in Septemberthere was a fairly broad consensus among economists that littlechange in output would occur in the ensuing few quarters, and most projectionsof real gross national product (GNP) fell within the narrow rangeof a small increase and a small decrease. That meant rising unemployment.There was little anticipation of the collapse of demand, output, andemployment in the motor vehicle industry, or the less severe but widespreaddeclines elsewhere that marked the closing months of 1974 and the startof 1975.DEMAND AND OUTPUTGNP in 1974 was 8 percent greater than it was in 1973, with a 10 percentrise in prices (as measured by the GNP deflator) and a 2 percent declinein output (Table 2). From the fourth quarter of 1973 to the fourthquarter of 1974, the price rise was 11.8 percent and the output decline, 5.0percent. The pattern of overall demand and output change within the yearshows pronounced decreases in the opening and closing quarters, but ifattention is confined to real final sales the fourth quarter decrease dwarfedthose in the first 3 quarters. Over half of that decrease was in consumer andbusiness purchases of automobiles and trucks. Consumer spending apart fromautomobiles also slumped noticeably after having remained about unchangedin the first 3 quarters of 1973. The bulk of the fourth quarter drop inpurchases of producers' durable equipment reflected lower purchases ofautos and trucks, but spending on other types of equipment also declined.37

The decrease in residential construction was substantial. One importantreason for the smaller drop in total output than in total final sales fromthe third to the fourth quarter was the inability of motor vehicle producersto liquidate unwanted stocks of recently built automobiles.TABLE 2.—Changes in gross national product in current and constant dollars, 1968 to 1974[Percent]Component1968to19691969to19701970to19711971to19721972to19731973to19741CURRENT DOLLARSPercent change:Total GNP7.65.08.09.811.87.9Personal consumption expenditures...Durable goodsNondurable goodsServices8.18.16.59.76.6.67.38.28.013.85.58.59.314.07.79.210.510.112.88.48.9-1.912.59.6Gross private domestic investmentBusiness fixed investmentResidential structures10.310.98.3-1.92.1-4.312.84.037.216.711.726.216.817.15.9-.29.4-19.6Government purchasesFederal purchases _ .State and local purchases5.2.010.34.5-2.610.96.71.510.89.27.510.48.11.612.611.79.213.3Addendum:Final salesDomestic final sales _ .7.67.75.45.37.88.29.610.211.310.48.18.3Change in billions of dollars:Inventory accumulationNet exports of goods and services.7-.6-3.31.71.8-3.82.2-5.86.99.9-2.0-1.9CONSTANT (1958) DOLLARSPercent change:Total GNP2.7-.43.36.25.9-2.2Personal consumption expenditures...Durable goodsNondurable goods .Services. __3.65.32.14.51.8-2.12.62.74.010.42.32.96.213.44.25.04.78.33.83.8-2.2-9.0-2.11.4Gross private domestic investmentBusiness fixed investmentResidential structures._.5.06.02.2-6.4-3.6-6.37.4-.631.112.59.117.910.512.8-4.1-8.5-27.1Government purchasesFederal purchasesState and local purchases-1.2-5.94.0-4.5-12.53.6.0-5.34.52.7.24.7.9-6.16.01.0-1.72.9Addendum:Final salesDomestic final sales.2 72.8-.1-.33.13.56 06.35.54.5-1.9-2.4Change in billions of dollars:Inventory accumulationNet exports of goods and services.3-.8-2.82.11.4-2.81.7-2.53.87.6-2.64.41 Preliminary.Source: Department of Commerce, Bureau of Economic Analysis.BUSINESS FIXED INVESTMENTDemand for capital goods held up well into the summer but weakenedconsiderably late in the year. Many capital goods industries were producing38

at capacity last year, as were industries like steel, which are very heavily dependenton capital goods production. Large backlogs led to long waitingtimes for equipment deliveries. The strength of demand showed up in risinginvestment starts (in real terms) by manufacturers and public utilities fromthe first half to the third quarter, and by rising real appropriations by largemanufacturers. New orders for capital goods in real terms remained highthrough July but declined after that, especially in the final quarter. Increasingcosts of materials and labor were reflected in sharply accelerating priceincreases for capital goods, which were particularly large in the 6 monthsfollowing the end of price controls on April 30.Business held fairly closely in overall terms to the annual plant and equipmentexpenditure plans projected early in 1974. On the basis of 3 actual quartersand 1 anticipated quarter it appeared that companies in the Departmentof Commerce survey were raising outlays by 12 percent from 1973 to 1974,compared to a rise of 13 percent projected in the survey published in earlyMarch. It is possible that the very small shortfall in current dollars is largerin constant dollars, but the figures needed for a careful comparison in realterms are not available. In addition, data for the fourth quarter submittedby companies in October and November suggest that projected outlayswere being scaled back from plans for the last quarter made earlier last year.Because of the need to expand capacity, demand by manufacturingcompanies showed the greatest strength last year, with outlays up some 20percent over 1973. About half represented a real increase, and mostof it came from work started prior to 1974. Starts of new manufacturingprojects in the first 3 quarters of 1974 were up about 11 percent over the 1973average in current dollars, or approximately 3 percent in real terms. Thisfollowed real increases in starts amounting to 23 percent and 30 percent inL972 and 1973. Several factors contributed to the deceleration. Profits(inclusive of the inventory valuation adjustment, or IVA) of manufacturingcompanies in the first 3 quarters of 1974 were unchanged from 1973 and weredown substantially, excluding profits of domestic petroleum firms. Capacityutilization in 1974, while high, was a little lower than in 1973. Extremelyhigh interest rates also discouraged new investment.Electric and gas utilities substantially increased the physical volume ofnew projects started in the first 3 quarters of 1974. At the same time theymade little change in the physical volume of plant and equipment outlays,scaling back those they had intended to make early last year. Dataon backlogs suggest that the utilities have been stretching out projectsalready started and scheduled to be completed over the next few years. Theutilities have suffered a sharp reduction in profits—the worst since beforeWorld War II—as a result of the leveling in energy consumption and thelag of rate adjustments behind cost increases. High interest rates have alsoled to deferrals of expenditures until financing conditions are more favorable.In addition, utilities have completely eliminated some projects fromtheir long-term plans, but the magnitude of such cutbacks is uncertain.39

The complete elimination of projects, particularly those scheduled to bestarted some years from now, probably reflects a reconsideration of theexpected growth rate in energy consumption in the light of the rise inenergy prices.INVENTORY INVESTMENTIt is difficult to analyze the course of inventory investment over the pastyear or so because the official estimates themselves are subject to more thanthe usual uncertainties. During 1974 there were very large revisions in thestatistics for 1973 and early 1974. Prior to the revision of the income andproduct accounts in July 1974, total inventory investment for 1973 was estimatedto be $8.0 billion, whereas the current estimate for 1973 is $15.4 billion.The corresponding figures for the first quarter of 1974 are $5.5 billiona.nd $16.9 billion. Before the revision the ratio of nonfarm stocks to outputor to final sales in real terms as of the second quarter appeared to be close tothe post-World War II average. After the revision the ratio looked clearlyhigh. The difficulties with the statistics stem from inadequacies in thebasic data pertaining to inventory book values and from difficulties inadjusting book values to GNP concepts. The problem has become complicatedrecently because, with the rapid rise in prices, many companies havebeen shifting their accounting systems to the last in, first out (LIFO)method. When prices are rising, the shift has the effect of reducing inventorybook values, profits, and profits tax liabilities from what they are under themore commonly used first in, first out (FIFO) or average cost methods. Theissue is discussed more fully below in connection with profits and the inventoryvaluation adjustment.Changes in the accumulation of automobile stocks (treated more fullyin connection with consumer spending) had a pronounced influence on therate of nonfarm accumulation (Table 3). The general explanation of thenonauto inventory investment total is that stocks were low in relation to out-TABLE 3.—Change in nonfarm business inventories in constant (1958) dollars, 1973-74[Billions of dollars; seasonally adjusted annual rates]PeriodTotalnonfarmAutoOther1973: 1. _IIIIIIV _5.46.36.217.90.4.7-.73.85.05.66.914.11974: 1IIIIIIV .8.76.43.98.8-5.1-2.7-.34.513.89.14.24.3Source: Department of Commerce, Bureau of Economic Analysis.40

put or sales through 1972 and 1973, and so businessmen made special effortsto increase their holdings. Expectations of further price increases strengthenedthe motive for further accumulation. The buildup of stocks appearsespecially heavy in late 1973 and early 1974; the latter period coincided withthe phasing out and elimination of price controls. When final sales failed toimprove after the first quarter, businessmen, realizing that stocks on handand on order were too high, began to reduce their commitments and in thesummer were making small production adjustments. Aggregate stocks werenot cut in any quarter of 1974, however, and as sales weakened the pace ofproduction cutbacks accelerated in the closing months of the year.HOUSINGDespite initiatives by the Administration and Congress to support mortgagemarkets the downturn in starts and homebuilding that began in early1973 continued last year. Housing accounted for fully half of the decline inreal output from 1973 to 1974 and was the only major market sector todecline throughout the year. The current decline, which has clearly beenthe most pronounced since the end of World War II, followed one of themost extended rises in housing activity on record.In the spring of 1974 there were signs that the housing downturn mightbe coming to a halt. The outflow of funds from thrift institutions duringthe summer of 1973—the process known as disintermediation—reversed inlate 1973 and early 1974 as short-term interest rates declined. On a seasonallyadjusted basis, starts leveled out in the neighborhood of 1.6 million unitsin the first half, while sales of single-family homes in the March-Mayperiod were almost one-fourth greater than they had been in the December-February period. The recovery was aborted, however, when market interestrates turned up again, reaching historical highs in July and August. Outflowsfrom thrift institutions were heavier and lasted longer than they had in1973, mortgage commitments were cut back, and starts fell to an average of989,000 units in the fourth quarter. The large overhang of unsold unitsundoubtedly contributed to the low rate of starts.CONSUMER INCOME AND SPENDINGFrom 1973 to 1974 real disposable income fell 2^4 percent, the first annualdecline since 1947. Both the decline and its magnitude were highlyunusual. In other recession years real after-tax income rose by varyingamounts, ranging from 0.4 percent in 1949 to 4.1 percent in 1970. Theconsequence of last year's real income reduction was a decline in real consumerspending of 254 percent, the first decrease since 1942. It is also possiblethat last year's drop in real spending was affected by the decline in realmoney balances and the stock market.The decline in real disposable income occurred in spite of a 9.0 percentrise in nominal personal income and a rise of 8.6 percent in wages andsalaries. Large as these increases were, they were smaller than the 11.4percent increase in consumer prices (as measured by the deflator for per-41

sonal consumption expenditures). Part of the rise in consumer prices was areflection of the increased cost of energy to the Nation. The value of U.S.imports of crude oil and refined products alone rose by $18 billion last year,and a significant portion of that was reflected in higher consumer prices.The transfer of real income from U.S. residents to foreigners might havebeen compensated for by offsetting policies of demand management, butthe Administration did not choose that course because of the seriousness ofthe inflation problem and the expectation of a recovery in economic activityduring 1974.There was also a shift of income last year from consumers to domesticoil producers; and to the extent that some of this did not return to thepersonal income stream via dividends and wages and salaries of workersnewly employed by the oil companies or their suppliers and contractors, consumerssustained at least a temporary loss of purchasing power.Last year's decline in real disposable income was greater than the declinein real personal income. Despite declines in real personal income in someearlier recessions, real disposable income has never declined (annually)because of the automatic working of the tax system. Last year's perversebehavior of the tax system reflected the unusual coincidence of a decline inreal income in a period of rapid inflation. As inflation increased nominalincome, taxpayers were drawn into higher brackets under the progressivetax system and were thus required to pay a larger share of their total incomein taxes.Last year's decline in aggregate real consumer spending was concentratedon expenditures for automobiles and parts and for energy. On balance, allother real spending was about the same as in 1973. Shifts in consumerspending during 1974 were dominated by the effects of the oil crisis in early1974, by a partial recovery from those effects in the middle of the year, andby a sharp reduction in auto demand coinciding with the price increases forthe new 1975 models in the last quarter of the year (Table 4).Real consumer expenditures for energy (gasoline and oil, fuel oil and coal,electricitv, and natural gas, measured in 1958 prices) fell about 7 percentfrom 1973 to 1974 after having risen every year in the postwar period. Inthe 3 preceding years these real outlays had risen at an annual rate of4^2 percent. The 1974 decline in energy consumption accompanied a 29percent rise in energy prices as measured in the consumer price index(GPI), or 30 percent as measured by the applicable consumption deflator.The energy price rise was 16 percent greater than the rise in the overallGPI. This too was a reversal of postwar experience, which had seen fairlysteady declines in the relative price of energy products. Real energy outlaysdeclined in the first quarter of 1974 to a level 12 percent below the 1973average. They increased steadily thereafter so that by the fourth quarter thedecrease from the 1973 average was only V/2 percent.On the surface the data for relative energy prices and real personalconsumption expenditures for energy suggest a much greater price elasticity42

TABLE 4.—Personal consumption expenditures in constant prices, 1973-74[Seasonally adjusted annual rates]PeriodTotalPersonal consumption expenditures(billions of 1958 dollars)Autosand partsEnergy iAll otherAddendum: Dealer sales of new cars 3(millions of units)TotalDomesticsImports197319743552.1539.950.840.842.639.6458.7459.511.58.99.77.51.81.41973: 1IIIIIIV..._552.9553.7555.4546.354.052.451.744.942.342.643.642.1456.6458.7460.1459.312.512.211.79.810.510.310.08.21.91.81.71.71974: 1IIIIIIV»539.7542.7547.2530.141.842.545.033.837.8-39.140.541.1460.1461.1461.7455.29.29.210.37.17.78.08.85.81.61.21.51.3Percent change:1973 to 1974 3....-2.2-19.7-7.0.2-22.6-23.0-20. 41 Gasoline and oil, electricity and gas, and other fuel.3 Total dealer sales, including sales to persons, business, and government.3 Preliminary. Percent change for sales of new cars based on unrounded data.Source: Department of Commerce, Bureau of Economic Analysis.than had been widely expected at the end of 1973 and early 1974. As ispointed out elsewhere in the Report, part of the price increase was notmeasured, insofar as people had to wait in line to buy gasoline. In addition,part of the consumption response represented voluntary conservation effortsand the effect of Government regulations limiting automobile speeds to55 miles per hour. Also, a milder than normal winter in 1973-74 caused fueloil consumption to be abnormally low. One should note that the full consumption-dampeningeffects of higher oil prices have not yet occurred, sincein the long run consumers have greater opportunities to adapt their consumptionhabits to the higher energy costs.After having weathered the energy crisis in late 1973 and early 1974,auto demand in the fourth quarter of 1974 was in a state of collapse. Whythis happened is still not entirely clear. About a year earlier, at the startof the 1974 model year, the consensus forecast projected a decline in autosales from the boom rates of the 2 preceding years. The outbreak of the warin the Middle East in early October 1973, the embargo in late October,and the oil price rise in late December raised concern among consumers aboutthe availability of gasoline and led to sharper than anticipated cutbacks inpurchases, particularly for larger cars. Their concern was exacerbated by thegasoline shortages of January and February 1974. Gasoline, which was subjectto price ceilings and to allocation by the Federal Energy Administration,could be purchased in much of the country only by waiting in line forlong periods, and frequently it could not be obtained at all. Sales of newlarge cars were especially poor. Consumer resistance to large cars on theused car market was manifested in an unusual 15 percent decline in pricesfrom September 1973 to March 1974. Increased supplies of gasoline at fillingstations during March and an end to the embargo in late March brought43

a pickup in domestic car sales and in car output as well. The sales improvementwas concentrated in the larger cars, partly at the expense of small cars.Sales of imported cars, which had held up well during the winter, declined.It was common knowledge during the summer that the new 1975 modelswould show large price increases. Purchasing of the lower-priced 1974models was consequently quite heavy. In October, when the new models wereintroduced, sales fell far more than expected, and in November and Decembersales fell still more. With production substantially above the sales rate,auto manufacturers initiated massive production cuts and layoffs in order toreduce inventories.The sales drop of late 1974 cannot be adequately explained by variables,such as income, income change, relative prices, and automobile stocks held byconsumers, that have been used with some success in econometric estimatesin the past. One suggested explanation is the extremely low state of consumerconfidence late in 1974, but this would imply a lack of confidenceover and above the uncertainties engendered by declining real incomes,rising unemployment, and rising prices. Two peculiarities of the data areworth pointing out. Suggested retail prices for new 1975 cars introduced inOctober 1974 were about $400 higher than prices for the outgoing 1974models. Only two-thirds of the price rise is included in the price indexes, theother one-third representing federally mandated "quality improvement"associated with emission controls. Consumers may have viewed the entireamount of the rise as pure price increase. The second point concerns socialsecurity taxes. In 1974, the taxable earnings base under social security wasraised by law from $10,800 to $13,200. This tax rise added $4.2 billion(annual rate) to Federal receipts, half of which affected personal income.According to the conventions used in the income and product accounts, theincrease in taxes became fully effective in the first quarter of 1974. In actualpractice, however, the increase in the tax meant larger payroll deductions inthe fall of the year for persons affected by the rise in the base.In terms of full-year changes consumers reduced their real spending onnondurable goods other than gasoline and fuel oil and on furniture andappliances but raised their spending on services. Purchases of clothing andshoes declined throughout the year, especially in the fourth quarter, whilespending on furniture and appliances weakened after midyear.Table 5 shows the distribution of real disposable income into saving,autos and parts, energy, and all other personal outlays. The slight increase inoutlays other than for autos and parts and energy, in the face of decliningreal income from 1973 to 1974, raises this share at the expense ofsavings, energy, and autos and parts. The adjustment seems to have beenfacilitated by the fact that the 1973 share of income devoted to savingand to autos and parts, which are sometimes viewed as a form of savingand investing, was high by historical standards.44

TABLE 5.—Disposition of real disposable personal income, 1960—74[Percent]Disposition of real income1960-72average197319741Total disposable income.100.0100.0100.0Personal saving..Personal outlays.6.693.58.291.87.892.2Personal consumption expenditures.Autos and partsEnergy 2All other91.06.86.977.489.18.26.974.089.56.86.676.2Transfers and interest2.52.72.7Addendum: Personal saving plus expenditures for autos and parts13.316.414.61 Preliminary.2 Gasoline and oil, electricity and gas, and other fuel.Note.—Detail may not add to totals because of rounding.Source: Department of Commerce, Bureau of Economic Analysis.NET EXPORTSExports of goods and services rose 39 percent from 1973 to 1974, whileimports increased by 43 percent according to preliminary estimates. As aconsequence, net exports fell from $4 billion to $2 billion. In real termsexports rose by 8 percent while imports were up only 1 percent. The stabilityin real imports reflected the weak domestic economy and the reductionin petroleum imports. Implicit in the figures just cited is a worsening of theterms of trade as import prices rose 41 percent and export prices 29 percent.This deterioration in the terms of trade provides part of the answerto the decline in real incomes last year. The GNP deflator, which measuresthe price of domestic output, rose 10.2 percent from 1973 to 1974. However,prices of supplies available for U.S. purchasers (the implicit deflator ofGNP less exports plus imports) rose 11 percent.COMPARISONS OF OUTPUT CHANGEMore than a usual amount of uncertainty surrounds the behavior of realoutput in the first 3 quarters of 1974. The economic facts of these quartersand their interpretation are of some importance because they had a bearingon the stance of policy makers. The Administration believed that the growthof output was being constrained by supply factors as well as by weak demand.Despite the reduction in automobile production and in homebuilding, thesteel industry, to cite one important example, was operating at capacity formuch of the year, mainly because of high demand for capital goods. Consequently,given the behavior of other major indicators, there were genuinequestions about how much output fell in the first quarter and whether it didnot rise at all after that. Solid evidence supporting another pattern of realGNP behavior is not available, but there are suggestions that output possiblybehaved a little differently, and that the recession phase of the cycle startedlater in the year. Table 6 compares growth rates (annualized) for real GNPand for the Federal Reserve Board (FRB) index of industrial production.Compared to real GNP the FRB index fell half as much over the 3 quarters.45563-280 O - 75 - 4

TABLE 6.—Changes in industrial production, and nonfarm payroll employment and man-hoursassociated with two- and three-quarter declines in real gross national product, selected periods,1948-74Percent changePeriodRealGNPIndustrialproductionNonfarmpayrollemploymentPrivatenonfarmemployeeman-hoursTWO-QUARTER CHANGES1948 IV to 1949 II1953 II to 1953 IV1957 III to 1958 11960 1 to 1960 III1969 III to 1970 11973 IV to 1974 II. .-1.9-1.8-3.9-.6-1.1-2.2-6.3—4.7-9.6-3.7-3.3-1.2-2.7-1.1-2.6-.3.6.7-4.0—2.4-4.2-.4-.3-.5THREE-QUARTER CHANGES1953 II to 1954 11960 1 to 1960 IV1973 IV to 1974 III-3.2-1.3-2.7-7.6-6.0-1.3-2.3-.91.1-4.4-1.9-.41973 IV to 1974 11974 1 to 1974 II1974 II to 1974 III-1.8-.4-.5-1.7-.1.2.4.4-.4.1Sources: Department of Commerce (Bureau of Economic Analysis), Department of Labor (Bureau of Labor Statistics),and Board of Governors of the Federal Reserve System.It declined less than GNP in the first and third quarters of 1974, and in thesecond quarter rose rather than declined. The behavior of the two measuresthrough the first 2 or the first 3 quarters of 1974 stands in marked contrastto other periods when real GNP has declined.* On those occasions the declinein industrial production was always sharper than the decline in realGNP. The behavior of real output in the first 3 quarters of 1974 also appearspuzzling when labor market behavior is examined. Employment in nonfarmestablishments rose by 1.1 percent from the fourth quarter of 1973 to thethird quarter of 1974, whereas during the output declines of 1960 and1953-54 employment also declined.It might be argued that, even though the industrial sector held up relativelywell in the first 3 quarters of 1974, output in the nonindustrial sectorof the economy was weaker than in the past, partly because of the energycrisis. Quarterly output data by detailed industry are not available. The onlycomprehensive independent data are man-hours, which rose 0.3 percentin the nonindustrial sector from the fourth quarter of 1973 to the thirdquarter of 1974, in contrast to a 1.3 percent decline in man-hours in theindustrial sector. This comparison as well as those cited above raise thepossibility of labor hoarding. Many industries were unable to meet productionschedules in 1974 because of various disruptions: materials shortageswere common for much of the year, skilled labor was scarce in certain occupations,and strike activity rose. It is not clear why labor hoarding shouldhave been especially large in the nonindustrial sector. Bottlenecks were*The 3-quarter pattern would not be altered if real gross domestic product (GDP)were substituted for real gross national product. It should be noted that from thefirst to the second quarter, when GNP declined, GDP was unchanged.46

presumably greatest in manufacturing, but manufacturing output andproductivity held up better in the first 3 quarters of 1974 than did real GNP.No indicator of output is free of measurement problems. The FRB index,for example, had problems last year associated with efforts by business to conserveelectric power consumption because in some industries production ismeasured by power consumption. The measurement of changes in real GNPbecomes very difficult when rates of inflation are very high and particularlywhen they change. This is especially so when output is not changing verymuch in either direction, which was the case for several quarters of 1973 and1974. For the most part, real output is obtained by deflating various seriesmeasured in current dollars. Particularly in nonconsumption sectors there arenumerous problems with the current dollar series. The deflation process itselfalso poses difficulties in these sectors. The various wholesale price indexesleave much to be desired, and the time distribution of prices embodied in thecurrent dollar series takes an uncertain shape, subject to change from onequarter to another. As noted below, the measurement of inventory changesis an especially acute problem.PRICES, WAGES, AND PROFITSThe 11.0 percent rise in the GPI from 1973 to 1974 was the largest annualincrease since 1947 (Table 7). Although the rate of increase during the yearwas fairly steady from quarter to quarter, there were important shifts in thecomposition of the rises. Following the termination of controls on April 30,1974, increases in food and fuel prices, which dominated changes in the GPIearly in the year, gave way to increases over a broader range of goods andservices. At the same time increases in wage rates began to accelerate, andsince output per man-hour was falling, unit labor costs rose rapidly. Butprice increases for nonfinancial corporations as a group nearly kept pacewith unit labor and nonlabor costs over the 3 quarters for which data areavailable, with the result that profits per unit almost matched those of 1973.PRICESAlthough prices of goods and services sold in final markets and measuredby both the CPI and the GNP deflator advanced at consistently high ratesfrom one quarter to the next during 1974 (Table 7), price weakness—in theform of slower rates of increase and, to some extent, price reductions—developedin the spring and summer in crude and intermediate industrial productmarkets. By late 1974 these changes were showing up to some degree in pricesof finished goods. From September to December, prices of finished goodsother than food in the wholesale price index (WPI) rose more slowly thanin the preceding 3 months. So did the nonfood commodity component of theCPI, which reflected both the slower price rise at earlier stages of fabricationas well as some shading of trade margins associated with the softening inconsumer demand. Still it will take several more months before the weaknessin crude and intermediate industrial commodity prices is fully transmittedand reflected in the CPI and the GNP deflator.47

TABLE 7.—Changes in selected price measures during 1974[Seasonally adjusted]Price measure19741973 IVto1974 IV i1973to19741Percent change; annual rate 2GNP implicit price deflator:Total GNP..Private GNP12.312.99.49.911.912.613.713.711.812.210.210.6GNP fixed (1967) weight price deflator:Total GNP12.714.611.112.012.712.311.99.212.012.010.611.4Personal consumption expendituresConsumer price index:14.210.314.210.112.211.0All itemsFood..Directly purchased energy3All other items19.470.78.63.122.311.912.33.715.314.61.29.6Percent contribution to change 412.221.611.314.429.38.3Consumer price index:All items100.0100.0100.0100.0100.0100.0Food...Directly purchased energy 3All other items38.627.833.67.212.480.422.13.574.428.1.471.524.611.464.031.516.252.41 Preliminary for GNP price deflators.2 Changes in GNP price deflators based on quarterly data; changes during 1974 are from preceding quarter. Changesin consumer price indexes based on data for last month in quarter: for example, 1974 I change is change from December1973 to March 1974.3 Gas and electricity, fuel oil and coal, and gasoline and motor oil.4 Detail may not add to totals because of rounding.Source: Department of Labor, Bureau of Labor Statistics.Crude and Intermediate MaterialsSome slowdown in crude industrial commodity prices began to occur inAugust 1973, when the rate of growth of output was slowing, but it came toan abrupt end with the outbreak of war in the Middle East in October.From then until the spring of 1974, crude industrial materials prices rosesharply even though industrial output fell. Several measures of these pricesappear in Chart 2. The continued existence of shortages and their role inlimiting increases in output in early 1974 perhaps explain the continuedrise in crude commodity prices in the face of the drop in production.Chart 3 plots 6-month rates of change in the WPI indexes for intermediateindustrial goods and for producer finished goods, and consumer finishedgoods other than foods. The rise in the intermediate materials price indexbegan to slow in September. In the last 4 months of 1974 it rose at anannual rate of 9.6 percent, compared to 39.5 percent in the first 8 monthsof the year. This marked slowdown in the intermediate industrial commodityindex, which accounts for 59 percent of the relative importance ofthe WPI industrial component, reflects widespread deceleration in manyprice series and absolute declines in others. Sizable declines were registeredfrom September to December in such commodity categories as cotton, wool48

. • * * * * • •Chart 2Prices of Raw and CrudeIndustrial CommoditiesINDEX, 1971=100300250200150THE ECONOMISTINDUSTRIALMATERIALS\/'*\/BLS/ SPOT MARKET ^> / - FRB ^»»• INDUSTRIALMATERIALS./ RAW INDUSTRIALS / , '/ - Z^L/--_/ ^^l-~' ,„' '....-•••••••yBLSCRUDE MATERIALSEXCLUDING FOOD—1001 1 1 1 1 I 1 1 1 1 1 I1 1 1 1 1 1 11973 19741 1 1SOURCES: DEPARTMENT OF LABOR, BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM,AND THE ECONOMIST.Chart 3Changes in Wholesale Industrial PricesPERCENT CHANGE FROM 6 MONTHS EARLIER50SEASONALLY ADJUSTED ANNUAL RATES4030INTERMEDIATE MATERIALS,SUPPLIES, AND COMPONENTSJ/ /20CONSUMER FINISHED GOODSi/10'PRODUCER FINISHEDGOODS1972 1973 1974J/EXCLUDES INTERMEDIATE MATERIALS FOR FOOD MANUFACTURING AND MANUFACTURED ANIMAL FEEDS.2/EXCLUDES FOOD.SOURCE: DEPARTMENT OF LABOR.49

and manmade textile products, leather, lumber and wood products, buildingpaper and board, and nonferrous metals.These developments at the intermediate stage of production began to bereflected in finished goods prices late in the year. On the basis of 6-monthspans, the WPI for consumer nonfood finished goods reached a peak rate ofchange of 26.8 percent in June, then slowed to about half that pace by theend of the year. At first the slowdown reflected the leveling and subsequentdecline in gasoline prices and a marked slowdown in the rate of increaseof apparel prices. By year-end the slowdown became more pervasive, extendingto other consumer nondurable goods and to consumer durables,whose price increases had continued to accelerate generally for most of 1974.Prices of foods at the farm level showed substantial increases in 4 of thelast 6 months of 1974, caused largely by the bad weather that cut harvestsbelow expectations. Between July and November sugar prices rose by 123percent.The decline in crude and intermediate industrial commodity prices togetherwith the decline in manufacturing and trade margins more thanoffset the rise in food prices in the latter part of the year. This fact is reflectedin the overall slowdown in the rise in prices of commodities in theGPI market basket during the last 3 months of the year. From Septemberto December they increased at an annual rate of 10.3 percent compared to14.0 percent in the preceding 3 months. The decline in the rate of increasefor nonfood commodities was especially pronounced—7.3 percent as against16.2 percent over the preceding 3 months.Prices of services, the other major CPI component, also rose somewhatmore slowly late in the year. They had accelerated to a rate a little over13 percent in the summer, as a result of sharp increases in prices of medicalcare and other labor-intensive services, a marked boost in gas and electricityrates, and the rise in mortgage interest rates.The deflator for gross national product is derived in large part from theGPI and to a lesser extent from various WPI components. It is calculated as aquarterly average, and during 1974 its movements roughly paralleled thoseof quarterly changes in the CPI, particularly when adjustments are madeto hold constant the weights in the deflator. For the year as a whole thedeflators on various bases increased somewhat less than the 11.0 percentadvance registered by the CPI.WAGE RATESPrivate nonfarm wage rates, the major element in employee compensationper man-hour, rose 8.0 percent from 1973 to 1974 as measured by the LaborDepartment's adjusted average hourly earnings index for production andnonsupervisory workers. This was substantially less than the rise in consumerprices, and it followed a year of virtually no change in real wages similarlymeasured. The hourly earnings index (first column of Table 8) holdsconstant the mix of employment by industry and excludes the effect that50

TABLE 8.—Components of percent change in compensation per man-hour in the private nonfarmsector, 1965-74[Percent]PeriodHourlyearnings iProduction workersOvertime inmanufacturingIndustryshiftsEmployeesother thanproductionworkersBenefits, allemployeesCompensationper man-hour,all employeesChange from precedingyear:1965....1966196719681969....3.74.14.96.36.60.1.3-.3.2-.10.0.1.1-.2.2-0.4.7.9-.30.2.6.0.3.33.65.85.67.36.719701971..19721973..197426.67.16.56.48.0-.2.0.1.2-.2-.5-.3-.8.2-.1.7-.9-.4-.2.7.3.7.7.86.96.66.17.48.7Change from precedingquarter: 31973: 1IIIllIV5.36.57.77.2.4.3-.4-.3-1.0.8.8.42.8-1.6-1.3.83.9.3-.7.411.46.36.18.51974: 1IIIll|V26.39.711.09.8-.3-.1.3g-.6-.8-.3.12.12.6-1.1-1.5.4-.1.21.87.911.310.19.31 Adjusted for overtime in manufacturing and interindustry shifts.2 Preliminary.> Seasonally adjusted annual rates.Source: Department of Labor, Bureau of Labor Statistics.changes in overtime in manufacturing have on average hourly earnings. Inthe 4 quarters ending in the first quarter of 1974, increases in the indexaveraged 6.9 percent, fluctuating between annual rates of 6.3 percent and7.7 percent. The rate of increase accelerated markedly after the end ofcontrols on April 30, and averaged 10.2 percent during the last 3 quartersof 1974. The acceleration was widespread, affecting all major industrygroups.The wage-rate increases in the last two-thirds of 1974 reflected pressuresplaced on employers by workers whose real incomes had not kept pacewith inflation during 1973 and early 1974. The high rate of past inflation,besides inducing a sharp rise in strikes, led to a considerable step-up in thesize of first-year wage increases (Table 9). It also led workers and theirunions to raise their expectations about the size of future price increases.To hedge against such prospects, broadened use was made of escalatorclauses in labor agreements. During 1974, such clauses were newly incorporatedin agreements covering 869,000 workers, the largest increase in workersso covered since 1971. At the end of December 1974, 5.3 million workersof the 10.3 million covered by private nonfarm collective bargaining agreementsaffecting 1,000 or more workers had escalator clauses in their contracts,the largest percentage of such workers ever covered by these clauses.51

TABLE 9.—Changes in major collective bargaining settlements, 1973-74Type of change and industry group1973III19741IIIIVPercentCurrent quarter settlements:First year wage change (annual rate).5.56.25.85.56.29.211.110.3Percent of workers covered by currentquarter settlements a12181013515165Quarterly percent changesEffective wage-rate change: 3Total effective changesAdjustment resulting from:Current decisionPrior decisionEscalator provisionManufacturingNonmanufacturing excluding construction _ConstructionTransportation and public utilities..Wholesale and retail tradeServices1.2.3.6.11.01.4L31.31.41.91.0.7.31.91.62.91.51.91.82.3.9.9.52.12.91.04.02.02.01.2.5.3.31.6.8.3.51.01.21.2 2.9.3 1.6.6 .9.3 .51.4 3.51.3 1.7.6 4.31.3 .91.4 3.7.9 1.93.41.9.9.53.03.93.14.73.12.51.5.7.3.51.91.2.8.61.81.01 Preliminary.2 Percent of estimated number of workers under major collective bargaining settlements.3 Effective wage-rate changes are wage-rate changes actually going into effect per worker under major contracts in therespective quarters resulting from major collective bargaining settlements, made that calendar year, plus deferred increasesin accordance with prior year contracts plus escalator adjustments.Note.—Data relate to settlements covering 1,000 or more workers in private nonfarm industries.Detail may not add to totals because of rounding.Source: Department of Labor, Bureau of Labor Statistics.The effect of broadened use of escalators and the sharp rise in 1974 inthe CPI made wage increases effected through cost-of-living clauses a somewhatmore important element in total wage increases in 1974 compared to1973. The full effects of last year's record inflation on escalator clauses willnot be evident until the final quarter of the current year.Compensation per man-hour (last column of Table 8) is not adjusted forchanges over time in manufacturing or for interindustry shifts, but it isa more useful indicator of labor costs to employers than adjusted hourlyearnings because of its comprehensiveness. Despite the shift in employmentaway from high-wage industries in 1974 and the decline in manufacturingover time, compensation per man-hour rose more rapidly than adjustedhourly earnings in 1974. This was mainly a reflection of rapid wage increasesfor employees other than production workers.NONFINANGIAL CORPORATIONSSome perspective on recent wage changes and their relation to profits andprices is provided by Table 10, which pertains to nonfinancial corporations.The table shows first of all that unit labor costs rose almost three times as52

TABLE 10.—Changes in prices, costs, and profits per unit of output for nonfinancial corporations,1969 to 1974(Percent change]Item1969to19701970to19711971to19721972to19731973to19741Percent change per unit of output:Prices_4.53.61.93.49.5Employee compensation...6.32.21.84.011.3Compensation per man-hour.Output per man-hour7.1 .87.14.86.34.47.43.29.0-2.0Other costs.11.94.6-1.0.79.5Capital consumption allowances.Indirect business taxes 2Net interestProfits plus inventory valuation adjustments9.69.231.0-17.94.85.9 .010.9.8-2.4—2.69.8-.8 .08.14.19.88.112.5-.7Percent change in output—1.43.28.57.8-2.41 Preliminary. Compensation per man-hour and output per man-hour estimated by the Council of Economic Advisers.2 Includes business transfer payments less subsidies.3 Before taxes.Sources: Department of Commerce (Bureau of Economic Analysis) and Department of Labor (Bureau of LaborStatistics).fast in 1974 as in 1973, a result not so much of rising compensationper man-hour as of the decline in productivity. The year-over-yeardecrease was the first since 1958, when this productivity series was begun. Asecond contrast with 1973 is the sharp rise in costs other than labor costs.Many of these in aggregate tend to be relatively fixed and consequently risemost rapidly per unit when output rises more slowly or declines. Third, eventhough real wages declined, so did profits. According to preliminary estimates,profits before taxes and including IVA fell about 3 percent, of whichabout 2j4 percent represented the drop in output while the remainder reflectedlower profits per unit. The profits performance is much poorerwhen allowance is made for petroleum profits. Domestic profits of oil companiesapproximately doubled from 1973 to 1974, while those of all othernonfinancial corporations fell by about 11 percent.Last year was the second successive year in which the performance of bothprofits plus IVA and real nonfarm wages was mediocre or poor. The reasonis that key elements of the 1973 and 1974 price rises reflected in the consumerprices originated outside the corporate sector. In 1973, a good partof the price rise reflected increased income of farm proprietors, while in1974 the further rise was significantly affected by prices paid to foreign oilproducers.The profits just cited are those as measured in the national incomeaccounts, and they include the IVA. Profits before taxes as reported by nonfinancialcorporations to stockholders and used as the basis for calculatingtax liabilities—that is, profits excluding the IVA—rose 16 percent, followingincreases of 21 percent in 1972 and 26 percent in 1973.53

Profits data are currently subject to a good deal of uncertainty, whateverbasis is used, because many companies are changing their methods of accounting.Even if there were no changes in accounting, the large increases inprices and shifts in their rate of increase would make the calculation of theIVA more difficult than usual.Recent shifts in accounting methods for the purpose of reducing tax liabilitiesinvolve large sums and are probably more widespread than at any timesince the years following the end of World War II. Most companies use theFIFO or average cost method of accounting, under which items are chargedout to costs of goods sold in the same order that they are charged in to inventories.When prices are rising, the prices at which items are charged tocosts will ordinarily be lower than the prices of items in closing inventories,that is, those purchased in the most recent period. The FIFO method hasthe effect of inflating closing inventories and profits. Under an alternativesystem, LIFO, the items bought in the most recent period are the first tobe charged to costs, so that what is left in closing inventories will be lower inprice. In periods of rising prices, profits will be lower in this system thanthose calculated under FIFO.In calculating the inventory change component of GNP, the Departmentof Commerce attempts to estimate the change in the physical volume of inventoriesduring a quarter and to value the change at prices current duringthe quarter. This calculation is an approximation of the results obtainedthrough the LIFO system. The difference between the GNP inventorychange figure and the change in the book value of inventories is the inventoryvaluation adjustment, and it has ordinarily been deducted from corporateprofits and proprietors' income for purposes of national incomecalculation. It is sometimes referred to as "inventory profit." This portionof profit can be used for other investment or dividend payments only if theinventories are liquidated.Profits are also affected by inflation through the use of historical costsrather than replacement costs in calculating depreciation. The Departmentof Commerce has estimated that, other things being equal, the use of replacementrather than historical costs to calculate depreciation would reducethe share of profits as a percentage of gross corporate product in 1974 byapproximately 3 percentage points.REAL INCOMETable 11 brings together several measures of nominal and real income andearnings, some of which were discussed earlier in this chapter. From 1973 to1974, per capita personal income in real terms (1958 dollars) declined 2.8percent, by far the largest of the four annual declines since the earlv post-World War II period. For reasons already noted, real taxes per capita alsorose so that real per capita disposable income declined bv 3.4 percent.Transfer payments on a per capita basis continued to increase rapidlyfrom 1973 to 1974, although the increase in real terms (5.7 percent) was54

TABLE 11.—Changes in selected measures of income, earnings y and taxes; 1969—74[Percent change; annual rate]Measure1969to1973Current dollars1972to19731973to197421969to1973Constant dollars *1972to19731973to1974 2Per capita personal income measures:Personal incomeWage and salary disbursements and other laborincomeAll other earned incomeTransfer payments.State unemployment insuranceother . ::::"Personal contributions to social insurancePersonal taxes.._ _Disposable personal income7.97.27.714.618.914.511.85.78.210.99.515.913.4-23.115.423.05.411.88.38.04.917.970.015.911.312.17.63 52 83.49.915.09.97.31.43.85 03 89.97.6-26.39 116.8.06.0-2 8—3 0-5.85.750.04.1.0.6-3.4Compensation per man-hour:Private nonfarm employees *6.87.48.71.71.1-2.1Earnings of production or nonsupervisory workers in privatenonfarm industries:Average hourly earningsAverage weekly earnings6.66.16.86.87.76.21.61.1.7.5-3.1-4.3Median usual weekly earnings of full-time wage and salaryworkers;*All 16 years and overMales 25 years and overFemales 25 years and over*6.0•6.3«7.76.37.98.38 1.2•1.7«2.8-4.1-1.9-2.2Median annual family income:All familiesFamilies with male headFamilies with female head6.36.84.78.49.38.51.31.8—.22.12.92.2Addendum:Personal consumption expenditures deflatorConsumer price index4.34.95.66.211.311.01 Per capita personal income measures deflated by the personal consumption expenditures deflator. All other measuresdeflated by the consumer price index.2 Preliminary.8 Compensation excludes employer contributions to social insurance.* Data related to earnings in May of each year.' Changes from 1969 to 1972. Data for 1973 not exactly comparable with data for earlier years because of changes introducedin 1973 in the collection and tabulation of the May data.Sources: Department of Commerce (Bureau of Economic Analysis and Bureau of the Census), Department of Labor(Bureau of Labor Statistics), and Council of Economic Advisers.below the average for recent years. Transfers now make up more than12 percent of personal income. To some extent the rise in transfer paymentsreflected the onset of the recession. The increase in unemployment not onlyled to a 50 percent increase in real unemployment insurance benefits, but italso probably increased the number of persons eligible for welfare benefitssuch as food stamps arid Aid to Families with Dependent Children (AFDC).Excluding unemployment benefits, real per capita transfers rose by 4.1percent.The major factor underlying the decline in real per capita personal incomewas the sharp decline in real earnings of wage and salary workers, whose incomemakes up about 70 percent of personal income. This decrease in realearnings of wage and salary workers is also evident in other available measuresof earnings from various sources.55

Real hourly earnings of production or nonsupervisory workers in privatenonagricultural establishments fell, and their real weekly earnings fellstill more, since hours worked per week for this group declined from 37.1in 1973 to 36.6 in 1974. The more comprehensive measure of employees' realearnings, compensation per man-hour, declined by 2.1 percent excludingemployers' contributions for social insurance.Since information is not given on the characteristics of persons holding thejobs included in the establishment series, one cannot tell to what extentaverage earnings are affected by changes in the experience or skill mix ofworkers. Over the past decade the rapid rise in the proportion of workerswith less market experience—young people and women—had a depressingeffect on average annual earnings.What the monthly establishment data do not show can be seen in earningsdata that are now being collected each May from households. They provideinformation on all wage and salary workers, with specific demographicbreakdowns. As indicated in Table 11, from May 1973 to May 1974 theusual weekly earnings of all full-time workers declined on the average byabout the same amount as weekly earnings of production workers. However,the decline for adult men and adult women was not as great as the overalldrop.Data on earnings or income of families and individuals are not yet availablefor 1974. Undoubtedly the real income of most groups fell and probablyby more than weekly earnings would suggest, because of the increase in unemploymentand the resulting decline in weeks worked per year. Income data onan annual basis are now available for 1973, which was a year of strongincrease in real family income compared to the whole period 1969-73.The gains of 1973 may well have been canceled, however, by the losses of1974.LABOR MARKET DEVELOPMENTSLabor markets underwent major changes last year (Table 12). From thefourth quarter of 1973 to the fourth quarter of 1974 unemployment increasedby 1.8 million and the unemployment rate increased from 4.7 to 6.6 percent(Chart 4). Accompanying this rise was a continued strong growth in thecivilian labor force participation rate, particularly among women andyouths. Civilian employment rose through most of the year but fell verysharply in the last 2 months of 1974, so that in December it was half a millionlower than a year earlier. An analysis of the general nature of unemploymentappears in Chapter 3.The rise in unemployment during 1974 was not continuous, butoccurred mainly in two separate spurts, from the fourth quarter of 1973 toJanuary 1974 and in the 4 months after August 1974. The year startedwith a sharp rise in the unemployment rate, from 4.7 percent in the fourthquarter of 1973 to 5.2 percent in January 1974, largely as a result of layoffsattributable directly or indirectly to the energy crisis. The employment effects56

TABLE 12.—Labor market indicators, 1973-74[Percent; seasonally adjusted]Indicator 1973 19741973IV1974IIIMillions of personsCivilian labor forceEmploymentUnemployment88.784.44.391.085.95.189.885.64.390.585.84.790.686.04.791.486.45.091.885.76.1PercentCivilian labor force participation rate >UNEMPLOYMENT RATESAll civilian workersLabor force time lost 2Unemployed 15 weeks or longer 3State insured *White-collar workers.Blue-collar workersOccupationIndustryNonagricultural private wage and salary workers «.ConstructionManufacturingDurable goods.__Nondurable goods_Transportation and public utilities .Wholesale and retail tradeFinance and service industriesGovernment workersREASON FOR UNEMPLOYMENT 6Job losersJob leavers.Reentrants and new entrantsSTRIKE ACTIVITYDays idle as percent of estimated working days 7 .._._60.84.95.2.92.72.95.34.88.84.33.94.93.05.64.32.71.9.82.2.141 Civilian labor force as percent of civilian noninstitutional population.2 Hours lost by the unemployed and persons on part-time for economic reasons as a percent of potentially available laborforce hours.3 Unemployment rate calculated as a percent of civilian labor force.4 Insured unemployment understate programs as a percent of covered employment.5 Includes mining not shown separately.8 Unemployed as percent of civilian labor force.7 Not seasonally adjusted. 1974 is preliminary.Source: Department of Labor, Bureau of Labor Statistics.61.25.66.11.03.63.36.75.710.65.75.46.23.26.44.63.02.4.82.3.2461.14.75.2.92.72.95.44.88.84.23.94.83.05.54.32.61.8.82.1.1661.35.15.6.93.23.16.05.38.65.04.85.42.96.04.62.72.2.82.1.0961.15.15.61.03.33.16.15.310.05.04.75.33.16.14.33.12.2.82.2.3461.45.56.01.13.43.36.65.611.35.65.06.53.46.44.53.02.3.82.4.3361.46.67.21.24.33.78.36.913.47.57.37.93.67.35.23.23.1.92.6of the energy crisis tended to be highly concentrated. During the period ofthe embargo, from November 1973 to March 1974, the number of privatenonfarm payroll jobs fell by 8,000, but the declines in energy-related sectorswere substantially greater (Table 13).A partial recovery from the worst effects of the energy crisis helpedstabilize the unemployment rate at approximately 5.2 percent in the firsthalf of 1974. In the spring and summer quarters employment showedmoderate increases that reflected divergent trends. Continued weakness inhousing brought steady decreases in employment in contract construction,57

Chart 4Unemployment RatePERCENTJ/10SEASONALLY ADJUSTED0I I I I I I I I I I I I I I I I I I I I I I1952 1954 1956 1958 1960 1962 1964 1966 1968 1970 1972 1974^/UNEMPLOYMENT AS PERCENT OF CIVILIAN LABOR FORCE; QUARTERLY.SOURCE: DEPARTMENT OF LABOR.and sluggish demand and the need to trim inventories brought decreases inemployment in nondurable manufacturing. Employment in motor vehiclesregained some of the ground lost in the winter, but durable goods employmentwas otherwise almost unchanged. The rise in nonfarm employment thatdid occur was attributable largely to trade, services, and State and localgovernments.The unemployment rate increased rapidly during the last few months inthe year, rising from 5.4 percent in August to 7.2 percent in December. Inthe fourth quarter the general weakening in demand and output broughtwidespread layoffs in both nondurable and durable manufacturing—notablyin motor vehicles—as well as in trade. The continuing decline in constructionexacerbated the deteriorating situation.The increase in unemployment in the last quarter was very large amongblue-collar workers, particularly operatives, for whom the jobless rate increasedby 2.5 percentage points to 9.6 percent. However, even wholesale andretail trade experienced a sharp seasonally adjusted increase in unemployment,especially in December, a reflection of the weakness in retail sales.From 1973 to 1974 the civilian labor force rose by 2.6 percent, a verylarge increase by postwar standards. The 2.2 percent rise from the fourthquarter of 1973 to the fourth quarter of 1974 was less than the increasesduring 1972 and 1973 but slightly above the trend rate. Continuing past58

TABLE 13.—Changes in employment in the private nonfarm economy: total and selected energy-relatedindustries, November 1973 to March 1974[Seasonally adjusted]IndustryChange in employmentTotal private nonfarmEnergy-using:Motor vehicles and equipmentGasoline service stationsMotor vehicle dealers, retailOther transportationHotel and other lodging places..Substitutes for imported oil:Oil and gas extractionCoal mining_._.Source: Department of Labor, Bureau of Labor Statistics.trends, the civilian labor force participation rate increased in 1974. It rose0.4 percentage point to the post-World War II record high level of 61.2percent. Participation rates did not increase among all demographicgroups. The rate decreased for men, aged 55 and over, chiefly as a consequenceof earlier retirement. However, the trend toward earlier retirementwas slowed, presumably because of the effects of inflation on fixed incomes,including private pensions. Participation rates for women aged 25 to 54continued their dramatic long-run increase, with the rate of increase somewhathigher than in recent years. As w r ith older men, labor force participationrates decreased for women over 55 years of age. The rate increasedsharply for young persons aged 16 to 24 of both sexes, reflecting the continuedincrease in participation for students, later marriage for women,a later age at which they begin childbearing, and greater participationamong young mothers.FISCAL POLICY IN 1974Fiscal policy turned out to be tighter during 1974 than was anticipatedlast February in the 1975 budget, largely because the unanticipated accelerationof inflation lifted Federal revenues. In February 1974, a risingbudget deficit was projected for calendar 1974. The projected increasein the deficit from 1973 to 1974, however, was not due to an expansionaryshift in fiscal policy. Rather, the operation of the automaticstabilizers was expected to raise the budget deficit because it wasanticipated that the economy would grow at less than its potential. The factthat economic activity was weaker than projected should have caused aneven larger deficit automatically at given rates of inflation. In fact, however,there was no automatic fiscal stabilization to cushion the decline in realincome since the revenue-reducing effect of lower real incomes was offset59

y the revenue-increasing effect of inflation. Furthermore, the growth in realFederal spending was reduced. As a result, the actual deficit remained smalland showed no tendency to rise until the fourth quarter of 1974.In February 1974, the Administration estimated that unified budget outlayswould be $274/ 2 billion and receipts $270 billion for fiscal 1974, leavinga deficit of $4/ 2 billion. While the deficit turned out to be only $1 billionlower, actual outlays fell $6 billion below the February estimate. The $3-billion increase in proprietary receipts, primarily oil and gas royalties andlease payments, is treated as an offset to outlays in the unified budget, andthis accounts for part of the decline. Although the rate of growth of outlayswas 1 percentage point less than that of GNP from fiscal 1973 to fiscal 1974,receipts grew by 4 percentage points more. The disproportionate rise inreceipts is attributable largely to high rates of inflation.FEDERAL EXPENDITURESOn the national income accounts (NIA) basis, actual Federal expendituresrose from $264 billion in calendar 1973 to $298/ 2 billion in 1974 (Table 14),a rise of 13 percent. This increase was unusually large in nominal terms andexceeded the rise in GNP; but it was small in real terms, consideringthe 10 percent rise in the GNP price deflator from 1973 to 1974. In fact, theuse of specific deflators appropriate for the major components of Federalspending suggests that real Federal expenditures increased by only 2 percentfrom 1973 to 1974. Furthermore, even in nominal terms most of theTABLE 14.—Federal Government receipts and expenditures, national income accountsbasis, calendar years 1973-74[Billions of dollars]1974Receipt or expenditure category 1973February1974 budgetprojection 1 Actual 2Federal Government receipts.258.5289.8291.1Personal tax and nontax paymentsCorporate profits tax accrualsIndirect business tax and nontax accruals.Contributions for social insurance114.143.721.279.5131.843.326.988.6131.249.122.088.7Federal Government expenditures.264.2301.5298.6Purchases of goods and servicesDefense. _OtherTra nsfer paymentsGrants-in-aid to State and local governmentsNet interest paidSubsidies less current surplus of government enterprises.Less: Wage accruals less disbursements106.674.432.295.540.516.35.3.0117.078.438.6116.845.920.51.4.0116.478.637.9117.043.718.82.1Surplus or deficit (—).-5.6-11.7-7.61 February 1974 projected percent changes applied to revised 1973 actual data. Excludes transfer of $2.1 billion worthof rupees to the Indian Government, which was included in the February budget. This transfer was not included in NIAexpenditures as was originally anticipated.2 Preliminary.Note.—Detail may not add to totals because of rounding.Sources: Department of Commerce (Bureau of Economic Analysis) and Office of Management and Budget.60

major expenditure components turned out to be lower than projected inFebruary; only transfer payments were slightly higher.The distribution of Federal expenditures in 1974 continued to shift towardtransfer payments and away from purchases of goods and services,especially for defense. While purchases rose 9 percent from 1973 to 1974,transfer payments increased by 23 percent. The small rise that did occur indefense purchases was due largely to increased costs of operation and maintenance,including higher fuel costs. As in the previous year, the effect of payincreases on personnel expenditures was offset to some extent by the continuingreduction in the size of the Armed Forces, as the transition to an allvolunteersystem was completed. Federal nondefense purchases rose, inpart because of the 4.8 percent pay increase for civilian employeesin October 1973 and the 5.5 percent increase in October 1974. While netpurchases by the Commodity Credit Corporation declined, other nondefensepurchases, including expenditures for medical research and veterans'hospitals, rose.Several factors contributed to the large rise in Federal transfer paymentsto persons from 1973 to 1974. Old-age, survivors', and disability (OASDI)benefit rates were increased by 7 percent in April and by an additional 4percent starting in July 1974. From 1973 to 1974, the number of beneficiariesof old-age and survivors' insurance rose by 3J/2 percent while the numberof disabled beneficiaries climbed by more than 9 percent. The increase insocial security benefits under the OASDI programs thus accounted foralmost one-third of the $21-billion increase in Federal transfer payments topersons. In addition, hospital and medical insurance benefits (medicare)increased by $2.5 billion. The supplemental security income program,which was initiated in 1974 to replace federally aided State programs ofassistance to the aged, blind, and disabled, increased Federal transfer paymentsby $4 billion while reducing grants to State and local governmentsby $1}4 billion. The costs of the Food Stamp Program climbed by over $1billion to $35/2 billion in 1974. Unemployment insurance benefits jumpedby $3 billion, and smaller increases occurred in veterans' benefits and incivil service and military retirement programs. Net transfer payments toforeigners increased little.As a result of nonrecurring factors, mainly the shift to transfers underthe supplemental security income program, Federal grants-in-aid to Stateand local governments grew at a slower rate than total expenditures from1973 to 1974, increasing from $40 1 / 2 billion to $44 billion. Increases in educationprograms, some of which had been deferred in 1973, and in medicaidaccounted for most of the $35/2 -billion rise. Grants for general revenuesharing continued at the rate of $6 billion per annum.FEDERAL RECEIPTSFederal receipts (NIA) rose from $258/ 2 billion in calendar 1973 to anestimated $291 billion in calendar 1974, an increase of I2/2 percent comparedto the 8 percent rise in nominal GNP. The rise in receipts during a61563-280 O - 7 5 - 5

period when real GNP declined by 2 percent is explained by the disproportionateimpact of 10 percent inflation on the tax liabilities of individualtaxpayers and corporations.In particular, inflation has raised the share of personal income that ispaid in Federal income taxes because personal exemptions, low-incomeallowance and standard deduction limits, and tax brackets are fixed innominal terms. Income taxes account for about 95 percent of personal taxand nontax payments in Table 14. Personal income minus transfer payments—arough proxy for income subject to the personal income tax—rose 8 percent from 1973 to 1974, but this increase produced a 15 percentjump in personal tax receipts. The 6/ 2 percent rise in the real Federal taxburden of persons was distributed regressively by income classes, becausethose generally low- and moderate-income taxpayers who do not itemize deductionsare subject to larger percentage increases than most higher-incomeindividuals.Inflation may have increased the average tax rate of corporations evenmore than that of persons. As explained earlier in this chapter, duringperiods of rising prices, taxable book profits tend to be overstated becausethe cost of goods sold does not fully reflect the current replacement costsof inventories and of capital goods used in production. Even though profitsas measured on the NIA basis did not rise from 1973 to 1974, and althoughprofits, including not only the inventory valuation adjustmentbut also a "depreciation valuation adjustment," have fallen, corporate profitstax accruals rose by 12^2 percent because book profits increased by 15 percent.The shift of many firms to LIFO inventory accounting prevented thisdisparity from being even greater and is estimated to have reduced corporateprofits tax accruals by $2 billion below r what they would otherwise have beenin 1974.Federal contributions for social insurance rose by 11J/2 percent in 1974.Social security contributions (OASDHI) account for about three-fourthsof the receipts for social insurance, with other retirement programs and unemploymentinsurance taxes making up the bulk of the remainder. Since thenumber of workers contributing to social security at any time duringthe year is estimated to have increased by 2 percent from 1973 to1974, almost all the rise in contributions for social security was due to theincrease in taxable wages and salaries per employee. The maximum amountof annual earnings subject to the 11.7 percent payroll tax on employers andemployees combined was raised from $10,800 in 1973 to $13,200 at thebeginning of 1974. This statutory increase accounted for about $4 billionof the $9-billion increase in contributions for social insurance. The tax basewas raised to $14,100 at the start of 1975.BALANCES OF THE FEDERAL BUDGETActual Federal budget deficits (NIA) remained remarkably small and constantuntil late in 1974. From the third quarter of 1973 through the third62

quarter of 1974 the seasonally adjusted quarterly deficits clustered in the $1-billion to $3-billion range (Table 15), even though the unemployment raterose from 4.8 percent to 5.5 percent.The full-employment surplus continued to rise through the third quarterof 1974 as it had throughout 1973, with full-employment receipts rising byabout 2 percentage points faster per quarter than full-employment expenditures.Over the entire 6 quarters from the first quarter of 1973 to the thirdquarter of 1974 the full-employment surplus rose by $35 to $36 billion. Theincrease was equivalent to 12 percent of 1974 full-employment expenditures.Only once since the Korean war was there a comparable rise in the full-employmentsurplus relative to expenditures, and this occurred between the finalquarter of 1958 and the first quarter of 1960. However, very little of the shiftin 1958-60 was due to inflation. When the rate of inflation is low, changes inthe full-employment surplus are a measure of the budgetary implications ofshifts in discretionary fiscal policy at the constant level of resource utilizationexpressed in official estimates of potential GNP at current prices. The higherthe rate of inflation, the less this interpretation applies, since the effect ofinflation on either the actual budget or the full-employment budget isgenerally not neutral.In fact, changes in the full-employment budget surplus in the last 2years have not been due mainly to discretionary fiscal policy shifts but tochanges in the relation between Federal expenditures and receipts that haveresulted from high and variable rates of inflation. Since the first quarter of1973 there have been no major statutory tax changes, apart from annualincreases in the taxable earnings base under social security. Hence, most ofthe increase in the Federal full-employment budget surplus has beendue to the slow growth of real Government expenditures in 1973 and inthe first half of 1974, and to unlegislated increases in taxation through therise in average tax rates induced by inflation.If inflation had continued at the same 7.4 percent annual rate that wasregistered in the GNP deflator from the fourth quarter of 1972 to the fourthquarter of 1973, and if the actual IVA is used, then estimated full-employmentreceipts would have been $8/ 2 billion lower in the third quarter of1974 (annual rate). Since the IVA would, in fact, have been considerablyless than the $51.2 billion recorded in the third quarter if the rate of inflationhad not risen, allowing for this fact would reduce full-employment taxreceipts by another $5 to $7 billion in that quarter, because taxable corporateprofits would have been lower. (Taxable corporate profits at fullemployment since 1973 are estimated at 8% percent of potential GNPin current dollars plus the actual IVA.) If prices had risen less rapidlyin 1974, the measured shift toward restraint would have been less, sinceunanticipated increases in inflation initially raise Federal expendituresmuch less than Federal taxes, which respond almost immediately.Uncertainty about the rate at which potential output grew in 1974 affectsthe reliability of the full-employment budget estimates more than in pre-63

vious years. If potential GNP in constant dollars, that is, the output normallyconsistent with 4 percent unemployment, grew by only 3 percent from thefourth quarter of 1973 to the fourth quarter of 1974 because of the reducedavailability of energy supplies, the full-employment budget surplus would be$2/2 billion lower in the third quarter of 1974 than currently estimated. Inthe full-employment estimates in Table 15, potential output growth wasassumed to be 4 percent each year through 1974.After adjusting for increases in the rate of inflation and the possibilityof reduced potential growth at the rate of 3 percent in 1974, the fullemploymentbudget surplus would still have grown by between $17 billionand $20 billion from the first quarter of 1973 to the third quarter of 1974,or by around $3 billion per quarter. Even at its 1973 rate, inflation wouldhave caused the increase in full-employment receipts greatly to exceed therise in full-employment expenditures last year.An additional complication arises because the composition of expenditureshas changed increasingly from purchases of goods and services to transfers.As recently as 1969, Federal purchases were more than half of expenditures;TABLE 15.—Actual and full-employment Federal and State and local government receiptsand expenditures, national income accounts basis, calendar years 1971—74(Billions of dollars; seasonally adjusted annual rates]Calendar ysarReceiptsFederal GovernmentSurplusor deficit(-)State and local governmentReceiptsExpendituresExpendituresSurplusor deficit(-)Combinedsurplusordeficit(-)Actual:1971 . .19721973 . .. ..1974 11973: 1IIIIIIV1974: 1IIIII198.5227.2258.5291.1249.1255.0261.8268.3278.1288.6302.8220.3244.7264.2298.6260.2262.4263.4270.6281.0291.6304.7-21.9-17.5-5.6-7.6-11.2-7.4-1.7-2.3-2.8-3.0-1.9152.2177.2193.5207.7190.3192.0194.6197.3200.6205.3210.9148.8164.9184.4206 0177.0181.7186.2192.7197 4203.3208.83.412.39.21.713.210.48.44.63 22.02.1-18.5-5.13.5-5.92.13.06.72.3.4-1.0.2Full-employment: *19711972197319741216.4232.4265.9319.9217.9242.7263.1296.5-1.5-10.32 823.4159.3182.0196.0220.5148.8164.9184.4206.010.517.211.614.59.06.914.437.91973: 1IIIllIV253.8261.2270.2278.3258.9261.2262.5269.7-5.1-.17.78.6191.7194.0197.4200.8177.0181.7186.2192.714.712.311.28.19.612.218.916.71974: 1IIIII296.1312.9333.0279.4290.1302.616.622.930.4208.3215.9224.2197.4203.3208.810.912.615.427.535.545.81 Preliminary.3 The net increase in overwithholding of personal income taxes is not included in full-employment receipts.Note.—Detail may not add to totals because of rounding.Sources: Department of Commerce (Bureau of Economic Analysis), Office of Management and Budget, and Council ofEconomic Advisers.64

y 1974 they had fallen to less than 40 percent. Transfer payments to personshave a smaller impact on aggregate demand than purchases becausenot all of the transfer payments are spent by the recipients. Thus the aggregatedemand resulting from a given total of Federal expenditures is less ifthese expenditures are weighted increasingly toward transfer payments.While the previous adjustments would make the shift in the Federal fullemploymentbudget surplus considerably smaller than shown in Table 15,this adjustment would work in the opposite direction by showing less growthin the weighted than in the unweighted expenditures.THE STATE AND LOCAL AND THE COMBINED BUDGET BALANCESIn fiscal 1973, State and local governments registered a surplus of $12billion (NIA basis), while the Federal Government had a deficit of $15billion. The advent of general revenue sharing and the rapid growth ofthe economy may have boosted the State and local government surplusestemporarily during this time. As expenditures accelerated subsequently,State and local surpluses declined from a record $19 billion in the fourthquarter of 1972—the first quarter in which a general revenue sharing paymentwas made—to $2 billion in the second and third quarters of 1974.The surplus of less than $2 billion registered for calendar 1974 wasfar from sufficient to meet the actuarial funding obligations imposed onpension plans for the employees of State and local governments. Since thesurplus of the social insurance funds approached $10 billion, other Stateand local funds had a deficit of $8 billion.Budgetary reserves are now so tight that the rise in State and localexpenditures will have to slow considerably to adjust to the reduced growth ofreceipts, or taxes will have to be raised in a declining economy. Thefull-employment surplus of State and local governments that held fairlysteady in 1973 and in the first half of 1974 is thus expected to rise sharplyin 1975.While inflation has caused a disproportionate rise in Federal receipts,State and local government receipts have grown little if any in real terms.Though the relative importance of indirect business tax and nontaxaccruals is falling rapidly, such receipts still account for more than 50percent of total receipts of State and local governments. These taxes havebarely kept up with inflation. Losses in receipts from the lag in property taxassessments and collections rise with the rate of inflation, and items whoseprices have risen disproportionately in recent years, such as food, are frequentlyexempt from sales taxation. Finally, the yield of ad rem taxes, whichare levied, for instance, in the form of a given number of cents per gallon ofgasoline or spirits, is invariant to inflation by definition, unless the tax lawsare changed.At all levels of government combined, fiscal activity has become significantlyless expansionary since the end of 1972. In 1972 the increase in thefull-employment surplus of State and local governments offset much of the65

expansionary thrust of Federal fiscal policies. This surplus then changedlittle from the second quarter of 1973 to the second quarter of 1974. It didnot begin to reinforce the increasing thrust of Federal fiscal policy towardrestraint until the second half of 1974.MONEY AND CREDITInflation and recession were reflected in the money and credit marketslast year. As the year began, interest rates were declining from the peaksreached in the summer of 1973. The decline continued until March, and thenmost interest rates rose steadily until August, when they began to declineagain. Interest rates typically decline in the early stages of recession. Whatwas not typical was that even after declining, interest rates remained high,probably because of the persistent anticipation of high rates of inflation.Stock prices also fell in 1974. By the end of the year, stock price indexesstood well below the lowest point reached during the 1970 recession.There exists no dependable theory of stock market prices. Yet last year'strend in the market probably had to do with the high level of interest ratesas well as with a profits record that has been poor for some time, if adjustmentsare made for specific components of book profits that reflect merelythe inflationary revaluation of inventories and of fixed capital consumption.Mortgage-lending thrift institutions suffered a contraction in deposits asdepositors shifted to higher-yielding assets, particularly during the summermonths. By late in the year, however, deposits were again flowing into thriftinstitutions as market rates of interest fell relative to rates paid on deposits.Until late in the year commercial banks faced rapidly growing loan demandsthat led them to borrow heavily from the Federal Reserve at times and tokeep their reserve holdings close to the legal minimum. The ability of banks toexpand deposits further or to absorb drains of reserves was impaired. Alongwith a number of other factors this liquidity squeeze contributed to a fewbank failures both here and abroad.MONETARY AGGREGATESThe goals of monetary policy underwent several important changes during1974. The aim of Federal Reserve operations, at least until late in theyear, was to moderate further the growth rates of the monetary aggregatesin order to slow both the expansion of total spending in the economy and therapid rise in bank credit. Growth rates in monetary aggregates and in totalspending tend to move in similar patterns, and the underlying policy objectivewas to provide monetary and financial conditions that would be consistentwith an abatement of inflationary pressures. Because of the uncertaintiesassociated with the economic effects of the oil embargo, monetary policyactions in late 1973 and early 1974 were allowed to depart temporarily fromthe longer-term monetary objectives. During the second and third quartersof the year, as the economy was recovering from the initial impact of theembargo, the Federal Reserve acted to bring down the growth rates of the66

aggregates, so that they would be more in keeping with the longer-termtargets. By October, however, the signs of weakness developing in the economybegan to prompt a return to a slightly more expansive set of monetaryactions. These actions, including reductions of legal reserve requirements,first led to a reduction of the outstanding borrowings of the commercial banksfrom the Federal Reserve but are expected to show soon in the monetaryaggregates.For the year as a whole the growth of the monetary aggregates deceleratedsignificantly, as is indicated in Table 16. From the fourth quarter of 1973 tothe fourth quarter of 1974, monetary aggregates, as measured by either Mi,Ms, or Ma grew at rates that were 1 to 2 percentage points lower than therates of the preceding year. The acceleration in prices last year meant asomewhat more pronounced effect than is indicated by the numerical size ofthe monetary deceleration. Real balances declined as a result of a monetarypolicy that was unwilling to accommodate economic expansion until thesteepness of the price trend was reduced.The policy of monetary restraint did cause strains in credit markets. Yeteven if monetary policy had been such as to permit rapid inflation, largestrains would have developed. If lenders fear long-lasting steep inflationthey insist on interest rates that rise steeply with the maturity of the loan,but given the uncertainties of the outlook, such terms entail large risks forthe borrower.Monetary policy actions are the major determinant of growth in monetaryaggregates. One measure of monetary policy is the rate at which the FederalReserve System adjusts member bank reserves available to support privatedeposits. A more comprehensive measure of policy actions, the adjustedmonetary base (defined in footnote 1 to Table 16) has served as a guide to theeffects of policy actions on monetary aggregates in recent years. Moneygrowth rates sometimes diverge from growth rates in these measures ofmonetary policy, but money does tend to grow rapidly when reserves andbase money grow rapidly. This is true, as is the inverse, even for short periodssuch as from the first to the second half of 1974.Several developments beyond the control of policy makers affected growthrates in monetary aggregates during 1974. One such factor was the remarkablegrowth in large negotiable certificates of deposit (CD's) issued bybanks—42 percent from December 1973 to December 1974. Banks are permittedto pay competitive interest rates on these deposits, and they wereinduced to do so last year by the strong demand for bank loans. Althoughlarge certificates of deposit are not included in M 1? M., or M. { , reserves thatthe banks must hold against them do reduce the amount of reserves availableto support deposits that are included in measures of the money stock. Thus,given the rate of expansion in bank reserves, the rapid growth in CD's led toslower growth in M 1; M 2? and M :{ .The public also increased its holdings of currency relative to its holdingsof demand deposits and total deposits during 1974, a shift that reduced67

TABLE 16.—Measures of monetary growth and monetary policy, 1972—74[Percent; seasonally adjusted annual rates]Measures of monetary growthMeasures of monetary policyPeriodChange from corresponding period ayear earlier:1972: IV1973: IV1974: IV3MiDemanddepositspluscurrency7.76.35.1M 2Mi plustime depositsother thanlarge CD's10.98.97.8M 3M 2 plusdeposits atnonbankthriftinstitutions12.98.97.0Adjustedmember bankreservesavailableto supportprivatedeposits 1 9.19.49.1Adjustedmonetarybase 28.07.68.4Change from preceding quarter:1974: 1IIIllIV 35.97.43.63.59.98.56.46.69.47.55.36.05.316.112.72.78.69.15.410.41 Adjusted by Federal Reserve Board to reflect the effects on available reserves of changes in required reserve ratios.2 "Adjusted monetary base" is member bank reserves plus currency held by the public and by nonmember banks,adjusted for reserve requirement changes and shifts in deposits.3 Preliminary.Sources: Board of Governors of the Federal Reserve System and Federal Reserve Bank of St. Louis.the growth rates of Mi, M 2 , and M 3 . While currency grew at a 9.9 percentrate from December 1973 to December 1974, demand deposits grew atonly 2.9 percent, and total deposits—excluding large CD's—at 7.3 percent.Currency tends to grow faster than demand deposits when interest ratesrise, because demand for currency is less interest-elastic than the demandfor demand deposits.Concurrently, the public increased its holdings of time and savingsdeposits relative to demand deposits. The rise in interest rates paid on timeand savings accounts relative to the zero legal rate paid on demand depositsprobably played a large role in this development. The smaller requiredreserve ratios on time and savings deposits permitted banks to increase thestock of these deposits much more than they curtailed the stock of demanddeposits. The result was that M 2 and M 3 , which include time and savingsdeposits other than large CD's, grew much faster than Mi, which does not.INTEREST RATESInterest rates on most of the debt instruments included in Chart 5 rose in1974 to the highest levels ever recorded in the United States. Inflation and,more importantly, the expectation of continuing rapid inflation were majorfactors underlying these high interest rates. When lenders of money expectprices to rise, they demand an inflation premium—a higher rate of interest—to protect the real value of their loans. Borrowers, also expecting higherprices and incomes, are willing to pay interest rates that would force them outof the market in periods of stable prices.68

Chart 5Interest RatesPERCENT PER ANNUM14SHORT-TERM1210FEDERAL FUNDS3-MONTH TREASURY BILLS(New issues)0 I I I I I I 1 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 i i I I I I I I I I I I I I I I I I I i I I I I l I I I I I I I I I I I1969 1970 1971 1972 1973 197412LONG-TERM10NEW HOME MORTGAGES(FHLBB)-8^ ^ ^CORPORATE Aaa BONDS,,,1^^^6A4U.S. GOVERNMENT BONDSHIGH-GRADEMUNICIPAL BONDS2-.-0I I 1 111 I I I I I I I | | I 11 1 1 1 I 1 1 1 1 1 I 1 I I 1 1 I 1 Mill I I I I I1 1 1 II 1 1 1 1 1 1 1 1 1 1 1 1 11969 1970 1971 1972 1973 1974SOURCES: DEPARTMENT OF THE TREASURY, BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM,FEDERAL HOME LOAN BANK BOARD, MOODY'S INVESTORS SERVICE, AND STANDARD & POOR'S CORPORATION.69

Although interest rates reached unprecedented heights in 1974, they generallyremained well below the rate of inflation. For instance, 3-monthTreasury bill rates averaged well below 9 percent for 1974, while prices rosean average of more than 10 percent. The real rate of interest on bills wasthus negative, and those who held bills through the year transferred realwealth to the borrower, the U.S. Treasury in this case. Although similartransfers occurred throughout the financial markets, the largest were probablytransfers from owners of ordinary deposits in thrift institutions to someof the mortgage holders who borrow from these institutions.Legal interest rate ceilings for deposits of banks and thrift institutions(regulation Q) placed these institutions at a competitive disadvantage, particularlyduring the summer and early autumn months when market interestrates were highest. Commercial banks were generally more successful thanthrift institutions in paying competitive interest rates to their depositors,mainly by issuing large certificates of deposit on which they legallycould pay a competitive rate of interest. These deposits, as noted earlier,grew very rapidly during 1974. Thrift institutions issued similar instrumentson a much smaller scale. Since their portfolios contained a large proportionof old mortgages yielding low-interest returns, they were less able than banksto compete for funds by paying higher interest rates to depositors. Somebanks also attracted funds by issuing variable interest rate bonds throughtheir holding company affiliates. Legislation passed in October enables theFederal Reserve Board and the Federal Deposit Insurance Corporation(FDIC) to apply regulation Q to obligations issued by all federally insureddepository institutions, but neither the Federal Reserve Board nor the FDIChas yet adopted regulations in this regard.CREDIT MARKETSTransactions in U.S. credit market in 1974 reflected the rapidly changingeconomic climate. The nominal value of net new funds raised in 1974(annual rate for first 3 quarters) increased to $194 billion from the $187-billion rate of 1973. The proportions of funds raised by categories ofborrowers also changed. As shown in Table 17, corporations and foreignersincreased their shares of total borrowings in 1974 while other borrowers,notably governments at all levels and households, decreased theirs.The increase in corporate borrowing reflected a more rapid increase inrequirements to finance fixed capital investment and inventories than in internalfunds available for such expenditures. Nearly all of the large rise inprofits from 1973 to the first 3 quarters of 1974 was in the form of inventoryprofits and was not available for new fixed capital investment.The increase in corporate borrowing was concentrated in the short-termmarkets. The strained liquidity of the banking system caused a sharp slowdownin the expansion of business borrowing from the banking system, anda large increase in business borrowing through the commercial paper market.Total corporate borrowings from longer-term capital markets rose slightly70

TABLE 17.—Net funds raised in U.S. capital markets by nonfinancialsectors, 1968-74PeriodTotalU.S.GovernmentStateandlocalgovernmentHouseholdsFarmandnonfarmnoncorporatebusinessCorporatebusiness1 Foreign *Federallysponsoredcreditagencies *Billions of dollars; seasonally adjusted annual rates1968-73 average131.712.512.743.512.346.54.38.41973187.49.712.372.817.967.27.519.61974: average of 3quarters3 r194.38.614.554.215.584.117.518.3III111 3_177.3206.5199.18.72.115.114.517.411.551.453.657.610.718.717.078.089.784.614.125.113.39.324.321.2Percent of total1968-73 average100.09.59.633.09.335.33.36.41973100.05.26.638.89.635.94.010.51974: average of 3quarters'L...II.111 3100.0100.0100.0100.04.44.91.07.67.58.28.45.827.929.026.028.98.06.09.18.543.344.043.442.59.08.012.26.79.45.211.810.61 Includes equity issues.3 Not included in total since these agencies function as financial intermediaries between borrowers and lenders, and arenot final borrowers.Includes issues of the Federal Home Loan Banks (FHLB), Federal Home Loan Mortgage Corporation (FHLMC), FederalIntermediate Credit Banks, Federal Land Banks, Federal National Mortgage Association (FNMA), and the guaranteedsecurities (backed by mortgage pools) of the Government National Mortgage Association (GNMA).3 Preliminary.Note.—Detail may not add to totals because of rounding.Sources: Board of Governors ofthe Federal Reserve System, FHLB, FHLMC, and GNMA.as a significant increase in corporate bond issues was only partly offset by adecline in both corporate mortgage and equity financing.The substantial increase in foreign debt raised in the credit markets in1974 was related to two factors. The first was the use of U.S. banks as intermediariesin channeling funds from the Organization of Petroleum ExportingCountries (OPEC) to the oil-importing nations. The second factor was theremoval in January 1974 of several regulations by the United States, includingthe Interest Equalization Tax and the Federal Reserve VoluntaryForeign Credit Restraint Program, which had been designed to discourageor restrict foreigners from raising funds in U.S. capital markets.To the extent that increased foreign borrowing represents a "recycling" ofoil money, foreign participation in U.S. credit markets is likely to remainhigh and will probably increase, at least for some time, beyondthe level reached during the first 3 quarters of 1974. To the extent thatthis increase represents the effect of eliminating controls on foreign lending,foreign participation is likely to remain above the levels prevailing whencontrols were in force. Activity is likely to decline from its current high71

levels, however, as the portfolio adjustment part of the increase stemmingfrom the removal of the controls is dissipated.ASSISTANCE TO THE MORTGAGE MARKETIn response to the deteriorating conditions in the housing industry, theFederal Government has provided substantially increased assistance to themortgage market through its sponsored credit agencies. Typically theseagencies increase liquidity in the mortgage market by providing advancesto, and purchasing mortgages from, mortgage lenders. They do this withfunds raised either by issuing debt instruments or by selling interests in poolsof mortgages they have purchased. As a result of these activities, thrift institutionsand other mortgage lenders obtain funds at federally subsidized interestrates and thus are able to make additional mortgage loans.Prior to 1973, net mortgage purchases by the federally sponsored creditagencies had never amounted to more than $6.5 billion in any one year. In1973 net purchases were $10 billion, and it is estimated that mortgage purchasesof $15 billion or more were made by these agencies in 1974. Part of thesubstantial increase in 1974 is attributable to special programs authorizedduring the year for the purchase of up to $16 billion in residential mortgages,primarily on new homes, at interest rates below the market. Underthe so-called Tandem Plan the Government National Mortgage Association(GNMA) was twice authorized to purchase FHA/VA home mortgages—200,000 units valued up to $6.6 billion on January 21 and 100,000 unitsvalued up to $3.3 billion on May 10. Under the January 21 program commitmentsamounting to $4.8 billion were made for 200,000 units. On May10 the Federal Home Loan Mortgage Corporation (FHLMC) was authorizedto purchase $3 billion of conventional mortgages from the memberinstitutions of the Federal Home Loan Bank system. On October 18 purchasesof $3 billion in conventional mortgages were authorized under theauspices of a new GNMA Tandem-type plan that utilizes the services ofFNMA and FHLMG.By the end of 1974 commitments to purchase roughly $10^ billion inmortgages had been made under these programs, while $3^2 billion remainedto be committed. Of the $10^2 billion, purchases amounting to over$4 billion had actually been made.In 1974, the Federal Home Loan Banks (FHLB) provided assistance tothe mortgage market by making net advances of $6.5 billion to savings andloan associations. Included in this total is nearly the full amount of $4 billionin internally subsidized advances authorized on May 10. These advances,while substantial, were down slightly from the record $7 billion in net advancesmade during 1973. Several times during 1974 the Federal HomeLoan Bank Board also lowered the required liquid asset ratio for its memberthrift institutions, freeing additional funds for mortgage investment.The maximum allowable interest rate on Veterans' Administration (VA)and Federal Housing Administration (FHA) guaranteed mortgages was72

increased administratively in several steps after January 21, 1974, from 8^4percent to 9}4 percent, in response to rising market interest rates. It wasthen lowered to the 9 percent rate permitted at the end of the year, as marketrates declined. Maximum loan ceilings and coverage rates for VA and FHAguaranteed mortgages were also raised by the Housing and Community DevelopmentAct of 1974.Finally, the Administration has continued to press for passage of theFinancial Institutions Act, first introduced in 1973. This act would, amongother things, broaden the lending powers of thrift institutions and phase outinterest rate ceilings on deposits at commercial banks and thrift institutions.ENERGY DEVELOPMENTS IN 1974The oil embargo of October 1973 and the energy price changes whichaccompanied and followed it helped shape the performance of the economyduring 1974. The embargo was over in March, the shortages it created hadmostly passed by midyear, but adjustments to higher prices will continuefor some time.In economic terms, the embargo and the accompanying reductions inOPEC output were restrictions of supply which supported the announcedprice increases for exported oil. The U.S. Government used price controlsand a quantitative allocation program at the wholesale level to dampen theprice increase. These actions did not necessarily reduce the harmful effectsof the embargo, but they did change the form in which those effects wereimposed on the public. Instead of paying still higher prices for oil, consumerssuffered inconvenience and uncertainty in obtaining supplies and paidhigher prices for substitutes. As a whole, the Nation used available fuel suppliesless efficiently and thus obtained less benefit from them becauseprice controls and allocation were imposed. Because of these actions theUnited States may have experienced less inflation and probably achievedlower unemployment than would otherwise have occurred. Analysis of thisperiod thus requires examination of the change in the cost of energy and itseffects on production, consumption, net energy imports, and inventories.COSTS OF HIGHER ENERGY PRICESOne of the costs incurred because of the large increase in the relativeprice (including inconvenience and unavailability) of energy was the lossin current output. The higher energy price was transmitted into greaterprice changes for some products than for others. Sales of the products bearingrelatively greater price increases, and of complements to them, declined,causing unemployment and excess capacity in some industries. Someof those unemployed resources could not be transferred easily to the productionof less energy-intensive goods, even if demand for those products existed.The more specialized the labor and capital services, the longer the delaybefore they can adjust to new patterns of demand and production. Some ofthe highly specialized factors of production thus may have become perma-73

nently unemployed because they had no alternative uses. In terms oflabor, this unemployment sometimes took the form of destruction of humancapital because skills were no longer marketable. The increase in theprice of energy also led to a reduction in aggregate demand which, becauseit was not offset by macroeconomic actions, lowered output as well. Expendituresfell because the income that was transferred abroad as a result ofhigher oil prices was not fully matched by an increase in foreign demandfor goods and services. Additionally, the change in the relative price ofenergy was so large that it may have disrupted consumption and investmentplans and lowered actual expenditures. Given sufficient demand, the lossper unit of time declines as resources gradually adjust, but the loss inaccrued output is permanent. When resources are unemployed, net capitalformation is depressed along with current consumption. To some degreethen, the large increase in the price of imported energy led to some permanentreduction in the potential output of the economy.Beyond the sharp short-run losses in output, consumption and investmentare lowered even when employment rebounds. Resources are diverted toadjusting the economy to patterns of production and consumption thataccord with the new relative price of energy. Expansion of energy production,the substitution of capital for energy, and the "premature" replacementof a portion of the capital stock all absorb resources. These adjustmentsmake the shortfall in production less than if the adjustments werenot made. However, the added output is at the expense of consumer andalternative investment goods that could otherwise be produced. These adjustmentsare still in progress, and will continue so long as they lead to fullerand more effective employment of resources. The largest part of the loss inoutput from this process occurs in the intermediate period when the capitalstock is being revised, but to the extent that capital formation is reduced,there is again a permanent loss in the ability of the economy to satisfy wants.The economy is, of course, constantly in the process of adjusting to changedrelative prices. The energy episode requires comment only because of thesize and suddenness of the change which took place.The above effects reduce the total output of the economy. In addition,the increase in the bill for imported energy means that the benefit thedomestic economy derives from its production is reduced because greater realresources are relinquished to the oil exporters. If oil exporters increase theircurrent imports of goods produced in the United States, this transfer isimmediate. To the extent that oil exporters hold dollars in banks or investin assets (stocks, bonds, certificates of deposit, real estate, and the like) formerlyheld by U.S. citizens, they secure claims to future output of this economy.Most of the increase in oil revenues of the exporting countries has takenthis latter, capital account form in various Western countries.The shift in the relative price of all energy was initiated by the change inthe price of imported oil. The structure of the U.S. energy market is suchthat the price of the approximately 15 percent of energy imported as oil sets74

the unconstrained domestic energy price as well. Average domestic oil andnatural gas prices, however, have not been allowed to rise to the price ofimported oil and gas. Prices to consumers instead reflect the composite ofimported and controlled domestic prices. The result has been that the amountof energy demanded has been larger than it would otherwise have been.Most of the additional energy demanded is supplied by imports of oil.Because of price controls more oil is imported, and it is consumed in producinggoods and services of less value than those which must be surrendered toacquire it.More extensive analysis of the way the change in the price of energyaffected the major industrialized countries is found in Chapter 7. At thispoint, however, examination of the course of energy prices since January 1,1973, is useful in understanding these and other energy developmentsduring 1974.PRICESThe recent rise in all energy prices was caused by the increase in the priceof imported oil, a result of the increase in payments to oil-exportinggovernments. The pattern of increase in these payments per barrel is shownby the tax-paid f.o.b. cost of "Saudi Arabian Light," a common referencefor world crude oil prices. The tax-paid cost of this oil was approximately$1.10 per barrel in January 1971, $1.55 the following January, and $1.62in January 1973. The cost rose to $3.15 in October 1973 and to $7.11 inJanuary 1974. Changes in pricing and sales arrangements after the first of1974 make it difficult to compare current Persian Gulf prices with thoseof earlier periods. Some inferences may be drawn, however, from thechange in the landed cost of crude as reported by the Federal Energy Administration(FEA). The oil from Saudi Arabia that landed in the United Statesin December 1973 (presumably shipped prior to the embargo) carried anestimated landed cost of $5.49. The estimated comparable cost after theembargo ranged from $11.50 to $12.00. The effect of this pattern of changesas it was carried through to the average refiner acquisition cost of importedcrude is shown in Table 18. The percentage of total refinery inputs fromforeign and domestic sources is also indicated.The average refiner acquisition cost of domestic oil was affected also bythe price control program. The wellhead price of controlled oil was set at$5.25 throughout 1974, but the price of domestically produced oil was notsubject to control if it fitted one of three categories: new, released, orstripper. New oil is the amount produced from a property in excess ofthe amount produced during the same month of 1972, subject to someadjustments. Released oil is old oil from the same property equal to theamount of new oil produced. Stripper oil is that produced from propertieswhere the average production during the previous month was less than 10barrels per well per day. The proportion of uncontrolled crude tended todecline during 1974, falling from 40 percent in January to 33 percent inSeptember and 34 percent in October.75

TABLE 18.—Refineracquisition cost of crude petroleum and percentcrude petroleum in refinery inputs^ 1973-74of imported and domesticMonthCompositeCost (per barrel)ImportedDomesticPercent of refinery inputs 1ImportedDomestic1973: SeptemberOctober.NovemberDecember$5.446.54$4.544.916.498.22$5.655.9528292724727173761974: January..FebruaryMarch.AprilMayJune7.468.578.689.139.449.459.5912.4512.7312.7213.0213.066.727.087.057.217.267.20222022263031788078747069JulyAugustSeptemberOctoberNovember 29.309.179.139.229.4112.7512.6812.5312.4412.537.197.207.187.267.46323030313268697069681 Stocks are assumed to be in the refinery stream and do not figure in this calculation. The base is the sum of importsand domestic production.2 Preliminary.Sources: Department of the Interior (Bureau of Mines) and Federal Energy Administration.The rise in the proportion of domestic oil subject to control occurred inpart because properties were unable to maintain the production increasesover the same month in 1972 that were initially induced by greater demandand the higher oil prices of 1973 and 1974. In time, as new oil discoveriescome into production, uncontrolled oil will rise as a proportion of the total.Meanwhile the controls system explains the pattern in the cost of acquiringdomestic oil reported in Table 18. The price of uncontrolled oil did not risefast enough to offset all of the decline in its part of the total. This priceranged between a low of $9.82 and a high of $9.98 during the first 8 monthsof 1974. It rose rapidly in the next 3 months, however, reaching $10.83 inNovember.The price of coal, which is not controlled, rose rapidly during 1974. Itwas pulled upward by the increase in the price of its major substitute,residual fuel oil. The price of residual fuel oil is not controlled because mostof it is imported. The price of the other major fuel, natural gas, also increased,but not as much as that of petroleum or coal. Because most naturalgas is sold under long-term contracts, its average price is slow to respond toan increase in demand. Federal controls on the price of gas sold for interstateresale restricted the price change still further. Because of price control provisionsthat permit only the pass-through of costs, the price of refinedpetroleum products rose approximately with the cost of crude oil to refineries.Electric power prices responded largely to increases in the cost of fuelinputs. Table 19 shows that there were substantial increases only in coalprices from 1964 to 1972. Prices rose fastest for refined petroleum productsin the last quarter of 1973 and the first quarter of 1974. The bulge in coalprices occurred 2 quarters later. Natural gas prices have risen less than thoseof the other two primary fuels.76

TABLE 19.—Changes in wholesale frices of selected fuels, 1964 to 1974[Percent change; quarterly rate]PeriodCoalNaturalgasRefinedpetroleumproducts^ElectricpowerAverage quarterly change:1964 to 19691969 to 1972 .1972 to 19731973 to 19740.94.63.011.10.31.42.30.5.75.10.11.51.7Change from 3 months earlier:1973: MarchJuneSeptemberDecember . ..93.73.58.13.03.31.67.19.56.03.224.23.11.12.44.11974: March....June. . ...SeptemberDecember7.724.015.615.23.33.012.229.710.92.011.69.36.41 Through February 1973 there were no lags in this series. Since March 1973, index numbers of the major products inthis series refer to prices of the previous month. The unlagged portion of the series has a very small weight.Note.—The price changes shown in this table have been calculated from the wholesale price index, adjusted for thelags embodied in some fuel price series. For example, changes shown in this table from June to September 1973, would bepresented in the wholesale price index as changes in natural gas prices from August to November, in refined petroleumproducts and electric power prices from July to October, and in coal prices from June to September.Source: Department of Labor, Bureau of Labor Statistics.The price increases at the wholesale level were carried forward to consumers,though the proportional increases obviously were smaller. Gasolineprices rose 35 percent from September 1973 (before the embargo) to December1974. The increase for home heating oil was significantly greater—69 percent—primarily because crude oil cost makes up a much larger partof the final price of home heating oil than it does of gasoline. The priceof residential gas heating service rose 28 percent and of residential electricity25 percent over the same September 1973-December 1974 period.PRODUCTIONThe increase in the relative price of energy during the past 2 yearsand the expectations that preceded it have induced additional investmentin energy-producing industries. Still more investment would have beenforthcoming had there been greater certainty about government policyhere and abroad and if specialized resources had been available. The situationin the petroleum industry, which includes natural gas as well as crudeoil, is indicative. Activity takes place in four stages: geological (seismic) explorationand selection of sites, exploratory drilling, development drilling, andproduction. Table 20 presents data on drilling for the past 6 years and someinformation on geological activity, which serves as a leading indicator fordrilling. The low point for seismic exploration came in 1970 and for drillingin 1971. The increase in drilling in late 1973 and in 1974 was substantial.In addition to the increases in wells actually drilled, still more drillingwould have taken place if shortages of equipment and skilled labor had notrestrained investment during late 1973 and all of 1974. Very little well-77563-280 O - 75 - (

TABLE 20.—Indicators of domestic petroleumndustry investment, 1969—74PeriodCrewsengagedin seismicexplorationExploratorywellsDevelopmentwellsMonthly average:19691970197119721973197412461902212522503008086415776286227271.8741,702,577,6461,5941,9241974: 1IIIllIV i666679724838,8691,8952,1941 Preliminary.Sources: American Petroleum Institute and Society of Exploration Geophysicists.drilling capacity (rotary rigs) was idle for lack of work, but shortages ofpipe idled or slowed some rotary rigs and delayed completion of some wells.The backlog of orders for rigs and other oilfield equipment increased duringmuch of this period because production facilities were working at capacity.The equipment shortages in part were the result of the general price controlsystem, that inhibited production and prevented efficient allocation of thematerial that was available. To some extent they also resulted from thelags inherent in expansion of large, capital-intensive production facilities.The long decline in oilfield activity from its peak in 1956, when 58,000wells were drilled, to 1971, when a low of only 27,000 wells of all typeswere completed, left the oilfield equipment industry unprepared to meet therequirements placed upon it.Investment in the past has not been large enough to prevent the recentdecline in crude oil and natural gas output. Crude oil production in 1974totaled 3.2 billion barrels, nearly 4 percent less than in 1973. Marketed productionof natural gas in 1974 is estimated to be 3.3 percent lower than in1973. Preliminary estimates show a 2.3 percent decline in the productionof natural gas liquids from 1973 to 1974. Increased drilling so far has onlyslowed the rate of decline from what it otherwise would have been. It nowappears that domestic petroleum output may stabilize or even rise in 1977when Alaskan reserves begin to produce, but no turnaround can be expectedbefore then. Natural gas supplies will not be forthcoming from Alaska untilthe 1980's. Oil and gas production rates at the end of this decade, however,can be strongly influenced by Government policy and by price behaviorduring 1975 and 1976. The pattern of fuel production since 1963 is shownin Chart 6.Coal prices rose earlier than the prices of other fuels and on average haverisen more, but the increased revenues per ton did not flow through in theirentirety to incentives to expand production. In part they were absorbed byincreased costs due to the changes in health and safety standards. In addition,when these standards were introduced, production capacity was lost because78

Chart 6Domestic Energy ProductionINDEX, 1967=1001401301201101009080 J I | | | I I I I1964 1966 1968 1970 1972 1974* COAL INDEX FOR 1974 EXCLUDES STRIKE MONTHS OF NOVEMBER AND DECEMBER.SOURCE: BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM.some mines could not profitably comply and were abandoned. In part theprice increases were also offset by uncertainty due to legislation designed toreduce industrial pollution. Because of this legislation, the anticipated marketfor high-sulfur coal fell. Potential producers may have anticipated that Federalpollution standards could not be met by coal-burning facilities or thatStates might impose more stringent controls. Finally, uncertainty about thecosts of possible mandated standards for strip mine reclamation discouragedthe opening of new mines and induced equipment manufacturers to deferexpansion of their production facilities. Despite these factors, the higherprices for coal have elicited expanded capacity and greater output. Newmines have opened, and during October, the month prior to the 1974 strike,total output reached a modern peak, the highest output since 1947. Productionin 1974 was estimated to be 590 million tons, almost the same as in 1973.Labor disputes and the unscheduled memorial walkout lasted approximately7 weeks and resulted in the loss of an estimated 35 million tons of coalproduction, about 5 to 6 percent of potential. Until the last quarter of 1974coal production had been running 5.5 percent ahead of 1973. The gain wasmore than eliminated in the last 3 months when output fell to about fourfifthsof the comparable period in 1973. Inventories were somewhat depletedbecause of the strike, and some export sales were lost, but the strike's disruptiveeffect was minimal except for the steel and railroad industries. Indus-79

trial production losses from the strike were reduced by the planned overhaulswhich took place in some of the major coal-using industries and by the softeningof the economy.Output from the other major sources of energy—nuclear power plantsand hydro stations—was constrained by capacity limitations. Production wasnot affected during 1974 by changes in the relative price of fossil fuels.The role of hydropower and nuclear power in U.S. energy productionremains small.CONSUMPTIONA combination of increasing relative energy prices (including supply constraintsduring the embargo), declining economic activity, and voluntaryconservation measures caused a drop in energy consumption in 1974 comparedto the previous year—the first since 1958. Total annual consumptionof energy for the past 10 years and year-to-year rates of increase are shownin Table 21.TABLE 21.—Gross consumption of energy by major source, 1965—74Total energyconsumptionPercent of total energy consumptionYearAmount(quadrillionBtu's)Percentchange lTotalNaturalgasCoalPetroleumHydropowerNuclear196519661967..196819691970.1971197219731974 a53.356.458.361.865.067.168.771.974.772.74 15.83.36.05.23.32.34.73.9-2.7100.0100.0100.0100.0100.0100.0100.0100.0100.0100.043 643.243.543.843.844.044.545.846.446.030 230.931.331.732.332.833.232.030.630.122 322.121.020.519.618.917.617.317.918.33.93.74.03.84.14.04.14.13.94.20.1.1.2.3.6.81.21.41 Based on unrounded data.2 Preliminary estimate by Council of Economic Advisers.Note.—Detail may not add to totals because of rounding.Source: Department of the Interior, Bureau of Mines (except as noted).The use of primary energy for the production of electric power was significantlydepressed. The consumption of electric power historically hasrisen at a rate of about 7 percent per year. In 1974, however, there was noincrease at all over 1973. This absence of usual growth occurred despite thefact that some of the fuel price increases have yet to flow through to electricutility rates.The consumption of coal was about the same in 1974 as in 1973, despitethe fact that energy use in aggregate declined. Coal use in electric utilitieswas increased by 5 to 6 million tons, roughly 1 percent, through specialefforts to convert facilities from oil to coal and through more intense use ofcoal generating plants. In addition to the oil shortage, the gap between the80

cost of oil used by electric generating stations and the cost of coal widened,increasing the incentive to use coal. Nevertheless there have been generallyadequate supplies of coal for electric generation. The major market for coalhas been steam electric plants, and air quality controls have made the economicuse of much additional steam coal impractical or impossible in existingfacilities.The consumption of oil, on the other hand, was restricted by lack of supplyduring the embargo and by lack of markets afterward. The allocationpolicies in force during the embargo required reductions in consumption,first to maintain and then to increase inventories. Some of the reduction in oilusage was later made up; most was not. Other fuel developments, especiallythe growing shortages of natural gas, increased the quantity of petroleumconsumed. In late 1974, when oil was freely available, more petroleum andpetroleum products were used directly and for generating electricity thanwould have been used had natural gas been available. Despite these stimulito demand, total consumption of petroleum fell during 1974, reflecting bothits increased price and the economy-wide decline in output. One majorsource of this decline was in motor vehicle fuel use. Gasoline consumptionfell by about 2 percent as miles traveled on highways declined by approximately3 percent, the first year-to-year decline since World War II. The dropin fuel consumption and miles driven occurred despite the fact that therewere 5.3 million more registered vehicles in 1974 than in 1973.The pattern of consumption of energy by source over the past 10 years isshown in Table 21. The striking shift evident there is in the role of naturalgas. After years of rapid growth, natural gas has been losing its market sharesince 1971. The shift against natural gas has been caused by lack of supply,not by a change in consumer preference or price. The relative price of gas,already lower than other fuels on an energy-contained basis because ofregulation, fell even further against its competitors during 1974. As a consequence,the amount demanded, shortages, and nonmarket allocation allreached higher levels in the gas industry in 1974 than before. The naturalgas situation is discussed below.IMPORTS AND EXPORTSThe United States, a net importer of petroleum and natural gas and anexporter of coal, has been a net importer of energy for two decades.For a decade and a half petroleum imports were restricted to protect domesticoil producers against low-priced foreign oil. Since May 1973, however, noquantitative restrictions have been in force. High-priced foreign petroleumnow supplements domestic supplies and fills the gap between energy demandand domestic energy supply. For this reason, increases in U.S. energy production(except for coal) relative to energy consumption lead directly to reductionsin oil imports. Gross imports of petroleum and petroleum products rosefrom about 21 percent of consumption in 1965 to 36 percent in both 1973and 1974. In absolute terms, imports in 1974 fell to 6.0 million barrels a day,3 percent below 1973.81

Goal is the only fuel the United States now exports on balance, with shipmentsof from 10 to 12 percent the size of the domestic market. Metallurgicalcoal has found large and expanding markets abroad. Steam coal has movedinto foreign markets to some degree, and development of lower-sulfurwestern mines may increase this trend. Exports of coal have not interferedwith the meeting of energy demand through domestic supplies, though theexternal market has raised the price of coal inputs for both steam and metallurgicalcoal uses.Natural gas is imported by pipeline and in minor amounts in liquefiedform. The primary source of pipeline imports is Canada; small quantitiesare exported to Mexico and in a liquefied form from Cook Inlet, Alaska, toJapan. The imports from Canada have played an important role in theenergy supply of some regions. According to some interpretations of recentCanadian policy announcements, however, those imports (as well as importsof oil from that nation) may be restricted in the future unless substantialdiscoveries of new Canadian reserves are made. Already pipeline companieshave been required to accept sharply higher prices as of the first of 1975 orface supply cutoffs at the end of 1976. The restriction of gas exports wouldcreate serious problems for West Coast consumers, just as restriction of Canadianoil exports will harm the "Northern Tier" refiners of the Midwest.INVENTORIESThe disruption in the petroleum supply in 1973-74 and the coal strike of1974 made it clear how important adequate fuel inventories are to the continuedsmooth functioning of the economy. The adequacy of inventories ispartly a function of the consumption rate. More importantly it is a functionof the probability of unpredictable variations in consumption or in the rate atwhich supplies are made available. End-of-month primary inventories forthe past 3 years, as measured by the number of days' consumption they represent,are shown for crude oil and important petroleum products in Table22. These data indicate that inventories measured in this way did notdecline during 1974 even though the embargo lowered total oil supplies. Theregulations imposed by Government, voluntary conservation, a warmer thannormal winter, and the expectation of even higher prices in the future contributedto maintaining inventories at pre-embargo levels. A drawdown ofinventories would have reduced the actual cost of the embargo to the economy.However, it would also have increased the vulnerability of the UnitedStates to a further tightening of the embargo, a sudden deterioration in theweather, or an embargo which persisted beyond the actual termination pointof the 1973-74 episode.Both crude oil and product stocks approached new highs for the seasonas 1974 drew to a close. If inventories retain their current relationto consumption, an embargo during early 1975 would find the UnitedStates better prepared than it was in October 1973. Unfortunately, theseinventories may be drawn down for commercial reasons. A change in price82

