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Economic Report of the President Transmitted to the Congress February 2000 together with THE ANNUAL REPORT of the COUNCIL OF ECONOMIC ADVISERS UNITED STATES GOVERNMENT PRINTING OFFICE mSHINGTON: 2000 For sale by the U.S. Government Printing Office Superintendent of Documents, Mail Stop: SSOP, Washington, DC 20402-9328 ISBN 0-16-050275-6 C O N T E N T S ECONOMIC REPORT OF THE PRESIDENT 1 ANNUAL REPORT OF THE COUNCIL OF ECONOMIC ADVISERS* 9 CHAPTER l. SUSTAINING A RECORD-BREAKING EXPANSION 21 CHAPTER 2. MACROECONOMIC POLICY AND PERFORMANCE 49 CHAPTER 3. TECHNOLOGY AND THE AMERICAN ECONOMY 97 CHAPTER 4. W O R K AND LEARNING IN THE 2 1 S T CENTURY 129 CHAPTER 5. T H E CHANGING AMERICAN FAMILY 165 CHAPTER 6. OPPORTUNITY AND CHALLENGE IN THE GLOBAL ECONOMY CHAPTER 7. MAKING MARKETS W O R K FOR THE ENVIRONMENT 199 239 CONCLUSION. A CENTURY OF CHANGE: N E W OPPORTUNITIES FOR THE FUTURE APPENDIX A. REPORT TO THE PRESIDENT O N THE ACTIVITIES OF THE COUNCIL OF ECONOMIC ADVISERS DURING 1999 APPENDIX B. STATISTICAL TABLES RELATING TO INCOME, EMPLOYMENT, AND PRODUCTION * For a detailed table of contents of the Councils Report, seepage 13 277 285 299 ECONOMIC REPORT OF THE PRESIDENT ECONOMIC REPORT OF THE PRESIDENT To the Congress of the United States: Today, the American economy is stronger than ever. We are on the brink of marking the longest economic expansion in our Nations history. More than 20 million new jobs have been created since Vice President Gore and I took office in January 1993. We now have the lowest unemployment rate in 30 years—even as core inflation has reached its lowest level since 1965. This expansion has been both deep and broad, reaching Americans of all races, ethnicities, and income levels. African American unemployment and poverty are at their lowest levels on record. Hispanic unemployment is likewise the lowest on record, and poverty among Hispanics is at its lowest level since 1979. A long-running trend of rising income inequality has been halted in the last 7 years. From 1993 to 1998, families at the bottom of the income distribution have enjoyed the same strong income growth as workers at the top. In 1999 we had the largest dollar surplus in the Federal budget on record and the largest in proportion to our economy since 1951. We are on course to achieve more budget surpluses for many years to come. We have used this unique opportunity to make the right choices for the future: over the past 2 years, America has paid down $140 billion in debt held by the public. With my plan to continue to pay down the debt, we are now on track to eliminate the Nations publicly held debt by 2013. Our fiscal discipline has paid off in lower interest rates, higher private investment, and stronger productivity growth. These economic successes have not been achieved by accident. They rest on the three pillars of the economic strategy that the Vice President and I laid out when we took office: fiscal discipline to help reduce interest rates and spur business investment; investing in education, health care, and science and technology to meet the challenges of the 21st century; and opening foreign markets so that American workers have a fair chance to compete abroad. As a result, the American economy is not only strong today; it is well positioned to continue to expand and to widen the circle of opportunity for more Americans. The Administration s Economic Strategy Our economic strategy was based on a commitment, first, to fiscal discipline. When the Vice President and I took office, the U.S. Government had a budget deficit of $290 billion. Today we have a surplus of $124 billion. This fiscal discipline has helped us launch a virtuous circle of strong investment, increasing productivity, low inflation, and low unemployment. Second, we have remained true to our commitment to invest in our people. Because success in the global economy depends more than ever on highly skilled workers, we have taken concerted steps to make sure all Americans have the education, skills, and opportunities they need to succeed. That is why, even as we maintained fiscal responsibility, we expanded our investments in education, technology, and training. We have opened the doors of college to all Americans, with tax credits, more affordable student loans, education IRAs, and the HOPE Scholarship tax credits. So that working families will have the means to support themselves, we have increased the minimum wage, expanded the Earned Income Tax Credit (EITC), provided access to health insurance for people with disabilities, and invested in making health insurance coverage available to millions of children. Third, we have continued to pursue a policy of opening markets. We have achieved historic trade pacts such as the North American Free Trade Agreement and the Uruguay Round agreements, which led to the creation of the World Trade Organization. Negotiations in the wake of the Uruguay Round have yielded market access commitments covering information technology, basic telecommunications, and financial services. We have engaged in bilateral initiatives with Japan and in regional initiatives in Europe, Africa, Asia, the Western Hemisphere, and the Middle East. We have also actively protected our rights under existing trade agreements through the World Trade Organization and helped maintain the Internet as a tax-free zone. Meeting the Challenges of the Future Despite the economy's extraordinary performance, we must continue working to meet the challenges of the future. Those challenges include educating our children, improving the health and well-being of all our citizens, providing for our senior citizens, and extending the benefits of the economic expansion to all communities and all parts of this Nation. We must help our children prepare for life in a global, information-driven economy. Success in this new environment requires that children have a highquality education. That means safe, modern schools. It means making sure our children have well-trained teachers who demand high standards. It means making sure all schools are equipped with the best new technologies, so that children can harness the tools of the 21st century. First and foremost, our children cannot continue trying to learn in schools that are so old they are falling apart. One-third of all public schools need extensive repair or replacement. By 2003 we will need an additional 2,400 schools nationwide to accommodate these rising enrollments. That is why, in 4 I Economic Report of the President my State of the Union address, I proposed $24.8 billion in tax credit bonds over 2 years to modernize up to 6,000 schools, and a $1.3 billion school emergency loan and grant proposal to help renovate schools in high-poverty, high-need school districts. Second, if our children are to succeed in the new digital economy, they must know how to use the tools of the 21st century. That is why the Vice President and I have fought for initiatives like the E-rate, which is providing $2 billion a year to help schools afford to network their classrooms and connect to the Internet. The E-rate and our other initiatives in education technology have gone a long way toward giving all children access to technology in their schools. But there is still a great "digital divide" when children go home. Children from wealthy families are far more likely to have access to a computer at home than children from poor or minority families. That is why, in my budget, I propose a new Digital Divide initiative that will expand support for community technology centers in low-income communities; a pilot project to expand home access to computers and the Internet for low-income families; and grants and loan guarantees to accelerate the deployment of high-speed networks in underserved rural and urban communities. Third, we must continue to make college affordable and accessible for all Americans. I have proposed a college opportunity tax cut, which would invest $30 billion over 10 years in helping millions of families who now struggle to afford college for their children. When fully phased in, this initiative would give families the option to claim a tax deduction or a tax credit on up to $10,000 of tuition and fees for any postsecondary education in which their members enroll, whether college, graduate study, or training courses. I have proposed increases in Pell grants, Supplemental Educational Opportunity Grants, and Work Study. I have also proposed creating new College Completion Challenge Grants to encourage students to stay in college. We have seen dramatic advances in health care over the course of the 20th century, which have led to an increase in life expectancy of almost 30 years. But much remains to be done to ensure that all have and maintain access to quality medical care. That is why my budget expands health care coverage, calls for passing a strong and enforceable Patients' Bill of Rights, strengthens and modernizes Medicare, addresses long-term care, and continues to promote life-saving research. My budget invests over $110 billion over 10 years to improve the affordability, accessibility, and quality of health insurance. It will provide a new, affordable health insurance option for uninsured parents as well as accelerate enrollment of uninsured children who are eligible for Medicaid and the State Children's Health Insurance Program. The initiative will expand health insurance options for Americans facing unique barriers to coverage. For example, it will allow certain people aged 55-65 to buy into Medicare, and it Economic Report of the President I 5 will give tax credits to workers who cannot afford the full costs of COBRA coverage after leaving a job. Finally, my initiative will provide funds to strengthen the public hospitals and clinics that provide health care directly to the uninsured. If enacted, this would be the largest investment in health coverage since Medicare was created in 1965, and one of the most significant steps we can take to help working families. As our Nation ages and we live longer, we face new challenges in Medicare and long-term care. Despite improvements in Medicare in the past 7 years, the program begins this century with the disadvantages of insufficient funding, inadequate benefits, and outdated payment systems. To strengthen and modernize the program, I have proposed a comprehensive reform plan that would make Medicare more competitive and efficient and invest $400 billion over the next 10 years in extending solvency through 2025 and adding a long-overdue, voluntary prescription drug benefit. The aging of America also underscores the need to build systems to provide long-term care. More than 5 million Americans require long-term care because of significant limitations due to illness or disability. About two-thirds of them are older Americans. That is why I have proposed a $27 billion investment over 10 years in long-term care. Its centerpiece is a $3,000 tax credit to defray the cost of long-term care. In addition, I propose to expand access to home-based care, to establish new support networks for caregivers, and to promote quality private long-term care insurance by offering it to Federal employees at group rates. We must continue to make this economic expansion reach out to every corner of our country, leaving no town, city, or Native American reservation behind. That is why I am asking the Congress to authorize two additional components of our New Markets agenda. The first is the New Markets Venture Capital Firms program, geared toward helping small andfirst-timebusinesses. The second is Americas Private Investment Companies, modeled on the Overseas Private Investment Corporation, to help larger businesses expand or relocate to distressed inner-city and rural areas. Overall the New Markets initiative could spur $22 billion of new equity investment in our underserved communities. I am also proposing a new initiative called First Accounts, to expand access tofinancialservices for low- and moderate-income Americans. We will work with privatefinancialinstitutions to encourage the creation of low-cost bank accounts for low-income families. We will help bring more automated teller machines to safe places in low-income communities, such as the post office. And we will educate Americans about managing household finances and building assets over time. To further increase opportunities for working families, I am proposing another expansion of the EITC to provide tax relief for 6.4 million 6 I Economic Report of the President hard-pressed families—with additional benefits for families with three or more children. We have seen the dramatic effects that our 1993 expansion of the EITC had in reducing poverty and encouraging work: 4.3 million people were directly lifted out of poverty by the EITC in 1998 alone. More single mothers are working than ever before, and the child poverty rate is at its lowest since 1980. Our initiatives to open overseas markets will continue. We have successfully concluded bilateral negotiations on Chinas accession to the World Trade Organization and now seek congressional action to provide China with permanent normal trade relations. The United States will also work to give the least developed countries greater access to global markets. We will participate in the scheduled multilateral talks to liberalize trade in services and agriculture and will continue to press our trading partners to launch a new round of negotiations within the World Trade Organization. We have a historic opportunity to answer the challenges ahead: to increase economic opportunity for all American families; to provide quality, affordable child care, health care, and long-term care; and to give our children the best education in the world. Working together, we can meet these great challenges and make this new millennium one of ever-increasing promise, hope, and opportunity for all Americans. THE WHITE HOUSE FEBRUARY 10, 2000 Economic Report of the President I 7 THE ANNUAL REPORT OF THE COUNCIL OF ECONOMIC ADVISERS LETTER OF TRANSMITTAL COUNCIL OF ECONOMIC ADVISERS, Washington, D.C, February 10, 2000. M R . PRESIDENT: The Council of Economic Advisers herewith submits its 2000 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, Martin N. Baily, Chairman Robert Z. Lawrence, Member Kathryn L. Shaw, Member-Nominee Economic Report of the President I 11 C O N T E N T S Page CHAPTER 1. SUSTAINING A RECORD-BREAKING EXPANSION Growth and Inequality: A Century-Long Perspective The Golden Years of Equitable Growth Growth Undermined: Stagflation, Rising Inequality, and Deficits The Return to Broad-Based Growth in a Record-Breaking Expansion The Engines of the 1990s Expansion Information and Other Technology Competition and Trade Education, Skills, and Work Incentives Pro-Investment Policies Key Features of the Expansion Productivity Growth Inflation Questioning the Causes of Inequality Is the Dream Restored? Challenges for the Future Stabilizing the Macroeconomy Enhancing Productivity Promoting Skills, Education, and Development Supporting the Diverse American Family Exploiting the Potential of Globalization Maintaining the Environment Efficiently Conclusion 21 23 24 25 26 28 28 30 30 31 34 34 36 37 40 42 42 42 43 44 45 46 47 CHAPTER 2 . MACROECONOMIC POLICY AND PERFORMANCE 49 The Year in Review Components of Spending Labor Markets and Inflation Financial Markets Saving and Investment Trends in Saving Saving and Asset Accumulation The End of the Business Cycle? The Changing Nature of Business Cycles in the United States 53 53 58 64 72 72 73 74 75 13 Sources of Business Cycle Moderation Do Expansions Die of Old Age? An Expansion is Only as Old as It Feels, and This One Still Feels Young The Economic Outlook What Has Caused Productivity Growth to Rise? The Oudook for Productivity Supply-Side Components of GDP Budget Effects of a High-Investment Economy What Has Held Inflation in Check? The Near-Term Outlook CHAPTER 3 . TECHNOLOGY AND THE AMERICAN ECONOMY Innovation and Economic Change: A Look Back Innovation and Change in the American Economy Today Developments in Telecommunications How Information Technology is Changing the Economy Managing Information Flows Retail E-Commerce Business-to-Business E-Commerce Information Technology and the Theory of the Firm Information Technology and Network Effects The Role for Government Policies Support for Research and Development Technology Initiatives in the Budget Maintaining Competition Conclusion CHAPTER 4. WORK AND LEARNING IN THE 2 1ST CENTURY The Transformation of the Labor Market The Rising Importance of Skills and Education Growth in Opportunities Preparing the American Work Force for the 21 s t Century Building Foundations: Educating Americas Youth The Continuing Challenge: Reeducating and Retraining Conclusion Page 76 77 77 79 80 84 85 86 87 92 97 99 103 105 112 113 115 116 118 120 122 123 124 126 127 129 132 132 137 144 146 157 164 CHAPTER 5. THE CHANGING AMERICAN FAMILY 165 Key Trends Shaping the American Family Female Labor Force Participation Family Formation and Dissolution 167 168 168 14 I Economic Report of the President Page 170 172 172 175 177 182 182 Life Expectancy and Health Increasing Diversity Across Families Diversity in Family Structure Diversity of Income and Hours of Work The Rising Earnings of Women with Children Challenges Families Face The "Money Crunch" Boosting the Financial Resources of Families to Lessen the Money Crunch The "Time Crunch" Increasing the Flexibility of Paid Work to Lessen the Time Crunch Conclusion 185 190 194 197 CHAPTER 6. OPPORTUNITY AND CHALLENGE IN THE GLOBAL ECONOMY .. The Fall and Rise of the Global Economy The Growing Importance of Trade The Rise of International Capital Flows The Forces Behind Globalization The Role of Technology The Role of Policy The Benefits of a Global Economy Globalization and Living Standards Globalization and Growth The Challenges of Globalization Spreading the Benefits of Trade Managing Capital Flows and the Macroeconomy The Trade and Current Account Deficits Conclusion CHAPTER 7. MAKING MARKETS WORK FOR THE ENVIRONMENT Environmental Problems Since 1900 A Brief History of Environmental Problems Environmental Pollution and Development Designing Policies to Address Environmental Pollution Traditional Regulatory Approaches to Address Environmental Pollution Incentive-Based Approaches to Address Environmental Pollution Important Issues in Designing Incentive-Based Instruments Uncertainty About Costs and Benefits 199 202 202 205 208 209 210 213 214 216 217 217 225 231 236 239 240 240 241 246 247 248 250 250 Contents I 15 Heterogeneity in Abatement Benefits Heterogeneity in Abatement Costs Scope of the Emissions Trading Market Restrictions on Trading Liability Banking and Borrowing Tradable Permits and Charges in Practice Permit Trading: Emissions Trading Policy Under the Clean Air Act Permit Trading: RECLAIM Permit Trading: Sulfur Dioxide Trading Program Permit Trading: Phasedown of Leaded Gasoline Charges: Unit-Based Pricing of Residential Solid Waste Implications of the U.S. Experience Applying the Lessons Learned: Global Climate Change Flexibility Mechanisms in the Kyoto Protocol Cost-Effectiveness of Kyoto Protocol Flexibility Mechanisms Expanding the Scope of Trading to More Countries Expanding the Scope of Trading to More Greenhouse Gases Quantitative Restrictions on Trading Liability Rules for Trading Making Trading Across Countries Work Conclusion Page 252 253 253 254 254 255 255 256 257 259 260 261 263 265 266 267 268 268 270 270 270 274 CONCLUSION. A CENTURY OF CHANGE: NEW OPPORTUNITIES FOR THE FUTURE 277 A Look Back The American Economy Today The Drivers of Change and the Challenges Ahead Conclusion 278 279 280 283 APPENDIXES A. Report to the President on the Activities of the Council of Economic Advisers During 1999 B. Statistical Tables Relating to Income, Employment, and Production 16 I Economic Report of the President 285 299 Page LIST OF TABLES 1-1. 2-1. 2-2. 2-3. 2-4. 2-5. 3-1. 3-2. 4-1. 5-1. 5-2. 5-3. 7-1. Growth in GNP, Business Sector Output per Hour, and Number of Employees for Selected Periods Growth of Real GDP and its Components During 1998 and 1999 The Late-Expansion Economy and the Current Expansion Accounting for the Productivity Acceleration in the 1990s Accounting for Growth in Real GDP, 1960-2007 Administration Forecast Cost of Internet Access in 1999 Information Technology Investment per Worker in the 15 Most Information Technology-Intensive Industries, 1996 Share of Women Employed in Selected Occupations in 1950 and 1999 Contrasting American Families Then and Now Educational Distribution of Women with Children Share of Women with Children Who Worked in Previous Year, by Education Number of Communities Adopting Unit-Based Pricing Residential Solid Waste Collection Programs 41 53 78 83 85 87 Ill 113 139 166 179 180 262 LIST OF CHARTS 1-1. 1-2. 1-3. 1-4. 1-5. 1 -6. 1-7. 1-8. 1-9. 1-10. 1-11. 2-1. 2-2. Growth in Income per Capita and Business Sector Output per Hour Growth in Real Compensation per Hour (Nonfarm Business Sector) Growth in Mean Real Family Income by Quintile Real Private Investment in Equipment as a Share of Real GDP Trade as a Share of GDP During Expansions Contributions to Economic Growth During Expansions Federal Budget Receipts and Outlays Structural Federal Budget Balances During Expansions Growth in Nonfarm Business Sector Output per Hour During Expansions Core Inflation Rates During Expansions Capacity Utilization in Manufacturing During Long Expansions Unemployment Rate Inflation Rate 23 26 27 29 31 32 33 33 35 36 37 51 51 Contents I 17 2-3. 2-4. 2-5. 2-6. 2-7. 2-8. 2-9. 2-10. 2-11. 2-12. 2-13. 2-14. 2-15. 2-16. 2-17. 3-1. 3-2. 3-3. 3-4. 3-5. 3-6. 3-7. 3-8. 4-1. 4-2. 4-3. 4A. 4-5. 4-6. Net Worth and the Personal Consumption Rate Inventory-co-Sales Ratio (Manufacturing and Trade) Federal Budget Surplus Growth of Real Compensation per Hour (Nonfarm Business Sector) Capacity Utilization (Manufacturing) Equity Prices Yields on Treasury Securities Cumulative Real Returns in the Top Six Bull Markets Since 1802 Real Stock and Bond Returns Since 1801 Net National Saving and Net Domestic Investment Gross National Saving Fluctuations in Output, Inflation, and Unemployment Labor Productivity (Nonfarm Business Sector) Sources of Revisions to Real GDP Growth The Phillips Curve, Productivity, and the NAIRU Household Adoption of Selected Technologies Since 1900 Contribution of Computers and Telecommunications Purchases to GDP Growth Real Private Direct Investment in Communications Equipment Households with Access to E-Mail at Home, by Income Real Net Stock of Information Technology Equipment in the Private Sector Real Inventory-to-Sales Ratios for Selected Product Categories Business-to-Business E-Commerce Patents Granted Since 1900 Composition of Employment by Major Sector Since 1900 High School Graduation Rates of 25- to 29-Year-Olds by Race and Ethnicity College Completion Rates of 25- to 29-Year Olds by Race and Ethnicity Median Weekly Earnings of Male Workers by Educational Attainment Ratios of Median Weekly Earnings of Male College Graduates to Earnings of High School Graduates and Dropouts Ratios of Median Annual Earnings of Female Workers to Earnings of Males 18 I Economic Report of the President Page 55 56 57 62 63 65 66 68 69 72 73 76 79 82 91 100 105 109 Ill 112 115 117 122 130 133 133 135 136 139 Page 4-7. 4-8. 4-9. 5-1. 5-2. 5-3. 5-4. 5-5. 5-6. 5-7. 5-8. 5-9. 6-1. 6-2. 6-3 6-4. 6-5. 6-6. 6-7. 6-8. 6-9. 7-1 7-2 7-3 7-4 7-5 Ratios of Median Annual Earnings of African American Workers to Earnings of White Workers Average Scores on the Scholastic Assessment Test (SAT) Shares of Public Schools with Internet Access by Poverty Status Labor Force Participation of Women Shares of Population Aged 35-54 Who Are Widowed or Divorced Birth Rates for Married and Unmarried Females Composition of Families by Family Structure Grandchildren in Grandparents' Homes by Presence of Parents Median Family Income by Family Structure Income Distributions for Families with Children by Family Structure, 1998 Distribution of Annual Hours Worked by Families with Children, 1998 Time Available to Custodial Parents After Paid Work and Sleep GDP and Export Growth Rates for Group of Seven Countries Since 1700 U.S. Trade Relative to GNP Since 1900 U.S. Trade by Sector in 1998 Capital Flows Into and Out of the United States Relative to GNP Average U.S. Tariff Rates Since 1900 GDP per Capita in the United States and Selected Major Economies Saving, Investment, and the Current Account Balance U.S. and Foreign GDP Growth and U.S. Net Exports Real Effective Exchange Rate of the Dollar and the Trade Deficit Sulfur Dioxide and Nitrogen Oxide Emissions per Unit of GNP Since 1900 Carbon Dioxide Emissions per Unit of GNP Since 1900 South Coast Air Basin Exceedances of Federal Ozone Standard Emissions from Phase I Facilities in the Sulfur Dioxide Trading Program Lead Emissions 143 148 152 169 170 171 172 174 176 177 178 191 200 203 204 206 211 213 233 233 234 242 242 258 260 261 Contents I 19 Page LIST OF BOXES 2-1. 2-2. 2-3. 3-1. 3-2. 3-3. 4-1. 4-2. 4-3. 4-4. 4-5. 5-1. 5-2. 5-3. 5-4. 6-1. 6-2. 6-3. 7-1. 7-2. 7-3. 7-4. 7-5. 7-6. 7-7. 7-8. 7-9. The CPI-U-RS, a Consumer Price Index with More Consistent Methodology Economic Impact of Y2K Preparations What Did We Learn from the GDP Benchmark Revision? Measuring the Economy in an Era of Technological Change .. Implementing Local Competition Provisions in the 1996 Telecommunications Act Holding an Online Auction The Role of Government Policy in Improving the Economic Status of African Americans Helping Areas Left Behind: Opening New Markets The Administrations Education Goals The Role of Community Colleges Using Technology to Help Workers: Americas Career Kit The Importance of Fathers The Diversity of American Households Women Professionals, the Rat Race, and the Time Crunch The National Strategy to Reduce Teen Pregnancy Multinational Corporations and Globalization Chinas WTO Accession: Opening Foreign Markets, Extending the Rule of Law, and Encouraging Growth and Development The New International Financial Architecture Structural Economic Change and Carbon Dioxide Emissions Taking Account of the Environment Emissions Trading: An Illustrative Example Should Regulators Allocate or Sell Tradable Permits? Individual Quotas for Fisheries Management Expanding the Scope of the Market Through Developing Country Participation The EU Bubble Allocation and Restrictions on Kyoto Protocol Mechanisms The Renewable Portfolio Standard Climate Research and Development and Information Programs 20 I Economic Report of the President 60 64 81 106 108 119 142 145 149 155 163 173 175 181 188 207 221 229 243 245 249 251 264 269 271 272 273 C H A P T E R 1 Sustaining a Record-Breaking Expansion W£ /*&/ *A* ^zrgztf industrial economy, the largest agricultural economy, the highest per capita income, the highest level of education. It must have been a wonderful time to be alive for most Americans, not for everybody, but for most Americans....I don't think we can understand what it was like in 1900 unless you think of optimism, of hope, of buoyancy, for the United States everything seemed to be going right. —John Milton Cooper, Jr., in an interview for America 1900, a documentary in The American Experience series on PBS T he policy strategy of maintaining fiscal discipline, investing in people and technologies, and opening international markets has borne rich fruit, allowing the Nation to exploit new opportunities and reap the benefits of major scientific and technical advances. The results have been a 20million-job increase in payroll employment since January 1993, the lowest unemployment rate since 1969, the lowest core inflation rate since 1965, the lowest poverty rate since 1979, rising productivity, significant gains all across the income distribution, and a Federal budget in surplus for 2 years in a row after nearly three decades of deficits. The current economic expansion, already the longest peacetime expansion on record, is on the threshold of becoming the longest ever. The mood of optimism that prevailed at the dawn of the 20th century prevails today as well. 21 These successes notwithstanding, the challenges we face on the threshold of the 21st century leave no room for complacency. Change is a constant in the American economy and an essential part of its success, but that success must be earned. Americas workers and businesses need to prepare for the arrival of ever-newer technologies and new ways of doing business. Economic policy must adapt as well. And even beneficial change, unfortunately, can leave some people and localities behind. Today amid the general prosperity, some groups and communities remain in poverty and lack adequate health care coverage. Some workers may be displaced and see their standards of living suffer. And many families, well off and not so well off, are facing a time crunch as the demands of work compete with the needs of their children. Lengthening life spans reflect the improved health of Americans in general, but together with changing demographics they present a major challenge for Medicare and Social Security in the new century. Engagement in the world economy has been vital to our economic success, but we have important work ahead in opening up markets and spreading the benefits of trade and investment more widely in the world. We also face the challenge of keeping the economy growing while preserving our natural environment. In this first Economic Report of the President of the 21st century,* each chapter starts with a look back at the economic history of the century just ended and contrasts where Americans stood economically at the beginning of the century with where we stand now. The report reviews those key developments that offer enlightening perspectives on the century's achievements and that will help us concentrate our energies on the challenges to come. We will celebrate the successes, try to understand their causes, and draw from them lessons for facing future challenges. This chapter starts with a look at U.S. economic performance over the past century. That performance has been, in a word, astounding. But it has also been uneven: in the first half of the century the economy endured a series of recessions, which culminated in the Great Depression. Although less severe, the variations in the second half of the century have also been significant. In particular, the economy's momentum seemed to be lost during the 20 years after 1973. That momentum has been recovered in the 1990s. This chapter therefore also examines some of the distinctive features of the 1990s expansion and the policies that have put it on track to be the longest expansion in the Nation's history and will, we expect, sustain it well into the future. *This report follows popular convention in regarding the new century as having begun on January 1, 2000. 22 I Economic Report of the President Growth and Inequality: A Century-Long Perspective Over the past century the U.S. economy has recorded spectacular performance. It has found the 2 percent answer to the American dream: if living standards rise at 2 percent annually, they double every 35 years. This means that by the time they reach their mid-30s, parents can provide their children with a standard of living that is twice the level that they themselves enjoyed as children. By maintaining an annual average increase in gross national product (GNP) per capita of about 2.1 percent over the whole century, the U.S. economy exceeded this target (Chart 1-1). When incomes grow at this pace, each generation experiences a far more affluent lifestyle than the previous one, and over the course of a lifetime, Americans can expect, on average, a fourfold increase in living standards. How much richer are Americans today than at the turn of the century? Despite the uncertainties in the data, it is clear that total growth of the economy has been remarkable. In 1999 the economy produced almost 30 times the volume of goods and services that it did in 1899, and it employed about 5 times as many workers in doing so. (That it took 5 rather than 30 times as many workers is tribute to another great accomplishment, namely, enormous increases in productivity.) Measured in 1999 dollars, average income per capita in 1899 was a little less than $4,200. With an average 1999 income of Chart 1-1 Growth in Income per Capita and Business Sector Output per Hour Over the last century, both income per capita and business sector output per hour grew about 2 percent per year on average, but that growth was not always smooth. Average annual percent change over period 4 1899-1999 1899-1948 1948-73 1973-90 1990-99 Note: Because of data availability, GNP per capita is used here instead of GDP per capita. Per capita figures use estimates of the resident population. Real private domestic product per hour proxies output per hour from 1899 to 1908. Figures for real GNP per capita and output per hour in 1999 are the average of the second and third quarters. Sources: Department of Commerce (Bureau of the Census and Bureau of Economic Analysis); Department of Labor (Bureau of Labor Statistics); and Christina D. Romer, T h e New Prewar Business Cycle Reconsidered: New Estimates of Gross National Product, 1869-1908," Journal of Political Economy, 1989. Chapter 1 I 23 $33,740, Americans today can acquire (and businesses can produce) more than eight times as many goods and services as could Americans living in 1899. But this simple comparison grossly understates the true improvement in living standards for three important reasons. First, it fails to fully account for the vast array of goods and services that were simply unavailable in the past: aircraft, antibiotics, air conditioners, radio and television, and computers, to name only a few. Second, it fails to account for a substantial increase in leisure, as the typical workweek has fallen to 35 hours. Third, it fails to account for the impact of the improved health of the population in raising life expectancy from 47.3 years in 1900 to about 77 years today, while also improving the quality of those added years. (However, the improvement in living standards may be overstated to the extent that workers, particularly women, have shifted from nonmarket work at home, which is not captured in the GNP measure, to market activity, which is.) Through sustained economic growth, the United States has been able to accomplish much both at home and abroad. Although poverty rates still remain too high, growth has been the driving force lifting many of the poorest members of society out of poverty. Growth has created more opportunities and made it much easier to tackle the challenges of supporting a growing number of retirees. By maintaining solid growth, the United States moved to a position of global economic leadership sometime near the start of the century and remains in that position today. Recent World Bank data show that U.S. income per capita is 27 percent greater than income per capita in Japan, and 47 percent greater than that in Germany (based on purchasing power parities). As Chapter 2 documents, progress over the century has not always been smooth. In the century's first half, growth was punctuated by several deep recessions and by the disaster of the Great Depression. Fewer workers were employed in 1939 than in 1929. Nonetheless, despite economic instability and two world wars, in the first 50 years of the century income per capita more than doubled, and income inequality declined. The Golden Years of Equitable Growth The quarter century after World War II was a period of rapid increase in productivity growth, and the resulting rise in living standards was remarkable. From the cyclical peak of 1948 to that of 1973, business sector output per hour rose by more than 3 percent per year, as innovative technologies, strong capital investment, and a more skilled and educated work force proved mutually reinforcing (Chart 1-1). Recessions interrupted this growth, but median family income rose by 3.0 percent per year on average, and the gains were widely shared. The average income of the poorest fifth of families rose 3.4 percent annually, whereas that of the top quintile grew at a 2.8 24 I Economic Report of the President percent annual rate. On average, living standards in 1973 were 82 percent higher than in 1948. These were years when the American dream seemed achievable for all. Growth Undermined: Stagflation, Rising Inequality, and Deficits The two decades after 1973 were a rude awakening. It appeared as if the early postwar vision of continuously rising incomes for all had indeed been just a dream. The economy's performance deteriorated noticeably in several dimensions. First, there was much greater economic instability than in the early postwar period. Spurred by rising oil prices, inflation jumped to 11 percent in 1974, and a deep recession followed. After a few years of recovery, inflation then soared to new heights, hitting 13.5 percent in 1980. When, in response, monetary policy made a dedicated effort to bring inflation under control, the economy entered the deepest recession of the postwar period: unemployment rose to 10.8 percent in November 1982. Between 1973 and 1983 the U.S. economy recorded average yearly inflation and unemployment rates of 8.4 and 7.2 percent, respectively—this was the period of the infamous stagflation. The economy did grow strongly in the mid-1980s, but exploding Federal deficits, caused by a lack offiscaldiscipline, together with the crisis in the savings and loan industry, undermined that success. Inflation again started to rise, and the economy was already teetering on the edge of recession in 1990 when declining consumer confidence following the Iraqi invasion of Kuwait pushed it over the edge. Second, growth in productivity lost its momentum. Between 1973 and 1990, growth in business sector output per hour rose at Wi percent per year—about half its rate from 1948 to 1973. Slower productivity growth in turn affected wages. Between 1973 and 1993, annual growth in real compensation per hour averaged 0.8 percent. Real earnings declined at the end of the 1980s expansion and continued to decline in the 1990-91 recession. The economy did sustain a 1.9 percent annual increase in income per capita over the 1973-90 period, but this was due primarily to rapid labor force growth as more women and baby-boomers went to work. Third, the years between 1973 and 1993 also saw a marked increase in inequality: not only were real income gains meager, but they were also unevenly shared. Those at the top did far better than those at the bottom. After adjusting for consumer price inflation, income for the top quintile of families increased at a 1.3 percent annual pace, but growth was minimal for the middle class and markedly negative for the less well off. These income data were partly driven by developments in earnings: between 1979 and 1993, real earnings in the lowest decile declined by 0.6 percent, whereas Chapter 1 I 25 those in the highest decile rose 0.3 percent. The premium earned by college graduates over high school graduates increased from about 40 percent to 70 percent. Moreover, the dispersion of earnings increased even for workers with similar education and demographic characteristics. Finally, the poverty rate of 13.5 percent at the cyclical peak in 1990 was considerably higher than at the peak in 1973. The Return to Broad-Based Growth in a Record-Breaking Expansion The expansion that began hesitandy in 1991 found its stride and has been sustained. It will in all likelihood have become the longest expansion in U.S. history—107 months free of recession—in February 2000. Since the beginning of 1993, payroll employment has increased by more than 20 million jobs. Boosted by higher employment and faster productivity growth, output growth has been strong, with GNP per capita rising at an average rate of 2.7 percent per year between the first quarter of 1993 and the third quarter of 1999. Participation in the labor force has increased to a record 67 percent of the working-age population, yet the annual unemployment rate has declined to 4.2 percent—a level not seen in 30 years. After remaining sluggish in the early years of the expansion, output per hour has accelerated, to an average annual growth rate of 2.8 percent between the fourth quarter of 1995 and the third quarter of 1999. In response, solid real compensation gains have been recorded (Chart 1-2). Chart 1-2 Growth in Real Compensation per Hour (Nonfarm Business Sector) Real compensation gains have accelerated in the last few years. Average annual percent change over period 2.8 • 2.0 1.2 _•_ 0.7 1948-73 1973-90 1990-99 1 1995-99 Note: Hourly compensation data are deflated by the CPI-U-RS. Data are spliced between series for 1948-58 and series for 1958-99. Figure for 1999 is the average of the second and third quarters. Source: Department of Labor (Bureau of Labor Statistics). 26 I Economic Report of the President The benefits of this growth have been widely shared as well. Some observers focus on changes over a decade or two and conclude that inequality is still rising, but they ignore the recent trends. Between 1993 and 1998, real average household incomes have grown by between 9.9 and 11.7 percent for every quintile of the income distribution, and the median African American household has seen a 15 percent increase in real income. Between 1993 and 1998, family incomes in the lowest quintile rose at a 2.7 percent annual rate, slightly faster than the 2.4 percent rate recorded by the top quintile (Chart 1-3). This recent experience contrasts sharply with the performance from 1973 to 1993. Similar breadth is evident in the growth of earnings. Although wage inequality continued to widen through 1994, for the past 5 years weekly earnings growth has been broad-based. The economy is increasingly providing workers with good employment opportunities. A recent analysis by the Council of Economic Advisers and the Department of Labor found that 81 percent of new jobs created from 1993 to 1999 are located in industry and occupation categories that pay wages above the median. These good jobs have not gone only to the professional elite: even when professional occupations were excluded from the sample, the study found that 71 percent of new jobs were in categories paying above the median wage. Nor are workers with college degrees the only ones gaining ground. Among workers with only a high school education, an overwhelming proportion of job growth was found to occur in those industry and occupation categories in which these workers earn the highest wages. Chart 1-3 Growth in Mean Real Family Income by Quintile Incomes rose for the richest and fell for the poorest from 1973 to 1993, widening inequality. Since 1993, income growth has been solid across all income groups. Average annual percent change over period Bottom quintile 2nd quintile 3rd quintile 4th quintile Top quintile Source: Department of Commerce (Bureau of the Census). Chapter 1 I 27 Data on poverty also show progress. The proportion of Americans living in poverty fell from 15.1 percent in 1993 to 12.7 percent in 1998. The poverty rate for African Americans in 1998, although still high at 26.1 percent, was the lowest ever recorded, and that for Hispanics is the lowest it has been since 1979. Since 1993, African American unemployment has declined from 13.0 percent to 8.0 percent, and Hispanic unemployment has fallen from 10.7 percent to 6A percent. For both groups these represent the lowest rates on record. Meanwhile the unemployment rate for females aged 16 and over has dropped to 4.3 percent, the lowest in 46 years. Data on the probability of job displacement, which showed a rise in the late 1980s and early 1990s, show a drop since then. The share of all workers with 3 or more years of job tenure who became displaced from their jobs was 3.9 percent in the 1991-92 period but declined to 2.9 percent in the 199596 period. And because the labor market has been so robust in the 1990s, the rate of reemployment following displacement has been higher in this decade, as have earnings after displacement, than at comparable levels of unemployment during the 1980s. Workers' fears of job loss have also eased in recent years: the share of workers who believe they are likely to lose their jobs declined from 12 percent in 1993 to 8 percent in 1998. The Engines of the 1990s Expansion The performance of the economy over this expansion has surprised most observers. Two decades of slow growth and rising inequality have ended. In their place is a record-breaking expansion that has brought strong and equitable growth. The gloomy view of long-term U.S. prospects so popular in the 1970s and 1980s has proved decidedly misguided. The record of the past 7 years suggests that it may be time to reappraise what one popular book at the turn of the last decade called the Nation's "diminished expectations." Before undertaking such a reappraisal, however, it is useful to identify the principal engines of this expansion, and to see how these have resulted in an expansion that is unusual in important respects from previous long expansions. In this section we look at the policy and private sector drivers of growth under four headings: technology; trade and competition; education and skills; and proinvestment policies. Information and Other Technology The economy is clearly in the ferment of rapid technological change (a story documented in Chapter 3). One powerful contributor to the strength of this expansion has been investment in plant and equipment, particularly 28 I Economic Report of the President computers and information technology. Prices of computers and semiconductors, adjusted for quality improvements, have been falling particularly rapidly. Investment in information processing equipment and software took off in the 1990s, growing at a rate of 19 percent per year from 1993 to 1999 (Chart 1-4). More broadly, the share of real investment in GDP has risen dramatically, as has the share of high-technology investment in total investment. Real spending on research and development (R&D) increased at an estimated annual rate of 5 percent between 1993 and 1999. For many years it seemed that the information technology revolution was not paying off in higher productivity, but that now seems to be changing. Companies have learned to use the new technology to operate more efficiently. New ways of producing and delivering goods and services have been developed. Venture capitalists provide both funds and expertise to new companies with bold ideas. And of course, the improvements in communications technologies have been as dramatic as those in computers. The diffusion and development of the Internet promise continued productivity payoffs still to come. The revolution in information technology is the most visible and probably the most important technological trend, but it is far from the only one. Materials science, biotechnology, and medical technology have all advanced rapidly and are generating their own economic benefits. America hosts many of the preeminent scientific research institutions in the world, which have pioneered numerous advances and trained the people who are now leading these technological revolutions. Chart 1-4 Real Private Investment in Equipment as a Share of Real GDP Growth in equipment investment surged in the 1990s, largely because of exceptional growth in investment in information technology equipment and software. Percent of GDP 12 Information processing equipment and software 1964 1969 1974 1979 1984 1989 1994 1999 Note: Based on chained 1996 dollars. Source: Department of Commerce (Bureau of Economic Analysis). Chapter 1 I 29 Over the years, government support of scientific research and education has been a vital element in the success of U.S. technology. Going forward, the increased funding proposed in the Presidents science and technology initiative is important to sustaining growth in the years to come. Competition and Trade Industries in which companies compete vigorously tend to be more productive. Conventional economic logic argues that companies operate efficiendy and innovate whenever there is the chance of a profit payoff. In practice, however, companies can become complacent and keep doing things the old way even when new, more profitable methods are available. The pressures of competition encourage change and force companies to adopt the more productive methods. And even as it keeps the pressure on businesses to improve and innovate, competition exposes them to best-practice technologies that will help them to do so. Competition in the global economy adds benefits beyond those from domestic competition. The economy benefits from trade as firms face new incentives, and resources shift to the most productive industries. In addition, companies that face global competition are exposed to best practices worldwide, challenging them to reach for the highest possible performance themselves. The U.S. economy has become increasingly open to overseas trade in the course of this expansion. Indeed, its importance in GDP has grown even more than in previous long expansions. Between 1991 and 1999, trade (measured as the sum of exports and imports) in goods and services as a share of GDP rose by 4.8 percentage points, compared with increases of 1.5 and 3.5 percentage points during the expansions of the 1960s and the 1980s, respectively (Chart 1-5). The Administrations antitrust and regulatory policies have fostered competition at home. At the same time, its trade policies have worked to expand trade and open markets through major regional and multilateral agreements. Education, Skills, and Work Incentives Dazzling new technologies, redesigned business systems, new services— the promise of these sources of economic growth can be realized only if people have the skills and the knowledge to use them. To take advantage of the benefits of trade in expanding those industries where the United States has comparative advantage, workers must acquire the necessary skills. Workers who lose their jobs when industries contract, whether because of foreign competition or because of technological advance, must often be retrained in order to reenter the productive economy at a comparable living standard. 30 I Economic Report of the President Chart 1-5 Trade as a Share of GDP During Expansions Trade is a larger share of GDP and has grown more during the current expansion than in the two previous long expansions. Percent of GDP 30 1961 :Q1 1969:Q4 1982:Q4 1990:Q3 1991 :Q1 1999:Q4 Note: Trade is the sum of nominal exports and imports of goods and services, on a national income and product accounts basis. Each pair of columns shows the beginning and ending of three long expansions, except for the current expansion, which has not yet peaked. Source: Department of Commerce (Bureau of Economic Analysis). Strong job growth and low unemployment have been possible in this expansion only because people have found that work has paid off. Providing work incentives is an essential element in strong economic growth. With one of the most highly educated, skilled, and motivated work forces in the world, the United States has also been able to take advantage of growth opportunities worldwide. Policies to increase access to education and training and make work pay have been a central theme of economic policy in this expansion. Pro-Investment Policies Output growth in this expansion has gone predominantly to households and businesses rather than for government purchases. One can measure how the growth of GDP over time has been allocated among the components of GDP: consumption, investment, government purchases (Federal, State, and local), and net exports (Chart 1-6). When this is done, the current expansion stands out for the strong contribution of private investment spending. The contribution of government purchases of goods and services to growth has been only 7 percent, about a third of what it was in the two previous long expansions. Government purchases of goods and services reflect the direct use of economic resources. But Federal spending also includes Social Security payments and other transfers to households and businesses. On this broader Chapter 1 I 31 Chart 1-6 Contributions to Economic Growth During Expansions The current expansion has been driven more by growth in investment spending, and less by growth in government spending, than the two previous long expansions. Percent of total increase in GDP 90 • Consumption D Government consumption and investment H Nonresidential fixed investment EJ Net exports of goods and services 30 10 1961-69 1982-90 1991-99 -30 Source: Department of Commerce (Bureau of Economic Analysis) and Council of Economic Advisers. basis, the current expansion also shows evidence of fiscal restraint. Federal outlays in 1991 were 22.3 percent of GDP. By fiscal 1999 this ratio had fallen to 18.7 percent, as efforts to restrain spending combined with strong economic growth. This decline in spending of 3.6 percentage points of GDP is much greater than the 1.3-percentage-point decline during the 1982-90 expansion. Since this measure typically declines as the economy moves out of recession—and the deeper the recession, the greater the decline—the comparison between the two expansions is striking given that the current expansion was launched from a much shallower recession. Moreover, this decline in spending occurred even as revenues were rising (Chart 1-7). According to the Administration forecast, assuming implementation of policy as proposed by the President, Federal outlays are forecast to fall to 16.7 percent of GDP by 2010. This reduction results in part from a decline in interest costs as debt is paid off. But perhaps the most dramatic illustration of how unusual budget policy has been in this expansion comes from estimates of the structural budget deficit by the Congressional Budget Office (CBO). The structural budget deficit adjusts the actual deficit to take out the effect of fluctuations in the business cycle. It estimates what the budget deficit would have been if GDP had been at its potential. According to the CBO s estimates, structural deficits were pervasive during the long expansion of the 1960s, except at the very beginning (Chart 1-8). And those deficits increased sharply until the tax increase of 1968. Throughout its duration, the expansion of the 1980s was 32 I Economic Report of the President Chart 1-7 Federal Budget Receipts and Outlays The fiscal surplus that emerged in 1998 reflects restraints in spending as revenues rose with the expansion. Percent of GDP Note: Outlays and receipts are on a unified basis for fiscal years. Sources: Department of Commerce, Department of the Treasury, and Office of Management and Budget. also associated with large structural deficits—and large actual deficits as well. This expansionary fiscal policy was accompanied by a tight monetary policy, and this combination of policies contributed to relatively high real interest rates and declining net national saving and domestic investment. Chart 1-8 Structural Federal Budget Balances During Expansions In contrast to previous long expansions, structural budget deficits have steadily declined since 1992 and eventually moved to surplus. Percent of potential GDP 1 1982-90 1991-99 -6 Note: Years are fiscal years. Source: Congressional Budget Office, Standardized-Employment Budget. Chapter 1 I 33 The current expansion, by contrast, started with a large structural deficit and turned it around, to the point that there is now a structural surplus, as Federal spending has been kept in check while revenues have risen. Monetary policy, meanwhile, has been given the freedom to encourage real growth while keeping inflation low. Interest rates, as a result, have been lower than they would have been. Indeed, real interest rates in this expansion have been considerably lower than in the 1980s expansion. Using survey data to measure inflation expectations suggests that real short-term interest rates have been about half what they were in the 1980s expansion, and real long-term rates are about a third lower. Lower interest rates have stimulated investment spending, and this investment has, in turn, boosted capacity growth and raised productivity—two key factors that have helped keep inflation in check. Although the current account (the balance of trade in goods and services plus net factor income and net transfers) moved into deficit in both the 1980s and the 1990s, the forces behind these shifts were different. In the 1980s both net national saving and net domestic investment declined as a percentage of GDP, so that foreign borrowing was used, directly or indirecdy, to finance consumption and Federal budget deficits rather than investment. In the 1990s, by contrast, net national saving increased, and the capital inflow has helped finance an investment boom. Key Features of the Expansion Driven by technological advance, more open markets, and investment in physical capital and human skills—all with the ongoing support of Federal policy—this expansion is on track to become the longest ever. In 1999, the ninth year of the expansion, GDP grew by 4.0 percent, and 2.7 million payroll jobs were created. The expansion remained youthful-looking and vigorous despite its chronological age. How did the engines of this expansion, just described, translate their energy into such a sustained performance? Productivity Growth The start of an expansion is usually a period of rapid productivity growth. Companies set up factories and offices that are designed to produce a certain target level of output. In a recession, output falls below this target, plants operate less efficiently, and productivity falls. Companies may also retain valued workers that are not needed today but will be needed when the upturn comes, and this, too, lowers average productivity. The surge of productivity growth at the start of an expansion occurs as businesses are again able to make better use of their workers and their physical capital. 34 I Economic Report of the President The magnitude of this surge varies from expansion to expansion and tends to be greater, the deeper the recession that preceded it. After a deep recession, there is more ground that can be made up before the economy returns to its long-term potential. After a while, however, this productivity surge ends, and the economy moves closer to its normal or trend rate of productivity growth, which is determined by the rates of capital accumulation, technological change, and enhancement of skills. Finally, in the last year or so of an expansion, productivity growth often slows again in what has been called an end-of-expansion effect. This likely results from diminishing returns, as capacity becomes strained and a shortage of experienced and skilled workers develops. Chart 1-9 shows that the expansions of the 1960s and the 1980s very much followed this pattern. Productivity growth was rapid in the first 2-year period of the expansion but then started to fall off. It had dropped off sharply by the seventh year of expansion in both cases. But the pattern for the current expansion looks very different. After the initial productivity surge, growth fell for a couple of years, but since then it has actually been accelerating. Instead of looking like an old expansion suffering from diminishing returns, this one has been getting stronger. This pattern of strong productivity growth at a mature stage of the cycle is a key reason why this expansion is set to become the longest on record. And that is exactly the result one would expect from policies that have stimulated investment, technology development, and skill enhancement. Chart 1-9 Growth in Nonfarm Business Sector Output per Hour During Expansions Productivity growth has fallen over time during previous long expansions but has risen during the current one. Average annual percent change over period 5 D First 2 years H Years 3 and 4 0 Years 5 and 6 •Years 7 and above 1961-69 1982-90 1991-99 Note: The final column shows growth from 1997 through the third quarter of 1999. Source: Department of Labor (Bureau of Labor Statistics). Chapter 1 I 35 Inflation Accelerating inflation poses a threat to expansions and, unless kept under control, eventually brings them to a halt. Chart 1-10 shows the pattern of core inflation, as measured by the consumer price index excluding food and energy, in the three long expansions since 1960. The 1960s expansion was marked by 5 years of strong economic growth with low inflation. Administration policies in those years restored prosperity and full employment after bouts with recession between 1957 and 1961. But during the mid-1960s, the pressures of expenditure at the time of the Vietnam War stretched industrial capacity too much, causing inflation to accelerate rapidly, until rising interest rates and monetary restraint brought the expansion to an end. The 1980s expansion started with very high unemployment and slack resources, which helped restrain inflation in the early years of the expansion, as did the collapse of oil prices and a strong dollar. But eventually the inflation path flattened out and started to turn up as the economy reached lower levels of unemployment. The pattern of inflation over the current expansion is surprising: core inflation has been low and stable, when not actually declining, even as unemployment has approached 4 percent. Chapter 2 describes several factors that have contributed to this combination of low inflation and low unemployment. Certainly the pattern of productivity described earlier and the rapid expansion of capacity have been important. The importance of investment for productivity growth was noted above, but rapid investment growth Chart 1-10 Core Inflation Rates During Expansions Unlike in prior long expansions, the core inflation rate, which excludes food and energy price changes, has declined throughout most of the current expansion. Percent 7 0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100 105 Months into expansion Note: Data are changes in the core CPI from 12 months earlier. CPI-U is used for the 1961-69 expansion and CPI-U-RS for the 1982-90 and 1991- expansions. Source: Department of Labor (Bureau of Labor Statistics). 36 I Economic Report of the President has also been the driver of capacity expansion. Chart 1-11 shows that capacity utilization has remained at a moderate level and has grown more slowly than in previous long expansions. Questioning the Causes of Inequality Three of the major driving forces behind the economy's recent success— rapid technological change, increased trade, and tightfiscalpolicy—have all in the past been viewed by some as sources of greater inequality of income. It is remarkable, therefore, that even though these forces have been particularly powerful in the current expansion, the trend toward greater inequality that began in the 1970s has been arrested, and income gains are now being shared equally across income groups. Economists are sometimes said to agree on very little, but there is a broad consensus among them that the most important cause of rising earnings inequality in the 1970s and 1980s was technological change. It was simply a matter of supply and demand. The supply of highly skilled and well-educated workers was growing relatively rapidly during these years. Between 1973 and 1992, for example, the share of the civilian labor force with some college education increased from 29.4 percent to 51.6 percent—or 3 percent a year on average. But the relative earnings of these workers were rising even as their supply was expanding, because demand was growing even faster. Something, Chart 1-11 Capacity Utilization in Manufacturing During Long Expansions The capacity utilization rate is lower and has grown more slowly in this expansion than at comparable junctures in past long expansions. 1961:Q1 1969:04 1982:04 1990:Q3 1991:01 1999:04 Note: Each pair of columns shows the beginning and ending of three long expansions, except for the current expansion, which has not yet peaked. Source: Board of Governors of the Federal Reserve System. Chapter 1 I 37 it was argued, must be shifting the relative demand for skilled and unskilled workers, raising demand for the former and lowering it for the latter. Some attributed this skill bias to the impact of new capital investment in general and computers in particular; others saw changes in management approaches and the adoption of new, more flexible production methods as the cause. In either case, technological change was seen as at the root of the wage disparity. A second cause of inequality has been said to be international trade, although most economists believed its contribution was far smaller than that of technological change. Expanded trade benefits all countries that take part, but within each country some people and industries may be hurt. Those who maintain that trade had increased inequality made the following argument. As developing countries with many low-skilled workers increasingly participate in trade, they put downward pressure on world prices of products intensive in low-skilled labor. If the United States then opens up to trade with these countries, low-skilled workers here become less scarce in the world market, and their relative wages fall. Some claimed that globalization imposes painful consequences on relatively underskilled workers: accept lower wages, as in the United States, or suffer higher unemployment, as in many European countries. In addition, the threat of foreign outsourcing by firms and of increased international competition was said to have reduced labors bargaining power—a factor also sometimes held responsible for the slow rise in real wages. Still other institutional and structural changes in the economy have been implicated in increasing inequality. The decline in union membership, for example, is seen as a factor reducing the bargaining power of U.S. workers. A second source has been changes in the mix of industries, in particular the relative decline in manufacturing employment for reasons other than international trade. A third element was the decline in the real minimum wage. To be sure, some of these proposed explanations are not mutually exclusive. Indeed, they may be interrelated. International competition may have stimulated technological change. It has also been invoked to help explain the declining share of manufacturing employment. Some also blame technology and trade for higher structural unemployment: both may bring about structural change in the economy, as employment rises in some industries but falls in others. Workers who have developed skills in one field are forced to make a difficult transition into another. Finally, there is a view that the rise in inequality could be attributed to cuts in government social expenditure. The reductions in poverty in the 1960s, in this view, were not simply the result of faster economic growth. The expansion of social programs, particularly Social Security for the elderly, played an important role. By contrast, cutbacks in social spending were seen as hurting the poor in the 1980s. 38 I Economic Report of the President In light of these explanations, the recent direction of trends in inequality is surprising. As reflected in the data on investment and productivity growth, technological change appears to have accelerated over the past 5 years. Trade and international investment have expanded at rapid rates, the price pressures from this increased trade have been considerable, and the trade deficit has grown. Yet over this same period, real average hourly earnings have increased, and income gains have been widely shared, in contrast to the 1980s. Moreover, research shows that the hourly wages of lower wage groups have increased about as much as or more than the wages of upper wage groups. This remarkable turnaround shows that rapid growth in an open economy can occur without worsening inequality. There always was a nagging doubt associated with blaming technological change for rising inequality. Why, during the 1980s, was technological change apparently contributing little or nothing to productivity growth, yet at the same time causing major shifts in relative wages? Likewise, the explanation that ascribes a role to trade was always controversial, because the evidence in support of these claims either was weak or suggested that any impacts were small. This is not surprising, because most U.S. workers are in domestic industries where there is little or no international trade. Moreover, a large proportion of U.S. trade is with countries such as Canada, Germany, and Japan, where wages are not very different from those in the United States. Only a small fraction of U.S. workers compete directly against very low wage workers overseas. To be sure, in some economic models, international competition in even a few industries is the sole determinant of relative wages across the economy, but the evidence is that many domestic factors have an important influence on relative wages. Whatever the explanation for the growth in inequality during the 1980s, the recent experience suggests that it is time to reappraise the inevitability of the allegedly adverse impacts of technology and trade. It is time to look at the ways in which they may actually help foster growth with equity, and to recognize that a flexible economy can adjust to these changes. Rapid productivity growth and openness to trade—and the policies that have supported them—have allowed the U.S. economy to operate and sustain a high-employment economy. And in this high-employment economy, employers have been recruiting workers at all skill levels and training many who lack the necessary skills. Moreover, faster productivity growth may allow firms to pay higher wages without raising prices, thus dampening the inflationary impact of higher levels of employment. Similarly, falling import prices will increase purchasing power, enabling real wages to rise without accelerating inflation; surplus global capacity can also help reduce inflationary pressures. It is also quite possible that the shocks due to technology and trade have been dissipated over time by responses in the economy itself. One possibility Chapter 1 I 39 is that the direction of technological change responds to economic incentives. As the relative cost of workers who are less well educated falls, firms have an increased incentive to employ them. Similarly, as international competitive pressures increase, firms either figure out new strategies (improved technology, new products, or higher quality of existing products) that allow them to compete, or they exit. Those firms that survive can compete successfully with low-wage countries and thus are less affected by pressures to reduce wages. The result is a far more resilient economy. Finally, the connection between aggregate government spending and poverty reduction is too simplistic. Determined deficit reduction in the 1990s has not hurt efforts to reduce poverty, because spending has been more carefully targeted. Increased funding for the Earned Income Tax Credit and for education and training programs has played an important role. Also important have been increases in the minimum wage. Certainly a higher minimum wage has raised wages at the bottom of the income distribution, and it has not had a noticeably negative impact on employment of the lowest paid workers. Taken as a whole, the evidence on inequality suggests that policy has been doing the right things. In addition, it provides an optimistic message. We remain masters of our fate. We are not, as some suggest, condemned to be buffeted by hostile global or technological forces, in the face of which we are helpless. To be sure, two qualifications to this proposition are in order. First, the final verdict on the impact of these forces is not yet in. The strongest test will be whether these more recent trends are sustained if there is slower growth at home and a global economic environment with less excess capacity. And second, we must not become complacent. Although the trend of rising inequality has been stopped, it has not been reversed. Similarly, although progress has been made in reducing poverty, poverty rates remain far too high. There remains much for policy to do, but the turnaround so far is heartening. Is the Dream Restored? Chapter 2 discusses reasons to believe that the level of unemployment at which the economy will experience strong inflationary pressures has declined. But far more important over the long run is the question of whether productivity growth has increased. Certainly a great deal of anecdotal evidence suggests that technological change has been particularly rapid and widespread, but until recently the official data offered scant proof that these changes had boosted productivity. Over the past few years, as this chapter has noted, productivity growth has clearly increased, but the full 40 I Economic Report of the President implications of the economy's recent performance remain difficult to interpret because we have not seen the end of the current expansion. One favorable interpretation of the unusual behavior of productivity growth in this cycle is that is not part of a typical cycle at all, but rather reflects a shift to a new wave of innovation. Typically, when a technology is first introduced, inexperience prevents users from extracting its full potential. Over time, however, users learn by doing and productivity accelerates. Similarly, it is possible that the innovations in the current technological wave are interrelated, so that breakthroughs in some areas yield benefits in many others. But we cannot be certain how long the current growth spurt can be sustained. A conservative approach is to measure the change in productivity not from 1995 but from the previous cyclical peak in 1990, so that the last recession, the initial sluggish recovery, and the subsequent acceleration are all included. On that basis, it is striking that growth in GNP per capita at 2.1 percent per year, and that of GNP per worker at 1.8 percent per year, have matched the pace recorded for the century as a whole (Table 1-1). One cannot say for certain, therefore, that the past decade has witnessed the emergence of a new economy that will generate historically unprecedented growth. But we can be more confident that we have at least returned to the pace of growth sustained over most of the 20th century, which gave us the 2 percent answer to the American dream and the more than eightfold increase in output per worker over the 20th century. This, moreover, is a conservative view. There is certainly support, if not yet overwhelming evidence, for the view that the future could be even more prosperous. TABLE 1-1.— Growth in GNP, Business Sector Output per Hour, and Number ofEmployees for Selected Periods [Average annual percent change over period] Real GNP (1999 dollars) Real GNP per capita (1999 dollars) Real GNP per employee (1999 dollars) Business sector output per hour (1996 dollars) Employees 1899-1999 3.4 2.1 1.8 2.1 1.6 1990-99 3.1 2.1 1.8 2.1 1.3 1995-99 4.0 3.0 2.2 2.7 1.7 Year Note. Because of data availability, GNP per capita is used here instead of GDP per capita. Per capita figures use estimates of the resident population. Real private domestic product per hour proxies output per hour for 1899-1908. Employment data are for 1900-99 and are for civilians aged 14 and over for 1900-47 and 16 and over for 1948-99. Real GNP and output per hour in 1999 are the average of the second and third quarters. Sources: Department of Commerce (Bureau of the Census and Bureau of Economic Analysis); Department of Labor (Bureau of Labor Statistics); Stanley Lebergott, Manpower in Economic Growth, 1964; and Christina D. Romer, The New Prewar Business Cycle Reconsidered: New Estimates of Gross National Product, 1869-1908, Journal of Political Economy, 1989. Chapter 1 I 41 Challenges for the Future This chapter concludes with a brief summary of each of the remaining chapters and the principal challenges that they identify for policy. Sustaining the outstanding performance of the past several years means meeting the challenges that still confront us as well as the new ones that lie ahead. Stabilizing the Macroeconomy Chapter 2 recounts in greater depth the story summarized in this chapter of a strong expansion that shows no signs of losing its vitality. Following a long tradition of the Economic Report of the President, the chapter focuses on the performance of the past year. For stabilization policy the key future challenge is to sustain this performance: to maintain high levels of employment while keeping inflation low and stable—a goal the Administration shares with the independent Federal Reserve. Given the current strength of the economy, prudence indicates that fiscal policy should be directed at paying down the Nations debt and preparing for predictable needs such as those of Social Security and Medicare as well as unexpected ones. Fiscal discipline also frees capital for productive investments in education, businesses, and technology. Tax cuts should be modest and targeted. Discipline over spending should continue. Policies should stay directed toward such critical areas as saving, work incentives, education and training, families and children, the environment, health care, and research and development. The chapter also examines the recent acceleration of labor productivity and the role that computers have played in it. We find that from 1990 to 1999 the acceleration in productivity is associated strongly with the production and use of computers. But over the shorter period from 1995 to 1999, there was a substantial increase in total factor productivity growth outside the computer-producing industry. Enhancing Productivity Chapter 3 looks at the microeconomic, or industry-level, side of the technological change that has driven growth in this expansion and in this century. Technological change has created new industries and altered the competitive landscape of the American economy. The chapter describes the dynamic process by which innovative products and services allow competitors to enter and compete with established firms, lowering prices and improving service for consumers. Two examples of these trends are evident in the telecommunications and information technology industries; here many firms are exploring 42 I Economic Report of the President the economic opportunities made possible by innovations in computers, communications technology, and the Internet and e-commerce. In telecommunications, technological and regulatory changes have led to a surge in demand for communications equipment and services. Many of these new products, in turn, are critical inputs into the information technology industry. Firms are adopting information technology to lower costs, create new products, and improve their productivity. By improving information flows within the firm and between the firm and its customers, information technology has the potential to revolutionize how businesses conduct business in this century. E-commerce could fundamentally reshape the nature of relationships between businesses and their customers, and between businesses and businesses. The Administration has acted as a catalyst for this growth by supporting the basic and applied research necessary for creating new technologies. It has also supported regulatory reforms, like the 1996 Telecommunications Act, that encourage competition and entry from new providers and new technologies. The future challenge is to sustain and increase this stimulus by increasing investment in R&D and encouraging competition and innovation. Promoting Skills, Education, and Development Chapter 4 examines the implications for the labor market of an increasingly technology-driven economy. The chapter focuses on two key transformations of the labor market: the increasing value of education and the improved opportunities for women, minorities, and persons with disabilities. The last several decades have seen a substantial gap emerge between the earnings of those with a college education and of those with less education, even though the average level of educational attainment has risen over the century. The economy has clearly put a high premium on a new set of skills, and despite the progress that has been made, there remains for some workers a mismatch between the skills they possess and the skills that firms demand. Chapter 4 also examines the role of government and the policies put forth by this Administration to help workers adjust to the rapidly changing economy. The chapter includes a discussion of education policies from preschool to postsecondary, and of private and government training programs. The chapter presents evidence on the effectiveness of these training programs in improving the achievement levels of students as well as the labor market outcomes of various groups of workers. The evidence suggests which types of programs might be most successful and cost-effective at improving the skills of workers in the future. The challenge in this area is to develop a comprehensive set of education and training policies that create a framework of lifetime learning within which workers can acquire and maintain the skills they need to be successful Chapter 1 I 43 in the new labor market. The chapter discusses a number of recent initiatives. These include efforts to reduce class size and improve teacher quality, policies that have been shown to be effective at the elementary and the secondary level; initiatives, such as the Technology Literacy Challenge and the E-rate, that are attempting to provide students access to the technologies they will need to master in order to succeed in todays labor market; the HOPE Scholarship program, a tax credit that will ideally make the first 2 years of college as universal as high school; and the Workforce Investment Act, a new training initiative being phased in during 2000, which will help workers acquire the skills they need in the 21st-century economy. Supporting the Diverse American Family The importance of skills and the shift from backwork to brainwork have changed the employment prospects for women and, together with other changes, have altered the character of the American family. Chapter 5 discusses how the decline in the importance of the traditional onebreadwinner, one-homemaker family and the increase in the prevalence of two-earner and single-parent families have changed the opportunities and challenges that American families face at the beginning of the new century. In particular, the chapter looks at the balance between the rewards of work and the needs and rewards of family time. It notes three key trends that have shaped the American family. One is the rise in female labor force participation over the century, as more opportunities have opened up for women to work and more women have taken advantage of those opportunities. Another is the changing patterns of family formation and dissolution, which have contributed to the growing prevalence of single-parent families. A third is the improvements in health and life expectancy that have added new responsibilities to those that most families can expect to face, namely, care of elderly parents in addition to preparation for their own retirement. The chapter then considers differences among family types with respect to income and time available outside of work. It looks at Administration policies that address the "money crunch" faced by families who feel their resources are stretched to the limit. These policies include expansion of the Earned Income Tax Credit, increases in the minimum wage, welfare reform, the $500-per-child tax credit, and policies to help families invest in skills, such as the H O P E Scholarship program, already mentioned. The Administration has also pursued policies like those embodied in the Family and Medical Leave Act to help families deal with the "time crunch" they face while trying to balance work and family time. Policies like the child tax credit and the Family and Medical Leave Act have addressed important challenges facing the American family. But the Administration recognizes that it will be a continuing challenge to ensure 44 I Economic Report of the President that the economy provides workers both the opportunity to work and the ability to spend quality time with their families. Exploiting the Potential of Globalization Chapter 6 analyzes the effects of globalization on the U.S. economy. Trade and, to a much lesser extent, investment links were well established a century ago, but both deteriorated during the interwar period. Over the past 50 years, however, international trade and investment have risen sharply. Today, global ties—through goods and services trade, through capital flows, and through integrated production relationships among firms and their affiliates—are generally broader and deeper than ever before. The forces driving globalization include technology and policy. Technological improvements—in transportation, communications, information management, and elsewhere—have reduced the costs of doing business internationally, thus lowering significant barriers to trade and capital flows. These improvements have also increased the range of possible commercial transactions, particularly in financial markets, and have created venues for new kinds of transactions, such as electronic commerce. Policy has also played an active role in reducing barriers to trade and investment. For example, in the latter half of the 20th century, policy measures have sought to reduce tariff and nontariff trade barriers. More recently, and especially since the 1970s, many countries have decided to remove restrictions on capital flows. Our openness to the world makes us more prosperous. The freedom of consumers and businesses to choose from a wider range of products and services improves efficiency, promotes innovation, encourages the transfer of technology, and otherwise enhances productivity growth. Trade allows us to specialize in what we do best. All these benefits, in turn, lead to higher real incomes and wages. The United States has long sought to extend the benefits of international trade and investment as widely as possible, but significant challenges remain. Although trade liberalization lies at the heart of the World Trade Organization (WTO) and continues as a central objective of U.S. policy, a number of institutional issues have come to the fore. The United States is seeking greater consideration of labor and environmental concerns in the W T O and more openness in its proceedings. Moreover, despite the substantial benefits of trade, the transition to more open markets may be difficult for some U.S. industries and their workers. Those who are dislocated suffer real costs, and therefore the Administration supports domestic policies that help ease the transition for those affected. The recent financial crises in Asia have been particularly disruptive. Such crises in emerging markets draw attention to yet another challenge: the risk that sudden reversals in capital flows can be Chapter 1 I 45 disruptive in some cases. Finally, the growing U.S. trade deficit raises the challenge of ensuring not only that the United States remains an attractive location for investment, but also that Americans are saving enough for the future. Maintaining the Environment Efficiently Chapter 7 notes that although economic growth and structural and technological change have altered the U.S. economy substantially for the better over the past century, they have brought in their wake an array of environmental problems, including air, water, and soil pollution. However, economic growth has also provided the innovation and the resources to address these environmental problems. The chapter describes how traditional regulatory approaches designed to address environmental problems have delivered substantial benefits but have carried significant economic costs. It then discusses how experiences with market-based approaches to pollution abatement, such as permit trading and emissions charges, have shown ways to achieve environmental goals at lower cost while providing the proper incentives for innovation. It suggests that applying these lessons about the design of environmental markets to future environmental problems is critical if environmental goals are to be achieved most efficiently. The most significant environmental problem of the 21st century is probably global climate change. Chapter 7 argues that this problem is best addressed through market-based approaches. The challenge is to design policies appropriate to the problem. Emissions trading could serve as a powerful tool to reduce greenhouse gases, because these come from a very large number of sources with a wide range of abatement costs and have the same environmental effect regardless of the source location. In negotiations of the Kyoto Protocol to the Framework Convention on Climate Change, the Administration has advocated international emissions trading and project-oriented mechanisms that effectively allow for flexibility across sources and countries in meeting climate goals. A broad international trading system can significantly lower the costs of achieving emissions targets set in the Kyoto Protocol while also delivering substantial revenue to low-cost-abating countries, which would be sellers in an international emissions market. Future international climate negotiations can resolve many of the implementation issues regarding these market-based approaches. Appropriate design of these approaches can ensure that the first steps taken to address climate change will deliver environmental benefits at the lowest possible cost. 46 I Economic Report of the President Conclusion As we enter the 21st century, the principal challenges we face are to sustain the extraordinary progress that America has made in this record-breaking expansion, and to make sure that all Americans share in the strong economy. The goal should be to make the accomplishments of this new century even better than those of the last. New policy issues will surely emerge, but the policy framework that has worked so well—maintaining fiscal discipline, investing in people, and opening international markets—is the right one to take us forward. Chapter 1 I 47 C H A P T E R Macroeconomic Policy and Performance The evolution of the stock market illustrates how dramatically technology has changed the way we do things and the things we are able to do. At the start of the 20th century, the purchase of stock was a lengthy and labor-intensive process. After a trade, messengers would hand-deliver the stock certificates, which were then carried to a vaultfor safekeeping. Today, computers and instant global communications have made the trading of stocks anywhere in the worldjust a mouse click away. .S. ECONOMY PERFORMED very well in 1999. The economic expansion is on the verge of shattering the all-time endurance record, set during the 1960s, of 106 months. Real (inflation-adjusted) output increased a robust 4.2 percent over the four quarters of 1999, on a par with the energetic pace set over the preceding 6 years of this Administration. An additional 2.7 million nonagricultural jobs were created during the year, bringing the total created during this expansion to nearly 22 million (20.6 million during the 7 years of this Administration). The unemployment rate dropped to 4.2 percent for the year as a whole, its lowest level in 30 years (Chart 2-1). The consumer price index rose by 2.7 percent over the 12 49 months of 1999, a pickup from the previous years 1.6 percent rate (Chart 22). A sharp rise in energy prices, following 2 years of declines, accounted for more than the entire acceleration in consumer prices in 1999. Consumer prices excluding energy and food prices were up only 1.9 percent over all of 1999, the smallest December-to-December percentage increase since 1965. Over the first three quarters of 1999, productivity (output per hour) in the nonfarm business sector increased at an annual rate of 2.8 percent, marking the fourth straight year of strong productivity growth. These statistics portray a vibrant economy ending the 20th century on a strong note, with robust growth, high employment, and low and stable inflation. A key factor in the recent remarkable performance of the economy has been an acceleration in productivity. In the long run, productivity growth sets the pace for improvements in the quality of life. Rising productivity over most of the last 100 years has dramatically changed the face of the American economy in terms of living standards, the affordability of life's basic goods, and the range of goods and services Americans can buy. As American workers became more productive, average nominal wages rose from 15 cents an hour at the turn of the century to about $14 by 1999. Of course, in general prices have also risen over that time. But the gains in wages have far outpaced the rise in prices for the goods and services we buy. For instance, a candy bar that cost a nickel in 1900 might cost about 50 cents today, but today it takes the average worker just 2 minutes to earn that 50 cents, whereas in 1900 it took nearly 20 minutes of work to earn a nickel. Other goods are not only cheaper but of better quality as well. For example, in 1916 a refrigerator with 9 cubic feet of storage cost $800, the equivalent of over 3,000 hours of wages for the average worker. Today a refrigerator with more than twice the capacity, and with features not available 80 years ago such as an icemaker or an automatic defroster, costs about $900, or about 65 hours of work at the average wage. But the computer industry offers the most dramatic example of our increased buying power. In 1970 a state-of-the-art computer cost about $4.7 million, an amount equal to 15 times the lifetime wages of the average worker. In 1999 a personal computer with more than 10 times as much computing power cost only $1,000, or less than 2 weeks of the average workers pay, and this figure is likely to fall to just 1 days pay in the next decade or so. This record of long-term productivity growth and the resulting dramatic changes in the quality of life are the result of investments, both public and private, in education, science and technology, business capital, and infrastructure. These and other causes and consequences of economic growth in the past, and the outlook for continued growth in the future, are a recurring theme of this chapter. Of course, the transformation and expansion of the U.S. economy have not always been smooth: periods of growth were often 50 I Economic Report of the President Chart 2-1 Unemployment Rate In 1999 the unemployment rate fell to its lowest level in nearly 30 years. 60:Q1 63:Q1 66:Q1 69:Q1 72:Q1 75:Q1 78:Q1 81:Q1 84:Q1 87:Q1 90:Q1 93:Q1 96:Q1 99:Q1 Source: Department of Labor (Bureau of Labor Statistics). Chart 2-2 Inflation Rate Consumer price inflation remained low in 1999. Jan 60 Jan 63 Jan 66 Jan 69 Jan 72 Jan 75 Jan 78 Jan 81 Jan 84 Jan 87 Jan 90 Jan 93 Jan 96 Jan 99 Note: Data are 12-month percent changes in the CPI. Source: Department of Labor (Bureau of Labor Statistics). Chapter 2 I 51 interrupted by recession, and in the 1930s by the Great Depression. Thus a second theme of this chapter is how changes in the economy and in government policy have contributed to the macroeconomic performance we now enjoy: solid growth, high employment, and stable low inflation. As discussed in the other chapters of this Report, public policy has provided a strong foundation for the robust health of todays economy. One key to the outstanding macroeconomic performance of the last 7 years has been the reemergence of fiscal discipline, starting with the Omnibus Budget Reconciliation Act of 1993 (OBRA 93), continuing with the Balanced Budget Act of 1997, and including the Presidents veto of proposed massive tax cuts in 1999. The Federal Government is once again a net saver. That is, the Federal Government is now a source of funds for private investments in education, housing, and business; this is in contrast to the preceding 28 years, when it was a net borrower, competing with households and businesses seeking funds for investment. In fiscal 1999 alone this return tofiscaldiscipline freed over $120 billion that can be used for private investment—investment that provides jobs and will improve future productivity and real wages. This contrasts sharply with the record $290 billion deficit of fiscal 1992. Although the strong economy accounts for some of the improvement, the Congressional Budget Office s standardized-employment budget (which attempts to control for cyclical and special factors) shows the same pattern of a large deficit in fiscal 1992 and a surplus in 1999. Monetary policy likewise has contributed to supporting long-term growth: by keeping inflation low and stable, it has reduced the distortions to investment decisions associated with high and variable inflation. With the economy running strong, it is vital thatfiscalpolicy continue to be disciplined and directed at paying down the national debt. By adding to national saving, Federal surpluses lower interest rates, lowering the cost of consumer debt and home mortgages to households as well as the cost of investment in technology and capital to businesses. Such investments boost productivity and raise living standards. Federal spending needs to be targeted at top national priorities such as encouraging saving and investments in people and technology, health care, families, and the environment. Likewise, tax cuts should be moderate and targeted to areas where they can do the most good. Looking ahead, paying down the debt now is the best way to prepare for the looming retirement of the baby-boom generation and the consequent demands on Social Security and Medicare, as well as for other needs we cannot today anticipate. The first section of this chapter reviews the course of the U.S. economy during 1999. The second examines patterns of national saving and investment in recent decades and how government deficits and surpluses have affected national saving. The third section examines how the nature of the 52 I Economic Report of the President business cycle has changed over the past century. The fourth andfinalsection takes up the near-term outlook and the Administrations long-run forecast, paying particular attention to the effects of changes in productivity trends on growth and inflation. The Year in Review Real gross domestic product (GDP) increased 4.2 percent between the fourth quarter of 1998 and the fourth quarter of 1999 (Table 2-1). Even in the ninth year of the expansion, real output growth remained strikingly robust. The breakdown of the contributions to growth by major category in 1999 was similar to that over the whole expansion to date. Household spending and business investment in equipment once again provided the main contributions to growth. Government spending provided somewhat more impetus to growth than in previous years of the expansion, owing to increased spending by the Federal Government and by State and local governments. The drag exerted by the fact that imports grew faster than exports weighed in heavier than in the previous year. TABLE 2-1.— Growth ofReal GDP and its Components During 1998 and 1999 Item Growth rate (percent) 1999l 1998 Gross domestic product. Final sales Consumer expenditures Housing Business fixed investment Exports of goods and services Imports of goods and services Government consumption and gross investment Contribution to GDP growth (percentage points) 1999l 1998 4.6 4.2 4.6 4.2 4.7 4.3 4.6 4.3 5.1 11.3 13.1 1.9 10.8 5.4 3.2 7.0 4.0 13.1 3.4 .5 1.5 .2 -1.3 3.6 .1 .9 .4 -1.7 2.2 4.8 .4 Change in inventories. -.0 -.0 Preliminary. Note. Data are for fourth quarter to fourth quarter. Contributions are approximate. Detail may not add to totals because of rounding. Source-. Department of Commerce (Bureau of Economic Analysis). Components of Spending Real GDP growth was strong in each quarter except the second, when it dipped to a 1.9 percent annual rate. The quarter-to-quarter movements in Chapter 2 I 53 GDP were exaggerated by swings in inventory investment (discussed further below), which slumped in the second quarter before rebounding in the third quarter and then surging in the fourth. In contrast, growth in real final sales, which excludes inventory accumulation, fell only modestly in the second quarter. Real final sales increased 4.3 percent over the four quarters of 1999. Household Spending Real personal consumption expenditures (PCE) raced ahead at a 5.4 percent annual rate over the four quarters of 1999, besting the 5.1 percent pace set in 1998. Consumption growth contributed 3.6 percentage points to overall growth over the year as a whole. Real purchases of new motor vehicles increased about 5 percent over the four quarters of 1999; this was off the 14 percent pace of 1998. Total sales of automobiles and light trucks reached a record 16.8 million vehicles in 1999. Demand for housing also continued strong in 1999. Single-family housing starts topped 1998 s record figure, as did sales of new and existing single-family homes. The share of American households who own their own homes was 67 percent in 1999. This figure surpassed the record high annual level set in 1998. Growth in several housing indicators stalled in the second half of the year, however, as the effects of higher mortgage rates began to take hold. Still, housing markets remained strong, and measures of construction activity were at historically high levels. Favorable economic performance continued to drive this robust growth in household spending, and consumer confidence continued to run strong, according to household surveys. Real disposable personal income (deflated by the PCE chain-weighted price index) recorded impressive growth of about 3.7 percent at an annual rate over the four quarters of 1999. The strong stock market and a pickup in the value of homes further boosted household wealth, on top of sizable gains in each of the preceding 4 years. As a result, household net worth nearly reached the level of six times annual personal income (Chart 2-3). With wealth continuing to grow faster than income, households have been willing to spend a larger share of their disposable income (which, in the measurement concept used in the national income and product accounts, does not include capital gains). Hence the personal consumption rate rose for the seventh straight year, and the personal saving rate correspondingly fell. Business Investment Real business fixed investment continued to boom last year. Real business investment in equipment and software increased 11 percent at an annual rate during 1999. Spending on information processing equipment and software was the main contributor to the expansion in business investment. Adjusted for quality improvements, prices for many of these goods declined sharply in 1999. Real outlays on computers and peripheral equipment were up 39 per- 54 I Economic Report of the President Chart 2-3 Net Worth and the Personal Consumption Rate Personal consumption as a share of disposable income rose for the seventh straight year as the continued surge in household wealth encouraged spending. Ratio Percent 6.5 96 6.0 Personal consumption rate (right scale) 5.5 94 5.0 92 4.5 Ratio of net worth to disposable personal income (left scale) 4.0 90 88 1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 Note: Personal consumption rate is the ratio of personal outlays to disposable personal income. Household net worth for each year is constructed as the average of net worth at the beginning and the end of the year; data for 1999 are approximate. Sources: Department of Commerce (Bureau of Economic Analysis) and Board of Governors of the Federal Reserve System. cent over the four quarters of 1999, while real business spending on software increased about 13 percent, and real spending on other information processing equipment (which includes communications equipment) increased 18 percent. As in the previous year, the brisk pace of computer-related investment resulted in part from the updating and replacement of older systems in preparation for the century date change (better known as the year-2000 or Y2K problem). Investment in transportation equipment also showed solid gains; however, other categories of equipment investment were nearly flat. Real spending on nonresidential structures declined about 5 percent over the four quarters of 1999, as growth in earlier years (4.8 percent in 1997 and 2.9 percent in 1998) appears to have satisfied demand for new space for a while. Business inventories increased modestly through the first half of 1999. The pace of inventory accumulation strengthened in the third quarter. However, brisk sales brought inventory stocks down to lean levels relative to sales through the first three quarters of 1999 (Chart 2-4). Toward the end of the year, businesses apparently built up inventory stocks in anticipation of potential Y2K disruptions, but sales continued to keep pace. For the decade of the 1990s as a whole, the overall inventory-to-sales ratio showed a downward trend. This ratio for the manufacturing sector was falling for most of the decade, and more recently the retail inventory-to-sales ratio also has fallen. This downward trend in inventories is likely related to the adoption of just-in-time inventory management as well as to the use of new Chapter 2 I 55 Chart 2-4 Inventory-to-Sales Ratio (Manufacturing and Trade) The inventory-to-sales ratio declined throughout most of 1999, reaching its lowest level in nearly 50 years. 60:Q1 63:Q1 66:Q1 69:Q1 72:Q1 75:Q1 78:Q1 81:Q1 84:Q1 87:Q1 90:Q1 93:Q1 96:Q1 99.Q1 Note: Based on data in current dollars. Data for 1999:Q4 based on October and November monthly data. Source: Department of Commerce (Bureau of the Census). information technologies that enable businesses to manage with leaner inventories (as discussed in Chapter 3). Government Real Federal Government consumption expenditures and gross investment increased 5.3 percent on a national income and product accounts (NIPA) basis over the four quarters of 1999. Real defense spending rose 5.4 percent during that period, reversing a downward trend that saw this spending category fall nearly 2.6 percent per year on average over the preceding decade. Real nondefense spending was up 5.0 percent over 1999 as a whole. Federal purchases of equipment and software were an important contributor to the pickup in real Federal purchases. The Federal Government surplus on a unified budget basis for fiscal 1999 (which ended in September) was $124 billion, compared with $69 billion in fiscal 1998. The last time the Federal Government recorded two consecutive budget surpluses was over 40 years ago. And at 1.4 percent of GDP, the fiscal 1999 surplus was the largest relative to the size of the economy in nearly 50 years (Chart 2-5). The challenge for the future is to maintain the hard-earned fiscal discipline of recent years, so that the economy continues to reap the rewards of greater investment and growth. In support of this goal, the President rejected a congressional proposal for large-scale tax cuts that threatened the prospects for continued fiscal discipline; instead he has proposed a budget 56 I Economic Report of the President Chart 2-5 Federal Budget Surplus The Federal Government surplus reached 1.4 percent of GDP In fiscal 1999, its highest level by this measure since 1951. Percent of GDP 1947 1951 1955 1959 1963 1967 1971 1975 Fiscal year 1979 1983 1987 1991 1995 1999 Note: In October 1999, the Bureau of Economic Analysis (BEA) revised official GDP data beginning in 1959. Post1959 GDP figures are the official BEA data; earlier GDP figures have been adjusted for consistency with the revised data. Sources: Department of the Treasury, Office of Management and Budget, and Council of Economic Advisers. framework that continues to pay down the national debt while providing for critical needs and moderate tax cuts. State and local governments increased real spending on consumption and gross investment by 4.5 percent over the four quarters of the year. This pace of spending represents a pickup from the average 3.2 percent annual increase recorded over the previous 3 years. The strong economy has boosted State tax revenues, so that most State governments today appear to be in excellent financial condition. At the end of fiscal 1999, over two-thirds of the States surveyed had surpluses equal to 5 percent or more of general fund expenditures (Wall Streets benchmark forfinancialsolidity), and one in three had balances equaling 10 percent of expenditures. International Influences International developments in 1999 posed a challenge to the continued strong performance of the U.S. economy. Foreign growth rebounded in 1999, but its past weakness kept demand for U.S. exports subdued during the first half of the year. Export growth picked up in the second half of the year. Real purchases of U.S. exports increased 4.0 percent over the four quarters of 1999. Meanwhile, strong income growth in the United States and low relative prices for imported goods fueled increased U.S. purchases of imported goods and services for another year: real spending on imports increased 13 percent dur- Chapter2 I 57 ing 1999. In tandem, anemic export growth and the surge in imports caused the trade deficit to widen markedly in 1999, to about 2.8 percent of GDP. Labor Markets and Inflation The U.S. work force enjoyed another year of solid job growth and rising real wages in 1999. The unemployment rate in each of the final 3 months of the year was 4.1 percent, the lowest since January 1970. Real wages increased for the fifth straight year. Despite the tight labor market, core consumer prices, which exclude food and energy prices, increased by 1.9 percent, their slowest pace in nearly 35 years, although a sharp rise in the price of oil sent energy prices up and caused overall consumer price inflation to move upward. At the aggregate level, these statistics paint a rosy picture indeed. Chapters 4 and 5, however, discuss the ongoing challenge of making sure that the gains from this prosperity are shared as widely as possible. Employment Nonfarm payroll employment expanded by about 2.7 million jobs during 1999. Employment in the service sector grew rapidly in 1999, and employment in the government sector posted its strongest gain in 9 years, which was entirely due to growth at the State and local levels. Since January 1993, Federal employment (excluding the postal service) has declined by 18 percent, while private nonfarm employment has increased by 21 percent. The number of manufacturing jobs, however, fell by 248,000 last year; this marked the second straight year of declines for this sector, which was particularly hard hit by the slowdown in export demand. Manufacturing employment had been increasing by 154,000 per year on average over 1993-97. But trends in this sector appeared to improve over the year. Manufacturing production increased more than 5 percent in 1999, and the pace of job reductions in the sector slowed in the latter part of the year. The unemployment rate averaged 4.2 percent in 1999, down from 4.5 percent in 1998. The average annual unemployment rate has fallen for 7 straight years now, and in 1999 unemployment stood at its lowest annual rate since 1969. The benefits of the decline in unemployment have been widely spread. The unemployment rate for nonwhites, for example, fell to 7.0 percent, its lowest annual rate in 30 years. This excellent performance also extends to other labor market measures. The official definition of unemployment counts as unemployed only those who are looking for work. If one adds to the standard definition those who currently want a job but have not been looking (socalled marginally attached workers), the jobless rate of this combined group was 5.0 percent in 1999, down from 5.4 percent in 1998. Indeed, the number of persons desiring a job but not looking has declined in each of the 5 years since these statistics were first collected. 58 I Economic Report of the President The labor force participation rate—the percentage of the population over age 16 that is either employed or looking for work—remained at 67.1 percent in 1999 for a third straight year. In the early 1990s the participation rate appeared to have plateaued, ending an upward trend from the mid-1960s through 1990 that saw this rate rise from about 59 percent to 66.5 percent. This long-term trend was driven by an increase in the participation rate of women that more than offset a small decline in that of men. In the second half of the 1990s the overall participation rate rose again, reflecting the expansion of the Earned Income Tax Credit and welfare reform. Today participation stands at its highest annual rate ever recorded. With the participation rate stable and the unemployment rate down, the employment-to-population ratio—the proportion of the civilian population aged 16 and older with jobs—rose to 64.3 percent last year, topping the record set in 1998. Productivity and Compensation Labor productivity in the nonfarm business sector increased by 2.8 percent on an annual basis during the first three quarters of 1999. This marks the fourth consecutive year of strong productivity growth. The recent surge in productivity follows on the heels of more than two decades of relatively slow productivity growth (1.4 percent on average over 1973-95). For comparison, the average annual rate of productivity growth over this century has been about 2 percent. We examine in detail the causes and consequences of shifts in productivity trends below. Compensation per hour in the nonfarm business sector increased 4.6 percent at an annual rate during the first three quarters of 1999. The strong housing market helped boost compensation in the construction industry, while a slowdown in mortgage refinancing likely was behind the dropoff in compensation growth in the finance, insurance, and real estate sector, relative to the rate in 1998. Not only has compensation growth been strong, but a larger share of it is going into the pocketbooks of workers in the form of higher wages and salaries. According to the employment cost index, growth in benefit costs has been remarkably subdued on average over the last 5 years, in large part because of a sharp slowing in the growth of medical insurance costs. Previously, growth in benefits, especially health insurance, had caused the benefit share of employment costs to rise. Medical insurance costs began to rise again in 1999, however: the 12-month change was 5.8 percent compared with 2.5 percent in 1998. The real consumption wage—compensation per hour deflated by the CPIU-RS, an index published by the Bureau of Labor Statistics that provides a more consistent measure of inflation than the standard consumer price index (Box 2-1)—increased 2.0 percent at an annual rate over the first three quarters of 1999. This gain in real wages is below the brisk rates of the last 2 years but well above the 1.4 percent annual average increase over 1960-98 (Chart 2-6). Chapter 2 I 59 Box 2-1. The CPI-U-RS, a Consumer Price Index with More Consistent Methodology As noted in previous editions of the Economic Report of the President some of the recent deceleration in measured consumer prices is attributable to a series of changes in the methods used to compute the CPI. When making changes to its methods of computing the CPI, the Bureau of Labor Statistics does not revise past official CPI data using the newer method. In 1999, however, the agency produced a research version of the CPI, called the CPI-U-RS (the RS stands for "research series"), in which 14 methodological revisions adopted since 1978 and still in use today are applied back to that year. Throughout this edition we use the CPI-U-RS rather than the CPI-U as a deflator when appropriate. (The text and chart footnotes indicate which series is being used.) The new measure shows CPI inflation to have been lower than the official estimate over 1977-98 by an average 0.45 percentage point (see table). The difference is a percentage point over the 1977-82 period; revised methods of measuring the cost of home ownership account for most of the difference. In 1983 the BLS replaced a measure of home ownership costs based on purchase price and mortgage interest rates with a measure based on rental equivalence—roughly, what the homeowner would pay to rent the same house. Estimated Effect of Specific Methodological Changes on the CPI-U [Average annual percentage-point effect on December-to-December percent changes] 1977 to 1982 1982 to 1986 1986 to 1997 1997 to 1998 1977 to 1998 Rental equivalence -0.86 0.00 0.00 0.00 -0.21 Revised formulas -.28 -.26 -.41 -.23 -.34 .14 .13 .06 .00 .09 -.13 -.35 -.23 -.45 Type of change incorporated Other changes Total changes -1.00 Note. Detail may not add to totals because of rounding. Source.- Department of Labor (Bureau of Labor Statistics). A second important change, in 1999, was the switch to geometric rather than arithmetic (fixed-weight) aggregation of price measurements within the lowest-level subcategories in the market basket.This revision, which applies to low-level categories comprising 61 percent of consumer expenditures, resolved two problems: the "functional form bias" in rotating new stores into the sample, and the assumption continued on next page... 60 I Economic Report of the President Box 2-1.—continued of no substitution between competing products within most categories. The effect of applying this geometric aggregation is largest before 1995, when both problems affected the official series. The functional form bias was eliminated in 1995 for food and in 1996 for other products, and so the effect of geometric aggregation on the discrepancy between the series diminishes. The effect of this formula change is lumped together with a few other formula changes in the second line of the table. The BLS has omitted a few hard-to-measure methodological changes from the CPI-U-RS, albeit with small effects. Among these are the new procedures for hospital prices (implemented in 1997) and the switch to a new method of sampling (which began to be implemented in 1999) that may allow new products to enter the CPI earlier in their life cycle. The CPI-U-RS includes methodological improvements but not the periodic updates of the CPI market basket designed to take account of changing spending habits. In 1998, for example, the 1982-84 market basket was replaced with the 1993-95 basket. This change lowered CPI inflation by roughly 0.2 percentage point relative to a CPI weighted by the earlier market basket. Beginning in 2002, the BLS plans to update the market basket every 2 years rather than approximately once every decade. Taken together, the methodological improvements instituted beginning in 1995, combined with the recent update of the market basket, are estimated to result in roughly a 0.6-percentage-point slower annual increase in the CPI in 1999 compared with the methodologies and market basket used in 1994. But the growth in real wages in 1997 and 1998 was boosted by the effect of declining energy prices on CPI inflation. Arguably, deflating compensation by the core CPI provides a clearer picture of underlying real consumption wage trends. If energy and food prices are removed from the equation, the real consumption wage increased 2.7 percent at an annual rate over the first three quarters of 1999, slightly surpassing the 2.6 percent annual average increase over 1996-98. Prices Inflation picked up in 1999 from its very low 1998 pace. The CPI increased 2.7 percent over the 12 months of 1999, after rising 1.6 percent during 1998. The chain-weighted price indexes for GDP and PCE increased 1.6 and 2.0 percent, respectively, over the four quarters of the year. These inflation rates were also up from their 1998 levels. More than the total increase in consumer price inflation can be attributed to energy prices, which Chapter 2 I 61 Chart 2-6 Growth of Real Compensation per Hour (Nonfarm Business Sector) Real hourly compensation posted another strong gain in 1999, but with energy prices pushing up CPI inflation, the increase was smaller than in the 2 preceding years. 60:Q1 63:Q1 66:Q1 69:Q1 72:Q1 75:Q1 78:Q1 81:Q1 84:Q1 87:Q1 90:Q1 93:Q1 96:Q1 99:Q1 Note: Compensation per hour is deflated by the CPI-U-RS. Data are changes from four quarters earlier. Source: Department of Labor (Bureau of Labor Statistics). started to rise in March and continued to do so over the course of the year, reversing a 2-year slide. Oil prices were a main factor in the down-and-up pattern of energy prices. The price of West Texas Intermediate (WTI), a standard benchmark for oil prices, stood at year's end at about $26 per barrel, a bit above its level at the end of 1996, but well above that of a year ago, when WTI cost about $11 per barrel. Core inflation, in contrast, has remained subdued. On a consistently measured basis, the core CPI-U-RS increased only 1.9 percent over the 12 months of 1999, slightly below the previous years 2.2 percent increase. By comparison, core CPI-U-RS inflation has averaged 2.3 percent over the last 7 years. Core PCE prices, which also exclude the food and energy components, increased by only 1.5 percent over 1999 as a whole, after rising 1.4 percent in 1998. Since the fourth quarter of 1992, core PCE prices have risen only 1.9 percent per year on average. The CPI and the PCE price index differ in the goods and services they cover and in their method of computation, but by either measure core inflation has remained remarkably stable and low throughout this expansion. A number of factors have helped keep core inflation in check despite another year of strong output growth and tight labor markets. First, prices for nonpetroleum imported goods were little changed over the year, after declining more than 3 percent over 1998. The market basket on which the CPI is based includes imported goods, so that changes in the prices of these goods 62 I Economic Report of the President feed directly into the index. Moreover, falling prices of imported goods discourage domestic producers from raising their prices as much as they otherwise might. A second factor that restrained inflation is the existence of spare capacity in the manufacturing sector (Chart 2-7). Although labor markets have been tight, capacity utilization in manufacturing remained below its historical average, reflecting weak manufacturing growth in 1998 and rapid increases in capacity. Purchasing managers' lead times have been stable for most of the past 2 years, suggesting an absence of production bottlenecks, but lead times began to lengthen in 1999. A third reason for the moderation seen in price increases is that gains in labor productivity have partly offset increases in compensation. As noted, Chart 2-7 Capacity Utilization (Manufacturing) Capacity utilization rose in 1999 but remains below its historical average. Percent 95 90 A 85 1960-98 average = 81.7 percent 80 75 70 65 60:Q1 63:Q1 66:Q1 69:Q1 72:Q1 75:Q1 78:Q1 81:Q1 84:Q1 87:Q1 90:Q1 93:Q1 96:Q1 99:Q1 Source: Board of Governors of the Federal Reserve System. compensation per hour increased 4.6 percent at an annual rate over the first three quarters of 1999. Over the same period, output per hour increased 2.8 percent at an annual rate. The growth rate of unit labor costs—the difference between the growth rates of compensation per hour and of output per hour— was 1.8 percent at an annual rate over the first three quarters, slighdy below the 2.1 percent rate recorded in both 1997 and 1998. Even with labor markets tight, large increases in productivity have played an important role in counteracting the wage part of the wage-price spiral typically associated with a high-employment economy. A more extensive discussion of the relationships among import prices, productivity, and inflation is provided below. Chapter 2 I 63 Inflation expectations remained low and stable throughout the year, supporting restraint in wage and price setting. According to the Michigan Survey of Consumers, the median expectation over the next 5 to 10 years is for inflation under 3 percent; that figure changed little over the year. Similarly, professional forecasters' expectations of long-term inflation continue to be low and stable, according to a survey conducted by the Federal Reserve Bank of Philadelphia. Financial Markets By comparison with the tumultuous events of the preceding year, 1999 was a relatively tranquil year for financial markets. Even the looming century date change and the potential it posed for Y2K-related disruptions did not seem to unsetde the markets (Box 2-2). The Federal Reserve raised the target Federal Box 2-2. Economic Impact of Y2K Preparations One of the most anticipated events of the past year was the rollover from the year 1999 to 2000. The public and the private sectors in the United States and abroad devoted enormous resources to ensure that theY2K bug did not spoil the new year. Moreover, anecdotal evidence suggests that businesses and households stocked up near the end of the year as a precaution against supply shortages. In the end these preparations paid off, and only minorY2K-related glitches were reported. PotentialY2K disruptions involving information systems in the financial sector both in the United States and abroad had been a central concern well before the century date change. The smooth and efficient operation of financial markets and the banking sector relies on the extensive use of computers for record keeping, data exchange, and electronic transactions.The Federal Reserve and the President's Council on Year 2000 Conversion tracked efforts by financial institutions to ensure that records would be accurately maintained and that operations would continue running smoothly over the transition to the new millennium. To allay concerns about a year-end shortage of liquid assets, the Federal Reserve took steps to assure markets that adequate liquidity would be available. The Fed also acted to ensure that sufficient quantities of cash would be available to the public at year's end. It was widely believed that many people intended to withdraw abnormally large amounts of cash near the end of the year, as a precaution against Y2Krelated glitches at banks and automatic tellers. In anticipation of this rise in demand for cash, the Federal Reserve increased its order for currency through September by over 50 percent from the previous year. The Fed also implemented measures making it easier for banks to order and take delivery of cash. Public cash holdings rose by about 5 percent in December, an amount easily accommodated. 