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Economic
Report
President
of the

Transmitted to the Congress February 2006
Together with the Annual Report
of the Council of Economic Advisers

Economic Report
of the President

Transmitted to the Congress
February 2006
together with

THE ANNUAL REPORT
of the

COUNCIL OF ECONOMIC ADVISERS
UNITED STATES GOVERNMENT PRINTING OFFICE
WASHINGTON : 2006

For sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpo.gov Phone: (202) 512-1800 Fax: (202) 512-2250
Mail Stop: SSOP, Washington, DC 20402-0001
ISBN 0-16-075418-6

Economic Report of the President

| i

C O N T E N T S
Page

ECONOMIC REPORT OF THE PRESIDENT..............................................

1

ANNUAL REPORT OF THE COUNCIL OF ECONOMIC ADVISERS*.....

7

CHAPTER 1. THE YEAR IN REVIEW AND THE YEARS AHEAD .............

25

CHAPTER 2. SKILLS FOR THE U.S. WORKFORCE ...................................

49

CHAPTER 3. SAVING FOR RETIREMENT .................................................

65

CHAPTER 4. IMPROVING INCENTIVES IN HEALTH CARE
SPENDING......................................................................................................

85

CHAPTER 5. THE U.S. TAX SYSTEM IN INTERNATIONAL
PERSPECTIVE................................................................................................. 107
CHAPTER 6. THE U.S. CAPITAL ACCOUNT SURPLUS............................ 125
CHAPTER 7. THE HISTORY AND FUTURE OF INTERNATIONAL
TRADE............................................................................................................. 149
CHAPTER 8. THE U.S. AGRICULTURAL SECTOR .................................... 173
CHAPTER 9. THE U.S. FINANCIAL SERVICES SECTOR .......................... 195
CHAPTER 10. THE ROLE OF INTELLECTUAL PROPERTY IN THE
ECONOMY ..................................................................................................... 211
CHAPTER 11. RECENT DEVELOPMENTS IN ENERGY........................... 231
APPENDIX A. REPORT TO THE PRESIDENT ON THE ACTIVITIES
OF THE COUNCIL OF ECONOMIC ADVISERS DURING 2005............. 259
APPENDIX B. STATISTICAL TABLES RELATING TO INCOME,
EMPLOYMENT, AND PRODUCTION......................................................... 273

* For a detailed table of contents of the Council’s Report, see page 11

Economic Report of the President

| iii

ECONOMIC REPORT
OF THE PRESIDENT

Economic Report of the President

| v

ECONOMIC REPORT OF THE PRESIDENT

To the Congress of the United States:

The United States economy continues to demonstrate remarkable
resilience, flexibility, and growth. Having previously endured a stock market
collapse, recession, terrorist attacks, and corporate scandals, this year the
economy showed strong growth and robust job creation in the face of higher
energy prices and devastating natural disasters. This is the result of the hard
work of America’s workers, supported by pro-growth tax policies.
In 2005, the Nation’s real gross domestic product (GDP) grew 3.5 percent
for the year, above the historical average. About 2 million payroll jobs were
added in 2005, and the unemployment rate dropped to 4.7 percent last
month, well below the averages of the 1970s, 1980s, and 1990s. Real disposable personal income increased, and real household net worth reached an
all-time high. This growth comes on top of an already strong expansion.
More than 4.7 million payroll jobs have been added since August 2003.
Compared with the performance of other nations’ economies, our
economic growth is especially impressive. The United States has added more
jobs in the past two-and-a-half years than Japan and the European Union
combined. Real GDP growth in the United States has been faster than in any
other major industrialized country since 2001, and America is forecasted to
continue as the fastest-growing country over the next two years.
Our economy’s fundamental strength comes from the ingenuity and hard
work of our workers. Productivity—how much workers produce per hour—
has accelerated since 2000. In the past five years, productivity has grown faster
than in any other five-year period since the mid-1960s. The productivity of the
United States is increasing faster than any other major industrialized country.
Productivity growth raises our standard of living and plays a central role in
our competitiveness in the worldwide economy. Productivity growth will be
even more important as new technologies accelerate global economic
integration and as the American population ages.

Economic Report of the President

| 3

We must now build on this fundamental strength by making robust
investments in physical sciences, improving private incentives for research and
development, and boosting math and science education and worker training.
The American Competitiveness Initiative will help us remain a world leader
in science and technology, which means good high-paying jobs for the
American people.
We must also continue to pursue pro-growth economic policies and foster a
culture of entrepreneurship. To adopt innovations effectively, our companies
and workers need the incentives and flexibility that support a thriving
free-market economy.
Maintaining a low tax burden is essential for our economic growth and
competitiveness. Tax relief has helped our economy, and raising taxes
will increase the burden on our families and small businesses. To keep our
economy growing, Congress needs to make the tax relief permanent.
Two years ago, I called for cutting the budget deficit in half by 2009 by
restraining spending and spurring economic growth. Every year of my presidency, we have reduced the growth of non-security discretionary spending, and
last year Congress passed bills that cut this spending. This year, my budget will
cut it again, and it will reduce or eliminate more than 140 programs that are
performing poorly or not fulfilling essential priorities. By passing these reforms,
we will save the American taxpayer another $14 billion next year, and we will
stay on track to cut the deficit in half by 2009.
Controlling discretionary spending alone is not enough, however. We have
recently passed significant savings in mandatory spending programs. We need
to do more because the only way to solve our Nation’s fiscal challenges is to
address the explosions in growth of entitlement programs like Social Security,
Medicare, and Medicaid. I have called for a bipartisan commission to examine
the full impact of the Baby Boom retirement and help us come up with bipartisan answers. The longer Congress waits to act, the more difficult the choices
will become.
Working together, we accomplished other significant pro-growth reforms
that will help our Nation’s economy grow stronger and create more jobs.
More remains to be done.
Growth in spending on health care has been more rapid than general
inflation, straining consumers, employers, and government budgets. Two years
ago, we created Health Savings Accounts (HSAs) to help give patients more
control over their health care decisions and to make health care more available
and affordable. This year, I am proposing to enhance HSAs to make them
more widely available, valuable to consumers, and attractive to small businesses—and to make it easier for people to keep their insurance policies when
they change jobs. Last year, we worked with Congress to pass a patient safety

4 | Economic Report of the President

bill that will help reduce medical errors. Getting doctors and patients the
information they need on the quality, cost, and effectiveness of different treatments will help Americans get the highest quality and highest value care. This
year, my Administration will push to make more information about price and
quality available to consumers, and move forward on these and other policies
to lower the cost of health care.
Our Nation’s liability laws allow too many frivolous lawsuits and raise costs
for consumers and businesses. A year ago, we worked with Congress to pass
bipartisan class action reform to help curb lawsuit abuse. I urge Congress in
the coming year to pass other essential legal reforms, including asbestos and
medical liability reforms.
Energy prices have risen in the last year, but the underlying causes of high
prices are long-standing. Last year, we passed the first major energy bill in over
a decade. It encourages new technologies and updates government regulations.
Over time, the new law will help increase the reliability of our energy supply
and the efficient use of the energy we have. We must continue to find new
ways to diversify our sources of energy. I have proposed the Advanced Energy
Initiative to help increase research in alternative energy sources and technology
and to make America less dependent on foreign sources of energy.
Because 95 percent of the world’s customers live outside of our borders,
opening international markets to our goods and services is critical for our
economy. My Administration will continue to work tirelessly to open markets
and knock down barriers to free and fair trade so that American farmers and
workers can compete on a level playing field worldwide.
These and other issues are discussed in the 2006 Annual Report of the
Council of Economic Advisers. This report is prepared by CEA to help policymakers understand the economic context of a variety of issues and trends as
our Government makes decisions regarding our economic future. By adopting
sound economic policies that build on our strengths, we will keep our
economy moving forward and extend prosperity for all Americans.

THE WHITE HOUSE
FEBRUARY 2006

Economic Report of the President

| 5

THE ANNUAL REPORT
OF THE
COUNCIL OF ECONOMIC ADVISERS

Economic Report of the President

| 7

LETTER OF TRANSMITTAL

COUNCIL OF ECONOMIC ADVISERS,
Washington, D.C., February 13, 2006

MR. PRESIDENT:
The Council of Economic Advisers herewith submits its 2006 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,

Katherine Baicker
Member

Matthew J. Slaughter
Member

Economic Report of the President

| 9

C O N T E N T S

Page

overview .............................................................................................

19

chapter 1. the year in review and the years ahead.......................
Developments in 2005 and the Near-Term Outlook........................
Consumer Spending and Saving..................................................
Housing Prices ............................................................................
Residential Investment ................................................................
Business Fixed Investment...........................................................
Business Inventories ....................................................................
Government Purchases ................................................................
Exports and Imports ...................................................................
Employment ...............................................................................
Productivity.................................................................................
Wages and Prices .........................................................................
Financial Markets........................................................................
The Long-Term Outlook Through 2011..........................................
Growth in GDP over the Long Term ..........................................
Interest Rates over the Near and Long Term ...............................
The Composition of Income over the Long Term .......................
Conclusion.......................................................................................

25
25
25
30
31
31
32
33
34
35
36
38
41
42
43
46
46
47

chapter 2. skills for the u.s. workforce........................................
Educational Achievement in the United States .................................
Workforce Skills and the U.S. Standard of Living .......................
Educational Attainment ..............................................................
Math, Science, and Reading Skills in the United States and
Around the World ..................................................................
School Accountability and No Child Left Behind .......................
Immigrants in the U.S. Workforce ...................................................
Immigrants in Science and Engineering ......................................
Regulation of Legal Immigration.................................................
Skilled Immigration and Innovation ...........................................
Job Training .....................................................................................
The Role of Community Colleges...............................................
Job Training Funding ..................................................................
Conclusion.......................................................................................

49
49
50
51
54
55
56
57
59
61
61
62
63
63

11

chapter 3. saving for retirement ....................................................
What Does “Retirement Preparedness” Mean? .................................
Estimates of Retirement Preparedness ..............................................
The Risks to Retirement Preparedness..............................................
Are Low Saving Rates Putting Household Net Worth at Risk?....
Defined-Benefit Pensions ............................................................
Social Security .............................................................................
Conclusion.......................................................................................

65
65
66
69
69
74
79
83

chapter 4. improving incentives in health care spending ...........
The Growth in Health Care Spending .............................................
Where Health Spending Has Grown...........................................
First-Dollar Insurance Inhibits Consumer Cost-Consciousness ........
Causes of First-Dollar Insurance Coverage ..................................
Consequences of First-Dollar Insurance Coverage.......................
Consequences of Inefficient Health Care Spending ..........................
Private Spending .........................................................................
Public Spending ..........................................................................
Strengthening the Role of Health Consumers Through Public
Policy .............................................................................................
Health Savings Accounts (HSAs) ................................................
Informed Consumers Are Better Consumers...............................
Conclusion.......................................................................................

85
85
88
91
92
94
97
97
99
100
100
104
106

chapter 5. the u.s. tax system in international perspective ........
Fundamental Choices in Tax Systems...............................................
Designing a Tax System...............................................................
Taxes Distort Economic Decisions ..............................................
U.S. Tax Policy in International Perspective .....................................
International Comparison of Overall Tax Burdens ......................
International Comparison of Tax Bases and Rate Structures........
Recent International Tax Reforms ...............................................
U.S. Tax Reforms: Past, Present, and Future.....................................
Twenty Years of Tax Reform ........................................................
Potential Reforms to the Tax System ...........................................
Conclusion.......................................................................................

107
107
108
109
112
112
113
116
118
119
120
122

chapter 6. the u.s. capital account surplus ..................................
Global Capital Flows—Principles.....................................................
Global Capital Flows—Recent Patterns............................................
Global Capital Exporters ..................................................................
The United States and Net Capital Inflows ......................................
Overview.....................................................................................

125
128
130
132
136
136

12 | Economic Report of the President

Net Capital Importers—International Comparisons ...................
U.S. Share of Global Flows and the Asset Composition of
U.S. Capital Inflows..................................................................
Causes of U.S. Capital Inflows....................................................
Low and Declining U.S. Saving ..................................................
High U.S. Economic and Productivity Growth...........................
Financial Market Size ..................................................................
Global Role of the U.S. Dollar....................................................
U.S. Capital Flow Sustainability.......................................................
Conclusion.......................................................................................

139
140
140
142
143
144
144
146

chapter 7. the history and future of international trade ........
A Retrospective on Trade..................................................................
The Payoff to America from Global Economic Integration ..............
Benefits to Consumers ................................................................
Benefits to Firms and Their Workers...........................................
Taking Stock of the Benefits of Trade to America........................
The Policy Scene Today: Avenues to Further Liberalization..............
Prospective Gains from Further Liberalization ............................
Avenues for Further Liberalization ..............................................
Moving Beyond Goods Trade Liberalization ...............................
Conclusion.......................................................................................

149
149
155
155
158
160
164
164
168
168
170

chapter 8. the u.s. agricultural sector .........................................
The U.S. Farm Sector Has Evolved Dramatically Over Time ...........
The Average Farm Payment Recipient Is No Longer Poor...........
Production and Government Payments Are Concentrated on
Large Farms ............................................................................
Issues in Current U.S. Farm Policy...................................................
Agricultural Production and Farm Program Benefits Are
Increasingly Concentrated.......................................................
Farmers Today Have Many Options for Managing the Risks
They Face ...............................................................................
Economic Costs of Commodity Support Programs.....................
Trade Policy Issues............................................................................
Trade Is Essential to the U.S. Agricultural Sector ........................
Nonsubsidized Commodities Now Account for Most of U.S.
Agricultural Exports................................................................
Trade Agreements Promote Reform of U.S. Commodity
Support Programs ...................................................................
Benefits of Agricultural Trade Liberalization................................
Alternatives to Commodity Subsidies..........................................
Environmental Aspects of Agricultural Subsidies.........................
Conclusion.......................................................................................

173
174
176

Contents

138

177
178
178
180
182
183
184
184
185
186
188
189
192
| 13

chapter 9. the u.s. financial services sector.................................
The Economic Roles of Financial Services........................................
Financial Services Address Information Problems in Lending
and Investing ..........................................................................
Other Benefits of Financial Services ............................................
The United States Enjoys a Comparative Advantage in
Financial Services ....................................................................
Economic Growth and Stability .......................................................
Financial Development and Economic Growth...........................
Financial Services and Economic Stability...................................
Policy Issues......................................................................................
Consumer Protection ..................................................................
Safety and Soundness ..................................................................
Conclusion.......................................................................................

195
195

chapter 10. the role of intellectual property in the economy .
Knowledge Is Different from Other Types of Goods ........................
Treating Knowledge as Intellectual Property................................
The Social Costs of an Intellectual Property System....................
Intellectual Property Rights Basics....................................................
Patents: Protecting a Particular Implementation of an Idea .........
Copyrights: Protecting the Expression of an Idea ........................
Trademarks: Protecting the Symbol of an Idea, Product,
or Service ................................................................................
Trade Secrets: Limited Protection for Knowledge Kept Secret .....
Intellectual Property, the American Economy, and Economic
Growth ..........................................................................................
Intellectual Property and the American Economy .......................
Intellectual Property Protection and Economic Growth ..............
Intellectual Property Policy Challenges.............................................
Ensuring the Integrity of the Patent Process ................................
Intellectual Property and International Trade ..............................
Technological Change and Intellectual Property Reform.............
Conclusion.......................................................................................

211
212
213
213
215
216
216

chapter 11. recent developments in energy ...................................
Energy Sources and Uses ..................................................................
Crude Oil.........................................................................................
A Global Market in Crude Oil....................................................
Crude Oil Prices..........................................................................
The Strategic Petroleum Reserve .................................................
Future Price Expectations and Incentives for Nonconventional
Fuels .......................................................................................
14 | Economic Report of the President

195
198
199
200
200
202
204
204
206
210

217
217
218
218
221
222
222
224
227
229
231
232
233
233
234
235
236

Gasoline and Other Refined Products ..............................................
Gasoline Prices ............................................................................
Refining Capacity and Trade .......................................................
Price-Induced Substitution and Technological Change................
Reform of the New Source Review Program ...............................
Natural Gas......................................................................................
Regionalized Natural Gas Markets ..............................................
Natural Gas Prices.......................................................................
Liquefied Natural Gas .................................................................
Prospects for Domestic Production of Natural Gas .....................
Electricity .........................................................................................
Electricity-Generation Technologies ............................................
The Real-Time Challenge of Electricity Markets.........................
Real-Time Pricing and Other Reforms ........................................
Environmental Protection ...........................................................
Electricity Markets in Transition .................................................
Conclusion.......................................................................................

238
239
242
243
246
246
247
247
248
251
252
252
252
253
254
256
257

appendixes
A. Report to the President on the Activities of the Council of
Economic Advisers During 2005................................................. 259
B. Statistical Tables Relating to Income, Employment,
and Production ........................................................................... 273

1-1.
1-2.
2-1.
2-2.
2-3.
3-1.

3-2.

4-1.
7-1.

list of tables
Administration Forecast ............................................................ 43
Supply-Side Components of Real GDP Growth, 1953–2011 ... 44
Average Annual Earnings by Education (2004 dollars).............. 50
Educational Attainment by Race, Ethnicity, and Gender, 2004
53
Rankings of Selected Advanced Countries by Average Score
on International Tests ............................................................ 55
The Median Value (in 1998 dollars) of Net Worth for
Households Headed by a 25- to 34-Year Old—Differences
by Homeownership, Marital Status, and Education............... 68
Median Value of Wealth-to-Income Ratios for Households
Headed by a 25- to 34-Year Old—Differences by
Homeownership, Marital Status, and Education ................... 68
The Premiums Charged for Three Sample Health Insurance
Plans with Different Patient Cost Sharing ............................. 102
Important Milestones in American Trade History ..................... 151

Contents

| 15

8-1.
8-2.

100 Years of Structural Change in U.S. Agriculture ..................
Farm Income and Farm Operator Household Income by
the USDA Farm Size Classification, 2004 .............................
8-3. Distribution of Agricultural Production and Government
Payments by the USDA Farm Size Classification, 2003 ........
11-1. Energy Sources and Uses, 2004 ................................................

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

list of charts
Consumption & Net Worth (Relative to Disposable
Personal Income) ...................................................................
Business Fixed Investment and Cash Flow ................................
Productivity Growth During Cyclically-Comparable Business
Cycle Intervals .......................................................................
Inflation ....................................................................................
Survey and Market Measures of Expected Inflation in 2005
and 2006 ...............................................................................
10-Year Treasury Yield...............................................................
Corporate Bond Yield Spreads ..................................................
Labor Force Participation Rate and Disabled Workers Relative
to Population.........................................................................
Educational Attainment by Age, 1947-2004 .............................
Foreign-born Share of Employment by Education among
Scientists and Engineers, 1996-2002 .....................................
Personal Saving as a Percentage of Disposable Personal Income
Household Net Worth as a Percentage of Disposable Income ...
Household Saving Rate as a Percentage of Disposable Income ..
Funding Status of the Pension Benefit Guaranty Corporation ..
National Health Expenditures as a Percentage of GDP .............
Family Health Insurance Premiums 1999-2005 ........................
Real Hourly Compensation of the Civilian Population .............
Tax Revenues as a Percent of GDP for the OECD Countries
in 2002..................................................................................
Top Marginal Personal and Corporate Tax Rates for the
OECD Countries in 2004.....................................................
Net Capital Inflows to the United States...................................
Largest Net Capital Importers and Exporters-2004...................
Current Account Balances of Oil-Producing Countries.............
Annual Growth and Current Account Balances - 1995-2004....
Gross National Saving Rates - 1995-2004.................................
Average U.S. Tariff on Dutiable Goods, 1930-2005..................
Consumer and Import Price Growth, 1990-2004 .....................

16 | Economic Report of the President

175
177
178
233

30
33
37
38
40
41
42
45
52
58
70
72
72
76
86
87
98
113
116
126
131
138
139
140
154
156

7-3.
8-1.
8-2.
8-3.
8-4.
8-5.
8-6.
8-7.
9-1.
9-2.
10-1.
10-2.
10-3.
11-1.
11-2.
11-3.
11-4.
11-5.

1-1.
3-1.
4-1.
4-2.
5-1.
5-2.

6-1.
6-2.
6-3.
7-1.
7-2.
7-3.

Average Tariffs Across Countries ...............................................
Farm Sector Inputs, Output, and Total Factor Productivity ......
Farming Output and Share of U.S. GDP..................................
Value of Agricultural Production by Farm Size (1989 versus
2003).....................................................................................
Government Commodity Payments by Farm Size (1989
versus 2003) ..........................................................................
Composition of U.S. Farm Household Income by Source
(household average) ...............................................................
Net Direct Payments to Farmers ...............................................
Value of U.S. Agricultural Exports of Bulk and High-Value
Commodities.........................................................................
Share of GDP from Financial Services ......................................
Long-Term Decline in Volatility of Macroeconomic Indicators.
Intellectual Property Industries’ Share of 2003 Gross Domestic
Product..................................................................................
Share of Assets in Current Market Value of Public U.S.
Corporations .........................................................................
Growth Rate of U.S. Exports ....................................................
World Proven Oil Reserves........................................................
Estimated Production Costs of Alternatives to Conventional
Oil.........................................................................................
U.S. Household Gasoline Expenditures ....................................
U.S. Energy Intensity................................................................
World Proven Natural Gas Reserves..........................................
list of boxes
Economic Impact of the 2005 Hurricanes ................................
Earlier Attempts to Shore Up Social Security ............................
Tax Preferences for Employer Health Insurance Premiums........
Medical Liability Costs .............................................................
Fiscal Challenges Ahead ............................................................
Simple, Fair, and Pro-Growth: Proposals to Fix America’s Tax
System, Recommendations of the President’s Advisory
Panel on Federal Tax Reform.................................................
Analyzing the Current and Capital Account Balances ...............
High Saving and Financial Sector Inefficiency .........................
The Link Between Fiscal and Trade Deficits .............................
The Regressive Nature of U.S. Tariffs........................................
Trade and Labor........................................................................
Trade and the Environment ......................................................
Contents

166
175
176
179
180
181
183
185
200
203
219
220
221
234
238
242
244
249

26
81
92
95
114

121
129
137
141
157
161
163
| 17

7-4.
8-1.
8-2.
8-3.
9-1.
9-2.
10-1.
10-2.
11-1.
11-2.

U.S.-Asia Trade Relationship.....................................................
New Zealand’s Abolition of Agricultural Subsidies ...................
Policy Mechanisms for Addressing Agri-environmental Issues ...
A Market-Based Approach to Reduce Overfishing ....................
Venture Capital and Innovation ................................................
Regulation Is Not Costless ........................................................
Intellectual Property in the Early American Republic................
The Free Software Licensing Movement ...................................
Energy Futures Markets ............................................................
The Effects of Hurricanes Katrina and Rita on Energy
Supplies .................................................................................
11-3. Automobile Fuel Economy Standards .......................................
11-4. Cap-and-Trade Programs for Air Pollution................................

18 | Economic Report of the President

166
187
190
192
201
205
214
228
237
239
245
255

Overview

T

he expansion of the U.S. economy continued for the fourth consecutive
year in 2005. The President has laid out an agenda to maintain the
economy's momentum, foster job creation, and ensure that America remains
a leader of the global economy.
The President is advancing plans to make tax relief permanent; restrain
government spending to reduce the budget deficit; strengthen retirement
systems; make health care more affordable and accessible; create an economic
environment that encourages innovation and entrepreneurship; enhance
private incentives for research and development; boost math and science
education and worker training; reform the immigration system and strengthen
our borders; continue to open markets to American goods and services; and
reduce America’s dependence on foreign oil by diversifying our energy supply.
This Report reviews the state of the economy and the economic outlook,
and discusses a number of economic policy issues of continuing importance.
The Report highlights how economics can inform the design of better public
policy and reviews Administration initiatives.

The Year in Review and the Years Ahead
The economy has shifted from recovery to sustained expansion, having
absorbed the effects of the Gulf Coast hurricanes and large increases in energy
prices in 2005. Chapter 1, The Year in Review and the Years Ahead, reviews the
economic developments of 2005 and discusses the Administration’s forecast
for the years ahead. The key points of this chapter are:
• Real GDP grew strongly during 2005. Most components of demand that
accounted for growth in 2004—consumer spending, business investment
in equipment and software, and exports—continued to do so in 2005.
• Labor markets continued to strengthen. Employers created 2 million new jobs
in 2005, and the unemployment rate dropped to 4.9 percent by year-end.
• Productivity growth remained well above its historical average in 2005.
• Inflation rose substantially at mid-year, but came down by year-end as it
reflected the movement of energy prices. In contrast, inflation in the core
consumer price index (CPI) (which excludes food and energy prices) has
remained in the moderate 2-percent range.
• The Administration’s forecast, consistent with consensus private forecasts,
shows the economic expansion continuing for the foreseeable future.
19

Skills for the U.S. Workforce
Chapter 2, Skills for the U.S. Workforce, discusses the economics of education,
immigration, and job training. The key points are:
• Education is a key contributor to economic growth and individual income.
• Advances in education levels have slowed over the past 25 years. The No
Child Left Behind Act is working to reverse this trend by making schools
more accountable. If, however, we do not continue to improve our
schools, the U.S. standard of living could be jeopardized in years to come.
• High-skilled immigrants make up a vital part of the U.S. economy,
particularly in the science and engineering sectors.
• Workers need to upgrade their skills continually to adapt to and take
part in an ever-changing economy.
Promoting a flexible and skilled labor force—through improved access to
high-quality primary, secondary, and post-secondary education, through policies that attract the world’s best and brightest to our shores, and through
investment in the continuing education and training of our mobile workforce
– will ensure that the United States remains a competitive leader in this
rapidly changing world economy.

Saving for Retirement
Over the past few decades, concerns have mounted that Americans have
been preparing inadequately for retirement. The main points of Chapter 3,
Saving for Retirement, are:
• Most working-age Americans are on track to have more retirement
wealth than most current retirees. It is inherently difficult, however, to
assess whether these preparations are adequate for most households.
• The decline in an often-cited aggregate personal saving rate may not be
cause for much alarm for retirement preparedness. Much of this decline
can be attributed to spending triggered by wealth increases from capital
gains on housing and financial assets.
• There are, however, a number of risks to the retirement preparations of
Americans. People today are living longer and could face higher health-care
costs in retirement than members of previous generations. In addition,
Social Security and many defined-benefit pension plans are at risk.
• Both defined-benefit pensions and Social Security suffer from fundamental financial problems that expose not just retirees but all U.S.
taxpayers to risk of substantial losses. The Administration is focused on
addressing these problems and protecting the Nation’s retirement security.
20 | Economic Report of the President

Improving Incentives in Health Care Spending
Health care spending in the United States has increased rapidly over the
past several decades, rising 44 percent in real per capita terms in the past ten
years alone. Some of the reasons for this marked rise reflect higher-quality
health care, such as improved technological options for enhancing health and
quality of life. Other factors, however, such as poorly functioning markets for
health care, may have led to excessive spending and inefficient patterns of
medical care utilization.
Chapter 4, Improving Incentives in Health Care Spending, reviews the causes
and consequences of health care spending growth and discusses how the
President’s consumer-driven proposals can improve the health care system.
The key points are:
• Growth in spending on health care has been much more rapid than
general inflation, straining consumers, employers, and government
budgets.
• Perverse tax and insurance incentives have led to inefficient levels and
composition of spending on health care.
• Promoting a stronger role for consumers is a promising strategy for
improving health care value and affordability.

The U.S. Tax System in International Perspective
All governments face two important decisions. They must choose the scope
and scale of public goods and services to provide for their citizens, and they
must also decide how to collect the funds to finance those public services.
Chapter 5, The U.S. Tax System in International Perspective, examines U.S.
choices in the context of other countries. It makes three key points:
• Fundamental choices about tax systems matter because they affect the
living standards of citizens.
• The United States has made different choices from other countries. The
United States has a relatively low tax burden compared to the rest of the
world, and we finance more of that burden with a tax on personal
income instead of consumption.
• When viewed in an international perspective, the U.S. system has been
significantly improved in recent years but could benefit greatly from
additional reforms, particularly those focused on the taxation of capital
income.

Chapter 3

| 21

The U.S. Capital Account Surplus
The United States conducts an enormous number of trade and financial
transactions with other countries. In 2004, the U.S. ran a current account
deficit of $668 billion. This deficit meant the U.S. imported more goods and
services than it exported. The counterpart to the U.S. current account deficit
was a capital account surplus of an equal amount. This surplus meant that
foreign investors purchased more U.S. assets than U.S. investors purchased in
foreign assets, and the U.S. received net foreign capital and financial inflows.
Chapter 6, The U.S. Capital Account Surplus, makes several key points:
• The size and persistence of U.S. net capital inflows reflects a number of
U.S. economic strengths as well as some shortcomings.
• The recent rise in U.S. net capital inflows in part reflects global
economic conditions as well as policies in some Asian countries and
weak growth in several European economies that led to greater net
capital outflows from these countries.
• Encouraging greater global balance of capital flows would be helped by
steps in several countries, such as higher domestic saving in the U.S.,
stronger economic growth in Europe and Japan, and greater exchange
rate flexibility and financial sector reforms in Asia.

The History and Future of International Trade
While economic research and historical evidence show the benefits of trade
outweigh the costs, trade liberalization has always brought anxieties in the
United States and throughout the world. There have always been temptations
to retreat to economic isolationism, but the Administration rejects that
notion. The key points in Chapter 7, The History and Future of International
Trade, are:
• Over the past 70 years, policymakers across political parties have consistently recognized the importance of international commerce, and have
achieved major trade liberalization both here and abroad.
• The net payoff to America from these achievements has been substantial.
For example, studies have estimated the annual payoff from U.S. trade
and investment liberalization thus far averages $5,000 per American.
• A number of barriers to trade remain, especially in services, and the
benefits of eliminating these barriers are significant. One study found
removing all remaining barriers to trade in services would lead to an
additional $7,000 in annual income for the average American family of
four. The Administration is working to open these markets in global,
regional, and bilateral negotiations.
22 | Economic Report of the President

The U.S. Agriculture Sector
In 2005, the Federal government spent approximately $20 billion on agricultural support payments in a sector forecast to produce approximately
$270 billion of output. In addition, the United States maintains barriers to
the import of some commodities, and these barriers raise the domestic prices
of these commodities relative to world prices. To what extent do these many
payments and trade barriers serve a public purpose? Are they needed to maintain a healthy U.S. agricultural sector? Could alternative policies achieve this
goal? Chapter 8, The U.S. Agricultural Sector, addresses these and other
questions. The key findings of this chapter are:
• Most farmers do not benefit from commodity subsidies.
• Support to agriculture can be provided in many forms that are
potentially less market- distorting than existing commodity subsidies.

The U.S. Financial Services Sector
Most people interact regularly with the financial services sector, such as
when they make deposits at banks or obtain loans from them. Nevertheless,
understanding what this sector does can be difficult. Why do individuals go
to intermediaries like banks for mortgages, rather than skip intermediaries
and deal directly with savers? And why do financial service firms ask for so
much information before making a loan and, afterward, place so many restrictions on borrowers?
Chapter 9, The U.S. Financial Services Sector, explores what financial
services do for an economy, how financial development relates to economic
performance, and how financial services can be effectively regulated. The key
points are:
• The U.S. financial services sector addresses informational problems that
can otherwise keep financial capital from finding productive uses. The
sector tends to deliver these services in a cost-effective manner.
• Financial services facilitate innovation and thus encourage economic
growth. They might also bolster economic stability.
• Financial regulation should protect consumers and ensure the system’s
safety and soundness. Moving too far in the direction of public regulation, however, can stifle the productivity and innovation necessary for
the economy to enjoy fully the benefits of financial services. An effective
financial regulatory system appropriately balances the costs and benefits
of public regulation.

Chapter 3

| 23

The Role of Intellectual Property
in the Economy
The founders of this country believed that intellectual property was so
important that one of the grants of power to Congress under the Constitution
was “To promote the Progress of Science and the useful Arts, by securing for
limited Times to Authors and Inventors the exclusive Right to their respective
Writings and Discoveries.” Economic research over the past two centuries
confirms the importance of intellectual property. The key points of Chapter
10, The Role of Intellectual Property in the Economy, are:
• Intellectual property rights create incentives for individuals and firms to
invest in research and development, and to commercialize inventions by
allowing them to profit from their creations.
• Well-defined and enforced intellectual property rights are important to
economic growth.
• The Administration continues to enforce vigorously the rights of American
intellectual property owners.

Recent Developments in Energy
Chapter 11, Recent Developments in Energy, discusses energy markets—
systems that connect consumers and suppliers of energy products, where prices
are determined by what buyers will pay and what sellers will accept. The
chapter reviews developments in markets for crude oil, refined petroleum
products, and natural gas, as well as developments in the electricity-generation
sector. The key points are:
• Increased scarcity and rising prices over time will encourage conservation,
increase incentives for exploration, and stimulate the development of
new, energy-efficient technologies and alternative energy sources.
• In the near term, unexpected disruptions to energy supply and distribution
networks may continue to affect consumers and businesses. Hurricanes
Katrina and Rita demonstrated that competitive markets play a central role
in allocating scarce energy resources, especially during times of natural
disaster or national emergency.
• The continued expansion of energy markets through regional and global
trade can further increase our resilience to energy supply disruptions.
• Policies that reduce U.S. vulnerability to energy disruptions, encourage
energy efficiency, and protect the environment can be beneficial supplements to markets. These policies can be made more effective and less
costly when designed based on economic incentives.

24 | Economic Report of the President

C H A P T E R

1

The Year in Review and the Years Ahead

T

he expansion of the U.S. economy—having gathered momentum in 2003
and 2004—continued for its fourth full year in 2005. Economic growth
was solid, with real gross domestic product (GDP) growing 3.1 percent during
the four quarters of 2005 and 3.5 percent for the year as a whole. Near-record
prices of energy and damage from several powerful hurricanes threatened to
derail the expansion, but growth was well maintained in the face of these
shocks and a long series of rate hikes by the Federal Reserve. Productivity
growth remained well above its historical average.
This chapter reviews the economic developments of 2005 and discusses the
Administration’s forecast for the years ahead. The key points of this chapter are:
• Real GDP grew strongly during 2005. Most components of demand that
accounted for growth in 2004 continued to do so in 2005: consumer
spending, business investment in equipment and software, and exports.
• Labor markets continued to strengthen. The unemployment rate continued
to decline, and employers created another 2 million jobs.
• Inflation rose substantially at mid-year, but came down by year-end
reflecting the movement of energy prices. In contrast, inflation in the core
consumer price index (CPI) (which excludes food and energy prices) has
remained in the moderate 2-percent range, and inflation expectations for
the period beyond a one-year horizon remain moderate and stable.
• The Administration’s forecast calls for the economic expansion to continue
in 2006, with real GDP growth close to its post-World War II average rate
and the unemployment rate stable at about its current level. This is expected
to continue in subsequent years.

Developments in 2005 and the
Near-Term Outlook
Despite the impacts of rising energy prices and a devastating hurricane
season (see Box 1-1), the U.S. economy continued to expand at a solid pace
in 2005 and inflation pressures remained contained.

