ECONOMIC

ECONOMICTRANSMITTEDTO THE CONGRESSFEBRUARY 1374

Economic Reportof the PresidentTransmitted to the CongressFebruary 1974TOGETHER WITHTHE ANNUAL REPORTOF THECOUNCIL OF ECONOMIC ADVISERSUNITED STATES GOVERNMENT PRINTING OFFICEWASHINGTON : 1974For sale by the Superintendent off Documents^ U.S. Government Printing OfficeWashington, IXC. 2G402.P Price $3.05Stock Number 4000-Q.Q305

CONTENTSPageECONOMIC REPORT OF THE PRESIDENT 1ANNUAL REPORT OF THE COUNCIL OF ECONOMICADVISERS* 11CHAPTER 1. ECONOMIC PROBLEMS AND POLICIES 21CHAPTER 2. DEVELOPMENTS AND POLICY IN 1973 47CHAPTER 3. INFLATION CONTROL UNDER THE ECONOMIC STABILIZA-TION ACT 88CHAPTER 4. ENERGY AND AGRICULTURE 110CHAPTER 5. DISTRIBUTION OF INCOME 137CHAPTER 6. THE INTERNATIONAL ECONOMY IN 1973 181APPENDIX A. ACTIVITIES OF THE ADVISORY COMMITTEE ON THEECONOMIC ROLE OF WOMEN 227APPENDIX B. REPORT TO THE PRESIDENT ON THE ACTIVITIES OF THECOUNCIL OF ECONOMIC ADVISERS DURING 1973 231APPENDIX C. STATISTICAL TABLES RELATING TO INCOME, EMPLOY-MENT, AND PRODUCTION 243* For a detailed table of contents of the Council's Report, see page 15.

ECONOMIC REPORTOF THE PRESIDENT

ECONOMIC REPORT OF THE PRESIDENTTo the Congress of the United States:The United States enters 1974 in a position of leadership in the worldeconomy. The dollar is strong, we have constructive economic relationsthroughout the world, and we have the greatest freedom of action resultingfrom our great capacity to produce. We must take the responsibilitiesand the opportunities this position of leadership gives us.Nineteen hundred and seventy-three was a year of problems andprogress in the American economy. In some respects the problems weregreater than we expected and the progress was less than we had hoped.But the areas of our solid achievements were more important than theareas of our disappointments. We and the world around us have difficulttasks ahead—primarily to deal with an old problem, inflation, and todeal with one that has just become acute, energy. But the United Statesconfronts these difficulties with a strong and adaptable economy, whichmeans an economy of capable and enterprising people.In the middle of 1971, when the New Economic Policy was launched,the country had three economic objectives: to promote the expansionof output and reduce unemployment, to correct the persistent deficitin the U.S. balance of payments, and to check the inflation which hadbeen going on for 5J/2 years. To achieve these objectives a comprehensiveprogram of action was initiated. Taxes were reduced. Price andwage controls were instituted. The exchange rate of the dollar was setfree to adjust to market conditions, and steps were initiated to improvethe international monetary system.There has been great progress toward two of these three objectives.Production and employment have risen rapidly. Total civilian employmentwas 6.8 million higher in December 1973 than in June 1971. Theunemployment rate had fallen from 6 percent to a little under 5 percent.In 1973 a larger percentage of the civilian population over the ageof 16 was employed than ever before.With vigorously rising employment, and rising productivity as well,there was a big increase in output of goods and services, the essentialingredients of higher living standards. In the 2^/2 years of the New

Economic Policy, total output increased by 14 percent, which is about 35percent above our average for a period of this length. The real incomeof American consumers per capita, after taxes, rose by Q l / 2 percent, alsowell above our long-term rate. Both real output and real income, ofcourse, reached record highs.The second goal of the New Economic Policy, to strengthen the internationalfinancial position of the United States and of the world, wasalso largely achieved. The significance of this goal is commonly neglectedin America. But a country whose currency is weak, whose currency othersdon't want to hold, is greatly limited in what its government and citizenscan do—in buying goods abroad, in traveling freely, in investing freely,in maintaining forces abroad if necessary. And if a country goes on spendingmore abroad than it earns abroad, its freedom of action is going to becurtailed. There has been a dramatic change in our balance of trade,from a deficit of $917 million in the first half of 1971 to a surplus of $714million in the second half of 1973. We have not only improved our ownposition but we have also taken the lead in strengthening the internationalsystem. The more flexible system we have promoted withstoodnumerous shocks during 1973, and at the same time the world economyand international trade and investment continued to expand.It is the third of the three objectives of the New Economic Policy—the control of inflation—that has been our great difficulty. Until the endof 1972 the New Economic Policy, drawing on the results of earlier fiscaland monetary restraints, worked well in getting the rate of inflationdown, even though worrisome rises in food prices appeared. But in 1973inflation speeded up sharply. During the year, consumer prices increasedby almost 9 percent.Of course, the progress on the first two objectives was connected withthe disappointment on the third. The rapid rise toward full employment,the expansion of our net exports, and the reduction in the value of thedollar to make the United States more competitive, all contributed tothe resurgence of inflation. But there were other factors at work, less directlyunder our control. Food production lagged in major producingcountries, including the United States. An extraordinary combination ofbooms in other countries boosted prices of industrial materials. Countriesjointly controlling a large part of the world's exportable oil supplies decidedto raise their prices substantially. During 1973 food prices accountedfor 51 percent of the total rise of consumer prices, and energyprices accounted for another 11 percent.The American people generally prospered despite the inflation in 1973.Their incomes, on the average, rose more than prices. But there weremany families for which that was not true. We cannot accept continuation

of the inflation rate of 1973, and still less can we risk its acceleration. Wemust dedicate ourselves to carrying on the fight against inflation in 1974and thereafter.There are at least four lessons we can learn from our past experiencein combating inflation:1. The importance of patience. To correct a powerful trend of theeconomy which has been going on for some time requires time. Sharplysqueezing down the economy in an effort to halt inflation would producea severe drop in employment and economic activity and create demandsfor a major reversal of policy. Pumping up the economy to get quicklyto full employment would risk setting off even swifter inflation. We needa greater steadiness of policy.2. The importance of the rest of the world. The events of 1973brought our external economic relations sharply to our attention. Mostsimply put, it will be exceedingly hard for us to have a stable economyin an unstable world. We must contribute a stabilizing influence to theworld economy of which we are a large part. We must promote concertedefforts to maintain the health of the world economy.3. The importance of production. Despite other vicissitudes, whatdetermines the economic well-being of the American people more thananything else is the rate of production. The rapid increase of productionhas provided the rising real incomes of the American people. More specifically,increasing food production is the best way to deal with the foodprice problem, and increasing our energy supplies is the best way to dealwith the energy shortage. We think of ourselves as a Nation with highand strongly rising output. We are. But we can do better and it is importantthat we do better.4. The importance of free markets. In the past several years, underthe pressure of emergency conditions, we have made great, but temporary,departures from reliance on free prices and free markets. In specialcircumstances and for short periods these departures have been helpful.But taken together, these experiences have confirmed the view that thefree market is, in general, our most efficient system of economic organization,and that sustained and comprehensive suppression of it will not solvethe inflation problem.At the beginning of 1974 the three problems which have dominatedeconomic policy for many years—inflation, unemployment, and the balanceof payments—have been joined by a fourth—the energy problem.Or rather, the other three problems have been pervaded by the energyproblem. The present oil situation means that we are paying much higherprices for imported oil than formerly and that the volume of imports at thepresent time is less than we would freely buy even at those prices. But the

prices and volumes are both highly uncertain and add uncertainties tothe economic picture for the year.The current and prospective oil situation will at the same time raiseprices, limit production in some industries, and reduce demand in others.It will be the objective of the Administration's policy to do three thingsin this circumstance:1. To keep the moderate slowdown of the economic boom frombecoming excessive because of the energy shortage;2. To keep the rise of fuel prices from spilling over unnecessarily intomore inflation in other parts of the economy; and3. To set the stage for stronger economic expansion with greater pricestability after the initial price and output disruptions caused by theenergy shortage have been absorbed.Achieving these goals in this unpredictable economic environment willrequire alertness and adaptability. We cannot set a policy at the beginningof the year and let it run without further consideration. But we candescribe the main elements of our present strategy.1. We will maintain a budget of moderate economic restraint. Eventhough the combination of urgent requirements and inescapablecommitments generates pressures for huge expenditure increases,the budget I will propose will keep the expenditures within therevenues that the tax system would yield at full employment.2. We will be prepared to support economic activity and employmentby additional budgetary measures, if necessary.3. We urge the Congress to enact the legislation I proposed last yearfor improving the unemployment compensation system, with furtherstrengthening amendments I will submit. This would providebetter protection for workers who may lose their jobs, whetherbecause of the energy shortage or for other reasons, and also helpto protect the economy better against the secondary effects of theirunemployment.4. Working together with other consuming countries, including thedeveloping countries, and with the oil-exporting countries, we willtry to arrive at an understanding on mutually beneficial conditionsof exchange.5. We will try to manage the energy shortage in such a way as to keepthe loss of jobs and production to a minimum, although some lossis inevitable in the short run. The allocation system is designed toassure an adequate flow of oil to those industries where lack of itwould limit employment the most. We shall also have to provide

or permit incentives—including higher prices—for maximum imports,for maximum domestic exploration and production, and forefficient use of our scarce supplies. To prevent higher prices fromcausing excess profits, I have proposed an Emergency WindfallProfits Tax, which I urge the Congress to enact promptly.6. We will work with other oil-importing countries to prevent thehigher prices of oil and its limited supply from generating a downwardspiral of recession. The higher prices will cause dislocationsand impose burdens on all consuming countries; they do not haveto cause a spreading recession if we manage our affairs cooperativelyand wisely.7. We will continue our policy of maximum agricultural productionto help hold down food prices.8. We will continue our policy of progressive removal of price andwage controls in order to restore the flexibility needed for efficiencyand expansion in a time of economic strain.The effort to maintain the stability of our economy in the face of thepresent unusual conditions will absorb a great deal of attention this year.But we must not neglect the fundamental factors which determine theprosperity of the American people in the longer run. One of these hascome to general public attention with a rush—the need for adequatesupplies of energy at reasonable cost. We are seeing the possible consequencesof being deprived of these, and we must not allow it.The energy problem has had two main parts for some time:First, with rapidly rising world demand for energy, most of whichcomes from depletable resources, we could run into sharply increasingcosts of energy unless vast investments are made in research, development,experimentation, and production.Second, we are exposed to the danger of being thrown back uponinadequate or very expensive sources of energy earlier than necessaryby joint action of a few countries that control a large part of the existinglow-cost reserves of oil.To deal with this problem I began proposing, almost 3 years ago, anumber of governmental measures to permit or assist development ofenergy within the control of the United States. In 1973 the second partof the problem, which had formerly been a threat, became a reality atleast temporarily, and this has demonstrated unmistakably the urgencyof the steps I have recommended.I propose that the United States should commit itself to "ProjectIndependence" to develop the capacity for self-sufficiency in energy suppliesat reasonable cost. One key element of Project Independence is a

III. One of our most essential industries—freight transportation—isunfortunately shot through with inefficiencies. Many of these inefficienciesare the result of obsolete, shortsighted, and excessive regulation. Hundredsof millions and probably billions of dollars a year could be saved by unleashingcarriers and shippers to carry the freight on the most efficientmode of transportation, in the most efficient way. I have sent to theCongress new proposals to this end.IV. In 1973, as in 1972, relatively few days of work were lost as aresult of industrial disputes. Continuation of this record would be avaluable contribution to the level and stability of production. I haveappointed a Commission on Industrial Peace, composed of leaders ofmanagement and labor with an impartial chairman, to make recommendationsfor bringing that about.V. In addition to the major research and development effort to providesecure supplies of energy, without abusing our natural environment indoing so, this Administration is continuing its support of research anddevelopment projects that will help maintain a healthy rate of innovationand productivity growth in the rest of our economy. These activities willbe supported at record levels in the coming year, and we are also trying toget a higher return for every dollar we spend.VI. An indispensable source of economic growth is saving and investmentin productive facilities. It should be the policy of government tointerfere with this process as little as possible. The government should notabsorb private savings into financing its deficits in times when privateinvestment would otherwise utilize all the private saving. Our basicbudget policy of balancing the budget or running a surplus under conditionsof high employment carries out this principle. Moreover, taxationshould not depress productive investment by unduly burdening its return.We should not indulge in demagogic and shortsighted attacksupon profits.VII. We must push forward, as we have been doing, to remove barriersagainst the entry of women and minorities into any occupation andagainst their maximum training and advancement. The men and womenof the country are its greatest economic resource. To fail to use any ofthis resource to its full potential is a serious loss to us all.Compared with our parents and grandparents we are enormously rich.We have protections against the ebbs and flows of economic life that theynever expected and barely imagined. But I cannot assure the American

people of an easy time. Like our parents and grandparents, we have ourown tests. If we meet them with fortitude and realism the period aheadcan be one not only of material advance but also of spiritual satisfaction.February I, 1974.10

THE ANNUAL REPORTOF THECOUNCIL OF ECONOMIC ADVISERS11

THE PRESIDENT:LETTER OF TRANSMITTALCOUNCIL OF ECONOMIC ADVISERS,Washington, D.C., January 28,1974.SIR: The Council of Economic Advisers herewith submits its AnnualReport, January 1974, in accordance with Section 4(c) (2) of the EmploymentAct of 1946.Respectfully,HERBERT STEIN,Chairman.0WILLIAM J.FELLNER.GARY L. SEEVERS.13527-867 O - 74 - 2

CONTENTSCHAPTER 1. ECONOMIC PROBLEMS AND POLICIES 21Where We Stand at the Outset of 1974 22General Economic Implications of the Energy Problem. . 23Goals for 1974 27Policies for Achieving the 1974 Goals 29Goals Beyond 1974 35Development of Low-Cost Energy for the Future 36Saving and Private Investment 37The Financial System 38Transportation Reform 40Efficient International Exchange 42Supplement—Prospects for 1974 43CHAPTER 2. DEVELOPMENTS AND POLICY IN 1973 47Demand and Output in 1973 49Nonresidential Fixed Investment 51Inventories 52Housing 53Consumer Spending 53Net Exports 55The Labor Market 57The Labor Force 57Employment and Hours 58Unemployment 58Productivity and Potential Output 62The Behavior of Prices 65Compensation and Unit Labor Costs 68Fiscal Policy in 1973 75Federal Expenditures 75Federal Receipts 77Balances of the Federal Budget 78Inflation and the Federal Budget at Full Employment. . 79The State and Local and the Combined Budget Balances. 80Monetary Policy and Financial Markets 82Page15

CHAPTER 3. INFLATION CONTROL UNDER THE ECONOMIC STABILIZA-TION ACT 88The Economic Stabilization Program in 1973 88Phase III 89Phase III Is Tightened 94The Freeze 96Phase IV 97The Effectiveness of Controls 99Fairness of Controls 105Effect of Controls on Components of Output 107Summary 108CHAPTER 4. ENERGY and AGRICULTURE 110EnergyIllThe Energy Crisis 117Recovery from the Crisis 118Long-Term Prospects 122Energy and Environmental Policy 125Agriculture 128Agriculture: Fully Employed 128Agricultural Policy for the Future 133CHAPTER 5. DISTRIBUTION of INCOME 137Outline and Summary. 137The Change in Inequality of Family and Individual Income. 139Secular Changes 139Cyclical Changes 142Omitted Sources of Real Income and the Inequality ofWeil-Being , 142Determinants of Differences in Earnings Among Individuals. . 145Schooling 145Post-School Training 146Employment 149Earnings Differentials Between Groups 150Discrimination 150Race Differentials 150Sex Differentials 154Occupational Differences 158The Low-Income Population 161The Definition of Poverty 161The Decrease in Poverty 162The Characteristics of the Poor 16316

PageGovernment Transfer Programs 167Federal Transfers in 1973 167Aid to Families With Dependent Children 168Social Security and Supplemental Security Income 173Federal Food Subsidy Programs 174Medicare and Medicaid 175Income Distribution Effects of Money Transfer Programs. 176Supplement—The Variance of the Natural Logarithm of Income179CHAPTER 6. THE INTERNATIONAL ECONOMY IN 1973 181What Happened in 1973? 182How Governments Behaved in the Monetary Arena 196Planning the Future International Monetary System 202How Governments Behaved in the Trade Arena 209Planning the Future International Trading System 212Supplement—Measurement of Effective Changes in ExchangeRates 220APPENDIXES:A. Activities of the Advisory Committee on the Economic Roleof Women 227B. Report to the President on the Activities of the Council ofEconomic Advisers During 1973 231C. Statistical Tables Relating to Income, Employment, andProduction 243List of Tables and ChartsTables1. Federal Budget Surplus or Deficit Under Alternative Assumptions,National Income Accounts Basis, Calendar Years1969-74 312. Changes in Gross National Product in Current and ConstantDollars, 1968 to 1973 503. Changes in Manufacturing Plant and Equipment Outlays andValue of Starts, 1971 to 1973 514. Changes in Manufacturing Real Plant and Equipment Outlays,1948 to 1973 525. Disposition of Disposable Personal Income, 1960-73 546. Unemployment Rates for Selected Groups, Selected Years,1956-73 5917

Page7. Unemployment Rates by Sex and Age, Selected Years, 1956-73. 608. Composition of the Civilian Labor Force, Selected Years,1956-73 609. Aspects of Labor Utilization, Selected Years, 1948-73 6110. Aspects of Capacity Utilization, Selected Years, 1948-73 6411. Changes in Gross National Product Price Deflators, SelectedPeriods, 1948 to 1973 6712. Changes in Selected Price Measures, 1971 IV to 1973 IV 6813. Components of Percent Change in Compensation Per Man-Hour in the Private Nonfarm Sector, 1965-73 7014. Changes in Prices, Costs, and Profits Per Unit of Output forNonfmancial Corporations, 1970 to 1973 7115. Distribution of Gross Product Originating in NonfinancialCorporations, 1947-73 7316. Federal Government Receipts and Expenditures, National IncomeAccounts Basis, Calendar Years 1972-73 7617. Actual and Full-Employment Federal and State and LocalGovernment Receipts and Expenditures, National IncomeAccounts Basis, Calendar Years 1969-73 8018. Changes in Aggregate Monetary Measures and Gross NationalProduct, 1968 to 1973 8219. Offerings of New Security Issues, 1972-73 8620. Net Savings Flows at Thrift Institutions, 1968-73 8721. Measures of Price and Wage Change During the EconomicStabilization Program 8922. Regulations of the Controls Program, Phases II, III, and IV. . 9123. Changes in Consumer Prices in OECD Countries, SelectedPeriods, 1958-73 9324. Supply-Increasing Actions of the Federal Government During1973 9525. First Year Wage Rate Changes in Collective Bargaining AgreementsCovering 1,000 Workers or More, 1970-73 10226. Behavior of Items in Consumer Price Index During Phases IIand III, Classified by Type of Control Applicable 10427. Gross Consumption of Energy in Natural Units, Selected Years,1950-72 11228. Consumption of Energy, By User Sector and Source, 1972. . 11229. Use of Energy Inputs for Electric Power, 1972 11330. Wholesale Prices, All Industrial Commodities and SelectedFuels, Selected Periods, 1950-73 11431. U.S. Grain Stocks Compared to Grain Utilization, SelectedPeriods, 1950-73 12918

Page32. Change in Inputs Used in Farming, 1950 to 1973 13033. Production and Productivity in Agriculture, Selected Years,1950 to 1973 13134. Share of Aggregate Income Before Taxes Received by EachFifth of Families, Ranked by Income, Selected Years,1947-72 14035. Income Inequality Under Alternative Definitions of Income,1968 14336. Selected Characteristics of the Lowest, Middle, and HighestFifths of Families Ranked by Money Income, 1952 and 1972. 14537. Average Usual Weekly Earnings of Male Workers 35-44Years of Age Who Worked Full Time, by Years of Schoolingand Race, 1973 14638. Average Usual Weekly Earnings of Males Who Worked FullTime, by Age and Years of Schooling, 1973 14939. Income of Negro Males as Percent of Income of White Males,by Type of Income and Age, 1949, 1959, and 1969 15240. Earnings of Negroes as a Percent of Earnings of Whites, forPersons 25-64 Years of Age, 1969 15341. Median Income of Negro Husband-Wife Families as Percent ofWhite Husband-Wife Families, by Region and Age ofHusband, 1959, 1969, and 1972 15742. Relation of Wage and Salary Earnings and of Total MoneyEarnings of Women to Those of Men, 1949, 1959, and 1969. 15843. Persons Below the Low-Income Level and Percent Below theLow-Income Level by Family Status, Selected Years, 1959-72 16244. Work Experience of Family Heads Below the Low-IncomeLevel by Sex, 1959 and 1972 16345. Federal Government Transfer Programs, Fiscal Year 1973. ... 16846. AFDC Benefits and Families, Selected Years, 1950-72 16947. Trends in the Employment Status of Mothers in the AFDCProgram, Selected Years, 1961-73 17248. Proportion of Families Having Transfer Income From ParticularSources, 1970 17749. The Effect of Money Transfers on Family Income Inequality,1970 17850. Changes in the Foreign Exchange Value of the Dollar, U.S.Liabilities to Official Foreigners, and U.S. Liabilities toPrivate Foreigners, 1973 18351. Relative Labor Costs in Manufacturing, 1968-73 19252. U.S. Balances on International Transactions, 1972-73 19419

Page53. Maximum Percent Change in Exchange Rates Between VariousForeign Currencies and the Dollar During 1973 19754. Major Changes in Capital Controls, 1973 19855. Composition of International Reserve Assets, 1970-73 20156. A Comparison of Several Measures of the Effective Depreciationof the Dollar From May 1970, 1971-73 22257. Changes in Exchange Rates From May 1970, 1970-73 225Charts1. Changes in GNP, Real GNP, GNP Price Deflator, and theUnemployment Rate 482. Changes in Real GNP 563. Changes in Selected Price Measures 664. Productivity, Compensation, and Unit Labor Costs in the PrivateNonfarm Economy 695. Interest Rates 846. Changes in Related Wholesale and Consumer Prices 1067. Consumer Prices of Gasoline and Motor Oil 1138. Real Income Profiles of Cohorts of Men Born in Selected Years. 1479. Real Incomes for Men in Different Age Groups 14810. Change in the Value of the U.S. Dollar Relative to SelectedForeign Currencies 18520

CHAPTER 1Economic Problems and PoliciesFOR EIGHT YEARS economic policy and the news about the economyhave been dominated by inflation. The story has been a frustratingone. Over the period from the end of 1965 to the end of 1973 consumerprices rose by 45 percent, or at an average rate of 4.8 percent a year.There were fluctuations. Twice during the period the rate of inflation declinedsignificantly. But in the last of the 8 years the rate of inflation washigher than in any of the others. During the 8 years the inflation came invarious forms—sometimes led by wages, sometimes by prices, by foods, byoil; sometimes it was domestic and sometimes imported. Many programshave been launched to stop it—without durable success. Inflation seemeda Hydra-headed monster, growing two new heads each time one was cut off.The problem was not confined to the United States; indeed inflation wasworse in most other countries.Several important points seem clear to us from the experience of the past8 years. One is that while continued rapid inflation is not inevitable, thecourse of unwinding it will be long and difficult. There is by now a greatdeal of inflation built into our system. For one thing, both workers and employersare now used to high increases in money wages which reflect theexpectation of rapid inflation, and only gradually can these be moderated.Inflation is similarly built into the level of interest rates. The public ishighly sensitive to inflation and reacts in an inflationary way to any newswhich confirms its expectation of inflation. Against this background, tohope that we can "wring the inflation out of the system" by the end ofsome short period is to assure disappointment. Whoever undertakes now tofight inflation must be prepared to stay the long course. We think it isnecessary to do this, and also to recognize why we must do it. Experienceextending over almost a decade teaches us that if we do not fight inflationeffectively it will accelerate.The American people have prospered over the past 8 years. Our realincomes have risen. Our real consumption expenditures have risen, andour real assets have risen, in total and per capita. These are facts of greatimportance. But they do not relieve us of the need to bring inflation undercontrol, and to accept the cost of doing so for the sake of avoiding thegreater costs of an accelerating inflation.21

We have specific problems, too, aside from the general inflation problem.There are many things the American people want to do, collectively orindividually. They want to maintain an adequate defense, to clean up theenvironment, to provide more generously for the disadvantaged, to improvestandards of health, and also to continue to raise the quality of their livesin all the ways that involve more private consumption. At the same time, wesee unusual obstacles to more rapid increases of production—the increasedcosts of energy being the most obvious one at present. Beneath the tide ofinflation the basic economic problem of increasing production goes on andrequires attention, even in a country as rich as ours.The problems of specific price increases must be distinguished from thegeneral inflation problem. Increases in some individual product or serviceprices beyond the average are essential, if we are to maintain supplies andallocate shortages. The attempt to suppress the increase of particular prices,while it may be necessary in emergencies, is in general not an effective wayto combat inflation and is harmful to production.WHERE WE STAND AT THE OUTSET OF 1974We enter 1974 in a condition of high inflation and in the early stageof a slowdown, one result of which will be to reduce the rate of inflation,although not immediately. All the features of this situation—the high rateof inflation, the slowdown of output, and the slowdown of demand—are intensifiedby the higher prices and reduced imports of oil. Moreover, the oilsituation makes the period ahead even more than usually difficult to predict.Decisions of the oil-exporting countries, resulting from a mixture of economicsand politics, cannot be foreseen. American businesses and consumersare faced with unprecedented increases in relative prices and curtailmentsin supply, and no one can tell just how they will react in their consumptionand investment. Other oil-importing countries will be seriously affected byprice and supply developments in oil, and their responses will have repercussionshere.The rapid price and wage increases that were being experienced at theend of 1973 will undoubtedly be carried on and passed through in the earlypart of 1974. In the fourth quarter of last year, wholesale industrial pricesother than for energy products rose at an annual rate in excess of 11 percent.Much of this rise will appear in retail prices in early 1974. Similarly, largeincreases that have already occurred in crude oil prices have not yet beenfully reflected in retail prices. Wholesale food prices were also rising as theyear ended, and the outlook was that tight supplies would boost retail pricesin the first months of 1974. The rate of wage increases had been drifting upduring 1973, and since the cost of living was also continuing to rise rapidly,this trend of wages was unlikely to be reversed soon.Thus, a high rate of price and wage increases, although possibly not ashigh a rate as in 1973, seems inevitable in the first part of 1974. But22

eyond the early months, the course of inflation is as yet undetermined.Prices of oil and related products will not go on rising at the rate of late1973 and early 1974, but will presumably reach some new high level fromwhich they will be no more likely to rise than to fall. There is also a prospectof larger world food supplies. In general, as we go through the year thecourse of prices will be less and less a reverberation of what happened in1973 and increasingly the outcome of events and policies in 1974.The year 1974 also began with demand rising less rapidly than duringmost of 1973 and production possibly not rising at all. In the fourthquarter of 1973, total expenditures for the purchase of output rose at anannual rate of about 9^2 percent, compared to about 12 percent in theyear ending in the third quarter. Real output rose at the rate of about 1percent after an increase of about 5/2 percent in the preceding year.There seems little doubt that this sluggishness will continue in the earlypart of 1974 and that total output may decline. Automobile production isbeing cut back sharply, partly because of the effect of high prices andshortages of gasoline on the demand for large cars. The recent weaknessof housing starts and permits indicates declining residential constructionduring the first part of the year. The high prices for oil being paid to foreignsuppliers will hold down expenditures for U.S. output. There will besome cases, although one cannot be sure how many, in which productionis held back by shortages of energy or energy-related materials.Just as a high inflation rate seems predetermined for the early part ofthe year, so does a fairly low rate of increase of production, which might infact for a while be negative. But the situation at the beginning of the yeardoes not appear to presage a very long or severe slowdown. There area number of factors tending to support the expansion of the economy, includingsubstantial planned increases of business fixed investment. How soona revival will come, and how strong it will be, also depend on events andpolicies of 1974.GENERAL ECONOMIC IMPLICATIONS OF THE ENERGY PROBLEMThe nature of the problems with which policy has to contend in 1974depends substantially on the energy situation—on the volume of oil imports,on their prices, and on the policies adopted in the United States.Total imports of oil expected in 1974, before measures were taken by someexporting countries beginning in October 1973 to curtail shipments andraise prices, were about 40 percent of expected petroleum consumption in1974. This was about 20 percent of expected energy consumption in 1974,since petroleum would have supplied about 50 percent of total energyuse. The countries participating in the embargo of the United States hadbeen expected to supply, directly and indirectly, about 16 percent of ourpetroleum use and 8 percent of our energy use. This would have been theextent of the initial supply reduction if the embargo had been fullyeffective.23

This curtailment of supply does, of course, lead to adaptations. Pricesof oil imported into the United States are free from price control, as areprices of oil produced by certain small (stripper) wells and of "new"oil produced by other wells in excess of their base period production.These prices can be passed on in prices of refined products. Thus, a shortageof oil in the United States raises the prices of oil in these categories andincreases the supply, both of imported oil and of domestic oil, offsettingsome of the initial effects of the curtailment. Also the higher prices reducethe quantity consumers and businesses want to buy. Therefore, the wholeinitial curtailment does not appear as a gap between desired quantities andavailable quantities.In time, and despite the existence of the price controls, prices might riseenough to clear the market, and there would be no "shortage" in the senseof inability to buy petroleum products at the prevailing prices. The uncontrolledprices, whether of imports, of "new" oil, or of oil from stripper wells,would rise to a level which, when averaged in with the controlled prices,would equate the quantities demanded and supplied. Although prices ofpetroleum products in the United States rose very rapidly after October 1973,and this apparently served to cut down the desired consumption, they hadnot risen enough by the end of January to eliminate shortages. The impactof the remaining shortages is being distributed through the economy by allocationsand other controls, by voluntary conservation measures, and to someextent by a first-come-first-served process.The Secretary of State has recently expressed the hope that the embargoon the export of oil to the United States from some Arab countries wouldsoon be lifted. The effect of such action on the U.S. economy would dependupon the price and production policies of the oil-exporting countries. Thehigher their production levels, and the lower the world price, the smallerwill be the current economic problems for the United States and for otherimporting countries. In any case it seems necessary to reckon with a significantlyhigher price for imported oil in 1974 than in 1973, although howmuch higher is uncertain. This conclusion would imply smaller U.S. importsthan would otherwise have occurred, but a larger dollar cost of imports. Itis probably also reasonable to assume that the curtailment would increasinglybe reflected in higher domestic prices rather than in shortages at the existingprices.This combination of limited oil imports and higher prices will have fourkinds of economic effects in the United States and in other oil-importingcountries.1. Limitation on capacity to produce. Beyond some point, inadequacy inthe supply of energy can make it impossible to produce certain products, orhigh energy prices can make it impossible to produce certain products atcosts at which they can be sold. However, it does not appear that this pointwill be exceeded or that our capacity to produce will be significantly curtailedby the energy situation. Part of the U.S. energy supply is utilized24

directly for consumption, particularly for home heating and for personaltransportation. Some is used in industry for lighting or heating that maybe convenient but is not necessary for production. In general, it appearedwhen the embargo began that the initial curtailment of imports could beabsorbed out of these "nonproductive" uses without impairing our capacityto produce. This would not have been entirely true, because there wouldhave been shortages of particular products and in particular places. But itdid not appear that the output and employment loss resulting from inabilityto produce would be substantial, although there would be other negativeeffects. This view has been fortified since it appears that the net curtailmentof imports may be less than initially .eared. Maintenance of capacityto produce in the presence of import curtailment will depend on limitingconsumption use of petroleum products, especially the use of heating oil forhomes and gasoline for personal transportation. This will cause inconvenience,although curtailment on the scale foreseen would not cause hardship.Concentration of the available supply in the uses most essential forproduction and employment will be brought about in part by higher prices.This can be, and is, supplemented by voluntary conservation measures andby mandatory allocations.2. Restraint on the demand for output. The reduced availability andhigher price of gasoline will curtail the demand for large automobiles, for theservices of motels, and for other tourist services. The shortage of heating oiland gasoline will cut the demand for new houses. How serious these effectsare will depend in part on the amount of the cut in oil supplies or on the risein the price. One should note that the effect of a price rise can be as greatas the effect of a shortage in diverting expenditures from oil-related products.All of these effects will also depend on how consumers react, not onlyin restricting purchases of petroleum-related products but also in switchingpurchases to other things. The problem is compounded by uncertainties,both about imports and about public policy, which may cause a more negativereaction than the most probable facts would justify.3. The real income loss due to costlier energy. The foregoing are the transitionalproblems created by the present energy situation. The initial loss ofcapacity to produce caused by the curtailment of energy supplies will in timebe offset by shifts of production in directions that use less energy. The initialloss of demand for output associated with energy will in time be compensatedfor by a shift of consumers' demands to other products, and possibly by anincrease in demand for American products by the oil-exporting countries. Inaddition to these transitional problems there will be a continuing effect onthe real standard of living of the American people as a result of being cutoff from low-cost sources of oil. That means we shall have to pay more ofour own products or assets to foreigners in exchange for their oil, that weshall have to devote more of our own resources to producing energy domestically,and that we shall have to accept methods of production or forms of25

consumption we would not have chosen if more oil had been available ata lower price.How much these costs will amount to is exceedingly difficult to estimate.A clue to their magnitude is given by the fact that the increased cost of U.S.oil imports due to the oil price rises of October and December 1973 wouldbe less than 1 percent of the gross national product (GNP) in 1974, with avolume of imports that would have occurred at the pre-October prices. Thisis probably an outside estimate of the costs in 1974 (aside from the transitionalcosts already noted) because there would be adaptations of variouskinds. The amount is large and justifies a strenuous effort to reduce it, bygetting the foreign price down and by developing cheaper sources at home.Whether the cost will continue to rise, relative to GNP, will depend on thecosts of producing additional amounts of energy from new sources.4. Balance of payments and other international consequences. All of theother oil-importing countries of the world will suffer the effects of the cutin supplies and the increase in prices of oil. In fact, most of these countrieswill be more seriously affected than the United States, because their importsof oil are larger relative to their total supply of energy and to theirtotal GNP. The position in the Western European countries is expected tobe qualitatively similar to that in the United States. The short-run depressingeffect on their domestic demand as a result of the high importprices will be greater than the cut in their ability to produce caused by theoil shortage. For Japan the situation may be different, and the effect on herability to produce may be more severe. In any case there will be a markedslowdown, and possibly an absolute decline, in demand and output in mostof the countries of the world with which we do business, except for the oilexportingcountries.This outcome will influence the United States in a number of ways. Itshould help to retard the increases in prices of industrial raw materials, justas the worldwide boom contributed to their rise. The increase in the valueof the dollar in the last quarter of 1973 should also help to slow down therise of dollar prices of internationally traded commodities. The net effectson trade are not clear. Oil prices will be lower here than elsewhere, at leastfor a time, because of the price control on a large part of our oil supply; andthis situation will tend to stimulate exports of products with a large oil component,such as petrochemicals. On the other hand, the reduction of incomeand activity abroad and the depreciation of foreign currencies will tend tocut our exports. This factor will probably be the dominant one, althoughits net effect is likely to be small except for one reservation to be noted.At present prices of oil, the oil import bills of the industrialized countrieswill be so large that many if not all of them will have current accountdeficits—that is, their foreign expenditures for goods and services will exceedtheir foreign earnings. This will be true even after allowing for the addedpurchases that the oil-exporting countries may make from the industrializedcountries. The oil-exporting countries will have large current account sur-26

pluses, which in one form or another will be invested in financial or realassets in the industrialized countries.This combination of transactions does not require any decline in the levelof economic activity in the industrialized world—aside from the transitionaldifficulties already noted—or slowdown in the rate of growth. In fact, theremay be a stimulus to the rate of growth, as the higher oil prices extractfunds from consumption and return them to investment via the investmentof the oil-exporting countries. However, there could be severe repercussionsif the financial aspects of these transactions are not well managed.Several possibilities can be envisaged which could lead to cumulativerecession. One possibility is that some of the industrialized countries mightlose large amounts of monetary reserves, or incur large liquid liabilities to theoil-exporting countries which would impel the industrialized countries totry to build up their reserves. Or industrialized countries having current accountdeficits might feel it important to correct those deficits, even thoughtheir overall balances of payments are not in deficit. Some countries will haveoverall deficits and might try to correct that situation. In any event, thesingle-country response is likely to be to try to export more and import less,either by squeezing down the economy at home or by checking imports andspurring exports. That is, the single-country response could well either createrecession at home or export recession. If many countries are following thispolicy at once, the compound result could be a large and unnecessary declinein the world economy.GOALS FOR 1974The goals for 1974 must be realistically connected with the conditionsexisting at the beginning of the year. As we have already explained, we believethat the conditions existing at the beginning of the year make it extremelylikely that inflation will continue at a high rate through the earlypart of 1974. A slow rate of economic expansion is also likely during thisperiod, and possibly a decline, with rising unemployment. After some period,probably after the first half of the year, the course of the economy will beinfluenced more by policies still to be adopted. The idea of a "goal" is morerelevant to this later period than to the months immediately at hand. Forthis later period, three possible paths for the economy can be distinguished.1. Total spending can accelerate strongly, bringing production quicklybackto a full-employment level. This path would create new pricepressures which would replace the diminishing pressures expected inenergy and food and contribute to an acceleration of wage increases.2. The contraction can continue, with unemployment rising throughoutthe year. Anti-inflationary pressure would be strengthened along thispath.3. The economy can begin a moderate expansion, one which will bring ahalt to the rise in unemployment and yet resist an upsurge of inflation27

outside the food and fuel sectors and get the benefit of a much lowerrate of further price increase in these two sectors. There would be anexpectation that a significant reduction of price increases in food andfuel would be followed in time by a reduction elsewhere if the economicenvironment is not overheated. This would be accompanied by a gradualdecline of the unemployment rate.The third possible path is most consistent with attaining as well as maintainingthe goals of the Employment Act. The first is a prescription forundiminished and probably accelerating inflation. The second exacts toohigh a price in unemployment.Of course, no one knows with certainty or precision the relations amongoutput, unemployment, and prices along any of these paths. They onlyreflect general emphases which can be utilized as guides to policy. Moreover,even if the desired path could be precisely described, no one couldprecisely describe the policy that would achieve it. All of these usual uncertaintiesare heightened this year by the difficulty of foreseeing the effectsof the radical change in the energy situation. This unusual degree of uncertaintymakes it more important than ever that we be prepared withmeans for adapting policy if events seem to be moving outside a reasonablerange of the roughly defined target path.What is implied by the path that at present seems to us the best of thefeasible ones for the economy, given the inescapable effects of the energyshortage, is an increase of about 8 percent in the nominal value of GNPfrom calendar 1973 to 1974, to about $1,390 billion. Of this rise, about 1percent would be an increase in real output and about 7 percent an increaseof prices (as measured by the GNP deflator). Changes from calendar1973 to 1974 are, of course, significantly influenced by what has alreadyhappened in 1973; and hence changes so expressed do not describe an expectedpath for 1974, though they are implied in any expected path. Asfor the expected path during 1974, this would leave real output approximatelyflat, and perhaps declining for an interval, in the first half of the yearbut would bring a rise by somewhat more than the normal trend rate inthe second half. Inflation would be rapid in the early part of the year, mainlyas a consequence of energy and food prices, and then subside to rates significantlybelow those experienced in 1973. Unemployment for the yearwould average a little above 5J/2 percent.We would emphasize two aspects of this path. First, it is at the sametime our view of a feasible target and a prediction of what will be achievedif the planned policy is carried through. Second, that the path is feasibleand that it will be achieved by the planned policy are both uncertain to asignificant degree. This means that the target or the policy may have to bechanged as new information emerges, although changes involve costs andshould not be made unless the case for them is clear.A description of the implications of this path for the main sectors ofthe economy appears at the end of this chapter.28

POLICIES FOR ACHIEVING THE 1974 GOALSThe general contour of the economy described for 1974 is consistent withthe private forces now apparently at work. In the early months of the year,consumers will make the move to spending a larger part of their income onan imported product—namely oil—because of the higher price. This willtend to reduce their spending for the purchase of other goods and servicesand will offset the rise of other categories of demand, such as business investmentand government spending. But the adjustment to spending more moneyon imported oil will be completed early in the year; this drag on the expansionof the economy will then be removed and the expansive forces willbecome more effective. (Expenditures for foreign oil will not decline, butthey will not be rising significantly.) As the year progresses, housing constructionwill rise in response to greater availability of credit and greater certaintyabout the distribution of fuel oil and gasoline; and production of new automobileswill increase as the manufacturers improve their ability to turn outsmall cars. Meanwhile, the period of maximum increase of energy pricesand food prices should have passed.The main functions of policy will be to keep the dip in the early part ofthe year from going too far and to assist the revival later in the year, but toavoid stimulating too rapid a surge.1. Fiscal policy. The budget proposed by the President will tend to restrainthe decline of the economy during 1974 but would inject no fiscalstimulus to push the economy above its average rate of expansion.If the economy were operating at about the same rate of utilizationof the labor force in 1974 as in 1973, the size of the budget surpluswould change very little between the 2 years. Thus one can say approximatelythat if the economy were moving along its normal growth path thebudget would not be tending to divert the economy from that path in eitherdirection.However, if the economy operates, as expected, at a lower rate of activityrelative to its potential in calendar 1974 than in calendar 1973, the budgetwill swing significantly toward deficit. This change will result chiefly fromthe lower level of receipts accruing to the Federal Government at lowerlevels of economic activity, and partly from higher unemployment compensationpayments. As a consequence, private incomes after taxes rise relativeto output, thus sustaining demand and moderating the slowdown of theeconomy.In calendar year 1972, unlike 1973, Federal receipts were swollen byexceptionally large net overwithholding of personal income tax estimated toamount to about $9 billion. An estimate of the economic effect of the budgetin 1972 and 1973 depends heavily on the impact attributed to this overwithholding.If the amount overwithheld was less like a personal tax than likepersonal saving accruing in the form of a government obligation, fiscal policymoved in a restrictive direction from 1972 to 1973. Thus, if the amountoverwithheld is subtracted from recorded receipts, there was a swing of527-867 O - 74 - 329

about $14 billion from deficit to surplus between the 2 years on the assumptionof a constant rate of economic activity at full employment. Over $3billion of that swing would have been due to the higher rate of inflation in1973, but the remaining $10 billion would represent an independent fiscalpolicy force restraining even the normal rate of growth. Such restraint wasappropriate, given the inflationary condition of the time. Since we had in1973 both a reduction of unemployment and an increase in the rate of inflation,the actual swing from deficit to surplus was larger—about $17billion, or about $26 billion if overwithholding is excluded from actual1972 receipts.If the overwithheld amount is treated like any other tax receipt, little shiftin the full-employment budget position appears between 1972 and 1973.However, exclusion of the overwithholding from receipts seems to us tocome closer to representing the economic effect of the budget, and the fullemploymentestimates in Table 1 are calculated in that way. On this basisit appears that whereas the direction of fiscal policy was significantly restrictivefrom 1972 to 1973 it is fairly neutral from 1973 to 1974, offering supportif the economy declines but otherwise not exerting any upward or downwardpush.The foregoing observations relate to the balance of Federal receipts andexpenditures in the national income and product accounts. These accountsare more useful for analysis of overall economic impact than the unifiedbudget accounts stressed in the Budget Message, primarily because theyexclude certain expenditufes which do not enter directly into the streamof U.S. income or expenditure. The references to the behavior of the surplusor deficit at a constant rate of economic activity are to calculations of thesurplus as it would be at the actual or forecast rate of inflation if the economywere operating at 4 percent unemployment and at an annual growthrate of 4 percent (rather than the 4.3 percent used in Council Reports ofthe past 4 years). The level of these surpluses depends on the unemploymentrate chosen, but the year-to-year changes in the surplus are not sensitive tothe unemployment rate chosen if the chosen rate is approximately stablefrom year to year. Reference to a higher unemployment rate would reducethe levels of the surpluses but not have much effect on the year-to-yearchanges.It is also useful to try to take the effect of changing inflation rates out ofthe change in the surplus because such a procedure gives a clearer pictureof the budget changes that are autonomous, that is, not responses to economicfluctuations. An increase in the inflation rate will affect both receipts andexpenditures, but it will affect receipts much more promptly and hence increasethe surplus. This increase in the surplus tends to restrain the expansionand thus the increase of the inflation rate. But it is also a symptom ofnot having prevented a rise of the inflation rate and so is evidence of antiinflationarypolicy only in a rather negative sense. Unfortunately, the effectof the change in the inflation rate can be measured only very approximately.Table 1 shows the annual surpluses and changes according to four differentmethods of measurement.30

TABLE 1.—Federal budget surplus or deficit under alternative assumptions, national income accountsbasis, calendar years 1969—74[Billions of dollars]Level:Calendar year19691970197119721973 .1974 4Change from previous year:197019711972197319744Actual budgetsurplus ordeficit (-)8.1-11.9-22.1-15.9.6-4.6-20.0-10.26.216.5-5.2Full-employment budget surplus or deficit (—)under alternative assumptions i4 percentunemployment8.84.0-2 1-7.75.86.0-4 8-6.1-5.613.5.24 percentunemployment,standardizedinflation rate 2-4 8-5.3-5.610.2unemploymentrates.3Variable4.9.3-5 0-10.43.12.1-4.6-5.3-5.413.5-1.01 $9 billion in overwithholding excluded from 1972 receipts.2 Change in surplus or deficit between 2 succeeding years assumes that inflation rate is constant at rate offirst year.3 Assumes that unemployment rates of the civilian labor force are constant at their 1956 levels in each offour sex-age categories: Males and females 16-24 years and males and females 25 years and over. Instead ofstaying at 4 percent, the overall unemployment rate used to represent a constant rate of utilization of thelabor force in this estimate rises to about 4.6 percent by 1973 because the labor force was increasingly composedof groups (females, youths) characteristically having higher unemployment rates than older males.4 Excludes transfer of $2.1 billion worth of rupees to the Indian Government expected in the first half of 1974.Sources: Department of Commerce (Bureau of Economic Analysis), Office of Management and Budget, andCouncil of Economic Advisers.In view of the uncertainties facing us, it is extremely important to beprepared with fiscal measures to support or restrain the economy if it isclearly running outside the general track described here for 1974. The Administrationis now in the process of preparing for support action. A decisionto take such measures would have to be made with great caution, however,in view of the additional supply bottlenecks that might be caused by theenergy shortage.Greater protection for those unemployed because of the prospective conditions,and greater assurance against an even more serious slowdown, wouldhave been provided if Congress had enacted the proposal submitted by theAdministration last year to improve the unemployment compensation system.The President has again strongly urged the Congress to act promptlyon these proposals; he will also submit additional unemployment insuranceamendments to extend the duration of benefits and expand coverage in labormarket areas that have large increases in unemployment.2. Monetary policy. Because of the lag which we believe exists betweenchanges in money and changes in economic activity, the influence of monetarypolicy on the economy during 1974 will largely result from the monetaryexpansion during the second half of 1973 and the first half of 1974. Themonetary expansion in the second half of 1973 can be described by anincrease in the narrowly defined money stock (Ma) of somewhat under 5percent and an increase in the broadly defined money stock (M 2 ) of about31

8 percent, at annual rates. Continued growth in M 2 at approximately thisrate would be consistent with our expectations concerning the increase inmoney GNP during 1974. At present we expect money GNP to increase byabout 8 percent during the year. For more than a decade the proportionateincrease of money GNP tended to be the same as that of M 2 , though in someyears the deviations from this proportionality were substantial, and halfyearlydeviations were often quite large. Hence, the foregoing conclusionseems reasonable, barring the emergence of further evidence as yetunforeseen.The prospect for trends in interest rates is particularly difficult to appraiseat present. Inflationary expectations tend to raise money rates, whilethe temporary slowdown of business activity is apt to have the contraryinfluence for a while, even though business fixed investment is likely to riseat a rate well above that of GNP. Among the interest-reducing influences,the prospective capital inflows resulting directly or indirectly from currentaccount surpluses of the oil-exporting countries also need to be taken intoaccount. All this relates to interest rates in general. Terms on which mortgagecredit is available will be influenced by the success that depositoryinstitutions have in attracting new savings funds in competition with marketalternatives, and by the subsidization policies of the Administration withrespect to this category of borrowers.As will be explained in Chapter 2, by steepening inflationary expectationsan overgenerous increase in the money supply would steepen rather thanmoderate trends in money rates of interest.3. Housing policy. The economic path described for 1974 implies a bottomingout of housing starts in the first quarter of 1974 at a level only slightlybelow the fourth quarter of 1973 followed by a rise beginning in the spring.The Administration took a number of steps in September 1973 to cushionthe decline then under way. In January a two-pronged action was taken torevive the mortgage market. The Department of Housing and Urban Developmentwas authorized to purchase mortgages on up to 200,000 housingunits at 7% percent, substantially below the prevailing market interest rate.In addition, the maximum interest rates on FHA-VA mortgages were loweredto 8I4 percent from 8/ 2 percent, thereby setting the pattern for reducedmortgage rates.4. Managing the energy shortage in the United States. If the economyis to follow the general path we have outlined it will be essential that outputnot be seriously hampered by the shortage of energy. This stipulation means,first, that the total supply of fuels made available for industrial production,including transportation related to it, must be adequate to sustain the aggregatelevel of economic activity projected for the year. Second, the supplymust be distributed among users in a way that avoids bottlenecks.How easily these two conditions can be met will depend upon the volumeof oil imports. We believe that the volume of imports will be sufficient topermit their fulfillment, but it would be imprudent to assume that they canbe met without care in the distribution of energy among various uses.32

The rise in prices of petroleum products which has been occurring helpsto bring about the desired distribution. As the prices rise, the less valuableuses—which tend to be those which generate the least output and employment—areforegone. At a higher price, a factory which uses oil for spaceheating will cut down the temperature before it cuts down the use of oil inthe production process. A higher price will cause a consumer to cut downthe use of his car for pleasure driving, rather than for getting to work. Itis commonly said that the use of energy will be reduced relatively littleby a price increase. That may or may not be correct. But even if the cutin energy use is "relatively little" compared to a price increase, the priceincreases that have occurred or are in prospect are sufficiently large to havea substantial effect on the total use of energy and its distribution.The oil price increases that have taken place under the controls programhave been justified as a necessary means of increasing supply and maintainingorderly markets. Imported oil, "new" oil, and oil from small wells areexempt from control. Other oil is controlled and sells at prices considerablybelow those of uncontrolled oil, but the control price has been raised ontwo occasions to keep the price spread from becoming too large. Althoughnecessitated by supply considerations, these price increases have played auseful role in the allocation of supply. To make sure that the price increasesdo not yield excessive profits that are not justified by their contribution toincreasing supply, the Administration has proposed an Emergency WindfallProfits Tax. This tax would take a large proportion, up to 85 percent, ofthe additional revenue earned by producers of crude oil as a result of higherprices.Other methods are being used to distribute supplies of oil in ways that willmeet production requirements. The Federal Energy Office (FEO) has encouragedrefineries to limit the production of gasoline in order to increasethe production of other products more essential to industrial output. Thisenforces a cut in automobile driving, although it does not solve the questionof who gets the available gasoline. The FEO has taken steps to prepare forcoupon rationing of gasoline, although it is believed that a combination ofincreased supplies, higher prices, and conservation measures, largely voluntary,will make such rationing unnecessary.The Emergency Petroleum Allocation Act of 1973 requires the establishmentof a system of mandatory allocation of oil products, and the FEOhas now set up such a system. It specifies limits to the amounts of petroleumproducts that refineries or distributors can deliver to described classes ofcustomers (but stops short of individual consumers). The limits are generallydescribed in percentages of current requirements or base-period use.The limits differ by class of user, in accord with FEO's estimate of the essentialityof the use to the productive process and to society. Such a systemnecessarily involves elaborate paperwork and a large degree of arbitrariness.Confidence that the economy will not be seriously hampered rests uponthe expectation that increased supply and higher prices will narrowly limitthe shortages to be distributed by the allocation system.33

A third method, which seems to have been highly effective, has beenvoluntary conservation. This has been especially useful in stretching out thesupplies of gasoline and home heating oil, but it has also helped to bringabout a reduction in the nonproductive use of energy in industry.The measures taken in recent months to deal with the energy shortageare too numerous to recount here. What further steps may be needed cannotnow be foreseen. It must be emphasized, however, that satisfactory progressthrough 1974 will depend upon a flexible use of prices, allocations, andvoluntary measures to channel energy efficiently into industry.5. Wage and price controls. When Phase IV controls were instituted inAugust, the President announced that it would be our policy to work ourway and feel our way out of controls. There would be no pre-set terminaldate and we should avoid a disorderly transition, but the determinationwould be to end the system of comprehensive controls. This policy has beenfollowed in the last 5 months. A number of industries have been decontrolledsince Phase IV began and the pace of decontrol has beenaccelerating.Experience under Phase IV has shown the wisdom of pressing on withthe removal of controls. The controls have not recently been very effectivein restraining inflation, and the general uncertainty cast over the economicprocess by the actual or potential operations of a detailed control systemendangers the healthy economic expansion we seek. The last point is veryimportant. Too many business decisions for too long a period ahead arebeing influenced by puzzlement over the kinds of controls businesses will besubjected to. We badly need business investment and economic growth in theyears ahead, and continuation of general controls tends to interfere withthat aim.Just how fast the process of decontrol should properly go, and whatresidue of controls will endure, if any, cannot now be precisely told. Butachievement of the desired reduction of inflation during the year does not,in our opinion, depend upon any significant influence from the controls.6. International cooperation. The ability of the United States to getthrough the economic uncertainties of 1974 successfully would be enhancedby reasonable stability in the rest of the world, especially in the industrializedcountries that are the chief suppliers and customers of the UnitedStates. There are two main things the United States can do to further thatstability.First, the United States can take the lead in an international effort tobring about a reliable international flow of oil at reasonable prices. Powerfulmoves by the United States and other industrialized countries to developenergy sources as potential alternatives to the oil now controlled by a fewnations will be helpful in normalizing the flow of oil. The President hascalled the first of a series of international meetings on this subject to takeplace February 11.34

Second, the United States can participate in a common effort to assurethat the effects of high oil prices on the balance of payments do not lead theindustrialized countries into a round of competitive deflation, depreciation,or trade restriction. This effort should include consideration of possible waysto supplement the now existing means of providing temporary supportto countries finding themselves in a critical financial condition as a result ofgreatly enlarged oil import costs.GOALS BEYOND 1974Concern with the stabilization problems of 1974 should not divert attentionfrom those other problems whose consequences will come chiefly after1974 but which need to be dealt with now and continuously. Most of theseproblems arise from the need to increase our ability to produce—in total aswell as in particular directions. This emphasis on ability to produce is essentiallyan emphasis on efficiency, on managing our resources so that we getas much out of them as we can. It is neutral about what should be producedand even about how much should be produced, only stressing the ability toproduce more of what is wanted, if it is wanted.We think emphasis on ability to produce is important at this time, becausein the years ahead the desire of the American people for more output islikely to be especially strong, and unusual obstacles may hinder fulfillmentof this demand. The need to devote more resources to obtaining energy willbe a drag on output. The country is almost certainly ending the period oflarge transfers of the labor force out of agriculture into other pursuits. By1980, we will probably come to the end of a period in which the labor forcegrew much more rapidly than the population and thus helped to raise outputper capita. Environmental considerations may tend to slow down the growthof output, at least as output is usually measured.For these reasons, emphasis on the capacity to produce—on efficiency andproductivity—is especially important now. Of course, even in the fieldvaguely labeled "economic" the Nation always deals with a multiplicity ofgoals. For example, the distribution of the national income among personswill always be a subject of concern. We hope that the information presentedin Chapter 5 will be illuminating in this connection. The Nation has othergoals about the uses of the national output. One sees evidence, for example,of a great interest in devoting more of the national output to improvementof health, and in achieving that aim more efficiently. The President will besubmitting suggestions to this end. It seems most useful for us to concentratehere on the problem of production.Many aspects of Government policy affecting capacity to produce are discussedin more detail in later chapters of this report. We present here onlya brief survey of the field.35

DEVELOPMENT OF LOW-COST ENERGY FOR THE FUTUREThroughout the 1960's the United States employed quantitative restrictionson petroleum imports to limit dependence on foreign sources of supply.However, the availability of imported petroleum at a price below the domesticprice led to a weakening of the import restrictions and in 1973 toabandonment of the quota system altogether. As a result, imports have provideda rapidly expanding share of the domestic market.The energy crisis that occurred in late 1973 as a result of the embargo bysome of the oil-exporting countries alerted the Nation to the risk of dependingon imports for a commodity that is vital to our economic well-being, andthe supply of which is largely controlled by a few countries. Reductions in oilshipments to the United States and a sharp rise in the price of imported oilhave caused substantial economic disruption. Had these events occurredlater, when the United States was projected to be even more dependent onimported petroleum, the loss of jobs and the effect on incomes might havebeen far greater.Oil imports may become more readily available, and the price may decline.However, the possibility of a subsequent sharp price rise or supply curtailmentmakes it risky for the United States to remain heavily dependent onimports to supply domestic needs.The Nation has the capability to become self-sufficient in energy production.This capability will, however, require substantial capital investmentand large expenditure on research and development. The private sectorwill be willing to make the needed investment only if there is a reasonableassurance that returns will be adequate to justify the commitment of resourcesto long-term investments.In response to this situation, the President has announced Project Independence,a program to develop the capability for self-sufficiency in energyproduction by 1980. The choice of policies to implement Project Independenceshould be made largely on economic grounds. Because energy can beexpected to cost more in the 1980's than it did in 1972, important changes inproduction methods, in the composition of output, and in consumption willoccur. These changes will develop most rapidly, and with the least cost tosociety, if relative prices are allowed to allocate resources and to influenceproduction decisions. There are many uncertainties regarding which of thenew energy technologies will prove to be economic. By relying on the marketmechanism to guide production decisions, we can avoid becoming lockedinto production methods and energy sources that prove to be uneconomic.A major component of Project Independence is a program of Governmentfundedresearch and development to accelerate the development of technologiesthat will ensure an adequate supply of low-cost energy for the future.Although the private sector will continue to undertake most of the energyresearch and development, there is a need for a more active Governmentrole. In part this is because the returns from expenditure on research anddevelopment will be heavily influenced by Federal policies regarding en-36

vironmental control, leasing of mineral rights, and import restrictions. Inaddition, the development of new energy technologies to some extent involvesexpanding our knowledge of fundamental processes. In such cases, althoughthe research and development provides a large gain to the economy as awhole, there may be little opportunity for any one firm to derive a largeenough part of this gain to warrant undertaking the research. Moreover,private research and development is usually oriented toward projects with arelatively quick payoff, whereas much of the needed expenditure must bedevoted to the development of energy sources that may not be competitive forsome time.SAVING AND PRIVATE INVESTMENTTo keep output per worker rising rapidly, when the labor force is alsorising rapidly, requires a high rate of investment in productive facilities.Our total investment requirements in the years ahead will be greatly increasedby the need to invest in energy development and environmentalimprovements.These energy and environmental investments do not raise productivity asconventionally measured, though the former may prevent a decline in productivityif energy shortages would otherwise continue, and the latter mayalso prevent an ultimate decline in productivity. Both types of investmentthus represent part of the increased resource costs imposed on energy-usingor environment-using industries, in one case by adverse supply developmentsand in the other by social choice. Environmental benefits enhance economicwell-being, and increased reliance on domestic sources of energy adds tosecurity of production. Still, one can probably say, the American peopleexpect rapidly rising output of the ordinary, marketable kind; and thisexpectation will require rapidly rising total investment to accommodaterising energy and environmental investment along with increasing investmentsof other kinds.Part of total investment is provided through the Federal budget, in theform of direct expenditures for capital purposes, loans to private businessesand individuals, or grants and loans to States and localities. The budget forfiscal 1975 includes $19 billion for such outlays, excluding defense and excludingexpenditures for education, training, health, and research and development.The largest single item is expenditures for transportation, primarilyhighways, followed by expenditures for public works.These direct investments in the Federal budget make a useful contributionto economic growth, if they are wisely selected and well managed. Suchdirect investments have numerous advocates in the Federal budget-makingprocess. But attention needs to be called to another way in which the Federalbudget could contribute to investment and growth, although it has fewadvocates: running a budget surplus, or at least avoiding a budget deficitexcept under appropriate conditions.If the Federal Government runs a deficit and borrows under conditionsof strong private investment demand, its borrowing absorbs funds which37

would otherwise have been invested in private projects. Unless all of thatdeficit is used to finance direct Government investment, which is unlikely,the deficit depresses total investment. On the other hand, if the Governmentruns a surplus in these circumstances, it will repay some of its debt and makemore funds available for private investment, unless the surplus is generatedby taxes all of which come out of private saving, an unlikely condition.When there is a great deal of slack in the economy, a budget deficit will helpto support the level of economic activity needed to supply both the incentiveto invest and the savings for investment. However, when productive resourcesare fully utilized, the smaller the Federal deficit is, or the larger theFederal surplus, the higher private investment is likely to be. This fact partlyexplains the principle adopted by the Administration that expendituresshould not exceed, and at times may properly be less than, the receipts thatwould be collected at full employment.Government policy affects incentives for private investment, in total andin particular sectors, in a number of ways, including policies relating totaxes, international trade, and international financial policy, as well ascredit guarantees, subsidies, and so on. All of these involve well-known conflictsof objectives and difficulties of measuring costs and benefits. We maynow be running into a problem which is new, at least in magnitude, and potentiallyvery serious: the uncertainty created for private investment, andall private long-term commitments, by Government economic controls thatare unprecedented in scope and unpredictable in operation. Taken together,the price and wage controls, the controls connected with the energy shortage,and the environmental regulations add up to a massive entry of Governmentinto the affairs of almost every business in the country. The managementof these controls involves a great many close or arbitrary decisions, tobe made in many instances by a very few people. They could go either way,and the private businessman who must invest in the light of these controlscannot tell which way they will go.These uncertainties could become a major obstacle to new private investment,even though we do not now see good evidence of its having alreadyhappened. Concern on this score is not a conclusive argument against anyparticular control, although it is a strong argument for avoiding controls.And it does argue for as much stability as can be achieved in the managementof the controls that are inescapable.THE FINANCIAL SYSTEMIn his 1970 Economic Report the President said:Because our expanding and dynamic economy must have strong andinnovative financial institutions if our national savings are to be utilizedeffectively, I shall appoint a commission to study our financialstructure and make recommendations to me for needed changes.After studying the findings of this commission (the Hunt Commission),the President, on August 3, 1973, sent to Congress a series of recommendations.In them a more efficient financial system is envisioned, in which finan-38

cial institutions can operate with greater freedom and less imposed specialization.By fostering more competition among financial institutions, the proposedmeasures would improve the efficiency of our financial system inchanneling funds from savers to borrowers. Savings would earn the highestrate of return the competitive market structure could allow, and the savingswould be put to the most productive use. Under such a system, interest rateswould play a greater role in determining the volume and the distributionof funds. Social projects deserving priorities, such as low- and moderateincomehousing, would be taken care of with subsidies instead of regulations.Among the recommendations, interest rate ceilings on deposits would bephased out over a period of 5 5/2 years. Federally chartered thrift institutionswould be authorized to offer third party payment plans, including negotiableorders of withdrawal (NOW's) and credit cards to individuals andcorporations; but they would also be given expanded lending powers inmaking consumer and real estate loans and in acquiring high-grade privatedebt securities. National banks would likewise be able to offer NOW accountsand make real estate loans with fewer restrictions. Interest ceilingson Government-backed mortgages would be removed, and a mortgage interesttax credit of up to 3 ^ percent to financial institutions and up to 1 l /ipercent to individuals supplying mortgage funds would be made available.The President's recommendations, if enacted by Congress, wouldstrengthen the financial markets in general and mortgage markets in particular.The expanded lending and borrowing powers would increase theflow of funds into financial institutions. Further, the mortgage tax creditwould reduce the dependence of the mortgage market on thrift institutionsby encouraging other types of financial institutions, as well as individuals, toinvest in mortgages. The resulting mortgage market would be less vulnerableto a credit squeeze than it has been, and the burden of monetaryrestraint would be more evenly distributed throughout the economy.On another financial matter, the time may be at hand when a move inthe direction of greater uniformity of reserve requirements among depositoryinstitutions is warranted. Varying reserve arrangements among State andfederally supervised banks have resulted in removing an increasing proportionof the money supply from the direct influence of Federal Reserve requirementsand have made short-term shifts of deposits among member andnonmember institutions a source of uncertainty in the implementation ofmonetary policy. Care must be taken that any change in the reserve structureof the Nation's banks should not work to the disadvantage of smaller institutionsor change the balance among supervisory authorities; but within theseconstraints it now appears desirable that deposits which form the moneysupply should be subject to direct influence by the Federal Reserve, regardlessof the source of supervision of the institutions that hold them. The FederalReserve has recently submitted its own proposals in this field.39

TRANSPORTATION REFORMLast year the Congress passed and on January 2, 1974, the Presidentsigned the Regional Rail Reorganization Act, which is a pragmatic attemptto deal with the pervasive insolvency of railroads in the heavily industrializedMidwest and Northeast. Several of the eight principal bankrupt railroadshad threatened liquidation, and such a bill was needed because the risk ofeven a very short period of suspended service was too great to be tolerated.If the services of the Northeast's railroads are so vital to the rest of theeconomy, one must ask why so many of them were in such a weakenedfinancial condition. Factors more general and basic than those that normallycause bankruptcy are responsible.Poor management and unrealistically rigid labor contracts are popularexplanations of the railroads' inability to adapt to changing technology anda changing economy. These proximate causes largely reflect, however, a morefundamental cause—inefficient and intransigent governmental regulation.Governmental regulation of the railroads can be traced to two sources.The public wanted the Government to protect them from the industry in atime of near monopoly and the members of the industry wanted the Governmentto protect them from each other. This "protection" has been expensivefor both the railroads and the public. The elaboration of regulations intendedto provide this protection has created a complex set of specifications for thebehavior of firms that has tended to ossify with time. As a result railroadcompanies have increasingly given up control of fundamental managementdecisions to the Interstate Commerce Commission (ICC) in return for thepolicing of industry competition by the agency. Moreover, railroad management'sattention began to focus more on the rules that delimited its discretionthan upon the underlying economic realities in the markets in whichthey operated. As these realities changed, railroad management found itselfincreasingly inept at adjusting—the result being an increasing incidence ofbankruptcy.The Transportation ImprovementActThe Transportation Improvement Act of 1974, proposed by the Administration,is an important first step toward solving some of the more generalproblems of the railroad industry. It is also an imperative step toward a longtermsolution of the problem of the bankrupt railroad; because the viabilityof the rail system that will emerge from the wreck of the Penn Central willdepend in an important way upon successful regulatory reform. Among themore important reforms facilitated by the bill would be liberalization andrationalization of procedures for the "abandonment" of unprofitable lines.In 1971 the railroads were required by the ICC to maintain service on 21,000miles, about 10 percent of the total, of lightly traveled track for whichrevenues were less than operating costs.To cover these losses, railroads must charge higher rates on profitableroutes. This subsidization distorts resource use and interferes with the effi-40

ciency of the entire transportation system, and hence the entire economy,as well as increasing the financial problems of the rail industry. Requiringrailroads to continue to operate short and uneconomic branch lines divertstraffic that could be carried more efficiently by truck; and conversely thehigher rates on longer hauls result in a diversion to trucks of freight thatcould be moved more efficiently by rail. Since trucks use considerably morefuel (and emit more pollutants) than trains per ton-mile of freight carried,the magnitude of this inefficiency grows directly with the increasing relativescarcity of energy supplies.The proposed act will also facilitate the substitution of truck transportationfor rail services on abandoned lines, by more or less automaticallyauthorizing truck service between any point on the abandoned line andconnecting rail service points.Need for Further ReformAlthough enactment of this bill will add to the efficiency of the railindustry, several basic problems remain on the agenda for transportationreform in the coming year. The longer-term viability of the Nation's railroadswill require substantial investments in improved technology, and in improvementand diversification of types of freight service, as well as investmentsto rehabilitate deteriorating physical facilities.It is vital, however, that a comprehensive evaluation of the regulatoryand institutional structure of both the railroads and the entire surface transportationindustry be completed before such investments are made. Manyaspects of modern railroad operation are not determined by either technologicalor profitability considerations. They are adaptations to obsoleteregulatory policies and labor practices. Investment in conventional railroadtechnology as it exists today may inhibit productivity and actually reinforcethe resistance to the institutional reforms that will be required for the developmentof a more rational and efficient surface transportation system in thefuture.Changes in corporate structure may also be desirable. Costs of transferringfreight from one railroad to another significantly reduce the savings thatrails enjoy relative to trucks on long-haul shipments. This would imply thatend-to-end mergers of railroads might be important mechanisms for reducingthe real cost of rail transportation. Yet formidable administrative barriersmust be surmounted by companies attempting end-to-end mergersunder current regulatory practices.The Administration's concern with the efficiency of the surface transportationsystem is not limited to stopping the spreading insolvency thatinfects the railroad industry. It will be difficult to exploit fully the opportunitiesfor increasing productivity in the railroad industry unless major changestake place concurrently in the trucking industry.The regulation of trucks in interstate common carriage that began in themidst of the Great Depression has also evolved into a web of regulatory41

constraints. Restrictions on entry into market areas, limitations on the typeof goods carried, and mandated "gateways"—creating required routes whichmay be so circular as to be bizarre—have resulted in an industry burdenedwith regulatory inefficiency. Partially loaded trucks, often required to returnempty even when alternative cargoes are available, are common. Such inefficiencyis a result of regulatory policy. There are no technologicalreasons why the motor freight industry could not operate as an essentiallycompetitive sector of the economy.A comprehensive analysis of the trucking industry is now under way andwill provide a basis for the design of a comprehensive set of regulatory reformproposals to be completed by the fall of 1974.EFFICIENT INTERNATIONAL EXCHANGEEconomic growth is significantly enhanced by an openness to foreigneconomies which permits a relatively free international exchange of goodsand capital based on economic incentive. International trade makes goodsavailable that might otherwise be lacking, or only available at much highercosts. It can also make available to domestic producers ideas about new products,new product designs, or new methods of production. For producers itcan be an added incentive to adopt more efficient methods of production.We have been reminded in recent months that in some circumstancesthere can be a danger, both political and economic, in excessive dependenceon foreign supplies. The United States must guard itself against this danger,by unilateral or multilateral action. However, if this objective is realisticallydefined it will be found not to limit greatly the scope for beneficial expansionof international trade.Despite a fairly extensive removal of trade barriers in the past 25 years,substantial barriers to international trade and investment remain in effect.The inefficient location of productive facilities because of these barriersconstitutes a loss of economic welfare to the country as a whole. Efforts tonegotiate a reduction of the remaining trade barriers are therefore importanttoward improving the efficiency of the U.S. economy. The trade legislationnow before Congress would give the President authority to negotiate a substantialreduction of such barriers.Negotiations in the trade area also have to deal with the economic interdependencethat results from trade. Abrupt economic shifts emanating fromabroad can from time to time create a temporary economic dislocation athome which needs to be moderated or offset by government measures. Sincesuch measures will have further repercussions abroad, governments need toagree on some basic rules and procedures that they can follow when theirinterests conflict. Multilateral negotiations are designed to improve some ofthe current rules and procedures, as well as to reduce existing trade barriers.An international monetary system is a prerequisite for the efficient exchangeof goods and capital. Without such a system, international exchangeis confined to barter. To function efficiently, the international monetary sys-42

tem has to provide sufficient quantities of commonly accepted means of paymentand a procedure for adjusting the relationship between one currencyand another. It also has to provide a set of rules on such questions as theconversion of one currency into another, restrictions on the conversion ofcurrencies, transfers of liquid funds from one country to another, as well asa set of procedures for resolving differences in national approaches to suchproblems. The current negotiations to reform the international monetary systemare designed to improve the existing rules and procedures.SUPPLEMENTProspects for 1974Earlier in this chapter we noted that 1974 would be a year of little outputgrowth and considerable inflation but that in both respects the second halfof the year should be better than the first. The energy crisis has cloudednear-term prospects much more than usual. There is great uncertainty, notonly about the overall GNP change and its distribution between price andreal volume but also about the components of demand. It seems fairly likelythat this year's 8 percent increase in nominal GNP should reflect slowerrates of increase, compared to last year, in consumption, gross private domesticinvestment, and net exports, and a faster rate in combined governmentpurchases. The specific changes are much less certain, but the Councilpresents the following projections of individual demand components underlyingthis year's overall total.Business Fixed InvestmentThe Council expects nonresidential fixed investment to show a rise ofabout 12 percent from 1973 to 1974. It is likely to be the major source ofstrength in demand this year. Despite the small rise in production in thefinal quarter of 1973, the condition of shortages that prevailed in many industriesearlier in 1973 continued through the end of the year. Capacity utilizationwas still very high, especially in the basic materials industries.Delivery times were still long. Aside from the automobile industry, inventorieswere rather low relative to output and sales. All of these were indicativeof tight supply conditions that constituted a strong stimulus for businessto invest in new plant and equipment in the coming year.This is not to say that the character of investment demand will be thesame as in 1972 or 1973. The slowdown of the rise in aggregate demandduring 1973 and the leveling in profits are likely to bring a smaller rise innew investment initiatives than in the preceding 2 years. Even so, the largevolume of new investment under way assures a sizable increase in real expendituresin 1974. Unfilled order backlogs in capital goods industries at theend of December were some 35 percent greater than they had been a yearearlier.43

In early 1974 the Commerce Department released a survey which showedthat businessmen were planning a rise of 12 percent in capital expendituresin the coming year. The rise was particularly large for manufacturing—17percent—and planned increases within manufacturing were above average(21 percent) for materials-producing industries. The Commerce Departmentsurvey is broadly consistent with a McGraw-Hill survey, which was runabout 2 months earlier, projecting an overall rise of 14 percent from 1973to 1974.Neither of these surveys sheds any light on the effect of the energy crisison investment plans; and because of variations in sample coverage and forother reasons, the difference in results between the two surveys is not consideredsignificant. The Council believes that on balance the energy crisismay result in some reduction in business purchases of cars and trucks, butaside from this the negative and positive effects of the energy crisis on investmentwill be roughly offsetting. Some industries directly affected by the crisishave already cut back investment (airlines, for example), while some firmsin other industries may be holding back on commitments until they understandthe implications that the current crisis holds for future fuel supplies-.On the other hand, the crisis is stimulating capital outlays to support thesearch for new energy sources in this country, and conversions to other typesof fuel will entail new capital expenditures.InventoryInvestmentInventory investment is likely to be a little higher this year than in 1973—perhaps by $2 billion. In the final quarter of 1973 there was a very largeincrease in inventory accumulation, a good part of which represented a riseof retail stocks of new cars. Even so, total nonfarm stocks relative to totaloutput measured in real terms at the end of 1973 were low, gauged by post-World War II experience. The first half of this year should see a working offof unwanted automobile stocks at the same time that other industries continueto accumulate inventories in an effort to restore more normal relationshipsbetween stocks and output.ResidentialConstructionHousing starts in the final quarter of 1973 appeared to be reflecting theeffects of the stringency in mortgage markets last summer, and possibly temporaryeffects arising out of the energy crisis. Very late in the year there werereports that builders were uncertain about the impact of reduced fuel supplieson new construction, while potential buyers of homes in outlying areaswere hesitant because of uncertainty about the availability of gasolinefor extended commuting. But this, and the extent to which homeownerswere making new expenditures for better insulation of their homes, cannotbe considered hard information. While there is no assurance about improvedenergy supplies, the coming months should at least dispel the present uncertaintyand permit those builders and those consumers who can buy andrent new homes to make decisions.44

A more fundamental factor concerns financial conditions. Net inflowsinto savings and loan associations have risen since late summer, and thriftinstitutions now have more funds available for mortgage lending. Onthe basis of past experience this improvement in the availability of mortgagefunds should be reflected in a turnaround in starts this spring. Recent actionstaken by the Federal Government should also help spur the recovery. Thereduction in FHA and VA mortgage rates in January should help makethese programs more attractive to home purchasers, and increased purchasesof mortgages by GNMA should increase the supply of mortgage funds forthese programs.The underlying demand for housing—as measured by the need to provideshelter for new households and for the replacement of houses removedfrom the housing stock—remains strong. However, the inventory of unsoldhomes at the start of the year is likely to act temporarily as a brake on newstarts and dampen the increase after this spring. For all of 1974 the Councilforesees starts of approximately \' 2 /z million private units, which would representa decline of almost 20 percent from the 1973 total. Outlays are expectedto decline by 15 percent.Government PurchasesFederal purchases of goods and services, after rising very little from 1972to 1973, are expected to increase about 10 percent in the coming year, withincreases in both defense and nondefense outlays. State and local purchases,further supported by the revenue sharing program, are expected to rise by12 percent, which is close to the increase of the preceding year.Net ExportsPrior to the energy crisis it was expected that net exports would show afurther improvement from 1973 to 1974. The effect of the devaluation ofthe dollar and the continued strength of foreign demand were expectedto stimulate exports. The slower growth of output in the United States wasexpected to slow the growth in imports. Thus, a further moderate improvementover the high rate of net exports that prevailed in the second half of1973 appeared to be a reasonable prospect.The oil crisis has drastically modified this outlook. For the time being atleast, foreign countries are expecting much slower real growth than theyanticipated previously. While exports will be greater than in 1973, they willnot rise as much as they would have without the crisis. The main factoraffecting imports is the huge increase in prices of imported oil. Cutbacks inthe physical volume of crude oil and refined products will be much morethan offset by the rise in price. The full effect of the price rise should befelt by the second quarter. In nominal terms the net exports are expected tofall close to zero for 1974 as a whole.45527-867 O - 74 - 4

Consumer SpendingConsumer expenditures are likely to increase about as much as GNP in1974. Spending should be rather sluggish in the first half but should showa marked improvement in the second.Consumers had already shown a pronounced reaction to the energycrisis in late 1973, when they reduced their purchases of domesticallyproduced cars from an annual rate of 10 million units in the third quarterto about 8 million units in the fourth. The decrease was much more thanhad been anticipated by forecasters prior to the energy crisis, and the factthat large car purchases were weak, while long delivery times were requiredfor small car purchases, pointed up the special influence of the crisis onauto demand. It is not clear whether the cutback by consumers had runits course by early January, when dealer sales of domestic cars were runningat a seasonally adjusted annual rate of about 7 5/3 million units. As small carsupplies improve through the year consumers should come into the market inincreasing numbers, although the pickup in car purchases is not likely to beappreciable until this summer. Another reason for the improvement in consumerspending from the first to the second half of 1974 is that the majordownward adjustment of demand resulting from reduced gasoline suppliesand higher prices is likely to be completed in the first half of this year.Prior to the energy crisis some slowdown in the growth of consumerspending had been expected in the first half of 1974 because of the earliershift in fiscal and monetary policy and the independent effect of the housingdecline. Offsetting these influences is the stimulation from sharp increases inFederal transfer payments. These include the 7 percent social security increasescheduled for this April and the further 4 percent increase in July;the rise in payments due to the federalization of adult welfare programs; increasedpayments for food stamps and increased retirement benefits forFederal workers and veterans. All told, Federal transfer payments to personsas measured in the national accounts are scheduled to rise by $14 billion(annual rate) from the second half of 1973 to the first half of 1974. As anoffset, the increase in the taxable wage base this January from $10,800 to$13,200 will reduce personal income by $2 billion, as calculated in the nationalincome accounts. In fact, this rise will be felt by those consumerswhose wages exceed $10,800 only in the second half of the calendar year,as employers make deductions from employees' earnings for a longer periodthan under the old taxable base. Although the net fiscal stimulus will haverun its course by midyear, the pickup elsewhere in the economy in thesecond half should serve to increase consumer incomes and spending.46

CHAPTER 2Developments and Policy in 1973AFEW FACTS STAND OUT about the American economy in 1973,and the story of the year is mainly the story of the relation amongthem:1. From calendar 1972 to calendar 1973 real output rose about 6percent; but from the end of 1972 to the end of 1973 it rose only 4percent.2. From calendar 1972 to calendar 1973 prices of this output roseabout 5 percent; but from the end of 1972 to the end of 1973 pricesrose 7 percent.3. On both bases of comparison expenditures for the purchase ofoutput rose by about 11 percent.The explanation of the large increase in expenditures for the purchase ofoutput in 1973 involves the following factors, although the relative weightto be given to each and which ones were active and which permissive areunclear and in dispute:—Total output approached a ceiling early in the year, so that the pricerise accelerated and demand for output was stimulated in anticipationof future shortages and price increases.—During 1972 the money supply grew 7.7 percent as narrowly definedand 10.9 percent as broadly defined. In 1973 the corresponding figureswere 6.1 percent and 8.8 percent.—The shift to more restrictive fiscal policy turned out to be insufficient toprevent an excessive rise in demand in view of the other forces at work.—Foreign demand for American output increased substantially.These factors interacted and multiplied in various ways. The rise ofprices boosted inflationary expectations which, either directly or throughan effect on interest rates, made people willing to spend more relative totheir money holdings. Rising expenditures generated more incomes and,in turn, more spending. Limited production of food, great foreign demandfor it, and, later in the year, the embargo on oil had particularly sharp effectson the prices of food and energy. Different models of economic behaviorwould arrange these factors differently, but probably all modelswould invoke these factors in one way or another.47

Chart 1Changes in GNP, Real GNP, GNP PriceDeflator, and the Unemployment RatePERCENT CHANGE FROM PRECEDING QUARTERJ/UNEMPLOYMENT RATE 1/4 —19721973_!/ SEASONALLY ADJUSTED ANNUAL RATES.2/ SEASONALLY ADJUSTED.SOURCES: DEPARTMENT OF COMMERCE AND DEPARTMENT OF LABOR.48

The whole process depended, at least for its magnitude, on the factthat in 1973, at an earlier stage than had been anticipated, supply limitationsmade it impossible to obtain further rapid increases of production.If we could have increased output more readily in response to the strongdemand, prices would have risen less, and the additional spur to demandresulting from the rising prices could have been avoided. The rise of outputduring 1973, especially after the first quarter, was limited by a slowgrowth of productivity while the labor force was growing quite fast. Theslow growth of productivity, in turn, resulted from shortages of certain basicmaterials used for further production, retardation in the flow of laborout of agriculture, an increase in the proportion of less experienced workersin the labor force, and supply difficulties in agriculture. At the end of theyear energy shortages may have been hurting productivity, although giventhe limited information now available this is not entirely clear and does notin any case bulk large in the statistics for 1973 as a whole.The foregoing remarks and much of the remainder of this chapter aremeant to explain what was unexpected and disappointing about the economyin 1973, notably the inflation. This question holds the most interest,and perhaps the most lessons, for the future. Worth emphasizing, however,is that in terms of the objectives of the Employment Act, "maximum employment,production, and purchasing power," 1973 was a successful year.Total employment was at a record high, as was the proportion of theworking-age population employed. Production was also higher than everbefore and close to its potential. The purchasing power of the Americanpeople, measured by consumers' real income after taxes, per capita, alsoreached a record level and was well above the 1972 average.DEMAND AND OUTPUT IN 1973The year 1973 started out on a very expansive note. Closing figures for1972 showed that from the third to the fourth quarter real GNP hadincreased at an annual rate of 8.1 percent and nominal GNP at a rate of 11.7percent. These were followed by still larger increases in the first quarter(Chart 1). The real increases were unsustainable in terms of the economy'spotential to produce, and the nominal increases were undesirable from thepoint of view of stabilization policy.The slowdown that policy had aimed for finally came in the spring. In thesecond and third quarters of 1973 the deceleration of the rise was moderatefor aggregate demand but substantial for total output. Against a backgroundof strong and rising demand by business and foreigners, the slower rise intotal expenditures took the form of some softening in automobile demandfrom extremely high levels reached early in the year and a weakening inhousing. All of this had its impact on production, but the production risewas also held down by shortages of many basic materials and limitations oncapacity in a number of industries.49

During the fourth quarter the downturn in housing became more pronounced,and the adverse effects from the energy crisis began to be evident.A marked slump in automobile sales led to a build-up of inventories indealers' hands and to cutbacks in production. It was clear from the patternof sales that the fear of a gasoline shortage was the dominant influence onfourth quarter sales, since throughout the period demand for small carsincreased, while demand for large cars declined.TABLE 2.—Changes in gross national product in current and constant dollars, 1968 to 1973IPercentJComponent1968to19691969to19701970to19711971to19721972to19731CURRENT DOLLARSPercent change:Total GNP.7.65.08.09.411.5Personal consumption expenditures.Durable goodsNondurable goodsServices8.18.06.59.76.6.67.38.28.013.55.78.58.913.37.68.510.811.712.19.2Gross private domestic investment.Business fixed investmentResidential structures10.310.98.5-1.92.1-4.512.43.837.016.413.226.413.015.17.4Government purchasesFederal purchasesState and local purchases..5.2.010.34.6-2.610.96.72.010.48.86.510.58.72.413.2Addendum:Final salesDomestic final sales..7.67.75.45.37.98.29.510.011.510.6Change in billions of dollars:Inventory accumulationNet exports of goods and services...7-.6-3.31.71.5-2.8.0-5.41.49.2CONSTANT (1958) DOLLARSPercent change:Total GNP_Personal consumption expenditures.Durable goodsNondurable goodsServicesGross private domestic investment.Business fixed investmentResidential structuresGovernment purchasesFederal purchasesState and local purchases..2.73.65.32.14.55.06.02.2-1.2-5.94.0-0.41.8-2.12.62.7-6.4-3.6-6.3-4.5-12.53.63.23.910.02.52.86.7-1.430.6-.6-5.33.36.16.112.84.44.911.410.019.33.3-.26.15.95.310.23.84.57.210.5-1.71.3-5.86.4Addendum:Final salesDomestic final sales.2.72.8-.1-.33.03.36.26.55.94.8Change in billions of dollars:Inventory accumulationNet exports of goods and services...3-.8-2.82.11.4-1.9-.7-2.4.68.0i Preliminary.Source: Department of Commerce, Bureau of Economic Analysis.50

The 11.5 percent increase in nominal GNP fron calendar 1972 to calendar1973 was the largest annual rise in 22 years. It featured a dramaticshift from deficit to surplus in net exports, as well as unusually strongdemand by consumers, especially for durable goods; by business for newplant and equipment; and by State and local governments. There is alsoreason to believe that inventory demand was strong last year but that supplyconditions did not permit this demand to be satisfied. Federal purchases andhousing rose less than average and decreased in real terms (Table 2).Somewhat over half of the rise in demand from 1972 to 1973 was matchedby increased physical volume, the 5.9 percent increase coming quite closeto the 1972 rise and exceeding the long-term average of about 4 percent(Table 2). The inflation component of the rise in money GNP acceleratedsignificantly from the 3.2 percent rate of 1972 and the 2.7 percentaverage of the past 25 years.NONRESIDENTIAL FIXED INVESTMENTLast year's rise in nonresidential investment extended the upturn thatbegan in 1971 after a year of declining real outlays. The investment expansiongathered strength in late 1971, when rising production increasedcapacity requirements and accelerated the rise in internal funds. The liberalizeddepreciation regulations and investment tax credit of late 1971 helpedto bolster the rise in cash flow. The exceptionally large increases in outputduring late 1972 and early 1973, coinciding with similar production increasesabroad, put severe pressure on domestic capacity in several industries,especially those producing basic materials. In view of these pressures it isnot surprising that manufacturing firms, with a 21 percent rise, dominatedlast year's increase in plant and equipment outlays.TABLE 3.—Changes in manufacturing plant and equipment outlays and value of starts, 1971to 1973IndustryPercent changeTotal outlays 2Materials-producing industries 3Primary metals.._PaperChemicalPetroleum refining...RubberTextile..Stone, clay, and glassAllotherTotal starts.._.26-1 2710-2229204137258458251 Preliminary. Expenditures include anticipated outlays for fourth quarter 1973. For starts, fourth quarter 1973 wasassumed by the Council of Economic Advisers to be equal to average of second and third quarters of 1973.2 As published by the Department of Commerce, Bureau of Economic Analysis. The two groups "materials-producing"and "all other" will not add up to the Commerce total because nonmanufacturing petroleum outlays ordinarily includedin petroleum in this particular survey have been excluded by the Council of Economic Advisers from each group.3 Includes lumber not shown separately.* Less than 0.05 percent.Source: Department of Commerce, Bureau of Economic Analysis (except as noted).51

A number of points may be noted about recent changes in manufacturingplant and equipment outlays. First, 1973's large increase reflects in partthe sharp rise in new starts in 1972 (Table 3). Second, the accelerationof the rise in outlays, as compared to the year before, was most pronouncedin materials-producing industries. Third, the rise in manufacturing outlaysin real terms since 1968 has been far below the previous postwaraverage. For materials-producing industries real outlays rose 1.9 percentper annum from 1968 through 1973, compared to a rise of 2.8 percent perannum from 1948 through 1968 (Table 4).TABLE 4.—Changes in manufacturing real plant and equipment outlays, 1948 to 1973Percent change (annual rate)PeriodMaterialsproducingindustries *All othersmanufacturingindustries1948 to 19681948 to 19531953 to 19571957 to 1965 ....1965 to 19681968 to 1973 22.82 24.72.42.11.94.12.04.35.44.12.41 Consists of primary metals, paper, chemicals, petroleum refining, rubber, textiles, stone, clay, and glass, and lumber.2 Preliminary.Note.—Based on expenditures in plant and equipment survey, deflated by the implicit price deflator for nonresidentialfixed investment.Sources: Department of Commerce (Bureau of Economic Analysis) and Council of Economic Advisers.INVENTORIESInventory investment was quite low in the first 3 quarters of 1973, contraryto the expectations of the Council and of most forecasters. Additions toinventories were only slightly higher in 1973 than in 1972, and gauged bythe postwar ratio of stocks to output, inventories appeared low duringthe year. Two main explanations have been put forth to account for thisbehavior. The first is that businessmen were cautious in their inventorypolicy last year, partly because of their experience during the 1970 recessionand partly because they expected that the rapid upsurge in demand andoutput in late 1972 and early 1973 could not be sustained. A second possibility,to which the Council attaches greater weight, is that the rise indemand was so strong and the limits to raising production so numerousthat businessmen were unable to build up stocks to any significant extentuntil the end of the year.The slowdown of the rise in final sales in the last quarter of the year(a decrease in real terms) was accompanied by a sharp rise in inventoryaccumulation. Much of this reflected the backing up of automobile inventoriesin the hands of dealers, since producers did not make an immediateadjustment to the pronounced decline in sales. Apart from automobiles theincrease in inventory accumulation in real terms was not especially large.52

HOUSINGIn early 1973 there were indications that the 3-year expansion inhousing starts was coming to an end. Sales of single-family homes had grownlittle after the summer of 1972; and vacancy rates of rental housing, whilenot high, had been edging up. During the first half of 1973 the inflow ofsavings into thrift institutions showed a pronounced decline compared to1972, and lenders consequently reduced the volume of their mortgage commitments.The situation became acute in July and August, when institutionsexperienced a net outflow of funds, although that was reversed late in theyear. A further discussion of mortgage markets appears below.From the first to the third quarter, starts fell from a seasonally adjustedannual rate of 2.4 million units to 2.0 million. In the final quarter, however,the summer stringency in mortgage markets was reflected in a precipitousdecline in starts, which dropped to an annual rate of 1.57 millionunits. Starts for 1973 as a whole, not counting mobile homes, were some13 percent below the 1972 total.Despite the record volume of completions, the rise in housing vacanciesfrom 1972 to 1973 remained moderate: 0.2 percentage point for rentalunits and 0.1 percentage point for homeowner units. Although both of theseare up from the troughs reached in 1970 and 1971, they are low by thestandards of the 1960's, mainly because household formation and losses fromthe housing inventory (due to demolitions and other factors) have remainedvery high.CONSUMER SPENDINGConsumer demand rose sharply from 1972 to 1973 under the influence ofhigher incomes. Rising wage and salary payments in the private sector andstriking gains in incomes of farm proprietors played major roles in the 10*4percent rise in personal income, the largest since 1951. Transfer paymentswere also up substantially for the year as a whole, mainly because of the 20percent increase in social security benefits that became effective in the finalquarter of 1972, although that influence was diminished by the rise insocial security taxes starting in January 1973. Under ordinary circumstancesdisposable income (after tax) should have risen less than personal income,but taxes rose less than usual because of the refund early in 1973 of some $9billion in personal income taxes overwithheld in 1972; this figure also reflectssmaller than usual final settlements on 1972 tax liabilities. The refund contributedabout 1 percentage point to the 10% percent increase in disposableincome.The 11 percent rise in consumer spending was accompanied by littlechange in the saving rate for the year as a whole. In 1970 and 1971, when theeconomy was sluggish and the recovery weak, the rate had been very high,the 8.1 percent annual average for each year being the highest since justafter the end of World War II. The vigorous recovery seems to have been adecisive factor in the decline in the saving rate to 6.2 percent in 1972. However,decisions by consumers to spend a still larger fraction of their disposable53

income do not appear to have played a major part in last year's upsurge inconsumer expenditures (Table 5).TABLE 5.—Disposition of disposable personal income, 1960—73[Percent of disposable personal income]Current dollarsDisposition of income1960-72average197219731Personal consumption expenditures:Food 2Durable goodsAutomobiles..All other expenditures17 413.74.859.915.714.74.960.715.714.94.960.6Total expenditures91.091.291.2Plus: Transfers and interestEquals: Total outlaysPlus: Saving ...Equals: Disposable income2.593.56.5100.02.693.86.2100.02.793.96.1100.0Constant (1958) dollarsPersonal consumption expenditures:Food 2Durable goodsAutomobiles..All other expenditures ...17.715.45.458.015.518.06.157.714.318.86.258.0Total expenditures91.191.291.2* Preliminary.2 Excludes alcoholic bever?ges.Source: Department of Commerce, Bureau of Economic Analysis.The influence on consumer spending of the overwithholding of Federalincome taxes in 1972, and their subsequent refunding in 1973, remains uncertain.When taxes were overwithheld in 1972, it was feared that the overwithholdingmight have an adverse effect on consumption. Perhaps it did,but if so, this effect was swamped by decisions of consumers to reduce theirsaving rate. The Council's position last year was that the overwithholdingwas viewed as temporary by consumers and that in accordance with the permanentincome hypothesis it affected saving rather than spending.At the start of 1973 the Administration expected that consumers wouldbegin to reduce their withholdings to some extent in order to eliminate theoverwithholding that had started a year earlier. This expectation did not materialize.In effect, consumers seem to have changed their pattern of payingincome tax liabilities for a given year. That is, they overpay in the year ofliability and prefer to receive refunds the following year, giving the Governmentsubstantial interest-free loans.Last year's refunds were not accompanied by a rise in the saving rate, butthe exact manner in which the refunds affected expenditures is not clear.Refunds by the Internal Revenue Service did not become very large until thesecond quarter of 1973. However, the upsurge in consumer spending camein the first quarter, and spending increases then subsided. If the refunds wereimportant in the spending rise of early 1973, the anticipation by consumers of54

efunds must have contributed to the bulge, which was pronounced in durablegoods.Despite last year's large price rise, real personal consumption expendituresfor 1973 were up some 5*4 percent over 1972. This may be compared to the6 percent real rise in 1972 and an average rise of 4 percent in the post-World War II years. Real spending in all major categories increased exceptfor food expenditures, which declined by about 2/2 percent.In aggregate, real consumption gains after the first quarter were comparativelysmall, and the large increases in expenditures after early 1973 wereabsorbed mainly in higher prices. Several factors seem to have been at workhere. Even before the fourth quarter there was some softening in auto demandfrom the exceptionally high levels of sales (12.5 millon unit annualrate) reached in the first quarter, although reports were common in the springand early summer that shortages of parts were holding back production andsales of automobiles. A leveling out in real purchases of durable goods otherthan autos after an exceptional rise early in the year may have been relatedto the decrease in housing. Real food consumption also declined after thefirst quarter because of the reduction in domestic output, the increase in exports,higher prices, and the shift to lower-cost foods. Whether the extraordinaryincreases in food prices also had an adverse effect on other typesof spending taken as a whole is not clear. The saving rate did not changemuch. The question is complicated by the fact that the higher food priceswere paid largely to American farmers, whose additional purchases of nonfooditems could partly offset any reduction in such expenditures by the restof the population. In aggregate, real consumer outlays for all personal consumptionexcept durables and food rose at an annual rate of 5 percent fromthe first to the fourth quarter of 1973.NET EXPORTSA major element in the big expansion of demand during 1973 was thechange in our net export position. In the fourth quarter of 1972 the UnitedStates was a net importer of goods and services at the annual rate of $3.5billion. In the fourth quarter of 1973, net exports were at the annual rate of$8.0 billion. This swing of $11.5 billion was equal to 8.5 percent of theincrease in spending during 1973. It exceeded the acceleration in total spendingfrom 1972 to 1973; that is, if net exports are excluded, the rise in totalspending is changed to 10.7 percent in 1972 and 10.3 percent in 1973.Not all of the increase of net exports may have been a net addition to totalspending, since the financing of the net exports may have reduced somedomestic spending. On the other hand, the direct effect of the increase innet exports would have a multiplied effect on total spending, becausethe initial effect would increase incomes in the United States and raiseconsumption.The increase in net exports resulted from three developments. First, therewas a boom in the rest of the industrial world, far exceeding expectations(Chart 2). Second, low food supplies in the rest of the world boosted the55

Chart 2Changes in Real GNPPERCENTUNITED STATESwimI 1 1 I 1OEC:D EUf\c>PE.—,1 1 1 1 11961SOURCES: DEPARTMENT OF COMMERCE AND ORGANIZATION FOR ECONOMICCOOPERATION AND DEVELOPMENT.7356

volume and the prices of farm exports from the United States. Third, thedepreciation of the U.S. dollar helped to increase exports from the UnitedStates and to restrain the growth of imports.THE LABOR MARKETWith aggregate output up substantially for the second year in a row thedemand for labor remained strong. Civilian employment increased by 2.7million persons in the course of the year, while the civilian labor force grewby 2.6 million. The 3.3 percent rise in employment was the largest December-to-December percentage increase since 1955. Unemployment declinedthrough the first 3 quarters of the year and then edged up.THE LABOR FORGEThe civilian labor force expanded sharply during 1973 and for the entireyear was 2.1 million above the average level in 1972. This 2.5 percent increasefollowed a 1972 gain of similar proportions and substantially exceededthe average rise of 1.8 percent a year in the preceding decade.The civilian labor force can be augmented in three ways: (1) Throughreductions in the Armed Forces; (2) through population increases in theworking-age groups; and (3) through increases in the proportion of the populationseeking work. By 1973 reductions in the Armed Forces had ceasedto be a major factor in enlarging the civilian labor force. For the year as awhole the Armed Forces averaged about 100,000 less than in 1972, a markedcontrast to the reductions of 400,000 which occurred in both 1971 and 1972.The 1.7 percent increase in the working-age population was in line with thelong-term trend. The main factor accounting for the larger than averageincrease in the civilian labor force in 1973 was the sharp rise in the participationrate. In the fourth quarter of the year a record 61.2 percent ofthe civilian working-age population participated in the labor force, a largeincrease from the 60.4 percent participation rate a year earlier. In 1972 and1973 the movement toward increased labor force participation was reinforcedby the large expansion in demand.The rise in participation was most pronounced for women from ages20 to 24. In 1973, 61 percent of women in this age group were eitherat work or looking for a job, compared to 58 percent in 1971 and only46 percent as recently as 1960. The long-term upward movement in theparticipation rate for young women has several causes. There has been atrend toward smaller families and toward starting them later. In addition,mothers with preschool children have increased their work outside thehome. The continued strong expansion of the service industries, whichtypically employ a large percentage of women, the relative increase inuniversity training of young women, and the broadening of all women'semployment opportunities have contributed to this trend.Men in the 20 to 24 age group also sharply increased their participationin the civilian labor force for the second year in a row, following 10 years57

of essentially declining participation rates. One reason for these declineswas the absorption into the Armed Forces of many young men who wouldotherwise have been part of the civilian labor force. In addition, selectiveservice legislation, which provided exemption from the draft for those continuingtheir education, induced many others to stay in school. Recentlythe growth in college enrollments has slackened, and a number of young menwho might otherwise have continued their schooling are instead enteringthe labor force either directly after high school or after a year or two ofspecialized training.Teenagers have also displayed an increased tendency to join the laborforce. A large proportion of teenagers in the labor force are in school, holdingor seeking part-time jobs. During the past few years a wider availability ofpart-time jobs has contributed to the upward trend in the labor force participationof younger workers. The tight labor market of 1973 accelerated thisrise as it did in 1955, 1966, and 1972.EMPLOYMENT AND HOURSLast year's increase in the demand for labor took the form of a largeincrease in employment and little change in the average length of the workweek.The failure of weekly hours to rise is not an unusual cyclical developmentfor an advanced stage of a business expansion. In the early phasesof a business cycle upswing, employers prefer to lengthen hours ratherthan hire new employees, because the latter course of action is often morecostly and employers are uncertain about the duration of the expansion.Part-time workers are consequently put on full-time schedules, and fulltimeworkers are switched increasingly to overtime. There are limits to thiskind of switching, however, because overtime involves premium pay; atsome point it becomes more profitable to add additional workers, or an additionalshift, when that option is available.Another factor that served to hold down average weekly hours in 1973was the behavior of labor turnover. Average weekly hours are total manhoursworked during the week divided by the number of persons on thepayroll. Labor turnover was quite high during the year, because increasedjob availability led many workers to switch their jobs. As some employeesquit and others are hired to take their place, an increased proportion of thoselisted on the payroll during the survey week have put in less than a fullworkweek.UNEMPLOYMENTThe overall unemployment rate averaged 4.9 percent in 1973, well belowthe 5.6 percent average of 1972. Unemployment declined for almost alldemographic, occupational, or industry groups (Table 6).Last year we described "maximum employment," which is the goal specifiedin the Employment Act, as "a condition in which persons who wantwork and seek it realistically on reasonable terms can find employment." Webelieve that condition was approximately met in 1973, even though the aver-58

TABLE 6.—Unemployment rates for selected groups, selected years, 1956—73[Percent]Group1956196519721973All civilian workers .. .4.14.55.64.9RACEWhiteNegro and other races3.68.34.18.15.010.04.38.9AGE-SEXMen 20 years and overWomen 20 years and overBoth sexes 16-19 years3.44.211.13.24.514.84.05.416.23.24.814.5OCCUPATIONWhite-collar workersProfessional and technical workersManagers and administrators, except farm-Sales workersClerical workers1.71.0.82.72.42.31.51.13.43.33.42.41.84.34.72.92.21.43.74.2Blue-collar workers... .Craft and kindred workersOperativesNonfarm laborers5.13.25.48.25.33.65.58.66.54.36.910.35.33.75.78.4Service workers4.65.36.35.7Farm workers.. _. . ..1.92.62.62.5INDUSTRYNonagricultural private wage and salary workers.4.74.65.74.8ConstructionManufacturingDurable goodsNondurable goodsTransportation and public utilitiesWholesale and retail trade..Finance and service industries10.04.74.45.23.04.54.010.14.03.54.72.95.04.110.35.65.45.73.56.44.88.84.33.94.93.05.64.3Government workers1.71.92.92.7Agricultural wage and salary workers_7.47.67.66.9Note.—Rates by occupation for 1956 refer to persons 14 years of age and older. Data for later years are for 16 years ofage and older.Source: Department of Labor, Bureau of Labor Statistics.age unemployment rate was 4.9 percent rather than the 4.0 percent whichconventionally defines full employment. There is no single statistic whichcan signal the achievement of the condition which we seek. But the combinationof evidence for 1973 is strongly suggestive. During the year the risein total employment was extraordinarily large, and the proportion of thepopulation over the age of 16 employed was at a postwar high.A condition of "maximum employment" in overall terms will imply differentrates of unemployment for different groups of the population. Forexample, under conditions of abundant employment opportunities, supposethat young men leave their jobs twice a year on the average andspend on the average 3 weeks each time searching for the job they prefer.In that case young men will have on the average an unemployment rateof 11^2 percent, that is, 6 weeks of unemployment divided by 52 weeks inthe labor force. Suppose that 20 percent of the employed adult men quittheir jobs each year and spend on the average 5 weeks seeking a new one.59