64 I Economic Report of the President funds rate (the interest rate that banks charge one another for overnight borrowing) by 75 basis points in three steps, fully reversing the rate cuts it had instituted in the second half of 1998 during the global financial crisis. The yield on 30-year Treasury bonds rose more than \lA percentage points over the course of the year, reflecting a number of factors in addition to the Fed rate hikes. These included a rebalancing of international portfolios as the financial crisis receded, and concerns that continued strength in the U.S. economy would cause the Federal Reserve to further increase the Federal funds rate. The stock market recorded another year of strong gains, with the S&P 500 index of stock prices rising 20 percent in 1999 (Chart 2-8). But the overall strength of the stock market in 1999 masks a sizable disparity in performance among stocks. In 1999 fewer than half of the stocks in the S&P 500 index rose in value. In contrast, despite similar overall growth, during the first 4 years of the bull market over 70 percent of those stocks rose in any one year. Stock gains were concentrated in a few sectors, mostly those associated with high technology. In the mid-1990s the technology-heavy NASDAQ index grew at about the same rate as the broader S&P 500, but its growth rate has been about triple that of the S&P 500 in the last 2 years. Even more impressive is a popular average of Internet-related stocks, which increased about 160 percent per year over the past 2 years. Chart 2-8 Equity Prices Led by the technology-heavy NASDAQ, stock markets continued to record large gains in 1999. Internet stocks skyrocketed. Index, December 31,1994 =100 (ratio scale) 1600 1600 lnter@ctive (Internet stocks) I 800 800 400 400 200 200 Russell 2000 100 Jun 95 Dec 95 Jun 96 Dec 96 Jun 97 Dec 97 Jun 98 Dec 98 Jun 99 Dec 99 Sources: Frank Russell Company, lnter@ctive Week Online, National Association of Securities Dealers Automated Quotations, Standard & Poor's. Chapter 2 I 65 The Calm Following the Storm The year 1998 had been an especially stormy one for financial markets. The Asian crisis in 1997 and the Russian debt default in August 1998 had precipitated a series of dramatic events in U.S. financial markets. Investors, including foreigners, had sought to reduce exposure to risk by selling high-risk investments and buying Treasury securities. This "flight to quality" had in turn bid up prices of Treasury securities, driving Treasury yields down (Chart 2-9). Corporate bond premiums (the spread between the yield on corporate bonds and Treasury securities), especially those on high-yield bonds, had risen sharply. New issuance of private debt had dried up, and debt markets became less liquid. For a time in the late summer of 1998, even the previously imperturbable bull market in stocks had turned bearish. Owing in part to concerns that financial markets were freezing up and that a credit crunch might follow, the Federal Reserve had cut the Fed funds rate three times, in September, October, and November 1998, from 5.5 percent to 4.75 percent. With the economy continuing to surge ahead and the unemployment rate dropping to nearly 4 percent, the 30-year Treasury yield ended the year about 125 basis points above its level at the end of 1998. Premiums on investmentgrade corporate bonds fell back to levels somewhat above those prevailing before the Russian crisis. Premiums on high-yield bonds stayed elevated relative to early-1998 levels, reflecting in part the high default rate among busi- Chart 2-9 Yields on Treasury Securities Treasury yields on short-, medium-, and long-term securities rose in 1999, more than reversing their declines of the previous year. Percent per year 10 Jan 90 Jan 91 Jan 92 Jan 93 Jan 94 Source: Department of the Treasury. 66 I Economic Report of the President Jan 95 Jan 96 Jan 97 Jan 98 Jan 99 nesses with below-investment-grade bond ratings. Liquidity flowed freely again, with new debt issuance rebounding. Overall, markets appear to have returned to a state of relative normalcy, but with a renewed appreciation of the risks associated with investments of all kinds. Financial Modernization Last year witnessed a watershed event that will change the way financial institutions meet the needs of the American people. The Gramm-Leach-Bliley Act (GLB), which the President signed into law in November 1999, updates the rules that have governed the financial services industry since the Great Depression. Prior to GLB, the Glass-Steagall Act of 1933 and the Bank Holding Company Act of 1956 had largely prohibited banks from being affiliated with firms involved in underwriting securities or insurance. The financial services industry had been undergoing rapid change for several decades; affiliations among banks, security firms, and insurance companies have already occurred in the marketplace. By repealing those prohibitions and allowing banks to merge with other financial institutions, the new law will stimulate competition, increase consumer choice, and reduce costs for consumers, communities, and businesses while still providing an appropriate statutory framework for community reinvestment and privacy protection. GLB preserves the important role of the Community Reinvestment Act, guaranteeing that banking institutions will continue to meet the needs of potentially underserved communities. No bank may take advantage of the new opportunities that GLB provides unless it shows that it is satisfactorily meeting the credit needs of its community in general, and low- and moderateincome neighborhoods in particular. GLB also provides some protection for the privacy of consumers by giving them the right to know whether their n n i n r i o l inctitntinn intpnne tr\ enirp tnpir rinonfiol nifo -umt-ri r»1-r»*»rc i n n 1-n/» have built on top of strong stock market performance in the 1980s and early 1990s. Many economists profess surprise at the remarkable bull market of the 1990s; others offer explanations for the sustained run, including a decline in the risk premium that investors demand in return for holding stocks, and a rise in expected corporate productivity and profits. The first step in evaluating the performance of the stock market is to consider what determines the price of an asset (such as a share in a corporation) that yields a risky return. A share of common stock provides the owner with a claim on a portion of the issuing corporation s future profits. Hence the share price should equal the present discounted value of the corporations net profits (that is, after payments to employees, suppliers, bondholders, and other creditors) divided by the number of outstanding shares. The discounting of future profits reflects two factors: the opportunity cost associated with waiting for those future profits, and a premium related to the uncertainty about whether those profits will materialize. The opportunity cost of receiving a dollar next year equals the interest an investor would receive by buying a risk-free bond instead of the share of stock. Because a stock can be a risky investment, investors demand a rate of return on stocks that is above that on a relatively safe bond. Changes in fundamentals such as corporate profits and interest rates appear to explain some but not all of the dramatic runup in stock prices. Corporate profits grew impressively over the 1990s, but not by as much as stock prices. Chart 2-10 Cumulative Real Returns in the Top Six Bull Markets Since 1802 Only five previous bull markets in stocks have accumulated higher returns than the one that began in 1995. Percent • 444 400 300 l 11 11 1 Ongoing bull market 198 200 210 199 198 H 100 n 1815 to 1821 1865 to 1872 1894 to 1902 1921 to 1928 1932 to 1936 \ 189 Hi 1995 to 1999 Note: Returns include reinvested dividends. A bull market is defined to persist in a given year so long as the real return to stooks is positive over the year. Source: Jeremy Siegel, University of Pennsylvania. 68 I Economic Report of the President From 1989 to 1999, corporate earnings more than doubled, and forecasts of future earnings were strong, on average, at the end of 1999. The inflationadjusted yield on Treasury bonds, meanwhile, is little changed from its level of 10 years ago and thus has provided only a slight impetus to stock prices over the decade as a whole. The extraordinary rise in stock prices relative to actual profits has therefore led economists to hypothesize that changes have occurred beyond those measured by these fundamentals. One proposed explanation is that investors have reduced the premium that they demand for holding stocks. A second is that the outlook for future profits is brighter than commonly thought and that stock prices today more accurately reflect the true productivity and profitability of American businesses. We consider each hypothesis in turn. The Equity Premium From 1989 to 1999 the average annual real stock market return was over 14 percent, about %Vi percentage points higher than the average annual real return on long-term government securities. Although this level of return on stocks has been extraordinary, the fact that it has far exceeded the return on government bonds is nothing new. In fact, the excess return of stocks over bonds—the equity premium—has averaged about 4 percentage points over the last two centuries. The equity premium has also varied considerably over time, and over the second half of this century it has averaged about 7.3 percentage points (Chart 2-11). Chart 2-11 Real Stock and Bond Returns Since 1801 Over the past two centuries, stock returns have exceeded returns on bonds over long periods. Percent per year 1801 to 1849 1849 to 1899 1899 to 1949 1949 to 1999 1801 to 1999 Note: Returns include reinvested interest and dividends. The bond data are based on long-term government bonds when available; if not, similar highly-rated securities were used. Source: Jeremy Siegel, University of Pennsylvania. Chapter 2 I 69 The additional riskiness of stock returns over that of bond returns does not appear large enough to justify an equity premium of over 7 percentage points, unless investors are extraordinarily risk-averse or their investment horizon is very short. For this reason, economists have long been puzzled by the large excess returns that the stock market has historically offered. One explanation for the recent runup in stock prices is that investors may have been responding to the fact that stocks have historically yielded much higher returns than bonds over the long haul. In this view, the stock market was simply undervalued in the past, and the recent runup in prices was necessary to bring valuations in line with the fundamentals. Two developments may have spurred this behavior. First, the cost of owning a diversified portfolio of stocks has fallen with the creation of a growing number of low-cost mutual funds. Diversification reduces the risks associated with holding stocks and therefore should reduce the equity premium that investors demand as compensation for risk. A second development is that a new generation of investors is now in the market, and the aversion of older investors to the risks of equity investing may have diminished. Investors may have had lingering memories of the bear market of the late 1960s and early 1970s, when the Dow Jones Industrial Average (adjusted for inflation) fell by more than 60 percent over 6 years. Some perhaps even remembered the Great Crash of 1929, when the Dow fell 64 percent in real terms over 3 years. Investors' attitudes toward the stock market, and their tolerance for risk, may have only recendy recovered from these painful episodes. Meanwhile many from the baby-boom generation and later, who know bear markets only from history books, have become stock investors. Indeed, the older generations recoil from stock investing may have been more emotional than rational. Even an unlucky investor who had invested in the stock market on the eve of the 1929 crash still would have realized a real return of nearly 6 percent a year, on average, over the next 30 years. In sum, both the low cost of diversification and changing attitudes toward the riskiness of stocks suggest reasons that may have led investors to bid up stock prices in the 1990s. Intangible Capital A second explanation for the bull market may be that investors have higher expectations for future corporate profits than they used to. In theory, the stock market value of a company should be closely related to the replacement value of its assets. For example, if a company owns only one asset, a factory that cost $10 million to build, the market value of that company should be $10 million (abstracting from other factors that affect its profitability). One possible explanation for the rise in the stock market over the last decade is that U.S. businesses have accumulated large quantities of intangible capital in addition to physical capital (plant and equipment). Intangible cap- 70 I Economic Report of the President ital includes the value of intellectual property (including patents from research and development investments), organizational structure, management expertise, and past investments in job training. These assets are not included in the national accounts' measure of physical capital but do raise the productive capacity offirms.In this view, stock market values—which should incorporate information about investments in tangible and intangible capital—should provide a better yardstick for capital than standard measures based on past investments in plant and equipment alone, which may understate the true productive potential of firms. According to this explanation, the dramatic rise in the stock market value of corporate businesses during the 1990s derives from a large increase in their intangible capital stock, in addition to the increase implied by investments in plant and equipment. The implied surge in investment in intangible capital could have resulted from businesses' intensified efforts to increase efficiency and productivity. In addition, the explosion in information technologies and the Internet may have led to a surge in intangible capital investment, including the creation of new products and services and the redesign of production processes and management. One implication of this hypothesis is that labor productivity growth should have increased sharply over the last few years, because workers now have more productive capital—both tangible and intangible—at their disposal. Although productivity growth has in fact increased, there is still too little evidence to support or reject the notion that the true productive capital stock has grown as rapidly as current stock market valuations imply. It is inherendy difficult to measure and evaluate the different variables, including perceptions of risk and profitability, that factor into stock market prices. The proper valuation of technology stocks—the group that has driven much of the market s growth in the last 2 years—is particularly tricky. Some of these stocks currendy have low or even negative earnings but hold the potential for strong profits in the future. Because these companies lack the proven track record of long-term growth that more established firms usually have, their stock prices may in principle be more prone to volatility as investors revise their forecasts of future profits. Experts have a mixed record of perceiving the underlying determinants of stock values. As already noted, some were puzzled by the strength of the bull market in the late 1990s, yet the market continued to soar. On the other hand, Irving Fisher, one of the founders of financial economics, famously claimed just 2 weeks before the 1929 crash that "Stock prices have reached what looks like a permanently high plateau." In the final analysis, it is likely that neither of the two hypotheses described here will prove completely correct, and that several factors, perhaps including an overoptimistic view of future corporate profitability, have combined to propel the stock market upward. Chapter 2 I 71 Saving and Investment Investment is the economic bridge linking the present to the future. By deferring consumption today, we make available resources for investment, which increases our ability to produce and consume in the future. Over the last two decades, net domestic investment (gross investment minus capital consumption) has generally exceeded net national saving, and the difference has been made up by foreigners (Chart 2-12). Moreover, the share of GDP that was saved had been very low through much of the 1980s and early 1990s. This low rate of saving and its shortfall relative to domestic investment have led some to conclude that the United States is not "saving enough," especially in light of the upcoming retirement of the baby-boomers. The picture is not quite as clear, however, as these simple figures would suggest. Trends in Saving The ratio of net national saving to GDP has risen about 3 percentage points over the last 7 years. Despite this sizable improvement, this ratio remains low relative to its levels of the 1960s and 1970s. Indeed, if the national saving-GDP ratio were equal today to its levels in those decades, it would suffice to cover domestic investment. The recent upward trend in net national saving is the net result of changes in the saving patterns of households, businesses, and governments. The ratio Chart 2-12 Net National Saving and Net Domestic Investment Net domestic investment has exceeded net national saving in most years since the 1960s. In 1999 the difference reached 2 percent of GDP. Percent of GDP 14 Domestic investment National saving 1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 Note: Net national saving minus net domestic investment is equal to net foreign investment minus the statistical discrepancy. Data for 1999 are averages of first three quarters. Source: Department of Commerce (Bureau of Economic Analysis). 72 I Economic Report of the President of gross personal saving to GDP has declined nearly 5 percentage points over the last 7 years. However, over the same period, the gross national saving rate—the sum of personal, business, and government saving—has increased by 3 percentage points (Chart 2-13). The source of this difference lies in the reversal of the role played by the Federal Government, which has transformed itself from a major borrower into a major saver. In addition, State and local governments have increased their saving as a share of GDP. Corporate saving has also been on a gradual upward trend through the 1990s. Yet as already noted, despite these positive developments in government and business saving, the national saving rate remains low relative to its 1960s and 1970s levels. There are, however, reasons to believe that the measured national saving rate does not accurately portray the accumulation of assets capable of supporting future consumption. Saving and Asset Accumulation Although national saving is not as high today as in past periods, Americans have nevertheless been accumulating vast quantities of assets. The ultimate purpose of saving and investing is to provide resources for future consumption. To paraphrase Adam Smith, consumption is the sole end and purpose of all saving. In considering the ability to consume in the future, it makes sense Chart 2-13 Gross National Saving Relative to GDP, gross national saving held steady in 1999 as an increase in government saving offset a decline in personal saving, which fell to its lowest level in at least 40 years. Percent of GDP 24 National saving 16 Personal saving 12 t Corporate saving t Government saving 1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 Note: Data for 1999 are averages of first three quarters. Source: Department of Commerce (Bureau of Economic Analysis). Chapter 2 I 73 to look at not only how much we save, but also at how that saving is invested and how productive that investment is. Much saving goes ultimately into business investment, where it raises future productivity and thus output. The reported nominal national saving and investment rates conceal an important development, namely, a sharp decline in the relative price of business equipment, owing in large part to quality improvements in capital goods. One dollar of saving buys more business equipment, on a quality-adjusted basis, today than before. As a result, the increase in productive business assets corresponding to the average dollar saved by Americans has risen over time. The recent runup in the stock market, already discussed, allows an even more optimistic view on asset accumulation. Real household stock market wealth has more than doubled since 1995. To the extent that this runup in stock prices reflects an increase in the productive capacity of U.S. corporations—say, owing to investments in intangible capital or especially high returns to investments in information technologies—this increase in wealth augurs a real increase in future sustainable consumption. On the other hand, rises in share prices resulting from changes in U.S. investors' willingness to hold stocks or from overly optimistic views of future earnings do not imply additional resources available for national consumption. The upswing in the national saving rate over the last several years provides an encouraging sign regarding the Nations preparations for the future. To the extent that recent saving is more productive than past saving, so much the better. In any case, the Federal Government can further advance this favorable trend in national saving by maintaining fiscal discipline, paying down the debt, and thereby raising government saving. The End of the Business Cycle? Growth has been a defining characteristic of the U.S. economic experience over the last century, but only when viewed from a long perspective: employment and income have often deviated, sometimes sharply, from their rising long-run trends. Time and again the economy has risen over a period of years to a temporary peak of activity, only to fall back downward, bottom out at a trough, and from there once again begin torise.These peaks and troughs represent turning points of the business cycle; an expansion is defined as the period that starts from a trough and ends when a new peak is reached. Although the business cycle has been a recurring feature of the U.S. economy for as far back as we have reliable data, some observers have argued that the economy in the 1990s has fundamentally changed and that the concept of the traditional business cycle is outdated. 74 I Economic Report of the President The beginnings and ends of U.S. business cycles are determined well after the fact by the Business Cycle Dating Committee of the National Bureau of Economic Research (NBER), a private, nonprofit organization of professional economists. For instance, the March 1991 trough that marked the beginning of the present expansion was not announced by the committee until December 1992. In identifying the monthly dates for peaks and troughs, the committee looks for across-the-board movements in a large array of economic indicators such as output, income, and employment. Using this methodology, the NBER has determined that since 1854 there have been 31 expansions and 31 recessions, representing 30 peak-to-peak business cycles, not including todays ongoing expansion. Although they are called "cycles," these economic fluctuations are neither regular nor predictable. The longest expansion to date was that of the 1960s, which lasted 106 months. (The current expansion is expected to pass that mark in February 2000.) The longest contraction on record lasted over 5 years, from the October 1873 peak to the March 1879 trough, whereas the shortest lasted only 6 months, from January to July 1980. The Changing Nature of Business Cycles in the United States Forty-one years ago a former chairman of the Council of Economic Advisers predicted that "The business cycle is unlikely to be as disturbing or troublesome to our children as it once was to our fathers." Research quantifying the degree to which business cycles have moderated over time confirms this view. If the severity of economic fluctuations is measured in terms of the output lost during a recession, the 14 recessions between 1900 and 1953 cost on average about three times as much as the 7 recessions since then. Even if the Great Depression of the 1930s is excluded, recessions in the earlier period still were on average more than one and a half times as severe as those in the 1954-99 period. Other evidence supports the notion that business cycle fluctuations have diminished over time. From 1982 to 1998, fluctuations in GNP and unemployment were on average about 20 percent smaller than they were from 1954 to 1981, and fluctuations in inflation were less than half as large on average (Chart 2-14). With the caveat that data from the 19th century and the early 20th century are less reliable than and not directly comparable to recent data, business cycle fluctuations appear to have become less severe in the second half of the 20th century than in earlier periods. One other way to think about the postwar moderation of the business cycle is in terms of the length of time that the economy has spent in recession and the amount of time it has spent in expansion. The average length of expansions nearly doubled in the second half of the century, from about 2Vi years during 1900-53 to about 5 years since then, and the average length of economic contractions has fallen from about 17 months to less than 11 months. Chapter 2 I 75 Chart 2-14 Fluctuations in Output, Inflation, and Unemployment Business cycle fluctuations have been less severe on average in the second half of the 20th century than in earlier periods. Standard deviation 10 • 1870-1899 B1900-1929 • 1930-1953 H1954-1981 • 1982-1998 Annual real GNP growth Annual percent change in GNP deflator Annual change in unemployment rate Note: Unemployment data begin in 1891. Sources: Department of Commerce (Bureau of the Census and Bureau of Economic Analysis); Department of Labor (Bureau of Labor Statistics); Christina D. Romer, T h e New Prewar Business Cycle Reconsidered: New Estimates of Gross National Product, 1869-1908," Journal of Political Economy, 1989, and "Spurious Volatility in Historical Unemployment Data," Journal of Political Economy, 1986. Sources of Business Cycle Moderation One source of moderation in the business cycle is the changing nature of the U.S. economy. Historically, inventories have been one of the most volatile components of spending. Businesses now tend to operate with much leaner inventory stocks than before, and they appear to be better able to adjust these stocks to changing economic conditions. The composition of output has also tended to move from more volatile toward less volatile sectors. Spending on services, which tends to be relatively insensitive to cyclical fluctuations, made up over half of GDP in 1999, compared with less than a third in 1950. Conversely, the cyclically sensitive manufacturing sector makes up a smaller share of aggregate output and employment than in the past. The growing role of stabilization policies—fiscal and monetary policies, which buffer the effects of destabilizing influences on the economy—may also have contributed to this moderation of the business cycle. Over the last century, the role offiscalpolicy in affecting the business cycle not only has grown but has indeed changed fundamentally. At the beginning of the 20th century, the Federal Governments role in the economy was tiny. In 1900 there was no Federal income tax and no Social Security, and total Federal receipts equaled a mere 3 percent of GNP. The Nations monetary policy was generally one of simple adherence to the gold standard, which limited the use of monetary policy as a stabilizing tool. The Federal Governments role in macroeconomic stabilization grew in importance following World War II. Although the income tax had been 76 I Economic Report of the President introduced in 1913 and Social Security in 1937, by 1940 income and payroll taxes equaled only 3 percent of GNE Income and payroll tax revenue rose thereafter as a share of GNP and has averaged around 14 percent over the last 30 years. It amounted to over 16 percent of GNP in 1999. The role and character of monetary policy likewise underwent a fundamental transformation during the late 20th century. Recent experience supports the view that modern monetary policy can achieve the long-run goal of price stability while aiding in the cause of short-run macroeconomic stabilization by "leaning against the wind" when macroeconomic imbalances develop. Do Expansions Die of Old Age? One question that has intrigued economists is whether each expansion contains the seeds of its own destruction. Is it true that the longer an expansion lasts, the more likely it is to end in the next quarter or the next year? Studies find no compelling evidence that postwar expansions possess an inherent tendency to die of old age. Instead, they appear to fall victim to specific events related to economic disturbances or government policies. For instance, the Iraqi invasion of Kuwait, which led to a doubling of oil prices in the fall of 1990, contributed to the decline in economic activity during the recession of 1990-91. American consumers, having suffered through the tripling of oil prices in 1973-74 and their subsequent doubling in 1979, anticipated negative repercussions on the U.S. economy, and consumer confidence declined sharply and consumption fell. An example of policy affecting the end of an expansion is the Federal Reserves successful disinflation at the end of the 1970s and in the early 1980s. In 1979 the CPI inflation rate reached 11 percent. Under a new chairman, the Federal Reserve dedicated itself to a renewed effort to reduce inflation, which fell 8 percentage points over 4 years, to about 3 percent by the end of 1983. As a result, the short expansion that started in July 1980 came to a halt one year later. With the Federal funds rate peaking at just over 19 percent in June 1981, the economy fell into a 16-month recession, during which the unemployment rate rose above 10 percent. An Expansion Is Only as Old as It Feels, and This One Still Feels Young Although the current expansion entered its 105th month in December 1999—what might be considered old age, based on the history of U.S. business cycles—it still appears young and vibrant when compared to the later stages of past long expansions. What is noteworthy in todays economy is the absence of developments that are frequently identified with the twilight of an expansion. In particular, productivity has accelerated during the last several Chapter 2 I 77 years, rather than stagnated as in other mature expansions, and price inflation has been on a falling, not a rising, trend. In the later stages of the two previous long expansions, productivity growth slowed to just above a 1 percent annual rate (Table 2-2). In contrast, over the last 2 years, productivity has been growing nearly 3 percent a year, in part owing to rapid business investment. Strong productivity growth has enabled the economy to grow rapidly and helped restrain the cost pressures typically associated with a strong economy. Inflation trends provide a second sign of an expansions age and health. Late in the expansions of the 1960s and the 1980s, high rates of utilization and decelerating productivity contributed to an acceleration in prices, that is, a rising inflation rate. In the current expansion, even with unemployment well below 5 percent, the acceleration in productivity has helped keep inflation stable. In fact, inflation has fallen relative to the previous 2-year period. Surveys of inflation expectations provide a further encouraging sign that inflation remains in check: these surveys show that both consumers and professional forecasters expect inflation to stay low over the next several years. Some have argued that the U.S. economy is now nearly immune to the business cycle, because of the effects of increased international competition, rapid innovation and productivity growth, and improved flexibility of the production and distribution systems. TABLE 2-2.— The Late-Expansion Economy and the Current Expansion [Average annual percent change, except as noted] Most recent 2 years of Last 2 years of earlier expansions current expansion Item 1967 Q4 to 1969 Q4 Real GDP per capita Unemployment rate 2 1997 04 to 1999 Q4 1988 Q3 to 1990 Q3 2.5 1.6 >3.4 4.4 3.5 5.3 Productivity3 1.3 1.1 Real business fixed investment. 6.0 3.1 Mo.o 5.3 4.7 2.0 2.1 .9 -.4 CPI-U-RS 5 CPI-U-RS acceleration 6 Preliminary. Percent; annual average for 1968-69,1988 Q4-1990 Q3, and 1998-99. Output per hour worked in the nonfarm business sector. 4 Change through 1999 Q3. 5 For pre-1978 data, CPI-U used. 6 Percentage-point difference in 2-year average annual inflation rate from that of preceding 2 years. 2 Sources: Department of Commerce (Bureau of Economic Analysis) and Department of Labor (Bureau of Labor Statistics). 78 I Economic Report of the President 4 3.0 Of course, it is premature to declare the business cycle dead. But there are reasons to believe that the economy will continue to perform as well as, if not better than, it has in the recent past, with less of the roller-coaster ride that characterized the 1970s and early 1980s (not to mention earlier decades). Unlike in the 1980s and early 1990s, fiscal discipline is now the order of the day. Projected surpluses can now be used to pay down the debt and free up capital for investment in education, business, and technology, spurring faster growth. Likewise, the Federal Reserve no longer follows the stop-and-go policies of the 1970s, but instead practices a systematic policy that fosters price stability and long-term growth. The Economic Outlook As always, the growth of the supply-side components of GDP underlies the projection of long-term growth. In particular, the prospect for continued productivity growth is the key issue in the economic outlook and the source of many of the upside and downside risks to the Administrations projection. Labor productivity trended upward at an average annual rate of 1.4 percent from 1973 to 1995 but then accelerated to a 2.9 percent clip over the past 4 years (Chart 2-15). The unexpected surge in productivity growth has led to several positive developments: it has restrained inflation, allowing the unemployment rate to fall lower than it otherwise might; it has increased economChart 2-15 Labor Productivity (Nonfarm Business Sector) Labor productivity trended upward at an average annual rate of 1.4 percent from 1973 to 1995. It then accelerated to a 2.9 percent clip over the past 4 years. Index, 1992 = 100 (ratio scale) 120 _ 2.9 percent average growth 1995 to 1999 110 Actual y ^ ^ " " ' 100 1.4 percent average growth 1973 to 1995 ^ S ^ 90 80 70 73:Q1 78:Q1 83:Q1 88.Q1 93:Q1 98:Q1 Note: Productivity is the average of income- and product-side measures. Productivity for 1999 is inferred from the first three quarters. Sources: Department of Commerce (Bureau of Economic Analysis) and Department of Labor (Bureau of Labor Statistics). Chapter 2 I 79 ic growth, with positive effects on the Federal budget balance; and it has boosted stock market valuations. Over the past 4 years, the income-side measure of output, gross domestic income, has grown half a percentage point per year faster than the productside measure, gross domestic product. Because measurement error enters into both, the Council of Economic Advisers believes that we learn something from each, and therefore the following discussion focuses on an average of the two measures in discussing trend productivity and potential output. What Has Caused Productivity Growth to Rise? Because the apparent acceleration in productivity is less than 4 years old, its cause and future continuation remain controversial. A year ago, available data showed productivity growth to be within the range of normal cyclical variation. But more recent data, especially the October benchmark revision to the national accounts (Box 2-3), place the acceleration on more solid footing. National accounts revisions result from changes in price measurement and new definitions as well as the arrival of new data. Abstracting from the first two, the databased revision over 1995-98 allows us to advance the start of the acceleration at least to 1997 and perhaps as early as 1995. And insofar as the revised data are more accurate, they make the identification of the acceleration more credible. The Councils analysis finds that two developments account for half of this acceleration: an increase in capital—especially computer and software capital— and productivity growth in the computer-producing sector. Labor productivity increases when workers have more capital to work with. Capital deepening has been a persistent feature of the U.S. economy since World War II, as capital services per hour has increased in almost every year. Yet in 1995, business investment as a share of GDP climbed above its long-term average, and it has continued upward since. As a result, capital services per hour grew faster after 1995 than before. Estimation using preliminary data and established methods of growth accounting (that is, weighting the growth rate of capital services per hour by capitals cost share) finds that capital deepening accounts for 1.53 percentage points of annual labor productivity growth during the 1995-99 period. This is up from 1.06 percentage points during the 1973-95 period (second line in Table 2-3). The difference between these growth rates shows that capital deepening accounts for 0.47 percentage point of the 1.47-percentage-point acceleration in productivity after 1995 (Table 23, column 3). Investment in computers and software accounts for all of this gain from capital deepening. (Official data on capital services will not be released until mid-2000, and so these calculations remain tentative.) This contribution from capital deepening is important, but it is not the whole story. Although capital deepening contributes to labor productivity growth in the long run, it has not been a reliable guide to year-to-year fluctu80 I Economic Report of the President Box 2-3. What Did We Learn from the GDP Benchmark Revision? The Commerce Department's benchmark revision of the GDP statistics, released by the Bureau of Economic Analysis last October, incorporated new data from the last full economic census (conducted every 5 years) and from the benchmark input-output accounts from 1992, as well as from the revised annual sources that are usually incorporated in the annual July GDP revision. The benchmark revision also provided an opportunity to change accounting definitions and to make the pre-1995 accounts consistent with current methods of deflation. Spending. Over the 11-year period from 1987 to 1998, revisions raised the annual rate of growth of real GDP by an average of 0.4 percentage point.The revisions fall into three main categories (Chart 2-16): revisions to source data, revisions to the methods used in adjusting for inflation, and new definitions of spending categories and subcategories. Incorporating new source data from the economic censuses and other sources added about 0.2 percentage point per year to growth since 1994 but had little impact on earlier years. Changes in deflation methodology accounted for the largest component of the benchmark revision for the 1987-94 period. This change reflects the retrospective application of current CPI methods to the years 1978-94. (These methods were already in use for the post-1994 period.) Among several new definitions introduced, the most significant is the inclusion of computer software purchases in investment, which raises the growth rate of real GDP by an average of 0.18 percentage point per year over 1987-98. By 1998 the cumulative impact of these definitional changes was to raise the measured level of nominal GDP by 2.0 percent and the growth of real GDP since 1959 by 3.5 percent. Income and saving. In the GDP accounts, pension plans for government employees were moved from the government to the household sector, so that employer contributions to (and interest and dividends earned by) these pension plans are now classified as personal income. On the other hand, pension benefit payments were removed from the transfer income component of personal income. This reclassification boosted personal saving but reduced government saving by an offsetting amount.The personal saving rate still shows a marked decline over the 1990s but was no longer negative in 1999 as it was under the old GDP accounts. New source data boosted measured wages and salaries substantially in 1998, adding to income and saving. With software now classified as investment, software depreciation is added to the income side of the accounts. Although the new definition boosted gross national saving, net saving is changed little. Productivity. The reclassification of software as investment and the improvements in deflation methodology boosted measured productivity continued on next page... Chapter 2 I 81 Box 2-3. — continued growth over most of the historical period affected by these revisions and had been anticipated. In contrast, the changes brought about by the new source data were unexpected and revealed that productivity (on a consistently measured basis) had been growing faster than had been previously believed. Chart 2-16 Sources of Revisions to Real GDP Growth Revised deflation methods explain most of the upward revision to real GDP growth for the 1987 to 1994 period, but half of the post-1994 revision is due to new source data. Percentage points of annual growth 0.5 0.4 . Total = 0.42 Total = 0.41 "** 0.16 *+ 0.3 fj| 0.2 M Software • Revised source data ^ Revised deflation 0.22 v^ BoRoooooooooooR [ -0.02 -0.1 1987 to 1994 1994 to 1998 Note: Revised deflation is a residual category that may include other factors. The partition of the real GDP revision into three parts is approximate. Detail may not add to totals because of rounding. Sources: Department of Commerce (Bureau of Economic Analysis) and Council of Economic Advisers. ations in productivity. In addition, the power of capital deepening to explain even long-run changes can be overstated. For example, capital shallowing accounts for very little of the post-1973 productivity slowdown. Increasing quality of the work force has been another persistent feature of U.S. economic growth. The American work force has become better educated, and since about 1980 the average worker is more experienced. Nothing dramatically new happened to the index of labor composition (which measures the effect of education and work experience on productivity) after 1995, but it may have added an additional 0.05 percentage point to labor productivity growth after 1995 (third line in Table 2-3). Besides their role in capital deepening, computers enter GDP directly as part of consumer durables and business investment. Hence, productivity growth in the production of computers contributes directly to overall pro- 82 I Economic Report of the President TABLE 2-3.—Accounting for the Productivity Acceleration in the 1990s [Average annual percent change, except as noted] 1973 Item Labor productivity LESS: to 1995 1999 Acceleration 1 1.43 2.90 1.47 1.06 .26 .16 1.53 .31 .39 .47 .05 .23 -.06 .65 .70 Contribution of Capital services Labor quality Computer sector total factor productivity ... EQUALS: Total factor productivity excluding computers. 1 1995 to Percentage points. Note. Labor productivity is the average of income-and product-side measures of nonfarm business output per hour worked. Data for 1999 estimated by Council of Economic Advisers. Detail may not add to totals because of rounding. Sources: Department of Commerce (Bureau of Economic Analysis) for output and computer prices; Department of Labor (Bureau of Labor Statistics) for hours and labor quality; Macroeconomic Advisers, LLC for capital services; and Council of Economic Advisers. ductivity growth. Productivity growth has been particularly rapid in the computer-producing sector. A measure of productivity in the computer-producing sector would capture this direct effect. However, it is impossible to be precise about computer sector productivity because of the difficulty in measuring the real inputs (such as engineering and other business services) to this sector from other sectors. In lieu of a direct productivity measure, the rate of decline in the relative price of computers tells us something about quality improvement in the computer sector. The price of computers relative to that of nonfarm output, which had been falling at an 18 percent average annual rate before 1995, fell at a 29 percent annual rate thereafter, indicating an acceleration in computer quality after 1995. An estimation that weights these changes by the share offinalsales of computers in nonfarm output (about VA percent) finds that improved computer quality added 0.23 percentage point to the post1995 acceleration (fourth line of Table 2-3). (These methods and estimates are, of course, approximate; one study using different methods attributes most of the acceleration in trend productivity to the computer-producing sector.) These three explanations—capital deepening, changing labor composition, and rising computer quality—may account for half of the post-1995 acceleration in productivity. The other half reflects all the other factors that affect productivity growth. These may include cyclical influences and new efficiencies from the use of the Internet, especially for business-to-business transactions. Chapter 2 I 83 The Outlook for Productivity Can the factors that account for the more rapid pace of labor productivity growth since 1995 be sustained? The data provide a mixed but, on balance, positive picture. The trend toward a more educated work force seems likely to continue with support from the Administration s policy of promoting investment in education and job training. Moreover, the median age of the work force will continue to rise through at least 2008, when the leading edge of the baby-boom generation retires. But these trends are not expected to shift, and as a result, the contribution of labor composition to productivity is not likely to change much from its historical average of 0.3 percentage point per year. The decline in the relative price of computers has been particularly rapid over the past 4 years, and so it is prudent to expect that this rate will return to its long-term rate of about 20 percent per year. If that happens, computers' contribution to productivity growth will drop from about 0.4 to 0.3 percentage point per year. The growth rate of capital services per hour increased in 4 of the past 5 years, reaching 5.4 percent in 1999—a rate that implies a 2-percentage-point yearly contribution of capital deepening to labor productivity growth. For 2000 the pace of capital deepening is likely to increase further, because the current level of investment is already very high. (The rate of growth of capital services depends on the level of investment.) Projections over the longer run are more speculative, but the level of nominal investment is expected to remain high relative to nominal output. The President s budget proposal—in which the Federal Government continues to pay down the Federal debt—also promotes this investment. This high-investment economy is likely to promote a continued strong pace of capital deepening and strong productivity growth. Besides the contributions of labor and capital, cyclical and other considerations enter the productivity forecast. Most important, the level of productivity in 1999 was likely above its trend, as hiring probably has not caught up with the surge in output, and many vacancies probably remain unfilled. A model that allows labor productivity to differ from its trend because of these cyclical influences estimates the trend of labor productivity growth at a 1.8 percent annual rate since 1990, up from a 1.6 percent annual rate from the peak of the previous business cycle to 1990. Simulations from this model overestimate the level of productivity from 1993 through 1997 and underestimate it thereafter. Although these errors may stem from the lack of a role for capital deepening in the model, this omission has the offsetting benefit that the estimate of the longterm trend in labor productivity is not overly sensitive to cyclical movements in investment spending. Second, the projection depends on the time horizon. A projection for the near future extrapolates recent trends, whereas a projection for the distant 84 I Economic Report of the President future extrapolates long-term trends. Near-term projections ought to balance the probable continued role of capital deepening in supporting strong productivity growth with the likelihood that a lot of job vacancies will be filled. Weighting these considerations, the Administration projects the trend rate of increase in labor productivity at 2.2 percent per year for 1999-2002, which is down from the nearly 3 percent pace actually observed over the past few years. The projection of productivity growth then begins to fade toward its longterm rate, with growth of 2.0 percent for 2003-05 and then 1.8 percent for 2006-10. Productivity over the entire 1999-2010 interval is projected to grow at a 2.0 percent average annual rate. Supply-Side Components of GDP In addition to productivity, the factors on the supply side whose effects on GDP growth sum to total GDP growth include population, the labor force participation rate, the employment rate, the workweek, and the two additional ratios shown in Table 2-4. In line with the latest projection from the TABLE 2-4.—Accountingfor Growth in Real GDP, 1960-2007 [Average annual percent change] Item 1960 Q2 to 1973 Q4 1973 Q4 to 1990 Q3 1990 Q3 to 1999 Q3 1999 Q3 to 2007 Q4 1.8 .2 1.5 .5 1.1 .0 1.1 .0 3) EQUALS: Civilian labor force l 4) PLUS: Civilian employment rate l 2.0 .0 2.0 -.1 1.0 .2 1.1 -.1 5) EQUALS: Civilian employmentl 6) PLUS: Nonfarm business employment as a share of civilian employment 12 2.0 1.9 1.2 1.0 .1 .1 .4 .2 7) EQUALS: Nonfarm business employment 8) PLUS: Average weekly hours (nonfarm business) 2.1 -.5 2.0 -.4 1.6 .1 1.2 .0 9) EQUALS: Hours of all persons (nonfarm business) 10) PLUS: Output per hour (productivity, nonfarm business) 1.6 2.8 1.7 1.5 1.7 2.0 11) EQUALS: Nonfarm business output 12) PLUS-. Ratio of real GDP to nonfarm business output 4 .. 4.5 -.3 3.1 -.2 3.8 -.5 13) EQUALS: Real GDP 4.2 3.0 3.2 1) Civilian noninstitutional population aged 16 and over 2) PLUS: 1 Civilian labor force participation rate l 2.4 1.2 2.0 4.1 -.7 3.2 -.3 3 3 3 3 3.4 5 2.8 Adjusted for 1994 revision of the Current Population Survey. 2 Line 6 translates the civilian 3 Income-side definition. 4 employment growth rate into the nonfarm business employment growth rate. Line 12 translates nonfarm business output back into output for ail sectors (GDP), which includes the output of farms and general government. 5 GDP growth is projected to fall below its underlying trend for this period (about 3 percent) as the employment rate is projected to fall 0.1 percent per year over this period. Note. Detail may not add to totals because of rounding. The periods 1960 Q2,1973 Q4, and 1990 Q3 are business-cycle peaks. Sources: Council of Economic Advisers, Department of Commerce (Bureau of Economic Analysis), and Department of Labor (Bureau of Labor Statistics). Chapter 2 I 85 Bureau of the Census, the working-age population is projected to grow at almost 1.1 percent annually through 2007 (a bit faster than projected last year). In line with the latest projection from the Bureau of Labor Statistics, the labor force participation rate is projected to increase by less than 0.1 percent per year. The length of the average workweek is projected to remain about flat over the entire projection horizon. In contrast, the employment rate is projected to decline roughly 0.1 percent per year as the unemployment rate edges up to 5.2 percent—the middle of the range judged consistent with long-run inflation stability. From 2008 on, growth in the working-age population slows a bit, and the labor force participation rate begins to fall as the first wave of the baby-boom cohort reaches the early retirement age of 62. Budget Effects of a High-Investment Economy An economy fueled by high investment—especially in computers—will be characterized by two forces that partly offset the positive effects on the Federal budget of faster productivity growth: higher depreciation and a larger wedge between the CPI and the GDP price index. A high-investment economy is an economy in which a large share of output is required to replace worn-out capital, simply because more investment means more capital goods to be depreciated. The share of nominal business fixed investment in nominal GDP, which had averaged 11 percent since 1959, increased to about HVz percent by the end of 1999 and is likely to increase further in the near term. The 1 ^-percentage-point increase in the investment share thus far portends a similar increase in the share of total gross domestic income claimed by depreciation. As depreciation claims an increasing share of income, less room will be available for the taxable components such as profits and wages and salaries. The rapid decline in computer prices, together with an increasing nominal share of computers in GDP, also has negative effects on the Federal surplus through the "wedge" between the CPI and the GDP price index. A larger wedge reduces the Federal budget surplus because cost-of-living adjustments for Social Security and other indexed programs increase with the CPI, whereas Federal revenues increase with the slower-growing GDP price index. The effect is reinforced by the fact that the CPI is also used to index income tax brackets and other features of the tax code. Rapid declines in computer prices increase the wedge, because computer prices have a 10 times larger weight in the GDP price index (1.1 percent) than in the CPI (where the December 1999 relative importance weight is only 0.11 percent). For example, computer price declines held down the increase of the GDP price index by 0.23 percentage point but reduced CPI inflation by only 0.03 percentage point. 86 I Economic Report of the President Over the past 6 years, the CPI-U-RS has increased 0.6 percentage point per year faster than the GDP price index. The projected wedge is in line with this historical average, as the Administrations inflation projection flattens out after 2002 at 2.6 percent for the CPI and 2.0 percent for the GDP price index (Table 2-5). TABLE 2-5.—Administration Forecast Actual Item 2000 2001 2002 2003 2004 2005 2006 1998 1999 Percent change, fourth quarter to fourth quarter Nominal GDP 5.9 4.8 4.6 4.6 4.5 5.0 5.1 4.9 Real GDP (chain-type) 4.6 M.2 2.9 2.6 2.5 2.5 3.0 3.0 2.9 GDP price index (chain-type)... 1.1 4.6 1.9 2.0 2.0 2.0 2.0 2.0 2.0 Consumer price index (CPI-U). 1.5 2.7 2.3 2.5 2.6 2.6 2.6 2.6 2.6 5.2 5.2 5.2 Calendar year average Unemployment rate (percent) 4.5 4.2 Interest rate, 91-day Treasury bills (percent). 4.8 Interest rate, 10-year Treasury notes (percent). 5.3 Nonfarm payroll employment (millions) 1 4.2 4.5 5.0 5.2 4.7 5.2 5.2 5.2 5.2 5.2 5.2 5.2 5.7 6.1 6.1 6.1 6.1 6.1 6.1 6.1 125.8 428.6 129.9 131.1 132.9 134.5 135.2 136.3 138.3 Preliminary. Sources: Council of Economic Advisers, Department of Commerce (Bureau of Economic Analysis), Department of Labor (Bureau of Labor Statistics), Department of the Treasury, and Office of Management and Budget. What Has Held Inflation in Check? During the past 2Vi years the key measures of inflation have remained low and stable despite an unemployment rate below 5 percent. Previous experience suggests that such a sustained period of low unemployment would push up the inflation rate. Yet inflation, as measured by the four-quarter change in the price index for GDP and the core CPI, has remained remarkably subdued. In the 1995 and 1996 editions of the Economic Report of the President, the NAIRU, the unemployment rate consistent with stable inflation, was estimated to lie in a range centered around 5% percent. There is growing evidence that the NAIRU has fallen below that level. Indeed, several studies using statistical methods that allow the NAIRU to change over time estimate a pronounced drop in the late 1990s. Possible causes include spare manufacturing capacity, new efficiencies in the labor market from the expanded use of temporary help workers and Internet job search resources, higher-than-expected productivity growth, and declining import prices. Manufacturing capacity was discussed previously; the other factors are considered below. Chapter 2 I 87 The Changing Labor Force Over the past two decades, the aging of the baby-boom generation has reduced the proportion of younger workers in the labor force. In the mid- and late 1970s, young baby-boomers swelled the ranks of the youngest segment of the labor force: in 1978 nearly 25 percent of American workers were between the ages of 16 and 24. As the baby-boom generation aged, this share fell and is now about 16 percent. Because younger workers are typically more prone to unemployment spells than older workers (the unemployment rate of workers aged 16-24 is nearly three times that of workers over 25), this aging of the labor force reduced the overall NAIRU. According to recent estimates, the changing age profile of American workers accounts for about 0.7 percentage point of the reduction in the NAIRU during the 1980s but had no significant further effect in the 1990s. Rising education levels may also have brought down the NAIRU. The 1980s and 1990s were a period of marked increases in the educational attainment of the U.S. labor force. In 1998, for example, 57 percent of workers had some college education, up from about one-third in the mid1970s. Unemployment rates are consistently lower for groups with more years of schooling. For instance, the unemployment rate for those with no high school diploma averages about 4 percentage points higher than for those with a high school diploma but no college. And the unemployment rate of those with a high school diploma but no college degree is about 3 percentage points higher than that for college graduates. These differences in unemployment rates may also reflect other worker characteristics that are correlated with education, however, obscuring any causal link between educational attainment and the NAIRU. Temporary Help Agencies The rapid growth of the temporary help industry may also have contributed to a decline in the NAIRU. Temporary help agencies have existed since the 1920s, but their role in labor markets expanded greatly during the 1980s and 1990s. Between 1982 and 1999, total employment in this industry increased more than sevenfold, and the industry's share of overall employment has grown from less than 0.5 percent in the early 1980s to more than 2.3 percent in 1999. One way the temporary help industry may reduce the NAIRU is by creating short-term employment opportunities for workers who might otherwise be unemployed. Businesses in cyclical or volatile industries need flexibility to scale their payrolls up or down as demand fluctuates. Businesses frequendy need temporary employees with specialized skills, who can substitute for permanent employees on leave. Similarly, the growing availability of temporary 88 I Economic Report of the President work enables job hunters to work while they search for a permanent position and provides opportunities for people who desire to work intermittently. Labor market data support the hypothesis that the temporary help industry creates employment opportunities. Thus far during this expansion, the temporary help industry has created 1.9 million new jobs, and this figure does not count those workers who found permanent jobs through their temporary assignments. Moreover, in 1997, 60 percent of all temporary workers would have preferred permanent positions, and about a third of this group were actively seeking permanent employment. This suggests that a significant proportion of temporary workers would have been unemployed in the absence of the temporary help industry. In fact, a recent study found that the unemployment rate in 1997 might have been up to 0.3 percentage point higher if only half of these "involuntary" temporary workers had remained idle while they sought permanent employment. The Internet Job Market Yet another partial explanation for the decline in the NAIRU is improved job matching through the Internet. The new medium has recently added to its many functions that of providing the virtual space for a burgeoning labor market. As both job hunters and recruiters discover its advantages, the Internet job market is rapidly becoming part of the mainstream job market. According to one study, nearly 60 percent of human resources managers used online recruiting in 1998, up from 13 percent in 1996. Moreover, a survey found that large companies are increasing the resources devoted to Internet recruiting. A leading Internet jobs clearinghouse is Americas Job Bank. Part of Americas Career Kit (see Chapter 4), Americas Job Bank is a partnership between the Department of Labor and the public employment services operated by the States. Funded by unemployment insurance tax revenues, Americas Job Bank links 1,800 employment service offices around the country, aggregating information on over 1.5 million job seekers and a similar number of job opportunities in one convenient, easily accessible Internet site. Job hunters can post their resumes and search the job listing data base; firms can post job listings and search the resume data base. Americas Job Bank charges no transaction or usage fees for either job seekers or employers. Internet job sites such as Americas Job Bank represent a more efficient mechanism for clearing labor markets than has been available before. These sites dramatically reduce the cost of the search process for both job hunters and recruiters, enabling labor market participants to investigate a greater number of opportunities in less time and at lower cost. One study found that the cost per hire of Internet advertising for an opening is about one-eighth that of traditional advertising methods. Such improvements in efficiency Chapter 2 I 89 make it easier and cheaper for job seekers to find suitable openings and for corporate recruiters to find suitable candidates. Productivity and the NAIRU Over long periods, labor productivity and real product wages (hourly compensation deflated by the price of output) move in tandem, because businesses can afford to give real wage increases that are justified by productivity gains, and competition forces them to do so. Eventually, a change in the rate of productivity growth tends to be matched by an equal change in the growth of both actual and anticipated real wages. Breaks in trend productivity growth, however, are difficult to recognize, and therefore wage and price inflation adjust only gradually to any change. A significant break in the trend rate of productivity growth has occurred once before since accurate statistics have been kept. That break occurred after 1973. The productivity slowdown at that time elevated the NAIRU and contributed—along with demographics, oil price increases, and strong demand— to rising inflation in the late 1970s. During that period, nominal hourly compensation increased at a rate that would have been consistent with stable inflation if productivity had still been growing at its pre-1973 trend. Instead, because productivity growth had fallen, the higher compensation resulted in rising inflation of unit labor costs and prices. Making matters worse, many wage setters adjusted to the higher rate of inflation, creating a wage-price spiral. This process of rising inflation might have continued had the back-toback recessions of 1980 and 1981-82 not raised the unemployment rate to 10 percent, well above the NAIRU. By the mid-1980s inflation was again stable, but gains in real hourly compensation (deflated by the output price) had settled down to about Wi percent per year—a drop of almost half from the pace of the 1960s. The acceleration in productivity after 1995 may have initiated a similar process, but in reverse, allowing the unemployment rate to fall lower, with less consequence for inflation, than would have been possible otherwise. The rate of growth of nominal hourly compensation has increased during recent years, but these nominal increases have not resulted in rising price inflation. Businesses have been able to grant these larger pay increases without raising price inflation, partly because increases in unit labor costs have remained stable as rising productivity growth offset the rising compensation gains. The new, higher trend growth rate of productivity since 1995 could have temporarily lowered the NAIRU, because it can take many years for firms and workers to recognize this favorable development and incorporate it into their wage-setting process. In the meantime, the productivity surprise can stabilize inflation of unit labor costs and prices even at unemployment rates below the previous NAIRU. The Phillips curve estimated from the scatter diagram in 90 I Economic Report of the President Chart 2-17 shows how this could happen. It assumes that nominal increases in hourly compensation reflect three factors: a bonus for tight labor markets, as reflected in a low unemployment rate; a full adjustment for expected price inflation (with backward-looking inflation expectations); and a normal increase in real wages (which here will be called the "real wage norm"). The real wage norm may reflect prevailing views of the trend in labor productivity. But little is known about how the real wage norm is formed, and therefore the model is estimated on the assumption that the real wage norm reflects the previous years increase in real hourly compensation. With stable productivity growth, and with unemployment equal to the long-term NAIRU (where the diagonal regression line crosses the x-axis in the chart), wage and price inflation are stable from one year to the next. However, a 1-percentage-point positive surprise in productivity growth has the effect of temporarily lowering the NAIRU by \lA percentage point. With nominal wage growth unchanged and productivity growth higher, unit labor costs, and with them price inflation, would fall if the unemployment rate does not change. Only with a lower employment rate would unit labor costs and price inflation be stabilized. Hence the short-term NAIRU is lower. The effect of the increase in productivity growth on unemployment probably will not last indefinitely. If productivity growth is maintained at its current high level, it will cease to be "unexpected," the real wage norm will eventually rise to that same level, and the short-term NAIRU will gravitate back to its long-term level. Chart 2-17 The Phillips Curve, Productivity, and the NAIRU If productivity grows 1 percentage point faster than expectations, the short-term NAIRU falls by VA percentage point. Expected real wage growth above the norm, or unexpected productivity growth (percentage points) 4 Unexpected productivity growth#| Effect on short-«_term NAIRU - * (1 1 /4 P . P .) 2.5 3.5 4.5 5.5 6.5 7.5 Demographically adjusted unemployment rate (percent) 8.5 9.5 Note: Fitted 1953-99 data with fourth quarter-to-fourth quarter percent changes in hourly compensation and the price deflator for the nonfarm business sector. Wage and price inflation in 1999 are estimated based on the first three quarters. Annual average unemployment rate uses fixed (1993) labor force weights for six age-sex groups. Sources: Department of Commerce (Bureau of Economic Analysis), Department of Labor (Bureau of Labor Statistics), and Council of Economic Advisers. Chapter 2 I 91 Declining Relative Import Prices A decline in the relative price of imports can affect the short-term NAIRU in a manner similar to an acceleration of productivity. Competition from imports restrains the markup of prices over unit labor costs and thus reduces price inflation for a given rate of wage inflation. (A 1 percent decline in relative import prices lowers the inflation rate by 0.1 percentage point.) The 4 percent annual rate of decline in the price of nonpetroleum imports relative to U.S. nonfarm business prices during 1997 and 1998 lowered nonfarm price inflation by about 0.4 percentage point per year. The effect on the short-term NAIRU is similar to that of a productivity acceleration of the same magnitude and can be argued to have lowered the NAIRU by about 0.5 percentage point. World price trends cannot be expected to continue to restrain inflation as much as they have in recent years. The relative price of nonpetroleum imports firmed in 1999, and with strength returning to overseas economies, these prices are likely to increase in 2000. In addition, the rebound in oil prices in 1999 may exert some upward pressure on prices of commodities that use oil as an input. The Unemployment Forecast The Administrations projection of the unemployment rate roughly follows its projection of the short-term NAIRU and reflects the factors just discussed. The short-term NAIRU, which has been centered around 5% percent over the postwar period and in the mid-1990s, probably fell into the 4 to AV2 percent range through the combination of the temporary help and Internet innovations to the labor market, the productivity surprise, falling relative import prices, and perhaps other factors. It is very difficult to quantify the long-term effects of the temporary help and Internet innovations to the labor market. For the purpose of its conservative forecast, the Administration estimates that they account for roughly a 0.5-percentage-point permanent reduction in the NAIRU from its historical average, to a range centered around 5.2 percent. In contrast, the effects of the productivity surprise and falling relative import prices are temporary and are expected to erode over the next several years. As a consequence, in the Administrations conservative projection, the unemployment rate edges up to 5.2 percent by 2003 and remains at that level thereafter. The Near-Term Outlook After growing at a 4.3 percent annual rate over the past 4 years, real GDP is projected to decelerate to an annual growth rate of 2.9 percent over the four quarters of 2000. This rate, which was slighdy above the consensus projection 92 I Economic Report of the President of professional economic forecasters when the GDP projection was finalized in November, is now a bit on the low side. Because it constitutes two-thirds of GDP, consumption is expected to account for much of the expected deceleration. Personal outlays increased faster than disposable income in each of the past 7 years, and the saving rate plunged to 2 percent by the end of 1999. Although these consumption gains are consistent with the rapid rise in stock market wealth, they are not likely to persist unless the stock market continues to surge. More likely, real consumption growth will slow from its 5 percent rate over the past 2 years to rates consistent with the growth of real disposable income. However, if the stock market performs as well this year as it has in the recent past, it would present some upside risk to the Administrations projection. Real business fixed investment has increased faster than real GDP in almost every year of this expansion. This pattern is expected to persist over the projection horizon as technological change boosts demand for computers and communications equipment. In contrast, real business purchases of industrial equipment have been nearly flat for the past year, and real investment in nonresidential structures has declined. If total demand slows as expected, purchases of these other investment goods and structures may decline. Residential investment has been very strong, owing to continued gains in real disposable income and increases in wealth. With real incomes continuing to rise, housing starts are expected to remain high. However, the pace of residential investment is likely to fall back to a rate in line with the demographics of household growth. Inventories remain quite lean in relation to sales. In fact, nonfarm inventories (measured as months of supply) have fallen to the lowest level on record. These lean stocks militate against any near-term threat to the expansion from excessive inventories. Nevertheless, as this report goes to press, there is speculation that firms may have stockpiled a buffer against Y2K disruptions before the turn of the year, planning to work off these stocks afterward. Real exports, which had grown only 2 percent over the four quarters of 1998, grew 4 percent during 1999. The pickup may reflect an economic rebound among the United States' trading partners, especially those affected by the Asian economic crises. For example, Korean GDP grew at a 15 percent annual rate in the first three quarters of 1999 after falling 5 percent over the four quarters of 1998. Exports to a group of 10 major U.S. trading partners in East Asia, which fell $38 billion during the first year of the crisis (from the second quarter of 1997 to the second quarter of 1998), have recouped about half of that loss. A pickup is also evident among the 11 countries that have adopted the euro as their currency. In these countries GDP has accelerated to a 2.8 percent annual rate of growth during the first three quarters of 1999, from a 1.9 percent annual rate during the four quarters of 1998. The matur- Chapter2 I 93 ing recovery among these trading partners is expected to lead to solid growth of U.S. exports for the next several years. Even with this growth in export markets, however, net exports are likely to fall even further in the near future as U.S. demand for imports continues to outstrip foreign demand for U.S. exports. Nevertheless, the current account balance is expected to stabilize after 2001 and then improve, as foreign output growth boosts export demand while slower growth in the United States curbs import demand. Interest rates are expected to remain flat over the entire 11-year projection span, at 5.2 percent (on a bank discount basis) for 91-day Treasury bills and 6.1 percent for the 10-year Treasury yield. Real interest rates, calculated by subtracting the Administrations expected rate of inflation (2.6 percent in the long term as measured by the CPI) from projected nominal rates, are projected to be similar to their historical averages. On the income side, the Administrations projection is based on the longrun. stability of the labor share of GDP. This share is flat over the projection period at about 58 percent—its historical long-run average. Wages as a share of total compensation are expected to erode slighdy, as other labor income, especially medical insurance premiums, is expected to grow faster than wages. Because the labor share is projected to be flat and stable, so too is the capital share. However, the division of income within the capital share is not stable. As noted earlier, a rise in the depreciation share is a partial offset to the benefits of a high-investment economy, and this growing depreciation expense is projected to come at the expense of profits. Profits before tax, which were 9.2 percent of GDP in the third quarter of 1999, are projected to slide to about TA percent of GDP by 2006. A moderation in output growth to 2.5 percent is projected for 2001-03 (Table 2-5), 0.7 percentage point below the economy's potential growth rate at the beginning of that period. The tightness in labor and product markets at the beginning of the period is expected to dissipate during this slow-growth period. Over these 3 years, the unemployment rate is expected to edge up slowly to 5.2 percent, the middle of the range of unemployment compatible in the long run with stable inflation. From 2003 to 2007, the Administrations forecast is built around a 3.0 percent growth rate of potential output. From 2008 to 2010, real GDP slows further to a 2.6 percent annual rate, reflecting slower population growth and the anticipated retirement of the first wave of the baby-boom generation. The Administration does not believe that annual growth of 3 percent is the best the economy can do; rather this projection reflects a conservative estimate of the effects of Administration policies to promote education and to foster a high-investment economy by paying down the national debt. The outcome could be even better—as indeed it has been for the past 4 years. But the 94 I Economic Report of the President Administrations forecast is used for a very important purpose: to project Federal revenue and outlays so that the government can meet its responsibilities while living within its means. For this purpose, excessive optimism is dangerous and can stand in the way of making difficult but necessary budget choices. On the other hand, excessive pessimism can force difficult and possibly counterproductive decisions where none is required. In the final analysis, the only worthy objective is the creation of a sound forecast that uses all available information as fully as possible. As of December 1999, the current economic expansion, having lasted 105 months, was the longest ever during peacetime and only a month shy of the longest on record. There is no apparent reason why this expansion cannot continue. As already noted, expansions do not die of old age. It is always difficult to forecast the future of the economy, but the current situation of low and stable core inflation and lean inventories reveals no obvious signs of an imminent slowdown. The most likely prognosis is therefore the same as last year s: sustained job creation and continued noninflationary growth. Chapter 2 I 95 C H A P T E R 3 Technology and the American Economy One Telephone Dumb; Five Million, Eloquent If there were only one telephone in the world it would be exhibited in a gjass case as a curiosity. great mechanism of universal communication. Even in its simplest form telephone talk requires a second instrument with connecting wires and other accessories. To meet the manifold needs of telephone users the Bell System has been built, and today enables twentyfive million people to talk with one anomer, from five million telephones. For real, useful telephone service, there must be a comprehensive system of lines, exchanges, switchboards and auxiliary equipment, with an array of attendants always on duty. Such service cannot be rendered by any system which does not cover with its exchanges and connecting lines the whole country. Connected with such a system a telephone instrument ceases to be a curiosity, but becomes part of the The Bell System meets the needs ofthe whole publicfora telephone service that is united, direct and universal As new types of information technology link together computers, telephones, and other types of communications devices, network effects become increasingly important in determining the success orfailure of some products. In industries not subject to network effects, the total value of a product is simply the sum of its value to each user. But in industries where network effects are present, such as telephone or Internet service, the more links the network has, the more valuable it is to each participant in the network. O ver the last century, the American economy has adapted again and again to continuing technological change. Repeatedly during our history, American firms and workers have exploited opportunities inspired by a succession of technical advances, in the process creating new products, new services, and even whole new industries. The new ideas that have reshaped individual industries have often had a broader effect on the economy as well. Innovation makes it possible to produce more output from society's available labor and capital, increasing the productivity of Americas workers. Those productivity improvements have led to rising prosperity and living standards, as Chapter 2 discussed. 97 Innovations during the 20th century have led to dramatic changes in how firms compete in the American economy. In some cases, new technology has given birth to new markets, where startup companies compete on equal terms on a fresh and level playing field. In others, it has opened a door for entrepreneurs to enter older industries and challenge the established incumbents. As these forms of competition have spread and flourished, consumers have benefited in numerous ways, from expanded service, greater variety, and falling prices. These gains come not just from the new entrants but also from the old incumbent firms, forced to respond to the economic challenges posed by their rivals. Today, new technologies are transforming the economy. No one can yet predict all the changes to come, but it seems clear that the information economy is changing the way companies compete and the nature of work. In addition to changing the competitive playing field, technology is increasingly redefining the role of the firm. Somefirmsare expanding to take on new roles and integrate new activities into their enterprise, some are finding it efficient to outsource some of their activities to specialists outside the firm, and some are restructuring through mergers and acquisitions. Two industries where these trends are strikingly evident are telecommunications and information technology; this chapter will look at both these industries, in which many firms, old as well as new, are exploring the economic opportunities made possible by innovations in computers, communications technology, and the Internet. Although technological innovation brings constant and ultimately beneficial change to the economy, it also requires a constant reevaluation of government policies to determine how best to shape the forces of change to promote the public interest. As technology becomes increasingly vital to our knowledge-based economy, a crucial task of government is to design an appropriate technology policy to maintain the flow of new ideas, products, and methods that sustains long-run growth. One element of technology policy is governments role in creating but also limiting the property rights of innovators. Without the intellectual property rights provided by patents and copyrights, for example, the reward to innovation in many fields would fall, as imitators quickly develop similar products. Yet strong property rights for innovation can also create barriers to entry and competition, hampering not only the mere imitators but also the true innovators seeking to build on the existing knowledge base. This problem becomes particularly acute as knowledge-based industries, such as software and information technology, grow in economic importance. A second element of technology policy in today s economy is supporting the research and development (R&D) necessary to innovation. Although the private sector in recent years has increased its R&D expenditure, some of the 98 I Economic Report of the President basic and applied research that forms the building blocks for tomorrow's discoveries may not take place without government support. Rather than support technologies that have clear and immediate commercial potential (which would likely be developed by the private sector without government support), government should seek out new technologies that will create benefits with large spillovers to society at large. Basic research that expands human knowledge is one example of the type of research that may have wide applications in many areas of the economy. By supporting the research necessary for scientific advances, government funding can create the knowledge from which will emerge the new technologies, new products, and new jobs of tomorrows economy. Another critical task for government is to ensure that the benefits of new technologies are widely shared. Well-functioning markets inherently maximize the private benefits from exchanges between individuals and firms, but markets do not always succeed in maximizing social benefits at the same time. Inefficiencies in the market, whether created by insufficient R&D incentives or from a firms market power, can limit the gains society receives from technological innovation. One way to promote the widespread adoption of innovations is to ensure that policy set by the public sector fosters rather than stifles competition in the private sector. Antitrust policy is one tool for encouraging competition. When the Nations antitrust laws were originally adopted, market power created by economies of scale in the production of many industrial goods was a major concern, but in todays economy the market power inherent in products that become de facto standards for an industry may be just as troubling. In addition to a vigorous antitrust policy, government can promote competition by changing the regulatory framework within which industries operate, to remove barriers to competition and spur innovation, thereby creating jobs for American workers and new services for American consumers. In other areas of the economy, such as the rapidly developing field of e-commerce, the challenge for government policy is different. Here new businesses are springing up spontaneously, and at an explosive pace. By refraining from imposing unnecessary regulatory burdens, government can ensure that innovative and valuable services will come to market. Government antitrust enforcement will continue to ensure that mergers between large firms deeply involved in the information economy will not injure competition. Innovation and Economic Change: A Look Back The changes that technology continues to unleash on our economy today are sweeping and may at times seem overwhelming. No one yet knows what Chapter 3 I 99 transformations the Internet and e-commerce, to take only the currently most celebrated examples, will eventually bring. In these circumstances we should remember that we are not the first generation to have to come to grips with rapid technological progress. Notable examples of the rapid adoption of new innovations include electric power, automobiles, and television. These earlier innovations spread through American households much as have more recent innovations such as computers and cellular telephones (Chart 3-1). As described below, throughout the 20th century new technological developments created new products and new ways for firms to conduct business, and so changed the structure of the economy. Those changes, in turn, produced changes in the role of government in competition, regulatory, and technology policy. Chart 3 1 Household Adoption of Selected Technologies Since 1900 The rapid adoption of computers and cellular phones today has its parallel in earlier technologies. Percent of households 100 Automobiles 80 60 y t Cellular telephones Home computers 20 \ / \ v 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 Note: Automobile and cellular phone adoption are estimated by dividing the number of registrations and subscriptions by the number of U.S. households. Unlike the survey data used in the other series, these numbers will overstate actual adoption when households register multiple cars or purchase multiple cellular subscriptions. Sources: Department of Transportation; Department of Commerce;Television Bureau of Advertising Inc.; and Federal Communications Commission. One example, electricity, is a commonplace fixture in the economy of today, but in 1900 the electric power industry was just getting under way. At the turn of the century, fewer than 10 percent of homes had electric service, and cities were still being wired for electric transmission grids powered by central generating stations. At that time, only about 5 percent of factories employed electricity as a power source; most still used steam or water power to drive their machines through intricate arrangements of wheels, belts, and shafts. Electricity was initially used to power similar systems, but the shortcomings of mechanical power distribution systems remained. Once factory 100 I Economic Report of the President workplaces were reorganized so that groups of machines could be separately powered by electric motors, however, manufacturers began to realize the full potential of electricity to improve productivity. Over time, electric power was incorporated into more and more elements of the modern factory. Some have argued that the process may be repeating itself today with computers. As modern businesses learn to use computers to change the way they operate, they can find new ways to optimize business procedures and increase productivity. At other times during the century, technological advances in basic industrial products such as oil dramatically increased productivity and output, by expanding the scale at which firms could operate their plants. But some of the largest firms also formed combinations, like the Standard Oil trust, to limit competition. Concern about the market power of some of these large new industrial combinations led to passage of two of the cornerstones of public policy toward competition. The Sherman Antitrust Act (passed in 1890) governing anticompetitive actions by monopolies and the Clayton Act (passed in 1914) governing mergers remain the basis of antitrust law today. The automobile, too, had made its appearance by the end of the 19th century, but it remained a high-priced luxury item until Henry Ford built the first automobile assembly line in 1913. Fords innovation revolutionized the way cars were manufactured. Mass production of the Model T allowed Ford to offer, on an unprecedented scale, a product that combined relatively high quality with a dramatic reduction in cost. It made automobiles available to millions of American consumers for the first time. As increasing numbers of people bought the newer, cheaper cars, Ford continued to invest in his factories, increasing their efficiency and realizing huge economies of scale. Greater scale, in turn, allowed Ford to lower the cost of his automobiles still further and sell even more. By the early 1920s the Ford Motor Company dominated sales of automobiles in the United States, with a market share of 56 percent. Fords dominance was short-lived, however, as other manufacturers, with newer models and innovations of their own, adapted their production processes following Ford s example. They were able to effectively compete with Ford by satisfying consumer demand for variety. Ford's innovation had a number of implications far beyond the automotive industry: it helped make America a more mobile society, for example. But perhaps the most important outcome for the economy as a whole was that other manufacturers in other industries soon copied the assembly line concept. The impact of this spillover from Ford s idea to other industries was enormous: mass production proved an economically efficient way to produce a vast range of other consumer products. Chapter 3 I 101 Another industry that saw major changes at the turn of the last century was telecommunications. The Bell system had enjoyed a monopoly in telephone service in the United States until its basic patents on the telephone expired in 1894, after which a wave of new competitors began providing phone service. The Bell system had concentrated on serving major cities and business customers, leaving many smaller communities unwired. Many of these independents extended service to the underserved communities, while others concentrated on competing with Bell in some major urban centers. By 1907, new entrants accounted for almost half the market. Service levels increased rapidly with this new competition: telephone penetration (measured as the number of phones per 100 people) rose from fewer than 2 in 1900 to more than 10 by 1916. Many of the new entrants adopted the latest innovation in telecommunications, automatic switching, much more quickly than the Bell system, which continued to rely upon operators to connect calls manually. Yet despite the advantages of this new switching technology, within a few years the number of independents began to decline. Faced with competitive pressure from the Bell system, most independents either failed, were acquired, or signed sublicensing agreements that allowed them to connect with the Bell system but limited their ability to compete with Bell. The competitive failure of the independents was due at least in part to the Bell systems successful exploitation of the network dimension of telecommunications. The Bell system invested heavily in the technology and equipment needed to create a long-distance network. Although most customers at that time used the phone almost exclusively for local calls, businesses found the long-distance service very attractive. The independents tried but were unable to duplicate Bell s long-distance network connections, particularly in major urban areas where the Bell system had its largest networks, and where much of the long-distance business originated. Bell allowed the surviving independents to interconnect with its system, but only under the competition-restricting sublicensing agreements. Many independents chose this route, even though it meant signing away their own ability to expand and challenge Bell in the future. In this case, the network characteristics of telecommunications proved critical to the competitive outcome. By providing long-distance services that its rivals were unable to duplicate, the Bell system was able to keep more people connected to its network and exploit economies of scale in long-distance service. But as it connected more users to its network, the Bell system also made it difficult for other companies to compete effectively. Without effective competition, the Bell system was in a position to limit service and set prices for that service at monopolistic levels. Government policy toward these new technologies and new industries was as varied as the industries themselves. In the cases of telephones and electricity, 102 I Economic Report of the President government often chose to permit one monopoly provider to serve a geographic region but subjected the monopoly firm to rate regulation to prevent consumers from being overcharged. In part, this policy response reflected a view that some industries are "natural monopolies." In a natural monopoly, high fixed costs may make competition inefficient because a single provider could instead deliver service at the lowest possible cost. Also, in industries like the telephone industry, where demand-side network effects are important, previous attempts at competition had ultimately foundered as one dominant network emerged. In other industries, however, competition seemed more effective at restraining market power, and government policy favored continued competition. In the case of automobiles, despite large economies of scale at individual plants, several producers were able to effectively compete in the large market pioneered by Ford, and policy intervention was unnecessary. In the oil industry, where combinations such as the Standard Oil trust threatened competition, government did intervene, but rather than establish a regulated monopoly, it used the antitrust laws to create more competition. These early policy responses shaped each of these industries during the years that followed, and these policies are still applied to some firms today. Just as the economy has changed over the last century, however, so, too, has the range of policy responses available to promote competition as an alternative to regulation, as discussed more fully below. Innovation and Change in the American Economy Today Many of the same manufacturing industries that were just emerging at the beginning of the century continue to thrive, but new technologies and new processes are revitalizing these established industries and creating new ones. These innovations are taking place throughout the economy, and many involve both new technology and new ways of organizing the workplace. Manufacturing industries remain dynamic and innovative, reflecting the pace of technological change. Manufacturers creating new products and processes account for about three-quarters of company-funded industrial R&D expenditure in the United States. Productivity growth in manufacturing also remains high, averaging 4.2 percent per year between 1993 and the third quarter of 1999, and these firms remain an important source of jobs for workers without college degrees. In an increasingly global economy, however, many manufacturing businesses have faced pressure to adapt to new ways of doing business in order to compete effectively with foreign companies. Chapter 3 I 103 One example is the "lean" production techniques first pioneered in the Japanese automobile industry. These methods, which involve redesigning the manufacturing process to eliminate waste and reduce the number of product defects, resulted in far lower costs and higher quality than traditional techniques in the U.S. automobile industry could achieve. Competition from Japanese and other foreign firms using these methods compelled U.S. automakers to focus on improving quality, and they have dramatically lowered costs and improved quality as a result. Innovation in production technology has also changed the nature of the Nations steel industry. Innovative U.S. minimill firms found that they could produce many steel products much more cheaply than could the traditional integrated mills by using electric arc furnace technology to recycle scrap steel and produce basic steel products. A U.S. minimill firm was also thefirstwilling to gamble on constructing a full scale thin-slab caster using a foreign firms technology. This new technology allowed minimills to compete in the large market for rolled sheet steel, used in such products as automobile body panels. U.S. companies using these new technologies are now offering increased competition to the traditional integrated mills; by the mid-1990s minimills accounted for close to 40 percent of U.S. steel production. The pharmaceutical industry is one that is taking advantage of technological developments in biomedicine as well as in information technology. Traditionally, companies sifted through thousands of compounds to find those with desirable medical properties. Todays companies, in contrast, use a deeper understanding of human physiology that allows them to design, from the molecules up, drugs that target specific illnesses. The industry is also using the Internet to recruit patients for clinical trials of new drugs and to provide more complete and accessible information on new drugs to physicians. Perhaps the most dramatic evidence of the economic impact of the information technology sector itself comes from the capital market, as reported in a recent study by a financial services company. According to the study, Americas venture capital industry raised funds at a $25 billion annual rate in the first half of 1999, about two-thirds of which were placed in the information technology sector, and of that about three-quarters in Internet companies. In terms of market capitalization, the information technology hardware sector now accounts for about 14 percent of the U.S. total, versus 6 percent in 1989. The software component has expanded from about 2 percent in 1989 to around 9 percent today. Stocks in the Internet sector have a market value equal to around 4 percent of the total. The importance of the information technology sector to the U.S. economy is not reflected in stock market valuations alone. The computer and telecommunications industries contributed between 21 and 31 percent of GDP growth in each of the yearsfrom1995 to 1998 (Chart 3-2). And the contribution of these 104 I Economic Report of the President Chart 3-2 Contribution of Computers and Telecommunications Purchases to GDP Growth Spending on information technology has been a major source of GDP growth during the current expansion. Percent of GDP growth E3 Telecommunications • Computers and equipment 15 10 0 1993 1994 1995 1996 1997 1998 Source: Department of Commerce. hardware-producing industries is only the tip of the iceberg. The bulk of employment today is in the private service-producing sectors, which also account for nearly two-thirds of GDP. Leading the growth in the service sectors have been a number of knowledge-based industries such as finance, insurance, and professional services (a category that includes business and legal services, among others). Measuring the contribution of these new services to GDP is important to developing an accurate picture of economic growth (Box 3-1). In these knowledge-based industries, information technology has become increasingly important as a way to create new products and deliver them to customers. Broadly defined, information technology comprises technologies that process, store, and communicate information. For example, large U.S. banks now spend approximately 20 percent of their noninterest expense on information technology designed to integrate back office functions such as check processing with other functions such as customer service. Changes in information technology are transforming the economy by allowing people to communicate ideas and data in a variety of ways, from wireless phones to the Internet. The following sections examine several examples of this trend. Developments in Telecommunications The telecommunications industry is an example of an older industry that the new information technologies have transformed. From its origins as a provider of simple voice telephony, this industry has evolved into a source of advanced infrastructure and sophisticated services that are essential to a host Chapter 3 I 105 Box 3-1. Measuring the Economy in an Era of Technological Change Technological advances raise challenging measurement issues for government statisticians seeking to measure the size of the economy or its rate of growth. If technological improvements in the manufacturing process simply raised the quantity produced of a standard product (for example, the number of yards of a particular fabric type) from given inputs, there would be little problem—one could simply count the additional output. But many technological advances improve the quality of existing products or even create new ones (such as Internet services). The statistical challenges these advances present are enormous. Existing statistical techniques do provide measures of some of the quality improvements and new products. For example, the GDP statistics incorporate adjustments for improvements in computing power when measuring real investment expenditure for producer's durable equipment. Similarly, when calculating the consumer price index, estimates of real expenditure on automobiles incorporate adjustments for improvements in the quality of new cars over time, reflecting changes, such as antilock brakes and airbags, that make cars safer and better. In many industries, however, the measurement issues defy easy statistical solution. The field of medicine offers numerous examples of new drugs, devices, and treatments that have revolutionized care—for example, new techniques for treating heart attacks have raised patient survival rates; the development of an insulin pump has reduced the incidence of medical complications among diabetics, while raising their quality of life. Some of the most perplexing measurement problems involve industries that are heavy users of information technology, such as finance, insurance, and business services. The widespread introduction of automatic teller machines, for example, makes it possible to obtain banking services (mainly deposits or withdrawals) at any hour of the day or night—a service that was nearly impossible to obtain a few decades ago. And the mutual fund industry provides individual investors with diversification possibilities that would have been barely conceivable 30 years ago. The widespread use of information technology for e-commerce poses especially complicated measurement problems. As more and more businesses across a range of industries—from services to manufacturing to retailing—use e-commerce for some components of their operations, it becomes increasingly difficult to account for what portion of a final product or service may have been changed or enhanced by the use of information technology. continued on next page... 106 I Economic Report of the President Box 3-1.—continued These difficulties in measurement should not obscure the very real contribution that technological advances make to the economy. Government statistical agencies and others are therefore actively pursuing new measurement initiatives to better gauge and understand the impact of these changes. of businesses from data processing to online publishing. Indeed, these changes in telecommunications have been just as important for these information providers as for the telecommunications industry itself, since, as discussed below, major telecommunications advances like the Internet are already having a major impact on how businesses do business. These changes came about from a convergence of factors in which both technology and government regulatory policy played a part. Beginning with the Department of Justices antitrust case and the resulting 1982 consent decree that divided the American Telephone and Telegraph Company into its local and long-distance components, prevailing government policy toward telecommunications regulation has focused on how to reduce barriers to competition for both traditional telephone service and emerging new services. To allow more competition in wireless service, portions of the radio spectrum were auctioned off, allowing new competitors to create their own networks in competition with incumbent cellular providers. Using provisions of the 1996 Telecommunications Act, new competitors in local phone markets have begun to negotiate interconnection agreements and to sell local telephone service in competition with the dominant incumbent local exchange carriers (Box 3-2). To encourage the regional Bell operating companies to make such entry possible, the Telecommunications Act required them to meet a list of conditions on opening their markets to new entrants before they were allowed to offer long-distance service in their own regions. In December 1999 the Federal Communications Commission found that one regional Bell company had met those conditions in New York. The changes in the telecommunications industry that have resulted from these two developments—the emergence of new technologies and the new regulatory environment created by the 1996 Telecommunications Act— have been dramatic. Hundreds of new companies have entered all segments of the industry; the number of publicly held telecommunications companies alone nearly doubled over a recent 5-year period. These new competitors have been responsible for much of the recent growth in the local, longdistance, wireless, and equipment industries. Structural adjustments to this new competition have forced layoffs at somefirms,yet the telephone service and equipment sectors are responsible for the net creation of approximately Chapter 3 I 107 Box 3-2. Implementing Local Competition Provisions in the 1996Telecommunications Act TheTelecommunications Act of 1996 reduces barriers to entry in local telephone markets. To facilitate the entry of competitors into networks owned by incumbent local exchange carriers (ILECs), the act allows a requesting carrier to obtain access to the incumbent's network in any of three ways. It can purchase local service at wholesale rates for resale to end users, it can lease various (unbundled) elements of the incumbent's network needed for service, or it can interconnect its own facilities with the incumbent's network. Six months after the 1996 act was passed, the Federal Communications Commission (FCC) issued its First Report and Order implementing the local-competition provisions.Thereafter, numerous ILECs as well as some state utility commissions challenged the rules, claiming that the FCC had exceeded its jurisdiction. In January 1999 the Supreme Court affirmed the FCC's role in providing a roadmap for competition. The FCC continues to monitor the progress of competition with traditional ILECs, and its recent reports show that local competition, although still limited, is growing rapidly. Industry analysts also support this conclusion: one source finds that, by the middle of 1999, new entrants had increased their revenue market share to 6.3 percent of local revenue.The FCC's new orders on DSL-based services extend the process to this new technology by further clarifying which network elements competitors may access. This, too, should encourage local competition. 200,000 new jobs in 5 years. Both new and existing firms have invested tens of billions of dollars in facilities, services, and R&D. These investments in turn have led to increased network capacity, the deployment of new technology, and the rollout of advanced communications services. These changes are particularly evident in the communications equipment industry, which has boomed in the last few years. Investment in communications equipment grew from $46 billion (in inflation-adjusted dollars) in 1993 to $86 billion per year in 1998—a 13 percent annual growth rate over 5 years (Chart 3-3). Some of that equipment is being used by the new providers of wireless services that are building out the systems made possible by the wireless spectrum auctions. By 1998, companies providing wireless telephony had invested more than $50 billion in new capital equipment, and wireless phones are now increasingly common, with more than 69 million Americans now subscribing to cellular service. In addition to wireless services, demand for new equipment and fiber optic cable by new local providers of switched voice and high-speed data services like those used for accessing the Internet has spurred investment. These 108 I Economic Report of the President Chart 3-3 Real Private Direct Investment in Communications Equipment Between 1993 and 1998, investment in communications equipment grew an average of 13 percent a year. Billions of 1998 dollars 100 1990 1991 1992 1993 1994 1995 1996 1997 1998 Sources: Department of Commerce (Bureau of Economic Analysis), and Department of Labor (Bureau of Labor Statistics). developments reflect dramatically declining costs for both data transmission and computing power. The cost of transmitting a single bit of data over a kilometer of fiber optic cable has fallen by three orders of magnitude since the mid-1970s. At the same time, the cost of information processing has fallen as more and more transistors can be packed onto a single semiconductor chip. As technology continues to advance, semiconductor manufacturers have been able to double the power of computer microprocessors every 18 months. Improvements in semiconductors and reduced costs for other components have helped account for the 20 to 30 percent annual decline in the quality-adjusted price of computers. With new innovations in semiconductor technology still coming onstream, the cost of information processing continues to plummet, increasing the capabilities of the information industry and expanding the market for information services. These falling prices have encouraged investment in the grid of telephone lines, cables, opticalfibers,and signal processing and routing equipment that forms the backbone of the U.S. telecommunications infrastructure. The increasing public demand for fast and ready information has driven this backbone industry, motivating tremendous volumes of private investment. The growing demand for carrying capacity, or bandwidth, has led to investment in high-capacity fiber optic lines by telecommunications systems to meet the new infrastructure demands. The number offiber-miles(the miles of sheathed fiber in a bundled cable times the number of fibers in the bundle) is one way to measure system capacity. By this measure, the total volume Chapter 3 I 109 of fiber optic cable deployed by telecommunications carriers in the United States grew by about 16 percent in 1997, and by more than 21 percent in 1998, according to data from the Federal Communications Commission. Consumer demand for telecommunications services is leading more and more American households to purchase additional telephone lines. Although some of these lines are used mostly for voice service, many are dedicated data lines. The number of additional lines more than doubled from 1993 to 1997, from 8.8 million to 17.9 million. This surge in growth mirrors the growth in American consumers' use of the Internet. In addition to extra phone lines, many residential users are beginning to purchase new high-speed broadband connections to the Internet being offered by phone and cable companies. For users who need to download largefiles,the speed of the connection can make an enormous difference in total transfer time. For example, a 10- to 20-minute digitized movie clip might take 10 megabytes of computer memory and require about 24 minutes to download with a 56-kilobit-per-second modem. By contrast, a cable modem or a high-speed digital subscriber line (DSL) connection offered by the phone company can download the same file in less than a minute. Rollout of these new services is just beginning: many phone companies are only now beginning to offer high-speed DSL connections in response to cable companies' offerings. By the end of the third quarter of 1999, cable modems were available to an estimated 37 million homes in North America, and approximately 1.4 million cable customers had signed up for the service. In contrast, only about 275,000 DSL lines were in service in the United States in October 1999. Deployment of DSL is expected to expand rapidly, however: as many as 2.1 million DSL lines may be in service by the end of 2000. These investments are supporting the rapid growth of the Internet as it becomes a standard feature in American homes and workplaces. According to one survey, more than 118 million Americans had access to the Internet in November 1999, of whom more than 74 million were actively using the new medium. The use of e-mail at home has also risen sharply in the last few years, but this usage varies by income: more affluent Americans are much more likely to have e-mail access at home (Chart 3-4). This surge in connectivity has helped put the United States far in the lead in Internet use worldwide. The United States far surpasses Germany, Japan, or the United Kingdom in the number of Internet host computers per capita. Only Finland has a higher concentration than the United States, according to statistics compiled by the Organization for Economic Cooperation and Development (OECD). The OECD also found that the United States leads all other OECD member countries in the number per capita of web servers designed for electronic commerce. The combination of relatively 110 I Economic Report of the President Chart 3-4 Households with Access to E-Mail at Home, by Income Home access to e-mail rose sharply for all households between 1994 and 1998. Percent of households 50 • 1994 H1998 45 40 35 30 25 20 15 10 5 0 <5 5-10 15-20 10-15 20-25 25-35 j Income (thousands of dollars) 35-50 j II 50-75 j >75 Source: Department of Commerce (National Telecommunications and Information Administration). high penetration of personal computers among U.S. households and low Internet access costs in this country also has helped contribute to the greater success of electronic commerce here than in other countries. Internet access costs in the United States are much lower than in many other OECD countries (Table 3-1). T A B L E 3 - 1 . — Cost of Internet Access in 1999 [U.S. dollars adjusted for purchasing power parities] Country Cost for 40 hours Canada 31.45 United States 37.30 Japan 54.64 Italy.. 67.91 Germany 76.78 France United Kingdom 95.73 105.61 Note. Cost is for usage at peak times. Source: Organization for Economic Cooperation and Development. Chapter 3 I 111 How Information Technology Is Changing the Economy In addition to providing a new communications medium, the Internet and its kindred technologies possess vast potential to enhance the economy's productivity and make firms more efficient. Much as Fords assembly line concept had broad spillover effects beyond the automobile industry, so, too, the Internet and e-commerce are having broad effects throughout a number of industries. Many firms are investing aggressively in these technologies to speed the flow of important business information, internally as well as externally, and so raise productivity. Over the past 20 years, the real net stock of information technology equipment in the private sector has been rising steadily. The last 5 years have seen particularly sharp increases in the net stock of computers and related equipment relative to other durable equipment (Chart 3-5). Even across industries that are making large investments in information technology, however, the amount of that investment per worker varies widely (Table 3-2). Telecommunications firms, nondepository financial institutions, and radio and TV broadcasting firms all invested more than $ 15,000 per worker in information technology equipment, according to 1996 data from the Department of Commerce. Other firms in industries that are also major investors, such as banks, insurance carriers, and railroads, invested between $4,000 and $6,000 per worker in information technology equipment. Chart 3-5 Real Net Stock of Information Technology Equipment in the Private Sector Investment in computers and related goods has grown far faster than other types of business investment in recent years. Index (chain-type), 1992 = 100 350 Computers and related goods 300 i / \ . / 250 200 / 150 Communications equipment 100 Total durable equipment \ .... \ 50 0 1960 1965 1970 1975 1980 Source: Department of Commerce (Bureau of Economic Analysis). 112 I Economic Report of the President 1985 1990 1995 TABLE 3-2.—Information Technology Investment per Worker in the 15 Most Information Technology-Intensive Industries, 1996 [Dollars] Industry Telecommunications Nondepository institutions Pipelines, except natural gas Radio and TV broadcasting Investment per worker 29,236 18,129 18,069 17,512 Electric, gas, and sanitary services . Petroleum and coal products Real estate Chemicals and allied products 9,728 8,102 7,610 6,049 Insurance carriers Depository institutions Holding and investment offices Railroad transportation 5,911 5,897 5,739 4,587 Wholesale trade Motion pictures Electronic and other equipment 4,488 4,225 3,511 Source: Department of Commerce. As firms adopt these new technologies, they are also changing the definition of what constitutes a firm in todays economy. For some manufacturing firms, information technology offers new ways to integrate their suppliers more closely in the design and manufacturing of products. Even where the firms in the supply chain remain separate entities, the degree of cooperation may come to resemble what might occur in a vertically integrated firm. At the same time, other firms are finding that transactions that were once organized internally may now be better organized as market transactions, with competitive bidding even for specialized orders of custom-made parts. At the retail level, the rise of the Internet has made possible the "virtual firm," which exists only to market goods through a website. With outside specialists available to handle details like filling orders, a firm can be run without the extensive supply infrastructure that many traditional brick-andmortar firms have built. As companies grow larger, however, some have found that outsourcing important activities is not necessarily the best way to handle growing volumes of customers. Instead these firms are now investing in the same type of real-world infrastructure that their more traditional competitors have always used. Managing Information Flows Information technology is having a major impact on how somefirmsorganize their own internal operations. Investments in computer hardware like those described above often represent only a small portion of a company's Chapter 3 I 113 total investment in information technology. Effective implementation of this technology also requires investing in the staff who will operate it, in developing specialized applications, and in user support. Cost surveys of firms in the services sector suggest that, at small, centralized sites, the costs of the staff required for operations and specialized software development may account for 74 percent of total costs, far exceeding the more visible expenditures the firm may make on hardware and prepackaged software. To develop the applications they need, many service firms are now conducting more of their own R&D, and this activity is beginning to show up in the aggregate R&D statistics. Whereas in 1987 nonmanufacturing industries accounted for only about 8 percent of non-Federal R&D funds, by 1995 that figure was 25 percent. These investments have been concentrated in computer programming and data processing services, in wholesale and retail trade, in communications services, and in research, development, and testing services. One area in which information technology can enhance productivity is the management of inventories. For example, electronic scanners have been a familiar sight in grocery checkout lines for some time, but some retailers have begun to adopt new and more efficient distribution methods that rely on these scanners and the wealth of transactions data they can provide. One large retailer with a chain of grocery superstores has used information technology to track what is selling in its stores and to use that information to build a more efficient distribution system. This firm uses its buying power to generate large orders to manufacturers, which then deliver the demanded goods to the firms warehouse distribution centers. Those centers, in turn, are responsible for resupplying the individual retail stores. To keep revenue high and costs low, the firm also analyzes its scanner data on sales to maximize the use of its shelf space. Detailed information captured by scanners at each store track how fast products are selling, so that stores can be resupplied at frequent intervals from the distribution centers. This avoids the need to keep large and expensive inventories at the stores themselves. In total, this company has reduced its operating costs to a mere 17.5 percent of sales, compared with 22 percent for a traditional supermarket. The increased investment in information technology by companies has coincided with a reduction in the economy-wide ratio of inventories to sales during the current economic expansion (Chart 3-6). Although, to be sure, information technology is used in many areas besides inventory management, some of those investments may have helped businesses to better manage inventory growth and improve productivity during the current expansion. Information technology is also being used to better manage information flows between firms, such as between a final-goods manufacturer and the different levels of its supplier chain. In the automobile industry, for example, one recent report notes that companies have largely replaced paper drawings 114 I Economic Report of the President Chart 3-6 Real Inventory-to-Sales Ratios for Selected Product Categories Businesses require smaller inventories to support a given volume of sales today than they did just a few years ago. Annual ratio of inventory to sales I.I Electronic machinery 1.6 y 1.5 1.4 Manufacturing and trade 1.3 . 