ECONOMIC

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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
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ECONOMICTRANSMITTEDTO THE CONGRESSF
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CONTENTSPageECONOMIC REPORT OF THE
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ECONOMIC REPORT OF THE PRESIDENTTo
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of the inflation rate of 1973, and
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or permit incentives—including hi
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people of an easy time. Like our pa
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THE PRESIDENT:LETTER OF TRANSMITTAL
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CHAPTER 3. INFLATION CONTROL UNDER
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Page7. Unemployment Rates by Sex an
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Page53. Maximum Percent Change in E
Page 28 and 29: We have specific problems, too, asi
Page 30 and 31: This curtailment of supply does, of
Page 32 and 33: consumption we would not have chose
Page 34 and 35: outside the food and fuel sectors a
Page 36 and 37: about $14 billion from deficit to s
Page 38 and 39: 8 percent, at annual rates. Continu
Page 40 and 41: A third method, which seems to have
Page 42 and 43: DEVELOPMENT OF LOW-COST ENERGY FOR
Page 44 and 45: would otherwise have been invested
Page 46 and 47: TRANSPORTATION REFORMLast year the
Page 48 and 49: constraints. Restrictions on entry
Page 50 and 51: In early 1974 the Commerce Departme
Page 52 and 53: Consumer SpendingConsumer expenditu
Page 54 and 55: Chart 1Changes in GNP, Real GNP, GN
Page 56 and 57: During the fourth quarter the downt
Page 58 and 59: A number of points may be noted abo
Page 60 and 61: income do not appear to have played
Page 62 and 63: Chart 2Changes in Real GNPPERCENTUN
Page 64 and 65: of essentially declining participat
Page 66 and 67: The unemployment rate for adult mal
Page 68 and 69: from job losers, the remainder of t
Page 70 and 71: to maintain a somewhat larger work
Page 72 and 73: Chart 3Changes in Selected Price Me
Page 74 and 75: TABLE 12.—Changes in selected pri
Page 76 and 77: production workers, and it is sensi
Page 80 and 81: Two measures of changes in income t
Page 82 and 83: About $8 billion of the growth in e
Page 84 and 85: effect of covered wage and employme
Page 86 and 87: Since these apparent stabilization
Page 88 and 89: MONETARY POLICY AND FINANCIAL MARKE
Page 90 and 91: lation requiring ceilings on all CD
Page 92 and 93: TABLE 19.—Offerings of new securi
Page 94 and 95: CHAPTER 3Inflation Control Under th
Page 96 and 97: (A more detailed presentation of th
Page 98 and 99: ate of advance in grocery store foo
Page 100 and 101: to the economy but also in the sens
Page 102 and 103: were imposed, limiting prices to th
Page 104 and 105: spurring of domestic inflation by e
Page 106 and 107: was more than twice as high in 1973
Page 108 and 109: wage increases in many cases, const
Page 110 and 111: TABLE 26.—Behavior of items in co
Page 112 and 113: Chart 6Changes in RelatedWholesale
Page 114 and 115: and natural gas. A complex set of f
Page 116 and 117: CHAPTER 4Energy and AgricultureFOR
Page 118 and 119: al gas have contributed to the low
Page 120 and 121: TABLE 30*—Wholesale prices, all i
Page 122 and 123: tion sector, which in 1972 accounte
Page 124 and 125: United States on oil imports, OPEC
Page 126 and 127: of old oil and prices of imported a
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LONG-TERM PROSPECTSThe price of imp
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important that the higher costs be
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improving the environment. The fund
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pollutants into the atmosphere will
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of research and rapid mechanization
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lion in fiscal 1972. Actually the a
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a minimum income. Unless prices fal
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The Administration supports the exa
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and estimates of some of these effe
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Since families typically pool their
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ability were not perfectly correlat
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Farm wages and farm income received
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TABLE 37.—Average usual weekly ea
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Chart 9Real Incomes for Men in Diff
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ecause they have acquired more expe
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whose owners or white workers have
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Several factors can be mentioned to
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y social pressures, however, which
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TABLE 42.—Relation of wage and sa
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ferences in their mix of occupation
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for public housing may be valued by
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8 to 20 percent for black females.
