Economic Report of the President

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fiscal 1980, up sharply from the 10 percent growth of the prior fiscalyear.Federal budget receipts rose by 12 percent compared to 16 percentduring fiscal 1979. The recession-induced weakness in incomesand the delayed impact of the Revenue Act of 1978 on individual taxrefunds and final settlements combined to produce this result. Individualtax receipts grew 12 percent in fiscal 1980, down sharply fromthe 20 percent fiscal 1979 gain. Corporate tax receipts fell 2 percentin fiscal 1980. The Federal budget deficit increased from $28 billionin fiscal 1979 to $59 billion in fiscal 1980.Monetary Policy and Financial MarketsAs discussed in Chapter 1, the Federal Reserve adopted a new procedurein October 1979 to guide its daily open market operations.Under the new procedure, designed to exert better control over thegrowth of the monetary aggregates, the Federal funds rate is allowedto vary over a much wider range. In a report submitted to the Congressin February 1980, the Federal Reserve set forth its objectivesregarding increases in the money and credit aggregates during 1980(Table 24). These ranges called for a deceleration in monetary expansionin 1980 from the preceding year.TABLE 24.—Growth in monetary and bank credit aggregates, 1979-81[Percent change]Item1978 IV to1979 IVActual1979 IV to1980 IV *Federal Reserve longer-run ranges1979 IV to1980 IV1980 IV to 1981 IVUnadjustedfornationwideNOWsAdjusted fornationwideNOWsM-1AM-1BM-2M-35.07.68.99.85.17.19.69.73^ to 64 to SYz6 to 96V& to 9^3 toSVfe3% to 65Vfe to 8V66Y2 to 9%0 to 2%5 to7Vi5% to SYzSYz to SYzBank credit11.52 7.86 to 96 to 96 to 91 Preliminary.2 Estimate for fourth quarter 1980 based on November data.Note.—M-1A is currency plus private demand deposits, net of deposits due to foreign commercial banks and officialinstitutions.M-1B is M-1A plus other checkable deposits (negotiable order of withdrawal accounts, accounts subject to automatictransfer service, credit union share draft balances, and demand deposits at mutual savings banks).M-2 is M-1B plus overnight repurchase agreements (RPs) issued by commercial banks, overnight Eurodollar deposits held byU.S. nonbank residents at Caribbean branches of U.S. banks, money market mutual fund shares, and savings and small timedeposits at all depository institutions.M-3 is M-2 plus large time deposits at all depository institutions and term RPs issued by commercial banks and savings andloan associations.Bank credit is total loans and investments plus loans sold at all commercial banks.Source: Board of Governors of the Federal Reserve System.Except for M-1B, the rates of growth of the various monetary aggregatesduring the year roughly matched or exceeded their 1979pace. Some of the relative movements in the various monetary aggregatesin 1980 were the result of special factors. At the beginning ofthe year the Federal Reserve had anticipated that funds attracted to158
automatic transfer services (ATS) nationwide and negotiable order ofwithdrawal (NOW) accounts in the Northeast would cause M-1A togrow about one-half percentage point slower than M-1B. In fact,more funds flowed into these accounts from both regular savings accountsand demand deposits than was originally forecast. These developmentsboosted M-1B growth and lowered M-1A growth, eachby about three-quarters of a percent relative to what they otherwisewould have been.For the year as a whole M-1B, M-2, and M-3 exceeded their targetranges while M-1A did fall within its range. However, if one adjuststhe target ranges for M-1A and M-1B in light of the actual experiencewith NOW and ATS accounts, then both of these measures fallroughly at the upper end of the adjusted range.Within the year, money growth, credit flows, and interest rates experiencedunusually wide variations. The year began with money andcredit demands apparently accelerating despite the sharp increase ininterest rates in the fourth quarter of 1979. In February the growthof money and credit surged, boosting demand for reserves above thelevel consistent with the Federal Reserve's monetary growth ranges.The resulting pressures in money markets, combined with deterioratinginflationary expectations, forced both short- and long-term ratesup sharply.Data available in early March suggested that credit growth had notbeen deterred by the general monetary tightening and the sharp increasesin interest rates. Moreover, the increasing speculative activityin financial and commodities markets raised concern among many inthe financial community about the threat of a financial panic. Extraordinarymeasures were called for to dampen excessive credit demands,reduce the spiraling inflationary expectations, and ease thestrains in financial markets.On March 14 the President announced an extensive anti-inflationplan that included authorizing the Federal Reserve Board to implementcertain types of credit controls under the provisions of theCredit Control Act of 1969. Operating under its own authority, theFederal Reserve also introduced a voluntary credit restraint programand tightened some already existing regulations, as detailed below.Taken together, the credit restraints were intended to reinforce traditionalmonetary policy measures that control overall money andcredit growth while limiting the burden on certain sectors hard hit byhigh interest rates. Those sectors included small businesses, farmers,home buyers and builders, and auto dealers and purchasers.The measures were designed to restrain the growth of certaintypes of consumer credit as well as those liabilities of large banks thathad been used to support a rapid buildjup in business loans. These159
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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
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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 and 160: costs of production. The evidence s
Page 161 and 162: sharp decline in output in the seco
Page 163: ecord high interest rates during th
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
Page 213 and 214: 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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