Consumer Spending and Saving
Consumer spending continued its strong growth in 2005, rising faster than
disposable income over the past decade and a half. As a result, the personal
25

Box 1-1: Economic Impact of the 2005 Hurricanes
In addition to the tragic loss of life and the massive destruction of
personal property, the two major hurricanes (Katrina on August 29 and
Rita on September 24) damaged the productive capacity of the
American economy. Hurricane Wilma (October 24) also caused sizable
losses to life and property, but the damage to the economy as a whole
was much less. Both Hurricane Katrina and Hurricane Rita passed
through offshore areas where oil and natural gas platforms are concentrated and then struck on-shore areas where petroleum is refined and
natural gas is processed. In addition to the damage to equipment and
structures, the hurricanes separated at least 782,000 workers from their
jobs (and displaced many more from their homes).
The direct damage to the capital stock and the displacement of labor
probably cut real GDP growth by about 0.7 percentage point at an
annual rate in the third quarter. Most of this GDP loss was the direct
result of destruction of oil and natural gas operations. Although
rebuilding of petroleum and natural gas operations was well under
way in the fourth quarter, the continuing disruptions likely subtracted
about 0.5 percentage point from the annual rate of real GDP growth in
that quarter. Hurricane Katrina shut down about 1.4 million barrels per
day of oil extraction and 8.8 billion cubic feet per day of natural gas
production when it passed through on August 29. Those operations
were well on their way to recovery when Hurricane Rita came along for
a second strike on September 24, erasing the recovery efforts up to that
date (see the chart below). From Katrina’s approach through the Gulf of
Mexico until the end of the third quarter, oil extraction was cut by an
average of 1.08 million barrels per day below normal levels and by an
average of 0.7 million barrels per day during the fourth quarter.
Similarly, natural gas production was reduced by an average of 5.4
billion cubic feet per day (roughly 10 percent of U.S. output) from
Katrina’s approach through the end of the third quarter and by an
average of 4.0 billion cubic feet per day in the fourth quarter. Damage
to refineries cut output by an average of about 2 million barrels per day
during September and forced the demand for refined petroleum products to be met by higher imports and a liquidation of inventories. Most
refinery output was restored by early-November, however. (Recent
energy developments are discussed further in Chapter 11.)
About 782,000 workers filed claims for unemployment insurance
(UI) benefits because of the hurricanes (604,000 under the
regular UI program and another 178,000 under the Disaster
Unemployment Assistance program). The lost production from these
workers also subtracted from real GDP growth in the third quarter (after
making an allowance to avoid double counting the lost production of

26 | Economic Report of the President

Box 1-1 — continued

workers in the petroleum and natural gas industries noted earlier). Data
from the Current Population Survey indicate the unemployment rate
among evacuees was about 12 percent by year end.
According to a Red Cross damage assessment, the three hurricanes
destroyed an estimated 213,000 housing units; most of this damage
was done by Katrina. Furthermore, 169,000 units suffered major
damage (enough to make them uninhabitable), 220,000 had minor
damage, and another 235,000 had extremely minor damage. The
Bureau of Economic Analysis estimates the loss of residential capital
stock at about $67 billion—about $37 billion of which was insured. The
insured structures are likely to be rebuilt (although not necessarily in
the same location), and many of the uninsured structures may be
rebuilt as well. The pace of reconstruction is uncertain but is likely to
take place over a period of three years or so.
In the aftermath of the hurricanes, the President and Congress
worked together to provide disaster relief for the affected areas. Two
emergency spending bills provided for $62 billion of disaster relief,
including transfer payments to persons and businesses in the affected
areas, direct government purchases of goods and services, and grants
to State and local governments. These bills also included funding for

Chapter 1

| 27

Box 1-1 — continued
the Defense Department and the Corps of Engineers to rebuild military
facilities and levees in New Orleans and the Gulf Coast. Additional
legislation authorized a reallocation of about $6 billion from other
programs to disaster relief, established $17 billion of additional
borrowing authority for Federal flood insurance programs, and
provided about $15 billion of tax relief for the affected areas.
In the fourth quarter, the Federal disaster spending together with
private rebuilding may have partially offset the still-negative effects of
petroleum and natural gas operations. By the first quarter of 2006,
these post-hurricane effects are expected to combine to produce a
clearly positive contribution to real GDP growth.

saving rate fell to a postwar low this year, turning negative in the second
quarter and remaining negative through the fourth quarter. A number of
factors contributed to growth in consumer spending in 2005; the most important was the increase in energy prices including the transitory post-Katrina
surge. Other factors with sizable effects in particular quarters were motor
vehicle incentive programs and the loss of rental income from the hurricanes.
Rising household net worth during the late 1990s and again over the past two
years has provided a more-persistent boost to consumer outlays relative to
after-tax income.

Energy Expenditures
Consumer budgets continued to be stretched by higher energy prices in
2005. Consumer energy prices increased about 21 percent during the four
quarters of 2005, following an 18-percent increase in 2004 (as measured by
the consumption price index in the national income and product accounts).
Real consumption of energy was fairly flat in 2005, but because of the higher
prices, the share of household income allocated to energy purchases increased
sharply. Spending on energy goods and services jumped from 4.2 percent of
disposable personal income in 2002 to about 6 percent in October and
November of 2005 as the average household’s energy budget rose by about
$700 during 2005.

Light Vehicle Expenditures
While annual average sales of cars and light trucks have been remarkably
stable over the past six years, much of the quarter-to-quarter volatility in
consumer spending generally comes from motor vehicle purchases. Quarterto-quarter variability in light vehicle sales was particularly evident in 2005. In
28 | Economic Report of the President

July, when General Motors, Ford, and Chrysler each introduced incentive
programs on 2005 models, the sales of light vehicles peaked at 20.7 million
units at an annual rate. However, motor vehicle sales dropped off in the
fourth quarter to 15.8 million units at an annual rate with the removal of the
incentive programs. Light vehicle sales for the year as a whole averaged
16.9 million units, however, almost identical to the average pace during the
2000-to-2004 period.

Personal and National Saving
Meanwhile, real purchases outside of energy and motor vehicles grew at
their long-standing trend of about 31⁄2-percent growth per year. With energy
prices up and other consumption on an unaltered trajectory, most of the
funds for these higher-cost energy purchases came from reducing saving. The
personal saving rate, which had been generally falling during the preceding
15 years, fell to -0.5 percent for 2005.
Personal saving is only one part of national saving. The personal saving rate
does not include corporate saving in the form of retained earnings; but corporate saving adds to the wealth of corporate shareholders and supplies funds for
investment. Net private saving, which includes corporate saving as well as
household saving, was 4.3 percent of net national income in the first half of
2005, down from 7.4 percent in the 1990s. A still broader measure of saving,
national saving, subtracts dissaving by Federal, state, and local governments
(in the form of government budget deficits) from private (public plus corporate) saving. The national saving rate was 1.7 percent in the first half of 2005.
(Personal and national saving are discussed further in Chapter 3, Saving for
Retirement; the international aspects of saving are discussed in Chapter 6,
The U.S. Capital Account Surplus.)

Wealth Effects on Consumption and Saving
A strong rise in household net worth during the late 1990s and again
during the past two years coincided with a sizable increase in consumer
spending relative to disposable personal income (Chart 1-1). From 1995
through 2000, in large part because of a booming stock market, the wealthto-income ratio rose well above its historical range, eventually reaching 6.15
years of disposable income, and the fraction of disposable income spent by
consumers rose to new heights as well. The wealth-to-income ratio fell sharply
in 2001 and 2002 due to the stock market decline. Since its low point in the
third quarter of 2002, the wealth-to-income ratio has again risen sharply. By
the third quarter of 2005, it had recovered to about 5.6 years of disposable
income, well above the historical average of 4.8. Gains in the stock market
accounted for about half of the recovery while increases in net housing wealth
accounted for another third.

Chapter 1

| 29

Looking ahead, real consumption growth during the four quarters of 2006
is expected to be somewhere around the 31⁄2-percent trend rate measured
during the past three years. Over the near term, the personal saving rate is
expected to increase. If energy prices decline in 2006, consumer spending
should decline relative to income; to the extent that energy prices remain
high, consumer spending may still decline relative to income as consumers
reduce energy use and substitute energy alternatives.

Housing Prices
During the past five years, home prices have risen at an annual rate of
9.2 percent. This increase was largely supported by two factors: first, an
increase in housing demand, driven by a rise in nominal per capita disposable
income of 3.4 percent per year; second, a decline in the cost of financing
house purchases, due to a drop in the monthly payment on 30-year fixed-rate
mortgages of 4.3 percent per year. Housing demand was also boosted by
increased household formation and a strengthening job market. Supply
constraints, due to limits on the supply of buildable land in some areas, also
contributed to rising prices over the past five years. After falling during 2004,
mortgage rates were roughly flat at 53⁄4 percent in the first three quarters of
2005, and then edged up along with other long-term interest rates in the
30 | Economic Report of the President

fourth quarter. As a result, a well known measure of housing affordability has
now fallen to about its average level over its 34-year history.
To gauge the extent to which house price increases have reflected
fundamentals, some studies compare housing prices to rents. The rent-to-price
ratio is a real rate of return on housing assets in the same way that the earnings-to-price ratio measures the real rate of return on corporate stocks. Viewed
as an asset, a home should bear a real return similar to the real return available
on alternative assets, such as stocks and bonds. As real interest rates have fallen
in the United States and in most other Organization for Economic
Cooperation and Development (OECD) countries, the rent-to-price ratio for
housing has likewise fallen across a broad range of OECD countries. A recent
OECD paper concluded that the decline in the rent-to-price ratio in the
United States from 2000 through 2004 was roughly consistent with the
decline in interest rates over the same period.

Residential Investment
In response to strong demand and the consequent rise in prices, builders
began construction on more than 2 million new homes during 2005, one of
the highest rates of homebuilding on record. Similarly, residential investment,
at 6 percent of GDP in 2005, was at its highest level since 1955. During
2005, growth of residential construction contributed about half a percentage
point to real GDP growth. Homebuilding in 2005 was slightly in excess of
the pace of about 1.9 million starts per year that some economists have estimated is compatible in the long run with U.S. rates of household formation
and other demographic influences.
During the next five years, the Administration expects the pace of homebuilding to decrease gradually because of demographic trends and slowly
rising long-term interest rates. A gradual slowing of homebuilding appears
more likely than a sharp drop because the elevated level of house prices will
sustain homebuilding as a profitable enterprise for some time. On balance,
residential investment is not projected to contribute to real GDP growth
during the four quarters of 2006; in subsequent years, it is expected to
subtract a bit from overall growth.

Business Fixed Investment
Real business investment in equipment and software grew 8 percent during
the four quarters of 2005. This growth is down from the 14-percent yearearlier pace, which was boosted by the end-of-2004 termination of the bonus
depreciation provisions of the Jobs and Growth Tax Reconciliation Act.
Equipment purchases grew rapidly in mining and oilfield machinery
(18 percent) in response to higher prices for oil and natural gas and the need
Chapter 1

| 31

to replace hurricane-damaged rigs in the Gulf of Mexico. Equipment
investment also grew rapidly in the high-tech fields of computers, software,
and communications equipment. Investment in industrial and construction
equipment grew only moderately (6 percent and 4 percent, respectively).
Investment in light trucks was strong through the third quarter, but fell back
in the fourth.
In contrast to equipment and software, investment in structures was weak,
growing only 1 percent during 2005, after 2.8-percent growth in 2004. Strong
growth in the construction of hospitals, shopping centers, and mines (including
oil and natural gas rigs) has been offset by declines in the building of electrical
power stations, hotels and motels, and amusement and recreation facilities.
Office construction fell for the fifth year in a row; however, the 2005 decline
was smaller than previous years as office occupancy rates have begun to increase.
The accumulation of internal funds has been more than sufficient to
finance business investment during this expansion (Chart 1-2). These funds,
also known as cash flow, are the sum of undistributed after-tax profits and
depreciation. In general, funds for business investment can be generated
through borrowing (typically from the bond market, commercial paper
market, or banks), issuing new stock, the drawdown of liquid assets, or
tapping into cash flow. Historically, business investment has been about
21 percent higher than cash flow, with firms raising most of the extra funds
in credit markets. In contrast, business investment during this expansion has
not kept pace with cash flow. As a consequence, corporate liquid assets have
now built up to levels that are well above any that have been seen during the
past decade and a half. This buildup in liquid assets implies that financing for
future investment should be readily available. However, the buildup may
reflect greater overall caution among business executives and owners, a shift
in sentiment that could dampen future investment.
During the next couple of years, investment in equipment and software is
likely to maintain the same rapid growth as in 2005, as output continues to
grow and businesses remain flush with cash. Investment in business structures
is projected to accelerate as new oil and gas rigs are built and as continued
declines in vacancy rates support the construction of new office buildings.

Business Inventories
The pace of inventory investment in 2005 was below the 2004 pace and on
average subtracted from overall GDP growth during the first three quarters of
the year. As sales grew during the year, the inventory-to-sales ratio continued
to decline. Indeed, the inventory-to-sales ratio has fallen considerably since
the mid-1980s. In 2005, businesses held inventories equal to about 27 business-days’ worth of sales—about three days’ worth of sales less than they held
in 2000, and about seven days’ less than in 1985. The trend toward leaner
32 | Economic Report of the President

inventories has been evident in manufacturing since the mid-1980s, and has
appeared in retailing and wholesaling since at least 2000. Leaner inventories
suggest that new business practices such as just-in-time inventory control
in manufacturing and computer- and Internet-assisted supply-chain
management continue to become more popular among supply managers.
Inventory investment generally makes little contribution to real GDP
growth when the growth of final sales is roughly stable from year to year. (In
contrast, inventory investment is important in the early phases of businesscycle recessions and recoveries.) With the economy in the midst of an ongoing
expansion, and the Administration expecting fairly smooth growth of final
sales during the next several years, inventory investment is not anticipated
to be a major contributor to annual GDP growth. The economy-wide
inventory-to-sales ratio is expected to trend lower over the projection period.

Government Purchases
Federal Government purchases as well as transfers and grants (such as Social
Security, Medicare, and Medicaid) contributed to real GDP growth during
2005. Federal purchases contributed 0.2 percentage point at an annual rate to
real GDP growth in the first half of the year, and about 0.5 percentage point
in the third quarter. Almost all of these contributions were from the defense
budget, largely a by-product of the reconstruction and military operations in
Chapter 1

| 33

Iraq and Afghanistan. Despite the developments in Iraq and the hurricanerelief efforts, however, Federal spending in fiscal year 2005 (which runs from
October 2004 to September 2005) was $7 billion below last year’s projection
in the FY 2006 budget. An additional $62 billion has been authorized so far
for hurricane-disaster relief. Although these funds were authorized in FY
2005, the hurricanes struck near the end of the fiscal year, and so most of the
funds will be disbursed in FY 2006 and beyond.
Federal Government purchases and the consumer spending that results
indirectly from Federal transfers will add to real GDP growth in early 2006.
Federal outlays for FY 2006 are likely to increase largely due to hurricanedisaster relief and because of additional funds for reconstruction and
counterinsurgency in Iraq.
From FY 2007 forward, however, the impact of Federal outlays is projected
to move sharply toward restraint. For example, Federal outlays are projected
to shrink by 0.7 percentage point of GDP in FY 2007. The shrinking of the
Federal Government’s claim on resources should allow private economic
activity more room to grow.

Exports and Imports
Real exports grew 53⁄4 percent during the four quarters of 2005, about the
same as export growth in 2004. This reflects the interaction of two offsetting
influences: the somewhat faster growth of our trading partners in 2005,
which tends to increase the demand for U.S. exports, and the increase in the
exchange value of the dollar, which tends to dampen export demand by
making U.S. goods relatively more expensive. Real GDP growth among our
OECD trading partners picked up a bit to 2.6 percent during the four quarters of 2005 from a 2.1-percent pace in 2004, as computed from the latest
OECD projections. Offsetting the effect of stronger foreign growth on our
exports was a 7-percent rise in the value of the dollar against major currencies
over the 12 months of 2005.
Data on the destination of U.S. exports show the fastest export growth to
the most rapidly developing countries and regions such as Asia and Africa.
Nevertheless, our OECD trading partners still account for more than twothirds of our exports.
Growth of our real exports in 2006 and 2007 is likely to be similar to that
in 2005, because economic growth in our export markets is likely to be about
the same as in 2005. The OECD projects that real GDP growth among our
OECD trading partners (2.6 percent during the four quarters of 2005) will
be 2.5 percent and 2.8 percent in 2006 and 2007, respectively. Growth of real
exports to rapidly developing countries in Asia and Africa will likely continue
to be healthy over the next two years as their economic expansion leads them
to demand more goods and services from abroad.
34 | Economic Report of the President

Growth in real imports slowed substantially during the four quarters of
2005 to 4.6 percent from 10.6 percent in 2004. Imports grew more slowly
than exports during 2005. Import growth was particularly weak in the second
and third quarters and was fairly widespread, affecting imports of consumer
goods, non-auto capital goods, petroleum products, and services. Imports
picked up in the fourth quarter, particularly for petroleum products to replace
domestic production lost because of the damage caused by the hurricanes.
The current account deficit (the excess of imports and income flows to
foreigners over exports and foreign income of Americans) averaged 6.4 percent
of GDP ($790 billion at an annual rate) during the first three quarters of 2005,
up from 5.7 percent of GDP during 2004. Recent increases in the deficit
reflect faster growth in the United States than among our trading partners,
making our imports grow faster than our exports. The longer-term trend also
reflects faster growth of domestic investment than domestic saving with
foreign saving filling in the gap in financing.
The United States has been able to buy more goods and services than it sells
because foreigners have been investing in the United States. The current
account deficit of $790 billion also represents the net increase in foreign holdings of U.S. assets (either financial assets or direct ownership of corporations)
relative to U.S.-owned assets abroad. In the future, the returns from these
foreign-owned U.S. investments (that is, interest, dividends, and reinvested
earnings) will themselves add to the current account deficit. These ideas are
explored more fully in Chapter 6, The U.S. Capital Account Surplus.

Employment
Nonfarm payroll employment increased by 2.0 million during the
12 months of 2005, an average pace of 168,000 jobs per month. The unemployment rate declined by 0.5 percentage point to 4.9 percent during the
12 months of the year. The average unemployment rate in 2005 (5.1 percent)
was below the averages of the 1970s, the 1980s, and the 1990s. During the first
eight months of 2005, employment growth averaged 196,000 per month, but
dropped to only 21,000 per month in September and October immediately
after the hurricanes. The Bureau of Labor Statistics expects a slight downward
revision to employment growth over the 12 months ended in March 2005.
Job gains were spread broadly across major industry sectors in 2005. The
service-providing sector accounted for 88 percent of job growth during the
12 months of the year, a slightly larger contribution than would be suggested
by its 83 percent of overall employment. The goods-producing sector
accounted for the remaining 12 percent of the gains, notably weaker than its
17-percent share of overall employment. Within the goods-producing sector,
over-the-year employment growth was concentrated in construction and

Chapter 1

| 35

mining, while manufacturing employment decreased for the seventh time in
the past eight years.
By educational attainment, the drop in the unemployment rate during
2005 was most pronounced among those without a high school degree; the
jobless rate in this group tumbled 0.7 percentage point during the 12 months
of the year. By race and ethnicity, the unemployment rate fell the most among
blacks and Hispanics, (1.5 and 0.5 percentage points, respectively), in
contrast to 0.3 percentage point for whites. By age, the jobless rate fell most
among teenagers 16 to 19 years old. By sex, the jobless rate fell more among
adult men than adult women. The median duration of unemployment, an
indicator that typically follows the business cycle with a substantial lag,
declined from 9.4 weeks in December 2004 to 8.5 weeks in December 2005.
In general, unemployment rates fell the most in 2005 among those groups
with the highest rates at the end of 2004.
The Administration projects that employment will increase at a pace of
176,000 per month on average during the 12 months of 2006—roughly in
line with the Philadelphia Federal Reserve Bank’s survey of professional forecasters. The Administration projects the unemployment rate will remain at
about 5.0 percent throughout 2006.

Productivity
Labor productivity growth in the nonfarm business sector has been
exceptionally vigorous, exceeding the forecasts of most economists. Productivity
(real output per hour worked) grew at a 3.4-percent annual rate during the first
three quarters of 2005, following similar or higher growth rates during the three
preceding years. Since the business-cycle peak in the first quarter of 2001 (a
period that includes a recession and a recovery), productivity has grown at an
average 3.6-percent annual rate, notably higher than during any comparable
41⁄2-year period since 1948 (Chart 1-3). Although 1995 has been regarded as a
watershed year for productivity because of the acceleration of productivity from
a 1.5-percent to a 2.4-percent annual rate of growth, the further acceleration to
a 3.6-percent annual rate of growth during 2001 to 2005 is even more striking
(the precise time periods are shown in Table 1-2, later in this chapter). The
1995-2001 acceleration may be plausibly accounted for by a pickup in capital
services per hour worked and by increases in organizational capital, the investments businesses make to reorganize and restructure themselves, in this instance
in response to newly installed information technology.
In contrast, capital deepening (the increase in capital services per hour
worked) does not explain any of the post-2001 increase in productivity; in
fact, the growth of capital services per hour worked appears to have fallen off
slightly in this period. The post-2001 acceleration in productivity, therefore,

36 | Economic Report of the President

appears to be accounted for by factors that are more difficult to measure than
the quantity of capital, such as continuing improvements in technology and
in business practices.
One curious aspect of productivity acceleration has been its limited spread.
Business-sector productivity growth has been higher in the United States than in
any other major industrial economy. (Business-sector productivity growth has
also been rapid in Ireland, Greece, Korea, Turkey, the Scandinavian countries,
and several transitional east-European countries.) As every industrial economy
has access to the same technology, the strong U.S. performance suggests that
other structural features of the U.S. economy may also play an important role in
productivity growth. Some research suggests that, all else equal, countries with
more-flexible, less-heavily regulated product and labor markets are better able to
translate technological advances into productivity gains.
Rather than assume that the recent remarkable pace of productivity growth
will continue, the Administration believes it is prudent to build a budget
based on a forecast somewhat lower than the 3.6-percent pace of productivity
growth since 2001. Productivity is projected to average 2.6 percent per year
during the six-year span of the budget projection—roughly equal to the
average annual pace during the past decade.

Chapter 1

| 37

Wages and Prices
As measured by the Consumer Price Index (CPI), overall inflation increased
in 2005 to 3.4 percent from 3.3 percent during the 12 months of 2004. Rapid
increases in energy prices (16.6 percent and 17.1 percent in 2004 and 2005,
respectively) elevated the level of overall inflation in both years. The four major
energy subindexes (gasoline, fuel oil, natural gas, and electricity) all posted large
increases in 2005, with prices of natural gas and electricity advancing faster than
in the preceding year. Food price inflation, at 2.3 percent, was moderate and
little changed from the year-earlier pace. Core CPI prices (which exclude the
prices of food and energy) increased 2.2 percent during 2005, substantially
below the overall inflation rate and the same as the year-earlier pace.
Labor costs (which comprise about 62 percent of the costs of nonfarm
business) have been stable, or possibly trending lower. Hourly compensation
for workers in private industry increased at a 3.0-percent annual rate during
the 12 months ended in September 2005 down from 3.7 percent during the
year-earlier period according to the Employment Cost Index (ECI), which is
compiled from the National Compensation Survey (NCS). The deceleration
occurred in both wages and salaries (with growth down to 2.2 percent from
2.6 percent in the year-earlier period) and hourly benefits (which slowed to
4.8 percent from 6.8 percent). The slowing in hourly benefits was accounted
for primarily by smaller increases in contributions to defined-benefit pension
38 | Economic Report of the President

programs in 2005 than in 2004 according to other tabulations from the NCS.
Hourly benefits have increased notably faster than hourly wages and salaries
in each of the past four years. Another measure of hourly compensation
published by the Department of Labor and derived from the national income
and product accounts (NIPA) has increased notably faster than the ECI
measure, rising 5.0 percent during the four quarters ended in the third
quarter of 2005. The difference between these two measures may be partly
attributable to the exercise of stock options which are included in the NIPAderived measure at the time they are exercised, but are not recorded by
the NCS.
With hourly compensation growing in the 3.0 percent-to-5.0 percent range
(depending on the index) and labor productivity growth at about 3.0 percent,
trend unit labor costs have barely changed, with increases in the range from
0 percent to 2 percent. Because unit labor costs have increased by less than
the 2.9-percent increase in the GDP price index during the four quarters
through the third quarter of 2005, labor costs do not appear to be putting
upward pressure on inflation.
An important determinant of inflation during the next year is likely to be
energy prices, whose run-up during the past two years has been the main
reason for the increase in inflation. Futures markets suggest roughly stable oil
and natural gas prices, which (if they come to pass) will remove some of the
upward pressure on the overall inflation rate.
Although some measures of short-run inflation expectations increased
around the third quarter of 2005, they fell back later in the year. More importantly, a variety of longer-term measures of inflation expectations have been
approximately stable during the past two years, including those derived from
the market for Treasury Inflation-Protected Securities (TIPS) and the
University of Michigan consumer survey (Chart 1-5). History suggests that
the stability of inflation expectations promotes stability in actual inflation as
well as in the overall economy.
The Administration expects CPI inflation to stabilize at 2.4 percent during
the next several years, up only slightly from the 2.2 percent increase in the
core CPI during the 12 months through December. The projected path of
inflation as measured by the GDP price index is similar, but a bit lower.
Inflation by this measure is projected at 2.2 percent during the four quarters
of 2006 and 2007, down from the 3.0-percent increase during 2005. These
inflation projections are very close to those of a year ago, and are also very
close to those of the consensus of professional forecasters.
The “wedge,” or difference, between the CPI and the GDP measures of
inflation has implications for the Federal budget projections. A larger wedge
(with the CPI rising faster than the GDP price index) raises the Federal
budget deficit because cost-of-living programs rise with the CPI, while
Federal revenue tends to increase with the GDP price index. For a given level
Chapter 1

| 39

of nominal income, increases in the CPI also cut Federal revenue because they
raise income tax brackets and affect other inflation-indexed features of the tax
code. Of the two indexes, the CPI tends to increase faster in part because it
measures the price of a fixed basket of goods. In contrast, the GDP price
index increases less rapidly because it allows for households and businesses
shifting their purchases away from items with increasing relative prices and
toward items with decreasing relative prices. Among other differences, the
GDP price index places a larger weight than does the CPI on computers,
which tend to decline in price (on a quality-adjusted basis). In addition, the
CPI places a much larger weight on energy.
During the 13 years ended in 2004, the wedge between inflation in the
CPI-U-RS (a historical CPI series designed to be consistent with current
CPI methods) and the rate of change in the GDP price index averaged 0.36
percent per year. The wedge was particularly high during the first three quarters of 2005 when the CPI increased 1 percentage point faster than the GDP
price index; this difference reflected the roughly 50-percent annual rate of
increase in crude oil prices, which have a larger weight in consumer prices than
in GDP as a whole. Since domestic production accounts for only about
35 percent of U.S. oil consumption, the weight of oil prices in GDP is roughly
one-third of its weight in consumption. As this boost from higher oil prices
unwinds over the next couple of years, the wedge between the CPI and GDP
40 | Economic Report of the President

inflation is likely to be lower than average. From 2008, the wedge is projected
to average 0.3 percentage point.

Financial Markets
The Wilshire 5000 (a broad stock price index) increased 4.6 percent during
2005, the third consecutive year of stock market gains following three years of
declines. The 2005 increase was well below the gains of the two preceding years.
Short-term interest rates increased during the year as the Federal Reserve’s
Open Market Committee raised the target Federal funds rate by 25 basis
points at each of its eight meetings. As a consequence, rates on 91-day
Treasury bills rose 1.7 percentage points during the year.
Despite the increases in short-term rates, yields on 10-year Treasury notes
remained low, increasing only 24 basis points during the 12 months of 2005
(Chart 1-6). The low level of long-term interest rates was due, in part, to low
and stable long-run inflation expectations. At the end of 2005 the gap
between the yield on 10-year Treasuries and the rate on 91-day Treasury bills
was only about 0.6 percentage point, noticeably lower than its historical
average. (The yield on longer-term Treasury notes is usually higher than on
shorter-term notes because the market compensates investors for the extra risk
of holding longer-term securities.)

Chapter 1

| 41

Yields on corporate bonds also remained low and the spread between yields
on corporate bonds (which carry more risk) and the yields on more-secure
obligations of the U.S. Treasury remained small. Measured relative to Treasury
obligations of similar maturities, the yields on corporate bonds rated “BAA”
(about average quality) by Moody’s Investor Services remained near their
lowest levels over the past decade (Chart 1-7). This suggests that the perceived
default risk of U.S. corporations remains low.

The Long-Term Outlook Through 2011
The U.S. economy continues to be well positioned for long-term growth.
The Administration projects that real GDP will expand at about its potential
rate (between 3.1 percent and 3.3 percent per year) through 2011, inflation
will remain low and stable (with the CPI increasing at around 2.4 percent per
year), and the labor market will remain firm (Table 1-1). The forecast is based
on conservative economic assumptions that are close to the consensus of
professional forecasters. These assumptions provide a prudent and cautious
basis for the Administration’s budget projections.

42 | Economic Report of the President

TABLE 1-1.— Administration Forecast 1

Year

Interest Interest
Nonfarm
GDP price Consumer Unemploy- rate,
rate,
payroll
Real GDP
index
price
ment
91-day
10-year
Nominal
employ(chain(chainindex
rate
Treasury Treasury
GDP
ment
type)
type)
(CPI-U) (percent)
bills 2
notes
(millions)
(percent) (percent)

Percent change, Q4-to-Q4

Nonfarm
payroll
employment
(average
monthly
change,
Q4-to-Q4
thousands)

Level, calendar year

2004 (actual)...

6.8

3.8

2.9

3.4

5.5

1.4

4.3

131.5

178

2005 ................
2006 ................
2007 ................

6.4
5.6
5.6

3.5
3.4
3.3

2.8
2.2
2.2

3.8
2.4
2.4

5.1
5.0
5.0

3.2
4.2
4.2

4.3
5.0
5.3

133.6
135.5
137.4

160
176
140

2008 ................
2009 ................
2010 ................
2011 ................

5.4
5.3
5.3
5.3

3.2
3.1
3.1
3.1

2.1
2.1
2.1
2.2

2.4
2.4
2.4
2.5

5.0
5.0
5.0
5.0

4.3
4.3
4.3
4.3

5.5
5.6
5.6
5.6

139.0
140.7
142.2
143.7

139
132
127
126

1

Based on data available as of November 15, 2005.

2

Discount basis.

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.

Growth 1-2.— Supply-Side Components of Real GDP Growth, 1953–2011
TABLE in GDP over the Long Term
[Average annual GDP will grow
The Administration projects that real percent change] at a slowly diminishing
rate from 2005 through 2009, decelerating year by year from a forecasted
1953 Q2 1973
3.5-percent rate during the four quarters of to2005 to Q43.1 to Q2 2001 Q1 2005 Q3
to 1995percent in 2009,
Item
to
to
roughly in line with the consensus forecast 1973 Q4 1995 Q2 2001The2005 Q3 2011 Q4
for those years. Q1 year-by-year
pace is close to the estimated16+ ..................... of potential real 1.2
GDP 1.2
growth1.1
(a
1.6
1.4
1) Civilian noninstitutional population aged growth rate
2) Plus: of the rate of growth rate .......................
0.2
0.4
0.1
-0.3
-0.1
measure Civilian labor force participation of productive capacity). The unemployment rate
is3)projected to remain...................................................As discussed below, potential GDP
Equals: Civilian labor force flat at 5.0 percent.
1.8
1.8
1.4
0.9
1.0
4) Plus: Civilian employment rate ...........................................
-0.1
0.0
0.3
-0.2
0.0
growth is expected to slow in the near term as productivity growth reverts
1.8
1.7
0.7
1.0
5) Equals: Civilian employment .................................................
toward its long-run trend, and potential GDP is 1.7
expected to slow further during
6) Plus: Nonfarm business employment as
the 2007-to-2011 period as labor force growth -0.1
declines.
0.1
0.4
-0.8
0.1
a share of civilian employment ..............................
The projected growth of potential real GDP, 31⁄4 percent during the next two
7) Equals: Nonfarm business employment..................................
1.6
1.9
2.0
-0.1
1.0
years, is in lineweekly hours (nonfarm business) ................
8) Plus: Average with recent experience. Potential growth is the rate of real GDP
-0.3
-0.3
-0.1
-0.3
-0.1
rate 1.9
stable. For
be achieved while the unemployment1.6 remains -0.4
growth that can persons (nonfarm business)...................
9) Equals: Hours of all
1.3
1.0
1.5
2.6
10) Plus:
example,Output per hour (productivity, nonfarm business) .... third quarter of 2.4 to the third
during the past four years (from the 2.5
2001 3.6
quarter of 2005) real GDP growth was 3.22 percent 3.1 an annual 3.2 while
at
rate 3.6
11) Equals: Nonfarm business output...........................................
3.8
4.3
12) Plus: Ratio of real GDP rate wasbusiness output ........
to nonfarm unchanged—on net—at -0.2
-0.2
-0.5
-0.4
-0.4
about 5 percent.
the unemployment
1

2

2

23

4

13) Equals: Real GDP ....................................................................
1
2

3.6

2.8

3.8

2.8

3.2

Adjusted by CEA to smooth discontinuities in the population series since 1990.
BLS research series adjusted to smooth irregularities in the population series since 1990.

3

Line 6 translates the civilian employment growth rate into the nonfarm business employment growth rate.
Chapter 1 | 43
Line 12 translates nonfarm business output back into output for all sectors (GDP), which includes the output of
farms and general government.
4

Note: 1953 Q2, 1973 Q4, and 2001 Q1 are NBER business-cycle peaks. Detail may not add to total because of
rounding.

Year

Nominal
GDP

Real GDP
(chaintype)

employment
(average
monthly
change,
Q4-to-Q4
determined by its
thousands)

Nonfarm
GDP price Consumer Unemploy- rate,
rate,
payroll
index
price
ment
91-day
10-year
employ(chainindex
rate
Treasury Treasury
ment
type)
(CPI-U) (percent)
bills 2
notes
(millions)
(percent) (percent)

The growth rate of the economy over the long run is
supply-side components, which include population,Level, calendar year
labor force participation,
Percent change, Q4-to-Q4
the (actual)...of nonfarm 3.8
ratio
business employment5.5 household4.3
to 1.4
employment, 178
the
2004
6.8
2.9
3.4
131.5
workweek, and6.4 growth in output per hour. The3.2
the 3.5
Administration’s forecast
2005 ................
2.8
3.8
5.1
4.3
133.6
160
2006 ................
5.6
3.4
2.2
2.4
5.0
5.0
135.5
176
for the contribution of the growth rates of different 4.2
supply-side factors to real
2007 ................
5.6
3.3
2.2
2.4
5.0
4.2
5.3
137.4
140
GDP growth is shown in Table 1-2.
2008 ................
5.4
3.2
2.1
2.4
5.0
4.3
5.5
139.0
139
As can
supply-side
2009 ................be seen in the fourth column of the table, the mix of140.7
5.3
3.1
2.1
2.4
5.0
4.3
5.6
132
2010 ................
5.3
3.1
2.1
2.4
5.0
4.3
5.6
142.2
127
factors determining real GDP growth has been unusual since the business2011 ................
5.3
3.1
2.2
2.5
5.0
4.3
5.6
143.7
126
cycle peak at the beginning of 2001, with the exceptionally high productivity
Based (3.6 available as of an annual rate)
growthon data percent at November 15, 2005. partially offset by declines in the particDiscount basis.
ipation Council (line 2) Advisers, Department of Commerce (Bureau of Economic Analysis), Department of
rate of Economic and the workweek (line 8). Also puzzling is the large
Sources:
decline inofthe ratio of nonfarmofbusiness employment to household employLabor (Bureau Labor Statistics), Department the Treasury, and Office of Management and Budget.
ment (line 6). This unusual decline reflects the slow growth of employment
1
2

TABLE 1-2.— Supply-Side Components of Real GDP Growth, 1953–2011
[Average annual percent change]
Item

1953 Q2 1973 Q4 1995 Q2 2001 Q1 2005 Q3
to
to
to
to
to
1973 Q4 1995 Q2 2001 Q1 2005 Q3 2011 Q4

1) Civilian noninstitutional population aged 16+ 1 .....................
2) Plus: Civilian labor force participation rate .......................

1.6
0.2

1.4
0.4

1.2
0.1

1.2
-0.3

1.1
-0.1

3) Equals: Civilian labor force 2 ...................................................
4) Plus: Civilian employment rate ...........................................

1.8
-0.1

1.8
0.0

1.4
0.3

0.9
-0.2

1.0
0.0

5) Equals: Civilian employment 2 .................................................
6) Plus: Nonfarm business employment as
a share of civilian employment 2 3 ..............................

1.7

1.8

1.7

0.7

1.0

-0.1

0.1

0.4

-0.8

0.1

7) Equals: Nonfarm business employment..................................
8) Plus: Average weekly hours (nonfarm business) ................

1.6
-0.3

1.9
-0.3

2.0
-0.1

-0.1
-0.3

1.0
-0.1

9) Equals: Hours of all persons (nonfarm business)...................
10) Plus: Output per hour (productivity, nonfarm business) ....

1.3
2.5

1.6
1.5

1.9
2.4

-0.4
3.6

1.0
2.6

11) Equals: Nonfarm business output...........................................
12) Plus: Ratio of real GDP to nonfarm business output 4 ........

3.8
-0.2

3.1
-0.2

4.3
-0.5

3.2
-0.4

3.6
-0.4

13) Equals: Real GDP ....................................................................

3.6

2.8

3.8

2.8

3.2

1

Adjusted by CEA to smooth discontinuities in the population series since 1990.