1.2 ^ * Professional and commercial equipment 1.1 ** 10 1992 1993 1994 1995 1996 1997 1998 Source: Department of Commerce (Bureau of Economic Analysis). with digital representations as a means of storing, analyzing, and communicating data on products and parts. One original equipment manufacturer estimated that it exchanges product data both within the company and with its suppliers as many as 453,000 times a year. Retail E-Commerce Information technology is having an impact on how businesses do business in yet another way, through the growing use of the Internet by firms as a communications tool. The Internet is already revolutionizing distribution technology at both the retail and the wholesale level. With millions of people now online, the potential to use the Internet as a low-cost means to communicate information to customers and receive orders for products is growing ever larger. At the retail level, newfirmsare springing up to market a whole range of consumer products from books and music CDs to cars. E-commerce retailing has several potential advantages over traditional retailing, some of which it shares with traditional mail-order firms. Like a mail-order firm, a firm with a website may be able to offer more products online than a traditional brick-and-mortar store, because it is far less limited by shelf space constraints. It can make extensive product information available to interested customers around the country and the world, who can then make their selections automatically, without the need for a salesperson. Chapter 3 I 115 For e-retailers, the Internet replaces paper catalogs as the medium used to distribute information to customers, but these retailers still face some of the same challenges as traditional catalog and storefront retailers in delivering the goods. In response, some large electronic retailers have now begun building their own warehouse distribution centers, providing a real infrastructure to complement their virtual one. At present, the Internet is so new that no one can predict which business strategies and which retailers will succeed in the new medium. Many Internet retailers continue to lose money as they build their businesses and strive for the economies of scale needed to survive in a marketplace shared with both other Internet rivals and traditional competitors. Unfortunately, despite a proliferation of anecdotes, hard data on the importance of e-commerce and the digital economy more generally remain scant. This lack of appropriate data hampers analysis of the impact of the digitization of the economy. For example, it is not currently possible to separate out e-commerce activities from other types of commercial activities in the statistical series produced by the Federal Government. Data specific to e-commerce currently come, for the most part, from market research firms, which use divergent definitions and methodologies. To address this problem, major Federal statistical agencies (the Bureau of Economic Analysis, the Bureau of the Census, and the Bureau of Labor Standards) are working together to formulate an e-commerce initiative that will help ensure that official government statistics accurately reflect the new digital economy. Using private data for 1998, estimates of the value of online retailing range from $7 billion to $15 billion; even taking the high end of this range, e-commerce would account for only about 0.5 percent of retail sales. In one 1998 survey, however, nearly half of households with Internet access had made online purchases within 6 months of the survey. In addition, a much larger quantity of sales is influenced in some way by the Internet. For example, many consumers research their purchases, such as automobiles or books, online before buying them offline, through traditional outlets. By one estimate, roughly $50 billion in offline retail sales was influenced by the Internet in 1998. Business-toBusiness E-Commerce The Internet plays a significant role today in providing new distribution channels for wholesale transactions between businesses. By one estimate, business-to-business e-commerce is expected to grow from $43 billion in 1998 to over $1.3 trillion by 2003 (Chart 3-7). Using the World Wide Web, companies can automate the order process and reduce costs. One major supplier of computer components had routinely been receiving orders by phone or facsimile from several hundred customers all over the world. Processing these orders was cumbersome, and moving several hundred of these 116 I Economic Report of the President Chart 3-7 Buslness-to-Business E-Commerce The value of business-to-business e-commerce is projected to rise severalfold over the next few years. Billions of dollars 1998 1999 2000 2001 2002 2003 Source: Forrester Research, Inc. customers to a web-based solution promised to improve customer service and give managers better access to information on the status of orders. The company built a website targeted to these customers and soon was able to move $1 billion in orders per month online. Another firm that sells networking hardware also uses the Internet to reduce its costs. Many of the company's products are built to order from customers' specifications. The firm routinely checks those specifications to make sure the product will work as configured, but it found that nearly one in four orders taken by phone, fax, or e-mail contained errors that caused the order to be rejected or required additional customer contact. After moving the process of configuration and pricing online, the company now reports that 98 percent of orders pass through the system without an error, saving both the company and its customers valuable time and expense. Across all its operations, having moved more of its technical support and marketing functions online, the company estimates that it now saves more than $300 million per year in operating costs. Business-to-business e-commerce is also resulting in new and more competitive markets. The Internet's size and reach have created deeper markets, with larger pools of both buyers and sellers, for many basic commodities. Where before specialized brokers were needed to match buyers and sellers in transactions, new websites today allow multiple buyers and sellers to find each other and enter into transactions quickly and efficiendy. In the steel industry, for example, the electronic equivalent of a spot market now matches customers and Chapter 3 I 117 suppliers for surplus quantities of steel of various types. One firm that provides such a virtual marketplace for transactions in this industry has seen both the number of suppliers and the volume of product offered on its site expand substantially. In just one year, offerings on the site rose from about 20,000 tons a month to over 120,000 tons. Purchasing managers are also using information technology to actively manage and reduce their firms' procurement costs by changing traditional relationships between the firm and its suppliers. For example, many manufacturers buy custom-made materials that they incorporate into finished products. Because these materials are often made to buyers' specifications, there are no catalogs or price lists to allow buyers to make price comparisons. Fragmented supply markets and the importance of product quality in supplier selection also make purchasing difficult. Concerns about the quality of new suppliers' products, for example, may cause a firm to rely instead on existing suppliers that are known quantities. One company achieves significant cost savings for the purchasing managers who are its clients by using electronic bidding technology to conduct auctions among alternative suppliers of a whole range of inputs. The company has organized auctions for goods ranging from printed circuit boards to injection-molded plastic parts (Box 3-3). Although this firm's electronic auction software is an example of information technology at work, an important part of the service that the firm provides is a detailed, specific analysis of the desired components, followed by an extensive search for potential suppliers. In addition to the traditional suppliers that a firm has relied on in the past, the auction firm may find that other suppliers around the world can produce the demanded good as well. Working with the buyer, the company screens these firms to determine whether they are capable of producing the good that meets the buyer's specific needs. This use of information technology to cast a wider net poses both challenges and opportunities for suppliers. For efficient firms, it offers a way to compete for business they might not have been able to bid on previously. But existing suppliers must compete more aggressively than ever before if they wish to retain or expand their business in an increasingly global economy. Information Technology and the Theory of the Firm These developments in information technology raise a number of questions about the organization of firms in a market economy. Information technology has the potential to dramatically lower the cost of acquiring and disseminating information of significant value to firms and their customers. Using various types of information technology, firms can convey information about products to potential customers, obtain more detailed and targeted market data about customers and their needs, and then sell products to more customers. But how will lower costs of communication affect the structure of 118 I Economic Report of the President Box 3-3. Holding an Online Auction An online auction specialist allows corporate buyers to lower their procurement costs by providing the technology and support for computerized auctions. Rather than sending out a paper request for proposals and obtaining a single bid from each potential contractor, buyers holding online auctions can allow bidders to observe how their bids compare with those of their peers.To generate more competition, however, the auction specialist does more than simply provide a connection for the client firm's existing suppliers.The auction specialist also searches out new potential suppliers that meet the buyer's specifications. In one such auction for printed circuit boards, the auction specialist first identified 29 bidders in North America, Asia, and Europe. Eight of the firms had done business with the buyer before, but the remainder had not. Each supplier was linked electronically to the auction firm's computer server, so that it could submit bids online, observe the bids placed by its competitors, and then decide whether to submit a new, lower bid of its own. Within 5 minutes after the auction opened, the bids received for the circuit board contract quickly dropped to 18 percent below the buyer's historical average cost for such goods. As the auction's closing time approached, more and more bids were submitted. By the time the auction had concluded, after about 1 hour, three bidders had submitted virtually identical low bids, and the buyer was able to reduce its expected cost by 42 percent, or $6.4 million. the firm itself? When information is less costly to communicate, some firms may decide to expand their operations to exploit greater economies of scope in selling different products. Alternatively, other firms may find that, with more customers for what had previously been low-volume markets, it is more profitable to specialize, seeking lower production costs through greater economies of scale. The evolving nature of the new technology makes it hard to predict which effect will predominate, and the answers could easily vary across different lines of business. Information technology may also have far-reaching implications for the structure of firms if it changes the sources of competitive advantage in the markets where they conduct business. Using the new information and communications technologies, firms have greater potential to respond quickly and more flexibly to challenges posed by changing circumstances. Older sources of competitive advantage, such as established distribution networks, may now seem outdated and unnecessary in light of new communications tools like the Internet. By eliminating middlemen from the distribution network, a firm can cut its costs while still serving its customers. Chapter 3 I 119 However, the same technology that disintermediates some actors in the economic chain between producers and consumers is also opening up new opportunities for other firms that can effectively add value in a different way. The auction firm that finds new suppliers, for example, replaces an internal procurement decision process with a market-based specialist. As firms continue to restructure themselves to take advantage of these new opportunities, they may find it worthwhile to expand or contract their activities to focus on those where they add the most value to the economic chain. Information Technology and Network Effects As new types of information technology link together computers, telephones, and other types of communications devices, network effects become increasingly important in determining the success or failure of some products. In industries not subject to network effects, the total value of a product is simply the sum of its value to each user; adding more users increases the total value only by the products value to the new users. But in industries where network effects are present, such as telephone or Internet service, the value of the product to each user, including the existing users, rises as the total number of users rises. In the case of a phone network, for example, each person is connected to the network by a wire (or a wireless) link. The more links the network has, the more valuable it is to each participant in the network, because the network can be used to contact more people. This type of network effect, also called a network externality, creates a cycle of positive feedback in a growing network. As more people join the network, it becomes more attractive to potential new members, and the network increases in size, continuing the cycle. The same network effects that create positive feedback in a growing network, however, can work against a network that is shrinking. As a network shrinks, it becomes less valuable to members, and more members leave, causing the networks value to spiral downward. Markets with strong network effects are referred to as "tippy," because they can tip in favor of one firm or another, depending upon which firm is able to generate enough positive feedback to win the allegiance of a sizable majority of consumers. The winning firm in such a market then becomes the dominant network and may be in a position to establish a de facto standard for the industry. Firms engaged in such a "standards war" may even choose to give their product away initially if doing so increases the firm's likelihood that it will own the dominant technology. Once a firm wins the standards war, consumers' switching costs may well be high enough that the firm can exercise market power to earn above-normal profits. As the history of the Bell system at the beginning of the century demonstrates, network effects can have a dramatic impact on market outcomes when one network becomes very large relative to its competitors. 120 I Economic Report of the President Using its size and its superior long-distance service, the Bell system became the dominant firm in areas of the country where it had once competed with independent phone companies. To convince consumers to sign up for its service over those of the independents, the Bell system advertised the advantages of its larger number of connections. By refusing to interconnect with competing systems, the Bell system was able to exploit the advantage of its large network to the detriment of its competitors. Establishing a new network in an industry with strong network externalities can be very difficult, because users of the existing network may have to incur costs to move to the new network. In some cases, such as the software industry or the computer networking equipment industry, these switching costs may include major investments in equipment and training to use the new network. An even larger cost for users of the new network, however, may be that imposed by the lack of connections with the incumbent network. These switching costs, however, do not necessarily allow the incumbent firm to rest on its laurels. A new network can supplant an established network in certain circumstances. One advantage a new network may have is that its new technology may simply work better for some applications than the established networks technology. Where the old network may have to worry about compatibility with existing standards, a new provider can start from scratch and take advantage of technological developments to create a better product. With a superior technology, a new network provider may be able to convince some users to incur the switching costs because the advantages of the new technology are large enough to make it worthwhile even if users cannot connect easily with the old network. Once it has established a niche market among these users, the provider can then seek to expand the use of its network to more mainstream customers. The computer industry, for example, has seen several waves of technology go beyond an existing dominant standard, and each of those waves in turn developed into its own standard. Early computer technology was dominated by mainframes, but mainframes were later supplanted by minicomputers for many uses, and by personal computers for still more uses. In each case the new technology started out not by directly challenging the incumbent, but by appealing to a group of users not well served by the existing technology. As information technology advances, the economic effects of new data and communications networks will become increasingly important. The Internet provides a model for how those networks can work together. The Internet can be described as a "network of networks" held together by a standard communications protocol. The hardware and software running any individual local network may be completely incompatible with the hardware and software running a different local network, but with a standard communications protocol the two networks can talk to each other. This increases the Chapter 3 I 121 value of each network to its users. Where these new technologies will take us in the 21st century will only become evident over time, but by encouraging connections between networks, government and the private sector can work together to provide a strong platform on which new ideas and new technologies can grow. The Role for Government Policies We have seen how firms in a range of industries are now realizing some of the productivity gains that recent advances in information technology have promised. For its part, this Administration remains committed to a policy that encourages innovation and competition in the private sector to the fullest extent possible. One element of that policy is establishing the rules for protecting intellectual property rights to new products through patents. Although patents have been used to protect the property rights of inventors in their inventions since the founding of the Republic, the last several years have seen an explosion in the number of patents granted in the United States (Chart 3-8). Several hypotheses have been advanced to explain this surge in patent grants, including the possibility that it reflects todays rapid pace of technological discovery. A recent court ruling clearly indicating the patentability of computer software may also have encouraged the patent surge. Chart 3-8 Patents Granted Since 1900 Since 1995, patent grants in the United States have increased at a historically unprecedented rate. 1900 1910 1920 1930 1940 1950 Source: Department of Commerce (Patent and Trademark Office). 122 I Economic Report of the President 1960 1970 1980 1990 Intellectual property rights in works of authorship, including those disseminated through the Internet, are protected through copyright. The Administration has worked to set up a legal framework for electronic contracting and has supported protection of intellectual property rights in the digital environment. In the latter area, the Administration has supported initiatives to ensure that copyrighted works are adequately protected on the Internet. Information in the form of software, texts, music, and audiovisuals is increasingly important to the economy, and all these media can be efficiently delivered over the Internet. Without legal protections commensurate to those enjoyed by distributors of physical media, intellectual property owners might choose not to make their works available in the digital environment. The Administration has also been active in advocating the development of international standards for the protection of copyrights on the Internet and in promoting a balanced approach to protecting data bases. Support for Research and Development Maintaining and increasing the flow of innovative ideas to the economy also require continuing efforts in R&D to create new products and services. Over the last several years, private industry has continued to expand its funding of R&D, but many of these efforts are focused on the development required to bring new products to market. To fill in the gaps in private R&D efforts, government must go a step beyond encouraging private innovation and competition. By supporting both the basic and the applied research necessary to create new technologies yet unimagined, government can act as a catalyst for growth in the American economy in this new century. In supporting R&D, the objective of government policy is to identify projects with large potential spillover benefits to the economy. Funding basic and applied research is one way to accomplish this objective because it expands the knowledge base of society. Although this research can generate large payoffs in the form of new technologies, the private sector is unlikely on its own to provide the amount of research, basic or applied, that is best for society. Firms may underinvest in research because the social benefits from the innovations they might make exceed the payoff that the firm itself can capture with traditional mechanisms such as patents and protection of trade secrets. Some of the most innovative ideas that research might generate may not immediately result in commercially useful products or methods; they may require an extended period of further development before that can happen, and often companies may not want to wait that long. Hence government support for basic research is critical in a knowledge-based economy, where growth ultimately depends upon the flow of new ideas. This problem seems particularly vexing for what are sometimes called general-purpose technologies (GPTs). A GPT is a technology that may have Chapter 3 I 123 many possible uses but that depends on the development of complementary innovations for those uses to be exploited. For example, an ordinary desktop computer can be put to a vast number of different uses, but all require complementary investment in software. Until a ready store of such complementary innovations is available, a GPT may not be very useful, and its creators may have limited incentive to make improvements in the technology. As these complementary innovations occur, however, the gains from further innovation to improve the GPT itself increase. And in turn, as the GPT is improved, the gains from creating still more complementary innovations rise, these innovations then appear, and so on in a virtuous cycle. Jumpstarting this virtuous cycle may be difficult, however, when the commercial gain appears to be low. In such circumstances, government can again play an important role by providing the initial funding for new technologies that still need more basic research. The Internet itself is a GPT that developed in just this way. For all the considerable excitement today about its commercial potential, the Internet did not start out as a commercial project at all, but as a way to interconnect government computers at different sites to share information and data. At its creation in 1969 under a U.S. Department of Defense project, the predecessor to the Internet (then known as ARPANET) consisted of just four nodes at different locations. Over time, more nodes and more users were added, until eventually the National Science Foundation (NSF) took over the primary role in funding what by then had become the Internet. With the introduction of the World Wide Web by the European Center for Particle Research in 1989, and of a graphical user interface called Mosaic by the NSF's National Center for Supercomputing Applications in 1993, the Internet took a giant step further. From a tool used by a relatively small number of government workers and academics, it was transformed into a widely accessible public communications medium, and usage increased dramatically. As the number of users expanded, commercial development began and government sponsorship became unnecessary. Technology Initiatives in the Budget The Administration is committed to maintaining strong support for R&D efforts in a wide variety of areas. The centerpiece of this commitment is the 21st Century Research Fund, which aims at ensuring stability and growth for the Nations highest priority research programs. In the Presidents budget for 2001, approximately $43 billion has been committed to science and technology endeavors through this fund, a 7 percent increase over the previous year. Through the fund, the Administration seeks to finance a broad and balanced national R&D portfolio to ensure that technological advancements continue to be made in areas of the economy where they are needed. Having 124 I Economic Report of the President a balanced R&D portfolio is necessary because advances in one discipline may depend upon research gains in separate fields. A number of programs undertaken by the 21st Century Research Fund are designed to leverage Federal R&D investments through partnerships with firms in the private sector. For example, the Partnership for a New Generation of Vehicles seeks to develop less polluting, more fuel-efficient technologies for cars by combining the research efforts of Federal Government laboratories with those of the major U.S. automakers. The Advanced Technology Program, administered by the National Institute of Standards and Technology, is another example of the Administrations efforts to encourage public-private partnerships in R&D. This program provides funding for scientific and technical projects that may offer substantial economic returns to the United States. This year s budget also proposes a multiagency National Nanotechnology Initiative that increases the level of funding for nanotechnology research in 2001 by more than 80 percent, to nearly $500 million. The initiative focuses on the manipulation of matter at the atomic and molecular levels, offering an unprecedented chance to study new properties, processes, and phenomena that matter exhibits at a scale between atoms and molecules. The initiative hopes to culminate in technologies with the unprecedented ability to create new classes of devices as small as or smaller than a human cell. This research could lead to continued improvement in electronics and electro-optics for information technology; to higher performance, lower maintenance materials for manufacturing, defense, space, and environmental applications; and to accelerated biotechnical applications in medicine, health care, and agriculture. The results of this effort could be as significant to our economy as the development of the transistor and the Internet. This year s budget also increases support for information technology R&D from $1.7 billion to $2.3 billion. This program funds the fundamental research in computer science that is expected to lead to major breakthroughs in the next generation of supercomputers, networks, software, and applications. This ongoing work includes the Next Generation Internet Initiative, which is connecting universities and national laboratories with high-speed networks that are 100 to 1,000 times faster than todays Internet. R&D in information technology also funds development of extremely powerful supercomputers for applications in a variety of fields. Long-term research under this programs umbrella will create high-technology, high-wage jobs and will improve our quality of life. All of these projects serve as examples of how a small investment today may yield significant benefits in the years to come. Chapter 3 I 125 Maintaining Competition Another way in which government policy can encourage economic growth is through reducing barriers to competition and entry rather than imposing restrictions that in effect protect incumbent firms. For example, by making more of the electromagnetic spectrum available for wireless services, as discussed above, the Federal Government has enabled a number of new firms to enter the market for these services. The prices that consumers pay for wireless phone service have dropped, on average, as a result. In designing the spectrum auctions, the Federal Communications Commission was careful to limit the ability of existing cellular incumbents to acquire the lions share of spectrum available, and this laid the necessary foundation for more competition between competing wireless networks. Similarly, the Telecommunications Act of 1996 removed barriers to entry across telecommunications markets, and it set conditions for regional Bell operating companies to enter long-distance markets after making changes to permit the entry of new competitors for local telephone services. In December 1999, the commission found that one company had met those conditions in New York State and allowed it to begin offering longdistance service in New York. Companies in other States are expected to qualify in the future as more local markets are opened to competition for both business and residential customers. Vigorously enforcing the Nations antitrust laws is another important element of a policy that promotes competition. As noted above, concerns about the competitive implications of mergers are not new, but the recent wave of large mergers has highlighted this aspect of antitrust policy. One reason for this merger activity is that firms are seeking to achieve efficiencies and become more competitive in the global marketplace. The vast majority of these mergers pose no competitive concern because they do not combine two significant competitors in a market that would raise a concern about diminished competition. In other cases, however, the antitrust agencies at the Department of Justice and the Federal Trade Commission have opposed elements of planned mergers that would have diminished competition in several cases, including gasoline marketing and refining, grain distribution, avionics, waste disposal, banking services, and mobile telephony. In these cases the antitrust agencies have opposed mergers because of their potentially adverse impact on consumers and have sought divestitures that would preserve competition. In analyzing mergers and other potentially anticompetitive conduct, antitrust agencies increasingly must consider the effects that arise not only from traditional economies of scale in production, but also from the effects of market power created by network effects. For some products—for example, some types of basic computer software and hardware—having a large installed base of users creates a de facto standard both for those users and for product developers, who must use that standard to create new, complementary products. Users accustomed to 126 I Economic Report of the President using a particular standard may have built up a large investment in knowledge and complementary products of their own that makes switching to any alternative, nonstandard product cosdy. Users also may be reluctant to switch when alternatives to the prevailing standard do not have enough developers creating the complementary products that would enhance the value of the basic product. In these circumstances, a company that controls a standard might use that market power to prevent other products from gaining the critical mass of users that would enable them to challenge the standard and undermine its market power. Antitrust agencies vigorously enforce the antitrust laws to preserve competition and eliminate unreasonably exclusionary practices related to standards. For completely new areas of economic activity such as e-commerce, the Administration believes that growth can best be encouraged by limiting the regulatory burden. Regulatory forbearance and policies that let nascent markets grow have encouraged continuing investment in information infrastructure and made possible unprecedented growth in the development, adoption, and use of e-commerce. As one example, the Administration has successfully opposed the imposition of discriminatory taxes on Internet activity: the Internet Tax Freedom Act establishes a 3-year moratorium on new and discriminatory taxes on electronic commerce. Finally, all policies that rely on the private sector to provide valuable new technologies or other innovations face a common challenge, namely, that of ensuring that all members of society benefit from those technologies and those innovations. Evidence is growing of a "digital divide," in which some racial, ethnic, and income groups in the United States use the Internet less than others. Created under the Telecommunications Act of 1996, the E-rate program for wiring schools and public libraries is an important means of increasing the diffusion of Internet use and ensuring that access to information is widely available (see Chapter 4). The discounts available under this program have allowed more than 1 million classrooms to be connected to the Internet. This policy, along with others discussed in the following chapter, will help Americans develop the skills they need to participate in an increasingly information-driven economy. Conclusion Recent developments in technology and regulation underscore the vital role that government has to play in ensuring the foundations for a growing economy and a vibrant private sector. By providing support for basic and applied research, government can act as a catalyst for new innovations and new technologies that may someday prove critical in maintaining Americas technological lead in an increasingly information-dependent world. Chapter 3 I 127 Similarly, by reducing barriers to competition wherever possible, the regulatory environment that government creates can encourage the birth of new services that will lead to continued growth, while ensuring that all Americans have the opportunity to benefit. The dramatic changes in the American economy over the last century should remind us that future changes, still unpredictable, are sure to follow, creating new challenges and opportunities during the century that has just begun. If government continues to encourage firms and workers to meet those challenges, America can maintain a strong, yetflexibleeconomy that fosters growth and provides opportunity for all its citizens for many years to come. 128 I Economic Report of the President C H A P T E R Work and Learning in the 21st Century Eunice Hunton Carter, born in 1899> was a trailblazer for expanded labor market opportunities for women and minorities. She received bachelors and masters degrees from Smith College, went on to Fordham Law School, and ultimately became the first African American woman district attorney in New York. Special prosecutor Thomas E. Dewey made her one of his "twenty against the underworld" who investigated organized crime in the late 1930s. T he nature of work has changed dramatically over the past 100 years. Today, vastly fewer people work on farms, and women are much more likely to be working for pay. Discrimination, which long limited the participation of minorities and women in the labor market, is now illegal and has been greatly reduced. In addition, the educational attainment of our labor force has risen sharply. These changes have combined to produce the most diverse and highly educated work force in our country's history. The tools and techniques of work also changed dramatically over the 20th century. At the beginning of the 21st century this has meant a technological revolution, which has affected the majority of jobs and put a premium on a new set of skills. This chapter examines the new labor market and the role government will play in preparing workers for the next century. 129 Formal education was a far less important job qualification for most workers at the turn of the last century than it is now. Over 40 percent of the work force was in agriculture, and another 28 percent was in manufacturing. Services, broadly defined, accounted for the remaining 31 percent (Chart 4-1). In keeping with this industry mix, a large proportion (38 percent) of workers were occupied in farming, forestry, or fishing. Another 25 percent were operators or laborers. Managers and professionals represented just 10 percent of the work force, and sales and administrative support occupations just 8 percent. Over the course of the 20th century, the share of total employment in agriculture declined steadily. Until the early 1970s, manufacturing employment grew roughly in line with growth in the labor force, and manufacturings share of total employment remained roughly constant. Since then, however, employment in services has accelerated, and the share of employment in manufacturing has declined. The occupational mix has changed accordingly. By 1999, 30 percent of workers were employed as managers and professionals, and 26 percent worked in technical, sales, and administrative support occupations. Operators, fabricators, and laborers made up just 14 percent of the work force, and farming, forestry, and fishing occupations represented a scant 3 percent. Most recently, the change in the industrial and occupational mix of the economy has been associated with a technological revolution. That revolution has been a rich source of new jobs, but many of those jobs require familiarity with the latest technological advances. In 1996, for example, the share Chart 4-1 Composition of Employment by Major Sector Since 1900 Over the 20th century, the U.S. work force shifted massively out of agricultural jobs and into service occupations. Percent 80 70 Services 60 50 40 Manufacturing 30 20 . _ Agriculture 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 1999 Note: The manufacturing sector includes manufacturing, mining, and construction. The services sector comprises public administration; transportation, communication, and public utilities; wholesale and retail trade; and finance, insurance, and real estate. Sources: Department of Commerce (Bureau of the Census) and Department of Labor (Bureau of Labor Statistics). 130 I Economic Report of the President of total employment in industries that are intensive users of information technology was 41 percent. Projections by the Bureau of Labor Statistics suggest that this figure will rise to 44 percent by 2006. Other projections indicate that the five fastest growing occupations between now and 2008 will be related to computers. This evolution of the labor market from one based on a strong back to one based on a strong mind has both caused and been driven by substantial improvements in educational attainment. The change in the education of the work force and the increasing value of education represent an important transformation of the labor market over the course of the century. A second important transformation has been an opening up of opportunities to women, minorities, and persons with disabilities. The typical adult female in 1900 was working at home or on the farm, and those women who worked for wages were likely to be unmarried and in low-paying occupations. African Americans and other minorities were also generally limited in their occupational choices. Over the course of the century, however, women and minorities entered the labor force in increasing numbers and enjoyed expanded occupational choice, and their earnings have risen. All groups have made substantial improvements in educational attainment and have shared in the greater wealth generated from the accumulation of skills and higher productivity. This chapter analyzes these two key transformations of the labor market— the increasing value of education and the increasing opportunities for women, minorities, and persons with disabilities—and assesses the challenges they pose for current policy. Although education has proved to be an avenue toward higher earnings for all, a large gap has emerged between the wages of those with education beyond high school and the wages of those with less education. The economy has changed in a way that places a high premium on certain skills, some of them unknown only a few years ago, and workers without those skills are increasingly likely to be left behind. This wage premium provides a strong market signal about the value of education, but evidence suggests that many workers lack the skills needed for today's jobs. Therefore government policies have a role to play. Governments at all levels have traditionally been involved in providing education, in part because of the social as well as economic benefits associated with it. The last part of this chapter examines the role of government and, more specifically, the initiatives put forth by this Administration to improve the quantity and quality of education and training of the American work force and provide new opportunities for American workers. The challenge for public policy in the 21st century will be to develop an appropriate set of education and training policies, one that creates a framework of lifetime learning within which workers can acquire and maintain both the basic skills and the more technical skills they need in the new labor market. Chapter 4 I 131 The Transformation of the Labor Market A hallmark of our increasingly technology-driven and knowledge-intensive labor market is the importance of education for success. The gains in educational attainment that the U.S. labor force achieved over the course of the 20th century were impressive and have led to great improvements for many groups. Yet the number of educated workers, although growing, has been falling short of demand: employers eager to hire qualified workers have driven up the relative wages of those who have the desired skills. In the 1980s and early 1990s, those who acquired the education and training that employers sought were rewarded in the labor market, while those who lacked that preparation saw their earnings lag behind. The Rising Importance of Skills and Education Growth in Educational Attainment The average level of education of the U.S. working-age population increased dramatically in the 20th century. Many more Americans than ever before are graduating from high school and college, and overall educational attainment has increased. The median number of years that an adult American has spent in school rose from 8.6 in 1940 to nearly 13 in the 1990s. In addition, the disparity between men and women in high school and college completion rates has disappeared. In fact, in the decade just past, women completed both high school and college at slightly higher rates than men. The gap in years of schooling between whites and other groups also narrowed substantially over the century. The gap between African Americans and whites in high school graduation rates fell markedly from the 1940s to the present (Chart 4-2). Whereas in 1940 the proportion of whites who had completed high school was more than triple that of African Americans (41.2 percent versus 12.3 percent), by 1998 this gap had virtually disappeared, with 88 percent of both groups having completed high school. Hispanics have not made the same gains, however, and the proportion of this population that had completed high school (which includes those Hispanics who immigrated as adults) was only 62.8 percent in 1998. Raising the high school completion rates of Hispanics has been an important goal of this Administration, and to achieve it, the President has pushed for the first-ever Hispanic Education Action Plan. The Federal budget forfiscal2001 includes $823 million in increased funding for a number of education programs that help to improve the educational outcomes of Hispanics and other students with limited English proficiency. College completion rates increased over the second half of the century (Chart 4-3). In contrast to high school completion rates, however, the racial 132 I Economic Report of the President Chart 4-2 High School Graduation Rates of 25- to 29-Year-Olds by Race and Ethnicity High school graduation rates have vastly improved since 1940. Rates for whites and African Americans have converged, but Hispanics lag behind. Percent 100 40 20 1940 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 Note: Annual data by race are available only since 1964; dots indicate previous years with available data. Before 1992, high school graduates are defined as having completed 4 years of high school. Since 1992, high school graduates are those who have received a high school diploma. Source: Department of Commerce (Bureau of the Census). and ethnic gap in college graduation rates remains large. In 1940, 6 A percent of whites aged 25-29 had completed college; by 1998, 28.4 percent had. African American and Hispanic graduation rates have improved over the same period, but they still lag far behind that of whites. Although the rate for African Chart 4-3 College Completion Rates of 25- to 29-Year-Olds by Race and Ethnicity Many more Americans finish college today than in 1940, but completion rates for African Americans and Hispanics remain well below that for whites. Percent 35 1940 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 Note: Annual data by race are available only since 1964; dots indicate previous years with available data. Before 1992, college graduates are defined as having completed 4 years or more of college. Since 1992, college graduates are those who have received a college degree. Source: Department of Commerce (Bureau of the Census). Chapter 4 I 133 Americans has risen almost 10-fold since 1940, only 15.8 percent of African Americans and only 10.4 percent of Hispanics aged 25-29 held bachelors degrees in 1998. A number of Administration policies seek to improve access to postsecondary education and are discussed later in this chapter. Changes in the Demand for Skills These statistics show clearly that the American labor force is becoming more educated over time, but are these increases in educational attainment keeping up with the demands of an increasingly technology-driven labor market? And in that market, what happens to those who do not keep up? The rise in importance of basic computer skills illustrates the concern. Computer use on the job has increased tremendously since the introduction of the personal computer in the late 1970s. Already by 1984 about a quarter of all workers were using a computer at work, and by 1997 that proportion had risen to virtually half. What this trend implies is that the pool of potential jobs is shrinking for those who lack basic computer skills. But it is not just computer skills that are in demand in todays labor market. Survey evidence from the 1992-94 period indicates that most jobs available to workers without a college degree require not only specific experience but the ability to perform basic tasks involving reading, writing, or arithmetic and the interpersonal skills to serve customers effectively. Focusing specifically on jobs available to those without a college degree, this survey found that over half of such jobs required workers, on a daily basis, to deal with customers (70.0 percent), read or write paragraphs (61.1 percent), do arithmetic (64.7 percent), or use computers (50.7 percent). Only 8 percent of the jobs available to non-college graduates required none of these skills. Does this imply that the skill demands of employers have been increasing over time? Direct research evidence on this question is limited, but it suggests that indeed they have. The same survey asked employers directly whether overall skill use on jobs they had recently filled had risen in the past 5 to 10 years. The results indicate substantial increases in each of the skill categories (23 to 25 percent) over this relatively short period. The data also show that the changes in labor outcomes (wages and employment) for certain groups that took place over this time have occurred in a manner consistent with firms demanding greater levels of skill. A mismatch does seem to be emerging between the skills that workers possess and the skills that employers demand. For example, a 1996 survey of medium-size and large businesses by the American Management Association found that 19 percent of applicants for vacant jobs lacked the necessary math and reading skills, but by 1998 this proportion had increased to almost 36 percent. Another recent study, this one of manufacturers, found that demand for nontraditional skills, such as computer skills, interpersonal and teamwork 134 I Economic Report of the President skills, and problem-solving skills, has been rising rapidly, especially among high adopters of new technology. Computer skill requirements were more frequently cited than other requirements as having increased from 1993 to 1996. However, employers cited more difficulty in finding applicants with good problem-solving skills than in finding qualified computer-skilled applicants. Although these results in part reflect the strong labor market of this period, they also indicate a rising absolute demand for skills. Changes in the Education Premium A sharp increase in the wages of college graduates relative to those without a college degree provides indirect but striking evidence of rising demand for workers with higher level skills. Between 1979 and 1999 the median real weekly wages of comparable male college graduates aged 25 and over who worked full-time rose by almost 15 percent, from $833 to $957 (Chart 4-4). Despite a 6 percent increase since 1996, the earnings of full-time working males with only a high school diploma fell by 12 percent over the same period. In 1999 the real weekly wages of male high school graduates were $568, down from $648 in 1979. Similarly, the real weekly wages of those with less than a high school diploma declined by 27 percent between 1979 and 1999, from $530 a week to $387, although their real wages in 1999 were 5 percent higher than in 1995. In 1979 the median weekly earnings of male college graduates were 29 percent higher than those of similar men who possessed only a high school Chart 4-4 Median Weekly Earnings of Male Workers by Educational Attainment Real earnings of non-college graduates remain lower today than in 1979, but wages for college graduates and non-college graduates have risen in recent years. 1998 dollars 1,000 College graduates 900 800 700 High school graduates 600 500 High school dropouts 400 300 1983 1985 1979 1987 1989 1981 1991 1993 1995 1997 1999 Note: Earnings are in 1998 CPI-U-RS adjusted dollars. Data are for men aged 25 and over working full-time. Before 1992, high school dropouts are defined as having completed less than 4 years of high school, high school graduates as having completed 4 years of high school but no college, and college graduates as having completed 4 years or more of college. Since 1992, data on educational attainment are based on the highest diploma or degree received, rather than the number of years of school completed. Source: Department of Labor (Bureau of Labor Statistics). Chapter 4 I 135 diploma (Chart 4-5). That same year the median earnings of male college graduates were 57 percent higher than those of high school dropouts. Other evidence suggests that these ratios had been roughly constant or even declining slightly in the decade prior to 1979. By 1999 college graduates were earning 68 percent more per week (again measured at the median) than high school graduates, and 147 percent more than those who had not completed high school. Since the mid-1990s the returns to lower levels of education have increased at about the same rate as returns to college education, implying that the gap is little changed. Overall, this evidence suggests that there has been rapid growth in the demand for skills over the past two decades, because the premium associated with a college education has gone up even as the supply of college graduates has increased. Providing further support for the rising importance of skills is evidence that, even within education groups, the rates of return to cognitive skills (reading and math skills, for example) may have increased in recent decades. Research has used longitudinal surveys to examine what impact a persons level of basic math and reading skills, as measured by scores on cognitive tests administered in high school, have on that persons wages after graduation. Results from a sample of high school graduates who did not go on to college indicate not only that a greater mastery of basic skills translates into higher wages, but also that this relationship has grown stronger over recent years. The implication is that basic skills are more important in the labor market than in the past. The same data also allow us to address the question of whether the educational wage premium Chart 4-5 Ratios of Median Weekly Earnings of Male College Graduates to Earnings of High School Graduates and Dropouts The gap in earnings between college graduates and those with less education widened during the 1980s and early 1990s, but it now seems to have stopped growing. Ratio 3.0 L College graduates to high school dropouts 2.0 College graduates to high school graduates 1.5 1.0 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 Note: Data are for men aged 25 and over working full time. Before 1992, high school dropouts are defined as having completed less than 4 years of high school, high school graduates as having completed 4 years of high school but no college, and college graduates as having completed 4 years or more of college. Since 1992, data on educational attainment are based on highest diploma or degree received, rather than the number of years of school completed. Source: Department of Labor (Bureau of Labor Statistics). 136 I Economic Report of the President already demonstrated is due to differences in skills between those who choose to go on to college and those who do not. When high school and college graduates are compared, the results suggest that, controlling for scores on math tests, between 1978 and 1986 there would have been no growth in the college wage premium for women, and only one-third as much for men. This again demonstrates the growing importance of skills for labor market outcomes. In addition to finding a widening gap between the wages earned by different education groups and between people with different levels of cognitive skills, researchers have found evidence that skills associated with new technologies are becoming more important in the labor market. One such piece of evidence is the gap in wages between workers in information technology industries and those in other industries. According to the U.S. Department of Commerce, in 1997 workers in information technology-producing industries earned on average almost 78 percent more than did workers in all industries combined. And this figure was up sharply from 56 percent in 1989. To the extent that higher education indicates a higher level of skill, one common explanation for the premium associated with education is referred to as "skill-biased technological change"—technological change that has caused demand for high-skilled workers to increase more rapidly than that for lowskilled workers. What might account for this effect? One explanation may be that when new technologies are introduced, workers already well endowed with certain skills are better able to use them. Technological change may also create scope for organizational changes in the workplace, such as more decentralized decisionmaking, which would further stimulate demand for workers with higher education. Adding to this, demand for less skilled workers has decreased in relative terms as some low-skilled jobs have been replaced by more automated production processes. But there are other possible explanations for the increase in the college wage premium. One is decreased demand for low-skilled workers as international trade has allowed imports to substitute for the goods these workers used to produce. As discussed in Chapter 1, however, recent evidence casts some doubt on these hypotheses: rapid technological growth and increased trade in the 1990s did not lead to increased inequality but, in fact, coincided with the end of a 20-year trend toward greater inequality. Other possible contributors to the higher college wage premium include the decline in the real minimum wage over the 1980s and the loss of collective bargaining power with the decline in unionization rates over the same period. Growth in Opportunities The 20th century witnessed changes in job opportunities for all workers. Changes were already under way at the start of the century, when the women's suffrage movement was active, and change continued with the civil rights movement of the 1960s. Government has played a critical role in Chapter 4 I 137 ensuring equal opportunity for all workers through the passage of the 19th Amendment, and later through such legislation as the 1964 Civil Rights Act, the 1967 Age Discrimination in Employment Act, the 1990 Americans with Disabilities Act, and, most recently, the 1999 Work Incentives Improvement Act. This last piece of legislation eliminated institutional barriers that had limited the employment opportunities of persons with disabilities. Thanks to these and other initiatives, jobs that were once closed to women, minorities, the disabled, and the aged are now open to all, regardless of their work-irrelevant characteristics. Rising demand for labor in general may have contributed to growth in opportunities for groups that have traditionally lacked access, but it should not be forgotten that these and other acts of government helped open the door. The Economic Progress ofWomen The progress made by women in the paid labor market has been one of the most important economic changes of the 20th century. In the early 1900s, men and women, if they were in the labor market, typically worked in different jobs. Whereas some 79 percent of men worked in manufacturing or agricultural jobs, the comparable figure for women was only about 47 percent. A plurality (28.7 percent) of women in the labor force were employed as private household workers, but fewer than 1 percent of men held such jobs. The differences for African American women are even more striking. It is estimated that among African American women who were in the labor market in 1890, over 90 percent worked as servants or agricultural workers. Disparities remain even today, but todays occupational categories are much more likely to contain substantial numbers of both men and women. Table 4-1 examines the participation of female workers in a range of detailed occupational groups and how it has changed over recent years. Many occupations experienced sizable increases in the percentage of women employed, beyond the overall rise in female labor force participation. For instance, the share of engineers who are female rose from 1.2 percent to 10.6 percent between 1950 and 1999, and the share of lawyers who are female increased eightfold, from 3.5 percent to 28.8 percent. The opening of opportunities in the labor market for these groups has gone hand in hand with improvements in labor market outcomes. An extensive social science literature documents these gains and attempts to identify their sources. One way of assessing progress is to consider the earnings of one group relative to another: Chart 4-6 shows the ratio of female to male median annual wage and salary income for all workers from 1967 to 1998 and the comparable ratio for annual earnings of full-time, full-year workers from 1960 to 1998. In 1967 the median woman worker earned about 40 cents for every dollar that a man earned. Among full-time, full-year workers, the ratio 138 I Economic Report of the President TABLE 4-1.—Share of Women Employed in Selected Occupations in 1950 and 1999 [Percent] Occupation Architects Biological and life scientists... Chemists, except biochemists Clergy Dentists 1999 4.0 29.2 10.0 4.1 2.7 Dietitians Economists Editors and reporters . Engineers Lawyers 94.3 18.4 37.6 Librarians Pharmacists Physicians Psychologists Public relations specialists.. 88.6 Registered nurses Social workers Teachers Elementary school Secondary school 1.2 3.5 15.7 43.8 27.4 14.2 16.5 84.0 51.2 49.8 10.6 28.8 43.8 10.5 83.7 49.0 24.5 64.9 61.0 97.6 69.2 92.9 71.4 90.9 56.7 83.8 57.5 8.3 6.1 Sources: Department of Commerce (Bureau of the Census) and Department of Labor (Bureau of Labor Statistics). in that year was about 60 cents on the dollar, approximately the same as during most of the 1960s and 1970s. Since then, however, the gap between men and women has narrowed. In 1998 the ratio of median earnings of women to Chart 4-6 Ratios of Median Annual Earnings of Female Workers to Earnings of Males Ratios of female to male earnings have increased since the mid-1970s. Ratio 0.8 0.7 0.6 0.5 0.4 0.3 1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 Note: Data are for wage and salary workers aged 14 and over through 1979 and aged 15 and over thereafter. Source: Department of Commerce (Bureau of the Census). Chapter 4 I 139 those of men (again looking at full-time, full-year workers only) was 73 cents on the dollar. An important research and policy question is how much of this gap is due to labor market discrimination. Because it is difficult to measure discrimination directly, researchers have explored this issue by first controlling for other factors that might legitimately explain the gap. For instance, an additional year of schooling is estimated to increase a worker s wages, on average, by 5 to 15 percent, and an additional 25 years of work experience increases wages by an estimated 80 percent. These findings have led some to attribute much of the male-female wage gap to differences between the sexes in education and labor market experience. A recent study using longitudinal data from the late 1980s found that about one-third of the pay gap was explained by differences in the skills and experience that women bring to the labor market. This study also found that about 28 percent of the gap was due to differences in the industries and occupations in which men and women worked and in their union status. Accounting for these differences raises the ratio of female to male median wages for the late 1980s from about 72 percent to about 88 percent, leaving around 12 percent unexplained. Even as several beneficial trends have tended to boost women's wages relative to men's and helped narrow the male-female wage gap, two major trends have worked simultaneously to widen it. The first is increases in the pay premium associated with higher skill (as measured by educational attainment and labor market experience), and the second is increased differences in pay across industries and occupations. Despite the gains just documented, these trends have served to widen the wage gap because female workers still have less labor market experience, on average, than male workers, and because women tend to work in occupations with slower wage growth than those of men. Rising wage inequality across occupations, together with increasing economic returns to skills, slowed women's progress during the 1980s. Although recent trends suggest that progress is being made, no one should doubt that barriers remain. Studies that have tried to measure discrimination by directly looking at pay differences between men and women in very similar jobs, or by comparing pay with specific measures of productivity, have found evidence of discrimination. There is also evidence that discrimination remains a problem at the highest levels of management. For example, in 1999 only four of the chief executive officers of Fortune 500 companies were women. A recent study notes that of the five highest paid executives at each of 4,200 companies, only 2.5 percent were women, and they earned about 45 percent less than their male counterparts. Although differences in managerial experience and company size can explain a large part of this wage gap, the "glass ceiling" may still be stopping the advancement of women within management hierarchies. To make further progress in this area, the President's 2001 budget proposal includes 140 I Economic Report of the President $27 million for an Equal Pay Initiative that will, among other things, strengthen the ability of the Equal Employment Opportunity Commission to identify and respond to wage discrimination. The Economic Progress of African Americans Over the long term, the convergence of earnings between African Americans and whites is perhaps even more impressive than that between men and women. The gap in earnings between African American and white males declined between World War II and the late 1970s. One study showed that whereas in 1939 African American male wages averaged 43 percent of white male wages, by 1979 this percentage had risen to 73 percent. The study noted that convergence in education has been central to these improvements. Chart 4-7 presents recent evidence showing that the relative earnings of African American men have been increasing only gradually since the 1970s. This trend is broadly consistent with the education data presented above. Other research has shown that government policy appears to have played a role in improving at least the employment rates of African American men (Box 4-1), an area of considerable importance given the differences in unemployment rates between the two groups. Research has also shown a near convergence in the earnings of African American and white females, although this trend has somewhat reversed in recent years. One study found that African American women in 1939 earned 40 percent of what white women earned; by 1979 that ratio had risen to 90 percent. Chart 4-7 shows that African American women's earnings have slipped relative to those of white women since the early 1980s. (However, the gap in earnings between white women and African American women remains smaller than the corresponding gap for men.) Despite these changes, other indicators of progress have been encouraging. For example, the unemployment rate for African Americans in 1999 was the lowest on record. The Economic Progress of Persons with Disabilities It has been estimated that one in five Americans of working age has a disability. A person is typically considered disabled if he or she has difficulty performing certain functions such as seeing, hearing, or walking; has difficulty performing activities of daily living; or has difficulty with certain social roles such as attending school or working. It is also estimated that 1 in 10 Americans is severely disabled, in need of assistance from specialized devices or other persons to perform basic activities. For working-age persons with disabilities, reducing discrimination, easing the transition into work, and improving labor market outcomes have been important goals of this Administration. The labor market behavior of persons with disabilities often tracks the behavior of the broader groups to which they belong. For example, the Chapter 4 I 141 Box 4-1. The Role of Government Policy in Improving the Economic Status of African Americans The Federal Government has led the way in extending opportunities to all Americans. Title VII of the 1964 Civil Rights Act outlawed employment discrimination on the basis of race, color, religion, sex, or national origin and established the Equal Employment Opportunity Commission (EEOC) to monitor compliance with the law and enforce its statutes. These statutes covered employers with at least 100 employees beginning July 1965; the threshold was lowered to 25 employees 3 years later. In September 1963, Executive Order 11246 prohibited employment discrimination by Federal contractors. The Equal Employment Opportunity Act of 1972 extended civil rights coverage to employers with 15 to 24 employees and expanded the enforcement power of the EEOC. Measurement of the effects of civil rights legislation has been difficult, since the timing of the legislation coincided with many other significant changes in the U.S. labor market. Despite improvements in employment and wages for African Americans since the mid-1960s, it is sometimes difficult to identify a single cause for each change, or to measure the extent to which Federal policy (as opposed to other factors such as economic conditions or local sentiment) played a role. Nonetheless, researchers have documented a link between the enactment of Federal antidiscrimination policy and evidence of further opportunities for minorities and reduced discrimination. An alternative argument is that these policies came about in part as a result of demand from employers. In a tight labor market, discrimination becomes costly, and it is possible that the passage of Title VII and subsequent legislation provided a justification for what would have occurred anyway. Nonetheless, it appears that government policy played a role and achieved its intended effect of opening opportunities and increasing the share of African American employment. Some have argued that, rather than providing net economy-wide gains, Title VII and its amendments merely shifted African American employment from small to large employers. To isolate the true effect of the legislation, a recent study compared the growth in employment share across large firms with the growth across small firms newly bound by the 1972 expansion of the EEOC. The study found that there were gains in the employment share and pay of African Americans in the industries most affected by the 1972 legislation. The timing of these gains provides evidence that the Federal policy positively affected the labor market status of African Americans. 142 I Economic Report of the President Chart 4-7 Ratios of Median Annual Earnings of African American Workers to Earnings of White Workers African American men and women have seen earnings gains relative to whites of the same sex since the mid-1960s, but for women the gap has widened since 1974. Ratio 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 Note: Data are for full-time, full-year workers, aged 14 and over through 1979 and aged 15 and over thereafter. Source: Department of Commerce (Bureau of the Census). long-term decline in the labor force participation of men, particularly older men, and the long-term increase in female labor force participation are also evident in the populations of disabled men and women, respectively. Overall, however, persons with disabilities have lower rates of labor force activity (whether working, looking for work, or laid off). They are limited in their choice of occupation, and they are less likely to work in higher paying occupations than persons without disabilities. These limitations are particularly evident for those with severe disabilities. In 1994, for example, only 29.5 percent of adults aged 20-64 who had severe disabilities participated in the labor market. In contrast, 84.5 percent of adults in that age group without disabilities and 81.6 percent of those with moderate disabilities participated in the labor force. Despite some evidence of an upward trend in the labor market activity of those with severe disabilities, there is ample room for improvement. The increasing importance, documented above, of education and of certain skills in the labor market will undoubtedly play an important role in future labor market outcomes for the disabled. The rate of labor force activity of severely disabled workers with a college degree (52.4 percent) was more than 1.5 times that of comparable workers with only 12 years of education (31.2 percent). It was about three times that of workers with less than 12 years of education (17.3 percent). Evidence also suggests that having computer skills improves the labor market outcomes of workers with Chapter 4 I 143 severe disabilities. For example, a recent study examined the earnings and work behavior of a group of workers who had experienced a spinal cord injury. Although their injuries led to a large decrease in employment, hours worked, and weekly earnings, if they had computer skills they returned more quickly to work and had relatively higher earnings once there. These results were still observed after controlling for educational attainment. In recent years, government policies have begun to focus on helping disabled workers return to work. The 1990 Americans with Disabilities Act was designed to eliminate discrimination against the disabled, including in the workplace. In December 1999 the President signed the Ticket to Work and Work Incentives Improvement Act of 1999, to help eliminate the institutional barriers that limit employment opportunities for persons with disabilities. The act provides health insurance protections to the working disabled by giving States new options to allow workers with disabilities to buy into Medicaid. It extends Medicare coverage for an additional 4V2 years for beneficiaries of disability insurance who return to work. It also creates a Medicaid buy-in demonstration program to help those who are disabled but still able to work. And it provides grants for States to develop infrastructure that will help people with disabilities return to work. The act also offers a "Ticket-to-Work" for disabled beneficiaries of Social Security disability insurance and Supplemental Security Income, giving them more choice in the selection of vocational rehabilitation and employment service providers. Preparing the American Work Force for the 21st Century The transformation of the economy from one based on agriculture and manufacturing into one based on services and high-technology skills has meant many changes for the American economy and people. It has, for example, led to the rise of new economic centers such as Silicon Valley and the decline of other areas that were once vibrant and had jobs in abundance. This Administration has led the battle to revitalize those areas of the country that have been left behind (Box 4-2). The changing economy has also meant a new set of challenges for the American worker. To compete successfully in the new economy, the American work force must continue to change. This section documents the role of education and training in providing the skills necessary for the labor market of today. 144 I Economic Report of the President Box 4-2. Helping Areas Left Behind: Opening New Markets The movement from agriculture to manufacturing that took place at the beginning of the 20th century implied a movement of jobs and people from rural to urban areas. Later, suburban employment grew as the rise in service occupations led to job creation outside the central cities. Accompanying this change has been a broader movement of manufacturing jobs out of the Northeast and the Midwest, the Nation's traditional manufacturing centers, to the South and the West. In all geographic regions, however, the largest share of employment growth between 1980 and 1990 took place in suburban counties. The movement of manufacturing and service jobs from central cities and rural areas has led to the further decay of many of these areas and to a spatial mismatch between the availability of jobs and workers to fill them. To help revitalize areas that have been left behind because of sectoral shifts or urban flight, the Administration has implemented a number of important policies and proposed others. A prime example is the creation of empowerment zones and enterprise communities in struggling areas, as provided for in the Omnibus Budget Reconciliation Act of 1993. Businesses in these areas are eligible for tax incentives to facilitate employment, financing, and investment. In 1994 the first 9 empowerment zones were designated, along with 95 smaller enterprise communities. These programs have leveraged over $10 billion in additional public and private revitalization efforts, and a recent survey of businesses operating in the 31 empowerment zones created to date finds that these tax incentives have been an important factor in employment decisions. The fiscal 2001 budget proposes a series of extensions to this program, including a third round of 10 new empowerment zones. It will also extend existing wage credits for existing and new empowerment zones through 2009. In addition, the Administration has proposed a new set of policies to spur investment in low-income areas.These include a tax credit to spur equity capital; creation of America's Private Investment Companies (APICs), patterned after overseas investment institutions to leverage investment in untapped domestic markets; and several programs designed to assist small businesses in low-income areas. The proposal would expand BusinessLINC, a public-private partnership that encourages large businesses to work with small business owners; microenterprise initiatives to provide funding for technical assistance to low-income microentrepreneurs; and the targeting of Small Business Investment Company resources to areas served by the New Markets initiative. continued on next page... Chapter 4 I 145 Box 4-2. — continued Other policy initiatives seek to overcome the spatial mismatch between workers and jobs. One of these is the "Moving to Opportunity" demonstration project, which helps families that leave highpoverty inner-city neighborhoods through counseling and rental assistance. Another is the "Bridges to Work" demonstration project, which provides placement, transportation, and support services to inner-city residents so that they can take advantage of suburban job opportunities. Building Foundations: Educating Americas Youth The economic decision to improve ones skills—to invest in ones own human capital—is based on both the cost of that investment and the expected return. The cost includes such basic things as expenditure on tuition and books, but it also includes an opportunity cost: the earnings that the worker could have made had he or she chosen to stay in the labor market rather than go to school. And the return—or, to be precise, the private return—consists mainly of the higher wages available in the labor market to workers with more schooling or training. On average, having more years of formal schooling leads to better labor market outcomes for those schooled: higher wages, higher rates of employment, and lower rates of unemployment. Although it is difficult to put an exact dollar figure on this return, the evidence presented above indicates that it has increased substantially in recent decades. Further, and perhaps more important from a policy perspective, evidence suggests that society at large benefits from having a more educated population. The social return to education, for example, might include a more productive work force that can pay taxes, draws less on government-provided social programs, and participates more effectively in the democratic process. Given the high rate of return to schooling, individuals and families have a tremendous private incentive to invest in education. People often make great financial and personal sacrifices so that they or their children can get more schooling, or schooling of higher quality. Despite the incentives, however, there are a number of reasons to expect that people might underinvest in education. Financial constraints present a problem for some. Because they cannot use their future human capital as collateral, would-be students may not be able to borrow enough to finance their education. They may also be underinformed, or misinformed, about the true opportunities available in the labor market. In particular, they may not know or realize what level of wages they could eventually earn if they make the human capital investment, or the length of time over which they will reap the returns. Perhaps most important for policy, when people make these personal decisions, they may not take into account the benefits of their further education to the rest of 146 I Economic Report of the President society as well as to themselves. These explanations all point to a role for government to play in the provision of education and training. The challenge for government with respect to schools is to give students the skills they need to succeed in todays economy and tomorrows and to participate more fully in American life in general. Fortunately, students themselves are recognizing the need for improved skills, and many are seeking greater challenge in their education. Students today are taking more courses in core academic subjects than did their counterparts in the early 1980s, and the courses they are taking are more challenging. For example, a higher percentage of high school graduates are completing algebra and higher-level mathematics courses, as well as courses in biology, chemistry, and physics, than in the 1980s. The proportion of students taking college advanced placement examinations has also increased dramatically, from 50 twelfth-graders out of every thousand in 1984 to 131 per thousand in 1997. Although measuring educational progress is difficult, test scores may be indicative, and here the signs are mixed but generally positive in recent years. Since the early 1980s, scores on the National Assessment of Educational Progress (NAEP) show modest improvements in mathematics and science proficiency, but little change in reading and writing proficiency. Differences in NAEP scores by sex are now small, with females scoring higher in writing and reading achievement and males generally scoring higher in science and mathematics. Results for African Americans and Hispanics also show improvement since the mid-1970s. Indeed, the end of legal segregation, followed by efforts to equalize spending on public schools since 1970, has made a substantial difference in student achievement. On every major national test, including the NAEP, the gap between minority and white students' test scores narrowed substantially between 1970 and 1990. Scores on the Scholastic Assessment Test (SAT, a test typically taken by college-bound high school juniors and seniors) have also shown improvement in recent years. Mathematics scores on the SAT were 16 points higher in 1995 than in 1980, although students scored higher on both parts of the test, mathematics and verbal, in the early 1970s (Chart 4-8; scores reflect the recentering that occurred in 1995). Between 1976 and 1995, the combined verbal and mathematics scores of African Americans climbed by over 50 points, while those of white students remained roughly stable. Observed gains in SAT scores are particularly impressive given that the proportion of high school graduates taking the test has increased by about a fourth since the early 1970s. The gains that the U.S. education system has achieved in the past few decades deserve recognition, but they should be viewed in a broader context. Schools have been changing, but the economy has been changing more quickly. The result, as discussed above, is that a high school diploma alone is no longer a ticket to the middle class. Even at higher educational levels there may be a mismatch between the skills acquired in school and the skill Chapter 4 I 147 Chart 4-8 Average Scores on the Scholastic Assessment Test (SAT) Mathematics test scores have improved since 1980, but verbal scores remain stagnant and below their 1970s values. 500 490 480 1971-72 1974-75 1977-78 1980-81 1983-84 1986-87 1989-90 1992-93 1995-96 Note: Data for 1972 to 1986 were converted to the recentered scale by applying a formula applied to the original mean and standard deviation. For 1987 to 1995, individual student scores were converted to the recentered scale and recomputed. For 1996 and 1997, most students received scores on the recentered scale score. Any score on the original scale was converted to the recentered scale before recomputing the mean. Source: College Entrance Examination Board, National Report on College-Bound Seniors. requirements of jobs. To right this balance, the Administration has made improving education one of its highest priorities (Box 4-3). Greater Access to Preschool Education: The Head Start Program Research demonstrates that the early preschool years, when human ability and motivation are being shaped, are critical for skill formation. Developmental programs that intervene early in life have been shown to be more costeffective than later attempts at remediation. One such program is Head Start, which since 1965 has provided comprehensive developmental services for Americas low-income preschool children as well as social services for their families. These services focus on fostering intellectual, social, and emotional growth as well as providing a comprehensive health program. Since 1993, funding for Head Start has nearly doubled, to $5.3 billion in 2000. The additional funds have enabled Head Start to increase its enrollment from 714,000 to 877,000 children since 1993 and to enhance the quality of its services. The Presidents 2001 budget proposes a $1 billion increase in this program. Although conclusive evidence is limited, two recent studies have shown the effectiveness of Head Start. A 1995 study used a nationally representative data set to compare children who had participated in the program with their siblings who had not. This methodology allowed the researchers to control for many confounding factors that they could not observe but that may be related to outcomes. The study found significant and persistent effects of Head Start in 148 I Economic Report of the President Box 4-3. The Administration's Education Goals In his 1998 State of the Union Address, the President stated that "[t]he Information Age is, first and foremost, an education age, in which education must start at birth and continue throughout a lifetime." To meet the challenges of the information-based, skillsintensive economy, the President has set ambitious goals for the Nation's education system: • All students will read independently and well by the end of third grade. • All students will master challenging mathematics, including the foundations of algebra and geometry, by the end of eighth grade. • By 18 years of age, all students will be prepared for and able to afford college. • All States and schools will have challenging and clear standards of achievement and accountability for all children, as well as effective strategies for reaching those standards. • There will be a talented, dedicated, and well-prepared teacher in every classroom. • Every classroom will be connected to the Internet, and all students will be technologically literate. • Every school will be strong, safe, drug-free, and disciplined. To achieve these goals, the President has proposed and implemented a broad agenda of education policies that extend from preschool to college. increasing test scores and school attainment and in reducing grade repetition for whites. However, the large and significant gains in test scores for African Americans were found to be quickly lost after they left the program, perhaps because of lower quality in the schools that so many of them attend after leaving the program. Another study using the same methodology found large positive effects on test scores and schooling attainment for Hispanic children, although long-term follow-up was unavailable. Improving Elementary and Secondary Education It is important to ensure that all students have access to good-quality educational resources once they enter school. As was stated at the beginning of this chapter, students need society's help as they prepare themselves for a changing work force and the demands of a technology-driven labor market. The President has therefore laid out a three-part agenda to help State and local governments Chapter 4 I 149 build and maintain a world-class elementary and secondary school system. The first part of this agenda focuses on setting high standards. A national consensus has emerged on the key role of standards in school improvement: 48 States now test their students, and 36 publish annual report cards on individual schools. However, only 19 States currently use more extensive public rating systems to identify low-performing schools, and only 16 apply sanctions to failing schools. A second and related way to encourage local cooperation in improving schools is to increase the accountability of those responsible for their outcomes. The Administration has proposed the Education Accountability Act, which requires States and school districts to comply with accountability measures in order to receive Federal funds. These accountability measures include identifying failing schools and making critical investments to turn them around; reconstituting or closing chronically underperforming schools; employing qualified teachers and assigning them to teach in their field of expertise; instituting disciplinary codes and issuing school report cards; and ending social promotion by making sure students get the help they need to succeed in school. Finally, the President has emphasized the importance of investing in strategies aimed at raising student achievement. These include assuring students of access to the latest technology, reducing class sizes in the early grades, improving teacher quality, providing opportunities for extended learning in after-school and summer school programs, providing free and appropriate public education to students with disabilities, and offering options for public school choice. Each of these strategies is discussed below. Improving Access to the Latest Technology. Computer and technology skills are increasingly important for students as they prepare for the future. Knowledge of these skills provides a gateway to higher wages and to the new jobs of the 21st century. Accordingly, in 1996 this Administration made it a priority to help all children gain access to the tools they need to prosper in a changing economy. The Technology Literacy Challenge had four basic goals: to equip all classrooms with modern computers, to connect all classrooms to the Internet, to promote the development of quality educational software, and to prepare teachers to use technology effectively. It is important to find creative ways to use technology in the classroom, because evidence suggests that it can be a useful tool. For example, a recent study showed that eighth graders who use computers to learn higher order thinking skills, or who had teachers trained in the use of technology, raised their achievement in mathematics by more than one-third of a grade level. The Technology Literacy Challenge program addresses the goal of equipping classrooms with computers through the Technology Literacy Challenge Fund. Resources available through this fund can be used to help States and local school districts increase the number of modern, multimedia computers in the classroom. The funds 2000 budget was $425 million. In the 1998-99 academic year 150 I Economic Report of the President there were 9.8 students for every multimedia computer in use. This represented an improvement from 21.2 students per computer only 2 years before. The Administration has also supported the Computers for Learning program, an interagency effort to refurbish surplus computers from Federal Government operations and distribute them to schools. Thousands of computers from this program are currendy in use in schools across the country. One of the most important programs designed to help in linking schools to the Internet has been the E-rate program created under the Telecommunications Act of 1996. Through this program, approximately $3.6 billion has been made available since 1998 in the form of discounts to over 50,000 schools and libraries so that they can afford telecommunications equipment, Internet access, and internal connections to the classroom. The level of the discount for which a school is eligible is determined by the proportion of children eligible to participate in the Federal school lunch program. In this way the E-rate targets those schools and libraries that serve the most disadvantaged students. In fact, 70 percent of funding in the programs second year went to schools in the lowest income areas. Progress so far has been dramatic. In 1994, according to the Department of Education, only 3 percent of classrooms had Internet connections; by 1998 that figure had risen to 51 percent. Already the E-rate alone has helped connect more than 1 million classrooms. There is still a long way to go, however, before all children have easy access to the new medium. A "digital divide" remains for poor and minority children who lack the same access to this technology in their homes that other children enjoy. In fact, households with incomes over $75,000 are more than five times as likely to have a computer at home and more than seven times as likely to have home Internet access as those with incomes under $10,000. But with recent advances through the E-rate, the gap between rich and poor within schools has narrowed tremendously (Chart 4-9). An essential complement to computer hardware and Internet access is developing user-friendly educational software with engaging content. The Department of Educations Technology Innovation Challenge Grants support partnerships among educators, the private sector, and nonprofit organizations to develop compelling applications of educational technology. For example, teachers in San Diego are working with university researchers and other partners to develop a curriculum of studies with an ocean exploration theme, designed to improve performance in mathematics and science. Finally, making effective use of this new hardware and software requires training teachers to use the new technology. The Congress has approved a $75 million initiative proposed by the President to help train new teachers in the use of the new high-tech tools in their classrooms. This program will help ensure that all new teachers entering the work force can integrate technology effectively into their curriculum and teaching styles. Chapter 4 I 151 Chart 4-9 Shares of Public Schools with Internet Access by Poverty Status The digital divide between low-poverty and high-poverty schools has all but disappeared. Percent 100 • High-poverty schools E2 Low-poverty schools 1994 1995 1996 1997 1998 Source: Department of Education (National Center for Education Statistics). Class Size Reduction. Average class size in the United States declined from 29 in 1961 to 24 in 1991. Despite this improvement, however, many parents and educators believe class sizes are still too large. There is also substantial variation in class size, with many students still being taught in classes with more than 30 students. Smaller classes allow teachers to interact more with each student and to tailor instruction to that students needs, and they allow students to participate more in class discussions. These benefits can boost students' academic performance. In Tennessee's Project STAR, for example, a group of students from kindergarten through third grade were randomly assigned to either regular-sized classes (22 to 25 students) or smaller classes (13 to 17 students). Over 11,000 students in 79 schools eventually participated in the program. Results show that students in smaller classes learned more in the first year of the program than did students in larger classes, and that these gains were maintained as these children continued in smaller classes in subsequent years. Some researchers have argued that children get a one-time gain from a reduction in class size, and that this gain is maintained in later years whether or not they remain in smaller classes. In his 1999 State of the Union Address, the President proposed the first-ever nationwide effort to reduce class size in the early grades. The Congress passed the proposed legislation in 1999. School districts around the Nation received a total of $1.3 billion to enable them to recruit, hire, and train new, qualified teachers for the 2000-2001 school year. This was the first installment of a 7-year initiative to help schools hire 100,000 new teachers and reduce class size in the 152 I Economic Report of the President early grades to a nationwide average of 18. All 50 States have received funds through the program. A recent report by the Department of Education on the programsfirstyear estimated that 1.7 million children are benefiting from the program; that 29,000 teachers have been hired; that, in schools receiving the bulk of the funding, class sizes for grades one through three were reduced by an average of five students; and that the programs flexibility has allowed it to complement State and local efforts. Improving Teacher Quality. Research has shown that teachers do make a difference to student achievement, although the exact characteristics that make some teachers more effective than others remain elusive. In fiscal 2000, $98 million was appropriated for Teacher Quality Enhancement Grants, which help link teacher preparation institutions and high-need school districts, to strengthen teacher education and to provide incentives to prospective teachers to teach in high-need schools. As part of the Hispanic Education Action Plan, in the fiscal 2001 budget the Administration has requested $100 million for Bilingual Education Professional Development. This would be an increase of $28.5 million over the fiscal 2000 level. The funding will provide more than 2,000 additional instructors in bilingual education and English as a second language with the high-quality pre-service and in-service training they need to teach students with limited proficiency in English. Opportunities for Extended Learning in After-School Care and Summer School. The summer months can be an important time for learning outside of the classroom. Recent evidence has shown, however, that the test scores of poorer children are more likely to fall over the summer than those of children from wealthier families. This research suggests the importance of providing disadvantaged children with increased opportunities to learn. The President has called for a large investment in after-school and summer school programs to give children the extra help they need to meet high educational standards. The fiscal 2000 budget more than doubled Federal investment in these programs (21st Century Community Learning Centers), to $453 million, to provide educational support to 675,000 students. The President has proposed doubling funding again for fiscal 2001, to $1.0 billion. Providing Public Education to All Students with Disabilities. The Individuals with Disabilities Act, first enacted in 1975, has helped change the lives of millions of people with disabilities. Before its enactment, approximately 1 million children with disabilities were shut out of schools, and hundreds of thousands more were denied appropriate services. In 1986, 26 percent of children with disabilities were educated in regular classrooms. By 1996 that proportion had risen to 45 percent. Today, people with disabilities are graduating from high school and going to college in unprecedented numbers. Chapter 4 I 153 During this Administration, the Federal investment in educating young people with disabilities has more than doubled, from nearly $3.0 billion in fiscal 1993 to about $6.0 billion in fiscal 2000, and the fiscal 2001 budget would increase this spending by $333 million. More important, however, is the Administrations strong commitment to improving the educational outcomes of disabled children. The 1997 amendments to the Individuals with Disabilities Act made it clear that the education of children with disabilities must be based on the same challenging standards applied to nondisabled students, with appropriate modifications and supports for their disabilities. Options for Public School Choice. Charter schools provide parents with greater choice within the public school system. They also allow educators an opportunity to create innovative learning environments while remaining accountable for student achievement. The number of public charter schools nationwide has risen from 2 in 1993 to nearly 1,700 in 1999. Through the Presidents leadership, startup funding of $145 million for as many as 2,000 charter schools in 2000 has been provided. Greater Access to Postsecondary Education As discussed earlier in this chapter, the difference in average wages between those Americans with postsecondary education and those without it is considerable. One way to help people improve their economic status is to provide greater access to postsecondary education and more opportunities for people to enhance their skills throughout their working lives. The Administration is committed to making postsecondary education both attainable and affordable for all Americans, from recent high school graduates to adult learners and displaced workers. To help ensure access to 4-year and community colleges (Box 4-4), the President has proposed and supported programs that prepare students for postsecondary education and help make college affordable. Preparing Studentsfor College. Too many children, especially from low-income families, are reaching college age without the skills and knowledge they need to go on to college. Recent research has shown that students form their educational expectations early, and courses taken early in junior high or high school are closely related to postsecondary enrollment. This indicates that the end of high school may be too late to inform students of the importance of a college education. Rather, information on the importance of college admission requirements as well as on financial aid is critical for students early in their educational careers. GEAR UP (Gaining Early Awareness and Readiness for Undergraduate Programs) helps low-income students prepare for education beyond high school by providing tutoring, counseling, mentoring, information on financial aid, and other assistance these students need to become ready for college. The President is requesting $325 million for GEAR UP in fiscal 2001, an increase from $200 million in fiscal 2000, to finance needed services to over 1.4 million students in high-poverty schools. 154 I Economic Report of the President Box 4-4.The Role of Community Colleges Community colleges more than doubled in number and quadrupled their enrollments during the 1960s. In 1995, 5.5 million students were enrolled in these 2-year colleges, accounting for 38 percent of enrollments in all postsecondary institutions. Because community colleges typically charge lower fees than 4-year institutions and operate under open admissions policies, they have helped provide greater access to education for people at all income levels.They have lowered the costs of attendance in other ways as well, by offering evening and weekend classes where workers can enhance their skills while holding a job. Community colleges were originally designed as a stepping stone for students who would later transfer to 4-year colleges to complete their bachelor's degrees.Today, however, community colleges provide a wide range of offerings, including vocational training and continuing adult education. The dramatic increase in community college enrollment was primarily the result of growth in part-time students; today roughly 65 percent of community college students attend part-time. Almost 36 percent of community college students are 30 years old or older, compared with only 22 percent of students at public 4-year colleges. These schools have become an important source of the lifelong learning that today's dynamic economy demands. Recent evidence suggests that community colleges have increased the overall educational attainment of the American work force, and that one of their major roles has become that of providing access to higher education for those not traditionally served by the 4-year college system. Other evidence suggests that these schools also effectively address the skills mismatch described earlier. For example, a recent study noted that high-technology manufacturers were less likely to report difficulty in finding skilled labor in communities that had a community college than in those that did not. TRIO programs are another important resource to help disadvantaged students prepare for and succeed in college. These are educational outreach programs designed to motivate and support students from low-income families. There are currently 2,400 TRIO programs serving 700,000 students. The fiscal 2000 budget is $645 million. Evaluation results from one type of TRIO program, Upward Bound, found that students in the program were four times more likely to earn a college degree than students from similar backgrounds who were not in TRIO. Helping Finance Postsecondary Education. Enacted in 1997, the HOPE Scholarship program and the Lifetime Learning tax credit represent the largest Federal investment in higher education since the G.I. Bill over 50 Chapter 4 I 155 years ago. In 2000, 13.1 million students—5.9 million receiving HOPE Scholarships and 7.2 million claiming the Lifetime Learning credit—are eligible to benefit. The budget for HOPE Scholarships in fiscal 2000 was approximately $5 billion. Each HOPE Scholarship provides a tax credit of up to $1,500 for each of the first 2 years of college for students enrolled on at least a half-time basis. This credit is phased out for joint tax filers with incomes between $80,000 and $100,000, and for single filers making between $40,000 and $50,000. By reducing the financial barriers to continued education, the President hopes to make the first 2 years of college as universal as high school. In addition, the 2000 Federal budget provides $7.6 billion for Pell grants, a program that provides direct financial assistance to help financially needy students pay for their postsecondary education. The maximum award was increased 43 percent between 1993 and 2000, from $2,300 to $3,300. To further these goals, the President's 2001 budget proposes a $30 billion investment in the form of a college opportunity tax cut. This initiative would offer a 28 percent tax credit for higher education expenses and would set higher income thresholds than do existing education tax credits. Unlike with the HOPE Scholarship, there would be no limit on the number of years in which a student could claim the credit. When fully phased in, the credit would cover $10,000 in expenses. The Lifetime Learning tax credit targets adults who want to go back to school, change careers, or take courses to upgrade their skills, as well as college juniors and seniors and graduate and professional degree students. The 20 percent credit applies to the first $5,000 of a family's qualified education expenses through 2002 and to the first $10,000 thereafter, and it phases out at the same income levels as the HOPE Scholarship. The fiscal 2000 budget for this credit was $2.4 billion. Student loans have opened the doors to college for millions of Americans. In 1993 the President established the direct student loan program to reduce costs and increase efficiency in the Federal Government's student loan programs and to offer expanded benefits to borrowers. The program offered students the option of income-contingent repayment: installments were based in part on the borrower's income after completing studies. In the Higher Education Amendments of 1998, the Administration proposed and obtained significantly lower interest rates for borrowers on student loans, easing the burden of repayment for new borrowers and for borrowers who consolidate their loans. 156 I Economic Report of the President The Continuing Challenge: Reeducating and Retraining Progress in strengthening formal education is a key ingredient in preparing young people for the labor market, but training after formal education is also essential, both for those just entering the market and for those well into their careers. To take advantage of the opportunities offered by an increasingly global, competitive, and information-driven economy, workers today may require ongoing, lifelong learning. The Provision of Training In large measure, it is the responsibility of individuals and firms, not of government, to develop the methods and practices most appropriate for promoting lifelong learning and training. As with education, both individuals and firms have strong incentives to invest in training: both stand to reap high returns from their investments. But as with education, government policies may have an important role to play in facilitating such investments. Employers have a clear interest in providing their employees with the specialized training they need to perform those tasks that they can perform for that employer and nowhere else. Companies should therefore be willing to provide training in these firm-specific skills. In contrast, many other valuable skills are occupation- rather than firm-specific, and still others, such as many mathematical and literacy skills, are quite general in their application. The data on training described below suggest that firms do provide substantial training in general skills, but it is difficult to disentangle the cost of employer investments in training from that of employee investments in training, even when the employer sponsors the training. Firms provide general training for several reasons. They may simply be unable to find employees with the necessary occupational skills, or employees may need some general training before they can benefit from training in more firm-specific skills. When firms provide general training in their own facilities but do not pay employees their full wages while in training, it is largely the employees, not the firms, who are then doing the investing—they are paying an opportunity cost. In practice, both individuals and firms are likely to share in these investments, but employers will be reluctant to invest heavily in general skills when workers have high turnover rates, since the firm does not reap the returns on the investment. Despite the evidence that firms do provide general training, there is reason to believe they might underinvest in such training. As in the case of education, there are reasons to believe that individuals might underinvest in their own general training. If they are not sure that the skills they will acquire will result in higher wage offers, they will hesitate to bear the costs. They may also underinvest because their incomes are too low to carry them Chapter 4 I 157 through a period of unpaid training. In times of rapid technological progress, workers may be unaware of the value of new training or consider it too risky: the same rapid change that makes the skill valuable today may make it obsolete tomorrow. Finally, again as with investments in formal schooling, individual workers may fail to invest in training because they do not take account of the full social benefits of training in their decisionmaking. All these underinvestment scenarios provide reasons for government policies to encourage general training. One way in which government attempts to encourage investment in training is by allowing employers to deduct from taxable income the tuition payments for schooling they provide for their employees. Other policies are discussed below. First, however, it is worthwhile to review the evidence on the value of firm-based training. Firm-Based Training Privately provided training by firms themselves is the primary mechanism by which workers receive training in the United States, and there is evidence that this firm-based training is growing. Although this source of training is difficult to measure, a number of surveys have been conducted and agree on several conclusions. First, training is very widespread: in 1994, 81 percent of all establishments offered some type of formal training, and 57 percent said that they had increased the amount offered since 1991 (only 2 percent reported providing less training). Second, firms with more than 1,000 employees are more likely to invest in training than small firms; virtually all large firms report that they offer formal training. This may be because smaller firms have trouble financing certain fixed costs associated with training, or because it is more difficult to measure the informal training that takes place in smaller firms. Third, there is considerable variation across industries, with a higher incidence of training provision in nonmanufacturing than in manufacturing firms. Fourth, establishments with more highly educated workers (which also tend to be larger establishments) are more likely to provide training. Finally, training is more likely when the firm is already making other investments, such as investments in capital, or in new organizational practices, such as self-managed teams or other "high-performance" work practices. These data suggest that firm-based training becomes more prevalent as firms experience rapid technological progress, but much training is specific to the employer and is not of a general nature. For example, training in basic literacy and numeracy, in computer skills, or in teamwork is less common than training in safety procedures or in new, firm-specific production methods. Only 27 percent of all establishments provide training in basic educational skills for their workers, whereas 53 percent invest in computer-related skills and 82 percent invest in safety training. Although more workers receive training from their employers than from government-sponsored programs, 158 I Economic Report of the President the level of employer-provided training may still, for the reasons discussed above, fall short of what is socially optimal. This is particularly true for lower income groups or those in industries experiencing increases in imports or other conditions associated with worker dislocation. These incentives to underinvest in employer-provided general training may be particularly strong in the United States, where labor turnover is high and there is no national, standardized credentialing system for this type of training. U.S. companies invest roughly $60 billion a year on education, training, and upgrading skills, but this is modest relative to the challenge posed to the Nation by rapidly changing workplace demands. Government Training Programs Government training programs are aimed primarily at workers who have lost their jobs and are having difficulty finding new ones, or at those who are unemployed and disadvantaged and may lack the skills or experience to enter the labor market without further preparation. Some employment and training programs are designed specifically to help welfare recipients go to work. Typically, training programs include some form of remedial or vocational education, subsidized employment to provide job experience, or guidance in how to find a job. Modern U.S. training programs trace their history back to the mid-1960s. The 1964 Economic Opportunity Act created the Job Corps, which still operates today, currently providing training for disadvantaged youth at over 100 urban and rural residential centers throughout the United States. Since its inception, the Job Corps has served more than 1.7 million young people. The Manpower Development and Training Act (MDTA) was enacted in 1962 to retrain technologically dislocated workers, but the Economic Opportunity Act of 1964 shifted its emphasis toward disadvantaged workers. In 1973 MDTA was replaced by the Comprehensive Employment and Training Act (CETA). This program, which gave State and local governments the authority to operate training programs with Federal grants, also had a public service job creation component, which grew quite large in the late 1970s. In an effort to shift more responsibility to the private sector, the Job Training Partnership Act (JTPA) replaced CETA in 1982. JTPA eliminated the public service employment component of training and further decentralized its administrative structure by giving primary responsibility for the program to State and local governments and the business community. The program currently serves over a million economically disadvantaged persons annually and was until recently the principal training program for the disadvantaged. JTPA is in the process of being replaced by the Workplace Investment Act, discussed below. Chapter 4 I 159 The first major mandatory training program for welfare recipients was the Work Incentive (WIN) Program of 1967. This program generally provided recipients of Aid to Families with Dependent Children (AFDC) with job search assistance. In 1988 WIN was replaced by the Job Opportunities and Basic Skills Training (JOBS) program. Created by the Family Support Act of 1988, this was a comprehensive welfare-to-work program that gave AFDC recipients the opportunity to take part in job training, work, and educationrelated activities that would lead toward economic self-sufficiency. The comprehensive welfare reform legislation passed in 1996 replaced JOBS (as well as the AFDC) with the Temporary Assistance for Needy Families (TANF) block grant. TANF gives States the flexibility to design their own welfare programs, provided they require recipients to participate in work or work-related activities in exchange for time-limited assistance. Within certain limitations, States may provide both pre- and postemployment services, including training to help welfare recipients find and keep a job. Government appropriation specifically on training and employment services in fiscal 2000 amounted to approximately $5.5 billion a year, a level that implies that government-funded training opportunities for U.S. workers are limited relative to those available to workers in other countries. Comparative research done in 1994-95 found that the United States spent only 0.2 percent of its GDP on publicly funded employment and training programs, much less than many other industrial countries, including the United Kingdom (which spends 0.5 percent of GDP) and Sweden (3.0 percent). Are government employment and training programs effective in improving labor market prospects for the disadvantaged? A review of the evidence provides grounds for cautious optimism. One general conclusion, however, is that these programs appear to have been more successful for disadvantaged adults—women in particular—than for disadvantaged youth. Disadvantaged youth are perhaps the most difficult population to help, and success has been limited except in a few highly intensive or particularly well run programs. One program that has shown noteworthy success is the Center for Employment Training (CET) in San Jose, the only one of the 13 Jobstart demonstration programs found to be effective in increasing youth earnings. An evaluation of this program showed a 40 percent ($3,000) increase in participants' earnings. The Job Corps has also been shown to produce significant gains in earnings (about 15 percent per year) and to reduce the number of serious crimes that participants commit. Both of these programs are considerably more intensive than most other efforts: enrollees either reside at the programs facilities (in the case of the Job Corps) or spend many hours per month undergoing training (in the case of the CET). Finally, a number of programs have been specifically targeted at young single parents on welfare. Some of these programs have produced small short-run gains in employment and educational 160 I Economic Report of the President attainment among teenage parents. However, it has proved difficult to sustain these gains once the program has been terminated. The evidence is much more consistent that job training programs increase the earnings of disadvantaged adults, and particularly those of economically disadvantaged women. The JTPA Title II program, which offers short-term training and job search assistance to disadvantaged adults, appears to have increased the earnings of women in the program by 15 percent, and of men by 10 percent. More intensive programs that offer subsidized employment and supportive services to long-term welfare participants have yielded larger earnings gains. Mandatory welfare-to-work programs, which tend to offer job search assistance rather than training, have shown modest but positive effects on earnings and employment and small negative effects on welfare receipt. Given the very low initial earnings of most disadvantaged adults served by training programs, the gains made by most programs have not been enough to pull many of those served out of poverty. However, most studies documenting this finding were completed before the recent expansion of the Earned Income Tax Credit (EITC). It may be that the EITC boosts starting incomes enough so that the additional earnings generated by job search and training programs can then move noticeable numbers of participants out of poverty. Research on the effects of employment and training programs for dislocated workers, although much more limited, suggests that some of these programs can be effective. Carefully targeted job search assistance programs can decrease the duration of unemployment and the receipt of unemployment insurance among displaced workers. These programs are generally cost-effective for the government. One study has suggested that for every dollar the government spent on targeted job search programs, the government saved about $2 in the form of reduced unemployment insurance payments and increased tax receipts due to faster reemployment. Taken together, these results suggest that employment and training programs can achieve modest employment and earnings gains for disadvantaged women. These programs are also often cost-effective. Results for other groups are less clear. Moreover, the earnings gains generated by successful programs have usually not been enough to lift participants out of poverty. To some extent this is not surprising given the relatively modest and short-term nature of the investments these programs make. It is possible that more intensive interventions, focused on local skill demands and tailored to individual needs, would produce greater gains. Trainingfor the 21st Century As Chapter 2 has documented, the macroeconomic environment for American workers improved markedly during the 1990s. The Nations labor market is performing at extraordinary levels, with the unemployment rate at Chapter 4 I 161 a 30-year low, labor force participation at an all-time high, and real compensation measures recording strong gains. But even in todays economy, the rapid pace of change and the premium put on technology and skills may cause some workers to lose their jobs and have trouble finding new jobs given the skills they have. And those workers who have failed to acquire the necessary skills may have trouble securing employment that provides the middle-class standard of living they are striving for. This Administration has made it a priority to pursue training policies that will help ensure, for all those willing to work hard, an opportunity to prosper. A key component of the Administrations efforts to strengthen work force development and promote lifelong learning is the Workforce Investment Act (WIA). Signed into law in August 1998, WIA represents the first major reform of the Nation's job training system in over 15 years. The act, which is now being implemented, will streamline and revitalize the system that provides workers with the information, advice, job search assistance, and training to find and retain good jobs, and provides employers with a pool of skilled workers. The act aims to enable any adult interested in advancing his or her career to continue learning, regardless of income; it also aims to provide high-quality information and services to all job seekers. Seven key principles are embodied in the law: • Streamlining services: A variety of programs are being integrated at the street level to make the delivery system more accessible to both individuals and businesses. The Department of Labor has provided implementation funds to each State. Over 1,000 one-stop centers have already been opened. A group of Internet tools has also been created to provide timely and comprehensive labor market information (Box 4-5). • Empowering individuals: Individual Training Accounts, along with consumer reports providing key information on the performance of training providers, and job counseling at one-stop centers will enable individuals to make informed training choices. • Making services universally accessible: WIA aims to provide ready access to core employment-related services to all in need of those services. • Increased accountability: States and local communities will be held accountable for meeting performance measures, will suffer sanctions if they fall short, and will receive incentive funds for strong results. • Strong role for local boards and business: State and local Workforce Investment Boards will be chaired by a member of the business community and have a majority of members from business. • Provide local flexibility: Local authorities will have flexibility to tailor delivery systems to meet the needs of their community. 