Economic Report of the President

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imported energy eventually will reduce real incomes in the UnitedStates. This reduction must be achieved by some combination ofprice inflation, wage moderation, or shrinking profit shares. Wagebargaining aimed at preventing this can only transform the adjustmentinto a more inflationary one.TABLE 21.—Alternative measures of changes in real earnings per hour, 1978-80[Percent change, fourth quarter to fourth quarter]Item 1978 1979 1980 lAverage hourly earnings indexDeflated by:Consumer price index (CPI)CPI with rent substituted for home-ownershipCPI with rent substitution and excluding energy...Fixed-weight price index for personal consumption expenditures (PCE)..Fixed-weight price index for PCE excluding energyCompensation per hour --4.3-2.3.1-1.9=2.6-1.1-.2-1.1-.2Deflated by:Consumer price index (CPI)CPI with rent substituted for home-ownershipCPI with rent substitution and excluding energy....Fixed-weight price index for PCEFixed-weight price index for PCE excluding energy..1 Preliminary: CPI for fourth quarter 1980 based on data through November.2 Data are for the private nonfarm business sector, all persons. Changes for 1980 are third quarter to third quarter.Note.—CPI for all urban consumers used.Fixed-weight price indexes are preliminary and subject to revision.Sources: Department of Commerce (Bureau of Economic Analysis) and Department of Labor (Bureau of Labor Statistics).Incomes policies can help to moderate the inflationary response toan oil-price increase, but only if business and labor cooperate toachieve the necessary adjustment. Such a willingness supported theCouncil on Wage and Price Stability (CWPS) standards programthrough its first year, 1979. In that year, as was noted in the lastReport, evidence suggested that the standards had helped to restrainwage inflation by 1 to IV2 percentage points. Since there was no evidenceof widening profit margins, it appears that the CWPS programcontributed to smoothing the adjustment to higher oil prices. Whilethere is evidence that cooperation with the standards was also high inits second year, a combination of several program features seems tohave reduced but not eliminated its impact. A widening of the allowablerange of wage increase and an undervaluation of cost-of-livingadjustments in multiyear contracts were important factors.ProductivityProductivity growth continued weak in 1980, advancing a tiny 0.1percent over the year ending with the third quarter. In 1979 privatenonfarm business productivity had declined 1.1 percent.During the course of 1980 productivity growth fluctuated sharply.In the first quarter productivity was essentially unchanged. With the-2.7— 9l!6~u-2.5-.8.9154
sharp decline in output in the second quarter, productivity declinedat a rapid 3 percent annual rate. This marked the seventh consecutivequarterly drop. With the resumption of modest economic growthin the third quarter, productivity rebounded sharply, rising at a 4percent rate.The faltering productivity during the first half of 1980, combinedwith a more rapid rise in wages, resulted in an acceleration in unitlabor costs. However, with the improvement in productivity in thethird quarter, the increase in unit labor costs moderated substantially.For the year ending with the third quarter, unit labor costs rose 10percent, a modest improvement from the increase recorded during1979.Distribution of National IncomeThe recession's impact was evident in the shifting distribution ofnational income during 1980 (Table 22). Compensation of employees,which had averaged 74.6 percent of national income over theyears 1976-79, rose to 75.3 percent in 1980. This increase in theshare of national income going to wage earners is the normal patternin a recession. Employer contributions for social insurance continuedto account for a growing share of the compensation total. Corporateprofits and proprietors' income as a share of national income fellsharply to 14.8 percent in 1980, down from the 17.1 percent averageshare during 1976-79. The corporate profits share fell to 8.6 percent.The unusually high level of interest rates was responsible forboosting the net interest share of national income to 8.5 percent, itshighest level in the postwar period. Net farm income fell in 1980from its relatively high level in 1979. After adjusting for changes ininventory, net income from farming was about $24 billion for theTABLE 22.—Shares of national income, 1976-80[Percent of total]Item 761977197819791980 1Third quarter19791980Compensation of employees75.174.574.574.475.374.375.3Wages, salaries, fringe benefits, and otherEmployer contributions for social insuranceProprietors' income 270.05.16.869.45.16.769.25.36.769.05.46.769.85.56.268.95.46.769.85.56.1Nonfarm 2 ..Farm 2Rental income 3Corporate profits 2Net interest5.41.41.710.06.35.51.21.610.76.55.21.51.610.66.65.11.61.610.07.35.11.11.58.68.55.21.51.510.07.45.11.01.58.48.71 Preliminary,2 With inventory valuation and capital consumption adjustments.3 Rental income of persons, with capital consumption adjustment.Note.—Quarterly figures based on seasonally adjusted data.Detail may not add to 100 percent because of rounding.Source: Department of Commerce, Bureau of Economic Analysis.155
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Economic Reportof the PresidentTran
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ECONOMIC REPORTOF THE PRESIDENT
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We have heard much about American i
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at an approach that took account of
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een due to overall demand in the ec
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to $27.5 billion in the new budget
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ductions would amount to over $27 b
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10 percent inflation rate, keeping
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tutes for petroleum. The Synthetic
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esponse can be so large as to wipe
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THE ANNUAL REPORTOF THECOUNCIL OF E
