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Transmitted to the Congress
February 1990






Economic Report
of the President

Transmitted to the Congress
February 1990
TOGETHER WITH

THE ANNUAL REPORT
OF THE

COUNCIL OF ECONOMIC ADVISERS

UNITED STATES GOVERNMENT PRINTING OFFICE
WASHINGTON : 1990

For sale by the Superintendent of Documents, U.S. Government Printing Office
Washington, D.C. 20402







CONTENTS
Page

ECONOMIC REPORT OF THE PRESIDENT

1

ANNUAL REPORT OF THE COUNCIL OF ECONOMIC
ADVISERS*

9

CHAPTER 1. BUILDING ON SUCCESS

19

CHAPTER 2. DEVELOPMENTS IN 1989 AND FUTURE PROSPECTS

33

CHAPTER 3. DESIGN OF FISCAL, MONETARY, AND FINANCIAL
POLICIES

63

CHAPTER 4. INVESTING IN AMERICA'S FUTURE

109

CHAPTER 5. HUMAN RESOURCES IN THE 1990s

143

CHAPTER 6. THE ECONOMY AND THE ENVIRONMENT

187

CHAPTER 7. GROWTH AND MARKET REFORM IN THE GLOBAL
ECONOMY

225

APPENDIX A. REPORT TO THE PRESIDENT ON THE ACTIVITIES OF
THE COUNCIL OF ECONOMIC ADVISERS DURING 1989

265

APPENDIX B. IMPROVING THE QUALITY OF ECONOMIC STATISTICS

279

APPENDIX C. STATISTICAL TABLES RELATING TO INCOME,
EMPLOYMENT, AND PRODUCTION

287

*For a detailed table of contents of the Council's Report, seepage 13.




(iii)







ECONOMIC REPORT
OF THE PRESIDENT




ECONOMIC REPORT OF THE PRESIDENT
To the Congress of the United States:
The United States enters the 1990s as a prosperous nation with a
healthy and dynamic economy. Our living standards remain well
above those of other major industrialized nations, and our prosperity is spread widely. Since 1982, American firms and workers have
produced the longest peacetime expansion on record and created
more than 20 million jobs. The containment of inflation during this
long economic expansion is a milestone in postwar U.S. history.
In 1989, we regained our position as the world's leading exporter
and retained our position as the world's leading job creator, with
the fraction of the population employed reaching its highest level
ever. In all, 2x/2 million jobs were created in 1989. The unemployment rate fell to levels not seen since the early 1970s, as did jobless
rates for blacks and teenagers. The unemployment rate for Hispanics was the lowest since 1980, when the United States began regularly reporting it.
We have proven to the world that economic and political freedom
works. After years of economic decline, the people of Eastern
Europe are turning toward free markets to revive economic growth
and raise living standards. I remain strongly committed to aiding
the efforts of these brave men and women to transform their societies—and thereby to change the world.
Despite our successes, we cannot be satisfied with simply sustaining the strong record of the 1980s. We must improve on that
record, deal with inherited problems, and meet the new challenges
and seize the new opportunities before us.
GOALS AND PRINCIPLES

The primary economic goal of my Administration is to achieve
the highest possible rate of sustainable economic growth. Achieving
this goal will require action on many fronts—but it will permit
progress on many more. Growth is the key to raising living standards, to leaving a legacy of prosperity for our children, to uplifting
those most in need, and to maintaining America's leadership in the
world.
To achieve this goal, we must both enhance our economy's ability
to grow and ensure that its potential is more often fully utilized than
in previous decades. To these ends, as explained in the Report that
follows, my Administration will:




• Reduce government borrowing by slowing the growth of Federal spending while economic growth raises revenue until the
budget is balanced, and reduce the national debt thereafter;
• Support a credible, systematic monetary policy program that
sustains maximum economic growth while controlling and reducing inflation;
• Remove barriers to innovation, investment, work, and saving in
the tax, legal, and regulatory systems;
• Avoid unnecessary regulation and design necessary regulatory
programs to harness market forces effectively to serve the Nation's interest; and
• Continue to lead the world to freer trade and more open
markets, and to support market-oriented reforms around the
world.
In advancing these principles, we must be both ambitious and realistic. There is room to improve, and there is much to be done to
prepare for the next century. We must not fear to dream great
dreams. But we must not fail to do our homework; the American
people are ill-served by promises that cannot be kept.
MACROECONOMIC PROSPECTS AND POLICIES

The economy's performance during 1989, the seventh year of economic expansion, has set the stage for healthy growth in the 1990s.
Growth in national output was more moderate in 1989 than the
very rapid pace in 1988 and 1987. But, in sharp contrast to most
past periods of low unemployment and high capacity utilization, inflation was kept firmly in check. Measured broadly, the price level
rose 4.1 percent during 1989, down from 4.5 percent during 1988.
If my budget proposals are adopted, and if the Federal Reserve
maintains a credible policy program to support strong noninflationary growth, the economy is projected to expand in 1990 at a slightly faster pace than in 1989. Growth is projected to pick up in the
second half of the year and to continue at a strong pace as the
level of output rises to the economy's full potential.
Fiscal and monetary policies should establish credible commitments to policy plans aimed at maximizing sustainable growth over
the long run. A steady hand at the helm is necessary to produce
rapid and continuous increases in employment and living standards.
My budget proposals reflect a strong commitment to the principles of the Gramm-Rudman-Hollings law, which has helped reduce
the Federal deficit from 5.3 percent of GNP in fiscal 1986 to 2.9
percent in fiscal 1989. That is why I insisted last fall that the Congress pass a clean reconciliation bill and stood by the sequestration
order that resulted from my strict adherence to the GrammRudman-Hollings law.
I have also proposed a fundamental new rule for fiscal policy
that would ensure that projected future Social Security surpluses are



not spent for other purposes but are used to build the reserves
necessary to guarantee the soundness of Social Security. Moreover, it
would transform the Federal Government from a chronic borrower,
draining savings away from private investment, to a saver, providing
funds for capital formation and economic growth by reducing the
national debt.
I remain strongly committed to the principles of low marginal
tax rates and a broad tax base developed in the Economic Recovery
Tax Act of 1981 and the Tax Reform Act of 1986. Steady adherence
to these principles reduces government's distorting effect on the
market forces that drive economic growth.
I strongly support the Federal Reserve's goal of noninflationary
growth and share with them the conviction that inflation must be
controlled and reduced in a predictable fashion. Accelerating inflation not only erodes the value of families' savings, it produces economic imbalances and policy responses that often lead to recessions.
The United States is part of an increasingly integrated global
economy, in which domestic fiscal and monetary policies affect the
economies of other nations, though the main impacts are on the domestic economy. My Administration remains committed to participating actively in the valuable process of coordinating macroeconomic policies internationally.
ENCOURAGING ECONOMIC GROWTH

As we begin the 1990s, a central focus of my economic policies
will be to build on the successes of the 1980s by creating an environment in which the private sector can serve as the engine that
powers strong, noninflationary economic growth.
America's continued economic progress depends on the innovation and entrepreneurship of our people. I will therefore continue
to press for a permanent research and experimentation tax credit,
for increased Federal support of research with widespread societal
benefits and that private firms would not have adequate incentives
to undertake, for removal of regulatory and legal barriers to innovation, and for a lower tax rate on capital gains.
We must remove impediments to saving and investment in order
to enhance the economy's growth potential. The fiscal policy I described earlier will raise national saving. In addition, I have asked
the Congress to enact the Savings and Economic Growth Act of 1990,
which contains a comprehensive program to raise household saving
across the entire income spectrum. This program would help American families plan for the future and, in the process, make more funds
available to finance investment and spur productivity, thus raising
living standards, enhancing competitiveness, and expanding employment opportunities.



One of my highest legislative priorities this year is to reduce the
capital gains tax rate. This tax reform would promote risk-taking
and entrepreneurship by lowering the cost of capital, thereby encouraging new business formation and creating new jobs. A capital
gains tax cut would stimulate saving and investment throughout the
economy.
Government can encourage economic growth but cannot manage
it. I remain strongly opposed to any sort of industrial policy, in
which the government, not the market, would pick winners and
losers. Second-guessing the market is the way to raise government
spending and taxes, not living standards.
The growth of our Nation's labor force is projected to slow in the
1990s, and demands for skilled workers are expected to continue to
increase. These developments will shift attention away from worries about the supply of jobs that have haunted us since the 1930s
and toward new concerns about the supply of workers and skills.
We cannot maintain our position of world leadership or sustain
rapid economic growth if our workers lack the skills of their foreign competitors. As I demonstrated last fall at the Education
Summit, the Federal Government can lead in improving the inadequate performance of our elementary and secondary schools. Because school systems must be held accountable for their students'
performance, the Nation's Governors and I have developed ambitious national education goals. To meet these goals, we must give
students and parents the freedom to choose their schools, and we
must give schools the flexibility to meet their students' needs.
More disadvantaged Americans must be brought into the economic mainstream, not just to enhance our Nation's economic
growth, but as a matter of simple decency. To this end, I have supported legislation to open new opportunities for the disabled, increased assistance to the homeless, helped implement welfare
reform, proposed more effective job training programs, and introduced initiatives that will bring jobs and better housing to depressed inner cities. I have proposed substantial increases in spending for Head Start to prepare children from disadvantaged families
for effective learning.
Those who cannot read and write cannot participate fully in the
economy. Mrs. Bush and I will continue to support the difficult but
important struggle to eliminate adult functional illiteracy.
REGULATORY REFORM

The improved performance of U.S. markets that were deregulated during the 1980s showed clearly that government interference
with competitive private markets inflates prices, retards innovation, slows growth, and eliminates jobs. But in some cases, well-designed regulation can serve the public interest.




My proposals for reform of food safety regulation and the Clean
Air Act follow the two key principles that apply in these cases: the
goals of regulation must balance costs and benefits; and the methods of regulation must be flexible and cost-effective. One of my top
legislative priorities is to improve the Clean Air Act in a way that
preserves both a healthy environment and a sound economy.
When confronted with a threat to the solvency of our thrift institutions, my Administration moved swiftly to resolve the crisis. We
must continue to reform the regulation of financial institutions and
markets to preserve the soundness of the U.S. financial sector
while encouraging innovation and competition.
THE GLOBAL ECONOMY

The 1980s have underscored the increased importance of global
economic events in shaping our lives. We have all been touched by
the movements toward political and economic freedom in Eastern
Europe. We have been impressed by the rapid growth of marketoriented Asian economies. And we have great expectations for the
movement in the European Community toward a single, open
market by 1992.
Reductions in trade barriers between nations have raised living
standards around the world. Investment has become more globally
integrated, as citizens of other countries recognize the great
strength and potential of our economy, and as Americans continue
to invest abroad.
My Administration is strongly committed to supporting the historic efforts of the governments and people of Eastern Europe to
move toward market-based economies. Similarly, under the Brady
Plan, we will continue to support heavily indebted nations that
adopt sound economic policies to revive economic growth. In both
cases, reform must be comprehensive to succeed, but the rewards of
success will be great.
America will continue to lead the way to a world of free, competitive markets. Increased global competition is an opportunity for
the United States and the world, not a threat. But we cannot
remain competitive by avoiding competition. My Administration
will therefore continue to resist calls for protection and managed
trade. To serve the interests of all Americans, we must open markets here and abroad, not close them. I will strongly resist any attempts to hinder the free international flows of investment capital,
which have benefited workers and consumers here and abroad.
And my Administration will work to reduce existing barriers to
international investment throughout the world.
My highest trade policy priority is the successful completion this
year of the current Uruguay Round of negotiations, aimed at
strengthening and broadening the General Agreement on Tariffs




and Trade (GATT). Successful completion of these negotiations will
expand the world's gains from free and fair trade and raise living
standards in all nations.
LOOKING AHEAD

When I look back on the 1980s, on what the American people
have accomplished, it is with pride. And when I look forward to the
1990s, it is with hope and optimism. Our excellent economic health
will allow us to build on the successes of the 1980s as we prepare
for the next century. Clearly, there is much work to be done. But
with the economic principles and policies that I have proposed, I
am confident that the United States can enjoy strong, sustainable
economic growth and use the fruits of that growth to raise living
standards, solve longstanding problems, deal with new challenges,
and make the most of new opportunities.

THE WHITE HOUSE,
FEBRUARY 6, 1990




(/

THE ANNUAL REPORT
OF THE
COUNCIL OF ECONOMIC ADVISERS







LETTER OF TRANSMITTAL
COUNCIL OF ECONOMIC ADVISERS,
Washington, D.C., February 1, 1990.
MR. PRESIDENT:
The Council of Economic Advisers herewith submits its 1990
Annual Report in accordance with the provisions of the Employment Act of 1946 as amended by the Full Employment and Balanced Growth Act of 1978.
Sincerely,




Michael J. Boskin
Chairman

Richard L. Schmalensee
Member

John B. Taylor
Member

11

/




CONTENTS
Page

CHAPTER 1. BUILDING ON SUCCESS
.
The Current Expansion and Future Prospects
Macroeconomic Policy
Fiscal Policy
Monetary Policy
International Macroeconomic Issues
Promoting Economic Growth
Investment and Technology
National Saving
Human Resources
Regulatory Policy
Principles of Regulatory Policy
The Environment and the Economy
Financial Markets
Growth and Market Reform in the Global Economy
Toward Free Trade and Open Markets
Encouraging Economic Change Abroad
Conclusion
CHAPTER 2. DEVELOPMENTS IN 1989 AND FUTURE PROSPECTS
The U.S. Economy in 1989
Fiscal and Monetary Policies During 1989
Growth of GNP and Components
Business Conditions
Wages and Prices
Summary of 1989
The Economic Outlook
Why the Expansion is Expected to Continue
The Outlook for Fiscal and Monetary Policies
The Prospects for Growth
Summary of the Outlook
Concluding Comments
CHAPTER 3. DESIGN OF FISCAL, MONETARY, AND FINANCIAL
POLICIES
The Design of Macroeconomic Policy
Advantages of Systematic Policies
Importance of Credibility
A New Rule for Fiscal Policy
Fiscal Policy




13

19
21
22
23
23
24
24
25
26
26
28
28
29
30
30
30
31
31
33
33
33
39
45
48
49
50
50
51
54
61
61
63
63
64
65
66
66

The Impact of the Instruments of Fiscal Policy
The Design of Fiscal Policy
Summary of Principles for Fiscal Policy
Monetary Policy
The Effect of Monetary Policy on the Economy
The Costs of Inflation and Recession
New Challenges for Monetary Policy
The Design of Monetary Policy in the 1980s and
1990s
.
Importance of a Credible Monetary Policy
Summary of Principles for Monetary Policy
International Aspects of Fiscal and Monetary Policy
Increased Openness of the U.S. Economy
External Balance and Exchange-Rate Objectives
Macroeconomic Policy Tools
International Policy Coordination
Summary of Principles for International Macroeconomic Policies
Financial Evolution and Financial Soundness
Banking-Type Institutions and Their Competitors
Changes in the Financial Industry
Adaptation to Change
Policy Actions and Proposals
Summary of Principles for Financial Regulation
Summary and Concluding Comments
CHAPTER 4. INVESTING IN AMERICA'S FUTURE
Determinants of Growth
Technological Change
Investment in Physical Capital
Investment in Human Capital
Technological Progress and Economic Growth
Factors that Affect Technological Progress
Trends in R&D Spending
The Role of Government
Strengthening the U.S. Research Base
Capital Investment
Capital Accumulation in the United States
How a Higher Investment Rate Benefits the Economy
Allowing Capital to Find its Most Productive Use
Investing in Infrastructure Capital
Financing National Investment
Foreign Sources of Financing for National Investment
Domestic Saving and Net Capital Inflows
Domestic Saving to Finance National Investment



14

67
68
77
77
77
79
80
84
86
88
88
89
90
93
94
97
98
98
100
101
103
106
107
109
110
110
Ill
Ill
Ill
112
113
114
114
118
119
121
121
122
123

123
125
126

Page

Policy Toward Investment
Factors that Affect Domestic Investment
Implications for Domestic Investment Policy
Factors that Affect Foreign Direct Investment
Implications for Policy Toward Foreign Direct Investment
Policy Toward Saving
Government Saving
Household Saving
Business Saving
Removing Impediments to Saving
Summary
CHAPTER 5. HUMAN RESOURCES IN THE 1990s
Introduction
Achievements of the 1980s
Challenges of the 1990s
The Changing U.S. Population
Skills and Education: Investing in Human Resources
The Growing Need for Skilled Labor
Education and Productivity
Trends in Basic Skills
Trends in Higher Education
On-the-Job Training
Improving the Education and Skill Levels of U.S.
Workers
The Challenge for the 1990s
Labor Shortages, Worker Mobility, and Immigration
Labor Mobility
Geographic Mobility
Occupational Mobility
Immigration
Policies to Address Skill Shortages
Improving the Opportunities of Low-Income Households..
Poverty in the United States
Distinguishing Among the Poor
The Value of a Healthy Economy
Targeted Antipoverty Programs
Future Directions
Maintaining Low Unemployment and Low Inflation
The Secular Decline in Unemployment in the 1980s..
The Effects of Demographic and Labor Force Trends
Labor Market Mismatches and Structural Unemployment
Other Changes in Labor Markets
Looking Ahead
Summary



15

129
129
130
133
135
136
137
137
140
141
141
143
143
143
144
145
148
148
149
150
151
154
154
159
159
160
161
162
164
165
166
167
168
168
170
177
177
178
178
181
182
184
185

Page

CHAPTER 6. THE ECONOMY AND THE ENVIRONMENT
Principles for Environmental Regulation
Market Failure
Environmental Regulation
The Clean Air Act
Experience under the Current Law
The Clean Air Initiative
Tradable Allowances for Sulfur Dioxide Emissions....
Automobile Emissions Control
Risk and the Regulation of Agriculture
Soil Conservation Reconsidered
Improving Conservation Program Design
Pesticides: Benefits, Risks, and Regulation
The Administration's Proposals for Pesticide Policy
Reform
Environmental Effects of Federal Farm Programs
Global Environmental Issues
Stratospheric Ozone Depletion
Global Climate Change
The Costs of Reducing Carbon Dioxide Emissions
Policy Tools to Implement a Reduction in Greenhouse Gas Emissions
Impacts of Climate Change
Summary
Conclusion
CHAPTER 7. GROWTH AND MARKET REFORM IN THE GLOBAL
ECONOMY
Market-Oriented Reform in Centrally Planned Economies
Centrally Planned Versus Market Economies
Economic Performance of Centrally Planned Economies
Elements of a Reform Package
Recent Developments
Summary
Supporting Growth in Indebted Developing Countries
History of the Developing Country Debt Crisis
U.S. Policy for Developing Country Debt
Summary
Developments in Japan and Other Asian Pacific Rim
Economies
The Asian Pacific Rim's Economic Expansion
Japan and the World Economy
Summary
Economic Integration in Western Europe
Potential Gains




16

187
187
188
189
191
192
193
193
197
198
199
201
202
204
206
207
208
210
213
218
220
223
224
225
226
227
229
231
232
234
235
236
239
244
244
245
246
249
250
251

Potential Risks
Summary
Trade Liberalization and GATT
The Uruguay Round
Agricultural Policy and GATT
Agricultural Policy Reform in GATT
Toward U.S. Policy Reform
Summary
Conclusion
APPENDIXES
A. Report to the President on the Activities of the Council of Economic Advisers During 1989
B. Improving the Quality of Economic Statistics
C. Statistical Tables Relating to Income, Employment,
and Production
LIST OF TABLES, CHARTS, AND BOXES

252
254
254
256
256
258
259
262
263
265
279
287

Tables

2-1.
2-2.
2-3.
2-4.
2-5.
3-1.
4-1.
4-2.
4-3.
6-1.
6-2.
7-1.
7-2.

Growth of Real GNP and Components
Economic Outlook for 1990
Effects of Alternative Projections on the Budget
Administration Economic Assumptions, 1989-95
Accounting for Growth in Real GNP, 1948-95
GRH and Budget Deficits: The Record
R&D Expenditures for Five Major Industrial Countries, 1987
The Changing Finance of Investment, 1950-88
Foreign Direct Investment, 1988
Estimated Percent Loss of Productivity from 100
Years of Erosion
Fuel Share in Electricity Generation, 1986
Average Annual Growth
Changes in Reported Exposure of Groups of U.S.
Banks to Non-OPEC Developing Countries

34
52
57
58
60
72
113
123
125
199
217
235
237

Charts

2-1.
2-2.
2-3.
2-4.
2-5.
2-6.
2-7.
2-8.
3-1.
3-2.
3-3.
3-4.

Growth of Real GNP
Real Federal Purchases
Federal Funds Rate
M2 Opportunity Cost
M2 and M3
Personal Saving Rate
Mortgage Interest Rates
Real Inventory-Sales Ratio
Federal Budget Deficit as Percent of GNP
Velocities of Ml and M2
U.S. Real Effective Exchange Rate
Consumer Prices




17

34
35
38
38
40
41
42
43
70
82
91
97

Charts

4-1.
4-2.
4-3.
4-4.
4-5.
4-6.
5-1.
5-2.
5-3.
5-4.
5-5.
5-6.
5-7.
5-8.
5-9.
6-1.
7-1.
7-2.

Gross Fixed Investment as Percent of GNP
Real Gross Investment as Percent of GNP
Real Net Investment as Percent of NNP
Gross National Saving as Percent of GNP
Gross Saving as Percent of GNP
Foreign Direct Investment and the Current Account
Deficit
Age Distribution of the U.S. Population
Trends in Occupations
High School Completion Rates by Race
College Completion Rates by Race
Poverty Rate
Poverty Rates by Age
Poverty Rates by Race, 1988
Civilian Unemployment Rate
Unemployment Rates by Age and Sex
Carbon Dioxide Emissions by Region
Real Wheat Prices
Wheat Stocks

118
120
120
128
128

International Comparisons of Economic Performance...
Policy Credibility. and the Economic Projections
The GRH Process: How It Worked in Fiscal 1990
Definitions of the Monetary Aggregates
The Link Between Lower National Saving and Net
Export Performance
The User Cost of Capital
Widening Earnings Differentials
The Proposed Educational Excellence Act
The Determinants of Nominal Wage Growth
A Glossary of Environmental Regulation Terms
Problems with Command-and-Control Regulation
Acid Rain and Sulfur Dioxide
Discounting Over Long Horizons
Difficulties in the Transition from Central Planning:
Food and Food Aid in Poland
What is GATT?

45
59
71
81

134
136
149
151
153
167
169
169
180
180
217
261
262

Boxes

2-1.
2-2.
3-1.
3-2.
4-1.
4-2.
5-1.
5-2.
5-3.
6-1.
6-2.
6-3.
6-4.
7-1.
7-2.




18

127
130
152
156
179
189
191
194
215
230
255

CHAPTER 1

Building on Success
IN 1989, THE U.S. ECONOMY marked its seventh consecutive
year of economic growth, the longest peacetime expansion on
record and the second longest expansion in U.S. history. The American economy has created more than 20 million new jobs since
1982. The average unemployment rate in 1989 was at its lowest
level since 1973 and was lower than in any major European country. America's standard of living, as measured by per capita
income, is the highest of any major industrialized country in the
world, fully one-third higher than that of West Germany or Japan.
In 1989, exports reached an all-time high, and the United States
once again became the world's leading exporter. Moreover, unlike
any other expansion since World War II, inflation has been contained, laying a solid foundation for continued strong growth in the
1990s.
The successes of the 1980s stand in sharp contrast to economic
performance in the 1970s, when inflation soared and unemployment simultaneously increased. In that earlier decade, tax rates
climbed for a growing segment of the population. Productivity
growth collapsed. Government interference in private markets escalated. The result was an inefficient economy and stagnant living
standards.
America's economic successes in the 1980s also stand in sharp
contrast to the poor performance of countries that had severely restricted economic and political freedom. Indeed, this contrast, along
with U.S. support for democracy in the 1980s, helped to spur the
most historically significant events of 1989—the revolutionary
transformation of the countries of Eastern Europe. Along with the
rapid adoption of democratic principles has come a recognition that
economic freedom is also essential to raising the quality of life. By
the end of the year, bold economic reform programs were being developed to turn away from central planning and government ownership toward free markets and private ownership. It is significant
that as the United States marked the seventh year of its economic
expansion last November, the President signed legislation providing for U.S. support for economic reforms in Eastern Europe.
The Nation now has an opportunity to build on its recent economic successes. It can address problems from the past and con-




19

front current and likely future challenges. The Nation must save
and invest a larger share of its income. The performance of U.S.
elementary and secondary schools must be dramatically improved.
Employment and housing opportunities available to disadvantaged
Americans must be expanded. The quality of the Nation's environment must be preserved and enhanced. And at this crucial moment
in history, U.S. support for democracy and market reform movements around the world cannot diminish. The success of these
market reforms will be a significant determinant of political freedom
and economic progress throughout the world in the 21st century.
Strong sustained economic growth is the key to providing rising
real incomes and resources for the needs, desires, and aspirations
of the American people. Sustained economic growth will also provide employment opportunities for American families and offer
people the dignity and self-respect that come with participating
fully in the economy.
Therefore, the Administration's primary economic goal for the
1990s is to achieve the highest possible rate of sustainable economic growth. Government policy must enhance the economy's potential for growth and ensure that its potential is more often fully
utilized than in previous decades. Keeping inflation in check is
essential to achieve this goal. In designing policies to meet this goal,
it is important to be ambitious but realistic. Setting the Nation's
sights too low guarantees mediocre performance. Setting hopelessly
unrealistic goals guarantees disappointment.
Economic research and the policy experiences of the 1970s and
1980s have led to an improved understanding of the appropriate
role for the Federal Government in achieving the Nation's goals. In
general, government's role should be modest, with limited, targeted, and cost-effective policies aimed at augmenting the economic
power of the private sector. The Federal Government's monetary
and fiscal policies should be systematic and credible and should
focus on the long run. The demonstrated success of free markets
has brought a new appreciation of the power of economic incentives and has encouraged efforts to maintain maximum flexibility
in markets. An increasingly integrated global economy has demonstrated the simple truth that a freer and more open trading system
stimulates worldwide economic growth and rising living standards.
The Administration's economic policy principles are designed to
achieve the maximum sustainable rate of economic growth, both by
enhancing the economy's ability to grow and by ensuring that its
potential is more fully utilized than in previous decades. The principles are as follows:
• Reduce government borrowing by slowing the growth of Federal spending while economic growth raises revenue until the
budget is balanced, and reduce the national debt thereafter;




20

• Support a credible, systematic monetary policy program that
sustains maximum economic growth while controlling and reducing inflation;
• Remove barriers to innovation, investment, work, and saving in
the tax, legal, and regulatory systems;
• Avoid unnecessary regulation and design necessary regulatory
programs to harness market forces effectively to serve the Nation's interest; and
• Continue to lead the world to freer trade and more open
markets and to support market-oriented reforms around the
world.
Specific programs and proposals to implement these policy principles in the evolving economy of the 1990s are summarized in the
balance of this chapter and discussed in detail in the remainder of
this Report.

THE CURRENT EXPANSION AND FUTURE
PROSPECTS
The economy's performance during 1989 has set the stage for a
continuation of the expansion into the 1990s. Adjusting for the rebound in farm production from the 1988 drought, real (inflation-adjusted) gross national product (GNP) rose 1.9 percent during the
year, well below the strong pace of 1987 and 1988. Significantly,
pressures for increased inflation evident in 1988 were contained.
The broadest measure of economy-wide inflation, the GNP fixedweighted price index, rose by 4.1 percent during 1989, down from
4.5 percent in 1988 and about the same as in 1987.
Continued growth in employment and income in 1989 provided
new economic opportunities. A substantially better balance between domestic spending and domestic production was achieved.
Growth in government purchases slowed, while net exports and
business investment grew more rapidly. Both government and
household saving rates rose. These patterns have provided a foundation for sustained strong economic growth.
The Administration's outlook is contingent on implementation of
the President's proposals to reduce the Federal budget deficit
steadily to zero by fiscal 1993 and to reduce the national debt
thereafter. It is also contingent on the Federal Reserve maintaining a credible monetary policy program to support strong noninflationary growth. With these policies, the Administration projects
that the U.S. economy will enjoy sustained growth in 1990 at a
slightly faster pace than in 1989. Real growth is expected to pick
up in the second half of 1990 relative to the first half. In 1991, the
economy's growth rate is expected to increase further, as the level
of output rises to its full potential; the growth rate is then anticipated to return gradually to its longer run expected potential



21

pace of about 3 percent. Inflation is anticipated to remain close to its
1989 rate in 1990, and then to decline gradually in later years.
The remarkable length of the current expansion, by itself, does
not increase the likelihood of an imminent recession. To be sure,
occasional episodes of economic contraction will occur in the
future. Adverse external events cannot be ruled out, even in the
near term. But with the right economic policies in place, expansions in the future can be longer than expansions in the past. The
success in containing inflation in this expansion offers an important protection against future recessions. Since World War II,
sharp increases in inflation have usually caused policy responses or
private-sector imbalances that have led to a recession.

MACROECONOMIC POLICY
Economic research and the lessons of the past two decades suggest a macroeconomic strategy for meeting the challenges of the
1990s and beyond. If fiscal and monetary policies are systematic
and credible, rather than characterized by the frequent exercise of
short-sighted discretion, strong sustainable noninflationary growth
can be achieved.
Popular accounts of economic ideas typically focus on controversies and areas of disagreement. This focus is particularly common
in discussions of macroeconomics, where monetarists, supply-siders,
Keynesians, new classical macroeconomists, and others are often
paired off against each other. While such controversies exist and
have been important in the development of economic thinking,
they mask two key areas of consensus concerning macroeconomic
policy.
First, agreement is now widespread on the detrimental effects of
a short-sighted discretionary approach to macroeconomic policy
that attempts neither to lay out policy plans nor to maintain a
commitment to such plans. Because policymakers are regularly
praised and criticized for short-run developments, they experience
pressures to approach economic policy from a short-run viewpoint.
Stating a plan or program as clearly as possible tends to counteract
such pressures.
Second, research and experience have demonstrated the great advantages of establishing a credible commitment to a policy plan.
Improved credibility, which is enhanced by achieving stated policy
goals and consistently following stated policy principles, can favorably affect expectations. It can help resolve the uncertainty that
arises when changes in the structure of the economy complicate
the interpretation of policy actions. It also enables households and
businesses to plan for the future, thereby promoting saving, investment, and economic growth.




22

FISCAL POLICY
The Administration's commitment to the principles of the
Gramm-Rudman-Hollings law, clearly demonstrated by the President's actions last fall, constitutes an important step toward a credible and systematic fiscal policy. Moreover, the Administration supports the principle that any supplemental spending increase in the
current fiscal year must be offset by decreases in other parts of the
budget.
The Administration has proposed a new rule for fiscal policy that
would extend the Gramm-Rudman-Hollings law by requiring the
Federal Government to maintain a balanced non-Social Security
budget after 1993. The projected future surpluses in Social Security
could not be spent for other purposes but would be devoted to
building reserves through a proposed Social Security Integrity and
Debt Reduction Fund. This rule would reduce the national debt, free
up substantial funds for private capital formation, and increase
economic growth. Higher growth would not only protect the integrity of Social Security by increasing the resources available to cope
with the retirement of the baby-boom generation, but would also
raise national output to meet other private and public needs and
wants.
The Administration remains committed to the principles of low
marginal tax rates and a broad tax base developed in the Economic
Recovery Tax Act of 1981 and the Tax Reform Act of 1986. Steady
adherence to these principles reduces tax-induced distortions of private incentives and increases the economy's growth potential.

MONETARY POLICY
Monetary policy should be designed and credibly committed to
sustaining strong economic growth and macroeconomic stability
while predictably controlling inflation. Changes in the relationship
between the monetary aggregates and the economy have made it
difficult to be precise or mechanical in designing monetary policy.
Nevertheless, it is important both to state clearly the basic intentions of monetary policy and to recognize the long-run significance
of the monetary aggregates as an anchor for price stability. The
Federal Reserve generally increases interest rates when inflationary pressures appear to be rising and lowers interest rates when
inflationary pressures are abating and recession appears to be
more of a threat. Judgment about such factors as inflationary expectations is of course required to determine the degree of inflationary pressures and the size of the appropriate interest rate response. But, the demonstrated consistency of the Federal Reserve's
behavior is evolving into a monetary policy procedure with a considerable degree of credibility. That credibility has been enhanced
by the strong record of achievement built in the 1980s. The Administration firmly supports the Federal Reserve's goal of strong non


23

inflationary growth and believes that continued vigilance in controlling inflation is necessary.

INTERNATIONAL MACROECONOMIC ISSUES
Greater international trade and financial flows have fueled economic growth, both in the United States and abroad. This increased integration of the world economy has significant implications for macroeconomic policies. Both monetary and fiscal policies
in the United States have fundamental effects on exchange rates and
trade flows. These policies also affect the economic performance of
other economies, although to a lesser extent than the U.S. economy
itself.
The first priority of U.S. macroeconomic policy should be to
maintain an environment conducive to strong noninflationary
growth of the domestic economy. Pursuit of this goal will benefit
the U.S. economy and contribute to economic growth and stability
abroad. A sustainable trade balance and relatively stable exchange
rates are part of such a policy environment.
International macroeconomic policy coordination can help governments to maximize sustainable growth worldwide, while taking
into account the spillover effects of domestic policies and their implications for trade flows and exchange rates. The regular economic summits of the G-7 nations (United States, West Germany,
Japan, United Kingdom, France, Canada, and Italy) provide a
framework for the discussion of economic issues of mutual concern.
This cooperation has been an evolving process, but it has achieved
some important successes. Economic growth has been strong, inflation rates among countries have tended to converge, and trade imbalances have declined. These successes argue for continued efforts
to improve the international macroeconomic policy coordination
process.

PROMOTING ECONOMIC GROWTH
In order to maximize sustainable growth, the Federal Government must remove obstacles to saving, investing, innovating, and
working. Even the modest changes in growth rates that government policies can create would have a substantial impact on future
living standards and on America's world leadership.
Over the long haul, growth in the Nation's capacity to produce
goods and services depends on increases in the work force and in
worker productivity. Productivity growth in turn depends mainly
on investment in physical capital (new buildings and equipment),
intellectual capital (advances in knowledge and technology), and
human capital (increases in the skills and abilities of the work




24

force). Entrepreneurial activity plays a critical catalytic role in
starting new businesses and bringing new technology to market.
Investments in plant, equipment, technology, and education are
all more attractive the more robust is economic activity. A strong
business climate not only spares people the short-run costs of unemployment and lower living standards, but is also conducive to
the investment on which their long-run prosperity ultimately depends. Sound fiscal and monetary policies thus enhance economic
growth.
INVESTMENT AND TECHNOLOGY
In order to enhance the economy's long-run health, the Federal
Government should aim for a prosperity marked by a high ratio of
investment to GNP through policies that reduce obstacles to both
saving and investment. U.S. investment in physical capital increased in the 1980s, but it remains low by international standards.
Moreover, the United States invests a smaller fraction of its GNP
in nondefense research and development, which builds intellectual
capital, than some of its major competitors. If the Nation is to
achieve robust economic growth, government policy must create a
climate in which private firms find it attractive to make productive
investments both in physical and intellectual capital. The government should also support research that is likely to have widespread
societal benefits, but that no individual firm would have the incentive to undertake.
A key item on the Administration's economic agenda, reducing
the tax rate on capital gains, will enhance all types of investment.
Cutting the capital gains tax rate will lower the cost of investment
funds and thus stimulate investment. Much of the reward to entrepreneurial activity, such as generating new technology and bringing it to market, comes in the form of an increase in the value of
businesses. Reducing the capital gains tax rate will thus reward
these efforts and encourage invention and innovation.
The Administration has recommended substantial increases in
Federal investment in research that has broad relevance and that
would be underfunded by the private sector alone. Basic research
builds the knowledge base on which technological progress depends
and augments the ability of U.S. universities to train the scientists
and engineers in whose hands the Nation's technological future
rests. In order to enhance incentives for private investment in the
Nation's intellectual capital, the Administration also proposes to
make permanent the research and experimentation tax credit and
will work to remove unnecessary legal and regulatory barriers to
innovation.
But the Administration remains strongly opposed to any sort of
industrial policy, which would involve second-guessing private in-




25

vestment decisions by selecting particular firms, industries, or commercial technologies for favorable tax treatment or direct subsidies. History provides strong support for the view that private
market participants, who have profits and jobs at stake, have
sharper incentives and better information than government decisionmakers and, as a consequence, make sounder investment decisions.
Similarly, the Administration recognizes that participation in an
efficient global capital market benefits all nations. Foreign capital
inflows amounting to about one-sixth of U.S. domestic investment
in recent years have strengthened investment and productivity in
the United States. The Administration strongly opposes the erection of barriers to foreign investment in the United States and is
continuing to work to reduce formal and informal barriers to investment throughout the world.
Foreign direct investment in the United States has grown rapidly in recent years, in large part because America has become a
more attractive country in which to invest. Despite this growth,
foreign-owned firms play a smaller role in the U.S. economy than
in the economies of many other industrialized nations. Moreover,
U.S. companies continue to make substantial investments abroad.
Increases in direct investment by U.S. and foreign firms reflect the
increasing integration of the global economy and benefit both host
and investor nations.

NATIONAL SAVING
Business, households, and governments all save at a lower rate
in the United States than their counterparts in other advanced
economies. Moreover, during the 1980s, the U.S. national saving
rate—the sum of what households, businesses, and governments
save—was substantially below its average over the previous three
decades. A higher rate of national saving will reduce the cost of investment funds to U.S. firms. A lower cost of capital will, in turn,
encourage investment, enhance productivity, and spur growth.
The most direct and important step that can be taken to increase
U.S. national saving is to reduce the Federal budget deficit. The
Administration's new rule for fiscal policy, discussed above, will
eliminate the budget deficit and then reduce the national debt. The
Administration's program for increasing national saving also includes policies to increase private saving by reducing the tax rate
on capital gains and by establishing Family Savings Accounts to
encourage saving for pre-retirement objectives.

HUMAN RESOURCES
The new jobs created by the U.S. economy increasingly require
high levels of skills and education, and the growth of the working-




26

age population is slowing. Together, these trends are creating a
new set of labor market concerns. The future may well bring occasional episodes of cyclical unemployment associated with shortfalls
in the demand for labor. But concerns about the availability of jobs
that have dominated macroeconomic policy discussion since the
Great Depression are giving way to new concerns about the availability of workers and skills.
The U.S. economy will continue to benefit significantly from the
remarkable flexibility of its labor markets. Employers and workers
have generally adapted well to labor market changes, including the
entry of the baby-boom generation and the sharp increase in
female labor force participation. However, the Federal Government
can lead in promoting excellence in education and can help to
bring less advantaged groups into the economic mainstream, thereby expanding the supply of workers and skills.
Increasing the skills of the Nation's work force—building human
capital—requires improving the performance of the Nation's elementary and secondary schools. By international standards, U.S.
outlays for education are high, but U.S. students regularly do less
well than their peers abroad on tests of knowledge and achievement. The most pressing task, therefore, is not to invest more
money in education, but to invest more effectively. Elementary and
secondary education is primarily a State and local responsibility,
but the Federal Government and the private sector can play important leadership roles.
Last fall, the President called together the Nation's Governors
and the Cabinet to lay the foundation for a national performanceoriented education policy. This historic summit, only the third of
its kind in U.S. history, has already led to an ambitious set of
national education goals. The proposed Educational Excellence Act
and other Administration iniatives seek to give students and their
families more choice, to give local schools more flexibility, and to
hold school systems accountable for the performance of their
students. The Administration's 1991 budget calls for increased funding for education programs. Particularly large increases are targeted
for Head Start to help prepare young children from disadvantaged
families for effective learning.
In order to expand economic opportunity at both the individual
and national levels, the Administration has supported a number of
initiatives designed to bring the disadvantaged into the economic
mainstream. These include the Americans with Disabilities Act, increased funding for assistance to the homeless, reforms of welfare
and job training programs, and programs designed to increase
homeownership and the supply of affordable housing and to bring
jobs to depressed inner cities.




27

REGULATORY POLICY
All levels of government engage in regulation that potentially
serves the public interest. But too many regulatory programs have
pursued unrealistic goals with excessively costly methods and offered society only meager benefits in exchange for slower growth,
higher prices, and lower living standards.

PRINCIPLES OF REGULATORY POLICY
A key function of government in a private enterprise economy is
to construct a legal framework that enhances the health and vigor
of the private sector. Sensible and vigorously enforced antitrust
policies promote competition, which in turn reduces prices and
spurs innovation. Innovation is also encouraged by policies that
protect intellectual property from unauthorized use. Current product liability law often discourages innovation by imposing unrealistic safety standards on new products. The Administration has proposed reforms that would restore balance to this area of the law.
While it may seem obvious that governments should not try to
do what the private sector can do better, this important principle is
often ignored in practice. Government regulation can rarely improve on well-functioning private markets; it usually makes things
much worse. The renewed vigor of industries that were deregulated
during the 1980s—including telephone equipment, airlines, overnight delivery services, and trucking—has made clear how regulation hobbles competitive markets and thus inflates costs and prices,
reduces consumer choice, discourages innovation, and, ultimately,
eliminates jobs.
Government action may be called for where competitive private
markets do not exist or cannot function. For example, even though
many consumers may be willing to pay for cleaner air, no unregulated private economy has a market in which they can do so.
Imperfections in private markets do not suffice to justify regulation, however. It must be demonstrated that these imperfections
can be addressed by a regulatory policy—itself inevitably imperfect—with benefits that exceed its costs. Regulatory targets should
be chosen by careful cost-benefit analysis, and the methods of regulation should minimize the cost and disruption of reaching their
targets. Cost-minimization often requires carefully structuring the
incentives faced by the private sector as well as granting firms and
their workers flexibility in meeting regulatory requirements. Government policies should generally be designed to strengthen, not
weaken, market forces and, where appropriate, to harness them in
the public interest.




28

THE ENVIRONMENT AND THE ECONOMY
These principles underlie the Administration's policies toward
the environment. The United States can and must have both a
sound, growing economy and a healthy environment. Economic
growth is critical to provide the resources necessary to protect the
environment; the wealthiest nations are the most willing and able
to devote substantial resources to environmental protection. But
environmental policies that pursue unrealistic goals through inflexible regulation waste the Nation's valuable resources. Such
poorly designed programs not only slow economic growth and
eliminate jobs; their excessive costs also reduce support for the goal
of environmental protection.
The economy and the environment both benefit if the goals of environmental programs are selected through careful cost-benefit
analysis and are pursued through flexible programs that enhance
the private sector's incentives to minimize costs. The Administration's proposed amendments to the Clean Air Act apply this approach. While the Administration plan calls for significant reductions in automobile emissions, it explicitly rejects the application of
unreasonably stringent emissions standards whose costs would be
far out of proportion to their benefits; other measures can achieve
similar goals at much lower costs. The Administration's proposal
for acid rain control employs tradable emissions allowances, a costminimizing approach advocated in this Report for more than a
decade.
The Administration's proposals for reform of pesticide regulation
also reflect its principles of regulatory policy. An unworkable zerorisk standard now applies to processed foods. The Administration
proposes employing instead the standards that apply to unprocessed foods and that balance benefits and risks of pesticide use. The
Administration proposal would also strengthen and simplify the
pesticide regulation process. These proposals would benefit both the
public health and the agricultural economy.
Discussions of many environmental concerns—including the possibility that human activity may lead to future changes in the
Earth's climate—are dominated by scientific and economic uncertainty. In such areas, the Federal Government has an important
role to play in supporting research to develop the knowledge base
that is critical to intelligent decisionmaking. This Administration
has proposed substantial increases in funding for scientific research on the processes that might lead to future climate change.
Many feel the costs of substantial reductions in the emissions that
might produce global warming are high; much better information
on the corresponding benefits is necessary to decide if those costs
should be incurred.



29

FINANCIAL MARKETS
When financial markets and institutions work well, they encourage saving and channel it efficiently into the most productive investments, thus stimulating economic growth and contributing to
rising living standards. The Federal Government must design its
regulation of financial markets and institutions carefully to ensure
the soundness of the U.S. financial system while encouraging competition and innovation. This Administration's prompt actions to
resolve the savings and loan crisis have laid a solid foundation for
further progress and reform.

GROWTH AND MARKET REFORM IN THE GLOBAL
ECONOMY
Political and economic events in the 1980s underscored the growing importance of free markets and an open trading system to economic growth and prosperity. Revolutionary political and economic
change is occurring in Eastern Europe. Economic reforms in some
of the severely indebted developing countries, aided by new initiatives to reduce debt burdens, hold the promise of reviving growth.
The market-oriented economies of Asia have grown rapidly. The
move in Western Europe toward a single market by 1992 can benefit
producers and consumers worldwide.

TOWARD FREE TRADE AND OPEN MARKETS
As global integration advances and competition intensifies, the
United States must increase its efforts to lead the world toward a
system of free trade and open markets. The Administration remains strongly committed to those efforts and staunchly opposed to
managed trade. That commitment means actively removing trade
barriers and resisting inevitable calls for protection—thereby opening markets, not closing them.
The President's highest priority in trade policy is to further the
role of the General Agreement on Tariffs and Trade (GATT) as a
rules-based system for liberalizing trade and settling trade disputes. Widening the scope of products and practices covered by
GATT is especially important to move the world toward marketoriented trade. U.S. proposals in the current Uruguay Round negotiations include bold, workable plans for integrating agriculture
and services into the GATT system, for establishing common rules
governing intellectual property rights, and for reducing the barriers to trade-related investment.
The removal of barriers to the movement of goods, capital, and
labor among the countries of the European Community (EC) by




30

1992 will increase the productive potential of the economies of
those countries. The reduced barriers can also benefit Americans
by creating a larger, more integrated market for U.S. goods and by
lowering prices to consumers as European goods are produced more
efficiently. While concerns that economic integration under the EC
92 initiatives will lead to a Fortress Europe are exaggerated, it is
essential that the United States remain vigilant in monitoring the
EC directives to ensure that new barriers are not raised to trade
with the United States and other countries outside the EC.
ENCOURAGING ECONOMIC CHANGE ABROAD
Market-oriented reforms are essential to improving living standards in the nations of Eastern Europe. These reforms will not only
increase output, they will give families the freedom to choose the
products they want rather than having to accept what central
planners want them to have. Reforms underway in some countries
demonstrate a recognition of this fact: Poland, in particular, has
undertaken ambitious reforms. Along the way, such reforms may at
times be difficult and painful, but they must be comprehensive to
succeed.
In heavily indebted developing countries, only continued implementation of appropriate macroeconomic policies and reforms that
strengthen market forces can produce strong economic growth. Negotiated reductions in debt burdens can encourage such reforms
and help to ensure their success.
The Administration is deeply committed to supporting marketoriented reforms around the world. The major responsibility for
their success rests with the peoples of these countries themselves
and their ability and desire to implement the measures necessary
to improve their economies. In Eastern Europe, the United States
has taken an initiative in providing technical and financial assistance in order to increase the likelihood of success. For developing
countries, the United States continues to lead in forming and implementing a strategy of debt restructuring and in supporting economic reforms that aim to revive economic growth and to restore
access to world capital markets.

CONCLUSION
The economic goal prescribed by the Employment Act of 1946, a
goal that is echoed in this Report, was "maximum employment,
production, and purchasing power/' Sustained, robust growth will
raise living standards, maintain the Nation's position of global
leadership, bring greater opportunity to Americans, and provide
the resources necessary to make progress toward satisfying an
array of public and private needs and wants. But as this Report



31

endeavors to explain, the experience of four decades has led to a
better understanding of how to achieve these goals.
In pursuing these goals, the United States will confront a host of
economic challenges and opportunities in the next decade. The Federal Government must remove impediments to national saving, investment, and innovation to create an environment in which rapid
growth can occur. Educational excellence—especially in the K-12
grades—must be promoted. The flexibility of U.S. labor markets
must be preserved. Employment, income, housing, and education
opportunities available to disadvantaged Americans must be enhanced. The Nation must confront persistent environmental problems and new global concerns. The continuing integration of the
world economy has increased the importance of free markets and an
open trading system and of resisting misguided calls for protectionism. Free people working, producing, innovating, investing, and
consuming in free competitive markets—both domestic and international—are the engine driving economic growth.
It would be unrealistic to expect all of these issues to have been
resolved by the end of the 1990s. The successes of the 1980s have
left the Nation with the economic capability to make significant
progress, but obstacles remain. The benefits to surmounting these
obstacles will raise the quality of life in the United States for
present and future generations. These benefits will spread worldwide if the United States is able to maintain its international economic and political leadership. As the 1980s, and 1989 in particular, have shown, America's response to these challenges can make
a critical difference to the well-being of people all over the world.




32

CHAPTER 2

Developments in 1989 and Future
Prospects
THE UNITED STATES STARTED the eighth consecutive year of
economic expansion during 1989, adding another 12 months to
what was already the longest peacetime expansion in U.S. history.
The duration of this expansion has been remarkable, and steady
fiscal and monetary policies aimed at strong noninflationary
growth have been essential for this achievement.
The Administration forecasts that growth will continue in 1990.
Historical and international evidence shows that economic expansions do not die of old age. Expansions end because of particular
external shocks to the economy, policy errors, or widespread imbalances, such as an overaccumulation of inventories, developing
throughout the economy. Such imbalances were not evident in 1989,
and with a continuation of fiscal and monetary policies aimed at
deficit reduction and strong noninflationary growth, the chances of
policy errors are reduced. Moreover, containing inflation during
1989 has set the stage for both sustained economic growth and continued reductions in inflation in the 1990s.

THE U.S. ECONOMY IN 1989
Adjusting for the effects of the 1988 drought, real gross national
product (GNP) grew 1.9 percent during 1989, a more moderate pace
than the very rapid rates of 5.4 percent in 1987 and 4.0 percent in
1988 (Chart 2-1). (Table 2-1 includes an explanation of the effects
of the drought on GNP.) The civilian unemployment rate remained
low throughout the year, ending the year at 5.3 percent. The average unemployment rate for 1989, also 5.3 percent, was at its lowest
level since 1973. Moreover, inflation was contained: the fixedweighted GNP price index increased 4.1 percent over the year,
down from 4.5 percent in 1988.

FISCAL AND MONETARY POLICIES DURING 1989
Fiscal and monetary policies played important roles in the economic performance of 1989. The path of fiscal policy reflected the
Administration's commitment to deficit reduction without new
taxes. The near-term emphasis of monetary policy shifted in the



33

Chart 2-1
GROWTH OF REAL GNP. GNP growth moderated in 1989 following two years of rapid expansion.
Percent change (Q4/Q4)
7

1983

1984
Hi

1985

1986

Drought-adjusted in 88 and 89

1987

1989

1988

Not drought-adjusted

Source: Department of Commerce.

TABLE 2-1.—Growth of Real GNP and Components
|

1986

1987

1989 »

1988

Percent change, fourth quarter to fourth quarter

1.9

GNP

5.4

3.4

2.4

4.0

GNP, drought-adjusted
Personal consumption expenditures
Nonresidential fixed investment
Residential investment
Government purchases of goods and services

3.8
-5.5
11.6
3.1

2.2
8.5
-4.2
2.1

1.9

3.8
4.2
3.2
1.8

2.3
4.3
-6.1
.2

Annual level, billions of 1982 dollars
Inventory investment
Net exports of goods and services

5.6
-129.7

23.7
-115.7

27.9
-74.9

24.5
-56.3

1
Preliminary.
Mote.—The loss of farm output from the drought lowered GNP in the last three quarters of 1988, reaching a loss of $21.8
billion in the fourth quarter. The loss reduced real GNP growth in 1988 by 0.6 percentage point. The subsequent rebound of farm
production to more normal levels added approximately the same amount to growth in 1989.
Source: Department of Commerce, Bureau of Economic Analysis.

spring of 1989. During 1988 and early 1989, monetary policy had
aimed to keep inflation in check. By the spring of 1989, signs that
economic growth was slowing and inflation was abating led to an
easing of monetary policy.




34

Fiscal Policy
Real Federal purchases of goods and services as measured in the
national income and product accounts (NIPA) fell as a fraction of
real GNP in calendar 1989, continuing a trend that began in 1987
(Chart 2-2). Reducing the Federal deficit helps to raise national
saving and economic growth and is part of the Administration's
strategy to achieve better long-run economic performance. Hence,
controlling Federal spending remained a priority throughout the
year despite the moderate slowing of economic activity during the
latter half of 1989.
Chart 2-2
REAL FEDERAL PURCHASES. Real Federal purchases of goods and services continued to fall as a
percent of real GNP in 1989.
Percent
9.5

IV
1987

Note: Transactions of the Commodity Credit Corporation are excluded.
Source: Department of Commerce.

An important aspect of fiscal policy during 1989 was the higher
yield of the individual income tax system: personal income tax receipts as a percentage of personal income were above forecasts.
This may partly reflect better compliance as a result of the tax
rate reductions in the 1980s. Federal receipts, as measured in the
NIPA, increased by $74.4 billion in calendar 1989, reaching a total
of $1,046.8 billion. The increased revenues stemmed primarily from
higher personal income tax and social insurance tax receipts.
During the last quarter of 1989, fiscal policy reflected the formulation of the budget for fiscal 1990. The President had submitted



35

initial proposals in February and reached agreement with the Congress in April on a budget plan of spending restraint that met the
Gramm-Rudman-Hollings (GRH) deficit target for fiscal 1990. As
the year progressed, however, the Congress did not implement the
April agreement. Indeed, by the start of the fiscal year in October,
the Congress had not passed most of the fiscal 1990 appropriations
bills or budget reconciliation legislation.
In the absence of a completed budget, two successive continuing
resolutions provided funds for Federal activities. The Administration estimated that the resulting deficit for fiscal 1990 exceeded the
allowable GRH target by $16.1 billion. Following the procedures in
the GRH law, the President then ordered a sequester—a mandatory reduction in budget resources—designed to reduce outlays
during the fiscal year by $16.1 billion. (Box 3-1 in Chapter 3 of this
Report contains a detailed discussion of the sequester in fiscal
1990.) Further, in the absence of a legislated budget containing
genuine deficit reduction, the President announced his willingness
to operate with a sequester for the entire fiscal year, if necessary.
The Reconciliation Act passed by the Congress and signed by the
President in December 1989 met the Administration's goals for deficit reduction. Importantly, the reduced outlays during the period
were not restored: the President issued a revised sequester order
intended to reduce outlays by $5.7 billion, the equivalent of the
$16.1 billion sequester for roughly one-third of the fiscal year.
Federal purchases of goods and services, measured on a NIPA
basis, totaled $404.1 billion in calendar 1989, compared with about
$380 billion each in 1987 and 1988. Other expenditures by the Federal Government—transfer payments, grants to State and local
governments, net interest paid, and so on—reached $792.6 billion
in 1989. Thus, expenditures by the Federal sector totaled $1,196.7
billion for 1989, an increase of $78.4 billion over 1988. The Federal
Government budget deficit as measured by the NIPA was $149.9
billion.
The Administration's goals for fiscal policy in 1989 included a reduction in the tax rate on capital gains. As a result of tax reform
in 1986, the United States now taxes capital gains at a rate as high
as that on other income. During its consideration of the 1990
budget, the Congress did not enact either the President's proposal
for capital gains tax rate reductions or any of several congressional
alternatives.
Much of the debate over a cut in the capital gains tax rate concerned its effect on the Federal budget. It is now generally agreed
that these capital gains tax rate proposals would raise revenue in
the short run, by encouraging the sale of previously "locked-in"
assets. There is, however, debate over their long-run impact. A
review of the available studies of this topic suggests that a careful


36

ly designed capital gains tax rate reduction is not likely to lose revenue in the long run. Moreover, these studies do not include the
beneficial effects of a capital gains tax rate cut on economic
growth. By reducing the after-tax cost of capital, a cut in the capital gains tax rate will augment saving and investment and is
likely to generate enough extra revenue to avoid long-run revenue
losses. A reduction in the capital gains tax rate remains a priority
for Administration fiscal policy in 1990.
Monetary Policy
The increased levels of resource utilization associated with the
vigorous economic expansion during 1987 and 1988 created a concern by many that inflation would accelerate. To reduce the threat
of rising inflation, the Federal Reserve began to tighten monetary
policy in the spring of 1988 and continued to tighten until the
spring of 1989.
In February 1989, the Federal Reserve announced ranges of
growth for monetary and credit aggregates for the year. The ranges
were 3 to 7 percent for M2, 3x/2 to 7% percent for M3, and 6V2 to
lOVfe percent for the debt of domestic nonfinancial sectors. (Box 3-2
in Chapter 3 of this Report contains definitions of the monetary aggregates.) The 1989 range for M2 was 1 percentage point lower
than that for 1988, and the range for M3 was one-half percentage
point lower. In establishing the ranges, the Federal Reserve noted
that slower growth of money and credit was consistent with its goal
of reduced inflation. At the same time, the Federal Reserve viewed
the ranges of money growth as being sufficient to accommodate
continued economic growth during 1989. Over the early part of
1989, M2 and M3 were at or below the lower bounds of their
ranges.
The Federal Reserve continued to tighten policy by reducing the
availability of bank reserves in early 1989. This tightening raised
short-term interest rates and damped growth of money and credit;
it can be seen in the increase in the key Federal funds interest
rate—the rate on overnight interbank credit (Chart 2-3). Between
the spring of 1988 and the spring of 1989, the Federal funds rate
and other short-term interest rates rose about 3 percentage points.
Interest rates on retail bank deposits also increased over this
period but by considerably less than market rates, raising the "opportunity cost" of holding M2 deposits (Chart 2-4). The opportunity
cost of M2 is defined as the difference between the return on an
alternative asset—measured here as the interest rate on 3-month
Treasury bills—and the average interest rate paid on the components of M2. That is, the opportunity cost is the interest forgone by
holding funds in the form of M2 deposits rather than placing them
in the market. The opportunity cost of M2 rose from about 1 percentage point in early 1988 to around 3 percentage points by early



37

1989 and was the major factor behind the slow growth of M2 over
the first 3 months of 1989. During the following 2 months, households evidently drew down balances in order to meet unexpectedly
large tax liabilities. As a result, M2 barely grew in April and actually contracted in May.
Chart 2-3
FEDERAL FUNDS RATE. Federal Reserve actions raised the Federal funds rate in 1988 and early
1989 but lowered it in the spring of 1989 as inflation pressures abated.
Percent per annum
20
18
16
14
12
10
8

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

Note: Data are quarterly.
Source: Board of Governors of the Federal Reserve System.

Chart 2-4
M2 OPPORTUNITY COST. The opportunity cost of holding M2 deposits peaked in the first quarter
of 1989 and declined over the rest of the year.
Percentage points

3.0

2.0

1.0

1984

1985

1987

1986

1988

1989

Note: Data are 2-quarter moving averages.
Source: Board of Governors of the Federal Reserve System.

By the spring, a number of factors suggested that the balance of
risks was shifting from accelerating inflation to sluggish growth.
These factors included the following: the slow growth of the mone-




38

tary aggregates, moderating demands for goods and services, the
strength of the dollar on foreign exchange markets, a lack of acceleration in wages and total compensation rates, and a flattening of
commodity prices. Low long-term interest rates relative to shortterm interest rates added to the evidence. A low or negative spread
between long-term and short-term interest rates is often viewed as
an indicator that monetary policy is putting downward pressure on
inflation. In the past, it has also frequently preceded recessions.
Accordingly, the Federal Reserve began to increase the availability of reserves to depository institutions. After remaining relatively
flat from March through May, the Federal funds rate fell more
than ll/2 percentage points in the following months, bringing the
rate to about 81A percent by early January of 1990. Other shortterm market interest rates also declined substantially.
Lower market interest rates boosted the demand for monetary
assets. Returns on M2 deposits fell less rapidly than did market interest rates, and the opportunity cost of M2 fell significantly. M2
was also increased by a rebuilding of tax-depleted balances. Over
the May-to-December period, M2 growth averaged about 8 percent
at an annual rate, a sharp pickup from the 0.2-percent average
over the first 5 months of the year. For the year as a whole, M2
growth was about 4.5 percent—a little below the middle of its 3percent to 7-percent target range (Chart 2-5).
M3 growth was also relatively weak over the first part of the
year. In contrast to M2 growth, however, expansion of M3 remained sluggish following the easing of Federal Reserve policy over
the second part of the year. A number of thrift institutions restrained growth in their balance sheets in order to comply with the
more stringent capital requirements mandated by the Financial Institutions Reform, Recovery, and Enforcement Act of 1989. For the
year as a whole, M3 expanded only 3.3 percent, slightly below the
lower limit of its 3x/2 percent to 7l/2 percent target range (Chart 25).

GROWTH OF GNP AND COMPONENTS
The more moderate expansion of real GNP between the fourth
quarter of 1988 and the fourth quarter of 1989 reflected slower
growth of interest-sensitive sectors (consumption of durables and
residential investment) and of government purchases. In addition,
increased national saving contributed to further improvements in
net exports and continued growth of business investment even in
the face of higher interest rates. These tendencies represent continued progress toward increased national saving and investment,
better balance between domestic spending and domestic production,
and a foundation for improved performance in the 1990s.



39

Chart 2-5
M2 AND M3. While M2 finished the year within its target range, M3 was slightly below at the end of 1989.
Billions of dollars
3350
M2
3300

7%

3250
3200
3150
3100

3050
3000

Dec 88

June 89

Mar 89

Sept 89

Dec 89

Billions of dollars
4300

M3
7-1/2%

4200
4100

4000
3-1/2%
3900
3800
Dec 88
Mar 89
Source: Board of Governors of the Federal Reserve System.

June 89

Sept 89

Dec 89

Consumption and Saving
Because consumption expenditures constitute about two-thirds of
GNP, changes in consumption are important influences on GNP
growth. The growth of real personal consumption expenditures
slowed to a 2.3-percent pace in 1989, down from 3.8 percent in 1988
(Table 2-1). Growth in real personal disposable income was 3.6 percent in 1989, close to the 4.0-percent pace of 1988. Consequently,
the less rapid rise in personal outlays was reflected as an increase
in the saving rate compared to 1988. As Chart 2-6 shows, the personal saving rate moved up to 5.5 percent in 1989, substantially
above its 1987 low of 3.2 percent. Nevertheless, it remained considerably lower than its 7.2-percent average for the 1950-79 period.
The slower growth of overall consumption purchases reflected
continued strength in expenditures on services but weaker growth
in purchases of durable and nondurable goods. Among services,
real purchases of medical care continued to increase at a particularly strong pace. The weakness in purchases of durables largely
reflected sluggish automobile sales. Over the first two quarters of
the year, real spending on motor vehicles and parts fell below the
average pace for 1988. In the third quarter, auto sales jumped,




40

Chart 2-6
PERSONAL SAVING RATE.
its historical average.

The personal saving rate rose above its 1987 low but remained below

Percent of disposable personal income

10

Average, 1950-79

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

Note: Data are quarterly.
Source: Department of Commerce

owing to the sales incentive programs introduced toward the end of
the 1989 model year. In the fourth quarter, auto sales slumped
again. For the year as a whole, auto sales fell from about 10.6 million units in 1988 to about 9.9 million units in 1989—the slowest
rate since 1983.

Residential Investment
Housing investment declined in 1989 as higher mortgage interest
rates reduced demand. As Chart 2-7 shows, rates on adjustable-rate
mortgages rose from around 8.25 percent in April 1988 to about 10
percent by June 1989 before easing over the rest of the year. Yields
on fixed-rate mortgages rose less, but nonetheless in 1989 averaged
nearly 1 percentage point above their levels in 1987. Sales of existing single-family homes were 3.43 million units in 1989, compared
with 3.59 million units the previous year. Likewise, sales of new
single-family homes declined by 3.8 percent from 1988 to 1989. In
response to lower sales, housing starts tumbled from a recent peak
of 1.81 million units in 1986 to about 1.37 million units in 1989, the
lowest rate since 1982. Similarly, expenditures on real residential




41

investment in the NIPA fell 6.1 percent from the fourth quarter of
1988 to the fourth quarter of 1989.
Chart 2-7
MORTGAGE INTEREST RATES. Mortgage interest rates rose in 1988 and early 1989, reducing housing
demand; rates fell starting in the spring of 1989.
Percent per annum
14

13

12

Adjustable Rate

10

1983

1984

1985

1986

1987

1988

1989

Note: Data are quarterly effective rates.
Source: Federal Housing Finance Board.

Nonresidential Fixed Investment
Nonresidential fixed investment—investment by firms in structures and equipment—is an important determinant of economic
performance. Over the business cycle, it is among the most volatile
components of spending. Over longer periods, it is a critical input
to economic growth. Real nonresidential fixed investment rose a
solid 4.3 percent in 1989. The increase was spurred by the relatively high levels of capacity utilization and the need for firms to enhance their productivity in an increasingly competitive world economy. A Department of Commerce survey suggests that gains in investment spending during 1989 were widespread, with particularly
strong gains occurring in nondurable goods manufacturing and in
nonmanufacturing industries.
The rise in fixed investment was entirely in equipment rather
than in structures. Computer purchases were particularly robust,
rebounding from a lull late in 1988. Spending on most categories of
structures was weak. Construction earlier in the 1980s may have
been boosted by accelerated depreciation allowances, which were



42

reduced by the Tax Reform Act of 1986. In addition, while energy
prices rose temporarily during late 1988 and early 1989, lower average energy prices since the mid-1980s have contributed to the sluggishness in oil and gas well drilling.

Inventory Investment
Like nonresidential fixed investment, inventories are an important contributor to the cyclical behavior of the economy. Since the
mid-1980s, inventory-sales ratios have declined, owing at least in
part to improved inventory management techniques, and at the
end of 1989 the inventory-sales ratio remained close to the level of
the previous 2 years (Chart 2-8). From a macroeconomic perspective, these lower ratios are welcome because they reduce the risk of
widespread inventory imbalances, which in the past have often
been associated with recessions.
Chart 2-8
REAL INVENTORY-SALES RATIO. During most of the 1980s the inventory-sales ratio for the nonfarm
business sector declined.
Ratio
3.2

3.1

3.0

2.9

2.8

2.7

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

Note: Data are quarterly.
Source: Department of Commerce.

In 1989, increased real inventory investment contributed $14.3
billion to growth in real GNP on a fourth-quarter-to-fourth-quarter
basis. Inventories in the farm sector fell at an annual rate of $13.6
billion in the fourth quarter of 1988, but rose $1.3 billion in the
fourth quarter of 1989. The swing in accumulation of farm inventories thus contributed $14.9 billion to GNP growth.



43

The pace of nonfarm inventory investment in the fourth quarter
was below the level in the fourth quarter of 1988, but picked up
appreciably from the pace in the third quarter. Nonfarm inventories increased $31.3 billion in the fourth quarter, up from $16.2 billion in the third quarter. The swing in inventory accumulation
largely reflected developments in the auto sector, which experienced sluggish demand in 1989.

Government Purchases
Federal, State, and local government purchases of goods and
services, which account for close to 20 percent of GNP, were essentially flat in real terms in 1989. A moderate, 2.5-percent increase in
purchases by State and local units offset a 3.0-percent decline by
the Federal Government. As discussed above, the reduction in real
Federal purchases was a result of the effort to reduce the Federal
budget deficit.

Exports and Imports
The shortage of national saving relative to investment has been
a fundamental source of the large trade deficit of the United States
in recent years. (This topic is discussed in Chapter 4 of this Report.)
The difference between U.S. imports and exports in real terms—
the measure of the trade gap most relevant for explaining growth
of real output—declined substantially in the first quarter of 1989
and remained roughly flat thereafter. In part, these improvements
reflected the continued, lagged effects of the decline in the foreign
exchange value of the dollar between 1985 and 1987. This dollar depreciation tended to reduce the price of U.S. exports on world markets and to increase the domestic price of imports. It thus boosted
demand for exports and restrained demand for imports. In addition, U.S. firms had responded to difficult business conditions
during the mid-1980s, when the dollar was quite strong, by taking
steps to boost productivity and control costs. The cumulative effect
of these measures by the end of the decade was to strengthen the
competitive position of U.S. firms in world markets. Strong growth
in production and incomes in foreign industrial countries also contributed to the demand for U.S. exports and the reduced trade deficit. (See Box 2-1 for a discussion of recent economic performance in
other industrial economies.) In addition, slower growth of domestic
demand in the United States probably restrained imports.
Real U.S. exports of merchandise and services reached an alltime high during 1989, and the United States regained its position
as the world's leading exporter. The deficit on net exports in 1982
dollars totaled $56.3 billion for the year—less than one-half the
level of $129.7 billion reached in 1986. In the second half of 1989,
though, there were signs that the pace of improvement of the U.S.
external balance was not continuing.



44

Box 2-1.—International Comparisons of Economic
Performance
UJSL economic performance compares favorably with that of
other industrial countries. The table below presents an economic smnniary for the United States and six other industrialized countries (collectively known as the Group of Seven* or G<~
7). Hie United States has had relatively low consumer inflation rates (as measured by the CPI) and excellent growth of industrial production, gross domestic product (GDP), and employment, Indeed, during the current expansion, the United States
has generated more new employment than Canada, Japan, and
Western Europe combined.
Recently, US. unemployment and inflation rates were again
low by international standards, and real GDP per capita remained the highest in the G-7*
Economic Performance in the United States &nd other G-7 Nations
€H

Industrial
production

m?

fiapfoymerit

Average annual percent change, 1982-88
Canada ....... . ,
« „«,-,.... .
Fraust,, „...„„„..,..»„„„„,, „.„..
West fiSiaany * „„
Italy,,,., „„.»„.,*
„. .
.„
}m&«*<~~.—~~^
United Kfncrfon} ...,...,...,..„„..* »,«»«.»..
Suited Stales ~,..,~.......~.~.,~^«<.™

14
12
1J5
8,2
13
4,7
3,5

'

SJ
14

ts

1.4
4J
3.1
4.9

4J
IJ
2J
£7
42
33
41

14
. "j
U
1.4
ZA

1989
i$Nsniptoyment
rate1

1989
inflation
rate*

1988 real
GOP per
capita3

Percent
7J

§4

5.6
7.7
^,3
5J
i,3

3,0
15
*2J
7J
4.6

to.i

as

13^204
IIS55
13,204
i&!2
IW3

1
Civilian unemployment rate, fourth quarter.
^ Percent change in CPI, December 1988 to December 1989.

*TWrd«partrdata*
5

PercenTchangeinCPI, November 1988 to November 1989.
Sources: Department of Commerce (Bureau of Economic Analysis and International Trade Administration), Department
of tabor (Bureau of Labor Statistics), Organization for Economic Cooperation and Development, and Council of
Economic fefclssrs.

The nominal net export deficit fell to $50.9 billion in 1989, down
from deficits of $112.6 billion in 1987 and $73.7 billion in 1988. Another broad measure of external imbalances, known as the current
account deficit, averaged $113.5 billion at an annual rate over the
first three quarters of 1989, compared with totals of $143.7 billion in
1987 and $126.5 billion in 1988.
BUSINESS CONDITIONS
Production and employment increased at a good pace in 1989 and
capacity utilization remained high. In addition, the farm sector recovered from the effects of the drought in 1988. Nevertheless, profitability softened somewhat and productivity growth slowed.




45

Profits
Before-tax profits of nonfinancial corporations declined from
$233.4 billion in 1988 to $225.8 billion at an annual rate over the
first three quarters of 1989. The decline in profitability reflected a
smaller rise in prices per unit of output than in costs per unit of
output. Price increases may have been restrained in part by the
strength in the foreign exchange value of the dollar, and costs were
boosted as labor productivity rose somewhat less rapidly than in
1988. The manufacturing sector accounted for much of the weakness in nonfinancial corporate profitability. Profitability of auto
manufacturers was particularly low, with losses in the second and
third quarters. In the financial sector, profits in 1989 were hurt by
the effects of natural disasters on insurance company balance
sheets.

Productivity
Productivity in the nonfarm private business sector continued to
increase in 1989, likely reflecting continued capital investments by
firms. The 0.8-percent annual rate of increase over the first three
quarters, however, was somewhat lower than over the previous several years. To some extent this reflects the more moderate pace of
output growth in 1989 compared with the previous 2 years. Many
firms take a long-run view and are reluctant to release skilled
workers as economic growth slows. This labor "hoarding" produces
smaller increases in output per hour. Productivity increases in the
manufacturing sector, at an average annual rate of 2.4 percent
over the first three quarters, were stronger than in the overall nonfarm sector, but also were somewhat weaker than in previous
years.

Industrial Production and Capacity Utilization
The industrial sector is a bellwether of the economy and accounts for roughly one-fifth of civilian employment. In 1987 and
1988, overall production of manufacturing, mining, and utility
firms expanded at an average annual rate of 5.4 percent. Expansion of industrial production slowed to 1.7 percent in 1989, partly
owing to the less rapid expansion of the overall economy. Another
major factor influencing industrial production in the second half of
the year was the slower rate of improvement of the U.S. external
balance, since many U.S.-manufactured goods are sold on international markets.
The slower pace of industrial production combined with expansion of productive capacity to reduce rates of capacity utilization in
1989. Overall, the Federal Reserve's measure of capacity utilization
declined from its peak of 84.3 percent in January 1989 to 83.3 percent by December. Some industries showed larger reductions. For
example, operating rates for iron and steel mills, which reached a



46

peak of 92.8 percent in October 1988, had fallen 14.3 percentage
points by November 1989—probably influenced in part by the slowdown in auto manufacturing. Production in many industries such
as paper, chemicals, rubber, and nonelectrical machinery (which
includes computers) held steady or increased. But in a number of
these industries, firms added capacity even more rapidly, leading to
reduced operating rates.

The Farm Economy
While employing a relatively small fraction of the labor force,
the agricultural sector plays a vital role in the economy. Early in
the 1980s, the U.S. farm economy faced serious economic problems,
but the resurgence of the farm sector since the mid-1980s is providing a sound foundation for the next decade.
The 1989 crop year was generally good, even though inadequate
rainfall in some areas held crop yields somewhat below trend.
Overall production of major commodities was up substantially from
the low levels of the previous year, and net farm income reached a
record $48 billion, up 12 percent from 1988. Land values—the
major component of the farm balance sheet—increased for the
third consecutive year, up 7 percent from 1988.
Farm prices for major crops declined from the peak levels
reached after the 1988 drought, but remained high relative to the
previous several years. Livestock prices stayed firm during the
year. Higher crop prices reduce government payments to farmers.
These payments—boosted by drought-relief payments—remained
high by historical standards, but fell by 24 percent from 1988.
Direct payments to farmers were about $11 billion, or about 6 percent of gross farm income.
Farm trade also improved. Agricultural exports in fiscal 1989 totaled about 148 million tons, were valued at $40 billion, and contributed to an agricultural trade surplus of $18 billion. In fiscal
1986, exports were only 110 million tons, with a value of $26 billion. U.S. market shares of world agricultural trade in fiscal 1990
are projected at 36 percent for wheat and 64 percent for coarse
grains, down slightly for wheat from the previous year and about
the same for coarse grains. In both cases, shares are substantially
higher than in the mid-1980s.

Employment
Expanding production was accompanied by rising employment
levels and a low unemployment rate. Between December 1988 and
December 1989, nearly 2.5 million employees were added to nonagricultural payrolls. Most of this increase, 2.1 million workers, was
on private payrolls.
As mentioned above, output of services grew strongly in 1989,
and employment increases totaling about 1.2 million mirrored this



47

growth. Employment also rose in wholesale trade, retail trade, and
construction. But manufacturing employment was stagnant, reflecting the weak growth of production.
As noted above, the civilian unemployment rate averaged 5.3
percent, its lowest since 1973. Unemployment rates improved for
most major demographic groups, including blacks, women, and
teenagers. The 1989 rate for blacks (11.4 percent) was the lowest
since 1974, while that of Hispanics (8.0 percent) was the lowest
since the series began in 1980. During the 1980s, the gap between
adult male and adult female unemployment rates essentially vanished. In addition, the unemployment rate for teenagers was the
lowest since 1973.
For those who became unemployed, the median duration of unemployment was 4.8 weeks compared to 10.1 weeks in 1983, when
the demand for labor was relatively weak in the wake of the recession. The proportion of unemployed persons who lost their jobs
rather than left voluntarily was 45.7 percent compared with 58.7
percent in 1982.
WAGES AND PRICES
Relatively low unemployment rates implied firm labor market
conditions in 1989. Wage increases were quite low in 1986 and 1987,
partly because of the temporarily low level of inflation. Increases
in labor compensation in 1988 and 1989 were above the lows of
1986 and 1987. Boosted by an increase in Social Security tax rates,
the employment cost index of labor compensation rose 4.9 percent
over 1988, and a slightly lower 4.8 percent over 1989.
Labor compensation costs consist of wages and salaries and benefits. Benefits include items such as employers' health, disability,
and life insurance contributions; contributions to Social Security
and retirement plans; and compensation paid during vacations. The
increase in the wages and salaries component of the employment
cost index rose moderately from 3.1 percent in 1986 to 4.2 percent
in 1989. The increase in benefit costs rose more sharply, from 3.4
percent in 1986 to 6.8 percent in 1988, and declined slightly to 6.1
percent for 1989. Nearly all of the acceleration in benefit costs can
be traced to rising health insurance premiums.
Inflation remained moderate in 1989. The "core" CPI—a measure that excludes volatile food and energy prices—rose 4.4 percent,
compared with 4.7 percent in 1988. (The CPI is a broad measure of
the cost of a market basket of goods and services purchased by a
typical urban consumer.) Within the CPI, costs of medical care increased sharply. Prices for shelter—a major part of household
budgets—rose more moderately, as did apparel prices.
Consumer food and energy prices rose sharply over the early
part of the year, owing to the 1988 drought and to higher oil prices.



48

Over the first 6 months of 1989, consumer prices for gasoline rose
at an annual rate of about 44 percent. Later in the year the situation in agricultural and energy markets improved considerably.
From July to December, consumer gasoline prices fell 21 percent.
Including food and energy prices, the CPI increased 4.6 percent, essentially the same as the pace in 1988.
Movements in the finished goods producer price index—a measure of the costs of domestic goods used as inputs by businesses—
were also dominated by developments in food and energy markets.
During the first quarter, prices of finished foods jumped 13.1 percent at an annual rate, following a 5.7-percent rise during 1988.
These striking increases stemmed mainly from even larger 14.2percent increases in food prices at the crude materials level during
1988 and 16.9-percent increases during the first quarter of 1989, as
the severe drought during 1988 curtailed food supplies. Over the
following two quarters, however, prices of crude food materials declined steeply as a rebound in farm production began to show
through in market prices, and finished consumer food prices declined
in response.
Producer prices for finished energy products rose 36.3 percent at
an annual rate over the first half of 1989. This increase stemmed
in part from a reduction in production by the Organization of Petroleum Exporting Countries; from disruptions of production and
distribution caused by the oil spill in Alaska, a refinery fire in California, and an accident on a North Sea oil rig; and from rising
world demand. These events led crude oil prices to rise at an
annual rate of 33 percent between January and June. Between
June and December, however, producers' finished energy prices declined 12.1 percent at an annual rate, reflecting a 13.9-percent fall
in crude prices.
SUMMARY OF 1989
The economy's continued expansion in 1989 set the stage for
sound economic performance in the 1990s.
• Real GNP grew for the seventh straight year in 1989, and inflation remained under control.
• Nearly 2.5 million jobs were created, and the unemployment
rate was at its lowest level since 1973.
• Fiscal policy during 1989 reflected efforts to reduce the Federal
budget deficit. The trend toward slower growth of real Federal
spending continued, and was bolstered by the sequester during
the fourth quarter.
• After tightening early in 1989, monetary policy eased over the
second half of the year in response to signs of sluggish growth
and lower inflation.



49

• The composition of GNP growth was favorable, with less rapid
increases in consumption and government spending, maintained growth of investment spending, and continued improvement in external balances.
• Economic conditions varied somewhat by sector. While the
manufacturing sector experienced a slowdown, the farm economy maintained steady improvement and services continued to
boom.

THE ECONOMIC OUTLOOK
The U.S. economy is expected to grow at a sustainable pace
through 1990, and over the long run the potential for solid growth
remains excellent. Assessments of the future inevitably rely heavily on historical experience, and a casual reading of the postwar experience may suggest that the very length of the current expansion
implies that it must come to a close. A closer look at the historical
record, however, shows that an economic expansion does not come
with an expiration date.

WHY THE EXPANSION IS EXPECTED TO CONTINUE
Studies show that as an expansion continues, a recession does
not automatically become more likely. Put differently, the probability of a recession starting during any given month does not rise as
the period of expansion lengthens.
In the postwar period, rapidly accelerating inflation has often
preceded economic downturns. When inflation becomes intolerable,
politically or economically, there is little choice but to tighten monetary policy, which typically brings on a recession. Inflation accelerated in the years before the longest expansion in U.S. history
ended in the 1970 recession. Inflation also accelerated before the
1974-75 recession. In the late 1970s, inflation rose to 14 percent
over the 12 months immediately prior to the back-to-back recessions in the early 1980s. High inflation is not only bad per se, but
can be very costly to reduce. Avoiding an acceleration of inflation,
such as that which led to the recessions of 1981 and 1982, is an essential element of sound economic policy.
In marked contrast to all other expansions in postwar U.S. history, inflation in the current expansion has remained moderate and
has not accelerated. The costs of relatively steady inflation around
4 percent are far below those imposed by the inflation of a decade
ago, which averaged 9.6 percent, fluctuated widely, and reached a
monthly peak of 18.6 percent. Nonetheless, the lower the inflation
rate, the smaller is the risk of inflation rising to unacceptable
levels. Hence, over the long run, further progress toward price sta


50

bility is desirable. The containment of inflation is a key factor in
the Administration forecast for continued expansion in the 1990s.
The economy is inevitably subjected to a variety of unanticipated
events such as changes in foreign demand, rapid swings in financial markets, or abrupt movements in oil prices. However, these
events may have less effect on economic activity today than in the
past. The service industry is typically less susceptible to such
shocks, and services have grown in importance in the U.S. economy. In addition, U.S. industry has moved to a lower inventory-sales
ratio, a move that lessens the likelihood that a large inventory
overhang will transform shocks into a sustained downturn. Finally,
deregulation in areas such as energy markets has raised the potential to produce, but may also reduce the impact of shocks on the
U.S. economy by permitting markets to reallocate economic activity more swiftly.
A final factor in ending expansions has been errors in economic
policy. Because policy operates with a lag and the economy is hard
to forecast, some misjudgments are unavoidable. The Administration's principle of systematic and credible fiscal and monetary policies is designed to minimize these policy mistakes by not changing
policy frequently on the basis of the economic conditions of the
moment or any short-run forecast. To do so would invite and perhaps guarantee costly errors. Instead, the goal of policy is to provide a stable environment that will foster strong economic performance over the long haul.
THE OUTLOOK FOR FISCAL AND MONETARY POLICIES
The Administration's primary economic policy goal is to promote
further growth. Containing and eventually reducing inflation is
key to achieving this goal. It is not sufficient merely to avoid a recession. Administration policies seek to remove impediments to
more rapid growth. Faster growth carries with it expanded employment opportunities, an improved atmosphere for the creation of
new business, and the means for society both to meet its obligations in the present and to provide for future generations.

Fiscal Policy
The projections presented below are contingent upon the successful
implementation of the President's proposed policies. Economic growth
will continue to raise Federal receipts and lower the budget deficit.
However, it is essential that continued restraint on the growth of
Federal spending permit the deficit to decline, leading to a balanced
budget in fiscal 1993 and to a reduction in the national debt
thereafter. In the near term, the Administration expects real Federal purchases of goods and services to fall by 2.7 percent in calendar
1990 (Table 2-2). Purchases of both defense and nondefense goods
and services are expected to drop by roughly the same percentage
amount.
51



nomic growth will continue to raise Federal receipts and narrow
the budget deficit.
TABLE 2-2.—Economic Outlook for 1990
1990 Forecast

1989 *

Percent change, fourth quarter to fourth quarter
Real gross national product

2.4

2.4
4.2
5.1
-2.7
2.0

3.8
4.5
5.5
0.7

GNP implicit price deflator
Consumer price index2
Compensation per hour3
Output per hour3

2.6

2.3
4.3
-6.1
-3.0
2.5

Personal consumption expenditures
Nonresidential fixed investment
Residential investment
Federal purchases of goods and services
State and local purchases of goods and services

4.2
4.1
5.8
1.6

Fourth quarter level
Unemployment rate (percent)4
Housing starts (millions of units annual rate)

5.3
1.3

5.4
1.5

1

Preliminary
For urban wage earners and clerical workers.
Nonfarm business, all persons.
4
Unemployed as percent of labor force including resident Armed Forces.
Note.— Based on seasonally adjusted data.
Sources: Council of Economic Advisers, Department of the Treasury, and Office of Management and Budget.
2

3

Recent developments in the Soviet Union and Eastern Europe
have led some to conclude that it will be possible to spend far less
on national defense. It is difficult to ascertain the potential size of
such a "peace dividend" at this time. Real spending for national
defense has already fallen 4.5 percent over the past 2 years. The
Administration's fiscal 1991 budget projects that real defense spending will decline by 12.5 percent between fiscal 1989 and fiscal 1993.
The President has already proposed reductions of $64 billion in
budget authority and $29 billion in outlays over the next 3 years,
relative to previously approved levels. Any further reduction can
come only after a careful evaluation of the impact of current
political events on our national security. If world events, negotiations for troop reductions, and progress in limiting strategic weapons
permit, the size of the peace dividend could become substantially
larger over time. Regardless of its size, any such peace dividend
should be used wisely and with careful consideration of the Nation's
domestic and foreign policy priorities. It should not be used to fuel
large increases in entitlement programs, as occurred after the war in
Vietnam. The President has made clear that the first priority use of
any peace dividend is to reduce the Federal budget deficit.
In the longer term, it is desirable to do more than just reduce
deficits. The Administration's proposed Social Security Integrity
and Debt Reduction Fund is designed to guarantee that future consolidated annual Federal budget surpluses will not be used to in-




52

crease government spending, but instead will be dedicated to reducing the national debt. Moving away from deficits toward Federal
saving will raise the low rate of national saving, lower interest
rates, and increase capital formation. A credible commitment to reduced Federal borrowing will hasten the reduction in interest rates
and the increase in investment.

Monetary Policy
The outlook for the economy depends in part on recent and projected monetary policy. Over the second half of 1989, the Federal
Reserve eased the stance of monetary policy in view of signs of
slower economic growth and reduced inflationary pressures. The
lower interest rates that resulted from this easing should help to
cushion the slowing in spending that became evident in 1989.
In July, the Federal Reserve announced provisional target
ranges for growth during 1990 of 3 to 7 percent for M2, 3V2 to 7l/2
percent for M3, and 6V2 to'10% percent for domestic nonfmancial
sector debt. These provisional ranges are identical to the ranges for
1989. The Federal Reserve noted that, in view of various economic
and financial uncertainties, it was unsure whether the velocities of
M2 and M3—the ratios of GNP to these aggregates—were more
likely to rise or fall in 1990. The Federal Open Market Committee
(FOMC) will review these provisional ranges, and is expected to announce its decisions on the 1990 ranges in February 1990.
The FOMC will need to consider several factors. First, the Federal Reserve regards reasonably stable prices as a prerequisite to
achieving its goal of maximum sustainable economic growth. Longrun price stability will require that the targets for money growth
be gradually reduced in future years.
Second, short-run velocity developments are likely to differ considerably from the longer run trends. Given the substantial declines in market interest rates over 1989 and the associated fall in
the opportunity cost of holding money balances, M2 velocity is
likely to decline substantially into 1990. If, as the Administration is
forecasting, interest rates drop further this year the decline in velocity may be accentuated, thereby requiring higher M2 growth to
achieve the expected growth in nominal GNP. For M3 velocity,
these interest rate effects could be offset somewhat by a reduction
in managed liabilities in the thrift sector, as insolvent institutions
are closed by regulators, and if other thrifts continue to expand their
balance sheets slowly in order to comply with new capital requirements.
The forecast of expected nominal GNP growth of about 7.0 percent, expected lower interest rates, and any such decline in M2 velocity implies that M2 could exceed its provisional target range in
1990. If developments since July suggest that a significant decline
in M2 velocity is likely in 1990, the FOMC could choose to raise its




53

target range. It may be reluctant to do this, however, because it
may lead to misperceptions of the Federal Reserve's long-run intentions with regard to money growth and price stability. If the FOMC
leaves the range unchanged, but economic and financial conditions
develop according to the Administration's forecast, the higher
demand for money could lead the FOMC to allow M2 to exceed its
target range during 1990; if so, growth in the money stock should
be slower in succeeding years as velocity returns to its long-run average. The Federal Reserve Act does not require the Federal Reserve to keep money growth within a year's target ranges if changing circumstances lead it to conclude that doing so is undesirable.
In such a case, the Federal Reserve would be required to explain
the reasons for its determination.
In any event, the Administration anticipates that monetary
policy will continue to support economic growth with progress
toward reduced inflation. The Administration's program to reduce
deficits and raise government saving will complement the Federal
Reserve's efforts by fostering lower real interest rates, which will
help maintain economic growth while progress is made toward
price stability.
THE PROSPECTS FOR GROWTH
The Administration's projections call for continued healthy economic growth and high levels of resource utilization, with inflation
low and declining in later years. Economic policies and developments during 1989, particularly the containment of inflation, have
set the stage for continued strong growth.
The Outlook for 1990
The Administration anticipates a 2.6-percent increase in real
GNP from the fourth quarter of 1989 to the fourth quarter of 1990,
somewhat faster than the drought-adjusted 1.9-percent increase in
1989 (Table 2-2). The transition from 1989 to 1990 has been affected
by a number of disruptive events. During September, Hurricane
Hugo battered South Carolina and in October the Loma Prieta
earthquake struck northern California. In addition, the second
longest strike in the history of The Boeing Company halted work
from October 4 to November 22. Exceptionally cold weather in December may also have reduced economic activity.
On balance, these events temporarily slowed growth, with estimates indicating that the Boeing strike alone subtracted nearly
one-half percentage point from fourth-quarter growth in real GNP.
The return of production to normal levels will temporarily raise
GNP growth in the first quarter of 1990. In addition, the rebuilding
of both government and private structures in the aftermath of the
disasters may spill over into 1990 and increase the level of GNP.



54

These effects notwithstanding, growth is expected to be relatively
slow early in 1990 and then is expected to gain momentum later in
the year. In the past, there have been several times when the economy slowed, then picked up and continued to grow for a substantial
time; examples include 1966-67 and 1985-86.
The lagged effects of tight monetary policy early in 1989 are expected to spill over into the first half of 1990. But interest rates
have been declining since the spring of 1989 and are anticipated to
decline further. This decline is expected to contribute to the pickup
in economic growth in 1990. As a result, the consumer durables
and residential construction sectors are projected to rebound from
weak patterns at the end of 1989. Fiscal restraint, in response to
the need for deficit reduction, and a slowing in the increase of real
net exports will tend to moderate growth in 1990.
The projected rate of increase of real consumer purchases from
the fourth quarter of 1989 to the fourth quarter of 1990 is 2.4 percent (Table 2-2). Inflation for consumer purchases was lower in the
second half of 1989, and increases in personal income have been
strong. These factors are expected to support growth in consumer
demand in 1990.
The projection calls for a 5.1-percent increase in residential investment in 1990, following a 6.1-percent decline in 1989. The decline of mortgage interest rates in the second half of 1989 has increased housing affordability. Further declines in interest rates
and a rebound from slow housing production in 1989 are expected
to stimulate housing construction in 1990. Housing starts are projected to average 1.5 million units at an annual rate by the fourth
quarter of 1990.
The growth of nonresidential fixed investment spending in 1990
is expected to be about the same as the pace of 1989. Capacity utilization rates are anticipated to remain relatively high and the need
for further capacity will continue to stimulate growth in investment, particularly for equipment. While still high, however, utilization rates fell during 1989. This fall, coupled with weak corporate
profits in 1989, is expected to have a damping effect on the demand
for capital goods. As Table 2-2 shows, real nonresidential fixed investment is expected to grow 4.2 percent in 1990, compared with
4.3 percent in 1989.
Inventory investment, after contributing to real GNP growth in
1989, is not expected to add to growth in 1990. The contribution in
1989 was driven mainly by a replenishment of farm stocks following the drought and partly by accumulation of inventories in the
fourth quarter, particularly for motor vehicles. Farm inventory investment is expected to be much more modest in 1990. Furthermore,
slower production aimed at reducing a fourth-quarter nonfarm
inventory buildup is expected to contribute to modest growth in



55

early 1990. By year end, nonfarm inventory accumulation may still
be below levels at the end of 1989.
State and local government purchases of goods and services are
projected to increase 2.0 percent in 1990, somewhat slower than the
pace of 1989. As discussed above, real Federal purchases of goods
and services are projected to decline in 1990, reflecting a continued
commitment to deficit reduction.
As in 1989, improvements in real net exports are expected to be
smaller and more gradual over the near term, relative to the strong
gains in 1987 and 1988. After falling for several years, the foreign
exchange value of the dollar has increased slightly over the last year,
and the growth rate of economies abroad is expected to decline
modestly over the near term. Nevertheless, as the result of improved
U.S. competitiveness in world markets since 1985, net exports are
expected to continue to contribute to real GNP growth.
The CPI is projected to increase 4.1 percent between the fourth
quarter of 1989 and the fourth quarter of 1990, while the GNP deflator is projected to increase 4.2 percent. These rates are similar to
rates of inflation in recent years, excluding food and energy. In line
with moderate real growth, little change is expected in the rate of
capacity utilization and the rate of unemployment. This will reduce
upward pressure on prices caused by sectoral capacity bottlenecks
and tightening labor markets. Sharply rising and then falling
prices for energy and food helped explain much of the acceleration
and deceleration in inflation in 1989. Increases in these prices are
expected to be modest over the near term.
Economic projections are, of course, characterized by uncertainty. The Administration was fortunate that its first official forecast
(that accompanying the 1989 Mid-Session Review of the Budget)
was quite accurate for 1989. Nevertheless, it must be emphasized
that forecasting is an imprecise science. Unanticipated events with
economic consequences, such as the hurricane and earthquake in
1989, occur from time to time. In addition, the reactions of businesses and households to changes in economic conditions or policies
may shift over time. Thus, the current forecast inevitably involves
uncertainties. For example, business investment, housing demand,
and the improvement in international trade may be weaker than is
currently projected. On the other hand, consumption growth could
be stronger in 1990.
Such uncertainties are illustrated in the alternative projections
presented in Table 2-3. The alternatives show somewhat stronger
and somewhat weaker real growth, each with plausible associated
paths for unemployment, inflation, and interest rates. Real growth
in the lower path in 1990 is similar to the slowdown in 1986. The
higher path shows real growth improving from the slow rate of
1989 to the faster pace of 1987 and 1988.



56

TABLE 2-3.—Effects of Alternative Projections on the Budget
Calendar Year 19901

Calendar Year 1991 »

Percent change,
fourth quarter to fourth quarter
Real gross national product:
3.0
2.6
1.9

3.4
3.3
3.0

4.4
4.2
4.0

Higher growth
Administration
Lower growth

4.3
4.1
4.1

GNP deflator:
Higher growth
Administration
Lower growth

Percent
Total unemployment rate:
5.1
5.4
5.6

5.0
5.3
5.4

6.9
6.7
6.5

Higher growth
Administration
Lower growth

5.7
5.4
5.5

Interest rate, 91-day Treasury bills:
Higher growth
Administration
Lower growth

...

Billions of dollars
Budget deficit:
Higher growth
Administration
Lower growth

118.5
123.8
129.1

54.6
63.1
77.5

1
Deficit is for fiscal year.
Sources: Council of Economic Advisers, Department of the Treasury, and Office of Management and Budget.

The evolution of the budget deficit is significantly affected by
economic conditions. Hence, uncertainty in the economic forecast
leads to uncertainty in the budget projections. The impact of each
alternative path for economic conditions on the budget deficit is
also shown in the table. The cumulative effect by fiscal 1991 ranges
from a $14.4 billion increase in the deficit for the lower growth alternative to an $8.5 billion reduction under the higher growth alternative.
The Outlook Through 1995
Table 2-4 summarizes the Administration's medium-term economic projections through 1995. As the table shows, GNP growth
between 1991 and 1993 is projected to be above 3 percent as the
economy moves toward full utilization of its resources. Thereafter,
the growth rate is expected to stabilize at around 3.0 percent,
roughly equal to the economy's projected growth potential. Real
compensation per hour is projected to rise in line with productivity
growth at a rate of 1.8 percent per year. Inflation (as measured by
the CPI) and interest rates on 91-day Treasury bills are projected to
decline gradually from current levels, with real (inflation-adjusted)
interest rates returning to levels closer to their historical averages.



57

These sustained declines in inflation and interest rates depend
upon the Administration's systematic and credible macroeconomic
policies, particularly those to eliminate the Federal budget deficit
and then to reduce the national debt (Box 2-2).
TABLE 2-4.—Administration Economic Assumptions, 1989-95
19891

1990

1991

1992

1993

1994

1995

Percent change, fourth quarter to fourth quarter
Real GNP

2.4

2.6

3.3

3.2

3.1

3.0

3.0

Real compensation per hour2

.9

1.7

1.9

1.8

1.8

1.8

1.8

Output per hour2

.7

1.6

1.9

1.8

1.8

1.8

1.8

Consumer price index3

4.5

4.1

4.0

3.8

3.5

3.2

2.9

Interest rate, 91-day Treasury bills (percent)4

8.1

6.7

5.4

5.3

5.0

4.7

4.4

119.0

120.2

122.0

123.7

125.5

127.3

128.9

5.2

5.4

5.3

5.2

5.1

5.0

5.0

Annual level

Employment (millions)5
Unemployment rate (percent)6
1

Preliminary.
Nonfarm business, all persons.
For urban wage earners and clerical workers.
Average rate on new issues within period, on a bank discount basis.
5
Includes resident Armed Forces.
6
Unemployed as percent of labor force including resident Armed Forces.
Sources: Council of Economic Advisers, Department of the Treasury, and Office of Management and Budget.
2

3

4

The U.S. economy begins the decade of the 1990s at relatively
high levels of resource utilization. Thus, unlike earlier years in the
expansion, growth cannot rely heavily on fuller utilization of existing resources. Instead, future growth in the economy depends upon
growth of resources and improvements in the economy's ability to
produce.
Growth in output is the result of growth in the work force and
improvements in labor productivity. Productivity growth, in turn,
follows from increases in the quality of the work force, advances in
the quality and quantity of the capital stock, and technological
progress.
Growth in the labor force is the result of growth in the population and increases in the rate of labor force participation. Following the passage of the baby-boom generation into adulthood,
growth of the population aged 16 and over is projected to slow in
the 1990s. Population growth from 1989 to 1995 is projected to average 0.9 percent per year, down from slightly over 1 percent in the
1980s and nearly 2 percent in the 1970s (Table 2-5).
The changing demographic composition of the population affects
participation rates. Overall participation rates in the 1970s were
raised by the strong upward trend in the involvement of women
and teenagers in the labor force. Continued strong participation increases by women furthered the rise in overall participation in the
1980s. Growth in the participation rate for women is projected to



58

Box 2-2.—Policy Credibility and the Economic Projections
Credible macroeconomic policies are a key to the Administration's projection of solid growth in the 1990s with gradually
declining inflation. The success in containing inflation through
7 years of economic expansion has helped to build this credibility. The interest rate projections are influenced by the Administration's commitment to reducing the Federal budget deficit
to zero in 1993 and dedicating projected future surpluses thereafter to reducing the national debt* Hie Federal Government's
commitment to reduced borrowing in the future is expected to
ease pressure on interest rates, Similarly, the Federal Reserve's continued commitment to move toward price stability is
expected to help keep wage increases in line with productivity
gains by reducing the expected inflation component of wage decisions.
There is no inconsistency in projecting continued low unemployment and declining rates of inflation. The idea that there
is a simple, stable, and permanent tradeoff between inflation
and unemployment does not accord with modern maeroeconomic theory, which emphasizes the importance of expectations, or with historical experience. In the 1970s, inflation and
unemployment were high, while in the 1980s, the opposite occurred—inflation and unemployment were relatively low. The
United States and other economies are capable of sustaining
growth, achieving low unemployment, and controlling and re*
ducing inflation simultaneously* The notion that the only way
to keep inflation in check is to run a slack economy with relatively high unemployment and excess capacity is incorrect
The potential gains from credible policies are discussed more
fully in Chapter 3.
slow somewhat in the 1990s, but this is expected to be offset by
slower declines in the participation rates of older workers. As a
result, growth of the overall participation rate is projected to average 0.4 percent per year through 1995, just below the average
growth rate experienced since 1973.
The net effect of slower population growth and roughly unchanged growth in the rate of participation is slower expected
growth of the labor force. Between 1989 and 1995, the projections
show a 1.3-percent annual rate, down from 1.7 in the 1980s and 2.4
percent in the 1970s. With little anticipated change in the unemployment rate through 1995, employment is expected to grow at
roughly the same rate as the labor force.




59

TABLE 2-5.—Accounting for Growth in Real GNP, 1948-95
[Average annual percent change]
1948 IV
to
1981 III

1973 IV
to
1981 III

1981 III
to
1989 III

1989 III
to
1995 IV

GROWTH IN:
1) Civilian noninstitutional population aged 16 and over
2) PLUS: Civilian labor force participation rate

15

18

1.1
.5

0.9
.4

3) EQUALS: Civilian labor force
4) PLUSCivilian employment rate

1.8
1

_ 4

2.4

1.7
3

1.3
0

5) EQUALS: Civilian employment
6) PLUS:
Nonfarm business employment as a share of civilian employment

1.7

2.0

2.0

1.4

.1

.1

.3

.3

7) EQUALS* Nonfarm business employment
8) PLUS*
Average weekly hours (nonfarm business sector)

17

21

2.2

o

1.7

9) EQUALS- Hours of all persons (nonfarm business)
10) PLUSOutput per hour (productivity nonfarm business)

1.3
20

1.4
7

2.2
14

1.6
18

11) EQUALS: Nonfarm business output
12) LESSNonfarm business output as a share of real GNP

3.3
-.0

_1

2.0

3.7
.6

3.4
.4

33

22

3.1

3.0

4

13) EQUALS- Real GNP

7

1

Note.—Time periods for the first two columns are from business cycle peak to business cycle peak to avoid cyclical effects.
Sources: Council of Economic Advisers, Department of the Treasury, and Office of Management and Budget.

The productivity of each worker depends upon the skills generated by his or her training and experience, the technical sophistication of production, and the capital resources available to each
worker. Following slow growth for most of the 1970s and early
1980s, productivity for the nonfarm business sector of the economy—which makes up four-fifths of GNP—is projected to increase
at a 1.8-percent average annual rate through 1995. This rate is
identical to growth during the years 1986-88, represents a rebound
toward the 1.9-percent average for the period from 1948 through
the third quarter of 1989, and contrasts with growth of only 0.7
percent for the 1970s and early 1980s.
Real investment spending has been strong from 1987 through
1989, contributing to an increase in the ratio of capital to labor,
which will aid labor productivity. A stable, growing low-inflation
economy provides a climate conducive to capital formation. Maintaining a low rate of inflation and low tax rates keeps the cost of
capital low and the return to capital investments high. The accumulation of capital will also be aided by expected stable energy
prices, which will allow firms to continue to focus on productivityenhancing, rather than energy-conserving, capital equipment.
Slower growth of the labor force and employment will also contribute to a higher capital-to-labor ratio.
Real GNP growth is expected to average 3.0 percent between
1989 and 1995. Despite expected slower growth of the labor force,
continuing strong productivity growth is projected to contribute to
output growth averaging 3.4 percent a year in the nonfarm business sector of the economy. Because growth is projected to be
slower in the government and other sectors than in the nonfarm



60

business sector, total real GNP is expected to grow at a slightly
slower rate.

SUMMARY OF THE OUTLOOK
• Administration policies and events are setting the stage for
economic growth continuing in 1990 and later years. The containment of inflation in 1989 is a key factor in the Administration's forecast of continued expansion in 1990 and beyond. Periods of rapidly accelerating inflation are often followed by economic downturns.
• The goal for fiscal policy will be to continue to reduce government borrowing. Reduced deficits through 1993 and reduction of
the national debt thereafter would contribute to lower interest
rates, increased capital formation, and stronger growth.
• Monetary policy eased over the second half of 1989, lowering
interest rates. Given the lags in the effects of monetary policy,
this is likely to help some interest-sensitive sectors to rebound in
1990. Over the longer term, monetary growth is expected to be
consistent with the Federal Reserve's goal of strong noninflationary growth.
• The Administration anticipates a 2.6-percent increase in real
GNP in 1990, on a fourth-quarter-over-fourth-quarter basis,
and lower inflation.
• Over the longer term, the Administration anticipates real
growth in GNP at a rate of 3.0 percent per year, with continued progress in reducing inflation.

CONCLUDING COMMENTS
As the U.S. economy moves into the eighth year of growth, there
is a strong basis for continued expansion in the 1990s. The Administration's goal is not simply to avoid recessions and extend the expansion. The goal is to sustain growth at a sufficiently strong pace
to provide rising real incomes, expanding employment opportunities, and additional resources to address the needs and wants of the
American people.
As described in detail in the next chapter, systematic and credible monetary and fiscal policies are essential for strong future
growth and reduced inflation. The conduct of these policies should
be governed by the goal of enhancing long-run performance, not by
an exclusive focus on short-term outcomes, which would raise the
likelihood of policy errors.




61




CHAPTER 3

Design of Fiscal, Monetary, and
Financial Policies
MONETARY AND FISCAL POLICIES have powerful effects on
the economy. It is essential that they be well-designed. These macroeconomic policies are powerful in part because they affect interest rates and exchange rates and thereby influence the willingness
of households and businesses, both foreign and domestic, to purchase goods and services produced in America. These purchases
translate into production, jobs, and income for Americans. Tax
rates are among the most important determinants of incentives for
saving, investment, and work effort. The government's policies
toward financial markets significantly affect the stability of the
economy and its ability to allocate capital efficiently.
The Administration's goals for macroeconomic policy are maximum sustained economic growth, economic stability, and low,
stable inflation. Historical experience, both in the United States
and abroad, has demonstrated that well-designed monetary and
fiscal policies can help achieve these goals. But misguided policies
can wreak havoc with the economy, by reducing its productivity,
creating uncertainties that make planning for the future difficult
or impossible, driving up inflation, and reducing standards of
living.

THE DESIGN OF MACROECONOMIC POLICY
The power of monetary and fiscal policies to affect the economy
has led some to advocate discretionary policymaking, with frequent
changes in policy instruments, such as tax rates or expenditure
programs, to influence near-term economic conditions. Indeed, a
strong endorsement of discretionary policy was eloquently put
forth in the 1962 Annual Report of the Council of Economic Advisers as a way to achieve the goals of the Employment Act of 1946—
"maximum employment, production, and purchasing power." That
Report argued that "discretionary policy is essential" and recommendations constituting a "far-reaching innovation in discretionary fiscal policy" were made.
In contrast, recent economic research and practical experience,
while supporting the view that macroeconomic policy has powerful



63

effects, lead to the conclusion that discretionary macroeconomic
policies can be detrimental to good economic performance. Instead,
policies should be designed to work well with a minimum of discretion, with a clear focus on the longer term, and with allowance for
future contingencies. Government should credibly commit to follow
such policies consistently. As argued below, this approach to policy
design can best achieve the Nation's economic goals.
ADVANTAGES OF SYSTEMATIC POLICIES
In its extreme form, discretionary policy involves frequently reacting to short-term developments, with little attempt to consider
and communicate intentions for future actions. Such a shortsighted
policy approach gives little weight to the benefits of outlining a
contingency plan and committing to that plan. For this reason, discretionary macroeconomic policies can actually be counterproductive. Most businesses and many households are forward-looking; expectations of future tax rates, inflation rates, and government
spending programs affect their decisions. Frequent unanticipated
government actions cause uncertainty for the private sector and
interfere with long-term business and household planning.
Without commitment to a clear plan, strong incentives exist to
change policies in an attempt to achieve short-term gain. Economists refer to this incentive as "time inconsistency," because policymakers have a natural incentive to alter previously adopted
policies or to follow "inconsistent" policies. Such policy changes
can have detrimental long-term effects. For example, programs of
fiscal stimulus can lead, over time, to long-run government spending that exceeds the level implied by an assessment of the costs
and benefits of the programs themselves. Analogous problems exist
for monetary policy. For example, an incentive exists to employ
short-term monetary policy to boost output above sustainable
levels. Such actions can lead to increased inflation over a longer
term. Because inflation takes more time to develop than the rise in
economic activity, it may not be adequately taken into account in
the public policy process.
The drawbacks to discretionary policy go beyond these disadvantages. Experience has shown that the ability of discretionary macroeconomic policies to move the economy in the right direction at
the right time is quite limited. First, assessing the current state of
the economy is difficult because economic data are subject to appreciable errors and are generally available only after a considerable lag. Second, economic forecasting is difficult and quite imprecise, limiting the ability of policymakers to anticipate swings in the
economy. Third, even if economic fluctuations are forecast correctly, determining the appropriate policy measures is difficult because
the economy responds somewhat unpredictably to changes in fiscal



64

and monetary policy. Finally, lags between a policy action and its
ultimate effect on the economy imply that timely implementation
of a discretionary change in policy frequently may not be possible.
To be sure, discretionary policy changes might partly offset unusually large and sustained economic fluctuations. But, in general, the
ability of discretionary macroeconomic policies to contribute to economic stability is quite limited.
The alternative to discretionary policies might be called systematic policies. A systematic policy specifies, as clearly as possible, a
plan for the instruments of policy, be they the Federal budget, the
growth rate of the monetary aggregates, or tax rates. For a systematic policy to improve economic performance, it must of course be
well designed. In some cases a systematic policy might be very simple
and specific, such as a promise not to raise marginal tax rates or a
law that sets a target for the budget deficit for several years into
the future. In the 1960s and 1970s, a rule that specified a fixed
growth rate of the money supply was proposed and might have
been appropriate; changes in the financial sector in the 1980s, however, have rendered such a simple rule unworkable. In other cases
it is appropriate and possible to specify contingencies for future
policy actions, such as indexing tax brackets for inflation according
to a numerical formula, or stating the conditions under which a
budget target could be suspended.
However, the concept of a systematic policy is much broader
than a simple or even complex numerical formula for policy. In
some cases it may not be possible to be so precise about a policy
plan or its contingencies, and some judgment in interpreting or implementing the plan is necessary. Even in such cases, a systematic
policy has significant advantages over a discretionary policy if it
places some discipline or general guidelines on future changes in
the policy instruments, and if policymakers commit to this discipline. Moreover, even the most carefully designed systematic policies may need to be revised occasionally in view of significant
changes in economic structure.

IMPORTANCE OF CREDIBILITY
Economic research and policy experience have led to a growing
awareness of the importance of the credibility of policymakers to
carry out a stated policy. Various definitions of policy credibility
have been offered, but the following seems most useful: an announced policy is credible if the public believes that it will be implemented, and acts on those beliefs even in the face of occasional
contradictory evidence. Policy credibility is not an all-or-nothing
concept, and in many situations credibility can only be achieved
gradually.



65

Policy credibility will often lead to economic performance that is
superior to that in which policy is not credible. The more credible
the policy, the more likely it is to improve performance. A credible
disinflation plan initiated by the monetary authorities will bring
down inflation more quickly and with less chance of recession than
a plan with little credibility. For example, a billion-dollar stabilization fund for Poland, recently established by a group of industrial
economies, is designed to lend credibility to the Polish disinflation
plan by providing financial backing to help the Polish government
stabilize the exchange rate. This will reinforce other policies to
reduce inflation and promote external trade.
In addition, credibility can help resolve problems arising from
unpredictable shifts in the structural relationships between the
policy instruments and the state of the economy. Such changes can
make it quite difficult for the public to assess the appropriateness
of macroeconomic policies when the policy rules are complicated. If
the public is confident that appropriate policies are being followed,
households and businesses can plan for the future, which promotes
saving, investment, and economic growth.
A NEW RULE FOR FISCAL POLICY
Since the mid-1980s, fiscal policy in the United States has been
guided by the Gramm-Rudman-Hollings law, which has served as a
fairly systematic rule for budget policy. As part of the fiscal policy
agenda for 1990, the Administration is proposing an innovative
new rule for fiscal policy, one that would be an unprecedented step
in U.S. fiscal policy. The proposed new Social Security Integrity
and Debt Reduction Fund would ensure that projected future surpluses in Social Security are not spent for other purposes, but
rather are used to build reserves needed to help provide Social Security benefits in the future. As discussed in detail below, payments
into the fund would be used to reduce government debt and decrease the legacy of deficit spending passed on to future generations. This policy rule would also increase the supply of savings,
lower interest rates, and increase resources in the future. Committing such a strong rule to law will increase the credibility of the
policy, which will speed up the reduction in interest rates and
more quickly enhance investment and economic growth.

FISCAL POLICY
The spending and revenue activities of the government comprise
its fiscal policy. In fiscal 1989 (October 1988 to September 1989)
total outlays of the Federal Government for purchases of goods and
services, transfer payments, grants, and interest payments amounted to 22.2 percent of gross national product (GNP). Tax and other



66

receipts were 19.2 percent of GNP, with a resulting budget deficit
of 2.9 percent of GNP. Receipts were the same fraction of GNP in
1989 as they were 10 years before, but outlays were up by 1.6 percent of GNP over the same period. The sheer size of the Federal
sector suggests that fiscal policy can shape aggregate economic activity, for the better or worse. Focusing only on the impact of fiscal
policy on the level of GNP, however, understates the importance of
fiscal policy.

THE IMPACT OF THE INSTRUMENTS OF FISCAL
POLICY
Fiscal policy affects the economy in several ways. Government
purchases of goods and services are a direct use of the productive
resources of the economy, and change prices, profits, and the allocation of capital and labor. Taxes, transfer payments, borrowing,
and interest payments shift funds among individuals and over
time, and thereby alter incentives for work, saving, and investment. For example, income-support programs affect both the distribution of purchasing power and incentives to work. In some circumstances—for example, by reducing barriers to saving—this
power of fiscal policy can improve economic performance. But
poorly designed policies, such as a tax system with high marginal
rates, reduce incentives for productive activity and lower the
growth of national income.
In the short run, changes in government spending and revenues
can significantly affect total output in the economy. For instance,
increases in Federal consumption of goods and services directly
boost the demand for firms' output. In the short run, firms meet
this demand by producing more. But because government purchases do not increase the total productive resources in the economy, the increase will eventually diminish. After a period of time,
prices begin to increase or increase more rapidly. Higher interest
rates reduce domestic demand, and purchases by the private sector
fall. The reduction in private purchases will occur primarily in interest-sensitive areas such as investment, and some types of investment may suffer more than others. As interest rates rise, exchange
rates also rise, reducing demand for exports and raising demand
for imports. The effects of the increase in government purchases
are offset by the decline in investment and net exports. Over the
longer term, the decline in investment in turn reduces the productive potential of the economy.
Conversely, decreases in government spending can slow growth
of total demand in the short run. For example, a reduction in government spending lowers the demand for goods and services. But
again, this decline is short-lived. Soon investment and net exports
will increase, offsetting the reduction in government purchases,



67

and in the long term the higher level of investment will increase
potential GNP.
Short-run changes in taxes paid by households have effects similar to changes in government purchases. To the extent that households do not save the extra funds available after a tax cut, their
increased spending boosts the demand for goods and services. These
increases in demand will raise production by firms and increase
overall employment. Again, in the absence of an increase in the
productive capacity of the economy, these increases will be shortlived.
Permanent reductions in tax rates are far more likely to expand
long-run productive capacity than is a one-time tax rebate or
credit. Reducing the tax-induced distortion of decisions to work,
save, innovate, and invest will raise the resources devoted to production in the economy, permanently expanding total output.
THE DESIGN OF FISCAL POLICY
It is tempting to use fiscal policy in a reactive fashion, employing
frequent discretionary changes in taxes and spending to alter economic activity temporarily and to counteract each aggregate fluctuation. This approach is fraught with so many difficulties that discretionary fiscal policy becomes inconsistent with ambitious goals
for long-run growth. Fiscal responses to economic fluctuations
should be credible and predictable. These characteristics reduce the
distortionary effects of policy by aiding private-sector plans for
saving and investment.

Automatic Stabilizers
During recessions, income tax receipts fall, even though tax rates
are unchanged. In addition, income assistance payments (such as
unemployment benefits and traditional welfare programs) rise.
These kinds of systematic adjustments are called "automatic stabilizers." They are an important example of systematic policy and
contribute to the predictability of short-run fiscal policy. They are
clearly not discretionary, as they are embodied in legislation. Automatic stabilizers help to maintain individuals' purchasing power
and mitigate the decline in aggregate demand. Studies show that,
on average, disposable income falls by 40 percent of a fall in GNP.
Historically, modifications to the features of automatic stabilizers
undertaken for other reasons have also changed their responsiveness to economic conditions.
Systematic fiscal policies such as automatic stabilizers have distinct advantages over discretionary policies. For example, discretionary increases in spending provide a ready rationale for politically motivated increases in government programs. Also, because
investors cannot undo the past, it may appear that discretionary
tax increases levied on existing investments have no detrimental



68

effect. Over time, however, continuous application of such policies
would teach investors to expect tax increases, reducing the incentive to invest and harming economic efficiency.
Budgeting Rules and Targets for Government Saving
Sustained economic growth requires continued increases in the
Nation's productive capital. Government policies, such as fiscal,
monetary, regulatory, and legal policies, affect national saving and
are thus an important determinant of both the funds available to
finance investment and their cost.
By definition, when the Federal Government budget deficit increases, government saving falls. Only if other savers—households
or businesses—increase their saving dollar for dollar is there no
detrimental effect on national saving—the sum of household, business, and government saving. Empirical studies find that when government reduces tax collections, increased private saving does not
fully offset the decline in government saving. When government
consumption increases, private investment and net exports decline;
private consumption may fall, but not sufficiently to offset the rise
in government consumption. Thus, chronic budget deficits reduce
national saving, leading to lower domestic capital formation and
reduced net exports.
The actual deficit is influenced by current economic conditions.
For example, the budget deficit increased during the early 1980s in
part as a result of the economic downturn. Accurately gauging the
long-run impact of the deficit requires adjusting the deficit for
changes caused by economic fluctuations. (This adjustment is made
by calculating the difference between receipts and expenditures
that would occur under current law if economic activity were equal
to some estimate of the economy's high-employment potential.) At
the trough of the most recent recession, the cyclical component was
about two-thirds of the actual budget deficit. In the last few years,
however, the economy has been closer to its potential output,
making the cyclical correction less important. Nonetheless, the deficit as a fraction of GNP has fallen from 5.3 percent in fiscal 1986
to 2.9 percent in fiscal 1989 (Chart 3-1).
In 1985, the Federal Government adopted, and in 1987 amended,
the Balanced Budget and Emergency Deficit Control Act, more
commonly known as Gramm-Rudman-Hollings (GRH). GRH was a
visible response to the record of deficit spending. At its heart are
targets for the maximum allowable budget deficit, with the ultimate goal, as amended, of balancing the budget by 1993. GRH includes a mechanical procedure, known as sequester, for cutting
Federal spending whenever deficits are expected to exceed the allowable target by more than $10 billion, except in fiscal 1993. (See
Box 3-1 for an explanation of the sequester in fiscal 1990.) GRH
provides a predictable means to reduce Federal deficits, thus serv


69

Chart 3-1
FEDERAL BUDGET DEFICIT AS PERCENT OF GNP. The budget deficit as a percent of GNP has
declined substantially since 1986 as a result of deficit control measures.
Percent
7

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

Note: Data are for fiscal years.
Source: Department of Commerce and Office of Management and Budget.

ing as a valuable rule for fiscal policy that reduces Federal borrowing.
In each year since the inception of GRH, the Federal deficit has
exceeded the GRH target (Table 3-1). How can this happen? The
most important reason is that a sequester can be implemented, if
necessary, only in the first 2 weeks of a fiscal year. Thus, the GRH
deficit can initially fall below the target, but rise later in the year
through appropriations for new spending. For example, the fiscal
1989 budget deficit reflected the addition of large costs attributable
to the rescue plan for savings and loan institutions. In addition,
some programs have been excluded from the deficit calculation so
that the spending they entail does not count under GRH. Finally,
the inherent difficulties of economic forecasting and technical
budget projections can cause the actual deficit to differ from the
GRH target, although there is no systematic direction to this effect.
When viewed from a broad perspective, GRH has provided valuable control over Federal spending. To some, the failure to match the
targets exactly is an indictment of GRH. But this is a narrow view.
A focus simply on the difference between GRH targets and annual
budget deficits ignores important progress in controlling deficits.




70

Box 8-1.—Hie GRH Process: How It Worked in Fiscal 1990
Under GRH, the Administration reviews the budget and estimates the deficit GRH allows for a $10 billion cushion or
"margin of error" (except in 1993, when there is no margin of
error), but if the projected deficit exceeds the target by more
than this amount, the Administration calculates automatic
spending cuts (or sequester) needed in each program to meet
the GRH deficit target If legislation does not achieve this reduction by the end of the second week of the fiscal year, the
President orders a sequester,
For fiscal 1990, the GRH deficit target was $100 billion. In October 1989, the Administration estimated a deficit of $1161 billion—$6.1 billion above the target plus "cushion/' Hence a sequester designed to reduce outlays by $16.1 billion was brought
into operation, and the President stated that he would continue with a sequester until a satisfactory budget reconciliation
bill was passed.
To meet the target, total outlays had to be reduced by 1.4
percent. GRH splits these reductions evenly between defense
and nondefense spending, thus requiring an $8 billion reduction in each. However, 35.4 percent of defense outlays and 73.7
percent of nondefense outlays (largely entitlements and interest payments) are exempt by law from a sequester. To achieve
the $8 billion reduction, nonexempt nondefense programs had
to be cut by 5.3 percent and nonexempt defense programs by
4.3 percent.
Under the Reconciliation Act, the President issued a revised
order that required & sequester of 1.5 percent for defense programs and 1,4 percent for nondefense programs. The revised
sequester was designed to achieve outlay reductions equivalent
to keeping the original sequester in effect until early February
1990. Hence, the Administration established the important
precedent of not restoring previously sequestered amounts
after the sequester period.
Since the adoption of GRH, the deficit has fallen steadily as a percentage of GNP. Moreover, deficits are far below the path projected
prior to the adoption of GRH. One prominent study during 1985
projected that the unified deficit would reach $266 billion during
fiscal 1989, more than $100 billion above the actual deficit. Further, the rate of Federal debt accumulation has stabilized—Federal
debt held by the public rose from 26.6 percent of GNP in 1980 to 42
percent in 1986, but has remained at about this level since.




71

TABLE 3-1.—GRH and Budget Deficits: The Record
[Billions of dollars]
1985
Target

Fiscal Year

Actual
as Percent
of GNP

Actual
Deficit

1987
Target

1986

1719

1719

2212

53

1987

1440

1440

1497

34

1988

1080

1440

1551

32

1989

720

1360

1520

29

1990

360

1000

NA

NA

1991

0

640

NA

NA

280

NA

NA

0

NA

NA

o
o

1992
1993

Sources: Department of the Treasury and Office of Management and Budget.

These improvements partly reflect better control over outlays.
GRH has limited the ability to consider new spending programs or
expand existing ones. Since GRH, the annual growth rate of real
Federal outlays has fallen from an average of 4.7 percent for 1984
and 1985 to an average of 1.7 percent for 1986 through 1989. Controlling growth in Federal outlays is one part of sustained deficit
reduction, and GRH has contributed to this process.
Although GRH has provided valuable control over deficits, it can
still be improved. Currently, deficit targets may be circumvented
too easily late in the fiscal year. The Administration has enunciated a principle that any increased spending after the sequester
period has passed must be fully offset elsewhere in the budget. This
principle serves to buttress GRH and improve the credibility of efforts to reduce Federal deficits. Reforms to the GRH law itself
could further increase control over deficits initiated in this way.
For example, introducing a second sequester period later in the
fiscal year would maintain the discipline of automatic reductions
for a longer time period. Alternatively, it may be useful to require
60-percent majorities of the House and Senate to pass any legislation that increases the deficit after the sequester period is over. A
related measure is the Administration's proposal to give the President enhanced rescission authority—the power to cancel unnecessary appropriations. These cancellations would be subject to a vote
by the Congress to override the rescission.
GRH could also be modified to eliminate the practice of using
surpluses in the Social Security trust funds to offset the operating
budget deficit. In fiscal 1989 there was a unified budget deficit of
$152.0 billion. Social Security, however, had a surplus of $52.4 billion, indicating that the non-Social Security activities of the government had a deficit of $204.4 billion. As discussed below, the Administration proposes amending GRH as part of a program to protect the Social Security surpluses and reverse chronic Federal defi-




72

cit spending. Balancing the non-Social Security budget will require
additional control over Federal outlays. In exercising that control,
care must be taken to ensure adequate funding for programs that
contribute to economic growth and meet essential national needs,
such as research and development, education, and reductions of
drug abuse.

The Importance of Eliminating Chronic Government
Borrowing
The Gramm-Rudman-Hollings law has served as an important
rule for reducing Federal borrowing. An improved rule for long-run
fiscal policy would not only reduce deficits but would commit the
Federal Government to annual budget surpluses after 1993.
Raising the rate of government saving will lower interest rates
and increase capital formation and growth, leading to higher incomes. A credible policy of increased government saving would accelerate the reduction in interest rates and the increase in investment. By expanding U.S. economic resources, greater government
saving will make it easier for society to meet the full range of private and government obligations. Increasing government saving
will also reduce net interest payments, which constituted 14.8 percent of Federal outlays in fiscal 1989, thus freeing these resources
to address other budgetary needs.
Fiscal policy should anticipate the effects of the large postwar
baby-boom cohort. Total Social Security payments are projected to
rise from 4.5 percent of GNP in 1989 to 6.8 percent of GNP in 2033.
At the same time, the ratio of retirees to working members of the
labor force is expected to increase dramatically. In the absence of a
policy of government saving, financing these payments would require either extremely sharp increases in payroll taxes or large
deficits, with negative consequences for economic welfare in the
future.
Reforms to Social Security adopted in 1983 provide for higher
future outlays by levying payroll taxes in excess of current benefit
payments. At its peak in 2016, the resulting annual Social Security
surplus (including interest) is anticipated to reach 1.9 percent of
GNP, potentially contributing toward higher national saving, which
will expand the pool of funds to finance capital formation and more
rapid economic growth. It is important to establish a commitment
now that this potential increase in government saving will in fact
take place.

The Social Security Integrity and Debt Reduction Fund
The Administration's proposed Social Security Integrity and
Debt Reduction Fund (SSIDRF) is designed to ensure that the expected surpluses are not spent for other purposes, but are used to
build reserves necessary to help provide Social Security benefits



73

when the baby-boom generation retires. These reserves will be
provided to the Nation's capital markets, thereby expanding investment and transforming the Federal Government from a drain on
national saving to a source of enhanced growth.
The SSIDRF should not be confused with either the current Federal old-age and survivors insurance trust fund or the Federal disability insurance trust fund. This new fund would protect the trust
fund surpluses by restricting their use to reducing the national
debt. At the same time, the Gramm-Rudman-Hollings law would be
amended to preclude deficits on the government's non-Social Security activities. In this way, the proposed law would provide more
stringent fiscal discipline than the current GRH law, which permits Social Security surpluses to offset the deficit in the rest of the
budget.
The Administration's proposal to establish the SSIDRF marks a
sharp departure from a history of Federal deficit financing. Each
year the Federal Government would pay from the general operating budget into the SSIDRF an amount equal to the projected surplus on the Social Security trust funds during that year. The payments into the fund could be used only to reduce outstanding Federal debt held by the public, the national debt. Outlays to the fund
would be counted as any other outlay in the budget. Using Federal
borrowing to finance these contributions would directly contradict
the intent of establishing the fund. To preclude this possibility, the
current GRH law would be amended to require a balanced budget in
1994 and thereafter. To ensure further that full payments are made
each year, payments into the SSIDRF would be exempt from the
sequester procedures in the GRH law. When viewed as a whole,
Federal Government receipts would have to exceed non-SSIDRF
outlays in order to both balance the budget and reduce the national
debt.
Operation of the fund would be phased in over the fiscal years
1993 through 1995. The payments into the fund would be $14.1 billion in 1993, $53.6 billion in 1994, and $101.8 billion in 1995. These
amounts are 15 percent, 50 percent, and 85 percent, respectively, of
the Social Security trust fund surpluses projected for these years.
From fiscal 1996 through fiscal 2000, the required payment would
equal the surplus as projected in 1989. Thereafter, the projections
would be updated at 5-year intervals.
The new proposal would not take Social Security off the budget.
Receipts and outlays for Social Security would remain in the
budget used to calculate the GRH deficit. Thus, any changes in
Social Security benefits or contributions would be subject to the
same overall constraints as other government programs. While
Social Security is of vital importance, the government faces many
pressing issues, and no single program should be exempted from
the normal budget process.



74

Legislating a specific rule to reverse the established practice of
Federal borrowing is a radical change in the conduct of U.S. fiscal
policy. The SSIDRF would shift the government from chronic deficits to contributing to national saving. In the near term, saving allocated to the SSIDRF would rise quickly from only 0.3 percent of
GNP in 1993 to 1.5 percent in 1995. At the peak in 2016, Federal
saving would be $495 billion or 1.9 percent of GNP at that time.
By moving the government toward supplying funds to capital
markets, the SSIDRF would raise capital formation and the economy's potential to produce. Reducing the national debt would release to the private sector funds to finance purchases of corporate
stock, corporate bonds, or other financial instruments. These funds
would, in turn, be used for increased capital expenditures.
Over the next half century the additional investment would lead
to greater U.S. capital accumulation than would otherwise occur.
This additional capital would provide substantial additional GNP
to be used for a wide variety of private and government purposes.
Among other uses, the additional national output would ease the
burden of meeting the retirement costs of the baby-boom generation.
The Social Security trust funds are currently anticipated to begin
to run annual deficits in 2030. In the absence of offsetting changes in
other parts of the Federal budget, borrowing could act as a drain on
national saving and capital formation. Nonetheless, implementation
of the SSIDRF would endow the United States with sufficient
resources to meet these demands. In effect, the more rapid growth of
the capital stock generated by the SSIDRF would be used to finance
retirement payments, in essentially the same way that individuals
use accumulated saving to meet large, anticipated expenditures such
as a college education.
Would the move toward increased Federal saving cause a drag on
the economy in the short run? Economic theory and empirical evidence suggest that economic adjustment to this change in fiscal
policy can be made easier by a credible commitment to the
SSIDRF. A credible rule could bring a substantial reduction in interest rates prior to 1993. Economic models that take expectations
of such credible policies into account indicate that a reduction in
expected future short-term interest rates is likely to quickly lower
long-term real interest rates by as much as a full percentage point.
Lower interest rates would reduce the cost of capital, stimulating
investment and economic growth. In addition, a credible rule and
lower interest rates could permit more rapid, noninflationary monetary expansion.

Anticipating Potential Federal Liabilities
Broadly speaking, Federal liabilities are any obligations to pay
out resources in the future. The most familiar liability is Federal



75

debt. Here the legal obligation is concrete and visible, embodied in
the contractual terms of government bonds. However, there are
many other obligations such as government insurance, loan guarantees, or costs of Federal programs in the future. Recognition of
the full range of obligations underscores the importance of increasing government saving as a responsible fiscal approach to reducing
the burden imposed on future generations.
The costs of many government programs will escalate in the
future without matching increases in receipts. Social Security is
the most prominent example, but the government will very likely
also face increased outlays in the future for medicare, Federal civil
pensions, and Federal military pension programs. Unlike Federal
debt, these obligations are not fixed, as the exact costs of these programs may change in response to economic conditions or legislative
initiatives. The government must maintain a constant vigil against
escalating costs in entitlement programs. For example, improved
cost control in the health care system would help to provide the
increasing number of older Americans with high quality care without imposing an ever-larger burden on taxpayers. Even with improved efficiency in entitlement programs, additional resources
may be necessary. Greater government—and national—saving will
lead to the growth needed to expand economic resources to reduce
the burden of meeting these demands as well as to enhance private
living standards.
The Federal Government must monitor the need for outlays to
cover Federal loan guarantees. Direct guarantees back loans for
housing through, for example, the Federal Housing Administration
and the Government National Mortgage Association, for agriculture via the Farmers Home Administration, and for college education via the Guaranteed Student Loan Program. In 1989, the face
value of outstanding Federal Government loan guarantees was
$588 billion.
Government-sponsored enterprises (GSEs) are chartered by the
Federal Government but are generally privately financed. GSEs
provide credit services in a variety of areas. For example, the Federal National Mortgage Association and the Federal Home Loan
Mortgage Corporation operate in home mortgage markets. The agriculture sector receives additional credit through the activities of
the Farm Credit System and the Federal Agricultural Mortgage
Corporation.
The liabilities of GSEs are not backed by the Federal Government. In the past, however, the Congress has chosen to assist financially troubled GSEs, such as in the case of the Farm Credit
System. The Administration is currently studying the risks undertaken by GSEs and the appropriate level of GSE capital consistent



76

with soundness, stability, and minimal potential exposure of taxpayers.
Lastly, the government must evaluate the need for increased
Federal saving to meet government insurance obligations. The Federal Government meets a myriad of insurance needs: veterans' life
insurance, Federal crop insurance, flood insurance, informal insurance against natural disasters, and others. In 1989, insured assets
totaled $4.2 trillion, with the largest amounts in deposit insurance
($2.9 trillion) and pension fund insurance ($820 billion). The Financial Institutions Reform, Recovery and Enforcement Act of 1989 addressed weaknesses in the insurance of thrift institutions. In other
areas of Federal insurance, implementing reforms, such as those
discussed later in this chapter, is one way to improve the soundness of Federal insurance programs. Nonetheless, resources may be
needed to meet Federal outlays for insurance over the next decade.
SUMMARY OF PRINCIPLES FOR FISCAL POLICY
• Fiscal policy should move toward credible, systematic policies
that would promote strong noninflationary growth.
• The major long-run effect of fiscal policy is on national saving,
capital formation, and growth. The Federal Government
should continue to reduce deficits in accordance with the
Gramm-Rudman-Hollings targets.
• The GRH process has provided a valuable contribution to deficit reduction. Nonetheless, it may be desirable to modify GRH
to provide additional control over Federal deficits.
• Credible policies to enhance fiscal discipline by reducing the
national debt after the budget has been balanced, such as the
proposed Social Security Integrity and Debt Reduction Fund,
will raise national saving, lower interest rates and the cost of
capital, increase investment, and augment long-run growth.