TABLE 22.—Petroleum inventories expressed as days of consumption, 1972-74[Days]MonthCrude iGasolineDistillateResidualMarch:19721973197421.618.920.437.031.935.829.233.641.019.214.618.8June:19721973197421.818.319.929.429.932.958.757.177.225.619.931.5September:197219731974 .19.618.220.431.032.034.586.371.591.828.520.730.1December:1972197319742.19 218.919.633.433.734.736.553.359.917.518.425.7Months of oil embargo:1973: OctoberNovemberDecember__18.319.218.932.130.433.769.657.153.321.616.718.41974: JanuaryFebruaryMarchApril.19.220.520.420.637.535.935.834.747.438.941.044.115.315.018.821.11 Crude stocks divided by average daily runs to stills.2 Preliminary.Sources: Department of the Interior (Bureau of Mines) and Federal Energy Administration.expectations or in world oil market conditions may bring a rapid deteriorationof the national petroleum inventory position. The threat of disruptedsupplies does not by itself guarantee retention of "excess" inventories bycommercial firms. Even though firms might expect a disruption, there is noincentive for them to maintain expensive inventories to be used in that eventso long as they expect Government allocation and price controls to denythem the inventory profits that might be earned. Consequently, althoughinventories are now high, they cannot be considered secure.Coal inventories were depleted during the coal strike but not dangerouslyso. By year-end, inventories were being rebuilt at a satisfactory rate.The other fuels are not subject to inventory or else, like natural gas, inventoriesare limited to working stocks and some supplies for seasonal balance.NATURAL GAS: A SPECIAL CASEThe only fuel in seriously short supply at the end of 1974 was naturalgas. The shortage of natural gas became more severe during 1974 and islikely to get still worse in 1975. The shortage is taking the form of curtailmentsof deliveries under existing contracts and of failure among potentialconsumers to obtain supplies at the going price.The shortage of natural gas exists because the price of gas has been heldbelow the market-clearing level by Federal Power Commission (FPC) regulations.The FPC is required by statute to regulate the wellhead price ofnatural gas sold for resale in interstate commerce. It controls the price of83

approximately 60 percent of the gas produced in the United States. Theaverage price paid by interstate pipeline companies for regulated gas was27 cents per thousand cubic feet in October 1974. That price was clearlybelqw the market-clearing level, as indicated by the higher price of gas soldunder unregulated conditions (though that price too is held down indirectlyby regulation), and by the price of natural gas substitutes.The price of natural gas was below the price of its substitutes prior to theenergy price escalation of 1973, and the differential increased markedlyduring the succeeding period. A rough measure of the price differentialis seen in the price difference in terms of energy content of coal, oil, andgas in electric power plant use (Table 23). These data are the morestriking because gas requires no on-site storage and burns more cleanlythan other fuels. Buyers would be willing to pay a slight premium for gasif it were available. Instead, as shown in the table, the average price of gasis below the price of both coal and oilTABLE 23.—Average price paid by utilities for major fuels, 1972-74{Cents per million Btu's]PeriodCoalOilGas1972: IIIIV37.037.357.761.030.31973:1IIIII38.739 640.166.270 577.431.233 634.21973: OctoberNovemberDecember1974: January _ .FebruaryMarchApril .MayJune41 944.045.551.456.960 864.065.869.588.9104.0121.1162.7187.3189 1187.2187.9195.135.535.7CO CO 0042.543.644.047.9JulyAugust . -September72.977.379.1196.4196.2195.449.851.852.4Source: Federal Power Commission.Because consumers were increasingly unable to obtain all the gas theywould have liked at the regulated price, nonprice rationing of natural gasincreased during 1974. Precise estimates of the quantity of gas which wouldhave been consumed if supply had been forthcoming are not available.Recorded shortfalls of contractually obligatory sales amounted to about9.6 percent of the volume called for during September 1973-August 1974.These curtailments are expected to reach about 16 percent during the like1974-75 period. The sales forgone under contractually "interruptible"contracts were approximately 38 percent of the contract volumes duringthe September-August period of 1973-74 and are expected to reach 58percent in the same 1974-75 period. Because of the priority allocation systemadopted by the Federal Power Commission most of these shortages areborne by industrial consumers, including electric utilities.84

The effect of regulating the price of natural gas has been to increase thedemand for its substitutes, especially imported oil. The reasons are twofold:First, the quantity of natural gas consumed by those who have preferentialaccess to it has been increased, leaving less for other consumers. Those thusdenied gas by regulation consequently consume more oil than they otherwisewould. Second, the lower price for natural gas has caused less of it to beproduced. Because imported oil makes up the difference between the demandfor and the domestic supply of energy, the gas shortfall during 1974was made up partially through greater consumption of higher-priced oil.85

CHAPTER 3UnemploymentEMPLOYMENT ACT OF 1946, which created the Council of•*• Economic Advisers, set forth the goal of maintaining "maximum employment."The extent to which this objective is achieved is usually measuredby the unemployment rate, which has come to serve as a measure of theextent of resource underutilization in the economy. For many it is also ameasure of economic and social hardship.We are starting 1975 with the highest unemployment rate since 1958.The story of the deterioration in the economy during 1974 and its effectson the labor market is given in Chapter 2. This chapter examines the varioustypes of unemployment and unemployment rates at different points in timeand among demographic groups. It also looks at the welfare implications ofunemployment, and at Government measures to ameliorate the difficultiescaused by unemployment.It is important to emphasize, because the point is often misunderstood,that to analyze unemployment is not to provide excuses for it or deny the personaland social problems associated with it. The unemployment of personswho seek work is costly to the workers themselves, their families, and the Nationas a whole. Our goal should be to reduce unemployment whenever thiscan be done by means which are not more costly than the unemployment itself.It is therefore important to understand the different kinds of unemploymentso that the effectiveness of alternative Government policies can beproperly evaluated. This chapter is intended to be a guide to the formulationof constructive policies toward unemployment over the long run.Unemployment is not as simple a concept as is often believed. The meaningof any particular unemployment rate depends on the way unemploymentis defined and measured, and on the sources and composition of the unemployment.Although it is generally clear when we are at points of very highunemployment and widespread underutilization of productive capacity, itis much more difficult to determine when we are at "maximum employment."The unemployment rate of 7.2 percent reached in December1974 clearly represents a substantial departure from maximum employment.At the other extreme, under current definitions, a zero rate of unemploymentis impossible to attain, and efforts to do so would have undesirable consequences.Although the period following World War II was one of rapid86

economic growth and rising levels of real income, the unemployment rateaveraged 4.7 percent from 1947 through 1973. Only during World War II(1944), when 17 percent of the total labor force were in the Armed Forces,did the rate ever fall close to 1 percent. An understanding of the issuesrelated to unemployment is needed to determine the extent to which aparticular rate is too high, or when the goal of maximum employment isattained.DEFINITION AND MEASUREMENT OF UNEMPLOYMENTThe major source of information on unemployment is a monthly Governmentsurvey of about 47,000 households, the Current Population Surveyor CPS. The survey includes detailed questions about the labor force statusof household members aged 16 and over, with the object of identifyingthose who are employed, unemployed, or out of the labor force.Persons are classified as employed if during the survey week they didany work as a paid employee or in their own enterprise, or if they worked15 hours or more as an unpaid employee in a family enterprise. Those temporarilyabsent from jobs because of labor-management disputes, bad weather,vacation, or illness and other personal reasons are counted as employed,regardless of whether they were paid during the week.Persons are classified as unemployed if they were not employed duringthe survey week but were available for work and had made a specific effortto find a job at some time within the preceding 4 weeks, or if they werewaiting either to report to a new job within 30 days or to be recalled to ajob from which they were laid off.The civilian labor force is the sum of those who are employed (excludingthe Armed Forces) and those who are unemployed. The unemployment ratecommonly reported is the number of unemployed persons as a percentageof the civilian labor force.The unemployment rate is, of course, a function of the specific definitionsused and the manner in which the questionnaire is administered.For example, in 1967 it was first stipulated that unemployment shouldinclude those seeking work at any time during the preceding 4-week periodrather than the previously implied 1-week period. This change in definitionis believed to have increased the measured unemployment rate of women,because many women are on the margin between being out of the labor forceand unemployed. The unemployment rate may also be affected by the expedientof relying on only one adult member of the household to reportfor all members. The respondent may not be accurately informed about thejobs held or sought by all household members. There is, for example, someevidence from special surveys that teenagers give a different impression oftheir unemployment and labor force participation when they respond directlyto the survey.87

SOURCES AND NATURE OF UNEMPLOYMENTUnemployment has several aspects that shift in relative importance fromtime to time. Some portion of unemployment is cyclical; that is, it isassociated with the business cycle. Other unemployment is primarily aconsequence of frictional, structural, and seasonal factors. These componentsof unemployment are analytical concepts and are difficult to identify empirically.It is nevertheless important to understand their differing nature.FRICTIONAL UNEMPLOYMENTThe economy always generates a considerable amount of unemploymentresulting from the multiplicity of random events that occur in labor markets.Such unemployment arises partly as a by-product of normal economicchange—the closing of some firms, a slowdown in others, the opening andexpansion of still others, and changing production techniques within firms.Partly in response to these changes, some workers are laid off and others quitor enter or reenter the labor force. Many become unemployed during thisprocess because the matching of workers to the changing job openings isseldom accomplished instantaneously. Unemployment may also arise as a byproductof personal considerations, quite independent of the fortunes offirms. Thus, events such as the completion of school or of service in theArmed Forces and the lessening of household responsibilities often lead to amovement into the labor force. A preference for a different job environmentor geographic area also frequently results in job change, as does an employer'sdissatisfaction with a worker's performance.There is substantial turnover among both the employed and the unemployed.Employment in 1973 averaged 84 million persons per month, butabout 100 million different persons worked at some time during the year.Similarly, unemployment averaged 4 million persons per month in 1973,while at least 14 million persons experienced some unemployment in theyear. About one-fourth of all those holding jobs in January 1973 had beguntheir job during the preceding 12 months.Job loss is usually taken to be an involuntary separation, and quitting avoluntary one. During 1974, 43 percent of the unemployed cited job loss asthe immediate reason for unemployment; 15 percent said they had quit theirjobs; but 42 percent had just entered or reentered the labor force. In 1973,a year of lower unemployment, the percentage citing job loss was smaller,39 percent; and the percentage citing quits, or labor force entry or reentry,was greater, 16 percent and 46 percent respectively. Thus, while separationfrom a job accounts for much unemployment, a similar amount is oftenthe by-product of movement into the labor force.Entering the labor force usually entails search for a job. Since entrantsare by definition not working at a paid job (though they may be fully employedin a real sense as students or housewives), they will usually be countedas unemployed, unless they found a job before becoming technically avail-88

able for work. Starting in the 1950's the composition of the labor force beganto change as middle-aged married women increased their participation. Sincethe 1960's the increasing tendency of younger married women to work, andthe increase in the teenage labor force because of the post-World War II"baby boom," resulted in rapid increases in the size of the labor force and inthe proportion of the labor force comprised of teenagers and married womenaged 20 or over (from 20 percent in the labor force in 1950 to 31 percent in1974). Both groups have relatively high rates of labor force entry and reentrybecause of school or home responsibilities. As a result, labor force entrantsand reentrants have probably accounted for an increasing proportionof the labor force and of the unemployed during the post-World War IIperiod, and hence for a higher level of frictional unemployment. The unemploymentof entrants and reentrants, however, is not always entirely frictional.For example, during a recession one sees a cyclical component in theunemployment of entrants and reentrants that is reflected by longer duration.In a dynamic economy, wage rates, skill requirements, and other jobcharacteristics are constantly changing. As such changes occur, the informationabout the labor market that people have acquired depreciates invalue. Because it takes time to acquire new and useful information, instantaneousjob change is seldom feasible. Individuals looking for more rewardingwork and firms looking for more productive employees invest time andother resources in the search process. Thus job mobility and the ensuingfrictional unemployment are essential consequences of economic change. Tothe extent that job mobility increases economic efficiency through a bettermatching of workers and jobs, it helps promote economic growth.This is not to say, however, that the actual amount of frictional unemploymentnecessarily equals the optimal amount required to promote efficienteconomic growth. That is, it is not known whether labor marketsin a private enterprise economy will allocate an optimal amount of resourcesto the dissemination of job information. Periodic surveys in which workersare asked how they located their current job always show that informalsources of information, such as friends and relatives, are more importantthan such formal sources as private and public employment agencies. Informalnetworks seem to provide detail about the tangible and intangiblecharacteristics of job vacancies and of job applicants that workers andfirms value highly. Because such detail is much less readily obtained throughformal channels, it has been difficult for the Government to devise improvementsover the existing system.STRUCTURAL UNEMPLOYMENTEven during periods of low unemployment, some groups have persistentlyhigh unemployment that tends to be of long duration, occurring either in asingle spell or in a sequence of spells. Such unemployment is often referredto as structural, in contrast to frictional unemployment, which tends to be of89

shorter duration, although there is no hard and fast line between these twoclassifications.Structural unemployment represents imperfect labor market adjustmentas a result of some barrier to the mobility of resources. For example, the highunemployment in Appalachia during the 1950's and 1960's was initially aconsequence of a decline in the demand for coal and of union wages andfringe benefits that were pushed substantially above the competitive level,and thus led to greater mechanization. The resources of the region werenot readily adaptable to other industries, and the personal and financialcosts of moving to a different area, combined with a chance of obtaininga high-paying job in Appalachia, impeded migration from the region. Sincethen, the migration out of the region by younger workers, the retirement ofolder workers, and the improvement of transportation systems which facilitatedthe development of new industries have dramatically reduced theunemployment rate in Appalachia. As a result, although the unemploymentrate in the Appalachian region was 8.6 percent in 1962 compared to thenational rate of 5.5 percent, by 1971 it had fallen to 5.9 percent—the sameas the national unemployment rate.The high unemployment rate of teenagers and of workers with little skillmay also be partly attributable to structural factors, but of a different sort.In 1974 the unemployment rate of teenagers aged 16 to 19 was 14 percentfor white youths and 33 percent for black youths, compared to 3.8 percentfor all males aged 20 and over. These higher rates may to some extent resultfrom such artificial barriers to wage rate adjustment as legislated minimumwages; in this sense they can be said to have structural elements. The Federalminimum wage at present is $2.10 per hour for workers covered by the legislationbefore 1966, and $1.80 per hour for workers who were covered later,mainly some agricultural workers, domestics, and employees of small retailchains. Some employment not covered by the Federal minimum wage iscovered by various State and local legislation. In some instances, State andlocal minimums exceed the Federal level. For example, the current minimumwage in the District of Columbia is $2.50 per hour in some industries.Other legislation adds to the minimum cost of employing a low-wage workerby requiring, for example, employers' expenditures for social security, unemploymentinsurance, and workers' compensation insurance.Some adults, but more teenagers, do not have the skills to command a wagethat equals or exceeds this minimum cost of employment for other than peakperiods of demand in the business of a particular firm. The knowledge thatsome job openings exist at the minimum wage may encourage some to continuesearching, thus adding to the number of unemployed. Others may dropout of the labor force altogether. Since the minimum wage reduces wagedifferentiation among workers, it will generate a greater decline in employmentfor the less skilled and for those subject to discrimination in the labormarket. These effects explain part of the substantially higher unemployment90

ate for teenagers compared to adults and for black teenagers compared towhite teenagers. Racial differences in unemployment are discussed in greaterdetail below.SEASONAL UNEMPLOYMENTSeasonal fluctuations in the demand for and supply of labor cause largeflows of persons into unemployment. The seasonal nature inherent in someproduction processes, such as agriculture and construction, and in some consumption—visitingbeach resorts in the summer and ski resorts in thewinter—can create seasonal fluctuations in employment and unemployment.For example, the unemployment rate of construction workers inFebruary tends to be 133 percent larger than in August. Changes in technology,such as mechanical harvesting equipment and new methods whichpermit all-weather construction, may have reduced some seasonal fluctuationsin employment. Some industries diversify their product lines oruse fluctuations in inventories to reduce the costs associated with seasonalvariations in demand.Seasonal fluctuations can also arise on the labor supply side. The unemploymentof young people has a strong seasonal component, related mainlyto the search for jobs during school vacations. The school calendar was originallydesigned to fit seasonal demands for young workers in agriculture,but such employment has declined in relative importance.If the seasonal pattern is regular from year to year, and if data are availablefor several years, "seasonal factors" can be computed. Indeed, many ofthe basic monthly unemployment statistics are "seasonally adjusted" by theBureau of Labor Statistics to show the month-to-month changein unemployment due to factors other than the change in the season.Adjusting the basic data with the standard statistical technique, however,does not remove the impact of seasonality from the average level of unemployment;rather, it spreads the effects of seasonality uniformly throughoutthe year. Thus, groups with relatively high seasonal unemployment will, onan annual basis, have a relatively high unemployment rate, other thingsbeing the same. For example, the higher annual unemployment rates of bluecollarworkers compared to white-collar workers, of Alaska compared to theother States, of teenage males compared to adult males, are in part attributableto greater seasonality of employment.CYCLICAL UNEMPLOYMENTDuring a downturn in economic activity the rate of plant closings acceleratesand the rate of openings or expansions of firms declines. The rise inunemployment accompanying such a general decline in business activityis referred to as cyclical unemployment and is associated with the underutilizationof economic resources, both human and physical. The rise in theunemployment rate from 4.7 percent in the fourth quarter of 1973 to 6.6percent in the fourth quarter of 1974 is, of course, the most recent exampleof a cyclical increase in unemployment.91

The unemployment resulting from a general business recession differs fromunemployment attributable to other causes. As the rate rises during the cycle,there is an increase in the incidence of unemployment, that is, in the proportionof those who are unemployed during some part of the year (Table 24).This increase accounts for only part of the increase in unemployment, however.For example, the unemployment rate in 1971 was 69 percentgreater than in 1969; but the incidence of unemployment was only 30 percentgreater. The total number of weeks of unemployment experienced duringthe year by the average unemployed person also increases during arecession, and this is an additional factor increasing the unemployment rate.Available data on the unemployment of persons with work experience duringthe year indicate that for adult males, in the period 1964 to 1973, 28percent of the annual variation in the unemployment rate can be explainedby the duration of unemployment over the year, 24 percent by the incidenceof unemployment, and 48 percent by their joint effects. During a recessionthe greater average duration of unemployment over the year seems to belargely due to more weeks of unemployment per spell, rather than to morefrequent spells per unemployed person.TABLE 24.—Dimensions of unemployment and weekly hours worked: comparison of selectedyears of high and low unemployment, 1957—74Item1957 1958 1960 1961 1969 1971 1973 1974PercentUnemployment rate:*All civilian workersLong duration unemployment 24.3.86.82.15.51.46.72.23.55.91.44.9.95.61.0Percent unemployed at any time duringyear 84 . . . .Percent of those with unemploymentwith two or more spells* 814.741.117.941.117.236.618.437.012.532.316.332.514.232.5Unemployed by reason: 6Total unemployedJob losers .Job leaversReentrants and new entrants ,.100.035.915.448.7100.046.311.841.9100.038.715.745.7100.043.414.941.6WeeksAverage duration of unemployment:Currently unemployedCompleted spell of unemployment 7 ..Sum of spells of unemploymentduring the year **10.55.713.113.97.415.612.86.014.115.67.214.57.94.69.811.36.614.210.012.09.7Average hours worked per week41.040.640.540.539.939.339.339.01 Percent of civilian labor force.* Unemployed for 15 weeks or longer.3 Percent of those in the civilian labor force at anytime during the year.< Data from the Work Experience Survey and relate to persons 14 years of age and over for 1957-61 and 16 years andover for other years.6 Data relate only to persons with work experience during the year.« Data are not available for 1957-61.* Estimate.Note.—Data are from the Current Population Survey and relate to persons 16 years of age and over (except as noted).Detail may not add to totals because of rounding.Source: Department of Labor, Bureau of Labor Statistics.92

As unemployment rises during the cycle, layoffs account for a larger proportionof unemployment, while voluntary separation and entry and reentryinto the labor force decline in relative importance. Most workers who quittheir jobs presumably do not return to them. However, a substantial proportionof those on a layoff do return to their former jobs, rather than take newjobs, and this proportion is greater for layoffs attributable to a recession.Not all workers are equally likely to experience the effects of cyclical unemployment(Table 25). Cyclical fluctuations generally have a small amplitudein the service sectors and a wide amplitude in manufacturing, particularlyof durable goods. Within industries, cyclical fluctuations in employmenttend to be greater for blue-collar or production workers than forwhite-collar or supervisory workers. The differences, however, vary fromone cycle to another.TABLE 25.—Unemployment rates by selected demographic and industrial groups: comparison ofselected years of high and low unemployment, 1957-74[Percent!Group1957195819601961196919711973IVi1974All civilian workers4.36.85.56.73.55.94.76.6RACEWhiteNegro and other races3 87.96.112.64.910.26 012.43.16.45.49.94 38.65.911.7AGE-SEXMen 20 years and over.. .Women 20 years and overBoth sexes 16-19 years . . ...3.64.111.66.26.115.94.75.114.75.76.316.82.13.712.24.45.716.93.14.714.44.76.517.5OCCUPATIONWhite-collar workers .Professional and technicalManagers and administrators, exceptfarmSales workers..Clerical workers1.91.21.02.62.83.12.01.74.14.42.71.71.43.83.83.32.01.84.94.62.11.3.92.93.03.52.91.64.34.82.92.21.33.64.03.72.52.25.25.0Blue-collar workers .Craft and kindred workersOperatives.Nonfarm laborers6.03.86.39.410.26.811.015.17.85.38.012.69.26.39.614.73.92.24.46.77.44.78.310.85.43.55.78.48.35.49,611.6Service workers4.76.95.87.24.26.35.66.9Farm workers.1.93.22.72.81.92.62.42.6INDUSTRYNonagricultural private wage and salaryworkers .ConstructionManufacturing:Durable goods .._Nondurable goodsService industries 2Government workers4.910 94.95.34.21.97.915.310.67.75.72.56.213.56.46.15.12.47.515.78.56.86.22.53.56.03.03.73.51.96.210.47.06.55.62.94.88.83.94.84.32.66.913.47.37.95.23.21 Seasonally adjusted.3 Quarterly data are for service and finance industries.Note.—Data relate to persons 16 years of age and over except for 1957 occupation data, which relate to persons 14 yearsof age and over.Source: Department of Labor, Bureau of Labor Statistics.93563-280 O - 75 - 7

To a large extent the demographic characteristics of the unemployed varyover the business cycle because of differences in industry and occupation.Blue-collar workers in goods-producing industries are more likely thanwhite-collar and service industry workers to be adult males and unionmembers and less likely to be college graduates. Groups with these characteristicswill therefore generally experience greater fluctuations in unemploymentover the business cycle.Even within an industry-occupation sector, the incidence of unemploymentis uneven. Some workers undergo a sharp decline in their weeks orhours of employment during the year, while many others experience little orno decrease. This unequal sharing of unemployment results in greater inequalityin the distribution of personal income during a recession.INFLATION AND UNEMPLOYMENTIt has been suggested that there is a negative relation between theunemployment rate and the rate of increase in wages and prices, and thatsuch a relation exists in the long run as well as over the business cycle.During a period of cyclical expansion, an increase in aggregate demandleads to a greater demand for labor, which is expressed by increases inwages (or in the rate of increase in wages) or by the hiring of less skilledworkers at the same wage. This increase in demand for labor will resultultimately in a reduction in unemployment. Thus, in a cyclical expansionone observes a negative relation between wage-rate increases and unemployment.On the downside of a business cycle, firms with a decreaseddemand for labor lay off workers and lower the rate of increase in moneywages. The unemployment rate will increase, accompanied by a decline inthe rate of wage increase.In the long run, however, there would not appear to be a mechanismlinking the rate of unemployment to any one rate of stable wage or priceincrease. One would expect the unemployment rate to be determined bythe magnitude of frictional, structural, and other basic forces which areindependent of the particular level of a stable rate of inflation. The rateof unemployment that the economy tends to generate when the rateof inflation has no tendency to accelerate is sometimes referred to as the"natural" rate of unemployment. This is a misnomer, however, since the"natural" rate may vary over long periods in response to changes in theunderlying factors which determine its level.During the 1960's many economists believed that there was a long-run,negative relation between the unemployment rate and the rate of increasein wages or prices, initially described by the "Phillips curve" and later byfunctions involving additional variables and equations. Empirically, simplecharts relating the U.S. rate of increase in prices or wages to the unemploymentrate did show a downward-sloping relation for the 1960's, althoughby the 1970's there was clear evidence that the relation was not stable acrossdecades (Chart 7, top panel).94

Chart 7Unemployment Rate and PricesPERCENT CHANGE INPERSONAL CONSUMPTIONEXPENDITURES DEFLATOR121 111 I117411-10 h-8-'5J-6-'69'48'7. 3'7071-42'53.'52'6*8'67•'66'56•'57•'6572'50 '6j)'59\/L #63'61'58'49-2121 1 11 1 1 1 1 12.5 3.0 3.5 4.0 4.5 5.0 5.5 6.0 6.5 7.0UNEMPLOYMENT RATE (PERCENT)i i 11 1 1 1 1 17410--8'51_6-'48-420'69'68'5253'67'66'567 . 3 70•'65'57'55•7172•) '60•64 ' 5 . ( '59. J63V'54'49'61'58--21 I 11 1 1 1 1 12.5 3.0 3.5 4.0 4.5 5.0 5.5 6.0 6.5 7.0FIXED (1956) WEIGHT UNEMPLOYMENT RATE (PERCENT)NOTE: WAGE AND PRICE CONTROLS WERE IN EFFECT JANUARY 1951-FEBRUARY 1953AND AUGUST 1971-APRIL 1974. DURING THESE PERIODS, HOWEVER, THE CONTROLSVARIED IN COMPREHENSIVENESS.SOURCES: DEPARTMENT OF COMMERCE, DEPARTMENT OF LABOR, AND COUNCIL OF ECONOMIC ADVISERS.95

One explanation for the instability across decades is that a long-runPhillips curve exists but that the curve has been shifting outwards. Somehave suggested that this shift is in response to an increase in labor forceturnover resulting from the increasing proportion of women and teenagersin the labor force. Even if the tightness of the labor market for each age-sexgroup were unchanged—that is, if age-sex specific unemployment rates wereunchanged—an increase in the proportion of the labor force comprised ofadult women and teenagers would increase the measured overall unemploymentrate. Hence the same rate of inflation would be associated with ahigher level of unemployment.The lower panel in Chart 7 presents data relating the rate of change in aprice index to the unemployment rate, adjusted for changes in the age-sexcomposition of the labor force by the use of 1956 labor force weights. Theadjusted unemployment rate has been falling relative to the measured rate.For example, the 1974 unemployment rate of 5.6 percent is reduced to4.8 percent if the age-sex weights of the 1956 labor force are used. Theadjustment reduces but does not eliminate the impression of outward movementof the points during the 1970's; and the pattern of points suggeststhat the irregularity persists. Despite considerable empirical work allowingfor the role of further variables and of lags, it has proved difficult to defendthe claim of a long-run Phillips tradeoff between inflation and unemployment.It should also be noted that a series of shifting, negatively sloped short-runcurves relating inflation and unemployment is theoretically consistent withthe concept of a "natural" rate of unemployment which is independent ofthe rate of inflation in the long run. As the short-run curves shift, theobserved points on the curves trace out a long-run curve, which becomes morenearly vertical as more time is given to the process. Thus, no stimulus towardlowering unemployment can be derived from a higher inflation rate oncethe public has adjusted to it. The long-run vertical line originates at apoint on the unemployment axis corresponding to the level of the "natural"unemployment rate, a rate which, as noted earlier, depends on the level offrictional and structural unemployment and on other fundamental characteristicsof the economy. The changing composition of the labor forcewould then be one reason to expect an increase in frictional unemployment,and hence a rightward shift of the vertical line in question, that is, a rise inthe "natural" rate of unemployment.Other factors may also have induced a higher natural rate of unemploymentover time. The increase in wealth and the accompanyinggrowth of consumer credit have made it easier to maintain consumptionduring periods of unemployment and may have thereby promoted morejob search. Similarly, changes in the welfare program, particularly theavailability of food stamps and the program in Aid to Families with DependentChildren (AFDC) for unemployed fathers, available in 23States and the District of Columbia, now provide additional support for96

unemployed persons from families with few assets and little income fromother sources.Finally, the decline in the proportion of the employed who are selfemployedor unpaid family workers, from 21.5 percent in 1948 to 9.6 percentin 1974, would also tend to increase the measured unemployment rate,since both groups typically report very low unemployment, presumably becausetheir earnings are residual and not contractual. For example, in 1974the unemployment rate for these two groups was 0.9 percent, and the ratefor wage and salary workers, 5.3 percent.Other factors, however, would have tended to decrease the unemploymentrate over time. For example, rising wage rates increase the opportunitycost of absence from a job, although this effect may have been neutralizedby proportionate increases in unemployment compensation benefits. In addition,the occupational-industrial composition of employment has shiftedtoward white-collar jobs in the service and government sectors, and theseordinarily have lower rates of unemployment.In summary, although there does generally appear to be an inverse relationbetween unemployment and inflation in the short run, the stability ofsuch a long-run relation has been challenged. Much evidence suggests thatin the long run the rate of unemployment is consistent with any fully anticipatedrate of inflation. Continued research on this topic should eventuallyprovide a more definitive answer.DURATION OF UNEMPLOYMENTFor the average worker a spell of unemployment lasts only a few r weeks.From 1948 through 1969 the average completed spell was estimated at5.5 weeks, though it tended to be longer during a recession. It was 3.7weeks in 1953 (unemployment rate, 2.9 percent) and 7.4 weeks in 1958(unemployment rate, 6.8 percent).One should note that the duration of unemployment commonly calculatedfrom the GPS refers to a different measure, the number of weeks ofunemployment experienced by those who are currently unemployed. Calculatedthis way, the average duration of unemployment tends to be considerablylonger than the average completed spell of unemploymentduring the year. The difference arises because the probability of leavingunemployment the following week is related to the number of weeksthe individual has been unemployed: the longer one has already been unemployed,the greater the probability of remaining unemployed. The proportionwith long-term unemployment will, therefore, be greater among thecurrently unemployed than among those who are completing spells of unemployment.In 1969 about 4.7 percent of the currently unemployed in anaverage month had been unemployed for 27 weeks or more, while only 1.8percent of all those who experienced a spell of unemployment at any timeduring the year were unemployed for 27 weeks or more.97

The duration of unemployment can be viewed still a third way. Somepersons experience several spells of unemployment in a year, which togetheradd up to a considerable length of time. Indeed those who havecompleted a spell of unemployment are more likely to become unemployedagain than are those who have not been unemployed. In 1973, 13 percentof those working at some time during the year had one or more spells of unemployment,but 32 percent of those with at least one spell had two or morespells, and 52 percent of those with at least two spells had three or morespells. Counting all spells, 11 percent of the experienced workers who hadsome unemployment reported that they were unemployed for a total of 27weeks or more in 1973. On the average, workers who had been unemployedat some time reported 12.0 weeks of unemployment during the year. Forthis group, which excludes persons who were seeking jobs at some time inthe year but did not work, the average length of a completed spell was 8.5weeks and the average number of spells was about 1.7.Estimates of the duration of unemployment from the work experience surveymay be biased upwards because the survey is conducted in March butrelates to the previous year and hence must rely on the respondent's memory.Retrospective reporting may be particularly faulty about brief episodes ofunemployment and among those who did not receive unemployment insurance.The number of spells may thus be underestimated and their averagelength overestimated, particularly for women and teenagers. This wouldexplain why the duration of a completed spell obtained from the workexperience survey exceeds estimates of the duration of a completed spellbased on the data in the monthly CPS.The duration of a spell of unemployment seems to vary among demographicgroups. Among the currently unemployed, the duration of unemploymentis somewhat lower for women than for men, and it increasesmarkedly with age for both sexes. In 1973 the group aged 55 and over madeup 9 percent of all the unemployed, but 19 percent of those who were unemployed27 weeks or more.Older workers usually have longer tenure on the job and greater jobsecurity, and thus a low incidence of unemployment. Once they lose a job,however, it is much more difficult for them to find a comparable one. Olderworkers are likely to have had much training that was useful to theirprevious employer but would not necessarily be of value to any other; andbecause their general training was received at an earlier time their generalskills may have become obsolete. Firms are reluctant to invest in an olderworker whose remaining work life is shorter and whose retirement withpension is more imminent. Finally, geographic mobility is much more costlyat older ages. The closing of a firm or a decline in an industry or an area maythus result in severe problems for older workers.INTERNATIONAL COMPARISONSGenerally the United States and Canada have higher measured rates ofunemployment than most other developed countries with market economies98

(Table 26). The sources of unemployment, its duration, and the hardshipassociated with it differ greatly from country to country, and an understandingof these factors is needed to interpret the differences.The definition of unemployment also varies among countries, and this cancause differences in the measured unemployment rate. In some countriesmeasured unemployment represents the number of persons registered withgovernment unemployment exchanges; such a procedure usually produceslower rates than the one used in the United States. The U.S. Departmentof Labor has adjusted the unemployment rates of major developed countriesto conform more closely to U.S. concepts. However, although the greatestcare is taken in making these difficult adjustments, it is probably impossibleto achieve full comparability. The adjustments must depend on labor forcesurveys which differ in the wording and sequence of questions, and the trueeffect of these differences cannot be determined. Moreover, the vast institutionaldifferences among countries would raise serious questions about thecomparability of data even if the questionnaires were identical.TABLE 26.—Unemployment rates in the United States and seven other developed countries,selected periods, 1969-74[Percent; seasonally adjusted)Adjusted to U.S. concepts»As published'Country1974197419691973III19691973IIINovemberNovemberUnited States3.54.95.56.63.54.95.56.6CanadaFranceWest Germany..Great Britain 3ItalyJapanSweden.4.73.1.83 03.71.11.95.63.51.03 03 81.32.55.44 12.63 23.21.42.15.55.63.13 1«3. 51.74.71.7.92.43 41.11.95.62.11.22.63.51.32.55.42.53.12.73.01.42.15.53.43.72.7*3.21.71 With the exception of Canada, labor force and unemployment data are adjusted where possible to be made morecomparable to U.S. definitions and concepts. Age limits roughly approximate the age at which compulsory schooling ends.For the United States and Canada published and adjusted data are identical.2 For Great Britain and West Germany, registered unemployed as a percent of employed wage and salary workers plus theunemployed. For others, unemployment as a percent of the civilian or total labor force. With the exception of France, w hichdoes not publish an unemployment rate, these are the rates most usually published in the country.3 Data as published exclude school leavers and adult students. Including such persons, the unemployment rate was2.7 in 1973.* October 1974.Note.—The quarterly and monthly adjusted data are estimates based on annual adjustment factors and should beviewed as approximate indicators of unemployment under U.S. concepts.Source: Department of Labor, Bureau of Labor Statistics.The Labor Department adjustments (Table 26) bring the unemploymentrates of some countries closer to the U.S. level, although for West Germanythe differential widens. Significant differentials still remain. Although internationaldata on duration of unemployment are less comparable, the UnitedStates appears to have more short-term frictional unemployment, but arelatively low rate of long duration unemployment compared to several99

other countries (Table 27). It is not known to what extent differences.inthe proportion of those unemployed for long periods can be attributed todifferences in the duration of unemployment benefits or in other provisionsof unemployment compensation systems.TABLE 27,—Long-term unemployment in the United States and six other developedcountries•, selected periods, 1970—74Country and periodUnemployment rate 1PercentRelative toaverage1968-1973Percent of unemployedwho have been seekingwork for: l3 monthsor more 36 monthsor more 4Long-term unemploymentrate (percent) i- 23 monthsor more6 monthsor moreUnited States:1970 .19731974: III4.94 95.51.041 041.1716.218 919.05.77 87.60.891.00.34.4Canada:197019735.95.61.051.0033.135.415.615.62.02.0.9.9France:1970: March2.2.8556.340.61.2.9West Germany:1970: April1972: April.5.9.631.0669.963.450.541.4.2.6.2.4Great Britain:197119731974: July3.32 62.71.18.93.9347.028.241 633.71.2.91.1.9Italy:1970 . .3.11.0973.042.82.41.4Sweden:1970 . . . .19731.52.5.681.1421.836.79.818.7.3.9.1.51 Data for Canada, France, West Germany, Italy and Sweden are based on labor force surveys and are fairly comparable toU.S. data. However, they have not been adjusted to U.S. concepts. Data for Great Britain are from the series on registeredunemployed and are not comparable to the United States.2 Percent of civilian or total labor force, except in Great Britain where it is a percent of registered unemployed plusemployed wage and salary workers.3 Fifteen weeks or more in the United States, 4 months or more in Canada, and 13 weeks or more in Great Britain andSweden.4 Twenty-six weeks or more in the United States, 7 months or more in Canada, 26 weeks or more in Great Britain, and27 weeks or more in Sweden.Sources: Department of Labor (Bureau of Labor Statistics) and Council of Economic Advisers.One reason for the greater frictional unemployment in the United Statesand Canada, compared to many countries in Western Europe, may be therapid rate of growth in the labor force and in employment, primarilybecause of their more rapidly growing populations. From 1962 to 1972, thecivilian labor force increased at annual rates of 2.1 percent in the UnitedStates and 3.0 percent in Canada; but the civilian labor force (adjusted toU.S. concepts) increased only 1.3 percent in Japan, 1.0 percent in France,and 0.7 percent in Sweden; and it declined by 0.1 percent in West Germanyand by 0.7 percent in Italy. A more rapidly growing labor force may implya larger proportion of recent entrants who have a high incidence of unemployment,though often of short duration. In addition, employers may beless reluctant to lay off workers when there is a steady flow of new workersinto the market.100

The relatively high level of frictional unemployment in the United Statesis also reflected in comparatively high rates of job turnover. For example,turnover rates in manufacturing, measured as the number of separations(quits and layoffs) per 100 employees per year, were 55 and 65 respectivelyin the United States and Canada in the 1960's—from 70 percent to morethan 100 percent higher than in countries such as West Germany, GreatBritain, or Italy, even in years of very low unemployment. Institutional andcultural factors may account for these differences in turnover. In manyWestern European and Asian countries worker-employer relationships discouragelayoffs and quits. A distinctive characteristic of Japanese labor marketsis the system of "lifetime employment," in which many workers arefelt to be committed to employment by a single firm throughout their careers.The firms with such arrangements are usually large, and intrafirm jobmobility replaces interfirm mobility. Available data indicate very low rates ofjob change in Japan^ even for young workers. Among young graduates ofmanpower training programs in 1968, only 28 percent changed employersduring the next 3 years. Among U.S. youths aged 15 to 20 who had left schooland entered the labor force, however, about 53 percent of whites and 66percent of blacks changed employers between 1966 and 1967, according tothe National Longitudinal Survey. It is difficult to evaluate the efficiencyof intercountry differences in job mobility, but the variation in behavior isstriking.Another factor in the differing measured unemployment among somecountries is the extent of self-employment. Self-employed persons and unpaidworkers in family enterprises, mainly farms, are seldom reported asunemployed. In the United States, about 10 percent of the employedare self-employed or unpaid family workers. Although in Sweden theproportion is similar to that in the United States, it is considerably higherin several other countries: 32 percent in Japan, 29 percent in Italy, 21 percentin France, and 16 percent in West Germany. Thus, relative to the UnitedStates, unemployment appears lower in these countries than it would be ifonly wage and salary workers were considered.Finally, government actions can influence the extent to which measuredunemployment varies over the business cycle. In Sweden, for example, extensiveexpenditures on training and public employment programs duringrecessions reduce the cyclical increase in measured unemployment. During1973, a year of cyclical downturn in Sweden, an annual monthly average of79,000 persons were in training or public employment programs and hencewere counted as employed or out of the labor force. Since this group islarge compared to the monthly number of persons reported unemployed,about 98,000, it is clear that without the programs, or if persons in theprograms were counted as unemployed, the measured rate would have beensubstantially higher than the reported rate.In West Germany, some adjustment to the business cycle has been madethrough the migration of foreign workers who now comprise about 10 per-101

cent of the civilian labor foro . 1 hiring slack times the foreign workers, whoare more prone to layoff, usually returned to their home countries. In 1974,however, this pattern seems to have changed, perhaps partly because ofrecent restrictions on new migrant labor: and fewer unemployed foreignworkers left the country. Thus, in October 1974 foreign workers made up13 percent of the registered unemployed, compared to 6 percent in March1973. In January 1975 renewed government efforts were made in WestGermany to encourage the emigration of unemployed migrant workers.THE DISTRIBUTION OF UNEMPLOYMENTThe U.S. data for 1974 show a wide disparity in unemployment amongdemographic groups. The unemployment rate is higher for teenagers than foradults, for women than for men, for blacks than for whites, and for unskilledworkers than for the skilled. These differentials have endured in U.S. labormarkets for a long time. Even in 1969, a year of extremely tight labor markets,when the unemployment rate for adult men was 2.1 percent, the unemploymentrate was 3.7 percent for adult women, 6.4 percent for blacks,and 12.2 percent for teenagers. The development of efficient public policyrequires an understanding of the nature and causes of these unemploymentdifferentials.DIFFERENTIALS DUE TO LABOR FORCE TURNOVERLabor force turnover seems to explain much of the unemployment ofwomen and teenagers. Some teenagers and more women have a continuousattachment to the labor force; others are just beginning such an attachment;and still others enter and leave the labor force, sometimes more than onceduring the year. For example, although more than half the women and teenagerswere in the labor force at some time in 1973, only 31 percent and 22percent respectively were in the labor force for 50-52 weeks. Of all malesaged 25 to 54, however, 87 percent were in the labor force for the entire year.As noted above, high rates of labor force turnover generally have theeffect of increasing measured unemployment, while job-to-job mobility doesnot always have such an effect. In our unemployment statistics, personswith a job are not classified as unemployed, even though they may besearching for another. During the recession year of 1961 less than halfthe persons who changed jobs for any reason, including job loss,experienced unemployment as it is defined here. In a year of normal unemploymentthe proportion is likely to be still lower. Entry and reentry intothe labor force, on the other hand, is subject to a more direct translation intomeasured unemployment, since search by those working as students or in thehome is counted as unemployment. Not surprisingly, a large amount ofunemployment among teenagers and women is accounted for by labor forceentrants and reentrants (Table 28).In 1974, 44 percent of the unemployed adult women and 68 percent ofthe unemployed teenagers had been out of the labor force before becoming102

TABLE 28.—Distribution of unemployed by reason for unemployment, by ageand sex, 1973-74(Percent)Men 20 years and overWomen 20 years and overBoth sexes 16 to 19 yearsReason197319741973197419731974Total unemployed100.0100.0100.0100.0100.0100.0Job separationsJob losersJob leavers75.059.115.979.465.414.153.234.618.656.538.618.029.017.211.831.919.712.2Previously out of labor force..ReentrantsNew entrants25.021.63.420.518.22.446.841.55.343.537.95.671.129.541.568.130.637.4Unemployment rate J3.23.84.85.514.516.01 Unemployment as percent of civilian labor force.Note.—Detail may not add to totals because of rounding.Source: Department of Labor, Bureau of Labor Statistics.unemployed, compared to only 21 percent of unemployed adult men. Wecan exclude both new entrants and reentrants from the unemployed andfrom the civilian labor force to compute an unemployment rate referringonly to persons who are unemployed because they lost or quit their jobs. Theresulting unemployment rate for adult women declines almost to that foradult males, and the differential between adults and teenagers is substantiallynarrowed (Table 29).TABLE 29.—Civilian unemployment rates by age and sex, under alternative definitions, 1969-74[ Percent!Unemployment rateMen 20 years and over:196919701971197219731974Sex, age, and yearAllunemployed l2.13.54.44.03.23.8Job losers andjob leavers 21.62.73.43.02.43.0Job losers 31.22.32.92.51.92.5Unemployedplusdiscouragedworkers 4 2.43.84.74.33.54.1Women 20 years and over:1969197019711972197319743.74.85.75.44.85.51.92.73.33.12.63.21.32.02.52.21.72.24.96.07.26.96.06.6Both sexes 16 to 19 years:196919701971197?1973197412.215.316.916.214.516.03.65.05.35.34.75.72.03.23.63.52.83.613.416.618.417.615.817.21 Percent of civilian labor force.2 Percent of civilian labor force excluding new entrants and reentrants.3 Percent of civilian labor force excluding new entrants, reentrants, and job leavers.4 Percent of civilian labor force plus discouraged workers. Discouraged workers are defined here as those not in thelabor force because they believe they cannot find a job.Sources: Department of Labor (Bureau of Labor Statistics) and Council of Economic Advisers.103

Labor force turnover has another side, exits from the labor force; andsome suggest that many of those who leave the labor force are discouragedworkers who cannot find jobs. The flows of women and teenagers outof the labor force are large; quantitatively they can be expressed as thepercentage of those in the labor force who withdrew. Withdrawals represented33 percent of the teenage labor force in 1973; 24 percent of the laborforce for women aged 20 to 24 and 13 percent for women aged 25 to 59;and 1.8 percent for men aged 25 to 59. Only a small proportion cited economicfactors as the reason for leaving the labor force, however; and amongthis group still fewer cited "slack work" as opposed to what would seemto be a planned short-term job—"seasonal or temporary job" (Table 30)."Discouraged workers" are often defined more broadly to include allpersons outside the labor force who would like a job but think it is uselessto seek one. Some of the people so classified in 1973, about 14 percent, havenever worked. Most, about 77 percent, intend to seek work within a year,and about 40 percent had looked for a job at some time but could not findTABLE 30.—Reason for separation from last job for persons not in the labor force but who workedduring the previous 12 months, by age and sex, 1973Reason tor separationTotal16 to 1920 to 24Age in years25 to 5960 and overMENNumber (thousands)3,7141,427776660849Percent distribution by reason:TotalSchool, home responsibilities111 health, disabilityRetirement, old age _Economic reasonsEnd of seasonal or temporary jobSlack workAll other reasons100 041.612.014.416.211.84.315.9100 061.81.60) .,n15.13.917.6100.064.02.30) 13.99.94.019.7100.021.234.09.515.08.56.520.3100.02.821.155.414.310.73.56.5WOMENNumber (thousands) .6,3291,3601,3482,994626Percent distribution by reason:TotalSchool, home responsibilitiesIII health, disabilityRetirement, old ageEconomic reasons .End of seasonal or temporary jobSlack workAll other reasons100.051.47.94.418.914.44.417.4100.063.91.8(i)16.513.82.717.9100.068.83.0(i)12.89.73.115.4100.046.110.91.322.817.25.718.9100.012.318.038.418.513.54.912.91 Not applicable.Note.—Detail may not add to totals because of rounding.Source: Department of Labor, Bureau of Labor Statistics.one. One can calculate an unemployment rate in which those who are outof the labor force because they believe they cannot find a job are added tothe unemployed and to the labor force. This change increases the unemploymentrate for adult men by 0.3 percentage point and for adult women104

y 1.1 to 1.5 percentage points, and hence increases the male-femaleunemployment differential (Table 29).When discouraged workers are included in the unemployment data, theincrement in the unemployment rate fluctuates somewhat with the businesscycle for adult women (by 0.3 percentage point from 1969 to 1971), butnot for adult males. It is thus not the business cycle but rather demographicor structural economic factors, such as age, skill, and region, that accountfor most of the "discouraged worker" phenomenon.THE MALE-FEMALE DIFFERENTIAL FOR EXPERIENCED WORKERSWhen entrants are excluded from the data, as in Table 29, the sex differentialin unemployment becomes very small. When the comparison isconfined only to those among the unemployed who lost their jobs, theunemployment rate for women is about that of men during times of lowunemployment; but it is lower than the rate for men during times of higherunemployment.In principle, women would be more vulnerable to layoffs than men,because on average they do not have as many years of work experienceas men of the same age. They are therefore likely to have accumulated fewerseniority rights and to have received less training or other investment inskill specific to the firm. In addition—and it is difficult to separate thisfactor from the preceding one—employers may discriminate against marriedwomen when reducing the firm's payroll. On the other hand, a smallerproportion of employed women are in occupations and industries with sharpcyclical fluctuations. Women are more likely to be employed in white-collarjobs—62 percent of women and 40 percent of men were in such jobs in1974—and in service industries like government where unemployment fluctuatesless over the business cycle. The industrial-occupational mix factorseems to dominate, since during recessions the unemployment differential bysex narrows for experienced workers. In addition, the slower rate of entry ofwomen into the labor force during a recession narrows the sex differential inthe overall unemployment rate (including labor force entrants).Another factor that tends to increase the unemployment rate of marriedwomen is the migration of families, who generally move where the husband'sjob opportunities are better. Although in some cases this migration mayalso improve the wife's job opportunities, it more often results initially inher unemployment in a new labor market. Thus in 1970, married womenaged 25 to 34 who had moved to a different county within the year had anunemployment rate of 11 percent, compared to 5 percent for nonmigrants;among married men of the same age the rates for migrants and nonmigrantswere 4.8 percent and 2.1 percent respectively. This effect diminishes, however,in the course of time.Women differ from men in the way they search for jobs. Among marriedwomen, this difference may well be a function of their dual responsibilitiesin the labor market and at home. In 1973, a sample of workers who had taken105

their current jobs within the year responded to a survey about job searchmethods. Men spent more time in search: 40 percent of the men and 29percent of the women usually spent 6 or more hours per week looking forwork. Men searched over a wider area: 67 percent of the men and 45 percentof the women reported that they had traveled 11 or more miles from homein search of a job. Men also used more methods of search than women.STUDENT AND NONSTUDENT TEENAGERSThe unemployment of teenagers who have ended their schooling is quitedifferent from that of students seeking part-time or summer jobs oftenunrelated to their eventual careers.The proportion of teenagers aged 16 to 19 who are enrolled in school inOctober has increased from 58 percent in 1956 to 66 percent in 1973. Theproportion of students who participate in the labor force during the schoolyear has also been increasing—from 32 percent in October 1956 to 41 percentin October 1973. As a result, 52 percent of the teenage labor force wereenrolled in school in 1973 compared to only 39 percent in 1956.Every June brings a large increase, usually a 30—40 percent increase, inthe teenage labor force, which currently averages 8.1 million youths duringthe school months. The economy manages to absorb most of this influx. In1969, as many as four out of five teenage students were reported in the laborforce at some time during the summer; all but 11 percent eventually foundjobs. About one-third of the unsuccessful jobseekers searched only 2 weeksor less, and 68 percent searched 4 weeks or less. During the summer the teenageunemployment rate rises sharply, thereby increasing the average annualrate of teenage unemployment.In the second half of the 1960's the unemployment rate among teenagestudents increased in relation to the rate for nonstudents and respondedlittle to the expansion in the economy. Because of students' increased participationin the labor force, however, employment ratios of students (employedstudents as a percentage of the population) also increased in comparisonwith those of nonstudents. Thus unemployment rates should beevaluated in conjunction with employment ratios or labor force participationrates for teenagers or any other group whose participation rate is substantiallybelow 100 percent.Since the middle 1950's the labor force participation rate of nonstudentsaged 16 to 19 has been around 70 percent. Many of these young people areinterested in full-time jobs and remain in the labor force all year. Since theyare learning about the labor market, more of their unemployment arisesfrom changing jobs than from the movement into the labor force that characterizesstudent unemployment.Although youths out of school have above average layoff and quit rates,the resulting job changes may have beneficial consequences. New or relativelynew members of the labor force search extensively for desirable conditionsof employment, experimenting among different occupations and106

employers. Moreover, since young workers do not have a work history,employers have less information about teenagers than they have about olderworkers, and this makes the hiring process more difficult. Informationfrom a survey of out-of-school male youths between 1966 and 1968suggests that job changing may be a good investment. Those who changedemployers generally obtained larger pay gains over the period than thosewho did not; and among black youths the pay increases during the periodrose consistently with the number of changes.The unemployment rate of all teenagers has risen sharply relative to therate of adult men since the late 1950's. This rise is due partly to the increasein school enrollment and to the changing participation pattern of students,both of which result in higher turnover. Part of this relative rise in teenageunemployment may stem from the extension of minimum wage coverageand from the growth of social legislation that raises the cost to the firm ofteenage compared to adult labor.The minimum wage may also have a more insidious long-run effect onthe careers of youths, particularly teenagers out of school. Traditionally,on-the-job training has done much to improve skills. Such job training maybe unprofitable for employers if they must pay higher minimum wagerates. The youths who suffer most would be precisely those who mightneed the most help—youths with little schooling and greater learning difficultiesand those subject to discrimination.VETERANS AND NONVETERANSThe higher unemployment rate of male veterans of the Vietnam era comparedto nonveterans has been a matter of public concern. When the rateis disaggregated by age, however, it is clear that only veterans aged 20 to 24have significantly higher rates of unemployment than nonveterans(Table 31). The relative and absolute difference in unemployment declineswith age and disappears for those aged 30 to 34. The relative unemploymentrate of veterans aged 20 to 34 has fallen since 1971, largely because of adecline in discharges and the consequent increasing average age of veteranscompared to nonveterans.Since young veterans include most of those recently discharged from theArmed Forces, they are likely to be new entrants or reentrants to the civilianlabor force. As discussed above, entry is generally associated with higherunemployment. Veterans may also be less informed about the currentcivilian labor market than other entrants whose activities have been largelycentered in the home and school. After being away for a number of years,veterans may find that previously acquired information about the labormarket has become obsolete, and new information is difficult to acquirebecause of weakened ties with friends and home. This drawback disappearsas the veterans acquire information relevant to job search in the civiliansector.Under the federally financed program of Unemployment Compensationfor Ex-Servicemen (UCX), newly discharged veterans with at least 90107

TABLE 31.—Unemployment rates for male Vietnam era veterans and nonveterans20 to 34 years, by age, 1970-74[PercentAge and veteran status1970197119721973197420 to 34 years:VeteransNonveterans.Ratio 26.75.31.268.36.31.326.75.71.184.94.91.005.36.0.8820 to 24 years:VeteransNonveteransRatio 2_9.58.11.1712.39.51.2910.68.71.228.86.81.2910.98.21.3325 to 29 years:VeteransNonveteransRatio 24.53.91.155.84.71.234.94.21.173.74.3.864.34.9.8830 to 34 years:Veterans . . .NonveteransRatio 23.23.11.033.53.7.953.03.01.002.62.41.082.73.4.791 Except as noted.2 Ratio of rate for veterans to that for nonveterans.Note.—Vietnam era veterans are those who served after August 4, 1964. In 1973, of the Vietnam era veterans of allages, 91 percent were 20 to 34 years of age.Source: Department of Labor, Bureau of Labor Statistics.days of continuous active service and a discharge other than dishonorableare eligible for unemployment compensation in any State where they wishto file a claim, under the conditions and benefits prevailing in that State.In fiscal 1974 there were 527,000 military separations and 342,000 initialclaims for UCX, a claim rate of 65 percent. The average weekly benefitwas $66, and benefits were received for an average of 13.6 weeks in a benefityear, about the same as for all insured unemployed.The UCX program may encourage unemployed veterans to spend moretime searching for a job; and among veterans who become students itmay encourage a period of unemployment rather than withdrawal fromthe labor force. Most young nonveterans, on the other hand, have toolittle work experience to qualify for substantial unemployment insurancebenefits, if any. Again, as the cohort ages, the veterans exhaust their eligibilityfor UCX, nonveterans acquire more job experience, and the gap in eligibilityfor unemployment benefits narrows. These developments also narrow theunemployment differential.UNEMPLOYMENT DIFFERENTIALS BY EDUCATIONA pronounced inverse relation exists between education and unemployment(Table 32). The differential varies among demographic groups andover time. For example, the differential narrowed perceptibly in the lastdecade for males aged 35 to 54.There is a presumption that firms would be most reluctant to lose, througha layoff or a quit, those workers in whom they had made the largest investments.Among such investments are hiring costs (such as the cost of evaluatingprospective employees), and the cost of training that is specific to the108

TABLE 32.—Unemployment rates by education, sex, and age, 1962 and 1972[Percent]AgeSex and years of school completed20 years and over20 to 34 years35 to 54 years196219721962197219621972Men: Total5.74.97.16.84.83.48 years9 to 11 years12 years16 years or more7.37.34.31.55.86.44.82.211.411.25.71.910.011.06.92.97.35.73.0.96.24.03.01.7Women: Total5.65.48.07.24.94.78 years9 to 11 years _.12 years16 years or more ...6.28.35.21.55.57.55.13.013.613.07.21.98.714.46.64.06.47.04.01.65.65.44.32.4Note.—Data relate to March of each year.Source: Department of Labor, Bureau of Labor Statistics.particular firm (that is, training useful almost exclusively in the firm whereit is acquired). Workers with more education tend to be less homogeneous,and the less homogeneous the class of workers, the greater the resources devotedby the firm to acquiring information about the characteristics of particularindividuals. More educated workers also appear to receive moretraining on the job, because their prior education facilitates further trainingand because they are more likely to have characteristics such as ability,steadfastness, and good health which firms find desirable in their trainees.Thus one expects a lower incidence of turnover (layoffs plus quits) amongmore educated workers. Related to these points is the different occupationaland industrial distribution of those with more schooling: a greater concentrationin white-collar jobs and in the service sector. As indicated above,these occupational and industrial characteristics are associated with a reducedamplitude of cyclical fluctuations in unemployment.Workers with more education are more likely to change jobs withoutundergoing unemployment. It may be easier for them to search for anew job while employed because their more cerebral and portable workpermits more flexible work schedules, or because prospective employers canevaluate their qualifications initially without their presence. Moreover, unemploymentis more expensive for those with higher levels of schooling; as aresult of their higher wages, unemployment benefits replace a lower proportionof their lost wages.Data on job mobility which are available for 1961 by occupation butnot by education support these hypotheses. Job turnover was generally muchlower in the highly skilled occupations associated with more education.Thus, only 4.7 percent of male nonfarm managers and 8.5 percent of maleprofessionals changed jobs in 1961. The rate of job change increased consid-563-280 O - 75 - *109

erably for those with less skill, reaching 16.4 percent for laborers. When thenumber of changes made by those who changed jobs is also considered, thedifferentials in total turnover become even more pronounced; the jobchangers with lower skills were more likely to have made more than onechange (40 percent for laborers), while a smaller proportion of the highlyskilled had changed jobs more than once (22 percent for professionals). Theproportion of males who changed jobs without any unemployment was 55percent for professionals, 37 percent for operatives, and 32 percent forlaborers.It has been suggested that the increase in education over the past threedecades may have reduced overall unemployment. The reasons why unemploymentdiffers among education groups, however, need not apply to unemploymentover time. For example, the amount of training specific to thefirm would not necessarily respond proportionately to increases in the educationof the population, although at a given moment training and educationmay be strongly linked. In addition, increases in education over time resultin increases in schooling levels within occupations, as well as an increasein the proportion of the labor force in more skilled occupations. If unemploymentis more strongly associated with occupation than with education, secularincreases in the level of education would result in less than proportionatedeclines in the unemployment rate. For a rising level of education tohave no effect on the overall unemployment rate would require an increasein unemployment rates within at least some education groups. It is notpossible to test this hypothesis adequately since unemployment rates by education,controlling for demographic characteristics, are not availablefor the years before 1962, and hence there are not enough data points toseparate cyclical from longer-term effects.UNEMPLOYMENT DIFFERENCES BY RAGEThe rate of unemployment among blacks has been about double that ofwhites in the post-World War II period. From 1948 through 1973 the unemploymentrate averaged 8.6 percent for blacks and 4.3 percent for whites.Although the black-white differential in earnings has narrowed over the past20 years, no such narrowing is as evident in the unemployment differential.The race difference in unemployment may be attributed to differences indemographic and socioeconomic characteristics, as well as to current discriminationin the labor market. Some demographic and socioeconomic differences,however, may themselves be consequences of past discrimination.Among whites, unemployment rates vary across groups with different characteristics;for example, rates are higher for teenagers than for adults, forhigh school dropouts than for college graduates, for laborers than for professionals;and they are higher in the West than in the South. Becausethese characteristics differ by race, unemployment rates for blacks and whiteswith the same characteristics could be the same although their overall ratesdiffered. The younger average age and lower levels of schooling and occu-110

pation of blacks would imply higher black unemployment rates. The greaterresidential concentration of blacks in the South would, on the other hand,imply lower black unemployment rates.The extent to which racial differences in unemployment can be attributedto various measurable factors has been computed for March 1970 from datacollected in the 1970 Census of Population. As reported in the census, theunemployment rate for persons aged 16 and over was 6.3 percent for blackmen and 3.6 percent for white men; 7.7 percent for black women and4.8 percent for white women (Table 33). The computations were performedseparately for the more restricted group of men and women aged25 to 64 who were experienced workers, that is, who had worked at sometime during 1969. For this group the civilian unemployment rate for menwas 3.5 percent for blacks and 2.5 percent for whites. By excluding youngpersons, those aged 65 and older, and those who had been out of the laborforce the preceding year, the unemployment rate is reduced, and more sofor blacks. The rate differential is thereby reduced, especially for men. Itis primarily the exclusion of young workers which accounts for this effect.TABLE 33.—Unemployment rates by race, Spanish heritage, and sex, March 7970[Percent]ItemComparison ofblacks and whiteshComparison of persons of| [Spanish heritage and whitesI not of Spanish heritageMenWomen Men WomenPersons 16 years of age and over:White or white not of Spanish heritage.Black or Spanish heritage3.66.34.87.73.55.84.78.1Persons 25 to 64 years of age who worked in 1969:White or white not of Spanish heritage.Black or Spanish heritagePredicted black or Spanish heritage rate if blacks orpersons of Spanish heritage had the white or white not !of Spanish heritage distribution of: 1 |2.53.53.15.22.43.73.05.4AgePlus: RegionPlus: SchoolingPlus: Marital statusPlus: Occupation3.43.83.33.02.64.74.94.24.13.93.73.1 I2.52.62.54.63.92.52.52.1i Using micro-data from the 1/1,000 sample of the 1970 Census of Population, the dichotomous variable unemployedemployedin the survey week in March 1970 was regressed for each group on the control variables. The mean values ofthe control variables for whites or whites not of Spanish heritage of the same sex were inserted into the regression for blacksor persons of Spanish heritage to obtain the predicted value for blacks or persons of Spanish heritage.Note.—The unemployment status refers to the week prior to Census Day, April 1. 1970. For those who returned theforms late, the data may refer to April. The data, therefore, are not strictly comparable to unemployment rates obtainedfrom the Current Population Survey and reported by the Bureau of Labor Statistics. Data relate to persons living inthe 50 States and the District of Columbia.Sources: Department of Commerce (Bureau of the Census) and Council of Economic Advisers.The remaining race differential in unemployment rates of 1.0 percentagepoint for March 1970 among males aged 25 to 64 who worked in 1969would be increased to 1.3 percentage points if adult blacks had the samedistribution of age and region of residence as whites (Table 33). This111

arises primarily because blacks are more concentrated in the South, whereunemployment is lower. When control for the race difference in schoolingis added, the differential is reduced to 0.8 percentage point; and 20 percentof the original differential is explained. A substantial reduction in the differentialis obtained, however, only when marital status and occupation (10broad categories), are introduced. With these five variables, one can accountfor 90 percent of the differential in unemployment. Under the same stepwiseprocedure as for men, 62 percent of the larger race differential for womenis accounted for by the five control variables. Among women, however, age,region, and schooling have a larger effect on the differential than amongmen.These results cannot easily be used to determine the extent to which theracial differences in unemployment are due to current discrimination in thelabor market. Race differences in some of the control variables, such asmarital status and occupation, may themselves be partly attributed to theeffects of current discrimination. For example, unemployment and lowincome due to discrimination in employment could lead to higher rates ofmarital separation; employers may bar some persons from particular occupationson the grounds of race. However, other relevant variables which werenot measured—such as the quality of schooling and the extent of trainingon the job—could also have important effects and help to explain racedifferences in unemployment.Differences between blacks and whites in their basic education and otherskills may also have arisen indirectly through discrimination. Labor marketdiscrimination can lower or make more uncertain the monetary return fromschooling and consequently lower the incentive for additional schooling.Perhaps more important, past discrimination, unrelated to the current labormarket, clearly lowered the quantity and quality of schooling for blacks.Several decades ago when the older workers in today's labor market were ofschool age, the quality of schooling for blacks was vastly inferior by almostany measure. There has been considerable progress in this area, so that todayavailable measures of schooling resources, such as expenditures per pupil,have been brought to approximate equality.Even if discrimination in the labor market were widespread, it couldresult in lower wages instead of higher unemployment for blacks relative towhites with the same skill and other relevant characteristics. If there were noequal opportunity legislation or other restrictions on wages, and if employersdiscriminated against blacks, blacks might work for less pay than similarlyqualified whites; this would provide an incentive for employers to hire them,although the incentive might not always be sufficient. If white employeeswere to refuse to have a black supervisor, employers might hire blacks forjobs below their skill level or maintain segregated work forces. If, becauseof racial tension, it were too costly to employ black and white workers ofsimilar skill levels in an integrated work force, segregated work forces may112

also develop. In each case, discrimination could take the form of reducedcompensation, inferior jobs, or segregation, rather than higher unemployment.Discrimination is more likely to lead to unemployment differentials whenemployers are prevented from paying different wages for equal work, becauseof legal, union, or social pressure. Discrimination may then to a greaterextent take the form of restricted job openings for blacks, because it is sometimesmore difficult to prove discrimination in hiring or promotion than inovert pay differences. Such a development could increase the difficulty offinding and maintaining employment, and hence increase the unemploymentrate for blacks. Moreover, the prospect of equal pay may encourageblacks to quit jobs with low pay and search longer for more promisingpositions.Empirical studies have estimated the extent to which differences in Statelaws requiring "equal pay for equal work" (prior to the national Civil RightsAct of 1964) affect race differences in income and unemployment, whenother economic variables are held constant. The results indicate that Stateequal pay law r s reduced the gap between the wage rates of equally skilledblacks and whites but increased the difference in unemployment. The wageeffect was greater than the unemployment effect, however, and annualearnings differentials between blacks and whites consequently narrowed.The ambiguity of the relation between discrimination and unemploymentis further illustrated by a comparison of the unemployment differentialbetween the urban South and the urban non-South during the decennialcensus years 1940 through 1970 (Table 34). The unemployment differentialbetween white and black men tends to be larger in the non-South, partic-TABLE 34.—Unemployment rates for males in the urban South and urban non-South, by raceand age, selected years, 1940—70Age group and yearNorth and West(percent)South(percent)Differencebetween blackand white rates(percentage points)Ratio of blackto white rateBlackWhiteBlackWhiteNorthandWestSouthNorthandWestSouthMales 14 to 24 years:19401950 . .1960197034.722.918.516.722.610.79.08.623.114.013.412.414.78.07.76.712.112.29.58.18.46.05.75.71.542.142.061.941.571.751.741.85Males 25 years andover:194019501960197016.510.69.85.59.44.73.92.911.67.07.03.56.43.43.31.97.15.95.92.65.23.63.71.61.762.262.511.901.812.062.121.84Note.—In 1940 black includes Negro and other nonwhite races; in 1950, 1960, and 1970 Negro only.In 1970 white includes some races other than Negro and American Indian usually classified as nonwhite. These otherraces made up 0.6 percent of the combined group "white and other" in the South and 1.8 percent in the North and West.Source: Department of Commerce, Bureau of the Census.113

ularly in 1950 and 1960. Since the black-white difference in education hasbeen larger in the South than in the non-South, unemployment rate differentialsadjusted for education would show an even more exaggerated tendencyfor the South to display a smaller race differential in unemployment. On theother hand, broadly considered, economic opportunities have generally beengreater for blacks outside the South both absolutely and relative to whites;this is reflected in the much smaller differences in earnings in the non-Southbetween blacks and whites of the same education.By 1950 eight States had passed enforceable fair employment laws, andby 1960 eight more had such legislation. All were outside the South. Perhapsfor this reason the unemployment differential by race became much morepronounced in the non-South than in the South in 1950 and 1960. By 1970,however, the national Civil Rights Act (1964) prohibited discrimination inall States, and the regional difference in the unemployment differentialbecame much smaller.Factors other than equal opportunity legislation may also have influencedthe regional pattern of unemployment by race. A large proportion of blackworkers in the North and West migrated from the South as young adults.As relative newcomers, they had less access to information about job opportunitiesthan whites, who were more likely to have an established networkof information among friends and relatives. Among blacks new to an area,information about where to expect discrimination would be gained primarilyby experimentation. In the South, although many blacks migratedto urban areas, the available opportunities were probably much betterknown to the black community.The persistence of a differential in unemployment between blacks andwhites, after adjustment for skill and other factors, is therefore not easilyexplained. In part, the direct influence of discrimination may be greater onunemployment but less on wage rates now than in previous periods becauseof nationwide equal employment legislation. Moreover, ending all formsof current labor- market discrimination would not necessarily affect unemploymentin the short run. It could increase unemployment for a time asblacks found it worthwhile to search more widely for new and unfamiliar,but potentially highly rewarding, opportunities. On the other hand, groupsthat have been discriminated against for a long time may not immediatelybelieve that a change has taken place, and therefore only gradually respondto the new opportunities. One would not, of course, expect substantial newinvestments or changes in occupation by older blacks in response to a decreasein current labor market discrimination, because they have alreadymade investments specific to their job or occupation, and the length oftheir future work life is shorter.UNEMPLOYMENT OF PERSONS OF SPANISH ORIGINAnother group which has been subject to discrimination in the UnitedStates is made up of persons of Spanish descent who comprise about 5 per-114

cent of the population and of whom about 95 percent are white. In 1974the unemployment rate for men classified as of Spanish origin was 7.3 percent,compared to 4.8 percent for all white men. For women, the comparisonwas 9.4 percent and 6.7 percent respectively.Persons of Spanish origin differ from whites as a whole in characteristicsthat are likely to influence their unemployment rates. For example, amongmen aged 25 and over in 1974, the median years of school completed bymen of Spanish origin was 9.7 years, compared to 12.4 years for all whitemen. Difficulties in communicating in English may affect employment opportunities,although this factor interacts with level of schooling. About16 percent of persons classified as of Spanish heritage in the 1970 Censusof Population were foreign-born, compared to 5 percent for all whites. Personsof Spanish origin are also more likely to be young and to live in thewestern regions of the country, two categories associated with higher unemployment.For example, about 30 percent of all persons of Spanish origin inthe United States live in California, compared to about 10 percent forall whites in the United States; and the unemployment rate for Californiatends to be higher than the national average—44 percent higher in theperiod 1969 through 1973.To determine the extent to which particular demographic and economiccharacteristics account for the difference in unemployment between thoseof Spanish heritage and whites not of Spanish heritage, an analysis similarto that for the black-white comparison was made on the basis of data fromthe 1970 Census of Population (Table 33). Although in the census (March1970), men of Spanish heritage aged 16 and over had substantially higherunemployment rates than other white men, the differential of 2.3 percentagepoints is nearly halved when the data are restricted to men aged 25 to 64who worked in 1969. The decline in the differential is largely due to theexclusion of youths aged 16 to 24, who make up a greater proportion ofthe Spanish heritage labor force than of the white labor force. Of the 1.3percentage point differential in unemployment rates for adult men w r howorked in 1969, 0.6 percentage point, or nearly half, is attributable to region,that is, to the greater relative concentration of men of Spanish heritage inthe West, where unemployment is high. Nearly all (92 percent) of thedifferential in unemployment rates of adult men is explained by the threevariables: age, region, and schooling.In March 1970 women of Spanish heritage aged 25 to 64 who workedin 1969 had higher unemployment rates than white women not of Spanishheritage, although 63 percent of the differential is due to differences inage and region (Table 33). After adjusting for differences in schooling,as well as in age and region, one finds that women of Spanish heritageactually have lower unemployment rates than other white women withthe same characteristics—2.5 percent compared to 3.0 percent.The analysis of unemployment differences between persons of Spanishheritage and other whites suggests that the significantly higher unemploy-115

ment rate of the former is due to differences in age, region, and schooling.The extent to which these differences in characteristics are attributableto historical discrimination in the United States is not known, but it wouldseem that differences in unemployment rates are not a consequence of currentlabor market discrimination. This analysis does not, however, shedlight on the magnitude of discrimination against persons of Spanish originin other phases of their economic and social life.UNEMPLOYMENT AND INCOME MAINTENANCE PROGRAMSAssistance to the unemployed has been widely accepted on grounds ofequity and economic efficiency as an appropriate Government function sincethe Great Depression of the 1930's. Greater equity can be achieved byincreasing the income of the unemployed through transfers which spread thecost of unemployment among the public. In addition, the transfers may stimulatethe employment of otherwise idle resources by increasing the aggregatedemand for goods and services. Two major Government programs of thelast four decades to provide income support for the unemployed are theunemployment insurance system and public service employment.UNEMPLOYMENT, INCOME, AND POVERTYA cyclical downturn in business activity is associated with lower employmentand a shorter average workweek for the employed. The effect of adownturn is to change the level and distribution of aggregate earnings.Because approximately 95 percent of the labor force is employed, however,even a sharp rise in the unemployment rate means a relatively small declinein employment and therefore in earnings. For example, from 1969 to 1971the unemployment rate increased from 3.5 to 5.9 percent, with little changein the rate of labor force participation; employment as a percentage of thelabor force decreased from 96.5 percent to 94.1 percent, or by 2.5 percent.The average length of the workweek decreased by 0.6 hour (1.5 percent)to 39.3 hours. Thus, aggregate hours worked per member of the labor forcedecreased by approximately 4 percent. In the most recent cyclical downturn,from the fourth quarter of 1973 to the fourth quarter of 1974, the aggregatehours worked per member of the labor force fell by approximately 3 percent.This decrease in the hours of employment during a cyclical downturn isnot shared equally throughout the labor force. Rather, for most workerslittle or no decline occurs in their hours of work, while for others the decreaseis large. The result is more inequality in the distribution of income fromemployment. Empirical studies of income inequality among families andadult males in the post-World War II period demonstrate that inequalityincreases in recessions and decreases during cyclical expansions, but therehas been no secular trend.Because many unemployed individuals are eligible for income transfers,the decline in income for those who become unemployed is smaller than116

might be suggested by the decline in hours of work or in labor market earnings.In 1974 experienced workers who became unemployed because of layoffs(and in some cases because they quit their jobs) generally received unemploymentinsurance benefits for up to 26 or 39 weeks; and if income weresufficiently low, they qualified for income maintenance programs. Thosewho remained employed, though their hours of work fell, and those who wereunemployed but ineligible for unemployment benefits could have receivedassistance from other income maintenance programs if their incomes weresufficiently low. Temporary legislation enacted in December 1974 increasesthe proportion of workers covered by unemployment insurance and extendsthe benefits up to a maximum of 52 weeks during this period of highunemployment.Recent studies based on 1971 survey data have estimated the extent towhich transfer programs replace income losses associated with rising overallunemployment. The transfer programs include unemployment insurance,Aid to Families with Dependent Children, food stamps, and social security.Among households headed by a person aged 65 or under and at the povertylevel before receiving the transfers, the programs were estimated to replace31 percent of the lost earnings of male-headed households and 56 percent ofthe lost earnings of female-headed households. The replacement ratios werelower for higher-income families.One study also calculated the average family income loss, after takingaccount of transfer benefits and changes in work participation of otherfamily members, arising from unemployment of the family head. Amonghouseholds experiencing some unemployment and headed by a man aged65 or under, the average annual family income loss (net of transfers) associatedwith a 1 percentage point higher unemployment rate was estimated tobe 5.7 percent for those at the poverty level. At five times the poverty level,the loss was 4.9 percent of the family income. Among households headedby a woman aged 65 or under, the estimated loss was approximately 3 percentfor all income levels. There was, of course, considerable variation in incomeloss within these groups.These estimates of income loss may be biased upward for several reasons.In surveys there is much more underreporting of transfer income than ofearned income. Moreover, the appropriate comparison is with incomeafter deduction of payroll and income taxes and of work-related expenses;and, although transfers are not subject to payroll and income taxation,the estimates were made for pretax earnings. In addition, no estimatewas made of the value of extra home productivity or leisure arising fromthe reduced work time, a value that may not be negligible during briefspells of unemployment. The study is especially likely to underestimate replacementof lost earnings by transfers when the increased unemploymentresults from the business cycle, because the estimates were based on differencesin income and unemployment between households at a moment in time.Cyclical increases in unemployment involve a larger proportion of workerseligible for unemployment compensation, because the unemployment is more117

heavily weighted toward layoffs than quits or labor force entry, and towardthe covered sector of the work force. In addition, the maximum number ofweeks for which benefits are available generally increases in a recession. Forexample, 64 percent of the unemployed received benefits in the high unemploymentyear of 1961, compared to 39 percent in the low unemploymentyear of 1966. On the other hand, additional factors may lead to a downwardbias. The study could not account for the loss of employees' fringe benefitswhen they are unemployed, or for the adverse psychological and other effectsdue to the greater uncertainty among both the employed and the unemployedwhen unemployment rises. However, it would appear that the transfer programsmay replace a substantial proportion of the loss in after-tax earnings,particularly during cyclical increases in unemployment.Even during times of relatively low unemployment, more weeks of unemploymentand lower incomes are associated with each other. Contrary tocommon belief, however, unemployment is no longer a major cause of poverty.Although during the Great Depression the relation between unemploymentand poverty was undoubtedly strong, in the postwar period the relationweakened. Table 35 shows data on the work experience of persons whoheaded poverty households in 1959 and 1972, years with roughly thesame level of unemployment (5.5 percent) although the number and percentageof the population in poverty declined considerably over the period.Although failure to work a full year was strongly associated with povertyin both years, only a minority of the heads of households in poverty citedTABLE 35.—Work experience of family heads below the low-income level, by sex,1959 and 1972Work experience of headTotalMale headFemale head1959 19721959 19721959 1972Total families (thousands)..Total families (percent)Did not work full year.Unemployment a main reason for not working a fullyear..Worked 1-49 weeksDid not work, unable to find a job.Unemployment not a main reason for not workinga full yearWorked 1-49 weeks.Did not work and did not seek a jobKeeping houseIII, disabledRetired, going to school, and other reasons.Worked a full year (50-52 weeks) 21 Not applicable.2 Includes head in Armed Forces.Note.—Persons below the low-income level are those falling below the poverty index adopted by the Federal InteragencyCommittee in 1969.Data for 1959 and 1972 are not exactly comparable because of changes in definition and methodology.Detail may not add to totals because of rounding.8,320100.061.515.614.41.245.916.529.410.99.58.938.55,075100.076.013.211.12.262.719.143.719.014.610.124.06,404100.054.718.417.31.0Sources: Department of Commerce (Bureau of the Census) and Council of Economic Advisers.36.314.821.5&•10.745.32,917100.065.416.814.91.948.516.432.20)17.115.134.61,916100.084.26.44.91.577.922.355.647.55.42.715.82,158100.090.48.45.82.682.022.759.344.711.33.39.6118

inability to find work as the reason for working less than a full year. In 1959,only 15.6 percent of the heads of poverty households worked less than a fullyear because they could not find work, and by 1972 this percentage haddecreased to 13.2 percent.An increasing proportion of poor families are headed by someone whoworks only part of the year—or more often, who does not work at all—because of ill health, old age, or home responsibilities, not from inability tofind a job. Low wage rates, however, remain an important cause of poverty.The decline in the relative importance of unemployment as a reason forpoverty is primarily related to rising real wage rates during periods of employmentand to increased real income supplements for the unemployed. Inaddition, for the same overall unemployment rate, the proportion of maleheads of households experiencing unemployment has been declining.There is some increase, or a slowing rate of decrease, in poverty duringrecessions. The increase in poverty is greater, the deeper the recession. Forthose with fixed incomes, poverty increases as the rate of inflation rises.Data for 1974 are not yet available; but it can be anticipated that becauseof the cyclical rise in unemployment and the high rate of inflation, povertyis likely to have increased over the year and may increase still further in 1975.UNEMPLOYMENT INSURANCE SYSTEMThe nationwide unemployment insurance system, initiated by the SocialSecurity Act of 1935, is a joint program administered by the States withinbroad Federal guidelines. As a result of Federal tax law, private nonfarmwage and salary workers (except domestics and employees of very smallnonprofit organizations) and certain State employees are covered by theunemployment compensation system. In some States, agricultural, domestic,local government, and additional State workers are also covered. SeparateFederal programs exist for unemployed Federal employees and unemployedpersons recently discharged from the Armed Forces. A temporary, whollyfederally financed program for employees not covered by the State or otherFederal programs was enacted in December 1974. (See the discussion ofthe Unemployment Assistance (UA) program below.)A worker must satisfy several "tests" to be eligible for unemployment benefits.These tests refer to cause of unemployment, duration of covered employment,earnings in covered employment, and availability for work. The workerusually cannot receive benefits unless he or she is available for, activelysearches for, and does not reject, suitable employment. Benefits are availablein all States for those unemployed because of a job layoff. A waiting periodof 1 week after the filing of the claim is required before benefits begin inmost States. In some States and under certain circumstances, benefits arealso available to those discharged for misconduct and to those who voluntarilyleft a job with "good cause." In the latter two situations, the conditionsof eligibility, the length of the waiting period before benefits can begin, andthe extent of benefit reduction vary considerably from State to State. Strikersare generally not eligible for unemployment compensation, although in New119

York and Rhode Island they become eligible after a waiting period of severalweeks. There arc many other specific provisions for eligibility, and they toovary from State to State.The duration of regular benefits usually increases with the length of theworker's past employment in jobs covered by the program, up to a maximumof 26 weeks of benefits in most States. Extended benefits have been grantedfor up to an additional 13 weeks in States with high rates of unemployment,for a maximum of 39 weeks. Public Law 91-373 requires that States providethese 13 weeks of additional compensation for those who have exhaustedtheir regular State benefits if two conditions are satisfied. First, the averageState-insured unemployment rate for the 3 most recent calendar months mustequal or exceed 4.0 percent. Second, the average rate for this 3-month periodmust be at least 120 percent of the average of such rates for the same weeks inthe prior 2 years. Under Public Law 93-368, however, States can elect towaive the "120 percent rule" to extend benefits. By the end of December1974, 11 States were providing extended benefits, one under this waiver.New LegislationIn response to the sharp rise in unemployment in the second half of 1974,two new laws that affect the unemployment insurance program were enactedin December 1974. The Emergency Unemployment Compensation Act providesfor an additional 13 weeks of benefits, for a maximum of 52 weeks. Thenew benefits go into effect in a State when the insured unemployment rateaverages 4 percent or more over the preceding 1 3 weeks, either nationallyor in the particular State. Benefits cease when neither condition is satisfied.The program became operative in January 1975. Using general funds, theFederal Government reimburses the States for 100 percent of the benefitspaid under this program, which lasts through 1976.Under Title II of the Emergency Jobs and Unemployment AssistanceAct of 1974 a special unemployment compensation program was establishedto provide benefits lasting up to 26 weeks for some unemployed workerswho are ineligible for the regular State or Federal programs. UnemploymentAssistance benefits are available to workers who would satisfy the Staterequirements when two modifications are made in the regulations. Oneis that all wage and salary employment is treated as covered, a benefitto those who have had part or all of their previous employment in industriesnot covered by the State program (12 million wage and salary workers).The other modification is that the most recent 52 weeks can be used to satisfythe employment requirement, replacing the usual practice in the State programsof using the 52 weeks prior to the most recent 3-month period. Thisprimarily benefits recent entrants to the labor force. When employment recordsare not immediately available, claims for Unemployment Assistancemay be evaluated on the basis of an affidavit filed by the applicant.Unemployment Assistance, which is fully federally financed from generalrevenues, becomes operative in a local area when for 3 consecutive monthsthe national unemployment rate averages 6.0 percent or more, or the local120

area unemployment rate averages 6.5 percent or more. The program ceasesin a State when these conditions are no longer satisfied. The program startedaccepting claims in January 1975; the legislation terminates in December1975.Farm and domestic workers had generally been excluded from regularState unemployment coverage, largely because of the substantial administrativedifficulty in verifying previous employment, previous wages, availabilityfor work, and search for work, and in experience rating of employers.These problems unavoidably remain in the UA program. One studyestimated that the two new unemployment compensation laws would inducean increase in the measured unemployment rate by about 0.7 percentagepoint. However, because of the expected high level of unemployment in1975, the social benefit of extending income support to a broader group ofunemployed workers was considered of greater value than the difficultiescreated by the programs.BenefitsThe average weekly number of persons receiving unemployment benefitswas 2.3 million and the average check was $64 in 1974. Some receivedbenefits for less than a full week because they started a job or had a part-timejob. Benefits are related to earnings and range among the States from onehalfto two-thirds of the worker's recent average weekly wage, up to a Statemaximum. The maximum basic benefit varies from about $60 to $117 perweek. The percentage of unemployed claimants who are at the maximum alsovaries widely from State to State. For example, in 1972 the percentage ofnewly insured claimants eligible for the maximum ranged from 12 to 73percent, while the average for the country was 44 percent. Ten States andthe District of Columbia provide "dependents' allowances" for children, andsome of these States also provide them for a nonworking spouse. These benefitscan amount to a maximum of an additional $46 per week. State unemploymentcompensation benefits are not subject to taxation.Some union contracts have provisions for private supplements to Stateunemployment compensation. For example, United Auto Workers' contractshave established Supplemental Unemployment Benefit Funds (SUB Funds)to which the employer contributes. A worker with at least 3 years' experiencecould receive a stipend from the fund for up to 52 weeks which would makehis total State plus SUB Fund compensation approximately 95 percent ofhis regular take-home earnings, less $7.50. In January 1975 the averageweekly SUB Fund benefit was approximately $100 for a worker receivingState unemployment insurance benefits and $185 for a worker who hadexhausted the State benefits. SUB Fund benefits are subject to incometaxation.Changes in Coverage and BenefitsAlthough coverage under the unemployment insurance program has beenextended periodically since its inception, the percentage of the unemployed121

who receive benefits has declined (Table 36). This seeming paradox isexplained by the changing composition of the unemployed. Over the post-World War II period, there has been a large increase in the proportion ofrecent entrants in the labor force. Recent entrants have high unemploymentbut are less likely to meet the eligibility requirements of the unemploymentinsurance system, and this accounts for the increasing proportion of theunemployed who do not receive benefits. Unemployed youths and womenare more likely to be entrants or reentrants and therefore are less likely toreceive benefits. Moreover, the increase in school attendance among thoseaged 16 to 24 has led to a change in work behavior: students enter andreenter the labor force, often more than once during the year, taking shorttermjobs, and quitting more often than older wmkers. For these reasons, thepercentage of unemployed youths receiving benefits under State programshas declined since 1960. Adult men, in contrast, are more likely to qualifyfor unemployment benefits because they have sufficient work experience andbecause a layoff more frequently precipitates their unemployment. The exten-TABLE 36.—Insured unemployment as percent of total unemployment and unemployment benefitsas percent of average weekly earnings, 1948-73YearTotalinsured lInsured unemployment as percent of total ijnemploymentTotal16 yearsand over16 to 24yearsState insured aMen25 yearsand over16 to 24yearsWomen25 yearsand overAverageweeklyState unemploymentbenefitsas percentof averageweeklyearningsin coveredemployment1948194963 568.043 154.234 136.01950195119521953 _ .1954195519561957.1958195948 848.756 858.258.149.148.154 971. C56 146 047.255 454.052.944.444.250 654.945 034 432.233 032.333 532.133.333 535.333 419601961. .19621963 31964 . _196519661967.. ...1968196953 863.549.848.546.343.139.342.742.141.649 548.645.644.442.439.536.940.539.438.924 025.320.919.516.814.611.913.611.710.763 362.860.359.460.959.961.072.474.076.619 219.217.116.714.812.39.811.89.89.363 958.658.358.656.554.653.353.256.957.335 235.434.934.633.833.834.734.734.334.4197019711972 .197350.646.345.141.444.243.138.237.816.017.615.715.776.974.270.671.712.813.411.211.265.158.652.653.835.736.535.936.01 Includes persons covered under the following unemployment compensation programs: State, Federal employee,Railroad Retirement Board, and veterans. Also includes Federal and State extended benefit programs.2 Includes only persons covered under the State programs and excludes all other programs as well as Federal and Stateextended benefit programs.3 Totals include Puerto Rican sugar cane workers beginning July 1963; but they are excluded from data by sex and ageNote.—State insured unemployment data are not available by age and sex prior to 1960.Source: Department of Labor, Manpower Administration.122

sions of coverage are reflected in the rising proportion of adult men whoreceive benefits. Thus, even though the proportion of adult men receivingbenefits has risen, two factors have caused a reduction in the proportion ofthe total unemployed receiving benefits: an increase in the proportion of theunemployed who are young workers and women; and a decline in the proportionof unemployed youth receiving benefits.During recessions, an increased proportion of the unemployed receivebenefits, especially when the data include recipients of extended benefits. Inpart this reflects the greater proportion of job losers and adult men amongthe unemployed. Due to the new legislation, an unusually high proportionof the unemployed will receive benefits in 1975.As indicated in Table 36, the average weekly unemployment insurancebenefit has ranged from 32 to 37 percent of average gross weekly wages incovered employment. This ratio underestimates the actual replacement ofthe earnings loss of the insured unemployed because they usually earn lessthan the average covered worker, and unemployment benefits are not taxed.It has been estimated that for unemployed insured male family heads infamilies with income below 150 percent of the poverty line, benefits mayreplace about 70 percent of lost income after taxes; for those with higherincome, the replacement ratio may be about 40 percent.Effects of Unemployment InsuranceThe unemployment compensation system may itself influence the frequencyand duration of unemployment, and hence the measured unemploymentrate. The State unemployment insurance system is funded by taxes levied onemployers in proportion to their wage bill. The tax rate varies according tothe employers' experience rating, which is based on the extent to whichtheir workers draw benefits from the system. Because the variation in taxrates is set within narrow margins, however, the experience rating is notclosely matched to benefits. Thus, in firms with high layoff* rates the benefitsto employees over a long period are likely to exceed the employers' contributionto the fund. In effect then, the tax and benefit structure tends tosubsidize seasonal and casual employment relative to stable employment.For example, it makes the planned annual layoff an attractive alternative tothe paid vacation for employers of lower-wage workers. This in turnmay induce an increase in the frequency of measured unemployment andthereby lead to an increase in the unemployment rate.Unemployment benefits may also tend to lengthen the duration of insuredunemployment. The system partially compensates for the time spent searchingfor employment, thereby reducing the cost of longer unemployment.The system clearly makes it easier for a worker to maintain his accustomedpattern of consumption during a longer search period.Studies of interstate differences in unemployment have found that therate is higher where benefits are high relative to wages. The denial rate,based on administrative decisions regarding eligibility, is also important123

in explaining interstate differences in insured unemployment. The denialrate appears to be higher in States devoting more resources to administeringthe program.The longer period of unemployment stimulated by unemployment compensationmay represent a worthwhile investment for society. If a longersearch leads to a job with higher wages and fringe benefits, more pleasantworking conditions, or a longer expected tenure, it benefits both the individualand society. Some unemployed persons, however, may have no intentionof accepting a job—perhaps because they are planning to leave thelabor force or simply because they want a vacation—but go through thenecessary steps to collect benefits.Some have questioned the equity of the unemployment compensation programlargely because its benefits are tax free. The greater the family's otherincome, the larger is the benefit net of taxation that a family receives from amember who gets unemployment compensation rather than wages. A low r -paid worker in a high income tax filing unit could actually receive moreincome net of taxes and work-related expenses by being unemployed than bybeing employed.In spite of the difficulties inherent in the current unemployment compensationprogram, it is nevertheless the most effective w 7 ay of providing financialsupport for those who suffer a loss in income due to unemployment.PUBLIC SERVICE EMPLOYMENTFederal public service employment programs are a means of increasingemployment opportunities, particularly during periods of high unemployment.It is intended that Federal revenues will be used to employ personswho would otherwise be jobless, in government jobs that would not otherwiseexist.The Emergency Employment Act of 1971 (EEA) provided the first largescalepublic employment program broadly applicable to the unemployedpopulation since the Works Progress Administration (WPA) of the 1930's.Special types of public employment programs for particular target groups,however, have been funded on a more limited scale since the 1960's, forexample, the summer employment of youth in the Neighborhood YouthCorps and the subsidized employment of the elderly in Operation Mainstream.In contrast to the WPA, which was administered by separate Federalagencies created for the task, the Public Employment Program (PEP)under EEA was essentially a form of revenue sharing, with the FederalGovernment supplying the funds and State and local governments actuallyadministering the program.PEP was conceived as a countercyclical program to provide "transitional"jobs at a time when the unemployment rate was about 6 percent. PEP participantswere more likely than the average unemployed person to be veterans,male, and well educated (75 percent had graduated from high school).In fiscal 1973, when the program was in full operation, an estimated 150,000124

man-years of employment were funded by the PEP program. The extent towhich these numbers reflect net additions to State and local employment—that is, employment that would not have occurred without the program—can only be estimated. Studies indicate that each PEP job created less thana job, and that this "displacement effect" increased as time passed and as thepossibility of substituting Federal for State and local funds increased. Severalestimates put the displacement effect after 2 years in the range of 50percent.The Comprehensive Employment and Training Act (CETA), whichbecame operative in 1974, provides public employment funds in two formsto States and localities acting as prime sponsors. Under Title I, blocgrants for manpower programs allocated to the sponsor may at the sponsor'sdiscretion be applied to public service employment or to any other activityrelated to manpower. Title II is labeled Public Employment Programs, butthe funds can be used for either public service employment or traditionalmanpower programs, such as on-the-job training. Title II funding is to beprovided only to areas where the unemployment rate has averaged 6.5 percentor higher for 3 consecutive months.Estimated outlays on the various parts of CETA for fiscal 1975 are:Title I, $1.6 billion; Title II, $585 million; Titles III and IV (Indians,migrants, Job Corps), $342 million. An additional $250 million will be spentin fiscal 1975 for public service employment from 1974 CETA authority thatallowed a one-time appropriation for continuing programs under the EEA.Of this estimated total of $2.8 billion, $380 million was spent on summeryouth programs in 1974. It is expected that the number of CETA publicservice jobs will increase from approximately 85,000 in fiscal 1974 to 170,000during 1975 and 1976. Compensation and administrative costs per man-yearareanticipated to be about $9,000.New LegislationThe Emergency Jobs and Unemployment Assistance Act of 1974 supplementsCETA by providing a public service employment program known asthe Temporary Employment Assistance (TEA) program. Under this newlegislation an additional $875 million will be available during fiscal 1975 toState and local government prime sponsors to create as many as 97,000jobs. The funds may be used for projects that extend over a 12-monthperiod and employ persons who have been unemployed for at least 30 days,or at least 15 days in areas of excessively high unemployment. "Preferredconsideration" is to be given to those who have exhausted their unemploymentcompensation. The Administration has also requested that $125 millionbe restored to the TEA program in fiscal 1975. The TEA program togetherwith CETA would then provide up to 280,000 jobs when bothprograms are in full operation.563-280 O - 75 - 9125

Effects of Public Employment ProgramsPublic employment has been suggested as a way of reducing unemploymentduring recessions. Some argue that public employment, whereby peopleare directly hired by the government, is superior to other macroeconomicinstruments with respect to creating more employment per dollar spent. Estimateshave been made of the net employment generated by a given expenditureon public employment, compared to that generated by an equal expenditureon government purchases from the private sector or by an equal reductionin the tax bill. On the basis of the PEP experience, public employmentwas found to create rnore additional jobs in the very short run (1 or 2 quartersafter the program begins) than either of the other two policies. After 5 or 6quarters have passed, however, the superiority of public employment as atool for creating jobs was found to diminish as State and local governmentssubstitute Federal funds for their own funds. Eventually, this displacement ofState and local funds with Federal funds would allow State and local taxesto be reduced (or grow at a slower rate) and in turn stimulate economicactivity, including employment. Then, in effect, the public employmentfunds can be viewed as generalized revenue sharing funds, with Federalsources (taxes, deficits) replacing local funding of local projects.The reduction in unemployment due to public service jobs would dependpartly on the effect of the program on the size of the labor force. If publicservice jobs could be confined only to persons with previous work experienceand with a proved period of unemployment, then the employment-generatingeffects would be directly translated into reduced unemployment.There are other advantages, and these are frequently cited to supportpublic service employment. For some workers the jobs may provide trainingand, by allowing a regular work schedule and environment, slow the depreciationof prior training and work habits. Some useful output is produced;income maintenance is provided without the welfare stigma. Critics of publicemployment have noted, however, that a public service job reduces the timeavailable for seeking more permanent private sector employment, and formany workers it would lengthen the time away from usual employment. Timeaway from usual work may increase the depreciation of skills specific toparticular jobs.Although public employment appears to have a short-run advantage overother policy tools in creating jobs, it also appears more likely than otherpolicies to put pressure on the price level. Indeed, the more successful theprogram is in employing individuals who would normally be seeking jobsor working in the private sector, the tighter the private sector labor marketwill be; and rising wages and prices will result. The inflationary impactwould be smaller if the program were financed by an increase in taxes ratherthan by an increase in the debt. The jobs lost as a result of the tax increase,however, are likely to be more productive than the jobs created by the public126

employment program, both because of the difficulty of matching the skills ofthe unemployed with those required for public service jobs and because theassigned tasks are often ones that would otherwise be given low priority.In summary, a public employment program that is effective as a countercyclicalmeasure would presumably provide jobs that State and local governmentswould not otherwise create, that can be established quickly, and thatcan be readily eliminated as job opportunities in the private sector increase.To ensure that jobs are net additions to employment, it may be necessary tocreate distinct tasks in separate and visible agencies set up for the purpose.To provide productive employment, the jobs have to be suitable for personsof diverse prior training, employment experience, and age; and they mustrequire at most a very short period of training. These sometimes conflictingconditions may increase the difficulty of creating a successful program.127