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CONTENTSCHAPTER 1. INFLATION AND GR
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PageChallenges to the International
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CHAPTER 1Inflation and Growth in th
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needed to control inflation by resi
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decline in productivity growth may
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Chart 1Standard Unit Labor CostsPER
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end of 1974 the world price of oil
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price decisions cannot easily be re
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Federal budget achieved a surplus.
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As an abrupt increase in the price
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policies but are based on the wides
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tion, and can policies be designed
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duction and employment to grow only
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Moreover, their actions must indica
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Starting with its 1975 targets as a
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well after the fact whether the mon
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Reserve provides some flexibility i
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in response to circumstances in par
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Although the flexibility of TIPs ma
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ard or that thought the administrat
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given standard, as the reward and t
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large firms. Even among large firms
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cause declining productivity growth
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vanced technology and will therefor
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ather than restoring the growth of
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correct some of the distortions in
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higher than it would otherwise be b
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EXPECTED PRODUCTIVITY GAINSAlthough
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supply of adult men in the work for
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increase demand pressures, especial
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time hours also has drawbacks. For
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eintroduce the problem of changing
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CHAPTER 2Improving the Adaptability
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use less and produce more energy in
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expectation of price controls or fu
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dependence on foreign oil mean that
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While the market solution might pro
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High energy prices and excessive de
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part, the interests of these partie
Page 109 and 110: Federal regulations designed to pro
Page 111 and 112: Agency (EPA) from considering prosp
Page 113 and 114: other things, that federally assist
Page 115 and 116: ing services. Money-market mutual f
Page 117 and 118: holdings of consumer and business l
Page 119 and 120: they once had and thus cannot conti
Page 121 and 122: finding ways around outdated regula
Page 123 and 124: proportion of the existing farms pr
Page 125 and 126: prices for years in the future, reg
Page 127 and 128: derground water resources once thou
Page 129 and 130: comprehensive, actuarial crop insur
Page 131 and 132: duced a decline in the median age o
Page 133 and 134: elude government investments in loc
Page 135 and 136: some of the firms in the chosen sec
Page 137 and 138: CHAPTER 3The Economy: Review and Pr
Page 139 and 140: uild up oil inventories and maintai
Page 141 and 142: Chart 7Selected Interest Ratesand B
Page 143 and 144: had risen just 2 months earlier. By
Page 145 and 146: Chart 8Personal Saving RatePERCENT1
Page 147 and 148: chief cyclical determinant of housi
Page 149 and 150: ment were sharply diminished by the
Page 151 and 152: dropped even faster, in large part
Page 153 and 154: ployment grew more vigorously after
Page 155 and 156: terials fell for a full third of th
Page 157 and 158: 1979, slowed to a 19 percent annual
Page 159: costs of production. The evidence s
Page 163 and 164: ecord high interest rates during th
Page 165 and 166: automatic transfer services (ATS) n
Page 167 and 168: plunged in March, although the only
Page 169 and 170: (FHLB) System increased their borro
Page 171 and 172: THE PROSPECTS FOR 1981 AND 1982In 1
Page 173 and 174: expectations. Of course, if the eco
Page 175 and 176: The uncertainty of developments in
Page 177 and 178: produce a slight decline in the sav
Page 179 and 180: more rapid growth thereafter. Durin
Page 181 and 182: eemergence of modest but sustained
Page 183 and 184: hike would depend on many factors,
Page 185 and 186: major revision of the NIPA occurred
Page 187 and 188: per year. This modest acceleration
Page 189 and 190: THE INDUSTRIAL ECONOMIES: TRENDS AN
Page 191 and 192: Chart 10Labor Costs, Value-Added De
Page 193 and 194: Rather, the German current account
Page 195 and 196: TABLE 30.—Inflation in major indu
Page 197 and 198: THE GLOBAL OIL MARKETTable 31 summa
Page 199 and 200: may be preserved. Stocks are in fac
Page 201 and 202: straint on growth. Finally, policie
Page 203 and 204: outside government, both at home an
Page 205 and 206: ates are high, differences in polic
Page 207 and 208: Japanese trade performance in volum
Page 209 and 210: No "Say's Law" operates in internat
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the cost of the loans, and they may