2

BLS research series adjusted to smooth irregularities in the population series since 1990.
Line 6 translates the civilian employment growth rate into the nonfarm business employment growth rate.

3

4
Line 12 translates nonfarm business output back into output for all sectors (GDP), which includes the output of
farms and general government.

Note: 1953 Q2, 1973 Q4, and 2001 Q1 are NBER business-cycle peaks. Detail may not add to total because of
rounding.
Sources: Council of Economic Advisers, Department of Commerce (Bureau of Economic Analysis), and Department
of Labor (Bureau of Labor Statistics).

44 | Economic Report of the President

as measured by the payroll survey (which asks employers to report the number
of employees) relative to the more-rapid growth of employment as measured
by the household survey (in which people report the employment status of
their household members)—a disparity that has not yet been explained.
The participation rate fell from 2001 to 2005, and is projected to trend
lower through 2011. The recent behavior stands in contrast to the long period
of increase from 1960 through 1996 (Chart 1-8). The participation rate
appears to have topped out in 1997-2000 before declining. The reversal of
direction reflects nothing new about the participation rate for men, which
continued a downward trend that began shortly after the end of World War
II. Rather, the new factor at play is the change in the trend in the female
participation rate, which has edged down on balance since 2000 after having
risen for five decades.
Another factor in the decline in the labor force participation rate has been
the increase in the number of workers collecting insurance for disability retirement. The 0.5-percentage point increase (as a share of the working-age
population) since 2000 accounts for about half of the overall decline, and
appears to be largely a reflection of increases in the number of workers
entering high-disability ages (50+ years old).

Chapter 1

| 45

Looking ahead, the participation rate is projected to decline slowly,
reflecting the aging of the baby-boom cohorts, leading to more retirements
and a likely increase in the share of disabled workers. Baby boomers are
currently in their forties and fifties, and over the next several years they will
move into older age brackets which typically have lower participation rates.
The decline in the participation rate may quicken after 2008 when the first
baby-boom cohort reaches Social Security’s early retirement age of 62.

Interest Rates over the Near and Long Term
The Administration forecast of interest rates is based on financial market
data as well as results of a survey of economic forecasters. As of November 15,
2005, the date that the forecast was finalized, trading in financial futures
suggested that market participants expected short-term interest rates to rise a
bit further, and the Administration’s interest-rate projections reflect those
views. Taking its cue from financial futures markets, the Administration projects the rate on 91-day Treasury bills to increase to about 4.2 percent by 2007
and to about 4.3 percent from 2008 to 2011. At that level, the real interest
rate on 91-day Treasury bills will be close to its historical average.
The yield on 10-year Treasury notes on November 14 was 4.61 percent, just
68 basis points above the (discount) rate on 91-day Treasury bills. This difference was very low relative to its historical average, and the Administration
expects it to increase gradually during the six-year forecast period. As a result,
yields on 10-year notes are expected to increase somewhat further, reaching a
plateau at 5.6 percent from 2009 onward.

The Composition of Income over the Long Term
A primary purpose of the Administration’s economic forecast is to estimate
future government revenues, which requires a projection of the components
of taxable income. The Administration’s income-side projection is based on
the historical stability of the long-run labor compensation and capital share of
gross domestic income (GDI). (GDI is the sum of all income components
and differs from GDP only by measurement error—which can be substantial.) During the first three quarters of 2005, the labor compensation share
of GDI was 57.6 percent (according to the advance data available when the
projection was finalized), slightly below its 1963-2004 average of 58.1
percent. From this jump-off point, the labor share is projected to slowly rise
to 58.1 percent by 2011.
The labor compensation share of GDI consists of wages and salaries (which
are taxable), nonwage compensation (employer contributions to employee
pension and insurance funds—which are not taxable), and employer contributions to social insurance (which are not taxable). The Administration
46 | Economic Report of the President

forecasts that the wage and salary share of compensation will be roughly stable
during the budget window. One of the main factors boosting nonwage
compensation during 2002-2004 was employer contributions to definedbenefit pension plans. As noted earlier, the National Compensation Survey
for 2005 shows a moderation of these contributions, suggesting that the
period of very rapid catch-up contributions may be behind us.
The capital share of GDI is expected to edge down from its currently high
level before stabilizing near its historical average. Within the capital share,
depreciation is expected to increase (a result of the strong growth of investment during the past three years). After adjusting for the temporary effects of
the hurricanes, profits in the third quarter of 2005 were about 11.6 percent
of GDI, well above their post-1959 average.
Book profits (known in the national income and product accounts as
“profits before tax”) jumped up in the first quarter of 2005 in large part
because of the termination of the temporary provision for expensing of equipment investment under the Job Creation and Worker Assistance Act of 2002
and the Jobs and Growth Tax Relief and Reconciliation Act of 2003. These
expensing provisions reduced taxable profits from the third quarter of 2001
through the fourth quarter of 2004. The legacy of these expensing provisions
increases book profits from 2005 forward, however, because investment goods
expensed during the three-year expensing window will have less remaining
value to depreciate. The share of other taxable income (the sum of rent, dividends, proprietors’ income, and personal interest income) is projected to fall
in coming years, mainly because of the delayed effects of past declines in longterm interest rates, which reduce personal interest income during the
projection period. In addition, rental income has been—and is projected to
continue—trending down as a share of GDI.

Conclusion
The economy has shifted from recovery to sustained expansion, having
absorbed the effects of the third-quarter hurricanes and large increases in
energy prices. The economy is projected to settle into a steady state in which
GDP grows at its potential rate, the unemployment rate remains flat at a low
level, and inflation remains moderate and stable. Consumer spending remains
strong, businesses are continuing to invest, and exports are growing faster
than domestic production. Having said this, we must remember that
economic forecasting is difficult, and no doubt unforeseen positive and negative developments will affect the course of the economy over the next few
years. Given the economy’s fundamental strengths, however, prospects remain
good for continued growth in the years ahead. Nevertheless, much work
Chapter 1

| 47

remains in making our economy as productive as possible. Later chapters of
this Report explore how pro-growth policies, such as improving incentives in
health care, promoting free trade, reforming our retirement and tax systems,
and boosting the skills of the U.S. workforce can enhance our economic
performance.

48 | Economic Report of the President

C H A P T E R

2

Skills for the U.S. Workforce

A

strong U.S. economy requires a skilled and well-educated workforce that
is prepared to meet the challenges presented by a rapidly changing world
economy. Research has found, for example, that countries with higher levels
of education and higher average math and science test scores experience faster
economic growth. For more than a half-century, the United States experienced an extraordinary rise in education levels and still maintains one of the
best-educated populations in the world. But in recent years, improvements in
educational attainment have slowed. Today, for example, younger Americans
are less educated, on average, than their counterparts in a number of advanced
countries. In addition, U.S. high school students also score below students in
most other advanced countries in their math and science skills. To remain
competitive in the global economy, the United States needs to improve the
education and skills of its residents and prepare them for jobs that will be
available in the future.
This chapter discusses the importance of the education and skill levels of
the U.S. workforce, the contributions of legal immigrants to the skills of the
U.S. workforce, and the importance of upgrading workforce skills through
job training. The key points of this chapter are:
• Education is a key contributor to economic growth and individual
income.
• Advances in education levels have slowed over the past 25 years. This
slowdown could jeopardize the U.S. standard of living in years to come.
• Legal immigrants make up a vital part of the U.S. economy, particularly
in the science and engineering sectors.
• Workers need to continually upgrade their skills if they are to adapt to
and take part in a continually changing economy.
By setting its sights on improving the education and skills of U.S. workers,
the United States can create a workforce that will thrive in the fast-changing
world economy.

Educational Achievement in the United States
Both economic research and common sense suggest that workers’ skills play
a critical role in economic growth and individual well-being. In the past, rapid
increases in schooling levels helped to raise the U.S. standard of living, but in
49

recent years improvements in educational attainment have slowed. Unless the
United States can improve the educational achievement of its residents, it may
be difficult to sustain rapid economic growth in the future.

Workforce Skills and the U.S. Standard of Living
Education and Income
Economic research suggests that educational attainment and test scores are
important at both the individual and the national level. At the individual
level, people with higher levels of education have higher earnings than people
with less education. In 2004, workers with a bachelor’s degree only (no
advanced degree) earned almost $23,000 more per year on average than
workers with a high school degree only (see Table 2-1). These differences have
grown over time: In 1975, workers with only a bachelor’s degree earned
$14,220 more per year (in 2004 dollars) than high-school educated workers.
According to a U.S. Census Bureau study, over his or her lifetime, a worker
with only a bachelor’s degree earns nearly $1 million more (in 2004 dollars)
than a worker with a high school degree only.
In addition to income, schooling levels are associated with other positive
economic and social outcomes. More-educated adults are less likely to be
unemployed or incarcerated than less-educated adults. More-educated adults
are healthier and have lower mortality rates than less-educated adults. They
are also more likely to have college-educated children, thereby passing the
benefits of higher levels of education on to future generations.
Studies have also shown that higher test scores are associated with higher
wages and more years of schooling. High school students with higher test
scores are more likely to attend college and, if they attend, are more likely to
graduate. Controlling for individuals’ educational attainment and family
background, those who score higher on achievement tests in high school have
higher wages later in life.

TABLE 2-1.— Average Annual Earnings by Education (2004 dollars)
1975

1990

2000

2004

Bachelor’s degree only ....................................
High school degree only ..................................

39,065
24,845

43,591
24,968

54,396
28,179

51,568
28,631

$ difference .....................................................
% difference....................................................

14,220
57%

18,623
75%

26,217
93%

22,937
80%

Note: Data refer to all workers aged 18 and older.
Source: Department of Commerce (Bureau of the Census).

50 | Economic Report of the President

TABLE 2-2.— Educational Attainment by Race, Ethnicity, and Gender, 2004

Education and U.S. Standard of Living
Higher schooling levels and test scores do not just improve individual
outcomes, they also raise the standard of living for the country as a whole.
More-skilled workers are typically better at identifying, adapting, and implementing ideas that lead to higher productivity growth. Productivity growth
raises the standard of living because it leads to real increases in workers’ wages.
Research has found that, all else equal, countries with higher levels of education and higher average math and science test scores experience faster
economic growth. A recent study of U.S. growth between 1950 and 1993
found that one-third of productivity growth over this period was due to
increased levels of education.
Education and skills are critical for economic growth, but other factors,
such as openness to trade and government institutions that protect private
property, are also important. The United States tends to score highly in these
areas compared with its international peers, which may help to explain why
the United States has experienced faster economic growth than most other
advanced countries over the last decade.

Educational Attainment
For more than a half-century, education levels have been rising in the
United States. In 2004, about 85 percent of adults aged 25 and older reported
that they had completed high school; 28 percent of adults had attained a
bachelor’s degree or higher (see Chart 2-1). This is an extraordinary rise since
the mid-twentieth century, when only about 36 percent of adults had a high
school diploma and around 6 percent had a bachelor’s degree or higher.
This rapid rise in educational attainment came about mainly because, for
many years, each generation was more educated than the one before: Each
generation was more likely than the previous one to have completed high
school or attained a bachelor’s degree. As older, less-educated workers retired
and younger, more-educated workers entered the workforce, the overall
education level of the U.S. workforce grew rapidly.
Over the past 25 years, however, this pattern has changed. According to
some measures, younger generations have been no more educated than
previous ones. The share of U.S. residents aged 25–29 who have completed
high school has remained relatively constant over this time, staying within a
range of about 85 percent to 88 percent (see Chart 2-1). Over the same
period, the manner in which people complete high school has changed.
People counted as having completed high school include both those who
graduate from high school and those who receive a General Education
Development (GED) certificate or another alternative to a regular high school
diploma. (The GED is a certificate awarded to applicants who pass a specific,

Chapter 2

| 51

approved, high-school equivalency exam.) Over time, GED recipients have
made up an increasing share of this group. In 1999, of 18- to 24-year-olds
who had completed high school, about 11 percent obtained a high school
credential via a GED, up from 5 percent in 1988. While GED recipients are
counted as people who have completed high school, studies suggest that they
are not equivalent to high school graduates in their economic outcomes. For
instance, GED recipients have lower earnings and are less likely to obtain
post-secondary education than are high school graduates. These differences in
economic outcomes are of concern given that GED recipients make up an
increasing share of those who have completed high school.
Unlike the share of people who have completed high school, the share of
people aged 25–29 who have a bachelor’s degree or higher has continued to
rise. This share, however, is rising more slowly than it was 25 years ago. Over
the past 25 years, it rose 6 percentage points, from 23 percent in 1979 to
29 percent in 2004. In contrast, in the 25 years prior to 1979, it increased by
about 13 percentage points, or more than twice as much.
Although schooling levels, already relatively high in the United States, cannot
grow indefinitely, international comparisons of educational attainment suggest
that the United States still has great potential for increases in the schooling levels
of its residents. These comparisons show that younger U.S. residents have lower
levels of education than their counterparts in a number of other advanced

52 | Economic Report of the President

countries. In 2002, for example, half of young people in Canada and Japan
had attained a college degree (an associate’s or bachelor’s degree or higher),
compared with 39 percent of young people in the United States.
Many students exit college without obtaining a bachelor’s degree. In 2004,
about one-quarter of adults had attended a post-secondary institution but had
not completed a bachelor’s degree. People who complete some college without
obtaining a bachelor’s degree are a diverse group. Some attain an academic or
vocational associate’s degree or certificate, while others drop out of college
without completing a single semester. Some attend a four-year college, while
others go to two-year community colleges. Among those with some college
but no bachelor’s degree, many began college immediately after completing
high school, while others are older workers who return to school for
additional training.

Educational Attainment by Race, Ethnicity, and Gender
Women tend to be more educated than men. Women are more likely to
have completed high school or obtained a bachelor’s degree or higher. In
2004, for example, about 31 percent of 25- to 29-year-old women had a
TABLE 2-1.— Average Annual Earnings by Education (2004 dollars)
bachelor’s degree or higher, compared with 26 percent of their male counterparts (see Table 2-2). This is a fairly1975
recent trend: Until 1991, men in 2004 age
this
1990
2000
group were more likely than women to have a43,591
bachelor’s 54,396 or higher.
degree
Bachelor’s degree only ....................................
39,065
51,568
Educational attainment differs widely by race and ethnicity. More 28,631 90
than
High school degree only ..................................
24,845
24,968
28,179
percent of non-Hispanic white and14,220 25- to 29-year-olds have completed
Asian
$ difference .....................................................
18,623
26,217
22,937
% difference....................................................
57%
75%
93%
80%
high school, compared with 88 percent of blacks and 62 percent of Hispanics
in that age group (see Table 2-2). Racial and ethnic differences are even
Note: Data refer to all workers aged 18 and older.
larger for college Commerce (Bureau of the Census). to 29-year-olds, about 61 percent
completion: Among 25Source: Department of
of Asians have a bachelor’s degree or higher, compared with 35 percent of
non-Hispanic whites, 17 percent of blacks, and 11 percent of Hispanics.

TABLE 2-2.— Educational Attainment by Race, Ethnicity, and Gender, 2004
Share with high school
degree or higher

Share with bachelor’s
degree or higher

Total ................................................................................................

87

29

Non-Hispanic white .........................................................................
Black ...............................................................................................
Hispanic ..........................................................................................
Asian ...............................................................................................

93
88
62
96

35
17
11
61

Men..................................................................................................
Women.............................................................................................

85
88

26
31

Note: Data refer to noninstitutionalized population aged 25–29. Since data exclude incarcerated population,
they likely overstate educational attainment of U.S. residents.
Sources: Department of Commerce (Bureau of the Census).

Chapter 2

TABLE 2-3.— Rankings of Selected Advanced Countries by
Average Score on International Tests

| 53

Schooling levels differ between natives and immigrants. In 2004, for
example, half of all adult Asian immigrants had completed a bachelor’s degree
or higher, compared with 28 percent of the overall adult U.S.-born population. Latin American immigrants tend to have lower levels of schooling while
their children tend to improve upon the education attained by their parents.
According to the National Center for Education Statistics, for example, about
50 percent of Latin American immigrants aged 18–24 had completed high
school, while the high-school completion rate was 78 percent among their
U.S.-born children of the same age.

Math, Science, and Reading Skills in the United States
and Around the World
Educational attainment is an important measure of the preparedness of a
nation’s workforce, but it does not tell the whole story: Two people with the
same level of education may have very different skill levels. Similarly, a high
school diploma may not ensure that a student is competent in all areas. The
fact that growth in schooling has slowed in the United States might be less
worrisome if it were balanced by an improvement among the U.S. population
in other measures of skills.
One way in which the United States monitors the academic preparedness
and skills of its students is through standardized tests of math, science, and
reading. The United States participates in several national and international
tests for elementary and high school students. These tests shed light on how
the math, science, and reading skills of U.S. students compare to those of
students in other countries.
Table 2-3 ranks advanced countries by students’ scores on math and science
tests at different ages. The countries are ranked by average score, with the
highest scorers at the top. Not all countries participate in every test. So that
the country rankings can be compared at different ages, only countries that
participated in at least half of the tests are included in the table.
As the table shows, older U.S. students do worse relative to other advanced
countries than younger U.S. students do. At ages 9 and 13, the United States
generally places above the middle of the rankings on math and science tests.
By age 15, however, U.S. students are outperformed by most of their international peers. Among students in their last year of secondary school, U.S.
students are at or near the bottom of the rankings. Country rankings from
international tests in reading, not shown in Table 2-3, are only available at
ages 9 and 15. In rankings of advanced countries similar to those shown in
Table 2-3 for math and science, U.S. students score above the middle of the
rankings in reading at age 9 but fall below the middle by age 15.

54 | Economic Report of the President

TABLE 2-3.— Rankings of Selected Advanced Countries by
Average Score on International Tests
Last year of
secondary school

Age 15

Age 13

Age 9
Math

Science

Math

Science

Math

Science

Math

Science

Hong Kong
Japan
Netherlands
USA
Italy
Australia
New Zealand
Norway

Japan
Hong Kong
USA
Netherlands
Australia
New Zealand
Italy
Norway

Hong Kong
Japan
Netherlands
Australia
USA
Sweden
New Zealand
Italy
Norway

Hong Kong
Japan
Netherlands
USA
Australia
Sweden
New Zealand
Norway
Italy

Hong Kong
Netherlands
Japan
Canada
Australia
New Zealand
France
Sweden
Germany
Norway
USA
Italy

Japan
Hong Kong
Australia
Netherlands
New Zealand
Canada
France
Sweden
Germany
USA
Italy
Norway

Netherlands
Sweden
Norway
France
New Zealand
Australia
Canada
Germany
Italy
USA

Sweden
Netherlands
Norway
Canada
New Zealand
Australia
Germany
France
USA
Italy

Note: The last year of secondary school is 12th grade in the United States but varies in other countries.
In countries that track students, students in all tracks were tested in their last year of secondary school;
the last year may differ within countries for students on different tracks. Students who dropped out of school before
the last year of secondary school were not tested. Data are for 2003 except for last year of secondary school (1995).
Source: Department of Education (National Center for Education Statistics).

The United States has also conducted tests of its 9-, 13-, and 17-year-olds
in math and reading going back to the early 1970s. These test results show
that elementary school student scores have improved since the early 1970s,
especially in math, but the math and reading scores of 17-year-olds are essentially unchanged. This discrepancy means that the United States has failed to
translate test-score gains among younger students into higher scores among
older students. There is little consensus as to why test scores have not
improved more among older students, but understanding the mechanisms
would be an important step in raising their educational achievement.

School Accountability and No Child Left Behind
In recent years, as a result of state initiatives and the No Child Left Behind
Act, states have implemented plans to enhance school accountability, with the
aim of improving student achievement. Under these “strict accountability”
plans, schools can be sanctioned (such as through loss of funding or mandatory restructuring) if their students do not meet performance standards. In
order for school accountability to work, student achievement must be measured in a quantifiable way that is comparable across students and schools. This
measurement is normally done through standardized tests, which are used to
quantify school quality in order to identify low-performing schools. These tests
allow parents to make meaningful comparisons between schools and make
informed decisions about the schools in which to enroll their children.

Chapter 2

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Rigorous research into the effects of school accountability on student
performance is limited, but the results are promising. For instance, a 2004
study found that states implementing school accountability during the 1990s
experienced greater increases in students’ test scores afterward than states
without accountability. This study further found that only strict school
accountability led to higher student achievement.
In January 2002, the President signed into law the No Child Left Behind
(NCLB) Act, with the purpose of improving the performance of U.S.
students. NCLB aims to make schools more accountable for the performance
of their students. Under NCLB, each state sets standards for what students in
grades 3–8 should know in math and reading. (Science assessments will be
added by the 2007–2008 school year.) States must measure students’ progress
toward those standards through standardized tests. Schools must meet not
only an overall annual performance goal but also specific performance goals
for subgroups of students, such as racial, ethnic, and income groups. Schools
that do not eventually meet performance goals must allow students to transfer
to another public school, including charter schools, within the school district
and must offer supplemental educational services to students attending
schools in need of improvement.
NCLB accountability based on test scores mostly applies to grades 3–8.
Testing is now required only once in high school. The President has proposed
expanding accountability in high schools by requiring assessments in reading
and math for students in grades 9, 10, and 11. Expansion of testing in high
schools could help our high school students improve their performance
relative to their counterparts in other nations.

Immigrants in the U.S. Workforce
Legal immigrants are a critical part of the U.S. workforce. Although both
low- and high-skilled immigrants contribute to the U.S. economy, this
chapter focuses on high-skilled immigrants. Chapter 4 of the 2005 Economic
Report of the President covered immigration in greater depth, with a particular
focus on illegal immigrants, who tend to be low-skilled, as well as the
fiscal impact of immigration, immigrants and the U.S. labor market, and
immigration policy and the enforcement of immigration laws.
Immigrants living in the United States can be divided into four groups:
naturalized American citizens, immigrants who have become citizens by
passing a citizenship test and fulfilling other requirements; permanent
residents, immigrants who have “green cards” and the legal right to reside
permanently in the United States but have not become naturalized citizens;
temporary residents, people admitted to the United States temporarily for a
56 | Economic Report of the President

specific purpose, including visitors, students, and temporary workers (referred
to as nonimmigrants by immigration authorities); and illegal immigrants,
people residing in the United States illegally. This chapter uses the terms
immigrant and foreign-born according to the Census Bureau’s definition: Any
person who is in the United States who was not a U.S. citizen at birth, that
is, was not born in the United States or of U.S. parents.
Immigrants are prevalent in every education group but are particularly
represented among the least-educated workers (those with less than a high
school degree) and among the most-educated workers (those with a doctoral
or professional degree). As U.S. workers have become more educated and
increasingly work in jobs requiring higher education levels, many low-skilled
jobs continue to be filled by immigrants. At the same time, high-skilled
immigrant workers are a significant part of the skilled U.S. workforce, especially in the science and engineering fields. Many of the nation’s university
and private research laboratories rely heavily on immigrant graduate students,
post-doctoral students, and researchers.

Immigrants in Science and Engineering
Innovation is crucial to U.S. economic growth and competitiveness, and
the United States is a leading innovator. Innovation depends, in part, on
scientific research, which in turn requires smart, creative people proficient in
science and technology. One way in which the United States is able to maintain its position as a leader in innovation is by attracting the best and the
brightest from around the world. Policies that welcome the world’s “best and
brightest” can contribute to future U.S. competitiveness. More than one-fifth
of America’s scientists and engineers come from abroad.
Chart 2-2 shows the share of immigrants among scientists and engineers
aged 25–44 by education in 1996 and 2002. Immigrants tend to come to the
United States as young adults, not as older workers. As the younger, morerecent immigrants age, they should make up a larger share of older workers as
well. Thus, restricting Chart 2-2 to workers aged 25–44 provides a glimpse at
the future of the U.S. scientific workforce.
Immigrants make up an increasing share of the scientific workforce (see Chart
2-2). In 2002, immigrants made up about 24 percent of scientists and engineers
aged 25–44, an increase from 17 percent in 1996. The higher the education level,
the larger the share of immigrants: Among scientists and engineers with only a
bachelor’s degree, 17 percent were immigrants (up from 11 percent in 1996),
while among those with doctoral or professional degrees, 43 percent were foreignborn (up from 38 percent in 1996). Immigrants are especially prevalent in the
fields of engineering and math/computer science and in the physical/biological
sciences. Among those aged 25–44 with professional or doctoral degrees and
working in these fields, immigrants made up about half of workers.
Chapter 2

| 57

International Science and Engineering Students
The United States is a top destination for science and engineering students
from around the world. In 2003, almost 150,000 students from abroad were
enrolled in science and engineering graduate programs at U.S. universities.
Nonetheless, new enrollment of such students has been falling. Between 2001
and 2003 (the latest year available), first-time international graduate student
enrollment in U.S. science and engineering programs declined by 13 percent.
This decline may be the result of increased training opportunities in other
countries and visa restrictions for foreign students and scholars put in place in
the United States following the September 11, 2001, terrorist attacks.
After completing their studies in the United States, some students return to
their countries of origin and others join the U.S. workforce. According to the
National Science Foundation, about three-quarters of non-U.S. citizens who
obtain science and engineering doctorates from U.S. universities plan to stay
in the United States, at least for the short term. In order to remain and work
in the United States, these students must get temporary work visas or
become permanent residents. This process is described in more detail in the
section below.

58 | Economic Report of the President

Regulation of Legal Immigration
The H-1B Program
Temporary work visas allow foreigners to work in the United States for a
limited period of time. A commonly used temporary work visa for highskilled foreigners is the H-1B visa. The visa lasts for three years and is
renewable once, for a total stay of up to six years. U.S. employers hiring
H-1B workers must attest that they will pay the H-1B workers at least as
much as similarly employed U.S. workers and that the working conditions of
such workers will not be harmed. In order to hire an H-1B worker, U.S.
employers must also pay government fees of $1,435 to $2,185, depending on
the size of the firm, plus an additional $1,000 fee for faster processing of the
H-1B application. These costs help to ensure that employers are unlikely to
hire H-1B workers unless suitable U.S. workers are not available.
Almost all workers with H-1B visas have at least a bachelor’s degree, and
half have an advanced degree. H-1B visas have been particularly important to
the high-tech sector, with over half going to scientists, engineers, and people
in computer-related occupations. According to one study of H-1B workers,
many such workers do not come to work from abroad but are hired as they
graduate from U.S. universities.
The number of high-skilled temporary workers is constrained by the caps
on the H-1B program. The number of H-1B visas is capped at 65,000 annually for private companies seeking to hire high-skilled foreign workers, after
having been temporarily raised to 195,000 during 2001–2003. Since May
2005, an additional 20,000 visas have been available each year for foreigners
who have a U.S.-earned master’s degree or higher. H-1B workers are not
subject to the cap if they are employed at institutions of higher education, or
at nonprofit or governmental research organizations.
Since reverting to 65,000, the H-1B cap has been reached earlier and earlier
with each fiscal year. The cap for fiscal year 2004 was reached less than five
months into the fiscal year. The cap for fiscal year 2005 was filled on the first
day of the fiscal year, and in fiscal year 2006, the cap was reached almost two
months before the year even started. That the H-1B cap has been reached so
quickly suggests that it is no longer sufficient to meet U.S. demand for
high-skilled workers.
Some have proposed to increase the number of high-skilled workers by
replacing the current H-1B cap with a market-based cap. A market-based cap
would increase or decrease with demand for H-1B workers. If the cap were
reached in one year, the cap would be increased by a set percentage—say,
20 percent—the following year. If the cap were not reached in a given year, it

Chapter 2

| 59

would fall by a similar amount the next year. In this way, the number of
H-1B workers would depend on demand for such workers. Any such change
would require congressional action.

Employment-Based Green Cards
A temporary visa allows a foreigner to remain in the United States for a
specified period of time. To stay permanently requires becoming a permanent
resident. In determining who can become a permanent resident, U.S. immigration law prioritizes family- and employment-based immigration. Under
family-based immigration, new permanent residents must be sponsored by
family members who are themselves U.S. citizens or permanent residents.
Under employment-based immigration, most workers must be sponsored by
their employer and have at least a bachelor’s degree. From 2000-2004, about
two-thirds of new permanent residents received their green cards through
family-based immigration, about 15% through employment-based immigration, and the remainder through various other programs such as those
for refugees.
Caps on employment-based green cards limit the number of high-skilled
foreigners who can become permanent residents. The cap is set at 140,000
visas per year, including visas for the workers’ spouses and children. Each
country’s nationals can make up no more than 7 percent of total immigrant
visas. These caps have led to long delays for applicants, especially for workers
from over-represented countries. For instance, some workers who became
eligible in January 2006 for EB-2 employment-based green cards (for workers
with advanced degrees or persons of exceptional ability) had applied for
permanent residence five years earlier.
A variety of proposals have been advanced for permanent employmentbased immigration to allow for more high-skilled workers and to reduce wait
times. Any changes to the cap on the number of employment-based green
cards would require legislative action. First, workers’ spouses and children
could be exempted from the cap, as is currently done for the H-1B program.
Spouses and children make up about half of the recipients of employmentbased green cards, so this change would roughly double the number of
workers able to get employment-based green cards. Second, the fixed 140,000
cap could be replaced with a flexible market-based cap that would increase or
decrease with demand for workers eligible for employment-based green cards.
Finally, under current policy, nationals of no single country can receive more
than 7 percent of green cards. This share could be raised to reduce the long
delays for employment-based green cards for applicants from countries with
large numbers of desirable, high-skilled workers. Careful enforcement of
limits on foreign nationals’ access to sensitive technology would provide
continued protection for our national security.
60 | Economic Report of the President

Skilled Immigration and Innovation
Legal skilled immigrants play an important role in the U.S. economy. They
add to the process of scientific discovery, technology development, and
innovation, which in turn lead to greater productivity growth. Greater
productivity growth improves the standard of living for the U.S. population
as a whole.
A recent World Bank study attempted to quantify immigrants’ contributions
to innovation and the generation of new ideas, as measured by the number of
patents applied for or received in a given year. (Patents are a commonly used
proxy in studies of innovation.) According to the study, a 10 percent increase
in the number of graduate students from abroad, as a share of total graduate
students, increases the number of patents granted to U.S.-based universities,
firms, and other institutions by about 6–7 percent. Skilled immigrants overall
have a smaller but still positive effect: a 10 percent increase in the number of
skilled immigrants, as a share of the U.S. labor force, raises the number of
patents granted to U.S.-based institutions by about 1 percent. The results of
this study may be partly due to a higher concentration of foreign graduate
students in the science and engineering fields, as compared to domestic graduate students who are found in a wide variety of fields including humanities
and liberal arts.
Skilled immigrants not only contribute to the innovation process
themselves, they also help train our own future innovators. The foreign-born
make up about one-fifth of science and engineering faculty at U.S. universities, including more than one-third of engineering faculty. As faculty, they
teach both undergraduate and graduate students, training the next generation
of U.S. scientists and engineers.
U.S. immigration law, by restricting the number of high-skilled immigrants
authorized to work and settle in the United States, limits how many foreigners
can contribute to the innovation process. Increasing the caps on the H-1B
program and on the number of employment-based green cards would allow
more high-skilled immigrants into this country. By welcoming more of the
best and the brightest from around the world, these changes to the caps would
enhance U.S. competitiveness and result in productivity gains for both immigrants and natives, raising the standard of living for the population as a whole.

Job Training
Education and learning do not stop when someone leaves school. Workers
need to continually upgrade their skills if they are to adapt to and take part
in a continually changing economy. Skills originally learned as a teenager or
young adult in high school or college can quickly become outdated. To
Chapter 2

| 61

remain competitive, workers need to keep their skills relevant, and job
training can be a useful way of doing that.
Job training comes in many forms. Often it occurs on the job, either
through formal programs run by the employer or through informal learning.
Some employers may also send their workers to post-secondary institutions
to receive training. Other workers will attend such institutions on their own
to keep their skills fresh for their current job, to improve their skills in order
to land a better job, or to upgrade their skills after being laid off.

The Role of Community Colleges
Workers often obtain training at community colleges, generally two-year
post-secondary institutions that offer certificates and associate’s degrees.
Community colleges play an important role in providing training to workers,
both directly and through employers. Of individuals age 30 and older
attending college, about half go to a community college, compared with onethird of students of traditional college age. Some employers may reimburse
workers for regular courses taken at community colleges, while other
employers may contract with community colleges to offer courses tailored to
the employers’ needs. Workers may also attend community colleges on their
own, especially after a job loss. According to one recent study, about 15–20
percent of long-tenured, laid-off workers complete at least one community
college course around the time of their job loss.
Given that so much job training and retraining occur at community
colleges, it is important to know whether or not community colleges actually
help workers raise their earnings. Recent studies have found that community
colleges do contribute to workers’ earnings. A year of community college
raises real annual earnings by around 6 percent. Community college also helps
laid-off workers. According to one study, in the long term, a year of community college raises the earnings of long-tenured, laid-off workers by about
7 percent for men and even more for women, compared to similar workers
who do not enroll in community college classes. The earnings gains are higher
for workers who take technical, scientific, or health-related courses, and lower
for workers who take less quantitative courses.
One of the major sources of financing for community college students is
the Pell Grant program, a Federal government program that helps low-income
students attend college. In 2005, the Federal government spent about
$7 billion on Pell Grants for students in community colleges. In addition, in
2005, in order to help community colleges provide worker training, the
President proposed and Congress approved the creation of Community-based
Job Training Grants. The program has continued in 2006 with $124 million
in funding.

62 | Economic Report of the President

Job Training Funding
In 2005, the Federal government spent nearly $15 billion (excluding Pell
Grants) on job training and employment programs. These programs assist
many workers in getting the training and other services they need to advance
their careers. However, these programs can be strengthened. The $15 billion
in job training money is spread among 9 different government agencies and
more than 40 different programs, most with their own rules, eligibility
requirements, administrative staff, and overhead costs. Much of this money is
not used to support job training programs but instead funds job referral
services or job search assistance.
To get more job training dollars into the hands of workers, eliminate
unnecessary duplication of services, and improve accountability, the President
has proposed consolidating several large job training and employment
programs into a single grant that would be used to provide job training
vouchers. These vouchers, known as Career Advancement Accounts, would
be administered by each state but controlled largely by the worker, who could
use the account to pay for education and training. The education and training
could take place either at post-secondary institutions or through apprenticeships or other work-based training. These accounts would complement, but
not duplicate, Pell Grant resources available to help workers further their
career education. States would be required to achieve Federal accountability
standards for job placement, employment retention, and earnings. By
reducing administrative costs and redirecting more money into job training
programs, the Career Advancement Accounts proposal would increase the
number of workers who receive the job training they need to upgrade their
skills and improve their employment prospects. Career Advancement
Accounts would also allow workers the flexibility to choose the training that
best suits their needs. They would not tie workers to any particular training
provider or location, thus providing workers with maximum flexibility.

Conclusion
Historically, high levels of education and skills in the United States have
boosted earnings for individual workers and fueled one of the most dynamic,
innovative economies in the world. In recent years, though, educational attainment among young people has, by some measures, leveled off. The rapid
growth in schooling in the 1950s and 1960s, and the higher levels of education attained by the younger residents in some of our international
competitors, prove that the United States can do better. Promoting a flexible

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and skilled labor force—through improved access to high-quality primary,
secondary, and post-secondary education, through policies that attract the
world’s best and brightest to our shores, and through investment in the continuing education and training of our workforce—will ensure that the United
States remains a competitive leader in this rapidly changing world economy.

64 | Economic Report of the President

C H A P T E R

3

Saving for Retirement

O

ver the past few decades, concerns have mounted that Americans have
been preparing inadequately for retirement. Recent newspaper headlines
suggest that Americans have stopped saving and are at risk of sharp reductions
in both their private and public pension benefits. To be sure, these concerns
have some basis: The aggregate personal saving rate published in the National
Income and Product Accounts (NIPA) turned negative in 2005; high-profile
bankruptcies in airlines and other industries have led to substantial reductions
in retiree pension benefits; the collapse of technology stocks in the early 2000s
left many defined-benefit pension plans underfunded; and promised Social
Security benefits vastly exceed forecasted revenues. Understanding how these
events relate to retirement security is important if public policy is to respond
productively. This chapter builds such an understanding. The main points are:
• Most working-age Americans are on track to have more retirement wealth
than most current retirees. However, it is inherently difficult to assess
whether these preparations are adequate for most households, given that
incomes have also grown over time and people may have markedly
different plans for their retirement length and standard of living.
• The decline in an often-cited aggregate personal saving rate may not be
cause for alarm. Much of this decline can be attributed to spending triggered by wealth increases from capital gains on housing and financial assets.
• There are, however, a number of risks to the retirement preparations of
Americans: People today are living longer and could face higher health-care
costs in retirement than members of previous generations. In addition,
Social Security and many defined-benefit pension plans are at risk.
• Both defined-benefit pensions and Social Security suffer from fundamental financial problems, which expose not just retirees but all U.S.
taxpayers to risk of substantial losses. The Administration is focused on
addressing these problems and protecting the Nation’s retirement security.