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sufficiently high to cover the addi
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TABLE 45.—Federal Government tran
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given to the problems of poverty du
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TABLE 47.—Trends in the employmen
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enefit increases greater than the i
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(Table 45). Medicare is chiefly des
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Public assistance is specifically d
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Then, subtracting equation (4) from
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policies, and the tensions among co
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In the fourth quarter the dollar ro
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which include trade, grants and oth
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tarily by foreign central banks, ev
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ply of oil, and by domestic price c
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in the United States. In view of th
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TABLE 52.—U.S. balances on intern
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esult from changes in market value
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TABLE 54.—Major changes in capita
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attempt was made to agree on a code
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The official price of gold was rais
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system, these demand changes were a
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What Pressures Should Be Exerted on
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The composition of reserves among d
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prices of approximately the same or
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tained, they would probably be felt
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Reducing Nontariff BarriersIn order
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Structural problems. Agreements on
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arrangements which are designed to
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capital and the means of putting th
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Canada and four smaller countries u
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currencies have appreciated relativ
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Effective Changes in Other Currenci
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Activities of the Advisory Committe
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Appendix BREPORT TO THE PRESIDENT O
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Report to the President on the Acti
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govern the exploitation of the reso
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Manpower and Social Affairs Committ
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Junior Staff EconomistsJames S. Fac
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Appendix CSTATISTICAL TABLES RELATI
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PRODUCTION AND BUSINESS ACTIVITY:Pa
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NATIONAL INCOME OR EXPENDITURETABLE
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TABLE C-2.—Gross national product
Page 259 and 260:
TABLE C-3.—Implicit price deflato
Page 261 and 262:
Page 263 and 264:
Page 265 and 266:
TABLE C—8.—Gross national produ
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TABLE C-10.—Gross national produc
Page 269 and 270:
TABLE C-12.—Personal consumption
Page 271 and 272:
TABLE C-14.—Relation of gross nat
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TABLE C—16.—Relation of nationa
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TABLE C-18.— Total and per capita
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TABLE C-19.—Sources of personal i
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TABLE C-21.—Saving by individuals
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POPULATION, EMPLOYMENT, WAGES, ANDP
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TABLE C-24.—Noninstitutional popu
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TABLE C-26.— Selected unemploymen
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TABLE C—28.—Unemployment insura
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TABLE C-29.—Wage and salary worke
Page 291 and 292:
TABLE C-31.—.•Average weekly ea
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TABLE C-33.—Changes in output per
Page 295 and 296:
TABLE C—35.—Industrial producti
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TABLE C-37.—Capacity utilization
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TABLE C—38.—New construction ac
Page 301 and 302:
TABLE C-39.—New housing starts an
Page 303 and 304:
TABLE C-41.—Sales and inventories
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TABLE C-43.—Manvjacturers* new an
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TABLE O45.—Consumer price indexes
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TABLE C—47.—Consumer price inde
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TABLE C~49.—Wholesale price index
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TABLE C-50.—Wholesale price index
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194819491950.,1951195219531954Yearo
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TABLE C-53.—Commercial bank loans
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TABLE G-54.—Total funds raised in
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TABLE C-56.—Federal Reserve Bank
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TABLE C-58.—Bond yields and inter
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TABLE C-59.—Short- and intermedia
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TABLE C-61.—Mortgage debt outstan
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TABLE C-63.—Net public and privat
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TABLE C-65.—Federal budget receip
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TABLE C-66.—Relation of the Feder
Page 335 and 336:
TABLE C-68.—Receipts and expendit
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TABLE C-10.—State and local gover
Page 339 and 340:
TABLE C-72.—Estimated ownership o
Page 341 and 342:
CORPORATE PROFITS AND FINANCETABLE
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TABLE C-76.—Relation of profits a
Page 345 and 346:
TABLE C-77.—Sources and uses of f
Page 347 and 348:
TABLE C-79.—State and municipal a
Page 349 and 350:
TABLE C-81.—Business formation an
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Year1929...1933...1939...1940...194
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TABLE C-85.—Indexes of prices rec
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TABLE G-87.—Comparative balance s
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TABLE G-88.— U.S. balance of paym
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TABLE C-90.— U.S. merchandise exp
Page 361 and 362:
TABLE C-92.—International reserve
Page 363 and 364:
TABLE G-94.—International investm
Page 365:
TABLE C-96.—Consumer price indexe
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