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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.
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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