MONETARY POLICY
Like fiscal policy, monetary policy is important in promoting
strong economic growth and limiting the size and frequency of economic fluctuations. Over the long run, monetary policy is the most
important determinant of the rate of inflation. Keeping inflation
low is essential to promoting maximum sustainable economic
growth and helping avoid recessions.
THE EFFECT OF MONETARY POLICY ON THE
ECONOMY
When the economy is operating near its long-term potential, an
expansionary monetary policy raises real GNP and lowers unem-




77

ployment temporarily. Wages and prices do not adjust immediately
in response to a monetary expansion, but eventually they do
adjust, and inflation begins to increase. If inflation increases to a
level that instigates a subsequent sharp monetary tightening, a recession could be the ultimate result.
In the 1960s, many believed that the unemployment rate could
be reduced permanently if only a higher rate of inflation was accepted. This belief was based largely on a negative relationship in
historical data between the rate of inflation and the unemployment
rate. Such historical data in the United States and other countries
seemed to indicate that when inflation was higher, unemployment
was lower, and vice versa. But the experience of the 1970s, with simultaneously rising inflation and unemployment (stagflation), and
that of the 1980s, with inflation and unemployment both falling,
cast grave doubt on any such simple relationship.
Since the late 1960s, economists have become increasingly convinced that a correct explanation of the relationship between inflation and unemployment depends critically on expectations of inflation. If expectations of inflation are low, workers will not demand
large wage increases to compensate for the expected erosion of
their real earnings caused by inflation. Businesses' costs of production will not rise rapidly, and increases in their product prices can
be relatively low. Under these circumstances, a moderate increase
in inflation may lead temporarily to lower unemployment.
Consequently, monetary policy under certain circumstances is
able to reduce unemployment in the short run. An unexpected
monetary expansion will produce a money-induced pickup in
demand that will stimulate firms to expand employment, produce
more, and raise prices.
Soon, however, people will notice the pickup of inflation. Firms
will have incorporated it into their price increases; workers will
add it to wage demands, eliminating the fall in real wages and
leading to a return of the unemployment rate to its initial level.
Because it is not possible for people to be "fooled" indefinitely
about the rate of inflation, higher inflation cannot permanently
lower the unemployment rate.
Moreover, under certain circumstances, higher inflation may not
reduce unemployment at all. Suppose the central bank showed a
persistent tendency to try to lower short-term unemployment
below the level associated with realization of peoples' expectations
of inflation—that is, below the nonaccelerating inflation rate of unemployment or NAIRU. (The concept of the NAIRU is explained in
Chapter 5.) This tendency would be noticed and would foster higher
inflation expectations. To the extent people correctly anticipate
this behavior, even the temporary boom that a monetary expansion
would otherwise produce would be thwarted.



78

THE COSTS OF INFLATION AND RECESSION
Low, predictable rates of inflation have little adverse effect on
the economy. But for several reasons, high and fluctuating inflation can reduce economic performance.
First, excessive inflation leads to recessions. Monetary policy that
is too expansionary will eventually bring on a rise in the rate of
inflation. If left unchecked, inflation will reach a rate that is no
longer tolerable. At that point, the Federal Reserve must reduce
the rate of inflation by tightening monetary policy. Such a tightening may well lead to a recession, as it did in the early 1980s and in
other postwar downturns.
Second, excessive inflation hinders economic growth and productivity. Inflation can depress investment by increasing the effective
tax rate on capital. For example, inflation reduces the real value of
depreciation allowances. In addition, excessive or fluctuating inflation tends to prevent an economy from reaching peak efficiency because inflation is associated with increased uncertainty about the
future. The increased uncertainty adds a risk premium to interest
rates, which raises the cost of capital and lowers investment. Also,
because nominal returns on liquid deposits tend not to fluctuate
point-for-point with market interest rates, depositors devote more
resources to economizing on money holdings when inflation rises.
Although this activity is productive from the point of view of the
individual, from society's point of view it represents a waste because the resources are not being used to produce real goods and
services. Moreover, because higher inflation tends to be associated
with greater dispersion of prices, households and businesses will
devote more resources to searching for the lowest price when inflation is high. For the same reason, resources will not be allocated
efficiently.
Third, inflation raises issues of fairness. When inflation rises unexpectedly, lenders and recipients of fixed-income payments tend to
lose, because the real value of their receipts falls with the rise in
prices. Conversely, borrowers and others making fixed payments
tend to gain. This transfer of income and wealth through unexpected inflation is arbitrary and capricious.

Containing and Reducing Inflation
High and variable inflation, such as the United States experienced in the 1970s, does great harm to the economy and must be
prevented. Relatively steady inflation in the 4V2-percent range,
such as the United States has experienced over much of the 1980s,
also has costs, although these costs are far lower than those of the
late 1970s inflation. Thus, an important priority of policy must be
to prevent inflation from drifting up to the 7-percent, 9-percent,
and finally double-digit rates that were experienced in that decade.



79

Policy must also work to reduce inflation rates below the 4V2-percent range over time while sustaining economic growth.
Preventing Recessions and Fostering Strong Economic Growth
Just as inappropriate monetary policies can damage economic
performance by allowing excessive inflation, they also can lead directly to recessions. For example, excessively tight policies, when
demand is already weak and rising inflation is not a threat, may
contribute to a recession, with its attendant human and economic
costs. Moreover, recessions can damage long-run economic growth
by reducing confidence and thus aggregate saving and investment—crucial contributors to economic growth. But the Nation
should not be satisfied merely with avoiding recessions. The U.S.
economy can and should do better than that. It should sustain
growth sufficient to provide rising employment and incomes to
Americans as well as continued low unemployment. The President
supports macroeconomic policies that promote strong, sustainable
economic growth.
NEW CHALLENGES FOR MONETARY POLICY
Recent years have seen increased consensus on the appropriate
goals for monetary policy. But monetary policymakers have been
confronted with new technical problems in trying to achieve these
goals. These problems make policy more difficult to carry out by
obscuring the relationship between the tools that monetary policy
has at its disposal and the objective of noninflationary growth. In
addition, they make it more difficult for businesses, households, the
Congress, and the Administration to monitor the conduct of monetary policy.
Changing Behavior of the Monetary Aggregates
Historically, certain measures of the money stock moved fairly
closely with nominal spending, and thus represented useful measures of the stance of monetary policy. In the United States, transactions balances—currency and deposits that can be used as means
of exchange—were especially noteworthy in this regard. The association appeared to be so close that the Federal Reserve took steps
in 1979 and the early 1980s to increase its control over the growth
of the monetary aggregate Ml. (Box 3-2 provides definitions of the
monetary aggregates.)
However, beginning in the early 1980s, Mi's velocity (the ratio of
GNP to Ml) became much less predictable. Velocity no longer
tended to increase steadily (Chart 3-2). At first, it was not clear
whether the change in the relationship was temporary or permanent. Eventually, though, evidence accumulated that the breakdown was permanent and primarily reflected a regulatory
change—the nationwide introduction of NOW accounts, which are



80

Box 3-2.—Definitions of the Monetary Aggregates
Ml includes currency, travelers checks, demand deposits, and
other fully checkable deposits such as interest-earning negotiable order of withdrawal (NOW) accounts. It was designed to
measure the quantity of transactions instruments, but the
inclusion of NOW accounts implies that Ml in fact includes a
substantial portion of savings balances. Moreover, certain other
accounts that are not included in Ml, such as money market
deposit accounts (MMDAs) and money market mutual funds
(MMMFs) can be used, within limits, for transactions.
M2 is defined as Ml plus a number of savings instruments,
including savings deposits, MMDAs, certain MMMPs, and
small time deposits. It also includes certain liabilities—repurchase agreements and Eurodollar deposits held by U.S. residents—issued by banking institutions on an overnight basis.
M2 is designed as a broad measure of monetary assets.
M3 comprises M2, shares in money market mutual funds
that are available only to institutions, time deposits with balances of at least f 100,000, and repurchase agreements and
Eurodollar deposits with terms longer than 1 day.
interest-bearing, checkable deposits. Because these accounts pay interest, households shifted into NOW accounts (and therefore into
Ml) not only a large volume of transactions balances from demand
deposits, but also savings balances that were in the non-Mi part of
M2. This latter shift meant that Ml no longer so dominantly represented transactions balances. For related reasons, Ml and its velocity became much more sensitive to swings in market interest rates.
In that light, it was not surprising that the relationship of Ml to
GNP changed.
M2 and M3 are substantially broader than Ml and encompass
many more types of financial assets. Probably because these aggregates represent broader measures of wealth than Ml and are not
restricted to transactions vehicles, they have not historically related as closely to GNP as did Ml before the 1980s. Nevertheless,
some stable patterns in their velocities can be detected. For example, the velocity of M2 has tended to fluctuate around a fixed level
over the past 30 years (Chart 3-2). This pattern probably reflects
the breadth of this aggregate and the resulting tendency for shifts
from one liquid savings asset to another to be captured within it.
The pattern also reflects the long-run tendency for interest rates
on deposits to follow market interest rates. Because this tendency
is incomplete, the velocity of M2, like that of Ml, tends to rise and
fall with short-term market interest rates, reflecting shifts between




81

Chart 3-2
VELOCITIES OF M1 AND M2. The velocity of M1 deviated in the 1980s from earlier patterns, while the
velocity of M2 remained relatively stable.
Index, 1959QI=100
220

200

180

Velocity of M1

160

140

120
Velocity of M2

100

rS

80

1961

1965

1969

1973

1977

1981

1985

1989

Note: Data are quarterly.
Source: Board of Governors of the Federal Reserve System.

liquid balances and market instruments as their relative returns
vary. But this tendency is less pronounced for M2 than for Ml,
making it more suitable as a monetary target.
Despite their relative stability, the relationship of these broader
aggregates to nominal income over shorter periods has at times
been erratic, and instances of these temporary shifts appear to
have become more frequent in the 1980s. Some examples of such
behavior have reflected regulatory influences. For example, M3
was noticeably affected in 1989 by changing regulations in the
thrift industry. A provision of the Financial Institutions Reform,
Recovery, and Enforcement Act of 1989 mandated increased capital
standards for thrift institutions. In order to comply with these
standards, some thrifts sharply reduced assets and funding sources.
A portion of these funding sources were managed liabilities included in M3 (but not in M2), such as large certificates of deposit and
securities sold under repurchase agreements. In addition, a number
of insolvent thrift institutions substituted borrowings from the Resolution Trust Corporation for liabilities included in the monetary
aggregates. As discussed in Chapter 2, this drop in M3-type instruments meant that M3 growth, unlike that of M2, did not increase




82

significantly in the second half of 1989. The sensitivity of the monetary aggregates to such developments is one reason that monetary
policymakers should not focus exclusively on the aggregates in formulating policy.

Changing Economic Relationships
Rapid changes in the structure of the economy and financial
markets in recent years have also posed challenges for monetary
policymakers. Such changes alter the relationships between monetary policy instruments and economic outcomes. Identifying these
relationships is difficult to begin with; rapid shifts make identification all the more difficult, and thus complicate the conduct of monetary policy. They also make it harder for the public to assess the
stance of monetary policy.
One such change is that the volume of imports and exports relative to GNP has risen considerably. Both imports and exports are
sensitive to exchange rates. Thus, the larger international sector of
the U.S. economy may have caused overall production to become
more sensitive to exchange rates. Because exchange rates are importantly influenced by interest rates, this change in structure may
constitute one channel by which the effect of monetary policy on
the economy has changed.
Financial innovation and deregulation have also been important
in the 1980s and may lead to an altered responsiveness of spending
to interest rates. For example, the elimination of deposit interest
rate ceilings, the development of highly liquid secondary markets
for mortgage loans, and the wide availability of adjustable-rate
mortgages (which usually offer relatively low initial interest rates)
mean that mortgage credit is no longer as constrained during a
period of monetary tightening as it was before the 1980s, reducing
the interest-sensitivity of residential construction activity.
Another example of possible changes in interest sensitivity relates to household consumption spending. The increasing use of adjustable-rate mortgage and consumer loans in recent years has
tended to increase the sensitivity of household expenses to changes
in market interest rates. Consequently, the sensitivity of household
spending to changes in interest rates may have increased. However, a greater proportion of households' financial assets now bears
interest returns that vary with market interest rates than was the
case before the 1980s. This fact would tend to offset any increased
sensitivity of consumption.
Empirical studies that attempt to determine whether the responsiveness of spending to interest rates has changed obtain mixed results. Most studies confirm a lower interest sensitivity of residential housing expenditures; a few find a reduced sensitivity in other
sectors as well. On the whole, there is some evidence for the proposition that the interest sensitivity of aggregate spending has fallen



83

in the 1980s, implying that larger changes in interest rates are
needed to offset economic fluctuations.

THE DESIGN OF MONETARY POLICY IN THE 1980s AND
1990s
Substantial movements in the velocities of the monetary aggregates in recent years have made rigid monetary targeting inappropriate. Given this situation, but recognizing the disadvantages of
shortsighted, discretionary policy discussed earlier in this chapter,
the Federal Reserve has not regressed to an undisciplined, ad hoc
approach to policy. Rather, it has attempted to develop a more systematic, longer run approach. By attempting to pursue such a forward-looking policy consistently over time, the Federal Reserve appears to have achieved a high degree of policy credibility.

The Framework for Monetary Policy
The Federal Reserve Act establishes a broad framework for the
conduct of monetary policy. It calls for two policymaking bodies
within the Federal Reserve: the 7-member Board of Governors, located in Washington; and the 12-member Federal Open Market
Committee (FOMC), which includes the members of the Board and,
on a rotating basis, presidents of 5 of the 12 regional Federal Reserve Banks.
The Federal Reserve Act sets goals for policy, requiring that the
Federal Reserve shall "maintain long run growth of the monetary
and credit aggregates commensurate with the economy's long run
potential to increase production, so as to promote effectively the
goals of maximum employment, stable prices, and moderate longterm interest rates." The law also requires the Fed to report to the
Congress annual target ranges for growth of the monetary and
credit aggregates.
Thus, the law establishes broad principles for the conduct of
monetary policy. Within this framework, the Federal Reserve must
design a policy to meet its goals. In the regular meetings of the
FOMC (currently eight times per year), FOMC members decide
what adjustments in the policy instruments, if any, are appropriate, and issue a directive for implementing these adjustments to
the Federal Reserve Bank of New York, which acts as the FOMC's
agent. The directive calls for adjustments in the supply of reserves;
it is presented in the context of a public statement (released with a
lag) that explains the FOMC's reasons for the change.
Changes in the supply of reserves lead to changes in short-term
interest rates. For example, an increase in the availability of reserves means that banks will have to bid less aggressively for funds
in the open market. Consequently, interest rates will decline, at
least temporarily. An increase in reserve availability also means
that fewer banks will need to borrow from the Fed's discount



84

window to obtain funds. Consequently, lower interest rates tend to
be associated with reduced borrowing at the Fed's discount window,
and higher interest rates with increased borrowing.
Since 1982, the Fed has relied on this association, using an operating target for the quantity of borrowed reserves as an index of
the desired availability of bank reserves. Over the past 2 years or
so, however, the relationship of borrowing to reserve market conditions has shifted somewhat unpredictably. Consequently, the Federal Reserve has gradually reduced its reliance on borrowed reserves
and has focused more directly on interest rates—especially the Federal funds rate, the interest rate on overnight interbank loans—in
implementing monetary policy.

Operating Strategies for Reserves and Interest Rates
The Federal Reserve generally increases interest rates when inflationary pressures appear to be rising and lowers interest rates
when inflationary pressures are abating and recession appears to
be more of a threat. In general, Federal Reserve policymakers base
their assessment of inflation pressures and the state of economic
activity on several key economic and financial indicators as well as
on economic forecasts; some of these forecasts are constructed judgmentally by the Fed's staff, some are econometric, and some are
produced by private forecasters. Financial markets can also provide
valuable information. For example, long-term interest rates incorporate market participants' assessment of the future rate of inflation.
Assessing just how much the policy instrument needs to be
changed as circumstances evolve requires judgment. Thus, a policy
approach that relies on the expertise of the FOMC members is appropriate and should be preserved. If the operating stance of policy
is gauged in terms of monetary aggregates, appropriate settings
change with shifts in the behavior of velocity; if measured by interest rates, appropriate settings vary with the interest sensitivity of
aggregate demand; and, if measured in terms of borrowed or nonborrowed reserves, appropriate settings change as the relationship
between reserve measures and interest rates changes. Experience
has indicated that predicting such changes accurately is often impossible. The Federal Reserve's ability to react flexibly to unforeseen, adverse shifts in financial market conditions is especially
useful. For example, the Federal Reserve's provision of additional
liquidity in the wake of the stock market break of October 19, 1987,
was appropriate and contributed to a return of market confidence.

Role of Monetary Targets
As discussed above, the law requires the Federal Reserve to set
annual target ranges for the monetary aggregates. Throughout the
1980s, the Federal Reserve set annual target ranges for the mone


85

tary aggregates M2 and M3, and through 1986 it set ranges for Ml.
In view of the generally looser relationships of the monetary aggregates with GNP over recent years, however, the Federal Reserve
has relied less on all of the aggregates. In 1988 and 1989, the
FOMC set target ranges for M2 and M3 that were 4 percentage
points wide, 1 percentage point more than had been specified earlier. In widening the ranges, the Federal Reserve noted the sensitivity of velocity to market interest rates as well as a more erratic relationship between velocity and interest rates. For much the same
reasons, the Federal Reserve in conducting monetary policy has
monitored a variety of economic and financial indicators in addition to the monetary and credit aggregates.
Despite problems with the monetary aggregates, the Federal Reserve has not adopted a purely discretionary approach to policy.
Rather, the Fed has made clear that its long-run goal is to do its
part to promote economic growth by reducing inflation and ultimately achieving price stability. Within this long-run policy orientation, the monetary aggregates can play a useful role. In particular, research at the Federal Reserve and elsewhere shows that the
velocity of M2 has been essentially stable over the long run. M2
could serve therefore as an anchor for price stability and as a basis
for a credible, systematic long-run monetary policy. That is, as long
as there are no signs of permanent shifts of M2 velocity, the Federal Reserve would do well to commit to eventually maintaining
long-run growth of M2 consistent with expansion of the economy's
potential to produce, while allowing higher or lower growth rates
over shorter periods of time to offset shifts in velocity. Such an approach would be consistent with the Federal Reserve Act's requirements for monetary policy.
By consistently following a forward-looking policy directed at
this goal, the Federal Reserve appears to have achieved a high
degree of credibility. This credibility is suggested by the lack of increase in measures of inflation expectations in the late 1980s as the
economy drew closer to full utilization of its productive resources, a
situation that in the past typically was characterized by rising inflation expectations.
IMPORTANCE OF A CREDIBLE MONETARY POLICY
A high degree of monetary policy credibility will often lead to superior economic performance compared with the situation where a
policy is not perceived to be very credible.

Credibility and Disinflation
Suppose monetary policymakers announced their intention to
lower the rate of inflation over a specific time interval and, to
achieve this goal, slowed the growth of the money supply and allowed interest rates to rise. If the policy was not viewed as credi


86

ble—for example, if the public thought that the policy would not be
maintained—households and firms would continue to set wages
and prices as they had previously, at least for a time. Meanwhile,
the increasingly restrictive monetary policy would restrain demand
and production. Thus, the lack of policy credibility would result in
a worsening of the economic situation, as inflation remained high
and unemployment rose. This outcome would persist until the public's expectations of the rate of inflation fell.
Suppose, on the other hand, that the public believed that the
policy of reduced inflation would be achieved. In these circumstances, the more restrained monetary policy would be accompanied by a drop of inflationary expectations. The policy restraint
would have a smaller effect on unemployment and production, relative to the situation of low policy credibility. Full employment
would be maintained, or at least the period of limited slack would
be shorter, and output would again achieve its potential, but with
less inflation than before.
Policy credibility is also valuable during a period of falling inflation, because a temporarily higher rate of monetary growth may
appear to contradict the stated policy of lower inflation. As the
rate of inflation falls, the public will likely wish to hold a larger
quantity of money, because the opportunity cost of doing so will be
smaller—that is, money holders will be giving up less income by
holding money, as opposed to investing in financial assets or appreciating durables such as housing. The Federal Reserve could accommodate this increased demand by allowing the money stock to grow
more rapidly for a time. Ideally, the public will recognize that the
increased rate of money growth is temporary and a natural consequence of the disinflationary policy. Even if the public does not understand this process but finds the policy of disinflation to be credible, inflation expectations will not rise in response to the pickup in
money growth. If the policy does not have much credibility, on the
other hand, the public might become concerned that the higher
money growth is permanent, signaling an inflationary monetary
policy. Any consequent heightening of inflationary expectations
would hinder achievement of the Nation's economic goals.
Credibility and Economic Uncertainty
Credibility can help resolve problems that can result from unpredictably shifting economic relationships. For example, the looser
relationship of the monetary aggregates to economic activity not
only makes it more difficult for the Federal Reserve to conduct
monetary policy, but it also causes problems for the public in monitoring the stance of monetary policy. The increased uncertainties
about possible changes in structural economic relationships have a
similar effect, by making it more difficult for the public to determine whether a given policy change will have the desired effect on



87

the economy and on inflation. If monetary policy is credible, shortrun difficulties of monitoring the stance of monetary policy will not
adversely affect the public's expectations.

Achieving Policy Credibility
Policy credibility is clearly useful to have, but achieving it may
not be easy. Simply announcing a change in policy does not make
it believable. Credibility depends in part on the plausibility and
consistency of the announced policy in the context of the overall
economic environment and other policies. Credibility probably depends most importantly on a track record of following the stated
principles of policy.
SUMMARY OF PRINCIPLES FOR MONETARY POLICY
• Monetary policy, and macroeconomic policies more generally,
should adopt ambitious but realistic goals for economic performance. The Nation should not be satisfied merely to avoid
recessions and contain inflation. The U.S. economy can and
should do better than that. It should sustain growth sufficient
to provide rising employment and incomes and continued low
unemployment.
• Monetary policy can contribute to the achievement of these
goals by systematically controlling and reducing inflation.
• Monetary policy needs to maintain credibility, because credibility helps ensure that the goals of policy will be attained during
a period of dynamic economic and financial developments.
Policy credibility is enhanced by building a record of achievement of the stated goals of policy and by consistently following
stated policy principles.
• Over long periods of time, the monetary aggregates are useful
guides to monetary policy. In view of the difficulties of predicting velocity, however, monetary policymakers also need to
monitor other economic and financial measures within a credible, systematic approach to policy.

INTERNATIONAL ASPECTS OF FISCAL AND
MONETARY POLICY
As discussed above, the internationalization of the U.S. economy
has implications for monetary and fiscal policy. For example, there
is a tendency for government deficits to crowd out net exports and
for larger, more sensitive international capital flows to influence
the effects of domestic policies on interest rates. This section analyzes the international dimension of economic policy considerations
in more detail.




Linkages between the United States and the rest of the world led
to some of the most visible and significant features of U.S. economic performance in the 1980s. There were wide swings in the value
of the U.S. dollar. For example, it rose from 1.82 Deutsche marks
per dollar (DM/$) in 1980 to more than 3.40 DM/$ in early 1985
before falling back to 1.76 DM/$ on average in 1988. The U.S. current account, which includes trade in both goods and services,
plummeted from a surplus of $8 billion in 1981 to a record deficit
of $144 billion in 1987—a deficit equivalent to 3.2 percent of U.S.
GNP. This deficit reflected a $160 billion excess of merchandise imports over exports. Since this peak, the merchandise trade deficit
has been cut more than 30 percent to an annualized level of $111
billion.
The fact that the United States has important connections to the
rest of the global economy must be considered in the design of
fiscal and monetary policy. These policies influence economic performance in part through their effects on exchange rates, on international capital flows, and on the trade balance. The United States
accounts for more than one-quarter of total world production of
goods and services. Not surprisingly, U.S. policy actions have implications for other industrialized economies and for developing economies. Policy actions taken by other countries, especially the larger
ones, also influence U.S. economic performance. Growing recognition of mutual concerns and international economic linkages has
heightened awareness of the potential benefits from enhanced
international coordination of economic policies. A challenge for the
1990s is to use and improve the process for policy coordination developed in the 1980s to achieve sustained, noninflationary growth
for the global economy.
INCREASED OPENNESS OF THE U.S. ECONOMY
The growing economic interdependence of the United States and
other countries is reflected in expanding international trade and
capital flows. U.S. imports of goods and services increased from less
than 5 percent of total demand on average in the 1960s to more
than 11 percent on average in the 1980s and 12.7 percent in 1988.
This increased presence of foreign products has generated concern
over the competitiveness of U.S. industries. What is not as frequently recognized is that U.S. exports of goods and services to
other countries have also grown to record levels. Nearly 11 percent
of domestic production was sold abroad during the 1980s, compared
with just 6 percent on average during the 1960s. Through international trade, economic expansion in the rest of the world contributes to the health of the U.S. economy.
International financial markets have also grown dramatically
over the past decade. Capital flows from abroad help to finance in-




89

vestment expenditures in the United States. These flows respond
quickly in 24-hour financial markets to differences in short-term
interest rates and other developments across countries. Because
capital movements are sensitive to differences in policy, the globalization of financial markets has increased the interdependence of
what were traditionally regarded as domestic policies.

Implications of Openness for Monetary and Fiscal Policies
International considerations do not alter the basic principle that
credible, systematic monetary and fiscal policies can promote noninflationary growth. The complex interactions among countries,
however, should be taken into account in policy design.
U.S. policymakers must recognize that international linkages influence the effectiveness of their policy actions. The experience of
1980 to early 1985 provides an example. In a determined effort to
bring inflation under control, the Federal Reserve, supported by
the Administration, pursued firm anti-inflationary policies during
1980-82. Fiscal policy turned expansionary during the 1982 recession. These policies did contribute to the reduction of inflation and
to strong economic growth in 1983 and 1984. However, they also
contributed to rapid appreciation of the U.S. dollar (Chart 3-3) and
a decline in net exports. First tight monetary policy and then declines in government and private saving relative to investment put
upward pressure on interest rates in the United States. Partly in
response to the resulting interest rate differentials, the dollar appreciated. Imports became relatively cheap, while U.S. exports
became more expensive abroad. The resulting trade and current account deficits were the counterparts to the net capital inflows.
U.S. policy also affected the global economy. In particular, the
U.S. economic recovery helped spur growth worldwide in the wake
of the deep 1981-82 recession. At the same time, the increased
demand for funds in international markets as the world economy
recovered contributed to a rise in world interest rates, which added
to the difficulties developing countries faced in meeting their external debt obligations.
EXTERNAL BALANCE AND EXCHANGE-RATE
OBJECTIVES
To what extent should exchange-rate stability and external balance—current account and trade balance—be objectives of macroeconomic policy? The short answer is that both should be of concern to policymakers because, in an open economy, both are related
to the fundamental objectives of economic growth and rising living
standards. Like price instability, current account imbalances and
exchange-rate fluctuations—especially large, persistent misalignments—may jeopardize efficient resource allocation and, thus, economic growth.




90

Chart 3-3
U.S. REAL EFFECTIVE EXCHANGE RATE. The real value of the U.S. dollar appreciated sharply in the
first half of the 1980s before depreciating and then stabilizing at lower levels.
Index, March 1973= 100
150

140

130

120

110

100

90

I

70
1980

1981

I
1982

I
1983

l

I

1985

1984

1986

I
1987

I

1988

1989

Note: Data are monthly.
Source: Board of Governors of the Federal Reserve System.

External Imbalance
Current account deficits reflect an excess of investment over domestic saving. If that gap resulted from unusually strong investment, it would not generally be considered a problem. Inflows of
foreign savings can contribute to higher investment, spurring economic growth and putting in place productive capacity to service
the debt in the future without slowing the growth of domestic
living standards. A reason for concern over the rise in the U.S. current account deficit from 1982 to 1987 was that it primarily reflected a decline in domestic saving. As saving has revived, the deficit
has been cut by more than 30 percent since the mid-1987 peak.
An aggregate current account deficit implies that imports exceed
exports in some sectors, and some of these sectoral trade imbalances are often large. Competitively priced imports may threaten
domestic production and fuel pressures for protectionist trade policies, such as import tariffs or quotas. Yielding to these pressures
impedes the efficient allocation of resources and harms consumers.
Taken to an extreme, increased barriers to trade in one country
result in a retaliatory trade war that can lead to worldwide reces-




91

sion. This danger provides a second reason for concern about large
and persistent external imbalances.
Exchange Rates
Chart 3-3 shows the value of the dollar relative to currencies of
the main U.S. trading partners since 1980. The graph shows both
short-term volatility and sharp longer term swings in the value of
the dollar. In asking whether policymakers should be concerned
about exchange-rate changes, it is important to distinguish between
the two.
Short-term volatility of the major currency-exchange rates has
been much greater during the floating exchange-rate period since
1973 than during the previous two decades of the Bretton Woods
System of fixed but adjustable rates. Although this fact is widely
recognized, the problems associated with short-term volatility may
be overstated. Exchange rates are the prices of assets (U.S. dollars
relative to other currencies). Short-term interest rates and other
asset prices, such as stock prices, are even more volatile than exchange rates. Furthermore, short-term volatility should not disrupt
production decisions, such as where to purchase imported inputs,
provided that longer term trends are predictable. Forward and futures markets can be used to hedge against short-run uncertainties.
Also, empirical studies have found very little evidence that shortterm exchange-rate volatility has a significant influence on the
volume of international trade, once the influence of other factors
(including real incomes and the relative prices of traded goods) is
taken into account.
Concern about pronounced medium-term swings in exchange
rates is based on the perception that they reflect misalignments
relative to long-term, sustainable exchange-rate levels. Although
there are disagreements about which exchange-rate level is appropriate to use as a benchmark, swings in the 1980s were so large
that they were widely believed to represent misalignments. Unlike
short-term variance, medium-term misalignments can have a profound effect on the allocation of resources. Large changes in the
value of the dollar relative to the Japanese yen, for example, have
led to large changes in prices of American goods relative to prices
of Japanese goods. These large relative price movements, and uncertainty about how quickly they might be reversed, may complicate decisionmaking for both producers and consumers.
An appreciation of more than 60 percent, such as the U.S. dollar
experienced in the mid-1980s, can erode the international competitiveness of domestic exporters and import-competing firms, putting
firms out of business and generating unemployment. At the same
time, goods and services produced abroad become bargains to domestic consumers, helping foreign firms to capture a larger share
of the home market. Even if the appreciation is fully reversed



92

within a few years, domestic firms may find it difficult to recapture
the market share they held before the exchange-rate cycle. Macroeconomic policies that avoid large exchange-rate swings help to
create an environment conducive to long-term growth.
MACROECONOMIC POLICY TOOLS
Monetary and fiscal policies influence external balances and exchange rates. For example, monetary policy can be used to maintain fixed exchange rates—at least temporarily. Monetary and especially fiscal policy can alter domestic saving and investment, and
thus the current account balance. External balance and exchange
rates are determined by a wide variety of factors, however, including policy and economic performance in other countries. Exchangerate determination is especially complex. There is some tendency
for high interest rates in the United States relative to those abroad
to be associated with a stronger dollar. However, political events,
credibility of policies, and news about economic performance at
home or abroad also influence the value of the dollar. Furthermore, objectives of policymakers may come into conflict. A more
expansionary monetary policy would tend to bring down the value
of the dollar, but often with the cost of increased domestic inflation.
Exchange-Market Intervention
Policymakers can intervene directly in foreign exchange markets
by buying and selling currencies. Following the dollar's peak in
February 1985, policymakers used this tool more actively. However,
the amounts of dollars sold or purchased by authorities are small
relative to the total daily sales and purchases in the foreign exchange market, approximately $650 billion per day.
As a hypothetical example of foreign exchange intervention, suppose the dollar were overvalued. The Federal Reserve or the Treasury could sell dollars and purchase Deutsche marks in attempting
to decrease the value of the dollar. When such actions are not permitted to affect the level of bank reserves, they are said to be
"sterilized" intervention. The Federal Reserve can always sterilize
any change in bank reserves through offsetting transactions in
Treasury securities. If the Federal Reserve made no transactions to
offset, or sterilize, the increase in bank reserves from a sale of dollars, the intervention would be called unsterilized. Unsterilized
interventions, in effect, constitute monetary policy actions. The
general practice of the Federal Reserve has been to sterilize intervention operations.
There is little disagreement that expansionary monetary policy
tends to depreciate exchange rates. Most of the recent intervention
by major central banks has been routinely sterilized, however, and
some analysts have raised doubts about the effectiveness of steri


93

lized intervention—at least as an instrument that produces lasting
changes in exchange rates. Arguments in support of the effectiveness of sterilized intervention hinge largely on the fact that official
transactions may signal the future course of domestic policy. If
other market participants recognize, believe, and act in response to
the signal, then sterilized intervention can be an effective tool for
moving exchange rates.
What has been the actual experience with intervention in foreign exchange markets? Most studies have concluded that sterilized
intervention is unlikely to be an effective tool for moving exchange
rates in directions that are inconsistent with underlying fundamentals of policy and performance—except perhaps in the very short
run. The effects are larger and more lasting if backed by other
policy changes such as interest rate adjustments, which help to
make the signal credible. Also, coordinated intervention by monetary authorities in more than one country seems to have a greater
and more sustained effect on exchange rates than intervention by a
single country alone.
INTERNATIONAL POLICY COORDINATION
Recognition of the increasingly integrated global economy and
dissatisfaction with economic performance, including exchangerate swings and persistent external imbalances, have precipitated
calls for more consistent and compatible policies among major industrial countries. Since 1985, these countries have strengthened
the process for international coordination of policies.
What Is Policy Coordination?
There is no single definition of international policy coordination.
To some, the term has a rather lofty meaning: jointly determined
policy actions in support of mutually agreed-upon objectives. However, national objectives will often differ substantially or conflict
with one another. A more limited definition of policy coordination
would be: a process through which national policies are modified in
recognition that economic performance is interdependent.
Neither definition need imply that countries follow identical policies. Countries have different technologies, tastes, and political institutions. They may also be subject to different economic shocks.
For example, many economists believe that a coordinated effort to
reduce external imbalances while avoiding a slowdown in real
growth worldwide would include fiscal contraction in the United
States, which has a current account deficit, and an expansionary
fiscal stance in Japan and West Germany, which have current account surpluses. Thus, even if countries adopt the same policy objective, actual policy settings are likely to differ.




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7s Macroeconomic Policy Coordination a Good Idea?
The arguments in favor of policy coordination stress that the effects of one country's policies spill over to other countries. This
spillover is especially true for the larger industrial economies, but
even here, the linkages are stronger among some countries, such as
those within Western Europe, than for others. However, policymakers may not take these spillover effects into account in weighing
the costs and benefits of policy options. Coordination can improve
domestic policy decisions by helping policymakers to consider the
global implications of their actions. Small developing countries are
likely to benefit greatly from policy coordination among the developed countries, if such coordination is successful in increasing
world growth. At the same time, the most important aspect of promoting noninflationary growth in any one country is that it pursue
sound domestic monetary and fiscal policies. Thus, macroeconomic
policy coordination can also make a positive contribution by encouraging individual countries to pursue the proper credible and
systematic policies at home.
International cooperation is important in other areas as well. In
particular, agreement on rules for trade improve the functioning of
the international trading system, with widespread benefits. The
United States places a high priority on its active participation in
the General Agreement on Tariffs and Trade, and is pursuing further international cooperation to advance mutual concerns about
the environment.
What Is the Policy Coordination Process?
Since 1975, the leaders of the seven largest industrial economies
(the United States, Japan, West Germany, France, the United
Kingdom, Italy, and Canada) have met in annual economic summits to discuss economic issues of common concern. Over time, recognition of the growing integration of world goods and financial
markets and shared concerns have led to the realization that further policy cooperation could be mutually beneficial.
The divergence of economic policies and performance among the
major industrial countries after 1982 contributed to the sharp rise
in the value of the dollar and to the emergence of large trade imbalances. In 1985, responding to shared concerns over these developments, finance ministers and central bankers from the United
States, Japan, West Germany, the United Kingdom, and France
(collectively called the G-5) met in New York. They agreed to work
to strengthen the process for coordinating macroeconomic policies,
to bring down the value of the dollar, and to reduce trade imbalances while maintaining noninflationary growth. In 1986, the G-5
together with Canada and Italy (the G-7) initiated regular meetings of their finance ministers and central bank governors. The



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purpose of these G-7 meetings is to promote more consistent and
compatible economic policies among members so as to work toward
sustained global growth with low inflation, reduced trade imbalances, and greater exchange-rate stability.
The policy coordination process that evolved during the 1980s
has two main elements. First, the G-7 has instituted a regular,
high-level dialogue on economic policy, performance, and objectives. Second, the G-7 has developed economic indicators to provide
a framework for multilateral surveillance of their economies and to
help monitor the international effects of national policies. This
process is supplemented through frequent additional discussions in
other forums, notably the International Monetary Fund, the Organization for Economic Cooperation and Development, and the Bank
for International Settlements.

To What Extent Has Policy Coordination Been Useful?
To what extent has the G-7 process achieved its goals? Some observers note the continued fluctuations and last year's appreciation
of the dollar and the persistence of trade deficits in the United
States and surpluses in West Germany and Japan and conclude
that policy coordination has been a failure. This view is extremely
narrow and misleading. The economic policy coordination process
has promoted more consistent and compatible policies among the
major countries, helping to sustain the expansion of output and
employment while reducing external imbalances. A regular dialogue on key economic policy issues now exists. The use of indicators has helped to focus their discussions on key linkages between
economies. Further, the discussions have highlighted the importance of structural measures, such as lowering marginal tax rates,
decreasing regulation, and reducing barriers to trade, to promote
greater efficiency and openness, thereby facilitating noninflationary growth and adjustment of external balances.
Over the past decade, a substantial convergence in the longer
term orientation of monetary policies among G-7 members has occurred. This convergence reflects increased mutual awareness
among central bankers of the desirability of reducing inflation
rates and moving toward price stability. As shown in Chart 3-4,
this convergence has resulted in an overall reduction in the average inflation rate and the range of inflation rates among West Germany, Japan, and the United States. With this awareness, there
was also a common response to the indications of inflation resurgence in 1988. At the same time, international discussions have reflected concern that the effects of several countries responding together might result in too great a response. Such discussion is a
natural part of the evolving policy coordination process and would
have been more difficult just 15 years ago.



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Chart 3-4
CONSUMER PRICES.
industrial countries.
Percent
20

During the 1980s consumer price inflation rates declined and converged among

15

10

-5
1980

1981

1982

1983

1984

United States

1985

Japan

1986

1987

1988

1989

Germany

Note: Data are 12-month changes.
Source: Department of Commerce.

SUMMARY OF PRINCIPLES FOR INTERNATIONAL
MACROECONOMIC POLICIES
The increased internationalization of the U.S. economy has important implications for monetary and fiscal policies and helps
shape the principles that should form a basis for such policies.
• The United States is part of a global economy that is becoming
increasingly integrated. This development implies both that
policymakers must take international linkages into account
when they design monetary and fiscal policies and that there
are potential gains from working together.
• Credibility, highlighted in the previous discussions of monetary
and fiscal policy, is equally important in this context. Consistently following appropriate policies, both in the United States
and abroad, fosters an environment conducive to saving, investment, and economic growth.
• The ultimate objectives of monetary and fiscal policy are economic growth and rising living standards, not exchange-rate
stability or current account balance per se. Nonetheless, reasonably stable exchange rates and sustainable external bal-




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ances are important aspects of a healthy economy. Particularly
when these variables get far out of line, they should be of concern to policymakers.
• The best means to adjust external imbalances and to avoid
dollar misalignments is to alter the fundamentals. In the
United States, such measures should include reducing the Federal budget deficit and taking steps to raise private saving.
Sterilized intervention by itself is not an effective means for altering long-run exchange-rate levels.
• International macroeconomic policy coordination has had some
important successes over the past 5 years but further progress
could be made. The G-7 coordination process has been most effective in coordinating policies to respond to shared concerns.

FINANCIAL EVOLUTION AND FINANCIAL
SOUNDNESS
A highly developed financial system is central to a modern economy. Financial institutions perform the vital function of channeling savers' funds into the hands of those who wish to use the resources for investment. When these institutions do their job well,
funds flow to their most productive uses, stimulating growth and
improvements in the standard of living. One of the most important
challenges facing policymakers over the next several years is to
ensure that the financial system continues to adapt efficiently to
both domestic and international competitive challenges. At the
same time, policymakers must take care to preserve the fundamental soundness of the system, and to prevent it from imposing unnecessary costs on taxpayers.

BANKING-TYPE INSTITUTIONS AND THEIR
COMPETITORS
Broadly speaking, savers' funds can be allocated to investors in
three ways. The first is through banking-type financial intermediaries such as commercial banks and savings and loans. The
second is through nonbanking financial intermediaries such as pension and mutual funds. The third way is for funds to move directly
from individual lenders to borrowers via securities markets. All
three have advantages. Banking-type institutions, however, have
historically received special attention from policymakers because
they hold the bulk of the funds used by the public to make payments—deposits on which checks can be written. For this reason,
preserving the integrity and stability of the banking system is essential to the daily functioning of the economy.
In recent years, the banking industry has been buffeted by unanticipated problems with loans to developing countries and to the oil



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and real estate industries, as well as by increased competition from
other types of financial institutions, such as securities firms. The
increased competition comes from both foreign and domestic
sources and shows no signs of abating; the innovation of financial
products and the globalization of financial services continues at a
rapid pace.
While these competitive developments enhance efficiency, they
are worrisome to many observers in view of the government's enormous stake in the financial sector. As the thrift industry crisis has
illustrated, the combination of poorly designed policies and sharp
changes in the external environment can be extraordinarily costly.
In the larger commercial banking sector, where the Federal Deposit Insurance Corporation insures almost $2 trillion of deposits,
difficulties have also arisen. For example, in 1988, the commercial
banking industry suffered bad debt losses (also known as chargeoffs) on almost $18 billion of loans, representing 0.97 percent of
loans outstanding. Before peaking in 1986, this ratio had climbed
steadily over the decade—in 1980, it stood at only 0.36 percent. Although the problems in commercial banking are not comparable in
scope with those in the thrift industry, they do underscore the importance of sound regulatory and supervisory policies to ensure
that taxpayers are not asked to bear undue costs.
Thus, policymakers must deal with a difficult tension: many of
the banking industry's troubles can be traced to increased competition from other providers of financial services, but policies that
would protect banks from competition would impose large costs on
their customers and on the economy as a whole. For example, restricting competition in financial services could lead to lower returns to savers, higher borrowing costs for companies, and a concomitant decrease in investment. Furthermore, any such restrictions may be unworkable as international competition increases. In
planning more sensible policies, it is useful first to understand the
basic economic functions of banks and of their principal competitors, the securities markets.
The Economic Role of Banks
Banks have traditionally performed two distinct economic services, one on the asset side of their balance sheets, and one on the
liability side. On the asset side, banks produce and monitor information that is used to evaluate the returns on investment projects.
When such information production is expensive, it is more efficient
to have it carried out in a centralized institution (i.e., a bank) than
to have the work needlessly duplicated by a large number of securities market participants.
On the liability side, banking-type institutions provide a medium
of exchange by issuing claims (checking accounts) that are immediately payable on demand, and that can be used by consumers and



99

firms for transactions purposes. Unlike money market mutual
funds, banks issue these claims while simultaneously devoting
some of their investment portfolios to illiquid assets. Consequently,
bank instability can pose a serious threat to the financial system
and to the functioning of the broader economy. If many of a bank's
depositors demand immediate repayment and a run begins, the
bank will be unable to satisfy its contractual obligations. Furthermore, a sharp drop of bank liabilities, if not offset by other factors,
would result in a decrease in the money supply, which could cause
a recession. The U.S. experience with bank panics in the late 19th
and early 20th centuries was the motivation for the current system
of deposit insurance, as well as for the Federal Reserve's role as
lender of last resort to banks. This system has worked very well in
preventing further panics, although it has become apparent that
deposit insurance can also encourage excessive risk-taking by institutions that do not have enough of their own capital at stake.
While banking-type institutions have clear economic advantages,
allocating credit directly through the securities markets also has
benefits. First, circumventing the intermediary reduces costs.
These costs take the form not only of brick-and-mortar overhead
for banks, but also of reserve requirements, capital requirements,
and deposit insurance premiums, which act as a "tax" on intermediated, or bank-channeled credit. Second, securities markets create
assets that, unlike many bank loans, are easily traded among a
wide array of investors seeking to diversify their portfolios.

CHANGES IN THE FINANCIAL INDUSTRY
Many recent developments in the financial system can be understood in the context of a single trend: an increase in the appeal of
direct, or securities-channeled, credit allocation relative to fully intermediated credit allocation.
Examples of the growing importance of direct credit abound. On
the lending side, commercial paper—uncollateralized borrowings in
the open market—has made large inroads into commercial banks'
traditional business of short-term lending to industrial corporations. The volume of nonfmancial corporations' commercial paper
outstanding has grown from $7 billion in 1972 to $125 billion today,
an annual rate of increase of 18 percent. Over the same time, bank
commercial and industrial loans have grown at only 10 percent per
year. Partly as a consequence, banks' market share of short- and
intermediate-term credit extended directly to domestic nonfinancial companies has fallen from 82 percent to 49 percent.
A similar phenomenon has occurred in mortgage finance. Mortgage-backed securities allow home loans to be purchased directly
by investors, rather than being funded by thrifts or banks. These
securities were developed in the mid-1970s, and by the end of 1988,



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approximately $810 billion in these securities were outstanding.
More than one-third of the financing for mortgage loans on one- to
four-family homes is currently channeled through the mortgagebacked securities market.
The high yield, or "junk" bond market, provides another example of the move to direct finance. Before this market's development
in the late 1970s, only the relatively small number of companies
with investment grade (top-quality) debt ratings of BBB and above
were able to access the public markets for debt. Lesser known or
riskier borrowers had to rely on banks or privately placed debt. By
1988, such noninvestment grade companies had issued more than
$130 billion in new public debt.
Several structural factors, notably the revolution in information
and communications technology, have produced this shift toward
directly allocated credit. With information costs reduced, banks
have found that one of their principal comparative advantages—efficient production of credit information—is no longer as valuable
for some types of credits as it used to be.

Impact of Innovation on Bank Profits
Whatever their causes, the innovations of the past several years
have had a profound impact on the business of banking. Overall,
bank profitability has been falling modestly. The average return on
assets for all banks was 0.79 percent in 1980; over the period 1986
to 1988, it averaged 0.52 percent. This broad trend, however, does
not fully capture the changes in the industry's economics. Variations between the performance of successful and unsuccessful institutions have become much more pronounced. For example, the
return on assets for banks in the lowest 5 percent of the industry
fell precipitously over the same interval, dropping from 0.28 percent in 1980 to an average of -2.18 percent during 1986 to 1988. In
many cases, the largest banks (known as money center banks) experienced more pronounced declines in profitability than their
smaller counterparts, partly as a result of their large exposure to
developing country loans. These banks' traditional customers had
included the largest and most well-known corporations, for whom
the shift to securities market credit was often accomplished with
relative ease.

ADAPTATION TO CHANGE
The widening variations in profitability across banks highlight a
fundamental economic reality: as competition intensifies, some
banks will find that the range of activities where they retain a distinct competitive advantage has narrowed. Many banks still maintain an economic advantage in some traditional lines of business,
such as consumer lending, where information costs are still rela


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lively high, and where banks and thrifts in the aggregate have
maintained their market share.
New Lines of Business for Banks
Some banks have also successfully redeployed old skills into new
lines of business that have been spawned by innovation. The rapid
growth of standby letters of credit (SLCs) illustrates this trend.
Bank SLCs are often used to guarantee the creditworthiness of
commercial paper issues, particularly those of less well-known borrowers. In this way, the provision of credit to corporate borrowers
is efficiently specialized into two component parts—credit analysis
and funding. Banks continue to perform a portion of the credit
analysis, and bear a contingent responsibility should the borrower
be unable to repay. At the same time, the loan is funded more costeffectively through the public market. Thus, unlike a conventional
loan, an SLC does not appear as an asset on a bank's balance sheet.
The volume of bank SLCs grew at a 26-percent annual rate from
1980 to 1988. SLCs are disproportionately important for moneycenter banks, which have been most affected by the loss of traditional lending customers. More generally, other activities have
been specialized in such a way that banks only participate in an
off-balance-sheet fashion. This change is reflected in the increasing
relative importance of fees to banks. From 1984 to 1988, the ratio
of noninterest income to assets for all banks rose from 1.09 percent
to 1.47 percent. The increase was much more dramatic for moneycenter banks, which saw the ratio rise from 1.15 percent to 2.11
percent. As the above discussion suggests, valid economic reasons
support the shift by banks to off-balance-sheet activities. Still, some
have expressed concern about the risks involved, particularly in
light of the fact that current regulations do not impose capital requirements or deposit insurance premiums on all of these activities. (As discussed below, recently adopted international risk-based
capital standards do include letters of credit and thus mitigate this
concern.)
Efficiency of Industry Adaptation
In an unregulated industry, the market mechanism can be relied
on to carry out adjustment efficiently. Indeed, the widening gaps
between strong and weak firms that accompany intensified competition would be seen as a healthy sign of evolution—those that
found a niche of competitive advantage would prosper, while those
that failed to adapt would quickly find themselves in trouble. Unfortunately, deposit insurance can hamper the ability of the banking industry to adapt efficiently to changes in the competitive environment. Normally, firms that stop being profitable are subject to
discipline from their capital suppliers—they are no longer able to
raise money to reinvest in unprofitable lines of business. In this



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way, excess capacity is flushed from an industry. However, deposit
insurance allows banks to keep raising funds even when these
funds are being devoted to activities that are not economically
viable.
According to this line of reasoning, the deterioration in bank
credit quality seen in recent years (as measured, for example, by
the increases in loan chargeoffs) may not simply reflect one-time
adverse shocks in particular sectors and geographic regions. It may
in part be systemic, and attributable to the interaction of intensified competition and lack of capital market discipline. It is interesting to note that the growth in loan chargeoffs has occurred while
net interest margins for banks have remained fairly stable. In
other words, banks have suffered from more bad loan experience,
but in the aggregate have not received increased compensation
from borrowers. One interpretation of this evidence is that some
banks have reacted to heightened competition in part by loosening
their credit standards and offering better terms to lower quality
borrowers.
From the perspective of a policymaker, it is extremely difficult to
identify a priori when banks are pursuing activities where they
add real economic value as opposed to ones where they do not earn
sufficient profits to justify continued investment. A line of business
that is wholly appropriate for one institution may be a money-loser
for another. Often it can take several years for the costs and benefits to show up in the data in such a way that they are visible to an
outsider.
POLICY ACTIONS AND PROPOSALS
The events of the past few years have prompted some important
changes in banking policy. In addition, other options are receiving
increased attention.
Risk-Based Capital Requirements
Risk-based capital requirements are an example of a policy measure that addresses the issues discussed above. In the summer of
1988, 12 industrial nations, including the United States and its
major trading partners, agreed to phase in a risk-based capital
system by the end of 1992. The essence of the system is that banks
investing in riskier types of assets would be made to hold more capital against such assets, that is, assets would be "risk-weighted" for
the purposes of calculating capital requirements. Two other noteworthy features are that: (1) some off-balance-sheet items such as
SLCs would also be added to risk-weighted assets, and hence would
require a capital cushion of their own; and (2) banks from the 12
participating countries would, for the first time, be subject to
common minimum capital standards.



103

By making required capital a function of risk, these rules increase the incentives for self-monitoring among banks choosing the
most aggressive strategies. Also, the risks associated with off-balance-sheet activities are now explicitly recognized. This diminishes
the likelihood that banks will want to engage in such activities
simply as a way to do business without increasing their capital
base.
While the self-disciplinary benefits of increased capital are well
understood, risk-based requirements also allow banks whose comparative advantage lies in safer activities—gathering deposits from
smaller, retail customers, for example—to focus on such a niche
without being unduly penalized for doing so. Were all institutions
to face the same high capital requirements, relatively safe ones
would find it difficult to earn a satisfactory return, and might even
feel pushed toward riskier activities in an attempt to boost returns.
Finally, the international nature of the accord recognizes that although not all bank product lines should be treated the same, all
banks offering the same product lines should. Maintaining a level
regulatory playing field across different countries is an important
goal, and will become increasingly crucial as cross-border investment in financial services continues. Indeed, the need for an international approach to financial policy extends well beyond banking
regulation, and includes such key objectives as harmonizing the
clearing and settlement procedures for securities transactions.
The risk-based capital agreement is certainly not a panacea. The
risk categories involved are quite broad, and do not capture true
economic risk precisely. For example, there is no consideration of
risk caused by movements in the general level of interest rates.
Nonetheless, the accord is a step in the right direction. Improvements in the quality of information available to regulators—perhaps through the adoption of market-value accounting techniques—could lead to better risk measurement and further benefits
from such an approach.

Risk-Based Deposit Insurance Premiums
A similar measure that is often discussed is the use of risk-based
deposit insurance premiums. Institutions currently pay a flat fee
per dollar of deposits for deposit insurance, irrespective of the riskiness of their portfolios. Making the cost of insurance vary in a
market-like fashion, with the risk assumed by the insurer, would
further improve the incentives of banks with respect to choice of
investments.
Both risk-based capital requirements and risk-based deposit insurance programs illustrate an important general principle: many
of the concerns outlined above can be addressed with a system that
allows institutions to opt into a set of rules that best suit their
strengths and strategies. In the above examples, banks can choose



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whether to adopt high- or low-risk strategies, and are then presented with capital requirements or insurance premiums appropriate
for the strategy selected. This opting feature is consistent with the
goal of encouraging institutions to focus on the activities that they
do best.

Thrift Industry Legislation
The recent thrift legislation, the Financial Institutions Reform,
Recovery, and Enforcement Act of 1989, also contains such opting
features. The legislation curtails the direct powers of savings and
loan institutions (S&Ls), requiring them to focus more narrowly on
their traditional areas of expertise, deposit-taking and home mortgage lending. At the same time, the act permits separately capitalized affiliates of thrifts to engage in a broad range of activities so
long as these activities are not funded with insured deposits.
The new law also recognizes that the traditional direct product
lines alone may no longer be profitable for all S&Ls, and provides
for a market-based transfer of S&L assets into the less-restrictive
commercial banking regulatory system: S&Ls can either be acquired by existing commercial banks, or, with some costs, can
choose themselves to switch to a commercial banking charter.
The Need to Modernize the Financial Framework
The dramatic changes of recent years have exerted pressure on
the Nation's Depression-era financial framework. Financial institution law consists of half-century-old statutes and ad hoc deregulation by courts, States, and Federal regulators. The result is a complex web of overlapping rules that can potentially create inequities
and market inefficiencies.
One example is the Glass-Steagall Act, a 1933 law designed to
separate investment banking from commercial banking. Although
recent rulings by the Federal Reserve and the Comptroller of the
Currency have eased certain restrictions, banks are still constrained in a number of activities, including the underwriting of
corporate equity securities. In the current environment, these activities may represent a natural way for some banks to redeploy
existing assets and skills, with concomitant benefits for the economy.
While some favor abolishing Glass-Steagall constraints, others
have expressed concerns—namely, that some institutions might
take advantage of broadened powers to diversify in an uneconomic
fashion, and that the costs of such mistakes may ultimately be
borne in part by Federal deposit insurance. These concerns underscore the fact that Glass-Steagall initiatives, and those related to
deposit insurance, cannot be considered separately from one another. Rather, they must all be seen as coherent parts of a larger



105

effort—an attempt to reevaluate and modernize the Nation's laws
to compete in a global context.
There is no consensus on a single paradigm for modernizing financial regulation, although several models have been proposed. A
glance at other countries reveals a diversity of approaches to issues
such as deposit insurance and the separation between banking and
securities activities. Moreover, many countries are in the midst of
financial reforms themselves, reforms that may have important implications for global competition in financial services.
Clearly, any sweeping proposals to revamp the structure of financial regulation would require study and refinement before they
could be seriously considered for implementation. The Department
of the Treasury is now coordinating a detailed study of Federal deposit insurance, as mandated in the thrift legislation. The time
may be ripe for further work that provides a fundamental reassessment of financial policy, particularly if the analysis is grounded in
the sound logic of encouraging efficient, focused competition among
financial institutions.

SUMMARY OF PRINCIPLES FOR FINANCIAL
REGULATION
As the above analysis makes clear, no easy solutions exist to the
difficult problems surrounding financial regulation. Nevertheless,
important policy principles emerge:
• Continued competitive pressures on banks from new products
and new institutions (domestic as well as foreign) are both desirable and inevitable. Predicting exactly the areas in which
these pressures will next manifest themselves is difficult. Thus,
regulation should create an environment that is hospitable to a
broad range of adaptive behavior by banks.
• Efficient adaptation entails not only entering profitable new
lines of business, but also exiting old ones that are no longer
attractive, and avoiding inappropriate new ones. Regulation
must not encourage institutions to do business in areas where
they would not otherwise be competitive.
• A great deal of information is needed to assess precisely which
activities are profitable for a given institution. Thus, rather
than relying on an inevitably arbitrary list of prohibited activities to guide decisions, it may be preferable to let institutions
themselves make the assessments. If this is to be done, however, it is critical that incentives be properly aligned—institutions must be forced to bear the costs of their mistakes.
• Rules should be applied consistently across all types of institutions undertaking the same activities. At the same time, it can
make sense to have different rules for different activities, and



106

to allow institutions to opt for those rules that best fit their
competitive strengths.

SUMMARY AND CONCLUDING COMMENTS
Macroeconomic policies can make substantial contributions to
achievement of the Nation's economic goals if these policies are formulated appropriately. Experience and research have indicated
that a properly chosen systematic policy program is more likely to
perform well than a short-sighted discretionary approach to policy.
Unpredictable changes in economic and financial relationships
imply that appropriate rules for policy in some circumstances are
rather general. In such cases, when it is inappropriate to specify in
advance how the tools of policy will be adjusted in reaction to particular events, policy credibility is especially useful. Credibility that
policy will achieve its ultimate goals helps to bring about a better
economic outcome in the face of unpredictable change by reducing
uncertainty about future developments and making it easier for
economic decisionmakers to plan for the future.
Increased credibility in one area of economic policy can reinforce
credibility in another area. For example, public belief that the deficit will be reduced according to the Gramm-Rudman-Hollings targets would help build credibility that monetary policy will succeed
in achieving low inflation.
The increasingly integrated world economy implies that policymakers must take careful account of international linkages in designing macroeconomic policies. The international macroeconomic
coordination process can help policymakers work toward sustained
global growth with low inflation, reduced trade imbalances, and
greater exchange-rate stability.
The pace of innovation in financial markets remains rapid.
Maintaining a healthy economy and efficient markets for capital
allocation will require that policies enhance rather than constrain
the ability of financial institutions to adapt to change.
Macroeconomic policies should emphasize long-run economic performance. Thus, these policies should be directed at strong economic growth through increased national saving and investment, controlling and gradually reducing inflation, and fostering a safe and
competitive financial marketplace. Such policies will ensure both
continued leadership by the United States in the world economy
and rising living standards for American families.




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CHAPTER 4

Investing in America's Future
A MAJOR CHALLENGE of the 1990s will be to increase the rate
at which the productive capacity of the U.S. economy grows. Increasing the rates of growth of productive capacity and living
standards will require higher rates of saving and investment. Yet
longstanding tax, spending, and regulatory policies impede national
saving and investment. Partly, if not entirely, because of these government policies, Americans save and invest a smaller fraction of
gross national product (GNP) than their counterparts in other industrialized countries.
The Federal Government cannot, alone, produce dramatic increases in capacity growth. But it can foster an environment conducive to rapid long-term economic growth. The President is committed to maintaining America's economic leadership, and has thus
made it a central element of his economic program to remove impediments to saving, investment, and innovation.
A higher rate of growth will significantly increase living standards and expand opportunities for both current and future generations. The cumulative effect of even a modest increase in the economic growth rate is enormous. Italy had only 40 percent of the
per capita income of the United Kingdom in 1870, but, with an
annual growth rate about one-half percentage point higher, overtook the United Kingdom by the 1980s. Growth rate differences of
fractions of a percentage point have a substantial effect on how
rapidly living standards increase from one generation to the next.
Economic growth can shape society more broadly as well. Rapid
growth creates good jobs, thereby increasing economic opportunities for everyone. The poor benefit not only from these new economic opportunities, but also from the greater willingness of others
to share their gains. Higher economic growth can reduce the potential for conflicts between generations. As the baby-boom generation
begins to reach retirement age early in the next century, the ratio
of retirees to workers will rise dramatically. Improving the productive capacity of the economy will permit the United States to accommodate more easily the needs of the future elderly population.
The prospects for rapid, long-term economic growth in the
United States depend on investment in factories, equipment,
knowledge, and skills. The rate of investment in the United States



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is below that of other major industrialized countries, in part because the United States saves at a lower rate than other countries.
A higher rate of investment will increase the competitiveness of
the U.S. economy. Reducing the bias toward current consumption
will increase saving, thereby raising the accumulation of capital
assets—both domestic and foreign—by Americans. This accumulation in turn will expand the resources available for future consumption. Raising the rate of national saving is essential to fostering greater increases in future standards of living.
Government policies can have a major impact on the environment for economic growth. As stressed in Chapter 3, credible,
stable monetary and fiscal policies are a key to reducing uncertainty and to promoting long-term growth. Tax and spending policies
designed to remove impediments to working, saving, investing, and
innovating can have a strong positive influence on economic
growth. For example, reductions in marginal tax rates and broadening of the tax base, especially after the Tax Reform Act of 1986,
have reduced the impact of tax distortions on economic decisions.
Reducing the uncertainty in the legal system, removing barriers to
the free flow of capital across international borders, and adopting
regulatory policies that maximize market flexibility and encourage
innovation can all improve the climate for growth.

DETERMINANTS OF GROWTH
The Nation's productive capacity depends on the level of technology, the supply and quality of capital, and the number and skills of
workers. Increased utilization of labor and capital translates quickly into growth in the output of goods and services. As in most economic expansions, much of the relatively rapid growth since the recovery began in 1982 can be attributed to increases in the employment and utilization of existing resources, although productivity
growth has also played a role and, indeed, has improved since the
1970s. Because fewer opportunities to increase utilization of available resources remain, the economy will need to rely more heavily
on other sources of growth in the 1990s.

TECHNOLOGICAL CHANGE
Technological advances improve the productivity of inputs and
the quality of output, thereby increasing the rate of economic
growth and raising living standards. Innovations—in the form of
new products, new machines, new production techniques, and new
communication and transportation methods—exert an important
beneficial effect on growth. Entrepreneurs, taking substantial risks
(and sometimes failing), often translate new ideas into new products or processes. The Administration has advanced policies de


110

signed to spur investment in research and innovation and to provide a more favorable environment for entrepreneurial activity and
new business formation.

INVESTMENT IN PHYSICAL CAPITAL
Investment is a second major vehicle for increasing the rate of
economic growth. Increases in physical capital—such as tools and
machinery—make the labor force more productive, as each worker
has more capital to use. Further, new investment permits technological improvements to permeate the U.S. economy, providing
each worker with better capital. Investment is also needed to start
the new business ventures that help to give the U.S. economy its
vitality. Sustained high investment leads to higher productivity,
higher wages, and higher standards of living.
The cost and availability of financial capital are critical parts of
the investment climate. Increases in the total supply of funds to finance investment decrease the cost and increase the availability of
capital. Although domestic saving has provided the bulk of funds
for U.S. investment in recent years, foreign capital inflows—reflecting in part the attractiveness of U.S. investment opportunities—have provided about one-sixth of investment financing. Increasing the rate of national saving will provide more funds for investment and, as discussed below, should help to reduce the U.S.
trade deficit. For these reasons, removing impediments to saving is
a high priority of the Administration.

INVESTMENT IN HUMAN CAPITAL
A third major source of growth is raising the number of workers
and improving their skills. Efforts by workers to increase their
skills through training and education is investment in human capital. A highly skilled work force and a flexible labor market have
long been basic economic strengths of the United States. But the
increased complexity and competitiveness of the world economy
demand new skills, greater training, and additional flexibility.
Chapter 5 analyzes the challenges and opportunities for growth in
human capital in the next decade.

TECHNOLOGICAL PROGRESS AND ECONOMIC
GROWTH
Technological change has played a central role in economic
growth. Many famous innovations—in agriculture, textile manufacture, transportation, communications, and electronics—have played
an important role in economic growth and have led to a transformation of society over the past two centuries. The combined effect
of a host of less visible minor improvements in product designs and



111

production techniques has been equally important. There is a role
for government policy in financing technological progress because
the full benefits of research are rarely captured solely by the firm
or individual undertaking the research. Rather, additional benefits
accrue to society as a whole. Because these additional benefits
cannot be captured as part of the private-sector return, there is a
natural tendency for private markets to do too little research and
development from society's broader viewpoint. The Federal Government can offset this tendency through policies to raise national
spending on research and development.

FACTORS THAT AFFECT TECHNOLOGICAL PROGRESS
Many people view technological progress as the result of work by
solitary scientists or inventors motivated solely by curiosity. Yet
ample evidence suggests that economic factors influence innovation. Thomas Edison, after unsuccessfully trying to sell his first invention (an automatic vote counter), vowed that he would work
only on ideas for things that people would buy. The size of the potential market determines the return on invention and therefore
influences investment in applied research. Even in universities, the
availability of funding influences the direction of basic research.
But invention is only the first step in technological progress. To
raise economic growth, an idea must be translated into a marketable product or service, applied on a production line, or built into a
new machine. Development, which brings the fruits of research to
market, is expensive: two-thirds of U.S. research and development
(R&D) expenditures in 1988 were devoted to development rather
than to basic or applied research. The actual application of an innovation is an important step beyond development. Information
about the technological advance must be disseminated, and workers must be trained to use it. In many cases, it is prohibitively expensive to modify the old capital stock to embody new technology.
Therefore, the rate at which new technology actually augments productivity depends in part on the rate at which new capital goods are
created, i.e., on the rate of investment. A recent study estimates
that 20 percent of the contribution of technological change to
growth in the United States between 1949 and 1983 came from advances that were embodied in capital.
Raising the rate of investment in the United States may increase
the rate of technological progress in other ways, although the size
of these effects is difficult to determine. Higher rates of investment
shorten the lag between innovation and use, increasing the return
on research efforts and spurring additional advances. Further, use
of new capital equipment and facilities may trigger discoveries of
new ways of doing business, new production processes, and new potential products.



112

TRENDS IN R&D SPENDING
The United States spent $127.7 billion on R&D in 1987. This level
reflects dramatic growth, as real R&D spending grew more than
fivefold since 1953 and doubled as a fraction of GNP. As shown in
Table 4-1, the United States spends more on R&D than four other
leading industrialized nations combined. The share of total world
R&D performed by the United States has, however, fallen over the
past 25 years as other countries have grown rapidly and have approached or reached the technological frontier.
TABLE 4-1.—R&D Expenditures for Five Major Industrialized Countries, 1987
France1

United
Kingdom2

United
States

157

28

24

28

21.6

41.4

11.7

88.6

18

As a percent of GNP ..

417

28

13.1

Estimated nondefense R&D expenditures (billions of dollars)

228

24

As a percent of GNP

2

Japan2

164

R&D expenditures (billions of dollars)

1

West
Germany

26

28

18

2.0

1277

Data for France are based on GDP; consequently, percentages may be slightly overstated compared to GNP.
Data for Japan and the United Kingdom are for 1986.

Note.—Foreign currency conversions to U.S. dollars are calculated based on Organization for Economic Cooperation and
Development purchasing power parity exchange rates.
Source: National Science Foundation.

To the extent that R&D produces knowledge with the same benefits regardless of the size of the economy, the absolute level of R&D
spending is the critical measure of R&D investment. An alternative
measure of national R&D spending is its intensity—the share of
GNP devoted to R&D. The United States, West Germany, and
Japan each currently spend about 2.8 percent of their GNP on
R&D, with France and the United Kingdom spending only slightly
smaller fractions of their GNP (Table 4-1). But a larger proportion
of the R&D in the United States is defense-related. The $88.6 billion that the United States spent on nondefense R&D in 1987 was a
smaller fraction of GNP than were nondefense R&D expenditures
in West Germany and Japan.
Although investment in R&D is only part of the explanation for
the rate of technological change, it is clearly important. Average
private rates of return on R&D investment are extremely high: estimated rates exceed 20 percent a year. Moreover, these returns do
not reflect all of the returns to R&D, because it is difficult for an
innovator to capture all of the benefits of an innovation. Some innovations cannot be patented; some patents are hard to defend; all
patents eventually expire. An innovation may have spinoffs or
ramifications that others bring to market. Users of the product, as
well as the innovator, receive benefits. For these and other reasons,
the returns to society of R&D investment are estimated to average
twice those to the firm that makes the investment.



113

THE ROLE OF GOVERNMENT
For basic research, the difference between the benefits to society
and the returns to those who perform the research is often particularly large. Basic research frequently increases knowledge that has
wide application. Because it is usually difficult or inefficient to
keep advances in basic research secret, the benefits accrue broadly.
Private firms must weigh the costs and risks of a potential investment in basic research against the modest fraction of the total expected social benefit that they generally receive, and thus tend
strongly to underinvest in basic research. Moreover, basic research
contributes to the strength of universities, which train scientists
and engineers for the private sector, as well as to our national defense. The Federal Government has a key role in supporting basic
research.
Although industry performs about three-quarters of all R&D in
the United States, the Federal Government plays an enormous role
in science and technology. It provides 47 percent of the funds for
R&D, most of which is undertaken by industry and universities.
The Federal Government carries out R&D at many facilities, accounting for 11 percent of national R&D spending. It helps to finance the education of scientists and engineers. It protects the intellectual property rights of innovators through the patent system
and laws dealing with copyrights, trademarks, and trade secrets. It
encourages private innovation through a 20-percent income tax
credit for research and experimentation (R&E) and by allowing
most R&D expenses to be deducted for tax purposes immediately
rather than spread over several years.

STRENGTHENING THE U.S. RESEARCH BASE
The Administration has proposed a broad program of initiatives
that will strengthen the Nation's basic research base and enhance
private-sector incentives to translate this knowledge into productive innovations.

Improving the Legal Environment
The Administration has advanced important proposals to improve
the legal environment for innovation. First, the Administration is
aggressively pursuing improved international protection of intellectual property. The current negotiations in the Uruguay Round of
the General Agreement on Tariffs and Trade (GATT) are an important forum for developing better international rules. Negotiations
on intellectual property rights are also being conducted in the
World Intellectual Property Organization and in trilateral talks
with the European Community and Japan.
Second, the Administration has proposed reform of product liability laws. The current product liability system, with 50 different



114

State laws, generates excessive litigation, increases the cost of
doing business in the United States, and discourages innovation,
particularly in the form of new products. The Administration supports the adoption of uniform product liability standards based on
three principles of fairness: the right of an innocent person to fair
compensation for actual damages; liability based on responsibility
for harm and not ability to pay; and encouragement of alternatives
to costly litigation. The proposed changes to product liability laws
would maintain incentives to produce safe products, but would restore balance to the tort system and reduce uncertainty—particularly for new products.
Third, the Administration supports continued elimination of unwarranted regulation. Deregulation can spur innovation as well as
lower prices. New telephone equipment was rapidly introduced
after deregulation of the market. Airlines created more efficient
route structures after deregulation. Lives are extended and research is accelerated by the expedited approval of drugs for acquired immune deficiency syndrome (AIDS).
Deregulation also requires a continuous reexamination of existing regulatory policies in light of new technologies. Antitrust regulation, in particular, must be sensitive to changes in technology
and in international competition. Unnecessary and burdensome
regulations must not be allowed to stifle new products and processes.

Restoring the Capital Gains Tax Differential
Although applied research and development have high average
rates of return, they are also quite risky. The high cost of capital
such risk produces is a particularly onerous burden for new ventures and small businesses, which have only limited access to traditional sources of finance. Much of the return to entrepreneurs and
their backers who bring new products to market—particularly
through startup ventures—comes through increasing the value of
the business. Reducing the tax rate on capital gains will reward
those who bring successful ideas to market and will help provide a
climate that encourages businesses to invest In new technologies
and products.
Because capital gains are taxed only when assets are sold, the
current high tax rate discourages the sales of assets and locks in
investors. Reducing the tax rate on capital gains will free these investors to search for more productive new investments.
The Administration has proposed restoring a capital gains tax
differential such as existed before the Tax Reform Act of 1986.
Most major foreign competitors tax long-term capital gains less
heavily than ordinary income, if they tax them at all. A lower tax
rate on capital gains will encourage entrepreneurs to take risks to
advance themselves by creating wealth for others: new firms hiring



115

new workers producing new products for new markets here and
abroad. Reducing the capital gains tax rate will encourage innovation and, by increasing investment, hasten the adoption of these innovations.

Making Permanent the R&E Tax Credit
Under current law, the R&E credit is scheduled to expire on December 31, 1990. Before 1989, the credit was designed so that
higher R&E expenditures reduced future credits, which diminished
the incentives to undertake further research. In 1989, the incentives in the R&E credit were improved without substantially affecting revenue. The Administration proposal to make the credit permanent would be an even more significant reform. It would permit
businesses to establish and expand research facilities without fearing that the tax laws will suddenly change.

Increasing Basic Research Funding
America's leadership in science and technology depends on excellence in basic research. Support for basic research, especially at the
Nation's universities, makes a critical investment in the 21st century, both by creating knowledge and by training a new generation of
scientists and engineers.
The Administration believes that Federal investment in research
should focus on fundamental advances in science and technology
that have broad relevance and that no individual firm or industry
would have the incentive to produce on its own. Accordingly, the
Administration supported substantial increases in Federal investment in basic and applied research in the 1990 budget. For 1991,
the Administration has a number of new initiatives designed to
expand the human frontier. These initiatives include major increases in funding for the National Science Foundation's research
programs (continuing the progress begun in fiscal 1990 toward doubling the Foundation's budget by 1993), for space science and exploration to maintain America's leadership into the next century, and
for the Superconducting Super Collider to provide new insight into
the fundamental structure of matter. Increased funding will be
more effective if it is accompanied by improved management of
Federal research programs. One way to increase the effectiveness
of Federal research spending is to encourage the timely transfer of
scientific advances to private-sector applications.

Relying on the Market
Some have argued for a broad new Federal role: choosing specific
civilian technologies and financing their development or commercialization by special tax treatment or direct subsidy—a so-called
industrial policy. Such an expansion of the current Federal role is
strongly opposed by this Administration.



116

The private sector has inherent advantages over government in
identifying potentially useful new technologies. Private decisions
are disciplined by careful market evaluations of their prospects.
Government decisions, in contrast, are often influenced by noneconomic objectives and based on information supplied by self-interested parties, without regard to taxpayers' cost.
Governments in the United States and elsewhere have shown
themselves to be less able than private businesses to pick specific
technologies that will be commercially successful. They have often
supported fashionable technologies with powerful advocates, rather
than those that are economically productive. The billions of dollars
in development costs and operating losses that have been invested
in the Concorde by the British and French governments illustrate
this phenomenon well. Moreover, in many cases governments have
continued to support technologies in which they have invested,
even if those technologies have been long since demonstrated to be
economically unsound by market and technological developments.
For example, the synthetic fuels program in the United States
lived on for years after its economic futility was evident to most
observers.
Over the past 40 years, the world has learned that excessive government involvement in the economy leads to unsound decisions,
chokes off productive innovation, and, in the final analysis, slows
growth and costs jobs. The best way to support development of civilian technology is through improving private incentives for applied
research and development, not by attempting the impossible job of
second-guessing private-sector investments. It is appropriate, however, for the government to support the development of technologies
clearly related to national defense that a careful analysis indicates
would not be generated by the private market. In such cases, the
government has always relied primarily on the private sector to
undertake the R&D required in the development process.
The Administration's proposals will improve incentives for innovation by:
• Protecting intellectual property through international negotiations,
• Reforming product liability laws to restore balance to the tort
system,
• Removing regulatory barriers to research, innovation, and development,
• Reducing the tax rate on capital gains to spur entrepeneurial
activity,
• Making the R&E tax credit permanent to reduce uncertainty,
and
• Substantially increasing funding for the basic research essential to America's future.



117

CAPITAL INVESTMENT
The United States has devoted substantial resources to investment, but the U.S. investment rate is low by international standards. Gross domestic investment, as a percent of GNP in the
United States, is the lowest of the six major industrialized countries shown in Chart 4-1. Between 1975 and 1987, while the other
countries devoted an annual average of 22.5 percent of their GNP
to national investment, the United States invested only 17.3 percent. Even in Canada—a North American country with a similar
economic structure—investment as a share of GNP was 5.5 percentage points higher than in the United States.
Chart 4-1
GROSS FIXED INVESTMENT AS PERCENT OF GNP.
and 1987 was low by international standards.

Investment in the United States between 1975

Percent
35

30

25

20

15
10

Canada

France

Germany

Japan

U.K.

U.S.

Annual Average, 1975-1987
HI National Investment E^ Private Investment
Source: Organization for Economic Cooperation and Development.

One reason that the United States has a lower investment rate
than other countries is that government policies are biased against
investment. Moreover, several past attempts to address this policy
imbalance have been abandoned after a short period, leading to increased uncertainty in the investment environment. The Administration is committed to removing impediments to investment and to
creating a stable environment conducive to long-run growth.




118

CAPITAL ACCUMULATION IN THE UNITED STATES
The comparatively low rate of investment in the United States is
not a recent phenomenon. As shown in Chart 4-2, real capital purchases have fluctuated around 16 percent of real GNP for the
entire postwar period. During the long expansion since 1982, however, U.S. real gross investment performance has been quite
strong. Similarly, the rate of investment in nonresidential fixed
capital compares favorably with the historical record.
Using an alternative measure of investment, however, the recent
U.S. investment record appears less impressive, even by historical
standards. Chart 4-3 shows investment rates excluding depreciation—real net investment as a fraction of real net national product (NNP). (NNP is GNP less depreciation.) Using this measure, net
investment has remained below the postwar average for the decade
of the 1980s.
The difference between the gross and net investment rates
during the 1980s reflects a change in the composition of the capital
stock. Over time, equipment has risen as a share of the total capital stock. Because equipment wears out more quickly than other
capital, this shift has raised the fraction of the capital stock that
depreciates each year. Because measuring depreciation is difficult,
true economic depreciation may differ from the estimates in the
national income and product accounts. Nonetheless, the movement
toward a greater share of equipment in the capital stock implies
that the difference between gross and net investment has grown
over time.
The significance of this trend goes beyond accounting. The gross
rate of investment is particularly important when new capital is
necessary to incorporate technical advances into production. Both
replacement investment and capacity expansion will offer the opportunity to install improved equipment and newer technologies.
In these circumstances, increasing the gross rate of investment permits faster adoption of innovations, raising the quality of the capital stock.
On the other hand, investment also contributes to economic
growth by increasing the total amount of capital available for production. Only investment above the amount lost to depreciation, or
net investment, serves to increase the available capital stock.
Neither investment measure alone is sufficient to judge the U.S.
investment performance. The gross investment rate is a better indicator of opportunities to improve the quality of the capital stock,
but may substantially overstate total capital accumulation. The
rate of net investment may understate improvements in capital,
but will better measure increases in the stock of available capital.
On balance, the investment rate in the United States is healthy by



119

Chart 4-2
REAL GROSS INVESTMENT AS PERCENT OF GNP.

Gross investment was high in the 1980s.

Percent
20

18

16
All Fixed
14

12

10

l

8
1948

I

l

1952

l

l

l

1956

I

1960

I

l

l

1964

l

l

1968

l

1972

l

l

1976

l
1980

l

I

I

1984

1988

Source: Department of Commerce.

Chart 4-3
REAL NET INVESTMENT AS PERCENT OF NNP.

Net investment was below average in the 1980s.

Percent
12

10

Fixed Nonresidential

I

1948

l

1952

l

l

1956

l

l

1960

i

l

1964

l

l

1968

Source: Department of Commerce.




120

l

l

1972

l

I

1976

l

l

1980

1984

l

l

1988

historical standards, but remains below the investment rates of
other nations.

HOW A HIGHER INVESTMENT RATE BENEFITS THE
ECONOMY
At first glance, small changes in the investment rate may not
seem to have important consequences for economic growth. A
simple example shows that this impression is misleading. Consider
the effect of raising the net private investment rate by 1 percentage point of NNP. Using 1988 levels, this higher rate of investment
would raise the annual growth rate of the net private capital stock
by 0.5 percentage point. After 10 years, this higher growth rate
would generate 6.4 percent more capital. A conservative estimate
of capital's contribution to economic growth is its share of national
income—roughly 30 percent. Using this estimate, the increased
capital accumulation would imply that the level of GNP would rise
by an additional 1.9 percent, which is equivalent to an increase in
the annual growth rate of GNP of 0.2 percentage point.

Small Improvements Matter in the Long Run
Such seemingly small improvements have important implications
over time. A 0.2 percentage point increase in the annual growth of
output would substantially speed improvements in the standard of
living for future generations. Raising the annual growth rate of
real GNP from 2.8 percent to 3.0 percent, for example, would ultimately yield 10 percent more national income after 50 years than
otherwise would have been available. This effect is sizable: 10 percent of 1988 GNP was $490 billion, much larger than total residential and nonresidential construction spending or than spending for
defense and medicare combined.
Thus, even though the consequences of changes in the national
investment rate are substantial, they emerge only gradually. Because even substantial increases in the rate of capital accumulation have only a small immediate effect on GNP, policymakers may
underestimate the importance of a favorable investment climate.
Moreover, the benefits of good policies that are not pursued cannot
be observed directly. The costs of inappropriate policies are accordingly difficult to identify.

ALLOWING CAPITAL TO FIND ITS MOST PRODUCTIVE
USE
Capital should be allowed to move freely to its most productive
use. Private capital markets, driven by the search for the highest
return, weed out investments expected to be inefficient or unsuccessful. Thus, markets are the best judges of investment opportunities, and success and failure are best determined in the competitive
marketplace.



121

The sharp reductions in marginal tax rates in 1981 and 1986
have significantly reduced Federal Government interference with
the allocation of funds among types of investment. The Federal
Government has a smaller impact on private choices. Nevertheless,
Federal Government policies still distort the allocation of funds
across different industries because some industries are protected
and others subsidized. While Federal policies sometimes provide investment funds directly, more often they alter investment incentives. For example, the double taxation of corporate income reduces
incentives for corporate compared with noncorporate investment.
Similarly, the mix of investment between purchases of equipment
and additional business construction has been affected by recent
swings in tax policy. Government tax, regulatory, and spending
policies should interfere as little as possible with the efficient allocation of investment funds provided by capital markets. The Administration believes that preserving the efficient functioning of
these markets is an important foundation for healthy growth.

INVESTING IN INFRASTRUCTURE CAPITAL
Roughly one-quarter of the capital stock in the United States is
owned by Federal, State, and local governments. It is typical
for discussions of investment behavior to focus on business investment, but government capital accumulation can also affect growth.
Because the value of its product is not revealed through market
transactions, the role of government capital in supporting the economy is sometimes underappreciated. For the same reason, however,
government investment is not automatically subject to the same
comparison of expected costs and returns that markets impose on
private investment. Government investment plans should accordingly be carefully scrutinized using rigorous benefit-cost analysis.
The bulk of nonmilitary government capital is owned by State
and local governments, although the original investment may have
been in part federally financed. State and local government capital
consists largely of schools and public infrastructure such as highways, streets, bridges, and sewers. Over the past two decades, a
slowdown has occurred in State and local capital accumulation; the
growth of the capital stock fell from an average rate of 4.9 percent
a year in the 1950s and 1960s, to 2.2 percent in the 1970s, and to
0.9 percent in the 1980s. Part of this decline simply reflects a reduction in the size of the school-age population and the completion
of road networks. But part of this decline is a real slowdown, and
inadequate government infrastructure can impede improvements
in productivity growth.
A growing share of travel is carried by aviation, but many parts
of the current aviation infrastructure need to be modernized and
expanded. The Administration proposes substantial funding in


122

creases for aviation programs in 1991. These programs include
modernization of aviation facilities and equipment, expansion of
airport capacity, and increased funding for operations and R&D.
State and local governments—along with the private sector—
must also fulfill their responsibilities to maintain and expand the
Nation's infrastructure. Taking advantage of productive opportunities to maintain and improve the infrastructure is an important
part of Federal, State, and local government policies to raise economic growth.

FINANCING NATIONAL INVESTMENT
For most of the postwar period, U.S. domestic saving was sufficient to finance domestic investment. As Table 4-2 shows, from
1950 to 1979, gross national saving—the sum of household, business,
and government saving—exceeded gross private domestic investment in the United States, leaving an average of 0.3 percent of
GNP available for net U.S. investment abroad. In those years,
international capital flows were often ignored by policymakers and
analysts, a practice that would be mistaken in today's economic environment.
TABLE 4-2.—The Changing Finance of Investment, 1950-88
[Percent of GNP]
1980 to 1988

1950 to 1979

160

158

16.3

14.1

168

Gross priv3te domestic investment

167
3.8
129

EQUALS:
National saving
Private
Household
Business

. .

s'o

118

_ 4

Government
Federal
State and local

6
2

-2.6

-39
13

PLUS:

_3

Net foreign capital inflows

1.6

Note.—Detail may not add to totals because of rounding.
Source: Department of Commerce, Bureau of Economic Analysis.

FOREIGN SOURCES OF FINANCING FOR NATIONAL
INVESTMENT
The total flow of foreign saving into the United States has been
about one-sixth of domestic investment in recent years. Between
1980 and 1988, the share of GNP devoted to gross investment was
essentially the same as the average from 1950 to 1979, but the
share of national saving fell more than 2 percentage points of
GNP. As a matter of arithmetic, the difference between domestic



123

investment and domestic saving was provided by increased net inflows of foreign saving into the United States.
Foreign individuals and institutions invest their saving in the
U.S. capital market to take advantage of available productive,
high-yield investments. In 1988, these flows of foreign saving into
the United States totaled $219.3 billion. Similarly, some U.S. domestic saving is directed toward investment opportunities in other
countries; in 1988, this saving amounted to $82.1 billion. The difference, $137.2 billion in 1988, is the net capital inflow.
Foreign saving in the United States takes two forms. Some is foreign direct investment (FDD—defined as development of a new
business or acquisition of at least a 10-percent interest in a domestic company or tangible asset, such as an office building. The remainder is portfolio investment—purchases of financial instruments such as stocks or bonds. Of total foreign investment in the
United States in 1988, $58 billion, or 26.7 percent, was FDI. FBI in
the United States has grown rapidly in recent years. According to
balance of payments measures, the book value of all foreign direct
holdings reached $329 billion at the end of 1988, having increased
at an annual rate of 19 percent from its 1983 value of $137 billion.
Some commentators view the growth in FDI with concern, arguing that direct foreign ownership of assets is somehow different
from, and more threatening than, "passive" portfolio investments
such as Treasury bills or corporate stocks and bonds. In general,
such concerns are misguided. FDI benefits both foreign investors
and the host economy. Like domestic investment, it can create jobs,
produce valuable technological spillovers, and generate long-run increases in productivity. Interfering with the free flow of foreign
direct investment into the United States would harm the U.S. economy.
The Magnitude of FDI in Perspective
The magnitude of FDI is widely misperceived. Although FDI in
the United States has increased a great deal in the past several
years, cumulative foreign holdings in the United States remain
modest by international standards. In many other industrialized
countries, total foreign holdings are a substantially larger proportion of gross domestic product (GDP) than in the United States.
Moreover, with the exception of Japan, cumulative investment by
the United States in other countries (again as a proportion of hostcountry GDP) far exceeds these countries' respective cumulative investment in the United States (Table 4-3). Indeed, because investments are measured at book value or acquisition cost, the figures
in Table 4-3 understate the point. While the bulk of foreign holdings in the United States was recently acquired, many U.S. investments abroad were made in the 1950s and 1960s. The historical ac


124

quisition cost greatly understates the current market value of
these older U.S.-owned assets.
TABLE 4-3.—Foreign Direct Investment, 1988
[Direct investment holdings as percent of host-country GDP]
Foreign holdings
in the
United States
United Kingdom
Japan

U.S. holdings
in
foreign country

2.1

.

5.7

.8

».5

1.0

Netherlands

6.8

12.2

Canada

6

West Germany

5

18

Switzerland

.3

10.4

France

.2

1.3

1

Data for 1987.
Sources: Department of Commerce and International Monetary Fund.

Thus, the recent increase in FDI is properly viewed not as an
event unique to the United States, but as part of a process of global
economic integration. It is instructive to recall that the growth of
U.S. direct investment abroad in the 1950s and 1960s was greeted
with widespread mistrust in Canada, Europe, and many developing
countries. One prominent commentator warned that U.S. investment would destroy established European companies. Hindsight
shows that such alarmist sentiment was inappropriate, and that
U.S. investment significantly benefited European economies.
In fact, foreign firms play a relatively small role in the American
economy. Companies with 10 percent or more foreign ownership
employ less than 4 percent of the U.S. labor force. Even in manufacturing, where the FDI presence is the largest, such companies
account for under 14 percent of assets and employ only 7 percent of
all workers. Thus, in absolute terms, as well as in comparison with
other countries, the magnitude of foreign direct investment in the
United States is relatively modest.

DOMESTIC SAVING AND NET CAPITAL INFLOWS
International capital flows break the link between domestic
saving and investment rates in the short run. Net foreign capital
inflows in the 1980s have helped to sustain U.S. investment and
thus have contributed to economic growth, despite the low U.S. national saving rate. Nonetheless, for several reasons, increases in
the national saving rate would further enhance growth in U.S.
living standards.
First, over longer periods, the investment rate in advanced
economies is ultimately constrained by the supply of domestic
saving. Therefore, raising domestic saving is essential to sustaining
the high levels of investment on which economic growth depends




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over the long run. It is uncertain to what extent the United States
could rely on sustained large capital inflows, even if it chose to do
so.
Second, net capital inflows have, in recent years, allowed U.S.
spending to exceed U.S. income. However, this pattern cannot persist
indefinitely. Ultimately, although no one can be sure when, the
United States will have to move to both a current account surplus
and a net capital outflow as foreigners receive the returns on their
investments in the United States. Some have inaccurately claimed
that this transition will mean a reduction in U.S. living standards. In
fact, the transition will require only that U.S. income grow faster
than U.S. spending. The more rapidly U.S.-owned capital accumulates, the more rapidly U.S. income will grow. More rapid accumulation of U.S.-owned capital requires a higher rate of U.S. national
saving. A higher saving rate will thus permit continued healthy
growth of U.S. living standards during the transition to a current
account surplus.
Third, increased net foreign capital inflows are accompanied by
reduced net exports of goods and services (Box 4-1). This can lead
to calls for protectionist trade policies, which interfere with international trade of goods and services and can lower living standards
in the United States and abroad.
The goal of Administration policy is to remove impediments to
national saving. Increased national saving will allow a higher level
of domestic investment that is sustainable over the long run—a
level that can be achieved regardless of the future of net foreign
capital flows.
DOMESTIC SAVING TO FINANCE NATIONAL
INVESTMENT
If U.S. investment performance is poor by international standards, recent U.S. saving performance is abysmal. Chart 4-4 indicates that the national saving rate has been much lower in the
United States than in other industrial economies. Although substantial difficulties arise in measuring "the" rate of saving, by any
measure the national saving rate in the United States is the lowest
of these countries. Moreover, the lower rate of saving does not
appear to be concentrated in one sector of the U.S. economy. Businesses, governments, and households all save at lower rates than
their counterparts in other advanced economies.
The gross national saving rate (national saving as a percent of
GNP) varied around 16 percent during the postwar period until the
early 1980s, when it fell, as shown in Chart 4-5. Although the gross
saving rate has partially rebounded over the past 2 years, during
the 1980s it averaged more than 2 percentage points less than in
the previous three decades (Table 4-2).




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Box 4-1.—The Link Between Lower National Saving and Net
Export Performance
As a matter of accounting, changes in net capital inflows
and changes in trade flows are linked. Changes in trade flows
do not, however, solely determine changes in net capital inflows. Neither are changes in net capital inflows totally responsible for movements in the balance of trade* Instead* economic factors affect both trade and capital flows simultaneously. It is generally recognized, however, that the imbalance between the U.S. saving rate and the higher U.S. investment rate
is the fundamental source of the U.S. trade deficit.
When foreign investors enter U.S, capital markets, they
must first exchange foreign currencies for U.S. dollars. In large
part, these foreign currencies will ultimately be used to pay for
goods and services imported from abroad. At the same time,
U.S. investments abroad create similar transactions involving
the U.S. dollar. The excess of foreign investment in the United
States over U.S. investment abroad is the net capital inflow or
borrowing from abroad* In order to balance the supply of dollars with the demand, this excess must be matched by a corresponding excess of imports to the United States over exports to
other countries.
Adjustments in foreign exchange rates and differences in
rates of return serve to coordinate this process by altering the
incentives for investment and the attractiveness of imports and
exports. For example, as capital flows into the United States,
purchases of dollars raise the exchange value of the dollar,
making imports cheaper and raising the purchase price of U.S.
exports.
The sectoral gross saving rates shown in Table 4-2 help to identify the sources of this decline. The private saving rate has declined
only slightly, but the composition of saving has shifted. During the
period 1980 to 1988, the household saving rate fell by more than 1
percentage point relative to the 1950-79 period, but this decline
was almost fully offset by a rise in business saving.
One possible reason for the decline in household saving in the
1980s is the large rise in household wealth attributable to increases
in the value of household assets. For example, the stock market
boom caused a doubling of the value of corporate stock owned by
households between 1981 and 1988. Increases in wealth that are
not spent are conceptually equivalent to new saving, but are not
included in the national income and product accounts.




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Chart 4-4
GROSS NATIONAL SAVING AS PERCENT OF GNP.
1975-1987 was low by international standards.

Saving in the United States over the period

Percent
35

30

25

20
15
10

Canada

France

Germany

Japan

U.K.

U.S.

Annual Average, 1975-1987
Source: Organization for Economic Cooperation and Development.

Chart 4-5
GROSS SAVING AS PERCENT OF GNP.
in the 1980s.

National saving was below its historical average

Percent

20

18

16

14

12

I

10
1947

1952

1957

1962

1967

Source: Department of Commerce.




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1972

1977

1982

1987

The government borrowing (or dissaving) rate has risen by more
than 2 percentage points between the 1950-79 period and the
1980s, although State and local governments ran surpluses. In the
1980s, Federal Government deficit spending increased by more
than 3 percentage points of GNP from its average over the period
1950 to 1979. Federal Government deficits were the principal reason
for lower gross national saving in the United States during the
1980s.
For some purposes, it is useful to take account of the wearing out
of the capital stock by considering the net saving rate: gross national saving minus depreciation, as a percentage of GNP. The decline in the net saving rate (4.5 percentage points) is even larger
than the fall in the gross rate in the 1980s. While the increase in
depreciation can be traced to shifts in the composition of assets, as
discussed above, its measurement is imprecise. Using net saving
rates, the decline in national saving reflects lower saving by all
three sectors. Between 1950 and 1979, the business saving rate net
of depreciation was 2.9 percent, while between 1980 and 1988, the
net business saving rate was only 1.8 percent.

POLICY TOWARD INVESTMENT
Increased capital investment is a necessary part of more rapid
U.S. economic growth. Policies should be designed to enhance the
opportunities to make productive investments. To do so requires an
understanding of the factors that influence firms' demands for capital investment. Moreover, in an increasingly integrated global
economy, policies should not discriminate among investments by
inhibiting foreign direct investment.

FACTORS THAT AFFECT DOMESTIC INVESTMENT
Investment is largely determined by four factors: expected
growth in future demand for business output and the cost of capital (particularly real interest rates) affect expected profitability,
business confidence influences the risk associated with investment,
and business cash flow alters liquidity. When businesses expect
demand to grow in the future, they must anticipate the pressure on
productive capacity. Unless current capacity utilization is low, the
need to increase the stock of plant and equipment raises investment. Studies find that growth in current output serves as a good
proxy for expected growth in future demand and, of the four factors, has the strongest effect on investment.
Firms will invest as long as the expected profitability of investment exceeds the user cost of capital (Box 4-2). A higher cost of
capital reduces investment by requiring investment projects to
meet a higher standard. The magnitude of this reduction depends




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on business expectations—investment responds most strongly to
lasting changes in the cost of capital.
Box 4-2,—The User Cost of Capital
The user cost of capital for any specific investment, such as
a new machine, is the minimum expected pre-tax rate of
return it must yield in order to be profitable. The user cost includes all costs associated with financing and operating the
machine. Two components of the user cost are strongly affected by government policy.
The first of these is the cost of the money tied up in the investment (sometimes called the cost of capital or the cost of
capital funds), This cost varies directly with market interest
rates and is thus affected by monetary and fiscal policies and
the relation between domestic investment and domestic saving.
The second component is the taxes associated with operation
of the investment. Thus, higher tax rates raise the user cost of
capital, while more rapid depreciation allowances lower it by
postponing tax payments, The double taxation of corporate
profits increases the cost of equity-financed investments.
In addition to its cost, the availability of capital is a significant
factor. Greater business cash flow potentially aids capital formation by allowing firms to finance investment internally. Cash flow
is particularly critical when adverse financial market conditions
raise the difficulty of external finance. Empirical studies support
this argument, finding that higher levels of cash flow are related to
greater investment.
Finally, although difficult to measure, increased confidence about
the economic future reduces the perceived risk of investment decisions, thereby promoting investment. Policies should reflect the
determinants of investment and be designed to minimize interference with investment decisions. Investment responds most strongly to
sustained increases in output and to maintained reductions in the
cost of capital.
IMPLICATIONS FOR DOMESTIC INVESTMENT POLICY
The analysis of key investment factors—output, the cost of capital, cash flow, and the uncertainty of the investment environment—offers insight into policies that can increase investment.
Policy Stability
Monetary and fiscal policies affect both the level and volatility of
the cost of capital and sales growth. Erratic monetary and fiscal
policies make the path of inflation and output more uncertain, inducing lenders and investors to demand a higher rate of return as




130

insurance against the risks of inflation and economic downturns.
Policies that keep the economy close to its potential will improve
expectations about sales growth, and thus encourage investment.
When people expect stable growth, the risk component of interest
rates is lowered and the cost of capital falls.
Stable tax and regulatory policies also encourage investment.
When the rules change sporadically in ways that penalize previous
investment, firms quickly learn that they cannot rely on current
taxes and regulations in the future. These firms are less likely to
invest or to respond to the new incentives. Governments, like individuals, benefit from reputations for credibility.
Unstable policy can also influence the timing and type of investment. Because firms do not know exactly what will happen in the
future, they must consider the risk associated with their choices. If
the environment is highly uncertain, investors may be less willing
to commit their money today, preferring to wait for the cost or
likelihood of mistakes to decline tomorrow. Those who do invest
will likely shift toward short-term ventures at the expense of longterm undertakings.
Maintaining consistent policy toward investment, although difficult, is crucial. Investment spending each year involves a mix of
new projects and completions of those started in the past. Hence, it
takes time for investors to respond to changes in policies. Moreover, as discussed earlier, even substantial changes in the rate of
investment require time to alter the rate of economic growth visibly. Thus, policymakers may be tempted to abandon well-designed,
long-run policies in the interests of short-run expediency.
Given the desirability of stable policies, it is important to avoid
sharp swings in investment incentives. The Economic Recovery Tax
Act of 1981, for example, contained sharply accelerated depreciation allowances that were scaled back or eliminated the following
year. Temporary incentives may produce a temporary investment
boom, but will increase uncertainty about the long-run course of
policy and ultimately discourage long-term growth.
Tax Policy Toward Investment
Tax policy significantly affects the cost of capital. The corporate
and individual income taxes alter the cost of capital, as do depreciation allowances, and, in some past years, investment tax credits.
Tax-induced increases in the cost of capital can lower overall investment. In addition, unequal tax treatment of different types of
capital distorts incentives, alters the allocation of investment
funds, and reduces investment efficiency.
The taxation of capital income at both the corporate and individual shareholder levels increases the cost of capital for corporations.
Corporations pay taxes on earnings from new investment. Shareholders pay additional taxes on these earnings when they receive




131

dividends or when their sale of shares results in a capital gain.
This double taxation of the returns on equity has existed for over
70 years and increases the cost of capital for investments financed
in whole or part by corporate shareholders. Because corporations
may deduct interest payments, but not dividends, the double taxation of returns on corporate equity also induces corporations to
rely more heavily on debt finance. The induced increase in debt, in
turn, raises the risk of corporate bankruptcies, with the attendant
disruption and job loss.
It has been argued that double taxation is illusory because taxexempt entities such as pension funds are large suppliers of capital
funds, and they are not affected by Tax Code provisions applying to
individuals. Similarly, a large fraction of current investment in the
United States is financed from foreign sources. For these investment funds, the incentives depend upon the tax treatment of U.S.
earnings in the home country.
These observations notwithstanding, the evidence favors a view
that firms behave as if their new investment funds come, at least
in part, from new equity. As a result, the cost of capital depends on
the combined effect of corporate and individual taxes. The double
taxation of equity earnings raises the cost of capital to U.S. corporations. Reducing combined taxes on equity earnings such as dividends and capital gains will therefore reduce this restraint on investment.
Tax policy also affects investment by unincorporated businesses.
In 1988, nearly 15 percent of real, nonresidential fixed investment
was undertaken by noncorporate businesses. For these businesses,
one of the most important features of the income tax is the tax
rate on capital gains. Much of the return on noncorporate investment takes the form of increases in the value of the business itself.
Increasing the tax rate on the capital gains on ownership equity
raises the cost of capital and reduces noncorporate investment. A
lower capital gains tax rate provides not only an incentive for increased investment by corporations, but also an incentive to raise
noncorporate business investment.
Further cuts in corporate tax rates would generate only limited
investment incentives. As tax rates fall, taxes have a smaller
impact on the after-tax return to investment. The Tax Reform Act
of 1986 reduced marginal tax rates for corporations and for individuals, limiting the additional investment incentive that can be expected from further rate reduction. The Tax Reform Act also
moved toward equalizing effective tax rates for different assets.
The equalization provided an important benefit by reducing the significance of tax considerations in choosing among investment opportunities.




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In the past, investment tax credits (ITCs) and changes in depreciation schedules were used to provide investment stimulus. ITCs
reduced firms' tax liabilities by a fraction of the cost of equipment
purchased, and hence reduced the user cost of capital for equipment. The ITC was introduced in 1962. Over the next two decades,
the ITC was repealed, modified, or reinstated 7 times, sometimes in
response to business cycle conditions. These frequent alterations in
investment policy increased the uncertainty of the investment environment.
Depreciation allowances have also been used as an investment
incentive. Depreciation allowances are intended to adjust profits
for the costs of using capital assets during production. Accelerated
depreciation was instituted in the 1950s and modified repeatedly
thereafter. The acceleration was designed to lower the user cost of
capital, to adjust imperfectly for inflation distortions, and to provide an incentive for greater investment.
While ITCs and accelerated depreciation stimulated investment,
numerous studies indicated that they had an unfavorable effect on
the allocation of investment among competing investment opportunities. For ITCs, the value of the investment credit was higher for
shorter lived assets. With accelerated depreciation, the stimulus
was also uneven, varying between structures and equipment and
within asset classes. The uneven treatment led to underinvestment
in assets that had less generous allowances and in some cases fostered unproductive investments. The Tax Reform Act of 1986 eliminated ITCs and attempted to match tax depreciation schedules and
real economic depreciation more closely.
The most important investment incentives the Federal Government can provide are stable macroeconomic policies that keep output
near its potential and inflation low, as well as an institutional
framework that permits the free flow of investment to its most
valuable use and encourages new business formation. The United
States should also work toward removing longstanding tax impediments to investment by:
• Restoring the capital gains tax differential and
• Reducing the double taxation of corporate equity earnings.
FACTORS THAT AFFECT FOREIGN DIRECT
INVESTMENT
Many observers see the recent increases in FDI as closely related
to macroeconomic factors, such as the trade deficit or the decline in
the value of the dollar since 1985. But no automatic mechanism
links FDI and the current account deficit. Although, as a matter of
accounting, a higher current account deficit does imply higher net
capital inflows, this change in flows can be effected by receiving increased gross inflows of either direct or portfolio investment from




133

abroad or by a reduced rate of U.S. gross direct or portfolio investment in other countries. For example, FBI in the United States can
increase without a change in the current account if at the same
time the United States is increasing its investment abroad. Indeed,
U.S. companies have continued to increase their direct holdings
abroad in recent years, in spite of large current account deficits—a
recent example being the Ford Motor Company's acquisition of the
United Kingdom's Jaguar PLC.
The data confirm that FBI is driven by much more than just current account balances. As Chart 4-6 shows, FBI inflows climbed in
the late 1970s before a large current account deficit developed and
continue to increase even as the current account improves. The experience of other countries is even more striking. For example,
West Germany has run a current account surplus for decades but
has seen foreign ownership of its manufacturing sector climb to 15
percent.
Chart 4-6
FOREIGN DIRECT INVESTMENT AND THE CURRENT ACCOUNT DEFICIT. Movements in foreign
direct investment are not closely related to movements in the current account deficit.
Billions of 1982 dollars
16 I

Billions of 1982 dollars
1 40

- 30
Current Account Deficit
(right scale)

- 20

- 10

Foreign Direct Investment
(left scale)

i

1973

i

1975

1977

1979

1981

1983

1985

1987

1989

Note: Consumer price index used as deflator. Data are quarterly.
Source: Department of Commerce and Department of Labor.

The upward trend in FDI over the past several years has coincided with a surge of mergers and acquisitions in the United States.
In this same period, acquisitions of existing assets have played a
growing role as a vehicle for FDI. Between 1982 and 1988, the pro-




134

portion of all new FDI (i.e., all foreign acquisitions or establishments of new enterprises) accomplished through mergers and acquisitions rose markedly.
This change reflects in part the development of a larger and
more efficient market for corporate assets—a market that facilitates
the movement of those assets into the hands of owners who expect
to use them most productively. Not only can whole companies be
purchased more easily, but also, because of restructurings and divestitures, particularly desirable assets or divisions can often be acquired on a stand-alone basis.
The United States is one of the most attractive nations in which
to invest, in part because of the sheer size and scope of its markets:
the United States produces 26 percent of the gross world product.
As the global economy becomes more integrated and both U.S. and
foreign firms adopt more sophisticated strategies in response, it is
hardly surprising that foreign companies are, with increasing frequency, the highest bidders for U.S. corporate assets. International
differences in capital costs for some foreign acquirers may also partially explain the rise of FDI in the United States.
Foreign-owned firms operating in the United States receive "national" treatment—they are subject to the same environmental,
antitrust, and other regulations as domestically owned firms. Although the exact tax treatment may be affected by the tax code in
their home country, they are liable for U.S. taxes and are subject
to international tax treaties. They hire from the same labor pool as
U.S. companies. As these facts might lead one to expect, foreignowned firms do not differ markedly from their domestic counterparts in such business decisions as employee compensation and
R&D expenditures.

IMPLICATIONS FOR POLICY TOWARD FOREIGN
DIRECT INVESTMENT
U.S. policy toward foreign direct investment has long recognized
that a free flow of investment capital across borders benefits both
host and investor countries. As noted above, the United States generally provides foreign investors nondiscriminatory treatment
under U.S. laws and regulations. It is in the interest of U.S. consumers, workers, and investors to maintain this open policy.
National security considerations have been a longstanding exception to this open investment policy. Like other developed countries,
the United States has imposed restrictions on FDI in certain sectors for national security reasons. Various statutes incorporate
these restrictions, including the Atomic Energy Act, the Federal
Aviation Act, the Shipping Act, and the Federal Communications
Act.




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Under the Exon-Florio provision of the Omnibus Trade and Competitiveness Act of 1988, the interagency Committee on Foreign Investment in the United States reviews investments with potential
national security implications and investigates sensitive transactions. The President can prohibit or suspend investments that
threaten to impair U.S. national security. By the end of 1989, this
committee had reviewed more than 200 transactions, undertaken
investigations of 6 and referred 3 to the President for a decision. In
each case, the President decided not to intervene. In line with the
Administration's open investment policy and the provision of law,
the Exon-Florio authority will be used only when no other measures are adequate to protect the national security.
Restricting foreign investment in the United States would weaken
the economy. The Administration is pursuing the constructive approach of working to remove formal and informal barriers to international investment throughout the world. The initiatives being
pursued include: encouraging the Organization for Economic Cooperation and Development (OECD) to strengthen the voluntary
accord that grants national treatment to foreign-owned enterprises;
making removal of investment barriers an important part of the
negotiations with Japan on structural impediments; and working
during the Uruguay Round of GATT for discipline on governmentsponsored trade measures associated with investment.

POLICY TOWARD SAVING
The saving performance of the United States reflects, in part,
longstanding features of Federal Government policy. Large, persistent Federal budget deficits directly reduce national saving. Many
types of personal saving are taxed twice, once when the income is
earned and again when the returns on the saving are received. Inflation increases taxable returns to capital without affecting real
returns; these extra taxes further penalize saving and investment.
For businesses, returns to corporate equity, particularly dividends,
are taxed at both the corporate and individual levels. These and
other policies need to be reexamined as part of any effort to increase national saving. Current policies are biased toward consumption—whether in the household, business, or government sectoral against saving.
National saving reflects the actions of the three principal sectors
of the economy. Household saving is the result of the spending
decisions by individuals and families; business saving reflects decisions by firms to retain after-tax profits; and government saving is
the outcome of the political debate over revenue measures and
spending priorities.




136

Government policy should focus on national saving. National
saving determines the amount of domestic funds available for investment, affects the cost of capital, and influences the balance of
trade. Policies toward saving must be analyzed both for each sector
of the economy—household, business, government—and for the
Nation as a whole. Policymakers must be especially careful not to
develop incentives to raise private saving at the expense of public
borrowing, thereby simply transferring a portion of the low national saving rate from the private to the public sector.

GOVERNMENT SAVING
The single most direct way for the government to increase national saving is to continue to reduce the Federal budget deficit. Some
economists argue that reducing Federal deficits would not succeed
in raising national saving because private savers would recognize
the increased government saving and feel a corresponding reduction in their need to save. In this view, private saving adjusts to
offset changes in government saving. This argument is both flawed
and inconsistent with the evidence. For example, in the early
1980s, household saving fell even as Federal deficits rose. Because
there is no offsetting decrease in private saving, reduced deficits
will increase the pool of domestic funds available for private investment. To raise national saving effectively, however, deficit reduction should not be attained by increasing disincentives for private
saving or by reducing government investment.
The Gramm-Rudman-Hollings Act was designed to reduce the
deficit each year, reaching a balanced budget in 1993. The Administration remains firmly committed to deficit reduction. The Federal
Government must end its role as a chronic borrower and stop
draining the Nation's scarce savings pool.
Deficit reduction is not enough in view of the likely future
demands that the retirement of the baby-boom generation will place
on the Social Security system and, indeed, on the whole economy.
The Administration proposes to establish a Social Security Integrity and Debt Reduction Fund to safeguard projected surpluses in
the Social Security trust funds and to reduce the national debt.
Reducing the national debt will increase the pool of domestic saving,
reduce the current account deficit, lower the cost of capital, spur
investment and productivity growth, and lead to higher future living
standards. This proposal would prevent the use of Social Security
receipts to finance other spending, reduce the legacy of public debt,
and leave a more secure fiscal status to future generations.

HOUSEHOLD SAVING
Household saving is the most familiar component of national
saving. Because the saving decision reflects so many individual




137

goals, however, fostering household saving is a difficult policy task.
Households save as a precaution against accident, illness, or loss of
job. For these purposes, savings must be sufficiently liquid to meet
unexpected needs. Households also save to purchase homes and bigticket durable goods and to pay future educational expenses. These
saving goals are particularly important for young families who
have few assets and relatively little financial flexibility. People also
save to help finance their retirement and to leave bequests to their
heirs. For these long-term goals, security or the rate of return to
saving may dominate considerations of liquidity.
The overall household saving rate can change even when all individuals have the same proclivity to save over their lifetimes. One
source of change in overall saving is change in the age structure of
the population. Because of the baby-boom generation, those under
35 have constituted an unusually large fraction of the working population over the past 15 years. Young people typically save relatively little of their income, which explains part of the overall decline in saving. As the baby-boom generation ages, the household
saving rate will rebound somewhat.
The response of household saving to changes in the rate of
return on saving is a critical issue, because tax policy directly affects the rate of return. But increases in the rate of return have
two opposing effects on saving. Higher rates of return lower the
price of future consumption, thus increasing the incentive to save.
Higher rates also reduce the amount of saving required to achieve
a given level of future consumption, thereby reducing the incentive
to save. Although this area is being actively researched and debated, empirical studies on balance suggest that saving increases modestly with higher rates of return.
Several options are available to allow savers to earn the untaxed
rate of return for retirement purposes, but such options are not
typically available for shorter term saving goals. Pensions, Keogh
and 401(k) plans, and, for those eligible, deductible individual retirement accounts (IRAs) all permit individuals to deduct their contributions, with both contributions and earnings taxed only upon
withdrawal.
Another form of tax-preferred savings account would not allow
deductions for contributions. Withdrawals of both contributions and
earnings, however, would be tax free. If a taxpayer is in the same tax
bracket at the time of contribution and at withdrawal, such accounts
would offer the same rate of return as deductible IRAs. As long as
households realize this fact, their spending would be the same under
either type of account.

Individual Retirement Accounts
IRAs represent one means to reduce the double taxation of
saving and reduce the bias against saving. The degree to which this
incentive is successful depends in part upon the limit for contribu


138

tions to the IRA. Higher contribution limits increase the number of
households who receive a saving incentive, because the pre-tax rate
of return will apply to their last dollar saved. Higher contribution
limits therefore raise private saving.
Deductible IRAs and pensions lower the distortion produced by
tax treatment of retirement saving and are a valuable contribution
to the climate for saving. Because of penalties for early withdrawal, however, they are not an attractive vehicle for savers with intermediate saving goals. The inaccessibility of savings in IRAs and
pensions prior to retirement restricts their usefulness for these
purposes. To address this issue, the Administration proposes easing
the withdrawal requirements on IRAs to permit savers to use these
funds for first-time home purchases.

Family Savings Accounts
To further reduce the bias against saving, especially for families
with pre-retirement savings objectives, the Administration proposes
creating a Family Savings Account (FSA). Contributions to FSAs
would be nondeductible, but earnings on contributions would be
exempt from income tax. Annual contributions to an FSA could be up
to $5,000 for married couples and $2,500 for single people. FSAs would
be limited to married couples with incomes below $120,000, singles
with incomes below $60,000, and heads of households with incomes
below $100,000. If contributions were held for at least 7 years, both
the original contribution and all earnings could be withdrawn
without tax. Withdrawals made in the first 3 years would be subject to both ordinary income tax and a 10-percent excise tax on the
earnings alone. Earnings included in withdrawals made after 3
years, but before the 7-year period, would be subject to ordinary
income tax.
The enhanced liquidity of the FSA provided by the shorter holding period is an important addition to policy toward saving. It is
particularly valuable for families who wish to save for such pre-retirement objectives as a child's education or a down payment on a
home. Further, the contribution limits are more generous than for
existing IRAs. FSAs will increase household saving. Moreover, they
are best viewed as part of the larger program to reduce the bias
against saving in the United States.

Social Security
The most important Federal Government policy toward retirement is the Social Security program. Its effect on personal saving
has been the object of intense study and controversy among economists. Individuals can substitute Social Security for retirement
saving. In addition, Social Security reduces the riskiness of retirement consumption because benefits are indexed for inflation and
are paid until the death of both the worker and spouse. As such,




139

they are essentially government insurance of a constant base level
of consumption. These effects may reduce private saving.
Until recently, Social Security ran on a pay-as-you-go basis, with
current workers' payroll taxes paying current retirees' benefits. As
a result, no government saving was available to offset any reduction in private saving, suggesting that Social Security reduced national saving. After many studies and opinions, the weight of the
evidence suggests that Social Security modestly reduced saving in
the postwar period. However, reforms enacted in 1983 will produce
substantial government saving in the future. As discussed above,
the expected increase in government saving will be an important
contribution to national saving, and the Administration has proposed policies to ensure that the integrity of projected future Social
Security surpluses is protected.

BUSINESS SAVING
Corporate saving typically accounts for well over one-half of
gross private saving, yet most debate regarding saving—whether
among policymakers, academics, members of the press, or the
public at large—focuses on either household saving or government
saving. Businesses save out of earnings, by retaining and reinvesting some profits within the business rather than paying them out
as dividends or share repurchases. The impact on business saving
of a particular policy therefore depends critically on its effects on
the level of earnings and on the incentive to pay them out.
By increasing the incentive to retain earnings, a lower capital
gains tax rate will increase business saving. For shareholders, the
return to retained earnings comes in the form of higher stock
prices, which are taxed at the capital gains rate. Therefore, retained earnings are taxed both when the corporate income is
earned and again when the gains are received. Lower capital gains
tax rates will both reduce the pressure to pay dividends and increase the incentive for equity finance. Both effects increase retained earnings.
Under current law, dividends are also taxed twice, once when the
income is earned by the corporation and again when it is paid out
to shareholders. Eliminating the double taxation of corporation
income—which can be accomplished in a variety of ways—has a
theoretically uncertain effect on business saving. It would increase
equity finance, but corporations would have a reduced incentive to
retain their earnings.
Even if business saving is reduced slightly, however, total private
saving might not fall. Eliminating the double taxation of dividends
and lowering the tax rate on capital gains would increase the rate
of return to household savers. Personal saving may increase in response by enough to offset any decline in business saving. More-




140

over, shareholders may change their saving in direct response to
changes in business saving—they may see through the so-called
corporate veil. If corporations save less for their shareholders, the
shareholders can compensate by increasing their household saving.
The available evidence indicates that a reduction in business
saving is indeed offset—at least in part—by an increase in household saving. Shareholders consume only part of the higher payouts.
Share repurchases, takeovers, and leveraged buyouts have increased dramatically in recent years; net equity issues by U.S. nonfinancial corporations have been negative in each year since 1984.
The effect of these repurchases on the corporate debt-to-equity
ratio has been mitigated by the rise in the market value of equity
over the same period. Still, the increasing trend to debt finance
makes it more likely that the net effect of removing the tax bias
against equity finance would be to increase private saving.

REMOVING IMPEDIMENTS TO SAVING
The Administration's proposals are a comprehensive approach to
reducing the current policy bias against saving by households, businesses, and government.
• Reducing the Federal budget deficit is the most reliable policy
to increase national saving. The Administration proposes to go
further, establishing the Social Security Integrity and Debt
Reduction Fund and using it to safeguard projected surpluses in
the Social Security trust funds, to reduce the national debt, and
to help finance increased investment and spur growth.
• Restoring the capital gains tax differential, as proposed by the
Administration, will increase saving by both households and
businesses.
• Establishing Family Savings Accounts (FSAs) will further
reduce the bias against saving. The enhanced liquidity of the
FSA is particularly valuable for families who wish to save for
such pre-retirement objectives as a child's education or a down
payment on a home.

SUMMARY
Economic growth is the foundation upon which the Nation's
future rests. Ensuring solid growth and enhancing the economy's
growth potential are therefore the primary goals of the Administration's economic policy. Economic growth will provide rising
living standards and employment opportunities for American families, as well as the resources to achieve other national goals. In
order to spur growth, the United States must increase its rate of
investment in physical, intellectual, and human capital. It must
also raise the low national saving rate.




141

Current Federal Government tax, spending, and regulatory policies discourage saving and investment. At a minimum, these policies should be moved toward neutrality between consumption and
investment.
The Administration has proposed new initiatives to increase
saving and investment. The most important is the commitment to
a budget policy that will reduce the budget deficit and then the national debt. Restoring the capital gains tax rate differential will increase innovation, investment, and saving. Making the tax credit
for research and experimentation permanent will expand private
expenditures for innovation. Increased Federal spending for research will strengthen the Nation's knowledge base. Instituting
Family Savings Accounts will encourage personal saving.
These initiatives represent a strong commitment to increasing
national saving and investment and encouraging entrepreneurship
and innovation.




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CHAPTER 5

Human Resources in the 1990s
THE SUSTAINED ECONOMIC EXPANSION of the 1980s has
produced remarkable growth in employment and increased economic opportunity. As the Nation looks ahead to the 1990s, new
challenges demand attention. Some have forecast that labor shortages—especially among skilled workers—will dominate the next
decade and may limit the potential for economic growth. Based on
the experience of past decades, however, the remarkably flexible
U.S. labor market should—if left to itself—respond well to these
new challenges. But continued growth will require increased labor
mobility, reduced barriers to employment, and ongoing investment
in the skills and knowledge of the work force.
The President has proposed a variety of new initiatives that will
improve the productivity of American workers and the well-being
of American families. The efforts of this Administration include
new initiatives to raise the quality of the Nation's schools, changes
in existing programs to ensure effective employment assistance to
disadvantaged workers, implementation of a newly designed welfare system, innovative initiatives to improve housing opportunities
for low-income families, and support for legislation that will decrease employment barriers for disabled workers. Coupled with
sound macroeconomic policies, these initiatives will help ensure
productive employment opportunities and economic security for
American families.

ACHIEVEMENTS OF THE 1980s
Job opportunities for the U.S. population improved markedly in
the 1980s. Since the beginning of the current expansion, the economy has created more than 20 million new jobs. The civilian unemployment rate has fallen from 9.7 percent in 1982 to 5.3 percent in
1989, its lowest level in 16 years. In 23 States, the unemployment
rate in late 1989 was 4.5 percent or lower. And for almost every
major demographic group, jobless rates in 1989 were at their lowest
levels since the early 1970s. These gains stand in sharp contrast to
the 1970s, when the rate of unemployment was successively higher
at each business cycle peak.
U.S. employment growth has been especially strong in comparison with other developed nations. Major industrialized countries




143

such as the United Kingdom, West Germany, France, and Japan
have all experienced slower employment growth than the United
States throughout the 1980s. Indeed, the total increase in employment in the United States since 1982 is greater than the increases
in Western Europe, Canada, and Japan combined and is nearly as
great as the entire work forces of Spain and Portugal combined.
Over the past three decades, the American people have clearly
benefited from a remarkably flexible labor market that has successfully created jobs for its workers despite major demographic
and industrial changes. This flexibility stems partly from an ongoing commitment to limit government interference that hinders economic adjustments. It also reflects the historic willingness and ability of the U.S. private sector—both workers and firms—to adapt to
economic change.
For example, the baby-boom generation, born between 1946 and
1964, flooded the labor market in the late 1960s and 1970s. Yet, the
economy successfully absorbed this group. Similarly, women's labor
market participation has risen markedly over the past three decades. That increase in supply did not lead, as might have been expected, to lower wages and higher unemployment among women.
Instead, women have enjoyed substantial economic gains. Female
and male unemployment rates converged in the 1980s for the first
time since World War II. And women's wages increased substantially relative to men's, closing almost a quarter of the gap in pay
rates between the sexes.
In addition, the labor market has responded to major shifts over
the past decade in labor demand across industries and occupations.
International competition, technological change, and changing consumer demands have altered the nature and location of many U.S.
jobs. Job mobility, migration, and skill retraining have all helped
most workers to find new jobs in this rapidly changing labor
market.
Labor markets do not adjust instantaneously. Rather, workers
and employers respond over time to changes in supply and demand
through the workings of the market. The growing economy in
recent years has made it even easier for unemployed workers and
new labor market entrants to find jobs and for working Americans
to increase their living standards.

CHALLENGES OF THE 1990s
Perhaps shaped by experiences during the Great Depression in
the 1930s, the debate on macroeconomic policy over the past five
decades has been heavily influenced by fears that the U.S. economy
could not produce enough jobs for its workers. Undoubtedly, occasional episodes of declining economic growth and rising unemployment will occur. But analysis of impending labor market develop-




144

ments in the 1990s suggests that other concerns will also demand
attention. Many observers now worry about the availability of
workers—especially skilled workers. Some have even argued that
labor shortages will dominate the 1990s and may slow economic
growth.
Indeed, changes in the labor force and the economy over the next
decade will produce new challenges. The relatively small baby-bust
generation is moving into its working years, reducing the share of
new labor market entrants in the population. At the same time,
the demand for skilled labor is likely to increase as the relative importance of the service sector grows.
As in earlier decades, the labor market should naturally adapt to
these changes over time. Firms will shape compensation packages
to attract and train the workers they need, and workers will respond to the higher wages that result from expanded skill demands
by seeking additional training. Appropriate government policies
can help quicken the pace of adjustment. To ensure an environment in which economic growth can be sustained over the next
decade, private business must work together with all levels of government to provide Americans with the skills and the education
necessary to function effectively as workers in a modern economy.
Chapter 4 of this Report discusses the need to increase investment in physical capital and in research and development. This
chapter examines the concurrent need to increase the Nation's investment in human capital by expanding the skills and knowledge
of the Nation's youth and strengthening job training for the existing work force. Reducing barriers to labor mobility and to the use
of additional sources of labor—such as immigrants, the elderly, and
the disabled—will also be necessary if employers and workers are
to adapt quickly to labor market change.
The years ahead will provide a unique opportunity to integrate
the poor and disadvantaged into the work force. A healthy and
growing economy will provide additional opportunities for poor
families to raise their living standards. Policies that increase employment and earnings of the poor can both reduce poverty and
add to the Nation's productive resources.
Impending changes in the labor force pose real challenges for the
1990s. But those who argue that labor shortages will stall the economy in the next decade ignore the flexibility and adaptability of
U.S. firms, workers, and governments.

THE CHANGING U.S. POPULATION
Several major demographic trends will influence the U.S. economy and its labor markets in the 1990s. The steady aging of the
baby-boom generation will continue to increase the average age of




145

the work force. As Chart 5-1 shows, the percentage of the population between ages 30 and 49 rose from 23 to 29 percent between
1970 and 1988, and is projected to rise to 31 percent by 2000. The
percentage of the population age 65 and over will also continue to
grow, while the percentage age 85 and over will grow even more
rapidly. At the same time, the lower birth rates that followed the
baby boom have resulted in a declining number of teenagers and
young adults in the population.
Chart 5-1
AGE DISTRIBUTION OF THE U.S. POPULATION. The aging of the population means a more
experienced work force, a declining share of teenagers, and an increasing share of elderly.
Percent of the resident population
40

30

20

10

Under age 18

Age 18 to 29

Age 30 to 49
^ 1970

Age 50 to 64

Age 65 and over

^| 1988

Source: Department of Commerce.

In addition, the share of the population composed of racial and
ethnic minorities—particularly blacks, Hispanics, and Asians—continues to increase. Growth in the Hispanic community has been
particularly rapid. Since 1980, as a result of higher birth and immigration rates, the Hispanic population has expanded at a rate five
times as fast as the rest of the population. Inflation-adjusted
weekly earnings among full-time minority workers have not risen
since 1980. After several decades of steady growth, relative weekly
earnings of black men have also remained flat throughout the
1980s, at about three-fourths of white men's weekly earnings. Employment has gone up among minority workers, however, increasing labor market income for this group as a whole.




146

This changing population mix has important implications for the
U.S. labor market. The movement of the baby-boom generation into
its thirties and forties means a work force that is, on average, older
and therefore somewhat less flexible and mobile. The declining
share of teenagers and young adults has meant labor shortages for
those industries that traditionally hire young people for part-time
jobs. At the same time, employment opportunities have increased
for those older persons who seek employment.
The growing population of Hispanic and Asian workers, many of
whom speak English as a second language, will need to adapt fully
to the U.S. labor market. This population will also create new challenges for schools and employers to offer training and assistance to
enable these workers to be fully integrated into the economy. Historically, this challenge is familiar to the U.S. economy; current
immigration rates, while above those of recent decades, are well
below those around the turn of the century. The labor market successfully absorbed these earlier immigrants, who worked hard for
economic security in their adopted country. The growing share of
racial and ethnic minorities in the work force also underscores the
importance of ensuring equal economic opportunities for all workers.
Not only is the composition of the U.S. population changing, but
so are the ways in which individuals form families and households.
The proportion of individuals who do not live with any relative
continues to increase, both because young adults spend more years
living on their own and because the number of elderly single individuals has been rising. The share of female-headed households
with children is also increasing, from 5 percent of all households in
1970 to 7 percent in 1988. Concurrently, the share of marriedcouple households has declined, from 71 percent of all households
in 1970 to 57 percent by 1988. The nature of these married-couple
households has also changed dramatically; in most of today's marriages, both husband and wife work. Even among married women
with preschool children, 53 percent work at least part-time outside
the home.
These trends underscore the increasing importance of women's
earnings. More women are the sole earner in the household, either
as single individuals or as single parents. Moreover, married couples are relying more heavily upon women's earnings. By 1985,
women's earnings provided 28 percent of all income among white
households and 46 percent of all income among black households.
Women's wages have risen relative to men's over the past decade,
and continued improvements in job opportunities and wages for
women will help many low-income households improve their standard of living.




147

These demographic and household trends set the stage for some
of the important labor market challenges of the 1990s:
• Adjusting to an aging labor force and a smaller number of new
labor market entrants.
• Absorbing a larger share of workers from varying ethnic and
racial backgrounds and ensuring economic opportunities for all
workers.
• Continuing the expansion of women's labor market opportunities.
The Department of Labor estimates that more than two-thirds of
all new labor market entrants between 1988 and 2000 will be Hispanic, Asian, black, or female. Strong economic growth depends on
finding productive employment opportunities for these workers.

SKILLS AND EDUCATION: INVESTING IN HUMAN
RESOURCES
A modern growing economy requires an educated and flexible
labor force. The median years of schooling acquired by young
adults (aged 25 to 29) rose steadily in this country to an historic
high in 1976 of 12.9 years. But there has been no increase since
then, while the need for a more highly skilled labor force continues
to grow. Raising the quality of education in elementary and secondary schools is at least as important as increasing years of schooling.
Higher achievement among students of every age will better prepare tomorrow's workers for productive employment. The Federal
Government can play an important leadership role in stimulating
improvement in the education and training of U.S. workers, but it
is important to recognize that the primary responsibility for this
task resides in State and local governments and in the private
sector.

THE GROWING NEED FOR SKILLED LABOR
The demand for more highly educated labor has increased steadily for many decades in the United States. As Chart 5-2 indicates,
the share of jobs in occupations requiring greater education has expanded. In 1970, 21 percent of the work force were in white-collar
jobs (professional, administrative, managerial, and technical occupations). By 1988, 28 percent of workers held these jobs. Correspondingly, the share of blue-collar jobs (production, craft, operative, labor, and agricultural work) fell from 40 percent to 31 percent. The share of sales, clerical, and service jobs rose slightly, and
there was a shift toward more skilled jobs within these categories.
These occupational changes have been closely related to the declining share of employment in traditional manufacturing industries and the rising share in service-producing industries. In con-




148

Chart 5-2
TRENDS IN OCCUPATIONS. Projected growth in white collar and service occupations will demand
a more highly skilled labor force in the future.
Percent of civilian labor force
50

OTHER
BLUE COLLAR

40

WHITE COLLAR

30

20

10

Professional, administrative,
managerial, and technical

1970

Production, craft, operative
labor, farming, forestry,
and fishing

Clerical, services, and sales

1988 ^ 2000-Based on projected
occupational change

Source: Department of Labor.

trast to the stereotype of service-sector jobs as low-skilled labor, the
growing service sector in general contains a higher percentage of
jobs requiring more education. Fully 24 percent of workers in the
service-producing sectors of the economy held a college degree in
1980, while only 20 percent had no high school diploma. In contrast, only 11 percent of the workers in the goods-producing sectors
held college degrees, while 30 percent had not completed high
school.
As the economy continues to shift toward services, the need for
skilled labor will continue to rise. The Bureau of Labor Statistics
predicts that the fastest employment growth between now and the
year 2000 will occur in white-collar occupations, where 57 percent
of all workers are college graduates and 97 percent are high school
graduates. Blue-collar occupations, where only 5 percent are college
graduates and 71 percent are high school graduates, will continue
to shrink.
EDUCATION AND PRODUCTIVITY
Just as a healthy economy requires investment in physical capital to maintain productivity growth, so it requires investment in




149

human capital—in the education and training of workers. The
skills and attitudes that young workers bring to the labor force are
shaped by their families and by the public and private school systems of this country.
Education raises skill levels that increase job performance and
productivity. Higher mathematics and verbal achievement scores
are associated with higher labor productivity and wages. Years of
school are related to increased future earnings and lower risk of
unemployment. Moreover, studies show that workers who are
better at understanding directions, asking questions, and solving
problems are also more productive.
Increased education also provides greater job flexibility for workers in a changing economic environment. When production technologies change, better educated workers learn new procedures more
easily. Moreover, when economic change leads to job loss, better
educated workers find new jobs more readily.
Concern over declining school quality in the United States has
led researchers to probe more deeply into the relationship between
educational achievement and economic growth. Studies suggest
that 10 to 15 percent of economic growth after 1945 was attributable to improvements in education. Thus, improving the quality of
education may have lasting effects on the Nation's standard of
living.

TRENDS IN BASIC SKILLS
A high school diploma is often considered the minimal requirement for a good job. Currently, 85 percent of the 20- to 24-year-old
population has completed high school. High school graduation rates
have been largely stagnant since the mid-1970s (Chart 5-3). The
primary exception occurs among young blacks, whose dropout rates
have fallen and whose high school completion rates have increased
steadily to a current level of 82 percent. Among young Hispanics,
however, high school completion rates remain at a very low 57 percent. The 15 percent of young adults who are high school dropouts
face low earnings and high unemployment rates (Box 5-1). The
lack of significant progress over the past decade in raising overall
high school completion rates is a serious concern for an economy
with a declining need for unskilled workers.
As important as whether a student has completed high school is
the level of achievement a student attains in high school. The National Assessment of Educational Progress (NAEP) indicates that
high school students' performance in basic subject areas either improved slightly or remained constant over the past two decades, although minority students showed marked improvements. Nonetheless, a significant number of high school students still lack adequate basic skills. The NAEP indicates that about 14 percent of 17-




150

Chart 5-3
HIGH SCHOOL COMPLETION RATES BY RACE. Total high school completion rates have been
largely stagnant for the last decade, although completion rates of blacks have increased.
Percent

90
Whites

80
Blacks

70

A
Hispanics

Xs

s v

60

...

^-^*^

/

y

\

*x

^

V

\\

\

j

i

i

i

i

i

i

i

i

i

I

1968

50

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

Note: Data are percent of 20 to 24 year olds with high school diplomas.
Source: Department of Commerce.

year-olds cannot read above the "intermediate" level, attained by
nearly three-fifths of all 13-year-olds. Nearly 60 percent of all 17year-olds cannot read well enough to "understand, summarize, and
explain relatively complicated information," according to the
NAEP. International comparisons of science and mathematical
competency show U.S. students performing below students from
such countries as Japan, South Korea, the United Kingdom, and
Spain. Major improvements in the quality of U.S. schools are badly
needed. Policies must be implemented that will reward excellence
and increase the skills and achievement of U.S. students at all
levels of ability.