CHAPTER 4Inflation During The Past DecadeTHE PAST 10 YEARS HAVE BEEN CHARACTERIZED by an averagegrowth rate of aggregate expenditures that is very high by historicalstandards and that has substantially outstripped the sustainable growth ofsupply of real goods and services. Contributing significantly to the growth inaggregate demand were rapidly increasing Government expenditures alongwith monetary policies that were appreciably more expansionary than thosein earlier post-World War II periods. In addition, a sharp rise has occurredin foreign expenditures on American goods in recent years. Supply reductionsalso contributed to imbalances between aggregate supply and demand, particularlyin the past few years: crop failures and reduced oil supplies are themost notable examples. Without neglecting specific features, the U.S. inflationsince the mid-1960's can nevertheless be analyzed in terms of a generalconception of the inflationary process that emphasizes the role of monetaryand fiscal policies, and the decision-making process that leads to these policies.A brief outline of this conception will be useful.Governments can achieve certain short-term objectives by following policiesthat allow the aggregate demand for goods and services to rise fasterthan the supply can rise in view of the available resources. One such objectiveis to keep the rate of resource utilization very high and to postpone thetemporary underutilization that occurs in some phases of the business cycle.Another objective is to embark on spending programs without making theburden explicit to the public by correspondingly higher taxation, and thuswithout raising the question of the distribution of this burden. At high ratesof resource utilization, however, such policies Will provide a stimulus only solong as the public expects less inflation than will actually be developing, andso long as the public therefore acts as if more real income were availablethan will in fact be earned. Concerning the recent inflationary period, opinionsurveys as well as actual trends in real wage rates and real profits suggest asubstantial underestimate of the future inflation rate and a correspondingoverestimate of prospective real incomes by the public. Since people learnfrom their experience, efforts to continue providing such stimulus requiregenerating an inflationary process that will show a strong tendency toaccelerate. At some stage it becomes imperative to put an end to such aprocess.When the inflationary phase has lasted so long that expectations of furtherinflation are firmly embedded in the cost trend, a shift to policies of restraint128

first exerts an adverse influence on output and the desired price decelerationeffect materializes only with a lag. Any convincing interpretation of theevents during 1970 and 1973-74 must stress this difficulty.During 1973 and 1974 this difficulty was magnified by a steep increase inraw material prices and by the price effects of specific capacity shortages ina number of industries. Even when major specific cost increases occur,monetary and fiscal restraint can prevent a lasting acceleration of thegeneral price trend; yet such policies will not be able to prevent a temporarysteepening of the rate of general price increase, especially in an environmentinfluenced by inflationary expectations. The explanation here also is that theadverse effect of policies of restraint on output will precede their desiredeffect on prices. Policies of restraint could keep even permanently tightersupplies, resulting from "natural" or from "institutional" factors, fromtouching off continuing inflation, though when changes of this sort occur nopolicy may be capable of preventing a lasting adverse effect on output.Lags of price response behind output response are among the characteristicsof adjustment periods which may bring substantial discomfort, even ifmethods are now available for greatly reducing the hardships suffered insuch phases of development. During these phases political pressures becomestrong to adopt stimulative policies prematurely on a scale that wouldrule out any appreciable decline of the rate of inflation. Since it is impossibleto live indefinitely with an explosive inflationary process, the resumptionof expansionary policies is in turn apt to evoke strong pressures to adoptcomprehensive wage and price controls. These controls would allegedly enableus to follow the desired expansionary policies under circumstances inwhich prices and w r ages are directly regulated according to acceptable norms.However, if after much unsuccessful experimentation that approach were tobe followed through with the consistency needed to make it effective, itwould lead to an economic and political system the basic characteristics ofwhich are very different from those under which we now live. Rigorouslycontrolled systems cause a loss of basic freedoms, and they have proved seriouslydeficient on grounds of economic efficiency as it reflects itself in theliving standards of the population. Which way history will move in thisregard remains an open question, and it is the most dramatic question posedby the present difficulties.The possibility remains of trying to attain a steadily rising general pricetrend to which the other economic variables adjust. Not to allow such atrend to steepen would require the same effort—the same resistance totemptation—as would have been required for keeping to the near-zeroinflation path of the 1952-65 period. It could be argued that once we arein the two-digit range a greater effort is needed for gradually reducinginflation to negligible size than for achieving a much less ambitious longrunobjective, such as that of a significant but nonaccelerating inflationrate. Yet this would be an unconvincing argument because no policydirected at a steady price trend can be successful unless it is credible to the129

public, and the more policy makers adjust their initial objectives to theupward deviations that have occurred in the past the less credible theybecome in their promise not to accommodate accelerating inflation in thefuture.PERIODS OF PRICE INSTABILITYSince 1929 the United States has experienced several periods of substantialprice instability as measured by such general price measures as thegross national product (GNP) price deflator or the consumer price index(CPI). During the Great Depression of the early 1930's prices fell sharply,declining by more than 20 percent from 1929 to 1933 (Table 37). Priceincreases of a similar magnitude occurred following the outbreak of WorldWar II in Europe, before wartime price controls took effect. Prices rose evenfaster on the average in 1946, 1947, and 1948, after these controls had beenlifted. The outbreak of the Korean war in 1950 also brought a brief butsignificant price spurt. The largest year-to-year price increase since 1947occurred in 1974, when the GNP deflator rose 10.2 percent over its 1973level and the GPI rose 11.0 percent. This happened after inflationary antecedentsthat started developing about 1965.TABLE 37.—Changesin the GNP implicit pricedeflator and the consumer price index, 1930-74Percent change frompreceding yearPercent change frompreceding yearYearGNP implicitpricedeflatorConsumerpriceindexYearGNP implicitpricedeflatorConsumerpriceindex19301931 _1932193319341935 _19361937 __19381939-2.7-9.1—10.1-2.47.31.1.34.1—1.4-1.5-2.5-8.8—10.3-5.13.42.51.03.6—1.9-1.41955195619571958.1959196019611962196319641.43.43.72.51.71.61.31.11.31.6-.41 53 62.781 61.01 11 ?1.3194019411942194319441.57.712.37.22.31.05.010.76.11.7196519661967196819691.82.83.24.04.81 72.9? ff4.25.4194519461947194819492.611.811.96.6-.62.38.514.47.8-1.0197019711972197319745.54.53.45.610.25 94.33 36.211.0195019511952_ . .19531954._ _1.36.82.11.01.51.07.92.2.8.5Sources: Department of Commerce (Bureau of Economic Analysis) and Department of Labor (Bureau of Labor Statistics)The 1965-74 inflation, taken as a whole, also reflects the consequences oftoo rapid an expansion of aggregate demand. However, at least two furtherconsiderations are relevant to the explanation of why inflation continued in130

years like 1970 and 1974 after policy restraint had been applied. One is thatsuch interludes clearly demonstrate the difficulty which policy makers encounterin trying to reduce the rate of inflation after the preceding inflationarytrend and its expected continuation have entered into cost trends.But the experience of 1974 also shows something else that had already beenobserved in 1973. If forces operating from the supply side significantlyraise the prices of specific raw materials and of products of industries withcapacity shortages, then even if policies of restraint are applied to prevent apermanent steepening of the general price trend, the specific price increaseswill show nevertheless for a while in the behavior of the general price level.These difficulties become greater the longer the preceding inflationarydevelopment has lasted and the more the public suspects that the same politicalconsiderations which induced governments to engage in inflationarypractices in the past will lead them in the future to retreat from a policy ofrestraint prematurely.EXCESSIVE GROWTH IN AGGREGATE DEMAND, 1965-74Economic theory suggests that many factors, domestic and foreign, privateand governmental, can affect aggregate demand. The two that receive mostattention, however, are monetary and fiscal policy actions. Fiscal policycan stimulate consumption and investment demand through tax cuts andby increases in government expenditures. Even if the growth rate of themoney supply remained at a level which would be consistent with noninflationarygrowth at given fiscal receipts and expenditures, an increasedfiscal deficit could bring about price inflation. Interest rates would be raisedand the cost of holding currency and demand deposits would be increased.For this reason the public would wish to decrease its average money holdingsin relation to its expenditures, and total expenditures could increase beyondthe noninflationary rate.Yet price inflation caused by deficits with unchanging money supplywould be of limited significance. Rapid and sustained inflation requiresa continual inflationary increase of the supply of money. The main reasonwhy expansionary fiscal operations are among the factors generating sustainedinflation is that when fiscal deficits are large the monetary authorities,in an attempt to offset the interest rate and credit availability effects oflarge increases in government debt, tend rapidly to increase their securityholdings and hence to inject new money into the economy. Thus expansionaryfiscal policies are often accompanied by expansionary monetary policies,with a correspondingly rapid growth of aggregate demand even at highlevels of resource utilization.Of course, rapid increases in aggregate demand are not always inflationary.When aggregate demand increases by the same amount as real aggregatesupply, markets can clear at the current price level. Although many individualprices may move up or down, these changes tend to balance out, leaving thegeneral price level unchanged. Sometimes, however, aggregate demand and131

supply do not mesh, and if they are not brought into balance at given prices,then the price level will move. The maximum feasible growth of the supplyof goods and services over any period is limited by the existing quantity oflabor, capital, and natural resources, and by the rate at which new physicaland human capital and new knowledge can be acquired. The increase indemand depends on demand management policies and is subject to no suchlimits. Over the past 10 years the effect of technological progress and thegrowth in the quality and size of the labor force and of the capital stockhave been such as to raise potential output on the average by 4 percent ayear in constant dollars. Hence whenever at high levels of resource utilizationaggregate demand grows by more than an annual rate of 4 percent, thefaster growth of demand must be reconciled with the slower growth of realsupply through the process of inflation.During the period from 1965 to 1973, for example, real output grew by36 percent, or at a compound annual rate of about 4 percent. Largely as theresult of expansionary policies, however, aggregate demand in money termsgrew by 89 percent, or at a compound annual rate of 8 percent. Hence priceshad to rise by about 4 percent a year on the average to make the 8 percentgrowth in aggregate expenditures consistent with the 4 percent growth inreal output. By 1973 the rate of increase in the price level had become muchlarger than the average during the 8 years, and in 1974 inflation had movedinto the two-digit range, as special factors reinforced a strong underlyingtrend.Any explanation of inflation must therefore come to grips with the questionsof why, about 1965, aggregate demand started to grow so much fasterin nominal terms than real output, and why it has continued to grow at afaster rate subsequently.The observed steep rise of aggregate expenditures could not have takenplace had monetary aggregates not grown very rapidly after 1965. Whilethere are no hard and fast rules to define excessive versus noninflationarygrowth rates in monetary aggregates, recent experience does provide someguidelines. The periods of rapidly rising prices have been periods in whichMi (currency plus demand deposits) and M 2 (Mi plus time deposits exceptlarge certificates of deposit) grew at high average yearly rates.Over a limited period, which until now has lasted about 12 years,aggregate demand as measured by the money GNP has tended to growin the same proportion as M 2 , although short-run deviations from thisrelationship have occasionally been very large. This suggests that a rate ofgrowth in M 2 of about 5 to 6 percent over the 1965-74 period would havebeen consistent with a rate of growth in aggregate demand of about thesame magnitude. Further, if real supply over the 1965-74 period had grownat its long-run annual average of about 4 percent, then the price level wouldhave risen very little. In fact, from 1965 to 1970, M 2 increased at an averageyearly rate of more than 7 percent, and from 1970 to 1974 it increased at arate of about 10 percent. Given our economy's inability to sustain a real132

growth rate of more than about 4 percent, the rapid rates of growth of themoney aggregates since 1965 were not consistent with reasonably stableprices.Other countries have also experienced a recent acceleration in money andin prices, as shown in Table 38. However, the rates of monetary expansionthat are consistent with the mild price increases of the 1960's and with themuch more rapid inflation of the 1970's will vary from country to country.One reason for this is that the money supply is not defined the same wayin the various countries. Another reason is that the countries differ in thetypes and quantities of other liquid assets which the public holds alongwith its stock of money. Also, trends in velocity differ across countries.But what probably matters most is that in rapidly growing economies, suchas those of Japan or Germany, a relatively large proportion of a givenincrease in aggregate demand has been satisfied by increases in real goodsand services. The same rate of growth in money and expenditures in lessrapidly growing countries, such as the United Kingdom or the UnitedStates, would lead to higher rates of inflation. Generally the range ofmoney growth rates that is consistent with stable prices will be differentin each country. The central conclusion remains, however, that whenmoney growth rates proceed at a rate far exceeding that with which outputcould keep pace, the price level too will rise sharply.Considering that our monetary authority, the Federal Reserve System,creates the quantity of reserves which is a basic determinant of how muchmoney can be created in addition to hand-to-hand currency, one is ledto ask why the regulation of the money supply has not prevented theseundesirable price trends.We may begin by recognizing that the rate of monetary expansion isinfluenced by several factors which result in a rather flexible relationTABLE 38.—Growth rates of consumer prices and money stock for the United States and fiveother developed countries, 1965-74[Percent change; annual rate]Consumer pricesMoney stock»Country1965to19701970to197421965 tc> 19703M,1970 to 1974 -M IUnited States4.26.05.27.15.9M 298CanadaFranceGermany.. .ItalyJapan3 84.42.43 05.46 48.06.29 511.08 15.36.415.8M6.210 610.812.713.76 16.519.74 12.19.221.924.416 8M7 114. 422.1 Mi = "Money" and M2 = "Money" plus "Quasi-Money" as they appear for each foreign country in InternationalFinancial Statistics, International Monetary Fund. These data are roughly equivalent in all countries.2 Change from June" 1970 to June 1974.3 Based on average of end-of-month figures; average of first 6 months for 1974 and 12-month average for other years(except for the United States, which are based on averages of daily figures for December 1965 and 1970 and June 1974).* Change from 1970 to 1973.5 Change from 1966 to 1970.Sources: Department of Labor (Bureau of Labor Statistics), Board of Governors of the Federal Reserve System, andInternational Monetary Fund (International Financial Statistics).133~

etween the variables under the control of the Federal Reserve and themoney aggregates themselves. This is so, quite aside from the fact thatapproximately 25 percent of total demand and time deposits are held inbanks that are not members of the Federal Reserve System. For example,the public may decide to hold less currency relative to total deposits, ashas been the case during most of the period with which we are concerned,or it may move in the opposite direction as it has since December 1973.When people exchange currency for deposits at their banks, the banks gainreserves, and the converse is true in the contrary case. Increased reservescan be and usually are used to expand loans and investments and hencedeposits, thus generating increases in M x and M 2 .Another factor is that banks need to hold reserves also for purposes otherthan incurring those types of deposit liability which economists have foundmost useful to include in the concept of money. The public's increasingpreference for interest-bearing assets led to a very rapid increase of thevolume of large-denomination certificates of deposit which are not definedas "money" but are nevertheless subject to reserve requirements. In addition,the deposits held by the Treasury are also subject to reserve requirements,though they are not "money." Moreover a given quantity of reserves supportsmore money in the sense of M 2 if that aggregate consists to an increasingextent of time deposits, as has been the case in recent years, becausereserve requirements are smaller for time deposits than for demand deposits.Finally, given the legally required minimum reserve ratios, banks find itconvenient to hold more reserves per dollar of deposits during some periodsthan in others. For these and other reasons a given amount of total reserveswill correspond to a different amount of total deposits in different periods oftime. The money supply corresponding to any particular amount of reservecreation by the Federal Reserve is not precisely predictable.Nevertheless, the long-run growth in monetary aggregates is determinedlargely by the rate at which the monetary authority injects "high-poweredmoney," defined as the sum of total reserves and currency, into the system.The Federal Reserve can inject high-powered money into the banking systemby acquiring Treasury securities from banks or from other businessesor individuals, or by making advances to banks, or by discounting eligiblesecurities, although other factors too can affect the growth rates in thispolicy-controlled aggregate.High-powered money grew at a 3.9 percent annual rate from 1960 to1965, at 5.0 from 1965 to 1970, and at a 7.7 percent rate from 1970 to 1974.This acceleration reflects itself in those of Mi and M 2 , although M 2 hasgrown faster than Mi.The question therefore remains why the Federal Reserve System did notprevent this sustained period of steepening inflation.A reason mentioned earlier is the relationship between monetary andfiscal policies. Large fiscal deficits express themselves in large fiscal borrowing,and they are apt to squeeze out a good deal of private borrowing134

unless the actions of the monetary authority speed the growth of the moneysupply. Yet if the supply of resources is not sufficiently elastic, such accommodationby the monetary authority will lead subsequently to the inflationarydifficulties discussed in this chapter.In most years since 1965 Federal Government borrowings have beensubstantial. Government expenditures rose steeply after 1965 as a resultof the costs of the Vietnam war and of greatly expanded social welfareprograms. In the 4 fiscal years from 1965 to 1969, defense outlays increasedby $31.6 billion (64 percent) and nondefense outlays by $34.5 billion(50 percent), while money GNP increased $243.4 billion (37 percent). Inthe following 5 fiscal years, from 1969 to 1974, money GNP rose by 50percent and Government outlays by 45 percent, with defense outlays remainingunchanged but nondefense outlays, prominently including transferpayments, rising by about 84 percent. Resources were fully, if not "overfully,"used in the 1965-69 period, during which the large increase inGovernment spending was already associated with a substantial increasein Government debt. The unified budget deficit, which is the deficit conceptthat comes closest to showing the net financing needs of the Treasury,reached $25 billion in fiscal 1968 and $23 billion in fiscal 1971 and 1972;it was also of appreciable size in other years since 1965. Much of the resultingdebt was financed by the Federal Reserve so that monetary policy wasexpansionary enough not to force a reduction of other money expendituresto offset increased Government spending. The results were overrapid expansionin total expenditures and a significant rise in the general price level.Deficits, however, represent only part of the total borrowing operationsinvolving the Federal Government. In recent years, the rapid growthin the borrowings of federally sponsored credit agencies greatly added tothe Government-induced financing pressures on credit markets, even thougha large part of the funds thus raised was lent again to borrowers whosedemand for credit would otherwise have been satisfied by private lenders.Outstanding agency borrowing increased by $3.5 billion in calendar 1968,when total funds raised by nonfinancial sectors amounted to $95.9 billion,but this net borrowing jumped to $19.6 billion in 1973 when the budgetdeficit was $8 billion and total funds raised by nonfinancial sectorsamounted to $187.4 billion. Partly to avoid a tightening of the market toother borrowers, the Federal Reserve System bought Government securitiesand thereby monetized Federal debt in response to Federal financing pressures.Given the inflationary consequences of such a policy, it could bringonly temporary relief because the steepening of inflationary expectationstightened the markets again by increasing the demand for credit relativeto the supply.Another important reason for the high average rates of monetary expansionduring the past 10 years was the effort of policy makers to play safeagainst recessions or at least to postpone them and to promote a very rapidrate of cyclical expansion in the advanced stages of the recovery after the135

ecession of 1970. In an attempt to achieve these objectives, money growthrates were allowed to climb farther and farther above their noninflationaryranges.These growth rates, however, did not increase steadily. On three occasionspolicy actions contributed to substantial slowdowns in money expansion.Each such action attempted to deal with the worsening inflation, first andmost briefly in 1966-67, then in 1969-70, and most recently in 1973-74. Thefirst two periods of tightening were soon followed, however, by reversals inpolicy that led to substantially higher rates of money growth than thosepreceding the slowdowns and hence carried us even further above noninflationarygrowth rates in money aggregates. The pressures on themonetary authority to return to policies of rapid expansion were strong in1966 and in the recession of 1970, and they became increasingly strong againrecently. These are pressures to "validate" the already observable rate ofinflation by a policy that would lead to the expectation that on the nextoccasion an even higher inflation rate will be validated.Yet, showing substantially increased resistance against these pressures,Federal Reserve policy has moderated monetary growth in 1974. FromDecember 1973 to December 1974 the increase in the narrowly definedmoney supply, Mi, was kept to about 4.5 percent, and the increase in thebroadly defined money supply, M 2 , to about 7.3 percent, that is, to 1.6 percentagepoints less than the year before for both, and to 4.2 and 3.8percentage points less than during 1972. Indeed, the steeper price trendof 1974 has turned the 1974 increase in the nominal money supply into adecline in real balances. Even though the prospective money growth ratesof the near future are somewhat higher, this policy reflects determinationto accommodate growth of output only as the inflation rate declines.As for fiscal policy, even the actual budget deficit remained small for thefiscal year 1974, though it was larger for calendar 1974; in view of the riseof the unemployment rate from about 5 percent to over 7 percent duringthe calendar year, the same fiscal policy would have produced a largesurplus at high levels of employment (see Chapter 2).THE UNSTABLE TRADEOFFBy the time the inflation problem became acute in most Western countries,the conviction had spread both within and outside the Government that atradeoff between inflation and unemployment—the so-called Phillips tradeoff—wasof considerable importance. A stable downward-sloping "Phillipscurve" with rates of price or wage inflation plotted against the unemploymentrate was often used to illustrate this thinking. Policy makers weresupposed to have a choice as to how much inflation they would accept forachieving low unemployment rates. As discussed in Chapter 3, the shortcomingsof such simple presentations were soon recognized. For instance,it was pointed out that, in view of changes in the composition of the labor136

force, more refined measures than the official unemployment rate are neededfor measuring the tightness of the labor market. It was suggested also thatallowances need to be made for the role of further variables and of lags. Theanalysis would then show that a given increase in appropriately definedlabor market tightness, if maintained, will gradually lead to a stable, thoughhigher inflation rate to which the other economic variables could adjust.However, the ideas underlying the work of researchers who have suggestedthis conclusion are not easily reconciled with each other.While econometric work on this question has yielded valuable by-products,the results remain far too inconclusive to serve as a basis for policy. Therecomes a point at which there is reason to return to the direct observation ofsimple facts, and what these show is that in the period following 1965 therelation between inflation and unemployment has been distinctly unstable.As can be seen from Chart 8, when similar unemployment rates recur, theytend to be accompanied by appreciably higher inflation rates.When statistical testing of econometric models leads to inconclusive results,there is all the more reason to reexamine the basic logical underpinnings ofthe hypotheses. No convincing case can be made for the hypothesis that ifinflation were fully anticipated, a higher anticipated rate of inflation towhich all variables have adjusted would stimulate a higher level of activityand thus more employment than a lower rate. Inflationary policies candrive the actual rate of price increase temporarily above the expected rateso that greater real income gains are anticipated than will in fact be forthcoming.It is this unrealistic expectation of higher real incomes that resultsin an increased level of activity, thus giving rise to a Phillips tradeoff betweeninflation and unemployment in the short run. But such a tradeoff will beunstable when the expected rate of inflation is rising, so that a stimulativepolicy can be maintained only by allowing the actual rate of inflation toincrease further. If the process were allowed to proceed far enough, priceacceleration might even become associated with rising unemployment. Thiscould happen because by then inflationary expectations would be risingeven more rapidly than actual inflation, or because the uncertainties surroundingthe decision-making processes in markets would reduce economicactivity.Since the tradeoff between unemployment and inflation lacks stability,trying to base policy on it compels one eventually to face the fact that the truechoices or tradeoffs are of a different kind. In the first place, before the resultingprocess of accelerating inflation approaches its limits in a state of socalledhyperinflation, there is always a choice between accepting the difficultiesof adjustments "now" or moving toward even greater future difficulties.Secondly, after an extended inflationary span there is a choice betweenfacing the lag between output and price response or engineering atransition into a "controlled" system, the deficiencies of which are verysevere even if the symptoms are different.137

• >/' / ' // / ' • * ' • '• / ' • // / ' '• ' / ' • '• // • / y: ' / : • /Chart 8Inflation and the Unemployment RatePERCENT10CHANGE INCONSUMER PRICE INDEXJ/SEASONALLY ADJUSTEDUNEMPLOYMENT RATEPERCENT101957 1958 1959 1960 1961 1962SEASONALLY ADJUSTEDUNEMPLOYMENT RATECHANGE INCONSUMER PRICE INDEXJ/\PERCENT1510 -1963 1964 1965 1966 1967 1968/ / ' s s"/ • y ' '•' / i • /o JJ.LJIJJLLLSEASONALLY ADJUSTEDCHANGE IN V\ '/ '

SPECIAL FACTORS AND THE LAGGED PRICE RESPONSEThere are a number of possible explanations for the unusual degree ofthe acceleration of price inflation during 1973, when after the first quarterthe rate of increase of output was declining significantly, and during 1974when output itself was declining. The termination of wage and price controlson April 30, 1974, needs to be mentioned even though opinions differconcerning the significance of decontrol for price acceleration. Controls hadbeen imposed on a wide range of wages and prices in August 1971; theygradually came to operate against the increasing pressure of market forces,and they caused an increasing amount of distortion before being phasedout. Wages and prices bulged to some extent in the month immediatelyafter controls ended. The controls and their removal had an effect on thetiming of price increases.By the spring of 1973 another type of price fixing—the fixing of exchangerates in the currency markets—had been abandoned as most of the majortrading countries had switched from fixed exchange rates to managedfloating. This led to the depreciation of the dollar against most majorcurrencies, continuing with some interruptions until July 1973. As Americangoods and services became more competitive in the world markets, the netexports of the United States increased by almost $10 billion from 1972 to1973. From the first of these years to the second, net exports turned fromsignificantly negative to significantly positive, and remained very highthrough the first quarter of 1974, after which the consequences of theoil price increase started to show. While an increase in net exports tends toraise real GNP when resources are underutilized, it lowers the domesticavailability of goods when resources are already approximately fully utilized,as they were through much of 1973, or if there exist shortages in specificareas of the economy, as was the case through part of 1974. For this reason,an increase in net exports has contributed to inflation.Important special factors in the recent inflation were the unanticipateddecision of the Arab countries to place an embargo on crude oil exports to theUnited States and the decision of the Organization of Petroleum ExportingCountries (OPEC) steeply to increase the price of oil. The precipitousincrease of foreign crude oil prices during the year, similar price movementof "new," "released," and "stripper" domestic crude oil (which by October1974 jointly accounted for 34 percent of U.S. domestic production), and theconcurrent increase in the prices of other energy materials had a substantialcost-raising impact in 1974. Until the spring, crude material pricesother than crude foodstuffs and feeds also continued to rise steeply. Largeprice increases in a number of important intermediate products continuedeven longer as capacity shortages persisted until midyear and inventorydemand remained strong. Such industries as primary metals, chemicals,stone, clay and glass, and paper provide prominent illustrations of thesespecific shortages.139

After increasing sharply in 1973, farm product prices behaved erraticallyduring 1974. On the whole, however, the price-raising effect of shortagesoriginating in specific sectors played a role in 1974 as well as in the precedingyear. This statement must be understood in the context of the lag problemmore generally discussed before. Even if a monetary and fiscal policy doesnot provide for a permanent speeding up of the general price trend, it willnot prevent a temporary rise in general price indexes when raw materialprices rise sharply.The problem of lags has become more troublesome than it had been inearlier periods. The available data suggest that, particularly since 1965,prices and wages have responded less quickly to declining demand in theproduct and labor markets. For instance, Table 39 points in this directionby showing various rates of change, including changes in compensation perman-hour and in the private nonfarm deflator, for 4-quarter periods beforeand after cyclical peaks. Both compensation and the deflator show moreresistance to moderating cyclical forces after the downturn in recent cyclesthan in earlier ones. Admittedly this statement is based on a rigid definitionTABLE 39.—Comparisons of behavior of selected variables before and after cyclical peaks, 1947-74Percent change to or from peakPeriodCyclicaipeak*Private nonfarmeconomy 3Outputper manhourCompensationperman-hourGNP implicitprice deflatorPrivatenonfarmFarmRealGNPCivilianunemploymentrates(percent)Four-quarter change:Before peak...After peakDifference*.1948 IV2.83.1.38.0-7! 65.8-1.2-7.0-16.8-13.83.04.5-1.6-6.13.87.03.2Before peak..After peak...Difference .Before peak..After peak...Difference.1953 111957 III3.51.5-2.02.83.06.03.3-2.75.43.8-1.62.31.8-.53.51.4-2.1-14.4-3.510.92.36.23.96.9-3.4-10.32.4-1.0-3.42.65.83.24.27.33.1Before peak..After peak...Difference.1960 II.72.72.04.33.0-1.31.61.0-.6-1.7-1.3.42.0.6-1.45.27.01.8Before peak..After peak«..Difference.1969 IV-1.12.53.66.77.4.74.85.81.010.4-7.8-18.21.2.4-.83.66.02.4Before peak...After peak 7...Difference 7 .1973 IV«.4-3.6-4.08.09.71.75.913.77.854.8-11.1-65.93.9-5.0-8.94.76.61.91 Quarter designated as cyclical peak by National Bureau of Economic Research (NBER), except as noted.3 All persons.3 Rate for peak quarter and 4 quarters after peak.4 All differences in this table are changes 4 quarters after peak minus changes 4 quarters before peak.«Change from 1969 IV to average of 1970 IV and 1971 I to smooth effect of auto strike.« Peak quarter of real GNP used as NBER has not yet designated this quarter as a cyclical peak.7 Preliminary.Sources: Department of Commerce (Bureau of Economic Analysis), Department of Labor (Bureau of Labor Statistics) ,and National Bureau of Economic Research.140

of the time periods used for comparison and is so aggregative as to precludeconsideration of special developments in various sectors of the economy.Nor does it take into account economic developments subsequent to theyear following a peak or preceding the year leading up to the peak. Still thisand other evidence points to less prompt deceleration of prices and wages inrecent downturns.As mentioned before, some of the increasing downward rigidities of thewage and price trends have resulted from the firming up of inflationaryexpectations. Past developments as well as observable political pressuresmay have made it more difficult even for the most determined policy makersto establish the credibility of their anti-inflationary policies.By late 1974 various components of the wholesale price index started tosignal impending general price deceleration, and so did some other measuresof general price change, such as the fixed-weight GNP deflator. Even thepresent money wage trend is compatible with a reduction of the currentrate of general price increase, though not to a level that could be consideredacceptable. On the other hand, in the weakened commodity andlabor markets of the near future, with the unemployment rate expected torise to above 7.5 percent, price deceleration is very likely in time to resultin wage deceleration with a feedback on prices. Still, after an unusuallyprotracted period of inflation, the lags between the effect of restrictivepolicies on output and the desired effect on prices will prove to be long.INDEXATION AND THE TAX STRUCTUREThe length of these lags has awakened interest in suitable mechanismsthat can take into account the inevitable gradualness of the unwindingprocess, without preventing or even markedly slowing the process of unwindingthe inflation. Opinions differ on whether "indexing" the commitmentsinvolving future payments of fixed dollar amounts meets these requirements.When such commitments are indexed, they are expressed in constant ratherthan in current dollars; that is, the amounts paid at a later date are adjustedfor changes in a general price index.Recently the question of formal indexation in this sense has attractedconsiderable attention. There is wide agreement that truly comprehensiveindexing is not feasible immediately. A major obstacle is that many currentdollarpayment obligations have been incurred in past periods. Furthermore,individuals can hardly be forced to index their future contracts if, insteadof relying on some index number formula, they wish to make other allowancesfor the price movements they expect. But one has good reason tobelieve that during the phase of unwinding an inflation the automaticresponse of indexed wages to price deceleration, and the feedback of thatresponse on prices, would indeed be helpful, since there would be no need toanticipate the future course of inflation to obtain the desired real wage bargain.On the other hand, the view has been expressed that in past phasesof accelerating inflation such automatic responses would have further steep-563-280 O - 75 - 10141

ened the inflation rate and that they also might be damaging in future phasesof inflationary processes.The expectation of rising prices can be reflected in allowances made incurrent-dollar contracts as well as through formal indexation of contracts.At present, however, a spreading of the practice of formal indexation isevident. In spite of the significant shortcomings of all available index numbersthat may be selected for indexing payments, many parties to wageand other contracts rely on indexing instead of merely on current-dollarallowances for presumptive price movements. Various payment obligationsof the Government, such as social security benefits and food stamps,are also indexed. Furthermore, automatic adjustments over the term of acontract are sometimes tied not to a price index but to some economicvariable tending to move in the same direction as price expectations. Forloan contracts the Treasury bill rate or the prime rates of banks have beenused as such variables. These rates are influenced by inflation not becauseof indexation but because inflation expectations are among the factorsdetermining their levels.However, given present regulations, not all interest rates are allowed tomove freely, nor can some interest rates be tied to other rates which wouldreflect market forces. This is illustrated by regulations applying to savingsaccounts. Thrift institutions characteristically lend long, mainly by acquiringmortgages at fixed interest rates, and they borrow short, mainly from smallsavers. The average mortgage in the portfolio of these institutions is severalyears old and was originated at a time when the rate of inflation, and hencemoney rates of interest, were lower. As interest rates rose in the free market,interest rate ceilings were maintained on the deposits of the thrift institutions,and also on the conventional time deposits of commercial banks, in an attemptto prevent a sharp squeeze on the thrift institutions, resulting from higherborrowing than lending rates.One of the highly undesirable consequences of these regulations is that thesmall saver, to whom other outlets are rarely available, earns interest at anartificially reduced rate that is far below the current rate of inflation, and isgrossly unrealistic by the standards of the markets for short-term instrumentsin general. When securities are issued in the money market on conditionsattractive to small savers and at interest that would adjust to future ratesof inflation, the thrift institutions and homebuilders feel threatened. Policymakers are strongly influenced by this resistance. The Administration'sproposals for financial reform would gradually change (essentially diversify)the type of operations in which the thrift institutions are engagedand would gradually eliminate the interest rate ceilings on deposits. Untilinterest rate ceilings are removed, the present regulations remain disadvantageousto small savers.Not even those savers and managers of funds who are able to make use ofthe facilities of major financial markets have been receiving interest at a ratewhich compensates for inflation and yields the kind of real rate of interest142

that obtained in the past. However, for short rates this reflects either anunderestimate of inflation or the low and uncertain real return on investmentcorresponding to the present business outlook, or some combinationof these. For long rates it may also reflect the expectation that inflationwill decrease in the future. The rates at which business borrows from banksare now often made to vary with the prime rate over the term of theloan. While, as was noted, this does not change the loan into one made in"constant dollars"—it is not indexation in the proper sense—the objectiveswhich such arrangements attempt to achieve are similar to those ofindexation.Tax payments to the Government do not adjust for inflation undercurrent tax laws. If during an inflationary period the definition of taxableincome is unchanged in nominal terms, individuals move from tax exemptinto taxable brackets, and from lower into higher tax brackets, merelybecause their money incomes are rising, though their real incomes arerising much less or may even be declining. In addition, capital gains computedin terms of money enter into the tax base, even though such nominalgains can represent very much smaller real gains, or possibly real losses. Suchdistortions call for adjustments, only a few of which have so far been undertaken,and even these are likely to become inadequate before inflation can bereduced to a negligible size.The effect of inflation on the real Federal tax and nontax receipts frompersons, predominantly Federal income taxes, can be shown as follows.From 1973 to 1974 personal income minus transfer payments rose by8 percent, 3 percent less than the rise in the personal consumption expendituresdeflator. Total real adjusted gross income reported on tax returnsprobably declined as well. Nevertheless Federal personal tax and nontaxreceipts rose by 15 percent, suggesting that the elasticity of Federal receiptsfrom persons with respect to inflation is at least 1.6 in the aggregate. Forindividual returns it may in fact be even larger, considering that as morereturns are filed, income reported per return rises less than total adjustedgross income. In any event, inflation raises personal taxes by a muchlarger percentage than nominal incomes, causing the average tax rateto rise and tax payments to increase in real terms.While itemized deductions claimed on tax returns reflect price increases,individual exemptions and the low-income allowance and standard deductionlimits have not been raised in nominal terms since 1972. Thus the taxraisingeffect is strongest for low- and moderate-income taxpayers not itemizingdeductions, as shown by the following example. Assume that consumerprices and a family's adjusted gross income both rise by 30 percent from1972 to 1975, leaving their real income unchanged, and further assumethat this is a family of four filing a joint return for an income that in 1972was $10,000. In 1972 this family would have paid Federal income taxes of$905, while at current tax rates it would pay $1,391 on $13,000 of income in1975. Its average tax rate would rise from 9.1 to 10.7 percent of adjusted143

gross income because 30 percent inflation would cause tax liabilities to jumpby 54 percent in this illustration. Stated differently, while the real before-taxincome of this hypothetical family remains unchanged, its real after-taxincome declines by almost 2 percent in 3 years. Thus, the effect of inflationon individual income taxes under existing tax schedules is to increaseaverage tax rates or to increase the Government's share of personal income.Similar problems have developed in the corporate sector. Here two typesof inflationary tax-raising effects had reached considerable magnitudes by1973. Both arise from standard accounting methods for computing businesscosts and profits. These accounting procedures understate costs, and henceoverstate profits, except if we include in the concept of profits an inflationaryperiod's capital gains, computed in terms of money, which are locked in forgoing enterprises as these need to replace their inventories and fixed capitalat higher prices. Such capital revaluations are included in the concept oftaxable profits, unless they are reflected in higher taxable interest paymentsto creditors.Consider first the method of accounting for the value of inventories inthe cost of goods sold. As was explained in Chapter 2, FIFO, the first in, firstout method, includes in the tax base the kind of locked-in capital gainwhich was described in the preceding paragraph and is reflected in therising valuation of the inventories held by the enterprise. Another accountingprocedure, LIFO, or last in, first out, values an item taken from inventory atthe price of the last unit added to the inventory, thus more accuratelyreflecting the prices at which replacement takes place. -While firms have a choice between using FIFO and LIFO and many areswitching to LIFO, they are required to value their plant and equipmentfor tax purposes on the basis of the historical cost of acquisition rather thanat replacement cost. In inflationary periods this has consequences of the samekind as the FIFO method of valuing inventories, assuming the service-lifeguidelines and depreciation rules currently used are correct. If straight-linedepreciation is arbitrarily taken to reflect the actual depreciation processes,then accelerated depreciation gives firms tax advantages. However, Table 40TABLE 40.—Profits of nonfinancial corporations, 1 selected periods, 1965-73[Billions of dollars]Item19651965-69average1973After reported depreciation charges based on historical costs:1. Profits before taxes, before inventory valuation adjustment (IVA).2. Profits before taxes and after IVA65.363.668.165.595.177.5After straight line replacement-cost depreciation involving 85 percentof Bulletin F service lives and "current price (2)" valuation: 23. Profits before taxes and after IVA4. Profits after taxes*....65.838.466.836.373.432.9i Excludes profits originating in rest of world and profits on residential properties owned by nonfinancial corporationsJ Eliminates the difference between "current price (2)" replacement-cost and historical-cost depreciation.' Profits before taxes and after IVA minus tax liabilities.Source: Department of Commerce, Bureau of Economic Analysis.144

suggests that this advantage has by now been significantly outweighed by thedisadvantages of having to compute depreciation allowances on the basis ofhistorical costs, and thus of prices at which plant and equipment cannot bereplaced.Aggregate taxable book profits as well as aggregate profits adjusted forthe two inflationary effects mentioned above are presented in Table 40.After eliminating the understatements of replacement costs that result frominflation, the before-tax profit trend (row 3) is, of course, very different fromthe unadjusted book-profit trend (row 1), and this for a capital stock thatrose substantially from 1965 to 1973. This contributes a good deal to theunderstanding of the rising indebtedness of the corporate sector, the accountsof which include in net corporate savings large amounts that areunavailable for investment in any sense other than that of replacing inventoriesand fixed capital at inflated prices. The point to be mainly stressedin the present context is, however, that once the adjustments are made forinflated replacement prices (as they are both in row 3 and row 4) a comparisonof the trend in bef ore-tax profits (row 3) with the trend in after-taxprofits (row 4) shows the consequences of allowing the difference betweenpast prices and the prices at which replacement takes place to boost taxableprofits. Taxes are levied on the unadjusted book profits, and these haverisen much faster than the adjusted profits. As we move forward in time,the fieures in row 4 are becoming considerably smaller in relation to thefigures in row 3. Preliminary data for 1974 suggest that this trend hascontinued to the present.Thus, individuals and corporations alike are now exposed to substantialand haphazard tax-raising effects produced by inflation, even during a periodof falling real incomes. One manifestation of this is that while in earlierrecessions the temporary reduction of tax revenues in relation to Governmentexpenditures provided a cyclical cushioning effect even withoutchanges in tax schedules, this effect now is forcefully counteracted by thedisproportionate tax-raising effect of inflation. In this regard and in others,adjustments in tax laws will be called for during the gradual process of pricedeceleration toward which we are heading.Along these lines a strong case can be made for adopting statutory taxreductions during the present recession. Yet in view of the recently increaseddependence of business and also of households on borrowed funds, thefinancing of large recession deficits might after a while create more tensionin the credit markets than it had created in the past. Given the size of theoutput stimulus provided by some combination of expansionary monetaryand fiscal policies, interest rates decline less to private borrowers during arecession if more of the stimulus results from fiscal policies involving a largeincrease in the quantity of government securities. This implies greater tightnessof the credit markets in the subsequent recovery. Pressures may then beexerted on the monetary authority to try to reduce this tightness and to promoterapid expansion without sufficient regard to price-trend objectives.145

The success of our anti-inflationary efforts would in this event dependessentially on the determination to resist these pressures, even if the recoveryshould proceed less rapidly than would otherwise be desirable.146

CHAPTER 5Government RegulationUNTIL AFTER THE END OF THE CIVIL WAR, the Federal Government'spolicy toward the economy involved little or no directregulation. Although some States experimented with railroad regulation asearly as the 1840's, only toward the end of the century did the Federal Governmentundertake any significant economic regulation. The first stepstoward regulation were designed to deal with problems of monopoly. In 1887the Act to Regulate Commerce set up an Interstate Commerce Commission(ICC) to regulate the railroads, which eventually led to reduced competitionthroughout the surface transportation sector. In 1890 the Sherman Actoutlawed contracts and activities designed to create monopolies in restraintof interstate trade, intending thereby to promote competition. In succeedingyears the transportation and antitrust statutes were amended andcomplemented, and direct economic regulation spread to other industries.There has been a marked trend toward more rather than less governmentalregulation, and this trend has been particularly evident in recent years. Morerequirements have been placed on the private sector, often to achieveobjectives such as safety, health, and pollution control which are not includedin conventional measures of economic output. The continuation oflong-standing regulation as well as the recent proliferation of regulationhave raised questions about the efficacy of regulation: in particular, whatcosts and benefits the various forms of regulation impose in the light oftoday's economic difficulties.THE RATIONALE FOR REGULATIONGovernment regulation of business has been established for a number ofreasons, all of which merit continued reexamination. At one extreme is thecase of "natural monopoly"—a situation in which economies of scale (that is,falling unit costs with increasing output) are so pervasive that free competitionmight lead to a single firm in the market, able to exercise monopolypower. An unregulated monopolist may be in a position to charge excessiveprices, restrict output, and discriminate among buyers. The cases of suchnatural monopolies are probably quite limited in the American economy,with certain utility services appearing to be the major exception.In contrast to monopoly and inadequate competition, regulation is oftenconsidered justifiable to prevent excessive or "destructive" competition. Oneform of the argument is that in markets where there may be a tendency147

toward natural monopoly a preferable course would be to avoid the costsof monopoly pricing or of monopoly regulation by maintaining several competitors,even though a perfectly regulated monopolist could provide servicesat lower cost. Another consideration is that even though competition may beviable it might result in swings in output and prices which some wouldjudge too severe and too costly to consumers and producers. Regulation isthus said to be necessary to maintain stability and protect the equity of firmsin the industry.Another rationale often raised on behalf of regulation is that ill-definedproperty rights make it necessary for the Government to allocate certain"public" resources in order to prevent their overuse. The airwaves are oneexample of a scarce resource that would be rendered much less useful withoutsome controls over its use. The environment is another example of aresource where there are conflicting claims on its use and where governmentshave intervened to allocate resources.It is also asserted that in some markets the government should intervenebetween the seller and the consumer in order to protect either, or both, fromcertain conditions that might emerge in the absence of regulation. Sinceinformation is expensive to collect and once collected is "free" but costly todisseminate, the ideal government serves as a surrogate for the well-informedmarket participant by prohibiting certain transactions. For example, thoseselling their labor, according to this argument, must be protected from unsafeworking conditions by the government's requiring employers to maintaincertain safety standards. To protect consumers, it has been made unlawfulfor a firm in the United States to market certain drugs until they have beenapproved by the Federal Drug Administration (FDA). Likewise, theConsumer Product Safety Commission is authorized to establish mandatorystandards and require the labeling of products which are found tobe unsafe.Government regulation may also serve as a convenient avenue for redistributingincome. In regulated "competitive" markets less efficient producersare protected, and in effect are subsidized, by lower-cost producers whowould expand their output in the absence of regulation and by consumerswho end up paying higher prices and buying less. Rate regulation often leadsto rate structures that "cross-subsidize" markets by requiring firms to chargeprices that are above their costs in some markets and to use the extra profitsto offset losses in more "deserving" markets. For example, telephone rates inany given region often do not differentiate between residential users in urbanareas and those in sparsely populated localities where unit costs are usuallyhigher. In transportation, "common-carrier obligations" are often enforcedto assure below-cost service to some users, financed by higher prices to otherusers.Whatever the rationale for regulation, once established it has a tendencynot only to be maintained but to become more rigid with time, even if itseconomic costs become great and its effects differ from those originally148

intended. The uncertainty associated with significant regulatory change candeter needed reform. Also, those who would be adversely affected by regulatoryreform often are relatively few and have strong incentives to resistchange. On the other hand, those who stand to gain from regulatory reformtend to be numerous (and thus the potential gain per person is relativelysmall) and seldom well organized; they may be unaware of the potentialgains and thus less effective in obtaining reform. For these reasons, it isparticularly important to view critically any proposals for increased regulation.It is equally important to look for ways of lessening regulation when thebenefits of improved economic performance outweigh any sacrifice of otherobjectives.THE FEDERAL ANTITRUST LAWSUnder the antitrust laws the Government is concerned with industry conduct,such as price fixing, and with industry structure which might fostermonopoly power. With respect to price fixing, the most difficult problem isdetection, and for this purpose antitrust authorities have relied primarilyon informants. While industrial concentration is relatively easy to discover,it does not follow that monopoly power exists whenever concentration exceedssome arbitrary level. Each case must be judged on its own merits, andexclusive adherence to a "market share" approach may lead to unnecessaryinterference with ordinary business activities and to less efficient markets.In encouraging economic efficiency, the enforcement of the antitrust lawsraises obvious problems of balance. On the one hand, it would be possiblefor a misguided antitrust activity to inhibit innovation and cost-cuttingaction in the private sector; in this respect antitrust activity could constraineconomic efficiency. On the other hand, antitrust activity that promotescompetition will encourage resources to be used more efficiently. To furtherthe second result, the Antitrust Division's Economic Policy Office wasrecently expanded, and the Division's funding for antitrust enforcement wasincreased.Until lately the penalties for antitrust violation appear to have been toolow. In weighing the costs and benefits of engaging in illegal activities,potential violators take into account the punishment if they are caught aswell as the prdbability of successful prosecution. Increasing the penalty or theprobability of apprehension, or both of these, raises the expected cost ofillegal activity and should reduce its extent. Recent legislation (Public Law93-528) substantially raised the penalties for violation and made certainactivities felonies rather than misdemeanors. The additional deterrent mayhave a marked effect. This makes it even more important to allocateenforcement resources efficiently, since ill-defined and badly administeredantitrust policies, backed by forceful penalties, might stifle business initiativeand otherwise reduce economic efficiency.The ability of the antitrust laws to improve market efficiency is limitedby numerous exemptions. For example, the Miller-Tydings Act (1937) and149

the McGuire Act (1952) allow States to establish "fair trade laws,"which prevent retail establishments from selling merchandise at lower thanmanufacturers' suggested retail prices. In those situations, retailers are notallowed to engage in price competition, and consumers must frequently payhigher prices. At present such laws are in effect in States that compriseapproximately half the U.S. population. Another example is the Capper-Volstead Act (1922) which exempts agricultural cooperatives from certainprovisions of the Federal antitrust laws; among other things, this exemptionhas given producers greater control over marketing agricultural products.Some of the larger cooperatives may have gone beyond the original intentof the legislation, however, and with the aid of agricultural marketing ordersmay have been able to maintain certain commodity prices above competitivelevels.Some antitrust powers seem to limit competition rather than promotemarket efficiency. For example, the Robinson-Patman Act (1936), whichlimits certain forms of price discrimination, is almost universally criticizedby economists as unduly protecting small firms from competition by largerfirms. Two recent Presidential commissions on the antitrust laws, the NealCommission appointed by President Johnson and the Stigler Commissionappointed by President Nixon, recommended that this law be reformed.REGULATION OF MONOPOLYAs mentioned earlier, some industries are characterized by economies ofscale over relevant ranges of output. Among the examples frequently citedare local distribution systems for telephone service and electric power transmission,where the high fixed costs associated with fixed facilities tend to precludeviable competition. Under such circumstances, it is argued, the establishmentof a regulated monopolist would be a more efficient way oforganizing the market. Such regulation, however, is inherently limited inits ability to promote efficient production and resource allocation.Effective regulation depends on a great deal of information which isoften difficult to obtain and interpret. In practice, neither the judgment northe information of those responsible for regulation can be perfect. For example,even under the best of conditions it is difficult to ascertain the true costbase of a regulated monopolist, and often it is not very easy to determinethe firm's cost of capital for the purpose of regulating its return oninvestment.Idealized regulation also presumes that firms are passive with respect to therestraints imposed by the regulations. Recent studies suggest that a regulatedmonopolist will overcapitalize or undercapitalize, depending on the relationbetween the regulator's "guaranteed" return on investment and the firm'sperceived cost of capital. Moreover, by forbidding the regulated firm toraise prices during times of excess demand, regulation reduces the incentivefor the monopolist to maintain sufficient excess capacity. On the other hand,the assurance that regulation will shelter the firm from the costs associated150

with scheduling too much excess capacity will act in the opposite direction,so the net effect is open to question.During times of rapidly rising or falling prices, strict adherence to historicalcosts may have significant adverse effects. The delays necessary inregulatory proceedings frequently cause regulated prices to be held downunduly during times of rapidly rising costs. Unless the firm has a considerabledegree of flexibility in altering production costs by reducing the qualityof service—and even here demand must not respond too negatively to thisdiminution in quality—relying on historical costs may erode the firm's cashflow position and possibly even lead to bankruptcy. Although the results areseldom so severe, regulatory delays often cause deterioration of service andcostly deferments in investment and maintenance expenditures.REGULATION OF COMPETITIONMost governmental regulation is now concerned with the regulation ofcompetition rather than with the regulation of monopoly. This change hascome partly as a result of historical and technological evolution. For example,the ICG was understandably concerned with railroad monopoly powerduring the first years of its existence. In the first part of this century, however,technological advances brought about considerable competition for therailroads from trucking. Because of cross-subsidy, some railroad rates wereunduly high, and truckers tended to concentrate on this kind of traffic. Ifthe system of regulation were to be preserved, there had to be ways of administeringit without bankrupting the railroads. Therefore, in 1935 theICG and the railroads were successful in bringing most trucking underthe regulatory umbrella, despite objections at that time from some truckers.In 1940, coverage was extended to inland water carriers. Thus, an opportunityto deregulate railroads made possible by new competition was sacrificed,and the scope of regulation was expanded.As opposed to monopoly, markets with significant competition present theregulator with a slightly different set of problems. Although as a matter oflaw the regulator must still determine the rate base and the "fair" profit element,the more important problem is to understand and assess the way ratechanges affect service under these quasi-competitive conditions, and howpolicies regarding price, entry, and exit affect the financial viability of theregulated firms.In regard to financial viability, although exit from an industry via bankruptcyis a normal characteristic of efficient competitive markets, the bankruptcyof a regulated firm tends to be viewed as a sign of regulatory failure.To prevent bankruptcies, regulators are thus prone to protect firms fromcompetition—frequently to the detriment of efficient service. For example,since the establishment of the Civil Aeronautics Board (CAB) in 1938, nota single trunk air carrier has gone bankrupt, although several trunk airlinesat the brink of bankruptcy have merged with stronger carriers. For the purposeof limiting institutional failures, the Federal Reserve Board (FRB), the151

Federal Deposit Insurance Corporation (FDIC), and the Federal HomeLoan Bank Board (FHLBB) have set maximum rates of interest that may bepaid on deposits and on savings and loan shares. A policy of protection canlead to knotty problems when the competitors employ different productiontechniques—as, for example, with trucking and railroading. ICG regulationhas not been able to prevent (and probably has contributed significantlytoward) the bankruptcy of several rail carriers in the northeastern part ofthe country. Protection is also difficult when technology changes. Thus,some regulated competitive industries are slow in introducing innovations.The second major problem for the regulator of a quasi-competitive industryderives from the fact that, depending on technical feasibility and howfirms view the response patterns of their rivals, there will be a tendency forchanges in the extent of nonprice competition to raise or lower costs to matchthe regulated price. In such cases, cost tends to be determined by price,rather than the other way around, and the regulator's control over priceamounts to regulating the extent of nonprice competition in the industry—and thus the quality and price choices available to buyers. Since higherquality will be associated with higher costs, a broad range of combinations ofprice and quality is often consistent with reasonably competitive returns tothe individual firms, or at least to the firms as a group. In these circumstancesthe regulatory commission, in effect, serves as a surrogate for thegeneral public, choosing the price and quality option which will be offered.One ramification of this behavior among regulated competitive industriesis that explicit regulation of the industry's rate of return may not be possiblewithout additional controls, such as direct restraints on the extent of nonpricecompetition. Another aspect is that, whatever its justification, crosssubsidymay not be feasible. Purported "high-profit" markets will realizemore costly, higher-quality service rather than excess profits; in alleged"losing* - markets firms will restrict the quality of service to where averagecost is in line with the low price.EXAMPLES OF ECONOMIC REGULATIONEach regulated industry has different economic characteristics and waysof behaving under regulation. In several areas the economic costs of regulationhave become apparent and are indeed significant.TRANSPORTATIONOf all sectors of the American economy, few are more important thantransportation, and none is more affected by Federal economic regulation.TruckingIn interstate trucking an antitrust exemption allows carriers to agree uponrates in secret, through rate-bureau negotiations. Although these rates aresubject to review by the ICC, they are seldom challenged except in cases152

of general across-the-board increases. For example, during fiscal 1974, only5 percent of motor common carrier rates were even challenged, and fewerthan one-third of those challenged were ultimately disapproved. As a resultof this process, rates tend to be set so as to cover the costs of less efficientcarriers. The consequences are windfall profits to more efficient truckersand higher prices to consumers. In trucking markets with two or more carriers,service competition—for example, providing more frequent schedulesor larger trucks—tends to eliminate the potential excess profits. However,the reduction in profits results not from lower rates but from the creationof excess capacity which has a lower value to the shipper than the extraprice paid. In those markets where only one trucker has a certificate to serve,this process of rate setting helps the carrier to earn excess profits by offeringpoorer service, at the regulated price, than would be the case if other firmswere allowed to compete.The problems of excess capacity in "competitive' 1 markets and of poorservice in "monopoly" markets would both be eliminated if entry into thetrucking industry were not restricted and if the ICG encouraged meaningfulprice competition. A monopolist earning excess profits would attract newfirms; the result, in turn, would be lower rates and improved service. Inthose previously regulated competitive markets which had excess capacity,incumbent carriers would offer lower rates consistent with higher averageloads. If they did not, new carriers would enter and force rates downward;the incumbent carriers would then have to respond with rate reductions orelse lose out to the new competition. The ICG, however, has stringently controlledentry and price competition in trucking. Opportunities for profitsattract many potential entrants, and during fiscal 1974 more than 70 percentof the Commission's case workload consisted of processing motor carrieroperating permits.RailroadsIn railroad freight transportation, the problem is exit rather than entry.As outlying areas of the country gained access to good highways, and especiallyinterstate highways, firms began to utilize trucks for much of theirtransport. This meant that low-density rail lines were used less and less,until many of them were no longer economical to operate. Nevertheless,regulation has prevented the railroads from discontinuing such services asfast as would seem warranted. The losses on unprofitable lines have impairedthe overall financial position of the railroads and have reduced needed maintenanceand capital investments elsewhere.The structure of railroad rates often provides incentives that are inconsistentwith an efficiently organized transport sector. Regulation enforces aconsiderable amount of cross-subsidy among commodities—to the pointwhere certain high-valued items, such as machinery and equipment, arehauled at rates greatly exceeding their transport costs, while the rates forother items, such as crude ores, are much less than their transport costs. Simi-153

larly, regulation attempts to maintain an elaborate system of discriminatoryrate "equalizations" which tend to favor certain regions over others.Rates that rail carriers pay for the use of other carriers' cars (called perdiem) and the rates shippers pay carriers when they hold freight cars forextended periods (demurrage) are maintained at levels far below the opportunitycost on rail cars. As a result, freight cars are retained by carriers andare used excessively by shippers for warehousing. On average, a rail boxcar'moves only 1 hour in 8, and its average speed while moving is less than 20miles per hour.Air TravelIn the domestic airline industry, regulation has served primarily to bringabout a nonoptimal choice of price and quality. Because the CAB had afairly liberal policy during the 1950's and 1960's toward the entry of existingcarriers into city-pair markets, the principal markets are now served by twoor more airlines. However, since their fares are regulated by the GAB, theairlines tend to compete on the basis of scheduling, over which the Boarddoes not exercise direct control. The result is "excess capacity," and effortsto raise the regulated fares in order to assure a return on investment greaterthan the industry's perceived cost of capital serve only to set the stage forfurther capacity augmentation.Carriers as a group have consequently tended to earn neither excess profitsnor losses, but the traveling public has paid higher fares because of theregulation-induced excess capacity. While excess capacity does yield somebenefit in the form of more frequent departures, less crowding, and a betterchance of obtaining a seat on the preferred departure, the value of thisexcess capacity is almost surely less than its cost. As evidence, in the relativelyunregulated California and Texas intrastate markets the competitivelydetermined (higher-load factor) service has historically been sold atprices some 40 percent below the prices of comparable interstate (CABregulated)services. Moreover, a recent study reports that in 1969 domesticair passengers paid "excess fares" ranging between $366 million and $538million, for which they received service quality improvements valued at between$118 and $182 million. The difference, between $248 million and$356 million, represents a deadweight loss to society.In its recent Domestic Passenger Fare Investigation the CAB establishedtarget load factors of 55 percent. Since the prevailing load factors werearound 50 percent, this policy had the effect of reducing excess capacityand lowering fares. However, it w r ould appear that a much higher load factorstandard is justified, especially in view of the recent increases in fuelprices. The Board's new policy of encouraging agreements among carriersto limit capacity is not an appropriate way of dealing with this problem. Inmarkets covered by agreements, the passenger's total cost of service is increasedbecause of increased delays, but the fare is not reduced.Airline regulation imposes other costs, which are not generally wellperceived. For instance, through the regulatory process, fares have tended154

to be set at levels and with a structure that maximizes total seat capacity, asopposed to maximizing total passenger traffic, the result being added congestionand environmental costs, as well as increased costs of airports andairways. By restricting the entry of new firms into trunk carrier service inorder to protect less efficient incumbent firms, regulation has also penalizedpotentially more efficient firms and has resulted in higher fares for a givenquality of service.These costs of airline regulation could be reduced substantially or eveneliminated if entry into and exit from markets were made easier and ifcontrol over fares were liberalized so as to encourage price competition.Under such circumstances an individual airline could attract more passengersby lowering its price rather than increasing its total capacity.FINANCIAL INSTITUTIONSBanks and thrift institutions are among the most highly regulated businessesin the United States. The FRB, the FDIC, and the FHLBB, togetherwith a host of other Federal and State agencies, regulate virtually everyaspect of financial intermediation: entry, expansion, and exit, as well aspricing practices and allowable assets and liabilities. Opening a new bank,for instance, requires a charter that can be obtained from the appropriateState or Federal agency only if the applicant can demonstrate that a newbank would be in the public interest. Opening a new branch of an existingbank requires similar evidence in those States which permit branch banking.Comparable entry tests exist for thrift institutions.Financial institutions are subject to a number of regulations when theyissue liabilities (deposits) or buy assets. Banks, for example, are required tohold cash reserves for their deposits, and they are precluded from holdingcertain assets, including common stocks. Thrift institutions are subject tosimilar restrictions; in addition they are not permitted to issue checkingaccounts. Finally, and perhaps most importantly, except on large certificatesof deposit, financial institutions may not pay interest to their depositors atrates that exceed maximums imposed by law or by regulation.Although the rationale for regulating financial institutions is to safeguarddeposits and assure market stability, in recent years the desirability ofsome forms of financial regulation has been increasingly questioned. Thisis particularly true of those regulations that were established before the1930's, when Federal insurance of deposits greatly increased the securityof banks and thrift institutions. One suggested reform is to reduce the restrictionon the types of assets that banks and thrift institutions may holdand to allow thrift institutions to issue checking accounts. These changeswould make financial institutions more flexible in their adjustments to changingmarket conditions and would also make the industry more competitive.An even more important proposed reform would eliminate interest rateceilings on all deposits. Depositors could then enjoy competitive rates ofreturn (especially during high interest rate periods like 1969 and 1973-74),and the flow of loanable funds for such purposes as housing would increase.155

NATURAL GASRegulation of the field price of natural gas by the Federal Power Commissionillustrates the problems of controlling the price of a commodity whenentry into and exit from the industry are free. It also illustrates the sometimesillogical results when statutory requirements are divorced fromthe economic rationale behind their enactment. In this case, the priceof gas, a commodity, is regulated because of its connection with transportinggas, a service; the price of a similar commodity, oil (perhaps produced fromthe same well), is not similarly regulated, though it is a close substitute forgas in final use markets. Results contrary to intentions could have been expectedand at least one such result has been perverse: instead of assuringconsumers access to supplies of gas, regulation has done exactly the reverse.By holding the price of gas below the market-clearing levels, regulationhas created chronic and growing shortages in the regulated interstate marketbeginning in the late 1960's. The shortages have resulted partly because ofinadequate incentives for producers to explore for gas and bring it to market.Additionally, consumers are charged a price based upon the average cost ofgas, and this price is lower because of the large volumes of gas flowing at thelower prices established in the past. Consumers therefore base their purchasedecisions on a price below the regulated price for gas currently coming onthe market, which itself is below the market-clearing level. Consumers respondto this energy "bargain" by seeking to use more gas than if they hadto pay the full cost of replacing the gas reserves they consume.The final factor in the interstate gas shortage is the diversion of gas suppliesto the intrastate market where the price is higher. Onshore producersof gas usually have the legal option to sell it into either the regulated or theunregulated market. (Producers from Federal offshore leases must sellinto the regulated market.) Even at comparable prices the intrastate marketwould be preferred by on shore producers because the absence ofFederal jurisdiction gives them more certainty. The interstate market hasthus always been the residual market for producers. Consequently, the pricefor intrastate gas rose little with the increase in total gas demand relativeto supply; instead a larger proportion of the available gas went to intrastatesales. When no more gas could be diverted, the intrastate price began to riserapidly. Producers who had a choice ceased selling into the regulated marketexcept under special emergency provisions which allow higher prices.The interstate shortage of natural gas induced by regulation has led tolosses in output and to unintended redistributions of income. For example,many gas distributors have been unable to add new customers. In this situationa loss occurs because the value of the gas to the customers willing tobid some of it away would outweigh that realized by consumers who use itat volumes based on its constrained lower price. Income is redistributedtoward those who consume gas at a subsidized price and away from thosewho are unable to obtain gas at all.156

Interstate shortages, accompanied as they have been by adequate gasintrastate, have led industries to move to gas-producing States merely toobtain fuel. Greater quantities of other resources are used when gas regulationinduces these otherwise uneconomic changes in industry location. Potentialoutput for the economy is again reduced, while some regions are benefitedand others harmed.Another result of regulation has been a deterioration of the reserve baseunderlying gas consumption, and especially of the gas deliverable in theinterstate market. The full requirements of already connected customerscannot now be met. Consequently, regulatory authorities must decide whichparties get gas and which do not, even though each potential purchaser hasequal contractual standing.The effect of these shortfalls is exacerbated because of the way authoritiesallocate the available gas. Residential and some commercial customers, forwhom a shift to alternative fuels would be impractical, are given the highestpriority of service. Other firms are granted different priorities on the basisof the end use to which gas is put. Under this method, firms which have highpriorities in the curtailment scheme do not shift to alternative fuels, evenif a switch is practical. For them, natural gas remains the cheapest fuel.They have no incentive to make even a minor adjustment. While somecustomers would find a loss of gas supply only moderately damaging, curtailedsupplies may force other users out of business altogether becausefuel substitution is either impossible or prohibitively expensive. Yet, undercurrent regulatory practice, there is no opportunity for mutually beneficialexchanges to redirect the available gas to its most valuable use. Output fallsas a result; even the shortage is not allocated efficiently.Importation of natural gas in liquefied form and its manufacture fromother fossil fuels have also been encouraged by regulation. These expedientswould have been either uneconomic or less significant if the natural gasprice had not been held below equilibrium. A higher field price would haverestricted demand, slowed the depletion of existing reserves, and raised supply,with the result that shortages would not exist at prices below the costof alternatives.Finally, imports of petroleum and petroleum products have been increasedbecause of the natural gas shortage. Regulation of natural gas increasesthe demand for fuels as a whole. It also decreases the supply ofdomestic natural gas and, to some extent, of crude oil and natural gas liquids.The unsatisfied demand for natural gas in part is shifted to its closest substitute,oil. Because domestic oil supplies are limited, this demand is largelytranslated into increased oil imports.The examples of regulation discussed above are primarily Federal regulationby independent commissions. There are other types of regulation thatdeserve close scrutiny for the costs they may impose on the economy.563-280 O - 75 - 11157

State and local governments also practice the commission form of regulation,particularly with respect to insurance and financial institutions. Anotherpervasive form of State and local regulation is occupational licensure.Depending on the State, people in an extremely broad range of occupationsmust obtain licenses: accountants, architects, attorneys, automobile mechanics,barbers, beauticians, chiropractors, electricians, embalmers, opticians,pharmacists, physicians, plumbers, radio/TV repairmen, surveyors,and others. In a similar vein, State and local governments often acquiescein price-fixing arrangements, such as real estate settlement fees and feeschedules by professional associations. Often too, local codes of ethics andState statutes prohibit sellers of professional services from advertising orcompeting on the basis of price.Federal, State, and local governments are also involved in regulating theuse of so-called public resources. With regard to social costs and benefits,perhaps the most important example is regulation of the environment.There are two issues here: first, balancing the polluting uses against thenonpolluting uses, and second, choosing the appropriate instruments inorder to minimize the cost of achieving this balance.Both points are illustrated in the Federal Government's control of automobileemissions under the 1970 Glean Air Act Amendments. A recent reportsponsored by the National Academy of Sciences and the National Academy ofEngineering estimates the annual benefits of the existing program at $5 billion,but the annual cost at $11 billion (assuming that catalytic converters arereplaced after 50,000 miles). According to the study, however, if the longtermstandards on oxides of nitrogen (NOX) were relaxed, from 0.4 gramsto 2.0 grams per mile, that cost would fall to only $5 billion. Alternatively,a policy of applying the long-term standards only to automobiles operatedprincipally in seriously polluted or impacted areas, 37 percent of thetotal, also would lower the cost from $11 billion to approximately $5 billion.In either case, the reduction in benefits would not be substantial, and if theNOX standard were relaxed, changing technology might ultimately renderthe program's cost negligible.Governments also regulate product and input standards. For example, inthe case of drugs the costs of regulation include not only the direct costs oftesting (borne by the FDA and private drug manufacturers) but also its sideeffects: fewer new drugs and delays in the introduction of those drugswhich ultimately get to the market. In 1962 Congress amended the Food,Drug, and Cosmetic Act of 1938 to require that new drugs be proved effectiveas well as safe. Since then, the rate of introduction of new drugs hasfallen more than 50 percent and the average testing period has more thandoubled. Moreover, it is not clear that the average efficacy of drugs introducedafter 1962 is any higher than that of drugs previously introduced.One recent study estimates that the 1962 drug amendments cost consumers,on balance, beween $300 million and $400 million during 1970.158

REGULATORY REFORMThis discussion of governmental regulation suggests that existing laws andinstitutions are imposing significant costs on the economy. In surface transportationalone, one study puts the cost of regulation at between $4 billionand $9 billion annually. Precise estimates of the total costs of regulation arenot available, but existing evidence suggests that this may range up to 1percent of gross national product, or approximately $66 per person per year.Reforming regulation to eliminate these costs would undoubtedly entailsome income transfers. Those favored by regulation (particularly existingregulated firms, their owners, and their employees) would lose somewhatand some others (particularly ultimate consumers) would gain. For thatreason and to minimize other transitional difficulties it might be desirableto provide certain kinds of adjustment assistance and to introduce changesover a period of several years. But enacting such reforms could save billionsof dollars by releasing resources for other uses, helping combat inflation,and making the economy more efficient and more productive in future years.The Administration is moving forward to accomplish such needed reforms.During 1975 it plans to submit legislation to reform the regulationof airlines, railroads, trucking, and related areas. These legislative initiativeswill call for a program which includes: more freedom for carriers to raiseand lower rates without regulatory interference, greater freedom to entermarkets and to exit from uneconomic services, and a narrowing of theregulator's power to grant antitrust immunity.To address other regulatory issues, the Administration has taken or hasin prospect several actions. First, the President has endorsed legislation torepeal the antitrust exemption that allows fair trade laws. Second, theAdministration will resubmit proposals to reform the regulation of financialinstitutions. Third, the Administration's proposal for a National Commissionon Regulatory Reform is being resubmitted. Fourth, the Administrationplans to explore with State and local officials various concrete waysof reducing the anticompetitive effects of State and local regulations. Fifth,the Administration has created a high-level task force to examine the entirerange of antitrust exemptions and to make recommendations to the Presidentwithin 90 days. Finally, the President will shortly outline to the publichis more detailed program of regulatory reform and may include additionalproposals which are now under review.159

CHAPTER 6Food and AgricultureAT THE BEGINNING OF 1974 it was expected that tight food supplieswould boost retail food prices in the early months of the year, butdomestic and world food production was also expected to expand later inthe year. Barring unfavorable weather, a significant increase in Americangrain production was anticipated, which would improve the food outlook,enable some rebuilding of grain inventories, and help remove the upwardpressure on prices in the second half of 1974.Food prices, as expected, increased sharply in the early months, rising atan annual rate of 20 percent in the first quarter. The predicted leveling offbegan in the spring and continued until midsummer, but it was short-lived.Unfortunately, the anticipated increase in grain production did not materialize.Crop production was severely reduced in the major grain-producingareas of the United States by poor weather. Instead of the bumper harveststhat had been forecast, crop production as a whole suffered the largestsetback in nearly 40 years. Instead of substantially slower increases in thesecond half of 1974, retail food prices advanced at a 13.4 percent annualrate between June and December 1974. During all of 1974, food prices rose12.2 percent, the same as all consumer prices.Two other developments had a significant impact on retail food prices lastyear. First were the exceptionally large increases in charges for off-farm foodprocessing and distribution in the first half of the year, partly because marginshad lagged behind increasing costs during the period of price controls.Estimates of the spreads between farm and retail prices for farm foods consumedat home indicate that they rose at a 27 percent annual rate from thefinal quarter of 1973 to the second quarter of 1974. The second developmentv/as the extremely steep rise in sugar prices. Nearly half of U.S. sugar suppliesare imported, and the price rise was mainly triggered by events outsidethis country. Wholesale prices of raw sugar jumped from 11 cents per poundat the start of 1974 to a peak exceeding 60 cents per pound in late November.This increase alone would have prolonged the upward pressures on retailfood prices in the second half of 1974, even without the weather-inducedsetbacks in crop production.At the end of 1974 the food supply situation was as tight as a year earlier,and the prospects for 1975 were uncertain because the full impact of reduced160

grain and feedstuff output was not yet reflected in supplies of animal products.Although further increases in retail food prices were in prospect, reducedeconomic activity appeared to be dampening the demand for food.Indeed, by year-end, wholesale prices of farm products had actuallyfallen below those of a year earlier. Crop prices were up substantially; butlivestock prices declined nearly 15 percent compared to the previous year.DEVELOPMENTS IN 1974Last year's events have demonstrated again the benefits to our economyand the world from good American harvests. Crop setbacks have affected thecourse of food prices, imposed stresses on the livestock industry, limitedthe capacity of the United States to provide food aid to developing countries,and prompted close monitoring and some limitations on commercialexport sales. From the standpoint of the agricultural economy, 1974 was anuneven year. On the favorable side were these developments:Foreign DemandForeign demand for agricultural products continued strong. The valueof exports in fiscal 1974 reached a new high of $21.3 billion, more thandouble the value only 2 years earlier. In the current fiscal year the volumeof exports is expected to decline, primarily because of reduced crop supplies,but the associated higher prices should maintain the value of shipments nearthe previous year's record. The increasing role of foreign markets has becomecentral to policy matters concerning food and agriculture.Farm IncomeTotal farm income remained high in 1974. Preliminary estimates indicatethat aggregate net farm income fell some 15 percent short of the record$32.2 billion in 1973, but was nonetheless 50 percent higher than in 1972.In the past 3 years as a whole, returns to farm resources have been sufficientlyhigh to encourage the expansion of productive potential, but the year-to-yearchanges in incomes emphasize the increased uncertainty of earnings, whichis itself a deterrent to additional investment and production.Food ConsumptionFood demand was strong despite higher prices, and preliminary estimatesindicate that consumption per person rose slightly above 1973. Percapita consumption of all animal products advanced 2.5 percent, reflectingthe large increase in domestic production of red meats and poultry.Although meat production was down early in the year, from April throughOctober it averaged a full 10 percent above the 1974 average. In contrastto meats, consumption of dairy products declined 2 percent for the year;retail prices rose sharply as the year began; later the increased supplies ofother animal products and low r er consumer income reduced demand. Despitetheir significance, the grain crop setbacks had little direct impact on thequantity of food consumed in 1974.161

Three significant adverse developments last year will have consequencesin 1975 and beyond:Costs of ProductionThe costs of production inputs purchased from the nonfarm economy,particularly fertilizer, rose very sharply. The impact of general inflation onthe agricultural economy has increased, along with the increased importanceof nonfarm purchases for farm production. In 1974 the impact was particularlylarge: the cost index for purchased inputs increased 18 percent in1974. Fertilizer prices were up more than 75 percent, partly in response torising demand and partly because of a series of supply bottlenecks. Thefuture availability of natural gas to produce fertilizer continues to be uncertain.The major significance of the steep rise in farm costs is that theyare unlikely to decline, or they will do so only with a lag, if and when there isa significant decline in farm prices. As a consequence, the total cropproducingsector, which has enjoyed an extended period of increasing pricesand returns, faces a possible deterioration in its current profitability at somepoint in the future.Livestock SectorThe livestock-producing sector is undergoing large adjustments becauseof two related factors. First, the U.S. feed grain supply for 1974-75 isestimated to be the lowest since 1957, while the demand for feed grainsis substantially greater. Supplies of other feedstuff's, such as oilseed meals,are also down. The situation is especially serious for hog and poultry producerswho have little flexibility in feeding practices. Both are planningsignificant production cutbacks, and pork production is expected to be thelowest in many years. High feed costs have also reduced the number ofcattle in feedlots, where feeding margins have been depressed for over ayear. At latest count, cattle in feedlots were about one-fourth fewer than ayear earlier, and prices of feeder cattle have consequently been driven downsharply.The reduced profitability of cattle herds has, in turn, intensified a morefundamental adjustment problem in the cattle industry. A steady andlarge buildup in cattle numbers has been taking place since the early 1960's.Incentives to expand herds were especially great in recent years, and thebuildup has averaged 3.2 percent annually from 1969 to 1974. In contrastto extremely tight beef supplies in 1973, cattle herds appear to be overexpandedunder today's conditions. If herds expand more slowly, or if theyshould be cut back significantly, extra supplies of beef will reach the marketin addition to the output of the herd itself. Total beef production wouldconsequently increase markedly, even though the weight at which the animalsare marketed declines. For instance, if the 1975 expansion in cattleinventories is reduced, as expected, to 2.4 percent from the 3.2 percentaverage rate of the past 5 years, beef production would increase 6.5 percent.A reduction to zero in the expansion of cattle inventories could mean162

an increase in beef output by 15 percent. A slower rate of expansion incattle inventories was already evident in 1974. Despite reduced marketingof cattle from feedlots, total marketings were up 9.0 percent in 1974; andthe proportion of cows in total slaughter was substantially higher byyear-end.The American situation is replicated in many other beef-exporting nationsas well as in traditional importing countries. The European Community,Canada, and Japan instituted embargoes or restraints on meat importsduring 1974. Stocks of beef in the European Community, acquiredto support prices to producers, are considered excessive. Australia has a verylarge potential supply of meat. During 1974, cattle were withheld fromslaughter because of favorable pasture conditions in Australia, and alsobecause of low meat prices and restricted markets outside Australia. Americanmeat imports during 1974 fell rather sharply, even though they werenot subject to quantitative restrictions. However, at the start of 1975 theDepartment of Agriculture announced plans to negotiate agreements withsupplying countries designed to limit imports to about the same quantitiesas in 1974.The appearance of a worldwide excess supply of beef, along with extremelylarge advances in food prices, was one of the paradoxes of 1974.Countries concerned with inflation were at the same time restricting meatimports to shield their beef producers. At year-end much of the oversupplyhad not yet been marketed and will be available in 1975 to offset reducedsupplies of pork and poultry, which are more dependent than beef on grainsand other feedstuff's.Poor CropsThe poor crops in the United States during 1974 will have repercussionsnot only on our own economy but throughout the world. The 1974—75world production of all grains is estimated to be down 5.0 percent from theprevious year, a considerably larger drop than the 1.3 percent decline in1972. Unlike those of 1972, the setbacks were mainly confined to the UnitedStates, and the losses were concentrated in feed grains rather than foodgrains.In the spring of 1974 there seemed to be good reason to expect excellentU.S. grain production even if weather conditions were to be somewhatbelow average. Much field preparation had been completed the previousfall. Surveys showed that farmers were planning increases in their plantingsbecause of favorable prices and the removal of Government acreage diversionprograms. Fertilizer supplies were tight, but they exceeded the previousyear; and efforts were under way to minimize bottlenecks in productionand distribution. Then wet weather delayed spring plantings—which itselfslightly reduced yields and made crops more vulnerable to early frosts—andprevented some fields from being planted at all. But the summer's dry andhot weather was the major setback. Preliminary official estimates of the163

feed grain crop fell from 234 million (short) tons in March to 215 milliontons in July, and then to 175 million tons in August, when the first surveybased on actual yield estimates became available. Significant though smallerreductions occurred for wheat (from 2.1 billion bushels in March to 1.8billion bushels in August) and soybeans (from 1.5 billion bushels in Marchto 1.3 billion bushels in August). Severe frosts in September and earlyOctober further damaged the feed grain and soybean crops.This development created several problems. First, it reversed the expectationof price relief from improving food supply in the second half of 1974.Much of the adverse impact on food supplies will occur in 1975, however,as producers of livestock, poultry, and dairy products cut back their outputin response to higher feed costs.For this reason, it is important that the severe adjustments expected inthe United States not be worsened by policies in other countries. Few countriespermit agricultural markets to operate in an unrestricted way. If internationalmarkets were less restricted, however, the U.S. crop shortfall wouldresult in higher feed costs to livestock producers abroad and in reduced feedconsumption. Moreover, grain stocks would not be built up under suchtight supply conditions. Consultations based on these principles were heldwith Japan, the European Community, the Soviet Union, and several othercountries, the aim being to seek cooperation so that these countries wouldattempt neither to build stocks this crop year nor to insulate their economiesfrom the adjustments to tight world grain supplies.Further deterioration of U.S. crops in the fall of 1974, setbacks in otherkey countries, and speculation that the United States might impose exportcontrols resulted in an upsurge of export orders reported under the Departmentof Agriculture's export monitoring system. Although pressures tocontrol exports were intense, formal controls were resisted because the previousyear's experience with soybean export controls demonstrated theserious impact of such a policy on our foreign customers. The prudentcourse consistent with international and domestic objectives seemed to beminimum Government interference with the flow of exports.The Soviet Union, which had not been expected to purchase substantialquantities of grain from the United States, entered the market for largerquantities than had been anticipated. When this became evident, the Sovietsales were at first canceled; subsequently officials of both countries agreedthat U.S.S.R. purchases would be limited to 1.0 million tons of corn and1.2 million tons of wheat from the 1974 crops. A voluntary daily reportingsystem for larger orders was soon established under which approval is requiredbefore orders can be finalized. A number of other countries, includingthe European Community, have been requested to restrain their importsvoluntarily during the current crop year.Another related consequence of the crop shortfall has been the emergence,particularly in connection with the World Food Conference, ofextraordinary pressures to increase substantially the volume of food aid164

shipments under Public Law 480. The U.S. crop shortfall placed two newstrains on the capacity to supply food aid. It first raised the opportunity costsof any given quantity of food aid, since any incremental exports would onlyaggrevate the adjustments required in the United States. It also raised thebudgetary costs of any given volume of food aid during a period of concertedeffort to hold down Federal expenditures. At the same time, however, theimmediate benefits to recipient countries from more food aid would besignificant. The great difficulties in resolving the conflicting objectives haveshown the pitfalls in existing food aid programs, which have been a byproductof U.S. surplus disposal programs and closely tied to supply conditionsfor particular commodities.LONG-TERM CHANGES IN AGRICULTUREAmerican agriculture finds itself in the mid-1970's at a watershed. Anumber of economic forces have converged to change substantially theeconomic environment in which the agricultural sector operates. Some ofthese forces are new, while others have been operating for some time tochange the economic conditions faced by agriculture.Agricultural policy underwent considerable evolution during the 1960's.In the early years of the decade agriculture was characterized by excess productivecapacity and burdensome stocks that were primarily the consequenceof price support programs. Crop prices were sustained in nominal termsduring the decade, but rising prices in the nonfarm sector meant a downwarddrift in real prices. Agricultural production was brought into betterbalance with demand by the late 1960's, although this result was achievedin part through land retirement programs and direct cash payments to producersthat reached nearly $4.0 billion per year.Both the economic environment and the conditions in U.S. agriculturehave since undergone substantial change. Excess capacity has declined,crop reserves have been drawn down, the world agricultural situation seemsto have worsened, and agricultural products again appear to be subjectto the unstable price conditions of an earlier era.THE DECLINE IN EXCESS CAPACITYFour major developments suggest that the excess capacity which characterizedU.S. agriculture during much of the post-World War II period hasdeclined. First, there appears to have been a decline in the growth rate ofproductivity of the combined factors used in farm production. Second, aftermany decades of excess labor in agriculture, the supply of labor appears tobe moving into balance with demand. Third, what was believed to be a largeacreage reserve withheld from production turned out to be in part illusory.Finally, there has been an increase in the demand for U.S. agriculturaloutput, partly because of the two devaluations of the dollar and a shift tofloating exchange rates, which have improved the competitive position ofU.S. farm products in foreign markets.165

Changing Sources of GrowthContrary to the common notion that agriculture is a natural resourcebasedindustry, the expansion of U.S. agricultural output since the 1920'shas borne little relation to the total stock of physical resources used in agriculture.Major changes have taken place, however, in the proportions inwhich resources are used. For example, the stock of land in agriculture hasremained relatively stable, while labor has moved out of agriculture at arapid rate; the use of capital in the form of mechanization has increased, ashas the use of modern inputs such as fertilizers and pesticides. Agriculturaloutput has become progressively more dependent on resources produced inthe nonfarm sector, and less dependent on land and labor.Although the total stock of measured inputs has remained relatively stable,increasing productivity permitted fairly steady and sometimes burdensomeincreases in output. The source of improving productivity has beena subject of much debate. Public and private investments in research anddevelopment have led to better plant varieties, production techniques, andanimal husbandry, and have improved the productivity of machinery, fertilizer,and other supplies purchased from the nonfarm sector. Better methodsof production in the nonfarm sector have reduced the relative price ofthese inputs, causing them to be substituted for land and labor. Educationhas added greatly to the quality of labor and management in agriculture.The changes in resource use and other indexes for the agricultural sectorare shown in Table 41. The index of farm real estate, which reflects a chargefor grazing fees and the use of land and service buildings, declined about 6percent from 1950 to 1969-71. (Total land in farms remained virtually constantfrom 1940 to 1969, and land used for crops declined 10 percent.) Butthe application of fertilizer—an important land substitute—has increasedrapidly, partly because successive technological breakthroughs in the fertilizerindustry reduced fertilizer prices relative to the prices of output andTABLE 41.—Farm output and productivity, selected years, 1940-71[1967 = 100]Category1940195019601969-71averageSelected inputs:LaborFarm real estateMechanical power and machinery...Agricultural chemicals *_Feed, seed, and livestock purchasesTaxes and interestMiscellaneous2881024113436884214104833064779314399955084871099298102113107105106Tota I i n p utTotal outputProductivity 29760621017473989193101105103Number of farms201179125931 Fertilizer, lime, and pesticides.2 Farm output per unit of total input.Source: Department of Agriculture.166

other factors of production. The use of fertilizer had increased 129 percentfrom 1940 to 1950. This rise was from a relatively low base, but fertilizer useincreased 69 percent from 1950 to 1960, and another 113 percent duringthe 1960's.The use of labor has declined fairly steadily from 1940 through 1969-71.A reduction of 26 percent in the 1940's was followed by a 33 percent reductionin the 1950's and an additional 36 percent reduction in the 1960's.However, the quality of the labor force has improved substantially. Thereduction in the measured labor force therefore overstates the true declinetaking place in labor use as skills and knowledge become an increasinglyimportant component of the total.The decline in the labor input has been offset at least in part bymechanization. Mechanical power and machinery in Table 41 represent depreciationand a use charge on the mechanical inputs, expenditures for maintenance,and fuel and energy. The most rapid increase in this category tookplace in the 1940's (102 percent) and was partly a war-induced phenomenonthat resulted from labor mobilization for the war effort. The increase wassubstantially lower in the 1950's (14 percent) and still lower in the 1960's (7percent). However, the measurement of this input probably does not fullycapture the improvements in the efficiency of machinery in the last twodecades, and hence understates the true increase.Associated with these large changes in resource proportions have been alarge and persistent decline in the number of farms and fairly steady advancesin productivity, as it is conventionally measured. Total factor productivityhas risen over each of the past three decades. It grew most rapidlyduring the 1950 s s, showing an increase of 27 percent compared to an increaseof 18 percent in the 1940's and of only 11 percent in the 1960's. The extent towhich the dramatic decline in productivity growth in the 1960's represents areal and enduring decline is not clear, but the answer is of critical importanceto the future trends of U.S. and world food supply. Growth in productivityhas been an important source of output growth in the past. It has enabledthe United States to be one of the best-fed countries in the world, yetprovide substantial food aid to other countries and simultaneously increasecommercial exports. At the same time it has enabled the agricultural sectorto supply large quantities of labor to an expanding economy.The Agricultural Labor MarketA major share of the so-called farm problem in the last 20 to 25 years wasa consequence of excess labor in the agricultural sector. Historically, therapid increase in farm productivity, compared to other sectors, and the slowerrelative increase in the demand for farm products have required a transferof labor to the nonfarm sector. Farm incomes, of course, lag behind nonfarmincomes as long as transfers are continuing. For all practical purposes, however,this process appears to be nearing an end.The Nation's farm population reached a peak of 32 million in thedepression years of the early 1930's. Since that time the trend has been167

downward, except for a brief period following World War II, with steepdeclines for each decade starting in 1940 (Table 42). This decline, whichtook place at a rate of 4.6 percent per year during the 1960's, has slowedsubstantially since 1970 to an average of only 1.2 percent a year, markingthe first extended period since the late 1940's that the reduction of the farmpopulation has slowed.TABLE 42.—Farm population and farm employment, selected years, 1930—74Farm population*Farm employmentYearNumber(thousands)Percentchange(annual rate) 2Number(thousands)Percentchange(annual rate) 2193019401950 . ..1960197030,52930, 54723,04815,6359,7120.0-2.8—3.8-4.612, 49710,9799,9267,0574,523—1.3—1.0—3.4—4.419749,264-1.24,294—1.31 Farm population includes people residing on units officially defined as farms. Since many of these "farms" are littlemore than rural residences for people attached to urban labor markets, the data overstate the number of people actuallyengaged in agricultural production.3 Annual rate of change from preceding year shown.Source: Department of Agriculture.Farm employment declined during the 1950's and 1960's at about thesame rate as farm population, and has also declined at a much slower ratesince 1970. Another indication of the increased balance between the farmand nonfarm labor markets is that the rise between 1970 and 1973 in medianfamily income (measured in 1973 dollars) has been much more rapid amongfarm families, amounting to about 30 percent, compared to an increase ofabout 6 percent for nonfarm families in the same period. In 1970 the medianincome of farm families was about $3,700 less than that of nonfarm families;by 1973 the differential had been reduced to about $2,100.The transfer of labor from agriculture to the nonfarm sector has been animportant source of growth for the economy at large. Even if the aggregatefarm population and labor force continue to decline, the movement oflabor from the farm sector will probably make much smaller net contributionsto a growing nonfarm labor force in the future. Average annual netoutmigration during the 1950 5 s and 1960's was 741,000 and 592,000 respectively,with a much larger gross outflow because of a considerable reversemovement. From 1970 to 1974, however, the average net outmigrationwas only slightly over 110,000 per year. The population base in agricultureis no longer large enough to provide outmigrants on the same scale as in thepast, even with significant mechanical innovations and reorganizations withinagriculture.The problem of low relative incomes in agriculture has been the justificationfor many of the farm policy measures over the last 40 years. If theagricultural labor market is indeed near equilibrium, low farm incomes168

should play a smaller role in shaping future farm policy. Certain groupsin agriculture will continue to be disadvantaged, however, because of continuingregional imbalances and because certain components of the farmlabor force do not have the skills to compete in nonfarm labor markets.An Illusory Land ReserveIt was believed until recently that about one-sixth of the Nation's croplandwas being withheld from production by Government programs andconstituted reserve capacity. When these acres were released in 1973 and1974, however, it became clear that many of them were unprofitable to bringback into production, even at higher prices. Crop acreage rose by only 37million acres between 1972 and 1974, even though about 60 million acreswere released from acreage controls. Thus, the actual excess capacity fromthis source was not nearly as large as the data suggested.Undoubtedly the United States has additional land that could be broughtinto production. Substantial new investments will often be required, however,and such investments are unlikely to be made unless prices remain at higherlevels than in the past. Moreover, for the most part such land will be marginalto that now in production, with the result that its contribution to outputexpansion will be less than that of land now being used.Devaluation of the DollarAmerican agriculture has benefited from an unprecedented export boomin the 1970's. The volume of exports averaged 39 percent higher in the 1972—74 period than in the previous 3 years (fiscal year basis). Part of this increaseddemand may be temporary. Demand for U.S. feed grains and soybeanswas growing rapidly in 1972 and 1973 because of the rapid andsimultaneous economic growth in Western Europe and Japan, and the consequentupgrading of their diets with more meat products. In addition,world output of grains declined in 1972 for the first time in 9 years. The bulkof the decline was outside of the United States; this situation, along with ashift in Soviet policy to maintain food consumption when output in theirown agricultural sector declined, generated additional demand for U.S.exports.Part of the increase in foreign demand for U.S. agricultural products wasalso due to the devaluations of the dollar in late 1971 and early 1973 andthe shift to a system of floating exchange rates. Between May 1971 and theend of 1974 the dollar fell 13 percent relative to other currencies weightedby trade in our agricultural products.The devaluations produced a once-and-for-all increase in the foreign demandfor U.S. exports, although the effect is spread over several years. Inaddition, they caused imports of agricultural products—which grew substantiallyduring the 1960's and early 1970's—to become less competitive inthe U.S. market. The combination of greater foreign demand for U.S. agriculturaloutput and a decline in competitive imports contributed to an increasein demand for U.S. products.169

The depreciation of the dollar ended a period during which the overvaluationhad reduced exports and kept domestic prices of agriculturalproducts lower than they otherwise would have been (an effect that was offsetat least in part by price supports, export subsidies, and other programs).During this period the United States sacrificed from a trade standpoint partof the comparative advantage that U.S. technological superiority in agriculturewould have given it in world markets. Reduced exports also meantlower prices for U.S. consumers. The overvaluation of the dollar also intensifiedthe normal need for resource adjustment that rapid increases in agriculturalproductivity had caused, and thereby contributed to the relativelylow returns to resources employed in agriculture.Owners of agricultural resources in the aggregate have benefited from thedevaluation just as they had been penalized by the overvaluation, but thebenefits have not been uniform. Grain producers have received significantlyhigher prices in the short term, but livestock producers have suffered becausethe prices of feeds tuffs have increased. Once the increased demand hasworked through the system, a new equilibrium will be established with higherprices for both grains and livestock products. The effect on factor returnswill be determined largely by their relative elasticity of supply. The presumptionis that the bulk of the benefits will be reflected in higher land valuesand larger returns to managerial skills, both of which are quite inelasticin supply.Prices of grains are currently at relatively high levels, in part because ofthe shortfall in production of grains in the United States. As output recovers,prices should decline, but not to their pre-1972 levels unless there areother basic changes in demand and supply. Owners of agricultural resourceswill receive a larger share of the benefits of technical change in U.S. agriculturethan they have in the past, as will foreign consumers. U.S. consumers,on the other hand, will receive a smaller share. The proportion of U.S.output that is exported should be larger than before the devaluations, andthe price of food to U.S. consumers will be more heavily influenced bysupply-demand conditions abroad.A CHANGING WORLD AGRICULTUREThe capacity of the world to feed a growing population adequately hasbeen a continuing concern. Beginning in the late 1960's, the world foodsituation began to improve markedly, and by 1971 considerable optimismwas felt around the world. The so-called "Green Revolution" of miraclewheat and rice varieties and the greater use of fertilizer had increasedthe output of food grains, especially in Asia. Countries that had becometraditional importers suddenly became self-sufficient or net exporters. Indiawas even able to accumulate sizable reserves.In sharp contrast, much has been made during this past year about apossible Malthusian crisis in the less developed countries. Population isgrowing at quite high rates in these countries and has done so since World170

War II. Unless the growth of population slows, many question whetherthe necessary large increases in agricultural output can be achieved in thefuture. The upsurge in commodity prices these last 2 years and the famineconditions in the African Sahel and in South Asia bolster these fears.This concern may be exaggerated, although there are a number of troublesomedevelopments in world agriculture. One is a decline of approximatelyone-fourth in the growth rate of world agricultural production (excludingCommunist Asia), from 3.0 percent in 1964-68 to 2.3 percent in1968-73, or little more than the growth rate in the world's population. Thedecline is largely accounted for by a slowing of the growth of production inthe developed countries, however, and was the result of explicit policies designedto bring the agricultural sectors of these countries into balance priorto 1973. Output increased at a rate of only 2.0 percent per year in the developedcountries in the more recent period, a decline of one-third fromtheir growth rate of 3.0 percent in 1964-68. In the less developed countries,on the other hand, where population pressures are greatest, output increasedat 2.6 percent in the earlier period compared to 2.8 percent in the latter.Viewed from a longer perspective, world agriculture has performedreasonably well. Prior to 1972 there had been 20 years of uninterruptedincreases in output; as a result a population that was growing at unprecedentedrates by historical standards was provided a small but significantincrease in consumption per capita. During 1954-73 per capita food productionin the developed countries increased about 1.8 percent annually.In the less developed countries, where the population was increasing mostrapidly, the increase per capita was smaller, about 0.4 percent per year, butstill significant.Despite this relative success in feeding a larger population with increasingquantities of food, total agricultural output declined in 1972 after twodecades of steady growth, and preliminary data for 1974 indicate no increaseover 1973. Some attribute this to a fundamental change in the weather. Althoughclimatic conditions may have been favorable in recent decades, 3years are not enough to permit final conclusions about a shift in the weather.Whether output growth returns to sustained rates of increase will be a criticalissue in the years ahead.A second change is a reduction in the supply of new land that can bebrought into production, at least at supply prices of the past. This fact isespecially important for the developing countries, where the increases in outputhave been largely the result of increases in the area of land under cultivation.Grain yields in the developing regions, for example, were only 32percent above the 1948-52 level in 1966-70. Over the same period, grainyields had increased by 63 percent in the industrial regions, with very littleincrease in land under cultivation. In countries like India, moreover, theland resource has been damaged by water and wind. Much land aroundthe world can clearly be brought into production, but to do so requiresinvestments in roads, transportation, land reclamation, and drainage.171

The emerging land constraint need not limit increases in output, as theexperience of the United States and other developed countries demonstrates.But the ability to achieve more rapid increases in yields will require thedevelopment and adoption of improved techniques of production and abundantquantities of modern agricultural inputs. This, in turn, will requiregreatly expanded public and private investments in research and development,as well as enlarged production capacity to provide adequate suppliesof fertilizers. With rising costs of energy, at least nitrogen fertilizer is likelyto be more expensive than in the past.A third change in world agriculture is the increased dependence on theUnited States as a supplier of agricultural products (Table 43). As recentlyas the late 1930's, North Africa, the Middle East, and Asia were net exportersof grains. Now these regions are consistently net importers. Similartrends elsewhere have made the United States the dominant exporter ofgrains, responsible for more than 50 percent of the total.A number of recent studies have projected a growing imbalance in foodsupplies between the developed and the developing economies. Unless productionaccelerates, the developing countries are expected to have growingfood deficits well into the 1980's. The developed countries, on the other hand,are expected to have growing surpluses.The post-World War II increase in overall trade has largely been amongthe developed countries, with a decline in the share of trade between thedeveloped and developing countries. This trend must be reversed if the projectedimbalance is to be accommodated. The developed countries mayhave to import more raw materials and industrial products from the developingcountries in exchange for agricultural products.TABLE 43.—World net imports and exports of grain, selected periods, 1934-73[Millions of metric tons; annual averages]CountryNet imports (—) or net exports1934-381948-52 1960-621 1969-7111972-731Developed countries:United StatesCanadaSouth AfricaOceaniaWestern EuropeJapan0.54.82.8-23.8-1.914.06.6.03.7-22.5-2.332.89.72.16.6-25.6-5.339.814.82.510.6-21.4-14.473.614.83.18.9-21.0-18.5Centrally planned countries:U.S.S.R. and Eastern EuropeChina4.7-1.02.7-.4.5-3.6-3.6-3.1-14.2-6.3Developing countries:Latin AmericaNorth Africa and Middle EastAsia9.01.02.42.1-.1-3.3.8-4.6-5.63.2-9.2-11.0.6-13.7-14.8i Fiscal years.Note.—Grain includes wheat, milled rice, corn, rye, barley, oats, sorghum, and millet.Source: Department of Agriculture. Economic Research Service.172

GREATER PRICE INSTABILITYA number of factors suggest that the U.S. food and agriculture sector hasentered a period of greater price instability. The large stocks of agriculturalproducts in Government hands, which reflected the excess capacity at prevailingprices, were largely liquidated during 1972 and 1973. These stocks provideda stabilizing influence on the market, since they offered a means ofdampening and offsetting year-to-year fluctuations in production both inthe United States and abroad. Similarly, a land reserve, withheld fromproduction during the late 1950's and 196O's 5 provided another meansof offsetting changing conditions of demand and supply. Without thesecushions, agricultural prices are more subject to changing market conditionsboth at home and abroad. Moreover, the expectation that a larger share ofU.S. output will go to export markets will further expose the agriculturalsector to the vagaries of world markets.A number of conditions have intensified the effects in the United Statesof fluctuations in world agriculture. The domestic agricultural policies ofthe European Community and Japan inhibit the adjustments that can takeplace in their agricultural markets. Consequently, the burden of adjustmentto changing conditions of demand and supply is pushed onto the UnitedStates and other exporting countries. In addition, the growing involvementof the U.S.S.R. in world trade in recent years has transmitted to world marketsthe shocks stemming from fluctuations in the relatively unstable agriculturalsector of that country. Some 80 percent of the year-to-year fluctuationsin the world wheat trade since 1960 have been accounted for by swingsin Soviet wheat trade.Charts 9 and 10 provide a historical perspective of the price instabilityproblem for four important agricultural products. Actual prices have beendeflated by the wholesale price index (1967=100) for all commodities inorder to express them in real terms. Compared to prices before 1950, agriculturalprices were much less volatile from 1950 to 1971, w 7 hen there werelarger reserves in the form of excess productive capacity and actual stocksof grain. The extent to which the price variability declined from 1910-49 to1950-71 is shown in Table 44 for six important products. Measures of variability(variance and coefficient of variation) declined in every case exceptthe coefficient of variation for wheat; and in some cases the decline wasquite large.Factors other than reserves undoubtedly influenced the degree of instabilityin the two periods. Recessions in the post-1950 period were mildcompared to those earlier, and built-in stabilizers acted to cushion the declinesin income when a recession did occur. Income-induced fluctuations indemand were therefore milder in the more recent period. Barriers to tradewere relatively high from 1920 to 1950 but lower after World War II, despitethe previously mentioned foreign agricultural policies which affect trade. Agreater integration of countries by means of trade has taken place in the173

Chart 9Farm Prices of Wheat and Cornin Constant Dollars1967 DOLLARS PER BUSHELJ/4.003.00 "2.00 -1.00 -1915 1920 1925 1930 1935 1940 1945 1950 1955 1960 1965 19703.00 -2.00 -j1915 1920 1925 1930 1935 1940 1945 1950 1955 1960 1965 1970j/CURRENT DOLLAR PRICES RECEIVED BY FARMERS DEFLATED BY THE WHOLESALE PRICE INDEXFOR ALL COMMODITIES (1967=100).SOURCES: DEPARTMENT OF AGRICULTURE, DEPARTMENT OF LABOR, AND COUNCIL OF ECONOMIC ADVISERS.174

Chart 10Farm Prices of Beef Cattle and Hogsin Constant Dollars1967 DOLLARS PER HUNDREDWEIGHTJ/4010 "1915 1920 1925 1930 1935 1940 1945 1950 1955 1960 1965 197030Hogs20(\ 1 \ A 1 \l\ 1"100 i i i ii i i i i i i i1915 1920 1925 1930 1935 1940 1945 1950 1955 1960 1965 1970J/ CURRENT DOLLAR PRICES RECEIVED BY FARMERS DEFLATED BY THE WHOLESALE PRICE INDEXFOR ALL COMMODITIES (1967=100).SOURCES: DEPARTMENT OF AGRICULTURE, DEPARTMENT OF LABOR, AND COUNCIL OF ECONOMIC ADVISERS.175

TABLE 44.—Indicators of the variance of farm pricesin constant dollars, selected periods, 1910-71Commodity and periodMean»VarianceCoefficient ofvariationWheat:1910-49 . . .1950-712.311.840.279.1900.229.236Corn:1910-491950-711.731.31.227.072.276.206Cotton:1910-49 .1950-7133.832.392.950.2.285.219Soybeans:1910-491950-71 . ..3.082.56.914.091.311.118Beef cattle:1910-49 . .1950-7116.4322.3617.913.2.258.162Hogs:1910-491950-7119.8819.1323.78.7.245.1541 Annual averages: Dollars per bushel for wheat, corn, and soybeans; cents per pound for cotton; dollars per hundredpounds for beef cattle and hogs.Sources: Department of Agriculture and Council of Economic Advisers.recent period, and transportation and communication systems are greatlyimproved. These improvements not only diffuse shocks from the supply sidesomewhat more broadly, but also make for a quicker adjustment to changingeconomic conditions.Although the stocks in Government hands during 1950-71 were acquiredas a means of supporting prices above market-clearing levels, not as a stabilizationreserve, their acquisition and release appear to have provided animportant stabilizing influence on commodity markets. This stability wasnot without its costs, however. The stocks were quite large, and consequentlythey were costly both to acquire and to maintain. Since they were acquiredas a by-product of programs designed to support farm prices, the increasedstability was also a by-product. But the maintenance of comparable reservesfor stability purposes would have similar costs.A key question is whether we have returned to a period of increasedprice variability comparable to that prior to 1950. Grain prices have increasedvery greatly in 1973 and 1974. Yet normal weather in the UnitedStates and around the world will enable grain output to recover sharplyin 1975. This increased supply would come into the market under conditionsof weakened demand both from cyclical downturns in the economiesof the developed countries and from a reduction in livestock enterprises.The consequence could be an abrupt reversal of the present situation, withmuch lower grain prices and higher prices for livestock products.Certainly there are some elements in the present situation that are comparableto the period prior to 1950, especially the absence of large stocks.On the other hand, as noted above, important differences exist in thecurrent situation which should serve to attenuate the price fluctuations.176

Without a significant rebuilding of stocks, more price instability should beexpected than during the 1950's and logo's, but it seems unlikely that yearto-yearchanges will be as large as in the earlier era.POLICY CHALLENGES AND OPTIONSU.S. agricultural policy has in the past been dominated by two somewhatcontradictory themes. The first has been the attempt to increase agriculturaloutput, largely through public investments in agricultural research, thedissemination of new agricultural techniques, and in some cases the subsidizationof inputs. The second theme has been a concern with the problemof low relative incomes in agriculture, which led to programs aimed at supportingfarm prices above market-clearing levels and holding productiondown through restricting acreage and at times marketings.An unintended by-product of these programs was the accumulation ofsizable stocks of agricultural products in Government hands. These stocksand the recently diverted acres provided a degree of increased stabilityto commodity markets. They were also the means by which considerableamounts of food aid were provided to foreign countries, aid that eventuallybecame an important component of the Nation's foreign assistance programs.But these benefits were obtained at considerable cost: less efficientuse of the Nation's resources and heavy Government involvement in theagricultural sector.The changed conditions of agriculture and the shift to market-orienteddomestic farm policies that took place during the 1960's and early 1970'shave solved many of the earlier difficulties, but new issues have emerged.The decline in excess capacity in agriculture and the sharp increase infood prices have added to the importance of obtaining low-cost increases inagricultural output. Moreover, with the growing interdependence betweenU.S. and foreign markets, the U.S. consumer may for the first time havean obvious interest in expanding the agricultural output in developing countriesand improving the stability of international markets.The rise in incomes in agriculture has reduced the importance of the farmincomeproblem. There will undoubtedly be an increased concern aboutinstability, however, with the danger that in attempting to deal with thisproblem we will return to policies that created other problems in the past.If prices t should decline precipitously from their current high levels, thetemptation will be great for the Government to intervene by raising pricesupports above market-clearing levels.The return of the dollar to near equilibrium exchange rates and the shiftto floating rates place the United States in a better position to capitalize onthe considerable comparative advantage that it has in agricultural products.To do so, however, will require continued emphasis on trade liberalization.Parallel to this is the need to encourage more market-oriented agriculturalpolicies among our trading partners in order that the United States need notcarry a disproportionate share of the adjustment to changing conditions of177

demand and supply in world markets. Further adjustments in our own agriculturaland trade policies will also contribute to a more flexible agriculturalsector.AGRICULTURAL DEVELOPMENTThe World Food Conference held in Rome in November 1974 had theprimary objective of devising means of coming to grips with the emergingworld food problem. The United States proposed to the Conference a comprehensiveprogram of urgent, cooperative worldwide action on five points:1. Increasing production in food-exporting countries.2. Accelerating production in developing countries.3. Improving the means of food distribution and financing.4. Enhancing food quality.5. Ensuring security against food emergencies.Increasing agricultural output both at home and abroad is probably thecritical issue on this agenda. Our state of knowledge with respect to ways offostering agricultural development has advanced considerably in the lastdecade. Studies have shown that investments in developing and disseminatingnew production technology tend to have a high rate of social return. Theadoption of new production technology involves increased use of moderninputs, such as fertilizer and machinery, which are produced in the nonfarmsector. The capacity to produce these inputs usually needs to be increased ifgeneralized modernization is to take place, and adequate price incentivesare important for their adoption. Similarly, improvements in the humanagent through investments in schooling and training programs are requiredfor the rural population.Many developing countries have tended to underinvest in agricultural researchand in the schooling of their rural population. Moreover, they haveoften concentrated their industrialization efforts on steel mills and the accoutrementsof a modern mass-consumption society, to the neglect of industrieswhich would have provided expanded supplies of modern agriculturalinputs. In addition, they have discriminated against their agricultural sectorsby means of trade and domestic price policies, thereby reducing the incentivesto adopt modern inputs.If these policies are changed, there is good reason to expect food output tokeep up with increasing population and growing demand into the foreseeablefuture. To change the policies, however, will require considerablepolitical courage and the ability to focus on longer-run requirements ratherthan short-term exigencies.Even with changed policies by the developing countries, there is still arole for assistance by the advanced countries to facilitate the modernizationof world agriculture. The United States has a tradition of providing suchassistance, starting with President Truman's Point IV program. However,foreign assistance provided through that program concentrated on thetransfer of our own knowledge rather than the development of new knowl-178

edge, and therefore placed undue emphasis on strengthening farm extensionprograms in developing countries. The limitations on the transfer of agriculturalproduction technology from one area to another were not adequatelyrecognized, nor was the importance of strengthening the capability for agriculturalresearch under ecological and economic conditions similar to thosein which the new production technology was to be used.In recent years the United States has shifted a larger portion of its diminishingforeign aid budget toward agricultural development, with particularemphasis on assisting small producers and landless workers. The UnitedStates has also supported since its inception*the Consultative Group on InternationalAgricultural Research, which allocates resources to the InternationalCenters for Agricultural Research, and more recently it has agreed toestablish an International Fertilizer Development Center in the UnitedStates.The immediate challenge in strengthening world agriculture is to developthe national capabilities for agricultural research in the low-incomecountries. The generation and application of new production technologyare the keys to agricultural development, particularly where land constraintsexist. Although basic principles and basic plant material can usefully betransferred, new production technology for the most part has to be developedunder tne conditions in which it will be used.There is also continued need to support agricultural research in the UnitedStates, as well as a need to make more effective use of existing resources.The private sector can and does support a great deal of agricultural research,and its expenditures for this purpose have grown. However, theprivate sector can be expected to undertake only that research fromwhich it will be able to capture a return. Much of the knowledge producedfrom agricultural research is a public good, and private entities cannotcapture the full benefits from it. This is especially true of basic research.There has been a shift toward more applied research in recent years,partly because of budget measures and partly to make the research effortboth more visible and more accountable. In fact, however, publicly supportedresearch might better concentrate on basic research, leaving the applied researchto the private sector. At the same time, attention might be directed tothe efficiency of the current research establishment. The appropriate numberof research stations, the division of labor between the universities andother research institutions, and the priorities in the research program itselfare questions that should be examined.Public support (State and Federal) for agricultural research in the UnitedStates has increased only slightly (1.6 percent) in constant dollar terms from1968 through 1973, with a somewhat larger increase in scientific man-yearsdevoted to such research. As a fraction of the gross national product frorragriculture, however, public expenditures on research have declined from1.4 percent in 1968 to 1.2 percent in 1973. At the same time there has179

een a shift away from output-increasing research and toward a greateremphasis on social and environmental problems.THE INSTABILITY PROBLEMChanges in relative prices are desirable because they provide importantsignals to both consumers and producers about changes in relative scarcityof products. They help ration limited supplies among competing uses intimes of short supply and encourage consumption when supplies are large.Agricultural prices are subject to larger fluctuations than many other products,mainly because production is subject to unpredictable shocks from theweather. Moreover, the biological nature of the production process resultsin a considerable lag between the time resources are committed to productionand the time output is forthcoming, and the climatically induced productioncycle limits the extent to which crop shortfalls can be replenished.In contrast, many other sectors of the economy have a continuous productionprocess and output can more easily be adjusted to changes in demand.Large swings in agricultural prices result in a loss in resource efficiency,since producers will frequently have made the wrong decision ex post. Inaddition, wide fluctuations in agricultural prices lead to transfers of incomebetween producers and consumers. While these shifts will be offsetting overseveral years, they can be severe from the standpoint of either group in aparticular year.For producers, part of the problem is obtaining adequate information. Ifat the time of committing resources to production they knew what thedemand would be when their output was expected to be sold, they could adjusttheir production decisions accordingly. Hence, information has value tosociety, and both producers and society at large can afford to use resourcesto improve that information, although there are obvious limits to predictingthe weather and to a lesser extent Government policy.Institutions have developed which provide protection to participants inunstable agricultural markets. An important example is futures markets,which offer a way of reducing uncertainty through hedging operations.Futures markets furnish an efficient means of pooling informed judgmentsabout what prices will be. But because they cannot remove the source ofprice instability, they do not remove the basic resource misallocation thatresults from widely fluctuating prices. The farmer who makes productiondecisions based on $3 corn can protect that price through an appropriatehedging operation. However, if his corn is valued at $1 when it is sold, thecost from producing inappropriate quantities will still be there.Government policy can help alleviate the instability problem in manyways, through: (1) improved information and analysis, (2) greater coordinationof domestic agricultural policies among countries, (3) freer tradein agricultural products, and (4) building and maintaining greater grainreserves or stocks for use in years of crop shortfall. Whether the latter isrequired will depend in part on success in the other endeavors.180