162 I Economic Report of the President Box 4-5. Using Technology to Help Workers: America's Career Kit America's Career Kit uses the Internet to offer innovative ways to help workers find jobs, help employers find workers, and provide timely and valuable information about the labor market to all stakeholders. The initiative is designed to help reduce the mismatch between worker skills and shifting employer requirements. America's Career Kit consists of the following four websites: • America's Job Bank is an Internet site that lists both job openings and resumes. With 6 million users each month, it is the Nation's largest online labor exchange. • America's Talent Bank allows job seekers to post their resumes online, where potential employers can view them. A growing numbers of workers with information technology skills are using this resource. • America's Career InfoNet provides information for both prospective employees and employers on employment trends, prevailing wages, and job training requirements. Data are also available on States and localities. • America's Learning Exchange is an electronic marketplace for training and education resources. As of January 2000, the exchange counted 4,540 providers, 162,053 courses, and 42,968 programs. • Improved youth programs: The act will foster connections between academic and occupational learning and provide activities geared toward youth development. A youth council will be established under each local Workforce Investment Board to improve coordination among organizations that serve young people. Given the mixed results of previous short-term training programs, WIA will require 12-month follow-up services in its programs. The 2000 budget included $2.4 billion for the Universal Reemployment initiative. In a period of rapidly changing job demands, this program aims to provide training and reemployment services to all dislocated workers who want and need them. To this end, reemployment services will be targeted to unemployment insurance claimants in danger of exhausting their benefits, and funding for one-stop career centers will be increased. A new initiative will fund grants to identify skill shortages and target resources to industries struggling tofilljobs. Finally, a new effort to encourage lifelong learning is taking shape through the Learning Anytime Anywhere Partnership program. This program supports partnerships among universities and colleges, businesses, community organizations, and other entities to use technology to address challenges in lifelong learning and postsecondary education. Chapter 4 I 163 Conclusion Two key developments—the growing importance of education and the expansion of opportunity—transformed the American labor market in the 20th century. Tomorrows workers will need skills andflexibilityto respond to the opportunities and challenges that technology is making available. As long as skills command a premium in the labor market, both workers and firms will have an incentive to invest in education and training. But for any of a number of reasons, workers and firms might nevertheless underinvest in their human capital. Therefore government policy has continued—and will continue—to play a role in the acquisition of skills by the American work force. It is important, however, not to downplay the roles of other, noninstitutional factors, the most important of which is the family. As the chapter has noted, much of a persons skill formation occurs before he or she enters school. This implies that the environment in which a child is raised is very important for that child's later learning. Chapter 5 discusses the American family and the challenges it faces. 164 I Economic Report of the President C H A P T E R 5 The Changing American Family Among the trends that have shaped the American family over the course of the century one of the most important has been the rise in female participation in the labor force as more opportunities have opened up for women to work and more women have taken advantage of those opportunities. F or most of the 20th century, the prototypical American family was a married couple with children in which the wife did not work for pay. But for decades now this traditional one-breadwinner, one-homemaker family has made up a declining share of families, as more wives have entered the paid labor force and as single-parent families have become more widespread. At the beginning of the 21st century, fewer than a third of all families are married couples in which the wife does not work outside the home. This means that a majority of American families face—and in consequence the Nation faces—different opportunities and different challenges from those of a society of "traditional" families. The changes in the American family, viewed over the entire span of the 20th century, have been dramatic (Table 5-1). In 1900, for example, about 165 TABLE 5-1.— Contrasting American Families Then and Now Item Households by type (percent) Family households Married couple Male householder, no wife present Female householder, no husband present Nonfamily households Average household size (persons) Households with seven or more people (percent) Living arrangements of children by family status (percent)4 Two-parent farm family Two-parent nonfarm family Father breadwinner, mother homemaker Dual earner Single-parent Not living with parent 19001 19982 1950 (3) (3) (3) (3) (3) 89.2 78.2 2.7 8.3 10.8 69.1 53.0 3.8 12.3 30.9 4.8 20.4 3.4 4.9 2.6 1.2 41 (5) 43 2 9 5 24 44 28 4 Males and females by marital status (percent) Males aged 15 and over Married Divorced Widowed Never married Females aged 15 and over Married Divorced Widowed Never married 54.6 .3 4.6 40.3 68.9 2.0 4.2 24.9 58.0 8.2 2.5 31.2 57.0 .5 11.2 31.2 67.0 2.4 12.0 18.5 54.9 10.3 10.2 24.7 Median age at first marriage Men Women 25.9 21.9 22.8 20.3 26.7 25.0 Life expectancy at birth (years) Men Women Infant mortality rate (deaths per 1,000 live births).. 46.3 48.3 99.9 65.6 71.1 29.2 73.9 20.0 33.9 60.0 66.2 15.4 18.4 31.9 52.2 16.0 26.8 53.1 20.0 Labor force participation rate of women (percent) Women in the labor force by marital status (percent) Single Married Widowed, divorced, or separated 79.4 7.2 1 Infant mortality rate is for 1915. Labor force participation rate of women is for 1999. Not available. \ Data for 1900 and 1950 are from Donald J. Hernandez, America s Children, The Russell Sage Foundation, 1993. Less than 2 percent and included in nonfarm totals. Sources.- Department of Commerce (Bureau of the Census); Department of Labor (Bureau of Labor Statistics); and Department of Health and Human Services (Centers for Disease Control and Prevention), except as noted. 80 percent of children lived in two-parent families with a mother or stepmother who worked on the farm or at home. Fewer than 10 percent of American children lived in one-parent families. The typical home had few of todays conveniences (only 8 percent of dwelling units had electricity in 1907), and many women sewed their own clothes and gave birth in the home rather than in a hospital. Women early in the century married younger, had more children, and died younger than women today. Ten percent of children died in infancy, and average life expectancy for both men 166 I Economic Report of the President and women was less than 50 years. The average household had close to five members, and a fifth of all households had seven or more. Job opportunities for women who did not live on farms were limited as much by custom as by physical demands: only a fifth of all women worked for pay, and those who did were mainly single and poor. The average family today enjoys many advantages that its counterpart of a century ago did not. As we have seen in earlier chapters, the material standard of living of the average family is much higher now than it was then. People are more likely not only to live longer but to remain healthy into retirement as well. It is partly because of these very advances, however, that families today face a different set of challenges than did families 100 years ago. In particular, the expansion of opportunities for women to work for pay, and the greater desire of women to seek such work, have added a new challenge to the perennial one of having adequate resources to meet family needs. That new challenge is how to balance the material gains from more hours of paid employment against the desire to reserve time for the responsibilities and enjoyments of family life. This chapter examines these two challenges. It begins with an overview of some of the key trends that have created the modern American family: the rise in female labor force participation, changes in family formation and dissolution, and improvements in health and longevity. It then explores the emergence of a diverse set of family types, focusing on differences in incomes and in time spent at work. The remainder of the chapter explores the challenges these different kinds of families face—and their policy implications. This discussion is organized in two parts. The first discusses the "money crunch": thefinancialconstraints that still burden many families despite the remarkable growth in the American standard of living. This problem is more likely to confront single-mother families and one-earner couples than twoearner couples. The second part discusses the "time crunch": the shortage of time to devote to family needs that results from the increased participation of parents, especially mothers, in the paid labor market. This problem affects a vast number of families, including many for whom the money crunch is less pressing. The chapter also discusses recent favorable trends in family incomes and reviews some of the Administration s policies designed to address the money and time crunches. Key Trends Shaping the American Family Among the many trends that have affected the American family over the course of the century, three have been particularly important. The first is the rise in female participation in the labor force as more opportunities have Chapter 5 I 167 opened up for women to work and as more women have taken advantage of those opportunities. The second is not a single trend but a set of related changes in how families form and dissolve, which have contributed to the growing prevalence of single-parent families. The third is improvements in health and life expectancy that have made care for older relatives—and providing for their own retirement—increasingly important issues for heads of families today. Many other kinds of households—including people living alone—are also part of American society and face challenges of their own, but this chapter focuses primarily on those challenges that affect families with children. Female Labor Force Participation Women have always worked, whether on the family farm, in the home, or in the paid labor force. What distinguished the 20th century was the enormous increase in the proportion of women who work for pay. In 1999 about three-fifths of the female population aged 16 and over were in the labor force (either employed or looking for work). This is three times as high as the female labor force participation rate in 1900. And the participation rate of women aged 25-44—those most likely to be balancing work and child rearing—has risen severalfold, from less than 20 percent in 1900 to over 75 percent today (Chart 5-1). The participation rate of women in this age group with children under age 18 has been somewhat lower than the overall rate but has shown a similar pattern of increase. Over the past 25 years the share of working mothers in this age group who were employed full-time has been roughly 71 percent. Many factors have contributed to this growth in women's participation in the paid labor market, including increases in education and wages for women, the opening up of more opportunities for women to work, and changes in family structure. As a result of higher labor force participation rates and later marriages, a larger proportion of women than ever before experience a period of independent living and employment before marriage. This gives them greater attachment to the labor force and increases the chances that they will continue to work, or return to work, after they marry and start a family. Family Formation and Dissolution Marriage remained a fairly universal experience throughout the 20th century. Among the population 15 years old and over, the proportions of both men and women who are married are roughly the same today as a century ago, although lower than in the 1950s and 1960s. Only 6 percent of women aged 45-64 in 1998 and 12 percent of women aged 35-44 had never been 168 I Economic Report of the President Chart 5-1 Labor Force Participation of Women Roughly four-fifths of younger women are in the labor force today, whereas roughly four-fifths were not in 1900. Women with children are also working in greater numbers. Percent 80 70 60 / 50 Women, aged 25-44 ' 40 30 / Mothers aged 25-44 with youngest child under 18 years old 20 i 10 n 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 Note: Annual data are available only since 1942. Dots indicate decennial census data. Sources: Department of Commerce (Bureau of the Census) and Department of Labor (Bureau of Labor Statistics). married. However, one study found that women today are spending a smaller fraction of their adult lives married than did their counterparts a few decades ago. A much larger proportion of children are being born to unmarried mothers. As a result, the share of children living in one-parent families increased from 9 percent in 1900 to 28 percent in 1998. Several strands of evidence suggest that people are spending a smaller fraction of their lives married than in 1900. First, people are marrying slightly later. In 1900 the typical first marriage was between a woman of 22 and a man of 26; now the typical bride is 3 years older and the groom nearly a year older. Second, divorce rates are much higher today than at the beginning of the century. In 1900, among those aged 35-54, widowhood was far more common than divorce. Over the century, the probability of being a widow in this age range declined markedly, while the probability of being divorced rose (Chart 5-2). The divorce rate, which jumped from around 10 per 1,000 married females per year in the mid-1960s to more than 20 per 1,000 in the mid-1970s, has drifted down slightly since then but remains high. A third reason why people spend a smaller fraction of their lives married is that life expectancy is longer today relative to the typical duration of a marriage. The net result of all these forces is that only 56 percent of the population aged 15 and over are married today, rather than 68 percent as in 1960. Thus it is probably not surprising that the proportion of children living in singleparent households has risen dramatically. Chapter 5 I 169 Chart 5-2 Shares of Population Aged 35-54 Who Are Widowed or Divorced A smaller share of middle-aged Americans, men and women, are widowed now than in 1900, but far more of both sexes are divorced. Percent 18 16 Women, divorced Women, widowed Men, widowed 1900 1910 1920 1930 1940 1950 Source: Department of Commerce (Bureau of the Census). 1960 1970 1980 1990 1998 The increased prevalence of single-parent households is also related to the rise in out-of-wedlock births. For unmarried females aged 15-44, the number of births per 1,000 women increased dramatically from 7.1 in 1940 to 46.9 in 1994, but it has since stabilized and begun to decline, reaching 44.3 in 1998 (Chart 5-3). In contrast, this measure of the birth rate among married women has been dropping since the baby-boom of the 1950s and 1960s, although it remains nearly twice that of unmarried women. As a result of these trends, the share of all births that were to unmarried women of all ages increased eightfold, from 4.0 percent in 1950 to 32.8 percent in 1998, although this figure has begun to level off in recent years. Some of this increase reflects lower marriage rates generally, and some reflects the rapid increase in the late 1980s and early 1990s in out-of-wedlock births, including those to teens. (The Administrations efforts to reduce teen pregnancy are discussed later in this chapter.) Life Expectancy and Health The life expectancy and health of Americans increased dramatically over the 20th century. Major public health initiatives (such as immunization campaigns, better sewage systems, and education about hygiene) as well as medical advances (from antibiotics to pacemakers to bone marrow transplants) have led to the virtual eradication of numerous diseases and conditions that once contributed to high death rates and low life expectancy. For example, technological innova170 I Economic Report of the President Chart 5-3 Birth Rates for Married and Unmarried Females The share of out-of-wedlock births soared after 1960 but have recently stabilized. Meanwhile the birth rate for married females has fallen to about twice that for unmarried females. Live births per 1,000 females Percent of all births 180 160 Birth rate for married females, 15-44 (left scale) Births to unmarried females (right scale) 140 120 100 80 60 Birth rate for unmarried females, 15-44 v (left scale) 40 20 1940 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 Note: Annual data for birth rate for married females are available only since 1960; dots indicate previous years with available data. Source: Department of Health and Human Services (Centers for Disease Control and Prevention). tions, better obstetrical care and nutrition, more widespread access to prenatal care, and greater use of antibiotics all contributed to tremendous improvements in the health of mothers and infants. The infant mortality rate dropped by more than 90 percent over the century, from 99.9 per 1,000 live births in 1915 to 7.2 per 1,000 in 1998. The maternal mortality rate dropped similarly: whereas in 1900 more than 80 women died from pregnancy-related complications for every 10,000 live births, by 1997 this rate had fallen to less than 1 death for every 10,000 live births—more than a 98 percent decline. Advances also have been seen in other areas. Death rates from coronary disease have declined by 51 percent since 1972, improved sanitation has dramatically reduced typhoid and cholera in the United States, and the widespread use of vaccines has eliminated smallpox and polio. These improvements have meant longer life spans for most Americans. Over the century, the average life span in the United States increased by 30 years, and one study attributes five-sixths of that increase to advances in public health such as vaccinations and food safety. Life expectancy at birth for a woman rose from 48.3 years in 1900 to 79.4 years by 1998. For men it rose over the same period from 46.3 years to 73.9 years. Older Americans now have longer remaining life expectancies as well. Whereas the average 60year-old white man in 1900 could expect to live almost to age 75, by 1998 a man of that age could expect to live almost to age 80. Combined with the recent declines in fertility behavior, these changes in life expectancy have led Chapter 5 I 171 to an increasing share of the population that is elderlytinue as the baby-boom generation ages. trend that will con- Increasing Diversity Across Families Income and the time to enjoy it are two key components of economic well-being. In principle, the strong growth in productivity and the resulting growth in real wages over the past century, described in Chapter 1, could have allowed material standards of living to increase while simultaneously allowing families to work shorter hours. But in fact, the substantial increase in female labor force participation and the increase in the proportion of households headed by single females mean that there are more families with working women, and many women are working more hours. These trends also mean that there is now a greater diversity in family structure as well as differences in incomes and hours of work among family types. Diversity in Family Structure Traditional one-breadwinner, one-homemaker married couples have been declining as a share of all families, from 67 percent in 1952 to 27 percent in 1999 (Chart 5-4). Rising female labor force participation has increased the proportion of all married-couple families in which the wife works, and these Chart 5-4 Composition of Families by Family Structure The share of "traditional" families with a nonemployed wife has declined by more than half since 1950, whereas that of two-earner families has more than doubled. Percent of all families 80 Married couple, wife not in paid labor force 70 60 50 40 Married couple, wife in paid labor force 30 20 Single head, spouse absent Female head, husband absent 10 1949 1954 1964 1969 1974 1979 Note: A family is two or more related individuals who reside together. Source: Department of Commerce (Bureau of the Census). 172 I Economic Report of the President 1984 1989 1994 1999 now account for roughly half of all families. Reflecting the trends in marriage and divorce discussed above, the share of all families headed by a single householder with no spouse present (predominantly single-parent families) increased from 13 percent to 23 percent between 1949 and 1999. Although most children living in single-parent families live with their mothers, the share of single-parent families headed by fathers has more than doubled since 1975 and stood at 19 percent in 1999. It is estimated that more than a third of all children do not live with their biological fathers (Box 5-1). Box 5-1. The Importance of Fathers Although the proportion of single-parent families headed by the father is rising, the mother has typically been the custodial parent in such families. For this reason, and because of the higher incidence of poverty in female-headed families, the discussion of single-parent families in this chapter focuses on single mothers. An important issue for such families is the link between children's well-being and the absence of the father. It is ectimated that 36 percent of American children live apart from their biological fathers; about 40 percent of children in fatherless households have not seen their fathers in at least a year. Before they reach age 18, more than half of America's children are likely to have spent a significant portion of their childhood living apart from their fathers. Yet there is strong evidence suggesting that the presence of a father matters: • Children under age 6 who live apart from their fathers are about five times as likely to be poor as children with both parents at home. • Girls without a father in their life are two and a half times as likely to get pregnant and 53 percent more likely to commit suicide. • Boys without a father in their life are 63 percent more likely to run away and 37 percent more likely to abuse drugs. • Children without father involvement are twice as likely to drop out of high school, roughly twice as likely to abuse alcohol or drugs, twice as likely to end up in jail, and nearly four times as likely to need help for emotional or behavioral problems than those with father involvement. The absence of a father has effects beyond those on his own children: it can affect communities as well. About 4.5 million children in 1990 resided in predominantly fatherless neighborhoods in which more than half of all families with children were headed by single mothers. continued on next page... Chapter 5 I 173 Box 5-1. — continued Although most fathers can afford to pay child support (an estimated 74 percent of noncustodial fathers have incomes above the poverty level), about 2.8 million men are "dead-broke," noncustodial fathers, most of whom do not pay child support. Administration efforts aimed at helping these fathers to work and support their children are detailed later in this chapter. Increasing life expectancy has also changed the structure of the family. For example, over 70 percent of adults aged 30-54 in the early 1990s had living relatives who spanned three or more generations, and over 40 percent of adults aged 50-59 had living family members from four or more generations. In addition, nearly 2.4 million families now have more than two generations living under one roof. Longer life expectancy has meant that more grandparents are able to watch their grandchildren grow to adulthood. And younger generations are facing caregiving responsibilities for older relatives. A 1997 survey estimated, for example, that 22 percent of all U.S. households provide care for an elderly person. At the same time, grandparents have also become more important as caregivers—including primary caregivers. Over the last three decades, for example, the share of children under age 18 living in a household headed by a grandparent has risen by more than 70 percent (Chart 5-5). Most of the Chart 5-5 Grandchildren in Grandparents' Homes by Presence of Parents A larger share of children today live in households headed by a grandparent. The proportion of these children who share the home with neither of their parents has increased since 1990. Percent of children under 18 who live with a grandparent S Neither parent present • Only father present • Only mother present H Both parents present 1970 1980 Source: Department of Commerce (Bureau of the Census). 174 I Economic Report of the President 1990 1998 increase in this share during the 1990s was from an increase in the share of children living in households with neither parent present. Between 1980 and 1990, by contrast, the increase came mostly from children living in grandparent-headed households with just a single parent present. The share of such households with a single father present, although small, continued to grow in the 1990s. Consistent with the focus of the chapter, this discussion has emphasized family types likely to have children present. It is important to recall, however, that American households cover a much wider range of diversity than this (Box 5-2). Diversity of Income and Hours of Work An examination of income growth among families with children by family type reveals important differences among two-earner married couples, oneearner married couples, and families headed by single females. To some extent these differences represent choices about how many hours to work and how many to leave free for other things. But they may also reflect underlying differences in education or other factors that affect earnings opportunities. Box 5-2. The Diversity of American Households The Census Bureau defines a family as two or more people related by birth, marriage, or adoption who reside together. A household, by contrast, is defined as any person or group of people who occupy a single housing unit.Thus households include single people and groups of unrelated people who reside together. In 1970 the proportion of households fitting the traditional definition of a family (a husband, a wife, and their children) was 40 percent; by 1998 only 25 percent of households fit that definition. The number of Americans living in unmarried-partner households is large and growing rapidly. From 1994 to 1998 the number of married-couple households increased by 2 percent, while the number of unmarried-partner households increased 16 percent. In 1998 about 1.7 million, or 1.6 percent, of households were same-sex partnerships. The fraction of individuals choosing to live together outside of a formal marriage rose dramatically in the second half of the 20th century. One study reports that only 3 percent of women born between 1940 and 1944 had lived in a nonmarital cohabitation by age 25, whereas for women born 20 years later, 37 percent had cohabited by that same age. In fact, despite lower marriage rates and a later age of first marriage now than several decades ago, evidence indicates that individuals are still forming coresidential relationships at about the same point in their lives. Chapter 5 I 175 For the past 50 years, the median income of two-earner couples has been higher than that of one-earner couples, which in turn has been higher than that of families headed by a single female (Chart 5-6). Moreover, the gap between the median income of two-earner couples and that of the other family types has widened, both in absolute dollars and in percentage terms. Chart 5-6 Median Family Income by Family Structure The median income of the typical two-earner married couple has exceeded that of other family types for at least half a century and continued to grow strongly after 1973. Thousands of 1998 dollars 70 Married couple, wife in paid labor force 60 50 Married couple, wife not in paid labor force 40 W ith children 30 Single female head 20 • ^ — - . -^-v With children 10 1949 1954 1959 1964 1969 1974 1979 Note: A family is two or more related individuals who reside together. Source: Department of Commerce (Bureau of the Census). 1984 1989 Although many measures of income inequality have stopped rising in recent years, the real median income of married-couple families where the wife is not in the paid labor force is less than three-fifths that of married-couple families where the wife works for pay. Recent increases have brought the real median income of female-headed families in 1998 above its previous peak in 1979, although that income is only a little more than a third the median for two-earner couples. To a great extent, of course, these differences reflect factors other than family type. As emphasized below, wives in two-earner couples are likely to have greater earnings opportunities than wives in singleearner couples. And single mothers tend to be younger and less educated than married mothers, with the result that their earnings are likely to be lower as well. Median incomes provide one perspective on differences in income by family type, but they necessarily conceal the extent of income variation within each family-type grouping. Among families with children, there is considerable overlap between the distributions of income for each family type, par- 176 I Economic Report of the President ticularly in the lower income ranges (Chart 5-7). The distribution of femaleheaded families with children, however, is more concentrated in the lower income range. Chart 5-7 Income Distributions for Families with Children by Family Structure, 1998 A larger share of two-earner couples have high incomes, while the distribution of female-headed families is skewed toward lower incomes. Percent 30 • Married couple, wife in paid labor force 25 H Married couple, wife not in paid labor force • Single female head 20 15 10 fe fe 0 10 20 30 40 50 60 70 80 90 100 110 120 130 140 150 160 170 180 190 200 and Family income (thousands of dollars) Note: Data are for a sample of civilian families with primary female aged 18-55 and children under 18. The incomes on the horizontal axis represent ranges of income (e.g. 10 is $10,000 - $19,999). A family is two or more related individuals who reside together. Source: Council of Economic Advisers tabulation of Current Population Survey data. The income differences across families shown in Chart 5-7 are due largely to differences in earned income from employment, not differences in wealth or transfer payments (such as welfare payments). In 1998, wage and salary earnings represented 87 percent of income for the average married-couple family with children and 69 percent for the average female-headed family with children. Differences in hours worked are a major factor accounting for differences in income across family types. Not surprisingly, dual-earner couples devote more total hours to work than the other family types, on average, and have the highest concentration of families in the portion of the distribution with the most hours worked (Chart 5-8). Among single-earner family types, husbands in single-earner couples work more hours on average than single mothers. The Rising Earnings of Women with Children The typical mother today now contributes significantly more earnings to family money income than did her counterpart several decades ago. The median earnings of single mothers with children rose from $4,800 to $12,000 (in 1998 dollars) between 1968 and 1998, and among working sin- Chapter 5 I 177 Chart 5-8 Distribution of Annual Hours Worked by Families with Children, 1998 Within each family type, the modal number of hours worked is about 2,000 per worker. Many two-earner couples work 4,000 hours a year or more, leaving limited time for other activities. Percent 60 • Married couple, wife in paid labor force H Married couple, wife not in paid labor force D Single female head 50 40 30 20 10 Jl 0 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 L. . 4,500 5,000 5,500 Annual hours of husband and wife combined (or of unmarried female) 6,000 and over Note: Data are for a sample of civilian families with primary female aged 18-55 and children under 18. The hours on the horizontal axis represent ranges of hours (e.g. 0 is 0 - 499). A family is two or more related individuals who reside together. Source: Council of Economic Advisers tabulation of Current Population Survey data. gle mothers the median rose from $11,300 to $15,000. The median earnings of all wives with children rose from zero (more than half had no earnings) to $10,400 during this same time period, and from $7,600 to $18,000 for working mothers. As a result, married working mothers' earnings today represent 30 percent of the couples combined earnings, compared with only 15 percent in 1968. In addition to raising average family income, mothers' earnings have dramatically increased the proportion of families who are well off. The share of working wives earning more than $20,000 rose from 14 percent to 43 percent between 1968 and 1998, and the share of single working mothers earning above $20,000 rose a smaller (although still sizable) amount, from 21 percent to 37 percent. Among married couples, wives' earnings have had a big effect in increasing the proportion of wealthy families: in 1998 only 18 percent of all men earned more than $60,000, but when wives' earnings are included, 37 percent of all married couples with children had combined earnings above $60,000. In contrast, among families headed by single women, only 2 percent had earnings above $60,000. Thus, although most women now contribute to family income, there are pronounced differences across different types of families. These differences in mothers' contributions can be traced to differences both in wages and in hours of work. As discussed in Chapter 4, women's wages have risen over time, in part because of rising skill levels. But single mothers have experienced slower wage 178 I Economic Report of the President gains and have considerably lower wage rates, on average, than married mothers who work. The lower wages of single mothers are related in large measure to their lower average educational attainment than married mothers who work. Across all family types, about one-third of mothers have a high school diploma but no college. However, single mothers and wives who are not working are much less likely than working wives to have graduated from high school, although as a group each has made substantial strides in raising their educational attainment over the past three decades (Table 5-2). Furthermore, a smaller share of single mothers than of married mothers who work have at least some college, TABLE 5-2.—Educational Distribution of Women with Children [Percent] Single women Married women who worked in previous year Married women who worked in previous year 1969 1969 1969 Item 1999 1999 Less than high school diploma 51 19 34 21 32 High school diploma, no college 35 35 47 33 46 At least some college Total 1999 32 14 46 20 46 22 60 100 100 100 100 100 100 Note: Data are for a sample of civilian families with primary female aged 18-55 and children under 18. Data for 1999 are based on highest diploma or degree received; data for 1969, on the number of years of school completed. Detail may not add to totals because of rounding. Source: Council of Economic Advisers tabulations of March Current Population Survey data. although the increase in the single mothers' share since the late 1960s has been large. In contrast, employed wives have strikingly higher levels of education than all others, so that a portion of the stronger growth in median incomes for these families shown in Chart 5-6 is due to their higher and rising educational attainment, which feeds into their higher wage rates. The rising incomes of mothers are also a function of their rising hours of work, and here, too, single mothers differ from married mothers on average. Thirty years ago single mothers worked longer hours than married mothers, and thus their hours have risen less over time. For example, the share of single mothers working full-time rose 11 percentage points, to 67 percent, between 1968 and 1998, whereas the share of married mothers working fulltime rose 18 percentage points, to 52 percent. The increase in full-time work arose almost entirely from women entering the labor force in greater numbers, not from a switch from part-time to full-time work: between 1968 and 1998 the proportion of single mothers who worked rose from 69 percent to 82 percent (Table 5-3); that of married mothers increased from 51 percent to Chapter 5 I 179 TABLE 5-3.— Share of Women with Children Who Worked in Previous Year, by Education [Percent] Single women Married women All women Item 1969 1999 1969 1999 1969 1999 63 64 50 52 52 57 High school diploma, no college 74 82 51 75 53 76 At least some college 79 90 53 79 55 82 69 82 51 75 53 77 Less than high school diploma All Note: Data are for a sample of civilian families with primary female aged 18-55 and children under 18. Data for 1999 are based on highest diploma or degree received; data for 1969, on the number of years of school completed. Source: Council of Economic Advisers tabulations of March Current Population Survey data. 75 percent. (The proportion of married mothers working part-time increased substantially less, from 17 percent in 1968 to 23 percent in 1998.) Married mothers have dramatically increased their hours of work, but they continue to work somewhat less than single mothers. A portion of the higher average earnings growth for married mothers relative to single mothers arises from the positive correlation between education and hours of work: well-educated women work longer hours. Well-educated women have also increased their hours of work the most over time. From 1968 to 1998, the proportion of mothers with less than a high school education who worked increased from 52 percent to 57 percent. For mothers with at least some college, in contrast, the proportion increased from 55 percent to 82 percent. Several factors shape the decision to work for pay. On the one hand, the potential to earn a high wage makes work attractive, and thus the well-educated should have greater incentive to work. On the other hand, higher earnings and higher husbands' incomes tend to lessen the need to work long hours—this "income effect" provides an incentive for women to consume more leisure or home time with their children. Highly educated women tend to be married to high-income men, and thus the husband s higher income induces the family to place a greater value on the wife's home time relative to paid employment. Over time, however, the effect of husbands' incomes on wives' hours of work has declined. Thus, highly educated women with children have increased their employment rate the most over time, and today they have the highest rate among women with children. The outcome is that highly educated women, working many hours and earning high wages, have contributed very significandy to the number of families 180 I Economic Report of the President in the upper tail of the income distribution. For these families, incomes are high, but so, too, are hours of work (Box 5-3). In sum, the growth of female hours of work and female earnings has had different effects on different family types. For married mothers, strong growth in wages and hours worked have been a primary source of family Box 5-3. Women Professionals, the Rat Race, and the Time Crunch As shown inTable 4-1, the proportion of women in many professional occupations has risen dramatically since 1950. As recently as 1979 only 10 percent of doctors and 13 percent of attorneys were women, but by 1999 these percentages had increased to 25 percent and 29 percent, respectively. The female share of enrollment in professional schools has been rising and exceeded 40 percent in 1996.To the extent that female professionals who are married have husbands who work full time, this growing professionalization of the female work force has created a time strain for many American families. There is little evidence that human resource systems originally designed for men with stay-at-home wives have adapted to ease this strain by offering jobs with shorter working hours. On the contrary, work hours among college-educated employees have been trending upward over the last several decades. One of the reasons for some firms' reluctance to abandon existing work norms is their use of "rat race" work practices. In many professional settings, members of the professional group benefit from the productivity of other group members, yet these contributions to productivity are difficult to measure and reward directly. Firms instead find that a worker's willingness to work long hours often serves as a proxy for valuable yet hard-to-observe characteristics such as commitment and ambition. In response to this use of work hours as a screening device, workers will tend to overwork as a means of signaling to management their ability and willingness to contribute. For example, in a survey conducted at two large Northeastern law firms, associates (young attorneys) and partners alike were in agreement that "billable hours" and especially "willingness to work long hours when required" were important factors in promotion to partner. Not surprisingly, associates at these firms worked long hours. Also not surprisingly, associates felt overworked: most indicated that they would gladly forgo their next raise in exchange for the opportunity to work fewer hours. Nonetheless, most associates indicated that they would be much more willing to work fewer hours if all other associates also agreed to cut back. Of course, firms might be reluctant to abandon these work practices unless they can develop other effective means of screening junior employees. Chapter 5 I 181 income growth over the last 30 years, even though married women's earnings on average still account for less than a third of the couple s earnings. The wages of female family heads have not grown as rapidly over time, so that, despite working many hours, their earnings lag behind those of married women. Challenges Families Face Over the century just ended, the American family experienced many positive changes that have resulted in richer lives for many parents and their children. Family income has increased dramatically and poverty has decreased. People live longer and are much healthier. Over the past few years, the gains from a strong labor market have been shared widely and fairly equally. Other favorable recent developments include a fall in teen pregnancy and out-of-wedlock birth rates and a stabilization of divorce rates. Despite this general prosperity, however, family income inequality remains high, and many families are experiencing a "money crunch" that makes it difficult to meet basic family needs. Many of these families have incomes that fall below the poverty threshold, but the perception of a "money crunch" is by no means limited to families officially classified as poor. Perhaps an even greater number of families today are experiencing a "time crunch." With more women working more hours, the amount of family time devoted to work has increased, while that available for leisure and other family activities has declined. This time crunch affects a wide range of families from poor single mothers to prosperous two-earner couples. This section explores the challenges facing American families as they deal with the money crunch and the time crunch. In each case, an analysis of the dimensions of the challenge and how it affects different kinds of families is followed by a discussion of policies that address that challenge. The "Money Crunch" Despite the increases in female labor supply and earnings discussed above, a large number of families with children—both married and female-headed—belong to what are sometimes called the working poor. Those families with incomes in the lower tail of the distribution in Chart 5-7 are the most likely to suffer from the money crunch. Based on the distributions in the chart, in 1998, 8 percent of families with working wives, 27 percent of families without working wives, and 64 percent of female-headed families had incomes below $25,000 (about 1.5 times the poverty line for a family of 182 I Economic Report of the President four). These families, whose incomes have lagged behind the general advance, are at the epicenter of the money crunch. Families headed by single females tend to have fewer financial resources than other families, and the number of children living in such families has grown substantially. Whereas families headed by single females made up only 10 percent of all families with children in 1970, in 1998 that figure was 22 percent. In 1970, just 11 percent of all American children under 18 years of age lived in such families; in 1998, 23 percent did. About half of all African American children under age 18 live in single-mother households, up from 30 percent in 1970. The fraction of white children living in single-mother households rose from 8 percent in 1970 to 18 percent in 1998. And as discussed earlier, the percentage of children living with grandparents has also been increasing in recent decades. Divorce and out-of-wedlock childbirth are two events that contribute directly to lower incomes for female-headed families. It is estimated that 22 percent of women who get divorced experience a 50 percent or more decline in family income. Also, never-married mothers are much less likely to have a child support award than divorced mothers (44.1 percent versus 75.6 percent in 1995), and for those who have received child support payments, the annual amount received by never-married mothers is much less than that received by divorced mothers ($2,271 versus $3,990 in 1995). Reflecting these low income levels, poverty rates for families headed by single females with children under age 18 are very high: 38.7 percent of these families were poor in 1998, compared with 6.9 percent of marriedcouple families with children. Although the job is not finished, this Administration has championed policies to increase the rewards from work and reduce poverty, including the expansion of the earned income tax credit, welfare reform, and the creation of the State Children's Health Insurance Program. These policies have contributed to improving living standards for lower income families, and the overall poverty rate has dropped from 15.1 percent in 1993 to 12.7 percent in 1998. These official poverty rates are based on a definition of income that does not include the earned income tax credit, Medicaid, food stamps, or other noncash benefits. An experimental poverty measure incorporating improvements proposed in a 1995 report by the National Academy of Sciences (a measure that does include the earned income tax credit and noncash benefits) shows an even larger drop. Adequate income is certainly essential for families to develop a sense of economic well-being, but that sense of well-being may also be influenced by whether the family can meet what it perceives to be its consumption needs. As technological change has lowered the relative cost of food andfreedup income for other expenditures over the course of the century, incomes have risen and Chapter 5 I 183 consumption patterns have changed, resulting perhaps in a perception of increased consumption needs. In 1950 about 30 percent of a typical family's expenditures were for food, and about 10 percent were for clothing. By 1997 those percentages had fallen to 14 percent and 5 percent, respectively. But other expenses have taken up the slack. The typical family now spends a greater share of its income on housing than in the past, and entirely new forms of consumption have become standard. Today, about 90 percent of households have automobiles, up from 59 percent in 1950, and the typical family has two motor vehicles and two television sets. Consumers have had the discretionary income to buy such goods as CD players, videocassette recorders, and personal computers. It is estimated that, in 1997, 35 percent of households owned a personal computer, 61 percent had a cordless phone, and 88 percent had a video recorder. Some of these goods that might once have been thought luxuries have become increasingly difficult for a family to do without. For example, to the extent that newly created jobs are in the suburbs rather than the inner cities, a car becomes a near necessity. And children who lack access to a computer at home may suffer an increasing educational disadvantage compared with their peers who have computers. Meanwhile the same health and demographic trends that have increased longevity also confront many more families with the need to care for their elderly relatives. Although the elderly at any particular age are healthier today than in the past, they are likely to require more care over more years, in part because they are living longer and because medical advances can keep the very ill alive longer than before. This care often becomes the responsibility of their adult offspring. Consumption of formal and informal care by the elderly has increased substantially. From 1987 to 1996 the number of nursing homes increased 20 percent, and the use of home and community-based care is growing rapidly. The population receiving such care is becoming older and increasingly frail. The proportion of nursing home residents over age 85 increased from 44 percent in 1987 to 49 percent in 1996, and that of residents with limitations in three or more standard activities of daily living (a common measure of frailty) rose from 72 percent to 83 percent over that period. The average cost of a nursing home is now more than $40,000 per year, and for those admitted to a nursing home at age 65 or older, the average length of stay is 29 months for women and 23 months for men. Nearly 50 percent of the costs of long-term care are paid out of pocket by nursing home patients and their families, and Medicaid bears most of the remaining costs. The implications for family time of increased care for elderly relatives are discussed in the next section. 184 I Economic Report of the President Thus, as the typical market basket affordable by most families changes, it may be appropriate in characterizing the money crunch to expand our notion of family needs beyond such traditional, basic purchases as food and clothing to the acquisition of certain standard consumption goods like automobiles and telephones. The crunch is even tighter when the rising costs of educating children and caring for elderly parents is factored in. Finally, the changing trends in the labor force participation of family members have given rise to increasing costs of working outside the home, such as child care, additional work expenses (for meals in restaurants, dry cleaning services, and so on), and transportation costs. It is estimated, for example, that just from 1986 to 1993 direct expenditure on child care rose 23 percent, after adjusting for inflation, for families with a preschool-age child and a working mother. Boosting the Financial Resources of Families to Lessen the Money Crunch Since 1993, families in each fifth of the income distribution have experienced solid and roughly equal percentage gains in income. In part this balance reflects the strong overall performance of the economy, but it also reflects a number of specific policies to make work pay for lower income working families facing a money crunch. Expansion of the Earned Income Tax Credit In 1993 the President signed into law a major expansion of the Earned Income Tax Credit (EITC), a refundable credit that is designed to reduce the overall tax burden of low-income workers. Because it is refundable, workers can receive the full credit to which they are entitled even if it exceeds the income tax they owe, and people generally receive the credit as part of their income tax refund. The EITC is not currently included in the definition of money income used to compute the official poverty rate. However, calculations based on an alternative income concept that does include the EITC show that the credit lifted more than 4.3 million Americans out of poverty in 1998—more than double the number in 1993. The EITC lifted more than 2.3 million children out of poverty in 1998. And over 40 percent of the decline in child poverty (computed using the alternative income concept) between 1993 and 1998 can be explained by progressive tax relief, especially the EITC. The President has proposed a major expansion of the EITC in his fiscal 2001 budget, to make the credit even more effective in rewarding work for families. Chapter 5 I 185 Increases in the Minimum Wage The minimum wage was increased in two steps in 1996 and 1997 from $4.25 per hour to $5.15 per hour, boosting the wages of 10 million workers. The combined effects of the minimum wage and the EITC have dramatically increased the returns to work for families with children. For example, between 1993 and 1998, families with two children and one wage earner who worked full-time at the minimum wage experienced a 26 percent ($2,700) increase in their real income as a result of these two policies alone. Research examining the impact of minimum wage increases has shown that about two-thirds of workers affected by earlier minimum wage increases were adults—predominantly women and minorities—and that about one-third of the increase went to families in the lowest tenth of the family earnings distribution. Thus minimum wage increases can help reduce poverty among low-wage workers. Given recent tight labor markets, job opportunities are plentiful, and American families are benefiting from the higher minimum wage. Welfare Reform The welfare reform law signed by the President in 1996 dramatically changed the Nation s welfare system into one that requires work in exchange for time-limited assistance. The law contains strong work requirements, comprehensive enforcement of child support awards, and support for families moving from welfare to work. To assist people making this move and to support low-income working families, the Administration has addressed a range of logistical andfinancialchallenges typically faced by such families. Welfare-to-work grants help move long-term welfare recipients (mainly mothers) and certain noncustodial parents (mainly fathers) in poor areas into unsubsidized jobs, enabling them to work and support their families. Recent efforts have extended these services to a broader group of low-income noncustodial fathers, many of whom may have been wanting to contribute to the support of their children but lacked the means to do so. To encourage hiring and retention of long-term welfare recipients, employers are eligible for the welfare-to-work tax credit equal to 35 percent of the first $10,000 in wages in the first year of employment, and 50 percent in the second year. New housing vouchers that subsidize the rents of low-income Americans are helping families move closer to new jobs, reduce a long commute, or secure more stable housing; new transportation grants are helping communities and States developflexibletransportation alternatives for welfare recipients and other low-income workers. New policy guidance allows States to use the more generous welfare rather than food stamp asset tests in determining food stamp eligibility for those on welfare, making it easier for low-income working families to own a car and still receive food stamps. 186 I Economic Report of the President The 1996 welfare reform law invested an additional $4 billion over 6 years to provide more child care assistance for families moving from welfare to work and for other low-income parents. (Child care assistance is discussed further below.) The new State Children's Health Insurance Program provides funds to help States expand health care coverage of uninsured children, and new Medicaid rules allow States to expand Medicaid to cover more lowincome families who work, including more two-parent families. Finally, Individual Development Accounts (IDAs) empower low-income families to save for a first home, to enroll in postsecondary education, or to start a new business. As a result of welfare reform and the strong economy, by June 1999 the number of welfare recipients nationwide had fallen to 6.9 million, 51 percent less than in 1993. That number represents 2.5 percent of the total population, the lowest proportion since 1967. All 50 States met the overall work participation requirements of the welfare reform legislation. Twenty-seven States were awarded bonus funds for their superior results in reforming welfare. Reports by the 46 States competing for the bonus indicate that more than 1.3 million welfare recipients nationwide went to work in the 12-month period from October 1997 through September 1998. Retention rates are also promising: 80 percent of those who got jobs were still working 3 months later. States reported an average earnings increase of 23 percent for former welfare recipients, from $2,088 in the first quarter of employment to $2,571 in the third quarter. Among those remaining on welfare, the proportion working has nearly quadrupled, from 7 percent in 1992 to 27 percent in 1998. At least one independent study confirms these conclusions, finding that almost 70 percent of welfare leavers said they went off welfare because of increased earnings or a new job. When women move to paying jobs, they develop the skills needed to produce higher sustainable incomes over their lifetimes and to reduce the intergenerational cycle of dependency. In addition, the Administrations initiative to reduce teen pregnancy (Box 5-4) plays a role in breaking the cycle of dependency and increasing the well-being of families by reducing the number of children born to teen mothers. Social Security and Medicare Social Security is a key source of income for most recipients: in 1996 it was the main source of income for 66 percent of beneficiaries; it represented at least 90 percent of income for 30 percent of beneficiaries; it was the sole source of income for 18 percent. Social Security benefits provide 81 percent of total income for those in the lowest fifth of the income distribution of the elderly, and they are the largest single source of income for all but the Chapter 5 I 187 Box 5-4. The National Strategy to Reduce Teen Pregnancy From 1980 to 1991 the overall birth rate to teens aged 15-19 rose from 53.0 to 62.1 per 1,000. Since then, however, this trend has been improving. Nationwide, this rate declined by 18 percent from 1991 to 1998, and teen birth rates have fallen in every State and across ethnic and racial groups. For a subset of this group, girls aged 15-17, the 1998 birth rate was at its lowest on record. In addition, teen pregnancy rates are at their lowest since 1976, the earliest year for which data on this group are available. Yet despite these recent improvements, teen pregnancy remains a problem, since the financial resources and opportunities of unwed teens and their children are significantly less than those of other families. Each year more than 900,000 pregnancies occur among American teenagers. A collection of studies on teen parenthood found that roughly four-fifths of teen mothers end up on welfare. The children of adolescent mothers were found to have poorer health outcomes and were 50 percent more likely to be of low birthweight. In addition, the sons of adolescent mothers were found to be 2.7 times as likely to be incarcerated as the sons of mothers who delayed pregnancy, and the daughters of adolescent mothers were one-third more likely to become teen mothers themselves. On January 4,1997, the President announced a comprehensive national strategy to reduce teen pregnancy in this country. The new initiative, led by the Department of Health and Human Services (HHS), responded to a call from the President and the Congress for a national strategy to prevent out-of-wedlock teen pregnancies. It also responded to a directive, under the welfare reform act, to ensure that at least 25 percent of communities in this country have teen pregnancy prevention programs in place. Key efforts under this initiative include the following: • Implementing New Efforts Under Welfare Reform. Under the welfare reform law signed by the President on August 22, 1996, unmarried minor parents are required to stay in school and live at home, or in an adult-supervised setting, in order to receive assistance. The law encourages the creation of Second Chance Homes, supportive and supervised living arrangements that provide teen parents with the skills they need to become good role models and providers for their children, giving them guidance in parenting and in avoiding repeat pregnancies. • Supporting Promising Approaches and Building Partnerships. The Administration continues to support innovative teen pregnancy prevention strategies tailored to the unique needs of communities. HHS-funded programs supporting teen pregnancy prevention have been established in about 34 percent of the 4,752 Census-defined communities in the United States. In addition, HHS has built partcontinued on next page... 188 I Economic Report of the President Box 5-4. — continued nershlps aimed at reducing teen pregnancies with national, State, and local organizations. • Disseminating Information on Innovative and Effective Practices. On October 25, 1999, the Secretary of Health and Human Services unveiled a comprehensive guide, developed in partnership with the National Campaign to Reduce Teen Pregnancy, to help communities and nonprofit organizations establish successful local teen pregnancy prevention programs. • Improving Data Collection, Research, and Evaluation. The national strategy is working to improve data collection, research, and evaluation to further understand the magnitude, trends, and causes of teen pregnancies and births. Efforts are also under way to develop targeted teen pregnancy prevention strategies and to assess how well these strategies work. • Sending a Strong Abstinence Message. The welfare law also provides $50 million a year for 5 years in new funding for State abstinence education programs. highest fifth. Although only 9 percent of aged beneficiaries are poor, an additional 41 percent would be poor based on their non-Social Security income. Recognizing the importance of Social Security to the elderly, the President has proposed using the benefits of fiscal discipline and debt reduction to strengthen Social Security, extending its solvency from 2034 to at least 2050. Medicare is the main source of health insurance for the elderly and people with disabilities, insuring nearly 40 million Americans. The elderly population is projected to double in the next 30 years as the baby-boom generation retires. At the same time the ratio of elderly persons to workers who pay payroll taxes that help fund Medicare will increase. In addition, some Medicare payments systems and benefits are outdated. On June 29, 1999, the President unveiled his plan to modernize and strengthen the Medicare program to prepare it for the health, demographic, and financing challenges it will face in the 21st century. The plan proposes to make Medicare more competitive and efficient; to modernize and reform Medicare benefits, including adding a prescription drug benefit; and to make a long-term financing commitment to the program, and in doing so extend the solvency of the Medicare trust fund until at least 2025. Assistance with Long-Term Care Millions of adults and a growing number of children have long-term care needs arising from a health condition present at birth or from a chronic illness developed later in life. Moreover, with the number of Americans aged 65 Chapter 5 I 189 or older, and of those 85 or older, both projected to double by 2030, longterm care is a need that will become more pressing in the 21st century. The fiscal 2001 budget contains, as the centerpiece of the President's long-term care initiative, a $3,000 tax credit for people with long-term care needs or their caregivers. The President s initiative contains several features in addition to the credit. It would provide funding for services that support family caregivers of older persons; improve equity in Medicaid eligibility for people in home- and community-based settings; encourage partnerships between low-income housing for the elderly and Medicaid; and encourage the purchase of good-quality private long-term care insurance by Federal employees. This initiative complements the Administration's effort to improve the quality of care in nursing homes. Other Policies to Help Families Millions of families with children have benefited from the $500-per-child tax credit enacted in 1997, and the 2001 budget includes additional tax relief measures, including expansion of the child and dependent care tax credit. The 2001 budget also addresses another financial concern of American families—access to affordable health care coverage—by proposing a 10-year, $110 billion investment in expanding health insurance coverage. Tougher enforcement of child support has helped ease the economic burden on single mothers and stresses the responsibility of both parents for the economic support of their children. In 1998, Federal and State child support enforcement efforts collected an estimated $14.3 billion from noncustodial parents, a nearly 80 percent increase since 1992. In 1998, 4.5 million families received child support, an increase of 59 percent since 1992. Finally, a primary means of reducing the money crunch is to provide more individuals with the skills and education they need to raise their incomes. The Administration has therefore placed great emphasis on policies to invest in skills, as discussed in Chapter 4. The Time Crunch The historic entry of millions of women into the labor force has resulted in higher incomes for families and a new sense of career satisfaction for many women. But it has also resulted in a significant jump in the total hours that parents spend at work. Around 4,000 hours per year total, or 2,000 hours for each parent, is common for families where both parents work full-time. Those families who work that many hours or more—that is, the upper tail of the hours distribution in Chart 5-8—are most likely to suffer from the time crunch. The share of married couples in which both spouses work full-time rose from 32 percent to 48 percent between 1968 and 1998. As the sole support of their children, single parents working long hours also are likely to 190 I Economic Report of the President suffer from a time crunch; the share of these parents working full-time rose from 56 percent to 67 percent from 1968 to 1998. Thus, although the choice to enter the labor market results in more material goods for families, these benefits come at the expense of home time. Evidence that families are feeling a time crunch comes from a 1995 national survey that asked whether respondents "always feel rushed, even to do the things you have to do." Thirty-three percent said yes, compared with 24 percent in 1965. The analysis of changes in parents' allocation of time in this section provides a closer look at how patterns of family care have changed as women have entered the labor force. Time Use and Child Care As women spend more time in paid employment and a larger share of families are headed by single parents, families have less time to devote to unpaid activities, including time with children. Between 1969 and 1999, for example, the total amount of parental time available outside of work fell in both married-couple and single-parent families (Chart 5-9). This conclusion comes from analyzing the trend in time reported in the Current Population Survey (CPS) as spent at work. To construct the time available on a daily basis, the analysis starts with 48 hours per day for married couples and 24 hours for single parents. It then subtracts the average daily amount of time spent at work plus 8 hours per parent per day for sleep. Because the proportion Chart 5-9 Time Available to Custodial Parents After Paid Work and Sleep Both married couples and single parents arefindingfewer hours to spend with their children. Hours per day 28 12 1969 1999 Married couples 1969 1999 Single parents 1969 1999 All families Note: Hours per day are total available to adults in the family (a maximum of 48 hours for married couples and 24 hours for single parents). Source: Council of Economic Advisers tabulation of Current Population Survey data. Chapter 5 I 191 of single-parent families increased over this period, the average amount of family time available outside of work fell overall by even more than it did for either family type. Note that this analysis is only about time potentially available to spend with children, because the CPS does not contain information about how parents actually spend time outside of work. The best source of information on time use comes from an analysis of timeuse diary surveys conducted from 1965 to 1995. These surveys ask individuals to keep a daily record of how they spend their time during a designated day. Although rich in detail, these surveys cover a fairly small number of individuals and thus cannot be used to examine trends for subgroups of the population. To build a more comprehensive data base, the 2001 budget includes funding for the Bureau of Labor Statistics to start regular collection of time-use diaries from a probability sample large enough to provide data on subgroups. Existing time-use diaries show that employed women spend about one-third less time on child care and household tasks than do women who are not in paid employment. The primary change in time use for women is that their increase in paid hours has been nearly equally offset by a reduction in time devoted to housework. Although men have increased their time spent on housework by about 5 hours per week, this is far less than the 11-hour-per-week reduction by women. (The study does not, however, report separate data for those who are parents.) Nevertheless, despite the assistance of husbands and despite the use of purchased inputs into home care, employed women in the aggregate still have a third less free time today than nonworking women. The data display a 32 percent reduction in women's time spent on child care and household tasks between 1965 and 1995. This decline is mainly driven by reductions in housework activities. However, data from 1985 (the most recent year for which a detailed breakdown is available) indicate that working mothers spend 5 fewer hours per week on child care activities than do nonworking mothers (6.7 hours versus 12 hours). This suggests that the increase in the proportion of mothers working has played a role as well. Meanwhile men's time spent on child care has been constant at roughly 3 hours per week. Undoubtedly the time crunch is worse for single-parent families (although, again, existing time-use evidence does not isolate data for this group). These families typically have lower incomes and thus are less able to purchase substitutes for their time in the home, such as home-based child care, cleaning services, or labor-saving products and appliances for the home. They also lack the assistance that a spouse provides. They may instead rely more on care provided by older relatives. As a result of improvements in health and longevity, grandparents are increasingly a resource that parents—whether single or married—can draw on for help with child care. In a survey of grandparents caring for their grandchildren in a noncustodial relationship, over 60 percent cited the 192 I Economic Report of the President employment of the grandchild's parents, the desire to help the grandchild's parents financially, or both as reasons for providing care. In addition, in a sample of working mothers aged 19-26 with a youngest child under 5, nearly 25 percent utilized a grandmother as the principal caregiver. As discussed in the next section, however, responsibilities for taking care of older relatives may compound the time crunch for many families. Time Use and Parental Care In 1997, more than 5 percent of households spent over 20 hours a week in caregiving for the elderly. And since nearly two-thirds of family caregivers are working, the need to balance work and family will likely increase in the 21st century. Caregivers of the elderly who are also in the paid labor force report making adjustments to work schedules and forgoing promotions, new assignments, transfers, relocations, and training opportunities. One recent study estimates that, by 2002, 42 percent of workers will provide some form of elder care. Most of the discussion in this chapter has focused on the time and money costs of raising children and the stresses that these costs impose on families. Layered on top of this is the generational crunch: the need to stretch resources further when families have multiple caregiving responsibilities to consider as they try to maintain a delicate balance between work and family. With parents living longer, and with their daughters—the traditional providers of their care—now largely in the paid labor force, the costs of parental care are likely to become even greater in the 21st century. However, Social Security and other retirement benefits, as well as the availability of assisted living facilities, also permit more elderly people to live independently for longer. The last 10 years have witnessed an explosion of care for the elderly outside of nursing homes, and this care is largely provided by women. From 1987 to 1997 the number of U.S. households that provided unpaid care to elderly adults more than tripled, from 7 million to more than 21 million, or from 8 percent to 22 percent of households. To the extent that more elderly adults are living on their own, much of this care will likely take place in the parents home. The typical caregiver is a married woman with only a high school diploma and a household income of about $35,000, and the typical care recipient is most likely her mother, grandmother, or mother-in-law. However, even as more households are providing in-home care, they appear to be spending somewhat less time on that care. Today a typical caregiver spends fewer hours per week giving care. In addition, the caregiver is less likely to be residing with the recipient, and is more likely to use paid services than caregivers a decade ago. The explosion in caregiving responsibility for parents is contributing to the time crunch that the American family is facing: 43 percent of surveyed Chapter 5 I 193 caregivers for the elderly say their caregiving has left them with less time for other family members. These changes surely arise in part because todays average caregiver is balancing work and family: half of all caregivers are working full-time outside the home. Among employed caregivers, one-fifth had to give up work at least temporarily, and half reported making changes to work schedules to accommodate caregiving. Surveys of caregivers underestimate the demand for parental care, however, because they cannot measure the frequency with which employed potential caregivers choose not to provide care. In the future, the time and money commitments associated with parental care may become even more confining, given the trends identified above. The increase in the labor supply of women has been accompanied by an increase in their wages and thus the opportunity cost of their time. As employed women age and as their parents require more care, those higher wages may make these women increasingly reluctant to curtail their paid employment—thus they will face an even greater time crunch as they care for their parents. To the extent that these women have had children later in life, they may also experience the double generational crunch of caring for both children and parents simultaneously. And among those women whose children are already adults, many will have grandchildren to care for. During the 21st century, the increasing cost of elderly care will also fall on fewer children, because of the drop in fertility rates of the baby-boom generation and the rising population of the elderly relative to the working-age population. This looming increase in the time crunch may result in more substitution toward formal care, as the greater wealth of the baby-boom generation and their children may make such care more affordable. However, if the cost of that care rises relative to prices generally, these same baby-boomers are likely to experience a tightening money crunch as well. Increasing the Flexibility of Paid Work to Lessen the Time Crunch With a record high share of the population employed, many workers find themselves struggling to balance work and family. Women have less flexibility to respond to family needs than they once did, and men are increasingly being called on to take a greater role in child care and other responsibilities. Recognizing these changes, the Administration has supported a number of policies to increase flexibility at work and help families address the time crunch. The Family and Medical Leave Act The Family and Medical Leave Act (FMLA) of 1993 requires employers with 50 employees or more to provide up to 12 weeks of unpaid, job- 194 I Economic Report of the President protected leave a year to eligible employees under certain defined circumstances. These include the need to care for a newborn, newly adopted, or foster child; for a child, spouse, or parent with a serious health condition; or for a serious health condition of the employee himself or herself, including maternity-related disability. The FMLA also requires employers to continue the employees health benefits during leave. Employees are eligible to take such leave if they have worked for a covered employer for at least 1 year and have worked for at least 1,250 hours over the previous 12 months. Since 1993, millions of workers have taken advantage of the FMLA to spend necessary time with their families. The experiences of both employers and employees with the FMLA were documented in national surveys sponsored by the Department of Labor. The employer survey found that one-third of employers (and two-thirds of employers in larger worksites) believed that the FMLA had had positive effects on their employees' ability to care for family members. Most employers also reported that compliance costs were small or negligible and that there was no noticeable effect on either business or employee performance. The employee survey found that the majority of those who took family or medical leave found it relatively easy to arrange; few reported concerns about jobrelated consequences of taking leave. This survey also found that employees with annual family incomes between $20,000 and $30,000 were more likely to take leave than employees with higher incomes, highlighting the importance of the FMLA to lower income workers. Today, 92 million workers are covered by the FMLA. It has proved to be a significant advance in helping a larger cross section of working Americans meet their medical and family caregiving needs for children and for elderly parents while maintaining their jobs and their economic security. The President has proposed expanding the FMLA to cover businesses with more than 25 employees (currently the threshold is 50 employees). This would extend coverage to almost 12 million more workers. He has also proposed requiring employers to allow FMLA-covered workers to take up to 24 hours of leave per year to attend parent-teacher conferences or routine doctors' appointments. Work Arrangements That Promote Flexibility The desire for greater job flexibility is also leading to new work arrangements between workers and their employers regarding when and where paid work is performed. An increasingly popular work arrangement is "flextime," which allows workers to vary the time they begin and end work. In 1997, 28 percent of full-time wage and salary workers had flexible work schedules. This was up sharply from 15 percent in 1991. The Federal Government has led by example in instituting flextime, allowing employees greater discretion in when they work. The President has also proposed a flextime initiative that Chapter 5 I 195 would allow all workers who get time-and-a-half pay for working overtime to be compensated in the form of time off for family and medical leave purposes or vacation instead of in cash. Another approach to allowing greaterflexibilityon the job is working at home for pay. This arrangement is used by a small but growing share of workers. In 1997, for example, 3.3 percent of all wage and salary workers were working at home for pay, up from 1.9 percent in 1991. Another way parents share child care is by working different shifts. In order for shift work to make it easier to combine paid work and child care, however, the choice of shifts must be the worker's. In 1997, 83 percent of full-time wage and salary workers were on regular daytime schedules, 4.6 percent were on evening shifts, 3.9 percent were on employer-arranged irregular schedules, 3.5 percent were on night shifts, and 2.9 percent were on rotating shifts. Improving Access to High-Quality, Affordable Child Care Many parents are likely to adjust to an increase in their paid work time by increasing their use of nonparental child care providers. The availability, cost, and quality of child care are crucial to the well-being of children and to the ability of parents to balance the needs of work and family. Primary child care arrangements for preschool-age children of employed mothers in the fall of 1994 were divided roughly equally among care in the child's home (by a relative or nonrelative), care in another home (by a relative or nonrelative), and care in an organized child care facility. Since 1985 the trends have been toward a slight increase in the proportion of children receiving care in their own homes, relatively fewer children receiving care in another home, and relatively more children receiving care in an organized facility. The Administration has consistently emphasized the importance of child care availability, affordability, and quality. Since 1993, child care funding for low-income families has more than doubled. The budget for fiscal 2001 supports a $3.3 billion increase in resources for child care, including more funding for programs benefiting poor and near-poor children and an expansion of the child and dependent care tax credit. The proposal would gradually make the credit refundable, so that it would be available to lowincome working families for the first time. And it would increase the amount of the credit for middle-income families struggling to afford child care. As discussed in Chapter 4, funding for Head Start has likewise increased substantially during this Administration, and progress continues to be made toward the President's goal of enrolling 1 million children by 2002. After-school care for children is another concern of working parents. In 1998, 68 percent of married couples with children were ones in which both parents were in the labor force, compared with 28 percent in 1970. Today, 28 million school-age children are in either married-couple families where both 196 I Economic Report of the President parents are employed or single-parent families where the parent works outside the home; an additional 10 million children are in married-couple families where only one parent is employed. This has led to strong demand for quality programs to ensure that children are safe and learning during the hours when they are not supervised by a parent. In fact, experts estimate that during a typical week at least 5 million school-age children spend time unattended at home. This Administration has responded to this situation by increasing its investment in after-school and summer programs from $40 million in 1998 to $453 million in fiscal 2000. The President has called for a doubling of this investment in fiscal 2001. Conclusion The American family in the 21st century faces a different world and a different set of challenges than the family of 100 years ago. The twin problems of scarce time and scarce resources are not, of course, new, but their manifestations in our turn-of-the-millennium economy may well be. Thanks in part to greater participation of women in paid employment, families today enjoy a much higher standard of living than did families a century ago. But expectations also appear to be different today. Great changes in the economy have opened up great opportunities as well as great challenges. As people aspire to take advantage of those opportunities, changes in workplace arrangements and well-designed Federal policies can help them overcome the challenges. Chapter 5 I 197 C H A P T E R Opportunity and Challenge in the Global Economy What an extraordinary episode in the economic progress of man that age was which came to an end in August, 19141 ...life offered, at a low cost and with the least trouble, conveniences, comforts, and amenities beyond the compass of the richest and most powerful monarchs of other ages. The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth...he could at the same moment and by the same means adventure his wealth in the natural resources and new enterprises of any quarter of the world.... But, most important of all he regarded this state of affairs as normal, certain, and permanent, except in the direction of further improvement, and any deviation from it as aberrant, scandalous, and avoidable. —John Maynard Keynes, The Economic Consequences of the Peace (1919), writing about thepre-World War I economy F or centuries, rising prosperity and rising integration of the global economy have gone hand in hand. The United States and much of the rest of the world have never before been as affluent as today. Nor has economic globalization—the worldwide integration of national economies through trade, capitalflows,and operational linkages amongfirms—everbefore been as broad or as deep. Keyness words in the epigraph describe London at the beginning of the 20th century, yet they ring even truer for the United States and many other countries as we look to the 21st. This conjuncture of rising wealth and expanding international ties is no coincidence. The United States 199 has gained enormously from these linkages, which have helped drive the unprecedented prosperity of the economy. Indeed, future improvements in Americans' living standards depend in part on our continued willingness to embrace international economic integration. As Chart 6-1 shows, the involvement of several of the worlds richest countries in international trade has grown faster than their output for roughly three centuries. The one period when trade grew more slowly than output was from 1913 to 1950—a period that encompassed the Great Depression and two world wars. Fortunately, despite Keyness characterization of the preWorld War I period as an "extraordinary episode," the rising globalization and economic buoyancy of that period proved not to be an aberration. Rather, it was the 1913-50 period that stood out as the extraordinary episode, one of uncharacteristically weak growth in both output and trade. During that period, and that period only, trade generally fell relative to gross domestic product (GDP). After 1950 the world economy resumed its globalizing trend. But it took time to make up the ground lost: in the United States and elsewhere, the level of trade relative to output has consistently exceeded early-20th-century levels only in the past few decades. One reason why prosperity and economic globalization have risen together is that dramatic improvements in technology have contributed to both. As earlier chapters discuss, technological advances have raised living standards, enabling each worker to produce more and better goods and services. Chart 6-1 GDP and Export Growth Rates for Group of Seven Countries Since 1700 Trade has usually grown faster than output over the past three centuries. Average annual percent change over period 9 1700-1820 1820-70 1870-1913 1913-50 1950-73 1973-98 Note: Data beginning in 1870 are for the Group of Seven major industrialized economies: Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States. Data for 1700-1820 are for the United Kingdom only; export data begin in 1720. Data for 1820-70 exclude Canada, Germany, and Japan. Sources: Organization for Economic Cooperation and Development and Angus Maddison, Monitoring the Worid Economy 1820-1992,1995 and Dynamic Forces in Capitalist Development, 1991. 200 I Economic Report of the President Meanwhile innovations in transportation, communications, and information technology have made international economic integration ever easier. Quite apart from the impact of technology, openness to the world itself makes us more prosperous. The freedom of firms to choose from a wider range of inputs, and of consumers to choose from a wider range of products, improves efficiency, promotes innovation in technology and management, encourages the transfer of technology, and otherwise enhances productivity growth. All these benefits, in turn, lead to higher real incomes and wages. Through trade, countries can shift resources into those sectors best able to compete in international markets, and so reap the benefits of specialization and scale economies. Opening domestic markets to global capital can improve the efficiency of investment, which can promote economic growth. Through firms' direct investment in foreign affiliates, countries can adopt international best practices in production, including managerial, technical, and marketing know-how. Given the momentum of the economic and technological forces behind globalization, its rise may seem inevitable. But policy can play a critical role in either helping or hindering its advance. The experience of the 20th century reinforces this lesson. International linkages in the United States and elsewhere were fairly well developed at the beginning of the century: as Keynes observed, rising prosperity and increasing economic integration had come to seem the natural state of affairs. Yet from 1914 until mid-century, war as well as mistakes of economic policy thwarted this normalcy. In the trade arena, governments actively promoted protectionism through high tariff and nontariff barriers, and so inadvertently contributed to the slowed pace of world growth and development. For the past half century, in contrast, policy has worked actively to remove barriers and distortions that impede the market forces underpinning trade and investment. For example, the General Agreement on Tariffs and Trade (GATT) and, more recently, the World Trade Organization (WTO) have championed trade liberalization. Since the 1970s, most industrial countries have removed most of their controls on international capital movements, and many developing countries have greatly relaxed theirs as well. Given the very real benefits of open markets in both trade and finance, we should continue to embrace and encourage this trend toward liberalization. Of course, economic globalization is not an end in itself, but rather a means to raise living standards. Like other sources of economic growth, including technological progress, economic integration involves natural tradeoffs. It provides real benefits by increasing the choices available to people and firms, but it also raises legitimate concerns. Increased trade re-sorts each country's resources, directing them toward their most productive uses, but some industries and their workers may find themselves facing Chapter 6 I 201 sharp competition from other countries. Broader global capital flows can increase efficiency and speed development, but when these flows reverse course, they can temporarily upset whole economies. Sound policy plays an important role in ensuring that the benefits of international economic integration are shared as widely as possible, raising living standards within and across all countries that take part. Even in an increasingly global economy, each nation controls its own destiny. In large measure, active participation in international markets for goods, services, and capital strengthens the case for policies that make sense even without integration. Among these are policies that encourage a flexible and skilled work force, provide an adequate social safety net, reward innovation, and ensure that the financial system is sound and that financial markets are deep. The Fall and Rise of the Global Economy The U.S. economy today is more closely integrated with the rest of the world than at any time in history. Trade and, to a much lesser extent, investment links were well established a century ago, but both deteriorated during the interwar period. Over the past 50 years, however, international trade and investment have risen sharply. Today, global ties—through goods and services trade, through capitalflows,and through integrated production relationships —are generally broader and deeper than ever before. The Growing Importance of Trade Historical statistics on U.S. trade reveal a striking pattern. A period of rising international economic integration began well before the 20th century but faltered between the two world wars. Although U.S. tariffs were relatively high during much of the 19th and early 20th centuries, the United States tended to participate actively in a generally flourishing world trade. Internationally, nontariff trade barriers were few. The interwar period that followed, however, was largely one of rising tariff and nontariff barriers—in the United States and elsewhere—and disintegration rather than integration. Since World War II, technological developments and the gradual international liberalization of trade and capital flows, described below, have once again put integration on the upswing. Chart 6-2 shows that, except briefly around the time of each world war, the ratio of trade (exports plus imports) to gross national product (GNP) did not return to turn-of-the-century levels until the 1970s. Recently, however, this ratio has approached 25 percent, its highest point in at least a century. 202 I Economic Report of the President Chart 6-2 U.S. Trade Relative to GNP Since 1900 As a share of GNP, the sum of U.S. imports and exports has exceeded early-20thcentury levels on a sustained basis only since the 1970s. Percent of GNP 15 10 Exports of goods and services 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 Sources: Department of Commerce (Bureau of Economic Analysis); Department of Commerce (Bureau of the Census); and Christina D. Romer, "The Prewar Business Cycle Reconsidered: New Estimates of Gross National Product, 1869-1908," Journal of Political Economy, 1989. But to look at U.S. trade only in the aggregate would miss much of the story of this country's integration into the global economy. Important changes have also occurred within sectors and individual industries. Exports of both goods and services have risen much faster than production, but each has followed its own distinct path. Although typically small relative to aggregate production, U.S. exports of services—including travel and transportation; royalties and license fees; telecommunications services; education; and a variety of financial and business, professional, and technical services—have grown dramatically, providing further evidence of the increasing importance of global linkages. (The United States exports transportation services when, for example, a European tourist flies a U.S. airline to New York, and imports transportation services when an American tourist flies a British carrier to London.) U.S. service providers have almost tripled the export share of their output over the past five decades. In 1950 only about 2 percent of U.S.-produced services were exported; in 1998 that share was about 6 percent. Indeed, growth in exports of services has outpaced growth in exports of goods. Not coincidentally, services have become a more important part of the domestic economy over the same period. As a result, services now account for about 29 percent of U.S. exports (Chart 6-3), up from only 17 percent in 1950 and about 2 percent in 1900. Chapter 6 I 203 Chart 6-3 U.S. Trade by Sector in 1998 Capital goods make up the largest single share of both U.S. exports and U.S. imports. Services are the second largest component of exports and the third largest of imports. U.S. exports = $966 billion Foods, feeds, and beverages |ndustrja| U.S. imports = $1,116 billion Foods, feeds, and beverages Industrial supplies and materials 13% Automotive products 8% Note: Data are on a national income and product accounts basis. Source: Department of Commerce (Bureau of Economic Analysis). Although goods production—capturing production in manufacturing, mining, and agriculture—has come to account for a smaller share of the economy, it, too, has become more deeply integrated into the global economy. The share of domestic goods production destined for export markets has grown from around 9 percent in 1929 to 21 percent in 1998. However, the shares for some specific industries and products are much larger. Many high-technology U.S. manufacturing industries, such as electronics, export 25 percent or more of their total shipments. Imports, too, foster integration into the global economy. In fact, the United States often imports and exports within the same categories of products. Capital goods, for example, are the leading category of both U.S. imports and U.S. exports (Chart 6-3). This two-way trade can also be seen within specific industries, such as the computer industry. Some of this two-way, intraindustry trade reflects the globalization of production arrangements. Anecdotal evidence and recent studies document how production processes have been increasingly divided up and reallocated, either domestically or globally. That is, discrete elements of these processes, such as research and development, design, assembly, and packaging, are performed byfirmsin the United States and elsewhere, based on countries' relative strengths in completing different tasks. Part of the growth in trade may also reflect rising vertical specialization, in which goods are imported, further processed, and reexported. 204 I Economic Report of the President Data from the U.S. computer industry (computer systems, hardware, and peripherals) illustrate the extent of both intraindustry trade and vertical specialization. According to one recent report, in 1998 an estimated 43 percent of domestic producers' total shipments was exported, and an estimated 58 percent of final and intermediate domestic consumption was imported. The same report notes that more than 60 percent by value of the hardware in a typical U.S. personal computer system comes from Asia. Intraindustry trade may also reflect an interaction of consumers' desire for variety with economies of scale in production. The automobile industry provides some commonly cited examples. We observe firms in the United States and the European Union producing and exporting different kinds of luxury and sport vehicles for niche markets. Because the average cost of production falls as more cars are produced, firms try to reach as many customers as possible. This gives them an incentive to seek out markets abroad. And when many producers in different countries adopt the same strategy, the result is greater satisfaction of consumers' demand for product selection. Economists note that consumer tastes for variety help explain trade flows among countries with similar resource and technology bases. U.S. firms' trading partners are located around the world, but they tend to be concentrated in industrial countries and in our closest neighbors. Canada is the top-ranking trade partner of the United States, accounting in 1998 for about 21 percent of U.S. merchandise exports and imports combined. Measured on the same basis, the European Union is a very close second, followed by Japan and then Mexico. In the aggregate, developing countries (excluding the few that are members of the Organization for Economic Cooperation and Development) account for about 31 percent of U.S. trade, although the 48 countries designated by the United Nations as least developed account for a very small share—less than 1 percent. The Rise of International Capital Flows Cross-border capital flows have likewise grown to unprecedented levels in the United States and around the world, reflecting reduced barriers to capital, an increased desire on the part of investors to diversify their portfolios internationally, and a plethora of new financial instruments and technologies. Cross-border transactions in bonds and equities have exploded in recent decades, reaching 223 percent of GDP in the United States in 1998, compared with only 9 percent of GDP in 1980. One survey reports that average daily turnover on world foreign exchange markets was about $1.5 trillion in April 1998, although not all such turnover necessarily crosses borders. This turnover has risen from $0.6 trillion in April 1989. These cross-border figures include substantial trading and retrading of the same securities, and hence to some extent overstate the degree to which own- Chapter 6 I 205 ership claims cross borders. For example, a U.S. mutual fund might turn over its entire portfolio of foreign securities more than once during the course of a year. Official balance of payments data provide an alternative measure of gross flows that comes closer to measuring the true change in cross-border ownership claims. Chart 6-4 shows these data on inflows of capital sent into the United States by foreigners, and outflows of capital sent from the United States by U.S. residents. U.S. outflows abroad have been rising; foreign inflows into the United States have been rising even faster. These flows typically amounted to 1 percent or less of GNP through the 1960s. By contrast, flows have been much larger recently: from 1995 through 1998, for example, inflows averaged 7 percent of GNP. Net capital flows (the difference between inflows and outflows in Chart 6-4), measured relative to GNP, have also reached much higher levels in recent decades. Indeed, the United States is by far the largest recipient of net capital inflows in the world, amounting to more than $200 billion in 1998. The large net capital inflows of the past two decades have led to a profound change in the net international indebtedness position of the United States. The United States was a net debtor until the late 1910s and then a net creditor until the late 1980s. At the end of 1998, foreign-owned assets in the United States exceeded U.S.-owned assets abroad by about $1.2 trillion (valued at current cost), an amount equal to 14 percent of U.S. GNP. A century ago, the net international investment position of the United States was similar, with Chart 6-4 Capital Flows Into and Out of the United States Relative to GNP Capital flows into and out of the United States have soared since the 1960s. Since the 1980s, inflows from abroad have consistently exceeded outflows. Percent of GNP 10 Inflows of foreign capital Outflows of U.S. capital 1923 1928 1933 1938 1943 1948 1953 1958 1963 1968 1973 1978 1983 1988 1993 1998 Note: Outflows of U.S. capital are the net increase in U.S.-owned assets abroad. Inflows of foreign capital are the net increase in foreign-owned assets in the United States. Sources: Department of Commerce (Bureau of Economic Analysis); Department of Commerce (Bureau of the Census); and Christina D. Romer, "The Prewar Business Cycle Reconsidered: New Estimates of Gross National Product, 1869-1908," Journal of Political Economy, 1989. 206 I Economic Report of the President net indebtedness of about 18 percent of GNP. However, the gross investment positions were much smaller then. In 1897, for example, U.S. assets abroad amounted to only 5 percent of U.S. GNP, compared with 56 percent in 1998. Economists sometimes distinguish among various broad categories of capital flows. The main ones are foreign direct investment (FDI), portfolio investment (such as stocks and bonds), and bank lending. These types of capital flows differ greatly in their volatility—a matter of concern for emerging market economies, as discussed below. Anecdotal evidence and recent studies suggest that bank lending and portfolio flows may be the most volatile. FDI, in contrast, may be less fickle, because these flows arise, in part, from the internationalization of production processes (Box 6-1). FDI occurs, for example, when an investor sets up an enterprise in a foreign country or obtains a large enough share (U.S. statistics, and those of some other countries, set the threshold at 10 percent) in an existing foreign enterprise to influence managerial decisions. Global FDI outflows accounted for about a quarter of total international capital outflows between 1990 and 1996. They grew from an annual average of $181 billion between 1986 and 1991 to $649 billion in 1998. Box 6-1. Multinational Corporations and Globalization Globalization is played out in many arenas and by many actors, an important one of which is the multinational company (MNC). MNCs undertake FDI when they establish overseas operations through foreign affiliates. They also engage extensively in international trade. Worldwide, some 60,000 parent operations of MNCs and their 500,000 foreign affiliates account for roughly 25 percent of global output, one-third of it in host countries. In industrial countries, services accounted for 53 percent of all FDI inflows in 1997, and manufacturing for 35 percent. In developing countries, manufacturing accounted for about 50 percent of FDI inflows in 1997, and services for 41 percent. U.S.-based MNCs account for a large share of U.S. production, trade, and employment. They produce about 19 percent of U.S. GDP through their parent operations (all these figures refer to nonbank MNCs only). In 1997 the trade associated with U.S. MNCs accounted for about 63 percent of U.S. goods exports and 40 percent of U.S. goods imports. Over 40 percent of these transactions involved trade between U.S. parent operations and their foreign affiliates. The parent operations of U.S. MNCs employed about 20 million workers in the United States in 1997, roughly the same number as in 1977. Although foreign affiliates of U.S. MNCs trade with their parent operations, among others, data show that most of their sales are local, continued on next page... Chapter 6 I 207 Box 6-1. — continued occurring within the host country. In 1997, 63 percent of worldwide sales of goods and 82 percent of worldwide sales of services by foreign affiliates of U.S. MNCs were local, reflecting in part the importance of proximity in the delivery of some products. In terms of the gross product of U.S. MNCs' majority-owned foreign affiliates, the United Kingdom is the most important destination for U.S. MNCs, followed by Canada and Germany. The foreign affiliates of U.S. MNCs employed about 8 million workers in 1997, up from 7.2 million in 1977. Just as U.S. MNCs have reached across national borders, so foreignbased MNCs have entered the United States. U.S. affiliates of foreign companies account for about 6 percent of U.S. private-industry gross product. In terms of the gross product of foreign MNCs' U.S. affiliates, the United Kingdom is again the leader, followed by Japan and Germany. In 1997, U.S. affiliates of foreign companies accounted for about 20 percent of U.S. goods exports and about 30 percent of U.S. goods imports. Also in 1997, U.S. affiliates of foreign companies employed about 5 million workers in the United States, up from only 1.2 million in 1977. Transactions involving U.S. entities, as either investors or recipients, account for a large share of global FDI flows. U.S. FDI outflows amounted to $133 billion in 1998, up from an annual average of $26 billion between 1986 and 1991. Meanwhile, U.S. FDI inflows rose from an annual average of $49 billion between 1986 and 1991 to $193 billion in 1998. Globally, most FDI goes to industrialized countries, but developing countries' share of global FDI inflows is also substantial, totaling about 28 percent in 1998, although this marked a decline from 37 percent in 1997. The Forces Behind Globalization The forces driving globalization include technology and policy. Technological improvements—in transportation, communications, information technology, and elsewhere—have reduced the costs of doing business internationally, thus lowering significant barriers to trade and investment. These improvements have also increased the range of possible commercial transactions, particularly in financial markets, and have created venues for new kinds of transactions, such as electronic commerce. Policy has also played an active role in reducing barriers to trade and investment. For example, over the past 50 years, policy measures have sought to reduce tariff and nontariff trade barriers. More recently, and especially since the 1970s, many countries have decided to remove restrictions on 208 I Economic Report of the President capital flows. Coupled with other domestic policies designed to promote competition among firms, these kinds of market liberalization in trade and investment have helped reduce costs to consumers and promote technological innovation. The Role of Technology Although our nearest neighbors remain among our most important trading partners—Canada and Mexico together account for about one-third of our total trade—improvements in technology have reduced the costs of doing business overseas and made distant markets more accessible. The cost of moving goods has fallen over time. Studies document substantial reductions in shipping costs in the pre-World War I period, and some indicators suggest that costs have continued to decline since then. This decline appears to reflect several factors, including direct declines in some shipping rates as well as a shift in the mix of traded goods and modes of shipping. One study reports that average ocean freight and port charges on U.S. trade fell from $95 per short ton in 1920 (measured in 1990 dollars) to $27 in 1960, but then leveled off. Another recent study looks at relatively disaggregated data since the 1950s and finds little evidence of declines in real ocean shipping rates. But that study does find that air shipment rates have fallen sharply: worldwide, the cost of airfreight, measured as average revenue per ton-kilometer, dropped by 78 percent between 1955 and 1996. In addition, the share of world trade in high-value-to-weight products such as pharmaceuticals has risen. Reflecting the falling cost of airfreight as well as the shifting composition of trade, air shipments in 1998 accounted for 28 percent of the value of U.S. international trade—up from 7 percent in 1965 and a negligible share in 1950. At the same time, the cost of land-based shipping may also have fallen. Because of the importance of Canada and Mexico as trading partners, about 34 percent of the value of U.S. trade was shipped by land in 1998—up from about 28 percent in 1965—and even many goods that travel by ocean-going vessel must be transported to or from the port. Domestic deregulation in the U.S. transportation industry has contributed to efficiency gains in land transport, and the development of the Interstate Highway System since World War II also appears to have reduced transport costs. In addition, technological developments such as containerization have facilitated intermodal transportation and improved the quality of transport services. Containerization allows a standard-sized container to be hauled by truck or rail and then, if continuing overseas, loaded by crane directly onto a ship. This technology has reduced both handling requirements and transit time for deliveries. Improved communications and information technologies have also facilitated international commerce. In 1930, for example, a 3-minute phone Chapter 6 I 209 call from New York to London cost $293 in 1998 dollars. By 1998, one widely subscribed discount plan charged only 36 cents for a clearer, more reliable 3-minute call. This decline in communications costs, coupled with the availability of new technologies, has probably been particularly important in facilitating services trade. Although market proximity is still an important factor for many services, firms' ability to provide customer support by telephone or e-mail at relatively low cost, or to transmit products electronically via the Internet, has reduced its importance in some industries. A report from the U.S. General Accounting Office notes that technological innovations linked to computers and satellites have influenced how intermodal freight shipments are handled. Such innovations include bar coding for verification and tracking, electronic transmission of business data and documents, and in-vehicle navigation systems that help shippers find the most direct or least congested routes. Improvements in information and communications technology have also underpinned rapid technological change in the financial sector. Recent years have seen an explosion in the range of financial instruments, which has contributed to the massive gross flows of financial capital discussed earlier. For example, advances in computing technology enable traders to implement complex analytical models (such as models for pricing options), and this in turn allows financial firms to meet demand for new financial instruments. Under flexible exchange rate regimes, one source of demand for such instruments is the desire of market participants to remove or insure against the exchange rate risks they face in trading goods, services, or assets. Swaps, options, and futures permit them to do so. In addition, rising financial wealth in many countries has created demand for instruments that facilitate international portfolio diversification, even as financial innovation has made it easier to supply these instruments. For example, international mutual funds—some highly specialized by sector or region—are more easily available today than ever before, reflecting both the rise in demand and the ease of supply. Information and communications technologies have also made it easier to source inputs globally. For example, Chapter 3 discussed the case of a firm that specializes in finding suppliers for large custom procurement orders. After finding qualified suppliers, who may be located anywhere in the world, the firm coordinates online bids for the order. The process helps overcome the informational barriers to finding reliable, low-cost suppliers. The Role of Policy Given the economic and technological forces behind globalization, its rise may seem inevitable. Yet governments have taken on a critically important role in opening markets and removing distortions, thereby allowing market 210 I Economic Report of the President forces to play themselves out. In the interwar period, in contrast, policy actively promoted protectionism through high tariff and nontariff barriers. Indeed, rising protectionism in a number of countries—including the United States, through the Tariff Act of 1930 (Smoot-Hawley)—made the Great Depression more severe. Despite efforts by the United States to begin reducing tariffs at home and abroad in 1934, through the Reciprocal Trade Agreements Act, world tariffs remained high on average. Since mid-century, however, policy in the United States and elsewhere has worked actively to reduce trade barriers that limit or distort the choices available to consumers and firms. Since the 1970s especially, governments have been reducing barriers to capital flows as well. As discussed later, policy can also help in dealing with the inevitable tensions and disruptions of economic integration. The United States has played a leading role in liberalizing trade internationally, both by reducing its own tariffs and by encouraging others, through a variety of market-opening initiatives, to follow suit. The multilateral trading system, consisting of the GATT at first, and more recently the W T O , is at the core of these efforts. Before the creation of the GATT in 1948, trade barriers—in the United States and elsewhere—were more susceptible to a range of economic and political factors. Tariff rates, measured as the ratio of duties to import values, rose noticeably in the United States during the interwar period, partly because of new legislation. But some of the increase shown in Chart 6-5 reflects the effect of declining import prices in the early 1930s: many tariffs were "specific," in that they were imposed as a nominal Chart 6-5 Average U.S. Tariff Rates Since 1900 Tariff rates rose sharply in the interwar period but have remained consistently low since the creation of the GATT. Average tariff on dutiable imports 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 Source: U.S. International Trade Commission. Chapter 6 I 211 dollar amount per imported quantity, so that when prices fell, effective tariff rates rose. A recent study shows that the Tariff Act of 1930 raised the tariff rate on U.S. imports by roughly 20 percent, on average, independent of the effects of price declines. Following the creation of the GATT, and through successive rounds of multilateral negotiations, world trade markets have become more open and integrated, contributing to the strong economic growth of the second half of the 20th century. Success in reducing nontariff barriers was uneven throughout this period, but tariffs generally declined. For example, import tariffs on industrial products in industrial countries have dropped 90 percent over the last 50 years, from an average of about 40 percent to roughly 4 percent. Other market-opening initiatives have also contributed to trade, such as the U.S. "open skies" policy for international civil aviation, which has helped improve U.S. air carriers' access to passenger and cargo markets around the world. As Chart 6-1 showed, growth of trade has consistently outpaced growth of income since 1950. Policy developments have also contributed to the growth of international capital flows. Most governments kept at least some controls on capital movements from World War II into the 1970s. Today, by contrast, restrictions on capital flows have generally been removed in the industrial countries, and they have been substantially relaxed in many developing economies as well. Pervasive controls on cross-border capital flows were part of the international monetary and financial regime adopted at Bretton Woods in 1944. These controls were partly a response to the severe instability of the international monetary system during the Great Depression. The industrialized countries generally began relaxing these controls in the 1950s, and the late 1970s saw much more widespread liberalization. Technological developments in a sense contributed to liberalization by making capital controls increasingly difficult to enforce. And a rising volume of trade conducted under flexible exchange rates spurred interest in financial transactions to hedge exposure to currency and commercial risk. Moreover, recent decades have brought renewed recognition worldwide that financial markets, like markets for goods and services, generally allocate resources effectively. This recognition has given impetus to considerable financial liberalization in developing economies over the past decade. Financial liberalization has often accompanied other favorable economic policies, such as macroeconomic stabilization, privatization, trade liberalization, and deregulation. Such structural reforms in a significant number of capital-scarce developing countries have provided significant investment opportunities, with high expected rates of return, and this has attracted a surge of foreign capital. However, this surge does raise some concerns, as discussed later, and it puts a premium on adopting appropriate domestic macroeconomic policies and strengthening domestic financial systems. 