The unemployment rate for adult males would then be about 2 percent. Ifthe labor force consisted of an equal number of young men and adult men,the average unemployment rate would be 6% percent. But if it consisted offive times as many adults as youths, the average rate would be 32/3 percent.This illustrates how changes in the composition of the labor force cangreatly change the overall unemployment rate that is associated with a constantcondition of maximum employment for each group of the labor force.TABLE 7.—Unemployment rates by sex and age, selected years, 1956-73[Percent)Sex and age 1956196519721973All civilian workers:ActualStandardized for age and sex 14.14.14.54.35.64.94.94.1Males:16-19 years20-24 years25-54 years55 years and over.11.16.93.03.514.16.42.73.315.99.23.13.213.97.32.52.5Females:16-19 years20-24 years25-54 years55 years and over.11.26.34.13.315.77.34.32.816.79.34.93.515.28.44.42.81 The standardized rate was computed by assuming that the age-sex composition of the labor force remained unchangedfrom 1956 to 1973.Sources: Department of Labor (Bureau of Labor Statistics), and Council of Economic Advisers.One way of seeing how labor force composition affects the aggregate unemploymentrate is to weight the actual unemployment rates for each agesexgroup by the composition of the labor force at a specific time. If eachage-sex group shown in Table 7 is weighted according to its importancein the labor force in 1956, when unemployment averaged 4.1 percent, onefinds that the overall unemployment rate in 1973 would also have averaged4.1 percent rather than the 4.9 percent actually experienced. This wide dis-TABLE 8.—Composition of the civilian labor force, selected years, 1956—73[Percent]Sex and age 1956196519721973Total civilian labor force100.0100.0100.0100.0Both sexes 16-19 years..6.57.99.39.5Adult women20-24 years25-54 years55 years and over..Adult men20-24 years25-54 years55 years and over..29.43.720.65.264.15.245.613.331.84.521.26.160.26.641.711.934.36.122.16.156.47.738.110.634.66.322.45.955.88.037.810.0Note.—Detail may not add to totals because of rounding.Source: Department of Labor, Bureau of Labor Statistics.60

crepancy reflects the large increase in the proportion of the labor force madeup of women and young workers of both sexes, two groups whose unemploymentrates are substantially higher than the national average. Thehigher than average unemployment rates for women and for teenagers areclosely related to their labor force participation patterns. In addition totheir jobs, people in these groups have responsibilities in household managementor schooling, which tend to weaken their attachment to the laborforce. Since a new entry or a reentry into the labor force is generally followedby a period of searching, and hence unemployment, these groups havehigher unemployment rates almost by definition. Even among persons intheir early twenties, there are many who have not yet developed an attachmentto a specific occupation and who thus change their jobs frequently.Teenagers, persons in the 20 to 24 age group, and women 25 or olderaccounted for only 41 percent of the civilian labor force in 1956. By 1973they accounted for 52 percent (Table 8). The gap between the actual unemploymentrate and the fixed-weight unemployment rate follows thischanging proportion closely. The difference between the two rates was 0.2percentage point in 1965, 0.5 point in 1969, and 0.8 point in 1973.A number of other aspects of the employment situation suggest that ifwe were not at "maximum employment" in 1973 we were at least veryclose to it (Table 9). The average duration of unemployment declined, andthe proportion of the unemployed who were without jobs for 5 weeks orless was high, indicating a large turnover among the unemployed and relativelyshort durations of search for work. Only 38.7 percent of the unemployedhad lost their last job, which was nearly the same as the proportionin 1968, when the overall unemployment rate was 3.6 percent. AsideTABLE 9.—Aspects of labor utilization, selected years, 1948-73PeriodUnemployment rate(percent)TotalAdultmalesJob losersas percentoftotalunemploymentAverage monthly labor turnoverrate in manufacturing(per 100 employees)QuitsLayoffsNew hiresRatio ofhelp-wantedads to nonagriculturalemploymentAverageweeklyovertimehours inmanufacturing1948195319553.82.94.43.22.53.80)C 1 )0)3.42.81.9.6] .6.50)3.63.01.03.86.770)0)0)19595.54.70)1.51.02.6.732.7196519661967196819694.53.83.83.63.53.22.52.32.22.1C 1 )0)41.338.035.91.92.62.32.52.71.41.2.41.2.23.13.83.33.53.7.911.071.001.061.133.63.93.43.63.6197019711972197324.95.95.64.93.54.44.03.244.346.343.238.72.11.82.22.71.81.6L.I.92.82.53.33.9.86.76.913 1.073.02.93.53.81 Not available.2 Preliminary.311-month average.Sources: Department of Labor (Bureau of Labor Statistics) and The Conference Board.527-867 O - 74 - 561

from job losers, the remainder of the unemployed had either left theirlast job voluntarily, newly entered the labor force, or reentered it aftera period of absence. The proportion of employees in manufacturing whoquit was high, an indication of much voluntary turnover and confidenceabout finding other jobs. The proportion of employees laid off was similarlylow. Available measures showed job vacancies were plentiful.PRODUCTIVITY AND POTENTIAL OUTPUTAlthough the rise of employment during 1973 was exceptionally high,the rise of output was just about average. Consequently the rise of outputper worker was significantly less than average. Hours of work per workerdid not decline, as they had been doing on the average for a long time. Totalhours of work rose even faster, relative to their long-term trend, thanemployment; and output per man-hour—commonly called productivity—lagged significantly below its trend rate of increase. The failure of productivityto rise more rapidly, and therefore of output to rise more rapidly,was partly a reflection of last year's excess demand. It also contributed toexcess demand and to the inflation of 1973.We have no good measures of productivity in the government sector.This sector is arbitrarily considered to have no productivity growth whentotal real output and its rate of increase are calculated, though changes inthe importance of government relative to private sector output can affectthe trend of total productivity. It is possible to say more, however, aboutproductivity in the private sector of the economy.In the past 25 years (1947-72), output per man-hour in the privateeconomy rose at an annual rate of 3.2 percent, whereas in the private nonfarmeconomy it rose at an annual rate of 2.7 percent. The private total rosefaster than the nonfarm, partly because productivity rose faster in the farmsector than in the nonfarm sector, and partly because of the continuing shiftof workers from agriculture to the nonagricultural sector. This shift raisesaverage productivity because productivity in agriculture is lower, ev^nthough it is rising more rapidly.Recently, however, productivity has been rising less in the total privateeconomy than in the private nonfarm economy. Productivity in agriculturedeclined between 1972 and 1973 instead of rising more than in thenonfarm sector. Moreover man-hours in agriculture as measured in theproductivity series fell less than usual last year, and although the rise innonagricultural man-hours was large the shift in the farm-nonfarm proportionwas not as big as usual. These two factors together depressed therise of total private productivity below the rise in private nonfarm productivity.Productivity in the nonfarm sector rose very strongly through 1972and the first quarter of 1973. Thereafter it essentially leveled out for theremainder of the year, leaving the increase between 1972 and 1973 at 3.162

percent and much less during the year 1973. Productivity growth has acyclical pattern, tending to be greatest in the period of most rapid expansion,then to slow down as output nears its peak and during the early period ofcontraction, but to revive before the recession ends.Some decline in the rate of productivity growth in 1973 was anticipatedas the economy passed beyond its period of most rapid expansion. Thedegree of the slowdown was unexpectedly great, however, considering thatoutput at the beginning of the year was still more than 2 percent belowits conventionally estimated potential. A number of relevant factors wereat work:1. Many industries had trouble achieving large output gains becauseit was hard to obtain raw and intermediate materials, such aschemicals, steel, paper, and copper. Capacity utilization in basic materials-producingindustries was pushed to a postwar high as a consequenceof surging demand after several years in which additions tocapacity had been low. Capacity utilization in fabricating industrieswas not so high. Estimates of capacity utilization in manufacturingvary, but in any case output was limited by the lack of materials(Table 10). The shortage of some materials was aggravated by largeexports which resulted from the foreign boom, the depreciation of thedollar, and the maintenance in the United States of price ceilingsbelow world price levels.The shortages of basic materials apparently did not prevent a largerise of manufacturing output and of productivity in manufacturing.We say "apparently" because the manufacturing figures are derivedin a different way from that used for the nonfarm output figures, andthe two may not be consistent. Nevertheless, the basic materials shortagesmay have prevented a still further rise of output and employmentin manufacturing; and it may have diverted a higher proportion ofthe enlarged number of workers into nonmanufacturing industries,where productivity was lower and where the influx of workers depressedproductivity further. As noted earlier, inventory accumulation was lowmost of last year, and a larger rise in manufacturing output might havepermitted more normal ratios of stocks to sales.2. The 1973 work force consisted to an unusual degree of new entrantsto the labor force and reentrants—chiefly women and youngpeople, all of whom on the average tend to work in less productiveoccupations than adult males with work experience.3. An unusually high rate of turnover of workers occurred during1973. A large number of people quit each month, and a large numberof people were newly hired. This meant that a high proportion of thepeople in each job category were new to that work, if not to the laborforce, and required training and experience before they became normallyproductive. Furthermore, this would give employers an incentive63

to maintain a somewhat larger work force than they would otherwiserequire, as assurance against the departure of experienced workers.4. Another factor that may have acted to restrain the rise in outputper man-hour was the behavior of average weekly hours. As notedbefore, weekly hours in the;private nonfarm sector remained virtuallylevel throughout the year. Increases in man-hours resulting from increasedhours rather than from increased employment will usually leadto a rise in output per man-hour, since a smaller proportion of total manhoursis lost to start-up and shut-down routines. In 1972, 35 percentof the increase in man-hours resulted from a longer workweek. In 1973,however, only 5 percent of the increase in man-hours in manufacturingwas attributable to longer working hours.TABLE 10.—Aspects of capacity utilization, selected years, 1948-7319481953195519591965196619671968196919701971197219732PeriodTotal92.795.590.081.489.091.987.987.786.578.375.078.683.0FRB manufacturingPrimaryprocessing98.194.393.782.791.192.185.786.888.581.579.384.689.8Capacity utilization(percent)Advancedprocessing89.896.187.780.787.891.889.188.185.476.572.775.479.4FRBmajormaterials87.987.389.881.590.791.286.889.590.786.685.890.294.9Whartonmanufacturing92.492.390.982.290.295.992.994.796.088.385.690.03 95.8Percentofmanufacturersneedingmorecapacity0)0)( l )0)475045434542313549Ratio ofunfilledordersto shipmentsindurablegoodsmanufacturing0)0)4.273.443.123.513.383.273.132.902.592.594 3.00Percent of companiesreportingSlower 60 days ordeliveryof commit-longer formaterialsmaterialsments for32 (03153666360666764737144655364656351554854635788 781 Not available.2 Preliminary.3 Average of first 3 quarters.* Based on seasonally adjusted data through November.Sources: Board of Governors of the Federal Reserve System (FRB), Department of Commerce, and Wharton School ofFinance.Our experience in 1973 raises the question whether we were at "potential"even though output was, on the average for the year, 2^4 percent belowthe commonly measured figure of "potential" output. Being at potential doesnot mean that output cannot be raised further. In 1973, although employmentwas still rising rapidly, output increased slowly and the rate of productivityincrease sagged and actually fell in the second and fourth quarters.A more rapid rise in output would probably have required an even morerapid increase of labor input, if it had been available, and would have depressedlabor productivity further.The conventional measurements of potential assume that the labor forceand productivity rise, and that weekly hours of work decline, along an esti-64

mated smooth trend from a period in which the unemployment rate wasabout 4 percent. A recent calculation by the Bureau of Labor Statistics,(Monthly Labor Review, December 1973) using these elements, leads us tothe estimate that potential was growing by 4 percent per annum after 1969if we assume that output was at potential in the second quarter of 1969. Onthis basis, actual output was about 2 percent below potential in 1973. Whatthe experience of 1973 suggests, however, is that potential does not growyear by year at a constant rate. It is a simplification to assume that the laborforce, hours of work, the stock of capital, the availability of supplies fromabroad, and other determinants of potential move smoothly and continuously.Reliance on a reasonable simplification of this kind is inevitable for inferringthe level of potential for those future years about which we have as yet nodetailed evidence. But for the years that are past, and probably also for aperiod immediately ahead, we know more and should be able to do betterthan read the level of potential off the smooth trend. Looking at it in thisway, it seems reasonable to say that the conditions peculiar to 1973 held"actual potential" below the trend, without at the same time saying that inthe future the actual potential will always be below the trend derived frompast data.THE BEHAVIOR OF PRICESDuring 1973 prices rose more rapidly than at any time since the Koreanwar. From December 1972 to December 1973 the consumer price index(CPI) rose 9 percent and the wholesale price index 18 percent. The comprehensiveGNP deflator rose 7 percent from the fourth quarter of 1972 to thefourth quarter of 1973. Its 8 percent annual rate of increase in the fourthquarter of last year was far above the rise projected by the Administrationa year ago.There is no simple explanation for this price behavior which was themost extraordinary in almost a generation and which confounded theCouncil and most other economists alike. The simultaneous upsurge indemand in the United States and in foreign countries, the shortfall in agriculturalproduction of 1972 and early 1973, the decline in the internationalexchange value of the dollar, the unexpected capacity problems inmaterials industries, the increases in petroleum prices late in the year as aresult of the Arab oil embargo, the shifting character of domestic price controls—allof these tell part of the story of last year's inflation. Chapter 3 dealswith the Economic Stabilization Program and Chapter 4 with the problemsof energy and agriculture. The present section touches briefly on some ofthe broad measures of prices and wages, chiefly in the context of the nationalincome accounts.Price behavior in the private sector of the economy, as measured by thedeflator for private GNP, shows the same broad pattern as the overall GNP65

Chart 3Changes in Selected Price MeasuresPERCENT CHANGE FROM PRECEDING YEAR6 - PRIVATE GNP PRICE DEFLATOR4 -2 -_ PRIVATE NONFARMGNP PRICE DEFLATORVTA11 1IP111 1 1II1 1^§1 16 -CPI-ALL ITEMSCPI-ALL ITEMS LESS FOOD4 -2 -1I i 11 m II I 1I - -12 -10 -Qo6 -420II 1 I111 1 1i----—-1969 1970 1971 1972 1973 1969 1970 1971 1972 197314 _ WPI-ALI. COMMODITIESWPI-INDUSTRIAL COMMODITIESSOURCES: DEPARTMENT OF COMMERCE AND DEPARTMENT OF LABOR.66

deflator. The rate during 1973 was substantially above the high rates during1969 and 1970, but the differences between 1973 and 1969-70 are greatlynarrowed when attention is focused on the private nonfarm deflator alone(Table 11). Similarly, because farm and food prices have greater weightsin the wholesale and consumer price indexes, the latter show larger increasesfrom 1972 to 1973 than the private nonfarm deflator (Chart 3).TABLE 11.—Changes in gross national product price deflators, selected periods, 1948 to 1973[Percent change; seasonally adjusted annual rates]PeriodTotalGNPPrivateGNPPrivatenonfarmGNPNonfinancialcorporations1948 to 1973 average 12.72.42.52.11968 IV to 1969 IV1969 IV to 1970 IV1970 IV to 1971 IV . . .1971 IV to 1972 IV1972 IV to 1973 IV15.35.33.63.37.15.04.83.13.27.14.85.32.92.55.52.85.11.62.924.41 Preliminary.2 Estimate by Council of Economic Advisers.Source: Department of Commerce, Bureau of Economic Analysis (except as noted).Table 12 brings together changes during 1972 and 1973 for the majorindexes and some of their components. The acceleration in the advance ofprices is evident throughout the indexes, but the sharp advances in prices offarm products, food, and energy products dominate the extraordinary pricebehavior of last year.The role of import prices is also noteworthy. The price deflator for importsrose 26 percent during 1973. If these rising import prices were merelypassed through dollar for dollar to final purchasers in the United States,they would have accounted for about one-fourth of the rise in prices paidby U.S. purchasers in 1973.The farm deflator rose 54 percent from the fourth quarter of 1972 to thecorresponding quarter of 1973, reflecting exceptional increases in the first 3quarters of the year. The great increase in U.S. farm and food prices beganin 1972 as a reaction to the reduced world output caused by adverse weatherin several parts of the world. The single most important shortfall occurredin the Soviet Union and led that country to enter world markets for extremelylarge quantities of food and feed grains. Poor weather in other countriesalso contributed to the tightening of world food markets, and the UnitedStates, as the major source of additional supplies, was faced with a hugeincrease in demand.The sharp increase in demand continued in 1973. Rising incomes in thiscountry contributed to an increase in the demand for food, especially duringthe first part of the year. International events again added to the demandpressures on U.S. food supplies. Two devaluations of the dollar in a 15-month period, followed by further depreciation in the dollar exchange rateafter February, added to the export demand for U.S. food commodities, as67

TABLE 12.—Changes in selected price measures, 1971IV to 1973IV[Percent; seasonally adjusted annual rates]Price measure1971 IVto1972 IV1972 IVto1973 IV1II19731IIIIVImplicit GNP price deflator:Total GNP2....3.33 7.16.17.37.03 7.9Private nonfarm GNPFarm GNP2.5?2.93 5.554.24.350.66.075.84.5107.43 7.03.0Consumer price index:All items3.58.46.18.49.19.9FoodNonfood itemsEnergy *Other nonfood5.22.92.93.019.45.212.84.518.63.28.22.520.25.111.64.124.64.45.74.714.58.227.06.8Wholesale price index:All commodities5.617.317.422.718.810.7Farm products and processed foodsand feeds.Industrial commoditiesEnergy sOther industrials11.43.55.63.331.012.046.08.249.16.512.85.941.215.241.312.649.96.522.24.9-6.820.5133.211.31 Changes from preceding quarter.2 Includes general government not shown separately.3 Preliminary.* Includes gasoline and motor oil, fuel oil and coal, and gas and electricity.a Includes fuels and related products and power.Sources: Department of Commerce (Bureau of Economic Analysis) .and Department of Labor (Bureau of Labor Statistics)did the widespread and strong economic expansion abroad. Exports of agriculturalcommodities rose sharply from $9.4 billion during 1972 to $17.5billion in 1973, a development which was instrumental in the sharp increasein U.S. farm commodity prices.Last year saw a continuation of the major changes in agricultural policythat were initiated during 1972 to further the expansion of supplies andthus restrain price increases. Farm and food product prices, nevertheless,reached new highs during the year. Wholesale farm product prices inDecember, although 12.4 percent below the August peak, were 36 percentabove their level a year earlier, while retail food prices were 20 percenthigher. Although the expansion in acreage lifted gross farm-food production,the production of livestock products declined slightly, and with exportshigher, there was a 2.5 percent reduction in food supplies reaching consumers.Disruptions in the pattern of supplies occasioned by the controlscreated serious shortages during the third quarter of the year.COMPENSATION AND UNIT LABOR COSTSThe slowdown in productivity growth during 1973 was accompanied bya quickening of the rate of increase in compensation per man-hour. As aresult, unit labor costs rose sharply and contributed to substantial price increasesin the private nonfarm economy (Chart 4). Nevertheless, preliminarydata suggest that these price increases fell short of the increase of unit68

Chart 4Productivity, Compensation, and Unit LaborCosts in the Private Nonfarm EconomyINDEX, 1970 IV=100130125RATIO SCALE120115COMPENSATIONPER MAN-HOUR110105UNIT LABOR COSTS100j L1970 1971 1972 1973NOTE.-DATA RELATE TO ALL PERSONS.SOURCE: DEPARTMENT OF LABOR.labor costs in the same sector. This is true even though real compensationper man-hour—money compensation deflated by the consumer price index—is likely to have suffered a small decline instead of having risen as it usuallydoes.Wage rate adjustments under major collective bargaining agreementswere substantially lower in 1973 than in 1972. For the first year of thecontract, increases averaged 5.8 percent, down from 7.3 percent in 1972;the slowdown for wages and benefits combined was a little smaller. (SeeChapter 3 for further treatment of wage rates.)Wage changes under such bargaining agreements are limited in scopebecause only one-fourth of all workers are unionized and only one-halfof these are covered by large contracts. A useful indicator of wage ratebehavior is the Labor Department's index of adjusted average hourlyearnings, which is applicable to all private nonfarm industries. The indexholds constant overtime hours in manufacturing and industry mix, but itdoes not cover fringe benefits or compensation of employees other than69

production workers, and it is sensitive to the occupational composition of thework force within industries, which tends to be related to age and sex.From 1972 to 1973 the adjusted earnings index rose 6.2 percent, essentiallythe same increase as from 1971 to 1972. Although last v year's increasewas less than that of 1971, the index has shown a good measure of stabilityduring the past 6 years (Table 13). Monthly data suggest some step-up inthe rate of increase in the second half of 1973, although within the year thefigures tend to be rather erratic. However, compensation per man-hourin the private nonfarm sector increased by 7.6 percent in 1973, the largestincrease in more than 20 years. This acceleration was attributable mainlyto a large rise in what is labeled benefits in Table 13, the major partof which in 1973 came from the increase in employers' social security taxesin the first quarter.TABLE 13.—Components of percent change in compensation per man-hour in the privatesector, 1965-73nonfarm[Percent]PeriodHourlyearnings 1Production workersOvertime inmanufacturingIndustryshiftsEmployeesother thanproductionworkersBenefits, allemployeesCompensationper man-hour,allemployeesChange from precedingyear:19651966...1967....196819693.74.04.66.66.60.1.3-.3.2-.10.0.2-.4-.5.2-0.4!9.9-.30.2.6.0.3.33.65.85.67.56.7197019711972197326.77.06.36.2-.2-.1.3.1-.6-.4-.2.3.9-.3.0.1.4.8.4.97.27.06.87.61 Adjusted for overtime in manufacturing and interindustry shifts.2 Preliminary.Source: Department of Labor, Bureau of Labor Statistics.From 1972 to 1973 labor costs per unit of output (unit labor costs) roseby 4.4 percent, or much more than the 2.6 percent rise in 1972. The accelerationin the increase of unit labor costs resulted partly from rising hourlylabor costs and partly from a reduced rate of increase in productivity.Nonfinancial CorporationsTable 14 brings together for nonfinancial corporations the componentsof annual price change over the past few years. Although it constitutes aconvenient set of accounts for examining prices, it does not permit one todraw inferences regarding causation. However, the previous remarks aboutfactors underlying changes in productivity and hourly compensation wouldalso be applicable here. The reader should keep in mind that the pricedeflators are not the equivalent of prices charged by corporations. The deflatorsapply only to the value added in production by nonfinancial corporationsand not to the cost of goods and services purchased by corporations.70

TABLE 14.—Changes in prices, costs, and profits per unit of output for nonfinancial corporations,7970 to 1973[Percent change]Item1970to19711971to19721972to1973Percent change per unit of output:PricesEmployee compensation...Compensation per man-hour.Output per man-hourOther costs.3.11.67.25.53.52. 32. 76.80I-.33.63.97.63.7.0Capital consumption allowances.Indirect business taxes lNet interestProfits 2Percent change in output..4.05.0-1.612.63.51. 5-2. 406. 07. 4.0.0.09.97.81 Also includes business transfer payments less subsidies.2 Before taxes and including inventory valuation adjustment.Note.—Detail may not add to totals because of rounding.Sources: Department of Commerce (Bureau of Economic Analysis)and Department of Labor (Bureau of LaborStatistics).The deflator for corporate output rose 3.6 percent from 1972 to 1973 aftera 2.3 percent rise in the preceding year. Rising unit labor costs and profitsplus inventory valuation adjustment account for all of last year's price rise.Nonlabor costs per unit, which make up about 22/2 percent of price, showedlittle overall change; this was essentially the pattern of change from 1971to 1972. The faster rise in unit labor costs last year in comparison with theyear before reflected an acceleration of the rise in compensation per manhourand a somewhat smaller increase in output per man-hour. Profits perunit rose quite sharply for the third straight year, but they still remainedbelow the average level from 1964 through 1968.The 10 percent rise in profits per unit of output and the 8 percent rise inoutput yielded a 19 percent rise in aggregate profits of nonfinancial corporations,the largest since 1959. Profits of domestic financial corporationsrose somewhat faster, and profits originating abroad rose still more. The latterconsist of earnings of foreign branches and affiliates remitted to U.S.parent corporations. Part of the increase in profits originating abroad wasattributable directly to the depreciation of the dollar.The profits mentioned thus far refer to profits inclusive of the inventoryvaluation adjustment (IVA). If this adjustment is excluded, the increase inreported or book profits was considerably greater: 31 percent, rather than19 percent, for nonfinancial corporations. In 1972 the IVA resulted in adownward adjustment of $7 billion in book profits; last year the correspondingdownward adjustment was $17 billion.The IVA has been an integral part of the national income and productaccounts since they were first established. The adjustment is made because71

the profits that companies report are strongly affected by the accountingmethods they use. Most companies rely on the first-in-first-out method. Underthis system, when prices of purchased goods are rising, the prices at whichpurchases are charged to costs will ordinarily be less than the prices of goodsin ending inventories. The effect is to reduce the cost of goods sold and toraise profits. The amount by which profits are inflated under such accountingprocedures is analogous to capital gains resulting from inflation, whichare not included in the calculation of national income. In the nationalaccounts this correction is applied to the valuation of inventory change onthe product side and affects proprietors' income and profits on the incomeside.Although the share of profits plus IVA as a percentage of gross productoriginating in nonfinancial corporations rose for the third year in a row, the1973 share was still lower than in any year from 1947 through 1969 (Table15). Last year's increase in the profit share was matched by a decrease inall costs except employee compensation: indirect business taxes, capital consumptionallowances, and net interest. The last two have shown a strongsecular increase; and, as indicated below, they are partly responsible for thedecrease in the profit share.Over the postwar years depreciation laws and regulations have undergonemany changes—in the direction of liberalization—that have influencedthe level of profits. Holding constant these methods of calculating depreciationwould still leave the 1973 profits share low in comparison to the yearsfrom 1947 to 1969. For example, according to a special analysis of the CommerceDepartment, if one used historical costs for the valuation of assets,service lives of assets equal to 85 percent of the Treasury Department'sBulletin F, and the double declining balance method of depreciation, the1973 ratio of corporate profits to output would be raised by 0.3 percentagepoint, whereas for the 1947-69 period it would be essentially unchanged.A further allowance for interest, a return on capital whose importance hasrisen over the postwar years, would narrow the difference between 1973 andthe 1947-69 average even more but would still leave the 1973 profit ratiolower by 2.7 percentage points. (Estimates for 1973 are those of the Council.)Most companies use historical costs for calculating depreciation, and forthe most part the Commerce Department accepts in the national accountsthe depreciation reported for tax purposes. The current value of outputshould reflect current prices, and costs of production should reflect currentcosts. If depreciation is standardized with replacement rather than historicalcosts, last year's profit share would be reduced by 2.0 percentage points. Interms of depreciation calculated with replacement costs the spread in profitsbetween 1973 and the 1947-69 average is considerably greater than thespread that reflects the use of historical costs.The share accounted for by employee compensation, which as a rule hasmoved countercyclical^, was unchanged from 1972 and was exceeded only72

in 1970. Employee compensation consists of wages and salaries as well as ofsupplements, most of which are made up of employers' contributions forsocial insurance and for private pension and welfare funds. If all supplementsto wages and salaries are excluded from employee compensation,the wage and salary share appears to have declined each year since 1970and to be well below the postwar average of 59 percent. The 9 percentshare accounted for by supplements was far above the average of 5.7 percent.TABLE 15.—Distribution of gross product originating in nonfinancial corporations, 1947—73[Percent]Compensation ofemployeesAll other costsPeriodTotalTotalWages andsalariesTotalCapitalconsumptionallowancesIndirectbusinesstaxes iNetinterestProfits 21947.19481949....19501951..1952..1953...........1954100.0100.0100.0100.0100.0100.0100.0100.065.963.963.862.463.164.865.965.962.861.060.758.759.260.961.961.514.814.516.115.515.116.116.617.64.85.05.95.75.86.26.67.79.38.89.59.28.79.29.39.10.7.7.8.6.6.7.7 •.819.421.620.122.121.719.117.416.619551956......195719581959100.0100.0100.0100.0100.063.965.365.665.964.759.560.760.660.859.317.517.718.619.919.17.98.08.49.18.78.99.09.39.79.3.7.7.91.11.018.616.915.814.216.219601961196219631964 ...196519661967.19681969197019711972 .19733.100.0100.0100.0100.0100.010(3.0100.0100.0100.0100.0100.0100.0100.0100.065.565.164.363.963.362.663.264.064.265.766.965.966.266.359.859.358.257.757.156.356.557.257.258.459.157.857.757.319.720.420.820.920.820.420.020.921.221.823.323.422.822.08.99.29.79.79.59.49.39.79.79.910.410.510.410.09.79.99.89.89.89.58.99.19.39.39.89.99.59.21.11.31.41.41.51.61.82.12.22.53.13.02.92.814.814.514.915.216.017.016.815.114.712.59.810.711.111.71 Also includes business transfer payments less subsidies.2 Before taxes and including inventory valuation adjustment.3 Preliminary.Note.—Detail may not add to totals because of rounding.Source: Department of Commerce. Bureau of Economic Analysis.Changes in Real IncomeIn an evaluation of the year it is important to know whether the neteffect of economic developments resulted in an increase or decrease inthe economic well-being of the people. There are many different aspects toeconomic well-being, some of which are difficult or impossible to measure.Even with measurable dimensions of welfare, such as income, subjective reasonslead people to apply different weights to increases in income obtained bydifferent recipients. There is no one statistic that is universally accepted as ameasure of economic well-being.73

Two measures of changes in income that receive particular attentionare real per capita disposable personal income (DPI) and real net spendableweekly earnings for a worker with 3 dependents. From the fourthquarter of 1972 to the fourth quarter of 1973 real per capita DPI increasedby 2.4 percent, whereas the real net spendable weekly earnings series declinedby 3.1 percent.Real per capita DPI, as published by the Commerce Department, refersto personal income less Federal and State income taxes; this is deflated bythe deflator for personal consumption expenditures and the result is dividedby the population. Personal income, which is net of deductions for personalcontributions for social insurance, includes income in cash and kind;transfer payments as well as wage and other income earned in current production;and imputed income. Disposable personal income was somewhat lowin 1972 because of the overwithholding of taxes, which were subsequentlyrefunded in 1973.The real net spendable weekly earnings series of the Labor Departmentreflects earnings of production workers in the private nonfarm economy. Theaverage hourly earnings of all private nonfarm production and nonsupervisoryworkers listed on payrolls are multiplied by the average weekly hoursof these workers to obtain average weekly earnings. The payroll and Federalincome tax liability is computed on the assumption that these earnings arerealized through the year and that the worker is married, has three dependents,and no other income. The weekly tax liability (which excludes Stateincome taxes and which was unaffected by the overwithholding of Federalincomes taxes) is subtracted from the weekly earnings data to obtain netweekly earnings, which are then deflated by the consumer price index toobtain real net weekly spendable earnings. The Labor Department makessimilar calculations for single persons.As noted above, from the fourth quarter of 1972 to the fourth quarter of1973 the change in per capita real DPI exceeded that of real net spendableweekly earnings by 5.5 percentage points. About 30 percent of this differenceis explained by differential movements of after-tax income of the two series.The disposable personal income series rose 10.8 percent, compared to a riseof 9.2 percent in the net earnings of all production workers. Slightly morethan half of the aggregate difference occurred because the number of productionand nonsupervisory workers on private nonfarm payrolls grew fasterthan the total population: 4.0 percent for the former and only 0.7 percentfor the latter. The remaining difference is due to the different price deflators:the deflator for personal consumption expenditures rose 7.4 percent duringthe period, while the CPI rose 8.4 percent.The consumer price index, which is used to deflate the spendable earningsseries, reflects weights as of 1960-61, whereas the DPI series uses currentexpenditure weights. One consequence is that food, whose relative importancein consumer budgets has tended to decrease over time, has a heavier74

weight in the CPI than in the deflator. Also, the personal consumption expendituresdeflator excludes and the CPI includes mortgage interest, whichrose very rapidly last year. On the other hand, an alternative PCE deflatorusing fixed 1967 rather than current weights rose almost / 2 percent morethan the regular PCE deflator during 1973.The spendable weekly earnings series as a measure of well-being may havea downward bias in periods of strongly rising employment. When economicopportunities are abundant, many married women, students, and retireesenter the labor force. On the average these groups have less training, arelikely to earn less than the average hourly wage, and are more likely to workless than a full workweek. Both factors will tend to depress the averageweekly earnings of those employed, although each worker has gained ineconomic well-being. There is also a tendency for multiple jobholdings toincrease in periods of strong demand, which would have a similar effect. Inaddition, the spendable earnings series treats each worker as a family head,when in fact the number of employed persons per family may rise, especiallyin a period when total employment is rising rapidly, as in 1973.FISCAL POLICY IN 1973After supporting the expansion of general business activity in 1972, fiscalpolicy moved toward restraint in 1973. This was accomplished by the successfulcontrol of expenditures. Deferrals, cutbacks, or terminations of nonessentialprograms helped keep Federal outlays at more than $3 billionbelow the $250 billion target for fiscal 1973 presented in the January 1973budget. Receipts, on the other hand, rose more than was anticipated, partlybecause of unexpectedly high rates of inflation. With outlays moderatelylower and receipts considerably higher than proiected, the unified budgetdeficit for fiscal 1973 turned out to be $14 billion, rather than the $25billion projected a year ago.In January 1973 the Administration presented a budget of $256 billionin receipts and $269 billion in outlays for fiscal 1974. Since then, the estimateof receipts has been raised to $270 billion, and projected outlayshave been raised to $274/ 2 billion, the result being an estimated deficit of$4/2 billion in the unified budget. On the full-employment basis, however,a surplus of $4 billion is estimated for fiscal 1974, compared to anapproximate balance projected a year ago. In fiscal 1973 the budget showeda full-employment deficit of about $2 billion.FEDERAL EXPENDITURESOn the national income accounts (NIA) basis, actual Federal expendituresrose from $245 billion in calendar 1972 to $265 billion in calendar1973 (Table 16). The increase of 8 percent was smaller than the IO/2 percentrise from 1971 to 1972. Last year was the first time since 1969 that Federalexpenditures grew less rapidly than GNP.75

About $8 billion of the growth in expenditures from calendar 1972 tocalendar 1973 was due to the 20 percent increase in benefits from old age,survivors, and disability insurance that went into effect in October 1972,and to the liberalization of retirement and entitlement provisions at thestart of 1973. Federal purchases of goods and services rose much less lastyear than from 1971 to 1972. All of last year's rise in purchases is accountedfor by pay increases for civilian and military employees. A 5.1 percent increasein the wages and salaries of Federal employees took effect in January1973 and was followed by a 4.8 percent rise in October, but the simultaneousreduction in Federal employment (including the Armed Forces)caused Federal payrolls to rise by only 5 percent. The other half of totalFederal purchases of goods and services, purchases from the private sector,changed little after a 7 percent rise the year before.Grants-in-aid to State and local governments rose by $3j/i billion in 1973,when general revenue sharing had its first full year of operation. Thegeneral revenue sharing program, enacted in 1972, provides from $6.0to $6.5 billion of grants-in-aid each year through calendar 1976. About$10 billion has been distributed to more than 38,000 State and localgovernments from December 1972 through December 1973. About half ofthis amount had been authorized for 1972. The initial planned-use reportsfiled by most of the recipient units of government indicate that approximatelyhalf of them would spend shared revenues in such a way as torelieve tax pressures.TABLE 16.—Federal Government receipts and expenditures, national income accounts basis,calendar years 1972-73[Billions of dollars]Receipt or expenditure category1973Federal Government receipts.Personal tax and nontax paymentsCorporate profits tax accrualsIndirect business tax and nontax accruals.Contributions for social insuranceFederal Government expendituresPurchases of goods and servicesDefenseOtherTransfer paymentsGrants-in-aid to State and local governmentsNet interest paidSubsidies less current surplus of government enterprises-Surplus or deficit (—)_264.7106.974.232v 795.441.215.95.4.61 January 1973 projected percent changes applied to revised 1972 actual data.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.76

It is interesting to note that after rising by 24 percent from 1971 to 1972the increase in personal tax and nontax receipts of State and local governmentswas halved from 1972 to 1973, even though increases in personal incomewere slightly larger in the latter period. General revenue sharingmay well have contributed to this change.The new program has also allowed a number of long delayed but highpriority projects for capital improvement and construction by State andlocal governments. A 3-year decline in real public construction outlaysstopped last year. More recently, general revenue sharing funds have beenrelied upon more and more to meet the current operating costs of humanresource and economic development programs, primarily in public education,public safety and health, as well as in environmental protection, conservation,and public transportation. In sum, the financial stability, vitality, andindependence of State and local governments has been increased noticeablyby the general revenue sharing program.FEDERAL RECEIPTSFederal receipts (NIA) grew from $229 billion in calendar 1972 to $265billion in calendar 1973 (Table 16). The 16 percent increase was twicethe rate of growth of expenditures. Little more than one-fourth of thisincrease can be attributed to a change in tax rates or in tax structure. Forthe most part, receipts grew automatically because of the increase in thevarious tax bases provided by the real growth of GNP and by inflation.Compared to the January 1973 NIA estimates, personal tax and nontaxreceipts turned out to be higher in 1973, partly because the acceleratedinflation affected personal incomes and partly because individuals permittedtheir Federal income taxes to be overwithheld at the same rateas they had in 1972. The projection of NIA receipts at the start of last yearassumed that individuals would reduce their withheld taxes in order to bringabout a closer balance between 1973 withholdings and 1973 tax liabilities.The estimated reduction of $3.5 billion did not materialize. Corporate profitstax accruals were more than $7 billion higher than had been anticipated atthe start of the year. The rise in these taxes was due largely to the sharpincrease in book profits produced by unexpectedly high rates of priceinflation.The only major discretionary change affecting 1973 receipts occurred insocial security (OASDHI) taxes. Social security includes old age, survivors,disability, hospital, and supplementary medical insurance and accounts formost of the Federal receipts included in contributions for social insurance.At the start of 1973 the combined rate for employers and employees wasraised from 10.4 percent to 11.7 percent of earnings. Simultaneously themaximum amount of annual earnings subject to the tax was increased from$9,000 to $10,800. These two measures together raised OASDHI tax receiptsby $10 billion and thus accounted for over one-quarter of the $37 billionrise in total Federal receipts from 1972 to 1973. Including the automatic527-867 O - 74 - 677

effect of covered wage and employment growth, total OASDHI receiptsrose by about $14 billion.By comparison, in 1969 the combined payroll tax rate was 9.6 percentand the maximum amount of earnings subject to the tax was $7,800.From 1969 to 1973 social security taxes and contributions rose by 67 percent,compared to a rise of 39 percent in employee compensation andan increase of about 21 percent in the consumer price index. In 1969contributions for social security represented 20 percent of Federal receipts,and OASDHI benefits accounted for 17 percent of Federal expenditures.In 1973 these ratios had risen to 24 and 23 percent respectively.Rapid growth in the importance of payroll taxes in relation to totaltaxes lowers the elasticity of Federal receipts with respect to income. Theaverage annual earnings of all covered employees were about $8,000 in 1973.Those workers whose annual earnings exceeded the 1973 maximum of$10,800 did not pay more tax when their earnings grew. The periodic increasesthat have been made in the tax ceiling on covered earnings mitigatethe regressive effects of the payroll tax and provide for increased benefits.The latest rise to $13,200 occurred January 1, 1974.BALANCES OF THE FEDERAL BUDGETAs the economy moved towards full utilization of resources from 1971to 1973, the actual Federal budget balance (NIA) rose from a deficit of $22billion to a slight surplus. At the same time, the full-employment budgetbalance increased about one-third as much as the actual balance, or by$8 billion. The smaller rise in the full-employment balance reflects the factthat the actual real rate of growth from 1971 to 1973 exceeded the growthrate of potential GNP, which is used to calculate full-employment revenues.The calculations in this report are based on potential growth rates of 4 percentannually in constant dollars.The traditional calculation of the full-employment budget involves adjustingactual Federal expenditures for those changes in unemploymentbenefits (normally reductions) which would be expected if the economywere operating at 4 percent unemployment. Apart from this adjustment,full-employment expenditures are assumed to be equal to actual expenditures.To estimate Federal receipts at full employment, one must project theshares in full-employment income of taxable personal income, corporateprofits, and wages and salaries. Retrospectively, personal tax and nontaxreceipts at full employment are then calculated, as are corporate profits taxesand contributions for social insurance, by applying the respective average taxrates observed each quarter to the corresponding tax bases in potential GNPmeasured in current dollars. Total potential GNP is used as the tax base forindirect taxes. Prospective calculations also take into account changes in taxlaws scheduled for future years, as well as a gradual rise in the average taxrate on personal incomes, a rise produced by the growth of incomes subjectto progressive rates of taxation.78

Comparisons between 1972 and 1973 show that the full-employment balanceincreased by $14 billion. On a quarterly basis, however, the increasewas uneven; the large rise in social security benefits ahead of taxes in thefourth quarter of 1972 and the phase-in of revenue sharing contributed tothe full-employment deficit for that year. Furthermore, if the $9 billion ofoverwithholding of individual income taxes that started in 1972 and haspersisted since is included in full-employment receipts, as it is in actualreceipts, the change amounts to only $5 billion instead of $14 billion. In 1972overwithheld taxes were about $9 billion, but in 1973 refunds of overwithheld1972 taxes were offset by overwithholding of 1973 taxes.The limitations of the traditional measures of potential output were discussedearlier in this chapter. Despite these limitations, the full-employmentsurplus calculation based on the traditional concept of the potential GNPthat is consistent with 4 percent unemployment is useful in the long run forevaluating changes in fiscal policy. At a constant price level, changes in thebalance at full employment—whatever consistent definition of full employmentone may choose—reflect changes in full-employment expenditures,discretionary changes in tax receipts, that is, those produced bychanges in tax laws, and changes in tax receipts along the full-employmentpath of output under given tax laws. When prices rise over time, changes inthe full-employment budget surplus can also be produced automatically. Asexplained in the next section, this is particularly likely to occur in the shortrun when unexpected increases in the rate of inflation raise receipts morethan expenditures.INFLATION AND THE FEDERAL BUDGET AT FULL EMPLOYMENTThe increase in the Federal full-employment budget surplus from calendar1972 to 1973 is reduced further if one takes account of the high ratesof inflation that materialized in 1973. At the start of that year, the pricelevel measured by the implicit GNP price deflator was expected to continueto rise by about 3 percent during the year, as it had during 1972. In fact, itrose by about 7 percent from the fourth quarter of 1972. Thus, for the yearas a whole the level of the deflator was 2 percent above the level that hadbeen assumed in budget planning.In the short run, Federal receipts respond much more promptly thanFederal expenditures to an unexpected increase in the rate of inflation. Thebases for most taxes are raised automatically, but less than half of totalexpenditures will respond within a few months to an increase in the rateof inflation. Thus for each additional 1 percent rise in the price level, fullemploymentreceipts increase by about 1.1 percent, but expenditures growby perhaps only 0.5 percent in the short run. With the magnitudes of calendar1973, a price level that is 2 percent higher on the average for theyear raises full-employment receipts by around $3 billion more than expenditures,leaving the full-employment surplus shown in Table 17 higher bythat amount for the year than it would have been if the rate of inflation hadnot grown.79

Since these apparent stabilization effects of the budget were called forthby an unexpectedly high rate of inflation, higher than in the past, they cannotbe attributed to the fiscal policies intended at the start of the year. Rather,they may be regarded as part of the automatic stabilizing component offiscal policy. Before one can infer changes in discretionary fiscal policies bycomparing the full-employment balances of 1972 and 1973, the fullemploymentbudget surplus for 1973 should first be adjusted for the risein the rate of inflation from 1972 to 1973, even though the adjustmentcited above is only a first approximation.TABLE 17.—Actual and full-employment Federal and State and local government receipts andexpenditures, national income accounts basis, calendar years 1969-73[Billions of dollars; seasonally adjusted annual rates]Calendar yearReceiptsFederal GovernmentSurplusordeficit (-)ReceiptsState and local governmentExpendituresExpendituresSurplusordeficit (-)Combinedsurplusordeficit(-)Actual:196919701971197219731197.3192.0198.9228.7265.4189.2203.9221.0244.6264.78.1-11.9-22.2-15.9.6119.7135.0152.3177.2194.8119.0133.2148.3164.0183.80.71.84.013.111.08.8-10.1-18.1-2.811.61972:1IIIIIIV1973:1IIIllFull-employment: 21969197019711972.197311972:1.IIIllIV1973:1IIIII.222.9225.4229.6236.9253.6262.4269.5198.4206.7216.5234.9269.5230.2232.6236.6240.1258.4265.9272.4236.6244.4237.0260.3258.6262.4265.6189.6202.7218.6242.6263.7234.3242.3235.0258.7257.3261.2264.6-13.8-19.0-7.4-23.4-5.0.04.08.84.0-2.1-7.75.8-4.1-9.71.6-18.61.14.77.7166.2175.9175.3191.2190.2192.8196.0119.9140.4159.5182.5198.0173.0181.6180.5195.0192.4195.2198.8157.8160.8165.9171.6176.4181.2185.7119.0133.2148.3164.0183.8157.8160.8165.9171.6176.4181.2185.78.415.29.519.613.911.510.4.97.211.218.514.215.220.814.623.416.014.013.1-5.4-3.92.0-3.88.911.614.39.711.29.110.820.011.111.116.24.817.118.720.81 Preliminary.2 Over-withholding 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 Councilof Economic Advisers.THE STATE AND LOCAL AND THE COMBINED BUDGET BALANCESAs shown in the preceding table, the actual balance of State and localgovernment receipts and expenditures grew rapidly, from $4 billion incalendar 1971 to $11 billion in 1973. Last year's surplus amounted to almost6 percent of total receipts.Relationships among Federal transfers to State and local governmentsand the budget surpluses and tax efforts of these units have grown closer80

since general revenue sharing was introduced in October 1972. For instance,of the $3 billion received for the third entitlement period under generalrevenue sharing in April and July 1973, it is estimated that almost half isbeing spent to reduce taxes or prevent an increase in taxes. With State andlocal spending rising at a somewhat accelerated rate of 12 percent from 1972to 1973, the surplus of State and local governments declined progressivelyduring 1973.This decline is somewhat more pronounced if one estimates the fullemploymentbudget surplus for State and local governments. Here essentiallythe same procedure is used as in estimating the Federal budget. Onlya few differences arise. Full-employment receipts from contributions forsocial insurance are assumed to be equal to the actual social insurance contributionsreceived by State and local governments, since these programscover only State and local employees and therefore do not fluctuate cyclically.Full-employment expenditures are assumed to be equal to actual expenditures,since unemployment benefits enter the national accounts only asFederal expenditures.The difference between these full-employment receipts and expendituresyields the crude estimate of the full-employment budget balance of State andlocal governments used in this report for the analysis of fiscal policy. Morerefined estimates might take into account that some State and local expendituresvary automatically with cyclical conditions. There is also some evidencethat tax rates tend to be raised when the gap between actual GNPand potential GNP widens. The average tax rates at full employment maytherefore deviate systematically from the actual tax rates, contrary to theassumption made in estimating full-employment receipts. Nevertheless theState and local budget calculated in this way does give a better estimate ofthe stance of overall fiscal policy than the actual budget.The full-employment budget balance of State and local governments canbe added to the comparable balance of the Federal Government to obtaina rough indicator of the combined fiscal policy changes generated by all layersof government. The result shows that although State and local governmentsreduced their full-employment budget surplus in 1973 the combinedbudget surplus still rose by $9 billion—from $10.8 billion in 1972 to $20.0billion in 1973, on a national income accounts basis. If increases in the fullemploymentbudget surplus produced by an unexpected rise in rates of inflationare not regarded as "discretionary" but as part of the automaticstabilizers, particularly at the Federal level, the increase in the full-employmentsurpus for all levels of government combined would be reduced toabout $6 billion. However, if overwithholding is included in Federal receiptsfor 1972, the full-employment surplus shows a decline from 1972 to 1973.As indicated in Chapter 1, the Council believes that overwithholding shouldbe omitted from the calculation of full-employment receipts. Viewed in thismanner, therefore, the full-employment surpus on a combined governmentalbasis indicates a shift toward restraint from 1972 to 1973, but the shift isless than in the Federal budget alone.81

MONETARY POLICY AND FINANCIAL MARKETSFor more than a decade, money GNP has tended to grow in a higher proportionthan the narrowly defined money supply (Mi) but in the sameproportion as both the broadly defined money supply (M 2 ) and privatelyheld liquid assets as defined in Table 18. However, even with reasonable allowancesfor lags—with a 2-quarter lag of the growth of GNP behind thegrowth of M 2 and of privately held liquid assets—deviations from theserelationships of proportionality have been large in some years. A reductionin the rate of growth of these aggregates tends to have a moderating effecton the growth of money GNP, even if for some purposes the short-run deviationsfrom long-run relations are uncomfortably large.TABLE 18.—Changes in aggregate monetary measures and gross national product, 1968 to 1973[Percent change; seasonally adjusted annual rates]1968: First halfSecond halfHalf yearMi(currency,plus demanddeposits)6.58.4M 2(Mi plustimedeposits 07.510.4Private liquidassetholdings 28.210.0Adjustedcreditproxy 3 5.412.6GNP10.47.81969: First halfSecond half__6.22.26.3.66.93.03.2-1.57.65.61970: First halfSecond half5.56.04.810.75.38.04.410.74.64.41971: First halfSecond half8.94.314.97.811.99.110.58.511.47.31972: First half _Second half6.98.610.810.912.312.511.711.111.010.21973: First halfSecond half *__._7.44.89.18.513.19.214.48.212.510.01 Time deposits at commercial banks other than large certificates of deposit.2 Holdings of private nonfinancial investors: Currency, demand deposits, time deposits (including CD's) and savingsaccounts in commercial banks and thrift institutions, U.S. Government securities (savings bonds and short-term), andcommercial paper.3 Consists of member bank deposits, bank-related commercial paper, Eurodollar borrowings of U.S. banks, and certainnondeposit items.* Preliminary.Note.—Half year changes are based on data for last quarter in each half year.Using data for the last t month of each half year would yield ild f for the t two halves hl of 1973 7.8 and 3.7 percent, respec-tively, for Mi, and 9.3 and 7.9 79 percent t for f M 2.Sources: Board of Governors of the Federal Reserve System and Department of Commerce (Bureau of EconomicAnalysis).Appraising the effect of a change in the money supply on moneyrates of interest, particularly appraising its effects in the longer run, is amatter of some complexity because money rates depend not only on the"real" yield of the available physical resources, measured as if the generalprice level remained constant, but also on the inflation premium whichlenders insist on receiving and borrowers are willing to pay. The immediateeffect produced by a high rate of increase in the money stock is to increase thesupply of credit; but such a policy also tends to increase the expected rate of82

inflation and thus to raise the demand for credit. However, both the demandand the supply also depend significantly on real factors which wouldmake for positive yields from investment even if these were estimated on thebasis of an unchanging general price level.Because the demand for credit continued to rise rapidly in 1973, upwardpressures on interest rates were strong and rates at year-end were wellabove their levels at the start of the year (Chart 5). From December 1972to December 1973 the Treasury bill rate rose from 5.1 to 7.4 percent, theprime commercial paper rate from 5.5 to 9.1 percent, and the rate on longtermbonds of the Federal Government from about 5.9 to 6.4 percent; theFHA mortgage yield from loans on new homes climbed from about 7.6 to8.9 percent. Until late August the stock market declined, then it rose untilOctober without fully recovering the earlier loss. After October, stock pricesfell again, leaving a substantial net decline for the year as a whole.It is hard to tell to what extent the reduction in the market value of stockequities was caused by rising interest rates and to what extent by the risinguncertainty about profits, an attitude at least partly occasioned by theenergy crisis late in the year.Monetary PolicyMonetary policy in 1973 applied somewhat more restraint than the yearbefore, since it was aiming for a gradual return to a sustainable rate ofgrowth in demand and output. According to preliminary estimates, fromthe fourth quarter of 1972 to that of 1973, Mi grew by 6.1 percent, M 2 by8.8 percent, and the stock of privately held liquid assets by 11.2 percent.For the preceding year these figures had been 7.7, 10.9, and 12.4 percentrespectively. By the last quarter of 1973 the current growth of money GNPwas reduced to about 9 percent at an annual rate from an 11.7 percent ratein the fourth quarter of 1972, a 15.2 percent rate in the first quarter of 1973,and rates of 9.9 and 10.6 percent in the second and third quarters of theyear.As market interest rates rose, deposits at commercial banks became lessattractive than alternative open market assets, a financial market conditionreminiscent of 1969. Contrary to the 1969 practice, however, whenceilings on large certificates of deposit (CD's) were set below open marketinterest rates—a move causing outflows of funds from commercial banks—measures were taken to ensure that commercial banks could compete forfunds in the open market. The ceilings on large CD's ($100,000 and over)maturing in less than 90 days had been removed in 1970, and the restrictionson large CD's maturing in 90 days or more were lifted in May 1973.In addition, the Federal Reserve Board in conjunction with other Federalregulatory agencies increased the maximum interest payable on time andsavings deposits in July. Ceilings on CD's with maturities of at least 4 yearsand minimum denominations of $1,000, but not more than $100,000, wereeliminated at the same time. In November, however, Congress passed legis-83

lation requiring ceilings on all CD's of less than $100,000. The volume oflarge CD's increased from $44.4 billion in January to $67.0 billion in August,a sharp contrast to the sizable decline in 1969.chart 5Interest RatesPERCENT PER ANNUM12SHORT-TERM10FEDERAL FUNDSI3-MONTH TREASURY BILLS(New Issues)V\u - r A\H _r r j'/^ / \ •• 1 r 1 ••"C /0 I i i 111 1 i i 111 I i 1111 h i n i 111 i i 111 i i i 111 i i 11 1111 11 I 111 11 111 i 11 I 11 1111 I 11 I i1968 1969 1970 1971 1972 197312LONG-TERM10NEW HOME MORTGAGES(FHLBB)CORPORATE Aaa BONDS....--•...-••%....•.HIGH-GRADEMUNICIPAL BONDSU.S. GOVERNMENT BONDS0 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 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 I I I I I1968 1969 1970 1971 1972 1973SOURCES: 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.84

However, steps were taken to keep credit expansion within bounds. Thesupply of reserves through open market operations was kept at a level wherecommercial banks had to borrow heavily from the Federal Reserve discountwindow to acquire additional reserves. The Federal funds rate, a goodbarometer of money market conditions, rose to about 11 percent in Septemberfrom about 5/ 2 percent at the beginning of the year.Marginal reserve requirements on large CD's and on bank-related commercialpaper were also raised from 5 to 8 percent in May to increase theeffective cost of raising funds. As loans financed through large CD's continuedto accelerate, these marginal reserve requirements were raised againin September, this time to 11 percent. The new regulation meant an additional$465 million in required reserves for the banking system. Commercialbanks raised the prime lending rate to a record 10 percent in response to thehigher effective cost of large CD's and strong credit demand. The volumeof large CD's outstanding declined from $67 billion in August to about $63billion in December. The rapid rise of business loans at commercial bankscame to an end. As a result, there occurred in September and October asignificant rise in business borrowing by means of the placement of commercialpaper by dealers in the market.Recognizing these developments, the Federal Reserve Board lowered themarginal reserve requirement on large CD's and bank-related commercialpaper from 11 to 8 percent in December. The move lowered the effectivecost to banks of obtaining additional funds through the sale of large CD'sand bank-related commercial paper and prevented short-term interest ratesfrom rising even higher.Long-Term FinancingLong-term financing by corporations was lighter in 1973 than in 1972but showed a substantial increase in the final quarter (Table 19). Thereduction was partly a reflection of the large rise in internally generatedfunds. In the first 3 quarters of 1973 corporate profits after taxes plus capitalconsumption allowances were on average 16 percent greater than theannual average for 1972. Along with rising long-term rates, this contributedto the decline in bond market activity, while declining stock prices madefinancing through equity issues less attractive.With the rise in profits slowing down after midyear, and with requirementsfor new capacity continuing to increase, scheduled new bond offeringsrose substantially in the fourth quarter. These upward pressures on interestrates were counterbalanced when investors attempted to reshuffle theirportfolios in favor of longer-term securities in response to declining shorttermrates.Mortgage MarketsDuring the first 3 quarters of 1973 the sharp increase in short-term openmarket rates and the gap between those rates and yields on most types of85

TABLE 19.—Offerings of new security issues, 1972—73[Billions of dollars]PeriodTotalCorporate securitiesBonds andnotesStocksState andlocalgovernmentsecurities1972197340.833.127.821.813.111.322.922.81972:1IIIII .. .IV1973:1. .IIIIIIV9.811.29.210.68.28.66.49.96.97.46.17.44.46.24.66.62.93.83.13.33.92.41.73.35.96.15.45.65.65.65.16.4i Preliminary.Note.—Detail may not add to totals because of rounding.Sources: Securities and Exchange Commission and The Bond Buyer.savings deposits decreased the net inflow of funds into thrift institutions. Thetightness in mortgage markets was less severe than in 1966 and 1969.In 1972, conditions in credit markets were relatively easy, and net savingsflows into thrift institutions were large (Table 20). The rate of this netinflow moderated during the first half of 1973, but it still remained substantial,partly because of unusually large tax refunds. Mortgage repaymentflows were also ample. Mortgage loan commitments outstanding atall savings and loan associations reached a record $15.1 billion in May. Asshort-term open market rates increased sharply, net savings inflows into thriftinstitutions excluding interest credited were reduced, and for the duration ofthe third quarter they turned into net outflows. Savings and loan associationsdecreased new commitments, borrowed heavily from the Federal HomeLoan Banks (FHLB), and sold liquid assets in order to meet existing commitments.Inclusion of interest credited into the net savings flow would stillyield a negative figure for the third quarter, though with seasonal adjustmentthe sharp diminution from earlier quarters would then leave the netthird-quarter flow positive.The progressive reduction of net savings flows to the thrift institutionstightened conditions in mortgage markets and induced Federal regulatoryagencies to take steps to revive this market. In July, maximum interestrates payable on time and savings deposits by thrift institutions were adjustedupward. Also the Federal Home Loan Bank Board lowered liquidityrequirements at member institutions, freeing additional funds for mortgagelending. Ceilings on FHA-VA mortgages were raised from 7 to 8JJ/2 percentin two steps in order to attract more funds to Government-backedmortgages.86

Assistance to Mortgage MarketsMortgage markets received substantial support from federally sponsoredhousing agencies in 1973. These agencies channeled funds from theopen market to mortgage markets and thus eased the availability ofmortgage credit. In addition, the President announced measures to help themortgage and housing sector in both the short and long run.Federal Home Loan Bank advances outstanding to member savings andloan associations reached $15 billion in December, compared to $8 billionat the end of 1972. The $7 billion net increase may be compared with a riseof $4 billion during 1969.TABLE 20.—Net savings flows at thrift institutions, 1968-73[Billions of dollars, not seasonally adjusted]PeriodNet savingsflows i19681969197019711972197321972- 1 IIIIIIV1973- 1 IIIII.IV23.9-1.86.226.329.910.210.77.16.35.97.83.6-3.72.51 New deposits less withdrawals. Excludes interest credited.2 Estimate by Council of Economic Advisers.Note.—Thrift institutions consist of mutual savings banks and federally insured savings and loan associations.Sources: National Association of Mutual Savings Banks, and Federal Home Loan Bank Board (except as noted).The Federal National Mortgage Association, the largest financial intermediaryserving mortgage markets, bought $6.1 billion worth of mortgagesduring 1973, an increase of $2.4 billion over 1972.The President announced a series of legislative and administrative proposalsin September 1973 in order to ease the tight mortgage market conditionsexisting at the time. First, the Federal Home Loan Banks were authorizedto make forward commitments up to $2.5 billion at a predeterminedrate of interest to member savings and loan associations. Second, theGovernment National Mortgage Association was authorized to reactivatethe Tandem Plan and offer to buy up to $3 billion of mortgages from varioustypes of financial institutions. Third, Congress was requested to raise themaximum amount of a mortgage loan insurable by the Federal Housing Administration,a step which would make Government-backed loans availableto a larger number of home buyers who cannot obtain conventional mortgageloans. The President also sent to the Gongresss several recommendations designedto make it easier for home buyers to obtain mortgages in the future.87

CHAPTER 3Inflation Control Under theEconomic Stabilization ActPublic Law 93-28, the Economic Stabilization Act Amendments of197.1, as amended, requires that the Economic Report of the Presidentinclude a section "describing the actions taken under this title during thepreceding year and giving his assessment of the progress attained inachieving the purposes of this title." This chapter is intended to fulfillthat requirement. There is, however, no intent to represent the descriptionof the control regulations contained herein as legally bindinginterpretations.PRICE AND WAGE CONTROLS, administered by the Cost of LivingCouncil (CLC) under authority of the Economic Stabilization Act,remained in effect throughout 1973 but underwent several substantialmodifications. After the move to Phase III early in the year, the changeswere in the direction of greater stringency. They reflected the strain placedon the program when economic forces caused a sharp acceleration of inflationbeginning early in the year and when this in turn generated public andpolitical demand for changes in the nature of controls. However, the extentto which these changes could contain the inflation in 1973 was limited bythe serious risks of disrupting markets and adversely affecting supply.THE ECONOMIC STABILIZATION PROGRAM IN 1973As 1973 began, economic conditions seemed propitious for a substantialmodification in the Phase II system of controls. The rate of inflation hadbeen moderate in 1972. The consumer price index (CPI) rose 3.4 percentduring the year (Table 21). Wage increases had moderated from theirvery high rates of early 1971, a sign that expectations of future price increaseshad diminished. Industrial price increases had slowed to a 2.9 percentannual rate in the last half of 1972 3Tij$$ fiscal and monetary policy supplementedby the controls program had approximately achieved their interimgoals by the end of 1972.as

TABLE 21.—Measures of price and wage change during the Economic Stabilization Program[Percent change; seasonally adjusted annual rates]Price or wage measureFreeze andPhase IIAug. 1971toJan. 1973Phase IIIJan. 1973toJune 1973Secondfreeze andPhase IVJune 1973toDec. 1973Calendar year duringwhich controls were ineffect throughoutDec.1971toDec. 1972Dec. 1972toDec. 1973PRICESConsumer price index:All items3.38.39.63.48.8'FoodAll items less foodCommodities less foodServices5.62.72.03.520.35.05.24.318.66.95.28.44.73.02.53.620.15.65.06.2Personal consumption expenditures deflator *2.46.78.12.77.4Wholesale price index:All commodities.5.724.414.36.518.2Farm products and processed foodsand feedsIndustrial commodities 213.32.949.814.48.817.214.43.626.714.8Finished goods, consumer andproducer 3 ..Crude and intermediate materials3.1.83.711.716.221.414.12.24.515.614.1WAGES«Average hourly earnings, private nonfarm economys6.16.37.66.36.7Average hourly compensation:Total private economy !Nonfarm l6.36.58.48.27.67.96.86.98.08.1Average hourly earnings, private nonfarmeconomy 166.25.87.56.56.71 Percent changes based on quarterly data: 1971 III to 1972 IV (col. 1), 1972 IV to 1973 II (col. 2), 1973 II to 1973 IV(col. 3), 1971 IV to 1972 IV (col. 4). and 1972 IV to 1973 IV (col. 5).2 Includes a small number of items not shown separately.3 Excludes foods but includes a small number of items not in the industrial commodity index.* Average hourly earnings are for production workers or nonsupervisory employees and average hourly compensationfor all employees.5 Adjusted for overtime (in manufacturing only) and interindustry shifts.Source: Department of Labor (Bureau of Labor Statistics) and Council of Economic Advisers.With excess capacity declining at the end of 1972, there was a clear possibilitythat continuation of the Phase II controls program would interfereincreasingly with production, productivity, and investment decisions, andraise administrative costs, especially if the economy continued to expandas expected.PHASE III (January 11 to June 13, 1973)Against this backdrop it was decided to modify the price and wage controlsprogram to make it more consistent with the further reduction in excesscapacity foreseen at the time and also move toward the Administration'sgoal of eventually ending the controls. The new regimen of controls, knownas Phase III, involved some basic changes in the regulations (Table 22).89

(A more detailed presentation of the regulations of Phase III, the subsequentfreeze, and Phase IV can be found in the Quarterly Reports of theCost of Living Council.) To reduce the mounting delays and costs entailedin submitting requests for price increases, having them reviewed, and seekingdetailed interpretations of increasingly complex rules, the basic principlesof regulation developed during Phase II were to be self-administeredin Phase III. The prenotification requirement was dropped in most sectorsof the economy. Report-filing requirements were maintained only for thelargest economic units. The Price Commission and Pay Board were absorbedinto the staff of the Cost of Living Council; and this staff, togetherwith the Internal Revenue Service (IRS) enforcement staff, was reduced.The Cost of Living Council retained authority, and subsequently used it, toimpose specific, mandatory regulations where restraint seemed lacking, butin most sectors of the economy the system was not mandatory withoutfurther action by the CLC.An important reason for the change to a self-administered program was theneed for flexibility in administering the standards for wage and price behavior.Phase II had, in fact, provided important instances of flexibility, butthe changed economic conditions suggested that even more was needed. Inone of its first public pronouncements, on February 26, the newly formedLabor-Management Advisory Committee to the CLC made the point thatno single standard or wage settlement can be expected to apply throughoutthe economy at any one time. This aspect of Phase III was important inthe decision of leaders of labor, many of whom had earlier withdrawnfrom participation in the program, to join the Phase III effort.The profit margin regulations were also modified in Phase III. The basisfor calculating the profit margin limitation was changed to increase thenumber of fiscal years from which a firm could choose the 2 years theyused in calculating their base. To permit firms to benefit from productivityincreases if they practiced price restraint, the profit margin limit waswaived if a firm's average price increase was no more than 1.5 percentin a year. A third change was to permit price increases "necessary for efficientallocation of resources or to maintain adequate levels of supply."Price changes were thus allowed in instances where economic growth ledto exceptional demand pressures in particular markets and the alternativewas shortages.The Construction Industry Stabilization Committee and the Committeeon Interest and Dividends were continued, and new committees were establishedin the field of health care. Special criteria were established for publicutilities, making the program voluntary and ending the requirement thatregulatory agencies obtain from the CLC certification that their actionsaccorded with Phase III controls.Special steps were also taken to counter problems emerging in the foodsector. Increases in farm product prices had led to a 7.1 percent annual90

TABLE 22.—Regulations of the controls program, Phases II, Ill, and IVProgramPhase IINov. 14,1971 toJan. 11,1973Phase IIIJan. 11,1973 toJune 13,1973Phase IVAug. 12,1973 to dateGeneral Standards:Price increase limitations..Profit margin limitations...Wage increase limitations..Prenotification:PricesWagesReporting:Prices... _Percentage pass-through ofallowable cost increasessince last price increase,or Jan. 1, 1971, adjustedfor productivity and volumeoffsets. Term limitpricing option available.Not to exceed margins ofthe best 2 of 3 fiscal yearsbefore Aug. 15,1971. Notapplicable if prices werenot increased above baselevel, or if firms "purified"themselves.General standard of 5.5percent. Exceptions madeto correct gross inequities,and for workerswhose pay had increasedless than 7 percent a yearfor the last 3 years.Workers earning lessthan $2.75 per hour wereexempt. Increases inqualified fringe benefitspermitted raising standardto 6.2 percent.Prenotification required forall firms with annualsales above $100 million,30 days before implementation,approval required.For all increases of wagesfor units of 5,000 ormore; for all increasesabove the standard regardlessof the number ofworkers involved.Quarterly for firms withsales over $50 million.Self-administered standardsof Phase II.After May 2, 1973, prenotificationrequired forall firms with sales above$250 million whose priceincrease has exceeded aweighted average of 1.5percent.None.Quarterly for firms withsales over $250 million.In most manufacturing andservice industries dollarfor dollar pass-through ofallowable cost increasesince last fiscal quarterending prior to Jan. 11,1973.Same years as Phase III,except that a firm that hasnot charged a price for anyitem above its base price,or adjusted freeze price,whichever is higher, is notsubject to the limitation.Not to exceed margins ofthe best 2 fiscal yearscompleted after Aug. 15,1968. No limitation ifaverage price increasedoes not exceed 1.5 percent.General Phase II standard,self-administered. of Phase III. ExecutiveSelf-administered standardsSome special limitations. compensation limited.More flexibility with respectto specific cases.Workers earning less than$3.50 per hour were exemptedafter May 1.Same as Phase II exceptthat prenotified price increasesmay be implementedin 30 days unlessCLC requires otherwise.None.Quarterly for firms withsales over $50 million.Wages..Special areasExemptions to price standards._Pay adjustments belowstandard for units greaterthan 1,000 persons.Health, insurance, rent,construction, public utilities.Raw agricultural commodities,import prices, exportprices, firms with 60or fewer employees.Pay adjustments for unitsgreater than 5,000 persons.Health, food, public utilities,construction, petroleum.Same as Phase 11 plus rents.As Phase III.Health, food, petroleum, construction,insurance, executiveand variable compensation.Same as Phase III plus manufacturedfeeds, cement,public utilities, lumber,copper scrap, long-termcoal contracts, automobiles,fertilizers, nonferrousmetals exceptaluminum and copper,mobile homes, and semiconductors.1 In some of these sectors wages were also exempted.Source: Cost of Living Council (CLC).91

ate of advance in grocery store food prices in the second half of 1972, andsubstantial increases were in prospect for early 1973. This development wasa major threat to the moderate price behavior that had been achieved, aswas obvious by comparison with nonfood prices in the CPI, which hadslowed to a 3.0 percent annual rate of increase in the last 6 months of1972. Specific mandatory controls were therefore retained on wages andprices in food processing and distribution in Phase III, a number of additionalactions to expand supply were taken, and special committees wereestablished to help coordinate activities that would moderate the increasesin food prices. Prices of raw agricultural products continued to be exemptfrom controls.By the spring it was clear that three specific assumptions underlyingforecasts for 1973 had gone awry. In the first quarter of 1973, retail foodprices, propelled by sharply higher farm prices, were already 8.1 percentabove the first quarter of 1972, substantially higher than the average 3 percentincrease for the first half of 1973 over the first half of 1972 that hadbeen forecast by the Department of Agriculture in October 1972. Theofficial year-over-year forecast had been revised by February to 6 percent;by May an earlier expectation that food prices would level off after midyearbegan to appear less certain.The second assumption concerned economic expansion in early 1973 bothin the United States and abroad, which turned out to be much more robustthan had been anticipated. In December 1972, after consultation withmember countries, the Organization for Economic Cooperation and Development(OECD) forecast that combined real GNP for its seven largestmember countries, including the United States, would grow at an annualrate of 6/ 2 percent from the second half of 1972 to the first half of 1973.By July 1973, before second quarter data were complete, the OECD hadrevised the estimate upward to 8*4 percent, considerably above the growthrate of potential output. The unexpected boom was widespread; the actualrate of growth exceeded earlier forecasts in all but one of the countries. Atno time since the early 1950's had such strong expansion occurred simultaneouslyin the larger member countries of the OECD, and much morepressure was placed on capacity than had been anticipated. (For a view ofthe effect that rapid expansion had on inflation in OECD countries seeTable 23.)The rate of expansion in the United States from the second half of 1972to the first half of 1973 was fairly close to that predicted by the Administration,but the rise in output in the first quarter of the year was steeper thanexpected. Production in some industries was pushed to its limit sooner thanhad been anticipated, and unexpected shortages also occurred in others.The third change in the economic outlook concerned the large declinein the foreign exchange value of the dollar. The realignment of exchangerates on February 12 resulted in a decline in the value of the dollar of about5 percent with respect to our major trading partners. From March 19, when92

TABLE 23.—Changes in consumer prices in OECD countries, selected periods, 1958—73[Percent change, annual rates]Price item and country1958-59Averageto 1970-71Dec. 1971toDec. 1972Dec. 1972toSept. 19731All items:United StatesOther OECD countries:CanadaJapanFranceGermanyItalyUnited KingdomAll other OECD countries..2.62.55.54.22.63.63.94.03.45.15.36.96.57.47.67.18.79.718.17.66.812.09.511.0Food:United StatesOther OECD countries:CanadaJapan __FranceGermanyItalyUnited KingdomAll other OECD countries..2.42.46.04.02.03.13.74.04.77.24.98.78.18.87.57.823.917.020.110.75.412.613.411.4Nonfood items:United StatesOther OECD countries:Canada____JapanFrance_GermanyItajyUnited KingdomAll other OECD countries..2.72.65.04.33.14.04.04.03.04.15.65.85.66.47.76.74.56.216.45.57.411.27.210.4i Seasonally adjusted. Latest date for which comparable data are available.Sources: Organization for Economic Cooperation and Development (OECD) and Department of Labor, Bureau of LaborStatistics.other major countries ceased to support fixed exchange rates, to July itdepreciated about 6 percent more. In a setting of rapidly rising demand andoutput here and abroad, the extent to which these exchange rate changes,and those that had previously occurred in the 14 months after the SmithsonianAgreement in December 1971, affected prices in the United Stateswas substantial.Prices of imported commodities and products, which were exempt fromcontrols at first sale into U.S. commerce, rose as a direct result of the dollardepreciation. U.S. exports were drawn out of the country at a faster ratethan before because they were less expensive in foreign currencies. The increasedexport demand raised domestic prices of commodities, like rawagricultural products, that were exempt from controls. In a growing numberof cases products that remained under price controls were also drawn out ofthe country, because prices of internationally traded goods had risen markedly,and controls prevented U.S. prices from rising to world market levels.In the first few months of Phase III the observed increases in the consumerprice index and wholesale price index (WPI) showed that inflationwas accelerating for some important raw commodities—important not only527-867 O - 74 - 793

to the economy but also in the sense that consumers' attention focused onthem. Retail meat prices rose 5.4 percent a month in February and March asa result of a 39 percent increase in livestock prices from November 1972 toMarch 1973. Shortages of crude oil pushed up retail fuel oil prices 7.4percent during the winter, and a rise of 16 percent in prices of lumber andwood products was reflected in the prices of new houses and indirectly influencedthe prices of existing houses.As a result of the acceleration of inflation, pressures mounted to tightencontrols. While Phase II controls were in effect, public opinion polls indicatedthat the popularity of a return to a price freeze diminished, reachinga point in the last quarter of 1972 at which only about a fourth of the populationsupported such an action. According to the polls, however, by February,43 percent of the population wanted a return to a price freeze, and thesepressures for stricter controls were reflected within the Congress. One effectof this sentiment among the public and the Congress may have been to encourageprice increases in anticipation of a freeze.The Administration was sensitive to the growing pressures from consumersand Congress and was also concerned that the acceleration of inflationwould undo the gains achieved by slowing the private nonfarm wagerate increases, as measured by average hourly earnings adjusted for interindustryshifts and overtime in manufacturing, from a peak annual rate of8.5 percent for the third quarter of 1970 to 5.0 percent for the first quarterof 1973. The situation posed a dilemma for policy makers, however, becausethe major source of inflation was in commodity markets, in which controlshave only limited usefulness. The problems of hides and lumber that wereencountered during Phase II had made this apparent. The most effectiveway to slow price increases for raw commodities is to increase their supply.Numerous actions, detailed in Table 24, were taken by means of agriculturalprograms, foreign trade policy instruments, and stockpile policies toexpand supplies of lumber, agricultural products, metals, and petroleumproducts. While some of these policies increased supply quickly, others requiredmore time to take effect and had little immediate impact on therate of inflation.PHASE III IS TIGHTENEDThe Administration recognized that controls were unlikely to be effectivein holding down prices of those consumer goods that are derived almostdirectly from crude commodities. Nonetheless, in the face of mountingpressure, selected changes in the administration of controls were institutedin order to assure labor and consumers that everything possible was beingdone to contain price increases. Thus, on March 6, cost justification wasrequired of major producers of crude oil and petroleum products whosought price increases yielding more than a 1 percent yearly addition to theirrevenues; for increases greater than 1.5 percent prenotification was required.This deterred price increases which would otherwise have been useful94

TABLE 24.—Supply-increasing actions of the Federal Government during 1973Commodity Date of action ActionFood.Metals..Lumber..PetroleumJanuary 11January 31March 8.March 26April5April 19April 25.May 10June 27July 5..July 6July 18..July 19August 10August 28October 3October 25....November l._November 27.December 20..December 21_.April 16May 22July 2April 12May 15May 29April 18August 19November 27..Direct subsidies ended for farm product exports.Mandatory wheat acreage set-asides suspended for 1973 crop.Grain to be sold from Government CCC reserves.Loans terminated on farm-stored grain.Review of Federal marketing orders initiated to encourage additional supply offruits and vegetables.Livestock grazing permitted on set-aside acreages.Cabinet-level CLC Committee on Food established.CLC public Food Advisory Committee established.Feed grain acreage set-asides reduced for 1973 crop.Dairy price supports increased to mandatory minimums.Feed grain set-aside acreage further reduced.Interagency Task Force established to coordinate grain transportation policies.Rice acreage allotments increased for 1973 crop.Cheese import quotas increased.Import quotas increased on dry milk.Temporary export restrictions imposed on oilseed crops.Temporary export restrictions extended to 41 categories of agricultural commoditiesincluding edible oils, animal fats, and livestock protein feed.Exports of food under P.L. 480 reduced to minimum levels.Import quotas further increased on dry milk.Wheat and feed grain set-asides suspended for 1974 crops.Agriculture and Consumer Protection Act signed, establishing target price systemto support farm incomes.Import quotas increased further for nonfat dry milk.Agricultural production and food processing given high priority in propane allocationprogram.Fertilizer price decontrolled by CLC; export monitoring system established.Butter import quotas increased.Sugar import quotas increased.Loans on 1973 crop wheat called for January 15,1974 delivery.Meat import quotas suspended for 1974.President requests authority to sell excess stockpile items; sales of tin, aluminum,lead, zinc, magnesium, rubber, cobalt, manganese ore made throughout the year.Reporting requirements imposed for ferrous scrap exports.Licensing requirements set up for ferrous scrap exports.Japan agreed voluntarily to limit imports of U.S. ferrous scrap in second half of 1973.Japan agreed voluntarily to reduce imports of U.S. softwood logs in second half of1973.More efficient use of railroad cars as result of ICC changes in rail rates for lumbershipments.Increased sales of timber by Forest Service from national forests.Mandatory Oil Import Program quotas and tariffs suspended by Presidential order.Unlimited imports of crude oil and petroleum products permitted, subject tolicense fees on imports above former quota levels.Phase IV regulations removed ceiling price from "new" crude oil.Ceiling price removed from crude oil from stripper wells.Source: Council of Economic Advisers.in encouraging additional supplies from domestic sources and signaling therising costs of petroleum products to consumers.Meat prices were also singled out for additional control. Meats account forabout one-fourth of the consumer food budget. Consumer complaints abouthigh meat prices had become widespread; there was concern that they wouldadd to inflationary expectations and accelerate wage demands. On March29, ceilings on prices of red meats at all levels of processing and distribution95

were imposed, limiting prices to the highest price level that had prevailedin the preceding 30 days for at least 10 percent of the sales of each meat item.Farm prices of livestock were not controlled directly, but it was expectedthat beyond some limit livestock price increases would squeeze margins ofprocessors and retailers and thereby constrain what they could pay forlivestock. It was recognized that the ceilings, while not binding at the time,would probably become so for a couple of months in the summer and thuscreate distortions, but after that meat prices were expected to drop belowthe ceilings. The ceilings were not expected to interfere in any basic waywith incentives to expand production, because it was thought that livestockprices were, and would remain, sufficiently high in relation to productioncosts.In the late winter and spring, prices of industrial commodities, which hadbeen increasing by about one-third of 1 percent per month in 1972, beganrising by somewhat more than 1 percent per month. These large increasesreflected the impact of spiraling basic commodity prices here and abroad,stemming from the rapid expansion that occurred simultaneously in majorcountries and the decline in the foreign exchange value of the dollar. Thisdevelopment signaled the building up of cost pressures, particularly for purchasersof industrial materials, which in turn accelerated a rise in finishedgoods prices. To slow down the pass-through of these cost pressures, prenotificationrequirements were reinstated on May 2 for large firms that proposedweighted average price increases 1.5 percent above price levels either authorizedor in effect on January 10, 1973.THE FREEZE (June 13 to August 12, 1973)The disappointingly high rate of inflation in the first 5 months of 1973continued to arouse public dissatisfaction, and few signs appeared that theinflation would slow significantly in the second half of the year. Congressand the Administration were urged to take stronger actions to contain inflation.In the circumstances it seemed necessary to establish a more stringentcontrols system than Phase III, but one flexible enough to respond to economicdevelopments. This would be better than being forced into one socomprehensive, rigid, and permanent that it would have adverse effects onthe economy.On June 13, the President announced a freeze on prices, to be followedby a new set of Phase IV controls. The freeze was to last no more than 60days, ending just as soon as new controls could be put in place. Most prices,but not wages, were prevented from rising above their June 1-8 levels.Dividends and interest rates remained subject to voluntary controls. Rentsand raw agricultural products at the first sale were also excluded from theaction.More instances of price increases turned up during the 1973 freeze thanin the one begun in August 1971, partly because of the extreme upward96

pressures on farm and some major nonfarm commodity prices. Bad weatherhad reduced worldwide supplies of farm commodities in 1972. Rapidly risingincomes both in the United States and abroad and increased foreignpurchasing power, resulting from the dollar devaluation, lifted demand andproduced the largest increase in farm commodity prices since World War I.Little could be done through the use of direct controls to stop the pricesurge without interfering with production and inducing additional exports.The meat price ceilings imposed on March 29 began to interfere with livestockproduction under these circumstances. Increases in livestock feedingcosts arising from the sharp increases in feed costs between midspring andmidsummer could not be passed on to packers, who were subject to ceilings,and consequently some livestock producers limited their expansion or cutback production.Further negative effects on food production resulted from the extensionof ceilings in the June 13 freeze action to all food prices except those offarm products at the point of first sale. Feed grain and oilseed pricesremained high, stimulated by strong foreign demand. Like meat processorsand distributors, processors of other food products requiring these grainsand oilseeds, either as feeds or as inputs for further processing, were caughtbetween rising costs and frozen prices. Poultry and egg producers began tocut back production, although not to the extent believed by consumers.Grain millers were especially hard hit by the rapid rise in prices of wheat.Ganners of processed fruits and vegetables also faced cost problems. Theirselling prices were based on growers' prices a year earlier, but short supplieshad subsequently pushed these prices upward. The well-publicized grocerystore shortages during the freeze exemplified the developments in the foodindustry which hastened the move to Phase IV.PHASE IV (August 12, 1973 to date)Plans for a fourth phase of the controls program were prepared andeither implemented or published for comment a month after the beginningof the freeze. On July 18, Stage A of the Phase IV food regulations wasimplemented because especially quick action was required in this sector.The new regulations permitted the dollar for dollar pass-through of allfarm price increases and decreases except those for cattle, as the beef priceceilings remained in effect until September 10. On July 19 plans for PhaseIV were announced and the health industry was returned to Phase III control.The final regulations were announced August 6-10 and put into effecton August 12 for the wholesale, retail, manufacturing, and service sectors.The regulations adopted in Phase IV were designed to serve a number ofends. The main object, of course, was to slow the rate of inflation. It wouldbe achieved, in part, by postponing some price increases in the expectationthat monetary and fiscal policy would slow the rate of growth of demandand perhaps make them unnecessary. It had to be acknowledged, however,that holding prices down could have undesirable effects, among them the97

spurring of domestic inflation by encouraging exports and discouraging theinvestment needed to ensure adequate supply in the long run. Plans fordecontrol were also needed to serve the ultimate goal of return to a freemarket economy.The considerations gave rise to a Phase IV system that was stricter thanthat of Phase II, though it contained some regulations developed earlierto deal with specific circumstances in particular industries. Phase IV wasstricter than Phase II in three ways.1. Price increases in manufacturing and service industries were limitedto the dollar and cents amount of allowable cost increases, with noadd-on permitted to maintain percentage markups.2. Only cost increases since the last fiscal quarter of 1972 could be usedto justify price increases. This rule wiped out some cost justification thathad been built up earlier in the controls period.3. In Phase IV new base prices were established to which actual pricescould rise without cost justification; in some industry sectors thesenew base prices were below those of Phase II.Special regulations were drawn up for the insurance and petroleum industries.Phase B of the food regulations took effect September 10. Newregulations for the health industry were issued on January 16, 1974. Themajor aspects of Phase IV are summarized in Table 22 and discussed inmore detail in the Quarterly Reports of the Cost of Living Council.Phase IV also incorporated a new strategy for achieving a return to freemarkets: decontrol of selected industries in appropriate cases. Lumber,copper scrap, public utilities, and coal sold to utilities under long-termcontracts were decontrolled at the outset. In the administration of Phase IV,each request for price and wage increases is reviewed individually. In suitablecases decontrol has been made contingent on agreements by the firmsto expand output or capacity or to limit exports. In these and other instances,exemptions have been subject to a requirement that the firms furnish Governmentagencies with data on their prices, exports, and investment in newfacilities.Likely candidates for decontrol have been industries producing basic commoditiesfor which there was excess demand, since low domestic prices promotedan unwanted rise in exports, as well as reducing supplies and providingless incentive to expand production. Thus, fertilizers and most nonferrousmetals have been decontrolled during Phase IV.In some sectors where there had not been a build-up of cost pressures,decontrol would not lead to a spurt in prices. No advantages would be gainedby applying controls in these cases. Thus rents, which are difficult to regulatefor administrative reasons, were exempt from Phase IV controls, as they hadbeen in Phase III, and lumber was decontrolled for similar reasons. Partlyfor the same reason, both wages and prices were decontrolled in the autoindustry, after a new wage contract for auto workers had been signed and98

after three of the four automobile companies agreed not to raise prices of1974 model year cars beyond those already approved by the CLC, unlesseconomic conditions changed drastically.Prices were decontrolled in other industries: cement, for example, whereexpanded capacity was needed and a long lead time is required for construction,and where there was some assurance of moderate price performance.Areas that were decontrolled are still subject to periodic review to makecertain that wage and price behavior remains acceptable and that firms arecomplying with agreements made at the time of decontrol.THE EFFECTIVENESS OF CONTROLSThe most obvious question to ask about the controls program is whetherit has helped to hold down the rate of inflation. As last year's Report noted,the answer to such a question is by no means obvious. A year ago, lookingback at 1972, one could say that the rate of inflation had been lowerduring the controls program than earlier. Yet this was only a superficialanswer. The real question was whether the inflation had been less than itwould have been without the controls. Some argued that the rate of inflationhad been declining before the controls were instituted. A continuation ofthe decline, they said, did not indicate the effectiveness of the controls butrather their ineffectiveness. This view was also superficial, because no onecould be sure that the inflation rate would have continued to decline withoutthe controls.Last year's Report concluded that the controls had probably restrainedinflation up to the end of 1972. The fact of the controls, plus their initialsuccess, had reduced inflationary expectations, held down total spending,restrained the tendency to boost wages and prices, and permitted outputto rise more rapidly than it would otherwise have done. This interpretationseemed at least to accord with the facts of 1971 and 1972.The facts of 1973 are, of course, quite different. Price increases for rawcommodities were extremely rapid. Farm prices rose at their fastest ratesince 1917 and resulted in retail food price increases that accounted for 51percent of the rise in the CPI during 1973. Another 11 percent of the risein the index was accounted for by higher prices of energy purchased directlyby consumers. The large rise in industrial materials prices also contributedto the rise in retail prices. As a result the rate of inflation did not diminishbut increased; it outstripped the rate of the earlier period of controls as wellas the rate of earlier periods without controls. But again one should askwhat would have happened without controls in 1973? Would prices haverisen even more than they actually did?The answer will never be known with certainty. Still it is more difficult in1973 than in 1972 to believe that controls have had a significant effect inreducing the rate of inflation. The reason is not simply that the inflation rate99

was more than twice as high in 1973. It is partly that the scenarios onwhich it is usually argued that a controls system might restrain inflationdo not seem plausible for 1973. Two different theories of controls mightbe envisioned.1. Equilibrium system. The controls might either so restrain demand orincrease output as to bring demand and supply into balance at a lower pricelevel than would otherwise have prevailed. On the demand side, this mightoccur as a result of dampening inflationary expectations. On the supply side,because they know that controls preclude paying higher wages and charginghigher prices, businesses may try to employ more workers and producemore than they would if wages and prices were uncontrolled and theycould achieve larger profits by producing less. Workers may accept thecontrolled wage and be willing to work at it, even though they wouldnot have been willing to work at it if they had been free to bargain formore.2. Disequilibrium system. This course would imply that programs of controlcreate shortages because at controlled prices, below market-clearingequilibrium prices, buyers want more than producers are willing to supply.The controls system was not designed to create or deal with a shortagesituation. From the beginning of 1973, and indeed throughout most of 1972,about half the prices and wages in the economy were uncontrolled, includingfarm prices, import and export prices, prices and wages in small business,and wages below $2.75 per hour (below $3.50 per hour after May 1,1973). If controls held down prices and created shortages in controlledsectors, so that people could not spend money there, abundant opportunitiesexisted for spending money in the uncontrolled sectors, where prices couldrise. Moreover, and this is most important, many of the controlled sectorseither processed or distributed products from the uncontrolled sectors. Thecontrolled prices were margins over the uncontrolled prices. If the marginswere held down enough to create a "shortage," which producers tried to fill,their action would pull up the prices of the uncontrolled materials and raisethe final price until there was no shortage. This appears to have happenedin the food sector during the first half of 1973 and may have contributedto the price increases for imported crude nonfood commodities.In any case, the machinery of the system was not prepared to withstandacute shortages. That is, there was no enforcement apparatus capable ofresisting the price pressures that widespread shortages would have created.Instead, the policy tried to correct shortages, either by expanding supply,or in acute cases by allowing prices to rise.There were, of course, some shortages; but at the consumer level theywere not very evident except temporarily with meat, and at the end of theyear with gasoline and fuel oil. They did not cast serious doubt on the propositionthat consumer prices were high enough to clear the market; in otherwords, people who wanted to buy things at those prices could find them.If the proposition is true, then whether controls restrained the rate of inflationboils dow r n to whether it can be demonstrated that they either re-100

strained the rate of spending or increased the rate of production. There canbe no doubt that the controls program restrained price increases in manycases. But the question, of course, is whether holding down these pricesserved to hold down prices on the average or only diverted the inflationarypressure from these particular prices to others. This question returns us tothe effect controls may have had on total spending.It is possible that when specific prices were held down—as they clearlywere—consumers did not transfer their spending elsewhere but reducedtheir total spending. This might not show up as higher savings, because thelower expenditures would also mean lower incomes to someone. It mightshow up in a lower ratio of spending and income to the money supply, oreven in a lower money supply, if at a lower price level the Federal Reservefelt less need to permit monetary expansion. However, as Chapter 2 pointedout, spending increased by an exceptionally large amount in 1973. In factthe increase was exceptional, even when the current and preceding behaviorof fiscal and monetary policy is taken into account. Last year was not onein which the rise of spending was inexplicably slow and the controls couldhave provided a plausible explanation for the slowness. On the contrary, ifthe controls were holding down spending, its high rate of increase wouldbe very hard to explain. The route by which controls are sometimes thoughtto hold down spending is through inflationary expectations. If controls makepeople confident that inflation will be moderate, they are less inclined tospend their money. To some extent this happened in 1972. But before longin 1973 people's confidence that the controls would assure price stabilityfell to a low point. Polls give much evidence of this sentiment, as well asof the spreading expectation of more inflation.The supply side of the equation is more uncertain. Controls that heldprices down may also have induced businesses to produce and sell more,since they did not have the alternative of profiting by raising prices. However,the increase of output during 1973 was about the same as the averageannual increase in the past. Employment rose much more than the average;and output per worker, productivity, rose much less than the average. It isimprobable that the controls system did anything to raise productivity. Itseffect is more likely to have been in the other direction. The controls alsoheld down U.S. prices relative to export prices, which were uncontrolled,and they encouraged export of some basic materials which, if used forfurther production in the United States, would have increased output. Toan unknown extent this increment to exports was offset by additional imports,particularly of industrial materials, prices of which were not controlled.So this leaves the question of whether output was increased because thecontrols program contributed to the rise of employment by holding downwage rates; that is, with the given increase in spending there would be, as aresult of controls, more real demand for labor, more employment, more output,and lower prices. But this chain depends on the first link, namely, thatthe controls held down wages. The controls program undoubtedly restrained101

wage increases in many cases, construction wages being an exceptionallyimportant and well-documented instance. But whether they did, in fact, holddown the overall wage level is hard to tell.At the beginning of 1973, the Administration and a few others believedthat the year would be one of only moderate wage increases compared tothose of the recent past. This view was based on the fact that wages hadgained substantially over the cost of living in 1972 and that wages in differentindustries seemed in good balance. When consumer prices began to riserapidly early in 1973, the question arose whether this moderate expectationwould be upset, or whether the controls program would prevent such adevelopment.The wage picture is not clear because the measures of wage rates do notalways agree, and no single ideal measure exists. Wage increases in new unioncontracts were lower in 1973 than in 1972 (Table 25). When fringe benefitsare included, the 1973 contract increases were also lower than those of1972, but not by so wide a margin; fringe benefits rose faster than wages.However, the index of hourly earnings, adjusted for overtime in manufacturingand for interindustry shifts, rose a little more during 1973 thanduring 1972 (Table 21). This index reflects not only new wage decisionsbut also the effects of old decisions and their implementation. It also reflectsthe so-called wage drift as individual workers are reclassified, but itdoes not reflect the relatively more rapid rise of fringe benefits.TABLE 25.—First year wage rate changes in collective bargaining agreements covering 7,000workers or more, 1970—73Percent of workers affectedType of wage rate action iAll industriesManufacturing1970 1971 1972 1973 21970 1971 1972 1973 2All wage actions.100100100100100100100100No wage jncrease..Increase in v ages..1002100Under 1 percent1 and under 2 percent...2 and under 3 percent...3 and under 4 percent...4 and under 5 percent...5 and under 6 percent...6 and under 7 percent...7 and under 8 percent...8 and under 9 percent...9 and under 10 percent..10 percent and overNot specifiedNumber of workers (thousands).4,6753,9782,4245,0042,1848,4169653001,91391313547241022,318Mean adjustment (percent)11.911.67.35.88.110.96.65.9Median adjustment (percent)....10.012.56.65.57.510.16.25.5* Percent of estimated average hourly earnings excluding overtime.2 Preli -inary.3 Less than 0.5 percent.Note.—Detail may not add to total because of rounding.Source: Department of Labor, Bureau of Labor Statistics.102

The most comprehensive measure we have of what it costs an employerto purchase an hour of labor is the estimate of labor compensation perhour. This measure covers not only wages but also fringes, including theemployers' share of social security contributions. Compensation per manhourof employees and the self-employed in the private nonfarm sector ofthe economy rose at a more rapid rate during 1973 than during 1972, 8.0percent in 1973 compared to 7.1 percent in 1972, partly because of thebig increase in social security contributions. This rise in compensationoccurred while the rate of productivity increase was declining, so that unitlabor costs accelerated considerably, from an increase of 2.4 percent during1972 to an increase of 7.1 percent during 1973. Prices, of course, also rosemore rapidly in 1973 than in 1972. Nevertheless, whereas unit labor costs inthe private nonfarm economy rose about as much as nonfarm prices during1972, they rose more than nonfarm prices during 1973. This suggests—but only suggests—that labor compensation was not being held down to anunusual degree, if one considers the factors which affect employers' desire tohire labor, that is, the productivity of labor and the price of the product.Analysis of the probable behavior of wages in relation to a longer list of variables,including the condition of the labor markets, also makes it seemprobable that wages rose as much as might have been expected without controls.If so, one might also conclude that the controls over wages did not raiseemployment and output and so restrain inflation in the demand conditionsof 1973.Despite the uncertainty about whether controls had affected inflation in1973, no uncertainty exists about another and possibly more relevant proposition.The controls did not prevent a rate of inflation which was large comparedto our past history, to the previous year, to our expectations for 1973,and to the goals of the program. This fact need not be interpreted as acriticism of the way the program was designed and managed or as implyinga lack of cooperation by labor or business. It simply means that the situationthe program ran into was more than it could successfully contend with.Effectiveness During Phase IIIThe shift from Phase II to Phase III coincided closely with the accelerationof inflation from its moderate 1972 pace. Phase III was perceived bymany,largely because of the fact that it was self-administered, as a signalthat controls had come to an end. This is reflected in survey findings thatthe sharp rise in consumer spending early in 1973 was partly due to expectationsthat price increases would accelerate. One would naturally likevery much to know whether or not this shift released an inflation which hadbeen kept in check by Phase II, and which could have remained in check ifPhase II had been continued. Table 26 throws light on this question. It classifiesthe items in the consumer price index into three categories: (1) Itemsexempt from control in Phases II and III; (2) items subject to similarregulations in both phases; and (3) items for which the administration ofPhase II rules was substantially relaxed in the transition to Phase III.The increase of the inflation rate between Phases II and III was a little103

TABLE 26.—Behavior of items in consumer price index during Phases II and HI, classified bytype of control applicableRelative importance,December (percentof all items)Percent change,annual rates 1Percent contributionto changeItem and control status1971 1972Phase WNov. 1971toJan. 1973Phase IIIJan. 1973toJune 1973Phase IINov. 1971toJan. 1973Phase IIIJan.1973toJune 1973All items100.0100.03.68.3100100A. Items exempt from Phases II and III 211.311.54.45.5137B. Items subject to similar regulations in PhasesII and III:FoodPublic utilities aMedical care servicesMortgage interest rates22.24.85.63.722.54.85.63.76.54.23.920.32.83.81.83856-1C. Items for which Phase II controls abolishedor made self-administered: *Residential rentsNonfood commoditiesServices5.132.215.25.131.815.13.82.13.34.46.16.25112132213Total A+BTotal CAddendum: C excluding gasoline, motor andfuel oil, and coal47.652.448.848.151.948.44.82.62.611.76.05.16337301 Seasonally adjusted where possible. Major exceptions are property taxes, services, and residential rents.2 Major items are houses, used cars, and State and local taxes and user charges.3 Though the Phase II requirement for certification was dropped in Phase III, the basic regulations continued in force.* Excludes components included in A and B above and does not take into account the small business exemption.Note.—Detail may not add to total because of rounding.Sources: Department of Labor (Bureau of Labor Statistics) and Council of Economic Advisers.greater for the first two categories, for which the rules did not change, thanfor the third category, for which the rules were relaxed. Consequently thefirst two categories contributed a little more to the inflation of Phase IIIthan they did to the inflation of Phase II. Thus, little evidence can be foundthat consumer prices rose exceptionally fast in the areas in which the administrationof controls was relaxed in Phase III.This is also largely the case even with respect to the rapid increases inthe WPI. Agricultural prices were not controlled under Phase II, so the shiftto Phase III presumably had no effect on them. Much of the increase inprices of raw industrial commodities occurred in industries which had profitmargins below their permitted ceilings and, in some important instances,those whose product prices at the beginning of 1973 were below Phase IIceilings. There was considerable room for profit margin expansion in industrieslike steel, primary nonferrous metals, and petroleum. Only a tighteningof Phase II rules could have eliminated this gap; but, given worldwidedemand and the devaluation of the dollar, such tightening might only haveled to a further expansion of exports.* * * * * * *During 1973, in all phases of the controls, there was a marked shift ofrelative prices. Prices of raw agricultural products and of industrial materialsrose very much more than prices of finished goods and services.Undoubtedly this shift would have happened in 1973 without a controls104

program. The worldwide lag in agricultural production, for which demand isquite price inelastic, would have caused a relative rise of agricultural prices.Industrial raw materials prices generally rise relative to the prices of finishedgoods in a boom, and in 1973 the boom affecting the world as a whole wasexceptionally strong. Raw agricultural products were exempt from control,and some industrial raw materials were also exempt because theywere imported. The controls, particularly the profit margin limitation, helddown specific prices and may have compressed the prices representing thevalue added in processing and distribution, thereby diverting demand tothe uncontrolled commodities. (Chart 6 shows changes in the relationshipbetween materials prices and those of finished goods at the wholesale andretail level.) Extension of controls to these uncontrolled items would havemeant more exports, less farm output, lower imports of industrial rawmaterials, less total output, and if not higher prices, at least more shortages.One of the most constructive aspects of the Economic Stabilization Program,and one of the most valuable effects of the effort to control pricesdirectly, was that it led the Federal Government to redouble its efforts to findways of increasing supplies in many areas (Table 24). As prices skyrocketedin many sectors—chiefly food, but also lumber and other basicmaterials—and it became apparent that price controls would be ineffective,if not harmful, attention turned to dealing with the real problem, whichwas inadequacy of supply. In many cases it was discovered that the FederalGovernment was itself partly responsible for the limitation of supply.The leading example is agriculture. The President, concerned with shortsupplies and rising prices, has brought about a dramatic change in agriculturalpolicy during the past 2 years. The results have been striking: theelimination of many restrictions on agricultural production in the UnitedStates; a greater willingness to receive agricultural imports; removal of thesubsidies to agricultural exports; and reductions of Government-ownedstockpiles of farm products. These changes, more than anything that wasdone or could be done with direct price controls, are the Government's effectivecontribution to more stable food prices. Less spectacular, but stillimportant, steps were taken to increase lumber production from the nationalforests and to sell excess Government stockpiles of industrial raw materials.In any appraisal of the part the controls program played in checkinginflation up to the end of 1973 or subsequently, one of the most obviousbenefits must be the mobilized effort to increase supply and remove Government-imposedimpediments to supply.FAIRNESS OF CONTROLSA major challenge in the development and administration of controls isthe assurance of equity. Whenever the Government has as strong a handin the distribution of real incomes as it does in a price-wage controls program,many will complain of unfairness. It is rare for anyone to think thathe has received his just deserts, and this is especially true where Government105

Chart 6Changes in RelatedWholesale and Consumer PricesPERCENT CHANGE DURING PERIOD30V/X WPI CRUDE AND INTERMEDIATE MATERIALS EXCLUDING FOODS|§ WPI CONSUMER FINISHED GOODS EXCLUDING FOODS• CPI NONFOOD COMMODITIES20101961 TO 1970AVERAGE1971 1972 197340WPI FARM PRODUCTSWPI CONSUMER FINISHED FOODSCPI FOOD3020101961 TO 1970AVERAGE1971 1972 1973*RISE EXAGGERATED BY INCREASE IN REFINED PETROLEUM PRODUCTS PRICES, WHICH ARE BASED ON SPOTMARKET QUOTATIONS NOT REPRESENTATIVE OF TOTAL MARKET IN 1973.SOURCES: DEPARTMENT OF LABOR AND COUNCIL OF ECONOMIC ADVISERS.106

is concerned. Some may very well have been adversely affected by controls,just as others may suffer from the implementation of various other policies.There is no strong objective evidence, however, that the controls operatedin a biased manner in 1973.As should be clear from the preceding discussion, the effect of the controlson relative incomes or relative prices is hard to define. We know what happenedduring the year but not how much of it was due to the controls.Several developments in the distribution of income are relevant to the issueof fairness in the economy's performance during 1973. Since controls firstwent into effect, the share of national income produced in the private sectorand going to workers employed there has declined slightly, edging downfrom 70.6 percent in the second quarter of 1971 to 70.3 percent in the thirdquarter of 1973. Almost all of this decrease occurred during 1973 and wasoffset by a rise in the profit share of national income and the income offarm proprietors.The implication of the relatively unchanged labor share during 1973 isthat if workers bought a bundle of goods and services consisting only of thosethey produced—excluding imports, of course—and weighted in the sameproportion as this output, they would have continued to command the sameshare of national output as they had done previously. And since output grewduring the year, even on a per man-hour basis, an unchanged labor sharemeans that workers, before tax changes in 1973, received more goods perhour of work.The most dramatic event in the distribution of income in 1973 was theextraordinary rise of farm income. In the year ending in the third quarterof 1973 the income of farm proprietors increased by 37 percent, whereasthe total national income rose by 12 percent. Net income per farm rose 39percent, 24 percent in constant dollars. The large rise placed farm proprietorsin a favorable position despite controls imposed on meat prices on March29. Cash receipts from livestock products rose to record highs, but rises inproduction costs offset a major part of the increase. Nevertheless the higherreceipts from farm marketings led to record incomes and an improvedrelative position for farm families.EFFECT OF CONTROLS ON COMPONENTS OF OUTPUTThroughout 1973 considerable attention was drawn to shortages of goods,particularly in the manufacturing sector of the economy. Purchasing agents'reports that they could not obtain materials became widespread. Highdemand throughout the economy was the reason most frequently cited forsuch shortages. In some cases shortages also arose from a diversion of domesticallyproduced supply to export markets, particularly for such materials aschemicals, metals, and lumber. Many shortages—of fertilizers and petrochemicals,for example—were traceable to the limited supply of crude oil107

and natural gas. A complex set of factors can be blamed for this situation;the controls program intensified the problem but was not the only cause.Except for meat and petroleum products, shortages of industrial materialsdid not carry over noticeably to consumer markets. One reason is that firmswere able to substitute to some extent more plentiful materials for scarceones in the production process, especially in finished durable goods and inthe use of packaging materials. Inventories also helped to offset shortages ofmaterials; inventories of some products would probably have been higherif materials supplies had been greater.Flexibility in the administration of the controls program, enabling administratorsto exempt some markets, decontrol others, and allow exceptionsto the general rules regarding price increases, helped prevent shortagesfrom becoming more pervasive and acute. Attention was also given to casesin which controls, without limiting current output, might discourage the investmentneeded to supply future output. The need to stimulate investmentwas, for example, an important consideration in decontrolling the cementindustry and allowing a price increase by the paper industry.Despite constant reminders by the Administration that it regarded controlsas temporary, there was always the danger that the program mightresult in significant deferral or cancellation of investment plans. Probably thecontrols introduced an element of uncertainty that affected long-run planning.But the CLC did move to decontrol in important instances where itwas shown that controls threatened to limit investment. And many investmentplans with long lead times were undoubtedly undertaken on the likelihoodthat controls would be abolished by the time the new capacity cameon stream.In the agricultural sector the ceilings on meat prices contributed tosubsequent reductions in livestock production. That the controls program tosome extent limited the quantity of output and the investment required toproduce future output is not surprising. Even the anticipation of a controlsprogram can have this effect if producers raise prices, establish new marketingchannels, or divert investment from the United States to other countries.SUMMARYWe repeat what was said at the outset: the effect of the controls programon the rate of inflation in 1973 cannot be known with certainty either todayor ever.Controls could have worked in many ways, and economists' knowledge ofthe quantitative relationships determining prices is not so precise as to ruleout the possibility that inflation might have been even greater in 1973 withoutcontrols. We think it would not have been much greater, however, sincewith the controls the rate of spending was high relative to the money supply,and output was low relative to the labor supply.Still no one can disprove the thesis that the controls had a significant effect,although 1973 makes it a hard thesis to believe. Doubts of this kind should108

come as no surprise. There is much prior evidence that price and wage controlsof the kind tolerated during peacetime in free societies cannot significantlyrestrain inflation under the supply and demand conditions experiencedin 1973.The effectiveness of controls obviously cannot be judged by 1973 alone.The operation of the controls during 1971 and 1972, bringing about a goodbalance in the structure of wages, may have helped to avoid a repetition in1973 of the kind of wage spiral the country was experiencing before August1971. On the other hand, if controls did hold down prices during 1973, thepossibility remains that these prices will catch up in 1974 or later.527-867 O - 74 - 8109

CHAPTER 4Energy and AgricultureFOR THE BASIC RESOURCE INDUSTRIES, 1973 was an unusuallyeventful year. Prices in all major categories of these industries—agriculture,energy, timber, and minerals and metals—rose sharply, even in relationto the rising average level of prices. In some cases additional suppliescould not be obtained even at the higher prices. These conditions reflecteda worldwide state of affairs.The growing scarcity of resources in 1973 was a significant departure fromthe long-term trend. Since World War II prices of basic resources have increasedmuch less than prices generally. Wholesale prices of crude materials,for instance, increased only 13.6 percent from 1947 to 1971, compared to a53.4 percent increase in wholesale prices of finished goods. During the sameperiod the consumer price index rose 81.3 percent, and the GNP deflator forthe private economy 78.2 percent. Prices of basic resources thus declined bya considerable amount relative to prices in the entire economy throughoutmost of the postwar period.This downward trend of relative prices began to be reversed in 1972,and in 1973 it changed significantly. Some have interpreted this reversalas an early indication that along with the rest of the world we are enteringa new era of increased scarcity of basic resources, during which prices forthese materials will rise faster than prices for other products. Others haveattributed the reversal to the coincidence of essentially temporary factors.Neither generalization can be conclusively supported at this time.With the exception of energy, basic resource demands and prices tend toexhibit strong fluctuations. The demand for timber rises when housingconstruction accelerates, and housing construction is highly cyclical. The demandfor minerals and metals is tied closely to the cycle of economicactivity, and the agricultural sector is influenced heavily by weather conditionsand its own production cycles. Thus the unusual price pressures onbasic resources in 1973 are to a significant extent explained by an exceptionalcombination of economic fluctuations that impinged upon all basicresource industries in the context of high total demand and output.The reduction in oil exports by several Arab nations focused attentionupon a severe shortage of energy resources. But in recent years the marketdemand for energy has been growing faster than our capacity to produce110

it at the existing price. While the oil cutbacks created obvious new shorttermproblems for the economy, they also precipitated what was emergingas a serious long-run problem.It would be naive to assume that so fundamental a question as whetheror not we are entering a new era of scarcity for basic resources can beanswered adequately on the basis of the limited information now available.The question is nevertheless important for the following reasons.1. Basic resource industries utilize many minerals and metals that ultimatelywill be exhausted. Because the opportunities to correct faultypublic policy and private decisions affecting exhaustible resourcesare also limited, a high value to society accrues from accurate informationon future demands and supplies.2. Public policy has played a particularly important role in the evolutionof basic resource industries. Specific policies in varying degreesinhibited the capacity for adaptability that is inherent in the operationof the market system. During periods of sudden and substantialchange in world patterns of production and demand, these industriesmay therefore experience particularly difficult problems of adjustment.3. Most basic resource industries involve commodities that are tradedvery extensively in international markets. The volatility of thesemarkets, the commonly strong cyclical nature of the domestic industry,and the rapidly expanding consumption in foreign countriescan combine in such a way as to create significant political andeconomic tensions between nations. As international markets expandand nations become more economically interdependent, such tensionscould become more serious.4. The production processes in many basic resource industries interactwith the environment in an important and complex way that hasin the past resulted in abuse of the environment. Public policy toprotect the environment in turn interacts with—and in an ultimatesense may well determine—the appropriate public policy towardbasic resource industries.The following sections of this chapter seek to separate the enduring fromthe transitory factors that shape the Nation's energy and agricultural industries.This is a risky business. In the past the initial stages of new trendshave often been dismissed by wise men as unusual, even unique, events; andmany an authoritative forecast of an imminent new trend has proved to bebased upon random episodes.ENERGYEnergy prices have been generally lower in the United States than inother developed countries. Abundant supplies of coal, petroleum, and natu-111

al gas have contributed to the low market prices of these fuels. This situationcoupled with relatively plentiful capital, and advanced technology, permittedrapid growth in conversion of fossil fuels to electric power. In addition, agenerous depletion allowance and low excise tax rates have helped keepdown consumer prices of energy.Low prices and a high rate of economic growth have encourageddomestic consumption of energy to expand. From 1950 to 1972 U.S. grossconsumption of energy increased at an annual rate of 3.5 percent (Table27). In 1972 the United States consumed about one-third of the world'sproduction of energy. Tables 28 and 29 show the distribution of U.S.energy use by sector and by source. Americans have often been accusedof wasting energy, but the low prices prevailing until 1973 provided littlereason to economize in its use. Because the price of labor was rising relativeto the prices of capital and energy, it paid, both in industry and in the home,to substitute capital and energy for labor.TABLE 27 —Gross consumption of energy in natural units, selected years, 1950—72YearTotal(quadrillionsof Btu's)Natural gas(trillions ofcubic feet)Petroleum *(millions ofbarrels perday)Coal 2(millions oftons)Hydropower(billions ofkilowatthours)Nuclear power(billions ofkilowatthours)19501960197034.044.667.45.9412.2721.376.529.8914.704943985251031542530.0.521.81972372.322.4316.4152628254.01 Includes petroleum products refined and processed from crude oil, including still gas, liquefied refining gas, andnatural gas liquids.2 Includes anthracite, bituminous, and lignite coals.3 Preliminary.Note.—Data relate to annual totals unless indicated otherwise.Source: Department of the Interior, Bureau of Mines.TABLE 28.—Consumption of energy, by user sector and source, 1972[Quadrillions of Btu's]Consumption of energy 1SourceTotalIndustrialTransportationHouseholdandcommercialTotal consumption..PetroleumsNatural gasCoaMElectric power..59.629.819.04.86.023.25.810.64.42.518.118.317.36.7.8 7.6.43.51 Preliminary.2 Includes petroleum products refined and processed from crude oil, including still gas, liquefied refining gas, andnatural gas liquids.3 Includes anthracite, bituminous, and lignite coals.4 Less than 0.05 quadrillions.Note.—While in 1972,18.6 quadrillion Btu's were used for generating electricity, the electricity so generated representedonly 6.0 quadrillion Btu's. This accounts for the difference between 72.3 quadrillion Btu's of gross energy consumptionin Table 27 and 59.6 quadrillion Btu's of consumption by user sector.Detail may not add to totals because of rounding.Source: Department of the Interior, Bureau of Mines.112