What Does “Retirement Preparedness” Mean?
Retirement preparedness is defined here as the accumulation of wealth
necessary to maintain a desired standard of living in retirement. Economists
tend to agree that individuals want to smooth consumption in retirement (i.e.,
limit the extent to which retirement will decrease their consumption).
However, individuals may have disparate views about how much they want to
65

smooth consumption, when they plan to retire, and how much they intend
to work in retirement. Thus, two individuals, even with the same preretirement standard of living, may have markedly different views about how much
wealth accumulation is adequate.
For the purposes of this discussion, we divide the wealth that individuals
can draw on in retirement into three categories: personal net worth, including
defined-contribution pension plans; employer-sponsored defined-benefit
pensions; and Social Security. (Retirement wealth also includes other expected
benefits, such as retiree health care from employers and Federal programs, but
such benefits fall outside the scope of this chapter.) Personal net worth is the
sum of the value of financial assets (e.g., stocks and bonds held in and out of
retirement accounts such as 401(k) plans, and savings accounts) and durable
goods (e.g., houses and cars) less the value of liabilities (e.g., credit card debt,
mortgages, and car loans). Net worth grows in part from personal saving—
the excess of after-tax income over consumption—and in part from
inheritances and capital gains on assets already owned. Some portion of
current workers’ net worth, however, may be drawn down before retirement.
For instance, households may liquidate financial assets or take out homeequity loans to make tuition payments, pay health-care expenses, or offset
negative income shocks.
The other two sources of retirement wealth, employer-sponsored definedbenefit pensions and Social Security, are sometimes referred to as retirement
income, since payments from both sources are periodic. Employer-sponsored
defined-benefit pensions generally increase with years of employment and
salary levels, while Social Security payouts tend to increase with retirement
age and average lifetime earnings.
The next section of this chapter considers how prepared households are for
retirement. Because the definition of retirement adequacy is somewhat
subjective, we focus primarily on cross-generational comparisons of retirement-wealth accumulation. Cross-generational comparisons do not speak
directly to the adequacy of retirement preparations, but do shed light on the
related question of whether retirement preparations have deteriorated.

Estimates of Retirement Preparedness
This section begins with a brief description of the results from studies that
directly address the difficult question of whether retirement preparations are
adequate. The section then discusses cross-generational comparisons, beginning with comparisons of net worth and ratios of net worth to income, and
then turning to comparisons of retirement income from defined-benefit
pensions and Social Security. The section concludes with a discussion of the
key limitations of cross-generational approaches.
66 | Economic Report of the President

Studies that directly address the question of retirement adequacy typically
define adequate wealth accumulation as essentially that which is expected to
smooth consumption according to a particular model of individual preferences. Given that these studies make different key modeling assumptions, and
in some cases include different components of expected retirement wealth,
they have generated a wide range of results. Nevertheless, some recent studies
find that most baby-boom households have been preparing adequately. In any
case, conclusions about retirement adequacy based on these studies should be
regarded as suggestive only, given the inherent uncertainty surrounding
predictions of how much wealth is enough.
Comparing retirement wealth across generations, unlike evaluating the
adequacy of any one generation’s preparations, can be done without reliance
on subjective assumptions. One such cross-generational study of retirement
wealth contrasts the net worth (defined as above) of households in the babyboom generation (individuals born between 1946 and 1964) and generation X
(headed by individuals born between 1965 and 1976) with that of households
in the pre-baby boom generation (headed by individuals born between 1925
and 1945). The study considers the net worth of the heads of these households
when they were between 25 and 34 years old. Controlling for age is essential
given that individuals tend to save at different rates over their lifetimes.
The study finds that baby-boom and generation-X households tend to have
more net worth than pre-baby-boom households had when they were roughly
the same age. As shown in Table 3-1, the median net worth of pre-baby-boom
households at ages 25-34 was $6,072 in 1998 dollars. In contrast, the median
net worth of baby-boom and generation-X households was, respectively,
$19,504 and $15,500 in 1998 dollars. The somewhat lower median net
worth of generation-X households mainly reflects their higher debt burdens.
The table also reveals that baby-boom and generation-X households with
heads of all types—low or high education, married or single—were better off
than pre-baby-boom households.
We might also want to compare household net worth to income for each
generation to see whether saving rates have kept pace with increases in
income. Intuitively, households with greater wealth-to-income ratios will be
better able to maintain preretirement living standards when they retire. As
shown in Table 3-2, the same study also finds that median net worth-toincome ratios are higher for the baby-boom and generation-X households
than for the pre-baby-boom households, and these gains were experienced by
a wide range of demographic groups.
Finally, we can compare the median expected retirement income of babyboom households with that of generation-X households. The study finds that
median expected retirement income (including predicted defined-benefit
pension and Social Security payouts in inflation-adjusted dollars but not
personal net worth) for generation-X households is greater than that for
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TABLE 3-1.— The Median Value (in 1998 dollars) of Net Worth
for Households Headed by a 25- to 34-Year Old—
Differences by Homeownership, Marital Status, and Education
Median
Pre-Baby Boom
Homeowners .........................................................................
Nonhomeowners....................................................................
Less than high school...........................................................
High school graduate ...........................................................
College graduate ..................................................................
Married .................................................................................
Not married...........................................................................
All households .......................................................................

$25,594
982
815
10,044
23,953
9,165
0
$6,072

Baby Boom

Generation X

$60,521
4,699
4,658
17,195
36,569
31,677
7,160
$19,504

$43,100
3,300
2,500
17,920
30,020
34,501
5,750
$15,500

Note: Government Accountability Office analysis based on data from the Survey of Consumer Finance. Households
between the ages of 25 and 34 in 1962, 1983, and 1998 belong, respectively, to the “Pre-Baby Boom,” “Baby Boom,”
and “Generation X.”
Net worth is equal to assets minus liabilities. Assets include IRAs, 401(k)s, 403(b)s, and other thrift-type plans,
as well as savings accounts, mutual funds, stocks, bonds, and durable goods. Liabilities are from credit card debt,
installment loans, and housing debt.
Source: Federal Reserve Board.

TABLE 3-2.— Median Value of Wealth-to-Income Ratios
for Households Headed by a 25- to 34-Year Old—
Differences by Homeownership, Marital Status, and Education
Median
Pre-Baby Boom
Homeowners ..........................................................................
Nonhomeowners ....................................................................
Less than high school............................................................
High school graduate ............................................................
College graduate ...................................................................
Married ..................................................................................
Not married ...........................................................................
All households .......................................................................

0.641
0.052
0.029
0.278
0.510
0.261
0.000
0.214

Baby Boom
1.343
0.167
0.216
0.525
0.799
0.755
0.299
0.562

Generation X
1.044
0.151
0.159
0.586
0.743
0.742
0.268
0.523

Note: Government Accountability Office analysis based on data from the Survey of Consumer Finances. Households
between the ages of 25 and 34 in 1962, 1983, and 1998 belong, respectively, to the “Pre-Baby Boom,” “Baby Boom,”
and “Generation X.”
Net worth is equal to assets minus liabilities. Assets include IRAs, 401(k)s, 403(b)s, and other thrift-type plans,
as well as savings accounts, mutual funds, stocks, bonds, and durable goods. Liabilities are from credit card debt,
installment loans, and housing debt.
Source: Federal Reserve Board.

68 | Economic Report of the President

baby-boom households. A second, less sanguine, result is that if the Social
Security system’s expected funding shortfalls are resolved by gradually
reducing retirement benefits (notably, not the Administration’s proposed solution) and thus lowering benefits for generation X more than for the baby
boomers, then the median expected retirement incomes of generation-X and
baby-boom households are about the same. This implies that, in terms of
retirement income relative to preretirement income, generation-X households
have not kept pace with the baby boomers.
The results shown above have a few important limitations. First, crossgenerational comparisons fail to adjust for the possibility that current
generations may live longer and could face higher health-care costs in retirement than previous generations. As a result, current workers may need more
retirement wealth than previous generations. On the other hand, longer life
expectancies may encourage current generations to work longer than previous
generations, which, all else equal, would lower retirement-wealth needs.
Another limitation of these cross-generational comparisons is that they
consider only a relatively early period in each generation’s lifecycle (although
they allow the inclusion of more recent generations). However, studies that
compare somewhat older households from the baby-boom generation to
recent retirees find similar conclusions. Nevertheless, retirement preparations
of today’s Americans may veer off track as they age if they stop saving or if
financial-asset returns, house-price gains, or defined-benefit pension and
Social Security payouts turn out to be less than expected. The next section of
this chapter addresses some of the key risks to retirement preparations.

The Risks to Retirement Preparedness
Three risks to retirement wealth are discussed in this section: first, the risk
to household net worth created by the negative level of the personal saving
rate, as measured in the National Income and Product Accounts (NIPA);
second, the risk to defined-benefit pension plans created by underfunding, in
part due to investments in risky assets; third, the risk to Social Security from
the aging of the population and other structural problems.

Are Low Saving Rates Putting Household Net Worth
at Risk?
The NIPA personal saving rate is the difference between the household
sector’s after-tax personal income (disposable income) and personal consumption, expressed as a percentage of disposable income. As a technical matter,

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the household sector includes nonprofit institutions. The NIPA personal
saving rate was constructed as a measure of the household sector’s contribution to national saving—funds set aside from the economy’s current
production to finance investment (see Chapter 1, entitled The Year in Review
and the Years Ahead, and Chapter 6, entitled The U.S. Capital Account
Surplus, for more discussion of the national saving rate). However, the NIPA
personal saving rate is widely cited in newspapers as a gauge of retirement
preparedness. The discussion here details the NIPA saving rate’s limitations as
a measure of the extent to which households are adding to their retirement
wealth. The goal of the discussion is to assess whether the decline in the
NIPA personal saving rate reflects a widespread deterioration in household
retirement preparations.
Chart 3-1 illustrates the decline in the NIPA personal saving rate. The
saving rate is volatile from quarter to quarter but has been trending down at
a relatively constant rate of about 0.5 percent per year since the early 1980s.
In the fourth quarter of 2005 (the most recent quarter for which data are
available), the NIPA personal saving rate was -0.4 percent, not far above the
post-World War II low observed in the third quarter.

70 | Economic Report of the President

However, the relationship between the personal saving rate and households’
wealth accumulation is not always close. Household net worth is what matters
for retirement, but the NIPA personal saving rate is not equal to the change
in household net worth. First, the NIPA personal saving rate excludes the
acquisition of consumer durables, a component of household net worth.
Second, while business saving (such as businesses’ retained profits) is ultimately owned by households, it is also excluded from NIPA personal saving.
Third, and arguably most important, the NIPA personal saving rate excludes
capital gains on financial and other assets (e.g., the increase in the value of a
house); however, taxes on capital gains, which reduce the saving rate, are
included in the computation of personal saving. The exclusion of capital gains
is particularly problematic because capital gains may encourage households to
consume more, which in turn drives down the measured saving rate. In other
words, capital gains may be reflected in the data as reductions in saving, even
though these gains add to household wealth on net—though some might
argue that these gains can be illusory.

Do Wealth Gains Explain the Decline in the NIPA Personal
Saving Rate?
The consumption-wealth effect (i.e., the tendency to consume more as
wealth increases) has been the subject of numerous empirical investigations.
Studies find that an additional dollar of wealth tends to lead to a permanent
rise in the level of household consumption of about 2 to 5 cents. The link
between aggregate wealth and spending has proved to be one of the more
enduring relationships in macroeconomics.
Estimates of the consumption-wealth effect suggest that it can explain a
sizable portion of the decline in personal saving since the mid-1990s. As shown
in Chart 3-2, the ratio of household net worth to disposable income has risen
from about 440 percent in the early 1980s to about 550 percent in the third
quarter of 2005. This measure of household net worth, obtained from the
Federal Reserve’s Flow of Funds Accounts, is the difference between household
assets—including defined-benefit pension wealth—and household liabilities.
The ratio moved up and down with the rise and collapse of the stock market
in the late 1990s and early 2000s and then rebounded more recently along
with rising house prices and stock market gains. An estimate of the impact of
these wealth gains on the NIPA personal saving rate is shown below in
Chart 3-3. Under the assumption that an additional dollar of wealth leads to
a $0.035 permanent rise in the level of consumption (the middle of the range
cited above), the chart shows that the personal saving rate would have declined
about half as much since 1980 if household wealth had grown at the same pace
as disposable income (keeping the ratio constant) over that period.

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72 | Economic Report of the President

Are Saving Rate Declines Widespread?
Yet another limitation of the NIPA personal saving rate as a measure of
households’ wealth accumulation is its aggregate nature; as such, it masks
possible differences in behavior by households at different income levels.
Understanding the saving dynamics in different parts of the income
distribution requires household-level data on saving.
However, household wealth at the individual level is difficult to track over
time. One study thus employed an innovative approach to circumvent various
data problems and found that the saving rate, using NIPA definitions, for
households in the upper two-fifths of the income distribution declined over
the 1990s, while the saving rate for households in the middle fifth remained
relatively steady, and the saving rate for households in the bottom two-fifths
actually increased. Given that high-income households almost certainly experienced the majority of capital gains in the 1990s, these results suggest that
the net worth component of retirement wealth may not be at risk. Relatively
high-income households may have accumulated net worth from capital gains,
while other households may have accumulated net worth by saving.
Overall, the above discussion of household saving suggests that the net
worth component of retirement preparedness may not be in jeopardy. The
NIPA personal saving rate is a potentially misleading measure of households’
wealth accumulation. Moreover, much of the recent decline in the NIPA
personal saving rate may reflect consumption increases that were triggered by
capital gains on stocks and real estate. Finally, some evidence suggests that the
decline in household saving rates has not been widespread but may have been
concentrated among higher-income households.

Policy Reforms
While the net worth component of retirement wealth does not appear to
be in jeopardy, policy reforms can still productively reduce impediments to
saving. Under current law, interest income is taxed, creating a disincentive for
households to set aside funds for retirement. This disincentive is mitigated to
some extent by policies that afford favorable tax treatment to various types of
retirement accounts (e.g., IRA and 401(k)). However, restrictions on these
accounts limit their value as retirement-saving vehicles. To make these
accounts more effective, Congress passed legislation that increases contribution limits and makes retirement assets more portable. In addition, the
Administration has proposed simplifying the retirement account system in
two important ways: (1) creating a single Retirement Savings Account (RSA)
to replace the three types of Investment Retirement Accounts (IRAs)
currently in place; and (2) creating a Lifetime Savings Account (LSA) that
could be used for a variety of purposes, including retirement saving (see
Chapter 5, entitled The U.S. Tax System in International Perspective, for
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additional discussion of tax recommendations in the President’s Budget).
Another impediment to saving may be limited financial knowledge. The
Department of the Treasury is actively engaged in campaigns to improve
financial literacy. In addition, the President has instructed the Federal Deposit
Insurance Corporation (FDIC), the Small Business Administration (SBA),
and the Treasury Department to work with consumer groups to ensure that
financial literacy is widespread.

Defined-Benefit Pensions
Historically, defined-benefit pension plans have been an important part of
retirement preparedness. These employer-sponsored plans compensate
retirees through a specified monthly benefit, which tends to vary with salary
and years of service. In addition, most plans sponsored by private employers
are guaranteed in part by the Pension Benefit Guaranty Corporation, and
those sponsored by public employers are ultimately backed by the ability of
states to levy taxes. As such, “DB” plans may appear more stable than increasingly prevalent “defined-contribution” plans (such as 401(k) plans), which
explicitly depend on employee contributions, tie benefits more directly to
market performance, and may expose retirees to longevity risk (the risk of
outliving retirement resources).
Defined-benefit plans can, nevertheless, carry considerable risk. This risk
comes from employers (1) contributing less to plans than what is promised to
employees (funding risk), (2) investing contributions in a hazardous manner
(portfolio risk), and (3) encountering financial distress (bankruptcy risk) in the
case of private employers. When these risks are realized, beneficiaries and
taxpayers can be exposed to substantial and oftentimes unanticipated losses.
An early example of these problems comes from the 1960s landmark case
of Studebaker Corporation. When this former carmaker defaulted on its
defined-benefit plan, it left about 11,000 participants without most or any of
their pensions. These losses eventually led Congress to set minimum standards for private pension plans via the Employee Retirement Income Security
Act (ERISA) in 1974.
ERISA gave rise to the Pension Benefit Guaranty Corporation (PBGC),
which now partially insures the pensions of over 34 million workers and
retirees. The PBGC largely funds itself with premiums from private-sector
sponsors of defined-benefit plans (i.e., employers). When an employer
becomes financially distressed, the PBGC may take control of the plan’s
management and use the plan’s assets and its own funds to pay retirees a
capped portion of their promised benefits. Employees in contemporary cases
like the bankruptcy of United Airlines filed in 2002 are thus less exposed to
defined-benefit risks than were employees in cases like Studebaker.

74 | Economic Report of the President

Despite this insulation, employees with defined-benefit pension plans
sponsored by private employers remain exposed to considerable risks. As of
2005, for example, the limit on PBGC insurance increased with retirement
age, and topped out at about $46,000 per year. Employees whose plans
default can thus incur considerable losses when their promised benefits exceed
these limits. United’s workers, for example, expect to receive about 80 percent
of their earned benefits, and thus stand to lose more than $3 billion of total
promised benefits. In addition, as the following sections show, the combination of inadequate protections and a series of pension defaults has left the
PBGC with insufficient funds for paying even these limited claims.
Consequently, if losses overwhelm the pension insurance system, Congress
may step in and pass the bill to taxpayers.
For defined-benefit plans sponsored by public employers, the taxpayer
exposure is even more direct. Recall that the PBGC only insures plans sponsored by private employers. In the event that a publicly sponsored plan’s assets
are insufficient to pay benefits, absent renegotiation of benefits, such plans
could only be made whole with the support of state-level tax revenues.

Employee Exposure to Defined-Benefit Risks
Recently, market fluctuations and the rules that govern how employers
participate in the defined-benefit system appear to have turned risks into
reality. Decreasing interest rates and stock market valuations, coupled with
the exposure of pension plan assets to market fluctuations, coincided with a
marked increase in the underfunding of defined-benefit plans. Underfunding,
in turn, increased expected defaults on pension obligations, putting both
workers and the pension insurance program into jeopardy.
In the case of privately sponsored pensions, the value of assets set aside to
fund retirement obligations began to decrease in 2000 while the value of
promised benefits began to increase. The total underfunding of private
pension plans grew from less than $50 billion at the end of 2000 to over $400
billion today. At the same time, as Chart 3-4 illustrates, PBGC’s capacity to
insulate workers from employer defaults turned from a $10 billion surplus in
2000 into a deficit that now totals more than $20 billion.
This deterioration can plausibly be attributed to the exposure of pension
plan portfolios to coincident decreases in both interest rates and stock market
valuations. A decrease in interest rates can contribute to this problem by
increasing the measured present value of a pension plan’s promised benefits. A
decrease in stock market valuations can further contribute by weakening the
ability of plan investments to pay benefits.
To see this relationship, suppose that an individual wants to buy a new
appliance next year for $500, and consider how much must be saved today to

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fund this purchase. The answer depends on how much interest these savings
will earn: As this interest increases, the savings that are necessary to fund the
future purchase decrease. Extreme cases are illustrative: One would have to
save $500 today if the interest rate is 0 percent, but only $250 if it is
100 percent. This example reflects a more general relationship: When interest
rates decrease, the present value of future obligations increases.
For pensions, this relationship implies that employers must set aside more
funds to meet pension obligations when interest rates decrease. The decrease
in interest rates that started late in 2000 thus threatened the funding status of
defined-benefit pension plans.
A simultaneous decrease in stock market valuations from the peaks of the
late 1990s appears to have furthered this threat. At the same time that
interest-rate changes were increasing the value of employers’ obligations, a
decrease in stock market valuations was diminishing the value of assets that
employers had set aside to fund those obligations. Together, these changes
coincided with the marked weakening in the funding status of both definedbenefit plans and the PBGC.
76 | Economic Report of the President

While market fluctuations appear to have been an important contributor
to these woes, they could be made less so. To see why, recall from above that
the PBGC manages the pension plans it receives from financially distressed
employers. In doing so, it reduces exposure to interest-rate fluctuations by
matching investment payoffs with the timing of employee benefits. The value
of plan assets and liabilities will tend to move more closely together under this
strategy of duration matching than they would under the strategies that
employers appear to have used.

Taxpayer Exposure to PBGC’s Deficit
The recent spike in underfunding has also exposed taxpayers to the
prospect of making up for the PBGC’s deficit (recall that this exposure is
more immediate for publicly sponsored plans). While the PBGC’s liabilities
are not explicitly backed by the Federal government, a future Congress might
decide that a taxpayer bailout is preferable to a PBGC default. Indeed,
taxpayers’ exposure to the PBGC’s deficit is especially concerning since the
manner in which it evolved mimics how the 1980s savings and loan (S&L)
crisis developed.
Like the insurance that PBGC offers, the insurance offered to depositors at
financial institutions can provide important benefits. But if they are not
prudently managed, these insurance programs can fall prey to moral hazard
(explained in Chapter 9, The U.S. Financial Sector) and thus expose taxpayers
to an undue liability. In the 1980s, for example, loose regulatory oversight let
savings and loans overly expose themselves to market fluctuations (such as
changes in real-estate values and interest-rates) and ultimately left insufficient
funds for paying off depositors. Depositors did not fully bear the burden of
this underfundng, however. Instead, the Federal Savings and Loan Insurance
Corporation (FSLIC) insured depositors in much the same way that PBGC
covers retirees.
In an analogous manner to the current pension situation, market fluctuations
and regulatory difficulties not only helped increase the rate at which depositors drew on this insurance, they also compromised FSLIC’s capacity to pay
insurance claims. Like the PBGC, FSLIC was structured to be self-financing.
Nevertheless, taxpayers ultimately paid about $150 billion for the financial
losses of failed institutions.
The PBGC faces a situation that is similar to what plagued FSLIC. Waiting
to implement productive reforms magnified taxpayers’ burden in bailing out
the S&L industry. Postponing the issue of underfunded pension plans can
likewise make matters worse for pensioners and taxpayers. According to testimony by the PBGC’s executive director, the PBGC’s present $23 billion
deficit could grow toward $80 billion over the next ten years. Without
prompt and effective action, taxpayers may thus find themselves bailing out
yet another “self-financed” public insurance program.
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Policy Reforms
Prompt action, grounded in good economics and informed by lessons
learned from similar financial crises, can keep the current pension problem
from becoming even more burdensome. To help the private pension system
move in this direction, the administration has proposed to strengthen the
requirements for funding privately sponsored pension plans and improve the
manner in which plan sponsors disclose information. State-level policies that
would address the problems with plans sponsored by public employers are at
an earlier stage of development.
Current funding and disclosure rules can allow privately sponsored pension
plans to appear healthier than they actually are. Reforms such as restricting
the use of “credit balances” could help enhance funding adequacy and transparency. Under present law, employers receive credit for contributions that
exceed minimum requirements and can later use those credits in lieu of actual
contributions. This treatment is problematic. For example, excess contributions are characterized as earning interest even if the assets in which those
contributions were invested lose value. Moreover, credit balances can delay
plan sponsors from addressing funding problems and thus let even grossly
underfunded employers forgo actual contributions.
Limiting private employers’ ability to use an average interest rate to value
plan liabilities could also strengthen funding and improve transparency.
Recall that, as interest rates decrease, the present value of an employer’s
pension obligations increases. Current law lets employers use a moving
average of these rates spread out over several years, however, and thus mutes
the near-term effect of an interest-rate decrease on an employer’s contribution
requirements.
To see this effect, suppose that employers can use a two-year average, and
that interest rates decrease from 6 percent to 5 percent. Using an average rate,
employers could discount their future obligations at 5.5 percent. But if
employers had to use the current rate of 5 percent, they would have to
increase contributions by more, and do so more quickly. Averaging the
discount rate can thus cloud the picture of a plan’s status.
The Administration has similarly proposed limits on the ability of private
employers to smooth reported fluctuations in the value of their plan-assets.
Coupled with the related proposal for plans to accurately address the timing of
benefit payments, this reform could reduce the portfolio risks that are characterized above as the proximate cause of the system’s weakened funding status.
Finally, the administration has proposed to increase funding targets,
measure the performance of plans in a uniform manner, and update assumptions like those of mortality. These reforms, like the others discussed above,
would enhance the integrity of the defined-benefit system, and should be
uniformly applied across plan sponsors. Doing otherwise would give some
78 | Economic Report of the President

economic sectors, or firms within a sector, an artificial advantage. Economic
performance could deteriorate as scarce resources flow not to their most
productive uses, but to their most politically-favored uses. In addition,
exempting certain sectors or firms could exacerbate the underfunding
problem by breathing artificial life into risky plans and thus further exposing
workers, retirees, and taxpayers to economic risk.

Social Security
Along with personal savings and employer-provided pension plans, Social
Security has long stood as a pillar of retirement security. A response of
Franklin D. Roosevelt’s administration to the Great Depression, the Social
Security Act was signed into law on August 14, 1935, and first issued monthly
retirement checks in January 1940. At that time, about 200,000 retirees
received aggregate benefits valued at about $35 million. Since then, both the
number of beneficiaries and the level of benefits has steadily grown. In 2004,
more than 47 million beneficiaries received a total of about $493 billion
through the Old Age, Survivor, and Disability Insurance programs (OASDI).
These benefits are funded by taxes on wage income. In an accounting sense,
employers and employees equally share this funding by contributing
6.2 percent of taxable payroll each. Since employers focus on the total cost of
labor, however, workers bear most of this combined 12.4 percent tax. For each
worker, this tax applies to payroll beneath a ceiling that annually adjusts with
the average wage index. That ceiling, which stood at $90,000 in 2005,
increased to $94,200 for 2006.

Taxpayer Exposure to an Increasingly Large Social Security Burden
The overall cost of Social Security is substantial. The Office of
Management and Budget (OMB) estimates that Social Security transfers
amounted to 4.2 percent of GDP in 2005. During the coming decades, Social
Security’s share of GDP is expected to increase, reaching 6 percent in 2035.
In the short term, this increase will largely come from the retirement of
baby boomers, which begins in 2008. It will persist in the long run, however,
due to a combination of relatively low fertility rates and relatively high life
expectancies. These factors will push the ratio of workers to retirees down
from its current level of 3.3 to 1 to around 2 to 1 by the time that most baby
boomers retire.
Since the benefits of those currently retired mostly come from taxes on
those currently working, these developments will create considerable pressure
to increase payroll taxes. Indeed, the Social Security Administration’s
actuaries estimate that, starting in 2017, the system’s annual cost will
exceed its total tax income (which includes taxes on payroll and Social
Security benefits themselves).
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From an accounting perspective, Social Security can still fully fund benefits
at this point because the system has run surpluses since 1984, holding special
Treasury bonds as IOUs. Although they are assets to the Trust Fund, however,
these IOUs are equally debt to the Federal government, and thus an obligation
that faces taxpayers.
The actuaries estimate that without legislative action, the Trust Fund’s
IOUs will run out by 2041, leaving a system that can fulfill only 74 percent
of currently scheduled benefits. Even more, promised Social Security benefits
from 2005 to 2080 are expected to exceed the sum of revenues and Trust
Fund IOUs by $4 trillion in present value. Given these mounting costs,
taxpayers and workers would be better off dealing with this problem now
rather than later.
Social Security reform has been on the national radar for decades (see Box
3-1). Notably, former President Clinton convened an Advisory Council
which, in 1996, released several recommendations. Two of the three plans
supported by the Advisory Council involved some kind of voluntary personal
retirement accounts (through publicly held individual accounts in one case
and privately administered personal accounts in another), and the other plan
also envisioned moving to a system of advance funding, albeit through
government-directed investment in equities. Importantly, the longer it takes
to initiate reforms, the greater any changes must be, because they will be
shared by fewer generations.

Policy Reform: Progressive Indexing
Projections suggest that, under current law, the Social Security system will
soon be unable to pay for itself. Many of the proposals to address this problem
fall short of a productive and durable reform. Removing the cap on wages that
are subject to the payroll tax, for example, would not only increase contributions to the system but also increase the system’s promised benefits in the long
term. Progressively reducing future benefit growth, on the other hand, may
strike an attractive balance by closing roughly two-thirds of the system’s longrange annual cash shortfalls while maintaining the system’s capacity to act as
a social safety net.
Initial benefits for new retirees are currently indexed to wage inflation
rather than price inflation. Since wages typically increase at a faster rate than
prices (reflecting gains in productivity), wage indexation results in increasingly large benefits in real dollar terms. Progressive indexing would decrease
the rate of benefit growth for individuals whose lifetime earnings are the
highest (less than the highest 1 percent of all wage earners) by linking their
benefit growth to price increases. At the same time, it would maintain the
current law’s more generous benefit-growth rate for individuals whose lifetime
earnings are relatively low. Benefits of retirees in the upper 70 percent of the
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Box 3-1: Earlier Attempts to Shore Up Social Security
Congress has responded to developing problems with Social
Security finances in the past. For example, both 1977 and 1983 saw the
signing of significant amendments to improve the system’s deteriorating financial condition.
Why were the system’s finances deteriorating then, and why are they
continuing to do so today? There are several answers. First, the 1972
amendments to Social Security effectively indexed benefit growth for
those working at the time to both wage and price inflation, essentially
providing two cost-of-living adjustments. This double-benefit indexation was amended in 1977 to establish the current method of wage
indexation. But while wage indexation addressed the double-indexation issue, some experts warned that, coupled with demographic
changes, it would still require future taxpayers to shoulder larger Social
Security tax burdens than is required today.
Second, the economic projections following the amendments of
1972, 1977, and 1983 proved overly optimistic. From 1972 to 1976, for
example, real wages grew by nearly 11 percent less than expected,
resulting in lower than anticipated growth of the payroll income base
on which Social Security taxes were collected. Similarly, from 1977 to
1981, real wages decreased by about 6.9 percent rather than increasing
by 12.9 percent as projected. Assumptions made following the 1983
reforms were not as far off as those of 1972 and 1977, but are nonetheless responsible for some of the overstatement of Social Security’s
financial strength. Consequently, although the year for the exhaustion
of the Trust Fund was forecast to be 2063 in 1983, it has been pushed
forward and now stands at 2041.
Third, and perhaps most importantly, the 1983 reforms did not attain
sustainable solvency. The 1983 reforms envisioned several decades of
Social Security surpluses, followed by several decades of large and
growing deficits. This meant that with the passage of time, Social
Security would again become financially imbalanced. Even as early as
the 1985 Social Security Trustees’ report, it could be seen that the
system was again heading out of long-term balance. This is one reason
why a number of bipartisan commissions have since recommended
that future Social Security reforms place the program on a sustainable,
as opposed to merely a solvent, footing.

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distribution would depend on a combination of price and wage increases. The
system would be progressive because benefit growth would slow the most for
those with higher earnings. This method of benefit growth would let future
retirees enjoy benefits that are higher than those paid today while eventually
ensuring that no person who works a full career would retire with a Social
Security benefit below the poverty level.
Progressive indexing would slow the benefit-growth rate for high-income
individuals in a manner that strongly pushes the system toward solvency. In
addition, by maintaining a relatively fast rate of benefit growth for lowincome individuals, progressive indexing would further protect retirement
incomes from falling below the poverty level.

Policy Reform: Personal Accounts
The traditional Social Security system largely funds retirement benefits by
transferring payroll taxes from current workers to beneficiaries. In addition to
being subject to the risk of insolvency (which, as explained above, can be
addressed in part through progressive indexing), this type of pay-as-you-go
system runs the risk of future workers voting to cut back on their contributions. This risk may be considerable, as additional changes needed to restore
solvency would leave future retirees with substantially smaller benefits than
the current system’s promises.
This problem comes in large part from a system that relies on future
generations to fulfill promises made today. By letting individuals pre-fund
their retirements, personal accounts allow current generations to rely in part
on their own savings, rather than solely upon contributions that future
generations may be unwilling or unable to make.
Because this issue is separate from that of solvency, personal accounts need
not (and under the President’s proposals, would not) adversely affect the
system’s long-term finances. If traditional benefits are offset by the amount
that individuals could obtain by investing in low-risk assets, such a reform
can be made approximately neutral with respect to the capacity to fulfill
remaining traditional benefits. Such offsets are said to be roughly neutral on
an actuarial basis because they leave (1) beneficiaries who remain wholly
invested in government bonds with the same expected future benefit and (2)
the Trust Fund with nearly the same expected long-term balance.
While they leave the long-term balance mostly unchanged, allocations to
personal accounts do alter the timing of the system’s future obligations. Their
basic effect is to take some of the long-term obligation and shift it to an earlier
time. Moving a portion of payroll taxes to personal accounts will take money
off of the government ledger today, some of which is used to pay for current
benefits and some of which has long been used to finance other Federal

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spending. At the same time, because voluntary personal retirement accounts
will replace a portion of unfunded future benefits, they also reduce future
strains on the system.
Shifting the future imbalance forward in time could increase transparency
by making the system’s impending shortfalls less of an abstraction. Financial
markets tend to applaud such solutions to fiscal challenges and might do so
again in this context by keeping interest rates at productive levels.
Pre-funding a portion of future benefits appears attractive in other
dimensions as well. Every dollar of benefits funded today through personal
accounts is a dollar of benefits that need not be paid by taxpayers in the
future. Because rising benefit obligations would under current law lead to
increased tax burdens over time, shifting forward the funding of some
benefits could create a more equitable treatment of different generations.
In addition, redirecting assets to personal accounts increases the likelihood
that real savings will be accumulated to meet tomorrow’s retirement needs. If
these assets are owned and controlled by individuals, they will be less available
for the government to spend than if these assets are left on the Federal ledger.
Finally, personal accounts would provide an opportunity for individuals
to diversify their investment in Social Security, which may add to their
retirement security.

Conclusion
This chapter’s first section shows that today’s generations are on track to
have more retirement wealth than previous generations, though it is unclear
whether these wealth gains have kept pace with rising preretirement incomes.
Going forward, the relative security of retirement wealth may be compromised
by fundamental problems with defined-benefit pensions and Social Security.
Both of these systems could be improved by more-effective funding rules
and safeguards that protect against the opportunistic handling of retirement
assets. Strengthening pension-contribution requirements, and watching more
carefully how those contributions are managed, would go far to mitigate the
growing risks to pensioners and taxpayers alike. Progressively targeting the
rate of future benefit growth and expanding ownership over payroll contributions, likewise, would help strengthen Social Security for the future. In both
cases, waiting to act allows the present problems to grow and increases the
costs of adopting effective reforms.

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C H A P T E R

4

Improving Incentives in
Health Care Spending

H

ealth care spending in the United States has increased rapidly over the
past several decades, rising 44 percent in real per capita terms in the past
ten years alone. Some of the reasons for this marked rise reflect higher-quality
health care, such as improved technological options for enhancing the health
and quality of life of the American people. However, other factors, such as
poorly functioning markets for health care, may have led to excessive
spending and inefficient patterns of medical care utilization. Furthermore,
whether this increased spending is of high value or not, it has put tremendous
pressures on individuals and the institutions that finance health care
spending. Family budgets are being strained as health care costs take up an
increasing share of incomes. Government health care expenditures have also
been increasing rapidly, burdening both Federal and state budgets. If not
curtailed, the increased costs to governments will eventually lead to large tax
increases, sharp cuts in nonhealth spending, or both.
This chapter reviews the causes and consequences of health care spending
growth and discusses how spending can be more efficient and of higher value
in the context of a consumer-driven, market-based system. The emerging
consumer-driven health care movement aims to empower consumers with
improved information and ability to make choices about their own health
care, which in turn can result in increased provider competition to better
serve patients’ needs at lower costs. The key points of this chapter are:
• Growth in spending on health care has been much more rapid than general
inflation, straining consumers, employers, and government budgets.
• Perverse tax and insurance incentives have led to inefficient levels and
composition of spending on health care. Some increased spending has
produced valuable health improvements, but in a better-functioning
health care market these improvements could be attained at lower cost.
• Promoting a stronger role for consumers is a promising strategy for
improving health care value and affordability.