212 I Economic Report of the President The Benefits of a Global Economy The United States approaches globalization from a position of considerable strength. In per capita terms, the United States has been the world s richest major economy since overtaking the United Kingdom early in the 20th century, and by most measures it remains so today. Chart 6-6 shows estimates of GDP per capita since 1900. The chart is plotted on a ratio scale, so that a steeper slope implies a faster growth rate. As the figure illustrates, the dominant macroeconomic fact for both the United States and other major economies for more than a century has been that output per person has grown. But this growth has been far from steady. The 1913-50 period, when global economic relations deteriorated and integration receded amid active protectionism and instability in the international monetary system, recorded the most volatile output growth rates in all four countries shown in the chart. The post-World War II period of rising globalization, in contrast, has been a time of rapidly rising prosperity. Throughout much of the postwar period, Germany and Japan grew more quickly than the United States, somewhat closing the gap in GDP per capita. But this convergence slowed after the early 1970s and had largely ceased by the end of the 1980s. In 1998, GDP per capita remained considerably higher in the United States than in the other economies in Chart 6-6. Overall, the record shows that the U.S. economy has thrived in the global marChart 6-6 GDP per Capita in the United States and Selected Major Economies The gap in income per capita between the United States and other major economies has narrowed in the postwar era, but the United States retains a dear lead. Thousands of 1991 PPP dollars (ratio scale) 30 United States 20 United Kingdom 10 Japan 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 Note: Data for 1960 to 1998 are from the OECD. Estimates from 1900 to 1959 are extrapolated backward using growth rates from Maddison's data. Data for Germany are for western Germany through 1990, and for all of Germany beginning in 1991. PPP stands for purchasing power parity. Sources: Organization for Economic Cooperation and Development, and Angus Maddison, Monitoring the World Economy 1820-1992, 1995. Chapter 6 I 213 ketplace. The discussion of the benefits of globalization that follows suggests that this conjuncture of globalization and prosperity is no mere coincidence. International economic integration raises living standards by improving resource allocation, promoting innovation, encouraging technology transfer, and otherwise enhancing productivity growth. Through trade, countries can shift resources into their most internationally competitive sectors and reap the benefits of specialization and scale economies. Their consumers also enjoy less expensive and more varied products. Opening domestic markets to global capital can help countries invest more efficiently. FDI can lead to improved management, better technology and training, and higher wages in local communities. However, the same processes that bring about economic growth, including those that work through trade and investment, can force costly adjustments for some firms and their workers. An array of U.S. domestic policies, such as those to assist job search and training, address these issues, as do some elements of international agreements that the United States has entered into. Both are discussed later. Globalization and Living Standards Trade economists have long recognized the benefits of specialization in production and of access to markets. When a country produces and exports those goods and services that it can produce relatively inexpensively, and imports those that are relatively inexpensive to produce abroad, trade improves standards of living on both sides of the transaction. For example, the United States can produce financial services at lower cost, relative to other products that it might produce, than most developing countries can. Costa Rica, by comparison, can produce coffee at lower cost, relative to other products, than can most industrialized countries. In this example, the United States would likely benefit from producing and exporting financial services and importing coffee. The reverse is true of Costa Rica. Through freer trade and specialization, a country's resources can be directed more efficiently to those uses in which they generate the most economic value, thereby raising income. Access to larger markets can also reduce costs and increase the returns to innovation. Producing such goods as automobiles and airplanes requires building large plants and installing complex and costly equipment. By adding exports to their domestic sales, manufacturers can lower their unit costs by extending production runs and spreading overhead costs more broadly. Moreover, the ability to spread fixed research and development costs may allow globally competitive firms to be more innovative than those confined to selling in domestic markets. 214 I Economic Report of the President Domestic production can expand when firms export, drawing workers into jobs in the economy's most productive and internationally competitive sectors. Recent studies find a substantial wage premium—on the order of 15 percent—in U.S. jobs supported by goods exports. Moreover, opening up to trade means giving consumers and firms greater freedom of choice about what inputs to purchase and what goods to consume. For consumers, the availability of less expensive and more varied products increases the real purchasing power of domestic wages. Some of the benefits of market opening are quantifiable. For example, a study of the costs of protection in the United States found that tariffs and quantitative import restrictions in place in 1990 cost American consumers about $70 billion. Since 1990, these costs to U.S. consumers have fallen, as trade barriers have been reduced on some products. At the same time, import competition creates incentives for U.S. businesses to price their products more competitively. Access to international capital markets can also improve living standards. International capital mobility allows portfolio diversification and improved risk sharing. It allows investments to take place where they offer the highest returns, thereby improving global resource allocation. And it allows a country to smooth its consumption by consuming today more than it produces today, paying for the difference by borrowing abroad. Therefore, global investment, like trade, yields benefits to both sides of the transaction. Capital goes to those who are best able to make productive use of it, and the suppliers of that capital receive a higher return for a given level of risk than they could get elsewhere. These benefits may be particularly pronounced in the case of FDI. Too large a volume of short-term capital flows, by contrast, may in some cases make an economy more vulnerable to crisis, as discussed later. Trade and investment activities can be mutually reinforcing. For example, FDI by U.S. companies can help pave the way for U.S. exports. It may create demand for U.S.-produced inputs, possibly from the parent operations. It may also offer U.S. companies a foothold in foreign markets from which they can further expand sales. In many cases, investment in distribution and other essential services increases a suppliers ability to export into a market. Trade between firms and their foreign affiliates, so-called intrafirm trade, can be an efficient means of doing business overseas, particularly when firms need substantial information about suppliers, clients, or markets abroad in order to operate effectively. Over a third of U.S. merchandise exports and about two-fifths of U.S. merchandise imports are estimated to be intrafirm; worldwide, intrafirm trade's estimated share is about a third. Trade may also expand capital flows. For example, the growth of trade has created a need for more trade-related financing and, as noted previously, for tools to hedge risk. Chapter 6 I 215 Globalization and Growth Although causality may be hard to establish, simple measures of the correlation between the openness of an economy and its growth suggest a mutually supportive relationship. For example, ample evidence demonstrates that countries that actively participate in international trade tend to have higher incomes than those that do not. They also experience more rapid growth and productivity improvements. Studies also suggest that countries that have adopted outward-oriented economic policies since the early 1970s experienced significantly higher annual growth of GDP per capita over the next two decades than countries that remained inward-oriented. Exposure to foreign competition gives domestic firms an incentive to raise their productivity—and these gains recur. Once competition is introduced, it leads to a cycle of productivity improvements and quality enhancements that continue to benefit the economy indefinitely. Studies of the United States and Japan find a positive relationship between import growth and productivity growth. Furthermore, evidence suggests that openness can induce higher average productivity through access to a greater range of intermediate inputs and, within a given industry, through faster growth of those firms that achieve the highest productivity. Increased trade and FDI can also boost productivity growth by improving the flow of knowledge and the transfer of technology. Traded manufactures, like all manufactures, embody knowledge and technology and, in the case of information and communications technology for example, may boost countries' ability to innovate. Besides providing funding, direct investors can bring international best practices, including managerial, technical, and marketing know-how, to the recipient, which can then spill over into the rest of the economy. In turn, the direct investors may also benefit from the expertise of the recipient firms. The flow of knowledge and transfer of technology also occur through local research and development (R&D). Expenditure on R&D performed by foreign affiliates in the United States accounted for about 12 percent of the R&D performed by all U.S. businesses in 1997. The ratio of R&D expenditure to gross product for these affiliates was 5 percent, twice the ratio for all U.S. businesses. For developing countries, evidence suggests that FDI, along with hightechnology trade, can play an important role in their catch-up to the industrial countries. When industrial-country investors build, contribute to, or acquire production facilities in a developing country, the recipient country gains not just from expanded production and improved job opportunities, but also from access to more advanced technologies. Recent studies show that, in developing countries with a sufficient stock of skilled labor, FDI from industrial countries can contribute more to growth than does the country's own domestic R&D. 216 I Economic Report of the President In short, increased globalization benefits the United States and other economies. Globalization yields gains from trade, through specialization and through realization of scale economies in production. And by allowing capital to flow across borders, it lowers the cost of financing investment in the recipient country, increases the return to saving, and allows for portfolio diversification in the country providing the funds. Both trade and investment contribute to the flow of knowledge and transfer of technology. The Challenges of Globalization The United States has long sought to extend the benefits of trade and investment as widely as possible, both within and among countries, but significant challenges remain. The United States is committed to expanding trade and investment opportunities around the world. It is also committed to putting a human face on the global economy, in part through greater consideration of labor and environmental concerns and more openness in WTO proceedings. For all the evidence that trade raises living standards, some U.S. industries and their workers may face difficulties adjusting to more open markets. Economists attribute only a small share of worker dislocation (roughly 10 percent or less) to trade, but crafting sound domestic policy to help ease the transition for those affected poses another important challenge. The emerging marketfinancialcrises of 1997-99 highlight yet another challenge: the risk that sudden reversals in capital flows can in some cases be destabilizing. Finally, the growing U.S. trade deficit raises the challenge of ensuring not only that the United States remains an attractive location for investment, but also that Americans are saving enough for the future. Spreading the Benefits of Trade The United States has sought to open markets, extend the rule of law, and encourage economic growth internationally through bilateral, regional, and multilateral trade agreements. The multilateral trading system, consisting originally of the GATT and more recently the WTO, is at the core of these efforts. Although its achievements have been considerable, this system remains a work in progress. The recent difficulty in establishing a mandate for a new round of WTO negotiations, and the public protest accompanying the WTO Ministerial in Seattle, give a sense of the challenges that lie ahead. Many countries continue to maintain high trade barriers, especially in agriculture and services, but institutional concerns, such as those relating to the WTO s accessibility and transparency and to its relationships with international labor and environmental organizations, have come increasingly to Chapter 6 I 217 the fore. Much work also remains to be done to ensure that developing countries—particularly the least developed—enjoy improved market access and obtain the technical assistance they need to realize the benefits that international trade can afford. At the same time, the United States must also address legitimate concerns about the adjustment of domestic industries and workers. On balance, trade does raise living standards, but there are those within an economy who may suffer losses when more-open markets shift resources from one use to another. Opening Markets More Fully The United States gains when it lowers its trade barriers, but it gains most when other nations also lower theirs. Indeed, as one of the worlds most open economies, the United States has a particular interest in promoting liberalization abroad. The Uruguay Round, which lasted from 1986 to 1994, brought agriculture and textiles and clothing more fully into the GATT and took the first steps toward liberalizing trade in those sectors. It also brought service trade into the multilateral system by creating the General Agreement on Trade in Services. A series of post-Uruguay Round negotiations have yielded additional market access commitments in financial services, basic telecommunications services, and information technology, opening up new opportunities in areas where the United States is believed to be highly competitive. Yet room for improvement remains, as many countries continue to maintain significant tariff and nontariff barriers. Agriculture provides a stark example. Bound tariff rates (maximum rates to which countries commit themselves in trade negotiations) on agricultural products average about 50 percent around the world, compared with less than 10 percent in the United States. Moreover, even after the European Union and Japan fully implement their Uruguay Round commitments, they will be free to provide as much as $78 billion and $35 billion, respectively, in trade-distorting domestic support to their farmers each year. By comparison, the United States will be limited to about $19 billion. Partly because of these policies, average prices for food and related goods are 34 percent higher in the European Union and 134 percent higher in Japan than in the United States. To help meet the challenges of market opening, the United States is seeking additional market access in agriculture, services, and certain industrial products in the W T O . Notwithstanding the difficulty in establishing a negotiating mandate during the Seattle Ministerial, the W T O s built-in agenda calls for further negotiations on agriculture and services to have begun by January 2000. In agriculture the United States has proposed eliminating export subsidies and reducing tariffs and trade-distorting domestic supports. In services the United States has sought commitments for more openness in 218 I Economic Report of the President key sectors such as finance, telecommunications, and construction. In other areas—chemicals, energy products, environmental products, fish, forest products, jewelry, medical and scientific equipment, and toys—the United States has sought accelerated tariff liberalization. Rapid technological change poses additional challenges, sometimes raising questions about the nature of trade and product development. The United States has sought to promote the development and use of new technologies, such as electronic commerce and biotechnology, in ways that help spread the benefits of trade. With the strong support of the Congress, this Administration has sought an extension of the moratorium on tariffs on electronic commerce in the W T O . The United States is also seeking to ensure that trade in agricultural biotechnology products is based on transparent, predictable, and timely processes. Strengthening Rules and Institutions Credibility and predictability are essential components of the trading system. For firms to undertake the investments necessary to serve foreign markets, they need to believe that new barriers will not be raised and that old ones will not reassert themselves. To rely on foreign suppliers, buyers need to believe likewise that market access will not be disrupted. Traders need assurance that commitments will be binding and that markets will remain open even if circumstances change. And the rules of the trading game should ensure that governments play fair—that they neither seek advantage for favored interests by subsidizing their producers, nor pass regulations that unnecessarily distort international trade, nor otherwise circumvent international commitments. In setting these rules and encouraging compliance with them, the W T O has tried to strike an appropriate balance between the needs of the trading system and those of sovereign nations. Its agreements do not preclude the United States or other countries from establishing, maintaining, and effectively enforcing their own laws, nor do they prevent the United States from setting and achieving its environmental, labor, health, and safety standards at the levels it considers appropriate. The W T O operates not by decree but by consensus among its members. Through consensus, the W T O has done much to achieve both credibility and fairness. Its rules allow nations to take antidumping measures, countervailing duty measures, and action against import surges, provided they follow certain procedures. The United States has used its own WTO-consistent trade laws to combat unfair foreign practices and to provide safeguards for domestic producers. The W T O also provides an improved framework for resolving disputes within the multilateral system. This framework has proved extremely useful to the United States, which as a complaining party has so far prevailed in 22 out of 24 cases, having favorably settled 10 without litigation Chapter 6 I 219 and having won 12 in litigation. And the WTO provides new rules for protecting intellectual property rights. For the United States and many other countries, such rights convey substantial value. In 1998, for example, U.S. exports of royalties and license fees amounted to about $37 billion. By and large, countries participating in the GATT and later the WTO have adhered to their commitments. The trend toward market liberalization since World War II, and the maintenance of commitments not to raise barriers even in the face of international financial crises, stand in sharp contrast to the trade policy experience of the interwar period. The multilateral trading system has played a critical role in maintaining and expanding economic ties, helping make the last half century one of historically unprecedented economic growth for the United States and many of its trading partners. Nevertheless, the rules of the WTO and the ways in which they are administered can be improved. The dispute settlement process, although much strengthened, is opaque and sometimes slow. During the Seattle Ministerial, the United States led the call for greater public access and participation. The United States has sought to open the WTO s dispute settlement procedures to the public and to allow nongovernmental organizations to file amicus briefs. The drawn-out pace of settlement proceedings has also caused dissatisfaction. Ordinarily, a case should not take more than a year (15 months if it is appealed), but in practice the dispute settlement process can continue to drag on even after the WTO has adopted a ruling. For example, in the case involving the EU banana import regime, the WTO found for the United States in about 18 months from the point of initial consultation, but by the time the United States wasfinallyauthorized to suspend trading concessions, nearly 3 years had passed. Promoting Growth Internationally The United States has long advocated the use of the multilateral trading system to promote economic growth internationally, often with considerable success, but not all countries are well positioned to reap the benefits that trade can afford. Steps can be taken to help ensure that developing countries, including the least developed, obtain the market access and technical assistance they need to benefit more fully. Developing countries have increasingly come to appreciate the value of the multilateral trading system. The system not only provides them opportunities to trade on the basis of their comparative strengths but also reinforces market-oriented development strategies where they have been adopted. Originally dominated by the industrial countries, the system has witnessed growing participation as other nations have sought inclusion. Today the WTO counts 135 members, with over 30 nations, including China, seeking accession (Box 6-2). This allure of the trading system supports the conviction that 220 I Economic Report of the President international trade is not a zero-sum game: both the United States and its trading partners reap the benefits. Developing countries have come to account for an increasingly large share of world trade, but some have moved ahead more rapidly than others. Developing countries' total trade (exports plus imports) rose at an annual rate of 9.9 percent between 1989 and 1997, exceeding the 7.6 percent growth rate Box 6-2. China's WTO Accession: Opening Foreign Markets, Extending the Rule of Law, and Encouraging Growth and Development In November 1999 the United States and China concluded a bilateral agreement on China's WTO accession. This agreement, which represents a crucial step in China's accession to the multilateral organization, addresses many of the barriers to trade and investment in China that now impede the flow of goods, services, and capital. Upon implementation, the agreement would benefit both U.S. and other firms outside of China, by improving access to China's market. China would benefit as well from wider availability of high-quality foreign products and from the introduction of best-practice skills by U.S. firms in areas such as finance and insurance.The agreement would help address distortions in China's economy that have contributed to slowing output growth there and have reduced the prospects for future growth. Under the terms of the agreement, China's WTO accession would continue the remarkable process of economic reform that began there two decades ago. China's economy has become increasingly marketoriented and increasingly open to trade and foreign investment. Between 1978 and 1999, China's official statistics indicate that the country's income per capita rose at a rate of more than 8 percent per year, which, according to the World Bank, has helped raise some 200 million people out of absolute poverty. (Some have argued that statistical shortcomings lead to an overstatement of this long-run growth rate, but even skeptics acknowledge that the results have been impressive.) Trade has grown even faster than output, with the sum of exports and imports rising from $21 billion in 1978 to $324 billion in 1998. Over this period more than $250 billion in FDI entered China. Despite this substantial progress, China has continued to maintain significant barriers to foreign trade and investment. These barriers include high tariffs on many agricultural and industrial products and other, less quantifiable restrictions. For example, some products may be imported only by approved foreign trading companies, and foreign investment is sometimes restricted outside of particular sectors. In many sectors these barriers have shielded inefficient state-owned continued on next page... Chapter 6 I 221 Box 6-2.—continued enterprises—the core of the former centrally planned economy—from competition, reducing prospects for China's continued strong growth. The bilateral agreement directly addresses many of these concerns, especially as they relate to trade. China has agreed to significant reductions in tariffs on imports of agricultural and industrial products: for example, tariffs on U.S. industrial products would decline from a simple average of 24.6 percent to 9.4 percent, calculated from a 1997 baseline. The bilateral agreement would also address many nontariff barriers. In agriculture, China would establish large and increasing tariff-rate quotas on bulk agricultural commodities, limit some state trading activities, and eliminate export subsidies. (A tariff-rate quota is one in which imports are allowed above the quota but a higher tariff applies than within the quota.) China would phase in full trading and distribution rights for most of its industrial sectors. The agreement also covers a wide range of trade in services, including banking, insurance, telecommunications, distribution, professional activities, and other business services. The agreement also contains a special safeguard rule, to protect against surges in China's exports to the United States, and it specifies a non-market economy methodology to address dumping. As a result of these changes, U.S. firms would gain from better access to a fast-growing market of almost 1.3 billion people, and from greater certainty about China's economic policies in the future. WTO accession would commit China to a path of further economic liberalization, which could help lock in its transformation from a centrally planned to a market-based economy and encourage faster growth.This commitment can also help strengthen the rule of law in China, providing more certainty for U.S. firms seeking to do business there. Although the bilateral agreement represents a crucial step toward China's WTO accession, several important ones remain. For example, China must still complete bilateral agreements with a number of other WTO members, as well as multilateral negotiations on its accession protocol. After that, China must complete its own domestic procedures for accession. of trade worldwide. Over this period their share of world trade rose from 29.1 percent to 34.7 percent. Among developing countries, the trade of those that are WTO members grew slighdy faster, at an annual rate of 10.5 percent. The 48 least developed countries have, as a group, done less well. For these countries, many of which are also WTO members, trade grew at an annual rate of only 6.1 percent through 1996. 222 I Economic Report of the President As these data suggest, not all WTO members are well equipped to use the trading system effectively. Some of the least developed members lack the necessary domestic institutions and infrastructure to reap the full benefits of trade. For them, capacity building and technical assistance, coupled with additional market opening, could help spread those benefits. Through the WTO, the international community can make more progress in liberalization in certain priority areas, such as agriculture and services. But developing countries, including the least developed, can also take their own actions. In addition to participating in multilateral initiatives, they can benefit from increased unilateral liberalization, as free trade promotes the movement of labor and capital into their most productive uses, strengthens competitive forces, facilitates innovation, and raises living standards. The United States has proposed measures for the WTO to provide developing countries with technical assistance in implementing trade policy. The United States will also work to give the least developed countries greater access to global markets, as it is already doing through the U.S. Generalized System of Preferences (GSP) program. The U.S. GSP program began in 1976, when the United States joined 19 other industrialized countries in granting tariff preferences to developing countries, to help promote economic growth through expanded international trade. Currendy, over 4,400 products and product categories are eligible under the program for duty-free entry from designated beneficiaries—over 140 developing countries and territories in total—and another 1,783 products are eligible for duty-free entry from least developed beneficiaries only. The value of U.S. GSP duty-free imports in 1998 was $16.3 billion. However, lapses in authorization of the program, which have occurred several times over the past 5 years, have tended to detract from its efficacy, by creating uncertainty for investors and importers. Addressing Concerns About Adjustment As markets become more open, some domestic industries will expand while others may contract. Although globalization provides benefits overall, the adjustments that businesses and workers in shrinking industries may undergo can be costly and painful. Although, as noted above, economic studies typically find that trade is a small factor in U.S. job displacement, some workers may face short-term unemployment, and others may even face permanent wage reductions if they are unable to find comparable jobs in expanding sectors. Trade, like other sources of economic growth, therefore presents challenges at home. But the fact that trade produces additional income means that, in principle, resources are available to help those who are hurt—either to adapt by becoming more productive and competitive at what they were already doing, or to switch activities. One way to help in the transition is to develop Chapter 6 I 223 programs that directly address the problems of dislocation. Another is to encourage trade while limiting the pace at which change occurs, as the United States has done by phasing in provisions of the WTO agreements and applying safeguard measures. Such gradualism may be desirable under certain circumstances, but trying to prevent liberalization altogether would be counterproductive. Permanent protection inevitably costs more, in terms of benefits forgone, than it saves. The key lies in maintaining an economy that is sufficiendy flexible and vibrant to meet the challenges of reaping those benefits. To address problems of worker dislocation, regardless of cause, the Administration has developed new programs to assist in job search and training. These programs add to the assistance already available to displaced workers through the Federal Trade Adjustment Assistance program. The Workforce Investment Act of 1998 retains a funding stream for dislocated workers and promotes customer access to services and information, as well as customer choice, through a One-Stop delivery system and through Individual Training Accounts. The Administration is also acting to ensure that Lifetime Learning tax credits and scholarships are available to assist workers in preparing for new jobs. Federal job and talent banks are meanwhile providing mechanisms for helping millions of U.S. workers find new jobs. For example, on a single day in January 2000, Americas Job Bank listed over 1.5 million jobs. The WTO agreements and U.S. trade laws also provide a cushion during periods of adjustment. For example, key features of the Agreement on Agriculture and the Agreement on Textiles and Clothing phase in gradually over periods of 6 to 10 years. Moreover, the WTO agreements allow countries to use certain forms of safeguards to protect themselves temporarily against import surges that seriously injure or threaten to seriously injure a domestic industry. The United States has invoked its own safeguard provisions three times since the creation of the WTO, in cases involving corn brooms, wheat gluten, and lamb meat. Addressing Concerns About Core Labor Standards and the Environment During the Seattle Ministerial, some participants and observers raised important questions about the relationships between trade and labor and between trade and the environment. The Administration is committed to ensuring that the benefits of trade are shared broadly and do not come at the expense of core labor standards or the environment. Economic evidence, presented below, suggests that trade can support labor and environmental objectives rather than obstruct them. Over time, the United States has developed strategies to address international labor and environmental considerations through a variety of means. 224 I Economic Report of the President For example, preferential U.S. trade programs contain criteria for workers' rights: legislation for the U.S. GSP program states that the President shall not designate any country a beneficiary developing country if "such country has not taken or is not taking steps to afford internationally recognized worker rights to workers in the country...." The North American Free Trade Agreement contains side agreements on labor and the environment. At the same time, the United States has sought to promote core labor standards and environmental goals through multilateral institutions such as the International Labor Organization and the United Nations Environment Program. During negotiations in Seattle, the United States proposed to strengthen the W T O s links to these and other relevant international organizations. The United States is also seeking to create a working group on trade and labor in the W T O , to better understand the linkages between them. And just before the Seattle Ministerial, the President issued an executive order for the United States to conduct environmental reviews of certain kinds of trade agreements. Economic evidence suggests that trade can support both labor and environmental objectives, in part through its positive effect on economic growth. For example, analysis using wage, employment, and income data to study the relationship between economic development and working conditions in Hong Kong, the Republic of Korea, Singapore, and Taiwan has found that these conditions generally improved as the economies developed. Studies of the relationship between pollution and income per capita are also revealing: in several cross-country analyses of emissions patterns of air and water pollutants, emissions seem to increase with income at low incomes and fall with income at high incomes. As countries become wealthier, they may eventually become cleaner, perhaps because of increased demand for environmental protection. Recognizing that trade and environmental objectives can be mutually supportive in even more direct ways, the United States is seeking to eliminate fishery subsidies that contribute to overfishing and to eliminate tariffs on environmental goods. Nevertheless, international trade occurs in the context of domestic policy. Although sovereign nations bear responsibility for adopting sound domestic policies, the international community can contribute its expertise. In this regard, the United States has proposed measures in the W T O to provide technical assistance on implementing trade policy and on strengthening institutions in developing countries responsible for trade, labor, environmental, and other policies that influence the gains to living standards from trade. Managing Capital Flows and the Macroeconomy Globalization raises other challenges as well: flows of goods, services, and capital can be the source of macroeconomic shocks. To take an extreme example, the crisis in emerging markets that began in Thailand in 1997 Chapter 6 I 225 demonstrated the potential adverse consequences of volatile capital flows. The crisis also highlighted the need for developing countries to strengthen their domesticfinancialsystems and adopt appropriate macroeconomic policies, including consistent monetary and exchange rate policies, to cope with this volatility. Such policies allow countries to capture more fully the benefits of an increasingly globalfinancialsystem and to minimize their vulnerability to crises. Of course, for some very poor countries the challenge is not that capital flows are too volatile, but that they are insufficient. Recent policy initiatives, discussed below, aim to distribute the benefits of global capital flows more broadly. International Financial Crises and the New Financial Architecture A particular concern is the potential role of sudden swings in capital flows in precipitating afinancialcrisis—a phenomenon marked by extreme financial market volatility and macroeconomic instability. An economic crisis can, of course, occur in a country that is closed to trade and capitalflows,but adding an international dimension to the crisis can in some cases make the situation even worse. We have seen how international capital flows provide important benefits in allocating resources efficiently and promoting growth. But sometimes capital—especially short-term capital, such as overnight bank loans—can flow out of a country very quickly. For example, capital might leave a developing country in response to new information about the country or to a change in industrial-country interest rates. But whatever drives them, rapid outflows can force a sudden and cosdy adjustment in financial markets and the real economy. A series of crises in emerging market economies in the 1990s have brought these issues to the fore. In Mexico in 1994 and 1995, policy shortcomings, weakness in Mexico's balance sheet, andfinancialmarket volatility combined to create a sharp liquidity crunch and a steep fall in output. The crisis that began in Thailand in 1997 seems to fit the same pattern. That crisis quickly spread to other Asian developing economies in 1997 before it began to ease in mid-1998; it then, however, revived and spread to Russia, Brazil, and several other Latin American countries in 1998 and early 1999. Many emerging markets had exchange rate regimes that, to a greater or lesser extent, involved pegging the value of the domestic currency to the dollar while retaining latitude to adjust the pegged rate or even float the currency. For these economies the initial manifestation of the crisis was a sharp fall in reserves, which forced abandonment of the pegged rate; the currency's value then fell precipitously. Stock markets also dropped sharply. Severe declines in output soon followed. For example, annual output growth had averaged about 7 percent from 1990 to 1996 in the five "front-line" Asian crisis economies (Indonesia, Korea, Malaysia, the Philippines, and Thailand). 226 I Economic Report of the President By contrast, in 1998 output fell on average by 7 percent in these economies. Large swings in capital flows required corresponding adjustments in the current account balances of these five economies, which shifted from combined deficits of $54 billion in 1996 and $25 billion in 1997 to a combined surplus of $69 billion in 1998. Last year's Economic Report of the President discussed the recent emerging markets crisis at length. The crisis and the virulent contagion that ensued did not have a single, simple cause. Nevertheless, in some Asian countries, structural weaknesses, particularly in financial intermediation, appear to have been a key source of vulnerability. Weak financial systems intermediate resources poorly, so capital is not allocated efficiently. The combination of lax financial supervision and regulation, a tradition of lending to politically favored borrowers, and poor corporate governance, led in turn to considerable lending to low-productivity projects. In some cases, domestic and international capital liberalization may have exacerbated the problems caused by these distortions, by allowing banks and firms to borrow more money at lower rates in international markets than was advisable. Insufficiently prudent management of the national balance sheet compounded these weaknesses. Too many countries involved in recent crises were seeking short-term capital from abroad. In Thailand, for example, the Bangkok International Banking Facility enabled Thai banks and firms to borrow heavily abroad in foreign currency at very short maturities, and the government decided to mortgage its foreign exchange reserves in forward markets. Fixed but adjustable exchange rates in some countries gave the illusion of currency stability, and low levels of usable reserves created vulnerability to a sudden turn in confidence that ultimately became self-perpetuating. As the psychology of the market shifted, the opportunity to fix the underlying problems that triggered the crisis without up-ending the economy drained away. These weaknesses interacted with an inadequate focus on risk on the part of banks and investors in industrial countries, which had contributed to the rapid inflows of capital in the first place. This combination of structural weaknesses, policy biases that favored risky forms of finance, and an insufficient regard for risk led ultimately to an abrupt collapse in confidence that spread outward from Asia in 1997, as investors realized the extent of their exposure. Once confidence was lost, the problems in the affected countries were compounded by rapid and self-fulfilling outflows of capital. How can countries and the international financial system retain the benefits of capital flows discussed earlier while making crises both less likely and less virulent? The debate over the new international financial architecture, as it has come to be known, seeks to address this question. The Mexican crisis of 1994-95 sparked the search for policies that could prevent large swings in Chapter 6 I 227 capital flows, but the emerging markets crisis of 1997-99 gave it particular urgency. The United States has taken the lead in these efforts. The quest for a more stable global financial system is important for industrial economies as well as for emerging market economies. After all, the emerging markets crises had effects on both the real and the financial sector in the United States and in Europe and Japan. Together with continued weakness (indeed, outright recession) in Japan in 1997 and 1998, the crises reduced income growth abroad, which in turn cut U.S. exports. Some sectors of the economy—agriculture and manufacturing in particular—clearly suffered from the loss of export markets and from increased import competition. At the same time, weakness in the currencies of the crisis-stricken countries implied an appreciation of the dollar in both real and nominal terms, which made foreign products more competitive both abroad and in the United States. The crises overseas have at times also had significant repercussions on U.S. financial markets. In the period following Russia's default on its sovereign debt in August 1998, U.S. asset prices declined and considerable financial market stress followed. At certain junctures, the weak external environment and the possibility of further financial market turmoil posed a clear risk to the continuing strong performance of the U.S. economy. The downside risks for the United States did not materialize, however, in part because of the policy response of U.S. authorities in the fall of 1998 and the financial packages assembled by the International Monetary Fund. Most Asian emerging market economies resumed growth in 1999. However, for much of this period the world economy was essentially flying on one engine: the robust performance of the U.S. economy. Indeed, during this period, the openness of the U.S. market helped cushion the adverse effects of the crisis on output and employment abroad. Thus events abroad create important policy challenges at home. For this reason, promoting the new international financial architecture is in Americas own self-interest. A consensus is emerging on the broad outlines of this new architecture (Box 6-3). A central lesson of the crises of the 1990s is that countries largely shape their own destinies. Hence, building a sound global financial system requires that individual countries work to ensure that their financial systems and macroeconomic policies are sound, consistent, and transparent. Improving transparency, for example, requires improved accounting standards and timely reporting of data. These steps can minimize the information problems that contribute to swings in capital flows. In addition, the recent crises demonstrate the critical importance of the choice of exchange rate regime in reducing a country's vulnerability to crisis. Whatever regime is adopted should be credible and supported by consistent macroeconomic policies and robust financial systems. 228 I Economic Report of the President Box 6-3. The New International Financial Architecture The international community, under U.S. leadership, has proposed a set of reforms to strengthen the international financial system. On the general principle that a market-based system provides the best prospects for a sound global economy, these reforms seek to improve crisis prevention and the international community's response to crisis in ways that allow markets to operate effectively. Last year's Economic Report of the President described the background behind the major reform proposals and outlined their chief features. Since then, work has continued within the Group of Seven (G-7) large industrial countries and with key emerging market countries to explore ways to improve and implement these reforms. The United States has continued to play a leading role in these efforts. At its June 1999 summit in Cologne, Germany, the G-7 released a report on financial architecture.The report emphasized reforms in six areas: • Strengthening and reforming the international financial institutions—the International Monetary Fund (IMF) and the World Bank— and arrangements for international cooperation • Enhancing the transparency of financial institutions and markets and promoting best practices, to enable market participants to make informed judgments about risk and provide greater incentives for policymakers to implement sound policies • Strengthening financial regulation in industrialized countries, so that creditors will act with greater discipline and assess more prudently the risks associated with their lending • Strengthening macroeconomic policies and financial systems in emerging markets, to allow borrowers in emerging markets to benefit fully from integration into the international financial system • Improving crisis prevention and management and involving the private sector, to ensure that all participants will expect to bear the consequences of the risks they take, and to reduce the risk of financial market contagion • Promoting social policies to protect the poor and most vulnerable. The Administration has pushed forward with this effort in several ways. It has made the terms of exceptional financing support more market-based through the creation of the IMF's Supplementary Reserve Facility and, most recently, its Contingent Credit Line (CCL). It has also helped countries develop stronger national financial systems, including through the incentives embodied in the terms of the CCL. continued on next page... Chapter 6 I 229 Box 6-3. — continued In addition, to promote dialogue on key economic and financial issues, a new informal mechanism known as the G-20 (a group of key industrial and emerging market economies that account for more than 80 percent of world GDP) met for the first time in December 1999. This group will be focusing on how countries can further reduce their vulnerability to modern capital account crises. Improvements in national policies are necessary to strengthen the international financial system, but not sufficient. Policies and incentives must also be appropriate at an international level, as discussed in Box 6-3. These reforms seek to reduce the incidence and severity of future crises by providing suitable incentives for the effective working of a market-oriented system. When reversals of capital flows do occur, an important task is to keep the damage to a minimum. Several actions can help in this regard. First, it appears clear that countries should avoid policy biases that encourage excessive reliance on short-term, foreign currency-denominated debt, since it is those flows that can flee most quickly. Second, ensuring that the financial system is sound can enable a country to cope with capital and exchange rate movements without excessive damage to financial intermediation. Debt Relief for Developing Countries An important goal of the proposed reforms of the international financial system is to ensure that countries realize the substantial benefits of open markets in trade and investment. However, some of the world s poorest nations are not benefiting from globalization. Many developing countries have unsustainable debts and policies that are not conducive to economic growth and development. Recognizing the need to integrate these countries into the global economy, the United States has actively pursued several multilateral and bilateral initiatives to reduce their debt burden. Most recently, the United States helped forge an international consensus among the G-7, the International Monetary Fund, the World Bank, and other creditors to provide broader, faster, and deeper debt relief to many of the worlds poorest, most heavily indebted nations. Together with previous debt relief commitments, the June 1999 Cologne Debt Initiative, which expanded on the Heavily Indebted Poor Countries (HIPC) Initiative of 1996, may reduce these countries' combined nominal debt by as much as $90 billion, in return for genuine reforms aimed at reducing poverty and encouraging longrun economic growth. The combined external debts of the 33 HIPCs most likely to benefit from the Cologne Debt Initiative were estimated at $127 billion in 1998, or nearly 120 percent of their combined GNP. 230 I Economic Report of the President The key objective of the initiative is to strengthen the links among poverty reduction, debt relief, and sound economic policy so as to foster development. Countries seeking eligibility for debt relief must meet several requirements. They must undertake macroeconomic reforms, such as inflation stabilization. They must place increased emphasis on channeling the benefits of debt relief to poverty reduction, especially in the areas of health care and education. They must make efforts to improve governance, especially in establishing participatory processes with civil society and ensuring transparency. In consultation with the International Monetary Fund and the World Bank, eligible countries will design poverty reduction strategies that allow them to use the savings from debt relief to fight poverty effectively. Openness has increased opportunity and prosperity in both industrialized and developing countries. In order to benefit, however, countries must have policies in place that are conducive to economic growth, and they should not be held back by unsustainable debts. As the Cologne Debt Initiative encourages growth and stability in return for debt reduction, it will benefit creditors and debtors alike by creating new opportunities for trade, investment, and the development of human capital. The Trade and Current Account Deficits Throughout the second half of the 1990s, the U.S. trade and current account deficits rose steadily. In the third quarter of 1999, the current account deficit (a comprehensive measure that comprises not only the trade deficit in goods and services but also net income and transfers) reached a record relative to GDP—even as the U.S. unemployment rate stood at its lowest level in 30 years. It is worth recalling that the benefits of openness, including higher real incomes, are realized no matter what the size of the external deficit. By themselves, external trade and current account deficits are neither inherently good nor inherently bad. What matter are the reasons for the deficits. The main reason for the deficits today appears to be the strength of the U.S. economic expansion relative to the slow or negative growth in many other countries. By definition, a trade deficit occurs when a country's domestic spending exceeds its domestic production. The shortfall is then made up by importing more goods than are exported. When the United States runs a trade deficit, foreigners buy less than a dollar's worth of U.S. goods for every dollar they earn from their export sales to us. The natural question to ask is, What do foreigners do with the dollars left over after they buy those U.S. goods? In practice, they typically invest those excess dollars in U.S. assets. The desire of foreigners to purchase attractive U.S. assets—in essence, to lend us the money needed to finance a trade deficit—makes the deficit possible. In other words, there is necessarily a link between the international flow of goods and Chapter 6 I 231 services and the international flow of financial resources. In fact, one can as readily argue that the desire of foreigners to acquire attractive U.S. assets is responsible for the U.S. trade deficit as the reverse. This link between theflowof goods and services and the flow of financial resources highlights another way of looking at the trade and current account deficits. From a national accounting perspective, a country's current account balance equals the difference between national saving and domestic investment (plus a statistical discrepancy and after minor adjustments). When the demand for domestic investment in the United States exceeds the pool of national saving, borrowing from foreigners—a rise in national indebtedness—makes up the difference. Conversely, when saving exceeds investment, the surplus is invested abroad. Is it good or bad for a country to get into debt? The answer obviously depends on what the country does with the money. What matters for future incomes and living standards is whether the deficit is being used to finance more consumption or more investment. In this respect, the deficit in the 1990s differs radically from that in the 1980s. The United States experienced large current account deficits in the mid-1980s (Chart 6-7), when net domestic investment fell as a share of GDP, and net national saving fell even faster. By contrast, in the current expansion the deficit has been associated with rising shares of GDP devoted to both investment and saving. The deficit s growth indicates that the rise in national saving, due to reduction of the Federal budget deficit, has not kept pace with the increase in investment. It signals rising investment rather than falling saving. That a falling trade balance can coincide with a robust economy is no surprise; indeed, both economic theory and empirical observation lead one to expect such a pattern. A strong economy raises demand for imports and is generally associated with high demand for investment. As Chart 6-8 shows, GDP growth in the United States' trading partners as a group fell sharply in 1998, reflecting weaker growth in Europe, recession in Japan, and outright crisis in emerging markets. By contrast, U.S. growth remained robust. Since the end of 1997, the U.S. trade deficit has risen from about 1 percent of GDP (its average throughout the mid-1990s) to about 3 percent. The dramatic difference between U.S. and foreign growth appears to be the primary cause of the increase in the deficit, as demand grew more rapidly for all products, including imports, in the United States than elsewhere. From the perspective of capital flows, expected returns on investment have been relatively attractive in the United States. As a result, the United States has absorbed substantial net inflows of capital. Whether viewed as a phenomenon in the international flow of goods and services or as a phenomenon in the international flow offinancialresources, the result of these recent devel- 232 I Economic Report of the President Chart 6-7 Saving, Investment, and the Current Account Balance The current account deficit grew in the mid-1980s as saving fell faster than investment. But in the 1990s both saving and investment rose as a share of GDP. Percent of GDP 12 Current account balance 80:Q1 82:Q1 84:Q1 86:Q1 88:Q1 90:Q1 92:Q1 94:Q1 96:Q1 98:Q1 Note: The current account balance equals net national saving minus net domestic investment plus statistical discrepancy plus other adjustments. Source: Department of Commerce (Bureau of Economic Analysis). Chart 6-8 U.S. and Foreign GDP Growth and U.S. Net Exports The sharp slowdown in many of the United States' trading partners in 1998 and continued weakness in 1999 contributed to a growing U.S. trade deficit. Percent of U.S. GDP Percent 6 6 Foreign GDP growth (left scale) U.S. GDP growth (left scale) U.S. trade balance (right scale) 93:Q1 94:Q1 95:Q1 96:Q1 97:Q1 98:Q1 99:Q1 Note: GDP growth is the percent change from four quarters earlier. Foreign GDP is an index of GDP in 35 U.S. trading partners, weighted by shares in U.S. nonagricultural exports. The trade balance is the balance in goods and services and is on a national income and product accounts basis. Sources: Department of Commerce (Bureau of Economic Analysis), and various country sources. Chapter 6 I 233 opments was that the U.S. trade and current account balances swung much more sharply into deficit. Exchange rate movements, reflecting in part the desirability of U.S. assets, have also contributed to the rising trade deficit by affecting the relative price of imports and exports. Chart 6-9 shows that, over the past several decades, the trade deficit has tended to rise when the dollar has strengthened. Between 1995 and 1998 the dollar appreciated, although by less than in the 1980s. In addition to these factors, some of the recent increase in the trade and current account deficits (and in the corresponding capital inflows) may reflect other, more persistent factors. A possible explanation for such a "structural" current account deficit, as well as for some of its recent increase, is faster U.S. productivity growth, as discussed in Chapter 2. If productivity growth has risen more in the United States than in other countries, this fact tends to make the United States a particularly attractive place for investment, since the expected returns to capital then rise. Capital may then flow into the United States to finance this higher investment. To the extent this story applies to the United States today, it again emphasizes the relative strength of the U.S. economy. Clearly, then, large trade and current account deficits can easily coincide with a strong and robust economy, as they do today. Hence, a trade deficit does not by itself have implications for the overall level of employment. Nevertheless, some sectors of the U.S. economy, such as manufacturing, may be harmed by increased competition from foreign imports and from reduced Chart 6-9 Real Effective Exchange Rate of the Dollar and the Trade Deficit Increases in the trade deficit typically follow an appreciation of the dollar, and the late 1990s were no exception. Percent of GDP Index, March 1973 = 100 3.5 | 1 130 2.0 • .'I \ \ _Q 5 Trade deficit (left scale) V\ J ' ' 11 . 80 Real effective exchange rate (right scale) -1.0 I—•—i—i—•—•—•—•—•—•—•—i—i—i—•—i—i—i—•—i—•—i—i—L-J 70 76:Q1 78:Q1 80:Q1 82:Q1 84:Q1 86:Q1 88:Q1 90:Q1 92:Q1 94:Q1 96:Q1 98:Q1 Note: The real effective exchange rate is the Federal Reserve's price-adjusted broad index of the foreign exchange value of the dollar. Arisein this index indicates an appreciation of the dollar. Sources: Department of Commerce (Bureau of Economic Analysis), and Board of Governors of the Federal Reserve System. 234 I Economic Report of the President ° demand for exports. It would be a mistake, however, to simply equate a manufacturing trade deficit with job loss in that sector. The inflows of capital into the United States that finance the trade deficit have allowed the economy to operate at higher levels of domestic investment than it could have otherwise. Higher investment, in turn, helps boost demand for manufacturing output. Nevertheless, since the onset of the Asian financial crisis, manufacturing employment does appear to have been adversely affected by the reduced demand for U.S. exports. Between the first quarter of 1993 and the fourth quarter of 1997, U.S. manufacturing firms added about 700,000 workers to their payrolls. However, between the fourth quarter of 1997 and the fourth quarter of 1999, manufacturing employment fell by about 440,000 workers. The economy has remained at a high level of employment throughout this period—and has added more than 20 million new jobs since January 1993—which suggests that many of these displaced workers have found jobs elsewhere in the economy. As discussed earlier in this chapter, policy may also be able to help ease the adjustments resulting from trade. In sum, although some adjustments have been necessary, todays trade and current account deficits reflect the relative strength of the U.S. economy. These deficits are essentially a macroeconomic phenomenon, reflecting a higher rate of domestic investment than of national saving. They have allowed U.S. firms to continue to invest at high rates even in a high-employment economy. A vast array of factors affect the level of the deficit, by influencing the decisions of private individuals and firms, so it is very difficult to be precise about the "appropriate" level of the deficit. Nevertheless, for any given level of the current account deficit, one must keep several principles in mind. First, the better are the United States' terms of trade—that is, the higher the prices we receive for our exports, and the lower the prices we pay for our imports—the higher Americans' incomes will be. Working to open large foreign markets can stimulate exports and improve the terms of trade. By contrast, closing markets in the United States through protectionist measures is counterproductive and should play no part in the policy response to the current account deficit. Measures such as higher tariffs and quotas do discourage imports by making them more expensive, but they also make our economy less efficient and reduce national income. Besides making Americans poorer, such protectionist measures would not necessarily have much effect on the current account balance, because they are unlikely to have much effect on either saving or investment. Second, for any given level of the current account deficit, the United States is better off if it remains open and attractive to foreign investment, provided these capital flows are channeled into productive uses. Chapter 3 discussed the role of policy in nurturing innovation, which in turn leads to productive investment opportunities for the private sector. In addition, it is important to Chapter 6 I 235 continue prudential regulation of the financial system, to help it remain sound and keep pace with new technology and deregulation. The strong U.S. financial system is well positioned to channel capital inflows into profitable uses, and it is important to maintain that strength. Although, again, the appropriate level of the current account deficit is difficult to assess, at least two principles are relevant should it prove necessary to reduce the deficit. First, the United States has an interest in policies that stimulate foreign growth, since it is better to reduce the current account deficit through faster growth abroad than through slower growth at home. A recession at home would obviously be a highly undesirable means of reducing the deficit. The cyclical component of the deficit, caused by declines in global demand in recent years, should reverse itself as the world economy recovers. For the future, the new international financial architecture, discussed earlier, should help maintain stronger and more stable foreign growth. Second, any reductions in the deficit are better achieved through increased national saving than through reduced domestic investment. If there are attractive investment opportunities in the United States, we are better off borrowing from abroad to finance these opportunities than forgoing them. On the other hand, incomes in this country would be even higher in the future if these investments were financed through higher national saving. The United States needs policies that make saving more attractive. Indeed, the Administration has proposed substantial tax cuts to promote saving, especially among low- and moderate-income families who currently save relatively little. The United States also needs to maintain prudent fiscal policies. Here again, the Administrations proposals, which would lead to large and growing budget surpluses in the decade to come, are highly desirable. A growth strategy for the United States based on continued prudent fiscal policy would also extend macroeconomic assistance to the problems faced by the manufacturing sector. By increasing national saving, such a policy would allow interest rates to remain lower than they would otherwise be. Lower interest rates would lead to higher domestic investment, which, in turn, would boost demand for equipment and construction. For any given level of investment, increased saving would also result in higher net exports, which would again raise employment in these sectors. Conclusion Over the long term, increasing the standard of living in the United States requires that Americans embrace change. We should not retreat from the constant succession of new opportunities that arise in an ever-changing world economy. The United States has long welcomed the opportunities that 236 I Economic Report of the President integrating with the world economy provides. Growing international integration has benefited Americans profoundly, contributing to our increasing prosperity It is clearly in our interest to forge ahead, both promoting and guiding the process of international economic integration. Yet at the same time we must confront the very real challenges that arise from economic globalization. We must find ways to share its benefits as widely as possible, both at home and abroad. International policy on trade and capital flows plays an important role in ensuring that we capture the benefits of international economic integration. Ultimately, however, our prosperity in the global economy depends primarily on our policies at home. The right policies for this task include those that encourage aflexibleand skilled work force, that build an economic system in which innovation is rewarded, and that ensure that the U.S. financial system is sound and deep. Chapter 6 1-237 C H A P T E R 7 Making Markets Work for the Environment In 1900, one of the most common environmental problems confronting cities was the accumulation of horse manure on streets, giving offense to sight and smell and posing a public health hazard. Although the automobile eventually solved this problem, it caused others. Economic growth, structural change, and technobgical change over the past century gave rise to new environmental problems but also provided the income and know-how needed to address them. Innovative efforts to remedy these problems through market-based incentives help achieve environmental goals cost-effectively and provide lessons to guide efforts to solve the worldspotentially most significant environmental challenge in the 21st century: global climate change. "T? conomic growth brings abundant benefits but can also unleash a wide array JJ^of environmental problems. Some, like water pollution, air pollution, and soil contamination, are by now long-familiar afflictions; others, like changes in the earths atmosphere and climate, are of more recent onset. All must be dealt with, or else the very foundation of growth is threatened. Fortunately the same economic growth, structural change, and technological change that gave rise to these problems also provide the income and the know-how needed to address them. An economy that is healthy and thriving is better able to combat environmental ills. The challenge in addressing environmental problems lies in harnessing and channeling the power of markets, so that they both deliver continued economic growth and foster sound environmental practices. 239 The past century of experience in addressing environmental pollution illustrates that environmental goals must and can be achieved cost-effectively. Innovative efforts to address environmental problems through market-based incentives—such as emissions permit trading and emissions charges—can, when designed appropriately and applied in the appropriate context, achieve these goals at lower cost than other approaches. Poorly designed environmental markets and regulatory schemes, on the other hand, can squander valuable resources in the pursuit of environmental goals. Importantly, lessons learned in one environmental initiative can often be applied to others. In particular, the lessons already learned from addressing pollution in its various local manifestations can guide efforts to solve the world s potentially most significant environmental challenge in the 21st century: global climate change. The global nature of the problem illustrates the need to provide innovative incentives to global markets to address the potential damages. Environmental Problems Since 1900 The nature of environmental pollution has changed during the past 100 years, reflecting, in large part, technological change and the changing structure of the economy. As fresh innovations allow firms and industries to reallocate their resources to more productive uses, the by-products of their production processes also change. A Brief History of Environmental Problems In 1900, one of the most common environmental problems confronting cities was the waste associated with the primary means of transportation, the horse. People traveling short distances usually rode either on horseback or in horse-drawn carriages. In densely populated cities, horse manure covered many streets, not only giving offense to sight and smell but also posing a public health hazard. The automobile eventually solved this problem but brought new ones in its wake. As the century progressed, new environmental problems caught the publics attention. Before the introduction of filtration in 1889 and chlorination in 1908, outbreaks of typhoid fever from drinking contaminated water were common. Investments in new treatment technologies addressed this concern, and by 1958, 83 percent of the U.S. population had access to filtered or disinfected drinking water. The dust bowl phenomenon of the 1930s illustrated the potential for agriculture to result in serious soil erosion, as the wind carried away significant amounts of topsoil. 240 I Economic Report of the President After World War II, faster growth and structural change led to a variety of new environmental problems. The Donora, Pennsylvania, "killer smog" of 1948 that took 20 lives demonstrated the seriousness of the public health threat posed by air pollution. The agrochemical revolution greatly increased agricultural yields, but the roughly threefold increase in pesticide tonnage between 1964 and 1982 also raised concerns about the effects of these chemicals on the environment and on human and animal health. One of these was the impact of the pesticide D D T on the bald eagle, as detailed in Rachel Carson's 1962 book Silent Spring. A burning river in Cleveland and air pollution so thick that cars drove with headlights on during the day made manifest the growing water and air quality problems of the 1960s. Growing attention to many of these problems culminated in Earth Day in 1970. That event helped spur the series of groundbreaking environmental laws of the 1970s, such as the Clean Air Act, the Clean Water Act, the Endangered Species Act, the Safe Drinking Water Act, and the Resource Conservation and Recovery Act. In the late 1970s, incidents at Love Canal, New York, and elsewhere revealed concerns about the use and disposal of toxic and hazardous substances. The Environmental Protection Agency (EPA) currently has more than 1,200 Superfund sites—areas designated as most contaminated with hazardous wastes—on its national priority list for cleanup and remediation. The hole in the atmospheres ozone layer that appears each spring over Antarctica, first detected during the 1980s, demonstrates the destructive effect of chlorofluorocarbons on this fragile but critical structure. In the 1990s the scientific community concluded that the balance of scientific evidence suggested that emissions of greenhouse gases from human activity have a discernible influence on the global climate. Environmental Pollution and Development This sampler of environmental problems in the United States over the past 100 years mirrors the path of the Nations economic development. For example, early in the century as the economy developed, emissions of sulfur dioxide (SO2) and nitrogen oxides (NOX) increased at a faster rate than economic growth. However, in the 1920s and 1930s, emissions relative to gross national product (GNP) began to fall for both of these air pollutants. In 1997 the U.S. economy was only one-third as NOx-intensive as it had been in 1900 (that is, 1997 NO X emissions per unit of output were one-third the level of 1900 emissions) and only one-tenth as SO2-intensive as in 1900 (Chart 7-1). Although these trends may have reflected significant changes in the economy and more effective emissions control since the 1970s, current levels of NO X and SO 2 emissions still present public health risks in the United States. Much the same has happened with carbon dioxide (Chart 7-2). The continuing transition of the U.S. economy away from traditional energy-intensive industries has reduced Chapter 7 I 241 Chart 7-1 Sulfur Dioxide and Nitrogen Oxide Emissions per Unit of GNP Since 1900 Measured per unit of GNP, emissions of nitrogen oxides in 1997 were roughly one-third, and emissions of sulfur dioxide one-tenth, their levels in 1900. Index, 1900 = 1.0 1.6 1.4 1.2 \ 1.0 N. *— Nitrogen oxides 0.8 0.6 xv '•••••• 0.4 s 0.2 ^^ Sulfur dioxide n 1900 1910 1920 1930 1940 ^**->^^ 1950 1960 1970 1980 1990 Sources: Department of Commerce (Bureau of Economic Analysis), Environmental Protection Agency, and Christina D. Romer, 'The Prewar Business Cycle Reconsidered: New Estimates of Gross National Product, 1869-1908," Journal of Political Economy, 1989. Chart 7-2 Carbon Dioxide Emissions per Unit of GNP Since 1900 Emissions of carbon dioxide per unit of economic output have fallen steadily since the early 1900s. Index, 1900=1.0 1.6 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 Sources: Department of Commerce (Bureau of Economic Analysis), Oak Ridge National Laboratory, and Christina D. Romer, "The Prewar Business Cycle Reconsidered: New Estimates of Gross National Product, 1869-1908," Journal of Political Economy, 1989. 242 I Economic Report of the President carbon dioxide emissions per unit of GNP (Box 7-1). Advances in energy technology and changes in primary energy sources may have contributed to this improvement. Box 7-1. Structural Economic Change and Carbon Dioxide Emissions Historically, U.S. carbon dioxide (C02) emissions from energy use have grown about 2/3 percent for every 1 percent increase in real gross domestic product (GDP). In general, a variety of factors besides growth in aggregate output can affect C0 2 emissions. Structural change.Jhe U.S. economy continues to experience a shift of its output composition away from traditionally energy-intensive manufacturing sectors. Weather. Cold winters increase the demand for heating fuels, and hot summers increase the demand for electricity for cooling. Because heating on a cold day is more energy-intensive than cooling on a hot day, on balance a warmer year tends to reduce energy use. Energy prices. Sharp energy price increases can stimulate energy efficiency and reduce CO2 emissions, whereas energy price decreases can result in higher energy consumption and higher CO2 emissions. Technological change. Technological improvements can reduce the consumption of energy necessary to generate a unit of output. Higher energy prices can accelerate the diffusion of more energy-efficient technologies, as can government programs aimed at promoting energy efficiency. In 1998, U.S. C0 2 emissions from energy use grew 0.4 percent, while output in non-high-technology industries grew just 2.3 percent—less than the 4.3 percent increase in aggregate GDP and less than the longterm trend rate of growth of 3.1 percent per year for this group of industries.This slow emissions growth probably reflected not only the long-term shift toward high technology and services in the economy but also weakness in several energy-intensive industries, such as chemicals and primary metals. Weather, too, played a role in moderating energy use.The winter months of 1998 were 8 percent warmer than the same months in the previous year. The summer of 1998 was also warmer than the previous year's, but the increase in emissions from more summer cooling was less than the reduction in emissions from less winter heating. Finally, electricity prices changed little, and fossil fuel prices actually fell, between 1997 and 1998. A statistical model of how structural change, weather conditions, and energy prices influenced U.S. CO2 emissions over the 1962-98 period found that these emissions track non-high-technology output very closely. After accounting for non-high-technology output, weather, continued on next page... Chapter 7 I 243 Box 7-1.—continued and energy prices, the level of 1998 emissions predicted by the model was very close to (0.5 percent less than) actual 1998 emissions. This suggests that short-term technological change independent of these factors was not an important determinant of the 1998 emissions. As the high-technology component of the economy continues to grow as a share of the total, CO2 emissions growth should slow further/This would maintain the long-term trend since the 1920s toward a less CO2intensive economy (Chart 7-2). As of 1996, for example, the economy was only about one-third as CO2-intensive as the economy of 1900, possibly reflecting both increased diversity of fuels and change in the composition of GDP. Although it is less CO2-intensive, growth in U.S. economic output over this century has resulted in a substantial increase in CO2 emissions. Many of the same problems are evident today in countries at various earlier stages of their economic development than the United States. The challenge for these countries is to pursue a "cleaner" development path. As they continue to develop and become wealthier, they will have the opportunity to benefit from the experience of the United States and other rich countries in addressing the environmental risks that economic activity generates. In some cases the United States was reactive to environmental problems in the past, because the scientific understanding of various environmental risks, as well as the technologies and policies to address them, lagged the need. Further, the United States lacks a coherent framework for accounting for environmental quality and natural resource use in tandem with market economic activity. A recent National Research Council report, for example, calls for a supplement to the national income and product accounts that would include assets and production activities associated with natural resources and the environment. This information, combined with traditional measures of economic welfare such as gross domestic product, can provide a more complete picture of this Nations economic development (Box 7-2). In contrast to the U.S. experience, those technologies and policies are there to be adopted almost off the shelf, and that means developing countries can be proactive, instituting appropriate policies to focus their development along a path that accounts for the costs of pollution. Appropriate policies may allow developing countries to leapfrog the more developed ones in environmental technology, in the way that some already have in communications technology. Just as some countries have adopted fully digitized wireless phone systems without first having built extensive traditional wired systems, so developing countries can effectively skip a generation of more pollution-intensive technologies and 244 I Economic Report of the President Box 7-2. Taking Account of the Environment A National Research Council (NRC) report released in July 1999 concluded that extending the U.S. national income and product accounts (NIPAs) to include assets and production activities associated with natural resources and the environment is an essential investment for the Nation. The report argues that it would be even more valuable to develop a comprehensive set of environmental and other nonmarket accounts, although not at the expense of maintaining and improving the current core national accounts. The NIPAs were designed to measure production and income that arise primarily from the market economy. However, much economic activity takes place outside the market economy. Thus, by omitting important activities such as nonmarket work, environmental services, and investment in human capital, the NIPAs provide an incomplete and potentially misleading picture. Recognizing this, private scholars and governments have begun to develop methods of extending the national accounts to measure as much economic activity as is feasible, whether that activity takes place inside or outside marketplace boundaries. In the United States, the Bureau of Economic Analysis (BEA) began intensive work on environmental accounting in 1992, but it was directed by the Congress in 1994 to suspend further work and seek an external review of environmental accounting. The NRC report represents that review. The NRC panel argues that environmental and natural resource accounts would provide useful data on resource trends and help governments, businesses, and individuals better plan their economic activities and investments. These accounts would provide valuable information on the interaction between the environment and the economy; they would help in determining whether the Nation is using its stocks of natural resources and environmental assets in a sustainable manner; and they would provide information on the implications of different regulations, taxes, and consumption patterns. The NRC panel supports developing a broad set of accounts that would parallel each of several asset types. These include subsoil mineral assets such as fossil fuels and metals; renewable and other natural resources such as forests, agricultural resources, and fisheries; and environmental assets such as clean air and water. It is acknowledged that the last category poses considerably greater conceptual and data challenges than the first two. To preserve the integrity of the well-developed core income and product accounts, the NRC panel supports the BEA's preference for developing natural resource and environmental accounts as satellite or supplemental accounts. Satellite accounts serve the basic purpose of the national accounts in continued on next page... Chapter 7 I 245 Box 7-2.—continued providing useful information. In addition, and in light of the current state of knowledge and preliminary nature of the data and methodologies involved, developing satellite accounts allows experimentation and encourages the testing of a wide variety of approaches. adopt less polluting technologies from the start. Because knowledge and technology developed in one country can diffuse itself worldwide, economic development does not have to result in the same stream of environmental problems that die United States and other industrial countries have suffered since 1900. Designing Policies to Address Environmental Pollution Private markets by themselves usually do not provide the needed incentive for producers and consumers to take into account the costs of the environmental pollution they impose on others. For example, a pulp-and-paper mill will aim to minimize all the inputs it must buy in the market, such as labor and capital, in the production of a unit of fiber product. But if it is unregulated, the mill has no economic incentive to minimize its water pollution, because it does not have to pay for the damage that its pollution causes. Absent appropriate policies that provide an incentive for producers to account for pollution costs, economic activity produces too much pollution. Lacking this incentive, the mill also lacks the incentive to invest in research and development (R&D) into pollution-reducing technologies. Welldesigned policies that create such an incentive in private markets could make society better off. Of course, an excessively stringent policy might impose a high cost on society, with little benefit at the margin. The costs of eliminating all pollution, for example, could be so exorbitant that society would suffer from having to forgo using those resources on other valuable endeavors, such as education, health care, or product R&D. The task that falls on policymakers, then, is twofold: they must first set acceptable levels of pollution, and they must then select and use policy instruments that will achieve these levels efficiently. Economists have long argued that environmental goals should be set so that the benefit from the last unit of pollution abatement is equal to the cost of abating that last unit of pollution. However, environmental goals in practice do not usually reflect such an explicit weighting of benefits and costs. Consequently, some environmental policies may have gone too far, 246 I Economic Report of the President imposing costs of pollution reduction that exceeded the benefits and making society worse off. Other policies may have not gone far enough, lowering pollution only to a level where the benefits of more reduction would have still exceeded the costs. In some cases, benefit-cost analysis is legally obstructed from guiding environmental policy, because environmental law prevents regulatory agencies from even considering the costs of reaching the goal. The Clean Air Act of 1970, for example, mandates that air quality standards be set "to protect public health" with an "adequate margin of safety," and the courts have ruled that the EPA Administrator cannot consider the costs of achieving a clean air standard when setting that standard. Traditional Regulatory Approaches to Address Environmental Pollution Marked improvements in environmental quality have occurred over the past century, and especially since 1970. These are due in large part to technological innovations that have allowed industrial, energy, and transportation activities to continue while significantly reducing their impact on the environment. Although these gains are important, the means of achieving them have often included inflexible mandates that prescribe specific technologies and result in higher costs than may have been necessary. As the costs of addressing pollution (which the EPA estimated at $125 billion a year in 1990) have increased over the past three decades, attention has come to focus more on the means of achieving environmental goals. Traditional regulations focused on setting technology and performance standards for pollution sources. (Technology standards mandate specific equipment that sources must use to control emissions. Performance standards, in contrast, mandate a limit on emissions allowed by each source but allow the source to choose how best to comply with the limit.) However, since technology standards mandate the same technologies across all sources, and performance requirements mandate the same level of emissions reductions or emissions rates across sources regardless of any heterogeneity in costs across sources, traditional regulation may not necessarily result in cost-effective attainment of the environmental standard in all areas. Only approaches that focus on eliciting emissions abatement from those activities with the lowest marginal cost of abatement will result in cost-effective attainment of an environmental standard. Chapter 7 I 247 Incentive-Based Approaches to Address Environmental Pollution Two incentive-based approaches to environmental regulation, tradable permit systems and emissions charges, have the potential to save substantial resources in achieving environmental goals, because they promote the costeffective attainment of emissions reductions. Tradable permit systems apply an aggregate emissions cap or quota to a set of emissions sources. The government then allocates among these sources a number of emissions permits that equals the cap or quota. Allocation may be by auction, or on the basis of the sources' historic emissions or desired performance levels, or by some other approach. Each source must hold enough permits to cover the level of emissions it chooses. Sources can buy and sell permits from each other, and in a well-functioning market an equilibrium permit price will evolve that reflects the value of an additional permit to all sources. Each firm managing a source then faces the same trade-off: it can either cut back emissions by one more unit or buy one more permit. Naturally, firms will cut back on emissions if it is cheaper to do so. The outcome will be that each firm equates its marginal abatement costs to the permit price. And because all sources face the same permit price, marginal abatement costs will be equalized across all sources. This minimizes the costs associated with achieving a given goal. (Box 7-3 provides an illustration.) The emissions charge approach requires that each emissions source pay a charge based on its level of emissions. Sources will reduce their emissions until the cost of reducing another unit of emissions is greater than the charge. Just as in the case of tradable permits, the marginal cost of abatement is uniform across sources. Besides promoting cost-effective emissions reduction, tradable permits and charges can promote technological innovation by stimulating R&D investment in a wider range of abatement technologies and processes. When this happens, emissions reductions may ultimately exceed those sought under either technology or performance standards. Under regimes using tradable permits or charges, each firm has the incentive to develop technologies and production processes that reduce emissions regardless of the firms current emissions level. If, in a tradable permit system, a firm reduces emissions below what its permits allow, it can sell the unused permits to other firms; similarly under a charge system, a firm that reduces emissions pays a lower charge. Under a technology standard, two conditions must be satisfied for a firm to have an incentive to invest in R&D for new, cheaper abatement technologies: it must believe that the cheaper technologies can achieve the same level of emissions performance as existing technologies, and it must win regulatory approval to use the cheaper technologies. Under a performance 248 I Economic Report of the President Box 7-3. Emissions Trading: An Illustrative Example Consider a hypothetical example of two neighboring power plants that emit sulfur dioxide. Suppose that both plants emit 100 units of SO2 each year, so total emissions are 200 units, and a regulatory agency has set an emissions target of 140 units per year for these two sources. Under a traditional approach, the regulatory agency could mandate a known technology (for example, an SO2 scrubber) that would reduce both plants' emissions to 70 units each. Each plant would need to eliminate 30 units of emissions. Assume that it will cost Utility A $600 to reduce the 30th unit of emissions, and $9,000 to reduce all 30 units of emissions, and that it will cost Utility B $300 to reduce its 30th unit, and $4,500 to reduce all 30 units. The total cost for both plants of reducing emissions to 140 units per year is thus $13,500. However, since the costs of reducing emissions vary significantly between these two plants, a market-based approach can achieve substantial cost savings. If these two plants can engage in emissions trading, they may find it economic for Utility B, with lower emissions abatement costs, to reduce its emissions level below 70 units per year, allowing Utility A to emit more than 70 units per year. Utility B finds that it can reduce its emissions down to 60 units per year, at which point the 40th unit of abatement costs $400, and the total cost of reducing all 40 units is $8,000. Utility A can reduce emissions down to a level of 80 units per year, at which point the 20th unit of abatement also costs $400, and the total cost to reduce all 20 units of emissions is $4,000. Utility A would save resources by purchasing tradable permits for 10 units of emissions at $400 a unit from Utility B, because this is less than it would pay if it had to undertake emissions reductions to achieve the 70-unit emissions level. Utility B would earn money by selling 10 tradable permits at $400 a unit, because this is more than what it costs to reduce emissions. With the sale, the total costs for Utility A are $8,000: $4,000 for emissions abatement and $4,000 for purchasing 10 permits. Total costs for Utility B are $4,000: $8,000 for emissions abatement minus $4,000 from the permit sale.The compliance cost for both facilities with trading would be $12,000, or 11 percent below the cost with the mandated technology standard ($13,500). standard, a firm does have the incentive to find a lower cost way of reducing emissions, but only up to the level of the standard. Some performance standards are so strict that current technologies cannot achieve them. These "technology-forcing" performance standards, when set several years into the future, may induce innovation. However, innovative activity is risky: investments in R&D may or may not pay off in new discoveries. If they do not, Chapter 7 I 249 compliance costs may fall by less than anticipated, and the ambitious environmental goal may prove extremely costly to meet. These incentive-based approaches also provide an opportunity for the government to raise revenue, either through the auctioning of tradable permits or through the system of charges. Such revenue can be used to reduce existing taxes, thereby delivering additional economic benefits relative to a traditional regulatory approach (Box 7A). Important Issues in Designing Incentive-Based Instruments Environmental problems come in various forms, some of which may be better addressed through emissions trading, others through charges, and still others through other means. By tailoring policy instruments to the characteristics of a given type of environmental pollution and its sources, policymakers can implement policies at lower cost than with traditional approaches. Uncertainty About Costs and Benefits The tradable permit approach imposes a fixed quantity restriction on a given type of pollution in the aggregate, whereas a charge approach imposes a specified price on pollution. In a world with perfect information and certainty, these two instruments would have identical effects on emissions abatement and cost. An omniscient regulatory authority could set a charge knowing it would deliver a certain level of emissions, or it could set the quantity of tradable permits in the knowledge that it would deliver a certain price of emissions abatement. In the real world, however, uncertainties about costs and benefits can influence which approach is preferred. For example, if there are paramount concerns about the environmental effects of a control policy, a tradable permit approach may be preferred. This could be the case where a small increase in the level of emissions could result in a large decrease in benefits. On the other hand, if the costs of achieving a given emissions level are highly uncertain, the charge approach may be preferred. This could be the case where estimated abatement costs for a given level of emissions lie in a wide range. If there are concerns about both costs and benefits, a hybrid approach could allow for sources to engage in a tradable permit system but place a ceiling on the permit price (for example, a price at which the government would sell additional permits), to ensure against exorbitant compliance costs that exceed the marginal benefits. 250 I Economic Report of the President Box 7-4. Should Regulators Allocate or SellTradable Permits? The Administration has proposed a domestic greenhouse gas tradable permit program for 2008-12. Implementing a tradable permit program would require industries covered by the program to restrict their greenhouse gas emissions to comply with the Kyoto Protocol emissions target. Abating greenhouse gas emissions involves costs associated with investing in new technologies, fuel switching, and other means of reducing emissions. As the energy sector becomes more competitive over the next decade, the costs of controlling emissions will be reflected in consumer prices. For example, the Administration's economic analysis of the Kyoto Protocol found that a tradable permit price of $23 per ton of carbon equivalent would increase energy prices to consumers by about 5 percent in 2010. A key question in implementing a tradable permit system is the distribution of permits. For example, the government can allocate (give away) permits to firms, or it can sell permits to firms through auctions. So long as the tradable permit market is efficient, the price of energy to consumers is likely to be the same in either case. Permits will be scarce, and the price of energy will reflect the cost of buying a permit or taking abatement measures regardless of how the permits were originally distributed. Producers who receive free permits will be like owners of particularly low cost oil wells when oil prices go up: they will sell at the market price and reap windfall profits. In contrast, an auction allows the government to capture the value of the permits, because competition should lead companies to bid away almost the full value of any potential windfall profits from owning the permits. Allocating permits to firms would result in handing over assets valued in the tens to hundreds of billions of dollars annually. Because these firms can pass on most of the cost of reducing emissions to consumers, allocating permits would provide these firms with significant windfall profits and allow them to enjoy higher profits under climate policy than without climate policy. On the other hand, if the government sells permits, it will receive revenue in the tens to hundreds of billions of dollars annually. Although energy firms would make lower profits under an auction system, the permit revenue could, for example, be recycled back into the economy through tax cuts. Recent research has found that such revenue recycling could reduce the costs to society resulting from the use of greenhouse gas permits by up to about 80 percent. Allocating permits to energy industries would significantly increase the value of their equity, whereas selling permits would lower it. An alternative is to follow a hybrid approach that combines elements of both allocating and auctioning. Recent research has estimated that allocating continued on next page... Chapter 7 I 251 Box 7-4.—continued roughly 5 to 15 percent of the permits to energy firms while auctioning the rest would be sufficient to ensure that these firms' average equity values would be unchanged, all else equal. Furthermore, since most of the permits would be auctioned, such an approach would still provide significant revenue to the government. Heterogeneity in Abatement Benefits The environmental effects of a unit of pollution may vary across sources. For example, rural Montana is in attainment with the national standard for ozone, so the NOX emissions that contribute to ozone concentrations may not have any significant human health effects. However, Los Angeles is not in attainment with the standard, so NO X emissions there contribute to ozone concentrations that do cause human health problems. Further, with prevailing wind patterns, NOX emissions from Montana are not expected to carry to Southern California and contribute to ozone concentration in Los Angeles. Thus a one-for-one emissions trade between a source in Montana and a source in Los Angeles would not be appropriate, and a more complex system that takes account of different environmental effects of emissions in these two areas would have to be designed. The key attribute of an environmental problem, then, that facilitates effective trading is sufficient mixing of emissions prior to human exposure. For example, if two sources near each other emit NOX, and their emissions mix well in the local airshed, the environmental effects of a unit of emissions by either source can be considered roughly the same. The benefits of emissions abatement will then be roughly the same regardless of which source undertakes the abatement. In this case a simple permit trading program would be appropriate, because it would deliver environmental outcomes comparable to those from a traditional regulatory approach. Variability in abatement benefits among sources could result in a permit trading program creating "hot spots," or local areas where emissions concentrate to the detriment of public health and the environment. As trading of emissions permits proceeds, a set of neighboring emissions sources might purchase a substantial number of permits and maintain high levels of emissions. Locally high concentrations may not matter for some environmental pollutants, such as carbon dioxide, because of the global nature of greenhouse gas accumulation and mixing. However, some hazardous air pollutants, such as benzene, do have local effects, and the potential for a hot spot could arise with a tradable permit system for such emissions. 252 I Economic Report of the President Heterogeneity in Abatement Costs If the cost of abating emissions varies substantially across sources, the potential for cost savings through a trading program is great. It would be profitable for a firm with a high cost of reducing emissions to make a trade with a firm with a low cost, at a price somewhere between the two costs. Large discrepancies in abatement costs—which may relate to differences in the age of facilities, in previous investments in pollution control technologies, in fuel inputs, or in other respects—provide the economic incentive for a high volume of trade and can facilitate the development of an emissions market. However, if the costs of reducing pollution are similar across sources, a tradable permit system might not deliver substantial cost savings. The transactions costs of participating in trading (for example, from having to seek out another firm with which to trade) may overwhelm the cost savings associated with the trade if the two firms have similar abatement costs, and this may reduce the incentive to trade. In such a situation, a charge or other type of regulation may be more appropriate than trading. Scope of the Emissions Trading Market The size of a potential emissions market can significantly affect the volume and cost savings of a tradable permit system. A market with a small number of emissions sources may experience low trading volumes and inefficient, monopoly-like behavior—a robust market may never evolve. A larger set of participants can promote a more active, efficient market. Several factors can influence the number of participants in a tradable permit market. First, the monitoring of emissions sources can significantly influence which sources participate and which do not. If their cost of monitoring emissions exceeds the gains from trading, small firms will have no incentive to join the trading program and will likely prefer a traditional regulatory approach. Continued technological development in monitoring equipment may help reduce the costs of monitoring and allow for markets to expand to more sources. However, inability to effectively monitor some sources may make it more difficult to design well-functioning tradable permit systems and emissions charges. Second, additional scientific research on the human health effects of various types of emissions can influence the size of a market. By taking advantage of similarities in the effects of different pollutants, tradable permit markets can be structured to allow for trading across pollutants. For example, because both NO X and volatile organic compounds contribute to the formation of ozone, the potential is there to allow for trading across these gases. However, some of these compounds may also be carcinogenic, Chapter 7 I 253 so a system of multipollutant trading should also recognize that a given pollutant might have multiple health effects. Third, the extent of participation in a permit market may also depend on the technical capacity within firms to understand and engage in the trading system. Participating in a tradable permit market requires that a firm first evaluate its own cost of emissions abatement, then assess its potential role as either a buyer or a seller in the permit market, and finally identify potential trading partners and execute the trade. This involves a different set of managerial skills than does the traditional regulatory approach, which tends to require primarily an engineering focus. This may have important implications when considering the application of such instruments in other countries, where firm managers may have less experience both with environmental protection rules and with efficient markets. Restrictions on Trading Restrictions on trading eliminate some of the benefits of this approach, and substantial restrictions can seriously hinder the development of an efficient market in emissions permits. Restricting a firm's purchases of tradable permits to a specified fraction of the firm's own abatement raises the costs of achieving a given environmental standard without delivering additional environmental benefits. Liability Approaches that result in uncertainty regarding the value of tradable permits also may reduce participation in such markets. For example, a government may restrict the buyer's use of emissions permits and may even revoke them at a later date, depending on an ex post evaluation of the seller's emissions abatement. This increases uncertainty because it effectively institutes a system of buyer liability. If the seller does not undertake emissions abatement sufficient to back the permits it has sold, the sold permits are effectively returned to the seller. Then the seller has sufficient permits to cover its emissions, but the buyer, having effectively surrendered its purchased permits to the seller, does not have enough permits to cover its emissions, and will be found out of compliance. The buyer effectively becomes liable for the sellers efforts to abate emissions. The uncertainty that this buyer liability creates may bias firms against interfirm trading, leading them to focus solely on intrafirm or internal trading, where the benefits are more limited. 254 I Economic Report of the President Banking and Borrowing The severity of some environmental problems is a function of the stock of pollution as it accumulates over time, whereas for others it is a function of the flow of pollution during a specific period of time. An example of the first type is carbon dioxide emissions: these accumulate in the atmosphere, where they can last for more than 100 years, and it is their total stock that influences global warming. In contrast, ground-level ozone pollution usually threatens human health most significantly during short episodes of perhaps several days. In the first case, the long-term effects of pollution over time may allow for trading to occur across time as well as across space. With stock pollution problems, a unit of pollution in one period may have environmental effects roughly comparable to a unit of pollution in a subsequent period. With flow pollution problems, emissions in one period may have significantly different environmental effects from emissions in a later period, and this limits intertemporal trading. The flexibility to trade across time—to effectively bank, or save, emissions permits for future use or to borrow permits from the future for current use— can also result in significant economic benefits. If environmental standards are expected to become more stringent in the future, the costs of emissions may increase significantly over time. Thus a firm may find it profitable to reduce emissions below the standard early in the program and save its surplus emissions permits for use later in the program. However, if the costs of a pollution control program are high in the near term because developing new technologies requires time, it may be profitable for a firm to borrow an emissions permit from the future and use it in the current period. In cases where total emissions over time, not the flow of emissions, cause the environmental damage, this flexibility to trade emissions across time can reduce the costs of achieving a desired environmental goal. Without the opportunity to bank and borrow, permit prices—even in a well-functioning market—could vary significantly over time and could even spike in the presence of new or unexpectedly stringent standards. Tradable Permits and Charges in Practice Economists have advocated emissions charges since the 1920s, and tradable permit systems since the 1960s, yet both approaches received limited application until recently. Among the first applications of permit trading were the EPAs efforts in the 1970s to provide additional flexibility to firms as they complied with Clean Air Act regulations. Later applications of trading to air quality issues have included the Regional Clean Air Incentives Market in Southern California, the phaseout of lead additives in gasoline, and the Chapter 7 I 255 sulfur dioxide trading program. The charge approach has been used to address residential solid waste generation. Although these applications represent only a subset of incentive-based approaches in the United States, they illustrate the importance of appropriate policy design in achieving environmental goals at the lowest possible cost. Permit Trading: Emissions Trading Policy Under the Clean Air Act The Clean Air Act of 1970 directed the EPA to develop ambient air quality standards for common air pollutants. Accordingly, the EPA set standards to protect public health for ozone, sulfur dioxide, lead, paniculate matter, nitrogen dioxide, and carbon monoxide. It designated metropolitan areas that did not comply with these standards as "nonattainment areas" and established a set of technology and performance standards for a variety of emissions sources. In the late 1970s, to provide some flexibility in reducing emissions, the EPA implemented a trading policy consisting of "netting," "offsets," "bubbles," and "banking" mechanisms. Netting allowed a facility that created a new source of emissions to net its total emissions across all sources within the facility. This effectively promoted internal "trading" among sources within a facility: the new source could emit pollutants in excess of its required level if an existing source reduced its pollution below its required level. Offsets allowed a new source in a nonattainment area to offset its emissions by paying to reduce emissions at another source in that area. Bubbles created aggregate caps for all existing sources within a facility. Instead of specific technology standards for each smokestack, the facility has the flexibility to reduce emissions in any manner it desires so long as the aggregate emissions are consistent with its cap. In addition, a facility with emissions below its bubble limit could sell emissions credits to other firms. Banking allowed facilities to save emissions reductions that exceeded the current standard for use at a future date. Whereas netting only occurs with respect to internal trading, the other three mechanisms can occur through both internal and external trading. The experience with these mechanisms showed benefits but also demonstrated some design problems that limited the cost savings. A review of these programs in the late 1980s found that netting generated by far the greatest economic benefits, with estimates ranging rather broadly from $500 million to $12 billion. Bubbles generated cost savings on the order of more than $400 million, and offsets could likewise have generated benefits on the order of several hundred million dollars. Little banking activity occurred, resulting in very modest benefits. Nor was there much external trading: only about 10 percent of offsets occurred between two firms, and fewer than 2 percent of 256 I Economic Report of the President bubbles were between two firms. Compared with estimated Clean Air Act compliance costs on the order of $500 billion over the 1970-90 period, these cost savings are very modest. Several factors may have dampened the volume of external trading and the subsequent cost savings. First, the ability of firms to engage in trading was restricted. Firms had to invest in abatement technology before they were allowed to purchase permits from other sources, and this effectively stunted the growth of the emissions permit market. Trading ratios greater than one (for example, where one firm sells 12 permits but the buying firm can only use 10 of the permits that it purchases) reduced trading. Second, the review process for trades was costly and created uncertainties about whether the emissions credits created actual property rights; this uncertainty further lowered their value. The uncertainty that buyer liability creates may have biased firms in early trading programs toward internal trades. Third, the concept of trading was novel to many facilities managers, and the lack of appropriate human capital has been suggested as one reason for the low volume of external trading. Trading under these rules in Southern California during the late 1980s incurred transactions costs as high as 30 percent of the value of the emissions permits in the transaction. These transactions costs reflected the costs of negotiations with other parties, an administrative fee, a certification fee, and costs for documenting the trade and the emissions reduction. If a firm wanted to bank emissions permits, it had to pay a banking fee as well. Moreover, the Southern California regulatory authority granted only 60 percent of proposed trades, and this increased uncertainty among potential participants. Together the extensive fees and the review process dampened the market for emissions permits. Permit Trading: RECLAIM In response to the increasing cost of air quality regulation and the inefficiency of the then-current system of trading rules, in 1994 the Southern California Air Quality Management District began a tradable permit system known as the Regional Clean Air Incentives Market (RECLAIM). This program covers stationary sources that emit 4 or more tons annually of either nitrogen oxides or sulfur oxides. Smaller facilities can join the program voluntarily as well. The program also includes provisions that allow the retirement of older, more-polluting automobiles to generate emissions credits to be used by stationary sources. At its inception the program included 65 percent of all NO X and 85 percent of all SO X stationary sources (such as electric utilities and petroleum refineries). RECLAIM has a single major restriction on trading, designed to prevent hot spots. Geographically, sources are divided into an inland zone and a Chapter 7 I 257 coastal zone. Trades can occur within a zone, but permits can only be sold from coastal zones (upwind) to inland zones (downwind), not vice versa. Without this restriction, a significant set of upwind sources could emit enough NO X to result in the ozone standard being exceeded locally downwind. To facilitate compliance, major sources must install continuous emissions monitors (CEMs), which provide emissions data to the regulatory authority. For 1994 through 1997, CEMs in RECLAIM cost approximately $13 million more per year than the monitoring equipment that would have been required under a traditional regulatory program. This cost was about one fifth the projected cost savings associated with the program between 1994 and 1999 and comprised a majority of the projected compliance costs borne by participatingfirms.However, monitoring provides important benefits. By providing greater certainty about a sources emissions, monitoring may enhance the integrity of the environmental market and reduce the need for regulatory supervision of every trade. RECLAIM has been largely successful in reducing emissions in a cost-effective manner. Annual ozone standard violations in 1998 were roughly two-thirds fewer than in 1980, and half the number in 1993 (Chart 7-3). Chart 7-3 South Coast Air Basin Exceedances of Federal Ozone Standard Southern California exceeded the Federal ozone health standard on roughly one-third as many days in 1998 as in 1980 and half as many days as in 1993. Annual days exceeding standard 250 200 150 100 1976 1978 1980 1982 1984 1986 Source: South Coast Air Quality Management District. 258 I Economic Report of the President 1988 1990 1992 1994 1996 1998 Permit Trading: Sulfur Dioxide Trading Program In the atmosphere, emissions of SO2 transform into sulfates and sulfuric acid and are transported over large distances. Because 70 percent of all U.S. SO2 emissions come from electric utilities, and many of these are based in the eastern half of the United States, the sulfates are usually deposited in the Northeast. Acidic deposition, also known as acid rain, can acidify lakes, resulting infishkills; it can reduce the alkalinity of forest soils, thereby harming various tree species; and it can degrade various ecosystem functions. In addition, SO2 has been linked with several respiratory problems. To address the acid rain problem, the 1990 Clean Air Act Amendments directed the EPA to design a tradable permit system for SO2. The program required the 110 highest emitting, primarily coal-fired, power plants (representing 263 units) in the Eastern and Midwestern States to hold, starting in 1995 (phase I), permits sufficient to cover all their SO2 emissions. Starting in 2000 (phase II), all large fossil fuel-fired power plants (approximately 2,000 units) in the eastern half of the United States will have to hold enough SO2 permits to cover their emissions. Most allocations are based on the product of a common emissions performance standard and historical utilization, although a small percentage every year (about 3 percent) are auctioned at the Chicago Board of Trade. Utilities can freely buy and sell permits, and entities not required to hold permits to cover emissions may also participate in the SO2 market. Utilities can also bank emissions permits for use in future years. The SO2 market has enjoyed very active participation and yielded substantial cost savings. Innovations in scrubber technology as well as the availability, due to rail deregulation, of low-cost, low-sulfur coal from Wyoming and Montana have contributed to compliance estimates as low as half of what had been predicted for the program. The market has experienced high volume, in part thanks to the role of private brokers. Compared with a traditional regulatory alternative, the fully implemented SO2 market has generated cost savings of up to $1 billion annually. The heterogeneity of abatement costs for SO2 in the utility industry has been recognized as one reason why the SO2 market has experienced such heavy volume and substantial cost savings. The absence of individual trade reviews by the government and a system of seller liability have also contributed to high trading volumes. Banking of permits has also occurred to a substantial degree: total SO2 emissions in 1995 were nearly 40 percent below the environmental goal because of banking activity (Chart 7-4). These banked permits will likely be used during phase II, which has tighter annual emissions limits. Chapter 7 I 259 Chart 7-4 Emissions from Phase I Facilities in the Sulfur Dioxide Trading Program SO 2 emissions from the original 263 units have fallen well below binding targets, possibly reflecting the banking of emissions credits by firms in anticipation of stricter phase II limits. Millions of tons of SO2 10 9.4 • •• • 1 1 1980 9.3 8.7 Allowances issued 7.1 11 1985 1990 Source: Environmental Protection Agency. 4.5 4.8 6.0 4.8 J II 1995 1996 1997 6.0 4.7 1998 Permit Trading: Phasedown of Leaded Gasoline Exposure to lead can cause an array of health problems, including a reduction in children's IQ, behavioral disorders, and adult hypertension. Exposure to lead can occur through a variety of pathways, such as ingestion of leadbased paintflecksand lead-contaminated dust, drinking lead-contaminated water, and inhalation of airborne lead resulting from the combustion of leadbased gasoline. In the 1970s, vehicle emissions were responsible for approximately three-fourths of total U.S. lead emissions. To address the risks of lead exposure, in 1982 the EPA implemented an interrefinery trading program for lead credits. The EPA capped the amount of lead allowed in all gasoline sold, and this cap declined until the lead content was 10 percent of its previous level. To sell gasoline containing lead, a refinery had to hold lead credits commensurate with the lead content of the sold fuel. Refineries could buy and sell lead credits, and the volume of trade was quite substantial. During 1983 and 1984, only one refinery did not participate in the trading program. Up to 50 percent of all lead in gasoline was at one time or another the object of a lead credit transaction between refineries. In addition, the EPA provided a banking mechanism starting in 1985, and many refineries took advantage of banking until the end of the phasedown program in 1987. The inclusion of banking may have reduced costs up to 20 percent 260 I Economic Report of the President over alternative schemes without banking. Unlike the experience with air pollutant emissions trading in the early 1980s, the phasedown of lead evolved into a fairly efficient market, resulting in an extraordinary reduction in lead emissions (Chart 7-5). Although this certainly reflects the less intrusive government role in the lead market (individual trades did not require government approval), the efficiency of the market may also reflect the technical capacity within firms to participate in trading. Firms that already have experience in trading, such as refineries that engage in intermediate product markets within the refinery industry, may be more inclined to trade. However, smaller firms may have been less inclined to trade because they lacked the technical capacity to evaluate their own costs of removing lead from gasoline and to assess their potential role in the lead market. Chart 7-5 Lead Emissions Lead emissions have been virtually eliminated in the United States. Thousands of short tons of lead 300 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 Source: Environmental Protection Agency. Charges: Unit-Based Pricing of Residential Solid Waste Everyday activities generate solid waste. Through direct and indirect consumption, an average individual generates approximately 4 pounds of waste per day. The generation of waste requires the appropriate disposal at landfills and incinerators. Its disposal can result in numerous problems, including water pollution (from landfills), air pollution (from incinerators), and transportation-related problems associated with hauling waste, including noise, odor, and traffic congestion. Chapter 7 I 261 To address the problems associated with waste disposal, many communities have implemented waste management programs that include unit-based pricing of waste collection, in which households pay for disposal services according to the amount of waste they set out for collection or bring to collection centers. This alternative to traditional methods of paying for trash collection (through general revenue or a flat annual fee) can provide explicit information about the cost of waste generation to households. Households can respond in a number of ways to being charged for each unit of waste they set out for disposal. For example, they can do more recycling, set aside yard waste for separate collection, or buy goods with reduced packaging (what is called source reduction behavior). Some people have worried that unit-based pricing could also promote illegal dumping and burning, although this has not been a serious problem in most communities, in part because of antidumping programs. Under unit-based pricing, collection schemes usually take one of three forms: special bags; tags or stickers attached to waste receptacles; or subscription cans of varying sizes. Recycling programs and public education campaigns on viable substitutes for waste disposal often accompany the introduction of unit-based pricing programs. By 1998, more than 4,000 communities in 46 States had adopted unitbased pricing schemes for their residential waste collection, covering nearly one in seven Americans (Table 7-1). Unit-based pricing reduces the amount of waste collected for disposal relative to a flat-fee system. Increasing the number of types of recydables covered by a community's recycling program and introducing a yard waste collection program also appear to reduce the amount of waste collected for disposal. However, the total amount of waste TABLE 7-1.