Economic Report of the President

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Lower crop prices, high mortgage rates, and lower inflation werethe major factors leading to a decline in land values. Farm liabilitiescontinued to increase and farmers' debt-to-asset ratio is estimated tohave increased to about 20 percent, a significant rise from the 15 to17 percent range typical of the late 1960s and 1970s.U.S. agricultural policies have once again become a major factor indetermining farm prices and incomes. Federal budget outlays forcommodity price support and related programs soared to $12 billionin fiscal 1982 from $4 billion in the previous fiscal year. A programof voluntary acreage controls, including payments to those who restrictproduction in the 1983-84 crop year, was adopted in 1982 andsupplemented by the addition of the "payment-in-kind" option inearly 1983.Food prices rose about 4 percent in 1982, with marketing costsrising at more than twice the rate of the farm value component offood prices.FOREIGN TRADEA reduction in U.S. trade was a key factor in the decline in aggregatedemand in 1982. The main causes of the decline in net exportswere the strength of the dollar and the worldwide recession. In December1982 the trade-weighted value of the dollar was about 40percent above its low point in 1980. Because exchange-rate appreciationlowers import prices and affects trade volume with a substantiallag, it initially tends to improve the trade balance. By the second halfof 1982, however, the reduced cost competitiveness of U.S. firmsbegan to overwhelm the short-term positive factors.A secondary cause of the deteriorating trade balance was the internationaldebt problem. Some heavily indebted developing countries,especially in Latin America, experienced difficulty in attracting capitalinflows and were forced to cut imports sharply in 1982. Because severalof the major high-debt developing countries have close tradingties with the United States, a large proportion of the import cutscame out of U.S. exports.Cyclical factors had conflicting effects on the trade balance in1982. On one side, the recession in the United States tended toreduce import demand, so that import volume fell more than 4 percent.On the other side, the recession in other industrial countriescontributed to the 13 percent decline in real U.S. exports.GOVERNMENT PURCHASES OF GOODS AND SERVICESReal Federal, State, and local government purchases of goods andservices increased 2.6 percent from the fourth quarter of 1981 to thefourth quarter of 1982. Much of the increase was attributable to a 6.8132
percent increase in real defense purchases. Federal nondefense purchasesrose in real terms, due to a large increase in real purchases ofagricultural commodities by the Commodity Credit Corporation.State and local government purchases were virtually flat.LABOR MARKET DEVELOPMENTSAlong with output, employment declined 1 percent in 1982, asshown in Table 6-3. At the end of the year, employment was 1.7million persons below the peak level reached in the second quarterof 1981. The reduction in employment predominantly occurredamong production workers and other blue-collar employees. Sales,clerical, and service workers' employment did not peak until September1982.TABLE 6-3.—Labor market developments, 1978-82[Fourth quarter of indicated year]Component 1978 | 1979 | 1980 | 1981 | 1982Change in civilian employment....Males 20 years and overFemales 20 years and over..Both sexes 16-19 yearsWhiteBlack and other...Unemployment rate 3 .Males 20 years and overFemales 20 years and over..Both sexes 16-19 yearsWhiteBlack and other..,Participation rate 4 .....Males 20 years and overFemales 20 years and over..Both sexes 16-19 yearsWhiteBlack and other..3.82.75.62.73.37.35.94.15.816.45.111.563.579.850.158.263.662.4Percent change from year earlier 12.31.54.0-.82.23.35.94.45.716.35.211.263.879.651.057.964.062.3-0.2-.61.6-6.6-.1-.6Percent 27.46.26.718.36.513.763.779.251.556.364.061.80.6.22.8-8.9.6-.18.37.17.221.27.315.363.878.852.354.664.261.4-1.0-1.5.7-8.0-1.2.410.710.09.024.39.518.664.178.852.954.164.562.01 1978 data adjusted to reflect changes in sample and estimation procedures, which increased employment and labor force by250,000 in January 1978.2 Seasonally adjusted.3 Unemployed as percent of civilian labor force.* Civilian labor force as percent of civilian noninstitutional population.Note.—Data relate to persons 16 years and over.Source: Department of Labor, Bureau of Labor Statistics.Generally speaking, the older the age cohort, the lower the unemploymentrate. For example, the unemployment rate for the 55 andover age group was 5.7 percent in the final quarter of 1982. Youngworkers experienced the highest unemployment rate. Employment ofthe 16 to 19 year age group has dropped in every year since 1979.This decline was far faster than the decline in the number of persons133
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CONTENTSPageECONOMIC REPORT OF THE
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ECONOMIC REPORT OF THE PRESIDENTTo
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Monetary policy will play a critica
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Interest Rates and the U.S. Trade D
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THE ANNUAL REPORTOF THECOUNCIL OF E
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CONTENTSPageCHAPTER 1. FROM RECESSI
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PageConclusions 122CHAPTER 6. REVIE
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CHAPTER 1From Recession to Recovery
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slowed somewhat in the 1970s regard
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nal GNP growth is reflected in a sl
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inflation. More specifically, the A
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inflation rate, or with a 12 percen
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1988, an increase of about one-four
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CHAPTER 2The Dual Problems of Struc
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frequently associated with poor hea
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Chart 2-2Distribution of Unemployme
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Chart 2-4Distribution of Unemployme
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These findings suggest several conc
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Wage RigidityA number of studies sh
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that these measures may have caused
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Most young people find jobs or leav
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to employers who hire youths. Tax c
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defined broadly to include individu
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ship between incomplete experience
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CHAPTER 3The United States in the W
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with 2.6 percent in the other Organ
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TABLE 3-1 .—Structure ofthe U.S.