TRENDS IN HIGHER EDUCATION
An increasing number of jobs in today's economy require collegelevel training. Moreover, maintaining competitiveness in technological development and innovation requires a pool of well-trained researchers with advanced university degrees.




151

Box 5-1.—Widening Earnings Differentials
Real median hourly earnings (earnings adjusted for inflation) have increased over the past decade, but since the mid1970s the hourly earnings of young male high school graduates
and dropouts have fallen dramatically relative to the earnings
of more educated workers. More educated workers have seen
substantial real earnings growth, implying that the economic
rewards to education are rising. But real earnings among less
educated workers have actually declined, even during the expansion of the 1980s. These changes have occurred across all
age groups.
These shifts in relative earnings are still only partially understood, but they are clearly related to the increased competition in the world market for manufactured goods, which has
led to a decline in high-wage, low-skilled jobs. The widening
earnings differences are attributable to more than just sectoral
shifts away from manufacturing, however, for they are also occurring within nonmanufacturing industries. If these changes
persist, economic opportunities for low-skilled workers in the
United States will be seriously limited. The rising rewards to
education, however, will enhance the incentives for workers
and students to invest in education and training.
Undergraduate Degrees
The growing demand for skilled workers means a growing need
for college graduates. However, the share of 25- to 29-year olds who
have completed 4 or more years of college has been virtually unchanged at about 22 percent of the young adult population since
the early 1980s (Chart 5-4). Some evidence indicates increasing college enrollment rates among recent high school graduates, but this
increase has not yet fed through to college completion rates. Only
12 percent of young blacks and 11 percent of young Hispanics complete 4 or more years of college. Not shown in these data is a small
increase in college completions among older students who return to
school at a later age.
The rising cost of a college degree may be holding down college
completion rates. Since 1980, the cost of a bachelor's degree at 4year colleges and universities grew twice as fast as the consumer
price index. The availability of financial aid (primarily student
loans) has helped to offset these mounting costs, but the out-ofpocket expenses paid by students and their families has nonetheless risen.




152

Chart 5-4
COLLEGE COMPLETION RATES BY RACE. After rising through the mid-1970s, the percent of young
adults completing four or more years of college fell in the late 1970s and leveled off in the 1980s.
Percent
30

Whites

25

20

15

10

Hispanics

I

\

I

I

I

I

I

1968

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

Note: Data are percent of 25 to 29 year olds who have completed four or more years of college.
Source: Department of Commerce.

Rising relative wages for college-educated workers at least partially reflect a rising demand for their services. Over the long run,
higher earnings of college graduates should induce a greater
number of students to attend college, even in the face of rising college costs, although a lag may occur before high school students respond to this incentive.
Advanced Degrees
In an increasingly competitive international economy, the
United States needs highly trained specialists and researchers;Uiis
requires a growing pool of workers with advanced university degrees. While information is available only on the total number of
advanced degrees awarded, assuming that these degrees are given
to 25- to 34-year-olds, then about 7 percent of young adults currently receive a master's degree in some field, while slightly fewer than
1 percent receive a Ph.D. These percentages have fallen slightly
over the past decade, although large increases have occurred in the
number of business and management masters' degrees awarded.
Recipients of advanced degrees are disproportionately white
males. Although black and Hispanic students receive more than 8




153

percent of all bachelors' degrees awarded, they receive only 7 percent of all masters' degrees awarded and 5 percent of all Ph.D.s. In
contrast, women receive approximately one-half of all masters' degrees. But women still receive a disproportionately small share of
the doctoral degrees awarded, particularly in the natural and computer sciences and in engineering. Attracting a wider range of students into advanced study in all fields will expand the pool of
future researchers and broaden the diversity of research perspectives, building the Nation's capacity for creative research and technological advance.

ON-THE-JOB TRAINING
Because many jobs require a significant amount of on-the-job
training, workers do not stop learning when they leave school.
Some of this training involves classroom participation or organized
on-the-job teaching, but much of it involves informally learning
procedures and responsibilities. Wages of workers who have received on-the-job training are between 10 and 30 percent higher
than those of workers with similar characteristics who do not receive such training, a clear indication that on-the-job training results in productivity increases. On-the-job training also often encourages long-term job retention.
Approximately 5 to 12 percent of the work force claim to have
participated in formal on-the-job training programs. (Estimates
vary depending on how training is defined.) A higher percentage
(around 15 percent) indicate that they have received informal onthe-job training with their current employer.
Theoretically, on-the-job training could reduce skill differentials
that result from differences in formal education. The evidence indicates, however, that workers with more years of schooling are more
likely to receive formal on-the-job training. Training is also more
likely among white workers, more experienced workers, and fulltime workers. Thus, there is little evidence that on-the-job training
offsets other differentials; given the group of workers who receive
it, it may well widen them. As skill demands rise, employers in the
years ahead may have an incentive to provide on-the-job training
to workers who have not traditionally received it.

IMPROVING THE EDUCATION AND SKILL LEVELS OF
U.S. WORKERS
The Administration is strongly committed to improved education
and training opportunities for all Americans. State and local governments have traditionally accepted primary fiscal responsibility
for education, with the Federal Government providing small
amounts of financial support—only 8.5 percent of the funds spent
on education in 1986-87, for example. The Federal Government,




154

however, still plays a vital role in shaping educational policy, as exemplified by last fall's Education Summit. For only the third time
in history, a President called together the Nation's Governors and
the Cabinet to discuss a vital national issue. As a result of this
summit, the Administration is working with the Governors to
define national performance goals for the educational system, to increase spending for preschool programs, to strengthen efforts at
school reform, and to provide greater flexibility in Federal and
State funding for local schools.

Improving Elementary and Secondary Schools
In terms of average per pupil expenditures, U.S. spending on elementary and secondary education is greater than that of most
other industrialized nations; only Switzerland spends more resources per child. Despite these expenditures, elementary and secondary students do worse on educational proficiency exams than
students from many other nations. Thus, the challenge is not to
spend more, but to spend more effectively. Elementary and secondary education in this country must be dramatically improved. For
instance, the President has challenged the Nation's schools to
make U.S. students first in the world in mathematics and science
skills by the year 2000. Improving the quality of education and
training will require local school flexibility to meet the needs of
students with diverse backgrounds, choice by students and their
families to ensure high-quality schools, and accountability of educational institutions to achieving performance goals and standards.
The Administration's proposed Educational Excellence Act (Box
5-2) is designed primarily to provide leadership and support to
State and local governments to improve the quality and effectiveness of America's schools and the achievement of America's students. Schools are the Nation's most prominent investment in its
human resources; more than 4 percent of gross national product is
spent on elementary and secondary schools alone. It has become
clear over the past 20 years, however, that spending more money
does little by itself to guarantee better schools. Once other aspects
of the school environment are taken into account, differences in
school expenditures have little relationship to educational achievement. Parental background and home environment are crucial determinants of achievement, but so are effective teaching and certain aspects of school organization, as the Educational Excellence
Act recognizes.
Good education requires effective teachers. While teachers' real
salaries are now at all-time highs and have been rising relative to
those of other workers, many educators still express concern that
teaching is not attracting the highest quality applicants. Particularly as a host of new career options have opened up for women,
many of whom have traditionally trained as teachers, good female




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Box 5-2.—The Proposed Educational Excellence Act
Because of its strong commitment to better schools, the Administration has proposed the Educational Excellence Act.
This act will strengthen the quality of education in this country by providing;
« Presidential Merit Schools awards to schools making
progress in raising educational achievement, creating a
drug-free environment, and reducing dropout rates;
• Presidential Awards to excellent teachers;
• Short-term assistance to districts establishing magnet
schools;
* Assistance to States developing alternative teacher certification programs;
* Emergency Grants to urban school districts with severe
drug problems;
• A National Science Scholars1 program to fund top high
school students who undertake college work in the sciences, mathematics, or engineering; and
* Matching funds to support historically black college and
university endowment fundraising.
college students have often been encouraged to enter other fields.
Many States are working to improve teacher quality by attracting
better students into teaching and through alternative certification
and better preparation and training. Excellence in teaching can be
rewarded through merit pay systems and greater public recognition of effective teaching.
Teachers need an effective school environment in order to do
their jobs well. The President has spearheaded an effort, together
with the Nation's Governors, to establish national educational performance goals, including a challenge to raise high school graduation rates to 90 percent and to make all schools drug free by the
year 2000. A number of States have adopted statewide minimum
competency tests to identify students and schools that require special attention and to ensure that schools provide students with an
identified set of basic skills. In addition, many school districts are
trying to involve private employers much more closely in the
school system, both by encouraging employers to offer students valuable work experience, and by soliciting advice from employers on
the skills needed by students. Some school districts are also exploring expanded school hours, a longer school year, and greater parental involvement in school decisions. The key is not only to allow
schools flexibility to use the educational methods most effective for




156

their students, but also to demand that schools be accountable for
the resulting skill levels of their students.
The Administration particularly supports efforts to improve the
quality of schools by offering students and their families a greater
choice over which school they can attend, thus expanding competition among schools and increasing parental involvement in the
education system. Allowing extensive parental choice among
schools is a new idea, and from this and related reforms are emerging models of how school districts can implement choice most effectively.

Increasing Participation in Higher Education
The U.S. system of higher education—vocational programs, colleges, and universities—has long been among the best in the world.
It is important to maintain the quality of this vital national resource and, given the increasing demand for skilled workers, to encourage even more students to use it. Improving the Nation's elementary and secondary schools will increase the number of students who are prepared for higher education. But other changes
may be desirable as well, including those proposed in the Educational Excellence Act.
Counseling high school students about the possibilities and advantages of further education, and encouraging them to continue
their studies, could increase college and vocational school enrollments. Greater involvement of private business in schools may also
help, if students learn about the advantages of college or vocational
education through internships or contact with older workers. Extremely low rates of college and university attendance among minority students are a particular public concern, especially because
these students represent an increasing share of new work force entrants. High schools serving these students should prepare and encourage them to continue their education.
Higher education costs money. Because a student cannot use as
collateral the career enhancement that higher education is designed to provide, government has come to provide loan assistance
as well as grants and fellowships to low-income students who need
this help. The Federal Government provides directly or subsidizes a
substantial portion of all financial assistance—loans and grants—
received by college students. Continuing support for these college
aid programs is important, with continuing attention to their ongoing effectiveness and targeting.
Increased access to graduate degree programs is important to
maintain a first-rank group of university-level researchers and
teachers. The Federal Government has long encouraged advanced
study and research. For instance, the National Science Foundation
(NSF) finances fellowships to students pursuing advanced degrees
in particular scientific fields. The NSF also underwrites fellowships




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that promote advanced research and study by minorities and
women in the sciences. Given current concerns about potential
shortages of personnel in technical and scientific areas, continued
Federal funding of these and similar programs should help encourage a diverse group of students to pursue advanced study.
Adult Literacy
Led by the First Lady's work on behalf of adult literacy, this Administration has raised the level of public concern about the 20
million adult Americans who are functionally illiterate. These
adults have difficulty performing simple tasks such as filling out a
job application or reading a child's report card. Workers who lack
basic skills are less productive on the job and experience higher unemployment. Furthermore, adult functional illiteracy can make it
harder to improve school achievement; children of parents with low
educational skills are also more likely to do poorly in school and to
drop out.
Improvements in the Nation's schools will come too late to help
these adults. Adult literacy is the focus of a wide range of private
sector programs and volunteer organizations. One study estimated
that 36 percent of Fortune 500 companies provide remedial basic
skills programs to their workers. An estimated 200,000 volunteers
provide individual and small-group tutoring to other adults. A variety of Federal, State, and local agencies also support or provide
adult literacy services.
This Administration is strongly committed to reducing adult
functional illiteracy. By publicly recognizing volunteers and private
organizations working in this area, the Administration has increased the visibility of these efforts. The Administration is also
committed to better coordinating Federal adult literacy programs,
increasing Federal funding for these programs, and expanding research on effective adult literacy teaching techniques.

Job Training
Although improvements in the public and private school system
of this country are important, classroom schooling is not the only
way to provide a quality work force. On-the-job training may be
more appropriate. The primary responsibility for training rests
with employers and workers. As new skills are needed, employers
have incentives to provide appropriate training to their workers,
and workers have incentives to seek such training.
The Federal Government has a history of limited involvement in
job training, largely through programs aimed at low-skilled and unemployed workers. The leading public job training program today
is the Job Training Partnership Act (JTPA), which works with the
private sector to educate, train, and provide employment-related
services to targeted groups of workers. JTPA finances programs for




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displaced workers, disadvantaged youth, migrant and seasonal
workers, Native Americans, and veterans. The public-private partnership created by JTPA is important to its effectiveness. Additional skills are useful to individuals only if the workplace needs them.
The Administration has proposed amendments that improve the
targeting and effectiveness of JTPA services for workers facing serious barriers to employment. These amendments include enhanced
performance standards to increase accountability; better coordination of services and more attention to individual needs to improve
program quality; and more intensive and comprehensive services
for disadvantaged youth and adults to improve targeting. In addition, the Administration is implementing the Family Support Act
of 1988 (discussed below), which requires all States to provide education, job training, and job placement programs for public assistance recipients.

THE CHALLENGE FOR THE 1990s
To ensure high economic growth in the future, all American
workers must acquire effective skills and education. This effort will
require building a three-way network consisting of the public
schools and other government training programs, the private
sector, and the households of workers, parents, and children who
are part of both the school system and the work force.

LABOR SHORTAGES, WORKER MOBILITY, AND
IMMIGRATION
As the U.S. economy enters the 1990s, concerns are growing
about the effects of possible labor shortages on production and
wages. Employers in some areas of the country report a shortfall of
entry-level workers and are paying wages well above the minimum
wage to attract new employees. Other firms report difficulties in
hiring suitably trained employees for more skilled positions.
In many cases, limited supplies of workers with particular skills
or in particular geographic areas have developed from changes in
the labor force, forcing employers to intensify their efforts to attract new workers. In other cases, uneven patterns of economic
growth and technological change have altered the skill requirements or location of jobs, resulting in labor shortages for employers
in growing areas or industries and job losses among workers whose
skills have become obsolete or who find themselves in areas with
few job opportunities.
Most of the time the labor market has readily and naturally resolved such imbalances. Employers perceiving a labor shortage
have often raised wages to attract workers, encouraging new entry
or geographic mobility. Other firms have relocated to areas with a




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greater supply of available workers, coupled lower hiring standards
with remedial and on-the-job training, or targeted nontraditional
sources of labor such as older workers and the handicapped. Immigration has also been an important source of new workers in particular industries and occupations.
Labor markets typically do not experience long-run imbalances,
but gradually adjust to changes in supply and demand. Governments can help the market to adjust more promptly and efficiently
by avoiding or easing regulations that inhibit labor mobility and
restrict the use of alternative sources of labor.
LABOR MOBILITY
In recent years, changes in the composition of output and in
methods of production have shifted the demand for workers across
industries, occupations, and geographic areas. As some jobs were
eliminated, new jobs were created that required new skills and
abilities. Because job elimination often occurred in geographic
areas or in industries different from those of job creation, some
workers were displaced from their jobs while others found new opportunities.
Overall, the evidence suggests that workers have adapted quickly
to these structural changes. Researchers estimate that the gross
flows of workers between employment and nonemployment vastly
exceed the net changes in employment and unemployment reported in the official data. Even when the economy shows no net job
creation, some estimates suggest that roughly 10 percent of all jobs
each year are new, resulting from new business creation or the expansion of existing businesses. This job creation offsets the annual
disappearance of about 10 percent of the jobs in the economy as
firms close their doors or lay off workers. Compared with such rapid
rates of job turnover, the annual net increase in jobs has been
roughly 3 percent during the current economic expansion. The
ability of the United States to combine high job turnover with rapid
employment growth and low unemployment reflects the flexibility of
U.S. labor markets and the adaptability of the U.S. labor force.
For some workers, of course, shifts in labor demand can create
problems of adjustment, characterized by spells of unemployment
or reductions in wages. These problems do not suggest that governments should prevent changes in the labor market. Rather, policies
should be designed to ease the transitional disruptions associated
with labor market change and to reduce barriers to mobility. The
experience of workers who make successful job transitions indicates that encouraging geographic and skill mobility will promote
more efficient labor market responses to economic change.




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GEOGRAPHIC MOBILITY
All regions have shared in the current economic expansion, enjoying sizable employment gains and declining unemployment
rates. But the pace of economic growth over the past decade has
varied across regions. Many areas on the eastern and western seaboards and in the Southeast have experienced strong economic
growth, aided by industrial diversification and a shift toward services since the mid-1970s. Growth in some areas of the Midwest has
been slower, reflecting foreign competition in many heavy manufacturing industries and problems in agriculture. Many local economies in the Southwest still suffer the lingering effects of the decline in oil prices between 1981 and 1986.

National Migration
Free movement of workers within the United States offers a potential source of labor to employers in prosperous areas and potential opportunities for workers in depressed areas. For example,
strong employment gains in both the South Atlantic and Pacific
Coast regions have stimulated increased migration to those areas.
In contrast, net outmigration has occurred from the Midwest and
East South Central regions, where economic growth has been less
robust.
Despite the widening regional differences in economic opportunities, overall migration rates did not increase in the 1980s. Between
1980 and 1987, about 6 percent of the population moved to a different county each year and about 3 percent moved to a different
State, similar to mobility rates in the 1970s.
In part, workers may not have migrated more because in many
areas higher living costs offset better labor market opportunities in
the 1980s. Regional variation in housing prices widened considerably, as prices for both new and existing homes rose rapidly in various markets of the New England, mid-Atlantic, and Pacific States,
but posted declines or only small increases in many parts of the
South and Midwest. Because the largest increases in housing prices
often occurred in areas with the greatest economic gains and employment opportunities, some workers who might otherwise have
migrated to those areas were likely discouraged by high housing
costs.
Other factors also influence migration. For example, differences
in climate and local public services are an important consideration
for many households and partly explain the steady migration from
the snowbelt areas of the North to the sunbelt regions of the South
and West over the past two decades. A more important factor in
the 1980s, however, may have been the aging of the U.S. population. Possibly because of stronger family and social ties, established
workers are less likely than younger workers to uproot their fazni


161

lies and relocate to another part of the country. As a result, the
aging of the baby-boom cohort may have reduced the geographic
mobility of the population in the 1980s. While an older work force
in the 1990s will continue to hold down geographic mobility, increases in the percentage of young, educated workers, who often
participate in national rather than regional labor markets, could
partially counteract this trend.

Firm Location
Firms also migrate, often relocating to labor markets with larger
pools of potential employees. Moreover, new firms, which contribute significantly to economic growth and job creation, base their location decisions, in part, on wage costs and labor quality. In effect,
the market often brings the jobs to the people.
In the 1970s, this type of mobility helped to reignite growth in
once-depressed areas. As local economies in the industrialized
Northeast deteriorated in the wake of the energy shocks of the
1970s, for example, new ventures in light manufacturing and services took advantage of the relatively experienced work forces remaining in those areas. Similarly, much of the improvement in the
economies of the sunbelt regions resulted from decisions by employers to locate new plants where labor costs were traditionally low.
And while employers in some areas located parts of their operations abroad, by outsourcing production to low-wage countries,
some foreign producers set up plants in the United States.
More recently, changing patterns of regional growth have again
reduced the regional dispersion in labor markets. Sluggish employment growth has led to an increase in unemployment rates over
the past year from their very low levels in New England and in
some mid-Atlantic States. At the same time, however, employment
opportunities have improved markedly in many Southern States,
reducing joblessness in areas experiencing relatively high rates of
unemployment.
Recent advances in telecommunications and computers have enhanced a firm's ability to link dispersed locations—both office to
office and home to office. As a result, the physical location of workers and jobs may become even less important, increasing the speed
at which market forces balance geographic variation in economic
growth.
OCCUPATIONAL MOBILITY
As might be expected, economic growth in the 1980s has also led
to shifts in employment across occupations and industries. Productivity gains and international competition have eliminated many
traditional blue-collar jobs, while the computer revolution and the
expansion of the service economy have boosted the demand for
technical and service-oriented skills. In response, workers have dis


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played a high degree of occupational mobility, either by switching
occupations voluntarily as economic opportunities improved, or out
of necessity, after losing a job.

Voluntary Job Changes
About 10 million workers, or 9 percent of employed workers,
switched occupations in 1986, the latest year for which data are
available. Nearly 90 percent of those workers who switched occupations did so voluntarily, following a career plan, or seeking better
pay or working conditions. Such job changes enable workers to improve their economic status and, at the same time, allow the labor
market to adjust to changing demand conditions.
The propensity to change occupations is highest for younger
workers. Moreover, much of the labor market adjustment to
changes in the composition of demand occurs through the initial
choice of a career, usually by relatively young labor force entrants.
This propensity is not surprising, given older workers' large accumulated investments in training and skill development. But it suggests that the aging of the baby-boom cohort could reduce the occupational mobility of the work force as a whole in the 1990s.
Education offers a possible solution to the demographic factors
reducing occupational mobility. Because of the expanded opportunities available to them, more educated workers exhibit higher mobility rates than less educated workers. For tomorrow's work force,
greater educational achievement can both broaden workers' initial
career options and improve their potential for advancement.

Displaced Workers
Although most workers who changed occupations in 1986 did so
voluntarily, 1.3 million persons switched occupations as a result of
a job loss, typically reflecting a plant closing, production cutbacks,
or elimination of a particular job. Such job displacements are an
expected result of economic and technological gains that benefit
the population as a whole, but can bring hardship to individual
workers. Clearly, the ability of these displaced workers to transfer
their skills to another job is important in maintaining the flexibility of the U.S. work force.
Many displaced workers find employment fairly soon after their
job loss. More than 25 percent of displaced adult workers who
switched occupations in 1986 found new jobs right away. More than
70 percent of workers displaced between 1983 and 1987 were employed in 1988; another 15 percent had retired or otherwise left the
labor force.
Significant numbers of displaced workers were not successful in
finding new jobs, however. The unemployment rate for displaced
workers—14 percent in 1988—is well above the national unemployment rate. And more than one-quarter of those who did find new




163

full-time positions experienced a drop in earnings of more than 20
percent.
In general, higher education levels and geographic mobility
appear to lessen the costs of a job loss. Reemployment rates for displaced workers were significantly higher among more educated
workers; higher levels of schooling substantially reduced both the
time spent unemployed and wage losses. Workers who moved to another area after a job loss were also much more likely to find another job, with the percentage of displaced workers who moved
typically averaging about 13 percent.
Retraining is another important component of strategies to increase work force flexibility, particularly for workers with low general skills. Title III of the Job Training Partnership Act authorizes
funds for retraining displaced workers. This program is projected
to serve about 260,000 workers during the 12-month period beginning July 1, 1989, with an average training period estimated at 26
weeks.
Finally, the private sector also plays an important role in assisting workers threatened with a job loss. Many employers attempt to
reassign workers within the firm when jobs are eliminated by new
technologies. In addition, several major union contracts now mandate retraining for workers displaced for this reason.
IMMIGRATION
When labor market mobility is insufficient to eliminate area- or
industry-specific labor shortages, employers often turn to immigrants. Throughout U.S. history, economic growth and job opportunities have drawn millions of foreign-born persons to this country,
both legally and illegally. Of course, factors influencing immigration include family ties and the freedoms offered by the United
States. But whatever their motivation for coming to America, immigrants traditionally have adapted well to the U.S. labor market
and have contributed significantly to long-run U.S. economic
growth.
Between 1980 and 1988, legal immigration averaged 580,000 persons per year—about one-quarter of 1 percent of the U.S. population. This rate of immigration was above the pace of the 1970s, but
well below the average immigration rate prior to 1921, when numerical restrictions on immigration were first introduced. Efforts
to control illegal immigration, estimated by the U.S. Census
Bureau to have added between 100,000 and 300,000 illegal aliens
each year in the first half of the 1980s, led to the Immigration
Reform and Control Act of 1986. This act restricted the employment opportunities of illegal aliens by imposing penalties on employers who hired them, but offered legal immigrant status to
aliens who were in the United States before 1982.



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Do immigrants take jobs that would otherwise go to U.S. workers
and depress wages in particular areas and occupations? The many
case studies of this question provide no conclusive answer, and disagreement over the existence and magnitude of any effects continues to be widespread. However, one recent study of 120 cities between 1970 and 1980 found that, on average, an increase in the
number of immigrants equal to 1 percent of a city's population
(more than four times the annual rate of immigration to the
United States as a whole) had a negligible effect on the employment status of less-skilled native workers and reduced their wage
rates only about 1 percent over that 10-year period.
Moreover, numerous studies suggest that the long-run benefits of
immigration greatly exceed any short-run costs. The unskilled jobs
taken by immigrants in years past have often complemented the
skilled jobs typically filled by the native-born population, increasing employment and income for the population as a whole.
Currently, U.S. immigration policy is based primarily on the humanitarian principles of family reunification and refugee resettlement. Fewer than 10 percent of immigrants in recent years were
admitted because of their skills. Less skilled immigrants will clearly continue to be a valuable resource for employers. Yet, with projections of a rising demand for skilled workers in coming years, the
Nation can achieve even greater benefits from immigration by augmenting this traditional emphasis on family reunification with
policies designed to increase the number of skilled immigrants. Immigrants with more education or training will likely make the
greatest contributions to the U.S. economy, suggesting that basic
skill levels could be one guide to admitting new immigrants under
a skill-based criteria.

POLICIES TO ADDRESS SKILL SHORTAGES
Policies designed to increase the quality and extent of education
among today's youth may be the most important investment society can make to promote greater labor market flexibility in the
years ahead. Continuing efforts at all levels of government to
remove barriers to geographic and occupational mobility also are
warranted.
For many workers, the lack of affordable housing restricts mobility. Linking Federal housing subsidies to tenants and making the
subsidy portable is one way to overcome housing affordability barriers to greater geographic mobility. Eliminating State and local
laws—such as rent control and overly restrictive building codes
and zoning regulations—that limit the availability of such units,
and enactment of the Administration's proposal, Homeownership
and Opportunity for People Everywhere (discussed below), could
also increase labor flows to rapidly growing areas.




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Similarly, efforts to revitalize economically depressed areas
through removal of barriers to growth could transfer job opportunities to areas of high unemployment. The Administration's commitment to develop public/private partnerships through the creation
of urban enterprise zones can encourage private investment and
job creation in these areas.
Immigration policy can also contribute to the smooth operation
of the U.S. labor market in the 1990s. While continuing the humanitarian principles that have shaped immigration policies in the
past, the Federal Government can encourage the immigration of
workers with skills important to the economy, both by increasing
the number of visas for workers with a job in hand and by increasing quota levels for potential immigrants with higher levels of
basic and specific skills. This approach will strengthen the prospects for successful assimilation of immigrants into U.S. society
and increase the economic gains from immigration for the population as a whole.
Efforts to expand domestic sources of labor will also help prevent
potential shortages. The increasing share of healthy active elderly
persons in the population could be a particularly useful labor
market resource. In the years ahead, it may be increasingly
common for employers to provide incentives for older workers to
postpone retirement, or to accept part-time work after retirement,
giving firms continued access to the expertise of the Nation's most
experienced workers.

IMPROVING THE OPPORTUNITIES OF LOWINCOME HOUSEHOLDS
This Administration is committed to an antipoverty agenda calling on the Federal Government, in partnership with State and
local governments, to:
• Maintain a strong economy to ensure economic opportunities
for unemployed and underemployed Americans.
• Work with the private sector to provide the training, assistance, and incentives that will help those with the ability to
support themselves to achieve independence and self-sufficiency.
• Supplement family resources when necessary to provide ongoing and adequate support for those in need and unable to
work, particularly the elderly and severely disabled.
Integration of more low-income households into the economic mainstream will not only help these families gain economic independence, but will also increase the productive resources of the Nation
and help maintain economic growth through the 1990s.




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POVERTY IN THE UNITED STATES
The primary measure of economic need in the United States is
the poverty rate, the percentage of individuals who live in families
with income below the poverty line. (The poverty line, which varies
with family size, is an approximate measure of the minimal
amount of income necessary to purchase food, shelter, and other
necessities.) As Chart 5-5 indicates, the poverty rate fell steadily
through the 1960s, reaching a low of 11.1 percent in 1973, but rose
again to a peak of 15.2 percent during the recession of the early
1980s. By 1988, the poverty rate was down to 13.1 percent, with 32
million individuals below the poverty line. While the poverty rate
has fallen steadily for the past 5 years, too many families still confront daily problems of economic need.
Chart 5-5
POVERTY RATE. The poverty rate rose sharply in the early 1980s, but has since declined.
Percent of population

22

20

18

16

14

12

10

I

8

1960

1962

1964

1966

1968

1970

I

I

1972 1974

1976

1978

1980

1982

1984

1986

1988

Source: Department of Commerce.

The aggregate poverty rate obscures significant differences
among different types of households. The elderly have experienced
the most dramatic decline in poverty rates; by 1988, the poverty
rate among elderly persons was at an historic low of 12 percent.
While poverty has fallen among the elderly, however, the poverty
rate among children has risen, as Chart 5-6 shows. In 1988, one
child in five lived in a family with income below the poverty line.




167

High poverty among children is closely related to the growth of
female-headed households in the population, who have disproportionately high poverty rates. In 1988, more than one-half of all poor
children lived in female-headed families. In addition, poverty rates
are much higher among minorities than among whites, as Chart 57 indicates. While 10.1 percent of white individuals were poor in
1988, 31.6 percent of black individuals were poor, and 26.8 percent
of Hispanic persons were poor. In female-headed black and Hispanic families with children, poverty rates approached 60 percent.

DISTINGUISHING AMONG THE POOR
Individuals who can work may lack training, available jobs, or
access to adequate and affordable child care. In the long run, these
individuals may be able to support their families, but need shortterm assistance to reach self-sufficiency, such as temporary income
support, child care, assistance in household management, job training, and assisted job search. Government programs to help these
individuals must balance the need for adequate short-term assistance with the goal of long-term independence.
Not all poor people need this type of assistance. Some are temporarily poor, but have the resources to escape poverty quickly without any government assistance. The 6 percent of the poor who are
full-time students are in this category. Other poor individuals
cannot be expected to earn the income necessary for their support.
This group includes both children and elderly persons, who together constitute almost one-half of the poor, and those with serious
mental or physical disabilities. If these individuals do not have
family support, society must provide the safety net of resources
necessary for their support.
It is sometimes quite difficult to determine whether a particular
individual can work. For instance, single mothers with very young
children may be unable to work because of household demands
rather than because of any inherent lack of earning ability. Arguments over the generosity and scope of public programs often revolve around these difficult judgments. The remainder of this section will focus on those low-income households who are generally
considered able to benefit from employment-based strategies.

THE VALUE OF A HEALTHY ECONOMY
For the employable poor, the most important government responsibility is to maintain a stable and healthy economic environment
that offers positive incentives and opportunities for all workers.
The burden of unemployment is disproportionately borne by lowwage and less skilled workers. Indeed, the high poverty rates of the
early 1980s reflected the high unemployment rates experienced at
that time.




168

Chart 5-6
POVERTY RATES BY AGE. In the 1980s poverty rates of the elderly reached a record low, while
children's rates remained high.
Percent of population
^^

30

-

25

20

15

10

1966

1968

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

Source: Department of Commerce.

Chart 5-7
POVERTY RATES BY RACE, 1988. Poverty rates for blacks and Hispanics exceed those for whites,
while rates for female-headed households are high regardless of race.
Percent
70

60

50

40

30

20

10

All persons

Female-headed households
with children
White

m Black

Source: Department of Commerce.




169

Hispanic

In contrast, when unemployment falls and the demand for workers increases, unemployed workers can find jobs and underemployed workers can increase work hours. Younger low-income
households, particularly male-headed households, typically show
strong income growth in an expanding economy, predominantly because of increased hours of work. The recent declines in poverty
have occurred largely because of the sustained economic expansion.
TARGETED ANTIPOVERTY PROGRAMS
While a healthy economy is important in any government strategy to fight poverty, by itself it is not enough. Not all low-income
households benefit from economic expansion. Elderly households,
who are largely unable to expand their work hours, tend to show
few gains. Female-headed households have not experienced substantial income gains during economic expansion. One reason why
poverty rates have not fallen further during the economic expansion of the 1980s is the increase in female-headed families, whose
incomes have been less responsive to economic growth. Thus, general policies that foster economic growth must be buttressed by
strategies aimed at assisting particular groups.

Women and Children
Recent Federal initiatives, currently being implemented by this
Administration, are designed primarily to provide new economic
opportunities for poor women and their children. A disproportionately large share of poor families are headed by women—53 percent in 1988—and 90 percent of these families contain children
under age 18. The steady increase in the share of poor families accounted for by female-headed families has been referred to as the
feminization of poverty. Concern over this trend, coupled with concern over high children's poverty rates, has resulted in a new approach to assistance for this population.
The primary income assistance program designed to aid lowincome single-parent families has long been aid to families with dependent children (AFDC), which provides income supplements to
eligible low-income families with children. Responsibility for
AFDC's funding and program structure is shared among the Federal and State governments. The median State in January 1989 paid
AFDC benefits of $360 per month to a woman with two children
(the average AFDC family) and no other income. When combined
with food stamps worth $210 per month, this support provided the
family with benefits equivalent to $570 per month, 73 percent of
the 1988 poverty level. AFDC benefits are set by the States, however, so that a family receiving AFDC and food stamps will have benefits equivalent to less than 50 percent of the national poverty line
in some States and close to 100 percent in others. Although income
from AFDC plus food stamps is the base level of economic support



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available to a family, most poor families receive additional public
assistance from other programs (such as fuel assistance) or they
have other income sources, thereby raising their total resources
relative to the poverty line. In addition, all AFDC recipients are eligible for health care assistance through medicaid.
AFDC was initiated in the 1930s to aid needy children without
fathers. One of its primary purposes was to prevent widows from
being forced into the labor market, allowing them to remain at
home with their children. The changing nature of the program and
the rising participation of women in the labor force, however, have
resulted in significant recent changes in AFDC. Concern over longterm reliance on AFDC has led to an emerging consensus that
AFDC participants need more than cash assistance; if they can
work, they should also be expected to participate in education,
training, and job placement programs to enable them to become
economically self-sufficient. The "workfare" experiments run by a
variety of States in the 1980s indicate that targeted work experience, job search, and job placement programs can be cost-effective
techniques that assist AFDC recipients to work more and rely less
on AFDC income. Furthermore, the individuals who benefit most
from these programs are those women with little or no recent work
history.
The success of these State experiments led to passage of the
Family Support Act of 1988, which requires all States to establish a
Job Opportunities and Basic Skills Training (JOBS) program for eligible AFDC recipients. The Administration is strongly committed to
working with States to ensure that the JOBS program is effectively
implemented to expand employment opportunities for poor women,
as well as for the small number of two-parent families currently
receiving AFDC. AFDC recipients who are able to work are expected to recognize their mutual obligation to their community: in exchange for AFDC support, they are required to participate in
JOBS. States are given flexibility to design the education, job training, and employment programs most suitable for their population
and economy. The JOBS programs must provide child care assistance as well as transitional child care assistance and medicaid coverage for up to 12 months after an individual leaves AFDC because
of increased earnings.
The Administration is also committed to enforcing child support
payments. Child support payments ensure that both parents share
the economic burden of raising children. In 1987, only 44 percent of
poor female-headed families with children had child support
awards, and only 72 percent of these families (32 percent of all poor
female-headed families) received child support payments, many of
which were less than the award. In recent years, States and the
Federal Government have sought to levy and enforce child support



171

orders on absent fathers. The Family Support Act strengthened the
ability of States to establish mandatory payment guidelines and to
locate fathers and directly withhold their wages.
This policy alone will not have substantial effects on the poverty
rate among women and children, both because absent fathers of
many poor children are unemployed or employed at very low wages
and because child support collected on behalf of AFDC families is
primarily used to offset AFDC expenditures and thus does not
produce much of an increase in overall family income. But, for
women who increase their earnings and move off AFDC, child support payments can be an important additional source of income.
Moreover, child support enforcement has the added social benefit
of emphasizing that both parents have ongoing responsibility for
their children.

The Working Poor
Providing incentives and opportunities for employment and
better jobs among low-income families increases their economic independence, decreases government spending, and increases the productive work force of this country. About 48 percent of all poor
families contain an employed worker, while 16 percent contain a
full-time, year-round worker. Increased economic opportunities
that allow these working poor families—especially those working
full-time and year-round—to escape poverty will also provide incentives for other low-income persons to increase their employment.
For these reasons the Administration has proposed a new and refundable income tax credit, the child credit, for families with an
employed parent and young children. This credit would increase
income by lowering taxes among low-income families or by providing cash supplements to families with no tax liability. In addition,
the Administration proposes making the existing dependent care
tax credit refundable to increase its usefulness to poor families
with child care expenses. This approach, rather than the alternative of subsidizing child care centers, allows families to choose the
type of child care they need and involves less government regulation.
The Administration has also proposed a dramatic expansion in
the Head Start program for preschoolers. This program significantly
improves children's subsequent school performance and would also
help low-income parents meet their child care needs. The 1991
budget requests a $500 million increase in budget authority for
Head Start, a 36-percent increase over 1990 spending.
The President has signed an increase in the minimum wage to
$4.25 per hour by 1991, and he sought and obtained a lower training wage for newly employed teenagers. This innovative provision
will encourage employers to hire and train young workers and will



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offset the loss of employment opportunities that teenagers have
historically experienced when the minimum wage is increased.
Providing incentives for labor market activity among low-income
households is particularly important because it offers role models
for children and teenagers in poor households. Teenagers and
young adults in low-income families need to be convinced that
those who play by the rules—finish high school, stay off drugs, do
not get pregnant as a teenager, and find full-time work—can
escape poverty and make a better life.
Lack of medical insurance can also cause problems for the working poor. Controlling for other differences, the uninsured are less
healthy and receive less medical care than the insured; they also
pay a higher share of medical expenses out-of-pocket. In 1987, 29
percent of all poor individuals were uninsured. In fact, the rate of
uninsurance is higher among the working poor than among the
nonworking poor because persons who receive AFDC (or supplemental security income, a program for poor elderly and disabled individuals) also have access to publicly provided insurance through
medicaid. Many low-wage jobs, especially jobs in small businesses
that cannot obtain low-cost group insurance coverage, do not offer
health insurance.
Recent expansions in medicaid eligibility mandate that States
must provide medicaid coverage to pregnant women and children
under age 6 in families below 133 percent of the poverty line by
April 1990. At their option, States may expand coverage to pregnant women and infants in families up to 185 percent of the poverty line. These medicaid expansions may be particularly useful in
reducing infant mortality in low-income families.
Implementing the President's National Drug Control Strategy
will help decrease the health problems experienced by drug abusers and their families. Medical care for women and children has
become particularly costly in certain inner-city locations where cocaine addiction of mothers is linked to serious infant and maternal
health problems. Although the number of poor mothers who are
drug abusers is very small, the visibility and cost of the problems
they create underscore the need to wage an effective war on drugs.

The Unemployed
The Administration's efforts to improve the quality of schools, its
war on drugs, and its education and training programs for disadvantaged persons are all designed to bring more individuals into
productive employment. After 7 years of economic growth, the
share of the poor who are unemployed, or seeking more work than
they can find, has fallen. But some individuals who may be able to
work remain unemployed, often because they lack the necessary
labor market experience, work skills, or training. This condition




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may be particularly costly to younger persons who have never held
a steady job.
The Job Training and Partnership Act of 1982 established a
structure of job training programs directed by private firms
through local private industry councils. JTPA is projected to provide job training and placement services for 1.3 million economically disadvantaged individuals in the 12 months beginning July 1,
1989. Indeed, the expanded work programs for AFDC participants
are expected to rely heavily upon local JTPA programs for job
placement. The Administration's proposed amendments to JTPA
(discussed above) include the creation of two special programs targeted on disadvantaged youth and adults. The Administration has
also proposed a challenge grant program, Youth Opportunities Unlimited, for youth in high-poverty inner-city or rural areas.
The need to increase employment is particularly acute among
minority populations in high-poverty urban areas, a group that is
sometimes referred to as the underclass. Overall, unemployment
rates among minority youth have fallen. In areas of concentrated
poverty and deprivation, however, there is evidence of high rates of
drug use, low educational achievement, high rates of teenage pregnancy, and alienation from legitimate employment.
No single policy can solve the multiple problems experienced by
individuals in these areas; a multidimensional strategy is needed.
Administration initiatives to improve inner-city public schools,
combined with anti-drug efforts, job training, and job placement,
should help some individuals. Targeted programs to geographically
defined high-poverty areas, such as urban enterprise zones, may
also help focus resources on concentrated poverty and its related
effects on a community.
Several effective programs have brought young persons from
highly disadvantaged backgrounds into the labor market. The Job
Corps has 25 years of experience in providing such teenagers with
education, job training, and placement. Research evaluations suggest that Job Corps participants are employed more, earn more,
and are less likely to become involved in criminal activity than
persons of similar background who were not in the Job Corps.
Promising model programs include JOBSTART, which focuses on
high school dropouts with low literacy skills, and STEP, which provides summer job training and educational services to teenagers.
Homelessness and Housing
This Administration has proposed expanded funding and new
programs to address the problem of homelessness and housing affordability among low-income families. One of the more visible
problems in urban areas in the 1980s has been homelessness. Not
only is homelessness a social problem, but it is also a barrier to effective participation in the labor market. Reliable estimates of the




174

homeless population are difficult to obtain, and few national estimates have been made. An extensive recent study estimated that
500,000 to 600,000 persons were homeless in the United States over
a given week in 1987, while approximately double that number experienced homelessness at some point during that year. As the
study acknowledges, however, no one knows exactly how many
homeless people there are in the United States.
The homeless population is generally composed of at least three
distinguishable groups. First, there are those who have a history of
serious mental illness. Although estimates vary, most studies indicate that around one-third of the homeless population are mentally
disabled. This group is often the most difficult to reach and the
least likely to use temporary shelters and care facilities. Second,
homeless families, primarily low-income women and children, constitute about one-quarter of the homeless, and tend to be actually
on the streets for the shortest period of time before they enter the
public assistance system. The remainder of the homeless are predominantly single men between the ages of 20 and 50. Many of
these men work intermittently; some receive food stamps or small
payments from State assistance programs; many have ongoing
problems with alcohol or other drugs.
Changes in urban housing markets are often cited as an important cause of homelessness, along with the deinstitutionalization of
the mentally disabled, drug abuse, spouse abuse, and other problems. Rising rents and land prices and the rejuvenation of downtown areas have displaced low-income populations. The availability
of boarding houses and rooms for rent, typically used by poor
single adults, has diminished in most cities. In some areas, rent
control, restrictive building codes, and zoning regulations also may
have decreased the stock of low-income housing.
The President has proposed programs that will provide housing
assistance and supportive services to the most troubled homeless
individuals as part of his HOPE initiative (discussed below). The
Administration also supports full funding of the Stewart B. McKinney Homeless Assistance Act. Passed in 1987, the McKinney Act
was the first legislation to authorize major direct Federal expenditures for emergency food, shelter, counseling, and other services for
the homeless. For the past 3 fiscal years, the Congress has appropriated less money than it authorized, a situation the Administration seeks to rectify in its proposed 1991 budget.
Homelessness is a serious issue, but housing affordability is the
dominant housing problem confronting most poor. It is estimated
that more than 40 percent of the poor paid more than one-half of
their income for housing in 1985. The Administration continues to
emphasize housing vouchers or other tenant subsidies as the most
efficient way to address low-income housing needs.




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The Administration has also proposed a major new program,
Homeownership and Opportunity for People Everywhere (HOPE) to
expand housing opportunities for the poor. This proposed legislation includes tax incentives to encourage greater construction and
rehabilitation of low-income housing and to encourage savings for
downpayments; opportunities for residents of federally subsidized
housing projects to have more voice over their housing, through
tenant management and potential tenant-purchase plans; and 50
Housing Opportunity Zones that would establish Federal-local partnerships in metropolitan jurisdictions to remove barriers to affordable housing.

Disabled and Employable
The Administration supports a major new initiative to increase
the economic opportunity for disabled persons. Surveys estimate
that between 20 million and 50 million Americans are disabled.
This large range reflects very different definitions of disability;
while every study counts the 650,000 persons in wheelchairs, not
all of them include the more than 24 million with hypertension. Of
course, many disabled persons are fully employed, especially if a
broad definition of disability is used. Many others are elderly, or do
not seek employment. But because some disabilities limit the range
of work options available and because some of the disabled have
suffered discrimination in the workplace, disabled individuals
suffer a disproportionate incidence of poverty. In 1988, 28 percent
of poor household heads reported that they were not working because they were ill or disabled. Conversely, among those household
heads who report that they do not work because they are ill or disabled, fully 42 percent are poor.
The primary program explicitly designed to assist disabled lowincome households is supplemental security income, a Federal program available to individuals with low incomes who are certified as
unable to work. In addition, those whose disability occurred on the
job are typically able to receive workers' compensation, while those
who have worked in the past are often eligible for social security
disability payments. Several Federal programs also provide funds
for work rehabilitation for the disabled.
The Administration supports the Americans with Disabilities Act
(ADA), designed to lower barriers to employment, public services,
and public facilities for the disabled population. Inaccessible workplaces and discrimination against disabled individuals have prevented many disabled persons who are able and willing to work
from realizing their full economic potential. Major progress occurred with the passage of the Rehabilitation Act of 1973, which
required institutions receiving Federal funding to make their facilities and services accessible to disabled individuals. Survey results
still indicate that several million disabled individuals who want to




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work are unable to find employment, however, and the ADA is designed to open new employment opportunities for these persons.

FUTURE DIRECTIONS
Experience has shown that designing policies to alleviate poverty
is a difficult task. Among the issues that will continue to be debated in the years ahead are the following:
How can low-income households be integrated into the economic
mainstream! A delicate balance must be maintained between providing adequate short-term assistance and preventing long-term dependence. Government programs should move people toward employment and self-sufficiency. A growing job base and a healthy
economy are crucial ingredients of this strategy.
How can social policy goals be balanced against budget realities!
In a period of budget stringency, program expenditures must be effectively targeted to those who will benefit the most from them.
One of the major challenges of the 1990s will be to develop effective antipoverty programs that further reduce economic need in
this country by increasing the opportunities for productive employment among those who are currently poor.

MAINTAINING LOW UNEMPLOYMENT AND LOW
INFLATION
The civilian unemployment rate in 1989 averaged 5.3 percent, its
lowest level since 1973. And the percentage of the civilian population employed reached 63.0 percent, its highest level ever. Recent
concerns about labor shortages, however, have led some to ask
v/hether further efforts to reduce unemployment might lead to a
significant pickup in wage and price inflation. So far in the current
expansion, inflation has remained relatively moderate. The GNP
fixed-weight price index, the broadest economy-wide measure of inflation, rose 4.1 percent in 1989, well below its 9.8-percent rate in
1980 and down from 4.5 percent in 1988.
Underlying the concern that unemployment and inflation are
linked is the widely accepted view that, when inflationary expectations are stable, the economy has a minimal rate of unemployment
consistent with nonaccelerating inflation. The nonaccelerating inflation rate of unemployment, often referred to as the NAIRU or
natural rate of unemployment, is an important guide for policymakers. It reflects unemployment associated with job changes (frictional unemployment) and with the mismatches between workers
and jobs that occur in a changing economy (structural unemployment). Moreover, when the unemployment rate falls below the
NAIRU, labor markets tighten, and employers face greater pressures to raise wages in order to maintain a qualified work force




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(Box 5-3). Some have argued that at current levels of joblessness,
further large increases in output could drive the unemployment
rate below the NAIRU, thus triggering accelerating wage increases
that, in turn, would threaten the progress in reducing price inflation made in the 1980s. Although some concern is justified, the evidence suggests that the United States can achieve sustained
growth without accelerating inflation. The Administration projections in Chapter 2, for instance, show 3.0-percent average growth
through 1995 and a modest decline in inflation.

THE SECULAR DECLINE IN UNEMPLOYMENT IN THE
1980s
Because alternative policies to reduce unemployment may have
sharply different implications for the behavior of inflation, it is important to distinguish among the different causes of unemployment.
Demand-related, or cyclical, unemployment, by far the most visible cause of variation in joblessness, refers to unemployment that
occurs when the overall demand for workers falls. The sharp increases in the unemployment rate that occur during recessions
clearly represent cyclical unemployment. Much of the decline in
joblessness in the 1980s reflected the strong recovery from the 1982
recession and the long expansion that followed.
Frictional unemployment refers to the transitional unemployment that occurs when workers enter the labor market or change
jobs. Structural unemployment is joblessness associated with a general lack of skills or with labor market mismatches between workers and jobs. The decline in unemployment over the past decade
also reflects a drop in frictional and structural unemployment,
breaking an upward trend evident since 1969.
In particular, although unemployment rates were successively
higher at each business cycle peak in 1973, 1979, and 1981, the unemployment rate in 1989 stood 2 percentage points below its 1981
level (Chart 5-8). Moreover, the decline in the unemployment rate
in the current expansion has not led to a significant acceleration in
wage inflation. These two facts together suggest that frictional and
structural unemployment, and hence the unemployment rate consistent with stable inflation, fell during the 1980s.

THE EFFECTS OF DEMOGRAPHIC AND LABOR FORCE
TRENDS
To a significant extent, the decline in the NAIRU in the 1980s
reflected changes in the composition of the labor force, especially
the aging of the baby-boom generation. As shown in Chart 5-9, unemployment rates are higher for young workers (aged 16 to 24)
than for adults, reflecting both the relative inexperience of new




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Box 5-3.—The Determinants of Nominal Wage Growth
Although the process of wage-setting is often quite complex,
key determinants of nominal wage growth are current labor
market conditions, past and projected rates of inflation, and
labor productivity growth. Employer costs for fringe benefits
are often influenced by events outside the labor market—~such
as the acceleration in health care inflation in the past few
years. Because employers are ultimately concerned with total
labor costs, however, the key determinants of wage growth also
determine growth in total labor compensation beyond the short
run.
The availability of labor influences both employers9 willingness to pay higher wages and workers' efforts to seek larger pay
increases. Relatively low unemployment rates increase upward
pressure on wages as firms raise pay to attract new workers
and retain their current employees. Similarly, high unemployment rates tend to hold down wage increases,
Recent rates of wage and price inflation and expectations
about future inflation also affect wages. If wages are expected
to be higher in other parts of the economy, because of recent
wage increases at other firms or expectations of future wage
increases, then workers and employers will probably settle on
a higher wage, Past rates of price inflation may influence
wages if workers and employers agree to "catch-up" adjustments to preserve real wage levels, while employees who
expect high inflation will demand larger wage increases to
maintain their future standards of living. Moreover, employers
will be more willing to grant wage increases if they expect to
be able to raise prices to offset their higher labor costs.
Over time, real wage increases have roughly matched the
long-run rate of productivity growth in the economy. Pay hikes
associated with productivity gains do not increase the relative
cost of labor to an employer, and so do not contribute to an acceleration of price inflation. In this sense, productivity gains
are important to workers; wage increases that are not matched
by higher prices generate an improvement in living standards,
labor market entrants and higher rates of job turnover as young
workers move in and out of various jobs during their search for a
career.
The relative importance of young workers increased in the 1960s
and 1970s, and this shift toward groups with relatively high rates
of unemployment caused the overall unemployment rate to rise. In
addition, overcrowding in lower skilled labor markets associated




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Chart 5 F
CIVILIAN UNEMPLOYMENT RATE. The unemployment rate has declined significantly during the
current expansion.
Percent c civilian labor force
12

1961

1965

1969

1973

1977

1981

1985

1989

Note: Shaded areas represent recessions; data are quarterly.
Source: Department of Labor.

Chart 5-9
UNEMPLOYMENT RATES BY AGE AND SEX. Youth unemployment rates are higher than rates for
adults. Rates for adult men and women converged in the 1980s.
Percent of civilian labor force

20
Youth 16 to 24 f \

/

/vv J/

15

\

/
10

Women 25 and over

Men 25 and over

I

i

1971

i

I

1973

i

1975

i

I

1977

1979

Note: Data are quarterly.
Source: Department of Labor.




180

I

I

1981

I

I

1983

I

1985

1987

I

I

1989

with the baby-boom cohort exacerbated the unemployment problems for this group. The differential between youth and adult unemployment rates widened in the 1960s and 1970s. It is estimated
that the higher percentage of young people in the labor force and
their rising relative unemployment rates added close to 1.5 percentage points to the NAIRU between the 1950s and late 1970s.
As the baby boomers moved into age groups with lower average
frictional and structural unemployment rates in the 1980s and
were followed by the smaller baby-bust cohort, these trends reversed, contributing about 0.5 percentage point to the decline in
the NAIRU in the 1980s. The unemployment rate for youth also
fell as smaller cohorts led to decreased crowding in the youth labor
market, probably reducing the NAIRU another 0.3 percentage
point over the past decade. These favorable demographic trends
should continue well into the 1990s.
Labor force participation among adult women rose steadily in
the 1960s and 1970s, and higher unemployment rates for that
group also boosted the aggregate unemployment rate over that
period. Women's labor market participation continued to increase
in the 1980s, but their unemployment rate fell to about the same
rate as for adult men. This decline in joblessness among women,
coupled with women's rising participation, has also contributed to
the decline in the NAIRU in recent years.

LABOR MARKET MISMATCHES AND STRUCTURAL
UNEMPLOYMENT
A reallocation of workers across sectors in response to changing
supply and demand influences the amount of structural unemployment associated with mismatches between workers and jobs.
Recent changes in structural unemployment can be seen across a
variety of occupational, industry, or geographic markets. Some insight into these changes can be obtained by focusing on a key feature of the mismatch problem—the coexistence of job vacancies
and unemployment.
For the most part, vacancies and unemployment move in opposite directions, with faster economic growth leading to falling unemployment and rising vacancies, while rising unemployment is associated with declining job vacancies. That pattern is consistent
with the view that much of the unemployment variability in the
United States over time represents changes in cyclical unemployment. Vacancies and unemployment sometimes move in the same
direction, however, reflecting a change in structural unemployment
arising from localized, industry-specific, or occupation-specific
supply and demand mismatches.
The Conference Board's index of help-wanted advertising normalized by the level of payroll employment provides a very rough




181

proxy for a job vacancy rate and illustrates the relationship between unemployment and job vacancies. Over shorter periods, comparisons show opposite movements in the unemployment and vacancy rates, reflecting the effects of economic recessions and expansions. A gradual upward trend in both the unemployment and the
vacancy rate is evident throughout much of the postwar period,
however, suggesting that structural imbalances in the labor market
worsened through the 1970s. In 1989, the unemployment rate and
the vacancy rate were both below their levels in 1979, indicating
that these imbalances lessened in the 1980s. A continuation of this
trend would reduce the unemployment rate consistent with stable
inflation further in the 1990s.
Measures of the dispersion of unemployment across different
labor markets can also be useful in assessing the efficiency of labor
market adjustment. Uneven growth across markets will initially
generate uneven patterns of unemployment and employment
changes. Over time, however, efficient labor markets will tend to
reduce those initial imbalances, as workers in labor surplus
areas—geographic, industrial, or occupational—move to areas with
better job prospects.
Across geographic markets, the evidence suggests that labor
market imbalances worsened in the 1980s; after holding fairly
steady during the 1970s, unemployment dispersion among States
increased sharply through most of the 1980s. This rise in geographic dispersion reflected, at least in part, industry imbalances coupled
with the industrial composition of particular regions. International
competition and the decline in oil prices led to layoffs in the Midwest and Southwest, while strong growth in services and light
manufacturing fueled employment gains in the coastal regions. It
is difficult to judge whether the widening in unemployment dispersion represents unusually large sector-specific economic shocks or
declining labor market mobility. As noted earlier, the geographic
dispersion in jobless rates declined significantly over 1989 as the
labor market began to adjust to those earlier shocks.
The existence of structural labor market imbalances clearly underscores the importance of labor mobility in reducing structural
and frictional unemployment, and hence the unemployment rate
consistent with stable inflation. Policies to improve the mobility of
the work force and to improve the efficiency with which workers
and employers find job matches could generate further declines in
structural unemployment without building up inflationary pressures.

OTHER CHANGES IN LABOR MARKETS
Some researchers argue that significant changes in the U.S.
economy also may have unexpectedly tempered wage inflation in




182

the 1980s. Most prominently discussed is the increased exposure of
U.S. producers to international competition. As the foreign exchange value of the dollar rose in the early 1980s, employment in a
number of core manufacturing sectors suffered, resulting in unusually large layoffs that extended to workers with more seniority.
This increased openness to international competition may have had
an important impact on the perceived unemployment risks associated with aggressive wage demands, so that job security gained
prominence over wage gains in the priorities of many workers, reducing the inflationary pressures associated with any given level of
the unemployment rate. Some evidence suggests that such considerations were important in selected industries particularly vulnerable to foreign competition. Because these industries constitute a
small part of the overall U.S. economy, however, international
competition thus far appears to have had only a small effect on
economy-wide wage behavior.
A second oft-cited, and related, argument is that the declining
importance of organized labor in the U.S. work force reduced the
contribution of noncompetitive union wage premiums to aggregate
wage inflation in the 1980s. The proportion of the private work
force that is unionized fell sharply in the 1980s, from more than 20
percent in 1979 to around 14 percent in 1988. Fewer workers receiving union wage premiums would reduce average wage growth,
all else equal. In addition, proponents of this line of reasoning
argue that the focus on job security in the 1980s was especially important in the union sector, where management became more aggressive in negotiating with workers in response to international
and nonunion competition. Data from the employment cost index
indicate that union wages have risen less rapidly than nonunion
wages since 1983, after rising more rapidly throughout the late
1970s and early 1980s. But that shift may partly reflect the typical
cyclical behavior of the union-nonunion wage differential. Moreover, several studies suggest that, although the declining strength
of unions may have slowed wage inflation in the union sector, it
has had only a small effect on aggregate wage inflation.
Finally, some analysts point to greater flexibility in both pay
schedules and employer-employee relationships as evidence that
wage determination in today's economy differs fundamentally from
that in past years. Many union contracts now use lump-sum bonuses as a means of avoiding base wage increases during periods of
uncertain demand. Moreover, profit-sharing and employee stock
ownership plans have become more prevalent in recent years, tying
workers' pay at some firms more explicitly to overall company performance. In addition, a greater use of part-time and temporary
workers by firms has increased the ability to adjust employment




183

levels promptly during periods of slack demand by lowering the
costs typically associated with work force changes.
In general, it is difficult to assess the importance of any one of
these factors in changing the fundamental nature of wage determination in the 1980s or to forecast whether such trends will continue. Taken together, the patterns over the past decade may have led
to some small downward shift in wage inflation. It seems imprudent, however, to rely heavily on the continuation of these favorable factors in forming policies for the 1990s.

LOOKING AHEAD
The design of sound economic policies depends on the level of the
NAIRU. That level provides a gauge of how far the actual unemployment rate can be expected to decline without a significant
buildup of inflationary pressures, and thus represents one goal of
an expansionary macroeconomic policy. Conversely, it is also an approximate measure of the extent of frictional and structural unemployment in the U.S. economy; reducing the unemployment rate
consistent with stable inflation thus is an important goal of labor
market policies.
Unfortunately, the NAIRU is not observable, and it is more difficult to estimate its level than its change. But a rough estimate of
the current level can be inferred from recent trends in the unemployment rate and in wage inflation. Both wage inflation and unemployment have shown little movement over the past year. Moreover, the Michigan Surveys of Consumer Attitudes estimate that
expectations of price inflation have stabilized at around 4.5 percent. These patterns are consistent with a pace of wage growth
that roughly balances the demand for labor with the available
supply, suggesting that the remaining unemployment is primarily
frictional and structural in nature. Thus, the average rate of unemployment in 1989—5.3 percent—may not be far above the nonaccelerating inflation rate of unemployment.
In this setting, the most appropriate policy approach is to focus
on reducing the NAIRU further in the years ahead. Maintaining
steady economic growth and low unemployment is an important
component of that policy, because additional job growth will create
opportunities for many structurally unemployed and disadvantaged
persons as employers lower expectations about qualifications and
increase the intensity of training. Similarly, the decreasing number
of new labor market entrants will give firms strong incentives to
provide additional training for the existing work force and will
reduce the number of labor market participants who experience
frictional unemployment. Increasing workers' investments in edu-




184

cation and training and reducing the barriers to labor mobility will
also reduce the NAIRU. The prospects are good for maintaining
low unemployment rates, on average, in the future. But, macroeconomic policies must be designed so that reductions in unemployment do not reignite rising inflation, which would increase the risk
of a subsequent economic downturn.

SUMMARY
The U.S. labor market is remarkably efficient in adapting to economic change. Adjustments are not instantaneous, however, and
public and private initiatives can help to speed the natural workings of the market. As the United States enters the 1990s, attention focuses on increasing the skills and flexibility of the work
force to meet changing economic demands. The Administration is
committed to achieving excellence in education at all levels. It is
particularly important to improve dramatically the achievement of
elementary and secondary students, which means improving the
quality of the Nation's schooling system. Increasing the numbers of
students receiving education beyond high school may also be important in meeting the job demands of the 1990s.
Within the existing work force, employers and workers must
adapt quickly to changes in the supply of and demand for labor.
For the most part, these adjustments are likely to occur automatically without government action. In some cases, however, strengthening training programs can facilitate the reemployment of workers whose skills have been rendered obsolete by economic change.
In other cases, barriers to mobility can be reduced through policies
that increase the affordability of housing or encourage the startup
of business in economically depressed areas.
With population growth projected to slow over the next decade,
additional sources of labor will be needed. Tapping these sources
can be facilitated by immigration reform and by encouraging businesses to hire and train currently underutilized segments of the
population such as the elderly, disabled, and the unemployed or
underemployed poor.
Indeed, for the Nation to realize its full potential for economic
growth in the years ahead, society must bring the poor and disadvantaged more fully into the mainstream of the economy. Policies
that assist the poor will certainly be needed, but these policies
must be linked with the goal of eventual self-sufficiency by ensuring education, training, and job opportunities for low-income households.
The challenges for the 1990s are large, but the current economic
environment is favorable for achieving further progress toward
these important goals. Unemployment is low and inflation remains




185

in check. Economic opportunities are plentiful. If the Nation can
more fully utilize its human resources in the decade ahead, the
result will be rising productivity, stronger economic growth, increased opportunities, and rising living standards for Americans.




186

CHAPTER 6

The Economy and the Environment
ECONOMIC PROSPERITY and environmental quality are
widely regarded as two of this Nation's most important goals. Some
view these as competing goals and argue that economic growth
begets environmental degradation. Increasingly, however, this conventional wisdom is being questioned, and a new consensus is
emerging that economic growth and environmental quality need
not be incompatible. Indeed, economic growth and environmental
quality are in many respects complementary. For example, economic growth provides the opportunity for firms to invest in new
facilities that are cleaner and more efficient. It is no coincidence
that the wealthy societies are the ones that are both willing and
able to devote substantial resources to environmental protection.
Compatibility between economic growth and environmental improvement is far from automatic, however; it depends on selection
of appropriate goals and careful design of regulatory programs. Environmental goals must balance the associated benefits and costs.
The public interest is best served when government provides a
framework that creates incentives for the private sector to seek out
the most cost-effective way to meet its regulatory goals. Government should not be in the business of picking environmental protection technologies and imposing them on firms, their workers,
and their customers.
This chapter presents the Administration's principles for environmental regulation and illustrates how they can be put into
action to address local, national, and global environmental concerns. The consistent application of these principles will ensure
that this Nation's considerable investment in environmental protection—$81 billion in 1987, about the same as all American households' electricity and natural gas utility bills—will be made in
ways that help to achieve both a strong economy and a healthy environment.

PRINCIPLES FOR ENVIRONMENTAL REGULATION
Market-based economies do not automatically provide the level of
environmental quality that consumers desire. Understanding why
environmental protection may require government action leads to




187

an understanding of policies that best serve both the economy and
the environment.
MARKET FAILURE
Environmental problems arise in market economies when private individuals and businesses lack incentives to take full account
of the environmental consequences of their actions. These market
failures, which provide a rationale for government action, can be
traced to three sources.
First, individual producers or consumers who pollute the environment generally do not pay for their pollution, even though it
may harm others or cause others to incur additional costs. Excess
pollution results, just as free electricity would lead firms and
households to use electricity without regard to the resources used
to produce it.
Second, no single individual can produce tangible evidence of an
overall improvement in environmental quality by his or her own
actions to reduce or control pollution. When there are some costs
and no apparent payoff for individual cleanup effort, rational individuals may be unwilling to act, even in cases where a coordinated
effort would yield environmental benefits that exceed the costs of
collective action. This problem is analogous to that faced by a stadium full of standing football fans who would all be happier to see
the game sitting down if only their actions could be coordinated.
Finally, the private market does not always produce the information needed to solve public problems. Private firms typically do not
realize profits from research and development aimed at understanding environmental processes or the relationship between pollution and human health. Government action is often necessary to
produce such information to further public policy objectives.
Regulations can also be motivated by factors other than the
market failures outlined above. Paternalism, the belief of legislators and regulators that they can improve citizens' overall welfare
by taking certain choices out of their hands, can play a significant
role. Because the diversity of individual choice generally reflects
differences in tastes, needs, and situations among individuals, paternalistic regulation is much more likely to reduce overall wellbeing than to increase it. Another motive for regulation is the pursuit of private advantage, which can be reflected in the specific
design features of regulations that may be broadly grounded in
public interest consideration. For example, firms routinely seek to
keep their existing products and facilities under the current regulatory regime when more stringent regulations are implemented
for new products and facilities.




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ENVIRONMENTAL REGULATION
The Federal Government's involvement in environmental protection is relatively recent. The Congress first enacted major legislation between 1970 and 1980. Many environmental programs enacted in this era rely heavily on an approach referred to as command-and-control regulation. Alternative regulatory schemes that
use market incentives to further environmental goals, such as
emissions charges or tradable emissions allowances, can serve both
the environment and the economy by reducing the costs of environmental protection (Box 6-1).
Box 6-1,—A Glossary of Environmental Regulation Terms
Command-and-Control Regulation—a system of administrative or statutory rules that requires the use of specific control
devices on classes of selected pollution sources or applies emissions standards to narrowly defined pollution sources.
Emission Standard—a limit, usually expressed as a maximum allowable emission rate, applied to an individual pollution source.
Emission Charge—a fee levied by the government on each
unit of pollutant emitted.
Tradabh Emission Allowances System—a regulatory regime
in which all sources of poEution are required to hold allow*
anees for all emissions of covered pollutants* The government
distributes a number of allowances equal to the target emissions level, which can then be freely bought and sold within
the private sector.
In the final decade of this century, new environmental issues
that include stratospheric ozone depletion and possible global climate change are receiving increased attention. Advances in science
are also leading to deeper understanding of problems such as acid
rain and pesticide contamination. As the list of environmental concerns grows, policymakers must carefully design programs to make
progress on several fronts while minimizing adverse impacts on the
economy.
Regulatory goals should be set so that the potential benefits to society from regulation outweigh the potential costs. Specific objectives
should be chosen to maximize net benefits to the extent possible. It
is impossible to remove all pollution or environmental risks, just as
it is impossible to remove all risk of accident or illness. As any
given pollutant or risk is reduced, the costs of further reductions
rise and the incremental benefits fall. Because these additional
benefits often become minuscule and the additional costs become
astronomical as the limit of zero pollution or zero environmental




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risk is approached, the pursuit of such extreme goals is likely to
reduce the overall quality of life. Cost-benefit analysis can be
useful both in setting appropriate goals within a particular area of
concern and in setting priorities across areas.
Where regulation is necessary, it should wherever possible employ
economic incentives to achieve its goals rather than attempt to legislate behavior without changing the underlying structure of private
incentives. Where incentive-based approaches such as emissions
fees or tradable allowances cannot be used, it is preferable to let
each firm decide how best to meet flexible performance standards
rather than to impose inflexible design standards that specify how
pollution must be controlled. Regulation should also define pollution sources broadly rather than narrowly, to give plants that emit
emissions at more than one point flexibility in meeting an overall
emissions objective. Regulation of any type should pass a test for
cost-effectiveness—reaching its goals at the lowest possible cost. To
forsake cost-effectiveness simply wastes resources that could be
used for many purposes, including further environmental improvement.
The command-and-control approach generally fails to create incentives consistent with regulatory goals. Indeed, the hallmark of
the command-and-control approach is the uniform treatment of pollution sources without regard for the differences in damages they
cause or the costs of control. Because command-and-control regulation relies on administrative or statutory rules, flexibility is limited
and incentives to firms are distorted. The likelihood that innovation to reduce the costs of pollution control will be met by tighter
regulatory requirements presents a particularly large disincentive
to innovation (Box 6-2).
Finally, often an insufficient private incentive exists to undertake research that is necessary to understand and rationally address environmental issues. Government support may be required
to spur inquiry into environmental problems, benefits and costs of
action, and methods of pollution reduction.
In short, the following principles should guide environmental
regulation:
• Goals for pollution abatement and risk reduction should be
based on a comparison of the costs and benefits involved.
Elimination of all risk is almost never a sensible goal.
• Where possible, market-based approaches that provide flexibility, encourage innovation, and support economic growth should
be used to achieve environmental goals in a cost-effective
manner.
• Government policy should encourage the development and
sharing of scientific and technical information relevant to environmental quality issues.



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Box 6-2.—Problems with Command-and-Control Regulation

Regulators generally lack the detailed knowledge of individual production facilities and processes and of alternative production and abatement methods that would be necessary to implement an efficient regulatory program by command-and-controL
Firms sensibly expect that any demonstration of potential
for environmental improvement or the exploration of new approaches to emission control will increase their risk of being
targeted for tougher emission standards. Therefore, there is a
disincentive to innovate that magnifies the inefficiency of com*
mand-and-control regulation over time. Eegulators may try to
overcome the incentive problem by incorporating their own
forecast of future technology into regulatory requirements,
This inflexible approach is a poor substitute for a decentralized
innovation process in which many possibilities are pursued at
the same time, with winners emerging naturally only as additional information is developed.
Q>mmand-and-control regulation also fails to account for private responses that tend to neutralize its impact* For example,
a common regulatory practice is to impose new product stand*
ards that are tougher than those for existing products and facilities. This practice locks in the continued use of old products
or facilities that may actually be more environmentally damaging. Aside from being costly, such standards can actually increase pollution from levels that might have been obtained
without a bias against new investment.
Finally, command-and-control regulation sometimes involves
issuing threats that are not credible. In 1976, when it became
clear that car manufacturers could not meet the automobile
emissions standards for the 1977 model year, the Congress
quickly revised the standards. The implicit threat to shut down
the U.S. auto industry was simply too draconian to be believed.
The rest of this chapter considers the application of these principles in the Administration's proposals to update the Clean Air Act
and food safety legislation, in Federal soil conservation programs,
and in the Administration's approach to global environmental
issues.

THE CLEAN AIR ACT
Prior to 1970, State and local governments held the primary responsibility for determining air quality targets and emission con-




191

trol strategies. Some States and cities, such as California and Pittsburgh, did address pollution problems. Others, however, were reluctant to impose and enforce strict pollution controls that might
drive industry elsewhere.
The Clean Air Act amendments enacted in 1970 expanded the
Federal role in clean air issues beyond its previous focus on support for scientific research on air pollution problems. Under its provisions, the Environmental Protection Agency (EPA), which was
also established in 1970, sets national air quality standards for
major pollutants. These standards, defined as permissible concentration levels of pollutants in the air over a specific time period,
are designed to protect the health of the most sensitive members of
the population with an adequate margin of safety and without
regard to cost. National emission standards for new industrial, utility, and commercial facilities that are significant sources of pollution and new car emission standards are also set and administered
at the Federal level. State and local governments retain responsibility, however, for developing plans to reduce emissions from existing utility and industrial pollution sources so that air quality
standards are met or exceeded at all locations.

EXPERIENCE UNDER THE CURRENT LAW
Meeting the objectives of the Clean Air Act has been complicated
by several factors. One is the sheer number of pollution sources.
There are an estimated 27,000 major industrial and utility sources
of air pollution in the Nation. Mobile sources of pollution (automobiles, trucks, aircraft, and locomotives) number well over 150 million, and vehicle miles traveled have been steadily increasing.
Moreover, because pollutants are transformed and transported in
the atmosphere, the selection of control strategies is complicated.
Despite rising levels of economic activity and automobile use,
emissions of the most common air pollutants have declined substantially since 1970. For example, emissions of carbon monoxide,
particulate matter, and lead fell by 39, 62, and 96 percent, respectively, between 1970 and 1987. Yet, in 1987, 12 years past the original target date for meeting air quality standards, more than 100
million people lived in areas where air quality standards had not all
been achieved. Failures to meet the ground-level ozone standard
accounted for 90 percent of these exposures. Some have argued,
however, that this official measure of air quality status gives little
indication of normal air quality in affected areas. For example, air
quality monitoring data show that the air quality standards are
met more than 99 percent of the time in all areas other than Los
Angeles, and 97 percent of the time there, even though it is the
city with the most polluted air in the United States.




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A major feature in the regulatory approach of the Clean Air Act
is the requirement that new facilities meet EPA emission rate
standards. This approach can effectively offer grandfather protection to old facilities and slow the rate at which firms replace older,
inefficient plant and equipment with newer plant and equipment
that meet EPA standards.
This peculiar consequence of regulation is apparent in the utility
sector. Concern over the impact of emission standards on mining
employment in high-sulfur coal regions led the Congress in 1977 to
mandate a design standard for new coal-fired power plants. Sulfur
dioxide removal from exhaust gases (via scrubbing technology) was
required even when the same emission rate could be reached at
lower cost by burning low-sulfur coal. Because such scrubbing may
add 20 percent to the capital cost of a new plant, and old generating units can be kept running for 65 years or more, replacement of
old generating capacity inevitably slowed. Moreover, because new
generating units with scrubbers often have higher operating costs
than old unscrubbed units, utilities naturally chose to run the old
units as much as possible. Having new, clean plants sit idle while
old, dirty ones operated at full capacity was an unintended consequence that vividly illustrates the perverse effects that commandand-control regulation can have.

THE CLEAN AIR INITIATIVE
The Administration has proposed a comprehensive plan for revising and strengthening the Clean Air Act. The Administration's
proposal includes initiatives to achieve complete attainment of air
quality standards, control toxic air pollutants, address the problem
of acid rain, and reduce automobile emissions. The acid rain and
automobile emissions programs provide particularly clear applications of the Administration's regulatory principles. The former proposes the use of tradable emissions allowances to reduce sulfur dioxide emissions from utility plants that are a primary cause of acid
rain (Box 6-3). The latter uses flexibly applied and carefully targeted standards to limit automobile emissions that are the major
source of ground-level ozone pollution.
TRADABLE ALLOWANCES FOR SULFUR DIOXIDE
EMISSIONS
The Administration proposes to achieve a permanent 10-millionton reduction in annual sulfur dioxide emissions in a cost-effective
manner, using a system of tradable emissions allowances. The use of
tradable emissions allowances is an approach that has been repeatedly advocated in this Report for more than a decade. Emission
allowances reflecting the required reduction in current emissions



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Box 6-3.—Acid Bain and Sulfur Dioxide
Acid rain results from the formation of sulfuric and nitric
acids in atmospheric reactions involving sulfur dioxide and nitrogen dioxide. These acids fall to the Earth's surface as dry
particles or mixed with rainfall over an area that may extend
for hundreds of miles from the location where emissions occur.
Thus, emissions from the Midwest can cause acid rain in the
Northeast. Rainfall in the most heavily affected areas is eight
to nine times more acidic than it would be under pristine conditions.
Sulfur dioxide is regulated as a pollutant under the Clean
Air Act. Federal air quality standards for sulfur dioxide are
currently met at virtually all locations throughout the country.
In some areas, compliance was attained by switching to fuels
with lower sulfur content, In others, scrubbing technology was
applied to remove sulfur from smokestack gases. Another approach was to build taller smokestacks that spread emissions
over a much wider area and allowed standards to be met at all
measuring sites near the emission point. Building taller smokestacks was very cost-effective within a local area. But over a
larger region, it exacerbated the contribution of sulfur dioxide
emissions to the formation of acid rain. The 1977 Clean Air Act
amendments limited allowable stack height.
While measured urban sulfur dioxide air quality has improved steadily, aggregate sulfur dioxide emissions, which
heavily influence acid rain levels, have declined by only 28 percent since 1970. Almost two-thirds of sulfur dioxide emissions
come from electric utility plants, with industrial sources accounting for the bulk of the remaining emissions. Most utility
emissions occur at coal-burning power plants—particularly
from older plants burning high-sulfur coal without emission
controls.
are allocated to existing utility plants. Plant owners, who are
required to hold allowances equal to their actual emissions, are then
free to trade these allowances among themselves. Thus, the emission
rates of individual plants can vary considerably, while overall emissions are automatically held at the target level. An additional
requirement that operators of new utility plants hold allowances
equal to their emissions after the system is fully in place guarantees
against any rise in utility emissions over time.
The allowances trading system has several major advantages
over the command-and-control approach. The tradable-allowances
approach is estimated to result in cost savings of at least 20 per-




194

cent annually—totaling billions of dollars over the next two decades—compared with command-and-control regulations. These savings arise from the ability to trade allowances in order to take account of differences in plant access to low- and high-sulfur coal supplies, in expected plant life, and in site constraints that may rule
out the installation of scrubbers at some plants. With tradable permits, a plant with low control costs has an incentive to control
more and sell its excess allowances to a plant that could only
reduce emissions to its original allocation at very high cost. The
scope for trading is widened by allowing industrial sources with
low control costs to participate in the system and by a provision for
the conversion of nitrogen dioxide emissions reductions in excess of
required levels into allowances.

Incentives for Conservation and Innovation
Because reductions in electricity generation levels translate directly into a reduced need to hold allowances, the allowances system
puts utility energy conservation programs on an equal footing with
other emissions reduction strategies. Firms can also economize on
allowances by using cleaner plants more intensively. By requiring
utilities to buy or hold a costly allowance for each ton of pollution
they emit, the allowances system uses the private objectives of cost
minimization and profit maximization to promote environmentally
sound practices. By ensuring that each pound of actual emissions
carries a cost, which will be reflected in the price of electricity,
additional conservation is promoted as demand falls in response to
higher prices. In sum, a market-based approach sends the proper
signals to both consumers and producers, resulting in cost-effective
reductions in pollution.
Immediate cost savings are only part of the benefits of the trading
program. The possibility of future trading creates strong incentives
for further cost reduction and innovation by both utilities and nonutility firms, which could save additional billions of dollars. Utilities can take advantage of the opportunity to carry forward unused
allowances for future sale or use. Such banking of allowances
would shift emissions reductions from the future toward the
present, allowing for more rapid environmental improvement while
lowering compliance costs. Firms always stand to gain if they can
achieve additional emissions reductions at a cost below the market
value of the allowances that would be freed up for external sale.
Thus, these firms have a continuing incentive to explore new
abatement and combustion technologies, nonconventional energy
sources, conservation programs, and other options that emerging
technologies and local circumstances may suggest. Because allowances are transferable and continue in force after the retirement of
the plant to which they were initially allocated, the investment disincentive implicit in standard regulatory schemes is avoided.



195

The inherent flexibility of the allowances system, which lets the
market choose among competing approaches, is particularly valuable given the impossibility of knowing which technology will prove
to be best over the long haul. Several different technologies for
burning high-sulfur coal cleanly without scrubbing, as well as improved scrubbers, are currently under development. New concepts
will undoubtedly arise over the next decade. The government is no
more capable of picking winners in emissions-control technology
than in other industrial arenas. By encouraging decentralized innovation and avoiding the pitfalls of centralized technological planning, the allowances system maximizes the potential for the invention and application of new ways to achieve environmental protection.

The Workability of the System
There are several precedents for successful emissions trading and
marketable allowances systems. Nationally marketable allowances
were used during the phasedown of the lead content of gasoline, with
substantial savings. EPA's longstanding bubble policy allows owners
of an industrial facility with multiple pollution sources to balance
more control at some sources for less control at others to meet
emissions targets on a cost-effective facility-wide basis. Since their
inception in the 1970s, bubbles have saved billions of dollars compared with a policy of requiring each source to meet its own
emissions standard. Trading is also used in EPA's offset policy,
which allows construction of new facilities in areas that do not meet
air quality standards to be offset by reductions in emissions from
existing facilities. Trading in these programs has occurred despite
the high air quality modeling costs incurred to verify that proposed
trades will not worsen the air quality at any location. Transaction
costs for sulfur dioxide emissions trading will be much lower, because local air quality modeling will not be required and continuous
emissions monitoring data will be available to verify compliance.
The incentive-based approach to environmental protection offers
clear advantages over command-and-control regulation, yet it generates several philosophical and practical criticisms. A common objection is that a marketable allowances system gives industry a right
to pollute that it would not otherwise have. This view fails to
recognize that command-and-control regulation confers exactly the
same sort of pollution right, only in a nontransferable form.
Some observers have raised the concern that trade in allowances
will be inhibited by State regulatory actions or manipulated to prevent the entry of new producers into the electric power market.
However, facts about market structure and behavioral incentives
suggest that the market for allowances will work. The initial distribution of allowances among a large number of utilities means no




196

one firm or State could exercise market control. Antitrust laws provide an additional safeguard against the possibility of anticompetitive behavior. Existing incentives for cost and rate minimization
should lead regulators and utilities with low-cost emissions reduction opportunities to sell sufficient allowances to meet the demand
from new plants and new entrants. Of course, there is no guarantee that every utility or regulator will seek to minimize costs and
electric rates and maximize shareholder returns. But in a competitive situation, cost-minimizing behavior by every participant is not
required for the market to work effectively.
AUTOMOBILE EMISSIONS CONTROL
The goals selected in the President's clean air package reflect the
careful comparison of benefits and costs that is a fundamental
consideration in the Administration's approach to regulatory policymaking. For example, the President's package includes tighter
tailpipe emissions standards for new cars and light trucks and
other measures to reduce automobile emissions significantly. However, it explicitly rejects a proposal for unreasonably stringent tailpipe standards that has been advocated in some quarters.
EPA estimates that the exotic technologies required to attain
such an unreasonably stringent standard would add about $500 to
the cost of each new vehicle. At a projected sales rate of approximately 14 million covered vehicles per year, the additional costs
would be more than $7 billion annually, almost doubling the projected costs of all actions proposed by the Administration to reduce
urban ozone pollution. This standard would result in slightly lower
emissions from each new car. However, because consumers would
undoubtedly respond to higher new car prices by buying fewer new
cars, emissions of pollutants that contribute to ozone formation
could actually increase in the period immediately following adoption of these extreme standards, as consumers would be led to
make greater use of old vehicles with significantly higher per mile
emission rates. Even after a complete phase-in of vehicles meeting
the extreme standard, total reductions in emissions of pollutants
that contribute to ozone formation would be only slightly larger
than emissions reductions under the President's proposal. Spending
$7 billion or more per year to achieve, at most, very small environmental improvements is simply not sensible.

Flexibility and Targeting
The President's clean air initiative also incorporates flexibility in
its provisions for automobile emission standards. Automakers can
average across their product line to reach applicable standards,
opening the possibility of substantial cost savings while achieving
exactly the same environmental benefits as a standard applied on a
car-by-car basis. Because an automaker who elects to use averaging



197

must necessarily produce some vehicles that are cleaner than the
standard, averaging implicitly encourages advances in emissioncontrol technology.
Cost-effectiveness is also enhanced by tailoring program requirements to local needs rather than using a one-size-fits-all approach.
Some areas currently meet air quality standards for ground-level
ozone, while others do not. Because air quality standards are set at
levels that protect the public health with an adequate margin of
safety, areas that already meet standards have little to gain from
further reductions in emissions. Cost-effectiveness requires focusing
reductions where they are needed. For this reason, the Administration's plan for extra-clean, alternative-fueled vehicles is carefully
targeted on the areas with the most severe nonattainment problems. Even within these areas, local authorities are free to opt out
of the program if they can achieve equivalent air quality benefits
in other ways.
The targeted approach is also evident in the President's proposal
for recovery of refueling emissions. Refueling vapors can be recovered using either on-board canisters or gasoline pump recovery systems. The latter approach is preferable because it can be applied
selectively in areas with ozone problems without imposing unnecessary costs on new car buyers in clean areas. It also provides more
immediate environmental benefits in problem areas, because all
pumps can be modified long before all cars on the road are replaced. In this matter, as in many others, environmental and economic interests are convergent.

RISK AND THE REGULATION OF AGRICULTURE
Today the regulation of agriculture involves a complex array of
Federal programs—from traditional price support and acreage reduction programs to conservation, environmental, and food safety
regulations—administered by the Department of Agriculture, the
Environmental Protection Agency, and the Food and Drug Administration. Some programs, such as the acreage reduction programs,
affect a farmer's land-use and crop-choice decisions. Others, such as
pesticide regulations, affect choice of production methods. Still
others, such as conservation regulations, may affect both land-use
and management decisions. The combination of farm production
decisions and the physical characteristics of farmers' fields—such
as soil type, depth of groundwater, and proximity to surface
water—are key factors that determine the impacts agriculture has
on the environment.
Two questions arise regarding environmental issues that relate
to agriculture. What are the circumstances in agriculture that may
justify government intervention? When government action is justi


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fied, how can policies be designed to reduce environmental risks to
appropriate levels at least cost?

SOIL CONSERVATION RECONSIDERED
The dust bowl of the 1930s, dramatized by John Steinbeck's The
Grapes of Wrath, left a public perception that the effects of soil erosion can have dire economic consequences. Because of the dust
bowl experience, a principal objective of soil conservation programs
since the 1930s has been to prevent the loss of agricultural productivity. Yet, analyses of data on soil erosion indicate that the principal benefits from soil conservation are the prevention of offsite
damages such as water pollution, not the prevention of agricultural
productivity effects. There is accordingly a need to reconsider the
design of soil conservation programs.
Soil Erosion and Productivity
Alarming stories in the press periodically warn that erosive practices are again ruining American farmland and will lead to a food
crisis. Such alarmist claims are not supported by the facts. The Department of Agriculture estimates that some 2 billion to 3 billion
tons of soil are lost from farmers' fields to erosion each year in the
United States. Topsoil is a renewable resource, however, and is replaced as organic matter from crop residues is incorporated into
the soil. Because of this replenishment, the rate of net loss of topsoil in the United States as a whole is low.
The gains and losses of soil are not distributed evenly, however.
Some areas are net losers and may experience lower productivity
as topsoil becomes shallow. These productivity losses are largely
offset by gains elsewhere. The Department of Agriculture recently
estimated that continuing current rates of soil erosion for 100 years
would reduce productivity only about 2 percent (Table 6-1). Because annual productivity gains in U.S. agriculture have averaged
more than 2 percent for the past 20 years, one year's normal productivity growth will offset the likely effects of erosion on productivity over the next century.
TABLE 6-1.— Estimated Percent Loss of Productivity From 100 Years of Erosion
Water erosion

Farming region
Northeast
Lake States
Corn Belt
Appalachia
Southeast .
Delta States
Northern Plains
Southern Plains
Mountain States
Pacific States

71
g
35
47
13
1.6
6
.2
4
2.3

. .

United States

1.8

1

Less than 0.01 percent.
Source: Department of Agriculture, The Second RCA Appraisal, June 1989.




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Wind erosion
(i)
7
i
i
i
i
{

2.1
1.4
.2

.5

Alarmist claims about soil erosion's effects on agriculture also
appear to run counter to basic economics. The farmer who uses erosive practices that cause a decline in current or future expected
productivity of the land reduces the value of that land. This loss
takes the form of lower farm output and a lower value of the land
as an asset. Landowners thus have an economic incentive to limit
erosion to the degree that it is profitable to do so. Department of
Agriculture research shows that erodibility and topsoil depth do
help explain differences in land values. These findings mean that
buyers and sellers of farmland are in fact aware of these factors
and generally take them into consideration in their decisionmaking. Even if some buyers and sellers of farmland are unable to
know the impacts of erosion on productivity precisely, there is no
reason to believe the government would be able to do so significantly better.
In short, private gains from soil conservation provide farmers
and landowners with adequate incentives to protect soil productivity without government intervention. It is in environmental and
other offsite effects of soil erosion that the market fails to account
adequately for the effects of erosion, and it is there that government conservation programs are needed.
Pollution Effects of Soil Erosion
There are a host of offsite effects of wind and water erosion.
Wind erosion contributes to particulate air pollution in the Western United States that is estimated to cause $4 billion or more in
annual damages in the form of increased cleaning costs, reduced
recreational opportunities, and impaired health. Erosion caused by
water runoff is a major cause of water pollution that damages reservoirs and navigational channels, harms aquatic and plant life
and wildlife, has adverse effects on human health, and reduces the
recreational value of lakes and rivers. These damages are estimated to range from $5 billion to $18 billion annually.
These damages reflect a classic market failure: farmers typically
bear little if any of the cost of the offsite effects of erosion from
their fields. Agricultural pollution usually originates on many
farms and it is difficult to attribute any specific amount of damage
to any one source. Consequently, policies to control agricultural
pollution usually must be designed to change farmers' production
decisions—such as tillage practices or chemical use—that are related to pollution. The design of efficient environmental policies is
complicated by the effects that Federal agricultural subsidies have
on farmers' management decisions.
The Conservation Reserve Program
This program was introduced in the 1985 farm bill to accomplish
environmental objectives, such as improved water quality, by re


200

moving highly erodible land from production. This program was
also intended to help curb the production of subsidized commodities
and to provide income support to farmers. About 34 million acres
are now enrolled, roughly 8 percent of U.S. cropland. In exchange
for government payments, farmers must plant grass or trees on the
enrolled acres. All farmers can participate in the program, provided their land meets technical criteria for erodibility.
The Conservation Reserve Program illustrates the potential benefits of conservation programs and the problems in designing programs to meet environmental, income-support, and broader policy
objectives. In order to attract widespread participation, the program originally allowed farmers to enroll any land in the program
that met erodibility criteria, whether or not erosion was likely to
cause damages such as water pollution. The program thus provided
an incentive for farmers to place low-valued land into the program.
Consequently, a disproportionately large share of the acres enrolled—more than 40 percent—is nonirrigated land in the Plains
and Mountain States, where most wind erosion occurs but damages
are relatively small. Relatively few acres in the program are
higher valued land in the Midwest and South, where most water
erosion occurs and a large part of the nationwide damages also
occur. Because it is estimated that only 30 percent of the most
highly erodible land is now enrolled in the program, it can be concluded that an even smaller share of the damage caused by erosion
is being prevented.
Federal agricultural policy also strives to maintain and enhance
the U.S. position as the major agricultural exporter in the world.
Conservation programs that attempt to achieve environmental
goals by removing millions of acres of cropland from production
are not consistent with this broader policy objective. The inconsistency in U.S. policy is highlighted by the 1985 Food Security Act.
The act established the Conservation Reserve Program to remove
40 million to 45 million acres of U.S. cropland from production and
simultaneously instituted an export subsidy program—the Export
Enhancement Program—to increase U.S. agricultural exports.
These conflicts between environmental and trade objectives may
increase if current international negotiations, discussed in Chapter 7
of this Report, lead to agricultural policy liberalization.

IMPROVING CONSERVATION PROGRAM DESIGN
The targeting problems encountered with the Conservation Reserve Program and its inconsistency with broader U.S. policy objectives both suggest that the Federal Government should reconsider
its approach to conservation programs. How can conservation programs be made more effective at meeting conservation objectives
and also be consistent with broader policy and trade objectives?



201

The answer is to target environmental impacts while keeping as
much viable land in production as possible. Land retirement could
still be used in those special circumstances, such as protection of
wetlands, in which there are no viable alternative methods to meet
environmental objectives.
Conservation programs are not an efficient means of transferring
income to farmers because they do not target those farmers who
might be thought to be deserving of income subsidies. Hence, they
should not be used as a means to support farm income. Instead,
conservation programs should be designed to achieve environmental objectives by targeting land that causes offsite damages and
land that needs to be protected for other environmental reasons
such as protection of wildlife. The recent changes in the Conservation Reserve Program's eligibility criteria, to include environmentally sensitive lands such as wetlands and areas bordering rivers
and lakes, represent a move toward better targeting of environmentally sensitive land. These criteria could be further improved
by explicitly linking them to potential damages. If the program enrollment is increased from the current 34 million acres to 40 million as proposed by the Administration, participation should be extended to land meeting criteria that target environmental damages.
Conservation programs could also be made compatible with both
environmental and trade objectives by using economic incentives to
encourage farmers to invest in conservation improvements that
reduce wind and water erosion damages while keeping land in production. Investments such as terracing and windbreaks can be used
to reduce wind erosion, and filter strips and grassed waterways can
reduce water pollution. Federal conservation programs have long
shared the costs of these investments, but not in a way that targets
the investments to mitigate offsite damages. Such targeting could
be accomplished by linking these investment incentives to the potential for erosion to cause environmental damage.

PESTICIDES: BENEFITS, RISKS, AND REGULATION
Pesticides are believed to have been a major contributor to the
growth in the productivity of U.S. agriculture since the 1950s. This
growth in productivity—almost 220 percent since the early 1950s—
has benefited consumers by making more food available at lower
prices. Pesticides are poisons, however, and their widespread use in
agriculture has led to growing public concern about detrimental effects on human health and the environment.
Many pesticides have immediate health effects that pose a risk
to pesticide users and others from accidental poisonings. Some scientists also believe that low-level exposure to many pesticides may
cause delayed health effects. These delayed effects—cancers, birth



202

defects, and neurological disorders—are much more difficult to
demonstrate than immediate effects. Because experimentation on
humans is not possible, researchers must infer delayed effects from
animal studies or from statistical data on human exposure. Because neither method provides definitive data, regulatory decisions
regarding delayed effects are inevitably based on imperfect scientific evidence.
The effects of pesticides on nature may be even more difficult to
measure and evaluate than the effects on human health. Countless
plant and animal species inhabit the natural world. Plants themselves contain many natural pesticides necessary for survival. The
scientific challenge to understand the effects of pesticides is great,
even if attention is focused only on those organisms that have immediate economic value. Researchers have only recently begun to
construct a framework for systematic quantitative assessment of
pesticide impacts.
The Regulatory Process
The Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA)
directs EPA to evaluate the effects of pesticides on human health
and the environment and to regulate pesticide use as necessary to
balance benefits and risks. Pesticides that pass the benefit-risk
analysis under FIFRA must also meet a health-risk tolerance for
residues in processed foods established by the Federal Food, Drug,
and Cosmetic Act (FFDCA). The risk tolerance is to be set in light
of the need for "an adequate, wholesome, and economical food
supply." EPA uses available data—including laboratory studies of
effects on animals, pesticide use data, and food consumption data—
to estimate the risk of an adverse health effect (e.g., the probability
of a person developing a cancerous tumor during a lifetime). This
risk estimate is then used with other relevant information to make
regulatory decisions.
This regulatory scheme is straightforward in principle, but its information requirements are burdensome in practice. Within the
next decade, EPA must evaluate hundreds of active ingredients
contained in thousands of pesticides. Because many studies and
analyses are required on each active ingredient, EPA faces a formidable regulatory task. The current regulatory process takes years
to complete. In deciding whether to remove a dangerous pesticide
from use, current procedures can take 4 to 8 years. Some of the
delays in the regulatory process can be attributed to the way it is
organized, and the Administration has proposed reforms to expedite the process. But a major constraint is still the time and cost
involved in producing reliable scientific information needed to
make responsible decisions.




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Negligible Risk and the Delaney Clause
Both risks and benefits of a pesticide are considered in setting
most tolerances under FFDCA and in all regulatory decisions
under FIFRA. For most decisions, EPA uses the concept of negligible risk. A negligible risk is one below which it is deemed that the
public health is not threatened, and is often interpreted to be a
lifetime cancer risk in the range of 1 in 1,000,000. When a chemical's
risk is estimated to be less than 1 in 1,000,000, its use is not
regulated. When a chemical's risk exceeds 1 in 1,000,000, benefits
from use are weighed against risks in making a regulatory decision.
A different risk standard is applied in the case of pesticide residues in processed foods, however, because of the Delaney Clause in
Section 409 of FFDCA. The Delaney Clause states that a pesticide
that has been found to cause cancer cannot be registered for use if
any residues are found in processed foods. This zero-residue standard implies a zero-risk tolerance for carcinogenic pesticides in processed foods, no matter how small the risk or how large the economic benefit from their use. Thus, benefits are balanced against risks
if a carcinogenic pesticide residue is present on fresh produce, but
not if it is found in processed food.
The Congress adopted the Delaney Clause's zero-risk standard in
the 1950s when laboratory techniques were able to detect residues
only in parts per million. With modern techniques, such as gas
chromatography, it is possible to detect residues in parts per billion, effectively increasing the stringency of the Delaney Clause's
risk standard by a factor of one thousand.
The current negligible-risk standard for pesticides is very stringent—some would say excessively so—and represents a high degree
of safety. More stringent pesticide regulations could have little
effect on the total number of cancers. To put pesticide health risks
into perspective, consider that the risk of cancer in the U.S. population is 300,000 in 1,000,000. Pesticides account for only a small
fraction of the 2 percent of cancers attributed to all sources of pollution, whereas tobacco use and diet are believed to contribute to
about 65 percent of all cancers. The National Cancer Institute has
announced its goal to reduce cancer mortality in the year 2000 by
50 percent through changes in tobacco use, diet, and health care.
The Institute's focus on reductions of large risks, rather than ones
that are already negligible, is clearly sensible.

THE ADMINISTRATION'S PROPOSALS FOR PESTICIDE
POLICY REFORM
The National Academy of Sciences recently studied pesticide regulation extensively and recommended that the inconsistencies between FIFRA and FFDCA be eliminated by abandoning the distinc-




204

tions now made between residues in processed and nonprocessed
foods and by replacing the Delaney Clause with a negligible-risk
standard for all pesticides. The National Academy concluded that
the consistent application of a negligible-risk standard for carcinogens in food would allow regulatory efforts to be focused on the
most dangerous substances and would thereby dramatically reduce
total dietary exposure to cancer-causing pesticides with modest reduction of pesticide benefits.
The Administration proposes to adopt the National Academy's
recommendation that a negligible-risk standard replace the Delaney
Clause in FFDCA. Where risk is greater than negligible, the Administration proposes to extend to processed foods the existing regulatory procedures for nonprocessed foods. These procedures allow
economic and health benefits of a pesticide to be balanced against
risks in all cases. By allowing better targeting of regulatory efforts,
this change should reduce cancer risks.
The Administration's food safety proposal also would amend
FIFRA to strengthen and simplify the pesticide regulation process.
The President's plan would establish a periodic review of all pesticides, simplify and make more effective the process of canceling the
use of a pesticide found to be harmful to public health, and improve enforcement of pesticide regulations.
Other Regulatory Reforms
Pesticide regulation, like air pollution regulation, is based largely on command-and-control techniques (Box 6-2). Uniform regulatory standards are notoriously inefficient because they fail to take
into account the diversity of local conditions. Because pest problems are often location-specific, large production inefficiencies can
be caused by uniform pesticide regulations. There is a need for alternative, cost-effective methods of pesticide regulation that allow
farmers to adapt production methods to the particular pest problems they face. For example, it may be possible to employ a system
of marketable pesticide-use allowances to reduce pesticide contamination of surface and groundwater efficiently. A marketable allowances system (Box 6-1—tradable allowances) would restrict the
total use of pesticides in environmentally sensitive areas and would
allow those farmers who benefit most from pesticides to use them.
Both Federal and State governments have already financed research into production practices that impose fewer health and environmental risks. For example, many States have developed research programs under the rubric of integrated pest management.
Also on the horizon are promising developments in biogenetic research that could enhance pest resistance and reduce the need for
chemical pest control. In 1990, the Administration will begin a 5year interagency research initiative to improve understanding of
the process of groundwater contamination, develop safer produc


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tion practices, and disseminate the new practices through the Extension and Soil Conservation Services.
Better data on actual pesticide use, occupational exposure, and
environmental contamination are needed to enable regulators to
make informed decisions. The Department of Agriculture is currently improving data on pesticide use. The EPA is now conducting
the first national assessment of pesticide contamination of well
water. Further funding of pesticide data collection and analysis is
under consideration.

ENVIRONMENTAL EFFECTS OF FEDERAL FARM
PROGRAMS
Federal farm programs may encourage farming practices that increase health and environmental problems. Farm programs may
have adverse environmental impacts through several channels.
Crop-specific subsidies can encourage farmers to use more fertilizers and pesticides. To limit the costs of programs, farmers can receive subsidies only on those acres that are part of the farmer's
program crop base. This criterion for program participation creates
a disincentive to rotate crops, even though crop rotation is an important nonchemical technique for pest control. Thus, the programs may further aggravate pesticide pollution by encouraging
farmers to substitute chemical pest control for nonchemical control.
When farm subsidies are based on how much land a farmer devotes to particular crops such as wheat and corn, land suitable for
those crops becomes more valuable. Higher agricultural land
values in turn encourage farmers to bring more land into production. Land that is not already being farmed is generally less productive or more costly to convert to agricultural uses. Such land
may be steeply sloped and thus erodible, or it may be wetlands that
provide important wildlife habitat. Agricultural subsidies based on
land use thus create incentives for farmers to use land in ways
that may increase adverse environmental impacts.
Unfortunately, only limited research has addressed the linkages
between agricultural policy and environmental quality. Some evidence supporting these linkages is contained in case studies conducted by the National Academy of Sciences in its report, Alternative Agriculture. Other research casts doubt on the generality of
that evidence, however. Research shows that pollution caused by
agricultural chemical use, for example, depends on the physical
characteristics of the farmer's field and its proximity to groundwater and surface water. The diversity of conditions under which agricultural production takes place makes it very difficult to draw
broad generalizations from limited data.



206

The potential adverse environmental impacts of Federal agricultural programs could be reduced by breaking the links between agricultural subsidies and farmers' production and land-use decisions.
These links could be broken, for instance, by making three
changes: continuing the reductions of price-support levels that were
begun by the 1985 farm bill; relaxing restrictions on the use of land
enrolled in subsidy programs; and changing the criterion for receipt of subsidies from one that is based on crop acreage to one
that is not related to production of a specific crop. For example, an
income-based safety net could replace the current system of croprelated deficiency payments. These same policy changes would also
bring U.S. agricultural policy in line with the broader trade policy
goals of this Administration that are discussed in the next chapter
of this Report.

GLOBAL ENVIRONMENTAL ISSUES
Like environmental problems at the local or national level,
global environmental problems arise because actions taken by one
individual have unintended adverse effects on another. Global environmental problems are complicated by the fact that the individuals involved live in many nations. Because one nation cannot
impose its wishes on another, international cooperation is required
to solve such problems. Differences across countries—in income,
natural resource endowments, population, sensitivity to particular
environmental changes, and the political strength of environmental movements—mean that countries inevitably have different
views on these issues. At the Paris Summit in July 1989, the President joined other heads of state in recognizing the need for cooperation in addressing global environmental concerns. The President
has also encouraged international organizations to facilitate international cooperation to solve global environmental problems.
Stratospheric ozone depletion and possible climate change are
two global issues that may affect the economy and the environment far into the next century. To evaluate the impact of a policy
course chosen today, the impact it will have on the economic wellbeing of both current and future generations and its environmental
impact must be assessed.
Scientific evidence of possible stratospheric ozone depletion is
stronger than scientific evidence of possible global warming, although significant uncertainties surround both. These uncertainties extend to environmental and economic as well as scientific aspects of these two issues. Because policymakers must understandably make decisions before information on such issues is complete,
the government has an important role to play in supporting basic



207

scientific and economic research that can reduce critical uncertainties in the meantime.
Even when uncertainty cannot be eliminated, identifying a probable range of effects can inform policy choice. For example, a consensus that changes in global climate will lead to at most a small
rise in sea level over the next 60 years would make a policy response to protect high-value coastal areas more feasible than if a
large rise were expected. Finally, because the regulatory agenda is
often influenced by public perceptions that may not accurately reflect available knowledge, the government also has a responsibility
to educate the public.
STRATOSPHERIC OZONE DEPLETION
Ozone in the upper layer of the Earth's atmosphere (the stratosphere) provides an essential screen from the Sun's ultraviolet
rays. In recent years, evidence has mounted that the stratospheric
ozone layer is being depleted. Several chemical compounds, most
notably chlorofluorocarbons (CFCs) and bromofluorocarbons
(halons) have been identified as sources of the increased atmospheric concentrations of chlorine and bromine that cause ozone depletion. These chemical compounds have long atmospheric lifetimes,
so that even if their production were halted immediately, elevated
concentrations of chlorine and bromine would persist for decades
before subsiding. If production is phased out by 2000, current chlorine concentrations would be likely to increase by 50 percent and
then decline slowly to one-half of current levels by 2080. Without
any production curtailment, these concentrations would rise indefinitely.
The appearance of a major hole in the stratospheric ozone layer
over Antarctica, where no emissions originate, illustrates the
global scope of the ozone-depletion problem. Long before the hole
was observed, the United States acted in 1978 to ban the use of
CFCs as aerosol propellants, a use in which substitutes were readily available. Canada and Sweden followed suit. CFCs and halons
are also used in applications such as automotive and residential
air-conditioning systems, refrigerators, and fire extinguishers; as
blowing agents in the production of insulating board and other
foam products; and as industrial solvents. These uses of CFCs and
halons have continued to grow.

Protecting the Ozone Layer: Benefits and Strategies
The potential benefits from protecting the ozone layer—improvements in human health and favorable impacts on crops, fish, and
materials—arise from lower exposure to solar ultraviolet radiation.
Both skin cancer and cataracts are related to cumulative exposure
to ultraviolet radiation. A phaseout of CFCs and halons is estimated to reduce the incidence of these health problems in the current



208

population by 50 to 75 percent from levels that would prevail if
there were no curtailment of production. (This estimate is likely to
be high, because it assumes that individuals take no offsetting actions to reduce their exposure to increased ultraviolet radiation.)
For future generations, which would suffer a greater cumulative
exposure to ultraviolet radiation if ozone depletion continued, the
health benefits would be even larger.
The geographic distribution of ozone-depleting emissions and
their expected growth unless action is taken is such that no single
country can act alone and have a significant impact on stratospheric ozone depletion. Individual countries have little reason to act
alone. The benefits of national policies to reduce ozone-depleting
emissions spill over national boundaries, but costs are concentrated
where reductions occur. Thus, the application of cost-benefit criteria on a national level would cause any one country, working in
isolation, to reject control measures that may be desirable from a
global perspective.
Two international agreements regarding ozone depletion are currently in effect. The 1985 Vienna Convention established a framework for international scientific and technical cooperation. The
1987 Montreal Protocol commits signatories who are major CFG
users to freeze production levels by 1989, and then to cut their production in half by 1998. In addition, beginning in 1992 the production of several halons is frozen at 1986 levels. The United States
and other major industrialized countries have announced further
intentions to phase out production of CFCs and halons completely
by the turn of the century if safe substitutes are available. Amendments and revisions to the Montreal Protocol, including extending
coverage to other compounds with ozone-depleting potential, are
currently under consideration.
Hydrochlorofluorocarbons (HCFCs), the most promising substitutes for CFCs in a wide range of applications, themselves have
one-fiftieth to one-tenth the ozone-depleting potential of CFCs. By
allowing HCFCs to substitute for CFCs in the near term, the Montreal Protocol rejects the uneconomic approach of barring all new
ozone-depleting compounds regardless of their advantage relative
to current products and their usefulness during the transition to
substitutes with no effect on the ozone layer.
Atmospheric lifetime is one important factor in decisions regarding the coverage of the protocol. Decisions to reduce or eliminate
the use of short-lived ozone-depleting compounds, such as methyl
chloroform, involve weighing the short-term impact of delay
against the opportunity to develop improved substitutes to lower
the economic costs of action. Under these conditions, it may be sensible to eliminate their use as good substitutes become available.



209

Costs of Protecting the Ozone Layer
Preliminary estimates place the U.S. costs of a phaseout of CFCs
and halons by 2000 at $2.7 billion over the next decade if the schedule of intermediate reductions currently incorporated in the Montreal Protocol is maintained. Acceleration of this schedule would
drive compliance costs upward significantly. These cost estimates
reflect a substitution strategy involving conservation, process
changes, and the use of more expensive substitute compounds. The
availability of substitutes is critical to avoid economic disruption.
The United States is using transferable allowances to implement
the reductions required under the protocol in a cost-effective
manner. Manufacturers and importers of CFCs and halons will receive permits in proportion to their base period market shares. As
supply is restricted, rising prices will encourage users with available low-cost substitutes to switch, leaving remaining supplies for
high-value uses. This approach avoids unnecessary direct regulation of end-use applications, while ensuring compliance with U.S.
obligations to reduce production and consumption. Moreover, because there are significant economies of scale in the production of
CFCs and halons, the use of permit transfers to concentrate production in a small number of facilities during the phasedown has
the potential to increase efficiency on the supply side. Allowing for
this kind of flexibility on the international level would yield further cost savings.
GLOBAL CLIMATE CHANGE
Greenhouse gases (carbon dioxide, methane, CFCs, and nitrous
oxide, among others) absorb heat that radiates from the Earth's
surface and send some of the heat downward, warming the climate.
Many scientists believe that fossil fuel burning, certain agricultural practices, deforestation, and other human activities that increase
the atmospheric concentration of greenhouse gases will alter the
global climate. Scientists are much less confident of the magnitude,
timing, location, and character of the greenhouse-induced warming.
Many argue that no warming has yet occurred despite a substantial increase in greenhouse emissions; some contend that appreciable future warming is unlikely. Others strongly dispute these
views.
Computer models of the Earth's climate system are a principal
tool of global climate research. Economic models of energy supply
and demand provide the future emissions projections used as input
by the climate models. Economic models can also be used to assess
the cost and growth impacts of policy actions to change the future
emissions profile.




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Economic and Scientific Uncertainties
Projections of future emissions of greenhouse gases, a critical
input to climate models, are highly sensitive to future rates of population growth, economic growth, and development of new technologies for energy production and use. The inability to place narrow
bounds on any of these factors necessarily places very wide bounds
on any forecast of future emissions. One recent study could conclude only that actual global carbon emissions from fossil fuel combustion in the year 2050 are likely to be between 50 and 1,100 percent of current annual emissions. This result is typical of the high
degree of uncertainty in this area.
Even if estimates of future emission levels are correct, the magnitude of actual climate change will depend on numerous interrelated and, as yet, poorly understood geophysical processes that
have both positive and negative feedbacks on warming. For example, an increase in evaporation from a warmer climate will almost
certainly increase average cloud cover. Depending on their altitude
and configuration, additional clouds can either intensify or counteract warming. Current climate models are incapable of providing
reliable estimates of the effect that clouds will actually have if
warming occurs.
If the atmosphere begins to warm, a transfer of heat from the air
to the oceans is expected to slow the rate at which air temperature
actually rises. This effect, which would decrease as ocean temperatures increased, could delay the full effect of any increase in the
concentration of greenhouse gases on air temperature for a period
ranging from decades to centuries, with wide variations by region.
Regional variation in other critical effects such as seasonality, rainfall distribution, and soil moisture is also likely, but current climate models lack sufficient resolution to identify regional differences clearly. This deficiency makes it difficult to specify, among
other things, the sea level rise resulting from any degree of average warming.
Considerable resources and effort are being devoted to resolving
uncertainties in climate modeling, and in gaining a better understanding of processes that are poorly understood and are not explicitly treated in current climate models. The President's 1991 budget
proposal includes $1.03 billion in funding for global climate change
research. This figure reflects an increase of 57 percent over the
current funding levels and a 100-percent increase over 1989 expenditures. The United States has also taken a leadership role in
the Intergovernmental Panel on Climate Change, the primary
international forum for consideration of the scientific, socioeconomic, and policy issues concerning global climate change.
At the Malta meeting with the Soviet President in December, the
President of the United States announced his intention to host a



211

White House Conference on Scientific and Economic Research on
the Environment in the spring of 1990. The general purpose of this
high-level international meeting will be to advance the quality and
understanding of the scientific and economic analytical tools and
data necessary to confront international environmental problems,
including global climate change. Sound scientific and economic
analyses must be the foundation for any policy action in this area.
The President of the United States also offered to host the first negotiating session for an International Framework Convention on
Global Climate Change in the fall of 1990.
The compounded uncertainties of the projections of future emissions and the climate models present a formidable barrier to accurate forecasting. At present, there is an extremely high level of uncertainty regarding possible future climate change. Some reputable
scientists believe that there will be no significant greenhouse
warming over the next century. But other reputable scientists believe that a warming of between 1.5 °C and 4.5 °C (with most recent
estimates falling into the lower half of this range) could occur by
the middle of the next century if emissions grow rapidly. A warming of this magnitude could result in a rise in sea level estimated
to range from a little under one foot to about a foot and a half by
the end of this period. Both the more optimistic and the more pessimistic judgments are subject to revision as scientific and economic
inquiry progresses and additional data are gathered.
If the current understanding of greenhouse processes is correct,
some warming could occur by virtue of past emissions. Therefore,
some adaptation would be required even if future greenhouse emissions were sharply curtailed. Even though scientists may yet learn
that no significant warming is likely, it is nonetheless worthwhile
to address two distinct policy questions. First, what actions could
be taken now to limit emissions of greenhouse gases and what are
the likely costs of those actions? Second, what are the possible economic and other effects of warming that, if these scientists are correct, will occur in any event?

Sources of Greenhouse Gas Emissions
Some steps have already been taken that will reduce greenhouse
gas emissions. In addition to their role in stratospheric ozone depletion, CFCs account for 14 percent of total greenhouse emissions
from human activities on an impact-weighted basis; the planned
phaseout of CFCs is clearly important. In the recently negotiated
agreement to replenish the financial resources of the International
Development Association, the United States called for preparation
of environmental action plans in borrowing countries, expansion of
programs for end-use energy conservation and renewable energy
sources, and other environmental reforms.



212

On the domestic front, the Administration's clean air initiative
promotes the development of technologies that will improve the efficiency of converting energy stored in coal and other fossil fuels
into electricity. The allowances system and the proposed cap on
sulfur dioxide emissions may also focus renewed attention on improving efficiency in end-uses of electricity as an alternative to new
fossil-fueled generating capacity. Although the measures cited
above should reduce net greenhouse emissions, the justification for
taking these actions does not depend on resolving the high uncertainties about possible climate change.
Carbon dioxide accounts for about one-half of the current greenhouse gas emissions caused by human activity. The shares of methane, CFCs, nitrous oxide, and other gases are 18, 14, 6, and 13 percent, respectively. Clearly, possible climate change is not a one-gas
problem: gases other than carbon dioxide play a significant role.
Nonetheless, international attention and current analysis of greenhouse gas limitation policies focus almost exclusively on carbon dioxide.

THE COSTS OF REDUCING CARBON DIOXIDE
EMISSIONS
Fossil fuel combustion is the primary source of carbon dioxide
emissions. Deforestation accounts for an additional 10 to 30 percent. Other activities such as agriculture and cement manufacturing contribute smaller shares. Although all fossil fuels contain
carbon, coal contains about 1.75 times as much carbon per unit of
heat energy as natural gas and about 1.25 times that of oil.
In contrast to the situation for CFCs, low-cost substitutes for
fossil fuels used in electricity generation, transportation, heating
and cooling, and process heat applications are not currently available or on the immediate horizon. Unlike sulfur dioxide, no commercially feasible technology for scrubbing carbon dioxide from
combustion waste gases is available. Thus, for the foreseeable
future, only lower energy consumption or fuel switching could
reduce carbon dioxide that results from fossil fuel combustion. A
substantial increase in the price of fossil fuels would likely be required to reduce consumption substantially.
Experience following the 1973 and 1979 oil shocks shows that
large increases in the price of energy can reduce the energy intensity
of economic activity. The period between 1973 and the sharp decline in oil prices in 1986 saw a significant increase in the relative
price of energy. Between 1973 and 1985, the price of energy rose by
47 percent relative to nonenergy products at the consumer level
and by more than 80 percent at the industrial level. The ratio of
energy use to real gross national product fell by 2.3 percent annually in the United States over this period as consumers and produc-




213

ers responded to higher energy prices by substituting away from
energy and energy-intensive products. With no growth in energy
consumption over the period 1973 to 1985, carbon dioxide emissions
remained level. The impact on carbon dioxide emissions of the increase in the share of primary fossil energy derived from coal over
this period was offset by growth in the use of nuclear power, which
produces no greenhouse emissions, and of natural gas. However,
the growth rates of output and productivity over this period, 2.3
percent and 1.0 percent, respectively, were far below the corresponding rates of 3.7 percent and 2.9 percent for the 1948-73 preshock period.
The relationship between energy prices, energy consumption, and
economic growth is also reflected in more recent data covering a
period of significant decrease in relative energy prices at the consumer and industrial levels. Between 1985 and 1988, annual growth
rates in output and energy use snapped back to 3.6 percent and 2.7
percent, respectively.
Although the slowdown in productivity and output growth between 1973 and 1985 can be attributed to many factors, higher
energy prices clearly played an important role. Energy price increases of comparable or larger size would likely be needed to
induce the large energy efficiency improvements and demand reductions that must occur to achieve the ambitious targets for
carbon dioxide emissions reductions that some have advocated. Although much has changed since 1973—it may be harder now to
expand reliance on nuclear power, for instance, even though the
regulatory policy errors of that period are less likely to be made—
the oil-shock period provides a useful benchmark for consideration
of the likely impact of emission reduction policies on output and
productivity growth. On balance, there is no reason to believe that
an attempt to reduce energy use significantly would be substantially less economically disruptive today.
Modeling the economic effects of policies to curtail carbon dioxide emissions is still in its infancy, and results of modeling efforts
remain tentative and controversial. (Even less has been done with
regard to other greenhouse gases.) Recent studies suggest, however,
that the costs of policies to stabilize or reduce carbon dioxide emissions from fossil fuel combustion would be high.
One recent study placed the cost of gradually reducing U.S.
carbon dioxide emissions by 20 percent between now and 2100 to
range from $800 billion, under optimistic scenarios of available fuel
substitutes and increasing energy efficiency, to $3.6 trillion under
pessimistic scenarios. These present-value estimates, which reflect
the discounting of real future costs at a 5-percent annual rate (Box
6-4), are between 35 and 150 times larger than EPA's similarly discounted estimate of the costs that would be incurred over the next



214

century by consumers and industries forced to use more expensive
or less effective substitutes if a complete phaseout of CFCs and
halons were implemented by the year 2000.
Box 6-4.—Discounting Over Long Horizons
The costs of reducing greenhouse gas emissions must be
borne both now and well into the next century; the benefits of
slowing climate change may not be perceptible for many decades, Discounting is required to compare costs and benefits—
both market and nonmarket—that occur at different dates*
Suppose, for instance, that a 5-percent real rate of interest is
appropriate for these calculations, Of an investment yields a 9percent rate of interest in dollar terms, but prices rise by 4
percent per year, the real purchasing power of invested funds
grows by 5 percent annually*) One dollar invested at 5 percent
per year in 1990 will return $18*68 in purchasing power in
2050 if the interest income between 1990 and 2050 is reinvested. Therefore, it makes no sense to spend $1 today to obtain
benefits worth $10 in 2050: future generations must receive at
least $18*68 in 2050 benefits to be better off than they would be
if the dollar were invested instead.
It is always possible to compare values in either current or
future terms. To compare in 1990 terms, one must divide the
2050 value by 18 ,68. Thus, $100 billion in 2050 is worth only
$5.35 billion in 1990. To compare in 2050 terms, $100 billion in
1990 is worth $100 billion x 18.68 = $1,868 billion, or $1.868
trillion, Either approach will give comparable results; what
matters is that all values are placed on a consistent baste.
The costs of carbon dioxide stabilization policies can also be
looked at from a future perspective. The present-value estimates
cited above reflect reductions in real U.S. output ranging from 1 to
5 percent over the 2010 to 2100 period. Other preliminary estimates
place the cost of stabilizing 2050 emissions at 1990 levels in the
range of 1 to 2 percent of 2050 gross national product (GNP). To
put these estimates in perspective, a 2-percent reduction in GNP in
the year 2050 is worth about $340 billion 1990 dollars, assuming a
2-percent average annual rate of economic growth between now
and 2050.
The impact of carbon dioxide stabilization policies can also be
considered in terms of growth-rate impacts. A recent estimate
based on energy-output balance relationships suggests that global
carbon dioxide stabilization could cut world economic growth in
half, even after accounting for substitution toward cleaner energy.
Other studies and U.S. experience following the oil shocks suggest




215

substantial if less dramatic impacts. As shown in Chapter 4, even
small changes in growth rates can have a large effect on future
output levels.
Clearly, economic models as well as climate models are subject to
considerable uncertainty. The early estimates of potential costs described above are far from definitive. The critical uncertainty regarding forecasts of the date and cost at which alternative technologies will become available is unlikely to be resolved soon. Meanwhile, the refinement of current estimates and the development
and application of new, more detailed economic models would help
to provide a stronger foundation for decisions regarding possible actions to limit carbon dioxide emissions.

Other Issues in Reducing Carbon Dioxide Emissions
Reductions in U.S. carbon dioxide emissions on a unilateral basis
or in cooperation with other Organization for Economic Cooperation
and Development (OECD) countries alone would not significantly
alter the projected growth in world carbon dioxide emissions (the
OECD is an international organization of industrialized countries
that promotes economic growth and trade). Chart 6-1 shows current and projected shares of total carbon dioxide emissions. The
emissions share of the United States and other industrialized countries is projected to decline sharply as non-OECD economies experience growth and increasing energy intensity. Developing countries
are expected to account for the majority of future emissions increases. Clearly, any significant reduction in emissions growth
would require the cooperation of the Soviet Union, Eastern Europe,
and the developing countries.
The ratio of carbon dioxide emissions to energy consumption depends on the mix of energy sources employed and thus varies substantially among industrialized nations. This ratio is high for the
United States, which depends more heavily on coal than most of its
major competitors (Table 6-2), as is energy use per dollar of GNP.
All else equal, uniform international standards or user charges for
carbon dioxide emissions are thus likely to have a larger adverse
impact on the United States than on its major competitors. In particular, a fee on carbon dioxide emissions (discussed below) would
increase electricity rates in the United States relative to rates in
countries that rely more heavily on nuclear and hydroelectric
energy, which produce no greenhouse emissions, or in countries relying on fossil fuels with less carbon per unit of energy content.
This situation presents a marked contrast to the 1973 and 1979 oil
shocks, where greater U.S. self-sufficiency in energy provided an
advantage relative to most other industrialized countries.
Other than hydroelectric or geothermal power, which have very
limited potential to supply increased electricity within the United
States, nuclear power is the only large-scale technology for electric


216

Chart 6-1
CARBON DIOXIDE EMISSIONS BY REGION. The LDC share of carbon dioxide emissions is projected
to grow rapidly. The U.S. share is projected to decline.
Billions of metric tons of carbon
30

25

20

15

10

1985

2000
United States

2075

2050

2025

USSR&
Eastern Europe

Rest of OECD

2100

LDCs (including
China and India)

Source: Environmental Protection Agency,Policy Options for Stabilizing Global Climate(Rapidly Changing World Scenario).

TABLE 6-2.—Fuel Share in Electricity Generation, 1986
[Percent]
Country

Oil

Coal

Nuclear,
Hydroelectric,
and Geothermal

Gas

Canada

157

13

15

815

France

97

1.5

.8

88.1

West Germany

569

31

62

338

japan

147

282

193

37.8

Netherlands

26.8

5.1

61.8

30

20

1

949

562

55

101

28.1

Sweden
United States

6.3

Source: Organization for Economic Cooperation and Development, "Energy Policies and Programmes of IEA Countries—1987
Review," Paris, 1988.

ity production that is both benign from a greenhouse emissions perspective and commercially available now. Policies regarding the
future role of nuclear power, including the timetable for the development and commercialization of modularized, inherently safe reactor designs, will need to be closely coordinated with policies that
affect the future role of fossil-fuel generation.




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POLICY TOOLS TO IMPLEMENT A REDUCTION IN
GREENHOUSE GAS EMISSIONS
A variety of policy tools, including user charges, correction of
market failures, regulatory standards, expanded funding for research on and development of substitutes for fossil fuels and other
sources of greenhouse emissions, and efforts to reduce and reverse
deforestation, could be used to slow the buildup of greenhouse
gases in the atmosphere. These approaches are relevant for nearly
all greenhouse gases, not just carbon dioxide. While international
attention has naturally focused on carbon dioxide as the single
largest contributor to the greenhouse effect, control costs must also
be considered in the design of any strategy to reduce net emissions
of greenhouse gases. A cost-effective strategy may involve a focus
on other gases or on sinks that absorb greenhouse emissions. Different approaches may be suitable for different countries.
A fee, charge, or tradable allowances system for greenhouse gas
emissions based on an index of the global climate impacts of each
greenhouse gas would provide a least-cost reduction in such emissions. A fee or a tradable allowances scheme would lead firms and
individuals to consider the social cost of greenhouse emissions in
their private decisions. An emission charge or the need to consider
the value of allowances would affect decisions ranging from the
choice among alternative technologies for generating electricity, to
the energy efficiency of cars, buildings, and industrial equipment,
to the demand for automobile travel. Because market-based approaches are flexible and provide incentives that affect decisions at
all points along the production-consumption chain and across all
industries, they automatically focus on those activities where emissions reductions can be achieved at least cost.
The economic impact estimates for carbon dioxide stabilization
discussed above reflect the high costs of reaching very ambitious
goals even when efficient market-oriented tools are used. Marketbased approaches could also be implemented at a less draconian
level to nudge the economy gently and gradually in the direction of
greater energy efficiency. Such an approach would test the flexibility of the economy without betting the current way of life on the
outcome.
Publicly supported research and development of nonfossil energy
sources, including biomass, solar, and next-generation nuclear fission, may contribute to a reduction in greenhouse emissions. It is
often noted that the fruits of innovation cannot always be fully
captured by the innovator, leading to underinvestment in the development of new technology. This problem is particularly acute
for innovations that address a global problem, such as greenhouse
emissions. Breakthroughs in environmentally benign technologies
hold the promise of lowering the future emissions trajectory while



218

advancing economic progress. Opportunities also exist outside the
energy area. For example, emissions of methane from agriculture
might be cut through the development of improved techniques for
farming and livestock management.
Reforestation can contribute to reductions in net emissions of
carbon dioxide into the atmosphere. Just as tropical deforestation
increases carbon dioxide emissions by releasing carbon that is fixed
in trees through photosynthesis, reforestation can increase the
uptake of carbon dioxide from the atmosphere by increasing photosynthesis. Reforestation potential varies significantly across countries according to their climate and land use patterns. The United
States has an abundant supply of urban and rural land suitable for
reforestation. Large-scale reforestation efforts could have significant impacts on agricultural and timber production, however,
which would in turn affect consumers and producers in those markets.
Correcting Market Failures
In some cases, market failures may serve to increase emissions of
greenhouse gases. Interventions that address market failures directly are generally preferable to direct regulation via standards. Approaches that merit consideration include public information programs, promotion of efficient appliances by utilities, and changes
in mortgage qualification rules to reflect appliance operating costs.
One promising concept to reduce the growth in electricity use is
demand-side management. A utility faced with capacity constraints
would consider proposals for demand reduction through efficiency
improvements and proposals to increase supply on an equal footing, and choose the lowest cost alternative. One barrier to implementing programs of this type is that utility profits under traditional State rate-setting regulation are often linked directly to the
level of electricity sales. Regulatory changes at the State level, possibly to permit nonutility companies to bid for demand reduction
that can be compared with the costs of increasing supply, are
needed to implement demand-side management. Although estimates of the emissions reductions available through widespread application of this approach vary widely, the removal of regulatory
barriers and biases in the market for electric power makes economic sense.

The Limitations of Efficiency Standards
Energy efficiency standards can also be used to overcome information barriers and institutional rigidities. However, this command-and-control approach has several significant disadvantages
compared with incentive-based systems or alternative approaches
that address perceived market failures directly. First, the burden of
meeting standards cannot be reallocated across industries or across



219

the different greenhouse gases in private cost-saving transactions.
Second, in the absence of price increases for fossil fuels, standards
can increase the demand for energy-using services. Finally, standards reduce the range of products available to meet diverse consumer needs.
The costs of efficiency standards are often hidden. For example, a
higher average fuel economy standard might force consumers to
buy only the more fuel-efficient and generally cheaper vehicles in
the existing product line, thereby actually reducing their purchase
and gasoline costs. However, out-of-pocket costs do not reflect costs
imposed by denying consumers the option to purchase other valued
attributes such as safety, performance, and comfort. Higher fuel efficiency without higher fuel prices also lowers the per mile cost of
driving, which encourages more trips, more fuel consumption, and
more emissions. Because fuel economy labels already inform consumers about energy consumption, and few apparent institutional
rigidities exist, the economic rationale for stringent auto efficiency
standards is doubtful at best.
Assertions that efficiency improvements are cost-saving or nearly
costless beg the question why these improvements are not automatically taking place. Such assertions must be examined to see if
the claimed efficiency gains involve the sacrifice of other product
attributes that were excluded from the analysis or market imperfections that could be addressed directly. One must ask whether
the analysis considers the entire range of consumer usage rates
and energy prices, or is based only on national average values.
In the latter case, efficiency standards may appear to be cost-effective on the national level, while actually restricting the choices
of only those consumers who face low energy prices or have low
usage rates (and thus energy consumption) for the product. Those
with high usage rates or those who face high energy prices would
purchase high-efficiency products even in the absence of mandatory
standards. Taking this diversity into consideration, an efficiency
standard that appears to save money on the national level may actually impose costs.

IMPACTS OF CLIMATE CHANGE
Available assessments of the costs of substantially slowing the
rate of greenhouse gas emissions may reach the trillions of dollars.
What benefits might be obtained with those costs? This question is
difficult to answer, but it is possible to identify several nonmarket
impacts of possible future climate change, and to arrive at preliminary estimates of some market effects.
There may be both positive and negative effects of climate change
on human health, although these effects are controversial. Temperature extremes—both hot and cold—are associated with higher mor


220

tality rates for populations, such as the elderly, that are susceptible
to physical stress. These relationships suggest that higher temperatures in winter could reduce weather-related illness and death,
whereas higher summer temperatures could increase them. These
adverse health effects are not well understood, however, as illustrated by the fact that the average temperature differential between New York City and Atlanta is as large as the most extreme
predictions of warming, yet there is no evidence that Atlanta's
warmer climate creates a greater health risk than New York's.
There could also be changes in the regional distribution of vectorborne diseases, such as those carried by ticks, fleas, and mosquitoes, associated with climate change.
Substantial reductions in economic growth in low-income countries caused by attempts to reduce greenhouse gas emissions could
have far greater adverse health consequences than any direct health
effects associated with climate change. When one considers the very
close relationship around the world between income levels and important health indicators such as infant mortality and life expectancy, it is clear that one of the most important factors affecting
health is the ability to afford adequate nutrition and health care.
If global warming occurs, its impact on plants and animals, including humans, is likely to depend on how rapidly it occurs. Both
the human and other species' ability to adapt to warming appear
to increase if the rate of change is slow. In agriculture, plant breeding and biogenetic techniques can be used to adapt crop varieties to
changes in solar radiation, temperature, and moisture. These techniques are more likely to succeed when the incremental changes
are small and there is adequate time to undertake adaptive research. In the wild, species can adapt to climate change by moving
to suitable environments or adapting to new ones through natural
selection. Scientists believe that some wild species of plants and
animals may not adapt to rapid climate change and might be lost,
thus threatening the biological diversity that has evolved over millions of years. The fact that many medicines contain active ingredients obtained from substances in plants and animals, especially
those in the tropics, suggests that a reduction in diversity could
represent a significant economic loss.
There is also some reason to believe that extreme weather events
may be more important than the increase in average temperature
for adaptation to and survival of climate change. A change in the
frequency and intensity of hurricanes and tornadoes, for example,
could substantially affect their costs, measured in both human life
and property.
Sea-level rise is another possible effect of global warming. The
U.S. coastline, like the coastlines of other industrial maritime nations, has been extensively developed, with buildings often within




221

100 feet of the sea. The cost of protecting the entire U.S. shoreline
against substantial sea-level rise would be prohibitive, as it would
be for many countries with densely populated low-lying areas. The
cumulative costs of protecting densely developed shoreline areas
from a 20-inch rise is estimated to be between $37 billion and $50
billion, or between $7 billion and $10 billion in present value under
the assumption that all costs were incurred in 2025. If the costs of
protecting against sea-level rise were spread over the more distant
future, as seems likely, their present value would be lower. If the
sea level rises gradually and predictably, a reasonable response
strategy might include steps to encourage some population and economic activity to relocate inland to higher ground when existing
structures come due for routine replacement.
Most sectors of industrial economies are not climate-sensitive, or
could adapt to climate changes. The costs of adaptation depend on
how rapidly warming occurs. Useful lives of plant and equipment
tend to be shorter than 50 years, so that a slow warming trend
would permit change in the location and composition of economic
activity without major or unanticipated disruptions. More rapid
changes could result in loss of some immobile private assets, abandonment of certain public infrastructure, and reinvestment at new
locations.
The most significant impacts on industry are likely to be in activities that involve biological processes that are sensitive to temperature and rainfall such as agriculture, forestry, and fishing—
which account for about 2 percent of U.S. GNP. Global climate
change could have both positive and negative impacts on productivity. Up to a point, higher carbon dioxide concentrations improve
the efficiency of photosynthesis and thus increase agricultural productivity. Warming could change the amount and distribution of
precipitation and shift cropping patterns regionally, but regional
predictions are now considered highly unreliable.
Preliminary analyses show that global climate change could
result in a net loss in agricultural productivity, but no evidence
shows that it would threaten the world's food supply even under the
most pessimistic scenarios. The Department of Agriculture has
made preliminary estimates of the regional and global economic
impacts of changes in agricultural production that might be associated with warming. Under one scenario, the net global costs of a
doubling of atmospheric carbon dioxide were estimated to range
from $35 billion to $170 billion annually, with the United States
losing $1 billion annually. Equally plausible but less pessimistic assumptions about yield effects implied small net gains to the global
and U.S. economies. Underlying these small net effects would be
some redistribution of income from consumers to producers
through higher agricultural prices.