Improved Information and AnalysisThe traditional Government role of providing information and analysisis an essential component of a free market philosophy. The importance ofboth is now greater than ever, especially in view of the interdependenceof the U.S. food and agriculture sector with the world economy. With increasedinstability, more accurate forecasts of future market conditions willlead to a more rational allocation of resources. But improved forecastingwill require an improved data base both here and abroad, the cooperationof other governments, and a strengthened and expanded capability to analyzethese data. During the past year several significant steps have been taken toupgrade the statistical programs and forecasting work of the Department ofAgriculture.Coordination of Domestic Agricultural PoliciesThe Government has also sought to improve coordination among countriesin the conduct of their domestic agricultural policies. For example,consultations were held in 1974 with many countries in order to obtainadjustments in domestic policies that would help alleviate the pressuresfrom reduced U.S. grain output and large worldwide supplies of beef.Greater coordination in the future can cushion the shocks imposed on UTS.agriculture from abroad.Trade LiberalizationTrade liberalization is an essential element in providing increased stabilityin world markets and in assuring food security for all countries. Weatherinducedfluctuations in production could be offset through changes in exportsand imports, thereby evening out the supply for any one country. The largermarket area that would result from freer trade would increase the chancethat the effects of bad weather in one location would be offset by goodweather in other areas.Efforts to liberalize trade are hampered by domestic agricultural policiesdesigned to fix prices either above or below what would be market-clearinglevels in the absence of such policies. Both kinds of policies have tradeimplications and are potentially destabilizing to world markets. If pricesare set above market-clearing levels, restrictions on imports have to beimposed. If they are set below market-clearing levels, then exports haveto be limited in order to provide adequate supplies to the domestic marketif the country is on balance a net exporter, or imports must be subsidizedif the country is to attain its domestic price goals. Such policies in effectpush adjustment problems onto other countries, thereby making their agriculturalsectors more unstable.The intertwined nature of trade policy, domestic agricultural policies, andreserves policies is illustrated by the experience of the last 2 years. Thesharp rise in grain prices, combined with weakening prices for livestock andpoultry products and unacceptable rates of inflation, gave rise to pressures tocontrol and limit exports. With freer trade, a larger area of supply might181

have been tapped to accommodate the demand. Similarly, with more flexibledomestic prices in some countries, price increases would have dampenedsome of the demand. In either case there would have been a more generalsharing of the burden.Grain ReservesIn the absence of more flexibility on the side of trade and domesticagricultural policies, the availability of contingency reserves can serve tocushion price rises. The experience since 1972, however, points up thatreserves would have had to be very large to provide a stabilizing influence,larger than any one country or even a few countries would be willingto carry.For this reason, and to achieve greater world food security, the UnitedStates has proposed an international system of nationally held grain reserves.In the past, the exporting countries—primarily the United States—have carriedthe bulk of the grain reserves. Since reserves may also benefit importingcountries, a greater sharing of the costs among countries seems justifiedin the future.Negotiations on grain reserves will be held in 1975. These discussions arelikely to be protracted, since there is little agreement either on who benefitsand who loses from stabilization or on the appropriate quantities of contingencyreserves. Similarly, agreement on rules and criteria for managingthe stocks is lacking.There are several additional difficulties in developing an internationalsystem of nationally held grain reserves. One problem is that the benefitswill accrue partly to those who have not paid for them. A possible solutionis to negotiate a system that includes penalties and sanctions for those who donot participate. For instance, such countries could be denied access to thereserves in a period of tight supplies. Alternatively, reserves that participantcountries accumulate and pay for might be made available to nonparticipantson less attractive terms, perhaps by an export tax at least equal to theaccumulated carrying charges.The acquisition and maintenance of grain reserves will have a variety ofcosts. While stocks are being accumulated, consumers pay higher pricesthan they otherwise would; and when they are released, producers in asimilar way receive lower prices. Unless stocks are managed properly, theycan be destabilizing by untimely release or accumulation. Moreover, thereis the danger that a reserve program will again, as in almost all past attempts,become a price-propping program, used largely to insulate one sector oranother from market forces.There are two reasons why the United States should build grain stocksabove their current low levels. First, conditions of free trade do not prevail inthe world, and the United States provides freer access to its supplies than mostother countries do. Under these conditions contingency reserves, if correctlymanaged, would provide a means of offsetting the shocks that come fromabroad and furnish some protection to U.S. consumers and producers182

(especially livestock producers). Second, ample stocks are one way tomaintain confidence among foreign customers that this country will be ableto meet its export commitments. If access to supplies cannot be assured,countries have a tendency to diversify their supply sources, turn to selfsufficiency,or perhaps resort to both of these.FOOD ASSISTANCEThe United States provides food assistance to low-income groups througha variety of programs, especially the Food Stamp Program. This programhas been greatly expanded and extended in recent years. Although not allthe families eligible for such assistance have made use of it, budget costs tothe Government have grown from only $250 million in fiscal 1969 to $4.0billion in fiscal 1975. Moreover, it is estimated that food stamp bonus dollarsraise food expenditures by 60 to 65 cents per dollar in contrast to an increaseof from 20 to 30 cents per dollar in food expenditures that would be expectedfrom comparable cash income supplements to this low-income group. Anadditional demand therefore has been placed in the market for food atthe very time that food prices were rising sharply.There is serious question as to whether the distribution of stamps is anefficient means of income transfer under current circumstances. A possiblereform of the Food Stamp Program would be to replace the food stampswith direct transfers of money income to provide the recipient more freedomof choice and lead to a more efficient welfare program.Large quantities of food aid have been supplied to foreign countries aspart of our foreign aid program. This program has provided a convenientmeans of disposing of stocks accumulated in Government hands as a byproductof price support programs, and has thereby helped to reduce the coststo the taxpayer of carrying large stocks.In contrast to the Food Stamp Program, food aid shipments under thePublic Law 480 program have declined in recent years. Shipments fell from10 million tons in fiscal 1972 to slightly over 7 million tons in 1973 and lessthan 4 million tons in 1974.The objectives of food aid can be to alleviate human suffering causedby shortfalls in production in developing countries to furnish more limitedrelief when such natural disasters as earthquakes or hurricanes occur, or tosupply continuous food aid as a means of balance of payments support orforeign aid to individual countries. The negotiations evolving out of theWorld Food Conference will attempt to solve the more persistent food securityproblems.A country with a comparative advantage in agriculture might want toprovide some fraction of its foreign aid in the form of agricultural products.With the decline in excess capacity in the U.S. agricultural sector, however,and the changes in domestic farm policy, such aid is no longer the "free" goodthat it was once imagined to be. Except to the extent that it substitutes forcommercial sales, every incremental increase in tonnage shipped for this183

purpose represents a corresponding reduction in the supply available tothe domestic economy—and an increase in prices to the domestic economy.The costs of the program have now become more explicit, with the resultthat more rational policy choices may be made. The question is how desirableit is to provide food aid beyond the commitment to promote food securityunder conditions of stress, since continuing food aid can reduce incentivesto strengthen the agricultural sector of the recipient country.GUIDELINES FOR DOMESTIC FARM POLICYSince the mid-1960's commercial farm policy has evolved toward muchgreater market orientation. The previous commodity programs, dating backto the 1930's, were built around a system of mandatory acreage allotments,marketing quotas, and high price supports for individual field crops. Todayonly a few crops (rice, peanuts, tobacco, and long-staple cotton) continueunder such rigid programs. The difficulties with these programs wereenormous: they were mandatory and inflexible to changes in supply anddemand; they overstimulated the production of particular crops and ledto the excess Government stocks of the 1950's and early 1960's; they provided"artificial" benefits, or subsidies, which became locked into land values;by holding up domestic prices, they conflicted with a liberal tradepolicy, requiring restrictions on imports and subsidies to make Americanproducts competitive in world markets.The first major step in the transition was to reduce (market) price supportson individual crops and replace them with direct cash payments which werecontingent on diverting land from crop production. Gradually the emphasison individual crops was discontinued, allowing producers discretion to plantcrops they considered most profitable. The principles that have guided thetransition are economically sound.1. Market prices should not be supported above market-clearing levels.Price supports to prevent excessive downside price declines in surplusyears should be relatively low and cover only variable productioncosts. While providing an element of guarantee to producers, lowfloors avoid any need for export subsidies and encourage expandeddomestic consumption and exports when supplies are large.2. Production of individual crops should be free of controls. Controlsinterfere with producers' ability to make the best use of resources inresponse to changing conditions. If needed at all, production controlsshould be through general land diversion.3. Direct cash payments are more efficient than high price supports asa means of providing income support to producers. Such paymentsare only warranted because of the volatility of agricultural markets,which can create excessive financial losses. In most years they shouldbe unnecessary and should be limited to providing guarantees againstthe exceptional years of oversupply, thereby shifting some risk from184

producers to taxpayers but permitting consumers to benefit fromlower prices.The agricultural developments beginning in 1972 enabled the principlesto be implemented: almost all diverted land was released for production;export subsidies were phased out; import restrictions were relaxed to somedegree; prices moved not only well above market supports but sufficiently highthat direct payments under the provisions in the 1973 act were limited towool and soil conservation. In effect, developments in the market contributedto a fairly dramatic move toward a policy of increased reliance on the market.These principles were, to a substantial degree, embraced in the Agricultureand Consumer Protection Act of 1973.FARM POLICY IN 1975 AND BEYONDIn considering policy in 1975 and beyond, the principles that have guidedfarm policy in the past decade still apply. Government policy can functionin complementary ways, as discussed above, through participation in aconstructive international system of grain reserves, improvements in domesticand international information and analytical systems, measures to makeinternational trade in agricultural products more flexible, and efforts toexpand food production in developing countries. It is important, however, notto change farm policy in ways that are inconsistent with these principles.Efforts to raise price or income guarantees to producers, if successful, mighthave some small temporary effect in 1975 by reducing uncertainty and encouragingall-out production. However, even though market prices areexpected to remain well above current guarantees in the immediate future,any substantial increase now would be a move backward for farm policy.When food supplies become more abundant in relation to demand, higherprice supports would prompt a return to substantial land diversion, largeGovernment payments, export subsidies, and import restrictions—and possiblyeven to the mandatory production controls of the past.Current problems with dairy programs illustrate the pitfalls in heavyGovernment involvement. State and Federal marketing order programsinstitutionalize a higher price of milk for fluid consumption than for processing,and they restrict the free movement of raw milk. Together withimport quotas and a relatively high Federal minimum price support, thesemeasures place the dairy industry under heavy regulation and discourageefficient production. Consumers eventually pay extra for milk; and, becauseimports are usually limited to less than 2 percent of total consumption, tradein dairy products has become a constant source of dispute in trade policy.The dairy producers 5 welfare, on the other hand, is dependent on andaffected by decisions setting Federal regulations. For many dairy farmersproduction is often unprofitable, and their numbers have been diminishing.Although there would be serious adjustment costs in reforming dairy programsaccording to the principles set forth above, the dairy industry could185

in time become more efficient and prosperous, and consumers would purchasemore milk and dairy products at lower prices.* * * * * * *Although economic circumstances have permitted a desirable move to amarket-oriented commercial farm policy, they have also brought out a basiccharacteristic of agricultural markets: large price fluctuations and the uncertaintythat these fluctuations generate. Producers, consumers, and Governmentpolicy makers will learn to adjust to the increased uncertainty. As thishappens the instability itself will be diminished, but learning is not an instantprocess. In the meantime, steps that would return the agricultural sector to amore regulated basis in response to short-term or temporary problems shouldbe avoided.186

CHAPTER 7The International Economy in 1974T N 1974, THE WORLD ECONOMY experienced severe setbacks. Infla-•*• tion in most major industrial countries reached the highest level in morethan 20 years. The rate of real economic growth declined. Sharp priceincreases in energy, food, and other basic materials distorted price relationshipsand created new and large payments imbalances, affecting nearly allcountries. Massive international capital movements of unusual complexitywere required to continue the financing of world trade, which in terms ofdollars rose by about 50 percent from mid-1973 to mid-1974.Specifically, consumer prices in the industrial countries comprising theOrganization for Economic Cooperation and Development (OECD) roseby almost 14 percent on the average from 1973 to 1974. This rate of advancewas nearly double the average rise of 1 l A percent from 1972 to 1973, andnearly four times as high as the annual rate of increase of 3 5/2 percent duringthe period 1959-72.Economic growth came to a virtual standstill as the growth of real GNPin the OECD countries, which had averaged about 5.4 percent per annumfrom 1959 to 1972, fell nearly to zero in 1974. Efforts to check the accelerationof inflation coincided with ongoing cyclical downturns in many countries,and the high costs and reduced availability of energy reinforced theadverse development of both prices and output.In international trade, the sharp rise in the prices of crude oil implementedin October 1973 and January 1974 by the countries belonging to theOrganization of Petroleum Exporting Countries (OPEC) created massivedeficits in the current account balances of the oil-importing countries. Thisplaced strains on the world's financial markets and raised the prospect for thelong term of a large transfer of real resources or of ownership of nonfinancialassets from the oil-importing to the oil-exporting countries. Nonindustrialcountries, particularly in Asia and Africa, were in many cases seriouslyafflicted by food shortages and the slowdown in world economic activity.The international financial and economic system displayed a notable resiliencein adjusting to some of these disturbances. Broadly speaking, countrieshave refrained from beggar-my-neighbor policies through which theymight have tried to shift some of their domestic and international problemsto other countries at the cost of a shrinkage in world trade and a loss ineconomic welfare. In the financial sphere, the world capital markets ab-187

sorbed and recycled massive amounts of petro-dollars and provided most ofthe financing of international payments deficits and surpluses, with someassistance from official lending operations conducted either by the InternationalMonetary Fund (IMF) or between governments. The existing systemof floating exchange rates helped countries avoid massive movementsof speculative funds.The international monetary system was thus able to cope with differingrates of domestic inflation, the increased costs of energy and other basicgoods, and the heavy capital movements associated with the accumulationof large amounts of liquid assets by OPEC countries.STAGNATION AND INFLATION IN THE INDUSTRIALWORLD IN 1974The stage for "stagflation" during 1974 was largely set in 1970-71.Beginning in late 1969, a slowdown in economic activity occurred in industrialcountries that, while relatively mild, was more widespread than anydownturn in the postwar period. The stimulative measures which a majorityof countries adopted almost in unison in 1971 and maintained well into 1972resulted in a strong upswing in economic activity in 1972-73 throughoutthe industrial world.The expansion in demand added to the inflationary tendencies; the risein consumer prices in the seven largest OECD countries, that had been4 percent from 1971 to 1972, was l l / 2 percent from 1972 to 1973. Moreover,the coincident upswing in business activity led to a sharp increase in demandfor industrial commodities and strained the capacity of producers tosupply that demand. The index of spot prices of world industrial materials(excluding fuel) rose by 80 percent between 1971 and 1973. Poor harvestsin the Soviet Union and other parts of the world added to the emergingprice pressures on food. World food prices almost doubled as the worldcommodity index for food (1970—100) gradually rose from 95 in 1971to 173 in 1973.The policy makers in most major industrial countries were confrontedearly in 1974 with the difficult task of dealing simultaneously with highinflation and slackening economic growth. Superimposed on these problemswere domestic and international dislocations created by the sharp rise in theprices of crude oil. Deep concern about inflation prompted fairly restrictivefiscal and monetary policies to be maintained in most countries throughoutthe first half of the year.The resulting pattern of economic change has been remarkably uniformin the major industrial countries during 1974. Table 45 highlightssome measures of the economic performance of these countries. The growthof private consumption expenditures that had been the dynamic factor in theeconomic expansion in virtually all major countries during 1973 sloweddown sharply in 1974.188

TABLE 45.—Changes in real gross national product and major components for selected industrialcountries, 1962 to 1974[Seasonally adjusted annual rate]Percent changeCountry and component1962to1971averageFrom precedingyear19721973From precedinghalf year19741st half2d half iFrance:RealGDP2__Private consumptionGovernment current expenditures..Gross fixed capital formation5.75.53.38.25.55.84.07.66.06.03.46.54.54.62.65.64.23.52.55.0Germany:RealGNPPrivate consumptionGovernment current expenditures..Gross fixed capital formation4.74.94.45.33.54.24.12.75.32.93.81.12.01.03.0-5.3.02.21.5-8.5Italy:RealGNPPrivate consumptionGovernment current expenditures..Gross fixed capital formation5.05.63.93.73.13.34.6.46.06.23.39.04.94.03.64.7.0-1.0.0-2.2United Kingdom:RealGDP2Private consumptionGovernment current expenditures..Gross fixed capital formation2.62.32.14.03.16.04.02.45.34.63.74.8-3.4-2.0—.4-5.75.04.5—.5-7.5Japan:Real GNP____Private consumptionGovernment current expenditures..Gross fixed capital formation10.38.96.713.08.99.19.69.510.28.66.915.2-9.3—6.6—1.2—28.23.05.57.03.2Canada:RealGNPPrivate consumptionGovernment current expenditures..Gross fixed capital formation5.54.95.85.85.86.94.05.36.88.04.110.45.66.68.68.42.53.05.0.01 Estimate.2 Gross domestic product.Source: Organization for Economic Cooperation and Development.With few exceptions, the tight monetary policies of early 1974 causedsevere declines in residential construction in virtually all countries. Industrialinvestment in machinery and equipment, which had risen vigorously during1973, dropped off sharply in response to much higher long-term interestrates and the deterioration of the business outlook.The softening in economic activity was accompanied by rising unemployment;the 1974 unemployment rate exceeded the average of the pastdecade in most major industrial countries. Recent changes in unemploymentin several OEGD countries are summarized in Chapter 3.In late 1974 the demand management policies in a number of countriesbegan to move cautiously toward greater ease; but inflation continued tobe of major concern to the policy makers. Assessing these policies, the OECD189563-280 O - 75 - 13

in its Economic Outlook of December 1974 has projected a moderate upturnin economic growth and some easing of inflationary pressures in allmajor countries by the second half of 1975.INTERNATIONAL REPERCUSSIONS OF THE OILPRICE INCREASESThe oil embargo and the subsequent fivefold increase in the PersianGulf price of crude over September 1973 levels imparted the most severeshocks to the world economy since World War II. The broad economicimplications of these developments for production, consumption, and economicgrowth in the United States are discussed in Chapter 2. For otherindustrial and developing countries of the world the implications werequalitatively similar, but the force of the impact varied in proportion to thedependence of individual countries on imported oil as a source of energy.In analyzing the effects of the increase in the price of oil on the worldeconomy, one can single out four broad areas: income and output, prices,the current account, and the capital account.Income and Output EffectsGiven the relatively low short-run price elasticity of demand for oil, theeconomic consequence of the oil price rise was a diversion of consumptionexpenditures in the oil-importing countries from domestically producedgoods to imported petroleum products. To the extent that prices of otherconsumer goods did not decline, the immediate result of such a diversion wasa reduction in the real income of consumers in the oil-importing countries.When the purchasing power created in the production of domestic goods andservices is transferred to the oil-exporting nations, and these nations do notincrease their imports correspondingly, aggregate demand would tend todecline in the short run unless the reduction is offset by domestic policyaction.The gross transfer of purchasing power realized through export receipts ofthe OPEC countries in 1974 has been estimated at nearly $100 billion, allbut about $5 billion of which were received in payments for exports of oil.This represented a more than threefold increase in revenues over 1973.The increased exports to OPEC countries could offset only a small part ofthe reduction in aggregate demand stemming from the increase in the oilbill borne by the oil-importing countries. All estimates of non-oil transactionsby the OPEC countries are subject to a great deal of uncertainty. Itappears, however, that OPEC imports of goods and services increased byabout $15 billion in 1974 to about $35 billion—approximately a third of theOPEC revenues. After subtracting grants to developing countries and addingincome on their investments, the OPEC countries were left with roughly $60billion as current account surplus in 1974.The nature and direction of investment of the surplus funds by the OPECcountries in 1974 are discussed below. As far as the immediate impact of190

the oil price increase on income and output in the oil-consuming world isconcerned, the surplus may be viewed as increased "saving" that resultedfrom the shift of world income from economic units with a relatively highaverage propensity to consume (consumers in the oil-importing countries)to economic units with an extremely high average propensity to save (oilexporters). The OPEC savings were made available to the oil-importingcountries through the reflow of funds. To the extent that such funds werechanneled toward financing current consumption or real investment inindividual oil-importing countries, the reflow of financial capital into thecredit markets of those countries has cushioned the demand-dampening effectof the higher bill for oil imports. How far the slack in demand createdby the oil price rise was offset either by the return flow of OPEC funds or bythe internal demand management policies of individual countries cannot beprecisely determined. Domestic policies to dampen inflationary pressures, andthe depressed state of the economies in many of the oil-importing countriesprovided little incentive for using the inflow of the OPEC funds to increasereal investment or consumption.In addition to the demand-dampening effects of the increase in "saving,"the high price of energy reduced demand for goods that use energy intensively.This shift created structural unemployment of resources, since manyfactors of production are highly specialized in the short run and yield lowproductivity in other uses. The demand for autos, for instance, fell sharplyin virtually all major countries, causing widespread unemployment in theworld auto industry.In the longer run, as the OPEC countries develop the capacity to increasetheir imports of goods and services, further structural changes will have totake place in the economies of the oil-importing nations: resources must beshifted to increase the production of goods and services for export. Thus,the real income of consumers in the oil-importing countries will be reducedas more domestically produced goods and services are exchanged for importsfrom the OPEC countries. Unlike the reduction in real income experiencedin the short run, this reduction cannot be offset by domestic monetary orfiscal policies, since it represents the "real" payment for oil.Price EffectIn general, a direct link between the increase of a specific price and that ofthe general price level exists only in the short run. For practical purposes theduration of the "short run" depends on the monetary and fiscal restraintaccompanying the price rise. It is therefore difficult to quantify preciselythe contribution that the rise in the oil price made to the inflation in the oilimportingcountries during 1974.The short-run effects of increased oil prices on the general price levelin different countries occurred through several channels. The most obviousone was the direct impact arising from the higher prices that consumersin individual countries must pay for petroleum products like gasoline andheating oil. This effect is directly evident in the consumer price index (CPI)191

of individual countries, depending on the weight these commodities are givenin the market basket.An indirect impact also occurs as increases in the prices of other goodsand services follow from the rise in the price of petroleum products used inproduction. The strength of this indirect effect depends on the extentto which oil price increases are passed through to the prices of final products,absorbed by the producers, or amplified under a system of markuppricing. Finally, the higher prices of oil heighten the demand for substitutesources of energy, driving up their price and raising production costs.How long the effect on the general price level lasts and how output developsunder such strains depend on the way in which demand managementpolicies react to the dilemma, as discussed in Chapter 4.While it would be hard to establish the total effect of these influenceson price behavior, the direct effect of price increases for gasoline alone leavesno doubt that the oil price increase contributed significantly to the pricepressures in the world economy during 1974. For example, the increase inthe price of gasoline from October 1973 to August 1974 added between 1and 2 percentage points to the rise of the consumer price index in GreatBritain, Italy, and the United States.Current Account EffectThe increase in the price of oil by the OPEC countries led to a large deficitin the current account of the oil-importing countries, and a matching surplusin the current account of the oil-exporting nations. Table 46 highlightsthe change that occurred between 1973 and 1974.The magnitude of the imbalance has been and will continue to be theresult of interaction among the following factors: the quantity of oil importedby the oil-consuming nations; the price of oil set by the OPEC cartel; thevalue of their imports of goods and services from the rest of the world; theflow of earnings on the financial assets of the OPEC countries; and thegrants and aid donations they choose to make to the developing countriesof the world.TABLE 46.—Balance on current account of major areas, 1973-74[Billions of dollars]Area 197319741Chance,1973to 1974»OPEC countries 25.060.055.0Industrial countries *2.5-37.5-40.0Rest of world-7.5-22.5-15.01 Preliminary.2 Organization of Petroleum Exporting Countries.3 The 24 countries of OECD.Sources: Department of the Treasury and Organization for Economic Cooperation and Development (OECD).192

The ability of the oil-consuming nations to lower their oil imports inresponse to the higher price has been limited. Oil represents an importantsource of energy for industrial countries and for many developing nations.The growth in world oil consumption came to a halt during 1974; a substantialreduction, however, must await implementation of further measuresand development of alternative sources of energy.The power to raise prices has been derived from the strong monopolisticposition of the OPEC countries. An individual country cannot increase theprice of a homogeneous commodity without facing sharply reduced exportsand lower revenues, if there are alternative sources of supply. If a numberof exporting countries act jointly to drive up the price, however, and thesupply forthcoming from the remaining exporting countries cannot readilybe increased, output restrictions can indeed be effective. With respect tothe OPEC, this has clearly been the case so far, although the growing responsivenessof non-OPEG output and total import demand to the higher pricesset by tihe OPEC should make maintenance of these relative prices moredifficult over time.The highly unequal distribution of income characteristic of the OPECcountries and the confinement of income gains from trade to narrow segmentsof the population precluded significant increases in demand for manyimported products in the short run. For other countries in the OPEC group,the long lead time required in developing major projects was the mainconstraint limiting their ability to increase imports by the full amount of theincrease in revenues. Most OPEC countries, particularly those with relativelysmall populations like Saudi Arabia and Kuwait, have been spendingonly a fraction of their additional oil revenues on imports of goods and services,because their ability to absorb additional imports has so far beenlimited. Thus it may be several years before the OPEC countries develop thecapacity to increase imports of goods and services substantially.Finally, while actual grants and commitments for future donations bythe OPEC countries have risen sharply, current and prospective grantsstill represent only a small portion of their total revenue derived fromoil. Furthermore, the flow of investment income from the financial and realassets acquired by the OPEC countries has been growing rapidly.Given these factors, the elimination of the deficit poses special problems.Some of these can be identified conceptually by contrasting the increase inthe price of oil with a hypothetical revaluation of the OPEC currencies.Analytically the oil price increases may be viewed as if they had beenproduced by an export tax. For the importing countries, the administrativeincrease in the price of foreign oil caused current account deficits that werelarger than those that would have materialized if, instead of imposing an"export tax," the OPEC countries had chosen to revalue their currenciesto achieve the same increase in the price of oil to importers. Given the lowprice responsiveness of demand by oil importers, even a revaluation mighthave the abnormal effect of raising the OPEC surplus if the import193

demand of the OPEC countries is also quite unresponsive to any change inthe domestic price of their imports. Conceptually, a revaluation is equivalentto a tax on all exports plus a subsidy of all imports. Compared to this, theOPEC countries chose to tax only the oil exports and not to subsidize imports,thus assuring that increased revenue from oil exports would not be accompaniedby revenue losses from other exports and increased spending onimports due to lower prices.Under present circumstances a current account deficit of the oil-consumingnations as a group vis-a-vis the oil-exporting nations must be accepted.Efforts by one of the oil-consuming nations to reduce the deficit, either bycurrency depreciation or by special measures designed to boost exports orreduce imports from other oil-importing countries, would inevitably meanan increase in the current deficits of others, leaving the total deficit of the oilconsumingnations largely unchanged. For the time being, oil-induced currentaccount deficits must therefore be financed by drawing on reserves,by selling equities, or by accumulating international indebtedness.To supplement the capacity of the world's money and capital markets tofinance the deficits experienced by individual countries, special financialarrangements have been put into effect and are being developed further.Also, in May 1974 the OECD nations pledged not to take unilateral measureswhich would tend to shift deficits to other nations. Specifically, the governmentsof 24 member countries agreed, for one year, to avoid introducingrestrictive measures affecting trade or other current account flows. Thepledge will very likely be renewed in May 1975. In the United States, passageof the Trade Reform Act by Congress at the end of 1974 signifiedthat pressures to restrict trade, which have been intensified by the oil crisis,will be resisted. Moreover, the act assures that the long-delayed multilateraltrade negotiations can get under way. The purpose of these negotiations isto improve access to international markets for both buyers and sellers byreducing restrictions on imports and by limiting any restrictions on exportsthat prevent foreign buyers from competing with domestic buyers for certainbasic materials, food, and feedstuff's on an equal footing.The Capital Account EffectThe current account surplus experienced by the OPEC countries in 1974was matched by the accumulation of financial claims on the oil-consuming\vorld. This, of course, follows as a balance of payments accounting identity:funds received in payment for goods and services or as aid, and not spent ongoods and services or given away as aid, must simply end up as financialclaims or real assets of various forms in the hands of countries in the surplusarea. What was true as an accounting identity for the oil-importing worldas a whole, however, was not true for individual countries: there is no apriori reason why the oil-related current account deficit of an individualcountry should be matched by an inflow of funds directly from the oil-exportingcountries. As expected, given a choice of where and how to invest theirsurplus funds, the oil-exporting countries have turned to those national mar-194

kets that best meet their objectives with respect to security, return, andmaturity.Preliminary estimates for 1974 indicate that about $11 billion of the $60-billion surplus accruing to the OPEC countries has been invested directly inthe United States. This was less than the increase in the U.S. bill for oilimports from the OPEC countries. Roughly half of this investment in theUnited States was in short- or long-term marketable Government and agencysecurities. Less than a billion was placed in U.S. real estate and private securities,and the remainder in banking and money market liquid assets, suchas large negotiable certificates of deposit.About $7/ 2 billion of the OPEC surplus was invested in the United Kingdomin pound sterling assets such as bank deposits, other money market instruments,and government securities. About $5j/2 billion was lent by theOPEC countries to official and quasi-official institutions in other industrialcountries, around $2^2 billion to the developing countries, and about $3 l /ibillion to international financial institutions. At least $21 billion of theOPEC surplus was held as Eurocurrency deposits in banks in London and inother financial centers around the world. (The functioning of the Eurocurrencyand Eurodollar markets is discussed in the supplement to this chapter.)The remainder, about $9 billion, includes investment in European investmentmanagement accounts, in real estate and corporate securities inEurope and Japan, and in direct loans to private industry.The financial intermediation by the world's commercial banks throughboth domestic and Eurocurrency markets has played an important role infinancing the large current account deficits in the oil-importing countriesduring 1974. Such activity, in effect, accommodated the preferences of theOPEC countries for investment of their surplus funds, then redistributedthese funds to countries where funds were needed. Banks operating in theEurocurrency market publicly announced more than $15 billion of Eurocurrencycredits to developed countries during the first 3 quarters of 1974, $4billion more than was announced during all of 1973. Announced credits todeveloping countries were about $7/2 billion. Some of these credits were notactually drawn during the period; but it is assumed that sizable loans forwhich details are not available have been made by the Eurocurrency bankswithout prior, publicly announced commitments. International lending byU.S. banks also rose sharply in 1974, following the removal of restrictions onsuch activity and termination of the Interest Equalization Tax in January1974. U.S. banks increased their claims on foreigners by about $14.5 billionduring the first 3 quarters of the year.The recycling of OPEC funds by the international banking system has not,however, been accomplished without some strains. The concentration ofliquid OPEC investments in a relatively small number of banks has raisedquestions about the absorptive capacity of some of these institutions undertheir present capital structures. Because the deposits by OPEC governments195

in some banks are so large, and because they are concentrated among fewdepositors, the risk associated with the traditional banking practice of borrowingshort and lending long is significantly increased. At the same time,the growing indebtedness of some borrowers increases the risk of default.Thus, questions have also been raised about the ability of the private bankingsystem to continue to accommodate adequately the financial needscreated by the oil crisis.To supplement private market channels a special lending facility wasestablished in June 1974 in the International Monetary Fund andexpanded in January 1975. Loans are approved by the Fund after assessmentof the balance of payments needs of deficit countries. Borrowers are expectedto cooperate with the Fund in resolving difficulties in their balance of payments.The Fund had lent approximately $2 billion by the end of 1974.The pattern of international payments for 1975 is not easy to foresee. It iswidely recognized, however, that additional reinforcement of the privatefinancial markets may be required to provide for the financing needs ofindividual countries. The United States accordingly has advocated a threetrackapproach to official multilateral arrangements:1. Financing under the regular procedures of the International MonetaryFund should be expanded, and the Fund should make fuller andmore effective use of the currency resources which it now possesses.2. A temporary trust fund should be established to provide longerterm,concessional assistance to a few of the very low-income countrieswhich have special problems in adjusting to the current situation.The United States has proposed that this trust fund be financed bycontributions from those individual countries which are in a positionto help, as well as through the use of part of the IMF's gold holdings.3. Resources of the IMF and other institutions should be supplementedby a new financial support arrangement of $25 billion. The arrangementis designed to encourage cooperation in energy matters and toprovide a financial "safety net" for participating OECD members. Earlyestablishment of this support fund has been agreed to by the major industrialcountries.THE LESS DEVELOPED COUNTRIES IN 1974Although many of the problems created by the oil price increases are commonto both developed and less developed economies, there are several importantdifferences. The less developed oil-importing countries are obviouslyfar less able to afford the higher current prices, but their diversity makesgeneralizations difficult.Developing countries that export primary products, such as iron ore andbauxite, for which demand was strong, have been able to offset a part of theirincreased oil bill with additional export earnings. A commodity boom whichbegan in late 1972 drove up the prices of many primary products, but theprices of most of these commodities declined in the second half of 1974 with196

the worldwide slowing of business activity. Moreover many countries whichare heavily dependent on imports of oil, food, and fertilizer have not experiencedincreases in prices of their primary exports, and droughts and floodshave compounded their problems.The surplus revenue of the OPEC countries is derived in part from sales toother less developed nations that import oil; but relatively little of this surplushas yet been recycled directly by OPEC countries to the less developedones. Partly because of the limited capital markets in these countries, initialplacements of funds by oil producers have not been large. The consequencesof the failure to recycle funds to the less developed countries are qualitativelysimilar to those facing the industrialized nations: if they cannot financetheir deficits, they must cut back on imports. However, many less developedcountries can reduce imports of oil or other inputs only at the immediate expenseof their industrialization programs.As has been true for many years, some form of foreign aid may be theonly way to alleviate the deficiencies in financing and resources of the poorestcountries. Special arrangements such as the IMF facility have helped insome measure and will probably continue to do so. At a time when evenmany industrial nations are in difficulty, more of the surplus of OPECnations should be mobilized to help countries most in need of the funds, andthese funds should be available at rates which do not further increase thealready heavy burdens of debt service in developing nations.RECENT DEVELOPMENTS IN INTERNATIONAL FINANCEThe international financial system has been fundamentally changed sinceAugust 1971, when the United States announced suspension of the convertibilityinto gold of dollars held by foreign monetary authorities. Followingthis action, major exchange rate realignments, coupled with devaluationof the dollar in terms of gold, were negotiated in December 1971 and February1973; and negotiations were launched on a comprehensive reform of theinternational monetary system with establishment of the Committee ofTwenty (C-20) under the auspices of the International Monetary Fund inJuly 1972. In March 1973, in response to great uncertainty and speculationin the foreign exchange markets following the second realignment, virtuallyall of the major industrial countries abandoned efforts to confine exchangerate movements within a narrow band around established par values. Whenthe C-20 met during the IMF annual meetings in September 1973, it setJuly 31, 1974, as its target date for agreement on comprehensive monetaryreform.The oil price increases announced in October and December 1973, theacceleration of worldwide inflation, and de facto adoption of widespreadfloating radically altered the circumstances surrounding the C-20 negotiations.At its Rome meeting in January 1974, the C-20 shifted the focus of itsnegotiations. Instead of the early development of a comprehensive reformagreement, it began to work out a series of individual, less comprehensive197

steps that were of particular importance in the current economic situation.In mid-June the C-20 Ministers agreed on a program for immediate actionand released the Outline of Reform and accompanying annexes that describedboth the status of the negotiations on longer-term reform and thedirection in which the Ministers believed the system could evolve in the future.The program of immediate action was consistent with the longer-termOutline of Reform, constituting in essence a proposed first step in the evolutiontoward a fundamentally reformed system. It included:1. Creation of an Interim Committee of the IMF with advisory powersto guide the adjustment process and oversee the operations of thesystem pending the establishment, through amendment of the IMFArticles of Agreement, of a Ministerial Council with decision-makingpowers.2. Establishment of a Development Committee, also at the ministeriallevel, under the joint auspices of the IMF and the International Bankfor Reconstruction and Development, to deal with questions relatingto the transfer of resources to developing countries.3. Establishment of guidelines for floating exchange rates.4. An interim change in the method of valuation of special drawingrights (SDR's) to widen the base for calculating the transactionsvalue of SDR's so that currencies other than the dollar are included.5. Provision for IMF members to subscribe to a declaration againsttaking restrictive trade or other current account measures for balanceof payments purposes without IMF approval.6. Improved measures for surveillance of the adjustment process andof developments in global liquidity.7. A request that the Executive Directors of the IMF prepare a seriesof amendments to the IMF Articles of Agreement for considerationwhen IMF quotas are reviewed early in 1975.Among other items on which draft amendments w r ere to be prepared were:establishment of a permanent IMF Council; "legalization" of floating exchangerates; a permanent declaration against trade restrictions for balanceof payments purposes; the role of gold; and various modifications of the generaland SDR accounts of the IMF.The longer-term Outline of Reform put forward by the C-20 called fora more effective and symmetrical system of adjustment, in which efficientoperation of the adjustment mechanism would not be obstructed by controlsor restrictions on current or capital account transactions for balance of paymentspurposes. The Outline envisaged that the role of the SDR would beenhanced and that the roles of gold and reserve currencies in internationalreserves would be reduced. At the end of 1974, the transactions value ofSDR's was around $1.22 per unit of SDR.Recognition that exchange rate flexibility must play a greater part in anefficient economic adjustment process was a key element of the reform198

proposals. In sharp contrast to the central role of fixed par values and narrowmargins of exchange rate fluctuations around par values in the BrettonWoods system, the Outline called for a system in which countries could eitherestablish adjustable par values or allow their currencies to float in responseto market forces. Agreement was lacking, however, on the relative roles offloating and par values, the conditions under which the par values wouldbe adjusted, and the provisions for authorization of floating in the futuresystem. The United States favors provisions that would permit a countryto float its currency so long as it adhered to internationally agreed rules ofconduct, without the need for further authorization or approval by the IMF.Some others favor a more constrained "floating option" under which floatingwould be limited to specified situations and subject to specific authorizationby the IMF.At its first session during the IMF annual meetings in early October 1974,the new Interim Committee of the IMF approved a work program focusingon energy-related financial problems and balance of payments adjustmentin the light of the energy crisis. Pursuant to this work program, theInterim Committee, meeting in mid-January 1975, reached agreement ona broad range of key issues. The Committee agreed on:1. A limited extension of the IMF oil facility in 1975, with borrowingsof up to SDR 5 billion and with an indication that it would be appropriateto make greater use of the Fund's own resources. In conjunctionwith the Development Committee, the Interim Committee also endorseda suggestion by the IMF's Managing Director that special provisionbe made to reduce the interest burden on oil facility borrowingby the poorest developing countries.2. An IMF quota increase of 32.5 percent overall, "rounded up" to anew quota total of SDR 39 billion, with a doubling of the quota sharesof the major oil-exporting countries as a group and no reduction ofthe collective share of other developing countries. No agreement wasrecorded on quota shares for other groups or for individual countries.It was agreed, however, that since an important purpose of increasingquotas is to strengthen the Fund's liquidity, arrangements should bemade to ensure usability of all IMF currency holdings in accordancewith Fund policies.3. A request that the Executive Directors continue work on a narrowedrange of amendments to the IMF Articles of Agreement and submitdrafts to the Committee on: establishment of the Ministerial Council;legalization of floating; improvements in the general account, includingelimination of requirements to make gold payments to the IMFand establishment of arrangements to ensure the usability of IMFcurrency holdings; and improvements in the characteristics of the SDR.Progress was made toward agreement on a comprehensive set ofamendments on gold, including abolition of the official price and freedom199

for national monetary authorities to enter into gold transactions undercertain specific arrangements with each other in order to ensure that therole of gold in the international monetary system would be graduallyreduced. Additional agreements related to the financial support arrangementamong the members of the OECD, described earlier in this chapter,and to other matters.MANAGED FLOATINGThe interim guidelines that have been recommended by the C-20 for thepresent situation of widespread floating represent a first effort to addressin a formal way the complex issues that can arise under a floating system,as well as to develop codes of behavior that might apply under a regime ofmanaged floating over the longer term. Under the guidelines, countries withfloating rates may intervene to moderate sharp and disruptive fluctuationsfrom day to day and from week to week in the exchange value of their currencies.Intervention should not be used, however, to moderate movements inthe exchange value of any currency over longer periods like months orquarters, unless such official intervention is consistent with actual and expectedworld market conditions, and unless it accords also with a patternof exchange rates considered reasonable as a medium-term norm by thatcountry and the international community. For example, a rate of inflationsubstantially higher than that of a country's main trading partners or competitorswould normally lead to expectations of a further depreciation of itscurrency. In that case, attempts to fix the exchange rate for an extendedperiod, whether undertaken by the country itself or by its trading partners,might be viewed as violating the intent of the guidelines, since interventionfor this purpose would be disequilibrating.Even without imposing direct controls on the flow of goods and capitalin international trade, official monetary agencies can modify the course ofexchange rates, at least temporarily, under a system of managed floating.The techniques of management can take a variety of forms. The mostcommon is for central banks to intervene in the international money marketsby selling domestic currency for foreign currencies, thereby leaningagainst an appreciation of their currency. Alternately they may engagein the converse operation, possibly with exchange reserves that are supplementedthrough official borrowing of foreign currencies, to slow adepreciation of their currency. If, however, in the attempt to slow movementsof the exchange rate in either direction by "leaning against the wind,"intervention continues on the same side of the market for an extendedperiod, the level of the exchange rate may be affected even after interventionhas ceased. This would occur if persistent one-sided interventionrepressed exchange rate movements substantially. Since any lasting distortionof the exchange rates achieved through one-sided interventioninfluences the pattern of international trade and investment after a lag, thischanged pattern may reflect back on subsequent exchange rate levels.200

Foreign Exchange Management Since March 1973Although attempts to fix the exchange rates of all major countries withinnarrow ranges vis-a-vis the dollar were officially abandoned in March 1973,a group of European countries agreed on new sets of exchange rates, whichthey would maintain within 2% percent of the agreed parities relative toeach other. The United Kingdom and Italy did not join this group, however,and the joint float was further eroded When France withdrew from thegroup in January 1974. By the end of 1974 only Germany, the Beneluxcountries, Denmark, Norway, and Sweden floated jointly against the dollar;and some other nations tied their exchange rates to those of other countries.Managed floating had thus become the rule among the industrial countries.Since the start of generalized floating, the pattern and net amount ofofficial intervention have not been the same as those prevailing before1973. The direction of official intervention has changed more frequently.As exchange reserve decumulations were followed by accumulations, U.S.liabilities to foreign official institutions were only slightly higher at theend of the third quarter of 1974 than at the end of the first quarter of1973. From that time until February 1974, the drop in U.S. liabilities tothe official agencies of other industrial countries outweighed the increasein liabilities to the OPEC governments, so that total U.S. liabilities actuallydeclined. By comparison, official claims on U.S. residents had more thanquadrupled from the end of 1969 to the end of March 1973, and industrialcountries accounted for almost all of this increase.The reserves of industrial countries remained relatively stable, but onlybecause of substantial international borrowing on the part of deficit countries.Some of this borrowing was carried out by the domestic banking systemwithout direct governmental action; in other cases credits were raised byofficial entities either in the private money market or with foreign monetaryauthorities. Most deficit countries have used the proceeds of loans fromofficial and private sources to counteract any large decline in their internationalreserves. Government-to-government loans by surplus countriesto deficit, countries may be treated as foreign exchange reserves by the former,whether or not they result in marketable claims on the latter. Still therewas little growth in the official reserves of industrial surplus countries asexchange rates were allowed to rise to dampen inflows of funds. Specifically,of the countries whose currencies appreciated against the dollar, Canada,Germany, and Switzerland had approximately the same amount of reservesat the end of the third quarter of 1974 as at the end of the first quarter of1973, and only a few of the countries with depreciating currencies, mostnotably Japan, lost reserves.The pattern of reserve movements suggests a change in central bankbehavior compared to the period prior to 1973, but a number of countrieshave continued to influence movements of their exchange rate throughindirect forms of intervention in 1974. To slow the rise of its franc,201

Switzerland discouraged interest payments on nonresident deposits andmaintained higher reserve requirements on nonresident than on residentdeposits. In October, Switzerland lifted the interest ban but soon afterwardsimposed taxes at the rate of 3 percent per quarter on nonresident deposits inexcess of normal working balances, in order to discourage the inflow of funds.Other countries, however, discouraged capital outflows. For instance, Francetook steps to reduce franc loans to nonresidents, and Japan required the saleof private dollar holdings to the central bank for use in foreign exchangeintervention. Among the deficit countries, only Italy imposed direct restrictionsaffecting international trade and payments when it imposed a 50 percentdeposit requirement on most categories of imports in May 1974.For short periods during 1974 disturbances originating in the privatemarket prevented foreign exchange markets from functioning efficiently.When daily fluctuations in exchange rates become large, and severe lossesby various market participants add to the uncertainty, broad participationin the exchange markets may be discouraged and the fulfillment of contractsmay become less certain. Risk premiums were raised by the failure of theGerman Herstatt bank in June 1974 and the disclosure that large losses fromprivate exchange trading had occurred, involving a number of other institutionsnot only in Germany but also in Switzerland, Britain, Italy, and theUnited States. Banks were less willing to take foreign exchange positions;and official efforts to discourage participation even further—for instance inGermany—made the markets thinner. Under such conditions markets areless efficient in smoothing out temporary imbalances in spot offerings or incontracts for future delivery, bid-ask spreads are likely to widen, and hencethe costs of financing international trade may rise.On the whole, however, the fact that a number of important exchangerates were no longer fixed brought several distinct advantages. With noformal commitments about exchange rates or margins, the authorities havemuch more flexibility in dealing with speculative exchange pressures. Thatis, those interested in shifting funds from one currency to another can nolonger make massive purchases or sales of foreign currencies at set pricesin a short period and count on the country's monetary authorities' beingcommitted to meeting exchange demands without allowing the rate tomove, as was the case in earlier years. Rather, authorities can let their ratesadjust to eliminate exchange rate imbalances.The new system has also enabled countries to manage their money supplywith a greater degree of independence. Prior to the adoption of generalizedfloating there were periodic complaints, particularly from some Europeancountries, that efforts to achieve domestic monetary policy objectives werebeing overwhelmed by movements in dollar reserves occasioned by the officialintervention required to maintain the exchange rates. The system ofquasi-fixed exchange rates still existed among the major trading countriesat that time; and when the dollar came under pressure, foreign central banksfound it difficult to offset the growth in domestic bank reserves resulting202

from their dollar purchases. It was therefore argued that inflation was transmittedbetween countries by reserve asset acquisitions on the part of the surpluscountries causing their rates of monetary growth to rise while moneysupply growth was not allowed to fall symmetrically in the deficit countries.Yet around $30 billion, or over 40 percent of the dollars held by foreign officialagencies at the end of March 1973, were acquired after the summer of1971, when the convertibility of the dollar into gold had already been suspended.In the interim, many countries appeared disinclined to have theircurrencies appreciate relative to the dollar, thus revealing more concernabout promoting exports than avoiding the inflationary consequences of thedollar inflows.Since March 1973, changes in official reserve holdings have shown noconsistent relation to changes in the monetary base of most countries, andofficial intervention has been entirely discretionary. Hence, even if internationalreserve flows might have raised the monetary rates of growth morethan some countries desired during the period of fixed exchange rates, theycannot have had this effect since that time unless countries chose to makeexchange rate objectives paramount.RECENT EXCHANGE RATE DEVELOPMENTSForeign central banks as a group ceased to observe formal interventionlimits against the dollar after the international currency exchanges reopenedon March 19, 1973, and the dollar declined soon afterwards. After fallingthrough the first week of July, the value of the dollar increased in terms ofmost foreign currencies through August and then changed little throughOctober.With the cutback in oil supplies by the OPEC, the dollar soon strengthenedrelative to all major European currencies and the yen, since it was knownthat the United States was far less dependent on imported oil than WesternEurope or Japan. Not only was the impact of the oil price increase on theU.S. trade balance and the domestic rate of inflation initially expected to beless, but it was widely anticipated abroad that a major share of the additionalOPEC revenues would eventually be reinvested in the United States. Thismarket assessment prompted a strong movement of short-term funds intothe dollar and out of the major European currencies and the yen. Eventhough foreign central banks sold dollars to moderate the decline in theircurrencies, by mid-January the dollar prices of the German mark and theSwiss franc had fallen roughly 20 percent from their peak levels of early July1973. Other major currencies had also declined sharply, and both the Britishpound and the Japanese yen were about 15 percent lower. Only the Canadiandollar remained approximately unchanged against the U.S. dollar.The strengthening of the dollar did not continue past January 1974, becauseboth the arrangement of substantial Eurocurrency loans to finance paymentsimbalances and the ending of capital controls by the United Statesbegan to depress the exchange value of the dollar. During the first half of203

1974 the rate of inflation remained considerably lower in both Germanyand the Netherlands than in the United States; and the trade surplus of thesecountries continued while the U.S. trade balance registered increasinglylarge deficits. The German mark, the Dutch guilder, and the Belgian andSwiss francs appreciated by about 14 percent against the dollar from mid-January to mid-May.During the first half of 1974 the value of the dollar rose on balance interms of the currencies of France, Italy, and Japan, because the rise of thedollar in late spring and early summer more than offset any earlier decline.The trade balances of these countries had deteriorated abruptly after theturn of the year, and inflation was much higher than in the United States. Inspite of the high rates of inflation prevailing in the United Kingdom, thepound sterling rate deviated from this pattern because of unusually highshort- and long-term interest rates in London and because the oil companieshad expanding needs for sterling to meet tax and royalty payments to oilexportingcountries.Around the middle of the year the United States and France were implementingsome measures to reduce domestic rates of monetary growth in thehope of eventually lowering their rates of inflation, while other countries,particularly Germany, began to shift to more expansionary fiscal policies tocombat rising unemployment. The French trade deficit fell and the Germansurplus declined, but the U.S. deficit grew little from the second to thethird quarter. With interest rates reaching record levels in the UnitedStates, the dollar steadied or rose against all major currencies except theFrench and Swiss francs.During the last quarter of the year, however, the dollar again declinedagainst most currencies. The German mark recovered to its previous peakreached in May 1974, the French franc continued to rise, the Italianlira and British pound appreciated slightly, and only the Japanese yencontinued to decline. Toward the end of the year the pound was jolted,but only temporarily, when Saudi Arabia announced that it would abandonits practice of taking about 25 percent of its oil payments in sterling. Theeffect of this statement was soon softened, however, by the Saudi announcementthat it planned to continue investing in the London market. In addition,the Swiss franc rose sharply, by about 17 percent, during the fourthquarter.Chart 11 shows that for the year as a whole the dollar depreciated againstthe German mark and the French franc, while it remained approximatelyunchanged against the British pound and appreciated against the Japaneseyen. These movements were far from steady, however, during the course ofthe year. The Department of the Treasury's index of the change in the valueof the U.S. dollar in terms of a trade-weighted basket of 22 foreign currenciesindicates that the average value of the dollar declined from the end ofJanuary to May 1974; it then recovered most of its earlier losses before slippingagain in the fourth quarter. At the end of 1974, the Treasury index204

Chart 11Change in the Value of the U.S. DollarRelative to Selected Foreign CurrenciesPERCENT CHANGE FROM MARCH 20, 197320JAPANESE YENTRADE-WEIGHTED AVERAGEVALUE OF THE DOLLAR*-20 I I i i i I i i i I I i i I i i i 1 i I i I 1 I I i 1 I i i i I i I I I I I i 1 i I I I I i i i I i I IJAN. FEB. MAR. APRIL MAY JUNE JULY AUG. SEPT. OCT. NOV. DEC1974•RELATIVE TO THE 22 OECD CURRENCIES; COMPUTED BY DEPARTMENT OF THE TREASURY.NOTE: FOR INDIVIDUAL CURRENCIES, WEDNESDAY PRICES WERE USED. FOR TRADE-WEIGHTED INDEX,THURSDAY PRICES WERE USED UNTIL JULY 17; THEREAFTER WEDNESDAY PRICES WERE USED.SOURCE: DEPARTMENT OF THE TREASURY.shows the value of the dollar to have been about the same as on March 20,1973, just after the system of managed floating had come into full operation.CHANGES IN INTERNATIONAL RESERVESFrom September 1973 through the end of March 1974, total internationalreserves grew very little; they subsequently increased by $22.5 billion fromthe end of March to the end of September (Table 47). All but $3.1 billionof this increase accrued to the OPEC countries, mostly in the form of increasedforeign exchange reserves held outside the United States. Thus, whilethe OPEC countries held a stable 7 percent of the world's reserves fromMarch through September 1973, their holdings had increased to 10 percentby the end of March 1974 and to 18 percent by the end of September 1974.The shift was mainly at the expense of the industrial countries, whose share205563-280 O - 75 - 14

TABLE 47.—Composition and distribution of international reserve assets, selected months, 1973-74Type of reserve assetMarch1973Value of reserve assets(billions of U.S. dollars) iSeptember1973March1974September1974March1973Percent of total reserveassetsSeptember1973March1974September1974All countries: 2Total reserve assetsGold stockSDRReserve position in IMFForeign exchangeU.S. liabilities179.243.210.57.5118.071.3187.643.210.67.5126.369.8187 843.110.67.5126.565.5210.342.410.59.0148.372.510024646640100236467371002364673510020547134OPEC countries: 3Total reserve assetsGold stockSDRReserve position in IMFForeign exchange11.91.4.4.39.813.21.4.4.411.019.01.4.4.416.838.41.4i!o35.61001233821001133841008228810041393Industrial countries: 4Total reserve assetsGold stockSDR.Reserve position in IMFForeign exchange120.835.97.95.771.3121.235.98.05.671.8113 535.98.05.464.2117 935.38.06.667.910030755910030755910032755710030658Other countries: 5Total reserve assetsGold stockSDRReserve position in IMFForeign exchange.. .46.65.82.21.536.953.15.82.31.643.455.35.72.31.745.653.95.72.11.444.81001353791001143821001043821001143831 End of period.2 Total of groups of countries listed in this table. Excludes Communist countries except Yugoslavia.3 Algeria, Ecuador, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Saudi Arabia, and Venezuela. Qatar and the UnitedArab Emirates are not included because the IMF does not publish data for these countries.4 United States, Canada, Japan, Austria, Norway, Sweden, Switzerland, and all EEC countries except Ireland.8 Nonindustrial countries other than OPEC countries.Note.—Detail may not add to totals because of rounding.Source: International Monetary Fund (IMF).of the enlarged global reserves declined from 65 to 56 percent although thedollar value of their reserves did not decline significantly. The share heldby the nonindustrial countries outside OPEC fell from 28 to 26 percent.Globally, the liabilities of the United States and Britain to foreign officialinstitutions have risen little since March 1973, but official holdings by theOPEC countries both in the United States and in the United Kingdom, aswell as holdings in the form of Eurodollar and other Eurocurrency claims onprivate foreigners, have risen rapidly. This increase accounted for most ofthe growth in international reserves in the second and third quarters of1974, and it changed the composition of reserves substantially as the shareof official claims on private institutions increased relative to claims on otherofficial institutions, including the IMF.Another shift in the composition of international reserves could occur in1975 if the quantity or valuation of monetary gold holdings were tochange. At the end of September 1974 the industrial countries still owned83 percent of the world's stock of monetary gold. The price of gold in the206

free market has been subject to large fluctuations. At the end of 1974, theLondon price per ounce was $186*/2 as compared with $112^4 at the end of1973. Compared to alternative forms in which international reserves can beheld, however, gold yields no interest, nor has it yielded liquidity services inrecent years. When the two-tier gold system was adopted in March 1968,central banks agreed to refrain from buying or selling gold in the privatemarket. Neither has it been used in official settlements since the officialaccounting price fell to a fraction of its free-market price. From February1973 through June 1974, monetary gold was valued at $42.22 per ounce,while the free-market price was three to four times as high. No significantchanges occurred in the distribution of gold reserves from the time thatconvertibility of the U.S. dollar into gold was suspended officially onAugust 15, 1971, until the end of 1974.Several steps have been taken to help countries mobilize their goldholdings to assist in financing balance of payments deficits. Terminationof the 1968 two-tier gold agreement in November 1973 permitted countriesto sell gold on the private market, although official purchases ofgold at prices above the official price of 35 SDR per ounce continued tobe prohibited by the IMF. In June, 10 major industrial countries agreedin principle that gold could be used as collateral for international borrowingat a price to be determined by the borrower and the lender. Soonafterwards, Germany extended a $2-billion loan to Italy that was backedby gold valued at approximately $120 per ounce. Later in the year somecountries discussed the possibility of valuing monetary gold at market prices,and France indicated that it planned to do so early in 1975. Also in January1975, the United States sold a small amount of its monetary gold toprivate purchasers to satisfy demand that might have materialized afterremoval of the prohibition against private ownership of gold bullion, whichhad been in effect since 1934. Nevertheless, both the transactions value andthe effective liquidity of gold in international reserves remained uncertainat the start of 1975.From their inception the value of special drawing rights has beenset at one ounce of gold equals 35 SDR's. From January 1970 through June1974, the conversion of SDR's into dollars was made at the official U.S.price of gold. When this official price was raised from $35 to $38 perounce as of December 1971, the transactions value of 1 SDR thereforerose from par with the dollar to $1.0857, and it rose to $1.20635 after theofficial price of gold had been raised to $42.22 per ounce in February 1973.In order to enhance the transferability of SDR's and to move away fromexclusive reliance on the official dollar price of gold in determining thevalue of SDR's, the IMF decided to widen the base for calculating thetransactions value of SDR's by including currencies other than the dollarafter July 1, 1974. Since that date, the currencies of 16 IMF member countrieswhose export trade amounted to more than 1 percent of the world207

total in the 5-year period from 1968 through 1972 have entered into the"standard basket" valuation of the SDR. Countries whose currencies appreciateagainst the dollar consequently no longer find that the domestic bookvalue of their SDR holdings with the IMF is reduced regardless of whethertheir currencies depreciate against third currencies that are now included inthe standard basket. The relative weight of these currencies in the basket isproportional to each country's share in the world's total exports, but withsome modification. Weights do compensate for the fact that the share of exportsdoes not always accurately measure the importance of some currenciesin the w r orld economy. This applies particularly to the dollar, whose shareis set at 33 percent. However, the standard basket valuation techniqueadopted in July 1974 represents only an interim agreement without prejudiceto a new system of SDR valuation that may be negotiated in 1975.U.S. INTERNATIONAL TRANSACTIONS IN 1974The impact of world inflation, recession, and oil-related financing on flowsof trade and capital was reflected in the international accounts of the UnitedStates in 1974. The physical volume of U.S. exports grew less than inthe previous year because of the slowdown in economic growth in manyforeign countries. Higher import prices, particularly for oil, led to a sharplyhigher value of U.S. imports despite a slightly decreased physical volume.These trends combined to push the merchandise trade account into deficitin 1974, after a surplus in 1973. In the monetary arena, the U.S. financialsystem was called upon to play a major role as intermediary, since U.S.capital markets were an important depository of the oil revenues whichthe foreign producers could not spend on imports from oil-consumingnations.Merchandise TradeThe increasing deficit in the trade account during 1974 came after astrengthening of the U.S. trade position in the previous year. Cumulativedepreciation of the dollar, combined with special factors such as shortfalls inforeign crop production and domestic price controls, produced a trade surplusin 1973. This surplus declined in January and February of 1974, and inMarch the United States registered the first deficit since June 1973.During the first 3 quarters of 1974 the United States imported $4.3billion more than it exported, and by the third quarter the quarterly tradedeficit had risen to $2.6 billion. Although both imports and exports rosein current dollars, price increases were greater for the imported goodsthan for exports. As indicated in Table 48, from the first 3 quarters of1973 to the first 3 quarters of 1974, the value of all merchandise exportsgrew 42 percent, and the value of imports 48 percent. The more rapidgrowth in the value of imports is attributable largely to the sharp rise inthe price of imported oil; the value of all other imports increased only 24percent during the year. The effect of higher oil prices is reflected in the 17208

percent decline in the U.S. terms of trade from the pre-embargo thirdquarter of 1973 to the third quarter of 1974.Table 48 also presents percentage changes in trade volume. The volumeof exports was 11 percent greater in the first 9 months of 1974 than in thesame period in 1973. While the rate of increase was less than in the precedingyear, it was still remarkably high in view of the weakening world economy.Imports in constant dollars actually declined 1 percent in response toboth the general decline in U.S. demand and the higher relative prices ofimported goods.TABLE 48.—U.S. merchandise trade by principal end use categories, 1973-74CategoryValue 1st 9 months1974 (billions ofdollars)»ExportsImportsPercent change, 1st 9 months 1973 to1st 9 months 19742:ExportsValueImportsExportsVolumeImportsTotal.71.075.348-1Agricultural goodsNonagricultural goods.Foods, feeds, and beverages..Industrial suppliesPetroleum and products...Capital goods, except autos..Automobiles and partsConsumer goodsAllother16.754.313.822.6.621.55.84.72.67.867.48.038.418.87.08.911.02.02851229525023171235-61710-19211429-30-2-4-3109-101 Seasonally adjusted; detail may not add to totals because of rounding.2 Based on seasonally adjusted data.Note.—Bureau of the Census trade data have been reconciled to balance of payments basis.Source: Department of Commerce (Bureau of the Census and Bureau of Economic Analysis).Considering the value of exports by major categories, agricultural itemsrose, but solely because of higher prices. World production of grains during1974 declined for the second time in 3 years, reducing the availablesupply and driving up the price. The major food-exporting countries suffereddeclines in output. The shortfall in the United States—where lateplanting, summer drought, and early frost led to a 20 percent decline infeed grain production—had a major impact on world prices.Exports of industrial materials, particularly coal, paper, and steel,remained strong throughout the first 3 quarters of 1974 despite the worldwideslowdown in economic growth. Exports of capital goods remainedespecially strong in the first 9 months of 1974; sales in this category weresustained by a continued demand from abroad for specialized equipmentsuch as computers and machinery used in construction, mining, agriculture,and communications.Imports were influenced by many of the same factors as exports, particularlyby higher prices. Oil was the major cause of increases in import value,although volume in this commodity declined 3 percent. Despite the weakeningU.S. economy, strong demand for capital goods throughout the first 3209

quarters resulted in a 10 percent volume increase in this category comparedto the same period the year before.ServicesInvestment income, the major component of the services account, rosein the first 9 months of 1974 compared to the same period a year earlier.Higher earnings among foreign affiliates of U.S. oil companies accountedfor most of the rise, but this effect was partially offset by the impact offoreign takeovers on the U.S. capital account. Interest income from loans toforeign borrowers increased because of higher U.S. rates and larger loanvolume, but this effect too was countered by higher rates abroad and by theincrease in U.S. liabilities to foreigners.Long-Term Private Capital FlowsThe net outflow of total long-term capital was $0.5 billion in the first9 months of 1974, compared to an inflow of $0.8 billion in the same perioda year earlier.TABLE 49.—U.S. balance of payments transactions, 1973-74[Billions of dollars; seasonally adjusted]Goods*..Services *__Type of transactionMilitary transactionsInvestment income 2Other 3GOODS AND SERVICES.Unilateral transfers, net 4CURRENT ACCOUNTLong-term capital_U.S. Government 5Direct investmentOther privateCURRENT ACCOUNT and LONG-TERMCAPITALNonliquid short-term private capital, netErrors and omissionsNET LIQUIDITY BALANCELiquid private capital, net . . .OFFICIAL RESERVE TRANSACTIONS BALANCE.Financed by:Liabilities to foreign official agenciesU.S. official reserve assetsFirst 3 quarters1973-0.72.3-2.13.9.61.6-2.7-1 1.8-.7-1.73.2-.3-3.0-3.4-6.7-1.2-8.07.71974-4.36.6-1.67.11 i2.4-6.1-3.7—.51.9-1.2-1 2-4.3-11.13.6-11.77.9-3.85.4-1.6-2.6 -.8 4.9 1.3.0 -.24 -1.019741973I W1.21.51-0.13.0II-1.61.4III-2.62.2-.1 -.5-.51.4 3.1 2.2343.52.7-1.21.6—2.32.9-3.0-.11.8-.2-1.9-2.1—.4-.3-1.2-1.6-2.0-.9 1.3 .6.0-.7.7 .2 -2.0- 8 _ l -1.1.0—.7-1.31.1-.93.52.71.8-4.01.1-1.12.11.0-2.5-5.41.7-6.21.7-4.5-3.6-1.7.8-4.54.1-.31 Excludes military grants of goods and services.2 Excludes direct investment fees and royalties, included under other.3 Includes travel and transportation and other services, net.4 Excludes transfers under military grants.6 Excludes official reserve transactions and includes transactions in some short-term U.S. Government assets.Note.—Detail may not add to totals because of rounding.Sources: Department of Commerce, Bureau of Economic Analysis.210

Much of the turnaround represents reductions in purchases of U.S. stocksand bonds by foreign investors, traceable to the poor outlook for stock andbond prices during much of 1974. Although foreign purchases of U.S.equities declined, foreign direct investment in the United States increased;takeovers involving U.S. corporations engaged in petroleum operationsabroad accounted for much of the increase. There was also a substantial risein U.S. residents' purchases of foreign securities, primarily bonds issued byCanada. Despite the January 1974 removal of the Interest Equalization Tax,purchases of other foreign securities showed little change from 1973. Bankloans to foreigners reflected the greater demand for credit to finance higheroil bills, and they contributed to the outflow of long-term capital.Short-Term Private Capital FlowsDuring 1974 there were substantial inflows of private capital into readilymarketable assets. At the same time, large outflows of short-term capital tookplace in the form of bank loans and acceptance credits. Net nonliquid shorttermprivate capital outflow was $11.1 billion in the first 9 months of 1974,$8.1 billion more than in 1973. Nonliquid claims on foreigners increasedsharply in the first 2 quarters of the year, but the increase was reduced inthe third quarter. The large outflow in the first part of the year was a reflectionof the removal of restrictions on foreign lending by U.S. banks inJanuary 1974. The diminished outflow later in the year may be attributableto higher U.S. interest rates.Official Capital FlowsOfficial agencies of foreign governments purchased $5.4 billion of U.S.assets during the first 3 quarters of 1974. Since OPEC government purchasesduring the period are estimated at $7.2 billion, liabilities to official agenciesof other nations declined during this time by $1.8 billion. The preferencefor U.S. dollar reserves revealed by the official agencies of oil-exportingcountries has implications for the U.S. balance of payments measures discussedbelow.The Net Asset Position of the United StatesFigures compiled during 1974 indicate that U.S. net assets increased during1973 by $11.8 billion, after declining $6.4 billion in 1972 and $11.5 billionin 1971. The value of U.S. assets abroad at the end of 1973 was $226billion, compared to $163 billion in U.S. liabilities to foreigners.The net asset position is affected not merely by balance of payments transactions,but also by factors not included in the balance of payments accounts.For instance, earnings reinvested by U.S. firms abroad (less earnings reinvestedby foreign firms in the United States) added more than $7 billion tothe net asset position during 1973. Adjustments for price changes in theforeign securities held by U.S. residents and in the U.S. securities held byforeign residents also affect the net asset position. Data on reinvested earningsand valuation adjustments for 1974 are not yet available.211

THE BALANCESUnder the regime of fixed exchange rates, foreign monetary authoritieswere required to intervene in foreign exchange markets to maintain thevalue of their currency within a narrow band. A deficit in the official reservetransactions balance of the United States then indicated that foreign centralbanks had purchased dollars, because at the parity rates (plus or minus anarrow margin) the private demand for dollar holdings by foreigners hadbeen less than the available supply. The accumulation of these assets byforeign monetary authorities was taken as a gauge of pressure on the dollarin foreign exchange markets.The net liquidity balance, which takes into account the net change inliquid liabilities to private parties as well as to official agencies in othercountries, was designed as a broader indicator of potential as well as actualpressures on the U.S. currency.The trend toward flexible exchange rates has made these two measures ofthe balance of payments unsuitable for analyzing exchange rate pressures.Since intervention has become discretionary, pressures on exchange rates arein large part allowed to move the exchange rates instead of being reflectedin reserve movements. While official intervention under managed floating canbe used to dampen exchange rate fluctuations, the balances do not serve asacceptable indicators even of these limited actions to remove pressure.Because of the huge surplus of investable funds accruing to the oilexportingcountries, a large negative shift in the U.S. official reserve transactionsbalance can now result on account of the preference of the oil-exportingcountries for placing their funds in the United States. Moreover, the netliquidity balance is far less significant than under the regime of fixedexchange rates, since the foreign central banks are not obligated to acquiredollars from private holders. Finally, the distinctions between liquid andnonliquid assets and liabilities and between private and official foreign exchangeassets have become increasingly blurred.Thus, reliance on these balances could lead to serious analytical misjudgments.The question of how the organization of our balance of paymentsdata can be made more useful is currently under review.SUPPLEMENTThe Eurocurrency and Eurodollar MarketsThe discussion of the international financial aspects of the "energy crisis"brought into public focus the Eurodollar market as an important channel formoving funds from the oil-exporting countries to borrowers. The recyclingof "petro-dollars" has been merely one of many functions performed by theEurodollar market over the years of its existence.212

The Eurodollar market, as such, has no specific location. Its physicaldimension is a network of international telecommunications media whichlink financial centers around the world and through which Eurodollartransactions are conducted. Eurodollars are dollar-denominated claims oncommerical banks located outside the United States, largely but not exclusivelyin Europe. They are dollar funds placed with foreign banks by eitherU.S. or foreign residents, and maintained on the books of these banks asdollar-denominated liabilities to the depositors. Dollars deposited with theforeign banks may be in the form of U.S. currency, but they seldom are. Invirtually all instances, they are dollars held on deposit in U.S. banks. In establishinga Eurodollar deposit, the depositor, in effect, transfers the ownershipof his deposit in a U.S. bank to the receiving foreign bank. When the foreignbank lends these dollars, it transfers their ownership to the borrower. Finally,when the original depositor "withdraws" the deposit, he in effect exchangesthe dollar-denominated claim on the foreign bank for a dollar-denominatedclaim on a U.S. bank.Eurodollars, while by far the largest, are merely one of several types offoreign-currency denominated deposits maintained by commercial banksaround the world in currencies other than that of the country where thebank is located. Deposits denominated in British pounds (Eurosterling),German marks (Euromarks), Swiss francs (Eurofrancs), and others are alsoheld and traded by banks domiciled outside the countries issuing thesecurrencies.The emergence and growth of the Eurodollar market may be viewed as aclassic example of free market forces at work, overcoming obstacles createdby regulations, and responding to market incentives to accommodate variousneeds. After World War II, when the dollar emerged as the major tradingcurrency, the initial impetus to the growth of the Eurodollar market wasgiven by certain Eastern European countries. Anxious to hold dollars tofinance their badly needed imports from the West, but concerned that theirdollar balances might be blocked or confiscated in retaliation for their expropriationof American-owned properties if such balances were held inbanks under U.S. Government jurisdiction, these countries began placingtheir dollar balances with commercial banks in Western Europe. Since thelate fifties, when most major countries removed restrictions on the holdingof foreign exchange (including dollars) by their residents, higher interestrates offered by foreign banks, relative to interest rates offered by the U.S.banks, provided the main incentive for holders of dollar funds to place thesewith foreign banks rather than banks located in the United States.The ability and willingness of foreign banks to offer a more attractivereturn than U.S. banks has been predicated on several factors. The U.S. bankingauthorities do not allow commercial banks in the United States to payinterest on deposits of less than 30 days, and they regulate the rate of interestthat may be paid on deposits of longer maturity. Commercial banks abroad213

are mostly exempt from such restrictions. Also, unlike U.S. banks, commercialbanks in countries where the growth of the Eurodollar market has been themost spectacular are not subject to reserve requirements on their dollardenominatedliabilities. As a result, the net cost of such funds to these banks isreduced, and they can offer a higher yield. On the other hand, thewillingness of foreign banks to offer a higher return has been predicated onthe strong demand for dollar loans that has not been fully met by the U.S.-based banks, particularly when such lending was impeded by the existence ofthe Voluntary Foreign Credit Restraint Program and the Interest EqualizationTax.Given these constraints, the U.S.-based banks were able to compete fordollar deposits with foreign-based banks through foreign subsidiaries andbranches that were not subject to the same restraints as their parent institutionsin the United States. Through these media, the U.S. banks havemaintained significant participation in the Eurodollar market. The eliminationor suspension of certain U.S. regulations in 1970 and 1974 has removedmost of the impediments to the direct participation of U.S. banks in theglobal trade in dollars. By this time, however, the Eurodollar market hadacquired a momentum of its own that assured its continued existence foryears to come.MEASURING THE SIZE OF THE EURODOLLAR MARKETFor a number of years, the Bank for International Settlements (BIS) inBasle, Switzerland, has been providing the most comprehensive set of statisticson the Eurodollar market, based on reports of foreign-currency denominatedassets and liabilities of commercial banks in Belgium-Luxembourg,France, Germany, Italy, the Netherlands, Sweden, Switzerland, the UnitedKingdom, Canada, and Japan. The original reports include all foreigncurrencydenominated liabilities to residents (banks, individuals, and corporations)of countries other than the country in which the reporting bankis located, that is, all external liabilities. These totals are published as grossEurocurrency positions.Table 50 shows the size of the external Eurocurrency liabilities by theindividual reporting countries. For the end of 1973, the BIS reported thattotal external liabilities in foreign currencies of banks in the reporting Europeancountries identified in the table amounted to $191 billion; roughly twothirdsof these liabilities were denominated in dollars.214

TABLE 50.—External liabilities denominated in foreign currencies of banks in selected countries,1970-73[Billions of U.S. dollars; end of period)Country1970197119721973Selected countries.Reporting European countries-Belgium-Luxembourg.France_.GermanyItalyNetherlandsSwedenSwitzerlandUnited KingdomCanada.Japan...85.875.36.89.22.99.44.0.56.136.45.55.0110.897.910.513.93.112.44.9.66.545.96.36.6147.5131.914.819.24.018.86.4.78.559.88.17.5215.7191.424.027.25.824.19.6.99.290.711.512.8Note.—Detail may not add to totals because of rounding.Source: Bank for International Settlements.In addition to gross figures, the BIS publishes data on net Eurocurrencyliabilities. The net liability measure is an estimate of the amount of creditoutstanding in the Eurocurrency market, after an adjustment to excludeinterbank deposits. Deposits by one Eurobank at another are made for severalreasons. First, banks usually observe limits on loans to particular borrowersor markets. When limits are reached, many banks will lend to another bankwhich wants to increase the supply of loans to its nonbank borrowers. Asecond reason is that many banks whose lending is specialized by eitherfunction or region will supply funds to another intermediary for more generaloperations. The redepositing gives rise to double counting when thesame funds pass through several banks on their way to final borrowers. Thepractice of the BIS has been to net out of the gross figure all interbank depositswithin the reporting area, on the assumption that they result in duplicationalong the credit chain. Interbank deposits between this area and theareas not covered by the BIS reports, however, are assumed to derive fromactual credit flows initiated by nonbank market participants and carried outby the banking intermediaries. Thus, interbank deposits between banks withinthe European countries comprising the reporting area are excluded, whiledeposits of banks outside the area are included in the net measure. Also includedin the net measure are Eurocurrency liabilities of the area banks tothe residents of the country in which the bank is located. On this net basis,the BIS had estimated the size of the Eurocurrency market at $132 billionin the reporting European countries at the end of 1973. Of that total theEurodollar component was estimated at $97 billion.In recent years banks in other financial centers such as Singapore andthe Bahamas sharply increased their Eurocurrency deposits. Data on theseliabilities are not included in the BIS figures. However, the Morgan Guaranty215

Trust Company of New York, utilizing published national banking statisticsof various countries, has been compiling data on the world Eurocurrencymarket. According to their estimates, the gross foreign currency liabilities ofbanks around the world (including interbank deposits and foreign-currencydenominated liabilities to residents) amounted to $295 billion at the endof 1973. Of the world total, $215 billion were Eurodollar deposits; about$80 billion of these were held at foreign branches of U.S. banks. After anadjustment for double counting resulting from interbank deposits, the netsize of the world Eurocurrency market at the end of 1973 was estimatedby Morgan Guaranty at $155 billion, of which $115 billion consisted ofliabilities denominated in U.S. dollars.In the first 3 quarters of 1974 the world Eurocurrency market expandedconsiderably. On a net basis it has been estimated that the deposits roseglobally by some $35 billion, from $155 billion at the end of 1973 to $190billion at the end of September 1974. A large portion of that increase apparentlytook place at banks in the United Kingdom where gross Eurocurrencydeposits rose by $16 billion to $106 billion.Receiving foreign currency deposits and establishing foreign-currencydenominated liabilities is, of course, only one side of the Eurobanks' activities.Lending the funds received and establishing foreign-currency denominatedclaims represents the other phase of their operations. The BIS also collectsand publishes data on the asset side of the balance sheet of Eurobanksfor the European countries comprising the reporting area. Table 51 showsthe distribution of such assets around the world.TABLE 51.—Foreign-currency denominated claims of banks in reporting European countries, 1973[Billions of dollars »; end of 1973]Area and countryForeign-currency denominated claimsTotalDollarsAll othercurrenciesClaims on residents ofReporting European countries 3106.667.339.3Other areas81.366.514.8Other Western Europe.Eastern EuropeCanadaJapanLatin AmericaMiddle EastUnited StatesOther11.47.85.18.111.32.514.52\66.64.94.47.510.32.013.817.04.82.9.7(1.0.5.73.71 Foreign currencies expressed in billions of U.S. dollars.* Belgium-Luxembourg, France, Germany, Italy, Netherlands, Sweden, Switzerland, and United Kingdom.Note.—Detail may not add to totals because of rounding.Source: Bank for International Settlements.216

Eurodollars are not included in the U.S. monetary aggregates (Mi, M 2 ,M 3 ); only dollars held by foreigners as currency or as deposits in U.S. bankinginstitutions are included. Indeed, Eurodollar deposits must first be "converted"into deposits in U.S. banks before they can become means of paymentin the United States. In general, such "conversion" has no impact onthe U.S. money supply. On the other hand, owners of Eurodollar depositsundoubtedly consider them highly liquid dollar-denominated assets, andsome degree of arbitrariness inevitably enters into distinctions between suchassets and money.217

Appendix AINFLATION CONTROL UNDER THE ECONOMICSTABILIZATION ACT219

CONTENTSPageINFLATION CONTROL UNDER THE ECONOMIC STABILIZATIONACT 223THE CONTROLS PROGRAM IN 1974 224EFFECTIVENESS OF THE CONTROLS PROGRAM IN 1974 226List of TablesTablesA-l. Selected Exemptions of Industrial Sectors from Wage andPrice Controls, 1974 225A-2. Coverage of Price and Wage Controls Under the EconomicStabilization Program, Selected Dates During Phase IV. . 226A-3. Measures of Price and Wage Change During and Afterthe Economic Stabilization Program 227221563-280 O - 75 - 15

Inflation Control Under the EconomicStabilization ActPublic Law 93-28, the Economic Stabilization Act Amendmentsof 1971, as amended, requires that the Economic Report of the Presidentinclude a section "describing the actions taken under this titleduring the preceding year and giving his assessment of the progressattained in achieving the purposes of this title." This appendix is intendedto fulfill that requirement. There is, however, no intent to representthe description of the control regulations contained herein aslegally binding interpretations.Price and wage controls were administered by the Cost of LivingCouncil (CLC) under authority of the Economic Stabilization Act untilApril 30, 1974, when the act expired.* The Administration did not proposethat authority for mandatory controls be extended (except in theconstruction and health sectors), nor was there substantial support in theCongress for extension. The Administration did propose, however, that Congressadopt legislation continuing certain functions of the CLC, includingmonitoring of compliance by firms which had made commitments whenexempted from controls; review of Government and private actions whichmight inhibit the supply of materials; working with labor and managementin sectors having special problems; conducting public hearings to highlightinflationary problems; focusing public attention on the need to increaseproductivity; and requiring business to report data relating to inflationaryfactors. At the request of President Ford, legislation was passed in August1974, establishing the Council on Wage and Price Stability with authority toconduct several monitoring functions.*The existence of the Cost of Living Council was extended to June 30, 1974,by Executive Order 11781, to permit orderly termination of the stabilization programs,including monitoring of voluntary commitments made by companies priorto decontrol. After June 30, the remaining legal activities and records of the stabilizationprogram were transferred to a small staff in the Office of Economic Stabilization,Department of the Treasury. This organization in turn was terminated at the endof 1974.223

THE CONTROLS PROGRAM IN 1974At the start of 1974 the CLC was administering a controls programknown as Phase IV, which had been established in August 1973 followingthe temporary price freeze begun on June 13, 1973. In general, standards ofPhase IV limited price increases in most manufacturing and service industriesto the dollar-for-dollar pass-through of allowable cost increases incurredsince the last fiscal quarter ending prior to January 11, 1973. Profit marginlimitations related to base-year averages remained in effect for the mostpart. Prenotification of price increases was required of firms with annualsales exceeding $100 million; implementation was permitted after 30 daysunless the CLG ruled otherwise. Firms with annual sales of more than $50million were required to file quarterly reports with the CLC.The dollar-for-dollar pass-through and limitation of cost reach-back tolate 1972 made price regulations in Phase IV more restrictive than earlierphases which had permitted maintenance of profit margins. In anotherrespect, however, Phase IV was designed to be more flexible through a programof regulation more closely adapted to conditions in each sector andthrough progressive decontrol of industries.For employees, the general standard of an annual 5.5 percent increase forwages and an additional 0.7 percent for qualified fringe benefits, adopted inPhase II and put on a self-administered basis in Phase III, remained ineffect. But after the beginning of 1973 the operating philosophy of the wagecontrol program had been to achieve a moderation of wage rate increasesentailing less disruption of industrial peace or interference with the collectivebargaining process than would result from uniform application of amechanical standard. Emphasis was therefore placed on restraining settlementswhich might have had major "ripple effects" on the wage structurethrough their influence on bargaining situations in related industries, areas,and occupations, rather than on rigid adherence to a simple standard. TheLabor-Management Advisory Committee had recommended this policy tothe Cost of Living Council on February 26,1973.An important part of the work of the CLC in 1974 was its program ofprogressive decontrol (Table A-l). A major objective of the decontrol programwas to provide for a smooth transition to free markets. By making decontrola selective process and spreading the impact of large price increasesover time, it was thought that the extent of any "bulge" in prices when controlsended could be lessened. Another objective was to avoid or reduceadverse effects of controls on the supply of products. Decontrol began in1973 when Phase IV was put in place; but the process was acceleratedtoward the end of the year and into 1974.Two approaches to decontrol that were considered were sector-by-sectordecontrol and decontrol through a gradual easing of Phase IV rules. Thesector-by-sector approach was adopted on a flexible basis related both to theparticular conditions in each sector, and to voluntary company commitments224

TABLEDateA-l .—Selected exemptions of industrial sectors from wage and price controls, 1974ExemptionJanuary: 41421....23....25....30February: 111....1215....19....2022....26....March: 15678....13....15....18on £u_...26.... 21.,..2728....29....April: 15....Nonferrous alloysFerronickel (prices only)Mobile homes and recreational vehiclesSemiconductorsMiscellaneous health service providersNonprofit tax exempt organizationsSelected steel productsRubber tires and tubesMost basic petrochemical feedstocksRetail trade except: food; petroleum products; motor vehicles, parts, and equipment; large eating anddrinking facilitiesChecker Motors CorporationSteel drum reconditionersStevedoring and marine terminal services (prices only)Rendering industryFerrous and ferroalloy scrap metalNonrubber shoesPostcardsIron and steel foundriesFurnitureValvesMining and oilfield machineryToysOpthalmic goods: scientific, mechanical and optical instrumentsJewelry and silverwareFabricated lumber and wood productsEngineered fastener productsPaper and allied productsFabricated rubber productsPetrochemicals (medium- and small-sized firms)Printing, publishing, broadcasting, advertising, and other communications mediaCanned fruits and vegetablesociccieQ macninciyFerroalloy metals (prices only)Cordage and twineCoalAluminumMusical instrumentsAerospace and general aviationFood retailing and wholesalingSource: Cost of Living Council.to restrain prices for specified periods after decontrol, or in some cases to expandproduction capacity. Both wages and prices were usually decontrolledsimultaneously in each sector. Many sectors had, of course, been exemptedfrom controls prior to Phase IV. Less than half the value of items included inthe consumer price index (CPI) and of wages and salaries were subject toPhase IV on September 10, 1973; on the other hand, 69 percent of the wholesaleprice index (WPI) was covered, with farm products the major exemption.The speed at which decontrol progressed is shown in Table A-2.As noted above, a major concern was that widespread maintenance ofcontrols until their legal termination on April 30 would result in a post-controlbulge of price increases. The progressive decontrol program was designedto spread the bulge in two ways. First, price increases that were likely to bebunched just after that date were instead phased over the preceding severalmonths. Second, in exchange for earlier decontrol, commitments were obtainedfrom some companies to restrict price increases to specified amountsat the time of decontrol, with no further price increases to be implementedfor various periods extending beyond April 30; the GLC thus sought to deferfurther into the future some of the post-control price increases. (In some225

TABLE A-2.—Coverage of price and wage controls under the Economic Stabilization Program,selected dates during Phase IVPercent coveredDate during Phase IVConsumerpriceindex(CPI)Wholesalepriceindex(WPI)Civilianlaborforce»1973: September 10..42.61974: March 1.28.0Apri. 3l. ; 24.22 8.669.454.237.42 27.644.137.426.824.1* Percent of the civilian labor force whose wages and salaries were covered.2 An additional 3.5 percent of the CPI and d 40 4.0 percent t of f the WPI were under d price controls of the Federal Energy Office,which ih remained d in i effect after April A i l 30.Source: Cost of Living Council.cases other commitments were obtained, such as agreements to allocate suppliesto unaffiliated domestic firms, even though such supplies could commandhigher prices in export markets, and to make certain efforts to expandproduction capacity.) Most such commitments relating to actions subsequentto controls were kept, but later on some prices rose more than had beenanticipated in the commitments.EFFECTIVENESS OF THE CONTROLSPROGRAM IN 1974The last two Reports have made clear the difficulty of assessing the effectivenessof controls in 1972 and 1973. In trying to provide an assessment fora period so short as the 4 months of 1974 when controls were in effect, thesedifficulties are magnified, particularly since this was the period in which theeconomy sustained the impact of the oil embargo and the approximatetripling of the landed price of imported crude oil. This increase and thesteep rise in farm prices at the beginning of 1974 led to an acceleration inthe pace of inflation. The Phase IV regulations may have played a role indelaying the pass-through of increases in prices of these two major rawcommodity-producing sectors to the prices of final goods.However, the special inflationary impact of the oil price increase and itseffect on aggregate output during the first half of 1974 make it unrealisticto attempt an assessment of the stabilization program in the final months.More significantly, economic conditions of both 1973 and 1974 differedmarkedly from those prevailing when the Economic Stabilization Programwas introduced, and no feasible controls program could have significantlyrestrained the resulting inflation. The conclusion of last year's Report onthis point must apply to 1974 with even more relevance: although inflationmight have been more rapid in the absence of controls, in the light of theactual experience both before and after their termination, it is difficult to226

accept that thesis. The lack of widespread support for extension of the controlsprogram, not only in Congress but among business and labor representativesand the general public, suggests broad acceptance of this judgment.Probably a more meaningful assessment relates to the results of a majorthrust of the 1974 program, the phased sector-by-sector decontrol of pricesand wages aimed at facilitating the return to free markets, and in particularat leveling the bulge in prices and wages that was feared when controls wereterminated on April 30, 1974. Price increases as measured by the CPI componentfor commodities other than foods and the WPI industrial commoditiescomponent (generally the controlled prices) showed little acceleration inthe May-August period as compared with the first 4 months of the year(Table A-3). However, increases in various measures of wage rates and theTABLE A—3.—Measures of price and wage change during and after the Economic StabilizationProgram[Percent change; seasonally adjusted annual rate]Price or wage measureFreeze andPhase IIAug. 1971 toJan.1973Phase IIIJan. 1973 toJune 1973Second freezeand Phase IVJune 1973 toApr. 1974Phase IVDec 1973 toApr. 1974Apr. toAug.1974Aug. toDec.PRICESConsumer price index:All itemsFoodAll items lessfoodCommoditiesfood...Services^less3.45.92.72.23.58.320.25.04.84.310.716.28.79.28.612.212.811.814.98.812.77.015.316.413.311.817.09.78.611.7Personal consumption expendituresdeflator 22.86.710.813.911.811.4Wholesale price index: 3All commoditiesFarm products and processedfoods and feeds.Industrial commodities 4 .Finished goods, consumerand producer5Crude and intermediatematerials 55.913.42.91.93.622.248.912.37.215.115.26.319.613.423.321.9.433.923.439.131.824.535.525.840.910.29.59.414.67.1WAGES«Average hourly earnings, piivatenonfarm economy:'Monthly seriesQuarterly series 26.26.46.35.96.97.06.56.311.910.39.39.7Average hourly compensation:Total private economy 2Nonfarm 25.85.98.98.87.07.57.07.911.210.79.09.3* Not seasonally adjusted.2 Percent changes based on quarterly data: 1971-111 to 1972-IV (col. 1), 1972-IV to 1973-11 (col. 2), 1973-11 to 1974-1(col. 3), 1973-1V to 1974-1 (col. 4), 1974-1 to 1974-111 (col. 5), 1974-111 to 1974-1V (col. 6).3 Seasonally adjusted percentage changes in components of the WPI do not necessarily average to the seasonally adjustedpercentage change in the total index because adjustment of the components and the total are calculated separately.*Includes a small number of items not shown separately.4 Excludes foods but includes a small number of items not in the industrial commodity index.6 Average hourly earnings are for production workers or nonsupervisory employees and average hourly compensationfor all employees.7 Adjusted for overtime (in manufacturing only) and interindustry shifts.Sources: Department of Commerce (Bureau of Economic Analysis) and Department of Labor (Bureau of Labor Statistics).227

WPI farm and food component (generally uncontrolled) did speed upmarkedly in the 4 months after decontrol. The GNP deflator, the most comprehensivemeasure of prices of final goods and services, rose more slowly inthe second quarter of 1974 than in the first, but then more rapidly in thethird. It would appear, therefore, that no pronounced increase in the aggregateinflation rate for all goods and services was directly traceable to theApril 30 termination.But the comparatively constant rate of inflation in 1974 both before andafter decontrol does not justify the conclusion that there was no price bulge.With output weakening throughout the year, the rate of inflation might havebeen expected to slow. Indeed most forecasters thought it would slow afterthe initial effects of the winter increases in crude oil and farm prices werereflected in final markets. However, the prices of goods and services otherthan agricultural products and fuel accounted for a substantial part of theinflation after controls ended.Part of these increases reflected the pass-through of earlier increases inprices of fuels and petrochemical feedstocks and other crude materials.The acceleration in wage increases, coupled with the decline in output perman-hour, also contributed to the widespread price increases following theend of controls. In addition, capacity shortages continued in certain primaryproducing industries like paper and chemicals. In such industries, outputcontinued strong into the third quarter, even though overall economicactivity was declining throughout 1974. Earlier shortages in these industrieshad apparently reduced inventories to levels below those desired; and purchasesof materials were intended to rebuild stocks, in many cases to hedgeagainst shortages or price increases. Finally, it is possible that frequent discussionabout reimposing controls led to price and wage increases in anticipationof such an eventuality.* * * * * * *The final judgment on the effects of price and wage controls imposedunder authority of the Economic Stabilization Act beginning in August 1971and continuing for more than 32 months will be long debated and may neverbe resolved. The primary reason for an inconclusive judgment is that there isno way of accurately simulating the course of events which would haveevolved in the absence of controls.However, the evidence of the controls period—including not only thebehavior of the recorded rate of inflation but also materials shortages andother significant market events—does support a partial but important judgmentabout the experience with the controls system: regardless of the overalleffect of the program, whatever contribution it may have made was probablyconcentrated in its first 16 months, when the economy was operating wellbelow its potential. As various industrial sectors reached capacity operationsin 1973 under the stimulus of a booming domestic and world economy, thecontrols system began to obstruct normal supplier-purchaser relationships,228

and in some cases the controls became quite unworkable. The sharply risingcosts of basic materials, often reflecting world market influences and dollardevaluation, were largely uncontrolled; and when passed through to consumers,they resulted in accelerating inflation. Thus, the net benefit of thecontrols system, however evaluated, had become extremely small by thebeginning of 1974, and legal termination of controls only ratified the inevitableprocess of dismantling them in response to public and market pressures.229

Appendix BREPORT TO THE PRESIDENT ON THE ACTIVITIESOF THECOUNCIL OF ECONOMIC ADVISERS DURING 1974231

LETTER OF TRANSMITTALCOUNCIL OF ECONOMIC ADVISERS,Washington, B.C., December 31,1974.THE PRESIDENT:Sir: The Council of Economic Advisers submits this report on its activitiesduring the calendar year 1974 in accordance with the requirements ofthe Congress, as set forth in Section 4(d) of the Employment Act of 1946.Respectfully,ALAN GREENSPAN, Chairman.WILLIAM J. FELLNER.GARY L. SEEVERS.233

Report to the President on the Activities of theCouncil of Economic Advisers During 1974The Council of Economic Advisers was created by the Employment Actof 1946 to provide economic analysis and advice to the President and thusassist him in establishing and maintaining conditions under which the objectivesof the act can be secured.Alan Greenspan became Chairman of the Council on September 4, 1974,succeeding Herbert Stein, who had served as Council Chairman since January1, 1972. Mr. Stein has taken up his duties as A. Willis Robertson Professorof Economics at the University of Virginia. William J. Fellner and Gary L.Seevers served as Council Members throughout 1974.Past Council Members and their dates of service are listed belowNamePositionOath of office dateSeparation dateEdwin G. Nourse...Leon H. Keyserling.John D. Clark..Roy BloughRobert C. TurnerArthur F. BumsNeilH.JacobyWalter W. Stewart....Raymond J. Saulnier..Joseph S. DavisPaul W. McCracken.Karl BrandtHenry C. WallichWalter W. Heller....James TobinKermit GordonGardner AckleyJohn P. Lewis...Otto Eckstein....Arthur M. Okun.James S. Duesenberry..MertonJ. PeckWarren L SmithHendrikS. Houthakker.Paul W. McCrackenHerbert SteinEzra SolomonMarina v.N. Whitman..ChairmanVice Chairman...Acting Chairman.ChairmanMemberVice Chairman._.MemberMember...ChairmanMemberMemberMemberChairmanMemberMemberMemberMemberChairmanMemberMember..MemberChairmanMemberMemberMemberChairmanMemberMemberMemberMemberChairmanMember...ChairmanMemberMemberAugust 9,1946August 9,1946November 2,1949May 10,1950Augusts 1946May 10,1950June 29,1950September8, 1952March 19,1953September 15, 1953December 2, 1953April 4, 1955...December 3,1956May 2, 1955..December 3, 1956November 1, 1958May 7, 1959January 29,1961January 29,1961January 29, 1961August 3, 1962.November 16,1964May 17,1963.September 2,1964November 16,1964February 15,1968February 2,1966 ...February 15,1968July 1,1968February 4,1969February 4, 1969February 4,1969January 1,1972September 9, 1971March 13, 1972November 1,1949.January 20,1953.February 11,1953.August 20, 1952.January 20,1953.December 1,1956.February 9, 1955.April 29, 1955.January 20,1961.October 31, 1958.January 31, 1959.January 20,1961.January 20,1961.November 15,1964.July 31, 1962.December 27, 1962.February 15,1968.August 31, 1964.February 1,1966.January 20,1969.June 30,1968.January 20,1969.January 20,1969.July 15,1971.December 31, 1971.August 31, 1974.March 26, 1973.August 15,1973.235

RESPONSIBILITIES OF THE COUNCILThe principal directive of the Employment Act is that the Federal Government"use all practicable means consistent with its needs and obligations. . . for the purpose of creating and maintaining . . . conditions . . .to promote maximum employment, production, and purchasing power."The basic responsibility of the Council of Economic Advisers is theanalysis and interpretation of trends and changes in the economy and thedevelopment and evaluation of national economic policies to assist thePresident in reaching the goals specified in the act. The Council preparesregular reports on current economic conditions and forecasts of futureeconomic developments, and its recommendations are an integral part ofeconomic policy making.The Council also has a responsibility "to appraise the various programsand functions of the Federal Government." The Council thus performs adirect advisory role involving a wide range of economic problems bothwithin the Executive Office of the President and through participation ininteragency study groups in which representatives of various departments,agencies, and offices in the executive branch evaluate current programs andconsider and develop new ones.During 1974 the Council and its staff shared in the analysis and examinationof many different economic issues incident to the formulating of programsand policies. These included policy issues and proposals regardingagricultural and food policy; measures and programs to support housingconstruction; a wide range of programs and measures affecting environmentalquality; alternative means of dealing with the energy problem; theevaluation of future supplies of strategic materials; exploitation of theresources of the seas; management of the Nation's timber resources; transportationproblems and policies; measures to improve the functioning of thelabor market and to alleviate the impact of the recession upon the unemployed; proposals for more effective health insurance and income maintenance;and needed improvements in the Government's economic statistics.International trade and investment problems and policies continued to bea major concern of the Council, and during 1974 it examined the strainsplaced upon the world's international trade and financial mechanism by thelarge capital flows related to oil payments.Early each year the President submits the Economic Report of the Presidentto the Congress as required by the Employment Act. The Council assumesmajor responsibility for the preparation of this Report, which togetherwith the Annual Report of the Council of Economic Advisers reviews theprogress of the economy over the past year and outlines the Administration'spolicies and programs.The Chairman is a member of the Economic Policy Board, which directsthe formulation, coordination, and implementation of economic policy. TheChairman is also a member of the Executive Committee of the Economic236

Policy Board, which serves as the focal point for economic policy decisionmaking and meets daily to address current issues of economic policy.The Economic Policy Board operates with a high degree of flexibility,requesting analyses of economic problems and recommendations from thevarious agencies and departments of the executive branch. The ExecutiveCommittee, often augmented by the Chairman of the Board of Governorsof the Federal Reserve System, meets regularly with the President to revieweconomic conditions, make recommendations, and discuss possible changesin economic policy.The review and analysis of the overall performance of the economy isconducted and coordinated through a series of "Troika" working groups,comprising representatives of the Council, the Treasury, and the Office ofManagement and Budget (OMB). At regular intervals economists fromthese agencies evaluate recent economic performance and formulate economicforecasts which are then reviewed by a second group, chaired by aCouncil Member and including the Assistant Secretary of the Treasury forEconomic Policy and the Economist for OMB. The analysis and projectionsare then reviewed and cleared through the Chairman of the Council forpresentation and consideration by the Executive Committee, which is chairedby the Secretary of the Treasury and consists of the Chairman of the Councilof Economic Advisers, the Director of OMB, the Executive Director of theCouncil on International Economic Policy, and the Assistant to the Presidentfor Economic Affairs, who is the Executive Director of both the EconomicPolicy Board and its Executive Committee.The Chairman of the Council is a member of the President's EnergyResources Council, which was formed in October 1974 to formulate andcoordinate energy policy. The Chairman is the head of the U.S. delegationto the Economic Policy Committee of the Organization for Economic Cooperationand Development, and he also serves as vice chairman of theCommittee. Council Members and staff economists attended meetings ofvarious working parties of the Committee during the year. The Chairmanof the Council served as Chairman of the Advisory Committee on the EconomicRole of Women, which on April 30, 1974, issued its recommendationsfor advancing women in industry; the Advisory Committee ended itsterm in August 1974.In April Mr. Fellner and several staff economists from the Councilvisited the Economic Planning Agency for Japan to continue the exchangeof information on economic problems and policies that was initiated during1972. In November the Council was host to a delegation of economistsfrom the Economic Planning Agency.The Chairman and Council Members appeared before the full JointEconomic Committee (JEC) of the Congress three times during 1974. TheJEC, like the Council, was created by the Employment Act of 1946, "tomake a continuing study of matters relating to the Economic Report and tosubmit its own report and recommendations to the Congress." On Febru-237563-280 O - 75 - 16

ary 7 the Council presented testimony before the JEC on the EconomicReport and appeared again on July 30 to review economic developmentsduring the first half of 1974. The Chairman presented testimony on September26 regarding developments during the third quarter. The Councilalso appeared before the JEC Subcommittee on Consumer Economics onMay 10. The Chairman presented testimony on the budget before the SenateAppropriations Committee on February 27 and appeared before theSenate Committee on Commerce and Government Operations on May 9.He also presented testimony before the JEC Subcommittee on EconomicGrowth on June 12, before the House Budget Committee on September 25,and before the Senate Permanent Subcommittee on Investigations on October16. Mr. Seevers presented testimony on the Federal budget before theHouse Committee on Appropriations on February 20 and appeared beforethe Senate Government Operations Committee on November 26 to discussregulatory reform.PUBLIC INFORMATIONThe Annual Report of the Council of Economic Advisers, contained in theEconomic Report of the President, is the main vehicle through which theCouncil informs the public of its work and its views. It presents a comprehensivereview and analysis of economic conditions, forecasts, and projectionsfor the coming year, as well as an explanation of the Administration's economicpolicy. In recent years about 50,000 copies of the Economic Reporthave been distributed. The Council also assumes primary responsibility forthe monthly publication, Economic Indicators, which is prepared by theCouncil's Statistical Office under the direction of Frances M. James andissued by the Joint Economic Committee with a distribution of about 10,000copies.The Council also presents information on and analyses of current economicproblems and developments through occasional press briefings, testimonybefore various congressional committees, and speeches and papers presentedby the Chairman and the Members of the Council. The Council answersnumerous requests for information from the Congress, the press, and individualcitizens, and receives individual visitors as well as business, academic,and other groups as often as is possible without interfering with other duties.ORGANIZATION AND STAFF OF THE COUNCILOFFICE OF THE CHAIRMANThe Chairman is responsible for communicating the Council's views tothe President. This duty is performed both through direct consultation withthe President and through regular reports on economic developments. TheChairman also represents the Council at Cabinet meetings, at the ExecutiveCommittee of the Economic Policy Board, and at many other formal and238

informal meetings of Government officials. He also exercises ultimate responsibilityfor directing the work of the professional staff.COUNCIL MEMBERSThe two Council Members directly supervise the work of the staff, areresponsible for all subject matter covered by the Council, and represent theCouncil at numerous meetings, where they assume major responsibility forthe Council's involvement. Whenever the Chairman is absent from Washington,one of the Council Members becomes Acting Chairman.In practice the Chairman and the Council Members work as a team. Foroperational reasons, however, subject matter is divided informally betweenthe Council Members. Mr. Fellner is responsible for analysis of businessconditions, short-term forecasting, and matters related to monetary andfiscal policy; international finance; manpower employment and developmentsin the labor market; financial markets; housing; health, education,and welfare; taxation; and social security. Mr. Seevers is responsible for theareas encompassing international trade; energy and natural resources; foodand agriculture; urban and national growth policy; environmental problems;transportation; regulated industries; and antitrust questions.PROFESSIONAL STAFFAt the end of 1974 the professional staff consisted of 13 senior staff economists,two statisticians, and seven members of the junior research staff.The professional staff and their special fields of economic analysis at the endof the year were:Senior Staff EconomistsBarry R. ChiswickLabor, Human Resources, and Income DistributionJohn D. DarrochPrices and Industry StudiesJohn M. Davis, JrSpecial Assistant to the ChairmanMurray F. FossBusiness Conditions, Analysis, and ForecastingJoseph G. KvasnickaInternational Finance and TradeJames C. Miller IIIRegulated Industries, Transportation, and EconomicAnalysisJune A. O'NeillLabor, Human Resources, and Income DistributionAllan G. PulsipherEconomic Analysis, Environment, Science, andTechnologyMilton RussellEnergy Analysis and PolicyG. Edward Schuh Agriculture and FoodGeorge M. von Furstenberg . . Fiscal Policy, Public Finance, and HousingJ. Richard Zecher Monetary Policy, Financial Institutions, CapitalMarkets, and Interest RatesFrances M. JamesCatherine H. FurlongDavid MunroStatisticiansSenior Staff StatisticianStatisticianStaff EconomistBusiness Conditions, Analysis, and Forecasting239