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TABLE 3-2.—Trade balances by comm
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concentrate on doing what it does r
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the United States will depress pric
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Chart 3-3Real Exchange Rates Of Maj
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AN UNDERVALUED YEN?The explanations
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arily reduced the international com
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nancial markets. These transactions
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TABLE 3-6.—Economic performance b
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were undoubtedly a highly favorable
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of lenders that some debtors will n
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CHAPTER 4Increasing Capital Formati
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ate of net investment was required,
Page 87 and 88: able share in Japan and 56 percent
Page 89 and 90: During the 1970s, productivity grow
Page 91 and 92: MEASURING NATIONAL SAVINGDomestic s
Page 93 and 94: TAX RULES AND PERSONAL SAVINGMany e
Page 95 and 96: on consumption taxation might also
Page 97 and 98: Nevertheless, a number of economic
Page 99 and 100: tion permitted businesses to deprec
Page 101 and 102: A final problem under current tax l
Page 103 and 104: fleeted efforts to deal with proble
Page 105 and 106: egulation was probably not applicab
Page 107 and 108: Aeronautics Board, for example, the
Page 109 and 110: system resulted. Price controls, wh
Page 111 and 112: NGPA, both controlled and decontrol
Page 113 and 114: Price and allocation controls only
Page 115 and 116: nications industries through the re
Page 117 and 118: Several major pieces of legislation
Page 119 and 120: tempt to set cartel rates would be
Page 121 and 122: computer information and advertisin
Page 123 and 124: of computer technology to the payme
Page 125 and 126: trend by widening the sources and u
Page 127 and 128: changes. That is, members can arbit
Page 129 and 130: ceived to be a consequence of exces
Page 131 and 132: lowest point in the post-World War
Page 133 and 134: ing. Partly in response to the drop
Page 135 and 136: Chart 6-3Ratio of Consumer Installm
Page 137: Chart 6-4RATIO1.85Real Inventory/Sa
Page 141 and 142: 8.8 percent in 1981. These declines
Page 143 and 144: housing. Borrowing by the nonfinanc
Page 145 and 146: orous competitor for credit as usur
Page 147 and 148: 1982 their share had risen to over
Page 149 and 150: TABLE 6-9.—Economic outlook for 1
Page 151: A critical element in achieving hea
Page 155 and 156: LETTER OF TRANSMITTALCOUNCIL OF ECO
Page 157 and 158: Report to the President on the Acti
Page 159 and 160: ety of interagency and internationa
Page 161: ence J. Kotlikoff (Yale University)
Page 165 and 166: CONTENTSNATIONAL INCOME OR EXPENDIT
Page 167 and 168: B-70. Mortgage debt outstanding by
Page 169 and 170: NATIONAL INCOME OR EXPENDITURETABLE
Page 171 and 172: TABLE B-2.—Gross national product
Page 173 and 174: 19291933193919401941194219431944194
Page 175 and 176: TABLE B-5.—Changes in GNP and GNP
Page 181 and 182: TABLE B-ll.—Gross national produc
Page 183 and 184: TABLE B-13.—Output, costs, and pr
Page 185 and 186: TABLE B-14.—Personal consumption
Page 187 and 188: TABLE B-16.—Gross and net private
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TABLE B-18.—Inventories and final
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TABLE B-20.—Relation of national
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TABLE B-21.—National income by ty
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TABLE B-22.—Sources of personal i
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TABLE B-24.—Total and per capita
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Year or quarterTotalTotalTABLE B-26
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POPULATION, EMPLOYMENT, WAGES, AND
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TABLE B-29.—Noninstitutional popu
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TABLE B-31.—Selected employment a
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TABLE B-33.—Civilian unemployment
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TABLE B-35.—Unemployment by reaso
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TABLE B-37.— Wage and salary work
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TABLE B-39.—Average weekly earnin
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TABLE B-41.—Changes in productivi
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TABLE B-43-—Industrial production
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TABLE B-45.—Capacity utilization
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TABLE B-46.—New construction acti
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TABLE B-48.—Nonfarm business expe
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TABLE B-50.—Manufacturers' shipme
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Year or monthAllitemsPRICESTABLE B-
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TABLE B-53.—Consumer price indexe
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TABLE B-55.—Changes in consumer p
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TABLE B-57.—Producer price indexe
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MONEY STOCK, CREDIT, AND FINANCETAB
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TABLE B-63.—Commercial bank loans
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TABLE B-64.—Total funds raised in
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TABLE B-66.—Aggregate reserves of
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TABLE B-67 .—Bond yields and inte
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TABLE B-69.—Consumer installment
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TABLE B-71-—Mortgage debt outstan
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TABLE B-72.—Federal budget receip
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TABLE B-74.—Relation of Federal G
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TABLE B-76.—Federal Government re
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TABLE B-78.—State and local gover
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TABLE B-80.—Estimated ownership o
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CORPORATE PROFITS AND FINANCETABLE
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Year or quarterTABLE B-84.—Corpor
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TABLE B-86.—Relation of profits a
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TABLE B-88.—Determinants of busin
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TABLE B-9Q.~Current assets and liab
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TABLE B-92.—Common stock prices a
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AGRICULTURETABLE B-94.—Farm incom
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TABLE B-96.—Farm input use, selec
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TABLE B-98.—U.S. exports and impo
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INTERNATIONAL STATISTICSTABLE B-100
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TABLE B-101.—U.S. international t
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TABLE B-103.—U.S. merchandise exp
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TABLE B-105.—International invest
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TABLE B-107.— World trade balance
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TABLE B-109.—Growth rates in real
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TABLE B-lll.—Unemployment rate, a
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