222

These estimated impacts on global and U.S. agriculture can be
put into perspective by comparing them with the impacts of agricultural policies discussed in Chapter 7. Using the same economic
model, Department of Agriculture researchers estimated that the
trade-distorting policies now in place around the world impose a
net cost on the world of $35 billion annually and $10 billion annually for the United States. Thus, the annual costs of current agricultural policies are estimated to be the same order of magnitude
as the estimated agricultural impacts of global warming. However,
the agricultural losses from a doubling of carbon dioxide are not
likely to occur until well into the next century. For example, using
a 5-percent real interest rate, a global loss of $170 billion in 2050
amounts to about $9 billion in 1990 dollars (Box 6-4). Thus, the
costs of today's agricultural policies are estimated to be more important in economic terms than even pessimistic estimates of the
effects of global warming, largely because the former must be
borne in the present and the latter may occur, if at all, in the relatively distant future.

SUMMARY
The United States is taking a leadership role in international efforts to reduce scientific and economic uncertainties about global
climate change and to build a common understanding about all aspects of the climate change issue from the basic Earth science, to
impacts on human activities, to potential response strategies. The
data now available on the economic costs of reducing greenhouse
gas emissions suggest that it may be as important to improve understanding of the economics of global warming as it is to improve
current ability to predict warming itself.
Policies such as the phaseout of CFCs, the President's clean air
proposal, and reforestation can significantly reduce global net emissions of greenhouse gases. At the same time, they can be justified
on their own merits. Increased research and development funding
and modest changes in fuel prices can reflect the broader social interest in promoting energy conservation. Currently available analyses indicate that near-term stabilization or immediate reduction of
carbon dioxide emissions from fossil fuel combustion is likely to
impose large economic costs on current and future generations.
Such measures must be carefully scrutinized, given the current
limited understanding of the impacts and likelihood of global
warming. The highest priority in the near term should be to improve understanding in order to build a foundation for sound policy
decisions.
Until such a foundation is in place, there is no justification for
imposing major costs on the economy in order to slow the growth
of greenhouse gas emissions. Policies that may result in slower




223

growth in greenhouse emissions, but can also be fully justified on
other grounds, are the best short-run way to address this potential
problem while the uncertainties that exist today are reduced.
Being justified on other grounds means that a program yields nongreenhouse benefits commensurate with its costs; it cannot mean
simply having some non-greenhouse benefits. The adoption of many
small programs, each of which would fail a standard cost-benefit
test, could significantly slow economic growth and eliminate jobs.
Because the intense research currently underway may reveal
that it is desirable to slow the growth of greenhouse gas emissions,
it is useful to consider the elements of what would be an economically rational strategy to do so. Any strategy to limit aggregate
emissions without worldwide participation would be likely to fail. A
cost-effective policy must provide for comprehensive coverage of
both sources and sinks of all major greenhouse gases. It must also
provide appropriate incentives for emissions reductions and deal directly with market failures. Carbon dioxide emissions, in particular, could be reduced at much lower cost through the use of emissions fees than through government-imposed standards for energy
efficiency.

CONCLUSION
There is widespread agreement that both economic growth and
environmental quality are desirable policy goals. They need not be
incompatible, and are in many respects complementary. Three
principles should guide regulation. First, realistic environmental
and risk-reduction goals that balance benefits and costs must be
set. Second, strategies that work with rather than against market
incentives should wherever possible be used instead of less effective
command-and-control regulation. Market-oriented approaches, such
as marketable air pollution allowances, create incentives for firms
to achieve environmental goals in a cost-effective manner. Third,
government should support the development and dissemination of
scientific and technical information about environmental and
health risks.
The Administration's clean air initiative, its proposals to improve pesticide regulation and food safety, and its efforts to improve the understanding of global environmental issues each illustrate how these principles for environmental regulation can be put
into action. Other pressing environmental issues will face the
Nation in the 1990s and beyond. The application of these principles
to all environmental problems will help to achieve both a strong
economy and a healthy environment.




224

CHAPTER 7

Growth and Market Reform in the
Global Economy
THROUGHOUT THE WORLD, there are welcome signs that
barriers to free markets and to an open trading system are coming
down. Indeed, the movement toward free markets accelerated dramatically in 1989. Revolutionary transformations from centrally
planned to market-oriented economic systems are being attempted
in Poland, Hungary, and other countries in Eastern Europe. Economic reforms have improved performance in some of the heavily
indebted developing countries, such as Costa Rica, Mexico, and the
Philippines, and recent steps to reduce debt burdens promise to
further this goal. Market-oriented development in the Asian Pacific
Rim economies is proving a dramatic success, and efforts are under
way to translate the export orientation of these nations into higher
domestic living standards. Barriers to the free movement of goods,
services, labor, and capital are being removed to establish a single,
unified market in Western Europe. The United States and its trading partners are continuing to work for a significantly freer world
trading system by developing or extending rules for trade in agriculture, services, intellectual property, and other areas through the
Uruguay Round of the General Agreement on Tariffs and Trade
(GATT), which is to be completed this year.
What has been called the revolution of 1989 in Eastern Europe
highlights the intimate interaction between political and economic
freedoms. U.S. support for democracy and free markets, as well as
the recent success of the U.S. economy and its market-based
system, have been a key impetus to these transformations. During
his first year in office, the President took significant actions to further the development of market reform. He submitted legislation
for financial and technical support to Poland and Hungary, which
was enacted by the Congress last November. More recently, he has
proposed a program of technical assistance and a trade agreement
with the Soviet Union.
The United States has also been a leader throughout the postwar
period in working with other countries toward a more open international trading system. However, many steps have yet to be
taken. Thus, the successful completion of the Uruguay Round of
GATT negotiations and the strengthening of this rules-based insti-




225

tution for liberalizing international trade is the highest priority of
the President's trade policy. The United States and all developed
and developing economies can benefit greatly from a healthy global
economy and full participation in an open international trading
system.

MARKET-ORIENTED REFORM IN CENTRALLY
PLANNED ECONOMIES
In recent months, the world has witnessed unprecedented developments in Eastern Europe as many countries moved toward democracy and economic reform. These countries have set out on a
road that, while difficult, is the only hope for sustained improvement in the future economic well-being of their citizens. The new
Polish government has already begun to implement a major economic restructuring and stabilization program. In October 1989,
Hungary declared itself a republic. While economic reform has
been under way for many years, Hungary is to launch a new
reform initiative in 1990. Since the opening of the Berlin Wall in
November, economic contacts between East and West Germany, including plans for continued assistance, have multiplied. There have
been leadership changes in Czechoslovakia, Bulgaria, and Romania.
These countries have indicated some desire to undertake marketoriented reforms and are in the process of redesigning economic
policies. As part of continuing reform efforts, new economic policies
were recently announced in Yugoslavia.
Economic reform has also been under way in other parts of the
world. The People's Republic of China has moved to reshape its
economy, and began in 1978 to rely increasingly on markets. However, political actions associated with the Tiananmen Square repression set back these reforms. Through 'glasnost' (openness) and
'perestroika' (restructuring), the Soviet Union began to initiate political, legal, and economic reforms in 1985. Since 1985, the Lao
People's Democratic Republic has significantly increased reliance
on market forces.
These changes in Eastern Europe, the Soviet Union, China, and
Indochina are of tremendous global significance. One-fifth of the
world's population lives in China, and nearly 8 percent live in the
Soviet Union and countries of Eastern Europe.
These countries are all addressing the fundamental question of
how some form of market economy can revive growth rates and raise
living standards after years of disappointing economic performance.
The World Bank estimates per capita income for 1988 at $1,850 in
Poland and $2,460 in Hungary. In contrast, it was $19,780 in the
United States. (Other estimates suggest that these figures may understate living standards in Poland and Hungary somewhat.) Even




226

if the economic reforms are successful, it will take many years to
close these gaps. However, market-oriented economic reforms can
generate noticeable improvements in the short run by reducing
shortages of key goods and services, by improving quality, and by
producing goods that people actually want, rather than what central planners want them to have. Furthermore, the freedom to
choose is an important addition to human welfare that is not measurable by per capita income levels.
Bold and comprehensive plans for economic reform have been
put forth by some of the centrally planned economies. These reforms will eventually improve living standards for citizens of these
countries. If successful, they promise future growth and prosperity.
However, the difficulties of economic transition should not be underestimated. Transformation from one economic system to another will be extremely complex and the adjustment may be painful, involving widespread unemployment with limited unemployment insurance or other social support systems currently in place.
No single set of policies will work for all countries, and the appropriate mix and timing of economic policies must be designed on a
case-by-case basis. Any policy package necessarily involves the risk
of failure and a host of uncertainties. However, external support
will raise the likelihood of success. The President has taken a deep
interest in the progress of political and economic reform and remains committed to providing assistance.

CENTRALLY PLANNED VERSUS MARKET ECONOMIES
Between World War II and the early 1950s, most countries in
Eastern Europe adopted the Soviet economic model of central planning and became members of the Council for Mutual Economic Assistance (CMEA). Each centrally planned economy is unique, just
as the United States, West Germany, and Japan are each examples
of market economies but with distinct characteristics. A fundamental distinguishing feature of centrally planned economies is that
state authorities, not private citizens, own and control most of the
means of production. Instead of allocating resources through markets that establish prices based on supplies and demands, the state
authorities generally formulate detailed plans for inputs and outputs. Coordinating this process properly requires an immense
amount of information, making it exceedingly difficult for a centralized system of managers to allocate scarce resources according
to what people want, or to respond to changes in demands, supplies
and technologies. The lack of private ownership implies that individuals have little stake in improving resource allocation. Of
course, the population as a whole would gain if resources were used
to produce goods and services they valued more highly.




227

Although the operation of centrally planned systems is very complex, a simple polar example illustrates key issues. Consider an enterprise producing shirts. In a centrally planned economy, planners
would typically determine the amounts of cloth, dye, thread, and
other inputs the enterprise would receive and the source and price
of each input. Workers would be assigned to the enterprise, and
often allocated to particular tasks. The plan would also set targets
for output of each type of shirt and determine the final prices to
households.
The contrast with a market economy is striking. In a centrally
planned economy, prices of labor, goods, and services do not adjust
to reflect supplies and demands, and production decisions are not
motivated by profitability. Unlike a market system, producers typically have no leeway to reduce prices or production when inventories accumulate or to raise prices or production as inventories decline—even if consumers form long queues. The enterprise does not
base hiring decisions on its assessment of needs and worker quality, nor does it choose where to purchase inputs so as to minimize
production costs. Furthermore, state-owned enterprises are allocated the credit needed to finance operations through a centralized
banking system. Most centrally planned economies have never developed laws to deal with bankruptcies, because enterprises are
typically bailed out if costs exceed revenues. Consider the implications for U.S. firm behavior if the Federal Government promised to
mail a check to cover the losses of every business that lost money.
Such a system severely weakens the incentives for producers to use
resources efficiently.
Because individuals in centrally planned economies own few of
the factories or other productive assets, individuals have little incentive to respond to market signals about resource scarcity, even
if such signals exist. Instead, the central planning system puts a
premium on meeting output targets. The l&ck of private ownership
also provides little incentive for innovation or quality control. New
firms cannot simply enter the market to take advantage of better
management or new ideas.
Centrally planned economies have persistent problems with
demand exceeding supply at officially set prices. As shortages of
consumer goods and of inputs required for production develop, the
scarce supplies must be rationed to households and to firms, often
resulting in long queues and disruptions to production. At the same
time, other products may be overproduced and go to waste. The
shortages often lead to black markets in which goods sell for far
more than their official prices. If shortages get worse over time,
hidden inflation may develop. As official prices are decontrolled,
measured inflation soars. For example, the removal of controls on



228

food prices in Poland resulted in the acceleration of inflation in
Poland last August (Box 7-1).
Severe housing shortages in Poland provide another example of
chronic excess demand. The wait for an apartment has been reported to be as high as 15 years in large urban areas. Largely because
of high government subsidies, housing has been very inexpensive
for households lucky enough to get it. One survey estimated expenditures on rent or cooperative housing at just 3 percent of total
household expenditure in the mid-1980s, compared with more than
14 percent in the United States. Unlike the United States, however, rationing constrains many Polish families from choosing housing of a different size, or in a different area, or from moving to
their own residences. Although recent studies have found high returns to producers of new housing, new building is inadequate. Private construction has failed to provide a remedy because of lack of
materials, undeveloped financial markets, and counterproductive
laws and regulations governing ownership and property transfer.
Centrally planned economies are often also faced with an inadequate tax base, large budget deficits, and a tendency to print
money to finance this deficit, fueling inflation. Inflation, which has
been estimated recently at 50 percent per month in Poland, and
at an even higher rate in Yugoslavia, has become the overriding
problem. Reducing inflation is a priority of both governments. These
difficulties worsen the problems arising from misallocation of scarce
resources. Government pricing, credit allocation policies, and subsidies to state-owned enterprises can raise expenditures and increase
the budget deficit. With few exceptions, there is no domestic
market to finance the deficit through bond sales, so that the central bank cannot make independent decisions about money growth.
ECONOMIC PERFORMANCE OF CENTRALLY PLANNED
ECONOMIES
Poor economic performance has been a major impetus for transforming centrally planned economies toward market economies.
Even economies such as Hungary that have been gradually undertaking reforms have experienced long-term declines in productivity, product quality, and economic efficiency. Planners have also
been concerned about slow progress in developing and adopting
new technologies.
Without meaningful price indices, measures of aggregate output
are unreliable. Official CMEA statistics use net material product,
which is a measure of national output like gross domestic product,
except that it excludes the value of depreciation and of nonmaterial services, such as health, education, and public administration.
These data show that average annual growth of net material product has declined consistently over the past four decades. Real net
material product growth averaged 9.6 percent during the recovery



229

Box 7-1.—Difficulties in the Transition from Central
Planning: Food and Food Aid in Poland
Developments in food supplies and food prices have been a
focal point of Poland's economic difficulties. These developments illustrate both the difficulties of implementing marketoriented reforms and the potential short-term hardships of a
transition from central planning.
Long lines at food stores were an early, visible sign of problems. Three main factors accounted for the queues. First, political and economic uncertainties contributed to widespread
panic buying and food hoarding by consumers. This response
was related in part to memories of severe food scarcities and
sudden price hikes. Second, very rapid inflation meant that
commodities, such as food, have been a better store of value
than currency. Thus, farmers withheld products from the
market. Finally, the distribution system had been disrupted.
State enterprises had difficulty procuring output from farmers
as state-set prices had not kept pace with rising input prices.
Private distribution systems will take time to develop.
Removal of price controls on food in August introduced some
market signals, and the lines now seem to have abated. Food
prices have risen substantially, reducing demand and alleviating the shortages. Food supplies have not increased markedly,
however, largely because higher prices have not generally been
passed on to farmers.
Food is now relatively more expensive, however, and the
price increases have been especially hard on low-income groups
and people with fixed incomes. The United States and other
countries have contributed substantial amounts of food aid. In
addition to its nutritional value, increasing the availability of
food may bolster public confidence in the new government, and
help to ease the difficulty of implementing economic reforms.
Food aid must be managed $o as to ease the difficult adjustment period without impeding longer run development of agricultural markets. Large amounts of food aid may disrupt Poland's newly emerging market system. Greatly increased food
supplies from external sources could seriously lower current
prices, which would discourage domestic production and lead to
even more severe problems next year. Providing pesticides, machinery, and technical assistance that would help increase agricultural production may yield greater benefits than direct
food aid.




230

from World War II in the 1950s, but fell to 3.2 percent during
1981-87. However, official net material product statistics are
widely believed to understate inflation substantially, which implies
that they greatly overstate real growth. Furthermore, because the
central planning system does not typically produce the goods that
people actually want, growth in physical production overstates the
value of increased output.
Some centrally planned economies have also had mounting balance of payments difficulties with countries outside the CMEA.
Trade and current account deficits have grown, especially since
high public investment after 1985 led to a surge in imports from
the West. These deficits have been financed primarily through foreign borrowing. Since 1986, both Poland and Hungary have had difficulties in servicing their external debts. Debt levels have risen recently in Bulgaria and in the Soviet Union, and to a lesser extent
in Czechoslovakia, although these countries have not had debt-servicing difficulties.

ELEMENTS OF A REFORM PACKAGE
Economic difficulties faced by centrally planned economies are
extremely complex. There is no established policy package for
reform, nor is there a single prototype market economy that all reformers seek to emulate. However, a growing consensus has
emerged on many aspects of the reforms required. In addition to
improved long-term growth as resources are more efficiently reallocated, increased reliance on markets is likely to generate some
quick payoffs through relieving shortages of food or other goods.
Price and Structural Reform
Perhaps the most important reform is to establish prices that
adjust to reflect relative scarcities of goods, labor, and capital. Such
prices provide information that can be used to allocate resources
effectively through decentralized markets, without the need for an
elaborate system of central planning. Institutions need to be put in
place to facilitate a market system. These include banks and financial institutions that can help allocate savings to productive investments. Also important is a legal system that defines property
rights, provides for bankruptcy, and deals with a host of other
issues. Firms need useful and reliable accounting systems. Workers
and managers also need to learn, through training and apprenticeship programs, how a market economy works. After 40 or more
years of central planning, few residents will have developed entrepreneurial skills. Foreign direct investment and joint ventures can
play an important dual role in raising economic growth while providing experience for domestic workers. In addition, unemployment
insurance and other support programs for low-income households
can provide an important social safety net.




231

Stabilization Measures
It is exceedingly difficult to reform prices and to provide incentives for private-sector investment and growth in the midst of very
high inflation. Thus, in some cases such as Poland, the overall
economy must be stabilized before the more fundamental economic
restructuring can take place. The difficulties are compounded by
the likelihood of large initial consumer price increases as prices
that have been kept artificially low for years are decontrolled. The
basic elements of a stabilization package are reductions in budget
deficits, measures to control money growth, and the establishment
of a competitive exchange rate.
History offers some useful examples of reforms. Israel and Bolivia brought down very high rates of inflation in the 1980s. The 1948
Erhard reforms in West Germany eliminated price controls and reestablished a vibrant private sector after several years of administered price controls. These reforms also stabilized the value of West
German currency and revived its usage in international markets.
But there are no examples where, after four decades of central
planning, an economy has successfully accomplished all of these at
once. The centrally planned economies face a unique challenge.

RECENT DEVELOPMENTS
Each of the centrally planned economies has its own economic
and political situation, calling for somewhat different policy responses. Similarly, the appropriate response from the United
States and other developed countries to support these reform efforts differs across cases.

Soviet Union
The Soviet economy has many difficulties in addition to the inefficiencies inherent in central planning. For example, military expenditures of more than 15 percent of gross national product
(GNP), compared with 6 percent in the United States, consume
large amounts of scarce resources. Also, many Soviet households
have stored up massive amounts of rubles (Soviet currency) during
years of waiting for scarce goods to become available. Distrust of
the undeveloped financial system means that much of this wealth
is simply hidden by domestic residents. The stored rubles are a
problem because economic reforms that free prices and put appliances and other desired consumer goods on store shelves may trigger
a buying spree that would fuel inflation. The inflationary
impact of price decontrol will be mitigated if higher prices are fed
through to producers, thus raising incentives for increased productivity and output.
In 1985, the Soviet Union initiated a program to restructure its
economy. Especially those measures taken since 1987 were intend-




232

ed to increase reliance on independent decisions of enterprises.
This goal has proven difficult to achieve while prices as well as
credit and production inputs remained controlled. The Soviet economy continues to rely on output targets set by a central plan.
Many fundamental steps toward market orientation of the economy have yet to be taken, and the government's commitment to
genuine economic reform therefore remains questionable.
Following the Malta meeting between the Presidents of the
United States and the Soviet Union in December, the United States
renewed efforts to increase its economic ties with the Soviet Union.
These efforts may involve negotiation of a trade agreement and an
investment treaty. In addition, the United States has offered technical cooperation, for example, to help the Soviets improve their
system of economic statistics. To help further integrate the Soviet
Union into world markets, the President of the United States has
supported Soviet observership status in GATT, once the Uruguay
Round has been completed.
Hungary
Hungary was the first centrally planned economy to introduce
major market reforms, initiating a market-oriented reform program in 1968. It has gradually reduced direct control by central
planners and has actively encouraged private-sector development.
It also has taken steps to reform the price system. Nonetheless,
most analysts agree that, while prices in Hungary reflect relative
scarcities better than in most other centrally planned economies,
mispricing has nonetheless slowed growth. Hungarian authorities
continue to control prices of more than one-third of domestic products and to monitor other prices.
Hungary has fewer pervasive problems than other centrally
planned economies—such as inflation, shortages, low product quality, and black markets (although they exist, for example, for foreign exchange). But the overall success of the reforms in stimulating the economy has been mixed. Hungary has developed a small
but vibrant and growing private sector. Between 1981 and 1987,
gross value added in the private sector as a percentage of GNP
doubled to 14.5 percent. In contrast, employment and average incomes in the socialized sector declined. However, more than 90 percent of industrial production was still produced in the socialized
sector. Although direct controls are no longer pervasive, widespread indirect controls persist, for example, on the entry and exit
of firms.
The Hungarian experience illustrates the difficulties in reforming a centrally planned economy gradually. With the basic institutional structure of a centrally planned economy still intact, authorities remain involved in a wide range of decisions, while managers take only limited responsibility for the operations of enter-




233

prises. Not surprisingly, the early reforms were only partially effective. Hungarian authorities continue to introduce measures to
improve economic performance, including steps to privatize some
state enterprises and to encourage further foreign investment.
The United States has offered both technical and financial assistance to support the next phase of Hungarian reforms. U.S. aid includes an enterprise fund that will facilitate private-sector development, including joint ventures.
Poland
Poland has made repeated attempts to decentralize economic decisionmaking. Although reforms implemented during the 1980s reduced the central allocation of inputs and liberalized the agricultural sector, severe problems remain. Reforming the Polish economy is especially complex because reforms must be implemented in
the midst of an economic crisis. In addition to extremely high inflation, Poland has accumulated a large external debt and is unable
to meet its debt-payment obligations.
The new Polish government has launched a comprehensive and
radical program of structural reform and macroeconomic stabilization. In contrast to the recent Soviet approaches, the government
plan calls for rapid removal of many price controls and subsidies
and the reform of the budget process to eliminate the need for inflation-inducing money finance. It also lays out a sensible plan for
gradual privatization of state enterprises and reform in banking
and finance. Although the Polish plan is well formulated, the adjustment period may bring high levels of unemployment and temporary reductions in living standards, making the plan difficult to
implement.
External assistance can play an important role in increasing the
likelihood of success. The United States is actively exploring means
to support Poland's ambitious effort. In addition to technical assistance, the United States has allocated an aid package that includes
$125 million in food aid, $240 million for an enterprise fund, $200
million in trade credit guarantees, and a $200 million contribution
to a currency stabilization fund to bolster the credibility of the
Polish reform.

SUMMARY
• Many centrally planned economies in Eastern Europe have
taken steps toward market-oriented economic reform. Poland
and Hungary especially have launched ambitious restructuring
programs that can promote economic growth and raise living
standards.
• Because of important political and economic differences across
centrally planned economies, no single blueprint for the appropriate reform package exists.



234

• While the transition to a market economy may involve unemployment and other costs in the short run, there are likely to
be some early benefits as shortages of some goods are alleviated.
• The United States remains committed to support reform efforts among the centrally planned economies, including both financial and technical assistance.

SUPPORTING GROWTH IN INDEBTED
DEVELOPING COUNTRIES
Like the economies of Eastern Europe, heavily indebted developing countries must undertake significant economic reforms in ordfc£
to revive growth and gain full participation in the world economy.
Many nations in Latin America and Africa have suffered severe
economic stagnation in the 1980s resulting from declines in investment, high inflation, heavy debt burdens, capital flight, and extensive government interference in economic activity. The revival of
growth will require continued implementation of appropriate macroeconomic and market-oriented policy reforms and reductions in
debt burdens. The United States continues to take a leadership role
in developing and implementing a strategy of coordinated debt restructuring and support for economic policy reforms in the indebted
countries, consistent with reviving growth and restoring their access
to world capital markets.
The recent growth rates of the severely indebted countries (as defined by the World Bank) are shown in Table 7-1. The deterioration of growth rates in per capita income in the 1980s is striking.
Strong growth in the per capita incomes of these countries between
1965 and 1980 was followed by declines of 2.8 percent between 1980
and 1985, and negligible growth of 0.2 percent in the subsequent 3
years. Growth in the severely indebted low-income countries, including many in Sub-Saharan Africa, deteriorated especially sharply. In these countries, per capita income declined by 4.6 percent per
year on average between 1980 and 1985, and continued to decline
by an average of 1.6 percent par year between 1985 and 1988. Per
capita income also declined between 1980 and 1985 in the middleincome severely indebted countries, including many in Latin America, and has since remained low. The declines in per capita income
among the severely indebted countries between 1980 and 1985 and
the failure to reach pre-crisis growth levels since stand in sharp
contrast to the more stable growth rates of the high-income countries that belong to the Organization for Economic Cooperation and
Development (OECD). The same trends also characterize the
growth of total GNP in these groups of countries. Although GNP
growth has risen since 1985, it is still far below pre-crisis levels.



235

TABLE 7-1.—Average Annual Growth
[Percent per year]
1980
to
1985

1965
to
1980

Item

1985
to
19881

PER CAPITA REAL GNP
Severely indebted countries
Low income
Middle income

2.5
38

-4.6

Total

3.5

-2.8

22

-1.6

9

.2

2.7

1.7

2.7

Low income
Middle income

52
6.2

-17
_ }

1.5
2.9

Total

6.0

-.4

2.7

35

23

3.3

High income OECD countries
REAL GNP
Severely indebted countries

High income OECD countries
1

Preliminary.
Source: The World Bank.

Estimated 1988 per capita incomes of $263 in the low-income severely indebted countries and $1,850 in the middle-income severely
indebted countries are particularly striking when compared with
U.S. per capita income of $19,780. The protracted decline in the incomes of many developing countries also dampened growth and
contributed to trade balance deterioration in industrial nations in
the mid-1980s by reducing the demand for their products.
It is important to note, however, that heavy debt burdens alone
were not responsible for poor growth. Some countries that had very
high debt levels in the 1980s, such as South Korea and Malaysia,
have grown rapidly. Sound economic policies in these countries
contributed to their strong economic performance.
Revitalizing growth is critical for the indebted developing countries as well as for the global economy more generally. The restoration of full access of these countries to world capital markets will
be achieved only in conjunction with productivity improvements
and output growth. Any long-term sustainable solution to the debt
crisis must go beyond stabilizing the international trade and payments system to remove impediments to growth in the debtor
economies.

HISTORY OF THE DEVELOPING COUNTRY DEBT
CRISIS
The onset of the debt crisis in 1982 followed a decade of rapid
expansion in foreign lending to developing countries. Many developing countries borrowed heavily in the mid-to-late 1970s when
both the borrowing climate and prospects for repayment were particularly favorable. Their cost of borrowing was low because of low



236

real interest rates on world capital markets. Their access to credit
was enhanced by the recycling of surpluses from the oil-exporting
countries to developing countries through commercial banks. In addition, the prices of the major export commodities of many of the
developing countries were at record levels.
Onset of the Crisis
The crisis in international credit markets was the product of a
complex conjuncture of unexpected shocks to the world economy
and decisions taken by both lenders and borrowers. The developments that had favored high levels of international lending in the
1970s reversed during 1981-82, and the debtors found themselves
unable to meet the payments on their debts. Interest rates on the
debtors' variable rate commercial loans rose sharply as the Federal
Reserve System in the United States and central banks in other industrialized nations tightened money supplies to tame accelerating
inflation. A steep increase in the value of the dollar sharply raised
the effective cost of both the debtors' dollar imports and of payments on the mainly dollar-denominated debt. Although the rise in
the dollar strengthened the competitiveness of many exports, this
rise was offset by plummeting world prices of many of the debtors'
primary export commodities. The overall effect was to reduce the
net export earnings debtor countries had available to service their
debt, just as the level of debt service was rising.
Debtor countries faced diverse problems. Highly indebted middleincome countries, which were concentrated in Latin America, had
borrowed mainly from commercial banks, and faced sharply increased debt-servicing burdens. Highly indebted low-income countries concentrated in Sub-Saharan Africa had obtained the majority of their credit at below-market fixed rates of interest from official creditors. Although their debt-servicing burdens were not adversely affected, poor economic performance made debt servicing
increasingly difficult.
In the countries that subsequently developed repayment problems, the external shocks to interest rates and commodity prices
were exacerbated by economic mismanagement and political instability. Many heavily indebted countries failed to implement economic policies to correct persistent foreign and domestic imbalances. These countries used much of the borrowed money for consumption or investments with low returns, while countries that
avoided repayment difficulties emphasized investments that raised
productivity and diversified their export base. Between 1973 and
1982, export volume grew at 0.8 percent per year on average in the
debtor countries with debt-servicing difficulties, in contrast to
export growth of 4.8 percent in heavily indebted countries that did
not experience servicing difficulties. Faced with rising budget deficits, the governments of many debtor countries resorted to printing



237

money, which fueled inflation, and simultaneously attempted to
maintain overvalued exchange rates, which contributed to rising
external deficits. Poor policy worsened the uncertain investment
climate, causing investors in debtor countries to send their capital
abroad and diminishing the resources available internally to service the debt.

Stabilizing the International Financial System
When it became clear that Mexico, one of the largest and most
prosperous debtors, could not meet its payments at the height of
the global recession in mid-1982, the stability of the international
financial system was thrown into question. With a substantial portion of their portfolios in developing country debt, and concentrated exposure to the largest problem debtors, major U.S. banks would
have been jeopardized by substantial losses on their developing
country loans. Commercial banks in other industrial countries
were in a similarly precarious position. U.S. commercial banks
gradually strengthened their financial positions by increasing their
capital base and setting aside reserves to cover losses. The banks
sharply reduced new loans to debtor countries from $41.4 billion in
1981 to a low of $3.7 billion in 1986. In addition, since 1986, banks
have reduced exposure by selling developing country loans on the
secondary market and participating in debt exchanges such as
debt-for-equity swaps. Table 7-2 shows that there was a substantial
reduction in the exposure of U.S. commercial banks—especially the
smaller banks—between 1982 and 1988.
The decline in new commercial loans and the increase in debtservice payments were exacerbated by high rates of capital flight
in the Latin American economies, as domestic residents transferred
their savings abroad in response to the uncertain and deteriorating
economic conditions. One study estimates that the five largest
Latin American debtors experienced outflows of $101 billion in private sector assets between 1979 and 1984.
TABLE 7-2.—Changes in Reported Exposure of Groups of U.S. Banks to Non-OPEC
Developing Countries
Millions of dollars
Item

Percent

June 1982
to
December 1985

December 1985
to
December 1988

June 1982
to
December 1988

889

11547

173

Next 13 banks

-1,730

6620

407

All other banks

-1,739

-8,212

50.0

Total

-2,580

-26,379

28.4

Top 9 banks

Source: Federal Financial Institutions F-xamination Council, Country Exposure Lending Survey.

The net effect of these factors was a marked reversal in the direction of resource transfer, measured as the current account defi


238

cit plus net investment income. Net resource transfers to the
highly indebted countries declined dramatically from inflows of
$12.8 billion in 1980 to outflows of $38.3 billion in 1984. While resource transfers abroad are necessary to prevent a country's debt
from growing at unsustainable rates, they reduce the resources
available for domestic investment or consumption.
The international response to the debt problem was to encourage
macroeconomic stabilization policies and to coordinate additional
lending by commercial banks and official creditors. Some new loans
were made available through the International Monetary Fund
(IMF) to provide financial support for debtor countries undertaking
economic reform under IMF guidance, and to encourage lenders to
continue to extend credit. Stabilization programs were put into
place in several countries in consultation with the IMF, with mixed
results. Such programs typically emphasized fiscal discipline, such
as reductions in subsidies and improved tax collection, reductions
in monetary growth, devaluation of overvalued exchange rates, and
export promotion. Many countries found such measures politically
difficult to implement because they required substantial sacrifices
in the standard of living and in investment needed for growth. A
recent study concludes that, while the stabilization programs led to
reduced inflation and improved external balance in many countries, little progress was made in reviving growth.
U.S. POLICY FOR DEVELOPING COUNTRY DEBT
Although the coordinated international response to the debt
problem between 1982 and 1985 stabilized international financial
markets and maintained the liquidity of the problem debtor countries, economic recovery in debtor countries stalled. The governments of debtor countries were caught between internal pressures
to direct resources to the resumption of growth, and international
pressures for continued external adjustment. And the commercial
banks were increasingly reluctant to make additional loans to
heavily indebted developing countries.

The Baker Plan
Concern over the failure of indebted economies to resume growth
prompted the 1985 U.S. debt initiative introduced by then Treasury
Secretary James Baker—the Program for Sustained Growth,
known as the Baker Plan. The program addressed the factors impeding the efforts of debtor countries to improve growth and living
standards, and the need to mobilize international financial resources to support debtor country reform efforts. The program
called for international commercial banks to extend $20 billion in
new lending and for a 50-percent increase in lending by the multilateral development banks to the heavily indebted countries over
1986 to 1988. The program also called for the World Bank to play



239

an expanded role in supporting institutional and sectoral reforms
and market-oriented economic policies.
The major debtors made progress in reforming their economies
and managing their debt burdens between 1985 and 1988, and several countries improved their economic performance. Reforms
during this period reflected widespread recognition by debtor governments of the importance of well-functioning markets in generating growth: public-sector deficits were reduced, exchange rates
became more competitive, real interest rates rose, and trade protection was rationalized. In spite of this progress, overall improvements in economic growth and performance on the scale that had
been hoped for did not materialize, partly because of disruptive
changes in oil and commodity prices. In addition, the increase in
new lending from all international financing sources fell below the
levels that had been expected.

The Brady Initiative
The persistence of serious problems in the debtor economies and
concern over the economic hardships sustained by their populations called for a review of the U.S. debt strategy. The strategy of
this Administration, outlined by Treasury Secretary Nicholas
Brady in March 1989, continues to emphasize the need for marketoriented economic reforms to promote growth. The Brady Initiative
emphasizes measures aimed at mobilizing private-sector financing
to generate growth. The major innovation of the Brady Initiative is
that it emphasizes debt and debt-service reduction by commercial
banks, in recognition of the burden placed on growth by increasing
levels of indebtedness. It also provides for IMF and World Bank financial support for debt and debt-service reduction to those countries implementing effective economic reform programs.
The emphasis on debt reduction represents an evolution in thinking about the needs of the debtor economies, and a change in the
relative emphasis on debt rescheduling, new lending, and debt reduction. Debt reduction is promoted in order to reduce high servicing requirements, in the expectation that the freed resources will
be used for investment, and thereby promote growth. The shift in
emphasis stems from concerns that growth in many economies has
not revived despite appropriate policy reforms. In addition, rising
levels of indebtedness impede growth by creating an uncertain and
unattractive environment for private investment. An important
feature of the emphasis on debt reduction is that it may allow the
debtors to take advantage of the secondary market discounts on
the value of their debt. The discounting of developing country debt
on secondary markets reflects high perceived risks of default and
arrears.
The Brady Initiative also provides for debt rescheduling and new
lending. Debt rescheduling efforts reduce the drain on debtor coun


240

tries' cash flow and the level of resource transfer in the near term
by extending the period over which debt is repaid. New lending
may generate cash to assist debtors in meeting debt-service obligations without sacrificing investment.
The Brady Initiative provides a framework for negotiated debt
and debt-service reduction, on a case-by-case basis, to countries committed to implementing requisite economic reforms. The debtor government and commercial bank creditors negotiate a menu of options for the conversion and reduction of outstanding loans and the
extension of new loans. The options are designed to enable banks to
readjust their portfolios in terms of the timing, level, and riskiness
of payments, consistent with debtors readjusting their payment
burdens to sustainable levels. The participation of the commercial
banks is voluntary.
Negotiations between a debtor country and its commercial bank
creditors are premised on a prior commitment to an economic adjustment program designed in conjunction with the IMF and the
World Bank. In line with its emphasis on growth, the Brady Initiative stresses economic reforms that improve the investment climate
in the debtor economies in order to encourage foreign investment
and the return of domestic capital that had fled abroad. Such reforms include the following: reductions in government budget deficits to reduce inflationary pressures, devaluation of official exchange rates to reflect market levels and restore the competitiveness of exports in foreign markets, removal of interest rate ceilings
to stimulate domestic savings, reductions in foreign trade barriers,
relaxation of regulations restricting foreign investment, and privatization of state-owned enterprises. These measures are intended to
encourage investment, raise export earnings, and decrease the
drain on resources from government budget deficits and inefficient
state enterprises.
Because of its case-by-case emphasis, the Brady Initiative is best
understood by comparing the three programs that have been negotiated under its auspices thus far. The agreements for Mexico, the
Philippines, and Costa Rica differ significantly in ways that reflect
the different needs of these countries and their creditors.

Mexico
Mexico negotiated a preliminary debt agreement with commercial banks in July 1989. Prior to the debt agreement, the Mexican
government had undertaken substantial economic reforms, with
some encouraging results. Mexico had made sustained efforts to
devalue its exchange rate and reduce its budget deficit. It made
substantial progress in liberalizing the trade regime and adopting
measures to encourage investment. Mexico has also made progress
in privatizing state-owned enterprises. At the outset of negotiations,
Mexico had foreign debt of almost $100 billion, of which approximately one-half was medium- and long-term loans owed to commer


241

cial banks. Annual interest payments amounted to 28 percent of
export receipts in 1988. Mexico's difficulties in servicing its commercial debt were reflected in steep discounts on the secondary market
of 65 percent in early 1989. The debt agreement that was reached
reflects both the large size of Mexico's commercial debt and its need
for cash-flow relief.
The agreement provides for debt and debt-service reduction as
well as some new credit. It gives banks a choice of three options, all
of which lower Mexico's current payment burden. Banks may (1)
swap existing loans for new bonds with a 35-percent discount on
the initial principal value at a customary spread above the London
Interbank Offer Rate (LIBOR); or (2) exchange loans for bonds with
the same principal value and a reduced, fixed rate of interest; or (3)
provide new loans over 3 years equivalent to one-quarter of their
existing loans at the customary spread above LIBOR. Funds from
the IMF, the World Bank, Japan, and Mexico are used to provide collateral for the principal and part of the interest on the debt and
debt-service reduced bonds.
Mexico may benefit substantially from a reduction in its debtservice obligations. Preliminary estimates of gross interest savings
on payments to banks are above $1.5 billion per year. Gross cashflow relief between 1989 and 1992 is estimated to include approximately $5.4 billion in interest savings, $6.7 billion in rescheduled
amortization, and $1.4 billion in new money. It appears that
Mexico has also benefited from favorable initial reactions to the
agreement in financial markets. Between July and December, domestic interest rates in Mexico fell by about 15 percentage points,
which, if sustained, would reduce government payments on domestic debt substantially and thereby reduce the government budget
deficit. There have also been substantial capital inflows, amounting
to around $3 billion over the course of the year, attributable in
part to the debt agreement.

The Philippines
In August 1989, the Philippines became the second country to
reach an accord with its commercial bank creditors under the
Brady Initiative. Along with debt reduction, new lending is an integral part of the Philippine agreement, reflecting an urgent need
for money to close a large balance of payments financing gap and a
relatively small level of commercial bank debt. Less than 25 percent of the outstanding $29 billion in the Philippines' foreign debt
is medium- and long-term credit from commercial banks.
The Philippine agreement gives banks a choice between extending new credit at a customary spread above LIBOR and selling existing loans to the Philippine government at a 50-percent discount,
in line with secondary market discounts. The cash buyback will




242

total $1.3 billion in outstanding debt; the money for the cash buyback will be provided by the World Bank, the IMF, Japan, and the
Philippine government. It is too early to predict the amount of new
credit that commercial banks will extend. Although the agreement
emphasizes new credit, the level of buybacks is expected to exceed
that of new credit, so that the overall level of debt will decline
along with annual interest payments. The success of the debt
agreement will depend on effective implementation of the economic
reform program adopted by the Philippine government.
Costa Rica
In October 1989, commercial banks and the Costa Rican government reached an agreement in principle. Commercial bank debt
represents $1.8 billion of Costa Rica's total $4.3 billion in foreign
debt. The Costa Rican situation differs markedly from that of both
Mexico and the Philippines in that the $1.8 billion of commercial
bank debt, although onerous from the point of view of domestic resources, represents a small percentage of the developing country
debt of any particular commercial bank. The commercial bank debt
includes $325 million in accumulated interest arrears. Costa Rica's
poor debt-service record is reflected in a secondary market discount
greater than 80 percent. Accordingly, the agreement places primary emphasis on debt reduction, and makes special provisions for
the interest arrears.
The agreement reached with the banks is designed to achieve a
60-percent reduction in commercial bank debt, consistent with
Costa Rica's servicing capability. It gives banks the option of selling their existing loans to the Costa Rican government at a discount of above 80 percent, or swapping existing loans for bonds
with the same face value and a reduced, fixed interest rate. Banks
tendering at least 60 percent of their outstanding loans for buyback
will receive additional enhancements on the conversion of their remaining loans, in order to achieve the target of 60-percent reduction overall. The treatment of the arrears on the debt that is not
sold back to the Costa Rican government is more stringent. Costa
Rica must provide an up-front cash payment for 20 percent of these
arrears, and the remainder will be converted to a 15-year bond at
market rates.

Maintaining Flexibility
The three agreements differ substantially in ways that reflect the
different needs of the various debtors and creditors. The Mexican
agreement combines debt and debt-service reduction and new lending in the most varied of the three packages. This approach reflects
the large size of the Mexican debt, the diversity of its creditors, and
the Mexican government's need for both increased cash flow and
debt reduction. The emphasis on new lending in the Philippine



243

agreement reflects the large size of the financing gap relative to
the commercial bank debt, and the relatively smaller burden of
commercial debt. The emphasis on debt-service reduction and debt
relief in the Costa Rican agreement reflects the small and diffuse
holdings of the country's debt among commercial banks, and its inability to service the outstanding debt.
The flexibility of the Brady Initiative will be important in addressing the varied needs of debtor countries, based on their demonstrated commitment to appropriate economic reforms. The
common feature among future debt agreements is likely to be an
emphasis on reducing debt and debt service and on promoting an
economic environment that mobilizes domestic and foreign resources for productive investment in order to promote growth.

SUMMARY
• Economic reforms are critical to reviving growth and raising
living standards in the highly indebted developing countries,
just as in the centrally planned economies of Eastern Europe.
• Debt and debt-service reduction by commercial banks in countries that undertake market-oriented reforms can be important
in easing the transition to sustainable growth and healthy
economies. It is a key component of the new U.S. initiative for
the revival of growth in heavily indebted developing countries.
• Access to well-functioning international financial markets in
the 1990s will play a central role in the continued development
of those countries that are currently undertaking needed reforms.

DEVELOPMENTS IN JAPAN AND OTHER ASIAN
PACIFIC RIM ECONOMIES
As a group, the Asian Pacific Rim economies—Japan, Hong Kong,
Indonesia, Malaysia, the Philippines, Singapore, South Korea,
Taiwan, and Thailand—present a sharp contrast to the severely
indebted countries in Sub-Saharan Africa and Latin America. Most
of the Asian Pacific Rim economies have benefited enormously from
the international trading system, achieving high rates of growth and
increases in productivity and living standards. These economies, in
general, have maintained an outward orientation in their economic
policies and have succeeded in diversifying and strengthening their
export bases. The economic policies employed by most of the governments in this region of the world have been very sensitive to the
power of the marketplace. Owing to a strong, diversified export base
and a reliance on market incentives, even countries with high levels
of external indebtedness, such as Korea, have managed to maintain
exceptional growth.



244

THE ASIAN PACIFIC RIM'S ECONOMIC EXPANSION
Rates of growth in the Asian Pacific Rim, which have at times
reached into the double digits, are changing the global distribution
of wealth, production, income, and trade. The Asian Pacific Rim's
share of world gross domestic product rose from 6.7 percent in 1965
to 19 percent in 1987. Changes in trade flows have been even greater. Since 1965, the Asian Pacific Rim's share of total world exports
of manufactures has risen from 8 to 22 percent. A radical transformation has also occurred in the Asian Pacific Rim's financial position. As recently as 1970, the Asian Pacific Rim was a net debtor to
the rest of the world and held a modest 15 percent of the world's
international financial reserves. By the late 1980s, it had become a
major net supplier of capital, holding 24 percent of global international reserves.
The economic successes of the Asian Pacific Rim economies have
been accompanied in each instance by high rates of investment and
saving, rapid technological transfer, and expanding international
trade. In 1987, Asian Pacific Rim economies invested almost 30 percent of their gross domestic product, while saving 34 percent. Still
relying heavily on imported technology, even the Asian Pacific
Rim's technological leader, Japan, paid $468 million more in licensing fees and royalties than it received. High rates of investment
and heavy use of technology developed abroad have gone hand in
hand with an increasing role for international trade. Exports rose
from 12 percent of the Pacific Rim's gross domestic product in 1965
to 16 percent in 1987. Excluding Japan, the numbers are striking,
with the share of exports rising from 23 percent in 1965 to 49 percent in 1987. The composition of exports has also changed dramatically. Since 1965, Japan has shifted from being the world's preeminent exporter of textile products to being a net importer of textiles
and apparel, and now two-thirds of Japanese exports are machinery and transport equipment. For the Asian Pacific Rim as a
whole, machinery and transport equipment rose from 20 percent of
total exports in 1965 to 46 percent in 1987.
Although the performances of the Asian Pacific Rim's successful
economies have much in common, the policies pursued have varied
greatly. In some Asian Pacific Rim economies, such as South
Korea, the government has had a major role in shaping the allocation of resources. In others, such as Hong Kong, the government
interfered relatively little with market processes. In Singapore and
Hong Kong, foreign investment has been welcomed and has played
a central role in promoting economic growth. By contrast, Japan's
extraordinary performance has been achieved with domestic capital and management. In Taiwan, economic policy helped small
firms to play a predominant role, while in South Korea, govern


245

ment policy on many occasions has discriminated in favor of largescale firms.
Rapid changes in the Asian Pacific Rim's export structure have
at times imposed a faster-than-desired degree of structural adjustment on its trading partners. The emergence of exports from the
Asian Pacific Rim economies in sectors long established elsewhere
has often forced a reallocation of capital and labor in other countries. Although painful, such reallocations can be beneficial because they result in each country specializing in the goods and
services that it can produce relatively most efficiently, leading ultimately to gains for both producers and consumers. The rising share
of global economic activity taking place in the Asian Pacific Rim
has made structural transformation there an increasingly important issue for other parts of the global economy. This issue is seen
most vividly in Japan's international economic relations—particularly those with the United States.
JAPAN AND THE WORLD ECONOMY
Sales of Japanese goods in the United States have greatly benefited American consumers and demonstrate the significant gains
from international trade. But Japan's success in American markets, as well as the large and persistent Japanese trade surplus,
and complaints by U.S. firms about difficulties in penetrating Japanese markets have prompted charges of unfair Japanese trade
practices. Japan does maintain many important barriers on agricultural imports, but has removed all but a few quotas and imposes
low tariff barriers to imports of manufactures. Nonetheless, scope
remains for further development of Japanese policies, practices,
and institutions to increase trade in manufactured products. Many
such developments would help domestic markets to work more
competitively. Japanese consumers would gain from lower prices,
and producers would gain from better functioning markets. Even if
the volume of trade increased, however, the effect on market
shares of U.S. or any other country's products in Japan would be
difficult to predict.
Several avenues to open Japanese markets further are being pursued in the United States. Some barriers, such as Japan's ban on
rice imports, are the subject of multilateral trade negotiations in
GATT. There also have been recent bilateral trade discussions
under the "Super 301" process. Super 301 is part of the 1988 Omnibus Trade and Competitiveness Act, which directs the U.S. Trade
Representative and the Administration to identify "priority practices, including major barriers and trade distorting practices, the
elimination of which are likely to have the most significant potential to increase U.S. exports..." and to initiate investigations aimed
at eliminating the practices or barriers identified. Under these cri


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teria, the Administration identified three Japanese practices in
1989: government procurement of super computers, government
procurement of satellites, and standards and codes for wood products. (A total of three other practices were identified under Super
301—two in India and one in Brazil.)
In identifying these practices, the Administration has endeavored to support its principle of expanding a rules-based system for
open markets and an open trading system. By naming only practices that are tangible and observable, Administration policy contrasts sharply with a "managed trade" approach, which would require the U.S. Government to second-guess market outcomes and to
attempt to achieve different patterns of imports and exports by regulation. Rather than try to mandate trade flows and market
shares, U.S. trade initiatives seek to ensure that domestic and foreign firms have equal opportunities to compete and that markets,
not governments, determine the outcomes.
A broader set of issues involving domestic structure and institutions in both the United States and Japan are currently under discussion in a series of bilateral negotiations called the Structural
Impediments Initiative. These talks, which focus on aspects of each
economy that may create barriers to trade or impede domestic and
international economic adjustment, provide a forum for two-way
exchange of perspectives and concerns. While saving and investment have been major topics of discussion, a range of issues has
been raised. In many cases, these issues have already been raised
domestically in both Japan and the United States. U.S. interest in
these talks has focused on structural problems in six general areas:
Saving and Investment. Reducing the current account imbalance
requires reducing the gap between saving and investment. It seems
unwise to pursue policies that would lower saving. More public investment by the Japanese government would reduce the gap and
would probably improve the quality of life in Japan. Investment in
parkland, waste disposal systems, and other social infrastructure in
Japan is rather low relative to other industrial nations.
Land-Use Policy. Removing the bias toward agriculture in Japanese land-use policies would reduce land prices in Japan and thereby stimulate new construction investment in Japan by households
and by domestic and foreign firms.
Pricing Mechanisms. A joint study of pricing by the Japanese
and U.S. Governments found that prices of a variety of goods
tended to be higher in Japan than prices of identical products in
the United States, in many cases even where these products were
manufactured in Japan. The removal of structural impediments
should work to reduce these differentials.




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Distribution Systems. Laws restricting competition in the distribution and transportation sectors lead to high prices for Japanese
consumers and can limit access to the Japanese market.
Antitrust Policy. For example, a more vigorous enforcement of
Japan's Antimonopoly Law would ensure freer entry into Japanese
markets and could have an important impact on Japanese trade.
Keiretsu Relationships. (Used here to mean firms owning each
other's stock.) Promoting shareholder rights and ensuring that
management cannot insulate itself from market discipline may promote increased foreign direct investment in Japan.
The Japanese government has also raised points about the U.S.
economy. High on the Japanese list is the low U.S. saving rate discussed in Chapter 4 of this Report. Other areas include investment
incentives, export promotion, and work force training and education.

Trade Barriers and the Current Account
Current account surpluses and deficits are macroeconomic phenomena that primarily reflect the gap between domestic saving and
domestic investment. Japanese domestic institutions and trade barriers, such as Japan's continuing protection of its agriculture
sector, can impair productivity and reduce real incomes by misallocating resources. There are good reasons to support work toward
structural reform. Producers are likely to gain from more open
markets, while consumers may benefit from lower prices, as firms
produce more efficiently. These gains will be enjoyed by Japan as
well as by its trading partners. But trade and structural barriers
will only affect the overall current account balances of Japan or
Japan's trading partners to the extent they affect savings and investment behavior.
It is not plausible to attribute either the $82 billion increase in
Japan's current account surplus between 1981 and 1987 or its decline by more than $20 billion in the past 2 years to changes in
Japanese trade barriers. Although structural policies and institutions that affect trade can influence the saving-investment gap,
there are other determinants, such as fiscal and monetary policies
and demographic factors. In common with the experience in all
other industrialized economies, these factors are likely to have
played a much larger role than trade barriers in explaining
Japan's recent current account developments. Efforts to reduce the
U.S. current account deficit will also need to focus primarily on
measures to raise public and private saving.
Japanese policies and institutional structure may have a greater
effect on the volume and commodity composition of Japanese trade
than on overall external balances. Japan stands out from most
other industrial countries because it is rarely a major exporter and
a major importer in the same industry. Some statistical studies



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have concluded that this trade pattern might be expected of a
country with Japan's resource endowments; however, others do not
share this finding. In any case, where low imports of manufactured
or agricultural products result from distortionary Japanese government practices, change is in order.
Changes in policies that raise Japanese imports may also raise
Japanese exports. Unless these policy changes affect Japan's
saving-investment gap, exports may increase to offset a large portion of increases in imports. Consider barriers that act like a tax on
imports—for example on agricultural products. Such barriers will
tend to raise domestic prices of rice and other agricultural goods,
harming Japanese consumers. They will also tend to raise prices of
labor, land, and other resources used to produce agricultural goods.
These higher input prices will tend to make Japanese export production less competitive as well. Thus, the import barriers also act
as a tax on exports. Removal of the import barriers is likely to increase both Japanese imports and Japanese exports. The net effect
on overall trade balances is unclear.
While there are barriers to open markets in many countries,
bilateral trade imbalances between pairs of countries are not in and
of themselves evidence of such barriers. For example, even if the
overall external accounts of both Japan and the United States were
balanced, and market barriers had been eliminated worldwide,
neither the United States nor Japan would have trade exactly
balanced with each of its individual trading partners. Because
countries have different endowments of land, skilled and unskilled
labor, and capital, and different tastes and technologies, each has a
comparative advantage in producing a different set of goods and
services. A country such as Japan, which has relatively few natural
resources domestically, should be expected to have trade deficits, on
average, with countries that export raw materials, offset by trade
surpluses, on average, with countries that import the manufactured
goods Japan produces relatively efficiently. Bilateral imbalances
cannot justify increased protectionism.
Thus, removal of trade barriers, while desirable in and of itself,
would not necessarily change Japan's bilateral surplus with the
United States. For example, removal of the Japanese beef quota, now
in progress, will raise Japan's imports of beef. The higher imports
could come from Australia, the United States, or other beef exporters. Thus, the effect on particular bilateral balances is uncertain.
Furthermore, the beef quota removal is likely to have little effect on
saving or investment in Japan, and thus is unlikely to affect Japan's
overall trade surplus very much.

SUMMARY
• Those Asian Pacific Rim economies that exhibit rapid and sustained growth provide striking examples of the potential bene


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fits from market-oriented economic policies. These economies
have benefited substantially from the expanding international
trading system. They are becoming an increasingly important
part of the global economy.
• The persistent U.S. current account deficit and Japanese current account surplus are primarily macroeconomic phenomena.
Macroeconomic policy is the key to improving overall current
account imbalances.
• There are gains to domestic and foreign producers and consumers from changes in government practices that allow markets
to allocate resources more efficiently. Such changes will only
affect overall current account imbalances, however, to the
extent they affect the saving-investment gap. Furthermore, bilateral trade imbalances are determined by a host of factors,
and are not in and of themselves evidence of trade or market
barriers.
• There is growing recognition that, like tariffs or quotas, a
country's domestic policies can have important implications for
international trade. For example, antitrust regulations or distribution systems may impede a foreign firm's access to domestic markets.

ECONOMIC INTEGRATION IN WESTERN EUROPE
Sweeping economic changes are under way in Western Europe as
the member states of the European Community (EC) move toward
elimination of economic barriers among them by 1992. The 12
members have a population of 324 million and a GNP close in size
to that of the United States. Since the late 1960s, they have progressively reduced internal restrictions on the movement of goods,
people, and capital in order to reap the economic benefits of integration. In 1985, agreement was reached to implement a set of initiatives by 1992. The EC initiatives are the most ambitious set of
reforms so far. The kinds of benefits anticipated from increased integration among EC members are similar to those motivating the
U.S.-Canada Free-Trade Agreement (FTA), which went into force
on January 1, 1989. The EC 92 initiatives promise to move the EC
closer to the level of economic integration enjoyed by the 50 States
within the U.S. market, particularly if there is further integration
of monetary policy through the proposed formation of a European
monetary union.
The European Community was established in 1957 by the Treaty
of Rome. The original six members of what was often called the
Common Market were Belgium, France, West Germany, Italy, Luxembourg, and the Netherlands. Denmark, Ireland, and the United
Kingdom became members in 1973, followed by Greece in 1981 and




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Portugal and Spain in 1986. Since the late 1960s, the EC has operated as a customs union with a common external tariff. Tariffs and
quantitative restrictions on trade within the EC have been largely
eliminated. Citizens of member countries are permitted to reside in
and travel to other member countries freely for the purpose of
work.
The new initiatives focus on the remaining barriers among EC
countries. Some examples of these barriers are: (1) differences between countries in more than 100,000 industrial standards and
technical regulations (for example, safety standards on machinery
and health standards on agricultural products); (2) delays at frontiers for customs purposes and related administrative burdens for
companies that sell or purchase goods and services in other
member countries; (3) restrictions on participation in competition
for one EC member's public procurement by suppliers from other
EC member countries; and (4) restrictions on firms' ability to sell
or purchase services or to become established in certain service activities in other EC countries. These restrictions have been particularly important in financial and transport services, where barriers
to the entry of new firms also appear to be substantial. Taken together, these barriers impose a substantial economic cost. Large
and persistent differences in consumer prices among EC members
suggest that these barriers allow for a considerable degree of
market segmentation and reinforce the noncompetitive structure of
many member country markets.
The progress toward removing internal barriers has already been
impressive. By June 1989, the EC Commission had adopted about
one-half of the 279 directives in the plan to implement EC 92. However, much work remains to be done to achieve the degree of integration envisaged in the EC 92 initiatives, and obstacles to elimination of some existing barriers remain. For example, security
threats, especially terrorism, make it difficult to remove border
controls. These controls also help national fiscal authorities to collect taxes, the structure of which still differs widely across member
countries. Proposals for fiscal harmonization are still under discussion. The process of economic integration in Europe should be seen
as an ongoing and dynamic process that is likely to continue well
beyond 1992.

POTENTIAL GAINS
The gains from economic integration in the EC may be substantial. The EC Commission estimates that integration of the internal
market will raise the annual potential growth rate of the EC by
around 1 percentage point through 1992. Longer run dynamic effects may sustain a strong growth rate for several additional years.
The creation of a single European market will present substantial



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opportunities and cost savings to firms operating across national
boundaries. Implementation of the EC 92 initiatives will remove
constraints that prevent firms from fully and efficiently using their
resources. It will also establish a more competitive environment,
challenging firms that have grown complacent in insulated national markets to innovate and operate more efficiently. Harmonization of technical standards and tax codes and reductions in the administrative costs of trade between countries will enable firms to
produce on a much larger scale at substantial savings. Integration
of financial services markets is expected to lower the cost of capital.
Efficiency gains are also expected from more competitive bidding on
the sizable member country government procurement expenditures.
U.S. firms and consumers also stand to benefit from the increased
integration of the European economy. As long as barriers to trade
and investment by firms from countries outside the EC are not
raised, U.S. firms will also have new opportunities to invest in and
supply goods to a large, prosperous, integrated market. American
consumers will benefit to the extent that the EC 92 reforms stimulate increased competition and cheaper imports of EC products. In
1988, 19 percent of total U.S. imports came from the EC, and exports to the EC accounted for 23 percent of total U.S. exports.
Growth in the European market induced by the EC 92 initiatives
may increase the amount of the EC's external trade, which would
raise U.S. exports to Europe.

POTENTIAL RISKS
The full gains will only be realized, however, if the EC remains
open to the rest of the world. If barriers to external EC trade rise,
U.S. and other non-EC firms and EC consumers may suffer. Even
without new external barriers, American firms may find some opportunities constricted to the extent that the easier movement of
goods within Europe gives insiders an advantage. EC consumers
and firms may substitute products from firms of other member
countries for imports from the United States or other nonmembers.
The EC should continue to have a strong vested interest in a liberal international trading system because it benefits from substantial foreign trade. While growth in trade within the EC has been 76
percent faster than growth in the EC's external trade between 1982
and 1988, external trade still accounts for more than 40 percent of
the EC's total trade. Indeed, the EC's exports to nonmembers are
16 percent of world exports, as against a U.S. share of 12 percent
and a Japanese share of 10 percent. Exports to nonmembers are
equivalent to 10 percent of EC gross national product, compared with
7 percent for the United States and 10 percent for Japan. These
external interests are too important to the EC to risk jeopardizing




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them by inward-looking protectionist policies. In addition, low external trade barriers will continue to be the best insurance against EC
firms losing their international competitiveness.
EC 92 is not an indication that the international economic
system is breaking down into competing regional blocks. But it is
important for the United States and other nations to monitor closely the developments in EC 92. Two areas have already been the
focus of much attention.

Rules of Origin
One area of particular concern to U.S. firms is the definition and
administration of rules governing the determination of the origin
of products in the EC. The determination of origin influences the
regulations under which products are sold, such as tariffs and
duties, quotas, sanctions, and preferential treatment in trade and
government procurement. There is concern that adoption of more
stringent or less transparent rules of origin within the EC will
result in discriminatory treatment of foreign products, especially
intermediate goods. Avoidance of such rules may compel foreign
companies to locate production facilities in EC markets and, for
foreign companies subject to antidumping duties, to obtain inputs
from EC producers rather than third-country producers. Rules of
origin are an important and controversial issue for the international trading system more generally. Accordingly, the United States is
engaged in multilateral discussions to develop disciplines within
GATT as well as bilateral consultations with the EC to ensure
greater transparency, clarity, and predictability in rules of origin.

Financial Services
An early EC proposal on financial services seemed to call for
"mirror-image reciprocity/' where foreign firms would receive the
same treatment in the EC market that EC firms receive in the
market of the foreign firm. The difficulty with this type of reciprocity is that nations have different legal and regulatory systems—
often justifiably. The original proposal would have meant that
firms from different countries would receive different treatment in
the EC. The EC has since modified its proposal; the current proposal comes closer to the "national treatment" principle favored by
the United States. Under this principle, foreign firms would be
treated the same as EC firms in the EC market, as long as EC
firms were treated like foreign firms in the foreign markets. This is
another area where developments within the EC may have important lessons for broader multilateral agreements. The United
States will continue to monitor EC developments in this area and
will continue to negotiate for a multilateral agreement on financial
and other services within GATT.




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SUMMARY
• EC 92 represents important potential opportunities and benefits for U.S. firms and consumers as well as for EC firms and
consumers. Whether U.S. firms and consumers benefit hinges
on the continued openness of the European market to foreign
trade and investment.
• Concerns that economic integration under EC 92 will lead to
"Fortress Europe" appear to be exaggerated.
• EC 92 carries risks as well as opportunities. The United States
and other countries must continue to monitor developments so
as to minimize the major risk: that other countries' access to
the new market will be restricted, which is likely to limit gains
to EC members as well as nonmembers.

TRADE LIBERALIZATION AND GATT
A fundamental principle underlying the economic policies of this
Administration is that governments should establish clear and
credible rules for economic policies in which private-sector decisionmaking and entrepreneurial activity can flourish. This principle is
as applicable to international trade policy as to fiscal and monetary policy. The goal of U.S. trade policy is to create ever-expanding trade opportunities free of barriers and based on a system of
clear and enforceable rules.
Acting on this principle in the trade area, the Administration is
committed to initiatives aimed at getting governments out of the
business of managing trade, whether it be through export-restraining arrangements, subsidies to basic industries, managed marketing arrangements, agricultural import restrictions, or any of the
myriad other ways governments distort international trade flows.
Some of the more important U.S. initiatives have occurred in the
multilateral trade negotiations of GATT (Box 7-2).
Several Administration initiatives have been pursued in bilateral
or regional contexts—such as those reviewed earlier in this chapter
in the section on the Asian Pacific Rim. But by focusing on rules
such as nondiscrimination, by ensuring that reductions in barriers
apply to all countries, and by eschewing the fixed quantity approach
of managed trade, these efforts have also helped to increase trade
opportunities for all countries and are consistent with U.S. support
for multilateral trade liberalization. In fact, the principles guiding
the architects of GATT—the principal international agreement regulating world trade—are the same as those underlying U.S. trade
policy.
GATT comprises rules and mechanisms to encourage freer and
fairer international trade. It was established in 1947, after a period
in which deviations from the principles of free trade were taken to



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extremes and severely damaged the world economy. Many industrial
nations resorted to extremely protectionist trade policies in the
1930s. The disastrous consequence of these policies was a sharp
contraction in world trade that lengthened and worsened the Great
Depression.
B0K 7-2»—What Is GATT?
At the conclusion of World War II, the United States and
other countries sought to establish rules for the international
trading system based on the principles of free, nondiscrimina*
tory trade* The United States promoted the position that nontariff barriers should be abolished and that all tariffs should be
reduced through international negotiations.
The General Agreement on Tariffs and Trade was drafted in
1947 as part of efforts to establish a broader International
Trade Organization* GATT was signed by 23 countries participating in a conference in Geneva in 1947 and went into effect
to 1948* Since then, membership has grown to 96 countries
that account for 80 percent of world trade*
The GATT system serves several purposes:
* GATT provides a uniform set of rules and disciplines for
the conduct of international trade* Each member country must give the most favorable trade treatment it
gives any country to all other GATT members* Tariffs
are to be used rather than other types of trade barriers,
* GATT provides an institutional framework to support
international consultations and to facilitate settlement
of trade policy disputes.
* GATT provides a system for trade policy liberalization
through periodic multilateral negotiations to lower tariffs, and since the 1970s* also reduce nontariff barriers*
Since 1948, GATT has sponsored seven rounds of tariff reductions. These rounds successfully reduced tariffs and expanded international trade. The international trading system continues to
evolve and GATT needs to address these changes. As tariffs have
decreased, nontariff trade barriers have increased. Moreover, areas
poorly covered by GATT, such as agriculture, or not covered at all,
such as services, intellectual property rights, and investment, are
of much greater importance than they once were. All told, $1 trillion or more of international trade in goods and services may not
be adequately covered by the GATT rules.




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THE URUGUAY ROUND
The President has made a successful conclusion to the Uruguay
Round his highest trade priority. The Uruguay Round was
launched in 1986 and is scheduled to end in 1990. The final year of
negotiations will be critical to the outcome. The negotiations are
intended to improve the existing GATT articles and procedures, to
negotiate reductions in tariff and nontariff barriers, and to address
15 specific areas. In addition to agriculture, discussed below, some of
these areas are:
Intellectual Property Protection. The trading system needs a comprehensive agreement on the protection of intellectual property
rights, such as patents and copyrights. It should include standards
and procedures for enforcement of these rights both internally and
internationally.
Services. GATT rules need to be extended to areas such as telecommunications services where many countries currently impose
trade restrictions.
Trade-Related Investment Measures. Trade-related restrictions on
foreign investment are used increasingly by many countries. These
measures distort trade and result in resource misallocation. GATT
needs to develop rules and disciplines in this important area.
Textiles. The Multi-Fiber Arrangement is an exception to GATT
rules that allows restrictions on textiles trade in many countries.
Trade in textiles needs to be brought under normal GATT rules
and disciplines.
Integration of Developing Economies. A major focus in these negotiations is to develop a system of rules that extends market-opening obligations to all participants. Bringing developing countries
more fully into GATT will require tightening GATT rules governing
the use of balance of payments difficulties to suspend GATT obligations and will also require greater participation by developing
countries in GATT trade-liberalizing obligations.
Subsidies. The GATT negotiations offer the opportunity to establish internationally credible and enforceable regulations, or disciplines, for subsidies. This would include extending regulations for
export subsidies and introducing prohibitions on domestic subsidies. It would include expanding export subsidy prohibitions to
agricultural products.

AGRICULTURAL POLICY AND GATT
Among the 15 areas, agriculture is perhaps the best illustration
of the limitations of the GATT system as well as of its potential to
further the process of global economic integration. GATT operates
on a consensus basis, and when GATT was established, agriculture
was exempted from some of its rules to obtain political support for
its ratification. At that time, agriculture was not an important



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trading sector of most economies. Since then, agriculture has undergone a transformation from a national to a global industry. The
United States, the largest food exporter in the world, exported
about 25 million metric tons of agricultural products in the 1950s
and now exports nearly 150 million metric tons.
Technology, trade, and government policy have all played prominent roles in this transformation. The postwar technological revolution began an unparalleled period of productivity growth in agriculture in the United States and elsewhere. U.S. agricultural productivity has grown more than 200 percent since the 1950s, and
food exporting regions such as Canada, Australia, and Europe have
experienced similar growth. The rice producing areas of Asia have
seen rapid productivity growth since the mid-1960s. Agricultural
markets became international as production expanded in the developed economies and global population, income, and food demand
grew. The developing countries became major net importers of
food, with a net deficit in their food production of 52 million metric
tons in 1980, projected to grow to at least 69 million metric tons by
the year 2000. Throughout the world, governments became increasingly involved in the production, marketing, and trade of agricultural products. Measurements of agricultural subsidies calculated
by the Department of Agriculture show that subsidies in food-exporting countries increased substantially in the 1980s.
Agricultural Policies
Agricultural policies of the major food-exporting and food-importing countries now stand as a major impediment to more complete
integration of agriculture into the international trading system.
Because of the adverse impacts of agricultural policies on international markets, agricultural policy reform has become a priority for
many countries participating in the Uruguay Round of GATT negotiations. Indeed, some countries are insisting on progress in agriculture before they will agree to reform in other areas.
All governments intervene in their agricultural sectors, either on
behalf of producers or at their expense. Industrial economies tend
to promote producers' interests through protection or subsidization.
Developing economies, on the other hand, often use policies that
have the effect of taxing agricultural producers for revenue to promote industrial development or maintain price ceilings to benefit
urban consumers. In both cases, policy encourages a different pattern of resource use from what would occur in the absence of intervention. The result has been substantial distortions of agricultural
resource use, production, and trade around the world.
The increasing degree to which policies have disrupted world agricultural trade has fueled the movement toward international
policy reform. The inflexible trade and domestic policies of most
countries limited the ability of, and the incentive for, their agricul


257

tural sectors to adapt readily to abrupt changes in world market
conditions caused by weather and political shocks. Recent droughts
and historically low grain stocks have rekindled fears of a world
food crisis. Attempts to insulate domestic producers from changes
in global market conditions have depleted the budgets of many governments and strained international relations. The failure of existing policies to address the needs of the emerging global agriculture
is clearly a major reason for the willingness of many governments
to put agriculture on the agenda for international policy reform. It
will be an important and historic achievement if the 96 GATT
member countries are able to agree on improved and strengthened
GATT rules for agriculture.
Recent studies suggest that meaningful policy reform would yield
significant economic benefits. These studies conclude that multilateral reduction in trade-distorting policies would lead to higher
world prices, higher market-generated farm income, less costly
income support for farmers, and improved global economic welfare.
Several studies have estimated the global economic gains from
complete policy liberalization to be about $31 billion annually and
$10 billion for the United States. The GATT reforms advocated by
the United States, which would eliminate the most trade-distorting
policies, could be expected to yield a large fraction of such benefits.
AGRICULTURAL POLICY REFORM IN GATT
The participants in the GATT negotiations reached a consensus
in April 1989 to agree by the end of 1990 on a long-term agricultural reform program. The long-term objective of the reforms is to provide for substantial, progressive reductions in agricultural support
and protection, sustained over an agreed period of time, to correct
existing distortions in world agricultural markets and to prevent
further restrictions and distortions. A key accomplishment of the
Uruguay Round of GATT negotiations thus far is the recognition
that domestic policies are a major cause of world market distortions. Meaningful reform must, therefore, address both domestic
and trade policies.
Proposals for changes in the GATT rules and disciplines to
achieve agricultural policy reform were submitted to GATT in late
1989 by major participants, including the United States, the European Community, Japan, and the Cairns Group—Argentina, Australia, Brazil, Canada, Chile, Columbia, Hungary, Indonesia, Malaysia, New Zealand, the Philippines, Thailand, and Uruguay.
Although there is now agreement about the need for policy
reform, there is little agreement on how to achieve it. One of the
basic difficulties in developing GATT rules and disciplines for agricultural policy is that every country in GATT has its own complicated policies. The GATT negotiators cannot write domestic policy



258

for any country. The challenge facing the GATT negotiators is to
develop guidelines that can help countries move to less distorting
policies without compromising any country's sovereignty.

The U.S. Proposal for Comprehensive Reform
The United States has proposed broad principles for bringing agriculture into the GATT system. The application of these principles
in a strengthened and more effective set of GATT rules would
move the world toward a fairer and more market-oriented trading
system. The U.S. proposal provides for reform in the areas of
import access and export competition, internal support, and sanitary regulations pertaining to agricultural products.
The U.S. proposal to improve import access would convert all
nontariff barriers to tariffs and then reduce these tariffs to zero or
low levels over a 10-year period. The GATT article that currently
allows countries to use import quotas to manage their domestic agricultural policies would be eliminated. Nontariff barriers would
be converted to tariffs by computing the difference between internal and external prices and imposing an equivalent tariff. The U.S.
proposal thus conforms to original GATT principles for liberalizing
trade through tariff reductions. The U.S. proposal calls for a 5-year
phaseout of all export subsidies except for bona fide food aid. The
proposal also calls for elimination of restrictions and prohibitions
on exports of products in short supply. Safeguard measures are proposed to achieve an orderly transition process.
A major problem with most domestic agricultural policies is that
they subsidize farmers in ways that artificially stimulate production and thus indirectly distort trade. The U.S. proposal limits the
types of domestic subsidies that countries can use to those that
have the least effect on trade. The most distorting policies, such as
administered price policies and income-support policies linked to
production, would be phased out over 10 years. Other less distorting policies, such as general input subsidies, would be subject to
certain disciplines. Policies that would be permitted include payments not linked to production or marketing decisions, environmental and conservation programs, general support for research
and its dissemination to farmers and disaster relief.
TOWARD U.S. POLICY REFORM
The President's farm policy goals are a market-oriented agriculture that preserves an income safety net for the farm sector and
meets other objectives such as environmental quality. The Administration is also committed to global agricultural policy reform
fully consistent with its GATT proposal. Agricultural policy reform
in the United States would maintain and enhance the U.S. role as
the major world food exporter while furthering global reform. But
many other countries also subsidize production and export of agri


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cultural commodities or restrict imports. Policy reform in the
United States must be accompanied by comparable reforms in
other countries if all countries are to reap the gains possible from
mutual reductions in agricultural subsidies.
Benefits From U.S. Policy Reform
The most important reason why the United States should simultaneously pursue agricultural policy reform both at home and
abroad is the economic self-interest of the United States. The move
to less trade-distorting policies could improve the performance of
the U.S. farm sector and benefit consumers through increased
availability and lower prices of some foods. The U.S. comparative
advantage in the production of major traded commodities, notably
food and feed grains, means that a large segment of U.S. agriculture can compete successfully in international markets when prices
are determined by market forces rather than government subsidies.
Because the United States is one of the largest agricultural producers in the world, agricultural subsidies are particularly costly to
U.S. taxpayers. Reforms consistent with the U.S. GATT proposal
could help achieve the President's farm policy goal of a more
market-oriented agriculture at lower budget and economic cost. Reductions in the budget cost of U.S. farm programs can make a contribution to the goal of a balanced Federal budget. After deducting
Social Security, defense, and interest payments on the national
debt from the Federal budget, direct price and income-support payments to agriculture were about 10 percent of the remaining
budget in fiscal 1986, but fell to 4 percent in fiscal 1990 because of
high prices caused by the U.S. drought. Without suitable policy
reforms, a return to normal weather could lead to lower commodity
prices and significantly higher budget costs in the 1990s.
Moving From Price Supports to an Income Safety Net
Continuing productivity growth in global agriculture will make
U.S. and other countries' farm policies based on price support increasingly costly. This productivity growth is the cause of the persistent downward trend in real farm prices since the 1950s shown
in Chart 7-1. The chart also shows that price supports have followed the same trend as real farm prices. This is because it is too
costly for the government to keep prices above the long-run trend.
The U.S. Government supports prices for certain major commodities (including grains and dairy products) by buying commodities
and holding them as stocks, an expensive practice, and by managing supply through acreage reduction programs.
The acreage reduction programs are a policy response to the high
costs of directly supporting prices by holding stocks. This pattern of
stock buildup and supply management through acreage control is



260

evident in Chart 7-2, which shows wheat stocks and the forgone
wheat output attributable to the idling of land through the wheat
programs. A similar pattern of stock buildup and supply control occurred for feed grains. Two such policy cycles have taken place: one
in the 1950s and 1960s and another in the late 1970s and 1980s.
Chart 7-1
REAL WHEAT PRICES. Real U.S. market and support prices follow a similar long-term trend.
Price per bushel (1982$)
10

Market price

1953

1957

1961

1965

1969

1973

1977

1981

1985

1989

Source: Department of Agriculture.

Reliance on supply control reduces U.S. agriculture's exports by
taking land out of production that could be producing crops for
export. Moreover, because farmers are provided an incentive to
make cropping decisions according to program rules rather than
market signals, the programs reduce the responsiveness of U.S. agriculture to changes in world market conditions and reduce its
international competitiveness.
Price and income supports redistribute income within the agricultural sector in unintended ways. Farmers who own assets when
a price-support or supply-control policy is invoked earn capital
gains because their land increases in value. Persons who subsequently want to become farmers must pay the capitalized value of
the farm programs when they buy land. These newer farmers' economic survival then depends on the continuation of the support
programs. Having paid the capitalized value of the programs in



261

Chart 7-2
WHEAT STOCKS. Large stocks lead the government to reduce acreage and thus output.
Millions of bushels
2,500

200
,0
Total stocks

.'

\

1,500

1,000

500

1953

1957

1961

1965

1969

1973

1977

1981

1985

1989

Note: Output forgone equals average yield times acres idled.
Source: Department of Agriculture.

order to farm, they need the high program prices and income subsidies to break even.
Understandably, farmers are concerned that they will have to
bear much of the cost of adjusting to a new domestic policy regime.
A reform program thus may need to include provisions that facilitate adjustments in the farm sector caused by policy change. To
provide income support to farmers in a manner consistent with the
principles espoused by the United States in the GATT negotiations,
policy could be based on criteria related to income, not production.
An income-based safety net for agriculture could facilitate adjustment, protect farmer income from unforeseen circumstances such
as weather and political events, and do so at a much lower cost to
the economy than the existing system.

SUMMARY
• The principle underlying U.S. Administration trade policy is to
expand the current rules-based trading system to foster open
and competitive markets. The Administration strongly opposes
all attempts by governments to manage trade.




262

• GATT provides a set of rules for the international trading
system and a process of multilateral negotiations through
which further liberalization of trade can be achieved. The
United States played a key role in the development of the
GATT system in the late 1940s, and continues to play a leadership role.
• U.S. objectives for the Uruguay Round are to broaden and
strengthen GATT rules and disciplines, and to reach agreement with other members on reductions in tariff and nontariff
barriers. Some of the areas under negotiation in the Uruguay
Round are agriculture, intellectual property rights, trade-related investment measures, services, and subsidies.
• Agricultural policy reform has become a priority for many
countries in the Uruguay Round because domestic agricultural
policies are becoming increasingly costly and are an impediment to trade policy liberalization.
• An income-based safety net could provide income protection for
farmers in a manner consistent with the principles advocated
by the United States in the Uruguay Round.

CONCLUSION
Recent developments in the global economy underscore the importance of free and competitive markets to promote and sustain
growth. This Administration has taken a leadership role in promoting the development of open markets worldwide through important
new initiatives to support economic reform in centrally planned
and severely indebted countries. It has also played a leadership
role in efforts to extend the GATT rules for the international trading
system so as to eliminate barriers to open markets.
Market-oriented economic reforms can help to revive economic
performance among the centrally planned economies, as well as
among the highly indebted developing countries. While these countries must implement the necessary policy changes, assistance from
the United States and other developed nations can be important.
The United States continues to provide financial and technical assistance to support reform efforts in Poland and Hungary. It has
also initiated a new debt strategy to support reforms in Mexico, the
Philippines, Costa Rica, and other indebted countries through reduction of debt burdens.
The dramatic steps underway in the European Community to
create a single, unified market by 1992 highlight the potential
gains from removal of barriers. The elimination of artificial restrictions that prevent free movement of goods, services, labor, and capital across national boundaries promises to raise growth in the EC




263

member countries, the United States, and all nations that participate in the global economy. These gains will be realized as long as
the EC provides non-EC members access to its newly expanded internal market. The dynamic Asian Pacific Rim economies also
provide examples of how reliance on both domestic and international
markets can generate economic expansion and raise living standards. These economies will also gain from further steps to remove
barriers to open markets.
All countries must press forward to facilitate and safeguard a
smoothly functioning global economy. Conflicts should be resolved
through negotiation of rules. In this regard, GATT is a critical multilateral institution, providing a unified set of rules and disciplines
for trade policies of member countries, and a framework for policy
liberalization and dispute settlement. The current round of negotiations seeks to strengthen this rules-based system in existing areas
such as agriculture, and extend it to important new areas such as
services and intellectual property. The President has made successful completion of the Uruguay Round a major trade priority.
In today's highly integrated world economy, international economic policy issues are inseparably intertwined with domestic
policy issues. International features arise naturally as one considers traditionally domestic issues such as fiscal policy, monetary
policy, and environmental policy.
The usual concerns with international economic events and
international economic policy were heightened immeasurably by
the remarkable economic reform movement that began in Eastern
Europe in 1989. This reform movement, as well as the economic reforms in some highly indebted countries, the ongoing integration of
Western Europe, the success of the market-oriented Asian Pacific
Rim economies, and the bold U.S. proposals to expand GATT point to
the same theme: an open free-market economy is the surest road to
economic prosperity. This is also the lesson from the success of the
U.S. economy in the 1980s which the first six chapters of the Report
have endeavored to explain. The challenge of the 1990s is to build on
this success and to continue support for economic and political
freedom around the world. The return from this effort will be a safer
and more prosperous world in the 21st century.




264

Appendix A
REPORT TO THE PRESIDENT ON THE ACTIVITIES
OF THE
COUNCIL OF ECONOMIC ADVISERS DURING 1989







LETTER OF TRANSMITTAL
COUNCIL OF ECONOMIC ADVISERS
Washington, D.C., December 31, 1989
MR. PRESIDENT:
The Council of Economic Advisers submits this report on its activities during the calendar year 1989 in accordance with the requirements of the Congress, as set forth in section 10(d) of the Employment Act of 1946 as amended by the Full Employment and
Balanced Growth Act of 1978.
Sincerely,




Michael J. Boskin, Chairman
Richard L. Schmalensee, Member
John B. Taylor, Member

267

Council Members and their Dates of Service
Name
Edwin G. Nourse
Leon H. Keyserling ..

John D Clark
Roy Blough
Robert C. Turner
Arthur F Burns
Neil H. Jacoby
Walter W Stewart ..
Raymond J. Saulnier
Joseph S. Davis
Paul W McCracken
Karl Brandt .
Henry C. Wallich
Walter W. Heller
James Tobin
Kermit Gordon
Gardner Ackley
John P. Lewis
Otto Eckstein
Arthur Ml. Okun

Oath of office date

Position
Chairman
Vice Chairman
Acting Chairman
Chairman
Member
Vice Chairman
Member
Member
Chairman
Member
Member
Member
Chairman
Member
Member
Member
Member
Chairman
Member
Member
Member
Chairman
Member
Member

August 9, 1946
August 9 1946
November 2, 1949
May 10, 1950
August 9 1946
May 10, 1950
June 29 1950
September 8, 1952
March 19 1953
September 15, 1953
December 2 1953
April 4, 1955
December 3, 1956
May 2, 1955
December 3 1956
November 1 1958
May 7, 1959
January 29, 1961
January 29 1961
January 29 1961
August 3, 1962
November 16 1964
May 17, 1963
September 2 1964
November 16, 1964
February 15, 1968
February 2 1966
February 15, 1968
July 1 1968
February 4, 1969
February 4 1969
February 4, 1969
January 1 1972
September 9, 1971
March 13, 1972
July 23, 1973
October 31 1973
September 4, 1974
June 13 1975
July 22, 1975
January 22, 1977
March 18 1977
March 18, 1977 .
June 6, 1979
August 20 1980
February 27, 1981
June 12, 1981
July 14, 1981
October 14 1982
December 10 1982
April 18 1985
July l 1985
August 18 1986
February 2, 1989
June 9 1989
October 3 1989

Chairman
James S Duesenberry
Merton J. Peck
Warren L Smith
Paul W. McCracken
Hendrik S Houthakker
Herbert Stein
Ezra Solomon
Marina v.N. Whitman
.
Gary L Seevers
William J Fellner
Alan Greenspan
Paul W MacAvoy .
Burton G. Malkiel
Charles L. Schultze
William D Nordhaus
LyleE. Gramley
George C. Eads
Stephen M Goldfeld
Murray L Weidenbaum
William A. Niskanen
Jerry L Jordan
Martin Feldstein
William Poole
Beryl W. Sprinkel
Thomas Gale Moore
Michael L Mussa
Michael J. Boskin
John B Taylor
Richard L. Schmalensee




Member
Member
Chairman
Member
Member
Chairman
Member
Member
Member
Member
Chairman
Member
Member
Chairman
Member
Member
Member
Chairman
Member
Member
Chairman
Member
Chairman
Member
Member
Chairman
Member
Member

268

Separation date
November 1, 1949.

January 20, 1953.
February 11, 1953.
August 20 1952
January 20, 1953.
December 1, 1956
February 9, 1955.
April 29, 1955.
January 20, 1961.
October 31, 1958.
January 31 1959
January 20, 1961.
January 20, 1961.
November 15, 1964.
July 31, 1962.
December 27 1962
February 15, 1968
August 31, 1964.
February 1, 1966.
January 20, 1969.
June 30 1968
January 20, 1969.
January 20, 1969.
December 31, 1971.
July 15, 1971.
August 31, 1974.
March 26, 1973.
August 15, 1973.
April 15, 1975.
February 25 1975
January 20, 1977.
November 15 1976
January 20, 1977.
January 20, 1981.
February 4 1979
May 27 1980
January 20, 1981.
January 20 1981
August 25, 1982.
March 30, 1985.
July 31 1982
July 10 1984
January 20 1985
January 20 1989
May 1 1989
September 19 1988

Report to the President on the Activities of the
Council of Economic Advisers During 1989
The mission of the President's Council of Economic Advisers was
established by the Employment Act of 1946: to advise the President
on the most effective means "to promote maximum employment,
production and purchasing power." The Council accordingly focuses
on providing the President with the best possible advice and economic analysis on the economic outlook and proposed economic
policies. This focus usually complements the diverse perspectives
and specific concerns of other agencies in the policy formulation
process.
The membership of the Council of Economic Advisers changed
early in 1989, upon the inauguration of the new President. President Bush nominated Michael J. Boskin as Chairman of the Council on January 20, and on February 2, 1989, following unanimous
Senate confirmation, Dr. Boskin was designated Chairman of the
Council and was sworn into office. He succeeds Beryl W. Sprinkel,
who returned to the private sector. The Chairman is on a leave of
absence from Stanford University where he is the Burnet C. and
Mildred Finley Wohlford Professor of Economics.
President Bush nominated John B. Taylor and Richard L.
Schmalensee as the two other Members of the Council on May 1
and July 20, respectively. After Senate confirmation, Dr. Taylor
and Dr. Schmalensee were officially sworn in on June 9, 1989, and
October 3, 1989, respectively. Both served as full-time consultants
between the time of their nomination and official swearing in. Dr.
Taylor is on a leave of absence from Stanford University where he
is Professor of Economics. Dr. Schmalensee is on a leave of absence
from the Massachusetts Institute of Technology where he is the
Gordon Y Billard Professor of Economics and Management.
Thomas Gale Moore resigned from the Council on May 1, 1989, and
returned to the Hoover Institution at Stanford University.
During this first year, the Council has stressed the importance of
maximizing sustainable economic growth to expand the real resources available to meet the needs and designs of all Americans.
It also stressed the importance of setting ambitious, but realistic
goals. In its interactions with various outside groups—the Congress, the press, the business community, international organizations—as well as within the Administration, the Council has emphasized that continued growth and higher standards of living re


269

quire following the four principles of fiscal, monetary, regulatory,
and trade policy outlined in this year's Report:
• Reduce government borrowing by slowing the growth of Federal
spending while economic growth raises revenue until the budget
is balanced, and reduce the national debt thereafter;
• Support a credible, systematic monetary policy program that
sustains maximum economic growth while controlling and reducing inflation;
• Remove barriers to innovation, investment, work, and saving in
the tax, legal, and regulatory systems;
• Avoid unnecessary regulation and design necessary regulatory
programs to harness market forces effectively to serve the
Nation's interest; and
• Continue to lead the world to freer trade and more open
markets, and to support market-oriented reforms around the
world.
MACROECONOMIC POLICIES
Economic growth was more moderate in 1989 than the rapid pace
of 1987 and 1988. Significantly, inflation was contained. The Council emphasized that the run-up of inflation early in 1989 was temporary and related to temporary disruption in the world oil market
and the drought. Throughout the year, the Council closely followed
macroeconomic developments, briefing the President, and participating in regular discussions on macroeconomic policy issues with
the Department of the Treasury, the Office of Management and
Budget (OMB), and other members of the President's economic
team. The Council also regularly exchanged information and met
with the Federal Reserve Board on macroeconomic policy issues
and the economic outlook.
The Council and the other members of the Administration's forecasting "Troika"—Treasury and OMB—made good progress in establishing the credibility of the new Administration's economic
forecasts. This interagency forecasting group, which is chaired by
the Council, develops the economic forecast and projections used in
developing the budget. The forecasts made in the spring serve as
the official economic assumptions for the Gramm-Rudman-Hollings
baseline for the following fiscal year. The Administration's first
full forecast was widely described as reasonable and internally consistent when it was released with the Mid-Session Review in July.
Dr. Boskin testified on the forecast along with Dr. Taylor before
the Joint Economic Committee. Although the forecast was a bit
more optimistic than the average of private forecasters, it has thus
far tracked the economy quite well and as the year progressed,
many forecasters revised their expectations for 1989 towards the
Administration's forecast. Based on preliminary data, it would
appear that for the four major forecast variables—real GNP



270

growth, inflation, unemployment, and interest rates—the Troika
forecast for 1989 was the most accurate forecast presented in the
history of the mid-session budget reviews dating back to the late
1970s. In preparing its forecast for the 1991 budget, the Troika
developed and published alternative sets of economic assumptions to
indicate that the forecast and the resulting budget calculations have
a considerable degree of uncertainty.
The Council also worked to improve the economic information
flow through a more comprehensive series of memoranda and briefing papers on economic events for the President and his White
House Senior Staff; regular briefings for the White House press on
major economic news; and meetings with outside economists, forecasters, financial analysts, and business people. The Chairman and
Council Members appeared before numerous other organizations
explaining the Administration's economic achievements, principles,
and policies.
In the formulation of saving and investment policies, the Council
was one of the leading participants in developing proposals through
various Cabinet and sub-Cabinet working groups. In testimony to
the Congress and in talks to business and other groups, the Chairman and the other Council Members stressed the importance of
raising national saving—by lowering the Federal budget deficit and
removing barriers to private saving—to reduce the cost of capital
to American firms, stimulate investment, and improve U.S. competitiveness, productivity growth, and standards of living. The
Chairman and the other Council Members also worked through
various fora to educate the public and the Congress on the economic benefits of a lower capital gains tax rate.
The Council was also active on a range of budget issues this year.
The Chairman was a member of the President's budget team and
testified before a number of congressional committees on both the
economic assumptions used in the budget and on the importance to
the economy of lowering the Federal budget deficit and eventually
reducing the national debt. The Chairman was also a member of
the President's review committee for the 1991 budget.
INTERNATIONAL ECONOMIC POLICIES

During 1989, international economic issues occupied a substantial part of the Council's time. Developments in the Eastern European economies called for economic analysis in preparing the President's initiatives. As the current GATT round entered its final
stage, many economic issues required analysis. Despite substantial
progress in reducing the U.S. trade deficit in recent years, 1989 was
a year of growing protectionist pressure. Growing concern over foreign investment in the United States was especially important in
generating this increased pressure. The Chairman and the other
Council Members strove to put these fears in perspective, stressing



271

the benefits of free trade and open markets for goods, services, and
investment. They regularly reminded the Congress and others that
foreign investment had helped to prevent the investment rate—a
fundamental source of improvements in productivity and standards
of living—from falling, despite the Federal budget deficit and low
personal saving. In the Congress and before various foreign governments and international organizations, the Council repeatedly
stressed the importance of freer trade and more open markets and
the dangers to world economic growth of rising protectionism.
The Council was also increasingly active in trade policy issues
through Dr. Boskin's participation in the Economic Policy Council
and Dr. Taylor's membership in the Trade Policy Review Group.
The Council assisted the Administration in producing many important trade decisions that carefully balanced competing interests
and goals on: steel quotas; Super 301; strategy for the ongoing
GATT round; and many other issues.
The Council undertook an increased role in its participation in
international discussions. Dr. Boskin was one of the four leaders of
the President's Mission to Poland and was named a deputy coordinator of U.S. aid to Poland and Hungary. Dr. Taylor also participated in the Mission and was active in developing the economic
analysis through an interagency group on policy planning for
Poland and Hungary.
Dr. Boskin met in Japan with the Prime Minister and other officials to encourage Japan to shoulder its responsibilities as the
second largest economy in the world by joining the United States
in leading the world to freer and fairer trade. Dr. Taylor was a
member of the Structural Impediments Initiative negotiating team
and met with Japanese officials in New York, Tokyo, and Washington to discuss ways to reduce barriers to trade. He also testified
before the Senate Finance Committee on the importance of these
structural issues. Dr. Boskin and Dr. Taylor traveled to Tokyo to
discuss the economic outlook and various structural issues with
Japan's Economic Planning Agency, and Dr. Taylor participated in
biannual sub-Cabinet meetings in Tokyo and Washington.
Dr. Boskin was elected Chairman of the Economic Policy Committee of the Organization for Economic Cooperation and Development (OECD). Dr. Schmalensee chaired the U.S. delegation to
OECD Working Party 1, which focuses on structural change in the
developed economies, and Dr. Taylor was a member of the U.S. delegation to Working Party 3 on macroeconomic policy coordination
and the short-term economic outlook. Dr. Taylor traveled to Paris
to chair the U.S. delegation to the Economic and Development
Review Committee, where the OECD reviews the U.S. economy,
and chaired meetings in Washington with the IMF and GATT in
their review of U.S. economic policy. In these roles the Council



272

stressed the importance of multilateral adjustment to trade imbalances, macroeconomic coordination, and the removal of structural
rigidities and subsidies.
The Council provided the President and the White House senior
staff with regular briefings and briefing materials on international
developments, including materials for the Economic Summit in
Paris and the meetings in Malta between the President and Secretary General Gorbachev.
The Council also participated in discussions of a wide range of
issues—including developing country debt, economic reform in
Eastern Europe, and macroeconomic policy coordination—with
other members of the Administration, the Federal Reserve, the
World Bank, the IMF, and representatives of other countries. The
Council and staff conducted numerous briefings on the U.S. economy for visiting officials and scholars.
MICROECONOMIC POLICIES

The Administration considered and proposed action this year on
a wide range of economic issues, many of them involving problems
that had been building for some time. In its work on these issues,
the Council repeatedly stressed that where government regulation
is appropriate, it should be formulated in a way that allows workers and firms maximum flexibility and provides incentives to meet
social goals in the least costly manner. The Council also provided
economic analysis of a variety of continuing issues. The Council
worked with other agencies to assure that the Clean Air Act proposal balanced costs and benefits in protecting the environment
and minimizing the costs of regulation. The Council emphasized
these principles of promoting flexibility, enhancing incentives, balancing costs and benefits, and placing maximum reliance on the
private sector in a number of areas, including: global warming,
telecommunications, antitrust, food safety, strategic oil stockpiling,
and proposals by the Council on Competitiveness to remove regulatory and legal barriers to innovation. Dr. Schmalensee testified
before the Congress on the economic importance of tradable permits in the Clean Air Act proposals. He also chaired the Interagency Task Force on Economic Costs of the Working Group on Global
Climate Change.
The Council also participated in various interagency working
groups in developing policies to aid the disadvantaged without destroying incentives and job opportunities. Dr. Schmalensee was a
member of the Low Income Opportunity Board and was active in
the analysis of the economic costs and benefits of the Americans
with Disabilities Act (ADA). The Administration's accomplishments
in this area include passage by the Congress of the first training
wage in the history of the U.S. minimum wage, and improvements




273

in the Job Training Partnership Act. The Council also actively promoted the importance of improving education in the United States
through flexibility, choice, accountability, and performance, the
values that underpin the Educational Excellence Act.
ECONOMIC STATISTICS

The Chairman and the other Council Members took an active
role in improving the quality of the U.S. statistical system.
Through testimony before the Congress, public speeches, and interagency working groups, the Council stressed the relationship of
good information to good policy. Dr. Boskin chaired an Economic
Policy Working Group on Improving the Economic Statistics. (Its
work is described in detail in Appendix B.)
PUBLIC INFORMATION

In addition to the Chairman's and the other Council Members'
public speeches, testimony before the Congress, and briefings for
the press, the Council produces two publications a year for the
public.
The Council's Annual Report is the principal medium through
which the Council informs the public of its work and its views. It is
an important vehicle for presenting the Administration's domestic
and international economic policies. Annual distribution of the
Report in recent years has averaged about 45,000 copies. The Council assumes primary responsibility for the monthly Economic Indicators, which is issued by the Joint Economic Committee of the
Congress and has a distribution of approximately 10,000.
THE COUNCIL AND THE STAFF
The Chairman is responsible for communicating the Council's
views on economic developments to the President through personal
discussions and written reports. The Chairman also represents the
Council at Cabinet meetings, meetings of the Economic Policy
Council and Domestic Policy Council, meetings of the National Security Council on issues of economic importance, daily White
House senior staff meetings, budget team meetings with the President, and at many other formal and informal meetings with the
President and senior White House staff, as well as with other
senior government officials. The Chairman guides the work of the
Council and exercises ultimate responsibility for directing the work
of the professional staff.
Members of the Council are responsible for the full range of
issues within the Council's purview, and including direct supervision of the work of the professional staff. Members represent the
Council at a wide variety of interagency and international meet


274

ings and assume major responsibility for selecting issues for Council attention.
The small size of the Council permits the Chairman and the
other Members to work as a team on most policy issues. There is,
however, an informal division of subject matter. Dr. Schmalensee is
primarily responsible for microeconomic and sectoral analysis and
regulatory issues. Dr. Taylor is primarily responsible for international economic issues as well as for macroeconomic analysis, including economic projections.
PROFESSIONAL STAFF
The Council's advice to the President is dependent on the analytical and empirical analysis of its professional staff. The Council
benefited from an extraordinarily capable professional staff during
1989. The professional staff of the Council currently consists of the
Special Assistant, the Senior Statistician, 10 senior staff economists, 2 staff economists, 3 junior staff economists, and 2 research
assistants. The professional staff and their respective areas of concentration at the end of 1989 were:
Special Assistant to the Chairman
J. Steven Landefeld
Senior Staff Economists
John M. Antle
Rebecca M. Blank
Susan M. Collins
Howard K. Gruenspecht
Douglas J. Holtz-Eakin
Brian F. Madigan
Marc S. Robinson
Jeremy C. Stein
Peter M. Taylor
William L. Wascher

Agriculture and International Trade
Labor Economics and Human Resources
International Macroeconomics and Trade
Regulation and International Trade
Public Finance and Macroeconomics
Macroeconomics and Monetary Policy
Public Finance and Microeconomics
Finance and Banking
Macroeconomics and Forecasting
Labor and Macroeconomics
Senior Statistician
Catherine H. Furlong
Staff Economists

S. Lael Brainard
Barbara A. Claffey

International Trade and Macroeconomics
Agriculture and International Trade
Junior Staff Economists

Janice C. Eberly
Elizabeth T. Powers



Macroeconomics and International
Economics
Public Finance and Microeconomics
275

David E. Weinstein

International Trade

Research Assistants
Mark A. Condon
Beth Anne Wilson

Labor and Macroeconomics
Macroeconomics and International
Economics

Jonathan S. Leonard (University of California, Berkeley) served
as a senior staff economist during the summer of 1989. Gary R.
Saxonhouse (University of Michigan) served as a part-time consultant during the fall of 1989. Jeremy A. Arkes (Georgetown University), Scott B. McCallum (University of California, Berkeley), Steven
H. Pious (Georgetown University), Brooke D. Rasche (Stanford University), and Omar N. Toulan (Georgetown University) served as
research assistants during 1989.
Catherine H. Furlong, Chief Statistician, began her career at the
Council 40 years ago as a statistical assistant. She is now our Chief
Statistician and is responsible for the management of the Statistical Office. Her tenure has been one of exemplary service, and her
dedication and performance have earned her the respect and
friendship of the Chairmen, the Council Members and staffs with
whom she has served.
Mrs. Furlong is assisted in the operation of the Statistical Office
by Natalie V. Rentfro, Linda A. Reilly, and Margaret L. Snyder.
The Statistical Office maintains and updates the Council's statistical information system, and is responsible for overseeing the publication of the Economic Indicators and the statistical appendix to
the Economic Report, as well as for the verification of statistics in
memoranda, testimony, and speeches.
Joseph Foote provided editorial assistance in the preparation of
the 1990 Economic Report.
Two former staff members returned to assist in the preparation
of the 1990 Report: Christine Dreylinger (student assistant), and
Dorothy Bagovich (statistical assistant).
SUPPORTING STAFF

The Administrative Office, which provides general support for
the Council's activities, consists of Elizabeth A. Kaminski, Administrative Officer, and Catherine Fibich, Administrative Assistant.
The secretaries for the Council of Economic Advisers during 1989
were Alice H. Williams and Sandra F. Daigle (secretaries to the
Chairman), and Francine P. Obermiller and Suzanne M. Tudor
(secretaries to the Council Members). The secretaries for the Council's staff were Lisa D. Branch, Mary E. Jones, Mary A. Thomas,
and Janet J. Twyman.




276

DEPARTURES

The Council's senior staff economists, in most cases, are on
leaves of absence from faculty positions at academic institutions or
from other government agencies or research institutions. Their
tenure with the Council is usually limited to one or two years.
Most of the senior staff economists who resigned during the year
returned to their previous affiliations. They are James N. Brown
(State University of New York at Stony Brook), David N. Hyman
(North Carolina State University), Carole E. Kitti (Office of Management and Budget), Harvey E. Lapan (University of Iowa), and
Daniel A. Sumner (North Carolina State University). Others went
on to new positions. They are Gregory S. Crespi (Southern Methodist University), Lauren J. Feinstone (University of Colorado),
Robert W. Hahn (American Enterprise Institute), and Kim J.
Kowalewski (Congressional Budget Office).
Staff economists usually have just completed their dissertations
and spend one year at the Council as additional preparation for
their professional careers. Staff economists who took new positions
are: Ellen E. Hanak (The Brookings Institution) and John A. Hird
(University of Massachusetts). Junior staff economists are generally graduate students who spend one year with the Council and
then return to complete their dissertations. Those who returned to
their graduate studies in 1989 are: Marcel M. Cassard (Columbia
University), Kenneth R. Richards (University of Pennsylvania), and
Robert J. Scheinerman (Harvard University). Associate junior staff
economists were Theodore G. Bernard (Northwestern University)
and William A. Teichner (Harvard Business School). Jonathan A.
Parker, Research Assistant, accepted a position with The Urban Institute.
Gerry Garcia, secretarial staff, resigned in 1989. In addition,
Christine Dreylinger served as a student assistant during the
summer, and Amy J. Heir served as a student assistant during the
fall.




277







Appendix B
IMPROVING THE QUALITY
OF
ECONOMIC STATISTICS




Improving the Quality of Economic Statistics
The Council of Economic Advisers has by the nature of its basic
mission always been intensely interested in the quality of economic
statistics. Economic statistics are critical to the Council's analyses
of policy issues, advice to the President, forecasts on the economic
outlook, and production of this Report. The Council also has an important role in the dissemination of economic statistics through the
monthly publication of Economic Indicators and Appendix C of this
annual Report.
The Council and other agencies have become increasingly concerned with the quality of economic statistics, and a number of reports in the 1980s addressed problems with key statistics. In addition to members of the Federal statistical system, numerous professional organizations including the American Economic Association,
the National Association of Business Economists, and the National
Academy of Sciences, as well as the Congress have become concerned over the quality, timeliness, accuracy, methodological
soundness, and comparability of economic statistics.
NUMBERS THAT MOVE THE ECONOMY
Although the United States has one of the finest statistical systems in the world, changes in the structure of the U.S. economy
are making it increasingly difficult to track the course of the economy accurately. Accurate measurement is critical, because the
"core" economic statistics have such a large impact on the economy. Statistics provided by the Federal Government alter private
and public spending patterns, move markets, and drive government
policy. Private contracts and orders, investment decisions, cost-ofliving adjustments, the Federal budget, and monetary policy are all
based on the economic information produced by the Federal statistical system.
Many analysts question the accuracy of measurement of even the
most basic variables, such as output and inflation. This perceived
decline in the quality of the basic national economic statistics
series is particularly disturbing. Maintaining and improving these
"core" statistics will be increasingly important as the Nation
moves into the 1990s.




281

TRACKING ECONOMIC ACTIVITY IN TODAY'S ECONOMY
MEASURING PRODUCTIVITY, OUTPUT, AND PRICES
Measuring output involves measuring both increases in quantity
and quality. The most serious problem in measuring output in our
rapidly evolving economy is in estimating improvements in quality.
When the Nation primarily produced things such as steel and
wheat, output was easy to count—tons of steel and bushels of
wheat. Today, a larger share of output is produced in sectors where
increases in output are often in the form of improved quality and
convenience: consider the impact of 24-hour automatic teller machines and of desktop and laptop computers. Measurement problems are most severe in rapidly growing industries such as services
and microelectronics, and it is likely that real output growth in
these industries is underestimated.
In some industries, output is now estimated by labor input. If
total hours worked rises by 1 percent, then output is estimated to
rise by 1 percent. The result is that productivity (output per hour
worked) is assumed constant, so that measured productivity growth
is automatically zero.
In other industries, output is estimated by dividing net sales by a
price index. Unfortunately, in industries with rapid rates of innovation, it is difficult to separate pure price increases from those
arising from improvements in product quality or service. For example, if problems in identifying and measuring quality changes cause
the rate of pure price increase to be overstated, the measure of real
output will be understated, and the overall rate of inflation will be
overstated.
Price indexes that appropriately adjust for quality change can be
quite important. When the Department of Commerce introduced a
new computer price index that adjusted for quality change, it
raised the average annual growth rate of real gross national product (GNP) between 1982 and 1988 from 3.8 to 4.1 percent, raising
the level of real GNP by $70 billion in 1988. Correspondingly, the
new computer price index lowered the average annual rate of inflation (as measured by the GNP implicit price deflator) from 3.6 to
3.3 percent over this period.
In other industries, the statistical system may not have kept
pace with changes in the economy. In the airline industry, deregulation produced lower fares, and passenger miles increased by more
than 60 percent in the 1980s, yet reported output growth has been
below average, and productivity—as measured by value-added per
hour worked—has been declining. Part of the problem may be the
result of the difficulties in developing real—price-adjusted—measures of output during a period when the fare structure was chang-




282

ing rapidly. Today less than 10 percent of tickets are sold at full
price; in 1976, 85 percent of travelers paid full price.
It is hardest to measure output in the service-producing sector,
where many problems arise: rapid innovation, frequent changes in
pricing, and difficulties in accurately measuring and defining sales
and units of output. Industries such as finance, insurance, and real
estate, which are among the fastest growing in the economy as
measured by sales and employment, are only average in terms of
measured GNP growth. And despite rapid innovation, based in part
on revolutionary advances in computation and communications,
productivity in these sectors, as measured by value-added per hour
worked, fell in the 1980s.
The increasing importance of the service-producing sector relative to the goods-producing sector has not only increased the difficulty of measuring total output, but has also increased the difficulty of collecting data on output. It is easier and less expensive to
collect data in manufacturing industries dominated by large firms
than in service industries dominated by small firms. For example,
by surveying three firms in the auto industry it was possible to
obtain data on more than $150 billion in sales in 1987; whereas it
would have required surveying all of the 189,000 firms in the
eating and drinking industry to obtain data on $150 billion in sales.
Finally, while the economy as a whole has gained from deregulation in transportation and services, Federal statistics have suffered.
Deregulation has helped to increase competition, spur growth, and
lower prices, but it has meant that data once available from regulators must be collected directly, in many cases from a larger
number of firms.
MEASURING INVESTMENT, SAVING, AND WEALTH

The problems in economic statistics are not limited to output and
inflation, but extend to other areas ranging from saving and
wealth to income and poverty.
Investment and saving rates are critical factors in economic
growth, international trade flows, economic stability, and the evolution of national wealth. Understandably, U.S. rates of saving and
investment, particularly in relation to other countries, have been
central to the debate on tax, budget, and trade policies. Yet estimates of U.S. saving and investment are not internationally comparable and may be seriously misleading.
The United States is one of only a few major industrialized countries in the world where national income accounts classify government expenditures on bridges, highways, and other investments as
consumption rather than investment, which renders international
comparisons of national saving and investment rates difficult. U.S.
statistical conventions also use historical rather than replacement



283

costs to value international assets. Since most U.S. investments
abroad were purchased some time ago, while most foreign investments in the United States have been made in recent years, U.S.
assets abroad are undervalued relative to foreign assets in the
United States.
MEASURING INCOME AND POVERTY
Estimates of the level and distribution of real family income and
of the extent and nature of poverty drive political debates and decisions about social policy and the safety net. Yet the poverty index
we use is based on research that was done in the 1950s and 1960s
and may not be well suited to the 1990s. Although most major statistical series are revised every 5 years to reflect current price, consumption, and production patterns, the official poverty measure
has not had a significant revision in over 25 years.
The Bureau of the Census in recent years has produced experimental measures of poverty that partly correct for well-known
problems with the official poverty thresholds and with the definition and measurement of income. These adjustments significantly
affect estimates of the level and trends in income and poverty. For
example, depending on the definition of income, Census estimates
of the poverty rate can vary widely (e.g., by as much as 10 percentage points). A case in point involves the estimated rate of price inflation. Using a consistent measure of price change can lower the
poverty estimate by 1.5 percentage points. It also shows real family
income rising, albeit slowly, rather than falling during the 1970s.
Nevertheless, our basic understanding of appropriate measures
of poverty remains far from complete. Additional research on relevant prices, consumption patterns, and family composition in the
1990s is needed to improve our understanding of the level and distribution of economic need in this country.
IMPROVING ECONOMIC STATISTICS
The President has established a working group on improving the
economic statistics. The working group is chaired by Michael J.
Boskin, Chairman of the President's Council of Economic Advisers,
and includes representatives of many of the major producers and
users of economic statistics in the Federal Government. In its work
thus far, the group has: surveyed the statistical agencies to assess
existing plans and priorities; gathered suggestions for further improvements from the agencies and from the community of users
inside the Administration, in the Congress, and outside government; and developed a recommended package of the highest priority improvements in economic statistics.
In developing its initial recommendations, the working group
concentrated on developing priorities to resolve the inevitable con


284

flicts between the various improvement goals, such as those between accuracy and timeliness. The resulting recommendations
focus on proposals that address well-known measurement errors,
that are in areas important to public policy, that are cost-effective,
and that can generally be completed in a reasonable period of time.
Based on the working group's recommendations, the President
has approved a multi-year initiative to improve economic statistics:
• This initiative will build on the data improvement efforts already underway at the statistical agencies. Wherever possible
it will complement ongoing plans for improvement by reprioritizing, using alternative methods, or revising the existing timetable for improvements.
• The President has approved the initial set of recommendations
developed by a working group. These recommendations include
both short- and long-term improvements, and focus on the
most important steps required to maintain and improve the
"core" economic statistics in three major areas of policy concern: a) productivity, output, and prices; b) investment, saving,
and wealth, and; c) employment, income, and poverty.
• The statistical agencies have reprogrammed funds during fiscal
1990 to address the priorities identified by the working group,
and the relevant agencies are currently developing specific
plans to implement the working group's improvements.
• The fiscal 1991 budgets for the relevant statistical agencies include additional funds to begin to implement some of the recommendations.
• The statistical agencies will report back to the working group
with their detailed plans to implement its recommendations.
• The working group will develop a comprehensive long-term
program to improve the economic statistics. In addition to developing options to fully implement the working group recommendations made to date, the program will consider organizational, methodological, and other overall improvements, as
well as the resources required to implement them. It will
present options to the Economic Policy Council for possible recommendations to the President.
As the Administration proceeds with this initiative, it will continue to work in close cooperation with the Congress, the private
sector, international organizations, and the community of data
users.




285




Appendix C
STATISTICAL TABLES RELATING TO INCOME,
EMPLOYMENT, AND PRODUCTION







CONTENTS
NATIONAL INCOME OR EXPENDITURE:
C-l.
C-2.
C-3.
C-4.
C-5.
C-6.
C-7.
C-8.
C-9.
C-10.
C-ll.
C-12.
C-13.
C-14.
C-15.
C-16.
C-17.
C-18.
C-19.
C-20.
C-21.
C-22.
C-23.
C-24.
C-25.
C-26.
C-27.
C-28.
C-29.
C-30.

Gross national product, 1929-89
Gross national product in 1982 dollars, 1929-89
Implicit price deflators for gross national product, 1929-89
Fixed-weighted price indexes for gross national product, 1982
weights, 1959-89
Changes in gross national product, personal consumption expenditures, and related price measures, 1933-89
Gross national product by major type of product, 1929-89
Gross national product by major type of product in 1982 dollars,
1929-89
Gross national product by sector, 1929-89
Gross national product by sector in 1982 dollars, 1929-89
Gross national product by industry, 1947-88
Gross national product by industry in 1982 dollars, 1947-88
Gross domestic product of nonfinancial corporate business, 194089
Output, costs, and profits of nonfinancial corporate business,
1948-89
Personal consumption expenditures, 1940-89
Personal consumption expenditures in 1982 dollars, 1940-89
Gross and net private domestic investment, 1929-89
Gross and net private domestic investment in 1982 dollars, 192989
Inventories and final sales of business, 1946-89
Inventories and final sales of business in 1982 dollars, 1947-89
Foreign transactions in the national income and product accounts, 1929-89
Exports and imports of goods and services in 1982 dollars, 192989
Relation of gross national product, net national product, and national income, 1929-89
Relation of national income and personal income, 1929-89
National income by type of income, 1929-89
Sources of personal income, 1929-89
Disposition of personal income, 1929-89
Total and per capita disposable personal income and personal
consumption expenditures in current and 1982 dollars, 1929-89
Gross saving and investment, 1929-89
Saving by individuals, 1946-89
Number and median income (in 1988 dollars) of families and persons, and poverty status, by race, 1970-88




289

294
296
298
300
301
302
303
304
305
306
307
308

309
310
311
312
313
314
315

316
317

318
319
320
322
324
325
326
327
328

POPULATION, EMPLOYMENT, WAGES, AND PRODUCTIVITY:
C-31.
C-32.
C-33.
C-34.
C-35.
C-36.
C-37.
C-38.
C-39.
C-40.
C-41.
C-42.
C-43.
C-44.
C-45.
C-46.
C-47.

Population by age groups, 1929-89
Population and the labor force, 1929-89
Civilian employment and unemployment by sex and age, 1947-89
Civilian employment by demographic characteristic, 1954-89
Unemployment by demographic characteristic, 1954-89
Labor force participation rate and employment/population ratio,
1948-89
Civilian labor force participation rate by demographic characteristic, 1954-89
Civilian employment/population ratio by demographic characteristic, 1954-89
Unemployment rate, 1948-89
Civilian unemployment rate by demographic characteristic,
1948-89
Unemployment by duration and reason, 1947-89
Unemployment insurance programs, selected data, 1955-89
Employees on nonagricultural payrolls, by major industry, 194689
Average weekly hours and hourly and weekly earnings in private nonagricultural industries, 1947-89
Employment cost index, private industry, 1975-89
Productivity and related data, business sector, 1947-89
Changes in productivity and related data, business sector, 194889

329
330
332
333
334
335
336
337
338
339
340
341
342

344
345
346
347

PRODUCTION AND BUSINESS ACTIVITY:
C-48.
C-49.
C-50.
C-51.
C-52.
C-53.
C-54.
C-55.
C-56.
C-57.

Industrial production indexes, major industry divisions, 1939-89 ..
Industrial production indexes, market groupings, 1947-89
Industrial production indexes, selected manufactures, 1947-89
Capacity utilization rates, 1948-89
New construction activity, 1929-89
New housing units started and authorized, 1959-89
Business expenditures for new plant and equipment, 1947-90
Manufacturing and trade sales and inventories, 1948-89
Manufacturers'shipments and inventories, 1947-89
Manufacturers' new and unfilled orders, 1947-89

348
349
350
351
352
354
355
356
357
358

Consumer price indexes, major expenditure classes, 1946-89
Consumer price indexes, selected expenditure classes, 1946-89
Consumer price indexes, commodities, services, and special
groups, 1946-89
Changes in special consumer price indexes, 1958-89
Changes in consumer price indexes, commodities and services,
1929-89
Producer price indexes by stage of processing, 1947-89
Producer price indexes by stage of processing, special groups,
1974-89
Producer price indexes for major commodity groups, 1947-89
Changes in producer price indexes for finished goods, 1955-89

359
360

PRICES:
C-58.
C-59.
C-60.
C-61.
C-62.
C-63.
C-64.
C-65.
C-66.




290

362
363
364
365
367
368
370

MONEY STOCK, CREDIT, AND FINANCE:
C-67.
C-68.
C-69.
C-70.
C-71.
C-72.
C-73.
C-74.
C-75.

Money stock, liquid assets, and debt measures, 1959-89
Components of money stock measures and liquid assets, 1959-89..
Aggregate reserves of depository institutions and monetary base,
1959-89
Commercial bank loans and securities, 1972-89
Bond yields and interest rates, 1929-89
Total funds raised in credit markets by nonfinancial sectors,
1980-89
Mortgage debt outstanding by type of property and of financing,
1939-89
Mortgage debt outstanding by holder, 1939-89
Consumer credit outstanding, 1950-89

371
372
374
375
376
378
380
381
382

GOVERNMENT FINANCE:
C-76.
C-77.
C-78.

C-79.
C-80.

C-81.
C-82.
C-83.
C-84.
C-85.
C-86.

Federal receipts, outlays, surplus or deficit, and debt, selected
fiscal years, 1929-91
Federal receipts, outlays, and debt, fiscal years 1981-91
Relation of Federal Government receipts and expenditures in the
national income and product accounts to the budget, fiscal
years 1989-91
Federal and State and local government receipts and expenditures, national income and product accounts, 1929-89
Federal and State and local government receipts and expenditures, national income and product accounts, by major type,
1940-89
Federal Government receipts and expenditures, national income
and product accounts, 1968-91
State and local government receipts and expenditures, national
income and product accounts, 1946-89
State and local government revenues and expenditures, selected
fiscal years, 1927-88
Interest-bearing public debt securities by kind of obligation,
1967-89
Maturity distribution and average length of marketable interestbearing public debt securities held by private investors, 196789
Estimated ownership of public debt securities by private investors, 1976-89

383
384

386
387

388
389
390
391
392
393

394

CORPORATE PROFITS AND FINANCE:
C-87.
C-88.
C-89.
C-90.
C-91.
C-92.
C-93.
C-94.

Corporate profits with inventory valuation and capital consumption adjustments, 1929-89
Corporate profits by industry, 1929-89
Corporate profits of manufacturing industries, 1929-89
Sales, profits, and stockholders' equity, all manufacturing corporations, 1950-89
Relation of profits after taxes to stockholders' equity and to
sales, all manufacturing corporations, 1947-89
Sources and uses of funds, nonfarm nonfinancial corporate business, 1946-89
Common stock prices and yields, 1949-89
Business formation and business failures, 1945-89




291

395
396
397
398
399
400
401
402

AGRICULTURE:
C-95.
C-96.
C-97.
C-98.
C-99.
C-100.

Farm income, 1929-89
Farm output and productivity indexes, 1947-89
Farm input use, selected inputs, 1947-88
Indexes of prices received and prices paid by farmers, 1948-89
U.S. exports and imports of agricultural commodities, 1940-89
Balance sheet of the farm sector, 1939-89

403
404
405
406
407
408

INTERNATIONAL STATISTICS:
C-101. International investment position of the United States at yearend, 1981-88
C-102. U.S. international transactions, 1946-89
C-103. U.S. merchandise exports and imports by principal end-use category, 1965-89
C-104. U.S. merchandise exports and imports by area, 1980-89
C-105. U.S. merchandise exports, imports, and trade balance, 1970-89
C-106. International reserves, selected years, 1952-89
C-107. Industrial production and consumer prices, major industrial
countries, 1962-89
C-108. Civilian unemployment rate, and hourly compensation, major industrial countries, 1960-89
C-109. Foreign exchange rates, 1967-89
C-110. Growth rates in real gross national product, 1961-89




292

409
410
412
413
414
415
416
417
418
419

General Notes
Detail in these tables may not add to totals because of rounding.
Unless otherwise noted, all dollar figures are in current dollars.
Symbols used:
Preliminary.
Not available (also, not applicable).
Data in these tables reflect revisions made by the source agencies from
January 1989 through January 1990.




293

NATIONAL INCOME OR EXPENDITURE
TABLE C-l.—Gross national product, 1929-89
[Billions of dollars, except as noted; quarterly data at seasonally adjusted annual rates]
Personal consumption expenditures

Gross private domestic investment
Fixed investment

Year or quarter

Gross
national
product

1929
103.9
1933
56.0
91.3
1939
1940
100.4
1941
125.5
1942
159.0
1943
192.7
1944
211.4
213.4
1945
212.4
1946
1947
235.2
1948
261.6
260.4
1949
1950
288.3
1951
333.4
1952
351.6
1953
371.6
1954
372.5
-1955
405.9
1956
428.2
1957
....
451.0
1958
456.8
1959
495.8
I960
515.3
1961
533.8
1962
574.6
1963
606.9
1964
649.8
-1965
705.1
1966
772.0
1967
816.4
1968
892.7
1969
963.9
1970
1,015.5
1971
1,102.7
1972
1,212.8
1973
1,359.3
1974
',.'. 1,472.8
"1975
1,598.4
1976
1,782.8
1977
1,990.5
1978
2,249.7
1979
2,508.2
-1980
2,732.0
1981
3,052.6
1982
3,166.0
1983
3,405.7
1984
3,772.2
1985
4,014.9
1986 !
'". 4,231.6
1987
4,524.3
1988
4,880.6
1989 f
5,233.2
1982: IV
3,212.5
1983- IV
3,545.8
1984: IV
3,851.8
1985- IV
4,107.9
1986: IV
4,297.3
1987: 1
4,388.8
||
4,475.9
Ill
4,566.6
IV
4,665.8
1988: 1
' 4,739.8
II ....
4,838.5
Ill
4,926.9
IV
5,017.3
1989: 1
5,113.1
|
|
5,201.7
Ill
5,281.0
IV
5,337.0

Total

77.3
45.8
67.0
71.0
80.8
88.6
99.5
108.2
119.6
143.9
161.9
174.9
178.3
192.1
208.1
219.1
232.6
239.8
257.9
270.6
285.3
294.6
316.3
330.7
341.1
361.9
381.7
409.3
440.7
477.3
503.6
552.5
597.9
640.0
691.6
757.6
837.2
916.5
1,012.8
1,129.3
1,257.2
1,403.5
1,566.8
1,732.6
1,915.1
2,050.7
2,234.5
2,430.5
2,629.0
2,797.4
3.010,8
3,235.1
3,470.3
2,117.0
2,315.8
2,493.4
2,700.4
2,868.5
2,914.7
2,989.4
3,055.9
3,083.3
3,148.1
3,204.9
3,263.4
3,324.0
3,381.4
3,444.1
3,508.1
3,547.5

NonDurable durable Services
goods goods

9.2
3.5
6.7
7.8
9.7
6.9
6.5
6.7
8.0
15.8
20.4
22.9
25.0
30.8
29.9
29.3
32.7
32.1
38.9
38.2
39.7
37.2
42.8
43.5
41.9
47.0
51.8
56.8
63.5
68.5
70.6
81.0
86.2
85.7
97.6
111.2
124.7
123.8
135.4
161.5
184.5
205.6
219.0
219.3
239.9
252.7
289.1
335.5
372.2
406.0
421.0
455.2
473.6
263.8
310.0
346.7
373.2
422.0
401.2
419.2
439.3
424.5
446.4
454.6
452.5
467.4
466.4
471.0
486.1
471.0

37.7
22.3
35.1
37.0
42.9
50.8
58.6
64.3
71.9
82.7
90.9
96.6
94.9
98.2
109.2
114.7
117.8
119.7
124.7
130.8
137.1
141.7
148.5
153.2
157.4
163.8
169.4
179.7
191.9
208.5
216.9
235.0
252.2
270.3
283.3
305.1
339.6
380.9
416.2
452.0
490.4
541.8
613.2
681.4
740.6
771.0
816.7
867.3
911.2
942.0
998.1
1,052.3
1,122.6
786.6
837.9
879.6
932.7
952.1
976.4
994.3
1,006.0
1,015.4
1,022.2
1,042.4
1,066.2
1,078.4
1,098.3
1,121.5
1,131.4
1,139.1

30.4
20.1
25.2
26.2
28.3
31.0
34.3
37.2
39.7
45.4
50.6
55.5
58.4
63.2
69.0
75.1
82.1
88.0
94.3
101.6
108.5
115.7
125.0
134.0
141.8
151.1
160.6
172.8
185.4
200.3
216.0
236.4
259.4
284.0
310.7
341.3
373.0
411.9
461.2
515.9
582.3
656.1
734.6
831.9
934.7
1,027.0
1,128.7
1,227.6
1,345.6
1,449.5
1,591.7
1,727.6
1,874.1
1,066.5
1,167.9
1,267.1
1,394.5
1,494.4
1,537.1
1,575.8
1,610.6
1,643.3
1,679.5
1,707.9
1,744.7
1,778.2
1,816.7
1,851.7
1,890.6
1,937.5

See next page for continuation of table.




294

Change
in
busiProResiness
ducers'
Struc- durable dential inventures equiptories
ment

Nonresidential
Total

16.7
1.6
9.5
13.4
18.3
10.3
6.2
7.7
11.3
31.5
35.0
47.1
36.5
55.1
60.5
53.5
54.9
54.1
69.7
72.7
71.1
63.6
80.2
78.2
77.1
87.6
93.1
99.6
116.2
128.6
125.7
137.0
153.2
148.8
172.5
202.0
238.8
240.8
219.6
277.7
344.1
416.8
454.8
437.0
515.5
447.3
502.3
664.8
643.1
659.4
699.9
750.3
777.1
409.6
579.8
661.8
654.1
648.8
673.1
684.1
692.8
749.7
728.8
748.4
771.1
752.8
769.6
775.0
779.1
784.8

Total

14.9
3.1
9.1
11.2
13.8
8.5
6.9
8.7
12.3
25.1
35.5
42.4
39.5
48.3
50.2
50.5
54.5
55.7
64.0
68.0
69.7
65.1
74.4
75.1
74.7
81.5
87.3
94.2
106.2
114.4
115.4
129.1
143.4
145.7
164.7
191.5
219.2
225.4
225.2
261.7
322.8
388.2
441.9
445.3
491.5
471.8
509.4
597.1
631.8
652.5
670.6
719.6
747.7
469.5
548.8
616.8
646.8
660.9
647.7
665.3
683.2
686.3
698.7
719.1
726.5
734.1
742.0
747.6
751.7
749.6

Total

11.0
2.5
6.1
7.7
9.7
6.3
5.4
7.4
10.6
17.3
23.5
26.8
24.9
27.8
31.8
31.9
35.1
34.7
39.0
44.5
47.5
42.4
46.3
48.8
48.3
52.5
55.2
61.4
73.1
83.5
84.4
91.4
102.3
105.2
109.6
123.0
145.9
160.6
162.9
180.0
214.2
259.0
302.8
322.8
369.2
366.7
356.9
416.0
442.9
435.2
444.3
487.2
512.5
354.9
383.9
435.0
451.3
435.8
423.9
437.5
457.0
458.6
472.7
487.1
493.2
495.8
503.1
512.5
519.6
514.8

5.5
1.1
2.2
2.6
3.3
2.2
1.8
2.4
3.3
7.4
8.1
9.5
9.2
10.0
11.9
12.2
13.6
13.9
15.2
18.2
18.9
17.5
18.0
19.2
19.4
20.5
20.8
22.7
27.4
30.5
30.7
32.9
37.1
39.2
40.9
44.5
51.4
57.0
56.3
60.1
66.7
81.0
99.5
113.9
138.5
143.3
124.0
141.1
153.2
139.0
133.8
140.3
145.1
137.6
127.4
146.6
155.9
133.7
129.4
129.5
137.3
138.9
137.1
139.9
142.0
142.5
144.7
142.4
146.2
147.1

5.5
1.4
3.9
5.2
6.4
4.1
3.7
5.0
7.3
9.9
15.3
17.3
15.7
17.8
19.9
19.7
21.5
20.8
23.9
26.3
28.6
24.9
28.3
29.7
28.9
32.1
34.4
38.7
45.8
53.0
53.7
58.5
65.2
66.1
68.7
78.5
94.5
103.6
106.6
119.9
147.4
178.0
203.3
208.9
230.7
223.4
232.8
274.9
289.7
296.2
310.5
346.8
367.4
217.3
256.5
288.4
295.5
302.2
294.5
308.0
319.8
319.7
335.6
347.2
351.3
353.3
358.5
370.1
373.4
367.7

4.0
.6
3.0
3.5
4.1
2.2
1.4
1.4
1.7
7.8
12.1
15.6
14.6
20.5
18.4
18.6
19.4
21.1
25.0
23.5
22.2
22.7
28.1
26.3
26.4
29.0
32.1
32.8
33.1
30.9
31.1
37.7
41.2
40.5
55.1
68.6
73.3
64.8
62.3
81.7
108.6
129.2
139.1
122.5
122.3
105.1
152.5
181.1
188.8
217.3
226.4
232.4
235.2
114.7
164.9
181.8
195.5
225.1
223.8
227.9
226.2
227.7
226.1
232.1
233.2
238.4
238.8
235.1
232.1
234.8

1.7
-1.6
.4
2.2
4.5
1.8
-.6
-1.0
10
6.4
4.7
-3.1
6.8
10.2
3.1
.4
-1.6
5.7
4.6
1.4
-1.5
5.8
3.1
2.4
6.1
5.8
5.4
9.9
14.2
10.3
7.9
9.8
3.1
7.8
10.5
19.6
15.4
-5.6
16.0
21.3
28.6
13.0
-8.3
24.0
-24.5
-7.1
67.7
11.3
6.9
29.3
30.6
29.4
-59.9
31.0
45.0
7.2
-12.2
25.4
18.8
9.5
63.3
30.0
29.3
44.6
18.7
27.7
27.4
27.4
35.2

TABLE C-l.—Gross national product, 1929-89—Continued
[Billions of dollars, except as noted; quarterly data at seasonally adjusted annual rates]
Net exports of goods and
services
Year or
quarter

1929
1933
1939
1940
1941
1942
1943
1944
1945
1946
1947
1948
1949
1950
1951
1952
1953
1954
1955
1956 .
1957
1958
1959
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971..
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989 *
1982: IV
1983: IV
1984: IV
1985: IV
1986: IV
1987: 1

II
III
IV
1988: 1
II
Ill
IV
1989: 1
II
Ill
IV

Government purchases of goods and
services
Federal

Net
exports Exports Imports Total
1.1
.4
1.2
1.8
1.5
.2
-1.9
-1.7

7s

11.9
7.0
6.5
2.2
4.5
3.2
1.3
2.6
3.0
5.3
7.3
3.3
1.5
5.9
7.2
6.9
8.2
10.9
9.7
7.5
7.4
5.5
5.6
8.5
6.3
3.2
16.8
16.3
31.1
18.8
1.9
4.1
18.8
32.1
33.9
26.3
-6.1
-58.9
-78.0
-97.4
-112.6
-73.7
-50.9
14.1
-25.8
-67.9
-103.2
-108.9
-106.0
-114.4
-115.3
-114.6
-82.8
-74.9
-66.2
-70.8
-54.0
-50.6
-45.1
-53.8

7.1
2.4
4.6
5.4
6.1
5.0
4.6
5.5
7.4
15.2
20.3
17.5
16.4
14.5
19.8
19.2
18.1
18.8
21.1
25.2
28.2
24.4
25.0
29.9
31.1
33.1
35.7
40.5
42.9
46.6
49.5
54.8
60.4
68.9
72.4
81.4
114.1
151.5
161.3
177.7
191.6
227.5
291.2
351.0
382.8
361.9
352.5
383.5
370.9
396.5
448.6
547.7
624.4
335.9
364.7
385.7
369.2
402.4
416.5
437.4
458.0
482.6
521.6
532.5
556.8
579.7
605.6
626.1
628.5
637.3

5.9
2.1
3.4
3.7
4.7
4.8
6.5
7.2
7.9
7.3
8.3
10.6
9.8
12.3
15.3
16.0
16.8
16.3
18.1
19.9
20.9
21.1
23.5
24.0
23.9
26.2
27.5
29.6
33.2
39.1
42.1
49.3
54.7
60.5
66.1
78.2
97.3
135.2
130.3
158.9
189.7
223.4
272.5
318.9
348.9
335.6
358.7
442.4
448.9
493.8
561.2
621.3
675.2
321.9
390.5
453.6
472.4
511.3
522.5
551.8
573.4
597.2
604.3
607.5
623.0
650.5
659.6
676.6
673.6
691.1

8.9
8.3
13.6
14.2
25.0
59.9
88.9
97.1
83.0
29.1
26.4
32.6
39.0
38.8
60.4
75.8
82.8
76.0
75.3
79.7
87.3
95.4
97.9
100.6
108.4
118.2
123.8
130.0
138.6
158.6
179.7
197.7
207.3
218.2
232.4
250.0
266.5
299.1
335.0
356.9
387.3
425.2
467.8
530.3
588.1
641.7
675.0
735.9
820.8
872.2
926.1
968.9
1,036.7
671.8
676.1
764.5
856.7
888.9
906.9
916.8
933.2
947.5
945.7
960.1
958.6
1,011.4
1,016.0
1,033.2
1,038.9
1,058.6

Total

1.5
2.2
5.2
6.1
17.0
52.0
81.4
89.4
74.8
19.2
13.6
17.3
21.1
19.1
38.6
52.7
57.9
48.4
44.9
46.4
50.5
54.5
54.6
54.4
58.2
64.6
65.7
66.4
68.7
80.4
92.7
100.1
100.0
98.8
99.8
105.8
106.4
116.2
129.2
136.3
151.1
161.8
178.0
208.1
242.2
272.7
283.5
310.5
355.2
366.5
381.6
381.3
404.1
293.2
276.1
326.0
376.6
368.8
375.6
378.2
384.5
388.1
374.1
377.1
367.5
406.4
399.0
406.0
402.7
408.8

Nation-

al

defense

1.3
2.3
13.8
49.4
79.8
87.5
73.7
16.4
10.0
11.3
13.9
14.3
33.8
46.2
49.0
41.6
39.0
40.7
44.6
46.3
46.4
45.3
47.9
52.1
51.5
50.4
51.0
62.0
73.4
79.1
78.9
76.8
74.1
77.4
77.5
82.6
89.6
93.4
100.9
108.9
121.9
142.7
167.5
193.8
214.4
234.3
259.1
277.8
294.8
298.0
302.8
205.4
221.5
244.1
268.6
280.7
288.0
294.0
300.2
296.8
297.4
298.0
296.1
300.5
298.7
301.3
307.8
303.4

Nondefense

3.9
3.9
3.2
2.6
1.6
2.0
1.1
2.8
3.6
6.0
7.2
4.7
4.8
6.5
8.9
6.8
6.0
5.7
5.9
8.3
8.2
9.2
10.2
12.6
14.2
16.0
17.7
18.3
19.3
21.0
21.1
22.0
25.8
28.4
28.9
33.6
39.6
42.9
50.3
52.9
56.1
65.4
74.8
78.9
69.1
76.2
96.0
88.7
86.8
83.3
-101.3
87.7
54.6
81.9
108.0
88.1
87.5
84.2
84.3
91.3
76.7
79.1
71.4
105.9
100.4
104.7
94.9
105.4

State
and
local

7.4
6.1
8.3
8.1
8.0
7.8
7.5
7.6
8.2
9.9
12.8
15.3
18.0
19.8
21.8
23.1
24.8
27.7
30.3
33.3
36.9
40.8
43.3
46.1
50.2
53.5
58.1
63.5
69.9
78.2
87.0
97.6
107.2
119.4
132.5
144.2
160.1.
182.9
205.9
220.6
236.2
263.4
289.9
322.2
345.9
369.0
391.5
425.3
465.6
505.7
544.5
587.6
632.5
378.7
400.0
438.5
480.1
520.1
531.4
538.6
548.7
559.4
571.6
583.0
591.0
604.9
617.0
627.2
636.2
649.8

Final
sales

102.2
57.6
90.9
98.3
121.0
157.2
193.4
212.3
214.4
206.0
235.7
256.9
263.4
281.4
323.2
348.6
371.1
374.1
400.2
423.6
449.6
458.3
490.0
512.3
531.4
568.5
601.1
644.4
695.2
757.8
806.1
884.8
954.1
1,012.3
1,094.9
1,202.3
1,339.7
1,457.4
1,604.1
1,766.8
1,969.2
2,221.0
2,495.2
2,740.3
3,028.6
3,190.5
3,412.8
3,704.5
4,003.6
4,224.8
4,495.0
4,850.0
5,203.8
3,272.4
3,514.8
3,806.8
4,100.7
4,309.4
4,363,4
4,457.1
4,557.1
4,602.5
4,709.8
4,809.2
4,882.3
4,998.7
5,085.4
5,174.3
5,253.6
5,301.8

Gross
domestic
chases »

102.8
55.7
90.1
98.7
124.1
158.8
194.6
213.0
213.9
204.5
223.3
254.7
253.8
286.0
329.0
348.4
370.3
370.0
402.9
422.9
443.7
453.5
494.3
509.4
526.6
567.7
598.7
638.9
695.4
764.5
809.0
887.2
958.3
1,007.0
1,096.4
1,209.6
1,342.5
1,456.5
1,567.4
1,764.0
1,988.6
2,245.6
2,489.4
2,699.8
3,018.7
3,139.7
3,411.8
3,831.1
4,092.8
4,329.0
4,636.8
4,954.3
5,284.1
3,198.5
3,571.6
3,919.7
4,211.2
4,406.2
4,494.8
4,590.3
4,681.9
4,780.4
4,822.5
4,913.4
4,993.1
5,088.1
5,167.1
5,252.3
5,326.1
5,390.9

1
Gross national product (GNP) less exports of goods and services plus imports of goods and services.
Source: Department of Commerce, Bureau of Economic Analysis.