David B. CraryJoseph P. Kalt .Leroy O. LaneyRosemary QuintanoRobert J. SchanzmeyerRobert S. StillmanMary P. KaneJunior Staff EconomistsMonetary Policy and Financial MarketsFiscal Policy, Housing, and Capital MarketsInternational Trade and FinanceEconomic Analysis, Prices, and ForecastingLabor Markets, Manpower, Health, and EducationEnergy and AgricultureResearch AssistantFrances M. James, Senior Staff Statistician, is in charge of the StatisticalOffice and manages the Council's economic and statistical information system.She supervises the publication of Economic Indicators and the preparationof tables and charts for the Economic Report and for the Council'swork. She also directs the fact checking of memoranda, testimony, andspeeches. Catherine H. Furlong, Dorothy Bagovich, Natalie V. Rentfro,and Mary P. Kane assist Miss James.The Council conducts a student intern program, employing a limitednumber of graduate and undergraduate students of economics for temporaryperiods, particularly during the summer months. Interns who servedduring 1974 were Robert S. Dohner (Harvard University) and M. CaryLeahey (Clark University).Consultants who provided services to the Council during 1974 includedRichard N. Cooper (Yale University), Sidney Cottle (FRS Associates),Otto Eckstein (Harvard University), Gottfried Haberler (American EnterpriseInstitute), Gabriel Hauge (Manufacturers Hanover Trust Company),Walter W. Heller (University of Minnesota), Hendrik S. Houthakker (HarvardUniversity), Paul W. McCracken (University of Michigan), AllanMeltzer (Carnegie Mellon University), Robert A. Mundell (Columbia University),Arthur M. Okun (The Brookings Institution), George L. Perry(The Brookings Institution), Paul Samuelson (Massachusetts Institute ofTechnology), W. Allen Wallis (University of Rochester), Murray L.Weidenbaum (Washington University), and Marina v.N. Whitman (Universityof Pittsburgh). Joel Popkin and Carl I. Van Duyne provided assistancewith the Economic Report.Kenneth J. Fedor served as a senior staff economist during the summer,working on matters relating to food and agriculture.In preparing the Economic Report the Council relied upon the editorialassistance of Rosannah C. Steinhoff.SUPPORTING STAFFThe Administrative Office provides administrative support for the entireCouncil staff, which includes preparation and analysis of the Council'sbudget; procurement of equipment and supplies; responding to correspondenceand inquiries from the general public; and distribution of Councilspeeches, reports, and congressional testimony. During 1974 James H. Ayres240

served as Administrative Officer, assisted by Nancy F. Skidmore, Elizabeth A.Kaminski, and Margaret L. Snyder. The duplicating, mail, and messengerdepartment was operated by James W. Gatling, Frank C. Norman, andJerry W. Gatling.The secretarial staff for the Chairman and Council Members consistedof Anne V. Jackson, Joyce A. Pilkerton, Patricia A. Lee, and Alice H. Williams.Secretaries for the professional staff included Ruth Ann Butler, MaryC. Fibich, Dorothy L. Green, Bessie M. Lafakis, Earnestine Reid, Linda A.Reilly, and Lillie M. Sturniolo. Special assistance in connection with the Reportwas furnished by Dorothy L. Reid, a former member of the Councilstaff.DEPARTURESThe Council's professional staff members are drawn primarily from universitiesand research institutions, and these economists normally serve for1 or 2 years. Senior staff economists who resigned during the year wereGeorge A. Akerlof (University of California, Berkeley), Geza M. Feketekuty(Office of the Special Representative for Trade Negotiations), MaryW. Hook (Department of Commerce), Benton F. Massell (Office of Managementand Budget), Leo V. Mayer (Library of Congress), Joel Popkin(National Bureau of Economic Research, Washington), and Sung W. Son(Northwestern National Bank, Minneapolis).Junior economists who resigned in 1974 were Lydia Segal, Eric B. Herr(Data Resources, Inc.), James S. Fackler (Indiana University), Laura B.Peterson (Department of the Treasury), and Carl I. Van Duyne (StanfordUniversity). Other resignations included D. Carolyn Fletcher, secretary,and Kharl A. Williams, student aide. Jean P. Noll, secretary, retiredfrom the Federal service during 1974.241

Appendix CSTATISTICAL TABLES RELATING TO INCOME,EMPLOYMENT, AND PRODUCTION243

CONTENTSNATIONAL INCOME OR EXPENDITURE:PageG-l. Gross national product or expenditure, 1929-74 , 249G-2. Gross national product or expenditure in 1958 dollars, 1929-74 250G-3. Implicit price deflators for gross national product, 1929-74 252G-4. Implicit price deflators and alternative price measures of grossnational product and gross private product, 1939-74 254C-5. Gross national product by industry in 1958 dollars, 1947-73 255C-6. Gross national product by major type of product, 1929-74 256C-7. Gross national product by major type of product in 1958 dollars,C-8.1929-74 257Gross national product: Receipts and expenditures by major economicgroups, 1929-74 258C-9. Gross national product by sector, 1929-74 260C-10. Gross national product by sector in 1958 dollars, 1929-74 261C-ll. Gross product originating in nonfinancial corporations and dollarcosts per unit of output, 1948-74 262C-12. Personal consumption expenditures, 1929-74 263G-l 3. Gross private domestic investment, 1929-74 264C-14. Relation of gross national product and national income, 1929-74 265C-15. National income by type of income, 1929-74 266C-16. Relation of national income and personal income, 1929-74 267G-l 7. Disposition of personal income, 1929-74 268G—18. Total and per capita disposable personal income and personal consumptionexpenditures in current and 1958 dollars, 1929-74 269C-19. Sources of personal income, 1929-74 270C-20. Sources and uses of gross saving, 1929-74 272C-21. Saving by individuals, 1946-74 273G-22. Number and money income (in 1973 dollars) of families and unrelatedindividuals, by race of head, 1947-73 274POPULATION, EMPLOYMENT, WAGES, AND PRODUCTIVITY:C-23. Population by age groups, 1929-74 275C-24. Noninstitutional population and the labor force, 1929-74 276C-25. Civilian employment and unemployment by sex and age, 1947-74. . 278C-26. Selected unemployment rates, 1948-74 279C-27. Unemployment by duration, 1947-74 ' 280C-28. Unemployment insurance programs, selected data, 1946-74 281C-29. Wage and salary workers in nonagricultural establishments, 1929-74. 282C-30. Average weekly hours and hourly earnings in selected private nonagriculturalindustries, 1947-74 284C—31. Average weekly earnings in selected private nonagricultural industries,1947-74 285C-32. Output per man-hour and related data, private economy, 1947-74. . 286C-33. Changes in output per man-hour and related data, private economy,1948-74 287245

PRODUCTION AND BUSINESS ACTIVITY:PageC—34. Industrial production indexes, major industry divisions, 1929—74.. . . 288C—35. Industrial production indexes, market groupings, 1947—74 289C—36. Industrial production indexes, selected manufactures, 1947—74 290C-37. Capacity utilization rate in manufacturing and major materialsindustries, 1948-74 291C-38. New construction activity, 1929-74 292C-39. New housing starts and applications for financing, 1929-74 294C-40. Business expenditures for new plant and equipment, 1947-75 296C-41. Sales and inventories in manufacturing and trade, 1947-74 297C-42. Manufacturers' shipments and inventories, 1947-74 298C-43. Manufacturers' new and unfilled orders, 1947-74 299PRICES:C-44. Consumer price indexes by expenditure classes, 1929-74 300C—45. Consumer price indexes by commodity and service groups, 1939—74. 301C—46. Consumer price indexes, selected commodities and services, 1939—74. 302C—47. Consumer price indexes, seasonally adjusted, 1971-74 303C—48. Percent changes in consumer price indexes, major groups, 1948-74.. 304C—49. Wholesale price indexes by major commodity groups, 1929—74 305C-50. Wholesale price indexes by stage of processing, 1947-74 307C—51. Percent changes in wholesale price indexes, major groups, 1948—74.. 309MONEY STOCK, CREDIT, AND FINANCE:C-52. Money stock measures, 1947-74 310C—53. Commercial bank loans and investments, 1930—74 311C—54. Total funds raised in credit markets by nonfinancial sectors, 1966—74. 312C-55. Private liquid asset holdings, nonfinancial investors, 1959—74 314C—56. Federal Reserve Bank credit and member bank reserves, 1929—74. . 315C-57. Aggregate reserves and member bank deposits, 1959—74 316C-58. Bond yields and interest rates, 1929-74 317C—59. Short-and intermediate-term consumer credit outstanding, 1929—74. 319C-60. Instalment credit extended and repaid, 1946-74 320C-61. Mortgage debt outstanding by type of property and of financing,1939-74 321C-62. Mortgage debt outstanding by lender, 1939-74 322C-63. Net public and private debt, 1929-73 323GOVERNMENT FINANCE:C-64. Federal budget receipts and outlays, fiscal years 1929-76 324C-65. Federal budget receipts, outlays, and debt, fiscal years 1965-76.. 325C-66. Relation of the Federal budget to the Federal sector of the nationalincome and product accounts, fiscal years 1973-76 327C-67. Receipts and expenditures of the government sector of the nationalincome and product accounts, 1929-74 328C-68. Receipts and expenditures of the Federal Government sector of thenational income and product accounts, 1949-76 329C—69. Receipts and expenditures of the State and local government sector ofthe national income and product accounts, 1946-74 330C—70. State and local government revenues and expenditures, selected fiscalyears, 1927-73 331C-71. Public debt securities by kind of obligation, 1946-74 332C-72. Estimated ownership of public debt securities, 1946-74 333C—73. Average length and maturity distribution of marketable interestbearingpublic debt, 1946-74 334246

CORPORATE PROFITS AND FINANCE:PageC-74. Profits before and after taxes, all private corporations, 1929-74 335C-75. Sales, profits, and stockholders' equity, all manufacturing corporations,1947-74 336C-76. Relation of profits after taxes to stockholders' equity and to sales, allmanufacturing corporations, 1947-74 337C-77. Relation of profits after taxes to stockholders' equity and to sales, allmanufacturing corporations, by industry group, 1973-74 338C-78. Sources and uses of funds, nonfarm nonfinancial corporate business,1946-74 339C-79. Current assets and liabilities of U.S. corporations, 1939-74 340C-80. State and municipal and corporate securities offered, 1934—74 341C-81. Common stock prices, earnings, and yields, and stock market credit,1949-74 342C-82. Business formation and business failures, 1929-74 343AGRICULTURE:C-83. Income of farm people and farmers, 1929-74 344C-84. Farm production indexes, 1929-74 345C-85. Farm population, employment, and productivity, 1929-74. 346C-86. Indexes of prices received and prices paid by farmers, and parity ratio,1929-74 347C-87. Selected measures of farm resources and inputs, 1929-74 348C-88. Comparative balance sheet of the farming sector, 1929-75 349INTERNATIONAL STATISTICS:C-89. U.S. balance of payments, 1946-74 350C—90. U.S. merchandise exports and imports by commodity groups,1958-74 352C-91. U.S. merchandise exports and imports by area, 1968-74 353C-92. U.S. overseas loans and grants, by type and area, fiscal years,1962-74 354C-93. International reserves, 1949, 1953, and 1969-74 355C-94. U.S. reserve assets, 1946-74 356C—95. International investment position of the United States at year-end,1960 and 1969-73 357C-96. Price changes in international trade, 1966-74 358C-97. Consumer price indexes in the United States and other major industrialcountries, 1955-74 359General NotesDetail in these tables may not add to totals because of rounding.Unless otherwise noted, all dollar figures are in current dollars.See Economic Report 1972 for data for intervening years not shown here.Symbols used:» Preliminary._ _ Not available (also, not applicable).247

NATIONAL INCOME OR EXPENDITURETABLE C-l.—Gross national product or expenditure, 1929-74Year or quarterTotalgrossnationalproductPersonalconsumptionexpenditures1Grossprivatedomesticinvestment*Netexportsof goodsandservices3Government purchases of goods and services

TABLE C-2.—Gross national product or expenditure in 1958 dollars, 1929-74Year orquarterTotalgrossnationalproductPersonal consumptionexpendituresTotalDurablegoodsNondurablegoodsServicesGross private domestic investmentTotalFixed investmentTotalNonresidentialTotalStructuresProducers'durableequipmentResidentialstructuresChangein businessinventories1929-1933-1939-1940-1941..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..1967..1968..1969..1970.1971197219731974 v1972:1 II —III...IV...1973:1 IIIIIIV...1974:1....II —III...IV p..Billions of 1958 dollars203.6141.5209.4227.2263.7297.8337.1361.3355.2312.6309.9323.7324.1355.3383.4395.1412.8407.0438.0446.1452.5447.3475.9487.7497.2529.8551.0581.1617.8658.1675.2706.6725.6722.5746.3792.5839.2821.1139.6112.8148.2155.7165.4161.4165.8171.4183.0203.5206.3210.8216.5230.5232.8239.4250.8255.7274.2281.4288.2290.1307.3316.1322.5338.4353.3373.7397.7418.1430.1452.7469.1477.5496.4527.3552.1539.916.38.314.516.719.111.710.29.410.620.524.726.328.434.731.530.835.335.443.241.041.537.943.744.943.949.253.759.066.671.772.981.385.683.892.5104.9113.6103.469.358.681.284.689.991.393.797.3104.7110.8108.3108.7110.5114.0116.5120.8124.4125.5131.7136.2138.7140.2146.8149.6153.0158.2162.2170.3178.6187.0190.2197.1201.3206.5211.3220.2228.6223.854.046.052.554.456.358.561.864.767.772.173.475.877.681.884.887.891.194.899.3104.1108.0112.0116.8121.6125.6131.1137.4144.4152.5159.4167.0174.4182.2187.2192.6202.2209.9212.840.45.324.733.041.621.412.714.019.652.351.560.448.069.370.060.561.259.475.474.368.860.973.672.469.079.482.587.899.2109.3101.2105.2110.5103.4111.1125.0138.1126.336.99.723.528.132.017.312.915.922.642.351.755.951.961.059.057.260.261.469.069.567.662.468.868.967.073.476.781.990.195.495.598.8103.899.5105.8118.0127.3118.126.57.615.318.922.212.510.013.419.830.236.238.034.537.539.638.340.739.643.947.347.441.644.147.145.549.751.957.866.374.173.275.680.177.276.783.794.494.113.93.35.96.88.14.62.93.85.712.511.612.311.912.714.113.714.915.216.218.518.216.616.217.417.417.917.919.122.324.022.623.424.323.723.223.825.426.212.64.39.412.114.27.97.29.614.117.724.625.722.624.825.524.625.824.527.728.829.125.027.929.628.131.734.038.744.050.150.652.255.853.553.559.869.067.810.42.18.29.29.84.92.92.52.812.115.417.917.423.519.518.919.621.725.122.220.220.824.721.921.623.824.824.223.821.320.423.223.722.229.134.332.924.0Seasonally adjusted annual rates770.9786.6798.1814.2832.8837.4840.8845.7830.5827.1823.1803.7512.8523.2531.2542.2552.9553.7555.4546.3539.7542.7547.2530.199.8103.0106.8110.1117.2115.7114.3107.2105.2106.8107.893.7214.4219.8221.3225.4228.7228.3230.0227.4223.9223.6225.8221.7198.6200.4203.0206.6207.1209.7211.2211.7210.6212.2213.7214.7119.4123.2126.6130.9134.4136.3135.8145.8133.3130.3122.7118.9115.2116.6118.1122.0127.1128.4127.7125.8122.7122.2117.7109.781.382.483.887.292.294.395.196.096.396.594.189.323.924.023.523.924.725.125.626.026.726.625.426.257.458.460.363.367.469.269.570.069.769.968.763.133.834.234.334.835.034.132.629.826.425.723.620.43.5-4.31.24.99.64.0-.2-1.9-2.910.0-.24.6-3.98.310.93.3.9-2.06.44.81.2-1.54.83.52.06.05.85.89.013.97.76.46.73.95.37.010.88.24.26.68.58.87.37.88.020.010.68.25.09.1See footnotes at end of table.250

TABLE C-2.—Gross national product or expenditure in 1958 dollars, 1929-74—ContinuedYear or quarterNet exports of goods andservicesNetexportsExportsImportsGovernment purchases ofgoods and services iTotalFederalStateandlocalAddendum:GrossprivateproductPercent change frompreceding period 3TotalgrossnationalproductGrossprivateproductBillions of 1958 dollars19291.511.810.322.03.518.5190.91933.07.17.123.36.017.3127.5-1.9-2.719391.310.08.735.212.522.7188.78.59 41940L94119421943194419451946L947194819492.1.4-2.1-5.9-5.8-3.88.412.36.16.411.011.27.86.87.610.219.622 618.118.18.910.89.912.613 413.911.210 312.011.736.456.3117 1164.4181 7156.448.439 946.353.315.036.298 9147.8165 4139 730.119 123 727.621.420.118 316.616 316 718.420 822 725.7205.6236.6257 3272.8286 9282 5275.1281 4295 0294.18.516.112 913.27 2-1.7-12.0_ 94.4.29.015.08 86.15 2-1.5-2.62 34.8-.319501951L952L9531954L95519561957195819592.75.33.01.13.03.25.06.22.2.316.319.318.217.818.820.924.226.223.123.813.614.115.216.715.817.719.119.920.923.552.875.492.199.888.985.285.389.394.294.725 347.463.870.056.850 749.751.753 652.527 527.928.429 732.134 435.637.640 6M.I324 2344 6353.2371 1366.2397 2404 8410.5405 2433 49.67.93.04.5-1.47.61.81.5-1.16.410.26.32.55.0-1.38.51.91.4-1.37.019601961196219631964196519661967196819694,35.14.55.68.36.24.23.61.0.227.328.030.032.136.537.440.242.145.748.423.022.925.526.628.231.236.138.544.748.394.9100.5107.5109.6111.2114.7126.5140.2147.7145.951 454.660.059.558.157.965.474.778.173.543.545.947.550.153.256.861.165.569.672.4444 0452.3482.9503.2532.0567.0603.5617.5647.0664.92.51.96.64.05.46.36.52.64.72.72.41.96.74.25.76.66.42.34.82.819701971197219731974 v2.3- 5-3 04.69.052.252 255.766.671.650.052 658.762.062.6139.3139 3143.1144.4145.964.360 961 057.356.375.078 482 187.089.5661.7685 6731 7776.9757.0-.43.36.25.9-2.2-.53.66.76.2-2.6Seasonally adjusted annual rate: >1972: JIIIIIIV-4.9-3 6-1.4-1.954 353 356.259.059.256 957.660.9143 8143 8141 8143.062 962 559.559.280.981 382.483.8710.2726 2737.5753.06.48.46.08.37.09.36.48.71973: 1II ..IlliV1 43.55.87.964 865.966.968.963 462.461.161.0144 1143.9143.7145.758 957.756.256.485 286.287.589.3771 2775.3778.4782.89.52.21.62.310.02.11.62.31974: 1IIIllIV* .11.58.27 38.973.373.470 968.961.865.163.660.0146.0145.8145 9145.856.356.356.556.389.789.589.489.5767.0763.2758.8738.9-7.0-1.6-1.9-9.1-7.8-2.0-2.3-10.1» Net of Government sales.s Changes are based on unrounded data and therefore may differ slightly from those obtained from published data,shown here.Source: Department of Commerce, Bureau of Economic Analysis.251

TABLE C-3.—Implicit price deflators for gross national product, 1929-74[Index numbers, 1958=100]Year or quarterTotalgrossnationalproductiPersona consumptionexpendituresTotalDurablegoodsNondurablegoodsServicesGross private domestic investment *Fixed investmentTotalNonresidentialTotalStructuresProducers'durableequipmentResidentialstructures1929..1933..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..1966.1967..1968.1969.1970...1971...1972...1973...1974 *_1972:1...IL.III.IV..1973:1—II..III.IV..1974:1.....II...III...IV*..50.6439.2943.2343.8747.2253.0356.8358.1659.6666.7074.6479.5779.1280.1685.6487.4588.3389.6390.8693.9997.49100.00101.66103.29104.62105.78107.17108.85110.86113.94117.59122.30128.20135.24141.35146.12154.31170.1155.340.645.145.548.754.859.963.265.470.577.982.381.782.988.690.591.792.592.894.897.7100.0101.3102.9103.9104.9106.1107.4108.8111.5114.4118.4123.5129.3134.4138.2145.9162.456.441.946.046.550.459.364.271.575.976.882.786.386.887.894.295.494.392.991.994.998.4100.0101.4100.9100.6100.8100.4100.499.698.7100.3103.4106.1108.9112.3112.9114.7123.654.538.043.243.847.755.662.566.268.774.383.688.585.686.093.394.393.994.293.694.997.7100.099.9101.2101.9102.8104.0104.9106.9110.7113.0117.1122.2127.8131.8136.1147.9169.956.143.647.747.949.852.755.357.558.762.767.972.174.376.380.083.687.790.092.094.697.3100.0103.0105.8107.6109.0110.9113.1115.1118.3122.2126.9133.2140.2147.9153.8160.5173.439.430.637.739.042.046.549.351.151.558.566.773.974.777.583.185.386.686.889.094.098.5100.0102.6103.4103.9104.9106.0107.6109.3111.8115.9120.4126.4132.5139.3144.8152.4165.639.931.638.740.042.747.849.951.051.056.364.570.772.874.480.482.684.084.886.792.497.9100.0102.2102.9103.4104.1104.5105.7107.5110.2113.8117.5123.0130.2136.3139.6144.9159.035.727.933.133.936.441.346.848.649.254.464.471.571.272.979.383.284.986.088.193.498.6100.0102.7104.0105.6107.1108.9111.1114.7118.9124.0129.8141.0152.6163.5172.6185.4199.144.634.542.243.446.351.551.151.951.757.564.670.373.675.280.982.283.584.085.991.897.5100.0102.0102.2102.1102.3102.3103.0103.9106.0109.3112.0115.2120.3124.5126.5130.0143.5Seasonally adjusted144.62145.31146.50147.96149.95152.61155.67158.93163.61167.31172.07177.68136.8137.7138.7139.7141.4144.3147.0150.8155.8160.2164.7169.2112.4112.8113.4112.9113.0114.2115.9116.0117.8121.3126.3129.7134.5135.3136.5137.9141.4145.7149.5154.8162.7168.0172.3176.6151.6153.2154.4155.9157.4159.4161.0164.1167.3171.4176.1178.7142.8143.8145.6146.9148.7151.4154.3155.4157.8162.3167.5176.0138.5139.3140.2140.5141.7143.9146.1147.9150.7154.9160.4170.9170.1171.3172.8176.2180.4184.1187.1189.7192.2196.2200.6207.5125.4126.1127.5127.0127.5129.2131.1132.3134.8139.2145.5155.838.127.135.736.940.343.347.051.654.959.771.780.878.582.588.690.891.990.492.997.499.8100.0103.1104.5105.0106.7108.9112.3114.2117.4123.1129.7137.7140.2147.4157.4174.0191.5153.2154.6158.9162.8167.1172.1178.1179.7183.8190.0195.9198.3See footnotes at end of table.252

TABLE C-3.—Implicit price deflators for gross national product, 1929-74—Continued[Index numbers, 1958=1001Exports and imports ofgoods and services*Government purchases of goodsand servicesGross national productby sectorYear or quarterExportsImportsTotalFederalState andlocalTotalPrivate 2NonfarmGeneralgovernment192959.557.338.636.039.151.7351.234.1193319391940194119421943194419451946194719481949 . .33.744.148.653.061.565.269.971.375.487.392.787.028.838.640.843.048.351.253.256.464.979.486.482.234.537.938.544.050.953.953.152.655.862.968.171.033.140.840.246.652.554.953.853.157.365.669.873.035.036.337.339.242.344.646.148.653.260.466.468.939.9243.9344.6948.6655.5160.8562.0262.5968 2576.2781.4080.6042.144.945 448.854.859 560.860.965 873.578.579.233.536.836 034.737.339 743.348.355 458.560.864.7195019511952195319541955195619571958195984.997.098.895.294.394.997.5101.3100.098.888.7107.2103.699.1100.8100.6102.5104.0100.099.371.878.581.081.884.187.192.196.4100.0102.472.979.481.281.483.586.991.795.8100.0102.270.876.980.682.885.387.592.797.3100.0102.681.4187.3588.9989.6590.7791.5794.5397.92100.00101.4180.085.387.489.090.591.794.898.3100.0101.867.170 574.476.679 584.088.793 3100.0104.21960196119621963196419651966 . ..19671968196999.9101.9100.8100.6101.5104.7107.7109.7110.9114.6101.0100.198.599.5101.5103.4105.6106.5107.7111.1105.0107.1109.0111.8115.7119.4124.0128.5135.1144.0104.2105.2105.6108.0112.2115.5118.8121.5126.5134.5105.9109.4113.2116.3119.5123.5129.4136.4144.8153.6102. 76103.73104. 73105.80107.05108.83111.56114.79118.90124.30103.2104.2105.1106.3107.7109.2111.6115.3119.3124.6108.6113.6116.6121.5128 4133.5140 3147.7159 1171.019701971197219731974 v120.5125.5130.0150.6194.7118.6124.7133.7155 6219.5157.6168.1178.6191.5211.7149.5160.3171.9185 9206.6164.6174.2183.7195 1214.9130.32135.70139 61147 56163.27130.8136.4139 8145 4162.1188.9205 1224 6238 5250.9Seasonally adjusted1972: 1IIIII . ..IV127.2129 1130.4133.0128.6133 0135.5137.6174.6176 5179.9183.6168.0169 4172.7177.7179.8181 9185.0187.8138. 31138 92139.95141.16138.8139 3139.9140.9218.4222 1226.1231.81973- 1IIIIIIV137.1144.8155.0164.8141.2152.2158 7170.9186.7189.9192.6196.5180.5184.0187 3192.1190.9193.9196.0199.3143.22145.90148 96152.10142.2144.2146 1149.2234.3236.3239 3244.01974- 1IIIIIIV p179.0188.7202.5209.6194.0214.9230.8238.8202.9208.8214.1221.0198 0203.0207.4218.1206.0212.4218.3222.9156.77160.51165. 35170.72154.3159.8164.8169.6246.2248.5251.5257.11 Separate deflators are not available for total gross private domestic investment, change in business inventories, andnet exports of goods and services,s Gross national product less compensation of general government employees. See also Tables C-9 and C-10.Source: Department of Commerce, Bureau of Economic Analysis.563-280 O - 75 - 17253

TABLE C-4.—Implicit price deflators and alternative price measures of gross national product andgross private product, 1939—74Gross national product pricemeasures, 1958=100Percent change from preceding period lYear orquarterTotalPrivateTotalPrivateImplicitpricedeflatorPriceindex.1967weightsImplicitpricedeflatorPriceindex,1967weightsImplicitpricedeflatorPriceindex,1967weightsChainpriceindexImplicitpricedeflatorPriceindex,1967weightsChainpriceindex193943.2343.93-1.5-1.619401941194219431944 .43.8747.2253.0356.8358.1644.6948.6655.5160.8562.021.57.712.37.22.31.78.914.19.61.91945194619471948194959.6666.7074.6479.5779.1262.5968.2576.2781.4080.602.611.811.9* 6.6-.6.99.011.86.7-1.01950195119521953195480.1685 6487.4588.3389.6381.4187.3588.9989.6590.771.36.82.11.01.51.07.31.971.21955195619571958195990.8693.9997 49100 00101.6691.5794.5397 92100.00101.411.43.43.72.51.7.93 23.62.11.419601961196219631964103 29104.62105 78107 17108. 85102. 76103. 73104 73105 80107.051.6l!l1.31.61.3.91.01.01.219651966196719681969110.86113.94117.59122.30128. 20110.75114.06117.58122. 51128.61108. 83111.56114.79118.90124.30108.65111.62114.78119.10124.671.82.83.24.04.83.03.14.25.03.14.24.91.72.52.93.64.52.72.83.84.72.93.84.619701971197219731974*135. 24141.35146.12154.31170.11135.60142.18148.03157. 36174.12130.32135.70139.61147. 56163.27130.67136.34140. 77149. 63166.685.54.53.45.610.25.44.94.16.310.65.34.83.96.010.04.84.12.95.710.64.84.33.36.311.44.74.33.25.910.6Seasonally adjusted annual rates1972:1IIIllIV144.62145.31146. 50147.96146.05147.12148.57150.33138.31138.92139.95141.16139.17140.02141.26142.595.51.93.34.15.63.04.04.85.42.94.04.34.41.83.03.53.72.53.63.83.82.33.63.51973:1IIIIIIV149.95152.61155.67158.93152.87155.65158.68162.23143.22145.90148.96152.10145.14148.00151.02154.365.57.38.38.66.97.58.09.36.47.18.18.56.07.78.78.77.48.18.49.16.77.58.48.61974:1IIIIIIV*163.61167.31172.07177.68167.17171.64176.63181.66156.77160.51165.35170.72159.54164.22169.40174.2512.39.411.913.712.711.112.711.911.69.812.711.312.99.912.613.714.112.313.812.012.610.613.811.51 Changes are based on unrounded data and therefore may differ slightly from those obtained from published indexes,shown here.Source: Department of Commerce, Bureau of Economic Analysis.254

TABLE C-5.—Gross national product by industry in 1958 dollars, 1947-73[Billions of 1953 dollars]YearTotalManufacturingAgricultureTotalgross forestry,nationalandproduct fisheriesContractconstructionDurablegoodsindustriesNondurablegoodsindustriesTransportation,communication,andutilitiesWholesaleandretailtradeFinance,insurance,andrealestateServicesGovernmentandgovernmententerprisesAllotheri19471948 .19491950195119521953 .19541955 .19561957..1958195919601961.1962...1963196419651966.196719681969197019711972...1973 .1309.9323.7324.1355.3383.4395.1412.8407.0438.0446.1452.5447.3475.9487.7497.2529.8551.0581.1617.8658.1675.2706.6725.6722.5746.3792.5839.217.920.019.420.419.520.221.221.622.122.021.522.022.323.123.423.324.023.625.023.725.224.825.426.227.727.428.912.914.114.716.218.218.318.919.320.821.821.120.722.021.721.421.721.923.323.524.723.123.824.123.624.025.725.791.896.390.9105.5116.2118.7128.6119.5133.6134.1134.6123.7138.9140.9140.4154.6162.4173.7190.5205.7205.4219.2228.6217.5223.1245.4272.452.355.050.560.869.071.579.171.280.779.479.669.679.981.079.790.095.6102.4114.8125.1123.9131.8136.9125.1127.1141.6159.739.441.340.444.747.247.349.548.352.954.654.954.059.059.960.764.766.871.375.780.781.487.491.792.496.0103.8112.729.630.428.730.834.334.635.736.438.640.541.340.643.344.946.048.951.954.759.264.066.570.975.477.480.185.390.152.754.255.260.461.462.964.965.571.673.875.175.180.882.383.588.992.898.9104.8111.6113.9120.8124.2126.5131.2141.2146.135.636.537.841.042.944.746.849.852.754.857.059.261.464.167.171.274.478.383.186.891.695.295.596.4101.0105.21C8.3i Mining, rest of the world, and residual (the difference between gross national product measured as sum of final productsand gross national product measured as sum of gross product by industries).Source: Department of Commerce, Bureau of Economic Analysis.30.631.932.133.134.034.535.335.438.240.241.842.945.146.748.350.852.254.757.760.663.465.867.769.269.873.277.532.433.234.735.943.947.247.146.146.046.246.947.347.949.250.652.653.956.158.061.865.568.670.370.070.370.872.76.77.110.612.113.014.014.313.514.412.713.116.014.114.716.317.917.417.815.819.420.617.614.315.819.218.117.5255

TABLE O6.—Gross national product by major type of product, 1929-74[Billions of dollars]Year orquarterTotalgrossnationalproductFinalsalesGoods outputTotalTotalFinalsalesIs55Durable goodsTotalFinalsalesllNondurable goodsTotalFinalsalesII

TABLE C-7.—Gross national product by major type of product in 1958 dollars, 1929-74[Billions of 1958 dollars]Year orquarter1929.19 3319 3919401941194219431944194519461947194819491950195119521953195419551956195719581959196019611962196319641965196619671968196919701971197219731974 v1972:1....II...III...IV...1973: L...II...III...IV...1974:1...II...III..IV p.Totalgrossnationalproduct203.6141.5209.4227.2263.7297.8337.1361.3355.2312.6309.9323.7324.1355.3383.4395.1412.8407.0438.0446.1452.5447.3475.9487.7497.2529.8551.0581.1617.8658.1675.2706.6725.6722.5746.3792.5839.2821.1FinalsalesInventorychange200.1145.9208.2222.3254.1293.8337.3363.2358.2302.6310.1319.1328.1347.0372.5391.8411.8409.0431.6441.2451.2448.8471.1484.2495.2523.8545.2575.2608.8644.2667.5700.2718.9718.5741.0785.4828.4812.93.5-4.31.24.99.64.0-.2-1.9-2.910.024! 6-3.98.310.93.3.9-2.06.44.81.2-1.54.83.52.06.05.85.89.013.97.76.46.73.95.37.010.88.2Goods outputTotalTotal103.968.8110.7124.0143.4158.1187.4204.8198.0172.1172.2178.4174.2192.6208.4214.0225.4215.1236.1239.0239.8230.8247.7256.0257.3277.3289.7308.6330.7356.8363.1379.7390.0385.4396.3425.5459.1443.0Finalsales100.473.2109.5119.0133.8154.1187.6206.7201.0162.1172.4173.8178.1184.3197.5210.7224.5217.1229.7234.2238.5232.3242.9252.6255.3271.3283.9302.8321.7342.9355.4373.3383.3381.4391.0418.5448.3434.8II3.5-4.31.24.99.64.0-.2-1.9-2.910.0-.24.6-3.98.310.93.3.9-2.06.44.81.2-1.54.83.52.06.05.85.89.013.97.76.46.73.95.37.010.88.2Durable goodsTotal33.611.727.635.650.057.285.695.984.354.760.161.358.073.484.184.691.081.996.596.596.283.694.097.894.9107.0114.2124.6136.5151.8152.2160.7167.5159.0163.6185.8206.0195.6Finalsales30.913.427.032.843.554.485.297.487.446.158.660.061.068.376.183.289.984.893.093.595.086.491.695.994.9104.1111.4120.4130.1141.9148.0156.2163.2158.0161.7180.1198.5191.4II2.7-1.7.62.76.62.9.4-1.5-3.18.61.51.2-3.05.28.01.51.2-3.03.43.01.2-2.82.42.0.02.82.84.16.59.84.34.44.3.91.95.77.54.2Nondurable goodsTotal70.457.183.088.493.4100.9101.7108.8113.7117.4112.2117.1116.2119.1124.3129.4134.4133.2139.7142.5143.6147.2153.7158.2162.3170.3175.6184.1194.2205.1210.9219.0222.5226.4232.7239.7253.1247.4Finalsales69.559.882.586.290.399.7102.4109.3113.6116.0113.8113.8117.1116.0121.4127.6134.6132.3136.7140.7143.6145.9151.2156.7160.3167.2172.5182.3191.6201.0207.4217.0220.1223.4229.3238.4249.9243.3II0.8-2.7.62.23.11.2-.6-.4.21.4-1.73.3-.93.12.91.8-.2.93.01.8.01.32.51.52.03.13.11.72.64.13.52.02.53.03.41.33.34.0Services69.363.076.980.089.8107.7131.8144.0144.3113.3106.5109.3112.4117.5130.5136.3140.3141.8147.5153.0160.1163.4171.2176.6184.0193.7200.9210.8221.9236.3249.1259.7268.2273.3279.7291.4304.5310.5Structures30.39.821.823.230.531.917.912.412.927.231.236.137.545.244.444.747.050.254.354.052.653.157.055.055.858.860.461.665.265.063 067.267.363.870.375.675.567.6GrossautoproductSeasonally adjusted annual rates770.9786.6798.1814.2832.8837.4840.8845.7830.5827.1823.1803.7766.7780.0789.7805.3825.5829.6832.7825.7819.9818.9818.1794.64.26.68.58.87.37.88.020.010.68.25.09.1409.2422.1430.2440.4455.1457.6458.8465.1449.1448.9446.0427.8405.0415.5421.8431.6447.8449.8450.8445.1438.5440.8441.0418.74.26.68.58.87.37.88.020.010.68.25.09.1174.5182.1188.2198.6204.6206.7206.3206.3200.2195.4200.2186.7172.3177.2182.8188.1199.5200.5199.0194.9194.3196.6196.6178.22.24.85.410.55.16.27.211.55.8-1.23.68.5234.7240.1242.1241.9250.4250.8252.6258.7248.9253.6245.8241.1232.7238.3239.0243.5248.3249.3251.7250.2244.2244.2244.4240.52.01.83.1-1.62.21.6.88.54.79.41.4.6 286.2289.0292.8297.5299.9303.5306.9307.8310.7308.3310.7312.275.575.575.176.377.876.375.172.870.769.866.463.710.311.414.819.115.913.518.717.124.618.620.214.518.521.017.522.024.725.531.830.629.035.435.028.536.239.144.233.636.137.540.941.846.345.243.641.629.232.638.933.8Source: Department of Commerce, Bureau of Economic Analysis.257

TABLE O8.—Gross national product: Receipts and expenditures by major economic groups, 1929-74[Billions of dollars]Year orquarterPersonsDisposable personalincomeTotal iLess:Interestpaidandtransferpaymentsto foreignersEquals:TotalexcludinginterestandtransfersPersonalconsumptionexpendituresPersonalsavingordissavingGovernmentNet receiptsTaxandnontaxreceiptsor accrualsLess:Transfers,interest,andsubsidies3Equals:NetreceiptsExpendituresTotalexpendituresLess:Transfers,interest,andsubsidies2Equals:PurchasesofgoodsandservicesSurplusordeficit(-),nationalincomeandproductaccounts1929....1933....1939....1940....1941....1942....1943....1944....1945....1946....1947....1948....1949195019511952195319541955....1956—.195719581959I960....1961196219631964....1965....1966—.1967196819691970197119721973....1974 v1972:1 II111IV...1973:1 IL—III...IV...1974:1....11...III...IV P..83.345.570.375.792.7116.9133.5146.3150.2160.0169.8189.1188.6206.9226.6238.3252.6257.4275.3293.2308.5318.8337.3350.0364.4385.3404.6438.1473.2511.9546.3591.0634.4691.7746.4802.5903.7979.7774.7790.0807.2838.1869.5892.1913.9939.4950.6966.5993.11,008.71.9.7.91.01.1.8.8.81.01.41.82.22.42.93.13.54.34.65.15.96.46.57.17.88.18.69.710.712.013.013.915.116.717.918.820.924.126.081.444.969.474.791.6116.1132..7145.5149.3158.6168.0186.9186.2204.1223.5234.8248.3252.9270.2287.2302.2312.3330.3342.3356.3376.6394.9427.4461.3498.9532.4575.9617.7673.8727.6781.6879.6953.777.245.866.870.880.688.599.3108.3119.7143.4160.7173.6176.8191.0206.3216.7230.0236.5254.4266.7281.4290.1311.2325.2335.2355.1375.0401.2432.8466.3492.1536.2579.5617.6667.1729.0805.2877.04.2-.92.63.811.027.633.437.329.615.27.313.49.413.117.318.118.316.415.820.620.722.319.117.021.221.619.926.228.432.540.439.838.256.260.552.674.476.711.39.315.417.725.032.649.251.253.250.956.858.956.068.784.889.894.389.7100.4109.0115.6114.7128.9139.8144.6157.0168.8174.1189.1213.3228.9263.5296.7302.5321.6367.0411.5455.01.82.74.24.44.04.44.76.510.418.517.318.821.322.919.919.019.521.923.425.528.733.034.036.541.342.844.446.749.955.562.870.777.993.2105.9116.5131.6152.09.56.711.213.321.028.244.444.742.832.439.540.134.745.864.970.874.867.876.983.586.881.695.0103.3103.3114.2124.3127.3139.2157.9166.2192.7218.8209.4215.7250.5279.9303.110.310.717.618.428.864.093.3103.092.745.542.450.359.160.879.093.7101.296.797.6104.1114.9127.2131.0136.1149.0159.9166.9175.4186.9212.3242.9270.3287.9312.7340.2372.1408.0460.91.82.74.24.44.04.44.76.510.418.517.318.821.322.919.919.019.521.923.425.528.733.034.036.541.342.844.446.749.955.562.870.777.993.2105.9116.5131.6152.08.58.013.314.024.859.688.696.582.327.025.131.637.837.959.174.781.674.874.278.686.194.297.099.6107.6117.1122.5128.7137.0156.8180.1199.6210.0219.5234.2255.7276.4308.8Seasonally adjusted annual rates19.920.521.222.022.523.524.326.225.625.826.226.4754.8769.5786.0816.1847.0868.6889.6913.2925.0940.7966.9982.3701.5720.6736.8757.2781.7799.0816.3823.9840.6869.1901.3896.853.349.049.358.965.369.673.289.384.471.565.585.4355.3362.4369.8380.5398.1406.9416.5424.6435.9450.7470.3112.5113.8115.3124.4127.2130.7133.0135.9139.3147.4157.8163.9242.8248.7254.5256.2271.0276.2283.6288.7296.5303.3312.4363.5367.6370.4387.0396.1403.9409.8422.3435.5451.7470.0486.2112.5113.8115.3124.4127.2130.7133.0135.9139.3147.4157.8163.9251.1253.8255.1262.6269.0273.3276.9286.4296.3304.4312.3322.41.0-1.4-2.2-31.4-44.1-51.8-39.55.414.48.5-3.27.95.8-3.8-6.9-7.02.74.9-12! 5-2.13.7-4.3-2.91.8-1.42.21.1-13.9-6.88.8-10.1-18.5-5.13.5-5.9-8.2-5.2-.6-6.52.13.06.72.3.4-1.0.2See footnotes at end of table.258

TABLE C-8.—Gross national product: Receipts and expenditures by major economic groups,1929-74—Continued[Billions of dollars]BusinessInternationalYearorquarterGrossretainedearnings3Grossprivatelomesticinvestment*Excessof investment(Net exports of goodsand servicesNettransferstoforigners>y personsandGovernmentExportsLess:ImportsEquals:NetexportsExcessoftransfersorof netexports() 5Totalincomeor receiptsStatisticaldiscrepancyGrossnationalproductor expenditure1929193319391940194119421943.194419451946.1947194819491950195119521953195419551956195719581959196019611962196319641965196619671968196919701971197219731974 P11.23.28.410.511.414.516.317.115.114.520.228.029.729.433.135.136.139.246.347.349.849.456.856.858.766.368.876.284.791.393.095.497.097.0110.2125.9136.5136.516.21.49.313.117.99.85.77.110.630.634.046.035.754.159.351.952.651.767.470.067.960.975.374.871.783.087.194.0108.1121.4116.6126.0139.0136.3153.7179.3209.4208.9-5.1l.P-.9-2.7-6.54.610.610.04.6-16.1-13.8-18.0-6.0-24.7-26.2-16.8-16.5-12.5-21.1-22.8-18.1-11.5-18.5-18.0-13.0-16.8-18.4-17.8-23.4-30.1-23.5-30.6-42.0-39.3-43.5-53.5-72.9-72.40.4.2.2.2.2.2.2.3.82.92.64.55.64.03.52.52.52.32.52.42.32.42.42.42.62.72.82.82.82.83.02.92.93.23.63.83.93.67.02.44.45.45.94.84.45.37.214.719.716.815.813.818.718.016.917.819.823.626.523.123.527.228.630.332.337.139.243.446.250.655.562.965.472.4100.4139.45.92.03.43.64.64.86.57.17.37.28.210.39.612.015.115.816.615.917.819.620.820.923.323.223.025.126.428.632.338.141.048.153.659.365.678.496.4137.51.1.41.11.71.3.0-2.0-1.8-.67.511.56.46.11.83.72.2.41.82.04.05.72.2.14.05.65.15.98.56.95.35.22.51.93.6-.2-6.03.92.0-0.8-.2-.9-1.5-1.1.22.22.11.4-4.6-8.9-1.9-.52.2-.2.32.1.5.5-1.5-3.4.22.3-1.7-3.0-2.5-3.1-5.7-4.1-2.4-2.2.41.04189.8-.11.6102.455.089.298.7124.1159.0193.6207.6208.0208.4230.4259.5256.2283.3325.1343.3361.6362.1395.9420.4441.1445.8484.5504.8520.8559.8590.8633.7688.0750.9794.6866.9936.3983.51,057.21,161.81,299.91, 396.70.7.61.31.0.4-1.1-2.02.53.9.1.9-2.0.31.53.32.23.02.72.1-1.1.01.6-.8-1.0-.8.5-.3-1.3-3.1-1.0-j-1.1-5.1-6.4-2.3-3.8-5.0.0103.155.690.599.7124.5157.9191.6210.1211.9208.5231.3257.6256.5284.8328.4345.5364.6364.8398.0419.2441.1447.3483.7503.7520.1560.3590.5632.4684.9749.9793.9864.2930.3977.11,054.91,158.01,294.91,396.7Seasonally adjusted annual rates1972: L -IL.III.IV..1973: I...IllIV1974: I.IIIIIIV p_...119.3125.6126.4132.2133.7135.3137.1140.0139.7135.7130.6169.4175.5182.1190.2199.0205.1209.0224.5210.5211.8205.8207.6-50.1-49.9-55.7-58.0-65.3-69.8-71.9-84.5-70.8-76.1-75.24.03.83.83.63.04.23.64.73.73.73.33.669.168.873.378.588.895.4103.7113.6131.2138.5143.6144.376.175.778.183.889.594.996.9104.3119.9140.0146.7143.2-7.1-6.9-4.8-5.3-.8.56.79.311.3-1.5-3.11.211.010.78.68.93.83.7-3.1-4.7-7.75.26.52.41,120.91,147.61,170.81, 208.01,254.71,284.41,313.81,346.61, 365.11, 383. 51,413.3-5.9-4.5-1.5-3.3-5.9-6.5-4.9-2.6-6.3.33.01,115.01,143.01,169.31,204.71,248.91,277.91, 308.91,344.01,358.81,383.81,416.31,428.01 Personal income less personal tax and nontax payments (fines, penalties, etc.).2 Government transfer payments to persons, foreign net transfers by Government, net interest paid by government,subsidies less current surplus of government enterprises, and disbursements less wage accruals.3 Capital consumption allowances, corporate inventory valuation adjustment, undistributed corporate profits, andprivate wage accruals less disbursements.* Private business investment, purchases of capital goods by private nonprofit institutions, and residential housing.See Table C-13.s Net foreign investment less capital grants received by the United States, with sign changed.Source: Department of Commerce, Bureau of Economic Analysis.259

TABLE C-9.—Gross national product by sector, 1929-74[Billions of dollars]Gross domestic productYear or quarterTotalgrossnationalproductTotalTotalBusinessNonfarm 1FarmGeneral government 2TotalStateandlocalRestof theworldHouseholdsandinstitutionsFederalAddendum:Grossprivateproduct 31929103.1102.395.185.49.72.94.30.93.50.898.8193355.655.348.944.34.61.74.71.23.5.350.9193990.590.280.374.06.32.37.63.44.2.382.91940194119421943 ..194419451946._19471948194999.7124.5157.9191.6210.1211.9208.5231.3257.6256.599.3124.2157.5191.2209.7211.6207.9230.5256.6255.589.1112.2139.5162.4173.8172.3182.7208.6233.5230.182.6103.3126.5147.2158.5156.4163.9188.5210.2211.46.58.913.015.315.315.918.820.223.318.82.42.52.93.23.74.14.55.15.65.97.89.415.125.632.235.220.816.717.419.43.55.010.620.927.329.814.69.48.910.04.34 44 54 74.95 46.27 38 59 4.4.4.4.4.4.4.6.81.01.091.9115.1142.8166.0177.9176.8187.7214.6240.1237.019501951 .19521953_19541955.1956.19571958 .1959284.8328.4345.5364.6364.8398.0419.2441.1447.3483.7283.6327.1344.2363.3363.2396.2417.2438.9445.3481.5256.3292.8305.8323.6322.7352.9370.8389.3391.7425.0236.3269.9283.7303.3303.1334.1352.2370.9370.9405.320.022.922.220.319.618.818.618.420.819.66.46.97.27.88.19.19.810.511.412.220.927.431.231.932.534.236.639.142.144.310 816.318.918.617.818.419.019 620.621.010 111.112 213.314 715 817.619 521.523.31.21.31.31.31.61.82.12.22.02.2263.9301.0314.3332.7332.4363.8382.6402.0405.2439.41960...196119621963..196419651966196719681969503.7520.1560.3590.5632.4684.9749.9793.9864.2930.3501.4517.2557.1587.1628.5680.7745.8789.4859.5926.0440.7452.3487.4513.0548.2594.4648.9681.6739.0794.1420.2431.4466.2491.5527.6570.8624.0657.0713.9766.220.520.921.221.520.623.724.924.625.227.913.214.015.016.017.318.520.222.825.528.147.550.954.758.163.067.876.685.194.9103.821.922.924.325.327.128.432.635.939.542.225.628.030.432.935.939.344.049.255.461.62.42.93.33.44.04.24.14.54.74.3456.3469.2505.7532.4569.4617.1673.3708.8769.3826.51970 .19711972...19731974*977.11,054.91,158.01,294.91, 396.7972.51,048.91,151.51, 286.51,385.6827.0890.5977.91,096.81,177.9797.9859.6942.61,040.31,124.129.030.935.356.553.830.833.737.241.347.0114.7124.6136.4148.5160.845.247.350.752.855.769.677.485.795.7105.14.66.06.58.411.1862.4930.31,021.61,146.51,235.9Seasonally adjusted annual rates1972: 1IIIII..IV_1,115.01,143.01,169.31,204.71,109.21,137.11,162.41,197.4940.5965.9987.41,017.7907.2931.6952.9978.933.334.434.638.836.037.037.838.0132.6134.2137.1141.750.449.950.252.582.284.387.089.25.85.96.97.4982.31,008.91, 032.11, 063.01973: 1IIIII...IV1, 248.91,277.91,308.91,344.01, 240. 51, 269.91,300.61,335.21,056.71,082.41,109.21,138.81,008.81,029.01,049.01,074.547.953.460.264.439.540.742.043.0144.3146.8149.4153.452.552.152.454.391.894.797.199.18.48.08.38.91,104.61,131.11,159.51,190.71974: 1 .IIIIIIV p1,358.81, 383.81,416.31,428.01,344.01, 374.11, 405.21,419.21,143.11,168.81,195.71, 203.81,082.61,117.81,144.41,151.760.551.151.352.144.646.548.048.9156.3158.8161.6166.554.855.055.357.9101.5103.9106.3108.614.79.711.18.81, 202. 51, 225.01, 254.71,261.51 Includes compensation of employees in government enterprises.* Compensation of general government employees.* Gross national product less compensation of general government employees.Source: Department of Commerce, Bureau of Economic Analysis.260

TABLE G-10.—Gross national product by sector in 1958 dollars, 1929-74[Billions of 1958 dollars]Year orquarterTotalgrossnationalproductGross domestic productTotalBusinessTotalNonfarmiFarmHouseholdsandinstitutionsGeneral government 2TotalFederalStateandlocalRestof theworldAddendum:Grossprivateproduct^192919331939194019411942194319441945.19461947194819491950.1951195219531954195519561957.1958195919601961196219631964196519661967..1968196919701971197219731974*1972: IIV ..1973: I.....II —III...IV ..1974: I IL...III...IV p..203.6141.5209.4227.2263.7297.8337.1361.3355.2312.6309.9323.7324.1355.3383.4395.1412.8407.0438.0446.1452.5447.3475.9487.7497.2529.8551.0581.1617.8658.1675.2706.6725.6722.5746.3792.5839.2821.1202.2140.3208.4226.3262.8296.9336.3360.4354.5311.7308.9322.5322.9354.0382.2393.9411.5405.5436.2444.1450.4445.3473.7485.4494.2526.4547.6577.2613.7654.1670.8702.2721.6718.5741.5787.7833.9817.1182.1120.6180.7197.1228.1248.7264.9278.9274.6267.0272.8286.0284.7314.2334.5343.2360.7355.4385.4392.2397.5391.7419.4429.5436.9466.7486.6514.4548.9584.9597.8626.5644.6641.1663.7709.4753.1734.1165.1103.0162.5179.6209.3228.0245.3259.5256.5248.6255.8267.0266.2294.9316.2324.2340.7335.0364.4371.4377.2370.9398.3407.6414.8444.6463.8492.1525.2562.5573.9603.1620.5616.4637.4683.4725.8706.617.017.518.217.518.820.619.619.418.118.517.019.018.419.418.419.020.020.420.920.820.320.821.121.922.222.122.822.323.722.423.923.424.124.826.326.027.427.57.45.77.17.67.57.87.27.17.17.17.57.98.28.78.88.89.19.210.110.610.911.411.712.212.412.913.213.714.014.615.416.016.316.617.017.618.518.912.714.020.621.627.240.564.374.472.837.528.628.730.131.138.841.841.740.940.741.341.942.142.543.744.846.947.849.150.854.657.359.760.760.760.860.762.364.12.63.38.59.314.828.452.562.660.924.914.914.315.015.522.925.424.623.022.221.721.520.620.220.420.621.821.621.621.823.925.726.326.024.523.021.821.321.110.110.712.212.312.412.111.811.711.912.613.714.415.115.615.916.417.117.818.619.620.521.522.323.324.225.126.227.429.030.731.933.434.736.237.838.941.043.1Seasonally adjusted annual rates1.41.2.91.0.9.8.8.9.8.91.11.21.21.31.21.21.31.61.82.02.12.02.22.32.93.43.43.94.13.94.34.54.04.04.94.75.24.0770.9786.6798.1814.2832.8837.4840.8845.7830.5827.1823.1803.7766.5782.3793.2809.0827.0832.4835.7840.7823.5824.1819.8800.9688.3704.3714.8730.3747.3751.8754.4759.2740.9741.4736.6717.3661.8677.8690.2704.0719.2724.3728.6731.0713.9712.7708.0691.626.526.524.626.328.127.525.828.227.028.728.625.717.417.617.717.518.118.518.818.719.118.818.918.960.760.460.661.161.662.162.462.963.563.964.264.822.121.721.721.721.521.321.121.121.121.121.021.038.638.739.039.440.140.841.341.742.342.843.243.74.54.45.05.25.85.05.15.07.03.03.32.8190.9127.5188.7205.6236.6257.3272.8286.9282.5275.1281.4295.0294.1324.2344.6353.2371.1366.2397.2404.8410.5405.2433.4444.0452.3482.9503.2532.0567.0603.5617.5647.0664.9661.7685.6731.7776.9757.0710.2726.2737.5753.0771.2775.3778.4782.8767.0763.2758.8738.91 Includes compensation of employees in government enterprises.2 Compensation of general government employees.3 Gross national product less compensation of general government employees.Source: Department of Commerce, Bureau of Economic Analysis.261

TABLE C-l 1.—Gross product originating in nonfinancial corporations and dollar costs per unit ofoutput, 1948-74Year or quarterGross productoriginating innonfinancialcorporations (billionsof dollars)Currentdollars1958dollarsTotalcostsiCurrent dollar costs per unit of 1958 dollar gross product (dollars)CapitalconsumptionallowancesIndirectbusinesstaxes 2CompensationofemployeesNetinterestCorporate profits and inventoryvaluation adjustmentTotalProfitstaxliabilityProfitsaftertaxesplus inventoryvaluationadjustment19481949137.0133.3172.9165.60.793.8050.040.0470.070.0760.507.5140.005.0060.171.1620.069.0570.103.10419501951195219531954151.7174.3182.0194.7191.6186.4203.5207.1219.8213.4.814.857.879.886.898.046.049.054.059.069.075.075.081.083.081.507.541.570.584.591.005.005.006.006.007.180.186.168.154.149.090.103.086.084.074.090.083.082.070.075195519561957.19581959216.3231.2241.9236.0263.7237.2244.0247.2236.0260.8.912.948.9791.0001.011.072.076.082.091.088.081.085.090.097.094.582.619.642.659.654.007.007.009.011.010.170.160.155.142.164.084.081.076.069.080.086.079.078.073.08419601961196219631964273.1278.4302.8320.0346.0267.1270.6292.9308.0329.71.0221.0291.034.039L. 050.091.095.100.100.100.099.103.101.102.103.670.670.665.664.664.011.013.014.015.015.151.149.154.158.168.073.073.071.074.074.078.076.082.084.094196519661967---19681969377.6413.0430.8469 9504.3357.8385.0390.2415.0433.91.0551.0731.1041.132L. 162.099.100.107.109.115.100.096.100.105.109.660.678.707.727.764.017.019.023.025.029.179.180.167.166.145.077.078.073.082.078.102.102.094.084.06719701971_.1972 .19731974*519.1555.1614.3684.3731.8427.7441.5479.0516.4504.21.2581.282L. 325L.451.126.132.133.132.145.119.126.123.123.133.812.830.845.879.978.038.038.037.040.045.119.132.145.151.150.064.067.070.079.091.055.065.075.073.059Seasonallyadjustedannual ratesSeasonally adjusted1972: 1 ...II .IIIIV591.4607.4618.6639.7463.6475.0482.0495.31.2761.2791.2841.2920.132.134.133.1320.124.123.123.1220.843.843.846.8480.037.037.037.0370.140.142.144.1520.067068.070.0740.074074.075.0781973: 1II ..IllIV ..663.5678.6690.0704.9510.1516.1518.7520.61.3011.3151.3301.354.130.131.132.134.122.122.124.124.858.870.884.905.038.039.040.041.153.152.151.150.079.081.078.077.074.071.072.0731974: 1II...Ill709.3727.9743.5509.7507.9505.21.3911.4331.472.139.142.146.128.131.136.937.964.993.043.045.046.145.152.151.083.090.104.062.061.0471 This is equal to the deflator for gross product of nonfinancial corporations, with the decimal point shifted two places tothe left.3 Also includes business transfer payments less subsidies.Source: Department of Commerce, Bureau of Economic Analysis.262

TABLE C-12.—Personal consumption expenditures, 1929-74[Billions of dollars]Yearorquarter2iiliQ.co x•SCDDurable goodsIsNondurable goodsServices1929...1933...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..1967..1968..1969..1970...1971...1972...1973...1974 P..1972:I —IV..1973:\~\~.~.III.IV..1974:I —II..III.IV v77.245.866.870.880.688.599.3108.3119.7143.4160.7173.6176.8191.0206.3216.7230.0236.5254.4266.7281.4290.1311.2325.2335.2355.1375.0401.2432.8466.3492.1536.2579.5617.6667.1729.0805.2877.09.23.56.77.89.66.96.66.78.015.820.422.724.630.529.629.333.232.839.638.940.837.944.345.344.249.553.959.266.370.873.184.090.891.3103.9118.4130.3127.83.21.12.22.73.4.7.8.81.04.06.27.59.913.111.611.114.213.618.416.418.315.419.520.118.422.024.325.830.330.330.537.540.237.346.653.157.549.64.81.93.53.94.94.73.93.84.68.610.911.911.614.114.414.314.915.016.617.517.317.118.918.919.320.522.225.026.929.931.434.337.139.642.348.755.058.91.2.51.01.11.41.61.92.22.53.23.33.43.23.33.63.94.14.24.65.05.25.45.96.36.56.97.58.59.110.511.212.313.514.415.016.617.819.237.722.335.137.042.950.858.664.371.982.490.596.294.598.1108.8114.0116.8118.3123.3129.3135.6140.2146.6151.3155.9162.6168.6178.7191.1206.9215.0230.8245.9263.8278.4299.7338.0380.219.511.519.120.223.428.433.236.740.647.452.354.252.553.960.463.464.465.467.269.973.676.478.680.582.985.788.292.998.8105.8108.5115.3120.6130.0135.9143.7165.1187.89.44.67.17.48.811.013.414.416.518.218.820.119.319.621.221.922.122.123.124.124.324.726.427.327.929.630.633.535.940.342.346.350.252.857.363.070.274.11.81.52.22.32.62.11.31.61.83.03.64.45.05.46.16.87.78.29.09.810.611.011.612.312.412.913.514.015.316.617.619.020.922.223.525.028.335.97.04.66.77.18.09.310.611.713.013.815.717.517.719.221.121.722.722.624.025.427.128.230.131.232.734.436.338.241.144.446.650.254.258.761.867.974.482.330.320.125.026.028.130.834.237.239.845.349.854.757.662.467.973.479.985.491.498.5105.0112.0120.3128.7135.1143.0152.4163.3175.5188.6204.0221.3242.7262.6284.8310.9336.9369.111.57.99.19.410.211.011.512.012.513.915.717.519.321.323.926.529.331.733.736.038.541.143.746.348.752.055.459.363.567.571.877.384.190.999.1107.9116.4126.44.02.83.84.04.34.85.25.96.46.87.58.18.59.510.411.112.012.614.015.216.217.318.520.020.822.023.124.325.627.129.131.233.836.439.443.347.352.92.61.52.02.12.42.73.43.74.05.05.35.85.96.26.77.17.87.98.28.69.09.310.110.810.611.011.411.612.613.614.515.516.618.320.421.823.426.1Seasonally adjusted annual rates701.5'20.6'36.8'57.2781.7799.0816.3823.9840.6869.1901.3896.812.27.910.110.411.212.314.015.616.819.721.423.323.925.426.928.730.833.235.538.641.344.348.051.654.958.062.568.173.880.488.597.3108.2117.0125.9137.9149.9163.6112.1116.2121.2124.3132.4132.1132.4124.3123.9129.5136.1121.549.451555660595951.534423248.050.656.43. 2 747.247.949.350.754.354.955.555.457.559.560.458.415.616.816.717.217.718.017.617.718.319.419.419.5288.4297.4302.0310.9323.3332.7343.8352.1364.4375.8389.0391.5139.3142.4144.7148.5155.9160.9169.1174.5180.1183.5191.3196.660.062.563.766.069.170.170.670.972.874.475.773.524.624.525.125.826.828.028.729.831.536.837.937.564.668.168.570.771.573.675.477.080.081.184.284.0301.0307.0313.6322.0325.9334.2340.1347.4352.4363.8376.2383.8105.1106.9108.9110.7113.1115.6117.0119.7122.2124.9127.7130.941.242.643.945.545.646.648.348.749.251.754.656.221.521.621.922.322.823.123.624.125.025.626.527.5133.1135.9138.8143.6144.5148.8151.2155.0156.0161.6167.5169.31 Includes consumer purchases of mobile homes.* Includes imputed rental value of owner-occupied dwellings.Source: Department of Commerce, Bureau of Economic Analysis.263

TABLE C-13.—Gross private domestic investment, 1929-74[Billions of dollars]Year orquarter19291933....1939...1940 .1941...19421943...19441945 .19461947.1948...19491950 .1951....19521953...19541955...19561957.1958195919601961..196219631964. .19651966196719681969 ...19701971197219731974 v_1972: 1 IIIIIIV1973:1 IIIllIV1974: 1 IIIllIV»____Totalgrossprivatedomestici nvestment16.21.49.313.117.99.85.77.110.630.634.046.035.754.159.351.952.651.767.470.067.960.975.374.871.783.087.194.0108.1121.4116.6126.0139.0136.3153.7179.3209.4208.9169.4175.5182.1190.2199.0205.1209.0224.5210.5211.8205.8207.6Fixed investmentTotal14.53.08.911.013.48.16.48.111.624.234.441.338.847.349.048.852.153.361.465.366.562.470.571.369.777.081.388.298.5106.6108.4118.9131.1131.7147.4170.8194.0195.6164.5167.6171.9179.2189.0194.4197.1195.5193.6198.3197.1193.2NonresidentialTotal10.62.45.97.59.56.05.06.810.117.023.426.925.127.931.831.634.233.638.143.746.441.645.148.447.051.754.361.171.381.683.388.898.5100.6104.6116.8136.8149.6112.7114.7117.5122.5130.5135.6139.0141.9145.2149.4150.9152.7StructuresTotal5.0.92.02.32.91.91.31.82.86.87.58.88.59.211.211.412.713.114.317.218.016.616.718.118.419.219.521.225.528.528.030.334.236.137.941.147.052.2Nonfarm4.8.91.92.22.81.81.21.72.76.16.78.07.78.510.410.511.912.313.616.517.215.815.917.417.718.518.820.524.927.827.329.633.535.337.140.445.750.3Producers'durableequipmentTotal5.61.54.05.36.64.13.75.07.310.215.918.116.618.720.720.221.520.623.826.528.425.028.430.328.632.534.839.945.853.155.358.564.364.466.675.789.897.4Nonfarm4.91.33.44.65.63.53.24.26.39.214.015.513.715.717.717.618.618.021.224.225.922.025.427.725.829.531.236.341.648.450.053.659.258.961.169.481.486.8Seasonally adjusted annua40.741.040.642.244.646.247.949.351.352.251.054.339.940.339.941.343.644.946.447.849.550.449.252.372.073.776.880.385.989.491.192.693.997.299.998.466.568.070.172.978.581.182.683.584.686.989.286.3Residential structuresTotal4.0.62.93.43.92.11.41.31.57.211.114.413.719.417.217.218.019.723.321.620.220.825.522.822.625.327.027.127.225.025.130.132.631.242.854.057.246.0rates51.852.954.556.758.558.758.153.648.448.846.240.5Nonfarm3.8.52.83.23.71.91.21.11.46.710.413.612.818.616.416.417.219.022.720.919.520.124.822.222.024.826.426.626.724.524.529.532.030.742.353.456.745.251.252.353.956.258.058.457.653.047.848.045.439.8Farm0.2.0.1.2.2.2.1.1.9.8.8.8.8.8.6.7.6.6.6.6.6.6.5.5.6.6.5.6.6.70.6.6.5.5.4.5.6.7.8.8Change inbusinessinventoriesTotal1.7-1.6.42.24.51.8-.6-1.0-1.06.4-.54.7-3.16.810.33.1.4-1.56.04.71.3-1.54.83.62.06.05.95.89.614.88.27.17.84.56.38.515.413.45.08.010.211.010.010.711.828.916.913.58.714.4Nonfarm1.8-1.4.31.94.0.7-.6 g—.66.41.33.0-2.26.09.11.15.55 1-2.34.83.31.75 35 16.48 615.07.56.97.74.34.97.811.411.04.17.09.610.46.57.77.424.013.110.46.613.8Source: Department of Commerce, Bureau of Economic Analysis.264

TABLE C—14.-—Relation of gross national product and national income, 1929—74[Billions of dollars]Year or quarter192919331939194019411942194319441945194619471948 . ...19491950195119521953 .. .1954195519561957195819591960196119621963196419651966. .19671968196919701971197219731974 v ._.1972: 1 IIIIIIV1973: 1 IIIII... .IV1974: 1 IIIIIIV PGrossnationalproduct103.155.690.599.7124.5157.9191.6210.1211.9208.5231.3257.6256.5284.8328.4345.5364.6364.8398.0419.2441.1447.3483.7503.7520.1560.3590.5632.4684.9749.9793.9864.2930.3977.11,054.91,158.01,294.91,396.71,115.01,143.01,169. 31,204.71,248.91,277.91, 308.91,344.01,358.81, 383.81,416.31, 428.0Less:Capitalconsumptionallowances7.97.07.37.58.29.810.311.011.39.912.214.516.618.321.223.225.728.231.534.137.138.941.443.445.250.052.656.159.863.968.974.581.687.393.7102.9110.8119.598.9103.7103.3105.8107.4110.5111.5113.9115.8118.6120.7123.0Equals:Netnationalproduct95.248.683.292.2116.3148.1181.3199.1200.7198.6219.1243.1239.9266.4307.2322.3338.9336.6366.5385.2404.0408.4442.3460.3474.9510.4537.9576.3625.1685.9725.0789.7848.7889.8961.21,055.11,184.11,277. 2Plus:Subsidieslesscurrentsurplusof governmententerprises-0.1.0.5.4.1.2.2.7.8.9-.2-.1.2.2-.1-.4-.2-.1.8.9.9.1.21.41.4.81.31.32.31.41.01.71.12.3.6-2.9Less:Indirectbusinesstax andnontaxliability7.07.19.410.011.311.812.714.115.517.118.420.121.323.325.227.629.629.432.134.937.338.541.545.247.751.554.758.462.565.770.478.685.993.5102.7110.0119.2126.9Seasonally adjusted annual1,016.11,039.31,066.01,098.91,141.51,167.41,197.41,230.11,243.01,265.21,295.61, 305.01.52.12.52.91.5.7.3-.1-2.7-3.7-2.4-2.7106.7109.0111.1113.4116.5118.6120.4121.3122.6125.9129.5129.8Businesstransferpayments0.6.7.5.4.5.5.5.5.5.6.7.8.8.91 01.21.11.21.41.51.61.71.92.02.12.32.52.73.03.13.43.84.04.34.64.95.2rates4.54.54.64.64.74.84.95.05.15.25.35.3Statisticaldiscrepancy0.7.61.31.0.4-1.1-2.02.53.9.1.9-2.0.31.53.32.23.02.72.1-1.1.01.6-.8-1.0-.8.5-.3-1.3-3.1-1.0-.7-2.7-6.1-6.4-2.3-3.8-5.0.0-5.9-4.5-1.5-3.3-5.9-6.5-4.9-2.6-6.33.*0Equals:Nationalincome86.840.372.681.1104.2137.1170.3182.6181.5181.9199.0224.2217.5241.1278.0291.4304.7303.1331.0350.8366.1367.8400.0414.5427.3457.7481.9518.1564.3620.6653.6711.1766.0800.5857.7946.51,065.61,142.2912.3932.5954.3987.01,027.61,051.21,077.31,106.31,118.81,130.21,155.5Source: Department of Commerce, Bureau of Economic Analysis.265

TABLE CM 5.—National income by type of income, 1929-74[Billions of dollars]Year orquarterTotalnationalincome1TotalCompensation ofemployeesWagesandsalariesSupplementstowagesandsalaries2Business and professionalincomeTotalIncomeofunincorporatedenterprisesInventoryvaluationadjustmentIncomeoffarmproprietors'TotalCorporate profitsand inventoryvaluationadjustmentRentalincomeofpersonsCorporateprofitsbeforetaxes«InventoryvaluationadjustmentNetinterest19291933. ..193986.840.372.651.129.548.150.429.045.90.7.52.29.03.37.48.83.97.60.1-.5-.26.22.64.45.42.02.710.5-1.26.310.01.07.00.5-2.1—.74.74.13.519401941194219431944194519461947.. ..1948194981.1104.2137.1170.3182.6181.5181.9199.0224.2217.552.164.885.3109.5121.2123.1117.9128.9141.1141.049.862.182.1105.8116.7117.5112.0123.0135.4134.52.32.73.23.84.55.65.95.95.86.58.611.114.017.018.219.221.620.322.722.68.611.714.417.118.319.323.321.823.122.2.0-.6-.4-.2-.1-.1-1.7-1.5-.4.54.56.49.811.711.612.214.915.217.512.72.93.54.55.15.45.66.67.18.08.49.815.220.324.423.819.219.325.633.030.810.017.721.525.124.119.724.631.535.228.9-.2-2.5-1.2—.8-5.3-5.9-2.21.93.33.23.12.72.32.21.51.91.81.91950195119521953195419551956 . .195719581959I96019611962196319641965196619671968.196919701971197219731974 v241.1278.0291.4304.7303.1331.0350.8366.1367.8400.0414.5427.3457.7481.9518.1564.3620.6653.6711.1766.0800.5857.7946.51,065.61,142.2154.6180.7195.3209.1208.0224.5243.1256.0257.8279.1294.2302.6323.6341.0365.7393.8435.5467.2514.6566.0603.9643.1707.1786.0855.7146.8171.1185.1198.3196.5211.3227.8238.7239.9258.2270.8278.1296.1311.1333.7358.9394.5423.1464.9509.7542.0573.6626.8691.6750.67.89.610.210.911.513.215.217.317.920.923.424.627.529.932.035.041.044.249.756.361.969.580.394.4105.024.026.127.127.527.630.331.332.833.235.134.235.637.137.940.242.445.247.349.550.550.052.054.957.661.225.126.526.927.627.630.531.833.133.235.334.335.637.137.940.342.845.647.650.351.250.752.756.059.864.7-1.1-'.2-.2-.5-.1-.1.0.0.0.0-.4-.3-.7-.8-.7-2.3 -3.513.515.815.013.012.411.411.411.313.411.412.012.813.013.112.114.816.114.814.716.716.917.221.038.531.89.410.311.512.713.613.914.314.815.415.615.816.016.717.118.019.020.021.121.222.623.925.225.926.126.537.742.739.939.638.046.946.145.641.151.749.950.355.758.966.376.182.478.784.379.869.278.792.2105.1105.442.643.938.940.638.348.648.847.241.452.149.750.355.459.466.877.884.279.887.684.974.083.699.2122.7141.0—5.0-1.21.0-1.0-.3-1.7-2.7-1.5-.3-.5.2-.1.3-.5-1.7-1.8-1.1-3.3-5.1-4.8-4.9-7.0-17.6-35.52.02.32.62.83.64.14.65.66.87.18.410.011.613.815.818.221.424.426.930.536.541.645.652.361.6Seasonally adjusted annual rates1972' 1 IIIIIIV..912 3932.5954 3987.0683 8699.0712 6732.9606 6619.7631 2649.677.179.381.483.453.754.355.556.119.220.320.324.025.524.426.826.786.589.592.999.892.396.0100.2108.2-5.8—6.5—7.3-8.443.644.946.247.51973: I..III.IV.1,027.61,051.21,077.31,106.3759.1776.7793.3814.8667.6683.6698.2717.091.593.195.197.757.057.157.758.432.135.641.544.926.325.726.226.4103.9105.0105.2106.4120.4124.9122.7122.7-16.5-20.0-17.5-16.349.251.153.255.51974- 1 IIIII.IV p1 118 81,130.21,155.1828 8848.3868.2877.3727.6744.6761.5768.8101.2103.7106.7108.559.360.762.362.539.129.129.829.126.426.326.626.8107.7105.6105.8135.4139.0157.0-27.7-33.4-51.2-29.857.560.162.865.91 National income is the total net income earned in production. It differs from gross national product mainly in that itexcludes depreciation charges and other allowances for business and institutional consumption of durable capital goods,and indirect business taxes. See Table C-14.3 Employer contributions for social insurance and to private pension, health, and welfare funds; compensation forinjuries; directors' fees; pay of the military reserve; and a few other minor items.» Includes change in inventories.* See Table C-74 for corporate tax liability and profits after taxes.Source: Department of Commerce, Bureau of Economic Analysis.266

TABLE C—16.—Relation of national income and personal income, 1929—74[Billions of dollars]Less:PlusEquals:Year or quarterNationalincomeCorporateprofitsand inventoryvaluationadjustmentContributionsforsocialinsuranceWageaccrualslessdisbursementsGovernmenttransferpaymentsto personsInterestpaidbygovernment(net)and byconsumersDividendsBusinesstransferpaymentsPersonalincome19291933193919401941194219431944194519461947194819491950 . . .195119521953195419551956195719581959196019611962196319641965196619671968196919701971197219731974*86.840.372.681.1104.2137.1170.3182.6181 5181.9199.0224 2217.5241.1278.0291.4304 7303.1331.0350.8366.1367.8400.0414 5427.3457.7481.9518.1564.3620.6653.6711.1766.0800.5857.7946.51,065.61,142. 210.5-1.26.39.815.220.324.423.819.219.325.633.030.837.742.739.939.638.046.946.145.641.151.749.950.355.758.966.376.182.478.784.379.869.278.792.2105.1105.40.2.32.12.32.83.54.55.26.16.05.75.25.76.98.28.78 89.811.112.614.514.817.620 721.424.026.927.929.638.042.447.154.257.763.873.091.2101.50.0.0.0.0.0.0.2-.2o .0.0o .0.0 .1.0.0.0.0.0.0.0o.0.0.0.0.0.0.0.0.0.0.6.0-.1-.50.91.52.52.72.62.62.53.15.610.811.110.511.614.311.512.012.814.916.117.119.924.124.926.630.431.233.034.237.241.148.756.161.975.189.098.6113.0134.62.51.61.92.12.22.22.63.34.25.25.56.16.57.27.68.19.09.510.111.212.012.113.615.115.016.117.619.120.522.223.626.128.731.031.233.038.342.35.82.03.84.04.44.34 44.64 65.66.37 07.28.88.68.68.99.310.511.311.711.612.613 413.815.216 517.819.820.821.423.624.324.725.027.329.632.70.6.7.54.5*5.55.6.88.91.01 21.11.21 41 51.61.71 92 02.12 32.52.73.03.13.43.84.04.34.64.95.285.947.072.878.396.0122.9151.3165.3171 1178.7191.3210 2207.2227.6255.6272.5288.2290.1310.9333.0351.1361.2383.5401.0416.8442.6465.5497.5538.9587.2629.3688.9750.9808.3864.0944.91,055.01,150.4Seasonally adjusted annual rates1972: 1IIIll -IV1973: 1IIIIIIV1974: 1IIML..IVP912.3932.5954.3987.0,027.6,051.2,077.3, 106.3,118.8, 130.2, 155.586.589.592.999.8103.9105.0105.2106.4107.7105.6105.871.272.373.874.988.790 292.193.999.1100 8103.0103.2-1.4 94.5-.4 95.5-.2 96.92.1 107.6.0 109.3_ 3 111 3.0 114.1.0 117.1.0 123.1- 6 130 6-1.5 138.7.0 145.831.832.733.234.435.937.739.3'40.440.841.942.743.626.427.127.828.228.729 129.830.731.632 533.233.34.54.54.64.64.74 84.95.05.15 25.35.3913.3930.9950.3985.01,013.61,039.21,068.01,099.31,112.51,134.61,168.21,186.4Source: Department of Commerce, Bureau of Economic Analysis.267

TABLE C-17.—Disposition of personal income, 1929-74Year orquarterPersonalincomeLess:PersonaltaxandnontaxpaymentsEquals:DisposablepersonalincomeLess: Personal outlaysTotalPersonalconsumptionexpendituresInterestpaid byconsumersPersonaltransferpaymentsto foreignersEquals:PersonalsavingPercent of disposablepersonal incomePersonaloutlaysTotalConsumptionexpendituresPersonalsavingBillions of dollarsPercent1929.1933.1939.1940.1941.1942.1943.1944.1945.1946.1947.1948.1949.1950.1951.1952.1953.195419551956195719581959I960196119621963196419651966196719681969197019711972197319741972:1....II...ML.IV..1973:I....II...IV."1974:1 IIlll__IV*.85.947.072.878.396.0122.9151.3165.3171.1178.7191.3210.2207.2227.6255.6272.5288.2290.1310.9333.0351.1361.2383.5401.0416.8442.6465.5497.5538.9587.2629.3688.9750.9808.3864.0944.91,055.01,150.42.61.52.42.63.36.017.818.920.918.721.421.118.620.729.034.135.632.735.539.842.642.346.250.952.457.460.959.465.775.483.097.9116.5116.6117.6142.4151.3170.783.345.570.375.792.7116.9133.5146.3150.2160.0169.8189.1188.6206.9226.6238.3252.6257.4275.3293.2308.5318.8337.3350.0364.4385.3404.6438.1473.2511.9546.3591.0634.4691.7746.4802.5903.7979.779.146.567.771.881.789.3100.1109.1120.7144.8162.5175.8179.2193.9209.3220.2234.3241.0259.5272.6287.8296.6318.3333.0343.3363.7384.7411.9444.8479.3506.0551.2596.2635.5685.9749.9829.4903.077.245.866.870.880.688.599.3108.3119.7143.4160.7173.6176.8191.0206.3216.7230.0236.5254.4266.7281.4290.1311.2325.2335.2355.1375.0401.2432.8466.3492.1536.2579.5617.6667.1729.0805.2877.01.5.5.7.8.9.7.5.5.5.81.11.51.92.42.73.03.84.04.75.45.85.96.57.37.68.19.110.111.312.413.214.315.816.817.719.822.925.00.3.2.2.2.2.1.2.4.5.7.7.7.5.5.4.4.5.5.5.6.6.6.6.5.5.5.6.6.7.6.7.8.91.01.11.11.31.04.2-.92.63.811.027.633.437.329.615.27.313.49.413.117.318.118.316.415.820.620.722.319.117.021.221.619.926.228.432.540.439.838.256.260.552.674.476.795.0102.096.394.988.276.475.074.580.390.595.792.995.093.792.492.492.893.694.393.093.393.094.495.194.294.495.194.094.093.692.693.394.091.991.993.491.892.292.7100.695.093.686.975.774.474.079.789.694.691.893.892.391.090.991.191.992.491.091.291.092.392.992.092.292.791.691.591.190.190.791.389.389.490.889.189.55.0-2.03.75.111.823.625.025.519.79.54.37.15.06.37.67.67.26.45.77.06.77.05.64.95.85.64.96.06.06.47.46.76.08.18.16.68.27.8Seasonally adjusted annual ratesSeasonally adjusted913.3930.9950.3985.01,013.61,039.21,068.01,099.31,112.51,134.61,168.21,186.4138.6140.9143.1147.0144.1147.2154.2159.9161.9168.2175.1177.877'4.7790.0807.2838.1869.5892.1913.9939.4950.6966.5993.11, 008.7721.4741.1757.9779.2804.2822.5840.7850.1866.2894.9927.6923.3701.5720.6736.8757.2781.7799.0816.3823.9840.6869.1901.3896.818.919.520.120.921.622.523.424.024.424.825.325.51.01.01.11.1.91.0.92.21.21.0.9.953.349.049.358.965.369.673.289.384.471.565.585.493.193.893.993.092.592.292.090.591.192.693.491.590.691.291.390.389.989.689.387.788.489.990.888.96.96.26.17.07.57.88.09.58.97.46.68.5Source: Department of Commerce, Bureau of Economic Analysis.268

TABLE C-18.—Total and per capita disposable personal income and personal consumptionexpenditures in current and 1958 dollars, 1929-74Disposable personal incomePersonal consumption expendituresYear or quarterTotal (billionsof dollars)Per capita(dollars)Total (billionsof dollars)Per capita(dollars)Population(thousands)^Currentdollars1958dollarsCurrentdollars1958dollarsCurrentdollars1958dollarsCurrentdollars1958dollars1929..83.3150.66831,23677.2139.66341,145121,8751933..45.5112.236289345.8112.8364897125,6901939..70.3155.95371,19066.8148.25101,131131,0281940..1941..1942..1943..1944..1945..1946..1947..1948..1949..1950..1951..1952..1953..1954..1955..1956..1957..1958..1959..75.792.7116.9133.5146.3150.2160.0169.8189.1188.6206.9226.6238.3252.6257.4275.3293.2308.5318.8337.3166.3190.3213.4222.8231.6229.7227.0218.0229.8230.8249.6255.7263.3275.4278.3296.7309.3315.8318.8333.05736958679761,0571,0741,1321,1781,2901,2641,3641,4691,5181,5831,5851,6661,7431,8011,8311,9051,2591,427,582,629,673,642,606,513,567,547,646,657,678,726,714,795,839,844,831,88170.880.688.599.3108.3119.7143.4160.7173.6176.8191.0206.3216.7230.0236.5254.4266.7281.4290.1311.2155.7165.4161.4165.8171.4183.0203.5206.3210.8216.5230.5232.8239.4250.8255.7274.2281.4288.2290.1307.35366046567267828551,014M15,184,185,259,337,381,441,456,539,585,643,666,7581,1781,2401,1971,2131,2381,3081,4391,4311,4381,4511,5201,5091,5251,5721,5751,6591,6731,6831,6661,735132,122133,402134,860136,739138,397139,928141,389144,126146,631149,188151,684154,287156,954159,565162,391165,275168, 221171,274174,141177,073I960..1961..1962.1963.1964.1965.1966.1967.1968.1969.350.0364.4385.3404.6438.1473.2511.9546.3591.0634.4340.2350.7367.3381.3407.9435.0458.9477.5499.0513.61,9371,9842,0652,1382,2832,4362,6042,7492,9453,130,883,9091,9692,0152,1262,2392,3352,4032,4862,534325.2335.2355.1375.0401.2432.8466.3492.1536.2579.5316.1322.5338.4353.3373.7397.7418.1430.1452.7469.1,800,8251,9031,9812,0912,2282,3722,4762,6712,8591,7491,7561,8141,8671,9482,0472,1272,1642,2562,315180,671183,691186,538189,242191,889194,303196,560198,712200,706202,6771970...1971...1972...1973...1974 p..691.7746.4802.5903.7979.7534.8555.4580.5619.6603.23,3763,6053,8434,2954,6232,6102,6832,7792,9452,846617.6667.1729.0805.2877.0477.5496.4527.3552.1539.93,0153,2223,4913,8274,1392,3312,3982,5252,6242,548204,875207,045208,842210, 396211,909Seasonally adjusted annual rates1972: l._II.IIIIV.1973: I..II.IIIIV1974: I.11.IIIIV774.7790.0807.2838.1869.5892.1913.9939.4950.6966.5993.11,008.7566.2573.6581.9600.1615.1618.2621.8622.9610.3603.5602.9596.23,7203,7873,8614,0004,1434,2444,3394,4524,4974,5654,6814,7442,7192,7492,7842,8642,9312,9412,9522,9522,8872,8502,8422,804701.5720.6736.8757.2781.7799.0816.3823.9840.6869.1901.3896.8512.8523.2531.2542.2552.9553.7555.4546.3539.7542.7547.2530.13,3683,4543,5243,6143,7253,8013,8763,9043,9774,1054,2494,2182,4622,5082,5412,5882,6352,6342,6372,5892,5532,5632,5792,493208, 259208,634209,054209, 505209,852210,205210,610211,030211,381211,721212,139212,6001 Population of the United States including Armed Forces overseas; includes Alaska and Hawaii beginning 1960. Annualdata are for July 1; quarterly data are for middle of period, interpolated from monthly data.Source: Department of Commerce (Bureau of Economic Analysis and Bureau of the Census).563-280 O - 75 - 18269

TABLE C-19.—Sources of personal income t 1929-74[Billions of dollars]Year or quarter19291933193919401941194219431944194519461947194819491950195119521953195419551956195719581959196019611962196319641965196619671968196919701971197219731974P1972: 1 IIIII... :...IV _1973: 1 II ._IllIV1974- 1 ||IIIIV* ..Totalpersonalincome85.947.072.878.396.0122.9151.3165.3171.1178.7191.3210.2207.2227.6255.6272.5288.2290.1310.9333.0351.1361.2383.5401.0416.8442.6465.5497.5538.9587.2629.3688.9750.9808.3864.0944.91,055.01,150.4Wage and salary disbursements*Total50.429.045.949.862.182.1105.6116.9117.5112.0123.0135.3134.6146.7171.0185.1198.3196.5211.3227.8238.7239.9258.2270.8278.1296.1311.1333.7358.9394.5423.1464.9509.7542.0573.0626.8691.7751.1CommodityproducingindustriesTotal21.59.817.419.727.539.148.950.345.846.054.361.057.764.676.181.889.485.492.8100.2103.899.7109.1112.5112.8120.8125.7134.1144.5159.3166.5181.5197.5200.9206.2225.4251.9270.9Manufacturing16.17.813.615.621.730.940.942.938.236.542.547.244.750.359.464.271.267.673.979.582.578.786.989.789.896.7100.6107.2115.6128.1134.2145.9157.6158.3160.5175.8196.6211.3Distributiveindustries15.68.813.314.216.318.020.122.724.831.035.237.637.739.944.346.949.850.253.457.760.560.864.868.169.172.576.081.286.993.8100.3109.2120.0129.3138.3151.0165.1178.9Serviceindustries8.45.27.17.58.19.09.910.912.014.416.117.918.619.921.723.325.126.428.931.633.935.938.741.544.046.849.954.158.363.770.578.588.196.6104.6115.3128.2142.6Government4.95.18.28.410.216.026.633.034.920.717.418.920.622.428.933.134.134.636.238.340.443.545.648.752.256.059.564.369.377.785.895.7104.1115.1123.9135.0146.6158.8Otherlaborincomei0.6.4.6.7.7 91.11.51.81.92.32.73.03.84.85.36.06.37.38.49.59.911.312.012.713.914.916.618.720.722.325.428.432.236.441.746.051.4ProprinccBusinessandprofessional9.03.37 48 611.114 017.018.219.221.620 322.722.624.026.127.127.527.630.331 332.833.235.134.235.637.137.940.242.445.247.349.550.550.052.054.957.661.2etors'>meFarm*6.22.64 44.56.49 811.711.612 214.915 217.512.713.515.815.013.012.411.411 411.313 411.412.012.813.013.112.114.816.114.814.716.716.917.221.038.531.8Seasonally adjusted annual rates913.3930.9950.3985.01,013.61,039. 21,068.01,099. 31,112.51.134.61,168. 21,186.4608.1620.1631.4647.5667.6683.8698.2717.0727.6745.2763.0768.8217.8223.0226.6234.3241.8248.5254.6262.6264.0270.0276.0273.4168.9173.8176.8183.6188.9194.4198.3204.6204.8210.1215.8214.3147.0149.5151.9155.5159.7163.8166.5170.4172.9177.4181.6183.8111.2114.3117.0119.0123.5126.6129.7132.8136.9140.9144.9147.5132.1133.3135.9138.8142.6145.0147.4151.3153.8156.9160.5164.039.641.242.643.744.645.446.347.648.950.552.354.053.754.355.556.157.057.157.758.459.360.762.362.519.220.320.324.032.135.641.544.939.129.129.829.1See footnotes at end of table.270

TABLE C-19.—Sources of personal income, 1929-74—Continued[Billions of dollars]Year orquarterRentalincomeof personsDividendsP 1interestincomeTotalOld age,survivors,disability,and healthinsurancebenefitsTransfer paymentsStateunemploymentinsurancebenefitsVeteransbenefitsOtherLess:Personalcontributionsfor socialinsuranceNonagriculturalpersonalincome 319295.45.87.21.50.60.90.177.619332.02.05.72.1.51.6.243.219392.73.85.53.00.00.4.52.0.666.91940.1941194219431944194519461947194819492.93.54.55.15.45.66.67.18.08.44.04.44.34.44.64.65.66.37.07.25.45.55.35.35.66.36.87.57.98.53.13.13.13.03.66.211.311.711.212.4.0.1.1.2.2.3.4.5.6.7.5.3.3.1.1.41.1.8.81.7.5.5.5.5.92.86.76.75.85.12.02.22.22.22.42.73.13.74.14.9.7.81.21.82.22.32.02.12.22.272.387.8111.0137.3151.2156.4161.0173.0189.4191.31950195119521953195419551956..1957195819599.410.311.512.713.613.914.314.815.415.68.88.68.68.99.310.511.311.711.612.69.29.910.611.813.114.215.717.618.920.715.112.513.014.016.017.318.521.425.726.61.01.92.23.03.64.95.77.38.510.21.4.81.01.02.01.41.41.83.92.54.93.93.93.73.94.34.34.44.64.67.95.96.06.36.56.87.27.98.79.42.93.43.84.04.65.25.86.76.97.9210.9236.4254.1271.9274.7296.4318.5336.6344.3368.519601961196219631964196519661967\968196919701971197219731974 v15.816.016.717.118.019.020.021.121.222.623.925.225.926.126.513.413.815.216.517.819.820.821.423.624.324.725.027.329.632.723.425.027.731.434.938.743.648.052.959.367.572.878.690.6103.828.532.433.335.336.739.944.151.859.665.879.193.3103.2117.8139.811.112.614.315.216.018.120.825.730.333.038.544.549.660.469.82.84.02.92.82.62.21.82.12.12.13.95.75.54.27.14.64.84.85.05.35.65.76.67.38.39.711.212.713.916.110.010.911.212.212.914.015.717.520.022.427.131.935.439.346.89.39.610.311.812.513.417.720.522.826.328.030.734.542.847.9385.2400.0425.5448.1480.9519.5566.3609.4668.8728.3784.8840.0916.51,008.01,108.9Seasonally adjusted annual rates1972:1IIIII...IV....1973:1II..-IIIIV25.524.426.826.726.325.726.226.426.427.127.828.228.729.129.830.775.477.579.581.985.188.892.595.999.0100.1101.4112.2114.1116.1119.0122.146.547.248.056.658.459.961.062.35.96.35.34.64.24.14.24.412.012.212.614.113.413.514.214.534.734.435.537.038.138.739.640.933.634.134.935.241.842.543.343.8886.8903.3922.6953.4973.3995.31.018.01, 045.31974:1III. .IV P..26.426.326.626.831.632.533.233.398.2102.0105.5109.5128.2135.8144.0151.163.668.772.574.35.46.37.39.415.015.216.617.544.145.747.749.946.847.648.548.61,064.01,096.01,128.61.147.1i The total of wage and salary disbursements and other labor income differs from compensation of employees in TableC-15 in that it excludes employer contributions for social insurance and the excess of wage accruals over wage disbursements.1 Includes change in inventories.* 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.Source: Department of Commerce, Bureau of Economic Analysis.271

TABLE C-20.—Sources and uses of gross saving, 1929-74[Billions of dollars)Gross private saving and government surplus or deficit,national income and product accountsGross investmentYear orquarterTotalTotalPrivate savingPersonalsavingGrossbusinesssavingGovernment surplusor deficit (-)TotalFederalStateandlocalCapitalgrantsreceivedby theUnitedStates *TotalGrossprivatedomesticinvestmentNetforeigninvestment*Statisticaldiscrepancy192916.315.34.211.21.01.2-0.217.016.20.80.71933.92.3-.93.2-1 4-1.3—.11.61.4.2.619398.811.02.68.4-2.2-2.210.29.3.91.31940194119421943194419451946194719481949195019511952195319541955195619571958195913.618.610.75.52.55.235.142.049.935.950.456.149.547 548.564.872.771.259.273.814.322.442.049.754.344.729.727.541.439.042.550 353.354 455.662.167.870 571.775.93.811.027.633.437.329.615.27.313.49.413.117.318.118.316.415.820.620.722.319.110.511.414.516.317.115.114.520.228.029.729.433.135.136 139.246.347.349.849.456.8-.7-3.8-31.4-44.1-51.8-39 55.414.48.5-3.27.95 8-3.8—6 9-7.02 74.9-12 5-2.1-1.3-5.1-33.1-46.6-54.5-42.13.513.48.4-2.49.16.2-3.8-7 0-5.94.05.72 1-10.2-1.2.61.31.82.52.72.61.91.0-'.7-1.2-.4-1.1-1.3-.9-1 4-2.3-.8IIIIIIII------14.619.09.63.55.09.135.242.947.936.251.859.551.650 551.366.971.671.260.773.013.117.99.85.77.110 630.634.046.035.754.159 351.952 651.767.470.067.960.975.31.51.1-.2-2.2-2.1—1 44.68.91.9-2.2-211.53 4—.2-2.31.0-ill-2.02.53 9.31.53 32.23 02.72 1-l.l1 6o-.81960196119621963..196419651966196719681969. ...77.575.585.090.5101.0115.3124.9119.5128.3144.073.979.887.988.7102.4113.1123.8133.4135.2135.217.021.221.619.926.228.432.540.439.838.256.858.766.368.876.284.791.393.095.497.03.7-4.3-2 91.8-1.42.21.1-13.9-6.88.83.5-3.8-3.8.7-3.01.2-12.4-6.58.1.2-.5.91.21.71.01.3-1.6—.30.076.574.785.590.399.7112.2123.9118.8125.6137.974.871.783.087.194.0108.1121.4116.6126.0139.01.73.02.53.15.74.12.42.2—.4-1.0-1.0-.8- 3-1.3-3.1—1.0g j19701971197219731974 v143.1152.2173.3214.4207.3153.2170.7178.5210.9213.256.260.552.674.476.797.0110.2125.9136.5136.5-10.1-18.5—5 13.5-5.9-11.9-21.9-17.5-5.6-7.61.83.412 39.21.7.9.7.7.0«-2.0137.6150.6170.2209.4205.3136.3153.7179 3209.4208.91.3-3.1—9.1.1-3.6-6.4-2.3—3 8-5.0.0Seasonally adjusted annual rates1972:1IIIV.T."1973:1IIIII....IV....1974:1IIIII....IV p...164.4169.4175.0184.6201.1207.9217.0231.7224.5206.3196.4172.6174.6175.6191.1199.0204.9210.3229.4224.1207.3196.253.349.049.358.965.369.673.289.384.471.565.585.4119.3125.6126.3132.2133.7135.3137.1140.1139.7135.8130.7-8.2-5.2-.6-6.5-14.9-19.6-9.8-25.6-11.2-7.4-1.7-2.3.22.13.06.72.3.4-1.0-2.8-3.0-1.96.714.49.219.113.210.48.44.63.22.02.10.7 159.1165.6'.7 174.2.7 182.0.0 195.2.0 201.4.0 212.1.0 229.18-8.1 210.1.0 206.6.0 199.3.0 205.2169.4175.5182.1190.2199.0205.1209.0224.5210.5211.8205.8207.6-10.3-10.0-7.9-8.2-3.8-3.73.14.7-.4-5.2-6.5-2.4-5.9-4.5-1.5-3.3-5.9-6.5-4.9-2.6-6.3.31 Allocations of special drawing rights (SDR).' Net exports of goods and services less net transfers to foreigners.* Surplus of $32 million.< Deficit of $41 million.6 In February 1974, the U.S. Government granted to India $2,015 million (quarterly rate) in rupees under provisionsof the Agricultural Trade Development and Adjustment Act. Tentatively, this transaction is being treated as capital grantspaid to foreigners, and is included in the first quarter of 1974 as -$8.1 (annual rate) in capital grants received by theUnited States.Source: Department of Commerce, Bureau of Economic Analysis.272

TABLE C-21.—Saving by individuals, 1946-74 l[Billions of dollars]Increase in financial assetsNet investment inLess:Increase indebtYear orquarterTotalTotal»SecuritiesCurrencyanddemanddepositsSavingsaccountsGovernmentsecurities*CorporateandforeignbondsCorporateequities*InsuranceandpensionreservesNonfarmhomesConsumerdurablesNoncorporatebusinessassetsMortgagedebtonnonfarmhomesConsumercreditOtherdebt«1946....1947....1948194925.720.823.318.918.913.29.010.05.6-2*. 9-2.06.33.42.32.7-1.41.61.31.8-0.9-.1-.41.11.11.05.35.45.35.64.26.910.59.05.87.57.7.03.33.27.42.53.84.35.04.12.73.22.82.90.02.52.92.619501951....1952....1953....1954....1955. ..1956....1957....1958....1959....26.930.327.230.428.234.136.034.133.034.713.818.822.722.522.728.430.028.631.636.52.64.61.61.02.21.21.83.82.54.97.88.39.38.89.612.114.111.3-.1-.41.92.36.03.92.2-2.49.0.0.0-.1-.31.0.91.11.3.71.61.6.91.11.91.51.5.66.96.37.88.07.98.59.59.510.411.913.713.512.813.513.717.716.413.812.716.510.25.53.66.44.99.95.94.9.65.56.44.62.51.62.73.51.92.33.33.27.47.16.47.78.612.211.28.88.812.64.11.24.83.91.16.43.52.6.26.45.63.83.02.16.06.83.44.26.28.01960.1961....1962....1963....1964.32.331.737.139.149.531.635.139.145.155.51.92.51.73.04.711.416.525.724.627.43.5.7-.84.45.7.6.1-.1.0.1-.4.4-2.1-2.9-.211.612.212.714.115.614.512.012.812.612.55.12.96.78.911.22.23.25.66.96.210.810.912.714.816.04.61.85.87.98.55.78.78.511.811.419651966196719681969197019711972197355.465.165.068.360.676.287.497.9120.258.262.669.073.362.180.699.7124.4138.27.83.911.312.51.611.311.112.113.128.020.534.830.36.044.470.375.467.74.311.34! 822.5-10.4-14.51.624.71.02.04.64.76.610.79.35.21.1-2.2-.9-4.3-6.5-3.8-1.7-5.3-5.4-8.217.019.419.620.121.324.327.730.331.612.011.59.212.813.310.617.624.327.214.815.212.416.716.210.616.524.427.19.07.28.27.99.06.611.010.615.415.212.710.414.616.112.524.238.444.29.66.44.510.010.46.011.219.222.913.712.418.917.713.513.721.928.220.5Seasonally adjusted annual rates1973:1-...II.__III —IV...1974:1IIlll106.8131.9116.7125.4123.3131.3120.5124.3148.1141.4138.8137.1147.5127.810.610.35.426.04.1.9-4.683.874.250.861.974.473.922.915.730.736.016.420.020.049.3-0.5.0-1.46.13.4.34.9-9.3-3.1-20'. 0-2.7-4.13.231.932.332.829.827.346.634.327.027.427.726.622.419.922.532.128.627.520.019.625.031.715.214.315.416.69.512.210.641.447.247.840.435.239.931.725.624.622.319.28.217.215.824.914.625.317.122.016.024.51 Savi ug by households, personal trust funds, nonprofit institutions, farms, and other noncorporate business.* Includes commercial paper and miscellaneous financial assets, not shown separately.> Consists of U.S. savings bonds, other U.S. Treasury securities, U.S. Government agency securities and sponsoredagency securities, and State and local obligations.* Includes investment company shares.* Private life insurance reserves, private insured and noninsured pension reserves, and government insurance andpension reserves.* Security credit, policy loans, noncorporate business mortgage debt, and other debt.Source: Board of Governors of the Federal Reserve System.273

