Economic Report of the President

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year, 23 percent lower than in 1979. Net cash income, the cash availableto farmers for capital expenditures and operator income, wasless affected and fell about 6 percent. The deceleration in cash receiptsfor livestock and continued inflation in farm production expenseswere the principal factors in the decline.ECONOMIC POLICYAs in 1979, economic policy in 1980 aimed at stemming an accelerationin prices and wages. Both fiscal and monetary policy soughtto restrain aggregate demand. As noted above, these policies weresupplemented by a program of voluntary standards for wage andprice behavior.Fiscal PolicyChanges in the high-employment surplus (HES) are a useful measureof discretionary fiscal policy. The actual Federal budget deficit isaffected not only by changes in discretionary policy, such as changesin tax rates or more rapid spending on defense programs, but also bythe state of the economy. In particular, cyclical swings in incomesand employment affect tax receipts. Outlays for such programs as unemploymentcompensation and food stamps are similarly affected.These changes in receipts and outlays alter the budget deficit withoutany action by the Congress or the President. Thus, the actual surplusor deficit is a poor measure of discretionary fiscal policy. The HESmeasures what the surplus would be if the economy were at high employment.By evaluating the budget at a standard level of GNP, themeasure abstracts from those changes in budget receipts and outlaysthat result from cyclical changes in GNP.The High-Employment Budget. When judged by this measure, discretionaryfiscal policy remained tight in 1979. The high-employmentsurplus increased $13.5 billion in 1979 (Table 23). The chief factorsin the tightening were the sluggish pace of outlay growth during1979 (particularly for grants-in-aid), the inflation-induced increases inpersonal income taxes, and legislated increases in social insurancetaxes. Over the 4 quarters of 1980, however, the HES fell by $6.8billion. Two unusual factors were responsible for the apparent movetoward expansion during 1980. First, the delayed effect on individualtax refunds and final settlements from the Revenue Act of 1978 loweredthe HES by roughly $8 billion, starting in the first quarter of1980. Second, due to large increases in interest outlays caused by156
ecord high interest rates during the year, discretionary outlay changesappear larger than they actually were. By convention, interest paymentsare unadjusted in the calculation of high-employment outlays.In other words, high-employment interest payments are defined tobe equal to actual interest payments. Thus, the high-employment surplustends to understate the degree of discretionary fiscal restraintwhen interest rates increase, and vice-versa. Excluding these two factors,the high-employment budget surplus actually tightened byroughly $10 billion over the 4 quarters of 1980.TABLE 23.—Actual and high-employment Federal receipts and expenditures, national income andproduct accounts, calendar years 1973-80[Amounts in billions of dollars; quarterly data at seasonally adjusted annual rates]ActualHigh-employment 1Calendar year or quarterReceiptsSurplus ordeficit (-)AmountPercentof 6NPReceiptsExpendituresExpendituresSurplus ordeficit {-)AmountPercentof GNP 219731974258.6287.8264.2299.3-5.6-11.5-0.4-.8252.7296.9264.0297.6-1U -.7-0.9-.119751976197719781979 ...287.3331.8375.1431.5494.4356.6384.8421.5460.7509.2-69.3-53.1-46.4-29.2-14.8-4.5-3.1-2.4-1.4-.6315.8354.7390.7441.1504.2344.9374.8413.8456.8506 529.120123.1-15.7-2.2-2.2-1.5-1.6-1.1_,119803538.9601.2-62.3-2.4573.2591.6-18.3-1.21979:III|f|IV477.0485.9500.6514.0488.4494.0515.8538.6-11.5-8.1-15.2-24.5-.5-.3-.6-1.0481.0496.8510.9528.3485.9491.4513.0535.54.85.3-2.1-7.2-.3.4-.1-.51980:|||IllIV 3528.4520.9540.8565.4564.7587.3615.0637.9-36.3-66.5-74.2-72.5-1.4-2.6-28-2.6543.2556.6581.8611.2560.6577.9602 5625.317 421.3-20.7-14.0-1.1-1.4-1.3-.91 These totals differ from those published in the November 1980 Survey of Current Business because of revisions to both actualand potential GNP. For more information on these revisions, see Ihe supplement to this chapter.2 High-employment surplus or deficit as percent of high-employment gross national product.3 Preliminary.Note.—Detail may not add to totals because of rounding.Sources: Department of Commerce (Bureau of Economic Analysis), Office of Management and Budget, and Council ofEconomic Advisers.Budget Outlays and Receipts. Federal budget outlays for fiscal 1980were $579 billion, an increase of $85 billion, or 17 percent over thefiscal 1979 level. This marked acceleration in budget outlays was duelargely to the combined impact of higher interest rates, growing unemployment,and increases in the cost of entitlement programs dueto cost-of-living increases. Interest outlays jumped 23 percent infiscal 1980, while outlays for income security and health, which includesocial security, unemployment insurance, and other major Federalentitlement programs, grew 19 percent. Together these threeareas—health, income security, and interest—accounted for 61 percentof the change. In addition, defense outlays grew 17 percent in157
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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
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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
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Page 159 and 160: costs of production. The evidence s
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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
Page 211 and 212: 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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