The Growth in Health Care Spending
Spending in the health care sector has steadily grown from under 6 percent
of GDP in 1965 to 16 percent of GDP in 2004. If current trends continued,
health care spending would be projected to reach 19 percent of GDP by 2014
85

and 22 percent by 2025 (Chart 4-1). Since 1965, the government share of
total health spending has risen from 25 percent to over 45 percent, mainly
due to increased eligibility and generosity of Medicare and Medicaid.
(Medicare is a Federal government program that pays for health care for
senior citizens and those with certain disabilities. Medicaid, financed by both
Federal and state governments, is focused on providing health care for the
poor.) Medicare spending alone is projected to increase from 2.6 percent of
GDP in 2006 to 4.3 percent by 2025. Among those without access to
Medicare or Medicaid, most expenditures are financed by private health
insurance (64 percent), provided mainly through employers (91 percent of
those with private insurance). The rising costs of health care are reflected in
premiums (employer plus employee share) for employer-provided insurance
that in 2005 averaged almost $11,000 for a family (Chart 4-2), up from
$6,700 in 1999 (in 2005 inflation-adjusted dollars). Per capita health care
spending in the United States has risen from about $4,500 ten years ago to
about $6,500 today (in 2005 dollars).
The United States today spends roughly twice as much per capita on health
care as other industrialized countries, such as the other members of the
Organization for Economic Cooperation and Development (OECD). This
large difference in part reflects higher levels of per capita income and output

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in the United States, since richer countries tend to spend proportionately more
on health care, but the United States spends a substantially larger share of GDP
on health care than other wealthy countries do. For example, the United
Kingdom spends about 8 percent of its GDP on health care, compared with
the United States’ 16 percent. The U.S. expenditure as a percent of GDP is
more than six percentage points higher than the average in OECD countries.
Rates of spending growth, however, are much more similar across countries.
For example, from 1998 to 2003, average real health care spending increased
4.6 percent per year in the United States as compared to 4.5 percent in the
OECD as a whole. This suggests that many of the underlying international
spending differences stem from longer-term factors.
When looking at these statistics, it is also important to remember that
buying more health care is not necessarily equivalent to buying more health.
Health care is one of many different determinants of health status, and for
many people marginal increases in health care consumption may be less costeffective than marginal increases in spending on other determinants such as a
healthier lifestyle (exercising, not smoking, eating a healthier diet). Evaluating
the relative cost-effectiveness of spending on different health determinants
can be challenging, however, in part because it is difficult to measure the
quality of health services consumed.
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Where Health Spending Has Grown
There have been significant increases over time in all major spending categories,
including outpatient, acute inpatient, long-term care, and pharmaceuticals.
Both personnel costs and goods costs have increased. Spending has grown for
both privately and publicly financed and delivered care.
One might guess that the aging of the U.S. population would explain an
important part of the increase in health care costs, especially since about onequarter of health care in a given year is spent on those who die that year.
Research suggests, however, that less than 10 percent of the growth in health
spending over the last several decades can be attributed to this factor. Another
contributing factor might be America’s rising prosperity, because richer individuals and nations demand more health care, but again this factor can only
account for a relatively small portion of the health care spending growth.
Various studies have speculated about the contribution of other factors such
as rising obesity, but there is as yet no consensus on the importance of these
factors. There is general agreement, however, that the rapid growth in development and use of expensive new health care treatments accounts for a large
share of overall health care spending growth over time.
A useful framework for understanding increases in medical spending breaks
these spending increases into three components: (1) changes in the quantity
demanded of existing health-related goods and services, (2) changes in the
prices of those existing goods and services, and (3) the effects of technological
advances that change the available set of health-related goods and services.
The next part of this section looks at each of these three factors.

Quantity of Health Care Demanded
Do we demand higher volumes of health care today than in the past? While
we clearly consume more of some types of care (based on higher incomes,
changing medical needs, etc.), health care visits per capita have not increased.
The biggest components of health care spending are physician and hospital
services. Doctor visits per capita dropped somewhat from 1980 through the
mid-1990s, and have increased only modestly since then. The number of
hospital discharges per capita and the average hospital length-of-stay,
however, have declined dramatically—they were 50-percent higher in 1980
than in 2000. Growth in spending within the United States does not seem to
be explained by increased visits to the doctor or hospital.
Moreover, international differences in spending cannot be explained by
differences in the quantity of physician and hospital visits. In fact, doctor
visits and hospital nights per capita in the United States are lower than in
many OECD countries. For example, in 2000 the United States had 0.7
hospital nights per capita, compared to 0.9 nights in the United Kingdom,
1.3 nights in Switzerland, and 1.9 nights in Germany. Service intensity in the
88 | Economic Report of the President

United States is very different, however, with U.S. hospital staffing levels at
double the OECD median. Thus, while Americans have fewer health care
contacts, they appear to receive more services at each contact. This difference
explains in part why the average U.S. hospital night costs three times the
OECD average.

Health Care Prices
The official medical consumer price index (medical CPI), which measures
price increases for medical goods and services and is published by the
Department of Labor’s Bureau of Labor Statistics, indicates that health care
prices over the last few decades have grown more rapidly than prices of other
goods and services in the economy. From 2000 to 2004, the health care
component of the CPI grew 19 percent compared to only 10 percent for the
general CPI, indicating 9 percent real growth in health care prices. Thus of
the 33 percent growth in total per capita health spending over this period,
one-quarter apparently derived from increases in the prices of health care
relative to other goods and services.
Why would health care prices rise so rapidly? One possible explanation for
these recent price increases is that supplier consolidation has led to reduced
competition among health care providers, enabling hospitals and physician
groups to leverage market power to raise prices. For example, there were about
900 hospital consolidations during 1994-2000 (from a base of roughly 6,000
hospitals). Some of these mergers have appeared to result in monopolistic price
increases, and even some major metropolitan areas have become dominated by
just two or three hospital systems. It is not clear how important such trends
will be in the future, however, in the face of vigorous antitrust enforcement.
Part of the apparent increase in relative prices may, however, be the illusory
result of measurement problems. Standard price indices such as the medical
CPI may overestimate price growth in health care if they do not adequately
account for improvements in health care quality. Price indices are supposed to
reflect price changes for a given product. However, because health care quality
is constantly increasing, rising prices for a given health care visit may reflect
improved quality, rather than just higher costs for a given level of care. For
example, the coronary artery bypass graft that the average patient receives
today may result in fewer complications and longer and higher quality of life
afterward than would have been the case for a patient receiving the procedure
10 years ago—so the higher price paid for the procedure reflects in part the
fact that the patient is receiving more “health,” not just paying more for the
same service.
That said, higher prices for medical services do appear to be an important
part of the explanation for why the United States spends more on health care
than other OECD countries do. For example, one study of Australia,

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Denmark, France, Canada, Germany, and the United Kingdom found that
physician wages in the United States are 77 percent higher than the average
across those countries. This does not mean, however, that those countries
provide a model that should be emulated: Heavy price regulation in some
countries has led to long waiting lists for certain types of medical services.
One recent survey found that over half of patients in Canada and the United
Kingdom had to wait longer than a month for a specialist appointment,
compared to less than a quarter of patients in the United States. Similarly,
more than a third of patients had to wait longer than four months for elective
surgeries in Canada and the United Kingdom, compared to fewer than
10 percent in the United States.
There is a common perception that drug prices are unduly higher in the
United States than in other OECD countries, perhaps due to aggressive price
negotiation by European governments, but recent research suggests that this
may be misleading for several reasons. First, carefully accounting for manufacturer discounts to insurers in the United States shows price differences to
be smaller than simple retail price comparisons would suggest (U.S. prices are
discounted by about 8 percent on average). Second, U.S. consumers use a
much higher proportion of generic drugs than do consumers in other countries (e.g., 58 percent of units in the United States versus 28 percent in
France). When comparing average prices paid for each active ingredient
(whether generic or name brand), rather than only prices for selected name
brand drugs, the international price differences are further narrowed.
Furthermore, some experts suggest that wealthier countries such as the
United States should pay a larger share of drug development costs than should
less-wealthy countries, because of both equity and efficiency arguments.
Thus, observing lower drug prices in developing countries than in the United
States does not generate great controversy. Many people do not recognize,
however, that the United States is also substantially richer than most other
OECD countries. For example, per capita income in the United States is
22-percent higher than in the United Kingdom. After adjusting for differences in manufacturer discounts, use of generics, and per capita income,
average drug prices are in fact higher in many other OECD countries.
Research has found that U.S. drug prices relative to income are 7-percent
lower in France, but 4-percent higher in Canada, 10-percent higher in
Germany, and 25-percent higher in the United Kingdom. Thus, the United
States’ higher health care spending as a share of GDP does not appear to be
explained by higher drug prices.

Technological Change
Research suggests that, over time, a major source of health care spending
increases has been adoption of new, technologically intensive health care goods
90 | Economic Report of the President

and services. For example, one study found that average spending per heart
attack case in the United States increased in real terms from $12,000 in 1984
to about $22,000 in 1998, and that about half of this spending increase could
be attributed to the adoption of more-sophisticated technologies. This does
not mean that the higher spending is not of very high value: post-heart attack
life expectancy over this same period increased from five years to six years, with
70 percent of that increase attributable to the adoption of better technology.
The United States appears to use some expensive technologies more intensively than do other countries. For example, the United States has more than
50-percent more MRI units per capita than do other OECD countries on
average. The United States’ more-intensive use of technology partly reflects its
higher rate of innovation and earlier adoption of technology. For example,
angioplasty was relatively rare outside the United States in 1990, with the
U.S. utilization rate three times higher than the next-closest country;
Germany finally reached the U.S. level by about 1998, while adoption in
other countries continued to lag.
It is worth noting that the adoption of new technologies does not inevitably
raise costs. New technologies regularly reduce costs in many other sectors of
the economy, such as the semiconductor industry. In the U.S. health care
industry, however, the combination of technological change along with muted
consumer incentives to demand lower costs is responsible for a significant
portion of rising health care spending.

First-Dollar Insurance Inhibits Consumer
Cost-Consciousness
In most markets outside of health care, consumers decide what to purchase
by comparing the price of a good or service against the benefit it brings them.
By contrast, in the health care sector, consumers often do not learn the prices
of goods and services consumed until bills are received weeks or months later,
if ever. Instead, physicians are expected to make health care consumption
choices for patients, despite the fact that physicians frequently lack the incentive to match the benefits of care with its costs, and may even lack information
about the costs themselves. A major reason for this lack of consumer incentive
is the fact that many health insurance policies provide close to “first-dollar
coverage” of health care costs. That is, people with health insurance typically
pay only a relatively small portion of the total cost—or in some cases, literally
none of the cost—of the health care services they receive. This section reviews
the causes and consequences of first-dollar insurance coverage.

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Causes of First-Dollar Insurance Coverage
Unlike most other types of insurance, health insurance in the United States
often includes first-dollar coverage of the cost of even routine, predictable services. By contrast, most other forms of insurance focus on protecting the
insured from large and unexpected losses. If automobile insurance had the
first-dollar coverage of even routine services that many health insurance policies offer, it would cover the costs of oil changes and new tires, rather than just
protecting against unpredictable catastrophes such as automobile accidents.
Health insurance policies have this unusual first-dollar coverage feature in
large part because the tax code makes it cheaper for people to purchase health
care indirectly through insurance than directly through out-of-pocket
payments (see Box 4-1). Another factor underlying first-dollar coverage is the
increased use of managed care programs, which spread rapidly during the
1990s. Most managed care plans are characterized by minimal cost sharing,
relying instead on gatekeepers to regulate use of resources. Interest in
managed care programs has decreased recently, because of public backlash
against the cost-containment measures used in these programs.
Box 4-1:Tax Preferences for Employer Health Insurance Premiums
Since the 1940s, the tax code has excluded employer payments for
health insurance premiums from the portion of workers’ compensation
subject to taxation (both payroll and personal income taxes). The total
value of the tax exclusion is quite large, reducing Federal taxes by over
$200 billion in 2006 ($133 billion for the income tax exclusion and $80
billion for the payroll tax exclusion), which is equivalent to about 10
percent of actual Federal tax receipts. This exclusion of health insurance
premiums from taxation was a by-product of wage-control legislation
during World War II (which established a precedent for treating
employee benefits differently from regular wages), and was not intentionally designed to promote health insurance coverage. But this tax
treatment of employer-provided health insurance premiums has had
important consequences for insurance markets.
First, it has caused the private insurance system to become predominantly employment-based. More than 91 percent of privately insured
individuals under age 65 receive their health insurance through their
employers. Except for the self-employed, those who purchase insurance
on the individual market (that is, not through their employers) must do
so with after-tax dollars. The self-employed receive an “above-the-line”
income tax deduction for health insurance premiums (equivalent to the
income-tax exclusion for employer insurance), though they still owe full
payroll taxes on the income used to buy premiums. For someone in the

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15-percent income tax bracket and subject to the 15.3-percent payroll
tax, a policy with a $10,000 premium would cost roughly $7,000 if
purchased through an employer, $8,500 if the person were selfemployed, and the full $10,000 if the person were not self-employed and
purchased the policy individually. This tax treatment has created a
strong financial incentive for individuals to purchase health insurance
through their employer, even if their first choice of insurance product is
not offered by the employer. In addition, as an incentive to buy health
insurance, this tax subsidy is larger for people in higher tax brackets (as
shown in the chart), despite the fact that a given subsidy amount would
reduce uninsurance much more among lower-income households.
Furthermore, the employer premium tax exclusion promotes lowdeductible insurance coverage with minimal out-of-pocket cost sharing.
In most cases, while insurance premiums are paid with pretax dollars,
out-of-pocket health spending must be paid for with after-tax dollars. For
example, $1,000 of health care services covered by full insurance costs
the person with employer-provided insurance only about $700 in after-tax
dollars (assuming a 15-percent income tax bracket and 15.3-percent
payroll tax), whereas those same services would cost $1,000 if paid outof-pocket. Because of the tax penalty for out-of-pocket spending relative
to insurance premiums, there is a strong incentive for employers to
provide and employees to select first-dollar coverage, even if they would
have preferred higher deductibles and lower premiums in the absence of
the tax provision. This has, in turn, diminished the role of consumers as
guardians against wasteful spending and unduly high prices.

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Consequences of First-Dollar Insurance Coverage
The original purpose of health insurance, like other forms of insurance, was
to protect individuals from catastrophic and unexpected costs by spreading
risk across a larger population. However, as discussed, health insurance in the
United States has now also become a vehicle for financing relatively low-cost,
routine expenditures. This use of insurance as “prepaid medical care” has three
important consequences: (1) It encourages consumers to overuse certain types
of health care. (2) It gives little incentive for consumers to search for the
lowest-price providers. (3) It distorts incentives for technological change.
Rather than focusing research incentives on cost-effective technology, it
induces adoption of technologies for which costs exceed incremental benefits,
while undermining the development of cost-saving technologies. We discuss
each of these points.
First, heavily insured individuals, being insulated from most health care
costs, have the incentive to overconsume certain types of care, a phenomenon
referred to as moral hazard. An allergy drug may have great value for patient
A who has serious symptoms, but little value for patient B who has only mild
symptoms. If the two patients faced the market price of $100/month, then A
might decide the drug is worth the cost but B might forgo it, given its negligible benefit for him. With first-dollar insurance coverage, however, B might
instead choose to continue taking the drug as long as the expected benefits to
him were greater than zero. In this case, B’s decision would inefficiently drive
up health care spending at a loss to society, since the benefit of the drug would
be less than the real cost.
Some would argue that such scenarios are rare because physicians should
not prescribe the drug for person B if it would be wasteful or of little practical
use in improving his health. But in fact physicians may not have enough
information to fully evaluate the benefit to patients, and often have little
incentive to limit inappropriate care to highly insured patients. Providing
extra services increases their incomes and protects them from the charge that
they did not take every action with conceivable benefit to the patient.
Box 4-2 discusses the role of medical malpractice liability in increasing
medical expenditures.
In order to quantify the moral hazard effects of first-dollar insurance
coverage, the RAND Health Insurance Experiment randomized individuals
into health insurance plans with different co-insurance levels. (Co-insurance
refers to the percentage of health insurance spending above the deductible an
individual must contribute.) A higher co-insurance level gives both the patient
and the doctor greater incentive to avoid the use of drugs or procedures that
are costly and have low expected benefit. The study found that changing the
structure of health insurance does affect the behavior of patients and their

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Box 4-2: Medical Liability Costs
Substantial costs in the U.S. health care system are associated with
the medical liability system. This affects health care spending in several
ways. First, the cost of malpractice damage awards, the legal costs of
malpractice lawsuits, and the costs of underwriting malpractice insurance policies are passed on to providers through malpractice insurance
premiums and then to patients through out-of-pocket payments and
insurance premiums. Second, defensive medicine—ordering tests and
procedures solely to guard against potential malpractice claims—may
have an even bigger effect on health care spending than the direct costs
associated with malpractice suits.
The President has called on Congress to pass liability reforms to
make the system fairer and more predictable while reducing wasteful
costs. The trend toward greater consumer decision making in health
care may have complementary effects in reducing liability costs associated with defensive medicine. Consumers with first-dollar insurance
coverage have little incentive to decline many of the tests and procedures suggested by physicians, even if they and their physicians
understand that there may be very little health benefit from the
increased spending. But as consumers pay for a greater portion of
noncatastrophic care, they may decide to forgo expensive and unnecessary tests and procedures suggested by physicians primarily to avoid
lawsuits rather than to improve patients’ health.

doctors. Specifically, individuals with first-dollar coverage had 45-percent
higher health expenditures than individuals who were randomly assigned
insurance plans with 95-percent co-insurance up to a catastrophic out-ofpocket maximum level (the out-of-pocket maximum was about $3,500 in
today’s dollars). Importantly, the extra care received in the first-dollar coverage
plans produced no discernible extra health benefits in the studied sample as a
whole. There were, however, some health benefits for select subpopulations of
low-income and chronically ill individuals, suggesting that care should be
taken not to expose lower-income families to excessively high cost sharing relative to their income, and that certain preventive measures such as
chronic-disease management are important to exempt from cost sharing. For
most services consumed by the majority of the population, however, the
RAND study showed that higher cost sharing can be a powerful tool to induce
consumers to take responsibility for focusing their health care spending on
only those products and services with the highest value.

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A second consequence of first-dollar insurance coverage is that consumers
are less sensitive to the prices of health care consumed, an outcome that dulls
the competitive forces that keep prices down in most other markets. Many
insurers attempt to reduce the range of choices available to enrollees through
mechanisms such as selective contracting and preferred provider networks,
but such practices are even more effective when the consumer is also pricesensitive. Imagine two hospitals that provide the same service, but hospital A
charges $1,000 and is located in an older facility while hospital B charges
$2,000 but is located in an updated facility with a wide array of amenities and
equipment on site. Given these choices, a consumer facing the actual price
may prefer hospital A, but in a world of first-dollar coverage, most people
would choose hospital B, even if the extra amenities of hospital B provided
only modest benefit. As a result of this structure of incentives, health care
providers may compete for patients by providing greater convenience or
amenities with little incentive to control costs. This lack of price sensitivity on
the part of the consumers of health care is one of the major forces underlying
the rapid growth of health care costs.
A third consequence of first-dollar insurance coverage is distorted incentives for technological development. One type of distortion is that new
technologies may be developed and marketed even when they are of low
incremental cost-effectiveness relative to other available options. For example,
if a new drug is even slightly more effective than an existing drug, a person
with first-dollar insurance coverage may demand the new drug even if it is
priced well above existing satisfactory and effective alternatives. When
consumers have dulled price incentives pharmaceutical companies will invest
in bringing a new drug to market even if it provides little new value. In a
world in which most consumers had high-deductible insurance and were
sensitive to the full cost of drugs, the pharmaceutical company might choose
not to spend the large amount of resources necessary to complete clinical trials
and bring the drug to market if they knew its incremental improvement over
existing drugs would be small.
Likewise, dulled price sensitivity on the part of consumers reduces the
incentive to develop cost-reducing technologies. In many other sectors of the
economy, such as computer memory chips, technological progress results in
cheaper and more cost-effective products each year as producers look for
more-efficient manufacturing processes and product innovations to keep
them ahead of their competitors. In health care, this type of technological
innovation is much rarer, since few consumers have the incentive to adopt a
cheaper product, particularly if it has even slightly lower effectiveness. If more
health care consumers were to become price sensitive, the health care sector
would have the incentive to pursue more such cost-reducing technologies that
could, over the long term, help reduce the rate at which health care spending
is growing.
96 | Economic Report of the President

Some observers have expressed concern that changes to the current system
might be harmful if they result in reduced innovation, but these observers
have often failed to distinguish cost-effective from cost-ineffective innovations. Life expectancy at birth has increased from 70 to almost 78 years since
1962. In addition to living longer, we are also enjoying more years in better
health and with fewer disabilities. While some of these health improvements
have been due to lifestyle changes, some can clearly be traced to medical technologies, such as those that have reduced infant mortality, improved survival
rates after heart attacks, improved treatment of depression and other mental
illnesses, and improved the management of chronic illnesses. Research
suggests that on average our spending on new medical technology has indeed
been cost-beneficial. This indicates that, as a society, we would not want to
return to the health spending levels of 1960, for example, if doing so also
meant returning to the types of medical care available in 1960. But economic
efficiency depends on each (“marginal”) individual new technology being
cost-beneficial, not just the average of all technologies. The fact that on
average our investment in medical technology has paid off does not preclude
the possibility that our system contains significant inefficiencies, and that
some of the new technology may have contributed little compared to the
amounts spent on it. If consumers were given the information they need
about the actual costs and benefits of various treatments, as well as the incentives to compare those costs and benefits, it might be possible to eliminate
some of that wasteful spending.

Consequences of Inefficient
Health Care Spending
Rising health care spending is a burden to employers, consumers, and
taxpayers. Employers who offer insurance complain that rising premiums
strain their labor relations and threaten their balance sheets. Rising premiums
make health insurance less affordable, contributing to the ranks of the uninsured. Those who are insured face rising out-of-pocket costs and lower cash
wage growth. And taxpayers must finance the rapidly increasing costs of
publicly provided health care for seniors, the disabled, and the poor.

Private Spending
As consumers spend more of their budgets on health care, they must spend
less on other goods and services. Since 1980, for example, the share of
consumer spending that has gone to medical care has increased from
10 percent to 17 percent, while the shares of spending on items such as food
and clothing have decreased. Of the $7.5 trillion increase in personal income
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since 1980, $1.5 trillion has been devoted to health care. Similarly, of the
$2.19 real increase in hourly compensation over the past five years, $0.54
(25 percent) has gone toward higher health insurance premium costs. Thus,
take-home pay has grown more slowly than total compensation (including
health insurance and other benefits) (Chart 4-3).
The costs of health care would be of less concern if most health care
spending reflected optimal decisions by consumers weighing the costs and
benefits of the services they buy. For example, the fact that consumer
spending on DVDs increased 31 percent in 2004 alone has not alarmed
anyone nor led to calls for government intervention. But spending on private
health care is different, because health care is considered a “merit” good
deserving of government support for those that cannot afford it, because of
the government’s extensive role in the health care market, and because of the
forces that interfere with the efficient allocation of resources.
Employers have also been affected by increasing health care costs. In particular, firms that have promised generous health benefits to retirees have borne
increasingly heavy costs. The economic consequences of this may include the
need for restructuring of some of these firms, loss of expected benefits for
some retirees, and potential costs to taxpayers if some of these retirees increase
their reliance on public health insurance. Rising costs for current employees
have also affected employer behaviors. Some employers have tried to reduce
their insurance costs by hiring more part-time workers (who are generally

98 | Economic Report of the President

ineligible for insurance benefits), asking employees to contribute more to
premiums, reducing the generosity of the plans they offer, or discontinuing
health insurance benefits altogether.
In the long run, however, it is not the employers but rather the workers
who bear the burden of rising health insurance costs. Economists have shown
that even though employers may make the bulk of the payments to cover the
health insurance premiums of workers, these payments are treated just like
wages or any other component of workers’ total compensation. This total
compensation depends on worker productivity and labor-market supply and
demand. Rising insurance premiums may thus change the mix of workers’
compensation by increasing health benefits and decreasing wages, but if they
do not affect workers’ productivity they will not lead firms in competitive
markets to raise total compensation. Institutional factors such as minimumwage laws and sluggish wage adjustment may mean that health insurance
premiums affect employer profits in the short run, but in the long run most
or all of increases in health insurance costs are shifted to employees in the
form of wages that are lower than they otherwise would have been.

Public Spending
When per capita spending on health care rises rapidly, the pressures on
government programs become particularly intense. First, if the standard of
care received by enrollees in government programs is not to differ too radically from that of the general public, the costs of helping those already
enrolled in the programs will rise as well. Second, rising insurance premiums
may cause some people to drop private insurance and to rely instead on public
insurance such as Medicaid or on safety-net providers (e.g., uncompensated
hospital care) subsidized by taxpayers. Not only does rising uninsurance lead
to higher government costs, but uninsured people often consume health care
resources inefficiently—for example, by failing to obtain preventive care,
delaying necessary care, or overusing emergency rooms relative to less-costly
clinic settings.
The largest government programs that finance health care for those not
otherwise insured are Medicare and Medicaid. These programs are becoming
increasingly expensive to taxpayers. For example, according to projections, if
current trends were to continue unchecked, Medicare costs would increase
from the current share of 2.6 percent of GDP to 6.9 percent by 2050.
Medicaid, jointly financed by the Federal and state governments, is also
becoming an increasingly large share of budgets, with just the Federal
portion of spending projected to increase from 1.5 percent of GDP today to
2.5 percent by 2050. The costs of these public programs are unsustainable
under any reasonable projections. Closing the currently projected 75-year
deficit in just the Hospital Insurance (HI) portion of Medicare would require
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tax increases of 107 percent or benefits reductions of 48 percent. Ultimately,
the benefits paid by these programs must be significantly pared back, the taxes
dedicated to their support must be increased, or major reforms must be
enacted that slow the rate of growth in health care spending.

Strengthening the Role of Health Consumers
Through Public Policy
This chapter has discussed the central role of first-dollar insurance coverage
in dulling the incentives for consumers to shop carefully for cost-effective
health care. By giving consumers both the incentives and the information
needed to become better shoppers for health care, public policy can help
control the growth in health care costs and improve the efficiency of the use
of health care resources.
The President has proposed a wide-range of measures to help make health
care more efficient and accessible, such as improving community health
centers, reforming medical liability laws, creating Association Health Plans
for small businesses, allowing insurance to be more portable and purchased
more easily across state lines, and many other reforms. This section will focus
specifically on proposals that help improve incentives for consumers.
An important policy advance has aimed to reduce the bias toward firstdollar insurance coverage by allowing more out-of-pocket health care
expenditures to be paid with pretax dollars through the innovative mechanism of Health Savings Accounts (HSAs). Complementary initiatives to
improve information available to consumers for making appropriate health
care choices can help facilitate the movement toward HSA-based consumerdirected health care.
The potential benefits of reforms that slow spending growth could be great.
Consider a scenario in which new policies successfully reduce future national
health spending by one percentage point per year, through a combination of
short-run quantity decreases, medium-term price decreases, and long-run
increases in cost-reducing technological change. If spending were to grow by
6 percent per year, instead of by 7 percent per year as currently projected, by
2025 the expected health share of GDP would be reduced from 22 percent to
18 percent, a substantial difference.

Health Savings Accounts (HSAs)
HSAs are tax-favored accounts to which individuals can contribute funds
they can then use to pay current and future out-of-pocket medical expenses.
These accounts were signed into law by the President in 2003 and went into
100 | Economic Report of the President

effect in 2004. HSAs represent a major improvement over previous taxpreferred medical spending accounts such as Flexible Spending Arrangements
(which must be exhausted each year, a factor that limits their use) and Health
Reimbursement Accounts (which are owned by employers, not consumers).
In contrast, HSAs are owned by individual consumers regardless of employer,
and unused account balances can be retained and grow from year-to-year
without penalty. HSAs are designed to be used in conjunction with highdeductible health plans, defined as plans having minimum deductibles
(currently $1,050 for individuals and $2,100 for families) with annual outof-pocket limits (currently no more than $5,250 or $10,500 for individuals
and families, respectively). Deductibles and out-of-pocket limits are indexed
to adjust over time with inflation. Certain types of preventive care may be
provided with first-dollar coverage if deemed appropriate by the insurer.
HSA enrollees with qualifying insurance plans may contribute annually up
to the lesser of the plan deductible or $2,700 (individuals)/ $5,450 (family).
These contributions are excluded from income taxes both at the time of
deposit and at the time of “qualifying” withdrawal; the funds may be used to
pay for out-of-pocket medical expenditures, rolled over indefinitely, or withdrawn after age 65 (in which case they are taxed as ordinary income if not
used for health expenditures).
A key benefit of HSAs is that they lower the previous tax bias toward lowdeductible or first-dollar health insurance relative to higher-deductible
policies with higher out-of-pocket spending. To illustrate this point, consider
a sample health insurance purchaser facing the choice of a low-, medium-, or
high-deductible plan. Table 4-1 illustrates how this person’s premiums depend
on the plans’ deductibles, according to actuarial estimates for a representative
person. The premium for a $250 (low) deductible policy with a $2,000
out-of-pocket limit would be $4,000, but that premium could be lowered by
$1,600 (or 40 percent) by moving to a catastrophic policy with a $2,500
(high) deductible and an out-of-pocket limit of $5,000. Suppose that this
person had no health expenditures in the first year of coverage, but a $15,000
catastrophic event in the second year. How is her total two-year spending on
health care under these plans affected by the tax code?
• If there are no tax preferences: If she buys the traditional (low deductible)
plan, her spending is $4,000 in premiums in each year plus $2,000 outof-pocket in year two, totaling $10,000. If she buys the catastrophic
(high deductible) plan, her spending is $2,400 in premiums in each year
plus $5,000 out-of-pocket in year two, totaling $9,800. Thus, she would
be slightly better off financially under the catastrophic plan in the
absence of tax preferences.
• If insurance premiums (but not out-of-pocket spending) are tax-preferred:
Under the traditional plan, if she is in the 30-percent marginal tax

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TABLE 4-1.— The Premiums Charged for Three Sample Health Insurance Plans
with Different Patient Cost Sharing
Examples of Three Insurance Plans
Low Deductible

Medium Deductible

High Deductible

$4,000

$3,500

$2,400

$250
20%
$2,000

$1,000
20%
$3,000

$2,500
20%
$5,000

Premium ..................................................................
Cost Sharing
Deductible ...............................................................
Coinsurance after Deductible .................................
Out-of-Pocket Maximum.........................................

The premiums in this table represent the actuarial value of each plan for a representative enrollee.

bracket, she receives a $2,400 tax subsidy (over two years), but under the
catastrophic plan she only receives a $1,440 tax subsidy. Thus, the tax
subsidy makes her prefer the traditional plan where she might otherwise
have preferred the catastrophic plan.
• If tax-preferred HSAs are available: If she contributes the maximum
$2,500 to the HSA in both years, she would receive a new $1,500 tax
subsidy by using the HSA to pay her out-of-pocket expenses in year two
with tax-free dollars. This mitigates the previous tax-induced bias against
catastrophic plans, again making her better off financially under the
catastrophic policy.
This illustration of course simplifies many dimensions of the comparison
between policies. For example, it ignores the fact that catastrophic events are
rare, so that most people would be able to accumulate many more years of
premium and HSA savings, further increasing the attractiveness of the HSAqualified plans. In addition, the example ignores the moral hazard effect of
reduced health care utilization in the catastrophic plan, as the patient now has
increased incentive to shop carefully for health care.
Not all individuals will benefit equally from moving to a high-deductible
policy. First, some poorly informed consumers may forgo recommended care,
such as preventive services—care that they might have received under a traditional low-deductible policy. The HSA provision that allows plans to waive
the deductible for preventive care is designed to mitigate this possibility.
Second, some chronically ill individuals with persistently high spending may
be relatively worse off, to the extent that high-deductible policies lead to less
cross-subsidization from healthier people in their risk pool. This could be
mitigated while preserving the beneficial effects of cost sharing, for example,
through improved insurance benefits for the chronically ill, differential
premium cross-subsidies in employer insurance, or targeted high-risk-pool
subsidies in the individual market. Third, credit-constrained enrollees and

102 | Economic Report of the President

those in lower tax brackets will benefit less from provisions allowing tax-free
HSA contributions and accumulation. This is also true of the tax exclusion
for employer health insurance premiums. These concerns must be balanced
against the potential benefits of greater price sensitivity by health care
consumers: As more consumers shift into high-deductible plans, there is
greater potential for slowing price growth and long-run increases in costreducing technology, which could benefit even consumers in traditional
insurance plans.
Since the inception of HSAs in 2004, the number of people enrolled in
high-deductible HSA-qualified plans has increased rapidly. The new tax benefits that further lower health costs for high-deductible plans have made them
attractive not only to the uninsured and small businesses, but to large firms as
well. Although HSAs are new enough that comprehensive data are difficult to
obtain, as of January 2006, at least 3 million people were covered by HSAqualified plans sold by insurance company members of the industry group
America’s Health Insurance Plans (AHIP). Of the people covered by AHIPrelated plans, about half purchased their plans in the individual market and
14 percent through small businesses.
Additional tax-code changes could make high-deductible HSA-qualified
plans even more attractive and affordable, further strengthening incentives for
more consumers to be well-informed, cost-conscious health care decision
makers. The President’s 2007 budget aims to expand HSAs through proposals
that include:
• Raising the HSA contribution limits up to the plan out-of-pocket maximum.
Current law allows contributions only up to the deductible level, which
is often less than half of the out-of-pocket maximum. This change would
further limit the tax-induced bias against out-of-pocket spending for
medical care. It would also increase the attractiveness of HSA-qualified
plans, in particular for the chronically ill who have a higher probability
of out-of-pocket spending above their deductible.
• Further reducing disparities in tax treatment of HSA contributions versus
insurance premiums. Currently, individual contributions to HSAs are
excluded from income taxes but not payroll taxes (employer contributions are excluded from both). The President proposes to provide a new
income tax credit equal to the payroll taxes paid on the HSA contribution amounts. This will further remove distortions that have encouraged
first-dollar insurance coverage. When combined with the first new
proposal discussed above, Americans with HSAs would be able to pay all
of their out-of-pocket expenses with pretax earnings.
• Equalizing tax preferences for purchasing HSA-qualified insurance in the
employer and individual markets. The President proposes to exclude from
income taxes the value of HSA-qualified insurance premiums if

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purchased on the individual market. In addition, taxpayers purchasing
these policies on the individual market would receive a new income tax
credit equal to the payroll taxes paid on the premium amounts. Thus, all
taxpayers would receive the same tax treatment of HSA-qualified insurance premiums, even if working for one of the 40 percent of employers
that do not offer health benefits.
• Helping the chronically ill. In addition to allowing all out-of-pocket
expenses to be paid tax-free through an HSA, the President also proposes
allowing employers to make larger HSA contributions for their chronically ill employees so that employers can make HSA-qualified plans
equally attractive to all employees regardless of health status. Finally, the
President proposes $500 million in annual grants to states to test innovative solutions to subsidize insurance for the chronically ill, in order
to enhance the functioning of markets for individual insurance. For
example, states could use the funds for risk-adjusted premium subsidy
programs, or for creative enhancements of state high-risk pools such as
funding HSA accounts for enrollees.
• Enhancing affordability via a tax credit for low-income people purchasing
HSA-qualified insurance in the individual market. The credit would be
worth up to $1,000 for one adult, $2,000 for two adults, or $3,000 for
families (not exceeding 90 percent of the premium). It would phase out
at incomes of $30,000 for individuals and $60,000 for families. The
credit would be advanceable, paid directly by the government at the time
of insurance purchase.