TABLE 29.—Use of energy inputs for electric power, 1972[Quadrillions of Btu's]Energy inputTotal uses iTotal usesPetroleumNatural gasCoalHydropowerNuclear power18.63.14.17.83.0.6i Preliminary.Source: Department of the Interior, Bureau of Mines.Wholesale energy prices in the United States were quite stable, relative toother wholesale prices, during the 1960's. But toward the close of the decadethe price of coal began to move upward, and in 1973 petroleum prices increasedsharply (Table 30). Consumer prices of energy actually were decliningfrom 1960 to 1972, relative to other consumer prices. For instance, therelative price of gasoline and motor oil fell 17.2 percent between 1960 and1972 but began to increase steeply near the end of 1973 (Chart 7).Chart 7Consumer Prices of Gasolineand Motor Oil1967=100130120—-ANNUALLYMONTHLY/ri110GASOLINE AND MOTOR OIL PRICES- RELATIVE TOV ALL CONSUMER PRICES (CPI) ^^^-"^"-1009080--—s "' \ N. A/GASOLINE AND MOTOR^^*OIL PRICES (CPI)I I I I I I I I I 1 I I I 1 1 111111111111957 59 61 63 65 67 69 71 1973/SOURCE: DEPARTMENT OF LABOR.113

TABLE 30*—Wholesale prices, all industrial commodities and selected fuels, selected periods, 1950-73[1967=100]PeriodsAllindustrialcommoditiesCoalCrudepetroleumGas fuelsElectricpower195019601970 .78.095.3110.083.395.6150.383.298.6106.10) 87.2103.60) 101.2105.91972 _1973117.9127.0193.8218.1113.8126.0114.1126.7121.5129.3December:19721973119.4137.1205.5240.7114.7146.2119.2137.6122.9135.9* Not available.Source: Department of Labor, Bureau of Labor Statistics.During 1973 the United States also experienced threats of shortages ofpetroleum and natural gas, and in some areas of the country electric powerbrownouts and blackouts. Shortages of petroleum intensified late in the year,following an October decision by several Arab nations to cut back crudeoil production and to curtail shipments to the United States. By the end of1973 our once abundant and secure energy supplies seemed to be seriouslythreatened; and what appeared earlier in the year as a problem turnedinto a crisis. To conserve scarce petroleum, a variety of restrictions previouslyunknown to peacetime America had to be adopted. They focusedattention on the dependence of the economy on energy, the importance thatoil imports have assumed, and the vulnerability of the economy to arbitraryacts by foreign states.The energy crisis has its roots in events dating back a decade or more.To understand the present situation, it is necessary to examine the factorsthat have influenced energy supply and use in the United States.Natural GasSince 1954 the Federal Power Commission (FPC) has regulated thewellhead price of all natural gas sold to interstate pipeline companies. TheFPC maintained prices at approximately the same level throughout the1960's. In response to increased exploration costs and constant prices, producerscut back on exploration, so that the ratio of reserves to annual productiondeclined rapidly from over 20 in 1960 to 10.5 in 1972. At the sametime, the use of natural gas was expanding rapidly. With a growing gap betweenproduction and desired consumption, producers called for deregulationto permit higher prices and to stimulate exploration.Beginning in 1969, the regulated price was permitted to rise. The naturalgas shortage continued to intensify, however, as demand received an additionalstimulus from environmental limitations imposed on the use of highsulfurcoal and high-sulfur oil. The FPC estimated that in 1973 the shortagereached 7 to 10 percent of demand at the prevailing price. To restrict con-114

sumption to available supplies, the industry has been forced to curtail deliveriesunder both firm and interruptible contracts. In addition, many gasdistributors have been unable to add new customers. Recently, arrangementswere made to import liquefied natural gas (LNG) at a price several timesthe domestic price for natural gas. Because the gas price has been maintainedbelow the market-clearing level, a heavier burden has been placed on otherfuels, mainly oil.PetroleumIn 1959 the Mandatory Oil Import Program was adopted to limit dependenceupon foreign sources of supply. This program was partly a response tothe curtailment of Middle East oil exports during the Suez Crisis of 1956.Under the program, quotas were imposed on imports of oil, especially crudeoil. These quotas increased the profitability of domestic production and ledto additional drilling. The major oil-producing States had earlier establisheda maximum efficient rate of recovery (MER) for oil fields, and had limitedproduction to some percentage of MER. This prorationing, together withimport quotas, served to support the domestic price above the price of imports.In addition, prorationing resulted in excess capacity in crude oil production,in the form of production below MER.After 1960 the only major new discoveries of petroleum in the UnitedStates were on the North Slope of Alaska and on the Outer ContinentalShelf. In the "lower 48" States, the ratio of proved reserves of crude oil toannual production declined throughout the 1960's. Excess crude oil productioncapacity also declined as allowable rates of recovery were raised by theState regulatory agencies. This permitted output to increase rapidly duringthe 1960's. But after 1969 the increases in production failed to keep pacewith the growing domestic demand. As an alternative to raising the supportedprice which would have stimulated domestic production and restraineddemand, exceptions were made to the existing quotas, to permit agreater level of petroleum imports. Finally, in April 1973, the system of importquotas was abandoned altogether in favor of a flexible import fee. Thisfee is currently set at a low level to encourage importation.Beginning in the late 1960's, the expansion of domestic refinery capacityfailed to keep up with the growing demand for oil products. Frequent exceptionsto oil import quotas and the continuing review of the MandatoryOil Import Program gave rise to uncertainties about whether future policywould encourage importation of crude oil or of refined products. In theface of this uncertainty few new domestic refineries were built. In some casesdomestic refinery construction may also have been discouraged by the difficultyof finding a site that would not arouse community objections for environmentaland other reasons. In addition, the income tax credit to companiesfor income taxes paid to foreign governments may have increased theincentive to build refineries outside the United States.The use of petroleum products in the United States increased by 66 percentfrom 1960 to 1972. Much of this increase occurred in the transporta-115

tion sector, which in 1972 accounted for 53 percent of the Nation's totalpetroleum use. A low excise tax has made the retail price of gasoline lowerin the United States than in most other developed countries. The low gasolineprice and a rapid growth in incomes have contributed to large increasesin the number of motor vehicles on the road and in the total mileage driven,and thus to the rapidly growing demand for gasoline. Gasoline consumptionhas also been increased by the trend toward heavier automobiles with airconditioners and automatic transmissions, and by the use of emissions controldevices. This expansion in demand for petroleum products was underestimated,as was the need for additional refinery capacity to meet that demand,with the result that the United States became heavily dependent onimports of refined products.Imports of crude oil and refined products rose from 22 percent of domesticconsumption in 1969 to 36 percent in 1973, prior to the embargo. For thefirst 9 months of 1973 the U.S. share of total world oil imports amounted to19 percent. This increased U.S. dependence on imports coincided with, andprobably contributed to, a general tightening of the world petroleum market.In the mid-1960's the governments of the oil-exporting countries graduallybegan to assume a greater measure of control over crude oil production andpricing decisions. The Organization of Petroleum Exporting Countries(OPEC), which was formed in 1960, began to function effectively as acartel in the 1970's. Excess capacity in crude oil production had begun todisappear in the United States, Canada, and Venezuela, thereby strengtheningthe market power of the Middle Eastern nations. This market powerwas further increased by the rapid growth in demand for petroleum. Forexample, from 1960 to 1972, oil consumption grew at an annual rate of 11.0percent in Western Europe and 17.4 percent in Japan. When it became apparentthat the United States would also have to expand its oil imports,the exporting countries, working through OPEC, were in a strong positionto raise prices and thus to realize monopoly profits.CoalAlthough coal is our most plentiful energy resource, its use in the UnitedStates has not expanded since 1966. Enactment of the Coal Mine Healthand Safety Act in 1969, together with a host of labor problems, caused alarge rise in the cost of underground mining, and a decline in output. Thereduction in output, together with increased transportation rates, led to therise in the price of coal referred to earlier. The higher price, coupled withthe development of improved equipment, spurred an expansion in surfacemining. But the price rise encouraged many industries and utilities to switchto other fuels. Environmental regulations imposed at both the Federal andState levels prevented the use of high-sulfur coal in some areas and acceleratedthe substitution of other fuels. Because of the unavailability of naturalgas, most of the burden has fallen on oil.116

Electric PowerUntil recently it was widely expected that nuclear power would be amajor factor in meeting the increased demand for electricity in the early1970's, but construction of nuclear reactors has fallen far behind schedule.Technical problems in their design and construction have been partly toblame, but there have also been unexpected delays associated with the sitingof new power plants. To some extent both the construction delays andthe siting delays are attributable to time-consuming litigation resultingfrom increased public concern about nuclear hazards and thermal pollutionof water by these reactors.Meanwhile the demand for electricity has continued to grow rapidly. Sofar the increased demand has been met largely by the use of fossil-fuelpower plants, but in some regions the new construction of these plants hasbeen insufficient to meet demand at existing prices. To some extent thissituation may have come about because the delays in the construction anduse of nuclear reactors were largely unforeseen. There is also evidence thatsome electric utilities underestimated the rate at which demand would rise;the rapid growth in the number of electrical appliances was not fullyanticipated. At present, however, an even more serious problem for the electricutilities than the shortage of power plants is the shortage of naturalgas and residual fuel oil, together with environmental restrictions on the useof coal.THE ENERGY CRISISThe energy crisis originated in a large number of circumstances none ofwhich was sufficient in itself to disrupt the economy seriously. Their convergencein 1972—73, however, touched off a dramatic change in the domesticenergy supply-demand balance.During most of the 1960's the United States retained the capability tobecome rapidly self-sufficient in energy production, but this capabilityquickly disappeared in the last part of the decade. The natural gas price waskept below the market-clearing price, thereby creating a shortage and leadingto an increased demand for oil. The demand for oil was further increasedby environmental restrictions on the use of high-sulfur coal as well as bydelays in the construction of nuclear reactors. Domestic refinery capacity wasunable to meet the rapid expansion in demand for petroleum products.Although the domestic price of crude oil was supported above the price ofimports, the price was not sufficiently high to discourage a rapid growth indemand or to encourage an adequate expansion in domestic production.Preventing a rapidly growing dependence on oil imports would haverequired maintaining a higher domestic price. Because the enormous oil reservesin the Persian Gulf area were expected to be available to us at a verylow price, a decision w r as made to permit exceptions to the limitations onimports of petroleum products rather than allowing further increases in thedomestic crude oil price. Partly because of this increased reliance by the117

United States on oil imports, OPEC could more confidently reduce crudeoil output and raise the price.Near the close of 1973 the Federal Energy Office projected that the reductionof oil imports into the United States during the first quarter of1974 would result in a deficit of 2.7 million barrels per day, or 14 percent oftotal U.S. petroleum consumption. The deficit was projected to increase to17 percent by the fourth quarter if the import curtailment continued. Thisprojection does not adjust for the effects of higher prices on domestic demandand production. In addition, the projection assumes that there will beno leakage in the embargo and no increases in oil imports from countriesnot participating in the embargo. For these reasons, the projected deficitoverstates the amount by which petroleum use must be reduced throughnonprice conservation measures.RECOVERY FROM THE CRISISThe disruption generated by the unexpected reduction of oil imports hasboth a supply and a demand aspect. On the supply side the country hasabundant energy resources for the long run, although at costs that aresubstantially above past levels. But in the short run there are constraints onthe rate at which exploitation of these resources can be accelerated. Someincreased oil and natural gas production can be obtained from existing fields,but large increases require development of new fields. There is a long gestationperiod for new investment in most energy-producing industries. New oiland gas fields do not begin to produce for at least a year and are not fullydeveloped for several years. Pipelines, refineries, and nuclear reactors alltake time to build. As a result the economy has less flexibility to expandenergy production in the short run than over a longer period.There is a comparable short-run inflexibility on the demand side. Mostenergy is used as a production input in conjunction with some item of capitalequipment: for example, in a furnace to produce heat and in an automobileto produce passenger miles. To a large extent equipment design determinesthe energy requirements per unit of output. In some cases thereis scope for reducing energy use per unit of output, but usually only to alimited extent. By increasing load factors in airline flights, for instance, thesame number of passenger miles can be obtained with less jet fuel, althoughthe inconvenience may be greater. In other cases, as in the use of clothesdryers or air conditioners, the energy-output ratio cannot be changed.The Nation's capital stock was built during a period when energy priceswere low and were expected to remain so. In view of the prices that are likelyduring the next few years, much of the capital stock is inappropriatelydesigned. To obtain a major reduction in energy use without a decrease inoutput, we must replace the stock of capital with machines and equipmentthat use energy more efficiently.A distinction should be made, however, between industrial output andhousehold output. The latter refers to the services provided by the use118

of consumer durables. There is considerable scope for conserving energy byreducing household output: for example, lowering thermostat settings anddriving fewer miles. Unlike reductions in industrial output, these measuresgenerate little unemployment, and for this reason they play an importantrole in the Administration's energy conservation program. During 1974,cutting back on energy used in the household will be the best available meansof conserving energy without paying a high price in increased unemploymentor reduced incomes.Pricing PolicyBecause of these inflexibilities with respect to energy production and use,market equilibration of demand and domestic supply in the short run wouldrequire very large price increases, at least for a year or two. Even thoughprice increases would gradually stimulate additional production at highercost, profits would also increase—especially before the additional productionis forthcoming—and this raises problems of equity.If price increases are not allowed, however, there will be insufficient incentivesfor consumers to reduce demand and for producers to expand reservesand output. Substantial excess demand would then result, requiring an extensivesystem of controls, allocations, and rationing. Because of seriousdata limitations, it is impossible to design these measures so as to ensurethat resources are efficiently used. Heavy reliance on such measures is likelyto lead to an inefficient use not simply of energy resources but of all resources,and thus might delay our recovery from the crisis. One has reasontherefore to question the efficacy of such controls for more than a very briefperiod.In addition, holding prices down is likely to create expectations that priceswill rise in the future, thus further discouraging increases in production andsales. Because fossil fuels are exhaustible resources, sales made today are atthe expense of earnings in the future. If the rate of appreciation of the valueof a resource is expected to exceed the rate of return on alternative investments,there is little incentive to sell. A greater return could be earned byholding back production and building up inventories than by immediate sale.It has been argued that the domestic output of natural gas has been helddown during the past few years, partly because of expectations that largeprice increases would be permitted.These considerations argue for letting energy prices rise so that marketswill clear, and for initiating a tax to limit windfall profits. In this way, theprice system is permitted to play an important role in guiding productiondecisions and encouraging consumers to conserve energy.With respect to the price of domestically produced crude oil, a distinctionhas been made between "old oil" and "new oil," the latter referring toall oil produced on a property in excess of output in the same month of1972. To stimulate increases in production, the ceiling price has been removedfrom new oil production. The ceiling price on old oil was raised to$5.25 per barrel late in 1973 to reduce the widening gap between prices119

of old oil and prices of imported and new crude. As required by the Trans-Alaska Pipeline Authorization Act, there is no price ceiling on oil producedfrom stripper wells, that is, those producing less than 10 barrels per day.To limit windfall profits, the President recommended that Congress enactan Emergency Windfall Profits Tax. The proposed measure taxes increasesin crude oil prices at rates graduated up to 85 percent on all sales of domesticcrude oil at prices higher than base prices determined by reference to theDecember 1, 1973 ceiling set by the Cost of Living Council; the same pricewould apply in the case of uncontrolled oil. The tax, which would be phasedout over 5 years, is designed to eliminate significant windfall profits resultingfrom short-term increases in crude oil prices, but to give producers enoughincentive to invest in the expansion of crude oil output in the future.Sound natural gas policy calls for more competitive pricing. The Administrationhas asked Congress to pass legislation deregulating prices on newinterstate natural gas contracts. The Administration's proposal would permitthe price to rise, in stages, toward the long-run, market-clearing level.Prompt steps in this direction are desirable as a means of avoiding thenatural gas shortages that have recently occurred. Deregulating the interstateprice will increase reserves and production and will permit users whodepend on interstate pipelines for supplies to compete with intrastate users.Many electric utilities and industries now buy intrastate gas at a price abovethe regulated interstate rate. When the interstate price rises, more gas willflow in interstate commerce, where in many cases it will substitute for oil.Natural gas would thus be available where the need is most critical. Deregulationwill also result in a greater output of natural gas liquids, a prime feedstockused by the petrochemical industry.Prospects for Increasing Domestic ProductionProduction of petroleum, and of associated natural gas, can be increasedwithin a year by expanding output from existing oil fields. Part of thisincrease will result from the use of secondary and tertiary recovery methods.An additional increase can come from maintaining the production ofstripper wells that would otherwise be abandoned. Some stripper wellscan be reworked to yield a greater rate of flow.In 1973 most wells in the United States were producing at 100 percentof the MER. In most States the law does not permit production in excessof the MER, which is in principle the maximum rate at which oil canbe extracted without seriously reducing the total amount of the resourcethat can ultimately be recovered from the field. But the MER is an imprecisefigure. In many instances total output would be reduced by onlya small amount if production went beyond the MER for 2 or 3 years.Moreover the MER should reflect economic as well as technologicalfactors. The economically efficient rate of production is a function of marketprices, both present and future. An increase in the value of oil today,relative to the expected future value, should lead to a more rapid rate of120

ecovery today. In some cases, therefore, it would be in the national interestto adjust the MER's upward.Progressively larger increases in the production of petroleum and associatednatural gas can be expected after 1974. Increases in the price paid forthe so-called new oil will stimulate exploration, mainly offshore, and an expansionin production. It is likely that offshore production of crude oil willbegin to rise by 1976. The Prudhoe Bay fields in Alaska are expected to beginproducing by 1977 or 1978 and to yield up to 2 million barrels of oil per dayby 1980, to be delivered via the new trans-Alaska pipeline, which receivedfinal congressional authorization in December 1973. It is expected thatanother pipeline will be completed by 1980 to ship associated natural gasfrom the Prudhoe Bay fields to the "lower 48" States. In addition, majornew refinery construction and expansion plans have been announced.In 1973, natural gas exploration increased sharply in response to increasesin the wellhead price and a stepped-up rate of offshore leasing. The annualtotal of gas well completions in that year surpassed by 15 to 25 percent theall-time high reached in 1961. This high level of drilling is expected to bemaintained in 1974 and will lead to a build-up of reserves. Production islikely to begin to rise in 1974 and to increase more rapidly in the followingyears, particularly if higher prices are permitted.Energy ConservationHigher producer prices for oil and natural gas will not only stimulateadditional production but also dampen energy use and lead to a shift tocoal in the industrial, commercial, and electric power sectors. An accelerationof the rate of construction of nuclear reactors and coal-fired powerplants might lead to some substitution of electric power for oil and gasin the residential and commercial sectors.Because the real prices of all fuels and electric power will be higher thanin the past, there will be a substitution of other productive inputs for energyinputs, both in industry and in the household. Americans can be expectedto drive cars that are smaller and have more efficient engines; to improvethe insulation in their homes; and to pay greater attention to the energyrequirements of appliances when making a purchase. In some parts ofthe country it will become economic to install solar space-conditioningsystems that substitute energy from the sun for more conventional kinds.There will also be shifts in the composition of output away from energyintensivegoods and services toward those that use less energy.These effects will restore the balance between domestic demand andproduction. The system of controls and allocations that was instituted at theclose of 1973 to deal with the crisis will become increasingly less important,and it will be possible and desirable for energy resources to be allocated principallyby the market system.121

LONG-TERM PROSPECTSThe price of imported oil is now probably far above the long-run cost ofsupplying the entire U.S. market from domestic production. Because ofOPEG's monopoly power, it is possible that the world price will remainabove the long-run domestic cost for some time. The probability of this occurrencewould be significantly increased if the United States were to continueto depend heavily on imports. Even if the world price were to decline,moreover, there would be a risk of a subsequent sudden sharp price rise or acutoff of supply.These prospects argue for an accelerated development of domestic energyresources. The United States has sufficient energy resources to last for centuries,even if demand continues to grow as rapidly as in the past. The Nationhas untapped oil and natural gas resources on the Outer Continental Shelf.Synthetic hydrocarbon liquids and gas can be obtained from our vast shaleand coal resources. Nuclear power may still play the role once expected ofit, and the development of the breeder reactor will greatly expand the powerthat can be ultimately obtained from domestic uranium resources. New technologiesthat are being developed may eventually permit an economic useof geothermal, solar, and fusion power.However, large capital investments are required to expand domesticenergy production. The private sector will be willing to undertake this investmentonly if there is a reasonable assurance that the price will remainsufficiently high to provide an adequate rate of return. As long as domesticproducers face the possibility of a significant decline in their price, thedomestic investment required to expand production will be held back.The risk to the domestic energy industry comes from the very low costof producing oil in many OPEC countries. Although OPEC is now ableto charge a price that is many times the cost of production, there is alwaysthe chance that OPEC countries will lower their prices substantially. Sucha price reduction might result from a deliberate decision by producing countriesto undercut U.S. energy producers, or from a breakdown of the cartel.A decision regarding energy self-sufficiency in petroleum production iscomplicated by the important effect that U.S. policy may have on the priceof oil imports. A U.S. policy oriented toward one price level is likely to helpbring about a different price level and thus make the policy appear costly.A growing dependence on imports, however, involves a potentially highercost than would result from expanded domestic production and also posesa threat to our national security.Project IndependenceIn response to these considerations, in November 1973 the Presidentinaugurated Project Independence, designed to ensure an expansion in domesticenergy production so that the Nation would no longer be subject toeconomic disruption, or the threat of such disruption, from a sudden curtail-122

ment of vital energy supplies. This program include large proposed expendituresfor research and development, which are d' ,cribed below.The choice of policies to bring about the capability for self-sufficiency inenergy production should depend primarily on economic criteria. Becausedomestic energy investment is now inhibited by the risk that the oil-exportingcountries will disrupt the market for political or economic reasons, the policyshould be oriented toward reducing that risk. It is important, however, toensure that the incentives for efficient domestic production will continue,and that any reductions in costs are passed on to consumers. In addition,policy should be designed to permit prices of different sources of energy toreflect differences in quality (or desirability), so that resources will be usedefficiently. This means that, while the Nation needs to be protected fromdependence on unreliable supplies, domestic producers should not be isolatedfrom the normal business risks arising from domestic competition. Policyshould not protect against the risk of a decline in the price because of technicaladvances by other domestic producers; to reduce this risk would encourageinefficient production. There should be adequate incentives fordevelopment of new products, for innovation in production methods, and ingeneral for measures that reduce the social cost of producing energy.One way to achieve the capability for energy self-sufficiency is to provideselective incentives for the introduction of designated new sources of energy,such as shale oil or synthetic gas from coal. For example, the Governmentcould agree to purchase a specified amount of shale oil, over a number ofyears, at a guaranteed price. If the market price is above the support level,there is no need for the Government to act; but if the price falls below thesupport level, the Government would make deficiency payments to producers.Such action would encourage the development and construction ofthe necessary shale oil production facilities, while market forces would determineprices to producers of other types of energy and to energy users. Thisproposal results in lower profits to producers of conventional energy resources,for which no price guarantee is made.A drawback of the proposal is that different energy sources would havedifferent prices, thereby leading to an inefficient resource use. Moreover, theGovernment would be required to determine which new sources of energyto support. There is also a likelihood that production from nonsupportedenergy sources would be discouraged and that the Government could beforced to support an ever-increasing part of the market. For these reasonsmany believe it would be preferable to rely on general market incentivesrather than selective subsidization.It is also important to recognize that the exercise of monopoly power bythe oil-exporting countries has increased the real cost of energy to the UnitedStates. Although Project Independence will reduce energy prices below theprices currently charged for imports of petroleum and liquefied natural gas,the cost of energy is unlikely to return to the pre-1973 levels. It is therefore123

important that the higher costs be reflected in the prices paid by consumers,to ensure that they economize on energy use.Another way to achieve the capability for self-sufficiency is to give domesticenergy producers assurance that import prices would not fall below certainlevels. Variable tariffs could be used to ensure that prices of importedoil and natural gas do not fall below such levels. This would ensure competitionamong domestic producers and would encourage development ofthe lowest-cost domestic sources of energy. The price of all energy sourceswould reflect their value to consumers and would therefore encourageefficient use.An important factor in selecting an appropriate policy is the responsivenessof domestic supply to changes in price. Restricting energy imports mayappear to be an attractive option if it is believed that the long-run domesticprice will be, say, $5 per barrel of crude oil. But if the cost is expected tobe triple that amount, import restrictions appear decidedly less attractive.Role of ImportsAt least until 1980 the United States will continue to depend on oil importsto supplement domestic production. As domestic energy output expands, itwill be possible gradually to reduce this dependence. If imports can be obtainedat a sufficiently low price, however, without posing a threat to ournational security, they can continue to play a role in our long-term energypolicy.The risks associated with petroleum imports could be substantially reducedby means of a storage program. Petroleum could be stored both in salt domesand in the form of oil fields with shut-in production capacity. In the eventof an unexpected curtailment of oil imports, the salt dome storage wouldbe immediately available to offset the loss of foreign supplies; and the shut-incapacity would be available within a few months to supply petroleum untilit is possible to produce from new wells. On the basis of the level of importsand an assessment of the risk of an actual or threatened reduction in foreignsupplies, the Government could determine the appropriate amounts of storageand shut-in capacity.Energy Research and DevelopmentThe principal object of a Federal energy research and developmentprogram is to develop new technologies that permit the productionand use of energy at a lower cost to society, either by reducing the cost(including the environmental cost) of providing a given amount of energyor by reducing the quantity of energy needed to produce a given output ofgoods and services.Until recently, most energy research and development has been conductedby the private sector. There is now a need for the Government to play amore active role, partly because of the long-term nature of many energyresearch and development projects and partly because of the fundamentalnature of much of the research that is needed. There are other reasons. The124

payoff from such projects depends critically on future Government policieswith respect to environmental control, leasing of mineral rights, and importrestrictions. It may therefore be unusually risky for private investors toundertake this research. Many kinds of research and development concerningenergy involve benefits to society as a whole that cannot be fully capturedby the investor, so that it is unprofitable for any one firm to conductthe research. Finally, the interdependence among projects provides a compellingcase for the Government to provide an overview and to coordinateresearch and development in the energy field, though not necessarily toconduct the research itself.There is an additional potential benefit that might result from an energyresearch and development program. By making a coordinated effort todevelop those technologies required to ensure self-sufficiency, the UnitedStates will improve its bargaining power vis-a-vis the oil-exporting countries.In this way a federally coordinated energy research and development programmay play an important role in forcing the world price of oil down tothe competitive level.A major component of Project Independence is a stepped-up program ofenergy research and development. The Administration has recommendedan expenditure of $10 billion over a 5-year period beginning with fiscal1975. This program is principally addressed to the accomplishment of sixtasks:1. Improving the efficiency of energy use and of the conversion of fossilfuels to electric power.2. Increasing the domestic production of petroleum and natural gas.3. Expanding the use of coal.4. Increasing the use of nuclear power.5. Developing renewable energy sources.6. Reducing the environmental effects associated with all stages of energyproduction and use.The Administration's research and development program represents animportant step in moving the economy toward an established capability ofbeing self-sufficient in energy production. However, the program deals onlywith the technological aspect of energy production and use.Energy production is limited not only by the state of current technology,but also by economic incentives. The prospect of higher energy prices willaccelerate the development and application of technological advances bythe private sector. If the private sector is given a larger role in Project Independence,expenditures on research and development will be more closelygeared to those techniques likely to become commercially applicable, thusfurther assuring the success of the program.ENERGY AND ENVIRONMENTAL POLICYThe Nation's urgent need for adequate and dependable supplies of energyhas raised concerns about how efforts to fill the need will affect the goal of527-867 O - 74 - 9125

improving the environment. The fundamental premise of economic policyis that the Nation's total resources must be allocated as efficiently as possible.This concept includes careful allocation of our scarce environmental resources,but it does not follow that environmental policy should be insulatedfrom other problems and policies.In enacting laws to protect environmental quality, Congress was respondingto the strong public demand that environmental resources—clean air,water, and land—should be enjoyed as amenities rather than used asreceptacles to absorb residual wastes of production and consumption. Thenew legislation set environmental standards that would be costly to achieve,but it did so with the presumption that the goals were worth the costs. However,the standards also assumed certain basic cost relationships among theadditional resources devoted to meeting the standards; the energy crisis hasdisrupted these relationships by sharply raising the cost of fuels.As the price of energy increases, environmental policy provisions that callfor significant consumption of energy become more expensive, and energyconservingprovisions become cheaper. If policy adjustments are not made,unnecessary amounts of society's scarce energy resources will be used toattain any given level of environmental quality. Adjustments to avoidsuch waste do not represent a change in the relative importance that eitherthe Government or the public places upon environmental quality. Instead,they are similar to the reduction in consumption that occurs if the price ofany commodity increases significantly while other nonprice influences on theconsumption of that commodity remain unchanged. The appropriate shorttermadjustments indicated in environmental policy because of energy priceincreases have two requirements: First, they must accurately reflect the increasedscarcity of energy expected in the near future; second, they mustnot interfere unnecessarily with appropriate adjustments to the somewhatless intense scarcity of energy likely to prevail in the more distant future.Thus, provisions of environmental policy that save energy become cheaper,and as a result comprehensive efficiency criteria indicate a greater use ofthem. For example, to achieve the air quality standards specified in the GleanAir Act, the Environmental Protection Agency (EPA) has stated that a verysubstantial reduction in the number of vehicle miles traveled (VMT) byautomobiles and lightweight trucks will be necessary in several large urbanareas. This reduced fuel consumption would be desirable both in counteringthe energy crisis and in improving the environment. Since higher energyprices reduce the costs of such VMT reductions, efficiency criteria suggestfaster implementation of this particular environmental policy. In accordancewith this view, the Administration has acted to provide on a priority basisfor substantial funding of mass transit in areas in which air quality willrequire large VMT reductions.The theory of implementation in the Clean Air Act calls for the Statesto formulate plans to achieve the act's air quality standards. The act requiresonly that the more important primary or human health standards be126

met in 1975, but stipulates a "reasonable period of time" for attainment ofthe secondary standards which are intended to protect esthetics and vegetation.However, some States required in their plans that the secondary andprimary standards be reached at the same time, and this became legallybinding under the Clean Air Act. Such advanced timing of the environmentalgoals would require much more low-sulfur coal than is now availabledomestically. It would also seriously constrain the ability of other States toreach the more urgent primary or health standards. Although estimatesvary, the so-called clean fuels deficit is roughly equivalent to one-quarter toone-half of all coal burned in 1970. In States with advanced secondarystandards and in States where the primary standards will not be met, theonly legal course open to coal-burning utilities would be to switch to lowsulfuroil or natural gas. In a period of high prices and short supplies forthese fuels, such substitution is inefficient.The Administration has therefore proposed in the Emergency EnergyAct to give the EPA the authority to postpone attainment of the secondaryair quality standards in States where such action would reduce the cleanfuels deficit. One longer-term danger of this action, however, is that itremoves some of the incentive that users of high-sulfur coal would haveto develop improved emission control technology. A relatively easy wayto restore this incentive, and give it a more efficient form, would be congressionalenactment of the Administration's sulfur emissions tax proposal.This example of the adjustments in enviromental policy that areindicated by higher energy prices is only a postponement of an implementationschedule, not a lowering of standards or other change in the policyitself. As a short-run response to the energy crisis, postponement has twoadvantages over a structural policy change. It entails less risk of obstructingthe realization of long-term goals of environmental policy; and it avoids addingto the uncertainty about these goals which might inhibit the investmentrequired by both energy and environmental needs.Efficient Environmental Policy: The Post-Crisis ChallengeAlthough postponing the implementation of environmental standards ispreferable to revising such standards, one should not conclude that currentstandards are optimal and need no revision. Indeed, the standards—particularly those in the Clean Air Act—should be regarded as interimand provisional targets that reflect the urgency of the Nation's commitmentto environmental protection at the time they were adopted. Thesestandards may become more stringent or less stringent. In any event, they donot yet embody the careful distillation of scientific knowledge that will berequired for the most efficient use of our scarce environmental resources inthe longer run.For example, air quality standards permit only specified concentrationsof a limited number of particular pollutants in the ambient air. But, althoughconcentrations of some pollutants might damage health or create other costsfor some individuals, regulations to limit processes that release particular127

pollutants into the atmosphere will also impose costs upon others. Standardsought to be based on a careful balancing of these risks, costs, and benefits, asthey would be perceived and evaluated by fully informed individuals.Not enough is known, however, about the ways in which activities that resultin the release of pollutants are linked with ambient air quality to permitsuch a balancing, nor is enough known about the effects of various concentrationsof pollutants upon human health. Another consideration is the efficiencyof the means employed to reach optimal environmental standards oncethey are identified. Thus far, legal and administrative regulations and directiveshave been the principal instruments. Administrative capacity and legalenforceability require that these regulations be uniform and relatively simple.At the same time, the activity and organizations they seek to regulate arecomplex and varied. If individuals and enterprises had more discretion andflexibility, specified standards could be attained at a lower cost and withfewer scarce resources. Taxes, emission charges, and user charges are mechanismsthat introduce this flexibility and efficiency into environmentalprotection.AGRICULTUREThe problems and policies of American agriculture since the 1930's havebeen predominantly related to excess productive capacity and the adjustmentof resources to that condition. A related condition was an underlying instabilityin agricultural prices and incomes brought about by variability in foodproduction and foreign demand, and intensified by a slow response byconsumers and producers to changes in prices. Government restrictions onfarm output, which were adopted to deal with the problem of excess capacity,as a by-product also tended to reduce price instability.In 1972 circumstances began to change in agriculture. One reason was asharp rise in the demand from abroad for U.S. farm products. By 1973 thehigher level of exports had eliminated almost all excess capacity, and longstandingrestrictive agricultural policies were modified to encourage all-outproduction. In an important sense the disappearance of chronic excess capacityshould be recorded as a success. With its disappearance, however, thesecond problem, instability, has now taken on more significance.Wide swings in farm and food prices contribute to instability throughoutthe economy. This became especially clear in 1973 when rising food pricesaccelerated the overall inflation rate. Although instability will at times leadto reduced farm prices, there are existing standby measures that cushion thedecline in farm incomes. Comparable measures do not exist at present tomoderate an acceleration in consumer food prices.New conditions now face agriculture. They have raised a new set of issuesthat are discussed in this section.AGRICULTURE: FULLY EMPLOYEDThe stabilization of agricultural markets, especially for grains, was an outgrowthof two related public policies designed to support farm income. There128

was an underutilization of productive capacity in the farming sector, measuredin terms of available cropland, underemployed labor, and underutilizedcapital equipment. In recent years this underutilization was a result of Governmentprograms that provided payments to farmers and concurrently divertedor "set aside" land from production, usually on an annual basis. Sincethe early 1960's about one-sixth of the Nation's cropland was recorded asbeing withheld from production under Government land retirement programs.In addition to withdrawing land from production, farm programscaused sizable stocks of several commodities to be accumulated by the Government.Because of the stockpile program, substantial short-term fluctuationsin either production or demand were largely offset by the accumulationor release of stocks of farm commodities under the various price supportprograms. These policies reduced instability in farm markets over the yearsat considerable cost in both Government budget outlays and intervention bythe Government in the agricultural sector. As experience was gained, legislativeand administrative actions were taken to "fine tune" production and restrictwhat was viewed as excessive accumulation of commodities underGovernment control. By the early 197O's the programs had become veryeffective in controlling total crop acreage to mesh prospective productionwith expected demand. Actual production varied, of course, with yields peracre, which were influenced by weather conditions. Nevertheless, a cleardownward trend in stocks was evident and reflected the direction of Governmentpolicy (Table 31).TABLE 31.—U.S. grain stocks compared to grain utilization, selected periods, 1950—73Marketing yearWheatEnd of marketing year stocks as a percent of totalutilizationRiceFeedgrainsSoybeansAnnual average:1950-541955-591960-641965-691970-73 »52.1102.796.544.445.88.548.114.011.514.624.943.049.428.421.22.99.68.615.19.2197019711972..1973164.248.658.021.718.323.012.45.727.118.925.115.018.77.86.04.6» Preliminary.Source: Department of Agriculture.Disappearance of "Excess Capacity"For years it was fashionable to talk of "excess capacity" in agriculture.The measure most widely referred to was the acres of cropland that wereidled each year by Government programs. That measure seemed to be anadequate approximation, because if more output and hence more landwere demanded the complementary inputs—labor, machinery, fertilizer,and seeds—would also be available to expand production. Several decades129

of research and rapid mechanization had resulted in an abundance of theseother inputs, particularly of labor, because of a continuous flow of worksavingtechnology into agriculture. If more production were needed—morecrops, more livestock, or both—the resources were already on the farms ofthe Nation or could be readily purchased. Only during World War II, whenvast amounts of manpower had been drawn off the farm, was a shortage oflabor apparent. After that period, agriculture experienced a long successionof years with excess land, excess labor, and abundant supplies of purchasedinputs.This situation led to a widespread view that excess capacity was endemic inU.S. agriculture and that it would be large enough to cover almost any potentialshortfall in worJd food production. Given time to expand production,the Nation's farmers could produce more of everything—more grain and soybeans,as well as more meat, milk, and other farm commodities—withoutsubstantial increases in costs or prices.The amount of labor employed in agriculture adjusted downwardthroughout the 1950's and 1960's (Table 32). Without its being generallyrealized, the availability of labor to produce more livestock as well as cropsslowly approached a balance with normal requirements for food production.So long as productivity of manpower in agriculture was growing rapidlyfrom the addition of new capital equipment or other technological innovations,the remaining workers could meet the requirements for larger outputwithout interfering with the continued exodus of workers from the agriculturalsector.TABLE 32.—Change in inputs used in farming, 1950 to 1973Period iCroplandPercent change (annual rate)Farm laborMachineryFertilizer1950 to 19551955 to 19601960 to 19651965 to 19701970 to 19731.-0.8-1.2-1.3.02.8-3.7-4.5-4.2-3.6-.52.9- 21 4.35.94 78.26 92.61969 to 19701970 to 19711971 to 19721972 to 197311.04.1-3.69.5-5.3-1.1-3.44.7-1.02.0-1.02.92.77.1-.83.31 Preliminary.Source: Department of Agriculture.Labor productivity and farm output were moving uniformly upward untilat least the mid-1960's. Then, recent evidence suggests, some of the trendsflattened out. This was especially true in livestock production, which is morelabor intensive than field crop production. The annual rate of increase inlivestock output declined from 1.7 percent for each year in the 1960-65period to 1.6 percent in 1965-70, and to only 0.9 percent annually after 1970(Table 33). The reduced availability of labor placed new restraints on expansionof livestock production. Trade-offs between more crops or more130

TABLE 33.—Production and productivity in agriculture, selected years, 1950 to 1973Percent change (annual rate)1950 to 19551955 to 19601960 to 19651965 to 19701970 to 19731PeriodCropoutput0.92.31.02.04.2LivestockoutputCropoutputper acre2.11.31.71.6.91.33.72.01.82.4Livestockoutput perfeed unit1.3-1.7-.3.1-1.5i Preliminary.Note.—Annual rates of change are based on 3-year centered averages for years shown except for 1973 which is for asingle year.Source: Department of Agriculture.livestock became more significant, although their existence went largelyunnoticed until the burst of additional export demands for farm productsafter mid-1972. When market prices and Government policy encouragedstepped-up farm production, the response was less than expected. Additionalacres were planted, and crop production rose. Meanwhile livestock productiondeclined in aggregate, and the indexes of labor used in agriculture,which have been declining steadily for years, either increased or declinedonly marginally in 1973. These results suggest that some significant changeshad occurred in the structure and excess capacity of American agriculture.The persistent decline in the hours of laoor employed on farms at leasttemporarily bottomed out in the past year. If the long downward laboradjustment is largely over, agriculture will have to provide higher returnsto labor in the future in order to compete with the nonfarm sector forworkers.The growth in productivity of all inputs used in farm production hasshown some slowing, although there is no indication of a plateau. Nor hasthe rate of increase in yields of crops shown a decline. But the productivityof feedstuffs used in livestock production has shown some decline, partlybecause until recently it was economical to substitute feedstuffs for foragesin dairy and beef enterprises. Dairy products and meat are an important partof consumer food budgets and continuous improvement in the efficiency offeed conversion would help to hold down their real cost. For this reasonthere may be a need to review the organization and use of public funds inlivestock research.Expanding Farm ExportsGrowing exports have been the immediate cause of the new pressureson agriculture's productive capacity and have contributed to the shift towardcrop production, particularly since mid-1972. For years the United Stateshas nurtured foreign markets for food and fiber with Government supportedexport promotion efforts. A few months before the burst of worlddemand for U.S. agricultural products, projections had suggested that arecord $10 billion of exports could be achieved by 1980, up from $8.0 bil-131

lion in fiscal 1972. Actually the accelerated foreign purchases since mid-1972 caused agricultural exports to reach $12.9 billion in fiscal 1973 and$17.5 billion in calendar 1973. About 60 percent of the increase in fiscal1973 was caused by increased volume; the remainder came from higherprices.Causes of export growth. An important question is whether the increaseddemand for exports is traceable to abnormally poor weather conditions inother countries or a longer-term rise in world demand. Both of these havecontributed to export demand in the 1972-73 period. Poor crop harvestsduring 1972 in many countries were certainly a major factor: world grainproduction fell 2.7 percent below the previous year.However, there are two reasons to believe that U.S. exports have movedto a higher plateau. First, the demand for red meat and poultry in WesternEurope and Japan has been expanding as incomes improved. Thesharp economic expansion of 1972-73 combined with the depreciation ofthe dollar to augment this basic trend in 1973. In fiscal 1973, Japan andWestern Europe accounted for about one-half of the growth in exportvolume.The second factor has been growing markets in the Soviet Union, thePeople's Republic of China, and Eastern European countries. The key hereis primarily how much these countries import in total, not how much theybuy from the United States. The initial U.S. sales of grains to the U.S.S.R.in mid-1972 were caused partly by very poor Soviet crops, but they alsostemmed from an earlier Soviet policy decision to improve consumers' diets.Implementation of the decision will mean higher Soviet grain imports, onaverage, in the future. Their grain purchases in 1972-73 together withChinese purchases accounted for about a third of the increased export volumeof U.S. grain in fiscal 1973. Even if such purchases are smaller in thefuture, they can be significant in maintaining exports at high levels.Domestic market complications. Isolated from domestic food markets,the record on farm exports is impressive. However, the greatly expandedexports have had significant implications for domestic food markets. Whenmore feedstuffs are shipped abroad, the result is increased competitionand higher prices for the remaining supplies. This became clear in 1973as the production of livestock products failed to respond to sharply higherlivestock prices. The very large exports of feed grains and oilseeds raised thecosts of livestock production, thus reducing incentives to producers.The problem was highlighted in 1973 when the contracted supplies ofsoybeans for export were thought to have exceeded the amount that wouldbe available after domestic demands were met. This finding led to a temporaryembargo and a later licensing of exports of soybeans (and relatedproducts) for the months of July through September. After harvesting oflarge crops began in the fall months, all restrictions on exports were removed,although a newly instituted reporting system on forward export sales wascontinued under new farm legislation passed in 1973.132

The controls on soybean exports seemed justified by special circumstanceswhich made domestic processors and livestock producers unable to pay worldprices for the available supplies of soybean products. The ceiling prices onred meats in March, the later freeze on all food prices in June, and the risingcosts of feedstuff's combined to place producers in a severe profit squeeze. Asa result, they cut back their production plans and began to slaughter breedinganimals, a response that could have seriously reduced food supplies formany months and even years if it had continued. However, the export controlsraised serious conflicts among a variety of national objectives. Removalof meat price ceilings and the earlier termination of all special efforts toexpand exports gave domestic and foreign buyers equal access to U.S. suppliesof feedstuff's and food commodities, thereby reducing the necessity ofexport controls.* * * * * * *The recent shifts in resource use and output mix in agriculture have occurredin response to increased worldwide demands for agricultural productsand tighter domestic supplies of farm resources. These changes havebrought an end, at least temporarily, to the chronic excess capacity in agriculture.Exports have expanded swiftly, so much that large carryover stocksof grain commodities have been depleted. With supplies of feedstuffs forlivestock extremely tight, livestock production has stopped expanding. Cropand livestock production are now competing more directly for the Nation'sfarm resources. Over the last year, extensive adjustments have occurred inagriculture in response to changing price relationships and sharply risingprices. Tightened markets for food have brought a new awareness of manyinterrelationships that could be safely ignored during periods of surplusesand have made policy decisions relating to food and agriculture morecomplex.AGRICULTURAL POLICY FOR THE FUTURESignificant progress has been made in the past decade toward less Governmentintervention in and control of farm production. The agriculturalacts passed in 1965 and 1970 moved the Government out of mandatory controlprograms for major farm commodities and provided a more flexible andeffective means of controlling farm output. Another significant step towardmaking farm legislation more market oriented was taken when Congresspassed the Agriculture and Consumer Protection Act of 1973, whose principalinnovation is a system of target prices for wheat, feed grains, andcotton. When market prices are above the targets, no Government "deficiencypayments" are made to farmers and the Government has little involvementin agriculture. In years when market prices fall below the targetprices, Government payments to farmers make up the difference betweentarget and market prices on base production. The Government also placesa floor under market prices by being ready to purchase crops from farmersat relatively low prices. Farmers are thereby assured in two ways of at least133

a minimum income. Unless prices fall so low that the Government begins toaccumulate inventories of commodities, however, its role is limited to makingdeficiency payments when they are required.With this change in basic farm programs, market prices assume moreimportance in guiding resources into production. Market prices will also havegreater importance in allocating U.S. agricultural products among competingbuyers. The intensity of market competition is likely to be much greaterin the coming year than was true under the surplus conditions of the past.The Need for Improved InformationThe 1973 act is particularly well suited to current conditions in agriculture.It permits the market to signal to farmers what priorities domesticand foreign purchasers are placing on various commodities and products.The act allows, and indeed mandates, the Government to provide marketinformation to the private sector, so that decisions will be based upon thefullest possible knowledge about trends in market conditions. In fact, theproduction period for both crop and animal production is so long thatcurrent prices may be a misleading guide to the most profitable futureoperations. Under these conditions, advance information is especiallynecessary for efficient farm production.Export demand is one important area in which a deficiency of informationbecame apparent in 1973. The Administration has taken a number ofsteps to improve the flow of current economic intelligence regarding worldwideagricultural developments through consultations with other countries.Among other actions, it initiated a World Food Conference to be held in1974 under the auspices of the United Nations. A bilateral agreement hasbeen signed with the U.S.S.R. that will make possible more accurate forecastsof worldwide production and demand. The agreements between the UnitedStates and the Soviet Union will facilitate more prompt exchange of informationon crop and livestock production. In June the Department of Commerceinitiated a reporting system for forward export sales of major agriculturalproducts. The new farm legislation later made this a permanentsystem under the administration of the Department of Agriculture.Steps also have been initiated to improve domestic farm and food forecastingand planning. The Department of Agriculture has requested, andthe 1975 budget will contain, increased funds to strengthen its informationand analysis services to the rest of the Government and the private sector.The need and scope for such activities were less as long as agricultural reservesexisted in the form of stockpiles or idle acres. Under today's conditions,it is essential to give high priority to this aspect of the Government'swork.Government Food StockpilesOne very important issue has emerged in 1973 and remains unresolved:What policy should the Government pursue on grain stockpiles? In thepast two purposes have been served by such stocks: as "operating stocks"134

which the private sector needs if it is to function normally, ai. ' thus wouldelect to hold; and as "contingency reserves" over and above normal operatingrequirements to cover variations in production or demand.As discussed above. Government policies were directed toward and succeededin gradually reducing grain stocks in recent years. In earlier years,a substantial fraction of stocks had been held by the Government; but virtuallyall of these were released in 1973, and total stocks reached the lowestlevel since 1953. Stocks of wheat, in particular, are only adequate to providefor normal operating inventories this year; contingency reserves are nonexistentboth in the United States and in the world.The unusually low grain reserves mean that the world is at presentmore vulnerable to poor harvests than it has been for some time. But stockpilingobviously cannot begin until world production levels have been builtup. Otherwise, such a step would cause already high prices to escalate further,or necessitate a system of nonmarket allocations. Once a more normalsupply-demand food balance is restored, which should begin to occur in1974-75, stocks can be accumulated again. In the past the world has soughtprotection against crop failure by relying upon stocks held principally by theUnited States and Canada. Although this arrangement has worked, thecurrent supply-demand conditions provide an opportunity to improve onthe system. The Administration is exploring several approaches which,through cooperative action, could improve supply stability:1. As a minimum, improved worldwide information flows are necessaryto signal a tightening of supply-demand conditions as promptly aspossible. Producers and consumers will then have the best opportunityto react to higher market prices.2. Beyond that, multiyear forward sales contracts negotiated either privatelyor by governments could be used to provide more supply stability.Events of 1973 have encouraged importing countries and exportingfirms to seek commitments looking farther into the future.These contracts can contribute to greater stability because they providevaluable information on prospective export demand to supplyingcountries and because production can thus be planned to meet contractsales.3. A broader approach has been put forth by the Food and AgricultureOrganization of the United Nations. It would seek to establish stockpilingguidelines that participating countries would follow in developingtheir national policies. The system would be voluntary; but tothe extent that the guidelines were appropriately set and complied withthis approach could increase supply stability.4. A more rigorous approach would be to establish an essentially autonomousinternational agency having the resources to operate a bufferstock. Such schemes take various forms. They all present common problems,however, with regard to control, financing, and interference withdesirable market activity.135

The Administration supports the examination of multilateral approachesto the stockpile issue. It also recognizes that this country has an interest, asthe world's major exporter, in maintaining necessary levels of stocks, sinceotherwise we could not be a reliable supplier of food for the world. It isalso in this country's interest to have adequate stocks to provide a measureof domestic price stability. According to preliminary estimates a contingencyreserve would not have to be large or costly in order to offset mostinstances of poor harvests or abnormal demand. Large costs in the past havegrown out of excessively large stock build-ups under price support programs.The prospects are reasonably strong that market conditions will notagain lead to excessive stock-building in the near future. Any accumulationof contingency reserves would therefore require that the Government purchasecommodities in the market or have ready access to farm-held stocksunder the Government loan program.Agriculture has always been a cyclical industry; and the fluctuations,though relatively minor, have been around a trend of general abundance inthe United States. One cannot say with certainty whether the unusually tightmarkets of 1973 signal a turning point toward a period in which fluctuationswill be around a trend of relative scarcity, or whether 1973 represents onlyan abnormally large cyclical swing. This increased uncertainty implies thatagriculture must be prepared to adjust to market developments as promptlyand efficiently as possible. The current Government policy, with minimumrestrictions on market mechanisms, is designed to make that possible.136

CHAPTER 5Distribution of IncomeIMPLICITLY OR EXPLICITLY, MOST DISCUSSIONS of the performanceof the American economy and the economic role of the Governmentare concerned with the growth of national income and the way it isdistributed.Three fundamental principles of equity concerning the distribution ofincome are widely accepted: those who produce the same amount shouldbe rewarded equally (horizontal equity) ; those who produce more should berewarded more (vertical equity); and no individual or household should beforced to fall below some minimum standard of consumption regardless ofproductive potential. Although there is fairly general agreement on theseprinciples, the desirability of any given amount of inequality in the incomedistribution remains a matter of personal judgment and of social and politicaldebate.One of the principal social debates has been about the extent to whichthose having high incomes should share with those having less. Among itschief objectives, the Government seeks the proper balance between redistributingincome to the disadvantaged so that they may have the basicamenities of life and allowing a reward system which gives individuals incentivesto work to their fullest capacity.OUTLINE AND SUMMARYThis chapter looks at the distribution of income among families and individualsand examines some of the government policies which have influencedit. The chapter considers the distribution of income among individualsand families and among various classifications of the population:age, sex, and race.While the inequality of family income is quite stable over the long term, itvaries over the business cycle. Inequality increases during a recession anddecreases in an expansion. This is a consequence of the variation in weeksworked that occurs because of changes in the unemployment rate.Because the concept of income used to measure inequality is essentiallylimited to money income before taxes, these measures need not reflect thetrue inequality of economic well-being. Some sources of income which areomitted would increase measured inequality and others would decrease it,137

and estimates of some of these effects are given. While those omitted sourceswhich would decrease family income inequality have been growing in importanceover time, there exists no such presumption concerning the omittedsources that would increase it.Many factors, such as schooling and on-the-job training, determine theinequality of earnings among workers. Differentials in the earnings of whitesand blacks, and of males and females, are analyzed with respect to the contributionto the differential made by training and other factors that influenceproductivity. Past discrimination has contributed to current differences inproductivity because of the once widespread barriers to equivalent schoolingand on-the-job training. Because of the difficulties of measuring productivity,no conclusion could be reached about the magnitude of current labormarket discrimination against blacks or women. For the same reason it isdifficult to determine whether labor market discrimination has declined withtime, although there is a strong presumption that it has. For men, the blackwhiteearnings differential has narrowed, and much of the change may bedue to a narrowing of educational differences. The narrowing of the differentialhas been much more dramatic for black women, however, andoutside the South black women now receive a higher wage rate than whitewomen. This development is largely due to black women's greater lifetimeattachment to the labor force, and hence their greater level of experience andtraining.The differential in hourly earnings between men and women has widenedover time, and this change reflects the relative decline in education andexperience of women in the labor force. With the rapid increase in thelabor force participation of women, the female labor force has becomeincreasingly composed of recent entrants with fewer years of schooling and ofexperience. Younger women are, however, showing less tendency to withdrawfrom the labor force for a prolonged period; as the age of these cohortsincreases and they come to comprise a larger proportion of women in thelabor force, the experience and earnings differential between men andwomen should decrease.Widespread concern is felt about those whose incomes fall below a levelneeded to maintain an adequate living standard. There has been a markeddecline in poverty, as conventionally defined, from 39 million persons in1959 to 24 million persons in 1972, in large part because of economicgrowth, which increased wage rates and employment opportunities for menand women, and permitted larger social security and pension benefits. Increasinglythe poor are living in families in which there is no adult worker,and increasingly the family is headed by a female.The Federal Government has several programs—some operated on itsown, others in conjunction with the States—which are intended to decreasepoverty. Aid to Families with Dependent Children (AFDC) is themost important Federal-State program designed explicitly for poor familiesin which there is no employed male head. The 3.1 million AFDC families138

in 1972 represent nearly a threefold increase in the number of AFDGfamilies since 1965. This increase can be partly explained by the spread ofknowledge about the program and the lessening of the social stigma attachedto it. In addition, the faster rate of increase of benefits to AFDG families,compared to average wages, contributed to the change by making the incentivesgreater for an existing female family head to apply for benefits, as wellas giving women an incentive to head a family.Social Security is the largest single Federal transfer program, with 28million recipients of old age, survivor, or disability benefits in fiscal 1973.Many of the recipients of old age and survivors' benefits were in familiesclassified as in poverty. For many others, however, social security kept theirincome above the poverty level.The Federal Government also transfers economic resources to aged andlow-income families by subsidizing the price of food, medical care, and housing.The Food Stamp Program, initiated in 1961, subsidized the purchaseof food for 12.6 million recipients from low-income families in fiscal 1973.The average monthly subsidy (of $15.30 per individual recipient in July1973) represents a substantial contribution to the economic well-being ofmany low-income families, although the food stamp subsidy is not counted inthe measure of income used to define poverty.A rapidly growing source of Federal transfers to the aged and the pooris medicare and medicaid, which lower the cost of medical care to therecipients. In fiscal 1973, 10.6 million people received medicare benefits, and23.5 million received medicaid benefits.The combined effects of the tax and transfer mechanisms of Federal,State, and local governments appear to redistribute income toward lowincomefamilies. Various studies have concluded that when accrued capitalgains are included in income the tax system is roughly proportional in theincome ranges in which most Americans are located, but regressive for verylow incomes and progressive for very high ones. However, some governmenttransfers have a strong effect of redistributing income to low-incomefamilies. These include public assistance programs, social security, foodstamps, medicaid, and medicare.THE CHANGE IN INEQUALITY OF FAMILYAND INDIVIDUAL INCOMEBetween 1947 and 1972 median family income, adjusted for the rise inprices, doubled. This rapid increase in the overall level of income tells usmuch about the change in living standards, but it tells only part of thestory. The extent to which the gains from economic growth have been diffusedthroughout the population is also important.SECULAR CHANGESThere are various ways of illustrating the distribution of income amongpersons and of measuring the amount of inequality in the distribution.139

Since families typically pool their incomes, the distribution of family incomeis a particularly useful indicator of the distribution of economic well-being.One common measure of inequality shows the percentage share of aggregatemoney income before taxes received by each fifth of families ranked byincome. Quite remarkably, relative income shares measured in this way havehardly varied in the 25 years between 1947 and 1972 (Table 34). Thus in arelative sense the rich were not getting richer and the poor were not gettingpoorer. In this period the average income of each quintile increased at muchthe same rate. If anything, there seems to have been a slight tendencytowards greater equality, since the share of measured income received by thetop 5 percent declined somewhat from 1947 to 1972. The decline in theincome share of. the top 5 percent may be a consequence of the seculardecrease in the share of national income received by the owners of nonlaborfactors of production.TABLE 34.—Share of aggregate income before taxes received by each fifth of families, ranked byincome, selected years, 1947-72 l[Percent]Income rank19471950196019661972Total families100.0100.0100.0100.0100.0Lowest fifthSecond fifthThird fifthFourth fifthHighest fifth5.111.816.723.243.34.511.917.423.642.74.812.217.824.041.35.612.417.823.840.55.411.917.523.941.4Top 5 percent17.517.315.915.615.9iThe income (before taxes) boundaries of each fifth in 1972 were: lowest fifth—under $5,612; second fifth—$5,612-$9,299; third fifth—$9,300-$12,854; fourth fifth—$12,855-$17,759; highest fifth—$17,760 and over; top 5 percent—$27,837 and over. Income includes wages and salaries, proprietors' income, interest, rent, dividends, and money transferpayments.Note.—Detail may not add to totals because of rounding.Source: Department of Commerce, Bureau of the Census.The general impression that no significant trend has developed in therelative inequality of income among families is confirmed by other measuresof inequality. For example, the variance of the natural logarithm ofincome, a measure which takes into account dispersion throughout all rangesof income, shows no trend in the dispersion of family income throughoutthe post-World War II period. (See the supplement to this chapter for anexplanation of this measure.)A family's income depends on the amount of work the different familymembers perform, on the earnings they receive, on the monetary return fromproperty owned by the family, and on transfers received from the government.Underlying the distribution of family income then is the distribution ofindividuals' incomes. For males 35 to 44 years old or those 25 to 64 there isno trend during the post-World War II period in income inequality. However,in all years inequality is greater for the 25-64 age group than for the35-44 age group, and this reflects the change in earnings with age. Thus,measures of inequality for broad age groups merge the inequality resulting140

from differences between lifetime incomes with the inequality that resultsbecause individuals do not earn the same income in successive phases of theirlives.An increase does occur over time, however, in the inequality of income formales 14 years of age and over, and in the inequality of income for all members(male and female) of the labor force. The increasing inequality for allmale workers and all workers results mainly from the greater proportionof workers with part-time and part-year work schedules, rather than froman increase in the inequality of wage rates. The growth of part-time andpart-year work may to some extent be attributed to a shift in industrialcomposition towards the service industries, where flexible hours are morecommon, and partly to the increasing desire among workers for flexibleschedules with shorter hours. Such schedules are particularly attractive tostudents, semi-retired older workers, and married women. Associated withthe increasing importance of these groups in the labor force has been a secularincrease in the variability of annual hours worked and consequently inthe variability of annual income for the labor force as a whole.Since most families (75 percent in 1972) are husband-wife families witha working husband, the stability in the dispersion of adult male incomes hasbeen one factor leading to stability in the distribution of family income. Theincrease in the proportion of wives with earned income evidently did notlead to increases in the relative inequality of family income, partly becausehusbands' and wives' annual earnings have not been positively correlated.In the future, if a strong positive correlation between husbands' and wives'annual earnings should develop, this correlation could be a factor in increasingthe relative income inequality among families.Stability of Income Inequality Among Adult MalesIt is striking that there has been no change in the relative inequality ofincome among adult males. The greater opportunities for schooling amongpersons at all income levels and the larger subsidies for training less advantagedpersons might have been expected to reduce earnings inequalityin the past 20 years, but the relation between equal access to training orschooling and earnings inequality is not so straightforward.The post-World War II period has brought a narrowing of differences inyears of schooling among adult males, and this alone generally decreases theinequality of lifetime income. In the same period, however, the level ofschooling has greatly increased. A recent study suggests that at higher levelsof schooling the relative dispersion of wage rates tends to be greater than atlower levels, and that the effects on income inequality of the higher level andof the smaller variance in years of schooling have somewhat offset each other.Greater equality of opportunity could also lead to increases in income inequalityif investments in schooling or training became more closely relatedto ability. Generally, more able people receive a higher money return on anequal investment in education. In a world where financial access to schoolingand training depend on family income (and assuming that family income and527-867 O - 74 - 10141

ability were not perfectly correlated), extending equal financial access tosuch investments for all people, regardless of income, could result in thosewith more ability investing more. In that case inequality could increase.Obviously many factors other than education influence earnings. However,the distribution of adult males by age, marital status, health, andunion membership, and the profitability of investments in school and postschooltraining, have been essentially stable over the past 25 years, and thisstability has undoubtedly contributed to the stability of the incomedistribution.CYCLICAL CHANGESThe inequality of income among families and among individuals fluctuateswith the business cycle. Inequality increases in a recession and decreasesin an expansion. During a recession, wage rates tend to be sticky, and thereis no substantial change in the inequality of wage rates. However, layoffsincrease and there is an increase in the relative inequality of weeks of employment.The increase in the relative inequality in weeks worked duringa recession shows up both within and across demographic groups (age, sex,race, and schooling).During a recession, unemployment within a group of the same skill,age, and other characteristics is not experienced uniformly; rather, inany one year it is likely to affect some workers to a disproportionate degree.Thus, an increasing rate and duration of unemployment have a greatereffect on the weeks of employment of some workers than on others andresult in a greater inequality of employment within the group.A recession also intensifies the inequality of weeks of employment amonggroups with different characteristics. Workers with higher levels of skill—that is, more schooling and longer labor market experience—usually workmore weeks per year at all stages of the business cycle. During recessions,however, the disemployment is relatively greater for workers with less skill.For this reason, in a recession one finds a larger inequality of weeksworked between skill groups than during a business cycle peak.OMITTED SOURCES OF REAL INCOME AND THE INEQUALITY OFWELL-BEINGBecause the concept of income used in the measures of inequality justpresented omits some sources of real income, it gives an imperfect descriptionof the resources that families actually command. The omitted items can bevery important. They include the imputed value of rental income receivedby homeowners living in their own homes, as well as capital gains. Employeefringe benefits paid by the employer are omitted, and so is themonetary value to the recipient of Government transfers in kind, such asfood stamps, medical benefits, and housing allowances. Many goods andservices are produced at home and are excluded from these income measuresbecause of the difficulty of placing a value on production outside themarket. Families with a working husband and wife may thus have more142

measured income than some families in which the wife confines her work tocaring for the home and children, although the extra expenses or loss ofleisure time of the working couple could mean that they are really less welloff. Finally, the data used here refer to income received in one year beforepayroll and income taxes.The reason for not including these sources of income in census surveysof consumer income is that they are all extremely difficult to measure forindividuals or families. Several studies have attempted to measure the magnitudeand distribution of the different items, but so far the net effect onincome inequality of all the items cannot be stated with complete confidence.Nor can we say how past changes in the importance of the different omittedsources may have affected the true trend in income inequality.TABLE 35.—Income inequality under alternative definitions of income, 1968Definition of income1. Money income2. Line 1 plus rental value of owner-occupied homes3. Line 2 plus nonmoney wages and nonmoney farm income4. Line 3 plus medicare payments5. Line 4 plus imputed interest from banks and insurance companies6. Line 5 plus other imputations2 equals money income plus imputed income..7. Line 6 less direct taxes equals disposable family personal incomeIncomeinequality 10.75.74.69.62.61.61.521 Income inequality is measured by the variance in the natural log of income. (See supplement to this chapter.)The income classes used are: Under $2,000; $2F000-$3,999; $4,000-$5,999; $5,000-$7,999; $8,000-$9,999; $10,000-$14,999; $15,000-$24,999; $25,000-$49,999; and $50,000 and over.2 Other imputations include services furnished without payment by banks and insurance companies, military clothing,and miscellaneous other items.Sources: Department of Commerce (Bureau of the Census) and Council of Economic Advisers.Table 35 presents estimates of the effect that some of these omittedsources of income would have had on measured income inequality. Forconvenience the basic measure of income dispersion used in the calculationis the variance in the natural logarithm of income (see supplement to thischapter). The measure is zero when there is perfect equality of income, andit increases for greater income inequality. However, while a reduction from0.7 to 0.6 conveys an acceptable suggestion about a decline in inequality,and a decline from 0.7 to 0.5 an acceptable suggestion about a greater decline,the statement that the second of these two declines is twice the firstwould not be meaningful.The rental value of owner-occupied dwellings can be imputed by assumingthat it is proportional to the value of the house. When the imputedrental value of owner-occupied dwellings is added to money income, theinequality of family income does not change significantly. Although theimputed rental value of housing rises with money income, it does not riseas a percentage of income.143

Farm wages and farm income received in kind (such as food and lodging)and medicare payments are generally concentrated among the poor, andthey reduce income inequality. The inclusion of imputed interest frombanks and insurance companies does not significantly change inequality.When personal income taxes and payroll taxes are deducted from moneyincome plus imputed income, the dispersion of income declines.Because of the extreme difficulties involved, no effort was made to computethe distribution of capital gains or losses among families. Nor was aneffort made to remove the effect of transitory influences on income in anyone year. Capital gains and losses, however, tend to be concentrated amongupper-income families, and for years of net capital gains their inclusion inthe income concept would clearly increase family income inequality. Severalstudies suggest that if accrued capital gains are included in income a veryhigh proportion of families earn incomes falling in ranges in which the taxsystem is essentially proportional.The huge growth in Federal food, medical, and other in-kind subsidiesto the poor during the past 10 years would certainly reduce inequality ifthey were included in the income measures. In addition, families differ intheir use of government-subsidized goods and services, such as manpowertraining programs, public schools, national parks, and roads, but the incidenceof benefits by income level is not known.Family Composition and Work in the Labor MarketFamilies vary considerably in the hours they work in the labor marketto produce measured money income. The difficulty of imputing a value towork done at home has already been noted. The fact that a wife does notwork in the market can be taken to mean that she considers her productivityat home to be of more value than what she could earn in the market. Knowingthat she does not work in the labor market is not sufficient, however, todetermine the money value of the wife's work at home.Table 36 indicates roughly how families at three levels of income differin their composition and work in the labor market, and how this has changed.In both 1952 and 1972, families in the lowest fifth were much more likelyto be headed by a woman or by a person either less than 25 years of age orolder than 65 years. Partly because of these differences in age and sex, theheads of lower-income families are less likely to participate in the labormarket, and so are the other family members.Such families consequently depend more on income from sources otherthan earnings, such as social security, other retirement incomes, and publicassistance. By contrast, upper-income families generally have many earnersper family and are more likely to include a wife who works. Presumablythese families have less time for work at home, and they must buy with theirearnings some of the services that would otherwise be produced at home.144

TABLE 36.—Selected characteristics of the lowest, middle, and highest fifths of families ranked bymoney income, 1952 and 1972[Percent]Family characteristicLowest fifthMiddle fifthHighest fifth195219721952197219521972Total families100.0100.0100.0100.0100.0100.0Female head22.032.07.17.14.83.2Head under 25 years of ageHead 65 years of age and over7.130.113.232.86.07.87.57.91.37.91.65.9No earners2 earners or more25.322.436.420.61.236.72.457.0.666.3.874.0Husband-wife families100.0100.0100.0100.0100.0100.0Wife in paid labor force18.919.921.241.338.151.6Mean number of children.1.141.091.431.351.101.25Source: Department of Commerce, Bureau of the Census.These differences in the characteristics of families by income class havebecome more intense. They raise problems of interpretation which are importantfor public policy designed to influence the distribution of income.Some of these issues are discussed below in the section on poverty.DETERMINANTS OF DIFFERENCES IN EARNINGSAMONG INDIVIDUALSWage rates and annual labor market earnings of individuals vary considerably.Much of this variation can be related statistically to individualdifferences in measurable characteristics—schooling, post-school training,region of residence, and other demographic characteristics, as well as restrictionson entry into occupations. How far such unmeasurable characteristicsas innate ability, diligence, personal attractiveness, and contacts explainthe remaining differences is not known. Nor can it be ascertained how importantluck is in determining the distribution of income.Other aspects of earnings are not included in earnings data. Psychicearnings from having a pleasant job or living in a pleasant locality are notmeasurable. Earnings received by individuals in kind, such as free lodgingand fringe benefits purchased by the employer, are measurable in principle,but difficult to measure in practice.SCHOOLINGSchooling is an important determinant of the distribution of earnings.Table 37 shows average usual weekly earnings for males 35 to 44 years ofage who worked full time. Those with more schooling have substantiallyhigher earnings; and this relation has been persistent in many different setsof data.145

TABLE 37.—Average usual weekly earnings of male workers 35—44 years of age who worked fulltime, by years of schooling and race, 1973Years of schoolingWhiteNegro andother races0-45-789-11 .. .1213-1516Over 16$150173202211231265321333$96149165165178209241284Note.—Data are from a survey made in May 1973.A full-time worker is defined as one who usually works 35 hours or more per week.Source: Department of Labor, Bureau of Labor Statistics.One suggested reason why schooling and earnings are positively related isthat schooling increases a worker's productivity. A mobile labor force andcompetitive markets translate the increased productivity into higher incomefor the worker. To test the hypothesis that schooling increases productivityand thereby increases income, one must have some measure of productivityother than income itself. Several studies have investigated the associationbetween schooling and the productivity of self-employed farmers, as wellas the association between schooling and efficiency in household activitiesand in interregional migration, and in scores on standardized ability tests.They indicate that, controlling for other variables, those people with moreschooling are more productive.Some say that those capable of higher productivity receive more schoolingand that business firms use the amount of schooling as a means of sortingout those capable of better performance. It is therefore important to distinguishbetween schooling as a means of changing productivity and schoolingas a means of identifying the more productive members of the population.The sorting hypothesis implies that firms regard the number of years ofschooling as an index of individual qualities that the educational system canidentify more efficiently than they can. The educational system, accordingto this theory, is effective in attracting persons possessing these qualities anddiscouraging the schooling of those without these qualities. Empirical testsof the sorting hypothesis have not been conclusive.POST-SCHOOL TRAININGAnother important aspect of training is experience acquired on the jobafter schooling is completed. On-the-job training can vary from formaltraining programs within the firm to the informal process of learning bydoing. Thus, particularly at younger ages, a worker may be involved in aprocess of investment with returns accruing later on. For this reason earningswould rise as age increases.Charts 8 and 9 give the results of two different procedures to find therelation between age and income for males. Chart 8 presents the age-incomeprofiles of a group of men over time (cohort profile). For a cohort, income146

Chart 8Real Income Profiles of Cohorts of MenBorn in Selected YearsREAL ANNUAL INCOME (1967 DOLLARS) 1/8,000BORN 1923-32BORN 1913-226,000BORN 1933-424,000BORN 1903-122,000J_ I I J_14-19 20-24 25-34 35-44 45-54 55-64YEARS OF AGEJ/MEDIAN TOTAL MONEY INCOME FOR EACH AGE DEFLATED BY THE CONSUMER PRICE INDEX.SOURCES: DEPARTMENT OF COMMERCE AND DEPARTMENT OF LABOR.increases with age, but for adults it does so at a decreasing rate. Income increaseswith age because the workers are acquiring experience and because ofthe rising productivity of workers as technology improves and physical capitalgrows. The cohort profiles are higher for younger workers because they havenot only more years of schooling but also the benefits that accompany agrowth of technology and physical capital.Chart 9 presents the age-income profiles obtained from plotting the incomeof males of different ages in the same time period (cross-sectional profile).The tipping down for the oldest age groups (45 to 54 and 55 to 64years of age) of the cross-sectional profile for annual income reflects thelower income of retired persons and, compared to younger males, the lowerlevel of schooling and obsolescence of knowledge of those older males stillin the labor force.There are too few comparable data to determine whether the cohort profilesare becoming steeper over time for adult males, although there are some147

Chart 9Real Incomes for Men in DifferentAge GroupsREAL INCOME (1967 DOLLARS).!/8,0006,0004,000/ /1967/ /f 1957,. L-' 19472,000-0\ \1 114-19 20-24 25-34 35-44YEARS OF AGE145-54 55-64J/MEDIAN TOTAL MONEY INCOME FOR EACH AGE DEFLATED BY THE CONSUMER PRICE INDEX.SOURCES: DEPARTMENT OF COMMERCE AND DEPARTMENT OF LABOR.hints to that effect. Increased high school and college attendance has increasedthe slope of the age annual income profile for younger males. If betterdata in the future indicate a steepening over time in the slope of the ageincomeprofile, a constant income inequality within a broad age intervalwould imply a narrowing of income inequality for each age in the interval.The relation between age and usual weekly earnings in 1973 for maleswith 12 and 16 years of schooling is shown in Table 38. For the same levelof schooling, usual weekly earnings generally increase with age. The ageearningsprofiles are steeper for those with more schooling and thus suggesta positive association of schooling and on-the-job training. Because womenare more likely to participate discontinuously in the labor force, enteringand leaving several times during their lives, their post-school training doesnot necessarily rise steadily with age.148

TABLE 38.—Averageusual weekly earnings of males who worked fullschooling, 1973time, by age and years ofYears of schoolingAge121620-24 years25-34 years..35-44 years45-54 years55-64 years$158201226227227$170238317347323Note.—Data are from a survey made in May 1973.Source: Department of Labor, Bureau of Labor Statistics.EMPLOYMENTThe annual labor market earnings of a worker are a function of theworker's weekly earnings and the number of weeks of employment duringthe year. Weeks of employment can vary because of unemployment; butthey also vary because of voluntary withdrawals from the labor force.The number of weeks worked is greater for male workers 25 to 54 yearsof age than for younger, older, or married female workers. Younger personswork less because of school attendance and a greater incidence of unemployment.Students (who now make up 59 percent of the teenage labor force)ordinarily work during vacations or have part-time jobs for a few monthsduring the year. Most new entrants and reentrants to the labor force areyoung people or married women, and most also experience some unemploymentbefore taking their first job. One reason for the higher unemploymentrate for young workers is that they voluntarily leave jobs to acquaint themselveswith the labor market and to gain experience in various jobs. In addition,the instability of their employment is increased by the fact that theirproductivity is very close to the legal minimum wage, and they have asmaller amount of specific job training.Employers make investments specific to the firm for some workers. Specificinvestments include the component of training a worker receives that is usefulonly in that firm, and also hiring and placement costs. The more importantspecific training is, the more costly it is for both the firm and theworker if the worker is separated from the firm. Workers with more specifictraining are therefore less likely to be subjected to layoffs or to quit, and theywill work more weeks during the year. Workers with advanced schoolingordinarily work more weeks during the year, partly because their higherwage makes absence from work more costly, and partly because they havemore specific training.Married men work more weeks per year than men who have not married,but married women work fewer weeks than those who have never married.Most married women work less if they have young children. Older workerswork less because of deteriorating health and partial retirement.The weekly wage and the number of weeks worked are related. Thosewho work more weeks per year tend to have a higher weekly wage, partly,149

ecause they have acquired more experience. On the other hand, it has beensuggested that the weekly wage for each week worked is higher in someseasonal occupations in which there are fewer weeks of employment duringthe year.EARNINGS DIFFERENTIALS BETWEEN GROUPSIn the last quarter century there has been substantial public concernwith the causes and consequences of the observed earnings differentialbetween groups differentiated by race and sex. This discussion has focusedon investments in training and current and past discrimination, as factorsthat may explain the differential.DISCRIMINATIONDiscrimination is said to exist when two or more groups that are differentiatedon the basis of some characteristic irrelevant to an objectivemeasure of productivity are not granted equal treatment in a particularactivity. The differentiating characteristic may be race, sex, ethnic origin,marital status, age, or physical appearance. Obviously some forms of discriminationgive rise to more social concern than others. Discriminationmay also take several forms: the way individuals and business firmsbehave in the market place for jobs, housing, credit, and other goods andservices; and discriminatory taxation or public expenditure policies bygovernment. It may be so closely interwoven with the culture of a societythat the stereotyping of roles is accepted by all with little or no question.The income and employment of an individual can be influenced by pastand present discrimination. Past discrimination affects the years and qualityof an individual's schooling and the path to his present occupation andtraining. Current discrimination affects incomes when two workers aregiven a different wage for the same productivity and restrictions are placedon a worker's occupational mobility.It is important to distinguish between the differences caused by discriminationand those from other causes. Observed differences between thewages or occupational distribution in two groups of individuals may be dueto discrimination or to factors entirely unrelated to discrimination. Becausemany important variables are not measurable, one cannot fully quantify theeffects of past or present discrimination on earnings and occupational choice.What can be quantified, however, is the extent of observed differencesbetween groups that remain after making allowance for what is measurable.RAGE DIFFERENTIALSData on the income or occupations of white and black males and femalesindicate a substantial racial difference that has persisted for the last century.** Almost 90 percent of nonwhites are bracks, but many of the available data do notdistinguish between blacks and other nonwhites.150

The relative income difference widened in recessions or depressions and narrowedduring periods of economic expansion, particularly during WorldWar II. Evidence is accumulating, however, that there has been a long-runnarrowing of the racial income difference. According to one recent study,for example, the median wage and salary income of black males increasedat an annual rate of 3.2 percent from 1947 to 1971, compared to an annualincrease of 2.6 percent for white males. For black and white females therates were 4.9 percent and 1.7 percent respectively. In spite of this narrowing,substantial racial income differences continue, particularly for males.Why the Differential NarrowedThere are several reasons for the narrowing of the black-white earningsdifferential. Important changes have occurred in the relative schooling ofblacks and whites. The substantial discrimination against blacks that was evidentin the public school expenditures of many States appears to have ended.For this and other reasons there has been a dramatic increase in the level ofschooling for blacks. The median number of years of schooling among blackmales 18 years old and over in the labor force increased between 1952 and1971 by 4.2 years, to 11.4 years. For white males the increase was 1.7 years,to a level of 12.5 years. During the same period, black females in the laborforce increased their level of schooling by 4 years, to 12.1 years, comparedto an increase for white females of only 0.4 year, to 12.5 years.The substantial migration of blacks out of the South and into States inthe northern and western regions may also have influenced the relativeincrease in the earnings of blacks. In 1940, 77 percent of the black populationlived in the South; by 1970, the proportion was 53 percent. Earnings arelower in the South than in other regions for all workers, but the difference isparticularly great for black workers, and in the past the difference betweenearnings in the South and elsewhere was even more pronounced. Thusblacks could increase their earnings by moving out of the South. Althoughwhites have an even greater propensity than blacks to migrate betweenStates or regions, this greater regional earnings differential for blacks, coupledwith their greater concentration in the South, provided an importantway for blacks to improve their earnings. Blacks are likely to have increasedtheir earnings relative to whites through migration, despite their somewhatlower geographic mobility.The changing occupational structure and labor force status of the populationwas another factor influencing the rate of growth of earnings. Thelabor force participation rate of married white females increased at afaster rate than that of married black females. The entry into the labor forceof white females with little experience and the growth of part-time employmentslowed the rate of growth of earnings among white females. The proportionof black females employed as household workers declined from 43percent in 1949 to 18 percent in 1969.Two important factors served as catalysts enabling these changes to takeplace. First, the American economy is highly competitive, and business firms151

whose owners or white workers have less discriminatory attitudes towardblacks will be likely to employ more blacks. These firms prosper if blacksreceive lower wages. When such firms expand, the demand for black workersincreases and the discriminatory differential declines.Competition may not be a fully effective weapon against discrimination,however, if prejudice is very widespread. The second factor, working withthe first, was a change in attitudes toward discrimination against blacks. Thisdevelopment improved the relative income and occupational status ofblacks by directly reducing labor market discrimination. It also facilitatedthe passage of the 1964 Civil Rights Act and other Federal and State legislationas well as court decisions prohibiting discrimination in wages andemployment. Such changes in the legal system made discrimination morecostly and therefore lessened it. The reduction in discrimination in housingand in public accommodations brought about increased contact betweenblacks and whites and presumably expanded the information sources andjob opportunities for blacks.Dead-End JobsThere is a widespread belief that, compared to white males, black malesare relegated to poorly paid, dead-end jobs—that is, jobs in which earningsare initially low and do not rise with experience. This view originated as aresult of examining the relation between age and income for white and blackmales at a moment in time (cross-section). For example, reading downthe columns of Table 39 indicates a substantial decline for older age groupsin the income of black males relative to white males. The appropriateprocedure for a study of life-cycle income, however, is to follow a group(cohort) as it ages, as is shown along the diagonals of Table 39. For eachTABLE 39.—Income of Negro males as percent of income of white males, by type of income and age,1949, 1959, and 1969[Percent]Annual income:25-34 years.35-44 years.45-54 years.55-64 years.Weekly income:25-34 years.35-44 years..45-54 years.55-64 years.Type of income by age group194919595748 46 456152 48 475752 49486157 5251196965 56 535167 5855 53Note.—Data for 1949 and 1959 relate to Negro and races other than white end therefore are not strictly comparablewith data for 1969 which relate to the Negro race only.Sources: Department of Commerce (Bureau of the Census) and Council of Economic Advisers.cohort, the ratio of black to white annual and weekly incomes either did notdecline at all with age from 1949 to 1969, or declined at an appreciablyslower rate than in the cross-section. Thus, experience appears to have a152

similar relative effect on the incomes of white and black males. Althoughsome black and some white males may be in dead-end jobs, this is not thesituation of the average black or white worker.Current DifferentialsAlthough the earnings differential between black and white females hasbecome quite small, the differential that still exists between the earnings ofblack and white males is substantial. It does narrow, however, when the comparisonis restricted to the States outside the South, and when differences inyears of schooling are taken into account (Table 40). A further narrowingof the differential occurs if the comparison is restricted to married men.There are large differences in marital status between blacks and whites.In March 1972, 78 percent of white males 20 years old and over weremarried and living with their wives, compared to 61 percent for blackmales. Among both white and black males, marital status is closely relatedto earnings, married men having higher earnings than those not currentlymarried. How the division of labor within the family affects the earnings ofmarried men and women is discussed at greater length in the next section.TABLE 40.—Earnings of Negroes as a percent of earnings of whites } for persons 25—64years of age, 1969[Percent]All personsMarried, spouse presentType of earnings by sex and regionAlllevelsof schoolingHighschoolgraduateCollegegraduateormoreAlllevelsof schoolingHighschoolgraduateCollegegraduateormoreEARNINGS OF MENAnnual earnings:All regionsSouthNorth and West*_605369686074716478615570616176(2)7279Hourly earnings:All regionsSouthNorth and West i676077736481797187686079766585(2)8193EARNINGS OF WOMENAnnual earnings:All regions . .809310488102108SouthNorth and West *6994801021051117510588112112108Hourly earnings:All regions89991199110795South. .. .North and West i82101761181281097611179128881071 Includes Northeast and North-central.2 Fewer than 50 persons in the sample.Note.—Education, region, marital status and age relate to 1970.Sources: Department of Commerce (Bureau of the Census) and Council of Economic Advisers.153

Several factors can be mentioned to explain why black males still receivelower earnings than white males after adjustment for schooling, age, region,and marital status. Prior investments made in the child at home are importantin determining the extent to which a student benefits from schooling.Black youths are more likely to come from poorer homes where the parentshave less schooling, to have poorer diets, and to be less healthy. They arelikely to start school with fewer advantages and skills than the typical whiteyouth. Moreover, at least in the past, there was discrimination against blackyouths in public school expenditures. Later on, as adults, blacks have poorerhealth, and may have poorer information about better jobs. Some of the currentwage differences may thus be a consequence of past discrimination.Many factors, such as health and information about labor markets, are difficultto measure, however, and their actual effects on earnings differencesbetween blacks and whites have not been quantified. One cannot thenreliably measure the extent of the occupational and wage rate discriminationthat now exists, or the effect that current discrimination has on earnings.SEX DIFFERENTIALSIn 1972 the median annual earnings of women 14 years old and overwho did full-time, year-round work were about 58 percent of that of fulltime,year-round male workers. This low ratio cannot be taken as a measureof current market discrimination, however, since the average full-time workweekis shorter for women than for men, and their life time work experiencehas been vastly different.Specialization and Working WomenAlthough the pattern is changing rapidly, the traditional economic organizationof the family has been marked by a specialization of function:women tend to specialize in the work associated with child care and keepingup the home; men tend to specialize in labor market employment. In thepast, when it was typical for families to have more children than they nowdo, this specialization of function was undoubtedly an efficient arrangement.Whether it now reflects societal discrimination or efficiency is a matter forspeculation.In many families a lesser degree of specialization and a greater sharingof home and labor market activities have come to be the preferred formof family organization, and women's participation in the labor force hasincreased greatly. In 1950, 28 percent of married women 35 to 44 years ofage were in the labor force; in 1972 the proportion was 49 percent. However,most married men still work nearly continuously during their primeworking years; and the labor force participation rate of married men from25 to 55 years of age is over 95 percent.The work histories of individual women cannot be ascertained fromcurrent labor force rates; special surveys are needed to provide informa-154

tion about lifetime work experience. The National Longitudinal Survey(NLS), a large data source sponsored by the Department of Labor, hasrecently become available and provides much more detailed informationon the work histories of women than has ever been previously compiled.The survey indicates that in 1967, among married women 30 to 44 yearsold with children, only 3 percent had worked at least 6 months every yearsince leaving school. On the average, married women worked at least 6months in 40 percent of their years after leaving school, but the workwas not likely to be continuous.One study which used the NLS showed that earnings of women do risewith experience and that continuity of experience, as opposed to intermittentparticipation, commands a premium. Withdrawal from the labor forcefor a time resulted in a decline in earnings when work resumed, since previouslyaccumulated skills, or human capital, actually depreciate duringextended periods away from work. For the married women in the sample,the hourly wage rate was about 66 percent of that of married men in thesame age group (30-44 years) in the same year (1966), after controlling fordifferences in years of schooling. At least half of the 34 percent differentialresulted from differences in their measured experience. The remaining differentialis unexplained.It is not known to what extent current discrimination, as opposed toother unmeasured factors, contributed to this differential. For example,the study could not provide direct measures of the nature of the investmentsmade in the productivity of women and men, other than years offormal schooling. Women do not appear to obtain as much training on thejob as men for the same length of time in the labor force. Thus, althoughwomen's earnings rise with experience, the study found that they do not riseas steeply as men's. This difference could result partly from a faulty measurementof a year's experience for women; as noted above, in these data a year'swork could be as little as 6 months of part-time employment. However, themeasured effect of experience could also be interpreted as the result of discrimination.That is, employers may deny a woman on-the-job training or apromotion because of her sex, sometimes from sheer prejudice, sometimesbecause they think a woman is more likely to quit for personal reasons. Onecan also surmise that women themselves may not choose to invest in trainingat a cost of either lower current earnings or additional hours of work, whenthe payoff might be lost because of the uncertainty of their future workpatterns.For example, women in school have a lower enrollment rate in programsoriented toward the labor market—engineering, accounting, electronics—and a higher enrollment rate in courses that may be more applicable to workor leisure in the home—child development, languages, literature. This patternmay reflect greater uncertainty among women about their future attachmentto the labor force. A choice of field of study may also be influenced155

y social pressures, however, which make women feel less feminine and menfeel less masculine if they enroll in courses traditionally selected by the othersex.The study also relates lifetime work history to earnings for women whonever married. A year's experience has a much greater effect on singlewomen's earnings than on those of married women. Single women workmuch more continuously than married women, though less so than marriedmen. Some single women may choose not to make investments relatedto work because they expect to marry. But many look forward to careersand may therefore delay marriage or never marry at all. This career orientationis consistent with the relatively greater number of years of schoolingcompleted by single women compared to those who marry. It is also consistentwith their observed higher earnings. Estimates of hourly wage andsalary earnings from 1970 census data show that women 45 to 54 years ofage who had never married earned 20 percent more than married women,and 28 percent less than married men, but only 2 percent less than men whohad never married.There is then also a differential between the earnings of married and singlemen, and it may be taken as another illustration of how specialization withinfamilies may affect career patterns and earnings. Single men have somewhatlower labor force participation rates; they also work fewer hours per yearthan married men. In part this may result from a higher incidence of disability,which influences both marriage and work. Although they have greaterwork participation than married women, single women also have higherdisability rates than married women.Because of differences in life-cycle participation in the labor force bywomen and men, the experience of women does not bear the same relationshipto age as it does for men. Many women who have entered or reenteredthe market at older ages are really beginners. Men's earnings are at theirpeak when the men reach an older age, but women's earnings will representa mixture in which a small minority have high earnings because of theirconsiderable experience, but the majority have earnings closer to those at thestart of a career. As age increases, it is therefore not surprising that the earningsdifferential between women and men widens. For example, a comparisonof usual weekly earnings of workers who worked 35 hours a week or morein 1973 shows that the ratio of women's earnings to men's earnings declinedfrom 0.70 at ages 20-24 to 0.59 at ages 45-54 for high school graduates. Ofcourse the earnings ratios at older ages reflect the work histories of differentcohorts of women. If the younger women maintain a greater attachment tothe labor force during their lifetime (and there is some evidence that thisis the case), then the ratio of women's earnings to men's may not decline asmuch with age in the future.Differences in lifetime work experience also seem to explain why the ratioof black women's earnings to those of white women exceeds the ratio ofearnings of black men to those of white men (Table 40). Indeed, in the156

egions outside the South, within educational levels, black women earn morethan white women. The differential between whites and blacks in quality ofschooling, family background, and discrimination can be assumed to be similarfor women and men. Black women have a much greater life-cycle attachmentto the labor force, however, than white women do, although thisdifferential is largely confined to married women. For example, in 1972among women 35 to 44 years of age, with 4 years of high school or more,71 percent of the black women were in the labor force, compared to 53percent of the white women.The greater tendency of black married women to work, compared towhite married women, may be due in part to the relatively lower earningsof their husbands. Partly because of the relatively high earnings and workparticipation of black wives, the ratio of annual income of black husbandwifefamilies to that of white husband-wife families is higher than the ratioof black men's to white men's income. For families headed by males 35 to 44years old the ratio in 1969 was 75 percent, compared to 56 percent for malesalone (Tables 39 and 41).TABLE 41.—Median income of Negro h'isband-wife families as percent of white husband-wifefamilies, by region and age of husband, 1959, 1969, and 1972[Percentl1972Age of husband 1959 1969TotalSouthNorthandWestiAll families.Under 35 years35-44 years45-54 years55-64 years65 years and over..72 86937879i Includes Northeast and North-central.Source: Department of Commerce, Bureau of the Census.Trends in the Earnings DifferentialMuch has been made of the rather puzzling observation that the ratioof earnings of all women to those of all men has declined during the past20 years. This observation refers to annual earnings, or the earnings offull-time, year-round workers who are not necessarily representative of thetotal. But average hours and weeks worked during the year fell for womenrelative to men from 1949 to 1969. If annual wages and salaries are dividedby total hours worked during the year, the result is a much modified declinein the hourly wage of women relative to the hourly wage of men (Table42).An additional factor which would produce a relative decline in women'searnings is the relative decline in their general educational level and theirlabor market experience during the period. In 1950, women in the laborforce had on the average more schooling than men did; but this advantage157527-867 O - 74 - 11

TABLE 42.—Relation of wage and salary earnings and of total money earnings of women to thoseof men, 1949, 1959, and 1969Type of earningsEarnings of women as percent of earningsof men1949 1959 1969Mean wage and salary earnings: 1AnnualHourlyHourly adjusted for education 2 .Mean total money earnings: iAnnualHourlyHourly adjusted for education 2 .4763634662621 Earnings for any year are for those in the experienced labor force the following year.2 Approximate adjustment based on differences in the educational distributions of men and women in the labor forcein 1950, 1960, and 1970.3 Not available.Source: Council of Economic Advisers.was eliminated by 1970. Since education has an effect on earnings—bothmen's and women's earnings increase with education—it is importantto take these changes into account. An approximate adjustment for educationallevel increases the differential in 1949 and 1959, because women inthe labor force then had more education than men. After the educationaladjustment, the differential shows little change from 1949 to 1969.What has not been accounted for is the experience differential betweenmen and women. As has been explained above, this difference seemsto be the most important factor causing a divergence in hourly earnings. Butsince the labor force participation of women, particularly married women,was increasing rapidly during the period, it is very likely that the constantflow of entrants into the labor force resulted in a decline in the averageexperience of women in the labor force during the 20 years.The foregoing suggests that if we could compare women and men witha given amount of experience and education the ratio of women's hourlyearnings to men's might well show an increase over the 20 years—a narrowingin the gap. This would, of course, be compatible with the fact thatwomen have dramatically increased their participation in the labor forceduring the past 20 years. The rapidly increasing opportunities offered themwould be one reason why they have done so.OCCUPATIONAL DIFFERENCESThe occupational distribution of blacks differs from that of whites. In1970, for example, 27 percent of employed white males and 9 percent ofemployed black males were managers or professionals, whereas 7 percent ofwhite males and 19 percent of black males were hired farm or nonfarmlaborers; and 18 percent of employed black females were domestic householdworkers, compared to only 2 percent of white females. There is also consid-158

erable occupational segregation by sex, and some believe that the sex segregationis even greater than the racial segregation. For example, 83 percentof managers and 87 percent of farm laborers were men; but only 3 percentof nurses and 16 percent of elementary school teachers were men.Occupational segregation by race derives partly from differences inschooling and partly from the geographical distribution of blacks, who disproportionatelylive in the South. Moreover, there has been substantialdiscrimination against blacks who entered, or tried to enter, certain occupations.This discrimination, stemming from the attitudes of white employers,employees, and consumers of services, resulted in a smaller proportionof blacks entering these occupations. In some professions—for example,medicine, law, and the ministry—blacks were generally restricted to practicingin segregated black markets. In addition, blacks were not always grantedequal opportunity to move up the occupational scale—for example, fromlaborer or operative to foreman or manager.Some of the differences in occupational composition by sex can beattributed to differences in physical attributes. Undoubtedly, however, jobsrequiring physical strength are on the decline, and it is questionablewhether this factor was ever very important. One may also argue thatprejudice on the part of employers, fellow employees, and consumersoperates to exclude women from some activities in the labor market andto favor them in others.Another hypothesis stresses the difference in role identification that leadsto differences between the work careers and training of women and men.That is, women who anticipate combining some work with marriage seekoccupations and work situations which are most complementary to homeresponsibilities, such as those in which hours are shorter or correspond tothe children's school hours, or those offering work close to home. Anothercriterion is the penalty for interruptions in work. For example, womenmight avoid situations with rigid seniority rules, or they might choose careersin which skills are least likely to depreciate during a period spent at home.Some of the occupations stereotyped as women's, such as elementary schoolteaching and nursing, are indeed those where the same skills can be utilizedin the home. According to this view occupational differences arise fromchoice, although the choice may be induced by a pervasive societal biaswhich dictates that home responsibilities are the women's major work. Itis quite difficult to separate empirically the effects of discrimination in thelabor market from the effects of personal considerations in women's occupationalchoices.One may question whether the wage rates received by blacks and womenhave been affected by the occupational segregation. Earnings differ fromoccupation to occupation. If blacks or women were clustered in occupationsthat were low paying for all groups, including white males, then the loweraverage hourly earnings of blacks and women could be attributed to dif-159

ferences in their mix of occupations, rather than to earnings differenceswithin individual occupations. To estimate the effect of occupational mixon the earnings of black males, indexes were calculated to measure whatblack males would earn if they had the white male occupational distributionbut the earnings of black males within each occupation. Similarindexes were computed to measure what white women would earn if theyhad the same occupational distribution as white men, but the earnings ofwhite women within occupations.Preliminary results, using 1970 census data on 443 detailed occupations,indicate that black males would have hourly earnings about 18 percenthigher if they had the white male mix of occupations. Since white malesearned 50 percent more than black males, occupational differences wouldappear to "explain" 35 percent of the differential. However, those withhigh levels of education have a very different occupational distributioncompared to those with lower levels of education. Hence it may be thatin adjusting for occupation one is really adjusting for education. Indexescalculated for seperate education groups indicate a much smaller explanatorypower of occupation. For example, among males who completed 12 to 15years of schooling, the earnings of black workers would be increased by only8 percent if they were given the white occupational distribution, and thiswould account for 22 percent of the race differential in earnings.Comparing white women and white men 25 to 64 years old, the preliminaryresults for 1970 indicate that women would increase their earningsby about 11 percent if they had the occupational mix of men, and thiswould account for about 21 percent of the gross earnings differentialbetween women and men. Since women have completed roughly the sameaverage years of schooling as men, education would not be expected tointeract so strongly with occupation. Within education groups, occupationalmix seems to explain less for women below the college level thanfor women as a whole, but relatively more at the college level.Since occupation alone does not explain very much of the overall earningsdifferential between men and women, it would seem that earnings differentialswithin occupations, as they are now defined, must be more importantthan earnings differentials between occupations. In other words, ifcustom or overt barriers to entry have relegated women to different occupationsfrom those of men, this factor has not been the major one inlowering their earnings.It has already been noted that earnings differences between women andmen are in large part a consequence of differences in lifetime labor marketexperience. Since earnings differences between occupations may also beinfluenced by sex differences in the extent of post-school training betweenoccupations, it may be necessary to make a distinction between the explanatorypower of occupational mix per se and the explanatory power ofoccupational differences in experience. This requires data not currentlyavailable.160

In conclusion, it appears that the different occupational distributionsof white men, compared to black men and white women, explain at mostabout one-fourth of the existing earnings differentials between them. Becauseoccupational differences can also be explained by other factors thatdiffer between the races and the sexes, such as labor market experience(post-school training), and region, the true effect of occupation may be muchsmaller.THE LOW-INCOME POPULATIONThe Government has assumed an ever larger role in helping to see thatthose in need reach an adequate standard of living; and a considerableshare of the Federal budget is now devoted directly and indirectly to thatend.THE DEFINITION OF POVERTYThere is not, and probably never will be, a consensus on any one definitionof poverty. Many programs require, however, that we distinguish those whofall below a minimum income standard; and, accordingly, the concept of thelow-income or poverty threshold has been developed. The Governmentconcept is defined essentially as an amount about three times theestimated cost of a nutritionally adequate diet. The standard is adjustedfor differences in family size, sex of family head, number of children, andfarm-nonfarm residence; and different schedules are set for each group.The standard for each group is adjusted each year for changes in the overallconsumer price index. Thus, the average threshold for a nonfarm family offour increased from $2,973 in 1959 to $4,275 in 1972.Because the poverty threshold is, in real dollars, an absolute standard, itcannot be used to measure changes in the relative inequality of income. Indeed,as the average real income level of the population increases, the povertystandard lags farther behind the average. Thus the poverty thresholdfor a family of four declined from about 55 percent of median family incomein 1959 to 38 percent in 1972.Only cash income is used in determining low-income status, although acrude implicit adjustment is made for food grown at home by farm families.It has not been feasible to take account of the tremendous growth in thenumber and size of transfers in kind, such as public housing, food stamps,child care, and medical care. For example, in 1972, Federal and State governmentexpenditures per poor person on the food subsidy and medicaid programsalone, valued at cost, were equal to about 50 percent of the moneyincome of the average person in the low-income category.It would be extremely difficult to determine the exact incidence or valueof all the benefits. The programs for the low-income population are administeredby different agencies and jurisdictions, they also have differentaims and are distributed to somewhat different target populations. Moreover,the income in kind cannot be considered a perfect substitute, dollar fordollar, for cash income. For example, a public expenditure of $100 a month161

for public housing may be valued by the poor family at considerably lessthan $100. Nevertheless, it seems safe to conclude that some low-incomefamilies with in-kind benefits are receiving real incomes in excess of thelow-income threshold and that the proportion exceeding the threshold hasincreased with the growth of the programs. On the other hand, some personsclassified as above the low-income threshold, who receive no in-kindbenefits and who have unusual expenses—for example, because of poorhealth—may have their real income position overstated.THE DECREASE IN POVERTYThere has been a rapid decline in the number and proportion of personsin families with a cash income below the poverty line (Table 43). In 1972,12 percent of all persons were classified as low income, compared to 22percent in 1959. In all years the incidence of poverty is greater amongblacks than among whites and much greater among female-headed familiesthan among male-headed families. Since 1959 the decline in poverty hasbeen particularly marked for both black and white male-headed families.TABLE 43.—Persons below the low-income level and percent below the low-income level byfamily status, selected years, 1959-72Family status19591966196919711972Total persons below the low-income level (thousands)39,49028, 51024,14725, 55924,460Group below low-income level as percent of all persons ingroup:Total persons , .65 years and overUnrelated individuals22.4C)46.114.728.538.312.10)34.012.521.631.611.918.629.0Persons in families with male head:WhiteNegro and other races . . .14 751.08 031.26 019.86.219.15.618.5Persons in families with female head:WhiteNegro and other races . ._ ..40.275.629.764.629.157.830.455.627.457.7i Not available.Note.—Persons below the low-income level are those falling below the poverty index adopted by the Federal InteragencyCommittee in 1969. See text for explanation of index.Years are not exactly comparable because of changes in definition and methodology.Source: Department of Commerce, Bureau of the Census.The principal factor behind the decline in poverty is economic growth.The basic forces underlying economic growth have raised the productivityof even the least skilled worker and have enabled millions of workers to riseabove the low-income threshold through higher wage rates for those in thelabor force. In addition, economic growth has increased the labor forceparticipation of wives by increasing their labor market wage relative to thecost of consumer durables and other substitutes for time in the home. Thusthe decline in poverty has been most pronounced for the working poor. In162

1959, 14.6 percent of family heads who worked at all, and 9.4 percent ofthose who worked full time, year round were classified as low income;by 1972, the percentages had dropped to 6.0 and 2.9 percent respectively.Those heads of families who do not work but are no longer in poverty havebenefited from increases in social security and pension income, which weremade possible by economic growth.More and more the low-income population is composed of families headedby a person who does not work because of disability, age, responsibilities inthe home, or perhaps simply inability to cope with work (Table 44). Unemployment,perhaps surprisingly, does not play a major role in withdrawalfrom the labor force. Of those low-income family heads who did not workin 1972, 4.8 percent cited inability to find work as the reason for not working.Thus, the vast majority of the poor who do not work seem to be in a situationwhere work is not a feasible alternative. For some the inability towork is a permanent condition, but for others it may be temporary.TABLE 44.—Work experience of family heads below the low-income level by sex } 1959 and 1972Work experience of head1959Total1972Male head19591972Female head19591972Total families (thousands)8,3205,0756,4042,9171,9162,158Total families (percent)100.0100.0100.0100.0100.0100.0Worked i67.553.574.964.942.938.150-52 weeks, full time1-49 weeks, part time or full time...Worked part of year because unemployed31.531.014.419.830.111.137.632.117.329.431.314.910.927.14.96.928.55.8Did not work.30.545.922.534.057.161.9Unable to find workKeeping house.Ill, disabled, retired, and otherHead in Armed Forces1.210.918.31.92.219.024.6.61.021.52.51.98.21.01.547.58.12.644.714.61 Includes those who worked part-time hours for 50-52 weeks, not shown separately.2 Not reported.Note.—Persons below the low-income level are those falling below the poverty index adopted by the Federal InteragencyCommittee in 1969. See text for explanation of index.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.Source: Department of Commerce, Bureau of the Census.THE CHARACTERISTICS OF THE POORAs the population in poverty has come to include a smaller proportion offamilies with a working adult, the demographic characteristics of the poorhave changed. Male-headed families have decreased as a proportion of allpoor families—dropping from 77 percent in 1959 to 57 percent in 1972—because male family heads are more likely to work than female family heads.The proportion of low-income families headed by a female has increasedsharply from 1959 to 1972, from 23 to 43 percent for all females and from163