—Number of Communities Adopting Unit-Based Pricing Residential Solid Waste Collection Programs Start date No information1 . Pre-1986 Cities [number) Population (millions) Households (millions) 1,541 8.3 2.2 130 4.1 1.6 Pre-1991 883 5.1 1.9 Pre-1996 1,404 11.2 4.1 Pre-1999 65 5.7 2.1 4,023 34.4 11.9 Total 1 Minnesota communities represent 68 percent of this group (1,043 of 1,541). A Minnesota statute requires pricing by weight or volume as a condition for receiving a license for solid waste collection. This statute went into effect in January 1994. Source-. Marie L Miranda and David Bynum, Unit Based Pricing in the United States-. A Tally of Communities, Duke University, 1999. 262 I Economic Report of the President generated (waste to landfills and incinerators plus recycling plus yard waste collection) does not appear to be significantly different under unit-based pricing from that under a flat-fee system. In other words, unit-based pricing may promote diversion from landfills to recycling and yard waste collection, but it does not appear to promote source reduction behavior. Since the cost of reducing residential waste may not vary significandy across households, this experience with unit-based pricing may illustrate the merits of a charge approach. The small gains available through a trading approach may be swamped by the costs of acquiring information about potential buyers and sellers and other transactions costs in such a market. Thus very few trades would occur, resulting in little cost savings. In this case where control costs are fairly homogeneous, the charge approach appears to be more appropriate, and in the case of unit-based pricing of solid waste, it has been fairly successful at reducing waste to landfills and incinerators. Implications of the U.S. Experience These trading and emissions charge programs illustrate the potential for regulatory strategies to achieve environmental goals through approaches that provide incentives to effectively harness private markets. Of these examples, some have demonstrated more substantial cost savings than others, but in none did the market-oriented approach undermine the achievement of the environmental goal. More cost-effective attainment of environmental goals depended in large part on the design of markets tailored to the specific characteristics of the environmental problem at hand. In cases where emissions sources have roughly equivalent environmental effects, where emissions monitoring is available, and where the cost of reducing emissions varies across sources, trading can be a powerful tool to address pollution cost-effectively. The rules for the design of trading can ensure that the program achieves more of its potential cost-effectiveness. Such rules can include reasonable liability rules, banking and borrowing, and appropriate restrictions on trading, for example to address hot spots. In cases where the costs of reducing pollution are similar across sources, the charge approach may be more appropriate, and as we have seen, it has been used in many U.S. communities to address residential waste generation. Such incentive-based approaches have also been used in other countries and in other policy contexts. For example, several European countries employ charges on air and water pollution. However, many of these programs are designed more to raise revenue and have minimal effects on emissions because the charges are set too low to induce much emissions abatement. In Singapore a traffic congestion pricing system has been in use since 1975 to reduce the number of vehicles in the central business district. In the United States, tradable permits have also been used to address such problems as overfishing (Box 7-5). Chapter 7 I 263 Box 7-5. Individual Quotas for Fisheries Management Most commercial fisheries are experiencing declining fish stocks because of too much fishing. To prevent overfishing, some fisheries have resorted to fixing the total amount of fish that may be caught in a given year. Fishery managers set this limit, called the total allowable catch (TAC), low enough to guarantee the sustainability of the fishery, and they officially end the season once this limit has been reached. Because fishers know that managers have limited the total catch, their goal becomes to catch as large a fraction of it as possible. The "derbies" that result as each fishing crew tries to beat the rest of the fleet can waste significant resources. Fishers respond by overinvesting in gear and purchasing ever faster, ever larger boats, but these investments only make the derbies more frenetic. The rapid pace has in some cases significantly shortened the fishing season, needlessly restricting consumers' access to some fish species during certain periods and forcing fishers to concentrate their work effort into a shorter period. Managers have tried to supplement the TAC with gear and access restrictions, but a potentially more efficient approach for some fisheries is to allocate shares of the TAC in the form of individual quotas. Since each fisher then has a right to a specified share of the TAC in a given year, each can catch this share in the cheapest manner possible without having to worry about the behavior of competitors. The incentives to concentrate production in the early portion of the season and to overinvest in capital disappear. And because the quotas can be traded, the market provides an incentive for the most efficient operators to catch the most fish. Less efficient fishers can sell their rights to more efficient fishers for an amount greater than their expected profit on the catch. Similarly, the more efficient fishers stand to net more than the profit of the less efficient ones, and so the individual quotas can be exchanged in such a way that both are better off. Individual quotas have been used extensively around the world, with very promising results. New Zealand first introduced such a program in 1986, and at least seven other countries now employ individual quotas. Currently three programs operate in the United States, covering fishing for surf clams, ocean quahogs, wreckfish, Alaskan halibut, and Alaskan sablefish.The Sustainable Fisheries Act of 1996 placed a moratorium on the use of individual quotas through October 1, 2000, and requested a study of the quota approach by the National Research Council.The NRC panel released its report in April 1999. It recommended that the Congress lift the 1996 moratorium and allow regional fisheries to use individual quotas.The report emphasized that the quotas are not a panacea applicable to all fisheries. But it also concluded that past continued on next page... 264 I Economic Report of the President Box 7-5. — continued experience has repeatedly demonstrated the effectiveness of individual quotas for "matching harvesting and processing capacities to the resource, slowing the race to fish, providing consumers with a better product, and reducing wasteful and dangerous fishing." Applying the Lessons Learned: Global Climate Change Perhaps the leading environmental challenge of the 21st century will be to address the risks associated with global climate change. Climate change results from the long-term accumulation of greenhouse gases in the atmosphere. The balance of scientific evidence suggests that emissions of greenhouse gases from human activity have a discernible influence on the global climate. Three characteristics of the climate change challenge create great potential for emissions trading and similar flexibility mechanisms to reduce greenhouse gas emissions. One is that a very large number of sources emit greenhouse gas emissions, which stay in the atmosphere for many years, so that the climatic effect of a unit of emissions is the same no matter where the emissions come from. A second is that the different types of sources have significantly different abatement costs, especially across countries. The number of potential participants and this heterogeneity in their abatement costs provide the basis for an active, competitive emissions trading market. Finally, emissions of carbon dioxide, the most prevalent greenhouse gas resulting from human activity, are relatively easy to calculate. Emissions of greenhouse gases occur as a by-product of a variety of activities: fossil fuel combustion, deforestation, rice cultivation, maintenance of electricity transformers, aluminum manufacturing, and others. The atmospheric concentration of carbon dioxide has increased about 30 percent since the preindustrial period. Absent new mitigation efforts, that concentration will likely rise to double the preindustrial concentration by the middle part of the 21st century. Moreover, greenhouse gases can reside in the atmosphere for very long periods. Carbon dioxide and nitrous oxide may last in the atmosphere for approximately 100 years, and other greenhouse gases, such as perfluoromethane and perfluoroethane, can last in the atmosphere tens of thousands of years. Such an accumulation of greenhouse gases could pose significant risks, including rising sea levels, more frequent and severe storms, shifts in agricultural growing conditions, increased range and incidence of certain diseases, changes in the availability of freshwater supplies, and damage to ecosystems and biodiversity. Chapter 7 I 265 A landmark international agreement to address the risks of climate change was the Framework Convention on Climate Change, signed at the 1992 Earth Summit in Rio de Janeiro. Building on this treaty, 160 countries agreed to the Kyoto Protocol in December 1997. The Kyoto Protocol established binding greenhouse gas emissions targets for 38 industrialized countries for the period from 2008 to 2012. The United States agreed to a target of 7 percent below 1990 emissions levels. To promote cost-effective attainment of these targets, the agreement also established four flexibility mechanisms: emissions target bubbles, international emissions trading, Joint Implementation (JI), and the Clean Development Mechanism (CDM). The last three of these, if designed and implemented efficiently, could provide the foundation for a global emissions market. Since greenhouse gas emissions have the same climatic consequences wherever they occur, the most efficient way to address the risks of climate change is to reduce emissions wherever such reductions are cheapest. Flexibility Mechanisms in the Kyoto Protocol Emissions target bubbles effectively allow a group of countries to aggregate their emissions targets into one megatarget and to reallocate emissions to new targets within this group. For example, all the countries of the European Union have Kyoto Protocol targets set at 8 percent below their actual 1990 emissions (written herein as 1990 -8). Under the bubble, the EU target becomes 1990 - 8 , and individual countries within the group have targets that vary between 1990 - 2 8 and 1990 +27. Thus, those EU countries that expect to find it easier than others to reduce emissions effectively take on bubble allocations below their Kyoto Protocol targets, whereas those that may find the targets more difficult to achieve get bubble allocations in excess of these targets. The bubble concept allows for countries to engage cooperatively in one set of "political trades" before the commitment period. However, once all EU countries have ratified the Kyoto Protocol, the allocations established under the bubble become their new targets. International emissions trading may occur among all countries with binding emissions targets. With these targets, each country is allowed to emit a specified level of emissions: its so-called emissions allowances. Trading occurs when one country agrees to sell some of its emissions allowances to another country. It can also occur among firms and other private sector entities that hold emissions allowances through domestic trading programs. For example, a U.S. firm that must hold allowances for the U.S. domestic trading program could trade with a Canadian firm that must hold allowances for a Canadian domestic trading program. For countries that have opted for a traditional regulatory approach or a charge approach to controlling emissions, it may still be possible for international trading to occur between firms and governments. 266 I Economic Report of the President Like international emissions trading, Joint Implementation may occur among countries with binding targets. Unlike international trading, however, JI is focused on projects. A firm in one industrial country may invest in a project to reduce greenhouse gas emissions in another. If both countries' governments approve the project, emissions allowances from the country where the reductions occurred are transferred to the other country in exchange for the investment. The Clean Development Mechanism allows industrial and developing countries to work together to design and implement projects in developing countries that abate greenhouse gas emissions; however, developing countries do not need binding emissions targets to participate in the CDM. CDM projects must be certified on the basis of several criteria. In addition, a portion of the emissions credits generated by the project would support an adaptation fund for low-income countries especially vulnerable to climate change (adaptation charges) and for administrative costs of the CDM. Industrial countries can use CDM reductions to meet their emissions targets. The rules for international emissions trading, JI, and CDM are expected to be finalized at the next round of climate change negotiations at The Hague later in 2000. Finally, the protocol allows for emissions allowances to be banked from one commitment period to the next. A 5-year average commitment period provides additional flexibility by effectively allowing for the banking and borrowing of emissions allowances within this period. This opportunity to bank and borrow can smooth out permit prices, which might otherwise experience large price swings due to normal annual fluctuations in the weather or the economy. Cost-Effectiveness of Kyoto Protocol Flexibility Mechanisms Although international emissions trading, Joint Implementation, and the Clean Development Mechanism can all help lower the cost of compliance with the Kyoto Protocol targets, their cost-effectiveness may vary. An efficient international emissions trading system would not require case-by-case reviews of trades; however, JI and CDM might require such review, and CDM projects would also require independent certification. Further, the adaptation charges and administrative costs would increase the costs of participating in a CDM project. The reviews and charges associated with project-based approaches could be similar to those in the early emissions trading programs under the Clean Air Act—netting, bubbling, and offsets—which experienced less activity than would have been expected with less bureaucratic oversight. In addition, the project orientation of JI and CDM would effectively exclude some cost-saving efforts. For example, a country pursuing a policy of cutting energy subsidies might find it impossible to classify this policy as a project under JI or CDM. Chapter 7 I 267 However, the country could cut energy subsidies and sell unneeded emissions allowances through the international emissions trading mechanism. An international emissions market based on trading, JI, and CDM could allow substantial gains from trade in meeting emissions targets because the cost of controlling greenhouse gases differs widely from country to country. Countries that have relatively inexpensive ways of controlling greenhouse gases have incentives to reduce emissions by more than their targets require, because they can then sell tradable allowances that they will not need. By the same token, countries facing more expensive emissions abatement measures have incentives to buy less costly allowances from others. Modeling analyses of the Kyoto Protocol have found that, for the United States, moving from a no-internationaltrading scenario to a scenario of efficient trading among industrial countries would cut the price of a tradable carbon dioxide permit (a measure of marginal compliance cost) by half. Expanding the Scope of Trading to More Countries Modeling analyses also illustrate the significant potential for additional cost savings by expanding emissions trading to developing countries. Among the world s large economies, the cost to a country to abate a given percentage of its greenhouse gases may vary by more than a factor of 20. If developing countries adopt binding emissions targets, they can participate in international emissions trading and may gain substantial revenue from selling permits in the international emissions market (Box 7-6). In an efficient global market, low-cost opportunities to reduce greenhouse gases in developing countries would attract foreign direct investment in energy and industrial abatement technologies and for carbon dioxide sequestration activities (such as planting and managing stands of trees to absorb carbon dioxide). Developing countries could generate billions of dollars in revenue annually through the sale of emissions allowances to countries with higher abatement costs. Effectively, the Kyoto Protocol provides the potential for low-cost abating developing countries to create an export industry whose product is emissions abatement. While providing economic and environmental benefits to developing countries, an efficient global trading system could reduce the tradable permit price by up to about 90 percent in the United States. Expanding the Scope of Trading to More Greenhouse Gases Expanding the scope of trading could capture even more benefits. Recent analyses have found that allowing for trading across greenhouse gases can lower the cost of meeting emissions targets. Greenhouse gases could be traded on the basis of global warming potentials, which provide a measure of the effect of each 268 I Economic Report of the President Box 7-6. Expanding the Scope of the Market Through Developing Country Participation The Kyoto Protocol stipulates that countries must have a binding emissions target before they may engage in international emissions trading. Since the Kyoto conference, developing countries have expressed interest in emissions targets. Consistent with the Framework Convention on Climate Change, targets for developing countries should help promote their sustainable development. For them to do so, such targets should accommodate emissions growth, because some growth in emissions is an unavoidable consequence of development. Unlike the current targets in the Kyoto Protocol, which were set below most countries' current emissions levels, such a target for developing countries could be set above current levels. At the same time, to contribute to the international effort to address climate change risks, such targets should result in real abatement of emissions below levels that would otherwise be reached during the commitment period—that is, below the projected business-as-usual emissions level. This kind of target, often referred to as an emissions growth target, could provide for continued economic development but with a lower emissions growth rate. Such a target could be expressed as some percentage of a base year, in a fashion similar to current Kyoto Protocol targets, but perhaps with a different base year and/or a percentage greater than 100 percent to account for expected emissions growth. An emissions target could also take other forms. It could, for example, be indexed to a country's economic performance (such as GDP) between now and the 2008-12 commitment period. Such targets could avoid the risk of a crunch arising from faster than projected economic growth between now and the commitment period. Developing countries would face only the much smaller risk that emissions would be higher than expected, given the economic conditions during the commitment period. Similarly, such targets would also avoid the risk of inadvertent laxness associated with lower than expected economic growth between now and the commitment period.This indexed target formulation is reflected in the emissions commitment announced by Argentina at the climate change negotiations held in Bonn, Germany, in the fall of 1999. gas on the climate. For example, a pound of methane contributes 21 times as much as 1 pound of carbon dioxide to global warming. Thus, reductions in one kind of gas can substitute for increases in another. Absorption of carbon dioxide by planting trees and creating other carbon dioxide "sinks" could also serve as a low-cost substitute for reducing carbon dioxide emissions. Some modeling analyses indicate that efficient intergas trading could reduce costs to the United States by 25 to 40 percent relative to a policy that only reduces carbon dioxide to achieve the target. Chapter 7 I 269 Quantitative Restrictions on Trading Some countries have argued that trading should be quantitatively restricted to ensure substantial domestic emissions abatement. This is somewhat analogous to early Clean Air Act trading rules that required firms to undertake significant emissions abatement before they could buy emissions permits from other firms with lower abatement costs. If this earlier experience is any guide, these types of restrictions on trading would likely raise the cost of compliance significantly, result in a less liquid tradable permit market, and deliver no benefits to the climate over those from a trading system with no quantitative restrictions. Interestingly, the proposal by the European Union to establish quantitative limits on international emissions trading, JI, and CDM would exempt the bubble mechanism, which the European Union has indicated it will use (Box 7-7). Liability Rules for Trading Some countries propose that buyers of emissions permits should be liable if the seller does not comply with its emissions target. But such a buyers liability scheme could present significant uncertainty in the market, increase transactions costs, and risk the further development of the market. The uncertainty about allowance value (that is, whether allowances can be used for a country's compliance) is greatest in a new market where there is no track record for sellers and where market institutions to handle risk have not yet evolved. This uncertainty may preclude trades and prevent a robust allowance market from being established. Bearing risk, or acquiring information to reduce risk, imposes costs on buyers. The imposition of additional costs for undertaking a trade will make some trades unprofitable, thereby increasing compliance costs unnecessarily. Making Trading Across Countries Work Finally, the efficiency of an international trading system may be influenced by heterogeneity in domestic abatement programs as well as by lack of experience with trading. For example, some industrial countries may undertake traditional regulatory policies such as mandating fuel economy standards and requiring greenhouse gas performance standards for stationary sources. Such an approach would not provide explicit information about the cost of reducing emissions as would a domestic emissions trading program or a charge program. These countries may find it difficult to assess the nature and extent of their proper economic role in an international emissions market. Without the explicit cost information revealed in a domestic trading program, these countries may buy or sell emissions allowances to a degree that is inconsistent with what is economically optimal. With an efficient 270 I Economic Report of the President Box 7-7 The EU Bubble Allocation and Restrictions on Kyoto Protocol Mechanisms In May 1999 the European Union proposed quantitative restrictions on international emissions trading, Joint Implementation, and the Clean Development Mechanism that would limit industrial countries' opportunities to buy and sell emissions.The buying restrictions would take the form of two formulas; countries could choose the less binding of the two. If a country could demonstrate to a review team that domestic abatement measures produced emissions reductions in excess of the binding level, the buying cap could be raised such that purchased allowances equaled verified domestic abatement. The selling restriction also would take the form of a formula, with the opportunity to raise the binding selling cap equal to the amount of verified domestic emissions abatement.The proposed restrictions do not apply to the "political trading" under the bubble provision of the Protocol. In 1998 the European Union announced its bubble allocation under the Kyoto Protocol. EU members will transfer portions of the group's assigned emissions targets to other EU countries. In the Kyoto Protocol, all EU countries are assigned targets of 1990 -8; under the bubble allocation these adjusted targets would range from 1990 -28 to 1990 +27.The United Kingdom's emissions have fallen since 1990 as a result of liberalizing its electricity sector; Germany's emissions have fallen in the same period in part because of restructuring related to unification with eastern Germany.Therefore these two countries accepted bubble allocations of 1990 -12.5 and 1990 - 2 1 , respectively. Since Ireland, Portugal, and Greece are expected to grow faster than most other EU countries, they received bubble allocations ranging from 1990 +13 to 1990 +27. EU data indicate that several of the political transfers under the bubble allocation would probably not comply with the restrictions proposed by the European Union itself for the other Kyoto Protocol mechanisms. Indeed, 10 of the 15 EU countries could violate the EU proposal to restrict flexibility: 6 could receive transfers in excess of their binding buying constraints, and 4 could transfer emissions in excess of their selling constraints. Thus, two-thirds of EU members might benefit from political trades under the bubble that could not occur as economic trades under its own proposal to restrict international emissions trading, Jl, and CDM. domestic trading program, participating firms would have explicit price-ofabatement information on domestic abatement opportunities to guide their buying and selling in an international emissions market. Even if some countries implement domestic trading programs for one or a few industries, they may still forgo significant cost savings associated with a more Chapter 7 I 271 comprehensive domestic trading system. Integrating an international emissions market with private firms and national governments may result in some efficiency losses. The U.S. experience in other emissions markets suggests that countries and firms with very little experience at trading may not be as active participants as others. To promote an efficient international trading system, the Administration has proposed a set of rules for trading based on its experiences with various trading programs. The Administration opposes quantitative restrictions on trading. The Administration supports a system of seller liability for trading, coordinated with a strong compliance system. To promote cost-effectiveness in the trading system, the Administration supports involving interested private entities in international emissions trading, JI, and the CDM. In addition, the Administration has proposed a domestic trading system for greenhouse gases for the 2008-12 commitment period and aims to have this domestic system integrated with international emissions trading. For the near term, the Administration has included a hybrid trading and charge system in its electricity restructuring bill to promote renewable power as a way to encourage the development of emerging renewable energy technologies (Box 7-8). In addition, the Administration has promoted the development and diffusion of more climate-friendly technologies through a variety of R&D and information programs (Box 7-9). Box 7-8. The Renewable Portfolio Standard The generation of electricity can result in an array of environmental problems, from emissions of air pollutants, to nuclear waste, to damage to aquatic ecosystems. Renewable sources of energy, such as wind, biomass, solar, and geothermal power, have the potential to deliver electricity while having a more modest impact on the environment. The Administration's bill to restructure the electricity industry— the Comprehensive Electricity Competition Act—calls for a renewable portfolio standard (RPS) to promote the development and use of renewable electricity. The RPS would require all retail electricity sellers to cover a certain percentage of the electricity they generate with nonhydropower renewable sources of electricity; this percentage would rise from its 1997 level of 2.3 percent to 7.5 percent by 2010. A seller could meet this percentage requirement by generating electricity from its own renewable energy sources or by purchasing tradable renewable electricity credits from others who generate electricity from such sources. In addition, the RPS would be governed by a cost cap of 1.5 cents per kilowatt-hour. If the cost of generating renewable electricity reached 1.5 cents per kilocontinued on next page.. 272 I Economic Report of the President Box 7-8.—continued watt-hour above the price of nonrenewable electricity, an electricity seller could go to the Department of Energy and purchase an RPS credit for 1.5 cents per kilowatt-hour instead of incurring the greater costs of generating more expensive renewable energy. Revenue from these sales would contribute to a Public Benefits Fund, which is envisioned to support renewable power R&D, energy efficiency programs, and lowincome assistance. The combination of a tradable permit system with the cost cap would allow for considerable flexibility for electricity vendors in meeting the renewable standard. The costs of generating nonhydropower renewable electricity, especially in quantities more than three times that of today, are uncertain.The cost cap would provide additional certainty and a form of insurance to electricity sellers as they plan for investment in new generating technologies. It would also insure their customers against unexpectedly large electricity price changes. Box 7-9. Climate Research and Development and Information Programs Potential new technologies often do not receive sufficient private sector investment when investing firms cannot fully capture the benefits of these technologies. For example, some of the benefits of improved solar power technology accrue to society at large, in the form of improved local air quality and reduced carbon dioxide emissions relative to a fossil fuel power alternative. In such cases, producers have less economic incentive to invest in carbon-free power technologies than is socially optimal. Federal support for research and development in cleaner and more energy-efficient technologies can address this problem.Through the President's Climate ChangeTechnology Initiative (CCTI), the Administration has invested $2.12 billion over the past 2 years in clean, energy-efficient technology development and has proposed to spend $1.43 billion in fiscal 2001.The CCTI has funded R&D in technologies associated with the four major sources of carbon dioxide emissions—buildings, industry, transportation, and electric power—and investments in carbon removal and sequestration. Complementing these R&D programs, efforts to provide more information about the energy and environmental effects of products can promote the deployment of more climate-friendly technologies. Evidence suggests, for example, that better information about the potential cost savings from improving energy efficiency may increase continued on next page... Chapter 7 I 273 Box 7-9.—continued the use of energy-efficient technologies. Lacking this information, consumers may simply purchase the product with the lowest upfront cost, all else equal. However, information about the costs of operating a product over its lifetime may illustrate to the consumer that the life-cycle costs of the more energy-efficient product could be lower than those of the product with the cheaper price tag. The Energy Star Program at the Environmental Protection Agency provides consumers with information about the energy efficiency of a wide variety of products through a readily identifiable label. Products bearing the Energy Star label appeal to consumers interested in both long-term energy costs and the environmental effects of using energy. Thus, Energy Star office equipment like computers, which are, on average, 50 percent more energy efficient, would be especially attractive to these consumers. In addition, the Administration's electricity restructuring bill includes a labeling provision that requires electricity generators to provide consumers with information about the environmental characteristics of the electricity provided, such as the fuel source. Under this bill, consumers who want to purchase "green" electricity will have the information they need to make such a decision. Conclusion Economic activity has long contributed to environmental pollution in one form or another, but the application of incentive-based approaches to repair the damage of pollution has only really come into vogue in the United States over the past 25 years. Experience with tradable emissions permits and emissions charges illustrates the potential for substantial cost savings in achieving environmental goals, as well as some of the pitfalls in designing these policy tools. Taking the characteristics of environmental problems properly into account makes it easier to identify and apply an appropriate regime. Drawing on the U.S. experience with market-oriented regulatory policies, the Administration has advocated and secured the inclusion of international emissions trading, Joint Implementation, and the Clean Development Mechanism in the Kyoto Protocol as ways to achieve the world s climate goals as cost-effectively as possible. Future efforts in negotiations to design rules for greenhouse gas emissions permit trading and to expand the scope of trading will seek to ensure even greater cost-effectiveness. Among the challenges that lie ahead include an improved application of these tools internationally. Besides the United States, many other industrial countries have employed incentive-based approaches, especially emissions charges, to 274 I Economic Report of the President address environmental pollution. Other countries, especially developing countries with substantial air and water pollution problems, can learn from the experience of the United States and other industrial countries and employ these instruments to achieve better environmental quality with the scarce resources they have available. Further, as countries begin to recognize and address crossborder environmental problems such as greenhouse gas emissions, the potential for cooperative use of incentive-based instruments could provide countries significant cost savings and environmental benefits. Chapter 7 I 275 C O N C L U S I O N A Century of Change: New Opportunities for the Future In January 1901, Colliers Weekly Magazine published this vision of what the future might look like. The editors envisioned that by the year 2001, Broadway in New York City would offer modern inventions "carried to the highest point of development," such as 6-hour trans-Atlantic submarine rides, a "Manhattan Air Line" used much like buses for local transportation, compressedfood tablets for fastfood lunches, and wireless telephones that could even phone Europe. T he 20th century was one of dramatic growth, change, and new opportunity for America. Technological innovation, globalization, and demographic shifts have led to fundamental changes in our economy, creating new industries, transforming how businesses operate, altering the nature of work, reshaping the typical family, and changing the scope of environmental problems. The American economy today is more prosperous and more diverse and offers Americans more possibilities and choices than ever before. But new challenges have accompanied those changes, and policymakers must continue to seek ways to harness a n i maximize the benefits for all Americans. 277 Rising to these policy challenges is particularly appropriate as we seek to sustain the phenomenal economic performance America currently enjoys. We are on the brink of achieving the longest economic expansion on record. Perhaps even more important, this expansion has been not just long but broad and deep as well. Unlike in the last long expansion, all income classes have shared in the benefits, capturing real, across-the-board income gains. The unemployment rate is lower than it has been in 30 years, even as core inflation has fallen to its lowest point in 34 years. The poverty rate is the lowest since 1979. In the past 7 years we have moved from a Federal budget deficit of $290 billion to a surplus of $124 billion. That has helped keep interest rates low and freed up capital for investment, which, in turn, has helped productivity rise over the course of this expansion. We are now seeing the payoffs of a concerted policy strategy of exercising fiscal discipline, of investing in education, training, and technology, and of opening markets abroad. Indeed, this expansion so far has defied the odds: it has achieved low unemployment, low inflation, strong growth, strong investment, rising productivity, and across-the-board income growth—all simultaneously. In this Economic Report ofthe President for the year 2000, we have outlined some of the key economic changes of the past century and analyzed some of the principal factors driving those changes. We have discussed the new opportunities and the new challenges that have emerged as the United States has moved from an agrarian and industrial economy, anchored in the production of goods, to an increasingly information-driven economy, fueled by the exchange of services and ideas. A Look Back To appreciate how far we have come, it is instructive to look back on what American life was like in 1900. At the turn of the century, fewer than 10 percent of homes had electricity, and fewer than 2 percent of people had telephones. An automobile was a luxury that only the very wealthy could afford. Many women still sewed their own clothes and gave birth at home. Because chlorination had not yet been introduced and water filtration was rare, typhoid fever, spread by contaminated water, was a common affliction. One in 10 children died in infancy. Average life expectancy was a mere 47 years. Fewer than 14 percent of Americans graduated from high school. The typical family was a two-parent family where the father was the breadwinner and the mother did not work for pay. Fully 80 percent of American children lived in this kind of family. Fewer than 10 percent lived in single-parent homes. Widowhood was far more common than divorce. The average household had close to five members, and a fifth of all households had seven or more. 278 I Economic Report of the President More than 40 percent of the work force labored in agriculture. Average income per capita, in 1999 dollars, was about $4,200. Options for women and minorities in the work force were limited. The overwhelming majority of women worked at home or on the farm. Only about 20 percent of women were in the labor force, and those who did work were likely to be unmarried and in low-paying occupations. Over 90 percent of African American women worked as either farm laborers or domestic servants. The typical workweek in manufacturing was about 50 hours, 20 percent longer than the average today. In 1900 only 5 percent of factories used electricity as a power source. The rest still used steam or water power to drive their machines through intricate arrangements of wheels, belts, and shafts. By far the greater part of the productive economy was involved in making goods. Only about 30 percent of workers were employed in service industries, and services made up just 2 percent of U.S. exports. Although international trade equaled about 15 percent of GNP, there was relatively little integration of national economies through investment and production arrangements. The American Economy Today The broad contrasts between America in 1900 and America today are striking. Some of the most dramatic improvements have been in the area of public health. Infant mortality dropped by more than 90 percent over the course of the century. Life expectancy has increased by about 30 years. Diseases such as typhoid, cholera, smallpox, and polio have been dramatically reduced or even eliminated through improved sanitation and the widespread use of vaccines. Average income per capita is now $33,740, more than eight times what it was at the beginning of the 20th century. Just 3 percent of the labor force now work on farms. More than 40 percent of total employment is in industries that are intensive users of information technology. And studies project that the five fastest growing occupations between now and 2008 will be related to computers. The service sector accounts for 50 percent of the 20 million new jobs created over the last 7 years, and services are now about 29 percent of exports. More than 80 percent of Americans aged 25 and over have graduated from high school, and almost a quarter have graduated from college. The long-standing gender gap in education has disappeared—women are in fact graduating from high school and college at slightly higher rates than men. Over 75 percent of women aged 25-44 are in the work force. Women and minorities are now employed in a broad range of industries and occupations that had previously been closed to them. And although the pay gaps Conclusion I 279 between men and women, and between whites and minorities, have not yet disappeared, they have shrunk significantly. The "typical" family today is much more diverse. Some 28 percent of children now live in single-parent families, and another 44 percent live in families where both parents are in the paid labor force. Only 24 percent of children now live in what used to be the typical model of a breadwinnerfather and homemaker-mother. Meanwhile many other types of family arrangements, including unmarried-partner households and same-sexpartner households, have become more commonplace. Today, the vast majority of households have electricity, telephones, and automobiles. A number of appliances that did not exist 100 years ago are now considered common, if not essential, household fixtures: televisions, videocassette recorders, refrigerators, washing machines, wireless phones, and personal computers, to name a few. Americas international trade (exports plus imports) now amounts to nearly 25 percent of GNP. Both trade and cross-border investment have been spurred by a range of new technologies and products that have cut transport costs and allowed producers and investors continents apart to coordinate their activities with ever greater ease. A U.S. computer manufacturer can import components from foreign suppliers or its own overseas facilities. International mutual funds allow American families to diversify their savings across both industrial and emerging markets abroad. And with the advent of e-commerce, consumers around the world can order a wealth of goods that they might never find at their local shopping centers. The Drivers of Change and the Challenges Ahead These dramatic changes have been driven by a number of factors. As this Report has outlined, among the most important are technology, demographic change, and globalization. America now faces a number of unique challenges as we try to maximize the benefits to all Americans of the internationally integrated, technologically advanced economy in which we now live. Technology From electricity to mass production to telecommunications and e-commerce, technological innovation has been a constant in the American economy, and its effects have been far-reaching. Entire industries that only a few decades ago did not even exist, such as the computer industry, are now leading engines of growth. Between 1995 and 1998, information technology-producing industries contributed, on average, 35 percent of the Nations real economic growth. Computers are cited as a principal factor in the recent increase in productivity 280 I Economic Report of the President growth and are credited with helping keep inflation low. The computer industry itself has achieved dramatic productivity increases: prices of computers have fallen nearly 30 percent per year on average since 1995. And as companies integrate computers, information, communications technology, and, most recendy, the Internet and e-commerce into their business practices, there is evidence that technological innovation is changing the very fabric and structure of industries. Many economists now posit that we are entering a new, digital economy that could inaugurate an unprecedented period of sustainable, rapid growth. Among the challenges posed by the evolving digital economy is maintaining the economic conditions that will sustain the virtuous cycle of low interest rates, high investment, increasing productivity, low inflation, and strong growth that we currendy enjoy. As this Report has noted, fiscal discipline is a key underpinning of these trends. In addition, government policies must foster the competitive dynamic that encourages firms both new and old to introduce innovative products and services, to lower prices through gains in productivity, and to expand customer choice and improve customer service. The greater competition promoted by the Telecommunications Act of 1996, among other developments, has led to explosive investment in communications infrastructure in recent years. This, in turn, has led to a proliferation of new and increasingly affordable information and data services. As both consumers and businesses make increasing use of the Internet and e-commerce, these new tools are beginning to have pervasive effects on how business is conducted—much as the advent of electricity or mass production did earlier in the century. The American job market is adapting to change with much the same vigor. Workers who are well educated and technologically skilled command a substantial wage premium in todays information-driven economy. Information technology-producing industries have experienced faster than average job growth in recent years. In 1997 they added 350,000 jobs—a 7.7 percent increase from 1996—compared with average employment growth in the broader economy of about 3 percent. Those jobs, moreover, pay a significant premium: salaries average $53,000, compared with an economy-wide average of $30,000. Now is the time to make the right strategic investments in education and training, so that the American work force will be well prepared to take advantage of these new opportunities. Government policies that address this task encompass initiatives to improve the quality and standards of schools, to encourage students to stay in school, and to help schools afford the technology necessary to teach students the skills needed in the 21st century job market. Programs such as the E-rate, together with other initiatives in education technology, play a valuable role in closing the digital divide by ensuring that all students, whatever their family's income and wherever they live, have access to computers, Internet connections, and teachers trained in the new technologies. Conclusion I 281 Demographic Change Over the course of the century, a number of demographic changes altered the profile of the typical American family. The massive entry of women into the work force reflects new opportunities for women but also places new demands on families. More and more families today are dualearner or single-parent families. Without a parent available full-time to care for the home and children, these families often face both a time crunch and a money crunch as they seek to balance the needs of work and family life. To enable families to reap the maximum benefit from the economic expansion while still meeting all their members' needs, the Administration has proposed a number of policies tailored to todays diverse families. These include increases in the minimum wage; expansions of the Earned Income Tax Credit and the child care tax credit; enactment of the Family Medical Leave Act; measures that promote more flexible working arrangements; and the New Market initiative to extend the benefits to areas that have been left behind. All these are playing critical roles in helping working families get or stay in the job market, raise their standards of living, continue to reduce poverty, and provide for their children. At the same time, the combination of longer life spans and the aging of the baby boom has given new urgency to the issues surrounding care for older generations. The graying of the population poses a clear challenge to policymakers to strengthen Social Security and Medicare so that they continue to meet the changing needs of older Americans, including helping them afford the prescription drugs that are becoming increasingly important in medical care. Globalization Americas increasing openness to the world, through trade, investment, and the integration of cross-border business operations, has been yet another driver of change that has made our economy more prosperous. The freedom of firms to choose from a wider range of inputs, and of consumers to choose from a wider range of products, improves efficiency, promotes innovation in technology and management, encourages the transfer of technology, and otherwise enhances productivity growth. These benefits in turn lead to higher real incomes and wages. Quite in contrast to the commonly expressed fear that globalization hurts American workers, our experience in the 20th century has shown that as we have grown more open to globalization, we have grown more prosperous, and both workers and consumers in the aggregate have realized the benefits. Only a small share of worker dislocation has been attributed to trade. Policies that help ease the transition and offer retraining to those workers play an important role in their adjustment. But we as a Nation 282 I Economic Report of the President have much to gain from continuing to work for trade liberalization through the World Trade Organization. We should work, however, to bring more transparency to the WTO, to make sure that developing countries benefit from globalization, and to encourage greater consideration of labor and environmental concerns. Finally, as our society has become increasingly global in its outlook, and increasingly scientific in its approach to problems, we have developed a greater understanding of the environmental challenges facing the planet. At the beginning of the 20th century, those environmental problems that were recognized tended to be local in nature, from the horse manure that fouled city streets to the contamination of drinking water. As the economy grew and changed, some existing environmental problems got worse while others appeared for the first time, but that same economic dynamism provided the resources and the innovation needed to address these problems. We realize now the need for local attention to certain environmental problems and for coordinated global attention to global environmental challenges. We also have a better understanding of how to remedy environmental problems through market-based approaches to regulation. The experience with emissions permit trading and emissions charges illustrates how providing economic incentives can promote greaterflexibilityin how industries and other sources reduce their emissions. Such approaches have resulted in more cost-effective achievement of environmental goals. Market-based approaches can also stimulate the development and adoption of new, "cleaner" technologies. Based on our experience and the lessons we have learned in employing these market-based approaches, we are well positioned to explore how these approaches can provide the right incentives for countries around the world to address environmental problems, especially global ones such as climate change. The whole world can benefit from the exchange of experiences and ideas, just as it benefits from the exchange of goods and services through wider international trade. Conclusion America stands at a unique juncture in its history. We are more prosperous, more technologically sophisticated, and more integrated into the global economy than ever before. The policy framework that has been in place over the last 7 years has allowed the growth potential of the private sector to be realized, and we as a Nation have flourished. Yet great challenges still lie ahead to ensure that the benefits of this golden age are sustained and shared as broadly as possible, and that the right investments are made in the future. Fiscal discipline, to keep interest rates low and fuel continued investment, will remain fundamental to our policy strategy. Investing in education, health care, science, and technology will prepare our families and our firms for the Conclusion I 283 challenges ahead. Opening foreign markets and continuing to lower barriers to trade will help deepen the global integration that has served us well thus far. Harnessing market forces for the betterment of the environment will help sustain the economy's robust growth. The 20th century ended on a note of great achievement for America, but the century just beginning promises to be brighter still, provided we undertake prudent policies and make strategic investments for the future. 284 I Economic Report of the President Appendix A REPORT TO THE PRESIDENT ON THE ACTIVITIES OF THE COUNCIL OF ECONOMIC ADVISERS DURING 1999 LETTER OF TRANSMITTAL COUNCIL OF ECONOMIC ADVISERS, Washington, D.C, December31, 1999. M R . PRESIDENT: The Council of Economic Advisers submits this report on its activities during the calendar year 1999 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, Martin N. Baily, Chairman Robert Z. Lawrence, Member Kathryn L. Shaw, Member-Nominee Appendix A I 287 Council Members and Their Dates ofService 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 M. Okun James S. Duesenberry . MertonJ. Peck Warren L. Smith Paul W. McCracken HendrikS.Houthakker Herbert Stein Ezra Solomon Marina v.N. Whitman Gary L Seevers William J.Fellner Alan Greenspan PaulW.MacAvoy Burton G. Malkiel Charles L Schultze William 0. Nordhaus Lyle E. 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 . David F. Bradford PaulWonnacott Laura D Andrea Tyson .... Alan S. Blinder Joseph E. Stiglitz Martin N. Baily Alicia H. Munnell Janet LYellen Jeffrey A. Frankel .... Rebecca M. Blank ... Martin N. Baily Robert Z. Lawrence . 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 Member Chairman Member Member Member Chairman Member Member Chairman Member Member Member Chairman Member Member Chairman . Member .... Member .... Member .... Chairman . Member .... Member .... Chairman . Member .... Chairman . Member .... Member .... Chairman . Member .... Member .... Member .... Member .... Chair Member .... Member .... Chairman . Member .... Member .... Chair Member .... Member ..., Chairman . Member ... 288 I Economic Report of the President Oath of office date 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 1,1985 August 18,1986 February 2,1989 June 9,1989 October 3,1989 November 13,1991 . November 13,1991 . February 5,1993 July 27,1993 July 27,1993 June 28,1995 June 30,1995 January 29,1996 February 18,1997 ... April 23,1997 October 22,1998 August 12,1999 August 12,1999 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. January 12,1993. August 2,1991. June 21,1991. January 20,1993. January 20,1993. April 22,1995. June 26,1994. February 10,1997. August 30,1996. August 1,1997. August 3,1999. March 2,1999. July 9,1999. Report to the President on the Activities of the Council of Economic Advisers During 1999 The Council of Economic Advisers was established by the Employment Act of 1946 to provide the President with objective economic analysis and advice on the development and implementation of a wide range of domestic and international economic policy issues. The Chairman of the Council Martin N. Baily, who was a Member of the Council of Economic Advisers from 1995 to 1996, was appointed Chairman on August 12, 1999. Dr. Baily replaced Janet L. Yellen, who left the Council to return to the Haas School of Business at the University of California, Berkeley, where she is the Eugene E. and Catherine M. Trefethen Professor of Business Administration and a Professor of Economics. Before joining the Council in August, Dr. Baily was a Principal at McKinsey & Company, Inc., at the McKinsey Global Institute in Washington. He was also a Senior Fellow at the Brookings Institution and Co-Editor of the Brookings Papers on Economic Activity, Microeconomics. Dr. Baily is responsible for communicating the Councils views on economic matters directly to the President through personal discussions and written reports. He also represents the Council at Cabinet meetings, meetings of the National Economic Council (NEC), daily White House senior staff meetings, budget team meetings with the President, and other formal and informal meetings with the President, senior White House staff, and other senior government officials. Dr. Baily is the Councils chief public spokesperson. He directs the work of the Council and exercises ultimate responsibility for the work of the professional staff. The Members of the Council Robert Z. Lawrence is a Member of the Council of Economic Advisers. Dr. Lawrence is on leave from the John E Kennedy School of Government at Harvard University, where he is the Albert L. Williams Professor of International Trade and Investment at the Center for Business and Government. He 289 previously served as the New Century Senior Fellow at the Brookings Institution, as Editor of the Brookings Trade Forum, and as a Research Associate at the National Bureau of Economic Research. Jeffrey A. Frankel was a Member of the Council of Economic Advisers until March 1999. Dr. Frankel currently holds the Harpel Chair for Capital Formation and Growth at the John F. Kennedy School of Government at Harvard University. He is also Director of the Program for International Finance and Macroeconomics at the National Bureau of Economic Research. The President has nominated Kathryn L. Shaw to succeed Rebecca M. Blank as a Member of the Council. While awaiting confirmation, Dr. Shaw has been serving as Senior Economic Advisor. She is on leave from Carnegie Mellon University, where she is a Professor of Economics at the Graduate School of Industrial Administration. Dr. Blank was a Member of the Council of Economic Advisers until July 1999. She is currendy the Henry Carter Adams Professor of Policy and Dean of the School of Public Policy at the University of Michigan. The Chairman and the Members work as a team on most economic policy issues. Dr. Lawrence is primarily responsible for the Administration's economic forecast, macroeconomic analysis, international economic issues, and certain microeconomic issues, including those relating to natural resources, the environment, and industrial organization. Dr. Shaw has taken over responsibility for policy analysis relating to the budget and taxation, labor, retirement security, health care, welfare reform, and child and family issues. The Chairman and the Members participate in the deliberations of the NEC, and Dr. Baily is a member of the NEC Principals Committee. Weekly Economic Briefings Dr. Baily and the Members continued to prepare the Weekly Economic Briefing of the President of the United States for the President, the Vice President, and the Presidents other senior economic and policy advisers. The Council, in cooperation with the Office of the Vice President, prepares a written briefing, which provides analysis of current economic developments, more extended discussions of a wide range of economic issues and problems, and summaries of economic developments in different regions and sectors of the economy. Macroeconomic Policies A primary function of the Council is to advise the President on all major macroeconomic issues and developments. The Council prepares for the President, the Vice President, and the White House senior staff almost daily memoranda that report key economic data and analyze current economic events. 290 I Economic Report of the President The Council, the Department of the Treasury, and the Office of Management and Budget—the Administrations economic "troika"—are responsible for producing the economic forecasts that underlie the Administrations budget proposals. The Council, under the leadership of the Chairman and the Members, initiates the forecasting process twice each year. In preparing these forecasts, the Council consults with a variety of outside sources, including leading private sector forecasters. In 1999 the Council continued to take part in discussions about a range of budget issues including Medicare reform, discretionary spending priorities, and the Administrations tax proposals. The Council also participated in the development of the President s proposal to strengthen Social Security for the 21st century. The Council also participates in the Working Group on Financial Markets, an interagency group that monitors developments related to financial markets and the banking sector. The group includes representatives from the Treasury, the Federal Reserve, the NEC, and various regulatory agencies. The Council also participated in a working group studying bankruptcy reform, and in another on the macroeconomic implications of the year-2000, or Y2K, computer problem. The Council continued its efforts to improve the public s understanding of economic issues and of the Administrations economic agenda through regular briefings with the economic and financial press, frequent discussions with outside economists, and presentations to outside organizations. The Chairman and the Members also regularly exchanged views on the macroeconomy with the Chairman and Members of the Board of Governors of the Federal Reserve System. International Economic Policies The Council continued as an active participant in 1999 in international economic policymaking through the NEC and the National Security Council, providing both technical and analytical support and policy guidance. The Council took an active role in developing policies to respond to financial turmoil in Latin America and elsewhere, continuing the role it has taken following the series of emerging market financial crises that began in 1997. The Council also monitored closely the effects of the Asian crisis on U.S. trade and actively participated in developing proposals to reform the international financial architecture. The Council has played an important role in evaluating and explaining the case for trade liberalization and U.S. participation in the multilateral trading system. Its involvement included writing a white paper on Americas Interest in the World Trade Organization. The Council was also involved in a range of other international economic issues, including U.S. trade remedy laws Appendix A I 291 (antidumping, countervailing duties, safeguards, and Section 301 actions) and sanctions policy. Dr. Lawrence testified before the Trade Deficit Review Commission of the Senate on the causes and consequences of the U.S. trade deficit. Council members regularly met with representatives of the Councils counterpart agencies in foreign countries, as well as with foreign trade ministers, other government officials, and members of the private sector. The Council often represents the United States at international meetings and forums, such as meetings of the Economic Committee of the Asia-Pacific Economic Cooperation forum. The Council is a leading participant in the Organization for Economic Cooperation and Development (OECD), the principal forum for economic cooperation among the high-income industrial countries. The Council heads the U.S. delegation to the semiannual meetings of the OECD s Economic Policy Committee. Dr. Baily serves as chairman of that committee. In 1999 Dr. Lawrence participated in the OECD s Working Party 3 on macroeconomic policy and coordination. Charles F. Stone, Chief Economist at the Council, participated in the OECD s Working Party 1 meeting on structural issues and attended the OECDs workshop "Making Work Pay." Dr. Lawrence also participated in a meeting of subcabinet officials from the United States and Japan and was a member of the Joint Economic Development Group meeting with the Israeli government. Microeconomic Policies During 1999 the Council was an active participant in a range of microeconomic policy discussions, including discussions on welfare policy, regulation by the Occupational Health and Safety Agency, and statistical policy. The Council also participated in Administration working groups on Social Security and Medicare reform and on issues related to parental leave, pension regulations, long-term care, and private investment in high-poverty areas. Over the past year the Council has released several research papers on microeconomic policy issues. In May 1999 the Council released a report titled Families and the Labor Market, 1969-1999: Analyzing the "Time Crunch." Its purpose was to further the national discussion on balancing work and family and to encourage a discussion of policies that could help strengthen American families. In a report titled The Effects of Welfare Policy and the Economic Expansion on Welfare Caseloads: An Update, the Council examined the unprecedented fall in the number of people receiving welfare. Released in August 1999, the report concluded that the welfare reforms of 1996 accounted for about one-third of the reduction in caseloads from 1996 to 1998. Finally, in December 1999 the Council and the Office of the Chief Economist at the Department of Labor released a report titled 20 Million 292 I Economic Report of the President Jobs: January 1993-November 1999. This study documented the strong job growth of the past 7 years and found evidence that a high proportion of the new jobs were in industry and occupation categories that pay wages above the median. The Council has taken an active role in reviewing and analyzing progress in the telecommunications industry and other growing sectors of the digital economy. In February the Council released a white paper titled Progress Report: Growth and Competition in U.S. Telecommunications, 1993-1998. The Council has also been active in ongoing interagency discussions involving the digital economy and has recently assumed a leading role in facilitating work on the topic. Work in progress includes reviewing and improving data collection activities to better 2issess the growth of electronic commerce; participation in the new OECD Growth Project initiated at the May 1999 meeting of the OECD Council at the Ministerial level; and economic analysis of policy-related costs and barriers to electronic commerce. The Council has also participated actively in interagency discussions on regulation and competition policy. On the domestic front, the Council has been involved in discussions about merger policy, rail policy regarding interconnections, and the performance of agricultural markets. Discussions regarding regulatory reform in the broadcast industry and in the air traffic control system have also been ongoing, as has the monitoring of issues related to the privatization of the U.S. Enrichment Corporation. The Council has been actively involved in several issues relating to international regulation and competition, including the effects of gray market imports, and has undertaken interagency discussions regarding the role of competition policy in the World Trade Organization. The Council was active during 1999 in a range of policy discussions on natural resources and the environment, including implementation of the Clean Air Act as it applies to automobiles, petroleum refineries, power plants, and other pollution sources. Council Members and staff participated in several Administration efforts to assess oil supply issues, including the effects of oil imports on the U.S. economy and planning for potential Y2K oil supply disruptions. The Council has also contributed to Administration initiatives on national forest management. Continuing the Councils involvement in the analysis of the Administrations global climate change policy, Dr. Yellen testified on two occasions before Senate and House committees on the economic implications of the Kyoto Protocol. At a high-level OECD meeting on climate change, Dr. Lawrence participated in a discussion on developing country participation in the Kyoto Protocol. The Council has been active in developing and promoting plans for the international trading of emissions permits and other market mechanisms to achieve the protocols targets as efficiently as possible. It has also worked Appendix A I 293 with a number of developing countries to identify opportunities for them to further contribute to the global effort to address climate change. To advance these plans, Members and staff consulted with officials from a number of countries and organizations, including Argentina, Australia, Bolivia, Canada, China, Colombia, the European Union, Japan, Kazakhstan, Mexico, the OECD, and the Russian Federation. In addition, the Council has evaluated trends in U.S. carbon dioxide emissions and participated in Administration efforts to promote energy efficiency in the Federal Government. The Staff of the Council of Economic Advisers The professional staff of the Council consists of the Chief of Staff, the Senior Statistician, nine senior economists, six staff economists, and three research assistants. The professional staff and their areas of concentration at the end of 1999 were: ChiefofStaff Audrey Choi Senior Economists Joseph E. Aldy Steven N. Braun Michael J. Brien John G. Fernald William H. Gillespie Victoria A. Greenfield Robin L. Lumsdaine Charles F. Stone John C. Williams Environment and Natural Resources Director, Macroeconomic Forecasting Labor, Social Policy, and Education International Economics Industrial Organization International Trade and Agriculture Labor Chief Economist and Editor, Weekly Economic Briefing ofthe President Macroeconomics, Financial Markets, and Editor, Weekly Economic Briefing ofthe President Senior Statistician Catherine H. Furlong Staff Economists Douglas V. Almond Jason A. Bernstein Yu-chin Chen Labor and Health Economics Agriculture and International Economics International Economics 294 I Economic Report of the President Andrew R. Feldman Leigh L. Linden Noah Y. Weisberger Labor and Social Economics Environment, Natural Resources, and Industrial Organization Macroeconomics Research Assistants John L. Goldie Stephen E Lin Sarah L. Rosen Weekly Economic Briefing of the President and International Economics Macroeconomics Weekly Economic Briefing of the President and Labor Statistical Office Mrs. Furlong directs the Statistical Office. The Statistical Office maintains and updates the Councils statistical information, oversees the publication of the monthly Economic Indicators and the statistical appendix to the Economic Report of the President, and verifies statistics in Presidential and Council memoranda, testimony, and speeches. Susan P. Clements Linda A. Reilly Brian A. Amorosi Statistician Statistician Statistical Assistant Administrative Office Catherine Fibich Administrative Officer Office ofthe Chairman Alice H. Williams Sandra F. Daigle Lisa D. Branch Francine P. Obermiller Executive Assistant to the Chairman Executive Assistant to the Chairman and Assistant to the Chief of Staff Executive Assistant to Dr. Lawrence Executive Assistant to Dr. Shaw StaffSupport Mary E. Jones Rosalind V. Rasin Mary A. Thomas Executive Assistant for International Economics, Labor, and Health Care Executive Assistant for Environment, Industrial Organization, and Agriculture Program Assistant for the Weekly Economic Briefing of the President and Macroeconomics Appendix A I 295 Michael Treadway provided editorial assistance in the preparation of the text of the 2000 Economic Report ofthe President Lowell J. Taylor and Christopher W. Snow joined the Council in January 2000 as senior economist and staff economist, respectively, and assisted with the preparation of the Economic Report ofthe President, Student interns during the year were Sarah M. Anderson, Robert P. Bamsey, Carol L. Capece, David S. Felman, Paul K. Hoffmeister, Heather L. Jambrosic, Burth G. Lopez, Matthew S. Milner, Jason K. Nuzzo, Jacob M. Studley, and Aaron D. Tracy. The following student interns joined the Council in January to assist with the preparation of the Economic Report of the President: Karin A. Braack, Warren A. Herold, and Julie M. Meyers. Departures Michele Jolin, who served as Chief of Staff, resigned in April 1999 to accept a position as Vice President and Senior Project Manager of Innovative Learning Initiatives at Ashoka: Innovators for the Public. The Councils senior economists, in most cases, are on leave 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 1 or 2 years. Some of the senior economists who resigned during the year returned to their previous affiliations. They are Elise H. Golan (U.S. Department of Agriculture), Cordelia W. Reimers (Hunter College of the City University of New York), and Robert F. Schoeni (RAND Corporation). Senior economists who resigned during the year and accepted new positions are Douglas W. Elmendorf (Department of the Treasury), Stephen Polasky (University of Minnesota), Nouriel Roubini (Department of the Treasury), Howard A. Shelanski (Federal Communications Commission), and Robin L. Lumsdaine (Deutsche Bank). Staff economists are generally graduate students who spend 1 year with the Council and then return to complete their dissertations. Those who returned to their graduate studies in 1999 are Ryan D. Edwards (University of California, Berkeley), Nora E. Gordon (Harvard University), and Matthew R. McBrady (Harvard University). Bert I. Huang began graduate studies at Harvard Law School and at the Massachusetts Institute of Technology. Quindi C. Franco accepted a position at the Federal Communications Commission. After serving as research assistants at the Council, Raymond P. Guiteras accepted a position at Bain and Company, and Summer L. Scott accepted a position at Charles River Associates. 296 I Economic Report of the President Public Information The Councils annual Economic Report ofthe President is an important vehicle for presenting the Administration's domestic and international economic policies. It is now available for distribution as a bound volume and on the Internet, where it is accessible at http://www.access.gpo.gov/eop. The Council also has primary responsibility for compiling the monthly Economic Indicators, which is issued by the Joint Economic Committee of the Congress. The Internet address for the Economic Indicators is http://www.access.gpo.gov/congress/cong002.html. The Council's home page is located at http://www.whitehouse.gov/WH/EOP/CEA/html/index.html. Appendix A I 297 Appendix B STATISTICAL TABLES RELATING TO INCOME, EMPLOYMENT, AND PRODUCTION CONTENTS NATIONAL INCOME OR EXPENDITURE: B-l. B-2. B-3. B-4. B-5. B-6. B-7. B-8. B-9. B-10. B-ll. B-12. B-13. B-14. B-15. B-16. B-17. B-18. B-19. B-20. B-21. B-22. B-23. B-24. B-25. B-26. B-27. B-28. B-29. B-30. B-31. Gross domestic product, 1959-99 Real gross domestic product, 1959-99 Quantity and price indexes for gross domestic product, and percent changes, 1959-99 Percent changes in real gross domestic product, 1960-99 Contributions to percent change in real gross domestic product, 1960-99 Chain-type quantity indexes for gross domestic product, 1959-99 Chain-type price indexes for gross domestic product, 1959-99 Gross domestic product by major type of product, 1959-99 Real gross domestic product by major type of product, 1959-99 Gross domestic product by sector, 1959-99 Real gross domestic product by sector, 1959-99 Gross product of nonfmancial corporate business, 1959-99 Output, price, costs, and profits of nonfinancial corporate business, 1959-99 Personal consumption expenditures, 1959-99 Real personal consumption expenditures, 1987-99 Private gross fixed investment by type, 1959-99 Real private gross fixed investment by type, 1987-99 Government consumption expenditures and gross investment by type, 1959-99 Real government consumption expenditures and gross investment by type, 1987-99 Private inventories and final sales of domestic business, 1959-99 Real private inventories and final sales of domestic business, 1987-99 Foreign transactions in the national income and product accounts, 1959-99 Real exports and imports of goods and services and receipts and payments of income, 1987-99 Relation of gross domestic product, gross national product, net national product, and national income, 1959-99 Relation of national income and personal income, 1959-99 National income by type of income, 1959-99 Sources of personal income, 1959-99 Disposition of personal income, 1959-99 Total and per capita disposable personal income and personal consumption expenditures in current and real dollars, 1959-99 Gross saving and investment, 1959-99 Median money income (in 1998 dollars) and poverty status of families and persons, by race, selected years, 1980-98 301 Page 306 308 310 311 312 314 316 318 319 320 321 322 323 324 325 326 327 328 329 330 331 332 333 334 335 336 338 340 341 342 344 POPULATION, EMPLOYMENT, WAGES, AND PRODUCTIVITY: B-32. B-33. B—34. B-35. B-36. B-37. B-38. B-39. B-40. B-41. B-42. B-43. B-44. B-45. B-46. B-47. B-48. Population by age group, 1929-99 Civilian population and labor force, 1929-99 Civilian employment and unemployment by sex and age, 195099 Civilian employment by demographic characteristic, 1955-99 Unemployment by demographic characteristic, 1955-99 Civilian labor force participation rate and employment/population ratio, 1950-99 Civilian labor force participation rate by demographic characteristic, 1955-99 Civilian employment/population ratio by demographic characteristic, 1955-99 Civilian unemployment rate, 1950-99 Civilian unemployment rate by demographic characteristic, 1955-99 Unemployment by duration and reason, 1950-99 Unemployment insurance programs, selected data, 1967-99 Employees on nonagricultural payrolls, by major industry, 195099 Hours and earnings in private nonagricultural industries, 195999 Employment cost index, private industry, 1980-99 Productivity and related data, business sector, 1959-99 Changes in productivity and related data, business sector, 196099 Page 345 346 348 349 350 351 352 353 354 355 356 357 358 360 361 362 363 PRODUCTION AND BUSINESS ACTIVITY: B-49. B-50. B-51. B-52. B-53. B-54. B-55. B-56. B-57. PRICES: B-58. B—59. B-60. B-61. B-62. B-63. B-64. B-65. B-66. Industrial production indexes, major industry divisions, 1950-99 Industrial production indexes, market groupings, 1950-99 Industrial production indexes, selected manufactures, 1950-99 ... Capacity utilization rates, 1950-99 New construction activity, 1959-99 New housing units started and authorized, 1959-99 Manufacturing and trade sales and inventories, 1954-99 Manufacturers' shipments and inventories, 1954-99 Manufacturers' new and unfilled orders, 1954-99 364 365 366 367 368 369 370 371 372 Consumer price indexes for major expenditure classes, 1958-99 Consumer price indexes for selected expenditure classes, 195899 Consumer price indexes for commodities, services, and special groups, 1958-99 Changes in special consumer price indexes, 1960-99 Changes in consumer price indexes for commodities and services, 1929-99 Producer price indexes by stage of processing, 1954-99 Producer price indexes by stage of processing, special groups, 1974-99 Producer price indexes for major commodity groups, 1954-99 Changes in producer price indexes for finished goods, 1960-99 .... 373 302 374 376 377 378 379 381 382 384 MONEY STOCK, CREDIT, AND FINANCE: Page B-67. B-68. B-69. B-70. B-71. B-72. B-73. B-74. B-75. Money stock and debt measures, 1959-99 Components of money stock measures, 1959-99 Aggregate reserves of depository institutions and monetary base, 1959-99 Bank credit at all commercial banks, 1973-99 Bond yields and interest rates, 1929-99 Credit market borrowing, 1990-99 Mortgage debt outstanding by type of property and of financing, 1945-99 Mortgage debt outstanding by holder, 1945-99 Consumer credit outstanding, 1950-99 385 386 388 389 390 392 394 395 396 GOVERNMENT FINANCE: B-76. B-77. B-78. B-79. B-80. B-81. B-82. B-83. B-84. B-85. B-86. B-87. Federal receipts, outlays, surplus or deficit, and debt, selected fiscal years, 1939-2001 Federal budget receipts, outlays, surplus or deficit, and debt, as percent of gross domestic product, fiscal years 1934-2001 Federal receipts and outlays, by major category, and surplus or deficit, fiscal years 1940-2001 Federal receipts, outlays, deficit, and debt, fiscal years 19952001 Federal and State and local government current receipts and expenditures, national income and product accounts (NIPA), 1959-99 Federal and State and local government current receipts and expenditures, national income and product accounts (NIPA), by major type, 1959-99 Federal Government current receipts and expenditures, national income and product accounts (NIPA), 1959-99 State and local government current receipts and expenditures, national income and product accounts (NIPA), 1959-99 State and local government revenues and expenditures, selected fiscal years, 1927-96 Interest-bearing public debt securities by kind of obligation, 1967-99 Maturity distribution and average length of marketable interestbearing public debt securities held by private investors, 196799 Estimated ownership of U.S. Treasury securities, 1989-99 397 398 399 400 401 402 403 404 405 406 407 408 CORPORATE PROFITS AND FINANCE: B-88. B-89. B-90. B-91. B-92. B-93. B-94. Corporate profits with inventory valuation and capital consumption adjustments, 1959-99 Corporate profits by industry, 1959-99 Corporate profits of manufacturing industries, 1959-99 Sales, profits, and stockholders' equity, all manufacturing corporations, 1952-99 Relation of profits after taxes to stockholders' equity and to sales, all manufacturing corporations, 1947-99 Common stock prices and yields, 1957-99 Business formation and business failures, 1955-98 303 409 410 411 412 413 414 415 AGRICULTURE: B-95. B-96. B-97. B-98. B-99. B-100. Farm income, 1945-99 Farm business balance sheet, 1950-98 Farm output and productivity indexes, 1948-96 Farm input use, selected inputs, 1948-99 Indexes of prices received and prices paid by farmers, 1975-99 U.S. exports and imports of agricultural commodities, 1940-99 ... INTERNATIONAL STATISTICS: B-101. U.S. international transactions, 1946-99 B-102. U.S. international trade in goods by principal end-use category, 1965-99 B-103. U.S. international trade in goods by area, 1990-99 B-104. U.S. international trade in goods on balance of payments (BOP) and Census basis, and trade in services on BOP basis, 197499 B-105. International investment position of the United States at yearend, 1990-98 B-106. Industrial production and consumer prices, major industrial countries, 1975-99 B-107. Civilian unemployment rate, and hourly compensation, major industrial countries, 1975-99 B-108. Foreign exchange rates, 1979-99 B-109. International reserves, selected years, 1952-99 B-110. Growth rates in real gross domestic product, 1981-99 304 Page 416 417 418 419 420 421 422 424 425 426 427 428 429 430 431 432 General Notes Detail in these tables may not add to totals because of rounding. Because of the formula used for calculating real gross domestic product (GDP), the chained (1996) dollar estimates for the detailed components do not add to the chained-dollar value of GDP or to any intermediate aggregates. The Department of Commerce (Bureau of Economic Analysis) no longer publishes chained-dollar estimates prior to 1987, except for selected series. Unless otherwise noted, all dollar figures are in current dollars. Symbols used: p Preliminary. ...Not available (also, not applicable). Data in these tables reflect revisions made by the source agencies from February 1999 through late January 2000. In particular, tables containing national income and product accounts (NIPA) estimates reflect the comprehensive revisions released by the Department of Commerce in October 1999. 305 NATIONAL INCOME OR EXPENDITURE TABLE B-l.—Gross domestic product, 1959-99 [Billions of dollars, except as noted; quarterly data at seasonally adjusted annual rates] Personal consumption expenditures Gross private domestic investment Fixed investment Gross domestic product 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 .... 1990 .... 1991 .... 1992 .... 1993 .... 1994 .... 1995 .... 1996 .... 1997 .... 1998 .... 1999* 1994:1 . ! I ! i Durable goods Nondurable goods Total 42.7 148.5 127.0 43.3 41.8 46.9 51.6 56.7 63.3 68.3 70.4 80.8 85.9 152.9 156.6 162.8 168.2 178.7 191.6 208.8 217.1 235.7 253.2 136.1 j 78.9 ji 144.3 | 78.2 154.1! 88.1 i 163.41 93.8 176.41 102.1 189.5 118.2 204.7 131.3J 221.2 128.6! 242.31 141.2| 266.41 156.4 1,039.7 648.9 1,128.6 702.4 1,240.4 770.7 1,385.5 852.5 1,501.0 932.4 1,635.2 1,030.3 1,823.9 1,149.8 2,031.4 1,278.4 85.0 96.9 110.4 123.5 122.3 133.5 158.9 181.2 201.7 214.4 272.0 285.5 308.01 343.1 384.5 420.7 458.3 497.2 550.2 624.4 292.0 320.0 j 352.3 385.9 425.5 476.1 ! 532.6 600.0 678.4! 757.4 j 152.4 178.2 207.6 244.5 249.4 230.2 292.0 361.3 436.0 490.6 696.1 758.9 787.6 831.2 884.7 928.8 958.5 1,015.3 1,082.9 1,165.4 1,246.1 1,278.8 1,322.9 1,375.2 1,438.0 1,497.3 1,574.1 1,641.7 1,708.9 1,841.1 852.7 954.0 1,051.5 1,174.0 1,286.9 1,420.6 1,535.4 | 1,670.3 1,823.5 1,963.5 2,117.8 2,249.4 2,415.9 2,566.1 2,717.6 2,882.0 3,047.0 3.239.8 3,441.5 3,655.7 318.11 527.4 2,295.9 i 1,430.4 2,566.4 1,596.3 2,795.6 1,762.9 3.131.3 1,944.2 3,259.2 2,079.3 3,534.9 2,286.4 3,932.7 2,498.4 4,213.0 2,712.6 4,452.9 2,895.2 4,742.5 3,105.3 5,108.3 3,356.6 5,489.1 3,596.7 Change Nonresidential Services 332.2 545.7 342.7 586.5 363.8 618.7383.1 664.4 411.7 720.1 444.3 789.3 481.8 834.1508.7 911.5 558.7 985.3 605.5 507.4 I Total 78.5! Total Total Structures 46.5 18.1 Equipment and software Residential private inventories 28.4 28.1 3.9 75.71 49.4 75.21 48.8 82.0! 53.1 88.1 56.0i 97.21 63.0! 109.0 i 74.81 117.7! 8 r ' ! 118.7; 8 132.1 147^3 10471 19.6 19.7 20.8 21.2 23.7! 28.3 31.3 31.5! 33.6 i 37.7! 29.8 29.1 32.3 34.8 39.2 46.5 54.0 54.9 59.9 67.0 26.3 26.4 29.0 32.1 34.3 34.2 32.3 32.4 38.7 42.6 3.2 3.0 6.1 5.6 4.8 9.2 13.6 9.9 9.1 9.2 150.4!! 169.9 198.5 i 228.6 i 235.4 j 236.5! 274.8 i 339.0! 410.2! 472.71 40.3 42.7! 47.2 | 55.0! 61.2 61.4 65.9 74.6 91.4 114.91 68.7 71.5 81.7 98.3 108.2 112.4 126.4 154.1 187.2 216.7 41.4 55.8 69.7 75.3 66.0 62.7 82.5 110.3 131.6 141.0 2.0 8.3 9.1 15.9 14.0 -6.3 17.1 22.3 25.8 18.0 -6.3 29.8 -14.9 -5.8 65.4 21.8 6.6 27.1 18.5 27.7 74.6' 109.0 114.1 128.8 153.3 169.5 173.7 192.4 228.7 278.6 331.6 5,803.2 5,986.2 6,318.9 6,642.3 7,054.3 7,400.5 7,813.2 8,300.8 8,759.9 9,248.4 3,831.5 3,971.2 4,209.7 4,454.7 4,716.4 4,969.0 5,237.5 5,524.4 5.848.6 6,254.9 214.2 231.3 240.2 281.2 326.9 363.3 401.3 419.7 450.2 467.8 467.6 443.0 470.8 513.4 560.1 589.7 616.5 642.9 698.2 758.1 6,887.8 7,015.7 7,096.0 7,217.7 4,613.8 4,677.5 4,753.0 4,821.3 546.2 553.6 563.2 580.0 1,409.7 1,425.1 1,4495 1,467.2 2,657.9 2,698.8 2,739.8 2,774.0 477.9 570.8 516.1 564.2 735.51 736.3 i 747.2! 781.5 821.1 872.9 861.7 800.2 866.6 955.1 1,097.1 1,143.8 1,242.7 1,383.7 1,531.2 1,621.6 1,042.0 1,106.4 1,094.0 1,146.1 7,297.5 7,342.6 7,432.8 7,529.3 4,868.6 4,943.7 5,005.2 5,058.4 578.2 584.4 596.2 600.0 1,475.8 1,492.2 1,502.6 1,518.5 2,814.7 2,867.1 2,906.3 2,939.9 1,162.8 1,100.1 1,133.111,097.2 1.123.5 1,110.1 1.155.6 1,135.4 812.5 820.3 825.2 842.3 200.5 204.8 206.2 207.0 612.0 615.5 619.0 635.3 287.6 276.9 284.9 293.1 62.7 35.8 13.4 20.2 1996:1 II III .. IV .. 7,629.6 7,782.7 7,859.0 7,981.4 5,130.5 5,218.0 5,263.7 5,337.9 606.4 621.3 616.7 621.5 1,539.6 1,569.4 1,578.8 1,608.4 2,984.4 3,027.4 3,068.2 3,107.9 1,172.4 1,231.5 1,282.6 1,284.3 1,165.6 1,201.7 1,232.6 1,250.9 865.1 885.4 913.6 933.7 213.4 220.0 226.3 240.3 651.7 665.4 687.3 693.4 300.5 316.3 319.0 317.2 6.8 29.8 50.0 33.5 1997:1 8,125.9 8,259.5 8,364.5 8,453.0 5,430.8 5,466.3 5,569.1 5,631.3 636.1 627.8 651.9 655.8 1,630.5 1,627.1 1,652.3 1,657.1 3,164.2 3,211.4 3,265.0 3,318.5 1,327.0 1,392.2 1,395.9 1,419.6 247.6 247.8 257.8 263.1 705.2 724.9 749.9 748.3 321.4 326.8 330.7 338.0 52.9 92.6 57.6 70.2 1998:1 II 8,610.6 8,683.7 8,797.9 8,947.6 5,714.7 5,816.2 5,889.6 5,973.7 679.2 693.9 696.9 722.8 1,674.6 1,701.2 1,716.6 1,742.9 3,360.9 3,421.1 3,476.1 3,508.0 1,514.3 1,495.0 1,535.3 1,580.3 1,274.1 952.7 1,299.6 972.7 1,338.3 1,007.7 1,349.4 1,011.4 1,415.4 1,065.9 1,454.2 1,090.8 1,461.7 1,087.2 1,508.9 1,121.4 267.4 274.0 271.7 278.0 798.4 816.8 815.4 843.4 349.5 363.4 374.5 387.5 98.9 40.8 73.7 71.4 1999:1 9,072.7 9,146.2 9,297.8 9,477.1 6,090.8 6,200.8 6,303.7 6.424.6 739.0 751.6 761.8 780.1 1,787.81 1,824.8 1,853.9 1,897.7 3,564.0 3,624.3 3,688.0 3,746.7 1,594.3 1,585.4 1,635.0 1,671.8 1,543.3 1,567.8 1,594.2 1,604.1 274.7 272.5 272.1 271.1 865.2 882.9 909.5 918.1 403.4 412.4 412.7 415.0 51.0 17.6 40.8 67.6 1995:1 II Ill See next page for continuation of table. 306 484.2! 360.9 541.0 i 418.4! 531.01 425.31 570.0; 417.4 j 670.11 490.3! 714.5 527.6 740.7 i 522.5 754.3 j 526.7 802.71 568.4 845.21 613.4 847.2! 630.3 800.4! 608.9 851.61 626.1 934.0 682.2 1,034.6! 748.6 1,110.7 825.1 1,212.7 899.4 1,315.4 j 986.1 1,460.0 1,091.3 1,577.4 1,166.5 133.9 j 164.6i 175.0! 152.7 i 176.0 193.31 175.81 172.1 181.6 193.4 227.0 253.8 250.3 264.7 314.3 334.3 346.8 354.7 386.8 420.0 202.5 183.4 172.2 179.4 187.5 204.6 225.0 254.1 272.8 272.6 427.8 425.4 453.9 502.8 561.1 620.5 674.4 732.1 818.5 893.9 123.2 122.6 105.7 152.5 179.8 186.9 218.1 227.fr 234.2 231.8 216.8 191.5! 225.5 251.8 286.0 285.6 313.3 329.2 368.7 410.9 998.1 i 1.026.6 1,042.0 1,071.6 721.7 738.2 752.7 781.8 178.0 188.2 189.9 193.9 543.7 550.0 562.8 587.9 276.4 288.4 289.3 289.8 43.8 79.8 52.0 74.6 1,139.9 1,155.4 1,181.6 1.189.1 14.5 -.2 15.0 21.1 62.6 33.0 30.0 68.3 71.2 44.3 T A B L E B-l.—Gross domestic product, 1959-99—Continued [Billions of dollars, except as noted; quarterly data at seasonally adjusted annual rates] Government consumption expenditures and gross investment Net exports Exports Imports National defense Federal Year or quarter 1959 .. 1960 . 1961 Net exports of goods and services . gg 1964 TZZ 1965 L966 . L967 1968 L969 1970 L971 1972 1973 L974 L975 L976 L977 1978 1979 1980 1981 L982 1983 L984 1985 L986 1987 L988 1989 1990 L991 1992 L993 L994 L995 1996 ZZ..'. 1997 1998 1999'' 1994:1 II III IV 1995:1 II Ill IV 1996:1 II Ill IV 1997:1 II Ill IV 1998:1 II Ill IV 1999:1 II HI -1.7 20.6 2.4 25.3 3.4 26.0 27.4 2.4 29.4 3.3 5.5 33.6 3.9 1.9 389 1.4 41.4 -1.3 45.3 -1.2 49.3 1.2 57.0 -3.0 59.3 -8.0 .6 -3.1 124.3 13.6 136.3 -2.3 148.9 -23.7 -26.1 -24.0 228.7 -14.9 278.9 -15.0 302.8 -20.5 -51.7 -102.0 -114.2 303.0 -131.9 320 3 -142.3 365.6 -106.3 446.9 -80.7 509.0 -71.4 557.2 -20.7 601.6 -27.9 -60.5 -87.1 725.1 -84.3 818.6 -89.0 874.2 -88.3 -149.6 966.3 -256.8 996 3 -71.3 683.8 -84.2 714.5 -99.1 736.1 -93.8 765.8 787.7 -94.5 802.5 -109.0 -74.2 834.1 -59.3 850.0 -75.8 853.3 864.7 -89.8 -110.6 865.6 -79.7 913.1 -87.7 929.6 -77.5 965.3 -90.6 988.6 -97.4 988.6 -117.4 974.3 -153.9 960.1 -165.7 949.1 -161.2 981.8 -201.6 966.9 -245.8 978.2 -278.2 1,008.5 -301.8 1,031.5 1 ill 22.3 22.8 22.7 Sf 28.1 31.5 37.1 39.9 46.6 50.5 55.8 62.3 74.2 91.2 127.5 122.7 151.1 m m it m 252.7 293.8 317.8 Total 112.5 113.8 121.5 132.2 138.5 145.1 153.7 174.3 195.3 212.8 224.6 237.1 251.0 270.1 287.9 322.4 361.1 384.5 415.3 503.5 569.7 631.4 fit:S 405.1 800.8 417.2 878.3 452.2 942.3 507.9 997.9 553.2 1,036.9 589.7 1,100.2 m 6223 664£ 718.5 812.1 1,327.9 1,372.0 9631 1.421.9 1,056.3 1.481.0 1,115.9 1.253.1 1628 ^ 755.1 1,303.3 798.7 1,316.1 835.2 1,348.1 859.6 1,344.0 882.2 911.5 908.3 909.3 929.1 1,402.6 954.5 1,423.0 976.1 1,423.4 992.8 1,438.9 1,017.3 1,455.8 1,478.6 1079 2 1,490.1 l!086i0 1,499.5 1,091.7 1,499.0 1,114.0 1,526.5 1,114.8 1,538.7 1,143.1 1,554.8 1,168.5 1,589.1 1,224.0 1,605.9 1,286.6 1,637.2 1,333.3 1,682.6 m m Total 67.4 65.9 69.5 76.9 78.5 79.8 82.1 94.4 106.8 114.0 116.1 116.4 117.6 125.6 127.8 138.2 152.1 160.6 176.0 191.9 211.6 245.3 281.8 312.8 344.4 376.4 413.4 438.7 460.4 462.6 482.6 508.4 527.4 534.5 527.3 521.1 521.5 531.6 537.8 538.7 570.8 515.8 515.9 ffi 523.4 525.5 525.0 512.3 530.6 537.2 529.1 529.4 530.2 543.0 540.9 537.1 526.1 542.2 539.7 546.7 557.4 561.6 88 Nondefense State and local 61.8 62.4 73.8 85.8 92.2 92.6 90.9 89.0 93.5 93.9 99.7 107.9 113.2 11.4 45.1 10.7 47.9 11.3 52.0 14.1 55.3 15.8 59.9 18.0 65.3 19.7 71.6 20.7 79.9 21.0 21.8 98.8 23.5 108.5 25.5 120.7 28.6 133.5 32.2 144.4 33.9 160.1 38.5 184.2 44.2 209.0 47.4 146.7 169.6 197.8 2638 65.0 291.8 75.6 324.4 84.0 349.6 56.0 55.2 58.1 m 283.5 312.4 332.2 m 88 m 363.2 355.1 350.6 357.0 348.6 364 7 349.4 353.9 366.9 350.4 352.2 353.9 352.7 343.6 356.1 Si 355.0 347.0 354.9 354.5 353.6 338.9 347.9 354.7 352.9 355.8 354.3 365.4 383.4 92.8 101.0 106.5 109.3 106.8 119.3 133.6 142.9 156.0 162.4 165.9 170.9 174.6 m 424.4 464.9 503.6 537.5 574.3 617.7 503.5 524.1 542.7 580.4 613.1 659.6 710.9 775.7 824.2 902.4 976.2 1,037.7 1,120.3 1,231.3 164L4 1,806.8 2!009.1 2MZA 2,801.9 3101.5 3,274.1 5,461.4 6,991.8 7,367.5 7,783.2 8,232.4 8,688.7 9,204.2 mm mm m 88 509.1 525.0 542.3 584.1 615.4 658.9 716.2 787.4 832.6 912.7 986.5 1,038.5 1,131.6 1,248.4 1384.9 ffi 669.4 725.5 794.5 839.5 917.6 991.5 1,046.1 1,136.2 1.249.1 1,398.2 7,419.4 7,509.1 7,622.8 7,947.9 8,073.0 8,166.9 Gross Gross domes- domestic purchases1 3.9 3.5 7.4 8.4 9.6 It 3.1 3.3 7.7 5.4 7.1 8.7 9.9 8 88.1 8.1 5.5 II Si 11.5 mm im.o 11.4 13.0 11.8 mm 12.0 4.1 8.5 1,826.2 2,'590.4 2,810.5 3,146.3 1,841.0 2.599.3 2,830.8 3,166.1 3,968.1 4,238.4 4,468.3 4,756.2 5.126.8 5,569.8 5,509.4 88 B8 7,141.4 7,484.8 7,902.1 8,389.1 8,909.5 9,505.3 6,959.1 7,100.0 7,195.1 7,311.5 7,392.0 7,451.6 7,507.0 7.588.5 7,705.4 7,872.4 7969.6 8,061.1 8,213.6 8,337.0 8,455.1 8,550.4 $382.8 8,511.7 8,642.9 8724.2 8,963.6 8,876.2 9,108.8 9,021.6 9,274.2 9128.6 9,392.0 9,575.9 9778.9 ffl m Percent change from preceding per 11.7 Gross domestic product (GDP) less exports of goods and services plus imports of goods and services. 2 GDP plus net income receipts from rest of the world. Source: Department of Commerce, Bureau of Economic Analysis. 307 510.3 530.6 549.3 3,'867.'3 4,034.7 4,191.2 4,327.2 4,446.3 4,584.7 m fti:5 mi mm 806.8 850.5 890.4 943.2 991.0 206.1 1.057.9 166.3 162.0 165.6 169.7 171.2 837.1 171.6 849.4 172.3 853.3 168.7 862.2 174.5 872.0 175.9 173.5 174.5 909.4 183.2 925.6 188.1 935.6 186.4 949.2 183.5 962.3 187.2 972.9 194.3 984.2 185.0 999.0 193.8 1,008.1 201.6 1,031.8 207.3 1,044.3 204.4 1,067.4 211.2 1,088.0 88 AddenFinal Gross dum: sales of Gross domestic national tic purprodproduct chases1 uct ^ m 7,071.1 7,420.9 7,831.2 8,305.0 8,750.0 m m 7,111.1 7,232.6 7,444.1 7,552.7 7,656.5 fB8 7,997.7 8,131.1 8,269.1 8,366.5 8,453.3 8,613.7 8 683 7 8>72:2 8,930.5 9,058.2 9,131.9 9,282.3 8.9 n A 5.7 6.5 7.7 7.5 85.6 5.1 6.2 4.9 5.6 6.2 5.5 5.6 5.3 9.0 10.3 10.9 8.6 7.8 12.6 12.5 13.0 11.6 8.5 12.0 4.2 9.4 72 n 8 6iO 6.8 5.6 6.5 4.8 II 6.2 6.7 H 1:! 4.7 7.0 85.0 5.3 5.4 a 6.4 7.4 6.7 5.2 4.3 7.7 3.4 5.4 7.0 5.7 3.3 6.8 7.9 5.5 6.6 4.5 3.3 3.0 4.4 6.3 9.0 5.0 4.7 7.8 6.1 5.8 4.6 H 8 7.5 5.2 8.1 8.8 T A B L E B-2.—Real gross domestic product, 1959-99 [Billions of chained (1996) dollars, except as noted; quarterly data at seasonally adjusted annual rates] Gross private domestic investment Personal consumption expenditures Fixed investment Gross domestic product 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 1984 ZZZ. 1985 1986 1987 1988 1989 1990 1991 1994 1995 1996 1997 1998 1999* 1994:1 II Ill IV 1995:1 || III " IV 1996:1 II Ill :: IV ZZ. 1997:1 || III IV 1998:1 II Ill IV 1999:1 II Ill IV" Total 2,300.0 2,357.2 24121 2.557.6 2,668.2 2822.7 3,002.8 3,199.5 3 279.5 3,435.6 3.543.2 3,549.4 3,660.2 3,854.2 4,073.1 4,061.7 40503 41262.6 4,455.7 4,709.9 4,870.1 4,872.3 4,993.9 4,900.3 5,105.6 5,477.4 5,689.8 5,885.7 6,092.6 6,349.1 6,568.7 38! UK 6.891.1 m 7.054.1 7.337.8 7,537.1 7.813.2 8,165.1 8,516.3 8,861.0 7,218.5 7,319.8 7.360.5 7,452.3 7,480.4 7,496.0 7.555.0 7,616.8 7,671.4 7,800.5 7,843.3 7.937.5 8,033.4 8,134.8 8,214.8 8,277.3 8.412.7 8,457.2 8,536.0 8.659.2 8.737.9 8,778.6 8,900.6 9,026.9 1,454.8 1,494.4 1524 6 l.'599.7 1,665.7 1765.2 1,876.4 1,983.3 2 042 7 2,159.1 2,241.2 2,293.0 2,373.6 2,513.2 2,634.0 2.622.3 2 6813 2,826.5 2.944.0 3,081.6 3,168.0 3.169.4 3.214.0 3,259.8 3,431.7 3,617.6 3,798.0 3.958.7 4,374.4 4.603.8 4,741.9 4.920.0 5.070.1 5,237.5 5,433.7 5,698.6 5,998.7 4,857.6 4,899.2 4,936.7 4,986.4 5,004.7 5,053.6 5,094.0 5,128.0 5,170.3 5.227.5 5,255.4 5,296.8 5.361.1 5,385.1 5,471.8 5,517.1 5.592.3 5.675.6 5,730.7 5,795.8 5,888.4 5,961.8 6,033.3 6,111.2 Durable goods 455.2 481.5 491.7 487.1 454.9 479.0 518.3 557.7 583.5 616.5 657.4 731.5 815.1 546.9 551.7 557.7 574.3 m 601.7 620.4 618.1 625.7 642.1 639.7 669.7 678.0 704.9 723.9 731.2 766.0 788.8 806.1 821.2 844.5 See next page for continuation of table. Nondurable goods 1,274.5 1,315.1 1.351.0 1.369.6 1,364.0 1,389.7 1,430.3 l',529.0 1,574.1 1,619.9 1,685.3 1,774.6 1.465.3 1,477.6 1,490.9 1,506.5 1,514.3 1.525.3 1,531.7 1,544.6 1,553.9 1,569.9 1,578.6 1,593.9 1.609.0 1,608.2 1,630.7 1,631.8 1,654.9 1,681.9 1,692.0 1,712.6 1,749.5 1,763.7 1,779.3 1,805.9 Presidential Services 2,361.5 2,460.6 2,526.1 m 2739.4 2.795.4 2.878.0 2,957.8 3,047.0 3.156.7 3284.5 3.416.8 2,846.4 2,870.9 2,888.9 2:905.7 2,920.4 2,951.3 2,971.8 2,987.8 3,014.8 3,037.2 3,058.8 3.077.2 3.110.1 3.137.0 3172.0 3.207.8 3,234.2 3,272.2 3309.6 3.322.0 3.356.5 3.470.6 Total 272.9 272.8 2710 305.3 325 7 352.6 402.0 437.3 417.2 441.3 466.9 436.2 485.8 543.0 606.5 561.7 462 2 555.5 639.4 713.0 735.4 655.3 715.6 615.2 673.7 871.5 863.4 857 7 879.3 902.8 936.5 907.3 829.5 899.8 977.9 1,107.0 1,140.6 1.242.7 1,385.8 1.547.4 1,636.2 1,057.3 1,118.5 1,101.8 1,150.5 1,162.4 1,128.5 1,119.1 1,152.4 1,172.3 1,233.4 1,281.4 1,283.7 1,326.5 1,394.1 1,397.6 1,424.9 1,531.5 1,513.1 1,551.1 1,593.9 1,608.2 1,599.8 1,651.6 1,685.4 308 Total 856.0 887.1 911.2 95814 1,045.9 1,109.2 1,212.7 1,316.0 1471.8 1,589.4 1,014.9 1,039.9 1.050.9 1.078.0 1,101.9 1,095.0 1,107.1 i:i32.7 1,165.2 1,203.7 1,231.6 1,250.2 1,274.1 m 1,351.3 1,424.2 1,466.7 1,474.0 1,522.5 1,555.9 1.581.0 1.607.3 1.613.5 Total 572.5 603.6 637.0 641.7 610.1 m 744.6 817.5 899.4 995.7 1.122.5 1.215.4 720.0 734.1 747.2 777.1 806.4 811.4 816.7 835.5 861.6 885.6 914.3 936.2 %l 1.018.0 1,026.1 1,088.6 1,120.2 1,120.3 1,160.8 1,182.7 1,202.9 1,234.3 1,241.9 Structures 224.3 227.1 232.7 236.1 210.1 197.3 198.9 200.5 210.1 225.0 244.0 254.1 247.3 193.2 202.9 202.3 203.8 208.1 211.0 210.9 210.4 215.9 221.3 225.4 237.3 242.0 239.5 245.9 248.6 252.1 256.4 252.1 255.7 251.9 248.5 246.1 242.8 Equipment and software 360.0 386.9 414.0 415.7 407.2 437.5 487.1 544.9 607.6 674.4 751.9 870.6 975.5 527.4 532.6 545.7 573.7 598.5 600.7 606.0 625.0 645.8 664.3 688.9 698.8 715.8 741.5 772.3 777.8 837.9 865.5 870.6 908.5 935.7 960.9 996.6 1,008.7 Residential Change in private inventories 290.7 289.2 277.3 253.5 221.1 257.2 276.0 302.7 291.7 313.3 320.6 350.2 375.4 296.5 307.5 305.2 301.8 295.8 283.5 290.4 297.3 303.6 318.1 317.3 314.0 316.3 320.0 320.5 325.7 29.6 18.4 29.6 16.5 -1.0 17.1 20.0 66.8 30.4 30.0 69.1 74.3 41.9 47.8 85.8 56.3 77.4 62.2 32.5 9.0 18.0 5.6 30.3 51.2 32.9 51.5 93.1 59.2 72.7 336.5 347.4 354.2 362.6 373.7 378.8 375.1 374.0 107.3 43.1 76.1 70.7 50.1 14.C 38.C 65.4 TABLE B-2.—Real gross domestic product, 1959-99—Continued [Billions of chained (1996) dollars, except as noted; quarterly data at seasonally adjusted annual rates] Net exports of goods and services Year or quarter [penditures int( and gross investment Federal Net exports Exports Imports Total Total National & 1959. 659.7 2,298.4 2,360.0 108.0 107.3 119.5 122.7 129.2 142.9 164.2 176.2 202.4 213.9 659.5 691.3 732.9 750.2 764.8 788.6 859.3 924.1 953.4 950.0 2,359.0 2,415.5 2,548.1 2,661.4 2,820.2 2,982.7 3,163.3 3,259.4 3,419.5 3;527.6 2,399.9 2,453.5 2,607.5 2,714.6 2,861.5 .7 158.1 158.9 171.7 209.1 229.6 228.3 241.0 246.9 273.1 299.9 223.1 235.0 261.3 273.4 267.2 237.5 284.0 315.0 342.3 347.9 928.6 909.7 909.8 902.6 3,559.7 3,650.5 3,8433 4,043.9 4,043.4 4,083.9 4,239.6 4,422.8 4,672.4 4,852.4 332.8 336.7 313.2 305.2 330.7 339.8 365.0 324.8 333.4 329.2 370.7 461.0 490.7 531.9 564.2 585.6 608.8 1,018.6 1,027.9 1,044.5 1,078.9 1,116.3 1,188.4 1,253.2 -157.6 -113.5 -81.2 938.6 947.4 977.6 997.6 632.2 1,385.5 573.6 612.6 629.0 1.402.8 652.1 670.8 1,410.7 671.9 731.8 1,398.1 731.8 819.4 1399.4 807.4 886.6 1,405.9 874.2 963.1 1,421.9 985.4 1,095.2 1,455.1 1,007.1 1,222.2 1,480.3 1,042.5 1,367.0 1,534.6 1995:1 State and local 106.6 71.9 -81.2 -87.2 -93.2 -88.6 Nondefense Gross Final sales of domestic domestic product chases1 4,899.2 4,962.5 4,935.6 mv 5,671.6 450.2 446.8 4433 146.3 138.7 150.3 606.6 604.8 595.2 571.9 551.2 536.4 531.6 530.9 526.1 541.3 443.2 438.4 417.1 394.7 375.9 361.9 357.0 348.3 341.7 348.1 162.8 165.9 178.0 177.2 175.4 174.5 174.6 182.7 184.4 193.1 776.8 811.3 834.6 854.8 1,387.3 1,389.7 1,416.8 1,403.9 550.7 545.1 563.1 546.0 3733 374.5 387.8 367.8 177.4 170.6 175.3 178.2 779.7 788.1 821.2 840.8 873.1 886.4 889.1 897.8 1,406.8 1,413.5 1,410.4 1,393.2 544.0 544.2 540.4 517.1 366.9 177.2 177.2 177.0 166.8 921.1 950.4 982.9 998.1 1,404.4 1,430.2 1,422.1 1,431.0 529.0 540.1 529.5 527.7 356.4 363.0 172.7 177.2 174.1 174.4 1,034.7 1,080.8 1,125.5 1,139.9 350.4 1996:1 . -75.6 -90.6 -115.8 -73.9 1997-1 II Ill IV -90.8 -100.S -118.7 -128.7 1,437.0 1,457.1 1,463.3 1,463.0 523.1 536.4 534.6 528.8 342.9 350.8 350.7 348.6 181.0 185.5 183.C 180.2 1998:1 -171.7 1,007.3 1,179.0 1,459.2 -218.4 997.2 1,215.6 1,480.7 -237.S 993.0 1,231.0 1,485.3 -232.3 1,030.8 1,263.1 1,495.9 515.4 530.1 527.0 532.0 332.7 341.6 347.5 344.9 182.6 188.4 179.6 187.1 1999:1 II Ill -284.5 1,016.4 1,300.9 1,514.6 -319.C 1,026.4 1,345.4 1,519.5 -338.2 1,054.8 1.393.C 1.536.5 -356.1 1,072.4 1,428.6 1,567.7 531.4 534.2 539.7 560.1 341.4 339.2 348.3 363.7 ft 4,150.0 4,102.6 4,054.5 4,309.1 4,534.7 4,788.1 4,918.1 4,114.7 4,108.0 4,086.5 4,306.3 4,505.2 4,758.8 4,935.6 4,838.5 4,966.1 4,899.8 5,170.1 5,621.4 5,858.1 4,936.2 5,050.8 4,956.4 5,160.6 5,528.7 5,726.3 6,742.9 7,113.1 7,425.3 7,378.4 7,419.1 7,462.3 7,543.4 7,597.3 943.6 950.5 958.1 963.6 309 6.6 2.5 4.8 3.1 1.7 2.2 6.3 4.1 5.4 6.8 6.9 2.7 5.1 3.1 3,574.7 j78.; 8,095.7 8,441.3 8,813.7 7,176.3 Gross Gross domes- domestic purchases1 2.5 2.3 6.0 4.3 mm tffii m l:t§l:2 lt§l2 m mm m m m m m mm 6,671.3 Percent change from preceding period 2,315.7 3;304.3 3.462.2 3,568.8 9,165.5 7,299.6 7,406.9 7,453.8 7,540.9 7,574.0 6,718.1 7,080.3 7,355.5 7.240.1 7,337.0 7,376.6 7,468.2 7,502.7 7,522.0 7,566.7 7,640.6 31 5.3 5.7 -.3 li 4.5 5.7 3.4 -1.9 4.2 7.3 ft 3.5 4.2 3.5 1.7 2.4 4.0 2.7 3.7 ts 4.0 3.6 5.7 2.2 5.1 1.5 .8 ZA 5.5 4.7 -1.1 -1.2 6.3 5.2 5.6 2.7 -1.6 2.6 -1.3 5.5 8.7 4.2 3.6 3.2 2.8 1.3 J 3.0 4.4 2.6 3.8 4.7 5.4 5.1 4.3 6.0 2.6 4.8 1.8 1.1 8 H 3.9 7.7 H 3.5 7,664.6 7,770.9 7,793.5 7,903.7 7,672.7 7,746.5 7,891.0 7,959.0 8,011.9 7,981.1 8,042.0 8,124.5 8,235.4 8,038.1 8,144.0 8,216.2 8,277.2 2.2 4.9 4.9 5.1 4.0 3.1 5.7 5.6 4.8 3.5 8,307.0 8,410.4 8,459.6 8,588.3 8,579.7 8,667.2 8,764.2 8,881" 8,414.8 8,456.6 8,510.6 8,641.9 6.7 2.1 3.8 5.9 8.6 4.1 4.6 5.5 8,885.5 3.7 1.9 5.7 5.8 5.8 3.2 6.3 6.3 ffl 9,007.4 189.9 982.9 9,078.2 194.9 985.1 9,216.9 191.3 996.6 196.4 1,007.5 8,855.8 9,359.4 8,955.9 1 Gross domestic product (GDP) less exports of goods and services plus imports of goods and services. 2 GDP plus net income receipts from rest of the world. Source: Department of Commerce, Bureau of Economic Analysis. Gross national prod-2 uct .9 597.5 586.7 594.5 695.7 724.0 741.4 766.2 943.9 979.9 1,006.8 1,011.2 Adden- 7,698.7 7,818.3 m 2.7 TABLE B-3.—Quantity and price indexes for gross domestic product, and percent changes, 1959—99 [Quarterly data are seasonally adjusted] Gross domestic product (GDP Percent change from preceding period * Index numbers, 1996=100 Year or quarter GDP (current dollars) Real GDP (chain-type quantity index) GDP chain:type price index GDP implicit price deflator GDP (current dollars) Real GDP (chain-type quantity index) GDP chain-type price index 1.4 GDP implicit price deflator 1959 6.49 29.44 22.06 22.06 I960 1961 1962 1963 1964 1965 1966 1967 1968 1969 6 75 6 98 7 51 7.92 8 50 10.10 1068 11.67 12.61 30.17 3087 32 73 34.15 3613 38.43 40.95 4197 43.97 45.35 22.37 22 62 22.93 23.18 23 53 23.98 24.66 2543 26.52 27.81 22.37 22 62 22.93 23.19 2354 23.98 24.67 25.43 26.53 27.81 3.9 35 7.5 5.5 74 8.4 9.6 57 9.3 2.5 23 6.0 4.3 58 6.4 6.6 2.5 4.8 1.4 1.1 15 1.9 2.9 3.1 4.3 3.1 4.3 8.1 3.1 4.8 4.8 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1331 1444 15.88 17 73 19 21 20.93 23 34 26.00 2938 32.85 4543 46.85 49.33 5213 51.99 51.84 54.56 57.03 60 28 62.33 2929 30.83 32.18 3401 36.94 40.37 42.78 45.58 4874 52.69 2929 30.83 32.18 34 02 36.96 40.37 42.79 45.59 48.75 52.70 55 2 8.6 3.1 53 5.3 5.3 9.9 117 5.3 57 4.4 57 4.4 5.7 130 -.3 5.2 4.5 5.7 8.6 9.3 6.0 6.5 6.9 8.6 9.2 6.0 6.5 6.9 11.8 3.4 8.1 8.1 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 35 78 40.08 4171 45 24 50.33 5392 56.99 60 70 65.38 70.25 62.36 63.92 62 72 65.35 70.11 72 82 75.33 77 98 81.26 84.07 57.39 62.71 66 51 6923 71.80 74 05 75.67 7784 80.46 83.56 57.38 62.70 6651 69.24 71.80 74 05 75.66 7784 80.46 83.56 8.9 12.0 41 .0 2.5 -19 8.5 4.2 8.9 9.3 61 4.1 61 4.1 11.3 71 5.7 65 3.7 31 2.2 29 3.7 31 7.7 7.3 39 3.4 35 4.2 3.4 3.4 7.5 3.5 3.9 3.9 74 28 7662 80.88 85 01 9029 94 72 10000 106.24 11212 118.37 85 54 85 36 88.20 90 29 93.92 96 47 100 00 104.50 109 00 113.41 8684 89 76 91.70 9417 9614 9819 10000 101.66 102 86 104.32 8683 8976 91.70 9416 96.14 98.19 10000 101.66 102.86 104.37 57 17 39 39 88.16 89 79 90.82 92.38 92 39 93 69 94.21 95.38 9542 9585 96.41 96.85 95.42 9585 96.41 96.85 93.40 93 98 95.13 96.37 95.74 9594 96.70 97.49 97.56 97 96 97.55 9795 98.38 98.85 97.65 9961 100.59 102.15 98.19 9984 100.39 101.59 100.21 100.56 99.45 99 77 100.20 100.55 104 00 105.71 107 06 108.19 102 82 104.12 10514 105.94 10114 101.53 10183 102.15 10115 101.53 10182 102.12 11021 111.14 112 60 114.52 10767 108.24 109 25 110.83 10241 102.70 103 06 103.28 102 35 102.68 103 07 103.33 11612 117.06 11900 121.30 11184 112.36 113 92 115.54 103 79 104.13 104 41 104.94 10383 104.19 10446 104.99 . . 1990 1991 . 1992 1993 1994 1995 1996 1997 1998 1999* 19941 .. . ... . .. II III IV . 1995:1 II Ill . .. IV 1996-1 II Ill . .. IV 19971 II Ill IV . .. 1998:1 II III .... IV 1999-1 II Ill 922 H $$ 1 Percent changes based on unrounded data. Quarterly percent changes are at annual rates. Source: Department of Commerce, Bureau of Economic Analysis. 310 8.3 8.9 11.5 11.4 32 11 1.4 11 1.4 1.1 1.5 H 53 B H 34 34 5.6 51 3.3 24 2.2 27 2.2 27 62 4.9 56 40 2.7 3.7 21 2.1 18 21 2.1 18 6.2 55 5.6 4.5 4.3 4.0 V, 1.4 1.7 12 1.5 5.5 19 3.6 57 1.9 76 4.7 7.0 2.2 5.1 2.4 1.8 5.0 5.3 1.5 8 3.2 3.3 2.9 16 1.8 1.9 2.9 17 1.8 1.9 ft 2.9 69 2.2 4.9 2.5 13 1.8 1.4 2.5 13 1.7 1.4 74 6.7 52 4.3 77 3.4 54 7.0 49 5.1 40 3.1 24 1.5 12 1.3 67 2.1 38 5.9 10 1.1 14 .9 24 1.5 11 1.2 9 1.3 15 1.0 57 3.3 68 37 1.9 57 20 1.3 11 20 1.4 11 7.9 5.8 n 4.0 6.4 18 18 ft 2.0 T A B L E B-4.—Percent changes in real gross domestic product, 1960-99 [Percent change from preceding period; quarterly data at seasonally adjusted annual rates] Personal consumption expenditures Year or quarter 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 18 1989 1990 1991 1992 1993 1994 1995 1996 1997 fflfc Gross domestic product 2.5 2.3 6.0 4.3 5.8 6.4 4.5 K .0 2.5 -1.9 4.2 7.3 3.9 3.4 3.5 4.2 3.5 1.7 13 2.4 4.0 2.7 3.7 4.5 il 1994:1 II Ill IV 1995.1 II Ill IV 1996:1 II Ill IV 1997:1 || III IV 1998:1 II Ill IV 1999:1 II Ill 3.6 5.7 2.2 5.1 1.5 a:! 3.3 2.9 6.9 2.2 4.9 4.9 » 3.1 Total 2.7 2.0 4.9 4.1 6.0 6.3 5.7 3.8 2.3 3.5 5.9 4.8 -.4 2.3 5.4 4.2 4.7 2.8 .0 1.4 1.4 5.3 5.4 5.0 4.2 3.5 4.1 2.6 1.8 U 3.0 3.8 3.0 3.3 3.7 4.9 5.3 3.9 3.5 a 1.5 B 2.7 3.3 4.5 2.2 3.2 4.9 3.4 B B Durable goods durable 2.0 -3.8 11.7 9.7 9.3 12.6 8.5 1.6 11.0 3.6 1.5 1.8 3.1 2.1 4.9 5.3 5.5 1.6 4.6 2.7 -3.2 10.0 12.7 2.4 1.8 4.4 5.1 4.9 5.3 -8 ServTotal Structures 87 5.5 11.9 17.4 12.5 -1.4 4.4 7.6 -.5 4.5 1.1 10.4 15.S 91 K5 .8 1.5 4.9 2.4 27 •a 11.3 1.3 .0 14.9 14.6 9.9 9.1 1.7 5.8 2.1 L2 1.0 3.3 4.0 2.7 3.6 2.4 3.2 2.7 5.6 -3.7 -1.0 17.6 6.7 -2.7 -.9 -6.6 5.3 8.2 7.6 4.6 5.6 6.6 11.3 11.4 1.4 -.4 1.9 2.9 3.8 30 2.9 2.9 4.0 5.3 5.0 3.4 3.6 4.3 2.1 2.9 1.7 3.4 2.4 4.2 2.2 4.0 3.8 id 9.3 3 -7.9 5.3 3.5 4.4 12.4 -2.7 5.0 9.5 3.4 4.1 13.0 -1.5 5.0 10.9 B5.0 II iB i) B 3.7 6.5 1.9 16.9 11.2 4.1 20.4 12.4 9.1 7.7 11.8 i 14.1 10.0 B .a 1.4 5.4 -d 3.] i! -10.5 2.5 4.1 Hi 12.6 5.4 5.5 .7 -4.9 3.4 8.4 8.9 io!o 10.7 12.7 8.3 4.7 !i 17.0 16.0 2.5 2.6 9.5 13.1 11.6 itt 9.6 9.9 16.0 3.2 26.7 12.1 .0 15.3 7.8 7.0 10.9 2.5 Note.—Percent changes based on unrounded data. Source.- Department of Commerce, Bureau of Economic Analysis. Exports and imports of goods and services Government consumption expenditures and gross investment Exports ports Total Federal State and local 1.3 0.0 4.8 6.0 2.4 2.0 3.1 9.0 7.5 3.2 -3.0 3.9 8.3 -17 4.4 6.1 3.0 6.1 67 11.3 97 B Nonresidential fixed B B 4.8 3.1 .2 3.1 5.3 5.7 Gross private domestic investment 311 Equipment and software 4.2 -1.9 11.5 8.4 12.7 18.3 15.9 6.2 8.8 -1.0 .9 12.8 18.3 2.5 -9.6 6.2 15.0 15.2 8.7 -3.6 4.2 -5.2 5.4 19.5 6.4 2.0 1.7 7.5 7.0 -2!0 7.4 11.3 11.9 11.5 11.0 11.5 15.8 12.0 12.5 4.0 m !:! 3.6 13.1 14.0 12.0 15.7 5.9 10.1 15.2 17.7 2.8 34.7 13.8 2.4 18.6 12.5 11.2 15.7 4.9 dential -7.1 .3 9.6 11.8 5.8 -2.9 -8.9 -3.1 13.6 3.0 -6.0 27.4 17.8 -.6 -20.6 -13.0 23.5 21.5 6.3 -3.7 -21.1 41.1 14.6 1.4 12.0 -£l -8.6 -12.8 16.3 7.3 9.7 -3.6 7.4 2.3 9.2 7.2 9.1 15.7 -3.0 -4.4 -7.7 -15.6 10.1 9.7 8.8 20.6 -1.0 -4.1 3.0 4.7 .6 6.6 14.0 13.6 8.0 9.8 12.9 5.5 f! 20.8 1.7 5.3 7.6 13.3 2.0 6.7 2.2 7.3 5.5 10.8 8.0 21.8 9.8 -.6 5.6 9.8 10.9 1.2 -7.0 -2.6 5:4« 7.4 11.4 16.1 11.7 8.7 6.8 6.4 3.0 8.9 10.3 8.3 "B 3.5 1.6 17.3 10.0 14.1 7.2 4.4 17.9 9.9 2.3 6.9 3.5 29.0 8.8 16.2 11.5 1.8 -1.7 16.1 -5.5 4.0 11.5 6.9 1U 2.7 5.3 10.6 14.9 7.3 14.9 5.7 4.3 5.3 11.2 4.6 -2.3 -11.1 19.6 10.9 -2.3 -2.0 .0 -.8 2.1 2.0 A B 2.0 -6.6 2.1 -B J 12.6 24.3 6.5 8.4 6.1 3.8 3.9 3.8 6i6 9.1 12.0 8.2 8.6 13.7 11.6 11.8 7.9 18.9 i§:8 B 1.2 3.9 3.3 3.5 6.5 5.4 3.0 U 2.7 3.3 1.2 .6 -.9 LI B 3.7 -3.9 ii:f -.9 -4.8 li -2.2 -5.0 "!o -1.2 1.7 2.7 2.5 4.8 4.7 3.7 6.3 3.1 7.6 5.5 4i 1.3 2.0 -.3 -1.6 -3.9 -3.6 -27 -]9 2.9 -11.1 -4.1 13.9 -11.6 -1.4 -rf 5.0 B 2.8 3.0 3.9 3.4 .8 U 17 -L9 3.8 5.4 5.4 2.4 3.7 3.9 4.2 2.4 2.2 1.3 2.6 2.5 2.4 B 4.1 1.1 3.9 4.4 1.9 2.3 3.0 -16.1 IB -2.3B 1:5 il1.1 14.4 6.3 15.5 19.1 17.6 5.2 14.4 13.0 5.2 10.8 12.5 14.4 14.9 10.6 2.5 1.7 5.7 1.7 -77 -1.3 II -1.3 -4.2 15 I?:! U u 4.1 16.0 4.9 4.4 3.4 3.5 2.4 4.1 3.0 3.3 2.3 8.2 .9 4.8 4.4 TABLE B-5.—Contributions to percent change in real gross domestic product, 1960-99 [Percentage points, except as noted; quarterly data at seasonally adjusted annual rates] Gross private domestic investment Personal consumption expenditures Year or quarter Gross domestic product (percent change) Fixed investment Nonresidential Total NonDurable durable goods goods Services Total Total Total Structures Equipment and software Change in private Residential inventories I960 1961 1962 1963 1964 1965 1966 1967 1968 1969 2.5 2.3 6.0 4.3 5.8 6.4 6.6 2.5 4.8 3.1 1.71 1.27 3.09 2.56 3.70 3.90 3.51 1.82 3.47 2.33 0.17 -.31 .89 .77 .77 1.06 .73 .13 .92 .31 0.44 .53 .90 .59 1.33 1.43 1.46 .42 1.18 .69 1.10 1.05 1.30 1.20 1.60 1.40 1.32 1.27 1.36 1.33 0.00 -.10 1.80 1.00 1.24 2.15 1.44 -.76 .89 .90 0.13 -.05 1.23 1.07 1.37 1.49 .86 -.28 .99 .90 0.52 -.06 .77 .50 1.07 1.64 1.29 -.15 .46 .77 0.28 .05 .16 .04 .36 .57 .27 -.10 .05 .20 0.24 -.11 .61 .46 .71 1.07 1.02 -.05 .40 .57 -0.39 .01 .46 .58 .30 -.15 -.43 -.13 .53 .13 -0.13 -.05 .57 -08 -.12 .66 .58 -.48 -.10 .00 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 .2 3.1 5.3 5.7 -.3 -.3 5.2 4.5 5.7 3.4 1.41 2.19 3.65 2.98 -.28 1.39 3.41 2.62 2.94 1.75 -.28 .81 1.07 .90 -.61 .00 1.04 .80 .47 -.03 .61 .47 1.11 .82 -.51 .37 1.24 .60 .91 .65 1.08 .91 1.46 1.26 .84 1.02 1.13 1.22 1.56 1.13 -1.04 1.66 1.86 1.96 -1.31 -2.98 2.83 2.43 2.06 .60 -.31 1.09 1.80 1.46 -1.04 -1.71 1.42 2.18 1.94 1.01 -.06 -.01 .92 1.50 .09 -1.14 .52 1.19 1.59 1.22 .01 -.06 .12 .31 -.08 -.43 .09 .15 .44 .51 -.07 .06 .80 1.18 .17 -.71 .42 1.04 1.15 .71 -.26 1.09 .88 -.04 -1.13 -.57 .91 .99 .35 -.21 -.72 .57 .06 .50 -.27 -1.27 1.41 .25 .12 -.41 .0 2.5 -1.9 4.2 7.3 3.9 3.4 35 4.2 3.5 .03 .89 .88 3.37 3.50 3.17 2.73 2.27 2.68 1.72 -.66 .10 .00 1.08 1.15 .81 .78 16 .51 .18 -.04 .29 .23 .80 .93 .61 .78 .52 .68 .58 .72 .49 .65 1.49 1.42 1.75 1.16 1.59 1.49 .95 -2.09 1.58 -2.55 1.48 4.62 -.17 -.12 .42 .44 .60 -1.18 .38 -1.21 1.19 2.67 .89 .20 .00 .58 .42 -.01 .73 -.50 -.13 2.04 .83 -.34 -.01 .60 .61 .30 .39 -.08 -.54 .61 .33 -.49 -14 .05 .09 -.30 .34 -.42 .41 1.43 .50 .16 13 .56 .52 -1.17 -.35 -.71 1.32 .63 .06 .54 .01 -.02 -.19 -.91 1.20 -1.34 .29 1.95 -1.06 -.32 42 -.14 .17 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999* 1.7 -.2 3.3 2.4 4.0 2.7 3.7 4.5 4.3 4.0 1.20 .10 2.13 2.00 2.52 2.04 2.22 2.51 3.24 3.52 -.08 -.53 .39 .61 .59 .37 .44 .51 .86 .89 .30 -.09 .40 .61 .79 .60 .60 .59 .79 1.04 .98 .71 1.34 .79 1.15 1.08 1.18 1.41 1.59 1.59 -.49 -1.26 1.12 1.18 1.89 .47 1.37 1.82 1.93 .99 -.28 -1.00 .86 1.09 1.28 .88 1.39 1.31 1.86 1.32 .08 -.53 .34 .82 .91 1.03 1.10 1.22 1.49 1.02 05 -.38 -.18 .02 .02 .13 .20 .25 .13 -.08 03 -.15 .52 .80 .89 .90 .91 .97 1.37 1.10 -36 -.47 .52 .26 .37 -.15 .29 .09 .37 .31 -.21 -.26 .26 .10 .61 -.41 -.02 .50 .07 -.33 1994:1 li . Ill IV 3.6 5.7 2.2 5.1 2.56 2.36 2.05 2.79 .41 .28 .35 .95 .99 .70 .73 .88 1.16 1.37 .97 .95 2.54 3.57 -.93 2.72 .79 1.41 .60 1.51 .44 .81 .73 1.69 -.45 .52 -.03 .08 .89 .30 .75 1.61 .34 .60 -.13 -.18 1.75 2.16 -1.53 1.21 1995-1 II Ill IV 1.5 .8 3.2 3.3 1.09 2.64 2.20 1.81 -.20 .39 .74 .27 .46 .60 .35 .69 .84 1.65 1.11 .85 .51 -1.90 -.53 1.81 1.31 -.38 .66 1.38 1.63 .27 .29 1.02 .23 .16 -.01 -.02 1.39 .11 .30 1.04 -.31 -.65 .37 .36 -.80 -1.51 -1.19 .42 1996-1 II Ill IV 2.9 6.9 2.2 4.9 2.17 3.06 1.41 2.14 .32 .99 -.12 .39 .47 .86 .44 .79 1.39 1.22 1.09 .96 1.16 3.26 2.50 .15 1.74 2.04 1.43 .95 1.41 1.28 1.47 1.12 .28 .29 .21 .61 1.13 .99 1.27 .51 .33 .76 -.04 -.17 -.58 1.22 1.07 -80 1997-1 II Ill IV 4.9 5.1 4.0 3.1 3.28 1.24 4.29 2.22 .81 -.11 1.42 .38 .78 -.02 1.11 .06 1.69 1.38 1.76 1.78 2.13 3.33 .17 1.30 1.19 1.30 1.80 .63 1.07 1.12 1.78 .38 .24 -.12 .32 .13 .83 1.24 1.45 .24 .12 .19 .03 .26 .94 2.02 -1.63 .66 1998-1 II .. Ill IV .. 6.7 2.1 3.8 5.9 3.75 3.96 2.64 3.13 1.24 .84 .33 1.51 1.15 1.28 .49 .98 1.37 1.85 1.83 .64 5.04 -.85 1.74 1.94 3.45 1.95 .34 2.20 2.91 1.42 .01 1.79 .18 .22 -.21 .18 2.73 1.21 .22 1.61 .54 .53 .33 .41 1.59 -2.80 1.40 -.26 3.7 1.9 5.7 5.8 4.27 3.36 3.33 3.59 .96 .71 .62 .93 1.68 .64 .73 1.22 1.63 2.01 1.97 1.43 .67 -.36 2.25 1.46 1.48 1.10 1.16 .28 .94 .86 1.33 .33 -.18 -.16 -.11 -.15 1.12 1.02 1.44 .48 .53 .24 -.17 -.05 -.80 -1.46 1.09 1.18 . .. 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 .. 1999:1 II Ill IV* See next page for continuation of table. 312 T A B L E B—5.—Contributions to percent change in real gross domestic product, 1960—99—Continued [Percentage points, except as noted; quarterly data at seasonally adjusted annual rates] Net exports of goods and services Year or quarter I960 1961 1962 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 1990 1991 1992 1993 1994 Exports Net exports ... . Total 0 79 .11 -21 .24 085 .08 25 35 .63 10 .33 .11 36 .27 A\ -32 -.02 : -•8 -21 91 .87 89 -99 42 1.21 .70 -05 .46 .20 83 .81 -11 .65 . . 1996 1997 1998 1999* 1994-1 || III . IV 1995:1 Ill IV 1996-1 II Ill IV 1997:1 Ill IV 1998-1 II Ill IV 1999.1 II III 1.69 -.15 -54 -135 -1.57 -44 -.30 .20 84 .59 39 .70 -04 -64 -41 12 -.14 -25 -118 -1.11 -71 — 35 .26 -.25 -27 168 .59 -103 -.79 -129 2.13 -.79 -44 -.77 -.44 -190 -2.01 -.82 .33 -2.13 -135 -.72 -.70 -66 -22 .52 .82 125 1.02 80 .65 64 30 88 107 .90 140 .25 .38 15 162 97 1.39 .75 46 183 1.07 26 .77 38 2.89 .98 175 -16 -.45 -.18 1.65 -.61 42 1.19 .74 Goods 0 76 .02 17 .29 .51 02 .27 .02 30 .20 .44 -02 43 1.01 .46 -16 .31 .08 68 .77 .86 -.08 -67 -19 .46 19 .26 .56 104 .79 55 .48 48 71 67 86 .68 112 .17 .29 -28 177 95 1.20 .66 37 113 .84 40 .35 61 1.75 109 139 1.04 .29 -22 -.73 .12 1.38 -.74 32 119 .57 Imports Services Total 009 - 0 0 6 .03 -47 -.12 -.23 -45 -.65 -.34 -70 -.29 -.22 -29 -.63 -.29 .18 94 t .06 .12 08 .06 .09 06 .07 .10 04 -01 .20 .24 11 .15 .11 15 .04 .12 .20 01 -03 .19 02 .26 -14? -.91 -78 -.16 .71 -.27 12 -1.13 -2.22 -65 -.83 .22 25 .17 16 09 21 20 -.43 -41 .05 -68 -94 J -fi •8 313 Federal Goods Services Total 0.05 .00 -40 -.12 -.19 -41 -.49 -.17 -68 -.20 -.15 -33 -.57 -.34 .17 87 -1.35 -011 .02 -07 00 -.03 -04 -16 -.16 -03 -.09 -.07 04 -06 -001 1.04 135 .54 .44 68 19? 1.67 75 -.08 -.52 -47 .00 -.18 -.14 .67 -1.00 -.82 -.37 -26 .00 -77 -85 -118 -87 -T.04 -.94 28 - 1 6 5 - 1 4 3 08 - 1 4 3 -1.21 .09 -1.49 -1.33 -72 35 —1 95 - 1 9 1 02 - 1 3 2 - 1 3 3 .19 -1.13 -1.16 .09 -.99 10 -74 69 -10 -15 .23 -.48 -.36 - 1 4 -129 -118 .42 -1.55 -1.47 -23 - 1 6 7 -1.45 1.14 -.76 -.76 -.12 - 1 7 7 -1.39 36 - 2 1 9 - 2 02 -2.06 -1.67 -.54 -.64 06 - 1 7 4 - 1 4 2 .28 -1.56 -1.36 -.65 -.51 -1.32 -1.29 -1.52 -1.28 -177 -159 .00 - 1 9 1 -1.83 .17 -1.44 -1.13 — 95 Source: Department of Commerce, Bureau of Economic Analysis. Government consumption expenditures and gross investment .05 .00 07 -10 -.07 -11 -.02 .04 -.09 -08 -.13 -.39 -13 -.01 -.23 -05 -.05 -15 .05 08 -09 — 08 -.09 -22 -22 -.16 -13 -04 01 .03 -.33 09 -05 -.12 -11 -.08 -22 .00 -.38 -17 -.39 -.11 -32 -.20 -.13 -.03 -.24 -19 -.08 -.30 -.02 .20 65 .40 .42 .19 33 .69 1.13 .64 25 .55 65 .25 12 -18 02 09 .21 42 .31 .64 -79 15 146 -.67 .18 .37 -15 -.90 59 1.37 -.41 .47 Total -039 .48 106 -04 National Nondefense defense -f, 129 MS -.41 -0.21 .43 63 -.27 -.44 -17 1.25 1.19 .18 -.48 -24 -.51 -.02 00 -.11 .15 23 .21 .40 .41 33 60 .31 73 .54 -.40 -.49 -.17 -08 -.14 .05 05 .16 .24 .37 47 .47 .35 60 .46 .12 18 -.02 -14 -33 Ji f? -018 .06 43 .23 0.39 .56 29 .57 19 .04 -.03 -07 .06 -.04 09 .16 -.01 .14 08 .02 .11 19 .04 .16 .04 -14 13 * .63 -is .07 -1.171 -•8 -.05 .00 -.07 -31 -W -26 — 20 -.19 -.06 -.06 -11 -01 -06 -.08 .18 .08 -98 -91 .07 -31 71 97 -.90 -1.06 -.09 01 -19 -20 -.67 -1.22 32 63 .36 .60 -54 -.38 -.10 -.08 -.52 102 40 63 -.01 -.10 -64 -.76 -16 .42 1.03 .69 .27 -.14 .23 -.12 .24 .51 -.16 -.03 -10 13 .42 .26 .81 1.45 .94 .70 State and local 18 .05 17 -01 -02 -01 .00 10 0? .10 06 -37 25 .16 -.05 01 -01 -.55 31 .24 -.16 .02 23 -.08 -.17 12 .27 -.42 .36 .13 23 -.16 .24 i\ .33 .32 35 .24 2 42 .10 42 .20 .01 -.23 00 .09 .42 59 .60 .28 42 .43 48 .28 26 15 29 .28 43 .37 .47 12 45 49 .24 .27 35 05 .32 -04 .78 .13 .55 39 .40 .27 .48 .33 .37 .28 .90 .10 .55 .52 TABLE B-6.—Chain-type quantity indexes for gross domestic product, 1959-99 [Index numbers, 1996=100; quarterly data seasonally adjusted] Personal consumption expenditures Gross private domestic investment Fixed investment Gross domestic product Year or quarter Total Durable goods Nnn durable goods Nonresiderrtial Services Total Total Total 1959 I960 1961 1962 1963 1964 1965 1966 [ZZ.ZZZ". L969 ZZZZZZZ". 1970 L971 . . . 1972 ' 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 ".!"'" .'"..!" 1993 1994 1995 1996 1997 1998 . . 1999' 1994:1 II III IV 1995:1 Ill IV 1996:1 It Ill IV 1997:1 Ill IV 1998:1 II III IV 1999:1 II Ill . .. . 29.44 30.17 30.87 32 73 34.15 36.13 38.43 40.95 4197 43.97 45.35 45.43 46.85 49.33 5213 51.99 51.84 54 56 57.03 60.28 62.33 62 36 6392 62.72 65.35 70.11 72.82 75.33 77.98 81.26 84.07 85.54 85.36 88.20 90.29 93.92 96.47 100.00 104 50 109.00 113.41 92.39 93.69 94.21 95.38 95.74 95.94 96.70 97.49 98.19 99.84 100.39 101.59 102.82 104.12 105.14 105.94 107.67 108.24 109.25 110.83 111.84 112.36 113.92 115.54 27.78 28.53 29.11 30 54 31.80 33.70 35.83 37.87 3900 41.22 42.79 43.78 45.32 47.99 5029 50.07 51.19 53 97 56.21 58.84 60.49 6051 6137 62.24 65.52 69.07 72.52 75.58 78.21 8140 83.52 85.04 85.17 87.90 90.54 9394 96.80 100.00 103 75 108.80 114.53 92.75 93.54 94.26 95.21 95.56 96.49 97 26 97.91 98.72 99.81 100.34 101.13 102.36 102.82 104.47 105.34 106.77 10836 109.42 110.66 112.43 113.83 115.19 116.68 16.49 16.82 16.19 1808 19.84 21.67 24.42 26.48 2690 29.85 30.92 29.91 32.91 37.08 4091 38.10 38.09 4295 46.95 49.43 49.26 4539 4598 45.98 52.81 60.54 66.52 72.58 73.84 78.11 79.75 79.01 73.79 77.70 84.08 90.46 94.66 100.00 10663 118.66 132.23 88.72 89.49 90.47 93.16 92.53 93.66 95.81 96.62 97.61 100.64 100.26 101.50 104.15 103.76 108.64 109.98 114.35 117.42 118.62 124.26 127.95 130.76 133.21 136.98 38.35 3893 39.64 4089 41.75 43.80 46.12 48.65 4942 51.67 53.05 54.32 55.30 57.73 5962 5842 59.28 6217 63.67 66.05 67.81 67 71 6851 69.17 71.47 74.31 76.33 79.07 80.97 83 55 85.83 87.01 86.65 88.29 90.87 9435 97.14 10000 10292 107.07 112.74 93.09 93.87 94.72 95.71 96.20 96.90 9731 98.13 98.72 99 73 100.29 101.26 102.22 102.17 103.60 103.67 105.13 106.85 107.49 108.80 111.15 112.05 113.04 114.73 24.39 2546 26.49 27 79 29.06 30.82 32.45 34.07 35 74 37.58 39.46 41.03 42.35 44.54 4653 47 95 49.68 5159 53.72 56.55 58.73 60.16 6113 62.43 65.27 68.05 71.66 74.11 77.50 80 76 82.91 85.17 86.82 89.91 91.74 94 45 97.07 100.00 10360 107.80 112.14 93.42 94.22 94.81 95.36 95.85 96.86 97 53 98.06 98.94 9968 100.39 100.99 102.07 102.96 104.10 105.28 106.14 107.39 108.62 109.03 110.16 111.56 112.92 113.90 See next page for continuation of table. 314 21.96 21.95 21.81 24 57 26.21 28.37 32.35 35.51 37.58 35.10 39.09 43.70 4881 4520 37.20 44 70 51.45 57.38 59.18 5273 5759 49.51 54.22 70.13 69.48 6902 70.76 72 65 75.36 73.01 66.75 72.41 78.69 8908 91.79 100.00 11151 124.52 131.67 85.08 90.01 88.66 92.58 93.54 90.82 9005 92.74 94.33 9925 103.12 103.30 106.75 112.18 112.47 114.66 123.24 121.76 124.82 128.26 129.41 128.74 132.90 135.63 22.20 22.39 22.32 2433 26.21 28.74 31.66 33.47 3284 35.12 37.30 36.51 39.26 43.96 4797 44.96 40.13 4408 50.41 56.22 59.37 55 58 5679 52.81 56.76 66.28 69.77 70.60 70.58 7315 75.14 73.77 68.65 73.10 79.03 86.25 91.46 100.00 10852 121.37 131.06 83.69 85.75 86.66 88.89 90.86 90.29 9129 93.40 83 101.56 103.10 105.07 107.25 110.33 111.43 117.44 120.95 121.55 125.55 128.30 130.37 132.54 133.05 15.94 16.84 16.74 1819 19.20 21.47 25.20 28.35 27 95 29.19 31.39 31.22 31.21 34.04 3899 39.30 35.41 3714 41.32 47.15 51.88 51.85 54 77 52.72 52.19 61.37 65.49 63 73 63.65 6711 70.83 71.35 67.83 70.11 83 90.89 100.00 110 71 124.80 135.13 80.05 81.62 83.07 86.40 89.66 90.22 9080 92.89 95.80 9846 101.65 104.09 106.50 109.05 113.18 114.09 121.03 124.54 124.56 129.06 131.49 133.74 137.23 138.08 Structures 43.65 4712 47.76 4991 50.46 55.71 64.59 69.02 6726 68.21 71.89 72.12 70.94 73.12 7908 7743 69.32 7102 73.97 82.66 93.08 9923 10709 105.47 115192 10343 99.69 10095 103.42 104.95 93.38 87.70 88.39 89.14 93.39 100.00 10845 112.93 109.92 85.88 90.16 89.93 90.57 92.49 93.79 93 72 93.53 83 100.18 105.49 107.55 106.46 109.31 110.48 112.03 113.98 112.05 113.64 111.96 110.44 109.37 107.91 Equipment and software 9.74 10.16 9.96 11.11 12.04 13.58 16.06 18.61 1848 19.62 21.34 21.12 21.31 24.04 2844 29.13 26.35 2798 32.18 37.09 40.33 3888 4052 38.42 40.50 48.40 51.48 52.51 53.37 5737 61.39 61.63 60.38 64.86 72.22 80.79 90.08 100.00 111.48 129.09 144.63 78.20 78.96 80.92 85.06 88.74 92.67 95.75 9849 102.15 103.61 106.13 109.94 114.52 115.32 124.24 128.33 129.09 134.70 138.74 142.47 147.77 149.56 Residential 47.26 43.89 44.02 4824 53.92 57.05 55.39 50.43 4884 55.50 57.14 53.73 68.46 80.63 8011 63.57 55.32 6834 83.02 88.26 85.03 6168 50.45 71.19 81.56 82.67 92.58 SHI 88.53 80.92 70.57 82.09 88.09 96.64 93.13 100.00 102 35 111.78 119.84 94.64 98.16 97.41 96.33 94.42 90.50 92 71 94.89 96.91 10156 101.30 100.24 100.98 102.15 102.3C 103.96 107.43 110.91 113.07 115.74 119.30 120.91 119.75 119.39 TABLE B-6.—Chain-type quantity indexes for gross domestic product, 1959-99—Continued [Index numbers, 1996=100; quarterly data seasonally adjusted] Exports of goods and services Imports of goods and services Government consumption expenditures and gross investment Year or quarter 1959 I960 1961 1962 '. 1963 1964 1965 1966 ZZ 1967 1968 Federal "Z. ZZ. 1969 1 ZZZ.... 1970 1971 1972 "." 1973 1974...::....:::::::::.:.... 