Informed Consumers Are Better Consumers
It is important to provide incentives for consumers to choose health care
providers and services sensibly, but providing those incentives does not guarantee that consumers will in fact be able to make good choices. Consumers
must also have access to the information they need to make good health care
decisions. Key information includes:
• Provider prices. Few medical providers today advertise their prices in a
way that allows for comparison shopping. Several insurers have taken an
important step by beginning to make available schedules of physician
fees to their enrollees. Hospital fees raise more-difficult issues, since
prices negotiated between hospitals and insurers are frequently subject to
confidentiality agreements, despite the fact that consumers eventually
observe the prices on bills presented to them after the fact. Of even
greater use to consumers would be information on “package prices” for
complete treatments of medical bundles or episodes. For example, a knee
replacement without unusual complications might have ten major
components of care, each of which is now billed separately. A package
104 | Economic Report of the President

price for the entire treatment would provide an estimated cost for the
entire operation, hospitalization, and follow-up treatment. This information could be combined with revised billing procedures, which would
allow patients to identify more easily the costs associated with the treatment they had received. The President strongly supports efforts to
increase price transparency in the health care market. He has called for
hospitals, physician groups, insurers, employers, and other health groups
to cooperate in speeding the transition toward a market in which
Americans can easily obtain user-friendly and comparable information
on prices when shopping for health care.
• Data on provider quality and value. Price information by itself is not sufficient for good decision making in the absence of comparative quality
data. There is growing interest in providing accurate and usable measures
of the quality of care offered by individual health care providers such
as hospitals and physician groups. Great progress has been made by
researchers in improving the methodology for developing reliable measures, and insurers are now helping to improve the effective dissemination
of such data. Measures that combine price and quality data into indicators of overall value are not yet as well developed, but would be another
useful decision-making tool.
Better information would also be of use to providers of medical services,
who would then be better able to help their patients make sound, cost-effective decisions. Examples include:
• Practice guidelines. One key barrier to more-efficient health care
spending is the lack of a research base on the appropriate treatment in
many medical situations. There is a clear role for government in this area.
For example, the Agency for Health Research and Quality (AHRQ) is
sponsoring comparative effectiveness research studies relating to medical
practice, as authorized under the 2003 Medicare Modernization Act.
Such research can produce high returns in terms of improved health care
efficiency. Further work to translate such guidelines into educational
materials for health care consumers would also greatly enhance the
ability of consumers to make wise health care choices.
• Cost-effectiveness studies. If the usage of expensive but low-value technologies is to be reduced by the actions of better-informed consumers in
consultation with their doctors, then more information is needed about
the cost-effectiveness of various technologies and procedures, and about
how cost-effectiveness depends on particular factors such as the patient’s
age and specific condition. Private insurers sponsor some such studies,
but the private sector will tend to underinvest in this type of “public
good” research. Government support for research in this area, such as the
research being conducted by agencies such as AHRQ, has a strong
economic justification.
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Conclusion
As the United States grows richer and older and as new life-saving
technologies develop, Americans are likely to continue to spend a rising share
of their growing incomes on health. Indeed, our health care spending overall
has returned good value, with Americans living longer and healthier lives. We
could achieve this improved health at lower cost, however, by promoting a
greater role for consumer decision making in health. Health Savings Accounts
provide one tool for doing so, by leveling the playing field for people who
prefer to save money by moving toward higher-deductible health insurance
policies. As health researchers, the insurance industry, and government work
to develop better consumer decision-making tools, more consumers will be
able to benefit from moving to such plans. In the long run, the payoff to
allocating health care resources toward higher-value and more cost-effective
care would be great.

106 | Economic Report of the President

C H A P T E R

5

The U.S. Tax System in
International Perspective

A

ll governments face two important decisions. They must choose the scope
and scale of public goods and services to provide for their citizens,
including national defense, public safety, education, law enforcement, and
social insurance. They must also decide how to collect the funds to finance
those public services, including what things to tax and at what rate to tax
them. These tax policy decisions affect job creation, the allocation of
resources, economic efficiency, economic growth, and ultimately the living
standards of their citizens. In this chapter, we examine U.S. choices in the
context of the varied choices of other countries around the world.
Recent calls for fundamental tax reform reflect long-standing public
frustration with the complexity of the U.S. system and dissatisfaction with its
economic effects. Last year’s Economic Report of the President outlined the
need for tax reform and evaluated several prototypes for reform. The President
created a bipartisan Advisory Panel on Federal Tax Reform that spent the
year evaluating the current tax system and recommended two options for
reform. This chapter provides a broader context for evaluating these and other
potential reforms.
This chapter makes three essential points:
• Every country makes fundamental choices about its tax system: what
level of overall tax burden to impose, what to tax, and what tax rates to
apply. These choices matter because they have important economic
consequences that affect the living standards of their citizens.
• The United States has made different choices than other countries: We
have a relatively low tax burden, and we finance more of that burden
with a tax on personal income instead of consumption.
• When viewed in an international perspective, the U.S. system has been
improved by some significant changes but could benefit greatly from others,
particularly those focused on reforming the taxation of capital income.

Fundamental Choices in Tax Systems
The two fundamental questions that must be answered in designing a tax
system to raise revenue for government expenditures are what to tax (the
“base”) and how much to tax it (the “rates”). Public discussion of tax policy
often also focuses on the distributional consequences of these decisions, which
107

are certainly important. However, economists point out that the answers to
these two fundamental questions have equally important implications for the
economic decisions made by individuals and small and large businesses, and
thus for the overall performance of the economy. In this section we discuss
these tax policy choices and their effects on economic decisions.

Designing a Tax System
Governments choose the size and scope of the public services they wish to
provide and the corresponding level of spending required. At the same time,
they choose how to finance that spending, through a combination of taxation
and borrowing. The use of borrowing (deficits) to finance government
spending has varied over time, and the optimal level depends on many factors.
For example, economists have argued that it is reasonable to borrow to
finance temporary increases in spending (e.g., during times of war or to
provide aid after a disaster) or temporary declines in revenue (as in a recession). In any case, the cost of government borrowing must ultimately be
financed by tax revenues, and so we focus here on the tax system.
Every tax system is defined by two factors: the tax base and the tax rate
structure. The base defines what is subject to taxation and the rate determines
what portion is taken in tax. We begin by considering two of the most
common tax bases used: income and consumption.
A tax system with a pure income tax base is designed to tax all of the
resources that increase a taxpayer’s ability to consume, regardless of what that
taxpayer actually does consume. Taxable income under this system includes all
wage and salary income, interest income, and dividends, and also can include
increases in wealth such as unrealized capital gains and noncash income such
as the implicit rental value of owner-occupied housing. In short, under a pure
income-based tax system, all income plus all increases in wealth can be subject
to taxation.
A consumption-based tax system, in contrast, taxes only the share of
income that is consumed, exempting the share that is saved. Examples
of consumption-based tax systems, such as a national retail sales tax, a valueadded tax, a consumption-based Flat Tax, or a consumed-income tax, were
presented in Chapter 3 of the 2005 Economic Report of the President, which
addressed “Options for Tax Reform.”
The U.S. tax system is neither a pure income tax nor a pure consumption
tax, but rather a hybrid of the two. Although nominally based on income, the
U.S. system excludes significant portions of the return to savings from the tax
base (e.g., interest earned on assets held in a 401(k) employment-based retirement plan or an Individual Retirement Account). The U.S. system also
excludes other forms of income from the tax base, two key examples being the

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premiums paid by employers for employee health insurance and the implicit
rental value of owner-occupied housing.
Another central aspect of designing a tax base is the treatment of
international activity, both of foreigners acting within U.S. borders and of U.S.
citizens and corporations conducting business abroad. Currently, the United
States applies its income tax, in principle, on a worldwide basis, taxing all
income earned by U.S. residents on their economic activity in the United
States and the rest of the world, and allowing a limited credit for taxes paid to
foreign governments. Taxing on a worldwide basis means the U.S. applies its
tax to all economic activity in the country (regardless of the nationality of
ownership) and to all activity of U.S. residents and U.S.-owned companies
(regardless of the country in which that activity occurs). The United States
could, alternatively, tax on a territorial basis, taxing all income earned within
U.S. borders regardless of the nationality of the person or corporations earning
the income, but not taxing income earned abroad. Territorial tax treatment
would exclude from the tax base all foreign earnings of U.S. residents (both
individuals and corporations). With increasing competition among the United
States and other countries for economic activity, this choice also has important
implications for economic growth and efficiency.
In addition to choosing the tax base, the tax authorities must also
determine the tax rate structure. This choice has significant effects on both
the efficiency and the equity of the tax system. Countries might choose one
tax rate to apply to the entire tax base, or a progressive schedule of tax rates,
with higher rates applying to those with greater resources. A key determinant
of the effect of the tax system on the efficiency of the economy is the tax rate
that is applied to the incremental use of resources—such as an additional
dollar of income or an additional dollar of consumption. This marginal tax
rate is important because it affects the taxpayers’ incentives, and thus their
economic behavior, inducing them to make decisions that are different from
those they might have made in the absence of the tax. These “distortions” of
behavior (relative to the no-tax benchmark) are the major channel through
which the tax system affects the efficiency of the economy.

Taxes Distort Economic Decisions
Virtually all forms of taxation distort economic decision making because
they change the cost of allocating resources to different uses. Those distortions have a real economic cost that goes beyond the burden of the tax
being paid. The reduction in economic efficiency generated by the changes in
economic behavior that a tax induces is called the excess burden of the tax. The
excess burden imposed by a tax increases dramatically as the marginal tax rate
increases. A standard demonstration in economics textbooks is that excess

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burden is proportional to the square of the tax rate, so that doubling the
marginal tax rate roughly quadruples the excess burden of the tax. This relationship between marginal tax rates and economic efficiency is the reason that
tax systems with broad bases and low rates are generally considered the most
efficient way to raise revenue.
Of course, the tax rate specified in statute may not correspond with what
businesses and individuals actually pay in taxes because of exemptions,
deductions, and credits that reduce their tax burden. The effective tax rate that
people pay (and that drives their behavior) may thus be lower than the
statutory rate. Designing a tax system involves choosing the statutory tax rates,
defining the tax base including any exemptions and deductions, and specifying tax credits. The combination of those choices determines the effective
tax rate that people and firms pay, and that can alter their behavior and cause
distortions in the economy. In the next section we discuss the distortions
created by different tax systems.

Tax Systems and Economic Distortions
The complexities of modern tax systems can change many decisions made
by individuals and businesses alike. For example, individuals choose how much
they work, the forms of compensation they receive (such as wages or health
insurance), how much they save, and whether they own or rent a home.
Businesses must choose how many workers to hire, where to locate workers
and capital assets around the world, the types of assets in which to invest, and
the means of financing these assets (e.g., debt, equity, or retained earnings).
Taxes can affect all of these decisions.
The choice between an income-based and a consumption-based tax system
affects the labor market decisions of workers, the savings decisions of families,
and the behavior of entrepreneurs. For example, a worker facing a marginal
tax rate of 40 percent on income (who would thus take home only $6 for an
additional $10 earned) may decide to work less than someone who faces
a marginal tax rate of 20 percent (and would thus take home $8 for an
additional $10 earned).
Relative to a consumption tax base, the use of an income tax base increases
the costs to individuals of saving for the future, as detailed in Chapter 3 of the
2005 Economic Report of the President. A tax system with the property of static
efficiency does not distort the choices that people make about how to allocate
resources today (for example, it does not affect their decision about whether
to consume apples or oranges). A system with the property of dynamic
efficiency does not distort the choice of how to allocate resources between
today and tomorrow (it does not affect the choice between consuming apples
today and consuming apples in the future).

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Consumption-based taxes are more likely to be dynamically efficient than
income-based taxes. Someone earning a higher return on a savings account
can expect to consume more in the future for each dollar saved, and is thus
likely to save more. Taxing savings (as is done in a pure income-based system)
makes future consumption relatively more costly, which leads people to save
and invest less, with adverse consequences for economic growth.
Further distortions are introduced into the U.S. economy by the separate
taxation of corporate income, rather than integration of taxation of corporate
and personal income. Corporate profits are essentially taxed twice, first under
the corporate income tax and again under the personal income tax when corporate profits are paid out as dividends. The result is a higher tax on income
earned in the corporate sector than that earned elsewhere in the economy. For
corporate income that is paid out as dividends, the combined tax rate can be
remarkably high: as much as 35 percent at the corporate level and another
15 percent through the individual income tax, considering Federal taxes alone.
Including state tax rates and accounting for deductibility, the Organization for
Economic Cooperation and Development (OECD) estimates the U.S.
combined tax rate can be as high as 50.8 percent. This double-taxation of
corporate income creates both static and dynamic inefficiencies. It is also inconsistent with either a pure income tax base or a pure consumption tax base.
The U.S. tax code also makes it costlier for firms to make some kinds of
investments than others, leading to additional distortions of economic decision making. For example, investment financed from prior earnings (equity)
and investment financed from borrowing (debt) are taxed differently, various
assets are subject to different depreciation rules, and dividend income received
by shareholders is taxed differently from capital gains. There are also ways that
U.S. firms can reduce their effective tax rate by deferring their tax payments.
Each of these differences affects the choices that businesses make about where
and how much to invest.
Finally, the U.S. application of a worldwide tax base affects firms’ decisions
about where to locate and where to make investments. Foreign-sourced income
of U.S. companies is taxable, but the credits taxpayers receive for foreign taxes
paid are not applied uniformly. There are limits to the amount of foreign tax
credit a firm can claim, which can create incentives for firms to change their
investment and business activity patterns across countries based on international tax rates. Under this worldwide system, U.S. firms operating in a foreign
country may eventually be liable for not just that host country’s taxes, but also
for U.S. taxes under some circumstances. Competitors from countries taxing on
a territorial basis are not subject to this U.S. tax, and therefore may have a
competitive advantage, all else being equal.

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More generally, the tax treatment of the foreign-source income of U.S.
multinationals under the current worldwide system is widely thought to be one
of the most complex aspects of U.S. taxation. This complexity itself imposes a
burden on these companies, causing them to allocate substantial resources to tax
planning and compliance. With globalization and the increasing importance of
international capital flows, the distortions and complexity generated by the
current U.S. system are increasingly costly to the U.S. economy.

U.S. Tax Policy in International Perspective
In this section we examine the choices the United States has made about
the size of the national tax burden, the forms of taxation to employ, and the
tax rates applied. We compare these choices to those made by other countries
and show that the United States has a relatively low overall tax burden, and
its choices about which tax sources to rely upon differ substantially. Recent
reforms in other countries are highlighted.

International Comparison of Overall Tax Burdens
A common measure of the overall tax burden is the ratio of total taxes paid
to all levels of government to the gross domestic product (GDP). This share
represents the fraction of the total output of the economy that is taken in taxes
in any given year, or the average tax rate. This measure of overall tax burden is
particularly useful for international comparisons. First, it is unaffected by international differences in national versus subnational government responsibilities.
Second, it adjusts for differences in the overall size of the countries’ economies.
Among countries in the OECD, the United States has a relatively low total
tax burden (including Federal, state, and local taxes). Total taxes in the United
States at all levels of government amounted to 26.4 percent of GDP in 2002,
substantially lower than the OECD average of 36.3 percent. This share is also
below the European Union (EU) average of 40.6 percent.
Chart 5-1 uses OECD data from 2002 to illustrate the average tax rates
(total taxes as a share of GDP) for the 15 largest countries of the OECD.
Only Mexico, Korea, and Japan had total tax burdens smaller than that of the
United States in 2002. OECD countries such as Sweden and Denmark, on
the other hand, had tax burdens that were as much as 20 percentage points of
GDP higher than that of the United States.
The United States faces a significant fiscal challenge in keeping the overall
tax burden low in the future. Growth in Federal entitlement spending if
not checked, threatens to require substantial increases in taxes, significantly
altering the tax choices the United States has made in the past. Box 5-1
provides an overview of this fiscal challenge and its implications for tax policy.
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International Comparison of Tax Bases and
Rate Structures
Beyond different choices about the scope and size of government, the
OECD countries have also made different choices about the tax systems used
to raise funds. Almost all of the OECD countries use some mix of personal
income, corporate income, payroll, sales, and other taxes (e.g., estate and
excise taxes), but they differ significantly in their degree of reliance on each.
Chart 5-1 illustrates the composition of each country’s tax revenue sources:
personal income taxes, taxes on goods and services (consumption taxes), social
security taxes, corporate income taxes, and other taxes.
The United States relies more heavily on personal income taxation than
other OECD countries do. Indeed, in 2002 the United States collected
37.7 percent of its total taxes through the personal income tax compared to
an OECD average of 26.0 percent. Given this difference, one might then ask
how other countries finance their spending. The primary alternative tax base
is consumption. OECD countries collected an average of 31.9 percent of total
revenues from taxes on goods and services, mainly through value-added taxes
(VATs). A VAT is a tax applied to the gross receipts earned by sellers of products, but sellers receive a tax credit for taxes paid on the inputs they use, so
the tax effectively applies only to the value that they themselves added in the
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Box 5-1: Fiscal Challenges Ahead
U.S. Federal tax revenues and Federal expenditures have remained
fairly stable as a share of national output (GDP) over the past four
decades. Despite this overall stability, substantial changes have
occurred in the composition of both revenues and expenditures. These
expenditure trends in particular foreshadow a major fiscal challenge
facing the United States.
Total Federal revenues have averaged 18.2 percent of GDP since the
1960s, with only modest variation around that average, although the
composition of revenues has shifted toward payroll taxes and away
from excise and corporate income taxes. As discussed in this chapter,
the income tax base and rates have changed many times during this
period, but the overall contribution of income taxes to total revenues
has been fairly stable.
Total Federal outlays since the 1960s have also remained close to the
long-run average of about 20.4 percent of GDP despite many changes
,
in the economy and the mix of government programs that have
occurred since 1962. This stability masks important underlying trends,
however, in the composition of expenditures. The share of GDP and of
the government’s budget allocated to spending on Medicare, Medicaid,
and Social Security has risen steadily, while the share devoted to
defense has fallen. If the growth of spending on these programs goes
unchecked, there will soon be a major break in the generally stable
fiscal situation that the United States has enjoyed for most of the
postwar period.
The cost to the Federal government of these three entitlement
programs is expected to rise from 8.0 percent of GDP today to about
15.6 percent of GDP in 2045. In 2005, all other spending programs of the
Federal government, excluding interest payments on the national debt,
amounted to 9.0 percent of GDP With this growth, and other programs
.
remaining constant as a share of GDP in 2045 the Federal budget
,
excluding interest on the debt will consume 24.6 percent of the GDP
,
compared to 17.0 percent today, with continuing increases beyond that
date. Adding back interest on the national debt could make the share of
GDP absorbed by the Federal budget even larger.
The implications of these trends are grave. If the major entitlement
programs grow as forecast, future generations will be forced to choose
between massive tax increases, near-elimination of all government
programs outside of entitlements (including defense and essential
services), or some combination.

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making of the product. Only 17.6 percent of U.S. tax revenues came from
taxes on goods and services in 2002, primarily through state and local sales
and excise taxes. Recall, however, that the personal income tax is actually a
hybrid income-consumption tax, so that some of the taxes collected through
the U.S. income tax system, and those of other countries, might be thought
of as taxes on consumption.
The United States has also made different choices about the marginal tax
rate structure to impose on its tax base. Chart 5-2 shows the top marginal
personal income and corporate income tax rates in various OECD countries,
including the 15 largest OECD economies and Ireland. The black bars illustrate the personal rate and the gray bars illustrate the corporate rate. The chart
shows the OECD’s “all-in” definition of the top rate, which includes taxes
collected by all levels of government and the employee portion of the social
security tax. The top marginal personal income tax rate of 43 percent in the
United States is comparable to that of several of the OECD countries such as
the United Kingdom (41 percent), and slightly lower than those in France
(47 percent) and Japan (48 percent), which matches the OECD average
(48 percent), and significantly below the rates in Germany and the
Scandinavian countries (all 55 percent or higher). At the same time, the
United States has a combined (Federal and state) marginal corporate income
tax rate of 39 percent, well above the OECD average of 30 percent, and
second highest to that of Japan.
Chart 5-2 illustrates several important points. First, while the U.S. top
individual income tax rate is comparable to those of other OECD countries,
its top corporate rate is relatively high. Second, except for Mexico, each
country’s top personal rate is higher than its top corporate rate. Third, there
is no clear correlation between the top personal and corporate tax rates.
Ireland, for example, has a moderately high personal rate but a very low
corporate rate, while Germany has high rates in both cases.
The United States has also chosen to tax on a worldwide basis, as discussed
above, unlike some other countries. In 2003, 13 of 30 OECD countries taxed
on a worldwide basis, including Japan, Korea, Mexico, and the United
Kingdom. The majority of OECD countries (17 countries in 2003) tax on a
territorial basis, including Canada, France, Germany, Ireland, Netherlands,
Spain, and Sweden.
Finally, the United States has made different choices about the integration
of personal and corporate income tax structures. The United States uses a
classical system, which taxes corporate and personal income separately, based
on the status of corporations as separate legal entities. This results in the
double taxation of income earned in the corporate sector. Other countries
using this system include Ireland, Sweden, and Switzerland. Alternatives to
the classical system provide some form of dividend tax relief, thereby avoiding

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or reducing double taxation. Under the imputation system, shareholders are
given a personal income tax credit for tax paid by the corporation on that
portion of its profit. Countries using imputation systems (wholly or partially)
include Australia, New Zealand, Norway, Canada, and the United Kingdom.
Another alternative is the dividend exclusion method, under which a portion of
dividends paid to individuals is excluded from tax at the individual level.
Countries using this method include Germany, France, Finland, and Italy. A
final method that can be used to avoid double taxation of dividend income is
to apply a two-rate system. Under this approach, distributed corporate profits
(paid out in dividends) and undistributed profits are taxed at two different
rates with undistributed profits taxed at a higher rate. The extent to which
this approach eliminates the double taxation of dividend income depends on
the rates chosen.

Recent International Tax Reforms
We begin by reviewing several common trends in recent tax reforms that
have been adopted by a diverse set of nations. We then examine the implications of these reforms for international tax competition and for reform of the
U.S. system.
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International Tax Reform Trends
According to the OECD, most countries making changes in their tax
systems since 1999 have lowered personal and corporate income tax rates.
Those rate reductions were often financed, at least in part, by base broadening. Within this overall pattern of lower personal and corporate income tax
rates, there are four discernible trends.
One clear trend among OECD countries is reducing the taxation of wage
and salary income. These taxes have been reduced through both rate reductions and increases in taxable income thresholds. The OECD average “all in”
tax rate for a full-time production worker fell from 25.6 percent in 2000 to
24.8 percent in 2003. The corresponding marginal tax rate fell from
35.4 percent to 34.3 percent. Among G-8 countries since the year 2000,
France, Germany, Japan, Russia, and the United States have all lowered
personal income tax rates that apply to wage and salary income. Changes in
the tax brackets and rate structures generally made these tax systems less
progressive, although accompanying changes in exemptions, deductions, and
credits complicate the distributional picture.
A second trend is reducing the tax rates applied to corporate income. The
OECD average corporate income tax rate fell from 33.6 percent in 2000 to
30.8 percent in 2003. As in the case of wage and salary taxation, these rate
reductions have typically been accompanied by base-broadening measures.
Since 1999, the G-8 countries of France, Germany, Italy, and Japan all
reduced their corporate tax rates.
A third trend is reducing the taxation of capital income (especially capital
gains and dividends) under the personal income tax. Top marginal tax rates
on dividend income (corporate plus personal) fell over the period 2000-2003
among OECD countries from 50.1 percent to 46.4 percent. Reforms in Italy,
Japan, and the United States, in particular, all reduced the personal income
tax rates applied to interest, dividends, or capital gains. Six of the G-8 countries have also altered their tax systems to better coordinate their personal and
corporate income taxes. Several countries of the EU, including France,
Germany, and Italy, applied partial dividend exclusions, and Russia lowered
its dividend tax rate.
A fourth trend is the increasing popularity of flat rate income tax schedules.
Since the mid-1990s, eight Eastern European countries, including Russia,
have adopted income taxes with flat rate structures. The personal tax rates
among these eight reform countries range from a low of 12 percent in Georgia
to a high of 33 percent in Lithuania, and average 20.6 percent. On the corporate income side, the tax rates range from a low of 10 percent in Serbia to a
high of 24 percent in both Estonia and Russia, and average 17.9 percent.
Countries adopting these flat income tax structures tend to also apply
value-added taxes at relatively high rates, typically 18%.
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Evidence on International Tax Competition
Evaluating the U.S. tax system in relation to other national tax systems is
particularly important in a world where nations compete for business and
mobile capital (including physical, financial, and human capital) by making
their tax systems more attractive. A recent review of evidence on international
tax competition suggests a systematic change in the pattern of tax rate setting.
From 1982 to 1999, there was a substantial increase in international capital
mobility, reflected in the amount of foreign direct investment (purchase of
buildings, machinery, and equipment) and other measures of the flow of
international capital. At the same time, statutory corporate tax rates (tax rates
established in the law) declined all around the world and corporate tax bases
were broadened, resulting in little change in effective average rates. An exception to that general rule is that effective tax rates for foreign subsidiaries of
U.S. firms located in small countries fell sharply between 1992 and 2000.
While the United States reduced its top combined corporate tax rate from
50 percent in 1982 to 39 percent in 2005, as measured by the Institute for
Fiscal Studies, other countries have made even more significant reductions.
The United States now has the second highest combined corporate income
tax rate among OECD countries, behind only Japan. With international tax
rates falling overall, and a convergence between rates applied by large and
small countries, the United States risks becoming less competitive in
attracting capital. As capital becomes more mobile, it is increasingly easy for
companies to move their productive activities, including physical capital,
export/import operations, research and development activities, and other
forms of knowledge creation, around the world in response to tax incentives.
(Chapter 7, The History and Future of International Trade, discusses the role
of global engagement in firm performance.) In the current environment of
international tax competition, the United States will be increasingly challenged as the destination of choice for internationally mobile capital and jobs.

U.S. Tax Reforms: Past, Present, and Future
Reform of the U.S. tax system can play a critical role in improving
economic efficiency and the competitiveness of U.S. firms In this section, we
examine past tax-reform efforts in the United States, starting with the Tax
Reform Act of 1986 (TRA86), and project potential future reforms. We focus
in particular on reform of the U.S. tax base and on the taxation of savings or
the return to savings, such as interest, dividends, and capital gains.

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Twenty Years of Tax Reform
The U.S tax code has many provisions that give preferential treatment to
certain types of income. In some instances, these preferences may improve
efficiency, such as incentives to increase retirement saving or investment in
new equipment that offset distortions introduced by the income tax system.
In other cases, tax preferences intentionally distort economic decisions in
order to promote certain kinds of economic activity, such as the introduction
of tax credits that subsidize advanced education, labor market participation,
research and experimentation, or the employment of disadvantaged workers.
These provisions narrow the tax base and result in higher marginal tax rates
for at least some taxpayers. They also add complexity to the tax code. The
President’s Advisory Panel on Federal Tax Reform illustrated the trade-off
between tax rates and the tax base in the current U.S. tax system. Their calculations suggest that with a broader tax base, tax rates in all tax brackets could
be reduced by about a third. Multiple changes to the tax base in the last two
decades reflect this tension.

The Effect of Recent Reforms on the Tax Base
We have ample evidence from the last two decades that tax policy is always
evolving. The last comprehensive U.S. tax reform was the Tax Reform Act of
1986. That reform was revenue-neutral, broadening income tax bases and
lowering marginal tax rates dramatically. TRA86 actually built on reductions
in marginal tax rates that began in 1981 when the top rate was reduced from
70 percent to 50 percent. Under the base-broadening provisions of TRA86,
marginal tax rates were reduced further, with the top rate cut to 28 percent.
Rates applied to different types of income were also made more uniform. For
example, one study estimated that effective capital tax rates (taking into
account depreciation schedules and other tax provisions that differ across
types of capital) prior to TRA86 ranged from a 45.6 percent tax on income
from industrial buildings to a 3.3 percent subsidy of income from general
industrial machinery. After TRA86 those effective tax rates converged to
37 percent and 38 percent, respectively. Leveling the playing field in this way
reduces the distortions to investment across various forms of capital. While
TRA86 made effective tax rates more similar across types of capital income,
it also raised the overall cost of capital, which likely discouraged investment
and reduced dynamic efficiency.
Since TRA86, there have been more than 100 different acts of Congress
making nearly 15,000 changes to the tax code. These changes have altered
both the individual and the corporate tax bases. Some changes have narrowed

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the tax base (such as the 1997 repeal of the Alternative Minimum Tax for
small business and the 2001 increase in the standard deduction for joint
filers), while others have broadened it (such as the 1990 and 1993 limits on
itemized deductions and the 1993 expansion of the taxability of Social
Security benefits). Other reforms have changed the tax rates applied to this
base, such as the rate reductions enacted in 2001 and accelerated in 2003. The
introduction and expansion of numerous tax credits, such as the Child,
HOPE, Lifetime Learning, Welfare to Work, and Renewal Communities
credits, have narrowed the base and introduced disparities in tax rates applied
to different types of income.
Disparities in effective marginal tax rates on capital are once again quite
large, varying with the method by which capital is financed and by the type
of asset. A recent study finds that the effective tax rate on corporations ranges
between a tax of 36.1 percent on equity-financed activity to a subsidy of
6.4 percent of debt-financed activity. Furthermore, that study finds that the
effective marginal tax rate varies from a high of 36.9 percent to a low of
9.2 percent, depending on the asset type. The current piecemeal tax system is
thus both complex and inefficient. In the following section, we examine
potential reforms to address these issues.

Potential Reforms to the Tax System
The increasingly globalized business environment in which U.S. investors
and firms operate makes the design of an efficient and competitive tax system
particularly crucial. Two central issues in the current tax reform debate are the
choice of tax base along the income-consumption spectrum and the coordination of personal and corporate tax rates. Recent U.S. tax reforms have lowered
the tax rates on capital income. Comprehensive reform could uniformly lower
the level of capital income taxation, and could thus reduce the distortions of
the current tax system and support greater potential economic growth.

Comprehensive Business Taxation
One shortcoming of the U.S. tax system, discussed above, is the double
taxation of corporate income, which subjects capital income to a high effective
rate. Since 2003, the United States has taken steps to reduce this problem by
applying a substantially lower (15 percent) individual tax rate to dividend
and capital gains income, thereby implicitly applying a two-rate system. The
President has recommended making permanent these lower tax rates on capital.
Over the years, several comprehensive reforms to integrate corporate and
personal income taxes have been proposed. The Treasury Department
developed a proposal for a Comprehensive Business Income Tax (CBIT) in
the 1990s. The proposed system was designed to give equal tax treatment to

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corporate debt and equity, tax corporate and noncorporate businesses alike,
and reduce the tax distortions between retained and distributed earnings. The
CBIT still provides a relevant prototype for integration within the context of
an income tax system. Alternatives have also been proposed that move away
from reliance on an income tax by implementing a cash-flow business tax (see
Box 5-2, for example).

Box 5-2: Simple, Fair, and Pro-Growth: Proposals to Fix
America’s Tax System
Recommendations of the President’s Advisory Panel on
Federal Tax Reform
The President’s Advisory Panel on Federal Tax Reform was charged
with evaluating the current Federal tax system and developing alternatives that achieved improvements in simplicity, fairness, and growth
potential. They were asked to make at least one recommendation based
on the current income tax system, to make their recommendations
revenue-neutral, and to preserve incentives for charitable giving and
home ownership. In addition, the panel chose to design their recommendations to preserve the current distribution of tax burden. Their
2005 report recommends two alternatives to the present income tax
system: a Simplified Income Tax (SIT) and a Growth and Investment Tax
(GIT). The SIT plan is a simplified version of the current income tax
system. The GIT plan moves to a modified consumption tax that retains
some income tax elements.
These two proposals have several features in common. They both
have fewer tax brackets and lower top marginal tax rates for individuals
and families than the current system. Both plans would repeal the
Alternative Minimum Tax (AMT) for families and corporations. Both
simplify the tax treatment of savings and lower the tax burden on
productivity-enhancing investments by businesses. Either plan would
be substantially simpler than the present tax system, and both plans
maintain the present distribution of tax burden across income groups.
The two plans diverge primarily in their taxation of business and
capital income, using different bases for business taxation. The SIT plan
retains a simplified income tax applied to corporations, while the GIT
plan would apply a cash-flow tax to all businesses (not just corporations).
While they both lower the effective tax rate on capital income, they use
different approaches to do so. The SIT plan excludes dividends paid to
individuals from the individual income tax base and excludes 75 percent

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Box 5-2 — continued
of corporate capital gains from U.S. companies, while the GIT plan
applies a uniform 15 percent tax to interest, dividends, and capital gains
at the individual level. The SIT plan adopts a simple accelerated depreciation method for investments, while the GIT plan would permit full
expensing of investment. The plans also tax foreign income differently.
The SIT plan taxes income on a territorial basis (with foreign-sourced
income untaxed), while the GIT cash-flow tax is destination-based (with
exports untaxed).
Either of these two recommendations represents a significant step
forward in making the U.S. tax system simpler, fairer, and growthenhancing, but each would involve substantial transition costs. They
deserve serious consideration and more comprehensive analysis.

The President’s Tax Reform Panel
The broader goals of any comprehensive tax reform should be the creation
of a system that is simple, is fair, and promotes economic growth. The
President’s Tax Reform Panel sought to design revenue-neutral and distribution-neutral plans to achieve these goals. The panel proposed two prototypes
for reform: a Simplified Income Tax (SIT) and a Growth and Investment Tax
(GIT), summarized in Box 5-2. Both of these proposals fundamentally alter
the tax bases for individuals and businesses as well as the treatment of capital
income. Either of these reforms would represent a large change and involve
important transition issues. While each plan embodies features that are attractive from the point of view of efficiency, fairness, and simplicity,
comprehensive review of these plans and policy debate is needed before
making such substantial changes to the tax system.

Conclusion
Every government faces choices about how to design its tax system in order
to finance the services it provides for its citizens. Because virtually all forms of
taxation distort economic decision making, each country faces the challenge
of designing a tax system that raises needed revenue and achieves distributional
and other goals while distorting economic decisions as little as possible. By taking
into account the effects of tax rules on the economic behavior of individuals and
firms, governments can provide a tax environment that fosters the most-efficient
allocation of resources and the best economic performance possible.
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The United States has chosen to impose an overall tax burden that is low
relative to most other industrial countries and to rely most heavily on the
personal income tax. Governments of other advanced economies rely less on
personal income taxation and more on consumption taxes, such as valueadded taxes, in order to finance a larger public sector. Given the U.S. reliance
on the personal income tax, we face the continuing challenge of keeping the
income tax base broad and the rates low in order to keep the economic burden
of taxation as small as possible.
Global tax reforms have changed the tax landscape substantially in recent
years. Other advanced economies have generally reduced taxes on wage and
salary income, reduced taxes on capital income under the personal income tax
(in particular, capital gains and dividends), and reduced taxes on corporate
income. While our personal income tax rates are comparable to those of other
countries, our corporate tax rate is now the second highest among OECD
countries. These international differences could endanger the ability of the
U.S. economy to attract capital in a world where capital is increasingly
mobile. Any reform of the U.S. tax system should aim to improve the
performance of the U.S. economy and to spread the burden of financing
government spending simply and fairly.

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C H A P T E R

6

The U.S. Capital Account Surplus

T

he United States conducts a large number of trade and financial
transactions with other countries. These transactions are recorded in the
U.S. balance of payments accounts. The balance of payments consists of two
subaccounts. One subaccount is the current account. The current account
consists largely of the trade balance, which records U.S. imports and exports
of goods and services. The second subaccount is the capital and financial
account (hereafter called the capital account), which records U.S. net sales or
purchases of assets—stocks, bonds, loans, foreign direct investment (FDI),
and reserves—with other countries during the same time period.
In 2004 (the most recent calendar year for which data exist), the United
States ran a current account deficit of $668 billion. This deficit meant the
United States imported more goods and services than it exported. The counterpart to the U.S. current account deficit was a U.S. capital account surplus.
This surplus meant that foreign investors purchased more U.S. assets than U.S.
investors purchased in foreign assets, investing more in the United States than
the United States invested abroad. By economic definition, a country’s current
and capital account balances must offset one another. Therefore, the U.S.
current account deficit was matched by a capital account surplus of $668
billion (including $85 billion in net statistical discrepancies within the capital
account, which are included in part to ensure the accounts sum to zero).
Because foreigners invested more in the United States than the United
States invested abroad, the United States received net foreign capital and financial inflows (hereafter called net capital inflows). Countries like the United
States that run capital account surpluses and current account deficits receive
net foreign capital inflows. In contrast, countries that run capital account
deficits and current account surpluses experience net foreign capital outflows.
Between 1980 and 2004, the United States ran a capital account surplus
and a current account deficit in all but three years. More recently, net capital
inflows to the United States have risen sharply (Chart 6-1). The $668 billion
in net inflows received in 2004 was nearly $300 billion greater than the level
of net inflows received only three years earlier. As a percent of U.S. Gross
Domestic Product (GDP), net capital inflows rose from 1.5 percent in 1995
to 4.2 percent in 2000 to 5.7 percent in 2004. In 2005, U.S. net capital
inflows are likely to have exceeded 6 percent of GDP and ranged from
$700 to $800 billion in dollar terms.