TABLE C-22.—Number and money income (in 1973 dollars) of families and unrelated individualsby race of head, 1947-73FAMILIES^194719481949195019511952195319541955195619571958195919601961196219631964196519661967196819691970197119721973YearUNRELATEDINDIVIDUALS 31947194819491950..1951..1952..1953..1954..1955..1956..1957..1958..1959..I960..1961-1962..1963..1964..1965..1966..1967..1968..1969..1970..1971..1972..1973..37.238.639.339.940.640.841.242.042.943.543.744.245.145.546.447.147.548.048.549.250.150.851.652.253.354.455.18.28.49.09.49.19.79.59.79.99.810.410.910.92 11.12 11.22 11.02 11.22 12.12 12.22 12.52 13.22 13.92 14.6215.516.316.818.3Medianincome$6,0325,8765,7836,1466,3496,5237,0546,8847,3547,8257,8377,8128,2618,4368,5238,7579,0679,4139,79210, 26910, 57111,02411,43311,27711,24911,81312,051$1,9531,8911,9731,9592,0442,3592,3212,0212,1882,3372,3932,3392,4022,5822,6052,5782,6192,8513,0313,1133,1823,5523|5573,5883,6473,7704,134TotalWith i ncomesunder $3,0006.97.68.37.87.16.96.87.56.76.06.16.26.05.96.05.65.34.94.84.34.23.63.63.83.73.53.3Totalnumber(millions)Number(millions)Percent18.619.621.119.517.617.016.517.915.713.914.014.013.213.013.011.911.210.29.88.78.37.07.07.27.06.46.0With incomesunder $1,5003.43.53.63.93.83.53.64.03.83.63.73.93.83.73.73.33.33.33.12.93.12.72.92.92.92.82.641.441.640.441.141.536.038.140.937.936.535.536.135.233.632.629.629.327.525.023.423.319.719.818.817.916.514.034.135.338.239.039.539.740.240.941.141.942.442.743.143.544.144.845.446.046.547.648.548.97.27.38.38.58.58.99.29.39.69.69.59.710.410.510.711.312.012.513.414.214.515.8WhiteMedianincome$6,2856,1246,0266,4056,6096,8907,3357,1877,6738,1788,1608,1468,6068,7588,8919,1639,5029,82710,21010,67010, 96011,42511,86911,67111,62812,27312, 595$2,0611,9622,1142,0582,1532,5442,4502,1772,3262,4012,5232,4622,5372,7912,8032,7642,7532,9943,1613,2413,3163,7423,7403,7543,8223,9154,270With incomesunder $3,0005.46.06.05.34.74.74.74.44.54.64.34.03.73.73.33.22.82.72.82.82.62.4Totalnumber(millions)Number(millions)Percent15.917.018.317.415.014.814.715.613.612.011.911.810.810.911.010.29.38.78.47.47.16.15.96.15.95.34.9With incomesunder $1,5002.92.93.23.13.03.03.23.13.02.92.62.62.72.52.42.52.22.32.32.32.22.040.040.438.939.740.334.737.438.836.035.333.534.333.331.130.527.527.325.923.722.122.218.418.217.416.415.212.63.13.33.83.94.04.04.04.24.34.54.64.84.84.85.05.05.15.25.45.75.96.11.01.01.41.41.31.51.61.61.51.61.51.51.61.71.61.81.82.01.92.12.32.5Negro and other racesMedianincome$3,2123,2643,0763,4493,4793,9154,1123,9964,2364,3104,3624,1744,4454,8484,7394,8895,0335,5105,6776,3946,7777,1457,5137,4547,3617,5347,596$1, 4841,4571,5271,5091,6321,7711,9411,4441,5751,8571,6771,6771,6581,6021,7191,8391,8782,0842,3392,3612,4252,5692,6312,5752 5622,9053,191With incomesunder $3,0001.41.5.51.4.4.4.4.5..4..4.31.31.11.11.0.9.8.8.91.01.0.9Totalnumber(millions)Number(millions)Percent46.646.448.943.843.236.435.239.336.334.334.435.335.531.731.029.126.923.222.619.918.016.416.017.016.816.215.4With incomesunder $1,500Number(millions)PercentNumber(millions)PercentNumberPercent(millions)0.5 50.4.5 51.249.349.847.843.641.051.948.544.246.846.747.548.345.641.942.037.333.032.431.027.729.829.227.924.722.41 The term "family" refers to a group of two or more persons related by blood, marriage, or adoption and residingtogether; all such persons are considered members of the same family.2 Revised using population controls based on the 1970 Census. Population controls based on the 1970 Census not availableby race.3 The term "unrelated individuals" refers to p ersons 14 years old and over (other than inmates of institutions) who arenot living with any relatives.Source: Department of Commerce, Bureau of the Census.274

POPULATION, EMPLOYMENT, WAGES, ANDPRODUCTIVITYTABLE O23.—Population by age groups, 1929-74[Thousands of persons]Age (years)July 1TotalUnder 5 5-15 16-19 20-24 25-44 45-6465 andover1929.121,76711,73426, 8009,12710,69435,86221, 0766,4741933.125, 57910,61226,8979,30211,15237, 31922,9337,3631939.130,88010, 41825,1799,82211,51939,35425, 8238,7641940.1941.1942.1943.1944.1945.1946.1947.1948.1949.1950195119521953195419551956195719581959132,122133, 402134, 860136, 739138, 397139,928141, 389144,126146,631149,188152, 271154, 878157, 553160,184163, 026165, 931168,903171, 984174,882177, 83010, 57910,85011,30112, 01612, 52412,97913, 24414,40614,91915, 60716,41017, 33317,31217,63818, 05718,56619, 00319,49419,88720,17524,81124, 51624, 23124, 09323,94923,90724,10324, 46825, 20925, 85226,72127, 27928, 89430, 22731,48032,68233,99435, 27236, 44537, 3689,8959, 8409,7309,6079,5619,3619,1199,0978,9528,7888,5428,4468,4148,4608,6378,7448,9169,1959,54310, 21511,69011,80711,95512, 06412, 06212,03612,00411,81411,79411,70011,68011,55211,35011, 06210,83210,71410,61610,60310,75610, 96939, 86840,38340,86141, 42042,01642, 52143, 02743,65744, 28844,91645,67246,10346,49546,78647, 00147,19447, 37947, 44047, 33747,19226, 24926,71827,19627,67128,13828,63029, 06429,49829,93130,40530,84931, 36231, 88432,39432,94233,50634, 05734, 59135,10935, 6639,0319,2889,5849,86710,14710,49410,82811,18511,53811, 92112,39712,80313, 20313,61714, 07614,52514, 93815, 38815, 80616, 2481960.1961.1962.1963.1964.1965.1966.1967.19681969.19701971197219731974180,671183,691186, 538189, 242191,889194, 303196,560198,712200, 706202,677i 204, 875207, 045208, 842i 210, 396211,90920, 34120, 52220,46920, 34220,16519, 82419, 20818,56317,91317,37617,15617,17417,00616,71416,30438, 49439, 76541,20541,62642, 29742,93843, 70244, 24444,62244, 84044, 77444, 44143, 94843,22742, 54710,68311,02511,18012, 00712,73613, 51614,31114, 20014, 45214, 80015, 27415,63515,94516, 30716, 58811,13411,48311,95912,71413,26913, 74614,05015,24815,78616, 48017,18018, 08618,02118, 33118, 73347,14047,08447,01346, 99446, 95846, 91247, 00147,19447, 72148,06448, 43548, 80950,25051,41252, 59336,20336,72237,25537, 78238, 33838, 91639,53440,19340,84641, 43741,97442, 41342,78943,08443, 32816,67517, 08917,45717, 77818,12718, 45118,75519,07119, 36519,68020,08520,48720,88321,32921,8151 Age detail does not add to total because total was computed using revised components of change for the period.Note.—Includes Armed Forces overseas beginning 1940. Includes Alaska and Hawaii beginning 1950.Source: Department of Commerce, Bureau of the Census.275

TABLE C-24.—Noninstitutional population and the labor force, 1929-74Year or monthNoninstitutionalpopulation1Totallaborforce(includingArmedForces)ArmedForces *TotalTotalCivilian labor forceEmploymentIAgriculturalNonagriculturalUnemploymentUnemploymentrate(percent? f .civilianlaborforce)Laborforceparticipationrate(totallaborforce aspercentof noninstitutionalpopulation)Thousands of persons 14 years of age and overPercent49,44026049,18047,63010,45037,1801,5503.2193351,84025051, 59038, 76010, 09028, 67012,83024.9193955,60037055, 23045, 7509,61036,1409,48017.219401941194219431944100,380101,520102,610103,660104,63056,18057,53060,38064,56066,0405401,6203,9709,02011,41055,64055,91056,41055,54054,63047,52050,35053,75054,47053,9609,5409,1009,2509,0808,95037,98041, 25044,50045,39045,0108,1205,5602,6601,07067014.69.94.71.91.256.056.758.862.363.1194519461947105,530106,520107,60865,30060,97061,75811,4403,4501,59053,86057,52060,16852,82055,25057,8128,5808,3208,25644, 24046,93049,5571,0402,2702,3561.93.93.961.957.257.4Thousands of persons 16 years of age and over1947.1948.1949..1950.1951.1952.1953 21954..1955..1956.1957.1958.1959.1960 21961..1962 21963..1964..1965..1966.1967..1968..1969.1970..1971..19722.1973 21974..103,418104,527105,611106,645107,721108,823110,601111,671112,732113,811115,065116,363117,881119,759121,343122,981125,154127, 224129,236131,180133,319135,562137,841140,182142,596145,775148,263150,82760,94162,08062,90363,85865,11765,73066,56066,99368,07269,40969,72970,27570,92172,14273,03173,44274,57175,83077,17878,89380,79382,27284,24085,90386,92988,99191,04093,2401,5911,4591,6171,6503,1003,5923,5453,3503,0492,8572,8002,6362,5522,5142,5722,8282,7382,7392,7233,1233,4463,5353,5063,1882,8172,4492,3262,22959,35060,62161, 28662,20862,01762,13863,01563,64365,02366,55266,92967,63968,36969,62870,45970,61471,83373,09174,45575,77077,34778,73780,73482,71584,11386,54288,71491, 01157,03958,34457,64958,92059,96260, 25461,18160,11062,17163,80264,07163,03664,63065,77865,74666,70267,76269,30571,08872,89574,37275,92077,90278,62779,12081, 70284,40985,9367,8917,6297,6567,1606,7266,5016,2616,2066,4496,2835,9475,5865,5655,4585,2004,9444,6874,5234,3613,9793,8443,8173,6063,4623,3873,4723,4523,49249,14850,71349,99051,76053, 23953,75354,92253,90355,72457,51758,12357,45059,06560,31860,54661,75963,07664,78266,72668,91570,52772,10374,29675,16575,73278,23080,95782,4432,3112,2763,6373,2882,0551,8831,8343,5322,8522,7502,8594,6023,7403,8524,7143,9114,0703,7863,3662,8752,9752,8172,8324,0884,9934,8404,3045,0763.93.85.95.33.33.02.95.54.44.14.36.85.55.56.75.55.75.24.53.83.83.63.54.95.95.64.95.658.959.459.659.960.460.460.260.060.461.060.660.460.260.260.259.759.659.659.760.160.660.761.161.361.061.061.461.8See footnotes at end of table.276

TABLE C-24.—Noninstitutional population and the labor force,1929-74—ContinuedYear or monthNoninstitutionalpopulationiTotallaborforce(includingArmedForces)ArmedForces»TotalTotalCivilian labor forceEmploymentAgriculturalNonagriculturalUnemploymentUnemploymentrate(percentofcivilianlaborforce)Laborforceparticipationrate(totallaborforce aspercentof noninstitutionalpopulation)Seasonally adjusted1973: Jan..Feb..MaraApr..May.June.147,129147,313147, 541147, 729147, 940148,14789,36890,09590,40490,64690,65991,1062,4042,3922,3612,3502,3342,31586,96487, 70388,04388,29688,32588, 79182,63383, 27683,68683, 87784,02184,4873,4513,4133,4303,3563,3523,46579,18279,86380,25680, 52180,66981,0224,3314,4274,3574,4194,3044,3045.05.04.95.04.94.860.761.261.361.461.361.5July.Aug.Sept.Oct__Nov..Dec.148, 361148, 565148, 782149, 001149,208149, 43691,21291,12391,51591, 85792,13692, 3302,3102,3072,2922,2892,2842,28288, 90288, 81689, 22389, 56889,85290,04884, 67984, 58284,98385, 45285, 57785, 6463,5353,4343,3573,4283,5713,63581,14481,14881,62682, 02482, 00682,0114,2234,2344,2404,1164,2754,4024.84.84.84.64.84.961.561.361.561.661.861.81974: Jan..Feb.Mar.Apr.May.June.149,656149, 857150, 066150, 283150, 507150, 71092, 72392,80992,63292, 56792,98293,0692,2582,2582,2512,2432,2292,21290,46590, 55190, 38190, 32490, 75390,85785, 80085, 86185, 77985, 78786, 06286, 0883,7493,8113,6533,5153,4973,33382, 05182,05082,12682, 27282, 56582, 7554,6654,6904,6024,5374,6914,7695.25.25.15.05.25.262.061.961.761.661.861.8July.Aug.Sept.Oct..Nov.Dec.150,922151,135151,367151, 593151,812152,02093, 50393, 41993,92294, 05893, 92194, 0152,2202,2202,2172,2142,2132,21291, 28391,19991, 70591, 84491, 70891, 80386, 40386, 27486, 40286, 30485, 68985, 2023,4333,4513,4893,4403,3753,33982, 97082, 82382, 91382, 86482,31481, 8634,8804,9255,3035,5406,0196,6015.35.45.86.06.67.262.061.862.062.061.961.81 Not seasonally adjusted.2 Not strictly comparable with earlier data due to population adjustments as follows: Beginning 1953, introduction of1950 Census data added about 600,000 to population and about 350,000 to labor force, total employment, and agriculturalemployment. Beginning I960, inclusion of Alaska and Hawaii added about 500,000 to population, about 300,000 to laborforce, and about 240,000 to nonagricultural employment. Beginning 1962, introduction of 1960 Census data reduced populationby about 50,000 and labor force and employment by about 200,000. Beginning 1972, introduction of 1970 Censusdata added about 800,000 to civilian noninstitutional population and about 333,000 to labor force and employment. Asubsequent adjustment based on 1970 Census in March 1973 added 60,000 to labor force and to employment. Overallcategories of the labor force other than those noted were not appreciably affected.Note.—Labor force data in Tables C-24 through C-27 are based on household interviews and relate to the calendarweek including the 12th of the month. For definitions of terms, area samples used, historical comparability of the data,comparability with other series, etc., see "Employment and Earnings."Source: Department of Labor, Bureau of Labor Statistics.277

TABLE C-25.—Civilian employment and unemployment by sex and age, 1947-74[Thousands of persons 16 years of age and over]EmploymentUnemploymentYear ormonthTotalTotalMales16-19years20yearsandoverTotalFemales16-19years20yearsandoverTotalTotalMales16-19years20yearsandoverTotalFemales16-19years20yearsandover1947...1948...1949...1950...1951...1952...19531..1954...1955...1956...1957...1958...1959...19601..1961...1962...1963!._1964...1965...1966...1967...1968...1969...1970...1971...1972L.19731..1974...1973:Jan..Feb..Mar 3.Apr..May-June.July.Aug.Sept.Oct__Nov.Dec.1974:Jan..Feb.Mar_Apr.May.June.July.Aug.Sept.Oct..Nov.Dec.57,03958,34457,64958,92059,96260,25461,18160,11062,17163,80264,07163,03664,63065,77865,74666,70267,76269,30571,08872,89574,37275,92077,90278,62779,12081,70284,40985,93682,63383,27683,68683, 87784, 02184, 48784,67984, 58284,98385,45285, 57785,64685, 80085,86185, 77985,78786, 06286. 08886,40386, 27486,40286, 30485,68985,20240,99441,72640,92641,58041, 78041,68442,43141,62042,62143,38043,35742,42343,46643,90443,65644,17744,65745,47446,34046,91947,47948,11448,81848,96049,24550,63051,96352, 51951,18851,46451,68851, 68751,67351, 87652,11351,96552,19752,49852,54152,66352,84552, 73152, 50252, 43052, 74052, 49252, 47352,52252,67152,67452,41051,9532,2182,3452,1242,1862,1562,1062,1351,9852,0952,1642,1172,0122,1982,3602,3142,3622,4062,5872,9183,2523,1863,2553,4303,4073,4703,7504,0174,0743,8053,9354,0363,9803,9264,0213,9963,9534,1004,1624,1524,1734,1974,1774,1484,0894,1184,0424,0224,0074,0884,0904,0313,99238,77639,38238,80339,39439,62639,57840,29639,63440,52641,21641,23940,41141,26741,54341,34241,81542,25142,88643,42243,66844,29344,85945,38845,55345, 77546,88047,94648,44547,38347, 52947,65247, 70747,74747,85548,11748,01248,09748, 33648, 38948, 49048,64848, 55448, 35448, 34148,62248,45048, 45148, 51548, 58348, 58448, 37947,96116,04516,61816,72317, 34018,18218, 57018,75018,49019,55020,42220,71420,61321,16421,87422,09022,52523,10523,83124,74825,97626,89327,80729,08429,66729,87531,07232,44633,41731,44531,81231,99832,19032,34832,61132,56632,61732,78632,95433,03632,98332,95533,13033,27733,35733, 32233, 59633,93033,75233,73133,63033,27933, 2491.6911,6831,5881,5171,6111,6121,5841,490,548,6541,6631,5701,6401,7691,7931,8331,8491,9292,1182,4692,4972,5252,6862,7342,7252,9723,2193,32914,35414,93715,13715,82416,57016,95817,16417,00018,00218,76719,05219,04319,52420,10520,29620,69321,25721,90322,63023,51024,39725,28126,39726,93327,14928,10029,22830,0882,3112,2763,6373,2882,0551,8831,8343,5322,8522,7502,8594,6023,7403,8524,7143,9114,0703,7863,3662,8752,9752,8172,8324,0884,9934,8404,3045,076Seasonally adjusted3,0393,0773,1663,1623,2003,3243,1353,2103,2993,3273,3463,3403,3613,3583,3613,3243,2773,3413,2463,3003,4413,3933 3343,25728, 40628, 73528,83229, 02829,14829, 28729,43129,40729, 48729,62729,69029,64329, 59429, 77229,91630,03330, 04530,25530,68430, 45230,29030, 23729,94529,9924,3314,4274,3574,4194,3044,3044,2234,2344,2404,1164,2754,4024,6654,6904,6024,5374,6914,7694,8804,9255,3035,5406,0196,6011,6921,5592,5722,2391,2211,1851,2022,3441,8541,7111,8413,0982,4202,4862,9972,4232,4722,2051,9141,5511,5081,4191,4032,2352,7762,6352,2402,6682,2372,2972,2902,3352,3092,2272,1832,1902,1632,1592,2072,2372,3832,4582,3852,4402,4152,5052,5282,6282,7843,0043,1913,5232702553523181912051843102742692994163984254794075004874794324484274415996917076477495896436266906596306476546446556846576887036916847077487337278328078338421,4221,3052,2191,9221,0299801,0192,0351,5801,4421,5412,6812,0222,0602i 5182,0161,9711,7181,4351,1201,0609939631,6362,0861,9281,5941,9181.6481,6541,6641,6451,6501,5971,5361,536L, 5191,5041,5231,5801,6951,7551,6941,7561,7081,7571,7951.9011,9522,1972,3582,6816197171,0651,0498346986321,1889981,0391,0181,5041,3201,3661,7171,488,5981,5811,4521,3241,4681,3971,4291,8532,2172,2052,0642,4082,0942,1302,0672,0841,9952,0772,0402,0442,0771,9572,0682,1652,2822,2322,2172,0972,2762,2642,3522,2972,5192,5362,8283,0781441522231951451401231911762091972622562863493133833863954043914124125065675955796605496375686055945675455455925765936036946316315186646376715976807347147654755648418546895595109978238328211,2421,0631,0801,3681,1751,2161 ,1951,0569211,0789851,0161,3471,650111 ,610,485,748,545,493,499,479,401,510,495,499,485,381,475,5621,5881,6011,5861,5791,6121,6271,6811,7001,839L,802>,114?, 3131 See footnote 2, Table C-24.Note.-See Note, Table C-24.Source: Department of Labor, Bureau of Labor Statistics.278

TABLE C-26.—Selected unemployment rates, 1948-74[Percent]By sex and ageBy colorBy selected groupsYear or monthBothsexes16-19yearsMen20yearsandoverAllworkersWomen20yearsandoverWhiteNegroandotherracesExperiencedwageandsalaryworkersHouseholdheadsMarriedmen*Fulltimeworkers2Bluecollarworkers3Laborforcetimelost

TABLE C--27.— Unemployment by duration, 1947-74Year or monthTotal unemploymentLess than5 weeksDuration of unemployment5-14weeks15-26weeks27 weeksand overAverage(mean)durationin weeksThousands of persons 16 years of age and over1947194819492,3112,2763,6371,2101,3001,7567046691,1942341934281641162568.610.019501951 . .1952195319543,2882,0551,8831,8343,5321,4501,1771,1351,1421,6051,0555745164821,116425166148132495357137847831712.19.78.48.01 11.8195519561957195819592,8522,7502,8594,6023,7401,3351,4121,4081,7531,5858158058911,3961,11436630132178546933623223966757113.011.310.513.914.4196019611962196319643,8524,7143,9114,0703,7861,7191,8061,6631,7511,6971,1761,3761,1341,2311,11750372853453549145480458555348212.815.614.714.013.3196519661967196819693,3662,8752,9752,8172,8321,6281,5731,6341,5941,62998377989381082740428727125624235123917715613311.810.48.88.47.919701971197219731974 .. . . .4,0884,9934,8404,3045,0762,1372,2342,2232,1962,5671,2891,5781,4591,2961,5724276655974755632355175623373738.711.312.010.09.7Seasonallyadjusted i1973-JanFebMarApr ..MayJune4,3314,4274,3574,4194,3044,3042,0372,2502,1432,2342 2182,2501,3441,2541,3401,4661,3041,22752651549446746945740436537733534732611.010.510.610.010.19.7JulyAug - - - --SeptOctNovDec4,2234,2344,2404,1164,2754,4022 2252,2202,1652,0692,2402,3051 2731,2281,3451,2991,2391,2554764444684354704272783282923203433229.79.99.510.110.09.31974: JanFebMarAprMayJune . . ....4,6654,6904,6024 5374 6914,7692,4082,4112,4342 3122,4812,3781,4051,4141,3981,4441,3781,4894544885045285275653263243163473503699.59.69.59.89.69.8JulyAugSeptOctNovDec4 8804,9255 3035,5406 0196,6012,4722,5062,6542,7652 9813,0771,5221,4491 7011,7541 9312,06254656060364069178238138038637642653710.19.99.79.89.810.0i Because of independent seasonal adjustment of the various series, detail will not add to totals.N ote.—See footnote 2 and Note, Table C-24.Source: Department of Labor, Bureau of Labor Statistics.280

TABLE C-28.—Unemployment insurance programs, selected data, 1946-74All programsState programsYear or monthCoveredemploymentiInsuredunemployment(weeklyaverage)"Totalbenefitspaid(millionsof dollars)a 4Insuredunemployment8InitialclaimsExhaustions*Insured unemploymentas percentof coveredemploymentUnadjustedSeasonallyadjustedBenefits paidTotal(millionsofdollars)*Averweeklycheck(dollars)*Thousands Weekly average, thousands Percent19461947194819491950195119521953195419551956195719581959I960..1961196219631964196519661967196819691970197119721973 *1974 91973: Jan..Feb..Mar..Apr..May..June-July..Aug..Sept.Oct__Nov..Dec.1974: JanFeb...Mar...Apr...May...June_.July...Aug...Sept..Oct*-.Nov *_.Dec*..31,85633,87634,64633,09834,30836,33437,00638,07236,62240,01842,75143,43644,41145,72846,33446,26647,77648,43449,63751,58054,73956,34257,97759,99959,52659,37566,900170,3792,8041,7931,4462,4741,6051,0001,0691,0672,0511,3991,3231,5713,2692,0992,0712,9941,946U.9731,7531,4501,1291,2701,1871,1772,0702,3132,1851,7832,5782,3332,2502,0751,8281,6101,5231,6401,5721,4411,4521,6672,0932,7402,8242,7512, 5642,2782,1612,2902,1532,0812,2472,8263,9132,878.51,785.51,328.72,269.81,467.6862.91,043.51,050.62,291.81, 560.21,540.61,913.04,290.62,854.33,022.84,358.13,145.13,025.92,749.22,360.41,890.92, 221.52,191.02,298.64,209.36,214.95,510.54,527.06,987.9523.7461.3492.1404.7379.2315.6326.9353.5281.8322.9332.5378.2622.7599.3652.4639.3584.5472.4541.6522.3478.1530.2561.3781.81,2959979801,9731,5139691,0449901,8701,2651,2151,4462,5261,6841,9082,2901,78371,8061,6051,3281,0611,2051,1111,1011,8052,1501,8481,6322,2692,1242,0621,8981,6691,4651,3841,5051,4361,2991,2991,5031,9222,5612,6302,5022,2171,9341,8341,9891,8741,7831,9472,4993,5521891872003402362082152183042262272703692773313503027 29826823220322620120029629526124636133124921321619320627521218621026639544635929326323726934028327434848070338242037361618153425202350333146323026211517161625383529393332333331282727252425273232353839404140353643454.33.13.06.24.62.82.92.85.23.53.23.66.44.44.85.64.44.33.83.02.32.52.22.13.44.13.52.73.63.83.73.42.82.52.42.52.42.12.12.43.14.14.24.03.53.02.93.12.92.73.03.85.42.92.92.92.72.72.72.72.62.62.62.72.83.13.33.43.33.33.33.33.23.43.74.24.91,094.9775.1789.91,736.01,373.1840.4998.2962.22,026.91,350.31,380.71,733.93,512.72.279.02,726.73,422.72,675.42,774.72.522.12,166.01,771.32,092.32,031.62,127.93,848.54,957.04,471.04,007.64,521.1466.6417.2444.8363.8339.1286.7296.3316.3248.3280.7289.4335.8570.8553.3593.9552.7486.4383.4459.1444.9381.0442.0489.7675.318.5017.8319.0320.4820.7621.0922.7923.5824.9325.0427.0228.1730.5830.4132.8733.8034.5635.2735.9237.1939.7541.2543.4346.1750.3454.0256.7659.0063.9759.1759.5658.9559.5858.4458.1257.4257.4658.1358.9759.6160.4062.2863.3563.8563.6262.6962.5062.9364.1464.2365.2065.4665.511 Includes persons under the State, UCFE (Federal employee, effective January 1955), and RRB (Railroad RetirementBoard) programs. Beginning October 1958, also includes the UCX program (unemployment compensation for ex-servicemen).2 Includes State, UCFE, RR, UCX, UCV (unemployment compensation for veterans, October 1952-January 1960), andSRA (Servicemen's Readjustment Act, September 1944-September 1951) programs. Also includes Federal and Stateextended benefit programs.s Covered workers who have completed at least 1 week of unemployment.* Annual data are net amounts and monthly data are gross amounts. Monthly data exclude extended benefit payments.* Individuals receiving final payments in benefit year. Data for New Jersey not available for April-June 1971.* For total unemployment only. Excludes data for New Jersey for April-December 1971.7 Programs include Puerto Rican sugarcane workers for initial claims and insured unemployment beginning July 1963.s Latest data available for all programs combined. Workers covered by State programs account for about 89 percent ofthe total.Source: Department of Labor, Manpower Administration.281

TABLE C-29.—Wage and salary workers in nonagricultural establishments, 1929-74(All employees; thousands of persons]Year ormonth19291933193919401941194219431944194519461947194819491950195119521953195419551956195719581959...,.I960.....1961196219631964196519661967196819691970197119721973 ___1974 vTotalwageandsalaryworkers31,33923,71130,61832,37636, 55440,12542,45241,88340,39441,67443,88144,89143,77845,22247,84948,82550, 23249,02250,67552,40852,89451,36353,31354,23454,04255, 59656,70258,33160,81563,95565,85767,95170,44270,92071,21673,71176,83378,337ManufacturingTotal10.7027,39710, 27810,98513,19215, 28017,60217,32815,52414.70315, 54515, 58214,44115,24116,39316,63217,54916,31416,88217, 24317,17415,94516,67516,79616,32616,85316,99517,27418,06219, 21419,44719,78120,16719,34918,57219,09020,05420,017Durablegoods4,7155,3636,9688,82311,08410,8569,0747,7428,3858,3267,4898,0949,0899,34910,1109,1299,5419,8349,8568,8309,3739,4599,0709,4809,6169,81610,40611,28411,43911,62611,89511,19510, 59711,00611,81411, 838Nondurablegoods5,5645,6226,2256,4586,5186,4726,4506,9627,1597,2566,9537,1477,3047,2847,4387,1857,3407,4097,3197,1167,3037,3367,2567,3737,3807,4587,6567,9308,0088,1558,2728,1547,9758,0848,2408,179Mining1,087744854925957992925892836862955994930901929898866791792822828751732712672650635634632627613606619623603622638672Contractconstruction1,4978091,1501,2941,7902,1701,5671,0941,1321,6611,9822,1692,1652,3332,6032,6342,6232,6122,8022,9992,9232,7782,9602,8852,8162,9022,9633,0503,1863,2753,2083,3063,5253,5363,6393,831Transportationandpublicutilities3,9162,6722,9363,0383,2743,4603,6473,8293,9064,0614,1664,1894,0014,0344,2264,2484,2904,0844,1414,2444,2413,9764,0114,0043,9033,9063,9033,9514,0364,1514,2614,3114,4354,5044,4574,5174,028 | 4,6463,984 I 4,699Wholesaleandretailtrade6,1234,7556,4266,7507,2107,1186,9827,0587,3148,3768,9559,2729,2649,3869,74210,00410,24710,23510, 53510,85810, 88610,75011,12711,39111,33711,56611,77812,16012,71613, 24513,60614,09914,70415,04015,35215,97516,66517, 010Finance,insurance,andrealestate1,5091,2951,4621,5021,5491,5381,5021,4761,4971,6971,7541,8291,8571,9191,9912,0692,1462,2342,3352,4292,4772,5192,5942,6692,7312,8002,8772,9573,0233,1003,2253,3813,5623,6873,8023,9434,0754,161Services3,4402,8733,5173,6813,9214,0844,1484,1634,2414,7195,0505,2065,2645,3825,5765,7305,8676,0026,2746,5366,7496,8067,1307,4237,6648,0288,3258,7099,0879,55110,09910,62211,22811,62111,90312,39212,98613, 508GovernmentFederal5335659059961,3402,2132,9052,9282,8082,2541,8921,8631,9081,9282,3022,4202,3052,1882,1872,2092,2172,1912,2332,2702,2792,3402,3582,3482,3782,5642,7192,7372,7582,7312,6962,6842,6632,725Stateandlocal2,5322,6013,0903,2063,3203,2703,1743,1163,1373,3413,5823,7873,9484,0984,0874,1884,3404,5634,7275,0695,3995,6485,8506,0836,3156,5506,8687,2487,6968,2278,6799,1099,4449,83010,19210,65611,07911,561See footnotes at end of table.282

TABLE C-29.—Wage and salary workers in nonagr{cultural establishments•, 1929-74—Continued[All employees; thousands of persons]Year ormonthTotalManufacturingTotalwageandsalaryworkersDurablegoodsNondurablegoodsMiningContractconstructionTransportationandpublicutilitiesWholesaleandretailtradeFinance,insurance,andrealestateGovernmentServicesFederalStateandlocalSeasonally adjusted1972: Jan.__Feb...Mar..Apr...May..June..July..Aug..Sept..Oct...Nov..Dec...1973: Jan...Feb...Mar..Apr...May..June..July..Aug..Sept..Oct...Nov..Dec...1974: Jan...Feb...Mar..Apr...May..June..July..Aug..Sept..Oct ..Nov v .Dec *_72,35072,49072,83173,09373,38673,63773,69774,05474,30774,64674,91675,11875,47275,85176,11176,33976, 50876, 78776,86777,16377,31577,64977,91577,92477,92578,05378, 08978,22678, 35778,42178,47978,66178,84478, 86578,40077, 72618,64518,73318,82718,91019,00119,08219,05919,14919,24919,39519,48719, 59919,68319,81419,88819,95019,99420,08320,06420,12420,15520, 25220,31420,32320,25320,15520,11620,14720,15120,18420,16920,11220,11219,98219,64619,14110,65110,72110,78710,85010,92710,97610,99611,06411,13711,25511,33011,42111,50011,60911,66111,70811,76611,82611,84211,89211,91411,97912,02112,03611,96811,88311,86211,91311,90811,95911,95911,89911,90611,84111,62611,2907,9948,0128,0408,0608,0748,1068,0638,0858,1128,1408,1578,1788,1838,2058,2278,2428,2288,2578,2228,2328,2418,2738,2938,2878,2858,2728,2548,2348,2438,2258,2108,2138,2068,1418,0207,8516176156176216216226206226286296296286316346336316296326376406406446486526586616626656686696756766826926966663,8463,7493,7873,8063,8363,8463,8003,8633,8763,8973,8723,7853,9083,9313,9533,9633,9964,0344,0634,0634,0914,0834,0994,1154,0984,1274,1024,0874,0663,9943,9203,9653,9393,9113,8523,8024,4654,4554,4944,4884,5014,5064,5064,5084,5314,5624,5834,5964,5964,5994,6094,6284,6324,6384,6424,6574,6674,6964,6924,6884,7104,7174,7084,7044,7014,6984,6934,7014,6794,6994,6934,68015,64515, 71015, 78915,84115, 88715,97015,98616, 06716,10216,15116, 23116, 29116,35816, 46716, 52916, 57716,61516, 64116, 68816, 74616, 77716, 84716, 90416,82616,85116, 87116,91416, 94516, 99417,03117,10717,14017,16617,16017,04216, 9063,8773,8853,8973,9073,9253,9423,9473,9603,9733,9894,0004,0114,0184,0344,0454,0524,0644,0684,0774,0924,1024,1104,1164,1214,1324,1424,1454,1544,1614,1564,1574,1684,1764,1854,1794,17812,11712,16512,20912,27312,32812,40312,44112,48712,49112, 54812,59512,65012,72412,78812,82912,87812,88712,95412,97813,05813,11013,16013,22113,23613,23613,31313,33913,36713,42913,48813, 51613, 57313,64713, 70513, 72613, 7542,7032,6952,6882,6922,6862,6702,6532,6692,6742,6802,6802,6842,6732,6622,6612,6612,6622,6492,6322,6502,6602,6652,6732,6802,6802,6962,6992,7052,7112,7152,7352,7402,7472,7482,7462,74410,43510,48310, 52310,55510,60110,59610,68510,72910, 78310, 79510,83910,87410,88110,92210,96410,99911,02911,08811,08611,13311,11311,19211,24811,28311,30711,37111,40411,45211,47611,48611,50711,58611,69611,78311,82011,855Note.—Data in Tables C-29 through C-31 are based on reports from employing establishments and relate to full- andpart-time wage and salary workers in nonagricultural establishments who worked during, or received pay for, any part ofthe pay period which includes the 12th of the month.Not comparable with labor force data (Tables C-24 through C-27), which include proprietors, self-employed persons,domestic servants, and unpaid family workers, and which count persons as employed when they are not at work becauseof industrial disputes, bad weather, etc.For description and details of the various establishment data, see "Employment and Earnings."Source: Department of Labor, Bureau of Labor Statistics.283

TABLE C-30.—Average weekly hours and hourly earnings in selected private nonaericulturalindustries, 1947-74(For production or nonsupervisory workers]Average weekly hoursAverage gross hourly earnings,current dollarsAdjusted hourly earnings,total private nonagricultural '1947..1948..1949..1950..1951..1952..1953..1954..1955..1956..1957..1958..1959..I960..1961..1962..1963__1964..1965..1966..1967..1968..1969-1970..1971..1972..1973..1974 p.Yearormonth1973: Jan...Feb...Mar...Apr...May..June-July..Aug..Sept..Oct...Nov..Dec...1974: Jan___Feb...Mar..Apr...May..JuneJulyAugSept___Oct .Nov p..Dec »..40.340.039.439.839.939.939.639.139.639.338.838.539.038.638.638.738.838.738.838.638.037.837.737.137.037.137.136.637.037.137.137.237.137.137.137.037.136.936.937.036.736.836.736.636.736.736.736.736.736.636.236.440.440.039.140.540.640.740.539.640.740.439.839.240.339.739.840.440.540.741.241.340.640.740.639.839.940.640.740.040.540.940.940.940.740.640.740.640.740.740.640.640.440.440.339.340.340.140.240.240.040.139.539.4Totalprivate Manu-no n agfacturinricultural*Contractconstruction38.238.137.737.438.138.937.937.237.137.537.036.837.036.736.937.037.337.237.437.637.737.337.937.337.236.937.036.936.136.036.736.937.137.137.136.936.736.837.937.236.437.636.736.336.736.936.936.436.537.237.237.8Retailtrade*40.340.240.440.440.439.839.139.239.038.638.138.138.238.037.637.437.337.036.635.935.334.734.233.833.733.733.332.733.633.533.533.433.433.433.333.133.133.033.133.032.932.932.933.032.932.732.632.632.532.432.432.3Totalprivatenonagricultural1$1,1311.2251.2751.3351.451.521.611.651.711.801.891.952.022.092.142.222.282.362.452.562.682.853.043.223.443.673.924.22$1,217.328.378.440.56.651.741.781.861.952.052.112.192.262.322.392.462.532.612.722.833.013.193.363.573.814.074.40Seasonally adjusted$3.793.803.833.863.873.903.933.953.984.004.034.044.054.084.104.114.174.214.234.274.324.354.364.39$3.973.983.984.024.034.054.084.104.134.154.174.194.194.224.244.254.334.384.434.484.534.574.584.61$1. 5411.7131.7921.8632.022.132.282.392.452.572.712.822.933.083.203.313.413.553.703.894.114.414.795.245.696.036.386.74$6.346.246.276.296.306.366.376.406.466.456.466.486.486.526.576.606.626.746.756.896.946.906.886.96Retailtrade 2$0.838.901.951.9831.06.09.16.20.25.30.37.42.47.52.56.63.68.75.82.912.012.162.302.442.572.702.873.09$2.772.792.802.822.832.862.872.892.912.932.952.962.982.983.003.003.073.103.123.143.153.183.193.19Index,1967 = 100ManufacturingContractconstructionCurrentdollars42.646.048.250.053.756.459.661.763.767.070.373.275.878.480.883.585.988.391.695.4100.0106.3113.3120.8129.4137.8146.6158.3142.3142.7143.5144.4144.8146.0146.8147.7148.9149.6150.3151.1151.7152.7153.6154.3156.1158.2158.7160.2162.1163.3164.0165.11 Also includes other private industry groups shown in Table C-29.> Includes eating and drinking places.»Adjusted for overtime (in manufacturing only) and for interindustry employment shifts.« Current dollar earnings index divided by the consumer price index.' Computed from indexes to two decimal places.Note—See Note, Table C-29.Source: Department of Labor, Bureau of Labor Statistics.28463.763.867.569.369.070.974.476.679.482.383.484.586.888.490.292.293.795.197.098.1100.0102.0103.2103.9106.7110.0110.1107.2111.2110.8110.5110.5110.2110.4110.8109.4109.9109.5109.2109.1108.4107.7107.3107.2107.3107.8107.4107.0106.8106.7106.2106.2Percentchangefromprecedingperiod1967dollars*Currentdollars8.04.83.77.45.05.73.53.25.24.94.13.63.43.13.32.92.83.74.14.96.36.66.67.16.56.48.01967dollars0.25.82.7-.42.84.93.03.73.71.31.32.71.82.02.21.61.52.01.11.92.01.2.72.73.1.1-2.6Seasonallyadjustedannual rates*3.92.96.98.52.910.36.97.310.26.06.36.44.48.18.15.514.817.33.812.214.89.35.28.2-2.2-4.7-3.5.4-3.72.54.8-14.14.9-3.9-3.2-1.0-8.0-6.6-4.8-1.41.15.5-4.5-4.4-1.9-1.2-5.6.0

TABLE C-31.—Average weekly earnings in selected private nonagricultural industries, 1947-74[For production or nonsupervisory workers]Average gross weekly earningsAverage spendable weekly earnings, totalprivate nonagricultural *Year or monthTotal privatenonagricultural iManufacturingContiactconstructionRetailtrade»AmountPercent change frompreceding periodCurrentdollars1967dollars 2Current dollarsCurrentdollars1967dollars 2Currentdollars1967dollars194719481949$45.5849.0050.24$68.1367.9670.36$49.1753.1253.88$58.8765.2767.56$33.7736 2238.42$44.6448.5149.74$66.7367 2869.668 72.56 83 51950195119521953195453.1357.8660.6563.7664.5273.6974.3776.2979.6080.1558.3263.3467.1670.4770.4969.6876.9682.8686.4188.9139.7142.8243.3845.3647.0452.0455.7957.8760.3160.8572.1871 7172.7975 2975.594.67 23.74 2.93.6— 71.53 441955195619571958195967.7270.7473.3375.0878.7884.4486.9086.9986.7090.2475.7078.7881.5982.7188.2690.9096.38100.27103.78108.4148.7550.1852.2054.1056.1563.4165.8267.7169.1171.8679.0680.8680.3279.8082.314 23.82 92.14.04 62.3— 7- 63.11960196119621963196480 6782.6085.9188 4691.3390 9592.1994.8296.4798.3189.7292.3496.5699.63102.97113 04118.08122.47127.19132.0657.7658.6660.9662 6664.7572 9674.4876.9978 5682.5782 2583.1384.9885 6788.881 52.13.42 05.1_ 11 12.283 71965196619671968196995.0698.82101 84107.73114.61100.59101.67101.84103. 39104.38107. 53112.34114.90122.51129.51138.38146. 26154.95164.49181.5466.6168.5770 9574.9578.6686.3088.6690.8695.2899.9991.3291.2190 8691.4491.074.52.72 54.94.92 7-.1- 4.6-.41970197119721973 .1974 v119.46127. 28136.16145. 43154.45102.72104. 93108.67109. 26104.57133.73142. 44154.69165. 65176.00195.45211.67222. 51236. 06248. 7182.4786.6190.9995.57101.04104.61112.41121. 09127. 41134.3789.9592.6796.6495.7390.974.67.57.75.25.5-1.23.04.3-.9-5.0Seasonally adjustedSeasonally adjustedannual rates1973:Jan. .FebMarAprMayJune$140.23140. 98142. 09143. 59143. 58144.69$109. 61109.48109. 40109. 85109. 23109. 41$160. 79162. 78162. 78164. 42164. 02164. 43$228. 87224.64230.11232.10233. 73235. 96$93.0793.4793.8094.1994.5295.52$123. 39123. 98124. 83125. 99125.98126. 84$96.4496.2896.1196.3995.8495.915 3.55.98.511.7-.18.55-2.6-2.0-2.13.6-6.6.9JulyAugSeptOctNov_ ..Dec . _ ..145. 80146.15147. 66147.60148. 71149. 48110.06108. 30108 97108. 05108 02107. 93166. 06166. 46168 09168. 91169 30170.11236. 33236.16237.08237. 36244. 83241. 0695.5795.6696.3296.6997.6597.68127.69127.96129 13129. 08129 94130. 5396.3994.8295 3094.4994 3994.258.32.611 5-.58 35.66.2-17.96 2-9.7-1 3-1.81974:JanFebMarAprMay ..June148. 64150.14150. 47150. 43153. 04154. 51106.19105. 97105. 08104. 53105. 23105.30169. 28170.49170.87167. 03174. 50175.64235. 87245.15241.12239. 58242.95248. 7198.0498.0498.7099.00101. 00101.37129. 89131. 04131.30131. 27133. 28134.4192.8092.4991.7091.2291.6491.605-5.711.22.4-.320.010.7-3.9-9.8-6.15.7-.5JulyAugSept...OctNov pDec p155. 24156. 71158. 54159.21157.83159.80105.07104.65104. 51104.06102.23102.83178. 09180.10181. 20183. 26180.91181.63249. 08250. 80253. 31256.68255.94263.09101.71102.36102.38103.03103.36103.04134.98136.11137.52138.04136.98138. 5091.3690.9090.6590.2288.7389.125.210.513.24.6-8.814.2-3.1-5.9-3.3-5.5-18.15.41 Also includes other private industry groups shown in Table C-29.* Earnings in current dollars divided by the consumer price index.8 Includes eating and drinking places.* Average gross weekly earnings less social security and income taxes for a worker with three dependents.* In annualizing the rates of change, the effect of the change in tax rates at the beginning of 1973 and 1974 is taken intoaccount separately.Note.—See Note, Table C-29.Source: Department of Labor, Bureau of Labor Statistics.563-280 O - 75 - 19285

Year or quarterTABLE C-32.—Output per man-hour and related data', private economy, 1947—74TotalprivateOutput 1PrivatenonfarmMan-hours 3TotalprivatePrivatenonfarm[1967 = 100]Output perman-hourTotalprivatePrivatenonfarmCompensationper man-hour 3TotalprivatePrivatenonfarmUnit laborcostsTotalprivatePrivatenonfarmImplicit pricedeflator*TotalprivatePrivatenonfarm194719481949 ... .1950195119521953195445.647.847.652.555.857 260.159 344.546.546.451.355.056.359.158.388.889.286.287.990.791.292.088.678.079.176.079.082.984.185.982.651.353.655.359.761.562.765.366.957.158.861.165.066.366.968.970.536.239.540.142.846.949.852.954.538.341.843.045.349.352.054.956.670.673.772.571.776.379.481.081.567.171.070.369.774.377.679.780.366.470 970.270 976.177 578.179 163 868 268.769 474 075 977 278.51955195619571958195964.365.666.565.670 263.464.765.764.869.592.193.792.388.491.286.188.487.984.587.669.970.072.074.376.973.673.274.876.779.355.959.563.366.069.058.662.065.568.171.080.185.087.988.989.879.684.787.688.789.579.882.385.387.188.379.582.335.386.888 31960196119621963196471.973 278.281 586.271.172.577.680.985.992.090.692.492 994.588.687.789.890.992.978.280.984.787.791.180.382.786.489.192.471.774.477.780.884.973.976.379.382.286.191.892.191.892.193.192.092.391.892.393.289.590.491.292.293.289.690.491.292 393.41965 .196619671968196991.897.7100.0104 8107.791.597.9100.0105 1108.097.499.7100.0102 0104.496.399.5100.0102 3105.394.298.0100.0102.8103.295.198.4100.0102.7102.588.494.5100.0107.8115.689.294.6100.0107 5114.693.896.5100.0105 0112.193.996.2100.0104.6111.894.897.2100.0103 6108. 394.896.8100.0103 5108.119701971197219731974 v107.2111.0118.5125.8122.6107.3111.1118.9126.3122.9103.0102.7106.0109.6109.7104.2103.9107.3111.3111.4104.0108.2111.8114.8111.7103.0106.9110.8113.4110.3124.0132.1140.2151.0164.0122.6130.6138.7149.0162.0119.3122.2125.3131.5146.8119.0122.2125.1131.3146.9113.5118.2121.6128.6142.2113 5118.4121.2126.2140.6Seasonally adjusted1972: 1II . .IIIIV115.0117.6119.4121.9115.2117.9120.1122.4104.6105.6106.4107.2105.8107.1107.6108.6110.0111.3112.3113.7108.8110.0111.6112.7137.4139.2140.8143.2135.9137.5139.5141.7125.0125.1125.4125.9124.9125.0125.0125.7120.5121.0121.9123.0120.4120.8121.4122.31973: 1IIIIIIV124.9125.6126.1126.8125.2126.0126.8127.1108.3109.3110.2110.7109.9111.0111.9112.3115.3114.9114.4114.5113.9113.4113.3113.2147.6149.6151.6154.9145.5147.6149.7153.0128.0130.3132.5135.2127.8130.1132.1135.2124.8127.1129.8132.5123.4125. C126.7129.51974- 1IIIIIIV*124.2123.6122.9119.7124.7123.7123.0120.2110.6109.9109.9108.5111.8111.7111.8110.2112.3112.4111.8110.3111.5110.7110.1109.0157.3162.5166.5170.0156.0160.3164.2167.9140.1144.5148.9154.1140.0144.7149.2153.9136.6139.8144.0148.7133.9138.7143.0147.1i Output refers to gross product originating in the sector in 1958 dollars.1 Hours of all persons in private industry engaged in production, including man-hours of proprietors and unpaid familyworkers. Man-hours estimates based primarily on establishment data.3 Wages and salaries of employees plus employers' contributions for social insurance and private benefits plans. Alsoincludes an estimate of wages, salaries, and supplemental payments for the self-employed.* Current dollar gross product divided by constant dollar product.Note.—Data relate to all persons.Source: Department of Labor, Bureau of Labor Statistics.286

TABLE C-33.—Changes in output per man-how and related data, private economy, 1948-74Year or quarterTotalprivateOutput iPrivatenonfarmTotalprivate[Percent change from preceding period]Man-hours 2PrivatenonfarmOutput perman-hourTotalprivatePrivatenonfarmCompensationper man-hour*TotalprivatePrivatenonfarmUnit laborcostsTotalprivatePrivatenonfarmImplicit pricedeflator*TotalprivatePrivatenonfarm1948..1949..1950..1951..1952..1953..1954..1955..1956-1957..1958..1959..I960..1961..1962..1963..1964..1965..1966..1967..1968..1969..1970..1971.1972.1973.1974i4.8-.310.26.32.55.1-1.38.51.91.4-1.37.02.41.96.84.25.76.66.42.34.82.8-.53.66.76.2-2.64.4-.110.67.02.55.1-1.52.01.6-1.57.32.41.97.14.36.16.67.02.25.12.8-.63.57.16.2-2.70.4 1.3 4.53.4 -3.9 3.22.0 4.0 8.13.2 4.9 3.0.5 1.5 1.9.8 2.1 4.2-3.7 -3.8 2.43.9 4.2 4.41.7 2.6 .2-1.5 -.6 2.9-4.2 -3.9 3.13.3 3.7 3.61.1 1.6-1.5 -1.0 3.52.0 2.5 4.7.6 1.2 3.61.8 2.3 3.93.1 3.6 3.42.4 3.3 4.0.32.12.0 2^3 2.82.4 2.9 .4-1.3 -1.0-.4 -.3 4.03.2 3.3 3.43.5 3.7 2.6.1 .1 -2.73.04.06.32.0.92.92.34.4-.62.22.53.41.23.04.63.13.72.93.51.62.7-.2.43.83.62.4-2.89.01.56.89.66.16.33.12.66.46.54.24.63.93.84.44.05.04.16.95.87.87.27.26.56.17.78.79.02.95.58.75.55.63.23.55.85.73.84.34.13.24.03.64.73.76.15.77.56.76.96.66.27.44.3-1.6-1.26.44.12.0.6-1.76.23.51.11.02.2.3-.3.41.1.72.83.75.06.86.42.52.64.911.65.8-1.06.64.52.6.9g6! 43.41.3.92.8.2-.5L02.54.04.66.96.52.62.44.911.96.7-1.01.07.31.9.71.2.93.23.62.11.41.4.9.91.01.21.72.52.93.64.54.84.12.95.710.66.81.16.52.61.81.71.33.43.71.71.81.4.9.91.21.31.42.23.33.54.55.04.32.44.111.4Seasonally adjusted annual rates1972: IIIIIIIV1973: I.I!II!....IV1974: I.7.19.36.48.710.02.11.62.3-7.8-2.0-2.3-10.17.09.77.88.09.42.52.51.1-7.5-2.9-2.3-9.04.54.12.83.24.13.93.31.7-.3-2.3.0-5.24.55.01.83.94.94.13.01.6-1.8A'A-5.52.55.03.55.35.7-1.7-1.6.5-7.5.3-2.3-5.12.54.55.93.94.3-1.5-.5-.5-5.9-2.5-2.4-3.78.95.24.77.112.95.55.39.16.513.710.28.88.74.85.96.411.25.95.99.18.111.310.29.16.2.21.11.76.77.37.08.515.113.312.814.76.1.3.02.46.77.66.49.614.914.213.013.34.31.83.03.56.07.68.78.712.99.912.613.64.21.41.92.93.65.65.69.014.215.113.112.01 Output refers to gross product originating in the sector in 1958 dollars.2 Hours of all persons in private industry engaged in production, including man-hours of proprietors and unpaid familyworkers. Man-hours estimates based primarily on establishment data.s Wages and salaries of employees plus employers' contributions for social insurance and private benefits plans. Alsoincludes an estimate of wages, salaries, and supplemental payments for the self-employed.* Current dollar gross product divided by constant dollar product.Note.—Data relate to all persons.Percent changes are based on original data and therefore may differ slightly from percent changes based on indexesin Table C-32.Source: Department of Labor, Bureau of Labor Statistics,287

PRODUCTION AND BUSINESS ACTIVITYTABLE C-34.—Industrial production indexes, major industry divisions, 1929-74[1967=1001Year or monthTotalindustrialproductionTotalManufacturingDurableNondurableMiningUtilities19291933193919401941 -19421943194419451946194719481949195019511952 ... .1953 .19541955 . .195619571958 . -1959I960196119621963196419651966196719681969 -21.613.721.725.031.636.344.047.440.635.039.441.038.844.948.750.654.851.958.561.161.957.964.866.266.772.276.581.789.297.9100.0105.7110.722.814.021.525.432.437.847.050.942.635.339.440.938.745.048.650.655.151.558.260.561.256.964.165.465.671.475.881.289.198.3100.0105.7110.522.69.117.823.731.640.154.560.245.531.837 939.535.943.749 252.259.052.059.561.561.954.262.263.362.169.073.579.088.599.0100.0105.5110.023.019.725.927.232.934.336.738.238.139.340 942.241.546.247 848.750.751.056.659.560 561.067.068.670 775.179.284 490.097.3100.0106.0111.144.431.543.448.251.252.854.057.956.855.863 166! 358.865.772 171.573.471.980.284.484 577 581.182.783 285 689.091 193.998.4100 0103.9107.27.26.510.411.513.014.616.117.117.418.119 621.923.326.530 332.835.638.342.847.050 252.557.861.865 370.275.181 986.993.6100 0109.4119.51970 .19711972--19731974*106.6106.8115.2125.6124.8105.2105.2114.0125.1124.5101.499.4108.4122.0120.8110.6113.5122.1129.7129.9109.7107.0108.8110.3109.1128.3133.9143.4152.6149.4Seasonally adjusted1973: JanFebMarAprMayJune122.2123.4123.7124.1124.9125.6121.4122.7123.4123.8124.9125.6117.5118.7119 9120.6121.9123.0127.0128.4128 6128.4129.2129.3108.5110.2109.5109.0109.1109.5151.0150.5149.6148.7149.5151.6JulyAugSeptOctNov.Dec.1974: JanFeb. . .Mar .AprMayJune_- ...JulyAugSeptOct "___'_Nov» .Dec v126.7126.5126.8127.0127.5126.5125.4124.6124.7124.9125.7125.8125 5125.2125.6124.8121.7118.3126.5126.1126.3126.4127.4126.4125.3124.5124.6124 8125.7125.6125.2125.2125.5124.5121.0117.6123.8122.6123.3123.6124.3123.1121.0119.4120.4120.7122.1122.1121.6121.6122.1121.4117.8113.5130.6130.9130.7130.4131.3131.2131.4131.5131.0130.4130.9130.7130.8130.4130.5129.0125.7123.5111.0111.5111.8111.9111.3110.4109.9111.7112.2111.3111.0110.2110.2107.3109.2109.1104.0104.0154.8154.8155.8156.2154.6147.6144.9146.1146.5148.7149.1150.6152.4152.7153.1152.2151.9151.2Source: Board of Governors of the Federal Reserve System.288

TABLE C—35.—Industrial production indexes, market groupings, 1947—74[1967=1001Year ormonthTotalindustrialproductionFinal productsTotalConsumer goods *TotalAutomotiveproductsHomegoodsEquipmentTotalBusinessIntermediateproductsMaterials'TotalDurablegoods1947..194819491950195119521953.1954195519561957195819591960196119621963196419651966196719681969..._;..19701971197219731974 P.1973: Jan...Feb..Mar .Apr..May..June.July..Aug...Sept..Oct...NovDec...1974: Jan..Feb..MarApr..May..June-July..AugSept..Oct..Nov J>_Dec p_39.441.038.844.948.750.654.851.958.561.161.957.964.866.266.772.276.581.789.297.9100.0105.7110.7106.6106.8115.2125.6124.838.339.738.543.446.850.353.750.854.958.259.957.162.764.865.370.874.979.686.896.1100.0105.8109.0104.5104.7111.9121.3123.142.744.043.850.049.550.653.753.359.561.763.262.668.771.372.877.782.093.098.6100.0106.6111.1110.3115.7123.6131.7121.847.850.049.662.455.249.762.858.477.763.966.953.266.876.469.884.592.596.8112.3108.8100.0117.9117.499.9119.5127.7136.6110.539.140.837.752.044.844.850.746.855.258.156.853.661.662.063.969.474.981.791.4100.7100.0106.9111.6107.6112.6124.5140.1138.329.731.227.930.242.150.554.747.948.953.755.950.054.956.455,661.965.670.178.793.0100.0104.7106.196.389.495.5106.7118.838.039.534.537.045.251.253.246.850.758.761.051.557.959.457.762.765.874.784.498.8100.0103.4107.9101.496.8106.1122.6129.642.544.942.649.652.051.755.355.162.665.365.363.970.571.072.476.981.187.393.099.2100.0105.7112.0111.7112.5121.1131.0128.239.741.437.845.250.050.756.352.061.563.163.156.865.566.466.472.477.082.691.099.8100.0105.7112.4107.7107.4117.4129.3127.639.140.236.045.351.652.761.553.165.065.265.154.865.366.164.671.876.682.793.0103.0100.0105.0112.2103.2101.7113.5130.0127.7Seasonally adjusted122.2123.4123.7124.1124.9125.6126.7126.5126.8127.0127.5126.5125.4124.6124.7124.9125.7125.8125.5125.2125.6124.8121.7118.3118.6119.3119.6120.0120.8121.3122.1121.4122.4122.7123.6122.6121.3120.6121.0120.7122.4122.5122.8122.1122.6122.4120.9118.7129.8130.2130.8130.9131.7131.9132.9131.2132.3132.6133.5131.3129.2128.3128.5128.5129.6130.3130.0129.8128.8128.3126.4123.5138.6141.7144.1141.7142.6142.6141.7121.1129.8131.4133.7120.6108.0106.6108.0113.8116.1117.3113.5114.9111.6114.7104.091.1134.5135.8138.3139.8140.9141.3142.9141.1142.8140.9141.1138.7139.6137.5140.1140.6142.4142.7141.8141.2139.0133.2129.7125.7102.9104.1104.1104.7105.7106.6107.3107.6108.5108.9110.1110.1109.8109.9110.1110.1112.2112.0113.0111.4113.8113.9113.2112.0116.9118.2118.6119.6121.3122.5123.0124.6125.8126.2127.8126.9126.8127.3127.6127.9130.3130.2131.3128.8132.3131.9130.9128.9128.4129.5129.4129.3130.5132.0132.5132.1131.0130.6131.1129.1129.2129.1128.1129.4129.2128.9127.8128.6127.6125.3122.0120.6124.5126.7127.0127.7128.3129.0130.9130.9131.3131.1131.5130.6129.7128.3128.9128.7129.1128.8128.0128.5129.3128.0122.7117.5124.1126.6127.6127.9128.6129.2131.6131.8132.3132.2133.0132.7129.8127.3127.2127.3128.3127.6125.8128.1129.2129.4124.0117.81 Also includes clothing and consumer staples, not shown separately.2 Also includes industrial fuel and power, not shown separately.Source: Board of Governors of the Federal Reserve System.289

TABLE O36.—Industrial production indexes, selected manufactures, 1947-74[1967=100]Year ormonthDurable manufacturesPrimarymetalsFabricatedmetalproductsMachineryTransportationequipmentInstrumentsOrdnance,privateandgovernmentLumber,clay,andglassFurnitureandmiscellaneousTextiles,apparel,andleatherNondurable manufacturesPaperandprintingChemicals,petroleum,andrubberFoodsandtobacco1947..1948..1949..64.867.450.251.146.131.033.934.024.525.222.57.89.09.256.71950195119521953...19541955..1956..1957..1958..1959..71.477.756.560.458.966.540.745.452.866.257.666.364.368.954.361.563.759.969.375.979.691.3101.2100.0109.7107.690.492.999.0109.197.026.130.035.739.211.442.252.063.248.436.131.835.944.446.146.439.245.051.650.760.575.1100.0113.7111.695.386.186.085.786.370.980.465.084.584.080.463.874.574.272.978.284.395.7104.0108.8100.0103.2114.1106.9100.9113.1127.0124.4I960..1961..1962..1963..1964..1965 .1966....19671968 .1969....1970.1971.1972.19731974 v1973: JanFeb.MarAprMayJuneJulyAugSeptOctNovDec1974:JanFebMarAprMayJuneJulyAugSeptOctNov vDec v59.968.369.371.163.771.571.669.875.978.483.392.6100.5100.0106.3113.6109.4107.4114.8130.5131.341.746.752.252.045.453.956.257.164.867.974.384.198.6100.0101.9106.8100.396.2107.5125.8129.839.644.248.550.747.755.257.857.359.866.471.382.995.3100.0106.7116.1110.8108.5120.2138.3144.164.773.875.973.371.482.278.579.784.388.994.098.7102.6100.0105.6111.1106.3111.5120.0129.1123.853.765.868.767.162.168.769.770.676.179.584.793.8100.8100.0106.2111.6108.8111.7122.7135.1135.965.773.475.173.471.879.679.280.284.386.991.997.8101.7100.0104.9105.9100.2100.7108.1115.0108.852.257.861.562.261.567.069.271.074.378.484.590.598.9100.0104.2109.1107.8107.8116.1122.2121.135.441.243.545.846.553.855.558.364.570.075.983.894.1100.0109.6118.4118.2124.7137.8149.3151.9Seasonally adjusted123.1124.7123.5125.8126.1124.5128.1125.6127.8128.7128.9130.7129.5125.0125.3124.0124.6124.7123.2121.9123.0124.2120.6112.3125.7126.2128.4128.9130.3133.4133.5133.8131.5132.4133.1130.0131.4130.6131.6131.3131.9132.5131.1131.6132.0129.3127.1124.3118.4119.1121.4122.6124.7126.9127.6128.5130.0129.3130.4130.9128.6127.2128.4128.2129.7130.4129.9130.5132.5130.7128.9125.8107.6110.0110.3110.0111.0112.2112.1105.7107.3108.8109.8103.095.793.995.097.8100.699.498.799.9100.4102.093.985.3130.1131.9133.8134.7138.9140.2140.8140.9141.5141.0142.6142.7143.0142.8142.8143.8146.1147.5146.7146.7144.9142.0142.7141.587.087.687.186.485.486.786.783.883.783.884.386.185.284.284.984.386.186.487.287.187.587.487.287.7126.4127.3129.1129.9130.3129.2129.8129.2128.8129.7129.3127.8129.7127.4128.1128.9128.0126.4125.5123.4120.6117.7114.9112.2130.3132.8133.4133.1136.0135.4135.9137.5138.2136.1136.3135.3133.4135.2136.8136.8138.9138.5139.7140.1138.8136.7128.3126.8113.4114.4114.6114.0113.3115.0114.5115.4117.5116.8116.7118.8116.2115.3112.4109.3109.8108.5108.1107.4106.5104.7101.699.8120.0121.5122.4120.8121.9122.8123.8124.5122.1121.3121.9121.2121.7122.2122.5121.2121.3122.3122.4121.0122.7120.6115.7114.7145.5146.3146.3147.9150.2149.8151.8151.015D.9151.1151.6151.6151.5151.2151.2153.5153.0153.8153.9154.4154.7153.0147.7142.963.266.670.371.573.677.279.281.584.087.090.692.697.0100.0103.6107.5110.8113.7117.6121.9124.8119.6122.0121.5120.7121.5119.5121.3122.0122.2121.7124.7123.0125.4126.2125.3124.3126.5125.3124.8124.8124.3123.6123.7123.7Source: Board of Governors of the Federal Reserve System.290

TABLE C—37.—Capacity utilization rate in manufacturing and major materials industries, 1948-74ManufacturingMajor materials industriesPeriodOutput 1CapacityTotalUtilization rate 2PrimaryprocessingAdvancedprocessingOutputCapacityUtilizationrate 21967 output=iOOPercent1967 output = 100Percent1948194941.539.144.847.392.782.798.183.889.882.142.239.749.952.184.576.11950195119521953195445.449.350.955.451.449.451.854.958.161.291.995.192.895.584.197.8100.191.294.382.988.892.593.796.184.746.450.148.752.650.854.256.358.461.264.685.689.183.386.078.6195519561957..1958195958.160.361.156.964.064.468.374.875.778.690.088.284.575.181.493.790.785.275.282.787.786.984.175.080.760 462.462.258.866.267 770.774.678.682.589 288.383.474.780.21960. ..196119621963 .196465.365.671.375.781.181.684.587.791.294.880.177.681.483.085.579.478.281.884.088.080.377.381.182.584.267.369.774.679.487.285.588.492.094.998.478.778.881 183.788.619651966196719681969 ....89.098.1100.0105.6110.4100.0106.7113.7120.5127.789.091.987.987.786.591.192.185.786.888.587.891.889.188.185.493.8100.5100.0107.1113.6103.4109.1114.3119.9126.290.892.187.489.390.019701971....197219731974 p105.3105.2114.0125.1124.1134.6140.3145.0150.7157.178.375.078.683.079.081.579.384.689.784.676.572.775.479.476.0112.7115.3126.2136.3133.8130.7135.1140.8146.5153.386.285.389.693.087.4Seasonally adjusted1969: 1IIIII. .IV109.5110.4111.8110.1124.9126.7128.6130.587.787.186.984.388.688.788.987.787.186.285.882.5110.9112.8114.6116.1124.3125.5126.9128.189.289.990.390.71970: L...IIIIIIV .106.8106.8105.9101.6132,2133.8135.3136.980.879.878.374.283.582.481.778.579.378.476.571.9112.7111.9113.3113.1129.0130.3131.5132.287.385.986.285.51971: 1...IIIIIIV103.8105.6105.3106.1138.3139.6141.0142.375.075.674.774.679.481.178.078.672.772.772.972.4115.0117.3113.1115.6133.1134.4135.9137.286.487.383.284.31972: 1IIIIIIV.. ..108.5112.5115.5119.4143.5144.5145.5146.675.677.979.481.580.883.585.988.372.974.975.977.8120.9124.2128.1131.6138.8140.1141.4142.987.188.790.692.11973: 1 .II..IIIIV122.5124.8126.2126.7148.0149.8151.6153.482.883.383.382.689.690.190.089.079.179.779.779.2134.2136.1137.6137.2144.3145.9147.2148.793.093.493.592.31974: 1 vII vIII vIV p124.8125.3125.3121.0155.0156.4157.9159.380.580.179.475.987.386.385.179.976.976.876.373.8135.6137.3136.5125.8150.4152.3154.2156.290.290.288.580.61 May differ slightly from data shown in Table C-34 because of rounding.2 Output as percent of capacity.Note.—For description of series, see "Federal Reserve Bulletin," October 1971 and November 1966 issues for manufacturingseries and April 1974 issue for major materials industries series.Source: Board of Governors of the Federal Reserve System, based on data of Federal Reserve, Department of Commerce,McGraw-Hill Information Systems Company, and various industry organizations.291

TABLE O-38.—New construction activity, 1929-74[Value put in place, billions of dollars]Year or month1929193319391940194119421943 ..194419451946New series19461947. . .19481949.19501951 .1952...19531954...19551956 .._19571958195919601961196219631964196519661967 .19681969 _.1970 .1971 ..1972 „19731974 pTotalnewconstruction10.82.98.28.712.014.18.35.35.812.614.320.026.126.733.635.436.839.141.446.547.649.150.055.454.756.460.264.867.773.776.478.187.193.994.9110.0124.1135.5134.4Private constructionTotal8.31.24.45.16.23.42.02.23.410.412.116.721.420.526.726.226.027.929.734.834.935.134.639.338.939.342.345.547.351.752.452.559.566.066.880.193.9102.996.1ResidentialbuildingsiTotal»3.6.52.73.03.51.7.9.81.34.86.29.913.112.418.115.915.816.618.221.920.219.019.824.323.023.125.227.928.027.925.725.630.633.231.943.354.357.646.5Newhousingunits3.0.32.32.63.01.4.7.6.73.34.87.810.510.015.613.212.913.414.918.216.114.715.419.217.317.119.421.721.821.719.419.024.025.924.335.144.947.837.0Nonresidential buildings and otherconstruction lTotal4.7.81.72.12.71.71.11.42.15.65.86.98.28.08.610.310.211.311.512.914.716.114.815.115.916.217.217.619.323.826.727.028.932.834.936.839.645.349.6Commercials1.1.1.3.3.4.2.0.1.21.21.2 04 41.11.82.23.23.63.63.63.94 24.75.15.05.47 89.49.811.613.515 516.0Industrial0.9.2.3.4.8.3.2.2.61.71.71.71.41.01.12.12.32.22.02.43.13.62.42.12.92.82.82.93.66 06.86.55.44.76.27.7Other*2.6.51.21.31.51.2.91.11.32.83.04.25.55.96.16.76.87.37.27.38.09.08.89.08.98.79.29.710.315.116.618.619.821.523.625.9Public constructionTotal2.51.63.83.65.810.76.33.12.42.22.23.34.76.36.99.310.811.211.711.712.714.115.516.115.917.117.919.420.422.124.025.527.628.028.129.930.232.638.3erallyowned0.2.5.81.23.89.35.62.51.7.9.9.81.21.51.63.04.24.13.42.82.73.03.43.73 63.93.94.03.94.04 03.53 43.33.34.04.44.95.4Stateandlocallyowned 52.31.13.12.42.01.3.7.6.71.41.42.53.54.85.26.36.67.18.38.910.011.112.112.312 213.314.015.416.518.020.022.124.224.724.825.925.827 7See footnotes at end of table.292

TABLE C-38.—New construction activity, 1929-74—Continued[Value put in place, billions of dollars]Private constructionPublic constructionYear or monthTotalnewconstructionTotalResidentialbuildings iTotal »NewhousingunitsNonresidential buildings and otherconstruction lTotalSeasonally adjusted annual ratesOther*ITotalCommercialsIndustrialFederallyownedStateandlocallyowned 51973:Jan...Feb...Mar...AprMay..June..July...Aug...Sept..Oct.—Nov...Dec..1974:Jan...Feb...Mar...AprMay..June..Juiy..Aug...Sept..Oct*_Nov p.Dec p..134.5136.1136.5134.0134.5134.7137.2137.4137.3136.4135.7133.2132.6136.3135.1136.4138.2136.9137.9134.5132.9133.0130.1129.1101.7104.0103.3101.7101.9103.2105.6105.5104.1103.3102.3100.197.898.898.697.497.998.498.096.394.694.292.190.159.360.860.358.457.658.259.159.358.056.354.552.449.748.948.648.248.048.348.948.345.943.340.938.948.449.249.449.049.349.749.749.548.246.244.242.139.838.939.139.339.739.538.937.535.533.731.729.742.443.243,043.344.345.046.446.246.147.047.747.848.149.950.049.349.950.149.048.048.750.951.251.214.515.014.815.015.415.616.015.815.415.816.115.915.816.716.716.316.416.416.015.115.716.316.015.45.45.45.55.55.86.06.56.46.86.77.17.36.87.97.56.97.68.07.27.67.78.38.78.722.522.822.722.823.123.424.024.023.824.524.624.525.525.425.826.125.925.725.925.425.426.326.527.132.832.133.332.432.631.531.631.933.233.233.433.134.837.536.439.040.338.540.038.238.338.938.039.04.94.95.44.75.24.94.84.74.84.84.94.84.75.15.45.75.35.85.14.95.45.55.46.227.927.227.827.727.426.626.827.228.428.328.528.330.132.431.033.235.032.734.933.332.933.432.6i Beginning 1960, farm residential buildings included in residential buildings; prior to 1960, included in nonresidentialbuildings and other construction.3 Total includes additions and alterations and nonhousekeeping units, not shown separately.3 Office buildings, warehouses, stores, restaurants, garages, etc.* Religious, educational, hospital and institutional, miscellaneous nonresidential, farm, public utilities, and all otherprivate.«Includes Federal grants-in-aid for State and locally owned projects.Source: Department of Commerce, Bureau of the Census, except as noted.293

TABLE C—39.—New housing starts and applicationsJ c or financing, 1929-74[Thousands of units]Year or monthPrivate andpublic iTotal(farmandnonfarm)NonfarmHousing startsPrivate»Total (farm and nonfarm)TotalType ofstructure 3OneunitTwo ormoreunitsGovernmenthome programs(nonfarm) 3FHA*VANewprivatehousingunitsauthorizedsProposedhome constructioneApplicationsforFHAcommitments4RequestsforVAappraisals1929509.0193393.01939515.0144.7179 81940.194119421943. .1944602.6706.1356.0191.0141.8176.6217.1160.2126.183.6231.2288.5238 5144.462 9New series19451946.194719481949326.01,023.01,268.01,362.01,466.038.967.1178.3216.4252.678.891.8160.371.190.856 6121.7286 4293 2327 0195019511952195319541955195619571958..19591,553.71,952.01,491.01,504.01,438.01,551 01,646.01, 349. 01,224.01,382.01,531.31,517.01,234.0283.0328.2186.9229.1216.5250.9268.7183.4150.1270.3307.0191.2148.6141.3156.5307.0392.9270.7128.3102.1109.31,208.3397.7192.8267.9253.7338.6306.2197.7198.8341.7369.7164.4226.3251.4535.4620.8401.5159.4234.2234.01960 . . ..19611962196319641965 .19661967196819691, 296.11,365.01,492.51,634.91,561.01,509.71,195.81,321.91,545.41,499.51,274.01,336.81,468.71,614.81,534.01,487.51,172.81,298.81,521.41,482.31,252.21,313.01,462.91,603.21,528.81,472.81,164.91,291.61,507.61,466.8994.7974.3991.41,012.4970.5963.7778.6843.9899.4810.6257.4338.7471.5590.8558.3509.1386.3447.7608.2656.2225.7198.8197.3166.2154.0159.9129.1141.9147.7153.674.683.377,871.059.249.436.852.556.151.2998.01,064.21,186.61,334.71,285.81,239.8971.91,141.01,353.41,323.7242.4243.8221.1190.2182.1188.9153.0167.2168.9187.6142.9177.8171.2139.3113.6102.199.2124.3131.7138.2197019711972 . .19731974 P1,469.02,084. 52, 378. 52, 057. 51, 351. 0( 8 )( 8 )(•)( 8 )( 8 )1,433.62,052.22,356.62, 045. 31,336.3812.91,151.01,309.21,132.0887.4620.7901.21,047.5913.3448.8233.5301.2198.473.656.861.094.0104.086.172.81,351.51,924.62,218.91,819.51,051.8315.0366.8225.283.287.1143.7217.9209.4161.9160.1See footnotes at end of table.294

TABLE C-39.—New housing starts and applications for financing, 1929-74—Continued[Thousands of units]Year or monthPrivate andpublic iTotal(farmandnonfarm)NonfarmHousing startsPrivate iTotal (farm and nonfarm)TotalType ofstructure 2OneunitTwo ormoreunitsGovernmenthome programs(nonfarm) 3FHA 4VANewprivatelousingunitsauthorizedsProposedhome construction•ApplicationsforFHAcommitments4RequestsforVAappraisalsSeasonally adjusted annual rates1973: Jan..Feb..Mar..Apr..May .June.July..Aug..Sept.Oct..Nov..Dec.1974: Jan...Feb...Mar...Apr...May...June..July...Aug...Sept..Oct...Nov ".Dec p.147.3139.5201.1205.4234.2203.4203.2199.9148.9149.5134.690.686.2109.6127.2160.9149.9149.5127.2114.099.697.274.954.62,4722,4232,2832,1532,3302,1522,1522,0301,8441,6741,6751,4031,4641,9221,4991,6301,4711,5961,3381,1341,1501,1099901,4181,3631,2441,2311,2431,1401,2321,1089909579387677931,0569629939311,0149588128447777886781,0541,0601,0409221,0881,01392092185471873763667186653763454058238032230633220219089110927582798169665257373948484163575458617371679610510098109898892716257686164727479757169757971772,2672,2562,1211,9871,9022,0701,8141,7771,6561,3791,3511,2851,2821,3251,4101,2961,1201,1061,017900823782730802124 217102 21694 20071 16891 16699 16692 13669 14194 13751 14256 13430 12446 12462 16371 14471 15089 15791 185106 15983 18497 167127 187105 15873 1271 Units in structures built by private developers for sale upon completion to local public housing authorities under theDepartment of Housing and Urban Development "Turnkey" program are classified as private housing. Military housingstarts, including those financed with mortgages insured by FHA under Section 803 of the National Housing Act, are includedin publicly owned starts but excluded from total private starts and from FHA starts.2 Not available prior to 1959 except for nonfarm for 1929-44.s Data are not available for new homes started under the Department of Agriculture, Farmers Home Administrationprogram.* For 1- to 4-unit structuies.5 Authorized by issuance of local building permit: in 14,000 permit-issuing places beginning 1972; 13,000 for 1967-71;12,000 for 1963-66; and 10,000 prior to 1963.e Units in mortgage applications or appraisal requests for new home construction.7 Monthly estimates for September 1945-May 1950 were prepared by Housing and Home Finance Agency.» Not available separately beginning January 1970.Sources: Department of Commerce, Department of Housing and Urban Development, and Veterans Administration(except as noted).295

TABLE C-40.—Business expenditures for new plant and equipment, 1947-75 l[Billions of dollars]ManufacturingNonmanufacturingYearor QuarterTotalTotalDurablegoodsNondurablegoodsTotalMiningRailroadTransportationAirOtherPublicutilitiesCommunicationCommercialandothers1947 . .. .194819491950195119521953195419551956195719581959 . .19601961 . .19621963196419.3321.3018.9820.2125.4626.4328.2027.1929.5335.7337.9431.8933.5536.7535.9138.3940.7746.978.449.017.127.3910.7111.4511.8611.2411.8915.4016.5112.3812.7715.0914.3315.0616.2219.343.253.302.452.944.825.215.314.915.417.457.845.615.817.236.316.797.539.285.195.714.684.455.896.246.566.336.487.958.686.776.957.858.028.268.7010.0710.8912.2911.8612.8214.7514.9816.3415.9517.6420.3421.4319.5120.7821.6621.5823.3324.5527.620.69.93.88.841.111.211.251.281.311.641.691.431.361.301.291.401.271.340.911.371.421.181.581.501.42.931.021.371.58.861.021.16.821.021.261.660.17.10.12.10.14.24.24.24.26.35.41.37.78.66.73.52.401.021.131.17.761.091.331.231.291.221.301.311.301.061.331.301.231.651.581.501.542.543.103.243.563.744.343.994.034.525.675.525.145.245.004.904.985.491.401.741.341.141.371.611.781.822.112.823.192.792.723.243.393.854.064.615.054.424.245.225.675.456.026.457.638.327.607.488.448.759.139.9910.9912.02196519661967 .1968196919701971197219731974 354.4263.5165.4767.7675.5679.7181.2188.4499.74111.9223.4428.2028.5128.3731.6831.9529.9931.3538.0145.8011.5014.0614.0614.1215.9615.8014.1515.6419.2522.6711.9414.1414.4514.2515.7216.1515.8415.7218.7623.1330.9835.3236.9639.4043.8847.7651.2257.0961.7366.121.461.621.651.631.861.892.162.422.743.101.992.371.861.451.861.781.671.801.962.481.221.742.292.562.513.031.882.462.411.971.681.641.481.591.681.231.381.461.662.036.137.438.7410.2011.6113.1415.3017.0018.7120.605.306.026.346.838.3010.1010.7711.8912.8513.86«.13.1914.4814.5915.1416.0516.5918.0520.0721.4022.081975 3117.0949.9223.0826.8367.173.673.171.782.3421.4634 75Seasonally adjusted annual rate >1972: 1II....III...IV....1973: 1II....III...IV...86.7987.1287.6791.9496.1997.76100.90103. 7430.0930.3730.9833.6435.5136.5838.8140.6115.0614.7715.6716.8617.8818.6419.7320.4815.0215.6015.3116.7817.6317.9419.0820.1356.7056.7556.7058.3060.6861.1862.0963.122.422.382.402.462.592.772.822.762.101.881.501.712.111.751.952.051.962.892.672.332.212.722.492.201.481.531.411.421.531.621.791.7316.9216.6017.0117.5318.3818.0818.5819.8011.7111.5911.5612.6312.3412.7013.1213.2420.1019.8820.1620.2121.5321.5521.3621.351974: 1IL...III...107.27111.40113.9942.9645.3247.0421.4322.5023.0821.5322.8223.9664.3166.0866.942.803.073.272.102.422.682.132.211.841.631.842.1620.1220.9720.1613.8313.9414.0121.6921.6322.84!V3._114.4047.3323.4523.8867.063.242.791.702.3821.1135.831975: |3___II 3...118.06119.4750.6852.6224.0924.5026.5928.1267.3866.853.342.681.912.4221.6835.361 Excludes agricultural business; real estate operators; medical, legal, educational, and cultural service; and nonprofitorganizations. These figures do not agree precisely with the nonresidential fixed investment data in the gross nationalproduct estimates, mainly because those data include investment by farmers, professionals, institutions, and real estatefirms, and certain outlays charged to current account.2 Commercial and other includes trade, service, construction, finance, and insurance.3 Estimates based on expected capital expenditures reported by business in October-December 1974. Includes adjustmentswhen necessary for systematic tendencies in expectations data.Note.—Annual total is the sum of unadjusted expenditures; it does not necessarily coincide with the average of seasonallyadjusted figures.Source: Department of Commerce, Bureau of Economic Analysis.296

TABLE C-41.—Sales and inventories in manufacturing and trade, 1947-74[Amounts in millions of dollars]Year or monthTotal manufacturingand tradeManufacturingMerchant wholesalersRetail tradeSales iInventories2RatioSalestories 2RatioSalesInventories2Ratio 3Sales iInventories2Ratio 31947.1948.1949.35,26033,78852,50749,4971.421.5315,51317,31616,12625,89728,54326,3216,8086,5147,9577,7061.131.1910,20011,13511,14914, 24116,00715,4701950.1951.1952.1953.1954.38, 59643,35644,84047, 98746,44359,82270,24272,37776,12273,1751.361.551.581.581.6018,63421,71422, 52924, 84323,35531,07839,30641,13643,94841,6127,6958,5978,7829,0528,9939,2849,88610,21010,68610,6371.071.161.121.171.1812, 26813, 04613, 52914,09114, 09519,46021, 05021,03121,48820,9261955..1956..1957..1958..1959..1960..196141962..1963..1964..1965..1966..1967..1968..1969_.51,69454, 06355,87954, 23359,66179, 51687,30489,05286,92291,89160, 746 94, 74761,133 95,64865, 417 101, 09068,969 105,47773,687 111,48080,292 120,94387,186 136, 80389, 707 145, 49297,138 155, 845103,134 167,3601.471.551.591.601.501.561.541.511.491.471.451.471.571.551.5726,48027, 74028, 73627,28030, 21930, 79630,89633,11335, 03237,33541,00344,86946,44950,28253,55545.06950, 64251,87150.07052, 70753, 81454,93958, 21360, 04363,38668,22177,96584,65590,87597,0749,89310,51310, 47510,25711,49111,65611,98812,67413,38214, 52915,61116,98717,10818,36619,75611,67813, 26012, 73012,73913,87914,12014,48814, 93616,04817,00018,31720,76521,88522,99724,9101.131.191.231.241.151.221.201.161.151.141.151.151.231.221.2115,32115,81116,66716,69617,95118, 29418,24919,63020, 55621.82323,67725,33026,15128,49029.82422 f 76923,40224,45124,11325, 30526, 81326,22127, 94129, 38631, 09434, 40538,07338,95241,97345,3761970...1971...1972...1973...1974«..104,736 175, 561112,315 184,401124,244 197, 087143,742 224, 004.64,-' 344 267,8181.641.611.531.451.4852,859 101,64555,917 102,44562, 017 107,71971, 398 120,87082,078 147,13520, 583 27,29022,327 29, 69524,862 32,81730, 400 38,30237,394 45, 8471.261.271.241.161.1231,29434,07137, 36541,94344,87246, 62652,26156,55164, 83274,836Seasonally adjusted1973:Jan...Feb..Mar...Apr...May...June..July...Aug...Sept...Oct...Nov...Dec...1974:Jan...Feb...Mar...AprMay...June..July...Aug...Sept..Oct._.Nov V-Dec v_.135,848 198,939138,047 ""1,887 200',140,074 202,524140,022 203,912'141, 726 -1,228 206,141, 354 208, \ 770145.583 210, 1,773145.584 212, !,765145, 679 214, t, 645149,789 216, ,,889152,335 219, 1,867150,711 224, i,004154,064 226,918156;098 230,140'"" 239 233,120675 235,216924 239,217052 243,831168,824 248, 1,775171,644 253, 1,308170,862 258, t, 622171,647 264, t, 612.68,751 267, ,8181.461.461.451.461.461.481.451.461.471.451.441.491.471.471.461.461.471.501.471.481.511.541.5967,639 108, ^,18768,496 109,082169,166 no;: "1,17469,627 110,! 1,577703 70,376111,62570,639 113,02572,257 113,91072,290 114,90772,146 116,11474, 581 117,22476,178 118,43574; 617 120,87076,389 122,57076,978 124,83178,197 126, 50079,050 128,43881,117 130,93681,166 133,54184,019 136,73185,760 139,72785,937 142,97588"- 093 145,06286', 152 147,13580,009 150,0591.601.59.59L59L. 591.6058596157556260626262.61656363..66.6527, 50228,30928,92929,21029,62729, 54830, 55930,93931,00432, 23833,18133,97834,74335,98637,17037,34236,91337,29338,44938,82838,74837,75138,10933, 50333,89734,12834,47635,02935,33535,77036,23836, 58836,80937, 50938,30238,98639, 64040,42540,42341,20342,34743,17143,70444, 50045,64245, 8471.22.20.18.18.18.20.17:. 171.18.14L 131.13L. 10.09.08.121.141.121.131.151.211.2040,70741,24241,97941,18541, 72341,16742,76742,35542,52942,97042,97642,11642,93243,13443,87244,28344, 89444, 59346, 35647, 05646.17745,80344,49044,80857,24957,90858, 22258,85959,57460,41061,09361,62061,94362,85663,92364,83265,36265,66966,19566,35567,07867,94368,87369,87771,14773,90874,8361 Monthly average for year and total for month.3 Seasonally adjusted, end of period.3 Inventory/sales ratio. For annual periods, ratio of weighted average inventories to average monthly sales; for monthlydata, ratio of inventories at end ct month to sales for month.* Manufacturing data prior to 1961 not completely comparable with later data. See Department of Commerce. Bureauof the Census, "Series M3-1.1," September 1968.5 Based on seasonally adjusted data through November. (See Table C-42 for manufacturing data through December.Based on those data, manufacturing ratio for 1974 is 1.64.)Note.—The inventory figures in this table do not agree with the estimates of change in business inventories includedin the gross national product since these figures cover only manufacturing and trade rather than all business, and showinventories in terms of current book value without adjustment for revaluation.Source: Department of Commerce (Bureau of Economic Analysis and Bureau of the Census).297

TABLE G-42.—Manufacturers* shipments and inventories, 1947-74[Millions of dollars]Shipments *Inventories 8Year or monthTotalTotalTotalDurable goods industriesWorkinprocessDurablegoodsi nd ustriesNondurablegoodsindustriesMaterialsandsuppliesFinishedgoodsNondurable goods industriesTotalWorkinprocessMaterialsandsuppliesFinishedgoods1947-1948..1949..1950..1951..1952..1953..1954..1955..1956..1957.1958..1959.1960...1961»_1962...1963...1964...1965..1966..1967..1968.1969.1970—1971...1972...1973...1974 P..15,51317,31616,12618,63421,71422,52924,84323,35526,48027,74028,73627,28030,21930,79630,89633,11335,03237,33541,00344,86946, 44950,28253, 55552,85955,91762,01771, 39881,7596,6947,5797,1918,84510,49311,31313,34911,82814,07114,71515,23713,57115,54515,81715, 54417,10318,24719,63422, 21624,63325,21227,69429,45928, 22929,94833, 44338, 72442,6488,8199,7388,9359,78911,22111,21611,49411,52712,40913,02513,49913,70814,67414,97915,35216,01016,78617,70118,78820,23621, 23622, 58824,09625,89728,54326,32131,07839,30641,13643,94841,61245,06950,64251,87150,07052,70753,81454,93958,21360,04363,38668,22177,96584, 65590,87597, 07424,629 101,64525,969 102,44528, 573 107,71932,674 120, 87039,111 150,05913,06114,66213,06015,53920,99123,73125,87823,71026,40530,44731,72830,09531,83932,36032,50934,60535,81338,43642,22749, 81854,93159,11263, 37166,76866,05070,21879, 44197,6308,9667,8949,19410,41710,6089,84710, 58510,28610,24210,79811,00111,92713,29915, 50116, 44517,41818,66819,00019,27020, 01024, 42332,75810,7209,72110,75612,31712,83712,29412,95212,78013,21114,20514,99716,25318,15221,97825,01727,60529,17530, 39329,14232,0743G, 07841,7316,2066,0406,3487,5658,1257,7498,1439,1909,0569,6029,81510,25610,77612,33913, 46914, 08915,52817, 37517,63818,13418. 94023; 14112,83613,88113,26115,53918,31517,40518,07017,90218,66420,19520,14319,97520,86821,45422,43023,60824,23024,95025,99428,14729,72431,76333,70334,87736, 39537, 50141,42952,4298,3178,1678,5568,9718,7758,6719,0899,1139,4649,84110,00310,18510,48811,22011,74612, 29912, 82313,13013,57813, 86515,81820,6982,4722,4402,5712,7212,8642,8002,9282,9353,1933,3043,4103,5193,8234,2374,4344,8495,1525,2785,6475,9686,5978,2287,4097,4157,6668,6228,6248,4988,8579,3539,77310,46310,81711,24611,68312,69013, 54414, 61515,72816, 46917 f17017,66819,01423,503Seasonally adjusted1973:Jan....Feb....Mar....Apr....May....June...JulyAug—SeptOct....Nov....Dec.--.1974: Jan....Feb....Mar....AprMay...June...July...Aug...Sept...Oct....Nov p.Dec p..67,63968,49669,16669,62770,37670,63972, 25772,29072,14674, 58176,17874,61776, 38976,97878,19779,05081,11781,16637,01137, 37337,51137, 81038,37638, 28039, 78838,90239, 24840, 87941, 05539,46539, 99440,07340,63541,23242, 53842,78584,019 44,12285, 760 44,82585,937 45,01688,093 46,54886,152 44,75280, 009 40,77830,628 108,187 .31,123 109,08231,655 110,17431,817 110,57732,000 111,62532,359 113,02532,469 113,91033, 388 114,90732,898 116,11433,702 117,22435,123 118,43535,152 120, 87036, 395 122, 57036, 905 124, 83137, 562 126, 50037,818 128, 43838, 579 130, 93638,381 133, 54139,897 136, 73140, 935 139, 72740,921 142,97541,545 145,06241, 400 147,13539,231 150,05970,59071,13671,87372,21372,86773, 80174, 27875,21376, 24976,95177, 64579,44180, 54181, 92583,01484,10885,71587,36689,28691,00493,18494,68095, 78797,63020,25220,46320,65920,88721,19821,42421,72122,08022,62123,06423,44424,42324, 92325, 49426, 33526, 91327, 73928,47129,43930, 41631,10231,84632,16432,75832,28632, 55933,00533,11433,31833,73533,94434,46134,74235,08235, 51936, 07836, 28536, 94237, 26437, 72138,33538,87039, 34139, 91340, 48840, 84841,12141,73118,05218,11418,20918,21218,35118,64218,61318,67218, 88618,80518, 68218, 94019, 33319,48919,41519,47419,64120,02520, 50620, 67521,59421, 98622,50223,14137,59737,94638,30138, 36438,75839,22439,63239,69439, 86540,27340, 79041, 42942,02942, 90643, 48644,33045, 22146,17547, 44548, 72349, 79150,38251, 34852,42913,96514.19414,26114, 38314,51014, 85715.19515, 35815, 39515,61315, 70415,81816, 33516,75117, 06217, 53518, 04618, 50619,11119, 62320, 22620,27320, 35320,6985,9605,9996,0616,1106,1516,1706,1966,2706,3206,3476,4426,5976,5686,7546,7326,9227,0567,3077,5037,6817,7487,8237,9178,22817,67217, 75317,98017,87118,09718,19718, 24118,06618,15018,31318,64419,01419,12619, 40119, 69219,87320,11920,36220,83121,41921,81722, 28623,07823, 5031 Monthly average for year and total for month.2 Book value, seasonally adjusted, end of period, except as noted.3 Data prior to 1961 not completely comparable with later data. See Department of Commerce, Bureau of the Census,"Series M3-1.1," September 1968.Source: Department of Commerce, Bureau of the Census.298

TABLE C-43.—Manufacturers' new and unfilled orders, 1947-74{Amounts in millions of dollars]New orders tUnfilled orders 2Unfilled ordersshipmentsratio 3Year or monthTotalDurable goodsindustriesTotalTotalCapitalgoodsindustries,nondefenseNondurablegoodsindustriesDurablegoodsindustriesNondurablegoodsindustriesTotalDurablegoodsindustriesNondurablegoodsindustries1947194819491950195119521953195419551956195719581959I960196119621963196419651966.1967196819691970197119721973197415,25617,69315,61420,11023,90723,20423,58622,33527,46528,36827, 55926, 90330,67230,11531,08633,00535,32237,95241, 80345, 94446,76350, 24353, 64652,11855, 72662, 92273, 83683,3306,3888,1266,63310,16512,84112,06112,14710, 76814,99615, 36514,11113,17115, 94815, 22315,69917,02518,52120,25822,98625, 72025, 52627, 66629, 54927,48629, 74534, 27441,09844,2916,9717,6947,0557,3248,48710,31011,4658,8689,5668,9819,94511,06611,14311, 43911,56612, 46913, 00313,44813,73314, 72414,89315,38715,98016,80117,69418,81720, 22421, 23822, 57724,09724, 63225, 98128, 64832, 73839, 03834,47330,73624,04541,45667,26675,85761,17848,26660,00467,37553,18348,88254,49446,13348,39547,30750.94058, 50668,14681,02984,99484,14685,26576,27273, 92884, 948114,694133,79628,57926,61919,62235,43563, 39472,68058,63745,25056,24163,88050,35245,73950,65443,40145,24144,48547,95855,62364,92077,96481,90481, 20982,31373,28670, 79880,914109,862129,8255,8944,1174,4236,0213,8723,1772,5413,0163,7633,4952,8313,1433,8402,7323,1542,8222,9822,8833,2263,0653,0902,9372,9522,9863,1304,0344.8323,9713.423.633.873.352.602.852.582.522.462.402.492.622.932.812.712.592.412.172.192.642.974.124.274.554.003.493.443.213.012.952.892.993.123.513.383.273.132.922.622.613.143.590.961.121.04.85.55.63.72.65.63.57.60.56.52.47.45.45.44.52.57.45Seasonally adjusted1973: Jan.Feb.Mar.Apr.May.JuneJuly.Aug.SeptOct.Nov.Dec1974: Jan.Feb.Mar.Apr.May.JuneJuly.Aug.SeptOct..NovDec69,16470, 27472,18472, 59973, 60074, 29174, 28875, 40774, 02477, 02578, 60176, 29278,13979,12779, 54782,05985, 26485,17687, 51790, 39387,14786,36984,28276,93533,36639,01740, 39940,61541, 51441, 94641, 84041, 98341,15443, 30443, 47541,02741,51542, 26741, 97444,12446, 73046, 84847, 70949,46346, 40245,08443,18237,9469,5679,44910,0359,94510, 04410,56410,57110, 28310, 38910, 92811,16010, 94311,00311,41511,30011,92511, 80412,01112, 80011,80511,83211,38310,62310,10830, 79831,25731,78531, 98432,08632, 34532, 44833, 42432, 87033,72135,12635,26536, 62436, 86037, 57337,93538, 53438, 32839, 80840, 93040,74541, 28541,10038,98986, 47388, 25191, 26994, 23997,460101,120103,145106, 268108,144110, 586113,015114,694116,445118,599119,955122, 961127,114131,129134,623139, 256140,467138, 738136,869133,79682,26983, 91386, 80189, 60492, 74096, 41298, 459101,545103, 450105, 874108, 297109,862111,384113,584114,927117,817122,016126,082129,667134,305135,695134,224132,656129,8254,2044,3384,4684,6354,7204,7084,6864,7234,6944,7124,7184,8325,0615,0155,0285,1445,0985,0474,9564,9514,7724,5144,2133,9712.192.202.252.302.342.432.442.532.572.532.552.642.632.642.642.682.692.762.812.872.872.762.812.972.592.612.672.732.792.892.893.013.063.003.043.143.133.163.153.213.223.303.383.443.453.303.383.590.53.54.55.57.57.57.57.57.60.56.54.57.57.56.57.56.54.54.52.52.50.47.44.451 Monthly average for year and total for month.3 Seasonally adjusted, end of period.3 Ratio of unfilled orders at end of period to shipments for period; excludes industries with no unfilled orders. Annualfigures relate to seasonally adjusted data for December, except as noted.* Data prior to 1961 not completely comparable with later data. Comparable data for new orders (total, durable, andnondurable) are available for 1958, 1959, and 1960 only. See Department of Commerce, Bureau of the Census, "SeriesM3-1.1," September 1968, for these data.Source: Department of Commerce, Bureau of the Census.299

PRICESTABLE C—44.—Consumer price indexes by expenditure classes, 1929—74For urban wage earners and clerical workers11967=1001Year or month1929193319391940 . . .194119421943194419451946194719481949195019511952195319541955195619571958 ....1959I96019611962196319641965196619671968196919701971 .19721973 . ..19741973- JanFeb... .MarAprMayJuneJulyAugSeptOctNovDec1974: Jan.FebMarAprMayJuneJulyAug .SeptOctNovDecAllitems51.338.841.642.044.148.851.852.753.958.566.972.171.472.177.879.580.180.580.281.484 386.687.388.789.690.691.792.994.597.2100.0104.2109.8116.3121 3125.3133.1147.7127 7128.6129.8130.7131.5132.4132 7135.1135.5136 6137.6138.5139.7141.5143.1143.9145.5146.9148.0149.9151.7153.0154.3155.4Food48.330.634.635.238.445.150.349.650.758.170.676.673,574 582.884.383.082.881.682.284 988.587.188.089. i89.991.292.494.499.1100.0103.6108.9114.9118.4123.5141.4161.7128 6131.1134 5136.5137.9139.8140 9149.4148.3148.4150.0151.3153.7157.6159.1158.6159.7160.3160.5162.8165.0166.1167.8169.7HousingTotal52.252.453.756.256.858.159.160.665.269.870.972.877.278.780.881.782.383.686.287.788.690.290.991.792.793.894.997.2100.0104.2110.8118.9124.3129.2135.0150.6131.5132.0132.4132.8133.3133.9134.2135.2136.6138.1139.4140.6142.2143.4144.9146.0147.6149.2150.9152.8154.9156.7158.3159.9Rent76.054.156.056.257.258.558.558.658.859.261.165.168.070.473.276.280.383.284.385.987 589.190.491.792.994.095.095.996.998.2100.0102.4105.7110.1115.2119.2124.3130.2121 8122.3122 8123.2123.7124.0124 4125.0125.4125.9126.3126.9127.3128.0128.4128.8129.3129.8130.3130.9131.4132.2132.8133.5Apparelandupkeep48.536.942.442.844.852.354.658.561.567.578.283.380.179.086.185.384.684.584.185.887.387.588.289.690.490.991.992.793.796.1100.0105.4111.5116.1119.8122.3126.8136.2123 0123.6124 8125.8126.7126.8125.8126.5128.3129.6130.5130.5128.8130.4132.2133.6135.0135.7135.3138.1139.9141.1142.4141.9Transportation43.042.744.248.147.947.947.850.355.561.866.468.272.577.379.578.377.478.883 386.089.689.690.692.593.094.395.997.2100.0103.2107.2112.7118.6119.9123.8137.7121 0121.1121 5122.6123.5124 6124 8124.5123.9125 0125.8126.7128.1129.3132.0133.7136.3138 8140.6141.3142.2142.9143.4143.5Medicalcare36.736.837.038.039.941.142.144.448.151.152.753.756.359.361.463.464.867.269 973.276.479.181.483.585.687.389.593.4100.0106.1113.4120.6128.4132.5137.7150.5134 9135.3135.8136.2136.6137.0137.3137.6138.3140.6140.9141.4142.2143.4144.8145.6147.2149.4151.4153.7155.2156.3157.5159.0Personalcare40.340.241.245.249.953.455.159.066.068.568.368.374.775.676.376.677.981.184 186.988.790.190.692.293.494.595.297.1100.0104.2109.3113.2116.8119.8125.2137.3121 8122.4123 1123.8124.4124.9125 3125.7126.3127.3128.1129.2129.8130.8131.8133.1134.9136.5137.8139.3141.2143.0144.2145.3Readingandrecreation45.346. T47.750.054.160.062.464.568.772.274.974.476.676.977.776.976.777.880.783.985.387.389.391.392.895.095.997.5100.0104.7108.7113.4119.3122.8125.9133.8124.1124.3124.5125.2125.6125.9126.2126.1126.8127.2127.5127.6128.3128.9129.5130.4132.0133.5134.6135.2137.0137.8138.8139.8Othergoodsandservices46.948.349.250.753.354.756.958.863.866.868.769.972.876.678.579.879.881.083 384.486.187.888.589.190.692.094.297.2100.0104.6109.1116.0120.9125.5129.0137.2126.7127.1127.6128.2128.5129.0129.5129.4129.9130.3130.8131.3131.8132.3132.8133.6134.4135.8137.7139.4140.4141.4142.7143.9Source: Department of Labor, Bureau of Labor Statistics.300