295

Percent change from
preceding period
Gross
national
product

-4.2
7.0
10.0
25.0
26.6
21.2
9.7
.9

ibis

11.2

10.7
15.7
5.5
5.7
9iO
5.5
5.3
1.3
8.5
3.9
3.6
7.6
5.6
7.1
8.5
9.5
5.8
9.3
8.0
5.4
8.6
10.0
12.1
8.3
8.5
11.5
11.7
13.0
11.5
8.9
11.7
3.7
7.6
10.8
6.4
5.4
6.9
7.9
7.2
4.2
12.4
4.7
6.2
4.2
8.8
8.2
8.4
9.0
6.5
8.6
7.5
7.5
7.9
7.1
6.2
4.3

Final
sales

-5.5
5.4
8.1
23.2
29.9
23.0
9.8
1.0
-3.9
14.4
9.0
2.5
6.8
14.8
7.9
6.5
.8
7.0
5.8
6.1
1.9
6.9
4.6
3.7
7.0
5.7
7.2
7.9
9.0
6.4
9.8
7.8
6.1
8.2
9.8
11.4
8.8
10.1
10.1
11.5
12.8
12.3
9.8
10.5
5.3
7.0
8.5
8.1
5.5
6.4
7.9
7.3
11.0
7.8
7.0
5.5
4.7
5.1
8.9
9.3
4.0
9.7
8.7
6.2
9.9
7.1
7.2
6.3
3.7

Gross
domestic

pur-

chases »

-4.2
7.3
9.5
25.7
28.0
22.6
9.5
.4
-4.4
9.2
14.0
-.3
12.7
15.0
5.9
6.3
~8l9
5.0
4.9
2.2
9.0
3.1
3.4
7.8
5.5
6.7
8.8
9.9
5.8
9.7
8.0
5.1
8.9
10.3
11.0
8.5
7.6
12.5
12.7
12.9
10.9
8.5
11.8
4.0
8.7
12.3
6.8
5.8
7.1
6.8
6.7
4.3
13.1
5.5
8.3
4.9
8.3
8.8
8.2
8.7
3.6
7.8
6.6
7.8
6.4
6.8
5.7
5.0

TABLE C-2.—Gross national product in 1982 dollars, 1929-89
[Billions of 1982 dollars, except as noted; quarterly data at seasonally adjusted annual rates]

Personal consumption
expenditures
Gross
national
product

Year or
quarter

1929
1933. .
1939
1940
1941
1942
1943
1944
1945.
1946
1947
1948
1949
1950
1951
1952
1953
1954
1955
1956
1957
1958
1959
I960
1961
1962
1963..

709.6
498.5
716.6
772.9
909.4
'.'.". 1,080.3
1,276.2
1,380.6
1,354.8
1,096.9
1,066.7
~UQBJ
1,109.0
1,203.7
1,328.2
1,380.0
1,435.3
1,416.2
1,494.9
1,525.6
1,551.1
1,539.2
1,629.1
1,665.3
1,708.7
1,799.4
1,873.3
1,973.3
1965
2,087.6
1966
2,208.3
1967
2,271.4
1968
2,365.6
1969
2,423.3
1970
2,416.2
1971
2,484.8
1972
2,608.5
1973
2,744.1
1974
2,729.3
1975....
2,695.0
1976
2,826.7
1977
2,958.6
1978
3,115.2
1979
3,192.4
1980
3,187.1
1981
3,248.8
1982
3,166.0
1983
3,279.1
1984....
3,501.4
1985
'.'.I". 3,618.7
1986
3,717.9
1987
3,853.7
1988
4,024.4
1989 »
4,142.6
1982: IV
3,159.3
1983: IV
3,365.1
1984: IV
3,535.2
1985: IV
3,662.4
1986: IV
3,733.6
1987: 1
3,783.0
|
|
3,823.5
Ill
3,872.8
IV
3,935.6
1988: 1
3,974.8
II
4,010.7
Ill
4,042.7
IV
4,069.4
1989: 1
4,106.8
II
4,132.5
III.
4,162.9
IV >
4,168.1

1964

'.".'."

Gross private domestic investment
Fixed investment
Nonresidential

Total

471.4
378.7
480.5
502.6
531.1
527.6
539.9
557.1
592.7
655.0
666.6
681.8
695.4
733.2
748.7
771.4
802.5
822.7
873.8
899.8
919.7
932.9
979.4
1,005.1
1,025.2
1,069.0
1,108.4
1,170.6
1,236.4
1,298.9
1,337.7
1,405.9
1,456.7
1,492.0
1,538.8
1,621.9
1,689.6
1,674.0
1,711.9
1,803.9
1,883.8
1,961.0
2,004.4
2,000.4
2,024.2
2,050.7
2,146.0
2,249.3
2,354.8
2,446.4
2,513.7
2,598.4
2,668.5
2,078.7
2,191.9
2,281.1
2,386.9
2,477.8
2,478.3
2,507.7
2,536.5
2,532.3
2,570.8
2,586.8
2,608.1
2,627.7
2,641.0
2,653.7
2,690.1
2,689.3

Durable
goods

40.3
20.7
35.7
40.6
46.2
31.3
28.1
26.3
28.7
47.8
56.5
61.7
67.8
80.7
74.7
73.0
80.2
81.5
96.9
92.8
92.4
86.9
96.9
98.0
93.6
103.0
111.8
120.8
134.6
144.4
146.2
161.6
167.8
162.5
178.3
200.4
220.3
204.9
205.6
232.3
253.9
267.4
266.5
245.9
250.8
252.7
283.1
323.1
355.1
384.4
389.6
413.6
425.6
262.0
300.5
333.1
356.4
397.5
376.1
389.3
403.8
389.4
408.4
414.8
410.7
420.5
419.3
424.9
436.4
421.6

Nondurable Services
goods

211.4
181.8
248.0
259.4
275.6
279.1
284.7
297.9
323.5
344.2
337.4
338.7
342.3
352.8
362.9
376.6
388.2
393.8
413.2
426.9
434.7
439.9
455.8
463.3
470.1
484.2
494.3
517.5
543.2
569.3
579.2
602.4
617.2
632.5
640.3
665.5
683.2
666.1
676.5
708.8
731.4
753.7
766.6
762.6
764.4
771.0
800.2
825.9
847.4
878.1
890.4
904.5
915.7
778.6
812.7
831.2
858.3
883.5
887.7
889.0
891.8
892.9
896.6
899.2
910.3
912.0
915.0
909.7
920.8
917.5

Total

219.7
176.2
196.7
202.7
209.3
217.2
227.2
232.9
240.5
262.9
272.6
281.4
285.3
299.8
311.1
321.9
334.1
347.4
363.6
380.1
392.6
406.1
426.7
443.9
461.4
481.8
502.3
532.3
558.5
585.3
612.3
641.8
671.7
697.0
720.2
756.0
786.1
803.1
829.8
862.8
898.5
939.8
971.2
991.9
1,009.0
1,027.0
1,062.7
1,100.3
1,152.3
1,183.8
1,233.7
1,280.2
1,327.2
1,038.1
1,078.6
1,116.8
1,172.2
1,196.8
1,214.5
1,229.5
1,240.9
1,250.0
1,265.9
1,272.8
1,287.0
1,295.2
1,306.7
1,319.0
1,332.9
1,350.3

139.2
22.7
86.0
111.8
138.8
76.7
50.4
56.4
76.5
178.1
177.9
208.2
168.8
234.9
235.2
211.8
216.6
212.6
259.8
257.8
243.4
221.4
270.3
260.5
259.1
288.6
307.1
325.9
367.0
390.5
374.4
391.8
410.3
381.5
419.3
465.4
520.8
481.3
383.3
453.5
521.3
576.9
575.2
509.3
545.5
447.3
504.0
658.4
637.0
639.6
674.0
715.8
724.5
408.8
577.2
655.7
648.0
615.2
646.3
656.7
671.7
721.1
707.0
713.5
733.6
709.1
721.1
719.8
724.6
732.7

See next page for continuation of table.




296

Total

128.4
33.5
82.1
97.4
111.1
64.7
49.7
61.6
84.9
150.2
178.9
196.0
178.4
210.8
204.3
201.8
213.8
217.3
243.5
244.9
240.4
224.8
253.8
252.7
251.8
272.4
290.5
310.2
341.8
353.7
345.6
370.7
385.1
373.3
399.7
443.7
480.8
448.0
396.1
431.4
492.2
540.2
560.2
516.2
521.7
471.8
510.4
596.1
627.9
634.1
650.3
687.9
700.0
468.1
550.3
614.0
640.4
636.0
628.2
643.4
664.9
664.6
672.7
692.0
696.1
690.8
696.6
700.7
702.7
700.1

Total

93.0
25.8
53.2
65.0
76.6
47.4
39.4
52.6
74.2
105.5
121.7
127.4
114.8
124.0
131.7
130.6
140.1
137.5
151.0
160.4
161.1
143.9
153.6
159.4
158.2
170.2
176.6
194.9
227.6
250.4
245.0
254.5
269.7
264.0
258.4
277.0
317.3
317.8
281.2
290.6
324.0
362.1
389.4
379.2
395.2
366.7
361.2
425.2
453.5
438.4
455.5
493.8
511.1
352.3
390.4
444.4
460.9
435.7
430.9
445.6
472.8
472.7
483.6
497.8
501.0
492.7
501.0
511.4
517.9
514.0

Structures
54.7
14.3
25.2
28.5
33.4
20.9
15.6
20.4
27.0
50.9
47.5
50.5
49.3
52.8
56.5
57.3
62.3
64.9
69.4
75.5
75.2
70.6
71.9
76.1
77.7
81.3
81.6
87.9
101.8
108.0
105.4
108.0
112.9
111.1
107.3
109.5
117.7
115.2
102.8
104.4
108.3
119.3
130.6
136.2
148.8
143.3
127.2
143.8
149.5
130.1
122.3
122.2
120.1
138.3
131.6
147.1
149.9
123.4
120.1
117.7
125.5
125.7
121.8
122.5
123.0
121.4
121.1
118.1
120.4
120.8

Producers' Residurable dential
equipment
38.4
11.5
28.0
36.5
43.2
26.5
23.8
32.1
47.2
54.7
74.2
76.9
65.5
71.2
75.2
73.3
77.7
72.7
81.7
84.9
85.9
73.3
81.7
83.3
80.5
88.9
95.1
107.0
125.8
142.4
139.6
146.5
156.8
152.9
151.0
167.5
199.6
202.7
178.4
186.2
215.7
242.8
258.8
243.0
246.4
223.4
233.9
281.4
304.0
308.3
333.2
371.6
391.0
214.1
258.8
297.3
311.1
312.3
310.7
327.9
347.3
347.0
361.8
375.3
378.0
371.3
379.9
393.2
397.6
393.3

35.4
7.7
28.9
32.5
34.4
17.3
10.4
9.0
10.7
44.7
57.2
68.6
63.6
86.7
72.6
71.2
73.8
79.8
92.4
84.4
79.3
81.0
100.2
93.3
93.6
102.2
113.9
115.3
114.2
103.2
100.6
116.2
115.4
109.3
141.3
166.6
163.4
130.2
114.9
140.8
168.1
178.0
170.8
137.0
126.5
105.1
149.3
170.9
174.4
195.7
194.8
194.1
188.9
115.8
159.9
169.6
179.4
200.3
197.3
197.8
192.1
191.9
189.1
194.2
195.1
198.1
195.6
189.3
184.8
186.0

Change
in
business
inventories

10.8
-10.7
3.9
14.4
27.8
12.0
-5'.2
-8.4
27.9
-1.0
12.3
-9.7
24.2
30.8
10.0
2.8
-4.8
16.3
12.9
3.0
-3.4
16.5
7.7
7.3
16.2
16.6
15.7
25.2
36.9
28.8
21.0
25.1
8.2
19.6
21.8
40.0
33.3
-12.8
22.1
29.1
36.8
15.0
-6.9
23.9
-24.5
64
62.3
9.1
5.6
23.7
27.9
24.5
-59.3
27.0
41.7
7.7
-20.8
18.1
13.3
6.8
56.6
34.3
21.5
37.5
18.3
24.5
19.1
21.9
32.6

TABLE C-2.—Gross-national product in 1982 dollars, 1929-89—Continued
[Billions of 1982 dollars, except as noted; quarterly data at seasonally adjusted annual rates]
Net exports of goods and
services
Year or
quarter

Federal

Net
exports Exports Imports

4.7
1929
-1.4
1933
1939
6.1
8.2
1940
1941
3.9
-7.7
1942
230
1943
1944
-23.8
189
1945
27.0
1946
42.4
1947
19.2
1948
1949
18.8
4.7
1950
14.6
1951
6.9
1952
-2.7
1953
1954
2.5
.0
1955
4.3
1956
1957
7.0
103
1958
1959
-18.2
I960
-4.0
2.7
1961
1962 . .
-7.5
1963
-1.9
1964
5.9
-2.7
1965
-13.7
1966
1967
-16.9
-29.7
1968
1969
-34.9
1970
-30.0
1971
-39.8
-49.4
1972
1973
-31.5
1974
!
.8
1975
18.9
1976
-11.0
1977
-35.5
1978
-26.8
1979
3.6
1980
57.0
49.4
1981
1982
26.3
-19.9
1983
1984
!..I -84.0
1985 .::. -104.3
-129.7
1986
1987
-115.7
1988
-74.9
1989 >.
-56.3
1982: IV
11.7
1983: IV
-46.2
1984: IV
-94.8
1985: IV
-125.3
1986: IV
-135.4
1987:1
-118.2
II
-115.9
Ill
-118.9
IV
-109.8
1988:1
-78.2
II
-72.6
Ill
-74.9
IV
-73.8
1989:1
-55.0
|
|
-51.2
Ill
-57.1
IV
-61.8

42.1
22.7
36.2
40.0
42.0
29.1
25.1
27.3
35.2
69.0
82.3
66.2
65.0
59.2
72.0
70.1
66.9
70.0
76.9
87.9
94.9
82.4
83.7
98.4
100.7
106.9
114.7
128.8
132.0
138.4
143.6
155.7
165.0
178.3
179.2
195.2
242.3
269.1
259.7
274.4
281.6
312.6
356.8
388.9
392.7
361.9
348.1
371.8
367.2
397.1
450.9
530.1
587.6
336.0
355.5
376.6
367.4
406.5
418.7
430.5
461.3
484.1
517.4
519.7
531.9
551.4
569.7
587.5
593.1
600.2

37.4
24.2
30.1
31.7
38.2
36.9
48.0
51.1
54.1
42.0
39.9
47.1
46.2
54.6
57.4
63.3
69.7
67.5
76.9
83.6
87.9
92.8
101.9
102.4
103.3
114.4
116.6
122.8
134.7
152.1
160.5
185.3
199.9
208.3
218.9
244.6
273.8
268.4
240.8
285.4
317.1
339.4
353.2
332.0
343.4
335.6
368.1
455.8
471.4
526.9
566.6
605.0
643.9
324.3
401.6
471.4
492.6
541.9
536.9
555.4
580.2
593.9
595.6
592.3
606.9
625.2
624.6
638.7
650.2
662.0

Total

Total

Nation- Nonal
dedefense fense

94.2
98.5
144.1

18.3
27.0
53.8
150.2
63.6
235.6 153.0
483.7 407.1
708.9 638.1
790.8 722.5
704.5 634.0
236.9 159.3
179.8
91.9
199.5 106.1
226.0 119.5
230.8 116.7
329.7 214.4
389.9 272.7
419.0 295.9
378.4 245.0
361.3 217.9
363.7 215.4
381.1 224.1
395.3 224.9
397.7 221.5
403.7 220.6
427.1 232.9
449.4 249.3
459.8 247.8
470.8 244.2
487.0 244.4
532.6 273.8
576.2 304.4
597.6 309.6
591.2 295.6
572.6 268.3
566.5 250.6
570.7 246.0
565.3 230.0
573.2 226.4
580.9 226.3
580.3 224.2
589.1 231.8
604.1 233.7
609.1 236.2
620.5 246.9
629.7 259.6
641.7 272.7
649.0 275.1
677.7 290.8
731.2 326.0
761.6 334.1
781.8 339.6
785.1 328.9
805.8 337.2
660.1 289.5
642.2 266.0
693.2 300.5
752.7 340.6
776.0 342.4
776.6 338.1
774.9 334.7
783.5 340.7
792.1 344.9
775.1 323.8
783.0 327.9
775.9 319.8
806.4 343.9
799.7 335.5
810.3 343.6
805.3 336.1
807.9 333.6

in:"III

185.3
171.0
163.3
161.1
157.5
159.2
160.7
164.3
171.2
180.3
193.8
206.9
218.5
237.2
252.1
265.2
261.5
256.2
201.4
211.6
225.3
241.4
255.8
259.0
264.6
270.6
266.7
263.0
262.5
258.8
261.6
254.4
255.8
260.1
254.7

60.7
59.1
63.1
65.2
66.8
72.7
73.0
71.9
75.7
79.3
78.9
68.2
72.3
88.8
82.0
74.4
67.4
81.0
88.2
54.4
75.2
99.2
86.6
79.1
70.1
70.1
78.2
60.8
65.4
61.0
82.3
81.1
87.8
76.0
79.0

State
and
local

75.9
71.5
90.3
86.6
82.6
76.7
70.8
68.3
70.5
77.6
87.9
93.4
106.5
114.2
115.4
117.3
123.1
133.4
143.4
148.3
157.0
170.4
176.2
183.1
194.2
200.1
212.0
226.6
242.5
258.8
271.8
288.0
295.6
304.3
315.9
324.7
335.3
346.8
354.6
356.0
357.2
370.4
373.0
373.6
370.1
369.0
373.9
387.0
405.2
427.5
442.1
456.2
468.6
370.6
376.2
392.7
412.1
433.6
438.5
440.1
442.8
447.2
451.3
455.1
456.1
462.5
464.2
466.7
469.2
474.2

1
GNP less exports of goods and services plus imports of goods and services.
Source: Department of Commerce, Bureau of Economic Analysis.




Percent change from
preceding period

Government purchases of goods and
services

297

Final
sales

698.7
509.2
712.7
758.5
881.6
1,068.3
1,275.5
1,385.7
1,363.3
1,069.0
1,067.7
1,096.4
1,118.7
1,179.5
1,297.4
1,370.0
1,432.5
1,421.0
1,478.6
1,512.7
1,548.1
1,542.6
1,612.6
1,657.5
1,701.4
1,783.3
1,856.7
1,957.6
2,062.4
2,171.5
2,242.6
2,344.6
2,398.1
2,407.9
2,465.2
2,586.8
2,704.1
2,696.0
2,707.8
2,804.6
2,929.5
3,078.4
3,177.4
3,194.0
3,225.0
3,190.5
3,285.5
3,439.1
3,609.6
3,712.4
3,830.0
3,996.5
4,118.1
3,218.6
3,338.1
3,493.5
3,654.7
3,754.4
3,764.9
3,810.1
3,866.0
3,879.0
3,940.5
3,989.2
4,005.2
4,051.0
4,082.3
4,113.5
4,141.0
4,135.5

Gross
domestic
purchases l

Gross
national
product

Final
sales

704.9
499.9
21
31
7.9
6.3
710.5
6.4
764.6
7.8
17.7
16.2
905.5
21.2
1,088.0
18.8
1,299.2
18.1
19.4
1,404.3
8.2
8.6
1,373.7
-1.9 -1.6
1,069.9 -19.0 -21.6
1,024.3
-2.8
~2>
1,089.5
3.9
1,090.2
2.0
.0
1,199.0
5.4
8.5
10.0
1,313.6
10.3
1,373.1
3.9
5.6
1,438.0
4.6
4.0
1,413.7
-.8
-1.3
5.6
4.1
1,494.9
1,521.3
2.1
2.3
1.7
1,544.2
2.3
-.4
1,549.6
-.8
5.8
4.5
1,647.3
1,669.3
2.2
2.8
1,711.3
2.6
2.6
1,807.0
5.3
4.8
4.1
4.1
1,875.3
5.4
5.3
1,967.3
5.4
2,090.3
5.8
5.3
2,222.1
5.8
3.3
2,288.3
2.9
4.1
2,395.3
4.5
2.4
2.3
2,458.1
.4
2,446.2
-.3
2.4
2.8
2,524.6
4.9
2,658.0
5.0
5.2
4.5
2,775.7
-.5
-.3
2,728.5
.4
2,676.1 -1.3
2,837.7
3.6
4.9
4.7
4.5
2,994.1
5.1
5.3
3,142.0
3.2
2.5
3,188.8
-.2
3,130.1
3,199.4
1.9
LO
3,139.7
-2.5 -1.1
3.0
3.6
3,299.1
4.7
3,585.4
6.8
3.4
5.0
3,723.0
2.7
2.8
3,847.6
3,969.4
3.7
3.2
4.4
4,099.3
4.3
4,198.9
2.9
3.0
7.1
.6
3,147.6
7.3
3.8
3,411.3
1.7
4.0
3,630.0
3.0
1.6
3,787.6
3,869.0
2.3
3.9
5.4
3,901.2
1.1
4.4
4.9
3,939.3
3,991.7
5.3
6.0
1.4
4,045.5
6.6
4.0
6.5
4,052.9
3.7
5.0
4,083.3
1.6
4,117.6
3.2
4.7
2.7
4,143.2
3.7
3.1
4,161.8
4,183.7
2.5
3.1
2.7
4,220.0
3.0
-.5
4,229.9
.5

Gross
domestic
purchases *

-1.9
7.9
7.6
18.4
20.1
19.4
8.1
-2.2
-22.1
-4.3
6.4
.1
10.0
9.6
4.5
4.7
-1.7
5.7
1.8
1.5
.4
6.3
1.3
2.5
5.6
3.8
4.9
6.3
6.3
3.0
4.7
2.6
~3.2
5.3
4.4
-1.7
-1.9
6.0
5.5
4.9
1.5
-1.8
2.2
-1.9
5.1
8.7
3.8
3.3
3.2
3.3
2.4
.6
8.6
2.7
4.8
1.5
3.4
4.0
5.4
5.5
.7
3.0
3.4
2.5
1.8
2.1
3.5
.9

TABLE C-3.—Implicit price deflators for gross national product, 1929-89
[Index numbers, 1982=100, except as noted; quarterly data seasonally adjusted]
Gross private domestic investment *

Personal consumption
expenditures

Year or quarter

1929
1933
1939
1940
1941
1942
1943 ..
1944
1945
1946
1947
1948
1949
1950
1951
1952
1953
1954
1955
1956
1957
1958
1959
1960
1961
1962
1963 .
1964
1965. ..
1966
1967
1968 ....
1969
1970
1971 ..
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984 ....
1985
1986 ...
1987
1988
1989 *
1982- IV
1983: IV
1984- IV
1985: IV
1986- IV
1987- 1
II
Ill
IV
1988- 1
II
Ill
IV
1989:1
||
Ill
IV P

Gross
national
product

14.6
11.2
12.7
13.0
13.8
14.7
15.1
15.3
15.7
19.4
22.1
23A
t3.5
23.9
25.1
25.5
25.9
26.3
27.2
28.1
29.1
29.7
30.4
30.9
31.2
31.9
32.4
32.9
33.8
35.0
35.9
37.7
39.8
42.0
44.4
46.5
49.5
54.0
59.3
63.1
67.3
72.2
78.6
85.7
94.0
100.0
103.9
107.7
110.9
113.8
117.4
121.3
126.3
101.7
105.4
109.0
112.2
115.1
116.0
117.1
117.9
118.6
119.2
120.6
121.9
123.3
124.5
125.9
126.9
128.0

Fixed investment
Nonresidential

Total

16.4
12.1
13.9
14.1
15.2
16.8
18.4
19.4
20.2
22.0
24.3
25.7
25.6
26.2
27.8
28.4
29.0
29.1
29.5
30.1
31.0
31.6
32.3
32.9
33.3
33.9
34.4
35.0
35.6
36.7
37.6
39.3
41.0
42.9
44.9
46.7
49.6
54.8
59.2
62.6
66.7
71.6
78.2
86.6
94.6
100.0
104.1
108.1
111.6
114.3
119.8
124.5
130.0
101.8
105.7
109.3
113.1
115.8
117.6
119.2
120.5
121.8
122.5
123.9
125.1
126.5
128.0
129.8
130.4
131.9

NonDurable durable Services
goods goods

22.9
16.8
18.7
19.2
20.9
22.0
23.3
25.4
27.7
33.0
36.1
37.1
36.9
38.1
40.0
40.1
40.8
39.4
40.1
41.2
42.9
42.8
44.2
44.4
44.8
45.7
46.3
47.0
47.1
47.5
48.3
50.1
51.4
52.7
54.7
55.5
56.6
60.4
65.9
69.5
72.7
76.9
82.1
89.2
95.7
100.0
102.1
103.8
104.8
105.6
108.1
110.1
111.3
100.7
103.1
104.1
104.7
106.2
106.7
107.7
108.8
109.0
109.3
109.6
110.2
111.2
111.2
110.8
111.4
111.7

17.8
12.2
14.2
14.3
15.5
18.2
20.6
21.6
22.2
24.0
26.9
28.5
27.7
27.8
30.1
30.5
30.4
30.4
30.2
30.6
31.5
32.2
32.6
33.1
33.5
33.8
34.3
34.7
35.3
36.6
37.5
39.0
40.9
42.7
44.2
45.8
49.7
57.2
61.5
63.8
67.1
71.9
80.0
89.4
96.9
100.0
102.1
105.0
107.5
107.3
112.1
116.3
122.6
101.0
103.1
105.8
108.7
107.8
110.0
111.8
112.8
113.7
114.0
115.9
117.1
118.2
120.0
123.3
122.9
124.2

13.8
11.4
12.8
12.9
13.5
14.3
15.1
16.0
16.5
17.3
18.6
19.7
20.5
21.1
22.2
23.3
24.6
25.3
25.9
26.7
27.6
28.5
29.3
30.2
30.7
31.4
32.0
32.5
33.2
34.2
35.3
36.8
38.6
40.7
43.1
45.1
47.4
51.3
55.6
59.8
64.8
69.8
75.6
83.9
92.6
100.0
106.2
111.6
116.8
122.4
129.0
134.9
141.2
102.7
108.3
113.5
119.0
124.9
126.6
128.2
129.8
131.5
132.7
134.2
135.6
137.3
139.0
140.4
141.8
143.5

Total

11.6
9.4
11.1
11.5
12.4
13.2
13.8
14.2
14.5
16.7
19.8
21.7
22.2
22.9
24.6
25.0
25.5
25.6
26.3
27.8
29.0
28.9
29.3
29.7
29.7
29.9
30.1
30.4
31.1
32.4
33.4
34.8
37.2
39.0
41.2
43.2
45.6
50.3
56.9
60.7
65.6
71.9
78.9
86.3
94.2
100.0
99.8
100.2
100.6
102.9
103.1
104.6
106.8
100.3
99.7
100.5
101.0
103.9
103.1
103.4
102.8
103.3
103.9
103.9
104.4
106.3
106.5
106.7
107.0
107.1

Total

11.8
9.8
11.5
11.9
12.7
13.3
13.8
14.0
14.3
16.4
19.3
21.0
21.7
22.4
24.2
24.4
25.1
25.2
25.8
27.7
29.5
29.5
30.2
30.6
30.5
30.9
31.3
31.5
32.1
33.3
34.4
35.9
37.9
39.9
42.4
44.4
46.0
50.5
57.9
61.9
66.1
71.5
77.8
85.1
93.4
100.0
98.8
97.9
97.7
99.3
97.5
98.7
100.3
100.7
98.3
97.9
97.9
100.0
98.4
98.2
96.7
97.0
97.7
97.8
98.4
100.6
100.4
100.2
100.3
100.1

Structures

10.0
7.6
8.8
9.0
9.7
10.7
11.4
11.6
12.3
14.5
17.1
18.9
18.6
18.8
21.1
21.3
21.8
21.4
21.8
24.1
25.2
24.8
25.0
25.2
25.0
25.2
25.5
25.9
26.9
28.2
29.1
30.4
32.9
35.2
38.1
40.6
43.7
49.5
54.7
57.6
61.6
67.9
76.2
83.6
93.1
100.0
97.5
98.2
102.5
106.9
109.4
114.9
120.8
99.5
96.8
99.6
104.0
108.3
107.7
110.0
109.3
110.5
112.6
114.2
115.4
117.3
119.5
120.6
121.5
121.8

Producers'
durable
equipment
14.3
12.5
13.9
14.2
14.9
15.3
15.4
15.6
15.4
18.2
20.7
22.5
24.0
25.0
26.4
26.9
27.7
28.6
29.3
31.0
33.3
34.0
34.7
35.6
35.9
36.1
36.2
36.2
36.4
37.2
38.4
39.9
41.5
43.2
45.5
46.8
47.3
51.1
59.7
64.4
68.3
73.3
78.6
86.0
93.7
100.0
99.5
97.7
95.3
96.1
93.2
93.3
94.0
101.5
99.1
97.0
95.0
96.8
94.8
93.9
92.1
92.1
92.7
92.5
92.9
95.2
94.4
94.1
93.9
93.5

Residential

11.2
8.1
10.5
10.9
11.9
12.8
13.8
14.9
15.8
17.5
21.1
22.8
23.0
23.7
25.4
26.1
26.3
26.4
27.0
27.9
28.0
28.0
28.0
28.2
28.2
28.3
28.2
28.5
29.0
29.9
30.9
32.5
35.6
37.0
39.0
41.2
44.8
49.8
54.2
58.0
64.6
72.6
81.4
89.4
96.6
100.0
102.2
106.0
108.3
111.1
116.2
119.7
124.5
99.1
103.1
107.2
109.0
112.4
113.4
115.2
117.8
118.7
119.5
119.5
119.6
120.4
122.1
124.2
125.6
126.2

1
Separate deflators are not calculated for gross private domestic investment, change in business inventories, and net exports of
goods and services.
See next page for continuation of table.

http://fraser.stlouisfed.org/
298
Federal Reserve Bank of St. Louis

TABLE C-3.—Implicit price deflators for gross national product, 1929-89—Continued
[Index numbers, 1982=100, except as noted; quarterly data seasonally adjusted]
Export s and
imports <>f goods
and ser vices1
Year or quarter
Exports

1929
1933
1939
1940
1941
1942
1943
1944.. .
1945
1946
1947
1948
1949
1950
1951
1952
1953
1954
1955
1956
1957
1958
1959
1960
1961
1962
1963
1964
1965
1966. .. .
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981.
1982
1983
1984 ..
1985
1986
1987
1988
1989 "
1982: IV
1983: IV
1984: IV
1985: IV
1986: IV .
1987:1
||
III
IV
1988:1
||
III
IV
1989:1
||
III
IV P

. .

16.8
10.7
12.7
13.6
14.6
17.2
18.5
20.2
21.1
22.0
24.6
26.5
25.2
24.4
27.4
27.4
27.0
26.9
27.5
28.6
29.7
29.6
29.9
30.4
30.9
31.0
31.1
31.4
32.5
33.7
34.5
35.2
36.6
38.7
40.4
41.7
47.1
56.3
62.1
64.8
68.0
72.8
81.6
90.2
97.5
100.0
101.3
103.2
101.0
99.8
99.5
103.3
106.3
100.0
102.6
102.4
100.5
99.0
99.5
99.5
99.3
99.7
100.8
102.5
104.7
105.1
106.3
106.6
106.0
106.2

Imports

15.9
8.6
11.3
11.6
12.3
13.1
13.6
14.1
14.6
17.4
20.9
22.4
21.2
22.5
26.7
25.3
24.1
24.1
23.5
23.8
23.8
22.7
23.1
23.4
23.1
22.9
23.6
24.1
24.7
25.7
26.2
26.6
27.4
29.0
30.2
32.0
35.5
50.4
54.1
55.7
59.8
65.8
77.1
96.0
101.6
100.0
97.4
97.1
95.2
93.7
99.0
102.7
104.9
99.3
97.2
96.2
95.9
94.4
97.3
99.4
98.8
100.6
101.5
102.6
102.7
104.0
105.6
105.9
103.6
104.4

Government purchases of goods and services
Federal

Total

9.4
8.4
9.4
9.5
10.6
12.4
12.5
12.3
11.8
12.3
14.7
16.3
17.3
16.8
18.3
19.4
19.8
20.1
20.8
21.9
22.9
24.1
24.6
24.9
25.4
26.3
26.9
27.6
28.5
29.8
31.2
33.1
35.1
38.1
41.0
43.8
47.1
52.2
57.7
61.5
65.8
70.4
76.8
85.5
93.4
100.0
104.0
108.6
112.3
114.5
118.5
123.4
128.7
101.8
105.3
110.3
113.8
114.5
116.8
118.3
119.1
119.6
122.0
122.6
123.5
125.4
127.1
127.5
129.0
131.0

Total

8.1
8.0
9.7
9.7
11.1
12.8
12.8
12.4
11.8
12.0
14.8
16.3
17.6
16.3
18.0
19.3
19.6
19.7
20.6
21.5
22.5
24.2
24.6
24.7
25.0
25.9
26.5
27.2
28.1
29.4
30.5
32.3
33.8
36.8
39.8
43.0
46.2
51.3
57.1
60.8
65.2
69.2
75.4
84.3
93.3
100.0
103.1
106.8
109.0
109.7
112.4
115.9
119.8
101.3
103.8
108.5
110.6
107.7
111.1
113.0
112.8
112.5
115.5
115.0
114.9
118.2
118.9
118.2
119.8
122.5

2
3

National Nondefense defense

41.8'
45.3
50.6
55.6
59.3
63.4
67.8
74.2
83.4
92.9
100.0
103.6
107.2
109.2
110.2
111.1
114.0
118.2
102.0
104.7
108.3
111.3
109.7
111.2
111.1
110.9
111.3
113.1
113.5
114.4
114.9
117.4
117.8
118.3
119.1

GNP less exports of goods and services plus imports of goods and services.
Quarterly changes are at annual rates.
Source-. Department of Commerce, Bureau of Economic Analysis.




299

4'£8'
48.9
53.3
60.6
64.3
69.1
72.4
78.0
86.4
94.3
100.0
101.4
105.5
108.2
108.1
116.7
123.6
125.2
99.5
100.3
108.9
108.8
101.7
110.7
120.0
120.3
116.8
126.2
121.0
117.1
128.7
123.8
119.2
125.0
133.4

State
and
local

9.7
8.6
9.2
9.3
9.7
10.2
10.6
11.2
11.6
12.8
14.5
16.3
16.9
17.3
18.9
19.7
20.2
20.7
21.2
22.4
23.5
24.0
24.6
25.2
25.9
26.7
27.4
28.0
28.8
30.2
32.0
33.9
36.3
39.2
41.9
44.4
47.8
52.8
58.1
62.0
66.1
71.1
111
86.2
93.4
100.0
104.7
109.9
114.9
118.3
123.2
128.8
135.0
102.2
106.3
111.7
116.5
120.0
121.2
122.4
123.9
125.1
126.7
128.1
129.6
130.8
132.9
134.4
135.6
137.0

Final
sales

14.6
11.3
12.8
13.0
13.7
14.7
15.2
15.3
15.7
19.3
22.1
23.4
23.5
23.9
24.9
25.4
25.9
26.3
27.1
28.0
29.0
29.7
30.4
30.9
31.2
31.9
32.4
32.9
33.7
34.9
35.9
37.7
39.8
42.0
44.4
46.5
49.5
54.1
59.2
63.0
67.2
72.1
78.5
85.8
93.9
100.0
103.9
107.7
110.9
113.8
117.4
121.4
126.4
101.7
105.3
109.0
112.2
114.8
115.9
117.0
117.9
118.7
119.5
120.6
121.9
123.4
124.6
125.8
126.9
128.2

Gross
domestic
purchases 2

14.6
11.1
12.7
12.9
13.7
14.6
15.0
15.2
15.6
19.1
21.8
23.4
23.3
23.9
25.0
25.4
25.8
26.2
27.0
27.8
28.7
29.3
30.0
30.5
30.8
31.4
31.9
32.5
33.3
34.4
35.4
37.0
39.0
41.2
43.4
45.5
48.4
53.4
58.6
62.2
6&.4
71.5
78.1
86.3
94.4
100.0
103.4
106.9
109.9
112.5
116.8
120.9
125.8
101.6
104.7
108.0
111.2
113.9
115.2
116.5
117.3
118.2
119.0
120.3
121.3
122.8
124.2
125.5
126.2
127.4

Percent
change
from
preceding
period,
GNP
implicit
price
deflator 3
2.2
-.8
2.0
6.2
6.6
2.6
1.4
2.9
22.9
13.9
7.0
-.5
2.0
4.8
1.5
1.6
1.6
3.2
3.4
3.6
2.1
2.4
1.6
1.0
2.2
1.6
1.5
2.7
3.6
2.6
5.0
5.6
5.5
5.7
4.7
6.5
9.1
9.8
6.4
6.7
7.3
8.9
9.0
9.7
6.4
3.9
3.7
3.0
2.6
3.2
3.3
4.1
3.6
4.7
3.0
3.3
1.8
3.2
3.8
2.8
2.4
2.0
4.8
4.4
4.7
4.0
4.6
3.2
3.5

TABLE C-4.—Fixed-weighted price indexes for gross national product, 1982 weights, 1959-89
[Index numbers, 1982=100, except as noted; quarterly data seasonally adjusted]
Gross private domestic
investment1
Personal

Year or Quarter

1959
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976..
1977
1978
1979
1980
1981
"'...
1982
1983
1984
1985...
1986
1987
1988
'.!!!"!..
1989 "
1982: IV
1983: IV ...
1984: IV
1985: IV
1986: IV
1987- 1
II
Ill
IV
1988: 1
||
Ill
IV
1989: 1
II
Ill
IV P.

conGross
national sumption
product expenditures

37.6
38.1
38.4
38.7
39.1
39.6
40.1
41.1
42.1
43.7
45.6
47.2
48.8
50.3
53.1
57.2
61.8
65.1
68.4
72.7
78.8
86.1
94.1
100.0
104.1
108.3
111.9
114.9
119.1
124.1
129.7
101.7
105.7
109.6
113.2
116.1
117.4
118.5
119.6
120.8
121.9
123.3
124.9
126.2
127.7
129.3
130.2
131.4

35.2
35.7
36.1
36.4
36.8
37.2
37.7
38.5
39.5
41.0
42.8
44.7
46.6
48.3
51.0
55.8
60.1
63.5
67.5
72.2
78.6
86.8
94.6
100.0
104.2
108.4
112.2
115.3
120.7
125.9
131.8
101.8
105.8
109.7
113.8
116.7
118.5
120.2
121.4
122.8
123.6
125.1
126.6
128.1
129.6
131.6
132.3
133.8

Fixed investment
Total

58.0
58.1
58.0
58.0
58.0
58.2
58.5
59.3
60.2
61.4
63.2
61.5
60.6
59.8
61.8
64.4
69.0
71.4
72.6
74.5
80.3
86.9
94.5
100.0
100.4
101.5
103.3
105.7
107.8
111.3
115.6
100.2
100.5
102.3
104.2
106.4
106.9
107.3
108.1
108.7
110.1
111.0
111.5
112.7
114.1
115.2
116.1
117.0

Exports and
imports of goods
and services1

Nonresi- Residen- Exports Imports
dential
tial

65.9
66.1
66.0
66.1
66.2
66.4
66.7
67.4
68.4
69.5
71.0
68.4
66.6
65.0
66.6
68.5
73.1
75.2
74.9
75.0
80.1
86.1
93.9
100.0
99.9
100.2
101.9
104.2
105.4
109.0
113.1
100.5
99.6
100.9
102.8
104.8
105.1
105.2
105.4
106.0
107.5
108.6
109.3
110.5
111.8
112.6
113.5
114.5

30.2
30.3
30.2
29.9
29.5
29.6
30.0
30.8
31.6
33.1
36.0
37.4
39.5
41.6
45.1
50.1
54.6
58.4
64.8
72.5
81.2
89.4
96.6
100.0
102.2
106.0
108.3
110.9
115.9
119.5
124.2
99.1
103.3
107.2
109.0
112.1
113.2
114.9
117.4
118.2
119.2
119.3
119.3
120.1
121.8
123.9
125.3
126.0

32.8
33.5
34.0
34.1
34.4
34.8
35.9
37.1
38.2
39.3
40.9
43.3
45.3
46.5
50.8
59.8
65.4
67.4
70.3
74.5
82.9
90.5
97.7
100.0
101.6
104.3
103.7
103.6
105.6
111.2
114.6
100.0
103.2
104.0
103.4
103.5
104.2
105.1
105.8
106.5
108.1
110.0
112.6
113.3
113.7
114.6
114.4
114.9

27.0
27.3
27.0
26.7
27.1
27.7
28.1
29.1
29.5
30.1
31.2
33.4
35.6
37.8
42.4
54.5
59.7
61.3
66.1
71.3
80.9
96.3
101.5
100.0
97.7
97.5
95.7
94.0
101.2
106.3
110.7
99.3
97.6
96.8
96.8
94.7
97.9
100.4
101.9
103.3
104.5
106.1
106.2
107.3
109.5
111.1
109.8
111.2

Percent
change
from
preceding

Government purchases of
goods and services
Federal
Total

25.8
26.4
27.0
27.8
28.5
29.3
30.0
31.3
32.7
34.5
36.6
39.6
42.3
45.2
48.8
53.5
58.6
62.2
66.0
70.9
77.3
86.3
94.1
100.0
104.5
109.2
113.2
115.5
119.6
125.1
131.0
102.0
106.0
110.7
114.4
116.6
118.0
119.0
120.2
121.3
123.1
124.4
125.9
126.9
129.4
130.5
131.4
132.6

State
Total

26.9
27.3
27.8
28.4
29.3
30.1
30.8
32.0
32.8
34.5
36.4
39.5
42.4
46.0
50.1
54.8
59.4
62.4
65.8
70.6
76.8
86.4
94.9
100.0
104.1
108.0
110.4
110.6
113.3
117.9
122.9
101.7
105.4
109.0
111.0
110.7
112.1
113.0
113.6
114.5
116.3
117.4
118.7
119.3
122.3
122.7
123.0
123.7

National Nondefense defense

44.3
47.4
51.4
56.5
59.7
63.5
68.6
75.1
84.7
93.8
100.0
103.7
107.6
110.5
111.1
113.8
117.9
122.6
101.8
104.7
109.0
111.4
111.6
112.7
113.5
114.1
114.9
116.6
117.7
118.3
119.0
122.0
122.5
122.5
123.3

50.5
56.9
63.3
66.6
69.0
71.5
75.5
81.0
90.6
97.4
100.0
105.1
108.9
110.0
109.4
112.0
118.0
123.8
101.4
107.0
109.1
110.1
108.7
110.6
111.6
112.5
113.4
115.6
116.7
119.7
120.0
123.0
123.2
124.2
124.7

and

local

249
25.7
26.4
27.3
27.9
28.5
29.3
30.6
32.5
34.4
36.7
39.6
42.2
44.6
47.8
52.6
57.9
62.0
66.2
71.2
77.7
86.2
93.5
100.0
104.8
110.1
115.3
119.2
124.3
130.4
136.9
102.2
106.4
111.9
117.0
121.0
122.3
123.5
125.1
126.4
128.1
129.6
131.2
132.6
134.7
136.2
137.6
139.1

"SP

fixedweighted
price
index 2

1.4
'.8
1.0
1.2
1.4
2.5
2.6
3.7
4.4
3.6
3.5
2.9
5.5
7.8
8.0
5.3
5.1
6.2
8.5
9.3
9.3
6.2
4.1
4.0
3.4
2.7
3.6
4.2
4.5
4.0
4.0
3.2
3.3
3.1
4.3
4.1
3.8
3.8
3.8
4.8
5.2
4.3
4.8
5.0
2.9
3.8

1
Separate price indexes are not calculated for gross private domestic investment, change in business inventories, and net exports of
goods and services.
2
Quarterly changes are at annual rates.
Source: Department of Commerce, Bureau of Economic Analysis.




300

TABLE C-5.—Changes in gross national product, personal consumption expenditures, and related price
measures, 1933-89
[Percent change from preceding period; quarterly data at seasonally adjusted annual rates]
Personal consumption expenditures

Gross national product
Year or quarter

1933
1939
1940
1941
1942
1943
1944
1945
1946
1947
1948
1949
1950
1951
1952
1953
1954
1955
1956
1957
1958
1959

Current
dollars

. .

. ...

I960

1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983.
1984
1985
1986
1987 .
1988

1989".

1982: IV
1983- IV
1984: IV
1985- IV
1986: IV
1987- 1

II....

Ill
IV
1988:1

||
III
IV

1989:1

||
III
IV

-4.2
7.0
10.0
25.0
26.6
21.2
9.7
.9
-.5
10.8
11.2
-.5
10.7
15.7
5.5
5.7

9!o

5.5
5.3
1.3
8.5
3.9
3.6
7.6
5.6
7.1
8.5
9.5
5.8
9.3
8.0
5.4
8.6
10.0
12.1
8.3
8.5
11.5
11.7
13.0
11.5
8.9
11.7
3.7
7.6
10.8
6.4
5.4
6.9
7.9
7.2
4.2
12.4
4.7
6.2
4.2
8.8
8.2
8.4
9.0
6.5
8.6
7.5
7.5
7.9
7.1
6.2
4.3

Constant
(1982)
dollars
-2.1
7.9
7.8
17.7
18.8
18.1
8.2
-1.9
190
-2.8
3.9
.0
8.5
10.3
3.9
4.0
-1.3
5.6
2.1
1.7
-.8
5.8
2.2
2.6
5.3
4.1
5.3
5.8
5.8
2.9
4.1
2.4
~2.B
5.0
5.2
-.5
-1.3
4.9
4.7
5.3
2.5
-.2
1.9
-2.5
3.6
6.8
3.4
2.7
3.7
4.4
2.9
.6
7.3
1.7
3.0
2.3
5.4
4.4
5.3
6.6
4.0
3.7
3.2
2.7
3.7
2.5
3.0
.5

Implicit
price
deflator

Chain
price
index

-2.2
-.8
2.0
62
6.6
2.6
1.4
2.9
22.9
13.9
7.0
-.5
2.0
4.8
1.5
1.6
1.6
3.2
3.4
3.6
2.1
2.4
1.6
1.0
2.2
1.6
1.5
2.7
3.6
2.6
5.0
5.6
5.5
5.7
4.7
6.5
9.1
9.8
6.4
6.7
7.3
8.9
9.0
9.7
6.4
3.9
3.7
3.0
2.6
3.2
3.3
4.1
3.6
4.7
3.0
3.3
1.8
3.2
3.8
2.8
2.4
2.0
4.8
4.4
4.7
4.0
4.6
3.2
3.5

1.5
1.0
1.2
1.3
1.5
1.8
3.0
2.8
4.3
5.0
5.2
4.8
4.2
5.9
8.9
9.2
5.9
6.1
7.2
8.7
9.0
9.4
6.3
4.1
3.9
3.3
2.5
3.4
3.7
4.2
4.1
3.9
3.1
3.2
2.7
4.1
3.8
3.7
3.3
3.3
4.3
4.4
4.1
4.6
4.9
2.8
3.7

Source: Department of Commerce, Bureau of Economic Analysis.




301

Fixedweighted price
index
(1982
weights)

1.4
.7
.8
1.0
1.2
1.4
2.5
2.6
3.7
4.4
3.6
3.5
2.9
5.5
7.8
8.0
5.3
5.1
6.2
8.5
9.3
9.3
6.2
4.1
4.0
3.4
2.7
3.6
4.2
4.5
4.0
4.0
3.2
3.3
3.1
4.3
4.1
3.8
3.8
3.8
4.8
5.2
4.3
4.8
5.0
2.9
3.8

Current
dollars

-5.7
4.6
6.0
13.8
9.7
12.2
8.8
10.5
20.4
12.5
8.0
1.9
7.7
8.3
5.3
6.2
3.1
7.5
4.9
5.4
3.3
7.4
4.6
3.1
6.1
5.5
7.2
7.7
8.3
5.5
9.7
8.2
7.0
8.1
9.5
10.5
9.5
10.5
11.5
11.3
11.6
11.6
10.6
10.5
7.1
9.0
8.8
8.2
6.4
7.6
7.4
7.3
10.3
9.7
7.2
6.0
6.2
6.6
10.7
9.2
3.6
8.7
7.4
7.5
7.6
7.1
7.6
7.6
4.6

Constant
(1982)
dollars
-1.6
5.1
4.6
5.7
-.7
2.3
3.2
6.4
10.5
1.8
2.3
2.0
5.4
2.1
3.0
4.0
2.5
6.2
3.0
2.2
1.4
5.0
2.6
2.0
4.3
3.7
5.6
5.6
5.1
3.0
5.1
3.6
2.4
3.1
5.4
4.2
-.9
2.3
5.4
4.4
4.1
2.2
~L2
1.3
4.6
4.8
4.7
3.9
2.8
3.4
2.7
5.3
5.5
4.3
1.9
2.2
18
4.7
-.7
6.2
2.5
3.3
3.0
2.0
1.9
5.6
-.1

Implicit
price
deflator

Chain
price
index

Fixedweighted price
index
(1982
weights)

-4.2
1.3
7.7
10.4
9.6
5.4
3.9
8.9
10.6
5.6
-.1
2.2
6.1
2.2
2.1
.6
1.3
1.9
3.2
1.8
2.2
1.9
1.2
1.8
1.5
1.7
1.7
3.1
2.5
4.5
4.3
4.6
4.7
4.0
6.2
10.5
8.0
5.7
6.5
7.3
9.2
10.7
9.2
5.7
4.1
3.8
3.2
2.4
4.8
3.9
4.4
4.4
4.3
3.0
4.0
3.9
6.4
5.6
4.4
4.4
2.3
4.7
3.9
4.6
4.8
5.7
1.9
4.7

1.7
1.1
1.1
1.4
1.2
1.5
2.7
2.5
4.0
4.4
4.7
4.3
3.6
6.0
10.3
8.0
5.7
6.4
7.2
9.2
10.9
9.2
5.7
4.2
3.9
3.5
2.7
4.7
4.1
4.5
4.8
4.1
3.1
4.2
3.9
6.1
5.7
4.4
4.3
2.6
5.0
4.3
4.8
4.7
5.8
2.1
4.4

1.5
.9
.9
1.1
1.2
1.2
2.2
2.5
3.8
4.3
4.6
4.2
3.5
5.7
9.4
7.7
5.6
6.3
7.0
8.8
10.5
9.0
5.6
4.2
4.0
3.5
2.7
4.7
4.3
4.7
4.8
4.1
3.2
4.3
3.9
6.1
5.8
4.4
4.5
2.6
5.1
4.6
4.9
4.8
6.3
2.2
4.4

TABLE C-6.—Gross national product by major type of product, 1929-89
[Billions of dollars; quarterly data at seasonally adjusted annual rates]
Goods
Year or
quarter

1929
1933
1939
1940
1941
1942
1943
1944
1945
1946
1947
1948
1949
1950
1951
1952
1953
1954
1955 .
1956
1957 .
1958
1959
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972 .. .
1973
1974
1975
1976 ..
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989 p.
1982: IV
1983: IV
1984: IV
1985: IV
1986: IV
1987:1
II
Ill
IV
1988:1
II
Ill
IV
1989:1
II
Ill
IV ".

Inventory
change

Gross
national
product

Final
sales

103.9
56.0
91.3
100.4
125.5
159.0
192.7
211.4
213.4
212.4
235.2
261.6
260.4
288.3
333.4
351.6
371.6
372.5
405.9
428.2
451.0
456.8
495.8
515.3
533.8
574.6
606.9
649.8
705.1
772.0
816.4
892.7
963.9
1,015.5
1,102.7
1,212.8
1,359.3
1,472.8
1,598.4
1,782.8
1,990.5
2,249.7
2,508.2
2,732.0
3,052.6
3,166.0
3,405.7
3,772.2
4,014.9
4,231.6
4,524.3
4,880.6
5,233.2
3,212.5
3,545.8
3,851.8
4,107.9
4,297.3
4,388.8
4,475.9
4,566.6
4,665.8
4,739.8
4,838.5
4,926.9
5,017.3
5,113.1
5,201.7
5,281.0
5,337.0

1.7
102.2
57.6 -1.6
.4
90.9
2.2
98.3
4.5
121.0
1.8
157.2
193.4
-.6
212.3 -1.0
214.4 -1.0
6.4
206.0
235.7
~4.7
256.9
263.4
31
281.4
6.8
10.2
323.2
348.6
3.1
.4
371.1
374.1 -1.6
5.7
400.2
4.6
423.6
1.4
449.6
458.3 -1.5
5.8
490.0
3.1
512.3
2.4
531.4
6.1
568.5
5.8
601.1
5.4
644.4
695.2
9.9
757.8
14.2
806.1
10.3
884.8
7.9
954.1
9.8
1,012.3
3.1
1,094.9
7.8
10.5
1,202.3
19.6
1,339.7
15.4
1,457.4
56
1,604.1
16.0
1,766.8
1,969.2
21.3
2,221.0
28.6
2,495.2
13.0
2,740.3 -8.3
3,028.6
24.0
3,190.5 -24.5
3,412.8 -7.1
67.7
3,704.5
4,003.6
11.3
6.9
4,224.8
4,495.0
29.3
4,850.0
30.6
29.4
5,203.8
3,272.4 -59.9
3,514.8 31.0
45.0
3,806.8
4,100.7
7.2
4,309.4 -12.2
4,363.4
25.4
4,457.1
18.8
4,557.1
9.5
4,602.5
63.3
4,709.8
30.0
4,809.2
29.3
4,882.3
44.6
4,998.7
18.7
5,085.4
27.7
27.4
5,174.3
27.4
5,253.6
5,301.8 35.2

Durable goods

Total
Total

56.1
27.0
49.0
56.0
72.5
93.7
120.4
132.3
128.9
125.3
139.8
154.4
147.7
162.4
189.9
195.5
204.6
198.0
216.3
225.4
234.7
230.5
250.8
257.2
260.4
281.5
293.2
313.5
342.9
380.1
395.1
427.4
456.6
467.8
493.0
537.4
616.4
663.1
714.7
798.9
882.0
991.4
1,099.1
1,174.9
1,322.9
1,319.1
1,396.1
1,581.4
1,641.2
1,686.7
1,785.2
1,931.9
2,073.5
1,309.8
1,473.7
1,599.9
1,657.4
1,694.5
1,727.9
1,761.1
1,799.8
1,851.8
1,867.0
1,917.4
1,955.8
1,987.4
2,030.9
2,079.1
2,096.3
2,087.9

Final
sales

Inventory
change

54.4
1.7
28.6 -1.6
.4
48.6
2.2
53.8
4.5
68.0
1.8
91.9
-.6
121.0
133.3 -1.0
129.9 -1.0
6.4
118.9
-.5
140.3
149.7
4.7
150.8 -3.1
6.8
155.6
10.2
179.6
192.4
3.1
.4
204.2
16
199.6
5.7
210.6
220.7
4.6
1.4
233.3
232.0 -1.5
5.8
245.1
254.1
3.1
2.4
258.0
275.4
6.1
287.4
5.8
5.4
308.1
9.9
333.0
14.2
365.9
384.9
10.3
7.9
419.5
446.8
9.8
3.1
464.7
7.8
485.2
10.5
526.9
19.6
596.8
647.7
15.4
56
720.3
16.0
782.9
860.7
21.3
28.6
962.8
1,086.1
13.0
1,183.2 -8.3
24.0
1,298.9
1,343.7 -24.5
1,403.2 -7.1
67.7
1,513.7
11.3
1,629.9
6.9
1,679.8
29.3
1,755.9
1,901.3 30.6
2,044.1
29.4
1,369.7 -59.9
1,442.7
31.0
45.0
1,554.9
7.2
1,650.2
1,706.6 -12.2
25.4
1,702.5
18.8
1,742.3
1,790.3
9.5
1,788.4
63.3
1,837.0
30.0
1,888.1 29.3
1,911.2
44.6
1,968.7
18.7
27.7
2,003.2
27.4
2,051.7
27.4
2,068.9
35.2
2,052.7

Source: Department of Commerce, Bureau of Economic Analysis.




302

Final
sales

Inventory
change

1.4
16.1
5
5.4
12.4
.3
15.4
1.2
23.8
3.1
34.5
1.0
54.2
.0
58.5
-.6
50.1 -1.3
31.8
5.3
44.4
1.4
48.0
1.0
50.0 -1.8
56.2
3.6
66.4
6.1
1.2
72.6
78.0
1.5
25
74.1
81.7
3.4
86.2
2.1
91.7
.5
84.8 -2.8
3.1
91.1
93.8
1.6
-.1
93.1
3.4
103.4
2.7
110.0
119.6
4.0
6.7
132.4
10.2
147.9
5.5
154.5
4.7
169.1
6.4
180.1
-.1
182.1
189.4
2.8
209.7
7.2
241.9
15.0
257.2
11.2
288.2
70
323.6
10.3
369.4
9.7
20.1
416.9
10.3
473.1
499.4 -2.9
541.1
6.8
542.9 -16.8
575.3 -1.0
40.2
641.3
6.5
700.1
1.2
723.0
22.1
755.5
25.0
838.6
14.5
897.1
551.8 -42.7
16.7
611.9
667.6
33.0
697.9
8.6
740.7 -9.6
20.7
717.4
18.4
747.3
4.8
788.8
768.4
44.3
815.2
9.7
840.2
17.0
41.4
842.6
856.5 32.0
872.8
22.0
899.2
6.0
5.2
924.9
891.5
25.0

Nondurable goods
Final
sales

38.3
23.2
36.2
38.4
44.2
57.4
66.8
74.8
79.8
87.1
95.9
101.7
100.9
99.4
113.2
119.8
126.2
125.5
128.9
134.5
141.6
147.2
154.0
160.3
164.8
172.0
177.4
188.5
200.6
218.1
230.4
250.4
266.7
282.6
295.8
317.2
354.9
390.4
432.2
459.3
491.3
545.9
613.0
683.8
757.8
800.8
827.9
872.4
929.8
956.8
1,000.4
1,062.6
1,147.0
817.9
830.9
887.3
952.3
965.9
985.1
995.0
1,001.5
1,020.0
1,021.7
1,047.9
1,068.6
1,112.2
1,130.5
1,152.5
1,144.0
1,161.2

Inventory
change
0.3
-1.1
.1
1.0
1.4
.7
-.6
-.3
LI
-1.9
3.7
13
3.2
4.2
1.9
-1.1
.9
2.3
2.5
.9
1.3
2.6
1.4
2.5
2.7
3.1
1.4
3.2
4.0
4.8
3.2
3.4
3.2
4.9
3.3
4.6
4.3
1.3
5.7
11.6
8.6
2.7
-5.4
17.2
-7.7
-6.1
27.5
4.9
5.7
7.2
5.6
14.9
-17.2
14.3
12.0
-1.4
-2.6
4.8
47
19.1
20.3
12.3
3.2
-13.3
5.7
21.4
22.2
10.2

Services Structures

35.9
25.9
34.5
35.8
40.9
50.9
63.2
72.4
77.3
70.5
72.7
78.0
83.0
89.0
104.4
115.2
123.4
128.5
138.5
148.9
161.6
170.9
183.5
197.4
210.9
226.4
242.2
261.1
280.5
307.2
334.9
368.0
402.3
441.1
484.9
533.2
586.6
650.6
725.2
803.5
895.9
1,003.0
1,121.9
1,265.0
1,415.4
1,547.5
1,682.5
1,813.9
1,968.3
2,119.3
2,304.5
2,499.2
2,700.7
1,598.9
1,730.1
1,866.5
2,035.7
2,174.2
2,233.7
2,284.3
2,328.7
2,371.4
2,434.2
2,472.3
2,520.3
2,570.0
2,620.8
2,667.5
2,728.1
2,786.2

Auto
output

11.9
3.1
7.8 •""•••••"•
8.6
12.1
14.4
9.2
6.6
7.2
16.6
22.8
7.2
29.2
8.8
29.6
11.9
15.4
36.9
13.3
39.1
40.9
12.0
43.6
16.1
14.7
46.0
21.2
51.1
53.9
16.9
54.8
19.4
55.5
14.5
61.5
19.4
60.7
21.3
62.5
17.8
66.7
22.4
71.5
25.1
75.2
25.9
81.7
31.1
84.6
30.2
86.4
27.8
97.2
35.0
34.7
105.1
106.5
28.5
124.8
38.9
41.4
142.1
46.0
156.3
38.8
159.1
158.5
40.3
180.4
55.2
64.3
212.6
68.3
255.3
66.9
287.1
292.0
60.1
69.4
314.4
299.4
66.5
327.1
88.6
377.0
105.1
405.4
116.5
425.6
120.6
119.2
434.6
449.5
129.9
132.2
459.0
303.9
64.5
102.1
342.0
385.4
111.5
115.5
414.8
122.5
428.6
427.2
119.3
115.7
430.5
117.8
438.1
124.0
442.6
438.6
118.6
132.5
448.8
450.8
136.6
459.9
132.0
461.3
134.5
131.7
455.1
456.6
135.8
462.9
126.9

TABLE C-7.—Gross national product by major type of product in 1982 dollars, 1929-89
[Billions of 1982 dollars; quarterly data at seasonally adjusted annual rates]
Goods
Year or
quarter

Gross
national
product

Final
sales

Inventory
change

Total
Total

1929
1933
1939
1940
1941
1942
1943
1944
1945
1946
1947
1948
1949
1950
1951
1952
1953
1954
1955
1956
1957
1958
1959
I960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988 p
1989 .
1982: IV
1983: IV
1984: IV
1985: IV
1986: IV
1987: 1
|
|

111 ;
IV

1988:1
II
Ill
IV
1989:1
II
Ill
IV '
.

709.6
498.5
716.6
772.9
909.4
1,080.3
1,276.2
1,380.6
1,354.8
1,096.9
1,066.7
1,108.7
1,109.0
1,203.7
1,328.2
1,380.0
1,435.3
1,416.2
1,494.9
1,525.6
1,551.1
1,539.2
1,629.1
1,665.3
1,708.7
1,799.4
1,873.3
1,973.3
2,087.6
2,208.3
2,271.4
2,365.6
2,423.3
2,416.2
2,484.8
2,608.5
2,744.1
2,729.3
2,695.0
2,826.7
2,958.6
3,115.2
3,192.4
3,187.1
3,248.8
3,166.0
3,279.1
3,501.4
3,618.7
3,717.9
3,853.7
4,024.4
4,142.6
3,159.3
3,365.1
3,535.2
3,662.4
3,733.6
3,783.0
3,823.5
3,872.8
3,935.6
3,974.8
4,010.7
4,042.7
4,069.4
4,106.8
4,132.5
4,162.9
4,168.1

698.7
509.2
712.7
758.5
881.6
1,068.3
1,275.5
1,385.7
1,363.3
1,069.0
1,067.7
1,096.4
1,118.7
1,179.5
1,297.4
1,370.0
1,432.5
1,421.0
1,478.6
1,512.7
1,548.1
1,542.6
1,612.6
1,657.5
1,701.4
1,783.3
1,856.7
1,957.6
2,062.4
2,171.5
2,242.6
2,344.6
2,398.1
2,407.9
2,465.2
2,586.8
2,704.1
2,696.0
2,707.8
2846
,0.
2,929.5
3,078.4
3,177.4
3,194.0
3,225.0
3,190.5
3,285.5
3,439.1
3,609.6
3,712.4
3,830.0
3,996.5
4,118.1
3,218.6
3,338.1
3,493.5
3,654.7
3,754.4
3,764.9
3,810.1
3,866.0
3,879.0
3,940.5
3,989.2
4,005.2
4,051.0
4,082.3
4,113.5
4,141.0
4,135.5

10.8
-10.7
3.9
14.4
27.8
12.0

-5.2
84
27.9
-1.0
12.3
-9.7
24.2
30.8
10.0
2.8
-4.8
16.3
12.9
3.0
-3.4
16.5
7.7
7.3
16.2
16.6
15.7
25.2
36.9
28.8
21.0
25.1
8.2
19.6
21.8
40.0
33.3
-12.8
22.1
29.1
36.8
15.0
-6.9
23.9
245
-6.4
62.3
9.1
5.6
23.7
27.9
24.5
-59.3
27.0
41.7
7.7
-20.8
18.1
13.3
6.8
56.6
34.3
21.5
37.5
18.3
24.5
19.1
21.9
32.6

308.1
210.0
331.7
370.3
431.9
504.1
686
0.
646
6.
639.1
521.0
517.1
531.7
517.9
561.4
623.0
641.3
676.6
643.5
639
8.
697.1
693
9.
674.2
716.6
768
2.
730.2
773.5
797.5
845.2
940
0.
974.7
993.1
1,024.8
1085
,4.
1000
,3.
1,037.6
1,093.8
1,175.0
1,159.2
1,125.0
1,194.7
1,256.2
1,329.1
1,354.6
1,344.2
1,386.0
1,319.1
1,367.0
1,509.2
1,553.6
1,592.6
1,669.0
1,771.6
1,837.6
1,297.9
1,423.8
1,520.2
1,564.7
1,595.7
1,622.6
1,645.9
1,679.1
1,728.5
1,746.7
1,767.9
1,782.3
1,789.4
1,823.2
1,843.9
1,851.3
1,832.2

Durable goods

Final
sales

Inventory

Final Inventory
sales change

297.3
220.7
327.8
355.9
442
0.
492.1
679
0.
698
6.
675
4.
493.1
518.1
519.4
527.6
537.2
592.2
631.3
673.8
682
4.
676
6.
684.1
663
9.
677.6
700.1
719.1
723.0
757.3
708
8.
829.5
878.8
937.8
964.3
1,003.7
1,023.3
1,021.7
1,017.9
1,072.1
1,135.0
1,125.9
1,137.8
1,172.5
1,227.1
1,292.4
1,339.6
1,351.1
1,362.2
1,343.7
1,373.4
1469
,4.
1,544.5
1,587.1
1,645.3
1,743.7
1,813.1
1,357.1
1,396.8
1,478.5
1,557.0
1,616.5
1,604.4
1,632.6
1,672.3
1,671.9
1,712.4
1,746.5
1748
,4.
1,771.0
1,798.7
1,824.8
1,829.4
1,799.5

10.8
-10.7
3.9
14.4
27.8
12.0
.7
-5.2
-8.4
27.9
-1.0
12.3
-9.7
24.2
30.8
10.0
2.8
-4.8
16.3
129
3.0
-3.4
16.5
7.7
7.3
16.2
16.6
15.7
25.2
36.9
28.8
21.0
25.1
8.2
19.6
21.8
40.0
33.3
-12.8
22.1
29.1
36.8
15.0
-6.9
23.9
245
-6.4
62.3
9.1
5.6
23.7
27.9
24.5
-59.3
27.0
41.7
7.7
-20.8
18.1
13.3
6.8
56.6
34.3
21.5
37.5
18.3
24.5
19.1
21.9
32.6

85.8
34.9
74.8
91.9
122.9
163.3
254.4
224
9.
263.1
129.6
164.7
166.5
166.8
180.0
288
0.
298
2.
245.4
206
3.
245.2
248.3
251.3
229.1
268
3.
222
4.
239.2
260.2
273.4
295.4
3222
354.2
363.6
378.5
397
8.
381.7
375.5
494
0.
449
7.
460
7.
471.1
409
9.
540
3.
572.5
646
0.
540
8.
578.5
542.9
563
6.
623.5
686.1
718.6
706
7.
809
6.
903.2
543.8
598.0
678
4.
677
8.
786
3.
723.9
703
6.
806.1
791.9
809
4.
868
6.
834
6.
872.4
842
8.
980
0.
927.2
836
9.

Source: Department of Commerce, Bureau of Economic Analysis.




303

7.5
-4.5
1.6
7.2
17.4
7.5
1.4
-3.8
-7.8
23.1
2.8
3.4
-6.1
11.4
19.1
3.6
4.7
-7.7
9.5
6.3
1.9
-7.1
8.2
40
.
-.1
8.4
7.1
11.2
17.4
26.3
14.4
11.8
15.2
-.5
7.1
15.4
30.8
20.0
-11.4
15.9
14.2
27.5
13.3
-3.2
6.9
168
-1.2
38.2
5.6
.9
19.6
22.7
12.0
-42.4
16.1
31.1
7.3
-9.0
17.9
16.3
4.4
39.7
9.9
15.3
37.3
28.1
18.1
5.0
4.2
20.9

Nondurable goods
Final
sales

Inventory
change

Services Structures

Auto
output

211.5
3.3 290.0 111.4
185.7
-6.2 252.1
36.5
253.1
2.3 306.4
78.5
240
6.
7.2 318.1
84.5
281.2
367.1 110.3
10.3
328.8
4.5 460.4 115.8 ••••"• •"
353.5
68.7
-.7 598.9
374
7.
-1.4 6 5 0 50.9
6.
384.4
-.6 662.3
53.5
363.5
4.8 472.0 104.0
353.4
24.1
-3.8 431.0 118.6
27.6
353.0
8.8 438.1
138.9
360.8
35.5
-3.6 450.1
141.0
357.1
470.4 171.9
44.9
12.8
383.4
11.7 537.7 167.5
38.3
6 4 567.3 171.4
.
34.9
401.5
484
2.
44.8
577.6 181.2
-2.0
417.7
43.3
2.9 579.5 193.2
58.2
422.3
6.8 601.0 210.0
6.7 619.7 208.9
45.8
435.8
48.3
450
4.
1.1 645.4 206.5
37.4
486
4.
3.7 654.7 210.3
45.7
434
6.
8.3 681.5 231.0
49.6
3.7 7 9 9 228.5
0.
469
7.
41.1
483.7
7.3 743.0 235.4
49.8
497.1
7.7 777.0 248.9
54.6
507.4
9.5 811.5 264.4
55.3
534.1
4.5 852.8 275.3
66.9
556.5
7.8 891.6 292.0
64.8
942.7 291.0
536
8.
10.6
58.3
14.4
607
0.
9 0 6 287.6
9.
70.5
625.3
9.3 1,032.0 308.8
67.6
633.6
9.9 1,066.9 307.9
53.1
640.1
8.8 1,092.4 293.8
69.8
624
4.
12.5 1,126.1 321.2
73.9
662.7
6.4 1,169.4 345.4
82.0
9.2 1,218.7 350.4
660.1
65.4
699
4.
13.3 1,256.4 313.7
61.8
667
6.
-1.4 1,286.4 283.6
80.1
681.7
6.3 1,324.4 307.6
88.7
693.1
14.9 1,368.7 333.7
87.3
719.9
9.3 1,426.9 359.1
80.2
735.1
1.7 1,478.6 359.2
67.1
767.1
-3.7 1,511.1 331.8
73.3
783.7
16.9 1,533.4 329.4
66.5
-7.7 1,547.5 299.4
808
0.
85.9
807.0
-5.2 1,585.5 326.6
98.5
823.3
24.2 1,625.2 367.1
858.4
3.5 1,684.3 380.8 106.5
4.7 1,738.9 386.4 106.4
885
6.
101.7
847
7.
4.1 1,803.7 381.1
5.2 1,873.5 379.3 108.9
828
8.
108.9
999
0.
12.5 1,934.0 371.0
63.3
813.4, -16.9 1,555.5 305.9
96.4
798.8
10.9 1,600.7 340.6
830.7
10.6 1,644.7 370.3 104.2
894
6.
.4 1,712.5 385.2 104.8
8 7 9 -11.8 1,753.1 384.8 106.7
7.
104.1
.2 1,778.7 381.8
880.5
99.2
872.3
-3.0 1,798.7 378.9
99.4
866.2
2.3 1,812.2 381.5
104.0
800
8.
16.8 1,825.0 382.1
99.4
871.5
24.3 1,854.1 374.0
879.7
6.1 1,862.5 380.2 111.9
881.4
.1 1,880.8 379.6 114.4
-9.7 1,896.7 383.3 110.1
886
9.
914.5
6.4 1,905.1 378.5 110.9
14.1 1,919.9 368.8 109.3
916.8
17.7 1,945.0 366.6 112.0
902.3
11.7 1,965.9 370.0 103.5
959
0.

TABLE C-8.—Gross national product by sector, 1929-89
[Billions of dollars-, quarterly data at seasonally adjusted annual rates]
Gross domestic product
Year or quarter

1929
1933
1939
1940
1941
1942
1943
1944
1945
1946
1947
1948
1949
1950
1951
1952
1953
1954
1955
1956
1957
1958
1959
I960
1961
1%2
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989 f
1982: IV
1983- IV
1984- IV
1985: IV
1986- IV
1987- 1

II
III

IV
1988- 1

II

HI
IV
1989: 1

j|

HI
IV P.

Gross
national
product

103.9
56.0
91.3
100.4
125.5
159.0
192.7
211.4
213.4
212.4
235.2
261.6
260.4
288.3
333.4
351.6
371.6
372.5
405.9
428.2
451.0
456.8
495.8
515.3
533.8
574.6
606.9
649.8
705.1
772.0
816.4
892.7
963.9
1,015.5
1,102.7
1,212.8
1,359.3
1,472.8
1,598.4
1,782.8
1,990.5
2,249.7
2,508.2
2,732.0
3,052.6
3,166.0
3,405.7
3,772.2
4,014.9
4,231.6
4,524.3
4,880.6
5,233.2
3,212.5
3,545.8
3,851.8
4,107.9
4,297.3
4,388.8
4,475.9
4,566.6
4,665.8
4,739.8
4,838.5
4,926.9
5,017.3
5,113.1
5,201.7
5,281.0
5,337.0

Business *
Total

103.2
55.7
90.9
100.1
125.0
158.5
192.3
210.9
213.0
211.6
234.1
260.1
259.0
286.7
331.4
349.4
369.5
370.3
403.3
425.2
447.7
453.9
492.7
511.8
530.0
570.1
602.0
644.4
699.3
766.3
810.4
885.9
957.1
1,008.2
1,093.4
1,201.6
1,343.1
1,453.3
1,580.9
1,761.7
1,965.1
2,219.1
2,464.4
2,684.4
3,000.5
3,114.8
3,355.9
3,724.8
3,974.1
. 4,197.2
4,493.8
4,847.3
5,199.6
3,163.8
3,494.6
3,805.9
4,065.9
4,267.9
4,356.9
4,446.9
4,537.0
4,634.3
4,703.3
4,808.4
4,894.7
4,982.9
5,078.5
5,170.8
5,247.4
5,301.8

Total

1

96.0
49.3
81.0
89.8
113.0
140.4
163.4
174.9
173.5
184.8
211.3
236.4
232.9
259.0
296.7
310.7
329.3
329.1
359.4
378.1
397.3
399.5
435.5
449.9
463.9
499.1
526.0
562.1
610.7
666.7
699.7
762.0
820.1
856.3
927.4
1,020.0
1,145.0
1,237.5
1,341.2
1,500.7
1,682.1
1,908.4
2,125.3
2,306.8
2,582.8
2,658.2
2,866.6
3,201.5
3,412.8
3,599.9
3,851.5
4,153.5
4,448.4
2,693.6
2,994.8
3,270.6
3,490.7
3,655.6
3,732.6
3,810.8
3,888.7
3,973.9
4,027.0
4,121.2
4,194.7
4,271.1
4,347.2
4,426.7
4,489.0
4,530.5

Nonfarm

1

84.8
43.6
73.0
82.0
103.4
128.0
149.8
156.9
153.5
165.2
189.3
214.4
213.3
238.3
271.1
286.7
306.3
306.7
338.8
361.4
380.1
378.9
417.9
432.5
445.0
478.6
506.2
544.3
590.0
641.7
677.8
740.4
798.8
831.2
897.5
988.8
1,098.3
1,190.0
1,288.4
1,448.7
1,631.7
1,850.0
2,054.5
2,236.4
2,498.9
2,581.3
2,802.1
3,118.5
3,342.2
3,525.9
3,779.5
4,087.1
4,386.1
2,607.7
2,932.7
3,198.7
3,422.4
3,587.1
3,657.4
3,734.8
3,821.8
3,903.8
3,960.6
4,042.5
4,119.6
4,225.5
4,280.0
4,356.0
4,431.3
4,477.0

1
Includes
2

compensation of employees in government enterprises.
Compensation of government employees.
Source: Department of Commerce, Bureau of Economic Analysis.




304

Farm

9.7
4.6
6.3
6.4
8.9
13.0
15.3
15.3
16.0
18.8
20.2
23.3
18.8
20.0
22.9
22.2
20.3
19.7
18.8
18.6
18.4
20.7
19.0
20.2
20.2
20.4
20.5
19.3
21.9
22.8
22.2
22.7
25.2
26.3
28.1
32.8
51.0
49.2
50.3
48.5
50.4
60.3
71.8
65.5
79.8
77.0
59.3
77.6
75.4
75.8
76.8
76.1
85.6
79.0
59.6
74.0
76.2
78.1
73.9
78.2
77.5
77.6
79.5
78.8
83.7
62.3
91.3
89.0
83.2
79.1

Statistical
discrepancy
1.5
1.2
1.7
1.4
-J
1.7
2.7
4.0
1.8
1.3
.8
.8
2.7
1.8
2.6
2.7
1.8
-1.9
-1.2
-.1
-1.5
-2.8
-1.2
.0
-.6
-1.4
-1.2
2.1
-.4
-1.1
-3.9
-1.1
1.8
-1.6
4.3
-1.7
2.5
3.6
.0
-1.9
-1.0
4.9
4.1
-.1
5.2
5.4
-4.8
1.8
-4.7
-9.6
-23.4
6.8
2.5
-2.1
-7.9
-9.6
1.2
-2.3
-10.5
7.4
-13.1

-lie

-16.6
-24.1
-18.3
-25.5
-25.5

Government2

Households

and

institutions
2.9
1.7
2.3
2.4
2.5
2.9
3.2
3.7
4.1
4.5
5.1
5.6
5.9
6.5
6.9
7.2
7.8
8.1
9.1
9.9
10.6
11.5
12.4
13.9
14.5
15.6
16.7
17.9
19.3
21.3
23.4
26.1
29.5
32.4
35.6
39.0
43.0
47.2
52.0
57.1
62.4
70.2
78.6
89.3
101.0
112.7
122.9
132.7
142.3
153.5
169.3
188.0
210.6
116.9
126.6
136.1
146.6
157.9
161.4
166.5
172.3
177.1
180.7
185.1
190.8
195.5
201.2
207.1
214.4
219.7

Total

4.4
4.7
7.6
7.8
9.5
15.2
25.6
32.3
35.3
22.4
17.6
18.1
20.1
21.2
27.7
31.5
32.4
33.0
34.8
37.2
39.8
42.9
44.8
48.1
51.6
55.4
59.3
64.4
69.3
78.4
87.4
97.8
107.5
119.5
130.3
142.6
155.0
168.7
187.7
203.8
220.5
240.5
260.4
288.3
316.7
343.9
366.4
390.6
419.0
443.8
473.0
505.8
540.7
353.4
373.1
399.1
428.6
454.4
462.9
469.7
475.9
483.3
495.5
502.1
509.2
516.3
530.1
536.9
544.0
551.6

Federal

0.9
1.2
3.5
3.5
5.1
10.7
21.0
27.3
30.0
16.2
10.3
9.6
10.7
11.1
16.6
19.3
19.1
18.3
19.0
19.6
20.2
21.3
21.7
22.6
23.6
25.2
26.5
28.5
30.0
34.3
37.8
41.9
44.9
48.4
51.1
54.9
57.1
61.1
66.5
70.9
75.5
81.7
86.9
96.1
107.4
117.0
124.7
132.1
140.2
143.5
150.9
159.3
169.6
120.7
126.0
134.0
142.4
144.6
148.9
150.5
151.2
152.8
158.0
158.7
159.8
160.8
168.3
169.1
170.1
171.1

State

and

Rest
of the
world

local
3.5
3.5
4.2
4.3
4.4
4.5
4.7
4.9
5.4
6.2
7.3
8.5
9.4
10.1
11.2
12.3
13.3
14.7
15.8
17.6
19.6
21.6
23.1
25.5
27.9
30.2
32.9
35.9
39.3
44.1
49.5
55.9
62.6
71.1
79.3
87.7
97.9
107.6
121.1
132.9
145.0
158.9
173.5
192.2
209.3
226.9
241.7
258.5
278.8
300.3
322.1
346.5
371.0
232.6
247.2
265.1
286.2
309.8
314.0
319.2
324.7
330.5
337.5
343.5
349.4
355.5
361.8
367.9
373.9
380.5

0.8
.3
!5
.5
.4
.5
.4
.7
1.2
1.5
1.4
1.5
2.0
2.2
2.1
2.2
2.6
3.0
3.4
2.9
3.1
3.5
3.8
4.5
4.9
5.4
5.8
5.6
6.0
6.8
6.8
7.3
9.3
11.2
16.2
19.5
17.5
21.1
25.4
30.5
43.8
47.6
52.1
51.2
49.9
47.4
40.7
34.4
30.5
33.3
33.6
48.7
51.3
46.0
42.0
29.4
31.9
28.9
29.6
31.5
36.5
30.0
32.3
34.5
34.5
31.0
33.5
35.2

TABLE C-9.—Gross national product by sector in 1982 dollars, 1929-89
[Billions of 1982 dollars; quarterly data at seasonally adjusted annual rates]
Gross domestic product
Year or quarter

1929
1933
1939
1940
1941
1942
1943.
1944
1945
1946.
1947
1948.
1949
1950
1951
1952
1953
1954
1955
1956
1957
1958
1959
1960
1961
1962
1963
1964
1965 .
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989 *
1982- IV
1983: IV
1984- IV
1985: IV
1986- IV
1987: 1 . .
||
III
IV

1988- 1
||
Ill
IV
1989- 1
II
III
IV p

.

Gross
national
product

709.6
498.5
716.6
772.9
909.4
1,080.3
1,276.2
1,380.6
1,354.8
1,096.9
1,066.7
1,108.7
1,109.0
1,203.7
1,328.2
1,380.0
1,435.3
1,416.2
1,494.9
1,525.6
1,551.1
1,539.2
1,629.1
1,665.3
1,708.7
1,799.4
1,873.3
1,973.3
2,087.6
2,208.3
2,271.4
2,365.6
2,423.3
2,416.2
2,484.8
2,608.5
2,744.1
2,729.3
2,695.0
2,826.7
2,958.6
3,115.2
3,192.4
3,187.1
3,248.8
3,166.0
3,279.1
3,501.4
3,618.7
3,717.9
3,853.7
4,024.4
4,142.6
3,159.3
3,365.1
3,535.2
3,662.4
3,733.6
3,783.0
3,823.5
3,872.8
3,935.6
3,974.8
4,010.7
4,042.7
4,069.4
4,106.8
4,132.5
4,162.9
4,168.1

Businessl
Total

Total1

611.6
704.6
496.1
404.9
586.8
713.5
635.5
770.3
738.7
906.0
1,077.1
832.9
1,273.4
891.6
1,377.7
934.3
914.3
1,352.6
866.3
1,093.3
886.1
1,061.6
925.4
1,102.5
916.7
1,103.4
1,197.4
1,002.8
1,080.5
1,320.3
1,371.7
1,114.7
1,427.4
1,170.0
1,154.6
1,407.8
1,229.7
1,485.5
1,254.1
1,515.0
1,539.7
1,274.0
1,260.4
1,529.7
1,345.8
1,619.1
1,369.7
1,654.1
1,403.2
1,696.6
1,785.6
1,480.9
1,858.5 • 1,546.7
1,957.1
1,635.2
1,737.4
2,070.6
1,837.1
2,192.5
2,255.0
1,880.9
2,347.9
1,961.1
2,406.2
2,009.8
2,004.4
2,399.1
2,464.1
2,068.0
2,584.9
2,186.6
2,711.8
2,309.1
2,693.5
2,283.9
2,665.7
2,249.6
2,793.7
2,374.8
2,921.2
2,497.2
3,073.0
2,639.2
2,696.4
3,136.6
2,683.2
3,131.7
3,193.6
2,739.8
2,658.2
3,114.8
3,231.2
2,770.1
3,457.5
2,990.1
3,581.9
3,103.3
3,687.4
3,198.2
3,827.2
3,328.9
3,482.9
3,996.3
4,115.4
3,587.0
2,654.1
3,111.3
2,853.2
3,316.6
3,022.2
3,493.1
3,624.7
3,141.7
3,707.7
3,215.1
3,755.0
3,261.6
3,798.2
3,301.9
3,847.0
3,346.8
3,908.3
3,405.0
3,436.0
3,943.5
3,474.1
3,985.1
3,499.7
4,015.6
3,521.7
4,040.8
4,078.5
3,555.7
3,580.7
4,107.3
4,135.9
3,605.1
4,140.1
3,606.4

Nonfarm1

547.8
338.7
518.3
571.2
675.8
774.4
841.6
862.5
839.3
809.0
828.6
875.1
858.5
941.4
1,014.9
1,050.9
1,101.3
1,084.2
1,161.5
1,199.6
1,219.0
1,199.7
1,291.6
1,317.2
1,346.7
1,421.1
1,488.7
1,581.6
1,681.8
1,776.5
1,824.2
1,908.3
1,962.1
1,946.4
2,001.4
2,128.0
2,256.6
2,226.5
2,180.6
2,306.6
2,434.9
2,581.0
2,633.2
2,613.1
2,659.6
2,581.3
2,703.7
2,916.6
3,028.1
3,115.7
3,249.6
3,418.2
3,528.1
2,567.1
2,795.3
2,953.0
3,066.2
3,137.2
3,176.5
3,222.7
3,273.0
3,326.1
3,364.2
3,398.8
3,435.5
3,474.2
3,494.5
3,518.6
3,549.7
3,549.7

1
Includes
2

compensation of employees in government enterprises.
Compensation of government employees.
Source: Department of Commerce, Bureau of Economic Analysis.




305

Farm

54.1
56.6
56.4
54.6
58.1
62.4
59.2
57.2
53.7
54.0
49.9
55.2
55.0
58.3
56.0
57.2
59.3
60.9
62.0
60.7
58.8
61.2
58.8
61.1
60.2
59.8
59.8
57.7
59.0
54.7
57.7
55.7
57.2
60.7
62.3
62.0
61.1
60.7
64.8
62.5
62.2
61.0
64.6
64.2
75.7
77.0
61.3
68.5
79.4
84.1
83.4
72.7
77.7
80.3
55.6
71.1
82.5
86.4
84.1
81.1
82.9
85.3
83.0
75.3
.71.4
61.2
80.8
76.9
76.0
77.1

HouseStatis- holds
and
tical
instidiscrep- tutions
ancy

9.7
9.6
12.1
9.7
4.8
-4.0
-9.2
14.6
21.3
3.3
7.6
-4.9
3.2
3.1
9.7
6.5
9.4
9.5
6.2
-6.2
38
-.5
-4.6
-8.7
-3.7
-L8
41
-3i4
5.9
-1.0
-2.8
-9.5
-2.7
4.2
-3.4
-8.6
-3.3
4.2
5.6
28
-1.4
5.9
4.4
-.1
5.0
5.0
43
-1.6
-4.1
-8.0
-18.8
6.7
2.3
-1.9
-7.1
-8.5
1.1
20
-9.1
64
-11.2
.0
72
-13.7
197
-14.8
-20.5
-20.3

34.4
27.1
33.3
35.8
35.8
36.9
34.3
34.3
34.4
35.4
37.9
41.2
42.4
45.0
46.1
46.2
47.7
48.4
53.2
56.1
57.7
60.7
62.7
67.4
68.0
70.7
72.5
74.6
77.4
80.4
83.1
85.6
88.2
87.0
88.8
91.2
93.4
93.9
96.4
97.0
98.0
101.0
103.7
107.3
109.9
112.7
114.9
117.6
121.3
125.7
128.6
137.3
146.3
113.8
115.8
119.0
123.2
126.3
126.4
127.5
129.7
131.1
133.5
136.0
139.0
140.5
142.7
145.4
148.0
149.1

Government2
Total

58.6
64.0
93.4
99.0
131.5
207.4
347.6
409.1
403.8
191.6
137.7
135.8
144.2
149.6
193.7
210.7
209.7
204.8
202.6
204.8
208.0
208.6
210.6
217.1
225.4
233.9
239.2
247.3
255.8
275.0
291.0
301.2
308.2
307.7
307.4
307.1
309.3
315.7
319.6
321.9
326.0
332.8
336.5
341.2
343.9
343.9
346.3
349.8
357.4
363.5
369.6
376.1
382.1
343.5
347.5
351.9
359.9
366.3
367.0
368.8
370.5
372.2
374.0
375.0
376.8
378.6
380.1
381.2
382.7
384.5

Federal

13.2
16.2
38.9
44.1
76.2
152.9
294.6
357.5
350.7
135.0
76.7
73.2
77.1
80.3
122.8
137.5
133.2
125.0
119.2
116.1
114.5
109.5
107.5
108.9
111.5
116.7
116.1
116.8
117.3
128.1
138.5
140.7
141.0
133.2
125.5
118.3
113.6
113.5
112.8
112.7
112.7
113.9
113.0
114.4
115.8
117.0
119.0
120.5
122.3
122.6
123.6
125.2
126.9
117.6
119.4
121.2
122.5
123.2
122.9
123.3
123.9
124.4
124.9
124.7
125.3
126.0
126.4
126.5
127.0
127.6

State
and
local

45.3
47.9
54.6
55.0
55.3
54.4
52.9
51.7
53.2
56.6
61.0
62.6
67.1
69.3
71.0
73.3
76.5
79.8
83.4
88.7
93.5
99.2
103.1
108.2
113.9
117.3
123.1
130.5
138.5
146.9
152.4
160.5
167.2
174.5
181.9
188.8
195.7
202.1
206.8
209.2
213.3
219.0
223.5
226.8
228.1
226.9
227.3
229.3
235.0
240.8
246.0
250.9
255.2
225.9
228.1
230.7
237.4
243.1
244.1
245.5
246.6
247.9
249.1
250.3
251.5
252.7
253.7
254.7
255.7
256.9

Rest
of the
world

4.9
2.4
3.1
2.6
3.4
3.1
2.7
2.9
2.3
3.6
5.1
6.2
5.6
6.2
7.9
8.3
7.9
8.4
9.4
10.7
11.5
9.5
10.0
11.1
12.1
13.9
14.9
16.1
17.0
15.9
16.3
17.7
17.0
17.1
20.7
23.7
32.2
35.9
29.3
33.0
37.4
42.1
55.7
55.5
55.2
51.2
47.9
43.9
36.9
30.5
26.6
28.1
27.2
48.0
48.5
42.1
37.6
25.9
28.0
25.3
25.8
27.3
31.3
25.6
27.1
28.5
28.3
25.2
27.0
28.0

TABLE C-10.—Gross national product by industry, 2947-88
[Billions of dollars]
Gross domestic product
Manufacturing

Year

Gross
Connational culfure,
product forestry, Mining strucand
tion Total
fisheries

FiTrans- Whole- nance,
portation sale insurNonDuraand
and
ance,
ble durable public
retail
and
goods goods utilities trade
real
estate

Services

Govern- Stament
Rest
tis- of the
and
govern- tical world
disment
enter- crepancy
prises

66.2
74.7
72.2

33.5
38.2
37.1

32.7
36.6
35.0

21.0
23.7
23.9

44.2
48.4
48.0

23.8
26.9
29.2

20.2
21.9
22.6

20.2
1.8
20.8 -1.3
23.2
.8

1.2
1.5
1.4

9.3
10.2
10.2
10.7
11.0

13.2 84.0
15.6 99.0
16.9 103.3
17.5 112.5
17.7 106.7

45.9
55.5
59.0
66.1
61.0

38.1
43.4
44.3
46.4
45.7

26.6
30.2
32.2
34.2
33.8

51.5
56.8
59.0
60.4
61.6

32.2
35.5
39.1
43.3
47.0

24.2
26.4
28.1
30.2
31.6

24.2
31.2
35.7
36.8
37.4

.8
2.7
1.8
2.6
2.7

1.5
2.0
2.2
2.1
2.2

20.0
19.8
19.6
22.1
20.4

12.5
13.6
13.7
12.6
12.5

19.1
21.3
22.2
21.8
23.7

121.3
127.2
131.8
124.3
141.8

70.8
73.9
78.0
70.0
81.6

50.4
53.3
53.9
54.3
60.3

36.8
39.6
41.7
41.9
45.1

67.0
71.3
75.0
76.4
83.3

50.7
54.3
58.5
63.1
68.2

35.1
38.7
41.7
44.0
48.3

39.0
1.8
41.2 -1.9
44.5 -1.2
47.8 _ i
50.8

-i!s

2.6
3.0
3.4
2.9
3.1

515.3
533.8
574.6
606.9
649.8

21.7
21.8
22.3
22.3
21.4

12.8
12.9
13.1
13.4
13.8

24.3
25.3
27.1
28.9
31.6

144.4
145.0
158.6
168.1
180.2

82.5
81.6
91.9
98.0
105.7

61.9
63.3
66.8
70.1
74.5

47.3
48.9
51.9
54.8
58.3

85.7
88.0
94.1
98.2
107.1

72.8
76.9
81.7
86.5
92.0

51.4
54.9
59.2
63.3
69.0

54.2 -2.8
57.6 -1.2
62.1
.0
67.0
-.6
72.5 -1.4

3.5
3.8
4.5
4.9
5.4

1965
1966
1967
1968
1969

705.1
772.0
816.4
892.7
963.9

24.2
25.3
24.9
25.7
28.6

14.0
14.6
15.2
16.2
17.1

34.7
37.9
39.7
43.5
48.7

198.4
217.4
222.9
243.6
257.1

118.4
130.8
133.7
146.1
154.2

80.0
86.6
89.2
97.5
102.9

62.6
67.4
70.7
76.4
82.6

115.0
98.9 74.6
124.1 106.9 82.5
132.9 115.6 90.6
146.8 125.1 99.1
159.2 136.3 110.5

78.2 -1.2
88.1
2.1
98.4
110.5 -~L1
121.0 -3.9

5.8
5.6
6.0
6.8
6.8

1970
1971
1972
1973
1974

1,015.5
1,102.7
1,212.8
1,359.3
1,472.8

29.9
32.2
37.4
56.2
55.0

18.7
18.8
20.2
23.4
36.9

51.4
56.5
63.0
70.4
74.5

252.3
265.7
292.5
326.4
338.5

145.9
153.8
172.6
195.4
201.7

106.3
111.9
119.9
131.0
136.7

88.4
97.1
108.0
118.7
129.1

168.7
183.7
202.6
225.6
246.0

145.8
161.4
174.8
190.5
206.7

120.2
130.2
1446
1B3.2
179.4

134.0
145.9
160.1
173.1
189.0

-1.1
1.8
-1.6
-4.3
17

7.3
9.3
11.2
16.2
19.5

1975
1976
1977
1978
1979

1,598.4
1,782.8
1,990.5
2,249.7
2,508.2

56.3
55.7
58.9
70.1
83.1

41.3 76.5
46.0 86.2
50.2 97.9
56.5 115.6
72.7 131.4

357.3
409.3
465.3
518.8
561.8

206.3
239.7
277.7
317.4
345.2

151.0
169.7
187.7
201.4
216.5

141.7
160.4
178.9
201.0
216.1

273.7
299.7
332.8
373.5
415.8

221.7
246.1
280.3
326.3
363.3

199.8
224.9
253.4
289.1
328.7

210.1
2.5
229.7
3.6
247.4
.0
270.3 -1.9
292.4 -1.0

17.5
21.1
25.4
30.5
43.8

1980
1981
1982
1983
1984

2,732.0
3,052.6
3,166.0
3,405.7
3,772.2

77.2
92.0
89.6
74.3
92.9

107.3
143.7
132.1
118.4
119.4

137.7
138.4
140.9
149.6
171.5

581.0
643.1
634.6
683.2
771.9

351.8
385.8
362.5
385.6
451.1

229.2
257.3
272.1
297.6
320.8

240.8
269.6
288.4
320.0
354.4

438.8
483.1
506.5
542.9
614.0

400.6
449.3
475.1
536.4
572.8

374.0
422.6
463.6
515.5
580.2

322.1
354.7
383.9
410.5
442.5

47.6
52.1
51.2
49.9
47.4

1985
1986 »
1987 *
1988 *

4,014.9
4,231.6
4 524.3
4,880.6

92.0

114.2 186.6 789.5

458.8

330.8

374.1

658.2 639.5 648.1

1947
1948
1949

235.2
261.6
260.4

20.8
24.0
19.5

6.8
9.4
8.1

1950
1951
1952
1953
1954

288.3
333.4
351.6
371.6
372.5

20.8
23.9
23.2
21.4
20.8

1955
1956
1957
1958
1959

405.9
428.2
451.0
456.8
495.8

I960
1961
1962
1963
1964

9.1
11.5
11.5

4.9
4.1
-.1
5.2
5.4

476.7 -4.8

40.7
34.4
30.5
33.3

1
Gross domestic product by industry is not available for 1986-88. Data for 1977-88 based on a revised methodology are expected to
be published in the Survey of Current Business, March 1990.
Note.—The industry classification is on an establishment basis and is based on tee 1972 Standard Industrial Classification.
Source: Department of Commerce, Bureau of Economic Analysis.




306

TABLE C-ll.—Gross national product by industry in 1982 dollars, 1947-88
[Billions of 1982 dollars]
Gross domestic product
Manufacturing

Year

AgriGross
Connational culture,
forest- Mining strucproduct ry, and
tion Total
fisheries

Durable
goods

Transpor- Wholetation sale
Nonand
and
durable public retail
goods util- trade
ities

FiGovern- StaRest
nance,
ment
tisinsur- Serv- and tical Resid- of the
ance, ices govern- dis- u a l 1 world
and
ment
enter- crepreal
prises ancy
estate

76.7 226.1 138.1
90.0 238.5 145.0
89.4 226.3 133.2

88.0
93.5
93.1

100.0
98.7
90.7

157.8
161.9
166.1

103.0
107.7
112.2

124.7
128.9
129.0

156.2
155.5
164.0

72.8 100.0
80.8 110.9
81.5 115.9
84.3 119.9
83.3 124.8

257.7
288.4
298.2
319.9
296.6

156.7
181.4
190.6
208.4
185.8

101.0
107.0
107.6
111.5
110.8

95.3
104.9
104.5
106.7
104.1

182.1
183.7
189.5
195.6
197.1

119.7
126.4
134.7
142.2
149.5

133.8
136.9
139.4
142.7
145.9

169.2
214.0
231.9
230.9
225.4

69.1
67.8
65.9
68.3
65.8

92.0
96.5
96.2
89.1
94.1

133.3
142.7
142.4
147.5
160.4

327.7
330.6
332.5
303.5
338.0

208.5
207.3
208.7
180.1
203.0

119.2
123.3
123.8
123.4
135.0

112.3
117.7
119.9
116.1
123.5

215.0
221.5
225.1
225.0
240.7

160.2
168.8
178.3
184.5
195.9

153.0
161.1
168.6
174.3
183.5

223.4
6.2 -6.6
225.6 -6.2 -11.1
229.2 -3.8 -14.7
230.1 -.5 -8.1
232.8 -4.6 -11.0

9.4
10.7
11.5
9.5
10.0

1,665.3
1,708.7
1,799.4
1,873.3
1,973.3

68.3
67.5
67.1
67.2
65.2

94.2
95.6
98.1
102.2
105.7

163.1
165.1
172.5
177.5
185.9

338.7
339.4
368.3
397.4
425.4

202.4
199.9
220.5
238.9
259.3

136.3
139.5
147.8
158.5
166.2

127.8
130.0
136.3
143.8
150.4

245.4
247.8
263.9
273.9
290.7

206.5
215.0
226.5
235.9
245.8

190.2
197.7
207.7
217.4
230.7

240.3
249.2
258.4
264.5
274.0

-8.7
-3.7
.1
-1.8
-4.1

11.1
12.1
13.9
14.9
16.1

1965
1966
1967
1968
1969

2,087.6
2,208.3
2,271.4
2,365.6
2,423.3

66.7
62.4
65.5
63.6
65.3

109.4
115.0
120.2
124.7
128.9

193.7
194.4
190.7
190.2
183.6

462.5
497.9
496.6
522.0
536.7

286.9
312.3
311.9
326.2
334.1

175.6
185.6
184.7
195.8
202.6

161.5
174.2
178.1
189.5
200.3

309.8
326.5
335.4
354.8
361.7

259.8
271.1
282.4
296.0
314.0

240.4
253.9
265.2
274.7
287.8

284.3
305.5
322.3
332.6
340.2

-3.4 -14.0
5.9 -14.5
-.2
-1.0
-2.8
2.8
27
-9.5

17.0
15.9
16.3
17.7
17.0

1970
1971
1972
1973
1974

2,416.2
2,484.8
2,608.5
2,744.1
2,729.3

68.8
70.6
70.9
70.3
69.7

134.5
132.4
134.4
133.4
130.3

168.0
162.7
166.7
170.4
162.3

506.8
515.5
561.2
621.3
591.6

304.8
305.5
336.5
377.0
363.5

202.0
210.0
224.8
244.3
228.1

203.9
209.8
223.8
243.0
248.8

367.6
385.7
414.8
437.0
426.2

320.7
335.9
350.9
367.7
381.6

295.7
302.4
320.0
340.2
347.5

339.6
340.0
340.5
343.4
350.6

-2.7 -3.9
4.2
4.8
5.1
-3.4
-6.2
-8.6
-3.3 -11.8

17.1
20.7
23.7
32.2
35.9

1975
1976
1977
1979

2,695.0
2,826.7
2,958.6
:.... 3,115.2
3,192.4

73.1
71.5
71.6
71.8
76.1

125.6
124.4
126.2
128.8
130.0

149.4
158.1
165.1
176.7
173.5

547.5
600.6
645.0
683.4
697.1

325.2
357.4
396.2
415.9
423.5

222.2
243.2
258.9
267.5
273.5

246.4
257.1
268.5
284.8
293.4

433.1
454.4
479.2
502.3
511.7

387.6
403.1
417.7
442.5
459.2

352.4
367.7
388.4
411.9
429.8

4.2
355.0
357.7
5.6
362.9
371.5 -2'.8
376.2 -1.4

-8.7
-6.6
-3.4
2.1
-9.0

29.3
33.0
37.4
42.1
55.7

1980
1981
1982
1983
1984

3,187.1
3,248.8
3,166.0
3,279.1
3,501.4

76.2
88.0
89.6
74.5
82.2

135.6
139.8
132.1
125.4
133.0

161.6
147.4
140.9
147.3
159.2

665.4
676.1
634.6
675.5
757.9

401.5
404.9
362.5
390.4
466.8

263.9
271.2
272.1
285.1
291.1

293.4
296.2
288.4
300.8
320.4

500.4
507.3
506.5
529.1
578.9

464.3
474.2
475.1
489.0
506.6

442.6
462.5
463.6
486.6
514.0

382.7
385.3
383.9
387.4
392.1

3.5
12.5
.0
10.6
8.1

55.5
55.2
51.2
47.9
43.9

3,618.7
'.'.'. 3,717.9
3,853.7
4,024.4

93.8

130.1

165.4

786.8 493.7

293.0 326.0

610.3

524.3 546.4

2.3

36.9
30.5
26.6
28.1

1947
1948
1949

1,066.7
1,108.7
1,109.0

55.6
61.3
61.0

67.6
72.4
65.7

1950
1951
1952
1953
1954

1,203.7
1,328.2
1,380.0
1,435.3
1,416.2

64.3
62.6
64.2
66.3
68.2

1955
1956
1957
1958
1959

1,494.9
1,525.6
1,551.1
1,539.2
1,629.1

1960
1961
1962
1963
1964

1978

1985
1986 2
*
1987 2
1988

7.6 -13.6
-4.9 -7.5
3.2 -4.2
3.1
9.7
6.5
9.4
9.5

5.9
4.4
-.1
5.0
5.0

400.8 -4.3

-.6
2.0
5.3
9.4
3.5

-11.6
-6.9
-13.3
-19.7
-12.6

5.1
6.2
5.6
6.2
7.9
8.3
7.9
8.4

1
Equals GNP in constant dollars measured as the sum of incomes less GNP in constant dollars measured as the sum of gross product
by 2industry.
Gross domestic product by industry is not available for 1986-88. Data for 1977-88 based on a revised methodology are expected to
be published in the Survey of Cumnt Business, March 1990.
Note.—The industry classification is on an establishment basis and is based on the 1972 Standard Industrial Classification.
Source: Department of Commerce, Bureau of Economic Analysis.




307

TABLE C-12.—Gross domestic product of nonfinancial corporate business, 1940-89
[Billions of dollars; quarterly data at seasonally adjusted annual rates]

Year or
quarter

1940
1941
1942
1943
1944
1945
1946
1947
1948
1949
1950
1951
1952
1953
1954
1955
1956
1957
1958
1959
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989 "
1982: IV
1983: IV
1984: IV
1985: IV
1986: IV
1987: 1
II
Ill
IV
1988: 1
||
Ill
IV
1989: 1
II
Ill
IV '

Gross
domestic
product
of
nonfinancial
corporate
business

50.6
65.9
83.3
99.1
102.6
95.8
99.8
121.2
138.9
135.2
153.6
176.3
184.0
196.6
193.5
218.5
233.6
244.1
238.0
267.1
277.6
285.2
311.1
331.1
357.7
392.7
430.2
452.6
499.7
542.2
560.4
605.1
671.8
753.0
812.8
881.5
995.5
1,126.1
1,274.1
1,417.4
1,540.8
1,738.4
1,782.2
1,914.2
2,146.7
2,267.1
2,367.1
2,520.7
2,731.3
2,903.5
1,779.4
2,012.5
2,201.8
2,309.4
2,408.7
2,439.5
2,488.6
2,556.2
2,598.4
2,648.1
2,705.9
2,754.9
2,816.4
2,842.7
2,887.2
2,936.2

Capital
consumption
allowances
with
capital Total
consumption
adjustment

5.0
5.4
6.0
6.1
6.2
6.3
7.4
9.0
10.5
11.2
12.1
13.9
14.9
15.9
16.8
17.9
20.1
22.1
23.2
24.3
25.3
26.0
27.0
28.2
29.6
31.6
34.5
37.8
41.7
45.7
50.2
55.1
60.5
65.6
76.8
92.5
103.0
115.1
130.8
150.7
172.5
200.2
223.0
229.8
240.1
252.6
267.4
281.7
297.1
317.1
229.7
232.2
245.0
257.4
273.6
277.1
280.3
283.3
286.2
291.7
295.1
298.1
303.6
308.4
312.2
321.9
326.0

45.6
60.5
77.3
93.0
96.4
89.5
92.4
112.2
128.4
123.9
141.5
162.4
169.1
180.7
176.7
200.7
213.5
221.9
214.8
242.8
252.4
259.1
284.2
303.0
328.0
361.1
395.7
414.8
458.0
496.6
510.2
550.0
611.3
687.4
736.0
789.0
892.5
1,010.9
1,143.3
1,266.7
1,368.2
1,538.1
1,559.3
1,684.4
1,906.6
2,014.5
2,099.7
2,239.0
2,434.2
2,586.4
1,549.7
1,780.3
1,956.7
2,051.9
2,135.2
2,162.5
2,208.4
2,272.9
2,312.2
2,356.4
2,410.9
2,456.8
2,512.8
2,534.4
2,575.0
2,614.3

Net domestic product
Domestic income
Indirect
business
tax,
etc.1

5.5
6.4
6.8
7.3
8.1
8.9
10.1
11.9
13.2
13.9
15.3
16.5
18.0
19.2
18.6
20.6
22.4
23.7
24.1
26.2
28.5
29.8
32.2
34.2
36.8
39.4
40.7
43.3
49.9
54.9
59.0
64.7
69.4
76.5
81.5
88.3
95.4
104.4
114.1
122.1
138.5
165.9
166.9
182.9
204.2
218.4
230.2
242.3
260.0
276.0
169.7
189.6
210.6
221.5
232.7
234.9
240.3
246.3
247.9
253.7
257.3
263.2
265.9
269.3
273.7
280.3
280.8

Corporate profits with inventory valuation and capital
consumption adjustments
Total

40.2
54.1
70.5
85.7
88.3
80.6
82.3
100.3
115.2
110.1
126.2
146.0
151.1
161.5
158.1
180.0
191.1
198.2
190.7
216.7
223.9
229.4
252.0
268.7
291.2
321.7
355.0
371.5
408.1
441.6
451.2
485.3
541.9
610.8
654.5
700.7
797.1
906.5
1,029.2
1,144.7
1,229.7
1,372.3
1,392.4
1,501.5
1,702.5
1,796.1
1,869.5
1,996.6
2,174.2
2,310.4
1,379.9
1,590.7
1,746.1
1,830.4
1,902.5
1,927.5
1,968.1
2,026.6
2,064.4
2,102.8
2,153.6
2,193.6
2,246.9
2,265.0
2,301.3
2,334.0

ComProfits
pensation of
Profits after tax
employ- Total Profits Profits
ees
before tax
Divi- Undistax liability Total dends tributed
profits
31.2
39.8
51.0
62.2
65.1
61.9
67.2
79.1
87.7
85.2
94.7
110.2
118.2
128.6
126.4
138.4
151.3
159.0
155.8
171.5
181.2
185.3
200.1
211.1
226.7
246.5
274.0
292.3
323.2
358.8
378.7
402.0
447.1
505.9
556.8
580.4
656.3
741.0
847.4
962.0
1,051.1
1,160.5
1,203.9
1,266.1
1,399.8
1,489.8
1,567.1
1,665.1
1,799.1
1,938.8
1,206.5
1,319.7
1,436.8
1,524.0
1,597.9
1,621.1
1,643.1
1,677.4
1,719.0
1,742.8
1,782.1
1,816.8
1,854.6
1,889.3
1,923.1
1,954.3
1,988.5

7.6
13.0
18.2
22.4
22.2
17.7
14.4
20.4
26.6
23.9
30.6
34.7
31.7
31.5
30.1
40.0
38.1
37.0
32.2
42.1
39.2
40.1
47.3
52.8
59.3
69.1
73.7
70.5
74.8
69.6
55.4
65.2
75.7
82.4
69.4
91.6
113.3
134.9
146.0
139.1
123.1
144.2
111.9
165.6
222.4
225.3
214.0
224.6
249.3
222.9
100.1
199.5
222.1
226.3
211.7
209.6
221.3
238.8
228.6
241.9
248.7
248.3
258.2
235.3
230.5
226.7

8.8
16.4
20.1
23.6
22.2
17.8
22.0
29.1
31.8
24.9
38.5
39.1
33.8
34.9
32.1
42.0
41.8
39.8
33.7
43.1
39.7
39.5
44.2
48.9
55.4
65.2
70.3
66.5
73.1
69.6
57.0
65.6
76.8
96.9
107.2
109.2
138.3
160.5
182.1
195.8
181.8
181.5
129.7
159.3
196.0
170.2
156.4
197.2
233.4
217.1
116.3
183.2
181.9
174.2
172.9
179.4
195.1
211.8
202.3
218.7
234.9
237.7
242.2
242.2
223.8
211.5

2.7
7.5
11.2
13.8
12.6
10.2
8.6
10.8
11.8
9.3
16.9
21.2
17.8
18.5
15.6
20.2
20.1
19.1
16.2
20.7
19.2
19.5
20.6
22.8
24.0
27.2
29.5
27.8
33.6
33.3
27.2
29.9
33.8
40.2
42.2
41.5
53.0
59.9
67.1
69.6
67.0
63.9
46.3
59.4
73.5
69.9
75.4
93.1
105.4
97.4
41.0
70.6
66.4
71.6
84.4
83.5
92.1
101.1
95.6
98.2
106.6
107.4
109.4
110.6
100.6
94.7

6.1
9.0
8.9
9.8
9.6
7.6
13.4
18.3
20.0
15.6
21.6
17.9
16.0
16.4
16.4
21.8
21.8
20.7
17.5
22.4
20.5
20.1
23.5
26.2
31.4
38.0
40.8
38.6
39.5
36.2
29.8
35.6
43.0
56.7
65.0
67.7
85.4
100.6
115.0
126.2
114.8
117.6
83.4
99.9
122.5
100.4
81.0
104.1
128.0
119.7
75.4
112.7
115.5
102.6
88.5
95.8
103.0
110.7
106.7
120.5
128.3
130.3
132.8
131.6
123.1
116.8

1
Indirect business tax and nontax liability plus business transfer payments less subsidies.
Source: Department of Commerce, Bureau of Economic Analysis.




308

3.5
3.9
3.7
3.9
4.1
4.1
4.8
5.5
6.0
6.0
7.5
7.1
7.1
7.3
7.4
8.5
9.0
9.3
9.3
10.0
10.6
10.6
11.4
12.6
13.7
15.6
16.8
17.5
19.1
19.1
18.5
18.5
20.1
21.1
21.7
24.8
27.8
32.0
37.2
39.3
45.5
53.4
59.7
66.5
69.5
72.2
74.4
81.4
83.0
96.0
62.2
68.8
68.6
72.3
75.2
79.1
79.3
81.0
86.2
75.8
77.4
92.6
86.4
98.3
93.7
96.0
95.9

2.6
5.0
5.2
5.8
5.6
3.5
8.6
12.8
14.0
9.6
14.1
10.8
8.8
9.1
9.0
13.4
12.7
11.4
8.2
12.4
9.9
9.5
12.2
13.5
17.7
22.4
24.0
21.2
20.4
17.1
11.3
17.1
22.9
35.6
43.3
42.9
57.6
68.6
77.8
86.9
69.3
64.2
23.7
33.4
53.0
28.2
6.6
22.7
45.0
23.7
13.2
43.9
46.9
30.3
13.3
16.7
23.7
29.7
20.5
44.7
50.9
37.7
46.5
33.3
29.4
20.8

Inventory
valuation
adjustment

-0.2
25
-1.2
-.8
3
-.6
-5.3
-5.9
-2.2
1.9
-5.0
-1.2
1.0
-1.0
3
-1.7
-2.7
15
-.3

Capital Net
con- intersump- est
tion
adjustment

-1.0
10
-.7
-.4
.3

23
-2.8
-3.0
29
-2.9
-3.2
30
-2.4
16
-.3
-1.1
12
-1.2
-.8
2
2
.3
.0
3'.1
.1 3.9
-.5 4.4
-1.2
5.2
-2.1
5.5
-1.6
5.5
-3.7
5.3
59 5.9
-6.6
5.0
46 4.2
-6.6
5.5
-20.0
5.6
395 1.7
-11.0 -6.6
-14.9 -10.2
166 -9.0
-25.3 -10.9
-43.2 -13.5
-43.1 -15.5
-24.2 -13.1
-10.4 -7.5
-10.9
17.1
-5.8
32.1
-1.7
56.7
6.7 50.9
-18.9
46.3
-25.0 40.9
-18.5
24.3
-13.4 -2.8
-8.1
24.4
-1.6
41.8
-6.6 58.7
-8.0 46.8
-15.9
46.1
-20.0 46.1
-19.4
46.4
-20.4 46.7
-20.7 43.9
-28.8 42.7
-30.4 41.0
-20.1
36.1
-38.3
31.5
-20.5 27.3
-6.3 .21.5
-8.9
16.8

1.4
1.3
1.3
1.1
1.0
1.0
.7
.8
.9
1.0
.9
1.1
1.2
1.3
1.6
1.6
1.8
2.2
2.7
3.1
3.5
4.0
4.5
4.8
5.3
6.1
7.4
8.8
10.1
13.2
17.1
18.1
19.2
22.5
28.3
28.7
27.5
30.6
35.9
43.5
55.5
67.5
76.6
69.8
80.3
81.1
88.4
106.9
125.8
148.7
73.4
71.5
87.2
80.1
93.0
96.8
103.7
110.5
116.8
118.0
122.7
128.5
134.0
140.4
147.6
152.9
153.7

TABLE C-13.—Output, costs, and profits of nonfinancial corporate business, 1948-89
[Quarterly data at seasonally adjusted annual rates]

Year or
quarter

Gross domestic
product of
nonfinancial
corporate
business
(billions of
dollars)
Current
dollars

1948
1949
1950
1951
1952
1953
1954
1955
1955
1957
1958
1959
I960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985 !
1986
1987
1988
1989".
1982: IV
1983- IV
1984: IV
1985: IV
1986: IV

138.9
135.2
153.6
176.3
184.0
196.6
193.5
218.5
233.6
244.1

1982
dollars

Current-dollar cost and profit per unit of output (dollars)1

Total
cost
and
profit8

Capital
consumption
allowances
with
capital
consumption
adjustment

0.019 0.025
.022 .027
.021 .027
.022 .026
.023 .028
.024 .029
.026 .029
.025 .029
.027 .030
.029
.031
.033
.032
.033
.030
.031 .035
.031 .035
.030
.036
.029
.035
.029 .036
.035
.028
.029 .034
.031 .036
.032
.039
.041
.034
.045
.038
.048
.040
.041 .048
.042 .049
.053
.050
.062
.059
.065 .060
.068 .062
.064
.073
.066
.082
.077
.095
.109 .090
.125 .094
.123 .098
.118 .100
.119 .103
.106
.123
.123 .106
.123 .107
.128 .111
.131 .096
.098
.120
.118 .102
.104
.120
.124
.106

Profits
after
tax*

0.027
.028
.024
.022
.022
.020
.022
.028
.024
.024
.022
.027
.024
.025
.029
.031
.034
.038
.037
.035
.032
.027
.021
.026
.029
.027
.018
.034
.038
.044
.044
.038
.031
.044
.037
.057
.073
.073
.064
.058
.059
.051
.034
.066
.075
.072
.058

0.002
.002
.002
.002
.002
.002
.002
.002
.002
.003
.004
.004
.004
.005
.005
.005
.005
.005
.006
.007
.008
.010
.013
.013
.013
.014
.018
.019
.017
.018
.020
.024
.031
.037
.043
.037
.039
.038
.041
.047
.052
.060
.042
.037
.042
.037
.042

.054
.056
.050
.047
.046
.056
.051
.049
.044
.053
.048
.048
.052
.055
.058
.062
.062
.058
.058
.052
.042
.048
.052
.053
.045
.062
.072
.080
.082
.076
.068
.078
.063
.089
.109
.106
.098
.098
.103
.090
.057
.103
.107
.106
.096

0.022
.018
.030
.034
.028
.028
.024
.028
.027
.025
.022
.026
.023
.023
.023
.024
.023
.024
.025
.023
.026
.025
.021
.022
.023
.026
.028
.028
.033
.036
.037
.038
.037
.035
.026
.032
.036
.033
.035
.041
.044
.039
.023
.036
.032
.033
.038

.106
.106
.107
.106

.731
.727
.726
.734

.094
.098
.103
.098

.038
.041
.044
.041

.057
.057
.060
.057

.122
.122
.122
.124

.106
.107
.108
.108

.732
.740
.746
.756

.102
.103
.102
.105

.041
.044
.044
.045

.125
.126
.129

.110
.111
.112

.768
.778
.783

.096
.093
.091

.045
.041
.038

277.6
285.2
311.1
331.1
357.7
392.7
430.2
452.6
499.7
542.2
560.4
605.1
671.8
753.0
812.8
881.5
995.5
1,126.1
1,274.1
1,417.4
1,540.8
1,738.4
1,782.2
1,914.2
2,146.7
2,267.1
2,367.1
2,520.7
2,731.3
2,903.5
1,779.4
2,012.5
2,201.8
2,309.4
2,408.7

1987: 1
j|
III
IV

2,439.5
2,488.6
2,556.2
2,598.4

2,218.6
2,259.2
2,309.2
2,343.3

1.100
1.102
1.107
1.109

.125
.124
.123
.122

1988:1
||
III
IV

2,648.1
2,705.9
2,754.9
2,816.4

2,381.8
2,408.9
2,434.1
2,453.2

1.112
1.123
1.132
1.148

1989:1
II

2,842.7 2,459.1
2,887.2 2,471.3
2,936.2 2,497.2

1.156
1.168
1.176

Ill

Total

1
Output
2

.046

Net
interest

Profits
tax
liability

0.049

0.258
.262
.269
.283
.289
.294
.297
.304
.313
.322
.328
.335
.338
.340
.344
.343
.348
.353
.362
.372
.388
.405
.423
.445
.460
.480
.530
.592
.629
.668
.712
.770
.852
.946
1.000
1.026
1.054
1.071
1.089
1.104
1.129
1.172
1.011
1.037
1.064
1.080
1.096

267.1

Compensation
of
employees

0.163
.165
.166
.177
.185
.192
.194
.192
.203
.210
.215
.215
.221
.221
.221
.219
.220
.222
.230
.240
.251
.268
.286
.295
.306
.322
.363
.390
.414
.439
.473
.523
.581
.632
.676
.679
.687
.704
.721
.730
.744
.782
.685
.680
.694
.713
.727

538.9
515.7
570.4
622.4
637.3
668.4
650.8
719.3
747.0
758.1
725.2
798.5
820.8
839.1
904.8
964.4
1,029.0
1,111.7
1,189.5
1,217.0
1,286.5
1,339.6
1,325.2
1,360.6
1,461.1
1,569.7
1,533.4
1,488.1
1,583.5
1,686.6
1,789.8
1,840.4
1,807.9
1,837.2
1,782.2
1,886.0
2,036.5
2,117.4
2,173.9
2,282.6
2,419.5
2,478.2
1,760.2
1,940.5
2,069.5
2,137.7
2,198.5

238.0

Indirect
business
tax,
etc.8

Corporate profits with
inventory valuation and
capital consumption
adjustments

Output Compenper hour sation
of all per hour
employof all
ees
employ(1982
ees
dollars) (dollars)

12.771
13.249
13.423
13.830
14.350
14.967
15.519
15.863
16.108
16.307
16.753
16.776
16.826
17.291
17.632
18.061
17.582
17.991
18.337
18.659
18.783
18.648
18.524
18.643
18.704
19.217
19.682
19.996
20.456
20.908
21.393

2.743
2.845
2.962
3.055
3.174
3.275
3.419
3.517
3.710
3.916
4.209
4.494
4.808
5.109
5.395
5.821
6.384
7.017
7.600
8.197
8.894
9.748
10.769
11.777
12.635
13.039
13.528
14.069
14.746
15.252
15.907

18.770
19.422
19.784
20.116
20.650

12.866
13.208
13.735
14.341
15.008

.044
.046
.048
.050

20.605
20.826
21.090
21.176

15.056
15.147
15.319
15.535

.060
.059
.058
.061

.050
.051
.053
.055

21.382
21.401
21.469
21.446

15.645
15.833
16.024
16.213

.051
.053
.053

.057
.060
061

21.356
21.364
21.516

16.407
16.625
16.842

is measured by gross domestic product of nonfinancial corporate business in 1982 dollars.
This is equal to the deflator for gross domestic product of nonfinancial corporate business with the decimal point shifted two
places to the left.
3
Indirect business tax and nontax liability plus business transfer payments less subsidies.
4
With inventory valuation and capital consumption adjustments.
Note.—In 1989, hours of labor input were redefined as hours at the work site rather than hours paid and all historical data relating
to labor input were revised.
Sources: Department of Commerce (Bureau of Economic Analysis) and Department of Labor (Bureau of Labor Statistics).




309

TABLE C-14.—Personal consumption expenditures, 1940-89
[Billions of dollars; quarterly data at seasonally adjusted annual rates]
Durable goods
Year or
quarter

1940
1941
1942
1943
1944
1945
1946
1947
1948
1949
1950
1951
1952
1953
1954
1955
1956
1957
1958
1959
I960
1961
1962
1963
1964
1965.
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980.
1981
1982
1983
1984
1985
1986
1987
1988
1989 ".. .
1982: IV
1983: IV
1984: IV
1985: IV
1986: IV
1987:1
II
Ill
IV
1988- 1
II
Ill
IV
1989:1
II
Ill
IV ".

Personal
consumption
expendi- Total *
tures

71.0
80.8
88.6
99.5
108.2
119.6
143.9
161.9
174.9
178.3
192.1
208.1
219.1
232.6
239.8
257.9
270.6
285.3
294.6
316.3
330.7
341.1
361.9
381.7
409.3
440.7
477.3
503.6
552.5
597.9
640.0
691.6
757.6
837.2
916.5
1,012.8
1,129.3
1,257.2
1,403.5
1,566.8
1,732.6
1,915.1
2,050.7
2,234.5
2,430.5
2,629.0
2,797.4
3,010.8
3,235.1
3,470.3
2,117.0
2,315.8
2,493.4
2,700.4
2,868.5
2,914.7
2,989.4
3,055.9
3,083.3
3,148.1
3,204.9
3,263.4
3,324.0
3,381.4
3,444.1
3,508.1
3,547.5

7.8
9.7
6.9
6.5
6.7
8.0
15.8
20.4
22.9
25.0
30.8
29.9
29.3
32.7
32.1
38.9
38.2
39.7
37.2
42.8
43.5
41.9
47.0
51.8
56.8
63.5
68.5
70.6
81.0
86.2
85.7
97.6
111.2
124.7
123.8
135.4
161.5
184.5
205.6
219.0
219.3
239.9
252.7
289.1
335.5
372.2
406.0
421.0
455.2
473.6
263.8
310.0
346.7
373.2
422.0
401.2
419.2
439.3
424.5
446.4
454.6
452.5
467.4
466.4
471.0
486.1
471.0

Motor
vehicles
and
parts

2.8
3.5
.7
.8
.8
1.0
4.1
6.6
8.0
10.6
13.7
12.2
11.3
13.9
13.0
17.8
15.8
17.3
14.8
18.9
19.7
17.8
21.5
24.4
26.0
29.9
30.3
30.0
36.1
38.4
35.9
44.9
51.5
56.7
50.3
55.8
72.7
85.4
95.1
96.9
90.3
100.5
108.9
130.4
157.4
179.1
196.2
195.5
211.6
214.0
115.7
144.4
162.3
173.8
201.1
179.9
194.4
211.3
196.3
210.3
212.5
208.4
215.3
211.7
212.9
225.6
205.9

Nondurable goods

Furniture
and
house- Total »
hold
equipment

3.8
4.8
4.6
3.9
3.8
4.5
8.4
10.6
11.5
11.3
13.7
14.1
14.0
14.7
14.8
16.4
17.3
17.2
16.9
18.1
18.0
18.3
19.3
20.7
23.2
25.1
28.2
30.0
32.9
34.7
35.7
37.8
42.4
47.9
51.5
54.5
60.2
67.1
73.9
82.1
86.2
92.7
95.7
107.1
118.8
129.9
139.7
149.1
162.0
173.7
99.1
112.4
122.7
134.7
143.8
146.2
147.7
151.0
151.4
156.9
162.2
162.7
166.1
172.1
173.5
173.9
175.2

37.0
42.9
50.8
58.6
64.3
71.9
82.7
90.9
96.6
94.9
98.2
109.2
114.7
117.8
119.7
124.7
130.8
137.1
141.7
148.5
153.2
157.4
163.8
169.4
179.7
191.9
208.5
216.9
235.0
252.2
270.3
283.3
305.1
339.6
380.9
416.2
452.0
490.4
541.8
613.2
681.4
740.6
771.0
816.7
867.3
911.2
942.0
998.1
1,052.3
1,122.6
786.6
837.9
879.6
932.7
952.1
976.4
994.3
1,006.0
1,015.4
1,022.2
1,042.4
1,066.2
1,078.4
1,098.3
1,121.5
1,131.4
1,139.1

Food

Cloth- Gasoing
line
and and
shoes oil

20.2
23.4
28.4
33.2
36.7
40.6
47.4
52.3
54.2
52.5
53.9
60.7
64.1
65.4
66.8
68.6
71.4
75.1
77.9
80.7
82.7
84.8
87.1
89.5
94.6
101.0
109.0
112.3
121.6
130.5
142.1
147.5
158.5
176.1
198.2
218.7
236.2
255.9
282.2
317.3
349.1
376.5
398.8
421.9
448.5
471.6
500.0
529.2
559.7
595.0
407.0
430.8
456.1
482.5
511.9
521.3
526.8
531.7
536.8
542.5
554.5
567.8
574.1
587.3
592.2
598.1
602.2

7.5
8.8
11.0
13.4
14.6
16.5
18.2
18.8
20.1
19.3
19.6
21.3
22.0
22.2
22.3
23.3
24.4
24.5
24.9
26.4
27.0
27.6
29.0
29.8
32.4
34.1
37.4
39.2
43.2
46.5
47.8
51.7
56.4
62.5
66.0
70.8
76.6
84.1
94.8
102.2
109.0
119.9
124.4
135.1
146.7
156.4
166.8
177.2
186.8
199.9
126.5
141.1
149.8
160.6
168.7
173.4
175.7
178.9
180.6
180.8
183.6
188.9
193.9
195.0
198.9
202.2
203.7

1
Includes other
2

items not shown separately.
Includes imputed rental value of owner-occupied housing.
Source: Department of Commerce, Bureau of Economic Analysis.




