Economic Report of the President

nonresidential fixed investment to real GNP, which had previously averaged9.9 percent between 1974 and 1979, now averages 10.4 percent.Past business cycle patterns have been little changed by the revisions. TheGNP-measured turning points are all as previously reported. However, thepeak-to-trough declines have been reduced by one-half percent and 1 percentfor the 1970 and 1974-75 contractions, respectively. The NIPA nowshow the 1974-75 contraction being interrupted by 1 quarter of slight expansionin the second quarter of 1974, immediately following the period ofthe Arab oil embargo.Total compensation remained roughly the same as before revision, but itscomposition changed. Wages and salaries in the most recent years are nowhigher and supplements lower than had been previously reported. Businessnet interest was revised upward by significant amounts especially in recentyears. These revisions rise to $13.7 billion for 1979. Corporate profits wereraised significantly, but chiefly because of the conceptual change in reinvestedforeign earnings. Lowered estimates of corporate taxes contributed tohigher corporate retained earnings and saving estimates for the most recentyears. Personal saving estimates were also raised. This is because estimatesof personal consumption were barely changed, while personal income was revisedupward considerably. The personal saving rate in the 1970s was revisedupward from an average 6.4 percent under the old estimates to 7.1 percentunder the new estimates.Potential GNPUntil a formal reappraisal of the historical growth in real potential outputcan be completed in the light of the 1980 benchmark revisions to the NIPA,a provisional procedure has been used to estimate real potential GNP. Theprovisional procedure includes two major changes. First, revised data onbusiness output indicate a somewhat more rapid gain in worker productivitysince 1973. As a result, the trend rate of growth in potential GNP has beenincreased by one-fourth of a percentage point from 1973 on. Thus the onehalfpercentage point deceleration in the old potential series that occurred in1973, principally due to reduced productivity growth, has been changed to aone-fourth point deceleration. The further one-half point deceleration in potentialthat had been assumed starting in the first quarter of 1979 is stillmaintained. The second major change in the series was to add directly topotential the dollar estimate of the conceptual change to rest of world outputthat occurred from the revisions in the handling of reinvested foreign earnings.In this manner, the gap between actual and potential GNP is unaffectedby conceptual changes to the NIPA. The dollar amount of these conceptual revisionshas been growing very rapidly recently. As a result^theseichanges actuallyincrease the estimated growth of potential in recent years by nearly 0.2percentage point. The newly-constructed series grows somewhat less than 3percent since the first quarter of 1979. This growth rate is expected to continuethrough 1981. Thereafter the series is projected to grow at 3 percent180