8 to 20 percent for black females. In part this trend results from an increasein the proportion of all families headed by a woman, from 10 percent in1959 to 12 percent in 1972. However, while the incidence of poverty amongfemale-headed families declined in this period, it did not decline nearly asfast as for families headed by a male.The Male-Headed FamilyAmong male-headed families, the presence of children has a direct influenceon poverty status, since for a given income the more children there are,the higher the poverty-income threshold. Children also indirectly affect thefamily's income, because it is more difficult for a wife to work outside thehome when young children are present. In 1972, 31 percent of low-incomefamilies with a male head had three or more children, compared to 17 percentfor families above the poverty line. The presence of a working wifecan bring an otherwise poor family above the poverty line. Only 22 percentof the wives in low-income families headed by a male worked in 1972, comparedto 48 percent of wives in families above the poverty line.The number of children and the work experience of wives are also importantvariables affecting the ability of the poor to move up from poverty.One longitudinal survey which followed the poverty status of a cohort for5 years, starting in 1967, found that about 20 percent of nonaged familiesheaded by a male experienced steady income increases and ended the periodout of poverty. This group had significantly fewer children than those whoremained poor during those 5 years, and a larger proportion of wives whoincreased their labor market work over the period. However, a period of 5years is too short to determine whether this group is permanently upwardlymobile or simply experiences long-term fluctuations in its income position.Low earnings, per se, are still an important reason for poverty amongmale-headed families. Educational levels are very low for this group. In 1972only 29 percent were high school graduates or better, compared to 63 percentamong other male family heads. As might be expected, the poor werealso much more concentrated in low-income jobs, particularly farming: 20percent of employed men heading low-income families were farmersor farm laborers, compared to 4 percent among those not poor. In thefuture, as the level of education rises and as productivity change continuesto increase earnings, one would expect that the incidence of poverty (undera fixed standard) may come close to disappearing for this group.The Aged PoorThe population 65 or more years old increased as a percentage of thepoor from 1959 to 1970. Since then, however, the incidence of poverty hasdropped sharply for this group, from 24.6 percent in 1970 to 18.6 percentin 1972, and the aged represent a declining proportion of the poor. Thisrapid change is primarily due to across-the-board increases in social security164

enefits of about 50 percent from 1970-72. Since 1972 there has been furtherexpansion in social security benefits. The increase in a widow's benefitsto 100 percent of her deceased husband's benefits should reduce the extentof poverty among widows.Undoubtedly, however, cash income understates real consumption bythe aged poor compared to that of the other poor. Many of the aged haveincome in the form of imputed rents from owner-occupied homes. Elderlypeople often consume out of past savings, and many widows receive lifeinsurance benefits which are not included in income data. In addition,compared to others classified as poor, the aged poor derive a larger proportionof their measured income from sources which are not taxed, such associal security and some pension income. The aged also have fewer expensesrelated to employment. The aged benefit disproportionately from medicareand medicaid, which are not counted in money income statistics, althoughin this case obviously their need is often greater because of poorer health.Even excluding the benefits of medicare and medicaid, however, it wouldappear that on average a two-person aged family may have a higher levelof consumption than a two-person family which has the same measuredcash income but whose members are under age 65.The Female-Headed FamilyPerhaps the most important issue concerning poverty status in this countryis the increasing identification of poverty with the female-headed family.Future progress in eliminating poverty will depend in large part on theextent to which poverty can be reduced for this group. If the proportionof families headed by women continues to increase, the problem maybecome still more difficult. Among families with a female head, 33 percentwere classified as in poverty in 1972, compared to 6 percent for male-headedfamilies. Among black female-headed families the proportion was 53 percent.The factors behind this very high incidence of poverty among familiesheaded by women are complex.As discussed earlier, the average married woman has not had the samelabor market experience or vocationally oriented training as her husband.Since the incidence of marital breakup is greater among less educatedcouples, the woman who becomes a family head is more likely to haveassumed during her marriage the traditional role of caring for children andthe home, and she is less likely to have had work experience. Womenwho have children without having married tend to be young, with littlework experience or formal education. Earnings for women in these circumstancestend to be much lower than for men of the same age and to be lowereven than the earnings of other women, particularly those with considerableeducation. Moreover, the expenses of going to work are higher for a personwith sole responsibility for child care. It is thus clear that if work is to be asensible option in the single-parent family, earnings (after taxes) must be165

sufficiently high to cover the additional costs of child care and other homeexpenses.Not surprisingly, poverty status among women is strongly related topresence of children and to work participation. As noted above, amongwomen in general the presence of children, particularly young children, hasa strong inhibiting effect on work participation. About 70 percent of femalefamily heads under 65 years of age have children under age 18. As one wouldalso expect, mothers who head families are more likely to work than mothersliving with their husbands. In 1972, 30 percent of the former and 17 percentof the latter worked full time, the year round. However, mothers headingfamilies are much less likely than men to work full time, the year round.Among males heading families, the proportion was 68 percent.Of the small proportion of female family heads with children who didhave full-time, year-round jobs in .1972, 9.5 percent were in poverty, amarkedly lower incidence than the 42 percent for all female family headswith children. One cannot, however, infer from this statistic that povertywould fall to that level for all women with children if they did full-time,full-year work. It is likely that those women who work extensively are relativelymore productive in the labor market because of higher educationalattainment, greater work experience in the past, or greater ability.The poverty status of female-headed families is often the result of amarital breakup, and this situation is temporary for many. One longitudinalstudy which followed the poverty status of a cohort over a 5-year period,starting in 1967, discovered that of those persons in nonaged female-headedfamilies who were poor at the start of the period, 27 percent experiencedconsistent increases in income and had moved out of poverty by the endof the period. (The comparable percentage for male-headed families was 20percent.) Remarriage of the female family head was the primary factorassociated with this upward mobility.About 32 percent of the persons in female-headed families who startedas poor in 1967 remained poor throughout the 5 years. The demographiccharacteristics associated with this more permanently poor group were loweducation, a large number of children, and residence in low-wage, ruralareas with low public assistance payments. For this group, the high costsof child care and poor prospects of high earnings suggest that training andincreased work in the labor market by the female family head could not berelied on as a route out of poverty.The remaining 41 percent of persons in female-headed families whostarted in poverty moved in and out of poverty during the 5-year period.A large part of this change in poverty status was associated with a change inhousehold arrangements.166

Because of the lower work participation of low-income female heads offamilies, the major source of income for this group is public assistance. In1972, public assistance accounted on the average for 51 percent of theincome of low-income, female-headed families. Many in-kind benefits aregiven automatically to families receiving public assistance, specifically thosein the Aid to Families with Dependent Children program, which is largelya program for female-headed families. Moreover, because public assistanceincome is not taxed, the real consumption of female-headed families isprobably understated, compared to that of husband-wife families whoseincome depends more heavily on earnings.The increase in female-headed families may, per se, be an important variablein determining the size of the poverty population in future years. Thereis some evidence, discussed below, that our system of welfare payments, whichhas been an important way of increasing income for mothers heading families,may itself have promoted some of the increase in female-headed familiesthrough the structure of incentives. This is clearly an important issue inthe future design of transfer payments to the poor.GOVERNMENT TRANSFER PROGRAMSAll expenditures by government, directly or indirectly, have implicationsfor the distribution of income. Analyses can be made of the direct incomedistribution effect of public transfers. It is far more difficult to identifythe income distribution effects of other government expenditures.Some of the transfer programs were initially viewed as public insurancemechanisms. Social security was intended as a public pension plan. Unemploymentcompensation and workmen's compensation are government mandatedinsurance. Veterans' compensation and benefits were adopted as aform of deferred payment for military service. Public assistance was andis explicitly intended as a mechanism for raising the income of those familiesthat would otherwise fall below a socially desired level of consumption.FEDERAL TRANSFERS IN 1973The Government gives transfers to individuals and families in the formof cash or subsidization of the price of particular goods and services. Of thetwo, transfers in cash are easier to administer, and they also have the advantagethat the recipients presumably know better than the Governmentdoes how to allocate the transfer income so as to maximize their own wellbeing.Some transfers are given in kind, however, on the presumption thatthe goods are of such importance that the recipients should consume at leasta minimum quantity. Food, medical care, and housing are examples.Table 45 presents a summary of the Federal Government transfer expendituresin fiscal 1973. The poverty status of recipients is based on moneyincome, including cash transfers but excluding the value of transfers in kind.167

TABLE 45.—Federal Government transfer programs, fiscal year 1973ProgramTotalexpenditure(millions ofdollars)Number ofrecipients(thousands)Monthlybenefits perrecipient 1Percent ofrecipientsin poverty 2Social Security:Old age and survivors insurance..Disability insurance42,1705,16225, 2053,272$1391321624Public assistance:Aid to families with dependent children.BlindDisabledAged3,617567661,05110, 980781,1641,91776627360Other cash programs:Veterans' compensation and benefits..Unemployment insurance benefitsIn kind:1,4014,4047,2035,409O)()MedicareMedicaidFood stamps.. _Public housingRent supplementsHomeownership assistance (section 235)..Rental housing assistance (section 236)..9,0394,4022,1361,40810628217010,60023, 53712, 6393,3193731,6475138 81770921 The number of recipients is for individuals, not families.2 Poverty is defined relative to the money income and the size of the recipient's family. Money income includes moneytransfer payments but excludes income received in kind. All percents are estimated.3 Programs with Federal-State sharing of expenses.* Not available.Source: Office of Management and Budget.AID TO FAMILIES WITH DEPENDENT CHILDRENAid to Families with Dependent Children (AFDC) is now the primarycash assistance program run by the States with Federal assistance.EligibilityThe original purpose of the program was to assist children in familieswhere there was need for income because of the death, severe disability, orprolonged absence of the father. The financial aid was intended to enablemothers to stay at home and care for their children, rather than be compelledto work. If the mother did work, her welfare payments were generallyreduced by one dollar for each dollar earned, a provision that eliminated thepecuniary incentive for her to go to work. Families with an able-bodiedfather present who earned little income were not eligible for any federallyaided assistance.The reasons why AFDC recipients lack the father's support have changeddramatically over time. In the 1930's, when the program began, about 75percent of those receiving benefits from the program were children of fatherswho had died or who were severely disabled. By 1971, only 14 percent of thefathers were in this category. The composition of AFDC families has thusshifted toward families with living fathers who are absent, either because ofdivorce or separation or because they are not married to the mother.Attitudes have changed, and the AFDC rules have shifted toward encouragingmothers to work. Starting in 1956, appropriations were authorized168

to help mothers to become self-supporting through services such as childcare for dependent children and rehabilitation assistance for the mother.The 1967 amendments to the Social Security Act provided a work incentivefor families by reducing the implicit tax on earnings and grantingassistance in preparing for work through appropriations for services suchas training, counseling, and child care (the Work Incentive Program orWIN).The AFDG program has also been liberalized to allow limited assistanceto needy families with an able-bodied father present. Since 1961 Stateshave had the option of providing aid to families with an unemployed father,and 22 States in fact do so.Growth of the ProgramDuring the 1950's the proportion of all families in the AFDC programwas roughly stable (Table 46). Since then, however, the proportion offamilies receiving aid has grown dramatically, benefits per recipient haveincreased, and total expenditures in the program have increased even moresharply.TABLE 46.—AFDC benefitsand families, selected years ,1950-72AFDC benefits iAFDC familiesYearTotalannualpayments torecipients(millions ofdollars)AverageDecemberpayment perrecipient 2Total 3(thousands)Percentof allfamilies'1950195519601965 . ..196719695566331,0551,8092,2803,565$2124273340456516208031,0541,2971,8751 71 51 8? ?? 63.7197119726,2037,02052532,9183,1235 65.91 Aid to families with dependent children (AFDC).2 Average of all States for December of each year.3 As of December of each year.4 AFDC families as of December, and total families as of March (except for April in 1955).Source: Department of Health, Education, and Welfare (Social and Rehabilitation Service).Several factors seem to have contributed to the rapid rise in the numberof families receiving public assistance. One is the larger number of familieswith children and with a female as head, although this increase in turn maybe partly a consequence of the large rise in benefits. From 1950 to 1960such families increased by 829,000, while AFDC families increased by152,000. When benefits increased dramatically from 1960 to 1972, however,female-headed families with children increased by 1.5 million, butAFDC families increased by 2.3 million. A larger proportion of femaleheadedfamilies with children may have become eligible for AFDC, manyeligible families may have learned for the first time that they could join,or a large number no longer hesitated to receive welfare. The publicity169

given to the problems of poverty during the 1960's may have informedthe poor of their legal rights.Undoubtedly, the AFDG program became more financially attractiveduring the period. The basic cash benefit level per recipient increased by85 percent from 1960 to 1970; this may be compared to the increase inmedian earnings (full-time, year-round) in the same years amounting to67 percent for men and 63 percent for women. In addition, AFDC familieswere made automatically eligible for many in-kind benefits which were introducedor expanded in this period. According to estimates, by 1971 virtuallyall AFDC families were eligible for medicaid, 68 percent actually participatedin the food stamp or food distribution program, 59 percent benefitedfrom the Federal school lunch program, and 13 percent from subsidizedhousing. In 1972 a family in New York City consisting of three childrenand a mother who did not work, which received all of the benefits listedabove, would have received benefits which cost the government $5,912,of which $3,756 was cash income. Benefits vary widely, however, and inAtlanta the value of the same package of benefits for the same familywould have been $3,606, of which $1,788 would be cash income. Theseamounts do not include the value of other benefits received, such as childcare and manpower training.The recipients may not, of course, value the various in-kind benefits attheir actual cost. Benefits such as food stamps are similar to cash, and otherbenefits may subsidize basic goods and services. The value the recipientsplace on some programs, such as medicaid, would be more difficult toevaluate.As the AFDC program with its related benefits became more generous,more people may have decided that the return was worth the difficultiesand possible humiliation of applying. Much more study is needed before allthe factors underlying the increase in the AFDC case load are understood.AFDC and Family Formation and StabilityAnother issue of social importance is how the increase in AFDC benefitsaffects the formation of female-headed families. One recent study ofwhether higher levels of stipends in AFDC did result in a higher rate offemale headship used multivariate analysis to control for the effect of malewages and other relevant causal factors. The finding for 1960 was that acrossmetropolitan areas, holding constant the male wage, a 10 percent higherAFDC stipend in an area was associated with a nearly 4 percent higher rateof female headship. Holding constant the AFDC stipend, an increase in themale wage was associated with a decline in female headships. The analysiswas duplicated for 1970 with similar findings, although the relationshipswere somewhat weaker. By 1970, however, in-kind benefits would haveformed a much larger unmeasured addition to the stipend; results for thatyear may consequently be less reliable.From 1960 to 1970 women with children became more likely to headfamilies. The proportion increased from 6 to 8 percent for white women170

and from 19 to 28 percent for black women. In this period widows declinedas a proportion of all female heads of families with children, but unmarriedmothers accounted for an increasing share. It is quite possible that risingAFDC payments provided one incentive for young women to forgo marriageand set up a household of their own with their children.The majority of both black and white female heads of families with childrenare separated or divorced. During the period 1960 to 1970, disruptedmarriages continued to play a part in the total increase in female headships.Some of this increase, however, was the result of a decline in the proportionof divorced and separated mothers who lived with other relatives and anincrease in the proportion who set up their own households and would thenbe counted as family heads. Rising levels of AFDC benefits may have madeit financially possible to do so. For this group the effect of AFDC was not tocause the separation of couples, but to induce the mother to live alone withher children.Work IncentivesImportant changes in the rules, intended to reduce welfare expendituresby providing a monetary incentive to work, were introduced duringthe 1960's. As noted earlier, AFDC recipients were initially subject to adollar reduction in cash benefits for each dollar earned (an implicit marginaltax rate of 100 percent). In 1962 a modification of the tax on benefitswas introduced, requiring the States to grant a deduction for workrelatedexpenses. As a result of the 1967 amendments, AFDC recipientsare allowed to retain the first $30 of their earnings without any loss inbenefits, after which cash benefits are reduced by 67 cents for each additionaldollar earned.Mothers in the AFDC program show no major change in their work in thelabor market since the actual start of WIN in 1969 (Table 47). Yet thiswas a period when the labor force participation of women with childrenwas increasing. The recession in 1971 may have weakened employmentprospects in that year. However, the large increase in the percentageunemployed in 1973 may well be the result of the work requirement provisionsimposed in June 1972, as a result of the 1971 amendments, wherebyall employable welfare recipients were, as a condition of payment, requiredto register for work or for training in the WIN program. It should be noted,though, that the full long-term results of the program changes introduced atthat time are not yet reflected in the data.One explanation of the puzzling lack of response to the work incentivesintroduced in 1969 is that the rapid growth of in-kind benefits, each ofwhich is reduced in amount as earnings increase, served to increase theactual reduction in total benefits faced by a recipient who started working.As an AFDC recipient's earnings rise, she thus pays a price not only in loss171

TABLE 47.—Trends in the employment status of mothers in the AFDC program, selected years,1961-73Status of mother1961 1967 1969 1971 1973Total mothers (thousands) *_743.2 1,109. 0 1, 463. 0 2, 345. 7 2,795. 3Total mothers (percent)100.0100.0100.0100.0100.0Mothers not employedActively seeking work84.385.56.585.35.985.15.783.811.5Mothers employedFull-timePart-time15.75.610.114.57.07.514.78.36.415.09.06.016.29.96.31 Limited to mothers jn the Aid to Families with Dependent Children (AFDC) program who were living at home.2 Not available.Note.—Data refer to status in January of each year. Detail may not add to totals because of rounding.Source: Department of Health, Education, and Welfare (Social and Rehabilitation Service).of some of the AFDC grant but also in the loss of some food stamp, housing,and other benefits. According to this view, while the 1967 amendmentsalone would have given an incentive to work, their effects may well havebeen offset by the increasing benefits in kind, some of which would be lostfor each increase in labor market earnings.It is not clear, however, how important in practice this factor could be,since the reduction in cash benefits as earnings rise has become very small.Many States exempt large amounts of earnings before any reduction in benefitsoccurs, and this reduction is in addition to the $30 a month income disregardestablished by the 1967 amendments. In Mississippi, for example,the State income disregard is large, and it is unlikely that the reduction incash benefits ever exceeds 10 percent of earnings net of work expenses(the average cash benefit tax rate). Moreover, a change in 1969 in themethod of entering work-related expenses into the cash benefits reductionformula further lowered the effective tax rate. One study estimated thatthe average net tax rate paid by the average working AFDC mother in Illinoisand New Jersey (two relatively high tax States) fell from 94 percent to42 percent between 1967 and 1971. In general, it would appear that theaverage tax rate on earnings must have fallen since 1969, even after accountingfor the growth of in-kind benefits and their effect on the overall implicittax rate.An important factor discouraging work may have been the increasein the benefit level itself (including in-kind benefits), which—since manypersons eligible for AFDC have low potential earnings—made it possiblefor many to maintain a higher living standard than could be obtainedthrough work. Moreover, the average AFDC mother incurs substantialwork expenses including child care, payroll taxes, transportation, and additionaloutlays for clothing and food. These expenses are likely to make upa large proportion of earnings that are not high to begin with. Thus, theactual dollar increment of earnings that could be retained, even if thebenefit tax rates were zero, could well be too low to make it profitable towork.172

Equity and Welfare ReformMany problems of equity have been raised with respect to the AFDC program.There are wide variations from State to State in the level of benefits.There are wide variations from family to family in the extent to which theyreceive in-kind benefits. And, perhaps most important, many poor familieswith a working parent earn less than the total benefits to a welfare family.In designing a reform of the public assistance program it will be importantto pay attention to these inequities.It will also be important to give women fewer incentives to have childrenwithout marrying or to separate if they are married. It may therefore benecessary to extend income supplements to the poor family with a workingmale head. In the long run, however, such a program would provide workdisincentives for husbands and wives in intact families. This could be overcomeby a moderate implicit reduction in benefits as earnings rise, but sucha solution could be costly. Resolving the dilemma will be one of our mostchallenging problems.SOCIAL SECURITY AND SUPPLEMENTAL SECURITY INCOMESince the 1930's the Federal Government has provided funds for the aged,blind, and disabled and for the dependents of deceased workers. The currentprograms for these groups are known as Social Security and SupplementalSecurity Income.Social SecurityThe transfer program with the largest disbursement of funds and numberof recipients in 1973 was Old Age and Survivors Insurance (Table 45).OASI provided $42.2 billion in benefits to 25.2 million recipients. The recipientswere either aged or the dependents of deceased workers. Approximately16 percent of the recipients were classified as in poverty, on the basisof money income (including social security benefits). Over 3 million personsreceived disability benefits under social security, almost one-quarter of whomwere in poverty.Social security benefits have been rising rapidly in recent years. The minimumand maximum benefits for a worker retiring at age 65 under full benefitshas increased from December 1970 to December 1973 by 54 percent and66 percent respectively, to $84.50 and $266.10 per month. The consumerprice index increased by 23 percent in the same period. In addition, acrossthe-boardincreases of 7 and 4 percent are scheduled for March andJune 1974. Starting in 1975, social security benefits can be increased annuallyto reflect increases in the consumer price index.One effect of the benefit increases is that the aged are now more likelyto compose a separate family, rather than a subfamily within a largerfamily. Although increased social security benefits have reduced povertyin the past, most recipients at present are not in poverty. Across-the-board173527-867 O - 74 - 12

enefit increases greater than the increase in the cost of living cannot beexpected to reduce poverty markedly in the future.Accompanying the increase in social security benefits has been a rise inthe social security payroll tax. From 1937 to 1950 the tax rate paid by both theemployer and employee was 1 percent of the worker's earnings up to $3,000.In January 1974 the social security tax rate (for OASI, and disability andhospital insurance) was 5.85 percent of earnings up to $13,200. There isreason to believe that part of the employer's tax is shifted to employees.Viewed solely as a tax, the social security levy is regressive. As a percentageof all Federal Government receipts, social security taxes increased from4 percent in 1949 to 24 percent in 1973. The social security tax is uniquein that there tends to be far less public opposition to raising revenue from thissource than from other sources.Supplemental Security IncomeAs of January 1974, Federal grants-in-aid to States for public assistanceto the aged, blind, and disabled were discontinued, and a new federally administeredSupplemental Security Income program (SSI), financed out ofgeneral tax revenues, was instituted. The primary purpose of this new programis to provide a nationally established minimum income for these threespecific categories of adults who in general cannot be expected to earn anadequate income. Most of the recipients of public assistance benefits underthe old program for the aged, blind, and disabled were in poverty in 1973(Table 45). The benefits under SSI for those with no other money incomeare $140 a month for a single person and $210 a month for a couple. Theseare to be increased to $146 and $219 respectively in July 1974. SSI recipientscannot purchase food stamps. With the federalization of assistance, benefitshave increased for the aged, blind, and disabled poor in many States, andStates can provide additional income supplements to SSIrecipients.FEDERAL FOOD SUBSIDY PROGRAMSEver since the Great Depression of the 1930's, the subsidization of foodconsumption has been a major Federal Government program to aid the poor.Food StampsFood stamps are a Federal program, initiated in 1961, to supplement theincome of the poor in participating counties. The growth of the program hasbeen phenomenal. In June 1965, 425,000 persons received food stamps at acost to the Federal Government of $33 million during fiscal 1965. By July1973 there were 12.1 million recipients, and Federal costs in fiscal 1973were $2.1 billion. In June 1973 food stamps were available in 48 Statesand the District of Columbia, and the program will be mandated for theentire Nation in July 1974. An eligible family can buy food coupons for aprice that is lower than the redemption value at the grocery store. The differencebetween the redemption value and the price of the coupons to thefamily is the subsidy.174

Families on public assistance are automatically eligible for the program.Almost 40 percent of recipients in July 1973 were not on public assistance,however, although 92 percent of food stamp recipients were in the povertypopulation.The average monthly subsidy per person in recipient households was$15.30 in July 1973, or 55 percent of the redemption value of the averagecoupon. The maximum monthly subsidy for a family of four with no moneyincome is $116, and the subsidy declines for each additional dollar of income.A family of four with monthly income in excess of $390 receives no subsidy.The income concept for eligibility is money income, including money transfersafter deducting income and payroll taxes, child care expenses if neededbecause of work, rent payments exceeding 30 percent of money income, andother allowances.Other Food ProgramsThere are two other Federal food programs. The family food distributionprogram provides free foodstuffs for low-income families. From a peakof 12.7 million recipients in fiscal 1939, the number has declined to 2.4million in July 1973. Relatively few counties have both a food stamp and afood distribution program at the same time. The food stamp program hasgradually replaced the family food distribution program, which will ingeneral be terminated in July 1974.The Federal school nutrition programs subsidize milk consumption aswell as breakfast and lunch for children in participating schools, with largersubsidies for children from low-income families. In fiscal 1972, 25.4 millionschool children benefited from the school lunch program at a cost to theFederal Government of $726 million.MEDICARE AND MEDICAIDSince 1965 the Federal Government has been more directly involved inthe subsidization of medical care for the aged and the poor through twonew programs, medicare and medicaid.MedicareMedicare is a Federal Government health insurance program coveringhospital care, post-hospital extended care, physicians' services, home healthservices, and certain other benefits for all persons aged 65 years and older.Since January 1974 medicare has been extended to those under 65 who havebeen entitled to benefits from social security disability insurance for at least2 years, as well as to all those covered by social security and their dependentswho require treatment for chronic kidney disease. The benefits under medicareare broad but with defined limits, and there are deductibles and costsharing (coinsurance) that the recipient must pay.In fiscal 1973, 10.6 million persons received medical care paid forthrough the medicare program. The average benefit was $71 per month175

(Table 45). Medicare is chiefly designed for the aged, many of whom arenot poor. About 17 percent of the recipients of medicare benefits in fiscal1973 were in poverty on the basis of current money income.Me die aidMedicaid is a Federal-State health assistance program for welfare recipientsand the medically indigent. Medicaid is administered by the Stateson a cost-sharing basis with the Federal Government. The eligibility requirementsand the benefits differ among the States.The medically indigent are those who are not necessarily poor by theBureau of the Census poverty standard but are judged by the States to haveincomes sufficiently low or medical expenses sufficiently high to qualify forassistance. In fiscal 1973, 70 percent of the medicaid recipients were in thepoverty population. Some of the 23.5 million persons receiving medicaid infiscal 1973 were among the aged poor and were using medicaid to pay thepremium, deductibles, and coinsurance required by medicare. Medicaidbenefits are received by many persons, such as children on AFDC and theirmothers, who are not chronically ill and hence have small annual medicalexpenses, but who are nevertheless in poverty.The Growth of the ProgramsPublic expenditures for medicaid and medicare have been rising at anannual rate of 14 percent from 1970 to 1973. As knowledge of the programshas spread the number of recipients has increased. This source of increasedexpenditures is not likely to continue indefinitely. There has also been a largeincrease in the utilization of services per recipient, and in the prices chargedper unit of service. Although part of the price increase may reflect qualityimprovements, some of it derives from pure increases in price.Higher deductibles and coinsurance would reduce the growing cost ofthe programs due to the increase in services and prices per unit of service.At the same time, however, it would increase the out-of-pocket cost of medicalcare for the aged and the poor. A mechanism is needed that will provideadequate medical care for the aged and the poor and reduce the stronginflationary pressures built into medicaid and medicare, but that will do sowithout direct Government provision of medical care or extensive regulationof the medical care sector.INCOME DISTRIBUTION EFFECTS OF MONEY TRANSFER PROGRAMSThe transfer programs discussed above, as well as other government transfersaffect the incomes of families. Comparisons between these money transferpayments and the total money income of families show the income redistributioneffects of the transfers. How participation in the labor market andfamily formation are affected by money transfers is an important issue, buttoo little is known at the present time to quantify what the distribution offamily income would be if there were no transfers.176

Money TransfersAs the data in Table 48 indicate, 38 percent of the families reported receivingsome transfer payments in 1970. Social security and railroad retire-TABLE 48.—Proportion of families having transfer income from particular sources, 1970All families.Under $1,000..$l,000-$l f999_.$2,000-$2,999_.$3,000-$3,999_.$4,000-$4,999_.$5,000-$5,999_.$6,000-$6,999_.$7,000-$7,999_.$8,000-$9,999_.$10,000-$14 f999..$15,000-$24,999__$25,000 and over.Income class 1TotalPercent of families in each income classwith transfer payments26112 17241111 1622 12 12Socialsecurity andrailroadPublicassistance 2 Other 3retirement38247154127133776024872551917604312 1750359 1742275193521416302916143317171 Family income is family money income including transfer income in cash.2 Public assistance includes AFDC and assistance to the aged, blind, and disabled.3 Includes unemployment compensation, workmen's compensation, government employee pensions, veterans' benefits,and unidentified transfer payments.Source: Department of Health, Education, and Welfare (Social Security Administration).ment benefits were the most common form of transfer and were receivedby 24 percent of the families. Public assistance went to 7 percent of thefamilies; both unemployment compensation and veterans' benefits werepaid to approximately 5 percent of the families. Only 7 percent of moneyincome was derived from transfers. The average transfer per family was $696,of which 56.6 percent was from social security, 13.1 percent from publicassistance, and 30.2 percent from other sources.The higher the income, the smaller the proportion of families receivinga transfer. The percentage of income in each group derived fromgovernment transfers was also lower for higher levels of income. For example,those with incomes between $1,000 and $1,999 received an average of68 percent of their income from transfers, but only 3 percent of the incomein the $15^00 to $24,999 range was derived from transfers. Low-incomefamilies had approximately twice the dollar value of transfers that highincomefamilies had. Except for the lowest two income groups, however, themean income from government transfers for those who received transferincome was largely invariant with family income after transfers. Highincomefamilies receive a small proportion of their total income from governmenttransfers, not because of a smaller dollar transfer per recipient, butbecause they have more income from other sources (earnings and propertyincome) and fewer among them receive transfer income.177

Public assistance is specifically designed to provide income supplementsfor those who would otherwise have little income. Since public assistance isheavily concentrated in the lowest income groups and the benefits per recipientare a very large fraction of the income of the poor, public assistance hasa strong income redistribution effect. Social security and railroad retirementpayments are largely received by aged families and younger families headedby a widow. Although these families tend to have low current income, thebenefits are larger for those who had higher earnings in the past.The target populations for the other forms of transfer payments, that is,the unemployed, those injured on the job, retired Government employees,and veterans, are not necessarily poor. Except for the lowest and highestincome groups, approximately 17 percent of the families in each groupreceived funds in 1970 from one or more of these four sources. Again exceptfor the extremes of the distribution, there is virtually no change in dollarbenefits per recipient for higher-income groups. The higher the other incomeof the family, the smaller the proportion of income derived from suchbenefits. These transfers have a mild income redistribution effect.Within the category of other payments, unemployment compensation ismore important for middle-income families ($4,000 to $15,000) than forthe poorest and wealthiest of families. The members of the poorest familiesordinarily have too little work experience to qualify for unemployment compensation.The income earners in the highest-income families have lowerrates of unemployment.Income Inequality Before and After the TransfersTable 49 presents a measure of income inequality, the variance in thenatural logarithm of income, for family money income and family moneyincome minus particular transfers (see supplement to this chapter). Thispermits a determination of the extent to which the different types of transfersreduce income inequality. Such an approach implicitly assumes that thetransfers do not give rise to labor market or family formation responses byTABLE 49.—The effect of money transfers on family income inequality, 1970Type of incomeAll incomeAll, excluding "other" transferAll, excluding social securityAll, excluding public assistance 3All, excluding social security and public assistance 3All, excluding all transfer incomeIncomeinequality 10.74.771.16.851.451.571 Income inequality is measured by the variance in the natural log of income. (See Supplement to this chapter).2 "Other" transfers include unemployment benefits, workmen's compensation, government employee pensions, andveterans benefits. The income classes used were: Under $2,000; $2.000-$2,999; $3,000-$3,999; $4,000-$4,999; $5,000-$5,999; $6,000-$6,999; $7,000-$7,999; $8,000-$9,999; $10,000-$14,999; $15,000-$24,999; and $25,000 and over.3 Public assistance includes AFDC and assistance to the aged, blind, and disabled.Sources: Department of Health, Education, and Welfare (Social Security Administration) and Council of EconomicAdvisers.178

the recipients. The data suggest that social security and public assistancedramatically decreased the measured relative inequality of family income.The combined effect of the other transfers is a small decrease in incomeinequality.The Tax Transfer SystemThe success of the Government's programs for the redistribution of incomecannot be judged from any one program or from an examination of taxesor transfers separately. Primarily because of public assistance, social security,medicaid, and food stamps, the transfer system is highly progressive in redistributingincome to low-income families. It was shown above (Table 35)that the net effect of personal income and payroll taxes on cash and imputedincome appears to be progressive. Several studies have examined the effectof the tax system on the distribution of income when accrued capital gainsand losses are included in the income concept. These studies suggest thatthe tax system is roughly proportional over the income intervals in whichmost families belong, regressive for those with very low incomes, and progressiveat the upper end. However, the combined direct effects of the taxand transfer systems clearly appear to be progressive.SUPPLEMENTThe Variance of the Natural Logarithm of IncomeThe "variance of the natural logarithm of incom'e" is the measure of overall incomeinequality used in the analysis of the distribution of income in this chapter. It can bewritten as:N£(lnY,-lnY)«i=l (1)S»(lnY) = JJ-~where Yj is the income of the i th observation (individual or family), In designatesnatural logarithm, ancj there are N observations in the data. Larger values of S 2mean greater inequality of income, and S 2 equals zero if there is no inequality. Whilea reduction of the measure from 0.7 to 0.6 conveys an acceptable suggestion about adecline in inequality, and a decline from 0.7 to 0.5 an acceptable suggestion about agreater decline, the statement that the second of these two declines is twice the firstwould not be meaningful.The variance of the natural logarithm of income is a commonly used simple measureof relative inequality. A measure of relative inequality does not change in valueif all of the observations have the same percentage change in income. IfY*,=Y,(l+k), (2)where k is the percentage change in income, the natural logarithm of both sides ofequation (2) islnY* i = lnY i + ln(l + k). (3)Computing the mean of both sides of equation (3),E I n Y + ln(l-f k). (4)179

Then, subtracting equation (4) from equation (3),lnY*i— InY* = (lnY s + ln(l-fk)) — "(mY + ln(l + k)) = lnYj — mYT (5)and S2(lnY*)=SHlnY). (6)Thus, a proportional tax on income or a proportional cash subsidy does not changerelative income inequality.Relative inequality decreases (increases) if the income of each observation isincreased (decreased) by the same dollar amount. A $100 per year grant to a poorfamily constitutes a larger percentage increase in income than an equal dollar grant toa wealthy family. Such a grant reduces the relative inequality of income.A progressive tax is one in which the higher the level of income, the larger theproportion of income paid in taxes. In a regressive tax a smaller proportion of incomeis paid in taxes as income increases. A progressive tax reduces, and a regressive taxincreases, relative income inequality (S 2 (lnY)).180

CHAPTER 6The International Economy in 1973INTERNATIONAL TRADE AND INVESTMENT grew at a nearrecord rate during 1973, despite the strains placed on the internationaleconomy by massive capital flows, large fluctuations in exchange rates, andstrong price pressures due to crop failures, capacity limitations, and cutbacksin oil production by the major producers. The existing internationalmonetary and trading system proved resilient enough to enable governmentsto cope with the difficulties they experienced in managing their economies,without having to take measures that would have seriously disruptedinternational trade and investment flows. While individual governmentsadopted different policy instruments, including external measures, in seekingto stabilize their economies, potential policy conflicts were minimized bymutual accommodation. The common effort to arrive at pragmatic solutionsto joint problems undoubtedly strengthened the international economicsystem.As indicated elsewhere in this report, the major problem faced by theUnited States as well as the other major industrial nations during 1973 wasinflation. In most economies, demand at the beginning of the year was fastapproaching or was already in excess of the capacity to produce more goods.Demand pressures were intensified when large speculative capital flows ledto excessive increases in the money supply in a number of countries. Superimposedon this generally inflationary environment were particularly largeimbalances between demand and supply in particular sectors. Capacity limitationswere especially severe in the processing of raw materials, like petroleumand steel. Moreover crop failures in many parts of the world putpressures on agricultural supplies in the United States and elsewhere, andin the latter part of the year the major oil producers in the Middle East cutback the oil they were supplying to the rest of the world.General inflation combined with particularly large increases in the pricesof basic foods and processed materials to create tremendous political pressuresin most countries for government actions to reduce price increases. Amongthe policy measures governments took in response to such pressures wereprice controls and export controls. The latter measure had the unfortunateside effect of shifting the inflationary pressures to other countries. Neverthelessin most cases governments recognized the limits of beggar-my-neighbor181

policies, and the tensions among countries resulting from the pursuit of suchpolicies were successfully eased by means of diplomatic efforts.In working out cooperative approaches to the various global problemsgovernments benefited from discussions regarding a longer-term reform ofinternational economic arrangements. In turn, the experiences of the pastyear provided a new perspective on plans for reform. Progress was made ineach of the three major areas of reform: the international monetary system,the international trading system, and arrangements relating to internationalinvestment.The international monetary system. Discussions on the future of the internationalmonetary system were held in the framework of the Committee ofTwenty, which was set up by the countries belonging to the InternationalMonetary Fund (IMF). An indication of the current state of these discussionswas provided by the chairman of that committee in a report to theannual meeting of the IMF in Nairobi in September.The international trading system. Also in September, 105 countriesreached agreement in Tokyo on some general objectives and a frameworkfor a major new round of trade negotiations. They pledged to aim simultaneouslyfor an expansion of international trade opportunities and improvementsin the rules and procedures for coordinating trade policies. Prior tothis meeting the Administration sent to the Congress draft legislation toauthorize U.S. participation in a new round of trade negotiations and toimprove the legislative provisions dealing with Presidential management ofU.S. trade policy.International investment. Discussions were held on investment questions inthe framework of the Organization for Economic Cooperation and Development(OECD). The preliminary conclusions reached on the basis of these discussionspoint to the desirability of some new procedures and guidelineswhich would assure an efficient international allocation of new capital.WHAT HAPPENED IN 1973?In the area of international economic relations, the year 1973 may becharacterized as one of continuing adjustment to past disequilibria as wellas to new developments that entered the picture during the year. Early inthe year the governments of most major countries abandoned attempts tofix exchange rates at negotiated levels. While central banks continued tointervene to some extent, foreign excharge markets played the major rolein determining the exchange rates that would clear the market. This processwas marked at times by unusually large fluctuations of market exchangerates. Nevertheless, the market performed its intermediating function well,and neither trade nor long-term capital flows were seriously disrupted atany time during the year.The developments in the balance of payments accounts of individualcountries reflected, in part, the developments in the foreign exchange markets.The appreciation and depreciation of individual currencies, achieved182

either through formal measures by the authorities or as a result of free movementof exchange rates, continued to influence the flows of internationalcommerce and thus the deficits and surpluses of individual countries. Specialdevelopments, such as the shortages of food in certain parts of the worldand, later in the year, the emerging world energy crisis, also affected thedirection and magnitude of trade and capital flows among countries.What Happened to Exchange Rates?Developments during 1973 in the foreign exchange market can be convenientlybroken into four periods, coinciding with the 4 quarters ofthe year. These developments are described in detail below. Briefly, inthe first quarter, massive capital flows from the United States to Europeand Japan had two effects: First, foreign central banks added around$10 billion in claims against the United States to their reserves as aresult of their efforts to support the value of the dollar in terms of their owncurrencies. Second, when large-scale market intervention failed to restorestability to foreign exchange markets, fixed exchange rates were abandoned;consequently the dollar fell during the quarter by an average of 10 percentagainst the EC currencies floating jointly, and 7 percent against the currenciesof 14 major industrial countries when each is weighted by thatcountry's bilateral trade with the United States (Table 50). For thecomputation of the trade-weighted depreciation of the dollar see the supplementto this chapter.In the second quarter the dollar depreciated against most continentalEuropean currencies, but remained in close relationship to the Japanese yen,the Canadian dollar, and a number of other currencies accounting for twothirdsof U.S. trade. The dollar dropped 11 percent against most EC currenciesfloating jointly, and around 5 percent against the group of 14 currencies.Net claims of foreign central banks on the United States during thisperiod actually decreased by about $0.7 billion.In the third quarter the decline of the dollar was arrested, and its valueremained roughly the same against the group of 14 currencies. In fact therewas limited intervention by a number of central banks, including the UnitedStates, to prevent the dollar from rising.TABLE 50.—Changes in the foreign exchange value of the dollar, U.S. liabilities to qfficiaforeigners and U.S. liabilities to private foreigners, 1973Percent change from preceding quarterItemFirstquarterSecondquarterThirdquarterFourthquarterForeign exchange value of the dollar 1-6.9-5.01.15.5U.S. liabilities, official foreigners 215.9-.9-1.3U.S. liabilities, private foreigners*...-9.310.64.51 Trade-weighted depreciation of the dollar against 14 major currencies; computed by Morgan Guaranty Trust Company .2 Liabilities to foreign central banks and governments.3 Not available.4 External liabilities to other banks and to other foreigners.Sources: Morgan Guaranty Trust Company and International Monetary Fund.183

In the fourth quarter the dollar rose sharply. It rose 12 percent againstthe German mark and around 5 percent against the group of 14 currencies.Central banks intervened substantially to slow the dollar's rise, and claimsby foreign central banks on the United States declined.The first quarter of 1973: Fixed exchange rates are abandoned. Foreignexchange markets were stable in the beginning of 1973. In most foreignexchange markets the dollar was above the level where central banks werecommitted to buy dollars to keep its value within the agreed margins. Thestability was so fragile, however, that any disturbance had a highly unsettlingeffect on the market. The first such disturbance was an accelerationof the capital flight from Italy into Switzerland. Confronted with massiveoutflows, the Italian authorities allowed the lira to float, first for financialtransactions and later for all transactions. In Switzerland, the influx of fundsfrom abroad intensified an already high rate of inflation. To gain greatercontrol over its monetary policy, Switzerland decided on January 22 to allowthe franc to float. By terminating their purchases of foreign currencies insupport of a fixed value of the franc vis-a-vis other currencies, the Swissmonetary authorities were able to avoid further involuntary increases in theSwiss money supply.The floating of the franc by Switzerland, a country viewed by many asthe epitome of financial orthodoxy, strengthened expectations that otherexchange rate adjustments were inevitable, particularly for currencies ofcountries with large payments imbalances such as Japan and Germany.These expectations led to increasingly large speculative purchases of marksand yen for dollars. Such sales reached a peak in the first week of February,forcing the closing of foreign exchange markets on February 10. Extensiveconsultations among the monetary officials of major countries followedand culminated in a number of coordinated exchange rate adjustments.On February 12 the Administration announced that it would askCongress to approve a 10 percent devaluation of the dollar in terms of SpecialDrawing Rights (SDR's). At the same time, the Japanese authoritiesannounced that the Japanese yen would be allowed to float upward. Theresulting exchange rate structure was endorsed by the 14 major industrialnations.The multilateral adjustment of exchange rate patterns in February,including the devaluation of the dollar, did not, however, restore marketconfidence in the entire pattern of rates—in particular, the rate for theGerman mark. Large-scale flows of speculative funds out of dollars intomarks and some other currencies continued until exchange markets wereofficially closed on March 2.The exchange markets remained officially closed until March 19, althoughprivate trading of currencies continued. On March 19, five of the EuropeanCommunity (EC) countries—Belgium, Denmark, France, Germany, andthe Netherlands—allowed their currencies to float jointly vis-a-vis the dollarand other currencies. As before, these countries decided to keep the exchange184

ates between any two of their currencies within 2% percent of an agreedrelationship. In addition, Norway and Sweden subsequently decided to pegtheir currencies to the jointly floating EG currencies.The second quarter of 1973: The dollar drops further. Between theend of March and the end of June the markets were characterized by asubstantial depreciation of the dollar against most European currencies. Atthe same time, the dollar remained relatively unchanged against the currenciesof Japan, Canada, and a number of other countries. The dollar declinedabout 11 percent in terms of most EG currencies floating jointly and 5percent in terms of the trade-weighted average of 14 currencies. The dollardeclined by as much as 15 percent vis-a-vis the German mark, which wasrevalued by 5/2 percent relative to the other EG currencies floating jointly.(Chart 10.)There were three sources of downward pressure on the dollar in Europeanexchange markets during this period. First, the United States continuedto have a deficit vis-a-vis Europe on basic balance transactions—Chart 10Change in the Value of the U.S. DollarRelative to Selected Foreign CurrenciesPERCENT CHANGE FROM MAY 197050-5\BRITISH POUND-10-15TRADE-WEIGHTED AVERAGEVALUEOFTHE DOLLAR*-20-25L. /*-30 -JAPANESE YEN-35 -A * FRENCH FRANC /GERMAN MARK-40 1 1 I I I 1 1 I I 1 1 I 1 i i i 1 i i i 1 ii i i 1 i i i 1 i i1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 IIJAN. FEB. MAR. APRIL MAY JUNE JULY AUG. SEPT. OCT. NOV. DEC.1973* RELATIVE TO 14 MAJOR CURRENCIES; COMPUTED BY MORGAN GUARANTY TRUST COMPANY.NOTE: FOR INDIVIDUAL CURRENCIES, FRIDAY CLOSING PRICES WERE USED.SOURCE: MORGAN GUARANTY TRUST COMPANY.185i

which include trade, grants and other unilateral transfers, and long-terminvestment. This meant that the public was supplying more dollars throughthese transactions in exchange for European currencies than were beingpurchased with European currencies through these transactions. Second,many non-European countries besides the United States had deficits vis-avisEurope in basic transactions. Since most of these countries use thedollar as a reserve currency, they tended to finance their deficits vis-a-visEurope with dollars. Dollars from non-American sources were thus competingwith dollars from the United States in European exchange markets.Third, the dollar is widely held abroad not only by central banks but alsoby many private individuals, banks, and corporations. With the continuingdecline of the dollar during the previous 2 years, many of these privateforeign holders wanted to exchange their dollars for foreign currencies.As long as markets clear, however, there can be no "additional" dollarsremaining unsold. Exchange rates will change until enough sellershave been discouraged from selling or enough buyers have been encouragedto buy. Equilibrium in the market was established during this periodby private foreigners on balance increasing their dollar holdings. Figuresfor dollars held by private foreigners in Europe are not available, but thechanges in these holdings are reflected in the $2 billion increase of U.S.liquid liabilities to all private foreigners from the end of March to the endof June. Foreign central banks decreased their holdings of dollars over thisperiod by $650 million.The rapid drop of the dollar significantly below what many consideredits longer-term value created widespread uncertainty regarding future exchangemarket trends; for a short period during the end of June and thebeginning of July the spread between buying and selling rates widened,and it became increasingly difficult for traders to obtain forward coverage.Nevertheless foreign exchange markets remained open throughout thisperiod, and normal international trade and investment transactions continuedwithout major disruption. Fears by many that floating exchangerates would disrupt international trade proved to be without foundation.The third quarter of 1973: The dollar begins to rise. The decline of thedollar relative to European currencies was reversed in the third quarteras an increasing body of opinion in the market held that the dollar had becomeundervalued, a view that was strengthened by the emergence of asizable surplus in U.S. trade of goods and services. In this favorable atmosphere,some further impetus to the turn in market opinion came from theannouncement on July 18 of U.S. intervention in the foreign exchangemarket in order to maintain orderly market conditions.This move discouraged speculation against the dollar by raising the possibilitythat the U.S. authorities would buy as many dollars (or sell as manyforeign currencies) as would be necessary to prevent a further decline. Tomake large-scale intervention by U.S. authorities in the foreign exchangemarket a credible possibility, it was announced at the same time that bi-186

lateral swap facilities had been increased by $6*4 billion; the amount offoreign currencies that the Federal Reserve could borrow from other centralbanks thus rose to nearly $18 billion. In fact, intervention by theFederal Reserve amounted to only about $250 million during the last 3weeks of July. During this period the dollar rose by around 4 percentagainst the jointly floating European currencies.The fourth quarter of 1973: The dollar rises further. During the fourthquarter the appreciation of the dollar continued, in part because it wasthought that the United States was in a relatively better position thanWestern European countries and Japan to deal with the cutback of oilproduction in the Middle East and the simultaneous increase in world oilprices. At the same time, the surpluses in U.S. trade were becoming larger,and figures published for the long-term investment account began to showa surplus. Between September 28 and December 27 the dollar rose by about 11percent against the jointly floating European currencies. By the end of theyear the dollar was thus approximately back to its February post-devaluationlevel. The dollar was rising so fast, in fact, that some foreign centralbanks found it increasingly desirable to reduce their controls on capital inflowsand to sell off some of the dollars which they had accumulated in thepast. Foreign exchange reserves of the Bank of Japan and the Bundesbankdeclined by $1 billion each during the October to November period as aresult of their dollar sales.Increasingly in the fourth quarter the exchange markets became dominatedby the energy crisis and the abrupt and massive additions to importcosts of oil. Early in January 1974 both the yen and the European currenciesfloating jointly depreciated sharply, and in some cases reached levelslower than those prevailing immediately after the multilateral adjustmentof February 1973. On January 21, the French franc was allowed to floatfreely, and immediately declined by 5 percent.Over the year as a whole the functioning of the exchange market improvedas traders gained experience with floating exchange rates. This can beseen, for instance, in the narrowing spread between the buying and sellingrates of the major currencies traded and in.the diminished day-to-day fluctuationsof these currencies. In general, one has to conclude that despitethe dramatic decline and the equally dramatic rise of the dollar against themajor European currencies, foreign exchange markets functioned remarkablywell, and only on a few days was it difficult to carry out foreign exchangetransactions.What Happened to All Those Dollars?Over the years a large volume of dollars has been accumulated by foreigners,both governments and private individuals. To a large extent thesedollars are held because the dollar is the most widely used currency for internationaltransactions, and a stock of dollars was therefore useful for all thereasons that induce people to hold money. Dollars are thus held voluntarilyby private banks, corporations, and individuals. They are also held volun-187

tarily by foreign central banks, even though central banks to some extenthold these dollars not because they want to increase their dollar reserves,but because they want to avoid a rise in the value of their currencies relativeto the dollar.Dollars held by foreigners are generally held in the form of dollar balancesat commercial banks. However, not all of the dollars held by foreignersare dollars which are liquid liabilities of the United States, that is,dollar balances held in U.S. commercial banks. Some dollars are liabilitiesof European private banks which have accepted dollar deposits. These aregenerally known as Eurodollars. European banks can create new dollars bylending dollars to someone who will redeposit them in a Eurodollar bank.As long as the proceeds of new loans are left as deposits in the banking system,the banking system as a whole can continue to create new money in theform of bank deposits.A number of central banks have participated in the creation of new dollarsin the Eurodollar market by depositing their reserves with European commercialbanks making Eurodollar loans. By so doing, these central banks notonly facilitated the expansion of Eurodollars, but in many cases they endedup by creating new official reserves. Most major central banks, however, havenow agreed to refrain from depositing new reserves in the Eurodollar market.When they are sold in the foreign exchange market, dollars owned byforeigners become indistinguishable from dollars owned by Americans. Thatis, when they are sold they exert a downward pressure, and when they arepurchased they exert an upward pressure on the market value of the dollar.Private American holders of dollars and private foreign holders of dollars,whether these are held in U.S. or in foreign banks, have similar economicmotives in selling or buying dollars in the foreign exchange market. For instance,if the dollar is expected to fall relative to foreign currencies, holdersof dollars will have an incentive to sell dollars and to buy foreign currencies.If the dollar is expected to rise relative to foreign currencies, holdersof foreign currencies have an incentive to buy dollars and to sell their foreigncurrencies. While the average foreign holder of dollars is likely to bemore sensitive to such changes in the foreign exchange value of the dollarthan domestic holders of dollars, the experience of the last few years hasshown that Americans will exchange large amounts pf dollars for foreigncurrencies when they find it profitable to do so.There is some reason to believe that during the first half of 1973 expectationsof a future fall in the value of the dollar may have induced some dollarholders, both in the United States and abroad, to sell their dollars, therebydepressing the market value. Thus there were occasions when the valueof the dollar was declining in the market, even though the United States wasexperiencing a rapid improvement in its underlying balance of payments. Inthe second half, expectations of a future rise of the dollar may have reinforcedan upward trend by inducing both Americans and foreigners to shiftfrom foreign currencies into dollars.188

It is difficult to get a precise estimate of the total amount of dollars heldby foreigners, because figures on dollar deposits in foreign banks arenot easily available. Recorded liquid dollar liabilities of the United States—dollars held by foreigners which are liquid liabilities of either a U.S. bankor the U.S. Government—amounted to about $83 billion at the end of 1972;of this, $63 billion was held by official institutions, and about $20 billionwas held by private banks and other foreigners. In addition the Bank forInternational Settlements (BIS) has estimated that at the end of 1972 thetotal liquid dollar liabilities of private banks in the EC, Sweden, and Switzerlandamounted to almost $100 billion. If interbank deposits made by thesebanks are taken out of this figure, and certain other adjustments are made,the BIS finds that the Eurodollar volume was about $70 billion. The totalvolume of dollars held by foreigners as balances in both American and Europeanbanks was thus in the neighborhood of $150 billion. Of this amountperhaps a little more than half was held by official institutions, and theremainder by foreign private banks, corporations, and individuals. In comparison,the domestic supply of dollars in the United States, in the form ofcurrency and demand deposits, was about $250 billion at the end of 1972.During 1973 the total stock of dollars held abroad increased further. Totalliquid dollar liabilities of the United States at the end of Septemberamounted to $92/2 billion, of which $72 billion was held by official institutionsand $20yi billion by private foreigners. Indications are that the volumeof Eurodollars has expanded as well.What Happened to Trade and Investment?During the first 3 quarters of 1973 Americans exported $3.0 billion morein goods and services than they imported, a large change from the first 3quarters of 1972, when imports surpassed exports by $3.7 billion. On a longtermbasis, private foreigners invested $1.4 billion more in the UnitedStates than Americans invested abroad during the first 3 quarters of theyear; during the same period in 1972, U.S. private long-term investmentabroad exceeded foreign private long-term investment in the United States by$0.9 billion.These developments in the balance of payments are consistent with whatone might expect from the exchange rate realignments of the past 2 years.The depreciation of the dollar in terms of foreign currencies should lowerthe price of U.S. goods and services relative to foreign goods and services,thereby stimulating sales abroad and encouraging U.S. residents to purchasegoods produced at home rather than abroad. By reducing the relativecost of production in the United States and thus adding to its profitability,the depreciation tended to encourage investment in the UnitedStates rather than abroad. Any interpretation of the effect of the depreciationon developments in trade and investment during 1973, however, iscomplicated by the changing business conditions in the United States andelsewhere, by crop failures abroad, by changes in the demand for and sup-189527-867 O - 74 - 13

ply of oil, and by domestic price control programs, all of which also affectedthe U.S. balance of payments.Trade in goods and services. The value of U.S. merchandise exports increased41 percent from the first 3 quarters of 1972 to the first 3 quartersof 1973, while imports increased 24 percent over the same period. Higherprices resulting from intense inflationary pressures here and abroad during1973 accounted for much of the increase in the value of U.S. trade. Adjustingfor price increases, however, makes the turnabout in U.S. merchandisetrade even more apparent. The volume of imports increased only 7percent during the first 3 quarters of 1973, just over half the growth ratefrom 1971 to 1972, while the volume of exports increased 24 percent duringthe first 3 quarters of 1973, more than double the growth rate from 1971 to1972.The rapid growth of exports during 1973, following the realignment ofexchange rates, is consistent with economic expectations. But factors otherthan the realignment of exchange rates also affected U.S. exports during1973.Shortfalls in foreign crops played a major part in increasing agriculturalexports during the first 3 quarters of 1973. Drought in India and Africa,poor weather conditions in the Soviet Union, and the sharp reductions inPeruvian fishmeal production greatly reduced world production of grainsand protein feeds in 1972, thus reducing supplies available for 1973. Becausethe United States was the largest supplier of foodstuffs with relativelyopen access to foreign buyers, these developments abroad had a particularlystrong effect on U.S. agricultural exports. The depreciation of the dollar,however, was also an important factor in expanding agricultural exports byreducing the relative price of American crops. The value of agricultural exportsin the first 3 quarters of 1973 equaled $12.7 billion, up 88 percent fromthe same period in 1972. Although exports of agricultural products accountedfor only one-fourth of the value of total exports, 40 percent of the increasein exports during the first 3 quarters of 1973 came from agricultural products.Prices of food exports during the third quarter were nearly 40 percenthigher than a year earlier, a change which accounted for a large part of theincrease in the value of these exports.Domestic price control programs also stimulated exports during 1973, atthe expense of domestic supplies. As prices of internationally traded goodsrose, it became more profitable to sell abroad, where prices remained unconstrained,rather than at home, where prices were controlled.The increase in U.S. exports, which resulted from food shortages anddomestic price control programs, was offset in part by the rapid increase inimports of crude and refined petroleum products. The fact that the demandfor oil in recent years has been growing more rapidly than domestic oilproduction has created a gap which could only be filled by imports. At thesame time, the world price of oil increased dramatically during the year.Although the major Arab oil producers embargoed oil shipments to the190

United States in October, this did not reduce the value of oil imports duringthe rest of the year. (For a more complete discussion of these developmentssee Chapter 4.)The relatively slow growth of total imports during 1973, despite the rapidincrease in imports of crude and refined petroleum products, is the mostvisible indicator of the impact of exchange rate realignment on U.S. trade.In the later stages of a cyclical expansion, imports should accelerate asdomestic producers run low on domestic supplies and rely on foreign suppliersto meet their demands. The fact that the volume of imports did notgrow very much faster during 1973 than it did in 1972 suggests that thedollar depreciation had a significant effect on trade.Developments in U.S. bilateral trade provide some additional clues tothe impact of exchange rate realignments. For countries whose currencieshave shown a relatively large appreciation in relation to the dollar, one mightexpect that imports from the United States would grow more rapidlythan exports to the United States. This appears to be true, both for Japanand for the EC. Japan, whose currency has risen sharply against the dollar,experienced a 73 percent increase in imports from the United States duringthe first 3 quarters of 1973, while Japanese exports to the United Statesincreased only 9 percent. The EC, whose currencies also rose sharplyin relation to the dollar, increased their imports from the United States by40 percent, while their exports to the United States increased by 23 percent.For countries whose currencies changed relatively little in relation to thedollar, the growth rates of exports to and imports from the United Statesshould be more nearly alike. This appears to be true for Canada and theUnited Kingdom, whose currencies changed relatively little during 1973 inrelation to the U.S. dollar. Exports by Canada to the United States andimports from the United States both increased by around 20 percent. Exportsby the United Kingdom to the United States and imports from theUnited States both grew by around 30 percent.U.S. trade with Communist countries in Europe, including the U.S.S.R.,increased dramatically during 1973, not because of exchange rate realignments,but because of a normalization of trade relations combined withpoor harvests in the Soviet Union. Exports to the Communist countriesin Europe increased to $1.4 billion for the first 3 quarters of 1973, whileimports rose to $0.4 billion. Most of the increase in exports was due to largersales of agricultural products.Investments. During the first 3 quarters of 1973 private foreigners mademore long-term investments in the United States than Americans madeabroad. The effective depreciation of the dollar encouraged foreign investmentin the United States during the year because it reduced the relativecost of producing internationally traded goods in the United States ratherthan abroad. The relative cost of producing in the United States declinedfurther as a result of a tendency for wages to rise more rapidly abroad thanin the United States; foreign firms thus had a greater incentive to produce191

in the United States. In view of the fairly large changes in relative labor costs(Table 51), the increase in foreign direct investment from none during thefirst 3 quarters of 1972 to $1.5 billion during the first 3 quarters of 1973 mayseem fairly small. Judging by the number and size of investment plans thathave been announced by foreign companies, however, this flow can be expectedto increase significantly in the next year.TABLE 51.—Relative labor costs in manufacturing, 1968-73[1967=1001Country and yearHourlycompensationinnationalcurrencyOutput perman-hourUnit laborcost innationalcurrencyValue offoreigncurrencyrelativeto the U.S.dollarUnit laborcost inU.S.dollars^Index of U.S.unit labor costas percent ofindex offoreign unitlabor costUnited States:196819691970197119721973107.2114.0122.2130.8139.0150.0104.8107.3108.0115.7121.3127.5102.3106.3113.2113.0114.1117.6102.3106.3113.2113.0114.1117.6Germany:1968196919701971.19721973 2105.9115.5133.0152.1169.4190.5107.6113.8116.7122.4131.0140.598.5101.5114.0124.3129.4135.599.9101.6109.3114.7125.0150.598.3103.1124.6142.5161.7204.0104.0103.190.979.370.657.6Japan:196819691970 . . .. .197119721973 2 .. .116.2137.3163.4189.0219.5265.1112.6130.0146.5151.7167.0198.4103.2105.8111.5124.6131.5133.7100.4101.1101.1104.2119.5133.7103.7106.9112.7129.9157.1178.798.699.4100.487.072.665.8Canada:1968196919701971.197219732107.3115.3124.5134.5144.5157.4107.3113.2115.0121.6126.9133.5100.0101.9108.2110.6113.8117.9100.1100.2103.4106.8108.9107.9100.2102.1111.9118.2124.0127.2102.1104.1101.295.692.092.5i Indexes in national currency adjusted for changes in prevailing exchange rates.a Based on seasonally adjusted data for first 9 months.Note.—Data relate to all employees in manufacturing.Sources: Department of Labor (Bureau of Labor Statistics) and Council of Economic Advisers.Foreign purchases of U.S. securities other than U.S. Treasury securitiesalso increased, from $2.6 billion during the first 3 quarters of 1972 to $3.4billion during the first 3 quarters of 1973. Such an increase is also consistentwith what one would expect from the large depreciation of the dollar, inasmuchas the depreciation should increase the relative profitability of producingin the United States. Market expectations also exerted a strong influenceon the flow of security transactions over the year. Foreign purchases of U.S.securities were quite large in the first quarter, reaching a total of $1.7 billion.During the second quarter, purchases fell to $0.5 billion, but increased againto $1.2 billion in the third quarter.Direct and portfolio investments abroad by Americans amounted to $3^2billion during the first 3 quarters of 1973, as they had during the first 3192

quarters of 1972. There are two possible reasons for the absence of a decline:First, economic conditions were buoyant throughout the world. Second,most of the outflow occurred in the first quarter, before the major exchangerate adjustments of 1973, and was probably motivated by the anticipationof subsequent exchange rate adjustments.The U.S. Balance of Payments in 1973In a world characterized by the managed floating of exchange rates, measurementof the overall balance of payments has become less important. Ina fixed exchange rate world, one of the major functions of overall measuresof the balance of payments was to signal to policy makers when a given exchangerate had become untenable. To the extent that exchange rates areallowed to adjust automatically in response to payments imbalances, it is nolonger necessary to communicate the desirability of an exchange rate adjustmentto the policy maker. Of course, to the extent that exchange ratesremain constrained by official intervention in the foreign exchange market,the balance of payments numbers will continue to indicate when such interventionmay need to be relaxed.The managed floating of exchange rates has changed in particularthe analytical meaning of the official reserve transactions balance, whichmeasures the net direction and magnitude of official intervention in theforeign exchange market over a period of time. In other words, it approximatelyshows the extent to which governments have bought or soldcurrencies to influence the exchange rate. It also includes government-togovernmentpayments outside the foreign exchange market, but removingthese transactions from the foreign exchange market has the same effect asdirect intervention. As long as governments kept market exchange ratesrelatively fixed by buying and selling foreign exchange, the net amount ofsuch official purchases or sales provided an estimate of the net deficit or netsurplus of a given currency traded in the market. To the extent that governmentsno longer attempt to keep market exchange rates from falling belowor rising above a fixed level, changes in the net demand or supply of a currencyare reflected in a movement of the exchange rate rather than in a netloss or gain of reserves. Since exchange rates were at first fixed and thenfloating to varying degrees in 1973, changes in market pressures were reflectedin part by changes in exchange rates and in part by net changes ininternational reserves, that is, by the official reserve transactions balance.As measured by the official reserve transactions balance, the UnitedStates had a deficit of $10 I / 2 billion in the first quarter, a surplus of $J/ 2billion in the second quarter, and a surplus of $2 billion in the third quarter(Table 52). That is, in the first quarter, governments purchased roughly$10^2 billion to keep the dollar higher than it would otherwise have been;in the second quarter, governments more or less allowed the dollar to find itsown level in the market; and in the third quarter, governments sold roughly$2 billion, to keep the dollar lower than it would otherwise have been.193

TABLE 52.—U.S. balances on international transactions, 1972—73[Billions of dollars, seasonally adjusted]Type of transactionFirst 3 quarters197219731972IV11973IIIIIGoodsi-5.2-0.5-1.7-1.0-0.20.7ServicesMilitary transactionsInvestment income 2 . ..OtherGOODS AND SERVICES1.4-2.75.6-1.5-3.73.5-2.16.7-1 13.0.9g2. 2_ 5g1.1-.82.3- 4.2.9-.72.1 5.71.4-.62.3-.32.1Unilateral transfers, net 3-2.9-2.7-.7-1.0-.9CURRENT ACCOUNT-6.6.3-1 8- 6-.41.2Long-term capital. ..-1.7.7.2-.4-.21.3U.S. Government 4Direct investment. _. ..Other private ..-.8-2.61.7-.6-1.73.0-.6-.61.4-.3-1.81.7.1-.4.1-.4.51.2CURRENT ACCOUNT AND LONG-TERM CAP-ITALShort-term claims ..-8.3-1.81.0-4.7-1.6-1.2-3.8g-.6-.62.53Short-term liabilities2.3.52.6-1.81.11.2Errors and unrecorded transactions, net .-1.6-4.8-1.5-3.9.4-1.4Allocations of SDR.5.2TOTALS-8.9-8.1-1.5-10.5.32.11 Excludes transfers under military grants.2 Includes direct investment fees and royalties.3 Excludes military grants of goods and services.* Excludes official reserve transactions and includes transactions in some short-term U.S. Government assets.'Equals official reserve transactions balance.Note.—Detail may not add to totals because of rounding.Sources: Department of Commerce, Bureau of Economic Analysis, and Department of the Treasury.Another commonly used measure of the U.S. balance of payments is thecurrent account and long-term capital balance, or the "basic" balance,as it is sometimes called. This balance is computed by adding up all therecorded transactions in the current and the long-term capital accounts,including unilateral transfers. It attempts to measure the extent to whichthe "long-term" or "underlying" demand for foreign exchange has exceededthe "long-term" or "underlying" supply of foreign exchange duringa given period. If all such transactions were accurately recorded, this balancewould also equal the changes in official reserves and the changes in shorttermforeign assets of private banks, corporations, and individuals, net ofchanges in liabilities. Because some transactions may not be measured correctly,however, or may escape measurement altogether, a difference usuallyexists between recorded basic transactions above the line and recordedchanges in reserves and short-term assets below the line. This difference appearsas an errors-and-omissions item in the balance of payments statistics.Deficits and surpluses in the basic balance need not necessarily imply anydisequilibrium which requires corrective action by the government. To theextent that changes in net private holdings of short-term foreign assets are194

voluntary, the existence of a surplus or deficit need not imply that it iseither undesirable or unsustainable. When such changes are quite large inany one year, however, there is a strong possibility that the change is a temporaryresponse to unusual circumstances, such as differences in interestrates. In these cases, some governments might be inclined to intervene tomoderate the exchange rate fluctuations which could result from largeshifts in short-term foreign assets.The U.S. basic balance was in deficit by $1 billion during the first and$5/2 billion during the second quarter of 1973, while during the third quarterit was in surplus by about $2 J /2 billion. For the 3 quarters, the U.S. basic balancewas in surplus by about $1 billion. In other words, Americans in thefirst 3 quarters of 1973 earned $1 billion more from current account and longtermcapital transactions than they spent on similar transactions.Table 52 also shows that during the first 3 quarters $5 billion in net foreigncurrency expenditures were not recorded, while recorded short-termprivate claims on foreigners increased by $4*/2 billion. These two items were"financed" by the $1 billion current account surplus; a $5/2 billion netincrease in recorded short-term liabilities to private banks, corporations andindividuals; and an $8 billion net increase in U.S. liabilities to foreign officialinstitutions.The Net Foreign Asset PositionAt the end of 1972 the estimated value of American assets abroad was$200 billion, and the value of American liabilities to foreigners was $150billion. The $50 billion difference between the two is the estimated netAmerican investment position abroad. The net investment position declinedby about $20 billion from 1970 to 1972, but data for the first 3 quarters of1973 suggest that it probably increased last year.Changes in the U.S. net asset position are brought about in part by surplusesor deficits in the balance on current account, a balance which includesU.S. transactions in goods and services, as well as unilateral transfers(Table 52). The largest changes occurred in the balance on goods andservices. When the United States has a deficit in its trade balance as in 1971and 1972, it imports more than it pays for with exports, thus increasingAmerican liabilities to foreigners. With a trade surplus, as in the first 3quarters of 1973, the United States acquires imports and an increase in netassets abroad in return for its exports. One would therefore expect animprovement of the U.S. net asset position during 1973.The U.S. net asset position is also affected by several kinds of transactionsand accounting adjustments that do not appear in the balance of payments.When foreign subsidiaries reinvest their earnings, this increases the value ofU.S. assets abroad; and when foreign-ow 7 ned subsidiaries in the UnitedStates reinvest their earnings, this increases U.S. liabilities to foreigners.During 1973, U.S. reinvestment of earnings may have exceeded foreignreinvestment by $4 billion or more, thus adding to the U.S. net asset position.Changes in the valuation of outstanding assets and liabilities, which195

esult from changes in market value or changes in exchange rates, also havea small impact on the U.S. net asset position. Because of the small surpluson current account and the large level of net reinvested earnings, the netasset position of the United States must have improved markedly during1973.Balance of payments figures indicate, however, that the increase in liabilitiesto foreigners exceeded the increase in U.S. assets abroad by about$4^2 billion for the first 3 quarters of the year. This inconsistency can bepartly explained by the net acquisition of unrecorded short-term foreignassets by Americans.U.S. assets abroad are on the whole less liquid than U.S. liabilities to foreigners.At the end of 1972 about 90 percent of the $200 billion in assetsabroad were considered nonliquid. Direct investments amounted to about$95 billion; holdings of long-term foreign securities were about $25 billion.The remaining nonliquid assets include $15 billion in nonliquid short-termassets held by private Americans, $10 billion in private long-term claimsby banks and others and $35 billion in Government-owned assets. Most ofthe U.S. liquid assets are in the form of official monetary reserves. On theother hand, more than half of the $150 billion in liabilities to foreigners areconsidered liquid; most of these liabilities are in the form of bank deposits,short-term Treasury securities, and negotiable certificates of deposit.HOW GOVERNMENTS BEHAVED IN THE MONETARY ARENADuring 1973 international monetary arrangements continued to evolvein response to changing needs. A major characteristic of these evolvingarrangements is a considerable diversity in practices by different countries.Yet despite this diversity, countries cooperated with each other to a remarkableextent, as they had in 1972, and from their cooperation one could beginto see the development of some conventions to guide countries in theirmonetary relations. This process has benefited from the discussions takingplace in the framework of the Committee of Twenty, a committee associatedwith the International Monetary Fund.Exchange Rates and InterventionExchange rates became more flexible in 1973, as the governments ofmost major countries reduced or suspended their commitments to maintainfixed exchange rates, and other governments changed their par valuesmore frequently. While governments have continued to intervene in theforeign exchange market in order to influence the movement of the exchangerate, it can no longer be assumed that they will finance an excessdemand or absorb an excess supply of foreign currencies at given exchangerates. The situation can best be described as one of managed floating.In managing their exchange rates, countries followed widely differingpractices, as can be seen in Table 53. Some countries have allowed theircurrencies to float within a rather wide range, resorting to only limited196

TABLE 53-—Maximum percent change in exchange rates between vatious foreign currenciesand the dollar during 1973Maximum percent change in rate during 1973Type of interventionNo change1-8 percent9-20 percentMore than20 percentCountries maintaining a jointfloat, with intervention tomaintain a stable relationshipwithin the group, butminimal intervention in outsidecurrencies.Sweden.BelgiumGermanyDenmarkFranceNetherlandsNorwayCountries floating independentlywith some interventionin the foreign exchangemarket.Countries undertaking considerableintervention to maintaina stable relationshipvis-a-vis the dollar (exceptwhere another currency isnoted).TurkeyArgentinaBoliviaCosta RicaDominican RepublicEcuadorEl SalvadorGuatemalaHaitiHondurasMexicoNicaraguaParaguayPeruIsraelPhilippinesItalyCanadaBrazilColombiaVenezuelaRepublic of ChinaThailandKoreaUnited KingdomIcelandFinlandPortugalGhanaIndia (pound)PakistanSpainEgyptEthiopiaIranIraqSaudi ArabiaSri LankaSouth AfricaGreeceYugoslaviaAustriaSwitzerlandAustraliaUruguayAfghanistanJapanCFA Countries(French franc)ChileCountry fixing rate with respectto an average of other currencies.MoroccoNew ZealandNote.—The procedure for computing maximum percentage changes was to find the largest end month deviationduring the year from the dollar exchange rate in effect at the end of December 1972.Sources: International Monetary Fund, and Council of Economic Advisers.intervention in foreign exchange markets to maintain orderly market conditions.One group of countries, comprising Germany, France, Belgium, theNetherlands, Denmark, Norway, and Sweden, decided to keep their currenciesrelatively fixed with respect to each other. Whenever spot market exchangerates between any two currencies in the group deviate by more than2J4 percent from an agreed relationship, the monetary authorities areobliged to intervene in terms of each other's currencies. However, in January1974, the Government of France announced that it would sever the tiebetween the franc and the other EC currencies floating jointly. Some countrieshave decided to keep their currencies fixed to one or the other of themajor currencies. A few countries have followed the practice of keeping theircurrencies fixed relative to an average of other currencies weighted accordingto their importance in bilateral trade.Most countries, regardless of the exchange rate regime they have chosen,have continued to intervene in the foreign exchange market to varyingdegrees. Some countries, the United States among them, have restrictedthemselves to limited intervention with the object of maintaining orderlymarket conditions. Other countries, although they were officially floating,197

TABLE 54.—Major changes in capital controls, 1973CountryControls on banks and otherfinancial intermediariesControls on portfolioinvestmentControls on directinvestmentAustralia.February—broadened coverageof restrictions on borrowingabroad.October—increase from 25 to33^ percent in noninterest-bearingdeposits requiredon borrowings fromabroad with a maturity inexcess of 2 year?.March—general ban on foreigninvestment in Australianreal estate.Belgium.March to early Septembernegativeinterest rate of 14percent per week on nonresidentconvertible francholdings exceeding thedaily average in the lastquarter of 1972.Late September—negative interestrate reimposed.Canada.December—act calling forscreening of new foreigndirect investments in Canadapassed.France.March to early October—prohibitionof interest paymentson nonresident francdeposits of less than 180days; increase (to 100 percent)in mandatory reserverequirements on excess ofthese deposits above theirJan. 4 level.March—restriction on banks'forward exchange transactionswith nonresidents.April to late October—banksallowed to impose a negativeinterest rate of 0.75percent per month on theincrease in nonresidentfranc deposits above theJanuary 4 level.September—banks prohibitedfrom lending francsto nonresidents.March to early October—nonresidentpurchases of shorttermsecurities prohibited.Germany.February 4-prior authorizationrequired (and as a rule notgiven) for contracting offoreign loans and credits inexcess of DM 50,000.February 24—Governmentempowered to raise thecash deposit requirementagainst foreign borrowingfrom 50 to 100 percent(authority not yet invoked).July 1 to October 1—minimumreserve requirementsagainst foreign liabilitieseffectively increased to90-100 percent, as opposedto 8-20 percent on domesticliabilities.February—new restrictionson sale of domestic securitiesto nonresidents.February—authorization requirementfor nonresidentdirect investment valued inexcess of DM 500,000.Italy.July—blocked noninterestbearing deposit of 50 percent(25 percent for mutualfunds) required on portfolioinvestments abroad.July—similar deposit requiredon direct investmentsabroad.Japan.May—increase from 70 to 90percent in allowable foreigncurrency financing of externaloperations, includingdirect investments overseas,purchases of realestate abroad, and prepaymentsfor imports.May—relaxation of controlsgoverning acquisition ofJapanese securities byforeign investors, and acquisitionof foreign securitiesby Japanese investors.May—continued relaxation ofcontrols on direct foreigninvestment in Japan. Withsome exceptions, virtuallyall industries will be fullyopen to foreign ownershipby the end of 1975.198

TABLE 54.—Major changes in capital controls,1973—ContinuedCountryControls on banks and otherfinancial intermediariesControls on portfolioinvestmentControls on directinvestmentOctober25—relaxed requirementthat foreigners floatingyen loans must immediatelyconvert 90 percentof the proceeds into foreigncurrency.November 21—Governmentannounced that it wouldmake no further additionstc its dollar financing ofone-half of Japanese banks'import loans.December—marginal reserverequirement on free yendeposits by nonresidentslowered from 50 percentto 10 percent.November—banned residentpurchases of foreign bondswithin 6 months oftheir maturity; endedrequirement that securityhouses should balanceforeign purchases and salesof Japanese stocks.December—foreigners allowedto purchase Japanesebonds without restrictions.Netherlands.March to May — noninterestbearing reserve requirementlevied on increasesin banks' net foreign guilderliabilities; special commissionlevied against inincreasesin balances inconvertible guilder accounts.January—residents allowedto subscribe for new Euroguildernotes issued byresidents.Switzerland.January 29 to October 29—banks prohibited from havingnet liabilities in foreigncurrencies (spot and forwardtogether).October 1—National Bank revokedthe 2 percent perquarter negative interestrate on banks' franc depositliabilities to nonresidents.United States..May 16—Federal ReserveBoard (FRB) lowered reserverequirements againstEurodollar borrowings inexcess of the reserve freebase (from 20 to 8 percent),and took steps to eliminategradually the reserve freebases.December 26—Federal ReserveBoard announcedeffective Jan. 1, increasedforeign lending and investmentceilings for banks andother financial institutionssubject to the VoluntaryForeign Credit RestraintProgram: ceilings raised onforeign loans by U.S. banks,by U.S. agencies andbranches of foreign banks,and by U.S. nonbank financialinstitutions.January 1974—Controls onforeign lending by financialinstitutions suspended.April—Interest EqualizationTax(IET) extended throughJune 1974.December 26—Treasury Departmentannounced reductionof the IET from anannual rate of 94 to J4 percentper annum effectiveJan. 1,1974.January 1974—IET reducedto zero.Continued liberalization: exportcredits extended by directinvestors to their affiliatedforeign nationals exemptedfrom controls.December 26—Commerce Departmentannounced, effectiveJan. 1, increased minimumallowable direct investmentabroad by U.S. firmsfrom $10 to $20 million peryear. In addition, variousother regulations were relaxed.January 1974—Controls onforeign investment by U.S.corporations suspended.Sources: International Monetary Fund, and Board of Governors of the Federal Reserve System.have intervened on a broad scale to minimize day-to-day fluctuations in theirrates. Still other countries have continued to intervene in order to keep theirexchange rates stable with respect to a major currency, a group of currencies,or an average of all currencies.Despite the great variety of exchange rate practices by different countries,relations among countries have remained fairly harmonious. Although no199

attempt was made to agree on a code of conduct to guide governments informulating their exchange rate and intervention policies, extensive consultationshave led to wide acceptance of some basic tenets that should influencethe formulation of policies in this area. An idea repeatedly expressedin official statements is that countries should intervene in the foreign exchangemarket when intervention is necessary to maintain orderly marketconditions. On the other hand, interventions aimed at obstructing oraccelerating a basic market trend would be generally regarded as harmful.There is probably also wide recognition that a country with meager reservesmay need more latitude for allowing its exchange rate to decline than a countrywith ample reserves; and, conversely, a country with ample reserves mayneed more latitude for allowing its exchange rate to adjust upward than acountry with meager reserves. Similarly, when its rate is rising, a country withmeager reserves should have wider latitude to intervene in the foreign exchangemarket than a country with ample reserves, whereas a country withample reserves should have a wider latitude to intervene in the foreignexchange market when its rate is falling.The conceptual basis for these conventions, if one may call them that, issimilar to the ideas put forward by the United States and some othercountries for reforming the international monetary system. The continuingdiscussion in the Committee of Twenty can be expected to give these ideasmore concrete form.Capital ControlsAnother development during 1973 has been the adoption of new measuresfor controlling capital movements, as can be seen in Table 54. (Controlsalready in force at the beginning of the year are not shown in thetable.) Capital controls were tightened further in the first part of 1973 bymany major industrial countries, when exchange market developments putupward pressure on many of the European currencies and several countriessought to moderate this pressure by imposing restrictions on banks and otherfinancial intermediaries. Some of the more common restrictions were discriminatoryreserve requirements, and penalty rates or prohibition of interestpayments on nonresident deposits. Capital controls did not, however, succeedin preventing large speculative short-term capital inflows, either prior to therevaluation of the dollar in February or from late May to early July.Some countries, on the other hand, took steps to discourage capitaloutflows or encourage capital inflows. Italy required noninterest-bearingdeposits against investments abroad in order to stem a continuing capitaloutflow. Japan relaxed controls on inward direct and portfolio investmentto reduce the overall balance of payments deficit which developed in 1973.Since the 1960's the United States has maintained three kinds of restraintson capital outflows: an interest equalization tax on purchases of foreignsecurities, restrictions on foreign direct investments by U.S. corporations,and limitations on foreign lending by U.S. financial institutions. Theserestraints were relaxed in December 1973, and removed entirely in January1974.200

Changes in International Liquidity in 1973Total international reserves increased by $28 billion during the first9 months of 1973, compared to $28 billion in 1972 and $38 billion in 1971.From the end of 1970 to the end of September 1973, total reserves doubled,increasing from $93 billion to $187 billion. As in previous years, most ofthe increase was in foreign exchange and resulted from intervention byforeign central banks in the foreign exchange market to slow down theappreciation of their currencies vis-a-vis the dollar. After the major Europeancountries and Japan decided to allow their currencies to float inrelation to the dollar, the further accumulation of foreign exchange wasreduced. As can be seen from Table 55, foreign exchange reserves increasedby $22 billion during the first 9 months of 1973. Of this amount $14 billionoccurred in the first quarter, before the major European currencies werefloated. The $22 billion increase in foreign exchange reserves consisted of an$8 billion increase in U.S. liabilities to foreign central banks. The remainderconstituted increases in dollar balances of central banks held in commercialbanks outside the United States, and reserves held in currencies other thanthe dollar. Toward the end of the year a reversal of this trend set in, as anincreasing number of foreign central banks sold dollars to slow the declineof their currencies relative to the dollar.Despite the large increase in foreign exchange holdings in 1973, thecomposition of reserves did not change significantly during the year. Theproportion held in gold fell from 24 to 23 percent, while that held inforeign exchange increased from 65 to 67 percent of total reserves. Most ofthe increase in primary reserves (gold, SDR's, and reserve positions inthe Fund) resulted from the devaluation of the dollar in terms of gold andSDR's, which automatically increased by 11 percent the dollar value ofthe existing stock of gold, SDR's, and reserve positions in the Fund.TABLE 55.—Composition of international reserve assets, 1970—73Value of reserve assets l(millions of U.S. dollars)Percent of total reservesType of reserve asset197019711972September1973197019711972September1973Total reserve assets92.6130.6158.8186.9100100100100Gold stock ... ...37.239.138.843.240302423SDR3.16.49.410.63566Reserve position in IMF7.76.96.97.58544Foreign exchange44.678.1103.7125.648606567U.S. liabilities23.850.761.569.826393937i End of period.Note.—Detail may not add to totals because of rounding.Source: Internationa] Monetary Fund (IMF).201

The official price of gold was raised from $35 per ounce to $38 per ounceby the Smithsonian Agreement in December 1971. It rose from $38 to $42.22an ounce in conjunction with the announcement early in 1973 that thedollar would be devalued in terms of SDR's. The price of gold in theprivate bullion market in London increased from $65 at the end of 1972to $112 at the end of 1973, having reached a peak of $127 on June 5 andJuly 6. Since the market price of gold has been almost three times as highas the price at which governments have fixed the price of gold for officialtransactions, countries that hold gold have been reluctant to use it in internationalsettlements. As a first step to unfreezing gold, a number of countrieswhich had previously agreed not to buy or sell official gold in the free marketdecided to end that agreement in November. While IMF rules still prohibitofficial gold purchases from the private market when the free market price isabove the official price, official sales to the private market are permittedwhen the free market price is above the official price. Snnce the market priceis now nearly three times the official price, central banks would now be in aposition to sell gold from the market without violating IMF rules. No countryhas yet announced, however, whether or when it intends to sell gold tothe market.PLANNING THE FUTURE INTERNATIONALMONETARY SYSTEMDiscussions begun in 1972 by the Committee of Twenty on reform ofthe international monetary system continued during 1973. The state ofthese discussions at the time of the annual meeting of the InternationalMonetary Fund in Nairobi during September was summarized in a documententitled First Outline of Reform. It is a report in which the chairmanof the committee cites the issues on which some measure of agreement hasbeen reached, points of disagreement, and suggestions by members of thecommittee about ways of dealing with outstanding issues.The current international monetary arrangements have been evolvingas countries have made pragmatic adjustments to changing realitiesin the international economy. In making these adjustments, governmentshave been influenced by the discussions in the Committee of Twenty, justas those discussions have been influenced by the experiences gained with theinterim arrangements. In the discussion below, the long-term alternativesare examined within a framework that encompasses both the Bretton Woodssystem and the current interim arrangements.The Exchange Rate RegimeThe central function of an international monetary system is to facilitatethe exchange of one currency for another in such a way that trade andinvestments can take place across national frontiers almost as easily as withina given country. There are various ways of organizing the exchange of onecurrency for another. They differ chiefly in their methods of assuring that202

over time a country's payments in foreign currencies equals its receipts inforeign currencies.At one extreme, balance between the demand for and supply of a currencyis achieved at all times through a free market in which currencies aretraded at whatever exchange rate will clear the market. Many monetary authoritiesare opposed to this degree of flexibility, however, since they fearthat large exchange rate fluctuations would create difficulties for internationalcommerce. In order to overcome some of these difficulties, most governmentshave made it a practice to enter the market as buyers and sellerswhenever changes in the private demand or supply of their currencies wouldotherwise lead to large fluctuations in exchange rates.The exchange rate at which one government would like to fix the value ofits currency relative to other currencies may not coincide with the exchangerate at which other governments would like to fix their currencies.. To avoidsuch potential conflicts, it is desirable to agree on some rules, which mayspecify when governments may or should intervene in the market, or whengovernments may or should allow exchange rates to change.The rules could be very tightly written, allowing little national discretion;or they could be written with considerable room for nations to make theirown judgments. The Bretton Woods system imposed a relatively strictdiscipline by requiring governments to intervene in the foreign exchangemarket whenever rates deviated by more than % percent from internationallyagreed rates. Exchange rates could be changed only when it couldbe demonstrated that the existing rates created a disequilibrium which wasregarded as fundamental.Under the current arrangements agreed to in March, governments haveaccepted a general obligation to intervene in the foreign exchange marketto assure orderly market conditions.* In the future international monetarysystem, the Committee of Twenty has agreed, that exchange rate rulesshould be less rigid than they were under the Bretton Woods system, butthat they should impose more precise obligations than exist under the presentarrangements.When Should Countries Use Demand Management Policies?Changing the exchange rates is not the only way of removing an imbalancein international payments flows. In fact, it is theoretically possible tohave a system of completely fixed exchange rates in which long-term balancebetween the demand for and supply of foreign currencies is achieved throughchanges in the level of domestic demand. Under the classical gold standard*The communique issued on March 16, 1973, by the Group of Ten meeting in Parisstated that the participating countries "agreed in principle that official interventionin exchange markets may be useful at appropriate times to facilitate the maintenanceof orderly conditions, keeping in mind also the desirability of encouraging reflows ofspeculative movements of funds."203

system, these demand changes were assumed to take place automatically.Since exchange rates were established by the fixed price of gold in eachcountry, payments equilibrium was assumed to be preserved by the impact ofnet transfers of gold on the domestic money supply and hence on the total demandfor goods and services. However, since most governments today considerit their responsibility to manage domestic demand in accordance withtheir goals of employment and price stability, complete reliance on adjustmentsof domestic demand to keep the balance of payments "balanced" istherefore not considered reasonable. At the same time, any government followinga rational policy will manage its domestic demand with regard to theside effects on international currency markets, since exchange rate movementshave a feedback on domestic economic variables.The methods by which a country equalizes its foreign currency paymentsand its foreign currency receipts affects not only its own economy butforeign economies as well, and hence there needs to be agreement onmutually acceptable conduct. The Bretton Woods Agreement, for instance,established a strong presumption that countries would use domestic derpandmanagement policies for balance of payments adjustment whenever thatwould not be inconsistent with domestic price stabilization and employmentobjectives.Under present arrangements countries are free to decide on their ownthe extent to which demand management policies should contribute toa correction of payments imbalance. Nevertheless, in the course of internationaldiscussions related to current balance of payments developments,the impact of alternative adjustment measures on other countries is explored,and where conflicts are identified, mutually satisfactory solutions can usuallybe worked out.In the future international monetary system, it is generally assumed,countries will continue to have considerable flexibility in choosing amongalternative adjustment measures, and they will also continue to take intoaccount the effect of their policies on other countries. It is expected thatthe adjustment policies of countries will be reviewed by a new committeethat will be established in the International Monetary Fund to be composedof policy-making officials from national capitals.When Should Countries Use Controls?It would also be theoretically possible to have a system in which balanceof payments equilibrium is maintained by government controls overinternational transactions. The Communist countries, in fact, have adoptedsuch a system. In most non-Communist countries an adjustment systembased exclusively on the use of controls would be unacceptablebecause it would entail unwarranted government interference with privatedecisions and because it would lead to inefficient production and consumptionpatterns. In some circumstances, however, governments have found itdesirable to use controls to adjust the balance of payments.204

The Bretton Woods Agreement permitted the use of controls to regulateinternational capital movements, but generally ruled out any restrictionson payments for transactions in the current account. The General Agreementon Tariffs and Trade (GATT), which spells out what restrictionscountries may place on trade directly, as distinct from restrictions on paymentsfor trade, provides that governments may temporarily impose quotasbut may not impose or increase tariffs, in order to deal with a seriousbalance of payments deficit. In practice, tariff surcharges have been imposedbut have remained in effect only for short periods, because other countrieshave exerted strong pressures to remove them promptly. Nothing has happenedto change these rules during the time the present arrangements havebeen in effect. The First Outline of Reform indicates international agreementon a continued "strong presumption against the use of controls oncurrent account transactions or payments for balance of payments purposes."It also rules out the use of controls over capital transactions "for the purposeof maintaining inappropriate exchange rates or, more generally, of avoidingappropriate adjustment action." There has also been wide agreement that,in choosing among different forms of adjustment actions, countries shouldtake into account repercussions on other countries as well as domesticconsiderations.When Should Countries Correct Payments Imbalances?Another area of international concern is the timing of policy measuresby countries to remove payments imbalances. This is of international concernbecause one country's surplus is another country's deficit, and viceversa. When one country fails to deal with a growing payments imbalance,it becomes more difficult for another country to deal with its payments imbalance.Under the Bretton Woods system the main provisions dealing withthe timing of adjustment actions were focused on deficit countries. A countrywanting to borrow from the International Monetary Fund had to satisfy theFund that it was taking appropriate actions to reduce its deficit. Themore such a country wanted to borrow, the tighter the discipline that theFund imposed. The IMF Articles of Agreement also provided for pressuresto be exerted on countries with persistently large surpluses, though this provisionwas never applied in practice. Under the current arrangements theseprovisions remain in effect, although they have become largely inoperative.According to the Chairman of the Committee of Twenty there is agreementthat countries should "take such prompt and adequate adjustment action,domestic or external, as may be needed to avoid protracted payments imbalances."There is also agreement that a judgment of what constitutes"adequate adjustment action" should be based on both objective indicators,such as a country's level of international reserves, and an evaluation by aninternational body such as the IMF. The manner in which these elementsmight be best combined remains unsettled.205527-867 O - 74 - 14

What Pressures Should Be Exerted on Countries?Once an obligation is established for countries to act in a timely fashionto remove payments imbalances, the question arises what, if any, pressuresought to be exerted on countries that fail to carry out their obligations. TheBretton Woods Agreement provided mainly for pressures on deficit countries,insofar as the credit facilities of the Fund were made contingent on a findingby the Executive Directors of the IMF that a country was taking adequatesteps to remove the deficit in its balance of payments. Under currentarrangements the strongest pressures are those exerted by the foreign exchangemarket. Attempts by a government to prevent an adjustment of theexchange rate in the face of a persistent surplus or deficit tend to triggerlarge speculative movements, and these in turn exert strong automaticpressure that countries have found difficult to ignore. The Chairman of theCommittee of Twenty has indicated that a reformed system will provide forgraduated pressures to be applied by the international community on bothsurplus and deficit countries in cases of large and persistent imbalance. It hasnot been agreed in the Committee of Twenty, however, what those pressuresought to be and how they ought to be activated.The Convertibility IssueAnother issue under discussion is the convertibility of national currenciesinto primary reserve assets such as SDR's and gold. This particular use ofthe term has to be distinguished from the exchange of one currency intoanother in the foreign exchange market. The issue of convertibility intoprimary reserve assets arises primarily in the context of an agreement to limitfluctuations of exchange rates by government intervention in the foreignexchange market. If a surplus country is obligated to buy the currency ofa deficit country to forestall a decline of that currency in the foreign exchangemarket, the question arises to what extent the deficit country oughtto buy back its currency with primary reserve assets. One argument in favorof such a requirement is that it limits the extent to which a surplus countryis obligated to finance another country's deficit. Another argument is thatit puts some pressure on the deficit country to accept "financial discipline"insofar as its deficit is due to excessively loose domestic policies.Under the Bretton Woods system all countries except the United Statesintervened in the foreign exchange market to carry out an obligation tokeep their exchange rates within internationally agreed margins. Since thecurrency used for such intervention was generally the U.S. dollar, the dollaritself was kept fixed in foreign exchange markets by the intervention ofother central banks. The United States, in turn, accepted an obligation toconvert dollars into gold or other reserve assets upon demand. The UnitedStates finally suspended this convertibility of the dollar into primary reserveson August 15, 1971, though the dollar remained convertible into othercurrencies in the foreign exchange market. Inconvertibility came afteran extended period during which the American gold stock was very small206

in relation to the country's liquid dollar obligations and the major centralbanks had abstained from converting large amounts of dollars into gold,despite the fact that they were continuing to accumulate a large numberof dollars. The Committee of Twenty has agreed that in the context oflong-term monetary reform it would be desirable to establish the convertibilityof (the dollar as well as other) currencies into primary reserve assetsinsofar as it is decided to stabilize currencies within agreed margins. Butwhether such an obligation to convert should be mandatory or at the optionof the country acquiring the currency is still at issue.The Level, Distribution, and Composition of ReservesTo support the value of their currencies in the foreign exchange market,most countries maintain an inventory of foreign currencies. In addition,countries accumulate international assets, such as SDR's or gold, whichcan be used to buy foreign currencies from the governments issuing them.Finally, countries maintain lines of credit with each other and with theInternational Monetary Fund so that they can borrow additional amountsof foreign currency when the need arises. Some might argue that the reservesa country keeps are its own affair. It is widely believed, however, that thereserves which countries keep are of interest to the whole world communitybecause they affect the behavior of governments and in doing so also affecteveryone else. There are three separate, though interrelated, aspects of the socalledliquidity issue: the level of world reserves; their distribution amongcountries; and their composition in terms of the types of assets held andthe kind of borrowing facilities that are readily available.The level of world reserves is important because if the level is not "right,"countries on balance may be induced to adopt policy measures that have adisruptive effect on other countries. For instance, some fear that if reservesare inadequate, countries may not prevent changes in exchange ratesconsidered excessive by the international community; or they may not geardomestic demand management policies to appropriate employment objectives,or they may impose controls on imports or capital outflows. On theother hand, it is feared that if reserves are excessive countries in paymentsdeficit may keep their exchange rates at a fixed level long after an adjustmentwould have been desirable; or they may escape financial disciplice andthus create an inflationary problem for themselves as well as for others; orthey may impose controls on exports or capital inflows.The distribution of reserves among countries becomes an issue once thedecision is made to manage the global level of reserves. Judgment about theadequacy of world reserves from the point of view of any one country mustbe based on the relative distribution of those reserves among countries. Thus,while some countries might consider world reserves to be "excessive," theymight not be willing to give up any of their own reserves. From the pointof view of countries with inadequate reserves, global reserves can be excessiveonly to the extent that other countries are willing to give up "excess"reserves.207

The composition of reserves among different assets becomes an issue becauseeach asset (or borrowing facility) has its particular characteristicswhich determine its desirability and its most appropriate role relative toother types of assets. Moreover, one can affect the total volume of reservesonly by affecting the volume of individual components.The Bretton Woods Agreement sanctioned the use of both gold and foreigncurrencies as international reserves, but it did not make any provisionsfor international control of the level of those reserves. In practice the growthof the monetary gold stock was the result of the difference between newlymined gold and the private demand for gold. The growth of currencyreserves (mostly dollars) was the result of the difference between the netamount of foreign currency acquired through intervention in the foreignexchange market and the conversion of such currency balances into gold orother assets. The Bretton Woods Agreement did provide one managed sourceof borrowed reserves in the form of controlled access to a stock of foreigncurrencies managed by the International Monetary Fund.In the late 1960's two developments occurred which established somelimited international influence over reserve creation. First, as a result of anarrangement made among a number of central banks, it was agreed tostabilize the stock of monetary gold. Second, the member countries of theInternational Monetary Fund decided to create a new reserve asset, calledthe SDR, which can be created and distributed on the basis of internationalconsent. At the same time there was an increasing desire to limit the accumulationof currencies, but there was no effective means of doing so. The Committeeof Twenty has agreed that in a reformed international monetarysystem, "countries will cooperate in the management of their currency reserves."No agreement has been reached, however, on how this is to beaccomplished.The Issue of the NumeraireThe numeraire of the international monetary system is the common unitof account in terms of which the relative values of all currencies are measured.While it is of course possible to express the value of a currency interms of any other currency, it is usually convenient to adopt a single referencepoint. In addition to being a convenient measuring stick, thenumeraire is usually also the unit value in terms of which the obligationsof countries to the international monetary system and the claims of countrieson the system are expressed.Under the Bretton Woods system, gold served as the formal numeraire,though the dollar became the de facto numeraire. The use of the dollar asthe most commonly used unit of account was made legitimate by the officialtie to gold. It was convenient because the dollar increasingly became themost important official as well as private international reserve asset.When the convertibility of the dollar into gold was suspended in August1971, the tie between the dollar and gold was broken. It was thus nolonger possible to assume that international obligations of countries to the208

International Monetary Fund, which in legal terms continued to be denominatedin gold, would bear a fixed relationship to the dollar. It was also nolonger possible to establish a firm relationship between the value of theSDR, the internationally created reserve asset, and individual currencies. Ithas thus been difficult for countries to discharge their obligations to theInternational Monetary Fund, and countries have been reluctant to useSDR's in settlement of their obligations to each other.There is wide agreement that the SDR should become the formalnumeraire of the future international monetary system. In order to makethe SDR the numeraire not only formally but also in practice, it will benecessary, however, to establish an agreed procedure for calculating thevalue of the SDR in terms of individual currencies. Since the SDR is nottraded in the market against currencies, there is no one relationship whichsuggests itself more strongly than another. The most widely suggested idea isthat the SDR should be valued in terms of an average of the majorcurrencies.HOW GOVERNMENTS BEHAVED IN THE TRADE ARENADuring the first half of 1973 the economies of most industrialized countriesgrew rapidly, and prices rose sharply. Real GNP in the United Statesgrew at an annual rate of about 5.5 percent during the first half of the year,an annual rate well above the long-term average; but growth rates in manyforeign economies were also high in relation to long-term growth. The worldwideboom was accompanied by inflation rates exceeding 6 percent inCanada, France, Italy, Japan and the United States. This rapid growthof demand, together with poor harvests and cutbacks in world oilproduction, created particularly strong upward pressures on the pricesof food and some key raw materials. A number of national governmentsattempted to contain inflation by controlling prices, but by doing so theycreated widespread shortages and other economic distortions.Shortages and soaring prices induced governments to add a new dimensionto their trade policies. In addition to their traditional concerns about accessfor their products to foreign markets, they showed increasing concern aboutaccess to foreign sources of supply for key materials. Similarly, while governmentscontinued across-the-board efforts to promote exports, they alsoshowed an increasing tendency to limit the export of commodities in shortsupply.What Countries Did to Encourage ImportsOn July 18 the Australian Government announced that it was unilaterallyreducing all its tariffs by 25 percent. In an accompanying statement, theGovernment explained that "this reduction ... is designed to restrain priceincreases by increased competition and by stimulating in the short run asufficiently large inflow of additional imports to help meet pressing demand."It was estimated that "the tariff changes will have a direct impact on import209

prices of approximately the same order of magnitude as a revaluation [ofthe Australian dollar] of slightly less than 6 percent." While this was certainlythe most dramatic example of the new economic incentives prevailingin 1973, similar evidence was provided by the actions of many othercountries.In the United States large increases in the prices of foodstuff's became aparticularly important public issue, and efforts to contain these prices becamea prominent objective of domestic economic policy, as explained elsewherein this report. This overall policy led to a review of the quotas onimported food products, which have long been part of U.S. agriculturalprograms designed to protect farm income at home. Since the problem in1973 was soaring farm prices rather than falling farm income, the Administrationdecided to enlarge or suspend many of these quotas while suppliesremained scarce. Quotas on meat imports were suspended for 1973; quotas oncheese, butter, and nonfat dry milk were all increased temporarily.Many other countries took similar actions. Japan, for instance, reducedtariffs on about 5 percent of her import categories and expanded or eliminatedsome of the remaining quotas on imports of manufactured and agriculturalproducts. Canada lowered tariffs on certain consumer goods and agriculturalproducts. The European Community reduced, and in some casessuspended, tariffs on various industrial products, primarily chemicals. Inaddition, the variable levies which the EC imposes on food imports as partof its Common Agricultural Policy automatically fell to zero, as world pricesexceeded the support price level in the Community.What Countries Did to Reduce ExportsWith the booming worldwide demand for foodstuffs and raw materials,prices of such commodities rose to record heights. This increase in domesticprices as a result of foreign demand pressure caused considerable resentmentin many producing countries and led to public demands that domestic suppliesbe protected. The situation was further aggravated when some governmentsimposed price controls in an effort to contain the inflationary pressures.Since export prices remained uncontrolled, domestic producers had an increasedincentive to export their goods, with the result that the domesticshortages created by the initial imposition of the price controls were aggravatedby increased exports. To alleviate the domestic shortages, a numberof governments imposed controls on exports.The pressures of foreign demand for agricultural goods in 1973 had aparticularly strong impact in the United States. In most of the other majorcountries exporting agricultural products, the government acts as the middlemanbetween the domestic producer and the foreign buyer, and it can thusregulate the level of sales. In contrast, the United States has traditionally permittedforeign buyers to purchase freely in the U.S. market. Partly for thisreason, and partly because the United States had the largest stocks, foreignbuyers converged on the U.S. market, increasing U.S. agricultural exports by210

88 percent. Since U.S. food prices had been significantly lower in the pastthan food prices in more protected markets, the resulting rise of food pricesin the United States was larger than in most other countries. When ceilingswere imposed on the prices of foodstuffs to contain the inflationary pressures,the export pressures increased even more.The problems created by rapid increases in foreign demand became particularlypronounced with soybeans and related products. When it appearedthat export contracts would exceed available supplies until new crops wereharvested, temporary controls were imposed on exports of these commoditiesin early July. The export licensing provisions allowed each exporter to ship afixed percentage of the exports he had contracted before June 14. Later thecontrols were extended to cover other high-protein feeds. All these controlswere terminated by October 1. Despite the controls, exports of these productswere substantially larger in 1973 than in 1972. The soybean crop harvested inlate 1972 had been a record crop, and almost the entire increase in productionwas added to exports in 1973. The United States increased soybean exportsby 18 percent and increased exports of soybean meal by 25 percent overthe previous harvesting season.Export pressures combined with controls on domestic prices also led todomestic supply shortages for a number of nonagricultural commodities,including steel scrap and logs. To alleviate shortages, the Governmentimposed temporary controls on the export of steel scrap in July. These controlswere supplemented by a Japanese decision to reduce imports of ferrousscrap by 1 million tons during the remainder of 1973. Japan also agreedvoluntarily to cut back her imports of U.S. logs.A large number of countries besides the United States imposed exportcontrols to protect domestic supplies of food and to ease inflationary pressures.Brazil, the world's other major exporter of soybeans, limited the exportof soybeans and soybean products shortly after the United States imposedcontrols. Canada instituted an export licensing program for protein feedsupplements, edible oils, animal fats, and livestock protein feed; export controlswere also imposed on live cattle and hogs and on fresh, chilled, andfrozen beef and pork. Australia tightened export controls on a similar list offeed products. Both the Canadian and Australian controls were lifted laterin the year. The Common Market countries suspended export subsidies forseveral dairy products in July and in August banned the export of wheat andwheat products. The export bans were later replaced by export levies onwheat, as well as corn and barley.Export controls of a more serious kind were imposed by some of the oilproducingcountries in the Middle East, after renewed fighting broke outbetween Israel and some Arab states. In order to pressure third countries tosupport their cause, most Arab states cut back oil production and exportsand imposed an embargo on shipments to the United States, the Netherlands,and several other countries. These controls on oil, as discussed earlier,severely threaten the economic prospects of all industrial nations. If sus-211

tained, they would probably be felt most intensely in Japan and WesternEurope because of their relatively high dependence on imported energysources.Lessons for the FutureThe world was caught unprepared when the shortages during 1973caused a shift from a buyer's to a seller's market for certain products. Becausea buyer's market had existed in varying degrees for several decades,most international trading rules focused on trade policy devices, such astariffs and quotas, that protected producers in their domestic markets. Theexisting patterns of thought as well as existing trade rules were not wellgeared to dealing with trade policy measures aimed at restricting exportsand preserving domestic sources of supply.As the year wore on, countries began to seek practical accommodationson the new issues that arose; and in the future it will become desirable tofocus greater attention on the possibility of new kinds of commitments byexporting countries on foreign access to their supplies when world demandis strong. Such issues will be explored in the forthcoming world conferenceon food, in the coming meeting of oil-consuming and oil-producing nations,and possibly at similar conferences in the future. At the same time the formulationof a more general code of good conduct for exporting countries,and the adoption of more systematic procedures for the resolution of disputesover the access to supplies, should be addressed in the context of the forthcomingmultilateral trade negotiations.PLANNING THE FUTURE INTERNATIONAL TRADING SYSTEMThe United States reaffirmed its commitment to a continued expansionof world trade by joining 104 other countries in opening a new round ofcomprehensive trade negotiations in Tokyo during September. In a statementissued at the end of the meeting the participating countries expressedtheir willingness to pursue negotiations aimed at "the progressive dismantlingof obstacles to trade and the improvement of the international frameworkfor the conduct of world trade."A new initiative in the trade area is timely for a number of reasons.First, the reductions in trade barriers negotiated during the Kennedy Roundhave been fully implemented, and this makes desirable the negotiation of newcommitments. Second, with the lowering of tariffs as a result of past negotiations,nontariff barriers have become relatively more important as asource of distortion in international trade and have taken on greater importancein international economic relations. Third, expansion of the EuropeanCommunity to include the United Kingdom, Denmark, and Ireland,as well as the substantial elimination of trade barriers between theexpanded European Community and most of the other European countrieshave created the possibility of a significant decrease of trade opportunitiesbetween Europe and the rest of the world, including the United States.212