310

2.3
2.6
2.1
1.3
1.4
1.8
3.4
4.0
4.8
5.3
5.5
6.1
6.8
7.4
7.8
8.6
9.4
10.2
10.6
11.3
12.0
12.0
12.6
13.0
13.6
14.8
16.0
17.1
18.6
20.5
21.9
23.2
24.4
28.1
36.1
39.7
43.0
46.9
51.3
66.1
83.7
92.7
89.1
90.2
90.0
90.6
73.5
75.2
76.8
83.5
89.8
91.9
89.0
91.0
66.0
71.7
75.5
76.8
76.7
74.3
76.9
78.3
77.6
77.9
89.5
85.2
81.4

Services
Fuel
oil
and
coal

1.5
1.7
1.9
2.0
2.0
2.2
2.5
3.0
3.4
3.1
3.4
3.5
3.5
3.4
3.5
3.8
3.9
4.1
4.2
4.0
3.8
3.8
3.8
4.0
4.1
4.4
4.7
4.8
4.7
4.6
4.4
4.6
5.1
6.3
7.8
8.4
10.1
11.1
12.0
15.8
18.0
19.4
18.6
17.5
17.8
18.5
16.6
17.6
19.5
20.2
18.2
18.1
16.8
19.7
16.0
16.4
17.6
17.7
18.8
19.3
19.4
19.6
19.7
18.7
19.6
19.9
22.8

Household
operation
Total » Housing 2

26.2
28.3
31.0
34.3
37.2
39.7
45.4
50.6
55.5
58.4
63.2
69.0
75.1
82.1
88.0
94.3
101.6
108.5
115.7
125.0
134.0
141.8
151.1
160.6
172.8
185.4
200.3
216.0
236.4
259.4
284.0
310.7
341.3
373.0
411.9
461.2
515.9
582.3
656.1
734.6
831.9
934.7
1,027.0
1,128.7
1,227.6
1,345.6
1,449.5
1,591.7
1,727.6
1,874.1
1,066.5
1,167.9
1,267.1
1,394.5
1,494.4
1,537.1
1,575.8
1,610.6
1,643.3
1,679.5
1,707.9
1,744.7
1,778.2
1,816.7
1,851.7
1,890.6
1,937.5

9.7
10.4
11.2
11.8
12.3
12.8
14.2
16.0
17.9
19.6
21.7
24.3
27.0
29.9
32.3
34.4
36.7
39.3
42.0
45.0
48.2
51.2
54.7
58.0
61.4
65.4
69.5
74.1
79.7
86.8
94.0
102.7
112.1
123.1
135.1
148.4
163.5
182.4
205.2
231.1
261.5
295.6
321.1
344.1
371.3
403.0
434.2
467.7
501.3
534.0
330.3
353.8
382.2
416.2
446.1
454.9
462.8
471.3
481.9
490.8
496.6
505.0
513.0
520.2
527.7
538.4
549.5

Trans- Medi-

Elec- porta- cal
Total i tricity tion care
and
gas

4.0
4.3
4.8
5.2
5.9
6.4
6.8
7.5
8.1
8.5
9.5
10.4
11.2
12.1
12.7
14.2
15.4
16.3
17.4
18.7
20.3
21.2
22.4
23.6
25.0
26.5
28.2
30.1
32.3
35.0
37.7
40.9
45.2
49.6
55.4
63.5
72.3
81.7
90.9
100.3
113.9
127.5
143.4
156.0
166.9
175.3
179.6
185.9
197.6
204.2
148.0
161.4
169.3
179.0
180.9
180.8
186.6
188.7
187.5
192.9
194.9
200.2
202.4
201.1
202.3
202.4
210.9

1.5
1.5
1.6
1.7
1.8
1.9
2.1
2.3
2.6
2.9
3.3
3.7
4.1
4.5
5.0
5.5
6.1
6.5
7.1
7.6
8.3
8.8
9.4
9.9
10.4
10.9
11.5
12.2
13.0
14.0
15.2
16.6
18.4
20.0
23.5
28.5
32.5
37.6
42.1
46.8
56.4
63.5
72.8
80.0
84.8
88.9
87.3
88.5
93.7
95.3
74.8
84.1
86.3
90.2
87.0
85.8
89.9
90.1
88.4
92.2
92.1
94.5
95.8
93.6
94.6
93.6
99.4

2.1
2.4
2.7
3.4
3.7
4.0
5.0
5.3
5.8
5.9
6.2
6.8
7.3
8.0
8.2
8.5
8.9
9.4
9.7
10.5
11.2
11.7
12.2
12.7
13.4
14.5
15.9
17.3
18.9
20.9
23.7
27.1
29.8
31.2
33.3
35.7
41.3
49.2
53.5
59.0
64.5
68.3
69.7
74.8
82.0
89.8
96.6
106.5
117.9
126.8
71.1
77.6
84.5
92.1
99.8
103.0
105.2
106.3
111.4
113.1
117.4
119.8
121.5
124.4
125.6
126.7
130.7

2.2
2.4
2.7
2.9
3.3
3.6
4.6
5.6
6.3
6.5
6.9
7.4
8.3
9.3
10.2
10.8
11.7
12.8
14.0
15.3
16.4
17.5
19.4
21.0
24.1
25.9
28.3
31.1
35.7
40.9
46.1
51.8
57.8
64.4
72.4
84.2
95.9
111.5
125.1
141.4
164.2
193.5
217.8
238.3
265.3
291.5
318.4
357.7
398.3
453.0
226.9
246.9
275.3
304.3
330.9
342.0
353.3
364.3
371.1
379.9
391.3
404.7
417.4
432.3
445.1
459.1
475.3

TABLE C-15.—Personal consumption expenditures in 1982 dollars, 1940-89
[Billions of 1982 dollars; quarterly data at seasonally adjusted annual rates]

Year or
quarter

1940
1941
1942
1943
1944
1945
1946
1947
1948
1949
1950
1951
1952
1953
1954
1955
1956
1957
1958
1959 '...'.'.
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971....
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989 P.
1982: IV
1983: IV
1984: IV
1985: IV
1986: IV
1987:1

iIVn"'.;!;;
1988:1

II
Ill

IV
1989:1
II
Ill
IV

Durable goods
Nondurable goods
Services
Personal
Household
Furniconoperation
Motor ture
Cloth- Gaso- Fuel
sumption
vehi- and
Transline oil Total1 Housexpendi- Total1 cles house- Total » Food
Elec- portaand and
ing*
l tricity
tures
tion
and hold
Total and
shoes oil coal
parts equipgas
ment

3

502.6
531.1
527.6
539.9
557.1
592.7
655.0
666.6
681.8
695.4
733.2
748.7
771.4
802.5
822.7
873.8
899.8
919.7
932.9
979.4
1,005.1
1,025.2
1,069.0
1,108.4
1,170.6
1,236.4
1,298.9
1,337.7
1,405.9
1,456.7
1,492.0
1,538.8
1,621.9
1,689.6
1,674.0
1,711.9
1,803.9
1,883.9
1,961.0
2,004.4
2,000.4
2,024.2
2,050.7
2,146.0
2,249.3
2,354.8
2,446.4
2,513.7
2,598.4
2,668.5
2,078.7
2,191.9
2,281.1
2,386.9
2,477.8
2,478.3
2,507.7
2,536.5
2,532.3
2,570.8
2,586.8
2,608.1
2,627.7
2,641.0
2,653.7
2,690.1
2,689.3

40.6
46.2
31.3
28.1
26.3
28.7
47.8
56.5
61.7
67.8
80.7
74.7
73.0
80.2
81.5
96.9
92.8
92.4
86.9
96.9
98.0
93.6
103.0
111.8
120.8
134.6
144.4
146.2
161.6
167.8
162.5
178.3
200.4
220.3
204.9
205.6
232.3
253.9
267.4
266.5
245.9
250.8
252.7
283.1
323.1
355.1
384.4
389.6
413.6
425.6
262.0
300.5
333.1
356.4
397.5
376.1
389.3
403.8
389.4
408.4
414.8
410.7
420.5
419.3
424.9
436.4
421.6

18.6
20.6
8.4
7.7
7.1
7.4
15.2
21.8
25.5
32.7
41.3
36.3
34J
39.9
40.6
51.5
45.3
45.8
40.8
47.4
49.2
44.6
51.0
56.4
59.0
67.5
68.5
67.4
77.3
80.4
73.5
86.4
98.3
106.7
90.3
91.1
109.6
121.2
125.9
119.4
103.8
106.3
108.9
126.8
148.0
164.4
176.2
168.8
179.2
178.1
115.0
138.1
151.6
158.9
178.4
158.7
168.5
181.0
167.2
179.1
180.9
176.2
180.6
176.1
177.0
188.4
170.9

17.6
20.4
17.4
14.0
12.4
13.7
22.9
25.7
27.1
26.4
30.1
28.9
28.9
29.9
30.1
33.7
34.9
33.7
33.2
35.5
34.9
35.3
37.4
39.9
44.7
48.5
53.8
55.8
59.2
60.9
61.1
63.5
70.2
77.9
78.2
75.9
80.6
87.3
92.3
97.1
95.4
96.5
95.7
106.1
118.4
131.0
142.9
152.3
164.8
177.2
98.4
111.1
122.7
136.6
147.7

149.1
151.3
154.1
154.7
160.4
165.4
165.3
168.0
174.8
178.5
177.4
177.9

259.4
275.6
279.1
284.7
297.9
323.5
344.2
337.4
338.7
342.3
352.8
362.9
376.6
388.2
393.8
413.2
426.9
434.7
439.9
455.8
463.3
470.1
484.2
494.3
517.5
543.2
569.3
579.2
602.4
617.2
632.5
640.3
665.5
683.2
666.1
676.5
708.8
731.4
753.7
766.6
762.6
764.4
771.0
800.2
825.9
847.4
878.1
890.4
904.5
915.7
778.6
812,7
831.2
858.3
883.5
887.7
889.0
891.8
892.9
896.6
899.2
910.3
912.0
915.0
909.7
920.8
917.5

150.6
158.3
161.8
166.3
178.5
193.0
202.2
193.9
191.5
193.6
196.6
202.5
209.8
217.7
222.0
231.3
238.8
243.5
243.5
252.1
255.5
259.7
263.7
266.5
277.2
290.4
299.4
304.0
317.0
324.3
334.5
335.9
344.2
340.8
336.6
346.4
363.6
377.1
379.6
387.5
394.9
392.5
398.8
414.0
422.8
435.5
447.1
452.7
460.0
462.9
404.6
418.2
426.2
441.0
448.7
452.6
451.2
452.8
454.1

456.3
459.8
461.9
462.1
466.0
461.4
463.2
460.7

36.3
38.9
40.3
43.0
41.7
43.4
44.7
42.5
42.7
43.0
44.3
43.7
45.8
46.2
46.2
48.6
49.7
49.3
49.9
52.3
52.7
53.7
56.0
56.9
61.5
64.0
68.3
68.8
71.7
73.0
72.0
75.3
80.3
86.0
84.9
88.1
92.2
97.4
107.1
112.1
114.8
122.2
124.4
132.6
142.2
147.2
157.4
159.6
161.3
168.8
126.2
137.4
143.5
149.9
158.0

17.2
19.2
14.5
9.2
9.5
12.5
22.7
24.1
25.7
27.9
29.0
31.5
34.1
36.0
37.1
40.3
42.8
44.4
46.5
48.9
50.7
51.0
53.2
54.7
57.4
60.2
63.9
66.0
70.6
75.2
79.9
83.6
87.0
91.7
87.2
89.8
93.4
96.4
100.9
97.1
88.4
87.8
89.1
93.2
94.5
94.4
97.5
95.9
97.1
96.6
89.7
94.4
94.7
94.5
97.7

159.6
157.6
161.2
159.9
159.6
157.1
164.1
164.6
165.0
165.8
173.3
171.0

96.1
97.2
95.2
95.2
95.6
97.3
97.4
98.2
97.6
96.5
96.6
95.8

1
Includes
2

other items not shown separately.
Includes imputed rental value of owner-occupied housing.
Source: Department of Commerce, Bureau of Economic Analysis.




311

23.8
24.6
25.3
25.7
25.5
27.2
29.2
30.8
31.0
27.3
29.4
29.3
28.5
27.6
28.1
29.9
29.9
29.7
30.8
29.4
28.5
26.7
26.7
28.0
29.5
31.0
31.8
31.8
30.1
28.6
26.7
25.9
28.6
30.9
24.3
24.2
27.0
26.1
26.9
26.2
21.6
19.2
18.6
18.6
18.5
19.6
22.0
23.0
25.4
25.1
17.6
19.4
18.0
20.5
23.3
22.2
23.1
22.6
24.0
25.0
24.7
25.3
26.6
24.0
24.4
24.7
27.4

202.7
209.3
217.2
227.2
232.9
240.5
262.9
272.6
281.4
285.3
299.8
311.1
321.9
334.1
347.4
363.6
380.1
392.6
406.1
426.7
443.9
461.4
481.8
502.3
532.3
558.5
585.3
612.3
641.8
671.7
697.0
720.2
756.0
786.1
803.1
829.8
862.8
898.5
939.8
971.2
991.9
1,009.0
1,027.0
1,062.7
1,100.3
1,152.3
1,183.8
1,233.7
1,280.2
1,327.2
1,038.1
1,078.6
1,116.8
1,172.2
1,196.8
1,214.5
1,229.5
1,240.9
1,250.0
1,265.9
1,272.8
1,287.0
1,295.2
1,306.7
1,319.0
1,332.9
1,350.3

53.6
56.0
58.1
59.8
61.9
62.6
67.2
72.8
76.5
80.9
86.1
91.9
97.5
102.5
107.1
112.1
117.1
122.6
127.7
133.6
139.8
145.7
153.0
159.4
166.1
174.4
181.7
189.3
197.9
207.6
216.1
224.5
235.5
246.5
258.6
265.7
273.2
279.6
292.8
304.1
312.5
318.9
321.1
325.4
333.0
341.7
348.2
358.4
366.1
372.7
322.1
328.2
335.8
344.4
351.0
354.7
357.5
359.6
361.7

364.0
365.6
366.8
368.0
369.6
371.7
373.6
375.8

32.4
32.0
33.4
31.2
31.5
32.4
35.1
37.6
39.0
40.1
43.8
46.2
47.0
48.9
50.5
55.5
59.3
61.2
63.3
65.7
68.7
70.9
74.4
77.0
80.5
83.9
87.7
91.9
95.1
99.3
102.2
103.6
108.6
112.6
112.8
117.5
122.3
128.2
134.0
138.3
142.6
142.0
143.4
146.2
148.8
151.6
151.9
156.7
164.1
165.4
143.1
149.4
148.9
153.9
153.3
153.2
157.5
158.6
157.5
162.1
162.4
166.3
165.7
163.4
164.4
164.5
169.4

Medical
care

7.1
7.3
7.9
8.2
8.6
9.2
10.3
11.7
12.8
13.7
15.6
17.6
19.0
20.4
22.4
24.2
26.4
28.0
29.5
31.2
32.9
34.6
37.1
38.8
40.8
42.7
44.9
47.4
49.7
52.4
54.4
55.8
58.5
59.8
60.2
63.3
65.5
68.1
70.7
71.1
73.1
72.0
72.8
74.2
75.4
77.5
76.5
78.8
82.8
81.9
71.6
76.9
75.7
79.1
77.6

17.7
19.7
21.9
26.9
29.2
31.0
35.9
35.3
35.1
33.2
32.4
33.2
33.4
34.2
33.3
34.2
35.6
36.2
35.4
36.8
37.9
38.2
39.6
41.2
43.4
45.5
48.3
51.4
54.7
58.1
59.8
62.1
66.0
67.8
68.4
69.4
72.6
77.8
80.2
82.9
77.4
73.3
69.7
71.4
75.9
82.1
86.2
89.6
94.5
98.3
69.1
72.6
78.0
83.8
87.4

76.6
80.0
80.1
78.7

88.0
89.3
90.1
90.8
92.5
93.9
95.2
96.2

21.6
22.4
23.7
24.1
25.9
26.5
31.1
33.8
36.7
37.8
40.1
42.0
44.2
46.6
49.5
51.0
53.9
56.8
60.5
64.0
66.5
69.1
74.3
79.1
88.0
91.4
95.2
98.3
105.2
113.6
120.4
128.2
136.0
145.4
151.3
159.9
167.8
177.8
184.8
192.2
200.6
212.0
217.8
222.3
232.0
240.9
251.5
266.8
278.2
296.3
220.7
224.6
235.7
245.2
256.5
261.0
265.6
269.1
271.6
273.3
275.6
279.9
283.9

96.3
97.1
98.8
101.1

289.0
293.1
298.1
305.0

82.1
81.8
84.0
83.3
80.7
81.4
81.0
84.3

TABLE C-16.—Gross and net private domestic investment, 1929-89
[Billions of dollars; quarterly data at seasonally adjusted annual rates]
Equals: Net private domestic investment
Net fixed investment

Less:

Year or quarter

Gross
private
domestic
investment

1929
1933
1939
1940
1941
1942
1943
1944 . .
1945
1946
1947
1948
1949
1950
1951 .
1952
1953
1954
1955
1956
1957
1958
1959
1960
1961 ...
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973 ...
1974
1975
1976
1977
1978
1979
1980 ..
1981
1982
1983
1984
1985
1986
1987
1988
1989 p
1982- IV
1983: IV
1984- IV
1985: IV
1986- IV
1987:1

||

III

IV
1988:1

||

III

IV
1989-1

||
III

IV .

16.7
1.6
9.5
13.4
18.3
10.3
6.2
7.7
11.3
31.5
35.0
47.1
36.5
55.1
60.5
53.5
54.9
54.1
69.7
72.7
71.1
63.6
80.2
78.2
77.1
87.6
93.1
99.6
116.2
128.6
125.7
137.0
153.2
148.8
172.5
202.0
238.8
240.8
219.6
277.7
344.1
416.8
454.8
437.0
515.5
447.3
502.3
664.8
643.1
659.4
699.9
750.3
777.1
409.6
579.8
661.8
654.1
648.8
673.1
684.1
692.8
749.7
728.8
748.4
771.1
752.8
769.6
775.0
779.1
784.8

Capital
consumption
allowances
with
capital
consumption
adjustment
9.9
7.6
9.0
9.4
10.3
11.3
11.6
12.0
12.4
14.2
17.6
20.4
22.0
23.6
27.2
29.2
30.9
32.5
34.4
38.1
41.1
42.8
44.6
46.4
47.8
49.4
51.4
53.9
57.4
62.1
67.4
73.9
81.4
88.8
97.5
107.9
118.1
137.5
161.8
179.2
201.5
229.9
265.8
303.8
347.8
383.2
396.6
415.5
437.2
460.1
486.7
513.6
552.2
393.2
400.8
423.5
446.9
470.8
476.9
483.5
490.6
495.8
504.7
510.2
515.2
524.1
533.0
541.0
565.2
569.6

Nonresidential
Total

Total

6.7
-6.1
.5
4.1
8.0
-1.0
-5.3
42

5.0
-4.5

3.3
-3.5

L9
3.5
-2.7
-4.7
32

-1.1
17.3
17.5
26.7
14.5
31.5
33.3
24.4
24.0
21.6
35.3
34.6
29.9
20.8
35.5
31.8
29.4
38.2
41.8
45.7
58.8
66.5
58.3
63.1
71.8
60.0
74.9
94.1
120.7
103.4
57.8
98.4
142.5
186.9
189.1
133.1
167.7
64.1
105.7
249.4
205.9
199.3
213.2
236.7
224.9
16.4
179.0
238.3
207.1
178.0
196.2
200.6
202.2
253.8
224.0
238.2
255.8
228.6
236.6
234.0
213.9
215.2

-.1
10.9
17.9
22.0
17.6
24.6
23.1
21.3
23.6
23.3
29.6
29.9
28.5
22.3
29.8
28.7
27.0
32.1
35.9
40.3
48.9
52.3
48.0
55.2
62.0
56.9
67.2
83.6
101.1
87.9
63.4
82.4
121.3
158.3
176.1
141.5
143.7
88.7
112.8
181.7
194.5
192.4
183.9
206.0
195.5
76.3
148.0
193.3
199.9
190.2
170.8
181.9
192.6
190.5
194.0
208.9
211.2
210.0
208.9
206.6
186.5
180.0

.7
2.0
-2.1
-3.1
-1.3
1.7
6.9
10.7
11.8
8.7
10.3
11.6
10.1
11.9
10.2
13.2
15.6
15.9
9.6
12.1
13.4
11.9
14.9
16.0
20.3
29.3
35.8
32.3
34.2
39.8
36.8
34.5
40.5
56.2
55.8
37.5
40.9
58.6
82.2
98.9
88.9
98.6
65.5
45.8
91.1
102.1
75.3
65.5
88.1

Source: Department of Commerce, Bureau of Economic Analysis.




Total

312

Structures

1.8
-1.7
-1.1
-.8
-~L7
-2.4
-1.9
10
2.4
1.9
2.5
2.2
2.8
3.9
3.8
4.8
5.0
5.9
7.9
7.9
6.3
6.4
7.3
7.3
8.0
7.9
9.4
13.2
15.2
14.4
15.1
17.4
17.4
16.8
17.4
21.7
22.0
15.6
16.0
17.6
25.0
34.5
39.4
51.7
45.9
25.9
39.3
45.8
27.5
17.0
18.7

Producers'
durable
equipment
1.4
-1.8

1.5
2.3
5
-.7
.5
2.8
4.5
8.7
9.3
6.5
7.5
7.7
6.4
7.1
5.2
7.3
7.7
8.1
3.2
5.7
6.1
4.6
6.9
8.1
10.9
16.1
20.7
18.0
19.0
22.4
19.4
17.7
23.1
34.4
33.7
21.9
24.8
41.0
57.2
64.5
49.5
46.9
19.6
19.9
51.8
56.3
47.8
48.5
69.5

Residential

1.7
-1.0
.8
1.2
1.5
6
-1.6
-1.9
-1.8
4.0
7.3
10.2
8.9
14.4
11.5
11.2
11.7
13.0
16.4
14.4
12.6
12.7
17.7
15.4
15.1
17.2
19.9
20.0
19.6
16.5
15.7
21.0
22.2
20.1
32.7
43.1
45.0
32.2
25.9
41.6
62.6
76.1
77.2
52.6
45.0
23.2
67.0
90.6
92.4
117.1
118.5
117.9

Change in
business
inventories

1.7
-1.6
2.2
4.5
1.8
-.6
-1.0
-1.0
6.4
-.5
4.7
-3.1
6.8
10.2
3.1
.4
16
5.7
4.6
1.4
-1.5
5.8
3.1
2.4
6.1
5.8
5.4
9.9
14.2
10.3
7.9
9.8
3.1
7.8
10.5
19.6
15.4
-5.6
16.0
21.3
28.6
13.0
-8.3
24.0
-24.5
-7.1
67.7
11.3
6.9
29.3
30.6
29.4
-59.9
31.0
45.0
7.2
-12.2
25.4
18.8
9.5
63.3
30.0
29.3
44.6
18.7
27.7
27.4
27.4
35.2

TABLE C-17.—Gross and net private domestic investment in 1982 dollars, 1929-89
[Billions of 1982 dollars; quarterly data at seasonally adjusted annual rates]
Equals: Net private domestic investment

Less:

Year or quarter

1929
1933
1939
1940
1941 ..
1942
1943 . .
1944
1945
1946
1947
1948
1949
1950.
1951
1952
1953
1954
1955
1956
1957
1958
1959
I960
1961
1962
1963
1964
1965
1966
1967
1968...
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989".
1982: IV
1983: IV
1984: IV
1985: IV
1986: IV
1987:1

II.
Ill

IV
1988:1

||
III

IV
1989: 1

II
Ill
IV

. .

Oanital
capital
consumption
Gross
allowprivate
ances
domestic
with
investcapital
ment
consumption
adjustment

139.2
22.7
86.0
111.8
1388
76.7
50.4
56.4
76.5
178.1
177.9
208.2
168.8
234.9
235.2
211.8
216.6
212.6
259.8
257.8
243.4
221.4
270.3
260.5
259.1
288.6
307.1
325.9
367.0
390.5
374.4
391.8
410.3
381.5
419.3
465.4
520.8
481.3
383.3
453.5
521.3
576.9
575.2
509.3
545.5
447.3
504.0
658.4
637.0
639.6
674.0
715.8
724.5
408.8
577.2
655.7
648.0
615.2
646.3
656.7
671.7
721.1
707.0
713.5
733.6
709.1
721.1
719.8
724.6
732.7

86.8
86.5
84.4
84.9
86.3
86.9
85.7
84.8
85.4
88.0
91.8
96.8
101.7
106.5
111.8
117.0
122.1
127.4
132.6
138.3
143.5
147.7
151.9
156.3
160.6
165.1
170.3
176.3
183.7
192.2
201.1
209.8
219.8
229.8
239.5
253.4
263.6
276.1
287.0
297.3
309.6
323.7
341.3
356.1
369.7
383.2
394.4
407.2
426.7
443.4
460.8
480.2
508.4
390.0
397.9
413.5
435.3
450.0
454.2
458.6
463.0
467.6
472.4
477.5
482.7
488.1
493.5
498.9
518.6
522.5

Net fixed investment
Nonresidential
Total

Total

52.4
638
1.6
26.9
52.5
-10.2
-35.3
-28.4
-8.9
90.1
86.1
111.4
67.1
128.4
123.3
94.8
94.4
85.2
127.2
119.5
99.9
73.7
118.4
104.1
98.4
123.5
136.8
149.6
183.4
198.3
173.4
181.9
190.5
151.8
179.8
212.1
257.1
205.3
96.3
156.2
211.7
253.3
234.0
153.2
175.8
64.1
109.6
251.2
210.3
196.2
213.1
235.6
216.2
18.8
179.3
242.2
212.7
165.2
192.1
198.1
208.7
253.5
234.5
236.0
250.8
221.0
227.6
220.8
206.0
210.2

41.6
-53.0
-2.3
12.5
24.7
-22.1
-36.0
-23.3

62^2
87.1
99.1
76.7
104.2
92.5
84.8
91.7
90.0
110.9
106.5
96.9
77.1
101.9
96.4
91.2
107.3
120.1
133.9
158.1
161.4
144.6
160.9
165.3
143.6
160.2
190.3
217.1
172.0
109.1
134.1
182.6
216.5
218.9
160.1
152.0
88.7
116.0
188.9
201.2
190.7
189.4
207.7
191.6
78.0
152.3
200.5
205.0
186.0
174.0
184.8
201.9
197.0
200.3
214.5
213.4
202.6
203.1
201.8
184.1
177.6

Source: Department of Commerce, Bureau of Economic Analysis.




313

Total

26.2
402
-10.1
1.5
12.0
-17.5
244
-10.5
10.5
39.5
52.6
54.3
37.9
43.3
46.9
41.7
47.0
40.4
49.9
54.9
51.7
31.5
38.5
41.4
37.3
46.4
49.2
63.3
90.4
106.3
93.6
96.1
103.1
89.3
76.1
85.3
116.5
106.9
60.8
61.8
85.2
111.6
124.3
101.3
105.5
65.5
50.4
103.3
116.1
85.6
88.1
109.8

Structures

16.8
-24.3
120
-8.5
35
-15.9
-20.7
-15.2
-8.3
15.4
11.7
14.3
12.7
15.7
18.8
18.8
22.9
24.4
27.7
32.5
30.7
24.8
25.0
27.9
28.1
30.3
29.1
34.0
46.2
50.4
45.9
46.7
49.7
46.1
40.4
39.8
46.8
42.5
27.9
27.3
28.7
37.2
44.8
47.2
56.0
45.9
26.2
39.8
41.9
20.0
10.8
10.1

Producers'
durable
equipment
9.4
160
1.9
10.0
15.6
-1.6
38
4.7
18.8
24.1
40.9
40.0
25.2
27.6
28.1
22.9
24.1
16.0
22.2
22.4
20.9
6.6
13.6
13.6
9.3
16.0
20.1
29.2
44.2
55.8
47.7
49.3
53.4
43.3
35.7
45.5
69.8
64.4
32.9
34.6
56.5
74.3
79.5
54.1
49.4
19.6
24.1
63.5
74.2
65.6
77.2
99.8

Residential

15.4
128
7.8
11.1
12.7
-4.6
115
-12.8
-11.0
22.7
34.5
44.8
38.9
60.9
45.6
43.2
44.7
49.6
60.9
51.6
45.2
45.6
63.4
55.0
53.8
61.0
70.9
70.6
67.7
55.1
50.9
64.8
62.2
54.2
84.1
105.0
100.6
65.1
48.3
72.2
97.4
104.9
94.6
58.7
46.5
23.2
65.6
85.6
85.1
105.1
101.3
97.9

Change in
business
inventories

10.8
107
3.9
14.4
27.8
12.0
-5.2
84
27.9
10
12.3
-9.7
24.2
30.8
10.0
2.8
-4.8
16.3
12.9
3.0
-3.4
16.5
7.7
7.3
16.2
16.6
15.7
25.2
36.9
28.8
21.0
25.1
8.2
19.6
21.8
40.0
33.3
-12.8
22.1
29.1
36.8
15.0
-6.9
23.9
-24.5
-6.4
62.3
9.1
5.6
23.7
27.9
24.5
59.3
27.0
41.7
7.7
20.8
18.1
13.3
6.8
56.6
34.3
21.5
37.5
18.3
24.5
19.1
21.9
32.6

TABLE C-18.—Inventories and final sales of business, 1946-89
[Billions of dollars, except as noted; seasonally adjusted]
Inventory-final
sales ratio

Inventories »
Nonfarm
Quarter

Total2

Farm

2

Total
Fourth quarter:
1946 ...
1947
1948
1949
1950
1951
1952
1953
1954 ..
..
1955
„
1956
1957
1958
1959
1960.~
1961
1962 ...„
1963
1964 .
1965
1966
1967
1968
1969
1970 .
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989"
1982: IV
1983- IV
1984: IV
1985: IV
1986- IV .
1987:1
|
|
III
IV
1988- 1
|
|
Ill
IV
1989:1
|
|
III
IV*

71.0
80.3
85.6
77.5
96.7
109.4
108.6
109.6
107.3
114.6
123.4
127.0
126.2
131.7
135.5
137.2
143.8
149.6
155.3
169.1
185.2
197.4
211.8
232.4
240.3
257.8
285.6
352.6
423.3
428.8
463.3
505.7
588.2
674.8
739.3
789.0
771.5
787.2
858.2
863.5
853.3
920.7
1,004.0
1,055.3
771.5
787.2
858.2
863.5
853.3
868.4
849
8.
895.2
920.7
937.8
962.0
985.3
1,004.0
1,026.6
1,033.9
1,041.8
1,055.3

19.6
21.0
19.3
16.7
22.5
24.9
23.3
22.0
21.2
19.9
19.9
21.2
22.6
22.1
23.3
23.8
25.2
25.7
24.5
28.0
27.4
27.9
29.1
31.8
31.1
35.4
44.3
65.5
62.4
64.3
60.2
59.3
73.7
80.7
84.5
81.6
79.2
79.4
80.9
71.5
66.3
69.2
75.7
80.0
79.2
79.4
80.9
71.5
66.3
67.5
70.0
68.1
69.2
71.0
75.0
77.6
75.7
78.2
77.4
77.5
80.0

51.4
59.3
66.3
60.8
74.2
84.5
35.3
87.6
86.1
94.7
103.5
105.8
103.7
109.6
112.2
113.4
118.6
123.8
130.9
141.0
157.8
169.5
182.6
200.6
209.2
222.4
241.3
287.1
360.9
364.5
403.1
446.4
514.5
594.1
654.8
707.4
692.2
707.8
777.3
792.1
787.0
851.5
928.3
975.3
692.2
707.8
777.3
792.1
787.0
800.9
814.9
827.0
851.5
866.7
887.0
907.7
928.3
948.4
956.5
964.3
975.3

Manu- Wholesale
facturing trade

24.6
29.0
32.2
28.6
34.9
43.1
44.0
46.0
43.9
48.3
54.0
54.3
52.7
55.2
56.2
57.2
60.3
62.2
65.9
70.7
80.9
87.5
94.0
103.4
105.8
107.3
113.6
136.1
177.0
177.8
194.9
210.6
238.4
281.1
310.7
330.2
316.1
315.9
343.4
333.5
321.1
340.8
368.6
384.2
316.1
315.9
343.4
333.5
321.1
322.6
325.7
332.3
340.8
347.7
354.9
360.8
368.6
376.5
378.2
382.9
384.2

10.4
11.1
12.5
12.5
14.7
15.6
15.6
15.8
16.1
17.6
18.9
19.2
19.3
21.0
21.3
21.8
22.4
23.9
25.2
26.9
30.3
32.7
34.6
37.9
41.7
45.2
50.0
59.4
75.6
76.2
86.1
96.2
113.8
133.7
154.8
164.7
162.2
163.8
177.5
181.0
184.1
198.0
218.6
228.1
162.2
163.8
177.5
181.0
184.1
187.0
190.5
191.5
198.0
204.9
210.1
215.7
218.6
221.6
223.8
225.4
228.1

Final
sales3
Retail
trade

12.8
14.5
16.6
15.4
19.2
19.7
19.4
20.0
20.2
22.8
23.7
25.0
25.1
26.2
27.5
27.0
28.3
29.6
31.0
33.7
36.2
36.9
40.7
44.5
45.8
52.3
57.7
66.4
74.6
74.7
82.7
93.3
107.8
117.0
122.7
134.0
134.7
148.2
166.7
180.9
185.5
208.0
223,7
237.3
134.7
148.2
166.7
180.9
185.5
193.2
199.3
201.4
208.0
207.1
212.5
218.2
223.7
229.0
231.3
231.7
237.3

Total

Other

3.2
4.1
4.5
3.9
4.9
5.5
5.6
5.2
5.3
5.4
6.2
6.6
6.6
7.2
7.2
7.4
7.5
8.0
8.8
9.8
10.4
12.4
13.3
14.9
16.0
17.6
19.9
25.2
33.7
35.8
39.4
46.3
54.5
62.3
66.7
78.5
79.2
79.9
89.6
96.6
96.3
104.7
117.4
125.8
79.2
79.9
89.6
96.6
96.3
98.2
99.4
101.9
104.7
107.0
109.5
113.0
117.4
121.2
123.3
124.4
125.8

15.8
18.4
19.8
19.7
21.8
24.9
26.4
27.5
28.0
30.2
31.9
33.3
34.3
36.2
37.5
39.5
41.8
44.5
47.1
52.1
55.3
58.8
64.8
68.8
72.4
78.9
87.7
96.8
104.6
117.1
128.5
143.9
165.1
183.2
201.1
217.8
229.5
247.0
268.8
290.3
305.6
325.9
354.4
374.6
229.5
247.0
268.8
290.3
305.6
308.9
316.0
323.3
325.9
333.1
341.0
345.8
354.4
360.0
366.6
371.8
374.6

4.48
4.36
4.33
3.94
4.44
4.40
4.11
3.98
3.84
3.80
3.87
3.82
3.68
3.64
3.61
3.47
3.44
3.36
3.30
3.24
3.35
3.36
3.27
3.38
3.32
3.27
3.26
3.64
4.05
3.66
3.60
3.51
3.56
3.68
3.68
3.62
3.36
3.19
3.19
2.97
2.79
2.83
2.83
2.82
3.36
3.19
3.19
2.97
2.79
2.81
2.80
2.77
2.83
2.82
2.82
2.85
2.83
2.85
2.82
2.80
2.82

Nonfarm4

3.24
3.22
3.35
3.09
3.41
3.40
3.23
3.18
3.08
3.14
3.24
3.18
3.02
3.03
2.99
2.87
2.84
2.78
2.78
2.70
2.85
2.88
2.82
2.91
2.89
2.82
2.75
2.97
3.45
3.11
3.14
3.10
3.12
3.24
3.26
3.25
3.02
2.87
2.89
2.73
2.57
2.61
2.62
2.60
3.02
2.87
2.89
2.73
2.57
2.59
2.58
2.56
2.61
2.60
2.60
2.62
2.62
2.63
2.61
2.59
2.60

1
Inventories at end of quarter. Quarter-to-quarter change calculated from this table is not the current-dollar change in business
inventories (CBI) component of GNP. The former is the difference between two inventory stocks, each valued at their respective end-ofquarter prices. The latter is the change in the physical volume of inventories valued at average prices of the quarter. In addition,
changes calculated from this table are at quarterly rates, whereas CBI is stated at annual rates.
2
Beginning 1959, inventories of construction establishments are included in "other" nonfarm inventories. Prior to 1959, they are
included in total and total nonfarm inventories, but not in the detailed categories shown.
3
Quarterly totals at monthly rates. Business final sales equals final sales less gross product of households and institutions,
government, and rest of the world, and includes a small amount of final sales by farms.
4
Ratio based on total business final sales, which includes a small amount of final sales by farms.
Note.—The industry classification of inventories is on an establishment basis and is based on the 1972 Standard Industrial
Classification (SIC) beginning 1948 and on the 1942 SIC prior to 1948.
Source: Department of Commerce, Bureau of Economic Analysis.




314

TABLE C-19.—Inventories and final sales of business in 1982 dollars, 1947-89
[Billions of 1982 dollars, except as noted; seasonally adjusted]
Inventories1
Quarter

Fourth quarter:
1947
1948
1949. ..
1950
1951
1952
1953
1954
1955
1956
1957
1958
1959
I960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978 .
1979
1980
1981
1982
1983
1984
1985
1986
1987.
1988
1989 *
1982: IV
1983: IV
1984- IV
1985: IV
1986: IV
1987- 1
II
Ill
IV
1988- 1
||
Ill
IV
1989: 1
II
Ill
IV '
1

Nonfarm
Total2

Farm

43.3
45.4
44.4
47.7
51.5
54.6
54.3
55.9
56.0
53.7
54.9
57.3
58.1
59.4
60.8
63.5
65.8
64.0
66.3
66.1
67.7
68.2
69.0
69.8
73.4
75.9
81.4
81.3
82.6
79.1
77.2
77.8
82.4
77.8
82.6
81.2
74.9
79.4
75.2
72.8
70.6
67.8
71.3
81.2
74.9
79.4
75.2
72.8
72.2
71.9
70.4
70.6
72.1
71.1
71.2
67.8
69.7
69.6
71.0
71.3

251.3
263.5
253.9
278.1
308.9
318.9
321.6
316.9
333.2
346.1
349.1
345.7
362.2
370.0
377.2
393.4
410.1
425.8
451.0
487.9
516.6
537.7
562.8
571.1
590.7
612.4
652.5
685.7
673.0
695.1
724.2
761.0
776.0
769.1
793.0
768.4
762.0
824.2
833.3
838.9
862.6
890.5
915.0
768.4
762.0
824.2
833.3
838.9
843.4
846.8
848.5
862.6
871.2
876.5
885.9
890.5
896.6
901.4
906.8
915.0

Total*

208.0
218.1
209.5
230.4
257.4
264.3
267.4
260.9
277.1
292.4
294.2
288.4
304.2
310.5
316.5
329.9
344.2
361.8
384.7
421.7
449.0
469.4
493.8
501.2
517.3
536.6
571.0
604.5
590.3
616.1
647.0
683.2
693.6
691.4
710.3
687.2
687.2
744.8
758.2
766.1
792.0
822.7
843.7
687.2
687.2
744.8
758.2
766.1
771.2
774.9
778.1
792.0
799.0
805.4
814.7
822.7
826.9
831.8
835.8
843.7

Manu- Wholesale
facturing trade

105.1
108.6
102.9
109.8
133.2
139.0
142.7
135.0
142.5
153.2
152.1
146.8
153.5
154.7
158.8
167.2
172.6
180.9
191.6
213.6
229.2
239.0
248.5
248.3
246.1
251.7
267.9
288.5
281.9
294.0
301.9
314.1
324.7
326.8
330.3
315.2
309.3
330.0
320.6
315.5
318.8
327.3
334.5
315.2
309.3
330.0
320.6
315.5
314.1
313.2
315.5
318.8
321.8
322.8
324.3
327.3
328.3
330.4
333.4
334.5

39.9
42.7
42.8
47.6
49.0
50.0
50.4
51.1
54.8
56.6
56.0
56.0
60.7
61.8
63.1
65.0
68.9
72.6
76.5
85.1
90.7
93.5
98.9
105.8
110.7
114.0
118.4
128.4
124.0
131.2
140.5
151.6
156.1
161.6
165.0
161.5
157.9
171.0
174.3
180.6
185.0
193.5
196.7
161.5
157.9
171.0
174.3
180.6
181.1
181.5
180.4
185.0
189.9
190.6
193.0
193.5
192.9
194.0
194.6
196.7

Retail
trade

39.6
43.7
42.8
49.5
49.6
49.6
50.8
51.2
57.1
57.8
59.8
59.4
61.9
65.2
64.2
67.5
70.3
73.4
79.2
84.3
84.2
90.5
96.4
96.6
107.2
114.0
122.1
121.1
115.9
122.3
130.9
139.1
136.7
130.4
135.5
132.9
142.4
157.8
169.1
171.2
186.4
193.6
199.4
132.9
142.4
157.8
169.1
171.2
176.6
180.5
181.5
186.4
184.4
187.4
190.7
193.6
195.7
196.4
196.0
199.4

Final
sales3
Other

23.5
23.1
21.1
23.4
25.6
25.8
23.5
23.6
22.7
24.8
26.3
26.3
28.1
28.8
30.3
30.1
32.4
34.9
37.4
38.7
45.0
46.5
50.0
50.5
53.2
56.9
62.6
66.4
68.6
68.5
73.7
78.4
76.1
72.7
79.5
77.6
77.5
86.0
94.1
98.8
101.7
108.2
113.0
77.6
77.5
86.0
94.1
98.8
99.4
99.7
100.7
101.7
103.0
104.6
106.7
108.2
110.0
111.0
111.9
113.0

Inventory-final
sales ratio
Total

74.8
77.1
77.3
82.6
90.4
93.9
98.0
97.7
102.5
104.7
105.9
107.7
111.4
114.1
118.7
123.4
130.4
136.3
147.7
150.2
156.4
163.7
165.4
166.8
172.6
185.4
188.9
184.3
191.5
199.3
209.0
221.5
225.6
225.3
224.6
226.1
235.5
248.4
261.2
269.7
279.0
291.9
297.8
226.1
235.5
248.4
261.2
269.7
270.3
274.1
278.3
279.0
283.5
287.7
288.5
291.9
294.3
296.8
298.6
297.8

3.36
3.42
3.28
3.37
3.42
3.40
3.28
3.24
3.25
3.31
3.30
3.21
3.25
3.24
3.18
3.19
3.14
3.12
3.05
3.25
3.30
3.28
3.40
3.42
3.42
3.30
3.45
3.72
3.51
3.49
3.47
3.44
3.44
3.41
3.53
3.40
3.24
3.32
3.19
3.11
3.09
3.05
3.07
3.40
3.24
3.32
3.19
3.11
3.12
3.09
3.05
3.09
3.07
3.05
3.07
3.05
3.05
3.04
3.04
3.07

Nonfarm 4

2.78
2.83
2.71
2.79
2.85
2.81
2.73
2.67
2.70
2.79
2.78
2.68
2.73
2.72
2.67
2.67
2.64
2.65
2.60
2.81
2.87
2.87
2.98
3.00
3.00
2.89
3.02
3.28
3.08
3.09
3.10
3.08
3.08
3.07
3.16
3.04
2.92
3.00
2.90
2.84
2.84
2.82
2.83
3.04
2.92
3.00
2.90
2.84
2.85
2.83
2.80
2.84
2.82
2.80
2.82
2.82
2.81
2.80
2.80
2.83

Inventories at end of quarter. Quarter-to-quarter changes calculated from this table are at quarterly rates, whereas the constant-

/4/\ll<lr *han/1A

in

KnpInA** IrxutntArl/u. jwimn^nAn* A( PUD

i«

»».t+/<w4 »»

nnnnnl

ro*<u>

2

Beginning 1959, inventories of construction establishments are included in "other" nonfarm inventories. Prior to 1959, they are
included in total and total nonfarm inventories, but not in the detailed categories shown.
3
Quarterly totals at -monthly rates. Business final sales equals final sales less gross product of households and institutions,
government, and rest of world, and includes a small amount of final sales by farms.
4
Ratio based on total business final sales, which includes a small amount of final sales by farms.
Note.-The industry classification of inventories is on an establishment basis and is based on the 1972 Standard Industrial
Classification (SIC) beginning 1948 and on the 1942 SIC prior to 1948.
Source: Department of Commerce, Bureau of Economic Analysis.




315

TABLE C-20.—Foreign transactions in the national income and product accounts, 1929-89
[Billions of dollars; quarterly data at seasonally adjusted annual rates]
Payments to foreigners

Receipts from foreigners

Year or quarter

Exports of goods and
services
Total
Total

1929
1933
1939
1940
1941
1942
1943
1944
1945
1946
1947
1948
1949
1950
1951
1952
1953
1954
1955
1956
1957
1958
1959 ..
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982 .
1983
1984
1985
1986
1987
1988
1989"
1982- IV
1983: IV
1984: IV
1985: IV
1986- IV
1987-1
||
III.
IV
1988:1
||
Ill
IV
1989- 1
II
Ill
IV

7.1
2.4
4.6
5.4
6.1
5.0
4.6
5.5
7.4
15.2
20.3
17.5
16.4
14.5
19.8
19.2
18.1
18.8
21.1
25.2
28.2
24.4
25.0
29.9
31.1
33.1
35.7
40.5
42.9
46.6
49.5
54.8
60.4
69.8
73.1
82.1
114.1
149.5
161.3
177.7
191.6
227.5
292.4
352.1
383.9
361.9
352.5
383.5
370.9
396.5
448.6
547.7
624.4
335.9
364.7
385.7
369.2
402.4
416.5
437.4
458.0
482.6
521.6
532.5
556.8
579.7
605.6
626.1
628.5
637.3

Merchandise

Services

7.1
2.4
4.6
5.4
6.1
5.0
4.6
5.5
7.4
15.2
20.3
17.5
16.4
14.5
19.8
19.2
18.1
18.8
21.1
25.2
28.2
24.4
25.0
29.9
31.1
33.1
35.7
40.5
42.9
46.6
49.5
54.8
60.4
68.9
72.4
81.4
114.1
151.5
161.3
177.7
191.6
227.5
291.2
351.0
382.8
361.9
352.5
383.5
370.9
396.5
448.6
547.7
624.4
335.9
364.7
385.7
369.2
402.4
416.5
437.4
458.0
482.6
521.6
532.5
556.8
579.7
605.6
626.1
628.5
637.3

5.3
1.7
3.3
4.1
4.5
3.4
2.9
3.6
54
11.8
16.1
13.3
12.2
10.2
14.2
13.4
12.4
12.9
14.4
17.6
19.6
16.4
16.5
20.5
20.9
21.7
23.3
26.7
27.8
30.7
32.2
35.3
38.3
44.5
45.6
51.7
73.9
101.0
109.6
117.5
123.1
144.7
183.3
225.1
238.3
214.0
206.1
224.1
220.8
224.4
255.1
322.0
369.5
196.3
215.6
228.0
217.7
230.4
234.2
245.4
261.9
278.9
305.0
314.4
327.5
341.0
358.7
372.1
370.4
376.9

1.7
.7
1.3
1.3
1.6
1.6
17
1.9
21
3.4
4.2
4.3
4.1
4.3
5.5
5.8
5.7
5.9
6.7
7.6
8.7
8.0
8.5
9.4
10.1
11.4
12.3
13.8
15.1
15.8
17.3
19.5
22.1
24.4
26.8
29.6
40.2
50.5
51.7
60.2
68.6
82.8
107.9
125.9
144.5
148.0
146.4
159.4
150.1
172.0
193.5
225.7
254.8
139.6
149.1
157.7
151.5
172.0
182.3
192.0
196.1
203.7
216.6
218.1
229.3
238.6
246.9
254.0
258.1
260.4

Capital
grants
received
by the
United
States
(net)

0.9

'.1
0
20
0
0
0
0
1.1
1.2
1.1
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0

Imports of goods and
services
Total
Total

7.1
2.4
4.6
5.4
6.1
5.0
4.6
5.5
7.4
15.2
20.3
17.5
16.4
14.5
19.8
19.2
18.1
18.8
21.1
25.2
28.2
24.4
25.0
29.9
31.1
33.1
35.7
40.5
42.9
46.6
49.5
54.8
60.4
69.8
73.1
82.1
114.1
149.5
161.3
177.7
191.6
227.5
292.4
352.1
383.9
361.9
352.5
383.5
370.9
396.5
448.6
547.7
624.4
335.9
364.7
385.7
369.2
402.4
416.5
437.4
458.0
482.6
521.6
532.5
556.8
579.7
605.6
626.1
628.5
637.3

Merchandise

Services

5.9
2.1
3.4
3.7
4.7
4.8
6.5
7.2
7.9
7.3
8.3
10.6
9.8
12.3
15.3
16.0
16.8
16.3
18.1
19.9
20.9
21.1
23.5
24.0
23.9
26.2
27.5
29.6
33.2
39.1
42.1
49.3
54.7
60.5
66.1
78.2
97.3
135.2
130.3
158.9
189.7
223.4
272.5
318.9
348.9
335.6
358.7
442.4
448.9
493.8
561.2
621.3
675.2
321.9
390.5
453.6
472.4
511.3
522.5
551.8
573.4
597.2
604.3
607.5
623.0
650.5
659.6
676.6
673.6
691.1

4.5
1.5
2.4
2.7
3.4
2.7
3.4
3.8
3.9
5.1
6.0
7.6
6.9
9.1
11.2
10.8
11.0
10.4
11.5
12.8
13.3
13.0
15.3
15.2
15.1
16.9
17.7
19.4
22.2
26.3
27.8
33.9
36.8
40.9
46.6
56.9
71.8
104.5
99.0
124.3
151.9
176.5
211.9
247.5
266.5
249.5
271.3
334.3
340.9
367.8
412.4
449.0
482.2
239.9
298.3
342.7
361.4
381.8
386.8
403.5
422.4
436.9
439.0
439.5
448.8
468.8
469.8
480.0
482.2
496.8

1.5
.6
1.0
1.0
1.3
2.1
3.1
3.4
4.0
2.3
2.4
3.0
2.9
3.2
4.1
5.2
5.8
5.9
6.6
7.1
7.6
8.1
8.2
8.8
8.8
9.3
9.7
10.2
11.0
12.7
14.4
15.4
17.9
19.6
19.5
21.3
25.5
30.7
31.3
34.6
37.9
46.9
60.5
71.4
82.4
86.1
87.3
108.2
108.0
126.1
148.8
172.3
193.0
82.0
92.2
110.9
111.0
129.5
135.6
148.3
150.9
160.2
165.3
168.0
174.2
181.6
189.8
196.6
191.4
194.3

Source: Department of Commerce, Bureau of Economic Analysis.




316

Transfer payments
(net)
Total

0.4
.2
.2
.2
.2
.2
.2
.3
.8
2.9
2.6
4.5
5.6
4.0
3.5
2.5
2.5
2.3
2.5
2.4
2.3
2.3
2.3
2.4
2.7
2.8
2.9
3.0
3.0
3.1
3.3
3.2
3.2
3.5
3.9
4.1
4.1
4.6
4.9
5.4
5.1
5.6
6.2
7.7
7.5
9.0
9.5
12.3
15.1
15.9
14.3
14.7
15.5
10.6
13.4
17.0
16.9
16.6
12.6
13.1
13.0
18.4
13.5
11.7
13.6
20.2
13.8
12.5
15.7
19.9

Interest
paid by
From
governFrom
ment to
persons govern- foreigners
ment
(net) (net)

0.3
.'2
.2
.2
.1

0.0
.0
.0
.0
.0
.1

'A

-'.1
.4
2.3
2.0
3.9
5.1
3.6
3.1
2.1
2.0
1.8
2.1
1.9
1.8
1.8
1.9
1.9
2.2
2.3
2.3
2.3
2.3
2.4
2.4
2.3
2.2
2.3
2.7
2.9
2.9
3.6
4.0
4.4
4.2
4.7
5.2
6.5
6.5
7.8
8.5
10.7
13.4
13.9
12.4
12.9
13.7
9.5
12.2
15.5
15.5
14.5
10.6
11.2
11.0
16.7
11.4
10.2
11.7
18.2
11.5
11.1
14.1
18.2

.5
.7
.7
.7
.5
.4
.4
.4
.5
.5
.4
.5
.5
.4
.4
.4
.5
.6
.7
.7
.7
.9
.9
1.0
1.2
1.2
1.1
1.3
1.0
1.0
1.0
.9
.9
1.0
1.1
1.0
1.3
1.0
1.5
1.7
1.9
1.9
1.9
1.7
1.1
1.2
1.6
1.4
2.1
2.0
1.9
2.0
1.8
2.1
1.5
1.9
1.9
2.2
1.4
1.6
1.6

0.0
.0
.0
.0
.0
.0
.0
.0
.0
.0
.0
.0
.0
.0
.0
.1
'.1
.1
.2
.2
.1
.3
.3

'.3
.4
.5
.5
.6
.7
.8
1.0
1.8
2.7
3.8
4.3
4.5
4.5
5.5
8.7
11.1
12.6
16.9
18.3
17.8
19.8
21.3
22.6
24.1
29.1
33.4
18.9
18.3
21.2
21.5
22.9
23.8
23.9
23.9
24.6
26.6
28.4
30.2
31.1
32.5
34.4
33.9
32.8

Net
foreign
investment

0.8
.2
1.0
1.5
1.3

-111
-2.0
-1.3
4.9
9.3
2.4
.9
-1.8
.9
.6
-1.3
.2
.4
2.8
4.8
.9
-1.2
3.2
4.2
3.8
4.9
7.5
6.2
3.8
3.5
1.6
1.7
4.8
1.3
-2.9
8.8
5.4
21.6
9.0
-8.7
-10.1
2.6
13.0
10.6
-1.0
-33.5
-90.9
-114.4
1358
-150.9
-117.5
-99.8
-15.4
-57.4
-106.1
-141.6
-148.5
-142.4
-151.4
-152.2
-157.6
-122.8
-115.0
-109.9
-122.0
-100.3
-97.5
-94.8
-106.5

TABLE C-21.—Exports and imports of goods and services in 1982 dollars, 1929-89
[Billions of 1982 dollars,- quarterly data at seasonally adjusted annual rates]
Exports of goods and services
Year or
quarter

1929
1933
1939
1940
1941
1942
1943
1944.
1945
1946
1947
1948
1949
1950
1951
1952
1953 '....
1954
1955
1956
1957
1958
1959
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985 . .
1986
1987
1988
1989 ".
1982: IV
1983: IV
1984: IV
1985: IV
1986: IV
1987:1
II
Ill
IV
1988:1
II
Ill
IV
1989:1
||
III
IV...

Total

42.1
22.7
36.2
40.0
42.0
29.1
25.1
27.3
35.2
69.0
82.3
66.2
65.0
59.2
72.0
70.1
66.9
70.0
76.9
87.9
94.9
82.4
83.7
98.4
100.7
106.9
114.7
128.8
132.0
138.4
143.6
155.7
165.0
178.3
179.2
195.2
242.3
269.1
259.7
274.4
281.6
312.6
356.8
388.9
392.7
361.9
348.1
371.8
367.2
397.1
450.9
530.1
587.6
336.0
355.5
376.6
367.4
406.5
418.7
439.5
461.3
484.1
517.4
519.7
531.9
551.4
569.7
587.5
593.1
600.2

Imports of goods and services

Merchandise

Merchandise

Total

29.7
15.9
26.5
30.5
31.7
19.5
15.2
16.4
24.0
54.1
65.5
49.1
48.4
42.2
51.1
49.0
46.4
48.8
53.2
61.8
66.6
56.6
56.1
68.8
69.1
72.2
77.6
87.7
88.2
94.0
96.5
104.9
110.0
120.6
119.3
131.3
160.6
175.8
171.5
177.5
178.1
196.2
218.2
241.8
238.5
214.0
207.6
223.8
231.6
245.9
285.7
344.3
386.9
199.1
214.4
231.9
231.9
257.2
261.4
275.0
294.5
311.7
335.6
339.0
344.1
358.6
372.5
386.9
390.6
397.6

Durable
goods

12.3
4.5
13.3
18.9
20.2
13.4
10.5
11.0
12.6
23.1
34.4
24.5
24.1
21.0
23.8
25.3
25.8
26.9
30.3
34.4
37.2
31.0
30.5
37.9
38.0
39.8
42.1
48.2
50.0
53.6
58.8
64.8
69.5
74.3
72.9
80.0
99.3
113.9
112.1
112.9
111.2
121.9
136.6
150.0
143.8
121.9
119.6
132.3
143.7
157.6
185.8
234.0
265.3
110.8
126.3
138.2
143.8
163.8
168.0
176.7
191.1
207.6
225.4
228.2
234.2
248.0
254.0
262.8
272.3
272.2

Services

Nondurable
goods
17.5
11.4
13.1
11.6
11.6
6.1
4.8
5.4
11.3
31.0
31.1
24.6
24.2
21.3
27.3
23.7
20.6
21.9
22.9
27.4
29.4
25.6
25.6
30.9
31.1
32.4
35.5
39.5
38.2
40.4
37.7
40.1
40.5
46.3
46.4
51.3
61.3
62.0
59.5
64.7
66.9
74.3
81.6
91.9
94.6
92.1
88.0
91.5
87.9
88.3
99.8
110.4
121.6
88.3
88.1
93.7
88.2
93.3
93.5
98.3
103.4
104.1
110.2
110.8
109.9
110.5
118.5
124.1
118.3
125.4

Total

12.3
6.8
9.8
9.4
10.3
9.6
9.8
10.9
11.2
14.9
16.9
17.1
16.7
17.0
20.9
21.2
20.5
21.2
23.7
26.1
28.3
25.8
27.6
29.6
31.6
34.7
37.1
41.1
43.8
44.4
47.1
50.8
55.0
57.6
59.9
64.0
81.7
93.3
88.2
96.8
103.6
116.4
138.6
147.1
154.3
148.0
140.5
148.0
135.6
151.2
165.2
185.8
200.7
136.9
141.1
144.7
135.4
149.3
157.3
164.5
166.8
172.3
181.8
180.6
187.8
192.8
197.2
200.6
202.5
202.6

Factor

in-

come l

7.6
3.7
5.2
4.6
5.2
4.8
4.6
4.9
4.8
5.6
7.2
8.5
8.2
9.1
10.9
11.3
11.0
11.6
13.0
14.1
14.8
13.2
14.0
15.7
16.9
18.5
20.0
21.8
23.2
22.8
23.8
26.3
29.0
29.6
30.5
33.9
46.2
53.5
45.6
49.7
53.5
63.2
86.6
91.4
96.3
91.6
85.0
92.6
80.0
75.6
81.1
94.7
104.8
83.0
88.2
89.5
79.5
71.6
75.7
79.6
82.0
87.1
92.7
90.8
95.3
100.0
104.0
106.1
103.9
105.3

Other

4.8
3.1
4.5
4.8
5.1
4.9
5.2
6.0
6.5
9.4
9.7
8.6
8.5
7.9
10.0
9.9
9.5
9.6
10.7
12.0
13.5
12.6
13.5
13.9
14.7
16.2
17.2
19.3
20.6
21.6
23.3
24.5
26.0
28.0
29.4
30.1
35.4
39.8
42.6
47.1
50.1
53.2
52.0
55.7
57.9
56.3
55.5
55.4
55.6
75.6
84.1
91.1
95.9
53.8
52.9
55.2
55.9
77.7
81.6
84.9
84.8
85.3
89.1
89.8
92.5
92.8
93.2
94.5
98.6
97.3

Total

37.4
24.2
30.1
31.7
38.2
36.9
48.0
51.1
54.1
42.0
39.9
47.1
46.2
54.6
57.4
63.3
69.7
67.5
76.9
83.6
87.9
92.8
101.9
102.4
103.3
114.4
116.6
122.8
134.7
152.1
160.5
185.3
199.9
208.3
218.9
244.6
273.8
268.4
240.8
285.4
317.1
339.4
353.2
332.0
343.4
335.6
368.1
455.8
471.4
526.9
566.6
605.0
643.9
324.3
401.6
471.4
492.6
541.9
536.9
555.4
580.2
593.9
595.6
592.3
606.9
625.2
624.6
638.7
650.2
662.0

Total

29.3
19.2
24.0
25.6
29.4
21.0
25.0
26.5
26.0
30.0
29.3
33.9
33.3
40.9
40.4
41.9
44.6
42.1
48.3
53.6
56.1
58.1
68.0
67.5
69.0
78.9
81.2
86.3
97.0
109.1
113.0
135.7
144.6
150.9
166.2
190.7
218.2
211.8
187.9
229.3
259.4
274.1
277.9
253.6
258.7
249.5
282.2
351.1
367.9
413.7
440.5
467.1
496.3
242.7
311.6
364.2
387.8
428.7
420.3
428.9
452.5
460.4
460.1
456.5
468.3
483.4
477.4
487.5
504.3
515.9

1
Factor income exports less factor income imports equals rest-of-the-world product.
Source.- Department of Commerce, Bureau of Economic Analysis.




317

Durable
goods

7.4
4.0
6.9
8.8
11.0
6.7
6.5
6.7
6.9
7.8
7.8
9.4
8.9
11.5
11.5
13.0
13.7
11.9
14.7
16.8
17.1
16.9
22.8
21.7
21.1
24.8
26.2
29.0
35.6
44.0
48.0
61.7
65.6
66.8
74.4
84.4
88.9
89.2
72.4
88.5
99.3
113.7
115.7
116.1
126.1
125.3
150.4
201.6
218.7
242.6
261.8
280.8
300.8
117.1
172.5
211.4
226.8
250.0
249.8
255.9
264.8
276.8
275.6
274.5
281.8
291.3
290.7
296.1
303.8
312.4

Services

Nondurable
goods
22.0
15.2
17.0
16.8
18.4
14.3
18.5
19.7
19.1
22.2
21.5
24.5
24.4
29.5
28.9
28.9
30.9
30.3
33.5
36.8
39.0
41.3
45.3
45.8
47.9
54.0
55.0
57.4
61.4
65.2
65.0
74.0
79.0
84.1
91.8
106.4
129.4
122.5
115.5
140.8
160.1
160.4
162.2
137.5
132.6
124.2
131.9
149.5
149.3
171.1
178.7
186.3
195.5
125.6
139.1
152.8
161.0
178.8
170.5
173.1
187.7
183.6
184.5
182.1
186.6
192.1
186.7
191.4
200.5
203.4

Total

8.0
4.9
6.1
6.2
8.8
15.8
23.0
24.6
28.2
12.0
10.6
13.1
13.0
13.6
17.1
21.4
25.1
25.4
28.6
30.0
31.8
34.6
33.8
34.9
34.3
35.5
35.4
36.5
37.7
43.0
47.5
49.6
55.2
57.4
52.7
53.9
55.6
56.6
52.9
56.1
57.7
65.3
75.3
78.4
84.7
86.1
85.8
104.7
103.5
113.2
126.1
137.9
147.6
81.6
90.1
107.2
104.8
113.2
116.7
126.4
127.7
133.5
135.5
135.8
138.5
141.9
147.2
151.1
145.9
146.1

Factor
income *

2.6
1.3
2.2
2.0
1.9
1.7
1.9
2.1
2.5
1.9
2.1
2.3
2.6
2.8
3.1
2.9
3.1
3.3
3.6
3.4
3.4
3.7
4.0
4.6
4.8
4.6
5.1
5.6
6.2
7.0
7.5
8.6
12.0
12.5
9.8
10.2
13.9
17.7
16.3
16.7
16.1
21.1
30.8
35.9
41.1
40.5
37.1
48.7
43.1
45.1
54.5
66.6
77.7
35.1
39.7
47.4
41.9
45.7
47.7
54.3
56.2
59.8
61.4
65.2
68.2
71.4
75.7
80.9
76.9
77.3

Other

5.4
3.b
4.0
4.1
6.9
14.2
21.2
22.5
25.7
10.1
8.5
10.8
10.4
10.8
14.0
18.4
21.9
22.1
25.0
26.6
28.4
30.9
29.8
30.3
29.6
30.9
30.3
30.9
31.6
36.0
40.0
41.0
43.2
45.0
42.9
43.7
41.7
38.9
36.6
39.3
41.6
44.2
44.5
42.4
43.6
45.7
48.7
56.0
60.4
68.1
71.5
71.3
69.9
46.5
50.3
59.8
62.9
67.4
68.9
72.1
71.5
73.7
74.1
70.5
70.3
70.4
71.6
70.2
69.0
68.9

TABLE C-22.—Relation of gross national product, net national product, and national income, 1929-89
[Billions of dollars; quarterly data at seasonally adjusted annual rates]
Less:

Year or quarter

1929
1933
1939
1940
1941
1942
1943
1944
1945
1946
1947
1948
1949
1950....
1951
1952.
1953
1954
1955
1956
1957
1958
1959
I960
1961
1962
1963
1964
1965
1966
1967
1968...
1969
1970
1971
1972
1973
1974....
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989"
1982: IV
1983- IV
1984: IV
1985- IV
1986: IV
1987- 1
II
Ill
IV
1988: 1
||
III
IV
1989- 1
II
Ill
IV

Gross
national
product

1039
56.0
913
1004
125.5
1590
1927
211.4
2134
212.4
2352
261.6
2604
2883
333.4
3516
371.6
3725
4059
4282
4510
4568
4958
5153
5338
5746
6069
6498
705.1
7720
8164
8927
9639
1,015.5
1 1027
12128
13593
14728
15984
1,782 8
19905
22497
2,508 2
27320
30526
3,166 0
34057
37722
4,014 9
42316
4,524 3
48806
5,233 2
3,212.5
35458
3,851.8
41079
4,297 3
43888
4,475 9
45666
4,665 8
4,739.8
48385
49269
50173
51131
52017
5,281.0
5,337 0

Less:

consumption
allowances
with
capital
consumption
adjustment

Equals:
Net
national
product

99
7.6
90
94
10.3
113
116
12.0
124
14.2
176
20.4
220
236
27.2
292
309
325
344
381
41 1
428
446
464
478
494
514
539
574
621
674
739
814
888
975
1079
1181
1375
1618
1792
2015
2299
2658
3038
3478
3832
3966
4155
4372
4601
4867
5136
5522
3932
4008
4235
4469
4708
4769
4835
4906
4958
504.7
5102
5152
5241
5330
5410
565.2
5696

940
484
823
911
1153
1477
1811
199.4
2010
198.2
2176
2412
2384
2646
3062
3225
3407
3400
3715
3901
4099
4140
4512
4689
4861
5252
5555
5959
6477
7099
7490
8187
8825
9266
10051
1 1048
l'24l'2
13354
14366

I'eos'e

17890
20198
22424
24281
27048
27828
30091
33568
35776
37715
40376
4367 1
46810
2,819 3
3 1450
34283
36610
38265
39119
3992'4
40760
41700
4,235 1
43282
44117
44932
45801
46608
4,715.7
47674

Source: Department of Commerce, Bureau of Economic Analysis.




318

Indirect
business
tax and
nontax
liability

71
7.1
94
101
11.3
118
12.8
14.2
155
17.1
184
20.1
213
234
25.3
277
297
296
322
350
374
386
417
45.3
480
515
546
587
62.5
652
701
787
86.3
94.0
1034
111 1
1208
1290
1400
1517
1657
178 1
1894
2133
2515
258.8
2826
3139
333.6
3489
367.8
3935
4167
264.5
2941
322.7
3383
353.1
3579
3645
3721
376.6
384.3
3901
3970
4027
4077
4134
421.5
424.2

Business
transfer

pay-

ments

06
.7
5
4
.5
5
5
5
.5
6
.7
8
8
.9
10
12
11
12
14
15
16
18
2.0
20
21
24
27
2.8
30
31
34
3.9
4.1
44
49
55
58
74
79
86
93
10.3
121
124
14.3
160
187
22.0
246
26.7
290
31.8
15.2
165
20.0
230
25.5
263
26.6
268
27.1
28.0
287
294
301
308
315
32.2
32.9

Plus:

CnhciHioc

Statistical
discrepancy

15
12
17
14
7
7
17
2.7
40
7
18
-13
8
8
27
18
26
27
18
19
12
1
15
-28
12
0
6
-14
-1.2
21
4
11
-3.9
-1.1
18
16
-43
17
25
36
0
19
-10
49
41
_.l
52
54
-4.8
18
-4.7
96
-234
6.8
25
-2.1
79
-96
12
-23
105
-74
-13.1
1
86
-166
241
-183
-25.5

less
current
surplus
of
government
enterprises

02
0
4
4
1
1
1
.6
7
9
2
_1
3
1
_1
3
-5
3
0
7
7
11
1
4
17
18
11
17
1.6
25
16
14
1.9
2.9
26
37
35
12
24
1.0
30
39
3.5
57
67
8.7
141
99
7.2
128
17.6
185
9.1
15.4
196
8.4
53
15.6
241
128
72
262
17.6
240
118
204
195
155
-.3
1.8

Equals:
National
income

847
39.4
712
796
1028
1362
1697
182.6
1816
180.7
1966
221.5
2152
2398
277.3
2916
306.6
3063
336.3
3563
372.8
3750
409.2
424.9
4390
473.3
5003
537.6
585.2
642.0
6777
739.1
798.1
832.6
8981
9941
1,122.7
1,203 5
12891
1,441.4
1,617.8
1,838 2
2,047.3
2,203.5
2,443 5
2,518.4
2,719.5
3,028.6
3,234.0
3,412.6
3,665.4
3,972 6
4,265.0
2,548.2
2,851.5
3,096.1
3,312.8
3,473.1
35505
3,616.4
3,694 8
3,799.9
3,853.6
3,933.6
40057
4,097.4
41852
4,249.6
4,287.3

TABLE C-23-—Relation of national income and personal income, 1929-89
[Billions of dollars; quarterly data at seasonally adjusted annual rates]

Year or quarter

1929
1933
1939
1940
1941
1942
1943
1944 ...
1945
1946
1947
1948
1949
1950
1951
1952
1953
1954 ...
1955
1956
1957
1958
1959
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970...
1971
1972
1973
1974...
1975
1976...
1977
1978
1979 ...
1980
1981
1982
1983
1984
1985
1986 ... .
1987
1988
1989 *
1982: IV
1983: IV
1984: IV
1985- IV
1986- IV. ...
1987:1
II
III
IV
1988- 1
II
III. ..
IV
1989- 1
II
Ill .
IV P.

National
income

847
394
712
79.6
1028
1362
169.7
1826
181.6
1807
196.6
2215
2152
239.8
2773
2916
3066
3063
336.3
3563
372.8
3750
4092
424.9
4390
4733
5003
5376
5852
6420
6777
7391
798 1
8326
898.1
9941
1 1227
12035
1,289 1
14414
16178
18382
20473
22035
2,443 5
25184
27195
3,028.6
32340
34126
36654
3,972 6
42650
25482
2,851.5
30961
33128
34731
35505
36164
36948
37999
38536
3,933.6
40057
4,097.4
4 1852
42496
4*287 3

9.6
15
5.5
8.8
143
19.7
24.0
242
19.7
172
22.9
303
280
34.9
399
375
377
366
47.1
457
45.3
403
514
49.5
503
58.3
636
707
813
866
841
907
874
747
87.1
1007
1133
1017
1176
1452
1748
1972
2001
1772
1880
1500
2137
2669
2823
282 1
2987
3286
2982
1461
248.5
2669
2914
2752
2799
2937
3130
3082
3181
325.3
3309
340.2
3163
3078
2952

4.7
41
3.6
3.3
33
3.1
2.7
2.3
2.2
18
2.3
24
2.6
3.0
35
3.9
44
5.2
5.8
65
7.8
95
10.2
11.3
129
14.6
163
18.2
209
24.3
274
29.8
346
412
46.3
510
596
755
838
888
1053
1263
1583
2009
2481
2723
281 0
3048
3190
3255
351 7
3929
461 1
2669
290.2
3131
3227
3240
3342
3472
3553
3700
3766
383.0
3964
415.7
436 1
4584
471 5
478.4

0.3
3
2.2
2.4
28
3.5
4.6
5.2
6.3
77
6.7
60
6.6
7.4
88
9.3
96
106
12.0
135
15.5
159
188
21.9
229
254
285
301
316
406
455
504
579
622
689
790
976
1105
1185
1345
1498
171 -7
197 8
2165
2512
2696
291 0
3249
3541
3792
4008
4446
4793
2730
2992
3315
362 1
3877
3928
3968
4026
4110
4340
4411
4482
4552
4697
4764
4820
489.2

Source: Department of Commerce, Bureau of Economic Analysis.




Equals:

Plu S:

Le SS:

Corporate
profits
with
GovernWage
inventory
ment
Contribu- accruals
valuation
transfer Personal Personal Business Personal
Net
tions for
transfer
and
less
interest
payments interest dividend payments income
social
income income
capital
to
insurance disburseconsumpments
persons
tion
adjustments

319

0.0
0
.0
.0
0
.0
.2
.0
.0
.0
0
.0
.0
1
.0
1
.0
.0
0
.0
0
.0
.0
0
.0

o
o
0
o
o
o
o

.0

.6
0
1
5
1
1
1
3
2

o

1
0
4
2
2
0

o

0
0
0
.0
6

o
o

0
0
2
2

o

.0
0
.0

o

0
0
.0

0.9
1.5
2.5
2.7
2.6
2.7
2.5
3.1
5.6
10.8
11.2
10.6
11.7
14.4
11.6
12.2
131
15.3
16.4
175
20.3
247
25.7
27.5
315
32.6
345
36.0
391
43.6
523
60.6
675
818
97.0
1084
124 1
1474
1857
2028
2175
2348
2628
3126
3557
3962
4266
4379
4678
4968
521 5
5557
6003
4202
429.0
4430
4745
5057
5127
5210
5240
5283
5478
553.2
5580
563.7
5856
5953
6042
616.1

6.9
55
5.3
5.3
5.3
5.2
5.1
5.2
5.8
6.6
7.5
80
8.7
9.6
104
11.2
124
13.7
14.9
166
18.7
203
22.3
24.9
263
28.9
322
35.5
396
44.2
482
53.2
609
693
74.7
808
933
1119
1225
1341
1554
1825
2215
2719
3354
3697
3931
4447
4780
4932
5232
571 1
6578
3662
411.6
4644
4859
4927
5021
5162
5279
5465
5496
560.0
5763
598.6
6290
6551
6678
679.5

5.8
2.0
3.8
4.0
4.4
4.3
4.4
4.6
4.6
5.6
6.3
7.0
7.2
8.8
8.5
8.5
8.8
9.1
10.3
11.1
11.5
11.3
12.2
12.9
13.3
14.4
15.5
17.3
19.1
19.4
202
21.9
224
22.2
22.6
24.1
266
289
28.7
338
382
430
48.1
529
61.3
639
687
75.5
787
858
920
102.2
1124
654
71.0
768
790
877
88.8
903
93.2
957
982
100.4
1036
106.4
1094
111.4
1132
115.7

0.6
.7
.5
.4
.5
.5
.5
.5
.5
.5
.6
.8
.8
.9
1.0
1.2
1.1
1.2
1.4
1.5
1.6
1.8
2.0
2.0
2.1
2.4
2.7
2.8
3.0
3.1
3.4
3.9
4.1
4.4
4.9
55
58
7.4
7.9
86
93
10.3
121
12.4
14.3
160
18.7
22.0
246
267
29.0
318
15.2
16.5
20.0
230
25.5
26.3
266
26.8
271
28.0
28.7
29.4
30.1
308
31.5
32.2
32.9

84.3
46.3
72.1
77.6
95.2
122.4
150.7
164.5
170.0
177.6
190.2
209.2
206.4
228.1
256.5
273.8
290.5
293.0
314.2
337.2
356.3
367.1
390.7
409.4
426.0
453.2
476.3
510.2
552.0
600.8
644.5
707.2
772.9
831.8
894.0
981.6
1,101.7
1,210.1
1,313.4
1,451.4
1,607 5
18124
2,034.0
2,258.5
2,520.9
2,670.8
2,838.6
3,108.7
3,325.3
3,526.2
37776
4,064.5
4,428.7
2,729.2
2,941.8
3,188.3
33991
3,597.8
3,673.6
3,732.7
3,795.5
39087
3,948.5
4,026.6
4,097.6
4,185.2
4317.8
4,400.3
4,455.9
4,540.9

TABLE C-24.—National income by type of income, 1929-89
[Billions of dollars; quarterly data at seasonally adjusted annual rates]
Compensation
of employees
Year or quarter

National
incomel

Total

Wages

and

salaries

Proprietors' income with inventory valuation and
capital consumption adjustments

to

wages

and
sal-

Total

Total

aries 2

1929
1933
1939
1940
1941
1942
1943
1944
1945
1946
1947
1948
1949
1950
1951...
1952
1953
1954
1955
1956
1957
1958
1959
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973... .
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988 p
1989
1982: IV
1983: IV
1984: IV
1985: IV
1986: IV
1987: 1
II
III
IV
1988- 1
II
Ill
IV
1989- 1
II
Ill
IV "

84.7
39.4
71.2
79.6
102.8
136.2
169.7
182.6
181.6
180.7
196.6
221.5
215.2
239.8
277.3
291.6
306.6
306.3
336.3
356.3
372.8
375.0
409.2
424.9
439.0
473.3
500.3
537.6
585.2
642.0
677.7
739.1
798.1
832.6
898.1
994.1
1,122.7
1,203.5
1,289.1
1,441.4
1,617.8
1,838.2
2,047.3
2,203.5
2,443.5
2,518.4
2,719.5
3,028.6
3,234.0
3,412.6
3,665.4
3,972.6
4,265.0
2,548.2
2,851.5
3,096.1
3,312.8
3,473.1
3,550.5
3,616.4
3,694.8
3,799.9
3,853.6
3,933.6
4,005.7
4,097.4
4,185.2
4,249.6
4,287.3

51.1
29.6
48.2
52.2
64.8
85.3
109.6
121.3
123.3
119.6
130.1
142.1
142.0
155.4
181.6
196.3
210.4
209.4
225.9
244.7
257.8
259.8
281.2
296.7
305.6
327.4
345.5
371.0
399.8
443.0
475.5
524.7
578.4
618.3
659.4
726.2
812.8
891.3
948.7
1,057.9
1,176.6
1,329.2
1,491.4
1,638.2
1,807.4
1,907.0
2,020.7
2,213.9
2,367.5
2,511.4
2,690.0
2,907.6
3,145.4
1,931.1
2,092.7
2,272.7
2,426.7
2,571.2
2,615.0
2,656.6
2,709.8
2,778.7
2,819.4
2,878.9
2,935.1
2,997.2
3,061.7
3,118.2
3,171.9
3,230.1

50.5
29.0
46.0
49.9
62.1
82.1
105.8
116.7
117.5
112.0
123.1
135.5
134.7
147.2
171.6
185.6
199.0
197.2
212.1
229.0
239.9
241.3
259.8
272.8
280.5
299.3
314.8
337.7
363.7
400.3
428.9
471.9
518.3
551.5
584.5
638.7
708.6
772.2
814.7
899.6
994.0
1,119.6
1,251.9
1,372.0
1,510.4
1,586.1
1,676.2
1,838.8
1,975.2
2,094.8
2,249.4
2,429.0
2,632.0
1,603.7
1,739.4
1,891.1
2,027.4
2,143.1
2,184.4
2,220.6
2,266.6
2,235.9
2,353.4
2,405.4
2,452.2
2,505.1
2,560.7
2,608.8
2,654.7
2,704.0

0.7
.6
2.2
2.3
2.8
3.2
3.8
4.5
5.8
7.6
7.0
6.5
7.3
8.2
10.0
10.7
11.5
12.1
13.8
15.7
17.8
18.5
21.4
23.8
25.1
28.1
30.7
33.2
36.1
42.7
46.6
52.8
60.1
66.8
74.9
87.6
104.2
119.1
134.0
158.3
182.6
209.7
239.5
266.3
297.1
320.9
344.5
375.1
392.4
416.6
440.7
478.6
513.4
327.4
353.4
381.7
399.3
428.1
430.7
436.0
443.2
452.8
466.0
473.5
482.9
492.0
501.0
509.4
517.2
526.1

Nonfarm

Farm

Supplements

14.4
5.4
11.4
12.6
17.1
23.9
28.8
30.0
31.5
36.3
35.5
40.4
35.9
38.8
44.0
44.4
43.4
43.5
45.4
46.9
48.8
51.5
51.7
52.1
54.3
56.6
57.7
60.5
65.1
69.6
71.1
75.4
79.3
80.2
86.8
98.3
119.0
118.8
125.4
137.7
152.9
176.2
191.9
180.7
186.8
175.5
190.9
234.5
255.9
282.0
311.6
327.8
352.2
188.3
207.8
237.8
264.2
289.2
306.7
305.8
305.2
328.7
324.0
331.8
327.0
328.3
359.3
355.5
343.3
350.9

6.1
2.5
4.4
4.4
6.4
10.1
12.0
11.9
12.4
14.8
15.1
17.5
12.8
13.6
16.0
15.0
13.0
12.4
11.3
11.1
11.0
13.1
10.8
11.6
12.0
12.1
11.9
10.7
13.0
14.0
12.7
12.8
14.6
14.7
15.5
19.4
33.7
27.5
25.4
20.6
20.5
27.0
31.7
20.5
30.7
24.6
12.4
30.5
30.2
34.7
41.6
39.8
46.3
28.5
19.3
28.1
29.2
37.2
44.4
39.8
33.6
48.4
44.0
45.4
37.7
32.0
59.0
51.3
36.1
38.8

Proprietors'
income3

6.3
2.5
4.5
4.5
6.5
10.3
12.2
12.2
12.6
15.2
15.6
18.2
13.5
14.3
16.8
15.9
13.9
13.2
12.1
12.0
11.9
14.0
11.7
12.4
12.8
12.9
12.6
11.4
13.7
14.8
13.6
13.7
15.8
16.0
16.8
21.1
35.6
30.1
29.0
24.6
25.1
32.4
38.0
28.1
39.4
33.9
21.8
39.6
38.9
43.1
49.6
47.3
53.5
38.0
28.5
37.5
37.8
45.3
52.5
47.9
41.7
56.3
51.9
53.0
45.0
39.2
66.2
58.4
43.5
45.9

Capital
consumption
adjustment

0.2
.0
-.1
-.1

-.'2
-.2
-'.3
-.4
5
-.7
7
-.7
-.8
-.9
-.9
-.8
-.8
9
-.9
-.9
-.9
-.8
8
-.8
7
-.7
-.7
-.8
-.8
-.9
-1.1
-1.3
-1.3
-1.7
-1.9
-2.6
-3.6
-4.0
-4.6
-5.3
-6.3
-7.6
-8.7
9.3
-9.4
-9.2
-8.7
-8.4
-8.0
-7.5
-7.2
-9.4
-9.3
-9.3
-8.6
-8.1
-8.1
-8.1
-8.0
-7.9
7.9
-7.7
-7.4
-7.2
-7.2
-7.1
-7.5
-7.0

Total

8.3
2.9
7.1
8.2
10.8
13.8
16.8
18.1
19.1
21.5
20.4
22.9
23.1
25.2
28.0
29.4
30.4
31.1
34.0
35.8
37.8
38.5
40.9
40.5
42.3
44.4
45.7
49.8
52.1
55.5
58.4
62.6
64.7
65.4
71.4
79.0
85.3
91.3
100.0
117.1
132.4
149.2
160.1
160.1
156.1
150.9
178.4
204.0
225.6
247.2
270.0
288.0
305.9
159.8
188.6
209.7
235.0
252.0
262.3
226.0
271.6
280.3
279.9
286.5
289.3
296.3
300.3
304.2
307.2
312.0

Proprietors'
income

8.8
3.9
7.6
8.6
11.7
14.4
17.1
18.3
19.3
23.3
21.8
23.1
22.2
25.7
27.7
28.5
29.8
30.4
33.5
35.4
37.2
37.7
40.1
39.7
41.7
43.8
45.1
49.1
51.8
55.5
58.4
63.1
65.1
66.0
72.3
79.6
87.2
95.3
102.2
119.6
135.1
152.8
164.0
164.3
155.2
148.5
167.3
182.4
194.6
210.0
238.9
259.2
280.4
156.9
172.7
182.5
201.1
215.5
227.7
234.6
241.7
251.5
250.9
257.8
260.4
267.8
274.4
278.7
281.0
287.5

Inven- Capital
tory
convalua- sumption
tion
adjust- adjustment ment

0.1

-0.6

-'.2
.0
.6
-.4
2

-A
-.3

-.1
-.1
-1.7
-1.5

-'.1
-.1
-.1
.1

.5
-1.1
-.3
.2
-.2
.0
.2
-.5

!5
.6
.6
.7
.7
.8

~'.Q
.0
.0
.0
.0
-.1
-.2
.2
-.2
.4
-.5

~!e

-.7
-2.0
-3.8
-1.2
-1.3
-1.3
-2.3
-2.9
-2.9
-1.4
-.5
-.8
.4
-.2

-~LO
-1.5
-1.3
-.6
-.7
.3
-.3
-.3
-.1
-1.1
-1.1
-1.7
-1.3
-1.8
-1.6
-1.3
-2.5
-1.9
.0
_7

-.3

!9
.9
.9
.9
.8
.6
.6

'A

.3
.2
-.1
.1
.0
-.3
.1
.1
-.3
-1.0
-1.3
-1.4
-1.4
-1.0
-1.2
2.3
2.9
12.0
22.0
31.2
37.4
32.2
30.3
26.8
3.5
16.5
26.9
34.2
36.8
34.7
32.5
30.9
30.5
30.3
30.5
30.5
29.8
28.5
27.4
26.2
25.2

1
National income is the total net income earned in production. It differs from gross national product mainly in that it excludes
depreciation charges and other allowances for business and institutional consumption of durable capital goods and indirect business
taxes. See Table C-22.
See next page for continuation of table.




320

TABLE C-24.—National income by type of income, 1929-89—Continued
[Billions of dollars; quarterly data at seasonally adjusted annual rates]
Rental income of persons
with capital consumption
adjustment
Year or quarter
Total

1929
1933

1939
1940
1941
1942
1943
1944
1945
1946
1947
1948
1949
1950
1951
1952
1953
1954
1955
1956
1957
1958
1959
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989 "
1982: IV
1983- IV
1984- IV
1985: IV
1986: IV
1987: 1
||
III
IV
1988: 1
II
Ill
IV
1989- 1
||
III
IV ".
2
3

"

4.9
2.0
2.6
2.7
3.2
4.1
4.6
4.8
5.0
5.8
5.8
6.4
6.7
7.7
8.3
9.4
10.7
11.6
12.0
12.4
13.1
13.9
14.6
15.3
15.8
16.5
17.1
17.3
18.1
18.6
19.6
18.4
18.4
18.2
18.6
17.9
18.0
16.1
13.5
11.9
8.2
9.3
5.6
6.6
13.3
13.6
13.2
8.5
9.2
11.6
13.4
15.7
8.0
15.8
12.4
5.6
7.8
13.5
14.7
13.0
11.5
14.3
15.6
14.6
16.3
16.1
11.8
9.8
5.4
5.1

Corporate profits with inventory valuation and capital consumption adjustments
Profits with inventory valuation adjustment and without
capital consumption adjustment

Rental Capital
conincome sumption Total
of
persons adjustment
5.6
2.1
3.2
3.3
4.0
5.1
5.7
6.1
6.5
7.5
8.2
9.1
9.4
10.5
11.5
12.7
13.9
14.9
15.3
15.9
16.5
17.3
18.0
18.7
19.1
19.8
20.3
20.5
21.3
22.2
23.5
22.9
24.2
24.6
25.9
26.5
28.1
28.9
28.6
28.9
28.8
34.2
35.7
41.4
52.2
54.4
55.0
51.9
54.2
56.5
61.2
65.4
62.9
56.5
54.3
49.6
54.5
59.1
60.9
60.2
60.3"
63.6
65.4
64.3
65.8
66.1
62.9
62.5
63.8
62.3

-0.7
-.1
-.5
6
-.8
-.9
-1.1
-1.3
-1.5
-1.7
24
-2.7
-2.7
28
-3.2
-3.3
-3.3
-3.2
-3.3
-3.5
-3.5
34
-3.4
-3.4
-3.3
-3.3
-3.2
-3.2
-3.3
36
-3.9
45
-5.8
-6.4
74
-8.6
101
-12.7
-15.0
-17.0
206
-24.9
-30.1
-34.8
-38.9
-40.8
418
-43.3
-45.0
450
-47.9
-49.8
-54.9
-40.7
-41.9
440
-46.7
-45.6
-46.2
-47.2
-48.9
-49.3
498
-49.7
-49.6
-49.9
-51.1
-52.7
-58.4
-57.2

9.6
-1.5
5.5
8.8
14.3
19.7
24.0
24.2
19.7
17.2
22.9
30.3
28.0
34.9
39.9
37.5
37.7
36.6
47.1
45.7
45.3
40.3
51.4
49.5
50.3
58.3
63.6
70.7
81.3
86.6
84.1
90.7
87.4
74.7
87.1
100.7
113.3
101.7
117.6
145.2
174.8
197.2
200.1
177.2
188.0
150.0
213.7
266.9
282.3
282.1
298.7
328.6
298.2
146.1
248.5
266.9
291.4
275.2
279.9
293.7
313.0
308.2
318.1
325.3
330.9
340.2
316.3
307.8
295.2

Capital
Net
Invencontory sumption interest
adjustvaluProfits Profits
ment
before tax
Undis- ation
Divi- tributed adjusttax liability Total dends
profits ment
Profits

Total

10.5
-1.2
6.5
9.8
15.4
20.5
24.5
24.0
19.3
19.6
25.9
33.4
31.1
37.9
43.3
40.6
40.2
38.4
47.5
46.9
46.6
41.6
52.3
49.8
50.1
55.2
59.8
66.2
76.2
81.2
78.6
85.4
81.4
69.5
82.7
94.9
107.1
99.4
123.9
155.3
183.8
208.2
214.1
194.0
202.3
159.2
196.7
234.2
222.6
228.3
247.8
281.8
268.7
150.7
223.4
224.6
228.4
226.1
230.5
243.4
261.5
255.8
268.1
276.4
284.1
298.7
279.7
275.5
268.7

Profits after tax

10.0
1.0
7.2
10.0
17.9
21.7
25.3
24.2
19.8
24.8
31.8
35.6
29.2
42.9
44.5
39.6
41.2
38.7
49.2
49.6
48.1
41.9
52.6
49.9
49.8
55.1
59.8
66.7
77.4
83.3
80.1
89.1
87.2
76.0
87.3
101.5
127.2
138.9
134.8
170.3
200.4
233.5
257.2
237.1
226.5
169.6
207.6
240.0
224.3
221.6
266.7
306.8
287.3
164.1
231.5
226.1
235.0
234.1
246.4
263.4
281.0
276.2
288.8
305.3
314.4
318.8
318.0
296.0
275.0

1.4
.5
1.4
2.8
7.6
11.4
14.1
12.9
10.7
9.1
11.3
12.4
10.2
17.9
22.6
19.4
20.3
17.6
22.0
22.0
21.4
19.0
23.6
22.7
22.8
24.0
26.2
28.0
30.9
33.7
32.7
39.4
39.7
34.4
37.7
41.9
49.3
51.8
50.9
64.2
73.0
83.5
88.0
84.8
81.1
63.1
77.2
93.9
96.4
106.3
124.7
137.9
129.0
59.8
88.1
87.0
99.8
113.1
115.0
124.0
132.7
127.3
129.0
138.4
141.2
143.2
144.4
134.9
122.6

8.6
.4
5.7
7.2
10.3
10.3
11.2
11.3
9.1
15.7
20.5
23.2
19.0
25.0
21.9
20.2
20.9
21.1
27.2
27.6
26.7
22.9
28.9
27.2
27.1
31.2
33.5
38.7
46.5
49.6
47.5
49.7
47.5
41.7
49.6
59.6
77.9
87.1
83.9
106.0
127.4
150.0
169.2
152.3
145.4
106.5
130.4
146.1
127.8
115.3
142.0
168.9
158.2
104.3
143.4
139.2
135.2
121.0
131.4
139.4
148.3
148.9
159.9
166.9
173.2
175.6
173.6
161.1
152.4

5.8
2.0
3.8
4.0
4.4
4.3
4.4
4.6
4.6
5.6
6.3
7.0
7.2
8.8
8.5
8.5
8.8
9.1
10.3
11.1
11.5
11.3
12.2
12.9
13.3
14.4
15.5
17.3
19.1
19.4
20.2
22.0
22.5
22.5
22.9
24.4
27.0
29.7
29.6
34.6
39.5
44.7
50.1
54.7
63.6
66.9
71.5
79.0
83.3
91.3
98.7
110.4
122.1
68.5
73.9
80.8
84.0
93.6
95.0
96.9
100.0
102.8
105.7
108.6
112.2
115.2
118.5
120.9
123.3
1256

2.8
-1.6
2.0
3.2
5.8
6.0
6.7
6.7
4.5
10.2
14.2
16.2
11.8
16.2
13.4
11.8
12.1
11.9
16.9
16.6
15.2
11.6
16.7
14.3
13.7
16.8
18.0
21.4
27.4
30.2
27.3
27.7
25.0
19.2
26.6
35.2
50.8
57.3
54.3
71.4
87.9
105.2
119.1
97.6
81.8
39.6
58.9
67.0
44.6
24.0
43.3
58.5
36.2
35.8
69.5
58.4
51.2
27.4
36.4
42.6
48.3
46.1
54.2
58.3
61.1
60.4
55.1
40.2
29.1

0.5
-2.1

-0.9

-.2
-2.5
12
-.8

-1.1
-1.1
8
-.5
.2
.4
-2.4
-2.9
-3.2
-3.0
-3.0
-3.4
-3.2
-2.5
-1.8
-.4
-1.2
-1.3
-1.3
-.8
-.3
.2
3.1
3.8
4.5
5.2
5.4
5.5
5.3
6.1
5.2
4.3
5.8
6.2
2.3
-6.2
-10.1
-9.0
-10.9
-14.0
-16.8
-14.4
-9.2
17.0
32.7
59.7
53.8
50.9
46.8
29.4
45
25.1
42.3
63.0
49.1
49.3
50.3
51.5
52.4
49.9
48.9
46.9
41.5
36.6
32.3
26.5
22.4

-.6
-5.3
59
-2.2
1.9
50
-1.2
1.0
-1.0
-.3
17
-2.7
-1.5
-.3
-.2

!o

.1
-.5
-1.2
21
-1.6
37
-5.9
-6.6
46
-6.6
-20.0
395
-11.0
-14.9
-16.6
-25.3
-43.2
-43.1
-24.2
104
-10.9
-5.8
-1.7
6.7
-18.9
250
-18.5
-13.4
-8.1
-1.6
-6.6
-8.0
-15.9
-20.0
-19.4
-20.4
-20.7
-28.8
-30.4
201
-38.3
205
-6.3
-8.9

Consists mainly of employer contributions for social insurance and to private pension, health, and welfare funds.
With inventory valuation adjustment.
Source: Department of Commerce, Bureau of Economic Analysis.

321


-l!o

4.7
4.1
3.6
3.3
3.3
3.1
2.7
2.3
2.2
1.8
2.3
2.4
2.6
3.0
3.5
3.9
4.4
5.2
5.8
6.5
7.8
9.5
10.2
11.3
12.9
14.6
16.3
18.2
20.9
24.3
27.4
29.8
34.6
41.2
46.3
51.0
59.6
75.5
83.8
88.8
105.3
126.3
158.3
200.9
248.1
272.3
281.0
304.8
319.0
325.5
351.7
392.9
461.1
266.9
290.2
313.1
322.7
324.0
334.2
347.2
355.3
370.0
376.6
383.0
396.4
415.7
436.1
458.4
471.5
478.4

TABLE C-25.—Sources of personal income, 1929-89
[Billions of dollars; quarterly data at seasonally adjusted annual rates]
Wage and salary disbursements1

Year or quarter

Personal
income

Commodityproducing
industries
Total
Total

1929
1933
1939
1940
1941
1942
1943
1944
1945
1946
1947
1948
1949
1950
1951
1952
1953
1954
1955
1956
1957
1958
1959
I960
1961
1962
1963
1964
1965
1966
1967
1968.
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982 ..
1983
1984
1985
1986
1987
1988
1989 "
1982- IV
1983: IV
1984- IV
1985: IV
1986- IV
1987-1
II
Ill
IV
1988- 1
II

... .

Ill
IV
1989- 1
II

Ill
IV v

84.3
46.3
72.1
77.6
95.2
122.4
150.7
164.5
170.0
177.6
190.2
209.2
206.4
228.1
256.5
273.8
290.5
293.0
314.2
337.2
356.3
367.1
390.7
409.4
426.0
453.2
476.3
510.2
552.0
600.8
644.5
707.2
772.9
831.8
894.0
981.6
1,101.7
1,210.1
1,313.4
1,451.4
1,607.5
1,812.4
2,034.0
2,258.5
2,520.9
2,670.8
2,838.6
3,108.7
3,325.3
3,526.2
3.777.6
4,064.5
4,428.7
2,729.2
2,941.8
3,188.3
3,399.1
3,597.8
3,673.6
3,732.7
3,795.5
3,908.7
3,948.5
4,026.6
4,097.6
4,185.2
4,317.8
4,400.3
4,455.9
4,540.9

50.5
29.0
46.0
49.9
62.1
82.1
105.6
116.9
117.5
112.0
123.1
135.5
134.8
147.2
171.5
185.6
199.0
197.2
212.1
229.0
239.9
241.3
259.8
272.8
280.5
299.3
314.8
337.7
363.7
400.3
428.9
471.9
518.3
551.5
583.9
638.7
708.7
772.6
814.6
899.5
993.9
1,119.3
1,252.1
1,372.0
1,510.3
1,586.1
1,676.6
1,838.6
1,975.4
2,094.8
2,249.4
2,429.0
2,632.0
1,603.6
1,739.4
1,890.5
2,027.4
2,143.1
2,184.4
2,220.6
2,266.3
2,326.2
2,353.4
2,405.4
2,452.2
2,505.1
2,560.7
2,608.8
2,654.7
2,704.0

21.5
9.8
17.4
19.7
27.5
39.1
49.0
50.4
45.9
46.0
54.2
61.1
57.8
64.8
76.4
82.1
89.8
85.8
93.3
100.8
104.4
100.3
109.9
113.4
114.0
122.2
127.4
136.0
146.6
161.6
169.0
184.1
200.4
203.7
209.1
228.2
255.9
276.5
277.1
309.7
346.1
392.3
441.4
470.7
512.2
511.7
523.1
577.6
608.9
625.6
649.9
696.3
738.3
501.8
545.4
591.6
619.2
632.3
637.9
641.7
652.9
667.2
678.2
690.8
701.6
714.7
726.6
733.7
742.6
750.4

GovernDistrib- Service ment
and
utive
indus- indus- government
tries
Manutries
enterfacturing
prises
16.1
7.8
13.6
15.6
21.7
30.9
40.9
42.9
38.2
36.5
42.5
47.1
44.6
50.3
59.4
64.2
71.3
67.6
73.9
79.5
82.5
78.7
86.9
89.8
89.9
96.8
100.7
107.3
115.7
128.2
134.3
146.0
157.7
158.4
160.5
175.6
196.6
211.8
211.6
238.0
266.7
300.1
334.8
355.6
386.7
384.0
397.4
439.1
460.9
473.2
490.3
524.0
553.0
377.4
415.5
449.5
468.3
477.7
482.4
483.7
492.7
502.5
511.4
519.2
527.2
538.1
546.3
549.9
555.7
559.9

1

15.6
8.8
13.3
14.2
16.3
18.0
20.1
22.7
24.8
31.0
35.2
37.5
37.7
39.9
44.4
47.0
49.9
50.3
53.6
58.0
60.7
61.1
65.1
68.6
69.6
73.3
76.8
82.0
87.9
95.1
101.6
110.8
121.7
131.2
140.4
153.3
170.3
186.8
198.1
219.5
242.7
274.6
307.8
335.5
366.8
384.2
404.2
442.8
473.2
498.8
531.9
571.9
615.1
389.3
420.8
455.1
484.6
509.7
517.6
526.7
537.2
546.1
554.0
568.0
578.0
587.5
598.8
610.8
619.4
631.2

8.4
5.2
7.1
7.5
8.1
9.0
9.9
10.9
11.9
14.3
16.1
17.9
18.5
19.9
21.6
23.2
25.0
26.2
28.7
31.5
33.8
35.9
38.8
41.7
44.4
47.6
50.7
54.9
59.4
65.3
72.0
80.4
90.6
99.4
107.9
119.7
133.9
148.6
163.4
181.6
202.8
232.9
266.8
305.6
346.9
384.4
425.1
472.1
521.3
576.7
648.3
714.4
801.7
398.5
443.2
489.6
543.4
599.3
618.7
636.4
654.3
683.8
684.3
703.5
723.0
746.7
768.4
790.8
812.4
835.3

5.0
5.2
8.2
8.5
10.2
16.0
26.6
33.0
34.9
20.7
17.5
19.0
20.8
22.6
29.2
33.3
34.4
34.9
36.6
38.8
41.0
44.1
46.0
49.2
52.4
56.3
60.0
64.9
69.9
78.3
86.4
96.6
105.5
117.1
126.5
137.4
148.7
160.9
176.0
188.6
202.3
219.4
236.1
260.2
284.4
305.9
324.3
346.1
372.0
393.7
419.2
446.5
476.9
314.0
330.0
354.3
380.3
401.9
410.2
415.7
422.0
429.0
437.0
443.1
449.6
456.3
466.9
473.5
480.2
487.1

Other
labor
income1

Proprietors' income
with inventory
valuation and
capital
consumption
adjustments
Farm

0.5
.4
.6
.6
.7
.9
1.1
1.5
1.8
2.0
2.4
2.7
2.9
3.7
4.6
5.2
5.9
6.1
7.0
8.0
9.0
9.4
10.6
11.2
11.8
13.0
14.0
15.7
17.8
19.9
21.7
25.2
28.5
32.5
36.7
43.0
49.2
56.5
65.9
79.3
94.1
107.7
122.7
138.4
150.3
163.6
173.6
182.9
187.6
199.3
212.8
228.9
248.3
168.0
177.8
185.4
189.7
205.0
207.6
210.5
214.3
218.8
222.3
225.9
231.1
236.5
241.3
246.0
250.7
255.3

6.1
2.5
4.4
4.4
6.4
10.1
12.0
11.9
12.4
14.8
15.1
17.5
12.8
13.6
16.0
15.0
13.0
12.4
11.3
11.1
11.0
13.1
10.8
11.6
12.0
12.1
11.9
10.7
13.0
14.0
12.7
12.8
14.6
14.7
15.5
19.4
33.7
27.5
25.4
20.6
20.5
27.0
31.7
20.5
30.7
24.6
12.4
30.5
30.2
34.7
41.6
39.8
46.3
28.5
19.3
28.1
29.2
37.2
44.4
39.8
33.6
48.4
44.0
45.4
37.7
32.0
59.0
51.3
36.1
38.8

Nonfarm
8.3
2.9
7.1
8.2
10.8
13.8
16.8
18.1
19.1
21.5
20.4
22.9
23.1
25.2
28.0
29.4
30.4
31.1
34.0
35.8
37.8
38.5
40.9
40.5
42.3
44.4
45.7
49.8
52.1
55.5
58.4
62.6
64.7
65.4
71.4
79.0
85.3
91.3
100.0
117.1
132.4
149.2
160.1
160.1
156.1
150.9
178.4
204.0
225.6
247.2
270.0
288.0
305.9
159.8
188.6
209.7
235.0
252.0
262.3
266.0
271.6
280.3
279.9
286.5
289.3
296.3
300.3
304.2
307.2
312.0

The total of wage and salary disbursements and other labor income differs from compensation of employees in Table C-24 in that it
excludes employer contributions for social insurance and the excess of wage accruals over wage disbursements.
See next page for continuation of table.




322

TABLE C-25.—Sources of personal income, 1929-89—Continued
[Billions of dollars; quarterly data at seasonally adjusted annual rates]
Rental
income

Transfer payments

of

persons Personal Personal
with
Year or quarter capital dividend interest
con- income income
sumption
adjustment

1929
1933
1939
1940
1941
1942
1943
1944
1945
1946
1947
1948
1949
1950
1951
1952
1953
1954
1955
1956
1957
1958
1959
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989 " ....
1982- IV
1983: IV
1984- IV
1985: IV
1986- IV
1987- 1
II
Ill
IV
1988: 1
II .
Ill
IV
1989: I

||
III
IV P

4.9
2.0
2.6
2.7
3.2
4.1
4.6
4.8
5.0
5.8
5.8
6.4
6.7
7.7
8.3
9.4
10.7
11.6
12.0
12.4
13.1
13.9
14.6
15.3
15.8
16.5
17.1
17.3
18.1
18.6
19.6
18.4
18.4
18.2
18.6
17.9
18.0
16.1
13.5
11.9
8.2
9.3
5.6
6.6
13.3
13.6
13.2
8.5
9.2
11.6
13.4
15.7
8.0
15.8
12.4
5.6
7.8
13.5
14.7
13.0
11.5
14.3
15.6
14.6
16.3
16.1
11.8
9.8
5.4
5.1

5.8
2.0
3.8
4.0
4.4
4.3
4.4
4.6
4.6
5.6
6.3
7.0
7.2
8.8
8.5
8.5
8.8
9.1
10.3
11.1
11.5
11.3
12.2
12.9
13.3
14.4
15.5
17.3
19.1
19.4
20.2
21.9
22.4
22.2
22.6
24.1
26.6
28.9
28.7
33.8
38.2
43.0
48.1
52.9
61.3
63.9
68.7
75.5
78.7
85.8
92.0
102.2
112.4
65.4
71.0
76.8
79.0
87.7
88.8
90.3
93.2
95.7
98.2
100.4
103.6
106.4
109.4
111.4
113.2
115.7

6.9
5.5
5.3
5.3
5.3
5.2
5.1
5.2
5.8
6.6
7.5
8.0
8.7
9.6
10.4
11.2
12.4
13.7
14.9
16.6
18.7
20.3
22.3
24.9
26.3
28.9
32.2
35.5
39.6
44.2
48.2
53.2
60.9
69.3
74.7
80.8
93.3
111.9
122.5
134.1
155.4
182.5
221.5
271.9
335.4
369.7
393.1
444.7
478.0
493.2
523.2
571.1
657.8
366.2
411.6
464.4
485.9
492.7
502.1
516.2
527.9
546.5
549.6
560.0
576.3
598.6
629.0
655.1
667.8
679.5

Total

1.5
2.1
3.0
3.1
3.1
3.1
3.0
3.6
6.2
11.3
11.7
11.3
12.5
15.2
12.6
13.3
14.3
16.3
17.7
18.9
21.8
26.3
27.4
29.5
33.5
34.7
36.9
38.7
41.9
46.6
55.5
64.0
71.4
85.9
101.5
113.3
129.6
153.2
193.1
210.7
226.1
244.0
273.1
324.7
368.1
410.6
442.6
456.6
489.8
521.5
548.2
584.7
632.1
435.4
445.5
463.0
497.5
531.2
539.0
547.6
550.8
555.5
575.8
581.8
587.4
593.8
616.4
626.8
636.4
649.0

Old-age,
Govern- Aid to
survivors, Government families
ment
disability, unememploy- with
and
ployment Veterans ees depend- Other
health
insur- benefits retireent
insurance
ment children
ance
benefits (AFDC)
benefits
benefits

0.0
.0
.1
.1
.2
.2
.3
.4
.5
.6
1.0
1.9
2.2
3.0
3.6
4.9
5.7
7.3
8.5
10.2
11.1
12.6
14.3
15.2
16.0
18.1
20.8
25.5
30.2
32.9
38.5
44.5
49.6
60.4
70.1
81.4
92.9
104.9
116.2
131.8
154.2
182.0
204.5
221.7
235.7
253.4
269.2
282.9
300.5
325.2
216.6
227.0
241.7
257.0
273.3
278.3
283.1
284.3
285.7
297.2
299.2
301.4
304.0
316.9
322.9
327.9
333.0

0.4
.5
.4
.4
.1

A
1.1
.8
.9
1.9
1.5
.9
1.1
1.0
2.2
1.5
1.5
1.9
4.1
2.8
3.0
4.3
3.1
3.0
2.7
2.3
1.9
2.2
2.1
2.2
4.0
5.8
5.7
4.4
6.8
17.6
15.8
12.7
9.7
9.8
16.1
15.9
25.2
26.3
15.8
15.7
16.3
14.5
13.0
14.3
31.8
20.0
15.6
15.2
16.7
15.5
15.0
14.3
13.2
13.5
13.1
12.9
12.5
13.5
14.1
14.5
15.0

0.6
6

0.1
2

.5
.5

.3
.3

'.5
1.0
3.0
7.0
7.0
5.9
5.3
7.7
4.6
4.3
4.1
4.2
4.4
4.4
4.5
4.7
4.6
4.6
5.0
4.7
4.8
4.7
4.9
4.9
5.6
5.9
6.7
7.7
8.8
9.7
10.4
11.8
14.5
14.4
13.8
13.9
14.4
15.0
16.1
16.4
16.6
16.4
16.7
16.7
16.6
17.0
17.3
16.6
16.5
16.3
16.5
16.4
16.6
16.7
16.5
16.5
16.9
16.9
17.0
17.0
17.6
17.5
17.3
16.9

A
A
.5
.7
.7
.7
.9
1.0
1.1
1.2
1.4
1.5
1.7
1.9
2.2
2.5
2.8
3.1
3.4
3.7
4.2
4.7
5.2
6.1
6.9
7.6
8.7
10.2
11.8
13.8
16.0
19.0
22.7
26.1
29.0
32.7
36.9
43.0
49.4
54.6
58.7
61.4
66.8
70.9
76.4
82.7
88.5
56.1
60.2
58.5
67.9
72.6
74.1
76.0
77.4
78.1
81.4
83.0
82.8
83.7
86.9
88.1
88.9
90.1

0.3
.4
.5
.6
.6
.5
.5
.6
.6
.6
.7
.8
.9
1.0
1.1
1.3
1.4
1.5
1.7
1.9
2.3
2.8
3.5
4.8
6.2
6.9
7.2
7.9
9.2
10.1
10.6
10.7
11.0
12.4
13.0
13.3
14.2
14.8
15.4
16.4
16.7
17.2
17.9
13.6
14.5
14.8
15.8
16.7
16.6
16.7
16.7
16.7
17.0
17.1
17.3
17.5
17.6
17.7
18.0
18.3

0.8
1.4
1.7
1.7
1.8
1.8
1.8
2.0
2.0
2.1
2.5
2.9
3.3
3.5
3.6
3.9
4.2
4.2
4.5
4.8
5.2
5.7
6.2
6.7
7.1
7.6
8.3
9.1
9.8
11.2
13.0
15.3
17.3
20.7
24.5
27.6
31.2
37.5
47.6
51.5
55.1
60.9
69.1
84.0
91.8
96.5
105.1
112.6
121.9
131.9
141.2
154.3
169.0
100.6
107.3
116.1
125.0
135.4
137.9
140.1
141.6
145.1
149.8
152.5
155.9
159.0
163.9
166.4
169.7
175.8

Less:
Personal
contribu- Nonfarm
personal
tions for income2
social
insurance

0.1

'.6
.7
.8
1.2
1.8
2.2
2.3
2.0
2.1
2.2
2.2
2.9
3.4
3.8
4.0
4.6
5.2
5.8
6.7
6.9
7.9
9.3
9.7
10.3
11.8
12.6
13.3
17.8
20.6
22.9
26.2
27.9
30.7
34.5
42.6
47.9
50.4
55.5
61.2
69.8
81.0
88.6
104.5
112.3
120.1
132.7
149.3
161.9
172.9
194.9
214.2
113.5
123.6
135.2
152.6
164.6
169.7
171.3
173.7
177.0
190.3
193.4
196.4
199.6
210.0
213.0
215.4
218.5

159.9
172.0
188.3
190.6
211.2
237.1
255.4
274.2
277.5
299.6
322.8
341.9
350.4
376.2
393.9
409.9
436.7
460.0
494.9
534.0
581.5
626.3
688.7
752.1
810.4
871.8
955.0
1,059.7
1,172.6
1,276.9
1,417.9
1,572.6
1,769.3
1,983.2
2,215.8
2,465.6
2,618.7
2,799.0
3,052.1
3,271.3
3,469.4
3,714.7
4,003.7
4,360.9
2,672.8
2,895.6
3,134.7
3,346.9
3,538.9
3,607.7
3,671.5
3,740.6
3,839.0
3,883.4
3,960.2
4,038.9
4,132.2
4,237.7
4,327.5
4,398.1
4,480.3

2
Personal income exclusive of the farm component of wages and salaries, other labor income, proprietors' income, and net interest.
Note.—The industry classification of wage and salary disbursements and proprietors' income Is on an establishment basis and is
based on the 1972 Standard Industrial Classification (SIC) beginning 1948 and on the 1942 SIC prior to 1948.
Source: Department of Commerce, Bureau of Economic Analysis.




323

TABLE C-26.—Disposition of personal income, 1929-89
[Billions of dollars, except as noted; quarterly data at seasonally adjusted annual rates]
Less: Personal outlays

Year or quarter

1929
1933
1939
1940
1941 .
1942
1943
1944
1945
1946
1947
1948
1949
1950
1951
1952
1953
1954
1955
1956
1957
1958
1959
I960
1961
1962.
1963
1964...
1965
1966
1967
1968. .
1969
1970
1971 . .
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988 p
1989 ..
1982: IV
1983- IV
1984: IV
1985: IV
1986: IV
1987: 1
II
Ill
IV
1988: 1
II ...
Ill
IV
1989: 1
||
Ill
IV

Personal
income

Equals:
Disposable
nontax personal
payments income

84.3
46.3
72.1
77.6
95.2
122.4
150.7
164.5
170.0
177.6
190.2
209.2
206.4
228.1
256.5
273.8
290.5
293.0
314.2
337.2
356.3
367.1
390.7
409.4
426.0
453.2
476.3
510.2
552.0
600.8
644.5
707.2
772.9
831.8
894.0
981.6
1,101.7
1,210.1
1,313.4
1,451.4
1,607.5
1,812.4
2,034.0
2,258.5
2,520.9
2,670.8
2,838.6
3,108.7
3,325.3
3,526.2
3,777.6
4,064.5
4,428.7
2,729.2
2,941.8
3,188.3
3,399.1
3,597.8
3,673.6
3,732.7
3,795.5
3,908.7
3,948.5
4,026.6
4,097.6
4,185.2
4,317.8
4,400.3
4,455.9
4,540.9

Less:
Personal

tax and

2.6
1.4
2.4
2.6
3.3
5.9
17.8
18.9
20.8
18.7
21.4
21.0
18.5
20.6
28.9
34.0
35.5
32.5
35.4
39.7
42.4
42.2
46.1
50.5
52.2
57.0
60.5
58.8
65.2
74.9
82.4
97.7
116.3
116.2
117.3
142.0
152.0
171.8
170.6
198.7
228.1
261.1
304.7
340.5
393.3
409.3
410.5
440.2
486.6
512.9
571.7
586.6
648.7
411.1
413.9
459.7
499.6
534.4
530.8
594.6
572.0
589.2
572.2
590.7
585.9
597.8
628.3
652.6
649.1
665.0

81.7
44.9
69.7
75.0
91.9
116.4
132.9
145.6
149.2
158.9
168.8
188.1
187.9
207.5
227.6
239.8
255.1
260.5
278.8
297.5
313.9
324.9
344.6
358.9
373.8
396.2
415.8
451.4
486.8
525.9
562.1
609.6
656.7
715.6
776.8
839.6
949.8
1,038.4
1,142.8
1,252.6
1,379.3
1,551.2
1,729.3
1,918.0
2,127.6
2,261.4
2,428.1
2,668.6
2,838.7
3,013.3
3,205.9
3,477.8
3,780.0
2,318.1
2,527.9
2,728.6
2,899.5
3,063.4
3,142.8
3,138.1
3,223.5
3,319.4
3,376.4
3,435.9
3,511.7
3,587.4
3,689.5
3,747.7
3,806.8
3,875.9

Total

79.2
46.5
67.9
72.0
81.9
89.5
100.2
109.0
120.5
145.3
163.6
177.0
180.6
194.8
211.0
222.4
236.7
244.1
262.8
276.2
291.2
300.6
322.8
338.1
348.9
370.2
391.2
419.9
452.5
489.9
516.9
567.1
614.5
657.9
710.5
778.2
860.8
941.7
1,038.2
1,156.9
1,288.6
1,441.1
1,611.3
1,781.1
1,968.1
2,107.5
2,297.4
2,504.5
2,713.3
2,888.5
3,104.1
3,333.1
3,573.7
2,174.9
2,382.5
2,571.3
2,787.7
2,961.4
3,006.9
3,082.1
3,149.9
3,177.6
3,244.4
3,301.9
3,362.1
3,424.0
3,483.8
3,547.0
3,611.7
3,652.2

Personal Interest
con- paid by
sumption consumexpendi- ers to
busitures
ness

77.3
45.8
67.0
71.0
80.8
88.6
99.5
108.2
119.6
143.9
161.9
174.9
178.3
192.1
208.1
219.1
232.6
239.8
257.9
270.6
285.3
294.6
316.3
330.7
341.1
361.9
381.7
409.3
440.7
477.3
503.6
552.5
597.9
640.0
691.6
757.6
837.2
916.5
1,012.8
1,129.3
1,257.2
1,403.5
1,566.8
1,732.6
1,915.1
2,050.7
2,234.5
2,430.5
2,629.0
2,797.4
3,010.8
3,235.1
3,470.3
2,117.0
2,315.8
2,493.4
2,700.4
2,868.5
2,914.7
2,989.4
3,055.9
3,083.3
3,148.1
3,204.9
3,263.4
3,324.0
3,381.4
3,444.1
3,508.1
3,547.5

Source: Department of Commerce, Bureau of Economic Analysis.




324

1.5
.5
.7
.8
.9
'.5
'.5
.7
1.0
1.4
1.7
2.3
2.5
2.9
3.6
3.8
4.4
5.1
5.5
5.6
6.1
7.0
7.3
7.8
8.8
9.9
11.1
12.0
12.5
13.8
15.6
16.7
17.7
19.5
22.3
24.1
24.4
26.6
30.5
36.7
43.5
47.4
52.0
55.5
61.9
72.5
82.6
89.1
91.4
96.1
101.7
56.8
65.5
76.3
85.9
90.9
90.2
90.8
92.0
92.6
94.2
95.6
96.7
98.1
100.1
101.5
102.0
103.1

Personal
transfer Equals:
pay- Personal
ments
saving
to
foreigners
(net)
0.3
.2
.2
.2
.2
.1
.2
.4
.5
.7
.7
.7
.5
.4
.4
.4
.5

A
.5
.5
.4
.4
.4
.5
.5
.6
.7
.7
.7
.9
.9
1.0
1.2
1.2
1.1
1.3
1.0
1.0
1.0
.9
.9
1.0
1.1
1.0
1.3
1.0
1.5
1.7
1.9
1.9
1.9
1.7
1.1
1.2
1.6
1.4
2.1
2.0
1.9
2.0
1.8
2.1
1.5
1.9
1.9
2.2
1.4
1.6
1.6

2.6
-1.6
1.8
3.0
10.0
27.0
32.7
36.5
28.7
13.6
5.2
11.1
7.4
12.6
16.6
17.4
18.4
16.4
16.0
21.3
22.7
24.3
21.8
20.8
24.9
25.9
24.6
31.5
34.3
36.0
45.1
42.5
42.2
57.7
66.3
61.4
89.0
96.7
104.6
95.8
90.7
110.2
118.1
136.9
159.4
153.9
130.6
164.1
125.4
124.9
101.8
144.7
206.3
143.1
145.4
157.3
111.7
102.0
135.9
55.9
73.6
141.8
131.9
134.0
149.6
163.4
205.7
200.7
195.1
223.7

Percent of disposable
personal income
Personal outlays

Total

96.8
103.6
97.4
96.0
89.1
76.8
75.4
74.9
80.8
91.4
96.9
94.1
96.1
93.9
92.7
92.7
92.8
93.7
94.2
92.8
92.8
92.5
93.7
94.2
93.4
93.5
94.1
93.0
93.0
93.2
92.0
93.0
93.6
91.9
91.5
92.7
90.6
90.7
90.8
92.4
93.4
92.9
93.2
92.9
92.5
93.2
94.6
93.9
95.6
95.9
96.8
95.8
94.5
93.8
94.2
94.2
96.1
96.7
95.7
98.2
97.7
95.7
96.1
96.1
95.7
95.4
94.4
94.6
94.9
94.2

Personal
consump- Personal
saving
tion
expenditures

94.5
102.1
96.2
94.7
87.9
76.1
74.8
74.4
80.2
90.6
95.9
93.0
94.9
92.6
91.4
91.4
91.2
92.0
92.5
90.9
90.9
90.7
91.8
92.1
91.3
91.4
91.8
90.7
90.5
90.8
89.6
90.6
91.0
89.4
89.0
90.2
88.2
88.3
88.6
90.2
91.1
90.5
90.6
90.3
90.0
90.7
92.0
91.1
92.6
92.8
93.9
93.0
91.8
91.3
91.6
91.4
93.1
93.6
92.7
95.3
94.8
92.9
93.2
93.3
92.9
92.7
91.7
91.9
92.2
91.5

3.2
36
2.6
4.0
10.9
23.2
24.6
25.1
19.2
8.6
3.1
5.9
3.9
6.1
7.3
7.3
7.2
6.3
5.8
7.2
7.2
7.5
6.3
5.8
6.6
6.5
5.9
7.0
7.0
6.8
8.0
7.0
6.4
8.1
8.5
7.3
9.4
9.3
9.2
7.6
6.6
7.1
6.8
7.1
7.5
6.8
5.4
6.1
4.4
4.1
3.2
4.2
5.5
6.2
5.8
5.8
3.9
3.3
4.3
1.8
2.3
4.3
3.9
3.9
4.3
4.6
5.6
5.4
5.1
5.8

TABLE C-27.—Total and per capita disposable personal income and personal consumption expenditures in
current and 1982 dollars, 1929-89
[Quarterly data at seasonally adjusted annual rates, except as noted]

Year or quarter

1929
1933. .
1939
1940
1941
1942
1943
1944
1945....
1946
1947 ..
1948
1949
1950
1951
1952
1953
1954
1955
1956
1957
1958
1959
1960
1961...
1962
1963
1964
1965
1966
1967
1968...
1969
1970...
1971
1972
1973
1974
1975
1976
1977...
1978
1979...
1980
1981
1982...
1983
1984
1985
1986 ..
1987
1988
1989".
1982- IV
1983: IV
1984: IV
1985: IV
1986: IV
1987: 1
II
III
IV
1988: 1

II
Ill
IV
1989- 1
II
Ill
IV

Disposable personal income
Total (billions of
Per capita
(dollars)
dollars)
Current
1982
Current
1982
dollars dollars dollars dollars
81.7
44.9
69.7
75.0
91.9
116.4
132.9
145.6
149.2
158.9
168.8
188.1
187.9
207.5
227.6
239.8
255.1
260.5
278.8
297.5
313.9
324.9
344.6
358.9
373.8
396.2
415.8
451.4
486.8
525.9
562.1
609.6
656.7
715.6
776.8
839.6
949.8
1,038.4
1,142.8
1,252.6
1,379.3
1,551.2
1,729.3
1,918.0
2,127.6
2,261.4
2,428.1
2,668.6
2,838.7
3,013.3
3,205.9
3,477.8
3,780.0
2,318.1
2,527.9
2,728.6
2,899.5
3,063.4
3,142.8
3,138.1
3,223.5
3,319.4
3,376.4
3,435.9
3,511.7
3,587.4
3,689.5
3,747.7
3,806.8
3,875.9

486
9.
370.8
499.5
530.7
604.1
693.0
721.4
749.3
739.5
723.3
694.8
733.1
733.2
791.8
819.0
844.3
880.0
894.0
944.5
989.4
1,012.1
1,028.8
1,067.2
1,091.1
1,123.2
1,170.2
1,207.3
1,291.0
1,365.7
1,431.3
1,493.2
1,551.3
1,599.8
1,668.1
1,728.4
1,797.4
1,916.3
1,896.6
1,931.7
2,001.0
2,066.6
2,167.4
2,212.6
2,214.3
2286
,4.
2,261.5
2,331.9
2,469.8
2,542.8
2,635.3
2,676.6
2,793.2
2,906.7
2,276.1
2,392.7
2,496.3
2,562.8
2,646.2
2,672.3
2,632.5
2,675.6
2,726.2
2,757.2
2,773.3
2,806.4
2,835.9
2,881.7
2,887.6
2,919.2
2,938.3

671
357
532
568
689
863
972
1,052
1,066
1,124
1,171
1,283
1,260
1,368
1,475
1,528
1,599
1,604
1,687
1,769
1,833
1,865
1,946
1,986
2,034
2,123
2,197
2,352
2,505
2,675
2,828
3,037
3,239
3,489
3,740
4,000
4,481
4,855
5,291
5,744
6,262
6,968
7,682
8,421
9,243
9,724
10,340
11,257
11,861
12,469
13,140
14,116
15,191
9,929
10,725
11,467
12,068
12,629
12,928
12,880
13,196
13,552
13,754
13,966
14,235
14,504
14,884
15,084
15,280
15,514

1

4,091
2,950
3,812
4,017
4,528
5,138
5,276
5,414
5,285
5,115
4,820
5,000
4,915
5,220
5,308
5,379
5,515
5,505
5,714
5,881
5,909
5,908
6,027
6,036
6,113
6,271
6,378
6,727
7,027
7,280
7,513
7,728
7,891
8,134
8,322
8,562
9,042
8,867
8,944
9,175
9,381
9,735
9,829
9,722
9,769
9,725
9,930
10,419
10,625
10,905
10,970
11,337
11,681
9,749
10,151
10,491
10,667
10,909
10,993
10,805
10,953
11,130
11,232
11,273
11,377
11,466
11,625
11,622
11,717
11,761

Personal consumption expenditures
Total (billions of
Per capita
dollars)
(dollars)
Current
1982
Current
1982
dollars dollars dollars dollars
77.3
45.8
67.0
71.0
80.8
88.6
99.5
108.2
119.6
143.9
161.9
174.9
178.3
192.1
208.1
219.1
232.6
239.8
257.9
270.6
285.3
294.6
316.3
330.7
341.1
361.9
381.7
409.3
440.7
477.3
503.6
552.5
597.9
640.0
691.6
757.6
837.2
916.5
1,012.8
1,129.3
1,257.2
1,403.5
1,566.8
1,732.6
1,915.1
2,050.7
2,234.5
2,430.5
2,629.0
2,797.4
3,010.8
3,235.1
3,470.3
2,117.0
2,315.8
2,493.4
2,700.4
2,868.5
2,914.7
2,989.4
3,055.9
3,083.3
3,148.1
3,204.9
3,263.4
3,324.0
3,381.4
3,444.1
3,508.1
3,547.5

471.4
378.7
480.5
502.6
531.1
527.6
539.9
557.1
592.7
655.0
666.6
681.8
695.4
733.2
748.7
771.4
802.5
822.7
873.8
899.8
919.7
932.9
979.4
1,005.1
1,025.2
1,069.0
1,108.4
1,170.6
1,236.4
1,298.9
1,337.7
1,405.9
1,456.7
1,492.0
1,538.8
1,621.9
1,689.6
1,674.0
1,711.9
1,803.9
1,883.8
1,961.0
2,004.4
2,000.4
2,024.2
2,050.7
2,146.0
2,249.3
2,354.8
2,446.4
2,513.7
2,598.4
2,668.5
2,078.7
2,191.9
2,281.1
2,386.9
2,477.8
2,478.3
2,507.7
2,536.5
2,532.3
2,570.8
2,586.8
2,608.1
2,627.7
2,641.0
2,653.7
2,690.1
2,689.3

634
365
511
538
606
657
727
782
855
1,018
1,123
1,193
1,195
1,267
1,349
1,396
1,458
1,477
1,560
1,608
1,666
1,692
1,786
1,829
1,857
1,940
2,017
2,133
2,268
2,428
2,534
2752
2,949
3,121
3,330
3,609
3,950
4,285
4,689
5,178
5,707
6,304
6,960
7,607
8,320
8,818
9,516
10,253
10,985
11,576
12,340
13,131
13,946
9,068
9,825
10,479
11,240
11,825
11,990
12,270
12,510
12,588
12,824
13,028
13,229
13,439
13,641
13,862
14,081
14,200

3,868
3,013
3,667
3,804
3,981
3,912
3,949
4,026
4,236
4,632
4,625
4,650
4,661
4,834
4,853
4,915
5,029
5,066
5,287
5,349
5,370
5,357
5,531
5,561
5,579
5,729
5,855
6,099
6,362
6,607
6,730
7,003
7,185
7,275
7,409
7,726
7,972
7,826
7,926
8,272
8,551
8,808
8,904
8,783
8,794
8,818
9,139
9,489
9,840
10,123
10,303
10,546
10,724
8,904
9,299
9,587
9,935
10,214
10,195
10,293
10,384
10,338
10,473
10,515
10,572
10,624
10,654
10,681
10,798
10,765

Population
(thousands) 1

121,878
125,690
131,028
132,122
133,402
134,860
136,739
138,397
139,928
141,389
144,126
146,631
149,188
151,684
154,287
156,954
159,565
162,391
165,275
168,221
171,274
174,141
177,073
180,760
183,742
186,590
189,300
191,927
194,347
196,599
198,752
200,745
202,736
205,089
207,692
209,924
211,939
213,898
215,981
218,086
220,289
222,629
225,106
227,754
230,182
232,549
234,829
237,051
239,322
241,660
243,985
246,378
248,830
233,466
235,707
237,946
240,257
242,579
243,093
243,636
244,274
244,936
245,476
246,008
246,685
247,343
247,890
248,456
249,143
249,831

Population of the United States including Armed Forces overseas; includes Alaska and Hawaii beginning 1960. Annual data are for
July 1 through 1958 and are averages of quarterly data beginning 1959. Quarterly data are averages for the period.
Source: Department of Commerce (Bureau of Economic Analysis and Bureau of the Census).




325

TABLE C-28.—Gross saving and investment, 1929-89
[Billions of dollars; quarterly data at seasonally adjusted annual rates]
Gross saving
Gross private saving
Year or
quarter

1929
1933
1939
1940
1941
1942
1943
1944
1945
1946
1947
1948 . .
1949
1950
1951
1952
1953 ..
1954
1955
1956
1957
1958
1959
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980 .
1981
1982
1983 ...
1984
1985
1986 .
1987
1988
1989"
1982: IV
1983: IV
1984: IV
1985: IV
1986: IV
1987:1
II
Ill
IV
1988: 1
||
Ill
IV
1989- 1
II
Ill
IV.

Total

15.9
.6
8.9

its

10.9
5.8
3.0
5.9
35.7
42.5
50.8
36.5
52.5
58.7
52.3
51.0
51.6
68.4
77.3
77.1
64.5
80.5
84.2
82.6
91.4
98.7
108.5
123.5
130.3
129.5
139.7
158.8
154.7
171.9
200.7
251.9
247.9
238.7
283.0
335.4
408.6
458.4
445.0
522.0
446.4
463.6
568.5
533.5
525.3
553.8
642.4
700.7
387.4
519.9
557.8
520.3
510.0
529.5
535.0
551.1
599.5
619.1
633.4
669.8
647.4
693.5
695.8
709.9

Per-

Total

14.9
1.9
11.1
14.3
22.6
42.3
50.0
54.9

45.4
30.3
28.1
42.4
39.9
44.5
52.6
56.1
58.0
58.8
65.2
72.1
76.1
77.1
82.1
81.1
86.8
95.2
97.9
110.8
123.0
131.6
143.8
145.7
148.9
164.5
190.6
203.4
244.0
254.3
303.6
321.4
354.5
409.0
445.8
478.4
550.5
557.1
592.2
673.5
665.3
669.5
663.8
738.6
805.6
554.2
632.8
679.9
666.3
641.2
682.7
612.3
644.5
715.8
720.0
722.5
742.4
769.3
792.1
793.7
809.7

sonal

saving

2.6
-1.6
1.8
3.0
10.0
27.0
32.7
36.5

28.7
13.6
5.2
11.1
7.4
12.6
16.6
17.4
18.4
16.4
16.0
21.3
22.7
24.3
21.8
20.8
24.9
25.9
24.6
31.5
34.3
36.0
45.1
42.5
42.2
57.7
66.3
61.4
89.0
96.7
104.6
95.8
90.7
110.2
118.1
136.9
159.4
153.9
130.6
164.1
125.4
124.9
101.8
144.7
206.3
143.1
145.4
157.3
111.7
102.0
135.9
55.9
73.6
141.8
131.9
134.0
149.6
163.4
205.7
200.7
195.1
223.7

Gross
business
saving 1

12.3
3.6
9.3
11.3
12.6
15.3
17.3
18.4
16.8
16.7
23.0
31.3
32.5
31.8
36.0
38.7
39.6
42.3
49.2
50.8
53.5
52.9
60.3
60.3
62.0
69.3
73.3
79.3
88.7
95.6
98.6
103.3
106.7
106.7
124.3
142.0
155.0
157.6
198.9
225.6
263.8
298.9
327.7
341.5
391.1
403.2
461.6
509.5
539.9
544.6
562.0
593.8
599.3
411.1
487.3
522.6
554.5
539.2
546.8
556.4
570.9
574.0
588.1
588.5
592.8
605.9
586.4
592.9
614.6

Gross investment

Governmer t surplus or deficit Capital
( — ), na tional income and
grants
prod uct accounts
received
Total

Federal

1.0
-1.4
-2.2
7
-3.8
-31.4
-44.2
-51.8
-39.5
5.4
14.4
8.4
34
8.0
6.1
38
-7.0
71
3.1
5.2
.9
-12.6
16
3.1
-4.3
-3.8
.7
-2.3
.5
-1.3
-14.2
-6.0
9.9
-10.6
-19.5
-3.4
7.9
43
-64.9
-38.4
191
-.4
11.5
345
-29.7
-110.8
-128.6
-105.0
-131.8
1441
-110.1
961
-104.9
-166.8
-112.9
-122.1
-145.9
-131.3
-153.2
-77.3
-93.5
-116.3
-101.0
891
-72.7
-121.9
-98.7
-97.9
-99.8

1.2
-1.3
22

i-M

-33.1
-46.6
-54.5
-42.1
3.5
13.4
8.3
26
9.2
6.5
37
-7.1
60
4.4
6.1
2.3
-10.3
11
3.0
-3.9
-4.2

-3.3
.5
-1.8
-13.2
-6.0
8.4
-12.4
-22.0
-16.8
-5.6
-11.6
694
-53.5
-46.0
-29.3
-16.1
613
-63.8
-145.9
-176.0
-169.6
-196.9
-206.9
-161.4
-145.8
-149.9
-202.6
1692
-187.5
-212.2
-189.0
-199.4
-137.7
-143.9
1644
-151.8
-141.5
-122.5
1676
-147.5
-145.4
-144.7

State
and
local

by the
United
States

~'.Q
.6
1.3
1.8
2.4
2.7
2.6
1.9
1.0
.1
-.7
-1.2
-.4
.0
.1
-1.1
-1.3
-.9
14
-2.4
.1
-.4
.5

i!o

0.9
.7
.7
0
-2.0
0
0
0
0
1.1
1.2
1.1
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0

tic

investment

(net) ^

-0.2

.0
.5
11
.1
1.5
1.8
2.6
13.5
13.5
7.2
4.5
15.2
26.9
28.9
27.6
26.8
34.1
35.1
47.5
64.6
65.1
62.8
51.3
49.7
45.0
35.8
56.4
65.4
66.3
57.8
46.3
60.4
50.5
48.0
50.8
52.4
49.8
45.7
48.8
47.5
44.9

Total

Gross
private
domes-

17.4
1.7
10.6
15.0
19.5
10.2
4.1
5.8
10.0
36.4
44.3
49.6
37.3
53.2
61.4
54.2
53.6
54.3
70.2
75.4
75.9
64.5
79.0
81.4
81.3
91.5
98.1
107.1
122.3
132.4
129.2
138.6
154.9
153.6
173.7
199.1
247.6
246.2
241.2
286.6
335.3
406.7
457.4
450.0
526.1
446.3
468.8
573.9
528.7
523.6
549.0
632.8
677.4
394.2
522.4
555.7
512.4
500.3
530.7
532.7
540.5
592.0
605.9
633.4
661.2
630.8
669.3
677.5
684.3
678.3

16.7
1.6
9.5
13.4
18.3
10.3
6.2
7.7
11.3
31.5
35.0
47.1
36.5
55.1
60.5
53.5
54.9
54.1
69.7
72.7
71.1
63.6
80.2
78.2
77.1
87.6
93.1
99.6
116.2
128.6
125.7
137.0
153.2
148.8
172.5
202.0
238.8
240.8
219.6
277.7
344.1
416.8
454.8
437.0
515.5
447.3
502.3
664.8
643.1
659.4
699.9
750.3
777.1
409.6
579.8
661.8
654.1
648.8
673.1
684.1
692.8
749.7
728.8
748.4
771.1
752.8
769.6
775.0
779.1
784.8

Statistical
Net
foreign discrepancy
investment 3

0.8
.2
1.0
1.5
1.3
-.1
21
-2.0
-1.3
4.9
9.3
2.4
.9
-1.8
.9
.6
-1.3

A
2.8
4.8
.9
12
3.2
4.2
3.8
4.9
7.5
6.2
3.8
3.5
1.6
1.7
4.8
1.3
29
8.8
5.4
21.6
9.0
-8.7
101
2.6
13.0
10.6
-1.0
-33.5
-90.9
-114.4
-135.8
-150.9
-117.5
-99.8
-15.4
-57.4
-106.1
-141.6
-148.5
-142.4
-151.4
-152.2
-157.6
-122.8
-115.0
-109.9
-122.0
-100.3
-97.5
-94.8
-106.5

1.5
1.2
1.7
1.4
.7
7
-1.7
2.7
4.0
1.8
-1.3
.8
.8
2.7
1.8
2.6
2.7
1.8
19
-1.2

-7.5
-2.8
-1.2
.0
-.6
-1.4
-1.2
2.1
-.4
-1.1
-3.9
-1.1
1.8
-1.6
-4.3
-1.7
2.5
3.6
.0
-1.9
-1.0
4.9
4.1
5.2
5.4
-4.8
-1.8
-4.7
-9.6
-23.4
6.8
2.5
-2.1
-7.9
-9.6
1.2
-2.3
-10.5
-7.4
-13.1
-.1
-8.6
-16.6
-24.1
-18.3
-25.5

1
Undistributed corporate profits with inventory valuation and capital consumption adjustments, corporate and noncorporate capital
consumption allowances with capital consumption adjustment, and private wage accruals less disbursements.
2
Allocations of special drawing rights (SDRs).
3
Net exports of goods and services less net transfers to foreigners and interest paid by government to foreigners plus capital grants
received by the United States, net.
Source-. Department of Commerce, Bureau of Economic Analysis.