1975 1976 ZZ. 1977 1978 ZZZZZ. 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 ZZZZZZZ. 1994 1995 ..'. 1996 'ZZ.'. 1997 ZZZZ'ZZ... 1998 1999* 19941 || Ill IV 1995:1 II HI IV 19961 II III IV 1997:1 II Ill IV 1998:1 II HI IV 1999:1 II Ill IV P Total Goods 8.22 9.93 10.10 10.64 11.44 12.96 13.22 14.11 14.42 15.47 16.32 18.09 18.18 19.64 23.92 26.27 26.12 27.57 28.24 31.24 34.31 38.07 38.52 35.83 34.91 37.84 3888 41.76 46.51 54.01 60.35 65.62 70.08 74.59 7686 83.72 92.37 100.00 112 73 115.21 119.26 79 58 82.83 84.81 87.65 89.19 90.16 93.94 96.19 9673 9835 99.19 105.72 107.97 112.09 115.18 115.68 11523 114.07 113.60 117.92 116.27 117.41 12066 122.68 8.41 10.38 10.43 10.89 11.75 13.36 13.43 14.36 14.43 15.57 16.39 18.26 18.18 20.14 24.77 26.73 26.11 27.35 27.71 30.81 34.45 38.55 38.14 34.70 33.70 36.36 37.58 39.51 43.89 52.16 58.74 63.58 68.09 72.73 74.93 82.18 91.97 100.00 114.51 116.89 121.33 77.30 80.86 83.57 87.00 88.91 89.98 93.26 95.73 96.89 97 92 99.81 105.39 108.99 113.66 117.20 118.21 117.38 114.69 115.14 120.35 117.46 118.71 123 43 125.72 Services 7.12 7.88 8.41 9.16 9.74 10.90 11.76 12.42 13.51 14.20 15.13 16.47 17.07 16.92 19.85 23.48 25.14 27.39 29.19 31.74 32.53 34.81 38.53 38.72 38.08 41.81 42.24 47.92 53.75 58.86 64.41 70.84 75.14 79.28 81.72 87.59 93.36 100.00 108.49 111.19 114.39 85.34 87.78 87.94 89.29 89.89 90.59 95.64 97.33 96.34 99 44 97.73 106.49 105.55 108.36 110.37 109.68 110.13 112.48 109.93 112.22 113.35 114.24 11426 115.70 Total Goods 11.07 11.21 11.14 12.40 12.74 13.41 14.84 17.05 18.29 21.02 22.21 23.16 24.40 27.13 28.39 27.75 24.66 29.49 32.70 35.54 36.13 33.73 34.61 34.18 38.49 47.86 50.95 55.23 58.58 60.81 63.21 65.64 65.31 69.64 7598 85.08 92.05 100.00 113.72 126.89 141.93 80.66 84.23 86.66 88.75 90.65 92.04 92.32 93.21 95.64 9868 102.05 103.63 107.43 112.22 116.86 118.35 122.41 126.21 127.81 131.14 135.07 139.69 144 63 148.33 8.82 8.67 8.66 9.94 10.34 11.03 12.59 14.57 15.34 18.51 19.52 20.29 21.99 24 98 26.74 2600 22.72 27.86 31.25 34.05 34.64 32.06 32.72 31.90 36.24 4500 47.80 52.70 55.15 57.38 59.80 61.60 6156 67.26 74.03 83.86 91.43 100.00 114.21 127.62 143.84 78 69 82.82 m 89.75 91.58 91.80 92.59 95.22 98 65 102.13 104.00 107.60 112.90 117.42 118.92 122.87 126.87 128.40 132.33 136.33 141.34 14708 150.60 Source: Department of Commerce, Bureau of Economic Analysis. 315 Services 22.61 24.38 23.96 25.08 25.06 25.71 26.47 29.83 33.47 fiS 38.11 37.03 38.54 37.24 37.20 35.59 38.04 39.94 42.78 43.37 42.40 44.85 47.24 51.06 63.86 68.71 68.94 77.64 79.75 81.98 88.23 86.18 82.69 86.60 91.65 95.40 100.00 111.19 123.21 132.59 91.37 91.90 91.82 91.50 95.55 94.45 95.05 96.53 97.86 9885 101.64 101.65 106.52 108.76 113.99 115.47 120.01 122.83 124.75 125.24 128.81 131.58 132.74 137.24 Total 46.39 46.38 48.61 51.54 52.76 53.79 55.46 60.43 64.99 67.05 66.81 65.30 63.98 63.98 63.47 64.79 66.06 66.01 66.63 68.75 70.15 71.63 72.29 73.46 75.87 78.51 83.58 88.13 90.79 91.85 94.36 97.44 9865 99.21 98.33 98.42 98.87 100.00 102.33 104.10 107.92 97.56 97.73 99.64 98.73 98.93 99.40 99.19 97.98 98.77 10058 100.01 100.64 101.06 102.47 102.91 102.89 102.62 104.13 104.46 105.20 106.52 106.86 10806 110.25 Total 70.86 68.76 71.41 77 32 77.10 75.79 75.93 84.51 92.74 93.60 90.51 84.15 78.10 76.34 72.55 72.37 72.39 71.50 72.74 74.71 76.55 80.26 84.03 87.10 92.56 9545 102.74 108.39 112.40 110.37 111.83 114.11 113.78 111.96 107 59 103.69 100.91 100.00 9988 98.97 101.84 103 61 102.54 105.92 102.71 102.34 102.38 101.65 97.27 99 52 10161 99.60 99.27 98.55 100.90 100.56 99.48 96.96 99.71 99.14 100.08 99.97 100.49 10152 105.36 National defense Nondefense State and local 88.19 86.49 90.02 9529 92.88 88.86 87.28 99.90 112.64 114.65 109.24 100.03 89.85 85.39 79.86 77.91 76.96 75.35 75.92 76.51 78.69 81.99 86.98 93.46 99.79 104.57 113.32 120.44 126.10 125.15 124.18 124.15 122.80 116.83 110.57 105.28 101.37 100.00 97.55 95.71 97.52 104.57 104.90 108.63 103.02 102.76 102.80 101.77 98.14 99.82 10168 99.55 98.95 96.04 98.27 98.23 97.65 93.21 95.69 97.33 96.61 95.64 95.01 97 56 101.87 36.98 34.00 34.93 42.14 46.22 50.23 53.70 54.40 53.84 52.45 53.84 53.01 54.86 58.38 58.07 61.50 63.48 64.06 66.67 71.45 72.61 77.19 78.41 74.22 77.86 76.65 80.81 83.31 83.80 79.46 86.09 93.23 95.05 101.94 101.50 100.47 99.98 100.00 104.63 105.63 110.62 101.64 97.72 100.41 102.09 101.47 101.52 101.40 95.53 98.91 10147 99.71 99.91 103.69 106.28 105.32 103.23 104.60 107.89 102.85 107.16 108.77 111.62 109.59 112.49 31.30 32.66 34.66 35.71 37.87 40.43 43.13 45.85 48.13 50.96 52.51 53.99 55.60 56.73 58.32 60.60 62.67 63.15 63.37 65.63 66.76 66.85 65.55 65.52 66.04 68.53 72.25 76.15 77.99 80.90 84.02 87.56 89.67 91.63 92.83 95.28 97.66 100.00 103.79 107.14 111.53 93.97 94.88 95.90 96.36 96.90 97.63 97.72 98.40 98.32 99 97 100.25 101.46 102.55 103.41 104.30 104.91 105.98 106.75 107.61 108.23 110.39 110.64 11193 113.15 TABLE B-7.—Chain-type price indexes for gross domestic product, 1959-99 [Index numbers, 1996=100, except as noted; quarterly data seasonally adjusted] Personal consumption expenditures Gross private domestic investment Fixed investment Year or quarter Gross domestic product Nonresidential Total Durable goods Nnn- durable goods Services Total Total Total Structures Equipment and software Residential 1959 22.06 21.87 41.97 24.60 17.09 28.78 27.72 32.44 18.48 43.15 18.99 I960 1961 1962 ... 1963 1964 1965 1966 1967 1968 1969 22.37 22.62 22.93 23.18 23.53 23.98 24 66 25.43 26.52 27.81 22.24 22.47 22.74 23.00 23.32 23.68 24 29 24.90 25.88 27.02 41.77 41.86 42.05 42.20 42.40 42.03 4183 42.48 43.89 45.10 24.95 25.10 25.30 25.59 25.92 26.39 27 26 27.91 28.98 30.32 17.55 17.87 18.20 18.45 18.79 19.16 19 72 20.31 21.16 22.16 28.92 28.84 28.87 28.78 28.95 29.42 3003 30.83 31.99 33.51 27.87 27.78 27.81 27J3 27.90 28.39 2899 29.81 31.02 32.56 32.59 32.41 32.42 32.43 32.60 32.99 33.49 34.36 35.58 37.07 18.46 18.35 18.50 18.67 18.94 19.49 2019 20.82 21.87 23.31 43.51 43.28 43.08 42.86 42.84 42.91 43 05 44.03 45.24 46.52 19.12 19.15 19.18 19.02 19.18 19.72 2044 21.15 22.27 23.81 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 29.29 3083 32.18 34.01 36.94 4037 42.78 45.58 48.74 52.69 28.30 2959 30.67 32.37 35.56 3843 40.68 43.43 46.42 50.39 46.09 47 77 48.28 48.98 52.08 5684 59.99 62.61 66.20 70.60 31.82 3280 33.90 36.56 41.82 4509 46.83 49.61 52.93 58.50 23.35 2480 25.96 27.22 29.13 3145 33 88 36.66 39.37 42.33 34.93 3669 38.24 40.31 44.33 49.80 52.57 56.51 61.15 66.71 33.96 35 69 37.23 39.30 43.18 48.59 51.42 55.46 60.17 65.65 38.82 40 67 42.08 43.71 47.95 54.55 57.59 61.54 65.69 71.07 24.83 26.74 28.68 30.91 35.15 39.34 41.25 44.81 49.15 54.87 48.25 49 73 50.37 51.25 55.08 6324 67.02 71.02 74.84 79.67 24.58 26 00 27.58 30.03 33.12 36.20 38.53 42.41 47.61 52.95 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 57.39 62 71 66.51 6923 71.80 74.05 75.67 7784 80.46 83.56 55.62 6049 63.79 66 63 69.06 71.42 73.13 7581 78.73 82.22 76.54 8162 84.76 8638 87.58 88.59 89.69 92 21 93.49 95.14 65.31 7037 72.34 73.89 75.64 77.30 77.01 7966 82.34 86.26 46.52 5122 55.28 59 03 62.06 65.06 68.00 70 73 74.11 77.73 73.01 7977 83.91 83 73 84.40 85.30 87.19 8886 90.96 93.22 71.83 78 55 82.91 82 81 83.37 84.45 86.51 8812 90.48 92.76 77.39 84 93 89.69 8893 88.83 89.57 91.17 92 01 94.17 96.29 59.97 6831 73.76 7182 72.42 74.11 75.54 76 72 79.98 83.10 8658 92 86 96.60 96 91 96.29 96.28 97.92 98 53 99.95 101.45 58.68 6347 66.87 6840 70.37 72.18 75.21 78.29 80.99 83.59 8684 89 76 9170 94.17 96.14 9819 100.00 101.66 102.86 104.32 8602 9600 97 39 9828 99.% 100.56 10106 100.00 97.79 95.45 93.00 9098 93 76 9520 8161 97 93 100.00 101.35 101.40 103.74 85 03 8819 91.80 94.43 9744 100.00 102.63 104.78 106.99 9508 9646 9632 97.70 9911 10029 100.00 99.84 98.96 98.81 94 70 96.14 9607 97.46 98.92 10014 100.00 99.95 99.20 99.24 9823 99 80 99 29 99.81 100.54 100 93 100.00 99.04 97.22 95.97 85 77 87 32 87 29 90.22 9350 9739 100.00 104.14 107.37 110.24 10293 10448 103 75 103.24 102 98 10212 100.00 97.37 94.01 91.64 85 54 86 64 87 69 91.24 9448 97 91 100.00 102.68 105.30 109.48 9988 100.36 101.00 101.00 9621 96.45 97.26 97.40 93 38 94.01 94.85 95.48 9859 m 10024 100.56 100.74 100.60 9215 92.81 93.86 95.17 10308 103.26 103.12 102.46 93 25 93.80 94.81 96.05 101.36 101.22 100.94 100.72 97.46 97.83 98.10 98.31 96.39 97.15 99.59 100.04 100.40 100.42 100.31 9835 98.74 99.16 99.41 99.84 100.20 100.27 100.25 100.75 101.09 101.04 100.82 96.35 97.06 97.79 98.38 102.25 102.45 102.14 101.64 97.23 97.63 98.09 98.62 100.78 100.13 99.77 99.32 99.09 99.98 100.02 100.92 100.03 99.84 100.11 100.02 100.04 99.84 100.08 100.05 100.40 99.97 99.92 99.71 98.87 99.42 100.44 101.28 100.91 100.16 99.74 99.19 99.00 99.44 100.53 101.03 99.95 9980 99.89 99.74 100.00 9992 100.03 99.86 99.45 9917 98.98 98.56 102.34 10350 104.85 105.86 98.49 97 74 97.06 96.18 101.60 10214 103.18 103.80 97 90 97.36 9525 94.34 93.64 92.81 10388 104.64 105.76 106.93 92.44 91.86 91.24 91.00 107.97 108.93 110.04 110.99 1990 1991 .. 1992 1993 1994 1995 1999*"!!!!!!!!!!!!!!!!!!!!!! 1994-1 9542 95.85 96.41 96.85 nHI in'!!!!!!!!!!!!!!!!!!! IV* 83 99.46 99.77 100.21 100.56 101.14 101.53 101.83 102.15 101.30 10151 101.78 102.08 99.05 9812 97.31 96.70 101.34 10117 101.32 101.55 99.00 99.68 100.31 101.01 101.75 10238 102.94 103.46 10241 102.70 103.06 103.28 10219 102.48 102.78 103.08 9632 95.83 95.29 94.34 10120 101.15 101.46 101.78 103 93 104.56 105.04 105.60 9918 98.93 98.89 98.85 99.38 99.15 99.16 99.11 103.79 104.13 104.41 104.94 103.44 104.01 104.49 105.13 93.67 93.22 92.75 92.37 102.19 103.47 104.20 105.09 106.19 106.63 107.19 107.96 98.87 98.78 98.70 98.90 99.19 99.17 99.19 99.42 97.56 97.96 98.39 98.86 iv!!....!!.!!!! II HI IV 1997:1 II . Ill IV 1998-1 II Ill IV 1999:1 94 99 96.70 97.29 97.83 98.26 98.65 99.24 99.82 100.16 100.78 IV 1995:1 inii!! 1996:1 89.03 9144 93.94 95.86 9801 100.00 101.67 102.63 104.27 88 See next page for continuation of table. 316 m 88 188 96.38 96.04 95.72 95.74 109.07 109.67 110.58 111.65 T A B L E B-7.—Chain-type price indexes for gross domestic product, 1959-99—Continued [Index numbers, 1996=100, except as noted; quarterly data seasonally adjusted] Exports and imports of goods and services Government consumption expenditures and Federal ftrncc Hn UlUoo UU~ Final Cfllpc odlco Year or quarter Na- Total Exports Imports Total Percent change2 Gross domestic purchases] glUOO IIIVGOUIIGIIl Nftn nontional defense defense and local UlUoo 1 ace of domes- tic Total product Less food anH ana energy naproduct 1959 2874 20.95 17.04 17.86 1776 17.66 16.17 21.90 21.57 22.03 1960 1961 1962 1963 1964 1965:...::... 1966 1967:...:::.. 1968 1969::::::::: 29.10 29.51 29.49 2944 2964 30.62 3157 32:82 33 50 34.53 21.15 21.15 20.90 2130 2175 22.06 22 57 22.66 23 00 23.60 17.24 17.56 18.02 18.45 18 95 19.47 2027 21.12 22 30 23.62 17.99 18.27 18.68 19.13 19 77 20.30 2098 21.62 22 88 24^0 17.86 18.07 18.44 18 90 1945 20^1 2066 21.31 22 50 2372 17.92 18.50 19.08 1954 20 50 20.90 2168 22.28 23 74 24.92 16.47 16.86 17.39 1778 1814 18.65 1957 20.66 2177 23*20 22.22 22.46 2278 23.03 2338 23:83 24 52 25.28 2638 27^7 21.87 22.10 22.40 22.67 23 02 2344 24.10 24.80 25.87 22.34 22.59 22.90 23.16 23 51 23:95 24.64 25.40 2650 27.78 1970 1971 1972 1973 1974 ...::.... 1975 1976 ...'."... 1977 1978 1979 36 03 37.33 38 58 43*90 54.14 59 70 6176 64.32 68.15 76.25 25 00 26.53 2840 3334 47.70 5167 53^2 57.92 62.01 72.62 25 51 27.56 29 65 31*87 34.96 3841 40*92 4379 46.59 50.46 25.97 28.25 3089 33 08 35.85 3945 42.14 45.42 48.27 51.98 2543 27.69 30 61 32 91 35.82 3924 42^2 45.15 48.29 52.19 2740 2973 3144 33.30 35.66 3972 4576 47.93 51.20 2511 26.96 28 60 30*83 34.13 3745 39^3 42.41 45.14 49.10 2914 30.68 32 03 33.86 36.77 4019 42.61 45.42 48.58 52.52 28.57 30.12 31.50 33.37 36.65 39 99 42.37 45.31 48.49 52.67 29.26 30.80 32.14 33.98 36.90 40 33 42.74 45.54 48.71 52.66 1980 1981 1982 1983 ...::... 1984 1985 1986 1987 1988 1989 83.82 89 92 90:23 9076 91.64 89.16 8775 89.92 94.66 96.48 90.45 95 32 92:iO 88.65 87.89 85.02 85.01 90.02 94.46 96.87 55.93 6142 65:52 68.21 7174 73.91 75.20 77.31 79.39 81.99 57.49 6310 67:56 69.99 74.19 7571 76.14 77.06 78.85 81.15 57.93 63 71 6844 70.86 75.95 77.24 77.27 78.01 79.65 81.91 56.16 6137 65.16 67.63 69.40 71.60 73.20 74.69 76.95 79.39 54.51 59 90 6370 66.58 69.56 72.27 74.28 77.40 79.73 82.56 57.19 62 50 6634 69.05 71.61 73.90 75.54 7771 80.36 83.48 58.10 6336 66.94 69.37 71.78 73.87 75.52 77.94 80.57 8371 65.44 68.13 70.63 72.92 75.25 77.73 80.55 83.51 97.13 98.20 97.66 97.94 99.07 101.38 100.00 98.23 95.95 95.55 99.43 98 93 99.09 98.18 99.12 101.83 100.00 96.45 91.31 91.61 85.27 88.07 90.06 92.48 94.89 97.59 100.00 10178 103.34 106.13 83.82 87.19 89.81 92.20 94.53 97.22 100.00 101.30 102.38 105.45 84.57 87.70 9075 92.45 94.48 96.88 100.00 101.22 102.03 104.76 82.09 86.11 87.67 91.63 94.60 97.93 100.00 101.45 103.07 10674 86.32 88.69 90.21 92.65 95.11 97.81 100.00 102.06 103.89 106.53 8677 89.69 91.64 94.12 96.10 98.16 100.00 101.69 102.93 104.43 87.14 89.90 91.90 94.24 96.18 98.28 100.00 101.39 102.14 103.65 86.67 89.53 91.75 94.27 96.36 98.53 100.00 101.34 102.40 103.78 86.83 89.76 91.71 94.16 96.13 98.19 100.00 101.67 102.87 1994:1 II Ill ... IV ... 98.31 98.71 99.30 99.96 97.24 98.51 100.12 100.60 93.95 94.71 95.16 95.74 93.65 94.64 94.57 95.24 93.59 94.49 94.59 95.25 93.75 94.96 94.49 95.20 94.13 94.73 95.53 96.04 95.37 95.81 96.38 96.82 95.34 95.86 96.54 96.96 95.50 96.10 96.69 97.14 95.43 95.86 96.41 96.85 1995:1 II Ill ... IV ... 101.03 101.83 101.57 101.08 101.05 102.84 102.15 101.28 9671 97.26 97.72 98.66 96.19 96.53 97.13 99.05 95.98 96.41 97.07 98.06 96.62 9678 97.25 101.09 97.03 97.71 98.08 98.42 97.52 97.92 98.36 98.84 97.60 98.12 98.49 98.91 97.82 98.33 98.76 99.21 97.56 97.95 98.39 98.86 1996:1 II Ill ... IV ... 100.89 100.55 9979 9877 100.87 100.42 99.28 99.43 99.87 99.49 100.09 100.55 100.28 99.46 100.34 99.93 99.52 100.06 100.49 101.00 99.32 99.65 100.03 99.62 99.52 100.19 100.68 99.46 99.77 100.21 100.56 99.48 99.77 100.14 100.62 99.67 99.75 100.12 100.47 99.46 99.77 100.21 100.56 1997:1 II Ill ... IV ... 98.47 98.50 98.18 97.76 98.27 96.43 95.85 95.24 101.31 101.47 101.84 102.49 101.20 101.24 101.18 101.57 101.20 101.16 101.07 101.45 101.19 101.38 101.41 101.81 101.38 101.62 102.22 103.03 101.16 101.56 101.86 102.18 101.09 101.23 101.48 10176 100.90 101.25 101.48 10173 101.15 101.53 101.84 102.15 1998:1 II Ill ... IV ... 96.72 96.27 95.57 95.25 92.57 91.63 90.55 90.48 102.73 103.10 103.60 103.94 102.07 102.30 102.41 102.76 101.86 101.85 102.07 102.32 102.49 103.15 103.05 103.59 103.11 103.56 104.27 104.62 102.47 10277 103.13 103.36 101.79 101.99 102.26 102.51 101.94 102.24 102.56 102.84 102.42 102.71 103.06 103.29 1999:1 II Ill ... 95.13 95.30 95.61 96.18 89.81 90.96 92.35 93.31 104.93 105.69 106.56 107.34 104.89 105.13 105.60 106.17 104.21 104.47 104.93 105.44 106.18 106.37 106.85 107.55 104.98 106.02 107.11 108.00 103.88 104.24 104.54 105.07 102.92 103.40 103.85 104.44 103.28 103.58 103.88 104.39 103.79 104.14 104.41 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999' IV* 1 Gross domestic product (GDP) less exports of goods and services plus imports of goods and services. 2 Percent changes based on unrounded data. Quarterly percent changes are at annual rates. Source: Department of Commerce, Bureau of Economic Analysis. 317 57.36 62 69 66:50 69.21 71.77 74.02 75.64 77.81 80.44 83.54 Gross do- mestic chases* tic Less prodfood uct Total and energy 1.4 1.4 1.1 1.1 1.4 1.3 1.1 1.2 15 16 1.9 1*8 2.9 2.8 3.1 2.9 43 43 4.8 4.8 5.3 5.4 5.3 5.4 4.4 4.6 5.7 5.9 8.6 9.8 :::::::: 9.3 91 6.0 6.0 6.5 6.9 6.9 7.0 8.1 8.6 8.9 10.3 9.3 91 6.1 57 4.1 3.6 "*4i 3.7 3.5 37 3.1 2.9 3.2 2.2 2.2 3.2 2.9 3.2 3.3 3.4 3.4 3.6 3.9 3.9 3.7 3.9 4.1 3.8 34 3.2 3.3 2.2 2.2 2.5 2.7 2.5 2.8 2.1 2.1 2.2 2.1 2.2 2.3 1.8 1.7 1.5 1.7 1.4 1.3 1.2 7 1.0 1.4 1.5 1.4 1.9 1.5 1.8 1.8 2.2 2.6 2.4 2.8 2.5 1.8 1.8 1.9 2.9 2.7 2.8 1.6 2.1 2.1 1.8 1.5 1.7 1.9 1.7 1.9 2.5 2.3 1.9 1.3 1.2 .3 1.8 1.5 1.5 1.4 1.9 1.4 2.4 1.9 1.8 1.5 .6 1.2 1.0 uc 1.3 1.1 1.0 .1 1.0 .8 1.1 .8 1.2 1.4 1.1 1.3 .9 1.0 1.1 2.0 1.6 1.7 1.3 1.9 1.2 1.1 17 1.2 2.0 2.3 2.0 TABLE B-8.—Gross domestic product by major type of product, 1959-99 [Billions of dollars; quarterly data at seasonally adjusted annual rates] Goods Year or quarter Final Gross sales of domestic domesproduct tic product Change Total private inventories Durable goods Change Total Final sales in private Final sales inventories 1959 507.4 503.5 I960 1961 196? 1963 1964 1965 1996 1967 1968 1969 1970 1971 1972 197? 1974 527.4 545.7 586.5 618.7 664.4 720.1 789.3 834.1 911.5 985.3 524.1 542.7 580.4 613.1 659.6 710.9 775.7 824.2 902.4 976.2 1,039.7 1,128.6 1,240.4 1,385.5 1,501.0 1,635.2 1,823.9 2,031.4 2,295.9 2,566.4 1,037.7 1,120.3 1,231.3 1,369.7 1,487.0 1,641.4 1,806.8 2,009.1 2,270.1 2,548.4 2,795.6 3,131.3 3,259.2 3,534.9 3,932.7 4,213.0 4,452.9 4,742.5 5,108.3 5,489.1 2,801.9 3,101.5 3,274.1 3,540.7 3,867.3 4,191.2 4,446.3 4,715.3 5,089.8 5,461.4 -6.3 29.8 -14.9 -5.8 65.4 21.8 5,803.2 5,986.2 6,318.9 6,642.3 7,054.3 7,400.5 7,813.2 8,300.8 8,759.9 9,248.4 5,788.7 5,986.4 6,303.9 6,621.2 6,991.8 7,367.5 7,783.2 8,232.4 8,688.7 9,204.2 14.5 15.0 21.1 62.6 33.0 30.0 68.3 71.2 44.3 6,887.8 7,015.7 7,096.0 7,217.7 6,844.0 6,936.0 7,044.0 7,143.1 7,297.5 7,342.6 7,432.8 7,529.3 1976 1977 1978 1979 1980 1981 198? 1983 1984 198*> 1986 1987 1988 1989 1990 1991 199? 1993 1994 1996 1997 1998 1999 1994 1 . II Ill IV I 1995 II Ill IV 1996 1 .' II Ill IV 1997 1 II III IV 1998:1 II Ill IV 1999 II Ill .. 3.9 3.2 3.0 6.1 5.6 4.8 9.2 13.6 9.9 9.1 9.2 2.0 8.3 9.1 15.9 14.0 -6.3 17.1 22.3 25.8 18.0 251.7 247.8 258.0 260.7 281.5 293.2 313.6 343.3 381.7 395.3 428.3 457.7 470.3 496.1 542.7 622.0 670.9 724.8 811.4 890.7 1,004.5 1,128.7 1.207.6 1,362.8 1,354.6 1,452.1 1,637.0 1,702.7 1,758.2 1,853.5 2,000.0 2,175.3 2,266.4 2,296.1 254.7 257.7 275.4 287.6 308.8 334.1 368.0 385.5 419.2 448.5 468.3 487.9 533.6 606.1 656.9 731.1 794.3 868.4 978.7 1,110.7 13.6 9.9 9.1 9.2 2.0 8.3 9.1 15.9 14.0 -6.3 17.1 22.3 25.8 18.0 1,213.9 1,333.0 1,369.6 1,457.8 1,571.6 1,680.9 1,751.7 1,826.4 1,981.5 2,147.6 -6.3 29.8 -14.9 -5.8 65.4 21.8 14.5 2,391.4 2,503.2 2,680.2 2,798.1 2,951.3 3,142.4 3,310.3 3,478.8 2,251.9 2,296.3 2,376.4 2,482.1 2,617.6 2,765.1 2,921.3 3,074.1 3,239.1 3,434.6 43.8 79.8 52.0 74.6 2,615.2 2,666.0 2,680.7 2,758.7 7,234.8 7,306.8 7,419.4 7,509.1 62.7 35.8 13.4 20.2 7,629.6 7,782.7 7,859.0 7,981.4 7,622.8 7,752.9 7,809.0 7,947.9 6.8 29.8 50.0 33.5 8,125.9 8,259.5 8,364.5 8,453.0 8,073.0 8,166.9 8,306.9 8,382.8 8,610.6 8,683.7 8,797.9 8,947.6 8,511.7 8,642.9 8,724.2 8,876.2 9,072.7 9,146.2 9,297.8 9,477.1 9,021.6 9,128.6 9,257.0 9,409.5 6.6 27.1 18.5 27.7 -.2 52.9 92.6 57.6 70.2 98.9 40.8 73.7 71.4 51.0 17.6 40.8 67.6 6.6 27.1 18.5 27.7 in pri- vate inventories 92.4 95.2 94.5 104.7 111.5 121.2 134.2 150.2 155.3 169.5 180.9 183.2 190.2 213.0 245.8 262.1 294.7 329.6 374.6 426.2 487.3 518.0 564.5 566.1 611.8 686.6 750.0 781.5 809.9 886.4 963.8 2.9 1.7 -.1 3.4 2.6 3.8 6.2 10.0 4.8 4.5 6.0 -.2 2.9 6.4 13.0 10.9 -7.5 10.8 9.5 18.2 12.8 -2.3 7.3 -16.0 2.5 41.4 4.4 -1.9 22.9 22.7 20.0 15.0 21.1 62.6 33.0 30.0 68.3 71.2 44.3 994.3 988.3 1,029.4 1,090.7 1,161.6 1,239.8 1,331.9 1,424.8 1,528.9 1,618.2 7.7 -13.6 2,571.4 2,586.2 2,628.7 2,684.1 43.8 79.8 52.0 74.6 1,141.1 1,148.5 1,168.7 1,187.9 2,781.5 2,767.6 2,796.4 2,847.1 2,718.8 2,731.7 2,782.9 2,826.9 62.7 35.8 13.4 20.2 2,876.6 2,945.2 2,977.5 3,005.9 Change Final sales 155.5 159.5 163.2 170.7 176.1 187.6 199.9 217.8 230.2 249.8 267.6 285.1 297.6 320.6 360.3 394.9 436.4 464.7 493.8 552.5 623.4 695.9 768.5 803.4 846.1 885.0 930.9 970.2 1,016.5 1,095.1 1,183.8 1,257.6 1,308.0 in pri- Services Structures vate inventories 1.1 193.2 62.5 1.6 3.0 2.7 3.0 1.0 3.0 3.6 5.0 4.5 3.2 2.2 5.3 2.7 2.9 3.1 1.2 6.3 207.5 221.4 237.2 252.8 272.3 292.1 319.6 349.1 383.2 419.3 61.9 63.6 67.8 72.7 78.4 84.7 88.0 89.6 100.0 108.3 459.6 504.0 550.8 600.6 664.4 743.6 821.3 913.9 1,019.6 1,127.1 109.7 128.4 146.9 162.9 165.6 166.7 191.2 226.8 271.8 310.6 1,268.9 1,418.6 1,562.6 1,716.1 1,872.2 2,054.0 2,217.2 2,399.6 2,599.5 2,792.8 319.1 350.0 342.0 366.8 423.6 456.3 477.4 489.3 508.8 521.0 526.0 486.2 511.5 545.6 591.6 617.3 670.9 723.7 785.1 839.3 12.8 7.6 5.2 -4.0 22.5 1.1 -8.2 24.0 17.4 8.4 4.2 -4.3 7.7 6.8 1,346.9 1,391.4 1,456.0 1,525.3 1,589.4 1,649.3 1,710.2 1,816.4 10.9 32.8 32.2 18.9 3,010.8 3,203.9 3,416.0 3,593.5 3,782.6 3,985.1 4,191.0 4,434.7 4,664.5 4,930.3 25.1 41.8 31.1 44.8 1,430.2 1,437.7 1,459.9 1,496.2 18.7 38.0 21.0 29.7 3,705.8 3,758.3 3,814.9 3,851.3 566.8 591.5 600.3 607.7 1,215.9 1,218.7 1,251.4 1,273.0 48.0 32.5 23.3 30.4 1,502.8 1,513.0 1,531.5 1,553.9 14.7 -9.8 -10.2 3.3 3,902.0 3,965.1 4,018.8 4,054.5 614.0 610.0 617.7 627.7 2,869.8 2,915.4 2,927.5 2,972.4 6.8 1,298.8 29.8 1,329.8 50.0 1,339.2 33.5 1,359.8 10.2 18.8 38.7 8.6 1,571.0 1,585.6 1,588.3 1,612.7 -3.4 10.9 11.3 24.8 4,109.6 4,167.8 4,204.0 4,282.4 643.4 669.6 677.6 693.1 3,079.2 3,137.2 3,166.3 3,187.0 3,026.2 3,044.6 3,108.7 3,116.8 52.9 92.6 57.6 70.2 1,386.8 1,407.8 1,453.9 1,450.7 28.0 54.1 23.6 36.5 1,639.5 1,636.8 1,654.8 1,666.1 24.9 38.5 34.0 33.7 4,338.3 4,407.6 4,467.8 4,524.9 708.4 714.7 730.5 741.2 3,287.0 3,258.9 3,305.6 3,389.8 3,188.0 3,218.1 3,231.9 3,318.4 98.9 40.8 73.7 71.4 1,506.0 1,518.2 1,519.9 1,571.4 1,682.0 1,699.9 1,712.1 1,747.0 42.6 19.7 33.9 32.8 4,563.8 4,646.1 4,700.4 4,747.9 759.8 778.8 791.9 809.9 3,416.6 3,424.2 3,494.0 3,580.4 3,365.6 3,406.6 3,453.2 3,512.8 51.0 17.6 40.8 67.6 1,584.3 1,601.7 1,631.1 1,655.7 56.3 21.1 39.8 38.6 24.1 1,781.3 1,804.9 1,822.2 1,857.1 27.0 11.4 17.8 19.4 4,820.7 4,885.5 4,963.7 5,051.6 835.3 836.5 840.1 845.1 Source-. Department of Commerce, Bureau of Economic Analysis. 3.9 3.2 3.0 6.1 5.6 4.8 9.2 Nondurable goods Change 318 -.2 -3.0 17.1 35.7 33.6 19.1 35.6 38.9 25.4 6.3 23.0 48.2 13.4 18.0 4.0 26.8 -.5 TABLE B-9.—Real gross domestic product by major type of product, 1959-99 [Billions of chained (1996) dollars; quarterly data at seasonally adjusted annual rates] Goods Year or quarter Final Change in Gross sales of pridomestic domesvate product tic product inventories 2,298.4 2,357.2 2,412.1 2,557.6 2,668.2 2,822.7 3,002.8 3,199.5 3,279.5 3,435.6 3,543.2 2,359.0 2,415.5 2,548.1 2,661.4 2,820.2 2,982.7 3,163.3 3,259.4 3,419.5 3,527.6 12.1 10.9 9.5 19.6 18.4 15.1 30.6 42.8 31.7 28.4 27.4 3,549.4 3.660.2 3,854.2 4,073.1 4,061.7 4,050.3 4,262.6 4,455.7 4,709.9 4,870.1 4,872.3 4,993.9 4,900.3 5,105.6 5,477.4 5,689.8 5,885.7 6,092.6 6,349.1 6,568.7 3,559.7 3,650.5 3,843.3 4,043.9 4,043.4 4,083.9 4,239.6 4,422.8 4,672.4 4,852.4 4,899.2 4,962.5 4,935.6 5,127.5 5,400.5 5,671.6 5,885.9 6,068.2 6,333.4 6,542.4 4.4 23.9 23.7 35.6 25.0 -9.4 32.5 40.8 44.1 26.1 -10.5 37.9 -15.6 -9.7 76.1 27.1 9.6 29.6 18.4 29.6 6,683.5 6,669.2 6,891.1 7,054.1 7,337.8 7,537.1 7,813.2 8,165.1 8,516.3 8,861.0 7,218.5 7,319.8 7,360.5 7,452.3 7,480.4 7,496.0 7,555.0 7,616.8 7,671.4 7,800.5 7,843.3 7,937.5 8,033.4 8,134.8 8,214.8 8,277.3 8,412.7 8,457.2 8,536.0 8,659.2 8,737.9 8,778.6 8,900.6 9,026.9 6,671.3 6,674.2 6,878.7 7,035.3 7,275.9 7,505.5 7,783.2 8,095.7 8,441.3 8,813.7 7,176.3 7,239.8 7,308.9 7,378.4 7,419.1 7,462.3 7,543.4 7,597.3 7,664.6 7,770.9 7,793.5 7,903.7 7,981.1 8,042.0 8,155.3 8,204.3 8,307.0 8,410.4 8,459.6 8,588.3 8,685.2 8,757.9 8,855.8 8,955.9 16.5 -1.0 17.1 20.0 66.8 30.4 30.0 69.1 74.3 41.9 47.8 85.8 56.3 77.4 62.2 32.5 9.0 18.0 5.6 30.3 51.2 32.9 51.5 93.1 59.2 72.7 107.3 43.1 76.1 70.7 2,404.2 2,372.7 2,455.0 2,548.2 2,708.3 2,813.8 2,951.3 3,141.3 3,330.5 3,505.8 2,647.5 2,698.3 2,704.9 2,782.7 2,800.3 2,784.9 2,810.0 2,860.0 2,879.4 2,942.3 2,976.3 3,007.1 3,071.4 3,130.2 3,167.5 3,196.2 50.1 14.0 38.0 65.4 1963 :.I:.I. III IV 1997:1 IV 1998:1 II .... III ... IV .. 1999:1 II .... III ... IV*. Total 2,300.0 1959 1960 . 1961 1962 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 1990 1991 1992 1993 1994 1995 1996 1997 ...'. 1998 1999" 1994:1 II Ill IV 1995:1 II Ill IV 1996:1 Total Final sales Final sales Change in private inventories Nondurable goods Final sales Change in private inventories Serv- Structures 340.6 764.7 777.1 780.6 837.0 866.1 919.2 994.9 1,083.4 1,095.2 1,146.7 1,180.6 1,166.5 1,194.3 1,280.1 1,395.0 1,378.5 1,357.9 1,453.8 1,524.1 1,621.8 1,686.1 1,201.5 1,258.0 1,314.8 1,376.7 1,440.7 1,514.7 1,585.1 1,675.1 1,763.3 1,842.0 1,912.3 337.4 346.8 366.6 391.3 417.7 438.6 439.2 432.7 459.3 465.2 1,965.9 2,013.1 2,072.3 2,142.5 2,216.8 2,287.3 2,345.9 2,418.1 2,520.5 2,596.6 445.1 486.4 522.4 533.7 478.4 435.0 475.9 521.1 567.1 582.7 1,677.0 1,753.6 1,678.4 1,754.8 1,941.1 1,990.0 2,057.5 2,136.3 2,255.3 2,379.6 2,664.1 2,705.1 2,760.5 2,848.3 2,939.6 3,079.2 3,200.1 3,333.2 3,465.5 3,561.1 541.4 533.5 487.8 524.3 595.2 626.1 635.2 631.1 632.8 626.5 3,666.8 3,744.4 3,858.6 3,908.1 4,000.2 4,090.6 4,191.0 4,324.2 4,449.4 4,597.1 3,960.4 3,987.7 4,020.0 4,032.9 4,044.6 4,084.4 4,114.2 4,119.4 4,142.0 4,184.7 4,192.5 4,244.7 4,267.4 4,310.2 4,344.9 614.8 559.5 584.9 602.5 630.7 632.9 670.9 700.2 738.9 763.7 612.9 635.5 637.7 636.9 635.5 627.3 631.3 637.6 650.2 673.5 674.5 685.5 695.0 695.1 703.2 707.6 724.2 737.5 742.5 751.7 770.2 764.7 760.9 759.0 3,302.8 3,277.8 3,323.9 3,417.4 2,112.2 2,239.0 2,353.6 2,391.1 2,375.6 2,441.5 2,528.5 2,647.0 2,782.3 2,921.3 3,071.6 3,255.1 3,459.1 2,605.3 2,619.6 2,653.7 2,709.7 2,739.5 2,751.3 2,798.1 2,840.3 2,872.4 2,912.8 2,926.4 2,973.6 3,018.9 3,036.8 3,107.9 3,122.7 3,195.9 3,231.5 3,246.9 3,346.2 62.2 32.5 9.0 18.0 5.6 30.3 51.2 32.9 51.5 93.1 59.2 72.7 107.3 43.1 76.1 70.7 3,442.1 3,446.1 3,525.3 3,609.6 3,390.0 3,427.5 3,481.3 3,537.8 50.1 14.0 38.0 65.4 Source: Department of Commerce, Bureau of Economic Analysis. Durable goods Change in private inventories 319 29.6 18.4 29.6 16.5 -1.0 17.1 20.0 66.8 30.4 30.0 69.1 74.3 41.9 47.8 85.8 56.3 77.4 837.8 919.1 982.7 1,000.0 976.8 1,018.0 1,076.5 1,144.2 1,231.8 1,331.9 1,445.0 1,585.1 1,714.7 1,124.6 1,128.7 1,148.3 1,175.2 1,202.4 1,209.8 1,246.9 1,268.3 1,292.5 1,330.2 1,340.8 1,364.0 1,392.5 1,422.9 1,479.8 1,485.0 1,547.4 1,568.0 1,578.1 1,646.9 1,668.7 1,693.5 1,734.2 1,762.5 25.0 23.9 20.6 7.9 -14.0 -2.9 17.7 35.9 33.3 19.1 35.8 39.7 26.3 25.5 42.1 31.2 44.6 47.7 32.2 23.1 30.3 10.2 18.7 38.7 8.7 28.1 54.3 23.8 36.9 57.1 21.3 40.7 39.6 25.1 6.5 23.8 49.8 1,285.3 1,325.4 1,374.2 1,394.2 1,403.6 1,427.2 1,454.4 1,504.4 1,551.0 1,589.4 1,627.1 1,672.6 1,749.5 1,482.3 1,492.6 1,506.8 1,535.9 1,537.8 1,542.1 1,551.6 1,572.3 1,580.0 1,582.5 1,585.6 1,609.5 1,626.4 1,614.2 1,629.1 1,638.7 3.1 -6.9 8.7 8.6 13.5 20.6 2.0 30.8 -3.6 10.9 33.3 34.6 15.6 22.3 43.8 24.9 32.4 13.6 -.3 -14.7 -12.8 -4.7 11.5 12.7 24.2 1,650.5 1,665.7 1,671.2 1,703.1 1,725.2 1,738.5 1,752.9 1,781.3 50.2 21.8 35.3 31.0 25.0 7.5 14.2 15.8 23.3 38.8 35.4 35.8 4i374.5 4,388.6 4,442.9 4,471.4 4,494.6 4,529.5 4,571.0 4,620.4 4,667.6 TABLE B-10.—Gross domestic product by sector, 1959-99 [Billions of dollars; quarterly data at seasonally adjusted annual rates] Business * Year or quarter Gross domestic product Households and institutions Nonfarm 1 Total Total 1 Nonfarm less housing Housing Farm Total Private households Nonprofit institutions General government2 Total Federal State and local 1959 507.4 436.6 417.7 382.1 35.6 18.9 12.4 3.6 8.9 58.4 32.0 26.5 1960 . 1961 1962 1963 ..".....•....'... 1964 1965 1966 1967 1968 1969 527.4 545.7 586.5 618.7 664.4 720.1 789.3 834.1 911.5 985.3 451.3 465.1 500.0 526.3 565.2 613.9 671.0 703.4 766.1 825.4 431.5 445.0 479.8 506.0 546.0 592.1 648.2 681.1 743.4 800.2 392.9 403.6 435.2 458.5 495.8 538.5 591.2 620.3 678.6 730.3 38.6 41.4 44.6 47.4 50.2 53.5 57.0 60.8 64.8 69.9 19.8 20.1 20.2 20.4 19.3 21.9 22.9 22.2 22.7 25.2 13.9 14.5 15.6 16.7 17.9 19.3 21.3 23.4 26.1 29.5 3.8 3.7 3.8 3.8 3.9 4.0 4.0 4.2 4.4 4.4 10.1 10.7 11.8 12.8 14.0 15.3 17.2 19.2 21.7 25.0 62.1 66.1 70.9 75.7 81.3 86.8 97.0 107.3 119.3 130.5 33.2 34.5 36.7 38.6 40.9 42.6 47.4 51.8 56.7 60.5 28.9 31.6 34.2 37.1 40.4 44.2 49.6 55.5 62.5 70.0 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1,039.7 1,128.6 1,240.4 1,385.5 1,501.0 1,635.2 1,823.9 2,031.4 2,295.9 2,566.4 863.1 935.7 1,030.0 1,156.8 1,250.5 1,356.8 1,521.6 1,702.8 1,937.3 2,174.9 836.9 907.6 997.3 1,107.1 1,203.1 1,308.1 1,475.1 1,655.6 1,882.5 2,110.5 761.9 825.9 908.6 1,010.1 1,097.2 1,193.8 1,350.1 1,516.2 1,726.7 1,934.4 74.9 81.7 88.7 96.9 105.9 114.3 125.0 139.4 155.8 176.1 26.2 28.1 32.6 49.8 47.4 48.8 46.4 47.2 54.7 64.5 32.4 35.6 38.9 43.0 47.1 52.0 57.1 62.4 69.7 77.3 4.5 4.6 4.6 4.8 4.6 4.6 5.4 5.9 6.5 6.4 27.9 31.0 34.3 38.2 42.6 47.3 51.6 56.4 63.2 70.9 144.2 157.3 171.5 185.7 203.4 226.4 245.3 266.2 288.9 314.2 64.7 68.6 73.6 76.4 81.6 89.1 95.6 103.6 111.0 118.7 79.5 88.7 97.9 109.3 121.8 137.2 149.7 162.7 177.9 195.5 2,795.6 3,131.3 3,259.2 3,534.9 3,932.7 4,213.0 4,452.9 4,742.5 5,108.3 5,489.1 2,358.8 2,647.3 2,729.8 2,968.1 3,313.9 3,546.8 3,740.9 3,976.0 4,281.2 4,600.9 2,302.7 2,577.4 2,664.6 2,918.9 3,245.3 3,479.7 3,678.0 3,910.9 4,217.4 4,524.7 2,097.6 2,342.2 2,405.2 2,642.2 2,942.8 3,147.4 3,318.9 3,523.9 3,799.0 4,074.5 205.1 235.2 259.4 276.7 302.6 332.3 359.0 387.0 418.4 450.2 56.1 69.9 65.1 49.2 68.5 67.1 63.0 65.1 63.8 76.2 87.1 97.6 108.2 119.2 131.2 141.0 153.7 173.3 195.1 214.6 6.1 6.2 6.3 6.3 7.3 7.3 7.7 7.7 8.3 8.9 81.0 91.4 102.0 112.9 123.9 133.6 146.0 165.6 186.8 205.7 349.7 386.5 421.2 447.7 487.7 525.3 558.2 593.1 632.0 673.6 132.1 148.3 163.1 173.0 194.0 206.3 213.9 224.5 235.9 247.6 217.5 238.2 258.1 274.7 293.7 319.1 344.3 368.7 396.2 426.0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999* 5,803.2 5,986.2 6,318.9 6,642.3 7,054.3 7,400.5 7,813.2 8,300.8 8,759.9 9,248.4 4,842.0 4,962.4 5,242.1 5,518.0 5,886.6 6,190.1 6,556.0 6,996.8 7,402.0 7,821.5 4,762.4 4,889.2 5,161.6 5,444.4 5,803.0 6,116.9 6,463.8 6,908.8 7,321.9 7,739.2 4,281.1 4,381.3 4,626.2 4,895.5 5,218.3 5,499.4 5,820.9 6,240.1 6,621.4 6,994.2 481.3 507.9 535.4 548.9 584.7 617.5 642.8 668.6 700.4 745.0 79.6 73.2 80.5 73.6 83.6 73.2 92.2 88.0 80.2 82.3 237.9 257.5 279.5 297.0 313.3 330.3 348.6 366.2 385.6 408.2 9.4 9.1 10.1 10.7 11.1 11.9 12.0 12.1 14.0 15.9 228.6 248.4 269.4 286.3 302.2 318.4 336.5 354.1 371.6 392.3 723.3 766.3 797.3 827.3 854.5 880.1 908.7 937.8 972.3 1,018.7 259.7 275.8 282.8 287.0 287.4 293.7 296.9 308.2 463.6 490.4 514.5 540.3 567.0 593.3 616.7 644.0 675.4 710.5 1994:1 6,887.8 7,015.7 7,096.0 7,217.7 5,735.2 5,851.2 5,923.7 6,036.1 5,641.7 5,765.1 5,845.0 5,960.1 5,062.3 5,190.7 5,257.4 5,362.6 579.4 574.5 587.6 597.4 93.5 86.1 78.7 76.0 306.7 310.4 315.5 320.6 10.9 11.0 11.2 11.4 295.9 299.4 304.3 309.2 845.9 854.1 856.8 861.0 289.2 289.9 286.1 284.6 556.7 564.2 570.8 576.5 1995:1 II Ill IV 7,297.5 7,342.6 7,432.8 7,529.3 6,100.3 6,137.0 6,218.5 6,304.7 6,028.7 6,067.5 6,147.6 6,223.8 5,420.9 5,455.3 5,530.1 5,591.3 607.8 612.2 617.6 632.5 71.6 69.5 70.8 80.9 324.1 328.4 332.1 336.7 11.6 11.8 12.0 12.1 312.5 316.6 320.1 324.6 873.0 877.1 882.3 887.9 287.0 286.5 287.3 286.4 586.1 590.7 595.0 601.4 1996:1 II Ill IV 7,629.6 7,782.7 7,859.0 7,981.4 6,388.5 6,530.3 6,596.0 6,709.1 6,301.6 6,435.5 6,498.2 6,619.8 5,668.3 5,797.3 5,852.0 5,966.2 633.2 638.2 646.2 653.7 86.9 94.8 97.7 89.3 341.9 346.0 350.5 355.8 12.1 12.0 12.0 11.9 329.8 334.0 338.6 343.8 899.3 906.4 912.5 916.5 292.0 292.5 292.6 290.9 607.2 613.9 619.9 625.6 1997:1 II Ill IV 8,125.9 8,259.5 8,364.5 8,453.0 6,838.8 6,961.6 7,054.5 7,132.4 6,747.3 6,872.6 6,966.8 7,048.3 6,086.3 6,205.5 6,295.5 6,373.2 661.0 667.1 671.3 675.2 91.4 89.0 87.7 84.0 359.2 363.8 368.7 373.1 11.7 11.9 12.1 12.5 347.5 351.9 356.6 360.6 928.0 934.1 941.4 947.6 295.0 294.3 293.5 292.1 633.0 639.8 647.8 655.5 1998:1 II Ill IV 1999:1 8,610.6 8,683.7 8,797.9 8,947.6 9,072.7 9,146.2 9,297.8 9,477.1 7,274.4 7,333.6 7,432.1 7,568.0 7,669.1 7,729.4 7,862.6 8,025.1 7,201.5 7,258.8 7,351.6 7,475.5 7,580.5 7,645.3 7,784.0 7,947.1 6,518.0 6,564.8 6,645.4 6,757.5 683.5 694.0 706.2 718.0 377.3 383.2 388.4 393.4 13.0 13.6 14.3 15.2 364.3 369.6 374.1 378.2 958.9 966.9 977.4 986.2 295.7 295.7 297.5 298.8 6,850.3 6,906.2 7,034.3 7,185.9 730.2 739.1 749.7 761.2 72.9 74.8 80.6 92.5 88.6 84.1 78.6 78.0 399.7 404.9 411.0 417.1 15.6 15.8 16.0 16.2 384.1 389.0 395.0 400.9 1,003.9 1,012.0 1,024.2 1,034.9 307.8 307.2 308.3 309.5 663.2 671.2 679.9 687.3 696.1 704.7 715.9 725.4 1 Gross domestic business product equals gross domestic product less gross product of households and institutions and of general government. Nonfarm product equals gross domestic business product less gross farm product. 2 Equals compensation of general government employees plus general government consumption of fixed capital. Source-. Department of Commerce, Bureau of Economic Analysis. 320 TABLE B-ll.—Real gross domestic product by sector, 1959-99 [Billions of chained (1996) dollars; quarterly data at seasonally adjusted annual rates] Business* 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 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999* 1994-.I II III .. IV .. 1995:1 II III .. IV .. 1996:1 II III .. IV .. 1997:1 II III . IV . 1998-.I II III . IV . 1999:1 II Ill . IV Gross domestic product Nonfarm Total Total 1 Households and institutions Nonfarm less housing Housing Farm Total 2,300.0 2,357.2 2,412.1 2,557.6 2,668.2 2,822.7 3,002.8 3,199.5 3,279.5 3,435.6 3,543.2 1,770.7 1,810.2 1,850.1 1,968.7 2,058.8 2,187.2 2,338.2 2,494.5 2,545.9 2,671.7 2,757.5 1,721.8 1,758.0 1,798.0 1,920.0 2,009.3 2,142.2 2,291.2 2,453.0 2,499.7 2,630.0 2,714.8 1,550.6 1,576.5 1,606.7 1,716.1 1,795.0 1,917.2 2,053.0 2,202.4 2,237.9 2,357.4 2,430.7 167.8 179.2 189.8 202.2 212.7 222.9 235.5 246.9 259.2 269.3 281.4 39.7 41.7 41.9 41.2 42.3 40.9 43.2 41.8 44.6 43.1 44.3 115.6 123.5 124.4 129.0 132.1 135.9 140.8 146.0 150.8 155.3 160.3 3,549.4 3,660.2 3,854.2 4,073.1 4,061.7 4,050.3 4,262.6 4,455.7 4,709.9 4,870.1 2,762.4 2,863.2 3,044.1 3,247.8 3,225.9 3,203.1 3,400.0 3,576.1 3,806.7 3,951.4 2,717.1 2,815.6 2,999.4 3,208.5 3,189.1 3,145.9 3,350.5 3,524.0 3,761.5 3,900.4 2,426.1 2,512.8 2,680.7 2,873.6 2,840.3 2,795.1 2,987.5 3,148.0 3,364.2 3,483.3 289.7 301.7 316.6 331.4 349.1 353.1 362.1 373.4 393.4 414.4 45.7 47.7 47.8 47.6 46.4 54.8 52.7 55.5 53.7 57.8 158.8 162.3 166.9 170.9 172.2 177.7 179.8 185.0 188.4 192.5 4,872.3 4,993.9 4,900.3 5,105.6 5,477.4 5,689.8 5,885.7 6,092.6 6,349.1 6,568.7 3,941.4 4,051.6 3,951.5 4,142.3 4,491.0 4,673.5 4,838.6 5,015.4 5,232.4 5,417.3 3,893.9 3,980.0 3,874.8 4,099.8 4,427.4 4,594.2 4,763.0 4,938.6 5,165.1 5,340.0 3,456.1 3,526.6 3,419.2 3,637.0 3,943.5 4,094.0 4,253.0 4,413.1 4,622.0 4,779.0 441.8 459.3 465.3 468.3 486.4 502.4 511.2 526.3 543.5 561.4 55.8 71.7 74.9 50.0 66.9 80.1 76.9 78.3 69.8 79.1 198.1 202.6 208.4 213.0 218.2 224.9 236.0 247.8 265.5 279.8 6,683.5 6,669.2 6,891.1 7,054.1 7,337.8 7,537.1 7,813.2 8,165.1 8,516.3 8,861.0 5,499.4 5,468.7 5,679.9 5,830.0 6,101.9 6,289.1 6,556.0 5,417.0 5,384.7 5,586.5 5,745.2 6,003.9 6,203.5 6,463.8 6,786.3 7,121.8 7,446.1 4,845.8 4,799.7 4,987.8 5,146.2 5,382.7 5,567.4 5,820.9 6,135.6 6,462.2 6,766.4 571.8 586.4 599.8 599.5 621.6 636.2 642.8 650.8 660.2 680.9 83.8 85.3 95.3 85.6 100.2 85.5 92.2 103.1 100.5 99.4 291.5 300.9 308.6 319.7 330.9 341.5 348.6 360.5 369.0 376.3 7,218.5 7,319.8 7,360.5 7,452.3 7,480.4 7,496.0 7,555.0 7,616.8 7,671.4 7,800.5 7,843.3 7,937.5 8,033.4 8,134.8 8,214.8 8,277.3 8,412.7 8,457.2 8,536.0 8,659.2 5,988.2 6,085.6 6,122.0 6,211.8 6,234.8 6,246.7 6,304.1 6,370.8 6,426.7 6,540.9 6,582.3 6,674.0 6,764.7 6,860.0 6,934.8 6,995.8 7,125.9 7,166.2 7,241.0 7,359.5 7,432.8 7,469.1 7,584.1 7,703.9 5,887.0 5,986.5 6,023.7 6,118.5 6,146.5 6,160.2 6,222.3 6,285.0 6,336.9 6,448.1 6,489.7 6,580.4 6,665.5 6,758.3 6,829.4 6,892.1 5,265.6 5,374.2 5,400.9 5,490.0 5,513.0 5,526.8 5,588.3 5,641.8 5,697.8 5,807.6 5,845.4 5,932.9 6,015.2 6,106.7 6,178.3 6,242.3 6,370.4 6,408.1 6,477.6 6,592.7 622.1 612.4 623.1 628.7 103.5 101.3 100.8 95.0 88.9 86.8 80.9 85.4 89.7 92.8 92.7 93.6 99.5 102.1 106.5 104.2 326.1 8,737.9 8,778.6 8,900.6 9,026.9 7,223.2 7,547.5 7,024.0 7,066.4 7,139.7 7,257.1 7,331.3 7,366.3 7,485.2 7,601.6 General government2 1 6,659.3 6,690.1 6,802.2 6,913.8 633.9 633.6 634.1 643.4 639.1 640.5 644.3 647.4 650.3 651.7 651.1 650.1 654.0 658.7 662.6 665.4 672.9 677.2 684.2 689.3 101.7 98.7 100.4 101.3 100.2 101.6 95.8 99.9 335.8 338.3 340.8 342.7 344.3 345.1 347.2 349.7 352.3 3624 364.9 366.9 368.2 369.6 371.3 373.2 374.8 377.2 380.2 Private households Nonprofit institutions 22.6 86.1 94.1 96.1 101.0 104.7 108.9 115.0 1215 121.5 126.3 132.2 138.7 138.7 22.8 22.1 21.9 21.6 21.4 20.7 199 19.9 20.0 19.0 18.0 16.9 L6.1 15.6 15.2 13.1 12.3 L2.7 12.9 13.3 11.8 10.4 9.7 If 10.4 10.1 L0.4 10.2 10.6 11.1 11.4 10.5 11.3 11.7 11.8 12.2 12.0 11.8 13.3 14.6 ffl 153.2 157.1 163.8 165.4 170.4 173.3 179.5 187.0 192.6 199.C 203.8 207.6 214.7 225.5 237.6 254.8 268.6 280.1 290.4 297.3 308.0 319.1 329.3 336.5 348.7 355.7 361.7 11.7 11.7 11.9 12.0 12.1 12.2 12.3 12.3 12.2 12.1 11.9 11.8 11.6 11.6 11.8 12.0 314.4 317.3 320.9 323.8 12.4 12.9 13.5 14.2 354.5 355.3 356.1 357.0 358.6 360.2 362.5 365.5 14.6 14.6 14.7 14.7 326.2 328.5 330.3 332.0 332.8 335.0 337.8 340.5 344.0 347.4 350.7 352.8 Total Federal State and local 460.3 476.3 493.3 512.6 527.8 545.7 564.0 599.4 631.5 656.5 673.6 250.4 255.3 260.8 271.7 274.1 276.6 278.4 296.8 316.4 322.1 323.5 211.1 222.3 233.7 242.3 254.9 270.2 286.6 303.7 316.4 335.4 350.7 676.4 678.0 677.6 680.5 693.7 704.4 709.9 716.4 729.8 737.2 310.0 296.4 282.9 272.7 271.4 269.5 269.4 269.2 272.3 271.7 366.2 381.2 394.5 408.1 422.9 435.8 441.5 448.3 458.7 466.9 747.4 751.4 758.6 763.2 772.4 794.3 813.7 831.4 852.8 873.0 275.7 279.8 283.9 290.2 296.5 304.7 309.9 318.0 321.8 325.6 473.2 473.0 476.0 474.1 476.9 490.6 504.8 514.5 532.1 548.5 895.1 903.6 904.9 906.2 905.6 906.7 908.7 915.9 924.8 939.0 905.3 905.8 906.4 905.0 907.6 908.8 908.5 901.8 899.8 912.5 911.2 911.1 913.2 916.0 917.7 916.9 920.2 923.4 926.1 929.6 331.4 333.3 326.2 319.7 309.9 299.1 292.0 287.8 285.8 284.8 314.3 311.2 309.0 304.9 303.1 302.2 300.5 290.5 291.2 294.2 292.9 289.8 289.3 288.5 288.0 285.2 564.7 571.2 579.4 587.1 596.1 607.7 616.7 628.2 638.9 654.1 591.4 594.9 597.6 600.3 604.7 606.7 608.1 611.2 608.6 618.3 618.4 621.4 623.9 627.4 629.7 631.6 285.6 285.6 286.1 286.1 285.5 284.5 284.5 284.7 634.6 637.7 639.9 643.4 647.7 651.5 656.7 660.6 933.3 936.2 941.3 945.4 1 Gross domestic business product equals gross domestic product less gross product of households and institutions and of general government. Nonfarm product equals gross domestic business product less gross farm product. 2 Equals compensation of general government employees plus general government consumption of fixed capital. Source: Department of Commerce, Bureau of Economic Analysis. 321 T A B L E B—12.—Gross product of nonfinancial corporate business, 1959-99 [Billions of dollars,- quarterly data at seasonally adjusted annual rates] Net product Domestic income Gross Year or quarter product Consumpof nontion financial of corpofixed rate business Total capital Indirect business taxes1 Corporate profits with inventory valuation and capital consumption adjustments CompensaTotal Profits tinn HUH Of employees Inven- Capital Net tory con- intervalu- sump- est ation tion Undis- adjust- adjust- Profits after tax Total Profits Profits tax before tax liability Total Divitributed ment dends profits 1959 275.5 23.1 252.4 34.2 218.2 171.3 43.7 43.6 20.7 22.9 10.0 12.9 -0.3 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 286.6 294.5 321.1 341,5 368.4 404.1 442.2 465,4 512.6 556.1 24.0 24.6 25.5 26.5 28.0 29.9 32.8 36.0 39.8 44.1 262.5 269.9 295.5 314.9 340.4 374.2 409.4 429.4 472.8 512.0 36.9 38.6 41.5 43.7 46.8 49.7 51.3 54.7 61.4 67.0 225.6 231.2 254.0 271.2 293.6 324.5 358.1 374.7 411.4 445.0 181.0 185.2 200.0 210.9 226.5 246.3 273.8 292.2 323.1 358.5 41.1 42.1 49.5 55.5 61.8 72.1 76.9 73.8 78.1 73.3 40.3 40.1 44.9 49.8 56.1 66.3 71.6 67.7 74.1 71.1 19.2 19.5 20.6 22.8 24.0 27.2 29.5 27.8 33.6 33.3 21.1 20.6 24.3 27.1 32.1 39.1 42.1 39.9 40.6 37.8 10.6 10.6 11.4 12.6 13.7 15.6 16.8 17.5 19.1 19.1 10.5 10.1 12.9 14.4 18.4 23.5 25.3 22.4 21.4 18.7 -.2 .3 .0 .1 -.5 1970 1971 1972 1973 1974. 1975 1976 1977 1978 1979 575.3 621.1 689.1 771.1 833.0 900.7 1,015.2 1,147.2 1,305.7 1,453.4 48.8 53.4 58.7 64.1 75.0 89.5 99.2 111.2 127.0 147.4 526.5 567.6 630.4 707.0 758.0 811.2 916.1 1,036.0 1,178.7 1,306.0 72.2 78.8 84.6 92.2 98.2 105.7 114.0 124.3 135.2 145.1 454.3 488.8 545.9 614.9 659.8 705.5 802.1 911.7 1,043.5 1,160.9 378.1 401.2 445.9 504.5 555.1 578.6 655.0 740.0 851.0 966.2 59.1 69.5 80.8 87.9 76.4 98.2 119.7 141.0 156.2 149.6 58.5 67.3 79.0 99.0 109.6 110.5 137.9 159.2 184.4 197.1 27.2 29.9 33.8 40.2 42.2 41.5 18.5 18.5 20.1 21.1 21.7 24.8 28.0 31.5 36.4 38.1 12.8 18.9 25.2 37.8 45.7 44.2 59 9 67!l 69.6 31.4 37.4 45.3 58.8 67.4 69.0 84.9 99.3 117.3 127.5 1980 1981 1982 1983... . 1984 1985 1986 1987 1988 1989 1,581.0 1,797.9 1,859.7 1,984.2 2,229.3 2,364.9 2,449.5 2,632.3 2,853.5 3,002.5 170.1 196.8 217.7 226.0 238.2 254.9 271.4 284.8 303.1 323.8 1,410.9 1,601.1 1,642.0 1,758.2 1,991.1 2,110.0 2,178.1 2,347.5 2,550.4 2,678.7 163.8 1,247.1 195.9 1,405.3 198.0 1,444.0 216.2 1,542.0 240.0 1,751.1 254.6 1,855.4 266.2 1,911.9 278.8 2,068.6 295.3 2,255.1 317.1 2,361.6 1,056.9 1,169.9 1,216.1 1,279.9 1,421.4 1,522.3 1,603.8 1,716.3 1,844.1 1,946.6 132.0 163.5 145.4 185.5 242.0 242.7 209.7 247.2 287.5 263.2 183.6 184.2 136.9 160.7 195.3 172.3 147.9 209.5 257.3 235.6 67.0 63.9 46.3 59.4 73.7 69.9 75.6 93.5 101.9 98.9 116.6 120.3 90.7 101.3 121.6 102.3 72.3 116.0 155.5 136.7 45.3 53.3 53.3 64.2 67.8 72.3 73.9 75.9 79.8 104.2 71.3 67.0 37.4 37.1 53.8 30.1 -1.6 40.1 75.7 32.6 -42.1 -24.6 -7.5 -7.4 -4.0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999* 3,140.9 3,196.5 3,336.4 3,508.8 3,791.7 4,004.0 4,221.5 4,529.8 4,834.6 339.3 355.7 370.5 387.0 415.0 437.7 462.7 491.3 522.2 559.5 2,801.6 2,840.8 2,966.0 3,121.8 3,376.7 3,566.3 3,758.9 4,038.5 4,312.4 335.2 359.0 380.4 400.5 436.6 455.5 473.9 496.1 523.5 556.8 2,466.4 2,481.8 2,585.6 2,721.3 2,940.1 3,110.8 3,285.0 3,542.5 3,788.9 2,052.7 2,086.9 2,194.2 2,290.7 2,430.2 2,552.7 2,667.1 2,860.1 3,090.4 3,299.0 257.7 252.0 278.0 324.7 402.0 442.3 509.1 562.8 575.0 237.2 221.6 258.0 305.8 381.4 422.1 460.2 503.6 490.6 95.8 85.5 91.2 105.2 128.9 136.7 150.1 158.8 152.5 141.4 136.1 166.8 200.5 252.6 285.4 310.1 344.7 338.1 119.2 125.8 135.0 149.3 158.6 179.3 201.9 219.8 245.4 22.2 10.3 31.9 51.2 94.0 106.0 108.2 124.9 92.7 -12.9 1994-1 II ... Ill .. IV .. 3,686.9 3,754.7 3,818.2 3,907.2 426.7 3,260.2 405.0 3,349.8 411.2 3,406.9 417.1 3,490.0 425.3 433.3 440.6 447.1 2,834.9 2,916.4 2,966.3 3,042.9 2,376.6 2,413.7 2,442.7 2,487.6 356.3 398.2 413.7 440.0 352.3 370.8 389.3 413.3 119.7 125.1 131.1 139.6 232.5 245.7 258.2 273.7 148.4 158.5 158.1 169.3 84.2 87.3 100.1 104.4 1995:1 II ... Ill .. IV .. 3,932.7 3,969.2 4,038.2 4,076.2 425.6 3,507.1 434.2 3,535.0 440.9 3,597.2 450.2 3,626.0 451.6 455.0 454.3 461.1 3,055.4 3,080.1 3,142.9 3,164.8 2,517.8 2,538.5 2,566.7 2,587.9 420.6 424.4 460.4 463.6 414.1 414.5 431.3 428.7 134.4 134.1 139.5 139.0 279.6 280.4 291.8 289.7 172.7 173.5 183.2 188.0 107.0 106.9 108.5 101.7 1996:1 II ... Ill .. IV .. 4,117.2 4,192.7 4,249.8 4,326.5 452.6 3,664.6 458.5 3,734.2 465.9 3,783.9 473.6 3,852.9 466.1 3,198.4 2,600.0 472.6 3,261.6 2,649.2 474.2 3,309.6 2,689.1 482.7 3,370.2 2,730.1 491.6 504.4 511.4 529.1 445.9 460.2 460.1 474.7 144.9 150.0 150.0 155.5 300.9 310.2 310.1 319.2 198.9 195.0 203.8 210.1 102.0 115.2 106.3 109.1 1997:1 II ... Ill .. IV .. 4,408.6 4,483.2 4,578.9 4,648.6 480.3 487.3 495.1 502.5 3,928.3 3,995.9 4,083.8 4,146.0 486.2 493.9 501.0 503.2 2,783.2 2,828.8 2,878.7 2,949.9 543.0 553.7 583.2 571.2 484.8 491.6 525.8 512.1 152.7 154.8 166.4 161.5 332.1 336.7 359.4 350.7 211.6 216.0 221.6 230.1 120.4 120.8 137.9 120.6 1998:1 II ... Ill .. IV .. 4,723.0 4,784.7 4,882.4 4,948.4 508.4 516.5 526.7 537.2 4,214.6 4,268.2 4,355.7 4,411.1 510.0 3,704.6 3,008.7 516.4 3,751.8 3,059.9 523.0 3,832.6 3,118.6 544.5 3,866.7 3,174.6 575.0 568.6 588.5 568.0 486.2 492.4 503.9 479.8 150.9 153.1 157.1 148.8 335.3 339.3 346.9 331.0 236.2 245.5 242.9 256.9 1999:1 II ... Ill .. 5,028.6 5,094.9 5,176.6 543.8 4,484.8 552.3 4,542.7 568.5 4,608.1 573.6 542.4 3,942.4 3,223.8 549.8 3.992.9 3,270.0 558.5 4,049.5 3,326.3 576.6 3,375.9 592.5 594.7 589.2 508.6 534.2 541.8 157.9 166.9 169.3 350.6 367.3 372.5 241.5 267.9 264.6 3,442.1 3,502.1 3,582.8 3,642.8 IV, Indirect business tax and nontax liability plus business transfer payments less subsidies. Source: Department of Commerce, Bureau of Economic Analysts. 1 322 ffi 80.9 89.4 -1.2 -2.1 -1.6 -3.7 -5.9 -6.6 -4.6 -6.6 -19.6 -38.2 -10.5 -14.1 -15.7 -23.7 -40.1 .0 7.1 -16.2 -22.2 -16.3 ment 0.4 1.0 1.7 4.6 5.6 6.2 7.1 7.4 7.6 7.7 8.0 7.1 6.8 8.4 8.5 5.0 -1.7 -4.1 -2.5 -4.5 -7.3 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 30.7 36.3 45.0 -9.5 58.1 3.9 71.8 15.9 82.5 32.2 76.6 50.7 87.7 70.4 90.4 54.8 98.4 53.9 105.1 52.3 123.6 43.9 151.8 33.4 25.5 22.8 23.0 33.1 38.4 45.8 51.8 63.5 73.8 156.0 143.0 113.3 105.9 107.9 115.8 108.7 119.6 123.5 -8.3 -10.2 -15.7 -15.6 12.3 37.6 40.1 42.3 102.1 104.5 109.9 115.3 -32.5 -28.2 -9.8 -2.6 39.1 38.1 39.0 37.5 117.0 117.2 115.8 113.3 2.1 43.6 45.8 46.6 47.3 106.9 108.0 109.1 111.0 4.9 4.0 49.0 50.9 52.5 55.1 116.0 119.6 120.S 121.8 99.1 93.7 104.0 74.0 29.5 13.6 19.8 20.8 59.4 62.6 64.8 67.4 120.9 123.3 125.5 124.1 109.1 99.4 108.0 13.3 -13.6 -26.7 4.9 -2.8 -4.0 -12.4 -18.3 3.1 7.4 20.9 -1.7 4.7 7.1 9.3 11.2 70.6 126.1 74.1 128.1 74.1 134.0 76.2 TABLE B-13-—Output, price, costs, and profits of nonfinancial corporate business, 1959—99 [Quarterly data at seasonally adjusted annual rates] Year or quarter Gross product of nonfinancial corporate business (billions of dollars) Current Chained (1996) dollars dollars 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 1990 1991 1992 1993 1994 1995 1996 1997 1998 1994:1 ... IV 1995:1 ... II.. Ill. IV. 1996:1 II Ill IV 1997.1 . II Ill IV 1998:1 . Ill IV 1999:1 275.5 286.6 294.5 321.1 341.5 368.4 404.1 442.2 465.4 512.6 556.1 575.3 621.1 689.1 771.1 833.0 900.7 1,015.2 1,147.2 1,305.7 1,453.4 1,581.0 1,797.9 1,859.7 1,984.2 2,229.3 2,364.9 2,449.5 2,632.3 2,853.5 3,002.5 3,140.9 m 3,508.8 3,791.7 4,004.0 4,221.5 4,529.8 4,834.6 3,686.9 3,754.7 3,818.2 3,907.2 3,932.7 3,969.2 4,038.2 4,076.2 4,117.2 4,192.7 4,249.8 4,326.5 4,408.6 4,483.2 4,578.9 4,648.6 4,723.0 4,784.7 4,882.4 4,948.4 5,028.6 5,094.9 5,176.6 940.2 971.4 993.8 1,075.2 1,137.1 1,216.2 1,314.6 1,404.6 1,441.0 1,529.3 1,589.2 1,575.2 1,637.8 1,765.2 1,865.3 1,832.1 2,082.5 2,218.3 2,270.9 2,283.1 2,390.6 2,367.0 2,476.5 2,731.3 2,850.3 2,936.0 3,097.2 3,275.0 3,341.0 3,390.4 3,368.0 3,492.2 3,624.8 3,869.1 4,040.8 4,221.5 4,501.0 4,803.4 3,777.3 3,841.7 3,888.7 3:968.8 3,979.3 4,010.1 4,070.7 4,103.2 4,128.3 4,193.9 4,244.7 4,319.2 4,383.8 4,452.3 4,548.2 4,619.7 4,699.1 4,758.4 4,844.8 4,911.2 4,981.7 5,035.0 5,116.7 Price, costs, and profit per unit of real output (dollars) Price per unit of real gross product of nonfinancial corporate business1 Compensation of employees (unit labor cost) 0.293 .295 .296 .299 .300 .303 .307 0.182 8 .335 .350 8 .390 .413 .455 8 .551 .692 .752 .786 .801 .816 .830 .834 .850 .871 .899 .926 .949 .955 .968 .980 .991 1.000 1.006 1.007 .976 .977 .982 .984 .988 .990 .992 .993 .997 1.000 1.001 1.002 1.006 1.007 1.007 1.006 1.005 1.006 1.008 1.008 1.009 1.012 1.012 .186 .186 .186 .185 .186 .187 .195 .203 .211 .226 Comsumption of fixed capital Indirect business 2 taxes 0.064 .067 .068 .067 .065 .065 .066 0.025 .025 .025 .024 .023 .023 .023 0.036 .073 .078 .026 .028 Total .240 .245 .253 .270 .303 .321 .337 .355 .384 .425 .110 .125 .124 .128 .134 .149 .463 .489 .514 .517 .520 .534 .546 .554 .563 .583 .172 .194 .211 .209 .207 .210 .217 .216 .221 .237 .605 .620 .628 .632 .628 .632 632 .635 .643 .629 .628 .245 .255 .247 .246 .248 .250 .248 .246 .244 8 .62; .631 .631 i34 .632 .635 .635 ill .640 .643 .644 .646 .647 .253 .245 .247 .247 .249 .250 .248 .250 .249 .248 .248 .248 .247 .247 .246 .244 .243 .244 .243 .245 .243 .244 .246 8 .041 8 .053 8 .075 .082 .092 .091 .087 .089 .092 .092 .100 .106 .106 .107 .107 .108 .110 .109 .109 .113 .105 .106 .105 .107 .108 .108 .110 .110 .109 .110 .110 .110 .109 1 .109 .109 .109 .109 .110 .111 8 tThe implicit price deflator for gross product of nonfinancial corporate business divided by 100. 2 3 Indirect business tax and nontax liability plus business transfer payments less subsidies. Unit profits from current production. 4 With inventory valuation and capital consumption adjustments. Source-. Department of Commerce, Bureau of Economic Analysis. 323 Corporate profits with inventory valuation and capital consumption adjustments3 Unit nonlabor cost Net interest Total 0.003 .004 .004 .004 .004 .004 0.046 .042 .042 .046 .049 .051 .006 .051 .051 .046 .038 .042 .046 .047 .042 .054 .062 .068 .070 .066 .011 .011 .011 .012 .015 .016 .014 .015 .016 .020 J35 .031 .034 .034 .038 .045 .046 .042 .032 .029 .028 .029 .026 .027 .026 .027 .027 .028 .029 .029 .029 .028 .028 .026 .026 .026 .026 .026 .027 .027 .026 .026 .025 .025 .025 .026 Profits tax liability Profits after4 tax 0.022 0.024 .020 .020 .019 .020 .020 .021 .021 .019 .022 .021 .023 .023 .027 .029 .031 .034 .034 .032 .029 .025 .017 .018 .019 .022 .023 .023 .027 .029 .030 .031 .020 .024 .027 .026 .058 .068 .061 .075 .089 .085 .071 .029 .027 .020 .024 .027 .025 .026 .030 .031 .076 .075 .080 .090 .104 .109 .121 .125 .120 .028 .025 .026 .029 .094 .104 8 .113 .113 .119 .120 .120 .122 .124 .124 .128 .124 .122 .119 .121 .116 .119 .118 .115 8 8 .032 .032 .033 .034 .033 .034 .034 .035 .036 .035 .036 .035 .035 8 .032 .032 .032 .030 8 .033 8 .034 .039 .040 .035 .028 .042 .042 .051 .062 .061 .046 .050 .057 .049 .048 .049 .053 .061 .071 .076 !090 .088 .063 .071 .073 .076 .072 .072 .079 .079 .084 Q85 .089 .090 .092 .089 .090 .087 .089 .085 .087 .085 .082 T A B L E B-14.—Personal consumption expenditures, 1959-99 [Billions of dollars,- quarterly data at seasonally adjusted annual rates] Durable goods Year or quarter 1959 1960 1961 1962 1963 1964 1965 "II 1966 1967 1968 1969 1970 1971 1972 1973 . . 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999/> ........ 1994:1 II Ill IV 1995:1 II Ill IV 1996:1 II Ill IV 1997:1 II Ill IV 1998:1 II Ill IV 1999:1 II Ill NP ... FurniPersonal conMotor ture sumption vehiand expendi- Total1 cles household tures and parts equipment 318.1 332.3 342.7 363.8 383.1 4117 444.3 481.8 508.7 558.7 605.5 648.9 702 4 770.7 852 5 932.4 1,030.3 1,149.8 1,278.4 1,430.4 1,596.3 1,762.9 1,944.2 2,079.3 2,286.4 2,498.4 2,712.6 2,895.2 3,105.3 3,356.6 3,596.7 3,831.5 3,971.2 4,209.7 4,454.7 4,716.4 4,969.0 5,237.5 5,524.4 5,848.6 6,254.9 4,613.8 4,677.5 4,753.0 4,821.3 4,868.6 4,943.7 5,005.2 5,058.4 5,130.5 5,218.0 5,263.7 5,337.9 5,430.8 5,466.3 5,569.1 5,631.3 5,714.7 5,816.2 5,889.6 5,973.7 6,090.8 6,200.8 6,303.7 6,424.6 42.7 43.3 41.8 46.9 51.6 56 7 63.3 68.3 70.4 80.8 85.9 85.0 96 9 110.4 123 5 122.3 133.5 158.9 181.2 201.7 214.4 214.2' 231.3 240.2 281.2 326.9 363.3 401.3 419.7 450.2 467.8 467.6 443.0 470.8 513.4 560.8 589.7 616.5 642.9 698.2 758.1 546.2 553.6 563.2 580.0 578.2 584.4 596.2 600.0 606.4 621.3 616.7 621.5 636.1 627.8 651.9 655.8 679.2 693.9 696.9 722.8 739.0 751.6 761.8 780.1 18.9 19.7 17.8 21.5 24.4 260 29.9 30.3 30.0 36.1 38.4 35.5 44 5 5L1 561 49.5 54.8 71.3 83.5 93.1 93.5 87.0 95.8 102.9 126.9 152.5 175.7 192.4 193.1 206.1 211.4 206.4 182.8 200.2 222.1 242.3 249.3 256.3 263.1 289.2 315.9 241.4 239.0 240.2 248.8 245.0 248.2 252.3 251.7 256.3 259.2 255.4 254.2 262.6 253.0 269.1 267.8 278.6 288.2 285.6 304.4 306.8 313.8 318.1 324.7 18.1 18.0 18.3 19.3 20.7 232 25.1 28.2 30.0 32.9 34.7 35.7 378 A2A 47.9 51.5 54.5 60.2 67.2 74.3 82.7 86.7 92.1 93.4 106.6 119.0 128.5 143.0 153.4 163.6 171.4 171.4 171.5 178.7 192.4 211.2 225.0 236.9 249.5 268.7 290.2 202.1 208.6 214.3 219.9 220.4 221.9 227.0 231.0 230.4 238.2 237.7 241.2 244.3 247.0 251.4 255.1 263.1 265.8 270.6 275.3 283.8 287.3 292.0 297.9 Nondurable goods Total1 148.5 152.9 156.6 162.8 168.2 178 7 191.6 208.8 217.1 235.7 253.2 272.0 285 5 308.0 343.1 384.5 420.7 458.3 497.2 550.2 624.4 696.1 758.9 787.6 831.2 884.7 928.8 958.5 1,015.3 1,082.9 1,165.4 1,246.1 1,278.8 1,322.9 1,375.2 1,438.0 1,497.3 1,574.1 1,641.7 1,708.9 1,841.1 1,409.7 1,425.1 1,449.9 1,467.2 1,475.8 1,492.2 1,502.6 1,518.5 1,539.6 1,569.4 1,578.8 1,608.4 1,630.5 1,627.1 1,652.3 1,657.1 1,674.6 1,701.2 1,716.6 1,742.9 1,787.8 1,824.8 1,853.9 1,897.7 Food 80.7 82.3 84.0 86.1 88.3 93 6 100.7 109.3 112.5 122.2 131.5 143.8 149 7 161.4 179.6 201.8 223.2 242.5 262.7 289.6 324.7 356.0 383.5 403.4 423.8 447.4 467.6 492.0 515.3 553.5 591.9 636.9 657.6 669.3 697.9 728.2 755.8 786.0 817.0 853.4 903.0 714.6 725.4 733.1 739.6 745.5 753.6 758.8 765.3 773.9 781.8 788.8 799.3 812.0 811.9 821.9 822.2 832.9 847.6 857.6 875.6 885.4 893.4 903.9 929.4 Cloth- Gasoing line and and shoes oil Fuel oil and coal Total1 26.4 27.0 27.6 29.0 29.8 324 34.1 37.4 39.2 43.2 46.5 47.8 517 56.4 62.5 66.0 70.8 76.6 84.1 94.3 101.2 107.3 117.2 120.5 130.9 142.5 152.1 163.1 174.4 185.5 198.9 204.1 208.7 221.9 231.1 240.7 247.8 258.6 271.2 286.3 306.2 237.2 237.9 241.5 246.3 244.5 246.0 249.3 251.2 253.0 259.0 259.3 263.0 267.3 267.3 274.5 275.7 282.5 287.1 286.6 289.2 301.8 306.7 308.1 308.4 4.0 3.8 3.8 3.8 4.0 41 4.4 4.7 4.8 4.7 4.6 4.4 46 5.1 6.3 7.8 8.4 10.1 11.1 11.5 14.4 15.4 15.8 14.5 13.6 13.9 13.6 11.3 11.2 11.7 11.9 12.9 12.4 12.2 12.9 13.5 14.1 15.6 15.2 13.2 14.8 14.5 12.9 13.8 13.0 13.2 14.4 14.2 14.6 16.1 15.1 15.0 16.0 15.5 15.5 15.2 14.7 13.5 13.6 13.4 12.6 13.7 14.6 15.4 15.4 127.0 136.1 144.3 154.1 163.4 1764 189.5 204.7 221.2 242.3 266.4 292.0 3200 352.3 385.9 425.5 476.1 532.6 600.0 678.4 757.4 852.7 954.0 1,051.5 1,174.0 1,286.9 1,420.6 1,535.4 1,670.3 1,823.5 1,963.5 2,117.8 2,249.4 2,415.9 2,566.1 2,717.6 2,882.0 3,047.0 3,239.8 3,441.5 3,655.7 2,657.9 2,698.8 2,739.8 2,774.0 2,814.7 2,867.1 2,906.3 2,939.9 2,984.4 3,027.4 3,068.2 3,107.9 3,164.2 3,211.4 3,265.0 3,318.5 3,360.9 3,421.1 3,476.1 3,508.0 3,564.0 3,624.3 3,688.0 3,746.7 1 Includes other items not shown separately. Includes imputed rental value of owner-occupied housing. Source: Department of Commerce, Bureau of Economic Analysis. 2 Services Household operation 324 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 50.1 66.2 86.7 97.9 94.1 93.1 94.6 97.2 80.1 85.4 87.7 97.0 107.3 102.5 104.9 106.6 109.0 113.3 124.2 126.2 112.9 123.3 105.7 104.8 111.5 113.8 113.9 114.3 112.7 112.2 117.7 127.0 123.3 128.6 130.4 123.5 125.2 125.6 117.5 114.1 111.8 108.3 106.5 121.7 129.3 135.7 Housing2 45.0 48.2 51.2 54.7 58.0 R14 65.4 69.5 74.1 79.7 86.8 94.0 102 7 112.1 122.7 134.1 147.0 161.5 179.5 201.7 226.5 255.1 287.7 313.0 338.7 370.3 406.8 442.0 476.4 511.9 546.4 585.6 616.0 641.3 666.5 704.7 740.8 772.5 809.8 855.9 902.8 690.7 700.1 709.6 718.6 727.7 736.9 744.9 753.7 760.4 768.1 776.6 785.1 794.5 804.5 814.7 825.4 837.5 850.0 861.8 874.3 885.6 897.3 907.6 920.6 Total 1 18.7 20.3 21.2 22.4 23.6 25 0 2^5 28.2 30.2 32.4 35.2 37.9 413 45.7 502 56.0 64.3 73.1 82.7 92.1 101.0 114.2 127.3 143.0 157.6 169.8 182.2 188.9 196.9 208.4 221.3 227.6 238.6 248.3 268.9 284.0 298.1 317.3 332.7 346.9 362.6 275.3 287.5 286.7 286.4 287.8 295.7 304.6 304.2 314.6 318.3 313.4 322.7 324.7 328.4 333.7 344.0 336.1 348.0 356.0 347.3 356.2 360.3 366.8 367.0 Trans- MediElec- porta- cal tricity tion care and gas 7.6 8.3 8.8 9.4 9.9 104 10.9 11.5 12.2 13.0 14.1 15.3 169 18.8 204 24.0 29.2 33.2 38.5 43.0 47.8 57.5 64.8 74.2 82.4 86.5 90.8 89.2 90.9 96.3 101.0 101.0 107.4 108.9 118.6 119.8 122.5 128.7 130.4 128.1 130.4 121.3 123.3 118.7 115.9 116.2 121.8 127.3 124.7 131.3 130.0 124.6 129.1 128.8 128.5 128.9 135.2 123.6 131.4 134.6 122.9 128.3 129.4 133.8 130.2 10.5 11.2 11.7 12.2 12.7 134 R5 15.9 17.3 18.9 20.9 23.7 271 29.8 312 33.3 35.7 41.3 49.2 53.5 59.1 64.7 68.7 70.9 79.4 90.0 100.0 107.3 118.2 129.9 136.6 141.8 142.8 155.0 166.2 180.9 197.7 214.2 234.4 245.2 254.9 174.3 179.1 183.1 186.9 190.4 195.5 200.8 204.2 206.5 211.7 215.9 222.6 228.5 232.7 236.5 239.7 242.1 244.9 246.2 247.7 250.3 254.0 256.5 258.9 16.4 17.6 18.7 20.8 22.6 258 2U 30.7 33.9 39.2 44.8 50.4 56 9 63.9 71 5 80.4 93.4 106.5 122.6 140.0 158.1 181.2 213.0 239.3 267.9 294.6 322.5 346.8 381.8 429.9 479.2 540.6 591.0 652.6 700.6 737.3 780.7 814.4 850.2 894.3 941.3 723.4 732.3 741.5 752.0 767.6 776.2 784.8 794.3 798.2 810.7 817.9 831.0 837.7 845.9 854.9 862.4 877.7 890.1 899.0 910.5 922.5 933.0 948.1 961.6 T A B L E B-15.—Real personal consumption expenditures, 1987-99 [Billions of chained (1996) dollars; quarterly data at seasonally adjusted annual rates] Durable goods Year or quarter 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 . .. .. .. .. .. .. .. .. .. 1999* 1994:1 II Ill .... IV .... 1995.1 II III .... IV .... 1996:1 II III .... IV .... 1997:1 II Ill .... IV .... 1998:1 II Ill .... IV .... 1999:1 II Ill .... Nondurable goods Personal FurniconMotor ture sumption vehiand expendi- Total1 cles house- Total1 tures and hold parts equipment 455.2 481.5 491.7 487.1 454.9 479.0 518.3 557.7 583.5 616.5 657.4 731.5 815.1 546.9 551.7 4,936.7 557.7 4,986.4 574.3 5,004.7 570.4 5,053.6 577.4 5,094.0 590.7 5,128.0 595.7 5,170.3 601.7 5,227.5 620.4 5,255.4 618.1 5,296.8 625.7 5,361.1 642.1 5,385.1 639.7 5,471.8 669.7 5,517.1 678.0 5,592.3 704.9 5,675.6 723.9 5,730.7 731.2 5,795.8 766.0 5,888.4 788.8 5,961.8 806.1 6,033.3 821.2 6,111.2 844.5 4,096.0 4,263.2 4,374.4 4,454.1 4,460.6 4,603.8 4,741.9 4,920.0 5,070.1 5,237.5 5,433.7 5,698.6 5,998.7 W 242.4 254.9 253.9 246.1 211.8 225.7 242.2 255.1 253.4 256.3 263.8 291.9 318.0 258.2 253.3 251.4 257.5 250.7 252.2 256.4 254.4 257.0 259.6 255.2 253.4 261.1 252.9 270.9 270.4 281.5 291.7 286.7 307.4 310.4 317.2 319.6 324.9 133.3 142.3 149.9 150.9 152.7 161.5 177.4 196.3 215.4 236.9 262.1 297.4 341.6 187.1 193.1 198.6 206.4 207.7 211.1 218.1 224.6 226.1 237.2 238.7 245.5 251.4 257.8 266.2 273.1 284.8 290.4 301.7 312.6 326.7 335.5 346.0 358.2 1,274.5 1,315.1 1,351.0 1,369.6 1364.0 1,389.7 1,430.3 1,485.1 1,529.0 1,574.1 1,619.9 1,685.3 1,774.6 1,465.3 1,477.6 1,490.9 1,506.5 1,514.3 1,525.3 1,531.7 1,544.6 1,553.9 1,569.9 1,578.6 1,593.9 1,609.0 1,608.2 1,630.7 1,631.8 1,654.9 1,681.9 1,692.0 1,712.6 1,749.5 1,763.7 1,779.3 1,805.9 Food Cloth- Gasoing line and and oil shoes Services Total1 14.2 14 7 14.4 13.1 12.9 13.2 14.0 15.0 15.7 15.6 15.1 14.5 15.9 15.9 14.3 15.2 14.5 14.8 16.1 15.7 16.3 16.6 15.3 15.5 14.9 14.3 15.3 15.6 15.1 14.2 14.7 14.7 14.2 15.8 16.4 16.3 15.1 2,361.5 2,460.6 2,526.1 2,595.1 2,645.5 2,739.4 2,795.4 2,878.0 2,957.8 3,047.0 3,156.7 3,284.5 3,416.8 2,846.4 2,870.9 2,888.9 2,905.7 2,920.4 2,951.3 2,971.8 2,987.8 3,014.8 3,037.2 3,058.8 3,077.2 3,110.1 3,137.0 3,172.0 3,207.8 3,234.2 3,272.2 3,309.6 3,322.0 3,356.5 3,399.2 3,440.6 3,470.6 Housing* Trans- Medi- 1 Total Elec- porta- cal tricity tion care and gas 664.6 690.7 703.5 722.4 721.4 725.6 745.1 764.9 777.0 786.0 799.1 820.6 850.8 756.0 764.7 767.2 771.6 773.4 776.0 778.0 780.6 784.5 785.5 785.3 788.5 798.7 796.7 802.2 798.9 805.7 818.2 823.0 835.4 839.5 844.6 850.0 869.2 182.4 187.8 198.6 197.2 197.8 208.8 218.5 231.6 244.3 258.6 271.1 292.2 317.8 227.6 227.3 232.2 239.2 240.1 242.4 246.3 248.4 250.7 257.8 261.6 264.3 267.8 264.7 274.7 277.1 287.8 293.1 292.2 295.6 314.7 316.8 321.6 317.9 1 112.8 114.9 116.4 113.1 109.4 112.5 115.4 117.4 120.2 124.2 126.2 127.7 128.1 116.6 117.3 117.6 118.3 119.5 120.0 120.0 121.5 121.9 124.4 124.5 125.9 125.1 126.7 126.6 126.4 126.6 127.9 128.5 127.7 127.1 127.5 128.2 129.5 Includes other items not shown separately. Includes imputed rental value of owner-occupied housing. Note.—See Table B-2 for data for total personal consumption expenditures for 1959-86. Source: Department of Commerce, Bureau of Economic Analysis. 2 Household operation Fuel oil and coal 325 644.8 663.4 679.9 696.2 709.8 719.3 728.1 749.1 763.7 772.6 786.5 805.6 826.1 741.9 746.1 752.1 756.5 759.8 762.6 764.9 767.6 768.7 770.8 773.6 777.0 781.2 784.2 788.1 792.6 798.4 804.1 808.0 812.0 818.4 823.1 828.5 834.5 238.0 248.2 257.2 259.8 262.9 267.6 282.3 293.0 304.0 317.3 327.1 344.3 359.9 284.9 296.8 295.3 294.9 293.9 302.2 310.5 309.3 317.6 319.1 312.3 320.1 318.5 323.4 328.5 337.9 333.5 344.7 353.7 345.4 354.0 358.8 364.4 362.6 106.9 1173 114.7 164.6 631.0 172.8 659.9 174.6 678.5 112.8 116.3 115.7 122.2 122.8 125.3 128.7 127.5 129.6 132.5 173.4 164.7 171.1 176.6 189.0 201.0 214.2 226.3 234.2 240.9 710.9 734.4 765.4 775.4 783.1 797.7 814.4 831.0 854.4 876.7 124.0 126.4 121.7 119.2 183.8 187.4 190.7 194.2 778.5 782.0 784.3 787.7 118.8 125.1 130.3 127.2 196.7 198.8 202.5 206.0 791.1 795.6 799.8 804.5 132.8 130.5 123.8 127.9 210.2 212.7 215.3 218.5 804.1 812.7 816.3 824.6 124.7 126.5 126.6 132.2 223.3 225.0 227.9 229.1 824.1 828.5 833.3 838.2 124.1 132.2 136.6 125.7 231.6 234.4 234.6 236.1 846.4 852.7 856.4 862.2 131.1 132.2 135.4 131.1 237.7 239.9 242.4 243.7 865.6 872.0 880.9 888.5 TABLE B-16.—Private gross fixed investment by type, 1959-99 [Billions of dollars; quarterly data at seasonally adjusted annual rates] Nonresidential Equipment and software Structures Year or quarter Private fixed investment Total nonresirinntial uennai Total1 Nonresidential buildings including farm Utilities Mining exploration, shafts, and wells Information processing equipment and software Other industrial equipment 4.0 4.9 5.2 5.7 65 7.3 8.5 10.6 11.2 11.9 14.6 16.7 17.3 19.3 23.0 26.8 28.2 32.4 38.6 48.3 58.6 69.6 82.4 88.9 100.8 121.7 130.8 137.6 141.9 155.9 173.0 176.1 181.4 197.5 215.0 233.7 262.0 287.3 315.4 356.9 407.2 227.3 231.0 234.5 241.8 250.5 261.1 263.1 273.2 280.0 283.4 290.9 294.8 303.1 309.9 322.7 325.9 343.4 353.3 361.0 369.7 382.3 401.7 416.8 428.2 0.0 .2 .3 .3 7 .9 1.2 17 1.9 1.9 2.4 2.7 2.8 3.5 3.5 3.9 3.6 4.4 5.7 7.6 10.2 12.5 17.1 18.9 23.9 31.6 33.7 33.4 35.8 38.0 43.1 38.6 37.7 43 6 47.2 513 64.6 70.9 76.7 88.5 98.3 48.7 50.3 51.3 54.8 57.7 64.3 65.6 70.7 70.5 , 69.6 71.6 71.7 73.8 75.7 79.0 78.4 85.9 88.6 89.1 90.5 92.3 96.4 100.8 103.7 4.0 4.5 4.8 5.1 53 5.8 6.6 7.9 8.1 8.6 10.4 11.6 12.1 13.1 16.3 19.0 19.9 22.8 27.5 34.2 39.8 46.4 52.3 54.6 58.9 68.0 71.5 76.4 74.8 81.2 85.5 87.3 87.1 93.1 98.4 106 9 113.8 121.3 132.1 144.9 165.6 104.6 105.7 107.4 110.0 114.0 115.0 112.5 113.9 117.8 119.8 123.2 124.2 127.1 129.2 135.7 136.2 141.8 144.1 145.8 148.0 154.5 164.6 170.2 173.1 8.4 9.3 8.7 9.2 10 0 11.4 13.6 16.1 16.8 17.2 18.9 20.2 19.4 21.3 25.9 30.5 31.1 33.9 39.2 47.4 55.9 60.4 65.2 62.3 58.4 67.6 71.9 74.8 76.1 83.5 92.7 91.5 88.7 92.4 101.8 113 3 128.7 136.4 142.3 150.2 151.4 109.4 110.5 114.5 119.0 124.7 128.9 130.8 130.4 135.0 137.7 135.9 137.2 136.4 141.9 144.3 146.6 148.6 149.7 150.9 151.4 147.9 149.3 153.0 155.5 Total 18.1 2.5 4.9 74.6 46.5 10.6 75.7 49.4 19.6 2.3 5.0 12.0 75.2 48.8 19.7 2.3 12.7 4.6 82.0 53.1 20.8 2.5 13.7 4.6 881 56 0 212 23 13 9 50 2.4 5.4 97.2 23.7 63.0 15.8 109.0 74.8 2.4 28.3 6.1 19.5 117 7 854 25 313 7.1 213 118.7 2.4 86.4 7.8 31.5 20.6 132.1 93.4 2.6 33.6 9.2 21.1 147.3 104.7 2.8 37.7 9.6 24.4 25.4 11.1 150.4 109.0 2.8 40.3 169.9 114.1 2.7 42.7 27.1 11.9 198.5 128.8 3.1 47.2 30.1 13.1 228.6 153.3 3.5 55.0 35.5 15.0 235.4 169.5 5.2 61.2 38.3 16.5 236.5 173.7 7.4 61.4 35.6 17.1 274.8 192.4 8.6 65.9 35.9 20.0 339.0 228.7 11.5 74.6 39.9 21.5 410.2 15.4 91.4 49.7 24.1 278.6 472.7 331.6 114.9 19.0 65.7 27.5 484.2 27.4 73.7 30.2 360.9 133.9 541.0 418.4 164.6 42.5 86.3 33.0 531.0 425.3 175.0 44.8 94.5 32.5 570.0 417.4 152.7 30.0 90.5 28.7 670.1 490.3 176.0 31.3 110.0 30.0 714.5 527.6 193.3 27.9 128.0 30.6 740.7 522.5 175.8 15.7 123.3 31.2 754.3 526.7 172.1 13.1 126.0 26.5 802.7 568.4 181.6 15.7 133.8 26.6 845.2 613.4 193.4 14.9 142.7 29.5 847.2 630.3 202.5 149.1 28.4 17.9 800.4 608.9 183.4 18.5 124.2 33.7 851.6 626.1 172.2 14 2 113.2 36 7 682.2 179.4 934.0 17.7 119.3 34.8 1,034.6 748.6 187.5 17 4 129.0 34 0 1,110.7 825.1 204.6 17.2 144.3 35.8 1,212.7 899.4 225.0 21.1 161.7 36.0 1,315.4 986.1 254.1 30.0 180.9 36.5 1,460.0 1,091.3 272.8 30.0 197.0 39.2 1,577.4 1,166.5 272.6 26.9 199.8 39.2 721.7 178.0 120.5 34.0 998.1 16.8 1,026.6 738.2 188.2 16.8 131.1 33.5 1,042.0 752.7 189.9 17.5 130.8 34.0 1,071.6 781.8 193.9 18.7 133.7 34.5 812.5 200.5 140.2 35.4 1,100.1 17.6 1,097.2 820.3 204.8 16.5 144.7 36.1 1,110.1 825.2 206.2 17.0 145.2 36.2 1,135.4 842.3 207.0 17.8 147.2 35.5 1,165.6 865.1 213.4 151.8 35.8 19.0 1,201.7 885.4 220.0 20.7 157.4 35.5 1,232.6 913.6 226.3 21.6 163.2 35.5 1,250.9 933.7 240.3 23.0 174.2 37.3 1,274.1 952.7 247.6 178.2 35.5 28.2 1,299.6 30.2 972.7 247.8 175.8 36.2 1,338.3 1,007.7 257.8 29.5 185.2 37.0 1,349.4 1,011.4 263.1 32.2 184.4 37.2 1,415.4 1,065.9 267.4 31.3 191.0 38.7 1,454.2 1,090.8 274.0 32.1 196.1 38.9 1,461.7 1,087.2 271.7 28.8 197.5 39.2 1,508.9 1,121.4 278.0 28.0 203.3 40.1 1,543.3 1,139.9 274.7 25.2 204.0 39.2 1,567.8 1,155.4 272.5 26.0 199.8 39.1 1,594.2 1,181.6 272.1 28.0 197.5 39.9 \\IP 1,604.1 1,189.1 271.1 28.5 198.0 38.8 1 Includes other items, not shown separately. 2 Includes new computers and peripheral equipment only. 3 Excludes software "embedded," or bundled, in computers and other Source: Department of Commerce, Bureau of Economic Analysis. 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 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999" 1994:1 .... II ... Ill .. IV .. 1995:1 .... II ... Ill .. IV .. 1996:1 .... II ... Ill .. IV .. 1997:1 .... II ... Ill .. IV .. 1998:1 .... II ... Ill .. IV .. 1999:1 .... II ... Ill .. Total Computers and pe- Soft-3 ripheral ware equip-2 ment 1 28.4 29.8 29.1 32.3 348 39.2 46.5 54 0 54.9 59.9 67.0 68.7 71.5 81.7 98.3 108.2 112.4 126.4 154.1 187.2 216.7 227.0 253.8 250.3 264.7 314.3 334.3 346.8 354.7 386.8 420.0 427.8 425.4 453 9 502.8 5611 620.5 674.4 732.1 818.5 893.9 543.7 550.0 562.8 587.9 612.0 615.5 619.0 635.3 651.7 665.4 687.3 693.4 705.2 724.9 749.9 748.3 798.4 816.8 815.4 843.4 865.2 882.9 909.5 918.1 equipment. 326 0.0 .1 .2 .2 4 .5 .7 10 1.2 1.3 1.8 2.3 2.4 2.8 3.2 3.9 4.8 5.2 5.5 6.6 8.7 10.7 12.9 15.4 18.0 22.1 25.6 27.8 31.4 36.7 44.4 50.2 56.6 608 69.4 75 5 83.5 95.1 106.6 123.4 143.3 73.9 75.0 75.9 77.1 78.8 81.8 85.0 88.6 91.7 94.0 96.1 98.9 102.2 105.0 108.C 111.2 115.8 120.7 126.2 131.2 135.5 140.7 145.8 151.4 Transportation equipment 8.3 8.5 8.0 9.8 94 10.6 13.2 14 5 14.3 17.6 18.9 16.2 18.4 21.8 26.6 26.3 25.2 30.0 39.3 47.3 53.6 48.4 50.6 46.8 53.7 64.8 69.7 71.8 70.4 76.1 71.4 75.7 79.5 861 98.1 117 8 126.1 138.9 150.9 176.0 198.2 114.0 112.8 116.4 127.8 134.0 122.4 121.8 126.4 129.1 134.6 146.5 145.5 146.0 150.2 156.9 150.3 174.7 177.2 164.9 187.0 193.1 193.6 204.9 201.3 Residential 28.1 26.3 26.4 29.0 321 34.3 34.2 32 3 32.4 38.7 42.6 41.4 55.8 69.7 75.3 66.0 62.7 82.5 110.3 131.6 141.0 123.2 122.6 105.7 152.5 179.8 186.9 218.1 227.6 234.2 231.8 216.8 191.5 225 5 251.8 286 0 285.6 313.3 329.2 368.7 410.9 276.4 288.4 289.3 289.8 287.6 276.S 284.9 293.1 300.5 316.3 319.0 317.2 321.4 326.8 330.7 338.0 349.5 363.4 374.5 387.5 403.4 412.4 412.7 415.0 T A B L E B-17.—Real private gross fixed investment by type, 1987-99 [Billions of chained (1996) dollars; quarterly data at seasonally adjusted annual rates] Nonresidential Structures Year or quarter 1987 1988 .. 1989 .. 1990 .. 1991 .. 1992 .. 1993 .. 1994 .. 1995 .. 1996 .. 1997 .. 1998 .. 1999* 1994:1 .... II ... Ill .. IV .. 1995.1 .... II ... Ill .. IV .. 1996:1 .... II ... Ill .. IV .. 1997:1 .... II ... Ill .. IV .. 1998:1 .... II ... Ill .. IV .. 1999:1 .... II ... Ill .. IVP Private fixed investment 856.0 887.1 911.2 894.6 832.5 886.5 958.4 1,045.9 1,109.2 1,212.7 1,316.0 1,471.8 1,589.4 1,014.9 1,039.9 1,050.9 1,078.0 1,101.9 1,095.0 1,107.1 1,132.7 1,165.2 1,203.7 1,231.6 1,250.2 1,274.1 1,300.6 1,337.9 1,351.3 1,424.2 1,466.7 1,474.0 1,522.5 1,555.9 1,581.0 1,607.3 1,613.5 Total nonresidential Total1 572.5 603.6 637.0 641.7 6101 630.6 683.6 744.6 817.5 899.4 995.7 1,122.5 1,215.4 720.0 734.1 747.2 777.1 806.4 811.4 816.7 835.5 861.6 885.6 914.3 936.2 957.9 980.8 1,018.0 1,026.1 1,088.6 1,120.2 1,120.3 1,160.8 1,182.7 1,202.9 1,234.3 1,241.9 224.3 227.1 232.7 236.1 2101 197.3 198.9 200.5 210.1 225.0 244.0 254.1 247.3 193.2 202.9 202.3 203.8 208.1 211.0 210.9 210.4 215.9 221.3 225.4 237.3 242.0 239.5 245.9 248.6 252.1 256.4 252.1 255.7 251.9 248.5 246.1 242.8 Nonresidential buildings including farm 162.6 166.5 171.4 173.6 142 7 129.2 131.7 137.2 147.6 161.7 175.3 184.6 180.2 130.2 140.7 138.5 139.6 144.5 148.3 148.1 149.4 153.4 158.3 162.4 172.4 175.1 171.4 178.5 176.1 181.7 184.9 184.2 187.4 186.6 181.2 177.2 175.9 Equipment and software Mining exploUtili- ration, ties shafts, and wells 34.9 33.6 35.4 33.0 38 9 41.8 81 36.8 36.0 35.7 38.0 38.0 36.5 35.7 36.0 36.1 36.9 37.3 37.0 36.0 36.1 35.7 35.5 36.8 35.1 S* 36.2 37.6 37.7 37.9 38.7 38.1 38.0 38.5 37.2 Information processing equipment and software 1 Total Total 18.6 360.0 20.4 386.9 18.4 414.0 21.3 415.7 208 407 2 17.2 437.5 20.5 487.1 19.8 544.9 18.2 607.6 21.1 674.4 26.4 751.9 25.4 870.6 23.2 975.5 527.4 19.3 19.2 532.6 19.7 545.7 20.8 573.7 598.5 19.1 17.6 600.7 17.9 606.0 18.4 625.0 19.6 645.8 21.0 664.3 21.5 22.3 26.2 715.8 26.9 741.5 25.4 772.3 27.1 777.8 26.5 837.9 27.1 865.5 24.2 870.6 23.6 908.5 935.7 21.6 22.6 960.9 24.3 996.6 24.5 1,008.7 8H 1 105.1 116.4 131.3 136.4 142 7 163.0 183.4 206.6 242.8 287.3 339.4 418.5 510.3 198.2 202.8 208.0 217.5 227.5 239.2 245.0 259.4 271.7 281.4 293.6 302.4 316.9 330.0 350.2 360.4 388.8 409.4 427.4 448.5 470.4 501.0 526.0 543.6 Includes other items, not shown separately. includes new computers and peripheral equipment only. 3 Excludes software "embedded," or bundled, in computers and other equipment. Source: Department of Commerce, Bureau of Economic Analysis. 327 Computers Softand pe- ware 3 ripheral 10.3 11.8 14.4 14.2 154 20.8 26.4 32.6 49.2 70.9 99.0 154.2 222.0 29.7 31.2 32.8 36.7 40.5 47.0 50.8 58.4 63.1 67.9 73.9 78.5 85.8 94.2 105.1 110.9 131.3 146.9 160.4 178.3 193.4 212.9 233.5 248.1 27.9 32.4 40.1 45.9 514 58.7 66.8 74.3 82.0 95.1 109.4 129.2 149.2 72.2 73.7 74.9 76.3 77.5 80.1 83.3 87.2 90.7 93.6 lit 104.0 107.1 111.1 115.3 120.9 126.2 131.9 137.8 141.6 147.0 152.0 156.1 Indus- Transportatrial tion equip- equipOther ment ment 78.0 83.5 86.8 87.6 864 91.5 96.4 104.9 113.1 121.3 132.7 147.1 169.8 102.3 103.4 105.4 108.6 112.8 113.9 111.9 113.8 117.8 119.7 123.3 124.3 127.6 129.9 136.2 137.1 143.1 146.3 148.3 150.9 157.8 168.4 174.7 178.5 99.9 104.9 112.4 105.8 990 100.8 109.6 119.6 131.3 136.4 141.3 148.1 148.4 116.7 117.1 120.5 124.3 129.3 131.8 132.7 131.6 135.6 138.0 135.7 136.5 135.6 141.1 143.2 145.1 147.0 147.9 148.7 148.9 145.0 146.6 150.0 151.9 88.0 93.6 84.9 87.4 87 7 92.3 103.4 120.4 128.2 138.9 149.6 175.3 196.7 117.4 115.0 118.2 131.1 137.3 124.7 123.3 127.5 130.2 134.7 145.8 144.9 144.9 149.1 155.0 149.6 174.2 177.0 164.2 185.8 190.8 191.6 204.0 200.6 Residential 290.7 289.2 277.3 253.5 ??) 1 257.2 276.0 302.7 291.7 313.3 320.6 350.2 375.4 296.5 307.5 305.2 301.8 295.8 283.5 290.4 297.3 303.6 318.1 317.3 314.0 316.3 320.0 320.5 325.7 336.5 347.4 354.2 362.6 373.7 378.8 375.1 374.0 TABLE B-18.—Government consumption expenditures and gross investment by type, 1959-99 [Billions of dollars; quarterly data at seasonally adjusted annual rates] Government consumption expenditures and gross investment Federal State and lnro1 Nondefense National defense Year or quarter Total Total 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 1990 1991 1992 1993 1994 1995 1996 1997 1998 imp... 1994:1 .... II ... Ill .. IV .. 1995:1 .... II ... Ill .. IV .. 1996:1 .... II ... Ill .. IV .. 1997:1 .... II ... Ill .. IV .. 1998:1 .... II ... Ill .. IV .. 1999:1 .... II ... Ill .. IV* 112.5 113.8 121.5 132.2 138.5 145.1 153.7 174.3 195.3 212.8 224.6 237.1 251.0 270.1 287.9 322.4 361.1 384.5 415.3 455.6 503.5 569.7 631.4 684.4 735.9 800.8 878.3 942.3 997.9 1,036.9 1,100.2 1,181.4 1,235.5 1,270.5 1,293.0 1,327.9 1,372.0 1,421.9 1,481.0 1,529.7 1,628.7 1,303.3 1,316.1 1,348.1 1,344.0 1,360.6 1,374.9 1,378.3 1,374.5 1,402.6 1,423.0 1,423.4 1,438.9 1,455.8 1,478.6 1,490.1 1,499.5 1,499.0 1,526.5 1,538.7 1,554.8 1,589.1 1,605.9 1,637.2 1,682.6 67.4 65.9 69.5 76.9 78.5 79.8 82.1 94.4 106.8 114.0 116.1 116.4 117.6 125.6 127.8 138.2 152.1 160.6 176.0 191.9 211.6 245.3 281.8 312.8 344.4 376.4 413.4 438.7 460.4 462.6 482.6 508.4 527.4 534.5 527.3 521.1 521.5 531.6 537.8 538.7 570.8 515.8 515.9 532.5 520.0 523.4 525.5 525.0 512.3 530.6 537.2 529.1 529.4 530.2 543.0 540.9 537.1 526.1 542.2 539.7 546.7 557.4 561.6 569.8 594.6 Total 56.0 55.2 58.1 62.8 62.7 61.8 62.4 73.8 85.8 92.2 92.6 90.9 89.0 93.5 93.9 99.7 107.9 113.2 122.6 132.0 146.7 169.6 197.8 228.3 252.5 283.5 312.4 332.2 351.2 355.9 363.2 374.9 384.5 378.5 364.9 355.1 350.6 357.0 352.5 348.6 364.7 349.4 353.9 366.9 350.4 352.2 353.9 352.7 343.6 356.1 361.3 355.6 355.0 347.0 354.9 354.5 353.6 338.9 347.9 354.7 352.9 355.8 354.3 365.4 383.4 Consumption expenditures 42.2 42.8 44.3 48.3 50.1 50.3 52.4 61.4 71.5 79.0 80.1 78.7 79.3 82.3 82.6 87.5 93.4 97.9 105.8 114.2 125.3 145.3 168.9 193.6 210.6 234.9 254.9 269.3 284.8 294.6 300.5 308.9 321.1 316.9 309.2 301.1 297.5 302.4 304.5 299.9 310.9 298.1 299.7 308.7 297.8 298.2 299.3 301.2 291.2 298.4 304.1 301.4 305.6 301.7 308.2 305.0 303.0 292.4 301.2 302.5 303.4 304.6 300.8 312.1 326.1 Gross investment Structures 2.5 2.2 2.4 2.0 1.6 1.3 1.1 1.3 1.2 1.2 1.5 1.3 1.8 1.8 2.1 2.2 2.3 2.1 2.4 2.5 2.5 3.2 3.2 4.0 36.2 6.8 7.7 7.4 6.4 6.1 4.6 5.2 5.1 5.7 6.3 6.7 5.7 5.4 5.3 5.4 5.5 6.1 6.0 6.8 6.0 5.9 6.4 6.7 7.2 6.5 6.4 5.9 5.6 5.7 5.7 5.6 5.0 5.9 5.1 5.4 5.3 5.2 5.3 Equipment and software Total 11.2 10.1 11.5 12.5 11.0 10.2 8.9 11.1 13.1 11.9 11.0 10.9 7.9 9.4 9.2 10.1 12.1 13.2 14.4 15.3 18.9 21.1 25.7 30.8 37.1 43.8 51.3 56.1 58.8 53.9 56.3 59.8 58.8 56.3 50.7 48.3 46.9 47.9 42.3 43.3 48.6 45.9 48.7 52.1 46.5 47.2 48.6 45.6 46.0 51.0 50.0 47.7 43.0 39.4 41.2 43.8 44.9 40.9 41.7 46.3 44.4 45.8 48.2 48.2 52.0 11.4 10.7 11.3 14.1 15.8 18.0 19.7 20.7 21.0 21.8 23.5 25.5 28.6 32.2 33.9 38.5 44.2 47.4 53.5 59.8 65.0 75.6 84.0 84.5 92.0 92.8 101.0 106.5 109.3 106.8 119.3 133.6 142.9 156.0 162.4 165.9 170.9 174.6 185.3 190.1 206.1 166.3 162.0 165.6 169.7 171.2 171.6 172.3 168.7 174.5 175.9 173.5 174.5 183.2 188.1 186.4 183.5 187.2 194.3 185.0 193.8 201.6 207.3 204.4 211.2 Source: Department of Commerce, Bureau of Economic Analysis. 328 Consumption expenditures 9.8 8.7 8.9 11.2 12.3 13.9 15.0 15.8 16.9 18.0 19.9 21.7 24.4 27.6 29.0 32.9 37.7 40.1 45.5 50.1 54.7 63.6 71.0 71.7 77.4 77.1 84.1 89.0 89.9 88.2 99.1 111.0 118.1 128.8 133.4 138.6 141.8 142.9 152.5 153.6 164.1 139.5 135.6 138.5 140.9 141.0 142.0 143.3 140.6 143.4 142.9 141.5 143.8 151.0 153.4 153.1 152.6 152.6 156.3 149.0 156.5 162.4 164.4 162.9 166.7 Gross investment Structures 1.5 1.7 1.9 2.1 2.3 2.5 2.8 2.8 2.2 2.1 1.9 2.1 2.5 2.7 3.1 3.4 4.1 4.6 5.0 6.1 6.3 7.1 7.7 6.8 6.7 7.0 7.3 8.0 9.0 6.8 6.9 8.0 9.2 10.3 11.2 10.5 10.8 11.1 9.7 11.3 11.3 10.3 9.7 9.9 11.9 11.4 10.7 11.0 10.1 11.2 12.0 11.4 10.0 10.2 9.9 10.4 8.4 10.8 10.9 11.7 11.6 11.7 10.8 11.4 11.2 Equipment and software 0.2 .3 .6 .8 1.2 1.6 1.9 2.1 1.9 1.7 1.7 1.7 1.7 1.8 1.8 2.2 2.4 2.7 3.0 3.7 4.0 4.9 5.3 6.0 7.8 8.7 9.6 9.5 10.4 11.7 13.4 14.6 15.7 16.9 17.7 16.8 18.4 20.5 23.0 25.2 30.7 16.5 16.7 17.2 16.9 18.8 18.9 17.9 17.9 19.8 21.1 20.5 20.7 21.9 24.7 22.8 22.5 23.7 27.1 24.4 25.7 27.4 32.1 30.1 33.3 Total 45.1 47.9 52.0 55.3 59.9 65.3 71.6 79.9 88.6 98.8 108.5 120.7 133.5 144.4 160.1 184.2 209.0 223.9 239.3 263.8 291.8 324.4 349.6 371.6 391.5 424.4 464.9 503.6 537.5 574.3 617.7 673.0 708.1 736.0 765.7 806.8 850.5 890.4 943.2 991.0 1,057.9 787.5 800.2 815.6 824.0 837.1 849.4 853.3 862.2 872.0 885.7 894.3 909.4 925.6 935.6 949.2 962.3 972.9 984.2 999.0 1,008.1 1,031.8 1,044.3 1,067.4 1,088.0 Consumption expenditures 31.1 34.0 37.0 39.4 42.4 46.3 50.8 56.8 63.2 71.1 80.2 92.0 103.4 113.8 126.9 144.5 165.4 180.1 196.5 214.3 235.0 260.5 284.6 306.8 325.1 349.5 380.5 410.8 439.0 545.8 576.1 601.6 629.5 662.6 694.7 726.5 765.9 807.5 857.3 650.0 658.6 667.6 674.2 685.0 692.6 697.3 703.8 712.5 723.0 730.6 740.0 751.0 759.1 770.5 782.8 791.5 802.7 813.8 822.2 832.4 848.4 866.5 881.8 Gross investment Structures Equipment and software 12.8 12.7 13.8 14.5 16.0 17.2 19.0 21.0 23.0 25.2 25.6 25.8 27.0 27.1 29.1 34.7 38.1 38.1 36.9 42.8 49.0 55.1 55.4 54.2 54.2 60.5 67.6 74.2 78.8 84.8 88.7 98.5 103.2 104.2 104.5 108.7 117.3 122.5 132.8 135.2 148.2 103.2 106.4 112.1 113.2 115.0 118.6 117.1 118.5 119.1 121.8 122.1 127.1 131.3 132.3 133.7 133.9 134.6 133.7 136.5 136.1 148.9 144.4 147.8 151.7 1.1 1.2 1.3 1.3 1.5 1.8 1.9 2.1 2.3 2.4 2.7 3.0 3.1 3.5 4.1 4.9 5.5 5.7 5.9 6.6 7.8 8.9 9.5 10.6 12.2 14.4 16.8 18.6 19.6 21.5 26.0 28.7 28.9 30.1 31.7 35.5 38.6 41.3 44.5 48.3 52.4 34.3 35.2 35.9 36.6 37.2 38.2 38.9 39.9 40.5 41.0 41.6 42.3 43.3 44.1 44.9 45.6 46.8 47.8 48.8 49.8 50.5 51.5 53.0 54.5 TABLE B—19.—Real government consumption expenditures and gross investment by type, 1987—99 [Billions of chained (1996) dollars; quarterly data at seasonally adjusted annual rates] Government consumption expenditures and gross investment Federal Year or quarter Total Total Total Consumption expenditures 1,290.9 1,306.1 1,341.8 597.5 586.7 594.5 450.2 446.8 443.3 373.2 376.1 372.4 1,385.5 1,402.8 1,410.7 1,398.1 1,399.4 1,405.9 1,421.9 1,455.1 1,480.3 1,534.6 606.6 604.8 595.2 571.9 551.2 536.4 531.6 530.9 526.1 541.3 443.2 438.4 417.1 394.7 375.9 361.9 357.0 348.3 341.7 348.1 369.7 369.5 350.6 336.1 320.5 308.7 302.4 299.4 291.4 293.5 1994:1 II .... Ill ... IV ... 1,387.3 1,389.7 1,416.8 1,403.9 550.7 545.1 563.1 546.0 373.3 374.5 387.8 367.8 320.1 319.2 328.2 314.5 1995:1 II .... Ill ... IV ... 1,406.8 1,413.5 1,410.4 1,393.2 544.0 544.2 540.4 517.1 366.9 367.0 363.3 350.4 312.2 312.2 311.8 298.5 1996:1 II .... Ill ... IV... 1,404.4 1,430.2 1,422.1 1,431.0 529.0 540.1 529.5 527.7 356.4 363.0 355.4 353.3 300.5 305.2 300.6 303.2 1997:1 II .... Ill ... IV... 1,437.0 1,457.1 1,463.3 1,463.0 523.9 536.4 534.6 528.8 342.9 350.8 350.7 348.6 296.9 303.4 300.3 297.1 1998:1 II .... Ill ... IV ... 1,459.2 1,480.7 1,485.3 1,495.9 515.4 530.1 527.0 532.0 332.7 341.6 347.5 344.9 285.0 293.4 293.6 293.6 1999:1 II .... Ill ... 1,514.6 1,519.5 1,536.5 1,567.7 531.4 534.2 539.7 560.1 341.4 339.2 348.3 363.7 289.5 284.9 294.0 305.7 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999/- :.. IV* Gross investment Consumption expenditures Structures Equipment and software 11.2 10.4 65.7 60.7 62.6 146.3 138.7 150.3 125.1 119.0 129.4 65.4 62.9 60.0 52.8 49.2 46.8 47.9 43.2 45.3 50.2 162.8 165.9 178.0 177.2 175.4 174.5 174.6 182.7 184.4 193.1 139.8 140.9 150.1 147.7 147.9 145.6 142.9 149.6 147.3 151.3 47.4 49.4 53.0 47.0 177.4 170.6 175.3 178.2 47.6 48.5 45.5 45.4 8.3 7.7 5.7 6.3 5.7 6.2 6.5 6.7 5.5 5.1 4.8 5.9 6.0 6.5 6.3 7.1 6.2 6.0 6.5 6.7 7.3 6.5 6.3 5.7 5.4 5.5 5.5 5.4 4.8 5.5 4.8 5.0 4.9 4.7 4.8 Ctfltp and oldlc dllU Nondefense National defense Total Gross investment Structures Equipment and software Consumption '"»l Gross investment expenditures Structures Equipment and software Total 10.6 11.7 13.2 694.4 720.3 748.1 576.1 595.6 616.5 99.9 104.3 106.5 20.3 21.9 26.0 10.6 10.3 14.2 15.0 16.5 17.2 16.5 17.9 20.5 23.7 26.7 32.2 779.6 798.4 815.8 826.5 848.3 869.5 890.4 924.1 953.9 993.0 637.4 652.9 668.4 679.9 696.9 710.9 726.5 749.8 775.1 801.1 114.5 118.3 118.7 116.1 117.0 120.9 122.5 128.4 127.5 135.2 28.4 28.1 29.4 31.0 34.6 37.8 41.3 45.9 51.8 57.6 150.4 144.0 148.0 149.3 11.2 10.4 10.6 12.5 16.1 16.3 16.9 16.6 836.7 844.8 853.9 858.0 690.7 695.2 699.1 702.6 112.7 115.4 120.0 119.7 33.5 34.3 35.0 35.8 177.2 177.2 177.0 166.8 147.0 147.9 148.4 139.1 11.9 11.1 11.2 10.3 18.3 18.4 17.5 17.4 862.8 869.3 870.0 876.1 706.6 709.3 711.7 716.1 119.9 122.7 120.2 120.7 36.4 37.4 38.2 39.3 49.1 50.6 48.4 43.7 172.7 177.2 174.1 174.4 141.9 144.1 142.0 143.6 11.3 12.0 11.4 19.5 21.1 20.6 20.9 875.4 890.1 892.6 903.4 715.2 726.8 729.3 734.9 120.2 122.4 121.6 125.7 40.0 40.8 41.8 42.7 40.1 41.9 44.8 46.1 181.0 185.5 183.9 180.2 148.6 150.6 150.2 148.9 10.0 8.0 22.4 25.4 23.6 23.5 913.1 920.7 928.6 934.1 740.4 747.2 753.0 758.7 128.6 128.3 129.1 127.8 44.1 45.3 46.6 47.8 42.4 43.4 48.6 46.8 182.6 188.4 179.6 187.1 147.6 149.8 142.9 149.1 10.3 10.3 11.0 10.8 24.9 28.7 25.9 27.5 943.6 950.5 958.1 963.6 766.2 772.8 777.8 783.7 128.1 126.9 128.3 126.6 49.6 51.1 52.5 54.0 47.2 49.9 50.0 53.8 189.9 194.9 191.3 196.4 150.8 152.1 149.8 152.4 10.9 28.6 33.7 31.8 34.9 982.9 985.1 996.6 1,007.5 790.4 797.3 804.9 811.7 137.8 132.1 134.1 136.9 55.2 56.6 58.6 60.1 11.6 8.6 8.3 9.3 10.4 11.6 12.4 11.2 11.1 11.1 9.4 9.9 9.7 10.1 9.9 10.4 10.1 Note.—See Table B-2 for data for total Government consumption expenditures and gross investment for 1959-86. Source-. Department of Commerce, Bureau of Economic Analysis. lft 329 T A B L E B-20.—Private inventories and final sales of domestic business, 1959-99 [Billions of dollars, except as noted; seasonally adjusted] Private inventories1 Quarter Fourth quarter. 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 1990 1991 1992 1993 . . 1994-1 . II III IV 1995:1 Ill IV 1996:1 II Ill IV 1997-1 II Ill IV 1998-1 III IV 1999-1 II Ill . . . . . . VIP Nonfarm Total2 121.4 125.0 128.2 135.3 137.7 1431 157 2 173.7 184.0 1974 215.8 222.9 240.6 266.7 322.7 382.3 3873 419.3 462 7 546.8 644.7 710.7 754.9 7521 769.6 845.5 856 5 839.4 9010 968.8 1,016.3 1,054.5 1,028.0 1,052.0 1,082.8 10974 1114 4 l!l32.4 1,163.0 1,196.2 1,211.7 1,213.5 1,222.4 1,223.0 1,235.6 1247 5 U51.5 12624 1279.2 1,294.4 1,307.5 1,321.8 1,322.4 1,326.6 1,334.5 1345 7 1,360.1 13861 1,408.0 Farm 30.6 31.4 33.0 34.9 32.2 308 35 0 35.4 35.0 381 41.2 39.6 46.3 56.9 73.4 64.2 683 65.1 713 95.1 112.1 112.1 103.2 109 5 104.5 108.0 1063 94.3 96 6 99.7 101.6 105.7 94.0 102.4 99.1 104 7 994 98.9 102.9 104.1 99.5 94.4 96.3 95.8 104.1 107 7 103.4 106 5 107.9 109.0 107.2 108.0 100.6 92.3 92.4 99 3 98.9 96 7 95.2 Total2 90.8 93.5 95.2 100 5 105.5 112 2 122 2 138.3 149.1 159 3 174.6 183.3 194.4 209.9 249.4 318.1 3190 354.2 3914 451.7 532.6 598.7 651.7 642 6 665.1 737.6 7502 745.1 8044 869.1 914.7 948.9 934.0 949.5 983.7 992 7 1015 0 1,033.4 1,060.0 1,092.1 1,112.2 1,119.1 1,126.1 1,127.2 1,131.5 1139 8 1,148.1 1155 9 i;i85!3 1,200.3 1,213.7 1221.8 1,234.3 1,242.1 12464 l|261.3 12894 1312.8 Manufacturing Wholesale trade 47.7 48.7 50.1 53 2 55.1 58 6 634 73.0 79.9 851 92.6 95.5 96.6 102.1 121.5 162.6 162 2 178.7 193 2 219.8 261.8 293.4 313.1 304 6 308.9 344.5 333 3 320.6 339 6 372.4 390.5 404.5 384.1 377.6 380.1 3834 389 3 395.1 404.3 417.0 422.9 425.1 424.5 424.9 423.3 425 9 428.9 432 8 437.8 441.4 445.4 448.7 452.0 453.9 450.5 448 2 451.1 458 3 463.8 16.5 16.9 17.3 18 0 19.5 20 8 22 5 25.8 28.1 293 32.5 36.4 39.4 43.1 51.7 66.9 66 5 74.1 840 99.0 119.5 139.4 148.8 147 9 153.4 169.1 175 9 182.0 195 8 213.9 222.8 236.8 239.2 248.3 258.6 2593 265 3 272.0 281.5 290.9 297.4 301.1 303.7 305.4 306.2 305 3 305.2 310 0 317.3 322.0 326.7 330.6 332.0 338.1 341.8 340 9 345.1 355 6 361.9 1 Retail trade 20.5 21.9 21.3 22 7 23.9 25 2 28 0 30.6 30.9 34 2 37.5 38.5 44.7 49.8 58.4 63.9 64.4 73.0 80 9 94.1 104.7 111.7 123.2 123 2 137.6 157.0 1714 176.2 1991 213.2 231.4 236.6 240.2 249.4 268.6 272 3 2817 287.3 293.6 301.5 308.1 310.0 312.2 309.2 313.8 3203 322.0 3217 323.0 326.4 331.2 336.4 335.9 339.4 344.0 347 3 351.1 3581 368.9 Other 6.1 6.1 6.6 66 7.1 77 83 8.9 10.1 10 6 12.0 12.9 13.7 14.8 17.7 24.7 25.9 28.5 33 3 38.8 46.6 54.1 66.6 668 65.2 66.9 69 5 66.3 699 69.5 70.1 71.0 70.5 74.3 76.5 77 7 78 7 79.0 80.6 82.7 83.7 82.9 85.6 87.8 88.1 88 3 92.1 915 93.3 95.5 97.0 98.0 101.9 103.0 105.7 109 9 113.9 1173 118.3 Final sales of domestic business 3 36.5 37.7 39.5 41.9 44.5 47 5 52.5 55.7 59.2 651 69.4 73.1 79.6 88.7 97.8 105.8 118.5 130.3 145.6 168.3 187.3 205.8 223.0 234 2 257.2 279.2 300 2 318.5 336 5 366.0 388.5 406.2 417.5 446.6 470.0 474 3 4810 489.3 496.8 503.1 508.4 517.1 523.7 531.8 541.7 545 5 556.3 565 5 572.4 583.1 588.5 598.0 607.7 613.2 624.7 634 8 642.6 6518 663.1 Ratio of private invent jries to final s ales of domestic ^ncjnpcc Total 3.33 3.31 3.24 3.23 3.09 3 01 2 99 3.12 3.11 3 03 3.11 3.05 3.02 3.01 3.30 3.61 3.27 3.22 318 3.25 3.44 3.45 3.39 3 21 2.99 3.03 2 85 2.64 2 68 2.65 2.62 2.60 2.46 2.36 2.30 2 31 2 32 2.31 2.34 2.38 2.38 2.35 2.33 2.30 2.28 2 29 2.25 2 23 2.23 2.22 2.22 2.21 2.18 2.16 2.14 212 2.12 213 2.12 Nonfarm 2.49 2.48 2.41 2.40 2.37 236 2 33 2.48 2.52 2 45 2.52 2.51 2.44 2.37 2.55 3.01 2.69 2.72 2.69 2.68 2.84 2.91 2.92 2 74 2.59 2.64 2 50 2.34 2 39 2.37 2.35 2.34 2.24 2.13 2.09 2 09 211 2.11 2.13 2.17 2.19 2.16 2.15 2.12 2.09 2 09 2.06 2 04 2.05 2.03 2.04 2.03 2.01 2.01 1.99 196 1.96 198 1.98 Inventories at end of quarter. Quarter-to-quarter change calculated from this table is not the current-dollar change in private inventories component of GOP. The former is the difference between two inventory stocks, each valued at their respective end-of-quarter 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 change in private inventories is stated at annual rates. 2 Inventories of construction establishments are included in "other" nonfarm inventories. 3 Quarterly totals at monthly rates. Final sales of domestic business equals final sales of domestic product less gross product of households and institutions and of general government and includes a small amount of final sales by farms. Note.—The industry classification of inventories is on an establishment basis. Estimates for nonfarm industries other than manufacturing and trade for 1986 and earlier periods are based on the 1972 Standard Industrial Classification (SIC). Manufacturing estimates for 1981 and earlier periods and trade estimates for 1966 and earlier periods are based on the 1972 SIC; later estimates for these industries are based on the 1987 SIC. The resulting discontinuities are small. Source: Department of Commerce, Bureau of Economic Analysis. 330 TABLE B—21.—Real private inventories and final sales of domestic business, 1987—99 [Billions of chained (1996) dollars, except as noted; seasonally adjusted] Private inventories1 Quarter Fourth quarter: 1987 1988 1989 1990 1991 1992 1993 1994-1 II Z..Z..."".'..'. Ill IV 1995-1 . HI IV 1996:1 II Ill IV 1997.1 II Ill IV 1998:1 Ill IV 1999: 1 II HI IV" Nonfarm Total2 1,024.1 1,042.5 1,072.1 1,088.6 1,087.6 1,104.7 1,124.6 1,136.6 1,158.0 1,172.1 1,191.5 1,207.0 1,215.1 1,217.4 1,221.9 1,223.3 1,230.8 1,243.6 1,251.9 1,264.7 1,288.0 1,302.8 1,321.0 1,347.8 1,358.6 1,377.6 1,395.3 1,407.8 1,411.3 1,420.8 1,437.1 Farm 110.7 96.5 96.6 99.2 96.9 103.1 95.2 99.3 103.9 107.1 108.1 106.7 103.0 97.2 95.9 95.8 98.7 102.9 103.7 102.5 104.3 105.9 106.7 107.5 104.9 104.4 107.6 109.4 109.7 108.7 106.9 Total2 Manufacturing Wholesale trade Retail trade Other Final sales of domestic business 3 Ratio of private inventories to final sales of domestic business Total Nonfarm 911.7 945.4 975.2 361.6 378.5 392.7 228.6 238.5 243.2 239.7 247.4 261.9 81.6 80.4 76.8 421.1 441.4 452.7 2.43 2.36 2.37 2.16 2.14 2.15 989.0 990.4 1,001.1 1,029.8 401.6 394.9 390.1 393.7 260.2 260.8 265.4 280.8 73.8 76.8 79.1 81.9 455.6 457.5 480.5 492.8 2.39 2.38 2.30 2.28 1,037.3 1,054.0 1,065.0 1,083.3 1,100.3 1,112.1 1,120.1 1,126.0 396.4 399.5 402.1 405.8 411.1 415.0 418.1 419.9 424.2 423.3 426.8 430.0 435.7 443.1 447.4 452.1 461.6 468.6 474.2 477.2 477.2 475.1 475.5 478.1 252.2 257.3 266.2 273.1 273.2 278.0 282.7 290.2 284.8 292.3 296.1 301.4 495.5 500.5 505.9 511.5 2.29 2.31 2.32 2.33 295.5 299.3 302.7 304.5 307.0 311.4 312.7 313.6 514.5 517.8 524.4 529.3 305.4 306.7 305.2 307.7 313.7 332!0 339.2 342.7 351.2 355.4 309.9 313.8 319.6 321.0 320.3 323.0 326.5 331.7 337.0 336.2 339.0 342.9 2.35 2.35 2.32 2.31 2.29 2.27 2.28 2.26 2.26 2.28 2.27 2.29 357.8 360.6 366.9 371.1 347.2 348.7 352.2 361.9 82.8 84.2 84.0 85.9 86.7 86.4 86.5 88.0 87.9 88.3 88.9 89.5 92.5 95.1 96.7 98.4 102.4 106.2 108.9 112.3 116.2 117.2 117.2 118.4 2.17 2.16 2.08 2.09 2.09 2.11 2.11 2.12 2.14 2.15 2.14 2.13 2.11 2.09 2.10 2.07 2.08 2.10 2.89 2.10 2.12 2.11 2.13 2.12 1,127.5 1,132.1 1,140.7 1,148.1 1,162.3 1,183.7 1,196.8 1,214.3 1,240.2 1,253.5 1,272.9 1,287.4 1,298.2 1,301.4 1,311.7 1,329.6 535.0 542.6 544.4 553.4 559.4 563.9 572.9 576.9 597^0 607.4 615.0 620.7 628.3 636.1 2.31 2.30 2.29 2.27 2.26 2.26 2.11 2.10 2.09 2.09 1 Inventories at end of Quarter. Quarter-to-quarter changes calculated from this table are at quarterly rates, whereas the change in private inventories component of GDP is stated at annual rates. 2 Inventories of construction establishments are included in "other" nonfarm inventories. 3 Quarterly totals at monthly rates. Final sales of domestic business equals final sales of domestic product less gross product of households and institutions and of general government and includes a small amount of final sales by farms. and trade for 1986 and earlier periods are based on the 1972 Standard Industrial Classification (SIC). Manufacturing estimates for 1981 L . _ earlier periods and trade estimates for 1966 and earlier periods are based on the 1972 SIC; later estimates for these industries are based on the 1987 SIC. The resulting discontinuities are small. See Survey of Current Business, Table 5.13, for detailed information on calculation of the chained (1996) dollar inventory series. Source: Department of Commerce, Bureau of Economic Analysis. 331 TABLE B—22.—Foreign transactions in the national income and product accounts, 1959-99 [Billions of dollars; quarterly data at seasonally adjusted annual rates] Receipts from rest of the world Year or quarter Exports of goods and services Total 1 Goods Payments to rest of the world Income Imports of goods and services Income payments Total Goods ceipts 1 Transfer payments (net) Total From persons (net) Net ment merit (net) 25.0 20.6 16.5 4.2 4.3 25.0 22.3 15.3 7.0 1.5 2.4 1.8 0.1 -1.2 30.2 31.4 33.5 36.1 41.0 43.5 47.2 50.2 55.6 61.2 25.3 26.0 27.4 29.4 33.6 35.4 38.9 41.4 45.3 49.3 20.5 20.9 21.7 23.3 26.7 27.8 30.7 32.2 35.3 38.3 4.8 5.1 5.7 6.1 6.9 7.6 8.2 9.2 10.0 11.0 5.0 5.4 6.1 6.6 7.4 8.1 8.3 8.9 10.3 11.9 30.2 31.4 33.5 36.1 41.0 43.5 47.2 50.2 55.6 61.2 22.8 22.7 25.0 26.1 28.1 31.5 37.1 39.9 46.6 50.5 15.2 15.1 16.9 17.7 19.4 22.2 26.3 27.8 33.9 36.8 7.6 7.6 8.1 8.4 8.7 9.3 10.7 12.2 12.6 13.7 1.8 1.8| 1.8 2.1 2.4 2.7 3.1 3.4 4.1 5.8 2.4 2.7 2.8 2.8 3.0 3.0 3.2 3.4 3.2 3.2 .1 3.2 4.3 3.9 5.0 1.0 1.0 1.1 1.8 2.1 2.1 2.1 2.1 2.0 2.2 2.1 1.9 1.8 69.9 73.4 82.6 115.6 154.6 164.4 181.7 196.6 233.5 299.1 57.0 59.3 66.2 91.8 124.3 136.3 148.9 158.8 186.1 228.7 44.5 45.6 51.8 73.9 101.0 109.6 117.8 123.7 145.4 184.0 12.4 13.8 14.4 17.8 23.3 26.7 31.1 35.1 40.7 44.7 13.0 14.1 16.4 23.8 30.3 28.2 32.9 37.9 47.4 70.4 69.9 73.4 82.6 115.6 154.6 164.4 181.7 196.6 233.5 299.1 55.8 62.3 74.2 91.2 127.5 122.7 151.1 182.4 212.3 252.7 40.9 46.6 56.9 71.8 104.5 99.0 124.6 152.6 177.4 212.8 14.9 15.8 17.3 19.3 22.9 23.7 26.5 29.8 34.8 39.9 6.6 6.4 7.7 11.1 14.6 14.9 15.7 17.2 25.3 37.5 3.6 4.1 4.3 4.6 5.4 5.4 6.0 6.0 6.4 7.5 1.3 1.3 1.4 1.5 1.3 1.3 1.3 1.3 1.5 1.6 1.9 2.3 2.5 2.4 3.1 3.4 3.6 3.3 3.6 3.9 360.7 398.4 385.0 379.5 426.0 416.1 431.4 488.5 598.7 686.2 278.9 302.8 282.6 277.0 303.1 303.0 320.3 365.6 446.9 509.0 225.8 239.1 215.0 207.3 225.6 222.2 226.0 257.5 325.8 371.7 53.2 63.7 67.6 69.7 77.5 80.8 94.3 108.1 121.1 137.3 81.8 95.6 102.4 102.5 122.9 113.1 111.1 122.9 151.8 177.2 360.7 398.4 385.0 379.5 426.0 416.1 431.4 488.5 598.7 686.2 293.8 317.8 303.2 328.6 405.1 417.2 452.2 507.9 553.2 589.7 248.6 267.8 250.5 272.7 336.3 343.3 370.0 414.8 452.1 484.5 45.3 49.9 52.6 56.0 68.8 73.9 82.2 93.1 101.1 105.2 46.5 60.9 65.9 65.6 87.6 87.8 95.6 109.2 133.4 156.8 9.0 13.4 16.1 17.2 20.3 22.1 24.2 23.4 25.4 26.3 1.8 5.5 6.5 6.8 7.7 8.1 9.0 9.9 10.6 11.4 4.8 4.8 6.1 7.0 9.1 11.1 12.1 10.2 10.3 10.4 3.2 3.4 4.5 4.6 745.5 769.3 787.8 812.5 909.3 1,050.8 1,119.7 1,250.6 1,251.6 557.2 601.6 636.8 658.0 725.1 818.6 874.2 968.0 966.3 996.3 398.5 426.4 448.7 459.7 509.6 583.8 618.4 689.0 681.3 697.5 158.6 175.2 188.1 198.3 215.5 234.7 255.8 279.0 285.1 298.8 188.3 167.7 151.1 154.4 184.3 232.3 245.6 282.6 285.3 745.5 628.6 508.0 769.3 622.3 500.7 787.8 664.6 544.9 812.5 718.5 592.8 909.3 812.1 676.7 1,050.8 902.8 757.6 1,119.7 963.1 808.3 1,250.6 1,056.3 885.1 1,251.6 1,115.9 930.4 1,253.1 1,048.9 120.6 121.6 119.8 125.7 135.4 145.2 154.8 171.2 185.5 204.2 159.3 143.0 127.6 130.1 167.5 211.9 227.5 278.4 295.2 26.8 -11.0 34.2 36.8 38.0 34.0 39.8 39.6 42.0 44.7 12.0 13.0 12.5 14.4 15.6 16.5 18.2 20.6 22.3 24.4 10.0 -29.0 16.2 16.7 15.3 9.8 13.6 10.0 10.4 10.5 4.8 5.0 5.5 5.7 7.1 7.7 8.0 9.0 9.3 9.8 847.8 889.7 927.2 972.6 683.8 714.5 736.1 765.8 475.8 499.5 518.8 544.3 208.0 215.0 217.3 221.5 164.0 175.2 191.1 206.8 847.8 889.7 927.2 972.6 755.1 798.7 835.2 859.6 622.0 664.6 698.2 722.0 133.0 134.1 137.0 137.6 143.3 158.5 176.0 191.9 32.0 34.0 37.5 48.4 15.3 15.5 15.7 15.9 10.2 11.8 14.6 24.7 6.5 -82.6 6.8 -101.6 7.2 -121.6 7.8 -127.3 1,011.9 1,037.0 1,065.7 1,088.7 787.7 802.5 834.1 850.0 563.6 574.3 593.0 604.4 224.1 228.2 241.1 245.6 224.2 234.5 231.6 238.7 1,011.9 1,037.0 1,065.7 1,088.7 882.2 911.5 908.3 909.3 740.4 766.9 761.9 761.5 141.8 144.6 146.4 147.8 202.8 209.2 220.4 215.3 34.3 32.3 33.7 35.7 15.9 15.6 16.4 18.0 10.5 9.3 9.5 10.0 7.9 -107.5 7.4 -116.1 7.8 -96.7 7.7 -71.6 1996:1 ... 1,092.4 1,102.4 1,111.2 1,172.9 853.3 864.7 865.6 913.1 607.8 611.4 615.4 639.0 245.5 253.3 250.1 274.0 239.1 237.7 245.6 259.8 1,092.4 1,102.4 1,111.2 1,172.9 929.1 954.5 976.1 992.8 778.6 801.9 818.6 834.3 150.5 152.6 157.5 158.5 212.3 220.0 234.1 243.5 41.7 34.6 35.4 47.6 17.4 18.0 18.2 19.3 16.8 8.6 9.0 19.9 7.5 -90.7 8.1 -106.7 8.2 -134.5 8.4 -111.0 1997:1 1,198.5 1,250.2 1,279.4 1,274.3 929.6 965.3 988.6 988.6 659.4 685.7 704.8 706.0 270.2 279.6 283.8 282.6 268.9 284.9 290.9 285.7 1,198.5 1,250.2 1,279.4 1,274.3 1,017.3 1,042.8 1,079.2 1,086.0 852.3 874.1 904.3 909.7 165.0 168.7 174.9 176.3 263.7 275.4 288.9 285.5 34.8 35.8 38.1 49.8 19.6 19.8 21.5 21.7 6.7 7.1 7.4 18.8 8.5 8.9 9.2 9.3 -117.3 -103.7 -126.7 -146.9 1,265.4 1,253.0 1,225.5 1,262.7 974.3 960.1 949.1 981.8 692.8 671.8 667.2 693.3 281.5 288.2 281.9 288.6 291.1 292.9 276.4 280.8 1,265.4 1,253.0 1,225.5 1,262.7 1,091.7 1,114.0 1,114.8 1,143.1 912.8 928.9 927.2 952.6 178.9 185.1 187.7 190.4 288.0 292.9 302.0 297.9 37.9 37.4 41.3 51.6 21.1 21.8 22.9 23.3 7.6 6.2 9.1 18.7 9.1 9.3 9.3 9.6 -152.1 -191.4 -232.6 -229.9 1,250.7 966.9 1,274.3 978.2 1,316.2 1,008.5 1,031.5 674.3 680.5 708.8 726.5 292.6 297.7 299.7 305.0 283.8 1,250.7 1,168.5 974.3 296.1 1,274.3 1,224.0 1,022.3 307.7 1,316.2 1,286.6 1,079.3 1,333.3 1,119.9 194.2 201.7 207.4 213.4 298.2 310.4 323.2 39.7 43.6 42.7 52.8 23.5 24.6 24.5 25.1 6.8 9.2 8.5 17.6 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 1990 1991 1992 1993 1994 1995 1996 1997 1998 .... .... .... .... .... .... .... .... 1999P 1994:1 II 1995:1 ... II .. III . IV . ill IV 1998:1 II Ill IV 1999:1 II '.I .2 1 li 1 .3 .3 3.9 3.5 1.7 1.8 4.0 .6 -3.6 8.7 7.1 21.4 8.9 -9.0 -10.4 1.4 .4 .4 7 1.0 LI 1.4 1.4 2.0 2.4 3.2 3.4 3.4 11.4 6.3 -32!0 -87.0 -110.9 -140.6 -152.0 -113.2 -86.7 -69.2 14.9 -38.7 -72.9 -108.3 -98.0 -110.7 -123.7 -201.5 9.5 -255.7 9.8 -303.7 9.8 -336.3 10.1 1 Certain goods, primarily military equipment purchased and sold by the Federal Government, are included in services. Beginning with 1986, repairs and alterations of equipment were reclassified from goods to services. Source: Department of Commerce, Bureau of Economic Analysis. 332 TABLE B-23.—Real exports and imports of goods and services and receipts and payments of income, 1987-99 [Billions of chained (1996) dollars; quarterly data at seasonally adjusted annual rates] Exports of goods and services Imports of goods and services Goods1 Year or quarter Total Total Durable goods Nondurable goods Services1 Income receipts Goods1 Total Total Durable goods Nondurable goods Services1 Income payments 4066 472.2 527.6 2714 322 6 363.2 154 7 191.9 221.3 123 0 135.6 146.3 137 5 150.5 164.7 1616 192.6 215.7 564 2 585.6 608.8 4458 463.9 483.4 267 9 279.1 291.2 1815 188.5 195.9 120 2 123.4 126.9 142 3 168.1 189.7 573.6 612 6 652.1 671.9 7318 807.4 393.2 4211 449 8 463.4 508 2 568.8 243.0 2616 2808 295.2 330 5 378.0 154.0 163 3 172 7 170.6 1789 191.0 181.2 192 2 202.8 209.0 224 0 238.8 219.2 1884 165.1 164.6 1919 236.5 632.2 629 0 670.8 731.8 8194 886.6 497.9 4976 543.7 598.4 677.9 739.1 299.2 300 9 331.9 370.9 432 2 481.7 202.7 200 5 215 5 230.8 2474 257.8 136.6 1334 128.0 134.0 1419 147.7 184.6 160 7 140.4 138.5 174.2 215.5 874.2 985.4 10071 1042.5 6184 708.1 722 8 750.3 421.7 498.3 513 5 535.5 196 7 209.9 209 3 214.7 255.8 277.5 284 4 292.6 245.6 278.1 2792 963.1 808.3 1,095.2 923.2 1222 2 10316 l,'367.0 1,162.7 533.3 619.8 700 2 803.4 275.1 303.5 3316 359.5 154.8 172.1 190 7 205.2 227.5 274.4 289.6 1994-1 II Ill IV 695 7 724.0 741.4 766.2 478 0 500 0 516.8 538.0 310 7 327 0 335.3 348.9 168 5 173 8 182.8 190.4 218 3 224.5 224.9 228.4 172 6 183.2 198.3 213.4 776 8 811.3 834.6 854.8 6361 669.5 692.8 713.3 4003 424.8 440.1 463.5 238 2 246.6 254.6 250.4 1414 142.3 142.1 141.6 151.1 166.0 182.3 197.5 1995-1 II Ill IV 779 7 788.1 8212 840.8 549 8 556.5 576 7 592.0 360 9 368.9 3851 397.2 1896 187.9 1917 194.8 229 9 231.7 244 6 248.9 2300 239.2 2353 241.3 8731 886.4 8891 897.8 725 5 740.3 7421 748.4 472 2 481.6 4811 492.0 253.7 259.2 2617 256.5 147 9 146.2 1471 149.4 207 7 213.1 223 6 217.5 1996-1 II Ill IV 845 6 859.8 8671 924 2 599 2 605.5 617 2 6517 403 0 413.3 423 9 446 6 1962 192.2 193 3 205 2 246 4 254.3 249 9 272 4 240 5 238.4 245 3 258.1 9211 950.4 982 9 998.1 769 7 797.4 825 6 840 7 508 0 524.4 544 8 556.0 2617 273.1 2808 284 7 151.5 153.0 1573 157.3 213.3 220.6 233 9 242.2 1997-1 II Ill IV 943 9 979.9 1006 8 l!011.2 674 0 702.9 724 7 7310 4692 4948 515 0 514 3 2048 208.1 2098 216 7 269 9 277.1 282 3 280 5 265 6 1034 7 280.9 1,080.8 285 9 1125 5 280.1 1*139 9 8698 912.6 9491 9612 584 5 611.2 635 9 647 7 285 5 301.5 3133 313 6 164 9 168.3 1764 178 7 2610 271.7 284 5 280.3 1998:1 II HI IV 1007.3 997.2 993 0 1,030.8 725 9 709.3 712 0 744.2 515 6 501.8 507 5 529.3 210 3 207.5 2044 214.9 2817 287.7 2811 287.0 285.5 286.9 2703 274.0 1179 0 993 2 1,215.6 1,025.5 12310 1037 9 1263.1 l',069.7 6731 693.3 700 7 733.7 3204 332.5 337 5 336.0 185 8 190.1 1931 193.8 283.4 287.7 2958 291.3 10164 1026 4 1,054.8 1,072.4 7264 7341 763.3 777.4 518 2 522 8 548.2 552.9 2081 2112 214.9 224.4 289 9 292.2 292.2 295.9 276 0 286.6 296.5 1300 9 1'345.4 1,393.0 1,428.6 753 6 787.4 825.3 847.2 348 5 355.0 363.8 370.6 1994 203.7 205.5 212.4 290.7 301.1 311.8 1987 1988 1989 . 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999* 19991 . II Ill IV* . .. 1102 0 1,142 5 1,188.9 1,217.4 1 Certain goods, primarily military equipment purchased and sold by the Federal Government, are included in services. Beginning with 1986, repairs and alterations of equipment were reclassified from goods to services. Note.—See Table B-2 for data for total exports of goods and services and total imports of goods and services for 1959-86. Source: Department of Commerce, Bureau of Economic Analysis. 333 TABLE B—24.—Relation of gross domestic product, gross national product, net national product, and national income, 1959-99 [Billions of dollars,- quarterly data at seasonally adjusted annual rates] Pine- Year or quarter nus: Income Gross receipts domestic from product rest of the uinrlri wono Less: Income payments to rest of Equals: Gross national product Total the world 507.4 1.5 4.3 510.3 54.8 1959 527.4 5.0 1.8 530.6 1960 57.0 545.7 5.4 1.8 1961 549.3 58.6 586.5 1.8 590.7 1962 61 610 618.7 6.6 2.1 623.2 63.7 1963 664.4 2.4 74 669.4 1964 66 7 2.7 720.1 8.1 725.5 1965 70.9 76.7 789.3 8.3 3.1 794.5 1966 3.4 834.1 8.9 1967 839.5 83.3 4.1 10.3 911.5 917.6 1968 91.1 1969 985.3 11.9 5.8 991.5 100.0 1,039.7 13.0 1,046.1 109.4 1970 1,136.2 119.3 1971 1,128.6 14.1 1972 1,240.4 16.4 7.7 1,249.1 131.3 1973 1,385.5 23.8 11.1 1,398.2 143.3 1974 1,501.0 303 14 6 1516 7 165 3 28!2 R9 1,648.4 191.4 1975 . 1976 1,'823.9 32.9 15.7 1,841.0 209.4 2,031.4 1977 37.9 17.2 2052.1 232.0 1978 2,295.9 47.4 25.3 2,318.0 261.9 1979 2,566.4 70.4 37.5 2,599.3 301.0 2,795.6 46.5 2,830.8 346.1 1980 81.8 1981 31313 95 6 60 9 31661 3958 102.4 3,259.2 1982 65.9 3,295.7 437.5 1983 . . 3,534.9 102.5 65.6 3,571.8 457.2 1984 3,932.7 122.9 87.6 3,968.1 483.5 4,213.0 1985 113.1 87.8 4,238.4 517.7 L986 4,452.9 111.1 95.6 4,468.3 552.9 1987 4 742 5 122 9 1092 4 756 2 5874 133.4 5!l26.8 628.9 5!lO8!3 1988 15l!8 1989 5,489.1 177.2 156.8 5,509.4 678.7 5,803.2 1990 188.3 159.3 5,832.2 712.5 L991 5,986.2 167.7 143.0 6,010.9 749.1 1992 6,318.9 151.1 127.6 6,342.3 788.7 1993 6,642.3 154.4 130.1 6,666.7 813.6 1994 7,054.3 184.3 167.5 7,071.1 875.7 7,400.5 1995 232.3 211.9 7,420.9 912.2 7 813 2 1996 2456 227 5 7,831.2 9564 1997 278.4 8,305.0 1,009.7 8,300.8 282.6 1998 8,759.9 285.3 295.2 8,750.0 1,066.9 1999' 9,248.4 1,141.2 1994:1 6,887.8 164.0 143.3 6,908.5 916.4 II 7,015.7 175.2 158.5 7,032.4 849.4 Ill 7,096.0 191.1 176.0 7,111.1 862.1 IV 7,217.7 206.8 191.9 7,232.6 874.8 224.2 1995:1 7,297.5 202.8 7,318.9 890.2 II 7,342.6 234.5 209.2 7,367.9 904.7 Ill 7,432.8 231.6 220.4 7,444.1 916.3 IV 7,529.3 238.7 215.3 7,552.7 937.7 1996:1 7,629.6 239.1 212.3 7,656.5 937.9 II 7,782.7 237.7 220.0 7,800.3 948.3 Ill 7,859.0 245.6 234.1 7,870.5 962.8 IV 7,981.4 259.8 243.5 7,997.7 976.6 1997:1 263.7 8,131.1 989.1 8,125.9 268.9 II 8,259.5 284.9 275.4 8,269.1 1,002.1 Ill 8,364.5 290.9 288.9 8,366.5 1,016.6 IV 8,453.0 285.7 285.5 8,453.3 1,031.0 1998:1 8,610.6 291.1 288.0 8,613.7 1,042.0 II 8,683.7 292.9 292.9 8,683.7 1,056.5 Ill 8,797.9 276.4 302.0 8,772.2 1,075.2 IV 8,947.6 280.8 297.9 8,930.5 1,094.0 9,072.7 298.2 9,058.2 1,108.8 1999:1 283.8 II 9,146.2 296.1 310.4 9,131.9 1,126.3 ill'!!!!!!! 9,297.8 307.7 323.2 9,282.3 1,160.9 IV' .... 9,477.1 1,168.8 Source: Department of Commerce, Bureau of Economic Analysis. £1 PIUS: Subsidies tgfc Indirect Busiless cur- Equals: Statisrent sur- National business naplus of income trans- tical distional taxness and fer Private Government product nontax pay- crepan- government enterliability ments cy prises Less-. Consumption of fixed capital 40.2 41.8 42.8 444 46.0 48 5 51.8 56.5 61.6 67.6 74.8 82.2 90.1 99.8 109.6 127 3 149.6 165.0 184.8 211.1 245.5 283.4 324 8 358.5 373.8 394.7 423.7 452.0 479 6 513.8 555.5 580.7 609.1 643.4 660.9 715.3 744.1 7821 829.2 880.8 945.3 758.0 690.3 701.3 711.7 724.8 737.3 747.4 766.9 765.6 775.0 787.8 800.1 810.9 822.2 835.6 848.0 858.2 871.7 888.3 904.8 916.7 931.8 963.7 968.8 334 14.6 15.2 15.7 16.7 17.6 18 3 19.1 20.2 21.7 23.4 25.2 27.3 29.2 31.5 33.8 37 9 41.8 44.4 47.2 50.8 55.5 62.7 710 79.0 83.3 88.8 94.0 100.8 1078 115.0 123.2 131.8 140.0 145.3 152.6 160.3 168.1 1743 180.5 186.2 195.9 158.4 159.1 160.8 163.1 165.5 167.3 168.9 170.8 172.3 173.3 175.0 176.4 178.2 179.9 181.0 183.0 183.8 184.8 186.9 189.1 192.0 194.5 197.2 200.0 Less: 455.5 473.6 490.7 529.7 559.6 602.7 654.6 717.8 756.3 826.5 891.5 936.7 1,017.0 1,117.8 1,254.9 13515 1>57".O 1,631.6 1,820.1 2,056.1 2,298.3 2,484.8 2 7702 2,858.1 3,114.6 3,484.6 3,720.7 3,915.5 41688 44979 4,830.8 5,119.7 5,261.8 5,553.7 5,853.1 6,195.5 6,508.6 6 874 9 7,295.3 7,683.1 5,992.1 6,183.0 6,249.0 6,357.8 6,428.6 6,463.2 6,527.8 6,614.9 6,718.6 ffl 7,021.1 7,142.0 7,267.0 7,349.9 7,422.3 7,571.7 7,627.1 7,697.1 7,836.5 7,949.5 8,005.6 8,121.4 41.9 45.5 48.1 51.7 54.7 58.8 62.7 65.4 70.4 79.0 86.6 94.3 103.6 111.4 121.0 1293 140.0 151.6 165.5 177.8 188.7 212.0 2493 256.7 280.3 309.1 329.4 346.8 3693 392.6 420.7 447.3 482.3 510.6 540.1 575.3 594.6 620.0 645.8 677.0 715.6 565.3 572.2 578.7 584.9 589.3 594.1 S3 606.8 613.2 615.7 644.3 632.5 643.0 652.0 655.4 663.5 670.1 676.6 697.8 696.6 706.7 718.3 740.6 1.4 1.4 1.5 1.6 1.8 2.0 2.2 2.3 2.5 2.8 3.1 n 3.9 4.5 5.0 5.2 6.5 7.3 8.2 9.9 11.2 134 15.2 16.2 18.6 20.7 23.8 24 2 25!3 25.8 26.1 25.9 28.1 27.8 30.8 33.5 344 36.9 39.4 29.5 30.3 31.2 32.1 33.0 33.1 33.9 34.0 33.6 34.3 34.6 35.2 35.9 36.7 37.3 37.7 37.6 33 38.6 38.8 39.3 39.5 40.0 0.8 -.6 -.2 —4 1*2 1.9 6.4 4.8 4.3 2.9 6.9 11.3 8.7 8.0 100 17.7 24.5 21.6 21.0 35.7 33.9 27.5 2.5 47.0 18.6 11.7 43.9 33 -42.2 16.3 30.6 19.6 43.7 63.8 58.5 26.5 32.8 -3.2 -47.6 52.7 81.3 54.6 45.3 53.7 24.9 3.1 24.4 34.4 49.6 25.1 22.3 20.9 23.9 -17.5 -40.0 1.4 -41.5 -87.9 -62.4 -99.4 -135.5 -141.2 0.1 .2 1.2 1.4 .9 1.4 1.7 3.0 2.9 3.0 3.5 4.8 4.9 6.1 5.6 42 7.7 6.9 9.7 10.6 11.0 14.5 16.1 18.1 24.3 22.9 20.4 23.6 301 274 22.6 25.3 21.5 22.4 29.6 25.2 22.2 22.6 19.0 20.8 26.4 27.6 25.1 23.6 24.3 21.8 22.0 22.5 22.5 23.3 22.9 22.0 22.2 20.9 18.5 16.8 19.9 18.0 17.1 16.9 31.4 21.0 27.9 17.3 39.4 411.5 427.5 442.5 477.1 504.3 542 0 589.5 646.6 681.5 743.4 802.4 837.1 903.5 1,000.0 1,127.0 12115 1,301.8 1,455.9 1,635.4 1,859.8 2,075.0 2,242.1 2,496.1 2,601.9 2,795.4 3,161.2 3,379.2 3,524.5 3802 0 4t'l49.6 4,390.6 4,640.9 4,755.5 4,993.7 5,251.1 5,556.1 5,876.2 6,210.2 6,634.9 7,036.4 5,372.1 5,524.3 5,608.2 5,719.7 5,774.4 5,833.1 5,919.6 5,977.8 6,067.1 6,177.8 6,254.2 6,341.6 6,473.6 6,581.9 6,694.9 6,789.1 6,887.2 6,977.6 7,087.1 7,193.8 7,334.5 7,423.1 7,522.1 T A B L E B-25.—Relation of national income and personal income, 1959-99 [Billions of dollars; quarterly data at seasonally adjusted annual rates] PIUS: Less: Year or quarter 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 1990 1991 .... 1992 1993 1994 L995 1996 1997 1998 imp 1994-1 II Ill IV 1995:1 II III IV 1996:1 II Ill IV 1997:1 II HI IV 1998:1 II III IV 1999-1 III National income Corporate profits with inventory valuation Net and interest capital consumption adjustments 411.5 427.5 442.5 4771 504.3 542.0 5895 646.6 681.5 7434 802.4 837.1 903 5 1,000.0 1,127.0 12115 1*301.8 1,455.9 16354 1,859.8 2,075.0 2,242.1 2 496.1 2,601.9 2,795.4 31612 3*379.2 3 524 5 3,802.0 4149 6 4,390.6 4 640 9 4*755 5 4,993.7 5,251.1 5,556.1 5,876.2 6,210.2 6,634.9 7 0364 53.7 52.3 53.4 615 67.6 74.7 85 9 91.8 89.4 96.3 93.4 81.3 94 8 109.4 123.5 114 0 132.5 160.1 1905 216.8 221.9 197.7 218.0 200.2 253.0 308 7 321.3 299 5 345.3 403 5 394.2 4074 430 2 451.9 509.7 572.5 668.3 753.9 837.9 8461 9.7 10.7 12.4 141 15.2 17.3 19 7 22.6 25.4 27.2 32.2 38.4 42.6 46.2 53.9 688 76.6 80.8 95 7 114.5 144.2 183.9 226.5 256.3 267.2 309 6 326.7 343 6 361.5 3894 443.1 4524 429 8 399.5 374.3 380.5 389.8 386.3 412.5 435 7 5 3721 5*524.3 5,608.2 5,719.7 5,774.4 58331 5,919.6 5,977.8 6,067.1 6,177.8 6,254.2 6,341.6 6,473.6 6,581.9 6,694.9 6,789.1 6,887.2 6 977 6 7*087.1 7,193.8 7,334.5 7,423.1 7,522.1 497 6 568.3 597.9 626.0 629.4 654 9 692.4 696.4 737.2 748.9 754.8 774.5 803.6 831.6 862.8 853.5 858.3 8479 8438 834.3 882.0 875.5 879.2 364 6 402.5 396.8 392 8 386.7 383.0 378.2 385.5 388.1 393.3 402.3 411.8 414.6 421.2 423.3 434 6 444 0 440.8 446.3 456.4 476.3 Contributions for social insurance Wage accruals less disbursements 13.8 16.4 17.0 191 21.7 22.4 234 31.3 34.9 38 7 44.1 46.4 512 59.2 75.5 852 89.3 101.3 1131 131.3 152.7 166.2 195 7 208.9 226.0 257 5 281.4 3034 323.1 3615 385.2 4101 4302 455.0 477.8 508.4 533.2 555.8 588.2 6219 658.1 498 2 506.2 510.9 518.5 525.6 5304 535.9 540.9 544.7 552.9 559.5 566.1 576.6 583.4 591.2 601.5 610.3 617 6 6261 633.8 647.2 653.8 662.3 669.0 0.0 .0 .0 0 .0 .0 Source-. Department of Commerce, Bureau of Economic Analysis. 335 .0o .0 .0 .0 .0 6 .0 _5 .1 1 .3 -.2 .0 1 .0 *2 o .0 o .0 1 -1 -15.8 6.4 17.6 16.4 3.6 -4.1 35 .0 564 4.7 4.7 4.7 16.4 164 16.4 16.4 3.6 3.6 3.6 3.6 -4.1 -4.1 -4.1 -4.1 3.5 35 35 3.5 .0 .0 .0 .0 Personal interest income Personal dividend income 23.0 25.6 27.3 30.2 33.0 36.9 408 45.3 49.4 54.1 62.3 71.5 77.5 84.2 97.6 1161 128.0 140.5 1619 191.3 233.5 286.4 352.7 401.6 431.6 5053 546.4 579 2 609.7 6505 736.5 7724 7718 750.1 725.5 742.4 792.5 810.6 854.9 897 8 930.6 714 4 727.1 750.2 778.0 784.8 7919 794.7 798.7 797.2 805.9 814.6 824.6 835.7 850.6 859.7 873.6 880.1 895 3 9093 906.4 907.4 920.5 938.8 955.6 12.6 13.4 13.9 15.0 16.2 18.2 202 20.7 21.5 23.5 24.2 24.3 25 0 26.8 29.9 332 32.9 39.0 44 7 50.7 57.4 64.0 73 6 76.1 83.5 908 97.5 1061 112.1 1294 154.8 1654 1783 185.3 203.0 234.7 254.0 297.4 333.4 3483 364.3 2198 229.5 240.3 249.2 248.4 2508 251.8 264.8 285.9 290.4 302.4 310.9 320.3 330.2 338.5 344.4 346.1 347 0 3480 351.9 356.1 361.2 367.0 373.1 Equals: Govern- Business ment transfer Personal transfer payments payments income to to persons persons 22.9 24.4 28.1 288 30.3 31.3 33 9 37.5 45.4 53.0 58.8 71.6 85 2 94.6 108.1 1284 163.0 176.9 188 7 202.5 226.4 270.2 3070 342.3 369.4 3783 403.1 4284 447.8 4761 519.2 5731 6491 729.2 776.5 810.1 860.1 902.4 934.5 954 8 988.6 8011 805.2 811.5 822.8 845.4 856 3 865.0 873.7 892.6 900.0 905.5 911.5 929.0 932.9 936.8 939.3 948.2 9514 957 7 962.0 978.5 984.1 991.6 1,000.3 1.3 1.3 1.4 1.5 1.7 1.8 20 2.1 2.3 2.5 2.8 2.8 3.0 3.4 3.8 40 4.5 H67.9.8 8.8 10 2 11.8 12.8 151 17.8 20 7 20.8 208 21.1 213 208 22.5 22.1 23.7 25.8 26.4 27.9 288 29.6 231 23.6 24.0 24.4 25.1 25 7 26.1 26.3 26.1 26.2 26.5 26.8 27.4 27.8 28.1 28.4 28.5 28 7 288 29.0 29.3 29.5 29.7 29.9 394.0 412.7 430.3 457.9 481.0 515.8 557.4 606.4 650.4 714.5 780.8 841.1 905.1 994.3 1,113.4 1225.6 1,331.7 1,475.4 16371 1,848.3 2,081.5 2,323.9 2 599.4 2,768.4 2,946.9 3 274 8 3*515.0 3 712 4 3*962.5 4 2721 4*599.8 4 903 2 5*085 4 5,390.4 5,610.0 5,888.0 6,200.9 6,547.4 6:951.1 7 3589 7>91.2 5 713 7 5,860.8 5,935.3 6,042.4 6,109.9 61633 6:225.9 6,304.6 6,405.1 6,509.4 6,597.1 6,677.9 6,807.6 6,900.6 6,993.5 7,102.7 7,194.7 7 2963 7*413 6 7:530.8 7,630.2 7,732.6 7,831.4 7,970.6 T A B L E B-26.—National income by type of income, 1959-99 [Billions of dollars; quarterly data at seasonally adjusted annual rates] Proprietors' income with inventory valuation and caoital consumotion adjustments Compensation of employees Year or quarter 1959 1960 1961 1962 1963 .. 1964 .. 1965 .. 1966 .. 1967 1968 1969 1970 1971 1972 1973 1974 1975 Z... 1976 1977 1978 1979 "I.! 1980 1981 1982 1983 1984 1985 1986 1987 .. .. 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999* 1994:1 II .... Ill ... IV ... 1995:1 II .... Ill ... IV... 1996:1 II .... Ill ... IV... 1997:1 II .... Ill ... IV ... 1998:1 II .... Ill ... IV... 1999:1 II .... Ill ... IV* National income 1 411.5 427.5 442.5 477.1 504.3 542.0 589.5 646.6 681.5 743.4 802.4 837.1 903.5 1,000.0 1,127.0 1,211.5 1,301.8 1,455.9 1,635.4 1,859.8 2,075.0 2,242.1 2,496.1 2,601.9 2,795.4 3,161.2 3,379.2 3,524.5 3,802.0 4,149.6 4,390.6 4,640.9 4,755.5 4,993.7 5,251.1 5,556.1 5,876.2 6,210.2 6,634.9 7,036.4 5,372.1 5,524.3 5,608.2 5,719.7 5,774.4 5,833.1 5,919.6 5,977.8 6,067.1 6,177.8 6,254.2 6,341.6 6,473.6 6,581.9 6,694.9 6,789.1 6,887.2 6,977.6 7,087.1 7,193.8 7,334.5 7,423.1 7,522.1 Wage and salary accruals Supplements to wages and salaries Total Government Other labor income 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 1,121.0 1,255.6 1,377.4 1,517.3 1,593.4 1,684.3 1,854.8 1,995.2 2,114.4 2,270.2 2,452.7 2,596.8 2,754.6 2,824.2 2,966.8 3,091.6 3,254.3 3,441.1 3,630.1 3,884.7 4,189.5 4,472.7 3,190.2 3,233.4 3,267.7 3,325.9 3,379.6 3,417.2 3,463.6 3,503.8 3,537.4 3,604.6 3,660.9 3,717.6 3,785.3 3,844.3 3,911.3 3,997.9 4,079.6 4,149.7 4,227.9 4,300.8 4,371.5 4,432.6 4,509.4 4,577.2 46.0 49.2 52.4 56.3 60.0 64.9 69.9 78.3 86.4 96.6 105.5 117.1 126.7 137.8 148.7 160.4 176.1 188.7 202.4 219.8 236.9 261.2 285.6 307.3 324.5 347.8 373.5 396.6 422.2 450.9 479.7 516.8 545.6 567.7 584.9 603.9 622.7 641.0 664.4 692.8 726.4 597.4 603.7 605.3 609.2 618.8 620.9 623.9 627.3 634.3 639.3 643.1 647.3 656.6 661.0 667.1 673.1 682.6 689.3 696.7 702.8 715.8 721.3 730.3 738.2 13.4 14.4 15.2 16.7 18.0 20.3 22.7 25.5 28.2 32.5 36.6 41.9 48.0 55.3 62.8 73.3 87.6 105.3 125.3 143.4 162.6 185.4 204.8 222.8 238.6 262.1 282.3 298.4 319.1 336.5 360.5 390.0 415.6 449.5 482.8 507.5 497.0 490.0 500.9 515.7 535.8 503.9 508.1 509.5 508.4 502.2 498.5 495.0 492.1 490.0 489.1 489.6 491.4 496.2 499.1 502.4 505.8 509.5 513.5 517.7 522.1 528.0 533.0 538.5 543.8 Total 281.0 296.4 305.3 327.2 345.3 370.7 399.5 442.6 475.2 524.3 577.6 617.2 658.8 725.1 811.2 890.2 949.0 1,059.3 1,180.4 1,336.0 1,500.8 1,651.7 1,825.7 1,926.0 2,042.7 2,255.9 2,425.2 2,570.7 2,755.6 2,973.8 3,151.0 3,351.0 3,454.9 3,644.8 3,814.4 4,016.2 4,202.5 4,395.6 4,675.7 5,011.2 5,332.0 3,943.5 3,994.9 4,032.8 4,093.6 4,142.7 4,178.8 4,224.3 4,264.1 4,297.4 4,367.8 4,427.8 4,489.4 4,566.1 4,631.3 4,705.2 4,800.3 4,889.4 4,967.0 5,053.6 5,134.7 5,217.7 5,287.1 5,373.6 5,449.7 Other Total Employer contributions for social insurance 213.8 223.7 228.0 243.0 254.8 272.9 293.8 321.9 342.5 375.3 412.7 434.3 457.8 500.9 560.0 611.8 638.6 710.8 791.6 901.2 1,018.7 1,116.2 1,231.7 1,286.1 1,359.8 1,507.0 1,621.7 1,717.8 1,848.0 2,001.8 2,117.1 2,237.9 2,278.6 2,399.1 2,506.8 2,650.4 2,818.4 2,989.1 3,220.3 3,496.7 3,746.3 2,592.8 2,629.7 2,662.4 2,716.8 2,760.8 2,796.4 2,839.7 2,876.5 2,903.1 2,965.3 3,017.8 3,070.3 3,128.7 3,183.3 3,244.2 3,324.9 3,397.1 3,460.4 3,531.2 3,598.0 3,655.7 3,711.3 3,779.1 3,839.0 21.2 23.6 24.8 27.9 30.4 33.0 35.8 42.4 46.2 52.4 59.4 65.7 74.4 86.5 102.6 118.0 134.4 159.7 186.4 215.0 245.2 274.3 308.5 332.6 358.5 401.1 430.0 456.3 485.4 521.1 554.2 596.4 630.7 677.9 722.8 761.9 761.4 765.4 791.0 821.7 859.4 753.3 761.5 765.1 767.7 763.1 761.6 760.7 760.2 760.0 763.2 766.8 771.8 780.8 787.0 793.9 802.4 809.8 817.3 825.7 833.9 846.2 854.5 864.2 872.5 7.9 9.3 9.6 11.2 12.4 12.6 13.1 16.8 18.0 20.0 22.8 23.8 26.4 31.2 39.8 44.7 46.7 54.4 61.1 71.5 82.6 88.9 103.6 109.8 119.9 139.0 147.7 157.9 166.3 184.6 193.7 206.5 215.1 228.4 240.0 254.4 264.5 275.4 290.1 306.0 323.5 249.4 253.4 255.5 259.2 260.9 263.1 265.7 268.2 270.0 274.0 277.2 280.4 284.6 287.8 291.5 296.6 300.3 303.8 308.1 311.8 318.3 321.5 325.7 328.7 Farm Total 51.8 51.9 54.4 56.5 57.8 60.6 65.2 69.6 71.1 75.4 78.9 79.8 86.1 97.7 115.2 115.5 121.6 134.3 148.3 170.1 183.7 177.6 186.2 179.9 195.5 247.5 267.0 278.6 303.9 338.8 361.8 381.0 384.2 434.3 461.8 476.6 497.7 544.7 578.6 606.1 658.0 468.4 479.5 475.8 482.5 488.6 491.4 499.7 511.1 525.9 546.6 553.5 553.0 569.1 575.1 582.9 587.3 586.6 594.2 606.4 637.1 639.9 655.3 654.0 682.7 Total 10.9 11.4 12.1 12.1 11.9 10.8 13.1 14.1 12.8 12.8 14.2 14.3 14.9 18.8 30.7 25.2 23.5 18.7 17.5 21.5 23.7 13.1 20.3 14.4 7.2 21.6 21.5 23.0 29.0 S3 31.1 26.4 32.7 30.1 31.9 22.2 34.3 29.5 25.1 31.3 40.6 33.9 27.7 25.5 21.4 19.6 20.5 27.3 31.1 36.3 38.0 31.7 32.5 30.2 28.9 26.3 17.5 18.7 22.9 41.1 32.5 34.1 21.0 37.5 Nonfarm Proprietors' income2 Total Proprietors' income3 11.8 12.3 12.9 12.9 12.7 11.6 13.9 15.0 13.7 13.9 15.4 15.7 16.5 20.5 32.6 27.7 26.9 22.6 21.7 26.3 29.4 20.2 28.6 23.4 16.0 30.2 29.7 31.1 36.9 33.9 40.0 39.2 34.4 40.9 38.2 39.9 30.2 42.1 37.2 32.7 38.6 48.6 41.9 35.7 33.5 29.4 27.7 28.5 35.2 39.0 44.2 45.8 39.5 40.3 37.9 36.6 34.0 25.2 26.4 30.5 48.6 39.6 41.2 28.8 44.6 40.9 40.4 42.3 44.4 45.8 49.9 52.2 55.5 58.4 62.6 64.7 65.5 71.2 78.9 84.5 90.3 98.1 115.6 130.8 148.5 160.0 164.5 165.9 165.4 188.3 225.9 245.5 255.6 274.8 312.7 329.6 349.9 357.8 401.7 431.7 444.6 475.5 510.5 549.1 581.0 626.7 427.9 445.6 448.1 457.0 467.2 471.8 479.2 483.9 494.8 510.3 515.5 521.4 536.6 544.9 554.0 561.0 569.1 575.5 583.6 596.0 607.5 621.2 633.0 645.2 40.3 40.0 42.0 44.1 45.5 49.5 52.2 55.7 58.7 63.4 65.5 66.6 72.6 79.9 86.6 94.1 99.9 117.2 131.9 149.9 161.4 165.7 161.4 158.9 172.8 200.3 211.2 216.3 239.8 277.4 293.5 323.2 333.0 373.4 401.4 421.7 447.8 476.0 504.2 532.2 578.9 413.7 419.6 422.7 430.9 441.8 444.8 450.8 453.7 463.6 477.1 479.8 483.4 494.9 500.2 508.1 513.7 519.4 527.6 534.6 547.4 558.9 573i 586.2 596.9 1 National income is the total net income earned in production. It differs from gross domestic 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 B-24. See next page for continuation of table. 336 T A B L E B-26.—National income by type of income, 1959-99—Continued [Billions of dollars,- quarterly data at seasonally adjusted annual rates] Rental income of persons with capital consumption adjustment Year or quarter Corporate profits with inventory valuation and capital consumption adjustments Profits with inventory valuation adjustment and without capital consumption adjustment Profits Capital Rental Total income nf Ul consumption persons adjustment before tax riUllia tax liability Total Dividends Undistributed profits Inventory valuation adjustment Total Tntal lUldl Prnfrfc • lUlllo Prnfitc Profits after tax 1959 ... 15.2 17.3 -2.1 53.7 53.4 53.7 23.6 30.0 12.6 17.5 -0.3 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 16.2 16.9 17.8 18.5 18.6 19.2 19.9 20.4 20.2 20.3 18.3 19.0 19.9 20.5 20.6 21.4 22.4 23.2 23.4 24.3 -2.1 -2.1 -2.1 -2.0 -2.0 -2.2 -2.5 -2.8 -3.3 -3.9 52.3 53.4 61.5 67.6 74.7 85.9 91.8 89.4 96.3 93.4 51.4 51.7 56.9 62.0 68.4 78.7 84.4 81.7 88.5 85.2 51.5 51.5 56.9 61.9 68.9 80.0 86.5 83.3 92.2 91.1 22.7 22.8 24.0 26.2 28.0 30.9 33.7 32.7 39.4 39.7 28.8 28.7 32.9 35.7 40.9 49.1 52.8 50.6 52.8 51.4 13.4 13.9 15.0 16.2 18.2 20.2 15.5 14.8 17.9 19.5 22.7 28.9 32.1 29.1 29.3 27.2 -.2 .3 .0 .1 -.5 20.3 24.6 34.4 37 7 22.0 20.4 22 4 24*5 32.3 33 0 34.0 38 9 44.5 109.4 1235 114.0 132.5 1601 190.5 2168 22L9 74.0 87 9 100.7 114 6 1085 134.3 164 5 193.3 2212 229i9 80.6 261 277 301 317 -4.3 -5 0 -6.1 -7 0 -8.7 -10.3 -11.5 -13.6 -16 5 -20*0 81.3 212 2L6 231 230 107.3 134 2 1468 144.8 178 6 209.0 244 9 270.1 46.2 54 7 65.5 84 9 95.0 93.9 114.4 136.0 1614 182*1 24.3 25 0 26.8 29 9 33.2 33.0 39.0 44.8 313 54 9 197 7 218.0 2002 253.0 308.7 3213 299!5 345.3 403.5 394.2 209 3 2163 188 0 223.9 262.0 2552 2505 298.4 359.8 360.4 2514 2409 195 5 231.4 266.0 255 2 243*4 314 6 381.9 376.7 641 738 762 102 6 86 0 77.2 94.0 96 5 1065 1271 137.2 141.5 1666 159.8 132 4 154.1 172.0 158 7 1369 187.5 244.8 235.3 83.6 91.0 97 7 1063 112.2 129.6 155.0 70.5 81.0 ... ... ... ... ... ... ... 1970 1971 . 1972 1973 1974 . 1975 1976 1977 1978 1979 215 948 924 4L9 493 518 50.9 64 2 73.0 83 5 88.0 1980 1981 . 1982 1983 1984 1985 1986 . 1987 1988 1989 35.8 44.1 40.5 68.9 79.1 80.2 -23 6 -26.5 -28 5 -28.9 -29.4 -312 -315 -33.1 -35.0 -39.7 1990 1991 1992 1993 1994 . 1995 1996 1997 1998 1999* 49.1 56.4 63.3 90.9 110.3 117.9 129.7 130 2 1374 146.1 87.2 96.0 111.4 133.6 157.8 165.4 177.4 180 0 188:6 202.2 -38.1 -39.6 -48.1 -42.8 -47.5 -47.5 -47.6 -49 9 -51.1 -56.1 407.4 430.2 451.9 509.7 572.5 668.3 753.9 837 9 846.1 388.6 421.1 448.8 506.4 561.0 650.2 729.4 803 2 802*8 401.5 416.1 451.6 510.4 573.4 668.5 726.3 795 9 781.9 140.6 133.6 143.1 165.4 186.7 211.0 223.6 238 3 240.2 260.9 282.6 308.4 345.0 386.7 457.5 502.7 557 6 5417 1994:1 II Ill IV 98.0 112.0 116.2 115.2 156.4 154.9 160.0 160.1 -58.3 -42.9 -43.8 -45.0 497.6 568.3 597.9 626.0 506.6 552.5 579.7 605.1 514.8 562.7 595.4 620.7 165.4 182.8 194.4 204.1 1995:1 II Ill IV 116.9 115.1 116.6 123.2 163.0 161.3 163.0 174.4 -46.1 -46.2 -46.4 -51.3 629.4 654.9 692.4 696.4 610.7 637.1 673.7 679.2 643.2 665.3 683.5 681.8 1996:1 II Ill IV 128.4 129.0 130.1 131.4 175.2 176.1 178.2 179.9 -46.8 -47.0 -48.1 -48.5 737.2 748.9 754.8 774.5 715.3 724.7 729.6 748.1 1997:1 II Ill IV 132.4 132.0 129.4 126.7 181.5 181.5 179.8 177.3 -49.1 -49.4 -50.3 -50.6 803.6 831.6 862.8 853.5 1998:1 II Ill IV 129.5 133.9 139.3 147.0 179.6 184.3 190.7 199.6 -50.0 -50.5 -51.4 -52.6 1999:1 II Ill IV* 148.6 148.8 139.0 148.2 202.5 203.5 198.9 204.0 -53.9 -54.7 -59.9 -55.8 39.6 39 6 36*9 39.5 391 322 661 68 0 65.9 68.8 70 3 637 631 21.5 23.5 24.2 508 57*5 21.9 29 7 38.6 55 0 61.8 60.9 75.4 91.2 1106 124*6 562 -1.2 -2.1 -1.6 -3.7 -5.9 -6.6 -46 -6.6 -196 -38.2 -10.5 -14.1 -15.7 -23 7 -40.1 -421 -24*6 -7 5 -7.4 -4.0 Net interest 0.3 .9 1.7 4.6 5.6 6.3 7.1 7.5 7.7 7.8 8.3 7.3 69 87 89 5.5 9.7 107 -1.7 -44 -2.8 -44 -8*0 -116 17 12.4 14.1 15.2 17.3 19.7 22.6 25.4 27.2 32.2 38.4 42.6 46.2 53 9 68.8 76.6 80.8 95.7 114 5 144.2 183 9 226.5 256 3 267.2 309.6 326 7 343 6 361.5 389.4 443.1 75.3 115.2 30.2 -16 2 -22.2 -16.3 12 2 29.1 46.6 66 0 49 0 46 9 43.8 33.9 165.5 178.4 185.5 203.1 234.9 254.2 297.7 333 7 34*6 364 7 95.3 104.1 122.9 141.9 151.8 203.3 205.0 223 9 193*1 -12.9 18.8 4.9 9.1 3.1 3.3 349.4 379.8 401.0 416.6 220.0 2297 240.5 249.4 129.4 150.1 160.5 167.1 -8.3 -10.2 -15.7 -15.6 -9.0 15.8 18.2 20.9 364.6 369.6 385.4 402.5 203.1 208.8 218.7 213.3 440.1 456.6 464.8 468.5 248.6 251.1 252.1 265.0 191.5 205.5 2127 203.4 -32.5 -28.2 -9.8 -2.6 18.8 17.7 18.8 17.2 396.8 392.8 3867 383.0 713.2 726.3 724.9 741.0 219.7 225.3 224.0 225.6 493.5 501.0 500.9 515.4 286.2 290.7 302.7 311.3 207.3 210.3 198.2 204.1 2.1 21.9 24.2 25.2 26.4 378.2 385.5 388.1 393.3 772.6 797.7 827.0 815.5 763.3 786.5 822.1 811.6 228.9 233.2 246.8 244.1 534.4 553.3 575.3 567.4 320.6 330.6 338.8 344.8 213.8 222.7 236.5 222.6 31.0 33.9 858.3 847.9 843.8 834.3 818.4 805.6 799.9 787.4 788.9 792.0 780.1 766.7 239.9 241.1 244.3 235.6 548.9 550.9 535.8 531.0 346.5 347.3 348.4 352.2 882.0 875.5 879.2 831.4 822.2 827.1 818.1 835.8 853.8 248.0 254.4 259.4 570.1 581.4 594.3 356.4 361.5 367.3 373.5 2 Without capital consumption adjustment. Without inventory valuation and capital consumption adjustments. Source: Department of Commerce, Bureau of Economic Analysis. 3 84 8 81*1 207 Capital consumption adjustment 337 610 306 71o -2.8 -4.0 -12.4 -18.3 3.1 74 20*9 -1.7 4.7 7.1 9.3 11.5 18.1 24.4 34 6 43.3 52 0 452.4 429.8 399.5 374.3 380.5 389.8 386.3 412 5 4357 4.9 4.0 38.0 402.3 411.8 414.6 421.2 202.5 203.6 187.4 178.8 29.5 13.6 19.8 20.8 39.9 42.4 43.9 46.9 423.3 434.6 444.0 440.8 213.7 219.9 227.0 13.3 -13.6 -267 50.6 53.2 52.1 52.1 446.3 456.4 476.3 11.2 357 T A B L E B-27.—Sources of personal income, 1959-99 [Billions of dollars; quarterly data at seasonally adjusted annual rates] Wage and salary disbursements1 Proprietors' income with IIIVclllUIy inuont/in/ WIUI Private industries Year or quarter Personal income Total Total Total 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 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999P 1994:1 II Ill .... IV .... 1995:1 II Ill .... IV .... 1996:1 II Ill .... IV .... 1997: I II III .... IV .... 1998:1 II Ill .... IV .... 1999:1 II Ill .... IVP .. Other Goodsproducing industries Manufacturing Distributive industries Service indus- Government lahnr IdDOl income1 tries valuation and capital consumption adjustments Farm Nonfarm 394.0 259.8 213.8 109.9 86.9 65.1 38.8 46.0 13.4 10.9 40.9 412.7 430.3 457.9 481.0 515.8 557.4 606.4 650.4 714.5 780.8 272.8 280.5 299.3 314.8 337.7 363.7 400.3 428.9 471.9 518.3 223.7 228.0 243.0 254.8 272.9 293.8 321.9 342.5 375.3 412.7 113.4 114.0 122.2 127.4 136.0 146.6 161.6 169.0 184.1 200.4 89.8 89.9 96.8 100.7 107.3 115.7 128.2 134.3 146.0 157.7 68.6 69.6 73.3 76.8 82.0 87.9 95.1 101.6 110.8 121.7 41.7 44.4 47.6 50.7 54.9 59.4 65.3 72.0 80.4 90.6 49.2 52.4 56.3 60.0 64.9 69.9 78.3 86.4 96.6 105.5 14.4 15.2 16.7 18.0 20.3 22.7 25.5 28.2 32.5 36.6 11.4 12.1 12.1 11.9 10.8 13.1 14.1 12.8 12.8 14.2 40.4 42.3 44.4 45.8 49.9 52.2 55.5 58.4 62.6 64.7 841.1 905.1 994.3 1,113.4 1,225.6 1,331.7 1,475.4 1,637.1 1,848.3 2,081.5 551.5 583.9 638.7 708.7 772.6 814.6 899.5 993.9 1,120.7 1,255.8 434.3 457.4 501.2 560.0 611.8 638.6 710.8 791.6 901.2 1,018.7 203.7 209.1 228.2 255.9 276.5 277.1 309.7 346.1 392.6 442.3 158.4 160.5 175.6 196.6 211.8 211.6 238.0 266.7 300.1 335.2 131.2 140.4 153.3 170.3 186.8 198.1 219.5 242.7 274.9 308.5 99.4 107.9 119.7 133.9 148.6 163.4 181.6 202.8 233.7 267.8 117.1 126.5 137.4 148.7 160.9 176.0 188.6 202.3 219.6 237.1 41.9 48.0 55.3 62.8 73.3 87.6 105.3 125.3 143.4 162.6 14.3 14.9 18.8 30.7 25.2 23.5 18.7 17.5 21.5 23.7 65.5 71.2 78.9 84.5 90.3 98.1 115.6 130.8 148.5 160.0 2,323.9 2,599.4 2,768.4 2,946.9 3,274.8 3,515.0 3,712.4 3,962.5 4,272.1 4,599.8 1,377.5 1,517.2 1,593.4 1,684.7 1,854.6 1,995.4 2,114.4 2,270.2 2,452.7 2,596.8 1,116.2 1,231.7 1,286.1 1,359.8 1,507.0 1,621.7 1,717.8 1,848.0 2,001.8 2,117.1 472.3 514.5 514.6 527.7 586.1 620.2 636.8 660.1 706.7 732.2 356.2 387.6 385.7 400.7 445.4 468.5 480.7 496.9 529.9 547.9 336.7 261.3 285.6 307.3 325.0 347.6 373.8 396.6 422.2 450.9 479.7 185.4 204.8 222.8 13.1 20.3 14.4 405.7 445.2 476.5 501.6 535.4 575.1 606.5 307.2 348.6 385.6 426.4 475.6 524.9 579.3 652.4 720.1 778.5 262 1 282!3 298.4 319.1 336.5 360.5 21.6 21.5 23.0 29.0 26.0 32.2 164.5 165.9 165.4 188.3 225.9 245.5 255.6 274.8 312.7 329.6 4,903.2 5,085.4 5,390.4 5,610.0 5,888.0 6,200.9 6,547.4 6,951.1 7,358.9 7,791.2 2,754.6 2,824.2 2,982.6 3,085.2 3,236.7 3,424.7 3,626.5 3,888.9 4,186.0 4,472.7 2,237.9 2,278.6 2,414.9 2,500.3 2,632.8 2,802.0 2,985.5 3,224.4 3,493.2 3,746.3 754.4 746.3 765.7 780.6 824.0 863.6 908.2 975.5 1,038.7 1,082.6 561.4 562.5 583.5 592.4 620.3 647.5 673.7 718.8 757.5 779.9 633.6 646.3 680.2 697.3 738.4 782.1 822.4 879.1 944.6 1,005.5 849.9 886.0 969.0 1,022.4 1,070.4 1,156.3 1,254.9 1,369.8 1,509.9 1,658.1 516.7 545.6 567.7 584.9 603.9 622.7 641.0 664.4 692.8 726.4 390.0 415.6 449.5 482.8 507.5 497.0 490.0 500.9 515.7 535.8 m 30.1 31.9 22.2 34.3 29.5 25.1 31.3 349.9 357.8 401.7 431.7 444.6 475.5 510.5 549.1 581.0 626.7 5,713.7 5,860.8 5,935.3 6,042.4 3,133.8 3,228.7 3,263.0 3,321.2 2,536.4 2,625.0 2,657.7 2,712.1 796.6 820.0 832.5 846.9 600.2 617.9 626.4 636.7 712.8 735.0 745.1 760.8 1,027.0 1,070.0 1,080.2 1,104.4 597.4 603.7 605.3 609.2 503.9 508.1 509.5 508.4 40.6 33.9 27.7 25.5 427.9 445.6 448.1 457.0 6,109.9 6,163.3 6,225.9 6,304.6 3,363.2 3,400.9 3,447.2 3,487.5 2,744.5 2,780.0 2,823.3 2,860.1 852.8 858.4 868.1 875.0 641.1 644.5 650.4 654.0 768.4 777.5 787.8 794.7 1,123.2 1,144.1 1,167.4 1,190.5 618.8 620.9 623.9 627.3 502.2 498.5 495.0 492.1 21.4 19.6 20.5 27.3 467.2 471.8 479.2 483.9 6,405.1 6,509.4 6,597.1 6,677.9 3,533.8 3,601.0 3,657.3 3,713.9 2,899.4 2,961.6 3,014.2 3,066.7 882.1 903.0 917.6 930.0 656.0 671.1 680.2 687.6 803.5 816.6 828.3 841.2 1,213.9 1,242.0 1,268.3 1,295.6 634.3 639.3 643.1 647.3 490.0 489.1 489.6 491.4 31.1 36.3 38.0 31.7 494.8 510.3 515.5 521.4 6,807.6 6,900.6 6,993.5 7,102.7 3,789.5 3,848.5 3,915.4 4,002.1 3,132.8 3,187.4 3,248.3 3,329.0 952.2 965.9 979.5 1,004.3 703.1 712.0 720.7 739.4 856.3 868.9 885.7 905.6 1,324.4 1,352.6 1,383.1 1,419.1 656.6 661.0 667.1 673.1 496.2 499.1 502.4 505.8 32.5 30.2 28.9 26.3 536.6 544.9 554.0 561.0 7,194.7 7,296.3 7,413.6 7,530.8 4,076.2 4,146.2 4,224.4 4,297.3 3,393.6 3,457.0 3,527.7 3,594.5 1,020.4 1,032.2 1,045.6 1,056.6 747.7 754.5 762.3 765.6 919.6 935.3 953.5 969.9 1,453.6 1,489.5 1,528.6 1,568.0 682.6 689.3 696.7 702.8 509.5 513.5 517.7 522.1 17.5 18.7 22.9 41.1 569.1 575.5 583.6 596.0 7,630.2 7,732.6 7,831.4 7,970.6 4,371.5 4,432.6 4,509.4 4,577.2 3,655.7 3,711.3 3,779.1 3,839.0 1,062.9 1,075.1 1,090.2 1,102.2 767.0 774.8 786.4 791.4 986.3 997.6 1,013.4 1,024.8 1,606.6 1,638.5 1,675.5 1,711.9 715.8 721.3 730.3 738.2 528.0 533.0 538.5 543.8 32.5 34.1 21.0 37.5 607.5 621.2 633.0 645.2 liii 7.2 31.1 1 The total of wage and salary disbursements and other labor income differs from compensation of employees in Table B-26 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. 