125

Recent growth in U.S. net capital inflows has sparked debate about the
causes of these inflows. As this chapter discusses, a variety of factors explain
recent trends in U.S. capital inflows. One of these factors is the pattern of
national saving (hereafter called domestic saving) and domestic investment in
the United States and other countries. This perspective on foreign capital
flows—linking domestic saving and investment balances—is consistent with,
but somewhat different from, analyses that explain U.S. capital inflows by
focusing narrowly and exclusively on the U.S. trade deficit. In a view that
emphasizes trade flows, U.S. net capital inflows result directly from the excess
of U.S. imports over U.S. exports. In contrast, a view that emphasizes
domestic saving and investment balances highlights a wider range of factors
within countries that can lead them to experience net capital inflows or
outflows. Key points of this chapter are:
• The size and persistence of U.S. net capital inflows reflects a number of
U.S. economic strengths (such as its high growth rate and globally
competitive economy) as well as some shortcomings (such as its low rate
of domestic saving).

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• The recent rise in U.S. net capital inflows between 2002 and 2004 in
part reflects global economic conditions (such as a large increase in crude
oil prices) as well as policies (such as China’s exchange rate policy) and
weak growth in several other large economies (such as Germany) that led
to greater net capital outflows from these countries.
• The United States is likely to remain a net foreign capital recipient for a
long time. However, the magnitude of future U.S. net capital inflows is
likely to moderate from levels observed in recent years.
• Encouraging greater global balance of capital flows would be helped by
steps in several countries. The United States should raise its domestic
saving rate. Europe and Japan should improve their growth performance
and become more attractive investment destinations. Greater exchange
rate flexibility in Asia, including China, and financial sector reforms
could increase the role of domestic demand in promoting that region’s
future growth.
In addition, the chapter makes two broader points. First, global capital
flows—the flow of saving and investment among countries—should be
analyzed from a global perspective and not by considering U.S. economic
policies alone. Global capital flows are jointly determined by the behavior of
many countries. To understand why the United States receives large net
capital inflows requires understanding why countries like Japan, Germany,
China, and Russia experience large net capital outflows.
A second point is the need to distinguish between market-driven and
policy-driven capital flows. For example, recent capital outflows from
Germany have largely reflected market forces and private sector behavior. In
contrast, China’s recent net capital outflows largely reflect policy decisions. In
the United States, capital inflows have reflected a combination of market
forces and policy behavior. Separating market from policy-related sources of
capital flows is important for understanding capital flow patterns and to
consider how these flows may change in the future.
This chapter is structured in five parts. The first part explains the distinction
between countries that are net capital importers (receiving net capital inflows)
and countries that are net capital exporters (experiencing net capital outflows).
One key theme is the link that exists between saving and investment balances
within countries and capital flows among countries. The second part of the
chapter examines recent trends in global capital flows. Next, the chapter examines four countries that were the world’s largest net capital exporters in
2004—Japan, Germany, China, and Russia—to understand some of the
factors driving their capital outflows. The chapter then examines recent U.S.
capital inflows and their determinants. The final section discusses whether the
United States can continue receiving net capital inflows indefinitely.

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Global Capital Flows—Principles
Global capital flows reflect the matching of saving and investment
opportunities in the global financial system. In any given period, countries can
be classified as net capital exporters or net capital importers. Net capital
exporters have supplies of domestic saving (which includes households, firms,
and the government) that exceed domestic investment opportunities that are
expected to be profitable. Because of their excess saving, these countries export
some portion of their saving to other countries through net purchases of
foreign assets—stocks, bonds, loans, FDI outflows, and reserves. In contrast,
countries that are net capital importers have more domestic investment opportunities that are expected to be profitable than they can fund with their supply
of domestic saving. These countries have excess demand for saving and import
foreign saving through net sales of assets to foreign investors. Broadly speaking,
therefore, global capital flows reflect the interaction between countries that are
net capital importers and net capital exporters.
Stated differently, countries that are net capital exporters run capital
account deficits and current account surpluses. Conversely, countries that are net
capital importers run capital account surpluses and current account deficits. A
country’s capital account balance reflects its net sales or purchases of assets
with other countries. Its current account balance reflects its net sales or
purchases of goods and services with other countries along with net flows of
income and transfer payments. The current account and capital account must
exactly offset one another. This means the value of a current account surplus
will be mirrored by the value of a capital account deficit, and a current
account deficit will be mirrored by a capital account surplus of equal value.
Capital flows provide benefits to both groups of countries. For capital
exporters, net outflows allow them to earn a higher return on their savings by
investing abroad than they expect to earn by investing in their own countries.
For capital importers, drawing on foreign savings allows domestic investment
to be maintained at a higher level than would otherwise be possible given
their level of domestic saving. Maintaining a high level of capital investment
is critical for promoting future growth.
Changes in the rate of domestic saving or domestic investment will cause
changes in a country’s capital and current account balances. For example, a rise
in domestic investment relative to saving will, all else equal, cause the capital
account surplus to rise and the current account balance to fall. In this case, net
capital inflows will increase (or, for countries already experiencing net capital
outflows, net outflows will decrease). Conversely, an increase in domestic
saving relative to investment will cause the capital account balance to decrease
and the current account balance to increase. In that case, net foreign capital
outflows will increase (or net capital inflows will decrease). Therefore, one way
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of assessing changes in current and capital account balances is to examine
changes in domestic saving and investment rates (see Box 6-1).

Box 6-1: Analyzing the Current and Capital Account Balances
There are two ways to analyze the current account balance. The more
widely used perspective measures a country’s imports and exports of
goods, services, net income flows, and net current transfer payments.
Net capital flows, which are recorded in the capital account, reflect
financing from foreigners needed to pay for net import purchases on
the current account. By accounting necessity, the current account and
capital account must sum to zero. Therefore, a current account deficit
will be matched by a capital account surplus of equal magnitude.
The table below shows the U.S. current and capital accounts in 2004.
The current account deficit of $668 billion was offset by an equivalent
capital account surplus (including net statistical discrepancies, previously noted). Line items within the capital account specify the ways that
foreigners invested in the United States. The largest net capital inflow
component was portfolio investment ($763 billion in gross inflows and
$103 billion in gross outflows, equaling $660 billion in net inflows).
Because the United States has a floating exchange rate, changes in its
official reserve assets were small. For countries with fixed exchange
rates, changes in reserves are typically much larger because reserves
are bought or sold through foreign exchange intervention that is undertaken to manage the value of their exchange rate.
Current Account (billion dollars)

Capital Account (billion dollars)

Goods

- $665

Net capital transfers

-

Services
Net income
Net current transfers
Total

+ $48
+ $30
- $81
- $668

Net foreign direct investment
Net portfolio investment
Net banking and other flows
Net statistical discrepancies
Net change in official reserve assets
Total

- $145
+ $660
+ $67
+ $85
+ $3
+ $668

$2

Source: Bureau of Economic Analysis, International Monetary Fund, International
Financial Statistics

Another perspective on the current account compares domestic
saving with domestic investment. When domestic investment exceeds
domestic saving, a country has excess demand for saving that is met
by drawing on other countries’ saving. Foreign capital inflows may
reflect expectations by foreign investors that they will realize a higher

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Box 6-1 — continued
return by investing in other countries than they will earn by investing in
their own countries. In this case, capital inflows broadly reflect the
attractiveness of investing in one economy relative to other economies.
The table below shows U.S. domestic saving and domestic investment in 2004. Because domestic investment exceeded saving, a current
account deficit and capital account surplus resulted. The total sums to
the same amount regardless of whether the current account is looked
at through trade flows or through saving and investment flows.
U.S. Savings and Investment—2004 (billion dollars)
Gross domestic saving
Gross domestic investment
Net other flows

+ $1,572
+ $2,301
+
$61

Total

$

668

Source: Bureau of Economic Analysis

Global Capital Flows—Recent Patterns
What is the current pattern of net capital inflows and outflows across
countries? How has this pattern changed in the past decade? Chart 6-2 shows
the United States was the largest net capital recipient in 2004. Spain, Great
Britain, Australia, and Turkey were also net capital recipients. Japan, Germany,
China, Russia, and Saudi Arabia were the largest net capital exporters.
Between 1995 and 2004, global saving and investment patterns changed in
a number of respects. Some of the more important changes were:
• Declining concentration among net capital exporting countries. Falling
concentration means that a wider range of countries experienced net
capital outflows. In 1995, the world’s largest net capital exporter (Japan)
accounted for 39 percent of global net capital outflows and the five
largest net capital exporters accounted for 70 percent of net outflows. In
2000, the largest net capital exporter accounted for 24 percent of net
outflows while the five largest net exporters accounted for 48 percent of
net outflows. In 2004, the largest net exporter accounted for 20 percent
of net outflows while the five largest net exporters accounted for
52 percent of net outflows.
• Rising concentration among net capital importing countries. Rising
concentration means that a smaller number of countries received a larger
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share of total net capital inflows. Most of this change reflected higher
U.S. net capital inflows. The United States received 33 percent of global
net capital inflows in 1995, 61 percent in 2000, and 70 percent in 2004.
The five largest net capital recipients received 57 percent of global net
capital inflows in 1995, 78 percent in 2000, and 86 percent in 2004.
• A change in net capital flow positions for some large countries. Germany
experienced the largest change in its net capital flow position. In 1995
and 2000, Germany received $30 billion in net capital inflows but had
$104 billion in net outflows in 2004. Saudi Arabia also went from small
net capital inflows in 1995 ($5 billion) to large net capital outflows in
2004 ($52 billion).
• A change in the regional composition of capital flows. Developing Asian and
Middle Eastern countries also became large net capital exporters. In
1995, developing Asian countries had net inflows of $42 billion, but had
net outflows of $93 billion in 2004. China had $2 billion of net capital
outflows in 1995, $21 billion of net outflows in 2000, and $69 billion
in net outflows in 2004. Rising crude oil prices also caused many
oil-producing countries to become large net capital exporters. Middle
Eastern countries had net capital inflows of $1 billion in 1995 and
$103 billion of net outflows in 2004.

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• Net capital outflows from developing countries. In 1995, developing and
emerging market countries as a whole received $84 billion in net capital
inflows. In 2000, they experienced $91 billion in net outflows. In 2004,
they experienced $367 billion in net outflows. While these countries
remained net recipients of foreign direct investment (FDI) inflows, they
became large net purchasers of foreign reserve assets. These purchases,
made primarily by central banks, represent a capital outflow because
domestic resources are being invested abroad rather than within
these countries.
• Rising global foreign reserve levels. The value of global foreign reserves
(held primarily by central banks) rose from roughly $1.5 trillion to
$3.9 trillion between 1995 and 2004—a 160 percent increase in a period
when the value of global GDP increased by roughly 40 percent. Global
reserves increased by more than $1.3 trillion in 2002-04 alone. Three
countries accounted for nearly 60 percent of this reserve increase—
Japan, China, and South Korea.

Global Capital Exporters
To understand global capital flow patterns, we can examine in more detail
saving and investment patterns in some of the largest capital importers and
exporters. The world’s four largest net capital exporters in 2004 were Japan,
Germany, China, and Russia. In total, these countries exported more than
$400 billion of domestic savings to other countries through their net
purchases of foreign assets. Net capital outflows from these four countries
represented 46 percent of outflows among all net capital exporting countries
in 2004.
While these countries exported large amounts of their saving to other
countries, they also differed in several respects. Recent capital outflows from
Japan and Germany, for example, have been associated with weak growth
while Russia and China have experienced rapid growth. Germany’s capital
outflows largely reflect private sector, market-driven behavior whereas China’s
outflows reflect policy behavior. Japan and Germany have run fiscal deficits
while Russia has had a fiscal surplus. Japan and Germany have had falling
rates of domestic investment while China has had a rising rate. What these
countries have had in common, however, were supplies of domestic saving
that exceeded their domestic investment.

Japan—Deflation and a Falling Investment Rate
With net capital outflows of $172 billion, Japan was the world’s largest net
capital exporter in 2004. Between 1995 and 2004, Japan was the world’s
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largest net capital exporter every year, “pushing” more than $1.1 trillion in
excess saving into the global financial system. Moreover, the level of Japan’s
net capital outflows increased each year from 2001 to 2004.
Recent growth in Japan’s net capital outflows has resulted primarily from a
falling domestic investment rate rather than a higher saving rate. Between
1995 and 2004, Japan’s domestic saving rate fell from 30 percent to 28percent
of GDP. During this same period, Japan’s domestic investment rate fell from
28 percent to 24 percent of GDP. This widening gap between saving and
investment—Japan’s excess supply of saving—led to higher net capital
outflows and a corresponding rise in its current account surplus. Japan’s
current account surplus rose from 2.1 percent of GDP in 1995 to 2.5 percent
of GDP in 2000 to 3.7 percent of GDP in 2004.
Japan’s investment rate has fallen for several reasons. A declining population
and slowing growth in its labor force has reduced Japan’s need for physical
capital. Japan also arguably suffered from a large excess of capital investment
in the late 1980s. This previous experience with overinvestment, growth in
bad loans among Japan’s banks, and the slow growth Japan has experienced
since the early 1990s following the collapse of its “bubble economy” have
made Japanese firms more cautious about undertaking new domestic investment. Deflationary pressures (a decline in the overall price level) have also
weakened private investment since firms are often more reluctant to initiate
new investment when future prices are expected to fall.
The key source of Japan’s rising saving-investment imbalance has been its
corporate sector. Between 1995 and 2004, Japan’s corporate sector went from
being a net borrower of funds (investing more than it saved) between
2 percent to 3 percent of GDP to a net lender of funds (saving more than it
invested) equivalent to nearly 15 percent of GDP. During this same period,
the rate of net saving in Japan’s household sector fell by roughly 70 percent
(from 10 percent to about 3 percent of GDP) while Japan’s public sector was
a large net borrower of funds. Therefore, rising net savings by Japanese firms
explain much of the recent growth in Japan’s net capital outflows.
After a long period of slow growth, Japan’s economy showed some signs of
improvement in 2005. Financial ratios among firms improved, and growth
prospects appeared to improve. Japan’s central bank forecast that deflation is
likely to end in 2006. Business confidence strengthened and commercial bank
lending began to resume. Japan’s labor market also showed some signs of
strength. The re-election of Prime Minister Koizumi strengthened prospects
for future economic reform. To the extent Japan can achieve sustained
growth, its future net capital outflows are likely to slow. Stronger growth in
Japan will encourage a larger share of its savings to remain at home rather
than being invested abroad.

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Germany—Structural Rigidities and a Falling Investment Rate
With $103 billion in net capital outflows, Germany was the world’s second
largest net capital exporter in 2004. Between 1990 and 2000, Germany
received total net foreign capital inflows of $175 billion. Between 2001 and
2004, in contrast, Germany experienced net capital outflows of more than
$200 billion. Germany’s rising net capital outflows have been mirrored by its
rising current account surpluses. Between 2001 and 2004, Germany’s current
account surplus rose from 0.2 percent to 3.8 percent of GDP.
Like Japan, Germany’s rising saving surpluses and net capital outflows have
stemmed from a falling rate of domestic investment rather than a rising rate
of domestic saving. At 21 percent of GDP, Germany’s saving rate has been
broadly stable over most of the past decade (though it did rise from 2003 to
2004). Domestic investment during this period, however, fell from 22 percent
to 17 percent of GDP—the second lowest investment rate among G8 countries
(the world’s most advanced economies).
Why has Germany’s investment rate declined? One factor has been
structural rigidities in its economy that have slowed Germany’s rate of growth
and opportunities for profitable investment. These rigidities result in part from
legal and microeconomic barriers that limit economic flexibility. Inflexibility
can prolong periods of slow growth because an economy is less able to adjust
effectively to changing conditions in its labor and product markets and achieve
full levels of employment. According to the Organization for Economic
Cooperation and Development (OECD), barriers to new business formation
and investment are higher in Germany than the OECD average. A World
Bank “employment rigidity index” scored Germany’s labor market at 55
(scaled from 0-100, with higher scores implying greater rigidity) compared to
17 for Australia, 14 for Great Britain, and 3 for the United States. Germany’s
standardized unemployment rate is high (9.5 percent in 2005) and its longterm unemployment rate (measuring workers unemployed for a year or more)
was more than 50 percent higher in 2004 than the average OECD rate.
Germany has taken some recent steps to reduce unemployment and
accelerate its growth. Laws limiting temporary and part-time work have been
relaxed. Passage of “Hartz IV” labor reforms in 2004 was aimed at reducing
long-term unemployment by requiring unemployed workers to seek work
more actively. Unit labor costs, which are one widely used indicator of
competitiveness, have recently fallen relative to several other European countries. It is also hoped that Germany’s new government, which took office
in November 2005, may strengthen other growth incentives. Like Japan,
stronger growth in Germany will encourage a larger share of its domestic
savings to be used at home rather than invested abroad.

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China—Exchange Rate Management and a Rising Saving Rate
With $69 billion in net outflows, China was the world’s third largest net
capital exporter in 2004. China’s role as a net capital exporter may seem
surprising given the large foreign investment inflows it experiences. While
China does receive substantial foreign investment, it experiences even larger
capital outflows due to foreign reserve accumulation by its central bank that
results from its foreign exchange regime. As China’s reserves have risen in
recent years, its capital account balance has moved toward larger deficits and
its current account toward larger surpluses. In 2004, China’s current account
surplus was equivalent to 4 percent of GDP (note that in December 2005,
China increased the estimate of its 2004 GDP, which is likely to reduce the
size of this current account surplus relative to GDP). Current projections
indicate China’s current account surplus is likely to have exceeded 6 percent
of GDP in 2005.
China’s reserves have increased due to its rising current account surpluses,
net private capital inflows, and tightly managed pegged exchange rate system.
China first adopted its currency peg in 1994, linking its currency (the
renminbi) to the U.S. dollar at a rate of 8.3 renminbi-per-dollar. To maintain
this peg, China’s central bank has purchased large amounts of foreign
currency assets in recent years to prevent its currency from appreciating. Even
after modifying its exchange rate peg in July of 2005, however, (linking the
renminbi to a basket of currencies rather than the U.S. dollar alone) China’s
foreign reserves have continued to rise. By the end of 2005, China’s foreign
reserve level exceeded $800 billion and may rise to $900-$1000 billion by the
end of 2006. Between 2000 and 2005, China’s foreign reserves increased by
more than $600 billion.
In terms of its saving and investment balance, China’s net capital outflows
have resulted primarily from a rising saving rate. While China’s rate of
domestic investment has also been rising (projected 46 percent of GDP in
2005 prior to its GDP revision), its saving rate has risen even more rapidly.
At roughly 52 percent of GDP, China’s saving rate is the highest in the world.
Several factors contribute to China’s high saving rate. China’s “one child”
policy, enacted to control its population growth, has contributed to its aging
population by reducing the share of younger groups within its population.
Because older workers typically earn and save more than younger workers,
China’s saving rate has increased as its workforce has aged. The absence of a
strong social safety net (including adequate public pensions and health care)
increases the need for precautionary household saving. The absence of welldeveloped financial markets and consumer credit mechanisms contribute to
high saving by forcing many people in China to save large amounts of cash
before making purchases rather than by taking consumer loans that can be
repaid gradually. China’s tightly managed exchange rate and foreign exchange
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intervention to limit currency appreciation also contribute indirectly to its high
saving rate. Saving is encouraged, in effect, because consumption is discouraged
by China’s exchange rate policy. With a stronger currency, the global purchasing
power of China’s currency would rise, raising its income (in global terms) and
consumption share, and thus reducing its rate of domestic saving.
Greater exchange rate flexibility would encourage China’s productive
resources to move toward domestic rather than export production. Greater
financial development would help to raise consumption spending (and reduce
saving) by providing credit mechanisms for purchases that are currently paid
for with cash. A reduction in China’s saving rate and greater reliance on
domestic demand are essential for China to sustain its future growth. At
roughly 45 percent of its GDP, China’s domestic investment rate could create
future risks for its economy (see Box 6-2).

Russia—Growth in “Petrodollars” and a Rising Saving Rate
With $60 billion in net outflows, Russia was the world’s fourth largest
capital exporter in 2004. Russia’s net capital exports have been closely linked
to higher export revenues resulting from rising oil and natural gas prices. Oil
export revenues are sometimes referred to as “petrodollars.” With oil sales
accounting for over 40 percent of its exports, Russia’s export revenues rose by
more than 50 percent between 2002 and 2004 ($107 billion to $183 billion)
while its current account surplus rose to more than 10 percent of GDP.
In terms of its domestic saving and investment balance, Russia’s growing net
capital outflows have resulted primarily from higher saving. Between 2002 and
2004, domestic saving rose from 29 percent to 31 percent of GDP. A higher
saving rate has been reflected by rising fiscal surpluses. Between 2002 and
2004, Russia’s fiscal surplus rose from 1 to 5 percent of GDP while its rate of
net private sector saving declined from 8 to 5 percent of GDP.
Large petrodollar increases have also occurred in other oil producers. Chart
6-3 shows current account surplus levels among 12 of the world’s largest oil
exporters, whose combined current account surplus and net capital outflows
rose by 134 percent between 2002 and 2004.

The United States and Net Capital Inflows
Overview
The United States received $668 billion in net foreign capital inflows in
2004 (including $85 billion in net statistical discrepancies recorded in its
capital account). This capital account surplus was the counterpart to the U.S.
current account deficit. This section examines four questions about the U.S.
136 | Economic Report of the President

Box 6-2: High Saving and Financial Sector Inefficiency
Can a country save too much? While a higher saving level might
always seem beneficial, higher saving can create costs if those savings
are poorly used. Excess saving can sometimes lead to overinvestment
that reduces the quality and efficiency of new capital investment and
can sometimes create problems in a country’s banking system by
increasing the share of non-performing loans (NPLs).
An NPL is a loan that cannot be fully repaid by a borrower. Higher
NPL ratios imply that investment spending may be inefficient because
loans are not being fully repaid. High NPLs can create a number of
problems. One problem is that banks often become more cautious
about new lending as NPL ratios rise. New loans are unlikely to be
approved if previous loans are not being repaid. Slower bank lending,
in turn, can slow economic growth more broadly.
Another more direct problem can result when NPL ratios become so
high that banks themselves face bankruptcy due to widespread loan
defaults and falling bank capital adequacy ratios. In this case, governments must sometimes recapitalize weak banks or pay off insured
depositors of banks they close. The cost of closing U.S. savings and
loan institutions that failed in the 1980s was $150 billion, or roughly
3 percent of GDP In Chile, bank failures in the early 1980s cost more
.
than 40 percent of GDP Spain paid costs equivalent to nearly 20 percent
.
of its GDP following a banking crisis in the late 1970s and early 1980s.
High saving rates can increase NPLs by encouraging banks to take
imprudent risks. For example, lending standards may be reduced.
Loans for weak borrowers that otherwise lack creditworthiness are
more likely to be approved when saving is high and interest rates are
low. If interest rates later rise, however, borrowers whose rates rise
may not repay their loans, causing NPL ratios to rise. If in contrast
interest rates that borrowers pay remain fixed, then banks can again
suffer losses because they must pay higher rates to their depositors but
cannot charge higher interest rates on loans to their current borrowers.
Japan arguably experienced a large capital overhang in the 1990s
after a long period of high saving and investment as well as the emergence of its “bubble economy” in the late 1980s. Average saving and
investment rates in Japan were roughly 35 percent of GDP in the 1970s
and 30 percent of GDP in the 1980s. China, however, likely has even
higher saving rates. Not surprisingly, China’s NPL ratio is also believed
to be high. While China’s official statistics report NPLs are roughly
10 percent of outstanding loans, unofficial estimates suggest China’s
NPL ratio may be closer to 25 percent (by comparison, NPLs among
U.S. banks are less than 1 percent).

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capital account: (1) How do U.S. capital inflows compare with other
countries? (2) Has the U.S. share of global capital inflows changed? (3) Has
the composition of U.S. capital inflows changed? (4) What factors encourage
foreign capital flows into the United States?
Most of this section focuses on the final question. One conclusion is that a
high rate of growth relative to many other advanced economies has
contributed to U.S. net capital inflows. Among advanced economies, capital
flow patterns in the past decade have tended to be positively correlated with
growth performance. Countries with higher rates of growth have tended to
run current account deficits (and received net capital inflows), while countries
with lower growth rates have tended to run current account surpluses (and
experience net capital outflows—Chart 6-4).

Net Capital Importers—International Comparisons
Since 1995, three countries have been consistent recipients of net capital
inflows—the United States, Australia, and Great Britain. Average annual net
capital flows to Australia have been largest (4.6 percent of GDP), second
largest for the United States (3.3 percent of GDP), and third largest for Great
Britain (1.6 percent of GDP). Spain also received average annual net capital
inflows (2.5 percent of GDP) during this period. Australia has the longest
138 | Economic Report of the President

record of capital account surpluses (and current account deficits), receiving
net foreign capital inflows every year since 1974.
Between 2001 and 2004, net capital inflows increased for most of these
countries. Spain’s net inflows rose by 1.4 percent of GDP (to 5.3 percent of
GDP). U.S. inflows rose by 1.9 percent of GDP (to 5.7 percent of GDP).
Australia experienced the largest increase, where net inflows rose by 4.1 percent
of GDP (to 6.4 percent of GDP). Net inflows to Great Britain slowed slightly
(to 2.0 percent of GDP).

U.S. Share of Global Flows and the Asset Composition
of U.S. Capital Inflows
The U.S. share of net global capital inflows has risen over the past decade.
The United States received 33 percent of global net capital inflows in 1995,
62 percent in 2000, and 70 percent in 2004. The composition of net foreign
capital inflows to the United States has varied. Between 1995 and 2004,
foreign official sector holdings of U.S. assets averaged 14 percent of foreign
asset holdings (ranging from a high of 16 percent to a low of 11 percent).
Gross foreign direct investment (FDI) inflows to the United States, representing larger foreign equity purchases, averaged 26 percent of foreign
holdings in this period (ranging from a high of 33 percent to a low of
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22 percent). Foreign holdings of U.S. Treasury securities averaged 15 percent
of foreign holdings (ranging from a high of 21 percent to a low of 11 percent).

Causes of U.S. Capital Inflows
What factors encourage large and persistent U.S. foreign capital inflows?
Several factors, which reflect U.S. economic strengths, encourage these
inflows. In particular, a high rate of U.S. growth encourages foreign capital to
be “pushed” toward the United States. In contrast, one U.S. shortcoming that
“pulls” foreign capital to the United States is its low rate of domestic saving.

Low and Declining U.S. Saving
At 13 percent of GDP, the U.S. domestic saving rate is the lowest among
the advanced economy countries (Chart 6-5). Moreover, the U.S. domestic
saving rate has declined in recent years. With a domestic investment rate
equivalent to 20 percent of GDP, low U.S. saving requires the United States
to draw on foreign saving to fund a part of its domestic investment. This
excess U.S. demand for saving is reflected by the U.S. current account deficit.

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When we disaggregate the decline in U.S. domestic saving into its three
parts—personal saving, corporate saving, and public saving—we see the
personal saving rate has declined from 3.4 percent of GDP in 1995 to
1.3 percent of GDP in 2004 (for more discussion, see Chapter 3 in this report
on Saving for Retirement). This decline in personal saving is mirrored by a
rise in personal consumption spending, whose share of GDP has risen from
67 percent to 70 percent of U.S. GDP. U.S. corporate saving has remained
relatively stable at between 18 and 19 percent of GDP.
Public sector saving also declined. Between 2000 and 2004, the federal
budget balance went from a surplus equivalent to 2.4 percent of GDP to a
deficit equivalent to 3.6 percent of GDP. Fiscal deficits represent dissaving, or
net borrowing, which requires the public sector to draw on domestic private
sector resources (firms and households) and the foreign sector. While a
growing fiscal deficit has contributed to U.S. demand for foreign saving, and
thus affected the U.S. current account deficit, the extent to which it has done
so is unclear (Box 6-3).

Box 6-3: The Link Between Fiscal and Trade Deficits
Most economists agree that fiscal deficits will, all else equal, lead to
an increase in a country’s trade and current account deficits. Fiscal
deficits are a form of “dissaving, so fiscal deficits reduce the avail”
ability of domestic saving to fund investment. Unless this decline is
matched by an equal decline in domestic investment, net demand for
foreign saving will rise. Fiscal deficits will thus cause net capital inflows
to increase.
However, the effect of fiscal deficits on trade and current account
deficits may be considerably less than dollar-for-dollar. For example,
one study by the Federal Reserve has estimated that each dollar change
in the fiscal deficit leads to a change in the trade deficit of approximately 20 percent. This means that reducing the U.S. fiscal deficit by
$100 billion would reduce the trade deficit by only $20 billion.
The relationship among fiscal deficits, the current account, and the
capital account is complex because the current and capital accounts
also depend on private sector behavior. In Japan and Germany, for
example, recent current account surpluses and capital outflows have
been associated with large fiscal deficits because private saving
balances in those countries have been large and outweighed public
sector dissaving.

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Box 6-3 — continued
As the chart below indicates, U.S. fiscal and current account balances
have sometimes moved in the same direction and other times in
different directions. For example, between 1997 and 2000 the U.S.
Federal public sector balance moved from a deficit of 0.3 percent of
GDP to a surplus of 2.4 percent of GDP During this same period, the
.
current account deficit widened from 1.7 percent to 4.2 percent of GDP
.
In the early 1980s and early 1990s, the United States came close to
current account balance even though the public sector ran large fiscal
deficits because a large private sector saving surplus existed then.

High U.S. Economic and Productivity Growth
Other factors that attract foreign capital inflows to the United States reflect
strengths of the U.S. economy. One factor is the high rate of U.S. growth.
Between 1995 and 2004, annual real GDP growth in the United States averaged 3.2 percent compared to 1.1 percent in Japan, 1.4 percent in Germany,
and 2.3 percent among Eurozone economies (the group of 12 European
countries with a common currency). In the most recent years within this
period, these growth differentials widened further.
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Higher growth tends to attract foreign capital for two reasons. First, higher
growth leads to a higher rate of import growth. All else equal, higher import
growth will lead to a decline in a country’s trade balance and increase its
demand for foreign saving. Second, higher growth attracts foreign capital
inflows because growth contributes to higher potential corporate earnings and
investment returns.

High Productivity Growth
High U.S. growth and capital inflows are supported by high productivity
growth. The broadest measure of productivity is multi-factor productivity
(which broadly measures the efficiency with which capital and labor inputs
are used). OECD data comparing multi-factor productivity across countries
for the period 1995-2003 indicate that the United States and Australia had
relatively high rates of productivity growth, Canada, Great Britain, and
Germany had more modest rates of growth, while Japan had a low rate of
productivity growth.

Favorable U.S. Business Climate and Global Competitiveness
A sound business climate can also support high growth and foreign capital
inflows. A sound business climate can enhance efficiency by strengthening
competition. It can reinforce profit maximizing incentives and effective
corporate governance. A sound business climate can also encourage entrepreneurship by reducing the administrative burdens of new business formation.
It can enhance the flexibility of industries through laws that facilitate rapid
restructuring or liquidation of bankrupt firms. In addition, it can promote
efficiency and specialization by reducing international trade barriers.
Several organizations compare business climates across countries. The
World Bank publishes an annual “Doing Business” survey that compares legal
frameworks and business practices. Countries are ranked in part by an “ease
of doing business index.” Results from the World Bank’s most recent survey
ranked New Zealand 1st, the United States 3rd, Australia 6th, Great Britain
9th, Japan 10th, Germany 19th, Spain 30th, Russia 79th, and China 91st.
Another competitiveness survey is published by the World Economic Forum
(WEF). In the WEF’s most recent survey, the United States ranked second in
overall competitiveness (Finland was first). The report ranked Japan 12th,
Great Britain 13th, Germany 15th, China 49th, and Russia 75th.

Financial Market Size
The size of U.S. financial markets also attracts foreign capital by encouraging
investors to hold dollar-denominated assets. Large and efficient financial
markets reduce transaction costs and liquidity risk (the risk that assets cannot
be sold at fair value on short notice) and increase the ability to diversify asset
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holdings. In 2004, U.S. financial markets comprised 32 percent of global
financial markets compared to 26 percent for Eurozone countries and
15 percent for Japan. U.S. stock market capitalization represented 44 percent
of global equity markets compared to 16 percent for Eurozone countries. U.S.
bond markets represented 39 percent of global bond markets compared to
27 percent for Eurozone countries.

Global Role of the U.S. Dollar
Widespread use of the dollar in the global economy also contributes to U.S.
capital inflows. The dollar’s role can be seen in terms of the three classic functions of money. First, the dollar serves as a medium of exchange. Private firms
in different countries use dollars to settle transactions. Second, the dollar
serves as a unit of account. Globally traded goods like oil are denominated in
dollars. Many global debt securities are also dollar-denominated. A number
of countries also use the dollar either as their own currency or as an exchange
rate peg to which their own currencies are tied. Third, the dollar is a store of
value. Private firms hold dollars to help hedge financial risks. Central banks
hold dollars as reserves to intervene in foreign exchange markets, meet foreign
currency demand for debt servicing payments, or help maintain general
financial confidence.
In recent years, the dollar’s future role as a global reserve currency has been
debated. Some have argued this role may diminish. One argument is that the
dollar will face competition from the euro. However, recent estimates indicate
the dollar’s role as a reserve currency has been broadly stable over the past
decade. In 1995, 59 percent of global reserve holdings consisted of dollardenominated assets. In 1999, this figure rose to 71 percent and then declined
to 66 percent in 2004.

U.S. Capital Flow Sustainability
In principle, the United States can continue to receive net capital inflows
(and run current account deficits) indefinitely provided it uses these inflows
in ways that promote its future growth and help the United States to remain
an attractive destination for foreign investment. The key issue concerning
U.S. foreign capital inflows is not their absolute level but the efficiency with
which they are used. Provided capital inflows promote strong U.S. investment, productivity, and growth, they provide important benefits to the
United States as well as to countries that are investing in the United States.
To evaluate the sustainability of these inflows, economists often evaluate a
country’s external debt burden. This debt burden can be seen in terms of
a stock and a flow burden. One stock measure that is sometimes examined is
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a country’s net foreign asset position. Net foreign assets measure the value of a
country’s foreign assets relative to the liabilities it owes to foreigners. When
foreign assets exceed liabilities, a country is a net foreign creditor. When
foreign liabilities exceed foreign assets, it is a net foreign debtor. Net capital
inflows contribute to net foreign debt because some share of these inflows
reflect foreign purchases of debt instruments. A rising level of net foreign debt
may be a warning sign that debt could become unsustainable in the future.
U.S. current account deficits in recent years have caused its level of net
foreign debt to rise from negative 4 percent of GDP in 1995 to negative
22 percent in 2004. Other countries vary in their net foreign asset or debt
positions. For example, Japan is a net foreign creditor (foreign assets
exceeding foreign liabilities) with net foreign assets equivalent to 38 percent
of its GDP. In contrast, Australia is a net debtor with net foreign debt equivalent to 64 percent of its GDP. Great Britain’s net foreign debt is equivalent
to 13 percent of its GDP. While net foreign debt or asset positions can be a
useful indicator, however, these figures must be interpreted cautiously since
what constitutes an “excessive” amount of net foreign debt is far from clear.
One flow measure of the external debt burden is a country’s net foreign
income. Countries either receive or pay foreign income depending on their
foreign asset and liability levels as well as the rate of return they earn and pay
on these assets and liabilities. When a country receives more in interest, dividends, profit remittances, and royalties on its foreign assets than it pays on its
foreign liabilities, it is a net foreign income recipient. When payments exceed
receipts, a country makes net foreign income payments.
One striking feature of the U.S. balance of payments accounts is that the
United States has continued to earn net foreign income despite its rising level
of net foreign debt. For example, the United States earned $30 billion in net
foreign income in 2004 despite a stock of net foreign debt equivalent to
$2.5 trillion. By comparison, Japan received $86 billion in net foreign income
payments in 2004 despite the fact that it held $1.8 trillion in net foreign
assets. Between 1995 and 2004, the United States earned over $200 billion in
net foreign income despite current account deficits that totaled more than
$3 trillion during this period. Therefore, U.S. external debt has not appeared
burdensome by this measure because its net foreign income flows have
remained positive.
While U.S. capital inflows can continue indefinitely, recent levels of net
inflows received are likely to moderate in the future. At more than 6 percent
of GDP, U.S. net capital inflows are unusually high by historical standards.
While no specific “critical value” exists beyond which a country can no longer
necessarily receive net foreign capital inflows, recent growth in U.S. net
inflows has attracted substantial attention. The key questions concern the rate
and magnitude by which U.S. net inflows moderate in the future. In one
scenario, U.S. net capital inflows might drop quickly. In another “soft
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landing” scenario, the adjustment process would occur in a more gradual
manner. While a large share of U.S. net capital inflows reflects foreign private
sector investment that believes a higher risk-adjusted return can be earned by
investing in the United States than can be earned by investing elsewhere,
some policy adjustments (see below) in the United States and abroad could
nonetheless help to increase the likelihood of a soft landing.

