Economic Report of the President

ness of U.S. producers in the wake of the depreciation of the dollarin 1977 and 1978,Government Purchases of Goods and ServicesReal government purchases of goods and services grew 1.5 percentduring 1980, as gains in Federal purchases more than offset the declinein State and local purchases. Over the 4 quarters of 1980 Stateand local purchases fell 0.3 percent. Reduced purchases of durablegoods (down 1.6 percent) and structures (down 6.5 percent) were thekey factors. Real compensation of employees grew 0.7 percent in1980, a significant deceleration from the 2.4 percent average rate inthe previous 3 years. There had been widespread expectations thatreductions in Federal grant-in-aid support, particularly for publicservice employment payrolls, combined with the recession squeezeon tax receipts and political pressures for reduced growth, wouldforce an even sharper cutback in the growth of State and local payrolls.Instead, State and local governments have attempted to insulatepayrolls from the worst of the budget pressures while cutting expenditureselsewhere. The decline in structures investment over theyear was heavily concentrated in those areas dependent on the housingcycle: sewer system construction and highway and street constructionand renovation.Real Federal purchases of goods and services grew 4.7 percentduring 1980. Real defense spending grew 5.7 percent during 1980,with the pace of spending picking up in the last half of the year. Realnondefense purchases grew at a slower 3.2 percent for the year as awhole.LABOR MARKET DEVELOPMENTSThe volatility in demand for goods and services during 1980 producedsimilar swings in the demand for labor (Table 17). Civilianemployment peaked at 97.8 million in February 1980. Then duringthe next 4 months employment fell sharply (1.1 percent) to 96.8 millionin June. Over this same period unemployment rose from 6.5 millionto 7.8 million. Automobile and construction employment wereespecially hard hit. Although these two industries constituted onlyabout 6 percent of total payroll employment, they accounted fornearly two-fifths of the decline in employment from February toJune.Employment growth resumed at midyear. The magnitude of thesubsequent recovery differs, depending on which of the two standardmeasures of employment is utilized. Judged by the household survey,employment growth after midyear was relatively modest so that byyear-end total employment was still 500,000 lower than in December1979. When measured by data from business payrolls, however, em-146