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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
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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
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We have specific problems, too, asi
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This curtailment of supply does, of
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consumption we would not have chose
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outside the food and fuel sectors a
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about $14 billion from deficit to s
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8 percent, at annual rates. Continu
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A third method, which seems to have
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DEVELOPMENT OF LOW-COST ENERGY FOR
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would otherwise have been invested
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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 78 and 79: the profits that companies report a
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 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
Page 128 and 129: LONG-TERM PROSPECTSThe price of imp
Page 130 and 131: important that the higher costs be
Page 132 and 133: improving the environment. The fund
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Page 138 and 139: lion in fiscal 1972. Actually the a
Page 140 and 141: a minimum income. Unless prices fal
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Page 144 and 145: and estimates of some of these effe
Page 146 and 147: 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
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TABLE C-3.—Implicit price deflato
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TABLE C—8.—Gross national produ
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TABLE C-10.—Gross national produc
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TABLE C-12.—Personal consumption
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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
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TABLE C-31.—.•Average weekly ea
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TABLE C-33.—Changes in output per
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TABLE C—35.—Industrial producti
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TABLE C-37.—Capacity utilization
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TABLE C—38.—New construction ac
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TABLE C-39.—New housing starts an
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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
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TABLE C-68.—Receipts and expendit
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TABLE C-10.—State and local gover
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TABLE C-72.—Estimated ownership o
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CORPORATE PROFITS AND FINANCETABLE
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TABLE C-76.—Relation of profits a
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TABLE C-77.—Sources and uses of f
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TABLE C-79.—State and municipal a
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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
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TABLE C-92.—International reserve
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TABLE G-94.—International investm
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TABLE C-96.—Consumer price indexe
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