A reduction of trade barriers on a global basis would reduce theresulting diversion of trade, just as the Kennedy Round cushioned thediversion of trade after the EC was formed. Fourth, the ongoing reformof the international monetary system will require mutually supportiveimprovements of the monetary and trading systems, in particular toensure that efforts in one field are not frustrated in the other. Finally, recentyears have seen an increase of political friction related to trade issues, bothwithin the United States and between the United States and its major tradingpartners. While some friction is inevitable, given the large degree of economicinterdependence among countries, the heightening of these tensionsreflects in part a failure of the international institutions designed to resolveeconomic disputes before they spill over into the political arena.An improvement in the functioning of the international trading systemmay be the most important outcome of the new round of trade negotiations,inasmuch as such improvement may be essential for alleviating the tensionswhich might otherwise lead to new obstacles to trade. A better internationalframework for resolving trade problems is required in five areas: nontariffbarriers related to domestic economic and social policies; agricultural tradebarriers related to domestic agricultural programs; safeguard measures tofacilitate an orderly adjustment to new market conditions by producers inimporting countries; subsidies and other government assistance to industries;and finally new understandings on the access of consuming countriesto sources of supply, which might include safeguard arrangements to facilitateorderly adjustments to new market conditions by consumers in exportingcountries.Quite appropriately, however, the primary focus of the new round ofnegotiations will not be on maintenance of the status quo but on a continueddismantling of trade barriers. It should thus be possible to avoidconfusing the end—the expansion of profitable trading opportunities—withthe means—the negotiation of rules governing trade. Countries have benefitedgreatly from the rapid expansion of trade in the past quarter century;and should this trend cease or be reversed because of a failure of internationalcooperation, the economic welfare of all countries, including theUnited States, would be likely to suffer.As in the past, a major focus of the negotiations will be on a reduction oftariffs. While past trade negotiations have reduced the relative importanceof tariffs, they remain the most visible obstacle to trade.Approximately 60 percent of all trade in industrial products remains subjectto tariffs in the major industrial countries, and the average rate of suchtariffs is about 10 percent. Moreover, while in the aggregate, tariffs havebeen substantially reduced, some very high tariffs remain on a few importantconsumer goods. Of all trade, 4 percent is still subject to tariffsof 20 percent or more. It is hoped that the negotiations will result in a substantialexpansion of the duty-free category as well as a substantial reductionin the average tariff on the remaining dutiable items.213

Reducing Nontariff BarriersIn order to make possible the more effective management of the tradingsystem, new understandings need to be negotiated with respect to a widevariety of nontariff barriers (NTB's), such as import quotas, preferentialgovernment procurement regulations, discriminatory standards, and unreasonablecustoms procedures. Some NTB's are imposed for the same reasonsthat tariffs are imposed, to protect a particular domestic economic activity.In negotiating reductions in NTB's the goal is the same as in negotiatingreductions in tariffs: to remove or reduce the obstacles to free exchange ofgoods. Other NTB's, however, are merely the unintended by-product ofprograms designed to achieve various domestic social or economic objectives.The negotiating objective in such cases is to bring about modifications in thedesign or implementation of policies related to such an objective in order toavoid unnecessary distortion of trade. It may also be desirable to subject suchpolicies to periodic review to make sure that the level of protection offeredis the minimum necessary to achieve legitimate domestic goals.There is a natural tension between the free market principle on whichthe GATT is based and the practical reality of extensive government interventionin the economy in most countries. The challenge for these negotiationsis to devise arrangements that will give governments considerableleeway in forming and pursuing their own policies, while encouraging themto adopt policy measures that will minimize the disruption of the economicinterests of other nations. Such arrangements in themselves will not eliminatepotential policy conflicts among governments, but they can provide someguidelines for resolving such conflicts to everyone's satisfaction. The absenceof such arrangements creates the danger that governments will try to protectthemselves against the disruptive influence of actions by foreign governmentsin sensitive sectors by imposing new measures that distort trade.Reforming Agricultural TradeTrade barriers and domestic social objectives are perhaps most intertwinedin the agricultural sector, where domestic programs to support farmincome and to guarantee the availability of food supplies from domesticsources have been sheltered by comprehensive tariff and nontariff barriers.The challenge facing the negotiators is to work out some arrangements thatwould permit governments to honor their commitments to both farmersand consumers at lower levels of protection. A reduction of the level ofprotection would not only benefit consumers by reducing real food prices,but encourage producers to use their resources in a manner more consistentwith comparative advantage. It is also true, of course, that the necessaryshifts in production patterns would be difficult for some producers, andprovisions to ease the adjustment costs would be needed in many countries.For some countries this will mean new measures to transfer incometo those farmers who suffer income losses in the short run from lowerlevels of protection.214

In working out an approach to the negotiated reduction of agriculturaltrade barriers, one must distinguish between cyclical and structural reasonsfor agricultural protection. Cyclical problems arise when market prices riseabove accepted norms or farm incomes drop below accepted norms. Structuralproblems arise if the norms for prices and incomes differ between onecountry and another.Cyclical problems. Most farm programs are designed to put a floor underfarm incomes when production increases sharply. During periods of peakproduction, therefore, governments tend to raise farm incomes either directlyby making up any shortfalls with direct payments, or indirectly by keepingfarm prices above the level that would prevail in a free market. Governmentscan use either domestic or international trade measures to keep prices high.Farm prices can be raised by reducing supply through cutbacks in the productionor restrictions on imports, or by increasing demand through financingthe build-up of domestic stocks or subsidizing exports.Governments may also attempt to restrain price increases when exportmarkets expand or production declines sharply. During such periods, governmentstry as far as possible to increase domestic supplies and reducedomestic prices of food by drawing down domestic stocks, increasing domesticproduction, reducing exports, and increasing imports. Of course ifall countries simultaneously have a problem of inadequate production,attempts by one country to increase imports or reduce exports, or both, willmake the problem worse for other countries. The more a country dependson exports or imports, the greater its exposure.Some countries, the United States among them, permit agricultural pricesto vary over a wider range than is true in other countries, for example, themembers of the European Community. This difference has permitted countrieswith narrower margins for price fluctuation to increase the stability oftheir own supplies and prices through trade at the expense of countrieswith wider margins for price fluctuation. The reason is that, long before thecountry with wider margins takes such action, the country with the narrowermargin tends to limit imports and to increase export incentives whenprices are falling and to limit exports when prices are rising. As a result,surpluses and shortages are exaggerated for the latter when price pressuresdevelop in either direction.Two conclusions can be drawn from all this. First, unless governmentscan develop some understandings on the use of trade measures duringa period of excess or inadequate food production throughout the world, tensionswill be inevitable. Second, governments will be reluctant to increasetheir dependence on foreign trade as long as they cannot receive adequateassurances that other governments will not pursue policies which seek toshift the costs of moderating swings in farm incomes and food prices totheir neighbors.215

Structural problems. Agreements on a set of rules regarding cyclicallyrelated trade measures can be separated from negotiations designed toreduce agricultural trade barriers arising from structural differences betweenthe farm sector in one country and another. While most governments arecommitted to preventing agricultural prices from falling below or risingabove accepted levels, these levels differ between one country and another.Under conditions of free trade, however, market prices in different countrieswill generally not vary by more than the cost of transportation. To the extenttherefore that one country wishes to support a market price that is eitherlower or higher than in other countries, it has to impose some limitation ontrade flows. If agricultural trade barriers are to be reduced, countries willneed to find some means to reduce the differences in market support prices.An approach to agricultural negotiations. International negotiations onagricultural trade are timely because many foreign governments are in theprocess of reassessing their agricultural policies in response to considerablepublic dissatisfaction with the results of current agricultural programs. Duringnormal times, changes in existing programs would be difficult to negotiateeven if no economic interest were seriously affected. At a time whenchange has become inevitable, it is far easier to work out a greater harmonizationof national approaches to agricultural problems.These negotiations need to be approached in a fairly pragmatic manner.It would be impractical, as some have suggested, to negotiate tight internationalagreements regulating prices, production, inventories, and tradecontrols on individual commodities. On the other hand, governments will bereluctant to increase the dependence of their consumers on imports and thedependence of their producers on exports, without some agreement on theavailability of such imports when food is in relatively short supply and theaccessibility of such exports to foreign markets when food is in relativelyexcess supply. Undoubtedly some degree of international understanding onthe use of trade controls relative to domestic measures will be required. Aspart of such an international understanding, it may be desirable to achieve abetter coordination of those internal policies which are undertaken to moderateextreme fluctuations in food supplies and prices.Better international understandings on improved access to supplies as wellas access to markets should persuade countries on their own to undertakemore of the long-term changes in their agricultural programs that wouldresult in more efficient patterns of worldwide production. Important insuch long-term reforms would be the adjustment of relative prices amongfarm products. Another element could be a greater shift toward more directmethods of supporting farm incomes while allowing prices more room todecline during bumper crop years.216

Negotiating a New International Safeguard SystemNew international agreements would also be useful with respect to therules and procedures adopted by countries to deal with problems of importdisruption. Most nations at one time or another find it desirable to limit thegrowth of imports for a transitional period so that domestic industry canhave time to adjust. Since the current international rules and procedureshave proved largely unworkable in practice, governments have generallyworked out informal arrangements with each other. It would be desirable tobring these arrangements within an accepted international framework inwhich the interests of third parties could be better protected. The adoptionof certain internationally accepted principles could also reduce some of thepolitical friction which has tended to be associated with the negotiation ofsuch arrangements. It would moderate the effects of adjustment, while givingthe international community some better assurance that restrictive measureswill not be any broader or continue any longer than necessary for domesticadjustment to take place.Subsidies and Countervailing DutiesBetter international understanding is also needed on the use of subsidiesand the imposition of countervailing duties designed to offset foreignsubsidies. Governments commonly employ subsidies to achieve specific economicand social goals. When such subsidies are used to favor industriescompeting with export or import industries, they affect not only domesticeconomic activity but foreign economic activity as well. Foreign governmentscan try to neutralize the effect of the subsidy on their own trade byimposing an equivalent duty on imports or an equivalent subsidy on exports.Given the widespread use of subsidies by most governments, tradewould become increasingly subject to new tariffs if governments actuallycountervailed against every form of foreign subsidy. Conversely, the competitiveposition of unsubsidized businesses in some countries could be increasinglyaffected by subsidized production in other countries. What isneeded therefore is international agreement on the types of subsidies that arenot internationally acceptable, and consequently subject to countervailingduties, and general agreement on the types of subsidies that are acceptable.Access to Foreign SuppliesThe events of the past year have demonstrated that access to suppliescan be as much of a problem as access to markets, and that internationalguidelines on access to supplies can be as valuable as internationalagreements about access to markets. The possibility has thus arisen of anew type of reciprocity in international trading relations: commitmentsby producing countries to consuming countries on access to supplies, andcommitments by consuming countries to producing countries on accessto markets. Similarly, safeguard arrangements which are designed to protectproducers in consuming countries when excessively large increases in importsthreaten to disrupt domestic production could be matched by safeguard217

arrangements which are designed to protect consumers in producing countrieswhen excessively large exports threaten to disrupt domestic marketsin producing countries.Pending Trade LegislationIn order for the United States Government to be able to make such farreachinginternational commitments on trade practices and policies., it isnecessary to obtain public backing and the appropriate legislative mandate.Two approaches were considered early last year. One approach would be firstto negotiate preliminary agreements with other countries, and then on thebasis of such agreements to seek the necessary legislation. The other approachwould be first to seek a broad enough legislative mandate to covernegotiating outcomes that could be foreseen and a procedure for congressionalparticipation where negotiating outcomes could not be foreseen, andthen to negotiate an agreement within the context of that legislative framework.The second alernative was chosen both because other governmentscould not be expected to put forward their maximum concessions if U.S.offers did not have the explicit support of the Congress, and because itwould make possible more active participation of the Congress in an areawhere congressional prerogatives have traditionally been strong.Accordingly, last April the President sent draft legislation to the Congress.After extensive hearings, the House of Representatives approved a bill thatwould provide the necessary authorities to negotiate both a comprehensivereform of the international trading system and increased access to foreignmarkets and supplies. It would also significantly improve the managementof U.S. trade policy on a day-to-day basis. In the coming months the Senateis scheduled to consider this legislation.Congressional passage of trade legislation has become more importantthan ever because of the strains that the massive increase in international oilprices is likely to place on the international trading system in the comingyear. All countries will be under pressure to reduce their imports and toexpand their exports to pay for the increased cost of oil, even though alloil-consuming countries together will not be able to improve their tradebalance by more than the oil-producing countries are prepared to increasetheir imports. Given the large increases in oil revenues and the small populationsof most oil-producing countries, only a fraction of such revenues is likelyto be spent on goods in the short run. At the same time, a number of keyproducts could be in short supply at current price relationships, and thiscould induce new international competition for such supplies. In order tonegotiate effectively with other countries on the resolution of some of theseproblems and in order to protect U.S. economic interests in the absence ofsuch agreements, a new legislative mandate is urgently needed.The draft bill before the Congress would improve the President's abilityto manage U.S. trade policies in several respects. It would give the Presidentlimited authority to impose a temporary import surcharge or other import218

limitations, either to deal with a serious balance of payments deficit or tocooperate in correcting a balance of payments disequilibrium. He could alsoreduce or suspend import restrictions in order to reduce either a persistentbalance of payments surplus or excessive inflationary pressures in specificcommodity areas. Other permanent authority would permit the Presidentfull exercise of U.S. rights and obligations under trade agreements, and stillanother provision would revise and expand the President's authority to takeaction against foreign countries which maintain unjustifiable or unreasonableimport restrictions or other policies which seriously injure U.S. trade.The legislation would also liberalize the criteria for granting adjustmentassistance to firms and workers displaced by import competition and wouldtemporarily limit the growth of imports when such growth might seriouslyinjure a domestic industry.* * * * * * *In the context of the postwar period, developments in the internationaleconomy during the past year appear rather turbulent. Massive capital flowsled to fluctuations in exchange rates that were far in excess of any that attractedattention in the recent past. Inflation accelerated throughout muchof the world, as demand for goods outgrew the productive capacity of theworld economy. Shortfalls in farm output and cutbacks in oil production,combined with selective embargoes on oil exports, created intense internationalcompetition for food and energy. In all these different ways, theworld received an effective demonstration of the extent to which economicinterdependence has become a reality.Despite the economic difficulties, most nations were able to record significanteconomic gains; and despite some stresses and strains in internationaleconomic relations, the postwar framework for economic cooperation amongnations remained intact. This ability of the world economy to adjust tothe new realities was in large part due to the willingness of most governmentsto accept greater flexibility in their economic relationships, whilecontinuing to recognize the need for self-discpline in the pursuit ofindividual national goals. Certainly the introduction of more flexible exchangerate relationships facilitated the adjustment of economic relationsamong individual national economies experiencing widely different domesticcircumstances. Equally important was the willingness of governments to negotiatepragmatic accommodations to politically difficult international monetaryand trade issues.In the coming year, the new arrangements for international cooperationthat were evolving in the past year will be put to a strenuous test. The continuingconstraints imposed on the production and export of oil by a numberof countries in the Middle East will intensify the competition for energy suppliesand chemicals. In addition, the recent large increase in world oil priceswill require major adjustments in relative incomes both within and amongnations, in relative prices of both domestic and internationally traded goods,in world patterns of production and trade, and in the worldwide flow of219

capital and the means of putting this capital to its most productive uses.These adjustments are likely to pose severe hardships for some countries, andsome domestic economic difficulties for all nations. The pressures to takeunilateral measures at the expense of one's neighbors could become quiteintense in such an environment. Were just one nation, and then others, topursue such a course, however, the resulting disruption of international tradewould be likely to cause even more serious losses of economic welfare foreveryone. International conferences such as the recently concluded meetingof finance ministers in Rome, and the coming conferences on the world oiland the world food situation, will be useful in the search for cooperativesolutions. At the same time, the international monetary discussions and themultilateral trade negotiations will be indispensable to a broader effort tostrengthen the international framework for managing the increasing numberof economic problems that are of global significance.SUPPLEMENTMeasurement of Effective Changes in Exchange RatesExchange rates between the United States and her trading partners have changedfrequently over the past 3 years. Since such changes vary from currency to currency,it is useful to combine them into a single index number representing the effectivechange in the value of the U.S. dollar. Several methods of computing such a numberhave been developed, but the different methods produce different results. This supplementdiscusses the rationale behind some of the indexes that have been developedand examines the differences in results.Each method of computing the effective change in the value of the dollar combinesindividual changes in exchange rates into a weighted average. The most commonlyused weights are based on bilateral trade shares. The appreciation of the Germanmark, for example, would receive a greater weight than the appreciation of the Frenchfranc because Germany accounts for a larger share of overall U.S. trade.The weights may be computed on the basis of export, import, or total trade shares,depending on the use of the index. The three sets of weights vary because the proportionof U.S. exports that goes to each trading partner will seldom equal the proportionof U.S. imports accounted for by that country. For instance, in 1972 Japan provided16 percent of U.S. imports but purchased only 10 percent of our exports. Theappreciation of the yen would therefore receive a larger weight in an import indexthan it would in an export index. A composite import-export index of the depreciationof the dollar might use weights equal to the sum of bilateral exports and imports as afraction of total U.S. foreign trade.Changes in exchange rates may be expressed in two ways: either as the increasein the value of a foreign currency in terms of dollars or as the decrease in the value ofthe dollar in relation to a foreign currency. The magnitude of the percentage changein each case differs. If the value of the mark expressed in dollars rises by 33 percent,for example, then the value of the dollar expressed in marks falls by only 25 percent.This is true for the same reason that 100 is 33 percent more than 75, but 75 is 25percent less than 100. This confusing arithmetic fact has important implications forthe calculation of these indexes, because the magnitude of the effective change in thevalue of the dollar will depend on how the changes in exchange rates are expressed.An import-weighted index of exchange rate change is normally expressed in termsof the change in the dollar price of foreign currencies. If one assumes that foreign220

exporters do not alter their prices, expressed in their own currency, then changes inthe dollar value of foreign currencies accurately reflect the changes in dollar pricesto American importers. Likewise, an export-weighted index is usually based on changesin the foreign currency prices of dollars, because changes in the value of the dollarreflect changes in prices to foreign purchasers if American exporters hold their dollarprices constant.Selection of the countries to be included in the computation can markedly affectthe value of the index. For completeness one might wish to include as many countriesas possible in the sample, but because some countries account for only a small shareof overall U.S. trade, limiting the sample to major U.S. trading partners should notsignificantly affect the value of the index. If a major trading partner were to beeliminated from the sample, however, the resulting index might not accuratelyreflect the effective depreciation of the dollar.Bilateral trade shares of the United States have been shifting in the last 3 yearsin response to changes in exchange rates, further relaxation of trade barriers, andcrop failures abroad. An index of the effective depreciation of the dollar couldtherefore be sensitive to the choice of the year for which bilateral trade shares arecomputed. In some cases, however, it is difficult to predict how these changes willaffect trade shares. For instance, the depreciation of the dollar in relation to thecurrency of a trading partner should stimulate U.S. exports to that country but reduceU.S. imports from that country. Because these two results tend to offset each other,the net effect on total trade shares is uncertain.Changes in exchange rates are computed in relation to the exchange rates in effecton some base date. Commonly used base dates include these: May 1970, the lastmonth in which all major U.S. trading partners observed fixed exchange rate policiesfor their currencies; December 18, 1971, the day of the Smithsonian Agreement;and March 19, 1973, the first day of the float against the dollar for a number of foreigncurrencies. Because the value of the dollar generally declined from May 1970to July 1973, indexes of effective depreciation of the dollar using an earlier base datefor exchange rates will generally show a greater depreciation of the dollar than thosebased on a more recent date. Typical spot rates used are the daily noon spot ratesquoted in New York or London.The Change in the Value of the Dollar: A Comparison of Several IndexesTwo widely used indexes are the Morgan Guaranty index of effective exchangerate changes, published by the Morgan Guaranty Trust Company, and the ReutersCurrency Index, computed by Reuters, Limited, the London-based international newsagency. Both are composite indexes, combining bilateral export and import tradeshares in one index, but different techniques are used to compute them.The Morgan Guaranty index uses a sample of 14 countries other than the UnitedStates, which together accounted for about two-thirds of total U.S. trade in 1972.*Using separate export and import trade shares computed from 1972 trade data (beforeSeptember 1973, trade data for 1971 were used), Morgan Guaranty first computesseparate export and import indexes and then averages the two results accordingto the relative weights of exports to and imports from the other 14 countriesin the sample. The export-weighted changes in the values of foreign currencies areexpressed in foreign currency units per dollar; the import-weighted changes areexpressed in dollars per foreign currency unit. Spot exchange rates are the daily noondollar bid rates quoted in New York.The Reuters Currency Index, which is followed closely by foreign central banksand foreign exchange markets, uses a sample comprising nine countries, eliminating*The countries are: Canada, Japan, the United Kingdom, West Germany, France, Italy,Belgium-Luxembourg, the Netherlands, Switzerland, Austria, Denmark, Norway, Sweden,and Australia.527-867 O - 74 - 15221

Canada and four smaller countries used in the Morgan Guaranty sample. Each currencychange is weighted by the sum of exports plus imports as a fraction of totalU.S. trade. Trade weights are computed on the basis of average trade shares in1970-71. Reuters uses noon spot rates in London for all currencies except the yen;for this they use the closing rate in Tokyo, because the yen market in London is thinand the quotations are not necessarily representative of world market conditions. Allchanges in exchange rates are expressed as changes in foreign currencies vis-a-vis thedollar. A comparison of these two indexes, plus three others that will be discussedbelow, is contained in Table 56.TABLE 56.—A comparison of several measures of the effective depreciation of the dollar from May1970, 1971-73[Percent change]Year and monthMorganGuarantyindexReuterscurrencyindex 1TreasuryindexMultilateralindexTrade modelindex1971:June-2.3-1.85-1.84JulyAugSeptOctNovDec._(2)-6.'93-7.20-9.05212)2 )-2.5-4.6-5.5-6.0-6.3-8.2—2.11-3.39-4.69-4.78-5.20-6.99-2.04-2.72-4.01-4.31-4.57-5.911972:Jan.Feb...MarAprilMay ..June_-9.95-10.73-10.94-10.98-11.54-11.26- 15951.15.921 09.86-9.0-9.7-10.1-10.0-10.6-10.4-7.89-8.25-8.63-8.50-8.80-8.58-6.43—7.08-7.24-7.26-7.57-7.29JulyAugSeptOctNovDec . .-11.16-11.10-10.80-10.57-10.25-10.2969.51.18-.39-.21-.37-10.4-10.3-9.6-9.3-9.1-9.5—8.48-8.34-7.97-7.70-7.76-7.76-7.26-7.19-6.99-6.74-6.53-6.451973:JanFeb.MarApril . . . .MayJune-10.64-17.23-16.52-16.34—18.34-20.72.4910.3710.2210.0113.1417.45-9.7-16.0-15.8-15.5-17.4-19.6-8.52-14.34-13.74-13.37-15.76-18.67-6.73-11.51-11.21-10.83-12.61-14.95July .Aug _ __SeptOctNovDec-21.18-19.25-19.88-19.90-16.34-15.4918.3215.5816.6516.079.727.85-19.9-18.3-18.9-19.0-15.6-14.7-19.39-17.23-17.97-17.82-15.12-13.22-16.12-13.63-14.03-13.93-11.82( 2 )» Measures the appreciation from December 1971 of a group of foreign currencies in relation to the dollar.2 Not available.Note.—Data are for the last business day of each month. Base rates used are central rates in effect at the end of May1970.Sources: Morgan Guaranty Trust Company; Reuters, Limited; Department of the Treasury; Central Intelligence Agency,Office of Economic Research; and Council of Economic Advisers.On Friday, July 6, 1973, the Morgan Guaranty index registered the largest depreciationof the dollar during 1973: 22.45 percent from the central rates in effect atthe end of May 1970. On the same day the Reuters Currency Index indicated thata group of nine foreign currencies had appreciated 20.90 percent against the dollarfrom the central rates established by the Smithsonian Agreement in December 1971.When the Reuters index is recomputed to show the change in the dollar since May1970, thus permitting the two indexes to be compared, the Reuters index indicates a222

foreign currency appreciation of 36.39 percent. This number must be reconciled withthe 22.45 percent depreciation of the dollar shown by the Morgan Guaranty index.The techniques used to compute these two indexes differ widely, and some of thesedifferences in approach affect the computations more than others. By successivelymodifying the approach used by Reuters until the two procedures are equivalent, onecan identify the effect each difference in method has on the calculations.Morgan Guaranty uses the depreciation of the dollar in relation to foreign currencieswhen calculating export-weighted changes in the dollar, and it uses the appreciationof foreign currencies vis-a-vis the dollar when calculating import-weighted changes.Reuters uses only the appreciation of foreign currencies vis-a-vis the dollar. Recalculatingthe Reuters index to conform to the Morgan Guaranty weighting procedurelowers the Reuters index 5.49 percentage points, to 30.90 percent, still a largermeasure of the depreciation of the dollar than is yielded by the Morgan Guarantyindex.Noon spot rates in New York on July 6 differed significantly from the noon spotrates in London. Because the dollar generally declined during the day, noon ratesin New York, taken 5 hours after the noon rates in London, show a greater depreciationof the dollar than the London rates. Recomputing the modified Reuters indexusing New York instead of London spot rates increases the measured depreciationof the dollar about half a percentage point, from 30.90 percent to 31.46 percent.The use of trade weights based on U.S. bilateral trade in 1971, instead of an averageof bilateral trade during 1970 and 1971, increases the modified Reuters index from31.46 to 31.91.With these adjustments the Reuters index has been modified so that the computationtechnique is identical to that used by Morgan Guaranty; only the sample ofcountries differs. Adding Canada to the Reuters sample of nine countries lowers theReuters measure almost 10 percentage points, from 31.91 percent to 22.26 percent.The relatively small depreciation of the U.S. dollar against the Canadian dollar isgiven a large weight in the calculation because of the importance of Canadian tradeto the United States. Adding the four remaining countries to the Reuters sample plusCanada raises the index of the depreciation of the dollar to 22.45 percent, the numberpublished by Morgan Guaranty on July 6, 1973.Three observations are suggested by the results. First, the calculation is affectedto only a minor degree by some of the differences in approach—for instance, thechoice of spot rates, the selection of a year from which to compute trade shares, andthe decision to include several countries with relatively small shares of U.S. trade.Second, excluding a major trading partner like Canada can have a great impact onthe measure of effective exchange rate change. Third, the choice of whether to expresschanges in exchange rates in terms of the appreciation of foreign currenciesor the depreciation of the dollar is also important, especially if the changes in exchangerates are large for some important trading partners in the sample.An index used internally by the Treasury Department is computed by a methodsimilar to that used by Morgan Guaranty, except that it covers all OECD countries(22 other than the United States) and the weights used are derived from 1972bilateral trade data. Changes in the dollar cost of foreign exchange are weighted bybilateral import shares. Changes in the foreign exchange cost of dollars are weightedby bilateral export shares. The resulting import- and export-weighted indexes are thenweighted by the relative importance of imports and exports in U.S. total trade withthe 22-country group and finally averaged to produce a single index of the effectivedepreciation of the dollar.On July 6, 1973, the Treasury Department index showed that the dollar had depreciated20.8 percent since May 1970 in relation to the currencies of the otherOECD countries, 1.65 percentage points less than the Morgan Guaranty figure. Someof the difference derives from the addition to the sample of eight countries whose223

currencies have appreciated relatively little in relation to the dollar. Any remainingdifference is due to the use of trade shares based on bilateral trade in 1972 ratherthan 1971.Other Methods for Computing WeightsOne problem associated with the use of these indexes is that the weights take intoaccount only bilateral trade with the United States, when, in fact, changes in anyone exchange rate affect trade of other countries as well. When the mark and theyen appreciate, for example, U.S. exports to Japan and Germany increase andimports from those two countries decline. In addition, third countries now findGerman and Japanese imports relatively more expensive than imports from theUnited States. For this reason, U.S. exports to third countries should also increase.One solution is to weight changes in each country's exchange rate by that country'simportance in total world trade. The multilateral index presented in Table 56is one such measure. For each of the countries in the Morgan Guaranty sample, thedepreciation of the dollar against each foreign currency is weighted by the sum ofeach country's exports to and imports from the other 14 countries (including theUnited States), divided by 1972 total trade among the 15 countries. The spot ratesused were daily closing rates in New York.An additional revision of weights based on past trade shares might incorporate theuse of price effects to anticipate the importance of changes in the value of each country'scurrency to U.S. trade. A country whose trade is more responsive to price changesshould receive a greater weight because changes in its exchange rate would have alarger impact on the U.S. trade balance than its relative trade share alone wouldindicate. A multilateral trade model may be used to compute a set of weights proportionalto the effects of bilateral exchange rate changes on the U.S. trade balance.To construct a trade model index of the depreciation of the dollar, weights werecalculated with the use of a preliminary version of a trade flow model developedby the Office of Economic Research of the Central Intelligence Agency. The modelassumes that prices have a significant effect on trade among the 17 countries andgroups of countries that are included. In the preliminary form of the model, producersof any one good which is traded internationally are assumed to react similarly to achange in the price of their product, no matter which country they live in. The U.S.supply of chemicals on the international market, for example, is no more sensitive tochanges in the domestic currency price of chemicals than is the supply from anyother country. Similarly, importers of any one good also react to price changes inthe same fashion, no matter where they live. As a result of these assumptions, theresponse of any two countries to a similar change in their exchange rates differsprimarily because the product mix of their trade differs.For July 6, 1973, the multilateral index showed an effective depreciation of thedollar equal to 20.54 percent, about 2 percentage points less than the MorganGuaranty index. For the same day the trade model index showed that the dollar haddepreciated 16.81 percent from May 1970, if the change in each currency is weightedby its relative contribution to the change in the U.S. trade balance. One reason whyboth these indexes show a smaller change in the value of the dollar than the MorganGuaranty index is that in both cases changes in exchange rates are expressed in termsof the depreciation of the dollar in relation to each foreign currency. The MorganGuaranty index, on the other hand, uses the appreciation of foreign currencies in relationto the dollar for part of its calculation, and the magnitude of changes expressedin this manner is greater.Another reason both these indexes may differ from the Morgan Guaranty index isthat the weights are calculated differently. While no simple pattern emerges from acomparison of the trade model weights with the bilateral weights, there is a clearpattern suggested by a comparison of the multilateral weights with the bilateral224

TABLE 57.—Changes in exchange rates from May 1970, 7970-73[Percent change]German markJapanese yenFrench francBritish poundYear and monthDollarrateEffectiverateDollarrateEffectiverateDollarrateEffectiverateDollarrateEffectiverate1970:June.0.750.510.31-0.120.590.24-0.10-0.64July..Aug..Sept.Oct..Nov..Dec..79.79.79.76.81.42.46.37.34.31.27-.06.17.49.57.61.64.65-.38.13.08.15.14.14.64.58.60.55.64.57.24.15.07.01.06.14-.39-.51-.61-.52-.40-.39-1.15-1.21-1.39-1.25-1.21-1.171971:Jan..Feb..Mar..Apr..May..June-July..Aug..Sept.Oct..Nov..Dec..64.99.79.713.014.215.147.159.0510.049.8211.97.04.33.13.061.813.873.734.865.375.575.075.28.56.69.70.70.72.72.731.216.508.739.5012.50-.15-.15-.15-.13-.31-.37-.38-.344.265.996.688.78.64.65.69.68.50.49.73.70.60.38.513.02.03-.12-.01.00-1.22-1.79-1.60-2.85-4.55-5.72-5.73-4.94.24.74.78.75.78.78.771.442.893.773.895.27-.69-.28-.26-.27-.76-1.04-1.12-1.29-1.07-.92-.98-1.131972:Jan..Feb..Mar..Apr..May..June.13.3014.8915.4515.1715.1215.514.715.015.105.094.885.0115.1217.9718.9918.5918.2719,0510.7512.7013.5413.2612.9313.407.369.1410.1710.2610.7710.73-2.23-1.71-.99-.60-.24-.377.128.499.098.768.857.05-.63-.25-.02-.14-.22-2.02July..Aug..Sept..Oct..Nov..Dec.15.7814.8614.6214.1314.2514.425.284.694.674.574.845.1319.5919.5319.5519.6019.6119.5114.2014.2414.3514.5514.7014.4711.0311.0110.9610.5610.199.18-.04.25.43.51.26-.821.862.091.71-.22-2.06-2.30-7.54-7.06-7.27-8.81-10.97-11.161973:Jan..Feb..Mar..Apr-May..June.14.5121.7830.1129.0231.1841.965.036.779.299.9310.3815.1119.2929.7537.4835.6036.0336.1113.7321.8825.1623.8923.7522.739.2616.5723.2521.9624.0930.37-.791.352.182.663.114.11-1.831.153.023.495.447.34-11.01-12.90-14.47-12.92-12.10-13.78July..Aug..Sept.Oct..Nov..Dec-56.7250.8650.9651.6341.8837.7221.3619.9819.6318.9916.2416.5436.0835.7335.6035.1729.3928.4921.5222.1021.7520.8017.3517.5236.9430.6730.3331.7326.0120.843.821.58.901.461.69.375.733.15.761.22-.54-3.44-19.20-19.76-22.39-22.73-20.71-21.54Note.—Monthly figures are averages of daily figures.Morgan Guaranty Trust Company computes the effective change in the value of foreign currencies by applyingthe same techniques used to compute the effective depreciation of the dollar.Sources: Federal Reserve Bank of New York and Morgan Guaranty Trust Company.weights. First, multilateral trade within the European Economic Community accountsfor a large share of total trade among the 15 countries in the multilateral index sample,and hence the relatively large depreciation of the dollar in relation to most Europeancurrencies is given a relatively large weight in the multilateral index. Second, becauseCanada accounts for only 9 percent of total trade among the 15 countries, the smalldepreciation of the U.S. dollar in relation to the Canadian dollar receives a muchsmaller weight in the multilateral index than in an index based on bilateral tradeshares. These two effects would tend to raise the level of the multilateral index andbring it closer to the Morgan Guaranty figure.225

Effective Changes in Other CurrenciesAlthough the discussion in this supplement is directed specifically toward measuringthe effective depreciation of the dollar, the same techniques are used to compute theeffective change in the value of other currencies as well. An index of the effectivechanges in a foreign currency is useful because changes in the dollar rate alone can bedeceptive. The sharp appreciation of the German mark in terms of dollars, forexample, is a misleading indicator of the overall increase in the value of the mark, justas the depreciation of the dollar against any single currency may give a misleading impressionof the decline in the value of the dollar. Changes in the dollar exchange ratesand effective changes in the exchange rates for several foreign currencies are presentedin Table 57 for comparison.226

Appendix AACTIVITIES OF THE ADVISORY COMMITTEE ON THEECONOMIC ROLE OF WOMEN227

Activities of the Advisory Committee on theEconomic Role of WomenIn September 1972 the President announced the establishment of theAdvisory Committee on the Economic Role of Women to provide a formalmechanism for improving the information and analysis available to policymakers about the economic problems women encounter and for assuringthat the economic interests of women are given appropriate weight in policyconsiderations.In January 1973 the Chairman of the Council of Economic Advisers,who is also Chairman of the Advisory Committee, appointed the followingpersons from the private sector to serve on the committee:Jacqueline BrandwynneCasey EikeCynthia EpsteinStephen FullerJulia GreerJacqueline GutwilligRuth HandlerLenore HersheyGertrude HimmelfarbE. Marie JohnsonM. Jane KaySister Collette MahoneyJacob MincerArthur RasmussenBernice SandierRuth WashingtonAlso serving on the committee are the Secretary of the Treasury, the Secretaryof Commerce, the Secretary of Labor, the Secretary of Health, Education,and Welfare, and Anne Armstrong, Counsellor to the President.The committee met four times during 1973. The first meeting, held inJanuary, was in part organizational and in part a review of Chapter 4 ofthe 1973 Annual Report of the Council of Economic Advisers, which discussesthe economic role of women. At this meeting the committee memberssuggested several topics that they felt were particularly relevant to women'seconomic opportunities.The meeting of April 30 was devoted to a discussion of career developmentfor women. Participating in the discussion were Dr. Sidney J. Marland,Jr., then Assistant Secretary for Education in the Department ofHealth, Education, and Welfare; Robert J. Brown, Associate ManpowerAdministrator for the U.S. Employment Service; and Dr. Bennetta B.Washington, Special Assistant to the Assistant Secretary of Labor for Manpower.Dr. Helen Astin (University of California, Los Angeles), andDr. Cynthia Epstein (Queens College, New York), who is also a com-229

mittee member, presented results of research examining education, attitudes,and careers as they relate to women.In its aim of furthering opportunities for women in business and industry,the Advisory Committee also sponsored a symposium on "The Advancementof Women in Industry" on September 20, 1973. The opening speechwas given by Roy Ash, Director of the Office of Management and Budget.Representatives of several major firms reported on both the progress andthe problems encountered in programs to improve the recruiting and promotionof women. Other speakers included representatives from government,labor unions, and universities.As a result of the symposium, the nongovernment members of the committeeprepared a set of recommendations urging the private sector toadopt particular actions that would facilitate the economic advancementof women. Guidelines are included for employers, unions, and the media,suggesting specific steps that can be taken to ensure equal opportunity forwomen. On December 5, 1973, the committee met to discuss the finalrecommendations. These will be published and distributed to leaders ofindustry and will also be available to the public.On the same day, the committee members met together at the WhiteHouse with members of the Citizens' Advisory Council on the Status ofWomen and with delegates from 11 member countries of the Organizationfor Economic Cooperation and Development (OECD), who were in Washingtonto participate in an experts' meeting on "The Role of Women in theEconomy." The occasion was a reception at which the Task Force onWomen's Rights and Responsibilities dedicated a bust of Susan B. Anthony.The committee's plans for 1974 include intensive study of several topicswhich have important economic effects for women, including child care,social security taxes and benefits, and the income tax structure.At the December 5 meeting, the committee adopted a resolution presentedto the Administration, urging that evening school programs notbe curtailed as a result of the fuel shortage, since many adults, bothwomen and men, depend on evening classes to continue their schooling.230

Appendix BREPORT TO THE PRESIDENT ON THE ACTIVITIESof theCOUNCIL OF ECONOMIC ADVISERS DURING 1973231

LETTER OF TRANSMITTALCOUNCIL OF ECONOMIC ADVISERS,Washington, D.C., December 31,1973.THE PRESIDENT:SIR : The Council of Economic Advisers submits this report on its activitiesduring the calendar year 1973 in accordance with the requirements of theCongress, as set forth in Section 4(d) of the Employment Act of 1946.Respectfully,HERBERT STEIN, Chairman.WILLIAM J.GARY L. SEEVERS.FELLNER.233

Report to the President on the Activities of theCouncil of Economic Advisers During 1973The Council of Economic Advisers was established by the EmploymentAct of 1946 to advise and assist the President in discharging his responsibilitiesunder the act. During 1973 a wide range of economic policy-makingissues arose. As the economy approached full employment, the pace ofinflation accelerated and a shortfall in farm product supplies sent foodprices sharply upward. Late in the year the embargo of petroleum suppliesby the Arabian producers precipitated the onset of a major energy crisis.Herbert Stein served as Council Chairman during 1973, his second yearin that capacity. Mr. Stein is on leave of absence from the University ofVirginia, where he is A. Willis Robertson Professor of Economics.Several changes in the membership of the Council took place during 1973.On July 18, Gary L. Seevers succeeded Ezra Solomon, who had left theCouncil on March 26 to return to the Graduate School of Business at StanfordUniversity, where he is Dean Witter Professor of Finance. Mr. Seeverswas formerly Special Assistant to the Chairman of the Council.On October 31, 1973, William J. Fellner became a Member of theCouncil, filling a vacancy created by the return of Marina v.N. Whitmanto the University of Pittsburgh, where she is Professor of Economics.Mr. Fellner is Sterling Professor of Economics Emeritus at Yale Universityand Resident Scholar from the American Enterprise Institute, now on leave.ECONOMIC POLICY MAKING AND THE COUNCIL OFECONOMIC ADVISERSRESPONSIBILITIES OF THE COUNCILThe principal directive of the Employment Act of 1946 is "to promotemaximum employment, production, and purchasing power." The basicresponsibility of the Council is the analysis and interpretation of economictrends and developments to assist the President in reaching that goal. TheCouncil also provides analysis and recommendations on other economicpolicy problems that warrant the attention of the Executive Office of thePresident. The Council prepares regular reports on current economic conditionsand forecasts of the economic outlook. Its recommendations are anintegral part of economic policy making.235

Past Council Members and their dates of service are listed belowName Position Oath of office date Separation dateEdwin G. NourseLeon H. Keyserling.John D. Clark..Roy BloughRobert C. TurnerArthur F. BurnsNeilH.JacobyWalter W. Stewart....Raymond J. Saulnier..Joseph S. DavisPaul W. McCracken..Karl BrandtHenry C. Wallich...Walter W. Heller....James TobinKermit GordonGardner AckleyJohn P. Lewis...Otto EcksteinArthur M. Okun.JamesS. Duesenberry..Merton J. PeckWarren L. SmithHendrik S. Houthakker.Paul W. McCracken.....Ezra SolomonMarina v.N. Whitman.. .ChairmanVice Chairman._.Acting Chairman.ChairmanMemberVice Chairman...Member..Member..ChairmanMemberMemberMember.ChairmanMemberMember.MemberMember.ChairmanMemberMemberMember.ChairmanMember..Member.MemberChairmanMemberMemberMember.MemberChairmanMember.MemberAugusts 1946.August 9,1946.November 2,1949..May 10,1950August 9, 1946May 10,1950June 29, 1950September 8, 1952..March 19,1953.....September 15, 1953..December 2,1953.April 4,1955December 3,1956..May 2,1955December 3, 1956...November 1,1958...May 7, 1959January 29, 1961....January 29,1961....January 29,1961....August 3, 1962.November 16, 1964..May 17,1963September 2,1964...November 16, 1964..February 15, 1968...February 2,1966....Februarys, 1968...July 1,1968Februarys 1969. ___February 4, 1969....September 9,1971...March 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.March 26, 1973.August 15,1973.Under the Employment Act it is also the duty of the Council "to appraisethe various programs and functions of the Federal Government" and "tomake recommendations to the President" as to how economic policy mightbe better adjusted toward the achievement of employment, production,and price level objectives. This has involved the Council with an increasinglywide range of problems and has expanded the Council's direct advisory rolewithin the Executive Office of the President. It has also created close workingrelationships with the departments, agencies, and offices in the executivebranch both in evaluating current programs and in developing new ones.The Council also reviews legislation proposed by Congress and submits recommendationsbased upon the economic implications of these prospectiveprograms and actions.In addition to its duties in the analysis and forecasting of economic trendsand developments, the Council and its staff in 1973 also participated in theexamination of a wide range of economic issues incident to the formulationof programs and policies by the Administration. These included: therestructuring and modification of domestic farm programs in order to facilitatethe further expansion of farm production and food supplies and thedevelopment of new farm legislation; measures to improve the efficiency,structure, and functioning of the Nation's financial markets and programsaffecting environmental quality, transportation, and housing; theanalysis of various aspects of the energy problem, including oil importpolicies and the impact of the oil embargo upon the economy; policies to236

govern the exploitation of the resources of the seas; study of the lumberand plywood industry and the management of the Nation's timber resources;supply problems of minerals and materials, and the disposition of stockpilesof strategic materials; and the sale and lease of Government-financed technology.During 1972 the President requested the Chairman of the Councilto organize an Advisory Committee on the Economic Role of Women; thisis discussed separately in Appendix A. The Council also contributed toanalysis of a number of other questions, including: youth unemploymentproblems and the effects of social legislation upon youth employment opportunities;ways in which the workmen's compensation system might be improved;proposals to improve health insurance; and many of the specificproblems arising in the operation of the price and wage control system.International trade and investment continued to be topics of majorconcern to the Council. The Council helps formulate the Administration'spolicies on overall international trade policy, and it also works onthe resolution of specific trade problems. In 1973 the Council contributedto decisions relating to the easing of restrictions on imports of meats and dairyproducts, the reassessment of quota limitations on imports of other farmproducts, including wheat and cotton, the preparation of the U.S. negotiatingposition in the trade talks which are scheduled for 1974, and the legislationthat would provide authority for the reciprocal reduction of tradebarriers and improvement of Presidential authority for the day-to-daymanagement of trade policy.Early each year the President submits the Economic Report of the Presidentto the Congress as required by the Employment Act. The Councilassumes major responsibility for the preparation of this Report, whichtogether with the Annual Report of the Council of Economic Advisersreviews the progress of the economy over the past year and outlines theAdministration's policies and programs to achieve the goals of the act.The Council works closely with the economic policy-making units of theAdministration. The review and analysis of the overall performance of theeconomy is coordinated within the series of "Troika" working groups whichare composed of representatives of the Council, the Treasury, and the Officeof Management and Budget (OMB). At regular intervals senior staffeconomists from each of these agencies evaluate recent economic performanceand formulate economic forecasts. These studies are then submitted to asecond group, which is composed of a Council Member, the Assistant Secretaryof the Treasury for Economic Policy, and the Economist for OMB.The analysis and projections are reviewed and cleared for consideration bythe Troika, which includes the Chairman of the Council, the Secretary of theTreasury, and the Director of OMB. The Directors of the Council on InternationalEconomic Policy and the Cost of Living Council (CLC) commonlymeet with the Troika, thus providing a means of coordinating internationaland domestic economic policy with the direct controls on pricesand wages. The Troika, usually augmented by the Chairman of the Board of527-867 O - 74 - 16237

Governors of the Federal Reserve System to form the Quadriad, meets withthe President from time to time to review the performance of the economyand discuss possible changes in economic policy.The Chairman of the Council is a member of the Council on EconomicPolicy which was formed in January 1973 to provide for general coordinationof all aspects of economic policy. The Council works closely with the Costof Living Council, which supervises the operation of price and wage controlsunder the Economic Stabilization Program. Mr. Stein is Vice Chairmanof this group and is a member of its committees on food and health.Mr. Seevers is a member of the CLC Deputies Group and also serves onthe Committee on Food. Senior staff economists participate in a number offormal and informal CLC study and review groups. The Chairman is alsoa member of the Domestic Council, the Council on International EconomicPolicy, and the Federal Property Council. He and the Council Members serveon a number of subcommittees of these agencies in the Executive Office of thePresident.In addition the Council and its professional staff served on more than 35interagency study groups for analysis and review of economic problems andthe coordination of policy.The Joint Economic Committee (JEC), like the Council, was created bythe Employment Act of 1946 to make a continuing study of matters relatingto the Economic Report and to submit its own report and recommendationsto the Congress. Since its inception, the Council has made itself readilyavailable to the JEC. During 1973 the Chairman and Council Membersappeared before the JEC or its subcommittees six times. On February 6 theCouncil presented testimony before the JEC on the Economic Report, andappeared again on August 1 to review economic developments during thefirst half of 1973. Mr. Stein appeared before the JEC Subcommittee onConsumer Economics on March 21, as did Mr. Seevers on September 25.On July 10 Mr. Stein presented testimony with Mrs. Whitman in connectionwith the economic role of women in the economy, and on December 4he appeared before the JEC Subcommittee on International Economics topresent testimony in connection with the effects of the oil embargo upon theeconomy. In addition to the Council's appearances before the JEC, onFebruary 5 Mr. Stein testified on the Federal budget before the HouseCommittee on Appropriations and presented testimony on the economiceffects of the oil embargo on December 14 before the Senate PermanentInvestigations Subcommittee.The Council continued its active role in the exchange of information andviews on international economic developments and policies. The Chairmanis the head of the U.S. delegation to the Economic Policy Committee ofthe Organization for Economic Cooperation and Development (OECD)and also serves as vice chairman of the committee. Council Members andstaff economists attended several working party meetings of the committeeduring the year. The Council also participated in a working group of the238

Manpower and Social Affairs Committee of the OECD on the economicrole of women in the economy, and in this regard the Council's staff coordinatedthe U.S. report and headed the U.S. delegation to an experts' meetingwith 10 other countries.In April Mrs. Whitman and a delegation of senior staff economists fromthe Council visited Tokyo to continue the semiannual exchange of informationon economic problems and policies with the Economic Planning Agencyfor Japan, an exchange that was initiated during 1972. In October theCouncil was host to a delegation of economists from the Economic PlanningAgency who visited Washington to continue these discussions. In OctoberMr. Stein, with Mr. Foss, a member of the CEA staff, visited Romania tocontinue the dialogue on economic planning that was also initiated in 1972.PUBLIC INFORMATIONThe annual Economic Report is the main vehicle through which theCouncil informs the public of its work and its views. The Report presentsa comprehensive review of economic conditions as well as forecasts for thecoming year and an explanation of the Administration's overall economicpolicy. In recent years about 50,000 copies of the Report have been distributed.The Council also assumes primary responsibility for the monthlypublication Economic Indicators, which is prepared by the Council's StatisticalOffice under the direction of Frances M. James and issued by the JointEconomic Committee with a distribution of about 10,000 copies.The Council holds monthly press briefings at which it presents informationand analysis of current economic problems and developments. Informationis also provided through frequent speeches by the Chairman andMembers of the Council and through participation in seminars and panels.The Council answers numerous requests for information from the Congress,the press, and individual citizens; it also receives individual visitors andrepresentatives from business, academic, and other groups as often as ispossible without interfering with other duties.ORGANIZATION AND STAFF OF THE COUNCILOFFICE OF THE CHAIRMANThe Chairman is responsible for communicating the Council's views to thePresident. This duty is performed through direct consultation with the Presidentand regular reports on economic developments. The Chairman representsthe Council at Cabinet meetings and at many other formal andinformal 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 the239

Council at a wide range of meetings, where they assume major responsibilityfor the Council's involvement. Whenever the Chairman is absent fromWashington, one of the Council Members automatically becomes ActingChairman.In practice the Chairman and the Council Members work as a team. Foroperational reasons, however, subject matter is divided among them informally.Mr. Seevers is responsible for the areas encompassing the EconomicStabilization Program, international trade, energy and natural resources,food and agriculture, urban and national growth policy, transportation, regulatedindustries, environmental problems, and antitrust.Mr. Fellner's special responsibilities comprise business conditions, shorttermforecasting, monetary and fiscal policy, international finance, manpowertraining and employment, financial markets, housing, the economicrole of women, taxation, social security, and health, education, and welfare.PROFESSIONAL STAFFAt the end of 1973 the professional staff consisted of 14 senior staff economists,two statisticians, and 10 members of the junior research staff.Members of the professional staff were responsible for economic analysisand policy recommendations in major subject areas involving the Council'sinterests and responsibilities. In addition, staff economists carried out manydifferent Council and interagency assignments requiring the application oftheir knowledge and analytical skills. The professional staff and their specialfields at the end of the year were:Senior Staff EconomistsGeorge A. AkerlofBarry R. ChiswickJohn D. DarrochJohn M. Davis, JrGeza M. FeketekutyMurray F. FossGeorge M. von Furstenberg....Mary W. HookBenton F. MassellLeo V. MayerJune A. O'NeillJoel PopkinAllan G. PulsipherSung W. SonLabor and ManpowerLabor, Human Resources, and Income DistributionPrices and Industry StudiesSpecial Assistant to the ChairmanInternational Finance and TradeBusiness Conditions, Analysis, and ForecastingFiscal Policy, Public Finance, and HousingBusiness Conditions, Analysis, and ForecastingEnergyAgriculture and FoodLabor, Human Resources, and Income DistributionPrice AnalysisRegulated Industries, Science, Technology, Environment,and TransportationMonetary Policy, Financial Institutions, Housing,and Interest RatesStatisticiansFrances M. JamesCatherine H. FurlongSenior Staff StatisticianStatistician240

Junior Staff EconomistsJames S. FacklerEric B. HerrDavid C. MunroLaura B. PetersonRosemary QuintanoLydia SegalCarl I. Van DuyneLabor, Human Resources, and Income DistributionFiscal Policy, Housing, and Public FinanceBusiness Conditions, Analysis, and ForecastingInternational Finance and TradeEconometrics and ForecastingPrice Analysis, Econometrics, and ForecastingMonetary Policy, International Finance, andTradeMary P. KaneM. Cary LeaheyRobert O. MendelsohnResearch Assistants and InternsFrances M. James, Senior Staff Statistician, is in charge of the Council'sStatistical Office and manages the Council's economic and statistical informationsystem. She supervises the publication of Economic Indicators and thepreparation of tables and charts for the Economic Report and for the Council'swork. She also handles the fact checking of memoranda, testimony, andspeeches. Catherine H. Furlong, Dorothy Bagovich, Natalie V. Rentfro, andMary P. Kane assist Miss James.The Council conducts a student intern program, employing a limitednumber of promising graduate and undergraduate students of economicsfor temporary periods, particularly during the summer months. Internswho served during 1973 were Lee J. Alston (Indiana University), ElizabethL. Bailey (Simmons College), Irwin L. Collier, Jr. (Yale University),Robert S. Dohner (Harvard University), David R. Henderson (Universityof California, Los Angeles), and Steven B. Robkin (Duke University).Each year the Council obtains the consulting services of several economists.Consultants who provided services during 1973 included Marion Clawson(Resources for the Future), John L. Cornwall (Southern Illinois University),George C. Eads (George Washington University), Karl A. Fox(Iowa State University), Hendrik S. Houthakker (Harvard University),Paul W. MacAvoy (Massachusetts Institute of Technology), Richard N.Rosett (University of Rochester), and Roger P. Sherman (University ofVirginia). James R. Golden (U.S. Military Academy) was a member ofthe professional staff during the summer.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 including preparation and analysis of the Council's budget;procurement of equipment and supplies; responding to correspondence andinquiries from the general public; and distribution of Council speeches, re-241

ports, and congressional testimony. James H. Ayres served as AdministrativeOfficer, assisted by Nancy F. Skidmore, Elizabeth A. Kaminski, Margaret L.Snyder, and Bettye T. Siegel. The duplicating, mail, and messenger departmentwas operated by James W. Gatling, Frank C. Norman, and Kharl A.Williams.The secretarial staff for the Chairman and Council Members consisted ofJoyce A. Pilkerton, Mary C. Fibich, Patricia A. Lee, Alice H. Williams, andMargaret L. Snyder. Secretaries for the professional staff included D. CarolynFletcher, Dorothy L. Green, Bessie M. Lafakis, Jean P. Noll, EarnestineReid, Linda A. Reilly, and Lillie M. Sturniolo. F. Denise Singletarysupplemented the secretarial staff during the summer. Special assistancein connection with the Report was furnished by Dorothy L. Reid and EleanorA. McStay, former members of the Council staff.DEPARTURESThe Council's professional staff is drawn primarily from universities andresearch institutions, and these economists normally serve for 1 or 2 years.Senior staff economists who resigned during the year were William E. Gibson(Brookings Institution), Ronald F. Hoffman (Department of Health, Education,and Welfare), William A. Johnson (Department of the Treasury),Nicholas S. Perna (Federal Reserve Bank of New York), Robert D. Tollison(Texas A&M), and Robert C. Vogel (Southern Illinois University). Junioreconomists who resigned in 1973 were Paul W. Boltz, Andrew J. Safir, andMary E. Sullivan. Other resignations included Zell Berman, research assistant;and Cheryl L. Green and Julie L. Ohner, secretaries. Mayme Burnett,secretary, retired from Federal service during 1973.The Council suffered a loss in August with the death of V. MadgeMcMahon, who had been with the Statistical Office since 1968.242

Appendix CSTATISTICAL TABLES RELATING TO INCOME,EMPLOYMENT, AND PRODUCTION243

CONTENTSNATIONAL INCOME OR EXPENDITURE:G-l. Gross national product or expenditure, 1929-73 249C-2. Gross national product or expenditure in 1958 dollars, 1929-73 •. 250G-3. Implicit price deflators for gross national product, 1929-73 252C-4.PageImplicit price deflators and alternative price measures of grossnational product and gross private product, 1939-73 254C-5. Gross national product by industry in 1958 dollars, 1947-72 255C-6. Gross national product by major type of product, 1929-73 256G—7. Gross national product by major type of product in 1958 dollars,1929-73 257C—8. Gross national product: Receipts and expenditures by major economicgroups, 1929-73 258C-9. Gross national product by sector, 1929-73 260C-10. Gross national product by sector in 1958 dollars, 1929-73 261G—11. Gross product originating in nonfinancial corporations and dollarcosts per unit of output, 1948-73 262C-12. Personal consumption expenditures, 1929-73 263C-13. Gross private domestic investment, 1929-73 264C-14. Relation of gross national product and national income, 1929-73 265C-15. National income by type of income, 1929-73 266C—16. Relation of national income and personal income, 1929-73 267C-17. Disposition of personal income, 1929-73 268C-18. Total and per capita disposable personal income and personal consumptionexpenditures in current and 1958 dollars, 1929-73 269C-19. Sources of personal income, 1929-73 270C-20. Sources and uses of gross saving, 1929-73 272C-21. Saving by individuals, 1946-73 273C-22. Number and money income (in 1972 dollars) of families and unrelatedindividuals, by race of head, 1947-72 274POPULATION, EMPLOYMENT, WAGES, AND PRODUCTIVITY:C-23. Population by age groups, 1929-73 275C-24. Noninstitutional population and the labor force, 1929-73 276C-25. Civilian employment and unemployment by sex and age, 1947-73. . 278C-26. Selected unemployment rates, 1948-73 279C-27. Unemployment by duration, 1947-73 280C-28. Unemployment insurance programs, selected data, 1946-73 281C-29. Wage and salary workers in nonagricultural establishments, 1929-73. 282C—30. Average weekly hours and hourly earnings in selected private nonagriculturalindustries, 1947-73 284C-31. Average weekly earnings in selected private nonagricultural industries,1947-73 285C-32. Output per man-hour and related data, private economy, 1947-73. . 286C-33. Changes in output per man-hour and related data, private economy,1948-73 287245

PRODUCTION AND BUSINESS ACTIVITY:Pag€C-34. Industrial production indexes, major industry divisions, 1929-73.. . . 288C-35. Industrial production indexes, market groupings, 1947-73 289C—36. Industrial production indexes, selected manufactures, 1947—73 290C-37. Capacity utilization rate in manufacturing and major materialsindustries, 1948-73 291C-38. New construction activity, 1929-73 292C-39. New housing starts and applications for financing, 1929-73 294C-40. Business expenditures for new plant and equipment, 1947—74 296C—41. Sales and inventories in manufacturing and trade, 1947—73 297C-42. Manufacturers' shipments and inventories, 1947-73 298C-43. Manufacturers' new and unfilled orders, 1947-73 299PRICES:C-44. Consumer price indexes by expenditure classes, 1929-73 300C—45. Consumer price indexes by commodity and service groups, 1939—73. 301C—46. Consumer price indexes, selected commodities and services, 1939—73. 302O-47. Consumer price indexes, seasonally adjusted, 1970-73 303C-48. Percent changes in consumer price indexes, major groups, 1948-73.. 304C-49. Wholesale price indexes by major commodity groups, 1929-73 305C-50. Wholesale price indexes by stage of processing, 1947-73 307C-51. Percent changes in wholesale price indexes, major groups, 1948-73.. 309MONEY STOCK, CREDIT, AND FINANCE:C-52. Money stock measures, 1947-73 310C-53. Commercial bank loans and investments, 1930-73 311C-54. Total funds raised in credit markets by nonfinancial sectors, 1965-73. 312C-55. Private liquid asset holdings, nonfinancial investors, 1965-73 314C-56. Federal Reserve Bank credit and member bank reserves, 1929-73. . 315C-57. Aggregate reserves and member bank deposits, 1959-73 316C-58. Bond yields and interest rates, 1929-73 317C-59. Short-and intermediate-term consumer credit outstanding, 1929-73. 319C-60. Instalment credit extended and repaid, 1946-73 320C—61. Mortgage debt outstanding by type of property and of financing,1939-73 321C-62. Mortgage debt outstanding by lender, 1939-73 322C-63. Net public and private debt, 1929-72 323GOVERNMENT FINANCE:C-64. Federal budget receipts and outlays, fiscal years 1929-75 324C-65. Federal budget receipts, outlays, financing, and debt, fiscal years1964-75 . 325C-66. Relation of the Federal budget to the Federal sector of the nationalincome and product accounts, fiscal years 1972—75 327C-67. Receipts and expenditures of the government sector of the nationalincome and product accounts, 1929-73 328C—68. Receipts and expenditures of the Federal Government sector of thenational income and product accounts, 1949-75 329C-69. Receipts and expenditures of the State and local government sector ofthe national income and product accounts, 1946-73 330C—70. State and local government revenues and expenditures, selected fiscalyears, 1927-72 331C-71. Public debt securities by kind of obligation, 1946-73 332C-72. Estimated ownership of public debt securities, 1946-73 333C-73. Average length and maturity distribution of marketable interestbearingpublic debt, 1946-73 334246

CORPORATE PROFITS AND FINANCE:PageC-74. Profits before and after taxes, all private corporations, 1929-73 335C—75. Sales, profits, and stockholders' equity, all manufacturing corporations,1947-73 336C-76. Relation of profits after taxes to stockholders' equity and to sales, allmanufacturing corporations, by industry group, 1950-73 337C—77. Sources and uses of funds, nonfarm nonfinancial corporate business,1946-73 339C-78. Current assets and liabilities of U.S. corporations, 1939-73 340C-79. State and municipal and corporate securities offered, 1934-73 341C-80. Common stock prices, earnings, and yields, and stock market credit,1949-73 342C-81. Business formation and business failures, 1929-73 343AGRICULTURE:C-82. Income of farm people and farmers, 1929-73 344C-83. Farm production indexes, 1929-73 345C-84. Farm population, employment, and productivity, 1929-73 346C-85. Indexes of prices received and prices paid by farmers, and parity ratio,1929-73 347C-86. Selected measures of farm resources and inputs, 1929-73 348C-87. Comparative balance sheet of the farming sector, 1929-74 349INTERNATIONAL STATISTICS:C-88. U.S. balance of payments, 1946-73 350C-89. U.S. merchandise exports and imports by commodity groups,1958-73 352C-90. U.S. merchandise exports and imports by area, 1967-73 353C—91. U.S. overseas loans and grants, by type and area, fiscal years,1962-73 354C-92. International reserves, 1949, 1953, and 1968-73 355C-93. U.S. reserve assets, 1946-73 356C-94. International investment position of the United States at year-end,1960 and 1968-72 357C-95. Price changes in international trade, 1965-73 358C—96. Consumer price indexes in the United States and other major industrialcountries, 1955-73 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, 1929-73Year or quarterTotalgrossnationalproductPer-con-sump-expend-itures »Grossprivatedomesticinvestment^Netexportsof goodsandservices3Government purchases of goods and services *FederalStateTotalandTotalNationaldefense 5 Other localPercentchangefromprecedingperiod,total grossnationalproduct 6Billions of dollars1929103.177 216.21.18.51.31. 37.2193355.645.81.4.48.02.02. D6.0-4.2193990.566.89.31.113.35.11.23.98.26.919401941194219431944..1945194619471948194999.7124.5157.9191.6210.1211.9208.5231.3257.6256.570.880.688.599.3108.3119.7143.4160.7173.6176.813.117.99.85.77.110.630.634.046.035.71.71.3.0-2.0-1.8-.67.511.56.46.114.024.859.688.696.582.327.025.131.637.86.016.951.981.189.074.217.212.516.520.12.213.849.479.787.473.514.79.110.713.33.83.12.51.41.6.72.53.55.86.88.07.97.77.47.58.19.812.615.017.710.224.926.821.39.7.9-1.610.911.3-.41950195119521953195419551956195719581959284.8328.4345.5364.6364.8398.0419.2441.1447.3483.7191.0206.3216.7230.0236.5254.4266.7281.4290.1311.254.159.351.952.651.767.470.067.960.975.31.83.72.2.41.82.04.05.72.2.137.959.174.781.674.874.278.686.194.297.018.437.751.857.047.444.145.649.553.653.714.133.645.948.741.238.640.344.245.946.04.34.15.98.46.25.55.35.37.77.619.521.522.924.627.430.133.036.640.643.311.015.35.25.5.19.15.35.21.48.219601961 .196219631964196519661967196819691970197119721973 v503.7520.1560.3590.5632.4684.9749.9793.9864.2930.3977.11,055.51,155.21,288. 2325.2335.2355.1375.0401.2432.8466.3492.1536.2579.5617.6667.2726.5805.074.871.783.087.194.0108.1121.4116.6126.0139.0136.3153.2178.3201.54.05.65.15.98.56.95.35.22.51.93.6.8-4.64.699.6107.6117.1122.5128.7137.0156.8180.1199.6210.0219.5234.3255.0277.253.557.463.464.265.266.977.890.798.898.896.298.1104.4106.944.947.851.650.850.050.160.772.478.378.474.671.674.474.28.69.611.813.515.216.817.118.420.520.421.626.530.132.746.150.253.758.263.570.179.089.4100.8111.2123.3136.2150.5170.34.13.27.75.47.18.39.55.98.97.65.08.09.411.5Seasonally adjusted annual rates1971: 1 .IIIII.. ..IV1972: 1IIIIIIV1,027.21,046.91,063.51,084.21,112.51,142.41,166.51,199.2650.0662.2673.0683.4700.2719.2734.1752.6145.5152.7153.8160.8167.5174.7181.5189.43.8.51.1-2.2-5.5-5.7—3.8-3.5227.9231.5235.5242.2250.3254.2254.7260.796.196.798.2101.2106.0106.7102.3102.772.371.370.372.476.576.671.972.423.925.427.928.829.530.130.430.3131.8134.8137.3141.0144.3147.5152.4158.015.07.96.58.010.911.28.711.71973: 1IIIII.IV v1,242.51,272.01,304.51,334.0779.4795.6816.0829.0194.5198.2202.0211.2.02.87.68.0268.6275.3279.0285.8105.5107.3106.8107.874.374.274.274.031.233.132.733.8168.0168.0172.2178.015.29.910.69.41 See Table C-12 for detailed components.2 See Table C-13 for detailed components.3 See Table C-8 for exports and imports separately.< Net of Government sales.s This category corresponds closely to the national defense classification in the "Budget of the United States Governmentfor the Fiscal Year ending June 30,1975."6 Changes are based on unrounded data and therefore may differ slightly from those obtained from published data.Source: Department of Commerce, Bureau of Economic Analysis.249

TABLE C-2.—Gross national product or expenditure in 1958 dollars, 1929-73Year orquarterTotalgrossnationalproductPersonal consumptionexpendituresTotalDurablegoodsNondurablegoodsServicesGross private domestic investmentTotalFixed investmentTotalNonresidentialTotalStructuresProducers'durableequipmentResidentialstructuresChangein businessinventories19291933193919401941194219431944194519461947194819491950195119521953195419551956195719581959196019611962196319641965196619671968196919701971197219731971:1 IL...III—.IV....1972:1IV....1973:1IIIII....IV p...Billions of 1958 dollars203.6141.5209.4227.2263.7297.8337.1361.3355.2312.6309.9323.7324.1355.3383.4395.1412.8407.0438.0446.1452.5447.3475.9487.7497.2529.8551.0581.1617.8658.1675.2706.6725.6722.5745.4790.7837.3139.6112.8148.2155.7165.4161.4165.8171.4183.0203.5206.3210.8216.5230.5232.8239.4250.8255.7274.2281.4288.2290.1307.3316.1322.5338.4353.3373.7397.7418.1430.1452.7469.1477.5496.3526.8554.716.38.314.516.719.111.710.29.410.620.524.726.328.434.731.530.835.335.443.241.041.537.943.744.943.949.253.759.066.671.772.981.385.683.892.2104.0114.669.358.681.284.689.991.393.797.3104.7110.8108.3108.7110.5114.0116.5120.8124.4125.5131.7136.2138.7140.2146.8149.6153.0158.2162.2170.3178.6187.0190.2197.1201.3206.5211.6220.9229.254.046.052.554.456.358.561.864.767.772.173.475.877.681.884.887.891.194.899.3104.1108.0112.0116.8121.6125.6131.1137.4144.4152.5159.4167.0174.4182.2187.2192.4201.8210.940.45.324.733.041.621.412.714.019.652.351.560.448.069.370.060.561.259.475.474.368.860.973.672.469.079.482.587.899.2109.3101.2105.2110.5103.4110.3122.9131.736.99.723.528.132.017.312.915.922.642.351.755.951.961.059.057.260.261.469.069.567.662.468.868.967.073.476.781.990.195.493.598.8103.899.5105.0118.3126.626.57.615.318.922.212.510.013.419.830.236.238.034.537.539.638.340.739.643.947.347.441.644.147.145.549.751.957.866.374.173.275.680.177.276.183.792.513.93.35.96.88.14.62.93.85.712.511.612.311.912.714.113.714.915.216.218.518.216.616.217.417.417.917.919.122.324.022.623.424.323.722.523.024.812.64.39.412.114.27.97.29.614.117.724.625.722.624.825.524.625.824.527.728.829.125.027.929.628.131.734.038.744.050.150.652.255.853.553.660.867.710.42.18.29.29.84.92.92.52.812.115.417.917.423.519.518.919.621.725.122.220.220.824.721.921.623.824.824.223.821.320.423.223.722.229.034.634.0Seasonally adjusted annual rates735.1740.4746.9759.0768.0785.6796.7812.3829.3834.3841.3844.1489.5493.6498.0504.1512.5523.4531.0540.5552.7553.3558.1554.589.390.293.695.899.2101.9105.8109.2117.0116.2115.4109.7210.2211.8211.5213.0215.0220.7222.2225.8228.8228.0230.2229.6189.9191.7192.9195.3198.2200.8202.9205.4207.0209.1212.5215.2106.6110.3109.5114.8116.5121.0124.8129.1130.2130.2130.8135.7100.7103.8105.5110.1115.4116.7118.2122.8126.9126.9127.7124.774.875.575.678.481.582.583.487.591.291.593.294.122.922.622.422.123.023.022.723.123.824.425.226.051.952.953.256.358.459.560.764.367.467.268.068.225.928.329.931.734.034.234.735.335.635.334.530.63.5-4.31.24.99.64.0-.2-1.9-2.910.0-.24.6-3.98.310.93.3.9-2.06.44.81.2-1.54.83.52.06.05.85.89.013.97.76.46.73.95.34.65.25.86.54.04.71.14.36.66.33.33.43.010.9See footnotes at end of table.250

TABLE C-2.—Gross national product or expenditure in 1958 dollars,1929-73—ContinueYear or quarterNet exports of goods andservicesNetexportsExportsImportsGovernment purchases ofgoods and services iTotalFederalStateandlocalAddendum:GrossprivateproductPercent change frompreceding period JTotalgrossnationalproductGrossprivateproductBillions of 1958 dollars19291.511.810.322.03.518.5190.91933.07.17.123.36.017.3127.5-1.9-2.719391.310.08.735.212.522.7188.78.59.419401941194219431944194519461947 . . .194819492 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-.31950195119521953195419551956195719581959.2 75.33 01.13.03 25 06.22.2.316.319.318 217.818.820 924.226.223.123.813.614.115 216.715.817 719 119.920.923.552.875.492 199.888.985 285.389.394.294.725.347.463 870.056.850 749 751.753.652.527.527.928 429 732.134 435.637.640.642.2324.2344.6353 2371.1366.2397 2404 8410.5405.2433.49.67.93.04.5-1.47.61.81.5-1.16.410.26.32.55.0-1.38.51.91.4-1.37.0196019611962196319641965.19661967196819691970197119721973*4.35 14 55.68.36.24.23 61.0.22.3.4-2.06.027.328 030.032.136.537.440.242 145.748.452.252.756.467.323.022 925.526.628.231.236.138 544.748.350.052.458.461.394.9100 5107.5109.6111.2114.7126.5140.2147.7145.9139.3138.4143.0144.851.454 660.059.558.157.965.474.778.173.564.360.960.857.343.545 947.550.153.256 861.165 569.672.475 077.582.287.5444.0452 3482 9503.2532.0567 0603.5617 5647.0664.9661 7684.7729.5774.82.51.96.64.05.46.36.52.64.72.7—.43.26.15.92.41.96.74.25.76.66.42.34.82.8-.53.56.56.2Seasonally adjusted annual rates1971: 1IIIIIIV2.4-1.652.853.454.949.750.453.754.151.3136.7136.7138 6141.660.159.961 162.576.676.877.579.1674.6679.9686.1698.29.12.93.66.69.93.23.77.21972: 1IIIllIV1973: 1IIIllIV*-3 7-2.8-.9-.82.05.67.49.255.454.156.659.665.366.667.469.859.156.857.560.363.361.160.060.6142 7144.0141 8143.5144.4145.2145.0144.863 062.958 858.658.258.257.255.679 781.183 085.086.287.087.889.2707.3725.0735.3750.3767.1772.0778.8781.24 99.55.88.18.72.43.41.35.410.45.88.49.32.53.61.31 Net of Government sales.2 Changes are based on unrounded data and therefore may differ slightly from those obtained from published data.Source: Department of Commerce, Bureau of Economic Analysis.251

TABLE C-3.—Implicit price deflators for gross national product, 1929-73[Index numbers, 1958=100]Year or quarter192919331939194019411942194319441945194619471948194919501951195219531954 . . .195519561957 . .19581959I9601961196219631964196519661967196819691970197119721973*1971: 1 IIIII.IV1972: 1 IIIllIV..1973: 1 II...IllIV*Totalgrossnationalproduct^50.6439.2943.2343.8747.2253.0356.8358.1659.6666.7074.6479.5779.1280.1685.6487.4588.3389.6390.8693.9997.49100.00101.66103.29104.62105.78107.17108.85110.86113.94117.59122.30128.20135.24141.60146.10153.86Personal consumDtionTotal55.340.645.145.548.754.859.963.265.470.577.982.381.782.988.690.591.792.592.894.897.7100.0101.3102.9103.9104.9106.1107.4108.8111.5114.4118.4123.5129.3134.4137.9145.1expendituresDurablegoods56.441.946.046.550.459.364.271.575.976.882.786.386.887.894.295.494.392.991.994.998.4100.0101.4100.9100.6100.8100.4100.499.698.7100.3103.4106.1108.9112.3112.8114.5Nondurablegoods54.538.043.243.847.755.662.566.268.774.383.688.585.686.093.394.393.994.293.694.997.7100.099.9101.2101.9102.8104.0104.9106.9110.7113.0117.1122.2127.8131.7135.7146.8Services56.143.647.747.949.852.755.357.558.762.767.972.174.376.380.083.687.790.092.094.697.3100.0103.0105.8107.6109.0110.9113.1115.1118.3122.2126.9133.2140.2148.0153.2160.0Gross private domestic investment iFixed investmentTotal39.430.637.739.042.046.549.351.151.558.566.773.974.777.583.185.386.686.889.094.098.5100.0102.6103.4103.9104.9106.0107.6109.3111.8115.9120.4126.4132.5140.1145.7153.3NonresidentialTotal39.931.638.740.042.747.849.951.051.056.364.570.772.874.480.482.684.084.886.792.497.9100.0102.2102.9103.4104.1104.5105.7107.5110.2113.8117.5123.0130.2137.3141.3147.0Structures35.727.933.133.936.441.346.848.649.254.464.471.571.272.979.383.284.986.088.193.498.6100.0102.7104.0105.6107.1108.9111.1114.7118.9124.0129.8141.0152.6168.4181.7194.4Producers'durableequipment44.634.542.243.446.351.551.151.951.757.564.670.373.675.280.982.283.584.085.991.897.5100.0102.0102.2102.1102.3102.3103.0103.9106.0109.3112.0115.2120.3124.2126.0129.6Residentialstructures38.127.135.736.940.343.347.051.654.959.771.780.878.582.588.690.891.990.492.997.499.8100.0103.1104.5105.0106.7108.9112.3114.2117.4123.1129.7137.7140.2147.5156.3170.5Seasonally adjusted139.73141.40142.39142.85144.85145.42146.42147.63149.81152.46155.06158.04132.8134.2135.2135.6136.6137.4138.2139.2141.0143.8146.2149.5112.3113.0112.6111.4112.3112.9113.5112.5113.0114.3115.1115.6130.1131.3132.3133.1134.3135.0136.0137.6140.8144.8148.4152.9145.4147.3149.2150.1151.3152.5153.5155.3157.0159.0160.7163.2137.5139.7141.7141.3143.6145.0146.3147.6149.7152.7154.4156.6135.6137.1138.5137.8140.0141.1141.8142.1143.5146.5148.1149.9161.4166.5171.4174.4178.2180.4182.2186.0190.7193.9195.9196.8124.1124.6124.7123.4125.0125.9126.8126.3126.8129.3130.3132.0142.9146.7149.6149.9152.4154.4157.0161.2165.6168.6171.6177.1See footnotes at end of table.252

TABLE C-3.—Implicit price deflators for gross national product, 1929-73—Continued[Index numbers, 1958=100]Exports and Imports ofgoods and services!Government purchases of goodsand servicesGross national productby sectorYear or quarterExportsImportsTotalFederalState andlocalTotalPrivate 2NonfarmGeneralgovernment192959.557.338.636.039.151.7351.234.1193333.728.834.533.135.039.9242.133.5193944.138.637.940.836.343.9344.936 8194019411942194319441945194619471948194948.653.061.565.269.971.375.487.392.787.040.843.048.351.253.256.464.979.486.482.238.544.050.953.953.152.655.862.968.171.040.246.652.554.953.853.157.365.669.873.037.339.242.344.646.148.653.260.466.468.944.6948.6655.5160.8562.0262.5968.2576.2781.4080.6045 448.854.859.560.860.965.873.578.679.136 034.737.339 743.348.355.458 560.864.71950195119521953. . .1954195519561957 _•_1958195984.997.098.895.294.394.997.5101.3100.098.888.7107.2103.699.1100.8100.6102.5104.0100.099.371.878.581.081.884.187.192.196.4100.0102.472.979.481.281.483.586.991.795.8100.0102.270.876.980.682.885.387.592.797.3100.0102.681.4187.3588.9989.6590.7791.5794.5397.92100.00101.4180.085.387.489.090.591.794.898.3100.0101.867.170.574.476.679.584.088.793.3100.0104.2196019611962 .1963.196419651966.. . , .. .196719681969 -99.9101.9100.8100.6101.5104.7107.7109.7110.9114.6101.0100.198.599.5101.5103.4105.6106.5107.7111.1105.0107.1109.0111.8115.7119.4124.0128.5135.1144.0104.2105.2105.6108.0112.2115.5118.8121.5126.5134.5105.9109.4113.2116.3119.5123.5129.4136.4144.8153.6102. 76103.73104. 73105.80107.05108.83111.56114.79118.90124.30103.2104.2105.1106.3107.7109.2111.6115.3119.3124.6108.6113.6116.6121.5128.4133.5140.3147.6159.1171.01970197119721973 P120.5125.7130.2150.5118.6125.0133.6157.8157.6169.2178.3191.4149.5160.9171.7186.5164.6175.8183.2194.5130.32135.88139. 78147.23130.9136.6139.8145.4188.9206.2221.5236.1Seasonally adjusted1971: 1 IIIIIIV_.124.8125.6125.9126.6123.2124.1125.8127.1166.7169.4169.9171.0160.0161.5160.7161.9172.1175.5177.2178.2134.15135. 73136.66136.93135.0136.5137.5137.5201.9205.2207.1210.71972: 1IIIIIIV127.0129.2130.7133.7128.3133.0135.2137.8175.4176.6179.6181.6168.2169.8173.9175.5181.0181.9183.7185.9138.59139.12140.07141.27139.0139.3140.0140.9217.9220.8222.6224.61973: 1IIIIIIV p_137.4145.9155.0162.6141.8154.5161.7174.1186.0189.6192.5197.4181.2184.4186.8194.1189.2193.1196.1199.5143. 25145.88148.47151.24142.4144.5146.1148.6230.8233.9237.1242.61 Separate deflators are not available for total gross private domestic investment, change in business inventories, andnet exports of goods and services.2 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.253527-867 O - 74 - 17

TABLE C—4.—Implicit price deflators and alternative price measures of gross national product andgross private product, 1939-73Gross national product pricemeasures, 1958=100Percent change from preceding period lYear orquarterTotalPrivateTotalPrivateImplicitpricedeflatorPriceindex,1967weightsImplicitpricedeflatorPriceindex,1967weightsImplicitpricedeflatorPriceindex,1967weightsChainpriceindexImplicitpricedeflatorPriceindex,1967weightsChainpriceindex1939 .1940194119421943194443.2343.8747.2253.0356.8358.1643.9344.6948.6655.5160.8562.02-1.51.57.712.37.22.3-1.61 78.914.19.61.91945 .1946 .. .19471948194959.6666.7074.6479.5779.1262.5968.2576.2781.4080.602.611.811.96.6-.6.99.011 86.7-1.01950195119521953195480.1685.6487.4588.3389.6381.4187.3588.9989.6590.771.36.82.11.01.51.07.31.9.71.21955195619571958195990.8693.9997.49100. 00101.6691.5794.5397.92100. 00101.411.43.43.72.51.7.93.23.62.11.41960196119619631964103. 29104.62105. 78107 17108. 85102. 76103.73104. 73105.80107 051.61.31.11.31.61.3.91.01.01.219651966196719681969110.86113.94117.59122. 30128. 20110.75114.06117.58122. 51128.61108. 83111.56114.79118.90124. 30108.65111.62114.78119.10124.671.82.83.24.04.83.03.14.25.03.14.24.91.72.52.93.64.52.72.83.84.72.93.84.61970197119721973*135. 24141.60146.10153. 86135.60142.55148.02157. 07130.32135.88139.78147.23130. 67136. 64141. 05149.505.54.73.25.35.45.13.86.15.35.13.65.84.84.32.95.34.84.63.26.04.74.53.15.6Seasonally adjusted annual rates1971:1IIIIIIV1972:1IIIllIV1973:1IIIllIV*_.___139.73141.40142.39142.85144.85145.42146.42147.63149.81152.46155.06158.04140.36142.17143.48144.31146.30147.33148.48149.95152.79155. 59158.37161.48134.15135.73136.66136.93138.59139.12140.07141.27143.25145.88148.47151.24134.65136.34137. 58138.11139.49140.35141.44142.87145.32148.11150.87153.665.54.92.81.35.71.62.83.36.17.37.07.96.95.33.72.35.62.83.24.07.87.67.38.06.85.23.61.95.22.63.23.97.17.07.07.74.34.82.8.84.91.62.73.55.77.67.37.75.45.13.71.54.12.53.14.17.07.97.67.65.45.03.61.34.02.23.23.96.57.27.17.41 Changes are based on unrounded data and therefore may differ slightly from those obtained from published indexes.Source: Department of Commerce, Bureau of Economic Analysis.254

TABLE C-5.—Gross national product by industry in 1958 dollars, 1947-72[Billions of 1958 dollars]YearTotalgrossnationalproductAgriculture,forestry,TotalManufacturingandfisheriesContractconstructionDurablegoodsindustriesNondurablegoodsindustriesTransportation,communication,andutilitiesWholesaleandretailtradeFinance,insurance,andrealestateServicesGovernmentandgovernmententerprisesAllotheri194719481949309.9323.7324.117.920.019.412.914.114.791.896.390.952.355.050.539.441.340.429.630.428.752.754.255.235.636.537.830.631.932.132.433.234.76.77.110.6195019511952...19531954..355.3383.4395.1412.8407.020.419.520.221.221.616.218.218.318.919.3105.5116.2118.7128.6119.560.869.071.579.171.244.747.247.349.548.330.834.334.635.736.460.461.462.964.965.541.042.944.746.849.833.134.034.535 335.435.943.947.247.146.112.113.014.014 313.519551956...195719581959...438.0446.1452.5447.3475.922.122.021.522.022.320.821.821.120.722.0133.6134.1134.6123.7138.980.779.479.669.679.952.954.654.954.059.038.640.541.340.643.371.673.875.175.180.852.754.857.059.261.438.240.241.842.945.146.046.246.947.347.914.412.713.116.014.119601961. .196219631964 .487.7497.2529.8551.0581.123.123.423.324.023.621.721.421.721.923.3140.9140.4154.6162.4173.781.079.790.095.6102.459.960.764.766.871.344.946.048.951.954.782.383.588.992.898.964.167.171.274.478.346.748.350.852.254.749.250.652.653.956.114.716.317.917.417.819651966—196719681969617.8658.1675.2706.6725.625.023.725.224.825.423.524.723.123.824.1190.5205.7205.4219.2228.6114.8125.1123.9131.8136.975.780.781.487.491.759.264.066.570.975.4104.8111.6113.9120.8124.283.186.891.695.295.557.760.663.465.867.758.061.865.568.670.315.819.420.617.614.319701971. .1972._722.5745.4790.726.227.426.023.624.124.7217.5223.7243.7125.1127.7140.392.496.0103.477.481.086.4126.5131.5139.996.499.9105.169.269.672.570.070.071.715.818.320.5i 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.255

TABLE C-6.—Gross national product by major type of product, 1929-73Inventorychange[Billions of dollars]Goods outputTotalTotal Durable goods Nondurable goodsYear or gross FinalServiceturesStruc-quarter nationalsalesproductTotal Final la Total Final ll Total Finalsalessales11Oi CO sales IfJ-gc u1929 103 1 101.4 1.7 56.1 54.3 1.7 17.5 16.1 1.4 38.5 38.2 n 3 35.6 11.41933 .... 55.6 57.2 -1.6 27.0 ?8.fi -1.6 4,9 5.4 -.5 23.2 -1.1 25.7 2.91939 90.5 90.1 .4 49.0 48.6 .4 12.7 12.4 .3 36.3 36.2 .1 34.0 7.51940 99.7 97.5 2.2 56.0 53.8 2.2 16.6 15.4 1.2 39.3 38.4 10 35.4 8.31941 124.5 120.1 4.5 72.5 68.0 4.5 26.8 23.8 3.0 45.6 44.2 1.4 40.3 11.81942 157.9 156.2 1.8 93.6 91.9 1.8 35.5 34.5 1.0 58.1 57.4 .7 50.3 14.01943 191.6 192.2 -.6 120.4 121.0 -.6 54.2 54.2 .0 66.2 66.8 -.6 62.5 8.71944 210.1 211.1 -1.0 132.3 133.3 -1.0 57.9 58.5 -.6 74.4 74.8 -.3 71.8 6.11945 .... 211.9 213.0 -1.0 128.9 1?9.9 -1.0 48 9 50.? -1.3 80.0 79.7 76.5 6.51946 208.5 202.1 fi 4 124.9 118.5 fi 4 36.9 31.6 5 3 88.0 86.9 1 1 68 0 15.61947 231.3 231.8 139.7 140.1 46.0 44.3 1.7 93.7 95.9 -2.2 70.2 21.41948 257.6 252.9 17 154.2 149.4 4! 7 48.7 48.0 .7 105.5 101.5 4.0 75.7 27.71949 256.5 259.6 -3.1 147.5 150.5 -3.1 47.8 49.9 -2.1 99.7 100.6 -1.0 80.8 28.31950 284.8 278.0 6.8 162.4 155.6 6.8 60.4 56.3 4.1 102.0 99.3 2.7 87.0 35.41951 328.4 318.1 10.3 189.7 179.4 10.3 73.7 66.8 6.9 116.0 112.6 3.4 101.2 37.51952 .... 345.5 342.4 3,1 195.6 192.5 3.1 74.6 73.5 1.1 121.0 119.1 ? 0 110.8 39.11953 364.6 364.1 .4 204.1 203.7 .4 79.4 78.5 .9 124.8 125.2 -.5 118.8 41.71954 364 8 366.4 -1 5 197.1 198.6 -1 5 72.1 74.6 -? 5 125.0 124.1 1 0 123 5 44.21955 398.0 392.0 6.0 216.4 "210.4 6.0 85.7 82.7 3.0 130.7 127.7 2.9 132.6 49.01956 419.2 414.5 4.7 225.4 220.7 4.7 90.3 87.5 2.8 135.1 133.2 1.9 142.3 51.51957 441 1 439 8 1 3 234.6 233.3 1 3 94.4 93.1 1 3 140.2 140.2 .0 154 2 52 31958 447.3 448.8 -1.5 230.8 232.3 -1.5 83.6 86.4 -2.8 147.2 145.9 1.3 163.4 53.11959 483 7 478 9 4 8 249.1 244.4 4 8 95.6 93.2 ? 3 153.6 151.1 2.4 176.2 58.31960 .... 503.7 500.2 3 6 259.6 256.0 3.6 99.5 97.4 ? 1 160.1 158.6 1 5 187.3 56.81961 520.1 518 1 ? 0 262.3 260.2 ? n 96.5 96.6 - 1 165.8 163.7 2.1 199 5 58.31962 560.3 554.3 fi 0 284.5 278.5 fi 0 109.0 106.2 ? 8 175.5 172.2 3 ? 213.3 62.61963. 590.5 . 584.6 5.9 298.6 292.7 5.9 116.1 113.3 2.8 182.5 179.4 3.1 226.2 65.71964 632.4 626.6 5.8 319.4 313.6 5.8 127.0 122.8 4.2 192.4 190.7 1.6 244.2 68.81965 684.9 675.3 9.6 347.2 337.6 9.6 139.6 133.0 6.7 207.6 204.7 3.0 262.9 74.81966 749.9 735.1 14.8 383.3 368.5 14.8 156.7 146.2 10.5 226.6 222.3 4.3 289.1 77.51967 793.9 785.7 8.2 398.9 390.7 8.2 161.1 156.5 4.7 237.7 234.2 3.5 316.5 78.61968 864.2 857.1 7.1 429.5 422.4 7.1 174.5 169.6 4.9 255.0 252.9 2.1 346.6 88.11969 930.3 922.5 7.8 457.5 449.7 7.8 187.3 182.3 5.0 270.2 267.4 2.8 377.9 94.91970 977.1 972.6 4 5 471.2 466.7 4 5 183.7 182.5 1 ? 287.5 284.1 3 3 410.3 95.61971 1,055.5 1,049.4 6.1 497.1 491.1 6.1 193.1 191.1 2.0 304.0 299.9 4.1 447.4 110.91972 1,155.2 1,149.1 6.0 541.4 535.4 6.0 219.1 214.1 4.9 322.3 321.2 1.1 487.3 126.51973 v 1, 288. 2 1, 280.8 7.4 614.3 606.8 7.4 249.2 242.1 7.0 365.1 364.7 .4 534.3 139.6Seasonally adjusted annual ratesGrossautoproduct7.28.811.915.413.512.016.314.621.216.919 514.519.121.417.922.525.125.831.830.028.936.336.630.740.943.649.51971:1 1,027.2 1,020.2II 1,046.9 1,039.2III __ 1,063.5 1,059.2IV... 1,084.2 1,078.91972:1IIIIIIV...1,112.5 1,110.81,142.4 1,136.91,166.5 1,157.81,199.2 1,191.01973:1.... 1,242.5 1,237.8II... 1,272.0 1,267.51,304.5 1,299.8IV p.". 1,334.0 1,318.17.07.64.35.31 75.58.78.24.64.54.715.9489.1493.6499.5506.4516.9536.4548.6563.6589.6604.2622.3641.0482.1485.9495.2501.1515.2531.0539.9555.4585.0599.6617.6625.17.07.64.35.31 75.58.78.24.64.54.715.9191.4192.3193.5195.3205.9214.6222.6233.2242.5249.7254.3250.2187.4188.1192.8196.2205.5211.4216.8222.8238.1242.4246.2241.84.14.2.7-.9,43.25.810.44.47.38.08.4297.7301.2306.0311.0311.0321.9326.0330.3347.2354.5368.0393.8294.7297.8302.4304.9309.7319.6323.1332.52.93.43.76.21 32.32.9-2.2346.9 .3357.3 -2.8371.4 -3.4383.4 7.5433.9444.0450.8460.9471.8481.5491.8503.9514.8527.7540.8554.1104.1109.3113:2117.0123.8124.4126.2131.7138.1140.1141.4133.942.540.042.239.040.142.146.545.651.551.249.645.7Source: Department of Commerce, Bureau of Economic Analysis.256

TABLE C-7.—Gross national product by major type of product in 1958 dollars, 1929-73[Billions of 1958 dollars]Year orquarter1929193319391940194119421943194419451946194719481949195019511952195319541955195619571958195919601961196219631964196519661967196819691970197119721973*-1971: I....II..III..IV...1972: I...II..III..IV..1973: I...II..III.IV*.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.?529.8551. (581.1617.8658.1675.?706.6725.6722.745.4790.837.3FinalsalesInventorychange200.1145.9208.2222.3254.1293.8337.3363.2358.2302.6310.1319.1328.1347.0372.5391.8411.8409.0431.6441.2451.448.471.484.495.523.545.575.608.644.667.700.718.9718.5740.786.832.3.5-4.31.24.99.64.0-.2-1.9-2.910.0-.24.6-3.98.310.93.3.9-2.06.44.81-1.54.83.52.06.05.85.89.013.96] 46.73.95.34.65.2Goods outputTotalTotal103.968.8110.7124.0143.4158.1187.4204.8198.0172.1172.2178.4174.2192.6208.4214.0225.4215.1236.1239.0239.8230.8247.7256.0257.3277.3289.7308.6330.7356.8363.1379.7390.0385.4396.1423.9455.9Finalsales100.473.2109.5119.0133.8154.1187.6206.7201.0162.1172.4173.8178.1184.3197.5210.7224.5217.1229.7234.2238.5232.3242.9252.6255.3271.3283.9302.8321.7342.9355.4373.3383.3381.4390.8419.3450.7c3 to|"g3.5-4.31.24.99.64.0-.2-1.9-2.910.0—. 24.6-3.98.310.93.3.9-2.06.44.81.2-1.54.83.52.06.05.85.89.013.97.76.46.73.95.34.65.2Durable goodsTotal33.611.727.635.650.057.285.695.984.354.760.161.358.073.484.184.691.081.996.596.596.283.694.097.894.9107.0114.2124.6136.5151.8152.2160.7167.5159.0163.0184.1205.6Finalsales30.913.427.032.843.554.485.297.487.446.158.660.061.068.376.183.289.984.893.093.595.086.491.695.994.9104.1111.4120.4130.1141.9148.0156.2163.2158.0161.3180.2200.5Isss1"2.7-1.7.62.76.62.9.4-1.5-3.18.61.51.2-3.05.28.01.51.2-3.03.43.01.2-2.82.42.0.02.82.84.16.59.84.34.44.3cL73.95.1Nondurable goTotal70.457.183.088.493.4100.9101.7108.8113.7117.4112.2117.1116.2119.1124.3129.4134.4133.2139.7142.5143.6147.2153.7158.2162.3170.3175.6184.1194.2205.1210.9219.0222.5226.4233.1239.8250.3Finalsales69.559.882.586.290.399.7102.4109.3113.6116. C113.8113.8117.1116.0121.4127.6134.6132.3136.7140.7143.6145.9151.2156.7160.3167.2172.5182.3191.6201.0207.4217.0220.1223.4229.5239.1250.20.8-2.7.62.23.11.2-.6-.4.21.4-1.73.3-.93.12.91.8"~!93.01.8.01.32.51.52.03.13.11.72.64.13.52.02.53.03.6.7.1ServicesStructures69.363.076.980.089.8107.7131.8144.0144.3113.3106.5109.3112.4117.5130.5136.3140.3141.8147.5153.0160.1163.4171.2176.6184.0193.7200.9210.8221.9236.3249.259..268.2273.3280.1292.6305.930.321.823.230.531.917.912.412.927.231.236.137.545.244.444.747.050.254.354.052.653.157.055.055.858.860.461.665.265.063.067.267.363.869.174.275.5GrossautoproductSeasonally adjusted annual rates735.1740.4746.9759.0768.0785.6796.7812.3829.3834.3841.3844.1729.3733.8742.9754.3766.9781.3790.0806.0826.0831.0838.3833.25.86.54.04.71.14.36.66.33.33.43.010.9391.4392.4397.1403.4407.3421.5428.4438.4452.1453.9456.8460.7385.5385.9393.1398.6406.2417.2421.7432.1448.7450.5453.7449.85.86.54.04.71.14.36.66.33.33.43.010.9161.2161.3163.2166.2173.5180.4186.2196.3203.4207.1208.1203.7158.0157.8162.4166.9173.2177.7181.8188.0200.3201.8202.4197.63.33.5.8-.7.32.74.48.23.25.45.76.1230.1231.1234.0237.2233.8241.1242.2242.1248.7246.7248.7257.0227.6228.1230.7231.7233.0239.5240.0244.1248.5248.7251.3252.22.63.03.25.5.81.62.2-1.9.2-2.0-2.64.8276.6279.4280.2284.3286.8290.3294.5298.8300.6304.1308.6310.467.268.569.671.373.973.873.875.176.776.376.073.010.311.414.819.115.913.518.717.124.618.620.214.518.521.017.522.024.725.531.830.629.035.435.028.536.439.044.037.234.837.735.936.137.741.041.446.445.543.640.6Source: Department of Commerce, Bureau of Economic Analysis.257

TABLE C-8.—Gross national product: Receipts and expenditures by major economic groupSy 1929-73[Billions of dollars]Ye3qua19291933193919401941194?194319441945194619471948194919501951195?1953195419551956H571958195919601961196?196319641965196619671968196919701971197?197319711972-1973r orrterp1II. „III...IV.._1III" IIV...lf"_~III...IVP..PersonsDisposable personalincomeTotal i83.345.570.375.792.7116.9133.5146.3150.2160.0169.8189.1188.6206.9226.6238.3252.6257.4275.3293.2308.5318.8337.3350.0364.4385.3404.6438.1473.2511.9546.3591.0634.4691.7746.0797.0882.6727.4744.0752.0760.4772.8785.4800.9828.7851.5869.7891.1918.0Less:1nterestpaidandtransferpaymentsto foreigners1.111,112.2.9790 1 88 8048 493.1344 55 66,77 88 9101?131315. 536 1 9 451 8 1677009116.717.918?023.18.18.18.19.19.20.21.21.22.23.24.25.777338283071116Equals:Totalexcludinginterestandtransfers81.444.969.474.791.6116.1132.7145.5149.3158.6168.0186.9186.2204.1223.5234.8248.3252.9270.2287.2302.2312.3330.3342.3356.3376.6394.9427.4461.3498.9532.4575.9617.7673.8727. 3776.2858.8709.1725.7733.3741.2753.1765.1779.9807.0829.4846.6867.0892.4Personalconsumptionexpenditures77.245.866.70808899108119143160173176.191.?06?16230?36254?66?812903113?53^535537540143?46649?536579.6176677?6805.886 5 3 3 7 4 7 68 0 3705 4 741? ? ?10?831? 56 ? 50650.0662.2673.0683.4700.2719.2734.1752.6779.4795.6816.0829.0Personalsavingordissaving4.2-.92.63.811.027.633.437.329.615.27.313.49.413.117.318.118.316.415.820.620.722.319.117.021.221.619.926.228.432.540.439.838.256.260.249.753.8GovernmentNet receiptsTaxandnontaxreceiptsor accruals11.39.315.417.725.032.649.251.253.250.956.858.956.068.784.889.894.389.7100.4109.0115.6114.7128.9139.8144.6157.0168.8174.1189.1213.3228.9263.5296.7302.5322.0368.2419.0Less:Transfers,interest,andsubsidies21.82.74.24.44.04.44.76.510.418.517.318.821.322.919.919.019.521.923.425.528.733.034.036.541.342.844.446.749.955.562.870.777.993.2105.9115.9130.2Equals:Netreceipts9.56.711.213.321.028.244.444.742.832.439.540.134.745.864.970.874.867.876.983.586.881.695.0103.3103.3114.2124.3127.3139.2157.9166.2192.7218.8209.4216.2252.2288.8Seasonally adjusted annual rates59.263.560.257.852.945.945.854.450.051.051.163.3312.5319.0324.4332.2356.8363.4370.6381.9402.7414.7425.0100.5107.3107.2108.5111 9113.0113.9125.0125.2127.8131.7136.1212.0211.8217.1223.7244.9250.4256.7256.9277. 5286.9293.3ExpendtiuresTotalexpenditures10.310.717.18?8649310392.4542.64 8 03 0 7 5450.359.60.7993101.96.18 0 72797.6104114.127.131136.149159.166175.186.242270.19 20 1 09949393287.9312.7340370470.?94328.4338.8342.8350.7362.2367.2368.5385.7393.8403.2410.7421.9Less:Transfers,interest,andsubsidies21.82.74.24.44.04.44.76.510.418.517.318.821.322.919.919.019.521.923.425.528.733.034.036.541.342.844.446.749.955.562.870.777.993.2105.9115.9130.2100.5107.3107.2108.5111.9113.0113.9125.0125.2127.8131.7136.1Equals:Purchasesofgoodsandservices8.58.013.314.024.859.688.696.582.327.025.131.637.837.959.174.781.674.874.278.686.194.297.099.6107.6117.1122.5128.7137.0156.8180.1199.6210.0219.5234.3255.0277.2227.9231.5235.5242.2250.3254.2254.7260.7268.6275.3279.0285.8Surplusordeficitna-'tionalincomeandproductaccounts1.0-1.4-2.2-.7-3.8-31.4-44.1-51.8-39.55.414.48.5-3.27.95.8-3.8-6.9-7.02.74.9.7-12.5-2.13.7-4.3-2.91.8-1.42.21.1-13.9-6.88.8-10.1-18.1-2.811.6-15.9-19.7-18.4-18.6-5.4-3.92.0-3.88.911.614.3See footnotes at end of table.258

TABLE C—8.—Gross national product: Receipts and expenditures by major economic groups.1929-73—Continued[Billions of dollars]BusinessInternationalYearorquarterJTOSSretainedearnings3Grossprivateomesticinvestment*Excessof investment()Nettranserstoforignersjy personsandloversmentNet exports of goodsand servicesExportsLess:ImportsEquals:NetexportsExcessoftransfersorof netexports(>'Totalincomeor receiptsStatisticaldiscrepancyGrossnationalproductor expenditure1929....11.216.2-5.10.47.05.91.1-0.8102.40.7103.11933....3.21.41.8.22.42.0.4-.255.055.61939....8.49.3-.9.24.43.41.189.21.390.51940....1941....1942....1943....1944....1945....1946....1947....1948....1949....10.511.414.516.317.115.114.520.228.029.713.117.99.85.77.110.630.634.046.035.7-2.7-6.54.610.610.04.6-16.1-13.8-18.0-6.0.2.2.2!3.82.92.64.55.65.45.94.84.45.37.214.719.716.815.83.64.64.86.57.17.97.28.210.39.61.71.3.0-2.0-1.8-.67.511.56.46.1-1.5-1.12. 22.11.4-4.6-8.9-1.9-.598.7124.1159.0193.6207.6208.0208.4230.4259.5256.21.0.4-1.1-2.02.53.9.1.9-2.099.7124.5157.9191.6210.1211.9208.5231.3257.6256.51950....1951....1952....1953....1954....1955....1956....1957....1958....1959....29.433.135.136.139.246.347.349.849.456.854.159.351.952.651.767.470.067.960.975.3-24.7-26.2-16.8-16.5-12.5-21.1-22.8-18.1-11.5-18.54.03.52.52.52.32.52.42.32.42.413.818.718.016.917.819.823.626.523.123.512.015.115.816.615.917.819.620.820.923.31.83.72.2.41.82.04.05.72.2.12.2-.2.32.1-L5-3.4.22.3283.3325.1343.3361.6362.1395.9420.4441.1445.8484.51.53.32.23.02.72.1-1.1.01.6284.8328.4345.5364.6364.8398.0419.2441.1447.3483.7I960....1961....1962....1963...1964...1965...1966...1967...1968...1969...56.858.766.368.876.284.791.393.095.497.074.871.783.087.194.0108.1121.4116.6126.0139.0-18.0-13.0-16.8-18.4-17.8-23.4-30.1-23.5-30.6-42.02.42.62.72.82.82.82.83.02.92.927.228.630.332.337.139.243.446.250.655.523.223.025.126.428.632.338.141.048.153.64.05.65.15.98.56.95.35.22.51.9-1.7-3.0-2.5-3.1-5.7-4.1-2.4-2.2.41.0504.8520.8559.8590.8633.7688.0750.9794.6866.9936.3-1.0-.8-3.1-1.0-7.7-6.1503.7520.1560.3590.5632.4684.9749.9793.9864.2930.31970...1971...1972...1973 P.97.0111.8124.4134.7136.3153.2178.3201.5-39.3-41.4-53.9-66.83.23.63.73.662.966.373.5101.359.365.578.196.73.6.8-4.64.6-.42.88.4-1.0983.51, 058.81,156.61,285.9-6.4-3.4-1.52.3977.11,055.51,155.21,288.2Seasonally adjusted annual rates1971: I.III.IV.1972: L.IIIIIIV1973: I..II.IV v105.1109.9112.5119.5117.4124.1124.5131.6131.5132.0136.9145.5152.7153.8160.8167.5174.7181.5189.4194.5198.2202.0211.2-40.3-42.8-41.3-41.3-50.1-50.5-57.0-57.8-63.0-66.2-65.13.23.43.83.93.93.83.83.53.03.33.54.465.967.169.163.070.369.974.079.789.797.2104.5113.562.166.668.065.275.875.677.783.289.794.497.0105.63.8.51.1-2.2-5.5-5.7-3.8-3.5.02.87.68.0-0.62.92.76.19.49.47.67.03.0.5-4.0-3.51, 029.51, ObO.71, 066.91, 088.31, 119.21, 143.41, 164.91, 199.11, 241.41, 268.91, 300.8-2.3-3.8-3.3-4.0-6.7-1.01.6.21.13.23.71,027.21, 046.91,063. 51,084.21,112.51,142.41,166.51,199.21, 242.51,272.01, 304. 51,334.01 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 pro 3 uct by sector, 1929-73[Billions of dollars]Year orquarterTotalgrossnationalproductTotalTotalGross private product 1BusinessNonfarm * FarmHouseholdsandinstitutionsRest ofthe worldGrossgovernmentproduct»1929103.198.895.185.49.72.90.84.3193355.650.948.944.34.61.734 7193990.582.980.374.06.32.3.37.6194019411942194319441945194619471948194999.7124.5157.9191.6210.1211.9208.5231.3257.6256.591.9115.1142.8166.0177.9176.8187.7214.6240.1237.089.1112.2139.5162.4173.8172.3182.7208.6233.5230.182.6103.3126.5147.2158.5156.4163.9188.5210.2211.46.58.913.015.315.315.918.820.223.318.82.42.52.93 23.74.14.55.15.65.94.4.44.4.4681.01.07 89.415.125 632.235.220 816 717.419.41950..195119521953.. .1954195519561957.19581959284.8328.4345.5364.6364.8398.0419.2441.1447.3483.7263.9301.0314.3332.7332.4363.8382.6402.0405.2439.4256.3292.8305.8323.6322.7352.9370.8389.3391.7425.0236.3269.9283.7303.3303.1334.1352.2370.9370.9405.320.022.922.220.319.618.818.618.420.819.66.46.97.27.88.19.19.810.511.412.21.21.31.31.31.61.82.12.22.02.220.927.431.231.932.534.236.639.142.144.31960...196119621963.1964...196519661967. .19681969503.7520.1560.3590.5632.4684.9749.9793.9864.2930.3456.3469.2505.7532.4569.4617.1673.3708.8769.3826.5440.7452.3487.4513.0548.2594.4648.9681.6739.0794.1420.2431.4466.2491.5527.6570.8624.0657.0713.9766.220.520.921.221.520.623.724.924.625.227.913.214.015.016.017.318.520.222.825.528.12.42.93.33.44.04.24.14.54.74.347.550.954.758.163.067.876.685.194.9103.8197019711972__1973 *977.11, 055. 51,155.21,288.2862.4930.31,019.71,140.7827.0889.9975.41,090.3797.9859.4941.01,042.729.030.434.447.630.833.536.841.14.67.07.59.3114.7125.1135.4147.5Seasonally adjusted annual rates1971: 1IIIllIV1,027.21, 046.91,063.51, 084.2904.9922.8937.6956.0866.4882.3897.5913.3836.5852.0867.5881.729.930.230.031.632.633.133.834.55.97.46.38.2122.3124.1125.9128.21972: 1IIIllIV1,112.51,142.41,166.51,199.2980.31,008.61,030.01,060.0937.8965.2984.91,013.6904.8931.3951.0976.933.033.933.936.735.536.637.537.87.06.87.68.7132.2133.8136.5139.21973: 1IIIll1,242. 51,272.01, 304.51,334.01,098.91,126.21,156.31,181.51,050.51,076.81,105.21,128.81,008.91,033.51, 056.21,072.241.643.349.056.639.340.541.843.09.18.99.39.7143.5145.8148.2152.5* Gross national product less compensation of general government employees.2 Includes compensation of employees in government enterprises.3 Compensation of general government employees.Source: Department of Commerce, Bureau of Economic Analysis.260