326

TABLE C-29.—Saving by individuals, 1946-891
[Billions of dollars; quarterly data at seasonally adjusted annual rates]
Net investment in
tangible assets 7

Increase in financial assets
Securities

Year or
quarter

Total

InsurCheck- Time
ance
able
Money
and
depos- savings market Govern- Corpo- Other and
Total its and
rate securi- pension
ment
fund
recurren- depos- shares securi- equi- ties4
its
ties2 ties3
serves8
cy

1946...
1947
1948
1949

24.9
19.5
25.0
20.7

19.5
12.5
8.9
8.8

5.6
.0
-2.9
-2.0

6.3
3.5
2.3
2.6

-1.5
.5
1.0

1.2
1.1
1.0

1950
1951
1952
1953
1954
1955
1956
1957
1958
1959

31.8
35.0
35.9
34.3
27.4
36.1
38.5
38.0
35.1
36.8

14.9
18.9
28.7
24.7
21.2
28.6
31.8
28.8
32.5
34.5

2.7
4.6
1.6
.9
2.1
1.2
1.9
-.4
3.7
.9

2.4
4.8
7.8
8.2
9.2
8.6
9.4
11.9
13.9
11.0

.9
-.6
7.4
3.7
.2
6.4
4.6
3.7
-2.6
8.4

1960
1961
1962
1963
1964
1965
1966
1967
1968
1969

37.4
36.9
43.2
46.7
56.6
65.7
76.5
79.0
79.5
73.9

32.7
35.5
39.7
45.4
54.9
58.7
60.9
70.1
71.6
67.0

.9
-1.0
-1.2
4.2
5.2
7.6
2.4
9.9
11.2
-2.4

12.2
18.3
26.1
26.2
26.3
27.9
19.1
35.4
30.9
8.9

2.1
.8
1.1
-.8
3.9
3.9
13.7
-2.5
2.3
27.0

1970
1971
1972
1973
1974
1975
1976
1977
1978
1979

89.6
99.6
118.9
157.4
120.0
159.1
164.0
190.3
198.8
204.4

80.7
105.5
134.6
148.4
147.1
176.4
206.1
253.4
285.8
327.0

8.7
12.2
13.4
13.1
6.3
6.0
15.6
19.7
22.0
36.0

43.5
67.7
74.0
63.5
56.2
77.6
107.1
106.6
99.6
74.4

2.4
1.3
.0
-.2
6.0
30.6

1980
1981
1982
1983
1984
1985
1986
1987
1988

204.4
248.8
263.8
323.1
391.4
346.1
409.2
377.2
432.5

321.3
323.3
379.3
495.4
563.7
568.0
561.2
512.1
569.2

8.9 124.9
35.4
72.0
24.7 119.7
33.4 201.8
23.0 229.6
32.6 133.0
94.8 106.5
22.8
97.8
8.4 159.0

24.5
90.7
32.8
-31.1
44.0
12.1
33.0
21.4
18.1

1987:1
II
III....
IV....

351.6
363.5
315.9
477.8

429.0 -61.0
574.2 15.6
479.2 66.5
566.1
70.1

1988:1
II
III....
IV....

420.2 498.8
2.4
398.2 578.8 -16.6
464.1 623.8 -17.9
447.7 575.4 65.7

196.2
138.7
190.4
110.8

49.7
-27.4
-7.3
57.4

1989:1
-9.2
412.3 516.1
II
509.6 580.5 -74.7
III.... 538.2 643.2 62.7

151.3
162.8
112.5

44.1
104.9
119.8

23.1
90.4
68.3
209.5

-5.7
-11.0

18.8
32.3
34.4

Owneroccupied
homes

Consumer
durables

Noncorporate
business
assets8

Mortgage
debt Con- Other
89
on sumer
non- credit debt
farm
homes

~!l

5.1
5.4
5.3
5.6

3.7
2.6
2.1
1.6

3.8
7.0
9.5
8.7

6.7
9.4
10.2
10.9

2.0
1.3
6.9
2.0

4.0
4.9
4.8
4.4

2.9
3.5
3.1
3.1

0.2
2.4
2.6
2.3

.7
1.8
1.5
1.0
.7
1.1
2.0
1.5
1.8
.6

-.7
.3
.0
.5
-.8
1.0
1.1
.8
1.0
-.2

6.1
6.3
7.7
7.9
7.8
8.5
9.5
9.5
10.4
11.9

2.9
1.6
2.8
2.4
2.0
1.7
3.4
1.9
4.3
1.9

12.1
12.1
11.7
12.7
13.1
17.3
16.2
13.8
12.8
17.0

14.9
11.4
8.7
10.3
7.0
12.7
8.8
7.9
3.7
7.7

7.2
4.4
1.9
.8
1.7
2.9
1.0
2.1
2.9
4.3

7.1
6.6
6.4
7.6
9.0
12.3
11.0
8.8
9.6
12.9

4.6
1.4
5.2
4.1
1.4
7.0
3.6
2.6
.3
7.7

5.7
3.8
3.5
2.5
5.3
6.1
4.6
3.2
6.9
6.1

.0
1.1
-1.4
-1.6

2.3
-.2
-.4
1.3

-lie

'.B
2.4
5.2
7.8
10.0

11.5
12.1
13.0
13.9
16.4
17.0
19.3
18.8
19.9
21.8

3.7
4.3
2.5
2.1
3.1
3.1
4.1
6.7
5.7
3.9

15.7
13.5
14.0
15.5
15.7
15.3
14.5
12.6
17.0
17.2

7.3
4.5
8.6
11.9
15.1
20.2
23.2
21.3
26.9
26.2

3.2
4.9
7.0
9.2
8.8
12.4
9.9
10.7
10.0
13.3

11.4
12.3
13.9
16.6
17.4
17.1
13.4
12.9
17.2
18.3

4.0
2.2
5.9
8.5
9.5
10.1
5.9
5.1
10.8
10.1

6.1
7.0
6.4
10.1
11.1
13.7
12.5
17.6
18.1
21.5

-.7
-4.3
-8.8
-4.3
-2.1
-6.2

6.9
6.7
-1.0
9.1
13.5
-2.1
2.2
17.2
8.7
4.8

24.2
28.0
48.5
39.9
43.7
71.9
56.6
78.6
95.0
101.8

3.9
6.2
9.2
8.4
9.3
10.1
16.6
25.4
34.9
38.8

14.6
22.3
29.2
33.1
27.9
27.5
41.9
61.0
77.8
86.7

19.9
25.7
34.8
41.2
29.9
28.4
42.9
53.3
58.8
54.0

13.1 13.5
19.5 26.2
26.6 38.8
31.9 44.2
14.9 34.6
7.5 38.8
2.7 60.8
15.2 91.5
18.9 109.4
12.4 117.1

4.6
14.1
19.0
23.0
9.0
8.0
22.9
36.7
45.1
40.5

20.6
33.2
48.4
30.0
56.2
33.9
45.9
64.4
87.9
118.2

-9.9 -14.5
-35.7 -9.1
-11.3 -25.8
3.8
.5
-53.4
.3
-34.3
51.2
16.4
37.2
28.9
-24.8
-120.6 37.5

118.5
117.9
148.0
159.2
157.7
185.6
202.9
195.2
224.4

66.6
35.4
8.8 59.7
35.6
21.3
76.2
28.9
95.4
36.6
67.0 97.1
72.9 114.6
30.2 134.0
64.8 151.3

31.9
37.4
37.2
62.7
98.8
117.6
125.4
115.7
131.6

96.4
73.8
52.9
120.4
136.7
157.0
216.8
234.0
229.0

2.6
16.9
16.4
49.0
81.6
82.5
58.0
32.9
51.1

110.2
100.4
115.1
130.2
162.7
198.0
120.5
105.2
113.1

-.1
-3.3
-6.2
-2.2

1&6
17.8
17.6
8.6
13.4 -~L3
32.1 -12.5
66.0 -25.5

33.4
43.2
69.8
99.0
125.9
120.8
-2.4
140.6
177.7

Other
financial
assets6

Less: Net increase in
debt

-0.8

-6.2
19.5
-4.0
-11.6
14.4
1.0
3.2
-12.6
-26.4

56.1
32.6
10.4
16.7

188.0
234.5
157.7
200.5

16.6
44.3
61.4
-1.3

131.9
128.7
138.9
136.9

104.8 -11.8 230.1 -16.4
116.0 -6.2 261.0 38.2
130.5 -20.6 220.0 55.7
111.5 -12.2 224.7 54.1

88.6
150.0
136.5
45.6

122.8 -55.8 -55.1
137.9 -133.9 159.6
259.5 -100.2 66.8
190.7 -192.6 -21.5

190.8
214.9
168.7
323.0

47.9
105.5
63.9
41.8

144.6
149.2
154.5
157.6

129.1
133.1
126.7
137.3

43.7
51.9
35.5
73.1

120.6
88.6
154.5
88.5

272.0 -160.5
119.0 -52.9
164.2 -84.9

149.8 17.2
161.6 109.5
103.3 99.8

161.8 132.1 -21.8 204.8 34.8
166.0 132.4 -39.2 187.7 46.0
170.9 145.7 -52.3 196.0 30.9

136.4
96.5
142.3

98.8 107.4
234.2 -96.3
138.4 -55.9
90.8 -54.6

1
Saving
2

51.5
50.4
65.9

-16.3
-21.7
-19.5
-48.5

171.6
300.7
231.4
212.5

by households, personal trust funds, nonprofit institutions, farms, and other noncorporate business.
Consists of U.S. savings bonds, other U.S. Treasury securities, U.S. Government agency securities and sponsored agency securities,
mortgage pool securities, and State and local obligations.
3
Includes mutual fund shares.
4
Corporate and foreign bonds and open-market paper.
5
Private life insurance reserves, private insured and noninsured pension reserves, and government insurance and pension reserves.
6
Consists of security credit, mortgages, accident and health insurance reserves, and nonlife insurance claims for households and of
consumer credit, equity in sponsored agencies, and nonlife insurance claims for noncorporate business.
7
Purchases of physical assets less depreciation.
8
Includes data for corporate farms.
9
Other debt consists of security credit, U.S. Government and policy loans, and noncorporate business debt.
Source: Board of Governors of the Federal Reserve System.




327

TABLE C-30.—Number and median income (in 1988 dollars) of families and persons, and poverty status,
by race, 1970-88
Families 1

Persons
below
poverty level

Below poverty level
Year

Number
(millions)

Median
income

Female
householder

Total

Number
(mil- Rate

lions)
ALL RACES
1970
1971
1972
1973 3
1974
1975
1976
1977
1978
1979*
1980
1981
1982 3
1983
1984
1985
1986 3
1987
1988
WHITE
1970
1971
1972
1973 3
1974
1975
1976
1977
1978 4
1979
1980
1981
1982 3
1983
1984 ...
1985 .
1986 3 .
1987
1988
BLACK
1970
1971
1972
1973
1974 3
1975
1976
1977
1978 .
1979 *
1980
1981 ....
1982 3
1983
1984
1985 .
1986
1987 3
1988

Number
(millions)

Rate

Median income of persons 15 zyears old
and over with income

Number
(mil- Rate
lions)

All
persons

Females

Males
Yearround
full-time
workers

persons

Yearround
full-time
workers

$6,821
7,034
7,356
7,450
7,396
7,443
7,435
7,693
7,381
7,091
7,064
7,103
7,217
7,608
7,820
7,935
8,214
8,638
8,884

$16,586
16,653
17,131
17,287
17,215
16,973
17,281
17,206
17,493
17,160
16,641
16,212
16,750
17,208
17,559
17,868
18,180
18,291
18,545

All

52.2 $30,084
53.3 30,042
31,460
54.4
55.1 32,109
30,960
55.7
30,166
56.2
31,099
56.7
31,252
57.2
32,006
57.8
31,917
59.6
30,182
60.3
61.0 29,136
61.4 28,727
29,307
62.0
30,096
62.7
30,493
63.6
31,796
64.5
32,251
65.2
65.8 32,191

5.3
5.3
5.1
4.8
4.9
5.5
5.3
5.3
5.3
5.5
6.2
6.9
7.5
7.6
7.3
7.2
7.0
7.0
6.9

10.1
10.0
9.3
8.8
8.8
9.7
9.4
9.3
9.1
9.2
10.3
11.2
12.2
12.3
11.6
11.4
10,9
10.7
10.4

2.0
2.1
2.2
2.2
2.3
2.4
2.5
2.6
2.7
2.6
3.0
3.3
3.4
3.6
3.5
3.5
3.6
3.7
3.6

32.5
33.9
32.7
32.2
32.1
32.5
33.0
31.7
31.4
30.4
32.7
34.6
36.3
36.0
34.5
34.0
34.6
34.2
33.5

25.4 12.6 $20,337 $28,002
25.6 12.5 20,164 28,132
24.5 11.9 21,085 29,824
23.0 11.1 21,465 30,556
23.4 11.2 20,281 29,328
25.9 12.3 19,467 28,902
28,814
19,597
25.0 11.8
24.7 11.6
19,762
29,419
24.5 11.4 19,841 29,143
26.1 11.7 19,194 28,482
29.3 13.0 17,989 27,526
17,534
31.8 14.0
26,929
34.4 15.0 17,101 26,547
26,732
17,414
35.3 15.2
33.7 14.4
17,762 27,331
17,933 27,485
33.1 14.0
32.4 13.6 18,473 27,949
18,522 27,785
32.3 13.4
31.9 13.1
18,908 27,342

46.5
47.6
48.5
48.9
49.4
49.9
50.1
50.5
50.9
52.2
52.7
53.3
53.4
53.9
54.4
55.0
55.7
56.1
56.5

31,209
31,173
32,685
33,558
32,174
31,374
32,303
32,679
33,327
33,305
31,447
30,606
30,161
30,688
31,523
32,051
33,255
33,725
33,915

3.7
3.8
3.4
3.2
3.4
3.8
3.6
3.5
3.5
3.6
4.2
4.7
5.1
5.2
4.9
5.0
4.8
4.6
4.5

8.0
7.9
7.1
6.6
6.8
7.7
7.1
7.0
6.9
6.9
8.0
8.8
9.6
9.7
9.1
9.1
8.6
8.1
7.9

1.1
1.2
1.1
1.2
1.3
1.4
1.4
1.4
1.3
1.4
1.6
1.8
1.8
1.9
1.9
2.0
2.0
2.0
1.9

25.0
26.5
24.3
24.5
24.8
25.9
25.2
24.0
23.5
22.3
25.7
27.4
27.9
28.3
27.1
27.4
28.2
26.9
26.5

17.5
17.8
16.2
15.1
15.7
17.8
16.7
16.4
16.3
17.2
19.7
21.6
23.5
24.0
23.0
22.9
22.2
21.2
20.8

9.9
9.9
9.0
8.4
8.6
9.7
9.1
8.9
8.7
9.0
10.2
11.1
12.0
12.1
11.5
11.4
11.0
10.4
10.1

21,376
21,139
22,115
22,522
21,246
20,450
20,660
20,699
20,781
20,051
19,135
18,605
18,080
18,320
18,749
18,813
19,494
19,687
19,959

28,804
28,924
30,900
31,440
30,060
29,595
29,673
30,020
29,684
29,305
28,312
27,562
27,254
27,445
28,267
28,248
28,730
28,433
28,262

6,909
7,151
7,404
7,522
7,480
7,520
7,497
7,811
7,470
7,158
7,102
7,183
7,315
7,741
7,912
8,089
8,376
8,859
9,103

16,879
16,845
17,468
17,580
17,361
17,013
17,414
17,316
17,658
17,310
16,802
16,483
16,975
17,439
17,734
18,121
18,458
18,629
18,823

4.9
5.2
5.3
5.4
5.5
5.6
5.8
5.8
5.9
6.2
6.3
6.4
6.5
6.7
6.8
6.9
7.1
7.2
7.4

19,144
18,811
19,426
19,368
19,211
19,304
19,215
18,668
19,739
18,860
18,196
17,265
16,670
17,295
17,570
18,455
19,001
19,168
19,329

1.5
1.5
1.5
1.5
1.5
1.5
1.6
1.6
1.6
1.7
1.8
2.0
2.2
2.2
2.1
2.0
2.0
2.1
2.1

29.5
28.8
29.0
28.1
26.9
27.1
27.9
28.2
27.5
27.8
28.9
30.8
33.0
32.3
30.9
28.7
28.0
29.4
28.2

.8
.9
1.0
1.0
1.0
1.0
1.1
1.2
1.2
1.2
1.3
1.4
1.5
1.5
1.5
1.5
1.5
1.6
1.6

54.3
53.5
53.3
52.7
52.2
50.1
52.2
51.0
50.6
49.4
49.4
52.9
56.2
53.7
51.7
50.5
50.1
51.1
49.0

7.5
7.4
7.7
7.4
7.2
7.5
7.6
7.7
7.6
8.1
8.6
9.2
9.7
9.9
9.5
8.9
9.0
9.6
9.4

33.5
32.5
33.3
31.4
30.3
31.3
31.1
31.3
30.6
31.0
32.5
34.2
35.6
35.7
33.8
31.3
31.1
32.6
31.6

12,675
12,607
13,395
13,623
13,164
12,226
12,439
12,283
12,449
12,412
11,498
11,063
10,835
10,714
10,757
11,839
11,681
11,679
12,044

19,620
19,778
20,867
21,190
21,316
21,655
21,252
20,697
22,735
21,120
19,920
19,501
19,357
19,568
19,291
19,758
20,256
20,330
20,716

6,290
6,266
6,917
6,789
6,752
6,832
7,065
6,745
6,726
6,515
6,575
6,381
6,452
6,615
7,018
6,901
7,087
7,237
7,349

13,830
14,874
14,943
14,907
16,022
16,254
16,281
16,183
16,366
15,861
15,670
14,886
15,172
15,480
15,981
16,041
16,152
16,639
16,867

^he term "family" refers to a croup of two or more persons related by blood, marriage, or adoption and residing together; all such
persons are considered members of the same family. Beginning 1979, based on householder concept and restricted to primary families.
2
Prior to 1979, data are for persons 14 years and over.
3
Based on revised methodology; comparable with succeeding years.
* Based on 1980 census population controls; comparable with succeeding years.
Note.—The poverty level is based on the poverty index adopted by a Federal interagency committee in 1969. That index reflected
different consumption requirements for families based on size and composition, sex and age of family householder, and farm-nonfarm
residence. Minor revisions implemented in 1981 eliminated variations in the poverty thresholds based on two of these variables, farmnonfarm residence and sex of householder. The poverty thresholds are updated every year to reflect changes in the consumer price
index. For further details, see "Current Population Reports," Series P-60, No. 160.
Source: Department of Commerce, Bureau of the Census.




328

POPULATION, EMPLOYMENT, WAGES, AND PRODUCTIVITY
TABLE C-31.—Population by age groups, 1929-89
[Thousands of persons]
Age (years)
Julyl

Total
Under 5

5-15

16-19

20-24

25-44

45-64

65 and
over

1929

121 767

11734

26800

9127

10694

35862

21076

6474

1933

125 579

10612

26897

9302

11152

37319

22933

7363

1939

130,880

10,418

25,179

9,822

11,519

39,354

25,823

8,764

1940
1941
1942.
1943
1944

132,122
133 402
134 860
136,739
138 397

10,579
10850
11301
12,016
12524

24,811
24516
24231
24,093
23949

9,895
9840
9730
9,607
9561

11,690
11807
11955
12,064
12062

39,868
40383
40861
41,420
42016

26,249
26718
27196
27,671
28138

9,031
9288
9,584
9,867
10147

1945
1946 ..
1947
1948
1949

139 928
141 389
144,126
146 631
149,188

12979
13244
14,406
14919
15607

23907
24103
24,468
25209
25852

9361
9,119
9,097
8952
8,788

12036
12,004
11,814
11794
11,700

42521
43027
43,657
44288
44916

28630
29064
29,498
29931
30,405

10494
10,828
11,185
11,538
11,921

- 152271
154,878
157 553
160,184
163 026

16410
17,333
17312
17,638
18057

26721
27,279
28894
30227
31480

8542
8,446
8414
8,460
8637

11680
11,552
11350
11,062
10832

45672
46,103
46495
46,786
47001

30849
31,362
31884
32,394
32942

12,397
12,803
13,203
13,617
14,076

1955
1956 .. .
1957
1958
1959

165 931
168 903
171,984
174 882
177,830

18566
19003
19,494
19887
20175

32682
33994
35,272
36445
37368

8744
8916
9,195
9543
10215

10714
10616
10,603
10756
10969

47194
47379
47,440
47337
47192

33506
34057
34,591
35109
35,663

14525
14,938
15,388
15,806
16,248

I960
1961
1962
1963....,
1964

~ 180671
183 691
186 538
189,242
191 889

20341
20522
20469
20,342
20165

38494
39765
41205
41626
42297

10683
11025
11 180
12007
12736

11134
11483
11*959
12714
13269

47140
47084
47*013
46,994
46958

36203
36722
37255
37,782
38338

16,675
17089
17,457
17,778
18127

1965
1966
1967
1968
1969

194 303
196 560
198 712
200 706
202 677

19824
19208
18563
17*913
17376

42938
43*702
44244
44*622
44840

13516
14*311
14200
14*452
14800

13746
14*050
15248
15*786
16480

46912
47001
47194
47*721
48064

38916
39534
40193
40846
41437

18451
18,755
19071
19,365
19680

1970
1971
1972
1973
1974

K-- 205052
207 661
209,896
211 909
213,854

17 166
17*244
17101
16 851
16487

44816
44591
44*203
43 582
42*989

15289
15688
16039
16446
16*769

17202
18*159
18153
18 521
18*975

48473
48*936
50482
51749
53*051

41999
42*482
42898
43235
43522

20107
20,561
21,020
21525
22,061

1975
1976
1977
1978
1979

215973
218,035
220 239
222 585
225 055

16121
15*617
15564
15735
16063

42508
42*099
41298
40428
39*552

17017
17*194
17276
17288
17242

19527
19*986
20499
20946
21297

54302
55*852
57561
59400
61379

43801
44008
44150
44286
44390

22696
23,278
23,892
24502
25134

1980
1981
1982
1983
1984

227 757
230 138
232,520
234 799
237 001

16458
16931
17*298
17651
17830

38844
38190
37*877
37668
37657

17 160
16771
16*255
15704
15141

21584
21821
21807
21 700
21536

63494
65619
67*856
69971
72049

44515
44569
44,602
44680
44818

25,704
26235
26,825
27,426
27971

239 279

18004
18152
18252

37691
37*706
37685

14819
14802
14958

21214
20608
19984

74077
76124
77897

44934
45,055
45303

28540
29,167
29835

1950
1951
1952
1953
1954

1985
1986
1987
1988
1989

1
241,625
1

243 934
246,329
248 777

1

Total revised January 1989; detail not revised.
Note.—Includes Armed Forces overseas beginning 1940. Includes Alaska and Hawaii beginning 1950.
Source: Department of Commerce, Bureau of the Census.




329

TABLE C-32.—Population and the labor force, 1929-89
[Monthly data seasonally adjusted, except as noted]

Year or month

Civilian
noninstitutional
population1

Labor Employforce
ment
Resi- includ- includdent
ing
Armed resident resident
Forces1 Armed Armed
Forces Forces

Unemployment rate

Civilian labor force
Employment
Total
Total

Agricultural

Nonagricultural

UnemPloyment

Civil- Civilian
ian
emlabor ployforce ment/
All Civilian
work- work- tici- pop2
ulaers ers3 pation tion
rate4 ratio5

Percent

Thousands of persons 14 years of age and over

1929
1933
1939
1940
1941
1942
1943
1944
1945 . .
1946
1947

99,840
99,900
98,640
94,640
93,220
94,090
103,070
106,018

,

.

49,180
51,590
55,230
55,640
55,910
56,410
55,540
54,630
53,860
57,520
60,168

37,180 1,550
28,670 12,830
36,140 9,480
37,980
41,250
44,500
45,390
45,010
44,240
46,930
49,557

8,120
5,560
2,660
1,070
670
1,040
2,270
2,356

32
24.9
172
14.6
9.9
4.7
1.9
1.2
1.9
3.9
3.9

49,148
50,714
49,993
51,758
53,235
53,749
54,919
53,904
55,722
57,514
58,123
57,450
59,065
60,318
60,546
61,759
63,076
64,782
66,726
68,915
70,527
72,103
74,296
75,215
75,972
78,669
81,594
83,279
82,438
85,421
88,734
92,661
95,477
95,938
97,030
96,125
97,450
101,685
103,971
106,434
109,232
111,800
114,142
102,985
103,238
103,739
103,630
103,652
103,344
103,664
103,974
,104,593
104,796
104,945
105,075

2,311
2,276
3,637
3,288
2,055
1,883
1,834
3,532
2,852
2,750
2,859
4,602
3,740
3,852
4,714
3,911
4,070
3,786
3,366
2,875
2,975
2,817
2,832
4,093
5,016
4,882
4,365
5,156
7,929
7,406
6,991
6,202
6,137
7,637
8,273
10,678
10,717
8,539
8,312
8,237
7,425
6,701
6,528
8,423
8,321
8,339
8,395
8,302
8,460
8,513
8,196
8,248
8,298
8,128
8,138

3.9
3.8
5.9
5.3
3.3
3.0
2.9
5.5
4.4
4.1
4.3
6.8
5.5
5.5
6.7
5.5
5.7
5.2
4.5
3.8
3.8
3.6
3.5
4.9
5.9
5.6
4.9
5.6
8.5
7.7
7.1
6.1
5.8
7.1
7.6
9.7
9.6
7.5
7.2
7.0
6.2
5.5
5.3
7.3
7.2
7.2
7.3
7.2
7.4
7.4
7.1
7.1
7.1
7.0
7.0

47,630 10,450
38,760 10,090
45,750 9,610
47,520 9,540
50,350 9,100
53,750 9,250
54,470 9,080
53,960 8,950
52,820 8,580
55,250 8,320
57,812 8,256

55.7
56.0
57.2
58.7
58.6
57.2
55.8
56.8

47.6
50.4
54.5
57.6
57.9
56.1
53.6
54.5

Thousands of persons 16 years of age and over

1947
1948
1949
1950
1951
1952 6
1953
1954
1955
1956
1957
1958
1959
I9606 .. ..
1961 6
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971 6
1972
19736
1974
1975
1976
1977 6
1978
1979.
1980
1981 .. ..
1982
1983
1984
1985 6
1986
1987
1988
1989
1985: Jan
Feb
Mar

fci
June
July
Aug
Sept
Oct
Nov
Dec

101,827
103,068
103,994
104,995
104,621
105,231
107,056
108,321
109,683
110,954
112,265
113,727
115,329
117,245
118,771
120,153
122,416
124,485
126,513
128,058
129,874
132,028
134,335
137,085
140,216
144,126
147,096
150,120
153,153
156,150
159,033
161,910
164,863
167,745
170,130
172,271
174,215
176,383
178,206
180,587
182,753
184,613
186,393
177,384
177,516
177,667
177,799
177,944
178,096
178,263
178,405
178,572
178,770
178,940
179,112

1,169
2,143
2,386
2,231
2,142
2,064
1,965
1,948
1,847
1,788
1,861
1,900
2,061
2,006
2,018
1,946
2,122
2,218
2,253
2,238
2,118
1,973
1,813
1,774
1,721
1,678
1,668
1,656
1,631
1,597
1,604
1,645
1,668
1,676
1,697
1,706
1,706
1,737
1,709
1,688
1,697
1,703
1,701
1,702
1,705
1,702
1,704
1,726
1,732
1,700
1,702
1,698

63,377
64,160
64,524
65,246
65,785
67,087
68,517
68,877
69,486
70,157
71,489
72,359
72,675
73,839
75,109
76,401
77,892
79,565
80,990
82,972
84,889
86,355
88,847
91,203
93,670
95,453
97,826
100,665
103,882
106,559
108,544
110,315
111,872
113,226
115,241
117,167
119,540
121,602
123,378
125,557
116,422
116,579
117,029
117,033
116,939
116,667
117,024
117,017
117,637
117,845
117,837
118,052

60,087
62,104
62,636
63,410
62,251
64,234
65,764
66,019
64,883
66,418
67,639
67,646
68,763
69,768
71,323
73,034
75,017
76,590
78,173
80,140
80,796
81,340
83,966
86,838
88,515
87,524
90,420
93,673
97,679
100,421
100,907
102,042
101,194
102,510
106,702
108,856
111,303
114,177
116,677
119,030
107,999
108,258
108,690
108,638
108,637
108,207
108,511
108,821
109,389
109,547
109,709
109,914

59,350
60,621
61,286
62,208
62,017
62,138
63,015
63,643
65,023
66,552
66,929
67,639
68,369
69,628
70,459
70,614
71,833
73,091
74,455
75,770
77,347
78,737
80,734
82,771
84,382
87,034
89,429
91,949
93,775
96,158
99,009
102,251
104,962
106,940
108,670
110,204
111,550
113,544
115,461
117,834
119,865
121,669
123,869
114,725
114,876
115,328
115,331
115,234
114,965
115,320
115,291
115,905
116,145
116,135
116,354

57,038
58,343
57,651
58,918
59,961
60,250
61,179
60,109
62,170
63,799
64,071
63,036
64,630
65,778
65,746
66,702
67,762
69,305
71,088
72,895
74,372
75,920
77,902
78,678
79,367
82,153
85,064
86,794
85,846
88,752
92,017
96,048
98,824
99,303
100,397
99,526
100,834
105,005
107,150
109,597
112,440
114,968
117,342
106,302
106,555
106,989
106,936
106,932
106,505
106,807
107,095
107,657
107,847
108,007
108,216

See next page for continuation of table.




330

7,890
7,629
7,658
7,160
6,726
6,500
6,260
6,205
6,450
6,283
5,947
5,586
5,565
5,458
5,200
4,944
4,687
4,523
4,361
3,979
3,844
3,817
3,606
3,463
3,394
3,484
3,470
3,515
3,408
3,331
3,283
3,387
3,347
3,364
3,368
3,401
3,383
3,321
3,179
3,163
3,208
3,169
3,199
3,317
3,317
3,250
3,306
3,280
3,161
3,143
3,121
3,064
3,051
3,062
3,141

5.2
3.2
2.9
2.8
5.4
4.3
4.0
4.2
6.6
5.3
5.4
6.5
5.4
5.5
5.0
4.4
3.7
3.7
3.5
3.4
4.8
5.8
5.5
4.8
5.5
8.3
7.6
6.9
6.0
5.8
7.0
7.5
9.5
9.5
7.4
7.1
6.9
6.1
5.4
5.2
7.2
7.1
7.1
7.2
7.1
7.3
7.3
7.0
7.0
7.0
6.9
6.9

58.3 56.0
58.8 56.6
58.9 55.4
59.2 56.1
59.2 57.3
59.0 57.3
58.9 57.1
58.8 55.5
59.3 56.7
60.0 57.5
59.6 57.1
59.5 55.4
59.3 56.0
59.4 56.1
59.3 55.4
58.8 55.5
58.7 55.4
58.7 55.7
58.9 56.2
59.2 56.9
59.6 57.3
59.6 57.5
60.1 58.0
60.4 57.4
60.2 56.6
60.4 57.0
60.8 57.8
61.3 57.8
61.2 56.1
61.6 56.8
62.3 57.9
63.2 59.3
63.7 59.9
63.8 59.2
63.9 59.0
64.0 57.8
64.0 57.9
64.4 59.5
64.8 60.1
65.3 60.7
65.6 61.5
65.9 62.3
66.5 63.0
64.7 59.9
64.7 60.0
64.9 60.2
64.9 60.1
64.8 60.1
64.6 59.8
64.7 59.9
64.6 60.0
60.3
64.9
65.0 60.3
64.9 60.4
65.0 60.4

TABLE C-32.—Population and the labor force, 1929-89—Continued
[Monthly data seasonally adjusted, except as noted]

Year or month

Labor EmployCivilian
force
ment
noninsti- Resi- includ- including
dent
tutional Armed
ing
resident
popula- Forces1 resident Armed
tion 1
Armed Forces
Forces

Civilian labor force

Unemployment rate

Employment
Total

Total

Agricultural

UnemNon- Ployagri- ment
cultural

Civilian
labor
force
All Civil- parian
work- work- ticiers2 ers8 pation
rate4
Percent

Thousands of persons 16 years of age and over
8

1986: Jan
Feb. .
Mar
Apr
May
June
July
Aug
Sept
Oct
Nov
Dec
1987: Jan
Feb
Mar
Apr
May
June
July
Aug
Sept
Oct
Nov
Dec
1988: Jan
Feb
Mar

May
June
July
Aug
Sep8t
Oct
Nov
Dec

1989: Jan
Feb
Mar
Apr
May
June

i«iy
Aug

Sept
Oct
Nov
Dec

Civilian
employment/
population
ratio5

179,670
179,821
179,985
180,148
180,311
180,503
180,682
180,828
180,997
181,186
181,363
181,547
181,827
181,998
182,179
182,344
182,533
182,703
182,885
183,002
183,161
183,311
183,470
183,620
183,822
183,969
184,111
184,232
184,374
184,562
184,729
184,830
184,962
185,114
185,244
185,402

1,691
1,691
1,693
1,695
1,687
1,680
1,672
1,697
1,716
1,749
1,751
1,750
1,748
1,740
1,736
1,735
1,726
1,718
1,720
1,736
1,743
1,741
1,755
1,750
1,749
1,736
1,736
1,732
1,714
1,685
1,673
1,692
1,704
1,687
1,705
1,696

118,352
118,585
118,898
119,029
119,233
119,770
119,823
119,843
120,099
120,256
120,377
120,365
120,550
120,863
121,007
121,101
121,749
121,353
121,642
122,036
121,760
122,237
122,282
122,517
122,665
122,887
122,664
123,027
122,829
123,221
123,372
123,766
123,710
123,852
124,215
124,346

110,569
110,163
110,530
110,649
110,787
111,279
111,496
111,710
111,788
112,011
112,216
112,479
112,695
112,984
113,162
113,521
114,160
113,981
114,330
114,760
114,655
115,035
115,266
115,590
115,755
115,957
115,803
116,381
116,010
116,693
116,704
116,911
117,097
117,334
117,717
117,837

116,661
116,894
117,205
117,334
117,546
118,090
118,151
118,146
118,383
118,507
118,626
118,615
118,802
119,123
119,271
119,366
120,023
119,635
119,922
120,300
120,017
120,496
120,527
120,767
120,916
121,151
120,928
121,295
121,115
121,536
121,699
122,074
122,006
122,165
122,510
122,650

108,878
108,472
108,837
108,954
109,100
109,599
109,824
110,013
110,072
110,262
110,465
110,729
110,947
111,244
111,426
111,786
112,434
112,263
112,610
113,024
112,912
113,294
113,511
113,840
114,006
114,221
114,067
114,649
114,296
115,008
115,031
115,219
115,393
115,647
116,012
116,141

3,283
3,082
3,197
3,162
3,163
3,203
3,139
3,082
3,164
3,125
3,219
3,145
3,133
3,196
3,213
3,249
3,357
3,242
3,233
3,111
3,182
3,217
3,149
3,207
3,234
3,181
3,167
3,223
3,131
3,155
3,056
3,116
3,159
3,222
3,256
3,192

105,595
105,390
105,640
105,792
105,937
106,396
106,685
106,931
106,908
107,137
107,246
107,584
107,814
108,048
108,213
108,537
109,077
109,021
109,377
109,913
109,730
110,077
110,362
110,633
110,772
111,040
110,900
111,426
111,165
111,853
111,975
112,103
112,234
112,425
112,756
112,949

7,783
8,422
8,368
8,380
8,446
8,491
8,327
8,133
8,311
8,245
8,161
7,886
7,855
7,879
7,845
7,580
7,589
7,372
7,312
7,276
7,105
7,202
7,016
6,927
6,910
6,930
6,861
6,646
6,819
6,528
6,668
6,855
6,613
6,518
6,498
6,509

6.6
7.1
7.0
7.0
7.1
7.1
6.9
6.8
6.9
6.9
6.8
6.6
6.5
6.5
6.5
6.3
6.2
6.1
6.0
6.0
5.8
5.9
5.7
5.7
5.6
5.6
5.6
5.4
5.6
5.3
5.4
5.5
5.3
5.3
5.2
5.2

6.7 64.9
7.2 65.0
7.1 65.1
7.1 65.1
7.2 65.2
7.2 65.4
7.0 65.4
6.9 65.3
7.0 65.4
7.0 65.4
6.9 65.4
6.6 65.3
6.6 65.3
6.6 65.5
6.6 65.5
6.4 65.5
6.3 65.8
6.2 65.5
6.1 65.6
6.0 65.7
5.9 65.5
6.0 65.7
5.8 65.7
5.7 65.8
5.7 65.8
5.7 65.9
5.7 65.7
5.5 65.8
5.6 65.7
5.4 65.9
5.5 65.9
5.6 66.0
5.4 66.0
5.3 66.0
5.3 66.1
5.3 66.2

60.6
60.3
60.5
60.5
60.5
60.7
60.8
60.8
60.8
60.9
60.9
61.0
61.0
61.1
61.2
61.3
61.6
61.4
61.6
61.8
61.6
61.8
61.9
62.0
62.0
62.1
62.0
62.2
62.0
62.3
62.3
62.3
62.4
62.5
62.6
62.6

185,644
185,777
185,897
186,024
186,181
186,329
186,483
186,598
186,726
186,871
187,017
187,165

1,696
1,684
1,684
1,684
1,673
1,666
1,666
1,688
1,702
1,709
1,704
1,700

124,961
124,801
124,929
125,299
125,224
125,777
125,679
125,758
125,725
125,857
126,192
126,246

118,336
118,441
118,731
118,768
118,805
119,208
119,102
119,238
119,121
119,294
119,540
119,588

123,265
123,117
123,245
123,615
123,551
124,111
124,013
124,070
124,023
124,148
124,488
124,546

116,640
116,757
117,047
117,084
117,132
117,542
117,436
117,550
117,419
117,585
117,836
117,888

3,268
3,196
3,185
3,144
3,137
3,138
3,217
3,275
3,219
3,197
3,160
3,197

113,372
113,561
113,862
113,940
113,995
114,404
114,219
114,275
114,200
114,388
114,676
114,691

6,625
6,360
6,198
6,531
6,419
6,569
6,577
6,520
6,604
6,563
6,352
6,658

5.3
5.1
5.0
5.2
5.1
5.2
5.2
5.2
5.3
5.2
5.3
5.3

5.4
5.2
5.0
5.3
5.2
5.3
5.3
5.3
5.3
5.3
5.3
5.3

66.4
66.3
66.3
66.5
66.4
66.6
66.5
66.5
66.4
66.4
66.6
66.5

62.8
62.8
63.0
62.9
62.9
63.1
63.0
63.0
62.9
62.9
63.0
63.0

1
Not seasonally adjusted.
2
Unemployed as percent of labor force including resident Armed Forces.
3
Unemployed as percent of civilian labor force.
4
Civilian labor force as percent of civilian noninstitutional population.
5
Civilian employment as percent of civilian noninstitutional population.
6

Not strictly comparable with earlier data due to population adjustments as follows: Beginning 1953, introduction of 1950 census
data added about 600,000 to population and 350,000 to labor force, total employment, ana agricultural employment. Beginning 1960,
inclusion of Alaska and Hawaii added about 500,000 to population, 300,000 to labor force, and 240,000 to nonagricultural employment.
Beginning 1962, introduction of 1960 census data reduced population by about 50,000 and labor force and employment by 200,000.
Beginning 1972, introduction of 1970 census data added about 800,000 to civilian noninstitutional population and 333,000 to labor
force and employment. A subsequent adjustment based on 1970 census in March 1973 added 60,000 to labor force and to employment.
Beginning 1978, changes in sampling and estimation procedures introduced into the household survey added about 250,000 to labor
force and to employment. Unemployment levels and rates were not significantly affected. Beginning 1986, the introduction of revised
population controls added about 400,000 to the civilian population ana labor force and 350,000 to civilian employment. Unemployment
levels and rates were not significantly affected.
Note.—Labor force data in Tables C-32 through C-41 are based on household interviews and relate to the calendar week including
the 12th of the month. For definitions of terms, area samples used, historical comparability of the data, comparability with other series,
etc., see "Employment and Earnings."
Source: Department of Labor, Bureau of Labor Statistics.




331

TABLE C-33.—Civilian employment and unemployment by sex and age, 1947-89
[Thousands of persons 16 years of age and over; monthly data seasonally adjusted]

Civilian employment
Males
Year or month

1947
1948
1949
1950
1951
1952x
1953
1954
1955
1956
1957
1958
1959
I9601
1961 1
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972 »
1973 »
1974
1975
1976
1977
1978 !
1979
1980
1981
1982
1983
1984
1985
1986 *
1987
1988
1989
1988- Jan
Feb
Mar
Apr
May
June
July
Aug
Sept
Oct
Nov
Dec
1989: Jan
Feb
Mar
Apr
Way
June
July
Aug
Sept
Oct
Nov
Dec

Total

57,038
58,343
57,651
58,918
59,961
60,250
61,179
60,109
62,170
63,799
64,071
63,036
64,630
65,778
65,746
66,702
67,762
69,305
71,088
72,895
74,372
75,920
77,902
78,678
79,367
82,153
85,064
86,794
85,846
88,752
92,017
96,048
98,824
99,303
100,397
99,526
100,834
105,005
107,150
109,597
112,440
114,968
117,342
114,006
114,221
114,067
114,649
114,296
115,008
115,031
115,219
115,393
115,647
116,012
116,141
116,640
116,757
117,047
117,084
117,132
117,542
117,436
117,550
117,419
117,585
117,836
117,888

Total

40,995
41,725
40,925
41,578
41,780
41,682
42,430
41,619
42,621
43,379
43,357
42,423
43,466
43,904
43,656
44,177
44,657
45,474
46,340
46,919
47,479
48,114
48,818
48,990
49,390
50,896
52,349
53,024
51,857
53,138
54,728
56,479
57,607
57,186
57,397
56,271
56,787
59,091
59,891
60,892
62,107
63,273
64,315
62,822
62,991
62753
63,266
63,109
63,334
63,375
63,396
63,541
63,492
63,621
63,611
63,764
64,008
64,293
64,206
64,202
64,577
64,440
64,400
64,150
64,513
64,482
64,618

16-19
years

2,218
2,344
2,124
2,186
2,156
2,107
2,136
1,985
2,095
2,164
2,115
2,012
2,198
2,361
2,315
2,362
2,406
2,587
2,918
3,253
3,186
3,255
3,430
3,409
3,478
3,765
4,039
4,103
3,839
3,947
4,174
4,336
4,300
4,085
3,815
3,379
3,300
3,322
3,328
3,323
3,381
3,492
3,477
3,510
3,471
3,358
3,463
3,482
3,586
3,512
3,547
3,526
3,425
3,538
3,478
3,366
3,442
3,510
3,490
3,428
3,505
3,525
3,539
3,421
3,487
3,449
3,464

20
years
and
over

Total

38,776
39,382
38,803
39,394
39,626
39,578
40,296
39,634
40,526
41,216
41,239
40,411
41,267
41,543
41,342
41,815
42,251
42,886
43,422
43,668
44,294
44,859
45,388
45,581
45,912
47,130
48,310
48,922
48,018
49,190
50,555
52,143
53,308
53,101
53,582
52,891
53,487
55,769
56,562
57,569
58,726
59,781
60,837
59,312
59,520
59,395
59,803
59,627
59,748
59,863
59,849
60,015
60,067
60,083
60,133
60,398
60,566
60,783
60,716
60,774
61,072
60,915
60,861
60,729
61,026
61,033
61,154

16,045
16,617
16,723
17,340
18,181
18,568
18,749
18,490
19,551
20,419
20,714
20,613
21,164
21,874
22,090
22,525
23,105
23,831
24,748
25,976
26,893
27,807
29,084
29,688
29,976
31,257
32,715
33,769
33,989
35,615
37,289
39,569
41,217
42,117
43,000
43,256
44,047
45,915
47,259
48,706
50,334
51,696
53,027
51,184
51,230
51,314
51,383
51,187
51,674
51,656
51,823
51,852
52,155
52,391
52,530
52,876
52,749
52,754
52,878
52,930
52,965
52,996
53,150
53,269
53,072
53,354
53,270

16-19
years

1,691
1,682
1,588
1,517
1,611
1,612
1,584
1,490
1,547
1,654
1,663
1,570
1,640
1,768
1,793
1,833
1,849
1,929
2,118
2,468
2,496
2,526
2,687
2,735
2,730
2,980
3,231
3,345
3,263
3,389
3,514
3,734
3,783
3,625
3,411
3,170
3,043
3,122
3,105
3,149
3,260
3,313
3,282
3,318
3,335
3,253
3,235
3,204
3,434
3,390
3,307
3,353
3,330
3,283
3,331
3,359
3,294
3,287
3,318
3,281
3,278
3,179
3,275
3,285
3,276
3,311
3,222

1
See footnote 6, Table C-32.
Note.—See Note, Table C-32.
Source: Department of Labor, Bureau of Labor Statistics.




Unemployment
Males

Females

332

Females

20
years
and
over

Total

20
20
Total 16-19 years Total 16-19 years
years and
years and
over
over

14,354
14,936
15,137
15,824
16,570
16,958
17,164
17,000
18,002
18,767
19,052
19,043
19,524
20,105
20,296
20,693
21,257
21,903
22,630
23,510
24,397
25,281
26,397
26,952
27,246
28,276
29,484
30,424
30,726
32,226
33,775
35,836
37,434
38,492
39,590
40,086
41,004
42,793
44,154
45,556
47,074
48,383
49,745
47,866
47,895
48,061
48,148
47,983
48,240
48,266
48,516
48,499
48,825
49,108
49,199
49,517
49,455
49,467
49,560
49,649
49,687
49,817
49,875
49,984
49,796
50,043
50,048

2,311
2,276
3,637
3,288
2,055
1,883
1,834
3,532
2,852
2,750
2,859
4,602
3,740
3,852
4,714
3,911
4,070
3,786
3,366
2,875
2,975
2,817
2,832
4,093
5,016
4,882
4,365
5,156
7,929
7,406
6,991
6,202
6,137
7,637
8,273
10,678
10,717
8,539
8,312
8,237
7,425
6,701
6,528
6,910
6,930
6,861
6,646
6,819
6,528
6,668
6,855
6,613
6,518
6,498
6,509
6,625
6,360
6,198
6,531
6,419
6,569
6,577
6,520
6,604
6,563
6,652
6,658

1,692 270 1,422 619
1,559 256 1,305 717
2,572 353 2,219 1,065
2,239 318 1,922 1,049
1,221 191 1,029 834
1,185 205 980 698
184 1,019 632
1,202
2,344 310 2,035 1,188
1,854 274 1,580 998
1,711 269 1,442 1,039
1,841 300 1,541 1,018
3,098 416 2,681 1,504
2,420 398 2,022 1,320
2,486 426 2,060 1,366
2,997 479 2,518 1,717
2,423 408 2,016 1,488
2,472 501 1,971 1,598
2,205 487 1,718 1,581
1,914 479 1,435 1,452
1,551 432 1,120 1,324
1,508 448 1,060 1,468
1,419 426 993 1,397
1,403 440 963 1,429
2,238 599 1,638 1,855
2,789 693 2,097 2,227
2,659 711 1,948 2,222
2,275 653 1,624 2,089
2,714 757 1,957 2,441
4,442 966 3,476 3,486
4,036 939 3,098 3,369
3,667 874 2,794 3,324
3,142 813 2,328 3,061
3,120 811 2,308 3,018
4,267 913 3,353 3,370
4,577 962 3,615 3,696
6,179 1,090 5,089 4,499
6,260 1,003 5,257 4,457
4,744 812 3,932 3,794
4,521 806 3,715 3,791
4,530 779 3,751 3,707
4,101 732 3,369 3,324
3,655 667 2,987 3,046
3,525 658 2,867 3,003
3,745 678 3,067 3,165
3,675 640 3,035 3,255
3,787 727 3,060 3,074
3,567 655 2,912 3,079
3,761 647 3,114 3,058
3,593 655 2,938 2,935
3,630 739 2,891 3,038
3,804 682 3il22 3,051
3,590 690 2,900 3,023
3,579 678 2,901 2,939
3,543 586 2,957 2,955
3,550 635 2,915 2,959
3,640 753 2,887 2,985
3,504 677 2,827 2,856
3,286 601 2,685 2,912
3,566 644 2,922 2,965
3,429 668 2,761 2,990
3,464 662 2,802 3,105
3,427 606 2,821 3,150
3,485 629 2,856 3,035
3,679 637 3,042 2,925
3,553 661 2,892 3,010
3,624 690 2,934 3,028
3,582 665 2,917 3,076

144
153
223
195
145
140
123
191
176
209
197
262
256
286
349
313
383
385
395
405
391
412
413
506
568
598
583
665
802
780
789
769
743
755
800
886
825
687
661
675
616
558
536
606
605
588
609
575
479
520
588
561
521
506
545
541
495
503
516
519
573
582
558
551
525
530
538

475
564
841
854
689
559
510
997
823
832
821
1,242
1,063
1,080
1,368
1,175
1,216
1,195
1,056
921
1,078
985
1,015
1,349
1,658
1,625
1,507
1,777
2,684
2,588
2,535
2,292
2,276
2,615
2,895
3,613
3,632
3,107
3,129
3,032
2,709
2,487
2,467
2,559
2,650
2,486
2,470
2,483
2,456
2,518
2,463
2,462
2,418
2,449
2,414
2,444
2,361
2,409
2,449
2,471
2,532
2,568
2,477
2,374
2,485
2,498
2,538

TABLE C-34.—Civilian employment by demographic characteristic, 1954-89
[Thousands of persons 16 years of age and over; monthly data seasonally adjusted]

Year or
month

All
civilian
workers

Black

Black and other

White
Total

Males

Females

Both
sexes
16-19

Total

FeMales males

Both
sexes
16-19

Total

FeMales males

Both
sexes
16-19

1954
1955
1956
1957
1958
1959

60,109
62,170
63,799
64,071
63,036
64,630

53,957
55,833
57,269
57,465
56,613
58,006

37,846
38,719
39,368
39,349
38,591
39,494

16,111
17,114
17,901
18,116
18,022
18,512

3,078
3,225
3,389
3,374
3,216
3,475

6,152
6,341
6,534
6,604
6,423
6,623

3,773
3,904
4,013
4,006
3,833
3,971

2,379
2,437
2,521
2,598
2,590
2,652

396
418
430
407
365
362

I960
1961
1962
1963
1964
1965
1966
1967
1968
1969

65,778
65,746
66,702
67,762
69,305
71,088
72,895
74,372
75,920
77,902

58,850
58,913
59,698
60,622
61,922
63,446
65,021
66,361
67,750
69,518

39,755
39,588
40,016
40,428
41,115
41,844
42,331
42,833
43,411
44,048

19,095
19,325
19,682
20,194
20,807
21,602
22,690
23,528
24,339
25,470

3,700
3,693
3,774
3,851
4,076
4,562
5,176
5,114
5,195
5,508

6,928
6,833
7,003
7,140
7,383
7,643
7,877
8,011
8,169
8,384

4,149
4,068
4,160
4,229
4,359
4,496
4,588
4,646
4,702
4,770

2,779
2,765
2,843
2,911
3,024
3,147
3,289
3,365
3,467
3,614

430
414
420
404
440
474
545
568
584
609

1970
1971
1972
1973
1974
1975
1976
1977
1978
1979

78,678
79,367
82,153
85,064
86,794
85,846
88,752
92,017
96,048
98,824

70,217
70,878
73,370
75,708
77,184
76,411
78,853
81,700
84,936
87,259

44,178
44,595
45,944
47,085
47,674
46,697
47,775
49,150
50,544
51,452

26,039
26,283
27,426
28,623
29,511
29,714
31,078
32,550
34,392
35,807

5,571
8,464 4,813 3,650
5,670 8,488 4,796 3,692
6,173
8,783 4,952 3,832
6,623 9,356 5,265 4,092
6,796 9,610 5,352 4,258
6,487 9,435 5,161 4,275
6,724 9,899 5,363 4,536
7,068 10,317 5,579 4,739
7,367 11,112 5,936 5,177
7,356 11,565 6,156 5,409

574
538
573
647
652
615
611
619
703
727

7,802
8,128
8,203
7,894
8,227
8,540
9,102
9,359

4,368
4,527
4,527
4,275
4,404
4,565
4,796
4,923

3,433
3,601
3,677
3,618
3,823
3,975
4,307
4,436

509
570
554
507
508
508
571
579

1980
1981
1982
1983
1984
1985
1986
1987
1988
1989

99,303
100,397
99,526
100,834
105,005
107,150
109,597
112,440
114,968
117,342

87,715
88,709
87,903
88,893
92,120
93,736
95,660
97,789
99,812
101,584

51,127
51,315
50,287
50,621
52,462
53,046
53,785
54,647
55,550
56,352

36,587
37,394
37,615
38,272
39,659
40,690
41,876
43,142
44,262
45,232

7,021
6,588
5,984
5,799
5,836
5,768
5,792
5,898
6,030
5,946

11,588
11,688
11,624
11,941
12,885
13,414
13,937
14,652
15,156
15,757

6,059
6,083
5,983
6,166
6,629
6,845
7,107
7,459
7,722
7,963

5,529
5,606
5,641
5,775
6,256
6,569
6,830
7,192
7,434
7,795

689
637
565
543
607
666
681
742
774
813

9,313
9,355
9,189
9,375
10,119
10,501
10,814
11,309
11,658
11,953

4,515
4,561
4,552
4,622
4,995
5,231
5,386
5,648
5,834
6,025

547
505
428
416
474
532
536
587
601
625

1988: Jan
Feb
Mar
Apr
May
June

98,951
99,275
99,178
99,619
99,440
99,901

43,761
43,879
43,968
44,125
43,998
44,288
44,133
44,337
44,407
44,596
44,799
44,857
45,120
45,047
45,018
45,106
45,164
45,172

6,075
6,095
5,863
5,946
5,939
6,240
6,089
6,007
6,061
5,969
6,049
6,027
5,988
5,945
6,011
6,002
5,942
5,967

769
715
725
750
758
780

11,579
11,513
11,452
11,550
11,507
11,531

7,513
7,465
7,449
7,622
7,581
7,665

807
795
804
797
776
806

7,696
7,702
7,727
7,778
7,791
7,746

761
808
772
806
773
797

11,742
11,731
11,750
11,817
11,829
11,872
11,867
11,883
11,952
11,872
11,962
11,969

5,803
5,779
5,758
5,702
5,704
5,732
5,922
5,863
5,867
5,922
5,954
5,975
5,989
5,992
6,013
6,004
6,060
6,003

588
542
540
576
597
606

15,263
15,250
15,257
15,427
15,362
15,492
15,492
15,571
15,639
15,676
15,719
15,767

7,658
7,579
7,547
7,757
7,675
7,690
7,750
7,785
7,808
7,805
7,781
7,827
7,796
7,869
7,912
7,898
7,928
8,021

7,391
7,340
7,335
7,257
7,211
7,360

99,763
99,948
100,126
100,284
100,644
100,649
101,137
101,187
101,413
101,400
101,432
101,683

55,190
55,396
55,210
55,494
55,442
55,613
55,630
55,611
55,719
55,688
55,845
55,792
56,017
56,140
56,395
56,294
56,268
56,511

15,049
14,919
14,882
15,014
14,886
15,050

fc
June

114,006
114,221
114,067
114,649
114,296
115,008
115,031
115,219
115,393
115,647
116,012
116,141
116,640
116,757
117,047
117,084
117,132
117,542

4,798
4,794
4,637
4,753
5,124
5,270
5,428
5,661
5,824
5,928
5,776
5,734
5,694
5,848
5,803
5,799
5,820
5,868
5,883
5,895
5,875
5,897
5,878
5,891
5,939
5,868
5,902
5,966

July
Aug
Sept
Oct
Nov
Dec

117,436
117,550
117,419
117,585
117,836
117,888

101,546
101,684
101,579
101,862
101,991
102,032

56,393
56,423
56,167
56,536
56,496
56,571

45,153
45,261
45,412
45,326
45,495
45,461

5,838
5,986
5,906
5,942
5,923
5,811

15,895
15,866
15,847
15,797
15,861
15,841

8,051
7,997
7,975
7,981
8,007
8,027

7,844
7,869
7,872
7,816
7,854
7,814

856
800
792
832
856
879

12,063
11,961
11,938
11,923
11,954
11,920

6,005
5,924
5,909
5,922
5,928
5,926

6,058
6,037
6,029
6,001
6,026
5,994

687
624
585
624
645
670

July
Aug
Sept
Oct
Nov
Dec
1989: Jan
Feb
Mar

Note.—See footnote 6 and Note, Table C-32.
Source: Department of Labor, Bureau of Labor Statistics.




333

623
628
626
625
619
628
590
626
606
611
611
624

TABLE C-35.—Unemployment by demographic characteristic, 1954-89
[Thousands of persons 16 years of age and over; monthly data seasonally adjusted]

Year or
month

All
civilian
workers

White
Total

Males

Black and other

Females

Both
sexes
16-19

Total

Black

FeMales males

Both
sexes
16-19

Total

FeMales males

Both
sexes
16-19

1954
1955.
1956
1957
1958
1959

3,532
2,852
2,750
2,859
4,602
3,740

2,859
2,252
2,159
2,289
3,680
2,946

1,913
1,478
1,366
1,477
2,489
1,903

946
774
793
812
1,191
1,043

423
373
382
401
541
525

673
601
591
570
923
793

431
376
345
364
610
517

242
225
246
206
313
276

79
77
95
96
138
128

I960
1961
1962
1963
1964
1965
1966
1967
1968
1969

3,852
4,714
3,911
4,070
3,786
3,366
2,875
2,975
2,817
2,832

3,065
3,743
3,052
3,208
2,999
2,691
2,255
2,338
2,226
2,260

1,988
2,398
1,915
1,976
1,779
1,556
1,241
1,208
1,142
1,137

1,077
1,345
1,137
1,232
1,220
1,135
1,014
1,130
1,084
1,123

575
669
580
708
708
705
651
635
644
660

788
971
861
863
787
678
622
638
590
571

498
599
509
496
426
360
310
300
277
267

290
372
352
367
361
318
312
338
313
304

138
159
142
176
165
171
186
203
194
193

1970
1971
1972
1973
1974
1975
1976
1977
1978... .
1979

4,093
5,016
4,882
4,365
5,156
7,929
7,406
6,991
6,202
6,137

3,339
4,085
3,906
3,442
4,097
6,421
5,914
5,441
4,698
4,664

1,857
2,309
2,173
1,836
2,169
3,627
3,258
2,883
2,411
2,405

1,482
1,777
1,733
1,606
1,927
2,794
2,656
2,558
2,287
2,260

871
1,011
1,021
955
1,104
1,413
1,364
1,284
1,189
1,193

754
930
977
924
1,058
1,507
1,492
1,550
1,505
1,473

380
481
486
440
544
815
779
784
731
714

374
450
491
484
514
692
713
766
774
759

235
249
288
280
318
355
355
379
394
362

906
846
965
1,369
1,334
1,393
1,330
1,319

458
451
470
629
637
695
690
683

279
262
297
330
330
354
360
333

1980
1981
1982
1983
1984
1985
1986
1987
1988
1989..
1988: Jan
Feb
Mar
Apr
fay
June

7,637
8,273
10,678
10,717
8,539
8,312
8,237
7,425
6,701
6,528

5,884
6,343
8,241
8,128
6,372
6,191
6,140
5,501
4,944
4,770

3,345
3,580
4,846
4,859
3,600
3,426
3,433
3,132
2,766
2,636

2,540
2,762
3,395
3,270
2,772
2,765
2,708
2,369
2,177
2,135

1,291
1,374
1,534
1,387
1,116
1,074
1,070
995
910
863

1,752
1,930
2,437
2,588
2,167
2,121
2,097
1,924
1,757
1,757

922
997
1,334
1,401
1,144
1,095
1,097
969
888
889

830
933
1,104
1,187
1,022
1,026
999
955
869
868

377
388
443
441
384
394
383
353
316
331

1,553
815 738
1,731 891 840
2,142 1,167
975
2,272 1,213 1,059
1,914 1,003
911
1,864 951 913
1,840 946 894
1,684
826 858
1,547 771 776
1,544 773 772

343
357
396
392
353
357
347
312
288
300

6,910
6,930
6,861
6,646
6,819
6,528

5,129
5,107
4,981
4,813
4,943
4,835

2,871
2,721
2,855
2,668
2,800
2,709

2,258
2,386
2,126
2,145
2,143
2,126

965
882
996
962
880
873

1,820
1,826
1,897
1,788
1,845
1,718

903
962
975
874
932
883

917
864
922
914
913
835

328
353
335
292
339
274

763
823
834
757
805
763

812
778
819
833
799
743

297
316
302
266
307
247

July
Aug
Sept
Oct
Nov
Dec

6,668
6,855
6,613
6,518
6,498
6,509

4,893
5,117
4,990
4,843
4,806
4,805

2,729
2,912
2,779
2,730
2,685
2,707

2,164
2,205
2,211
2,113
2,121
2,098

895
950
953
897
800
866

1,726
1,734
1,626
1,675
1,706
1,713

867
876
801
850
868
849

859
858
825
825
838
864

316
331
306
304
301
310

1,575
1,601
1,653
1,590
1,604
1,506
1,534
1,530
1,455
1,491
1,490
1,535

756
757
714
762
756
755

778
773
741
729
734
780

293
302
290
277
283
278

1989: Jan
Feb
Mar

6,625
6,360
6,198
6,531
6,419
6,569

4,862
4,573
4,513
4,808
4,720
4,791

2,735
2,600
2,469
2,646
2,560
2,588

2,127
1,973
2,044
2,162
2,160
2,203

961
836
810
848
873
887

1,810
1,782
1,706
1,676
1,675
1,800

944
912
862
892
841
869

866
870
844
784
834
931

339
324
312
302
313
365

1,580
1,560
1,477
1,464
1,492
1,600

797
790
742
768
748
773

783
770
735
696
744
827

302
297
279
283
293
338

6,577
6,520
6,604
6,563
6,652
6,658

4,838
4,801
4,814
4,756
4,843
4,864

2,583
2,605
2,776
2,633
2,697
2,655

2,255
2,196
2,038
2,123
2,146
2,209

853
872
824
843
875
869

1,697
1,708
1,794
1,804
1,825
1,807

812
864
891
917
939
938

885
844
903
887
886
869

295
318
375
344
354
331

1,485
1,515
1,580
1,584
1,622
1,602

704
762
782
796
823
829

781
753
798
788
799
773

266
292
334
313
311
297

May".'."'.'.'.'.
June

J"'y
Aug
Sept
Oct
Nov
Dec

Note.—See footnote 6 and Note, Table C-32.
Source: Department of Labor, Bureau of Labor Statistics.




334

448
395
494
741
698
698
641
636

TABLE C-36.—Labor force participation rate and employment/population ratio, 1948-89
[Percent; monthly data seasonally adjusted]
Labor force participation rate

Employment/population ratio

Civilian2
Year or month

Total »

1948
1949
1950
1951
1952
1953
1954
1955....
1956
1957
1958
1959
1960
1961
1962
1963
1964
1965..
1966
1967
1968...
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985.
1986
1987
1988
1989
1988: Jan
Feb
Mar
Apr
May
June
July
Aug
Sept
Oct
Nov
Dec
1989: Jan
Feb
Mar
Apr
May
June
July
Aug
Sept
Oct
Nov
Dec

59.7
60.1
60.0
59.7
59.6
60.0
60.7
60.3
60.1
59.9
60.0
60.0
59.5
59.3
59.4
59.5
59.8
60.2
60.3
60.8
61.0
60.7
60.9
61.3
61.7
61.6
62.0
62.6
63.5
64.0
64.1
64.2
64.3
64.4
64.7
65.1
65.6
65.9
66.2
66.8
66.1
66.2
66.0
66.2
66.0
66.2
66.2
66.4
66.3
66.3
66.4
66.5
66.7
66.6
66.6
66.8
66.7
66.9
66.8
66.8
66.7
66.7
66.9
66.8

FeTotal Males males

58.8
58.9
59.2
59.2
59.0
58.9
58.8
59.3
60.0
59.6
59.5
59.3
59.4
59.3
58.8
58.7
58.7
58.9
59.2
59.6
59.6
60.1
60.4
60.2
60.4
60.8
61.3
61.2
61.6
62.3
63.2
63.7
63.8
63.9
64.0
64.0
64.4
64.8
65.3
65.6
65.9
66.5
65.8
65.9
65.7
65.8
65.7
65.9
65.9
66.0
66.0
66.0
66.1
66.2
66.4
66.3
66.3
66.5
66.4
66.6
66.5
66.5
66.4
66.4
66.6
66.5

86.6
86.4
86.4
86.3
86.3
86.0
85.5
85.4
85.5
84.8
84.2
83.7
83.3
82.9
82.0
81.4
81.0
80.7
80.4
80.4
80.1
79.8
79.7
79.1
78.9
78.8
78.7
77.9
77.5
77.7
77.9
77.8
77.4
77.0
76.6
76.4
76.4
76.3
76.3
76.2
76.2
76.4
76.1
76.2
76.0
76.2
76.2
76.2
76.2
76.4
76.3
76.1
76.2
76.1
76.3
76.3
76.4
76.5
76.3
76.7
76.4
76.4
76.3
76.5
76.5
76.5

327
33.1
33.9
34.6
34.7
34.4
34.6
35.7
36.9
36.9
37.1
37 1
37.7
38.1
37.9
38.3
38.7
39.3
40.3
41.1
41.6
42.7
43.3
43.4
43.9
44.7
45.7
46.3
47.3
48.4
50.0
50.9
51.5
52.1
52.6
52.9
53.6
54.5
55.3
56.0
56.6
57.4
56.4
56.5
56.4
56.4
56.1
56.5
56.5
56.7
56.6
56.8
57.0
57.1
57.4
57.1
57.2
57.3
57.3
57.5
57.5
57.5
57.5
57.3
57.6
57.5

Civilian 4

Both
Black
sexes
and
16-19 White other Black
years
525
52.2
51.8
52.2
51.3
50.2
48.3
48.9
50.9
49.6
47.4
467
47.5
46.9
46.1
45.2
44.5
45.7
48.2
48.4
48.3
49.4
49.9
49.7
51.9
53.7
54.8
54.0
54.5
56.0
57.8
57.9
56.7
55.4
54.1
53.5
53.9
54.5
54.7
54.7
55.3
55.9
55.6
55.2
54.3
54.5
54.2
56.1
56.2
56.1
56.2
55.0
54.8
55.3
55.6
55.0
55.2
55.7
55.5
56.4
55.6
56.5
55.7
56.3
56.6
56.1

58.2
58.7
59.4
59.1
58.9
587
58.8
58.8
58.3
58.2
58.2
58.4
58.7
59.2
59.3
59.9
60.2
60.1
60.4
60.8
61.4
61.5
61.8
62.5
63.3
63.9
64.1
64.3
64.3
64.3
64.6
65.0
65.5
65.8
66.2
66.7
66.0
66.2
66.0
66.1
66.1
66.2
66.1
66.4
66.4
66.3
66.5
66.4
66.7
66.5
66.6
66.8
66.7
66.8
66.7
66.8
66.7
66.8
66.9
66.9

64.0
64.2 ••••"""•
64.9
64.4
64.8
643
64.5
64.1
63.2
63.0
63.1
62.9
63.0
62.8
62.2
62.1
61.8
60.9
60.2 '"59i9
60.5 60.2
60.3 59.8
59.6 58.8
59.8 59.0
60.4 59.8
62.2 61.5
62.2 61.4
61.7 61.0
61.3 60.8
61.6 61.0
62.1 61.5
62.6 62.2
63.3 62.9
63.7 63.3
64.3 63.8
64.0 63.8
64.7 64.2
64.5 64.0
63.9 63.8
63.9 63.6
63.9 63.7
63.5 63.5
63.5 63.0
64.2 64.1
64.1 64.0
63.6 63.6
64.3 64.0
64.1 64.0
64.4 64.3
64.6 64.4
64.7 64.3
64.5 64.2
64.4 63.6
64.5 64.1
65.0 64.6
65.0 64.4
64.8 64.0
64.9 64.1
64.6 64.0
64.8 64.2
64.6 63.9

1
Labor force
2
Civilian labor
3
Employment
4

Total

3

56.6
58.2
58.2
58.0
56.4
57.5
58.2
57.8
56.1
567
56.8
56.1
56.3
56.1
56.4
56.9
57.6
58.0
58.2
58.7
58.0
57.2
57.5
58.3
58.3
56.5
57.3
58.3
59.7
60.3
59.6
59.4
58.2
58.3
59.9
60.5
61.1
61.9
62.6
63.3
62.4
62.4
62.3
62.6
62.3
62.7
62.6
62.7
62.7
62.8
63.0
63.0
63.2
63.2
63.3
63.3
63.2
63.4
63.3
63.3
63.2
63.3
63.3
63.3

Total

56.6
55.4
56.1
57.3
57.3
57.1
55.5
56.7
57.5
57.1
55.4
560
56.1
55.4
55.5
55.4
55.7
56.2
56.9
57.3
57.5
58.0
57.4
56.6
57.0
57.8
57.8
56.1
56.8
57.9
59.3
59.9
59.2
59.0
57.8
57.9
59.5
60.1
60.7
61.5
62.3
63.0
62.0
62.1
62.0
62.2
62.0
62.3
62.3
62.3
62.4
62.5
62.6
62.6
62.8
62.8
63.0
62.9
62.9
63.1
63.0
63.0
62.9
62.9
63.0
63.0

Males

83.5
81.3
82.0
84.0
83.9
83.6
81.0
81.8
82.3
81.3
78.5
793
78.9
77.6
77.7
77.1
77.3
77.5
77.9
78.0
77.8
77.6
76.2
74.9
75.0
75.5
74.9
71.7
72.0
72.8
73.8
73.8
72.0
71.3
69.0
68.8
70.7
70.9
71.0
71.5
72.0
72.5
71.8
72.0
71.6
72.2
71.9
72.1
72.1
72.1
72.2
72.1
72.2
72.1
72.1
72.4
72.6
72.5
72.4
72.8
72.6
72.5
72.1
72.5
72.4
72.5

Females

31.3
31.2
32.0
33.1
33.4
33.3
32.5
34.0
35.1
35.1
34.5
350
35.5
35.4
35.6
35.8
36.3
37.1
38.3
39.0
39.6
40.7
40.8
40.4
41.0
42.0
42.6
42.0
43.2
44.5
46.4
47.5
47.7
48.0
47.7
48.0
49.5
50.4
51.4
52.5
53.4
54.3
53.1
53.1
53.2
53.2
53.0
53.4
53.4
53.5
53.5
53.8
54.0
54.1
54.4
54.2
54.2
54.3
54.3
54.3
54.3
54.4
54.5
54.2
54.5
54.4

Both
sexes
16-19
years

47.7
45.2
45.5
47.9
46.9
46.4
42.3
43.5
45.3
43.9
39.9
399
40.5
39.1
39.4
37.4
37.3
38.9
42.1
42.2
42.2
43.4
42.3
41.3
43.5
45.9
46.0
43.3
44.2
46.1
48.3
48.5
46.6
44.6
41.5
41.5
43.7
44.4
44.6
45.5
46.8
47.5
46.8
46.7
45.3
45.9
45.8
48.3
47.5
47.3
47.5
46.7
47.3
47.1
46.7
46.9
47.5
47.6
47.2
47.7
47.2
48.1
47.3
47.9
48.0
47.5

White

55.2
56.5
57.3
56.8
55.3
559
55.9
55.3
55.4
55.3
55.5
56.0
56.8
57.2
57.4
58.0
57.5
56.8
57.4
58.2
58.3
56.7
57.5
58.6
60.0
60.6
60.0
60.0
58.8
58.9
60.5
61.0
61.5
62.3
63.1
63.8
62.8
62.9
62.8
63.1
62.9
63.2
63.0
63.1
63.2
63.3
63.5
63.4
63.7
63.7
63.8
63.7
63.7
63.8
63.7
63.8
63.7
63.8
63.8
63.8

Black
and
other

58.0
58.7
59.5
59.3
56.7
57.5
57.9
56.2
56.3
56.2
57.0
57.8
58.4
58.2
58.0
58.1
56.8
54.9
54.1
55.0
54.3
51.4
52.0
52.5
54.7
55.2
53.6
52.6
50.9
51.0
53.6
54.7
55.4
56.8
57.4
58.2
57.6
57.0
56.7
57.1
56.5
57.0
57.7
57.6
57.5
58.0
57.7
58.0
57.9
58.0
58.2
58.2
58.3
58.3
58.7
58.5
58.3
58.0
58.1
58.0

Black

53.7
54.5
53.5
50.1
50.8
51.4
53.6
53.8
52.3
51.3
49.4
49.5
52.3
53.4
54.1
55.6
56.3
56.9
56.4
56.0
55.6
56.0
55.7
55.8
56.7
56.6
56.6
56.9
56.8
57.0
56.8
56.8
57.1
56.7
57.0
57.0
57.3
56.8
56.6
56.5
56.6
56.3

including resident Armed Forces as percent of noninstitutional population including resident Armed Forces.
force as percent of civilian noninstitutional population in group specified.
including resident Armed Forces as percent of noninstitutional population including resident Armed Forces.
Civilian employment as percent of civilian noninstitutional population in group specified.
Note.—Data relate to persons 16 years of age and over.
See footnote 6 and Note, Table C-32.
Source: Department of Labor, Bureau of Labor Statistics.




335

TABLE C-37.—Civilian labor force participation rate by demographic characteristic, 1954-89
[Percent;1 monthly data seasonally adjusted]
White
Year or month

All
civilian
work- Total
ers
Total

Black and other or black

Males

16-19
years

Males

Females

20
years Total
and
over

16-19
years

20
years Total Total
and
over

Females

20
years Total
and
over

16-19
years

16-19
years

20
years
and
over

Black and other

1954
1955
1956
1957
1958
1959

58.8
59.3
60.0
59.6
59.5
59.3

85.6
85.4
85.6
84.8
84.3
83.8

57.6
58.6
60.4
59.2
56.5
55.9

87.8
87.5
87.6
86.9
86.6
86.3

33.3
34.5
35.7
35.7
35.8
36.0

40.6
40.7
43.1
42.2
40.1
39.6

32.7
34.0
35.1
35.2
35.5
35.6

64.0
64.2
64.9
64.4
64.8
64.3

85.2
85.1
85.1
84.2
84.1
83.4

61.2
60.8
61.5
58.8
57.3
55.5

87.1
87.8
87.8
87.0
87.1
86.7

46.1
46.1
47.3
47.1
48.0
47.7

31.0
32.7
36.3
33.2
31.9
28.2

47.7
47.5
48.4
48.6
49.8
49.8

I960
1961
1962
1963
1964
1965....
1966
1967
1968
1969

59.4 58.8 83.4
59.3 58.8 83.0
58.8 58.3 82.1
58.7 58.2 81.5
58.7 58.2 81.1
58.9 58.4 80.8
59.2 58.7 80.6
59.6 59.2 80.6
59.6 59.3 80.4
60.1 59.9 80.2

55.9
54.5
53.8
53.1
52.7
54.1
55.9
56.3
55.9
56.8

86.0
85.7
84.9
84.4
84.2
83.9
83.6
83.5
83.2
83.0

36.5
36.9
36.7
37.2
37.5
38.1
39.2
40.1
40.7
41.8

40.3
40.6
39.8
38.7
37.8
39.2
42.6
42.5
43.0
44.6

36.2
36.6
36.5
37.0
37.5
38.0
38.8
39.8
40.4
41.5

64.5
64.1
63.2
63.0
63.1
62.9
63.0
62.8
62.2
62.1

83.0
82.2
80.8
80.2
80.1
79.6
79.0
78.5
77.7
76.9

57.6
55.8
53.5
51.5
49.9
51.3
51.4
51.1
49.7
49.6

86.2
85.5
84.2
83.9
84.1
83.7
83.3
82.9
82.2
81.4

48.2
48.3
48.0
48.1
48.6
48.6
49.4
49.5
49.3
49.8

32.9
32.8
33.1
32.6
31.7
29.5
33.5
35.2
34.8
34.6

49.9
50.1
49.6
49.9
50.7
51.1
51.6
51.6
51.4
52.0

1970
1971...
1972

60.4
60.2
60.4

60.2
60.1
60.4

8Q.O
79.6
79.6

57.5
57.9
60.1

82.8
82.3
82.0

42.6
42.6
43.2

45.6
45.4
48.1

42.2
42.3
42.7

61.8
60.9
60.2

76.5
74.9
73.9

47.4
44.7
46.0

81.4
80.0
78.6

49.5
49.2
48.8

34.1
31.2
32.3

51.8
51.8
51.2

1972
1973
1974
1975
1976
1977
1978
1979.. .

60.4
60.8
61.3
61.2
61.6
62.3
63.2
63.7

60.4
60.8
61.4
61.5
61.8
62.5
63.3
63.9

79.6
79.4
79.4
78.7
78.4
78.5
78.6
78.6

60.1
62.0
62.9
61.9
62.3
64.0
65.0
64.8

82.0
81.6
81.4
80.7
80.3
80.2
80.1
80.1

43.2
44.1
45.2
45.9
46.9
48.0
49.4
50.5

48.1
50.1
51.7
51.5
52.8
54.5
56.7
57.4

42.7
43.5
44.4
45.3
46.2
47.3
48.7
49.8

59.9 73.6
60.2 73.4
59.8 72.9
58.8 70.9
59.0 70.0
59.8 70.6
61.5 71.5
61.4 71.3

46.3
45.7
46.7
42.6
41.3
43.2
44.9
43.6

78.5
78.4
77.6
76.0
75.4
75.6
76.2
76.3

48.7
49.3
49.0
48.8
49.8
50.8
53.1
53.1

32.2
34.2
33.4
34.2
32.9
32.9
37.3
36.8

51.2
51.6
51.4
51.1
52.5
53.6
55.5
55.4

1980
1981
1982
1983
1984
1985
1986
1987..
1988
1989

63.8
63.9
64.0
64.0
64.4
64.8
65.3
65.6
65.9
66.5

64.1
64.3
64.3
64.3
64.6
65.0
65.5
65.8
66.2
66.7

78.2
77.9
77.4
77.1
77.1
77.0
76.9
76.8
76.9
77.1

63.7
62.4
60.0
59.4
59.0
59.7
59.3
59.0
60.0
61.0

79.8
79.5
79.2
78.9
78.7
78.5
78.5
78.4
78.3
78.5

51.2
51.9
52.4
52.7
53.3
54.1
55.0
55.7
56.4
57.2

56.2
55.4
55.0
54.5
55.4
55.2
56.3
56.5
57.2
57.1

50.6
51.5
52.2
52.5
53.1
54.0
54.9
55.6
56.3
57.2

61.0
60.8
61.0
61.5
62.2
62.9
63.3
63.8
63.8
64.2

70.3
70.0
70.1
70.6
70.8
70.8
71.2
71.1
71.0
71.0

43.2
41.6
39.8
39.9
41.7
44.6
43.7
43.6
43.8
44.6

75.1
74.5
74.7
75.2
74.8
74.4
74.8
74.7
74.6
74.4

53.1
53.5
53.7
54.2
55.2
56.5
56.9
58.0
58.0
58.7

34.9
34.0
33.5
33.0
35.0
37.9
39.1
39.6
37.9
40.4

55.6
56.0
56.2
56.8
57.6
58.6
58.9
60.0
60.1
60.6

1988: Jan
Feb
Mar
Apr
May
June

65.8
65.9
65.7
65.8
65.7
65.9

66.0
66.2
66.0
66.1
66.1
66.2

76.8
76.8
76.7
76.8
76.9
76.9

61.0
59.5
59.4
59.4
58.6
61.2

78.2
78.3
78.2
78.3
78.4
78.2

56.1
56.3
56.1
56.3
56.1
56.4

57.4
57.9
55.9
56.8
56.2
58.6

55.9
56.2
56.1
56.2
56.1
56.2

64.0
63.8
63.6
63.7
63.5
63.0

71.0
71.0
70.6
71.4
71.3
70.6

43.1
39.7
38.7
41.1
46.3
43.9

74.6
75.2
74.8
75.3
74.5
74.1

58.4
57.8
57.9
57.5
57.1
56.8

38.5
39.3
38.6
36.3
36.7
34.4

60.6
59.8
60.0
59.8
59.3
59.2

65.9
66.0
66.0
66.0
Nov"""I"! 66.1
Dec. .
66.2

66.1
66.4
66.4
66.3
66.5
66.4

76.9
77.1
77.0
76.8
76.9
76.8

60.3
60.2
60.7
59.3
60.2
60.5

78.3
78.5
78.4
78.3
78.4
78.2

56.2
56.5
56.5
56.6
56.8
56.9

57.4
57.3
58.1
57.3
56.4
57.1

56.1
56.4
56.4
56.6
56.9
56.8

64.1
64.0
63.6
64.0
64.0
64.3

70.7
71.1
70.8
71.3
71.0
71.1

45.7
44.9
44.9
46.1
45.3
43.7

73.9
74.6
74.1
74.6
74.3
74.6

58.7
58.1
57.8
58.1
58.3
58.8

38.2
40.4
39.1
36.7
37.6
39.4

60.9
60.0
59.8
60.3
60.5
60.9

66.4
66.3
66.3
66.5
66.4
66.6

66.7
66.5
66.6
66.8
66.7
66.8

77.1
77.0
77.1
77.2
77.0
77.3

61.0
60.0
60.7
61.0
60.9
60.9

78.4
78.4
78.5
78.5
78.3
78.7

57.2
56.9
56.9
57.1
57.2
57.2

57.9
56.3
56.6
57.1
56.9
57.6

57.1
56.9
56.9
57.1
57.2
57.2

64.4
64.3
64.2
63.6
64.1
64.6

71.2
71.2
71.1
70.5
70.6
71.4

43.5
46.1
43.1
41.8
41.2
49.7

74.8
74.4
74.7
74.2
74.3
74.2

58.9
58.7
58.5
58.0
58.8
59.0

38.6
38.9
38.3
40.5
42.0
38.9

61.0
60.8
60.6
59.9
60.6
61.1

66.5
66.5
66.4
66.4
66.6
66.5

66.7
66.8
66.7
66.8
66.9
66.9

77.1
77.1
77.0
77.2
77.2
77.2

60.3
61.8
60.1
61.5
61.2
60.8

78.5
78.4
78.3
78.5
78.5
78.5

57.2
57.2
57.2
57.2
57.4
57.4

55.6
57.4
57.3
57.3
58.2
56.9

57.3
57.2
57.2
57.1
57.3
57.4

64.4
64.0
64.1
64.0
64.2
63.9

71.0
70.7
70.7
70.9
71.1
71.1

46.6
45.5
41.1
44.7
46.9
47.7

74.1
73.9
74.6
74.2
74.2
74.0

59.0
58.5
58.8
58.4
58.6
58.0

41.1
38.9
42.5
41.3
41.2
41.6

60.9
60.6
60.5
60.2
60.4
59.7

58.2
58.7
59.4
59.1
58.9
58.7

Black

July
Aug

1989: Jan
Feb
Mar.. .
May...
June

July

Aug
Sept
Oct..
Nov
Dec

1

Civilian labor force as percent of civilian noninstitutional population in group specified.
Note.—Data relate to persons 16 years of age and over.
See footnote 6 and Note, Table C-32.
Source: Department of Labor, Bureau of Labor Statistics.




336

TABLE C-38.—Civilian employment/population ratio by demographic characteristic, 1954-89
[Percent;1 monthly data seasonally adjusted]
Black and other or black

White
Year or month

All
civilian
work- Total
ers

Total

16-19
years

Males

Females

Males

20
years Total
and
over

16-19
years

20
years Total
and
over

Total

16-19
years

Females

20
years Total
and
over

16-19
years

20
years
and
over

Black and other

1954
1955
1956
1957
1958
1959

55.5
56.7
57.5
57.1
55.4
56.0

55.2
56.5
57.3
56.8
55.3
55.9

81.5
82.2
82.7
81.8
79.2
79.9

49.9
52.0
54.1
52.4
47.6
48.1

84.0
84.7
85.0
84.1
81.8
82.8

31.4
33.0
34.2
34.2
33.6
34.0

36.4
37.0
38.9
38.2
35.0
34.8

31.1
32.7
33.8
33.9
33.5
34.0

58.0
58.7
59.5
59.3
56.7
57,5

76.5
77.6
78.4
77.2
72.5
73.8

52.4
52.7
52.2
48.0
42.0
41.4

79.2
80.4
81.3
80.5
76.0
77.6

41.9
42.2
43.0
43.7
42.8
43.2

24.7
26.4
28.0
26.5
22.8
20.3

43.7
43.9
44.7
45.5
45.0
45.7

1960
1961
1962
1963
1964
1965
1966
1967
1968
1969

56.1
55.4
55.5
55.4
55.7
56.2
56.9
57.3
57.5
58.0

55.9
55.3
55.4
55.3
55.5
56.0
56.8
57.2
57.4
58.0

79.4
78.2
78.4
77.7
77.8
77.9
78.3
78.4
78.3
78.2

48.1
45.9
46.4
44.7
45.0
47.1
50.1
50.2
50.3
51.1

82.4
81.4
81.5
81.1
81.3
81.5
81.7
81.7
81.6
81.4

34.6
34.5
34.7
35.0
35.5
36.2
37.5
38.3
38.9
40.1

35.1
34.6
34.8
32.9
32.2
33.7
37.5
37.7
37.8
39.5

34.5
34.5
34.7
35.2
35.8
36.5
37.5
38.3
39.1
40.1

57.9
56.2
56.3
56.2
57.0
57.8
58.4
58.2
58.0
58.1

74.1
71.7
72.0
71.8
72.9
73.7
74.0
73.8
73.3
72.8

43.8
41.0
41.7
37.4
37.8
39.4
40.5
38.8
38.7
39.0

77.9
75.5
75.7
76.2
77.7
78.7
79.2
79.4
78.9
78.4

43.6
42.6
42.7
42.7
43.4
44.1
45.1
45.0
45.2
45.9

24.8
23.2
23.1
21.3
21.8
20.2
23.1
24.8
24.7
25.1

45.8
44.8
44.9
45.2
46.1
47.3
48.2
47.9
48.2
48.9

1970
1971
1972

57.4
56.6
57.0

57.5
56.8
57.4

76.8
75.7
76.0

49.6
49.2
51.5

80.1
79.0
79.0

40.3
39.9
40.7

39.5
38.6
41.3

40.4
40.1
40.6

56.8
54.9
54.1

70.9
68.1
67.3

35.5
31.8
32.4

76.8
74.2
73.2

44.9
43.9
43.3

22.4
20.2
19.9

48.2
47.3
46.7

1972
1973
1974
1975
1976
1977
1978
1979

57.0
57.8
57.8
56.1
56.8
57.9
59.3
59.9

57.4
58.2
58.3
56.7
57.5
58.6
60.0
60.6

76.0
76.5
75.9
73.0
73.4
74.1
75.0
75.1

51.5
54.3
54.4
50.6
51.5
54.4
56.3
55.7

79.0
79.2
78.6
75.7
76.0
76.5
77.2
77.3

40.7
41.8
42.4
42.0
43.2
44.5
46.3
47.5

41.3
43.6
44.3
42.5
44.2
45.9
48.5
49.4

40.6
41.6
42.2
41.9
43.1
44.4
46.1
47.3

53.7
54.5
53.5
50.1
50.8
51.4
53.6
53.8

66.8
67.5
65.8
60.6
60.6
61.4
63.3
63.4

31.6
32.8
31.4
26.3
25.8
26.4
28.5
28.7

73.0
73.7
71.9
66.5
66.8
67.5
69.1
69.1

43.0
43.8
43.5
41.6
42.8
43.3
45.8
46.0

19.2
22.0
20.9
20.2
19.2
18.5
22.1
22.4

46.5
47.2
46.9
44.9
46.4
47.0
49.3
49.3

1980
1981
1982
1983
1984
1985
1986
1987
1988. .
1989

59.2
59.0
57.8
57.9
59.5
60.1
60.7
61.5
62.3
63.0

60.0
60.0
58.8
58.9
60.5
61.0
61.5
62.3
63.1
63.8

73.4
72.8
70.6
70.4
72.1
72.3
72.3
72.7
73.2
73.7

53.4
51.3
47.0
47.4
49.1
49.9
49.6
49.9
51.7
52.6

75.6
75.1
73.0
72.6
74.3
74.3
74.3
74.7
75.1
75.4

47.8
48.3
48.1
48.5
49.8
50.7
51.7
52.8
53.8
54.6

47.9
46.2
44.6
44.5
47.0
47.1
47.9
49.0
50.2
50.5

47.8
48.5
48.4
48.9
50.0
51.0
52.0
53.1
54.0
54.9

52.3
51.3
49.4
49.5
52.3
53.4
54.1
55.6
56.3
56.9

60.4
59.1
56.0
56.3
59.2
60.0
60.6
62.0
62.7
62.8

27.0
24.6
20.3
20.4
23.9
26.3
26.5
28.5
29.4
30.4

65.8
64.5
61.4
61.6
64.1
64.6
65.1
66.4
67.1
67.0

45.7
45.1
44.2
44.1
46.7
48.1
48.8
50.3
51.2
52.0

21.0
19.7
17.7
17.0
20.1
23.1
23.8
25.8
25.8
27.1

49.1
48.5
47.5
47.4
49.8
50.9
51.6
53.0
53.9
54.6

1988: Jan
Feb
Mar
Apr
fay
June

62.0
62.1
62.0
62.2
62.0
62.3

62.8
62.9
62.8
63.1
62.9
63.2

73.0
73.2
73.0
73.3
73.2
73.3

52.4
52.2
49.9
50.8
50.8
53.0

74.8
75.1
74.9
75.2
75.1
75.1

53.3
53.4
53.5
53.7
53.5
53.8

49.8
50.4
48.7
49.3
49.2
52.1

53.6
53.7
53.9
54.0
53.8
53.9

56.4
56.0
55.6
56.0
55.7
55.8

62.7
62.1
61.6
63.2
62.6
62.4

28.6
23.9
23.9
29.8
31.4
30.0

67.1
67.1
66.5
67.6
66.7
66.7

51.2
51.0
50.7
50.2
50.1
50.3

25.7
25.9
25.6
23.2
23.4
25.6

54.0
53.7
53.4
53.1
53.0
53.0

July
Aug
Sept
Oct
Nov
Dec

62.3
62.3
62.4
62.5
62.6
62.6

63.0
63.1
63.2
63.3
63.5
63.4

73.3
73.2
73.3
73.2
73.4
73.3

51.5
51.8
51.8
50.7
52.9
52.3

75.1
75.1
75.2
75.2
75.1
75.1

53.6
53.8
53.9
54.1
54.3
54.3

51.2
49.8
50.8
50.7
50.0
50.5

53.8
54.1
54.1
54.3
54.6
54.6

56.7
56.6
56.6
56.9
56.8
57.0

62.5
63.0
63.1
63.2
62.9
63.0

31.1
30.4
30.5
30.9
30.7
30.3

66.7
67.3
67.3
67.4
67.1
67.3

51.9
51.3
51.3
51.7
51.9
52.0

26.0
27.1
26.9
26.4
26.2
27.4

54.7
53.9
53.9
54.4
54.7
54.7

62.8
62.8
63.0
62.9
May"!'.!."!" 62.9
June
63.1

63.7
63.7
63.8
63.7
63.7
63.8

73.5
73.6
73.9
73.7
73.7
73.9

51.3
51.7
52.8
53.0
52.3
52.7

75.4
75.4
75.7
75.5
75.4
75.7

54.6
54.5
54.4
54.5
54.5
54.5

51.2
50.3
50.5
50.5
50.4
50.5

54.9
54.8
54.7
54.8
54.8
54.8

56.8
56.8
57.1
56.7
57.0
57.0

62.7
62.8
63.2
62.4
62.6
63.2

28.0
31.1
30.6
27.3
26.6
32.9

67.2
66.9
67.4
66.9
67.3
67.1

52.1
52.0
52.1
52.0
52.4
51.9

26.3
26.6
25.2
28.9
29.6
24.6

54.8
54.7
55.0
54.4
54.8
54.7

July
Aug
Sept
Oct
Nov
Dec

63.7
63.8
63.7
63.8
63.8
63.8

73.7
73.7
73.3
73.8
73.7
73.7

52.6
53.7
52.1
53.0
52.5
52.2

75.4
75.4
75.1
75.5
75.4
75.5

54.5
54.6
54.7
54.6
54.8
54.7

48.6
50.4
50.9
51.1
51.6
50.2

54.9
54.9
55.0
54.9
55.0
55.0

57.3
56.8
56.6
56.5
56.6
56.3

63.6
62.6
62.4
62.5
62.5
62.3

35.8
31.7
27.2
30.4
31.7
33.3

67.1
66.6
67.0
66.6
66.4
66.0

52.3
52.0
51.9
51.6
51.8
51.4

27.5
25.8
26.0
26.9
27.7
28.6

54.9
54.8
54.6
54.2
54.2
53.8

Black

1989: Jan
Feb
Mar

63.0
63.0
62.9
62.9
63.0
63.0

1
Civilian employment as percent of civilian noninstitutional population in group specified.
Note.—Data relate to persons 16 years of age and over.
See footnote 6 and Note, Table C-32.
Source: Department of Labor, Bureau of Labor Statistics.




337

TABLE C-39.—Unemployment rate, 1948-89
[Percent; monthly data seasonally adjusted]

Year or
month

1948
1949

Unemployment
UnemployMales
Females
ment
All
rate, civilian
16- 20
all
16- 20
work- work- Total 19 years Total 19 years
and
and
years over
ers 1 ers
years over

..

rate, civilian workers 2
Both
sexes
1619
years

White

Black
and Black
other

Experienced
wage
and
salary
workers

Women
Marwho
ried
men, mainspouse tain
presfamilies
ent 3

3.8
5.9

3.6
5.9

9.8
14.3

3.2
5.4

4.1
6.0

8.3
12.3

3.6
5.3

9.2
13.4

3.5
5.6

5.9
8.9

4.3
6.8

3.5

1950
1951
1952
1953
1954
1955
1956
1957
1958
1959

5.2
3.2
2.9
2.8
5.4
4.3
4.0
4.2
6.6
5.3

5.3
3.3
3.0
2.9
5.5
4.4
4.1
4.3
6.8
5.5

5.1
2.8
2.8
2.8
5.3
4.2
3.8
4.1
6.8
5.2

12.7
8.1
8.9
7.9
13.5
11.6
11.1
12.4
17.1
15.3

4.7
2.5
2.4
2.5
4.9
3.8
3.4
3.6
6.2
4.7

5.7
4.4
3.6
3.3
6.0
4.9
4.8
4.7
6.8
5.9

11.4
8.3
8.0
7.2
11.4
10.2
11.2
10.6
14.3
13.5

5.1
4.0
3.2
2.9
5.5
4.4
4.2
4.1
6.1
5.2

12.2
8.2
8.5
7.6
12.6
11.0
11.1
11.6
15.9
14.6

4.9
3.1
2.8
2.7
5.0
3.9
3.6
3.8
6.1
4.8

9.0
5.3
5.4
4.5
9.9
8.7
8.3
7.9
12.6
10.7

6.0
3.7
3.4
3.2
6.2
4.8
44
4.6
7.3
5.7

4.6
1.5
1.4 '••••• ••-••
1.7
4.0
26
23
2.8
5.1
3.6

1960
1961
1962 .. .
1963
1964
1965
1966
1967
1968
1969

5.4
6.5
5.4
5.5
5.0
4.4
3.7
3.7
3.5
3.4

5.5
6.7
5.5
5.7
5.2
4.5
3.8
3.8
3.6
3.5

5.4
6.4
5.2
5.2
4.6
4.0
3.2
3.1
2.9
2.8

15.3
17.1
14.7
17.2
15.8
14.1
11.7
12.3
11.6
11.4

4.7
5.7
4.6
4.5
3.9
3.2
2.5
2.3
2.2
2.1

5.9
7.2
6.2
6.5
6.2
5.5
4.8
5.2
4.8
4.7

13.9
16.3
14.6
17.2
16.6
15.7
14.1
13.5
14.0
13.3

5.1
6.3
5.4
5.4
5.2
4.5
3.8
4.2
3.8
3.7

14.7
16.8
14.7
17.2
16.2
14.8
12.8
12.9
12.7
12.2

5.0
6.0
4.9
5.0
4.6
4.1
3.4
3.4
3.2
3.1

10.2
12.4
10.9
10.8
9.6
8.1
7.3
7.4
6.7
6.4

5.7
6.8
5.6
5.6
5.0
4.3
3.5
3.6
3.4
3.3

3.7
4.6
3.6
3.4
2.8
2.4
1.9
1.8
1.6
1.5

4.9
4.4
4.4

1970
1971
1972
1973
1974
1975
1976
1977
1978
1979

4.8
5.8
5.5
4.8
5.5
8.3
7.6
6.9
6.0
5.8

4.9
5.9
5.6
4.9
5.6
8.5
7.7
7.1
6.1
5.8

4.4
5.3
5.0
4.2
4.9
7.9
7.1
6.3
5.3
5.1

15.0
16.6
15.9
13.9
15.6
20.1
19.2
17.3
15.8
15.9

3.5
4.4
4.0
3.3
3.8
6.8
5.9
5.2
4.3
4.2

5.9
6.9
6.6
6.0
6.7
9.3
8.6
8.2
7.2
6.8

15.6
17.2
16.7
15.3
16.6
19.7
18.7
18.3
17.1
16.4

4.8
5.7
5.4
4.9
5.5
8.0
7.4
7.0
6.0
5.7

15.3
16.9
16.2
14.5
16.0
19.9
19.0
17.8
16.4
16.1

4.5
5.4
5.1
4.3
5.0
7.8
7.0
6.2
5.2
5.1

8.2
9.9
10.0
9.0
9.9
13.8
13.1
13.1
11.9
11.3

10.4
9.4
10.5
14.8
14.0
14.0
12.8
12.3

4.8
5.7
5.3
4.5
5.3
8.2
7.3
6.6
5.6
5.5

2.6
3.2
2.8
2.3
2.7
5.1
4.2
3.6
2.8
2.8

5.4
7.3
7.2
7.1
7.0
10.0
10.1
9.4
8.5
8.3

1980
1981
1982
1983 ....
1984
1985
1986
1987
1988
1989

7.0
7.5
9.5
9.5
7.4
7.1
6.9
6.1
5.4
5.2

7.1
7.6
9.7
9.6
7.5
7.2
7.0
6.2
5.5
5.3

6.9
7.4
9.9
9.9
7.4
7.0
6.9
6.2
5.5
5.2

18.3
20.1
24.4
23.3
19.6
19.5
19.0
17.8
16.0
15.9

5.9
6.3
8.8
8.9
6.6
6.2
6.1
5.4
4.8
4.5

7.4
7.9
9.4
9.2
7.6
7.4
7.1
6.2
5.6
5.4

17.2
19.0
21.9
21.3
18.0
17.6
17.6
15.9
14.4
14.0

6.4
6.8
8.3
8.1
6.8
6.6
6.2
5.4
4.9
4.7

17.8
19.6
23.2
22.4
18.9
18.6
18.3
16.9
15.3
15.0

6.3
6.7
8.6
8.4
6.5
6.2
6.0
5.3
4.7
4.5

13.1
14.2
17.3
17.8
14.4
13.7
13.1
11.6
10.4
10.0

14.3
15.6
18.9
19.5
15.9
15.1
14.5
13.0
11.7
11.4

6.9
7.3
9.3
9.2
7.1
6.8
6.6
5.8
5.2
5.0

4.2
4.3
6.5
6.5
4.6
4.3
4.4
3.9
3.3
3.0

9.2
10.4
11.7
12.2
10.3
10.4
9.8
9.2
8.1
8.1

1988: Jan
Feb
Mar
Apr
May
June....

5.6
5.6
5.6
5.4
5.6
5.3

5.7
5.7
5.7
5.5
5.6
5.4

5.6
5.5
5.7
5.3
5.6
5.4

16.2
15.6
17.8
15.9
15.7
15.4

4.9
4.9
4.9
4.6
5.0
4.7

5.8
6.0
5.7
5.7
5.6
5.4

15.4
15.4
15.3
15.8
15.2
12.2

5.1
5.2
4.9
4.9
4.9
4.8

15.8
15.5
16.6
15.9
15.5
13.9

4.9
4.9
4.8
4.6
4.7
4.6

10.8
10.9
11.3
10.6
11.0
10.2

12.0
12.2
12.6
12.1
12.2
11.6

5.4
5.4
5.4
5.0
5.3
5.1

3.5
3.4
3.4
3.1
3.3
3.2

8.7
8.3
7.6
8.7
8.2
7.9

July
Aug
Sept....
Oct
Nov
Dec

5.4
5.5
5.3
5.3
5.2
5.2

5.5
5.6
5.4
5.3
5.3
5.3

5.4
5.7
5.3
5.3
5.3
5.3

17.4
16.1
16.4
16.5
14.2
15.4

4.6
5.0
4.6
4.6
4.7
4.6

5.6
5.6
5.5
5.3
5.3
5.3

13.3
15.1
14.3
13.5
13.4
14.1

5.0
4.8
4.8
4.7
4.8
4.7

15.4
15.6
15.4
15.1
13.8
14.8

4.7
4.9
4.7
4.6
4.6
4.6

10.2
10.2
9.6
9.8
10.0
10.0

11.6
11.5
11.0
11.2
11.2
11.4

5.1
5.3
5.1
5.0
5.1
5.0

3.1
3.4
3.1
3.1
3.2
3.1

8.3
7.5
8.2
8.0
7.6
8.2

1989: Jan
Feb
Mar
Apr
May
June....

5.3
5.1
5.0
5.2
5.1
5.2

5.4
5.2
5.0
5.3
5.2
5.3

5.4
5.2
4.9
5.3
5.1
5.1

18.3
16.4
14.6
15.6
16.3
15.9

4.6
4.5
4.2
4.6
4.3
4.4

5.3
5.1
5.2
5.3
5.3
5.5

13.9
13.1
13.3
13.5
13.7
14.9

4.7
4.6
4.6
4.7
4.7
4.8

16.1
14.8
14.0
14.6
15.0
15.4

4.6
4.3
4.3
4.5
4.4
4.5

10.5
10.3
9.8
9.7
9.6
10.2

11.7
11.6
11.0
11.0
11.1
11.8

5.2
4.9
4.8
5.0
4.9
5.0

3.1
3.0
2.9
3.2
2.9
2.9

7.9
8.0
7.9
7.8
8.2
7.9

5.2
5.2
5.3
5.2
5.3
5.3

5.3
5.3
5.3
5.3
5.3
5.3

5.0
5.1
5.4
5.2
5.3
5.3

14.7
15.1
15.7
15.9
16.7
16.1

4.4
4.5
4.8
4.5
4.6
4.6

5.6
5.4
5.2
5.4
5.4
5.5

15.5
14.6
14.4
13.8
13.8
14.3

4.9
4.7
4.5
4.8
4.8
4.8

15.1
14.8
15.0
14.9
15.3
15.2

4.5
4.5
4.5
4.5
4.5
4.6

9.6
9.7
10.2
10.2
10.3
10.2

11.0
11.2
11.7
11.7
11.9
11.8

5.0
5.0
5.0
5.0
5.1
5.0

3.0
3.1
3.3
3.0
3.1
3.0

8.5
8.0
7.7
7.8
8.2
8.1

July
Aug

Sept....
Oct
Nov
Dec

1
Unemployed
2
Unemployed
3

as percent of labor force including resident Armed Forces.
as percent of civilian labor force in group specified.
Data for 1949 and 1951-54 are for April; 1950, for March.
Note.—Data relate to persons 16 years of age and over.
See footnote 6 and Note, Table C-32.
Source: Department of Labor, Bureau of Labor Statistics.




338

TABLE C-40.—Civilian unemployment rate by demographic characteristic, 1948-89
[Percent;1 monthly data seasonally adjusted]
Black and other or black

White
Year or month

All
civilian
work- Total
ers
Total

Males
16-19
years

Males

Females
20
years Total
and
over

16-19
years

20
years Total Total
and
over

16-19
years

Females
20
years Total
and
over

16-19
years

20
years
and
over

Black and other
3.8
5.9

3.5
5.6

3.4
5.6

38
57

5.9
8.9

5.8
9.6

61
79

5.3
3.3
3.0
2.9
5.5
4.4
4.1
4.3
6.8
5.5

4.9
3.1
2.8
2.7
5.0
3.9
3.6
3.8
6.1
4.8

4.7
2.6
2.5
25
4.8
3.7
3.4
3.6
6.1
4.6

5.3
4.2

8.4
6.1

13.4
11.3
10.5
11.5
15.7
14.0

4.4
3.3
3.0
3.2
5.5
4.1

9.4
4.9
5.2
48
10.3
8.8
7.9
8.3
13.7
11.5

14.4
13.4
15.0
18.4
26.8
25.2

9.9
8.4
7.4
7.6
12.7
10.5

9.2
8.5
8.9
7.3
10.8
9.4

20.6
19.2
22.8
20.2
28.4
27.7

8.4
7.7
7.8
6.4
9.5
8.3

1960
1961
1962
1963
1964
1965
1966
1967
1968
1969

5.5
6.7
5.5
5.7
5.2
4.5
3.8
3.8
3.6
3.5

5.0
6.0
4.9
5.0
4.6
4.1
3.4
3.4
3.2
3.1

4.8
5.7
4.6
4.7
4.1
3.6
2.8
2.7
2.6
2.5

14.0
15.7
13.7
15.9
14.7
12.9
10.5
10.7
10.1
10.0

1970
1971
1972

4.9
5.9
5.6

4.5
5.4
5.1

4.0
4.9
4.5

1972
1973
1974
1975
1976
1977
1978
1979

5.6
4.9
5.6
8.5
7.7
7.1
6.1
5.8

5.1
4.3
5.0
7.8
7.0
6.2
5.2
5.1

1980
1981
1982
1983
1984
1985
1986
1987
1988 .
1989

7.1
7.6
9.7
9.6
7.5
7.2
7.0
6.2
5.5
5.3

1988: Jan

1948
1949
1950
1951
1952
1953
1954
1955
1956
1957
1958
1959

.

.

5.5
4.3
4.2
4.3
6.2
5.3

10.4
9.1
9.7
9.5
12.7
12.0

5.1
3.9
3.7
3.8
5.6
4.7

9.0
5.3
5.4
4.5
9.9
8.7
8.3
7.9
12.6
10.7

4.2
5.1
4.0
3.9
3.4
2.9
2.2
2.1
2.0
1.9

5.3
6.5
5.5
5.8
5.5
5.0
4.3
4.6
4.3
4.2

12.7
14.8
12.8
15.1
14.9
14.0
12.1
11.5
12.1
11.5

4.6
5.7
4.7
4.8
4.6
4.0
3.3
3.8
3.4
3.4

10.2
12.4
10.9
10.8
9.6
8.1
7.3
7.4
6.7
6.4

10.7
12.8
10.9
10.5
8.9
7.4
6.3
6.0
5.6
5.3

24.0
26.8
22.0
27.3
24.3
23.3
21.3
23.9
22.1
21.4

9.6
11.7
10.0
9.2
7.7
6.0
4.9
4.3
3.9
3.7

9.4
11.9
11.0
11.2
10.7
9.2
8.7
9.1
8.3
7.8

24.8
29.2
30.2
34.7
31.6
31.7
31.3
29.6
28.7
27.6

8.3
10.6
9.6
9.4
9.0
7.5
6.6
7.1
6.3
5.8

13.7
15.1
14.2

3.2
4.0
3.6

5.4
6.3
5.9

13.4
15.1
14.2

4.4
5.3
4.9

8.2
9.9
10.0

7.3
9.1
8.9

25.0
28.8
29.7

5.6
7.3
6.9

9.3
10.9
11.4

34.5
35.4
38.4

6.9
8.7
8.8

4.5
3.8
4.4
7.2
6.4
5.5
4.6
4.5

14.2
12.3
13.5
18.3
17.3
15.0
13.5
13.9

3.6
3.0
3.5
6.2
5.4
4.7
3.7
3.6

5.9
5.3
6.1
8.6
7.9
7.3
6.2
5.9

14.2
13.0
14.5
17.4
16.4
15.9
14.4
14.0

4.9
4.3
5.1
7.5
6.8
6.2
5.2
5.0

10.4
9.4
10.5
14.8
14.0
14.0
12.8
12.3

9.3
8.0
9.8
14.8
13.7
13.3
11.8
11.4

31.7
27.8
33.1
38.1
37.5
39.2
36.7
34.2

7.0
6.0
7.4
12.5
11.4
10.7
9.3
9.3

11.8
11.1
11.3
14.8
14.3
14.9
13.8
13.3

40.5
36,1
37.4
41.0
41.6
43.4
40.8
39.1

9.0
8.6
8.8
12.2
11.7
12.3
11.2
10.9

6.3
6.7
8.6
8.4
6.5
6.2
6.0
5.3
4.7
4.5

6.1
6.5
8.8
8.8
6.4
6.1
6.0
5.4
4.7
4.5

16.2
17.9
21.7
20.2
16.8
16.5
16.3
15.5
13.9
13.7

5.3
5.6
7.8
7.9
5.7
5.4
5.3
4.8
4.1
3.9

6.5
6.9
8.3
7.9
6.5
6.4
6.1
5.2
4.7
4.5

14.8
16.6
19.0
18.3
15.2
14.8
14.9
13.4
12.3
11.5

5.6
5.9
7.3
6.9
5.8
5.7
5.4
4.6
4.1
4.0

14.3
15.6
18.9
19.5
15.9
15.1
14.5
13.0
11.7
11.4

14.5
15.7
20.1
20.3
16.4
15.3
14.8
12.7
11.7
11.5

37.5
40.7
48.9
48.8
42.7
41.0
39.3
34.4
32.7
31.9

12.4
13.5
17.8
18.1
14.3
13.2
12.9
11.1
10.1
10.0

14.0
15.6
17.6
18.6
15.4
14.9
14.2
13.2
11.7
11.4

39.8
42.2
47.1
48.2
42.6
39.2
39.2
34.9
32.0
33.0

11.9
13.4
15.4
16.5
13.5
13.1
12.4
11.6
10.4
9.8

5.7
5.7
5.7
5.5
5.6
5.4

4.9
4.9
4.8
4.6
4.7
4.6

4.9
4.7
4.9
4.6
4.8
4.6

14.1
12.3
16.0
14.5
13.4
13.3

4.3
4.2
4.2
3.9
4.3
4.1

4.9
5.2
4.6
4.6
4.6
4.6

13.3
13.0
12.9
13.3
12.4
11.2

4.2
4.5
4.0
4.0
4.0
4.0

12.0
12.2
12.6
12.1
12.2
11.6

11.7
12.6
12.8
11.5
12.2
11.6

33.7
39.6
38.2
27.4
32.1
31.7

10.0
10.7
11.0
10.3
10.6
10.1

12.3
11.9
12.5
12.7
12.3
11.5

33.4
34.1
33.6
36.2
36.2
25.5

10.8
10.3
11.0
11.2
10.7
10.6

5.5
5.6
5.4
5.3
5.3
5.3
5.4
5.2
5.0
5.3
5.2
5.3

4.7
4.9
4.7
4.6
4.6
4.6
4.6
4.3
4.3
4.5
4.4
4.5

4.7
5.0
4.8
4.7
4.6
4.6
4.7
4.4
4.2
4.5
4.4
4.4

14.7
14.1
14.6
14.5
12.0
13.5
15.9
13.9
13.0
13.2
14.1
13.5

4.0
4.4
4.1
4.0
4.1
4.1
3.9
3.8
3.6
3.9
3.7
3.8

4.7
4.7
4.7
4.5
4.5
4.5
4.5
4.2
4.3
4.6
4.6
4.7

10.8
13.2
12.5
11.6
11.3
11.6
11.6
10.7
10.7
11.5
11.4
12.3

4.2
4.1
4.1
4.0
4.0
3.9
4.0
3.7
3.9
4.1
4.1
4.1

11.6
11.5
11.0
11.2
11.2
11.4
11.7
11.6
11.0
11.0
11.1
11.8

11.5
11.4
10.8
11.4
11.4
11.3
11.9
11.8
11.1
11.6
11.2
11.5

32.0
32.2
32.0
32.9
32.2
30.8
35.6
32.6
29.0
34.8
35.4
33.8

9.8
9.8
9.1
9.7
9.7
9.9
10.2
10.2
9.8
9.9
9.5
9.6

11.6
11.6
11.2
11.0
11.0
11.5
11.6
11.4
10.9
10.4
10.9
12.1

31.9
32.7
31.2
28.1
30.4
30.6
31.9
31.7
34.3
28.5
29.6
36.8

10.2
10.1
9.8
9.8
9.7
10.2
10.2
10.0
9.3
9.1
9.6
10.5

5.3
5.3
5.3
5.3
5.3
5.3

4.5
4.5
4.5
4.5
4.5
4.6

4.4
4.4
4.7
4.4
4.6
4.5

12.8
13.1
13.3
13.8
14.3
14.0

3.8
3.9
4.2
3.9
3.9
3.9

4.8
4.6
4.3
4.5
4.5
4.6

12.6
12.3
11.1
10.9
11.3
11.9

4.2
4.1
3.8
4.0
4.0
4.1

11.0
11.2
11.7
11.7
11.9
11.8

10.5
11.4
11.7
11.8
12.2
12.3

23.2
30.3
33.8
32.0
32.3
30.1

9.5
9.9
10.1
10.3
10.6
10.8

11.4
11.1
11.7
11.6
11.7
11.4

33.1
33.6
38.8
34.9
32.7
31.4

9.9
9.6
9.7
9.9
10.2
10.0

33
3.1

57
41

Black

Feb

Mar
Apr
May

June:::::.:.::::::::::
July

Aug

sept..: :::::
Oct

Nov
Dec
1989- Jan
Feb
Mar
Apr
May

June
July ...

Aug

sept".: : : :
Oct
Nov

Dec
1

Unemployed as percent of civilian labor force in group specified.

Note.-See
 footnote 6 and Note, Table C-32.
Source: Department of Labor, Bureau of Labor Statistics.


339

TABLE C-41.—Unemployment by duration and reason, 1947-89
[Thousands of persons, except as noted; monthly data seasonally adjusted1]

Year or month

Unemployment

Less
than 5
weeks

Reason for unemployment
Duration of unemployment
Aver- Median
27
age
New
ReenJob
15-26
5-14
Job
weeks (mean) duraention
losers leavers trants trants
weeks weeks
and
duraover
tion (weeks)
(weeks)

2,311
2,276
3,637

1,210
1,300
1,756

704
669
1,194

234
193
428

164
116
256

June

3,288
2,055
1,883
1,834
3,532
2,852
2,750
2,859
4,602
3,740
3,852
4,714
3,911
4,070
3,786
3,366
2,875
2,975
2,817
2,832
4,093
5,016
4,882
4,365
5,156
7,929
7,406
6,991
6,202
6,137
7,637
8,273
10,678
10,717
8,539
8,312
8,237
7,425
6,701
6,528
6,910
6,930
6,861
6,646
6,819
6,528

1,450
1,177
1,135
1,142
1,605
1,335
1,412
1,408
1,753
1,585
1,719
1,806
1,663
1,751
1,697
1,628
1,573
1,634
1,594
1,629
2,139
2,245
2,242
2,224
2,604
2,940
2,844
2,919
2,865
2,950
3,295
3,449
3,883
3,570
3,350
3,498
3,448
3,246
3,084
3,174
3,085
3,070
3,066
3,112
3,089
3,075

1,055
574
516
482
1,116
815
805
891
1,396
1,114
1,176
1,376
1,134
1,231
1,117
983
779
893
810
827
1,290
1,585
1,472
1,314
1,597
2,484
2,196
2,132
1,923
1,946
2,470
2,539
3,311
2,937
2,451
2,509
2,557
2,196
2,007
1,978
2,144
2,122
2,083
1,946
2,052
1,914

425
166
148
132
495
366
301
321
785
469
503
728
534
535
491
404
287
271
256
242
428
668
601
483
574
1,303
1,018
913
766
706
1,052
1,122
1,708
1,652
1,104
1,025
1,045
943
801
730
843
833
884
735
799
767

357
137
84
78
317
336
232
239
667
571
454
804
585
553
482
351
239
177
156
133
235
519
566
343
381
1,203
1,348
1,028
648
535
820
1,162
1,776
2,559
1,634
1,280
1,187
1,040
809
646
874
891
841
815
834
807

July
Aug
Sept
Oct
Nov
Dec

6,668
6,855
6,613
6,518
6,498
6,509

2,982
3,203
3,127
3,084
3,113
3,000

2,075
1,947
1,896
1,861
1,935
2,039

821
848
762
789
768
740

1989- Jan
Feb
Mar
Apr
May
June

6,625
6,360
6,198
6,531
6,419
6,569

3,140
3,212
3,072
3,113
3,070
3,279

1,998
1,894
1,849
2,006
1,993
2,006

July
Aug

6,577
6,520
6,604
6,563
6,652
6,658

3,156
3,125
3,169
3,166
3,258
3,302

1,965
2,002
2,030
1,995
1,991
2,013

1947
1948
1949
1950
1951
1952
1953
1954
1955
1956
1957
1958
1959
1960
1961
1962
1963
1964
1965
1966 2
1967
1968
1969
1970
1971
1972 .
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986 ....
1987
1988
1989
1988- Jan
Feb
Mar
Apr

May..:.::::::::::: :::::

sept:::::::::'::"....::.:::'::::':
Oct
Nov
Dec

8.6
10.0

12.1
9.7
8.4
8.0
11.8
13.0
11.3
10.5
13.9
14.4
12.8
15.6
14.7
14.0
13.3
11.8
10.4
8.7
8.4 ' 4 5
."
4.4
7.8
4.9
8.6
6.3
11.3
6.2
12.0
5.2
10.0
5.2
9.8
8.4
14.2
8.2
15.8
7.0
14.3
5.9
11.9
5.4
10.8
6.5
11.9
6.9
13.7
8.7
15.6
10.1
20.0
7.9
18.2
6.8
15.6
6.9
15.0
6.5
14.5
5.9
13.5
4.8
11.9
6.3
14.2
6.4
14.3
6.5
13.7
5.8
13.4
5.9
13.8
5.8
13.3

1,229
1,070
1,017
1,811
2,323
2,108
1,694
2,242
4,386
3,679
3,166
2,585
2,635
3,947
4,267
6,268
6,258
4,421
4,139
4,033
3,566
3,092
2,983
3,153
3,188
3,147
2,920
3,274
3,123

438
431
436
550
590
641
683
768
827
903
909
874
880
891
923
840
830
823
877
1,015
965
983
1,024
1,033
963
1,075
993
936
952

1,228
1,472
1,456
1,340
1,463
1,892
1,928
1,963
1,857
1,806
1,927
2,102
2,384
2,412
2,184
2,256
2,160
1,974
1,809
1,843
1,901
1,941
1,829
1,794
1,803
1,708

396
407
413
504
630
677
649
681
823
895
953
885
817
872
981
1,185
1,216
1,110
1,039
1,029
920
816
677
861
848
873
906
823
784

796
819
806
758
699
736

13.5
13.6
13.5
13.3
12.5
12.8

6.0
5.9
5.7
5.6
5.6
5.7

3,080
3,094
3,092
2,991
2,985
3,021

925
981
982
998
962
994

1,848
1,849
1,753
1,760
1,781
1,740

796
812
775
745
789
785

761
660
672
667
711
684

738
640
663
724
620
611

12.6
12.3
12.4
12.6
11.9
11.2

5.6
5.4
5.5
5.4
5.3
5.4

3,088
2,879
2,852
2,932
2,798
2,820

973
980
902
985
1,103
1,021

1,827
1,767
1,774
1,882
1,853
1,993

768
757
713
692
696
726

838
759
769
743
765
730

623
579
590
635
657
632

11.9
11.4
11.5
11.7
11.6
11.5

5.4
5.0
5.0
5.0
4.8
4.8

2,916
2,964
2,932
2,979
3,092
3,097

1,016
1,031
1,034
994
1,049
1,055

1,901
1,772
1,920
1,890
1,845
1,853

723
643
648
685
695
686

1
2

945
909
965

Because of independent seasonal adjustment of the various series, detail will not add to totals.
Data for 1967 by reason for unemployment are not strictly comparable with those for later years and the total by reason is not
equal to total unemployment.
Note.—Data relate to persons 16 years of age and over.
See footnote 6 and Note, Table C-32.
Source: Department of Labor, Bureau of Labor Statistics.




340

TABLE C-42.—Unemployment insurance programs, selected data, 1955-89
All programs

Year or month

Covered
employment1

State programs

Insured
Total
unemploy- benefits
Insured
paid
ment
unem(weekly
ployment
aver-2 8
2
dollars) *
age)

<m

r

Thousands
40,018
42,751
43,436
44,411
45,728
46,334
46,266
47,776
48,434
49,637
51,580
54,739
56,342
57,977
59,999
59,526
59,375
66,458
69,897
72,451
71,037
73,459
76,419
88,804
92,062
92,659
93,300
91,628
91,898
96,474
99,186
101,099
98,757
8
101,987'

1955
1956
1957
1958
1959
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1988- Jan
Feb
Mar
Aor

Hay
June

Juiv
Aug
Sept
Oct
Nov
Dec
1989- Jan
Feb
Mar
Aor

Say
June

:::::::

::::::::

Julv
Aug
Sept
Oct
Nov
Dec "

1,399
1,323
1,571
2,773
1,860
2,071
2,994
1,946
'1,973
1,753
1,450
1,129
1,270
1,187
1,177
2,070
2,608
2,192
1,793
2,558
4,937
3,846
3,308
2,645
2,592
3,837
3,410
4,594
3,775
2,561
2,693
2,746
2,401
2,125

1,560.2
1,540.6
1,913.0
4,290.6
2,854.3
3,022.8
4,358.1
3,145.1
3,025.9
2,749.2
2,360.4
1,890.9
2,221.5
2,191.0
2,298.6
4,209.3
6,154.0
5,491.1
4,517.3
6,933.9
16,802.4
12,344.8
10,998.9
9,006.9
9,401.3
16,175.4
15,287.1
23,774.8
20,206.2
13,109.6
14,495.1
15,892.1
14,670.9
12,965.7

2,870
2,775
2,536
2,208
1,949
1,881
2,052
1,914
1,734
1,677
1,857
2,205
2,685
2,695
2,567
2,221
1,957
1,936
2,168
2,007
1,863
1,912
2,144

1,377.5
1,485.6
1,589.0
1,173.8
1,044.1
1,054.6
956.0
1,109.6
902.9
808.9
960.5
1,092.1
1,448.3
1,370.9
1,564.2
1,191.2
1,159.1
1,066.8
1,078.1
1,223.5
983.3
1,063.9

Initial
claims

Exhaustions5

Weekly average; thousands
1,265
226
227
1,215
M46
270
2,510
369
1,684
277
1,908
331
2,290
350
302
1,783
'1,806
'298
1,605
268
232
1,328
1,061
203
226
1,205
1,111
201
1,101
200
1,805
296
2,150
295
261
1,848
247
1,632
2,262
363
478
3,986
2,991
386
2,655
375
2,359
346
2,434
388
3,350
488
3,047
460
583
4,061
3,396
438
377
2,476
2,611
396
2,650
378
2,332
328
2,056
306
2,222
2,179
2,114
2,087
2,051
2,050
2,082
2,069
2,025
1,972
1,989
2032
2,061
2,105
2,143
2,105
2,063
2,134
2,216
2,177
2,187
2,257
2,287
2,332

344
322
308
305
311
304
327
305
293
296
301
309
293
309
323
300
317
335
339
319
323
360
344
365

25
20
23
50
33
31
46
32
30
26
21
15
17
16
16
25
39
35
29
37
81
63
55
39
39
59
57
80
80
50
50
52
46
38
42
41
43
44
39
39
38
37
32
33
34
34
38
38
38
42
35
35
38
37
35
34
35

Insured
Benefits paid
unemployment as
percent
Total
Average
of
(millions
weekly
covered
of 4
check
employ- dollars) (dollars)"
ment

**

3.5
3.2
3.6
6.4
4.4
4.8
5.6
4.4
4.3
3.8
3.0
2.3
2.5
2.2
2.1
3.4
4.1
3.5
2.7
3.5
6.0
4.6
3.9
3.3
2.9
3.9
3.5
4.6
3.9
2.8
2.9
2.8
2.4
2.1

1,350.3
1,380.7
1,733.9
3,512.7
2,279.0
2,726.7
3,422.7
2,675.4
2,774.7
2,522.1
2,166.0
1,771.3
2,092.3
2,031.6
2,127.9
3,848.5
4,957.0
4,471.0
4,007.6
5,974.9
11,754.7
8,974.5
8,357.2
7,717.2
8,612.9
13,761.1
13,262.1
20,649.5
17,762.8
12,594.7
13,977.8
15,402.8
13,605.4
12,571.8

25.04
27.02
28.17
30.58
30.41
32.87
33.80
34.56
35.27
35.92
37.19
39.75
41.25
43.43
46.17
50.34
54.02
56.76
59.00
64.25
70.23
75.16
78.79
83.67
89.67
98.95
106.70
119.37
123.59
123.47
128.23
135.72
139.90
144.53

2.3
2.2
2.2
2.1
2.1
2.1
2.1
2.1
2.1
2.0
2.0
2.0
2.1
2.1
2.1
2.1
2.0
2.1
2.2
2.1
2.1
2.2
2.2
23

1,340.0
1,445.2
1,545.8
1,140.6
1,012.7
1,019.9
924.9
1,075.4
876.4
784.3
934.2
1,062.3
1,411.1
1,336.2
1,522.1
1,162.4
1,131.8
1,041.5
1,053.4
1,193.4
957.8
1,040.7
1,060.0

145.14
147.40
147.17
145.74
145.10
143.72
141.75
143.36
143.84
144.31
143.04
145.59
148.36
150.37
150.92
150.21
149.88
150.66
151.26
150.98
152.61
157.77
153.47

"Monthly data are seasonally adjusted.
1
Includes persons under the State, UCFE (Federal employee, effective January 1955). and RRB (Railroad Retirement Board) programs.
Beginning October 1958, also includes the UCX program (unemployment compensation for ex-servicemen).
2 Includes State, UCFE, RR, UCX, UCV (unemployment compensation for veterans, October 1952-January 1960), and SRA
(Servicemen's Readjustment Act, September 1944-September 1951 programs. Also includes Federal and State extended benefit
programs. Does not include FSB (Federal supplemental benefits), SUA (special unemployment assistance), and Federal Supplemental
Compensation programs.
3
Covered workers who have completed at least 1 week of unemployment.
4
Annual data are net amounts and monthly data are gross amounts.
5
Individuals receiving final payments in benefit year.
8
7 For total unemployment only.
Programs include Puerto Rican sugarcane workers for initial claims and insured unemployment beginning July 1963.
8
Latest data available for all programs combined. Workers covered by State programs account for about 97 percent of wage and
salary earners.
Source: Department of Labor, Employment and Training Administration.




341

TABLE C-43.—Employees on nonagricultural payrolls, by major industry, 1946-89
[Thousands of persons; monthly data seasonally adjusted]

Year or month

1946
1947
1948....
1949
1950
1951
1952
1953
1954
1955
1956
1957
1958
1959
I960. ..
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989 "
1988: Jan
Feb
Mar
Apr
May
June
July
Aug
Sept
Oct.
Nov
Dec
1989: Jan
Feb
Mar
Apr
June
July

. . . .

: .

"
.

Jay:.:r":::::r:

Aug
Sept

Oct.
Nov

::::::::::

;

::::::::: ::.::.::::::: :::::::::::::::::::

Decp.

Total

41,652
43,857
44,866
43,754
45,197
47,819
48,793
50,202
48,990
50,641
52,369
52,853
51,324
53,268
54,189
53,999
55,549
56,653
58,283
60,765
63,901
65,803
67,897
70,384
70,880
71,214
73,675
76,790
78,265
76,945
79,382
82,471
86,697
89,823
90,406
91,156
89,566
90,200
94,496
97,519
99,525
102,200
105,584
108,573
103,970
104,414
104,682
104,901
105,091
105,561
105,768
105,954
106,207
106,475
106,824
107,097
107,442
107,711
107,888
108,101
108,310
108,607
108,767
108,887
109,096
109,171
109,393
109,535

See next page for continuation of table.