TABLE O-45.—Consumer price indexes by commodity and service groups, 1939-74For urban wage earners and clerical workers[1967=1001Year ormonth1939194019411942 .194319441945194619471948194919501951195219531954 . .195519561957 . .19581959196019611962196319641965196619671968196919701971 . .1972197319741973: JanFebMarAprMayJuneJulyAugSeptOctNovDec1974: JanFebMarApr.....MayJuneJulyAugSepOctNovDec...Allitems41.642.044.148.851.852.753.958.566.972.171.472.177.879.580.180.580.281.484.386.687.388.789.690.691.792.994.597.2100.0104.2109.8116.3121.3125.3133.1147.7127.7128.6129.8130.7131.5132.4132.7135.1135.5136.6137.6138.5139.7141.5143.1143.9145.5146.9148.0149.9151.7153.0154.3155.4CommoditiesAllcommodities40.240.643.349.654.054.756.362.475.080.478.378.885.987.086.785.985 185.988.690.690.791.592.092.893.694.695.798.2100.0103.7108.4113.5117.4120.9129.9145.5123.4124.5126.1127.4128.3129.4129.7132.8132.8133.5134.7135.7137.0139.3141.0141.8143.4144.8145.6147.6149.4150.7152.0153.0Food34.635.238.445.150.349.650.758.170.676.673.574.582.884.383.082.881.682.284.988.587.188.089.189.991.292.494.499.1100.0103.6108.9114.9118.4123.5141.4161.7128.6131.1134.5136.5137.9139.8140.9149.4148.3148.4150.0151.3153.7157.6159.1158.6159.7160.3160.5162.8165.0166.1167.8169.7Commodities less foodAll47.748.050.456.058.461.664.168.176.882.781.581.487.588.388.587.586 987.890.591.592.793.193.494.194.895.696.297.5100.0103.7108.1112.5116.8119.4123.5136.6120.5120.9121.5122.3123.0123.7123.5123.8124.3125.4126.3127.1127.9129.2131.1132.6134.5136.2137.5139.3140.9142.2143.3143.9Durable48.548.151.458.460.365.970.974.180.386.287.488.495.196.495.793.391 591.594.495 997.396 796.697.697 998.898.498.5100.0103.1107.0111.8116.5118.9121.9130.6119.9119.9120.2121.0121.8122.3122.4122.6122.6123.2123.3123.2123.3123.4124.3125.6127.5129.7131.5133.2134.8136.8138.0138.8Nondurable44.344.746.751.653.856.658.662.972.277.876.376.282.082.483.183.583.585.387.688.289.390.791.291.892.793.594.897.0100.0104.1108.8113.1117.0119.8124.8140.9120.9121.6122.4123.3124.0124.7124.4124.7125.5127.0128.5130.0131.3133.5136.1137.7139.5141.0141.8143.7145.3146.1147.2147.7ServicesAllervices43.543.644.245.646.447.548.249.151.154.356.958.761.864.567.369.570 972.775.678.580.883.585.286.888.590.292.295.8100.0105.2112.5121.6128.4133.3139.1152.0135.7136.2136.6137.1137.6138.1138.4139.3140.6142.2143.0143.8144.8145.8147.0147.9149.4150.9152.5154.2155.9157.3158.6160.0Rent56.056.257.258.558.558.658.859.261.165.168.070.473.276.280.383.284 385.987.589.190.491.792.994.095.095.996.998.2100.0102.4105.7110.1115.2119.2124.3130.2121.8122.3122.8123.2123.7124.0124.4125.0125.4125.9126.3126.9127.3128.0128.4128.8129.3129.8130.3130.9131.4132.2132.8133.5Serviceslessrent38.138.138.640.342.144.245.146.749.051.954.556.059.362.264.866.768 270.173.376 479.081.983.985.587.389.291.595.3100.0105.7113.8123.7130.8135.9141.8156.0138.3138.7139.2139.6140.1140.7141.0141.9143.4145.2146.1146.9148.0149.1150.4151.4153.1154.7156.6158.4160.3161.9163.3164.8Special indexesAllitemslessfood47.247.348.752.153.655.756.959.464.969.670.371.175.777.579.079.579.781.183.885.787.388.889.790.892.093.294.596.7100.0104.4110.1116.7122.1125.8130.7143.6127.5127.9128.4129.1129.7130.3130.4130.9131.8133.1134.0134.8135.6136.8138.4139.6141.3142.9144.4146.1147.8149.1150.4151.3Allitemslessshelter39.739.942.447.751.352.253.659.068.573.972.673.179.280.881.081.080 681.784.486.987.688.989.990.992.193.294.697.4100.0104.1109.0114.4119.3122.9131.1146.1125.3126.4127.8128.9129.7130.6131.0133.5133.6134.5135.6136.5137.8139.8141.5142.3144.0145.4146.4148.3150.0151.2152.5153.5Nondurablecommodities38.438.941.647.651.852.253.759.671.977.274.975.482.583.483.283.282.583.786.388.688.289.490.290.992.093.094.698.1100.0103.9108.9114.0117.7121.7132.8151.0124.7126.2128.3129.7130.7132.0132.4136.6136.5137.4138.9140.3142.1145.2147.2147.8149.3150.4150.9153.0154.8155.8157.2158.3Source: Department of Labor, Bureau of Labor Statistics.301563-280 O - 75 - 20

TABLE C-46.—Consumer price indexes, selected commodities and services, 1939-74For urban wage earners and clerical workers[1967=100]Durable commoditiesNondurable commoditiesless foodServices less rentYear or monthTotal iNewcarsUsedcarsHouseholddurablesTotalApparelcommoditiesNondurableslessfoodandapparelTotalHouseholdserviceslessrentTransportationservicesMedicalcareservicesOther *193948.543.256.644.343.046.338.136.132.51940194119421943 .19441945194619471948194948.151.458.460.365.970.974.180 386 287.443.346.669.275.682.855.959.866.969.576.081.886.595.6101.799.044.746.751.653.856.658.662.972 277 876.343.545.853.555.959.863.069.580 485 482.046.848.451.153.254.755.858.266 272 372 438.138.640.342.144.245.146.749.051.954.536.136.338.238.238.238.239.040 344.950.032.532.733.735.436.937.940.143 546.448.11950195119521953195419551956 .19571958195919601961 .19621963.19641965 . .1966 .196719681969197019711972.. .19731974 . ,1973: JanFebMarAprMayJuneJulyAugSeptOctNovDec1974: JanFebMarAprMayJuneJulyAugSeptOctNovDec88.495.196.495.793.391.591.594.495.997.396.796.697.697.998.898.498.5100.0103.1107.0111.8116.5118.9121.9130.6119.9119.9120.2121.0121.8122.3122.4122.6122.6123.2123.3123.2123.3123.4124.3125.6127.5129.7131.5133.2134.8136.8138.0138.883.487.494.995.894.390.993.598.4101.5105.9104.5104.5104.1103.5103.2100.999.1100.0102.8104.4107.6112.0111.0111.1117.5111.1111.0110.8111.1111.1111.0110.9110.6109.1111.9112.2112.0112.9112.7112.8113.3114.6116.4118.0118.1118.4123.7124.5124.989.275.971.869.177.480.289.583.686.994.896.0100.199.497.0100.0( s )103.1104.3110.2110.5117.6122.6112.8112.4113.7117.3120.6122.3122.7121.3120.3118.5116.1112.6107.0103.0102.2107.0114.4122.2127.9132.0135.9139.4141.6138.4100.2109.8106.9105.7102.9100.199.7101.4102.1102.0101.9100.7100.6100.3100.298.798.6100.0103.3107.4110.2112.9115.0118.8128.9116.1116.3116.9117.7118.5119.2119.4119.6120.1120.4120.8121.0121.8122.5123.7125.1126.5128.2129.5131.5133.0134.1135.4136.076.282.082.483.183.583 585.387.688.289.390.791.291.892.793.594.897.0100.0104.1108.8113.1117.0119.8124.8140.9120.9121.6122.4123.3124.0124.7124.4124.7125.5127 0128.5130.0131.3133.5136.1137.7139.5141.0141.8143.7145.3146.1147.2147.781.188.787.786.786.385 887.388.288.289.090.390.891.292.092.893.696.0100.0105.6111.9116.5120.1122.7127.1136.1123.1123.8125.2126.2127.2127.2126.0126.6128.7130 0130.8130.7128.6130.3132.1133.6135.0135.6135.0138.0139.8141.0142.3141.672.977.579 081.081.882 184.187.488.389.690.991.392.193.193.995.597.5100.0103.3107.0111.2115.2118.2123.4143 8119.7120.4120.8121.7122.2123.3123.5123.6123.8125 3127.3129.6132.9135.5138.5140.1142.2144.3145.9147.2148.6149.2150.2151.356.059.362.264.866.768.270.173.376.479.081.983.985.587.389.291.595.3100.0105.7113.8123.7130.8135.9141.8156.0138.3138.7139.2139.6140.1140.7141.0141.9143.4145.2146.1146.9143.0149.1150.4151.4153.1154.7156.6158.4160.3161.9163.3164.871.275.479.481.685.086.087.189.090.492.195.7100.0105.9115.3126.8132.6139.2146.8166.0142.3142.8143.2143.6144.2144.9145.3146.8149.3151.7153.2154.3155.8157.1158.8160.1162.1164.0166.5169.0171.5173.8175.7177.553.358.362.466.469.269.470.573.878.581.283.385.386.687.589.692.996.8100.0104.0111.3123.1133.0136.0136.9141.9136.0136.1136.3136.5136.6137.0137.0137.1137.2137.4137.4138.1138.8139.1139.6140.1140.5141.5142.3142.7143.4144.0144.9146.049.251.755.057.058,760.462.865.568.772.074.977.780.282.684.687.392.0100.0107.3116.0124.2133.3138.2144.3159.1141.0141.5142.2142.7143.1143.6143.9144.3145.1147.8148.2148.7149.7151.1152.7153.6155.4158,0160.2162.8164.5165.6167.0168.571.173.976.278.080.883.485.687.790.192.696.2100.0105.6110.6116.7122.5125.8131.6141.7128.1128.6129.2129.9130.6131.3131.7132.1133. 3134.0134.8135.3135.9136.8137.6138.4140.2141.1142.1143.0144.7145.5146.7147.71 Includes certain items not shown separately.2 Includes the services components of apparel, personal care, reading and recreation, and other goods and services,s Not available.Source: Department of Labor, Bureau of Labor Statistics.302

TABLE C—47.—Consumer price indexes, seasonally adjusted, 1971—74For urban wage earners and clerical workers[1967=100, seasonally adjusted!Special indexesYear and month!AllitemslessfoodAllitemslessshelterAllitemslessmedicalCommodity groupsAllcommoditiesFoodCommodities lessfoodTotalDurableNondurableSelected expenditure classesShelterFuelandutilitiesApparelandupkeepTransportationMedical1971: Jan.Feb.Mar.Apr.May.JuneJuly.Aug.Sept.Oct..Nov.Dec.1972: Jan..Feb.Mar.Apr.May.June.July.Aug.Sept.Oct..Nov.Dec.1973: Jan..Feb.Mar.Apr..May.June.July.Aug.Sept.Oct..Nov.Dec.1974: Jan..Feb..Mar.Apr.May.JuneJuly.Aug.Sept.Oct..Nov.Dec120.4120.6120.7120.9121.6122.1122.5122.9123.2123.3123.5123.7124.1124.4124.6124.9125.3125.6126.0126.4126. 7126.8127.1127.3127.6128.2128.5129.1129.6130.2130.5131.2131.9132.8133.7134.5135.7137.138.5139.6141.2142.8144.5146.4147.9148.8150.1151.0117.2117.6118.0118.5119.1119.6119.9120.2120.2120.3120.5121.0121.3121.7121.8121.9122.3122.5123.0123.2123.8124.2124.7124.9125.7126.5127.8128.8129.4130.3130.9133.5133.6134.5135.7136.6138.2139.9141.5142.2143.7145.1146.3148.3150.0151.2152.7153.7119.1119.3119.5119.8120.4121.0121.3121.5121.7122.0122.2122.7123.0123.6123.7123.9124.2124.5125.0125.2125.9126.2126.6126.9127.6128.3129.6130.5131.2132.1132.2134.9135.4136.4137.5138.4140.0141.6143.2143.9145.3146.7147.6149.6151.5152.8154.2155.3115.7115.8116.2116.6117.1117.7117.9118.1118.1118.4118.5118.9119.2119.8119.8119.9120.2120.5121.0121.3122.0122.3122.7122.9123.9124.9126.2127.4128.2129.1129.3132.7132.7133.5134.7135.7137.6139.7141.1141.8143.3144.5145.2147.5149.3150.7152.0153.0116.0116.1116.9117.7118.2118.8119.0119.2118.9119.4120.0120.120.122.4122.3122.2122.3122.6123.2123.7124.6125.5126.4126.5129.2131.4134.2136.1137.8139.5139.9148.4148.0149.1151.2151.9154.5157.9158.8158.1159.5160.0159.4161.7164.7166.9169.2170.4115.5115.5115.7115.9116.5116.7117.1117.3117.5117.6117.6117.7118.1118.3118.6118.6119.0119.0119.5119.9120.4120.4120.5120.7120.9121.4121.9122.4122.8123.3123.6124.0124.4125.0125.9126.7128.3129.7131.5132.7134.2135.8137.6139.6141.0141.8142.9143.5115.3115.5115.8115.9116.5116.9117.1116.9116.8116.9116.9117.1117.4117.7117.9118.1118.3118.6119.2119.6120.2119.9119.9120.2120.1120.5120.8121.4121.7121.7121.9122.5122.8123.0122.9123.1123.5124.0124.9126.0127.4129.1131.0133.1135.1136.5137.6138.7115.8115.7115.8116.0116.5116.8117.1117.8118.0118.2118.1118.4118.6118.8119.1119.1119.6119.4119.8120.0120.4120.8121.1121.3121.4122.0122.6123.3123.8124.6124.9125.3125.1126.5127.9129.5131.8133.9136.4137.7139.2140.9142.4144.4144.9145.5146.5147.1128.0127.4126.8126.6127.6128.6128.8129.4129.9130.3131.0131.3132.4132.7132.9133.2133.9134.4135.1135.5135.6135.7135.9136.5136.9137.5137.8138.4139.1139.7139.8141.1142.8144.4145.2146.0147.3148.4149.5150.5151.8153.1154.6156.1157.9159.6160.7162.5112.0112.8113.3113.8114.3114.8115.7116.1116.3116.6116.5117.6118.3118.6118.8119.1119.6120.0120.2120.3120.9121.2121.7121.9122.7123.6124.0124.6125.1125.9126.0126.6127.3129.2132.2136.0140.7142.9144.2146.3148.3149.7151.2152.9154.6156.0157.3158.6118.4118.8118.8119.1119.7120.0120.3120.2120.4120.6120.7120.8121.2121.4121.5121.8122.0122.0122.1122.0122.9123.3123.6124.0124.0124.3125.1125.8126.2126.7126.9127.9128.0128.6129.1129.5129.8131.2132.5133.6134.5135.6136.5139.6139.6140.0140.9140.8117.3117.9118.2118.2118.6119.0119.0119.3119.6119.2118.7118.4118.7118.7118.9118.7119.1119.2119.7120.5122.0121.1121.4121.2120.8121.5122.0122.7123.1124.0124.3124.4124.9125.0125.8126.6127.8129.7132.5133.8135.9138.1140.0141.2143.3142.9143.4143.4125.2125.9126.7127.2128.0128.5129.2129.9130.3129.9130.0130.4130.8131.1131.3131.4131.9132.3132.6132.8133.0134.2134.4134.7135.2135.4135.7135.9136.5136.9137.2137.5138.3140.9141.2141. 7142.5143.5144.7145.3147.1149.3151.2153.5155.2156.6157.8159.3Source: Department of Labor, Bureau of Labor Statistics.303

TABLE C-48.—Percent changes in consumer price indexes, major groups, 1948-74[Percent change]Year or monthAll itemsFoodCommodities lessfoodServices^Dec.toDec. 2YeartoyearDec.toDec. 2YeartoyearDec.toDec. 2YeartoyearDec.toDec.Yeartoyear19481949195019511952195319542.7-1.85.85.9.9.67.8-1.01.07.92.2.8.5-0.8-3.79.67.4-1.1-1.3-1.68.5-4.01.411.11.8-1.5-.25.3-4.8-5.74.6-.5-1.47.7-1.5-.17.5.9.2-1.16.13.63.65.24.64.21.96.34.83.25.34.44.33.319551956195719581959.42.93.01.81.5-.41.53.62.7.8-.93.12.82.2-.8-1.43.34.2-1.6.02.52.2.81.5-.71.03.11.11.32.33.14.52.73.72.02.54.03.82.9196019611962196319641.5.71.21.61.21.61.01.11.21.33.1-.91.51.91.41.01.3.91.41.3-.3.61.2.4.4.3.7.82.71.91.72.31.83.32.01.92.01.9196519661967196819691.93.43.04.76.11.72.92.94.25.43.43.91.24.37.22.25.0.93.65.1.71.93.13.74.5.61.42.63.74.22.64.94.06.17.42.23.94.45.26.9197019711972197319745.53.43.48.812.25.94.33.36.211.02.24.34.720.112.25.53.04.314.514.44.82.32.55.013.24.13.82.23.410.68.24.13.66.211.38.15.63.84.49.3Change from preceding month1973: JanFeb ...MarAprMay..JuneJulyAugSeptOctNovDec1974: Jan . .FebMarAprMayJuneJulyAugSept....OctNov. .DecUnadjusted0.3.7.9.7.6.21.8.3.8'.7.91.31.1,61.11.0.71.31.2.9.8SeasonallyadjustedUnadjusted0.5 2.1.6 1.9.9 2.6.6 1.5.6 1.0.6 1.4.2 .81.9 6.0.4 -.7.8 .11.1.91.61.2 2.51.1 1.0-.3.5'A.9.7 .11.3 1.41.3 1.4.9 .7.9 1.0.7 1.1ooco —SeasonallyadjustedUnadjusted-0.5.3.5.7.fi.9.7.6.61.01.51.11.41.31.01.31.1.9.8.72.11.72.11.41.21.2.36.1-.3.71.4.51.72.2.6-.4.9.3-.41.41.91.31.4Seasonally Unadjustedadjusted0.2 0.2.4 .4.4 .3.4 .4.3 .4.4 .4.2 .2.3.3.5 1.1.6.61.3 .71.1 .71.4 .8.9 .61.1 1.01.2 1.01.3 1.11.5 LI1.0 1.1.6 .9.8 .8.4 .4 .9CD CMCM«

TABLE C-49.—Wholesale price indexes by major commodity groups, 1929-74[1967 = 100]Year or monthAll commoditiesFarm products and processedfoods and feedsTotalFarmproductsProcessedfoodsandfeedsIndustrial commoditiesTotalTextileproductsandapparelHides,skins,leather,andrelatedproductsFuelsandrelatedproducts,andpower *Chemicalsand alliedproducts 11929..1933..19391940....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 _.1967..1968..1969..1970..1971..1972..1973..1974..1973: Jan...Feb...Mar..Apr...May..June..July..Aug..Sept..Oct...Nov..Dec...1974: Jan...Feb...Mar..Apr...May..June..July..Aug..SepL.Oct...Nov..Dec.49.134.039.840.564.131.445.150.953.353.654.640.041.450.364.62.376.582.878.781.891.188.687.487.687.890.793.394.694.894.994.594.894.594.796.699.8100.0102.5106.5110.4113.9119.1134.7160.1124.5126.9129.8130.5133.2136.0134.3142.1139.7138.7139.2141.8146.6149.5151.4152.7155.0155.7161.7167.4167.2170.2171.9171.594.3101.589.693.9106.9102.796.095.791.290.693.798.193.593.793.794.793.893.297.1103.5100.0102.4108.0111.7113.8122.4159.1177.4137.0142.4149.0147.9154.9163.6156.9184.5173.5166.8164.4168.0177.8180.6176.2169.6167.4161.7172.7183.4179.1185.1189.0186.575.075.578.590.9109.4117.5101.6106.7124.2117.2106.2104.798.296.999.5103.997.597.296.398.096.094.698.7105.9100.0102.5109.1111.0112.9125.0176.3187.7144.2150.9160.9160.6170.4182.3173.3213.3200.4188.4184.0187.2202.6205.6197.0186.2180.8168.6180.8189.2182.7187.5187.8183.782.988.780.683.492.791.687.488.985.084.987.491,889.489.591.091.992.592.395.5101.2100.0102.2107.3112.1114.3120.8148.1170.9132.4137.0141.4139.8145.0151.8146.5166.2156.3153.1151.9155.7162.1164.7163.0159.1158.9157.4167.6179.7176.8183.5189.7188.248.637.843.344.047.350.751.552.353.058.070.876.975.378.086.184.184.885.086.990.893.393.695.395.394.894.894.795.296.498.5100.0102.5106.0110.0114.0117.9125.9153.8120.0121.3122.8124.2125.3126.0126.1126.7127.4128.5130.1132.2135.3138.2142.4146.6150.5153.6157.8161.6162.9164.8165.8166.1103.6108.198.9102.7114.6103.4100.898.698.798.798.897.098.499.597.798.698.599.299.8100.1100.0103.7106.0107.1108.6113.6123.8139.1116.6117.4119.0120.8122.3123.7124.2125.2126.8128.5130.0131.4133.8135.2136.1137.5139.1141.7142.1142.3142.1140.5139.8138.448.936.342.845.248.452.852.752.252.961.183.384.279.986.399.180.181.372.677.381.982.082.994.290.891.792.790.090.394.3103.4100.0103.2108.9110.3114.0131.3143.1145.1143.9144.9143.5145.0142.2140.9141.4143.0143.8143.8143.0141.9142.6143.4143.4145.4146.3146.0146.6146.2148.1145.2144.5143.259.447.652.351.454.656.257.859.560.164.476.990.586.287.190.390.192.691.391.294.099.195.395.396.197.296.796.393.795.597.8100.098.9100.9106.2114.2118.6134.3208.3122.2126.0127.4129.2131.1133.4134.7135.2137.4139.3144.1151.5162.5177.4189.0197.9204.3210.5221.7226.0225.0228.5227.4229.047.451.552.457.063.364.164.865.270.593.795.987.688.9101.796.597.798.998.599.1101.2102.0101.6101.8100.799.197.998.399.099.4100.099.899.9102.2104.2104.2110.0146.8105.1105.6106.7107.7109.3110.4110.8111.0111.5112.7113.5115.6118.2120.2127.3132.3137.0142.8148.4158.5161.7168.5172.9174.0See next page for continuation of table and for footnotes.305

TABLE C-49.— Wholesale price indexes by major commodity groups, 1929-74—Continued11967=1001Industrial commodities—ContinuedYear or monthRubberandplasticproductsLumberandwoodproductsPulp,paper,andalliedproductsMetalsandmetalproductsMachineryandequipmentFurnitureandhouseholddurablesNonmetallicmineralproductsTransportationequipment:Motorvehiclesandequipment2Miscellaneousproducts1929..1933..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..1966.1967.1968..1969..197019711972197319741973: Jan...Feb...Mar...Apr...May_.June..July..Aug...IT;.Nov...Dec...1974: Jan...Feb...Mar..Apr...May..June..July..Aug..Sept..Oct...Nov..Dec.59.440.261.257.161.571.673.672.770.570.870.572.870.585.9105.495.589.190.4102.4103.8103.4103.3102.9103.199.296.396.895.595.997.8100.0103.4105.3108.3109.2109.3112.4136.2110.0110.1110.3110.6111.5112.6112.9113.1112.8114.0114.8116.5117.7119.8123.8129.4133.7135.6139.5143.4145.6147.5148.5149.425.019.024.827.432.735.637.740.641.247.273.484.077.789.397.294.494.392.697.198.593.592.498.895.391.091.693.595.495.9100.2100.0113.3125.3113.6127.0144.3177.2183.6151.0161.0173.2182.0186.9183.1177.8178.8181.9180.3184.7186.1183.7184.1191.3200.2198.0192.2188.6183.7180.4169.4165.8165.440.272.575.772.474.388.085.785.585.587.893.695.496.497.398.195.296.395.695.496.298.8100.0101.1104.0108.2110.1113.4122.1151.7115.8116.5118.3119.8120.7122.0122.3123.3124.4125.8127.6128.7131.8132.9137.2144.4146.6147.5153.3162.9164.2166.0166.9167.230.737.637.838.539.139.039.039.644.354.962.563.066.373.873.976.376.982.189.291.090.492.392.491.991.291.393.896.498.8100.0102.6108.5116.6119.0123.5132.8171.9125.6126.9129.2130.5131.7132.5132.8133.7134.4135.9138.5141.8145.0148.0154.7161.2168.7174.0180.3185.6187.1186.9186.7184.641.341.442.142.842.442.142.246.453.758.261.063.170.570.672.273.475.781.887.689.491.392.091.992.092.292.893.996.8100.0103.2106.5111.4115.5117.9121.7139.4118.9119.4120.0120.8121.5121.9122.0122.3122.6123.1123.8124.6126.0127.0129.0130.8134.1137.2140.3144.3146.8150.0152.7154.055.844.652.653.857.261.861.463.163.267.177.081.682.984.791.890.191.992.993.395.898.399.199.399.098.497.797.097.496.998.0100.0102.8104.9107.5109.9111.4115.2127.9112.6113.1113.5114.1115.1115.2115.2115.9116.0116.6117.2117.5119.0120.2121.3122.9124.5126.1128.2129.8132.8135.5136.9137.751.247.249.149.150.252.352.453.555.759.366.371.673.575.480.180.183.385.187.591.394.895.897.097.297.697.697.197.397.598.4100.0103.7107.7112.9122.4126.1130.2153.2128.2128.4129.0130.0130.5131.1130.0130.0129.9130.9131.5132.6138.7142.1144.2146.7150.7152.3156.4157.6159.8162.2163.4164.341.934.839.140.443.247.247.247.548.356.064.170.875.775.379.484.083.683.886.391.295.198.1100.398.698.697.898.398.598.6100.0102.8104.8108.7114.7118.0119.2129.2118.2118.2118.6119.0119.1118.9119.0119.0118.3120.0120.1121.4122.9123.1123.2123.3124.9126.1128.5130.1130.6138.1138.9140.71 Prices for most items in this grouping are lagged and refer to 1 or 2 months earlier than the index month.2 Index for total transportation equipment is not shown but is available beginning December 1968.Source: Department of Labor, Bureau of Labor Statistics.306

TABLE C-50.—Wholesale price indexes by stage of processing, 1947-74(1967=100]Year or monthAllcommoditiesCrude materialsTotal101.2110.996.0104.6120.1110.3101.9101.097.197.699.8102.099.497.096.597.595.494.599.3105.7100.0101.6108.4112.2115.0127.6174.0196.1143.3151.3159.0158.8167.7177.5170.9207.5197.1185.7182.7186.4201.3205.6200.6192.9186.5178.5194.5203.5196.8200.3198.2193.9Foodstuffsandfeedstuffs111.7120.8100.3107.6124.5117.2104.9104.995.193.197.2103.096.295.193.895.792.990.897.1105.9100.0101.3109.1112.1114.2127.5180.0189.4146.4156.0166.2164.2173.7185.4177.7226.2205.2189.2184.2185.3203.2207.2197.6182.6176.6164.6184.9196.5187.4192.9190.9187.8Nonfoodmaterialsexceptfuel90.6100.791.6104.7120.7104.6100.198.2103.8107.6106.2102.2105.8101.4102.5102.0100.7102.4104.5106.7100.0102.1106.8109.8110.5121.9161.5205.2132.1138.1141.4144.6154.2161.8155.9172.7184.7180.8180.8190.5201.4206.8210.4214.1203.7202.3210.0213.1206.1205.4200.7188.8FuelIntermediate materials, supplies, and components iTotalMaterials and components formanufacturingTotalMaterialsForfoodmanufacturingFornonurablemanufacturingFordurablemanufacturingCom-DonentsMaterialsandcomponentsfor construction1947..1948..1949__1950..1951..1952..1953..1954..1955..1956..1957..1958..1959..I960..1961..1962..1963..1964..1965..1966..1967..1968..1969..1970..1971..1972..1973..1974..1973:Jan...Feb...Mar-Apr...May...June..July..Aug...Sept..Oct__.Nov...Dec...1974:Jan...Feb...Mar...Apr...May...June..July—Aug...Sept..Oct...NovDec...76.582.878.781.891.188.687.487.687.890.793.394.694.894.994.594.894.594.796.699.8100.0102.5106.5110.4113.9119.1134.7160.1124.5126.9129.8130.5133.2136.0134.3142.1139.7138.7139.2141.8146.6149.5151.4152.7155.0155.7161.7167.4167.2170.2171.9171.566.678.778.377.979.479.982.779.078.884.489.290.391.992.892.692.193.292.893.596.3100.0102.3106.4122.3138.5148.7164.5219.4155.5156.3156.9160.4161.6162.6163.0164.4169.2169.9175.0179.5182.4186.3190.3205.4207.4213.6222.0228.4236.8244.3251.9263.772.478.375.278.688.185.586.086.588.192.094.194.395.695.695.094.995.295.596.899.2100.0102.3105.9109.8114.0118.7131.6162.9123.1125.1127.4128.4131.3134.0131.7135.8133.7134.3135.4138.5142.0144.6149.1152.8157.6160.9166.3174.0173.8176.8178.6178.472.177.874.578.188.584.886.286.388.492.694.895.296.596.595.394.794.995.997.499.3100.0102.2105.8110.0113.0117.0127.7162.2119.7121.1123.5125.0126.5127.7128.1130.6130.7131.7132.6135.4138.9141.6146.8150.9156.6160.7166.7172.7174.1176.6180.7179.894.096.983.386.796.692.993.092.289.389.791.393.490.091.194.092.096.695.297.6101.9100.0101.5107.0112.9116.2119.9146.0209.2126.9130.8136.0136.4138.1142.6143.3163.5157.6158.7156.0162.6173.5184.0186.4180.4187.0191.5205.9221.2222.6234.5265.8257.395.2100.891.996.5111.7100.699.898.298.6100.1101.4100.4102.1102.199.999.398.499.1100.0100.8100.0101.3102.5104.0105.6109.4121.2155.0112.6113.6115.7117.8119.8121.7122.5123.4124.9126.0127.0129.3132.6135.0140.8146.4147.9154.1159.8166.0166.6169.5171.170.754.461.463.166.774.174.377.679.383.388.591.492.094.294.393.092.993.094.896.898.6100.0103.3109.3115.1118.8123.8133.7171.7125.9127.7130.9132.7134.0134.3134.1134.5135.0135.9137.8141.7144.7146.5154.0161.1169.6174.7180.2184.9186.5185.9186.2185.558.363.064.266.675.675.777.177.580.988.391.892.593.693.192.291.591.592.393.897.1100.0102.3105.6111.1,114.7117.6121.4139.9118.5118.8119.6120.1121.0121.3121.6122.0122.3122.9123.8124.5126.1127.2129.4131.1135.2138.2141.6145.6148.0150.2152.6153.666.073.173.277.084.383.785.185.588.993.594.094.096.695.994.694.294.595.496.298.8100.0104.9110.9112.6119.5126.2136.7161.6128.6130.9134.2136.8138.5137.9136.7137.3138.3138.7140.7142.0145.0147.0151.1156.0160.7163.0166.6169.3170.9169.7169.7170.1See next page for continuation of table and for footnotes.307

TABLE C-50.—Wholesale price indexes by stage of processing, 1947-74—Continued[1967=100]Finished goodsSpecial groups of industrialproductsYear or monthTotalTotalConsumer finished goodsFoodsOthernondurablegoodsDurablegoodsProducerfinishedgoodsCrudematerials3Intermediatematerials,supplies,and components3Con-* sumerfinishedgoodsexcludingfoods1947..1948..1949..74.079.977.680.586.582.582.890.483.180.785.882.374.679.781.855.460.463.479.292.584.070.076.174.279.084.082.21950..1951..1952..1953..1954..79.086.586.085.185.383.991.890.789.289.184.795.294.389.488.783.690.087.888.688.982.788.288.989.690.364.971.272.473.674.593.6102.993.192.488.077.787.084.385.385.783.589.588.389.189.41955..1956..1957...1958..1959..85.587.991.193.293.088.589.892.494.493.686.586.389.394.590.189.491.193.292.694.091.294.397.198.499.676.782.487.589.891.596.6102.3100.996.9102.388.392.695.094.896.490.192.394.694.795.9I960..1961..1962..1963..1964..93.793.794.093.794.194.594.394.694.194.392.191.792.591,491.994.794.794.895.194.899.298.898.397.898.291.791.892.292.493.398.397.295.694.397.196.895.595.395.095.696.396.296.096.095.91965..1966.1967.1968.1969.95.798.8100.0102.9106.696.199.4100.0102.7106.595.4101.6100.0103.7110.095.997.8100.0102.2105.097.998.5100.0102.2104.094.496.8100.0103.5106.9100.9104.5100.0102.0110.696.998.9100.0102.6106.196.798.1100.0102.1104.61970.1971.1972.1973.1974.110.4113.5117.2127.9147.5109.9112.7116.6129.2149.3113.5115.2121.7146.4166.9108.3111.3113.6120.5146.8107.0110.9113.2115.8126.3111.9J16.6119.5123.5141.0118.8122.7131.1155.2219.1110.0114.3118.9128.1159.5107.7111.2113.5118.6138.61973:Jan...Feb..Mar..Apr..May..June.121.0122.5124.7125.4126.2127.4121.2122.9125.7126.3127.1128.6131.8134.1140.2140.7141.9145.0115.4117.4118.1118.8119.5120.2113.8114.0114.5115.3115.7115.9120.6121.2121.7122.3123.1123.4139.1142.3142.5146.8149.6152.8121.2122.6124.8126.4127.9128.6114.8116.0116.6117.4118.0118.4July..Aug_.Sept..Oct...Nov..Dec.127,7131.9131.2131.2132.0133.6128.9134.2133.2133.0133.6135.5145.4158.6156.1153.6153.7155.7120.5120.9121.2122.6124.4126.6116.1116.3115.8116.7117.0117.9123.5123.9124.2125.1125.7126.7153.5156.0161.0164.7174.2179.8128.5129.3130.1131.0132.4134.8118.7119.0119.0120.2121.4123.11974:Jan...Feb..Mar..Apr..May...June.137.4140.1141.0142.1143.8144.0139.9143.2143.8144.7146.0145.4162.7167.0164.6163.1162.4157.0130.2134.0137.8141.2144.3147.7119.6120.2120.9122.0123.7125.0128.3129.3130.9132.4135.9138.7188.2202.7212.2224.8216.5217.5137.9140.6145.8150.8156.1159.6125.6128.4131.0133.5136.0138.6July..Aug..Sept..Oct...Nov..Dec.148.1150.6152.1155.2157.7158.0149.9152.1153.2156.0158.6158.7164.6167.7168.7171.4177.4175.9150.6153.0154.2155.7156.2156.9126.8127.3128.4133.1133.8135.3141.5145.2148.0151.9154.1155.3228.9229.5229.8229.0228.7221.2164.5169.6170.6172.1173.0173.2141.1142.7143.9146.7147.2148.3* Includes, in addition to subgroups shown, processed fuels and lubricants, containers, and supplies.> Excludes crude foodstuffs and feed stuffs, plant and animal fibers, oilseeds, and leaf tobacco.1 Excludes intermediate materials for food manufacturing and manufactured animal feeds.Note.—For a listing of the commodities included in each sector, see monthly report, "Wholesale Prices and PriceIndexes," January-February 1967.Source: Department of Labor, Bureau of Labor Statistics.308

TABLE C-51.—Percent changes in wholesale price indexes, major groups, 1948-74[Percent change]Year or monthAllcommoditiesIndustrialcommoditiesFarm productsand processedfoods and feedsTotalConsumer finished goodsFoodsAll except foodsDec.toDec 1YeartoyearDec.toDec 1YeartoyearDec.toDec 1YeartoyearDec.toDec. 1YeartoyearDec.toDec 1YeartoyearDec.toDec 1Yeartoyear19481949.1.5-6.18.2-5.05.0-5.08.6-2.1-6.8-8.97.6-11.71.11-5.67.5-4.6-2.4-7.49.2-8.14.C-4.56.3-2.119501951..19521953195414.71.2-3.4.5-.63.911.4-2.7-1.4.214.0.4-1.41.4.23.610.4-2.3.8.217.03.5-8.2-2.3-2.64.813.8-3.9-6.510.22.7-3.1-.1- 61.79.4-1.2-1.7- l13.35.3-5.9-2.2-1.91.912.4-.9-5.2g8 2.9-1.11.631.67.2-1.3.9.31955..19561957195819591.64.52.0.5-.3.23.32.91.4.24.34.21.1.91.22.24.52.8.31.8-6.46.04.2-.2-4.4-4.713.44.7-4.7-.13.13.0.2-.71 52.92 2-.8-2.93.65.3.4-3.7-2.b3.55.8-4.71.72.51.7.2.8.82.42.5.11.319601961..19621963196419651966196719681969.5-.2.0-.1.43.41.71.02.84.8.1.3-.3.22.03.3.22.53.9-.6-.1-.2.5.61.42.21.92.73.9.0-.5.01.32.21.52.53.43.9-.6.6-2.1.C9.5.2-1.83.57.5.2.01.1-1.0-.64.26.6-3.42.45.52 1-.8.1-.4.24.C1.61.23 14.91.0.3\l1.93 4.62 73.75.2-1.8.5-1.3.49.11.4-.44.88.22.2-.4.9-1.2.53.86.5-1.63.76.1.4-.3.1.1.91.72.12 02.9.4-.2.0-.1.81.41.92.12.4197019711972197319742.24.06.515.420.93.73.24.D13.118.93.63.23.610.725.63.83.63.46.822.2-1.46.014.426.711.03.41.97.630.011.51.43.34 513.617.13.22.53 510.815.6-2.55.98 022.513.03.21.5b 620.314.03 91.82 27.42G.53.03.22.14.516.9Change from preceding month1973:JanFebMarAprMayJuneJulyAugSeptOctNovDec1974:JanFebMarAprMayJuneJulyAugSeptOctNovDec1.31 92.352.12.1-1.35.8-1.7-.741.93.42.01.3.91.5.53.93.5-.11.81.0-.20.91 42.281.92.1-1 46.2-1.51.62.91.51.21.11.3.53.73.9.12.51.20.51 l1.21 l.9- .6.1.5.6.91 21.62.32.13.02.92.72.12.72.4.81.2.6.20.21 l1.191.0.7.1.6.8151.42.02.12.92.82.72.22.72.51.01.1.9.03.33 94.614.75.6-4.117.6-6.0-3.9— 1 42.25.81.6-2.4-3.7-1.3-3.46.86.2-2.33.42.1-1.32.32 84.6.63.85.0-4.419.1-5.6-2.2-1 01.04.6.4-2.4-2.4-2.2-4.06.47.6-1.95.12.5-2.5UnadjustedSeasonallyadjustedUnadjustedSeasonallyadjustedUnadjustedSeasonallyadjustedUnadjusted1.61 42.35.61.2.24.1-.7-.261.33.22.4.6.9-.43.11.5L81.73.71 74.5.4.92.2.39.1-1.6-1.61.34.52.6-1.4-.9-.4-3.34.81.9.61.63.5-.82.31 54.71.1.61.8-.910.5-2.51.0.1.93.02.4-1.3-.1-.6-3.83.63.2-.34.33.5-1.20.21 0.7.5.3.3!o1.01 01.42.02.22.01.91.91.91.81.1.81.9.3.7Seasonallyadjusted1.11 l2.51.0i!o.04.4-.6.6.82.62.11.0.62.81.7.82.71.8.1 -.4UnadjustedSeasonallyadjustedUnadjustedSeasonallyadjusted0.21.0.6.7.4.4.3.4.3.81.21.02.02.12.21.91.72.11.81.31.21.7.4.41 Changes from December to December are based on unadjusted indexes.Note.—The seasonally adjusted changes for all commodities and industrial commodities are based on seasonal adjustmentfactors and seasonally adjusted indexes to two decimal places.Source: Department of Labor, Bureau of Labor Statistics.309

MONEY STOCK, CREDIT, AND FINANCETABLE C-52.—Money stock measures, 1947-74[Averages of daily figures; billions of dollars, seasonally adjusted]Overall measuresComponents and related itemsYear andmonthMi(Currencyplusdemanddeposits)Mj(Mi plustimedepositsat commercialbanksother thanlarge CD's)M 3(Mj plusdepositsat nonbankthriftinstitutions)Currency'Deposits at commercial banksDemand2Time and savings 3TotalLargeCD's*OtherDepositsat nonbankthriftinstitutions*U.S.Governmentdemanddeposits(unadjusted)s1947: Dec.1948: Dec.1949: Dec.113.1111.5111.226.425.825.186.785.886.035.436.036.41.01.82.81950: Dec...1951: Dec...1952: Dec...1953: Dec...1954: Dec...1955: Dec...1956: Dec...1957: Dec...1958: Dec...1959: Dec...116.2122.7127.4128.8132.3135.2136.9135.9141.1143.4210.9299.425.026.127.327.727.427.828.228.328.628.991.296.5100.110 1 .1104.9107.4108.7107.6112.6114.536.733.241.144.548.350.051.957.465.467.487.488.52.42.74.93.85.03.43.43.53.94.91960: Dec...1961: Dec...1962: Dec...1963: Dec...1964: Dec...1965: Dec...1966: Dec...1967: Dec...1968: Dec...1969: Dec—.144.2148.7150.9156.5163.7171.3175.4186.9201.7208.7217.1228.6242.8258.9277.1301.3317.8349.6382.3392.2314.4336.5362.9393.2426.3462.6485.2532.6576. ff593.529.029.630.632.534.336.338.340.443.446.1115.2119.1120.3124.1129.5134.9137.0146.5158.2162.772.982.797.6112.0126.2H6.3157.9183.1204.1194.52.85.79.612.816.215.420.523.511.072.979.992.0102.3113.4130.1142.5162.7180.6183.597.3107.9120.1134.4149.2161.3167.4183.0194.5201.34.74.95.65.15.54.63.45.05.05.61970: Dec...1971: Dec...1972: Dec...1973: Dec...1974: Dec*..221.4235.3255.8271.5283.8425.3473.1525.7572.2613.9642.8727.9823.2895.3955.049.152.656.961.667.7172.3182.7198.9209.9216.1229.3271.2313.8364.5420.425.433.543.963.890.3203.9237.7269.9300.7330.1217.5254.9297.5323.1341.17.36.97.46.34.61973: JanFeb...MarAprMayJune256.9257.9258.0259.4262.3265.3529.8532.9535.3538.8544.2549.5830.5836.2840.9846.5854.4862.657.257.557.958.658.959.3199.8200.4200.1200.8203.4206.0318.1324.4331.7337.1341.5344.945.249.454.457.759,660.6272.9275.0277.3279.4281.9284.2300.7303.3305.6307.8310.2313.18.19.910.48.38.77.1JulyAugSeptOctNovDec266.1266.0265.7266.6269.4271.5551.9555.1557.2561.6567.2572.2866.8870.7873.9880.0887.8895.359.559.860.260.561.061.6206.6206.2205.5206.1208.4209.9348.3354.3357.6359.6360.8364.562.565.366.164.763.163.8285.8289.0291.5295.0297.7300.7314.9315.6316.7318.4320.6323.16.54.15.36.04.36.31974: JanFebMarAprMayJune270.9273.1275.2276.6277.6279.7575.5580.8585.5589.4591.5596.7900.7907.7914.9920.5923.0929.562.062.763.363.964.364.6208.9210.4211.9212.8213.2215.0371.0375.9378.3386.7392.5398.466.468.268.073.978.581.3304. 6307.7310.3312.7314.0317.0325.2326.9329.5331.1331.5332.78.16.66.46.07.66.1JulyAugSeptOctNovDec*280.2280.5280.8281.7283.3283.8599.4602.0603.6607.8612.6613.9933.4936.6938.9944.3951.1955.064.865.465.866.467.367.7215.4215.1215.0215.3216.0216.1402.8405.3407.6412.3414.9420.483.683.884.886.285.590.3319.2321.5322.8326.1329.3330.1334.0334.5335.3336.6338.5341.15.44.05.43.73.34.61 Currency outside the Treasury, the Federal Reserve Banks, and the vaults of all commercial banks.2 Demand deposits other than those due to domestic commercial banks and the U.S. Government, less cash items inprocess of collection and Federal Reserve float, plus foreign demand balances at Federal Reserve Banks.3 Time and savings deposits other than those due to domestic commercial banks and the U.S. Government. EffectiveJune 1966, excludes balances accumulated for payment of personal loans (about $1.1 billion).4 Negotiable time certificates of deposit issued in denominations of $100,000 or more by large weekly reporting commercialbanks.« Average of the beginning- and end-of-month deposits of mutual savings banks and savings capital at savings and loanassociations.6 Deposits at all commercial banks.Source: Board of Governors of the Federal Reserve System.310

TABLE C-53.—Commercial bank loans and investments, 1930-74[Billions of dollars 1LoansInvestmentsEnd of yearor month iTotal loansand investments2Total 2CommercialandindustrialU.S. GovernmentsecuritiesOthersecuritiesLoans plusloans sold tobank affiliates 21930:June48.934.55.09.41933:June30.416.37.56.5193940.717.216.37.11940194119421943-.1944...19451946..19471948 .._43.950.767.485.1105.5124.0114.0116.3114.218.821.719.219.121.626.131.138.142.417.821.841.459.877.690.674.869.262.67.47.26.86.16.37.38.19.09.2Seasonally adjusted19481949113.0118.741.542.062.366.49.210.31950195119521953195419551956195719581959 3124.7130.2139.1143.1153.1157.6161.6166.4181.2188.751.156.562.866.269.180.688.191.595.6110.539.461.160.462.262.267.660.357.256.965.157.712.413.414.214.716.416.816.317.920.520.51960196119621963196419651966196719681969 *197.4212.8231.2250.2272.4300.14 316 1352.0390 2401.7116.7123 6137.3153.7172.9198.24 213 9231.3258 2279.142.143.947.652.158.469.578 686.295 9105.759.965.364.761.560.857.153.559.460.751.520.823.929.235.038.744.8M8. 761.371.371.1283.019701971197219731974 p435.5484.8556.4630.3s 681.2291.7« 320. 3377.8447.38 494.1110.0115.9f 129.7155.8s 180. 557.960.161.952.848.885.9« 104. 4116.7130.28 138. 329*. 7• 323.1380.4451.6s» 498. S1974: Jan -FebMarAprMayJune_ _.638.9647.4657.5666.9673.4s 677. 5452.9458.3468.2476.3481.4s 484.5157.9159.5165.1169.5172.9174.654.556.456.457.157.256.4131.5132.7132.9133.5134.88 136.6457.3463.3473.1481.7487.18 489.9July pAug pSept pOct pNOVP.Dec p686.6P92.0687.0687.1s 688. 5681.2494.3500.2498.2499.5s 500.9494.1177.9180.7180.8182.58 183.0180.555.855.352.249.749.348.8136.5136.5136.6137.98 138.3138.3499.79 505.5503.5504.7s 505.8498. S1 Data are for last Wednesday of month or year (except June 30 and December 31 call dates).2 Adjusted to exclude all interbank loans beginning 1948 and domestic bank loans only beginning January 1959.3 Beginning January 1959, loans and investments are reported gross, without valuation reserves deducted, rather thannet of valuation reserves, as in earlier periods.4 Effective June 1966, balances accumulated for payment of personal loans (about $1.1 billion) are excluded from loansat all commercial banks, and certain certificates of CCC and Export-Import Bank totaling about $1 billion are included inother securities rather than in loans.« Beginning June 1969, data include all bank-premises subsidiaries and other significant majority-owned domesticsubsidiaries; earlier data include commercial banks only.• Beginning June 1971, Farmers Home Administration insured notes totaling about $0.7 billion are classified as othersecurities rather than as loans.7 Beginning June 1972, commercial and industrial loans were reduced by about $0.4 billion due to loan ^classificationsatone large bank.8 Beginning June 1974, the merger of a large mutual savings bank and a nonmember commercial bank increased totalloans and investments by $0.6 billion, loans by $0.5 billion, and other securities by $0.1 billion.Beginning November 1974, the liquidation of one large bank reduced total loans and investments by $1.5 billion, totalloans by $1.0 billion, commercial and industrial loans by $0.6 billion, and other securities by $0.5 billion. In addition, commercialand industrial loans were increased by $0.1 billion due to loan ^classifications at one large bank.9 Beginning August 1974, reflects new definition of affiliates included and different group of reporting banks. Amount oftotal loans sold was reduced by $0.1 billion.Source: Board of Governors of the Federal Reserve System.311

TABLE C-54.—Total funds raised in credit markets by nonfinancial sectors, 1966-74[Billions of dollars]Item19661967196819691970197119721973Total funds raisedU.S Government . . ....Public debt securities _Agency issues and mortgagesAll other nonfinancial sectorsCorporate equitiesDebt instruments .Debt capital instruments .State and local government securities_ .Corporate and foreign bondsMortgagesHomeOther residentialCommercialFarm..Other private creditBank loans n.e.c.Consumer creditOpen-market paperOtherBy borrowing sector:Total funds raisedForeign . .State and local governmentsHouseholdsNonfinancial businessFarmNonfarm noncorporateCorporateTotal funds advanced to nonfinancial sectorsFinanced directly or indirectly by:Private domestic nonfinancial sectorsDepositsDemand deposits and currency..Time and savings accountsAt commercial banks „ .At savings institutionsCredit market instruments, net~_Other sources:U.S. Government securitiesPrivate credit market instruments...Corporate equitiesLess security debt.Foreign funds..At banks . .. .DirectChange in U.S. Government cashbalanceU.S. Government loans rPrivate insurance and pension reservesOther67 93.62.31.364.31.063.338 95.611.022 311.73.15.71.824.410 76.41.06.264.31.56.322.733.83.15.425 367.941.324.44.120.313.07 316.98.49.2-.9—.31.83.7—1.9—.44.918.12.282 413.08.94.169.42.467.045 77,815.922 011.53.64.72.321.39.54.52.15.169.44.07.919.338.13.65.029.682.450.552.112.839.322.616 7—1.5—1.45.7—4.31.54,92.32.71.24.618.23.095 913 410.33.182 5.082.650 69.514.027 115.13.46.42.232.013 110.01.67 282.52.89.830 039.92.85.631.595.961.448.314.533.921.012 913.08.112.3—6.5.85.12.62.5—1.14.918.86.991 8—3 6—1.32 495 53.991 650 69.913.027 715.74.75.31 941 015 310.43.312 095.53.710.731 749.43.27.438 991.847.75 47.7-2.3-10.38 042.317.027.5—3.8—1.610.69.31.3.42.919.710.698 212 812.9— 185 45.879 757 611.220.625 712.85.85.31.822 16 46.03.85 985.42.711.323 448 03.25.339 598.263.366 610.556.139.216 9—3.4—9.06.5-1.7—.92.4—8.510.92.82.821.85.1147 425 526.0_ 5121 911.5110 484 217.619.746 926.18.810.02.026.39 311.2—.96.6121.94.617.839 859 64.18.746.8147.483.193.712.781.040.640 4—10.6—14.010.7-5.32.123.9-3.227.23.23.224.89.1169 417 313.93 4152 110.5141 694 914.413.267 339.610.314.82.646 721 819.2—1.67 3152.14.314.263 170.54.910.455.3169.4105.8101.916.785.239.345 93.81.612.1—5.44.515.85.210.6-.32.627.118.4187 49 77.72 0177 77.2170 497 113.710.273 243.38.417.04 473 438 622.91.810 0177.77.512.372.885.18.69.367.2187.4124.388.812.676.348.128.235.518. S20.5—8.2—4.410.16.E3.e-l.i3.C29.522.;See footnotes at end of table.312

TABLE G-54.—Total funds raised in credit markets by nonfinancial sectors, 7966-74—Continued[Billions of dollars]Item1974 unadjustedquarterly flowsIII1974 seasonallyadjusted annual ratesIIITotal funds raised.._U.S. GovernmentPublic debt securities...Agency issues and mortgagesAll other nonfinancial sectorsCorporate equities35.03.43.0.431.61.630.052.0-6.2-6.4.258.21.157.148.54.54.9-.444.01.442.6177.38.77.01.7168.76.3162.4206.52.11.3.8204.54.5200.0199.115.116.6-1.5184.05.4178.6Debt instruments20.229.323.992.7110.887.7Debt capital instrumentsState and local government securitiesCorporate and foreign bonds..Mortgages.HomeOther residentialCommercialFarm...Other private creditBank loans n.e.cConsumer creditOpen-market paperOther4.04.311.96.61.42.91.09.86.1-2.93.63.04.95.918.511.02.43.71.427.716.25.93.62.13.25.515.29.42.32.41.118.75.74.55.92.715.819.657.333.07.113.43.869.741.78.211.48.419.720.970.241.78.715.14.889.147.117.218.06.812.321.853.531.19.28.84.490.835.215.822.517.3By borrowing sector:Total funds raisedForeignState and local governmentsHouseholdsNonfinancial businessFarmNonfarm noncorporateCorporate31.63.4* 3.76.018.51.7-.417.258.26.54.415.831.63.13.125.444.03.03.013.924.11.82.220.2168.714.114.551.488.76.34.478.0204.525.117.453.6108.38.510.289.7184.013.311.557.6101.58.78.384.6Total funds advanced to nonfinancial sectors35.052.048.5177.3206.5199.1Financed directly or indirectly by:Private domestic nonfinancial sectorsDeposits22.911.433.030.726.73.1132.889.7124.7105.9127.738.7Demand deposits and currency.Time and savings accounts..At commercial banksAt savings institutionsCredit market instruments, net.Other sources:U.S. Government securitiesPrivate credit market instruments...Corporate equitiesLess security debtForeign fundsAt banksDirectChange in U.S. Government cash balance.U.S. Government loansPrivate insurance and pension reserves..Other-12.924.313.910.411.65.25.7.9.22.72.3.4-1.6.46.64.08.222.518.14.42.3-1.04.7-1.2.26.72.73.9.4.59.02.5-5.78.88.4.423.611.410.45.63.22.4-.61.18.86.97.182.645.137.643.119.027.8-2.7.912.411.11.4.22.225.64.09.396.581.015.518.85.318.6-4.11.028.89.519.3-3.81.736.918.32.436.328.77.689.037.444.03.2-4.515.914.21.71.64.335.014.5Source: Board of Governors of the Federal Reserve System.313

TABLE C-55.—Private liquid asset holdings, nonfinancial investors, 1959-74[Averages of daily figures; billions of dollars, seasonally adjusted)YearandmonthTotalliquidassetsTotalCurrency and depositsCurrencyiDemanddeposits1Time depositsCommercialbanks»Nonbankthriftinstitutions2U.S. GovernmentsecuritiesShorttermSavingsmarketablebonds 3securities*Negotiablecertificatesof deposit8Commercialpapers1959: Dec375.4290.628.9104.164.792.946.137.71.01960: Dec1961: Dec.1962: Dec1963: Dec1964: Dec388.1412.5444.5482.5518.4305.7326.3352.3382.3415.129.029.630.632.534.3104.6106.3106.5109.8114.669.977.088.898.6108.9102.2113.5126.4141.5157.345.746.546.948.048.934.034.036.138.535.72.75.39.011.62.83.13.94.77.01965: Dec1966: Dec1967: Dec1968: Dec1969: Dec562.9593.5643.2704.1737.1451.5474.3520.9564.5583.036.338.340.443.446.1119.6121.7130.0140.1144.7125.2137.0156.3174.3177.3170.4177.3194.2206.7215.049.550.151.051.451.138.443.839.546.864.915.014.519.222.59.18.410.712.718.828.91970: Dec1971: Dec.1972: Dec1973: Dec1974: Dec v786.. 5868.3979.81, 093.31,197.2634.4721.0815.9885.4945.649.152.656.961.667.7153.2161.7175.1181.3186.7199.2233.6264.7294.8322.8232.8273.1319.1347.6368.451.353.757.059.962.853.239.539.752.060.623.130.339.958.080.224.523.927.438.047.91973:JanFebMarAprMayJune988.7997.91,008. 51,019.71,031.31, 042.5823.2828.7833.8839.1846.6854.857.257. b57.958.658.959.3175.7175.9175.7176.1178.1180.2267.7269.7272.1273.9276.3278.6322.7325.6328.1330.6333.3336.657.357.657.958.258.558.839.839.941.243.345.046.040.844.649.252.454.154.827.627.026.526.627.228.2JulyAugSeptOct.NovDec1974:JanFebMarAprMay-June1,050.81,061.11,068.81,074.61, 083.11,093.31,102.71,113.21,123.21,137.61,145.31,155.0July1,163.3Aug ._-.-. 1,168.2Sept1,173.4Oct ... 1,182.8Nov1,189.2Dec p 1,197.2858.8862.2865.4870.9878.2885.4890.5897.6904.6910,1912.3918.5922.3925.0927.3933.6941.4945.659.559.860.260.561.061.662.062.763.363.964.364.664.865.465.866.467.367.7180.5179.6178.6178.7180.5181.3180.0181.4182.4183.0182.9184.2184.7184.4184.2185.1186.4186.7280.2283.3285.9289.2291.8294.8298.6301.6304.1306.4307.6310.5312.3314.1315.3318.6322.1322.8338.6339.4340.7342.5344.9347.6350.0351.9354.8356.8357.5359.1360.5361.1362.0363.5365.6368.459.059.259.359.559.759.960.060.360.560.861.061.361.561.762.062.362.562.846.448.650.550.451.152.052.152.153.755.756.356.858.259.360.261.461.060.656.959.760.358.857.258.060.662.562.468.372.875.176.776.176.477.376.080.229.731.433.235.136.938.039.540.841.842.643.043.344.746.247.548.348.247. S1 Money stock components (see Table C-52) after deducting foreign holdings and holdings by domestic financial institutions.The three columns add to M? held by domestic nonfinancial sectors.2 Deposits at nonbank thrift institutions, as published in money stock statistics, plus monthly-average deposits at creditunions.3 Series E and H savings bonds held by individuals.* Short-term marketable U.S. Government securities excluding official, foreign, and financial institution holdings.s Certificates over $100,000 at weekly reporting banks, except foreign holdings.6 Commercial paper held outside banks and other financial institutions.Source: Board of Governors of the Federal Reserve System.314

TABLE C-56.—Federal Reserve Bank credit and member bank reserves, 1929-74[Averages of daily figures; millions of dollars]Reserve Bank credit outstandingMemb sr bank reservesYear and monthTotalMember bankborrowingsTotalSeasonalAllother,mainlyfloatTotalU.S.GovernmentsecuritiesRequiredExcess1929: Dec1,6434468013962,3952,347481933: Dec2,6692,432951422,588il,82217661939: Dec . . . .2,6122 51039911 4736 4625 0111940: Dec1941: Dec _.1942: Dec1943- Dec1944: Dec1945' Dec1946- Dec1947: Dec1948: Dec1949: Dec2,3052,4046,03511,91419,61224, 74424, 74622,85823,97819,0122 1882,2195,54911 16618, 69323 70823 76721,90523, 00218,2873549026533415722413411811418048265865470282272984260714 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 4919009867978031950: Dec . . .1951: Dec1952: Dec1953: Dec1954: Dec1955: Dec1956: Dec1957- Dec1958: Dec1959: Dec21,60625, 44627,29927,10726,31726, 85327,15626,18628,41229, 43520,34523,40924, 40025, 63924,91724, 60224, 76523 98226,31227, 0361426571,5934412468396887105579061,1191,3801,3061,0271,1541,4121,7031 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: Dec1961- Dec1962: Dec1963: Dec1964: Dec1965: Dec1966: Dec1967: Dec1968: Dec1969: Dec29, 06031,21733,21836,61039, 87343, 85346,86451,26856,61064,10027, 24829 09830 54633, 72937,12640, 88543, 76048,89152, 52957, 500871493043272434545572387651,0861,7251 9702,3682,5542,5042,5142,5472,1393,3165,51419, 28320 11820 04020, 74621,60922, 71923, 83025 26027, 22128, 03118, 52719 55019,46820,21021,19822, 26723,43824,91526, 76627, 7747565685725364114523923454552571970: Dec1971: Dec1972: Dec1973: Dec1974: Decp1973:Jan .FebMarAprMayJune .JulyAugSeptOctNovDec .1974: JanFebMarAprMayJune66, 70874, 25576,85185,64293,99378, 05777,59479, 21980,54281,83180, 54783,92982,44381,81083,64483,75685,64286, 56885,49384,94386,90789,40589, 25461,68869,15871,09479,70186,67972,19472, 30774,01975, 35376,75875, 35577,44876,65376,07378,04278, 45779,70180, 79380,80180,68681, 56783,43482, 8123211071,0491,2987041,1641,5931,8581,7211,7861,7882,0512,1441,8611,4651,3991,2981,0441,1861,3521,7142,5803,0004131530771241631471268441181732501021304,6994,9904,7084,6436,6104,6993,6943,3423,4683,2873,4044,4303 6463,8764,1373,9004,6434,7313,5062,9053,6263,3913,44229,26531,3293 31,3533 35,0683 36,9603 32, 95031,73431,96932,27532,33632, 02933, 59033,78334, 02034,91334, 72535,06836, 65535,24234,96635,92936,51936, 39028,99331,16431,13434,80636,62132, 60131, 53731,68232,12632,27731,97033,19933, 54033,77534,69034, 54334,80636,41935,05334, 79035,77136, 32536, 2591111653 2193 2623 3393 3491972871495959391243245223182262236189176158194131JulyAugSeptOctNovDec P91, 55491, 36791,61790,97191, 30293,99384,31384,49384, 38483, 73584,05286,6793,3083,3513,2851,7931,28570414916513911767313,9333,5233,9465,4435,9656,61037,33837,02937,07636,79636,83736,96037,16136, 85136, 88536, 70536, 57936,621177178191912583391 Data are for licensed banks only.2 Beginning December 1959, total reserves held include vault cash allowed.3 Beginning November 1972, includes $450 million of reserve deficiencies on which Federal Reserve Banks are allowedto waive penalties for a transition period in connection with bank adaptation to Regulation J as amended effective November9,1972. Beginning 1973. allowable deficiencies included are (beginning with first statement week of quarter): firstquarter, $279 million; second quarter, $172 million; third quarter, $112 million; fourth quarter, $84 million. Beginning1974 allowable deficiencies included are: first quarter, $67 million and second quarter, $58 million. Transition periodended after second quarter 1974.Source: Board of Governors of the Federal Reserve System.315

TABLE C-57.—Aggregate reserves and member bank deposits, 1959-74[Averages of daily figures; i billions of dollars, seasonally adjusted]Year andmonthTotalMember bank reserves 2RequiredNonborrowedAvailable3TotalDeposits subject to reserverequirements *TimeandsavingsPrivateDemandU.S.GovernmentTotalmemberbankdepositsplusnondeposititems «1959: Dec18.5717.6318.0716.62158.254.399.04.8158.21960: Dec1961: Dec_1962: Dec1963: Dec1964: Dec18.8819.7119.6420.2621.1718.8119.5719.3819.9320.9118.1419.1219.0719.7720.7717.0117.7117.5818.2419.09162.5175.5189.0203.2218.758.867.779.992.1103.799.1102.9103.3105.9109.14.64.95.75.25.9162.5175.5189.0203.4220.11965: Dec___1966: Dec._1967: Dec1968: Dec1969: Dec22.2423.3424.8127.2828.0121.8022.8124.5826.5426.9021.8223.0024.4426.8627.7320.2021.4022.4924.8525.39238.5246.7275.5299.6287.7120.5128.6148.8164.3150.5112.8113.9121.2130.3131.95.14.35.55.05 3240 0250.9279.9306.6307 01970: Dec.1971: Dec1972: Dec1973: Dec1974: Deep29.2031.3331.4635.1636.9228.8731.2030.4133.8736.1928.9531.1531.1734.8636.6627.1329.0329.0932.9734.63321.3360.3402.0442.2485.9178.9210.7242.0280.0323.3136.0143.8154.5158.2160.86.45.85.63.91.8333.4365.2406.4448.7494.31973- JanFeb . .MarAprMayJune32.1731.6731.9432.2732.4332.4631.0130.0830.1230.5630.5930.6131.9231.4631.7332.0532.2832.2229.4529.4329.6329.8930.0930.51404.7409.4416.3421.0425.1428.9244.5249.7255.9260.6263.9266.2154.2154.0153.3153.4154.8156.36.05.77.16.96.46.4409 2413.9421.1426.1430.3433.9JulyAug..SeptOctNovDec1974: JanFebMarAprMayJune33.5733.9234.1934.9334.8735.1631.6231.7632.3433.4533.4833.8735.82 34.7735.12 33.9234.98 33.6635.88 34.1536.52 33.9336. 74 33. 7333.2933.7533.9734.7034.6334.8635.6634.9334.8435.7036.3436.5431.2731.9932.3732.8332.7832.9732.8232.9033.1333.6634. 2634.71431.1436.7438.6439.7440.4442.2446.8447.5450.4461.2467.0472.9268.8274.2277.0277.9277.8280.0284.1287.4288.6296.6302.3307.0156.9156.8156.2156.5157.5158.2157.5157.9158.7160.0159.1160.65.45.75.45.25.13.95.12.23.24.65.65.3437.0443.5445.3446.2446.8448.7453.3454.4457.9469.2475.8481.2July. ...AugSeptOctNovDec p37.4037.2737.2836.8636.8736.9234.1033.9334.0035.0435.6236.1937.2437.0837.0936.7336.6736.6634.9635.2735.3034.8934.8734.63475.7478.5480.6480.5483.6485.9310.7312.4314.4317.2318.4323.3160.7159.9159.9159.5160.6160.84.26.26.33.74.61.8484.9487.5489.1488.3491.2494.31 Except as noted in footnote 5.2 Member bank reserves series reflects actual reserve requirement percentages with no adjustment to eliminate theeffect of changes in Regulations D and M.3 Reserves available tc support private nonbank deposits are defined as (1) required reserves for (a) private demanddeposits, (b) total time and savings deposits, and (c) nondeposit sources subject to reserve requirements and (2) excessreserves. This series excludes required reserves for net interbank and U.S. Government demand deposits.4 Deposits subject to reserve requirements include total time and sayings deposits and net demand deposits as definedby Regulation D. Private demand deposits include all demand deposits except those due to the U.S. Government, lesscash items in process of collection and demand balances due from domestic commercial banks.5 Total member bank deposits subject to reserve requirements, plus Eurodollar borrowings, bank-related commercialpaper (data relate to Wednesday figures), and certain other nondeposit items. This series for deposits is referred to as"the adjusted bank credit proxy."Source: Board of Governors of the Federal Reserve System.316

TABLE C-58.—Bond yields and interest rates, 1929-74[Percent per annum]Year or monthU.S. Government securities3-monthTreasurybills i3-5yearissues 2Taxablebonds 3Corporatebonds(Moody's)AaaBaaHighgrademunicipalbonds(Standard&Poor's)Averagerate onshorttermbankloansto businessselectedcitiesPrimecommercialpaper,monthsFederalReserveBankdiscountrate*FederalfundsratesFHAnewhomemortgageyields«19294.735.904.275.855.1619330.5152.664.497.764.711.732 561939.023.593.014.962.762.1.591.0019401941..194219431944.014.103.326.373.375.50.731.461.341.332.462.472.482.842.772.832.732.724.754.334.283.913.612.502.102.362.061 862.12.02.22.62.4.56.53.66.69.731.001.007 1.007 1.00M.0019451946194719481949.375.375.5941.0401.1021.181.161.321.621.432.372.192.252.442.312.622.532.612.822.663.293.053.243.473.421.671.642.012.402.212.22.12.12.52.68.75.811.031.441.49M.0071 001.001.341.504.34195019511952 .1953.19541.2181.5521.7661.931.9531.501.932.132.561.822.322.572.882.942.552.622.862.%3.202.903.243 413.523.743.511.982.002.192.722.372.693.113.493.693.611.452.162.332.521.581.591.751.751.991.604.174 214.294.614.6219551956195719581959I96019611962196319641.7532.6583.2671.8393.4052.9282.3782.7783.1573.5492.503.123.622.904.333.993.603.573.724.062.843.083.473.434.074.013.903.954.004.153.063.363.893.794.384.414.354.334.264.403.533.884.714 735.055.195.085.024.864.832.532.933.603.563.953.733.463.183.233.223.704.204.624.34«5.005.164.975.005.014.992.183.313.812.463.973.852.973.263.553.971.892.773.122.153.363.533.Q03.003.233.551.782.733.111.573.303.221.%2.683.183.504.644.795.425 495.716.185.805.615.475.45196519661967.19681969 . .1970 .19711972197319743.9544.8814.3215.3396.6776.4584.3484.0717.0417.8864.225.165.075.596.857.375 775.856.927.814.214.664.855.256.106.595.745.636.306.994.495.135.516.187.038.047.397.217.448.574 875.676.236.947.819.118.568.168.249.503.273.823.984.515.816.515.705.275.186.095.066.008 6.006.688.218.488 6.325.828.3011.284.385.555.105.907.837.725.114.698.159.874.044.504.195.175.875.954.884.506.447.834.075.114.225.668.217.174.674.448.7410.515.466.296.557.138.199.057.787.538.089.47See next page for continuation of table and for footnotes.317563-280 O - 75 - 21

TABLE C-58.—Bond yields and interest rates, 1929-74— Continued[Percent per annum]Year or monthU.S. Government securities3-monthTreasurybills i3-5yearissues 2Taxablebonds 3Corporatebonds(Moody's)AaaBaaHighgrademunicipalbonds(Standard&Poor's)Averagerate onshorttermbankloansto businessselectedcitiesPrimecommercialpaper,monthsFedera!ReserveBankdiscountrate 4FederalfundsratesFHAnewhomemortgageyields«1972' JanFebMarADTMa/;::::June3 4033.1803.7233 7233.6483.8745.335.515.746.015.695.775.625.675.665.745.645.597.197.277.247.307.307.238.238.238.248.248.238.205.255.335.305.455.265.375.525.594.083.934.174.584.514.644.504.504.504.504.504.503 503.293.834 174.274.467 597.497.467 457.507.53JulyAugSeptOctNovDec4.0594.0144 6514.7194.7745.0615.865.926.166.116.036.075.575.545.705.695.505.637.217.197.227.217.127.088.238.198.098.067.997.935.395.295.365.205.035.035.846.334.854.825.145.305.255.454.504.504.504.504.504.504.554.804.875.045.065.337.547.547 557.567.577.571973* JanFeb .. .MarAprMayJune5 3075.5586.0546.2896.3487.1886.296.616.856.746.786.765.946.146.206.116.226.327.157.227.297.267.297.377.907.978.038.098.068.135.055.125.305.165.125.156.527.355.786.226.857.147.277.994 775.055.505.505.906.335 946.587.097.127.848.497 567.557.567.637.737.79JulyAugSeptOctNovDec8.0158.6728 4787.1557.8667.3647.497.757.166.816.966.806.536.816.426.266.316.357.457.687.637.607.677.688.248.538.638.418.428.485.395.475.115.055.175.129.2410.089.1810.2110.238.928.949.086.987.297.507.507.507.5010.4010.5010.7810.0110.039.957.898.199.188.978.861974- JanFebMarAprMayJune7 7557.0607 9868.2298.4308.1456.946.777.337.998.248.146.566.546.817.047.077.037.837.858.018.258.378.478.588.598.658.889.109.345.205.195.365.675.%6.089.9111.158.667.838.429.7910.6210.%7.507.507.507.608.008.009.658.979.3510.5111.3111.938.788.548.669.179.46JulyAugSeptOctNovDec7.7528.7448.3637 2447.5857.1798.398.648.387.987.657.227.187.337.307.226.936.788.729.009.249.278.908.899.559.7710.1210.4110.5010.556.546.586.656.466.476.9312.4011.6411.7211.6511.239.368.818.988.008.008.008.008.007.8112.9212.0111.3410.069.458.539.469.8510.3010.3810.131 Rate on new issues within period. First issued in December 1929.2 Selected note and bond issues.3 First issued in 1941. Series includes bonds which are neither due nor callable before a given number of years asfollows: April 1953 to date, 10 years; April 1952-March 1953,12 years; October 1941-March 1952,15 years.* Average effective rate for the period.6 Based on seven-day averages for weeks ending Wednesday. Beginning with statement week ending July 25, 1973,weekly averages are based on the daily average of the range of rates on a given day weighted by the volume of transactionsat these rates. For earlier statement weeks, the averages were based on the daily effective rate—the rate consideredmost representative of the day's transactions, usually the one at which most transactions occurred.« Data for first of the month, based on the maximum permissible interest rate (9 percent beginning November 25, 1974).Through July 1961, computed on 25-year mortgages paid in 12 years and thereafter, 30-year mortgages paid in 15 years.7 From October 30, 1942, to April 24, 1946, a preferential rate of 0.50 percent was in effect for advances secured byGovernment securities maturing in 1 year or jess.s Series revised. Not strictly comparable with earlier data.Mote.—Yields and rates computed for New York City except for short-term bank loans.Sources: Department of Housing and Urban Development, Department of the Treasury, Board of Governors of theFederal Reserve System, Moody's Investors Service, and Standard & Poor's Corporation.318

1929..1933..1939..1940..1941..1942..1943,.1944..1945..1946..1947..1948..1949..1950..1951.,1952.1953..1954.1955.1956.1957.1958.1959.I960..1961.1962.1963.1964.1965.1966.1967.1968.1969.TABLE C—59.—Short- and intermediate-term consumer credit outstanding, 1929—74End of year ormonth1970...1971...1972..1973..1974 4.1973: Jan...Feb..Mar..Apr..May..June.July..Aug..Sept..Oct...Nov..Dec.1974: Jan...Feb...Mar..Apr..May..June..JulyAugSeptOctNovDec*_Total7,1163,8857,2228,3389,1725,9834,9015,1115,6658,38411, 59814, 44717,36421,47122,71227, 52031,39332,46438, 83042,33444,97145,12951, 54456,14157,98263, 82171,73980,26889,88396,239100, 783110,770121,146127,163 102,064138,394 111,295157, 564 127, 332180,486 147, 437190,400 156,200157,227157, 582159, 320161,491164,277167, 083169,148171,978173, 035174,840176,969180,486178,686177, 522177,572179, 495181,680183,425184,805187,369187,906188,023188,084190,400Total3,5241,7234, 5035,5146,0853,1662,1362,1762,4624,1726,6958,99611, 59014,70315, 29419,40323,00523, 56828, 90631, 72033, 86833,64239, 24742,96843,89148, 72055,48662,69270,89376, 24579,42887, 74597,105127, 368127,959129,375131,022133, 531136, 018138,212140, 810142,093143,610145,400147,437146, 575145,927145,768147,047148, 852150,615152,142154,472155,139155,328155,166156,200Automobilepaper1,384[Millions of dollars]Instalment credit4931,4972,0712,4587423553974559811,9243,0184,5556,0745,9727,7339,8359,80913,46014,42015, 34014,15216,42017,65817,1?519 8 38122, 25424,93428,43730,01029,79632,94835, 52735,18438,66444.12951.13051,80044,35344,81745,61046, 47847, 51848,54949,35250,23250,55751,09251,37151,13050,61750, 38650,31050,60651,07651,64152,08252,77252,84852,73652,32551,800Other Iconsumergoodspaper1,5447991,6201,8271,9291,1958197918161,2902,1432,9013,7064,7994,8806,1746,7796,7517,6418,6068,8449,02810,63111, 54511, 86212,62714,17716,33318,48320,73222,38924,62628,31331,46534,35340,08047, 53051,90039,95239,79539,95140,44141,09641,85342,57543, 50544,01944,63245,59247, 53047, 30346,78146,53647,01747, 58848,09948,59249,32249,66449,98650,40151,900Homeimprovementloans i27152983713762551301191824057188531,0161,0851,3851,6101,6161,6931,9052,1012,3462,8093,1483 f 2213,2983,4373,5773,7363,8414,0084,2394,6135,0705,4136,2017,3528,2006,1936,2396,3286,4086,5416,6886,8457,0097,1207,2357,3217,3527,3037,3437,4307,5737,7867,9308,0688,2148,2528,2878,2608,200Personalloans5694161,0881,2451,3229748328691,0091,4961,9102,2242.4312,8143,3574,1114,7815,3926,1126,7897,5828 f 1169,38610,61711,67313,41415,61817,84820,23721,66223, 23525,93228,65230,34532,86536,92241,42544,30036,87037,10837,48637,69538, 37638,92839,44040,06440,39740,65141,11641,42541,35241,41741,49241, 85142,40242,94543,40044,16444,37544,31944,18044,300Noninstalment creditTotal3,5922,1622,7192,8243,0872,8172,7652,9353,2034,2124,9035,4515,7746,7687,4188,1178,3888,8969,92410,61411,10311,48712,29713,17314,09115,10116,25317,57618,99019,99421,35523, 02524, 04125,09927,09930,23233,04934,20029,85929,62329,94530 t 46930,74631,06530,93631,16830,94231,23031,56933,04932,11131, 59531,80432,44832,82832,81032,66332,89732,76732,69532,91834,2001,9961,2861,4141,4711,645l t 4441,4401,5171,6122,0762,3812,7222,8543,3673,7004,1304,2744,4854,7954,9955,1465. 0605,1045,3295,3245,6845,9036,1956,4306,6867 r 0707,1937,3737,9688,3509,0029.82910; 4008,3577,6467,7028,0368,3198,5558,4798,6058,3358,5908,7859,8298,8758,0187,9398,4348,9479,1069,1409,2659,1539,1839,31810,400Other 21,5968761,3051,3531,4421,3731,3251,4181,5912,1362,5222,7292,9203,4013,7183,9874,1144,4115,1295,6195,9576,4277,1937,8448,7679,41710,35011,38112, 56013,30814,28515,83216,66817,13118, 74921, 23023,22023,80021, 50221,97722,24322,43322, 42722,51022,45722,56322,60722,64022,78423,22023,23623, 57723,86524,01423,88123,70423,52323,63223,61423, 51223,60023,8001 Holdings of financial institutions only; holdings of retail outlets are included in other consumer goods paper.2 Single-payment loans and service credit3 Data are annual statement asset values. These loans are not included in consumer credit series.4 Preliminary; by Council of Economic Advisers.Sources: Board of Governors of the Federal Reserve System and Institute of Life Insurance (except as noted).319ChargeaccountsAddendum:Policyloans bylife insurancecompanies32,3783,7693,2483,0912,9192,6832,3732,1341,9621,8941,9372,0572,2402,4132,5902,7132,9143,1273,2903,5193,8694,1884,6185,2315,7336,2346,6557,1407,6789,11710,05911,30613,82516,06417,06518, 00320,19918,08018,16318, 28418,42518,55613,71318,89519,25219,59719,87020, 03920,19920,24220,38220,53820,83021,06721, 32121, 58121,88822,20222,50322, 710

TABLE C-60.—Instalment credit extended and repaid, 1946-74[Millions of dollars]Year or monthTotalAutomobilepaperOther consumergoods paperExpendedRepaidExtendedRepaidExtendedRepaidHome improvementloansPersonalloansExtendedRepaidExtendedRepaid1946..1947..1948..1949..8,49512,71315, 58518,1086,78510,19013, 28415, 5141,9693,6925,2176,9671,4432,7494,1235,4303,0774,4985,3835,8652,6033,6454,6255,0604237047147342003915796893,0263,8194,2714,5422,5393,4053,9574,3351950..1951..1952..1953..1954..21, 55813, 57629, 51431, 55831,05118,44522,98525, 40527,95630,4888,5308,95611,76412,98111,8077,0119,05810,00310, 87911,8337,1507,4859,1869,2279,1176,0577,4047,8928,6229,1458358411,2171,3441,2617177729171,1191,2555,0436,2947,3478,0068,8664,6605,7516,5937,3368,2551955..1956..1957..1958..1959..I960..1961..1962..1963..1964..38,97239, 86642,01940,11048, 04849, 79349,04856,19163, 59170,67033,63437,05639, 87040, 33942,60346,07348,12451, 36056,82563,47016,73415,51516, 46514, 22617,77917,65716, 02919,69422,12624,04613,08214, 55515,54515,41515, 57916,41916,55217,44719, 25421, 36910,64211,72111,81011,73813,98114, 52514,55115,70117, 92020, 8219,75210, 75811,57411,55712, 40213,61314, 23514,93516, 36918,6661,3931,5821,6741,8712,2222,2152,0922,0842,1862,2251,3161,3701,4771,6261,7651,8762,0152,0102,0462,08610, 20311,05112,06912,27514, 07015, 39616,37718,71021, 35923, 5789,48410,37311,27611,74112, 85714,16515,31916,96919,15621,3491965..1966..1967..1968..1969.78,66182, 83287,17199,984109,14670,46377,48083,98891,66799,78627,20827,19226,32031,08332, 55323,70625,61926,53427,93129,97422,85726,32929, 50433,50738,33220,70724,08027,84731,27034,6452,2702,2232,3692,5342,8312,1122,1182,2022,3032,45726.32627,08828,97832,86035,43023,93825,66327,40530,16332,7101970..1971-1972..1973..1974 i.112,158124,281142. 951165,083165,850107,199115,050126,914144,978157,07529,79434, 87340,19446,45342,62530,13731, 39334, 72939,45241,95043, 87347,82155, 59966,85970, 52540,72144,93349,87259,40966,1502,9633,2444,0064,7284,6502,5062,9013,2183,5773,8C035, 52838,34343,15247,04348,05033,83535, 82339,09542,54045,175Seasonally adjusted1973: Jan..Feb..Mar..Apr..May..June.13,30413,43413, 85213,46513, 93213,64611,35511,43711,80812, 06111,94112, 0344,0063,9724,0013,8223,9893,7623,0973,1453,2253,2183,2613,2535,2825,2455,3495,5635,5045,5054,6494,6274,7554,9634,9174,9553293644063653744002672752862942903003,6873,8534,0963,7154,0653,9793,3423,3903,5423,5863,4733,526July..Aug..Sept.Oct..Nov..Dec.14, 54214,29413,69114,14914,27512,67712, 54412,39912, 33212,44912,54912,2673,9303,9683,9393,9123,8193,3153,3343,2933,4063,4273,4713,3385,9435,9615, 5375,9115,9785,2545,1415,1685,0725,1495,1545,0014334084104154024293082983223083013324,2363,9573,8053,9114,0763,6793,7613,6403,5323,5653,6233,5961974: Jan_.Feb..Mar_.Apr..May.June.13,71413, 54113, 82314,17914,66914, 38712,79712,87013,20613,02613,40713,3013,4923,3893,4843,5453,7693,7313,4333,3943,5443,4983,6013,5775,6625,6475,9336,0346,1566,0435,1935,3405,5965,4835,6075,6153734094244474684253563233083123153354,1874,0963,9824,1534,2764,1883,8153,8133,7583,7333,8843,774July.Aug..Sept.Oct..Nov.Dec*14, 63514,39414,08913,62612,60912,70013,31012,88213,41213,22413,00913,0003,8123,8873,8353,3693,0623,1003,5633,4433,6043,4703,4233,4006,1645,9935,9355,9485,7C05,7005,6105,4445,7005,4995,5615,6004163883023483213003203092793213253004,2434,1264,0173,9613,5263,6003,8173,6863,8293,9343,7003,700* Preliminary; December by Council of Economic Advisers.Source: Board of Governors of the Federal Reserve System (except as noted).320

TABLE C-61.—Mortgage debt outstanding by type of property and of financing, 1939—74[Billions of dollars]Nonfarm propertiesNonfarm properties by type of mortgageGovernment underwrittenConventional 2End of yearor quarterAllpropertiesTotal1- to 4-familyhousesFarmpropertiesMultifamilypropertiesCommercialpropertiesiTotal1- to 4-family housesTotalFHAinsuredVAguaranteedTotal1- to 4-familyhouses193935.56.628.916.35.67.01.81.81.827.114.519401941...19421943194436.537.636.735.334.76.56.46.05.44.930.031.230.829.929.717.418.418.217.817.95.75.95.85.85.66.97.06.76.36.22.33.03.74.14.22.33.03.74.14.22.33.03.74.14.227.728.227.125.825.515.115.414.513.713.71945194619471948194935.541.848.956.262.74.84.95.15.35.630.836.943.950.957.118.623.028.233.337.65.76.16.67.58.66.47.79.110.210.84.36.39,813.618.14.36.19.312.515.04.13.73.85.36.90.22.45.57.28.126.530.634.137.339.014.316.918.920.822.619501951195219531954.72.882.391.4101.3113.76.16.77.27.78.266.775.684.293.6105.445.251.758.566.175.710.111.512.312.913.511.512.513.414.516.322.126.629.332.136.218.922.925.428.132.18.69.710.812.012.810.313.214.616.119.344.649.054.961.569.226.328.833.138.043.61955195619571958.1959129.9144.5156.5171.8190.89.09.810.411.112.1120.9134.6146.1160.7178.788.299.0107.6117.7130.914.314.915.316.818.718.320.723.226.129.242.947.851.655.159.338.943.947.250.153.814.315.516.519.723.824.628.430.730.430.078.086.894.6105.5119.449.355.160.467.677.019601961.196219631964..206.8226.3248.6274.3300.112.813.915.216.818.9194.0212.4233.4257.4281.2141.3153.1166.5182.2197.620.323.025.829.033.632.436.441.146.250.062.365.669.473.477.256.459.162.265.969.226.729.532.335.038.329.729.629.930.930.9131.7146.8164.1184.0204.084.893.9104.3116.3128.319651966196719681969325.8347.4370.2397.5425.321.223.325.527.529.5304.6324.1344.8370.0395.9212.9223.6236.1251.2266.837.240.343.947.352.254.560.164.871.476.981.284.188.293.4100.273.176.179.984.490.242.044.847.450.654.531.131.332.533.835.7223.4240.0256.6276.6295.7139.8147.6156.1166.8176.61970.1971197219731974 »451.7499.8564.8635.0686.931.232.935.439.344.2420.5466.9529.4595.6642.8280.2307.2345.4386.2414.858.067.476.585.492.282.392.3107.5124.0135.8109.2120.7131.1135.097.3105.2113.0116.259.965.768.266.237.339.544.750.0311.3346.2398.3460.6182.9202.0232.4270.01972: 1IfIIIIV511.6528.9546.9564.833.534.435.035,4478.1494.5511.9529.4313.8324.2335.2345.469.171.673.876.595.298.8102.9107.5123.7126.6129.0131.1107.5109.6111.5113.066.867.668.468.240.742.043.144.7354.4367.9382.9398.3206.3214.5223.7232.41973: 1IIML...IV579,3600.0619.8635.036.437.738.639.3542.9562.3581.2595.6353.8366.0378.2386.278.481.183.585.4110.7115.2119.5124.0132.5133.6133.8135.0113.7114.7115.1116.267.967.566.966.245.847.248.250.0410.4428.7447.4460.6240.0251.4263.1270.01974:1II ._..IllIV P. .645.9663.4677.2686.940.241.642.944.2605.7621.8634.4642.8391.7402.0410.1414.886.788.490.492.2127.2131.4133.8135.8136.6137.7117.7118.466.065.551.752.9469.0484.1274.0283.61 Includes negligible amount of farm loans held by savings and loan associations.> Derived figures.Source: Board of Governors of the Federal Reserve System, estimated and compiled from data supplied by variousGovernment and private organizations.321

TABLE C-62.—Mortgage debt outstanding by lender, 1939-74[Billions of dollars]Private financial institutionsOther lendersEnd of yearor quarterTotalTotalSavingsandloanassociationsMutualsavingsbanksCom*mercialbanksiFederalandrelatedagencies 3LifeinsurancecompaniesIndividualsandothers193935.518.63.84 84.35.75.011.9194019411942 ... .1943194419451946 ..19471948194936.537.636 735.334.735.541.848.956.262.719.520.720.720.220.221.026.031.837.842.94.14.64 64.64.85.47.18.910.311.64.9\ 81 61 41.3U1.4i q5.86.74.64.94 74.54.44.87.29.410.911.66.06.46.76*76.76.67.28.710.812.94.94.74 33 63.02.42.01.81.92.412.012.211 711.511.512.113.815.316.517.41950195119521953195472.882.391.4101.3113.751.759.5f Includes former Federal National Mortgage Association and new Government National Mortgage Association, as well asFederal Housing Administration, Veterans Administration, Public Housing Administration, Farmers Home Administration,and in earlier years Reconstruction Finance Corporation, Homeowners Loan Corporation, and Federal Farm Mortgag eCorporation. Also includes U.S.-sponsored agencies such as new FNMA, Federal Land Banks, GNMA (Pools), and FederalHome Loan Mortgage Corporation. Other U.S. agencies (amounts small or current separate data not readily available)included with "individuals and others."Source: Board of Governors of the Federal Reserve System, based on data from various Government and private organizations.322

TABLE C-63.—Net public and private debt, 1929-73 *[Billions of dollars]PublicPrivateIndividual and noncorporateEnd of yearTotalFederalGovernment2Federalfinancialagencies'TotalTotalFarm*TotalNonfarmStateandlocalgovernmentsCorporateMortgageCommercialandfinancial8Consumer1929191.916.513.6161.888.972.912.260.731.222.47.11933... .168.524.316.3127.976.951.09.141.926.311.73.91939._. .183.342.616.4124.373.550.88.842.025.09.87.21940194119421943... .1944189.8211.4258.6313.2370.644.856.3101.7154.4211.916.416.115.414.513.9128.6139.0141.5144.3144.875.683.491.695.594.153.055.649.948.850.79.19.39.08.27.743.946.340.940.542.926.127.126.826.126.09.510.08.19.511.88.39.26.04.95.119451946... .194719481949405.9396.6415.7431.3445.8252.5229.5221.7215.3217.60.7.6.713.413.715.017.019.1140.0153.4178.3198.4208.485.393.5108.9117.8118.054.759.969.480.690.47.37.68.610.812.047.452.360.769.778.427.031.837.242.447.114.712.111.912.913.95.78.411.614.417.419501951195219531954486.2519.2550.2581.6605.9217.4216.9221.5226.8229.1.71.31.31.41.321.724.227.030.735.5246.4276.8300.4322.7340.0142.1162.5171.0179.5182.8104.3114.3129.4143.2157.212.313.715.216.817.592.0100.6114.2126.4139.754.861.768.976.786.415.816.217.818.420.821.522.727.531.432.519551956...195719581959 ._665.8698.4728.3769.6833.0229.6224.3223.0231.0241.42.92.42.42.53.741.144.548.653.759.6392.2427.2454.3482.4528.3212.1231.7246.7259.5283.3180.1195.5207.6222.9245.018.719.420.223.223.8161.4176.1187.4199.7221.298.7109.4118.1128.1141.024.024.424.326.528.738.842.345.045.151.51960 ..196119621963196419651966 .1967196819691970.197119721973874.2930.3996.01,070.91,151.61,243.61,338.71,438.71,582.51,736.01,868.92,045.82,270.22, 525.8239.8246.7253.6257.5264.0266.4271.8286.5291.9289.3301.1325.9341.2349.13.54.05.37.27.58.911.29.021.430.638.839.941.459.864.970.577.083.990.498.3104.8113.4123.9133.3145.0162.4175.0184.5566.1609.1660.1722.3789.7870.0950.81,029.91,145.41,282.91,384.01,517.61,712.71,932.4302.8324.3348.2376.4409.6454.3506.6553.7631.5734.2797.7869.3978.31,111.1263.3284.8311.9345.8380.1415.7444.2476.2513.9548.7586.3648.3734.4821.325.127.530.233.236.039.342.448.351.855.558.763.267.877. 3238.2257.3281.7312.6344.1376.4401.8427.9462.1493.2527.6585.1666.6744.0151.3164.5180.3198.6218.9236.8251.6266.9284.9303.9332,1373.4426.0480.130.834.837.642.345.049.753.960.266.468.168.373.482.983.456.158.063.871.780.389.996.2100.8110.8121.1127.2138.4157.6180.5i Net public and private debt is a comprehensive aggregate of the indebtedness of borrowers after eliminating certaintypes of duplicating governmental and corporate debt.3 Net Federal Government and agency debt is the outstanding debt held by the public, as defined in the "Budget of theUnited States Government, for the Fiscal Year ending June 30,1976."3 This comprises the debt of federally sponsored agencies, in which there is no longer any Federal proprietary interest.The obligations of the Federal Land Banks are included beginning with 1947, the debt of the Federal Home Loan Banksis included beginning with 1951, and the debts of the Federal National Mortgage Association, Federal Intermediate CreditBanks, and Banks for Cooperatives are included beginning with 1968.* Farm mortgages and farm production loans. Farmers'financial and consumer debt is included in the nonfarm categories.« Financial debt is debt owed to banks for purchasing or carrying securities, customers'debt to brokers, and debt owedto life insurance companies by policyholders.Sources: Department of Commerce (Bureau of Economic Analysis), Department of the Treasury, Department of Agriculture,Board of Governors of the Federal Reserve System, Federal Home Loan Bank Board, Federal Land Banks, Departmentof Housing and Urban Development, and Federal National Mortgage Association.323

GOVERNMENT FINANCETABLE C-64.—Federal budget receipts and outlays, fiscal years 1929-76[Millions of dollars]Fiscal yearReceiptsOutlaysSurplus ordeficit (-)1929...3,8623,1277341933...1,9974,598-2,6021939...4,9798,841-3,8621940..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..1969..1970..1971..1972..1973..1974..19751.19761.6,3618,62114,35023,64944,27645,21639,32738,39441,77439,43739,48551,64666,20469,57469,71965,46974,54779,99079,63679,24992,49294,38999,676106,560112,662116,833130,856149,552153,671187,784193,743188,392208,649232,225264,932278,750297, 5209,45613,63435,11478, 53391,28092,69055,18334, 53229,77338,83442,59745, 54667,72176,10770,89068,50970,46076,74182,57592,10492,22397,795106,813111,311118,584118,430134,652158,254178,833184,548196,588211,425231,876246, 526268,392313,446349, 372-3,095-5,013-20,764-54,884-47,004-47,474-15,8563,86212,001603-3,1126,100-1,517-6,533-1,170-3,0414,0873,249-2,939-12,855269-3,406-7,137-4,751-5,922-1,596-3,796-8,702-25,1613,236-2,845-23,033-23,227-14, 301-3,460-34,696-51, 852i Estimate.Note.—Data for 1929-39 are according to the administrative budget and those for 1940-76 according to the unified budget.Certain tnterfund transactions are excluded from receipts and outlays beginning 1932. For years prior to 1932 the amountsof such transactions are not significant.Refunds of receipts are excluded from receipts and outlays.Sources: Department of the Treasury and Office of Management and Budget.324

TABLE C-65.—Federal budget receipts, outlays, and debt, fiscal years 1965-76[Millions of dollars; fiscal years]DescriptionActual1965 1966 1967 1968 1969 1970BUDGET RECEIPTS AND OUTLAYS:Total receipts116,833130,856149, 552153,671187, 784193,743Federal fundsTrust funds _Interfund transactions.90,94329,230-3,339101,42732,997-3,568111,83542,935-5, 218114,72644,716-5,771143,32152,009-7, 547143,15859,362-8,778Total outlays.Federal fundsTrust funds.Interfund transactions.Total surplus or deficit (-)_Federal funds..Trust funds...OUTSTANDING DEBT, END OF YEAR:118,43094,80726,962-3,339-1, 596-3,8642,268134,652106,51231,708-3, 568-3,796-5,0851,289158,254126,77936,693-5,218-8,702-14,9446,242178,833143,10541, 499-5,771-25,161-28, 3793,217184, 548148,81143, 284-7,5473,236-5, 4908,725196,588156,30149,065-8,778-2,845-13,14310, 297Gross Federal debt_Held by Government agencies..Held by the publicFederal Reserve System.Others323,15461, 540261,61439,100222,514329,47464,784264,69042,169222, 521341,34873,819267, 52946,719220,810369,76979,140290,62952, 230238,399367,14487,661279,48354, 095225, 388382,60397,723284,88057,714227,166BUDGET RECEIPTS.Individual income taxes.Corporation income taxesSocial insurance taxes and contributions...Excise taxesEstate and gift taxesCustoms duties_Miscellaneous receipts:Deposit of earnings by Federal ReserveSystem...AllotherBUDGET OUTLAYS..National defense.International affairsGeneral science, space, and technologyNatural resources, environment, and energy.AgricultureCommerce and transportationCommunity and regional developmentEducation, manpower, and social services..HealthIncome securityVeterans benefits and servicesLaw enforcement and justice.._General governmentRevenue sharing and general purpose fiscalassistanceInterestAllowancesUndistributed offsetting receiptsComposition of undistributed offsetting receipts:Employer share, employee retirement..Interest received by trust fundsRents and royalties on the Outer Continental Shelf..116,83348,79225,46122,25814, 5702,7161,4421,372222118,43048,5814,1215,8902,9683,9486,8941,2552,1041,79025,7415,7225291,46022910, 359-3,162-1,329-1,780-53130,85655,44630,07325, 56713,0623,0661,7671,713162134,65255,8564,5546,7903,0742,4418,9561,5404,0932,63828,8955,9215541,42624211,286-3,613-1,447-1,917-248149,55261, 52633,97133,34913,7192,9781,9011,805303158,25469,1014,6956,3113,3792,9829,2051,6516,0236,75930,8216,8996101,56928812,533-4, 573-1,661-2,275-637153,67168, 72628,66534,62214,0793,0512,0382,091400178,83379,4094,6125,6103,6244,54110,6372,1897,0049,70833,6806,8826501,68431113,751-5,460-1,825-2,674-961187,78487,24936,67839, 91815, 2223,4912,3192,662247184, 54880,2073,7845,1083,5035,7797,0652,5316,87111,75837,2817,6407611,64936515,793-5, 545-2,018-3,099-428193,74390,41232,82945,29815,7053,6442,4303,266158196, 58879,2843,5644,6113,6115,1649,0903,4957,88813,05143,0668,6839521,93445118, 312-6, 567-2,444-3, 936-187See next page for continuation of table and for footnotes.325

TABLE C-65.—Federal budget receipts, outlays, and debt, fiscal years 1965-76—Con.[Miiiions of dollars; fiscal years]Description19711972Actual197319741975Estimate1976BUDGET RECEIPTS AND OUTLAYS:Total receiptsFederal funds...„Trust fundsInterfund transactionsTotal outlays.Federal fundsTrust funds._Interfund transactions.Total surplus or deficit (-)Federal fundsTrust fundsOUTSTANDING DEBT, END OF YEAR:Gross Federal debtHeld by Government agencies.Held by the publicFederal Reserve System.OthersBUDGET RECEIPTS(Individual income taxes _; Corporation income taxes: Social insurance taxes and contributions..Excise taxesEstate and gift taxesCustoms dutiesMiscellaneous receipts:- Deposit of earnings by Federal ReserveSystemAliother_BUDGET OUTLAYSNational defense.International affairsGeneral science, space, and technologyNatural resources, environment, and energy.AgricultureCommerce and transportation _Community and regional developmentEducation, manpower, and social services..HealthIncome security_.Veterans benefits and servicesLaw enforcement and justiceGeneral government..Revenue sharing and general purpose fiscalassistance _InterestAllowances....Undistributed offsetting receiptsComposition of undistributed offsettingreceipts:Employer share, employee retirement-Interest received by trust fundsRents and royalties on the Outer ContinentalShelf188,392133,78566,193-11,586211,425163,65159,361-11,586-23,033-29,8666,832409,467105,140304,32865,518238,810188,39286,23026,78548,57816,6143,7352,5913,533325211,42576,8073,0934,2944,4494,28810,3974,0109,04514, 71655, 4239,7761,2992,15919,609"-8,427-2,611-4, 765-1,051208,649148,84672,959-13,156231,876177,95967, 073-13,156-23, 227-29,1145,886437,329113,559323, 77071,426252,344208,64994,73732,16653,91415,4775,4363,2873,252381231,87677,3563,7234,2995,0195,27910,6014,69911,69617, 47163,91110, 7301,6502,46653120, 582-8,137-2, 768-5, 089-279Sources: Department of the Treasury and Office of Management and Budget.232,225161,35792,193-21, 325246,526186,40381, 447-21,325-14,301-25,04610,746468.426125,381343,04575,182267,863232, 225103,24636,15364,54216, 2604,9173,1883,495426246,52675,0722,9564,1695,4614,8559,9385,86911,87418,83272, 95812,0132,1312,6827,22222, 813-12,318-2,927-5,436-3,956264,932181,219104,846-21,133268,392198,69290,833-21,133-3,460-17,47314,013486,247140,194346,05380,649265,404264,932118,95238,62076,78016,8445,0353,3344,845524268.39278,5693,5934,1546,3902,23013,1004,91011,60022,07484,43113,3862,4623,3276,74628,072-16,650-3,319-6,583-5,478278,750185,966118,681-25,897313,446229,005110,338-25,897-34,696-43,0398,343538,541148,988389,553278,750117,70038,50086,22519,9474,8003,9105,7001,968313,44685,2764,8534,1839,4121,77311,7964,88714,71426,486106,70215,4663.0262; 6467,03331,331700-16,839-4,070-7,769-5,000297,520199,278126,510-28,268349,372254,215123,425-28,268-51,852-54,9373,085605,925152,872453,053297,520106,30047,70091,55032,1454,6004,3006,1004,825349,37294,0276,2944,58110,0281,81613,7235,92014,62328,050118,72415,5923,2883,1807,24934,4198,050-20,193-3,888-8,305-8,000326

TABLE C—66.—Relation of the Federal budget to the Federal sector of the national income andproduct accounts, fiscal years 1973-76[Billions of dollars; fiscal years]Receipts and expendituresActual1973 1974Estimate1975 1976RECEIPTSTotal receipts, budget..232.2264.9278.8297.5Government contribution for employee retirement(grossing)Other netting and grossingAdjustment to accrualsOther3.81.63.3-.54.31.93.1-.65.02.12.6-.85.42.21.1-1.1Federal sector, national income and product accounts,receipts240.4273.6287.6305.1EXPENDITURESTotal outlays, budget246.5268.4313.4349.4Lending and financial transactionsGovernment contribution for employee retirement(grossing)Other netting and grossingDefense timing adjustmentBonuses on Outer Continental Shelf land leases...Other-1.73.81.62.73.6-1.2-2.94.31.96'.0.2-1.25.02.1-.34.2.5-4.25.42.2.36.91.0Federal sector, national income and product accounts,expenditures255.4278.3323.7361.0Note.—See Special Analysis A, "Budget of the United States Government for the Fiscal Year Ending June 30, 1976,"for description of these categories.Sources: Department of Commerce (Bureau of Economic Analysis), Department of the Treasury, and Office of Managementand Budget.327

TABLE C-67.—Receipts and expenditures of the government sector of the national income and productaccounts, 1929-74[Billions of dollars]Total governmentFederal GovernmentState and localgovernmentCalendar year or quarterReceiptsExpendituresSurplusordeficitnationalincomeandproductaccountsReceiptsExpendituresSurplusordeficitnationalincomeandproductaccountsReceiptsExpendituresSurplusordeficitnationalincomeandproductaccounts192911.310.31.03.82.61.27.67.8-0.21933. .9.310.7-1.42.74.0-1.37.27.2-.1193919401941— .19421943...19441945...194619471948194915.417.725.032.649.251.253 250.956 858.956.017.618.428.864.093.3103.092 745.542 450.359.1-2.2-.7-3.8-31.4-44.1-51.8-39 55.414 48.5-3.26.78.615.422.939.341.042.539.143 243.338.98.910.020.556.185.895.584.635.629.834.941.3-2.2-1.3—5.1-33.1-46.6-54.5—42 13.513 48.4-2.49.610.010.410.610.911.111 612.915 317.619.39.69.39.18.88.48.59.011.014 317.420.00).61.31.82.52.72.61.91 0-.719501951—19521953. .195419551956195719581S59196019611962 .1963 . .196419651966 . .19671968196968.784.889.894.389.7100 4109.0115 6114.7128.9139 8144.6157.0168.8174.1189.1213.3228 9263.5296.760.879.093.7101.296.797.6104.1114 9127.2131.0136.1149.0159.9166.9175.4186.9212.3242.9270.3287.97.95.8-3.8-6 9-7.02 74.97-12.5-2.13 7—4 3-2.91.8—1 42.21.1—13.9-6.88.849.964.067.270.063.872.177:681 678,789.796 598.3106.4114.5115.0124.7142.5151.2175.0197.340.857.871.077.069.768.171.979.688.991.093.0102.1110.3113.9118.1123.5142.8163 6181.5189.29.16.2-3.8-7.0-5.94.05.72.1-10.2-1.23.5—3.8-3.8.7-3.01.2-.2-12.4-6.58.121.123 325.227.228.831.434.738 241.646.049 953.658.663.469.575.585.293.5107.1119.722.323.725.327.029.932.735.639 544.046.849.654.157.662.267.874.583.995.1107.5119.0-1.2. 4(2).1-1.1—1.3—.9—1 4—2.3-.82—.5.91.21.71.01.3-1.6.71970 ....1971197219731974*302.5321 6367.0411.5455.0312.7340.2372.1408.0460.9-10.1-18.5-5.13.5-5.9192.0198.5227.2258.5291.1203.9220.3244.7264.2298.6-11.9-21.9-17.5-5.6-7.6135.0152.2177.2193.5207.7133.2148.8164.9184.4206.01.83.412.39.21.7Seasonally adjusted annual rates1972: l._.IllIV355.3362.4369 8380.5363.5367.6370.4387.0—8.2-5.2— 6-6.5220.9224.1228.4235.6235.8243.7238.2261.2-14.9-19.6—9.8-25.6166.1176.2175.8190.8159.5161.7166.5171.76.714.49.219.11973: 1HIIV1974: 1IIIllIV*398.1406.9416.5424.6435.9450.7470.3396.1403.9409.8422.3435.5451.7470.0486.22.13.06.72.3.4—1.0249.1255.0261.8268.3278 1288.6302.8260.2262.4263.4270.6281 0291.6304.7317.3-11.2-7.4-1.7-2.3—2.8-3.0-1.9190.3192.0194.6197.3200 6205.3210.9177.0181.7186.2192.7197.4203.3208.8214.413.210.48.44.63.22.02.1i Surplus of $32 million.'Deficit of $41 million.Note.—Federal grants-in-aid to State and local governments are reflected in Federal expenditures and State and localreceipts and expenditures. Total government receipts and expenditures have been adjusted to eliminate this duplication.Source: Department of Commerce, Bureau of Economic Analysis.328

