Economic Report of the President

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had attracted an astonishing $87 billion. The Depository InstitutionsDeregulation Committee also authorized a new super NOW accounteffective January 1983, with no transactions limitations and no interestrate ceilings, having the same $2,500 minimum balance as theMoney Market Deposit Account.Financial deregulation and innovation favorably affect the efficiencyof the U.S. financial system but also complicate the implementationof monetary policy. Large asset reallocations caused by changesin the financial and regulatory system can have large and unpredictableeffects on Ml and M2 and on their relations to nominal GNP. Inlight of the particular difficulties with regard to Ml, the FederalOpen Market Committee has voted to place greater emphasis on M2and M3 for an indefinite period. However, the broad framework oftargeting the monetary aggregates has been retained, as have the reserveoperating procedures, for implementing it.PROSPECTS FOR 1983Assuming that the Administration's 1984 budget proposals are enactedand that the monetary aggregates grow within the Federal Reserve'starget ranges, the prospects for a moderate, sustainable economicrecovery beginning early in 1983 are good (Table 6-9). As wastrue in the early stages of previous recoveries, the unemploymentrate is likely to stabilize for several months before a downward trendbecomes evident. A pattern of reduced inflation in 1982 is expectedto continue in 1983. The sharp rise in the Federal budget deficit reflectsreduced receipts because of lower inflation, as well as the effectsof the 1981-82 recession.The expectation of economic recovery is based on the view thatcontinuing strength in household and defense spending will bring aturnaround in the inventory cycle. Cuts in production and increasesin sales brought business inventories more in line with sales by theend of 1982. Future sales gains are thus likely to be met by increasesin production, income, and employment, enhancing sales further.Once even a moderate but sustained increase in sales is underway,this sequence of events may lead to a temporary surge of above-averageeconomic growth.Increases in sales will come primarily from households whoseincome will be bolstered by the third stage of the personal incometax cut, whose debt burden has declined sharply relative to incomeand assets, and whose financial assets, in many cases, appreciated inrallies in the stock and bond markets. With continued moderate increasesin food and oil prices, more income will become available forother consumer purchases. Because outlays on durable consumer142
TABLE 6-9.—Economic outlook for 1983Item 19822 1 *1983forecastPercent change (fourth quarter to fourth quarter):Real gross national productPersonal consumption expenditures.,Nonresidential fixed investmentResidential investmentFederal purchasesState and local purchases6NP implicit price deflatorCompensation per hour 2Output per hour 2Level in fourth quarter: 3Unemployment rate (percent) *Housing starts (millions of units, annual rate)....-1.22.S-8.44.56.6.14.66.61.910.7n3.12.727*i1.2-2.05.66.02.210.41.5Preliminary.2 Nonfarm business, all persons.3 Seasonally adjusted.4 Actual rate for 1982 is percent of civilian labor force; forecast rate for 1983 is percent of total labor force including personsin the Armed Forces stationed in the United States.Sources: Department of Commerce (Bureau of Economic Analysis and Bureau of the Census), Department of Labor (Bureau ofLabor Statistics), and Council of Economic Advisers.goods and houses have been depressed for the last 4 years, consumersare expected to devote increases in their income, and perhapssome of the recent gains in their financial wealth, to replenishingtheir holdings of durable goods. The sharp easing of credit termsand lower house price increases have already encouraged morehouseholds to consider buying houses. This uptrend is expected tointensify in 1983. New house purchases are invariably followed by apickup in expenditures for furniture, appliances, and other housingrelatedgoods.The pace of the recovery in 1983 will probably be moderate by historicalstandards. Low capacity utilization rates and the need to rebuildcorporate liquidity will restrain capital spending. The worldwiderecession and the lagged effect of the appreciation of the dollarwill curtail the growth of exports. Continued reductions in the nondefensepublic sector will limit it as a source of increased aggregatedemand.PROSPECTS AND POLICIES BEYOND 1983Economic prospects for the rest of the 1980s depend greatly onthe economic policies that are followed. The Administration believesthat the four-point program it has pursued—reducing the growth ofFederal outlays, taxes, regulation, and the money supply—constitutesthe best approach for attaining and maintaining the economic goalsset forth in the Full Employment and Balanced Growth Act of 1978.143
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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,
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able share in Japan and 56 percent
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During the 1970s, productivity grow
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MEASURING NATIONAL SAVINGDomestic s
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TAX RULES AND PERSONAL SAVINGMany e
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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
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Page 109 and 110: system resulted. Price controls, wh
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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 and 138: Chart 6-4RATIO1.85Real Inventory/Sa
Page 139 and 140: percent increase in real defense pu
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: 1982 their share had risen to over
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
Page 189 and 190: TABLE B-18.—Inventories and final
Page 191 and 192: TABLE B-20.—Relation of national
Page 193 and 194: TABLE B-21.—National income by ty
Page 195 and 196: TABLE B-22.—Sources of personal i
Page 197 and 198: 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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