342

Total
17,248
18,509
18,774
17,565
18,506
19,959
20,198
21,074
19,751
20,513
21,104
20,964
19,513
20,411
20,434
19,857
20,451
20,640
21,005
21,926
23,158
23,308
23,737
24,361
23,578
22,935
23,668
24,893
24,794
22,600
23,352
24,346
25,585
26,461
25,658
25,497
23,813
23,334
24,727
24,859
24,558
24,708
25,249
25,634
24,935
25,033
25,098
25,161
25,179
25,265
25,323
25,303
25,313
25,384
25,460
25,513
25,626
25,629
25,646
25,671
25,672
25,648
25,669
25,694
25,614
25,603
25,607
25,634

Goods-producing industries
Manufacturing
ConMining struction
NonduraTotal Durable ble goods
goods
862
955
994
930
901
929
898
866
791
792
822
828
751
732
712
672
650
635
634
632
627
613
606
619
623
609
628
642
697
752
779
813
851
958
1,027
1,139
1,128
952
966
927
777
717
721
722
721
723
723
725
725
726
725
725
719
717
712
711
711
711
714
720
722
715
706
729
730
731
737
736

1,683
2,009
2,198
2,194
2,364
2,637
2,668
2,659
2,646
2,839
3,039
2,962
2,817
3,004
2,926
2,859
2,948
3,010
3,097
3,232
3,317
3,248
3,350
3,575
3,588
3,704
3,889
4,097
4,020
3,525
3,576
3,851
4,229
4,463
4,346
4,188
3,905
3,948
4,383
4,673
4,816
4,967
5,125
5,302
4,959
5,038
5,088
5,109
5,100
5,139
5,150
5,153
5,163
5,162
5,191
5,213
5,267
5,270
5,252
5,279
5,283
5,283
5,314
5,321
5,325
5,335
5,360
5,322

14,703
15,545
15,582
14,441
15,241
16,393
16,632
17,549
16,314
16,882
17,243
17,174
15,945
16,675
16,796
16,326
16,853
16,995
17,274
18,062
19,214
19,447
19,781
20,167
19,367
18,623
19,151
20,154
20,077
18,323
18,997
19,682
20,505
21,040
20,285
20,170
18,781
18,434
19,378
19,260
18,965
19,024
19,403
19,611
19,255
19,272
19,287
19,327
19,354
19,400
19,448
19,425
19,431
19,505
19,557
19,589
19,648
19,648
19,680
19,672
19,667
19,650
19,649
19,644
19,559
19,537
19,510
19,485

7,742
8,385
8,326
7,489
8,094
9,089
9,349
10,110
9,129
9,541
9,833
9,855
8,829
9,373
9,459
9,070
9,480
9,616
9,816
10,405
11,282
11,439
11,626
11,895
11,208
10,636
11,049
11,891
11,925
10,688
11,077
11,597
12,274
12,760
12,187
12,109
11,039
10,732
11,505
11,490
11,230
11,194
11,437
11,536
11,325
11,335
11,349
11,382
11,399
11,431
11,475
11,462
11,464
11,509
11,545
11,565
11,605
11,594
11,604
11,600
11,594
11,567
11,549
11,551
11,480
11,457
11,436
11,409

6,962
7,159
7,256
6,953
7,147
7,304
7,284
7,438
7,185
7,341
7,411
7,321
7,116
7,303
7,337
7,256
7,373
7,380
7,458
7,656
7,930
8,007
8,155
8,272
8,158
7,987
8,102
8,262
8,152
7,635
7,920
8,086
8,231
8,280
8,098
8,061
7,741
7,702
7,873
7,770
7,734
7,830
7,967
8,075
7,930
7,937
7,938
7,945
7,955
7,969
7,973
7,963
7,967
7,996
8,012
8,024
8,043
8,054
8,076
8,072
8,073
8,083
8,100
8,093
8,079
8,080
8,074
8,076

TABLE C-43.—Employees on nonagricultural payrolls, by major industry, 1946-89—Continued
[Thousands of persons; monthly data seasonally adjusted]

Year or month

1946
1947
1948
1949
1950
1951
1952
1953
1954
1955
1956
1957
1958
1959
I960
1961
1962
1963
1964
1965
1966
1967
1968
1969.
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989 "
1988: Jan
Feb
Mar
Apr
May
June
July
Aug
Sept
Oct
Nov
Dec....
1989- Jan
Feb
Mar
Apr
May
June
July
Aug
Sept
Oct
Nov"
Dec"

Total

24,404
25,348
26,092
26,189
26,691
27,860
28,595
29,128
29,239
30,128
31,266
31,889
31,811
32,857
33,755
34,142
35,098
36,013
37,278
38,839
40,743
42,495
44,160
46,023
47,302
48,278
50,007
51,897
53,471
54,345
56,030
58,125
61,113
63,363
64,748
65,659
65,753
66,866
69,769
72,660
74,967
77,492
80,335
82,938
79,035
79,381
79,584
79,740
79,912
80,296
80,445
80,651
80,894
81,091
81,364
81,584
81,816
82,082
82,242
82,430
82,638
82,959
83,098
83,193
83,482
83,568
83,786
83,992

Transportation
and
public
utilities
4,061
4,166
4,189
4,001
4,034
4,226
4,248
4,290
4,084
4,141
4,244
4,241
3,976
4,011
4,004
3,903
3,906
3,903
3,951
4,036
4,158
4,268
4,318
4,442
4,515
4,476
4,541
4,656
4,725
4,542
4,582
4,713
4,923
5,136
5,146
5,165
5,082
4,954
5,159
5,238
5,255
5,372
5,548
5,703
5,468
5,481
5,494
5,506
5,522
5,542
5,557
5,572
5,581
5,596
5,616
5,634
5,654
5,667
5,666
5,682
5,700
5,716
5,736
5,618
5,709
5,729
5,745
5,818

Wholesale
trade
2,291
2,471
2,605
2,602
2,635
2,727
2,812
2,854
2,867
2,926
3,018
3,028
2,980
3,082
3,143
3,133
3,198
3,248
3,337
3,466
3,597
3,689
3,779
3,907
3,993
4,001
4,113
4,277
4,433
4,415
4,546
4,708
4,969
5,204
5,275
5,358
5,278
5,268
5,555
5,717
5,753
5,844
6,029
6,234
5,938
5,949
5,968
5,985
6,001
6,027
6,038
6,051
6,071
6,086
6,104
6,125
6,146
6,171
6,197
6,206
6,222
6,230
6,237
6,256
6,264
6,278
6,297
6,311

Service-producing industries
Finance,
insurRetail
ance,
trade and real Services
estate
6,084
6,485
6,667
6,662
6,751
7,015
7,192
7,393
7,368
7,610
7,840
7,858
7,770
8,045
8,248
8,204
8,368
8,530
8,823
9,250
9,648
9,917
10,320
10,798
11,047
11,351
11,836
12,329
12,554
12,645
13,209
13,808
14,573
14,989
15,035
15,189
15,179
15,613
16,545
17,356
17,930
18,483
19,110
19,573
18,865
18,992
18,972
18,994
19,036
19,096
19,139
19,182
19,188
19,229
19,282
19,328
19,407
19,460
19,488
19,489
19,528
19,551
19,586
19,621
19,632
19,679
19,725
19,713

1,675
1,728
1,800
1,828
1,888
1,956
2,035
2,111
2,200
2,298
2,389
2,438
2,481
2,549
2,629
2,688
2,754
2,830
2,911
2,977
3,058
3,185
3,337
3,512
3,645
3,772
3,908
4,046
4,148
4,165
4,271
4,467
4,724
4,975
5,160
5,298
5,341
5,468
5,689
5,955
6,283
6,547
6,676
6,814
6,632
6,631
6,642
6,647
6,654
6,672
6,678
6,686
6,695
6,710
6,726
6,744
6,746
6,763
6,774
6,776
6,790
6,808
6,815
6,836
6,852
6,851
6,872
6,885

4,697
5,025
5,181
5,240
5,357
5,547
5,699
5,835
5,969
6,240
6,497
6,708
6,765
7,087
7,378
7,620
7,982
8,277
8,660
9,036
9,498
10,045
10,567
11,169
11,548
11,797
12,276
12,857
13,441
13,892
14,551
15,303
16,252
17,112
17,890
18,619
19,036
19,694
20,797
22,000
23,053
24,236
25,600
26,889
24,926
25,099
25,211
25,306
25,364
25,597
25,683
25,784
25,888
25,986
26,111
26,230
26,318
26,434
26,520
26,651
26,711
26,931
26,973
27,058
27,159
27,188
27,321
27,405

Government
Total
5,595
5,474
5,650
5,856
6,026
6,389
6,609
6,645
6,751
6,914
7,278
7,616
7,839
8,083
8,353
8,594
8,890
9,225
9,596
10,074
10,784
11,391
11,839
12,195
12,554
12,881
13,334
13,732
14,170
14,686
14,871
15,127
15,672
15,947
16,241
16,031
15,837
15,869
16,024
16,394
16,693
17,010
17,372
17,726
17,206
17,229
17,297
17,302
17,335
17,362
17,350
17,376
17,471
17,484
17,525
17,523
17,545
17,587
17,597
17,626
17,687
17,723
17,751
17,804
17,866
17,843
17,826
17,860

Federal
2,254
1,892
1,863
1,908
1,928
2,302
2,420
2,305
2,188
2,187
2,209
2,217
2,191
2,233
2,270
2,279
2,340
2,358
2,348
2,378
2,564
2,719
2,737
2,758
2,731
2,696
2,684
2,663
2,724
2,748
2,733
2,727
2,753
2,773
2,866
2,772
2,739
2,774
2,807
2,875
2,899
2,943
2,971
2,988
2,971
2,968
2,969
2,964
2,962
2,956
2,958
2,967
2,985
2,986
2,983
2,981
2,978
2,982
2,982
2,982
2,999
2,995
3,000
2,999
2,996
2,984
2,978
2,976

State
and
local
3,341
3,582
3,787
3,948
4,098
4,087
4,188
4,340
4,563
4,727
5,069
5,399
5,648
5,850
6,083
6,315
6,550
6,868
7,248
7,696
8,220
8,672
9,102
9,437
9,823
10,185
10,649
11,068
11,446
11,937
12,138
12,399
12,919
13,174
13,375
13,259
13,098
13,096
13,216
13,519
13,794
14,067
14,402
14,739
14,235
14,261
14,328
14,338
14,373
14,406
14,392
14,409
14,486
14,498
14,542
14,542
14,567
14,605
14,615
14,644
14,688
14,728
14,751
14,805
14,870
14,859
14,848
14,884

Note.— Data in Tables C-43 and C-44 are based on reports from employing establishments and rejate to full- and part-time wage and
salary workers in nonagricultural establishments who received pay for any part of the pay period which includes the 12th of the month.
Not comparable with labor force data (Tables C-32 through C-41) which include proprietors, self-employed persons, domestic servants,
and unpaid family workers; which count persons as employed when they are not at work because of industrial disputes, bad weather,
etc., even if they are not paid for the time off; and which are based on a sample of the working-age population. For description and
details of the various establishment data, see "Employment and Earnings."
Source: Department of Labor, Bureau of Labor Statistics.




343

TABLE C-44.—Average weekly hours and hourly and weekly earnings in private nonagricultural industries,
1947-89
[For production or nonsupervisory workers; monthly data seasonally adjusted, except as noted]
Average weekly
hours
Year or
month

Manufacturing

Average hourly earnings

Average weekly earnings
Total private 1

Total private \

Total
Current
private 1 Total Over- dollars
time

1977
dollars 2

Manufacturing Current
dollars

1977
dollars 2

ManuConfacturing struction
(current (current
dollars) dollars)

Retail
trade

(cur-

Percent change
from a year
earlier, total
private 3

rent

dol-

Cur-

lars)

rent

dollars

1947
1948
1949
1950
1951
1952
1953
1954
1955
1956
1957
1958
1959
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972.
1973
1974
1975
1976. .
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987.
1988
1989 '
1988: Jan ....
Feb....
Mar....
MPay".'.'.
JuneJuly....
Aug....
Sept...
Oct....
Nov....
Dec....
1989: Jan ....
Feb....
Mar....

fc

June...
July....
Aug....
Sept..
Oct...
Nov"
Dec"

40.3
40.0
39.4
39.8
39.9
39.9
39.6
391
39.6
39.3
38.8
38.5
39.0
38.6
38.6
38.7
38.8
38.7
38.8
38.6
38.0
37.8
37.7
37.1
36.9
37.0
36.9
36.5
36.1
36.1
36.0
35.8
35.7
35.3
35.2
34.8
35.0
35.2
34.9
34.8
34.8
34.7
34.7
34.7
34.8
34.6
34.8
34.7
34.7
34.8
34.6
34.7
34.8
34.7
34.7
34.8
34.6
34.7
34.9
34.6
34.6
34.8
34.6
34.7
34.7
34.6
34.5

40.4
40.0
39.1
40.5
40.6
40.7
40.5
396
40.7
40.4
39.8
39.2
40.3
39.7
39.8
40.4
40.5
40.7
41.2
41.4
40.6
40.7
40.6
39.8
39.9
40.5
40.7
40.0
39.5
40.1
40.3
40.4
40.2
39.7
39.8
38.9
40.1
40.7
40.5
40.7
41.0
41.1
41.0
41.1
41.0
41.0
41.2
41.1
41.1
41.1
41.0
41.1
41.2
41.2
41.0
41.1
41.1
41.0
41.3
41.0
41.0
41.0
41.0
41.0
40.8
40.7
40.7

2.8
2.3
2.0
2.7
2.5
2.4
2.8
2.8
3.1
3.6
3.9
3.4
3.6
3.6
3.0
2.9
3.5
3.8
3.3
2.6
3.1
3.5
3.6
3.3
2.8
2.8
2.3
3.0
3.4
3.3
3.4
3.7
3.9
3.8
3.9
3.7
3.8
3.9
3.9
3.9
3.9
3.9
3.9
4.0
3.9
3.9
3.9
3.9
4.0
3.9
3.8
3.8
3.9
3.8
3.8
3.7
3.7
3.7

$1.131 $3.065
1.225
3.086
1.275
3.244
1.335 3.363
1.45
3.38
1.52
3.47
1.61
3.65
1.65
3.72
3.87
1.71
1.80
4.02
1.89
4.07
1.95
4.36
2.02
4.20
2.09
4.27
2.14
4.33
2.22
4.45
2.28
4.51
2.36
4.61
2.46
4.72
2.56
4.78
2.68
4.86
2.85
4.97
3.04
5.02
3.23
5.04
3.45
5.16
3.70
5.36
3.94
5.38
4.24
5.21
4.53
5.10
4.86
5.18
5.25
5.25
5.69
5.29
6.16
5.14
6.66
4.89
7.25
4.83
7.68
4.83
8.02
4.89
8.32
4.91
8.57
4.88
8.76
4.92
8.98
4.86
9.29
4.84
9.66
4.80
9.14
4.85
9.13
4.84
9.17
4.84
9.23
4.85
9.26
4.85
9.27
4.84
9.31
4.84
9.32
4.82
9.37
4.83
9.43
4.84
9.42
4.82
9.45
4.82
9.49
4.81
9.52
4.81
9.54
4.80
9.61
4.80
9.60
4.77
9.62
4.77
9.69
4.79
9.69
4.79
9.74
4.81
9.78
4.81
9.78
4.79
9.84
4.80

$1.216
1.327
1.376
1.439
1.56
1.64
1.74
1.78
1.85
1.95
2.04
2.10
2.19
2.26
2.32
2.39
2.45
2.53
2.61
2.71
2.82
3.01
3.19
3.35
3.57
3.82
4.09
4.42
4.83
5.22
5.68
6.17
6.70
7.27
7.99
8.49
8.83
9.19
9.54
9.73
9.91
10.18
10.47
10.03
10.04
10.06
10.12
10.14
10.18
10.18
10.21
10.25
10.29
10.30
10.31
10.33
10.37
10.40
10.40
10.42
10.45
10.48
10.52
10.55
10.55
10.57
10.61

$45.58 $123.52
123.43
49.00
50.24
127.84
53.13 133.83
134.87
57.86
138.47
60.65
63.76
144.58
145.32
64.52
153.21
67.72
70.74
157.90
158.04
73.33
75.08
157.40
163.78
78.78
164.97
80.67
167.21
82.60
85.91 172.16
175.17
88.46
91.33 178.38
183.21
95.45
184.37
98.82
184.83
101.84
187.68
107.73
114.61 189.44
119.83 186.94
127.31 190.58
198.41
136.90
198.35
145.39
190.12
154.76
184.16
163.53
175.45 186.85
189.00 189.00
189.31
203.70
183.41
219.91
172.74
235.10
255.20
170.13
267.26
168.09
171.26
280.70
172.78
292.86
170.42
299.09
171.07
304.85
169.28
312.50
322.36 167.81
166.52
335.20
168.43
317.16
168.28
317.72
167.43
317.28
168.87
321.20
168.23
321.32
167.89
321.67
168.39
323.99
166.82
322.47
167.68
325.14
168.55
328.16
167.28
326.87
167.39
327.92
167.55
330.25
166.44
329.39
166.44
331.04
167.53
335.39
165.01
332.16
165.10
332.85
337.21 166.85
165.89
335.27
166.90
337.98
166.85
339.37
165.80
338.39
165.76
339.48

1
Also includes other private industry groups shown
2
Current dollars divided by the consumer price
3

$49.13
53.08
53.80
58.28
63.34
66.75
70.47
70.49
75.30
78.78
81.19
82.32
88.26
89.72
92.34
96.56
99.23
102.97
107.53
112.19
114.49
122.51
129.51
133.33
142.44
154.71
166.46
176.80
190.79
209.32
228.90
249.27
269.34
288.62
318.00
330.26
354.08
374.03
386.37
396.01
406.31
418.40
429.27
412.23
411.64
412.46
416.94
416.75
418.40
418.40
418.61
421.28
423.95
424.36
422.71
424.56
426.21
426.40
429.52
427.22
428.45
429.68
431.32
432.55
430.44
430.20
431.83

$58.83
65.23
67.56
69.68
76.96
82.86
86.41
88.54
90.90
96.38
100.27
103.78
108.41
112.67
118.08
122.47
127.19
132.06
138.38
146.26
154.95
164.49
181.54
195.45
211.67
221.19
235.89
249.25
266.08
283.73
295.65
318.69
342.99
367.78
399.26
426.82
442.97
458.51
464.46
466.75
480.44
493.08
506.72
481.74
483.54
489.29
491.18
487.84
494.16
493.29
492.53
494.05
499.66
503.04
497.07
496.89
498.39
501.23
505.21
494.17
498.17
511.30
510.73
510.16
514.75
520.91
512.86

$33.77
36.22
38.42
39.71
42.82
43.38
45.36
47.04
48.75
50.18
52.20
54.10
56.15
57.76
58.66
60.96
62.66
64.75
66.61
68.57
70.95
74.95
78.66
82.47
87.62
91.85
96.32
102.68
108.86
114.60
121.66
130.20
138.62
147.38
158.03
163.85
171.05
174.33
174.64
176.08
178.70
183.62
189.01
180.09
180.42
180.67
182.17
182.12
183.33
185.18
183.57
185.08
186.30
185.60
187.11
187.40
186.41
186.98
189.44
187.56
188.43
190.97
189.22
189.50
191.69
190.08
189.24

7.5
2.5
5.8
8.9
4.8
5.1
1.2
5.0
4.5
3.7
2.4
4.9
2.4
2.4
4.0
3.0
3.2
4.5
3.5
3.1
5.8
6.4
4.6
6.2
7.5
6.2
6.4
5.7
7.3
7.7
7.8
8.0
6.9
8.5
4.7
5.0
4.3
2.1
1.9
2.5
3.2
4.0
3.1
2.8
2.4
4.1
3.1
3.3
4.1
2.8
4.2
4.1
3.3
3.9
4.2
3.5
4.1
4.5
3.3
3.5
4.2
3.7
3.6
3.5
3.1
3.2

1977
dollars 2
-0.1
3.6
4.7
.8
2.7
4.4
.5
5.4
3.1
.1
-.4
4.1
.7
1.4
3.0
1.7
1.8
2.7
.6
.2
1.5
.9
-1.3
1.9
4.1
-.0
-4.1
-3.1
1.5
1.2
.2
-3.1
-5.8
-1.5
-1.2
1.9
.9
-1.4
.4
-1.0
9
-.8
-.9
-1.0
-1.3
.3
_7
— .5
.1
-1.2
-.0
-.1
-.9
-.5
-.3
-1.2
-.8
-.7
-2.0
-1.6
-.9
-.9
-.7
-.9
-1.4
-1.3

in Table C-43.
index for urban wage earners and clerical workers on a 1977=100 base.
Monthly percent changes are based on data not seasonally adjusted.
Note.-See Note, Table C-43.
Source: Department of Labor, Bureau of Labor Statistics.




344

TABLE C-45.—Employment cost index, private industry, 1975-89
[Not seasonally adjusted]
Total private

Goods-producing

Service-producing

Nonmanufacturing

Manufacturing

Year and month Total Wages Bene- Total Wages Bene- Total Wages Beneand
and
and
compen- sala- fits * compen- sala- fits * compen- sala- fits 1
sation
sation
sation
ries
ries
ries

Total Wages
Total Wages
and
and
compen- sala- Bene- compen- sala- Benefits *
fits 1 sation
sation
ries
ries

Index June 1981 = 100
December:
1975
1976
1977
1978
1979
1980
1981
1982
1983 ..
1984
1985
1986
1987
1988
1989
1987: Mar
June
Sept
Dec
1988: Mar
June
Sept
Dec
1989: Mar
June
Sept
Dec
December:
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988.
1989
1987: Mar
June
Sept
Dec
1988: Mar
June
Sept
Dec
1989: Mar
June
Sept
Dec

861
94.7
104.0
110.7
117.0
122.7
127.5
131.6
136.0
142.6
149.4
132.9
133.8
135.1
136.0
138.1
139.8
141.2
142.6
144.4
146.1
147.9
149.4

9.8
9.8
6.4
5.7
4.9
3.9
3.2
3.3
4.9
4.8
3.1
3.0
3.3
3.3
3.9
4.5
4.5
4.9
4.6
4.5
4.7
4.8

65.2
69.9
74.8
80.5
87.5
95.4
103.8
110.3
115.8
120.6
125.6
129.5
133.8
139.3
145.1
130.8
131.7
133.0
133.8
135.1
136.6
137.9
139.3
140.8
142.2
143.9
145.1

'"83i2
93.0
104.3
111.7
120.0
127.9
132.4
136.9
141.7
151.3
160.6
138.1
139.3
140.3
141.7
146.1
148.2
149.7
151.3
154.0
156.5
158.7
160.6

72
7.0
77
8.7
9.0
8.8
6.3
5.0
4.1
4.1
3.1
3.3
4.1
4.2
3.2
3.0
3.3
3.3
3.3
3.7
3.7
4.1
4.2
4.1
4.4
4.2

11.8
12.2
7.1
7.4
6.6
3.5
3.4
3.5
6.8
6.1
2.9
3.3
3.1
3.5
5.8
6.4
6.7
6.8
5.4
5.6
6.0
6.1

86T
94.7
104.1
110.5
115.9
121.2
125.3
129.2
133.2
139.0
145.0
129.9
130.8
131.9
133.2
135.6
137.1
137.9
139.0
140.4
142.0
143.6
145.0

9.8
10.0
6.1
4.9
4.6
3.4
3.1
3.1
4.4
4.3
2.5
2.3
2.6
3.1
4.4
4.8
4.5
4.4
3.5
3.6
4.1
4.3

64.5
69.3
74.6
80.8
87.5
95.7
104.0
109.9
114.3
118.7
122.9
126.8
130.8
134.9
140.1
127.5
128.3
129.6
130.8
132.0
133.2
133.9
134.9
136.1
137.4
138.8
140.1

75
76
83
83
9.3
8.7
5.7
4.0
3.8
3.5
3.2
3.2
3.1
3.9
2.7
2.3
2.8
3.2
3.5
3.8
3.3
3.1
3.1
3.2
3.7
3.9

"'sis'
92.4
104.2
111.8
119.6
127.0
130.8
134.9
138,8
148.6
156.7
135.4
136.5
137.4
138.8
144.1
146.1
147.3
148.6
150.7
152.7
155.0
156.7
Percent

10.9
12.8
7.3
7.0
6.2
3.0
3.1
2.9
7.1
5.5
2.1
2.3
2.4
2.9
6.4
7.0
7.2
7.1
4.6
4.5
5.2
5.5

86"3
94.7
103.9
110.8
117.9
123.9
129.4
133.5
138.4
145.5
152.9
135.3
136.3
137.7
138.4
140.2
142.1
143.8
145.5
147.7
149.5
151.5
152.9
change

9.7
9.7
6.6
6.4
5.1
4.4
3.2
3.7
5.1
5.1
3.4
3.6
3.8
3.7
3.6
4.3
4.4
5.1
5.3
5.2
5.4
5.1

65.7
70.3
74.9
80.3
87.5 '"sli"
95.2 93.5
103.7 104.3
110.6 111.5
117.0 120.4
122.1 128.8
127.8 133.9
131.6 138.9
136.2 144.4
142.6 153.9
149.0 164.2
133.4 140.6
134.3 141.9
135.7 143.1
136.2 144.4
137.5 148.1
139.3 150.1
141.0 151.9
142.6 153.9
144.5 157.2
145.8 160.1
147.8 162.3
149.0 164.2
from 12 months
70
65
7.3
90
8.7
9.0
6.7
5.8
4.4
4.7
3.0
3.5
4.7
4.5
3.4
3.4
3.7
3.5
3.1
3.7
3.9
4.7
5.1
4.7
4.8
4.5

12.5
11.6
6.9
8.0
7.0
4.0
3.7
4.0
6.6
6.7
3.5
4.1
3.8
4.0
5.3
5.8
6.1
6.6
6.1
6.7
6.8
6.7

863'
94.7
104.0
110.4
116.0
122.0
126.0
130.1
134.1
140.1
146.4
130.7
131.5
132.7
134.1
136.8
138.1
139.0
140.1
141.9
143.5
145.1
146.4

64.2
69.0
74.4
80.6
87.5
95.7
104.0
109.8
114.5
119.5
123.8
127.9
132.2
136.2
141.5
128.7
129.5
130.8
132.2
133.3
134.4
135.1
136.2
137.4
138.8
140.0
141.5

"sis"
92.4
104.1
111.7
119.5
127.5
131.0
134.9
138.4
149.0
157.8
135.0
136.0
136.9
138.4
144.5
146.4
147.8
149.0
152.3
154.2
156.6
157.8

861'
94.7
103.9
110.8
117.5
123.1
128.4
132.4
137.1
143.9
151.0
134.1
135.1
136.4
137.1
138.9
140.8
142.4
143.9
145.9
147.6
149.5
151.0

65.7
70.4
74.9
80.5
87.5
95.2
103.8
110.5
116.5
121.2
126.6
130.4
134.8
140.8
147.0
131.9
132.8
134.2
134.8
136.0
137.8
139.4
140.8
142.6
143.9
145.9
147.0

"'82"9
93.4
104.4
111.6
120.4
128.2
133.3
138.3
143.8
152.9
162.4
140.1
141.4
142.6
143.8
147.2
149.3
150.9
152.9
155.2
158.0
160.2
162.4

9.8
9.7
6.6
6.0
4.8
4.3
3.1
3.5
5.0
4.9
3.4
3.4
3.6
3.5
3.6
4.2
4.4
5.0
5.0
4.8
5.0
4.9

7.1
6.5
74
8.8
8.8
9.0
6.5
5.4
4.0
4.5
3.0
3.4
4.5
4.4
3.3
3.2
3.5
3.4
3.1
3.8
3.9
4.5
4.9
4.4
4.7
4.4

12.7
11.8
6.9
7.9
6.5
4.0
3.8
4.0
6.3
6.2
3.7
4.1
3.9
4.0
5.1
5.6
5.8
6.3
5.4
5.8
6.2
6.2

earlier

9.8
9.8
6.2
5.1
5.2
3.3
3.3
3.1
4.5
4.5
2.3
2.2
2.6
3.1
4.7
5.0
4.7
4.5
3.7
3.9
4.4
4.5

75
7.8
83
86
9.4
8.7
5.6
4.3
4.4
3.6
3.3
3.4
3.0
3.9
2.7
2.4
2.8
3.4
3.6
3.8
3.3
3.0
3.1
3.3
3.6
3.9

10.7
12.7
7.3
7.0
6.7
2.7
3.0
2.6
7.7
5.9
1.5
1.9
2.0
2.6
7.0
7.6
8.0
7.7
5.4
5.3
6.0
5.9

1
Employer costs for employee benefits.
Note.—The employment cost index is a measure of the change in the cost of labor, free from the influence of employment shifts
among occupations and industries.
Data exclude farm and household workers.
Through December 1981, percent changes are based on unrounded data; thereafter changes are based on indexes as published.
Source: Department of Labor, Bureau of Labor Statistics.




345

TABLE C-46.—Productivity and related data, business sector, 1947-89
[1977=100; quarterly data seasonally adjusted]
Year or
quarter

Output per hour
of all persons

Output1

Hours of 2all
persons

Nonfarm Busibusiness ness
sector sector

Business
sector

Nonfarm
business
sector

1947
1948
1949

43.8
46.0
46.4

50.3
52.2
53.0

36.2
38.3
37.4

35.2
37.2
36.4

1950
1951
1952
1953
1954
1955
1956
1957
1958
1959

50.3
52.4
54.1
56.1
57.0
58.7
59.5
61.1
62.9
65.0

56.5
58.2
59.5
60.8
61.7
63.5
63.9
65.1
66.6
68.8

41.0
43.9
45.3
47.4
46.5
49.7
51.1
51.7
50.7
54.4

1960
1961
1962
1963
1964
1965
1966
1967
1968
1969

66.1
68.4
70.9
73.8
77.0
79.4
81.6
84.1
86.6
86.8

69.5
71.7
74.1
76.7
79.8
81.8
83.6
85.8
88.3
88.0

1970
1971
1972
1973
1974
1975
1976
1977
1978
1979

87.6
90.4
93.1
95.2
93.4
95.4
98.2
100.0
100.9
99.7

1980
1981
1982
1983
1984
1985
1986
1987
1988

Compensation
per hour3

Real compensation
per hour4

Unit labor costs

Implicit price
deflator5

Nonfarm
business
sector

Business
sector

Nonfarm
business
sector

Business
sector

Nonfarm
business
sector

Business
sector

Nonfarm
business
sector

Business
sector

Nonfarm
business
sector

82.7
83.4
80.6

70.0
71.3
68.5

16.2
17.6
17.9

17.7
19.2
19.7

44.0
44.2
45.5

48.0
48.2
50.3

37.0
38.2
38.5

35.1
36.7
37.2

35.5
38.0
37.8

34.0
36.4
36.9

39.9
43.0
44.4
46.4
45.5
48.7
50.2
50.9
49.8
53.7

81.4
83.7
83.7
84.4
81.6
84.7
85.9
84.6
80.7
83.7

70.6
73.8
74.5
76.3
73.7
76.7
78.6
78.1
74.8
78.0

19.2
21.1
22.4
24.0
24.7
25.4
27.1
28.8
30.2
31.5

20.9
22.8
24.1
25.4
26.3
27.2
28.9
30.6
31.8
33.1

48.3
49.2
51.3
54.4
55.7
57.3
60.3
62.2
63.3
65.6

52.7
53.1
55.0
57.7
59.2
61.5
64.4
65.9
66.6
68.9

38.1
40.2
41.4
42.7
43.4
43.2
45.5
47.2
48.0
48.4

37.1
39.1
40.4
41.8
42.6
42.8
45.2
46.9
47.7
48.1

38.4
40.8
41.4
41.7
42.2
43.2
44.6
46.2
46.9
47.8

37.5
39.6
40.4
41.1
41.8
43.1
44.5
46.1
46.6
47.8

55.4
56.5
59.4
62.1
65.9
70.0
73.6
75.6
78.9
81.1

54.6
55.7
58.7
61.5
65.4
69.5
73.4
75.3
78.8
80.9

83.8
82.5
83.8
84.2
85.5
88.2
90.2
89.9
91.2
93.4

78.5
77.6
79.3
80.1
81.9
85.0
87.8
87.8
89.3
91.9

32.9
34.1
35.7
37.1
39.0
40.6
43.4
45.9
49.6
53.2

34.5
35.7
37.1
38.5
40.3
41.6
44.1
46.7
50.4
53.8

67.3
69.2
71.7
73.5
76.3
78.0
81.2
83.3
86.5
87.9

70.7
72.3
74.5
76.2
78.7
80.1
82.5
84.7
87.7
88.8

49.7
49.9
50.4
50.3
50.7
51.1
53.2
54.6
57.3
61.3

49.7
49.8
50.2
50.1
50.5
50.9
52.7
54.4
57.0
61.1

48.5
48.8
49.7
50.2
50.7
51.9
53.6
54.9
57.5
60.4

48.5
48.8
49.7
50.2
50.8
51.9
53.5
55.0
57.5
60.4

88.4
91.0
93.8
95.8
93.9
95.7
98.3
100.0
100.9
99.4

80.3
82.5
87.7
92.9
91.3
89.4
94.5
100.0
105.8
107.9

80.0
82.2
87.5
92.9
91.2
89.1
94.4
100.0
106.0
107.9

91.7
91.3
94.2
97.6
97.7
93.7
96.3
100.0
104.9
108.2

90.5
90.3
93.3
97.0
97.1
93.1
96.0
100.0
105.0
108.6

57.2
60.9
64.7
70.3
77.3
84.9
92.6
100.0
108.6
119.3

57.6
61.3
65.3
70.7
77.7
85.3
92.7
100.0
108.6
119.0

89.4
91.1
93.9
96.0
95.0
95.6
98.6
100.0
100.9
99.5

90.0
91.8
94.6
96.4
95.5
96.1
98.7
100.0
101.0
99.3

65.3
67.4
69.5
73.8
82.7
89.0
94.3
100.0
107.7
119.6

65.2
67.4
69.6
73.8
82.7
89.1
94.2
100.0
107.7
119.8

63.2
66.4
69.0
73.4
80.5
88.7
94.0
100.0
107.3
117.0

63.4
66.6
69.0
72.3
79.7
88.3
93.8
100.0
107.0
116.5

99.4
101.0
100.2
102.6
105.2
107.3
109.8
111.1
113.0

99.0
100.0
99.1
102.0
104.2
105.6
107.7
108.9
111.1

106.7
108.9
105.5
109.9
119.2
124.2
128.0
133.4
140.0

106.7
108.5
104.9
110.1
119.2
123.9
127.6
133.1
140.3

107.3
107.9
105.3
107.2
113.3
115.7
116.6
120.1
123.9

107.8
108.5
105.9
108.0
114.4
117.4
118.4
122.2
126.3

131.8
144.1
154.9
160.8
167.4
174.8
183.8
191.0
200.2

131.6
144.0
154.7
160.8
167.2
174.0
182.9
189.8
198.7

97.0
96.1
97.3
97.8
97.6
98.4
101.7
101.9
102.5

96.7
96.0
97.1
97.8
97.5
98.0
101.1
101.2
101.8

132.6
142.7
154.5
156.7
159.1
162.8
167.5
171.9
177.1

132.9
144.0
156.1
157.6
160.4
164.9
169.8
174.2
178.8

127.6
139.8
148.1
153.0
158.2
162.2
165.6
170.0
174.9

127.8
140.3
149.2
154.3
159.0
163.8
167.6
172.0
176.5

1982: IV
1983: IV......
1984: IV
1985: IV
1986: IV

100.9
103.5
105.7
108.3
109.8

99.5
103.0
104.5
106.2
107.6

105.0
113.6
120.8
125.9
128.9

104.2
114.1
120.7
125.5
128.4

104.1
109.7
114.3
116.2
117.4

104.7
110.8
115.5
118.1
119.3

158.2
163.2
169.9
178.6
187.4

158.0
162.9
169.6
177.5
186.4

97.9
97.8
97.8
99.3
102.8

97.8
97.6
97.6
98.7
102.3

156.8
157.7
160.7
164.9
170.6

158.7
158.2
162.3
167.1
173.2

150.2
155.2
159.8
163.7
167.1

151.4
156.2
161.0
165.5
169.2

1987:1
II
Ill
IV

110.0
110.7
111.7
112.5

107.7
108.6
109.5
110.2

130.4
132.2
134.4
136.7

130.0
132.0
134.1
136.4

118.6
119.5
120.3
121.5

120.7
121.5
122.4
123.7

188.3
189.5
191.8
195,1

187.1
188.3
190.5
193.8

101.9
101.4
101.7
102.5

101.3
100.7
101.0
101.8

171.2
171.3
171.6
173.5

173.6
173.4
173.9
175.8

168.2
169.6
170.7
171.3

170.3
171.4
172.6
173.4

1988:1
II
Ill
IV

113.2
112.6
113.4
113.5

111.0
110.5
111.5
112.0

138.2
139.3
140.7
141.9

138.0
139.5
141.1
142.8

122.1
123.8
124.0
125.0

124.3
126.2
126.6
127.5

196.4
199.1
201.9
204.5

195.0
197.5
200.2
203.0

102.3
102.5
102.8
103.0

101.5
101.7
101.9
102.3

173.5
176.9
178.0
180.2

175.7
178.7
179.6
181.3

171.9
174.1
175.8
177.9

173.8
175.6
177.0
179.6

1989:1
II
Ill

113.8
114.2
114.7

111.6
111.9
112.6

143.6
144.4
145.6

143.6
144.6
145.9

126.2
126.4
127.0

128.6
129.2
129.6

206.9
210.4
212.8

205.5
208.3
211.0

102.8
102.9
103.5

102.1
101.9
102.7

181.9
184.1
185.5

184.1
186.1
187.4

179.4
181.4
182.4

180.8
182.8
184.1

Business
sector

'ross domestic product originating in the sector in 1982 dollars.
2
Hours at work of all persons engaged in the sector, including hours of proprietors and unpaid family workers. Estimates based
primarily on establishment data.
3
Wages and salaries of employees plus employers' contributions for social insurance and private benefit plans. Also includes an
estimate of wages, salaries, and supplemental payments for the self-employed.
4
Hourly compensation divided by the consumer price index for all urban consumers.
5
Current dollarr gros: domestic product divided by constant dollar gross domestic product.
gross
Note.—In 1989, hours of labor input were redefined as hours at the work site rather than hours paid and all historical data relating
to labor input were revised.
Source: Department of Labor, Bureau of Labor Statistics.




346

TABLE C-47.—Changes in productivity and related data, business sector, 1948-89
[Percent change from preceding period; quarterly data at seasonally adjusted annual rates]

Year or
quarter

Output1

Output per hour
of all persons
Business
sector

Nonfarm
business
sector

Business
sector

Nonfarm
business
sector

Business
sector

Implicit price
deflator5

Compensation per
hour 3

Real compensation
per hour4

Unit labor costs

Nonfarm
business
sector

Business
sector

Nonfarm
business
sector

Business
sector

Nonfarm
business
sector

Business
sector

Nonfarm
business
sector

Business
sector

Nonfarm
business
sector

Hours of 2all
persons

1948
1949

5.1
1.0

3.8
1.6

5.9
-2.3

5.6
-2.3

0.8
-3.3

1.8
-3.8

8.5
1.7

8.5
3.0

0.4
2.9

0.4
4.3

3.3
.7

4.6
1.3

7.2
-.6

7.2
1.3

1950
1951
1952
1953
1954
1955
1956
1957
1958
1959

8.5
4.2
3.2
3.7
1.5
3.1
1.4
2.7
2.9
3.3

6.5
3.1
2.2
2.2
1.4
3.0
.6
1.9
2.3
3.2

9.5
7.1
3.2
4.6
-1.8
6.9
2.8
1.1
-1.8
7.3

9.7
7.7
3.2
4.6
-2.0
7.1
3.1
1.3
-2.0
7.7

1.0
2.8
.0
.8
-3.3
3.7
1.5
-1.5
-4.6
3.8

3.0
4.5
1.0
2.4
-3.4
4.0
2.5
-.6
-4.2
4.3

7.4
9.9
6.3
6.8
3.2
2.5
6.7
6.6
4.6
4.4

6.1
8.8
5.6
5.8
3.2
3.6
6.1
5.8
4.0
4.1

6.1
1.9
4.3
6.0
2.4
2.9
5.1
3.2
1.7
3.7

4.8
.8
3.6
5.0
2.5
4.0
4.6
2.4
1.1
3.4

-1.0
5.5
3.0
3.0
1.7

-.3
5.5
3.3
3.5
1.8
.6
5.5
3.8
1.7
.9

1.5
6.3
1.3
.7
1.2
2.6
3.2
3.5
1.6
2.0

1.8
5.6
2.0
1.8
1.5
3.2
3.3
3.6
1.2
2.5

1960
1961
1962
1963
1964 . ...
1965
1966
1967
1968
1969

1.7
3.5
3.6
4.0
4.4
3.0
2.9
3.0
3.0
.3

1.1
3.1
3.3
3.6
3.9
2.6
2.2
2.6
2.9
-.3

1.8
1.9
5.2
4.6
6.0
6.3
5.2
2.7
4.4
2.7

1.7
2.0
5.5
4.7
6.3
6.4
5.6
2.5
4.7
2.7

4.3
3.9
4.7
3.8
5.2
3.9
7.0
5.7
8.2
7.2

4.4
3.3
4.1
3.5
4.6
3.4
6.0
5.8
7.9
6.8

2.6
2.8
3.7
2.4
3.9
2.2
4.1
2.5
3.8
1.7

2.6
2.2
3.1
2.2
3.3
1.7
3.0
2.7
3.6
1.3

2.6
.3
1.0
2
.8
.8
4.0
2.7
5.1
6.9

3.3

1.4

'.B

~L4
2.4

.6
-1.1
2.1
1.1
2.3
3.7
3.4
-.0
1.7
3.0

.7
.8
3.7
3.2
4.8
7.1

L9
.9
1.0
2.3
3.3
2.5
4.6
5.1

1.4
.6
2.0
.9
1.2
2.0
3.1
2.9
4.6
5.0

1970
1971
1972
1973
1974
1975
1976
1977
1978
1979

.9
3.2
3.0
2.3
-1.9
2.1
3.0
1.8
.9
-1.1

.5
2.9
3.0
2.1
-1.9
1.9
2.8
1.7
.9
-1.5

-.9
2.7
6.3
6.0
-1.8
-2.1
5.8
5.8
5.8
2.0

-1.1
2.7
6.4
6.2
-1.8
-2.3
6.0
5.9
6.0
1.9

-1.8
-.4
3.2
3.6
.1
-4.1
2.7
3.9
4.9
3.1

-1.5
-.2
3.3
4.0
.1
-4.1
3.2
4.1
5.0
3.4

7.5
6.4
6.3
8.6
9.9
9.9
9.1
8.0
8.6
9.8

7.2
6.4
6.4
8.2
9.9
9.8
8.6
7.9
8.6
9.5

1.7
1.9
3.0
2.3
-1.1
.7
3.1
1.4
.9
-1.4

1.4
1.9
3.1
1.9
-1.0
.6
2.7
1.3
1.0
-1.6

6.5
3.1
3.2
6.2
12.0
7.7
5.9
6.0
7.7
11.1

6.7
3.4
3.3
6.0
12.1
7.8
5.7
6.1
7.7
11.2

4.7
4.9
4.0
6.4
9.6
10.3
5.9
6.4
7.3
9.0

4.9
5.0
3.6
4.8
10.2
10.8
6.3
6.6
7.0
8.9

1980
1981
1982
1983
1984
1985
1986
1987
1988

-.3
1.5

~2A
2.6
2.0
2.3
1.2
1.7

-.4
1.1
_9
10
2.1
1.3
2.0
1.1
2.0

-1.1
2.1
-3.1
4.2
8.4
4.2
3.1
4.2
4.9

-1.2
1.7
-3.3
5.0
8.3
3.9
3.0
4.4
5.4

-.8
.6
-2.4
1.8
5.7
2.2
.8
3.0
3.2

-.7
.6
-2.4
2.0
6.0
2.6
.9
3.2
3.4

10.5
9.3
7.5
3.8
4.1
4.4
5.2
3.9
4.8

10.5
9.5
7.4
4.0
3.9
4.1
5.1
3.7
4.7

-2.6
-.9
1.2
.6

-2.6
-.7
1.1
.7
-.4
.5
3.2

!e

'.5

10.9
7.7
8.3
1.4
1.5
2.3
2.8
2.6
3.0

11.0
8.3
8.4
1.0
1.8
2.8
3.0
2.6
2.7

9.0
9.6
5.9
3.3
3.3
2.5
2.1
2.6
2.9

9.7
9.7
6.3
3.5
3.0
3.0
2.3
2.6
2.7

1982: IV
1983: IV
1984: IV
1985: IV
1986: IV

2.6
3.3
1.5
1.5
.8

2.0
1.6
.9
.8
.4

10.4
3.5
3.6
4.0

-1.2
9.8
3.1
3.5
3.7

-3.0
6.8
2.0
2.1
3.2

-3.1
8.1
2.2
2.7
3.3

4.1
5.7
3.5
6.3
5.1

4.6
4.4
3.5
5.8
5.1

2.8
1.6
.0
2.1
2.2

3.3
1.6
2.2

1.5
2.3
2.0
4.8
4.2

2.6
2.8
2.6
5.0
4.7

2.4
4.8
2.7
2.6
1.0

3.0
3.1
3.3
2.1
1.0

1987:1
II
Ill
IV

.5
2.6
3.8
2.8

.4
3.2
3.5
2.5

4.7
5.6
6.7
7.1

5.2
6.1
6.6
7.0

4.2
2.9
2.8
4.2

4.8
2.8
3.0
4.3

1.9
2.7
4.8
7.2

1.5
2.6
4.7
7.1

-3.3
-2.0
1.0
3.4

-3.8
-2.1
1.0
3.4

1.4
!9
4.3

1.1
-.6
1.2
4.5

2.5
3.4
2.6
1.4

2.8
2.5
3.0
1.7

2.5
-2.1
3.1

2.8
-1.6
3.3
1.9

4.4
3.3
4.0
3.4

4.8
4.4
4.6
4.8

1.9
5.5
.9
3.2

2.0
6.1
1.2
2.8

2.6
5.7
5.8
5.2

2.5
5.4
5.4
5.9

-1.0
1.1
1.0

-1.1
.8
.7
1.4

s!o

~i.\

2.0
3.8

1.5
5.1
4.1
4.8

1.0
4.3
3.2
5.9

1.1
1.6
1.7

-1.3
1.1
2.5

4.8
2.3
3.6

2.4
2.8
3.7

3.7
.6
1.9

3.7
1.7
1.3

4.8
6.8
4.7

4.9
5.6
5.3

-.6
.4
2.3

-.5
-.7
2.8

3.7
5.1
3.0

6.2
4.5
2.8

3.3
4.6
2.4

2.8
4.4
2.9

1988:1

II
Ill
IV

1989:1
II
Ill

-lie

1.5
.5
1.5
3.1
2.3

1
Output
2

~l8
3.3

io

~5.3
3.8
1.6
1.0

2.6
5.0

refers to gross domestic product originating in the sector in 1982 dollars.
Hours at work of all persons engaged in the sector, including hours of proprietors and unpaid family workers. Estimates based
primarily on establishment data.
3
Wages and salaries of employees plus employers' contributions for social insurance and private benefit plans. Also includes an
estimate of wages, salaries, and supplemental payments for the self-employed.
4
Hourly compensation divided by the consumer price index for all urban consumers.
5
Current dollar gross domestic product divided by constant dollar gross domestic product.
Note.—Percent changes are based on original data and therefore may differ slightly from percent changes based on indexes in Table
C-46.
See Note, Table C-46.
Source: Department of Labor, Bureau of Labor Statistics.




347

PRODUCTION AND BUSINESS ACTIVITY
TABLE C-48.—Industrial production indexes, major industry divisions, 1939-89
[1977=100; monthly data seasonally adjusted]
Year or month

1977 proportion

1939
1940
1941
1942
1943
1944
1945
1946
1947
1948
1949
1950
1951
1952
1953
1954
1955
1956
1957
1958
1959
I960
1961
1962
1963
1964
1965
1966
1967
1968 ...
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978 ..
1979
1980
1981
1982
1983
1984
1985
1986
1987 . .
1988
1989 "
1988: Jan
Feb
Mar.
Apr

.

.

.. .

Aug
Sept

oct : : : : :::::
Nov

May

June
July
Aug
Sept
Oct
Nov ".
Dec p

Total

: : : :.:: r:

160
184
23.3
267
32.4
349
29.9
258
290
30.2
286
331
35.9
372
40.4
382
43.0
449
45.5
426
477
48.8
491
532
56.3
601
66 1
720
73.5
776
812
785
796
873
944
930
848
926
1000
1065
1107
1086
1110
1031
1092
1214
123.7
1251
1298
1372
1418
1344
1344
1347
1354
1361
1365
1380
1385
1386
1394
1399
1404
1408
1405
1407
1417
1416
1420
1419
1425
1423
1418
142.3
1428

Source: Board of Governors of the Federal Reserve System.




348

Durable

84.21
158
186
23.8
277
34.5
373
31.2
259
289
30.0
283
330
35.6
371
40.4
378
42.6
444
44.9
417
470
48.0
481
524
55.5
593
657
717
73.1
772
806
770
782
864
940
926
834
919
1000
107 1
111.5
1082
1105
1022
1102
1234
126.4
1291
1347
1427
1482
1394
1395
1400
1408
1418
142 1
1436
1440
1444
1453
1458
1463
1472
1468
1470
1480
1481
1487
1485
1492
1488
1480
148.6
1488

100.00

May
June
July.

Dec
1989: Jan
Feb
Mar
Apr

Manufacturing

Total
industrial
production

49.10
136
181
24.2
307
41.8
461
349
244
290
30.3
275
335
37.7
400
452
399
45.6
471
474
415
477
485
476
528
56.3
603
686
762
77.0
808
840
776
773
863
963
943
826
91 1
1000
1082
1139
1091
111 1
999
1077
1242
127.6
1284
1331
1419
1466
1379
1384
1388
1397
1415
1417
1429
1432
1438
1446
1452
1457
1462
1459
1458
1469
1471
1474
1468
1478
1472
1450
1457
1462

Min

Nondurable
35.11
179
188
22.7
237
254
264
263
271
282
29.2
287
319
33.0
336
350
352
391
41 1
418
421
463
474
488
518
54.6
582
621
660
68.1
725
763
763
794
865
908
902
845
93 1
1000
1055
1082
1070
1097
1055
1137
1223
124.6
1301
1368
1439
1505
1414
141.1
1417
1423
1421
1426
1446
1451
1453
1463
1467
1471
1485
1481
I486
149-6
1495
1505
1508
151 1
1511
1522
1527
1526

lltili

ing

ties

9.83
376
418
44.4
457
46.8
502
49.2
483
546
57.4
509
569
62.4
619
63.5
623
695
731
732
671
702
716
721
741
77.1
802
831
876
89.3
927
96.4
989
964
98.4
99.3
98.8
966
974
100.0
1036
106.4
1124
1175
109.3
102.9
111 1
108.9
100.4
1007
103.4
1026
1033
101.5
1027
104.7
1026
1030
1043
103.8
1037
103.1
1047
1049
103.0
1009
1015
1024
102.0
1015
1021
1024
103.5
1042
104.4
1032

5.96
69
76
8.6
97
10.7
114
116
120
130
14.5
155
176
20.1
218
23.6
254
284
312
333
349
384
411
434
466
49.8
541
574
618
64.9
702
76.4
811
85.0
90.4
94.0
92.8
937
974
100.0
1031
105.9
107.3
1071
104.8
105.2
110.7
111.1
108.5
1103
114.3
1159
115.2
115.6
1133
111.0
1116
1132
1144
117.8
1130
113.9
1137
1154
114.0
1165
1175
1171
115.6
1143
114.0
1133
114.5
1159
115.5
1227

TABLE C-49.—Industrial production indexes, market groupings, 1947-89
[1977=100; monthly data seasonally adjusted]
Final products
Year or month

1977 proportion

1947
1948
1949
1950
1951
1952
1953
1954
1955
1956....
1957
1958...
1959
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988....
1989 p
1988: Jan
Feb
Mar
Apr
May
June
July
Aug
Sept

Oct.:::::::..::: : : : : :
Nov

Dec
1989- Jan
Feb
Mar
Apr
May
June
July
Aug

sept::::::.. ::: : : : :
Oct
Nov.
Dec p

Total
industrial
production

Materials

Consumer goods
Total

AutoTotal ! motive
products

100.00

44.77

25.52

29.0
30.2
28.6
33.1
35.9
37.2
40.4
38.2
43.0
44.9
45.5
42.6
47.7
48.8
491
53.2
56.3
60.1
66.1
72.0
73.5
77.6
81.2
78.5
79.6
87.3
94.4
93.0
84.8
92.6
100.0
106.5
110.7
108.6
111.0
103.1
109.2
121.4
123.7
125.1
129.8
137.2
141.8
134.4
134.4
134.7
135.4
136.1
136.5
138.0
138.5
138.6
139.4
139.9
140.4
140.8
140.5
140.7
141.7
141.6
142.0
141.9
142.5
142.3
141.8
142.3
142.8

29.0
30.1
29.1
32.9
35.5
38.1
40.7
38.5
41.6
44.1
45.4
43.3
47.5
49.1
495
53.7
56.7
59.9
65.8
72.1
75.0
78.6
81.1
78.2
78.9
85.6
92.0
91.7
86.3
92.4
100.0
106.9
111.0
112.2
115.2
109.5
114.7
127.3
131.0
132.5
136.8
144.3
150.2
141.1
141.6
141.8
142.5
143.5
144.0
145.0
145.8
145.8
146.4
146.8
147.7
148.2
148.6
148.9
150.2
150.4
151.2
150.2
151.1
150.8
149.4
150.1
151.6

29.9
30.8
30.6
35.0
34.6
35.4
37.5
37.3
41.6
43.1
44.2
43.8
48.0
49.8
509
54.3
57.3
60.5
65.3
68.6
70.3
74.5
77.3
76.4
80.8
87.3
91.2
88.4
84.9
93.3
100.0
104.3
103.9
102.7
104.1
101.4
109.3
118.0
119.8
124.0
127.8
133.9
139.4
131.2
131.3
131.2
131.9
132.7
133.0
134.2
135.0
134.8
136.4
136.8
138.2
138.5
138.7
138.4
139.5
139.2
139.9
138.7
139.3
139.0
139.9
139.8
140.6

Equipment

2
Home
goods Total

2.98
25.8
27.0
26.7
33.6
29.8
26.8
33.9
31.5
41.9
34.5
36.1
28.7
36.0
41.2
376
45.6
49.9
52.3
64.4
64.2
56.4
67.2
67.5
56.8
72.4
78.1
86.2
74.5
70.2
87.1
100.0
102.4
94.9
76.1
78.8
78.1
95.1
109.4
114.1
115.3
118.5
124.9
125.5
118.7
117.6
120.6
121.9
127.1
127.1
124.4
124.2
126.4
128.9
129.5
134.5
132.5
131.6
128.9
131.7
128.6
125.6
120.2
122.3
120.6
118.9
119.3
121.9

3.91
26.1
27.2
25.2
34.7
29.9
29.9
33.9
31.3
36.9
38.8
38.0
35.8
41.1
41.4
427
46.4
50.0
54.6
61.9
68.2
69.1
74.0
78.9
76.5
81.0
92.7
98.1
90.7
79.9
89.5
100.0
104.7
103.7
97.7
98.1
86.5
101.1
114.3
111.2
115.8
121.6
125.6
132.6
124.0
122.8
120.2
124.3
124.4
123.9
125.9
126.8
126.2
129.7
128.9
130.0
130.7
131.6
131.1
132.6
133.3
134.8
132.7
133.5
133.4
134.2
132.5
132.1

1
Includes clothing and consumer
2
Two components—oil and gas
3

19.25
25.5
26.8
24.0
26.0
36.1
43.3
47.0
41.1
42.0
46.1
48.0
42.9
47.2
48.4
478
53.2
56.3
59.6
67.3
78.4
83.4
85.8
88.1
81.8
76.6
83.8
93.6
96.6
88.5
91.5
100.0
110.3
120.4
124.7
129.9
120.2
121.7
139.6
145.8
143.6
148.9
158.2
164.5
154.3
155.3
155.9
156.5
157.7
158.5
159.4
160.1
160.4
159.7
159.9
160.4
161.1
161.6
162.8
164.3
165.4
166.1
165.5
166.8
166.5
162.0
163.7
166.1

Business

Defense
and
space

14.34
25.9
27.0
23.6
25.2
30.8
34.9
36.3
31.9
34.6
40.1
41.7
35.2
39.5
40.6
394
42.8
44.9
50.3
57.6
66.7
68.0
71.0
75.6
72.9
69.3
79.0
92.4
96.5
86.1
89.3
100.0
112.2
124.7
125.1
127.6
113.6
115.4
134.2
140.2
139.5
144.5
157.6
167.8
151.2
152.4
153.3
154.6
156.9
158.1
159.3
160.2
160.8
160.2
161.2
162.6
163.8
165.0
166.3
167.8
169.1
169.6
168.5
169.9
169.6
165.2
167.2
169.9

3.67
15.2
17.8
18.6
21.9
53.8
75.7
90.6
79.8
73.1
71.4
74.6
74.9
78.9
81.1
824
95.4
102.9
99.6
110.3
129.6
147.8
148.1
141.0
119.4
107.3
104.3
101.9
100.4
98.5
100.1
100.0
101.2
105.6
115.4
119.8
133.0
143.1
156.4
171.4
182.0
188.9
185.8
180.0
190.6
191.0
189.9
187.9
185.5
184.6
184.9
184.9
184.5
184.0
182.2
180.5
180.0
179.3
178.7
179.9
180.7
181.1
182.0
182.7
182.1
176.0
176.9
179.6

Intermediate
Nonprod- Total 3 Dura- durable
ble
ucts
goods goods

12.94 42.28 20.50
29.9
28.8
28.5
30.0
29.3
31.6
27.3
29.9
26.3
32.7
34.8
33.1
36.2
36.5
37.6
36.7
38.4
36.3
38.8
40.8
44.9
37.7
38.7
38.7
47.4
44.6
43.9
45.7
47.6
45.9
45.7
45.9
47.5
44.9
41.1
40.0
47.4
47.7
49.6
48.3
49.9
48.1
509 48 1 471
52.4
52.4
54.0
57.0
55.8
55.9
60.7
60.3
60.9
67.2
64.6
69.8
73.2
68.6
76.9
71.4
72.5
74.2
77.3
75.5
78.6
79.6
81.9
82.7
78.4
79.0
75.1
80.2
75.4
80.8
88.4
90.2
85.2
96.8
97.4
96.0
94.8
92.6
94.6
83.2
78.8
83.6
92.1
93.0
90.8
100.0 100.0 100.0
106.9 105.9 108.8
110.8 110.3 114.4
106.9 105.3 106.1
107.3 107.7 109.7
96.7
101.7
94.2
111.2 102.8 103.7
124.7 114.2 121.5
129.3 114.3 121.7
136.2 113.8 120.0
143.4 118.2 125.0
151.5 125.2 135.4
157.5 128.1 139.2
148.1 123.0 131.8
149.4 122.1 131.4
149.9 122.5 131.3
149.6 123.6 132.7
150.4 123.9 134.8
150.0 124.5 134.9
151.6 126.4 136.8
152.3 126.5 136.6
152.9 126.5 137.8
154.0 127.5 138.9
154.2 128.3 139.8
155.0 128.3 139.0
156.6 128.1 139.4
155.1 127.4 138.6
156.1 127.3 137.9
156.5 128.2 139.0
156.3 127.9 138.7
157.0 127.7 139.4
157.5 128.3 139.9
157.5 128.8 140.9
157.8 128.6 140.4
158.9 128.6 139.2
160.1 128.6 139.0
160.5 128.2 137.7

10.09

29.1
33.3
34.8
34.7
34.5
39.4
40.1
417
45.2
47.9
52.1
57.2
61.8
62.9
69.1
74.8
75.2
78.4
86.4
92.7
93.2
82.9
93.9
100.0
105.6
109.3
103.4
107.1
96.6
106.2
111.4
112.1
117.5
125.9
132.0
137.5
129.9
128.1
130.1
131.1
130.1
130.1
132.8
133.1
132.6
134.7
135.1
136.3
137.1
135.9
136.0
137.1
136.8
137.3
138.5
138.3
136.7
138.5
138.6
138.7

staples, not shown separately.
well drilling and manufactured homes—are included in total equipment, but not in detail shown.
Includes energy materials, not shown separately.
Source: Board of Governors of the Federal Reserve System.




349

TABLE C-50.—Industrial production indexes, selected manufactures, 1947-89
[1977=100; monthly data seasonally adjusted]
Durable manufactures
Year or month

Primary
metals
Total

1977 proportion...

5.33
57.8
60.1
50.5
63.6
69.2
63.2
71.6
57.9
75.3
74.8
71.6
56.8
66.4
66.1
64.9
69.6
75.1
84.7
93.2
98.9
91.4
94.7
101.9
94.8
89.9
100.7
114.3
110.7
88.2
98.7
100.0
107.0
108.5
90.4
95.0
65.8
73.0
82.3
80.4
75.1
81.3
89.2
88.6
86.5
86.4
85.1
85.3
89.2
87.5
91.5
90.8
93.1
94.2
92.7
90.0
93.2
91.1
88.4
90.1
Jay'""""!" 87.2
June
87.3
July
89.2
Aug
90.3
89.2
88.9
Nov"
85.1
Dec"
82.8

1947
1948
1949
1950
1951
1952
1953.. .
1954
1955
1956
1957
1958
1959
I960
1961
1962
1963
1964
1965
1966
1967
1968
1969.
1970
1971
1972
1973
1974... .
1975
1976 .
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989 "
1988: Jan
Feb
Mar
Apr .. .
May
June
July
Aug
Sept
Oct
Nov
Dec
1989- Jan
Feb
Mar

&=

Iron
and
steel

3.49
70.4
73.6
62.9
77.5
86.6
76.2
87.9
68.3
90.8
89.1
85.9
64.7
74.5
75.7
72.3
75.3
82.1
93.4
102.4
105.5
97.5
100.7
109.7
102.1
93.4
103.8
118.2
114.5
92.0
101.4
100.0
107.5
108.0
86.3
92.5
57.5
66.1
73.4
70.4
63.4
70.6
78.1
77.8
77.4
74.2
74.5
78.6
74.2
80.2
78.9
81.4
83.1
80.8
77.6
82.2
79.1
75.9
77.0
73.2
72.9
75.4
75.9
75.4
76.4
72.1

FabriNonElectricated
eleccal
metal trical machinprod- machinery
ucts
ery

6.46
40.4
41.2
37.2
45.5
48.6
47.4
53.5
48.2
55.0
55.8
57.2
51.3
57.6
57.6
56.2
61.1
63.1
67.0
73.6
78.8
82.5
86.9
88.4
81.9
81.5
89.4
99.4
95.4
82.7
91.6
100.0
105.7
109.4
101.8
101.6
86.6
89.1
102.6
107.1
108.0
111.0
120.9
124.6
117.1
117.6
118.8
118.8
119.8
120.4
121.7
122.1
122.5
122.6
124.6
125.1
124.5
124.5
123.8
123.1
124.8
125.2
125.4
125.5
124.4
124.2
125.2
124.6

9.54
26.7
26.8
22.9
25.7
32.6
35.5
36.9
31.6
34.6
39.7
39.6
33.2
38.8
39.0
37.9
42.5
45.4
51.7
58.2
67.6
68.9
69.5
75.2
72.8
67.6
78.5
91.7
97.7
84.5
88.8
100.0
111.7
122.6
123.3
129.8
115.6
118.3
141.8
146.2
145.0
152.7
170.8
185.7
162.9
163.6
164.6
167.2
170.3
171.2
173.1
174.1
174.8
173.8
175.4
177.8
178.7
180.8
183.0
184.7
186.5
187.5
186.7
187.8
188.2
184.9
188.5
189.4

7.15
14.5
15.1
14.1
19.4
19.5
22.3
25.6
22.8
26.1
28.3
28.1
25.7
31.2
33.8
35.9
41.3
42.4
44.9
53.5
64.2
64.5
68.1
72.5
69.3
69.6
79.7
90.7
89.8
77.2
86.8
100.0
112.9
125.7
130.3
134.1
128.4
143.8
170.5
168.3
165.7
172.3
180.1
181.8
177.4
177.8
176.6
178.7
179.1
179.5
181.5
182.2
181.8
183.0
182.2
180.9
180.9
181.7
181.6
182.2
181.6
181.9
181.4
183.7
182.7
181.8
181.5
180.9

Nondurable manufactures
Transportation
equipment
Total

9.13
26.6
29.0
29.2
34.9
38.9
45.2
56.8
49.4
56.8
55.1
59.0
46.5
52.7
54.6
51.3
59.3
65.1
66.8
79.4
85.1
83.2
90.4
89.7
75.3
81.5
87.0
99.1
90.1
81.0
92.2
100.0
106.3
108.3
96.9
95.1
87.6
99.2
112.2
122.8
127.5
129.2
132.1
132.5
128.6
128.4
130.0
130.4
133.1
132.8
131.9
131.8
132.7
134.8
135.2
136.8
136.7
136.4
134.8
136.4
135.5
134.2
131.3
133.2
131.9
123.8
125.0
129.7

Source: Board of Governors of the Federal Reserve System.




350

Motor
vehicles
and
parts

5.25
28.8
31.2
32.0
41.2
37.8
32.4
40.8
35.1
47.1
38.2
40.1
29.6
38.5
43.4
38.1
46.3
51.3
52.7
67.3
66.2
58.2
69.7
70.0
56.3
70.6
77.1
89.8
77.5
65.7
86.5
100.0
104.6
95.9
71.1
71.6
66.8
85.8
104.4
111.9
111.5
111.8
117.2
116.5
109.7
109.3
113.0
114.8
119.6
119.1
116.6
117.5
118.5
121.7
122.9
125.5
124.9
123.4
120.4
122.0
119.7
116.4
110.4
114.2
112.7
110.1
110.5
110.4

Lumber Apparel Textile Printing Chemicals
and
mill
and
prod- prod- publish- and
products
proding
ucts
ucts
ucts

2.30
47.2
49.1
43.3
52.7
52.5
51.8
54.8
54.5
60.8
60.1
55.2
56.0
63.6
59.8
62.6
66.1
69.2
74.3
77.2
80.1
79.3
81.6
81.5
81.1
83.2
95.3
95.6
86.8
80.8
91.9
100.0
102.4
102.0
92.9
90.1
82.8
100.2
109.1
114.3
124.1
130.3
137.3

2.79
47.0
49.1
48.6
52.3
51.3
54.0
54.7
54.1
59.7
61.1
60.9
59.2
65.2
66.5
66.9
69.6
72.5
75.0
79.3
81.3
80.9
82.9
85.6
82.2
83.2
88.3
89.0
85.0
77.6
91.5
100.0
103.1
98.3
97.3
96.1
87.3
95.3
102.7
100.4
103.1
107.4
109.1

2.29
38.5
41.1
38.0
43.2
42.8
42.4
43.5
40.7
46.4
47.7
45.5
44.8
50.7
49.8
51.2
54.7
56.7
61.2
66.6
70.7
70.7
78.9
83.0
81.2
85.7
93.9
97.8
89.0
84.8
94.2
100.0
102.8
104.4
100.8
98.1
89.2
100.9
104.2
102.2
109.2
115.9
116.2

136.3
139.0
137.8
138.0
139.8
136.4
136.6
133.8
133.5
137.5
139.4
143.0
139.9
132.8
133.4
135.1
135.5
137.2
136.9
136.5
135.7
137.6
138.9

108.7
108.5
108.7
109.2
108.6
109.3
109.4
108.9
109.9
109.5
110.1
108.8
110.2
110.2
109.9
111.3
111.5
111.9
111.4
111.1
111.2
110.8
110.1

116.2
115.3
117.0
117.3
114.6
114.3
117.1
116.4
116.2
117.0
117.2
117.9
120.2
119.4
119.7
122.5
123.6
123.8
123.5
123.2
123.2
123.0
121.7

4.54
34.3
36.0
37.0
38.8
39.5
39.4
41.2
42.9
47.2
50.2
51.9
50.7
54.1
56.3
56.5
58.6
61.7
65.5
69.7
75.0
79.1
80.4
84.3
82.0
82.7
88.2
90.6
89.2
83.5
91.2
100.0
107.8
112.7
115.1
118.6
120.2
129.8
146.5
151.4
160.9
172.1
184.2
200.9
177.5
178.7
180.4
181.8
180.7
182.3
184.9
186.7
188.0
188.1
188.5
188.0
193.0
194.6
198.5
200.1
199.0
200.5
199.9
200.6
203.1
203.8
205.6
206.6

Foods

8.05
10.4
11.3
11.1
13.9
15.7
16.5
17.8
18.1
21.1
22.6
23.9
24.7
28.8
29.9
31.4
34.8
38.1
41.7
46.5
50.7
53.0
59.6
64.5
67.1
71.4
80.3
87.8
91.0
82.9
92.8
100.0
106.8
111.4
106.4
112.6
103.8
114.0
121.6
126.4
132.0
140.2
151.9

7.96
41.9
41.5
41.9
43.4
44.3
45.2
46.1
47.0
49.8
52.6
53.4
54.7
57.4
59.0
60.7
62.6
64.9
67.8
69.4
72.0
75.2
77.2
79.8
81.0
83.6
88.0
89.8
91.0
90.4
95.6
100.0
104.3
106.7
111.4
113.7
114.9
120.4
126.9
130.5
134.4
137.8
142.7

147.9
145.4
146.4
148.9
149.1
150.5
153.4
154.8
155.3
156.7
157.5
158.1
159.0
158.5
159.2
159.3
158.2
159.9
162.2
161.5
159.3
161.5
162.8

141.2
141.9
141.1
140.3
141.0
141.3
143.3
143.3
143.2
144.0
145.7
145.8
146.6
146.3
145.4
146.6
147.2
147.9
147.3
148.3
148.8
150.1
150.7

TABLE C-51.—Capacity utilization rates, 1948-89
[Percent; monthly data seasonally adjusted]
Manufacturing
Year or month

1948
1949
1950
1951
1952
1953
1954
1955
1956
1957
1958
1959
I960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971.. .
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985.. .
1986
1987
1988
1989 "

Total
industry

Total

Durable
goods

Nondurable
goods

Mining

Utilities

Industrial
materials

Primary
processing

Advanced
processing
800
732
798
834
859
893
80.0
84.2
844
83.1
749
81.1
80.5
772
816
83.4
846
888
91.1
876
87.0
861
78.3
761
81.1
851
815
726
768
805
83 1
835
800
783
717
740
803
797
788
794
818
828

829
84.6
870
89.0
873
90.2
914
91.1
89.2
897
899
903
907
932
929
834
779
840
824
764
778
817
824

932
93.9
956
95.1
937
94.5
928
86.8
84.3
853
85.1
850
856
854
84.2
814
80.0
830
823
79.1
795
813
81.9

851
86.8
881
81.8
804
86.0
911
86.1
73.4
803
84.1
863
871

871
87.4
874
80.9
790
84.0
879
83.6
74.1
788
82.4
848
852
809
79.9
721
74.6
810
804
79.4
807
833
83.7

825
742
828
858
854
893
801
870
861
836
750
816
801
773
814
835
856
895
91 1
867
870
867
79.2
774
82.8
870
826
723
774
814
842
846
793
782
703
739
805
801
797
81 1
835
839

870
867
861
76.1
733
79.7
862
816
696
748
794
829
841
779
767
669
703
787
785
772
784
818
823

867
877
880
83.9
835
87.4
881
842
763
814
845
86 1
853
813
806
754
794
833
824
835
849
861
863

873
762
885
902
849
894
80.6
92.0
894
84.7
754
83.0
79.8
779
815
83.8
878
910
91.4
853
86.9
877
80.9
795
86.4
913
854
722
793
831
860
866
779
781
675
739
809
809
818
846
873
864

June

82.5
82.4
82.4
827
82.9
83.0

82.7
82.6
82.7
829
83.3
83.3

80.3
80.5
80.6
809
81.8
81.7

86.2
85.7
85.8
859
85.4
85.5

87.1
86.6
86.9
869
87.0
86.6

80.7
80.7
80.7
812
81.7
81.7

80.7
79.5
80.6
823
80.8
81.2

82.4
82.6
81.0
793
79.7
80.8

83.0
82.3
82.4
829
83.0
83.2

July
Aug
Sept
Oct
Nov
Dec

83.7
83.8
83.7
84.0
84.1
84.3

84.0
84.0
84.0
84.3
84.4
84.4

82.3
82.3
82.5
82.8
83.0
83.1

86.4
86.4
86.2
86.4
86.4
86.3

87.8
87.4
87.2
87.9
88.1
87.9

82.2
82.4
82.4
82.6
82.6
82.8

82.5
82.2
82.3
81.9
83.3
83.6

81.5
83.9
80.4
81.0
80.8
82.0

84.4
84.3
84.1
84.7
85.1
84.9

1989: Jan
Feb
Mar

84.3
83.9
83.8
84.2
84.0
84.0

84.7
84.3
84.1
84.5
84.3
84.4

83.2
82.9
82.6
83.0
82.9
82.9

86.8
86.3
86.3
86.5
86.2
86.4

88.4
87.0
86.4
86.8
86.2
86.2

83.1
83.0
83.0
83.5
83.4
83.5

82.2
80.6
81.2
82.0
81.8
81.5

80.9
82.6
83.3
82.9
81.8
80.8

84.6
84.0
83.7
84.2
83.8
83.6

83.7
83.983.6
83.1
83.1
83.3

84.0
84.2
83.7
83.1
83.2
83.1

82.4
82.8
82.2
80.9
81.0
81.1

86.3
86.2
85.9
86.2
86.2
85.8

86.7
86.6
85.8
86.2
85.7
84.5

82.9
83.2
82.6
81.7
81.9
82.2

82.1
82.4
83.4
84.0
84.3
83.4

80.5
80.0
80.8
81.7
81.3
86.3

83.7
83.9
83.6
83.5
83.3
82.8

1988: Jan
Feb
Mar

fen
June
July
Aug

Sept
Oct.
Nov"
Dec p.

Source: Board of Governors of the Federal Reserve System.




351

81 1
81.2
718
75.3
820
803
78.6
805
837
83.7

TABLE C-tt.—New construction activity, 1929-89
[Value put in place, billions of dollars; monthly data at seasonally adjusted annual rates]
Public construction

Private construction
T n i_|

Year or month

new
construction

Nonresidential buildings and other
construction l

Residential
buildings '
Total
Total

2

New
housing
units

Total

Commercial 3

Indus- Other 4
trial

Total

Federal State and
local 5

1929
1933
1939
1940
1941
1942
1943
1944 . .

10.8
2.9
8.2
8.7
12.0
14.1
8.3
5.3

8.3
1.2
4.4
5.1
6.2
3.4
2.0
2.2

3.6
.5
2.7
3.0
3.5
1.7
.9
.8

3.0
.3
2.3
2.6
3.0
1.4
.7
.6

4.7
.8
1.7
2.1
2.7
1.7
1.1
1.4

1.1
.1
.3
.3
.4
.2
.0
.1

0.9
.2
.3
.4
.8
.3
.2
.2

2.6
.5
1.2
1.3
1.5
1.2
.9
1.1

2.5
1.6
3.8
3.6
5.8
10.7
6.3
3.1

0.2
.5
.8
1.2
3.8
9.3
5.6
2.5

2.3
1.1
3.1
2.4
2.0
1.3
.7
.6

1945
1946

5.8
14.3

3.4
12.1

1.3
6.2

.7
4.8

2.1
5.8

.2
1.2

.6
1.7

1.3
3.0

2.4
2.2

1.7
.9

.7
1.4

New series
1947
1948
1949

20.0
26.1
26.7

16.7
21.4
20.5

9.9
13.1
12.4

7.8
10.5
10.0

6.9
8.2
8.0

1.0
1.4
1.2

1.7
1.4
1.0

4.2
5.5
5.9

3.3
4.7
6.3

.8
1.2
1.5

2.5
3.5
4.8

1950.
1951
1952
1953
1954

33.6
35.4
36.8
39.1
41.4

26.7
26.2
26.0
27.9
29.7

18.1
15.9
15.8
16.6
18.2

15.6
13.2
12.9
13.4
14.9

8.6
10.3
10.2
11.3
11.5

1.4
1.5
1.1
1.8
2.2

1.1
2.1
2.3
2.2
2.0

6.1
6.7
6.8
7.3
7.2

6.9
9.3
10.8
11.2
11.7

1.6
3.0
4.2
4.1
3.4

5.2
6.3
6.6
7.1
8.3

1955
1956
1957
1958
1959

46.5
47.6
49.1
50.0
55.4

34.8
34.9
35.1
34.6
39.3

21.9
20.2
19.0
19.8
24.3

18.2
16.1
14.7
15.4
19.2

12.9
14.7
16.1
14.8
15.1

3.2
3.6
3.6
3.6
3.9

2.4
3.1
3.6
2.4
2.1

7.3
8.0
9.0
8.8
9.0

11.7
12.7
14.1
15.5
16.1

2.8
2.7
3.0
3.4
3.7

8.9
10.0
11.1
12.1
12.3

I960
1961
1962
1963

54.7
56.4
60.2
64.8

38.9
39.3
42.3
45.5

23.0
23.1
25.2
27.9

17.3
17.1
19.4
21.7

15.9
16.2
17.2
17.6

4.2
4.7
5.1
5.0

2.9
2.8
2.8
2.9

8.9
8.7
9.2
9.7

15.9
17.1
17.9
19.4

3.6
3.9
3.9
4.0

12.2
13.3
14.0
15.4

1964

72.6

52.4

30.5

24.1

21.8

6.8

3.6

11.5

20.2

3.7

16.5

1965.
1966
1967
1968
1969

78.5
81.8
83.5
93.2
100.5

56.6
58.0
58.1
65.7
72.7

30.2
28.6
28.7
34.2
37.2

23.8
21.8
21.5
26.7
29.2

26.3
29.4
29.4
31.6
35.5

8.1
8.1
8.0
9.0
10.7

5.1
6.6
6.0
6.0
6.8

13.1
14.7
15.4
16.6
17.9

21.9
23.8
25.4
27.4
27.8

3.9
3.8
3.3
3.2
3.2

18.0
20.0
22.1
24.2
24.6

1970
1971
1972
1973
1974

101.3
117.9
133.9
147.4
147.8

73.4
88.2
103.9
115.0
109.6

35.9
48.5
60.7
65.1
56.0

27.1
38.7
50.1
54.6
43.4

37.5
39.7
43.2
49.9
53.7

11.1
13.0
15.4
17.7
17.6

6.5
5.4
4.7
6.2
7.9

19.9
21.3
23.1
26.0
28.2

27.9
29.7
30.0
32.3
38.1

3.1
3.8
4.2
4.7
5.1

24.8
25.9
25.8
27.6
33.0

1975
1976
1977
1978
1979

144.4
163.1
188.2
226.2
253.0

102.7
122.2
148.8
178.7
201.3

51.6
68.3
92.0
109.8
116.4

36.3
50.8
72.2
85.6
89.3

51.2
54.0
56.8
68.8
84.9

13.9
13.7
15.7
19.7
27.1

8.0
7.2
7.7
11.0
15.0

29.3
33.1
33.3
38.1
42.8

41.7
40.9
39.4
47.5
51.7

6.1
6.8
7.1
8.1
8.6

35.6
34.1
32.4
39.3
43.1

1980
1981
1982
1983
1984

252.8
261.3
248.0
282.4
329.6

194.3
204.7
194.3
228.7
271.9

100.4
99.2
84.7
125.5
153.8

69.6
69.4
57.0
94.6
113.8

93.9
105.5
109.6
103.1
118.0

32.9
38.0
41.4
41.0
54.9

13.8
17.0
17.3
12.9
13.7

47.2
50.5
50.9
49.3
49.4

58.5
56.5
53.7
53.8
57.7

9.6
10.4
10.0
10.6
11.2

48.8
46.1
43.7
43.2
46.4

1985
1986
1987
1988

356.6
387.0
397.7
409.7

292.6
315.3
320.1
328.7

158.5
187.1
194.7
198.1

114.7
133.2
139.9
138.9

134.1
128.2
125.5
130.6

66.9
64.2
62.8
64.9

15.8
13.7
13.7
14.9

51.4
50.2
48.9
50.8

64.1
71.7
77.6
80.9

12.0
12.4
14.1
12.2

52.1
59.3
63.6
68.7

New series

See next page for continuation of table.




352

TABLE C-52.—New construction activity, 1929-89—Continued
[Value put in place, billions of dollars; monthly data at seasonally adjusted annual rates]
Public construction

Private construction
Total
new
construction

Year or month

Residential
buildings1
Total

Nonresidential buildings and other
constructionl

Total2

New
housing
units

Total

Commercial3

Indus- Other4
trial

Total

Federal State and
local5

1988- Jan
Feb
Mar
Apr
May
June

396.9
397.3
411.1
408.3
408.0
408.7

321.4
319.6
327.9
327.0
327.6
328.0

193.9
192.2
198.6
198.5
197.0
196.2

138.3
137.0
139.9
139.4
138.3
137.5

127.5
127.4
129.3
128.5
130.6
131.8

63.0
62.6
63.9
65.2
66.0
66.5

13.8
14.3
14.9
14.7
15.0
15.5

50.7
50.6
50.5
48.5
49.6
49.9

75.6
77.7
83.2
81.3
80.4
80.8

11.1
11.0
13.1
11.8
11.7
13.2

64.5
66.7
70.1
69.6
68.7
67.6

July
Aug
Sept

410.7
408.1
411.5
411.1
415.4
425.0

328.1
329.2
329.8
331.4
332.8
336.3

196.8
197.6
198.3
200.8
202.0
202.5

137.0
137.0
138.0
139.8
141.9
143.3

131.3
131.6
131.5
130.6
130.8
133.8

66.5
65.7
64.8
63.6
63.4
65.5

14.8
15.0
14.9
15.5
15.4
15.0

49.9
51.0
51.9
51.5
51.9
53.2

82.5
78.9
81.7
79.7
82.6
88.8

12.7
12.6
14.7
11.0
11.1
12.1

69.9
66.2
67.0
68.7
71.5
76.7

1989: Jan
Feb
Mar
Apr
May
June

423.0
416.6
416.8
411.9
416.5
412.5

337.7
333.2
338.1
332.5
330.6
329.0

202.9
200.5
202.1
200.7
197.0
194.2

145.6
145.3
143.2
141.8
138.2
136.5

134.8
132.7
136.0
131.8
133.6
134.8

66.7
66.0
68.5
63.1
64.2
65.3

15.9
15.1
15.7
16.2
15.9
16.3

52.2
51.6
51.8
52.5
53.5
53.2

85.3
83.4
78.7
79.4
85.9
83.5

10.5
11.8
12.6
9.4
14.5
13.6

74.8
71.6
66.2
70.0
71.4
69.9

July
Aug
Septp
Oct
Nov

410.3
416.3
416.2
415.6
421.7

328.8
331.9
329.6
330.2
330.3

195.2
194.4
192.8
193.2
194.4

136.6
135.8
134.0
134.0
136.7

133.6
137.5
136.8
137.0
135.9

64.5
65.8
65.3
66.2
64.6

16.4
17.5
17.9
17.8
18.1

52.7
54.2
53.6
53.0
53.2

81.5
84.4
86.6
85.4
91.4

11.6
13.0
14.9
13.2
13.6

69.8
71.4
71.8
72.2
77.9

Oct..
Nov
Dec

::::::::..

1
Beginning 1960, farm residential buildings included in residential buildings; prior to 1960, included in nonresidential buildings and
other construction.
2
Includes residential improvements, not shown separately. Prior to 1964, also includes nonhousekeeping units (hotels, motels, etc.).
3
Office buildings, warehouses, stores, restaurants, garages, etc., and, beginning 1964, hotels and motels; prior to 1964 hotels and
motels are included in total residential.
4
Religious, educational, hospital and institutional, miscellaneous nonresidential, farm (see also footnote 1), public utilities, and all
other private.
5
Includes Federal grants-in-aid for State and local projects.
Source: Department of Commerce, Bureau of the Census.




353

TABLE C-53.—New bousing units started and authorized, 1959-89
[Thousands of units]
New private housing units authorized 2

New housing units started
Private and public '
Year or month

Private (farm and nonfarm)

Total
(farm and Nonfarm
nonfarm)

Total

1 unit

1,553.7

1,531.3

1,517.0

1,234.0

1960
1961
1962
1963
1964

1,296.1
1,365.0
1,492.5
1,634.9
1,561.0

1,274.0
1,336.8
1,468.7
1,614.8
1,534.0

1,252.2
1,313.0
1,462.9
1,603.2
1,528.8

994.7
974.3
991.4
1,012.4
970.5

1965
1966
1967
1968
1969.

1,509.7
1,195.8
1,321.9
1,545.4
1,499.5

1,487.5
1,172.8
1,298.8
1,521.4
1,482.3

1,472.8
1,164.9
1,291.6
1,507.6
1,466.8

963.7
778.6
843.9
899.4
810.6

1970
1971
1972
1973
1974

1,469.0
2,084.5
2,378.5
2,057.5
1,352.5

1,433.6
2,052.2
2,356.6
2,045.3
1,337.7

1975
1976
1977
1978
1979

1,171.4
1,547.6
2,001.7
2,036.1
1,760.0

(3)
(3)

1980
1981
1982
1983
1984

1,312.6
1,100.3
1,072.1
1,712.5
1,755.8

1985
1986
1987
1988
1989"

1,745.0
1,807.1
1,622.7
4

Type of structure

Type of structure

1959

(4

l

2to4
units

Total

5 units
or more

283 .0

1 unit

2 to 4
units

5 units
or more

1,208.3

938.3

77.1

192.9

257 .4
338 .7
471 .5
59C .8
108.4
450.0

998.0
1,064.2
1,186.6
1,334.7
1,285.8

746.1
722.8
716.2
750.2
720.1

64.6
67.6
87.1
118.9
100.8

187.4
273.8
383.3
465.6
464.9

86.6
61.1
71.6
80.9
85.0

422.5
325.1
376.1
527.3
571.2

1,239.8
971.9
1,141.0
1,353.4
1,323.7

709.9
563.2
650.6
694.7
625.9

84.8
61.0
73.0
84.3
85.2

445.1
347.7
417.5
574.4
612.7

812.9
1,151.0
1,309.2
1,132.0
888.1

84.8
120.3
141.3
118.3
68.1

535.9
780.9
906.2
795.0
381.6

1,351.5
1,924.6
2,218.9
1,819.5
1,074.4

646.8
906.1
1,033.1
882.1
643.8

616.7
88.1
885.7
132.9
148.6 1,037.2
117.0
820.5
366.2
64.3

1,160.4
1,537.5
1,987.1
2,020.3
1,745.1

892.2
1,162.4
1,450.9
1,433.3
1,194.1

64.0
85.9
121.7
125.0
122.0

204.3
289.2
414.4
462.0
429.0

939.2
1,296.2
1,690.0
1,800.5
1,551.8

675.5
893.6
1,126.1
1,182.6
981.5

63.9
93.1
121.3
130.6
125.4

199.8
309.5
442.7
487.3
444.8

(3)
(3)
(3)

1,292.2
1,084.2
1,062.2
1,703.0
1,749.5

852.2
705.4
662.6
1,067.6
1,084.2

109.5
91.1
80.0
113.5
121.4

330.5
287.7
319.6
522.0
544.0

1,190.6
985.5
1,000.5
1,605.2
1,681.8

710.4
564.3
546.4
901.5
922.4

114.5
101.8
88.3
133.6
142.6

365.7
319.4
365.8
570.1
616.8

(3)
3
)
(3)
(3)
(3)

1,741.8
1,805.4
1,620.5
1,488.1
1,374.3

1,072.4
1,179.4
1,146.4
1,081.3
1,001.9

93.4
84.0
65.3
58.8
55.3

576.1
542.0
408.7
348.0
317.2

1,733.3
1,769.4
1,534.8
1,455.6
1,340.6

956.6
1,077.6
1,024.4
993.8
937.8

120.1
108.4
89.3
75.7
70.0

656.6
583.5
421.1
386.1
332.9

1,391
1,511
1,528
1,576
1,392
1,463

1,021
1,095
1,169
1,087
1,001
1,088

53
58
57
58
53
62

317
358
302
431
338
313

1,264
1,444
1,500
1,431
1,448
1,485

916
1,002
1,025
954
982
997

69
72
83
72
76
76

279
370
392
405
390
412

1,478
1,459
1,463
1,532
1,567
1,577

1,067
1,076
1,039
1,136
1,138
1,141

50
59
62
63
68
65

361
324
362
333
361
371

1,425
1,466
1,432
1,526
1,508
1,518

976
1,007
980
1,029
1,027
1,058

77
70
74
81
77
75

372
389
378
416
404
385

1,678
1,465
1,409
1,343
1,308
1,406

1,199
1,029
981
1,029
977
972

66
62
50
62
42
55

413
374
378
252
289
379

1,486
1,403
1,230
1,334
1,347
1,308

1,052
989
870
954
905
874

75
88
72
71
65
66

359
326
288
309
377
368

1,420
1,329
1,264
1,423
1,342
1,235

1,026
990
971
1,023
1,003
904

57
56
57
60
47
53

337
283
236
340
292
278

1,281
1,328
1,319
1,356
1,342
1,376

906
927
946
961
979
970

73
77
66
64
64
65

302
324
307
331
299
341

V
3
3
3

|j

J)

Seasonally adjusted annual rates
1988: Jan
Feb
Mar
Apr
May
June

105.1
102.8
141.3
159.6
158.3
163.2

(3)

July .
Aug
Sept
Oct
Nov
Dec

152.7
143.9
152.3
135.2
113.2

3
3

1989: Jan
Feb
Mar
Apr
May
June
July
Aug
Sept
Oct p
Nov
Dec"

4

4

(

3

(3
(

3

3
(

)

3}

(3)
)

(3)

:i
fl ii
( )

(3)

4

4
(4
(

j:
4

3
3
3
3

)

(3)

1
Units in structures built by private developers for sale upon completion to local public housing authorities under the Department of
Housing and Urban Development "Turnkey" program are classified as private housing. Military housing starts, including those financed
with mortgages insured by FHA under Section 803 of the National Housing Act, are included in publicly owned starts and excluded from
total private starts.
2
Authorized by issuance of local building permit: in 17,000 permit-issuing places beginning 1984; in 16,000 places for 1978-83; in
14,000 places for 1972-77; in 13,000 places for 1967-71; in 12,000 places for 1963-66; and in 10,000 places prior to 1963.
3
Not available separately beginning January 1970.
4
Series discontinued December 1988.
Source: Department of Commerce, Bureau of the Census.




354

TABLE C-54.—Business expenditures for new plant and equipment, 1947-90
[Billions of dollars; quarterly data at seasonally adjusted annual rates]
Addenda

Industries surveyed quarterly
Manufacturing
Year or quarter

1947
1948
1949
1950
1951
1952
1953
1954
1955
1956
1957
1958
1959
I960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989 4
19904
1988: 1
|
|
III
IV
1989- 1
II
Ill 4
IV
1990: I 44
II

All
industries

Total

20.11
22.78
20.28
21.56
26.81
28.16
29.96
28.86
30.94
37.90
40.54
33.84
35.88
39.44
38.34
40.86
43.67
51.26
59.52
70.40
72.75
76.42
85.74
91.91
92.91
103.40
120.03
139.67
142.42
158.44
184.82
217.76
254.96
282.80
315.22
310.58
304.78
354.44
387.13
379.47
389.67
430.76
475.18
505.49
413.34
427.54
435.61
442.11
459.47
470.86
484.93
485.45
503.46
518.27

8.73
9.25
7.32
7.73
11.07
12.12
12.43
12.00
12.50
16.33
17.50
12.98
13.76
16.36
15.53
16.03
17.27
21.23
25.41
31.37
32.25
32.34
36.27
36.99
33.60
35.42
42.35
52.48
53.66
58.53
67.48
78.58
95.92
112.33
126.54
120.68
116.20
138.82
153.48
142.69
145.90
166.32
183.16
190.16
157.97
162.62
168.76
173.32
175.22
181.53
187.66
188.21
193.76
198.70

Nonmanufacturing

Dura- Nonble durable Total *
goods goods

3.39
3.54
2.67
3.22
5.12
5.75
5.71
5.49
5.87
8.19
8.59
6.21
6.72
8.28
7.43
7.81
8.64
10.98
13.49
17.23
17.83
17.93
19.97
19.80
16.78
18.22
22.63
26.77
25.37
27.50
32.77
39.46
48.50
55.36
59.81
55.35
53.08
66.24
73.27
69.14
71.01
78.30
83.05
83.22
75.28
77.38
79.15
80.56
81.26
82.97
85.66
82.30
86.84
88.43

5.34
5.71
4.64
4.51
5.95
6.37
6.72
6.51
6.62
8.15
8.91
6.77
7.04
8.08
.8.10
8.22
8.63
10.25
11.92
14.15
14.42
14.40
16.31
17.19
16.82
17.20
19.72
25.71
28.28
31.03
34.71
39.13
47.42
56.96
66.73
65.33
63.12
72.58
80.21
73.56
74.88
88.01
100.11
106.94
82.69
85.24
89.62
92.76
93.96
98.57
102.00
105.90
106.92
110.27

11.38
13.53
12.96
13.83
15.74
16.04
17.53
16.85
18.44
21.57
23.04
20.86
22.12
23.08
22.80
24.83
26.40
30.04
34.12
39.03
40.50
44.08
49.47
54.92
59.31
67.98
77.67
87.19
88.76
99.91
117.34
139.18
159.04
170.47
188.68
189.89
188.58
215.61
233.65
236.78
243.78
264.44
292.02
315.33
255.37
264.92
266.85
268.79
284.24
289.33
297.28
297.25
309.70
319.57

ComMin- Trans- Public mercial
ing porta- utili- and
tion ties other
0.69
.93
.88
.84
1.11
1.21
1.25
1.29
1.31
1.64
1.69
1.43
1.35
1.29
1.26
1.41
1.26
1.33
1.36
1.42
1.38
1.44
1.77
2.02
2.67
2.88
3.30
4.58
6.12
7.63
9.81
11.22
12.81
15.99
21.39
20.05
15.19
16.86
15.88
11.22
11.39
12.66
12.50
12.01
12.61
13.15
12.53
12.38
12.15
12.70
12.59
12.58
12.23
12.83

2.69
3.17
2.80
2.87
3.60
3.56
3.58
2.91
3.10
3.56
3.84
2.72
3.47
3.54
3.14
3.59
3.64
4.71
5.66
6.68
6.57
6.91
7.23
7.17
6.42
7.14
8.00
9.16
9.95
11.10
12.20
13.36
16.05
16.60
15.84
14.79
13.97
16.52
18.02
18.80
18.85
21.34
25.24
26.41
20.35
20.95
22.02
22.04
23.13
24.26
28.53
25.04
26.61
27.56

1.64
2.67
3.28
3.42
3.75
3.96
4.61
4.23
4.26
4.78
5.95
5.74
5.46
5.40
5.20
5.12
5.33
5.80
6.49
7.82
9.33
10.52
11.70
13.03
14.70
16.26
17.99
19.96
20.23
22.90
27.83
31.50
35.63
37.74
41.21
45.43
44.96
47.48
48.81
46.38
44.88
46.67
50.06
50.14
45.05
45.60
46.69
48.73
50.81
52.01
49.57
47.86
51.89
53.11

6.38
6.77
6.01
6.70
7.29
7.31
8.09
8.42
9.77
11.59
11.56
10.97
11.84
12.86
13.21
14.71
16.17
18.20
20.60
23.11
23.22
25.22
28.77
32.71
35.52
41.69
48.39
53.49
52.47
58.29
67.51
83.09
94.56
100.14
110.24
109.63
114.45
134.75
150.94
160.38
168.65
183.76
204.22
226.78
177.37
185.21
185.61
185.65
198.15
200.36
206.59
211.76
218.97
226.07

Nonmanufacturing

Total
nonfarm
business2

Manufacturing

22.27
25.97
24.03
25.81
31.38
32.16
34.20
33.62
37.08
45.25
48.62
42.55
45.17
48.99
48.14
51.61
53.59
62.02
70.79
82.62
83.82
88.92
100.02
106.15
109.18
120.91
139.26
159.83
162.60
179.91
208.15
245.34
284.94
314.47
349.26
347.47
343.35
398.99
431.94
427.23
440.66
483.48

8.73
9.25
7.32
7.73
11.07
12.12
12.43
12.00
12.50
16.33
17.50
12.98
13.76
16.36
15.53
16.03
17.27
21.23
25.41
31.37
32.25
32.34
36.27
36.99
33.60
35.42
42.35
52.48
53.66
58.53
67.48
78.58
95.92
112.33
126.54
120.68
116.20
138.82
153.48
142.69
145.90
166.32
183.16
190.16
157.97
162.62
168.76
173.32
175.22
181.53
187.66
188.21
193.76
198.70

Total

13.54
16.73
16.72
18.08
20.31
20.04
21.77
21.62
24.58
28.91
31.11
29.57
31.41
32.63
32.60
35.58
36.33
40.80
45.39
51.25
51.57
56.58
63.74
69.16
75.58
85.49
96.91
107.35
108.95
121.38
140.67
166.76
189.02
202.15
222.72
226.79
227.15
260.16
278.46
284.54
294.77
317.17

:::::::

Surveyed
quarterly

Surveyed
annually3

11.38
13.53
12.96
13.83
15.74
16.04
17.53
16.85
18.44
21.57
23.04
20.86
22.12
23.08
22.80
24.83
26.40
30.04
34.12
39.03
40.50
44.08
49.47
54.92
59.31
67.98
77.67
87.19
88.76
99.91
117.34
139.18
159.04
170.47
188.68
189.89
188.58
215.61
233.65
236.78
243.78
264.44
292.02
315.33
255.37
264.92
266.85
268.79
284.24
289.33
297.28
297.25
309.70
319.57

2.16
3.19
3.76
4.25
4.57
4.00
4.23
4.76
6.14
7.35
8.08
8.72
9.29
9.55
9.80
10.75
9.93
10.76
11.27
12.22
11.07
12.50
14.27
14.24
16.26
17.51
19.24
20.16
20.19
21.47
23.33
27.58
29.98
31.68
34.04
36.89
38.56
44.55
44.81
47.75
50.99
52.73

1
Excludes forestry, fisheries, and agricultural services; professional services; social services and membership organizations; and real
estate, which, effective with the April-May 1984 survey, are no longer surveyed quarterly. See last column ("nonmanufacturing surveyed
annually") for data for these industries.
2
"All industries" plus the part of nonmanufacturing that is surveyed annually.
3
Consists of forestry, fisheries, and agricultural services; professional services; social services and membership organizations; and
real estate.
4
Planned capital expenditures as reported by business in October and November 1989, corrected for biases.
Source: Department of Commerce, Bureau of the Census.




355

TABLE C-55.—Manufacturing and trade sales and inventories, 1948-89
[Amounts in millions of dollars,- monthly data seasonally adjusted]

Year or month

1948..
1949
1950
1951
1952
1953
1954
1955
1956.
1957
1958
1959
I960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971....
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1988: Jan
Feb
Mar
Apr
May
June
July
Aug
Sept
Oct
Nov
Dec
1989: Jan
Feb
Mar

&:::
::::
June
July
Aug
Sept
Oct
Nov *

Total manufacturing and
trade
3
1
InvenSales
tories2 Ratio
35,260
33,788
38,596
43,356
44,840
47,987
46,443
51,694
54,063
55,879
54,201
59,729
60,827
61,159
65,662
68,995
73,682
80,283
87,187
90,765
98,607
105,585
108,100
116,769
130,931
153,762
177,946
182,402
204,381
229,773
260,592
298,144
327,874
356,700
348,747
368,813
407,869
418,151
423,700
449,536
485,756
462,173
466,052
474,260
475,218
478,467
486,226
486,289
491,892
491,565
498,635
501,333
506,142
511,881
507,328
507,555
517,745
518,088
515,695
511,144
526,290
522,760
519,975
523,276

52,507
49,497
59,822
70,242
72,377
76,122
73,175
79,516
87,304
89,052
87,132
92,166
94,756
95,628
101,091
105,515
111,534
120,947
136,838
144,866
155,770
169,419
177,492
187,724
201,865
233,175
285,884
288,414
318,647
351,164
399,220
451,166
508,327
545,613
574,491
590,358
644,306
655,066
653,853
700,761
753,718
704,033
707,886
710,937
714,590
718,506
724,515
729,786
747,413
743,967
743,005
746,363
753,718
759,803
763,051
765,504
771,340
778,093
780,802
787,584
790,368
790,572
793,157
796,637

1.42
1.53
1.36
1.55
1.58
1.58
1.60
1.47
1.55
1.59
1.61
1.54
1.56
1.56
1.54
1,53
1.51
1.51
1.57
1.60
1.58
1.60
1.64
1.61
1.54
1.52
1.61
1.58
1.56
1.53
1.53
1.51
1.55
1.53
1.65
1.60
1.58
1.57
1.54
1.56
1.55
1.52
1.52
1.50
1.50
1.50
1.49
1.50
1.50
1.51
1.49
1.49
1.49
1.48
1.50
1.51
1.49
1.50
1.51
1.54
1.50
1.51
1.53
1.52

Merchant wholesalers

Manufacturing

Retail trade

Sales1

3
1
Inventories2 Ratio Sales

3
1
Inventories2 Ratio Sales

3
Inventories2 Ratio

17,316
16,126
18,634
21,714
22,529
24,843
23,355
26,480
27,740
28,736
27,247
30,286
30,879
30,923
33,357
35,058
37,331
40,995
44,870
46,487
50,228
53,501
52,805
55,906
63,027
72,931
84,790
86,589
98,797
113,202
126,905
143,936
154,391
168,129
163,350
171,242
187,869
190,016
188,360
199,170
217,632
206,283
206,932
211,778
213,036
215,777
218,881
216,698
221,715
221,395
222,917
224,632
230,827
231,485
228,353
228,048
234,042
233,071
231,236
225,922
238,150
233,562
231,995
232,785

28,543
26,321
31,078
39,306
41,136
43,948
41,612
45,069
50,642
51,871
50,280
52,982
53,823
54,919
58,214
60,081
63,440
68,225
78,000
84,662
90,617
98,202
101,652
102,658
108,240
124,630
157,793
159,932
175,195
189,214
210,509
241,100
264,281
282,645
311,827
312,647
334,767
327,496
316,182
331,132
354,163
333,374
335,416
336,695
337,936
340,074
341,963
343,788
345,798
347,785
349,412
351,603
354,163
357,458
359,056
361,130
363,458
365,055
366,492
370,803
371,489
370,890
371,712
372,852

7,957
7,706
9,284
9,886
10,210
10,686
10,637
11,678
13,260
12,730
12,739
13,879
14,120
14,488
14,936
16,048
17,000
18,317
20,765
24,955
26,268
28,762
32,199
35,210
38,816
45,556
57,239
56,972
64,365
72,801
86,405
99,262
122,979
130,275
128,196
130,334
142,380
146,745
152,447
162,648
178,313
164,697
166,857
168,265
170,032
170,086
172,079
174,466
176,415
177,029
177,159
177,061
178,313
179,761
179,810
179,681
181,226
182,615
182,548
183,950
183,529
182,891
186,119
187,095

16,007
15,470
19,460
21,050
21,031
21,488
20,926
22,769
23,402
24,451
24,113
25,305
26,813
26,221
27,941
29,386
31,094
34,405
38,073
35,249
38,885
42,455
43,641
49,856
54,809
62,989
70,852
71,510
79,087
89,149
102,306
110,804
121,067
132,693
134,468
147,377
167,159
180,825
185,224
206,981
221,242
205,962
205,613
205,977
206,622
208,346
210,473
211,532
215,200
219,153
216,434
217,699
221,242
222,584
224,185
224,693
226,656
230,423
231,762
232,831
235,350
236,791
235,326
236,690

1
Monthly
2

1.57
1.75
1.48
1.66
1.78
1.76
1.81
1.62
1.73
1.80
1.85
1.75
1.74
1.78
1.75
1.71
1.70
1.66
1.74
1.82
1.80
1.84
1.93
1.84
1.72
1.71
1.86
1.85
1.77
1.67
1.66
1.68
1.71
1.68
1.91
1.83
1.78
1.72
1.68
1.66
1.63
1.62
1.62
1.59
1.59
1.58
1.56
1.59
1.56
1.57
1.57
1.57
1.53
1.54
1.57
1.58
1.55
1.57
1.58
1.64
1.56
1.59
1.60
1.60

6,808
6,514
7,695
8,597
8,782
9,052
8,993
9,893
10,513
10,475
10,257
11,491
11,656
11,988
12,674
13,382
14,529
15,611
16,987
19,520
20,926
22,694
24,031
26,350
29,695
38,173
47,989
46,803
50,885
56,364
66,669
79,472
93,704
102,013
96,290
100,244
113,195
114,315
115,677
123,581
132,361
125,526
127,274
128,685
129,105
128,687
132,285
133,850
134,377
134,749
137,459
137,140
136,170
140,356
139,547
139,991
142,290
142,474
141,959
141,667
143,280
143,905
144,554
146,307

1.13
1.19
1.07
1.16
1.12
1.17
1.18
1.13
1.19
1.23
1.24
1.21
1.21
1.21
1.18
1.20
1.17
1.17
1.22
1.28
1.26
1.27
1.34
1.34
1.31
1.19
1.19
1.22
1.26
1.29
1.30
1.25
1.31
1.28
1.33
1.30
1.26
1.28
1.32
1.32
1.35
1.31
1.31
1.31
1.32
1.32
1.30
1.30
1.31
1.31
1.29
1.29
1.31
1.28
1.29
1.28
1.27
1.28
1.29
1.30
1.28
1.27
1.29
1.28

11,135
11,149
12,268
13,046
13,529
14,091
14,095
15,321
15,811
16,667
16,696
17,951
18,294
18,249
19,630
20,556
21,823
23,677
25,330
24,758
27,453
29,390
31,264
34,513
38,209
42,658
45,167
49,010
54,699
60,207
67,018
74,737
79,779
86,558
89,107
97,328
106,805
113,821
119,663
126,785
135,763
130,364
131,846
133,797
133,077
134,003
135,060
135,741
135,800
135,421
138,259
139,561
139,145
140,040
139,428
139,516
141,413
142,543
142,500
143,555
144,860
145,293
143,426
144,184

average for year and total for month.
Seasonally adjusted, end of period. Inventories beginning January 1982 for manufacturing and December 1980 for
retail trade are not comparable with earlier periods.
3
Inventory/sales ratio. Beginning 1958 annual data are based on December inventories and monthly average sales for
earlier periods, data are weighted averages. For monthly data, ratio of inventories at end of month to sales
Note.—Earlier data are not strictly comparable with data beginning 1958 for manufacturing and beginning 1967 for
retail trade.
Source: Department of Commerce, Bureau of the Census.




356

1.39
1.41
1.38
1.64
1.52
1.53
1.51
1.43
1.47
1.44
1.44
1.41
1.47
1.44
1.42
1.43
1.42
1.45
1.50
1.42
1.42
1.44
1.40
1.44
1.43
1.48
1.57
1.46
1.45
1.48
1.53
1.48
1.52
1.53
1.51
1.51
1.57
1.59
1.55
1.63
1.63
1.58
1.56
1.54
1.55
1.55
1.56
1.56
1.58
1.62
1.57
1.56
1.59
1.59
1.61
1.61
1.60
1.62
1.63
1.62
1.62
1.63
1.64
1.64

wholesale and
the year. For
for month.
wholesale and

TABLE C-56.—Manufacturers' shipments and inventories, 1947-89
[Millions of dollars; monthly data seasonally adjusted]
Inventories2

l

Shipments
Year or
month

1947
1948
1949 . .
1950
1951
1952
1953
1954
1955
1956
1957
1958
1959 ..
..
I960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972 ...
1973
1974
1975
1976
1977
1978
1979 ....
1980
1981
1982
1983
1984
1985
1986
1987
1988
1988: Jan
Feb
Mar

Total

15,513
17,316
16,126
18,634
21,714
22,529
24,843
23,355
26,480
27,740
28,736
27,247
30,286
30,879
30,923
33,357
35,058
37,331
40,995
44,870
46,487
50,228
53,501
52,805
55,906
63,027
72,931
84,790
86,589
98,797
113,202
126,905
143,936
154,391
168,129
163,350
171,242
187,869
190,016
188,360
199,170
217,632
206,283
206,932
211,778
213,036
215,777
218,881
216,698
221,715
221,395
222,917
224,632
230,827
231,485
228,353
228,048
234,042
233,071
231,236
225,922
238,150
233,562
231,995
232,785

fc:
June....
July
Aug
Sept....
Oct
Nov
Dec
1989: Jan
Feb
Mar
Apr
May
June....
July
Aug
Sept....
Oct
Nov

Nondurable goods industries

Durable goods industries

Durable
goods
industries

Nondurable
goods
industries

Total

6,694
7,579
7,191
8,845
10,493
11,313
13,349
11,828
14,071
14,715
15,237
13,563
15,609
15,883
15,616
17,262
18,280
19,637
22,221
24,649
25,267
27,659
29,437
28,188
29,954
34,027
39,681
44,230
43,659
50,700
59,267
67,848
76,060
77,550
83,872
79,352
84,956
96,623
99,019
99,989
105,291
115,684
109,125
109,829
112,744
112,521
114,751
116,522
113,122
117,866
118,030
118,439
119,874
124,175
123,578
120,924
120,432
123,331
122,962
121,720
117,114
128,347
124,393
121,840
123,180

8,819
9,738
8,935
9,789
11,221
11,216
11,494
11,527
12,409
13,025
13,499
13,684
14,677
14,996
15,307
16,095
16,778
17,694
18,774
20,220
21,220
22,570
24,064
24,617
25,952
29,000
33,250
40,560
42,931
48,097
53,935
59,057
67,876
76,841
84,257
83,998
86,286
91,246
90,996
88,371
93,879
101,948
97,158
97,103
99,034
100,515
101,026
102,359
103,576
103,849
103,365
104,478
104,758
106,652
107,907
107,429
107,616
110,711
110,109
109,516
108,808
109,803
109,169
110,155
109,605

25,897
28,543
26,321
31,078
39,306
41,136
43,948
41,612
45,069
50,642
51,871
50,280
52,982
53,823
54,919
58,214
60,081
63,440
68,225
78,000
84,662
90,617
98,202
101,652
102,658
108,240
124,630
157,793
159,932
175,195
189,214
210,509
241,100
264,281
282,645
311,827
312,647
334,767
327,496
316,182
331,132
354,163
333,374
335,416
336,695
337,936
340,074
341,963
343,788
345,798
347,785
349,412
351,603
354,163
357,458
359,056
361,130
363,458
365,055
366,492
370,803
371,489
370,890
371,712
372,852

Materials
and
supplies

Total

13,061
14,662
13,060
15,539
20,991
23,731
25,878
23,710
26,405
30,447
31,728
30,282
32,099
32,399
32,563
34,647
35,889
38,528
42,286
49,950
55,005
58,876
64,738
66,781
66,289
70,250
81,399
101,741
102,871
112,584
121,601
137,891
160,533
174,620
186,347
200,825
200,406
218,771
214,066
208,313
216,598
233,666
218,507
219,913
220,523
221,405
222,948
224,000
225,467
226,600
228,214
229,735
231,766
233,666
236,810
238,165
239,330
240,486
241,689
242,295
245,813
246,378
245,621
246,427
247,649

8,966
7,894
9,194
10,417
10,608
10,043
10,783
10,361
10,290
10,824
11,080
11,981
13,341
15,503
16,455
17,376
18,693
19,182
19,759
20,860
26,029
35,151
33,920
37,548
40,251
45,252
52,687
55,121
57,927
58,960
60,203
64,881
62,229
60,218
61,255
65,252
61,753
61,830
62,552
62,541
63,105
63,522
64,138
64,998
65,253
65,324
65,298
65,252
66,273
66,852
67,278
66,887
66,748
66,681
67,565
67,746
67,611
68,010
68,166

1
Monthly
2

Work
in
process

10,720
9,721
10,756
12,317
12,837
12,392
13,070
12,783
13,204
14,156
14,874
16,192
18,077
21,939
25,004
27,335
30,408
29,848
28,650
30,788
35,546
42,603
43,369
46,344
50,620
58,634
69,254
76,997
81,105
87,223
87,643
97,750
97,253
94,466
99,952
108,392
100,751
101,955
101,709
102,665
103,678
104,112
104,257
103,927
104,440
105,239
106,884
108,392
109,309
110,118
111,555
113,381
114,291
114,668
116,487
116,560
115,477
115,756
116,895

Finished
goods

6,206
6,040
6,348
7,565
8,125
7,847
8,246
9,255
9,069
9,667
9,935
10,355
10,868
12,508
13,546
14,165
15,637
17,751
17,880
18,602
19,824
23,987
25,582
28,692
30,730
34,005
38,592
42,502
47,315
54,642
52,560
56,140
54,584
53,629
55,391
60,022
56,003
56,128
56,262
56,199
56,165
56,366
57,072
57,675
58,521
59,172
59,584
60,022
61,228
61,195
60,497
60,218
60,650
60,946
61,761
62,072
62,533
62,661
62,588

Total

Materials
and
supplies

12,836
13,881
13,261
15,539
18,315
17405
18,070
17,902
18,664
20,195
20,143
19,998
20,883
21,424
22,356
23,567
24,192
24,912
25,939
28,050
29,657
31,741
33,464
34,871
36,369
37,990
43,231
56,052
57,061
62,611
67,613
72,618
80,567
89,661
96,298
111,002
112,241
115,996
113,430
107,869
114,534
120,497
114,867
115,503
116,172
116,531
117,126
117,963
118,321
119,198
119,571
119,677
119,837
120,497
120,648
120,891
121,800
122,972
123,366
124,197
124,990
125,111
125,269
125,285
125,203

average for year and tptal for month.
Seasonally adjusted, end of period. Data beginning 1982 are not comparable with data for prior periods.
Note.—Data beginning 1958 are not strictly comparable with earlier data.
Source: Department of Commerce, Bureau of the Census.




357

8,317
8,167
8,556
8,971
8,775
8,669
9,083
9,088
9,502
9,819
9,984
10,134
10,453
11,159
11,714
12,290
12,725
13,150
13,683
14,676
18,132
23,700
23,542
25,832
27,398
29,317
32,451
36,206
37,758
43,915
44,643
44,917
42,964
41,540
44,354
47,294
44,694
44,858
45,458
45,578
45,790
46,255
46,350
46,931
47,364
47,611
47,664
47,294
46,963
46,900
46,858
46,780
46,679
46,773
46,891
47,073
46,643
46,769
47,027

Work
in
process

2,472
2,440
2,571
2,721
2,864
2,832
2,947
2,950
3,109
3,298
3,407
3,517
3,811
4,207
4,421
4,848
5,122
5,274
5,665
5,982
6,707
8,175
8,837
9,933
11,003
11,907
13,741
15,732
16,074
18,585
18,842
18,978
18,926
17,360
18,752
19,291
18,759
18,610
18,891
19,061
19,075
19,050
19,218
19,163
19,110
19,172
19,071
19,291
19,532
19,522
20,075
20,493
20,290
20,524
20,837
20,919
20,985
21,405
21,150

Finished
goods

7,409
7,415
7,666
8,622
8,624
8,497
8,853
9,386
9,745
10,450
10,801
11,261
11,675
12,684
13,522
14,603
15,617
16,447
17,021
17,332
18,392
24,177
24,682
26,846
29,212
31,394
34,375
37,723
42,466
48,502
48,756
52,101
51,540
48,969
51,428
53,912
51,414
52,035
51,823
51,892
52,261
52,658
52,753
53,104
53,097
52,894
53,102
53,912
54,153
54,469
54,867
55,699
56,397
56,900
57,262
57,119
57,641
57,111
57,026

TABLE C-57.—Manufacturers' new and unfilled orders, 1947-89
[Amounts in millions of dollars; monthly data seasonally adjusted]
Unfilled orders2

New ordersx

Unfilled orders— shipments
ratio3

Durable goods
industries
Year or month
Total
Total

NonCapital durable
goods
goods
indus- industries
tries,
nondefense

Total

NonDurable
durable
goods
goods
industries industries

Total

NonDurable durable
goods
goods
industries industries

1947
1948
1949
1950
1951
1952
1953
1954
1955
1956
1957
1958
1959
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973 . .
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988

15,256
17,693
15,614
20,110
23,907
23,204
23,586
22,335
27,465
28,368
27,559
27,191
30,731
30,240
31,106
33,432
35,536
38,339
42,111
46,402
47,056
50,687
53,950
52,038
55,984
64,173
76,056
87,245
85,220
99,532
115,103
131,650
147,574
156,318
167,883
162,273
174,122
189,791
190,918
188,663
201,966
221,627

6,388
8,126
6,633
10,165
12,841
12,061
12,147
10,768
14,996
15,365
14,111
13,397
16,010
15,308
15,761
17,370
18,721
20,633
23,288
26,176
25,825
28,116 ""6,915"
29,871
7,660
27,388 6,738
7,444
29,998
35,069
8,622
42,726 10,971
46,836 12,673
42,099 11,011
51,404 12,791
61,128 15,242
72,416 19,420
79,586 23,221
79,482 23,242
83,657 24,012
78,338 21,661
87,600 22,098
98,581 26,243
99,843 27,067
100,166 26,551
107,770 29,707
119,634 35,028

8,868
9,566
8,981
9,945
11,066
11,143
11,439
11,566
12,469
13,003
13,448
13,795
14,721
14,932
15,345
16,062
16,815
17,706
18,824
20,225
21,231
22,571
24,080
24,650
25,986
29,104
33,330
40,409
43,122
48,129
53,975
59,234
67,987
76,836
84,226
83,935
86,522
91,209
91,075
88,497
94,197
101,993

34,473
30,736
24,045
41,456
67,266
75,857
61,178
48,266
60,004
67,375
53,183
46,806
52,242
44,666
47,016
48,124
54,019
66,347
79,685
97,991
104,548
109,923
115,424
106,156
107,145
121,060
158,885
188,468
172,037
180,564
204,946
262,415
306,540
329,884
327,356
314,270
349,419
372,586
383,181
387,065
421,243
468,860

28,579
26,619
19,622
35,435
63,394
72,680
58,637
45,250
56,241
63,880
50,352
43,991
48,878
42,097
43,979
45,509
50,956
63,152
75,906
94,160
100,578
105,947
111,253
101,565
102,118
114,724
151,506
182,926
164,139
172,274
196,244
251,525
294,272
317,677
315,529
303,187
335,367
358,899
388,427
370,700
400,720
447,868

5,894
4,117
4,423
6,021
3,872
3,177
2,541
3,016
3,763
3,495
2,831
2.815
3,364
2,569
3,037
2,615
3,063
3,195
3,779
3,831
3,970
3,976
4,171
4,591
5,027
6,336
7,379
5,542
7,898
8,290
8,702
10,890
12,268
12,207
11,827
11,083
14,052
13,687
14,754
16,365
20,523
20,992

3.42
3.63
3.87
3.35
3.05
2.98
2.75
2.61
2.66
2.78
3.08
3.31
3.79
3.70
3.85
3.75
3.65
3.38
3.31
3.86
4.13
3.76
3.30
3.29
3.62
3.93
3.88
3.87
3.88
3.59
3.64
3.72
3.63
3.65
3.66

4.12
4.27
4.55
4.00
3.64
3.50
3.33
3.10
3.20
3.35
3.69
3.93
4.53
4.40
4.65
4.50
4.39
4.06
3.90
4.56
4.96
4.52
3.94
3.90
4.25
4.66
4.62
4.67
4.78
4.34
4.41
4.51
4.43
4.41
4.43

0.96
1.12
1.04
.85
.86
.94
.72
.79
.68
.73
.72
.80
.76
.73
.69
.69
.77
.77
.88
.93
.64
.84
.76
.72
.83
.83
.76
.69
.63
.70
.65
.69
.71
.83
.78

1988- Jan
Feb
Mar
Apr
May
June
July
Aug
Sept
Oct
Nov
Dec
1989: Jan
Feb
Mar
Apr
May
June
July
Aug
Sept
Oct
Nov

210,202
211,283
211,799
217,029
216,398
228,090
219,877
227,009
222,669
227,095
228,153
238,886
236,075
231,306
233,011
239,907
233,753
235,157
230,447
236,793
234,354
234,067
239,816

113,069
114,155
113,063
116,836
115,369
125,442
116,112
122,806
119,321
122,791
123,035
132,149
128,479
124,107
125,377
129,372
123,524
125,137
122,031
126,766
125,227
124,262
130,307

97,133
97,128
98,736
100,193
101,029
102,648
103,765
104,203
103,348
104,304
105,118
106,737
107,596
107,199
107,634
110,535
110,229
110,020
108,416
110,027
109,127
109,805
109,509

425,162
429,513
429,534
433,527
434,148
443,357
446,536
451,830
453,103
457,281
460,802
468,860
473,450
476,403
481,366
487,231
487,913
491,834
496,359
495,002
495,794
497,866
504,897

404,664
408,990
409,309
413,624
414,242
423,162
426,152
431,092
432,382
436,734
439,895
447,868
452,769
455,952
460,897
466,938
467,500
470,917
475,834
474,253
475,087
477,509
484,636

20,498
20,523
20,225
19,903
19,906
20,195
20,384
20,738
20,721
20,547
20,907
20,992
20,681
20,451
20,469
20,293
20,413
20,917
20,525
20,749
20,707
20,357
20,261

3.71
3.74
3.66
3.68
3.64
3.67
3.73
3.68
3.66
3.70
3.69
3.66
3.71
3.78
3.83
3.79
3.80
3.84
3.95
3.74
3.79
3.87
3.91

4.52
4.55
4.44
4.50
4.42
4.44
4.55
4.46
4.43
4.49
4.48
4.43
4.51
4.61
4.65
4.61
4.62
4.66
4.83
4.52
4.59
4.71
4.77

.82
.82
.80
.77
.77
.79
.79
.79
.79
.78
.78
.78
.77
.75
.77
.74
.75
.77
.76
.76
.76
.74
.73

.. ..

33,867
33,819
31,924
33,746
31,522
35,458
36,213
38,808
34,858
34,623
35,825
39,432
40,352
37,189
38,137
40,389
37,290
39,146
41,445
37,130
35,341
35,975
38,823

1
Monthly average for year
2
Seasonally adjusted, end
3

and total for month.
of period.
Ratio of unfilled orders at end of period to shipments for period; excludes industries with no unfilled orders. Annual figures relate
to seasonally adjusted data for December.
Note.—Data beginning 1958 are not strictly comparable with earlier data.
Source: Department of Commerce, Bureau of the Census.




358

PRICES
TABLE C-58.—Consumer price indexes, major expenditure classes, 1946-89
[1982-84=100]
Housing

Food and
beverages
Year or
month

All
items
Total *

1946
1947
1948
1949
1950
1951
1952
1953
1954 ..
1955
1956
1957
1958
1959
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980 . .
1981
1982
1983
1984
1985
1986
1987
1988
1989
1988: Jan
Feb
Mar

19.5
223
24.1
23.8
24.1
26.0
26.5
26.7
26.9
26.8
27.2
28.1
28.9
29.1
29.6
29.9
30.2
30.6
310
31.5
324
33.4
34.8
36.7
38.8
40.5
41.8
44.4
49.3
53.8
56.9
60.6
65.2
72.6
82.4
90.9
96.5
99.6
103.9
107.6
109.6
113.6
118.3
124.0
115.7
116.0
116.5
117.1
117.5
June
118.0
July
118.5
119.0
Aug
Sept
119.8
Oct
120.2
Nov
120.3
Dec
120.5
1989: Jan
121.1
Feb
121.6
Mar
122.3
123.1
May'H! 123.8
124.1
June
124.4
July
Aug
124.6
125.0
Sept
Oct
125.6
Nov
125.9
Dec
126.1

fc

35.0
36.2
38.1
40.1
41.4
43.1
48.8
55.5
60.2
62.1
65.8
72.2
79.9
86.7
93.5
97.3
99.5
103.2
105.6
109.1
113.5
118.2
124.9
115.7
115.8
116.0
116.7
117.1
117.6
118.8
119.4
120.1
120.3
120.2
120.6
122.0
122.7
123.3
124.0
124.7
124.9
125.4
125.6
125.9
126.3
126.7
127.2

Food

19.8
241
26.1
250
25.4
282
28.7
28.3
28.2
27.8
28.0
28.9
30.2
29.7
30.0
30.4
30.6
31.1
31.5
32.2
33.8
34.1
35.3
37.1
39.2
40.4
42.1
48.2
55.1
59.8
61.6
65.5
72.0
79.9
86.8
93.6
97.4
99.4
103.2
105.6
109.0
113.5
118.2
125.1
115.7
115.7
115.9
116.6
117.0
117.6
118.8
119.4
120.2
120.3
120.2
120.7
122.2
122.9
123.5
124.2
124.9
125.0
125.5
125.8
126.1
126.5
126.9
127.4

1
Includes alcoholic beverages, not
2
See table C-59 for components.
3

Total

:i::;i"

30.8
32.0
34.0
36.4
38.0
39.4
41.2
45.8
50.7
53.8
57.4
62.4
70.1
81.1
90.4
96.9
99.5
103.6
107.7
110.9
114.2
118.5
123.0
116.2
116.6
117.0
117.3
117.7
118.6
119.1
119.5
119.9
119.9
119.9
120.2
120.7
121.1
121.5
121.6
122.1
122.9
123.9
124.2
124.3
124.4
124.5
124.9

HouseOther
hold Apparel TransEnterFuel and furnish- and portation Medical tainment goods
care
and
Shelter other 2 ings upkeep
services
utilities
and
operation

22.0
22.5
22.7
23.1
24.0
24.5
24.7
25.2
25.4
25.8
26.1
26.5
27.0
27.8
28.8
30.1
32.6
35.5
37.0
38.7
40.5
44.4
48.8
51.5
54.9
60.5
68.9
81.0
90.5
96.9
99.1
104.0
109.8
115.8
121.3
127.1
132.8
124.6
125.0
125.6
125.8
126.2
126.6
127.4
128.2
128.4
128.8
129.1
129.3
129.8
130.3
131.2
131.2
131.8
132.3
133.6
134.1
134.1
134.8
135.2
135.6

225
22.6
23.0
23.6
24.3
24.8
25.4
26.0
26.3
26.3
26.6
26.6
26.6
26.7
27.1
27.4
28.0
29.1
31.1
32.5
34.3
40.7
45.4
49.4
54.7
58.5
64.8
75.4
86.4
94.9
100.2
104.8
106.5
104.1
103.0
104.4
107.8
102.4
102.8
102.7
102.8
103.5
105.9
106.0
106.1
106.4
105.4
104.3
105.0
106.0
105.9
105.9
106.2
107.0
109.2
109.7
109.7
109.7
108.0
107.5
108.4

34.4
39.9
42.5
40.8
40.3
43.9
43.5
43.1
43.1
42.9
43.7
44.5
44.6
45.0
45.7
46.1
46.3
46.9
47.3
47.8
49.0
42!5' 51.0
53.7
43.6
45.2
56.8
46.8
59.2
48.6
61.1
49.7
62.3
51.1
64.6
69.4
56.8
63.4
72.5
67.3
75.2
70.4
78.6
74.7
81.4
79.9
84.9
86.3
90.9
93.0
95.3
98.0
97.8
100.2 100.2
101.9 102.1
103.8 105.0
105.2 105.9
107.1 110.6
109.4 115.4
111.2 118.6
107.5 110.4
107.7 110.2
108.3 114.3
109.1 117.0
109.3 116.3
109.6 114.6
109.8 112.7
109.7 112.6
110.1 117.8
110.3 120.7
110.6 119.9
110.6 118.0
110.9 115.3
110.9 115.3
110.5 119.3
110.7 120.9
110.8 120.4
111.1 117.8
111.4 115.0
111.4 115.0
111.7 120.0
111.9 122.7
111.9 122.1
111.7 119.2

16.7
18.5
20.6
22.1
22.7
24.1
25.7
26.5
26.1
25.8
26.2
27.7
28.6
29.8
29.8
30.1
30.8
30.9
31.4
31.9
32.3
33.3
34.3
35.7
37.5
39.5
39.9
41.2
45.8
50.1
55.1
59.0
61.7
70.5
83.1
93.2
97.0
99.3
103.7
106.4
102.3
105.4
108.7
114.1
107.1
106.8
106.5
107.2
108.1
108.5
108.9
109.6
109.7
110.0
110.7
110.8
111.1
111.6
111.9
114.6
116.0
115.9
115.4
114.3
113.7
114.5
115.0
115.2

12.5
13.5
14.4
14.8
15.1
15.9
16.7
17.3
17.8
18.2
18.9
19.7
20.6
21.5
22.3
22.9
23.5
24.1
24.6
25.2
26.3
28.2
29.9
31.9
34.0
36.1
37.3
38.8
42.4
47.5
52.0
57.0
61.8
67.5
74.9
82.9
92.5
100.6
106.8
113.5
122.0
130.1
138.6
149.3
134.4
135.5
136.3
136.9
137.5
138.2
139.3
139.9
140.4
141.2
141.8
142.3
143.8
145.2
146.1
146.8
147.5
148.5
149.7
150.7
151.7
152.7
153.9
154.4

40.7
43.0
45.2
47.5
50.0
51.5
52.9
56.9
62.0
65.1
68.3
71.9
76.7
83.6
90.1
96.0
100.1
103.8
107.9
111.6
115.3
120.3
126.5
118.1
118.3
119.0
119.6
119.7
120.1
120.5
120.7
121.3
121.8
122.2
122.8
123.8
124.3
124.7
125.4
125.5
126.2
126.9
127.3
127.8
128.4
128.6
129.1

35.1
36.9
38.7
40.9
42.9
44.7
46.4
49.8
53.9
57.0
60.4
64.3
68.9
75.2
82.6
91.1
101.1
107.9
114.5
121.4
128.5
137.0
147.7
133.4
134.2
134.6
134.8
135.1
135.5
136.5
137.5
140.0
140.6
141.0
141.3
143.4
144.1
144.4
144.7
145.4
146.3
147.3
148.7
151.2
151.8
151.9
152.9

Energy 3

21.5
21.5
21.9
22.4
22.5
22.6
22.6
22.5
22.9
23.3
23.8
24.2
24.8
25.5
26.5
27.2
29.4
38.1
42.1
45.1
49.4
52.5
65.7
86.0
97.7
99.2
99.9
100.9
101.6
88.2
88.6
89.3
94.3
87.4
87.0
86.5
87.3
88.7
91.0
91.4
92.3
91.9
89.9
88.9
88.7
89.0
89.3
89.8
94.9
97.4
99.0
98.5
97.0
95.9
94.6
93.2
93.2

shown separately.

See tables C-60 for definition and C-59 for components.
Note.—Data beginning 1978 are for all urban consumers; earlier data are for urban wage earners and clerical workers.
Data beginning 1983 incorporate a rental equivalence measure for homeowners' costs and therefore are not strictly comparable with
earlier figures.
Source: Department of Labor, Bureau of Labor Statistics.




359

TABLE C-59.—Consumer price indexes, selected expenditure classes, 1946-89
[1982-84=100, except as noted]
Food and beverages

Shelter

Year or month

1946
1947
1948
1949
1950
1951
1952
1953
1954
1955
1956
1957
1958
1959
I960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1988- Jan
Feb
Mar
May
June .
July
Aug
Sept
Oct
Nov
Dec
1989- Jan
Feb
Mar
Apr
May
June
Julv
Aug
Sept
Oct
Nov
Dec

Total

l

35.0
36.2
38.1
40.1
41.4
43.1
48.8
55.5
60.2
62.1
65.8
72.2
79.9
86.7
93.5
97.3
99.5
103.2
105.6
109.1
113.5
118.2
124.9
115.7
115.8
116.0
116.7
117.1
117.6
118.8
119.4
120.1
120.3
120.2
120.6
122.0
122.7
123.3
124.0
124.7
124.9
125.4
125.6
125.9
126.3
126.7
127.2

Total

At

198
24.1
26.1
25.0
25.4
28.2
28.7
28.3
28.2
27.8
28.0
28.9
30.2
29.7
30.0
30.4
30.6
31.1
31.5
32.2
33.8
34.1
35.3
37.1
39.2
40.4
42.1
48.2
55.1
59.8
61.6
65.5
72.0
79.9
86.8
93.6
97.4
99.4
103.2
105.6
109.0
113.5
118.2
125.1
115.7
115.7
115.9
116.6
117.0
117.6
118.8
119.4
120.2
120.3
120.2
120.7
122.2
122.9
123.5
124.2
124.9
125.0
125.5
125.8
126.1
126.5
126.9
127.4

25.8
28.0
26.9
27.3
30.3
30.8
30.3
30.1
29.5
29.6
30.6
32.0
31.2
31.5
31.8
32.0
32.4
32.7
33.5
35.2
35.1
36.3
38.0
39.9
40.9
42.7
49.7
57.1
61.8
63.1
66.8
73.8
81.8
88.4
94.8
98.1
99.1
102.8
104.3
107.3
111.9
116.6
124.2
114.1
113.9
113.9
114.6
115.1
115.8
117.3
118.1
119.0
119.0
118.7
119.1
121.2
122.0
122.7
123.5
124.4
124.3
124.8
124.9
125.0
125.4
125.8
126.5

Away Total
Total 2
from
home

21.5
21.9
22.1
22.6
23.4
24.1
24.8
25.4
26.0
26.7
27.3
27.8
28.4
29.7
31.3
32.9
34.9
37.5
39.4
41.0
44.2
49.8
54.5
58.2
62.6
68.3
75.9
83.4
90.9
95.8
100.0
104.2
108.3
112.5
117.0
121.8
127.4
119.3
119.7
120.2
120.7
121.0
121.5
122.1
122.5
123.0
123.4
123.7
124.1
124.7
125.2
125.7
126.2
126.7
127.1
127.8
128.1
128.8
129.1
129.5
129.8

22.0
22.5
22.7
23.1
24.0
24.5
24.7
25.2
25.4
25.8
26.1
26.5
27.0
27.8
28.8
30.1
32.6
35.5
37.0
38.7
40.5
44.4
48.8
51.5
54.9
60.5
68.9
81.0
90.5
96.9
99.1 "'i'oio
104.0 108.6
109.8 115.4
115.8 121.9
121.3 128.1
127.1 133.6
132.8 138.9
124.6 130.8
125.0 131.3
125.6 132.9
125.8 132.9
126.2 133.1
126.6 133.7
127.4 134.7
128.2 135.6
128.4 134.7
128.8 134.8
129.1 134.2
129.3 134.1
129.8 135.2
130.3 136.3
131.2 138.6
131.2 137.9
131.8 137.8
132.3 138.7
133.6 141.5
134.1 141.5
134.1 139.4
134.8 140.0
135.2 140.1
135.6 140.1

:": : : : :

""••""•••

Household fuels

Home
Home- mainteRent, owners' nance Total
2
resi- costs
and
repairs
dential

250
25.8
275
287
29.7
309
32.2
33.9
35.1
35.6
36.3
37.0
37.6
38.2
38.7
39.2
39.7
40.1
40.5
40.9
41.5
42.2
43.3
447
46.5
48.7 I-Z-50.4
52.5
55.2
58.0
61.1
64.8
69.3
74.3
80.9
87.9
94.6
100.1 ""ibis"
105.3 107.3
111.8 113.1
118.3 119.4
123.1 124.8
127.8 131.1
132.8 137.3
126.0 128.5
126.3 129.0
126.4 129.2
126.6 129.4
126.9 129.9
127.3 130.4
127.8 131.0
128.4 131.8
129.1 132.6
129.4 133.1
129.8 133.8
130.1 134.0
130.5 134.4
130.9 134.7
131.1 135.0
131.4 122.4
131.7 136.2
132.3 136.5
133.0 137.3
133.5 138.1
133.9 138.9
134.7 139.7
135.2 140.3
135.5 140.9

1
Includes alcoholic beverages, not shown separately.
2 December 1982=100.
See next page for continuation of table.




Fuel and other utilities

Renters' costs

Food

360

20.5
20.9
21.4
22.3
23.2
23.6
24.0
24.4
24.8
25.0
25.3
25.8
26.3
27.5
28.9
30.6
33.2
35.8
38.6
40.6
43.6
49.5
54.1
57.6
62.0
67.2
74.0
82.4
90.7
96.4
99.9
103.7
106.5
107.9
111.8
114.7
118.0
113.7
114.3
113.3
115.3
114.3
114.7
114.5
115.0
115.3
115.0
115.4
115.8
116.1
117.1
117.1
117.3
117.4
118.3
118.4
118.5
118.6
118.6
119.3
119.5

22.5
22.6
23.0
23.6
24.3
24.8
25.4
26.0
26.3
26.3
26.6
26.6
26.6
26.7
27.1
27.4
28.0
29.1
31.1
32.5
34.3
40.7
45.4
49.4
54.7
58.5
64.8
75.4
86.4
94.9
100.2
104.8
106.5
104.1
103.0
104.4
107.8
102.4
102.8
102.7
102.8
103.5
105.9
106.0
106.1
106.4
105.4
104.3
105.0
106.0
105.9
105.9
106.2
107.0
109.2
109.7
109.7
109.7
108.0
107.5
108.4

Fuel oil
Other
and
Gas
utilities
other
and
house- (Piped) public
Total
and
hold
elec- services
fuel
tricity
commodities

••••-"•-

'"2l'.4
21.7
22.1
23.1
24.7
25.7
27.5
34.4
39.4
43.3
49.0
53.0
61.3
74.8
87.2
95.6
100.5
104.0
104.5
99.2
97.3
98.0
100.9
95.6
96.0
95.8
95.7
96.5
100.8
100.8
100.9
101.0
98.6
96.8
97.4
98.7
98.6
98.5
98.8
99.6
103.2
103.7
103.7
103.5
101.0
99.9
101.2

7.9
90
10.6
109
11.3
11.8
121
12.6
12.6
12.7
13.3
14.0
13.7
13.9
13.8
14.1
14.2
14.4
14.4
14.6
15.0
15.5
16.0
16.3
17.0
18.2
18.3
21.1
33.2
36.4
38.8
43.9
46.2
62.4
86.1
104.6
103.4
97.2
99.4
95.9
77.6
77.9
78.1
81.7
80.8
80.9
80.5