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At the same time, access to the IMF
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to closer cooperation is to risk a
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While all countries, in attempting
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threats of disruption, market-shari
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LETTER OF TRANSMITTALCOUNCIL OF ECO
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Past Council Members and their date
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1977 to review selected analyses of
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The Chairman and the Council Member
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University). Kate Stith Pressman, s
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CONTENTSNATIONAL INCOME OR EXPENDIT
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GOVERNMENT FINANCE'—ContinuedB-72
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NATIONAL INCOME OR EXPENDITURETABLE
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TABLE B-2.—Gross national product
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TABLE B-3.—Implicit price deflato
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TABLE B-5.—Implicit price deflato
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TABLE B-10.—Gross national produc
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TABLE B-12.—Output, costs, and pr
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TABLE B-14.—Gross private domesti
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TABLE B-16.—Inventories and final
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TABLE B-18.—Relation of national
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TABLE B-19-—National income by ty
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Year orquarter192919331939194019411
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TABLE B-22.—Total and per capita
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Year orquarterTotalTotalCurrencyand
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TABLE B-26.—Population by age gro
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TABLE B-27.—Noninstitutional popu
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Year or monthTABLE B-29.—Selected
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TABLE B-31.—Unemployment rate by
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TABLE B-33.—Unemployment by reaso
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TABLE B-35.—Wage and salary worke
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TABLE B-37.—Average weekly earnin
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TABLE B-39.—Changes in productivi
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TABLE B-42.—Industrial production
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TABLE B-44;—New construction acti
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TABLE B-45.—New housing units sta
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TABLE B-47.—Sales and inventories
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TABLE B-49.—Manufacturers' new an
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TABLE B-51.—Consumer price indexe
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19391940194119421943194419451946194
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TABLE B-54.—Changes in special co
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TABLE B-55.—Producer price indexe
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TABLE B-57.—Producer price indexe
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TABLE B-58.—Changes in producer p
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TABLE B-60.—Components of money s
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TABLE B-62.— Total funds raised i
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TABLE B-63.—Federal Reserve Bank
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TABLE B-65.—Bond yields and inter
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TABLE B-66—Consumer credit outsta
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TABLE B-68.—Mortgage debt outstan
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GOVERNMENT FINANCETABLE B-70.—Fed
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TABLE B-l\.—Federal budget receip
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TABLE B-73.—Government receipts a
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TABLE B-75.—State and local gover
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TABLE B-77,—Interest-bearing publ
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TABLE B-79-—Maturity distribution
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TABLE B-81.—Corporate profits by
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TABLE B-83.—Sales, profits, and s
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TABLE B-85.—Relation of profits a
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TABLE B-87.—Sources and uses of f
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TABLE B-89-—State and municipal a
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TABLE B-91.—Business formation an
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TABLE B-93.—Farm output ami produ
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Year or month1940194119421943194419
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TABLE B-97.—Balance sheet of the
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TABLE B-99— U.S. international tr
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TABLE B-100.—U.S. merchandise exp
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TABLE B-102.—U.S. merchandise exp
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TABLE B-104.— World trade: Export
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TABLE B-106.—International reserv
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• • ' •TABLE B-108.—Industr
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TABLE B-110.—Summary of major U.S
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