TABLE C-10.—Gross national product by sector in 1958 dollars, 1929-73[Billions of 1958 dollars]Year orquarterTotalgrossnationalproductTotalTotalGross private product lBusinessNonfarm * FarmHouseholdsandinstitutionsRest ofthe worldGrossgovernmentproduct*1929203.6190.9182.1165.117.07.41.412.71933141.5127.5120.6103.017.55.71.214.01939209.4188.7180.7162.518.27.1.920.61940194119421943194419451946194719481949227.2263.7297.8337.1361.3355.2312.6309.9323.7324.1205.6236.6257.3272.8286.9282.5275.1281.4295.0294.1197.1228.1248.7264.9278.9274.6267.0272.8286.0284.7179.6209.3228.0245.3259.5256.5248.6255.8267.0266.217.518.820.619.619.418.118.517.019.018.47.67.57 87.27.17.17.17.57.98.21.0 .988.9.8.91.11.21.221.627.240 564 374 472 837 528 628.730.1195019511952 . .-1953195419551956195719581959355.3383.4395 1412.8407.0438.0446.1452.5447.3475.9324.2344,6353.2371.1366.2397.2404.8410.5405.2433.4314.2334.5343.2360.7355.4385.4392.2397.5391.7419.4294.9316.2324.2340.7335.0364.4371.4377.2370.9398.319.418.419.020.020.420.920.820.320.821.18.78.88.89.19.210.110.610.911.411.71.31.21.21.31.61.82.02.12.02.231.138.841 841 740 940.741.341.942.142.5I960196119621963196419651966196719681969487.7497.2529.8551.0581.1617.8658.1675.2706.6725.6444.0452.3482.9503.2532.0567.0603.5617.5647.0664.9429.5436.9466.7486.6514.4548.9584.9597.8626.5644.6407.6414.8444.6463.8492.1525.2562.5573.9603.1620.521.922.222.122.822.323.722.423.923.424.112.212.412.913.213.714.014.615.416.016.32.32.93.43.43.94.13.94.34.54.043.744.846.947.849.150.854.657.659.760.71970197119721973 *»722.5745 4790.7837.3661.7684.7729.5774.8641.1662.2706.6750.9616.4636.3682.0727.724.826.024.623.216.616.817.418.34.05.65.55.660.760.761.162.5Seasonally adjusted annual rates1971: 1IIIIIIV735.1740 4746.9759.0674.6679.9686.1698.2652.9657 0664.3674.8626.4631.2638.3649.126.525.925.925.716.816.816.816.94.86.05.06.560.660.560.860.81972: 1. ...IIIIIIV768.0785.6796.7812.3707.3725.0735.3750.3684.7702.6712.3726.8659.2677.4688.7702.525.625.223.624.217.217.417.517.45.45.05.56.260.760.661.362.01973: 1IIIllIV*829.3834.3841.3844.1767.1772.0778.8781.2742.9748.3754.7757.5718.1725.9733.6733.224.822.421.224.318.018.218.518.56.35.55.45.362.262.462.562.9* Gross national product less compensation of general government employees.2 Includes compensation of employees in government enterprises,s Compensation of general government employees.Source: Department of Commerce, Bureau of Economic Analysis.261

TABLE C-ll.—Gross product originating in nonfinancial corporations and dollar costs per unit ofoutput, 1948-73Year or quarterGross productoriginating innonfinancialcorporations (billionsof dollars)Currentdollars1958dollarsTotalcostsiCurrent dollar costs per unit of 1958 dollar gross product (dollars)CapitalconsumptionallowancesIndirectbusinesstaxes 2CompensationofemployeesNetinterestCorporate profits and inventoryvaluation adjustmentTotalProfitstaxliabilityProfitsaftertaxesplus inventoryvaluationadjustment19481949195019511952195319541955195619571958195919601961196219631964196519661967196819691970197119721973137.0133.3151.7174.3182.0194.7191.6216.3231.2241.9236.0263.7273.1278.4302.8320.0346.0377.6413.0430.8469.9504.3519.1554.1608.9680.5172.9165.6186.4203.5207.1219.8213.4237.2244.0247.2236.0260.8267.1270.6292.9308.0329.7357.8385.0390.2415.0433.9427.7442.7475.5512.80.793.805.814.857.879.886.898.912.9489790000110220290340390500550731041321622142522813270.040.047.046.049.054.059.069.072.076.082.091.091.095.100.100.100.099.100.107.109.115.126.131.133.1330.070.076.075.075.081.083.081.081.085.090.097.094.099.103.101.102.103.100.096.100.105.109.119.125.122.1220.507.514.507.541.570.584.591.582.619.642.659.654.670.670.665.664.664.660.678.707.727.764.812.825.8470.005.006.005.005.006.006.007.007.007.009.011.010.011.013.014.015.015.017.019.023.025.029.038.037.037.0370.171.162.180.186.168.154.149.170.160.155.142.164.151.149.154.158.168.179.180.167.166.145.119.134.142.1560.069.057.090.103.086.084.074.084.081.076.069.080.073.073.071.074.074.077.078.073.082.078.064.067.074.0910.103.104.090.083.082.070.075.086.079.078.073.084.078.076.082.084.094.102.102.094.084.067.055.067.068.064Seasonally adjusted annual rates1971:1..II.III.IV.540.5550.6557.4568.1434.6440.0443.5452.41.2441.2511.2571.2560.130.131.132.1320.124.124.125.1260.820.824.828.8280.038.037. .037.0370.131.135.135.1330.068.070.068.0620.063.065,068.0711972:1..II.IllIV.587.4601.9612.9633.2462.3471.9477.8489.81.2711.2761.2831.293.132.135.132.133.122.122.122.122.842.845.850.853.036.036.037.037.139.138.142.148.072.072.074.077.067.066.068.0711973:1..II.Ill656.7672.5689.3503.4509.6517.21.3051.3201.333.132.132.133.122.122.122.862.874.883.036.037.037.152.155.158.088.095.092.064.060.0661 This is equal to the deflator for gross product of nonfinancial corporations, with the decimal point shifted two places tothe left.* Also includes business transfer payments less subsidies.Source: Department of Commerce, Bureau of Economic Analysis.262

TABLE C-12.—Personal consumption expenditures, 1929-73[Billions of dollars]Yearorquarter1929...1933...1939...1940...1941...1942...1943...1944...1945...1946...1947...1948...1949...1950...1951...1952-..1953...1954...195519561I_1957...1958...1959...1960...1961...1962...1963...1964...1965...1966...1967...1968...1969...1970....1971....1972....1973*...1971:1II..-.III...IV....1972:1II.—III...IV....1973:1IL--.III...IVP...£=O"S.E3i^o3I s77.245.866.870.880.688.599.3108.3119.7143.4160.7173.6176.8191.0206.3216.7230.0236.5254.4266.7281.4290.1311.2325.2335.2355.1375.0401.2432.8466.3492.1536.2579.5617.6667.2726.5805.0Durable goods19.23.56.77.89.66.96.66.78.015.820.422.724.630.529.629.333.232.839.638.940.837.944.345.344.249.553.959.266.370.873.184.090.891.3103.6117.4131.1r•a ccaJIa

TABLE C-13.—Gross private domestic investment, 1929-73[Billions of dollars]Year orquarter1929...193319391940...1941...19421943.1944...194519461947...1948194919501951.1952..19531954.1955195619571958195919601961196219631964.196519661967196819691970197119721973 p..1971: 1.IIIIIIV1972: 1.IIIllIV1973: 1 IIML....IVp....Totalgrossprivatedomesticinvestment16.21.49.313.117.99.85.77.110.630.634.046.035.754.159.351.952.651.767.470.067.960.975.374.871.783.087.194.0108.1121.4116.6126.0139.0136.3153 2178.3201.5Fixed 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 1172.3194.0NonresidentialTotal10.62.45.97.59.56.05.06.810.117.023.426.925.127.931.831.634.233.638.143.746.441.645.148.447.051.754.361.171.381.683.388.898.5100.6104 4118.2136.0StructuresTotal5.0.92.02.32.91.91.31.82.86.87.58.88.59.211.211.412.713.114.317.218.016.616.718.118.419.219.521.225.528.528.030.334.236.137.941.748.3Nonfarm4.8.91.92.22.81.81.21.72.76.16.78.07.78.510.410.511.912.313.616.517.215.815.917.417.718.518.820.524.927.827.329.633.535.337 040.847.3Producers'durableequipmentTotal5.61.54.05.36.64.13.75.07.310.215.918.116.618 720.720.221.520.623.826.528.425.028.430.328.632.534.839.945.853.155.358.564.364.466 576.587.7Nonfarm4.91.33.44.65.63.53.24.26.39.214.015.513.715.717.717.618.618.021.224.225.922.025.427.725.829.531.236.341.648.450.053.659.258.960.969.879.3Residential structuresTotal4.0.62.93.43.92.11.41.31.57.211.114.413.719.417.217.218.019.723.321.620.220.825.522.822.625.327.027.127.225.025.130.132.631.242.754.058.0Nonform3.8.52.83.23.71.91.21.11.46.710.413.612.818.616.416.417.219.022.720.919.520.124.822.222.024.826.426.626.724.524.529.532.030.742.253.557.4Farm0.2.0.1.2.2.2.2.1.1.5.7.9.8.8.8.8.8.7.6.7.6.6.6.6.6.6.5.5.5.6.5.6.5.6.6.6 Change inbusinessinventoriesTotal1.7-1.6.42.24.51.8-.6-1.0-1.06.4-.54.7-3.16.810.33.1.4-1.56.04.71.3-1.54.83.62.06.05.95.89.614.88.27.17.84.56.16.07.4Nonfarm1 8-1.4.31 94.0 7- 6-.6-.66 41 33 0-2 26 09 12.11 1-2.15.55 1.8-2.34.83.31.75.35.16.48.615.07.56.97.74.34 55.66.7Seasonally adjusted annual rates145.5152.7153.8160.8167.5174.7181.5189.4194.5198.2202.0211.2138.5145.0149.5155.6165.8169.2172.9181.2189.9193.7197.3195.3101.4103.6104.7108.0114.0116.3118.3124.3130.9134.1138.0141.137.037.638.438.541.041.541.343.045.347.249.551.136.236.837.637.740.140.640.442.144.446.348.550.164.466.066.369.573.174.977.081.285.586.988.690.058.660.360.764.067.368.969.873.477.878.480.080.937.141.544.847.55i. 852.854.556.959.059.659.254.236.641.044.146.951.252.353.956.458.459.158.653.60.5.5.7.6.6.6.6.5.6.5.6.7 7.07.64.35.31.75.58.78.24.64.54.715.95.86.32.43.51.44.88.47.94.44.43.214.9Source: Department of Commerce, Bureau of Economic Analysis.264

TABLE C-14.—Relation of gross national product and national income, J929-73[Billions of dollars]Year or quarterGrossnationalproductLess:CapitalconsumptionallowancesEquals:NetnationalproductPlus:Subsidieslesscurrentsurplusof governmententerprisesIndirectbusinesstax andnontaxliabilityLess:BusinesstransferpaymentsStatisticaldiscrepancyEquals:Nationalincome1929103.17.995.2-0.17.00.60.786.8193355.67.048.6.07.1.7.640.3193990.57.383.2.59.4.51.372.6194019411942194319441945 . • . ..194619471948194999.7124.5157.9191.6210.1211.9208.5231.3257.6256.57.58.29.810.311.011.39.912.214.516.692.2116.3148.1181.3199.1200.7198.6219.1243.1239.9.4.1.2.2.7.8.9-.2-.1-.110.011.311.812.714.115.517.118.420.121.3.4.5.5.5.5.5.5.6.7.81.0.4-1.1-2.02.53.9.1.9—2.0.381.1104.2137 1170.3182.6181 5181.9199.0224 2217.519501951195219531954 . .19551956195719581959284.8328.4345.5364.6364.8398.0419.2441.1447.3483.718.321.223.225.728.231.534.137.138.941.4266.4307.2322.3338.9336.6366.5385.2404.0408.4442.32.2-.1-.4— 2-.1.8.9.9.123.325.227.629.629.432.134.937.338.541.5.8.91.01.21.11.21.41.51.61.71.53.32.23.02.72.1-1.1.01.6-.8241 1278 0291.4304.7303 1331.0350.8366 1367.8400.01960 .1961196219631964 .. . .1965196619671968 .. .1969503.7520.1560.3590.5632.4684.9749.9793.9864.2930.343.445.250.052.656.159.863.968.974.581.6460.3474.9510.4537.9576.3625.1685.9725.0789.7848.7.21.41.4.81.31.32.31.41.045.247.751.554.758.462.565.770.478.685.91.92.02.12.32.52,73.03.13.43.8-1.0-.8.5-.3-1.3-3.1-1.0-2.7-6.1414.5427.3457.7481.9518.1564.3620.6653.6711.1766.01970197119721973 y. .977.11,055.51,155.21,288.287.393.8102.4109.6889.8961.61,052.81,178.61.71.21.7.793.5102.4109.5117.84.04.34.64.9-6.4-3.4-1.52.'3800.5859.4941.81,054.2Seasonally adjusted annualrates1971: 1II. . .IllIV1972: 1II .III..IV1973: 1IIIIIIV v1,027.21,046.91, 063. 51,084.21,112.51,142.41,166.51,199.21,242.51,272.01,304. 51,334.091.692.794.696.498.4103.6102.3105.1106.9109.0110.5112.1935.6954.1968.9987.81,014.21,038.81,064.21, 094.11,135.51,163.01,194.01,221.91.8 99.71.0 101.11.0 103.21.1 105.81.2 106.51.5 108.41.8 110.52.2 112.8.9 115.6.4 117.2.6 118.5.9 120.24.24.34.44.44.54.64.74.74.84.95.05.1-2.3-3.8-3.3-4.0-6.7— 1.01.6.21.13.23.7835.9853.6865.6882.7911.0928.3949.2978.61,015.01,038.21,067.4Source: Department of Commerce, Bureau of Economic Analysis.265

TABLE C-15.—National income by type of income, 1929-73[Billions of dollars]Year orquarterTotalnationalincomelTotalCompensation ofemployeesWagesandsalariesSupplementstowagesandsalaries2Business and professionalincomeTotalIncomeofunincorporatedenterprisesInventoryvaluationadjustmentIncomeoffarmproprietors3TotalCorporate profitsand inventoryvaluationadjustmentRentalincomeofpersonsCorporateprofitsbeforetaxes iInventoryvaluationadjustmentNetinterest192986.851.150.40.79.08.80.16.25.410.510.00.54.7193340.329.529.0.53.33.9-.52.62.0-1.21.0-2.14.1193972.648.145.92.27.47.6-.24.42.76.37.0-.73.5194019411942194319441945.194619471948 -194981.1104.2137.1170.3182.6181.5181.9199.0224.2217.552.164.885.3109.5121.2123.1117.9128.9141.1141.049.862.182.1105.8116.7117.5112.0123.0135.4134.52.32.73.23.84.55.65.95.95.86.58.611.114.017.018.219.221.620.322.722.68.611.714.417.118.319.323.321.823.122.2.0-.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-.3-.6-5.3-5.9-2.21.93.33.23.12.72.32.21.51.91.81.91950195119521953195419551956195719581959241.1278.0291.4304.7303.1331.0350.8366.1367.8400.0154.6180.7195.3209.1208.0224.5243.1256.0257.8279.1146.8171.1185.1198.3196.5211.3227.8238.7239.9258.27.89.610.210.911.513.215.217.317.920.924.026.127.127.527.630.331.332.833.235.125.126.526.927.627.630.531.833.133.235.3-1.1-.3.2-.2.0-.2-.5-.3-.1-.113.515.815.013.012.411.411.411.313.411.49.410.311.512.713.613.914.314.815.415.637.742.739.939.638.046.946.145.641.151.742.643.938.940.638.348 648.847.241.452.1-5.0-1.21.0-1.0-.3-1 7-2.7-1.5-.3-.52.02.32.62.83.64 14.65.66.87.11960196119621963196419651966196719681969414.5427.3457.7481.9518.1564.3620.6653.6711.1766.0294.2302.6323.6341.0365.7393.8435.5467.2514.6566.0270.8278.1296.1311.1333.7358.9394.5423.1464.9509.723.424.627.529.932.035.041.044.249.756.334.235.637.137.940.242.445.247.349.550.534.335.637.137.940.342.845.647.650.351.2.0.0.0.0-A-.4-.3-.7-.812.012.813.013.112.114.816.114.814.716.715.816.016.717.118.019.020.021.121.222.649.950.355.758.966.376.182.478.784.379.849.750.355.459.466.877.884.279.887.684.9.2-.1.3-.5-.5-1.7-1.8-1.1-3.3-5.18.410.011.613.815.818.221.424.426.930.51970197119721973 v800.5859.4941.81,054.2603.9644.1707.1785.3542.0573.8627.3691.561.970.379.793.950.051.954.057.550.752.655.160.0-.7-.7-1.1-2.516.916.820.226.823.924.524.125.169.280.191.1109.274.085.198.0126.5-4.8-4.9-6.9-17.336.542.045.250.4Seasonally adjusted annual rates1971:1II —III..IV..835.9853.6865.6882.7627.6638.8648.8661.2559.8569.3577.6588.667.769.671.172.650.951.752.352.716.916.616.317.524.424.724.724.475.880.580.983.480.885.587.086.9-5.0-5.0-6.1-3.640.241.442.743.51972: 1...IIIII.IV..911.0928.3949.2978.6684.3699.6713.1731.2607.3620.8632.5648.777.078.980.582.553.153.354.355.319.519.919.821.824.122.624.924.986.288.091.598.892.894.898.4106.1-6.6-6.7-6.9-7.343.944.845.746.61973: 1HIII.IV v1,015.01,038.21,067.4757.4774.9794.0815.0666.7682.3699.3717.690.892.694.797.556.357.157.958.724.324.427.131.324.724.625.325.7104.3107.9112.0119.6128.9129.0-15.4-21.1-17.0-15.647.949.451.153.01 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-14.2 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.3 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—73[Billions of dollars]Year or quarter1929.1933..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*..1971: !.IV.1972: 1.III.IV..1973: ! II...III..IV*..Nationalincome86.840.372.681.1104.2137.1170.3182.6181.5181.9199.0224.2217.5241.1278.0291.4304.7303.1331.0350.8366.1367.8400.0414.5427.3457.7481.9518.1564.3620.6653.6711.1766.0800.5859.4941.81, 054. 2Less:Corporateprofitsand inventoryvaluationadjustment10.5-1.26.39.815.220.324.423.819.219.325.633.030.837.742.739.939.638.046.946.145.641.151.749.950.355.758.966.376.182.478.784.379.869.280.191.1109.2Contributionsforsocialinsurance0.2.32.12.32.83.54.55.26.16.05.75.25.76.98.28.78.89.811.112.614.514.817.620.721.424.026.927.929.638.042.447.154.257.764.673.792.1Wageaccrualslessdisbursements0.0.0.0.0.0.0.2-.2 .0.0.0.0.0.0.1.0-.1.0.0.0.0.0.0.0.0.0.0.0.0.0.0.0.0.0.6-.5 i Governmenttransferpaymentsto persons0.91.52.52.72.62.62.53.15.610.811.110.511.614.311.512.012.814.916.117.119.924.124.926.630.431.233.034.237.241.148.756.161.975.188.998.3112.5PlusInterestpaidbygovernment/noi.\{.net,;and byconsumers2.51.61.92.12.22.22.63.34.25.25.56.16.57.27.68.19.09.510.111.212.012.113.615.115.016.117.619.120.522.223.626.128.731.031.032.737.1Dividends5.82.03.84.04.44.34.44.64.65.66.37.07.28.88.68.68.99.310.511.311.711.612.613.413.815.216.517.819.820.821.423.624.324.725.126.027.8Businesstransferpayments0.6.7.5.4.5.5.5.5.5.5.6.7.8.8.91.01.21.11.21.41.51.61.71.92.02.12.32.52.73.03.13.43.84.04.34.64.9835.9853.6865.6882.7911.0928.3949.2978.61,015.01,038.21,067.4Seasonally adjusted annual rates75.880.580.983.486.288.091.598.8104.3107.9112.063.364.165.066.071.772.974.575.889.390.993.095.00.0.2.61.5-1.4-.4-.2.0.0-.3.0.082.690.390.692.194.395.396.4107.3108.8110.8113.7116.831.130.831.031.231.632.632.933.734.736.138.039.625.325.125.224.925.725.926.226.426.927.328.129.04.24.34.44.44.54.64.74.74.84.95.05.1Equals:Personalincome85.947.072.878.396.0122.9151.3165.3171.1178.7191.3210.2207.2227.6255.6272.5288.2290.1310.9333.0351.1361.2383.5401.0416.8442.6465.5497.5538.9587.2629.3688.9750.9808.3863.5939.21,035.5840.0859.5870.2884.4910.8926.1943.7976.1996.61,019.01,047.11,079.2Source: Department of Commerce, Bureau of Economic Analysis.267

TABLE C-17.—Disposition of personal income, 1929-73Year orquarterPersonalincomeLess:PersonaltaxandnontaxpaymentsEquals:DisposablepersonalincomeLess: Personal outlaysTotalPersonalconsumptionexpendituresInterestpaid byconsumersPersonaltransferpaymentsto foreignersEquals:PersonalsavingPercent of disposablepersonal incomePersonaloutlaysTotalConsumptionexpend*ituresPersonalsavingBillions of dollarsPercent1929.....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....1968196919701971....1972....1973 P1971: L...II...III —IV...1972: I....II..III..IV...1973: I....II...ML.IV P.85.947.072.878.396.0122.9151.3165.3171.1178.7191.3210.2207.2227.6255.6272.5288.2290.1310.9333.0351.1361.2383.5401.0416.8442.6465.5497.5538.9587.2629.3688.9750.9808.3863.5939.2.,035.52.61.52.42.63.36.017.818.920.918.721.421.118.620.729.034.135.632.735.539.842.642.346.250.952.457.460.959.465.775.483.097.9116.5116.6117.5142.2152.983.345.570.375.792.7116.9133.5146.3150.2160.0169.8189.1188.6206.9226.6238.3252.6257.4275.3293.2308.5318.8337.3350.0364.4385.3404.6438.1473.2511.9546.3591.0634.4691.7746.0797.0882.679.146.567.771.881.789.3100.1109.1120.7144.8162.5175.8179.2193.9209.3220.2234.3241.0259.5272.6287.8296.6318.3333.0343.3363.7384.7411.9444.8479.3506.0551.2596.2635.5685.8747.2828.777.245.866.870.880.688.599.3108.3119.7143.4160.7173.6176.8191.0206.3216.7230.0236.5254.4266.7281.4290.1311.2325.2335.2355.1375.0401.2432.8466.3492.1536.2579.5617.6667.2726.5805.01.5.5.7.8.9.7.5.5.5.81.11.51.92.42.73.03.84.04.75.45.85.96.57.37.68.19.110.111.312.413.214.315.816.817.719.722.50.3.2.2.2.2.1.2.4.5.7.7.7.5.5.4.4.5.5.5.6.6.6.6.5.5.5.6.6.7.6.7.8.91.01.01.01.24.2-.92.63.811.027.633.437.329.615.27.313.49.413.117.318.118.316.415.820.620.722.319.117.021.221.619.926.228.432.540.439.838.256.260.249.753.895.0102.096.394.988.276.475.074.580.390.595.792.995.093.792.492.492.893.694.393.093.393.094.495.194.294.495.194.094.093.692.693.394.091.991.993.893.992.7100.695.093.686.975.774.474.079.789.694.691.893.892.391.090.991.191.992.491.091.291.092.392.992.092.292.791.691.591.190.190.791.389.389.491.291.25.0-2.03.75.111.823.625.025.519.79.54.37.15.06.37.67.67.26.45.77.06.77.05.64.95.85.64.96.06.06.47.46.76.08.18.16.26.1Seasonally adjusted annual ratesSeasonally adjusted840.0859.5870.2884.4910.8926.1943.7976.1996.61,019.01, 047.11,079.2112.6115.5118.1124.0138.0140.7142.8147.4145.1149.3156.0161.2121A744.0752.0760.4772.8785.4800.9828.7851.5869.7891.1918.0668.3680.6691.8702.6720.0739.5755.1774.3801.5818.7840.1854.6650.0662.2673.0683.4700.2719.2734.1752.6779.4795.6816.0829.017.317.417.718.218.819.420.020.721.222.023.023.81.0.91.11.11.0.91.01.1.91.01.11.859.263.560.257.852.945.945.854.450.051.051.163.391.991.592.092.493.294.294.393.494.194.194.393.189.489.089.589.990.691.691.790.891.591.591.690.38.18.58.07.66.85.85.76.65.95.95.76.9Source: 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, 1929-73Disposable personal incomePersonal consumption expendituresYear or quarterTotal (billionsof dollars)Per capita(dollars)Total (billionsof dollars)Per capita(dollars)Population(thousands)iCurrentdollars1958dollarsCurrentdollars1958dollarsCurrentdollars1958dollarsCurrentdollars1958dollars192983.3150.66831,23677.2139.66341,145121,875193345.5112.236289345.8112.8364897125,690193970.3155.95371,19066.8148.25101,131131,02819401941 .1942194319441945194619471948194975.792.7116.9133.5146.3150.2160.0169.8189.1188.6166.3190.3213.4222.8231.6229.7227.0218.0229.8230.85736958679761,0571,0741 1321,1781,2901,2641,2591,4271,5821,6291 6731,6421 6061,5131,5671,54770.880.688.599.3108.3119.7143.4160.7173.6176.8155.7165.4161.4165.8171.4183.0203.5206.3210.8216.55366046567267828551,0141,1151,1841,1851,1781,2401 1971,2131 2381,3081 4391,4311,4381,451132,122133,402134 860136,739138 397139 928141 389144 126146,631149,1881950195119521953195419551956 . .1957 ._..19581959206.9226.6238.3252.6257.4275.3293.2308.5318.8337.3249.6255.7263.3275.4278.3296.7309.3315.8318.8333.01 3641,4691,5181,5831,5851 6661,7431,8011,8311,9051 6461,6571,6781,7261,7141,7951,8391,8441,8311,881191.0206.3216.7230.0236.5254.4266.7281.4290.1311.2230.5232.8239.4250.8255.7274.2281.4288.2290.1307.31,2591,3371,3811,4411,4561,5391,5851,6431,6661,7581 5201,5091,5251,5721,5751,6591,6731,6831,6661,735151 684154, 287156,954159,565162,391165 275168, 221171,274174,141177,0731960 . .196119621963196419651966196719681969350.0364.4385.3404.6438.1473.2511.9546.3591.0634.4340.2350.7367.3381.3407.9435.0458.9477.5499.0513.61,9371 9842,0652,1382,2832,4362 6042,7492,9453,1301,8831 9091,9692,0152,1262,2392 3352,4032,4862,534325.2335.2355.1375.0401.2432.8466.3492.1536.2579.5316.1322.5338.4353.3373.7397.7418.1430.1452.7469.11,8001,8251,9031,9812,0912,2282,3722,4762,6712,8591,7491 7561,8141,8671,9482,0472 1272,1642,2562,315180,671183 691186| 538189,242191,889194,303196 560198,712200, 706202,67719701971 . .19721973*691.7746.0797.0882.6534.8554.9577.9608.13,3763 6033,8164,1952,6102,6802,7672,890617.6667.2726.5805.0477.5496.3526.8554.73,0153,2223,4793,8262,3312,3972,5232,636204,879207,045208,842210,404Seasonally adjusted annual rates1971:1||IIIIV727.4744.0752.0760.4547.8554.6556.4560.93,5263,5983,6283,6582,6552 6822,6842,698650.0662.2673.0683.4489.5493 6498.0504.13,1513,2023,2463,2882,3732 3872,4022,425206,306206,795207,313207,8621972-1IIIllIV772.8785.4800.9828.7565.7571.6579.3595.13,7113,7653 8313,9552 7162,7402 7712,841700.2719.2734.1752.6512.5523.4531.0540.53,3623,4473,5113,5922,4612,5092 5402,580208, 259208,634209 058209,5141973:1IIIllIV v851.5869.7891.1918.0603.9604.8603.5613.94,0574,1374,2314,3502,8782,8772,8942,909779.4795.6816.0829.0552.7553.3558.1554.53,7143,7853,8743,9282,6342,6322,6502,627209,871210,221210,618211,0361 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).269527-867 O - 74 - 18

TABLE C-19.—Sources of personal income, 1929-73[Billions of dollars]Year or quarter192919331939 .194019411942194319441945194619471948194919501951195219531954195519561957195819591960196119621963 . . ..1964196519661967196819691970197119721973» „ . ..1971- 1 IIIllIV1972: 1 IIIIIIV .1973- 1 IIIllIV*.._Totalpersonalincome85.947.072.878.396.0122.9151.3165.3171.1178.7191.3210.2207.2227.6255.6272.5288.2290.1310.9333.0351.1361.2383.5401.0416.8442.6465.5497.5538.9587.2629.3688.9750.9808.3863.5939.21,035.5Wage and salary disbursements*Total50.429.045.949.862.182.1105.6116.9117.5112.0123.0135.3134.6146.7171.0185.1198.3196.5211.3227.8238 7239.9258.2270.8278.1296.1311.1333.7358.9394.5423.1464.9509.7542.0573.3627.8691.5CommodityproducingindustriesTotal21.59.817.419.727.539.148.950.345.846.054.361.057.764.676.181.889.485.492.8100.2103.899.7109.1112.5112.8120.8125.7134.1144.5159.3166.5181.5197.5200.9206.3226.0252.0Manufacturing16.17.813.615.621.730.940.942.938.236.542.547.244.750.359.464.271.267.673.979.582.578.786.989.789.896.7100.6107.2115.6128.1134.2145.9157.6158.3160.5175.9196.8Distributiveindustries15.68.813.314.216.318.020.122.724.831.035.237.637.739.944.346.949.850.253.457.760.560.864.868.169.172.576.081.286.993.8100.3109.2120.0129.3138.3151.5165.1Serviceindustries8.45.27.17.58.19.09.910.912.014.416.117.918.619.921.723.325.126.428.931.633.935.938.741.544.046.849.954.158.363.770.578.588.196.6104.7116.1129.0Government4.95.18.28.410.216.026.633.034.920.717.418.920.622.428.933.134.134.636.238.340.443.545.648.752.256.059.564.369.377.785.895.7104.1115.1123.9134.2145.4Otherlaborincome*0.6.4.67.7.91 11.51 81.92.32.73.03.84.85.36.06.37.38.49.59.911.312.012.713.914.916.618.720.722.325.428.432.236.640.744.9PropriincoBusinessandprofessional9.03.37.48 611.114.017 018.219 221.620.322.722.624.026.127.127.527.630.331.332.833.235.134.235.637.137.940.242.445.247.349.550.550.051.954.057.5etors'meFarm 16.22.64.44 56.49.811 711.612 214.915.217 512.713 515.815 013.012.411 411.411 313.411.412.012.813.013.112 114.816.114.814.716.716.916.820.226.8Seasonally adjusted annual rates840.0859.5870.2884.4910.8926.1943.7976.1996.61,019.01, 047.11,079.2559.8569.1577.0587.1608.8621.1632.7648.7666.7682.6699.3717.6202.5205.3207.0210.5218.2223.7227.3234.8241.6248.6255.3262.3158.5159.9160.6163.1168.9174.0177.0183.7189.1194.8199.1204.3134.7137.2139.2142.3147.5150.0152.5156.0159.5163.3167.0170.7101.3103.6105.9108.0111.6114.9117.9120.1123.9126.9130.9134.2121.4123.0125.0126.3131.6132.6135.0137.8141.6143.7146.1150.334.836.137.238.139.140.241.342.343.344.245.346.750.951.752.352.753.153.354.355.356.357.157.958.716.916.616.317.519.519. S19.821.824.324.427.131.3See footnotes at end of table.270

TABLE C-19.—Sources of personal income, 1929-73—Continued[Billions of dollars]Year orquarterRentalincomeof personsDividendsPersonalinterestincomeTotalOld age,survivors,disability,and healthinsurancebenefitsTransfer paymentsStateunemploymentinsurancebenefitsVeteransbenefitsOtherLess:Personalcontributionsfor socialinsuranceNonagriculturalpersonalincome*1929..5.45.87.21.50.60.90.177.61933..2.02.05.72.1.51.6.243.21939..2.73.85.53.00.00.4.52.0.666.91940..1941..1942..1943..1944..1945..1946..1947..1948.1949.2.93.54.55.15.45.66.67.18.08.44.04.44.34.44.64.65.66.37.07.25.45.55.35.35.66.36.87.57.98.53.13.13.13.03.66.211.311.711.212.4.0.1.1.2.2.3.4.5.6.7.5.3.3.1.1.41.11.7.5.5.5.5.92.86.76.75.85.12.02.22.22.22.42.73.13.74.14.9.7.81.21.82.22.32.02.12.22.272.387.8111.0137.3151.2156.4161.0173.0189.4191.31950.1951..19521953.1954.1955.1956.1957.1958.1959.9.410.311.512.713.613.914.314.815.415.68.88.68.68.99.310.511.311.711.612.69.29.910.611.813.114.215.717.618.920.715.112.513.014.016.017.318.521.425.726.61.01.92.23.03.64.95.77.38.510.21.4.81.01.02.01.41.41.83.92.54.93.93.93.73.94.34.34.44.64.67.95.96.06.36.56.87.27.98.79.42.93.43.84.04.65.25.86.76.97.9210.9236.4254.1271.9274.7296.4318.5336.6344.3368.51960.1961.1962.1963.1964.1965.1966.1967.1968.1969.15.816.016.717.118.019.020.021.121.222.613.413.815.216.517.819.820.821.423.624.323.425.027.731.434.938.743.648.052.959.328.532.433.335.336.739.944.151.859.665.811.112.614.315.216.018.120.825.730.333.02.84.02.92.82.62.21.82.12.12.14.64.84.85.05.35.65.76.67.38.310.010.911.212.212.914.015.717.520.022.49.39.610.311.812.513.417.720.522.826.3385.2400.0425.5448.1480.9519.5566.3609.4668.8728.31970....1971....1972....1973 v23.924.524.125.124.725.126.027.867.573.078.087.579.193.2103.0117.538.544.549.660.93.95.75.54.29.711.212.713.627.131.835.138.828.030.934.743.1784.9839.8911.51,000.6Seasonally adjusted annual rates1971:1IV....24.424.724.724.425.325.125.224.971.472.273.774.786.794.694.996.540.346.645.145.95.25.75.95.910.811.111.411.730.531.332.633.130.330.731.131.5816.0836.1847.0859.81972:1II....IllIV24.122.624.924.925.725.926.226.475.577.478.680.398.899.9101.1112.046.647.348.056.45.86.35.34.712.012.112.614.134.434.135.236.833.834.335.235.7883.9898.8916.5946.71973: III.IIIIV P...24.724.625.325.726.927.328.129.082.785.689.192.6113.6115.7118.7121.958.360.061.863.44.14.14.14.413.313.413.813.937.838.239.040.241.942.643.644.2964.5986.71,011.91,039.01 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.3 Includes change in inventories.3 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, 1929-73[Billions of dollars]Year orquarter1929193319391940194119421943194419451946194719481949195019511952195319541955195619571958195919601961196219631964196519661967196819691970197119721973* ....Gross private saving and government surplus or deficit,national income and product accountsTotal16.3.98.813.618.610.75.52.55.235.142.049.935.950.456.149.547.548.564.872.771.259.273.877.575.585.090.5101.0115.3124.9119.5128.3144.0143.1153.8171.4200.2Total15.32.311.014.322.442.049.754.344.729,727.541.439.042.550.353.354.455.662.167 870.571.775.973.979.887.988.7102.4113.1123.8133.4135.2135.2153.2171.9174.2188.6Private savingPersonalsaving4.2-.92.63.811.027.633.437.329.615.27.313.49.413.117.318.118.316.415.820.620.722.319.117.021.221.619.926.228.432.540.439.838.256.260.249.753.8GrossbusinesssavingGovernment surplusor deficit (-)97.0 — 10 1 -11.9 1 8111.8 -18.1 -22.2 4.0124.4 -2 8 -15.9 13 1134.7 11.6 .6 11.0StateTotal Federalandlocal11.23.28.41.0-1.4-2.21.2-1.3-2.2-0.2-.1(010.5 -.7 -1.3 .611.4 -3.8 -5.1 1.314.5 -31.4 -33.1 1.816.3 -4M -46.6 2.517.1 -51.8 -54.5 2.715.1 -39.5 -42.1 2.614.5 5.4 3.5 1.920.2 14.4 13.4 1.028.0 8 5 8.4 .129.7 -3.2 -2.4 -.729.4 7.9 9.1 -1.233.1 5.8 6.2 -.435.1 -3.8 -3.836.1 —6 9 —7.039.2 -7 0 -5.9 -1.146.3 2.7 4.0 -1.347.3 4 9 5 7 _ 949.8 7 2.1 -1 449.4 -12.5 -10.2 -2.356.8 -2.1 -1.2 -.856.8 3.7 3.5 .258.7 -4.3 -3.8 -.566.3 -2 9 -3.8 968.8 1.8 .7 1.276.2 -1.4 -3.0 1.784.7 2.2 1.2 1.091.3 1.1 -.2 1.393.0 -13.9 -12.4 -1.695.4 -6.8 -6.597.0 8.8 8.1 ""'.7Capitalgrantsreceivedby theUnitedStates imm"------9.77.0Total17.01.610.214.619.09.63.55.09.135.242.947.936.251.859.551.650.551.366.971.671.260.773.076.574.785.590.399.7112.2123.9118.8125.6137.9137.6151.1170.6202.5Gross investmentGrossprivatedomesticinvestment16.21.49.313.117.99.85.77.110.630.634.046.035.754.159.351.952.651.767.470.067.960.975.374.871.783.087.194.0108.1121.4116.6126.0139.0136.3153.2178.3201.50.8.2.91.51.1-2^2-2.1-1.44.68.91.9.5-2.2-i!i-.51.53.4-.2-2.31.73.02.53.15.74.12.42.2-i'.o1.3-2.1-7.61.0NetforeigninvestmentsStatisticaldiscrepancy0.7.61.31.0.4-1.1-2.02.53.9.1.9-2 01.53.32.23 02.72.1-1 1.01.6-.8-1.0-.8.5-3.1—1.0-.7-2.7-6.1-6.4-3.4-1.52.3Seasonally adjusted annual rates1971: 1IIIII....IV....1972: 1IIIII.—IV....1973: 1IIIII....148.4153.6154.4158.7164.8166.2172.4182.2190.4194.5202.3164.3173.3172.5177.3170.2170.0170.3186.0181.5183.0188.059.263.560.257.852.945.945.854.450.051.051.163.3105.1109.9112.5119.5117.4124.1124.5131.6131.5132.0136.9-15.9-19.7-18.4-18.6-5.4-3.92.0-3.88.911.614.3-17.6-23.5-23.2-24.5-13.8-19.0-7.4-23.4-5.0.04.01.73.74.85.98.415.29.519.613.911.510.40.7 146.8.7 150.5.7 151.8.7 155.4.7 158.9.7 165.9.7 174.7.7 183.1.0 191.5.0 197.7.0 206.0.0 214.7145.5152.7153.8160.8167.5174.7181.5189.4194.5198.2202.0211.21.3-2.2-2.0-5.4-8.7-8.7-6.9-6.3-3.0-.54.03.5-2.3-3.8-3.3-4.0-6.7-1.01.6.21.13.23.71 Allocations of special drawing rights (SDR).2 Net exports of goods and services less net transfers to foreigners.3 Surplus of $32 million.« Deficit of $41 million.Source: Department of Commerce, Bureau of Economic Analysis.272

TABLE C-21.—Saving by individuals, 1946-73 l[Billions of dollars]Increase in financial assetsNet investment inLess: Increase indebtYear orquarterTotalTotal 2CurrencyanddemanddepositsSavingsaccountsGovernmentsecurities3SecuritiesCorporateandforeignbondsCorporateequities4InsuranceandpensionreservesNonfarmhomesConsumerdurablesNoncorporatebusinessassetsMortgagedebtonnonfarmhomesConsumercreditOtherdebt«1946..1947..1948..1949..1950..1951..1952..1953..1954..1955....1956....1957....1958....1959.......I960..1961..1962 .1963..1964..1965..1966..1967..1968..1969..25.720.23.318.926.930.327.230.428.234.36.034.133.034.832.331.737.139.149.555.265.'64.867.460.118.913.29.010.013.818.822.722.522.728.430.028.631.636.531.635.139.45.155.558.162.768.572.061.35.6.1-2.9-2.02.64.61.61.02.21.21.8-.53.81.92.51.73.04.77.83.911.312.51.66.33.42.32.72.54.97.88.39.39.612.114.1•11.311.416.525.724.627.428.020.534.830.36.0-1.41.61.31.8-.41.92.36.03.92.2-2.49.03.5.7-.84.45.74.211.4-.94.721.8-0.9-.8-.1-.4-.8.0.0-'.31.0.91.11.3.3.6.1-.1.0.11.02.14.64.77.41.11.11.0.71.61.6.9.71.11.91.51.5.6-.4.4-2.1-2.9-.2-2.2-1.1-4.5-7.9-4.35.35.45.35.66.96.37.88.07.98.59.59.510.411.911.612.212.714.115.617.019.419.620.120.84.26.910.59.013.713.512.813.513.717.716.413.812.716.514.512.012.812.612.512.011.59.212.813.35.87.57.7.010.25.53.66.44.99.95.94.9.65.55.12.96.78.911.214.815.212.416.716.23.33.27.42.56.44.62.51.62.73.51.92.33.33.22.23.25.66.96.29.07.28.27.99.03.84.35.04.17.47.16.47.78.612.211.28.88.812.610.10.912.714.816.015.212.710.414.616.12.73.22.82.94.11.24.83.91.16.43.52.6.26.44.61.85.87.98.59.66.44.510.010.40.02.52.92.65.63.83.02.16.06.83.44.26.27.95.78.78.511.811.413.812.318.617.313.31970..1971..1972..76.889.899.79.699.9124.99.611.012.944.4 -8.270.5 -13.675.8 5.710.18.24.9-2.6-5.4-5.924.328.328.010.617.424.110.616.023.66.611.012.112.524.138.46.011.219.212.119.227.3Seasonally adjusted annual rates1971:1st half.2nd half.1972: I...II...III..IV..1973: I...IL.III.92.589.192.698.8104.8101.4105.3117.193.097.5104.4113.2125.8127.2133.1118.1131.0115.815.66.419.76.914.610.29.011.214.780.860.785.071.676.170.687.164.543.7-24.2-1.6-7.210.6 .119.04.517.931.08.6 -10.67.7 -.27.2 -8.11.8 -5.63.9 1.96.5 -11.7.3 -6.92.8 -4.5 .7 -9.228.028.520.432.828.830.230.333.728.214.620.222.623.425.225.227.930.330.315.216.920.222.625.825.932.831.127.910.911.211.810.311.614.416.114.114.618.330.032.736.740.843.538.343.039.78.913.613.318.318.926.225.324.121.918.420.029.228.425.427.726.022.334.01 Saving by households, personal trust funds, nonprofit institutions, farms, and other noncorporate business.3 Includes commercial paper and miscellaneous financial assets, not shown separately.3 Consists of U.S. savings bonds, other U.S. Treasury securities, U.S. Government agency securities and sponsoredagency securities, and State and local obligations.4 Includes investment company shares.5 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 1972 dollars) of families and unrelated individualsby race of head, 1947-72YearFAMILIES^194719481949195019511952195319541955 . ..1956195719581959 .1960196119621963196419651966196719681969197019711972UNRELATEDINDIVIDUALS 21947194819491950...19511952195319541955195619571958 ...19591960...196119621963...196419651966...196719681969.197019711972..37.238.639 339.940.640.841.242 042.943.543.744 245.145 546.347.047 447.848.349.149 850.551.251.953.354.48.28.49.09.49.19.79.59.79.99.810.410.910.911.111.211.011.212.112.112.313.113.814.515.416.316.8Medianincome$5,6655,5275,4435,7575,9756,1386,6306,4826,8987,3577,3657,3537,7697,9418,0198,2478,5438,8619,2219,6679,94010, 38110,76610,61710,57811,116$1,8661,7981,8911,8771,9432,2352,1961,9152,0642,2092,2672,2072,2682,4422,4562,4312,4612,6862,8632,9803,3493,3513,3833,4263,521TotalWith incomesunder $3,0007.68.18 88.37 77.57.38 07.26.56.66 76.46 56.56.15.85.45.24.74.53.93.94.14.13.920.420.922 520.818 918.317.619 116.815.015.115.214.314.214.113.012.211.310.79.69.17.87.77.97.77.2With incomesunder $1,5003.53.73 84 14.03 73.84.24.03.83.94.14.03.93.83.53.53.63.33.33.03.13.23.23.0Totalnumber(millions)Number(millions)PercentNumber(millions)Percent43.244.042.543 343.738.240.543.440.339.037.637.937.035.134.331.631.329.626.925.521.721.720.719.617.934.135.338 239.039.539.740 240.941.141.942.442.743.143.544.144.845.446.046.547.648.57.27.38.38.58.58.99.29.39.69.69.59.710.410.510 711.312.012.513.414.214.5WhiteMedianincome$5,9095,7455,6625,9866,2246,4906,8776,7497,2127,6987,6697,6648,1048,2678,3908,6318,9469,2569,61210,04710,31810, 75011,16810,99610,94811,549$1,9551,8731 9941 9592,0272 4052,3202,0522,2092,2752,3972,3402,4042,6302,6442,6072,5922,8302,9793,1173,5373,5113,5373,5943,677With incomesunder $3,0005.96.56.45.75.15.25.24.84.95.14.74.44.14.03.73.53.13.03.13.12.917.418.419.818.516.315.715.716.814.713.013.012.911.812.012.111.010.39.69.18.37.86.86.66.76.65.9With incomesunder $1,5003.03.13.43.33.23.23.33.33.23.12.82.92.92.72.72.52.52.62.62.4Totalnumber(millions)Number(millions)PercentNumber(millions)Percent41.842.641.041.842.636.939.841.438.437.835.736.235.032.932.029.529.428.025.624.220.520.119.118.116.63.13.33 83.94.04.04 04.24 34.54.64 84.84 85 05 05.15.25 45 75.91.01.11.41.41.31.51.61.61.51.61.51.51.61.71 61.81.82.01.92.12.3Negro and other racesMedianincome$3,0233,0722 9033,2483 2793,6853,8683 7593,9774,0524,1063 9384,1784 5644,4614,6084,7515,1835,3496,0086,3806,7187,0627,0186,9367,106$1 3971,373L 435L 4204941,6641,8291,3591,4621,7141,5101,5621,5441,5091,6191,7331,7691.9292,1712,2842,4262,4802,4282,4022,731With incomesunder $3,0001.51.61.61.51.51.51.51.61.41.51.41.41.21.21.11.0.9.91.01.01.049.649.051.546.245.839.037.541.738.336.436.537.937.533.733.431.129.325.424.8?} 620.217.917.318 ?18, 417.7With incomesunder $1,500Totalnumber(millions)Number(millions)PercentNumber(millions)Percent0.5 52.6.6 53.852 052 050.246 043.7.8 55.2.7 51.2.6 47.2.7 49.9.8 48.8.8 49.3.7 49.8.8 47.4.7 44.1.7 44.1.6 39.5.6 35.2.6 33.3.5 30.3.6 32.3.6 31.7.6 30.4.6 26.9i 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.3 The term "unrelated individuals" refers to persons 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 C-23.—Population by age groups, 1929-73[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, 8238,7641940.1941.19421943.1944.19451946.1947.1948.1949.1950.1951.1952.1953.1954.1955.1956.1957.1958.1959.132,122133, 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, 2481960.1961.1962.1963.1964.180,671183,691186,538189,242191, 88920,33720, 50420,44820,31620,12738,49639,75341,18441,64042, 31310,69411,07211,21512,00412,73711,12411,45011,95412, 70713,25647,14047,08947, 00846,99646,96536,20036,71437,25137, 79438,38216,67917,10817,47617, 78518,1081965.19661967196819691970197119721973.194, 303196, 560198,712200, 706202,677204,879207, 045208, 842210,40419,78619,17118, 52817, 88017,33917,15617,17417, 00616,71442,94443,69544,23444, 60944,80444,77444,44143,94743, 22713, 50414,29414,21214,44914, 80415,27515, 63415,94516, 30813,75514,09015, 22715,76616,46517,18018,08618,02118,33146,91246,97647,18847,71448,05548,43548,80950,25051,41238,99739,61040,25840,89041,45441,97442,41442,78943, 08318,40518, 72319,06619,39619,75420,08520,48720,88321,329Note.—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, 1929-73Year or monthNoninstitutionalpopulationiTotallaborforce(includingArmedForces)ArmedForcesiTotalTotalCivilian labor forceEmploymentAgriculturalNonagriculturalUnemploymentUnemploymentrate(percentofcivilianlaborforce)Laborforceparticipationrate(totallaborforce aspercentof noninstitutionalpopulation)Thousands of persons 14 years of age and overPercent1929 .49,44026049,18047,63010,45037,1801,5503.2193351, 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 over194719481949103,418104,527105,61160,94162,08062,9031,5911,4591,61759,35060, 62161, 28657,03958,34457,6497,8917,6297,65649,14850,71349,9902,3112,2763,6373.93.85.958.959.459.61950195119521953 219541955 . .1956195719581959I960 2 .1961 .1962 21963 . ...19641965 . .19661967 . .1968196919701971197221973 2106,645107 721108,823110,601111,671112,732113 811115;065116,363117,881119,759121,343122 981125,154127,224129,236131,180133,319135 562137,841140 182142,596145, 775148,26363,85865 11765,73066,56066,99368,07269 40969,72970,27570,92172,14273,03173,44274,57175,83077,17878,89380,79382,27284, 24085,90386,92988,99191,0401,6503 1003,5923,5453,3503,0492 8572,8002,6362,5522,5142,5722,8282,7382,7392,7233,1233,4463 5353,5063,1882,8172,4492,32662, 20862 01762,13863,01563, 64365,02366,55266,92967,63968,36969,62870,45970,61471,83373,09174,45575,77077,34778,73780, 73482,71584,11386, 54288,71458,92059 96260, 25461,18160,11062,17163 80264;07163,03664, 63065,77865,74666, 70267,76269,30571,08872,89574,37275,92077,90278,62779,12081,70284,4097,1606 7266,5016,2616,2066,4496,2835,9475,5865,5655,4585,2004,9444,6874,5234,3613,9793,8443,8173,6063,4623,3873,4723,45251,76053 23953,75354,92253,90355,72457,51758,12357,45059,06560,31860,54661,75963,07664, 78266,72668,91570,52772,10374, 29675,16575,73278, 23080,9573,2882,0551,8831,8343,5322,8522,7502,8594,6023,7403,8524,7143,9114,0703,7863,3662,8752,9752,8172,8324,0884,9934,8404,3045.33.33.02.95.54.44.14.36.85.55.56.75.55.75.24.53.83.83.63.54.95.95.64.959.960.460.460.260.060.461.060.660.460.260.260.259.759.659.659.760.160.660.761.161.361.061.061.4See footnotes at end of table.276

TABLE C-24.—Noninstitutional population and the labor force,1929-73—ContinuedYear or monthNoninstitutionalpopulationiTotallaborforce(includingArmedForces)ArmedForces 1TotalTotalCivilian labor forceEmploymentAgriculturalNonagriculturalUnemploymentUnemploymentrate(percentofcivilianlaborforce)Laborforceparticipationrate(totallaborforce aspercentof noninstitutionalpopulation)Seasonally adjusted1972: Jan2.Feb..Mar..Apr..May.June.July.Aug.Sept.Oct..Nov.Dec.1973: Jan..Feb..Mar2Apr..May.June.July.Aug.Sept.Oct..Nov.Dec.144,697144, 895145, 077145, 227145, 427145,639145, 854146, 069146, 289146, 498146, 709146, 923147,129147,313147, 541147,729147, 940148,147148, 361148, 565148,782149, 001149, 208149,43688, 31588,17988, 66488, 56888, 74088, 85488,99389, 33789,43289,62389, 40789, 70189, 40490,10890.52390;62290,59791,13391,13991,01191,66492.03892,18692,3152,5942,5402,5042,4632,4192,3932,3882,3962,4052,4152,4312,4402,4042,3922,3612,3502,3342,3152,3102,3072,2922,2892,2842,28285, 72185,63986,16086,10586,32186, 46186,60586, 94187, 02787, 20886,97687,26187, 00087,71688,16288, 27288, 26388, 81888, 82888, 70489, 37389, 74989. 90390,03380,63780,67281,11081,15381, 40481,62381,78182, 08382, 25682, 33882, 48682,84182,61983, 23083, 78283, 85483, 95084, 51884, 62184. 51385, 13385,64985,64985,6693,3893,3873, 4453,3533,3783,3513,4413,5933,5853,6503,4903,5773,4893,4463,4693,3553,3203,4303,5123,4253,3763,4553,5613,64377, 24877, 28577,66577, 80078, 02678, 27278,34078, 49078,67178,68878, 99679, 26479,13079,78480,31380,49880,63081, 08881,10981, 08881,75782,19482, 08882, 0265,0844,9675,0504,9524,9174,8384,8244,8584,7714,8704,4904,4204,3814.4864,3804,4184,3134,3004,2074.1914,2404,1004,2544,3645.95.85.95.85.75.65.65.65.55.65.25.15.05.15.05.0i.91.81.7i1.7\.l1.6\.l1.861.060.961.161.061.061.061.061.261.161.260.961.160.861.261.461.361.261.561.461.361.661.861.861.81 Not seasonally adjusted.2 Not strictly comparable with prior data due to the introduction of population adjustments in the period. The adjustmentbeginning January 1972 added 787,000 to the noninstitutional population, 333,000 to the civilian labor force, 301,000 tocivilian employment and 32,000 to unemployment. The adjustment in March 1973 added 60,000 to the civilian labor forceand civilian employment. Unemployment rates were not significantly affected by the adjustments.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, 1947-73[Thousands of persons 16 years of age and over]EmploymentUnemploymentYear ormonthTotalTotalMales16-19years20yearsandoverTotalFemales16-19years20yearsandoverTotalTotalMales16-19years20yearsandoverTotalFemales16-19years20yearsandover1947..1948..1949..1950..1951..1952..1953 i.1954..17,039 40,99458,344 41,17,649 40,2,218 38,776 16,0452* 345 39,382 16,6182,124 38,803 16,72358,920 41,5802,186 39,394 17,34059,962 41,7802,156 39,626 18,18260,254 41,6842,106 39, 578 18, 57061,181 42i,4312,135 40,296 18,75060,110 41,6201,985 39,634 18,4901,691 14,3541,683 14,9371,588 15,1371,517 15,824',611 16,570,612 16,958,584 17,164,490 17,0002,3112,2763,6373,2882,0551,8831,8343,5321,6921,5592,5722,2391,2211,1851,2022,3442702553523181912051843101,4221,3052,2191,9221,0299801,0192,0356197171,0651,0498346986321,1881441522231951451401231914755648418546895595109971955..1956..1957..1958..1959..62,171 42,62163,802 43; 43,38064,071 43,35763,036 "",423,64,630 43, ,4662,095 40,526 19,! 1,5502,164 41,2.. 1,422 ,2,117 41,239 20,: ),7142,012 40,411: . 20,6132,198 41,267 21,164,548 18,002,654 18,767,663 19,052,570 19,043,640 19,5242,8522,7502,8594,6023,7401,8541,7111,8413,0982,4202742692994163981,5801,4421,5412,6812,0229981,0391,0181,5041,3201762091972622568238328211,2421,06319601.1961..1962..19631.1964..65,778 43, 1,90465, 746 43, :,65666,702 44, ,17767,762 44, ,65769,305 45, i, 4742,360 41,543 21, ,8742,314 41,342 22,1 !,0902,362 41,815 22,! !,5252,406 42, . 251 23,105 J2,587 42,886 23,831,769 20,105,793 20,296,833 20,693,849 21,257,929 21,9033,8524,7143,9114,0703,7862,4862,9972,4232,4722,2054254794075004872,0602,5182,0161,9711,7181,3661,7171,488,598,5812863493133833861,0801,3681,1751,2161,1951965..1966..1967..1968..1969..71,088 46, i,34072,895 46, 1,9192,918 43,422 24,3,252 43,668 25,74,372 47, ,479 3,18644,: .75,920 48, 1,11477,902 48, ;, 8183,255 44,859 27,3,430 45,388 29,2,118 22.6302,469 23,5102,497 24,3972, 525 25,2812,686 26,3973,3662,8752,9752,8172,8321,9141,5511,5081,4191,4034794324484274411,4351,1201,060993963,452,324,468,397,4293954043914124121,0569211,0789851,0161970..1971..19721197318,627 48,960" 120 49,245702 50,630409 51,9633,407 45,553 29,3,470 45, ,3,750 46.880 31,4,017 47,946 32,2,734 26,9332,725 27,1492,972 28,10T3,219 29,2284,9934,8404,3042,2352,7762,6352,2405996917076471,6362,0861,9281,5941,8532,2172.2052,0645065675955791,3471,6501,6101,485Seasonally adjusted1972: Jani...Feb...Mar .Apr...May...June...July...Aug...Sept—Oct....Nov. .Dec...1973: Jan....Feb...Mari..Apr...May...June..July...Aug..Sept..Oct...Nov..Dec.80, 637 49, 92280, 672 49, 93581, 110 50,21481, 153 50,25781, 404 50,39181,623 50,622625 46,297 30,715562 46,373 30,737657 46, 557 30,896685 46,572 30,8962,927 27,7882,908 27,8292,948 27,9482,974 27,9223,020 27,9932,955 28,04681,781 50,70582,083 50,8643, 718 46, ,987 31,0763,809 47, ',055 31,2192,938 28,1382,926 28,29382,256 51,022 3, 836 47, ", 186 31,234 2, 954 28,280 28;82,338 51,068 3,866 47, ,202 31,270 2,997 28,27382,486 51,1083,839 47, ,269 31,378 3, 070 28,308 28;82, 841 51,340 3,866 47, ,474 31,501 3,095 28, "1,40682, 619 51,244 3, 846 47,398 31,375 3,053 28, 1,32283, 230 51, 458 3, 945 47,513 31,772 3, 085 28.1,68783,782 51, 761 4, 067 47,694 32,021 3,187 28,834 .83,854 51,641 3, 986 47,655 32,213 3,177 29, " "I, 03683,950 51,59784,518 51,8483, 929 47,668 32, 353 3,208 29, ,1453,989 47,859 32, 670 3,332 29,33884,621 52,03784,513 51,89285,133 52; 2903,950 48,087 32,5843,900 47,99r 32,621,4,152 48,138 32,8433,103 29, 1,4813,138 29, i,4833, 326 29, 1,51785,649 52, :;638 4,206 48,432 3,350 29, 1,66185,649 52,584 4,159 48,425 ..... 3,361 29, 70485,669 "I, 52 732 4,173 48, 559 32,937 3,341 29, 5965,0844,9675,0504,9524,9174,8384,8244,8584,7714,8704,4904,420i,381•,486, 380,418^ 313^,300,207.1912404; 1004,2544,3642,8072,8382,8112,7342,6992,6072,5bO2,6022,5642,6152,4312,3252,2612,3342,3112,3492,3152,2312,1642,1662,1722,1382,1932,1827478417857087006446207367126626956865986526326756586306396386596496926562,0601,9972,0262,0261,9991,9631,9301,8661,8521,9531,7361,6391,6631,6821,6791,6741,6571,6011,5251,5281,5131,4891,5011,5262,2772,1292,2392,2182,2182,2312,2742,2562,2072,2552,0592,0952,1202,1522,0692,0691,9982,0692,0432,0252,0681,9622,0612,1826486176126075265835986145915965665895586525736056075575435385865815826091,6291,5121,6271,6111,6921,6481,6761,6421,6161,6591,4931,5061,5621,5001,4961,4641,3911,5121,5001,4871,4821,3811,4791,5731 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, 1948-73[Percent]B" sex and ageBy colorBy selected groupsYear or monthBothsexes16-19yearsMen20yearsandoverAllworkersWomen20yearsandoverWhiteNegroandotherracesExperiencedwageandsalaryworkersHouseholdheadsMarriedmen*Fulltimeworkers2Bluecollarworkers3Laborforcetimelost*194819493.85.99.213.43.25.43.65.33.55.65.98.94.36.83.55.44.28.019501951195219531954...195519561957195819595.33.33.02.95.54.44.14.36.85.512.28.28.57.612.611.011.111.615.914.64.72.52.42.54.93.83.43.66.24.75.14.03.22.95.54.44.24.16.15.24.93.12.82.75.03.93.63.86.14.89.05.35.44.59.98.78.37.912.610.76.03.73.33.26.24.84.44.67.25.74.61.51.41.74.02.82.62.85.13.65.02.62.55.23.83.74.07.27.23.93.63.47.25.85.16.210.27.64.85.15.38.16.6196019611962196319641965 .19661967196819695.56.75.55.75.24.53.83.83.63.514.716.814.717.216.214.812.812.812.712.24.75.74.64.53.93.22.52.32.22.15.16.35.45.45.24.53.84.23.83.74.96.04.95.04.64.13.43.43.23.110.212.410.910.89.68.17.37.46.76.45.76.85.65.55.04.33.53.63.43.33.73.22.72.22.11.91.83.74.63.63.42.82.41.91.81.61.56.75.54.94.23.53.43.13.17.89.27.47.36.35.34.24.44.13.96.78.06.76.45.85.04.24.24.03.919701971197219734.95.95.64.915.216.916.214.53.54.44.03.24.85.75.44.84.55.45.04.38.29.910.08.94.85.75.34.52.93.63.32.92.63.22.82.34.55.55.14.36.27.46.55.35.36.46.05.2Seasonally adjusted1972: JanFeb . .MarAprMayJune5.95.85.95.85.75.617.618.417.516.515.415.54.34.14.24.24.14.05.55.25.55.55.75.55.35.25.35.35.25.111.010.610.49.410.19.55.65.55.55.35.45.23.53.43.43.43.53.53.02.92.82.92.82.95.45.35.35.35.35.17.17.07.06.86.66.56.36.06.26.06.15.9JulyAug .SeptOct......NovDec5.65.65.55.65.25.115.516.716.115.515.415.53.93.83.84.03.53.35.65.55.45.55.05.05.05.15.05.14.64.59.89.79.910.19.99.65.35.35.25.34.84.83.33.23.33.42.92.82.82.62.72.82.52.45.15.14.95.14.64.56.56.46.06.05.75.65.96.05.85.95.45.41973: JanFeb.MarApr.MayJune5.05.15.05.04.94.814.415.614.215.215.114.03.43.43.43.43.43.25.25.04.94.84.64.94.64.64.44.54.44.38.99.09.09.29.28.84.64.74.64.74.54.43.03.03.03.02.92.92.42.42.52.42.32.34.64.64.54.54.34.35.65.75.55.45.35.35.35.45.35.35. 25.2JulyAugSeptOct.NovDec4.74.74.74.64.74.814.414.314.314.014.514.43.13.13.03.03.03.04.84.84.84.44.75.04.14.24.24.14.24.49.28.89.28.48.98.64.44.44.44.24.54.62.72.82.72.72.82.82.12.12.12.12.12.24.24.24.24.14.34.45.25.25.15.15.45.25.15.15.15.15.25.4i Married men living with their wives. Data for 1949 and 1951-54 are for April; 1950, for March,a Data for 1949-61 are for May.3 Includes craft and kindred workers, operatives, and nonfarm laborers. Data for 1948-57 are based on data forJanuary, April, July, and October.4 Man-hours lost by the unemployed and persons on part-time for economic reasons as a percent of potentially availablelabor force man-hours.Note.—See footnote 2 and Note, Table C-24.Source: Department of Labor, Bureau of Labor Statistics.279

TABLE O27.—Unemployment by duration, 1947-73Year or monthTotal unemploymentLess than5 weeksDuration of unemployment5-14weeks15-26weeks27 weeksand overAverage(mean)durationin weeksThousands of persons 16 years of age and over1947194819492,3112,2763,6371,2101,3001,7567046691,1942341934281641162568.610.0195019511952195319543,2882,0551,8831,8343,5321,4501,1771,1351 1421,6051,0555745164821,116425166148132495357137847831712.19.78.48.011.819551956 . . .1957195819592,8522,7502,8594,6023,7401,3351,4121,4081,7531,5858158058911,3961,11436630132178546933623223966757113.011.310.513.914.41960 . . . . .196119621963 . . ..19643,8524,7143,9114,0703,7861,7191,8061,6631,7511,6971,1761,3761,1341,2311,11750372853453549145480458555348212.815.614.714.013.3196519661967196819693,3662,8752,9752,8172,8321,6281,5731,6341,5941,62998377989381082740428727125624235123917715613311.810.48.88.47.919701971197219734,0884,9934,8404,3042,1372,2342,2232,1961,2891,5781,4591,2964276655974752355175623378.711.312.010.0Seasonally adjusted i1972: JanFebMarAprMayJune5,0844,9675,0504,9524,9174,8382,3622,1162,3252,1972,2032,2371,5081,4701,4251,5071,5171,45864265460553059460459264761964258455412.112.412.212.512.312.5JulyAug . ...SeptOctNovDec4,8244,8584,7714 8704,4904,4202,2122,2332,3102 2852,1581,9821,4861,5061,3831,4361,3651,42364361456958155851951853554951247045811.912.012.111.811.411.31973: JanFeb . ..MarAprMayJune4,3814,4864,3804,4184 3134,3002,0812,2642,1682,2072 2512,2441,3691,2641,3371,4871,2871,21051053349646747046340736537332034832610.910.510.510.010.09.7JulyAugSeptOctNovDec4,2074,1914,2404,1004,2544,3642,2252,2062,1582,0012,2432,3081,2671,2201,3391,2831,2351,2704784464764314694092773312923253513319.810.09.410.310.09.3i Because of independent seasonal adjustment of the various series, detail will not add to totals.Note—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—731946..1947..1948..1949..1950.1951.1952..1953..1954..1955..1956.1957.1958..1959..1960.1961.1962.1963..1964.1965..1966.1967.1968.1969.Year or month1970...1971 ...1972 p..1973 P..1972: Jan"..Feb*._Mar»»..Apr'..Mayp..June p..July *..Aug*._Sept*.Oct *___Dec P1973: Jan p..Feb p..Mar p..Apr p..May p..June p.July p..Aug p..Sept p-Oct p...NOVP..Dec p..Coveredemployment*All programsInsuredunemployment(weeklyaverage)23Totalbenefitspaid(millionsof dollars)2 iInsuredunemployment3InitialclaimsExhaustions*State programsInsured unemploymentas percentof coveredemploymentThousands Weekly average, thousands Percent31,85633,87634,64633,09834,30836,33437,00638,07236,62240,01842,75143,43644,41145,72846,33446, 26647,77648,43449,63751, 58054,73956,34257, 97759,99959, 5268 59,3752,8041,7931,4462,4741,6051,0001,0691,0672,0511,3991,3231,5713,2692,0992,0712,9941,9461,9731,7531,4501,1291,2701,1871,1772, 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. 62,070 4,179.12,313 5,498.22,185 5,000.01,783 4,441.83,0973,1222,9222,4302,1051,9512,0871,7631,5541,5121,6921,9942,3332,2502,0751,8281,6101,5231,6401,5721,4401,4511,6652,003530.1548.9593.2449.0423.1383.1375.2391.1307.8304.1325.3350.2509.2447.0473.9393.3365.9309.4320.9346.9273.9309.3320.9371.21,2959979801,9731,5139691,0449901,8701,2651,2151,4462,5261,6841,9082,2901,7837 1,8061,6051,3281,0611,2051,1111,1011,8052,1501,8481,6272,5242,4922,2792,0051,7401,6361,8231,5651,3881,3571,5071,8012,1242,0611,8981,6691,4651,3841,5051,4361,2991,2981,5011,8891891872003402362082152183042261112703692773313503027 298268232203226201200296295261246385293242237216250321213190214253324331249213216193206275212186210265395382420373616181534252023503331463230262115171616253837304040404339363533292728283332333331282727252429324.33.13.06.24.62.82.92.85.23.53.23.66.44.44.85.64.44.33.83.02.32.52.22.13.44.13.52.84.84.74.33.83.33.13.42.92.62.52.73.33.83.73.42.82.52.42.52.42.12.12.43.1UnadjustedSeasonallyadjusted3.53.63.63.63.63.63.63.43.43.33.23.02.72.82.82.72.72.72.62.72.82.82.82.9Benefits paid1,094.9775.1789.91.736.01.373.1840.4998.2962.22,026.91,350.31,380.71,733.93, 512.72.279.02,726. 73,422.72,675.42,774.72.522.12,166.01,771.32,092. 32,031. 62,127.93,848.54,957.04,550.04,105.0484.7502.9541.9407.9381.2344.4338.6349.7274.7273.7294.4320.9471.4416.4441.0365.7339.2286.6296.3316.3248.3280.7301.4341.6Total(millionsofdollars)*Averageweeklycheck(dollars)*18.5017.8319.0320.4820.7621.0922.7923.5824.9325.0427.0228.1730.5830.4132.8733.8034.5635.2735.9237.1939.7541.2543.4346.1750.3454.0256.0358.5055.5056.0457.2157.1256.4055.2355.7555.5360.1656.9557.5958.3558.6959.0859.0959.4158.4458.1257.4257.4658.1358.9758.6358.711 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.3 Covered workers who have completed at least 1 week of unemployment.4 Annual data are net amounts and monthly data are gross amounts. Monthly data exclude extended benefit payments.8 Individuals receiving final payments in benefit year. Data for New Jersey not available for April-June 1971.8 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 1963.8 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—73'All employees; thousands of persons]Year ormonth1929193319391940194119421943194419451946 . .194719481949195019511952195319541955 . ..19561957195819591960196119621963 .1964196519661967196819691970197119721973 P.Totalwageandsalaryworkers31,33923,71130,61832,37636,55440,12542,45241, 88340,39441,67443, 88144,89143, 77845, 22247,84948,82550, 23249,02250,67552,40852,89451,36353,31354,23454,04255, 59656,70258,33160, 81563,95565, 85767,91570, 28470, 59370,64572, 76475,570ManufacturingTotal10,7027,39710, 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, 52918, 93319,821Durablegoods4,7155,3636,9688,82311,08410, 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, 56510, 88411,634Nondurablegoods5,5645,6226,2256,4586,5186,4726,4506,9627,1597,2566,9537,1477,3047,2847,438• 7,1857,3407,4097,3197,1167,3037,3367,2567,3737,3807,4587,6567,9308,0088,1558,2728,1547,9648,0498,187Mining1,087744854925957992925892836862955994930901929898866791792822828751732712672650635634632627613606619623602607625Contractconstruction1,4978091,1501,2941,7902,1701,5671,0941,1321,6611,9822,1692,1652,3332,6032,6342,6232,6122,8022,9992,9232,7782,9602,8852,8162,9022,9633,0503,1863,2753,2083,2853,4353,3813,4113,5213,649Transportationandpublicutilities3,9162,6722,9363,0383,2743,4603,6473,8293,9064,0614,1664,1894,0014,0344,2264,2484,2904,0844,1414,2444,2413,9764,0114,0043,9033,9063,9033,9514,0364,1514,2614,3104,4294,4934,4424,4954,610Wholesaleandretailtrade6,1234,7556,4266,7507,2107,1186,9827,0587,3148,3768,9559,2729,2649,3869,74210,00410,24710,23510, 53510,85810,88610,75011,12711,39111,33711, 56611,77812,16012,71613, 24513,60614,08414,63914,91415,14215,68316,294Finance,insurance,andrealestate1,5091,2951,4621,5021,5491,5381,5021,4761,4971,6971,7541,8291,8571,9191,9912,0692,1462,2342,3352,4292,4772,5192,5942,6692,7312,8002,8772,9573,0233,1003,2253,3823,5643,6883,7963,9274,053Services3,4402,8733,5173,6813,9214,0844,1484,1634,2414,7195,0505,2065,2645,3825,5765,7305,8676,0026,2746,5366,7496,8067,1307,4237,6648,0288,3258,7099,0879,55110,09910,62311,22911,61211,86912, 30912,865GovernmentFederal5335659059961,3402,2132,9052,9282,8082i 2541,8921,8631,9081,9282,3022,4202,3052,1882,1872,2092,2172,1912,2332,2702,2792,3402,3582,3482,3782,5642,7192,7372,7582,7052,6642,6502,624Stateandlocal2,5322,6013,0903,2063,3203,2703,1743,1163,1373,3413,5823,7873,9484,0984,0874,1884,3404,5634,7275,0695,3995,6485,8506,0836,3156,5506,8687,?487,6968,2278,6799,1099,4449,83010,19110,64011,028See footnotes at end of table.282

TABLE C-29.—Wage and salary workers in nonagricultural establishments,1929-73—Continued[All employees; thousands of persons]Year ormonthTotalManufacturingTotalwageandsalaryworkersDurablegoodsNondurablegoodsMiningContractconstructionTransportationandpublicutilitiesWholesaleandretailtradeFinance,insurance,andrealestateGovernmentServicesFederalStateandlocalSeasonally adjusted1971: Jan..,Feb...Mar..Apr...May..June..70,32970,27670,32170,45770,60170,57018,68518,61118,53118, 53018, 58118,51910,68110,62510,56010,56210, 59910,5698,0047,9867,9717,9687,9827,9506246226216246236213,3263,3033,3493,3963,4013,4004,4684,4874,4704,4624,4654,45115,00515,02015,02915,05915,09415,0923,7413,7443,7523,7643,7803,79511,76611, 76211,79411,80811,82311,8442,6552,6552,6552,6602,6632,65210,05910,07210,12010,15410,17110,196July..Aug.-Sept..Oct...Nov—Dec—70,53370,52970,89770,86171,07871,26418, 46818,41018,53218,48618, 52318, 49910,52910,47810,56210, 54010, 55210,5377,9397,9327,9707,9467,9717,9626016136185195236113,4113,4053,4363,4723,5223,4754,4384,4014,4254,4064,4034,43215,13015,17515,23215,25415, 28015, 3333,8033,8083,8213,8353,8473,85511,85311,85311,94211,95111, 99712,0302,6562,6682,6732,6722,6682,66410,17310,19610,21810, 26610,31510, 3651972: Jan...Feb...Mar...Apr...May..June..71, 54571,74772,03372, 22472, 53472,70518, 54418,62018,69418,78018,86418,93110,57310,63010,68210, 75010,82110,8577,9717,9908,0128,0308,0438,0746156126136056056013,5193,4943,5123,5003,5323,5404,4554,4384,4824,4764,4814,48615, 39115, 45615,52015, 56115,62415,6783,8633,8743,8853,8923,9133,92712, 06912,11212,15112,19412,25212,3152,6692,6652,6622,6622,6652,63910, 42010,47610, 51410, 55410, 59810, 588July..Aug.-Sept..Oct...Nov—Dec...72,69473,01673,26873, 58473,83574,00218,89318,97519,06919,21019,31219, 40210,86710,93311,00311,11211,19411,2708,0268,0428,0668,0988,1188,1326016036066086086073,4993,5443,5513,5613,5243,4594,4774,4874,5074,5404,5494,55815,68515,76215, 79415,83915,91115, 9463,9273,9403,9533,9693,9813,99112, 34112, 38212,40312, 45112, 49712, 5372,6132,6242,6332,6392,6442,65010,65810,69910, 75210,76710,80910,8521973:Jan...Feb...Mar...Apr...May...June..74,25274,71574,91475,10575,32175,52619,46319,58619,64319, 72719,78219,85611,32611,42111,46311,53411,60211,6548,1378,1658,1808,1938,1808,2026106126106086086293,4983,5943,6043,5713,6203,6544,5744,5804,5804,5914,5934,59716,01316,11416,16316,21716,25616,2623,9954,0144,0244,0314,0444,04912,62112,68212,71612, 74612,77612, 8202,6342,6282,6312,6282,6412,61310,84410,90510,94310,98611,00111,046July...Aug...Sept.-Oct....Nov P.Dec V.75,47875,74775,96176,36376,64276,67719,80419,86119,88220,01620,08720,11311,64611,69211,70811,80211,85411,8708,1588,1698,1748,2148,2338,2436316346336396436463,6803,6763,7003,6943,7073,7534,5984,6174,6294,6714,6514,63316,29416,35216, 38816,46516,52916,4564,0484,0644,0784,0884,0934,09912,82812,90612,99513,04413,12213,1272,5882,5992,6132,6262,6382,62311,00711,03811,04311,12011,17211,227Note.—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 nonagriculturalindustries, 1947-73194719481949Yearormonth1950195119521953 ....1954195519561957 .1958195919601961196219631964-196519661967196819691970197119721973 P.1972: JanFebMarAprMayJuneJulyAugSeptOct ...Nov ...Dec1973: Jan . .FebMarAprMayJuneJulyAugSeptOctNov p....Dec vTotalprivatenonagriculturali40.340.039.439.839.939.939.639.139.639.338.838.539.038.638.638.738.838.738.838.638.037.837.737.137.037.237.137.037.237.137.337.137.137.237.137.337.337.237.036.937.237.137.237.237.137.237.037.237.037.137.0Average weekly hours40.440.039.140.540.640.740.539.640.740.439.839.240.339.739.840.440.540.741.241.340.640.740.639.839.940.640.740.140.540.440.740.540.640.640.640.840.740.840.740.341.040.940.940.740.640.740.540.840.640.740.7ManufacturingContractconstruction[For production or nonsupervisory workers]38.238.137.737.438.138.937.937.237.137.537.036.837.036.736.937.037.337.237.437.637.737.437.937.437.337.037.137.237.337.236.836.836.937.037.036.937.436.935.836.136.237.037.037.537.437.537.136.736.938.537.1Retailtrade 240.340.240.440.440.439.839.139.239.038.638.138.138.238.037.637.437.337.036.635.935.334.734.233.833.733.633.233.733.633.733.733.733.833.633.633.633.533.533.633.433.533.433.433.433.533.233.033.233.033.033.0Average gross hourly earnings,current dollarsTotalprivatenonagricultural1$1,1311.2251.2751.3351.451.521.611.651.711.801.891.952.022.092.142.222.282.362.452.562.682.853.043.223.433.653.89$1,2171.3281.3781.4401.561.651.741.781.861.952.052.112.192.262.322.392.462.532.612.722.833.013.193.363.563.814.06Seasonally adjusted$3.553.563.593.623.623.633.653.673.693.733.733.753.773.783.813.843.853.873.913.923.963.983.994.02$3.693.713.743.763.783.793.793.833.863.883.893.933.973.963.984.014.024.044.074.094.134.164.164.19$1,5411.7131.7921.8632.022.132.282.392.452.572.712.822.933.083.203.313.413.553.703.894.114.414.795.245.696.066.46$5.915.935.966.006.016.016.026.076.106.156.196.296.376.296.316.356.346.436.466.506.596.596.646.68Retailtrade 2$0.838.901.951.9831.061.091.161.201.251.301.371.421.471.521.561.631.681.751.821.912.012.162.302.442.572.702.86$2.652.652.662.672.682.692.712.722.732.742.752.772.772.792.802.822.832.862.872.892.922.932.942.95Adjusted hourly earnings,total private nonagricultural 3Index,1967=100ManufacturingContractconstructionCurrentdollars42.646.048.250.053.756.459.661.763.767.070.373.275.878.480.883.585.988.691.995.6100.0106.6113.6121.2129.7137.9146.5134.5134.8135.6136.6136.7137.2138.0138.5139.3140.4140.7141.9142.3142.5143.3144.4144.7146.0146.9147.6149.0149.6150.2151.41 Also includes other private industry groups shown in Table C-29.2 Includes eating and drinking places.3 Adjusted for overtime (in manufacturing only) and for interindustry employment shifts.< Current dollar earnings index divided by the consumer price index.1 Computed from indexes to two decimal places.Note.-See Note, Table C-29.Source: Department of Labor, Bureau of Labor Statistics.28463.763.867.569.369.070.974.476.679.482.383.484.586.888.490.292.293.795.397.298.4100.0102.3103.5104.2106.9110.1110.1109.0108.8109.3109.9109.7109.9110.1110.2110.4110.9110.8111.5111.3110.7110.4110.5110.1110.4110.9109.3110.0109.5109.1109.4Percentchangefromprecedingperiod1967dollars*Currentdollars8 04.83.77.45.05.73.53.25.24.94.13.63.43.13.32 93.13.74.04.66.66.66.77.06.36.21967dollars0 25.82.7-.42.84.93.03.73.71.31.32.71.82.02.21.61.72.01.21.62.31.2.72.63.0.0Seasonallyadjustedannual rates'9.43.07.48.71.34.37.04.37.89.32.910.33.91.47.49.23.010.68.15.611.95.24.710.16.1-2.76.16.3-2.32.82.11.02.55.1-.87.6-2.1-6.6-3.21.2-4.13.45.2-16.07.7-4.9-4.93.1

TABLE C-31.—.•Average weekly earnings in selected private nonagricultural industries; 1947-73[For production or nonsupervisory workers]Average gross weekly earningsAverage spendable weekly earnings, totalprivate nonagricultural 4Year or monthTotal privatenonagricultural lManufacturingContractconstructionRetailtrade 3AmountPercent change frompreceding periodCurrent 1967dollars dollars 2Current dollarsCurrent 1967dollars dollars 2Currentdollars1967dollars1947..1948..1949..$45.5849.0050.24$68.1367.9670.36$49.1753.1253.88$58.8765.2767.56$33.7736.2238.42$44.6448.5149.74$66.7367.2869.668.72.50.83.51950..1951..1952..1953..1954..53.1357.8660.6563.7664.5273.6974.3776.2979.6080.1558.3263.3467.1670.4770.4969.6876.9682.8686.4188.9139.7142.8243.3845.3647.0452.0455.7957.8760.3160.8572.1871.7172.7975.2975.594.67.23.74.2.93.6-.71.53.4.41955..1956..1957..1958..1959..67.7270.7473.3375.0878.7884.4486.9086.9986.7090.2475.7078.7881.5982.7188.2690.9096.38100.27103.78108.4148.7550.1852.2054.1056.1563.4165.8267.7169.1171.8679.0680.8680.3279.8082.314.23.82.92.14.04.62.3-.*63.1I960..1961..1962..1963..1964..80.6782.6085.9188.4691.3390.9592.1994.8296.4798.3189.7292.3496.5699.63102.97113.04118.08122.47127.19132.0657.7658.6660.9662.6664.7572.9674.4876.9978.5682.5782.2583.1384.9885.671.52.13.42.05.1-.11.12.2.83.71965..1966..1967..1968..1969..95.0698.82101.84107.73114.61100.59101.67101.84103.39104.38107.53112.34114.90122.51129.51138.38146.26154.95164.93181.5466.6168.5770.9574.9578.6686.3088.6690.8695.2899.9991.3291.2190.8691.4491.074.52.72.54.94.92.7-.1-.4.6-.41970..1971..1972..1973 P.119.46126.91135.78144.32102.72104.62108.36108.43133.73142.04154.69165.24195.98212.24224.22239.6782.4786.6190.7294.95104.61112.12120.79126.5589.9592.4396.4095.084.67.27.74.8-1.22.84.3-1.4Seasonally adjustedSeasonally adjustedannual rates1972:Jan.Teb_MarApr.May_JuneJuly.Aug.SeptOct.Nov.Dec$131.35132.43133.19135.03134.30134.67135.78136.16137.64139.13138.76138.75$106.48106.84107.35108.63107.72107.88108.35108.36109.07109.89109.28109.05$147.97150.26151.10153.03153.09153.87153.87155.50157.49157.92158.71159.95$219.85221.19221.71220.80221.17221.77222.74224.59225.09230.01228.41225.18$89.3189.0489.6489.9890.3290.9291.0691.3991.7391.7992.1393.07$117.30118.15118.75120.20119.63119.92120.79121.09122.26123.43123.14123.14$95.0995.3295.7196.7095.9596.0796.3996.3696.8997.4996.9896.78«4.79.16.315.7-5.52.99.13.012.212.1-2.8.0M.82.95.013.1-8.91.54.1-.46.87.7-6.1-2.41973:Jan.Feb.MarApr.May.JuneJuly.Aug.SeptOct..NovDec139.11140.62141.35142.85143.22143. 58145.45145.04147.31147.26148.03148.74108.79109.22108.83109.30108.94108.60109.77107.39108.72107.80107.52107.45159.99162.36162.78164.01163.61164.02165.65165.65168. 50168.90169.31170.53229.96227.70233.47234.95237.75240.48242.25241.15241. 85243.17255.64247.8392.5293.4793.5294.1994.5295.8195.2895.3796.9496.6997.0297.35122. 51123.70124.26125.42125.70125.98127.42127.11128.86128.82129.42129.9695.8196.0895.6795.9695.6195.2996.1694.1195.1194.3094.0093.885 2.112.35.611.82.72.714.6-2.917.8-.45.75.1«-4.03.4-5.03.7-4.3-3.911.5-22.813.5-9.8-3.8-1.51 Also includes other private industry groups shown in Table C-29.» Earnings in current dollars divided by the consumer price index.3 Includes eating and drinking places.* Average gross weekly earnings less social security and income taxes for a worker with three dependents,s In annualizing the rates of change, the effect of the change in tax rates at the beginning of 1972 and 1973 is taken intoaccount separately.Note.—See Note, Table C-29.Source: Department of Labor, Bureau of Labor Statistics.285527-867 O - 74 - 19

TABLE C-32.—Output per man-hour and related data, private economy, 1947-73[1967 = 100]Year or quarterOutput^TotalprivatePrivatenonfarmMan-hours 3TotalprivatePrivatenonfarmOutput perman-hourTotalprivatePrivatenonfarmCompensationper man-hour 3TotalprivatePrivatenonfarmUnit laborcostsTotalprivatePrivatenonfarmImplicit pricedeflator*TotalprivatePrivatenonfarm1947194819491950195119521953195419551956195719581959I960196119621963196419651966196719681969197019711972197345.647.847.652.555.857.260.159.364.365.666.565.670.271.973.278.281.586.291.897.7100.0104.8107.7107.2110.9118.1125.544.546.546.451.355.056.359.158.363.464.765.764.869.571.172.577.680.985.991.597.9100.0105.1108.0107.3111.0118.7126.688.889.286.287.990.791.292.088.692.193.792.388.491.292.090.692.492.994.597.499.7100.0101.8104.2102.6102.0104.7108.178.079.176.079.082.984.185.982.686.188.487.984.587.688.687.789.890.992.996.399.5100.0102.1105.1103.8103.2106.0109.651.353.655.359.761.562.765.366.969.970.072.074.376.978.280.984.787.791.194.298.0100.0102.9103.3104.4108.7112.8116.157.158.861.165.066.366.968.970.573.673.274.876.779.380.382.786.489.192.495.198.4100.0102.9102.7103.4107.6112.1115.536.239.540.142.846.949.852.954.555.959.563.366.069.071.774.477.780.884.988.494.5100.0107.6115.8124.6133.3142.4153.538.341.843.045.349.352.054.956.658.662.065.568.171.073.976.379.382.286.189.294.6100.0107.3114.8123.2131.8140.9151.670.673.772.571.776.379.481.081.580.185.087.988.989.891.892.191.892.193.193.896.5100.0104.6112.1119.3122.6126.2132.267.171.070.369.774.377.679.780.379.684.787.688.789.592.092.391.892.393.293.996.2100.0104.3111.8119.1122.5125.7131.266.470.970.270.976.177.578.179.179.882.385.387.188.389.590.491.292.293.294.897.2100.0103.6108.3113.5118.4121.8128.363.868.268.769.474.075.977.278.579.582.385.386.888.389.690.491.292.393.494.896.8100.0103.5108.1113.5118.5121.3126.2Seasonally adjusted1971: IIIIII....IV....1972: IIIIII —IV....1973: III....III-..-IV*109.2110.1111.1113.1114.5117.4119.1121.5124.2125.0126.1126.5109.2110.2111.2113.3114.9117.9119.9122.3125.1126.3127.6127.5101.6101.9101.7102.7103.5104.4105.1105.9106.7107.7108.6109.2102.9103.0102.9103.8104.6105.9106.2107.1108.2109.5110.2110.7107.5108.0109.3110.1110.7112.5113.3114.8116.4116.1116.2115.8106.1107.0108.1109.1109.8111.3112.9114.2115.6115.3115.9115.1130.1132.2134.7136.1139.4141.4143.1145.7149.6151.9154.6157.6128.4130.9133.1134.6137.8139.5141.8144.2147.9149.8152.7155.7121.0122.4123.3123.6125.9125.7126.3126.9128.5130.9133.1136.1120.9122.3123.1123.3125.5125.3125.6126.2127.9129.8131.8135.2116.9118.2119.1119.3120.7121.2122.0123.1124.8127.1129.3131.8117.1118.4119.3119.3120.6120.8121.4122.3123.6125.4126.8128.9i Output refers to gross national product in 1958 dollars.> 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' contribution 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-hour and related data, private economy, 1948-73[Percent change from preceding period]Year or quarterTotalprivateOutput »PrivatenonfarmMan-hours 2TotalprivatePrivatenonfarmOutput perman-hourTotalprivatePrivatenonfarmCompensationper man-hour 3TotalprivatePrivatenonfarmUnit laborcostsTotalprivatePrivatenonfarmImplicit pricedeflator*TotalprivatePrivatenonfarm1948..1949..4.8-.34.4-.10.4-3.41.3-3.94.53.23.04.09.01.59.02.94.3-1.65.8-1.06.7-1.06.81950..1951..1952..1953-1954..1955..1956-1957..1958..1959..10.26.32.55.1-1.38.51.91.4-1.37.010.67.02.55.1-1.52.01.6-1.57.32.03.2.5.8-3.73.91.7-1.5-4.23.34.04.91.52.1-3.84.22.6-.6-3.93.78.13.01.94.22.44.4.22.93.13.66.32.0.92.92.34.4-.62.22.53.46.89.66.16.33.12.66.46.54.24.65.58.75.55.63.23.55.85.73.84.3-1.26.44.12.0.6-1.76.23.51.11.06.64.52.6.9-.96.43.41.3.91.07.31.9.71.2.93.23.62.11.41.16.52.61.81.71.33.43.71.71.8I960..1961-1962..1963..1964..2.41.96.84.25.72.41.97.14.36.1.8-1.52.0.61.81.1-1.02.51.22.31.63.54.73.63.91.23.04.63.13.73.93.84.44.05.04.13.24.03.64.72.2.3-.3.41.12.8.2-.5.51.01.4.9.91.01.21.4.9.91.21.31965..1966..1967..1968..1969..6.66.42.34.82.86.67.02.25.12.83.12.4.31.82.33.63.32'.1.2.93.44.02.12.9,42.93.51.62.9-.14.16.95.87.67.63.76.15.77.37.0.72.83.74.67.12.54.04.37.21.72.52.93.64.51.42.23.33.54.51970...1971...1972...1973*..-.53.56.56.2-.63.47.06.6-1.5-.62.73.2-1.3-.62.73.51.04.13.82.9.74.04.23.17.67.06.87.87.37.06.97.66.52.82.944.76.62.82.64.44.84.32.95.35.04.42.34.0Seasonally adjusted annual rates1971: IIIIllIV9.93.23.77.29.73.73.87.71.21.1-.93.91.3.6-.43.68.62.04.73.28.33.14.34.08.06.67.74.47.78.06.94.6-0.64.52.91.3-0.64.72.5.74.34.82.8.84.24.43.0-.11972: IIIIllIV1973: IIIIII---.-5.410.45.88.49.32.63.61.25.611.07.08.39.23.94.4-.43.23.62.63.03.33.83.22.53.05.01.33.44.04.82.62.12.16.53.15.25.8-1.2.4-1.32.55.75.64.75.0-.81.8-2.49.95.94.97.411.36.37.38.09.95.26.76.810.75.38.08.37.6-.51.72.05.27.66.99.37.2-.51.02.05.46.26.110.94.91.52.83.55.77.57.37.74.41.01.92.94.35.94.76.9i Output refers to gross national product in 1958 dollars.3 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' contribution 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, 1929-73{1967=1001Year or monthTotalindustrialproductionTotalManufacturingDurableNondurableMiningUtilities1929 .193319391940—1941194219431944 .1945—194619471948194921.613.721.725.031.636.344.047.440.635.039.441.038.822.814.021.525.432.437.847.050.942.635.339.440.938.722.69.117.823.731.640.154.560.245.531.837.939.535.923.019.725.927.232.934.336.738.238.139.340.942.241.544.431.543.448.251.252.854.057.956.855.863.166.358.87.26.510.411.513.014.616.117.117.418.119.621.923.31950195119521953195419551956195719581959 -44.948.750.654.851.958.561.161.957.964.845.048.650.655.151.558.260.561.256.964.143.749.252.259.052.059.561.561.954.262.246.247.848.750.751.056.659.560.561.067.065.772.171.573.471.980.284.484.577.581.126.530.332.835.638.342.847.050.252.557.8I96019611962196319641965 -19661967196819691970197119721973*66.266.772.276.581.789.297.9100.0105.7110.7106.6106.8115.2125.665.465.671.475.881.289.198.3100.0105.7110.5105.2105.2114.0125.263.362.169.073.579.088.599.0100.0105.5110.0101.499.4108.4122.168.670.775.179.284.490.097.3100.0106.0111.1110.6113.5122.1129.782.783.285.689.091.193.998.4100.0103.9107.2109.7107.0108.8110.061.865.370.275 181.986.993 6100.0109.4119.5128.3133.9143.4152.2Seasonally adjusted1972: JanFebMarAprMayJune108.7UO.O111.6113.2113.8114.4107.1108.5110.0111.8112.6113.1100.4102.1103.4105.7106.5107.5116.8117.8119.5120.7121.3121.4107.3107.2108.4109.4108.0108.6137.4139.7140.0141.2142.0141.5JulyAugSeptOct .NovDec115.1116.3117.6119 2120.2121.1114.3115.4117.0118 5119.5120.4108.8109.7111.6113 8115.3116.3122.5123.6124.8125.2125.6126.2108.6108.8110.8110.2109.7108.2143.3144.9146.4147.1148.2148.51973- JanFebMar ..Apr ...MayJune122.2123 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. 5151.6JulyAugSeDtOctNov vDec v126.7126.5126.8127.0127.3126.6126.5126.1126.3126.3126.9127.1123.8122.6123.3123.6124.1124.0130.6130.9130.7130.3131.2131.4111.0111.5111.8111.3110.4108.9154.8154.8155.8156.2153.5144.5Source: Board of Governors of the Federal Reserve System.288

TABLE C—35.—Industrial production indexes, market groupings, 1947—73[1967=1001Year ormonthTotalindustrialproductionFinal productsTotalConsumer goods iTotalAutomotiveproductsHomegoodsEquipmentTotalBusinessIntermediateproductsMaterials 2TotalDurablegoodsNondurablegoods1947194819491950195119521953195419551956195719581959196019611962196319641965196619671968196919701971197219731972: Jan...Feb..Mar..Apr..May..June.July..Aug..Sept.Oct..Nov..Dec.1973: Jan..Feb..Mar.Apr.May.JuneJuly.Aug..Sept..Oct...NOVP.Dec v.39.441.038.844.948.750.654.851.958.561.161.957.964.866.266.772.276.581.789.297.9100.0105.7110.7106.6106.8115.2125.638.339.738.543.446.850.353.750.854.958.259.957.162.764.865.370.874.979.686.896.1100.0105.8109.0104.5104.7111.9121.242.744.043.850.049.550.653.753.359.561.763.262.668.771.372.877.782.086.893.098.6100.0106.6111.1110.3115.7123.6131.747.850.049.662.455.249.762.858.477.763.966.953.266.876.469.884.592.596.8112.3108.8100.0117.9117.499.9119.5127.7136.839.140.837.752.044.844.850.746.855.258.156.853.661.662.063.969.474.981.791.4100.7100.0106.9111.6107.6112.6124.5140.429.731.227.930.242.150.554.747.948.953.755.950.054.956.455.661.965.670.178.793.0100.0104.7106.196.389.495.5106.738.039.534.537.045.251.253.246.850.758.761.051.557.959.457.762.765.874.784.498.8100.0103.4107.9101.496.8106.1122.642.544.942.649.652.051.755.355.162.665.365.363.970.571.072.476.981.187.393.099.2100.0105.7112.0111.7112.5121.1131.139.741.437.845.250.050.756.352.061.563.163.156.865.566.466.472.477.082.691.099.8100.0105.7112.4107.7107.4117.4129.339.140.236.045.351.652.761.553.165.065.265.154.865.366.164.671.876.682.793.0103.0100.0105.0112.2103.2101.7113.5130.1Seasonally adjusted108.7110.0111.6113.2113.8114.4115.1116.3117.6119.2120.2121.1122.2123.4123.7124.1124.9125.6126.7126.5126.8127.0127.3126.6106.4107.6108.5110.4110.8111.0111.6112.6113.6115.3116.3116.8118.6119.3119.6120.0120.8121.3122.1121.4122.4122.8123.2122.0118.5119.6119.9122.5122.6122.7123.3124.3125.2127.0127.4127.7129.8130.2130.8130.9131.7131.9132.9131.2132.3132.8133.2130.7116.6119.5121.3130.5125.8125.1125.3126.0125.4132.3138.3142.9138.6141.7144.1141.7142.6142.6141.7121.1129.8130.9134.1122.9118.1120.7119.1124.7124.3124.9124.1124.3125.8127.3126.9130.5134.5135.8138.3139.8140.9141.3142.9141.1142.9142.3141.5141.089.590.992.693.594.194.795.396.397.798.9100.7101.5102.9104.1104.1104.7105.7106.6107.3107.6108.5108.8109.3109.998.499.9101.5102.8104.0104.7105.5107.2109.6111.6113.4114.4116.9118.2118.6119.6121.3122.5123.0124.6125.8126.2127.1127.6115.9117.0117.5117.9118.9119.4119.8122.3122.8124.7127.6127.7128.4129.5129.4129.3130.5132.0132.5132.1131.0130.5131.2131.0109.2110.8113.7115.1115.8117.1117.8118.8120.9122.3122.8124.4124.5126.7127.0127.7128.3129.0130.9130.9131.3131.5131.3131.0103.5105.8107.8110.2111.3112.6113.0114.5118.1120.2121.4123.5124.1126.6127.6127.9128.6129.2131.6131.8132.3133.0133.4133.640.937.843.647.147.350.250.356.959.559.358.165.065.968.272.977.182.188.596.3100.0106.9112.8112.5114.1122.5129.1116.0117.0121.2121.3121.6122.8124.0124.7124.6125.3124.6126.4126.3127.7127.1128.5128.9129.4130.4130.6130. 3129.9129.5129.7i Also includes apparel and consumer staples, not shown separately.> Also includes industrial fuel and power, not shown separately.Source: Board of Governors of the Federal Reserve System.289

TABLE C—36.—Industrial production indexes, selected manufactures, 1947—73[1967=100]Year ormonth19471948 . .194919501951195219531954195519561957 .. .1958195919601961196219631964196519661967196819691970197119721973 P.1972: Jan. ..FebMarAprMayJuneJulyAugs o e cf!:::::Nov.Dec1973: JanFebMarAprMayJuneJulyAugSeptOctNov p....Dec*Durable manufacturesPrimarymetals64.867.456.771.477.770.980.465.084.584.080.463.874.574.272.978.284.395.7104.0108.8100.0103.2114.1106.9100.9113.1127.0102.4102.6104 9108.3110.1111.3115.1114.3119.7122.1122.9125.4123.1124 7123.5125.8126.1124.5128.1125.6127.8130.8130.0130.4Fabricatedmetalproducts50.251.146.156.560.458.966.559.968.369.371.163.771.571.669.875.978.483.392.6100.5100.0106.3113.6109.4107.4114.8130.8106.0108.6110.2111.5112.9114.5114.3116.6118.0120.4122.2122.3125.7126 2128.4128.9130.3133.4133.5133.8131.5132.6132.9134.1Machinery41.746.752.252.045.453.956.257.164.867.974.384.198.6100.0101.9106.8100.396.2107.5125.998.599.5100.8103.3104.9106.6108.4109.7111.8114.0115.7116.8118.4119.1121.4122.6124.7126.9127.6128.5130.0128.5130.5131.0Transportationequipment31.033.934.040.745.452.866.257.666.364.368.954.361.563.759.969.375.979.691.3101.2100.0109.7107.690.492.999.0109.292.094.796.1100.098.397.497.798.199.5102.7105.0106.6107.6110.0110.3110.0111.0112.2112.1105.7107.3108.9108.3103.31 nstruments24.525.222.526.130.035.739.239.644.248.550.747.755.257.857.359.866.471.382.995.3100.0106.7116.1110.8108.5120.2138.3111.3114.5114.5116.7118.2120.7121.7122.7124.3125.0125.1126.6130.1131.9133.8134.7138.9140.2140.8140.9141.5141.0141.8143.5Ordnance,privateandgovernment7.89.09.211.442.252.063.248.436.131.835.944.446.146.439.245.051.650.760.575.1100.0113.7111.695.386.186.085.3Lumber,clay,andglass64.773.875.973.371.482.278.579.784.388.994.098.7102.6100.0105.6111.1106.3111.5120.0129.4Furnitureandmiscellaneous53.765.868.767.162.168.769.770.676.179.584.793.8100.8100.0106.2111.6108.8111.7122.7135.3Seasonally adjusted83.283.786.486.486.487.786.686.584.885.287.387.887.087.687.186.485.486.786.783.883.783.982.383.3115.5118.0117.2117.4117.9118.5120.0121.0121.9124.9124.5123.7126.4127.3129.1129.9130.3129.2129.8129.2128.8129.7130.7132.5115.0117.3118.3119.7121.1122.1123.7126.2126.6126.9126.6127.7130.3132.8133.4133.1136.0135.4135.9137.5138.2136.1135.4137.3Nondurable manufacturesTextiles,apparel,andleather65.773.475.173.471.879.679.280.284.386.991.997.8101.7100.0104.9105.9100.2100.7108.1114.7102.0101.1104 2107.0106.8107.5109.0109.7111.2112.1113.0113.2113.4114.4114.6114.0113.3115.0114.5115.4117.5116.2116.2116.0Paperandprinting52.257.861.562.261.567.069.271.074.378.484.590.598.9100.0104.2109.1107.8107.8116.1122.3111.3112.6115 0112.7114.0114.6117.0117.6117.7119.9120.0120.3120.0121.5122.4120.8121.9122.8123.8124.5122.1121.3121.7122.6Chemicals,petroleum,andrubber35.441 243 545.846.553.855 658.364.570.075 983.894.1100.0109.6118.4118.2124.7137.8149.3129.8132.6133 6136.4137.3136.9138.5140.0142.2141.6142.0143.8145.5146.3146.3147.9150.2149.8151.8151.0150.9151.1151.0151.6Foodsandtobacco63.266.670.371.573.677.279.281.584.087.090.692.697.0100.0103.6107.5110.8113.7117. 6122.0115.7115.9116 3117.7117.6117.9117.0118.3118.6118.5119.0118.5119.6122.0121.5120.7121.5119.5121.3122.0122.2121.9124.8124.4Source: Board of Governors of the Federal Reserve System.290

TABLE C-37.—Capacity utilization rate in manufacturing and major materials industries, 1948-73ManufacturingPeriodOutput^CapacityTotalUtilization rate 3PrimaryprocessingAdvancedprocessingMajormaterialsindustries,utilizationrate'1967 output= 100Percent1948194941.539.144.847.392.782.798.183.889.882.187.977.019501951 -VlTT19521953195445.449.350.955.451.449.451.854.958.161.291.995.192.895.584.197.8100.191.294.382.988.892.593.796.184.788.591.482.387.378.419551956195719581959 . .. .58.160.361.156.964.064.468.374.875.778.690.088.284.575.181.493.790.785.275.282.787.786.984.175.080.789.890.684.576.081.5I960196119621963196465.365.671.375.781.181.684.587.791.294.880.177.681.483.085.579.478.281.884.088.080.377.381.182.584.279.479.882.085.089.31965196619671968 -. .196989.098.1100.0105.6110.4100.0106.7113.7120.5127.789.091.987.987.786.591.192.185.786.888.587.891.889.188.185.490.791.286.889.590.719701971 . . . .1972 .1973*105.3105.2114.0125.1134.6140.3145.0150.778.375.078.683.081.579.384.689.876.572.775.479.486.685.890.294.9Seasonally adjusted1968: 1IIIIIIV103.5105.3106.3107.3117.9119.6121.3123.087.988.187.687.286.187.686.687.088.888.388.287.390.690.688.488.61969: 1 . . .IIIIIIV109.5110.4111.8110.1124.9126.7128.6130.587.787.186.984.388.688.788.987.787.186.285.882.589.890.391.191.61970: 1II . . . .IllIV106.8106.8105.9101.6132.2133.8135.3136.980.879.878.374.283.582.481.778.579.378.476.571.988.286.086.585.71971: 1IIIIIIV103.8105.6105.3106.1138.3139.6141.0142.375.075.674.774.679.481.178.078.672.772.772.972.487.087.683.784.71972: 1IIIllIV108.5112.5115.5119.4143.5144.5145.5146.675.677.979.481.580.883.585.988.372.974.975.977.887.789.991.092.41973: 1 *II v\\\vIV*122.5124.8126.2126.7148.0149.8151.6153.382.883 383.382.689.690.190.189.479.179.779.779.093.894.596.095.11 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 August 1973 issue for major materials industries seriesSource: 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 CV38.—New construction activity, 1929-73[Value put in place, billions of dollars]Year or month1929193319391940.1941... .1942194319441945 .1946..New series19461947..1948...19491950._1951...1952..1953..195419551956 .195719581959 _.196019611962 ....19631964 ...1965196619671968196919701971 _19721973 6 Totalnewconstruction10.82.98.28.712.014.18.35.35.812.614.320.026.126.733.635.436.839.141.446.547.649.150.255.354.656.360.064.667.473.476 077.586.693.494.2109.2]??.*135.1Private constructionTotal8.31.24.45.16.23.42.02.23.410.412.116.721.420.526.726.226.027.929.734.834.935.134.739.238.839.142.145.247.051.452 052.059.065.466.179.49? fi102.8Residentialbuildings 1Total a3.6.52.73.03.51.7.9.81.34.86.29.913.112.418.115.915.816.618.221.920.219.019.824.323.023.125.227.928.027.925.725.630.633.231.943.354.257.9Newhousingunits3.0.32.32.63.01.4.7.6.73.34.87.810.510.015.613.212.913.414.918.216.114.715.419.217.317.119.421.721.821.719.419.024.025.924.335.14^.747.8Nonresidential buildings and otherconstruction'Total4.7.81.72.12.71.71.11.42.15.65.86.98.28.08.610.310.211.311.512.914.716.114.915.015.816.016.917.319.023.426.326.428.532.234.236.13?. 544.9Commercial1.1.1.3.3.4.2.0.1.21.21.21.01.41.21.41.51.11.82.23.23.63.63.63.94.24.75.15.05.47.89.49.811.613.515.5Industrial0.92.3.4.8.3 2.2.61.71.71.71.41.01.12.12.32.22.02.43.13.62.42.12.92.82.82.93.66.06.86.55.44.76.0Other*2.6.51.21.31.51.2.91.11.32.83.04.25.55.96.16.76.87.37.27.38.09.08.98.98.88.69.09.410.114.716.017.919.121.323.4Public constructionTotal2.51 63.83.65.810.76 33.12.42.22.23.34.76.36.99.310.811.211.711.712.714.115.516.115.917.117.919.420.422.124.025.527.628.028.129.930.232.2Federallyowned0.25.81.23.89.35 62.51.7.9.9.81.21.51.63.04.24.13.42.82.73.03.43.73.63.93.94.03.94.04.03.53.43.33.34.04.44.9Stateandlocallyowned «2.31 i3.12 42 01 3 76.71.41.42.53.54.85.26.36.67.18.38.910.011.112.112.312.213.314.015.416.518.020.022.124.224.724.825.925.827.4See footnotes at end of table.292