TABLE C-68.—Receipts and expenditures of th& Federal Government sector of the national incomeand product accounts, 1949—76[Billions of dollars]Year or quarterFiscal year:1949....1950....1951....1952....1953....1954....1955....1956....1957....1958....1959....I960....1961....1962....1963....1964....1965....1966....1967....1968....1969....1970197119721973....1974197521976 2Calendar year:194919501951.......1952195319541955..1956195719581959196019611962196319641965196619671968196919701971197219731974 P1973: III....III...IV...1974: I....II....III ..IV p..Total40.042.060.865.169.365.867.275.880.777.985.494.895.3104.2110.2115.5120.5132.8147.2160.6190.4195.2192.5213.2240.4273.6287.6305.138.949.964.067.270.063.872.177.681.678.789.796.598.3106.4114.5115.0124.7142.5151.2175.0197.3192.0198.5227.2258.5291.1249.1255.0261.8268.3278.1288.6302.816.316.523.228.831.430.329.733.636.736.338.242.543.647.349.650.751.357.664.571.490.093.687.5100.7106.8123.122.111.16.18.26.31.032.229.031.435.237.436.839.943.644.748.651.548.653.861.767.579.794.892.289.9108.2114.1131.2107.9110.3116.7121.6124.1129.4134.8136 6Receipts11.011.921.519.319.717.318.721.120.617.821.522.320.322.923.525.727.731.031.233.737.433.332.334.141.245.641.039.917.021.518.519.517.020.620.620.218.022.521.721.822.724.626.429.332.130.736.736.631.033.436.643.749.142.844.743.843.545.949.255.48.08.29.59.710.710.410.010.811.711.611.913.213.314.215.015.616.915.715.817.118.619.220.120.020.721.633.154.78.08.99.410.310.99.710.711.211.811.512.513.513.614.615.316.116.515.716.318.019.019.320.420.021.222.020.921.421.021.321.521.922.522.24.85.56.67.37.57.88.710.211.712.213.816.718.119.922.123.524.628.535.738.344.449.152.658.571.783.391.499.44.95.97.17.47.48.19.310.612.212.414.817.718.220.523.123.825.133.036.740.746.949.554.662.579.588.7Total i39.642.444.666.075.874.267.369.876.083.190.991.398.0106.4111.4116.9118.5131.9154.5172.5185.7195.9212.4232.9255.4278.3323.7361.041.340.857.871.077.069.768.171.979.688.991.093.0102.1110.3113.9118.1123.5142.8163.6181.5189.2203.9220.3244.7264.2298.6PersonaltaxandnontaxreceiptsCorporateprofitstaxaccrualsIndirectbusinesstaxandnontaxaccrualsContributionsforsocialinsurancePurchasesofgoodsandservices19.319.025.146.656.153.243.945.247.750.754.752.755.560.963.465.764.471.785.394.999.498.095.8103.2105.3110.3121.1136.120.118.437.751.857.047.444.145.649.553.653.753.557.463.464.265.266.977.890.798.898.896.297.6104.9106.6116.4ExpendituresTransferpaymentsToper-8.111.38.18.59.310.512.112.814.417.819.820.623.625.126.427.328.331.837.242.748.554.867.475.786.7101.3128.2143.08.710.88.58.89.511.512.413.415.719.520.121.524.925.527.027.830.333.440.046.150.361.072.380.192.9114.4Toforeigners(net)5.04.33.12.62.11.72.11.81.91.71.81.82.12.12.12.22.22.32.22.12.22.02.32.82.72.93.54.05.13.63.12.12.01.82.01.91.81.81.81.92.12.22.22.22.22.32.22.12.12.22.62.72.62.6Seasonally adjusted annual rates77.478.680.281.886.788.190.090.0260.2262.4263.4270.6281.0291.6304.7317.3106.4106.2105.3108.4111.5114.3117.2122.889.991.593.996.3104.0110.8118.4124.42.13.32.72.52.52.72.42.7Grantsin-aidto Stateandlocalgovernments2.12.42.42.52.82.93.03.23.74.76.26.86.97.68.49.810.912.714.817.819.222.626.832.640.241.547.050.82.22.32.52.62.82.93.13.34.25.66.86.57.28.09.110.411.114.415.818.720.324.429.037.440.543.741.240.139.841.042.943.243.445.54.34.44.64.84.85.04.95.15.55.75.97.06.86.87.58.18.59.09.910.912.314.014.313.414.517.419.823.04.44.54.74.74.95.04.95.35.75.66.47.16.67.27.78.38.79.510.211.713.114.613.613.516.318.814.815.916.817.617.918.719.119.7NetinterestSurplusSubsidiesdefi-orless citcurrentna-

TABLE C-69.—Receipts and expenditures of the State and local government sector of the nationalincome and product accounts, 1946—74[Billions of dollars]Calendaryear orquarterTotalPersonaltaxandnontaxeceiptsReceiptsCorporateprofitstaxccrualsndirectbusinesstaxandnontaxccrualsTotal *ExpendituresNetnterestpaidContributionsforsocialinsuranceFederalgrantsn-aidPurchasesofgoodsandservicesTransferpaymentstopersonsSubsidieslesscurrentsurplusof governmententerprisesSurplusordeficit(->,nationalncomeandproductaccounts1946194719481949 .. ... .1950195119521953195419551956195719581959 - .1960 . .1961196219631964196519661967 ---1968196919701971197219731974 v12.915.317.619.321.123 325.227.228.831.434.738.241 646.049.953.658 663.469.575.585 293.5107.1119.7135.0152.2177.2193 5207.71.51.82.12.42.62 93.13.43.74.14.75.25.66.37.37.78.79.410.811.813.715.518.321.724.427.734.237.239.50.5.6.6.8.9.8.8.81.01.01.01 01.21.31.41.41.71.92.12.22.43.23.43.84.15.06.16.79.310.612.113.314.515.817.318.719.721.423.625.527.028.931.734.136.939.442.345.949.954.160.667.074.182.290.098.0104.90.5.6.81.01.21.31.51.71.82.02.32.52.73.03.23.53.84.14.55.05.76.47.38.39.210.611.712.81.11.72.02.22.32.52.62.82.93.13.34.25.66.86.57.28.09.110.411.114.415.818.720.324.429.037.440.543.711.014.317.420.022.323.725.327.029.932.735.639.544.046.849.654.157.662.267.874.583.995.1107.5119.0133.2148.8164.9184.4206.09.812.615.017.719.521.522.924.627.430.133.036.640.643.346.150.253.758.263.570.179.089.4100.8111.2123.3136.6150.8169.8192.41.72.32.92.93.53.03.23.33.43.73.84.24.64.85.15.55.76.06.56.97.78.710.011.614.116.718.620.120.20.3.3.3.3.3.3.3.3.4.5.5.5.6.7.8.8.8.5.3.2.0-.2-.4-.2-.3-.8-1.6-0.7— 8— 8-.9-.91 i—1 1-1.2—1 4-1.6—1 7-1 8—1 8—2 0—2 2-2.3—2 6-2 8-2.9-3.0—3 1-3 2-3.4-3.5-3.8-4.1-4.4-4.7-5.01.91 0 1-.7-1.2 4.11 i-1.3_ 9—1 42 3— 82-.5 §1 21 71 01 3-1 6- 3.71.83.412.39 21.7Seasonally adjusted annual rates1972- 1 IIIIIIV1973: 1 .IIIIIIV166.1176.2175.8190.8190.3192.0194.6197.332.733.934.635.536.236.937.438.24.64.85.05.46.06.26.16.087.089.291.093.095.697.299.4100.010.110.410.711.011.311.611.912.131.737.834.445.841.240.139.841.0159.5161.7166.5171.7177.0181.7186.2192.7145.5147.9152.4157.4162.6167.1171.6177.917 918.418.919.219.519.920.320.8-0.2-.3-.3-.3-.5-.7-.9-1.2-4.2-4.3-4.4-4.5-4.6-4.7-4.8-4.96.714.49.219.113.210.48.44.61974: 111......IIIIVP200.6205.3210.937.838.840.341.16.36.77.3101.2104.0107.0107.612.412.713.013.342.943.243.445.5197.4203.3208.8214.4184.8190.1195.1199.619.119.820.421.4-1.5-1.6-1.6-1.5-4.9-5.0-5.0-5.03.22.02.11 Wage accruals less disbursements have been subtracted from total. These were (in billions of dollars, at seasonallyadjusted annual rates) -.6, -.1, .0, and .0 in the 4 quartets of 1972; .0, -.1, .0, and .0 in the 4 quarters of 1973;and .0 in each of the 4 quarters of 1974.2 Deficit of $41 million.Source: Department of Commerce, Bureau of Economic Analysis.330

TABLE C-70.—State and local government revenues and expenditures, selected fiscal years, 1927—73[Millions of dollars]General revenues by source 2General expenditures by function *Fiscal year 1TotalPropertytaxesSalesandgrossreceiptstaxesIndividualncometaxesCorporationnetincometaxesRevenuefrom: ederalGovernmentAllotherrevenues3TotalEducationHighwaysPublicwelfareAllother , 763 ?fi. 098 8, 318 4, 6506, 252 27 910 9,390 4,9876, 897 30 701 10, 557 5,5276,4526, 9537 8168, 5679, 5929910114?884435713611 15011,66412,22112,77013,93214,48115,41716,42718,09519,01018,6151514448898271,0691,1561,2251,1331,4092,0992,9402,7882,9143,0603,1683,1393,4853,8184,1364,4044,7205,0845,4815,4205,7666,3156,7578,2189,85712,11014,67918,22621,07023, 5823, 01S3, ?69?, 95?3 ?153, 5473, 86?3 8893 7374 5917, 1708,1010111?n14161719212286734?6195571973999405478763?506354924,42323,67825 58627 44730333641475461690?92819159635089409073161 Fiscal years not the same for all governments. See footnote 5.3 Excludes revenues or expenditures of publicly owned utilities and liquor stores, and of insurance-trust activities.Intergovernmental receipts and payments between State and local governments are also excluded.3 Includes licenses and other taxes and charges and miscellaneous revenues.* Includes expenditures for health, hospitals, police, local fire protection, natural resources, sanitation, housing andurban renewal, local parks and recreation, general control, financial administration, interest on general debt, and unallocableexpenditures.5 Data for fiscal year ending in the 12-month period through June 30. Data for 1963 and earlier years include local governmentamounts grouped in terms of fiscal years ended during the particular calendar year.Note.—Data are not available for intervening years.See Table C-63 for net debt of State and local governments.Source: Department of Commerce, Bureau of the Census.331

TABLE C-71.—Public debt securities by kind of obligation, 1946-74[Billions of dollars]Interest-bearing public debtEnd of year ormonthTotalpublicdebtsecuritiesMarketable public issuesby maturity classWithin1 year1 to 10years10yearsandoverU.S.savingsbondsandnotesNonmarketable publicissuesOtherForeignandinternationalGovernmentaccountseries*Maturedpublicdebtanddebtbearingnointerest1946194719481949259 1256.9252.8257.154.849.644.649.461.756.155.151.860 160.057.753.949.852.155.156.76.77.46.39.324.629.031.733.91 52.72.22.11950195119521953195419551956195719581959256 7259 4267.4275 2278.7280 8276.6274.9282 9290 849 447.157.773 962.861 768.675.372 679.950.556.762.250 464.768 658.956.971 083 752.538.828.730 330.232 932.932.032 024.658.057.657.957.757.757.956.352.551.248.210.120.919.619 317.712 711.910.49 27.833.735.939.141.242.643.945.645.844.843.52.42.32.12.33.03.02.42.02.13.11960196119621963196419651966196719681969290 2296.2303.5309 3317.9320 9329.3344.7358 0368.275.385.987.389.488.593.4105.2104.4108 6118.189 584.795.694 2100.495 687.597.0103 493.324.225.420.124 023.625 625 425.124 824.447.247.547.548.849.750 350.851.752.352.20.5.71.31.82.41.53.24.44.76 35.34.63.83.52 92.72.62 62.544.343.543.443.746.146.352.057.259.171.03.43.54.34.14.44.44.33.52.92.0197019711972197319741973:JanFebMarAprMayJune_389 2424.1449.3469.92 492.7450.1454.8458.6457.1457.3458.1123.4119.1130.4141.6148.1131.5130.2130.2128.4125.7122.8104 9123.0117.7106.8113.2117.7117.8117.8117.7117.8119.319 419.921.421.821.622.021.921.821.722.420.852.554.958.160.863.858.458.759.059.359.759.96.517.421.326.922.821.226.129.129.229.029.22.42.42.42.83.02.52.52.52.52.52.578.185.795.9107.1119.195.095.896.496.498.3101.71.91.82.02.12 1.11.91.91.81.81.91.8JulyAugSept . .Oct_NovDec459.0461.8461.4462.5464.0469.9122.6129.1129.1130.9139.4141.6119.3111.7111.7111.6109.0106.820.821.621.621.521.821.860.260.360.360.560.860.828.828.628.928.426.726.92.52.52.52.62.82.8103.0106.1105.4105.1101.6107.11.81.92.01.92.02.11974: JanFebMar . ..AprMay _ .June468.2470.7474.5471.9474.7475.1141.6141.4145.5140.9142.9139.9106.8106.0106.0107.5104.1104.221.722.222.122.022.622.561.061.361.661.962.162.426.226.326.126.626.925.92.82.82.92.92.92.9106.2108.6108.5108.4111.3115.41.92.11.91.81.91.8JulyAugSeptOct .-NovDec2 475.3481.8481.5480.2485.4492.7142.2142.9143.4144.4143.4148.1104.2108.4108.4108.4112.6113.222.420.820.820.821.521.662.762.863.063.363.663.824.423.223.223.123.122.83.03.03.03.03.03.0115.5119.6118.3116.2116.9119.121.01.11.41.11.21.11 Prior to July 1974, this series was shown as "Speciaj issues."2 Beginning July 1974, excludes the non-interest-bearing notes issued to International Monetary Fund to conform withBudget presentation.Source: Department of the Treasury.332

1946194719481949End of year ormonth1950195119521953195419551956195719581959196019611962196319641965196619671968 ...1969197019711972197319741973: Jan _FebMarAprMayJuneJulyAugSeDtOctNovDec1974: JanFebMarAprMayJuneJuly .-AugSeptOctNov .DecTABLE C-72.—Estimated ownership of public debt securities, 1946-74_Total259.1256 9252.8257.1256.7259 4267.4275.2278.7280.8276.6274.9282.9290.8290.2296.2303.5309.3317.9320.9329.3344.7358.0368.2389.2424.1449.3469.98 492.7450.1454.8458.6457 1457.3458.1459.0461.8461.4462.5464.0469.9468.2470.7474.5471.9474.7475.1s 475.3481.8481.5480.2485.4492.7HeldHeld byn ^ FederalGovernmentBanksReserveaccounts27.430.833.735.936.039.342.945.446.749.051.252.852.151.452.852.553.255.358.459.765.873.176.689.097.1106.0116.9129.6141.2116.2117.1117.9117.9120.1123.4125.0128.7127.8127.4127.1129.6128.7131.3131.2131.1133.9138.2137.5141.6140.6138.4139.0141.2[Par values,i billions of dollars]23.322 623 318.920.823 824 725.924 924 824.924 226 326.627.428 930.833 637.040.844 349.152.957.262.170.269.978.580.572.072.674.375 574.175.077.176.176 278.577.278.578.278.279.580.081.480.578.181.181.079.481.080.5Total208.3203 6195 8202.4199.9196 3199 8203.8207 1207 0200.5197 9204.5212.7210.0214.8219.5220 5222.5220.5219 2222.4228.5222.0229.9247.9262.5261.78 271.0261.8265.1266.4263 7263.1259.7256.9257.1257.4256.5259.8261.7261.2261.1263.8260.7259.4256.4s 259.7259.0260.1262.5265.3271.0Total public debt securities 2Commercialbanks a74.568 762 466.861.861 563 463.769 162 059.559 567 560.362.167.267.164 263 960.757 463 866.056.862.765.367.760.355.566.462.862.060.558.958.856.555.155.456.358.560.360.259.059.556.854.453.253.953.052.953.554.555.5Held by private investorsMutualsavingsbanksand insurancecompanies36 735 932 731.529.626 225 525.124 123 121.220 119 819.418.117 617.617 016 815.814 513 212.210.710 510.110 09.38.410.09.99.99.79.69.69.59.29.29.29.19.39.18.88.98.68.68.58.38.38.38.48.48.4Othercorporations415.314 114.816.819.720 719.921.519 123.218.717.718.121.418.718.518.618.718.215.814.912.214.210.47.311.49.810.911.510.310.911.210.010.89.810.311.59.210.211.110.910.710.911.710.511.210.811.311.010.511.211.011.5Stateand localgovernments«6.37 37.98.18.89 611.112.714 415.416.316 616.518.018.719.020.121 121.122.924 324.124.927.227.825.428.929.229.530.029.429.429.228.628.828.427.729.028.528.929.229.930.730.630.129.228.328.829.229.328.828.729.5IndividualsB64.165.765.566.366.364.665.264.863.565.065.964.963.769.466.165.865.968.069.571.974.273.575.180.881.273.273.977.384.674.975.075.375.475.775.976.777.077.277.077.277.377.477.978.479.280.080.781.682.683.383.884.384.6Miscellaneousinvestorsi11.411.912.512.913.613.714.716.116.918.318.919.118.924.326.526.930.231.633.033.433.935.736.136.140.462.572.374.8881.570.177.178.678.979.576.875.576.577.475.475.174.873.973. S74.775.675.975.08 75.775.075.776. i78.481.51 U.S. savings bonds, series A-F and J, and U.S. savjngs notes are included at current redemption value.2 Not all of total shown is subject to statutory debt limitation.3 Includes commercial banks, trust companies, and stock savings banks in the United States and Territories and islandpossessions; figures exclude securities held in trust departments. Since the estimates in this table are on the basis of parvalues and include holdings of banks in United States Territories and possessions, they do not agree with the estimatesin Table C-53, which are based on book values and relate only to banks within the United States.* Exclusive of banks and insurance companies.* Includes trust, sinking, and investment funds of State and local governments and their agencies, and of Territoriesand possessions.s Includes partnerships and personal trust accounts.7 Includes savings and loan associations, nonprofit institutions, corporate pension trust funds, dealers and brokers,Federal oriented agencies not included in Government accounts, and investments of foreign balances and internationalaccounts in this country. Beginning with December 1946, the international accounts include investments by the InternationalBank for Reconstruction and Development, the International Monetary Fund, the International Development Association,the Inter-American Development Bank, and various United Nations' funds, in special non-interest-bearing notes andbonds issued by the U.S. Government. See also footnote 8.8 Beginning July 1974, excludes non-interest-bearing notes issued to International Monetary Fund to conform withBudget presentation.Source: Department of the Treasury.333

TABLE C-73.—Average length and maturity distribution of marketable interest-bearingpublic debt, 1946-74End of year or monthAmountoutstandingWithin1 yearIto5yearsMaturity class5 to 10years10 to 20years20 yearsAverage lengthMillions of dollarsYearsMonthsFiscal year:1946194719481949.—1950..1951..1952..1953..1954..1955..1956-1957..1958-1959..I960-1961..1962-1963-1964..1965..1966-1967-1968-1969-1970-1971-1972..1973..1974.189,606 I168,702160,346155.147155,310137,917140,407147,335150,354155, 206154,953155,705166,675178,027183, 845187.148196,072203,508206,489208,695209,127210,672226, 592226,107232,599245,473257, 202262,971266,57561,97451,21148,74248,13042,33843,90846,36765, 27062,73449, 70358,71471,95267, 78272,95870,46781,12088,44285, 29481,42487,63789,13689,648106, 407103,910105,530112,772121,944122, 803139,94224,76321, 85121,63032, 56251, 29246,52647,81436,16129, 86639,10734,40140,66942, 55758,30472,84458,40057, 04158,02665,45356,19860,93371,42464,47062,77089,61589,07489,00488, 22377,19941,80735, 56232,26416,7467,7928,70713,93315,65127,51534, 25328,90812,32821,47617,05220,24626,43526,04937,38534,92939,16933, 59624, 37830,75434,83715, 88224, 50326,85231,11126,95717,46118, 59716, 22922,82128,03529,97925,70028,66228,63428,61328, 57826,40727,65221,62512,63010, 2339,3198,3608,3558,4498,4398,4258,4078,37410, 5248,4559,34314,47717,40343, 59941,48141,48134,88825, 8538,7976,5941,5921,6063,5304,3514,3497,2088,0887,65810,96015,22114,44416,32817,24117,02316,79716, 55316, 21711,04810,67010,0596,3575,0741529284610493746111041973:Jan...Feb..Mar-Apr-May-^June.July—Aug-Sept.Oct..Nov..Dec.1974: Jan—Feb.-Mar..Apr-May..June..271,121269,881269,775267,847265,919262,971262,708262,405262,356264,047270,234270,224270,131269,650273,596270,452269,550266, 575131,454130,205130,187128,359125,697122,803122,602129,072129,114130,940139,433141,571141,590141,444145,453140, 905142,864139,94288, 57295,42295,42595,39288,22288,22388,22380,59480,57680,53583,81781,71581,71679,04579,04580,57077,16577,19929,14222,35722,35622,35629,62031,11131,10831,10631,10331,10225,13625,13425,13226,96826,96526,96126,96026,95715,27116,11416,05816,02215,99614,47714,45715,34515,31715,26915,67915,65915, 59616,12916,09216,03617,45817,4036,6825,7835,7485,7186,3856,3576,3186,2886,2456,2016,1696,1456,0986,0636,0405,9815,1035,07411720862011003223211000111100July..Aug..Sept..Oct...Nov..Dec.268,782272,111272,608273, 529277,538282,891142,245142,900143,400144,373143,381148,12277,20079,36679,36179,36984,73085,27326,95328,99729,04429,02727,91627,89917,34614,95214,92414,89414,86514,8325,0395,8975,8795,8666,6456,765110011011Mote.—All issues classified to final maturity except partially tax-exempt bonds, which were classified to earliest calldate (the last of these bonds were called on August 14,1962 for redemption on December 15,1962).Source: Department of the Treasury.334

CORPORATE PROFITS AND FINANCETABLE G-74.—Profits before and after taxes, all private corporations, 1929-74[Billions of dollars]Year orquarterCorporate profits (before taxes) andinventory valuation adjustmentAllindustriesManufacturingTotalDurindustriesNondurablegoodsindustriesTransportation,communication,andpublicutilitiesAllotherindustriesCorporateprofitsbeforetaxesCorporatetaxliabilityiCorporate profitsafter taxesTotalDividendsUndistributedprofitsCorporatecapitalconsumptionallowances2Profitspluscapitalconsumptionallowances31929.1933.19391940.1941.1942.1943.1944.1945.1946.1947.1948.1949.1950.1951.195219531954.19551956.1957.1958195919601961196219631964196519661967196819691970197119721973197410.5-1.26.39.815.220.324.423.819.219.325.633.030.837.742.739.939.638.046.946.145.641.151.749.950.355.758.966.376.182.478.784.379.869.278.792.2105.1105.41972:1.IIIIIIV1973: IIV1974: I IIIII—_IV p..86.589.592.999.8103.9105.0105.2106.4107.7105.6105.85.2-.43.35.59.511.813.813.29.79.013.617.616.220.924.621.622.019.926.024.724.019.326.324.423.326.628.832.739.342.638.741.736.627.832.340.847.646.82.6-.41.73.16.47.28.17.44.52.45.87.58.112.013.211.711.910.514.312.813.39.313.612.011.414.115.817.822.824.020.722.418.810.514.521.826.116.02.6.01.72.43.14.65.75.95.26.67.810.08.18.911.49.910.19.411.811.910.710.012.712.411.912.513.014.916.618.618.019.317.717.317.819.021.530.81.8.01.01.32.03.44.43.92.71.82.23.03.04.04.64.95.04.75.65.95.85.97.07.57.98.59.510.111.111.910.810.610.17.88.39.29.28.73.42.03.03.75.16.26.76.78.59.912.511.612.713.513.312.613.415.215.615.815.918.417.919.120.520.623.525.627.929.132.033.133.738.142.248.349.910.01.07.010.017.721.525.124.119.724.631.535.228.942.641938.940.638.348.648.847.241.452.149.750.355.459.466.877.884.279.887.684.974.083.699.2122.7141.01.4.51.42.87.611.414.112.910.79.111.312.510.417.822.319.420.317.721.621.721.219.023.723.023.124.226.328.331.334.333.239.940.134.837.541.549.855.88.6.45.67.210.110.111.111.29.015.520.222.718.524.921.619.620.420.627.027.226.022.328.526.727.231.233.138.446.549.946.647.844.839.346.157.772.985.25.82.03.84.04.44.34.44.64.65.66.37.07.28.68.68.99.310.511.311.711.612.613.413.815.216.517.819.820.821.423.624.324.725.027.329.632.72.8-1.61.83.25.75.96.66.54.49.913.915.611.316.013.011.011.511.316.515.914.210.815.913.213.516.016.620.626.729.125.324.220.514.621.130.343.352.5Seasonally adjusted annual rates37.739.640.845.148.648.447.146.446.246.848.619.321.521.425.127.626.925.724.319.317.115.318.418.119.420.020.921.521.422.126.929.733.38.58.99.59.48.89.59.27.18.08.640.341.042.644.845.947.848.650.854.550.848.792.396.0100.2108.2120.4124.9122.7122.7135.4139.0157.038.940.341,845.248.950.949.949.552.255.962.753.455.758.463.171.574.072.973.283.283.194.326.427.127.828.228.729.129.830.731.632.533.233.327.128.630.634.942.844.943.142.551.650.561.14.23.83.73.84.25.05.46.16.44.75.87.07.98.810.311.513.215.017.418.920.822.023.524.926.230.131.833.936.439.543.046.851.956.060.466.371.276.763.966.466.768.269.270.871.673.174.175.777.679.4i Federal and State corporate income and excess profits taxes.> includes depreciation and accidental damages.3 Corporate profits after taxes plus corporate capital consumption allowances.Source: Department of Commerce, Bureau of Economic Analysis.335

TABLE C-75.—Sales, profits, and stockholders* equity, all manufacturing corporations, 1947—74[Billions of dollars]All manufacturingcorporationsDurable goods industriesNondurable goodsindustriesYear orquarterSales(net)ProfitsBeforeFederalincometaxesAfterFederalincometaxesStockholders'equity 1Sales(net)ProfitsBeforeFederalincometaxesAfterFederalincometaxesStockholders'equity 1Sales(net)ProfitsBeforeFederalincometaxesAfterFederalincometaxesStockholders'equity *19471948194919501951..195219531954.1955..195619571958..195919601961196219631964.1965..196619671968196919701971197219731972:1.. ..II IIIIV1973:1IIIllIVNew series: 2150.7165.6154.9181.9245.0250.2265.9248.5278.4307.3320.0305.3338.0345.7356.4389.9412.7443.1492.2554.2575.4631.9694.6708.8751.4849.51,017.2197.2213.2210.6228.6232.5256.3253.2275.116.618.414.423.227.422.924.420.928.629.828.222.729.727.527.531.934.939.646.551.847.855.458.148.153.263.281.413.916.715.117.518.322.219.521.410.111.59.012.911.910.711.311.215.116.215.412.716.315.215.317.719.523.227.530.929.032.133.228.631.336.548.17.99.68.810.110.513.011.613.065.172.277.683.398.3103.7108.2113.1120.1131.6141.1147.4157.1165 4172.6181.4189.7199.8211.7230.3247.6265.9289.9306.8320.9343.4374.1332.6340.4347.4353.1361.1370.8378.3386.466.675.370.386.8116.8122.0137.9122.8142.1159.5166.0148.6169.4173.9175.2195.5209.0226.3257.0291.7300.6335.5366.5363.1382.5435.8527.3100.0111.5106.2118.1121.2136.5129.5140.17.68.97.512.915.412.914.011.416.516.515.811.415.814.013.616.718.521.226.229.225.730.631.523.026.533.643.67.39.67.59.210.312.79.910.84.55.44.56.76.15.55.85.68.18.37.95.88.17.06.98.69.511.614.516.414.616.516.912.914.518.424.83.95.34.25.15.77.15.76.331.134.137.039.947.249.852.454.958.865.270.572.877.982.384.989.193.398.5105.4115.2125.0135.6147.6155.1160.6171.4188.7165.5170.3173.6176.3181.9187.1191.3194.784.190.484.695.1128.1128.0128.0125.7136.3147.8154.1156.7168.5171.8181.2194.4203.6216.8235.2262.4274.8296.4328.1345.7368.9413.7489.997.2101.7104.4110.4111.3119.9123.7135.09.09.57.010.312.110.010.49.612.113.212.411.313.913.513.915.116.418.320.322.622.024.826.625.226.729.637.86.67.27.68.38.09.59.710.65.66.24.66.15.75.25.55.67.07.87.56.98.38.28.59.210.011.613.014.614.415.516.415.716.718.023.34.14.34.65.04.85.85.96.734.038.140.643.551.153.955.758.261.366.470.674.679.283.187.792.396.3101.3106.3115.1122.6130.3142.3151.7160.3172.0185.4167.1170.1173.9176.8179.2183.7186.9191.71973:IV1974:1.IIIll236.5242.2269.6271.920.621.125.825.013.113.516.315.5367.5378.7389.6401.8122.7120.6137.1134.710.19.412.510.56.25.77.56.2185.8190.6195.3201.0113.9121.6132.5137.210.511.713.414.57.07.88.89.3181.7188.0194.2200.81 Annual data are average equity for the year (using four end-of-quarter figures).2 See "Quarterly Financial Report for Manufacturing Corporations, First Quarter 1974," Federal Trade Commission.Note.—Data are not necessarily comparable from one period to another due to changes in accounting procedures,industry classifications, sampling procedures, etc. For explanatory notes concerning compilation of the series, see "QuarterlyFinancial Report for Manufacturing Corporations," Federal Trade Commission.Source: Federal Trade Commission.336

TABLE C-76.—Relation of profits after taxes to stockholders' equity and to sales, all manufacturingcorporations, 1947-74Year or quarterRatio of profits after Federalincome taxes (annual rate)to stockholders' equity—percent 1AllmanufacturingcorporationsDurablegoodsindustriesNondurablegoodsindustriesProfits after Federal income taxesper dollar of sales—centsAllmanufacturingcorporationsDurablegoodsindustriesNondurablegoodsindustries19471948194915.616.011.614.415.712.116.616.211.26.77.05.86.77.16.46.76.85.41950195119521953195415.412.110.310.59.916.913 011.111.110.314.111 29.79.99.67.14 84.34.34.57.75 34.54.24.66.54 54.14.34.4195519561957 . _ .1958195912.612.310.98.610.413.812.811.38.010.411.411.810.69.210.45.45.34.84.24.85.75.24.83.94.85.15.34.94.44.9196019611962196319649.28.99.810.311.68.58.19.610.111.79.89.69.910.411.54.44 34.54.75.24.03.94.44.55.14.84.74.74.95.41965196619671968196913.013.411.712.111.513.814.211.712.211.412.212.711.811.911.55.65.65.05.14.85.75.64.84.94.65.55.65.35.25.0197019711972 ... _19739.39.710.612.88 39.010.813.110.310.310.512.64.04.14.34.73.53.84.24.74.54.54.44.81972: 1 .IIIIIIV9.511.310.111.59.312.49.711.69.810.210.511.44.04.54.24.43.94.74.04.34.24.34.44.61973- 1IIIIIIV11.614.012.313.412.515.311.812.910.812.712.714.04.55.14.64.74.75.24.44.54.34.94.85.0New series: 21973: IV14.313.315.35.65.06.11974: IIIIII.14.316.715.512.015.412.416.518.018.65.66.05.74.85.54.66.46.66.81 Annual ratios based on average equity for the year (using four end-of-quarter figures). Quarterly ratios based on equityat end of quarter only.2 See "Quarterly Financial Report for Manufacturing Corporations, First Quarter 1974," Federal Trade Commission.Note.—Based on data in millions of dollars.For explanatory notes concerning compilation of the series, see "Quarterly Financial Report for ManufacturingCorporations," Federal Trade Commission. See also Note, Table C-75.Source: Federal Trade Commission.337

TABLE C-77.—Relation of profits after taxes to stockholders* equity and to sales, all manufacturingcorporations, by industry group, 1973-74IndustryRatio of profits after Federalincome taxes (annualrate) to stockholders'equity—percent 11973IV1974IIIProfits after Federal incometaxes per dollarof sales—cents1973IV1974IIIAll manufacturing corporations.Durable goods industries..Stone, clay, and glass products.Primary metal industriesIron and steelNonferrous metals..Fabricated metal products __Machinery, except electricalElectrical and electronic equipment..Transportation equipmentMotor vehicles and equipmentAircraft, guided missiles, and parts..Instruments and related productsOther durable manufacturing products..Nondurable goods industriesFood and kindred productsTobacco manufacturesTextile mill productsPaper and allied productsPrinting and publishingChemicals and allied products..Industrial chemicals and synthetics..DrugsPetroleum and coal productsRubber and miscellaneous plastics products..Other nondurable manufacturing products14.313.311.512.711.115.314.413.914.610.912.09.616.514.615.315.017.08.113.015.015.513.718.717.014.613.414.312.06.013.711.317.314.213.412.08.07.211.316.614.416.512.513.810.115.811.618.116.620.120.514.011.116.715.414.819.518.520.920.115.312.511.210.112.616.517.318.013.617.212.020.514.821.321.320.020.017.611.515.512.415.019.020.816.318.512.110.74.72.59.815.211.118.615.515.97.220.113.018.919.419.023.214.414.25.65.05.05.64.77.04.26.75.13.74.32.89.44.16.13.08.92.55.65.37.97.312.613.85.02.65.64.82.85.94.77.64.26.34.33.03.03.410.24.56.42.58.73.16.64.18.78.312.913.45.02.46.05.56.07.46.78.55.46.64.23.73.83.49.34.86.62.710.83.57.95.39.69.713.311.75.62.45.74.65.97.67.57.65.15.63.81.71.02.98.53.36.83.09.02.37.84.78.38.612.213.74.62.91 Ratios based on equity at end of quarter.Note.—Industry data are not available prior to 1973 IV on a basis comparable with figures shown here. Beginning 1973IV, there are fewer industry categories because of the recent merger movement and other forms of corporate diversification.See "Quarterly Financial Report for Manufacturing Corporations, First Quarter 1974," Federal Trade Commission.Source: Federal Trade Commission.338

TABLE G—78.—Sources and uses of funds, nonfarm nonfinancial corporate business, 1946-74[Billions of dollars]SourcesUsesPeriodTotalInternal 1TotalIIxternalCredit market fundsTotalLongtermsShortterm3OtherTotalPurchaseofphysicalassets 4IncreaseinfinancialassetsDiscrepancy(sourceslessuses)194619471948194919501951195219531954195519561957195819591960196119621963196419651966196719681969197019711972197318.327.028.219.641.135.529.127.228.852.544.342.241.255.147.454.559.265.072.491.397.394.0113.6118.1103.7120.4148.0176.27.812.618.719.117.919.921.221.123.329.228.930.629.535.034.435.641.843.950.556.661.261.561.760.759.468 078.784.610.514.49.6.623.215.67.96.15.523.315.411.611.720.112.919.017.421.121.934.836.132.551.957.444.252 569.391.66.88.66.33.27.210.09.25.66.310.312.912.010.612.611.912.312.512.114.520.425.329.631.538.939.546 855 367.23.45.56.45.13.85.97.85.96.66.57.510.310.58.17.510.89.58.28.89.215.721.618.420.030.741 839.334.53.33.1-.1-1.83.44.11.4-.3-.33.8. 5.41.7.04.64.51.52.93.95.611.29.68.013.218.98.85 016.032.73.75.83.3-2.715.95.6-1.3.5-.813.02.5-.41.27.51.06.74.99.07.414.410.93.020.418.54.85.714.024.516.525.525.218.740.437.228.926.826.447.839.738.737.850.841.449.554.759.365.082.589.188.2104.0112.197.0110.3133.3162.417.917.220.215.224.029.824.324.521.531.335.734.527.036.738.736.343.645.251.662.376.571.475.083.784.087.2102.5121.5-1.48.45.03.516.47.44.62.34.916.54.04.210.814.22.713.211.114.213.420.212.616.829.028.412.923.130.840.91.81.43.0.9.7-1.7.2.42.54.64.63.53.44.36.05.04.55.67.48.98.25.89.66.06.710.214.813.8Seasonally adjusted annual rates1973: 1IIIllIV1974: 1!lIII175.6182.3173 4173.6200.1206.7204.483 783.684 886.383.878.572.891 998.788 687.3116.3128 2131.673 970.766 157.978.089.784.631.338.935.332.536.741.335.342 531.730 725.541.448 349.218 028.122 429.338.338 547.1159.8167.9158.1163.7187.1192.4189.7112.7117.7120 4135.2128.8131 4123.447.150.237 728.558.361 066.315.714.315.310.013.114.314.7* Undistributed profits (after inventory valuation adjustment) and capital consumption allowances.2 Stocks, bonds, and mortgages.3 Bank loans, commercial paper, finance company loans, bankers' acceptances, and Government loans.« Plant and equipment, residential structures, and inventory investment.Source: Board of Governors of the Federal Reserve System.339

TABLE C-79.—Current assets and liabilities of U.S. corporations, 1939-74[Billions of dollars]Current assetsCurrent liabilities1939End of yearor quarter1940..19411942194319441945194619471948194919501951.19521953....19541955195619571958195919601961196119621963196419651966..1967196819691970197119721973....1973:1II..IllIV1974:1IIIIITotal54.560.372.983.693.897.297.4108.1123.6133.0133.1161.5179.1186.2190.6194.6224.0237.9244.7255.3277.3289.0306.8254.7269.7288.2305.6336.0364.0386.2426.5473.6492.3518.8563.1631.4579.2596.8613.6631.4653.9673.3696.0Cashonhandandinbanks*10.813.113.917.621.621.621.722.825.025.326.528.130.030.831.133.434.634.834.937.436.337.241.134.837.139.840.542.841.945.548.247.950.255.760.565.261.262.362.265.262.862.263.9U.S.Governmentsecurities22.22.04.010.116.420.921.115.314.114.816.819.720.719.921.519.223.519.118.618.822.820.120.016.516.816.715.814.413.010.311.510.67.710.79.910.710.89.69.510.711.710.410.7ReceivablesfromU.S.Government342.443.00.1 23.9.6 27.44.0 23.35.0 21.94.7 21.82.7 23.2.738.3 30.01.12.72.82.62.42.32.62.82.82.93.13.43.43.73.63.43.94.55.15.14.84.23.53.43.53.22.93.03.53.23.43.555.758.864.665.971.286.695.199.4106.9117.7126.1135.894.599.5106.9116.5130.2142.1150.2168.8192.2201.9208.8230.5255.8235.7245.6254.2255.8265.6278.7284.1NotesandaccountsreceivableInventoriesOthercurrentassets*TotalAll corporations »18.019.825.627.327.626.826.337.644.648.945.355.164.965.867.265.372.880.482.281.988.491.895.21.41.51.41.31.31.42.41.71.61.61.41.72.12.42.43.14.25.96.77.59.110.611.430.032.840.747.351.651.745.851.961.564.460.779.892.696.198.999.7121.0130.5133.1136.6153.1160.4171.2Nonfinancial corporations«95.0100.5106.8113.1126.6142.8153.1166.0186.4193.3200.3215.1247.0222.8230.3238.2247.0258.9269.7282.710.512.114.416.318.119.722.026.931.635.039.743.649.345.546.046.649.351.648.851.1123.7132.4145.5156.6178.8199.4211.3244.1287.9304.9313.9338.8386.1347.4359.1371.7386.1400.7415.8432.4Advancesandprepayments,U.S.Government30.6.82.02.21.8.9.137.639.337.5.41.32.32.22.42.32.42.31.71.71.81.81.82.02.52.73.14.45.86.47.36.64.94.04.34.14.54.44.34.54.75.122.625.624.024.125.024.831.547.953.657.057.359.373.881.584.388.799.3105.0112.882.686.794.5102.2118.4133.1141.3162.4191.9204.7207.3221.6251.9222.8232.5240.8251.9256.7268.3276.6NotesandaccountspayableFederalincometaxliabilities1.22.57.112.616.615.510.48.510.711.59.316.721.318.118.715.519.317.615.412.915.013.514.113.314.315.716.218.317.413.214.312.610.012.214.116.615.713.915.316.618.717.420.5Othercurrentliabilities6.97.17.28.78.79.49.711.813.213.514.014.916.518.720.722.525.729.031.133.337.040.142.526.029.432.835.539.044.551.061.076.083.689.599.1113.3104.7108.1111.2113.3120.7125.3130.2Networkingcapital24.527.532.336.342.145.651.656.262.168.672.481.686.590.191.894.9103.0107.4111.6118.7124.2128.6135.6131.0137.3142.7149.0157.2164.6174.9182.4185.7187.4204.8224.3245.3231.8237.7241.9245.3253.2257.4263.6i Includes time certificates of deposit.3 Includes Federal agency issues.3 Receivables from and payables to the U.S. Government do not include amounts offset against each other on corporations'booksor amounts arising from subcontracting which are not directly due from or to the U.S. Government. Whereverpossible, adjustments have been made to include U.S. Government advances offset against inventories on corporations'books.4 1 ncludes marketable investments (other than Government securities and time certificates of deposit) as well as sundrycurrent assets.s Excludes banks, savings and loan associations, and insurance companies.° Excludes banks, sayings and loan associations, insurance companies, investment companies, finance companies(personal and commercial), real estate companies, and security and commodity brokers, dealers, and exchanges.Note.—Year-end data through 1970 are based on "Statistics of Income" (Department of the Treasury), covering virtuallyall corporations in 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. All other figures shownare estimates based on data compiled from many different sources, including data on corporations registered with theSecurities and Exchange Commission.Source: Securities and Exchange Commission.340

TABLE C-80.—State and municipal and corporate securities offered, 1934-74[Millions of dollars]Corporate securities offered for cashYear or quarterState andmunicipalsecuritiesofferedfor cash(principalamounts)Type of corporate securityTotalcorporateofferingsCommonstockPreferredstockBondsandnotesIndustry of corporate issuerwater >Manufacturing^Electric,Transportation»CommunicationOther1934939397193716713317619391,1282,16487981,9806041,27118610319401941194219431944194519461947194819491,2389565244356617951,1572,3242,6902,9072,6772,6671,0621,1703,2026,0116,9006,5777,0786,05210811034561633978917796147361831671121243697581,1277624924252,3862,3909179902,6694,8554,8825,0365,9734,8909928485395101,0612,0263,7012,7422,2261,4141,2031,3574724771,4222,3192,1583,2572,1872,320324366481616091,454711286755800902571159964211092113292931,008946195019511952195319543,5323,1894,4015,5586,9696,3617,7419,5348,8989,5168111,2121,3691,3261,2136318385644898164,9205,6917,6017,0837,4881,2003,1224,0392,2542,2682,6492,4552,6753,0293,7138134949925957783996127608827201,3001,0581,0682,1382,037195519561957195819595,9775,4466,9587,4497,68110,24010,93912,88411,5589,7482,1852,3012,5161,3342,0276356364115715317,4208,0029,9579,6537,1902,9943,6474,2343,5152,0732,4642,5293,9383,8043,2588937248248249671,1321,4191,4621,4247172,7572,6192,4261,9912,733196019611962196319647,2308,3608,55810,10710,54410,15413,16510,70512,21113,9571,6643,2941,3141,0112,6794094504223434128,0819,4208,96910,85610,8652,1524,0773,2493,5143,0462,8513,0322,8252,6772,7607186945679579821,0501,8341,3031,1052,1893,3833,5272,7613,9574,9801965196619671968196911,14811,08914,28816,37411,46015,99218,07424,79821,96626,7441,5471,9391,9593,9467,71472557488563768213,72015,56121,95417,38318,3485,4177,07011,0586,9796,3562,9363,6654,9355,2816,7361,0131,9722,0671,8752,1469472,0031,9791,7662,1885,6803,3644,7596,0649,31919701971197219731974 »._17,76224,37022,94422,95322,72638,94343,44639,88832,12837,6117,2389,56110,7237,7414,0821,3933,6823,3403,3752,23530,31230,20325,82521,01231,29410,51311,6246,4824,83710, 31611,01611,74611,31410,27012,7852,2181,3149371,1271,0325,1385,8154,8354,9053,91510,05812,94716,32010,9899,5631973: I.ILIIIIV5,6295,5895,0966,6397,9688,1336,2319,7962,7331,8191,2961,8931,1415974471,1904,0945,7174,4886,7131,3661,1151,4902,4282,9042,0412,8971852343403681,2129628691,8623,2772,6671,8663,1791974: I.II.IIIIV6,3496,4414,0635,8739,2469,1997,45311,7139591,0028351,2868185344594247,4697,6636,15910,0031,9262,5341,8653,9913,5693,1902,3493,677171701476448741,3139997292,7062,0922,0932,672* Prior to 1948, also includes extractive, radio broadcasting, airline companies, commercial, and miscellaneous companyissues.* Prior to 1948, also includes telephone, street railway, and bus company issues.3 Prior to 1948, includes railroad issues only.Note.—Covers substantially all new issues of State, municipal, and corporate securities offered for cash sale in the UnitedStates in amounts over $100,000 and with terms to maturity of more than 1 year; excludes notes issued exclusively tocommercial banks, intercorporate transactions, investment company issues, and issues to be sold over an extended period,such as employee-purchase plans.Sources: Securities and Exchange Commission, "The Commercial and Financial Chronicle," and "The Bond Buyer."341

TABLE C-81.—Common stock prices, earnings, and yields, and stock market credit, 1949-74Year or monthTotal(500stocks)Standard & Poor's common stock dataPrice indexes iIndustrials(425stocks)Publicutilities(55stocks)Railroads(20stocks)Dividendyield(percent)2Price/earningsratiosMargin credit at brokers and banks(end of period) *Regulated«Total Brokers BanksUnregulated;nonmarginstockcreditatbanks •1941-43=10Millions of dollars194915.2315.0017.8712.836.596.49195019511952195319541955195619571958195918 4022 3424.5024 7329.6940.4946 6244.3846.2457 3818 3322 6824.7824 8430.2542 4049 8047 6349.3661 4519 9620 5922.8624 0327.5731.3732 2532 1937.2244 1515 5319 9122.4922 60'23.9632.9433 6528.1127.0535.096 576 135.805 804.954 084 094 353.973 237 158.5710.579 7711.7512.5913 2512.7316.3317.32196019611962196319641965196619671968196955 8566 2762 3869 8781 3788 1785 2691 9398 7097 8459 4369 9965 5473 3986 1993 4891 0899.18107 49107 1346 8660 2059 1664 9969 9176 0868 2168 1066 4262 6430 3132 8330.5637 5845 4646 7846 3446.7248 8445 953 472 983.373 173 013 003 403.203 073 2416 9821 6817.3918 2018.8117 9215 1517.4817 6616.481970197119721973197483 2298.29109 20107.4382.8591 29108.35121 79120.4492.9154 4859.3356 9053.4738.9132 1341.9444.1138.0137.533 833.142.843.064.4715 6918.5018.2014.226,5359,0456,3825,7008,1805,2518358651 1311,8661973: JanFeb.MarAprMayJune118.42114 16112.42110.27107 22104.75132.55127 87126.05123.56119 95117.2060.0157 5255.9455.3455 4354.3742.8740 6139.2938.8836 1434.352.692.802.832.903.013.0616.4014.428,8408,6408,3478,1657,6507,3697,9757,7737,4687,2936,7846,4168658678798728669531,9321,9511,8621,9521,9921,973JulyAug .SeptOctNovDec1974: JanFeb .MarAprMayJune .105.83103.80105 61109.84102 0394.7896 1193.4597.4492 4689.6789.79118.65116 75118 52123.42114 64106.16107 18104.13108.98103 66101.17101.6253.3150 1452 3153.2248 3045.7348 6048.1347.9044 0339 3537.4635.2233 7635 4938.2439 7441.4844 3741.8542.8040 2637.0437.313.043.163 133.053.363.703 643.813.653.864.004.0214 1011 9511.169.717,2997,0816,9547,0936,7746,3826,3436,4626,5276,5676,3816,2976,2436,0565,9495,9125,6715,2515,3235,4235,5195,5585,3615,2601,0561,0251 0051,1811,1031,1311,0201,0391,0081,0091,0201,0371,9571,9521,9091,8781,9171,8661,8451,8431,8691,8681,8582,072JulyAug .SeptOctNovDec82.8276.0368 1269 4471.7467.0793.5485.5176 5477 5780.1774.8035.3734.0030 9333 8034.4532.8535 6335.0631 5533 7035.9534.814.424.905 455 385.135.436.865,9485,6255,0974,9254,6724,1734,0804,1031,0239539242,0912,1192,060> Monthly data are averages of daily figures and annual data are averages of monthly figures,a Aggregate cash dividends (based on latest known annual rate) divided by aggregate market value based on Wednesdayclosing prices. Monthly data are averages of weekly figures; annual data are averages of monthly figures.* Ratio of price index for last day of quarter to quarterly earnings (seasonally adjusted annual rate). Annual ratios areaverages of quarterly data.* Margin credit includes all credit extended to purchase or carry stocks or related equity instruments and secured atleast in part by stock. Credit extended by brokers is end-of-month data for member firms of the New York Stock Exchange.June data for banks are universe totals; all other data fcr banks represent estimates for all commercial banks,which accounted for 60 percent of security credit outstanding at banks on June 30,1971.* In addition to assigning a current loan value to margin stock generally, Regulations T and U permit special loan valuesfor convertible bonds and stock acquired through exercise of subscription rights.* Nonmargin stocks are those not listed on a national securities exchange and not included in the Board of Governorsof the Federal Reserve System's list of over-the-counter margin stocks. At banks, loans to purchase or carry nonmarginstocks are unregulated; at brokers, such stocks have no loan value.Sources: Board of Governors of the Federal Reserve System, New York Stock Exchange, and Standard & Poor's Corporation.342

1929193331939 3194019411942 .. .1943194419451946194719481949195019511952195319541955 .195619571958195919601961—1962196319641965....19661967196819691970...1971197219731974Year or month1973:JanFebMarAprMayJuneJulyAugSeptOctNovDec1974:JanFeb. .MarAprMayJune ... .JulyAugSept..OctNovDec...TABLE C-82.—Business formation and business failures, 1929-74Indexof netbusinessformation(1967-100)112.687.893.193.398.294.491.399.195.290.489.596.892.488.390.793.397.298.698.2100.0109.8116.2108.0111.0117.9117.9^113.4Newbusinessrations(numkor\132.916112,89796,34685,64093,09283,77892,946102,706117,411139,915141,163137,112150 781193,067182,713181,535182,057186,404197, 724203,897200,010206,569233,635274,267264,209287,577316,601329,3584294,279Seasonally adjusted119.1119.9120.8119.3118.8118.5118.2117.2115.6116.2117.6113.8113.0113.1114.0116.1116.7115.8118.8114.8110.5106.9107.427, 79628,75228,96428, 52228, 28627,99927,47726,68926, 24026, 80926,71824, 62726,20927,14226,57829,40628,01225, 87728,03626,13926,14325,30325,434nessfailure103.9100.369.663.054.444.616.46.54.25.214.320.434.434.330.728.733.242.041.648.051.755.951.857.064.460.856.353.253.351.649.038.637.343.841.738.336.438.434.936.035.935.236.338.235.739.138.637.034.735.735.537.540.834.139.737.037.733.445.247.036.337.0Total22,90919,85914,76813,61911,8489 4053,2211,2228091 1293 4745,2509,2469,1628,0587 6118,86211 08610 96912,68613, 73914 96414,05315 44517 07515, 78214 37413 50113 51413,06112 3649 6369 15410 74810 3269 5669 3459,915Number of failures772753874796838840714837717772739693795797971802925789782709839993785728Business failures 1Liability sizeclassUnder$100,00022,16518,88014,54113,40011,6859 2823,1551,1767591 0033 1034,8538,7088,7467,6267,0818,07510 22610 11311,61512,54713 49912,70713 65015,00613,77212 19211,34611,34010,83310 1447,8297,1928,0197 6117 0406,6276,733534557647598559608520580502519513490505559686606619521522474559634544503$100,000andover744979227219163123664650126371397538416432530787860 "8561,0711,1921 4651,3461 7952,0692,0102 1822,1552,1742,2282 2201,8071,9622,7292 7152,5262,7183,182238196in 198279232194257215253226203290238285196306268260235280359241225Amount of currentliabilities (millionsof dollars)Total483.3457.5182.5166.7136.1100.845.331.730.267.3204.6234.6308.1248.3259.5283.3394.2462.6449.4562.7615.3728.3692.8938.61, 090.11,213.61,352.61,329.21,321.71,385.71,265.2941.01,142.11,887.81,916.92,000.22,298.63,053.1205.8137.2252.3119.3167.9180.2206.2190.1189.5185.7218.7245.6337.3213.1204.6209.8375.7215.5153.4232.7217.0306.8344.7242.6Liability sizeclassUnder$100,000261.5215.5132.9119.9100.780.330.214.511.415.763.793.9161.4151.2131.6131.9167.5211.4206.4239.8267.1297.6278.9327.2370.1346.5321.0313.6321.7321.5297.9241.1231.3269.3271.3258.8235.6256.919.119.323.120.719.020.419.620.418.518.719,617.219.322.225.522.123.619.819.818.122.523.921.818.3$100,000andover221.8242.049.746.835.420.515.117.118.851.6140.9140.7146.797.1128.0151.4226.6251.2243.0322.9348.2430.7413.9611.4720.0867.11,031.61,015.61,000.01,064.1967.3699.9910.81,618.41,645.61,741.52,063.02,796.3186.7117.9229.298.7149.0159.8186.6169. £171.0167.0199.1228.4317.9191.0179.1187.7352.1195.7133.6214.6194.5282.9322.9224.31 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.3 Failure rate per 10,000 listed enterprises.3 Series revised; not strictly comparable with earlier data.« Preliminary; based on seasonally adjusted data through November.Sources: Department of Commerce (Bureau of Economic Analysis) and Dun & Bradstreet, Inc.343

1929193319391940194119421943194419451946194719481949195019511952195319541955195619571958_.1959Year orquarter196019611962196319641965 .19661967_ .19681969 ..-.19701971 . .. _19721973 . . ..1974 PFromallsourcesAGRICULTURETABLE G-83.—Income of farm people and farmers, 1929-74Personal incomereceived by totalfarm population7.47.610.114.116.516.617.220.021.123.819.520.322.722.019.718.317.417.617.519.217.418.219.019.819.819.722.623.722.623.926.627.128.233.750.446.7Fromfarmsources 14.84.86.810.112.112.212.815.515.818.013.314.116.115.313.312.411.211.110.812.510.411.111.411.411.110.112.112.711.011.312.912.913.216.531.325.8Fromnonfarmsources 22.62.83.33.94.44.44.44.65.35.86.26.36.56.76.45.96.26.66.66.77.17.17.68.48.89.710.511.011.612.713.714.215.017.219.020.9Realized grossTotal 3Billions of dollars13.97.110.611.113.918.823.424.425.829.534.134.731.632.337.136.835.133.733.334.434.238.137.938.540.241.742.743.145.550.649.951.756.358.660.669.997.0102.011.35.37.98.411.115.619.620.521.724.829.630.227.828.532.932.531.029.829.530.429.733.533.634.235.236.537.537.339.443.442.844.248.250.552.961.088.695.0Income received from farming7.74.46.36.97.810.011.612.313.114.517.018.818.019.522.322.821.521.822.222.723.725.827.227.428.630.231.531.733.536.438.339.542.244.647.652.464.774.8Net to farmoperatorsCashreceiptsfrommarketingsProductionexpensesExcludingnetinventorychange6.32.74.34.26.18.811.812.112.815.017.115.913.612.814.814.013.611.911.111.710.512.310.711.111.611.511.211.412.014.111.612.214.214.013.017.532.227.2Seasonally adjusted annual ratesIncludingnetinventorychange *6.22.64.44.56.59.911.711.712.315.115.417.712.813.615.915.013.012.411.311.311.113.210.711.512.012.111.910.613.014.112.312.314.314.014.418.436.229.6Net income perfarm, includingnet inventorychangeCurrentdollarsDollars9453796857061,0311,5881,9271,9502,0632,5432,6153,0442,2332,4172,9362,8782,6042,5792,4292,4932,5363,1112,6062,8963,1273,2773,3183,0643,8834,3163,8774,0184,7534,7524,9576,41012,74410,4601967dollars 51,9691,1151,8511,8582,5783,4523,7063,6113,6194,0373,5343,9032,9773,1803,5373,4263,1003,0702,8922,9332,8823,4962,9283,2183,4743,6013,6073,2954,0874,4043,8773,8634,3614,1684,1665,1699,2356,5001972: 1IIIIIIV66.068.969.575.457.460.060.266.450.552.152.554.615.516.817.020.816.617.717.821.55,7806,1706,2007,4904,7404,9804,9605,9401973: 1IIIIIIV86.293.2101.8106.777.584.893.698.560.162.967.069.026.130.334.837.729.633.339.342.710,41011,71013,82015,0107,9508,6109,87010, 3501974: 1IIIIIIV v105.098.4102.1102.598.091.394.596.272.174.576.576.132.923.925.626.436.926.927.626.913,0409,5009,7509,5008,5805,9705,9505,5901 Net income to farm operators including net inventory change, less net income of nonresident operators, plus wages andsalaries and other labor income of farm resident workers, less contributions of farm resident operators and workers tosocial insurance.2 Consists of income received by farm residents from nonfarm sources, such as wages and salaries from nonfarm employment,nonfarm business and professional income, rents from nonfarm real estate, dividends, interest, royalties,unemployment compensation, and social security payments.3 Cash receipts from marketings, Government payments, and nonmoney and other farm income furnished by farms(excluding net inventory change).4 Includes net value of physical change in inventory of crops and livestock valued at average prices for the year.5 Income in current dollars divided by the index of prices paid by farmers for family living items on a 1967 base.Source: Department of Agriculture.344

TABLE C-84.—Farm production indexes, 1929-74[1967=100]Year1929....1933....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...1967...1968...1969...1970...1971...1972...1973...1974 P..Farmoutput!535158606370697170726976747476798080838381878991929296959895100102102101111110112109Crops 2Total 3625664676876727573777384797778828180838281898993929296939995100103104101112113119110Feedgrains48445152566458615964497163635962616468677380838677788574878910095998911611211592 Hayandforage69616676758280798277747373788179818186828989859090939494989610099101100106105110104Foodgrains5235485259625466697284816965648275666365629173867974778588881001059891107102112120Vegetables736572747579868284938186838580808482859188908990969494909697100104101101100101103110Fruitsandnuts7072918893928092841009587929394919393939789969993979795951009810098116109116104124122Cotton204178162173148176157168124119163205220137208208208226188202183150157170195204211232205130100148137139145187174157Tobacco7770977464727199101118107101100103119114105114112111858891991051181191139496100879197868889100Oilcrops10925272940413635343947454647464749536058696468777881819597100114116117121131155129Livestock and products 2Total 3545759616471777473717068727578798082848583858988919295989597100100101105108108105109Meatanimals525859606372817370686766697479797881868380828885899095989296100101102108112110109117Dairyproducts7680828589929193959493909393929297989910110110110010110410510410510410110099981001011029898 Poultryandeggs323235363945525254505049545759606164636970747676828284879096100981001061071091061061 Farm output measures the annual volume of net farm production available for eventual human use through sales fromfarms or consumption in farm households.2 Gross production.3 Includes certain items not shown separately.Source: Department of Agriculture.345563-280 O - 75 - 23

TABLE C-85.—Farm population, employment, and productivity, 1929-74Farm population(April l)iFarm employment(thousands) 3Farm outputYearNumber(thousands)As percentoftotalpopulation»TotalFamilyworkersHiredworkersPerunit oftotalinputCropPer man-hour productionperLivestockacre*Total CropsandproductsIndex, 1967=1001929.1933.1939.1940.1941..1942.1943..1944.1945..1946..1947..1948..1949..1950..1951..1952..1953..1954..30,58032,39330,84030, 54730,11828,91426,18624, 81524,42025,40325, 82924,38324,19423,04821, 89021, 74819, 87419, 01925.125.823.523.122.621.419.217.917.518.017.916.616.215.214.213.912.511.712,76312,73911,33810,97910,66910,50410,44610, 21910, 00010, 29510,38210,3639,9649,9269,5469,1498,8648,6519,3609,8748,6118,3008,0177,9498,0107,9887,8818,1068,1158,0267,7127,5977,3107,0056,7756,5703,4032,8652,7272,6792,6522,5552,4362,2312,1192,1892,2672,3372,2522,3292,2362,1442,0892,0815455616264706869707370767373737677781716202122242425272929323334353840421717212224262627293131353637364041432625272728303231313233343637394041435650606263706468677167757069707372711955..1956..1957..1958..1959..I960..1961..1962..1963..1964..1965..1966..1967..1968..1969..1970...1971...1972...1973...1974 P..19, 07818, 71217,65617,12816,59215, 63514,80314,31313,36712,95412,36311, 59510, 87510,45410, 3079,7129,4259,6109,4729,26411.511.110.39.89.48.78.17.77.16.86.45.95.55.25.1.78,3817,8527,6007,5037,3427,0576,9196,7006,5186,1105,6105,2144,9034,7494,5964,5234,4364,3734,3374,?946,3455,9005,6605,5215,3905,1725,0294,8734,7384,5064,1283,8543,6503,5353,4193,3483,2753,2283,1693,1162,036,952,940,982,952,885,890,827,780,604,482,360,253,213,176,175,161,146,168,17880828289899394959998102971001011011001081071061034548515760656872778191931001061091111231261291254650546263687074798193951001051061061151191261164648505458626671778286931001051121211301381441407476778685899295979510097100105106104112115115104i Farm population as defined by Department of Agriculture and Department of Commerce, i.e., civilian populationliving on farms, regardless of occupation.' Total population of United States as of July 1 including Armed Forces overseas.3 Includes persons doing farmwork on all farms."~ . These data, published by the Department of Agriculture, StatisticalReporting Service, differ from those on agricultural employment by the Department of Labor (see Table C-24) because ofdifferences in the method of approach, in concepts of employment, and in time of month for which the data are collected.See monthly report on "Farm Labor."* Computed from variable weights for individual crops produced each year.Sources: Department of Agriculture and Department of Commerce (Bureau of the Census).346

TABLE C-86.—Indexes of prices received and prices paid by farmers, and parity ratio, 1929-74[Index, 1967 = 100, except as noted]Prices received by farmersPrices paid by farmersParity ratio *Year or monthAll farmproductsCropsLivestockandproductsAll items,interest,taxes, andwage ratesFamilylivingitemsProductionitemsActualAdjusted 219295865574748519219332831253234346466193937423936374277851940 . .194119421943. .19441945194619471948..19493949637678819310911398445570858792104122127111395062717176871041149836394450535661707673384046525457637478754345525760616778878381931051131081091131151101008898109116110111115116111100195019511952.. .19531954195519561957 . .19581959.1021191131009791919298951031171181061071021049999981011211109790848288999375828481818181848687768384848484858889898695958989878790929310110710092898483828581102108101938985848588821960196119621963 .1964196519661967. .196819699494969693981051001031089910010310610610310510010197919192898594105100104117888890919294981001041099090919293959810010410992939495949699100102106807980787677807473748283838180828679798019701971.19721973.19741973:Jan 15Febl5. . ...Mar 15Apr 15.May 15June 15July 15Augl5Sept 15Oct 15Novl5Dec 1511011212617218314514915915816317217320819118418118510010711516421213113113814315417016219618218018119511811613417916315516217416917017418121819818818317911412012714516813413613814114314614615115015115215411411912413816112913113313413613813814114214314614711011512214617213213413813914314914815715415315315672697488818082858385878810295918990777479918183848886889091105979492921974: Jan 15Feb 15Mar 15Apr 15May 15June 15198202194183175165208220216205201199193190179169158142157159161164165166149153155157159160161161162167166168949490837974949490837974July 15Aug 15Sept 15Oct 15Nov 15Dec 151751811781851821772042142112282242111551601541551531531681731751761781791611641661671711731701781821831831847778757876737878757876731 Percentage ratio of index of prices received by farmers to index of prices paid, interest, taxes, and wages rates on1910-14=100 base.2 The adjusted parity ratio reflects Government payments made directly to farmers.Source: Department of Agriculture.347

TABLEYear19291933 . . .193919401941194219431944 - . .194519461947194819491950195119521953195419551956195719581959196019611962196319641965 .196619671968196919701971197219731974 vC-87.—Selected measures of farm resources and inputs.Cropsharvested(millionsofacres) i365340331341344348 '357362354352355356360345344349348346340324324324324324302295298298298294306300290293305296322326Manhoursoffarmwork(billions)23.222.620.720.520.020.620.320.218.818.117.216.816.215.115.214.514.013.312.812.011.110.510.39.89.49.08.78.27.46.96.86.56.46.26.15.95.95.91929-74Index numbers of inputs (1967=100)Total100949697981011021031009999100102101104105104103103101989810098979797979698100101101101102102106105Farmlabor32431629028828429128728526725624223622821421420519718918217216015314914313713112712010810210097949290878787Farmrealestate1029610110210199979797101102102103104104103103104103101101991009999999999999910099989897959797Mechanicalpowerandmachinery383239414451545758576371798389949595969796979795939492939499100102101101103101111109Agriculturalchemicals210612131415172020212426283033363738404141445050545966727786100106no110120125131135Feed,seed,andlivestockpurchases3312841"434649535355545657636468707072737675818484878989919297100101104109109110109108Taxesandinterest697167686869727475767674777777798080828281828687899092949598100103105106104107105104Miscellaneous9288838484828488858788939893100999996100961001051091091081101101121091041001061051071051131201201 Acreage harvested (excludini2 Fertilizer, lime, and pesticides.3 Nonfarm portion of feed, seed, and livestock purchases.Source: Department of Agriculture.in fruits, tree nuts, and farm gardens.348

TABLE C-88.—Comparative balance sheet of the farming sector, 1929-75[Billions of dollars]AssetsClaimsOther physical assetsFinancial assetsBeginning ofyearTotalRealestateCrops 2U.S.savingsbondsTotalRealestatedebtOtherdebtLivestock^MachineryandmotorvehiclesHouseholdequipmentandfurnishingsDepositsandcurrencyInvestmentin cooperativesProprietors'equities192948.06.63.29.8193330.83.02.58.5193934.15.13.26.8194019411942194319441945194619471948194952.955.062.973.784.694.2103.5116.4127.9134.933.634.437.541.648.253.961.068.573.776.65.15.37.19.69.79.09.711.913.314.43.13.34.04.95.46.55.45.37.410.12.73.03.85.16.16.76.37.19.08.64.24.24.95.05.35.66.17.78.59.13.23.54.25.46.67.99.410.29.99.60.2.4.51.12.23.44.24.24.44.60.8.9.91.01.11.21.41.51.71.952.955.062.973.784.694.2103.5116.4127.9134.96.66 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 6123.51950195119521953195419551956195719581959I96019611962 . .196319641965 ... .1966 . .196719681969197019711972197319741975 v132.5151.5167.0164.3161.2165.1169.6177.9185.8202.1203.5204 2212.8221.4229.3237.3253.8266.8280.3295.2306.0317.5343.1386.8478.8530.975.386.695.196 595.098.2102.9110.4115 9124.4130.2131 8138.0143.8152.1160.9172.2181.7191.9201.4206.9214.9231.5260.6325.3374.112.917.119.514.811.711.210.611.013.917.715.215.516.417.315.814.417.518.918.820.223.423.827.334.145.812.214.116.717.418.418.619.320.220.221.822.722.222.523.423.924.825.927.429.831.332.334.436.639.143.6126.87.67.98.89.09.29.68.48.37.69.37.78.08.89.39.89.29.710.09.610.610.910.711.814.522.18.69.710.39.99.910.010.510.09.99.89.68.99.19.08.98.68.68.49.09.69.710.111.011.913.69.19.19.49.49.49.49.59.49.510.09.28.78.89.29.29.610.010.310.911.511.912.413.214.014.94.74.74.74.64.75.05.25.15.15.24.74.64.44.44.24.24.03.93.83.83.73.63.74.04.030.02.12.32.52.72.93.13.23.53.73.94.24.54.85.05.45.65.96.26.56.87.27.68.08.69.5132.5151.5167.0164.3161.2165.1169.6177.9185.8202.1203.5204.2212.8221.4229.3237.3253.8266.8280.3295.2306.0317.5343.1386.8478.8530.95.66.16.77.27.78.29.09.810.411.112.112.813.915.216.818.921.223.325.527.429.230.332.235.841.347.46.87.08.08.99.29.49.89.510.012.512.713.414.816.518.118.620.422.424.927.629.731.635.639.142.847.5120.1138 4152.3148 2144.3147.5150.8158.6165.4178.5178.7178.0184.1189.7194.4199.8212.2221.1229.9240.2247.1255.6275.3311.9394.7436.01 Beginning with 1961, horses and mules are excluded.2 Includes all crops held on farms and crops held off farms by farmers as security for Commodity Credit Corporationloans. The latter on January 1,1975 totaled approximately $0.3 billion.Note.—Beginning 1969, data include Alaska and Hawaii.Source: Department of Agriculture.349

INTERNATIONAL STATISTICSTABLE C-89.—U.S. balance of payments, 1946-74[Millions of dollars]YearorquarterExportsMerchandise 13ImportsNetbalanceMilitary transactionsDirectexpendituresSalesNetbalanceNet investmentincomePrivatesU.S.GovernmentNettravelandtransportationexpendituresOtherservices,net 3Balanceongoodsandservices14Remittances,pensions,andotherunilateraltransfersiBalanceoncurrentaccount1946...1947...1948...1949...1950...1951...1952...1953...1954...1955...1956...1957...1958...1959...1960...1961...1962...1963...1964...1965...1966...1967...1968...1969...1970...1971...1972 ...1973...197412..11,76416,09713, 26512,21310, 20314, 24313,44912,41212, 92914,42417, 55619, 56216,41416,45819,65020,10820,78122,27225, 50126,46129, 31030,66633,62636, 41441,94742, 75448, 76870,27794,696-5,067-5,973-7, 557-6, 874-9,081-11,176-10,838-10,975-10,353-11,527-12,803-13,291-12,952-15,310-14,758-14,537-16,260-17,048-18,700-21,510-25, 493-26,866-32,991-35, 807-39, 788-45, 476-55, 754-69,806-100,3796,69710,1245,7085,3391,1223,0672,6111,4372,5762,8974,7536,2713,4621,1484,8925,5714,5215,2246,8014,9513,8173,8006356072,159-2, 722-6, 986471-5,683-493-455-799-621-576-1,270-2,054-2,615-2,642-2,901-2,949-3, 216-3,435-3,107-3, 087-2, 998-3,105-2,961-2,880-2,952-3, 764-4, 378-4, 535-4,856-4,855-4,819-4, 759-4,620-4,989(10)(10)(10)(10)200 -2, 701161 -2, 788375 -2, 841300 -3,135302 -2,805335 -2,753402 -2, 596656 -2, 448657 -2, 304747 -2,1338291,1501,3921,5121,4781,9121,1542,3542,839-493-455-799-621(10) -576-1,270(10) -2,054192 -2,423182 -2, 460830 -2,122-2, 935-3, 228-3,143-3, 344-3, 377-2,908-3,604-2,266-2,1505548079759891,1461,3171,2671,2831,5941,7752,0542,1742,0082,1472,2702,8323,1773,2273,9264,1433,7284,0874,2073,6553,8955,9766,4138,29812,64965085737815114016621318040416868733946374230-12029883-238-269-297-361-189-633-82126 _ 1,28455 — 1,33241 — 1,75163 1,548156 -1,763-111 -2,023-955 -2,341-1,887 -3, 055-3, 008 -2,710-3,133 -2,35531014517520824225430930730529944748248657317105-964-978632649134 — 1,155 86098 1,312 1,0079 - 1,149 1,0881,4261, 5361,7101,7662,0342,3882,7813,1103,5403,8377,80711,6176,5186,2181,8923,8172,3565321,9592,1534,1455,9012,3563104,0945,5845,0885,9418,5427,1404,8684,6571,9801,344-2,922-2,625-4,525-5,638-4, 017-3, 515-2, 531-2,481-2,280-2,498-2,423-2,345-2,361-2,448-2,300-2, 514-2,628-2, 742-2,754-2,853-2,925-3,113-2,943-2,9784,8858,9921,993580-2,125302-175-1,949-321-3451,7223,556-5-2,1381,7943,0702,4603,1995,7884,2871,9431,544-962-1,6332,932-170-6,0104,327-3,256-3,647-3, 797-3,876-324-3,817-9,8074503,165 13-8,136 13-4,971Seasonally adjusted1972:1IIIIL'IIV..-11,65511,53412, 35713,222-13,482-13,329-13,953-14,990-1,827-1,795-1,596-1,768-1,222-1,242-1,10914-1,185326281252295-896-961-857"-8901,4261,4661,7021,819-406-448-490-543-807-737-741-770747 -1,763753 -1,722788 -1,194822 -1,330-990-954-958-896-2, 753-2,676-2,152-2,2261973:IL.II111...IV...15,23016,67918,15220, 216-16,184-17,042-17,574-19,006-954-3635781,210-1,175.14-1,209-1, 067-1,1693424465201,046-833H-763-547-1232,0811,9682,0522,197-634-760-795-819-686-781-613-630841815984901-1851161,6592,736-761-1,056-897-1,164-946-9407621, 5721974:1nV.'.Ilib..IV*..22, 29924, 08924,63426,109-22, 373-25, 720-27,191-27,631-74-1,631-2, 557-5,763-1,166-1,319-1,257673655801-493-664-4563,8432,6353,009-767-789-794-533-730-5039219959622,897-184-33913-2,951-1,902-1,24913-54-2, 086-1,588i Excludes military grants.3 Adjusted from Census data for differences in timing and coverage.3 Fees and royalties from U.S. direct investments abroad or from foreign direct investments in the United States areexcluded from net investment income and included in other services, net.4 In concept, equal to net exports of goods and services in the national income and product accounts, although the twoseries may differ because of revisions, special handling of certain items, etc.& Excludes liabilities to foreign official reserve agencies.6 Private foreigners exclude the International Monetary Fund (IMF), but include other international and regionalorganizations.i Includes liabilities to foreign official agencies reported by U.S. Government and U.S. banks and U.S. liabilities to theIMF arising from reversible gold sales to, and gold deposits with, the United States.s Official reserve assets include gold, special drawing rights, convertible currencies, and the U.S. gold tranche positionin the IMF. Minus sign indicates increase.(Footnotes continued on following page.)350

TABLE G-89.—U.S. balance of payments,[Millions of dollars]1946-74—ContinuedYear orquarterLong-termcapitalflows,netU.S.GovernmentsPrivatesBalanceon currentaccountandlongtermcapitalNonliquidshorttermprivatecapitalflows,net«Allocationsofspecialdrawingrights(SDR)Errorsandomissions,netNetliquiditybalance**Liquidprivatecapitalflows,net*Officialreservetransactionsbalance•*Changesin liabilitiestoforeignofficialagencies,net 7Changesin U.S.officialreserveassets,net 8U.S.officialreserveassets,net(end ofperiod) 91946...1947194819491950 .1951....1952195319541955....195619571958....1959I960....1961....1962.....1963 ...1964....19651966...19671968.1969....1970....19711972....19731974 12..-884-886-882-1,151-1,353-1,539-1,479-2, 336-2,164-1,933-2,025-2,362-1,330-1,5393 2, 571-2,100-2,182-2,606-3, 376-4,511-4, 577-2,575-2,9321,191-70-1,191 n-1,4052 n-1,200-1,028 ii -657-1,328 ii -968-75 -1,643-1,829-2,110-3,723-1,935-3,637-1,429 -3,778-4, 381 -10, 559-98 -11,23562 -1,026-3,287 -5,687-253-236-13115875-227-41183-556-328-479-174-145-89-154-104-522231-640-482-2, 347-1,541-4,276-14,7518671117101558611,115717-124354497220603713901,012361260-1,081-1,053-1,179-418-978-49464-43994-1,805-458-9, 776-1,790-2,3034,783"-3,677"-2,252n-2,864n-2,713-2,696-2,478-2,151-4, 683-1,611-6, 081-3,851-21, 965-13,856-7,606-15,655H273H904ii 214ii 7791,1621,1882,3701,2653,2528,820-5, 988-7, 7883,5022,30210, 573-3,403-1,348-2,650-1,934-1, 534-1,290219-3,4181,6412,739-9, 839-29, 753-10,354-5,304-5,0821,2587421,1171,5571,36367-7873,366-761-1,5527,36227,40510, 3225,0957,176-623-3,315-1,736-2661,758-33-4151,256480182-869-1,1652,2921,0352,1456061,5333771711,22256852-880-1,1872,4772,34832209-2, 09520,70624,02125,75826,02424,26524, 29924,71423,45822,97822,79723,66624,83222, 54021, 50419, 35918,75317, 22016, 84316,67215, 45014, 88214,83015,71016, 96414,48712,16713,15114,37815,883Seasonally adjustedUnadjusted1972:1IIIII....IV....-309-105-370-544-836 -3, 898398 -2, 383-386 -2, 908726 -2, 044-423301-42C-99S178178177177816-442-1,294-870-3, 327-2, 346-4,445-3,7361801,474-2772,125-3,147-872-4,722-1,6112,7181,1034,7771,722429-231-55-11112,27013, 33913, 21713,1511973:1IL-.III....IV....-37194-398-862309-3241,527-1,451-1,008-1,1701,891-741-1,663-1,45797-1,253-3,943850-3361,125-6,614-1,7771,652-869-3, 5812,0632903,530-10,1952861,9422,6619,975-303-1,929-2,64622017-13-1512,93112,91412,92714, 3781974:1II .. .IllpIVJ>31, 34C58(i506-973-1,9981,79*-2,47$-3, 581-3,966—5,42S-1,66*1,1181,686783-1,053-6,222-4,4662,0951,6974,1381,042-4,525-328-832 -2104,883 -3581,331 -1.C0314, 58814,94615,89315, 8839 Includes increases as follows: for 1969, $67 million resulting from revaluation of the German mark in October 1969;for 1971, $28 million in dollar value of foreign currencies revalued to reflect market exchange rates as of December 31,1971; for second quarter and year 1972, $1,016 million resulting from change in par value of the dollar on May 8, 1972;and for fourth quarter and year 1973, $1,436 million resulting from change in par value of the dollar on October 18,1973.Beginning July 1974, valuation of SDR and reserve position in the IMF based on a weighted average of exchange ratesfor the currencies of 16 member countries. On a pre-July 1974 basis, reserve assets for September 30, 1974 are $15,949million and for December 31,1974, $15,812 million.i° Not available separately.n Coverage of liquid banking claims for 1960-63 and of nonliquid nonbanking claims for 1960-62 is limited to foreigncurrency deposits only; other liquid items are not available separately and are included with nonliquid claims.1 2 First 3 quarters on a seasonally adjusted annual rates basis (except reserve assets are for end of December).1 3 Includes extraordinary U.S. Government transactions with India.14 Includes return import into the United States, at a depreciated value of $21 million in 1972 IV, and $22 million in 1973 II,of aircraft originally reported in 1970 III sales as a long-term lease to Australia.**These balances have been used to measure exchange market pressures on the dollar. Under current floating exchangerate conditions, these pressures are inadequately reflected in the balances.Sources: Department of Commerce (Bureau of Economic Analysis) and Department of the Treasury.351

TABLE C-90.— U.S. merchandise exports and imports by commodity groups, 1958-74Year or quarterTotal, includingreexports 2Merchandise exports lTotaj 2 a[Millions of dollars]Domestic exportsSeasonallyadjustedUnadjustedFood,beverages,and tobaccoCrudematerialsandfuels*Manufacturedgoods 6Total sMerchandise importsGeneral imports sSeasonallyadjustedUnadjustedFood,beverages,and tobaccoCrudematerialsandfuels *Manufacturedgoods 6Grossmerchandisetradebalance,seasonallyadjustedi195819591960 . ..196119621963196419651966196719681969197019711972._19731974.1972:1IIIIIIV1973:1II. .IllIV1974:IIIIIIIV11,76711,67312,44213,33315,33716,78318,32720,41322, 35824,21224, 95826,45516,37516,42619,65920, 22620,98622,46725,83226,74229,49031,03034,06337,33242,65943,54949,19970,82397, 90711,89012,04011,57013,70015, 52317,44817, 08120,77122, 61525,12823,19226, 97216,21116,24319,45919,98220,71722,1822 i 5,47926,39929,05430,64633,62636,78842,02542,91148,39969,73096, 54411,72411,82611,37113,47915, 28817,14516, 81720, 48122, 32924, 76122, 85826, 5972,6882,8523,1673,4663,7434,1884,6374,5195,1864,7104,5924,4465,0585,0766,56912,93815, 2311,4161,4321,6252,0952,3822,7733,5584,2253,8613,6513,3734,3453,0522,9963,9423,8643,3563,7754,3374,2734,4044,7264,8655,0066,6926,4417,09110,73515, 8001,7041,6881,5362,1632,5722,7452,2163,2023,6954,2143,5334,35911,54711,17912,58312,78413,66814,29716,52917,43319,21820,84423,81826,78529,34430,44333,74044,73163, 5268,3408,4308,0098,96010, 06811, 25610, 73012,67714, 33416,39815, 44317, 35213,42413,37013,90314, 88816,14016, 83917,48318, 97221,71325,16127, 06027,14513, 39215,69015,07314,76116,46417,20718,74921,42725,61826,88933,22636,04313,30213,74313,53215,00615,96917,30116,98319,22321,17325, 82726, 61427, 3583,5503,5803,3923,4553,6743,8634,0224,0134,5904,7015,3655,30839,951 6,23045, 563 6,40455, 583 7,37969.476 9,235100, 972 10, 7011,8101,7691,8071,9932,0842,3182,1902,6442,7262,7722,5422,6614,1644,6154,4184,3344,6914,7555,0295,4405,7185,3676,0316,3916,5427,2688,83813, 44631, 8092,1302,1052,1952,4082,7803,0763,3404,2516,0828,3748,7608,5925,3117,1176,8636,5377,6498,0709,10611,24414,44615, 75620,62423,01125,90730,41437,76745, 00156, 2108,9859,4789,13510,16910,66311,47210,99811, 86811,89414,14614, 72915, 4412,9837364,5865,4654,5225,2607,0835,3153,8724,1418371,2892,708-2,014-6, 3841,348-3, 065-1,657-1,697-1,462-1,555-804-568441,441645-949-2,102-6901 Beginning 1960, data have been adjusted for comparability with the revised commodity classifications effective in 1965.2 Totals exclude Department of Defense shipments of grant-aid military supplies and equipment under the MilitaryAssistance Program.3 Total includes commodities and transactions not classified according to kind.* Includes fats and oils.5 Includes machinery, transportation equipment, chemicals, metals, and other manufactures. Export data for these itemsinclude military grant-aid shipments.« Total arrivals of imported goods other than intransit shipments.7 Exports, excluding military grant-aid, less general imports; quarterly data seasonally adjusted.Note.—Data are as reported by the Bureau of the Census adjusted to include silver ore and bullion reported separatelyprior to 1969. Export statistics cover all merchandise shipped from the U.S. customs area, except supplies for U.S. ArmedForces. Export values are f.a.s. port of export and include shipments under Agency for International Development andFood for Peace programs as well as other private relief shipments. Import values are defined generally as the marketvalue in the foreign country, excluding the U.S. import duty and transportation costs such as ocean freight and marineinsurance.Source: Department of Commerce (Bureau of the Census and International Economic Policy and Research).352

TABLE C-91.—U.S. merchandise exports and imports by area, 1968-74[Millions of dollars]Area 1968 1969 1970 1971 1972 1973 1974Exports (including reexports and special categoryshipments): TotalDeveloped countries..Developing countries..Canada^Other Western Hemisphere-Western Europe 2Eastern EuropeAsiaAustralia and OceaniaAfricaUnidentified countries iGeneral imports: Total_Developed countries..Developing countries..CanadaOther Western Hemisphere-Western Europe 2Eastern EuropeAsiaAustralia and OceaniaAfricaUnidentified countries*71,33934,636 38,006 43,224 44,130 49,75851 4023,600 26,479 30,877 30,335 34,319 47,20910,821 11,277 12,993 13,410 14,556 20,9638,072 9,137 9,079 10,365 12,415 15,1045,339 5,576 6,532 6,484 7,275 9,92911,132 12,392 14,463 14,178 15,361 21,359215 249 354 384 819 1,8017,582 8,261 10,028 9,855 11,278 18,4191,026 998 1,189 1,168 1,034 1,7441,269 1,392 1,579 1,694 1,576 2,30667733,226 36,043 39,952 45,563 55,583 69,47624,130 26,460 29,259 33,744 40,822 48,5309,373 10,442 11,549 14,356 20,3139,005 10,384 11,092 12,691 14,927 17,7155,143 5,163 5,836 6,038 7,003 9,60710,139 10,138 11,169 12,658 15,423 19,286198 195 226 223 321 5266,911 8,275 9,621 11,779 15,117 18,157697 828 871 895 1,145 1,5621,122111,046121,113241,236411,595 2,58398,50663,01832,69819,93215,81228,6381,43225, 7842,6973,659552100, 97260,47939,47122,28218,42023, 74589127, 5001,50366 i?w , . I oilseeds through Canada are shown as exports to unidentifiedcountries.2 Includes Finland, Yugoslavia, Greece, and Turkey.3 Consists of certain low-valued shipments not identified by country.Note.—Developed countries include Canada, Western Europe, Japan, Australia, New Zealand, and the Republic ofSouth Africa. Developing countries include rest of the world except Communist areas in Eastern Europe and Asia andunidentified countries.Source: Department of Commerce (Bureau of the Census and International Economic Policy and Research).353

TABLE C-92.—U.S. overseas loans and grants, by type and area, fiscal years, 1962-74[Millions of dollars]Type of program and fiscal periodYotalNearEastandSouthAsiaLatinAmericaEastAsiaandVietnamAfricaEuropeOtherandinterregionalTOTAL ECONOMIC LOANS AND GRANTS (OBLI-GATIONS AND LOAN AUTHORIZATIONS)*1962-73 averageLoansGrants1974 —.LoansGrants ...OFFICIAL DEVELOPMENT ASSISTANCE TO LESSDEVELOPED COUNTRIES aObligations and loan authorizations:1962-73 average1974Loan repayments and interest receipts:1962-73 average.19745,3013,0162,2867,7755,0622 7133,9943,7874821,2421,3579863719196492701,1994652536781,1367154211,410986424887600721151,1914837081,8871,3355529511,18869300403203200577344233340299546517291,5371,524136681115561,4452241,2215661,223Agency for International DevelopmentObligations and loan authorizations:1962-73 average1974..Loan repayments and interest receipts:1962-73 average1974 .Food for PeaceObligations:1962-73 average1974.Loan repayments and interest receipts:1962-73 average...1974Contributions and subscriptions to internationalfinancial institutions 3Obligations:1962-73 average1974Other official development assistance, includingPeace Corps*Obligations:1962-73 average1974OTHER ECONOMIC LOANS AND GRANTS TO LESSDEVELOPED COUNTRIESObligations:1962-73 average...19742,1901,7862646421,2699731926003278002082287212,5616062191464585822401032201584544822321345119827524981059067333349132260122583194133124141306327848126436315516485012952575131Loan repayments and interest receipts1962-73 average.1974480950982752783243416650109ECONOMIC LOANS AND GRANTS TO DEVELOPEDCOUNTRIESObligations:1962-73 average..1974....5861,4271191163681,089 2221 Some data are preliminary.2 Official development assistance is defined as concessional aid for development purposes. Countries have beenclassified "less developed" on the basis of the standard list of less developed countries used by the DevelopmentAssistance Committee of the Organization for Economic Cooperation and Development. On this basis, "less developed"countries include all countries receiving U.S. loans or grants except the following which are considered "developed":Japan, Australia, New Zealand, Republic of South Africa, Canada, and all of Europe except Malta, Spain, and Yugoslavia.3 Includes paid-in capital subscriptions and contributions to the Inter-American Development Bank, the InternationalBank for Reconstruction and Development, the International Development Association, and the Asian Development Bank.4 Data for certain programs from Department of Commerce, Bureau of Economic Analysis.Source: Agency for International Development (except as noted).354

TABLE C-93.—International reserves, 1949, 1953, and 1969-74[Millions of U.S. dollars; end of period]Area and country 19491953196919701971197219731974NovemberAll countries._46,03751,84078,12692,604130,581158,714183,848216,118Developed areas37,27441,47862,63674, 318107,197126, 596139,151140,682United States26,02423,45816, 96414,48713,19013,15014,37815, 845United Kingdom ...1,7512,6702,5272,8276,5825,6476,4767,917Other Western Europe ...6,50210,59733,61344,65462,02375,37592,60191, 347AustriaBelgium__.FranceGermanyItalyNetherlandsScandinavian countries (Denmark,Finland, Norway,and Sweden)SpainSwitzerlandOther139785801967233865371221,6921,2752771,1448291,7738481,2301,0261501,7681,5521,5302,3883,8337,1295,0452,5292,2141,2814,4253,2391,7512,8474,96013,6105,3523,2412,5381,8175,1323,4062,3433,4738,25318,6576,7873,7963,7013,2686,9664,7792,7193,87010,01523,7856,0794,7854,5135,0147,4887,1072,8735,1008, 52933,1476,4346,5476,0716,7728,0789,0503,1255,4128,99032,8666,4247,1505,2956,2777,5638,245Canada1,1971,9093,1064,6795,7016,0505,7685,797Japan2268923,6544,84015, 36018,36512,24613, 738Australia, New Zealand, and SouthAfrica1,5721,9522,7722,8314,3428,0097,6826,038Less developed areas»8,76310,36215,49018,28523,38432,11944,69775,436Latin AmericaMiddle EastOther AsiaOther Africa 22,8001,5343,6426393,4161,2563,7421,7874,4703,0354,7423,0945,6413,2465,0924,1826,5845,2495,9205,49710,5497,6257,8295,98116,31011, 54710,1326,55818,85130,13213,02513, 2781 Includes areas in addition to those listed.2 All Africa except South Africa.Note.—International reserves is comprised of monetary authorities' holdings of gold, special drawing rights (SDR),reserve positions in the International Monetary Fund, and foreign exchange. Conversions from national currencies to U.S.dollars from December 1971 through January 1973 are calculated at the cross rates reflecting the parities and centralrates agreed in December 1971. From February 1973 through June 1974, the intention is to reflect the cross rates of paritiesor central rates for countries having effective parities or central rates and market rates for others. Beginning July 1974,foreign exchange is valued at end-of-month market rates or in the absence of market rate quotations at prevailing officialrates. Gold is valued throughout at SDR 35 per ounce, equivalent to US$38 per ounce from December 1971 through January1973, to US$42.22 per ounce from February 1973 through June 1974, but to the respective US$/SDR transactions value asmeasured by the "basket" valuation of the SDR beginning July 1974. Data exclude U.S.S.R., other Eastern Europeancountries, Mainland China, and Cuba (after 1960).Source: International Monetary Fund, "International Financial Statistics."355

TABLE C-94.— US. reserve assets, 1946-74[Millions ot dollars]End of year ormonthTotal reserveassetsTotal 2Gold stock iTreasurySpecialdrawingrights(SDR) aConvertibleforeigncurrencies *Reserveposition inInternationalMonetary Fund 519461947...19481949...19501951195219531954195519561957195819591960196119621963196419651966196719681969197019711972197319741974: JanFeb .. ..MarAprMay ..JuneJuly ...AugSeptOctNovDec20,70624,02125,75826,02424, 26524, 29924,71423, 45822,97822,79723,66624, 83222, 54021, 50419, 35918,75317, 22016, 84316, 67215, 45014, 88214, 83015,7107 16,96414, 487«12,1679 13,151io 14,378"15,88314 56514,64314,58814 64214,87014,946ii 14,912ii 15,460ii 15,893ii 15,890ii 15 840ii 15,'88320,70622, 86824 39924, 56322, 82022, 87323, 25222,09121 79321. 75322, 05822, 85720, 58219 50717 80416 94716 05715 59615 4710 13 80613 23512, 06510 89211,85911,07210, 206»10,487ioil,65211,65211 65211,65211,65211 65211,65211,65211,65211,65211,65211,65211 652H',65220, 52922,75424, 24424, 42722, 70622,69523,18722,03021,71321,69021,94922,78120, 53419 45617,76716 88915,97815 51315, 3889 13 73313,15911,98210 36710,36710, 73210,1329 10,41010 11,56711,56711,56711,56711,56711,56711,56711,56711,56711,56711,56711,56711 56711,5678511,1009 1,95810 2,166H2,3742,1662,1662,1662 1572,1632,195ii 2, 227ii 2,200ii 2, 282ii 2, 306ii 2 329ii 2', 374116992124327811 3212,3453 528? 2, 781629•27624185596899669412224246193431 1531 3591,4611 4451 4261 4621 3671 1851 0441 6081 9751 9581 9971 5551 69010641 035'769o 8633264201 2902,3241,935585• 46510 552"1,8526887577618249891,005ii 1,021n 1,384ii 1,713ii 1,739» 1 816ii 1,8521 Includes gold sold to the United States by the International Monetary Fund (IMF) with the right of repurchase andgold deposited by the IMF to mitigate the impact on the U.S. gold stock of purchases by foreign countries for gold subscriptionson increased IMF quotas.2 Includes gold in Exchange Stabilization Fund.3 Includes initial allocation on January 1, 1970 of $867 million, second allocation on January 1, 1971 of $717 million,and third allocation on January 1, 1972 of $710 million of special drawing rights (SDR) in the Special Drawing Accountin the IMF, plus or minus transactions in SDR.«Includes holdings of Treasury and Federal Reserve System.8 The United States has the right to purchase foreign currencies equivalent to its reserve position in the Fund automaticallyif needed. Under appropriate conditions the United States could purchase additional amounts equal to theUnited States quota.8 Reserve position includes, and gold stock excludes, $259 million gold subscription to the Fund in June 1965 for a U.S.quota increase which became effective on February 23,1966. In figures published by the Fund from June 1965 throughJanuary 1966, this gold subscription was included in the U.S. gold stock and excluded from the reserve position.7 Includes gain of $67 million resulting from revaluation of German mark in October 1969, of which $13 million representsgain on mark holdings at time of revaluation.8 Includes $28 million increase in dollar value of foreign currencies revalued to reflect market exchange rates as ofDecember 31,1971.9 Includes $1,016 million increase in total reserve assets resulting from the change in par value of the U.S. dollar onMay 8,1972. consisting of $828 million total gold stock, $822 million Treasury gold stock, $155 million SDR, and $33 millionreserve position in the IMF.10 Includes $1,436 million increase in total reserve assets resulting from the change in par value of the dollar on October18, 1973, consisting of $1,165 million total gold stock, $1,157 million Treasury gold stock, $217 million SDR, and $54million reserve position in IMF.n Beginning July 1974, the IMF adopted a technique for valuing the SDR based on a weighted average of exchangerates for the currencies of 16 member countries. SDR holdings and reserve position in the IMF are also valued on thisbasis beginning July 1974. At valuation used prior to July 1974 (SDR 1=$1.20635), end of month values are (in millions):July..Aug..Sept..Oct...Nov..Dec.Totalreserveassets$14,92115,52315,94915,91915,82815,812SDR$2,2332,2402,3182,3262,3262,338Reservepositionin IMF$1,0241,4071,7331,7481,8071,817Note.—Gold held under earmark at Federal Reserve Banks for foreign and international accounts is not included inthe gold stock of the United States.Sources: Department of the Treasury and Board of Governors of the Federal Reserve System.356

TABLE C-95.—International investment position of the United States at year-end, 1960 and1969-73[Billions of dollars]Type of investment 1960 19691 1970 l 1971 1972 19732Net international investment position of theUnited States s44.767.369.157.751.263.0U.S. assets abroad85.6158.3166.8180.8200.6226.1Nonliquid assets66.2138.6149.9164.7181.8204.2U.S. Government.16.930.732.134.236.138.8Long-term credits .Foreign currencies and othershort-term assets14.02.928.22.529.62.431.82.434.12.036.22.6Private long-term.44.596.5105.0115.9129.0143.5Direct investments abroad _Foreign securitiesOther claims *Private short-term nonliquid claims 4 .Liquid assetsPrivate claims iU.S. monetary reserve assets.GoldSpecial drawing rights (SDR)Convertible currenciesGold tranche position in IMF31.99.63.1M.819.419.417.81.671.018.76.811.419.62.717.011.92.82.378.219.67.212.816.92.414.511.1.9.61.986.221.78.014.616.14.012.210.21.1.3.694.324.99.716.718.85.66 13.26 10.562.0.26.5107.325.211.021.922.07.68 14.4611.762.2U.S. liabilities to foreigners.40.990.997.7123.1149.4163.1Nonliquid liabilities to other than foreignofficial agencies19.845.050.755.366.570.5U.S. Government..Private long-term..818.42.439.62.044.81.549.81.860.22.962.2Direct investments in the UnitedStatesU.S. securitiesOther liabilities *6.910.01.611.822.94.813.325.65.913.730.16.114.338.87.117.736.87.7Private short-term nonliqiid 7 _.63.03.93.94.55.4Liquid liabilities to private foreigners andliquid, other readily marketable, andnonliquid liabilities to foreign officialagencies21.045.947.067.882.992.6To private foreignersTo foreign official agencies.LiquidOther readily marketableNonliquid, reported by U.S.Government9.111.911.928.917.013.01.52.522.624.420.6.73.116.651.247.6.13.521.461.657.3.53.725.866.861.91.73.21 Data dp not reflect revisions made in balance-of-payments statistics in June 1974.2 Preliminary.3 Includes U.S. gold stock.< Reported by U.S. banks and nonbanking concerns.5 Liquid claims are not available separately and are included with nonliquid claims.6 Reserve assets include increases from changes in the par value of the dollar, as officially implemented; on May 8,1972,the increase totaled $1,016 million, consisting of $828 million gold stock, $155 million SDR. and $33 million gold trancheposition in IMF; and on October 18, 1973, the increase was $1,436 million, consisting of $1,165 million gold stock, $217million SDR, and $54 million gold tranche position in IMF.7 Reported by U.S. nonbanking concerns.Source: Department of Commerce, Bureau of Economic Analysis.357

TABLE G-96.—Price changes in international trade, 1966-74[1963=100]Area or commodity class1966 1967 1968 1969 1970 1971 1972 19731974ThirdquarterUnit value indexes by areaDeveloped areasTotal:ExportsTerms of trade *105100105101104101108101114102119101130102156101v 201United States:ExportsTerms of trade l10710111010211110311510312110112599129951509419778Developing areasTotal:Exports.Terms of trade i1041011031001031011061011091001161021211001461043 2242 124Latin America:ExportsTerms of trade *._1081031051001069910910011510112210112910214310021752 98Southern and Eastern Asia:ExportsTerms of trade *101100999997100102102106104108104in1001351022 1652 92World export price indexesPrimary commodities: TotalFoodstuffs104105101104100101103104108111115117130132188191293236Coffee, tea, and cocoa..Cereals ....1121031081051101001199813696119100132111174203200249Other agriculturalcommodities 31049696101101105120184228Fats, oils, and oilseeds.Textile fibersWoolRubberMinerals .Metal ores111929091104105102887775103109998874741021081018573981041141188363781111221188557641271261161098865141134197186183129181161P332181130U62480204Manufactured goods: Total *—106107107110117124134156189Nonferrous base metals«...1561421501751801541542222571 Terms of trade indexes are unit value indexes of exports divided by unit value indexes of imports.2 Data are for second quarter 1974.3 Includes forest products.* Data are an average for first 3 quarters of 1974.» Data for manufactured goods are unit value indexes.Note.—Data exclude trade of Communist areas in Eastern Europe (except Yugoslavia) and Asia.Sources: United Nations and Department of Commerce (International Economic Policy and Research and Bureau ofResources and Trade Assistance).358

TABLE C-97.—Consumer price indexes in the United States and other major industrial countries.1955-74[1970=100]PeriodUnitedStatesCanadaJapanFranceGermanyItalyNetherlandsUnitedKingdom1955195619571958195969.070.072.574.575.169.970.973.275.075.952.652.854.454.254.750.451.453.261.265.070.171.973.375.075.762.264.365 267.066.757.858 962 763.864.359.061 964 266.266.51960 .. .19611962196319641965196619671968196976.377.077.978.879.981.383.686.089.694.476.777.178.079.480.882.885.988.992.696.856.759.763.869.271.976.780.683.888.392.967.369.572.976.479.081.083.285.489.395.076.778.580.983.385.288.191.292.593.996.468.269.772.978.383.086.7OO O91.692.895.266.467.068 370.974.878.783 386.089 195.867.269.572 573.976.380.083.185.289 294.0197019711972197319741100.0104.3107.7114.4127.0100.0102 9107 8116.0127.9100.0106.3111.5124.5152.4100.0105.5111.7119.9135.5100.0105.3111.1118.8126.8100.0105.0110.9122.414G.0100.0107.5115.9125.2136.6100.0109.5117.0126.7145.91972:1IIIII ._IV ....1973:1. ..IIIIIIV....106.4107.2108.2109.1110.7113.1115.6118.3105.7106.7108.8109.9111.9114.5117.7119.8108.8111.2112.3113.9116.9122.7126.5131.9108.9110.4112.5114.9115.9118.2121.1124.4109.0110.2111.6113.4116.0118.2119.3121.7108.2109.6111.5114.5117.5121.3123.6127.2112.7115.4116.3119.2121.3124.9125.9128.8113.9115.9117.8120.7122.2125.2127.7131.81974:1. ..IIIIIIV 3121.6125.0128.9132.6122.7126.8130.6133.5144.1150.5156.1162.3129.0134.3138.7142.5124.6126.6127.8129.3133.6140.92 148.3131.9135.9138.3142.5137.2145.3149.4154.91 For United States, 12-month average; for all other countries, January-November average, except Italy, January-August average.2 July-August average.s October-December average for United States; October-November average for all other countries.Sources: Department of Labor and Organization for Economic Cooperation and Development.359U. S. GOVERNMENT PRINTING OFFICE : 1975 O - 563-280