338 TABLE B-27.—Sources of personal income, 1959-99—Continued [Billions of dollars; quarterly data at seasonally adjusted annual rates] Year or quarter 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 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999* 19941 II III IV 1995:1 II Ill IV 1996-1 II Ill IV 1997:1 Rental income of persons with capital consumption adjustment 15.2 16.2 16 9 178 18.5 18.6 19 2 19 9 20.4 20 2 20.3 203 212 21.6 23.1 23.0 22.0 215 20.4 22.4 24.5 31.3 39 6 39.6 36 9 39 5 39.1 32 2 35 8 44.1 40.5 491 56.4 63.3 90 9 110.3 117.9 129.7 130.2 137.4 146.1 98 0 112 0 116.2 115.2 116.9 1151 116.6 123.2 1284 129.0 1301 131.4 Transfer payments to persons Personal dividend income 12.6 13.4 13 9 15 0 16.2 18.2 20 2 20 7 21.5 23 5 24.2 24 3 25 0 26.8 29.9 33 2 32.9 39 0 44 7 50.7 57.4 64.0 73 6 76.1 83 5 908 97.5 1061 1121 129.4 154.8 1654 178.3 185.3 2030 234.7 254.0 2974 333.4 348.3 364.3 219 8 229 5 240.3 249.2 248.4 250 8 251.8 264.8 285 9 290.4 302 4 310.9 Personal interest income 23.0 25.6 27 3 302 33.0 36.9 408 45 3 49.4 541 62.3 715 77 5 84.2 97.6 1161 128.0 140 5 1619 191.3 233.5 286.4 352 7 401.6 4316 5053 546.4 579 2 609 7 650.5 736.5 7724 771.8 750.1 725 5 742.4 792.5 810 6 854.9 897.8 930.6 714 4 7271 750.2 778.0 784.8 7919 794.7 798.7 797 2 805.9 814 6 824.6 835.7 850 6 859 7 873.6 8801 895.3 909 3 906.4 907.4 920 5 938.8 955.6 Total 24.2 25.7 29 5 303 32.0 33.2 35 9 39 6 47.6 55 6 61.6 74 3 882 98.0 111.9 132 3 167.5 182 3 194 6 209.3 234.2 279.0 317 2 354.2 382 2 3934 420.9 449 0 4686 496.9 540.4 594 4 669.9 751.7 798 6 833.9 8H 962.4 983.6 Old-age, survivors, Government disability, unemand Veterans Family assis-1 health ployment benefits tance insurinsurance ance benefits benefits 10.2 11.1 12 6 14 3 15.2 16.0 181 208 25.5 30 2 32.9 38 5 44 5 49.6 60.4 701 81.4 92 9 104 9 116.2 131.8 154.2 182 0 204.5 2217 235 7 253.4 269 2 282 9 300.5 325.2 3521 382.4 414.0 4444 473.0 508.0 537.6 565.8 578.1 596.6 463 5 470 3 475.7 482.6 498.1 505 7 511.3 516.7 5288 534.9 540 2 546.4 2.8 3.0 43 31 3.0 2.7 23 19 2.2 21 2.2 40 58 5.7 4.4 68 17.6 15 8 12 7 9.7 9.8 4.6 4.6 50 47 4.8 4.7 49 49 5.6 59 6.7 77 88 9.7 10.4 118 14.5 14 4 13 8 13.9 14.4 19 2.3 28 3.5 48 62 6.9 7.2 80 9.3 101 10.6 10.8 11.1 16.1 15 9 25.2 26 3 15 9 15.7 163 14 5 13.2 14.3 18 0 26.6 38.9 341 23.6 21.5 22.1 20.0 19.8 20.2 27 7 23 9 21.8 21.0 20.7 212 21.7 22.2 22 9 22.4 215 21.5 21.0 20 0 19 6 19.2 15.0 161 16.4 166 164 16.7 16 7 166 16.9 17.3 178 18.3 19.3 201 20.1 20.9 21.7 22.5 23.3 24.3 19 9 19 9 20.2 20.4 20.8 20 8 21.0 20.9 215 21.9 216 21.8 22.5 22 4 22 5 22.7 23.2 23.2 23.3 23.6 24.3 241 24.3 24.5 12.5 131 12.9 138 14 5 15.2 161 164 16.9 17.5 19 2 21.1 22.2 22 8 23.2 22.6 20.3 17.6 17.1 15.9 231 23 2 23.2 23.2 22.9 22 8 22.6 22.3 214 20.8 20 2 18.9 18.2 17 7 17.3 17.1 17.1 17.1 17.1 17.3 16.9 16.3 15.4 15.1 0.9 1.0 11 13 1.4 H Other 5.7 Less: Personal contributions for social insurance 6.1 65 70 7.6 8.2 90 10 2 12.1 14 5 16.2 194 23.0 26.1 29.5 35.6 44.7 49 2 52.5 58.7 67.1 6.0 7.2 74 7.9 9.3 9.8 10 3 14.5 16.8 18 7 21.4 22 5 24.7 28.0 35.7 40.5 42.6 46 9 52.0 59.7 70.2 81.3 90 2 95.2 103 8 1110 119.9 130 6 138 2 149.5 166.1 187 3 221.5 257.3 277 2 294.0 313.0 327.1 336.5 345.2 361.3 289.9 2914 294.5 300.0 308.0 311.5 314.5 318.1 324 0 326.3 328 4 329.6 77.2 921 99.1 1061 1184 133.6 145 6 156 8 176.8 191.6 203 7 215.1 226.6 237 8 254.1 268.8 280.4 298.1 315.9 334.5 248 8 252 9 255.3 259.2 264.7 267 3 270.2 272.7 274 7 278.8 282 3 285.7 1,018.2 8241 828 7 835.5 847.1 870.5 8819 891.1 900.1 918 7 926.3 9319 938.3 132.4 560.2 334.6 292.0 320.3 956.4 335 8 330 2 564 8 295 6 132 0 960 7 337.2 299.7 129.4 Ill. 338 5 964 9 5681 IV 338.4 126.7 344.4 967.7 570.2 304.9 341.7 310.0 1998-1 976 7 129.5 3461 575.1 19.6 II 344.0 576.5 19.2 313.8 133.9 347.0 980.0 345.8 318.0 Ill 579.6 139.3 348 0 20.6 986 5 IV 349.1 581.1 19.9 322.0 147.0 351.9 991.0 357.2 1999:1 328.9 588.9 20.5 148.6 356.1 1,007.8 II 359.9 332.3 3612 593 0 20 3 148 8 1013 6 III 362.4 336.7 599.0 20.2 139.0 367.0 1)021.3 340.2 605.4 365.5 148.2 373.1 19.6 1,030.2 1 Consists of aid to families with dependent children and, beginning with 1996, assistance programs operating under the Personal Responsibility and Work Opportunity Reconciliation Act of 1996. Note.—The industry classification of wage and salary disbursements and proprietors' income is on an establishment basis and is based on the 1987 Standard Industrial Classification (SIC) beginning 1987 and on the 1972 SIC for earlier years shown. Source: Department of Commerce, Bureau of Economic Analysis. 339 TABLE B-28.—Disposition of personal income, 1959-99 [Billions of dollars, except as noted; quarterly data at seasonally adjusted annual rates] Percent of disposable personal income l Less: Personal outlays 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 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999* Personal income Less: Personal tax and nontax payments Equals: Disposable personal income Total Personal transfer Personal Interest payconpaid ments sumption by to rest expendipersons of the tures world (net) Personal outlays Equals: Personal saving Total Personal Personal consaving sumption expenditures 26.5 92.4 90.6 7.6 92.8 91.7 91.7 92.2 91.2 91.4 91.7 90.6 91.6 92.2 90.7 89.6 89.7 90.0 88.9 89.0 89.4 88.3 89.2 89.7 7.2 8.3 8.3 7.8 A .8 1.0 1.0 1.1 26.4 31.9 33.5 33.1 40.5 42.7 44.5 54.0 52.7 52.6 16.8 17.8 19.6 22.4 24.2 24.5 26.6 30.7 37.5 44.5 1.3 1.3 1.4 1.5 1.3 1.3 1.3 1.3 1.5 1.6 69.5 80.1 76.9 102.5 114.3 125.2 122.1 125.6 145.4 165.8 90.6 90.0 91.1 89.5 89.3 89.4 90.6 91.3 91.0 90.8 88.1 87.6 88.7 87.1 87.0 87.2 88.5 89.0 88.6 88.3 9.4 10.0 8.9 10.5 10.7 10.6 9.4 8.7 9.0 9.2 49.4 54.6 58.8 65.0 205.6 243.7 262.2 227.8 306.5 282.6 267.8 252.8 292.3 301.8 89.8 89.2 89.1 91.2 89.4 90.8 91.8 92.7 92.2 92.5 87.3 86.5 86.4 88.4 86.5 87.9 88.7 89.8 89.5 89.6 10.2 10.8 10.9 8.8 10.6 9.2 8.2 7.3 7.8 7.5 12.0 13.0 12.5 14.4 15.6 16.5 18.2 20.6 22.3 24.4 334.3 371.7 413.7 350.8 315.5 302.4 272.1 271.1 229.7 158.3 92.2 91.7 91.3 92.9 93.9 94.4 95.2 95.5 96.3 97.6 89.2 88.7 88.5 90.3 91.3 91.6 92.2 92.3 93.0 94.2 7.8 8.3 8.7 7.1 6.1 5.6 4.8 4.5 3.7 2.4 4,613.8 4,677.5 4,753.0 4,821.3 90.6 91.5 92.9 106.4 115.8 118.9 118.7 115.4 117.9 134.7 149.9 166.7 185.7 201.6 114.9 116.1 118.2 122.4 1.8 5.5 6.5 6.8 7.7 8.1 9.0 9.9 10.6 11.4 15.3 15.5 15.7 15.9 274.3 319.5 324.1 344.2 94.5 93.8 93.8 93.5 91.9 91.2 91.2 90.9 5.5 6.2 6.2 6.5 5,012.1 5,091.3 5,158.4 5,218.8 4,868.6 4,943.7 5,005.2 5,058.4 127.5 132.1 136.8 142.4 15.9 15.6 16.4 18.0 346.0 291.5 285.9 286.3 93.5 94.6 94.7 94.8 90.9 91.8 91.9 91.9 6.5 5.4 5.3 5.2 5,574.4 5,637.0 5,719.8 5,779.7 5,292.2 5,383.9 5,433.7 5,512.6 5,130.5 5,218.0 5,263.7 5,337.9 144.3 147.9 151.8 155.5 17.4 18.0 18.2 19.3 282.2 253.1 286.1 267.1 94.9 95.5 95.0 95.4 92.0 92.6 92.0 92.4 5.1 4.5 5.0 4.6 934.2 954.4 978.6 1,006.0 5,873.4 5,946.2 6,014.9 6,096.7 5,609.9 5,650.2 5,759.4 5,827.4 5,430.8 5,466.3 5,569.1 5,631.3 159.6 164.0 168.7 174.3 19.6 19.8 21.5 21.7 263.4 296.1 255.5 269.3 95.5 95.0 95.8 95.6 92.5 91.9 92.6 92.4 4.5 5.0 4.2 4.4 7,194.7 7,296.3 7,413.6 7,530.8 1,031.2 1,058.0 1,088.3 1,113.0 6,163.5 6,238.3 6,325.3 6,417.8 5,914.7 6,020.9 6,100.5 6,190.3 5,714.7 5,816.2 5,889.6 5,973.7 178.8 182.8 187.9 193.2 21.1 21.8 22.9 23.3 248.9 217.5 224.8 227.5 96.0 96.5 96.4 96.5 92.7 93.2 93.1 93.1 4.0 3.5 3.6 3.5 7,630.2 7,732.6 7,831.4 7,970.6 1,124.8 1,139.4 1,160.4 1,183.2 6,505.4 6,593.2 6,671.0 6,787.4 6,310.3 6,425.2 6,531.5 6,656.6 6,090.8 6,200.8 6,303.7 6,424.6 196.1 199.9 203.3 206.9 23.5 24.6 24.5 25.1 195.1 168.0 139.5 130.8 97.0 97.5 97.9 98.1 93.6 94.0 94.5 94.7 3.0 2.5 2.1 1.9 394.0 42.8 351.2 324.7 318.1 6.1 412.7 430.3 457.9 481.0 515.8 557.4 606.4 650.4 714.5 780.8 46.6 47.9 52.3 55.3 52.8 58.4 67.3 74.2 88.3 105.9 366.2 382.4 405.6 425.8 463.0 498.9 539.1 576.2 626.2 675.0 339.8 350.5 372.2 392.7 422.4 456.2 494.6 522.3 573.6 622.3 332.3 342.7 363.8 383.1 411.7 444.3 481.8 508.7 558.7 605.5 7.0 7.3 7.8 8.9 10.0 11.1 12.0 12.5 13.8 15.7 841.1 905.1 994.3 1,113.4 1,225.6 1,331.7 1,475.4 1,637.1 1,848.3 2,081.5 104.6 103.4 125.6 134.5 153.3 150.3 175.5 201.2 233.5 273.3 736.5 801.7 868.6 979.0 1,072.3 1,181.4 1,299.9 1,436.0 1,614.8 1,808.2 667.0 721.6 791.7 876.5 957.9 1,056.2 1,177.8 1,310.4 1,469.4 1,642.4 648.9 702.4 770.7 852.5 932.4 1,030.3 1,149.8 1,278.4 1,430.4 1,596.3 2,323.9 2,599.4 2,768.4 2,946.9 3,274.8 3,515.0 3,712.4 3,962.5 4,272.1 4,599.8 304.2 351.5 361.6 360.9 387.2 428.5 449.9 503.0 519.7 583.5 2,019.8 2,247.9 2,406.8 2,586.0 2,887.6 3086.5 3,262.5 3,459.5 3,752.4 4,016.3 1,814.1 2,004.2 2,144.6 2,358.2 2,581.1 2,803.9 2,994.7 3,206.7 3,460.1 3,714.4 1,762.9 1,944.2 2,079.3 2286.4 2,498.4 2,712.6 2,895.2 3,105.3 3,356.6 3,596.7 4,903.2 5,085.4 5,390.4 5,610.0 5,888.0 6,200.9 6,547.4 6,951.1 7,358.9 7,791.2 609.6 610.5 635.8 674.6 722.6 778.3 869.7 968.3 1,072.6 1,152.0 4,293.6 4,474.8 4,754.6 4,935.3 5,165.4 5,422.6 5,677.7 5,982.8 6,286.2 6,639.2 3,959.3 4,103.2 4,340.9 4,584.5 4,849.9 5,120.2 5,405.6 5,711.7 6,056.6 6,480.9 3,831.5 3,971.2 4,209.7 4,454.7 4,716.4 4,969.0 5,237.5 5,524.4 5,848.6 6,254.9 1994:1 . II ill IV 5,713.7 5,860.8 5,935.3 6,042.4 695.4 732.2 724.3 738.5 5,018.3 5,128.6 5,211.0 5,303.9 4,744.0 4,809.1 4,886.9 4,959.7 1995:1 . II Ill IV 6,109.9 6,163.3 6,225.9 6,304.6 751.8 780.5 781.6 799.5 5,358.1 5,382.8 5,444.4 5,505.1 1996:1 II Ill IV 6,405.1 6,509.4 6,597.1 6,677.9 830.7 872.5 877.3 898.1 1997:1 II Ill IV 6,807.6 6,900.6 6,993.5 7,102.7 1998.-1 II Ill IV 1999:1 II 1 Percents based on data in millions of dollars. Source: Department of Commerce, Bureau of Economic Analysis. 340 82 0.5 '.S .1 8.3 9.4 8.4 7.8 TABLE B-29.—Total and per capita disposable personal income and personal consumption expenditures in current and real dollars, 1959-99 [Quarterly data at seasonally adjusted annual rates, except as noted] Personal consumption expenditures Disposable personal income Year or quarter 1959 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 L972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 L987 1988 1989 1990 1991 L992 1993 1994 L995 L996 1997 1998 1999^ 1994:1 II Ill .... IV .... 1995:1 II Ill .... IV .... 1996:1 II Ill .... IV .... 1997:1 II Ill .... IV .... 1998.1 II Ill .... IV .... 1999:1 II Ill .... IV* Total (billions of dollars) Per capita (dollars) Total (billions of dollars) Per capita (dollars) Gross domestic product per capita (dollars) Current dollars Chained (1996) dollars Current dollars Chained (1996) dollars Current dollars Chained (1996) dollars Current dollars Chained (1996) dollars Current dollars Chained (1996) dollars 351.2 366.2 382.4 405.6 425.8 463.0 498.9 539.1 576.2 626.2 675.0 736.5 801.7 868.6 979.0 1,072.3 1,181.4 1,299.9 1,436.0 1,614.8 1,808.2 2,019.8 2,247.9 2,406.8 2,586.0 2,887.6 3,086.5 3,262.5 3,459.5 3,752.4 4,016.3 4,293.6 4,474.8 4,754.6 4,935.3 5,165.4 5,422.6 5,677.7 5,982.8 6,286.2 6,639.2 5,018.3 5,128.6 5,211.0 5,303.9 5,358.1 5,382.8 5,444.4 5,505.1 5,574.4 5,637.0 5,719.8 5,779.7 5,873.4 5,946.2 6,014.9 6,096.7 6,163.5 6,238.3 6,325.3 6,417.8 6,505.4 6,593.2 6,671.0 6,787.4 1,606.3 1,646.8 1,701.5 1,783.9 1,851.1 1,984.8 2,107.2 2,219.1 2,313.8 2,420.0 2,498.0 2,602.2 2,709.2 2,832.3 3,024.2 3,015.7 3,074.6 3,195.6 3,306.6 3,478.9 3,588.7 3,631.0 3,715.6 3,773.4 3,881.4 4,181.0 4,321.8 4,461.2 4,563.1 4,766.0 4,885.0 4,991.3 5,026.2 5,199.8 5,253.6 5,388.3 5,533.0 5,677.7 5,884.7 6,125.1 6,367.4 5,283.5 5,371.7 5,412.3 5,485.5 5,507.8 5,502.4 5,541.0 5,580.8 5,617.6 5,647.2 5,710.9 5,735.3 5,798.0 5,857.9 5,909.8 5,973.0 6,031.5 6,087.5 6,154.6 6,226.6 6,289.3 6,339.1 6,384.8 6,456.3 1,983 2,026 2,081 2,174 2,249 2,412 2,567 2,742 2,899 3,119 3,329 3,591 3,860 4,138 4,619 5,013 5,470 5,960 6,519 7,253 8,033 8,869 9,773 10,364 11,036 12,215 12,941 13,555 14,246 15,312 16,235 17,176 17,710 18,616 19,121 19,820 20,613 21,385 22,320 23,231 24,305 19,326 19,705 19,969 20,276 20,441 20,489 20,670 20,849 21,072 21,261 21,517 21,687 21,994 22,215 22,410 22,658 22,863 23,086 23,345 23,628 23,904 24,171 24,389 24,753 9,068 9,111 9,260 9,561 9,779 10,342 10,842 11,288 11,641 12,055 12,322 12,688 13,044 13,492 14,269 14,099 14,236 14,653 15,010 15,627 15,942 15,944 16,154 16,250 16,564 17,687 18,120 18,536 18,790 19,448 19,746 19,967 19,892 20,359 20,354 20,675 21,032 21,385 21,954 22,636 23,310 20,348 20,639 20,741 20,970 21,012 20,945 21,036 21,136 21,235 21,300 21,483 21,520 21,712 21,885 22,019 22,198 22,373 22,528 22,715 22,924 23,110 23,239 23,343 23,546 318.1 332.3 342.7 1,454.8 1,494.4 1,524.6 1,599.7 1,665.7 1,765.2 1,876.4 1,983.3 2,042.7 2,159.1 2,241.2 2,293.0 2,373.6 2,513.2 2,634.0 2,622.3 2,681.3 2,826.5 2,944.0 3,081.6 3,168.0 3,169.4 3,214.0 3,259.8 3,431.7 3,617.6 3,798.0 3,958.7 4,096.0 4,263.2 4,374.4 4,454.1 4,460.6 4,603.8 4,741.9 4,920.0 5,070.1 5,237.5 5,433.7 5,698.6 5,998.7 4,857.6 4,899.2 4,936.7 4,986.4 5,004.7 5,053.6 5,094.0 5,128.0 5,170.3 5,227.5 5,255.4 5,296.8 5,361.1 5,385.1 5,471.8 5,517.1 5,592.3 5,675.6 5,730.7 5,795.8 5,888.4 5,961.8 6,033.3 6,111.2 1,796 1,838 1,865 1,950 2,024 2,145 2,286 2,451 2,559 2,783 2,987 3,164 3,382 3,671 4,022 4,359 4,771 5,272 5,803 6,425 7,091 7,741 8,453 8,954 9,757 10,569 11,373 12,029 12,787 13,697 14,539 15,327 15,717 16,482 17,259 18,097 18,888 19,727 20,610 21,614 22,898 17,768 17,972 18,214 18,431 18,573 18,818 19,002 19,157 19,394 19,681 19,801 20,029 20,337 20,422 20,749 20,929 21,198 21,524 21,737 21,993 22,381 22,732 23,047 23,430 8,213 8,267 8,298 8,574 8,799 9,197 9,655 10,088 10,278 10,755 11,055 11,180 11,429 11,972 12,428 12,259 12,414 12,960 13,364 13,842 14,073 13,918 13,973 14,038 14,644 15,303 15,924 16,448 16,867 17,397 17,682 17,818 17,653 18,025 18,372 18,878 19,272 19,727 20,272 21,060 21,960 18,707 18,824 18,918 19,062 19,093 19,236 19,340 19,421 19,544 19,716 19,770 19,875 20,076 20,119 20,387 20,504 20,744 21,004 21,151 21,338 21,637 21,856 22,058 22,287 2,865 2,918 2,970 3,143 3,268 3,462 3,705 4,015 4,197 4,540 4,860 5,069 5,434 5,909 6,537 7,017 7,571 8,363 9,221 10,313 11,401 12,276 13,614 14,035 15,085 16,636 17,664 18,501 19,529 20,845 22,188 23,215 23,691 24,741 25,735 27,068 28,131 29,428 30,968 32,373 33,857 26,526 26,956 27,193 27,592 27,839 27,949 28,219 28,515 28,841 29,354 29,564 29,948 30,430 30,857 31,165 31,415 31,939 32,136 32,471 32,941 33,338 33,530 33,993 34,563 12,985 13,041 13,128 13,707 14,095 14,707 15,450 16,274 16,500 17,114 17,477 17,306 17,623 18,360 19,218 18,989 18,753 19,545 20,227 21,156 21,635 21,395 21,712 21,102 21,788 23,171 23,856 24,454 25,089 25,908 26,552 26,736 26,394 26,981 27,330 28,156 28,650 29,428 30,461 31,472 32,439 27,800 28,124 28,207 28,489 28,537 28,533 28,683 28,846 28,999 29,421 29,504 29,784 30,083 30,391 30,607 30,762 31,205 31,298 31,504 31,879 32,107 32,182 32,541 32,921 3831 41L7 444.3 481.8 508.7 558.7 605.5 648.9 702.4 770.7 852.5 932.4 1,030.3 1,149.8 1,278.4 1,430.4 1,596.3 1,762.9 1,944.2 2,079.3 2,286.4 2,498.4 2,712.6 2,895.2 3,105.3 3,356.6 3,596.7 3,831.5 3,971.2 4,209.7 4,454.7 4,716.4 4,969.0 5,237.5 5,524.4 5,848.6 6,254.9 4,613.8 4,677.5 4,753.0 4,821.3 4,868.6 4,943.7 5,005.2 5,058.4 5,130.5 5,218.0 5,263.7 5,337.9 5,430.8 5,466.3 5,569.1 5,631.3 5,714.7 5,816.2 5,889.6 5,973.7 6,090.8 6,200.8 6,303.7 6,424.6 Population (thousands)1 177,130 180,760 183,742 186,590 189,300 191,927 194,347 196,599 198,752 200,745 202,736 205,089 207,692 209,924 211,939 213,898 215,981 218,086 220,289 222,629 225,106 227,726 230,008 232,218 234,332 236,394 238,506 240,682 242,842 245,061 247,387 249,981 252,677 255,403 258,107 260,616 263,073 265,504 268,046 270,595 273,161 259,662 260,268 260,948 261,587 262,129 262,714 263,400 264,047 264,542 265,134 265,834 266,504 267,040 267,671 268,399 269,075 269,591 270,219 270,946 271,623 272,145 272,778 273,518 274,201 1 Population of the United States including Armed Forces overseas,- includes Alaska and Hawaii beginning 1960. Annual data are averages of quarterly data. Quarterly data are averages for the period. Source: Department of Commerce (Bureau of Economic Analysis and Bureau of the Census). 341 T A B L E B-30.—Gross saving and investment, 1959-99 [Billions of dollars, except as noted; quarterly data at seasonally adjusted annual rates] Gross saving Gross government saving Gross private saving Year or quarter Total Total Personal saving Total1 State and local Gross business saving Federal CorUndisporate tributed consumption of corpofixed rate profits2 capital Consump- Current surplus tion or Total of deficit fixed capital (-) Noncorporate consumption of fixed capital Total Total Consump- Current surplus tion or of deficit fixed capital (-) 1959 105.8 84.2 26.5 57.7 17.5 23.7 16.5 21.6 13.6 10.4 3.2 8.0 4.2 3.8 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 110.9 113.9 124.6 132.8 143.0 158.1 169.1 171.1 183.3 199.8 84.4 91.5 100.4 104.3 117.6 129.4 138.5 150.8 153.7 157.0 26.4 31.9 33.5 33.1 40.5 42.7 44.5 54.0 52.7 52.6 58.0 59.6 66.9 71.2 77.1 86.7 94.0 96.8 101.0 104.4 16.3 16.7 22.5 25.1 28.6 34.8 37.5 35.3 33.4 29.5 24.7 25.3 26.2 27.3 28.8 37.3 41.3 45.8 17.1 17.6 18.1 18.7 19.7 21.0 22.6 24.3 26.4 29.0 26.5 22 5 24.2 28.5 25.5 28.8 30.7 20.3 29.6 42.8 17.8 13.5 14.0 17.5 13.4 16.0 16.1 5.8 13.8 25.5 10.7 11.0 11.6 12.3 12.5 12.8 13.3 14.2 15.1 15.9 8.7 9.0 10.2 11.0 12.1 12.7 14.6 14.5 15.8 17.3 4.4 4.7 5.0 5.4 5.7 6.2 6.9 7.5 8.3 9.3 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 194.3 211.4 241.6 294.6 304.0 298.4 342.7 398.2 481.6 544.9 174.3 202.6 217.0 256.4 270.7 323.5 344.0 383.1 439.1 487.8 69.5 80.1 76.9 102.5 114.3 125.2 122.1 125.6 145.4 165.8 104.8 122.5 140.1 153.9 156.4 198.3 221.9 257.5 293.7 322.0 22.6 32.0 40.7 44.3 29.0 48.7 56.9 72.7 82.5 76.4 50.8 55.7 61.3 67.2 78.9 94.4 105.0 117.9 134.9 157.0 31.4 34.4 38.5 42.3 48.4 55.2 60.0 66.9 76.2 88.5 20.0 8.8 24.6 33 3 -25.1 -1.3 15.1 42.5 57.1 2.3 -9.5 -3.8 8.3 6.4 -47.7 -29.9 -20.6 -.6 16.6 16.7 17.4 18.7 19.5 20.2 21.6 23.2 24.6 26.3 28.0 7.1 2.5 2.4 5.2 .8 3.2 2.7 -8.3 -1.3 9.6 -14.4 -26.8 -22.5 -11.2 -13.9 -69.3 -53.0 -45.2 -26.9 -11.4 17.6 18.2 28.4 30.0 27.0 22.7 28.6 35.7 43.1 40.5 10.6 11.8 12.9 14.3 17.7 20.2 21.3 22.6 24.4 27.4 4.3 4.3 5.2 5.7 6.4 6.5 7.7 7.0 7.5 8.0 7.1 6.4 15.6 15.7 9.3 2.4 7.3 13.1 18.7 13.0 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 555.5 656.5 625.7 608.0 769.4 772.5 735.9 810.4 936.2 967.6 537.8 631.7 681.6 693.8 824.8 833.4 806.5 838.3 943.0 955.1 205.6 243.7 262.2 227.8 332.2 388.0 419.4 466.0 518.3 550.8 538.7 585.5 650.7 653.3 48.8 63.1 60.9 92.2 123.6 127.1 86.7 106.0 136.8 97.8 181.9 211.1 234.5 245.5 261.3 282.0 303.3 322.2 345.7 372.1 101.5 113.7 124.0 128.3 133.4 141.7 148.7 157.4 168.1 183.4 17.7 24.8 -55.9 -85.7 -55.4 -60.9 -70.5 -27.9 -6.7 12.5 -22.8 -18.9 -93.1 -131.5 -121.6 -127.9 -139.2 -91.6 -77.2 -65.6 30.9 34.7 39.5 42.4 46.4 49.3 52.9 56.3 60.2 64.4 -53.8 -53.7 -132.6 -173.9 -168.1 -177.1 -192.1 -147.9 -137.4 -130.0 40.6 43.8 37.2 45.7 66.2 67.0 68.7 63.7 70.5 78.1 31.7 36.3 39.5 40.9 42.4 44.7 47.9 51.5 54.9 58.8 8.8 7.5 -2.3 4.8 23.8 22.3 20.8 12.2 15.6 19.3 1990 1991 1992 1993 1994 1995 1996 1997 1998 .. 1999* 1994:1 II Ill ... IV ... 977.7 1,015.8 1,007.4 1,039.4 1,155.9 1,257.5 1,349.3 1,521.3 1,646.0 1,016.2 1,098.9 1,164.6 1,159.4 1,199.3 1,266.0 1,290.4 1,362.0 1,371.2 334.3 681.9 371.7 727.2 413.7 750.9 350.8 808.6 315.5 883.8 302.4 963.6 272.1 1,018.3 271.1 1,090.9 229.7 1,141.5 158.3 101.2 118.2 123.2 141.2 150.8 203.1 232.5 265.9 257.2 392.3 412.3 429.1 449.3 483.4 512.6 543.6 579.4 619.2 666.3 188.4 -38.6 -104.3 196.8 -83.2 -142.3 214.3 -157.2 -222.2 211.6 -120.0 -195.4 231.9 -43.4 -130.9 -8.5 -108.0 231.5 238.5 58.9 -51.5 249.8 159.3 37.7 261.5 274.8 134.3 279.0 68.7 73.0 75.4 78.7 81.4 84.0 85.3 86.6 87.4 90.8 -173.0 -215.3 -297.5 -274.1 -212.3 -192.0 -136.8 -48.8 46.9 65.7 59.1 65.0 75.4 87.5 99.4 110.4 121.5 140.5 63.1 66.9 69.9 73.9 78.9 84.1 88.9 94.0 98.8 105.1 2.6 -7.8 -4.9 1.5 8.6 15.3 21.4 27.5 41.7 1,122.4 1,145.7 1,151.1 1,204.6 1,200.9 1,170.3 1,193.2 1,233.0 274.3 319.5 324.1 344.2 926.6 850.8 869.1 888.8 112.1 155.8 163.1 172.4 492.6 472.7 480.6 487.9 265.4 217.6 220.8 223.8 -78.5 -24.6 -42.0 -28.4 -157.1 -109.3 -130.5 -126.8 80.4 81.2 81.5 82.5 -237.5 -190.5 -212.0 -209.4 78.6 84.7 88.5 98.4 .6 6.9 9.2 17.8 1995:1 II Ill ... IV ... 1,238.0 1,233.1 1,260.1 1,298.5 1,264.9 1,240.2 1,271.3 1,287.6 346.0 918.9 291.5 948.7 285.9 985.4 286.3 1,001.3 177.8 195.0 221.6 218.1 498.1 508.5 516.6 527.3 226.7 228.9 230.8 239.6 -26.8 -7.0 -11.2 10.9 -124.9 -105.1 -113.4 -88.4 83.3 83.9 84.1 84.8 -208.3 -188.9 -197.6 -173.2 98.1 98.1 102.3 99.3 78.0 77.8 79.3 80.6 82.2 83.5 84.8 86.1 15.9 14.6 17.5 13.3 1996:1 II Ill ... IV ... 1,295.6 1,328.2 1,372.8 1,400.5 1,282.7 1,264.6 1,305.6 1,308.6 282.2 253.1 286.1 267.1 1,000.5 1,011.5 1,019.5 1,041.5 231.3 232.9 228.1 237.7 531.0 538.4 547.7 557.4 234.6 236.6 240.1 242.7 12.9 63.5 67.2 92.0 -91.5 -51.9 -44.6 -18.0 85.0 85.1 85.5 85.7 -176.5 -137.0 -130.1 -103.7 104.3 115.4 111.8 109.9 87.3 88.3 89.5 90.7 17.0 27.2 22.3 19.3 1997:1 II in"::; IV ... 1998:1 ii 1,440.9 1,522.4 1,548.2 1,573.7 1,324.3 1,382.0 1,364.1 1,377.7 263.4 296.1 255.5 269.3 1,060.9 1,085.9 1,108.6 1,108.4 254.1 267.9 277.2 264.6 565.6 574.3 584.1 593.6 245.4 248.0 251.5 254.3 116.6 140.4 184.0 196.0 -1.3 23.2 58.7 70.3 86.1 86.4 86.6 87.1 -87.4 -63.2 -27.9 -16.8 117.9 117.2 125.3 125.6 92.0 93.5 94.4 95.9 25.9 23.7 30.9 29.7 1,623.1 1,611.4 1,664.1 1,685.4 1,382.5 1,352.2 1,367.7 1,382.3 248.9 217.5 224.8 227.5 1,133.6 1,134.7 1,142.9 1,154.8 271.9 259.5 251.1 246.5 602.2 612.6 625.0 637.1 256.0 259.1 263.3 267.7 240.7 259.2 296.4 303.0 111.9 130.5 147.1 147.8 87.0 87.0 87.5 88.1 24.9 43.5 59.6 59.7 128.8 128.7 149.3 155.2 96.8 97.8 99.4 101.1 32.0 30.9 49.S 54.2 1,727.8 1,389.4 195.1 1,194.3 1,709.5 1,359.3 168.0 1,191.3 1,735.6 1,355.7 139.5 1,216.2 130.8 277.6 259.5 252.4 645.8 657.2 676.5 685.6 271.0 274.6 287.2 283.2 338.3 187.2 350.2 208.3 379.9 225.1 89.6 90.2 91.2 97.6 118.1 133.8 151.1 141.9 154.8 102.4 104.3 106.0 107.8 48.7 37.6 48.9 HI ... IV ... 1999:1 II Ill ... IV* m 267.8 252.8 292.3 301.8 Si 1 Includes private wage accruals less disbursements not shown separately. 2 With inventory valuation and capital consumption adjustments. See next page for continuation of table. 342 971 TABLE B-30.—Gross saving and investment, 1959-99—Continued [Billions of dollars, except as noted; quarterly data at seasonally adjusted annual rates] Gross investment Year or quarter Total Gross private domestic investment Gross government invest-3 ment Addenda: Net foreigi ment 4 Statistical discrepancy Gross saving as a percent of gross national product Personal saving as a percent of disposable personal income 1959 106.7 78.5 29.3 -1.2 0.8 20.7 7.6 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 110.4 113.8 125.3 132.4 144.2 160.0 175.6 175.9 187.6 202.7 78.9 78.2 88.1 93.8 102.1 118.2 131.3 128.6 141.2 156.4 28.3 31.3 33.3 33.6 34.6 35.6 40.4 43.8 44.7 44.4 3.2 4.3 3.9 5.0 7.5 6.2 3.9 3.5 1.7 1.8 -.6 -.2 .7 -.4 1.2 1.9 6.4 4.8 4.3 2.9 20.9 20.7 21.1 21.3 21.4 21.8 21.3 20.4 20.0 20.1 7.2 8.3 8.3 7.8 8.8 8.6 8.3 9.4 8.4 7.8 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 201.2 222.7 250.3 302.6 314.0 316.1 367.2 419.8 502.6 580.6 152.4 178.2 207.6 244.5 249.4 230.2 292.0 361.3 436.0 490.6 44.8 44.0 46.3 49.4 57.4 64.5 66.4 67.5 77.1 88.5 4.0 .6 -3.6 8.7 7.1 21.4 8.9 -9.0 -10.4 1.4 6.9 11.3 8.7 8.0 10.0 17.7 24.5 21.6 21.0 35.7 18.6 18.6 19.3 21.1 20.0 18.1 18.6 19.4 20.8 21.0 9.4 10.0 8.9 10.5 10.7 10.6 9.4 8.7 9.0 9.2 1980 1981 1982 1983 1984 1985 1986 1987 . .. 1988 1989 589.5 684.0 628.2 655.0 787.9 784.2 779.8 813.8 894.0 983.9 477.9 570.8 516.1 564.2 735.5 736.3 747.2 781.5 821.1 872.9 100.3 106.9 112.3 122.8 139.4 158.8 173.2 184.3 186.2 197.7 11.4 6.3 -.2 -32.0 -87.0 -110.9 -140.6 -152.0 -113.2 -86.7 33.9 27.5 2.5 47.0 18.6 11.7 43.9 3.3 -42.2 16.3 19.6 20.7 19.0 17.0 19.4 18.2 16.5 17.0 18.3 17.6 10.2 10.8 10.9 8.8 10.6 9.2 8.2 7.3 7.8 7.5 1990 . 1991 1992 1993 1994 1995 1996 1997 1998 1999* 1994:1 il Ill IV 1995.1 II Ill IV 1996:1 II III IV 1,008.2 1,035.4 1,051.1 1,103.2 1,214.4 1.284.0 1,382.1 1,518.1 1,598.4 215.8 220.3 223.1 220.9 225.6 238.2 250.1 258.1 268.7 296.4 -69.2 14.9 -38.7 -72.9 -108.3 -98.0 -110.7 -123.7 -201.5 30.6 19.6 43.7 63.8 58.5 26.5 32.8 -3.2 -47.6 16.8 16.9 15.9 16.6 16.3 16.9 17.2 18.3 18.8 7.8 8.3 8.7 7.1 6.1 5.6 4.8 4.5 3.7 2.4 1,175.1 1,227.0 1,205.7 1,249.9 861.7 800.2 866.6 955.1 1,097.1 1,143.8 1,242.7 1,383.7 1,531.2 1,621.6 1,042.0 1,106.4 1,094.0 1,146.1 215.7 222.2 233.3 231.1 -82.6 -101.6 -121.6 -127.3 52.7 81.3 54.6 45.3 16.2 16.3 16.2 16.7 5.5 6.2 6.2 6.5 1,291.7 1,258.0 1,263.3 1,322.9 1,162.8 1,133.1 1,123.5 1,155.6 236.4 241.0 236.4 238.9 -107.5 -116.1 -96.7 -71.6 53.7 24.9 3.1 24.4 16.9 16.7 16.9 17.2 6.5 5.4 5.3 5.2 1,330.0 1,377.7 1,397.9 1,422.8 1,172.4 1,231.5 1,282.6 1,284.3 248.3 253.0 249.9 249.4 -90.7 -106.7 -134.5 -111.0 34.4 49.6 25.1 22.3 5.1 4.5 5.0 4.6 1997:1 IV 1,461.8 1,546.3 1,530.7 1,533.7 1,327.0 1,392.2 1,395.9 1,419.6 252.1 257.9 261.5 261.0 -117.3 -103.7 -126.7 -146.9 20.9 23.9 -17.5 -40.0 16.9 17.0 17.4 17.5 17.7 18.4 18.5 18.6 1998:1 II Ill IV 1,624.6 1,569.9 1,576.2 1,623.0 1,514.3 1,495.0 1,535.3 1,580.3 262.4 266.3 273.5 272.6 -152.1 -191.4 -232.6 -229.9 1.4 -41.5 -87.9 -62.4 18.8 18.6 19.0 18.9 4.0 3.5 3.6 3.5 1999:1 II III 1,628.4 1,574.0 1,594.4 1,594.3 1,585.4 1,635.0 1,671.8 289.8 292.2 295.7 308.1 -255.7 -303.7 -336.3 -99.4 -135.5 -141.2 19.1 18.7 18.7 3.0 2.5 2.1 1.9 3 For details on government investment, see Table B—18. Net exports of goods and services plus net income receipts from rest of the world less net transfers. Source: Department of Commerce, Bureau of Economic Analysis. 4 343 4.5 5.0 4.2 4.4 TABLE B—31.—Median money income (in 1998 dollars) and poverty status of families and persons, by race, selected years, Families 1 Persons below poverty level Below poverty level Year Number (millions) Median money income (in 1998 dol- 2 lars) Female householder Total (millions) Percent Number (millions) 1980-98 Percent Median money income (in 1998 dollars) of persons 15 years old2 and over with income Males Number (millions) Percent All persons Yearround full-time workers Females All persons Yearround full-time workers ALL RACES $9,744 $22,957 32.7 29.3 13.0 $24,816 $37,973 10.3 3.0 1980 3 60.3 $41,637 22,536 9,874 40,502 34.6 31.8 14.0 24374 11.2 37,434 3.3 61.0 1981 23,296 10,037 39,954 36.3 34.4 15.0 23,785 12.2 36,922 3.4 61.4 1982 23,674 10,482 40,380 36.0 35.3 15.2 23,993 12.3 36,794 3.6 62.0 1983* 24,194 10,775 41,469 34.5 33.7 14.4 24,474 11.6 37,658 3.5 62.7 1984 24,620 10,933 42,015 34.0 33.1 14.0 24,709 11.4 37,870 3.5 63.6 1985 25,049 11,318 43,811 34.6 32.4 13.6 25,452 10.9 38,510 3.6 64.5 1986 s 25,202 11,902 44,438 34.2 32.2 13.4 25,520 10.7 38,283 3.7 65.2 1987 25,552 12,241 44,354 33.4 31.7 13.0 26,052 10.4 37,673 3.6 65.8 1988 25,814 12,651 44,974 32.2 31.5 12.8 26,150 10.3 37,357 3.5 66.1 1989 25680 12,559 44,090 33.4 33.6 13.5 25,308 10.7 36,141 3.8 66.3 1990 25,425 12,537 43,011 35.6 35.7 14.2 24,497 11.5 36,299 4.2 67.2 1991 25,668 12,447 42,490 35.4 38.0 14.8 23,765 11.9 35,820 4.3 68.2 1992 6 25,346 12,460 41,691 35.6 39.3 15.1 23,804 12.3 35,056 4.4 68.5 1993 25,588 12,611 42,655 34.6 14.5 23,889 11.6 34,769 4.2 69.3 1994 25,431 12,974 43,436 32.4 13.8 24,131 10.8 34,439 4.1 69.6 1995 25,904 13,313 43,945 32.6 24,761 11.0 34,842 4.2 70.2 36i 13.7 1996 26,434 13,916 45,262 31.6 25,605 10.3 35,797 4.0 70.9 35.6 13.3 1997 26,855 14,430 46,737 29.9 26,492 10.0 36,252 3.8 71.6 34.5 12.7 1998 WHITE 19.7 10.2 25.7 26,397 39,057 52.7 1.6 4.2 43,382 23,178 9,798 8.0 1980 3 21.6 11.1 27.4 25,863 38,313 1.8 42,545 53.3 9,984 4.7 8.8 22,912 1981 1.8 41,949 23.5 12.0 10,174 27.9 25,146 37,906 9.6 53.4 5.1 23,609 1982 1.9 42,283 10,665 9.7 24.0 12.1 28.3 25,242 37,773 53.9 5.2 23,990 1983* 1.9 43,434 10,902 9.1 23.0 11.5 27.1 25,834 38,947 54.4 4.9 24,434 1984 2.0 44,161 11,145 9.1 22.9 11.4 27.4 25,921 38,922 55.0 5.0 24,968 1985 2.0 45,820 11,541 8.6 22.2 11.0 28.2 26,859 39,585 55.7 4.8 25,433 1986 2.0 46,468 12,206 8.1 21.2 10.4 26.9 27,126 39,176 56.1 4.6 25,668 19875 1.9 46,730 12,543 7.9 20.7 10.1 26.5 27,501 38,941 56.5 4.5 25,935 1988 1.9 47,290 12,898 7.8 20.8 10.0 25.4 27,425 39,004 56.6 4.4 26,121 1989 ...." 2.0 46,038 12,867 8.1 22.3 10.7 26.8 26,402 37,515 56.8 4.6 25,989 1990 2.2 45,218 12,831 8.8 23.7 11.3 28.4 25,605 37,044 57.2 5.0 25,796 1991 2.2 44,927 12,737 9.1 25.3 11.9 28.5 24,869 36,672 57.7 5.3 25,965 1992 6 2.4 44,331 12,708 9.4 26.2 12.2 29.2 24,795 35,907 57.9 5.5 25,921 1993 2.3 44,967 12,791 9.1 25.4 11.7 29.0 24,933 35,680 58.4 26,280 1994 2.2 45,612 13,173 8.5 24.4 11.2 26.6 25,557 35,846 58.9 25,952 1995 2.3 46,496 13,465 8.6 24.7 11.2 27.3 25,919 36,092 58.9 1996 2.3 47,482 14,007 8.4 26;882 24.4 11.0 27.7 26,522 36,681 5.1 59.5 1997 2.1 49,023 14,617 8.0 27,304 23.5 10.5 24.9 27,646 37,196 5.0 1998 60.1 4.8 BLACK 9,071 49.4 15,862 8.6 32.5 27,480 25,102 1.8 28.9 21,618 1.3 6.3 1980 3 8,870 52.9 15,379 9.2 34.2 27,108 24,000 2.0 30.8 20,692 1.4 6.4 1981 8,974 56.2 15,069 26,922 23,185 2.2 33.0 1982 21,101 35.6 1.5 6.5 9,114 53.7 14,762 26,949 23,830 2.2 32.3 21,295 35.7 1.5 6.7 1983 4 9,670 51.7 14,822 9.5 33.8 26,580 24,208 2.1 30.9 1984 22,020 1.5 6.8 9,509 50.5 16,312 8.9 31.3 27,224 25,429 2.0 28.7 1985 22,102 1.5 6.9 9,765 50.1 16,095 1986 9.0 31.1 27,909 26,181 2.0 28.0 22,255 1.5 7.1 9,971 51.1 16,092 i9 9 88775 ii 9.5 32.4 28,011 26,410 2.1 29.4 22,926 1.6 7.2 10,126 49.0 16,595 9.4 31.3 28,544 26,633 2.1 28.2 23,240 1.6 7.4 1988 10,352 46.5 16,575 9.3 30.7 27,216 26,565 2.1 27.8 23492 1.5 7.5 1989 10,386 48.1 16,048 9.8 31.9 26,790 26,717 2.2 29.3 23,127 1.6 7.5 1990 10,551 51.2 15,513 10.2 32.7 27,080 25,788 2.3 30.4 22,899 1.8 7.7 1991 10,325 50.2 15,178 10.8 33.4 26,711 24,517 2.5 31.1 23,536 1.9 8.0 1992 6 10,725 49.9 16,475 10.9 33.1 26,583 24,300 2.5 31.3 22,916 1.9 8.0 1993..:::: 11,597 46.2 16,478 10.2 30.6 26,842 27,164 2.2 27.3 22,688 1.7 8.1 1994 11,723 45.1 17,119 9.9 29.3 26,523 27,776 2.1 26.4 22,545 1.7 8.1 1995 12,230 43.7 17,132 9.7 28.4 28,191 27,553 2.2 26.1 22,845 1.7 8.5 1996 13251 39.8 18,378 9.1 26.5 27,316 29,048 2.0 23.6 23,119 1.6 8.4 1997 13,137 40.8 19,321 9.1 26.1 27,472 29,404 2.0 23.4 23,864 1.6 8.5 1998 'The term "family" refers to a group of two or more persons related by birth, marriage, or adoption and residing together. Every family must include a reference person. Beginning 1979, based on householder concept and restricted to primary families. 2 Current dollar median money income adjusted by CPI-U-X1. 3 Based on 1980 census population controls (beginning 1979); comparable with succeeding years. 4 Reflects implementation of Hispanic population controls; comparable with succeeding years. 5 Based on revised methodology; comparable with succeeding years. 6 Based on 1990 census adjusted population controls; comparable with succeeding years. H Note.—Poverty rates (percent of persons below poverty level) for all races for years not shown above are: 1959, 22.4; 1960, 22.2; 1961, 21.9; 1962, 21.0; 1963, 19.5; 1964, 19.0; 1965, 17.3; 1%6, 14.7; 1967, 14.2; 1968, 12.8; 1969, 12.1; 1970, 12.6; 1971, 12.5; 1972, 11.9; 1973,11.1; 1974,11.2; 1975,12.3; 1976,11.8; 1977,11.6; 1978,11.4; and 1979,11.7. Poverty thresholds are updated each year to reflect changes in the consumer price index (CPI-U). For details see "Current Population Reports," Series P-60. Source: Department of Commerce, Bureau of the Census. 344 POPULATION, EMPLOYMENT, WAGES, AND PRODUCTIVITY TABLE B-32.—Population by age group, 1929-99 [Thousands of persons] Age (years) July 1 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 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 Total 121,767 125,579 130,880 132,122 133,402 134,860 136,739 138,397 139,928 141,389 144,126 146,631 149,188 152,271 154,878 157,553 160,184 163,026 165,931 168,903 171,984 174,882 177,830 180,671 183,691 186,538 189,242 191,889 194,303 196,560 198,712 200,706 202,677 205,052 207,661 209,896 211,909 213,854 215,973 218,035 220,239 222,585 225,055 227,726 229,966 232,188 234,307 236,348 238,466 240,651 242,804 245,021 247,342 249,948 252,639 255,374 258,083 260,599 263,044 265,463 268,008 270,561 273,131 Under 5 11,734 10,612 10,418 10,579 10,850 11,301 12,016 12,524 12,979 13,244 14,406 14,919 15,607 16,410 17,333 17,312 17,638 18,057 18,566 19,003 19,494 19,887 20,175 20,341 20,522 20,469 20,342 20,165 19,824 19,208 18,563 17,913 17,376 17,166 17,244 17,101 16,851 16,487 16,121 15,617 15,564 15,735 16,063 16,451 16,893 17,228 17,547 17,695 17,842 17,963 18,052 18,195 18,508 18,850 19,186 19,488 19,670 19,697 19,529 19,289 19,097 18,966 18,918 5-15 26,800 26,897 25,179 24,811 24,516 24,231 24,093 23,949 23,907 24,103 24,468 25,209 25,852 26,721 27,279 28,894 30,227 31,480 32,682 33,994 35,272 36,445 37,368 38,494 39,765 41,205 41,626 42,297 42,938 43,702 44,244 44,622 44,840 44,816 44,591 44,203 43,582 42,989 42,508 42,099 41,298 40,428 39,552 38,838 38,144 37,784 37,526 37,461 37,450 37,404 37,333 37,593 37,972 38,595 39,178 39,848 40,445 41,076 41,743 42,235 42,727 43,056 43,333 16-19 9,127 9,302 9,822 9,895 9,840 9,730 9,607 9,561 9,361 9,119 9,097 8,952 8,788 8,542 8,446 8,414 8,460 8,637 8,744 8,916 9,195 9,543 10,215 10,683 11,025 11,180 12,007 12,736 13,516 14,311 14,200 14,452 14,800 15,289 15,688 16,039 16,446 16,769 17,017 17,194 17,276 17,288 17,242 17,167 16,812 16,332 15,823 15,295 15,005 15,024 15,215 15,198 14,913 14,460 13,967 13,736 13,888 14,142 14,411 14,917 15,267 15,660 15,955 20-24 10,694 11,152 11,519 11,690 11,807 11,955 12,064 12,062 12,036 12,004 11,814 11,794 11,700 11,680 11,552 11,350 11,062 10,832 10,714 10,616 10,603 10,756 10,969 11,134 11,483 11,959 12,714 13,269 13,746 14,050 15,248 15,786 16,480 17,202 18,159 18,153 18,521 18,975 19,527 19,986 20,499 20,946 21,297 21,590 21,869 21,902 21,844 21,737 21,478 20,942 20,385 19,846 19,442 19,304 19,332 19,168 18,892 18,487 18,068 17,592 17,565 17,758 18,141 Note.—Includes Armed Forces overseas beginning 1940. Includes Alaska and Hawaii beginning 1950. All estimates are consistent with decennial census enumerations. Source: Department of Commerce, Bureau of the Census. 345 2M4 35,862 37,319 39,354 39,868 40,383 40,861 41,420 42,016 42,521 43,027 43,657 44,288 44,916 45,672 46,103 46,495 46786 47,001 47,194 47,379 47,440 47,337 47,192 47,140 47,084 47,013 46,994 46,958 46,912 47,001 47,194 47,721 48,064 48,473 48,936 50,482 51,749 53,051 54,302 55,852 57,561 59,400 61,379 63,470 65,528 67,692 69,733 71,735 73,673 75,651 77,338 78,595 79,943 81,208 82,443 82,501 82,800 83,104 83,441 83,762 83,711 83,454 82,977 45-64 21,076 22,933 25,823 26,249 26,718 27,196 27,671 28,138 28,630 29,064 29,498 29,931 30,405 30,849 31,362 31,884 32,394 32,942 33,506 34,057 34,591 35,109 35,663 36,203 36,722 37,255 37,782 38,338 38,916 39,534 40,193 40,846 41,437 41,999 42,482 42,898 43,235 43,522 43,801 44,008 44,150 44,286 44,390 44,504 44,500 44,462 44,474 44,547 44,602 44,660 44,854 45,471 45,882 46,292 46,756 48,339 49,576 50,884 52,234 53,712 55,444 57,267 59,230 65 and over 6,474 7,363 8,764 9,031 9,288 9,584 9,867 10,147 10,494 10,828 11,185 11,538 11,921 12,397 IBS 13,617 14,076 14,525 14,938 15,388 15,806 16,248 16,675 17,089 17,457 17,778 18,127 18,451 18,755 19,071 19,365 19,680 20,107 20,561 21,020 21,525 22,061 22,696 23,278 23,892 24,502 25,134 25,707 26,221 26,787 27,361 27,878 28,416 29,008 29,626 30,124 30,682 31,239 31,777 32,294 32,812 33,209 33,618 33,955 34,198 34,401 34,578 TABLE B-33.—Civilian population and labor force, 1929-99 [Monthly data seasonally adjusted, except as noted] Civilian labor force Year or month Civilian noninstitutional population 1 Employment Total Total Agricultural Nonagricultural Unemployment Not in labor force Civil- Civilian Unemployian em- ment labor ployforce ment/ rate, pop- civilian & ula- pation2 tion work-4 rate ratio3 ers Thousands of persons 14 years of age and over 1929 1933 1939 1940 1941 1942 1943 1944 1945 1946 ...Z. 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 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 37,180 28,670 36,140 37,980 41,250 44,500 45,390 45,010 44,240 46,930 49,557 1,550 12,830 9,480 8,120 5,560 2,660 1,070 670 1,040 2,270 2,356 Percent 3.2 24.9 17.2 44,200 43,990 42,230 39,100 38,590 40,230 45,550 45,850 55.7 56.0 57.2 58.7 58.6 47.6 50.4 54.5 57.6 57.9 14.6 9.9 4.7 1.9 1.2 57.2 55.8 56.8 56.1 53.6 54.5 1.9 3.9 3.9 42,477 42,447 42,708 42,787 42,604 43,093 44,041 44,678 44,660 44,402 45,336 46,088 46,960 47,617 48,312 49,539 50,583 51,394 52,058 52,288 52,527 53,291 53,602 54,315 55,834 57,091 57,667 58,171 59,377 59,991 60,025 59,659 59,900 60,806 61,460 62,067 62,665 62,839 62,744 62,752 62,888 62,944 62,523 63,324 64,578 64,700 65,638 65,758 66,280 66,647 66,837 67,547 68,385 58.3 58.8 58.9 56.0 56.6 55.4 3.9 3.8 5.9 59.2 59.2 59.0 58.9 58.8 59.3 60.0 59.6 59.5 59.3 56.1 57.3 57.3 57.1 55.5 56.7 57.5 57.1 55.4 56.0 5.3 3.3 3.0 2.9 5.5 4.4 4.1 4.3 6.8 5.5 59.4 59.3 58.8 58.7 58.7 58.9 59.2 59.6 59.6 60.1 56.1 55.4 55.5 55.4 55.7 56.2 56.9 57.3 57.5 58.0 5.5 6.7 5.5 5.7 5.2 4.5 3.8 3.8 3.6 3.5 60.4 60.2 60.4 60.8 61.3 61.2 61.6 62.3 63.2 63.7 57.4 56.6 57.0 57.8 57.8 56.1 56.8 57.9 59.3 59.9 4.9 5.9 5.6 4.9 5.6 8.5 7.7 7.1 6.1 5.8 63.8 63.9 64.0 64.0 64.4 64.8 65.3 65.6 65.9 66.5 59.2 59.0 57.8 57.9 59.5 60.1 60.7 61.5 62.3 63.0 7.1 7.6 9.7 9.6 7.5 7.2 7.0 6.2 5.5 5.3 66.5 66.2 66.4 66.3 66.6 66.6 66.8 67.1 67.1 67.1 62.8 61.7 61.5 61.7 62.5 62.9 63.2 63.8 64.1 64.3 5.6 6.8 7.5 6.9 6.1 5.6 5.4 4.9 4.5 4.2 Thousands of persons 16 years of age and over 1947 1948 1949 1950 1951 1952 5 1953 1954 1955 1956 1957 1958 1959 I9605 1961 19625 1963 1964 1965 1966 1967 1968 1969 1970 1971 197255 1973 1974 1975 1976 1977 19785 1979 1980 1981 1982 1983 1984 1985 5 1986 1987 1988 1989 19905 1991 1992 1993 5 1994 1995 1996 199755 1998s 1999 1 101,827 103,068 103,994 104,995 104,621 105,231 107,056 108,321 109,683 110,954 112,265 113,727 115,329 117,245 118,771 120,153 122,416 124,485 126,513 128,058 129,874 132,028 134,335 137,085 140,216 144,126 147,096 150,120 153,153 156,150 159,033 161,910 164,863 167,745 170,130 172,271 174,215 176,383 178,206 180,587 182,753 184,613 186,393 189,164 190,925 192,805 194,838 196,814 198,584 200,591 203,133 205,220 207,753 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 99,009 102,251 104,962 106,940 108,670 110,204 111,550 113,544 115,461 117,834 119,865 121,669 123,869 125,840 126,346 128,105 129,200 131,056 132,304 133,943 136,297 137,673 139,368 57,038 7,890 49,148 58,343 7,629 50,714 57,651 7,658 49,993 58,918 7,160 51,758 59,961 6,726 53,235 60,250 6,500 53,749 61,179 6260 54,919 60,109 6,205 53,904 62,170 6,450 55,722 63,799 6,283 57,514 64,071 5,947 58,123 63,036 5,586 57,450 64,630 5,565 59,065 65,778 5,458 60,318 65,746 5,200 60,546 66,702 4,944 61,759 67,762 4,687 63,076 69,305 4,523 64,782 71,088 4,361 66,726 72,895 3,979 68,915 74,372 3,844 70,527 75,920 3,817 72,103 77,902 3,606 74,296 78,678 3,463 75,215 79,367 3,394 75,972 82,153 3,484 78,669 85,064 3,470 81,594 86,794 3,515 83,279 85,846 3,408 82,438 88,752 3,331 85,421 92,017 3,283 88,734 96,048 3,387 92,661 98,824 3,347 95,477 99,303 3,364 95,938 100,397 3,368 97,030 99,526 3,401 96,125 100,834 3,383 97,450 105,005 3,321 101,685 107,150 3,179 103,971 109,597 3,163 106,434 112,440 3,208 109,232 114,968 3,169 111,800 117,342 3,199 114,142 118,793 3,223 115,570 117,718 3,269 114,449 118,492 3,247 115,245 120,259 3,115 117,144 123,060 3,409 119,651 124,900 3,440 121,460 126,708 3,443 123,264 129,558 3,399 126,159 131,463 3,378 128,085 133,488 3,281 130,207 Not seasonally adjusted. labor force as percent of civilian noninstitutional population. employment as percent of civilian noninstitutional population. Unemployed as percent of civilian labor force. See next page for continuation of table. 2 Civilian 3 Civilian 4 346 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 4714 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 7,047 8,628 9,613 8,940 7,996 7,404 7,236 6.739 6,210 5,880 TABLE B-33.—Civilian population and labor force, 1929-99—Continued [Monthly data seasonally adjusted, except as noted] Civilian labor force Year or month Civilian noninstitutional tfon 1 Employment Total Total Agricultural Nonagricultural Unemployment Not in labor force Civilian labor force participation rate* Thousands of persons 16 years of age and over 1996: Jan . Feb . Mar May'., June July Aug Sept Oct Nov Dec 1997: Jan 5 Feb Mar May .. June . July... Aug ... Sept.. Oct ... Nov ... Dec... 1998:Jan5 . Feb ... Mar .. fc: June . July.. Aug.., Nov . Dec. 1999:Jan5 .... Feb Mar Apr May June .... July Aug Sept Oct Nov Dec 199,634 199,773 199,921 200,101 200,278 200,459 200,641 200,847 201,061 201,273 201,463 201,636 202,285 202,389 202,513 202,674 202,832 203,000 203,166 203,364 203,570 203,767 203,941 204,098 204,238 204,400 204,547 204,731 204,899 205,085 205,270 205,479 205,699 205,919 206,104 206,270 206,719 206,873 207,036 207,236 207,427 207,632 207,828 208,038 208,265 208,483 208,666 208,832 132,668 133,002 133,198 133,403 133,674 133,690 134,265 134,043 134,486 134,881 134,953 135,071 135,576 135,496 135,958 136,043 136,061 136,218 136,421 136,590 136,612 136,547 136,860 137,097 137,225 137,263 137,333 137,216 137,329 137,449 137,476 137,565 138,156 138,189 138,230 138,545 139,232 139,137 138,804 139,086 139,013 139,332 139,336 139,372 139,475 139,697 139,834 140,108 125,152 125,672 125,875 126,002 126,229 126,598 126,942 127,172 127,513 127,863 127,732 127,831 128,387 128,350 128,922 129,191 129,383 129,417 129,812 129,987 129,982 130,121 130,577 130,646 130,819 130,911 130,854 131,255 131,278 131,234 131,274 131,381 131,922 131,950 132,156 132,517 133,225 133,029 132,976 133,054 133,190 133,398 133,399 133,530 133,650 133,940 134,098 134,420 3,486 3555 3,490 3,396 3,476 3,418 3,434 3,402 3,448 3,465 3,353 3,431 3,459 3,358 3,422 3,468 3,434 3,398 3,421 3,359 3,400 3,309 3,375 3,395 3,334 3,354 3,180 3,341 3,347 3,345 3,408 3,498 3,499 3,585 3,340 3,241 3,297 3,328 3,290 3,341 3,290 3,330 3,278 3,234 3,179 3,238 3,310 3,279 121,666 122,117 122,385 122,606 122,753 123,180 123,508 123,770 124,065 124,398 124,379 124,400 124,928 124,992 125,500 125,723 125,949 126,019 126,391 126,628 126,582 126,812 127,202 127,251 127,485 127,557 127,674 127,914 127,931 127,889 127,866 127,883 128,423 128,365 128,816 129,276 129,928 129,701 129,686 129,713 129,900 130,068 130,121 130,296 130,471 130,702 130,788 131,141 7,516 7,330 7,323 7,401 7,445 7,092 7,323 6,871 6973 7,018 7,221 7,240 7,189 7,146 7,036 6,852 6,678 6,801 6,609 •6,603 6,630 6,426 6,283 6,451 6,406 6,352 6,479 5,961 6,051 6,215 6,202 6,184 6,234 6,239 6,074 6,028 6,007 6,108 5,828 6,032 5,823 5,934 5,937 5,842 5,825 5,757 5,736 5,688 Civil- Unemian ployemploy- ment rate, ment/ civilpopian ula4 tion 3 workers ratio Percent 66,966 66,771 66,723 66,698 66604 66,769 66,376 66,804 66,575 66,392 66,510 66,565 66,709 66,893 66,555 66,631 66,771 66,782 66,745 66,774 66,958 67,220 67,081 67,001 67,013 67,137 67,214 67,515 67,570 67,636 67,794 67,914 67,543 67,730 67,874 67,725 67,487 67,736 68,232 68,150 68,414 68,300 68,492 68,666 68,790 68,786 68,832 68,724 66.5 66.6 66.6 66.7 66.7 66.7 62.7 62.9 63.0 63.0 63.0 63.2 5.7 5.5 5.5 5.5 5.6 5.3 66.9 66.7 66.9 67.0 67.0 67.0 63.3 63.3 63.4 63.5 63.4 63.4 5.5 5.1 5.2 5.2 5.4 5.4 67.0 66.9 67.1 67.1 67.1 67.1 63.5 63.4 63.7 63.7 63.8 63.8 5.3 5.3 5.2 5.0 4.9 5.0 67.1 67.2 67.1 67.0 67.1 67.2 63.9 63.9 63.9 63.9 64.0 64.0 4.8 4.8 4.9 4.7 4.6 4.7 67.2 67.2 67.1 67.0 67.0 67.0 64.1 64.0 64.0 64.1 64.1 64.0 4.7 4.6 4.7 4.3 4.4 4.5 67.0 66.9 67.2 67.1 67.1 67.2 64.0 63.9 64.1 64.1 64.1 64.2 4.5 4.5 4.5 4.5 4.4 4.4 67.4 67.3 67.0 67.1 67.0 67.1 64.4 64.3 64.2 64.2 64.2 64.2 4.3 4.4 4.2 4.3 4.2 4.3 67.0 67.0 67.0 67.0 67.0 67.1 64.2 64.2 64.2 64.2 64.3 64.4 4.3 4.2 4.2 4.1 4.1 4.1 5 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, and 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 and labor force and 350,000 to civilian employment. Unemployment levels and rates were not significantly affected. Beginning 1990, the introduction of 1990 census-based population controls, adjusted for the estimated undercount, added about 1.1 million to the civilian population and labor force, 880,000 to civilian employment, and 175,000 to unemployment. The overall unemployment rate rose by about 0.1 percentage point. Beginning 1994, data are not strictly comparable with earlier data because of the introduction of a major redesign of the Current Population Survey and collection methodology. Beginning 1997, 1998, and 1999 data are not strictly comparable due to the introduction of revised population controls. See February issues Employment and Earnings for details on the effects. Also, for 1998, data reflect the introduction of a new composite estimation procedure for the Current Population Survey. Note.—labor force data in Tables B-33 through B-42 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. 347 TABLE B—34.—Civilian employment and unemployment by sex and age, 1950—99 [Thousands of persons 16 years of age and over; monthly data seasonally adjusted] Civilian employment Males Year or month Unemployment Males Females 20 years Total 16-19 years and years Total 16-19 years and Females 20 years and over Total 2,186 2,156 2,107 2,136 1,985 2,095 2,164 2,115 2,012 2,198 39,394 39,626 39,578 40,296 39,634 40,526 41,216 41,239 40,411 41,267 17,340 18,181 18,568 18,749 18,490 19,551 20,419 20,714 20,613 21,164 1,517 1,611 1,612 1,584 1,490 1,547 1,654 1,663 1,570 1,640 15,824 16,570 16,958 17,164 17,000 18,002 18,767 19,052 19,043 19,524 3,288 2,055 1,883 1,834 3,532 2,852 2,750 2,859 4,602 3,740 2,239 1,221 1,185 1,202 2,344 1,854 1,711 1,841 3,098 2,420 2,361 2,315 2,362 2,406 2,587 2,918 3,253 3,186 3,255 3,430 41,543 41,342 41,815 42,251 42,886 43,422 43,668 44,294 44,!"" 45,388 21,874 22,090 22,525 23,105 23,831 24,748 25,976 26,893 27,807 29,084 1,768 1,793 1,833 1,849 1,929 2,118 2,468 2,496 2,526 2,687 20,105 20,296 20,693 21,257 21,903 22,630 23,510 24,397 25,281 26,397 3,852 4,714 3,911 4,070 3,786 3,366 2,875 2,975 2,817 2,832 2,486 2,997 2423 2,472 2,205 1,914 1,551 1,508 1,419 1,403 3,409 3,478 3,765 4,039 4,103 3,839 3,947 4,174 4,336 4,300 45,581 45,912 47,130 48,310 48,922 48,018 49,190 50,555 52,143 53,308 29,688 29,976 31,257 32,715 33,769 33,989 35,615 37,289 39,569 41,217 2,735 2,730 2,980 3,231 3,345 3,263 3,389 3,514 3,734 3,783 26,952 27,246 28,276 29,484 30,424 30,726 32,226 33,775 35,836 37,434 4,093 5,016 4,882 4,365 5,156 7,929 7,406 6,991 6,202 6,137 2,238 2,789 2,659 2,275 2714 4,442 4,036 3,667 3,142 3,120 4,085 3,815 3,379 3,300 3,322 3,328 3,323 3,381 3,492 3,477 53,101 53,582 52,891 53,487 55,769 56,562 57,569 58,726 59,781 60,837 42,117 43,000 43,256 44,047 45,915 47,259 48,706 50,334 51,696 53,027 3,625 3,411 3,170 3,043 3,122 3,105 3,149 3,260 3,313 3,282 38,492 7,637 4,267 39,590 8,273 4,577 40,086 10,678 6,179 41,004 10,717 6,260 42,793 8,539 4744 44,154 8,312 4,521 45,556 8,237 4,530 47,074 7,425 4,101 48,383 6,701 3,655 49,745 6,528 3,525 3,427 3,044 2,944 2,994 3,156 3,292 3,310 3,401 3,558 3,685 61,678 61,17f 61,491 62,355 63,294 64,085 64,897 66,284 67,135 67,761 53,689 53,496 54,052 54,910 56,610 57,523 58,501 59,873 60,771 62,042 3,154 2,862 2,724 2,811 3,005 3,127 3,190 3,260 3,493 3,487 50,535 50,634 51,328 52,099 53,606 54,396 55,311 56,613 57,278 58,555 7,047 8,628 9,613 8,940 7,996 7,404 7,236 6,739 6,210 5,880 3,906 4,946 5,523 5,055 4,367 3,983 3,880 3,577 3,266 3,066 3,516 3,485 3,531 3,544 3,461 3,598 66,822 66,877 66,708 67,146 67,137 67,014 60,481 60,549 60,615 60,565 60,680 60,622 3,520 3,485 3,474 3,456 3,485 3,492 56,961 57,064 57,141 57,109 57,195 57,130 6,406 6,352 6,479 5,961 6,051 6,215 3,328 3,331 3426 3,066 3,179 3,262 3,558 3,578 3,598 3,544 3,628 3,645 67,087 66,997 67,267 67,456 67,573 67,528 60,629 60,806 61,057 60,950 60,955 61,344 3,469 3,487 3,574 3,491 3,417 3,568 57,160 57,319 57,483 57,459 57,538 57,776 6,202 6,184 6,234 6,239 6,074 6,028 3,360 3,225 3,342 3,223 3154 3,209 3,597 3,703 3,641 3,646 3,737 3,685 67,771 67,527 67,628 67,562 67,470 67,645 61,857 61,799 61,707 61,846 61,983 62,068 3,484 3,538 3,491 3,510 3,500 3,421 58,373 58,261 58,216 58,336 58,483 58,647 6,007 6,108 5,828 6,032 5,823 5,934 3,138 3,232 2,949 3,062 3,111 3,084 3,734 June 133,399 3,668 133,530 July 3,687 133,650 Aug 3,725 133,940 Sept 134,098 71,623 3,695 Oct 134,420 71,732 3,730 Nov Dec 71,927 Note.-See footnote 5 and Note, Table B-33. Source: Department of Labor, Bureau of Labor 67,703 67,768 67,943 67,898 68,037 68,197 61,962 62,094 62,020 62,317 62,366 62,493 3,485 3,446 3,390 3,517 3,528 3,535 58,477 58,648 58,630 58,800 58,838 58,958 5,937 5,842 5,825 5757 5 736 5,688 3,061 3,063 3,013 3,057 2,996 3,003 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 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 1998:Jan . Feb . Mar. June . July.. Aug.. Nov "ZZZ Dec 1999:Jan Feb Mar fcfE fc Total 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 99,526 100,834 105,005 107,150 109,597 112,440 114,968 117,342 118,793 117,718 118,492 120,259 123,060 124,900 126,708 129,558 131,463 133,488 130,819 130,911 130,854 131,255 131,278 131,234 131,274 131,381 131,922 131,950 132,156 132,517 133,225 133,029 132,976 133,054 133,190 133,398 Total 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 56787 59,091 59,891 60,892 62,107 63,273 64,315 65,104 64,223 64,440 65,349 66,450 67,377 68,207 69,685 70,693 71,446 70,338 70,362 70,239 70,690 70,598 70,612 70,645 70,575 70,865 71,000 71,201 71,173 71,368 71,230 71,269 71,208 71,207 71,330 71,437 3fi 16-19 years 16-19 years Statistics. 348 20 years and Total over 318 191 205 184 310 274 269 300 416 398 426 479 408 501 487 479 432 448 426 440 599 693 711 653 757 966 939 874 813 811 913 962 1,090 1,003 812 806 779 732 667 658 667 751 806 768 740 744 733 694 686 633 659 587 679 685 693 686 740 712 698 693 707 648 643 632 597 591 628 616 645 671 20 1,922 1,029 980 1,019 2,035 1,580 1,442 1,541 2,681 2,022 1,049 834 698 632 1,188 998 1,039 1,018 1,504 1,320 2,060 2,518 2,016 1,971 1,718 1,435 1,120 1,060 993 963 1,366 1,717 1,488 1,598 1,581 1,452 1,324 1,468 1,397 1,429 1,638 2,097 1,948 1,624 1,957 3,476 3,098 2,794 2,328 2,308 1,855 2,227 2,222 2,089 2,441 3,486 3,369 3,324 3,061 3,018 3,353 3,615 5,089 5,257 3,932 3,715 3,751 3,369 2,987 2,867 3,370 3,696 4,499 4,457 3,794 3,791 3,707 3,324 3,046 3,003 3,239 4,195 4,717 4,287 3,627 3,239 3,146 2,882 2,580 2,433 3,140 3,683 4,090 3,885 3,629 3,421 3,356 3,162 2,944 2,814 2,669 2,622 2,740 2,479 2,500 2,577 3,078 3,021 3,053 2,895 2,872 2,953 2,667 2,539 2,602 2,511 2,456 2,516 2,842 2,959 2,892 3,016 2,920 2,819 2,431 2,584 2,306 2,430 2,508 2,471 2,869 2,876 2,879 2,970 2,712 2,850 2,464 2,472 2,385 2,441 2,351 2,332 2,876 2,779 2,812 2,700 2,740 2,685 195 145 140 123 191 176 209 197 262 256 286 349 313 383 385 395 405 391 412 413 506 568 598 583 665 802 780 789 769 743 755 800 886 825 687 661 675 616 558 536 544 608 621 597 580 602 573 577 519 529 472 491 532 501 515 555 506 551 516 592 523 477 551 546 541 541 487 509 501 523 582 545 526 489 854 689 559 510 997 & 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 1777 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 2,596 3,074 3,469 3,288 3,049 2,819 2,783 2,585 2,424 2,285 2,606 2,530 2,521 2,394 2,357 2,398 2,336 2,408 2,376 2,424 2,397 2,342 2,318 2,330 2,338 2,429 2,225 2,341 2,375 2,256 2,230 2,155 2,214 2,196 TABLE B—35.—Civilian employment by demographic characteristic, 1955—99 [Thousands of persons 16 years of age and oven monthly data seasonally adjusted] Year or month All civilian workers Black and other White Total Males Females Both sexes 16-19 1955 62,170 55,833 38,719 17,114 3,225 1956 63,799 57,269 39,368 17,901 3,389 1957 64,071 57,465 39,349 18,116 3374 63,036 56,613 38,591 18,022 3,216 1958 64,630 58,006 39,494 18,512 3,475 1959 1960 65,778 58,850 39,755 19,095 3.700 65,746 58,913 39,588 19,325 3,693 1961 66,702 59,698 40,016 19,682 3,774 1962 67,762 60,622 40,428 20,194 3,851 1963 69,305 61,922 41,115 20,807 4,076 1964 71,088 63,446 41,844 21602 4,562 1965 72,895 65,021 42,331 22,690 5,176 1966 74,372 66,361 42,833 23,528 5,114 1967 75,920 67,750 43,411 24,339 5,195 1968 77,902 69,518 44,048 25,470 5,508 1969 1970 70,217 44,178 26,039 5,571 78,678 1971 70,878 44,595 26,283 5,670 79,367 73,370 45,944 27,426 6,173 1972 82,153 75,708 47,085 85,064 1973 77,184 47,674 J511 1974 76,411 46,697 29,714 1975 78,853 47,775 31,078 6,487 1976 ....1. 88>52 81,700 49,150 32,550 6,724 1977 92,017 84,936 50,544 34,392 7,068 96,048 1978 87,259 51,452 35,807 7367 1979 ....'..'... 98,824 7,356 1980 99,303 87,715 51,127 36,587 7,021 51,315 37,394 6,588 1981 100,397 50287 37,615 5984 1982 99526 50,621 38,272 5,799 100,834 52,462 39,659 5,836 105,005 53,046 40,690 5,768 107,150 1985 53,785 41,876 5,792 109,597 1986 112,440 1987 9738 54,647 43142 5,898 114,968 1988 99,812 55,550 44,262 6,030 117,342 101,584 56,352 45,232 5,946 1989 1990 118,793 102,261 56,703 45,558 5,779 1991 117,718 101,182 55,797 45,385 5,216 1992 118,492 101,669 55,959 45,710 4985 1993 120,259 103,045 56,656 46,390 1994 123,060 105,190 57,452 47,738 ; 1995 124,900 106,490 58,146 48,344 126,708 107,808 58,888 48,920 5,667 1996 129,558 109,856 59,998 49,859 5,807 1997 131,463 110,931 60,604 50,327 6089 1998 133,488 112,235 61,139 51,096 6,204 1999 1998:Jan .. 130,819 110,567 60,348 50,219 6,111 Feb 130,911 110,616 60,409 50,207 6,046 130,854 110,478 60,255 50,223 6,088 Mar 131,255 110,813 60,586 50,227 Jay" 131,278 110,902 60,528 50,374 6',049 131,234 110,645 60,483 50,162 6,061 June 131,274 110,766 60,544 50,222 6,088 July 131,381 110,920 60,591 50,329 6,113 Aug 131,922 111,350 60,"" 50,622 6.191 131,950 111,245 50,413 6,094 132,156 111,387 61,009 50,378 6,070 Nov 132,517 111,539 60,959 50,580 6,167 Dec 1999: Jan .. 133,225 111,978 60,946 51,032 6,130 Feb 133,029 112,017 60,959 51,058 6,218 Mar 132,976 112,030 31,075 50,955 6,154 133,054 111,886 50,893 6,167 133,190 111,898 60,892 51,006 6,259 133,398 112,115 61,053 51,062 6,113 June 133,399 112,193 61,207 50,986 6,238 July 133,530 112,308 61.193 51,115 6,161 Aug 133,650 112,303 61,322 50,981 6,191 Sept 61301 51,247 6302 133,940 Oct.. 134,098 112,548 112,611 61,294 51,317 6271 Nov 61,436 51,515 6,244 134,420 112,951 Dec Note.-See footnote 5 and Note, Table B-33. Source: Department of Labor, Bureau of Labor Statistics. Total 6,341 6,534 m 6,623 6,928 6,833 7,003 7,140 7,383 7,643 7,877 8,384 8,464 8,488 8,783 88 10 fc- 9,435 9,899 10,317 11,112 11,565 11,588 11,688 11,624 11,941 12,885 13,414 13,937 14,652 15,156 15,757 16,533 16,536 16,823 17,214 17,870 18,409 18,900 19,701 20,532 21,253 20,245 20295 20,405 20,407 20,331 20,585 20,490 20,542 20,596 20,733 20,811 20,955 21,253 21,022 20,977 21,125 21,230 21,264 21,143 21,270 21,378 21,421 21,519 21,433 349 Males Females 3,904 4,013 4,006 3,833 &71 2,437 2,521 2,598 2,590 2,652 4,149 4,068 4,160 4,229 2,779 2,765 2,843 2,911 3,024 3,147 3,289 3365 3467 3,614 88 4,588 4,646 4,702 4,770 4,813 4,796 4,952 5,265 5,352 5,161 5,363 5,579 5936 6,156 6,059 6,083 5,983 6,166 7,107 7,459 7,722 7,963 8,401 8,426 8,482 8,693 8,998 9231 9,319 9,687 10,089 10,307 9,971 9,936 10,000 10,095 10,022 10,142 3,650 3,692 3,832 4,092 4,258 4,275 4,536 4,739 5,177 5,409 5,529 m m 6,569 6,830 7,192 7,434 7,795 8,131 8,110 8,342 8,521 8,872 9179 9,580 10,014 10,443 10,945 10,274 10,359 10,405 10,312 10,309 10,443 10,410 10,479 m 10,406 10,262 10,215 10,198 10,261 10,278 W 10,297 10,342 10,456 10,499 Black Both sexes 16-19 10,594 10,725 10,847 10,760 10,762 10,927 10,969 10,986 10,968 10,968 11,081 11,079 11,063 10,934 1,024 938 Both Total Males Females 1649 7,802 8,128 8,203 7,894 8,227 8,540 9,102 9,359 4,368 4,527 4527 4,275 4,404 4,565 4,796 4,923 3,677 3,618 3823 3,975 4,307 4,436 570 554 507 508 508 571 579 9,313 9,355 9189 9,375 10,119 10,501 10,814 11,309 11,658 11,953 4,798 4,794 4,637 4753 5,124 5,270 5,428 5,661 5,824 5,928 4,515 4,561 4,552 4,622 4,995 547 505 428 416 474 532 12,175 12,074 12,151 12,382 12,835 13,279 13,542 13,969 14,556 15,056 14,269 14,366 14,484 14,463 14,326 14,636 5,995 5,961 5,930 6,047 6,241 6,422 6,456 6,607 6,871 7,027 6,751 6,735 6,827 6,883 6,804 6,950 6,025 6,180 6,113 6,221 6,334 6595 6,857 7,086 7,362 7,685 8,029 7,518 7,631 7,657 7,580 7,522 7,686 6,949 6,962 7,114 7,002 7,653 7,708 7,670 7,807 7,850 7,932 7,942 7,922 7,940 8,029 8,015 8,054 14,526 14,553 14,551 14,793 14,799 14,894 15,056 14,924 14,925 15,011 15,053 15,069 14,962 15,047 15,114 15,124 15,187 15,204 m 7,038 7,015 6,922 7,018 7,016 7,030 7,076 7,127 m w 8,040 8,029 8,098 8,094 8,111 8,077 601 625 598 8 494 552 586 613 631 736 691 677 664 707 749 676 821 727 736 769 732 768 801 724 720 705 684 696 704 682 660 659 662 TABLE B-36.—Unemployment by demographic characteristic, 1955-99 [Thousands of persons 16 years of age and over; monthly data seasonally adjusted] Year or month All civilian workers 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 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 1998: Jan . Feb. Mar 2,852 2,750 2,859 4,602 3,740 f A June July Aug Sept Oct. Nov Dec 1999:Jan . Feb. Mar MaV June Jg ff. Nov Black and other White Males Females Both sexes 16-19 2,252 2,159 2,289 3,680 2,946 1,478 1,366 1477 2,489 1,903 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 #60 1,988 2,398 1,915 1,976 1,779 1,556 1,241 1,208 1,142 1,137 774 793 812 1,191 1,043 1,077 1,345 1,137 1,232 1,220 1,135 1,014 1,130 1,084 1,123 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 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 2177 2,135 7,047 8,628 9,613 8,940 7,996 7,404 7,236 6,739 6,210 5,880 5,186 6,560 7,169 6,655 5,892 5,459 5,300 4,836 4484 4,273 2,935 6,406 6,352 6,479 5,961 6,051 6,215 6,202 6,184 6,234 6,239 6,074 6,028 6,007 6,108 5,828 6,032 5,823 5,934 4,549 4,561 4,691 4268 4,365 4,505 4,378 4,438 4,207 4,458 4295 4,403 2,431 2,274 2,456 2,463 2,567 2,265 2,373 2,446 2,430 2,413 2,509 2,438 2,344 2,411 2,341 2422 2,200 2,274 2,318 2,325 2,251 2,701 2,959 2,827 2617 2,460 2,404 2,195 2,053 1,999 2,093 2,098 2,124 2,003 1,992 2,059 373 382 401 541 525 575 669 580 708 708 705 651 635 644 660 871 1,011 1,021 955 1,104 1,413 1,364 1,284 1,189 1,193 1,291 1,374 1,534 1,387 1,116 1,074 1,070 995 910 863 903 1,029 1,037 992 960 952 939 912 876 844 796 866 899 809 858 929 833 5,937 5,842 5,825 5,757 5,736 5,688 4,299 4,311 4192 4,106 4,092 4,057 2,276 2,372 2,209 2,174 2,167 2,163 Total 4,395 4,512 4,513 4,551 4,386 4,441 m mm 3,828 1,965 2,099 2,004 2,113 2,042 2,030 2,037 2,016 2,007 2,184 1,977 2,078 2,023 1,939 1,983 1,932 1,925 1,894 Dec Note.—See footnote 5 and Note, Table B-33. Source-. Department of Labor, Bureau of Labor Statistics. 8 8 874 892 851 841 852 807 834 803 813 870 842 857 864 Black Total Males Females Both sexes 16-19 601 591 570 923 793 788 971 861 863 787 678 622 638 590 571 754 930 977 924 1,058 1,507 1,492 1,550 1,505 1,473 1,752 1,930 2,437 2,588 2,167 2,121 2,097 1,924 1,757 1,757 1,860 2,068 2,444 2,285 2,104 1,945 1,936 1,903 1,726 1,606 1,815 1,779 1,789 1,698 1,705 1,709 1,801 1,690 1,751 1,699 1,682 1,566 1,573 1,650 1,623 1,590 1,545 1,532 1,651 1,550 1654 1,654 1,633 1,622 376 345 364 610 517 498 599 509 496 426 360 310 300 277 267 380 481 486 440 544 815 779 784 731 714 922 997 1,334 1,401 1,144 1,095 1,097 225 246 206 313 276 290 372 352 367 361 318 312 77 95 350 971 1,087 1,314 1227 1,092 984 835 792 878 859 853 794 789 818 918 834 848 812 814 780 796 793 743 781 771 761 787 713 814 904 826 831 i8 304 374 450 491 484 514 692 713 766 774 759 830 933 1,104 1,187 1,022 1,026 999 955 869 981 1,130 1,058 1,011 961 952 967 891 814 937 920 936 904 916 891 883 856 903 887 868 786 777 857 774 771 864 837 840 750 807 791 Total Males Females Both sexes 16-19 448 395 494 741 458 451 470 629 637 695 690 683 738 840 975 1,059 911 913 894 858 776 772 758 833 944 872 818 777 784 813 756 684 788 781 79L 787 799 757 749 738 759 733 721 660 670 697 718 682 638 656 754 698 712 630 672 665 279 262 297 330 330 354 360 333 343 357 396 392 353 357 347 312 288 300 268 280 324 313 300 325 310 302 281 268 283 284 276 258 291 255 296 287 309 296 291 242 295 281 302 • 128 138 159 142 176 165 171 186 193 235 249 288 280 318 355 355 379 394 362 377 388 443 441 384 394 383 8 331 308 330 390 373 360 394 367 359 329 318 331 328 S 343 301 347 331 378 351 332 299 18 352 323 292 281 282 300 345 317 319 300 906 846 965 1,369 1,334 1,393 1,330 1,319 1,553 1,731 2,142 2,272 1,914 1,864 1,840 1,684 1,547 1,544 1,565 1,723 2,011 1844 1,666 1,538 1,592 1,560 1,426 1,309 1,495 1,479 1,468 1,444 1,420 1,397 1,512 1,419 1,425 1,381 1,386 1,261 1,281 1326 1,306 1,277 1,237 1,239 1,404 1,274 1,360 1,365 1,321 1,309 641 636 815 891 1,167 1,213 1,003 951 946 826 771 773 806 890 1,067 971 848 762 808 747 671 626 707 699 676 657 621 640 763 681 666 648 665 601 611 629 588 595 599 583 650 576 648 735 a 8 232 251 258 294 294 263 248 TABLE B-37.—Civilian labor force participation rate and employment/population ratio, 1950-99 [Percent;1 monthly data seasonally adjusted] Employment/population ratic Labor force participation rate Year or month 1950 1951 1952 1953 1954 1955 1956 1957 1958 1959 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972....I..:::...::....: : 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 . 1992 1993 1994 1995 1996 1997 1998 .. 1999 1998-. Jan Feb Mar Apr May June:::::::::::::::: July Aug Sept Oct Nov Dec 1999- Jan Feb Mar Apr Hay::.::::::::: June July Aug Sept Oct Nov Dec All civilian Fework- Males males ers 58 7 58.7 589 59.2 59.6 596 60.1 60.4 60.2 60.4 608 61.3 61.2 616 62 3 63.2 63.7 638 63.9 640 64.0 644 64.8 653 65.6 65 9 66.5 66.5 662 66.4 66.3 66 6 66.6 668 67.1 671 67.1 67.2 67.2 67.1 67.0 67 0 67.0 67 0 66.9 67.2 67.1 67.1 67.2 86.4 863 86.3 860 85 5 85.4 85 5 84.8 84.2 83.7 83.3 82.9 82.0 81.4 81.0 807 80.4 80.4 801 79.8 79.7 79.1 78.9 788 78 7 77.9 77 5 77 7 77.9 77.8 774 77.0 766 76.4 764 76.3 763 76.2 762 76.4 76.4 758 75.8 75.4 751 75.0 74 9 75.6 74 9 74.7 75.0 74.9 74.9 74.9 74 8 74.9 749 74.6 75.0 74.9 74.9 74.9 674 67 3 67.0 671 67.0 671 67.0 67.0 67 0 67.0 670 67.1 751 75 0 74.7 74 7 74.6 74 7 74.7 74.6 74 7 74.6 74 6 74.7 59.2 59 2 59.0 589 58 8 59.3 600 596 59.5 59.3 59.4 59.3 33.9 346 34.7 344 346 35.7 369 36.9 37.1 37.1 37.7 38.1 37.9 38 3 38.7 393 40.3 41.1 416 42.7 43.3 43.4 43.9 447 45.7 46.3 47 3 484 50.0 50.9 515 52.1 536 54.5 553 56.0 566 57.4 57.5 574 57.8 57.9 58 8 589 593 59.8 598 60.0 60 0 59.9 60.0 59.7 598 59.8 59 6 59.9 59.8 60.0 602 601 60.0 601 60.0 601 600 60.0 599 60.0 600 60.0 Both sexes 16-19 years 51.8 522 51.3 502 483 48.9 509 496 47.4 46.7 47.5 46.9 46.1 452 44.5 45 7 48.2 48.4 483 49.4 49.9 49.7 51.9 53 7 548 54.0 545 560 578 57.9 56 7 55.4 541 53.5 539 54.5 54 7 54 7 553 55.9 53.7 516 51.3 51.5 52 7 53.5 52 3 51.6 52 8 52.0 52 9 52.9 53.0 52.0 52 2 53.2 524 52.9 53.7 52:8 524 52 9 52.0 520 51.9 514 51.8 51.2 515 52.1 521 52.3 White 582 58.7 594 59.1 58.9 58.7 58.8 58.8 58.3 58? 58.2 584 58.7 59 3 59.9 60.2 60.1 60.4 608 61.4 61.5 618 6? 5 63.3 63.9 641 64.3 643 64.3 646 65.0 65 5 65 8 662 66.7 66.9 666 cc 0 00.0 66 8 671 67.1 67 2 67.5 67 3 67.3 674 67.4 67.3 67.2 673 67.2 671 67.2 67.4 67.3 67.3 67.4 67 5 675 67.3 674 67.2 67 4 67 3 67.3 67 2 67.2 67 2 67.3 Black and other Black 56.1 573 57.3 571 55 5 56.7 57 5 57.1 55.4 56.0 56.1 55.4 64 0 64.2 644 64.8 64.3 64.5 64.1 63 0 63.1 62 9 63.0 $ 62.1 61.8 60.9 60.2 "59.9 605 60 2 60.3 59.8 59.6 58.8 590 598 604 598 62.2 61.5 62.2 61.4 610 617 61.3 60.8 610 61.5 62 2 62.9 633 638 638 640 64.7 64.2 64.4 64.0 633 638 64.6 11 643 646 65.9 66 0 65.9 66.2 65.8 S3 65.7 660 65.9 66.0 66.1 66.1 63.7 641 64.7 65 6 65.8 65 2 65.4 65.8 65.5 648 65.8 65 8 65.4 65.3 8* 65:8 662 658 65 7 65.6 661 66.1 662 65.9 65.8 65.5 660 66.0 660 65.9 8$ 8* 81 1 All civilian Fework- Males males ers 56.9 57.3 57 5 58.0 57.4 56.6 57.0 578 57.8 3* 57.9 59.3 59.9 592 59.0 578 57.9 595 60.1 82.0 84.0 83.9 836 810 81.8 82 3 81.3 78.5 79.3 78.9 77.6 77.7 77.1 77.3 775 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 71.3 690 68.8 70 7 70.9 710 715 72 0 72.5 72.0 704 69.8 70.0 704 70.8 709 71.3 716 71.6 716 71.6 71.4 71.8 716 71.5 715 71.4 71.6 71.6 71.8 71.7 ft? ll:g 62.8 617 61.5 61.7 62 5 6? 9 63 2 63.8 641 64.3 641 64.0 64.0 64.1 641 64.0 640 63.9 64.1 64.1 64.1 64.2 644 643 64.2 642 64.2 642 64.2 64.2 642 64.2 643 64.4 719 717 71.7 716 71.6 71.5 716 71.6 716 71.7 32.0 331 33.4 333 32 5 34.0 351 351 34.5 35.0 35.5 35.4 35.6 358 8? 38.3 39.0 39.6 40.7 40.8 40.4 41.0 42 0 42.6 42.0 432 445 46.4 47.5 47 7 48.0 47 7 48.0 495 50.4 514 52.5 534 54.3 54.3 53 7 53.8 54.1 560 56.8 571 57.4 571 57.1 57.1 57.0 571 57.0 569 57.0 57.2 57.1 57.0 57.4 57 5 57.4 57.3 574 57.5 57 5 57.3 57.4 57 3 57.5 575 57.6 Both sexes 16-19 years 45.5 47 9 46.9 464 423 43.5 453 43.9 39.9 39.9 40.5 39.1 39.4 37.4 37.3 389 42.1 42.2 42.2 43.4 42.3 41.3 43.5 459 46.0 43.3 442 46.1 48.3 48.5 466 44.6 415 41.5 43 7 44.4 446 45.5 468 47.5 45.3 42 0 41.0 41.7 434 44.2 435 43.4 451 44.7 45.6 45.1 45.2 45.0 44 5 45.3 448 45.0 45.7 44.6 44.7 45.5 44 5 45.4 44.6 44 7 45.1 444 44.9 44.3 440 44.9 448 45.1 Civilian labor force or civilian employment as percent of civilian noninstitutional population in group specified. Note.—Data relate to persons 16 years of age and over. See footnote 5 and Note, Table B-33. Source: Department of Labor, Bureau of Labor Statistics. 351 White 55.2 56.5 57 3 56.8 55.3 55.9 55.9 55.3 55.4 553 55.5 560 56.8 57.2 574 58.0 57.5 56.8 57.4 58? 58.3 56.7 57 5 586 f8:g 600 60.0 588 58.9 605 61.0 615 62 3 631 63.8 63.7 62 6 641 64.6 64 7 64.8 647 64.7 SB 648 64.6 646 Black and other 580 58.7 59 5 593 56.7 57.5 57 9 56.2 56.3 56.2 57.0 578 58.4 58? 58.0 58.1 56.8 54.9 54.1 550 54.3 51.4 52 0 52.5 54.7 55.2 53 6 52.6 509 51.0 53 6 54.7 554 56.8 574 58.2 57.9 56 7 56.4 56.3 57 2 58 6 59.4 60 9 61.3 60.6 60.6 « 604 61.1 60 7 ffl 64.7 64.7 64.8 65 0 64.9 64.9 648 64.7 648 64.8 64.8 648 81 65.0 : : : : • : 61.0 61.2 61.5 619 61.1 60.9 612 61.4 614 60.9 61.2 614 61.4 616 61.2 Black _ . „ 54 5 53 5 50.1 508 514 53 6 53.8 5? 3 51.3 494 49.5 52 3 53.4 541 556 56 3 56.9 56.7 554 54.9 55.0 561 571 574 58.2 59 7 60.6 590 59 3 59.7 59.5 589 60.1 59 6 59.6 59.5 60.4 60.3 60.6 610 604 60.4 60 6 60.7 60 7 60? 60.4 606 60.5 60 7 60.7 TABLE B—38.—Civilian labor force participation rate by demographic characteristic, 1955-99 [Percent;1 monthly data seasonally adjusted] Black and other or black White Year or month All civilian workers Females Males Total Total 16-19 years 854 85.6 84.8 84.3 83.8 58.6 60.4 59.2 56.5 55.9 55.9 54.5 538 53.1 52.7 54.1 20 years Total and over Total 16-19 years 39.8 387 37.8 39.2 42.6 42 5 43.0 44.6 45.6 454 48.1 34.0 35.1 35.2 35.5 35.6 36.2 36.6 36.5 37.0 37.5 38.0 38.8 398 40.4 41.5 42 2 42.3 427 64.2 64.9 64.4 64.8 64.3 64.5 64.1 63.2 63.0 63.1 62.9 63.0 62.8 62.2 62.1 618 60.9 60.2 85.1 85.1 84.2 84.1 834 83.0 82.2 80.8 80.2 80.1 79.6 79.0 78.5 777 76.9 765 74.9 73.9 60.8 61.5 58.8 57.3 55.5 57.6 55.8 535 51.5 49.9 51.3 514 511 497 49.6 474 447 46.0 481 50*1 51.7 51.5 52.8 54.5 56.7 57.4 56.2 55.4 55.0 545 554 55 2 563 56*5 57 2 57i 55 3 54*1 52 5 53.5 55.1 55 5 54 7 541 554 54*5 55.6 55.5 55.6 54.2 55.5 55.6 55.1 55.7 56.5 55.8 54.0 55.3 54.9 55.4 55.0 55.0 54.2 53.0 54.0 53.7 54.2 55.4 55.1 54.6 42 7 43*5 444 45.3 46.2 47.3 48.7 49.8 50.6 51.5 52.2 52 5 531 540 54 9 556 563 57*2 57 6 57.6 581 58.3 59.2 592 594 599 59 7 59*9 59.9 59.8 59.8 59.8 59.8 59.6 59.5 597 59.8 597 59.7 59.8 60.1 60.0 59.9 60.0 59.9 60.1 59.8 59.9 597 59.8 59.9 60.1 599 60*2 59.8 58.8 59.0 59.8 61.5 61.4 610 60.8 61.0 615 62*2 62 9 633 638 638 64.2 64 0 63*3 63 9 63.2 63.4 63 7 641 647 65 6 65.8 65.2 65.4 65.8 65.5 64.8 65.8 65.8 65.4 65.3 66.0 66.0 65.8 66.2 65.8 65.6 65.8 65.7 657 65.8 73 6 73.4 72.9 70.9 70.0 70.6 71.5 71.3 703 70.0 70.1 706 70*8 708 712 711 710 71*0 710 70*4 70 7 69*6 69.1 69 0 68 7 683 690 687 68.8 68.5 69.0 69.3 68.1 69.5 69.9 68.7 68.8 69.5 69.2 68.6 69.9 68.9 68.3 68.3 68.7 68.2 67.9 68.0 68.5 69.3 68.8 69.2 463 457 46.7 42.6 41.3 43.2 44.9 43.6 432 41.6 39.8 399 41*7 446 43 7 43*6 438 44.6 40 7 373 40 6 39.5 40.8 401 395 37*4 40 7 38.6 38.6 38.7 38.2 38.6 367 42.1 44.3 40.3 44.5 39.9 44.3 41.6 42.6 40.7 41.2 377 37.3 36.5 36.8 35.4 37.6 39.7 36.8 40.9 16-19 years Females Males 20 Total years and over 20 years and over Total 16-19 years 20 years and over Black and other 1955 1956..:: :... 1957 1958 ...'....'... 1959 ... 1960 . 1961 1962 ""....'."... 1963 1964 1965 1966 1967 . 1968 1969 1970 1971 1972 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 60.1 604 60.2 60.4 587 59.4 59.1 58.9 58.7 58.8 58.8 58.3 58.2 58.2 58.4 587 59 2 59.3 59.9 60 2 60.1 60.4 1972 1973 . . 1974 1975 1976 1977 1978 1979 .."".."'.. 1980 1981 1982....::..::::. 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 .. .. 1993 1994 1995 1996 1997 1998 . 1999 1998:Jan Feb Mar 604 60*8 61.3 61.2 61.6 62.3 63.2 63.7 63.8 63.9 64.0 640 644 64.8 653 65*6 65 9 66*5 66 5 66^2 664 66.3 66.6 66.6 66 8 67il 671 67.1 67.2 67.2 67.1 67.0 67.0 67.0 67.0 66.9 67.2 67.1 67.1 67.2 674 67.3 67.0 67.1 67.0 67.1 67.0 67.0 67.0 67.0 67.0 67.1 604 60.8 61.4 61.5 61.8 62.5 830 821 81.5 81.1 808 80.6 80 6 804 80.2 80 0 79.6 79.6 563 55*9 56.8 57 5 57 9 60.1 87.5 &* 86.6 86.3 86.0 857 84 9 844 84.2 839 83.6 835 83*2 83.0 828 82*3 82.0 34.5 357 35.7 35.8 36.0 36.5 36.9 36 7 37.2 37.5 381 39.2 401 40.7 41.8 42 6 42.6 43.2 40.7 43.1 42.2 40.1 39.6 82 87.8 87.8 87.0 87.1 86.7 86.2 85.5 84.2 83.9 84.1 837 82 9 82*2 814 814 80.0 78.6 46.1 47.3 47.1 48.0 47.7 48.2 48.3 48.0 48.1 48.6 48.6 494 49.5 49.3 49.8 49.5 49.2 48.8 32.7 36.3 33.2 31.9 28.2 32.9 32.8 33.1 32.6 317 29.5 33.5 35.2 34.8 34.6 34.1 31.2 32.3 47.5 48.4 48.6 49.8 49.8 49.9 50.1 49.6 49.9 50.7 51.1 51.6 51.6 51.4 52.0 518 51.8 51.2 48 7 49.3 49.0 32 2 512 51.6 514 51.1 52.5 53.6 55.5 55.4 55.6 56.0 56.2 568 576 58 6 58 9 60.0 601 60*6 606 60.0 60 8 60.2 60.9 61.4 Black \KyZ". June .... July Aug Sept .... Oct Nov Dec 1999-. Jan Feb Mar fcz June .... July Aug ffz Nov Dec til 64.1 64.3 64.3 64 3 64*6 65 0 65 5 658 66 2 667 66 9 66*6 668 66.8 67.1 671 67 2 67*5 67 3 67.3 67.4 67.4 67.3 67.2 67.3 67.2 67.1 67.2 674 67.3 67.3 67.4 67.5 67.5 67.3 67.4 67.2 67.4 67.3 67.3 67.2 67.2 67.2 67.3 796 794 794 787 784 78.5 78.6 78.6 78.2 77.9 774 771 771 77 0 769 768 76 9 77.1 771 765 76 5 76.2 75.9 75 7 758 75*9 75 6 75.6 75.7 757 75.6 75.6 75.6 75.5 75.5 75.5 75.7 75.7 75.7 75.7 757 75.8 75.6 75.5 75.4 75.5 75.6 75.6 75.5 75.4 75.3 754 601 62.0 62.9 61.9 62.3 64.0 65.0 64.8 63.7 62.4 60.0 594 59 0 59 7 593 590 600 61.0 596 573 56 9 56.6 57.7 58 5 571 561 566 56.4 56.9 56.8 57.6 55.9 55.8 567 55.8 56.6 56.5 56.6 56.9 56.7 56.3 56.5 55.6 55.8 57.1 56.2 56.5 55.7 56.6 III 57.0 82 0 81.6 81.4 807 80.3 80.2 80.1 80.1 79.8 79.5 79.2 78 9 78 7 78 5 78 5 78*4 783 78.5 78 5 780 78 0 777 77.3 771 77 3 77 5 772 77*2 77.2 77.3 77.1 77.2 77.2 77.1 77.2 77.1 77.3 77.3 77.3 77.3 77.4 774 77.3 77.2 77.0 77.2 77.2 77.3 77.1 77.0 76.9 77.0 432 44.1 45.2 45.9 46.9 48.0 494 50.5 51.2 51.9 524 52 7 533 541 550 557 564 57.2 574 574 57 7 58.0 58.9 59 0 591 595 594 59.6 59.6 59.5 59.5 59.4 59.5 59.3 59.2 59.6 59 5 59*3 59.5 59.7 597 59.6 59.6 59.5 59.6 594 59.4 59.3 59.5 59.5 59.7 1 66 0 66*0 66.0 65.9 Civilian labor force as percent of civilian noninstitutional population in group specified. Note.—See Note, Table B-37. Source: Department of Labor, Bureau of Labor Statistics. 352 78 5 784 77.6 76.0 75.4 75.6 76.2 76.3 75.1 74.5 74.7 752 74*8 744 74 8 747 74 6 744 75 0 74.6 74 3 73.2 72.5 72 5 72 3 72*2 72 5 72.4 72.5 72.1 72.8 73.0 72.0 72.9 73.0 72.3 71.8 73.1 72.3 72.0 73.3 724 717 72.0 72.6 72.1 71.7 72.0 72.3 72.9 72.8 72.6 82 50.8 53.1 53.1 53.1 53.5 537 542 55*2 56.5 569 58*0 58 0 58.7 58 3 57.5 58.5 57.9 587 59.5 604 617 62 8 63.5 62.2 62.9 63.1 62.4 62.0 62.9 62.5 62.7 62.5 63.2 63.4 63.3 63.2 63.4 82 63.6 64.1 63.5 64.0 63.3 63.7 63.3 34l2 334 34.2 32.9 32.9 36 8 349 34.0 33.5 330 350 379 391 396 37 9 404 36.8 352 34.6 36.3 39 8 38 9 399 42 5 38*8 40.9 39.6 427 44.0 42.5 45.8 39.3 43.1 43.3 43.8 41.9 43.1 39.9 40.3 40.3 38.8 37.7 38.9 38.2 38.5 39.1 37.4 37.9 38.2 64 0 648 66.1 64.4 65.3 65.2 64.3 64.0 64.6 64.8 647 644 65.2 65.6 65.5 65.6 65.6 65.8 66.3 65.8 66.1 667 66.1 66.5 65.9 66.3 65.8 TABLE B—39-—Civilian employment/population ratio by demographic characteristic, 1955—99 [Percent;1 monthly data seasonally adjusted] 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1994 1995 1996 1997 1998 1999 1998:Jan Feb. Mar A Civilian. r v Note.—Data relate to persons 16 years of age and over. See footnote 5 and Note, Table B-33. Source: Department of Labor, Bureau of Labor Statistics. ilation in group specified. 353 TABLE B--40.—Civilian unemployment rate, 1950-99 [Percent;1 monthly data seasonally adjusted] Year or month All civilian work- Total ers 5.3 1950 1951 1953 1954 "Z'ZZ. 1955 1956 "Z"I.!". 1957 1958 1959 '..'. '. '.. 1960 1961 1962 Z..Z..Z 1963 1964 1965 ZZZZ. 1966 1967 1 9 6 8 ••';•;••;;••; 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 . . 1995 1996 1997 1998 1999 1998:Jan Feb Mar Mgy June "....'. July Aug Sept .. Oct Nov Dec 1999Jan Feb Mar Hjfay June July Aug Oct NOV Dec z z is 5^5 44 A.\ 4.3 6.8 5.5 55 67 5.5 57 52 4.5 3.8 U 3.5 4.9 5.9 56 4.9 5.6 85 7.7 7.1 6.1 5.8 7.1 7.6 97 9.6 7.5 72 7.0 6.2 5.5 53 5.6 6.8 75 H 56 54 4.9 4.5 4.2 4.7 4.6 4.7 4.3 44 4.5 4.5 4.5 4.5 4.5 44 44 4.3 44 4.2 343 4.3 4.2 4.2 4.1 4.1 4.1 51 2.8 28 U 53 42 3.8 4.1 6.8 5.2 54 64 5.2 5.2 46 4.0 32 ii 2.9 2.8 44 5.3 50 4.2 4.9 79 7.1 6.3 53 5.1 69 7.4 99 9.9 74 70 6.9 6.2 55 5.2 57 7.2 79 7.2 62 56 54 4.9 4.4 4.1 4.5 4.5 47 4.2 4.3 4.4 4.5 44 4.5 4.3 4.2 4.3 4.2 43 4.0 4.1 4.2 4.1 4.1 4.1 4.0 4.1 4.0 4.0 Males Females 20 16- years 19 Total and years over 12.7 8.1 89 7.9 13.5 116 11.1 124 17.1 15.3 153 17.1 14.7 17.2 15.8 14.1 117 123 11.6 11.4 15.0 16.6 15 9 13.9 15.6 201 19.2 17.3 15.8 15.9 183 20.1 244 23.3 19.6 19.5 19.0 17.8 16.0 15.9 16.3 19.8 215 20.4 19.0 184 18.1 16.9 16.2 147 15.8 16.9 163 14.2 164 16.0 163 16.1 17.1 16.7 16.1 16.0 16.4 14.9 15.0 14.8 13.9 4.7 2.5 2.4 2.5 4.9 3.8 34 3.6 6.2 47 47 57 4.6 4.5 39 3.2 25 23 2.2 2.1 3.5 4.4 40 143 ii 8 3.5 13.8 13.9 14.6 14.2 14.9 15.2 3.5 3.5 3.4 3.5 3.3 33 ii68 5.9 5.2 43 4.2 5.9 6.3 88 862 6.1 54 4.8 4.5 5.0 64 71 64 54 48 4.6 4.2 37 3.5 3.8 3.8 3.9 3.6 3.6 3.7 3.8 37 3.7 3.6 3.5 3.6 3.5 20 16- years 19 and years over 57 4.4 36 3.3 6.0 4.9 4.8 4.7 6.8 5.9 59 7.2 6.2 6.5 62 5.5 4.8 5.1 4.0 32 2^9 5.5 44 42 4.1 6.1 5.2 5.1 11.4 8.3 80 7.2 114 102 11.2 10.6 14.3 13.5 13 9 163 14.6 17.2 166 15.7 141 115 A.% 14.0 4.7 13.3 5.9 15.6 17.2 16 7 6.0 153 67 16.6 93 19 7 187 18.3 7.2 17.1 6.8 16.4 74 17 2 7.9 19.0 94 219 92 213 7.6 18.0 74 17 6 71 17*6 6.2 15.9 56 144 54 14.0 5.5 147 64 17 5 70 186 lU 162 56 161 54 15^2 5.0 15.0 4.6 12.9 4.3 13.2 4.8 11.8 4.8 12.3 4.8 4.6 4.5 12.9 4.6 13.7 4.5 12.7 4.6 13.6 4.5 12.6 4.7 14.5 4.6 13.3 44 11.8 44 137 4.4 134 4.5 134 4.6 134 4.2 12.2 44 13.0 44 12.6 43 13.2 43 147 4.2 134 4.2 13.0 4.1 12.2 54 5.4 52 4.5 38 4.2 3.8 37 4.8 5.7 54 49 H n 7.4 7.0 3 6.0 57 64 6.8 8.3 6l8 66 6*2 54 49 4.7 4.9 5.7 63 5.9 54 49 AA 4.4 4.1 3.8 44 4.2 4.2 4.0 4.0 4.0 H E 3.9 IS4.0 4.0 3.9 3.8 3.8 3.9 4.0 3.7 3.8 3.9 3.7 3.7 ii3.6 1 Unemployed as percent of civilian labor force in group specified. 2 Data for 1950 are for March; data for 1951-54 are for April. Note.—Data relate to persons 16 years of age and over. See footnote 5 and Note, Table B-33. Source: Department of Labor, Bureau of Labor Statistics. 354 Both sexes 16-19 years 12.2 8.2 85 n 12.6 110 11.1 11.6 15.9 14.6 14 7 163 14.7 17.2 16.2 14.8 12.8 127 12.2 15.3 16.9 16.2 14.5 16.0 19.9 19.0 17.8 16.4 16.1 17.8 19.6 23 2 22.4 18.9 18 6 18 3 16.9 15 3 15.0 15.5 18.7 201 19.0 17 6 17 3 167 16.0 14.6 13.9 13.8 147 14.8 13.5 147 14.9 14.6 14.9 14.9 15.6 14.8 14.0 15.1 14.2 14.2 14.1 13.1 13.6 13.2 13.5 14.6 13.8 14.0 13.8 Black White and other 4.9 3.1 28 27 5.0 39 3.6 3.8 6.1 4.8 5.0 9.0 53 54 *5 9.9 87 8.3 7.9 102 124 10.9 10.8 5.1 63 67 86 84 6.5 62 60 5.3 47 4.5 4.8 6.1 66 6.1 53 49 47 4.2 3.9 37 4.0 4.0 4.1 3.7 3.8 3.9 11.3 131 14.2 17.3 3.8 3.9 3.9 3.9 8.1 7.6 7.8 7.6 7.5 7.0 6.9 7.3 7.2 7.0 6.8 6.7 7.2 6.8 7.2 7.2 7.1 7.0 9.6 8.1 73 74 6.7 64 8.2 9.9 100 "iiJ4 8 138 35.2 11! 11.9 3.8 3.6 3.8 3.7 3.8 3.7 3.7 3.6 3.5 3.5 3.5 !ZZ! 12.6 10.7 4.9 5.0 4.6 4.1 34 34 3.2 3.1 4.5 5.4 51 43 5.0 78 ii3.8 Black 144 13 7 131 11.6 104 10.0 10.1 111 12 7 117 10 5 96 93 8.8 7.8 7.0 8.2 8.1 8.1 77 77 7.7 94 10.5 14.8 14.0 14.0 12.8 123 143 15.6 189 19.5 15.9 151 14 5 13.0 117 11.4 11.4 12.5 14 2 13.0 11.5 10.4 10.0 89 8.0 9.5 9.3 9.2 9.1 9.0 87 94 8.9 II8.6 7.8 7.8 8.2 8.0 7.8 7.6 7.6 8.6 7.8 83 87.9 Experienced wage and salary workers 6.0 37 34 3.2 6.2 48 44 4.6 73 5.7 5.7 5i6 5.6 5.0 4.3 35 U 3.4 3.3 4.8 57 53 4.5 53 82 73 6.6 5.6 5.5 69 73 93 9^2 7.1 68 6*6 5.8 52 5.0 5.3 6.6 72 6.6 59 54 5^2 4.7 43 4.0 4.5 44 4.5 4.1 4.3 4.3 43 4.4 44 4.3 4.2 4.1 4.1 4.1 4.1 4.2 4.1 4.1 4.1 4.0 4.0 3.9 3.9 3.9 Married men, spouse present 2 Women who maintain families 4.6 1.5 14 17 4.0 26 2.3 2.8 h37 A.B 3.6 3.4 28 2.4 1.9 L6 1.5 2.6 3.2 28 23 2.7 51 4l2 3.6 28 2.8 42 43 65 65 4.6 43 44 4.9 44 44 54 Ii 71 7.0 10.0 94 85 8.3 92 104 117 122 10.3 104 98 33 9.2 8.1 34 44 51 44 37 83 93 100 97 8.9 i27:§ 24 2.2 2.5 2.5 2.5 2.2 2.3 23 2.3 23 ii23 2.3 2.3 2.4 2.1 23 2.3 2.2 23 2.3 2.2 2.2 2.1 2.2 8*2 8!l 7.2 64 77 7.5 7.5 7.5 7.5 7.0 6.9 6.J 7.5 6.S 6i 6.3 6.3 6.5 6.6 7.1 6.C 6.5 64 ti 3 6.C TABLE B-41.—Civilian unemployment rate by demographic characteristic, 1955-99 [Percent;1 monthly data seasonally adjusted] White Year or month All civilian workers Total Total Black and other or black Males Females Males 20 16-19 years Total years and over 20 16-19 years Total Total years and over 20 16-19 years Total years and Females 20 16-19 years years and Black and other 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 if 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 5.6 6.8 7.5 H 11.3 10.5 11.5 15.7 14.0 14.0 15.7 13.7 15.9 14.7 12.9 10.5 10.7 10.1 10.0 13.7 15.1 14.2 14.2 12.3 13.5 18.3 17.3 15.0 13.5 13.9 16.2 17.9 21.7 20.2 16.8 16.5 16.3 15.5 13.9 13.7 14.3 17.6 18.5 17.7 16.3 15.6 15.5 14.3 14.1 12.6 13.8 14.8 14.8 13.0 14.2 14.6 13.8 14.1 14.5 14.1 13.8 13.8 13.8 12.6 12.8 12.6 12.2 12.0 11.7 12.3 12.7 11.9 12.8 13.3 9.1 9.7 9.5 12.7 12.0 12.7 14.8 12.8 m 14.0 12.1 11.5 12.1 11.5 13.4 15.1 14.2 m 14.5 17.4 16.4 15.9 14.4 14.0 14.8 mm 5.6 5.4 4.9 4.5 4.2 4.7 4.6 3.4 4.7 3.0 4.3 3.1 4.4 4.5 4.5 4.5 4.5 3.2 4.5 3.1 4.4 3.2 4.4 3.1 4.3 3.3 4.4 2.9 4.2 3.0 4.3 4.2 4.3 4.3 3.1 4.2 3.2 4.2 2.9 4.1 2.9 4.1 2.8 4.1 2.8 1 Unemployed as percent of civilian labor force in group specified. Note.—See Note, Table B-40. Source: Department of Labor, Bureau of Labor Statistics. n u y 14.8 14.9 13.4 12.3 11.5 12.6 15.2 15.8 14.7 13.8 13.4 12.9 12.8 10.9 11.3 9.0 10.1 10.8 10.7 10.5 11.9 10.1 11.6 10.5 12.8 11.8 10.9 11.5 11.4 11.2 11.6 10.6 12.0 11.1 11.0 11.9 11.7 11.2 10.9 355 8.7 12.6 10.7 m 9.6 H 7.4 6.7 6.4 8.2 9.9 10.0 10.4 9.4 10.5 14.8 14.0 14.0 12.8 12.3 14.3 ill m 15.1 14.5 13.0 11.7 11.4 11.4 12.5 14.2 10.5 10.0 8.9 8.0 H 9.2 9.1 9.0 8.7 9.4 8.8 7.9 8.3 13.7 11.5 10.7 12.8 10.9 10.5 8.9 7.4 6.3 6.0 5.6 5.3 7.3 13.4 15.0 18.4 26.8 25.2 24.0 26.8 22.0 27.3 24.3 23.3 21.3 23.9 22.1 21.4 25.0 28.8 29.7 8.4 7.4 7.6 12.7 10.5 9.6 11.7 10.0 B 6.0 4.9 4.3 3.9 3.7 5.6 7.3 6.9 Black 7.0 8J H 37.5 39.2 36.7 34.2 37.5 40.7 48.9 8) SB 34.4 32.7 31.9 31.9 36.3 42.0 40.1 37.6 37.1 36.9 fit 30.9 fif 23.5 27.7 30.1 30.0 32.2 34.5 32.5 27.6 33.3 31.2 32.4 32.0 27.9 28.8 30.7 29.6 30.3 35.3 31.0 27.5 m 9.3 12.4 13.5 17.8 18.1 14.3 13.2 12.9 11.1 10.1 10.0 10.4 11.5 13.5 12.1 10.3 8.8 9.4 8.5 7.4 6.7 8.1 7.8 7.8 7.6 6.8 7.4 8.5 7.6 7.0 6.7 6.9 6.5 6.1 6.7 8 6.6 6.4 7.2 6.3 7.1 7.7 7.0 7.0 8.5 8.9 ,03 9.4 it* 11.0 11.2 10.7 9.2 8.7 9.1 8.3 7.8 9.3 10.9 11.4 11.8 11.1 11.3 14.8 14.3 14.9 13.8 13.3 14.0 15.6 17.6 18.6 15.4 14.9 14.2 13.2 11.7 11.4 10.9 12.0 13.2 12.1 11.0 10.2 10.0 19.2 22.8 20.2 28.4 27.7 24.8 29.2 30.2 34.7 31.6 31.7 31.3 29.6 28.7 27.6 34.5 35.4 38.4 40.5 36.1 37.4 41.0 41.6 43.4 40.8 39.1 39.8 42.2 47.1 48.2 42.6 39.2 39.2 34.9 32.0 33.0 29.9 36.0 37.2 8* 34.3 30.3 28.7 25.3 25.1 82 28.4 25.9 27.7 23.9 27.6 26.3 25.1 23.8 22.3 19.1 24.5 25.0 27.6 23.8 22.5 21.2 23.4 26.7 31.4 26.1 25.9 23.0 7.7 7.8 tt 8.3 8.3 10.6 9.6 9.4 9.0 7.5 6.6 7.1 6.3 5.8 6.9 U 9.0 8.6 8.8 12.2 11.7 12.3 11.2 10.9 11.9 13.4 15.4 m 12.4 11.6 10.4 9.8 9.7 10.6 11.8 10.7 9.8 8.6 8.7 H 6.8 8 8.1 8.3 8.4 7.9 7.8 7.5 7.9 7.5 7.5 6.9 6.7 7.0 7.1 6.9 6.5 6.7 7.7 6.9 6.7 6.1 6.6 6.7 TABLE B-42.—Unemployment by duration and reason, 1950-99 [Thousands of persons, except as noted; monthly data seasonally adjusted1] Duration of unemployment Year or month ployment Less than weeks 1950 1951 1952 1953 1954 1955 1956 1957 1958 1959 1960 1961 1962 1963 Z 1964 ....:z 1965 1966 ... 19672 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 . . . . Z 1992 1993 1994 1995 1996 1997 1998 1999 1998: Jan .. Feb .. Mar.. £": Nov.. Dec .. 1999: Jan .. Feb .. Mar.. June . July .. Aug .. Sept. Oct... Nov .. Dec .. 3,288 2,055 1,883 1,834 3,532 2,852 2750 2,859 4,602 3,740 3,852 4,714 3,911 4,070 3786 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 ffl 7425 6,701 7,047 8,628 9,613 8,940 7,996 7,404 7236 6,739 6,210 6,406 6,352 6,479 5,961 6,051 6,215 6,202 6!234 6,239 6,074 6,028 6,007 6,108 5,828 6,032 5,823 5,934 W m 5,736 5,688 1,450 1,177 US 27 5-14 15-26 weeks weeks weeks 1,055 574 516 482 1,116 815 805 891 1,396 425 166 148 132 8 r lllM 1:1 1,4L_ 1,408 iff 1,697 1,628 1,573 Iff 1,629 2,139 2,245 2,242 2,224 2,604 2,940 2,844 2,919 ffl 3,295 3,449 ffl 3,350 1,176 1,376 1,134 1,231 1,117 983 779 893 810 827 1,290 1,585 1,472 1,314 1597 2,484 2,196 2,132 1,923 1,946 2,470 2,539 3,311 2,937 2451 2,509 2,557 m as 3il74 3,265 3,480 3,376 3,262 2,728 2,700 2!633 21568 2,550 2,584 2,836 2,598 2,639 2,556 2,586 2,621 2,616 2,829 2,525 2,573 2,397 2,585 2,521 2741 2,502 2,540 2,640 2,599 2,582 2,545 2,601 2,620 1,978 2,257 2,791 2,830 2,584 2,408 2,342 2287 2,138 1,950 1,832 1,932 1,912 1,964 1,928 1,984 2,064 1,998 1,957 1,959 1,873 1,978 1,884 2,012 1,925 1,884 1,868 1,832 1,775 1,778 1,798 1,805 1,811 1,760 1,694 301 321 785 469 491 404 287 271 256 242 428 668 601 483 574 1,303 1,018 913 766 706 1,052 1,122 1,708 1,652 1104 1,025 1,045 943 822 1,246 1,453 1,297 1,237 1,085 1,053 995 763 755 824 837 852 620 663 820 762 804 730 730 745 759 776 754 752 794 784 806 779 747 708 719 725 693 357 78 317 336 232 571 454 804 8 8 239 177 156 133 235 519 566 343 381 1,203 1,348 1,028 648 535 820 1,162 1,776 2,559 1634 1,280 1,187 1,040 809 646 703 1,111 1,954 1,798 1,623 1,278 1,262 1,067 875 725 1,009 958 915 862 841 793 824 833 906 855 860 813 715 785 715 680 735 828 704 715 676 695 Reason for unemployment Average (mean) duraduration tion (weeks) (weeks) Job losers3 Total On layoff Other 1,229 1,070 1,017 1,811 2,323 2,108 394 334 339 675 735 836 736 678 1,137 1588 1,526 1,221 1,495 2,714 2,628 2,300 1,873 1,784 2,459 2,837 4,141 4,478 3,250 2,982 2,943 2,623 Reentrants New entrants 438 431 436 550 590 641 683 768 945 909 965 1,228 1,472 1,456 1,340 1,463 396 407 413 12.1 U 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 7.8 8.6 11.3 12.0 10.0 9.8 14.2 15.8 14.3 11.9 10.8 11.9 13.7 15.6 20.0 18.2 15.6 15.0 14.5 13.5 11.9 12.0 13.7 17.7 18.0 18.8 16.6 16.7 15.8 14.5 13.4 15.6 15.3 14.6 14.6 14.8 14.0 14.2 13.8 14.4 14.0 14.4 14.0 13.5 13.8 13.6 13.2 13.4 14.3 13.5 13.2 13.0 13.2 13.0 12.8 2.3 4.5 4.4 4.9 6.3 6.2 5.2 5.2 8.4 8.2 7.0 5.9 5.4 6.5 6.9 8.7 10.1 7.9 6.8 6.9 6.5 5.9 4.8 5.3 6.8 8.7 8.3 9.2 8.3 8.3 8.0 6.7 6.4 7.3 7.0 6.8 6.6 60 mm 3,166 3^947 4,267 6,268 6,258 4421 3,387 4,694 5,389 4,848 3,815 3,476 3,370 3,037 2,822 2,622 2,836 2815 3,032 2,694 2,832 2,818 2,801 2,801 2,850 2,816 2749 2,795 2,708 2,721 2,646 2695 2,678 2,670 2,670 mffl 2,401 Because of independent seasonal adjustment of the various series, detail will not add to totals. Data for 1967 by reason for unemployment are not equal to total unemployment. 3 Beginning January 1994, job losers and persons who completed temporary jobs. Note.—Data relate to persons 16 years of age and over. See footnote 5 and Note, Table B-33. Source: Department of Labor, Bureau of Labor Statistics. 1 2 leav- 356 8 746 1,671 1,050 865 712 851 1,488 1,430 2,127 m 943 851 850 1,028 1,292 1,260 1,115 977 1,030 1,021 931 866 848 989 722 829 838 924 903 887 874 831 865 863 854 833 843 837 876 847 893 869 802 851 795 909 874 880 891 923 840 1,963 1,857 1,806 1,927 2,102 2,384 2,412 2184 877 2,256 2,160 1,974 1,809 1,843 1,041 1,930 2,359 1,004 2,139 3,402 1,002 2,285 4,129 976 2,198 3,733 791 2,786 2,838 824 2,525 2446 774 2,512 2349 795 2,106 734 1,957 783 1,774 819 2,005 1,976 774 2,232 1,976 741 2,190 2,043 2,203 621 1972 743 2,110 2,003 731 2,076 1,980 773 2,095 1,877 731 2,062 742 2,168 743 2,160 1,942 2,144 668 1,918 719 2,142 1,930 1,994 729 1,845 750 2,009 1,867 2,090 774 1,813 810 2,007 1,852 781 2,039 1841 831 2,034 1,794 2,038 768 1,823 793 2,003 1,736 758 1,942 1,704 778 1,967 1,716 821 1,958 1,642 1,935 825 1,606 IB ffl ffl m 2,036 8 681 885 817 872 JS 1,216 1,110 1,039 1,029 920 816 677 937 919 60 579 580 569 520 469 509 528 555 522 525 524 508 509 472 562 522 503 519 498 446 473 440 359 459 481 504 511 8 TABLE B—43.—Unemployment insurance programs, selected data, 1967—99 State programs All programs Year or month Covered employment 1 insured unemployment (weekly average) 2 3 Total benefits paid (millions of dollars) 24 Insured unemployment3 1976 Z.Z 1977 1978 .. .. 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1994 z z : 1995 1996 1997 1998 imp 1998: Jan .. Feb .. Mar June::: July Aug Sept Oct Nov rjeC 1999: Jan Feb Mar t lay June .... July Aug STi Nov Dec* ... 56,342 57,977 59,999 59,526 59375 66,458 69,897 72,451 71,037 73,459 76,419 88,804 92,062 92,659 93,300 91,628 91898 96,474 99,186 101,099 103,936 107,156 109,929 111,500 109,606 110,167 112,146 115,255 118,068 120,567 123,813 7 126,691 Exhaustions 5 Benefits paid Total (millions dollars)4 Average weekly check (dollars)6 Weekly average,- thousands Thousands 1967. 1968. 1969. 1970. 1971. 1972. 1973 . 1974 1975 Initial claims Insured unemployment as percent of covered employment 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 4,592 3,774 2,560 2,699 2739 2,369 2,135 2,205 2,575 3,406 3,348 2,845 2,746 2,639 2,656 2,370 2,260 2,222 16]670 14,929 13,694 14,948 18,721 26717 8 26,460 8 22,950 22,844 22,386 22,915 20,715 20,319 20,471 2,759 2,779 2,794 2,253 1,995 2,075 2,210 2,226 1,846 1,714 2,062 2,326 2,867 2,773 2732 2,217 2,105 2129 2,064 2,175 1,782 1,754 1,943 2,053 2,005.3 1,936.6 2,124.4 1,741.3 1,428.0 1,518.6 1,725.0 1,567.4 1,413.1 1,282.7 1,437.9 1,872.0 2,106.5 2,075.2 2,381.9 1,792.1 1,570.4 1,699.0 1,608.3 1,699.2 1,456.6 1,333.9 1,533.6 1,761.0 2,222 2,191 2,299 4,209 6,154 5,491 4,517 6,934 16,802 12,345 10,999 9,007 9,401 16,175 15,287 24,491 21,000 1,205 1111 1,101 1,805 2,150 mm 2,991 2,655 2,359 2,434 3,350 3,047 4,059 3,395 2,475 2,617 2,643 2,300 2,081 2,158 2,522 3,342 3,245 2,751 2,670 2,572 2,595 2,323 2,222 2,187 ** 2,250 2,197 2,170 2,136 2,112 2,235 2,372 IS 2,195 2,270 2,228 2,177 2,182 2,185 2,213 2224 2,202 2,180 2,132 2,128 2,132 226 201 200 296 295 261 247 363 478 386 375 346 388 488 460 377 397 378 fit 330 388 447 408 IS ft IS 2.0 1.8 1.8 357 356 i 298 ** 316 309 308 311 316 353 323 325 319 305 2 91 301 295 308 306 305 296 287 293 289 287 285 8 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 2.0 2.1 2.4 3.2 3.1 45 48 45 47 a 45 45 46 40 39 41 40 1.9 1.9 1.8 1.8 1.8 1.9 2.0 1.9 1.8 1.8 1.9 1.9 1.9 1.8 1.8 1.8 1.8 1.8 U 1.8 1.7 1.7 1.7 2,092 2,032 2,128 3,849 4,957 4,471 4,008 5,975 11,755 8,975 8,357 7717 8,613 13,761 13,262 20,649 17,787 12,610 14,131 15,329 13,607 12,565 13,760 17,356 24,526 23,869 20,539 20,401 20,125 20,645 18,587 18,665 18,725 1,959.3 1,893.7 2,077.1 1,697.0 1,389.4 1,478.8 1,691.5 ffl $! 4 1,822.2 2,057.8 2,032.2 2,336.9 1,757.2 1,540.0 1,666.8 1,577.7 1,662.5 1,423.7 1,300.9 1,495.8 1,722.3 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 98.95 106.70 119.34 123.59 123.47 128.14 135.65 140.55 144.97 151.73 161.56 169.88 173.64 179.62 182.16 187.04 189.27 192.84 200.29 211.81 198.15 200.75 200.96 198.73 198.51 197.40 200.25 198.45 200.78 201.94 203.05 204.71 210.01 213.05 213.81 210.69 210.99 209.76 208.05 208.81 212.10 215.36 214.43 215.03 ** Monthly data are seasonally adjusted. 1 Includes persons under the State, UCFE (Federal employee, effective January 1955), RRB (Railroad Retirement Board) programs, and UCX (unemployment compensation for ex-servicemembers, effective October 1958) programs. 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), Federal Supplemental Compensation, and Emergency Unemployment Compensation programs, except as noted in footnote 8. 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. 6 For total unemployment only. 7 Latest data available for all programs combined. Workers covered by State programs account for about 97 percent of wage and salary earners. 8 Including Emergency Unemployment Compensation and Federal Supplemental Compensation, total benefits paid for 1992 and 1993 would be approximately (in millions of dollars): for 1992, 39,990 and for 1993; 34,876. Note.—Insured unemployment and initial claims programs include Puerto Rican sugar cane workers beginning 1963. Source: Department of Labor, Employment and Training Administration. 357 TABLE B-44.—Employees on nonagrkultural payrolls, by major industry, 1950-99 [Thousands of persons; monthly data seasonally adjusted] Goods-producing industries Year or month Total Total 1950 1951 1952 1953 1954 1955 1956....::... 1957 1958 1959 1960 1961 1962 1963 1964 1965 :..:i: 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 imp 1998: Jan .. Feb . Mar. May . June. July Aug Sept Oct Nov Dec 1999: Jan... Feb .. Mar.. & ' June July Aug Sept Oct Nov* Dec* Mining Construction Manufacturing Total Durable Nondurable goods 45,197 47,819 48,793 50,202 48,990 50,641 52,369 52,855 51,322 53,270 18,506 19,959 20,198 21,074 19,751 20,513 21,104 20,967 19,513 20,411 901 929 898 866 791 792 822 828 751 732 2,364 2,637 2,668 2,659 2,646 2,839 3,039 2,962 2,817 3,004 15,241 16,393 16,632 17,549 16,314 16,882 17,243 17,176 15,945 16,675 8,066 9,059 9,320 10,080 9,101 9,511 9,802 9,825 8,801 9,342 7,175 7,334 7,313 7,468 7,213 7,370 7,442 7,351 7144 7,333 54,189 53,999 55,549 56,653 58,283 60,763 63,901 65,803 67,897 70,384 20,434 19,857 20,451 20,640 21,005 21,926 23,158 23,308 23,737 24,361 712 672 2,926 2,859 2,948 3,010 3,097 3,232 3,317 3,248 3,350 3,575 9,429 9,041 9,450 9,586 9,785 10,374 11,250 11,408 11,594 11,862 7,367 7,285 7,403 7,410 7,489 7,688 7,963 8,039 8,187 8,304 70,880 71,211 73,675 76,790 78,265 76,945 79,382 82,471 86,697 89,823 23,578 22,935 23,668 24,893 24,794 22,600 23,352 24,346 25,585 26,461 3,588 3,704 3,889 4,097 4,020 3,525 3,576 3,851 4,229 4,463 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 11,176 10,604 11,022 11,863 11,897 10,662 11,051 11,570 12,245 12,730 8,190 8,019 8,129 8,291 8,181 7,661 7,946 8,112 8,259 8,310 90,406 91,152 89,544 90,152 94,408 97,387 99,344 101,958 105,209 107,884 25,658 25,497 23,812 23,330 24,718 24,842 24,533 24,674 25,125 25,254 4,346 4,188 3,904 3,946 4,380 4,668 4,810 4,958 5,098 5,171 20,285 20,170 18,780 18,432 19,372 19,248 18,947 18,999 19,314 19,391 12,159 12,082 11,014 10,707 11,476 11,458 11,195 11,154 11,363 11,394 8,127 8,089 7,766 7,725 7,896 7,790 7,752 7,845 7,951 7,997 109,403 108,249 108,601 110,713 114,163 117,191 119,608 122,690 125,826 128,610 24,905 23,745 23,231 23,352 23,908 24,265 24,493 24962 25,347 25,240 5,120 4,650 4,492 4,668 4,986 5,160 5,418 5,691 5,985 6,273 19,076 18,406 18,104 18,075 18,321 18,524 18,495 18,675 18,772 18,432 11,109 10,569 10,277 10,221 10,448 10,683 10,789 11,010 11,170 10,986 7,968 7,837 7,827 7,854 7,873 7,841 7,706 7,665 7,602 7,446 124,580 124,773 124,961 125,220 125,478 125,689 25,355 25,366 25,367 25,418 25,379 25,381 5,879 5,885 5,879 5,943 5,932 5,962 18,870 18,875 18,883 18,875 18,852 18,826 11,219 11,229 11,237 11,238 11,225 11,210 7,651 7,646 7,646 7,637 7,627 7,616 125,808 126,170 126,361 126,567 126,841 127,186 25,240 25,344 25,333 25,306 25,298 25,354 5,990 6,005 6,009 6,042 6,085 6,173 18,662 18,754 18,741 18,686 18,639 18,611 11,066 11,177 11,159 11,128 11,092 11,074 7,596 7,577 7,582 7,558 7,547 7,537 127,378 127,730 127,813 128,134 128,162 128,443 128,816 128,945 129,048 129,332 129,554 129,869 25,315 25,329 25,285 25,288 25,199 25,180 25,247 25,148 25,186 25,198 25,260 25,277 6,170 6,238 6,232 6,277 6,239 6,258 6,270 6,246 6,293 6,314 6,369 18,585 11,050 11,027 11,014 10,993 10,971 10,960 11,015 10,975 10,959 10,952 10,958 10,959 7,535 71511 7,489 7,480 7458 7,436 7,434 7,403 7,407 7,404 7,406 7,404 8 634 632 627 613 606 619 623 609 628 642 697 752 779 813 851 958 1,027 1,139 1,128 952 966 927 777 717 713 692 709 689 635 610 601 581 580 596 590 535 606 606 605 600 595 593 588 585 583 578 574 570 560 553 550 538 531 526 528 524 527 528 527 529 !8',503 18,473 18,429 18,396 18,449 18,378 18,366 18,356 18,364 18,363 Note.—Data in Tables B-44 and B-45 are based on reports from employing establishments and relate to full- and part-time wage and saly workers in nonagricultural establishments who received pay for any part of the pay period which includes the 12th of the month. Not mparable with labor force data (Tables B-33 through B-42), which include proprietors, self-employed persons, domestic servants, See next page for continuation of table. 358 TABLE B-44.—j nonagricultural payrolls, by major industry, 1950—99—Continued [Thousands of persons; monthly data seasonally adjusted] Service-producing industries Year or month Transportation and public utilities Wholesale trade 26,691 27860 28,595 29,128 29,239 30,128 31,264 31,889 31,811 32,857 4,034 4,226 4248 4,290 4,084 4,141 4,244 4,241 3,976 4,011 2,643 2,735 2,821 2,862 2875 2,934 3,027 3,037 2,989 3,092 33,755 34142 35,098 36,013 37,278 38,839 40,743 42,495 44,158 46,023 4,004 3903 3,906 3,903 3,951 4036 4,158 4,268 4,318 4,442 3,153 3142 3,207 3,258 3,347 3477 3,608 3,700 3,791 3,919 47,302 48276 50,007 51,897 53,471 54,345 56,030 58,125 61,113 63,363 4,515 4,476 4,541 4,656 4,725 4,542 4,582 4,713 4,923 5,136 4,006 4,014 4,127 4,291 4,447 4,430 4,562 4,723 4,985 5,221 64,748 65,655 65,732 66,821 69,690 72,544 74,811 77,284 80,084 82,630 5,146 5,165 5,081 4,952 5,156 5,233 5,247 5,362 5,512 5,614 5,292 5,375 84,497 84,504 85,370 87,361 90256 92,925 95,115 97,727 100,480 103,370 5,777 5,755 5,718 5,811 5,984 6,132 6,253 6,173 6,081 5,997 5,981 6,162 6,378 6,482 6,648 6,831 7,003 Total 1950 1951 1952 1953 1954 1955 1956 1957 1958 1959 99,225 99,407 99,594 99,802 100,099 100,308 6,791 6,505 6,528 6,545 6,559 6,577 6,589 100,568 100,826 101,028 101,261 101,543 101,832 6,606 6,625 6,637 6,657 6,671 6,684 88 fci 102,063 102,401 102,528 102,846 102,963 103,263 June .. 103,569 1999: Jan .... Feb .... Mar ... 6,732 6,750 6,758 6,781 6,799 6,813 6,831 6,841 6,860 6,892 Retail trade Finance, insurance, and real estate mm 2,200 £9 2,438 2,481 2i549 2,628 2,688 2,754 2,830 2,911 2977 3,058 3,185 3,337 3,512 3,645 3772 3,908 4,046 4,148 4,165 4,271 4,467 4724 4,975 5,160 5,298 m 5,568 5,727 5,761 5,848 6,030 6,187 5,684 5,948 6,273 t',m 6,709 6,646 6,602 6,757 6,755 6,767 6,780 6,798 6,814 6,826 6,836 6,846 6,871 6,876 6,891 6,901 6,924 6,937 6,947 6,965 6,977 6,993 22,142 22,149 22,155 22,177 22,237 22,257 7,012 22,903 22,321 22,353 22,382 22,392 22,443 22,525 22,556 22,648 22,611 22,724 22,748 22,796 6',911 7,109 7,407 7[633 7,258 7,282 7,317 7,348 7,374 7,400 7,430 7,445 7,467 7,494 7,520 7,542 7,570 7,581 7,595 7,611 7,621 7,636 7,647 7,650 7,653 7,668 7,678 7,690 Government Services 5,356 5,547 5,699 HB m 6,708 6.765 7,087 7,378 7,619 7,982 8,277 8660 9,036 9,498 10,045 10,567 11,169 11,548 11,797 12,276 12,857 13441 13,892 14,551 1 17,890 18,615 19,021 19,664 20,746 21,927 22,957 24,110 25,504 26,907 27,934 28,336 29052 30,197 31,579 33,117 34,454 36,040 37,526 38,999 36,905 37,003 37,103 37,194 37,334 37,460 37,576 37,688 37,780 37,929 38,070 38,207 38,313 38,458 38,556 38697 38,782 38^52 39,055 Total 6,609 6,645 6,751 6,914 7,278 7,616 7,839 8,083 8,353 8594 8,890 9,225 9,596 10,074 10,784 11,391 11,839 12,195 12,554 12,881 13,334 ffi m 15,127 15,672 15,947 16,241 16,031 15,837 15,869 16024 16,394 16,693 17,010 17,386 17,779 18,304 18,402 18,645 18,841 19,128 19,305 19,419 19,557 19,819 20,160 19,660 19,678 19,694 19,726 19,763 19,776 19,799 19,869 19,891 19,913 19,948 19,973 19,992 20,054 20,087 20,099 20,077 20,105 20,153 20,210 20,218 20237 20,258 20,322 Federal 1,928 2302 2,420 2305 2,188 State and local 4,098 4,087 4,188 m m 2217 2,191 2:233 2,270 2,279 2,340 mm 2719 2,737 2,758 2,731 2,696 2,684 2,663 2,724 2,748 2,733 2,727 2,753 2,773 4,727 5,069 5,399 5,648 5,850 6,083 6,315 6,55f 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 2,866 2,772 2,739 2774 2,807 2,875 2,899 2,943 2,971 2,988 13,375 13,259 3,085 2,966 2,969 2,915 2,870 2,822 2,757 2,699 15,219 15,436 15676 15,926 16,257 16484 16,662 16,857 17,133 17,491 m 13:216 13,519 13,794 14,067 14,415 14,791 2,674 2,675 2,675 2,677 2,675 2,688 2,689 2,711 2,723 2,701 16,980 17,001 17,020 17,051 17,088 17,099 17,124 17,181 17,202 17,202 17,225 17,272 2,702 2,713 2,710 2,688 2,666 2,664 17,290 17,341 17,377 17,411 17,411 17,441 2,656 17,497 17,559 2,651 103,797 7,031 22,888 39,205 July.... 2,654 103,862 7,041 17,564 22,862 " "57 Aug.... 2,643 104,134 7,064 22,891 17,594 Sept... 2,646 104,294 7,066 22887 17,612 39,545 Oct .... 2,652 104,592 7,082 22,952 17,670 39,654 Nov . Dec* . Note (cont'd).—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. 359 TABLE B—45.—Hours and earnings in private nonagricultural industries, 1959-991 [Monthly data seasonally adjusted] Average weekly hours Year or month Total private Manufacturing Total 1959 I960 1961 1962 ' ' 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 . . . 1978 1979 . . 39.0 38.6 " ' ' 1980 1981 1982 1983 1984 1985 1986 1987 1988 . 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999* 1998:Jan Feb Mar Apr May:::::::::::::::::::::: June July Aue sept :...:...:..:..::.: :. Oct Nov Dec 1999:Jan Feb Mar Apr . .. May June July Aug Sept oct Nov* Dec* .... ".: 38.8 38.7 38.8 386 380 37.8 37.7 37.1 369 37.0 36.9 36.5 36.1 36.1 36.0 35.8 35.7 353 352 34.8 35 0 35.2 34.9 34.8 34.8 347 34.6 34.5 34.3 34.4 34.5 34.7 34.5 344 34 6 34.6 34.5 34.8 34.7 34 6 34.6 34.7 34.6 34.6 346 34.5 34.6 34.6 34.6 34.6 34.6 345 34.4 34.4 34.5 34.5 34.5 34.4 34.5 34.5 34.5 Average hourly earnings 40.3 39.7 39.8 404 40 5 40.7 41.2 414 406 40.7 40.6 39.8 399 405 40.7 40.0 39.5 40.1 403 40.4 40.2 39 7 398 38.9 401 40 7 40.5 40 7 41.0 411 41.0 408 40.7 410 41.4 42.0 416 416 42 0 41.7 41.7 42.2 42 0 418 41.6 41.8 41.8 41.7 417 41.6 41.7 417 41.7 41.6 41.6 415 41.6 41.7 41.7 419 41.8 41.8 418 41.7 41.7 Overtime 2.7 25 2.4 28 28 31 3.6 39 34 36 3.6 3.0 29 35 3.8 3.3 2.6 3.1 35 3.6 3.3 28 28 2.3 30 34 3.3 34 3.7 39 3.8 3.6 3.6 38 4.1 4.7 44 45 48 4.6 4.6 n 48 4.6 4.6 4.6 4.6 45 4.5 4.5 45 4.5 4.5 4.5 45 4.3 4.6 4.7 47 4.7 4.7 47 4.6 4.7 Total private 1982 Current dollars dollars2 $2.02 2 09 2.14 2 22 2 28 2.36 2.46 2 56 2 68 2.85 3.04 3.23 345 3.70 3.94 4.24 4.53 4.86 5.25 5.69 6.16 6 66 7.25 7.68 8 02 8.32 8.57 8.76 8.98 9 28 9.66 10.01 10.32 10.57 10.83 11.12 11.43 1182 12 28 12.78 13.24 12.54 12.60 12 64 12.69 12.73 12.76 12.80 12 85 12.88 12.91 12 94 12.98 13.04 13.06 1311 13.14 13.18 13.24 13 28 13.29 13.35 13.39 13.40 13.46 1 $6.69 6.79 6.88 7 07 717 7.33 7.52 762 7.72 7.89 7.98 8.03 821 8.53 8.55 8.28 8.12 8.24 8.36 8.40 8.17 7 78 7 69 7.68 7 79 7.80 7.77 7.81 7.73 7 69 7.64 7.52 7.45 741 7.39 7.40 7.39 743 7 55 7.75 7.86 7.66 7 69 7 72 7.73 7.74 7.75 7.76 7 78 7.80 7.80 7 80 7.81 7.83 7.84 786 7.83 7.85 7.89 7 88 7.87 7.86 7 87 7.87 7.88 Manufacturing (current dollars) $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 57 382 4.09 4.42 4 83 5.22 568 6.17 6.70 7 27 7 99 8.49 8 83 919 9.54 9 73 9.91 1019 10.48 1083 11.18 1146 11.74 12.07 12 37 12 77 1317 13.49 13.91 13.38 13.41 1345 13.45 13.48 13.48 13.46 13 53 13.58 13.57 13 58 13.60 13.64 13.67 13 71 13.79 13.85 13.95 14 02 14.03 14.04 1407 14.07 14.10 Average weekly earnings, total private Percent change from year earlier Level Current dollars 1982 dollars2 $78.78 80.67 82.60 8591 8846 91.33 95.45 9882 10184 107.73 114.61 119.83 12731 13690 145.39 154.76 163 53 175.45 18900 203.70 219.91 23510 255 20 267.26 $260.86 261.92 265.59 273 60 27818 283.63 291.90 29411 29349 298.42 300.81 298.08 30312 31544 315.38 302.27 293.06 297.37 300.96 300.89 291.66 274 65 27063 267.26 272 52 274 73 271.16 271.94 269.16 266 79 264.22 259.47 255.40 254 99 254.87 256.73 255.07 255.73 26131 268.32 271.25 266.42 266.92 267 00 267.40 29286 299.09 304 85 312.50 322 02 334.24 34535 353.98 36361 373.64 385.86 394 34 40661 424 89 442.19 456.78 436.39 437 22 43734 439.07 441.73 441.50 442.88 444 61 444.36 446.69 447 72 449.11 451.18 451.88 45230 452.02 453.39 456.78 45816 458.51 459.24 46196 462.30 464.37 83 m 268.98 269.90 27004 270.39 270.98 271.40 27133 269.22 270.04 272.05 27191 271.47 270.30 27158 271.46 271.88 For production or nonsupervisory workers; total includes private industry groups shown in Table B-44. 2 Current dollars divided by the consumer price index for urban wage earners and clerical workers on a 1982=100 base. Note.-See Note, Table B-44. Source: Department of Labor, Bureau of Labor Statistics. 360 Current 1982 2 dollars dollars 4.9 2.4 2.4 40 30 3.2 4.5 4.2 .4 1.4 30 6.4 4.6 .8 -.9 35 31 5.8 62 75 K5.7 7.3 77 7.8 8.0 69 85 4.7 ti2.1 19 3.8 3.3 H 2.8 3.3 2.2 31 45 4.1 3.3 5.2 4.5 38 4.4 4.6 4.6 4.6 39 3.8 3.9 35 3.8 3.4 3.4 34 2.9 2.6 3.5 35 3.1 3.3 34 3.3 3.4 17 2.0 2.9 8 1.7 17 41 -.0 -4.2 -3.0 1.5 1.2 -.0 -3.1 -58 -15 -1.2 20 8 -1.3 -1.0 _9 -1.0 -18 -1.6 -.0 -.6 .3 22 2.7 1.1 3.7 3.3 27 3.0 3.0 3.1 3.1 25 2.6 2.6 21 2.3 1.7 1.7 16 1.4 12 8 6 1 TABLE B-46.—Employment cost index, private industry Year and month Total Wages comand pen- salasation ries Service-producing Goods-producing Total private Benefits! Total Wages and compensalasation ries Total Wages comand Bene1 pen- sala- fits sation ries Benefits1 1980-99 Manufacturing Nonmanufacturing Total Wages Total Wages and Benecomcomand Bene1 1 salafits pen- sala- fits pensation ries sation ries Index, June 1989=100; not seasonally adjusted December: 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999: Mar June Sept Dec 64.8 71.2 75.8 80.1 84.0 87.3 90.1 93.1 97.6 102.3 107.0 111.7 115.6 119.8 123.5 126.7 130.6 135.1 139.8 140.4 142.0 143.3 144.6 67.1 73.0 77.6 81.4 84.8 88.3 91.1 94.1 98.0 102.0 106.1 110.0 112.9 116.4 119.7 123.1 127.3 132.3 137.4 138.1 139.7 141.0 142.2 59.4 66.6 71.4 76.7 81.7 84.6 87.5 90.5 96.7 102.6 109.4 116.2 122.2 128.3 133.0 135.9 138.6 141.8 145.2 145.8 147.3 148.6 150.2 66.7 73.3 77.8 81.6 85.4 88.2 91.0 93.8 97.9 102.1 107.0 111.9 116.1 120.6 124.3 127.3 130.9 134.1 137.8 138.9 139.9 141.1 142.5 69.7 75.7 80.0 83.2 86.4 89.4 92.3 95.2 98.2 102.0 105.8 109 7 112]8 116.1 119.6 122.9 126.8 130.6 135.2 136.3 137.3 138.5 139.7 1998: Mar June Sept Dec 1999: Mar June Sept Dec 136.1 137.3 138.7 139.7 140.2 141.8 143.0 144.5 133.6 134.9 136.5 137.5 138.1 139.8 140.9 142.3 142.2 143.2 144.1 145.1 145.4 146.8 148.1 150.1 135.2 136.3 137.2 137.9 138.9 139.8 141.0 142.5 132.0 133.2 134.3 60.5 68.2 73.2 78.3 83.2 85.7 m 97.3 102.6 109.9 116.7 123.4 130.3 134.8 137.1 139.7 141.5 143.2 144.3 145.2 146.3 148.2 63.3 69.5 74.1 78.9 82.9 86.6 89.3 92.6 97.3 102.3 107.0 111.6 115.2 119.3 122.8 126.2 130.2 135.3 140.5 140.9 142.8 144.1 145.3 65.3 71.1 75.9 80.2 83.7 87.7 90.3 93.4 97.8 102.2 106.3 110.2 113.0 116.6 119.7 123.2 127.5 133.1 138.4 138.9 140.8 142.1 143.3 58.4 65.1 69.6 75.2 80.4 83.6 66.0 96.1 102.6 109.0 115.7 121.2 126.7 131.5 134.7 137.4 141.4 145.7 146.1 147.9 149.4 150.7 97.6 102.0 107.2 112.2 116.5 121.3 125.1 128.3 132.1 135.3 138.9 139.9 140.9 142.1 143.6 %! 80.8 SI 81 K 68.9 74.9 79.1 82.5 86.1 89.2 92.1 95.2 98.1 101.9 106.2 110.3 113.7 117.3 120.8 124.3 128.4 132.2 136.8 59.9 67.5 72.4 77.5 82.7 85.0 64.2 70.4 75.1 79.6 83.4 87.0 96.6 102.3 109.5 116.1 122.6 130.0 134.3 136.7 139.8 141.7 142.7 140.2 141.5 143.6 144.5 145.7 147.8 97.5 102.3 106.9 111.5 115.1 119.0 122.6 125.9 129.8 134.7 139.7 140.3 142.0 143.4 144.5 66.2 72.1 76.8 81.0 84.2 88.0 90.6 93.7 97.8 102.2 106.1 109.8 112.6 116.0 119.1 122.5 126.8 132.1 137.4 137.9 139.7 141.0 142.1 96.8 102.8 109.3 116.2 122.0 127.4 132.3 135.3 137.9 141.5 145.8 146.3 148.0 149.4 150.7 133.7 141.7 134.6 142.2 136.0 142.6 136.8 142.8 137.9 143.6 139.0 144.3 140.2 145.7 141.5 147.9 136.0 137.2 138.7 139.9 140.2 142.0 143.2 144.7 133.4 134.7 136.3 137.6 137.9 139.7 140.8 142.3 142.6 143.8 144.9 146.1 146.2 147.9 149.3 151.0 9.7 9.7 8.9 8.9 6.5 5.5 4.0 4.5 3.0 3.4 4.4 4.5 3.8 12.6 11.8 6.8 7.9 6.4 4.1 3.7 4.0 6.4 6.2 6.3 6.3 5.0 4.4 m K 59.1 66.1 70.6 76.2 81.1 84.4 ill Index, June 1989=100; seasonally adjusted it! 137.3 138.5 139.7 141.6 142.3 142.9 143.4 144.4 145.0 146.2 148.4 136.6 137.8 139.5 140.6 140.7 142.7 143.9 145.5 134.4 135.6 137.5 138.5 138.9 140.8 142.0 143.4 142.5 143.7 144.8 146.1 145.9 147.8 149.3 151.1 136.3 137.1 138.1 138.9 139.8 140.7 142.0 143.6 Percent change from 12 months earlier, not seasonally adjusted December: 1980 1981 1982 1983 1984 .. . 1985 1986 1987 1988 1989 ..'.'. 1990 1991 1992 Z Z 1993 1994 1995 1996 1997 1998 1999: Mar June Sept Dec 9.6 9.9 6.5 5.7 4.9 3.9 3.2 3.3 4.8 4.8 4.6 4.4 3.5 3.6 3.1 2.6 3.1 It 3.0 3.3 3.1 3.4 9.1 8.8 6.3 8 n 4.1 4.1 4.1 4.0 3.7 2.6 3.1 2.8 2.8 3.4 3.9 3.9 3.3 3.6 3.2 3.5 11.7 12.1 7.2 7.4 6.5 3.5 3.4 3.4 6.9 6.1 6.6 M \l 5.7 4.0 3.8 3.5 n 3.2 3.9 3.7 2.9 7.0 5.4 7.1 2.0 2.3 2.4 2.2 2.5 2.8 3.4 4.4 4.3 4.8 4.6 3.8 3.9 3.1 2.4 2.8 2.4 2.8 2.8 2.7 2.9 3.4 0.4 .7 .6 1 .2 1.0 .9 1.4 0.7 .8 .7 .5 .7 .6 .9 1.1 8 5.0 9.7 9.8 10.8 6.1 4.9 4.7 3.3 tt 6.3 7.0 If If li 5.1 4.5 3.1 3.7 5.1 5.1 4.6 li 8 SI IS U 2.9 3.2 3.0 3.5 3.3 3.1 3.1 3.3 3.6 5.6 3.5 1.7 1.9 1.3 1.2 2.0 1.9 2.3 3.4 3.2 3.1 3.6 3.2 3.4 H 6.8 5.7 4.4 4.8 IS 4.7 4.5 4.0 3.7 2.5 3.2 2.7 2.9 3.5 4.4 4.0 11 3.3 3.5 12.5 11.5 6.9 U a 4.0 6.5 6.8 6.2 6.1 4.8 4.5 H 2.0 2.9 3.0 2.4 2.9 li tt 6.1 5.1 5.2 3.3 y 4.5 4.5 5.1 4.7 3.8 4.1 n 3.0 2.4 2.7 2.6 2.7 2.8 3.4 53 4.4 3.6 3.3 3.4 3.0 3.9 4.2 1? 3.2 3.0 2.9 3.3 3.0 3.5 11 3.1 3.4 10.5 12.7 7.3 7.0 6.7 2.8 8 2.3 1.4 .7 1.3 1.5 2.2 3.4 4.8 4.3 3.1 3.6 5.0 4.9 4.5 4.3 3.2 3.4 3.0 2.7 3.1 3.8 3.7 3.2 3.5 3.2 3.4 -0.1 .4 .3 .1 .6 .5 1.0 1.5 0.8 .9 1.1 .9 .2 1.3 .8 1.0 n 7.6 5.9 7.0 6.0 5.6 6.0 ti n 3.0 2.7 2.9 3.5 4.2 4.0 3.4 3.7 3.3 3.4 H 1.9 2.6 3.0 2.5 2J 3.0 3.4 Percent change from 3 months earlier, seasonally adjusted 1998: Mar June Sept Dec 1999: Mar June Sept Dec 0.7 .9 1.0 .7 .4 1.2 1.0 0.9 1.0 1.2 .7 .4 1.2 .8 1.0 1.1 .9 .8 .7 .8 .7 .9 .9 -0.1 .5 .4 .3 .7 .5 .8 1.5 0.7 .9 1.2 .8 .1 1.4 .8 1.1 1 0.9 .9 1.4 .7 .3 1.4 .9 1.0 0.5 .8 .8 .9 -.1 1.3 1.0 1.2 0.7 .6 .7 .6 .6 .6 .9 1.1 1.1 .7 1.0 .6 .8 .8 .9 .9 0.8 1.0 1.2 1.0 .2 1.3 .8 1.1 0.6 .8 i .8 .1 1.2 .9 1.1 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. Source: Department of Labor, Bureau of Labor Statistics. 361 T A B L E B-47.—Productivity and related data, business sector, 1959-99 [Index numbers, 1992=100; quarterly data seasonally adjusted] Year or quarter Output per hour of all persons Busi- Nonfarm ness business sector sector Compensation per hour3 Hours of all persons2 Output1 Real compensation per hour* Unit labor costs Implicit price deflators Busi- Nonfarm Busi- Nonfarm Busi- Nonfarm Busi- Nonfarm Busi- Nonfarm Busi- Nonfarm ness business ness business ness business ness business ness business ness business sector sector sector sector sector sector sector sector sector sector sector sector 1959 47.2 50.5 31.5 31.2 66.7 61.8 13.1 13.7 58.5 61.1 27.7 27.0 27.0 26.5 1960 1961 1962 1963 1964 48.0 49.8 52.1 54.1 56.6 51.2 52.8 55.2 57.2 59.6 32.1 32.7 34.8 36.4 38.7 31.7 32.4 34.6 36.2 38.6 66.7 65.7 66.8 67.2 68.3 62.0 61.3 62.6 63.3 64.8 13.6 14.2 14.8 15.4 16.1 14.3 14.7 15.4 15.9 16.6 59.9 61.7 63.9 65.3 67.8 62.8 64.3 66.2 67.6 69.9 28.4 28.5 28.4 28.4 28.5 27.9 27.9 27.8 27.8 27.9 27.3 27.5 27.8 28.0 28.3 26.8 27.0 27.3 27.5 27.8 1965 1966 1967 1968 1969 58.6 61.0 62.3 64.5 64.8 61.4 63.6 64.6 66.9 67.1 41.4 44.2 45.0 47.3 48.8 41.3 44.3 45.1 47.5 48.9 70.6 72.5 72.3 73.4 75.2 67.3 69.7 69.7 70.9 73.0 16.8 17.9 18.9 20.4 21.9 17.2 18.2 19.2 20.7 22.2 69.3 71.8 73.7 76.5 77.6 71.0 73.0 75.0 77.6 78.6 28.6 29.3 30.3 31.7 33.7 28.0 28.6 29.7 31.0 33.0 28.7 29.4 30.3 31.4 32.8 28.2 1970 1971 1972 1973 1974 66.2 68.8 71.0 73.1 72.2 68.0 70.7 73.0 75.2 74.3 48.8 50.5 53.8 48.9 50.6 54.0 57.8 57.2 73.7 73.4 75.8 78.5 78.6 71.8 71.6 74.0 76.9 77.0 23.5 25.0 26.6 28.9 31.7 23.7 25.3 26.9 79.0 80.5 82.9 84.7 83.7 79.7 81.3 83.8 85.3 84.4 35.6 36.4 37.5 39.5 43.8 34.9 35.7 36.8 38.7 43.0 34.3 35.8 37.1 39.1 42.6 33.7 35.3 36.4 37.7 41.4 1975 1976 1977 1978 1979 74.8 77.2 78.4 79.5 79.7 76.4 78.9 80.0 81.3 81.3 75.2 77.6 80.6 84.6 87.4 73.7 76.1 79.2 83.2 86.2 34.9 38.0 41.0 44.7 49.0 85.2 87.5 88.8 90.5 90.6 46.7 49.2 52.3 56.2 61.5 46.0 48.4 51.6 55.4 60.7 46.7 49.3 52.4 56.0 60.6 45.7 48.4 51.6 55.0 59.4 79.8 814 81.2 84.0 86.4 81.3 824 82.0 85.6 87.4 69.5 710 79.3 86.7 87 3 85.1 86.5 91.5 85.5 861 83.9 85.5 90.7 54.3 595 63.9 66.6 69.5 41.3 45.0 49.3 54.7 600 64.4 67.2 70.0 84.5 87.0 88.1 89.7 90.0 1980 1981 1982 1983 1984 63.2 67.2 69.7 69.1 710 69.1 72.6 79.0 56.3 60.1 63.4 67.6 70.0 89.7 898 91.1 91.2 91.5 90.3 906 91.8 91.9 92.1 68.1 731 78.8 79.3 80.5 67.2 72 8 78.5 78.5 80.1 65.9 719 75.8 78.5 80.7 65.0 711 75.4 77.9 80.1 1985 1986 1987 1988 1989 88.1 90.7 91.3 92.4 93.3 88.6 91.3 91.7 92.9 93.5 82.4 85.4 88.6 92.4 95.6 82.3 85.5 88.7 92.8 95.8 93.5 94.2 97.0 100.0 102.5 93.0 93.7 967 99.8 102.4 72.9 76.7 79 7 83.4 85.7 73.3 77.1 800 83.6 85.8 92.8 95.9 96 3 97.3 95.8 93.2 96.3 96 6 97.4 95.8 82.8 84.6 87 3 90.3 91.9 82.7 84.4 87 2 89.9 91.7 82.8 84.1 861 88.8 92.1 82.6 83.9 85 9 88.5 91.8 1990 1991 1992 1993 1994 94.5 95.9 100.0 100.1 101.4 94.6 96.1 100.0 100.1 101.4 97.0 96.1 100.0 102.7 107.7 97.1 96.3 100.0 103.0 107.8 102.6 100.3 100.0 102.6 106.2 102.7 100.2 1000 102.9 106.3 90.6 94.9 1000 102.4 104.5 90.5 94.9 100.0 102.1 104.3 96.4 97.4 100.0 99.9 99.7 96.3 97.4 1000 99.6 99.5 95.9 99.0 1000 102.3 103.0 95.7 98.8 1000 102.1 102.9 95.4 98.4 1000 102.5 104.4 95.1 98.3 1000 102.6 104.5 1995 1996 1997 1998 102.2 105.2 107.5 110.5 102.4 105.2 107.2 110.2 111.1 116.1 122.3 128.6 111.5 116.4 122.5 129.0 108.8 110.4 113.8 116.4 108.9 110.7 114.3 117.1 106.7 110.1 114.2 120.3 106.5 109.8 113.8 119.7 99.1 99.6 101.1 105.1 98.9 99.3 100.7 104.5 104.4 104.7 106.2 108.8 104.0 104.4 106.1 108.6 106.4 107.9 109.5 110.3 106.5 107.8 109.7 110.5 1994:1 II Ill IV 101.2 101.4 101.2 101.9 101.0 101.4 101.1 102.0 105.5 107.5 108.1 109.7 105.5 107.5 108.1 109.9 104.3 106.0 106.8 107.7 104.4 106.1 106.9 107.7 104.3 104.2 104.3 105.0 104.1 104.0 104.1 104.9 100.4 99.7 99.1 99.2 100.2 99.6 98.9 99.1 103.1 102.7 103.1 103.0 103.0 102.6 103.0 102.8 103.7 104.1 104.7 105.1 103.6 104.1 104.9 105.3 1995:1 11 Ill IV 101.6 101.9 102.1 103.1 101.8 102.1 102.4 103.2 110.1 110.4 111.4 112.6 110.4 110.7 111.8 112.9 108.4 108.3 109.1 109.2 108.4 108.4 109.2 109.4 105.5 106.3 107.0 107.9 105.3 106.1 106.9 107.7 98.9 98.9 99.1 99.4 98.8 98.7 98.9 99.2 103.8 104.3 104.8 104.7 103.5 103.9 104.4 104.3 105.8 106.2 106.6 106.9 106.0 106.4 106.7 106.9 1996:1 II Ill IV 104.1 105.3 105.4 105.9 104.2 105.3 105.3 105.8 113.7 115.8 116.6 118.3 114.0 116.1 116.9 118.6 109.2 110.0 110.7 111.7 109.4 110.3 111.0 112.1 108.6 109.7 110.7 111.6 108.4 109.4 110.3 111.2 99.2 99.4 99.8 99.8 99.1 99.2 99.4 99.5 104.3 104.2 105.0 105.3 104.0 103.9 104.7 105.0 107.3 107.8 108.2 108.5 107.3 107.6 107.9 108.4 1997:1 II Ill IV 106.3 107.1 108.1 108.4 106.1 106.9 107.8 108.1 120.0 121.8 123.2 124.4 120.2 122.0 123.4 124.6 112.9 113.7 114.0 114.7 113.3 114.1 114.5 115.3 112.5 113.2 114.6 116.4 112.2 112.9 114.1 115.9 100.1 100.4 101.2 102.4 99.8 100.1 100.8 101.9 105.9 105.7 106.0 107.4 105.7 105.6 105.8 107.2 109.1 109.5 109.7 109.9 109.1 109.6 109.9 110.1 1998:1 II Ill IV 109.7 109.8 110.7 111.9 109.3 109.5 110.4 111.5 126.9 127.5 128.9 131.2 127.1 127.9 129.3 131.6 115.7 116.1 116.4 117.2 116.3 116.8 117.1 118.0 117.8 119.4 121.2 122.7 117.2 118.8 120.6 122.0 103.4 104.4 105.6 106.5 102.9 103.9 105.1 105.9 107.5 108.8 109.5 109.6 107.3 108.5 109.3 109.4 110.0 110.2 110.4 110.5 110.4 110.5 110.7 110.6 1999:1 II Ill 112.7 113.0 114.3 112.2 112.4 113.8 132.5 133.1 135.1 132.9 133.5 135.6 117.5 117.8 118.3 118.4 118.7 119.2 124.2 125.7 127.1 123.3 124.7 126.2 107.4 107.8 108.3 106.6 106.9 107.5 110.2 111.3 111.3 109.8 111.0 110.9 110.9 111.2 111.4 111.0 111.4 111.6 Si ill ft II 29.8 30.9 32.3 1 Output refers to real gross domestic product in the sector. 2 Hours at work of all persons engaged in the sector, including hours of proprietors and unpaid family workers. Estimates based primarily on 3establishment data. Wages and salaries of employees plus employers' contributions for social insurance and private benefit plans. Also includes an estimate of 4wages, salaries, and supplemental payments for the self-employed. Hourly compensation divided by the consumer price index for all urban consumers for recent quarters. The trend from 1978-98 is based on the consumer price index research series (CPI-U-RS). 5 Current dollar output divided by the output index. Source: Department of Labor, Bureau of Labor Statistics. 362 TABLE B-48.—Changes in productivity and related data, business sector, 1960-99 [Percent change from preceding period; quarterly data at seasonally adjusted annual rates] Year or quarter 1960 1961 1962 1963 1964 ... ... ... •••••• ... ... ... ... ... ... ... ... 1975 1976 1977 1978 1979 ... ... ... ... ... 1980 1981 1982 1983 1984 ... ... ... ... ... 1985 ... 1986 ... 1987 ... 1990 1991 1992 1993 1994 z z 1.9 3.6 4.6 3.9 4.6 2.0 4.0 3.1 -8 3.6 3.2 1.5 1.5 ii z ... ... ... ... ... 1995 ... 1996 ... 1997 ... 1998 ... 1994:1 II Ill IV 1995:1 II Ill IV 1996:1 II Ill IV 1997:1 II Ill IV 1998:1 II Ill IV 1999:1 II 111 Compensation per hour3 Hours of all persons2 Output1 Busi- Nonfarm Busi- Nonfarm Busi- Nonfarm Busi- Nonfarm ness business ness business ness business ness business sector sector sector sector sector sector sector sector 3.5 4.1 2.1 3.5 18: 88: 1969 1970 1971 1972 1973 1974 Output per hour of all persons 3.4 2.8 2.0 3.0 .6 1.2 .9 1.3 3.2 4.6 3.5 4.3 » 1.5 I! 3.0 -1.1 1.4 1.6 1.3 2.2 1.3 3.1 L3 1.1 1.6 4.1 1.3 n 4.6 .6 a 3.0 .8 4.7 1.8 2.0 6.8 4.6 6.7 7.0 7.0 7.2 1.7 5.3 3.1 H If.0 3.6 a -I.I 11 M5.5 1.3 1.5 4.3 2.9 2.2 2.8 1.2 .8 -.8 3.0 -1.3 1.1 .9 3.8 4.1 4.7 .3 2.1 1.3 3.4 3.6 1.2 1.9 2.0 6.4 4.6 6.4 1:? 2.0 2.8 1.1 1.5 -1.1 3.6 -.8 1.1 1.2 3.2 3.9 4.2 L9 .9 3.3 H 4.4 .9 3.1 4.1 2.7 .6 4.9 tt -.8 2.7 -2.8 5.2 8.8 4.2 3.7 3.7 4.3 3.5 1.5 io 2.7 4.8 3.2 4.5 5.4 5.1 3.4 7.7 2.1 6.4 1.4 .9 3.8 4.2 4.1 7.7 2.7 5.9 5.8 6.2 4.8 3.9 8.1 2.2 4.4 7.2 3.9 1.9 6.3 15 6.7 7.1 -1.1 -1.6 6.8 5.5 6.7 3.5 2.1 -2.9 6.2 8.3 3.9 3.9 3.7 4.6 3.3 1.4 l! 4.7 3.4 4.4 5.3 5.2 2.5 n 6.9 1.8 1.1 4.2 4.0 3.9 7.6 2.8 5.9 5.5 6.2 4.6 4.1 8.3 2.4 4.4 7.3 4.0 1.8 6.6 0.1 -tf .6 1.7 2.6 0.5 -1.2 2.1 1.1 2.4 4.3 4.0 4.5 3.7 5.2 H 3.7 6.7 5.7 8.2 7.0 7.7 L4 2.5 -2.0 -.4 3.3 3.7 .0 1.7 2.9 -1.6 4a 4.0 -4.3 3.4 4.0 5.0 3.6 ii 3.4 -.9 -.8 -2.5 1.7 5.8 2.2 -2i5 1.9 6.0 2.5 3.0 3.1 2.5 Z.2 3.3 2.6 tt 8.6 9.7 4.4 3.4 4.1 3.5 4.6 ii H 6.8 7.2 6.5 6.4 8.2 9.8 3 4.4 4.9 5.2 3.9 4.7 2.8 M.6 \\ 2.1 2.1 3.1 -.2 -.6 3.3 2.4 1.7 1.4 IS \l 5.6 5.3 H 3.3 2.8 -.2 2.9 .0 2.9 2.4 3.7 4.4 2.7 B li .9 2.8 .9 1.0 1.6 2.6 3.9 4.5 2.8 1.3 2.9 ~.7 2.7 1.6 3.1 2.9 3.4 2.4 4.4 3.5 3.3 3.4 2.6 4.8 6.7 3.7 1.4 1.2 3.1 1.3 1.3 1.6 4.9 5.5 6.1 4.9 4.9 5.1 4.6 2.6 3.0 h 1 Output 2 3i 1.3 1.4 2.0 3.1 1.9 -1.1 a a 3.5 2.4 1.5 2.2 1.7 2.9 1.2 3.3 .3 3.8 4.5 2.7 5.5 4.9 -.3 3!o I:! A 1.0 2.7 i 3.9 i:| -1.2 a 2.5 4.0 3.1 3.3 3.6 2.6 4.4 6.4 4.8 5.6 6.2 4.6 4.2 4.8 4.7 2.4 H 1 L4 .0 ii a a 1.9 1.9 2.9 2.2 -1.2 2.7 2.4 3.0 -.3 .3 1.4 .1 ii -2.4 a 3.5 2.3 3.8 2.1 3.7 2.5 3.8 1.4 -.3 10.8 9.7 7.4 4.3 4.3 Unit labor costs Implicit price deflator5 Nonfarm Busi- Nonfarm Busi- Nonfarm business ness business ness business sector sector sector sector sector .9 2.7 1.4 1.9 5.7 4.8 5.3 2.4 2.0 2.1 3.2 -23 Business sector 1.0 2.9 1.3 1.8 .3 •B 10.18.6 11 H9.5 9.7 10.8 9.5 Real compensation per hour4 LI 2.7 -.4 -.1 2.b 3.5 4.5 6.4 5.6 2.2 3.0 5.3 11.1 6.5 L5 2.9 2.1 3.2 3.5 1.8 2.0 3.3 2.1 4.3 3.2 1.0 2 -.6 L4 3.8 4.2 -2.4 -2.7 L5 2.4 4.0 -1.5 1.6 a 1.4 1.0 ii 1.0 1.5 3.0 4.8 1.2 1.5 2.6 4.5 4.1 3.9 4.7 2.9 2.8 1.2 2.1 1.2 2.1 1:1 3.1 5.1 11.1 7.1 7.3 9.6 10.7 8.2 7.9 2.0 -.4 -1.6 3.6 a 7.4 9.5 10.7 7.4 7.8 .9 1.0 -.4 4.2 3.9 4.7 3.3 2!2 4.1 4.2 6.6 1.1 l J 1.0 .6 1.1 1.6 2.5 2.8 3.9 4.4 4.4 a Til 5.4 .3 4.9 2.6 1.9 4.2 I? 2.0 4.3 L6 2.4 4.5 -1.7 1.5 -.6 2.4 1.8 1.7 -.1 -1.4 -.2 2.9 1.3 2.7 -.6 1.0 5.1 i 1.4 4.2 1.2 1.4 2.3 a a 4.3 3.1 10.5 5.9 6.6 6.5 8.2 8.2 8.7 9.1 5.5 3.6 2.8 9.3 \i 2.4 3.1 3.8 3.6 3.1 a2 a i i.i l 9.5 5.6 tt tt 11 ? 1.4 4 3.1 .2 -.5 .0 .3 1.8 1.9 1.5 1.5 1.2 1.4 2.6 1.6 2.7 1.5 1.5 1.1 1.7 1.7 1.4 1.2 2.2 1.4 .8 8 3.3 2.8 3.1 1.6 2.4 3.0 3.7 3.7 3.4 1.7 2.6 1.9 1.9 1.3 1.7 .8 1.2 a 1.4 2.7 1.5 1.0 .6 1.6 1.4 1.2 1.8 2.5 1.7 1.1 .8 .4 .8 .3 .S 1.3 1.1 1.5 1.4 i refers to real gross domestic product in the sector. Hours at work of all persons engaged in the sector, including hours of proprietors and unpaid family workers. Estimates based primarily on 3establishment data. Wages and salaries of employees plus employers' contributions for social insurance and private benefit plans. Also includes an estimate of 4wages, salaries, and supplemental payments for the self-employed. Hourly compensation divided by the consumer price index for all urban consumers for recent quarters. The trend from 1978-98 is based on 5the consumer price index research series (CPI-U-RS). Current dollar output divided by the output index. Note.—Percent changes are based on original data and may differ slightly from percent changes based on indexes in Table B—47. Source: Department of Labor, Bureau of Labor Statistics. 363 PRODUCTION A N D BUSINESS ACTIVITY TABLE B-49.—Industrial production indexes, major industry divisions, 1950-99 [1992=100; monthly data seasonally adjusted] Manufacturing Total Year or month 1950 1951 1952 1953 1954 1955 1956 1957 Mining Total 24.7 . 1958 23.5 30.2 28.6 32 2 33.6 34.1 303 271 31.0 31.6 31.9 29.7 33.5 34.1 34.2 37.3 ft 28.8 26.9 35.7 421 395 45.0 49.5 538 55.0 58.1 60.7 42.2 46.8 32.9 32.3 35.9 38.3 41.0 46.6 510 518 52.0 54.9 57.4 587 548 55 6 61.5 52.3 54.9 57.1 52 7 52 5 58.6 595 65.3 706 696 : 669 65 9 59.3 65.4 712 63.4 69.3 74 9 793 82.0 79.7 810 Feb Mar Apr May June":::: ZZZZ..Z :..::::....::..:.::....::..:: July Sept Oct Nov Dec 1999:Jan Feb Mar Apr Slay"'::: June July Aug zzzzzrzzzz Oct* Nov* Dec* 758 736 78.5 75.5 76 7 72.1 77.4 734 74 6 68 2 72.2 82 7 89 0 93.2 85 7 88.1 92.8 874 99.1 98 9 97.0 100.0 1034 109.1 114 4 1194 127.1 132 4 137.2 130.9 130 7 1311 131.7 1324 131.5 1313 1336 133.5 1341 1338 133.8 134.1 134 5 1351 135.5 1362 136.6 137.4 137.7 1381 139.4 139.9 140.5 99.0 98 5 96.2 100.0 103 7 110.0 115 8 1213 130.1 1364 142.3 134.5 134 3 134 5 135.3 135 9 134.8 134 7 137 4 137.3 138 3 138 3 138.4 138.6 1393 139 7 140.2 1410 141.4 142.0 142.5 142 9 144.3 145.2 145.5 100.5 99.0 95.5 100.0 1054 114.3 1239 134 0 148.0 160 7 172.8 155.9 1564 157 0 158.1 159 6 158.0 1573 164 2 164.6 165 8 1654 166.2 166.3 1668 1681 169.4 1708 172.2 173.8 174.4 175 0 176.4 177.7 177.9 971 Source: Board of Governors of the Federal Reserve System. 61.9 681 763 838 974 mTZ'"zzTrzzzzz:zzz:zzzz 654 641 561 76.7 79 5 86.6 ....... 1998 1999* 1998-Jan 22.7 25 6 27.2 254 264 36.5 36.7 39.8 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 Durable 268 278 319 ~7'~7ZZ~' 1959 I960 1961 1962 1963 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 industrial production 364 92.0 981 Utilities Nondurable 24.2 58.7 250 644 25.4 26.5 26.7 29.6 31.1 31.6 31.9 35.1 35.9 37.0 39.3 41.4 44.1 47.1 50 0 51.6 54.9 57.8 57 8 60.2 65.5 63.9 65.6 64.3 71.7 75.4 75.5 688 glJ 64.0 70.5 75 7 78 9 79.9 78.3 79 5 77.7 819 85.3 86.0 89.1 93.8 960 97.3 97.9 97.0 100.0 1018 105.2 107.1 1078 111.2 111.6 111.8 113.0 112 2 112.0 112.5 112 2 111.6 112 0 1110 110.4 1112 1116 111.1 111.3 112 3 1118 111.5 1119 111.3 111.0 111.5 1118 113.1 113.6 114.0 m 73.9 74.4 76.5 79.5 82.7 85.8 904 92.1 95.6 99.5 102 0 99.5 101.5 102 5 1019 99.7 100.5 103 4 106 5 108.3 111.5 115 6 1112 106 6 113 9 111.0 102.6 102.1 104 7 103.2 104.8 102.6 100.0 100 0 102.5 102.1 103 7 105.9 103.8 98.1 107.7 1074 105 8 105.5 106 0 104.2 1031 103 2 101.7 1016 101.5 98.1 98.0 97 4 97 5 96.7 974 97.1 97.8 98.5 98.3 99.3 99.8 100.2 14.5 16.5 17.9 19.4 20.9 23.3 25.6 27.3 28.6 31.5 33.7 35.6 38.2 40.9 44.4 47.1 50.7 53.3 57.6 62.7 665 69.7 74.2 771 761 76.9 79.9 82.0 844 86.8 87.3 85 0 82.3 83 7 86.7 88.8 86.4 89.4 93.9 97.1 98.3 100.4 100.0 103.9 105.3 109.0 112.6 112.7 114.4 116.8 109.4 1098 113.8 113.0 116 0 117.8 1170 1173 119.1 1156 1108 112.5 114.5 112 6 116 8 116.3 1161 117.4 119.8 1171 117 7 118.6 115.5 119.5 TABLE B-50.—Industrial production indexes, market groupings, 1950-99 [1992=100; monthly data seasonally adjusted] Final products Total industrial Year or month £ Consumer goods metiiatA Total Total tion 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 1990 1991 1992 1993 1994 . 1995 1996 1997 1998 1999* 1998Jan Feb Mar '. '. Apr May..::::....::::::. June July AUK sept..: Set Nov :.:.... Dec 1999.Jan Feb Mar Apr May June July Sept Oct* Nov* Dec* 24 7 268 27.8 302 286 32.2 33.6 341 31.9 35.7 36.5 36 7 398 42.1 45 0 495 53.8 550 58.1 60.7 58 7 59.5 65.3 706 69.6 63.4 693 74 9 79.7 81.0 767 79.5 86 6 88.0 89 0 93.2 974 99.1 98.9 97 0 100.0 103.4 1091 114.4 1194 1271 132.4 137.2 130.9 130.7 131.1 131.7 132.4 131.5 131.3 133.6 133.5 1341 133.8 133.8 134.1 134 5 135.1 135 5 136.2 136.6 1374 137.7 138.1 1394 139.9 140.5 Materials Inter- Equipment 238 25 7 27.5 294 279 301 31.9 328 31.3 34.3 35.5 358 388 41.0 476 52.1 542 56.8 58.6 565 57.0 61.9 665 663 62.4 668 7? 4 77.2 79.7 793 81.2 783 80.0 87 0 89.3 903 93.3 97 9 99.9 99.5 97 7 100.0 103.4 107 7 111.6 115 3 1211 125.4 128.2 125.1 124.5 124.9 125.5 125.8 125.4 124.8 127.2 126.7 127 5 1268 126.0 126.6 127 3 127.3 127 6 128.2 128.3 128 6 129 5 129.1 130 7 131.0 130.9 278 27 5 28.1 298 296 330 34.2 351 34.8 38.1 39.6 404 431 45.5 481 518 54.5 558 59.2 61.4 60 7 64.2 69.3 724 702 67.4 741 795 82.6 81.5 79 6 80.1 788 83.2 86 7 87.6 907 93.7 967 97.7 97.3 970 100.0 103.6 1080 110.8 1124 1151 116.2 117.2 117.3 116.2 116.5 117.1 117.1 116.0 115.4 116.9 115.5 116 0 1156 115.1 116.3 117 2 116.7 116 5 116.8 117.0 1168 117 6 117.1 1189 118.9 119.1 Auto- Other Nonmotive dura- durable Total1 prodble ucts goods goods 292 25.8 23.2 293 273 36.3 29.9 313 24.9 31.2 35.7 326 395 43.2 453 558 55.6 489 58.2 58.5 492 62.7 67.7 74 7 646 60.8 75.5 87 2 89.6 81.4 623 61.6 591 74.3 894 95.4 97 5 100.7 1071 108.9 100.9 90 3 100.0 111.3 122 9 122.6 123 5 130 7 134.7 144.7 135.2 133.2 134.3 136.3 136.9 123.1 108.0 143.5 139.3 1434 142 0 141.7 143.7 142 0 140.0 142 0 145.4 147.4 143 7 150 6 145.5 147 9 146.9 144.6 248 214 21.4 24 2 223 26.3 27.7 271 25.6 29.4 29.6 305 331 35.7 390 442 48.7 493 52.8 56.3 546 57.8 66.2 700 6