TABLE C—38.—New construction activity, 1929—73—Continued[Value put in place, billions of dollars]Private constructionPublic constructionYear or monthTotalnewconstructionTotalResidentialbuildings iTotal 2NewhousingunitsNonresidential buildings and otherconstruction iTotalOther *TotalCommercialsIndustrialFederallyownedStateandlocallyowned 5Seasonally adjusted annual rates1972: JanFeb....Mar....Apr....May....June...JulyAugSept....Oct.....NovDec1973: JanFebMar....Apr....May...June...July...Aug...Sept...Oct*>_._Nov »119.9121.5123.0120.8122.5121.6121.6123.0125.1128.5126.8131.6135.7136.4137.5133.8134.1133.8136.9136.9136.9134.9134.088.691.192.691.792.792.692.493.994.596.297.598.5102.0104.1103.8101.2101.8102.8105.4105.8103.7102.7101.849.852.053.352.952.753.353.854.555.556.457.257.559.461.560.758.057.558.259.459.859.056.354.640.642.844.043.643.443.844.144.745.946.947.848.048.149.449.648.949.249.549.549.348.246.044.038.839.139.438.940.039.338.739.439.039.840.340.942.742.643.143.244.344.645.946.044.746.447.213.213.213.213.414.113.313.213.413.413.713.613.915.014.915.115.516.115.716.115.815.115.615.64.94.74.84.64.74.84.64.74.54.34.64.85.35.25.55.35.35.96.36.76.36.66.820.721.221.420.921.221.120.821.321.021.822.122.322.422.622.522.422.923.023.523.523.324.324.831.330.430.429.029.829.029.229.230.632.329.333.133.732.333.632.632.331.031.531.133.232.232.34.44.44.64.24.54.84.44.14.34.44.44.45.14.95.54.55.34.84.94.64.64.84.826.926.025.724.925.224.324.825.126.427.924.928.728.627.428.128.027.026.126.626.528.627.41 Beginning I960, farm residential buildings included in residential buildings; prior to I960, included in nonresidentialbuildings and other construction.2 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.s Includes Federal grants-in-aid for State and locally owned projects.* Preliminary estimates by Council of Economic Advisers.Source: Department of Commerce, Bureau of the Census, except as noted.293

TABLE C—39.—New housing starts and applications for financing, 1929-73[Thousands of units]Year or monthPrivate andpublic^Total(farmandnonfarm)NonfarmHousing startsPrivate iTotal (farm and nonfarm)TotalType ofstructure 2OnefamilyTwo ormorefamiliesGovernmenthome programs(nonfarm) 3FHA*VANewprivatehousingunitsauthorized«Proposedhome construction6ApplicationsforFHAcommitments4RequestsforVAappraisals1929509.0193393.01939 . .515.0144.7179 819401941194219431944 - .602.6706.1356.0191.0141.8176.6217.1160.2126.183.6231.2288 5238 5144 462 9New series19451946194719481949326.01,023.01,268.01,362.01,466.038.967.1178.3216.4252 67 8.891 8160.371.190 856 6121 7286 4293 2327 01950195119521953195419551956195719581959I96019611962196319641965196619671968 .19691970197119721973 p1, 553.71,296.11,365.01,492.51,634.91,561.01,509.71,195. 81,321.91,545.41,499.51,469.02,084. 52, 378.52,053.81,952.01,491.01, 504. 01,438.01,551.01,646.01,349. 01,224.01, 382.01,531.31, 274.01,336.81, 468. 71,614.81, 534.01,487.51,172.81,298.81,521.41,482.3(8)( 8 )(8)(«)1,517.61, 252.21,313.01,462.91,603.2 «1,528.81,472.81,164. 91,291.61,507.61,466.81,433.62,052.22, 356.62,041.61,234.0994.7974.3991.41,012.4970.5963.7778.6843.9899.4810.6812.91,151.01,309.21,131.4283.0257.4338.7471.5590.8558.3509.1386.3447.7608.2656.2620.7901.21,047.5910.2328.2186.9229.1216.5250.9268.7183.4150.1270.3307.0225.7198.8197.3166.2154.0159.9129.1141.9147.7153.6233.5301.2198.473.6191.2148.6141.3156.5307.0392.9270.7128.3102.1109.374.683 377.871.059.249.436.852.556.151.261.094.0104.086.11,208.3998.01,064.21,186.61,334.71,285.81,239.8971.91,141.01,353.41,323.71,351.51,924.62,218.91,771.3397 7192.8267 9253.7338.6306 2197 7198.8341.7369.7242.4243 8221.1190 2182.1188 9153.0167 2168.9187.6315.0366.8225.283.2164.4226 3251.4535.4620.8401.5159.4234.2234.0142.9177 8171.2139 3113.6102.199.2124.3131.7138.2143.7217.9209.4161.8See footnotes at end of table.294

TABLE C-39.—New housing starts and applications for financing, 1929-73—Continued[Thousands of units]Year or monthPrivate andpublic iTotal(farmandnonfarm)NonfarmHousing startsPrivate 1Total (farm and nonfarm)TotalType ofstructure *OnefamilyTwo ormorefamiliesGovernmenthome programs(nonfarm) 3FHA*VANewprivatehousingunitsauthorizedsProposedhome construction8ApplicationsforFHAcommitments*RequestsforVAappraisalsSeasonally adjusted annual rates1972: 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*.150.9153.6205.8213.2227.9226.2207.5231.0204.4218.2187.1152.7147.3139.5201.1205.4234.2203.4203.2199.9148.9149.5132.988.62,4392,5402,3132,2042,3182,3152,2442,4242,4262,4462 3952,3692,4972,4562,2602,1232,4132,1282,1912,0941,8041,6461,6961,3551,3951,2811,3101,2151,3081,2831,3191,3731,3821,3151,324,2071,4501,3721,2451,202[,2711,1241,2471,1259829569367621,0441,2601,0039891,0111,0329251,0511,0451,1311,0711,1621,0471,0841,0159211,1421,004944969822690760593350 115285 118260 123221 104197 100182 99176 107179 103175 106149 98125 92106 8687 96111 10592 10174 10081 11180 8880 8769 9168 7152 6257 5637 642,2652,1682,1532,1462,0452,2012,1962,2812,3662,3182,2262,3992,2332,2092,1291,9391,8382,0301,7801,7501,5961,3161,3141,2313253232641111111112242071661471621311241009368891039370945057302322262092431982192002021921892071942222172011691611661351431331411361191 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 1929-44.3 Data are not available for new homes started under the Department of Agriculture, Farmers Home Administrationprogram.4 Units are for 1- to 4-family housing.« 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.8 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, 1947-74 l[Billions of dollars]ManufacturingNonmanufacturingYearor quarterTotalTotalDurablegoodsNondurablegoodsTotalMiningRailroadTransportationAirOtherPublicutilitiesCommunicationCommercialandother 21947194819491950 .195119521953 .19541955195619571958195919.3321.3018.9820.2125.4626.4328.2027.1929.5335.7337.9431.8933.558.449.017.127.3910.7111.4511.8611.2411.8915.4016.5112.3812.773.253.302.452.944.825.215.314.915.417.457.845.615.815.195.714.684.455.896.246.566.336.487.958.686.776.9510.8912.2911.8612.8214.7514.9816.3415.9517.6420.3421.4319.5120.780.69.93.88.841.111.211.251.281.311.641.691.431.360.911.371.421.181.581.501.42.931.021.371.58.861.020.17.10.12.10.14.24.24.24.26.35.41.37.781.131.17.761.091.331.231.291.221.301.311.301.061.331.542.543.103.243.563.744.343.994.034.525.675.525.141.401.741.341.141.371 611.781.822.112.823.192.792.725 054.424.245.225 675 456.026.457 638.327.607.488.44196019611962 _ .1963...196419651966....1967196819691970.1971197219733.. ...1974336.7535.9138.3940.7746.9754.4263.5165.4767.7675.5679.7181.2188.44100. 08112.1115.0914.3315.0616.2219.3423.4428.2028.5128.3731.6831.9529.9931.3538.0044.407.236.316.797.539.2811.5014.0614.0614.1215.9615.8014.1515.6419.3922.617.858.028.268.7010.0711.9414.1414.4514.2515.7216.1515.8415.7218.6121.7921.6621.5823.3324.5527.6230.9835.3236.9639.4043.8847.7651.2257.0962.0767.711.301.291.401.271.341.461.621.651.631.861.892.162.422.763.141.16.821.021.261.661.992.371.861.451.861.781.671.801.942.27.66.73.52.401.021.221.742.292.562.513.031.882.462.412.161.301.231.651.581.501.681.641.481.591.681.231.381.461.601.625.245.004.904.985.496.137.438.7410.2011.6113.1415.3017.0019.0922.163.243.393.854.064.615.306.026.346.838.3010.1010.7711.8913.03*- -368.759.139.9910.9912.0213.1914.4814.5915.1416.0516.5918.0520.0721.2436Seasonally adjusted annual rates1971: 1IIIII—.IV___.79.3281.6180.7583.1830.4630.1229.1930.3514.2114.0613.7614.6116.2516.0615.4315.7448.8651.5051.5652.822.042.082.232.301.461.881.721.641.292.281.682.261.331.401.481.3314.6414.9115.8715.7410.7011.2110.7310.4417.3917.7217.8519.101972: 1IIIII —IV—86.7987.1287.6791.9430.0930.3730.9833.6415.0614.7715.6716.8615.0215.6015.3116.7856.7056.7556.7058.302.422.382.402.462.101.881.501.711.962.892.672.331.481.531.411.4216.9216.6017.0117.5311.7111.5911.5612.6320.1019.8820.1620.211973: 1IIIII —IV3...1974: |3____113...96.1997.76100.90104.94108.16111.9235.5136.5838.8140.5442.9245.1217.8818.6419.7320.9422.2122.6917.6317.9419.0819.6020.7122.4360.6861.1862.0964.4065.2466.802.592.772.822.852.902.111.751.951.982.432.212.722.492.222.161.531.621.791.531.7418.3818.0818.5821.2021.5712.3412.7013.12.6334433421.5321.5521.361 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 1973. 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, 1947-73[Amounts in millions of dollars]Year or monthTotal manufacturingand tradeManufacturingMerchant wholesalersRetail tradeSalesInventories2Ratio 3Sales iInventories2Ratio sSales iInventories2Ratio sSales iInventories2Ratio 31947...1948...1949...35,26033,78852, 50749,4971.421.5315,51317,31616,12625,89728,54326,3211.581.571.756,!6,5147,9577,7061.131.1910,20011,13511,14914,24116,00715,4701.261.391.411950...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, 30641,13643,94841,6121.481.661.781.761.817,6958,5978,7829,0528,9939,2849,88610,21010,68610,6371.071.161.121.171.1812,26813, 04613, 52914,09114, 09519,46021,05021,03121,48820,9261.381.641.521.531.511955...1956...1957...1958...1959...51,69454,06355,87954, 23359, 66179, 51687,30489, 05286,92291,8911.471.551.591.601.5026,48027,74028, 73627,28030,21945, 06950,64251,87150,07052, 7071.621.731.1.841.709,89310,51310,47510,25711,49111,67813, 26012,73012, 73913,8791.131.191.231.241.1515,32115,81116, 66716,69617, 95122,76923,40224,45124,11325,3051.431.471.441.431.401960...1961*.1962...1963...1964...60, 74661,13365,41768,96973,68594, 74795,648101,090105, 477111,4571.561.541.511.491.4730, 79630,89633,11335, 03237,33553,81454,93958, 21360, 04363,3861.761.741.721.691.6411,65611,98812,67413,38214, 52714,12014,48814,93616,04816, 9771.221.201.161.151.1318, 29418, 24919,63020, 55621,82326,81326, 22127,94129,38631,0941.451.431.381.391.401965...1966...1967...1968...1969...1970...1971...1972...1973 K.80, 276 120,90087,178 136,729145,16497,100 155, 376103,104 166,813104,708 174,875112,267 183i 622124,680 194,151 194,"-144,094 215, "1,6461.451.471.571.551.561.631.601.511.4241,00344, 86946, 44950, 28253, 55568, 22177,96584, 65590,87597, 07452,860 101,64555,917 102, 44562, 466 '"719 107;72,032 118,4351.601.621.761.741.761.891.821.671.5615, 59516,97917, 09918, 32919, 72620,55422,28024, 85030, 08318, 27420,69121, 55722, 52824, 36326, 60428,91631, 73236, 2831.141.141.211.201.191.231.231.211.1323,67725,33026,15128, 49029, 82431, 29434, 07137, 36541,97934,40538,07338,95241,97345, 37646, 62652, 26154,70060,9281.391.441.461.431.461.471.471.421.37Seasonally adjusted1972:Jan...Feb...Mar...Apr...May...June..July...Aug...Sept...Oct...Nov...Dec...1973:Jan...Feb....Mar....Apr....May...June...July....AugSept...Oct....Nov *>_.Dec p..118,299 184,068117,998 184,571120,239 184, 856121,352 185, 655122,673 186,816122,347 187,194[22,783 187, 681.26,792 189, 093.27,656 190,486.30,336 191, 583131,918 192,921.33, 483 194; "1,151.36,863 196, 29538,910 198,172.41,010 199,52541,274 200, 78742,682 202, 89642,311 205,25246, 458 206,81346,068:208,66846,2411210,35450,2571212,41752,957 215,6451.561.561.541.531.521.531.531.491.491.471.461.4559, 062 102,56159,120 102,90659,905 103,04360,886 103,26761,272 103,68561,295 104,26061, 047 104, 68563,686 105,82264,503:106,16865,451 106,61766,993 106,97467,104 107, 7191.43 68,401 108,1871.43i 69,245 109,0821.411 69,719 110,1741.42, 70,468 110,5771.42 71,284 111,6251.44 71,616,113,0251.411.431.441.441.4173, 248 ! 113, 91073, 0211114,90773, O6O|116,11475,269 117,22477,019 118,435T1.741.741.72.7024, 35123, 53323,88424,170.69 24,260.70 24,23024, 39425,13725, 40725,77926, 21226,96227,755.58 28,423.58 29,312.57, 29,621.57 29,675.58 29,5281.5611.571.591.56,1.5430,44330,69230,64631,91832, 90329, 04929,18129,17429, 57429, 72929, 64130, 05630,16430, 65731, 03231, 28931,73232, 58233, 05133,245!33,574!33,98534,14834, 65334,98435, 26635,37936,2831.191.241.2234, 88635, 34536,4501.22! 36,2961.23; 37,1411.22 36,8221.23 37,3421.20 37,9691.21 37,7461.20 39,1061.19 38,7131.18 39,41752, 45852, 48452, 63952, 81453, 40253, 29352,94053,10753, 66153,93454, 65854, 7001.17 40,707 55,5261.16 41,242i 55,0391.13 41,979: 56,1061.13 41,185! 56,6361.15! 41,723 57,2851.16 41,167 58,0791.141.141.151.111.1042, 76742, 35542, 53543,07043, 03542,45358,25058,79758,97459,81460,9281 Monthly average for year and total for month.2 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 of 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.* Based on seasonally adjusted data through November.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).2971.501.481.441.461.441.451.421.401.421.381.411.391.361.361.341.381.371.411.361.391.391.391.42

TABLE O42.—Manufacturers' shipments and inventories, 1947-73[Millions of dollars]Shipments iInventories 2Year or monthTotalTotalTotalDurable goods industriesWorkinprocessDurablegoodsindustriesNondurablegoodsindustriesMaterialsandsuppliesFinishedgoodsNondurable goods industriesTotalWorkinprocessMaterialsandsuppliesFinishedgoods19471948...194919501951 .1952 ..1953...19541955.1956...195719581959...1960...1961'196219631964196519661967. .196819691970197119721973 *1972: JanFebMarAprMay....JuneJulyAugSept....OctNovDec1973:JanFebMarAprMayJuneJulyAugSeptOctNov p.-Dec p15,51317,31616,12618,63421,71422,52924,84323,35526,48027,74028,73627,28030,21930,79630,89633,11335,03237,33541,00344,86946,44950,28253, 55552,86055,91762,46672,03259,06259,12059,90560,88661,27261, 29561,04763,68664, 50365,45166,99367,10468,40169, 24569,71970,46871, 28471,61673,24873, 02173,06075,26977, 0196,6947,5797,1918,84510,49311,31313,34911,82814,07114,71515,23713,57115,54515,81715,54417,10318,24719,63422,21624,63325,21227,69429,45928,23129,94833, 89239, 56331,55631,75832,18833,00333,24132,91932, 80334,68735, 24936,30236,87036,61437,77338,12238,06438,65139, 28439,25740,77939,63340,16241, 56741, 89640,6468,8199,7388,9359,78911,22111,21611,49411,52712,40913,02513,49913,70814,67414,97915,35216,01016,78617,70118,78820, 23621,23622, 58824,09624,62925,96928, 57332,46927, 50627, 36227,71727,88328,03128, 37628,24428,99929, 25429,14930,12330,49030,62831,12331,65531,81732,00032,35932,46933, 38832,89833,70235,12325,89728,54326,32131,07839,30641,13643,94841,61245,06950,64251,87150,07052,70753,81454,93958,21360,04363,38668,22177,96584,65590, 87597, 074101,645102,445107,719118,435102, 561102,906103,043103,267103,685104,260104,685105, 822106,168106,617106,974107,719108,187109,082110,174110, 577111,625113,025113,910114,907116,114117, 224118,43513,06114,66213,06015,53920,99123,73125,87823,71026,40530,44731,72830,09531,83932,36032, 50934,60535,81338,43642,22749, 81854,93159,11263,37166,76866,05070,21877,64566,28366, 53466, 56966,72567,16167, 50267,73468, 56868,87569,30869,61370, 21870, 59071,13671,87372,21372,86773,80174,27875,21376,24976, 95177,6458,9667,8949,19410,41710,6089,84710,58510,28610,24210,79811,00111,92713,29915, 50116, 44517,41818,66819,00019, 27020, 01023,44410,7209,72110,75612,31712,83712,29412,95212,78013,21114,20514,99716,25318,15221,97825, 01727,60529,17530,39329,14232,07435, 519Seasonally adjusted19,18119,17819,08319,03919,11018,90019,31719, 59619,55819,79019,90220, 01020,25220,46320,65920,88721,19821, 42421,72122,08022,62123,06423,44429, 32029,49229, 59529,72630,01430,38030,32330,56330,93231,41231,63932,07432,28632,55933,00533,11433, 31833,73533,94434,46134,74235, 08235, 5196,2066,0406,3487,5658,1257,7498,1439,1909,0569,6029,81510,25610,77612,33913,46914, 08915, 52817, 37517,63818,13418,68217,78217, 86417,89117,96018,03718, 22218,09418,40918, 38518,10618,07218,13418, 05218,11418,20918,21218, 35118,64218,61318,67218,88618,80518, 68212,83613,88113,26115,53918,31517,40518,07017,90218,66420,19520,14319,97520,86821,45422,43023,60824,23024,95025,99428,14729,72431,76333,70334, 87736, 39537, 50140,79036,27836,37236, 47436, 54236, 52436,75836,95137, 25437,29337,30937,36137, 50137,59737,94638, 30138,36438, 75839,22439,63239,69439, 86540,27340,7908,3178,1678,5568,9718,7758,6719,0899,1139,4649,84110,00310,18510,48811,22011,74612, 29912, 82313,13013,57813, 86515,86813, 56413,67313, 52713, 59913, 58913,70813,70613,77613, 82713,78013, 80813, 86513,96514, 25114, 40614,53114,66015,01015,35015, 51415, 55415, 77215, 8682,4722,4402,5712,7212,8642,8002,9282,9353,1933,3043,4103,5193,8234,2374,4344,8495,1525,2785,6475,9686,4165,6755,6835,7995,7535,6905,7225,7515,8135,8715,9285,9275,9685,9606,0066,0486,0936,1346,1516,1776,2506,2986,3236,4167,4097,4157,6668,6228,6248,4988,8579,3539,77310,46310,81711,24611,68312,69013, 54414,61515, 72816, 46917,17017,66818, 50617,03917,01617,14817,19017,24517, 32817,49417,66517,59517,60117,62617,66817,67217,68917,84717,74017,96418,06318,10517,93018,01318,17818, 506i Monthly average for year and total for month.> 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.« Based on seasonally adjusted data through November.Source: Department of Commerce, Bureau of the Census.298

TABLE C-43.—Manvjacturers* new and unfilled orders, 1947-73[Amounts in millions of dollars]New orders lUnfilled orders 2Unfilled ordersshipmentsratio 3Year or monthTotalDurable goodsindustriesTotalTotalCapitalgoodsindustries,nondefenseNondurablegoodsindustriesDurablegoodsindustriesNondurablegoodsindustriesTotalDurablegoodsindustriesNondurablegoodsindustries1947..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»15,25617,69315,61420,11023,90723,20423,58622,33527,46528,36827, 55926,90330,67230,11531,08633,00535,32237,95241, 80345,94446,76350,24353,64652,06355,73263,51474,6056,3888,1266,63310,16512,84112,06112,14710, 76814,99615,36514, 11113,17115, 94815, 22315,69917,02518,52120,25822,98625,72025,52627,66629, 54927,43129,75134,86742,0736,9717,6947,0217,3398,98311,0168,8689,5668,9819,94511,06611,14311, 43911,56612, 46913,00313,44813, 73314,72414,89315,38715,98016,80117,69418,81720, 22421,23822, 57724,09724,63225,98128,64832, 53134,47330,73624,04541,45667,26675,85761,17848,26660,00467,37553,18348,88254,49446,13348,39547,30750,94058,50668,14681,02984,99484,17785,28675,58573,28286,020114,32428,57926,61919,62235,43563,39472,68058,63745,25056,24163,88050,35245,73950,65443,40145,24144,48547,95855,62364,92077,96481,90481, 24082,33472, 59970,15281,986109,6065,8944,1174,4236,0213,8723,1772,5413,0163,7633,4952,8313,1433,8402,7323,1542,8222,9822,8833,2263,0653,0902,9372,9522,9863,1304,0344,7183.423.633,873.352.602.852.582.522.462.402.492.622.932.812.712.592.392.152.182.534.124.274.554.003.493.443.213.012.952.892.993.123.513.383.273.132.902.592.593.000.961.121.04.85.55.63.72.65.63.57.60.56.52.47.45.45.44.52.54Seasonally adjusted1972: Jan....Feb...Mar...Apr...May...June..July...Aug...Sept...Oct....Nov...Dec...1973: Jan...Feb...Mar...May"."June..July...Aug...Sept..Oct....NOVJ>_.Dec »..59,73959,54460,26061,74762,05163,81761,48664,80966,62066,35567, 72668,90870,01671,02272,80673,32574,53575,36175,14576,11375,12977,75879, 44132,15632, 03932,45333,80333,99235,39633,20735,77237, 29237,12737,46238, 32539,21839,76541,02141,34142, 44943,01642,69742, 68942, 25944,03744,31541,6557,8958,1528,3048,7008,9328,9818,9548,8999,7279,6259,6999,99110,27710,10510,57210,61910,91911,41511,40411, 03211, 26711, 59511,97012,17627, 58327, 50527,80727,94428,05928,42128,27929,03729,32829,22830,26430, 58330,79831,25731,78531,98432,08632,34573,95974,38374,73875, 59976, 37878,90079,33980,46282, 57983,48384, 21686,02087,63589,41292,49995, 35498, 602102,35532,448 104,24633,424 107,34432,870 j 109, 41033,721 jlll,89735,126 114,32470, 75271,03371, 29872,09872, 84975,32675,73076,81578,85879,68380, 27581,98683,43185,07488,03190,71993,88297,64799, 560102,621104, 716107,185109,606110,6193,2073,3503,4403,5013,5293,5743,6093,6473,7213,8003,9414,0344,2044,3384,4684,6354,7204,7084,6864,7234,6944,7124,7182.132.142.122.102.112.182.172.142.182.152.132.182.172.182.252.282.322.412.412.512.572.522.532.572.582.552.522.522.622.612.562.602.552.532.592.572.582.662.702.752.852.842.983.022.973.000.45.46.47.48.48.48.48.48.49.50.51.52.53.54.55.57.57.57.57.57.60.56.541 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.« Based on seasonally adjusted data through November.Source: Department of Commerce, Bureau of the Census.299

PRICESTABLE C-44.—Consumer price indexes by expenditure classes, 1929-73For urban wage earners and clerical workers[1967 = 100]Year or monthAllitemsFoodTotalHousingRentApparelandupkeepTransportationMedicalcarePersonalcareReadingandrecreationOthergoodsandservices192951.348.376.048.51933-.38.830.654.136.9193941.634.652.256.042.443.036.740.345.346.919401941194219431944..1945194619471948194942.044 148 851.852.753 958 566.972.171.435.238.445.150.349.650 758.170.676.673.552.453 756 256.858.159 160 665.269.870.956.257 258 558.558.658 859 261.165.168.042.844 852.354.658.561 567.578.283.380.142.744 248 147.947.947 850 355.561.866.436.837 038.039.941.142 144 448.151.152.740.241 245 249.953.455 159 066.068.568.346.147 750 054.160.062 464.568.772.274.948.349 250 753.354.756 958 863.866.868.7195019511952195319541955195619571958195972.177.879.580.180.580.281.484.386 687.374.582.884.383.082.881.682.284.988.587.172.877.278.780 881.782.383.686.287 788.670.473.276.280 383.284.385.987.589 190.479.086.185.384 684.584.185.887.387 588.268 272.577.379 578.377.478.883.386 089.653.756.359.361 463.464.867.269.973 276.468.374.775.676.376.677.981.184.186 988.774.476.676.977.776.976.777.880.783.985.369 972.876.678 579.879.881.083.384 486.1196019611962196319641965196619671968196988.789.690.691 792 994.597.2100 0104 2109.888.089. i89.991 292.494.499.1100.0103.6108.990 290.991.792 793 894.997.2100 0104 2110.891 792 994.095 095 996 998.2100 0102.4105.789 690.490.991 992 793.796.1100 0105.4111.589 690.692.593 094 395.997.2100 0103 2107.279 181.483.585 687.389.593.4100.0106.1113.490.190.692.293 494.595.297.1100.0104.2109.387.389.391.392.895.095.997.5100.0104.7108.787 888 589.190 692 094.297.2100.0104.6109.119701971197219731972: Jan...FebMar..AprMayJune-116.3121 3125.3.133.1123.2123 8124.0124.3124.7125.0114.9118.4123.5141.4120.3122.2122.4122.4122 3123.0118.9124 3129.2135.0127.3127 6127.9128.2128 5129.0110.1115 2119.2124.2117.5117.8118.0118.4118.6119.0116.1119 8122.3126.8120.2120 7121.3121.8122 5122.1112.7118 6119.9123.8118.9118.3118.4118.6119.5119.8120.6128.4132.5137.7130.5131.0131.4131.7132.0132.4113.2116.8119.8125.2118.1118.4118.7119.1119.7120.0113.4119.3122.8125.9121.4121.5121.7122.3122.5122.9116.0120.9125.5129.0123.5124.3124.6125.1125.4125.6JulyAugSept..Oct .Nov.Dec125.5125.7126.2126.6126.9127.3124.2124.6124.8124.9125.4126.0129 5129.9130.2130.4130 8131.2119.2119.6119.9120.3120.5121.0121 1120 8123.1124.3125 0125.0120.2120.5121.0121.2121.4121.3132.7132.9133.1133.9134.1134.4120.0120.2120.5120.8121.0121.5123.0123.0123.7124.0124.1124.0125.8126.0126.2126.4126.4126.51973: Jan.Feb...MarAprMayJune127.7128.6129 8130.7131.5132.4128.6131.1134 5136.5137.9139.8131.5132.0132 4132 8133.3133.9121.8122.3122 8123.2123.7124.0123.0123.6124 8125 8126.7126.8121.0121.1121 5122 6123.5124.6134.9135.3135 8136.2136.6137.0121.8122.4123.1123.8124.4124.9124.1124.3124.5125.2125.6125.9126.7127.1127.6128.2128.5129.0July. . .AugSeptOctNovDec.132.7135.1135.5136.6137.6138.5140.9149.4148.3148.4150.0151.3134.2135.2136 6138 1139.4140.5124.4125.0125 4125 9126.3126.9125.8126.5128.3129.6130.5130.5124.8124.5123.9125.0125.8126.7137.3137.6138.3140.6140.9141.4125.3125.7126.3127.3128.1129.2126.2126.1126.8127.2127.5127.6129.5129.4129.9130.3130.8131.3Source: Department of Labor, Bureau of Labor Statistics.300

TABLE O45.—Consumer price indexes by commodity and service groups, 1939-73For urban wage earners and clerical workers[1967=100)Year ormonthAllitemsCommoditiesAllcommoditiesFoodCommodities less foodAllDurableNondurableServicesAllRentServiceslessrentSpecial indexesAllitemslessfoodAllitemslessshelterNondurablecommodities1939 _.19401941194219431944194519461947194819491950195119521953195419551956195719581959196019611962196319641965196619671968196919701971197219731972: JanFebMarAprMayJuneJulyAugSeptOctNovDec1973: JanFebMar.....AprMayJuneJulyAugSeptOctNovDec41.642.044.148.851.852.753.958.566.972.171.472.177.879.580.180.580.281.484.386.687.388.789.690.691.792.994.597.2100.0104.2109.8116.3121.3125.3133.1123.2123.8124.0124.3124.7125.0125.5125.7126.2126.6126.9127.3127.7128.6129.8130.7131.5132.4132.7135.1135.5136.6137.6138.540.240.643.349.654.054.756.362.475.080.478.378.885.987.086.785.985.185.988.690.690.791.592.092.893.694.695.798.2100.0103.7108.4113.5117.4120.9129.9118.7119.4119.7119.9120.3120.7121.2121.4122.0122.3122.7122.9123.4124.5126.1127.4128.3129.4129.7132.8132.8133.5134.7135.734.635.238.445.150.349.650.758.170.676.673.574.582.884.383.082.881.682.284.988.587.188.089.189.991.292.494.499.1100.0103.6108.9114.9118.4123.5141.4120.3122.2122.4122.4122.3123.0124.2124.6124.8124.9125.4126.0128.6131.1134.5136.5137.9139.8140.9149.4148.3148.4150.0151.347.748.050.456.058.461.664.168.176.882.781.581.487.588.388.587.586.987.890.591.592.793.193.494.194.895.696.297.5100.0103.7108.1112.5116.8119.4123.5117.7117.8118.2118.5119.2119.4119.4119.5120.3120.8121.0121.1120.5120.9121.5122.3123.0123.7123.5123.8124.3125.4126.3127.148.548.151.458.460.365.970.974.180.386.287.488.495.196.495.793.391.591.594.495.997.396.796.697.697.998.898.498.5100.0103.1107.0111.8116.5118.9121.9117.3117.1117.3117.7118.4119.2119.6119.7119.8120.1120.3120.3119.9119.9120.2121.0121.8122.3122.4122.6122.6123.2123.3123.244.344.746.751.653.856.658.662.972.277.876.376.282.082.483.183.583.585.387.688.289.390.791.291.892.793.594.8.97.0100.0104.1108.8113.1117.0119.8124.8118.1118.4118.9119.1119.7119.5119.3119.4120.8121.3121.7121.7120.9121.6122.4123.3124.0124.7124.4124.7125.5127.0128.5130.043.543.644.245.646.447.548.249.151.154.356.958.761.864.567.369.570.972.775.678.580.883.585.286.888.590.292.295.8100.0105.2112.5121.6128.4133.3139.1131.5131.8132.1132.4132.7133.1133.5133.8134.1134.6134.9135.4135.7136.2136.6137.1137.6138.1138.4139.3140.6142.2143.0143.856.056.257.258.558.558.658.859.261.165.168.070.473.276.280.383.284.385.987.589.190.491.792.994.095.095.996.998.2100.0102.4105.7110.1115.2119.2124.2117.5117.8118.0118.4118.6119.0119.2119.6119.9120.3120.5121.0121.8122.3122.8123.2123.7124.0124.4125.0125.4125.9126.3126.938.138.138.640.342.144.245.146.749.051.954.556.059.362.264.866.768.270.173.376.479.081.983.985.587.389.291.595.3100.0105.7113.8123.7130.8135.9141.8134.1134.4134.6135.0135.3135.7136.1136.4136.7137.2137.6138.0138.3138.7139.2139.6140.1140.7141.0141.9143.4145.2146.1146.947.247.348.752.153.655.756.959.464.969.670.371.175.777.579.079.579.781.183.885.787.389.790.892.093.294.596.7100.0104.4110.1116.7122.1125.8130.7124.0124.2124.5124.9125.4125.7125.9126.1126.7127.1127.4127.6127.5127.9128.4129.1129.7130.3130.4130.9131.8133.1134.0134.739.739.942.447.751.352.253.659.068.573.972.673.179.280.881.081.080.681.784.486.987.689.990.992.193.294.697.4100.0104.1109.0114.4119.3122.9131.1120.9121.5121.8122.0122.4122.7123.1123.2123.8124.2124.6124.8125.3126.4127.8128.9129.7130.6131.0133.5133.6134.5135.6136.538.438.941.647.651.852.253.759.671.977.274.975.482.583.483.283.2$2.583.786.388.688.289.490.290.992.093.094.698.1100.0103.9108.9114.0117.7121.7132.8119.2120.3120.6120.7121.0121.2121.7122.0122.8123.1123.5123.8124.7126.2128.3129.7130.7132.0132.4136.6136.5137.4138.9140.3Source: Department of Labor, Bureau of Labor Statistics.301527-867 O - 74 - 20

TABLE C—46.—Consumer price indexes, selected commodities and services, 1939—73For urban wage earners and clerical workers[1967=1001Durable commoditiesNondurable commoditiesless foodServices less rentYear or monthTotal iNewcarsUsedcarsHouseholddurablesTotalApparelcommoditiesNondurableslessfoodandapparelTotalHouseholdserviceslessrentTransportationservicesMedicalcareservicesOther*1939194019411942 .1943194419451946 ... .194719481949195019511952195319541955195619571958 ..1959196019611962196319641965196619671968196919701971197219731972: JanFebMarMayJuneJulyAugSeptOct.NovDec1973: JanFebMarAprMayJuneJulyAugSeptOctNov. .Dec48.548.151.458.460.365.970.974.180.386.287.488.495.196.495.793.391.591.594.495.997.396.796.697.697.998.898.498.5100.0103.1107.0111.8116.5118.9121.9117.3117.1117.3117.7118.4119.2119.6119.7119.8120.1120.3120.3119.9119.9120.2121.0121.8122.3122.4122.6122.6123.2123.3123.243.243.346.669.275.682.883.487.494.995.894.390.993.598.4101.5105.9104.5104.5104.1103.5103.2100.999.1100.0102.8104.4107.6112.0111.0111.1112.2111.9111.7111.7111.4111.3111.0110.6109.6110.1110.2110.6111.1111.0110.8111.1111.1111.0110.9110.6109.1111.9112.2112.089.275.971.869.177.480.289.583.686.994.896.0100.199.497.0100.0(3)103.1104.3110.2110.5117.6105.3103.0103.9106.4110.0112.0112.7112.4113.6115.2116.0115.0112.8112.4113.7117.3120.6122.3122.7121.3120.3118.5116.1112.656.655.959.866.969.576.081.886.595.6101.799.0100.2109.8106.9105.7102.9100.199.7101.4102.1102.0101.9100.7100.6100.3100.298.798.6100.0103.3107.4110.2112.9115.0118.8113.7113.6114.1114.4114.8115.1115.3115.4115.6115.8116.0116.2116.1116.3116.9117.7118.5119.2119.4119.6120.1120.4120.8121.044.344.746.751.653.856.658.662.972 277.876.376.282.082.483.183.583 585.387.688.289.390.791.291.892.793.594.897.0100.0104.1108.8113.1117.0119.8124.8118.1118.4118.9119.1119.7119.5119.3119.4120.8121.3121.7121.7120.9121.6122.4123.3124.0124.7124.4124.7125.5127.0128.5130.043.043.545.853.555.959.863.069.580 485.482.081.188.787.786.786.385 887 388.288.289.090.390.891.292 092.893.696.0100.0105 6111.9116 5120.1122.7127.1120.3120 9121.6122.1122.9122.4121.3120.9123.5124.9125.6125.5123.1123.8125.2126.2127.2127.2126.0126.6128.7130.0130.8130.746.346.848.451.153 254.755.858.266 272.372 472.977.579 081 081.882 184 187 488 389.690 991.392.193 193.995.597.5100.0103 3107.0111 2115.2118.2123.4116.8117 0117.3117.4117.9117.9118.2118.6119.3119.3119.4119.5119.7120.4120.8121.7122.2123.3123.5123.6123.8125.3127.3129.638.138.138.640.342.144.245.146.749.051.954.556.059.362.264.866.768.270.173.376.479.081.983.985.587.389.291.595.3100.0105.7113.8123.7130.8135.9141.8134.1134.4134.6135.0135.3135.7136.1136.4136.7137.2137.6138.0138.3138.7139.2139.6140.1140.7141.0141.9143.4145.2146.1146.971.275.479.481.685.086.087.189.090.492.195.7100.0105.9115.3126.8132.6139.2146.8136.9137.3137.6138.0138.4138.8139.5140.0140.3140.7141.3141.9142.3142.8143.2143.6144.2144.9145.3146.8149.3151.7153.2154.236.136.136.338.238 238.238.239.040 344.950 053.358.362.466.469.269.470.573.878.581.283.385.386.687.589.692.996.8100.0104 0111.3123.1133.0136.0136.9135.6135.6135.4135.6135.8136.0136.3136.3136.3136.2136.3136.4136.0136.1136.3136.5136.6137.0137.0137.1137.2137.4137.4138.132.532.532.733.735.436.937.940.143 546.448.149.251.755.057.058.760 462.865.568.772.074.977.780.282.684.687.392.0100.0107.3116.0124.2133.3138.2144.3135.8136.4136.9137.3137.6138.0138.4138.6138.9139.9140.1140.5141.0141.5142.2142.7143.1143.6143.9144.3145.1147.8148.2148.771.173.976.278.080.883.485.687.790.192.696.2100.0105.6110.6116.7122.5125.8131.6124.3124.5124.7125.1125.3125.6125.8125.9126.7127.0127.4127.7128.1128.6129.2129.9130.6131.3131.7132.1133.3134.0134.8135.3i Includes certain items not shown separately.3 Includes the services components of apparel, personal care, reading and recreation, and other goods and services.> Not available.Source: Department of Labor, Bureau of Labor Statistics.302

TABLE C—47.—Consumer price indexes, seasonally adjusted, 1970—73For urban wage earners and clerical workers11967=100, seasonally adjusted]Year and month1970: Jan...Feb...Mar..Apr...May..June..July..Aug...Sept..Oct...Nov...Dec...1971: Jan...Feb...Mar-Apr...May..June..July..Aug...Sept..Oct...Nov...Dec...1972: JanFebMarAprMayJuneJulyAugSeptOctNovDec1973: JanFebMarAprMayJuneJulyAugSept ...-OctNovDecSpecial indexesAllitemslessfoodAllitemslessshelter113.4114.1114.7115.4116.0116.5117.0117.3118.0118.7119.4120.1120.4120.6120.7120.9121.6122.2122.4122.8123.1123.3123.5123.8124.1124.4124.6124.9125.4125.6125.9126.2126.7126.8127.1127.5127.6128.2128.5129.1129.7130.2130.4131.0131.8132.8133.7134.6112.2112.6112.8113.5113.9114.2114.6114.9115.4116.0116.4116.8117.2117.6118.0118.5119.1119.6119.8120.2120.2120.3120.5120.9121.1121.6121.8121.9122.3122.5122.9123.2123.8124.2124.7124.8125.6126.5127.8128.8129.6130.3130.133.5133.6134.5135.7136.5Allitemslessmedical113.2113.8114.4115.0115.6115.9116.3116.7117.2117.9118.3118.8119.0119.2119.5119.8120.4121.0121.3121.6121.7122.0122.2122.6123.0123.5123.7123.9124.3124.5125.0125.3125.9126.2126.6126.8127.6128.3129.6130.5131.3132.132.4135.0135.4136.4137.5138.3Commodity groupsAllcommodities111.4111.9112.1112.6113.1113.3113.6113.7114.2114.7115.1115.6115.7115.7116.2116.6117.2117.7117.9118.1118.1118.3118.5118.9119.1119.6119.8119.9120.3120.5121.0121.3122.0122.3122.7122.8123.8124.7126.2127.4128.3129.1129.4132.7132.8133.5134.7135.6Food113.6114.3114.3114.6115.0114.9115.0115.1115.6115.8115.7115.6115.7116.1117.1117.7118.2118.8119.0119.3119.0119.3119.8120.5120.5122.4122.4122.3122.3122.5123.3123.9124.8125.5126.4126.3128.9131.4134.5136.4137.9139.2139.9148.5148.3149.1151.2151.6Commodities lessfoodTotal110.3110.6110.8111.5111.9112.4112.6112.9113.4114.0114.6115.3115.5115.5115.7115.9116.5116.9117.1117.5117.4117.5117.6117.7118.1118.2118.6118.6119.1119.2119.5119.9120.3120.3120.5120.7120.9121.3121.9122.4122.9123.5123.6124.2124.3124.9125.8126.Durable109.1109.3109.8110.3111.0111.6111.8112.2113.0113.7114.2115.1115.2115.3115.7115.9116.5116.9117.1116.9116.9116.9116.9117.1117.3117.6117.9118.1118.3118.7119.2119.7120.3119.9119.9120.1119.9120.4120.8121.4121.7121.8122.0122.6123.1123.0122.9123.0Nondurable111.0111.5111.7112.4112.7112.9113.3113.5113.9114.4114.8115.4115.6115.7115.9116.1116.6116.9117.1117.7118.0118.1118.1118.3118; 5118.8119.1119.2119.6119.5119.8119.9120.4120.7121.1121.2121.3122.0122.6123.4123.9124.7124.9125.2125.1126.4127.9129.5Selected expenditure classesShelter118.4119.6121.2122.0122.8123.6124.0124.8125.8126.4127.0127.8128.0127.6126.7126.6127.5128.4128.8129.4129.9130.5131.2131.5132.4132.9132.8133.1133.8134.2135.0135.4135.6135.9136.1136.7137.0137.7137.7138.1139.0139.5139.7141.0142.8144.6145.5146.3Fuelandutilities105.0105.2105.8106.4106.7106.8107.6108.1108.7109.6110.6111.2112.0112.9113.5113.8114.3114.8115.6116.1116.3116.6116.3117.5118.3118.8118.9119.2119.7120.0120.1120.3120.9121.2121.6121.9122.7123.9124.2124.7125.3125.9125.8126.6127.3129.2132.0135.8ApparelandupkeepTransportation114.2114.6114.8115.1115.4115.9116.1116.6117.0117.3117.8118.3118.4118.7118.8119.2119.8120.0120.1120.2120.4120.6120.7120.8121.0121.3121.5121.9122.0122.0122.0122.1122.9123.3123.6124.0123.9124.2125.1125.9126.2126.7126.7127.9128.0128.6129.1129.5109.5110.0110.0111.3111.9112.4113.2112.8113.7115.0115.9116.9117.1117.7118.2118.3118.6119.1119.2119.3119.4118.9118.6118.4118; 5118.5118.9118.8119.3119.3120.0120.5122.0120.8121.3121.2120.6121.3122.0122.8123.3124.1124.6124.5124.9124.6125.126.6Medicalcare116.5117.2118.1118.9119.5120.4121.2121.9122.5123.0123.8124.6125.2125.9126.7127.2127.8128.5129.0129.7130.1129.9130.1130.5130.8131.1131.3131.4131.7132.3132.4132.6132.8134.2134.5134.8135.2135.4135.7135.9136.3136.9137.0137.3138.0140.9141.3141.8Source: Department of Labor, Bureau of Labor Statistics.303

TABLE C—48.—Percent changes in consumer price indexes, major groups, 1948—73[Percent change from preceding period i]19481949Year or month195019511952.. .1953195419551956195719581959196019611962196319641965196619671968196919701971 . _ . .197219731971: JulyAugSeptOctNovDec1972: JanFebMarAprMay ,JuneJulyAug . . . .SeptOctNovDec . . . .1973: JanFebMarApr . . .MayJuneJulyAugSeptOctNovDecAll items2.7-1.85.85.9.9.6-.5.42.93.01.81.51.5.71.21.61.21.93 43.04.76.15.53.43.48.8.2.2. 1.2.2.4.1.5.2.2.3.2.4.2.4.3.2.3.3.7.9.7.6.21.8.3.8.7.7SeasonallyadjustedUnadjustedFood Commodities less food Services 2Unadjustedadjusted adjusted adjusted adjustedSeasonally Un-Seasonally Un--0.8-3.79.67.4-1.1-1.3-1.6-.93.12.82 24.52.2.82 7-.81.53 73.1_ 3 2.7-.9691.5.71 71.91.2 2.31 441.83.4.72 63 91 94.91.23 14.04.33.76 17.24.57 42.24.88 24.32.34 14 72 53 620.15.06.2.5 0.2 -.1 0.2 .5.2 .3 .1 .3 .4-.8 -.3 .3 -.1.4-.2 .3 .5 .11 .4 .1 .1 31.1 .6 .0 .1 3.0 .0 -.3 .3 .61.6 1.6 .1 .1 .2.2 .0 .3 .3 .2.0 -.1 .3 .0.2—.1 .0 .6 .4.2.6 .2 .2 .1.31.0 .7 .0 .3.3.5 .1 .3 .2.2 .7 .7 .3 .2.1 .6 .4 .0 .4.4 .7 .2 .2 .2.5 -.1 .1 .2 .42.1 2.1 -.5 .2 .21.9 1.9 .3 .3 .42.4 .5 .5 .31.4 .7 .4 .41.1 .6 .4 .41.4 .9 .6 .5 .4.8 .5 -.2 .1 .26.0 6.1 .2 .5 .7-.1 .4 .1 .9.1 .5 .9 .5 1.11.1 1.4 .7 .7 .6.5 .9 .3 .6 .7 .60.2.4. l.2.2.3.2.5.1.2.3.1.4.3.4.3.3.2.5.7.9.6.6.6.21.9.3.8.82.6LOO1 Annual changes are from December to December.8 Percent changes for services are based on unadjusted indexes since these prices have little seasonal movement.Note.—The seasonally adjusted changes for the all items index are based on seasonal adjustment factors and seasonallyadjusted indexes carried to two decimal places.Source: Department of Labor, Bureau of Labor Statistics304

TABLE C~49.—Wholesale price indexes by major commodity groups, 1929-73[1967=100]Year or month19291933193919401941194219431944194519461947194819491950....19511952195319541955195619571958.. . . _.1959I960...196119621963196419651966 .19671968196919701971197219731972: JanFebMarApr .MayJuneJuly...AugSeptOctNovDec1973: JanFebMarAprMayJuneJulyAug __ ...Sept...OctNov . .DecAll commodities49 134 039 840 545 150 953.353.654 662.376.582.878.781.891 188.687.487.687.890.793.394.694 894.994.594.894.594.796.699.8100.0102.5106.5110.4113.9119.1135.5116.3117.3117.4117.5118.2118.8119.7119.9120.2120.0120.7122.9124.5126.9129.7130.7133.5136.7134.9142.7140.2139.5141.8145.3Farm products and processedfoods and feedsTotal94.3101.589.693.9106 9102.796.095.791.290.693.798.193.593.793.794.793.893.297.1103.5100.0102.4108.0111.7113.8122.4159.1117.4119.6119.1118.3120.0121.3124.0123.8124.5123.3125.3132.6137.0142.4149.0147.9154.9163.6156.9184.5173.5166.8164.4168.0Farmproducts64 131.440.041 450 364.875.075 578.590.9109.4117.5101.6106.7124.2117.2106.2104.798.296.999.5103.997.597.296.398.096.094.698.7105.9100.0102.5109.1111.0112.9125.0176.3117.8120.7119.7119.1122.2124.0128.0128.2128.6125.5128.8137.5144.2150.9160.9160.6170.4182.3173.3213.3200.4188.4184.0187.2Processedfoodsandfeeds82.988.780.683.492.791.687.488.985.084.987.491.889.489.591.091.992.592.395.5101.2100.0102.2107.3112.1114.3120.8148.1117.2118.8118.6117.7118.6119.6121.5121.0121.8121.8123.1129.4132.4137.0141.4139.8145.0151.8146.5166.2156.3153.1151.9155.7Industrial commoditiesTotal48 637.843.344.047.350.751.552.353.058.070.876.975.378.086.184.184.885.086.990.893.393.695.395.394.894.894.795.296.498.5100.0102.5106.0110.0114.0117.9127.0115.9116.5116.8117.3117.6117.9118.1118.5118.7118.8119.1119.4120.0121.3122.7124.4125.8126.9126.9127.4128.1129.6133.5137.1Textileproductsandapparel103.6108.198.9102.7114.6103.4100.898.698.798.798.897.098.499.597.798.698.599.299.8100.1100.0103.7106.0107.1108.6113.6123.8111.3112.0112.1112.6113.3113.6114.0114.1114.3114.8115.1115.6116.6117.4119.0120.8122.3123.7124.2125.2126.8128.5130.0131.4Hides,skins,leather,andrelatedproducts48 936.342.845.248.452.852.752.252 961.183.384.279.986.399.180.181.377.677.381.982.082.994.290.891.792.790.090.394.3103.4100.0103.2108.9110.3114.0131.3143.1117.8119.1123.0127.2129.5130.9131.6134.6135.7139.8144.0142.2143.9144.9143.5145.0142.2140.9141.4143.0143.8143.8143.0141.9Fuelsandrelatedproducts,andpower59 447.652.351.454.656 257.859.560 164.476.990.586.287.190.390.192.691.391.294.099.195.395.396.197.296.796.393.795.597.8100.098.9100.9106.2114.2118.6145.5116.0116.1116.5116.9117.5118.2118.6119.7120.3120.6121.3121.9122.2126.0126.7131.8135.5142.8142.8142.9144.8150.5179.2201.3Chemicalsand alliedproducts47.451.552.457.063.364.164.865.270.593.795.987.688.9101.796.597.798.998.599.1101.2102.0101.6101.8100.799.197.998.399.099.4100.099.899.9102.2104.2104.2110.0103.4103.5103.4104.1104.4104.3104.2104.4104.4104.4104.7104.8105.1105.6106.7107.7109.3110.4110.8111.0111.5112.7113.5115.6See next page for continuation of table and for footnotes.305

TABLE O49.—Wholesale price indexes by major commodity groups,[1967=100]1929-73—Continued1929193319391940194119421943194419451946194719481949Year or month1950195119521953 . ... -19541955195619571958195919601961196219631964196519661967196819691970 -1971197219731972" JanFeb . .MarAprMayJuneJuly .. . .AugSeptOctNovDec1973: JanFeb .MarAprMayJune .JulyAugSeptOctNovDecRubberandplasticproducts59 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 3112.4109 5109.2108.9108.7108 8108.9109.2109.5109 5109.5109.8109.8110.0110.1110.3110 6111.5112.6112.9113.1112.8114.0114.8116.5Lumberandwoodproducts25 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 9100.2100.0113.3125.3113.6127.0144.3177.2134.9137.7139.5141.1142.7144.2146.1148.1148.5149.2149.4149.8151.0161.0173.2182.0186.9183.1177.8178.8181.9180.3184.7186.1Pulp,paper,andalliedproducts72.575.772.474.388.085.785.585.587 893.695.496.497.398.195.296 395.695.496 298 8100.0101.1104 0108.2110 1113 4122.1110 8111.6112 3112.8113 2113.5113.7114.1114.3114.7115.0115.1115.8116.5118.3119.8120.7122.0122.3123.3124.4125.8127.6128.7Industrial commodities—ContinuedMetalsandmetalproducts40 230.737.637.838.539.139.039.039.644.354.962.563.066.373.873.976.376.982.189.291.090.492.392.491.991 291.393.896.498.8100.0102.6108.5116.6119.0123.5132.8121.4122.6123.4123.5123.6123.6123.5123.7124.0124.1124.1124.4125.6126.9129.2130.5131.7132.5132.8133.7134.4135.9138.5141.841.341.442.142.842.442.142.246.453.758.261.063.170.570.672.273.475.781.887.689.491.392.091.992.092.292.893 996.8100.0103.2106.5111.4115.5117.9121.7116.5117.1117.3117.6117.9118.1118.3118.3118.3118.4118.5118.6118.9119.4120.0120.8121.5121.9122.0122.3122.6123.1123.8124.6MachineryandequipmentFurnitureandhouseholddurables55 844.652.653.857.261.861 463 163.267.177.081.682.984.791.890.191.992.993 395.898.399.199.399.098.497 797.097.496.998.0100.0102.8104.9107.5109.9111.4115.2110.2110.8110.9111.0111.1111.2111.4111.7112.0112.0112.3112.4112.6113.1113.5114.1115.1115.2115.2115.9116.0116.6117.2117.5N on metallicmineralproducts51 247 249.149 150.252.352 453.555.759.366 371.673.575.480.180 183.385.187 591.394.895.897.097.297.697 697.197.397.598.4100.0103.7107.7112.9122.4126.1130.2124.3124.6124.8125.6125.9125.8126.2126.7126.9127.3127.3127.4128.2128.4129.0130.0130.5131.1130.0130.0129.9130.9131.5132.6i Index for total transportation equipment is not shown but is available beginning December 1968.Source: Department of Labor. Bureau of Labor Statistics.30641 934 839.140 443 247.247 247 548 356.064 170.875.775.379.484 083.683.886 391 295.198.1100.398 898.698 697.898.398 598.6100.0102.8104.8108.7114.7118.0119.2117.9118.0118.0118.1118.1118.5118.4118.5118.5116.9117.0118.4118.2118.2118.6119.0119.1118.9119.0119.0118.3120.0120.1121.4Transportationequipment:Motorvehiclesandequipment!Miscellaneousproducts73.576.578.079.283.983.485.686.486.587.690.292.092.293.093.393.794.595.295.997.7100.0102.2105.2109.9112.8114.6119.7113.7114.0114.2114.1114.1114.2114.9115.1115.2115.0115.0115.1115.8117.1117.9118.6119.5120.2120.9121. C121.1121.0121.3121.6

TABLE C-50.—Wholesale price indexes by stage of processing, 1947-73[1967=100]Year or month1947194819491950195119521953195419551956195719581959..196019611962196319641965196619671968196919701971197219731972: 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...Allcommodities76.582.878.781.891.188.687.487.687.890.793.394.694.894.994.594.894.594.796.699.8100.0102.5106.5110.4113.9119.1135.5116.3117.3117.4117.5118.2118.8119.7119.9120.2120.0120.7122.9124.5126.9129.7130.7133.5136.7134.9142.7140.2139.5141.8145.3Crude materialsTotal101.2110.996.0104.6120.1110.3101.9101.097.197.699.8102.099.497.096.597.595.494.599.3105.7100.0101.6108.4112.2115.0127.6174.0120.2123.1123.1123.0125.5127.2130.1130.3130.3129.2130.4138.3143.3151.3159.0158.8167.7177.5170.9207.5197.1185.7182.7186.4Foodstuffsandfeedstuffs111.7120.8100.3107.6124.5117.2104.9104.995.193.197.2103.096.295.193.895.792.990.897.1105.9100.0101.3109.3112.1114.2127.5179.6119.3122.9122.0121.0124.0126.7131.2130.7131.4129.6129.9140.7146.4156.0166.2164.2173.7185.4177.7226.2205.2189.2184.2185.3Nonfoodmaterialsexceptfuel90.6100.791.6104.7120.7104.6100.198.2103.8107.6106.2102.2105.8101.4102.5102.0100.7102.4104.5106.7100.0102.1106.9109.8110.5121.9161.5115.4117.3119.5121.3123.2122.7122.6124.2122.2122.3124.7127.2132.1138.1141.4144.6154.2161.8155.9172.7184.7180.8180.8190.5Fuel66.678.778.377.979.479.982.779.078.884.489.290.391.992.892.692.193.292.893.596.3100.0102.3106.6122.3138.5148.7164.5145.4145.6146.2146.9147.3147.2147.5148.5149.1149.9154.4156.3155.5156.3156.9160.4161.6162.6163.0164.4169.2169.9175.0179.5Intermediate materials, supplies, and components »Total72.478.375.278.688.185.586.086.588.192.094.194.395.695.695.094.995.295.596.899.2100.0102.3105.9109.8114.0118.7131.9115.9116.7117.2117.7118.2118.5118.8119.2119.7119.9120.6122.3123.1125.1127.4128.5131.5134.3131.9136.1133.9134.6136.4139.6Materials and components formanufacturingTotal72.177.874.578.188.584.886.286.388.492.694.895.296.596.595.394.794.995.997.499.3100.0102.2105.7110.0113.0117.0127.8114.9115.7115.9116.4116.9117.1117.3117.5117.7118.0118.2118.8119.7121.1123.5125.1126.6127.8128.1130.6130.8131.7132.8135.7MaterialsForfoodmanufacturing94.096.983.386.796.692.993.092.289.389.791.393.490.091.194.092.096.695.297.6101.9100.0101.5107.1112.9116.2119.9146.0117.9119.4118.6117.8118.5119.2120.1119.8120.3121.2120.9125.1126.9130.8136.0136.4138.1142.6143.3163.5157.6158.7156.0162.6Fornondurablemanufacturing95.2100.891.996.5111.8100.699.898.298.6100.1101.4100.4102.1102.199.999.398.499.1100.0100.8100.0101.3102.4104.0105.6109.4121.5107.0107.4107.5108.7109.3109.6109.7110.0110.2110.7111.3111.8112.6113.8115.7117.9120.0121.9122.7123.6125.1126.3127.6130.2Fordurablemanufacturing54.461.463.166.774.174.377.679.383.388.591.492.094.294.393.092.993.094.896.898.6100.0103.3109.1115.1118.8123.8133.7121.5122.7123.3123.7123.9123.8123.8124.3124.6124.6124.6124.7125.9127.7130.9132.7134.0134.3134.1134.5135.0135.9137.8141.7Components58.363.064.266.675.675.777.177.580.988.391.892.593.693.192.291.591.592.393.897.1100.0102.3105.6111.1114.7117.6121.4116.0116.5116.6117.0117.6118.0118.1118.2118.1118.1118.2118.2118.5118.8119.6120.1121.0121.3121.6122.0122.3122.9123.8124.5Materialsandcomponentsfor construction66.073.173.277.084.383.785.185.588.993.594.094.096.695.994.694.294.595.496.298.8100.0104.9110.7112.6119.5126.2136.7123.1124.2124.9125.5125.9126.3126.7127.2127.4127.7127.8127.9128.6130.9134.2136.8138.5137.9136.7137.3138.3138.7140.7142.0See next page for continuation of table and for footnotes.307

TABLE C~50.—Wholesale price indexes by stage of processing,[1967=100]1947-73—ContinuedFinished goodsSpecial groups of industrialproductsYear or monthTotalTotalConsumer finished goodsFoodsOthernondurablegoodsDurablegoodsProducerfinishedgoodsCrudematerials2Intermediatematerials,supplies,and components3Consumerfinishedgoodsexcludingfoods1947..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_1972:Jan..Feb_.Mar_.Apr..May..June_July..Aug..Sept..Oct...Nov..Dec.1973:Jan...Feb..Mar..Apr..May..June.74.079.977.679.086.586.085.185.385.587.991.193.293.093.793.794.093.794.195.798.8100.0102.9106.6110.4113.5117.2129.5115.5116.3116.1115.8116.4116.9117.8117.9118.2117.6118.3119.5121.0122.5124.6125.6126.8128.780.586.582.583.991.890.789.289.188.589.892.494.493.694.594.394.694.194.396.199.4100.0102.7106.6109.9112.7116.6131.2114.7115.6115.2114.8115.5116.1117.3117.4117.7117.1117.9119.3121.2122.9125.5126.6127.9130.282.890.483.184.795.294.389.488.786.586.389.394.590.192.191.792.591.491.995.4101.6100.0103.7110.0113.4115.2121.7146.4118.7120.6119.4118.0119.5120.7123.3123.1123.6122.3124.1127.1131.8134.1140.2140.7141.9145.080.785.882.383.690.087.888.688.989.491.193.292.694.094.794.794.895.194.895.997.8100.0102.2105.0108.2111.3113.6125.9112.0112.1112.4112.7113.1113.5113.8114.2114.5114.7115.0115.2115.4117.4117.8119.8121.6124.774.679.781.882.788.288.989.690.391.294.397.198.499.699.298.898.397.898.297.998.5100.0102.2104.0107.1110.9113.2115.8112.9113.2113.1113.2113.1113.2113.5113.6113.7112.7112.8113.7113.8114.0114.5115.3115.7115.955.460.463.464.971.272.473.674.576.782.487.589.891.591.791.892.292.493.394.496.8100.0103.5106.9111.9116.6119.5123.5118.4118.8119.0119.3119.4119.6119.7119.8119.9119.7119.9120.3120.6121.2121.7122.3123.1123.479.292.584.093.6102.993.192.488.096.6102.3100.996.9102.398.397.295.694.397.1100.9104.5100.0102.0110.6118.8122.7131.1155.2125.6127.0129.1129.3129.9129.8130.2132.3132.6133.8136.3136.8139.1142.3142.5146.8149.6152.870.076.174.277.787.084.385.385.788.392.695.094.896.496.895.595.395.095.696.998.9100.0102.6106.1110.0114.3118.9128.4116.4117.2117.6118.2118.6119.0119.2119.5119.8120.1120.3120.5121.2122.6124.8126.6128.0128.979.084.082.283.589.588.389.189.490.192.394.694.795.996.396.296.096.095.996.698.1100.0102.1104.6107.7111.2113.5121.9112.3112.5112.7112.9113.1113.4113.7114.0114.2113.9114.1114.6114.8116.0116.5118.0119.3121.3July..Aug..Sept..Oct...Nov .Dec.128.8132.9132.2132.8136.8140.7130.4135.4134.5135.0139.9144.7145.4158.6156.1153.6153.7155.7124.5124.5124.8128.2140.9151.1116.1116.3115.8116.7117.0117.9123.5123.9124.2125.1125.7126.7153.5156.0161.0164.7174.2179.8128.7129.5130.3131.2133.5135.9121.2121.3121.3123.7131.6138.21 Includes, in addition to subgroups shown, processed fuels and lubricants, containers, and supplies.2 Excludes crude foodstuffs and feedstuffs, plant and animal fibers, oilseeds, and leaf tobacco.3 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 PriceI ndexes," January-February 1967.Source: Department of Labor, Bureau of Labor Statistics.308

194819491950.,1951195219531954Yearormonth1955195619571958 . ...1959I96019611962196319641965196619671968 . .19691970 .1971197219731971: JulyAugSeptOct...NovDec1972: JanFebMarAprMay....JuneTABLE C-51.—Percent changes in wholesale price indexes, major groups, 1948-73July....AugSept....OctNov . .Dec1973:JanFebMarAprMayJuneJuly.....AugSept....OctNovDecAllcommodities1.5-6.114.71.2-3.45- 61.64.52.0-.3.5-.2.0-.1.43.41.71.02.84 82.24 06.518.2.3.3-.3-.1.1.8.89.1.1.6.8.2.3-.2.61.81.31.92.2.82.12.4-1.35.8-1.8-.51.62.50.2_". 2.1.1.6.45.2.3'.4.7.6.5.7o1.5.91.62.31 02.02.3-1.46.2-1.5-.31.82.2[Percent change from preceding period l \Industrialcommodities5.0-5.014.0,4-1.41 4,24.34 21.1.91 2-.6-.1-.2.5.61.42.21 92.73 93.63 23.614.8.5.5-.1.0-.1.3.5 5.3.4.3.3.2.3.21.3.3.51.11.21 41.1.9.0.4.51.23.02.70.6"o_ l.1.3.34.34.3.4.2.3.31.4.2.31.01.21 31.21.0.1.4.71.13.22.6Farm productsand processedfoods and feedsUnadustedSeasonallyadjustedUnadjustedSeasonallyadjustedUnadjusted-6.8-8.917.03.5-8.2-2 3-2 6-6.46.04.2-.2-4 43.9-.66-2.1.09.5.2-1 83.57 5-1 46.014.426.7-.3-.3-1 4.0.52.01.31 9-.4-.71.41.12.2-.2.6-1 01.65.83.33.94.6- 74.75.6-4.117.6-6.0-3.9-1.42.2-1.01.2_ 98.31.5.5 9.0 1.8.51.71.31.4- 31.65.02.63.05.014.15.0-4.619.3-5.2-3.3-1.51.41.2-5.610.22.7-3.1-.1-.6-.13.13.0.2-.72.1-.8.1-.4.24.01.61.23.14 91.43.34.521.3-.1.3-.5.2.21.0.4.8-.3-.3.6.51.0.1.3-.5.71.2Total1.61.42.1.91.01.8.23.8-.7.43.63.4Consumer finished goods-0.51.0-.6.7.1.6.2.7-.3 .1.3.3.6.7.3.0.81.41.22.21.4.71.6-.24.5-.6.93.53.0-2.4-7.413.35.3-5.9-2.2-1.9-2.93.65.3.4-3.75.2-1.8-1.3.49.11.4-.44.88.2-2.55 98.022.5-.7.4-1.0.1.61.7.81.6-1.0-1.21.31.02.2-.2.4-1.11.52.43.71.74.5.4.92.2.39.1-1.6-1.6.11.3SeasonallyadjustedUnadjustedSeasonallyadjustedUnadjustedAll exceptFoodsfoodsSeasonallyUnadsonallySea-adjustejustejustedad-4.0-4.58.2.9-1.11.6.31.72.51.7 .2.8.4-.3-.1.1.1.91.72.12.02.93.91.82.220.6-1.7 .4 0.42.1 .1-1.3-'.11.9 .3 .0-.1 .0 .1.9 .4 .4.3 .2 .11.6 .2-1.0 .2 .'3-.2 .2.7 .2.3.5 .3 \l1.1 .3 .21.4 .3 .4.3 .2 .4-.3 -.4.8 .2 .31.6 .4 .33.1 .2 .11.8 1.0 1.14.5 .4 .51.4 1.3 1.41.1 1.1L7 1.7 1.6-.8 -.1 -.210.8 .1-1.7 .0 .*22.0 1.8-!6 6.4 6.5.5 5.0 4.9i Annual changes are from December to December.Note.—The seasonally adjusted changes for all commodities and industrial commodities are based on seasonal adjustmentfactors and seasonally adjusted indexes carried to two decimal places.Source: Department of Labor, Bureau of Labor Statistics.309

Year andmonthMONEY STOCK, CREDIT, AND FINANCEMi(Currencyplusdemanddeposits)TABLE C-52.—Money stock measures, 1947-73[Averages of daily figures; billions of dollars, seasonally adjusted]Overall measuresM 3(M lPlustimedepositsat commercialbanksother thanarge CD's)M 3(Ms plusdepositsat nonbankthriftinstitutions)Currency1Components and related itemsDeposits at commercial banksDemand2Time and savings 3TotalLargeCD's

TABLE C-53.—Commercial bank loans and investments, 1930-73[Billions of dollars!End of yearor month 1Total loansand investments2Total 2LoansCommercialandindustrialInvestmentsU.S. GovernmentsecuritiesOthersecuritiesLoans plusloans sold tobank affiliates 21930:June48.934.55.09.41933:June30.416.37.56.5193940.717.216.37.119401941..194219431944194519461947194843.950.767.485.1105.5124.0114.0116.3114. 718.821.719.219.121.626.131.138.142.417.821.841.459.877.690.674.869.262.67.47.26.86.16.37.38.19.09.2Seasonally adjusted19481949113.0118.741.542.062.366.49.210.31950....195119521953195419551956...19571958...19593124.7130.2139.1143.1153.1157.6161.6166.4181.2188.751.156.562.866.269.180.688.191.595.6110.539.461.160.462.262.267.660.357.256.965.157.712.413.414.214.716.416.816.317.920.520.519601961196219631964...196519661967196819695197.4212.8231.2250.2272.4300.1«316.1352.0390.2401.7116.7123.6137.3153.7172.9198.2* 213.9231.3258.2279.142.143.947.652.158.469.578.686.295.9105.759.965.364.761.560.857.153.559.460.751.520.823.929.235.038.744.8M8.761.371.371.1283.019701971..19721973 v1973: JanFebMarAprMayJuneJuly vAug*Sept*Oct"Nov*Dec*435.5484.8556.4625.4564.7575.4583.6589.6597.7602.0608.2616.0618.2621.7624.6625.4291.7«320. 3377.8444.5385.8397.2405.8411.1417.4420.3427.3435.3438.1440.0443.6444.5110.0115.97 129.7156.3133.3138.1141.8143.9146.8148.2151.4153.6154.0154.0155.5156.357.960.161.953.261.860.660.461.061.061.659.657.756.354.954.553.285.9fl 104.4116.7127.7117.1117.6117.4117.5119.3120.1121.3123.0123.8126.8126.5127.7294.7• 323.1380.4448.8388.4400.3409.0414.7421.1423.8431.3440.0442.7444.6447.9448.81 Data are for last Wednesday of month (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 ^classificationsat one large bank.Source: Board of Governors of the Federal Reserve System.311

TABLE C-54.—Total funds raised in credit markets by nonfinancial sectors, 1965-73[Billions of dollars]Item 1965 1966 1967 1968 1969 1970 1971Total funds raised69.967.782.294.691.497.5146.7U.S. Government.1.83.613.013.4-3.612.825.5Public debt securities..Budget agency issues.1.3.52.31.38.94.110.33.1-1.3-2.412.9-.126.0-.5All other nonfinancial sectors.68.164.169.281.295.084.7121.2Corporate equities.Debt instruments...267.9.863.32.267.0-1.482.63.491.64.979.811.7109.5Debt capital instruments..38.838.945.750.650.657.783.2State and local government securitiesCorporate and foreign bondsMo rtgages7.35.925.65.611.022.37.815.922.09.514.027.19.913.027.711.320.625.716.619.746.8HomeOther residential..CommercialFarm15.43.64.42.211.73.15.71.811.53.64.72.315.13.46.42.215.74.75.31.912.85.85.31.826.08.810.02.0Other private credit.29.024.421.332.041.022.126.3Bank loans n.e.cConsumer creditOpen-market paper.Other14.19.6-.35.610.76.41.06.29.54.52.15.113.110.01.67.215.310.43.312.06.46.03.85.99.311.2-.96.6By borrowing sector:Total funds raised.68.164.169.281.295.084.7121.2ForeignState and local governments...HouseholdsNonfinancial business2.57.728.429.51.36.322.633.94.07.919.038.23.19.829.638.73.310.732.248.83.011.422.947.35.717.038.360.2Farm .....Nonfarm noncorporate.Corporate..3.35.720.43.15.425.43.65.029.62.85.630.33.27.438.33.25.338.84.18.747.4Total funds advanced to nonfinancial sectors69.967.782.294.691.497.5146.7Financed directly or indirectly by:Private domestic nonfinancial sectors46.341.250.360.047.862.682.5Deposits.Demand deposits and currency...Time and savings accountsAt commercial banks...At savings institutions.40.57.832.719.613.224.44.120.313.07.352.112.839.322.616.748.314.533.921.012.95.47.7-2.3-10.38.066.610.556.139.216.994.213.081.240.640.6Credit market instruments, net—5.816.8-1.711.742.4-4.1-11.7U.S. Government securitiesPrivate credit market instruments.Corporate equities..Less secu rity debt2.95.0-2.2-.18.29.3-1.1-.3-1.45.6-4.51.58.012.4-7.916.828.2-4.3-1.6-8.35.9-2.6-.9-13.08.8-5.42.1Other sources :Foreign funds.At banks..Direct.5.8-.31.83.7-1.94.92.32.75.12.62.510.69.31.32.4-8.510.923.9-3.227.2Change in U.S. Government cashbalacneU.S. Government loansPrivate insurance and pension reserves.Other-1.02.815.65.8-.44.918.12.21.24.618.23.0-1.14.918.86.9.42.919.210.42.82.821.85.13.23.225.48.4See footnote at end of table.312

TABLE G-54.—Total funds raised in credit markets by nonfinancial sectors, 1965-73—Continued[Billions of dollars]Item1973 unadjustedquarterly flows1973 seasonallyadjusted annual ratesTotal funds raisedU.S. Government-Public debt securities.Budget agency issues.All other nonfinancial sectors.Corporate equities.Debt instruments..Debt capital instruments.State and local government securities..Corporate and foreign bondsMortgagesHomeOther residential.CommercialFarmOther private credit-Bank loans n.e.cConsumer creditOpen-market paper..OtherBy borrowing sector:Total funds raised.ForeignState and local governments.HouseholdsNonfinancial businessFarmNonfarm noncorporate..CorporateTotal funds advanced to nonfinancial sectors..Financed directly or indirectly by:Private domestic nonfinancial sectors..DepositsDemand deposits and currency.Time and savings accountsAt commercial banks..At savings institutions.Credit market instruments, net..Other sources:U.S. Government securitiesPrivate credit market instruments.Corporate equitiesLess security debtForeign funds.At banks..DirectChange in U.S. Government cash balance.U.S. Government loans.Private insurance and pension reserves...OtherSource: Board of Governors of the Federal Reserve System.46.58.88.2.637.72.235.518.41.51.715.18.22.83.11.017.013.91.8-1.73.137.73.31.611.221.62.02.716.946.520.317.9-12.730.618.712.02.42.8-.839.7.29.52.3.57.36.547.1-5.9-5.9.053.12.250.927.42.83.621.011.64.14.01.323.513.17.8.52.153.11.82.821.327.22.83.720.647.135.629.710.119.611.08.65.92.23.8-1.2-1.1.22.1-1.9-.4-.27.14.837.4-.4-1.1.737.8.737.123.81.02.020.811.63.44.81.013.25.86.0.8.737.8-.7.918.219.41.63.614.237.422.111.0-4.115.114.01.111.18.83.8-2.41.61.0.6-5.11.16.910.9221.732.630.12.6189.18.9180.181.75.18.368.337.912.613.84.098.474.425.3-10.89.6189.114.35.471.398.07.013.877.2221.7111.4120.0-.8120.776.344.4-8.5-.7-4.1-6.8-3.038.61.936.716.41.928.824.5180.21.51.4.1178.78.7170.0102.89.711.781.444.915.616.44.667.233.524.14.05.6178.77.39.572.589.57.713.068.8180.2134.998.120.777.446.131.336.823.313.5-4.5-4.5.68.1-7.5-9.3-1.029.125.8156.4-9.6-12.42.9166.02.9163.193.05.18.579.442.514.118.93.970.137.021.93.1166.0-2.14.977.385.87.614.164.1156.4117.069.98.161.954.07.847.032.520.4-9.2-3.3-1.84.6-6.4-21.34.227.430.8313

TABLE C—55.—Private liquid asset holdings, nonfinancial investors, 1965—73[Averages of daily figures; billions of dollars, seasonally adjusted]YearandmonthTotalliquidassetsTotalCurrency and depositsCurrency]Demanddeposits*Time depositsCommercialbanks 1Nonbankthriftinstitutions2U.S. GovernmentsecuritiesSavingsbonds 3Shorttermmarketablesecurities«Negotiablecertificatesof deposit*Commercialpaper'1965: Dec.1966: Dec.1967: Dec.1968: Dec.1969: Dec.1970: Dec.1971: Dec.1972: Dec.1973: Dec p.1971: Jan..Feb..Mar..Apr_.May-June.July.Aug_.Sept.Oct..Nov.-Dec.1972:Jan...Feb..Mar..Apr_.May..June.July..Aug..Sept.Oct._Nov..Dec.561.0590.6640.4699.8730.3780.8863.9975.1,080.9789.0798.7807.1814.0821.6828.8835.7840.4845.4852.4857.6863.9872.6881.6892.3901.3909.2917.4926.6935.2944.4954.0964.4975.1451.0473.7520.3564.2582.1630.7718.6814.7887.5638.3649.4659.6668.2677.2684.4690.4695.0699.7706.4712.2718.6727.4737.2746.2752.6758.8766.1774.9782.9790.8799.6806.5814.736.338.340.443.446.149.152.656.961.649.449.850.050.550.851.051.551.651.952.252.352.652.953.2b3.653.854.154.354.654.955.355.856.356.9119.1121.1129.4139.4143.4151.5160.6174.7184.3151.3153.1154.4155.4157.9159.7160.5160.4160.3160.8160.3160.6160.8163.0165.2166.3166.2166.9168.4169.6170.7171.9172.5174.7125.2136.9156.3174.5177.2198.7233.4265.0294.6202.7207.5212.4215.4217.9220.0221.4222.9224.3227.1230.2233.4237.4240.2242.4243.8246.5249.4252.2255.0257.4260.4262.7265.0170.4177.3194.2206.9215.4231.4272.0318.1347.0234.9239.0242.8246.9250.6253.7257.1260.1263.1266.3269.3272.0276.3280.9285.0288.7291.9295.5299.6303.5307.5311.5315.0318.149.550.151.051.451.151.353.757.060.951.551.651.852.052.252.452.652.953.153.353.553.754.054.254.554.855.055.355.655.956.156.456.757.038.743.639.646.964.953.340.742.852.452.650.548.047.046.246.246.445.744.343.041.840.739.738.239.440.140.039.639.339.139.540.242.042.814.914.519.122.49.023.029.739.357.224.325.526.526.126.426.927.427.227.828.728.729.730.130.630.532.033.434.334.835.636.636.838.239.36.88.810.414.923.322.421.221.222.822.321.721.320.619.618.818.819.520.421.021.421.221.421.421.621.922.022.122.021.721.421.021.121.21973:Jan...Feb..Mar..Apr..May..June.983.2992.61,004.11,014.21, 026.41,037.2822.9829.2834.7841.0848.4857.357.157.558.058.658.959.4175.1175.7175.5176.5178.9181.4268.0269.4271.6273.7276.0278.7322.7326.6329.5332.3334.6337.857.357.657.958.258.558.841.541.142.542.644.445.240.244.349.653.356.056.421.320.519.519.119.119.6July...Aug...Sept..Oct...Nov...Dec p .1,045.21,053.11,058.51,064.31,071.21,080.9861.6864.2866.5873.3880.3887.559.559.860.260.460.961.6182.0181.2179.8180.9183.0184.3280.4283.5286.0289.7292.1294.6339.7339.7340.5342.3344.3347.059.059.359.460.060.860.945.847.449.050.050.952.458.460.861.058.056.357.220.421.522.623.023.022.81 Money stock components (see Table C-52) after deducting foreign holdings and holdings by domestic financial institutions.The three columns add to M 2 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.5 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, 1929-73[Averages of daily figures; millions of dollars]Reserve Bank credit outstandingMember bank reservesYear and month*929: Dec1933- Dec . -1939- Dec1940: Dec1941: Dec1942: Dec . . .1943: Dec .-.1944: Dec1945- Dec . . .1946: Dec1947: Dec1948: Dec1949: Dec1950: Dec1951: Dec1952: Dec1953: Dec1954: Dec1955: Dec1956: Dec1957: Dec1958: Dec1959: Dec1960: Dec1961: Dec1962: Dec1963: Dec1964: Dec1965: Dec1966: Dec1967: Dec1968: Dec1969: Dec1970: Dec1971: Dec1972: Dec1973: Dec*1972:Jan . .FebMarAprMayJuneJulyAugSeptOctNovDec1973:JanFebMarAprMayJuneJulyAugSeptOctNovDec pTotal1,6432,6692,6122,3052,4046,03511,91419,61224, 74424, 74622, 85823,97819,01221,60625,44627,29927,10726,31726, 85327,15626,18628,41229, 43529, 06031,21733, 21836,61039, 87343,85346,86451,26856,61064,10066,70874, 25576,85185,55475,41573, 99473,18175,17175, 70576,10877,03576,67675, 45177,33175,95976,85178, 06377,60079, 21980, 54281,88980, 54683, 88082,44581, 80983,64383, 75585,5544462 4322,5102,1882,2195 54911,16618, 69323 70823, 76721,90523, 00218, 28720, 34523,40924, 40025, 63924,91724, 60224, 76523, 98226,31227, 03627, 24829, 09830, 54633, 72937,12640, 88543, 76048, 89152, 52957, 50061,68869,15871,09479,70170, 68769, 96669, 27370, 93971, 42871, 63272, 08971,85870, 25271 35971,11271,09472 19472, 30774 01975,35376,75875, 35577,44876,65376,07378 04278,45779,701Member bankborrowingsTotal801953354902653341572241341181426571,593441246839688710557906871493043272434545572387651,0863211071,0491,298203399109119942024385145746061,0491,1651,5931,8581,7211,7861,7892,0512,1431,8611 4671 3991,298Allother,mainlySeasonal float396142991141804826586547028227298426071,1191,3801,3061,0271,1541,4121,7031,4941,5431,4931,7251,9702,3682,5542,5042,5142,5472,1393,3165,5144,6994,9904,70841 4,5554,7083,9953,8094,1234,1584,3824,7444,3804,6855 3984,2414,7084 7043,7003 3425 3 46830 3,34577 3,402124 4,381163 3,649147 3,875126 4 13484 3 89941 4,555Total2,3952 58811,47314, 04912,81213,15212, 74914,16816 02716,51717,26119,99016,29117,39120,31021,18019,92019, 27919,24019, 53519,42018,8992 18,93219,28320,11820, 04020, 74621,60922, 71923, 83025, 26027, 22128, 03129, 26531,3293 31,3533 34,98432, 86531,92231,92132, 56532,81232, 53933, 02133,14833, 00333 8033 31,77431,3533 32,96231,74231 97332,27732, 39332, 02833,54233, 78534,01934,91234, 72734,984U.S.GovernmentsecuritiesRequired2,347U 8226,4627,4039,42210 77611,70112, 88414 53615,61716,27519,19315,48816,36419, 48420, 45719,22718, 57618,64618,88318, 84318, 38318, 45018, 52719, 55019,46820,21021,19822, 26723, 43824,91526, 76627, 77428,99331,16431,13434,79132,69231,79831,68832, 42932, 70832, 33532, 87432,89332,84133 55631,46031,13432,62031, 53731,67832,12532, 27531,96933,19933,53933,78234,71234, 52334,791Excess48I 7665,0116 6463,3902 3761 0481 2841 491'9009867978031 0278267236937035946525775164827565685725364114523923454552572721653 2193 1931731242331361042041472551622473 3142193 342205295152118593432462372002041931 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 mifiion.Source: Board of Governors of the Federal Reserve System.315

TABLE C-57.—Aggregate reserves and member bank deposits, 1959-73[Averages of daily figures; i billions of dollars, seasonally adjusted]Year andmonthTotalMember bank reserves 2RequiredN on borrowedAvailable3TotalDeposits subject to reserverequirements *TimeandsavingsPrivateDemandU.S.GovernmentTotalmemberbankdepositsplusnondeposititems 81959: Dec18.5717.6318.0716.62158.254.399.04.8158.21960: Dec1961: Dec .1962: Dec1963: Dec1964: Dec18.8819.7119.6420.2621.1818.8119.5719.3819.9320.9118 1419.1219.0719.7720.7717 0117.7117.5818.2619.08162 5175.5189.0203.2218.758 867.779.992.1103.899 1102.9103.3105.9109.14.54.95.75.25.9162 5175.5189.0203.4220.11965: Dec1966: Dec1967: Dec .1968: Dec1969: Dec22.2423.3424.8127.2828.0121.8022 8124.5826.5426.9021.8223.0024.4426.8627.7320.2121.4022.5024.8625.40238.5246.7275.5299.6287.7120.6128 6148.8164.4150.4112.8113 9121.2130.3131.95.14.25.54.95.3240.0250 9279.9306.6307.71970: Dec1971: Dec1972: Dec1973: Dec29.1931.3031.4135.1128.8631.1730.3633.8128.9531.1231.1334.8027.1028.9629.0532.91321.3360.3402.0442.2178.8210.4241.4279.0136.1143.8154.5158.36.56.16.14.9332.9364.3406 4449.61972: JanFeb .MarAprMayJune31.7631.6831.9832.5732.8232.9931.7431.6431.8832.4532.7132.8831.5531.5231.7932.4232.6832.7829.1829.3629.6629.8329.9430.17363.5365.7370.2374.5378.9380.9213.6216.2217.3219.4222.8225.6143.5145.2147.2147.6148.4149.36.44.25.77.57.86.0367 5369.3373.9378.1382.7384 7JulyAugSeptOctNovDec33.1733.3933.3533.8131.9231.4132.9333.0032.8133.2531.3230.3632.9733.2033.1433.5931.5731.1330.3830.6530.9631.0629.6229.05384.4387.3390.4394.1398.4402.0228.0230.4233.1235.6238.7241.4150.9151.8152.4152.8152.9154.55.55.04.95.86.86.1388.3391.4394.5398.4402.7406.41973: JanFeb ...MarAprMayJuneJulyAugSeptOctNovDec* 532.2031.6331.9132.3032.4432.4633.5833.9134.1734.9434.8635.1131.0430.0430.0830.5930.6030.6131.6231.7432.3233.4733.4633.8131.9431.4331.7032.0832.2932.2233.2933.7333.9534.7234.6234.8029.4429.3729.6229.8730.1130.5531.3632.0432.3932.8432.7132.91404.7409.0416.3421.4425.1428.9431.1436.7438.6439.7440.4442.2244.0248.9255.4260.9265.1267.3270.1275.0277.5277.3277.1279.0154.0154.0153.3153.4154.8156.3157.1157.0156.2156.4157.5158.36.76.17.67.15.25.33.94.85.06.05.84.9409.7413.5421.2426.6430.5434.5437.6443.8445.9446.5447.5449.61 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.< 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.s 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, 1929-73(Percent per annum]Year or month3-monthTreasurybills iU.S. Government securities9-12monthissues 23-5yearissues 3Taxablebonds*Corporatebonds(Moody's)AaaBaaHighgrademunicipalbonds(Standard&Poor's)Averagerate onshorttermbankloansto businessselectedcitiesPrimecommercial'?.%•monthsFederalReserveBankdiscountrateFHAnewhomemortgageyields 51929 ...4.735.904.275.855.161933 .0.5152.664.497.764.711.732.561939.023.593.014.962.762.1.591.0019401941 .194219431944.014.103.326.373.3750.75.79.50.731.461.341.332.462.472.482.842.772.832.73? 1?4.754.334.283.913.612.502.102.362.061.862.12.02.22.62.4.56.53.66.69.731.001.006 1.00fi 1.00« 1.001945 ..194619471948 .1949.375.375.5941.0401.102.81.82.881.141.141.181.161.321.621.432.372.192.252.442.312.62? 532.612.82? 6fi3.293.053.243.473.421.671.642.012.402.212.22.12.12.52.68.75.811.031.441.49«1.006 1.001.001.341.504.341950 . . ..19511952195319541.2181.5521.7661.931.9531.261.731.812.07.921.501.932.132.561.822.322.572.682.942.552.62? 862.963.202.903.243.413.523.743.511.982.002.192.722.372.693.113.493.693.611.452.162.332.521.581.591.751.751.991.604.174.214.294.614.62195519561957195819591.7532.6583.2671 8393.4051.892.833.532.094.112.503.123.622.904.332.843.083.473.434.073.063.363.893.794.383.533 884.714 735.052.532.933.603.563.953.704.204.624.347 5.002.183.313.812 463.971.892.773.122.153.364.644.795.425.495.7119601961 .1962196319642 9282.3782.7783.1573.5493.552.913.023.283.763.993.603.573.724.064.013.903.954.004.154.414.354.334.264.405.195.085.024.864.833.733.463.183.233.225.164.975.005.014.993.852.973.263.553.973.533.003.003.233.556.185.805.615.475.451965196619671968 ..196919701971 .1972...1973 ..3.9544.8814.3215.3396.6776 4584.3484.0717.0414.095.174.845.627.066 904.754.867.304.225.165.075.596.857 375.775.856.924.214.664.855.256.106 595.745.636.304.495 n5.516.187.038 047.397.217.444.875.676 236.947.819 118.568.168.243.273.823.984.515.816 515.705.275.185.066.007 6.006.688.218 487 6.325.828.304.385.555.105.907.837.725.114.698.154.044.504.195.175.875.954.884.506.445.466.296.557.138.199.057.787.538.08See next page for continuation of table and for footnotes.527-867 O - 74 - 21317

TABLE G-58.—Bond yields and interest rates, 1929-73—Continued(Percent per annumlYear or month3-monthTreasurybills iU.S. Government securities9-12monthissues 23-5yearissues 3Taxablebonds 4Corporatebonds(Moody's)AaaBaaHighgrademunicipalbonds(Standard&Poor's)Averagerate onshorttermbankloansto businessselectedcitiesPrimecommercialpaper,monthsFederalReserveBankdiscountrateFHAnewhomemortgageyields s1971: JanFebMarAprMayJune4.4943.7733.3233.7804.1394.6994.293.803.664.214.935.575.725.314.745.426.026.365.915.845.715.755.965.947.367.087.217.257.537.648.748.398.468.458.628.755.705.555.445.656.146.227 6.596.015.114.474.194.575 105.455.234.914 754.754 754 758.407 327 377 75JulyAugSeptOctNovDec5.4055.0784.6684.4894.1914.0235.895.675.314.744.504.386.776.395.965.685.505.425.915.785.565.465.445.627.647.597.447.397.267.258.768.768.598.488.388.386.315.955.525.245.305.366.516.185.755.735.755.544.924.744 885.005.005 004.904.637 897.977.927 847.757.621S72: Jan .FebMarAprMayJune3.4033.1803.7233.7233.6483.8743.994.074.544.844.584.875.335.515.746.015.695.775.625.675.665.745.645.597.197.277.247.307.307.238.238.238.248.248.238.205.255.335.305.455.265.375.525.594.083.934.174.584.514.644.504.504.504.504.504.507.597.497 467.457.507 53JulvAugSeptOctNovDec4.0594.0144.6514.7194.7745.0614.894.915.495.415.225.465.865.926.166.116.036.075.575.545.705.695.505.637.217.197.227.217.127.088.238.198.098.067.997.935.395.295.365.205.035.035.846.334.854.825.145.305.255.454 504.504.504.504.504.507 547.547.557 567.577.571973: JanFebMarAprMayJune5.3075.5586.0546.2896.3487.1885.786.076.816.796.837.276.296.616.856.746.786.765.946.146.206.116.226.327.157.227.297.267.297.377.907.978.038.098.068.135.055.125.305.165.125.156.527.355.786.226.857.147.277.994.775.055.505.505.906.337.567.557.567.637.737.79JulyAugSeptOctNovDec8.0158.6728 4787.1557.8667.3648.378.828.447.427.667.387.497.757.166.816.966.806.536.816.426.266.316.357.457.687.637.607.677.688.248.538.638.418.428.485.395.475.115.055.175.129.2410.089.1810.2110.238.928.949.086.987.297.507.507.507.507.898.199.188.978.861 Rate on new issues within period. First issued in December 1929.3 Certificates of indebtedness and selected note and bond issues.3 Selected note and bond issues.* First issued in 1941. Series includes bonds which are neither due nor callable before a given number of years as follows:April 1953 to date, 10 years; April 1952-March 1953,12 years; October 1941-March 1952,15 years.* Data for first of the month, based on the maximum permissible interest rate (8H percent beginning August 25,1973).Through July 1961, computed on 25-year mortgages paid in 12 years and thereafter, 30-year mortgages paid in 15 years.6 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 less.7 Series revised. Not strictly comparable with earlier data.N Ote.—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

TABLE C-59.—Short- and intermediate-term consumer credit outstanding, 1929-73[Millions of dollars]End of year ormonthTotalTotalInstalment creditAutomobilepaperOtherconsumergoodspaperHomeimprovementloans*Personalloansr^oninstalmentcrediTotalOther 2ChargeaccountsAddendum:Policyloans bylife insurancecompaniess1929.7,1163, 5241,3841,544275693, 5921,9961, 5962,37919333,8851, 7?349379915416?, lfi?1,2868763 7691939.7,2224, 5031,4971,6202981,088? 7191,4141 3053,248194019411942.194319441945.19461947.1948.1949.8,3389,1725,9834,9015,1115,6658,38411, 59814,44717, 364\ 5146 085166?' 13fi? 1762, 4624, 17?6, 6958 99611, 5902,0712,4587423553974559811,9243,0184,5551,8271,9291,1958197918161,2902,1432,9013,7063713762551301191824057188538981,2451,3229748328691,0091,4961,9102,2242,431?, 8?43 0872, 817?, 7fiS2, 9353,2034,2124, 9035 4f>15, 7741 4711,6451,4441 440i; 5171,6122,0762,3812,7222,8541, 3S31, 44?1, 3731, 3? 1 )1, 418591?\ 1362, 522? 7?92, 9203 0912 9192,6832 3732 1341,9621 8941,9372,0572,24019501951.195219531954.195519561957.19581959.21,47122,71227, 52031,39332,46438, 83042,33444,97145,12951, 54414, 70S15, 29419, 403?\ DOS23, 568?8,31, 7?n33, 86833, fi4?39,2476,0745,9727,7339,8359,80913,46014, 42015, 34014,15216,4204,7994,8806,1746,7796,7517,6418,6068,8449,02810,6311,0161,0851,3851,6101,6161,6931,9052,1012,3462,8092,8143,3574,1114,7815,3926,1126,7897,5828,1169,386fi, 7fiR7, 4188, 1178,3888, 8969, 9?4in, 614ii, 10311, 48712, 2973,3673,7004 1304,2744,4854 7954,9955,1465 0605,1043 4013, 7183, 9874, 1144, 4115, 1?9\ 6195, 957fi, 4?77, 1932,4132,5902 7132,9143,1273,2903,5193,8694,1884,61819601961.1962.19631964.196519661967.19681969.56,14157,98263, 82171,73980, 26889, 88396, 239100,783110,770121,14642,96843, 89148, 72055,6?70,76,7987,48669?893?454?874597,10517,65817,13519, 38122, 25424, 93428,43730,01029, 79632,94835, 52711,54511,86212,62714,17716,33318, 48320, 73222, 38924, 62628,3133,1483,2213,2983,4373,5773,7363,8414,0084,2394,61310,61711,67313,41415,61817, 84820, 23721,66223, 23525, 93228,65217314, 09115 10116, ?S317, 57fi18,99019,994?1 355?3, 0?524, 0415,3295,3245,6845,9036,1956,4306,6867,0707,1937,3737, 8448,7679,41710 3sn 11 3811? •ifif)13 30814 ?8515 83?16,6685,2315,7336,2346,6557,1407,6789,11710,05911,30613,82519701971.1972.1973*1972:Jan ...FebMarAprMayJune127,163138,394157, 564180, 800137,426136,941137,879139,410141,450143,812102, 064111,295127, 332148,100110,110111112114116757510?574391833fi535,18438,66444,12951, 40038,45038,51638,85339, 34840, 06341,01931,46534,35340,08047, 75034, 04633, 57933, 69533, 98134, 43935, 0415,0705,4136,2017 3505,3995,4035,4375,5045,6045,71730, 34532, 86536,92241,60032, 86233,01233, 27233, 60634, 07734, 588?5 09927 09930 2323? 70026 66926 431?6 6??26 97127 ?fi727, 4477,9688,3509,0029,6007,6306,9876,9637,1797,4647,61017,13118 74921 230?3 inn19 03919 44419 65919 79219 80319 83716,06417,06518, 00317,13017,18617,26717,35217,43417,522July. .. .AugSept. . .Oct.NovDec145,214147, 631148,976150, 576152, 968157, 564117,702119,911121,193122, 50512412732533241,60342, 32342, 64443,16243, 67444,12935, 47036,18836, 74537,21638, 06440, 0805,7975,9506,0496,1246,1746,20134, 83235, 45035, 75536, 00336, 41336, 92227 512?7 7?n27 783?8 07128 64330 2327,6447,7177,6937,7808,0109,00219,86820, 00320, 09020, 29120, 63321, 23017,60117,69117, 77117,85517,92718, 003197 VJanFebMarAprMay .June157, 227 1?7 3fi8157, 582 127 959159, 320 129 375161,491 131 0??164, 277 133 531167, 083 136,01844, 35344,81745,61046, 47847, 51848, 54939, 95239,79539,95140, 44141, 09641, 8536,1936,2396,3286,4086,5416,68836, 87037,10837, 48637, 69538,37638,92829 8S929, 62329,94530.46930 74fi31 0658,3577,6467,7028,0368,3198,55521 r 50221 97722 243?? 433?? 4?722 ,51018, 08018,16618, 28818, 42018, 53318, 673JulyAugSeptOct .Nov .Dec 4169,148171,978173, 035174,840176,969180,800138 r 212140 81014? 093143 610145 400148 10049,35250,23250,55751,09251,37151,40042,57543, 50544, 01944, 63245,59247, 7506,8457,0097 1207,2357,3217,35039,44040, 06440,39740,65141,11641,60030313n 31313293616894?2305697008,4798,6058,3358,5908,7859,600?? 457?? 563?? 60722,640?? 78423,10018, 84119,18119,51119,76819, 9261 Holdings of financial institutions only; holdings of retail outlets are included in other consumer goods paper.2 Single-payment loans and service credit.3 Data are annual statement asset values. These loans are not included in consumer credit series.* Preliminary; by Council of Economic Advisers.Sources: Board of Governors of the Federal Reserve System and Institute of Life Insurance (except as noted).319

TABLE C-60.—Instalment credit extended and repaid, 1946-73[Millions of dollars]Year or monthTotalAutomobilepaperOther consumergoods paperHome improvementloansPersonalloansExtendedRepaidExtendedRepaidExtendedRepaidExtendedRepaidExtendedRepaid1946194719481949 .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 9574,33519501951195219531954 .21, 55823, 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 5937,3368,2551955195619571958195938,97239, 86642,01940,11048, 04833,63437, 05639, 87040,33942,60316,73415,51516, 46514,22617, 77913,08214, 55515, 54515,41515, 57910,64211,72111,81011,73813,9819,75210 75811,57411,55712, 4021,3931,5821,6741,8712,2221,3161 3701,4771,6261,76510, 20311 05112 06912, 27514,0709,48410 37311 27611,74112, 857196019611962196319641965196619671968196949,79349 04856,19163, 59170,67078 66182,83287,17199,984109,14646,07348,12451,36056,82563,47070,46377,48083,98891,66799,78617,65716 02919,69422,12624,04627, 20827,19226,32031, 08332, 55316,41916, 55217,44719,25421,36923,70625,61926,53427,93129,97414, 52514,55115,70117,92020,82122,85726,32929,50433,50738,33213,61314, 23514,93516,36918,66620,70724,08027,84731,27034,6452,2152,0922,0842,1862,2252,2702,2232,3692,5342,8311,8762,0152,0102,0462,0862,1122,1182,2022,3032,45715,39616 37718,71021, 35923, 57826.32627,08828,97832,86035,43014,16515 31916 96919,15621,34923 93825,66327,40530,16332,710197019711972..19731112,158124,2811*2,951165,800107,199115, 050126,914145,00029,79434,87340,19446,80030,13731, 39334,72939,50043, 87347,82155, 59967,10040,72144,93349,87259,4002,9633,2444,0064,7002,5062,9013,2183,60035, 52838,34343,15247,20033,83535,82339,09542,500Seasonally 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 I11,11610,95211,74111,37411,68712,05711,68712,48411,95312,40412,84612,62713,30413,43413, 85213, 46513,93213, 64614, 54214, 29413,69114,14914,27513,60010,01510, 06910,42710,38410,35510,67110,59310,84110,66710,90811,12810,96411,35511,43711,80812,06111,94112, 03412, 54412,39912, 33212,44912,54912,4003,0893,1003,1763,1623,2743,4123,2983,4913,3683,5043,6203,7634,0063,9724,0013,8223,9893,7623,9303,9683,9393,9123,8193,6002,7952,7762,8312,8672,8192,9222,9172,8962,8733,0413,0232,9773,0973,1453,2253,2183,2613,2533,3343,2933,4063,4273,4713,4504,2584,0524,4534,3704,3934,5774,6844,9904,7724,9715,1184,8765,2825,2455,3495,5635,5045,5055,9435,9615,5375,9115,9785,7003,9053,8783,9443,9863,9814,1644,2494,3954,3034,3544,4444,3414,6494,6274,7554,9634,9174,9555,1415,1685,0725,1495,1545,0503092963233313343513283713403353273513293644063653744004334084104154024502562532622682872832792702632632712632672752862942903003082983223083013003,4603,5043,7893,5113,6863,7173,3773,6323,4733,5943,7813,6373,6873,8534,0963,7154,0653,9794,2363,9573,8053,9114,0763,8503,0593,1623,3903,2633,2683,3023,1483,2803,2283,2503,3903,3833,3423,3903,5423,5863,4733,5263,7613,6403,5323,5653,6233,6001 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, 1939-73[Billions of dollars]Nonfarm propertiesNonfarm properties by type of mortgageEnd of yearor quarterAllpropertiesTotal1- to 4-familyhousesFarmpropertiesMultifamilypropertiesCommercialpropertiesiTotalGovernment underwritten1- to 4-family housesTotalFHAinsuredVAguaranteedConventional *Total1- to 4-familyhouses193935.56.628.916.35.67.01.81.81.827.114.5194019411942 .1943194436.537.636.735.334.76.56.46.05.44.930.031.230.829.929.717.418.418.217.817.95.75.95.85.85.66.97.06.76.36.22.33.03.74.14.22.33.03.74.14.22.33.03.74.14.227.728.227.125.825.515.115.414.513.713.71945194619471948 .194935.541.848.956.262.74.84.95.15.35.630.836.943.950.957.118.623.028.233.337.65.76.16.67.58.66.47.79.110.210.84.36.39.813.618.14.36.19.312.515.04.13.73.85.36.90.22.45.57.28.126.530.634.137.339.014.316.918.920.822.6195019511952 .1953195472.882.391.4101.3113.76.16.77.27.78.266.775.684.293.6105.445.251.758.566.175.710.111.512.312.913.511.512.513.414.516.322.126.629.332.136.218.922.925.428.132.18.69.710.812.012.810.313.214.616.119.344.649.054.961.569.226.328.833.138.043.619551956 .195719581959129.9144.5156.5171.8190.89.09.810.411.112.1120.9134.6146.1160.7178.788.299.0107.6117.7130.914.314.915.316.818.718.320.723.226.129.242.947.851.655.159.338.943.947.250.153.814.315.516.519.723.824.628.430.730.430.078.086.894.6105.5119.449.355.160.467.677.01960. .1961196219631964206.8226.3248.6274.3300.112.813.915.216.818.9194.0212.4233.4257.4281.2141.3153.1166.5182.2197.620.323.025.829.033.632.436.441.146.250.062.365.669.473.477.256.459.162.265.969.226.729.532.335.038.329.729.629.930.930.9131.7146.8164.1184.0204.084.893.9104.3116.3128.3196519661967...19681969325.8347.4370.2397.5425.321.223.325.527.529.5304.6324.1344.8370.0395.9212.9223.6236.1251.2266.837.240.343.947.352.254.560.164.871.476.981.284.188.293.4100.273.176.179.984.490.242.044.847.450.654.531.131.332.533.835.7223.4240.0256.6276.6295.7139.8147.6156.1166.8176.6197019711972 *1973 *451.7499.9565.4633.731.232.935.439.4420.5467.0530.0594.3280.2307.8346.1383.858.066.876.486.982.392.4107.5123.6109.2120.7131.197.2105.2113.059.965.768.237.339.544.7311.3346.3398.8182.9202.6233 11971:1 ..IIIII....IV459.0471.1485.6499.931.831.932.432.9427.2439.3453.2467.0283.6290.9299.7307.859.762.164.366.883.986.389.292.4111.0114.4117.5120.798.2100.4102.9105.261.062.864.465.737.337.638.539.5316.2324.9335.7346.3185.3190.5196.8202.61972:1 P . . . .II *>-..III *...I V P _ _ ,511.7529.1547.3565.433.534.435.035.4478.2494.8512.3530.0314.1324.6335.8346.168.871.373.576.495.398.9103.0107.5123.7126.6129.0131.1107.5109.6111.5113.066.867.668.468.240.742.043.144.7354.5368.2383.3398.8206.6215.0224.3233.11973: !*__-_II *.__Ill pIV*.-580.1600.4619.9633.736.537.738.739.4543.6562.7581.2594.3353.9365.7376.6383.879.082.285.086.9110.7114.8119.5123.6132.5133.6113.7114.767.967.545.847.2410.9429.1240.2251.01 Includes negligible amount of farm loans held by savings and loan associations.3 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, 1939-73[Billions of dollars]Selected financial institutionsOther lendersEnd of yearor quarterTotalTotalMutualsavingsbanksSavingsandloanassociationsCommercialbanks iU.S.agencies 2LifeinsurancecompaniesIndividualsandothers193935.518.63.84.84.35.75.011.919401941194219431944194519461947194819491950195119521953195419551956195719581959 .36.537.636.735.334.735.541.848.956.262.772.882.391.4101.3113.7129.9144.5156.5171.8190.819.520.720.720.220.221.026.031.837.842.951.759.566 975 185.799 3111.2119.7131 5145.54.14.64 64.64.85.47.18 910.311.613.715.618 422 026.131 435.740.045 653.14.94.84 64.44.34.24.44 95.86.78.39.911 412 915.017 519.721.223 325.04.64.94 74.54.44.87.29 410.911.613.714.715 916 818.621 022.723.325 528.16.06.46 76.76.76.67.28 710.812.916.119.321 323 326.029 433.035.237 139.24.94.74.33.63.02.42.01 81.92.42.73.44 04 44.65 26.07.57 810.012.012.211 711.511.512.113.815 316.517.418.419.420 521.823.425.427.329.332.535.41960196119621963196419651966196719681969197019711972*1973 »206.8226.3248.6274.3300.1325.8347.4370.2397.5425.3451.7499.9565.4633.7157.6172 6192.5217.1241.0264.6280.8298 8319 9339.1355 9394.4450.6504.560.168 878.890.9101.3110.3114.4121 8130 8140.2150 3174.4206.4232.626.929 132.336.240.644.647.350 553.556.157 962.067.673.228.830 434.539.444.049.754.459 065 770.773 382.599.3118.141.844 246.950.555.260.064.667 570.072.074.475.577.380.611.211.812.211.211.412.415.818.421.726.833.039.445.855.338.041.944.045.947.748.750.953.055.859.462.866.269.073.91971: 1 IIIIIIV1972: 1 vII vIll vIV v459.0471.1485.6499.9511.7529.1547.3565.4361.8372 0383.5394.4404.2418.9434.6450.6154.2161 2168.2174.4180 1188.9197.9206.458.759 660.662.063 064.465.967.674.476 679.982.585 690.195.099.374.574 574.875.575 475.575.877.333.635.237.439.441.242.744.345.863.563.964.666.266.467.568.369.01973:1 P.II pIII pIV*>_580.1600.4619.9633.7463.3480.5494.9504.5213.3222.8229.4232.668.970.672.073.2103.5109.1114.4118.177.677.979.080.647.349.053.055.369.571.071.973.91 Includes loans held by nondeposit trust companies, but not by bank trust departments.2 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 MortgageCorporation. 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, 1929-72 *[Billions of dollars]PublicPrivateIndividual and noncorporateEnd of year192919331939194019411942_19431944194519461947.19481949 -19501951 __195219531954195519561957._.1958195919601961 _cv to a19631964 -1965 ..1966196719681969197019711972Total191.9168.5183.3189.8211.4258.6313.2370 6405.9396 6415.7431.3445.8486.2519.2550.2581.6605.9665.8698.4728.3769.6833.01, 243.61 338.7111 438.7582.5735.01 854.12 018.32 227.3FederalGovernment216. 524.342.644.856.101. 7154. 4211. q252. 5229.221. 7215.36?17 49m' 5226 8229. 16224. 30n4231241874.2 ?^q 8930.3 246. 7996.0 ?53 61, 070.9 257. 51, 151.6 264.0266.4271.8286.5291.9289.3301.1325.9341.2Federalfinancialagencies30.7.6.7.71.31.31.41.32.92.42.42.53.73.54.05.37.27.58.911.29.021.430.638.839.842.613.616.316.416.416.115.414.513.913.413.715.017.019.121.724.227.030.735.541.144.548.653.759.664.970.577.083.990.498.3104.8113.4123.9132.6144.8163.0176.5161.8127.9124.3128.6139.0141.5144.3144.8140.0153.4178.3198.4208.4246.4276.8300.4322.7340.0392.2427.2454.3482.4528.3566.1609.1660.1722.3789.7870.0950.81, 029.91, 145.41 ,282.61, 369. 4,489.6,667.011Total88.976.973.575.683.491.695.594.185.393.5108.9117.8118.0142.1162.5171.0179.5182.8212.1231.7246.7259.5283.3302.8324.3348.2376.4409.6454.3506.6553.7631.5734.2793.5858.6952.3Total72.951.050.853.055.649.948.850.754.759.969.480.690.4104.3114.3129.4143.2157.2180.1195.5207.6222.9245.0263.3284.8311.9345.8380.1415.7444.2476.2513.9548.4575.9631.0714.7Farrrl *Total?1? 60.79. 1 41.98. 8 42.0q 1 43.9q 46.39. 0 40.98 40.57. 7 42.97 3 47.478. 6 52.36 60.7in 8 69.71? 0 78.412. 92.013.7 100.615.2 114.216. 8 126.417.5 139.718.7 161.419.4 176.120.2 187.4?3 199.7?3 8 221.21 238.227 5 257.330 281.7312.636 0 344.139 3 376.442 4385 401.848 427.951 462.155 492.9728586367517.2567.8646.9Nonfarm31.226.325.026.127.126.826.126.027.031.837.242.447.154.861.768.976.786.498.7109.4118.1128.1141.0151.3164.5180.3198 6218.9236.8251.6266.9284.9303.9320.9352.6397.8StateandlocalgovernmentsCorporateMortgageCommercialandfinancial*49. 7 89.953. 92 96.260. 100.866. 4 110.867. 9 121.1195Consumer22. 411.79.87.13.97.29.5 8 3in 8.n 9.2l 6.09 4.911. 8 5.114. 712 15.78 411 q 11.61? q 14.4nq 17.48 21.516. 22.717 8 27.518 4 31.420. 8 32.524. n24.424.3?6 5?8 7838.842.345.045.151.556.134. 8 58.0V4?6 63.871.745. 0 80.369.76.91.127.2138.4157.61 Net public and private debt is a comprehensive aggregate of the indebtedness of borrowers after eliminating certaintypes of duplicating governmental and corporate debt.2 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 30,1975."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,s 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, andFederal National Mortgage Association.323

GOVERNMENT FINANCETABLE C-64.—Federal budget receipts and outlays, fiscal years 1929-75[Millions of dollars]Fiscal yearReceiptsOutlaysSurplus ordeficit (-)19293,8623,12773419331,9974,598-2,60219394,9798,841-3,8621940 .194119421943 .. ..19446,8799,20215,10425,09747,8189,58913,98034,50078,90993,956-2,710-4,778-19,396-53,812-46,1381945 ..194619471948 .. .194950,16243 53743,53145,35741 57695,18461,73836,93136,49340,570-45,022-18,2016,6008,8641,006195019511952 - ,1953195440,94053 39068,01171,49569,71943,14745,79767,96276,76970,890-2,2077,59349-5,274-1,1701955... ..19561957 .1958195965,46974 54779,99079,63679,24968,50970,46076,74182, 57592,104-3,0414,0873,249-2,939-12,8551960196119621963196492,49294,38999,676106,560112,66292,22397,795106,813111,311118,584269-3,406-7,137-4,751-5,922196519661967—1968196919701971 .197219731974 I1975 I116,833130,856149,552153,671187,784193,743188,392208,649232, 225270, 000295,000118,430134,652158,254178,833184,548196,588211,425231,876246, 526274,660304,445-1,596-3,796-8,702-25,1613,236-2,845-23,033-23,227-14,301-4,660-9,445i Estimate.Note.—Data for 1929-39 are according to the administrative budget, those for 1940-53 according to the consolidatedcash statement, and those for 1954-75 according to the unified budget.Certain interfund 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, financing, and debt, fiscal years 1964—75{Millions of dollars; fiscal years]DescriptionActual1964 1965 1966 1967 1968 1969BUDGET RECEIPTS AND OUTLAYS:Total receipts112,662116,833130,856149,552153,671187, 784Federal fundsTrust fundsInterfund transactions.87,20528,518-3,06190,94329,230-3,339101,42732,997-3,568111,83542,935-5, 218114,72644,716-5,771143,32152,009-7, 547Total outlays118,584118,430134,652158, 254178, 833184, 548Federal fundsTrust fundsInterfund transactions.95,76125,884-3,06194,80726,962-3,339106, 51231,708-3, 568126,77936,693-5,218143,10541, 499-5,771148,81143, 284-7, 547Total surplus or deficit (-)_-5,922-1, 596-3,796-8,702-25,1613,236Federal funds..Trust funds...-8,5562,634-3,8642,268-5,0851,289-14,9446,242-28,3793,217-5,4908,725BUDGET FINANCING:Total means of financing.5,9221,5963,7968,70225,1611-3,236Net borrowing from the public orrepayment of borrowing (-)Other means of financing3,0922,8304,061-2,4653,0767202,8385,86323,1002,061-1,044-2,192OUTSTANDING DEBT, END OF YEAR:Gross Federal debt316,763323,154329,474341,348369,769367,144Held by Government agencies..Held by the public59,210257,55361, 540261,61464,784264,69073, 819267,52979,140290,62987,661279, 483Federal Reserve System.Others34,794222, 75939,100222, 51442,169222,52146,719220,81052, 230238, 39954, 095225, 388BUDGET RECEIPTS.112,662116,833130,856149,552153,671187,784Individual income taxesCorporation income taxesSocial insurance taxes and contributions...Excise taxesEstate and gift taxes..Customs dutiesMiscellaneous receipts:Deposit of earnings by Federal ReserveSystemAllother48,69723,49322,01213,7312,3941,25294713848,79225,46122, 25814, 5702,7161,4421,37211155,44630,07325, 56713, 0623,0661,7671,71316261, 52633,97133,34913,7192,9781,9011,80530368, 72628,66534, 62214,0793,0512,0382,09140087, 24936,67839,91815, 2223,4912,3192,662247BUDGET OUTLAYS.118, 584118,430134,652158,254178, 833184, 548National defenseInternational affairs and financeSpace research and technologyAgriculture and rural developmentNatural resources and environmentCommerce and transportationCommunity development and housingEducation and manpowerHealthIncome securityVeterans benefits and services..InterestGeneral governmentGeneral revenue sharing....AllowancesUndistributed intragovernmental transactions:Employer share, employee retirement-Interest received by trust funds53, 5914,1174,1705,1841,9666,531-1851,7621,71325,1415,6819,8101,979-1,256-1,62149, 5784,3405,0914,8052,0567,4402882,2901,70025,7115,72210,3582,160-1,329-1,78056,7854,4905,9333,6762,0367,3022,6444,2652,50528,9325,92111,2852,240-1,447-1,91770,0814,5475,4234,3731,8787,6472,6165,8806,66131,1686,89912, 5882,429-1,661-2, 27580,5174,6194,7215,9401,7228,1264,0766,7439,60334,1396,88213,7462,500-1,825-2,67481, 2323,7854,2476,2182,1697,9421,9616,52911,60437,7487,64015,7912,800-2,018-3, 099See next page for continuation of table and for footnotes.325

TABLE C-65.—Federal budget receipts, outlays, financing, and debt, fiscal years 1964—75—Con.[Millions of dollars; fiscal years]DescriptionActual1970 1971 1972 1973Estimate1974 1975BUDGET RECEIPTS AND OUTLAYS:Total receipts.Federal fundsTrust fundsInterfund transactionsTotal outlays.Federal fundsTrust funds .Interfund transactions.Total surplus or deficit (—)..Federal funds.._Trust fundsBUDGET FINANCING:Total means of financing...Net borrowing from the public or repaymentof borrowing (—)Other means of financingOUTSTANDING DEBT, END OF YEAR:Gross Federal debtHeld by Government agencies.Held by the publicFederal Reserve System.OthersBUDGET RECEIPTS.Individual income taxesCorporation income taxesSocial insurance taxes and contributions..Excise taxesEstate and gift taxesCustoms dutiesMiscellaneous receipts:Deposit of earnings by Federal ReserveSystem.AllotherBUDGET OUTLAYS.National defenseInternational affairs and financeSpace research and technologyAgriculture and rural developmentNatural resources and environmentCommerce and transportationCommunity development and housingEducation and manpowerHealthIncome securityVeterans benefits and servicesInterestGeneral governmentGeneral revenue sharingAllowancesUndistributed intragovernmental transactions:Employer share, employee retirement.Interest received by trust funds193,743143,15859,362-8,778196,588156,30149,065-8,778-2,845-13,14310,29712,8453,814-969382,60397,723284,88057,714227,166193,74390,41232,82945,29815,7053,6442,4303,266158196,58880, 2953,5703,7496,2012,5689,4552,9657,28912,89843, 7348,67718,3123,255-2,444-3,936188,392133,78566,193-11,586211,425163,65159,361-11,586-23,033-29, 8666,83223,03319,4483,585409,457105,140304,32865,518238,810188,39286, 23026,78548,57816,6143,7352,5913,533325211,42577,6613,0953,3815,0962,71611,4283,3578,22614,45256,1289,77619, 6093,875-2,611-4, 765208,649148,84672,959-13,156231,876177,95967,073-13,156-23, 227-29,1145,88623, 22719,4423,785437,329113,559323, 77071,426252,344208,64994,73732,16653,91415,4775,4363,2873,252381231,87678,3363,7263,4227,0633,76111,2844,2829,75217,09964,90910,73120,5824,787-2,768-5,089232,225161,35792,193-21,325246,526186,40681, 447-21,325-14,301-25,04610,74614,30119,275-4,974468,426125,381343, 04575,182267,863232,225103, 24636,15364,54216, 2604,9173,1883,495426246,52676,0212,9573,3116,19158913,0704,13210,18518,41773, 07312,01322,8135,4806,636-2,927-5,436270,000185,581105,548-21,129274,660203, 71592,075-21,129-4,660-18,13314,4734,6603,5001,160486,350139,806346,545270,000118,00043,00077,90717,1445,4003,5004,400649274,66080,5733,8863,1774,03960913,5215,45010,81923, 26884,99513, 28527, 7546,8006,147300-3,543-6,420295,000202, 757115,818-23,575304,445220,636107,385-23,575-9,445-17,8788,4339,44512,500-3, 055507,973148,929359, 045295,000129, 00048, 00085,60317, 4446,0003,8004,700453304, 44587,7294,1033,2722,7293,12813,4005,66711,53726, 282100,07113,61229,1226,7746,1741,561-3,577-7,140i Excludes changes due to reclassification and to conversion of mixed-ownership enterprises to private ownership. (Seefootnotes to Table 9, "Budget of the United States Government for the Fiscal Year Ending June 30, 1971," and footnotesto Table 10, "Budget of the United States Government for the Fiscal Year Ending June 30,1972.")Sources: Department of the Treasury and Office of Management and Budget.326

TABLE C-66.—Relation of the Federal budget to the Federal sector of the national income andproduct accounts, fiscal years 1972—75[Billions of dollars; fiscal years]Receipts and expenditures1972Actual19731974Estimate1975RECEIPTSTotal receipts, budget208.6232.2270.0295.0Government contribution for employee retirement(grossing)Other netting and grossingAdjustment to accrualsOther .3.31.6.5-.43.71.76.1-.44.41.55.4-.84.51.64.3-.6Federal sector, national income and product accounts,receipts213.7243.3280.5304.8EXPENDITURESTotal outlays, budget231.9246.5274.7304.4Lending and financial transactionsGovernment contribution for employee retirement(grossing)Other netting and grossingDefense timing adjustmentOther-2.43.31.6-.3-1.0-1.63.71.72.32.5-2.44.41.5-.47.4-2.04.51.6-.25.1Federal sector, national income and product accounts,expenditures233.2255.1285.2313.4Note.—See Special Analysis A, "Budget of the United States Government for the Fiscal Year Ending June 30, 1975,"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, 1929-73[Billions of dollars]1929.19331939...1940...L9411942 ..19431944 ..1945194619471948 .1949Calendar year or quarter1950... . .19511952...19531954...19551956 ..19571958 .1959196019611962196319641965 .196619671968...19691970197119721973*11.3Total government9.315.417.725.032.649 251.253.250.956.858.956.068.784 889.894 389.7100 4109.0115 6114.7128.9139 8144.6157.0168.8174.1189.1213.3228 9263.5296.7302.5322.0368.2419.010.310.717.618 428.864 093 3103 092.745 542.450 359.160.879 093.7101 296.797 6104.1114 9127 2131.0136 1149 0159.9166.9175 4186.9212 3242 9270.3287.9312.7340.2370.9407.4ReceiptsExpendituresSurplusordeficit1.0-1.4-2.2_ 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 7-12 5-2.13 7-4 3-2.91.8-1 42.21.1-13 9-6.88.8-10.1-18.1-2.811.6Federal GovernmentState and localgovernment203.9 -11.9 135.0 133.2 1.8221.0 -22.2 152.3 148.3 4.0244.6 -15.9 177.2 164.0 13.1264.7 .6 194.8 183.8 11.0Surplusorplus orSur-deficitdeficitExpendituresincome ceiptsnational Re-Expendituresnationalandincomeandproductacuctac-prodcountcounts3.8 2.6 1.2 7.6 7.8 -0.22.7 4.0 -1.3 7.2 7.2 -.16.7 8.9 -2.2 9.6 9.6 0)10.0 -1 3 10 0 9 3 .620.510.4 9.1 1.356.1 -331 10 6 8 8 1.885 8 -46 6 10 9 8 4 2.595.5 -54 5 11 1 8 5 2.784.6 -42.1 11.6 9.0 2.635 6 3 5 12 9 11 0 1.929.8 13.4 15.3 14.3 1.034 9 8 4 17 6 17 4 .141.3 -2.4 19.3 20.0 -.740.8 9.1 21.1 22.3 -1.257.8 6 2 23 3 23 771.0 -3.8 25.2 25.3 ( 2 )77.0 -7 0 27 2 27 0 .169.7 -5.9 28.8 29.9 -1.168.1 4 0 31 4 32 7 -1.371.9 5.7 34.7 35.6 -.979 6 2 1 38 2 39 5 -1 488.9 -10.2 41.6 44.0 -2.391.0 -1.2 46.0 46.8 -.893 0 3 5 49 9 49 6 .2102.1 -3.8 53 6 54.1 -.5110.3 -3.8 58.6 57.6 .9113.9 .7 63.4 62.2118 1 -3.0 69 5 67 8123.5 1.2 75.5 74.5 1.0142.8 -.2 85.2 83.9 1.3163 6 -12.4 93 5 95 1 - 1.6181.5 -6.5 107.1 107.5 -.3189.2 8.1 119.7 119.0 .7nationalincomeandproductaccountsReceipts8.615.422 939 341.042.539 143.243 338.949.964 067.270 063.872 177.681 678.789.796 598 3106.4114.5115 0124.7142.5151 2175.0197.3192.0198.9228.7265.4Seasonally adjusted annual rates1971: 1IIIII . .IV1972: 1.IIIIIIV1973: 1III312.5319.0324.4332.2356.8363.4370.6381.9402.7414.7425.0328 4338 8342.8350.7362.2367 2368 5385.7393.8403.2410.7421.9-15 9-19.7-18.4-18.6-5.4-3 92.0-3.88.911.614.3194 8197.7199.4203.5222.9225.4229.6236.9253.6262.4269 5212 4221.2222.6228.0236.6244 4237.0260.3258.6262.4265.6272.4-17.6-23.5-23.2-24.5-13.8-19.0-7.4-23.4-5.0.04.0145 1150 6154.3159.3166.2175 9175.3191.2190.2192.8196.0143.4146.9149.5153.4157.8160.8165.9171.6176.4181.2185.7191.91.73.74.85.98.415.29.519.613.911.510.4i Surplus of $32 million.3 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 the Federal Government sector of the national incomeand product accounts, 1949-75[Billions of dollars]Year or quarterFiscal year:19491950195119521953195419551956195719581959196019611962196319641965196619671968196919701971..19721973 v1974 21975 2Calendar year:1949195019511952195319541955195619571958195919601961196219631964196519661967196819691970197119721973 v1972: IIIIIIIV1973: IIIIllTotal40.042.060.865.169.365.867.275.880.777.985.494.895.3104.2110.2115.5120.5132.8147.2160.6190.4195.2192.6213.7243.3280.5304.838.949.964.067.270.063.872.177.681.678.789.796.598.3106.4114.5115.0124.7142.5151.2175.0197.3192.0198.9228.7265.4222.9225.4229.6236.9253.6262.4269.5ceipts16.316.523.228.831.430.329.733.636.736.338.242.543.647.349.650.751.357.664.571.490.093.687.4100.1107.2123.7135.316.118.126.131.032.229.031.435.237.436.839.943.644.748.651.548.653.861.767.579.794.892.289.9107.9114.5105.6106.6108.1111.3108.5111.4116.9121.1Receipts11.011.921.519.319.717.318.721.120.617.821.522.320.322.923.525.727.731.031.233.737.433.332.234.743.850.350.29.817.021.518.519.517.020.620.620.218.022.521.721.822.724.626.429.332.130.736.736.631.033.337.849.836.036.738.040.746.650.851.0PersonaltavtaxandnontaxCorporateprofitstaxaccrualsIndi-8.08.29.59.710.710.410.010.811.711.611.913.213.314.215.015.616.915.715.817.118.619.220.119.920.923.327.58.08.99.410.310.99.710.711.211.811.512.513.513.614.615.316.116.515.716.318.019.019.320.419.921.019.719.719.920.320.721.220.8-21.54.85.56.67.37.57.88.710.211.712.213.816.718.119.922.123.524.628.535.738.344.449.152.959.071.483.291.84.95.97.17.47.48.19.310.612.212.414.817.718.220.523.123.825.133.036.740.746.949.555.263.080.1Total i39.642.444.666.075.874.267.369.876.083.190.991.398.0106.4111.4116.9118.5131.9154.5172.5185.7195.9212.6233.2255.1285.2313.441.340.857.871.077.069.768.171.979.688.991.093.0102.1110.3113.9118.1123.5142.8163.6181.5189.2203.9221.0244.6264.7busi-nesstaxandnontaxaccrualsContributionsforsocialinsurancePurchasesofgoodsandservices19.319.025.146.656.153.243.945.247.750.754.752.755.560.963.465.764.471.785.394.999.498.095.9103.2104.5111.5121.620.118.437.751.857.047.444.145.649.553.653.753.557.463.464.265.266.977.890.798.898.896.298.1104.4106.9ExpendituresTransferpaymentsTopersons8.111.38.18.59.310.512.112.814.417.819.820.623.625.126.427.328.331.837.242.748.554.867.475.886.8102.5120.78.710.88.58.89.511.512.413.415.719.520.121.524.925.527.027.830.333.440.046.150.361.072.380.193.1Toforeigners(net)5.04.33.12.62.11.72.11.81.91.71.81.82.12.12.12.22.22.32.22.12.22.02.32.82.64.72.85.13.63.12.12.01.82.01.91.81.81.81.92.12.22.22.22.22.32.22.12.12.22.62.72.4Seasonally adjusted annual rates61.562.463.664.677.879.180.882.6236.6244.4237.0260.3258.6262.4265.6272.4106.0106.7102.3102.7105.5107.3106.8107.876.877.378.088.589.791.594.296.92.92.82.82.52.12.32.52.6Grantsin-aidto Stateandlocalgovernments2.12.42.42.52.82.93.03.23.74.76.26.86.97.68.49.810.912.714.817.819.222.626.832.940.444.146.62.22.32.52.62.82.93.13.34.25.66.86.57.28.09.110.411.114.415.818.720.324.429.137.741.232.238.034.446.141.140.540.542.5Notwetinterestpaid4.34.44.64.84.85.04.95.15.55.75.97.06.86.87.58.18.59.09.910.912.314.014.313.414.418.219.64.44.54.74.74.95.04.95.3f> 75.66.47.16.67.27.78.38.79.510.211.713.114.613.613.515.913.113.613.413.714.715.616.216.90.81.01.31.1.91.01.31.72.82.52.42.33.23.83.63.84.14.55.14.14.14.75.85.26.44.22.1.81.21.31.0.81.11.52.42.62.72.12.53.84.03.64.24.35.44.64.14.65.55.36.15.45.55.96.26.75.55.15.35.7SubsidieslesscurrentsurplusofgovernmententerprisesSurplusordeficit->,nationalincomeandproductaccounts0.4-i!o-6.5-8.5-.16.04.7-5.1-5.53.5-2.7-2.1-1.2-1.42.0.9-7.3-11.94.7-.7-19.9-19.5-11.8-4.7-8.6-2.49.16.2-3.8-7.0-5.94.05.72.1-10.2-1.23.5-3.8-3.8.7-3.01.2-.2-12.4-6.58.1-11.9-22.2-15.9.6-13.8-19.0-7.4-23.4-5.0.04.01 Wage accruals less disbursements have been subtracted from total. These were (in billions of dollars at seasonallyadjusted annual rates) .0, -.1, .0, and .0 in the 4 quarters of 1972 and .0, -.1, .0, and .0 in the 4 quarters of 1973,respectively.2 Estimates.Sources: Department of Commerce (Bureau of Economic Analysis) and Office of Management and Budget.329527-867 O - 7 4 - 2 2

TABLE C-69.—Receipts and expenditures of the State and local government sector of the nationalincome and product accounts, 1946-73[Billions of dollars]Calendaryear orquarterTotalPersonaltaxandnontaxeceiptsReceiptsCorporateprofitstaxiccrualsndirectbusinesstaxandnontaxaccrualsTotal »ExpendituresNetinterestpaidContributionsforsocialinsuranceFederalgrantsn-aidPurchasesofgoodsandservicesTransferpaymentstopersonsSubsidieslesscurrentsurplusof governmententerprisesSurplusordeficit

TABLE C-10.—State and local government revenues and expenditures, selected fiscal years, 1927-72[Millions of dollars]General revenues by source*General expenditures by function*Fiscal year 1TotalPropertytaxesSalesandgrossreceiptstaxesIndividualincometaxesCorporationnetincometaxesRevenuefromFederalGovernmentAllotherrevenues3TotalEducationHighwaysPublicwelfareAllother *1927..1932..1934..1936..1938..1940..1942..1944..1946..1948..1950..1952..1953..1954..1955..1956..1957..1958..1959..I960..1961..1962.1963.1962-63«.1963-64 81964-65«.1965-66«...1966-67«1967-68*...1968-69«...1969-70*...1970-71'1971-72 57,2717,2677,6788,3959,2289,60910,41810,90812,35617,25020,91125,18127,30729,01231,07334,66738,16441,21945,30650,50554,03^58,25262,89062,26968, 44374,00083,03691,197101,264114,550130,756144,927166,3524,7304,4874,0764,0934,4404,4304,5374,6044,9866,1267,3498,6529,3759,96710,73511,74912,86414, 04714,98316,40518,00219,05420,08919,83321,24122,58324,67026,04727, 74;30,67334,05437,85242,1334707521,0081,4841,7941,9822,3512,2892,9864,4425,1546,3576,9277,2767,6438,6919,4679,82910,43711,84912,46313,49414,45614, 44615,76217,11819,08520,53022,91126,51930,32r33,23337,4887074801532182242763424225437889981,0651,1271,2371,5381,7541,7591,9942,4632,6133,0373,2693,2673,7914,0904,7605,8267,3088,90810,81'11,90015,2379279491131651562724514475925938468177787448909841,0181,0011,1801,2661,3081,5051,5051,6951,9292,0382,2272,5183,1803,7383,4244,4161162321,0169489458589548551,8612,4862,5662,8702,9663,1313,3353,8434,8656,3776,9747,1317,8718,7228,66310,00211,02913,21415,37017,18119,15321,85726,14631,2531,7931,6431,4491,6041,8111,8722,1232,2692,6613,6854,5415,7636,2526,8977,5848,4659,2509,69910,51611,63412,56313,48914,85014, 55615,95117, 2507,2107,7657,1817,6448,7579,2299,1908,86311,02817,68422,78726, 09827,91030, 70133,72436,71140,37544, 85148,88751,87656,20160,20664, 81663,97769,30274,54619,269 82,84321,197 93,35023,598102,41126,118 116,72829,971 131,33232,374 150,67435,825 166,8732,2352,3111,8312,1772,4912,6382,5862,7933,3565,3797,1778,3189,39010, 55711,90713,22014,13415,91917,28318,71920,57422,21623,77623,72926, 28628, 56333,28737, 91941,15847,23852,71859,41364,8861,8091,7411,5091,4251,6501,5731,4901,2001,6723,0363,8034,6504,9875,5276,4526,9537,8168,5679,5929,4289,84410,35711,13611,15011,66412,22112,77013,93214,48115,41716,42718,09519,0101514448898271,0691,1561,2251,1331,4092,0992,9402,7882,9143,0603,1683,1393,4853,8184,1364,4044,7205,0845,4815,4205,7666,3156,7578,2189,85712,11014,67918,22621,0703,0153,2692,9523,2153,5473,8623,8893,7374,5917,1708,86710,34210,61911,55712,19713,39914,94016, 54717, 87619, 32521,06322,54924, 42323,67825, 58627,44730,02933,28136,91541,96347, 50754,94061,907i 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.« 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, 1946-73[Billions of dollars]Interest-bearing public debtEnd of year ormonthTotalpublicdebtsecuritiesMarketable public issuesby maturity classWithin1 year1 to 10years10yearsandoverU.S.savingsbondsandnotesNonmarketable publicissuesForeignandinternationalOtherSpecialissuesMaturedpublicdebtanddebtbearingnointerest19461947194819491950195119521953 . ..1954 ....195519561957 . .195819591960196119621963196419651966 -.--196719681969259.1256.9252.8257.1256.7259.4267.4275.2278.7280.8276.6274.9282.9290.8290.2296.2303.5309.3317.9320.9329.3344.7358.0368.254.849.644.649.449.447 157.773.962.861.768.675.372.679.975.385.987.389.488 593.4105.2104.4108 6118.161.756.155.151.850.556.762.250.464.768.658.956.971.083.789.584.795.694.2100.495.687.597.0103.493.360.160.057.753.952.538.828.730.330.232.932.932.032.024.624.225.420.124.023 625.625.425.124.824.449.852.155.156.758.057.657.957.757.757.956.352.551.248.247.247.547.548.849 750 350.851.752 352.20.51.31.82.41.53.24.44.76 77 46 39.310.120 919 619 317.712.711 910.49.27.86.35 34.63.83 52 92.72.62 62.524 629 031.733.933.735 939 141 242.643.945 645.844.843.544.343 543.443.746 146.352.057.259.171.01 52 72 22.12 42 32 12 33 03.02 42 02.13.13.43 54.34.14 44.44.33.52.92.019701971197219731972: JanFeb..MarAprMay .JuneJulyAugSeptOctNovDec1973:JanFebMarApr. .May.......June _ ...JulyAugSeptOct . .NovDec389.2424.1449.3469.9422.9424.0427.3425.3427.9427.3432.4435.4433.9439.9444.2449.3450.1454.8458.6457.1457.3458.1459.0461.8461.4462.5464.0469.9123 4119.1130.4141.6119.2122.1126.3122.3126.6121.9122.5121.6121 3122.4128.6130.4131.5130.2130.2128.4125.7122.8122.6129.1129.1130.9139.4141.6104.9123.0117.7106.8123.0119.4119.5121.2115.9115.9115.9114.9114.9116.9115.6117.7117.7117.8117.8117.7117.8119.3119.3111.7111.7111.6109.0106.819.419.921.421.819.819.719.619.519.419.419.321.621.621.521.421.422.021.921.821.722.420.820.821.621.621.521.821.852.554.958.160.855.155.355.655.956.256.556.757.057.257.557.858.158.458.759.059.359.759.960.260.360.360.560.860.86.517.421.326.917.617.517.219.118.919.722.722.422.521.821.721.321.226.129.129.229.029.228.828.628.928.426.726.92.42.42 42.82.42.42.42.42.42.42.42.42.42.42.42.42.52.52.52.52.52.52.52.52.52.62.82.878.185.795.9107.184.285.684.983.186.689.691.093.692.395.594.995.995.095.896.496.498.3101.7103.0106.1105.4105.1101.6107.11.91.82.02.11.81.91.81.81.81.91.81.91.81.81.82.C1.91.91.81.81.91.J1.8l.S2.C1.92.C2.1Source: Department of the Treasury.332

TABLE C-72.—Estimated ownership of public debt securities, 1946-73[Par values,i billions of dollars]Total public debt securities 2Held by private investorsEnd of year ormonthTotalHeldGovernmentaccountsHeld byFederalReserveBanksTotalCommercialbanks 3Mutualsavingsbanksand insurancecompaniesOthercorporations4Stateand localgovernments*Individuals6Miscellaneousinvestors719461947 .1948194919501951 .195219531954195519561957....19581959I960.. . .19611962196319641965196619671968196919701971197219731972:JanFebMarAprMayJuneJulyAugSeptOctNovDec1973: JanFebMar ..AprMayJuneJulyAug _ .SeptOctNovDec .. .259.1256.9252.8257.1256 7259 4267.4275.2278 7280.8276.6274.9282.9290.8290.2296.2303.5309 3317 9320.9329.3344 7358 0368.2389.2424.1449 3469.9422 9424.0427 3425 3427.9427 3432 4435 4433 9439 9444 2449 3450.1454 8458.6457 1457.3458.1459.0461.8461 4462.5464 0469.927.430.833.735.936.039.342.945.446.749.051.252.852.151.452.852.553.255.358.459.765.873.176.689.097.1106.0116.9129.6104.4106.2105.5105.5109.1111.5112.8115.4113.5116.7116.1116.9116.2117.1117.9117.9120.1123.4125.0128.7127.8127.4127.1129.623 322 623.318.920 823 824.725.924 924.824 924.226.326.627.428.930.833 637 040.844.349 152 957.262.170.269.978.569.667.769 970 371.671 470 870 769.770 169 569.972.072.674.375 574.175.077.176.176 278.577.278.5208 3203 6195.8202.4199 9196 3199.8203.8207 1207.0200.5197.9204.5212.7210.0214.8219.5220 5222 5220 5219.2222 4228 5222.0229.9247.9262.5261.7248 9250.2251 9249.5247.2244 4248 8249.3250.7253.1253 6262.5261.8265.1266.4263 7263.1259.7256.9257.1257.4256.5259.7261.774 568 762.466.861 861 563.463.769 162.059 559.567.560.362.167.267.164 263 960 757.463 866.056.862.765.367 760.263.162.463 662.261.360 960 560.361.161.664.267 766.462.862.060.558.958.856.555.155.456.358.560.236 735.932.731.529 626 225.525.124 123.121.220.119.819.418.117.417.416 816.515.614.112.711.610.19.89.38.77.69.29.29.29.19.18.98.88.68.98.68.88.68.78.48.48.28.18.18.07.87.77.67.57.615 314 114.816.819 720 719.921.519 123.218.717.718.121.418.718.518.618.718.215.814.912.214.210.47.311.49.811.410.811.110.69.510.39.39.48.07.89.110.69.810.310.911.210.010.89.810.311.59.210.211.111.46 37 37.98.18 89 611.112.714 415.416.316.616.518.018.719.020.121.121.222.924.324.124.927.227.825.428.929.326.026.726.226.126.026.926.927.027.628.528.628.930.029.529.429.228.628.828.427.729.028.528.929.364 165 765.566.366 364.665.264.863 565.065.964.963.769.466.165.966.068.269.872.174.674.075.881.481.974.074.777.373.673.674.774.674.474.074.374.274.074.174.574.774.975.075.375.475.775.976.777.077.277.077.277.311 411.912.512.913.613.714.716.116.918.318.919.118.924.326.526.930.231.633.033.433.935.736.136.140.462.572.876.066.267.267.567.966.164.568.971.271.471.372. C72.871.578.580.180.481. C78.477.078.078. S76.976.676.01 U.S. savings bonds, series A-F and J, and U.S. savings 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.4 Exclusive of banks and insurance companies.6 Includes trust, sinking, and investment funds of State and local governments and their agencies, and of Territoriesand possessions.6 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 I nternationa IBank 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.Source: Department of the Treasury.333

TABLE C-73.—Average length and maturity distribution of marketable interest-bearingpublic debt, 1946-73End of year or monthAmountoutstandingWithin1 yearIto5yearsMaturity class»5 to 10years10 to 20years20 yearsand overAverage lengthMillions of dollarsYearsMonthsFiscal year:194619471948 .194919501951195219531954189,606168, 702160, 346155,147155,310137,917140, 407147,335150,35461,97451,21148, 74248,13042,33843,90846,36765, 27062, 73424, 76321, 85121,63032, 56251, 29246, 52647, 81436,16129, 86641, 80735, 56232, 26416, 7467,7928,70713,93315,65127, 51517,46118, 59716, 22922, 82128,03529,97925, 70028,66228,63443, 59941,48141,48134, 88825, 8538,7976,5941,5921,6069998g65515292784619551956195719581959155, 206154,953155, 705166,675178, 02749, 70358,71471,95267, 78272,95839,10734, 40140,66942, 55758, 30434, 25328,90812, 32821, 47617, 05228,61328, 57826,40727,65221,6253,5304,3514,3497,2088,0885545410 4937I9601961196219631964183, 845187,148196,072203,508206,48970,46781,12088, 44285, 29481,42472, 84458,40057,04158,02665,45320, 24626, 43526,04937, 38534,92912,63010, 2339,3198,3608,3557,65810,96015,22114, 44416,32846111o444455544 443196519661967196819691970197119721973208,695209,127210,672226, 592226,107232, 599245, 473257, 202262,97187,63789,13689,648106,407103,910105, 530112,772121,944122,80356,19860, 93371,42464, 47062, 77089,61589, 07489,00488, 22339,16933, 59624, 37830, 75434, 83715, 88224, 50326, 85231,1118,4498,4398,4258,4078,37410, 5248,4559,34314, 47717, 24117, 02316,79716, 55316, 21711,04810,67010, 0596,357333117 208621972- JanFebMarAprMayJuneJulyAugSeptOct - .NovDec261,918261,215265,380262,989261,924257, 202257,717258,095257, 720260,863265,621269, 509119,152122, 067126,315122,263126,617121,944122, 528121, 589121,260122, 442128, 569130, 42293,64693,08993,10694, 84989,00589,00489,00485, 73085, 73087,76286, 46488, 56429,31826,34726, 34926,34826,85326,85226,85229,14929,14829,14729,14629,1439,4849,4599,4199,3929,3639,3439,31815,41915,39415, 36315, 33015, 30110,31710, 25310,19110,13710,08610, 05910,0156,2086,1886,1516,1126,0793333333333333333334433332443211973:Jan . .FebMar . .AprMayJune271,121269,881269,775267, 847265,919262,971131,454130, 205130,187128, 359125,697122, 80388, 57295,42295,42595, 39288, 22288,22329,14222, 35722,35622,35629,62031,11115,27116,11416, 05816,02215,99614,4776,6825,7835,7485,7186,3856,357110032JulyAugSeptOctNovDec262,708262,405262,356264, 047270,234270,224122,602129,072129,114130,940139,433141,57188,22380,59480,57680, 53583, 81781,71531,10831,10631,10331,10225,13625,13414,45715, 34515,31715, 26915,67915,6596,3186,2886,2456,2016,1696,145333333232110Mote.—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 C-74—Profits before and after taxes, all private corporations, 1929-73[Billions of dollars]Corporate profits (before taxes) andinventory valuation adjustmentCorporate profitsafter taxesYear orquarterTotalrManufacturingAllindustriesDurablegoodsindustriesNondurablegoodsindustriesTransportation,communication,andpublicutilitiesAllotherindustriesCorporateprofitsbeforetaxesCorporatetaxliabilityiTotalDividendsUndistributedprofitsCorporatecapitalconsumptionallowances2Profitspluscapitalconsumptionallowances3192910. 55. 22. 62. 61.83.410.01.48. 65. 82. 84.212. 81933-1. 2440.0-.81.0.542. 063.84. 219396. 33. 31. 71. 71.02.07.01.45. 63. 81. 83.79. 319401941194?19431944194519461947194819499. 815. 2702423.19.19333034826085. 59. 5111313.9.q13171688270663. 16. 478 17.4.57845485102.3.45.5.5.67416792680191.32.03.44.43.92.71.82.23.03.03.03.75.16.6. 76. 78 59 912. 511.610.017.721.525.124.119.724.631.535.228.92.87.611.414.112.910.79.111.312.510.47. 210. 110 1111.11. 29. 015 5?022. 718.54. 04. 43444.4. 64. 65 66 377 083. 25. 75 96 66. 54. 49 913. 915 611 303.84.25.05.46.16.44.75.87.07.911. 014. 415.16. 417. 215. 420.26. 029.26.1951195?195319541955195619S71958195937 74? 7q39.39.638 n 46 q46 i45 6151. 7?n?422iq?6?4?4iq26.q660q07031?13111110141?13q13.795383610881191091111101012.4914897074.04.64.95.04.75.65.95.85.97.01? 713 513 31?, 613 41515 615 8q15.18.442.643.938.940.638.348.648.847.241.452.117.822.319.420.317.721.621.721.219.023.7?4 9619 6460?0?7?7022. 328.588. 68.68. 99 353101111. 711 612. 6161311.11.111615.14.1015.005359898.810.311.513.215.017.418.920.822.023.57578055433.31.31.33.35.44.46.46. 844. 352. 0I96019611962196319641965196619671968196949 q5055 758 q6676 18? 478 784 379 8?4?3?6?83?394?3841364687677fi1?11141517?4?018041888n74871? 411 q1? 513 014 q16 618. 618.019 317 77.57.98.59.510.111.111.910.810.610.117.919?0?3?5i56569129.32.033. 149.750.355.459.466.877.884.279.887.684.923.023.124.226.328.331.334.333.239.940.126.7?7 j>31

TABLE C-75.—Sales, profits, and stockholders* equity, all manufacturing corporations, 1947—73[Billions of dollars]1\ll manufacturingcorporations *Durable goods industriesNondurable goodsindustries^Year orquarterSales(net)ProfitsBeforeFederalincometaxesAfterFederalincometaxesStockholders'equity 2Sales(net)ProfitsBeforeFederalincometaxesAfterFederalincometaxesStockholders'equity 2Sales(net)ProfitsBeforeFederalincometaxesAfterFederalincometaxesStockholders'equity 2194719481949. . .19501951.195219531954195519561957.19581959I960..196119621963196419651966196719681969.150.7165.6154.9181.9245.0250.2265.9248.5278.4307.3320.0305.3338.0345.7356.4389.9412.7443.1492.2554.2575.4631.9694.616.618.414.423.227.422.924.420.928.629.828.222.729.727.527.531.934.939.646.551.847.855.458.110.111.59.012.911.910.711.311.215.116.215.412.716.315.215.317.719.523.227.530.929.032.133.265.172.277.683.398.3103.7108.2113.1120.1131.6141.1147.4157.1165.4172.6181.4189.7199.8211.7230.3247.6265.9289.966.675.370.386.8116.81?? 0137.9122.8142.1159.5166.0148 6169.4173 9175 ?195.5209.0226.3?57 0291.7300 6335.5366.57.68.97.512.915.412.914.011.416.516.515.811.415.814.013.616.718.521.226.229.225.730.631.54.55.44.56.76.15.55.85.68.18.37.95.88.17.06.98.69.511.614.516.414.616.516.931.134.137.039.947.249.852.454.958.865.270.572.877.982.384.989.193.398.5105.4115.2125.0135.6147.684.190.484.695.1128.1128.0128.0125.7136.3147.8154.1156.7168.5171.8181.2194.4203.6216.8235.2262.4274.8296.4328.19.09.57.010 312.110.010 49 612 113.212.411.313.913.513.915.116.418.320.322.622.024.826.65.66.24.66 15.75.25 55 67 07 87.56.98.38.28.59 210.011.613.014.614.415.516.434.038.140.643 551.153.955 758.261.366.470.674.679.283.187.792.396.3101.3106.3115.1122.6130.3142.31970197119721971:1IIIIIIV1972:1IIIllIV1973:1 . ..IIIII708.8751.4849.5177.5191.4185.6196.9197.2213.2210.6228.6232.5256.3254.048.153.263.212.114.512.813.713.916.715.117.518.322.219.628.631.336.57.08.57.58.27.99.68.810.110.513.011.6306.8320.9343.4314.0319.0323.2327.3332.6340.4347.4353.1361.1370.8378.9363.1382.5435.890 799 892.699.4100.0111.5106.2118.1]?].?136.5130.323.026.533.66.07.85.86.97.39.67.59.210.312.79.912.914.518.43.24.33.23.83.95.34.25.15.77.15.7155.1160.6171.4158.0160.3161.2162.8165.5170.3173.6176.3181.9187.1191.9345.7368.9413.786.991.693.197.497.2101.7104.4110.4111.3119.9123.725.226.729.66.16.87.06.86.67.27.68.38.09.59.715.716.718.03.84.24.34.44.14.34.65.04.85.85.9151.7160.3172.0156.0158.7162.0164.6167.1170.1173.9176.8179.2183.7186.91 Includes newspapers beginning 1969.2 Annual data are average equity for the year (using four end-of-quarter figures).Note.—For explanatory notes concerning compilation of the series, see "Quarterly Financial Report for ManufacturingCorporations," Federal Trade Commission.Data are not necessarily comparable from one period to another due to changes in accounting procedures, industryclassifications, sampling procedures, etc. Specific information about the effects of the more significant changes and revisionsis contained in the following issues of the "Quarterly Financial Report": third quarter 1953, third quarter 1956,first quarter 1959, and first quarter 1965.Source: Federal Trade Commission.336

TABLE C-76.—Relation of profits after taxes to stockholders* equity and to sales, all manufacturingcorporations, by industry group, 1950-73Durable goods industriesYear orquarterAllmanufacturingcorporations1Totaldurable2MotorvehiclesandequipmentAircraftandpartsElectricalmachinery,equipment,andsuppliesMachinery(exceptelectrical)FabricatedmetalproductsPrimaryironandsteelindustriesPrimarynonferrousmetalindustriesStone,clay,andglassproductsFurnitureandfixturesLumberandwoodproducts(exceptfurniture)InstrumentsandrelatedproductsMiscellaneousmanufacturing(includingordnance)195019511952195319541955195619571958195919601961196219631964196519661967196819691970197119721972: IIV....1973: III....III...195019511952195319541955195619571958195919601961196219631964196519661967196819691970197119721972: I...II..III.IV..1973: I15.412.110.310.59.912.612.310.98.610.49.28.99.810.311.613.013.411.712.111.59.39.710.69.511.310.111.511.614.012.37.14.84.34.34.55.45.34.84.24.84.44.34.54.75.25.65.65.05.14.84.04.14.34.04.54.24.44.55.14.6Ratio of profits after Federal income taxes (annual rate) to stockholders' equity—percent 316. 9 25. 3 20.9 14. 113. 0 14. 3 14.0 13. 011. 11 13. 99171225 13.7 11. 3863679711. 13.13.1 9.10.3 14.12.4 8.13. 8 21.12.3 10.12. 8 13.11.4 12.11. 3 14. 17.7 12.5 10.8.0 8. 13.2 10.2 6.10.4 14. 8.1 12.5 9.8.5 13. 5 7.8. 1 11. 437959716 9. 3 9.5 7. 58 8.9 7. 89. 61782724 16. 12.7 10.0 9.110. 16. 11. 3 10.1 9.611. 16. 12. 224926 11.2 12.513. 19. 15. 13.5 14.114. 15. 14. 14.8 15.11. 11. 12. 12.8 12. 0 912. 15. 14. 12.2 12.311. 12. 10. 11.1 12. 28. 3 6.1 6. 8 9.1 9. 89. 08 13. 1 5. 89 9.5 8. 710 14 7 7. 10.8 10.69. 3 16 4 7. 2 8.5 9.312 476 195 156 9. 73 11.1 11.97. 10.2 11. 0711 17 7.4 13.5 10.212 5 21 1 9.8 11.6 1215 39 21 48 12 2 13.3 14 4 711 6 9. 8 12.7 12.97.75.34.54.24.65.75.24.83.94.84.03.94.44.55.15.75.64.84.94.63.53.84.23.94.74.04.34.75.24.48.34.74.73.95.16.95.25.44.06.35.95.56.96.97.07.26.24.95.74.72.64.64.85.45.92.25.36.16.12.416.013.410.19.87.610.010.79.37.38.05.65.97.98.310.113.214.712.711.711.38.58.310.99.212.111.710.211.915.413.714.312.38.510.78.113.512.711.47.28.07.26.15.47.08.89.810.27.77.67.64.34.56.04.07.54.97.67.810.49.315.113.811.611.110.415.516.49.36.07.97.17.17.57.69.811.914.810.910.812.210.65.15.95.77.54.95.68.411.59.117.714.211.711.812.515.614.912.410.212.79.98.98.98.79.610.39.98.29.29.26.99.210.15.012.713.49.36.213.514.2Profits after Federal income taxes per dollar of sales—cents2.92.41.61.41.82.42.32.63.33.02.73.23.02.01.82.52.32.92.42.22.93.22.97.25.04.54.14.54.43.84.23.84.43.53.53.73.84.24.84.84.44.33.93.33.53.93.24.03.84.54.14.34.37.35.54.84.24.45.15.44.83.74.83.94.14.54.75.86.26.45.75.55.44.64.24.94.55.25.14.65.55.95.46.85.04.03.63.13.84.03.63.13.22.42.53.13.23.74.54.94.54.13.83.02.93.53.13.83.83.13.74.34.07.95.84.75.35.37.26.76.65.45.45.14.63.94.85.65.75.84.84.64.42.52.63.12.33.72.53.73.54.44.010.27.86.76.36.68.39.36.64.75.85.45.35.55.36.57.38.26.86.26.66.23.33.73.74.53.23.34.55.44.710.17.16.66.57.48.68.27.56.87.96.65.85.65.35.65.95.64.85.24.73.64.54.72.75.85.94.13.15.65.815.11. 2 17.53 11.98.6 8.58.2 7.16.09.11. 2 6.311.16 8.78.5 4.76.3 5.78.9 9.46. 5 3.64. 9 4.17. 93142126 5.68. 8.210. 9.913. 10.114. 10.012. 8.612. 14.612. 13.07. 9 5.69.5 11.413. 4 16.310. 1 12.514.6 19.213. 7 19.214. 7 14.114. 2 21.014. 47 30.412. 22.35.13.42.72.62.12.93.42.62.02.72.11.62.32.42.93.73.93.53.43.52.53.03.73.13.93.84.04.13.83.69.45.54.13.53.45.43.92.32.84.21.71.92.53.33.94.03.83.45.34.82.54.45.04.45.85.74.36.37.86.316.713.211.611.412.312.512.412.010.613.111.610.612.012.114.417.520.918.016.615.614.313.614.913.514.915.815.214.116.617.68.66.14.84.65.56.05.85.75.46.55.95.45.96.07.28.69.58.58.17.87.37.28.27.88.18.58.27.98.79.212.39.77.08.27.58.511.67.78.29.39.29.99.48.89.510.715.413.112.411.610.09.010.87.610.99.814.66.912.112.55.63.72.72.92.83.13.62.53.03.53.53.63.43.33.63.84.94.24.03.83.43.23.32.53.33.13.92.13.53.5See footnotes at end of table.337

TABLE C-76.—Relation of profits after taxes to stockholders' equity and to sales, all manufacturingcorporations, by industry group, 1950-73—ContinuedYear orquarter1950195119521953195419551956 __1957..195819591960196119621963196419651966196719681969197019711972 . ..1972:1IIIII....IV.....1973: 1IIIII1950 .1951195219531954 _19551956 .. .19571958195919601961196219631964196519661967196819691970197119721972:1II....III..-.IV....1973:1IL—III...Totalnondurable'214.111.29.79.99.611.411.810.69.210.49.89.69.910.411.512.212.711.811.911.510.310.310.59.810.210.511.410.812.712.76.54 54.14.34.45.15.34.94.44.94.84.74.74.95.45.55.65.35.25.04.54.54.44.24.34.44.64.34.94.8Nondurable goods industriesFoodandkindredproductsTobaccomanufacturesTextilemillproductsApparelandrelatedproductsPaperandalliedproductsPrintingandpublishingiChemicalsandalliedproductsPetroleumrefiningRubberandmiscellaneousplasticproductsRatio of profits after Federal income taxes (annual rate) to stockholders' equity—percent 312.38.17.68.18.18.99.38.78.79.38.78.98.89.010.010.711.210.810.810.910.811.011.110.011.611.211.410.812.313.33.42 01.92.02.12.32.42.22.22.42.32.32.32.42.72.72.72.62.62.62.52.62.52.42.72.52.52.42.62.711.59.58.49.410.211.411.712.513.513.413.413.613.113.413.413.514.114.414.414.515.715.815.415.115.915.315.413.615.415.612.78.24.24.61.85.75.84.23.57.55.85.06.26.18.510.910.17.68.87.95.16.77.56.47.37.39.08.411.18.610.12.94.45.14.56.18.16.34.98.67.77.29.37.711.712.713.312.013.011.99.311.212.-010.99.312.415.18.014.66.316.213.910.510.19.911.511.68.98.19.58.57.98.18.19.39.410.69.19.710.17.04.89.06.510.58.610.510.814.613.111.510.39.19.49.210.213.011.79.011.410.68.510.39.212.614.215.613.012.512.611.210.712.17.612.612.615.310.412.213.717.812.210.910.711.614.714.213.311.413.712.211.812.412.914.415.215.113.113.312.811.411.812.912.712.912.912.814.415.514.8Profits after Federal income taxes per dollar of sales—cents4.93 83.23.74.24 85.05.25.45.45.55.75.75.95.95.95.95.95.55.25.86.16.05.96.26.05.85.66.06.05.83 41.92.21.02 62.61.91.63.02.52.12.42.33.13.83.62.93.12.91.92.42.62.32.52.62.82.83.42.82.8.61.01.21.11.31.61.31.01.51.41.31.61.42.12.32.42.32.42.31.92.42.42.32.02.32.71.62.81.215.213 313.412.713 413.912.510.09.810.110.310.111.311.411.812.412.512.311.711.010.38.78.87.48.79.89.210.712.316.914.811 111.310.613 212.211.19.111.09.19.39.69.210.611.712.210.312.310.37.19.610.810.212.110.010.910.014.19.6Leatherandleatherproductsi Includes newspapers beginning 1969.* Includes certain industries not shown separately.3 Annual ratios based on average equity for the year (using four end-of-quarter figures). Quarterly ratios based on equityat end of quarter only.Note.—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.3388.86.65.75.45.66.16.15.04.75.25.04.74.64.55.14.95.44.74.74.83.42.34.03.04.63.84.64.75.95.64.53.73.33.43.43.64.23.73.14.03.62.83.43.24.34.85.14.44.14.74.24.14.73.04.84.95.74.14.55.210.36.56.16.16.88.38.07.67.07.97.57.37.47.57.97.97.86.96.86.55.96.16.46.46.36.56.36.97.06.911.110.110.410.611.111.610.69.59.59.910.39.710.810.911.111.211.010.710.19.38.36.76.85.86.87.26.77.58.05.84.53.63.84.04.44.44.23.54.03.63.83.73.64.14.34.43.94.53.82.73.64.04.04.33.73.93.64.63.210.92.15.86.05.98.57.27.05.78.56.34.46.96.910.511.612.911.913.09.39.48.29.110.26.310.69.29.17.410.63.7.61.81.81.92.52.12.01.72.21.61.11.81.82.62.83.03.03.32.62.52.22.42.81.72.82.22.42.02.8

TABLE C-77.—Sources and uses of funds, nonfarm nonfinancial corporate business, 1946-73[Billions of dollars]SourcesUsesPeriodTotalInternaMTotalExternaCredit market fundsTotalLongterm2Shortterm3OtherTotalPurchaseofphysicalassets 4IncreaseinfinancialassetsDiscrepancy(sourceslessuses)194619471948194918.327.028.219.67.812.618.719.110.514.49.6.66.88.66.33.23.45.56.45.13.33.1-.1-1.83.75.83.3-2.716.525.525.218.717.917.220.215.2-1.48.45.03.51 81.43.0.919501951 .1952195319541955195619571958 _ .195941.135.529.127.228.852.544.342.241.255.117.919.921.221.123.329.228.930.629.535.023.215.67.96.15.523.315.411.611.720.17.210.09.25.66.310.312.912.010.612.63.85.97.85.96.66.57.510.310.58.13.44.11.4-.3-.33.85.41.7.04.515.95.6-1.3.5-.813.02.5-.41.27.540.437.228.926.826.447.839.738.737.850.824.029.824.324.521.531.335.734.527.036.716.47.44.62.34.916.54.04.210.814.2.7-1.7.2.42.54.64 63.53.44.31960 _ .1961196219631964 . .1965196619671968 .... .196947.454.559.265.072.491.497.494.1112.4115.534.435.641.843.950.556.661.261.561.760.712.919.017.421.121.934.836.232.650.754.811.912.312.512.114.520.425.429.630.338.37.510.89.58.28.89.215.621.317.019.54.51.52.93.95.611.39.88.313.318.81.06.74.99.07.414.410.93.020.416.541.449.554.759.365.082.589.188.2104.0112.138.736.343.645.251.662.376.571.475.083.72.713.211.114.213.420.212.616.829.028.46.05.04.55.67.48.98.35.98.43.41970 . .19711972100.7122.7146.359.469.977.541.352.868.938.847.454.629.842.038.29.05.416.42.55.514.295.0109.7131.484.086.7100.711.023.030.75.713.015.0Seasonally adjusted annual rates1971: 1st half...2d half118.1127.267.372.450.854.845.149.742.041.93.07.85.85.2106.2113.386.587.019.726.312.013.91972: 1IIIII ...IV129.7135.2144.3176.273.176.277.682.956.659.066.793.342.852.552.869.933.940.739.438.88.911.813.431.113.86.413.923.4127.3120.7131.8146.093.998.0103.3107.433.422.728.538.62.314.612.530.21973: 1IIIII*173.7183.9191.681.480.385.992.3103.6105.777.268.864.132.439.332.744.729.331.415.034.941.6163.9167.7183.3107.4109.8117.756.557.965.69.716.28.21 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.4 Plant and equipment, residential structures, and inventory investment.Source: Board of Governors of the Federal Reserve System.339

TABLE C-78.— Current assets and liabilities of U.S. corporations, 1939—73[Billions of dollars]Current assetsCurrent liabilities1939.End of yearor quarter1940..1941.1942.1943.1944.1945.1946.1947.1948.1949.1950.1951.1952.1953.1954.1955.1956.1957.1958.1959.1960.1961.1961..1962..1963..1964.1965..1966..1967.1968.1969.1970.1971.1972.1972: I....II...IllIV1973: IIllTotal54.560.372.983.693.897.297.4108.1123.6133.0133.1161.579.1186.2190.6194.6224.0237.9244.7255.3277.3289.0306.8254.7269.7288.2305.6336.0364.0386.2426.5473.5490.5516.6561.2526.1534.3545.3561.2577.0594.7611.6Cashonhandandinbanks 110.813.113.917.621.621.621.722.825.025.326.528.130.030.831.133.434.634.834.937.436.337.241.134.837.139.840.542.841.945.548.247.949.755.360.355.355.757.360.361.062.262.1U.S.Governmentsecurities22. ?2.41016200014921 115.314 114 816.8192019211923191877g5251618 822.820.120 016.516.816.715.814.413.010.311.510.67.610.49.79.98.77.69.710.49.49.2ReceivablesfromU.S.Government30.1.64.05.04.72.71.12.72.82.62.42.32.62.82.82.93.13.43.43.73.63.43.94.55.15.14.84.23.53.43.42.82.93.43.22.93.138.342.443.023.927.423.321.921.823.230.055.758.864.665.971.2£6.695.199.4106.9117.7126.1135.894.599.5106.9116.5130.2142.1150.2168.8192.2200.6207.5228.9211.4216.3222.5228.9234.0243.7252.2NotesandaccountsreceivableInventoriesTotalAll 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«95.0100.5106.8113.1126.6142.8153.1166.0186.4196.02C3.1218.2207.2210.7215.2218.2225.9233.5241.510.512.114.416.318.119.722.026.931.632.436.840.738.940.139.840.742.543.043.5123.7132.4145.5156.6178.8199.4211.3244.1287.8302.6311.9336.8316.4319.1326.2336.8345.7356.9369.7Othercurrentassets*Advancesandprepayments,U.S.Government30.6.82.02.21.8.9.137.639.337.5.41.32.32.22.42.32.42.31.71.71.81.81.82.02.52.73.14.45.86.47.36.64.94.04.94.94.74.04.14.54.421.922.625.624.024.125.024.831.547.953.657.057.359.373.881.584.388.799.3105.0112.882.686.794.5102.2118.4133.1141.3162.4191.9200.5202.8216.9202.5204.0207.6216.9218.1227.6235.6NotesandaccountspayableFederalincometaxliabilities1. 22. 57.12. 616. 615. 510. 48. 510. 711. 59. 316.721. 318.118 715. 519 317.151215649013 514.113.314.315.716.218.317.413.214.312.611.814.516.715.713.415.016.718.616.518.2Othercurrentliabilities6.97.17.28.78.79.49.711.813.213.514.014.916.518.720.722.525.729.031.133.337.040.142.526.029.432.835.539.044.551.061.076.083.789.799.293.396.898.999.2104.9108.3111.5Networkingcapital24.527.532.336.342.145.651.656.262.168.672.481.686.590.191.894.9103.0107.4111.6118.7124.2128.6135.6131.0137.3142.7H9.0157.2164.6174.9182.4185.7187.9204.7224.4209.7215.2219.1224.4231.3237.8241.91 Includes time certificates of deposit.2 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'hnnbe IOKS.* Includes marketable investments (other than Government securities and time certificates of deposit) as well as sundrycurrent assets.5 Excludes banks, savings and loan associations, and insurance companies.6 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 1969 are based on "Statistics of Income" (Treasury Department), covering virtuallyU I \s WVlllUUlv«f h/U *J\*U Ufl VICI LCI WVMIUIIVUSecurities and Exchange Commission.Source: Securities and Exchange Commission.340

TABLE C-79.—State and municipal and corporate securities offered, 1934-73[Millions of dollars]Corporate securities offered for cashYear or quarterState andmunicipalsecuritiesofferedfor cash(principalamounts)Type of corporate securityTotalcorporateofferingsCommonstockPreferredstockBondsandnotesIndustry of corporate issuerwater 2Manufacturing^Electric,TransportationsCommunicationOther1934939397193716713317619391,1282,16487981,9806041,2711861031940194119421943194419451946194719481949195019511952195319541,2389565244356617951,1572,3242,6902,9073,5323,1894,4015,5586,9692,6772,6671,0621,1703,2026,0116,9006,5777,0786,0526,3617,7419,5348,8989,51610811034561633978917796147368111,2121,3691,3261,2131831671121243697581,1277624924256318385644898162,3862,3909179902,6694,8554,8825,0365,9734,8904,9205,6917,6017,0837,4889928485395101, 0612 0263 7012 74221, 2264141,2003,1224,0392,2542,2681,2031,3574724771,4222,3192,1583,2572,1872,3202,6492,4552,6753,0293,713324366481616091,454711286755800813494992595778902571399612760882720159964211092113292931,0089461,3001,0581,0682,1382,03719551956195719581959196019611962196319645,9775,4466,9587,4497,6817,2308,3608,55810,10710, 54410,24010,93912,88411,5589,74810,15413,16510, 70512,21113,9572,1852,3012,5161,3342,0271,6643,2941,3141,0112,6796356364115715314094504223434127,4208,0029,9579,6537,1908,0819,4208,96910,85610, 8652,9943,6474,2343,5152,0732,1524,0773,2493,5143,0462,4642,5293,9383,8043,2582,8513,0322,8252,6772,7608937248248249677186945679579821,1321,4191,4621,4247171,0501,8341,3031,1052,1892,7572,6192,4261,9912,7333,3833,5272,7613,9574,980196519661967196819691970197119721973 v11,14811,08914,28816,37411,46017, 76224,37022,94422,76015,99218, 07424,79821,96626, 74438,50644,90740,83533,1101,5471,9391,9593,9467,7146,9489,3159,6937,9057255748856376821,3833,6773,3723,39013,72015,56121,95417,38318,34830,17631,91527,77121,8165,4177,07011,0586,9796,35610,60911,6826,6224,8452,9363,6654,9355,2816,73611,00711,77811,31810,2461,0131,9722,0671,8752,1462,2072,4422,0271,7119472,0031,9791,7662,1885,1465,8194,8254,8985,6803,3644,7596,0649,3199,53713,19016,04511,4111972: L_.II. _III..IV..5,8656,1095,3835,5879,81311,1589,24010,6242,0652,7982,4182,4128031,0027208476,9457,3596,1037,3641,4662,0881,6271,4412,2523,4792,6442,9436345293864781,5061,3698681,0823,9553,6933,7164,6811973: I...II...III..IV P.5,6385,6045,0966,4228,2228,5986,3669,9242,7291,7991,2962,0811,1426034401,2054,3506,1974,6316,6388791,4111,1561,3992,4272,8862,0182,9153295194783851,2159648711,8483,3732,8211,8413,3761 Prior to 1948, also includes extractive, radio broadcasting, airline companies, com mercial, and miscellaneous companyissues.2 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 tocorr rr.ercial 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-80.—Common stock prices\ earnings, and yields, and stock market credit, 1949-73Standard & Poor's common stock dataMargin credit at brokers and banksYear or monthTotal(500stocks)Price indexes lIndustrials(425stocks)Publicutilities(55stocks)Railroads(20stocks)Dividendyield(percent)2Price/earningsratio 3Regulated 5Total Brokers BanksUnregulated;Othernon-securitmargincreditstockatcreditbanks?atbanks e1941-43=10Millions of dollars1949..15.2315. 0017. 8712.836.596.491950..1951..1952.1953..1954..1955..1956.1957..1958..1959..18.4022.3424.5024.7329.6940.4946.6244.3846.2457.3818.3322. 6824. 7824. 8430.2542. 4049. 8047. 6349. 3661. 4519. 9620.5922. 8624. 0327. 5731. 3732. 2532. 1937.2244. 1515.5319.9122.4922.6023.9632.9433.6528.1127.0535.096.576.135.805.804.954.084.094.353.973.237.158.5710.579.7711.7512.5913.2512.7316.3317.32I960..1961..1962.1963.19641965.1966.1967.1968.1969..55.8566.2762.3869.8781.3788.1785.2691.9398.7097.8459. 4369. 9965. 5473. 3986. 1993. 4891. 0899. 18107. 49107.1346. 8660. 2059. 1664. 9969 9176.0868. 2168. 1066. 4262 6430.3132.8330.5637.5845.4646.7846.3446.7248.8445.953.472.983.373.173.013.003.403.203.073.2416.9821.6817.3918.2018.8117.9215.1517.4817.6616.481970.1971.1972.1973-.83.2298.29109. 20107.4391 29108 35121 79120.4454.4859.3356.9053 4732.1341.9444.1138.053.833.142.843.0615.6918.5018.201972:1973:Jan....Feb...Mar...Apr...May...June..July...Aug...Sept...Oct....Nov...Dec...Jan...Feb...Mar..Apr...May..June..103.30105. 24107.69108.81107.65108.01107.21111.01109.39109.56115.05117. 50118.42114.16112. 42110.27107.22104. 75114116119128673121.34120.16120.84119.98124 35122 33122 39128 29131 0813212712612311911755870556952060 1957 4157 7355 7054 9453 7353545556616160575547663666167301529455.3455.4354.3745.1645.6646.4847.3845.0643.6642.0043.2842.3741.2042.4144.6242.8740.6139.2938.8836.1434.352.962.922.862.832.882.872.902.802.832.822.732.702.692.802.832.903.013.0618.4517.9518.0018.3916.4014.426,8507,4277,8478,2508,4728,7478,9249,0929,0919,0249,0689,0458,8408,6408,3478,1657,6507,3695,9896,4776,8967,2837,4787,7927,9458,0608,0838,0818,1668,1807,9757,7737,4687,2936,7846,4168619509519679949559791,0321,0089439028658658678798728669531,1821,1701,1581,1501,1411,6441,7721,8001,8711,8751,8711,8961,9321,9511,8621,9521,9921,9731,3131,3271,2941,2781,2961,2741,2851,2981,2551,3511,3961,5281,4841,5081,5861,4921,513July..Aug_.Sept..Oct...Nov..Dec...105. 83103.80105.61109. 84102.0394.78118.65116.75118.52123.42114 64106.1653 3150 1452 3153 2248 3045.7435.2233.7635.4938.2439.7441.483.043.163.133.053.363.7014.177,2997,0816,9547,0936,2436,0565,9495,9125,6711,0561,0251,0051,1811,9571,9521,9091,8781 Monthly data are averages of daily figures and annual data are averages of monthly figures.2 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.3 Ratio of price index for last day of quarter to earnings for 12 months ending with that quarter. Annual ratios areaverages of quarterly data.4 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 for banks represent estimates for all commercial banks,which accounted for 60 percent of security credit outstanding at banks on June 30,1971.5 1 n 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.8 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.7 Includes loans to purchase or carry margin stock if these are unsecured or secured entirely by unrestricted collateral.Sources: Board of Governors of the Federal Reserve System, New York Stock Exchange, and Standard & Poor's Corporation.342

TABLE C-81.—Business formation and business failures, 1929-73Year or month1929 .. . . .1933 31939 31940194119421943 ..1944194519461947 .19481949195019511952195319541955195619571958....1959196019611962 .1963...1964...19651966196719681969 ..1970 ..197119721973Indexof netbusinessformation(1967 = 100)112.687.893.193.398.294.491.399.195.290.489.596.802.488.390.793.397.298.698.2100.0109.8116.2108.0111.0117.94118.4Newbusinessrations(num-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, 577316,6014 306,404nessfailure103.9100.369.663.054.444.616.46.54.25.214.320.434.434.330.728.733.242.041.648.051.755.951.857.064.460.856.353.253.351.649.038.637.343.841.738.336.4TotalBusiness failures lNumber of failures22,90919,85914,76813,61911,8489,4053,2211 2228091,1293,4745,2509,2469,1628,0587 6118 86211 08610,96912,68613, 73914,96414,05315 44517 07515 78214,37413,50113,51413,06112 3649 6369,15410,74810,3269,5669,345Liability 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 1447,8297,1928,0197,6117,0406,627$100,000andover7449792272191631236646501263713975384164325307878608561,0711,1921,4651,3461 7952 0692 0102,1822,1552,1742,2282 2201 8071,9622,7292,7152,5262,718Amount 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, 090.11,213.61,352.61,329.21,321.71,385.71 265.2941.01,142.11,887.81,916.92,000.22,298.6Liability sizeclassUnder$100,000261.5215.5132.9119.9100.780.330.214.511.415.763.793.9161.4151.2131.6131.9167.5211.4206.4239.8267.1297.6278.9327.2370.1346.5321.0313.6321.7321.5297.9241.1231.3269.3271.3258.8235.6$100,000andover221.8242.049.746.835.420.515.117.118.851.6140.9140.7146.797.1128.0151.4226.6251.2243.0322.9348.2430.7413.9611.4720.0867.11,031.61,015.61,000.01,064.1967.3699.9910.81,618.41,645.61,741.52,063.01972:JanFebMarAprMayJuneJulyAugSeptOctNovDec1973:JanFebMarAprMayJuneJulyAugSept.Oct .. .NovDecSeasonally adjusted114.7114.6116.9118.0118.5117.7118.0117.5118.7120.4120.2120.1119.1119.8121.9119.6119.0118.2118.1117.7115.6P115.8P117.824, 87125,05526, 86226, 68126,24326,30326,81526,42026, 79827,41726, 38727,61427,17328,64029,91428,69328, 42227, 85927, 83227,69626,277P26,215v27,68335.740.841.236.538.234.238.540.539.138 838.537.434.936.035.935.236.338.235.739.138.637.034.735.7750880986808856730740824730755799708772753874796838840714837717772739693553647672592670528538578551593574544534557647598559608520580502519513490197233314216186202202246179162225164238196111198279232194257215253226203101.6191.3220.7148.5190.1127.9204.6253.6113.5153 0208.686.8205.8137.2252.3119.3167.9180.2206.2190.1189.5185.7218.7245.620.123.024.428.523.318.119.221 019.621 421.019.119.119.323.120.719.020.419.620.418.518.719,617.281.5168.3196.3120.0166.8109.8185.4232.693.9131.6187.667.7186.7117.9229.298.7149.0159.8186.6169.8171.0167.0199.1228.41 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.2 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 & Brad street, Inc.343

AGRICULTURETABLE C-82.—Income of farm people and farmers, 1929-73192919331939Year orquarter1940194119421943194419451946. . .194719481949195019511952195319541955 . . .195619571958195919601961196219631964196519661967196819691970197119721973P1971: 1II .IllIV1972: 1IIIIIIV .1973: 1II .IllIVPFromallsourcesPersonal incomereceived by totalfarm population7.47.610.114.116.516.617.220.021.123.819.520.422.722.119.818.417.617.817.719.518.118.719.720.420.620.623.624.924.025.127.628.329.234.041.3Fromfarmsources^4.84.86.810.112.112.212.815.515.818.013.314.116.215.413.412.511.411.211.012.811.011.512.212.312.111.313.514.413.113.214.915.115.218.123.8Fromnonfarmsources 22.62.83.33.94.44.44.44.65.35.86.26.36.56.76.45.96.26.66.66.77.07.27.58.28.59.310.010.510.911.912.713.214.015.917.5Realized grossTotal 3Billions of dollars13.97.110.611.113.918.823.424.425.829.534.134.731.632.337.136.835.033.633.134.334.037.937.538.139.841.342.342.644.949.749.050.955.657.859.768.990.558.959.759.161.365.868.168 772.879.882.591.4108.311.35.37.98.411.115.619.620.521.724.829.630.227.828.532.932.531.029.829.530.429.733.533.534.235.136.437.437.239.343.3M.I44.148.150.552.860.783.4Income received from farming7.74.46.36.97.810.011.612.313.114.517.018.818.019.422.322.621.321.621.922.423.325.226.126.427.128.629.729.530.933.434.836.238.841.044.549.264.4Net to farmoperatorsCashreceiptsfrommarketingsProductionexpensesExcludingnetinventorychange6.32.74.34.26.18.811.812.112.815.017.115.913.612.914.814.113.712.011.211.910.712.711.411.712.612.612.613. 114.016.314.214.716.816.815.219.726.1Seasonally adjusted annual rates51 852.852.254.457.859.860 564.672 475.584.5101.243 144.444.745.947.048.849 451.555 858.065.977.915 815.314.415.418.819.319 321.324 024.525.530.4Includingnetinventorychange«6.22.64.44.56.59.911.711.712.315.115.417.712.813.716.015.113.112.511.511.411.313.511.512.113.013.213.212.315.016.314.914.816.916.916.920.326.917 016.716.417.619.620.019 921.924 424.727.231.4Net income perfarm, includingnet inventorychangeCurrentdollarsDollars9453796857061,0311,5881,9271,9502,0632,5432 6153 0442 2332,4212 9462 8962 6262 6062,4632,5352 5903 1892,7953 0483 3953 5793,6973,5484,4654 9904,7074,8285,6205,7255,8177,0899,4695 8405,7405,6406,0506,8306,9706 9307,6308,6208,7209,61011,0901967dollars«1,9691 1151,8511,8582,5783 4523 7063 6113,6194,0373 5343 9032 9773,1863 5493 4483 1263 1022,9322,9822 9433 5833,1403 3873,7723,9334,0183,8154,7005,0924,7074,6425,1565,0224,8885,7176,8624,9904,8604,7005,0405,6005,6205,5406,0606,5806,4106,8607,6501 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 income furnished by farms (excluding netinventory change).* Includes net value of physical change in inventory of crops and livestock valued at average prices for the year.* 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

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...1973PFarmoutputi53505860626968706971697574737578797982828086889090919b949796100102103102110112116Total 2625664666876717573767383797677818179828280898992919295939895100103104100112113119TABLE C-83.—Farm production indexes, 1929-73Feedgrains504552537066606361665073646560646266696975828588798087768989100959990117114117Hayandforage69606575748179788176737372778078808085818888848989929293979610010010099105104109Foodgrains5035475259625366687183806964638174666265619072867873768487871001059791106101111Crops[1967=100]65657274758086828493828784858081848386918890899196949490969710010310310199100101Fruitsandnuts67688583888775877994908287878986878888928491938791928990959710093113107115104127200175160170145173155166122117160202217135205205222188199180148154196192193200207206202129100148135137142182173VegetablesCottonTobacco7770977464717199100117107100100103118114105114111110848891991041171191139495100879197868990Oilcrops8617202233352931303239364138373741465453655861717275759096100112115117121129156Total 3Livestock and products545759606471777373717068727578787982848483858887919295979597100100101105107108107Meatanimals525859606373817370686766697479797881868380828885899095989296100102102108110111111DairyproductsPoultryandeggs76 3280 3283 3585 3689 3992 4591 5293 5195 5494 5093 4990 4893 5493 5692 5992 5997 6198 6399 62101 68102 69101 73100 76101 75104 81105 81104 83105 87104 90101 96100 10099 9899 101100 106101 106102 10999 1061 Farm output measures the annual volume of farm production available for eventual human use through sales fromfarms or consumption in farm households. Total excludes production of seeds and of feed for horses and mules. TheDepartment of Agriculture also estimates net farm output, which excludes all quantities used for feed.2 Includes production of seeds and of fe"ecf for horses and mules and certain items not shown separately.3 Includes certain items not shown separately.Source: Department of Agriculture.345527-867 O - 74 - 23

TABLEC-84.—Farm population, employment, and productivity, 1929-73Farm population(April l)iFarm employment(thousands) 3Farm outputYearber(thousands)As percentoftotalpopulation2TotalFamilyworkersHiredworkersParunit oftotalinputTotalPer man-hourCropsLivestockandproductsCropproductionperacre

TABLE C-85.—Indexes of prices received and prices paid by farmers, and parity ratio, 1929-73[Index, 1967=100, except as noted]Prices received by farmersPrices paid by farmersParity ratio l19291933.1939Year or month194019411942194319441945194619471948 . .19491950195119521953195419551956 .195719581959196019611962196319641965196619671968196919701971197219731972: Jan 15Feb 15Mar 15Apr 15..May 15June 15...July 15Aug 15Sept 15"Oct 15Nov 15 .Dec 151973:Jan 15Feb 15Mar 15 ....Apr 15May 15June 15July 15Aug 15Sept 15Oct 15 . . .Nov 15Dec 15All farmproducts5828373949637678819310911398102119113100979191929895949496969398105100103108110112126172120122120119123125127128128129130137144149159157163172172207191184181184Crops6531424455708587921041221271111031171181061071021049999989910010310610610310510010197100107115164111110108112114116115117117117120127131133140143154170164195183182181193Livestockandproducts572539395062717176871041149810112111097908482889993919192898594105100104117118116134178127131129126130132136135138139138145153161174168169173179217198187182178All items,interest,taxes, andwage rates473236363944505356617076737582848181818184868788889091929498100104109114120127145123124124125125126127127128129130131134136138140143146146151150150151153Familylivingitems483437384046525457637478757683848484848588898990909192939598100104109114119124138121123123123124124125125126125127127129131132134136138138141142142146146Productionitems513442434552576061677887838695958989878790929392toco4* CO95949699100102106110115122CD «118119119120121122122124125126129132134138139143149148157154153153156ActualAdjusted 2926466778581 8893 98105 109113108109 111113 115115 116110 111100 100101 102107 108100 10192 9389 8984 8583 8482 8585 8881 8280 8279 8380 8378 8176 8077 8280 8674 7973 7974 8072 7769 7474 798892737874 7972 7771 767378747975 807580758075 8075 8078 838083828586 8983 8785 8987 9188 92102107959991 9589 9389 93too1 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

TABLE C-86.—Selected measures of farm resources and inputs, 1929-731929...:19331939Year1940. .194119421943.. .19441945. .194619471948194919501951195219531954195519561957195819591960196119621963 . .19641965196619671968196919701971 . . . . .19721973 vCropsharvested(millionsofacres) i365340331341344348357362354352355356360345344349348346340324324324324324302295298298298294306300290293305294322Manhoursoffarmwork(billions)23.222.620.720.520.020.620.320.218.818.117.216.816.215.115.214.514.013.312.812.011.110.510.39.89.49.08.78.27.87.47.37.06.76.56.46.26.5Total99939697971001011029998989910110010310310210110110097979896969697979798100101102101102102104Farmlabor302294270269265271267265249239226220212199200191184176170160149143139134129123120115109101100969489888589Index numbers of inputs (1967 = 100)Mechanicalpowerandmachinery104 4098 33103 41105 43103 45101 51100 54100 56100 57104 56105 62105 69106 76107 80108 86106 90107 91107 92107 93104 94104 92102 93102 94101 92100 90100 92100 91101 92101 95100 99100 10099 10299 10298 10197 103101 10297 105FarmrealestateFertilizerandlimingmaterials11612141517192323242829313236394243454446485454586270768090100107110113121120124Feed,seed,andlivestockpurchases2312841434649535355545657636468707072737675818484878989919297100101104109109110109Taxesandinterest697167686869727475767674777777798080828?81828687899092949598100103105106104108109Miscellaneous53525051524952545354545962636767656468706974798084899499101981001081101071091171151 Acreage harvested (excluding duplication) plus acreages in fruits, tree nuts, and farm gardens.2 Nonfarm portion of feed, seed, and livestock purchases.Source: Department of Agriculture.348

TABLE G-87.—Comparative balance sheet of the farming sector, 1929-74[Billions of dollars]AssetsClaimsOther physical assetsFinancial assetsBeginning ofyearTotalRealestateLivestock*Crops 2U.S.savingsbondsTotalRealestatedebtOtherdebtMachineryandmotorvehiclesHouseholdequipmentandfurnishingsDepositsandcurrencyInvestmentin cooperativesProprietors'equities192948.06.63.29.8193330.83.02.58.51939....34.15.13.26.81940.1941...194219431944..1945.1946.194719481949...1950.195119521953.19541955.1956 .1957-19581959. .52.955.062.973.784.694.2103.5116.4127.9134.9132.5151.5167.0164.3161.2165.1169.6177.9185.8202.133.634.437.541.648.253.961.068.573.776.675.386.695.196.595.098.2102.9110.4115.9124.45.15.37.19.69.79.09.711.913.314.412.917.119.514.811.711.210.611.013.917.73.13.34.04.95.46.55.45.37.410.112.214.116.717.418.418.619.320.220.221.82.73.03.85.16.16.76.37.19.08.67.67.98.89.09.29.68.48.37.69.34.24.24 95.05.35.66.17.78.59.18.69.710 39.99.910.010.510.09.99.83.23.54 25.46.67.99.410.29 99.69.19.19.49.49.49.49.59.49.510.00.2.4.51.12.23.44.24.24.44.64.74.74.74.64.7115.15.20.8.9.9nL.I?L.47q2.12.32.52.72.93.13.23.53.73.952.955.062 973.784.694.2103.5116.4127.9134.9132.5151.5167.0164.3161.2165.1169.6177.9185 8202.16.66.56 46.05.44.94.84.95 15.35.66.16 77.27.78.29.09.810 411.13.43.94 14.03.53.43.23.64.26.16.87.08.08.99.29.49.89.510 012.542.944.652 463 775.785.995.5107.9118 6123.5120.1138.4152 3148.2144.3147.5150.8158.6165 4178.519601961 . ..1962_19631964203.5204.2212.8221.4229.2130.2131.8138.0143.8152.115.215.516.417.315.822.722.222.523.423.97.78.08.89.39.89.68.99.19 08.89.28.78.89.29.24.74.64.44.44.24.24.54.85.05.4203.5204.2212.8221 4229.212 112.813.915 216.812.713.414.816.518.1178.7178.0184.1189 7194.31965196619671968196919701971197219731974 v237.2253.7266.6279.9294.0305.1316.2341.4384.5454.6160.9172.2181.7191.9200.8206.1214.1230.5258.7310.414.417.518.918.720.123.323.627.234.224.725.827.229.530.931.933.936.039.0115.69.29.710.09.610.610.910.711.814.18.68.68.49.09.610 110.311.011.99.610.010.310.911.511.912.413.114.14.24.03.93.83.73.73.63.73.928:65.65 96.26.56.87.27.68.18.6237.2253 7266.6279.9294.0305.1316.2341.4384.5454.618.921 223.325.527.128.429.531 334.538.018.720 422.424.927.529 731.635 639.141.9199.6212.1220.9229.5239.4247.0255.1274.5310.9374.71 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 1,1974 totaled approximately $0.3 billion.Source: Department of Agriculture.349

INTERNATIONAL STATISTICSTABLE C-88.— U.S. balance of payments, 1946-73[Millions of dollars]Year orquarterExportsMerchandise 12ImportsNetbalanceMilitary transactionsDirectexpendituresSalesNetbal-Net investmentincomePrivatesU.S.GovernmentNettravelandtransportationexpendituresOtherservices,netBalanceongoodsandservices1 *Remittances,pensions,andotherunilateraltransfers1Balanceoncurrentaccount19461947194819491950195119521953.1954195519561957 „.19581959196019611962196319641965196619671968196919701971197219731311,76416,09713, 26512,21310, 203 -9, 08114, 243 -11,17613, 449 -10,83812,412 -10,97512,929 -10,35314, 42417, 55619, 56216,41416, 45819,65020,10820,78122,27225,50126,46129,31030,66633,62636,40041,96442,76848,76967,001-5,067-5,973-7, 557-6, 874-11,527-12, 803-13,291-12,952-15,310-14,758-14,537-16,260-17,048-18,700-21,510-25,493-26,866-32,991-35,807-39,788-45,466-55,681-67, 6556,69710,1245,7085,3391,122 -5763,067 -1,2702,611 -2, 0541,437 -2,6152,576 -2,6422,897 -2,9014,753 -2, 9496,271 -3,2163,462 -3,4351,148 -3,1074,8925,5714,5215,2246,8014,9513,8173,8006355932,176-2,698-6,912-653-493-455-799-621-3,087-2,998-3,105-2,961-2,880-2,952-3,764-4,378-4,535-4,856192182200161375300302335402656657747-493-455-799-621-576-1,270-2,054-2,423-2,460-2, 701-2,788-2, 841-3,135-2, 8057509971,1771,2001,3821,5691,5351,5661,8992,1172,4542,5842,4162,658-2,753 2,825-2,596 3,451-2,448; 3,920-2,304 4,056-2,133 4,872830 -2,122829 -2,9351,240-3,1381,392-3,1431,512 -3,3445,2745,3315,8486,1575,820-4,852 1,478 -3,374 6,374-4,829 -r,^t 1,912 -2,918 8,9294,724 1,166-3,558 9,7514,617[ 1,776 -2, 841111,927650857378151140166213180404168681610313297320444063155-115-957-1,889-2,9521Seasonally adjusted733946374230-12029883-238-269-297-361-189-633-821-964-978-1,155-1,312-1,149-1,284-1,332-1,751-1,548-1,782-2,013-2,288-2,853-2, 449114-45-27-36241240-434772786278301161791423012853353024495817398519327,80711,6176,5186,2181,8923,8172,3565321,9592,1534,1455,9012,3563104,0935,5825,0865,9408,5377,1415,2105,1322,4651,891-2,922-2,625-4, 525-5,638-4,017-3,515-2,531-2, 481-2,280-2,498-2, 423-2, 345-2, 361-2, 448-2,292-2,513-2,631-2,742-2,754-2,835-2,890-3,081-2,909-2,9413,630 3,214807 3,598-4,610 3,7443', 963 -3, 6194,8858,9921,993580-2,125302-175-1,949-321-3451,7223,556-5-2,1381,8013,0692,4563,1995,7834,3062,3202,051-443-1,050416-2,790-8,3533441971:1II....111...IV — _10,87210,79111, 5229,583-10,743-11,708-11,907-11,108129-917-385-1,525-1,175-1,214-1,204-1,237498507489419-677-707-715-8181,9422,3582,0512,577-113-178-306-360-513-599-550-626186174185192954131280-560-803-859-958-978151-728-678-1,5381972:1II....IllIV11,65511,53912,36213, 213-13,475-13,313-13,935-14,958-1,820-1,774-1,573-1,745-1, 222-1,242-1,108-1,151328288262287-894-954-846-8642,2902,2522,4472,763-399-461-497-531-755-691-679-730204 -1,374202 -1,426209 -939237 -870-969-938-954-881-2,343-2,364-1,893-1,7511973:1II....III*..IV15,32016, 77818,15320,048-16,280-17,022-17,43918,748-960-2447141,300-1,168-1,185-1,110343455534-825-730-5762,9542,8883,103-645-777-792-608-703-5262342402251506742,148-742-1,041-931-592-3671,217See footnotes at end of table.350

TABLE G-88.— U.S. balance of payments,[Millions of dollars]1946-73—ContinuedYear orquarterLong-termcapitalflows,netU.S.Government«PrivateeBalanceon currentaccountandlongtermcapitalNonliquidshorttermprivatecapitalflows,net eAltocationsofspecialdrawingrightsErrorsandomissions,netNetliquiditybalanceLiquidprivatecapitalflows,net«OfficialreservetransactionsbalanceChangesin liabilitiestoforeignofficialagencies,net?ChangesnU.S.officialreserveassets,netsU.S.officialreserveassets,net(end ofperiod)1946.1947..194819491950195119521953195419551956195719581959I960....1961....1962....1963....1964....1965....1966....1967....1968....1969....1970....1971....1972 ...197313...-889-901-892-1,150-1, 348-1, 532-1,469-2,423-2,158-1,926-2,018-2, 359-1, 339-832-2,100-2,182-2,606-3,376-4,511-4, 577-2,575-2,9321,191-70-1,429-4,40!-1521,803-1,188-15-1,042-1,328-76-1,804-1,724-3, 304-1,411-3,046-3,031-9, 550-9,8431,315-253-236-13115875-227-41183-556-328-479-174-145-8910-1,40510-1,200io-657io-968-1,643-154-104-522231-640-482-2, 347-1,637-3,9898677177101558611,115717-124354497220603713901,012361260-1,084 io-3,677-1, 037 io-2 F252-1,166 io-2,864-418 io-2,713-978 -2,696-520-322-857-431-2, 395-1, 205-10,784-3,112-6, 428-2,478-2,151-4,683-1,611-6, 081-3,851-21,965-13,882-9,10310 27310 90410 21410 7791,1621,1882,3701,2653,2528,820-5,988-7,7883,542-1,639-3,403-1, 348-2,650-1,934-1,534-1, 290219-3,4181,6412,739-9, 839-29,75310,340-10,7411,2587421,1171,5571,36367-7873,366-761-1, 5527,36227, 40510, 30810, 443-623-3,315-1,736-2661,758-33-4151,256480182-869-1,1652,2921,0352,1456061,5333771711,22256852-880-1,1872,4772,3483229920,70624,02125,75826,02424,26524, 29924,71423,45822,97822,79723,66624,83222, 54021, 50419, 35918,75317,22016,84316,67215,45014,88214, 83015,7101116,96414, 4871212,16713,1511414,378Seasonally adjustedUnadjusted1971: L.II.III.IV.-642-575-598-544-895-1,691-2,018201-1, 386-2,994-3, 294-1,881-517-492-822-516180179179179-949-2, 391-5,511-1, 933-2,672-5,698-9,448-4,151-2,958-647-2, 434-1,749-5,630-6, 345-11, 882-5,9004,9485,68610,6886,0876826591,194-18714, 34213,50412,1311212,1671972: l._II.IllIV.-289-95-366-586-1,143604-393781-3, 775-1,855-2,652-1, 556-535310-430-982178178177177944-940-1,626-1,490-3,188-2, 307-4, 531-3,851-2881,45672,367-3,476-851-4, 524-1,4843,0471,0824,5791,595429-231-55-11112,2701*13,33913, 21713,1511973:1..II..Ill»IVP.-33675-363-16-3171,685-944-6092,539-1,822-1,404234-3, 891425-1,355-6,657-1, 5881,418-3,8421,923690-10,4993352,10810, 279-352-2, 09522017-1312,93112,91412,927H14.3781 Excludes military grants.2 Adjusted from Census data for differences in timing and coverage.3 Includes fees and royalties from U.S. direct investments abroad or from foreign direct investments in the United States.• Equal to net exports of goods and services in the national income and product accounts when converted to an annualrates basis.« Excludes liabilities to foreign official reserve agencies.« Private foreigners exclude the International Monetary Fund (IMF), but include other international and regional organizations.7 Includes liablities 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.« Official reserve assets include gold, special drawing rights, convertible currencies, and the U.S. gold tranche positionin the IMF.• Not available separately.10 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.11 Includes gain of $67 million resulting from revaluation of the German mark in October 1969.u Includes $28 million increase in dollar value of foreign currencies revalued to reflect market exchange rates as ofDecember 31,1971.» First 3 quarters on a seasonally adjusted annual rates basis (except reserve assets are for end of December).i< Includes increase of $1,436 million resulting from change in par value of the U.S. dollar on October 18,1973.is Includes increase of $1,016 million resulting from change in par value of the U.S. dollar on May 8,1972.Sources: Department of Commerce (Bureau of Economic Analysis) and Department of the Treasury.351

TABLE C-89.— U.S. merchandise exports and imports by commodity groups, 1958-73Year or quarterTotal, includingreexports *Merchandise exports iTotal 2 3[Millions of dollars]Domestic exportsSeasonallyadjustedUnadjustedFood,beverages,and tobaccoCrudematerialsandfuels*Manufacturedgoods*Total 3Merchandise importsSeasonallyadjustedUnadjustedGeneral imports«Food,beverages,and tobaccoCrudematerialsandfuels*Manufacturedgoods 5Grossmerchandisetradebalance,seasonallyadjusted7195819591960196119621963196419651966196719681969 .19701971197219731971: 1IIIIIIV1972: 1IIIIIIV1973: 111IIIIV11,23910,96611,6759,72611,76711,67312,44713,34715,40716,86618, 33520,17816,37516,42619,65920, 22620,98622,46725,83226,74229, 49031, 03034,06337,33242,65943,54949,21970,79811,11611,40610,92410,10311,89012,04011,57413,71415, 52017,44017, 07220,76616,21116,24319,45919,98220,71722,18225,47926,39929,05430,64633,62636,78842,02542,91148,41969,70710,96211,22210,7779,95011,72411,82611,37613,49315, 28617,13616, 80820,4772,6882,8523,1673,4663,7434,1884,6374,5195,1864,7104,5924,4465,0585,0766,56912,9391,2951, 2191,3361,2251,4161,4321,6252,0952,3842,7703,5574,2283,0522,9963,9423,8643,3563,7754,3374,2734,4044,7264,8655,0066,6926,4417,09110,7381,6891,6741,5691,5091,7041,6881,5362,1632,5712,7442,2223,20111, 54711,17912,58312, 78413,66814, 29716,52917, 43319, 21820,84423,81826,78529,34330,44333, 75944,7037,7388,0467,6497,0108,3408,4308,0148,97510,06511,25010,71612,67110,79911,74711,95811,03013,42413,37013,90314, 88816,25816,84817,35818,62313, 39215,69015,07314,76116,46417,20718,74921,42725,61826,88933,22636,04339,95245, 56355, 58369,12110,51812,00311,77811,26413,30213,74313, 53215,00615,96517,28316,93618,9383,5503,5803,3923,4553,6743,8634,0224,0134,5904,7015,3655,3086,2306,4047,3799,1991,4921,7061,8951,3111,8101,7691,8071,9932,0842,3172,1882,6104,1644,6154,4184,3344,6914,7555,0295,4405,7185,3676,0316,3916,5427,2688,83813, 3431,6261,8361,9281,8792,1302,1052,1952,4082,7773,0633,3174,1865,3117,1176,8636,5377,6498,0709,10611,24414,44615, 75620,62423,01125,90630,41437,76744,7887,0518,0847,5897,6908,9859,4789,13510,16910,66211,46910,97711,6822,9837364,5865,4654,5225,2607,0835,3153,8724,1418371,2892,708-2,0146,3641,677440-782-283-1,304-1,657-1,697-1,456-1, 540-851189771,5551 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.'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, International Economic Policy and Research.352

TABLE C-90.— U.S. merchandise exports and imports by area, 1967-73IMillions of dollars]Area 1967 1968 1969 1970 1971 1972 1973Exports (including reexports and special categoryshipments): Total...Developed 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 *31,62221,4679,9607,1724,71810,1871957,1501,0181,18226,88918,9937,7097,1404,6628,0521775,34958334,63623,60010,8218,0725,33911,1322157,5821,0261,26933,22624,1308,8869,0055,14310,1391986,911697920 1,122638,00626,47911,2779,1375,57612,3922498,2619981,39236,04326, 4609,37310,3845,16310,1381958,2758281,0461143,224 44,130 49,778 71,31430,877 30,335 34, 319 47,17712,993 13,410 14, 576 20,9739,079 10,365 12,415 15, 0736,532 6,484 7,275 9,93114,463 14,178 15,361 21, 361354 384 819 1,79710,028 9,855 11,297 18,4261,189 1,168 1,034 1,7441,579 1,694 1,576 2,307167745, 563 55, 583 3 69,12133, 744 40, 822 48,09411,549 14,356 19,46112,691 14,927 17,4436,038 7,003 9,33812,658 15,423 19,162223 321 51911,779 15,117 17,775895 1,145 1,5541,236 1,595 2,35024 41 51 3 98139,95229,25910,44211,0925,83611,1692269,6218711,113121 Beginning January 1973, transshipments of certain grains and oilseeds through Canada are shown as exports to unidentifiedcountries.2 Includes Finland, Yugoslavia, Greece, and Turkey.3 Beginning November 1973, crude petroleum imports are not available by country of origin, but are included in thetotal and in unidentified countries.* 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, International Economic Policy and Research.353

TABLE C-91.—U.S. overseas loans and grants, by type and area, fiscal years, 1962-73[Millions of dollars]Type of program and fiscal periodTotalNearEastandSouthAsiaLatinm ericaEastAsiaandietnamAfricaEuropeOtherandinteregionalTOTAL ECONOMIC LOANS AND GRANTS (OBLI-GATIONS AND LOAN AUTHORIZATIONS)*1962-72 average . .Loans. ._ .-Grants1973Loans. -_ .GrantsOFFICIAL DEVELOPMENT ASSISTANCE TO LESSDEVELOPED COUNTRIES2Obligations and loan authorizations:1962-72 average1973Loan repayments and interest receipts:1962-72 average1973Agency for International DevelopmentObligations and loan authorizations:1962-72 average1973 .Loan repayments and interest receipts:1962—72 average1973Food for PeaceObligations:1962-72 average1973Loan repayments and interest receipts:1962-72 average _..19734,9272 6822,2457,4244,7042,7203,9834,1054321,0342,2072,0012444901,2831,1161615291,3609963649925434491,239754234468626387134272602362951871,1177104071,3887756138918816910249731436751388916271,1334137191,8391,2535869231,253492905806963353314549142353901842065464141323472552960196163213612969724360330301,6081,5951355184610931717525202956568505181,052124928528944563054232 24847Contributions and subscriptions to internationalfinancial institutions 3Obligations:1962-72 average1973 . , .286801179432107369Other official development assistance, includingPeace Corps•Obligations:1962-72 average1973Other economic loans and grants to less developedcountriesObligations:1962-72 average1973Loan repayments and interest receipts1962-72 average1973 _ .-2071875901,78046665011512123891171774522650827828430890471317222234329017401072694780681053402ECONOMIC LOANS AND GRANTS TO DEVELOPEDCOUNTRIESObligations:1962-72 average19733551,5391191151981,321381031 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.< Data for certain programs from Department of Commerce, Bureau of Economic Analysis.Source: Agency for International Development (except as noted).354

TABLE C-92.—International reserves, 1949, 1953, and 1968-73[Millions of dollars; end of period]Area and country 1949 1953 1968 1969 1970 1971 19721973NovemberAll countries46,11651, 82677,42578, 25592,600130,560158,700180,835Developed areas37, 35341,47863, 24662, 63674,311107, 210126, 592140,110United States26, 02423,45815,71016,96414,48713,19013,15014,373United Kingdom1,7512,6702,4222,5272,8276,5825,6476,646Other Western Europe.._AustriaBelgiumFrance.GermanyItalyNetherlandsScandinavian countries (Denmark,Finland, Norway, andSweden)SpainSwitzerland..OtherCanadaJapanAustralia, New Zealand, and SouthAfrica6,583 929785801967233865371221,6921,2771,1972261,57210, 5972771,1448291,7738481,2301,0261501,7681,5521,9098921,95236,1741,5042,1874,2019,9485,3412,4632,3201,1494,2932,7683,0462,9062,98933,6101,5302,3883,8337,1295,0452,5292,2141,2814,4253,2363,1063,6542,77244,6461,7512,8474,96013,6105,3523,2342,5381,8175,1323,4054,6794,8402,83162, 0362,3433,4738,25318,6576,7873,7963,7013,2686,9664,7925,70115, 3604,34275, 3722,7193,87010,01523,7856,0794,7854,5135,0147,4887,1046,05018, 3658,00991,6932,8784,9778,55034,1326,0846,2085,8086,6957,2209,1415,73613,1968,466Less developed areas lLatin AmericaMiddle East ... .Other AsiaOther Africa 28,7632,4171,5343,64263910, 3472,8691,2563,7421,78714,1803,9153,3204,2852,49515,6204,4703,0354,8703,09518, 2855,6403,1205,2254,17523,3506,5855,2405,8905,50032,11010, 5507,6257,8105,98540,72514,22010,06010,1106,1851 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 andReserve Positions in the International Monetary Fund, and convertible foreign exchange. Beginning December 1971gold is valued at 38 U.S. dollars per ounce and foreign exchange balances are expressed in dollars at the cross rates reflectingparities and central rates agreed on December 17, 1971 and subsequently. Data cover all countries exceptU.S.S.R., other Eastern European countries, Mainland China, and Cuba (after 1960).Beginning 1959, when most of the major currencies of the world became convertible, data exclude known holdings ofinconvertible currencies, balances under payments agreements, and the bilateral claims arising from liquidation of theEuropean Payments Union.Source: International Monetary Fund, "International Financial Statistics."355

End of year ormonth1946 ..194719481949..195019511952. .19531954.19551956195719581959196019611962 . . .196319641965196619671968196919701971197219731972: JanFebMarApr •MayJuneJulyAugSeptOctNov.. .Dec .1973: JanFebMarAprMayJune. ..JulyAugSeptOctNovDecTotal reserveassetsTABLE C-93.— U.S. reserve assets, 1946-7320,70624, 02125,75826, 02424, 26524, 29924,71423, 45822,97822,79723,66624, 83222, 54021, 50419, 35918, 75317, 22016, 84316 67215, 45014, 88214, 83015,7107 16,96414, 487812,167913,151io 14, 37812,87912, 33012, 27012,285913, 34513, 33913, 09013,12413,21713,31313,30713,15113 05412,92612,93112,90412 91612,91412,91812,92312,927io 14, 36714, 37314, 378Total 2[Millions of dollars)Gold stock i20,70622, 86824, 39924, 56322, 82022, 87323, 25222, 09121, 79321.75322, 05822, 85720, 58219, 50717, 80416 94716 05715, 59615 471e 13 80613, 23512 06510 89211, 85911,07210, 206910 487ioil,65210, 2069,6629 6629,662910, 49010,49010,49010, 48810 48710, 48710,48710,48710 48710,48710,48710,48710 48710,48710,48710,48710,487io 11,65211,65211,652Treasury20, 52922, 75424, 24424, 42722, 70622,69523,18722,03021,71321, 69021,94922, 78120, 53419, 45617,76716 88915 97815, 51315 3886 13 73313,15911 98210 36710, 36710, 73210,1329 10,410ioil,56710,1329,5889 5889,5889 10, 41010, 41010,41010,41010,41010,41010,41010,41010,41010,41010,41010,41010,41010, 41010,41010,41010,410io 11,56711,56711,567Specialdrawingrights s8511,1009 1 95810 2,1661,8101,8101 8101,80391, 9581,9581,9581,9581 9581,9581,9581,9581 9581,9581,9581,9491,9491,9491,9491,9491,949io 2,1662,1662,166Convertibleforeigncurrencies «Reserveposition inInternationalMonetary Fund«1,1531,3591,4611,4451,4261 4621,3671,1851,0441,6081,9751,9581,9971,5551 6901 0641,035769«8633264201,2902,3246291,9358 2765852419 465810 5522765872765822125864293914699 428457434203234323414403241140888168888888116992124327811,3212 3453,5287 2,78143944444945445946546947347846046447047447948310 5415475521 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.* 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.i 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.Note.—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 G-94.—International investment position of the United States at year-end, 1960 and1968-72[Billions of dollars]Type of investment 1960 19681 19691 1970 1971 19722Net international investment position of theUnited States s_.U.S. assets abroad_Nonliquid assetsU.S. Government.Long-term creditsForeign currencies and othershort-term assetsPrivate long-term.Direct investments abroad_Foreign securitiesOther claims*Private short-term nonliquid claims 4 __Liquid assets.Private claims *..U.S. monetary reserve assets.Gold.SDR_Convertible currenciesGold tranche position in IMFU.S. liabilities to foreigners.44.785.666.216.914.02.944.531.99.63.154.819.417.81.640.965.6146.9128.628.525.92.689.765.018.26.510.418.32.615.710.93.51.381.367.3158.3138.630.728.22.596.571.018.76.811.419.62.717.011.92.82.390.969.1166.8149.932.129.62.4105.078.219.67.212.816.92.414.511.1.9.61.997.757.6180.7164.634.131.72.4115.986.221.78.014.616.14.012.210.21.1.3.6123.150.6199.3180.936.134.22.0128.494.024.99.416.418.45.26 13.26 10.56 2.0.26.5148.7Nonliquid liabilities to other than foreignofficial agenciesU.S. Government..Private long-term.19.8.818.442.72.238.045.02.439.650.72.044.855.31.649.865.71.859.8Direct investments in the UnitedStatesU.S. securitiesOther liabilities

TABLE C-95.—Price changes in international trade, 1965-73[1963=10011973Area or commodity class 1965 1966 1967 1968 1969 1970 1971 1972ThirdquarterUnit value indexes by areaDeveloped areasTotal:ExportsTerms of tradeUnited States:ExportsDeveloping areasTerms of trade».Total:Exports.Terms of trade i.Latin America:ExportsTerms of tradeSouthern and Eastern Asia:ExportsTerms of trade i103 105100 100104 107101 101102 10499 101106 108103 103101 10199 100105101no1021031001051009999104101111103103101106 9997100108101115103106101109100102102114102121101109100115101106104119101125 99116102122101108104130102129 95121100129102111100164102154942 1342 1012 1382 1052 1332 109World export price indexesPrimary commodities: Total103104101100104108115130192FoodstuffsCoffee, tea, and cocoa..CerealsOther agriculturalcommodities*..Fats, oils, and oilseeds.Textile fibersWoolRubberMineralsMetal ores.Manufactured goods: Total sNonferrous base metals«...10311199103114928697104114103135105112103104111 92909110410510615610411810596102 88 77 75103109107142100no100969988 7474102108107150104119 98101101 857398104114no168111136 96101118 8363 78111122117180117119100105118 85576412712612415413213211112011610965141134135154203187219193234181189M21171170158226i Terms of trade indexes are unit value indexes of exports divided by unit value indexes of imports.s Data are for second quarter 1973.3 Excludes Japan.* Includes nonfood fish and forest products.8 Data are for first 3 quarters of 1973.6 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-96.—Consumer price indexes in the United States and other major industrial countries.1955-7311970=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 .-196119621963196476.377.077.978.879.976.777.178.079.480.856.759.763.869.271.967.369.572.976.479.076.778.580.983.385.268.269 772.978.383.066.467 068.370.974.867.269 572.573.976.319651966.19671968 .-196981.383.686.089.694.482.885.988.992.696.876.780.683.888.392.981.083.285.489.395.088.191.292.593.996.486.788.891.692.895.278.783.386 089.195.880.083.185 289.294.01970197119721973 l100.0104.3107.7114.4100.0102.9107.8115.1100.0106.1110.9122.1100.0105.5111.7118.9100.0105.2111.2118.5100.0104.8110.8121.6100.0107.6116.0124 9100.0109.4117 2126.81971* 1 IIIIIIV102.8103.9104.9105.5100 9102.3103.8104.5103.9105.7106.7108.1103.0104.6106.0107.5103.3104.8105.7106.9103.1104.2105.2106.7104 4107.1108.3110.4105.5109.3110.8112.21972: 1IIIII ... .IV106.4107.2108.2109.1105.7106.7108.8109.9108.4110.6111.5113.0108.9110.4112.5114.9109.0110.2111.8113.8108.0109.5111.4114.4112.7115.5116.3119.3113.9116.1118.0120.81973:1IIIllIV 2110.7113.1115.6118.3111.9114.5117.7119.0116.1122.2125.8129.1115.9118.2121.1123.4116.3118.7119.6120.7117.5121.6124.4126.1121.3124.9125.9128.5122.9126.9128.8132.21 For United States, 12-month average; for Netherlands January-November average; and for all other countries,January-October average.2 October-December average for United States; October-November average for Netherlands; and October data for allother countries.Sources: Department of Labor and Organization for Economic Cooperation and Development.359U.S. GOVERNMENT PRINTING OFFICE : 1974—O-527-867