Conclusion
This chapter has emphasized the interdependent nature of the global
financial system. To understand U.S. net capital inflows, one must also understand factors that underlie net capital outflows from countries like Japan,
Germany, China, and oil-producing and exporting countries like Russia.
Global capital flows reflect a wide array of conditions in many countries
rather than developments in the United States alone. In some instances,
global capital flows reflect expectations among market participants who invest
in countries where they expect to earn the highest level of risk-adjusted
returns. In other instances, capital flows reflect policy decisions by central
banks to manage their exchange rates.
In both instances, global capital flows provide important benefits for net
capital importers as well as net capital exporters. Net capital importers like the
United States benefit because they can maintain a level of domestic investment they would otherwise have to reduce given their levels of domestic
saving. Net capital exporters benefit because they can earn higher returns on
the saving they invest abroad than they expect to earn by investing in their
own countries.
The interdependence of the global financial system implies that no one
country can reduce its external imbalance through policy action on its own.
Instead, reducing external imbalances requires action by several countries.
Specifically, at least four steps may help to reduce these imbalances.
First, the United States must work to raise its domestic saving rate. Higher
U.S. saving will reduce U.S. demand for other countries’ savings. To increase
saving, the United States should continue its efforts to reduce its fiscal deficit
and raise its personal saving rate. Sections of the U.S. tax code that discourage
saving should be reformed as appropriate. Health care, social security, and
other entitlement programs will require reforms given their large projected
impact on future public spending.
Second, China and other Asian countries should reduce their excess saving
through policies and reforms that promote higher domestic demand.
Financial systems can be reformed and modernized to help expand consumer
credit and reduce the need for high levels of precautionary saving. Managed
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exchange rate regimes should be liberalized more fully. Greater exchange rate
flexibility would provide China with a useful policy tool to help stabilize its
business cycle. It would also help China to reorient its future growth away
from net exports and toward higher domestic demand.
Third, Japan, Germany, and several other large countries should reduce
their supplies of excess saving by promoting higher private domestic demand
and improving their economic growth performance. Raising private domestic
demand will require the implementation of further structural reforms in these
countries that strengthen incentives for private consumption and private
investment. In turn, higher consumption and investment will help to reduce
their external surpluses. While structural reforms are often politically difficult
to enact, they are essential if long-term growth performance in these countries
is to improve.
Finally, oil producing and exporting countries could increase their domestic
investment levels. At least some of this spending could be used to expand oil
sector production that would reduce excess saving in these countries, enhance
the future productive capacity of these economies, and help to ensure
adequate future supplies of oil for the global economy.

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C H A P T E R

7

The History and Future of
International Trade

F

or many decades, the United States has worked to break down trade
barriers across the globe through a wide range of institutions and
agreements. Both the United States and our trading partners have derived
substantial benefits from greater global economic integration. Many American
consumers, firms, and workers are better off because of these efforts.
While the economic research and performance of this time period show the
benefits of trade outweigh the costs, trade liberalization has always brought
anxieties. This has been the case both here in the United States and
throughout the world. Temptations to retreat to economic isolationism often
occur when trade agreements are negotiated and current negotiations are little
different in this regard. Therefore, this chapter provides a retrospective on
U.S. trade policy and an evaluation of the payoff from greater trade and
investment liberalization that has been at the forefront of this country’s
international economic policy for the last 70 years.
The key points in this chapter are:
• Over the past 70 years, policymakers across political parties have
consistently recognized the importance of unfettered international
commerce to America’s standard of living and economic growth, and
have achieved major trade liberalization both here and abroad.
• The net payoff to America from these achievements has been substantial.
Many American consumers, firms, and workers have benefited from
increased trade.
• A number of barriers to trade, especially in services, remain, and the
potential gains to the United States and other countries from further
liberalization are still significant. To move beyond trade liberalization in
goods, the United States is pursuing greater economic cooperation and
more-open markets with our trading partners in order to stimulate
economic growth.

A Retrospective on Trade
The country’s historical influence in promoting global trade liberalization
can be traced back to the early part of the twentieth century, and it spans both
political parties. The early 1930s proved to be a critical turning point in the
evolution of modern American trade policy and heralded the first major
149

American trade liberalization effort. In the decades following, the United
States has spearheaded multinational, regional, and bilateral negotiations in
the interest of advancing trade liberalization. This retrospective illustrates the
undeniable progress toward trade liberalization in the United States. Revenues
from tariffs (a tariff is a tax levied on imports coming into the United States)
in the early 1900s accounted for about half of Federal revenues compared to
less than 2 percent today. From the inception of this country until the Civil
War, tariff revenues were a major source of government revenue. The addition
of the sixteenth amendment to the U.S. Constitution in 1913 broadened the
tax base by introducing the personal and corporate income tax. This change
began the shift away from indirect taxation (import duties and excise taxes)
toward direct taxation on personal and corporate incomes, thereby reducing
this country’s dependence on import duties as a form of revenue.
Before the 1930s, U.S. trade practices fluctuated between trade-promoting
and trade-restricting policies. Prior to World War I, President Woodrow
Wilson pursued an internationalist foreign policy that resulted in import
tariff reductions through the Underwood Tariff Act of 1913. The economic
depression and subsequent reversion to isolationism that followed the 1929
stock market crash led to a rejection of Wilsonian policies in favor of greater
protectionism. The Tariff Act of 1930 (otherwise known as the SmootHawley Tariff ) significantly raised average duties on selected imports to an
all-time high of 59 percent. Such protectionism was designed to reduce
unemployment and increase domestic output. By reducing export markets,
however, the heightened tariff and nontariff trade barriers (such as quotas
or quantitative import restrictions) exacerbated the Great Depression. The
collapse of world trade from 1929 to 1933—a decline of more than twothirds in just four years—followed in the wake of protectionist policies as
countries depreciated their currencies, raised tariffs, and imposed quotas.
These isolationist policies contributed to a spiraling contraction of world
trade and a collapse of domestic demand.
The historic Reciprocal Trade Agreements Act of 1934 marked a turning
point in modern trade legislation. The 1934 Act departed significantly from
previous protectionist policies, and it began the historic shift toward lower
U.S. and foreign trade barriers and greater global economic engagement.
Signed into law by President Franklin D. Roosevelt, the Act passed Congress
with overwhelming support. The 1934 Act was the first of many steps over
the twentieth century leading to America’s relatively liberal trade stance today.
Table 7-1 shows that key milestones in American trade history have been
consistently achieved by a number of administrations.
The Trade Act of 1934 changed U.S. trade policy. The 1934 Act made trade
a shared Congressional and Executive Branch responsibility, and instituted a
so-called bargaining tariff. Up to that point, trade policy had been primarily
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TABLE 7-1.— Important Milestones in American Trade History
Milestone
(years of negotiation)

Year
Signed
into
U.S. Law

Administrations
involved

Reciprocal Trade Agreements Act of 1934
Kennedy Round (1962–1967)
Tokyo Round (1973–1979)
Uruguay Round Agreements Act (1986–1994)
North American Free Trade Agreement (1990–1993)
Trade Act of 2002 and Renewal of Trade Promotion Authority (2001–2002)

1934
1962
1979
1994
1994
2002

Roosevelt
Kennedy, Johnson
Nixon, Ford, Carter
Reagan, G.H.W. Bush, Clinton
G.H.W. Bush, Clinton
G.W. Bush

a product of the legislative exercise of its Constitutional authority over foreign
commerce. This Constitutional authority left Congress open to the protectionist demands of specific industries and special interests. President
Roosevelt and Secretary of State Cordell Hull recognized this vulnerability
and worked with Congress to enact this reciprocal trade program to make
lower tariffs more politically durable. With the enactment of the Trade Act of
1934, Congress suspended passage of product-specific trade laws and delegated specific tariff-setting to the Executive Branch. Doing so formally
changed the way Congress handled trade issues by insulating elected
representatives from the pressures that had led to protectionism in the past.
The 1934 law also instituted the so-called bargaining tariff. This concept
linked tariff setting to international negotiations, whereby U.S. tariff cuts
were extended in bilateral negotiations to countries that offered reciprocal
tariff reductions benefiting U.S. exporters. In this way, the bargaining tariff
helped to shift the balance of trade politics by engaging the interests of U.S.
exporters. The system effectively allowed the United States to reduce its own
trade barriers and to persuade the rest of the world to reciprocate. In the aftermath of World War II, policymakers correctly predicted that postwar trade
expansion would help to usher in a remarkable era of world prosperity and
contribute to conditions for a stable peace.
A commitment to the Wilsonian notion that prosperity and peace go hand
in hand is at the core of postwar trade liberalization for both political parties
in the United States. An extension of the reciprocal trade agreement, which
Presidents Roosevelt and Truman both had recommended as a keystone of the
country’s postwar international economic policy, passed Congress with strong
support in 1945. The enabling legislation put the Administration in a position to begin in earnest the process of dismantling global trade barriers.
President Harry S. Truman signed the General Agreement on Tariffs and
Trade (GATT) in 1947, bringing the United States into the multilateral trade
regime by executive agreement. The GATT took effect in 1948 and served as

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a forum for trade negotiations whereby every signatory country could enjoy
the concessions of every other signatory (otherwise known as most-favorednation status). Membership in the GATT not only brought the United States
into the multilateral trade regime but also provided a vehicle to rebuild the
postwar economies of Europe and Japan. The lessons of Smoot-Hawley
contributed to broad support for freer trade that was to become a critical
component of U.S. international economic policy. This political consensus
marked a shift toward a broadly accepted liberal market and free-trade philosophy that set the stage for the various multilateral negotiating rounds that
were to follow.
The next major acknowledgment of the necessity of liberalizing trade came
in the 1960s. President John F. Kennedy led the Trade Expansion Act of 1962,
which was approved with substantial support in Congress. The Act authorized the U.S. government to negotiate tariff cuts of up to 50 percent, which
persuaded other countries to actively participate in the Kennedy Round
(1962–1967) of multilateral trade negotiations. Congressional support was
partly due to the inclusion of legislation to assist workers affected by trade,
also known as Trade Adjustment Assistance. At the time, the Kennedy Round
signified the most ambitious series of trade negotiations ever attempted under
the auspices of the GATT. The Round included negotiations on agriculture
for the first time, and reduced barriers to exporters for developing countries.
The Tokyo Round (1973–1979) led to further tariff reductions and
provided new disciplines on nontariff barriers. The Tokyo Round included
“codes of conduct” that were designed to curtail the use of such barriers as
instruments of protection. Launched under President Richard M. Nixon,
continued by President Gerald R. Ford, and signed into law by
President Jimmy Carter with the Trade Agreements Act of 1979, the Round
demonstrated a strong, consistent bipartisan commitment toward freer trade.
As trade liberalization negotiations moved increasingly beyond tariff reductions in nonagricultural products, progress toward greater liberalization
became more difficult for many countries. The Uruguay Round (1986–1994)
launched under President Ronald Reagan nearly collapsed in 1990 over
disagreements about lowering barriers on agricultural products. Following a
redrafting of the agreement by GATT Director-General Arthur Dunkel,
President George H.W. Bush spearheaded efforts to complete negotiations of
the Uruguay Round, and in 1994 President Bill Clinton signed legislation
implementing the final agreement. The Uruguay Round achieved the most
fundamental reform of global trade rules since the creation of the GATT. The
Round established the World Trade Organization (WTO), extended international trade rules beyond goods to include intellectual property rights and
trade in services, and greatly improved procedures for countries to resolve
disputes over international trade.
152 | Economic Report of the President

At present, the United States is actively engaged in the current Doha
Development Round of multilateral trade negotiations that began in 2001.
This round aims to liberalize agricultural trade, lower remaining barriers in
nonagricultural goods trade, and reduce trade barriers in services. The Round
focuses on increasing market access for developing countries as a means to
encourage economic development. Progress has been slower than anticipated,
but the eventual success of the previous Uruguay Round suggests that a
favorable outcome from Doha will emerge.
In addition to multilateral trade liberalization, over the past two decades the
United States has signed a number of bilateral and regional trade agreements.
The protracted nature of multilateral negotiations has been one factor that has
led the United States to aggressively pursue other avenues toward free trade
outside of the major negotiating rounds. Under President Reagan, the United
States signed its first bilateral free trade agreement (FTA) with Israel in 1985.
The United States and Canada signed a bilateral FTA in 1988 after three years
of negotiations. The Bush Administration initiated negotiations for the North
American Free Trade Agreement (NAFTA) in 1991, which President Clinton
signed into law in 1993 and went into effect the following year. In addition to
trade, NAFTA explicitly recognized the benefits of investment liberalization
and included provisions designed to extend national (i.e., nondiscriminatory)
treatment, among other protections to investors.
The United States has recently embarked on a renewed series of bilateral
and regional free trade agreements. The ability of the United States to negotiate trade-liberalizing agreements was strengthened significantly when the
President signed the Trade Act of 2002 into law. That legislation provides the
Executive Branch with the ability to negotiate international agreements that
are subject to an up or down vote, but not amendment, by Congress. The
President’s leadership was vital in securing this important authority to pursue
a full trade agenda including multilateral, regional, and bilateral trade agreements. The President has implemented bilateral FTAs with Jordan, Chile,
Singapore, and Australia. The Administration also has concluded FTAs with
an additional ten countries: Costa Rica, El Salvador, Guatemala, Honduras,
Nicaragua, the Dominican Republic (the Central American-Dominican
Republic FTA, or CAFTA-DR), Morocco, Bahrain, Oman, and Peru. The
United States is currently engaged in negotiations with the United Arab
Emirates, the five nations of the Southern African Customs Union
(Botswana, Lesotho, Namibia, South Africa, and Swaziland), Thailand,
Panama, Colombia, and Ecuador. The adoption of CAFTA-DR is the latest
chapter in America’s trade book, which demonstrates the country’s ongoing
commitment toward trade liberalization and economic development.

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Decades of U.S. trade liberalization achieved on a number of fronts have
had a dramatic impact on U.S. openness to trade. Chart 7-1 shows how
average U.S. tariffs have fallen since 1930. The average tariff on dutiable
goods approached 60 percent at the height of the Great Depression and has
dropped to 4.6 percent. The current average U.S. tariff on all goods (both
dutiable and nondutiable) is just 1.4 percent.
Trade expansion has reached an important juncture, and resistance both
here and abroad to further trade and investment expansion could jeopardize
increased domestic and international economic growth. The retrospective
presented above illustrates America’s historic achievements in trade
liberalization, and, as the next section demonstrates, Americans, on average,
have accrued immense gains along with our trading partners from this
liberalization. The United States has a large stake in the current multilateral
negotiations of the Doha Round. The gains from prior trade agreements
provide grounds to stay the course on trade liberalization.

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The Payoff to America from Global
Economic Integration
Trade liberalization remains a controversial subject because competition
invariably raises both anxieties and opportunities. Reducing obstacles to trade
can help economies grow more rapidly and efficiently in the long run and
create better, higher-paying jobs, while global competition can lead to hardships for others in the short run. (Impacts of international trade on labor
markets are discussed in Box 7-2 later in the chapter.) The appropriate social
and political response to these hardships is a critical issue. For instance, at the
macro level, pro-growth government policies can help set the environment for
economic growth and job creation. Constructive policies that help displaced
workers train for and find new work and increase the portability of pension
and health benefits can also ease adjustment.
The gains from trade liberalization are more widely dispersed than the
losses and often not readily apparent. These gains are evident in lower
consumer prices and the greater variety of products available to consumers.
International commerce helps countries focus resources on strengths and
forces firms to innovate and to set prices more competitively. Studies show
that firms that are engaged in the international marketplace tend to exhibit
higher rates of productivity growth and pay higher wages and benefits to their
workers. An economy with higher overall productivity growth can support
faster GDP growth without generating inflation. And higher productivity
growth means higher sustainable living standards. Taken together, the net
benefits from increased economic integration (greater trade and investment
liberalization) historically have been positive for the United States.

Benefits to Consumers
Lower Prices
International trade fosters competition, which in turn restrains cost. There is
now ample evidence across many countries that greater trade openness and the
resulting exposure to foreign competition reduces the ability of a country’s firms
to charge high markups above production costs. Pressures for lower prices arise
from the direct impact of cuts in trade barriers being passed through to cuts in
prices. They also arise from the broader impact of raising market contestability.
At the detailed product level, many studies have linked lower prices and/or
price-cost markups to measures of trade openness such as tariff rates. Chart
7-2 presents broader evidence of how trade helps lower prices. It presents
indices of U.S. consumer prices and U.S. import prices since 1990. There is
a clear difference between the two indices: Overall consumer prices, which
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include not just imported goods and services but largely nontraded goods and
services, have risen much more than have import prices. The average annual
growth in U.S. import prices for the period 1990–2004 was just 0.6 percent,
compared to a 2.2-percent rise in overall consumer prices. In real terms, total
U.S. imports grew threefold during this same period, from $553 billion to
$1.5 trillion (in 2004 dollars).
In addition to the pro-competitive effects of trade, other important contributors to price restraint are technology advances and innovation. This has been
especially true for consumer electronics and information technology (IT) products. For instance, in just the past eight years, consumer prices of color televisions
are down 50 percent, and Americans today pay 60 percent less for camcorders
and mobile phones. It can be difficult to empirically separate observed price
declines into the relative contributions of trade, technological change, and other
forces. But a simple approach to assessing the role of international trade in price
changes is to compare price changes between more- and less-traded products.
Consistent with the aggregate evidence in Chart 7-2, a clear divergence in price
trends emerges when products are split in this way. Internationally traded products tend to experience lower inflation rates—even real price declines—while
nontraded goods tend to exhibit price increases. Between 1997 and 2004, real
prices fell for an array of highly traded goods, such as audio equipment (-26%),
TV sets (-51%), toys (-34%), and clothing (-9%). In contrast, real prices rose for

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largely nontraded products, such as whole milk (+28%), butter (+23%), ice
cream (+18%), peanut butter (+9%), and sugar and sweeteners (+9%).
Exactly which Americans most enjoy the benefits of lower prices depends
on which products enjoy the largest cuts in trade barriers. Box 7-1 discusses
the regressive nature of the current U.S. tariff schedule.
Box 7-1: The Regressive Nature of U.S. Tariffs
While the average tariff applied to U.S. imports is relatively low at
1.4 percent, there are peaks within the U.S. tariff schedule that fall
most heavily on lower-income consumers. Studies have shown that, on
balance, U.S. trade barriers are regressive because they disproportionately raise the relative price of goods consumed by lower-income
Americans. Some of the most restrictive trade barriers persist on everyday
consumer products such as textiles, apparel items, and footwear.
Tariffs disproportionately affect the poor in two ways. First, many
tariffs are highest on products that represent higher shares of income
expenditures for lower-income households. Staple consumer products
such as shoes and clothing face import taxes over 30 percent, some of
the highest tariffs in the U.S. tariff schedule. Footwear represents
1.3 percent of income expenditures for lower-income households
(1.5 percent for single- parent households) compared to just 0.5 percent
for higher-income households. Similarly, lower-income households (and
single-parent households) spend roughly 6 percent of their disposable
income on apparel, while upper-income households spend just 4 percent.
Second, within these high-tariff product categories, tariffs are often
most pronounced on the cheapest products. That is, products that are
more commonly purchased by lower-income consumers are subject to
higher import taxes than are those commonly purchased by upperincome consumers. For example, lower-priced sneakers ($3–$6 per
pair) are marked up with a 32-percent tariff, while higher-priced
sneakers, such as $100 track shoes, are subject to a 20-percent tariff.
How did the structure of the U.S. tariff schedule become so regressive? The cause was not a concerted effort to maintain relatively high
import taxes on cheaper products. Movement toward increased trade
liberalization tends to occur more slowly in labor-intensive industries
where greater liberalization may be viewed negatively. The situation
may reflect a classic political-economy challenge to liberalizing trade.
The beneficiaries of trade protection are often a much more concentrated, well-organized group of individuals or firms than the millions of
households across the country that bear the costs. However, the current
Doha Round of multilateral trade negotiations offers an opportunity to
eliminate these tariffs and other trade barriers, provided other WTO
members reciprocate.

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Greater Product Variety
International trade also allows consumers to choose from a broader variety of
goods and services. One study shows that that the number of imported product
varieties has increased by a factor of four over the last three decades, reflecting
an important source of gains from trade. Welfare gains from variety growth
alone have been estimated to be a remarkable 2.8 percent of GDP, which
translates into gains of over $4,000 for the average American family of four.
International trade allows year-round availability of seasonal and perishable
food items such as fruits and vegetables. For example, U.S. consumers today
enjoy grapes and peaches from Chile, limes and avocados from Mexico,
mandarin oranges from China, and cashews from India, many during the offseason for U.S. production. Trade also provides U.S. consumers with greater
variety and choice for agricultural products that the U.S. does not produce in
large quantity. For example, Americans enjoy coffees from all over the world,
including from Colombia, Costa Rica, Indonesia, Ethiopia, and Kenya.

Benefits to Firms and Their Workers
Firms can be linked to the global marketplace through many channels:
exporting, importing, investing abroad, or receiving investment from foreign
firms (foreign direct investment, or FDI). Stronger linkages to the global
economy provide export opportunities for U.S. firms, allow firms to realize
economies of scale, and provide the ability to establish and expand global
production networks to lower prices and boost productivity. These opportunities can raise U.S. living standards by allocating national resources toward areas
in which we have a comparative advantage and by raising firm productivity.
Firms exposed to global competition are exposed to the world’s best practices in areas such as supply management, production processes, technology,
and finance. Studies show that firms exposed to the world’s best practices
demonstrate higher productivity through many channels, such as learning
from these best practices, and also creating new products and processes in
response to this exposure. A number of U.S. industries have been compelled
to adjust and innovate as a result of foreign competition via trade and FDI in
the United States.
For instance, by the late 1970s, many Japanese carmakers were outperforming U.S. companies in overall assembly productivity, and U.S. imports of
Japanese cars were rising sharply. America’s leading automakers initially
focused their response on trade protection. But competitive pressures from
Japanese firms continued, in particular through foreign investment in the
United States in the 1980s. This foreign investment established and expanded
“transplant” production facilities in the United States that soon achieved

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productivity levels on par with Japanese plants. These transplants proved to
be a major spur to stepped-up innovation and performance among American
firms. In the steel industry, a combination of foreign competition and the
growth of the highly productive mini-mill sector has compelled U.S.
integrated-steel producers to improve their performance.
Various studies show that globally engaged firms have higher productivity
growth and tend to innovate more than their purely domestic counterparts.
For instance, evidence from the United Kingdom shows that from 1998 to
2000, just 18 percent of domestic firms reported either product or process
innovations compared to 45 percent of globally engaged firms. In recent years
in the United States, over 80 percent of total private-sector R&D spending
has been accounted for by multinational companies (i.e., by the combination
of U.S. parents of U.S.-headquartered multinationals and U.S. affiliates of
foreign-headquartered multinationals). Sales per employee, one simple
measure of productivity, is up to one-and-a-half times larger in exporting
plants than in others. Value-added per employee, another measure of productivity, is up to one-and-a-third times larger in exporting plants than in others.
Exporting plants adopt new technologies more frequently and intensively
than nonexporting plants; they also report more significant benefits from
doing so.
The different channels through which international trade and investment
contribute to productivity growth are very important for long-run U.S. living
standards. Since 1995, the United States has enjoyed an acceleration in laborproductivity growth. From 1973 to 1995, output per worker hour in the
nonfarm business sector grew at 1.4 percent per year. From 1995 to 2004, this
rate accelerated to 2.9 percent per year—with rates averaging over 3 percent
since 2000. Productivity growth of just 1.4 percent per year means average
living standards take 50 years to double. At the faster rate of 2.9 percent per
year, living standards take just 24 years to double.
Many researchers have concluded that IT hardware has been at the core of
this productivity acceleration, citing both faster productivity growth among
IT-hardware firms and greater investment in IT hardware throughout the
economy. It is important to note that these highly successful IT-producing
U.S. firms are among the most globally engaged firms in the U.S. economy.
Exports and imports in the IT sector represent over 70 percent of sector
output, compared to an economy-wide average of 10 percent. In recent years,
IT firms have grown stronger by expanding their global production networks
through increased international investment and trade, with output that
entails multiple production stages across multiple countries. Indeed, today the
United States runs large trade deficits in core IT sectors such as computers and
office products (see Chapter 10).

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American workers, like firms, also benefit from stronger linkages to the
global economy. Studies show that workers in U.S. multinationals receive
wages and benefits up to 18 percent higher on average than their peers in
purely domestic firms. International investment plays an important role, too.
Evidence suggests that wage premiums are 19 percent and 13 percent for
blue- and white-collar manufacturing workers, respectively, in foreign-owned
multinational firms. For American workers in multinationals with foreign
investment backing the wage premiums are 7 percent and 2.5 percent,
respectively. The productivity advantages of globally engaged firms benefit
American workers, insofar as high and rising labor productivity is the
foundation for gains in real wages economy-wide.

Taking Stock of the Benefits of Trade to America
The decades of American efforts to advance trade liberalization described
above have generated substantial gains for the country overall. On the
consumption side, households have enjoyed lower product prices and greater
product variety. On the production side, firms have more efficiently allocated
resources by focusing on areas in which they have a comparative advantage.
Those firms directly engaged in international commerce tend to be more
innovative, more productive, and pay higher wages and benefits to their
workers. Overall, there is substantial evidence that trade has contributed to
high and rising living standards for the average American.
Having discussed the different ways through which freer trade benefits
America, the bottom-line question is how much has America benefited in
total from decades of trade liberalization? Studies have estimated that the
annual payoff from U.S. trade and investment liberalization to date,
including from the Tokyo Round, Kennedy Round, and Uruguay Round,
NAFTA, and other FTAs, is over $5,000 per capita or $20,000 for an average
American family of four. These gains arise through many channels: higher
long-term levels of trade exposure in goods and services that come from trade
and investment liberalization; increased product variety; more efficient allocation of resources; and better transportation and communication
technology. Some economists have conjectured that trade liberalization alone
has accounted for about half of these gains, which implies that the annual
income gain from trade liberalization to date is over $10,000 for an average
American family of four.
Box 7-2 includes a discussion of the impacts of international trade on labor
markets. The effects of trade on the environment are discussed in Box 7-3.

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Box 7-2: Trade and Labor
Job growth in America is driven largely by demographics—
population growth and choices about labor-force participation—and by
macroeconomic policies that affect, in particular, the business cycle. As
the chart below shows, total employment has closely tracked the
number of people in the labor force (employable people) since 1960,
which in turn has closely tracked the overall U.S. population.
Import competition has the potential to generate job losses where firms
fail to adjust their operations to meet new competitors. International
trade can also create better, higher-paying jobs in other industries.
As discussed in the chapter, American jobs in globally-engaged
firms (firms that are engaged in international trade or investment)
are on average better and higher-paying than are jobs in purely
domestic firms.
The dynamic U.S. economy creates and eliminates millions of jobs
each year. The enormous turnover in the U.S. labor market is a reflection of the continuous stream of entry, exit, and resizing of firms in our
ever-changing economy. On average over the past decade, the
economy has had a net creation of nearly 2 million jobs each year. This
net increase has been the result of approximately 17 million jobs
created and 15 million jobs eliminated each year. International trade is
one of the factors behind job turnover, along with changes in consumer
tastes, domestic competition, productivity growth, and technological
innovation. Survey data from the Bureau of Labor Statistics show in
layoffs of 50 or more people between 1996 and 2004 less than 3 percent
were attributable to import competition or overseas relocation.
Moreover, studies have shown that the rate of job creation in globally
engaged companies is faster than the overall private-sector rate, and
that trade-related dislocations on average do not involve longer
unemployment duration or lower re-employment earnings than do
dislocations from other causes.
Any job loss involves hardship, and any job change can involve
challenge. The President has outlined ways to help people gain new
skills in fields where jobs are being created.
It is often asserted that international competition pressures American
earnings. In today’s economy, education is valued more than ever and
is a key determinant of worker earnings. Since the late 1970s, the
returns to education have been rising in the United States, despite the
fact that the supply of educated workers has also grown rapidly,

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Box 7-2 — continued

suggesting that the demand for skills and education has grown even
faster than supply. There is now a large body of empirical research
exploring the causes of rising wage inequality across skills. There is
broad consensus that trade has marginally contributed to rising wage
inequality by placing a higher premium on skills and education. This
contribution has been small compared to other factors such as the
advent of new technologies that demand higher levels of skill.
It is important that the United States help our workers thrive in a
competitive world. The President has said he will not be satisfied until
everyone who wants to work can find a job. At the macroeconomic
level, monetary policy can aim to achieve maximum sustainable
employment with low inflation—irrespective of the trade situation. At
the microeconomic level, constructive policies can help students and
workers, including displaced workers—regardless of the cause of
displacement—train for and find good work in the 21st century. The
President has proposed a number of measures to improve job training,
including Community-based Job Training Grants and Career
Advancement Accounts (for further discussion, see Chapter 2).

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Box 7-3: Trade and the Environment
A nation’s environmental policies are largely determined by domestic
factors. The most direct mechanism through which trade liberalization
could affect environmental quality is through changes in the composition of industries or the scale of industrial or agricultural output. Trade
means greater specialization, potentially increasing the concentration
of polluting industries in some countries (so-called pollution havens)
and decreasing it in others. On the other hand, multinational corporations from industrialized countries that set up operations in
lesser-developed countries often bring a higher level of environmental
performance with them. There is little or no empirical evidence directly
linking trade liberalization to environmental changes.
Trade can affect the environment indirectly as well, both positively
and negatively. Increased trade can lead to higher incomes, and as
incomes rise, the demand for improved environmental quality rises.
Another indirect effect is the influence of trade on the rate of economic
growth, which could either decrease pollution (due to the use of cleaner
technologies through capital stock turnover fueled by economic
growth) or increase pollution (due to increased consumption).
While it is widely recognized that international trade policy measures
are usually not the best method for achieving environmental objectives,
recognition of the importance of the issue has resulted in a number of
significant policy and institutional responses, both nationally and multilaterally. For instance, the environmental side agreements of NAFTA
established the North American Commission for Environmental
Cooperation to undertake capacity-building projects and to put procedures in place that help to monitor each country’s effective enforcement
of environmental laws. Active participation by governments and
institutions is a necessary component of the success of such efforts.
FTAs can provide a basis for enhanced bilateral cooperation on environmental issues. Environmental provisions in NAFTA and U.S. free
trade agreements require each country to effectively enforce its own
environmental laws, and strive to ensure that failure to enforce these
laws does not affect trade or investment. These agreements are accompanied by separate environmental cooperation agreements or
arrangements intended to take advantage of the closer economic ties
and broadened environmental cooperation that goes beyond the trade
sphere. Although some criticize trade agreements for a failure to do
even more to advance environmental policy objectives, others acknowledge the significant benefits associated with the core obligations and
cooperation mechanisms.

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The Policy Scene Today:
Avenues to Further Liberalization
Trade liberalization to date has had substantial benefits. Still, barriers to
international trade and investment remain and limit growth opportunities for
many countries. With the United States accounting for just 5 percent of the
world’s population, 95 percent of the potential consumers of U.S. goods and
services live outside our borders. The prospective gains from further liberalization, particularly in services (e.g., finance, insurance, information
technology, and professional and business services), are substantial for the
United States and our trading partners through greater efficiency of production and higher national incomes. The extent to which different countries
experience gains depends on both the range of sectors that are liberalized
and the extent of liberalization within each sector. The United States is
pressing for freer trade, especially in services, through bilateral, regional, and
multilateral agreements.

Prospective Gains from Further Liberalization
Prospective Gains for the United States
The prospective gains for the United States from further trade reform are
substantial. One study suggests that global free trade in manufacturing and
agriculture would generate annual economic gains of over $16 billion for the
United States, or roughly $220 for the typical family of four. The gains from
removing all remaining barriers to trade in services are substantially larger,
amounting to about an additional $520 billion for the United States, or over
$7,000 for the average American family of four. This is additional income
each year that will not be available in the absence of trade reform. These
income gains would be fully realized in about a decade from the date of liberalization. These large gains reflect the United States having a comparative
advantage in services sectors and the high barriers to services trade in other
countries, which are often investment restrictions that effectively block the
main conduit for trade in services. These restrictions include limits on the
number of service providers, minimum local-content requirements that limit
the participation of foreign firms, nontransparent and burdensome standards
and licensing procedures, and discriminatory access to distribution networks.

Prospective Gains for the Rest of the World
Further liberalization in trade would bring significant global economic
gains, particularly for developing countries. One study reports that the
reduction of all remaining barriers to trade in services would generate over
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$1.5 trillion in income for the world. For full trade liberalization in
agriculture and manufactured goods, the World Bank reports that reducing
trade barriers would generate about $290 billion of additional income to the
world economy each year once the full effects of liberalization are realized,
about a decade out. The income gains are even higher at $460 billion with
more generous assumptions of trade’s effect on economic growth. Nearly half
of those income gains would go to developing countries. Various studies find
that at least half of the developing-country gains would be obtained from
agriculture trade reform by industrialized countries (including the United
States), including tariff reductions and the elimination of subsidies and
domestic support programs. (Agricultural trade reform is discussed in detail
in Chapter 8.)
Debt relief and foreign aid can help to reduce poverty, but trade is a more
powerful tool. For instance, in 2004, industrialized countries spent over
$78 billion on development assistance to poor countries and industrialized
countries are currently considering debt relief of $56 billion. Even the conservative estimate of the $140 billion effect of trade liberalization to developing
countries exceeds both assistance and debt relief combined. Studies show that
reducing barriers to global trade has the potential to lift hundreds of millions
out of poverty. Agriculture liberalization is particularly important since
roughly 75 percent of the world’s poor live in rural areas and farmers
constitute the majority of the poor in developing countries.
The gains from integrating developing countries into the global economy
are not one-sided. As developing countries increasingly participate in the
global economy, industrialized countries benefit from increased export and
investment opportunities in those markets. Over the past decade, U.S. export
growth to developing countries exceeded the rate to industrialized countries.
Yet tariffs and other trade barriers in developing countries remain high (Chart
7-3). Realizing these market opportunities and encouraging development in
these countries requires further trade liberalization efforts while promoting
transparency, good governance, and sound institutions, all necessary building
blocks for economic growth.
Persuading developing countries to reduce trade barriers continues to be an
important objective for the United States. As developing countries become
more active participants in the global economy, they experience higher rates of
economic growth and are better able to reduce poverty. Studies show that over
the past two decades, developing countries that have been more open to free
trade have experienced higher rates of economic growth. During the 1990s,
per capita GDP in developing countries that liberalized more increased
5 percent compared to 1.4 percent growth in other developing countries.
China’s integration into the world economy is discussed in Box 7-4.

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Box 7-4: U.S.-Asia Trade Relationship
The robust postwar economic performance of many Asian countries
has driven the strong U.S.-Asia trade and economic relationship. In
recent years Asian economies have experienced some of the world’s
highest growth rates and will continue to be key export markets for U.S.
firms. Outside of South Asia, trade with the Pacific Rim region represents about 30 percent of U.S. trade with the world. The United States
imports different items from the Asian region than it exports. The top
imports from the Pacific Rim include electrical machinery, automobiles,
toys, furniture, clothing, and footwear. The top U.S. exports to that
region include aircraft, chemicals, plastics, agricultural products, automobiles, and pharmaceutical products.
U.S.-China Trade
Since 1995, U.S. trade with China has represented an increasing
share of U.S. total trade, reflecting some substitution away from other
Pacific Rim trading partners toward China. The United States imports
different items from China than it exports to China. In 2004, top import
items from China included a wide range of consumer goods, such as
toys, sporting goods, apparel, and footwear. Top U.S. export items to
China included a number of intermediate components and machinery,

166 | Economic Report of the President

Box 7-4 — continued
aircraft, soybeans, and cotton. Many imports from China now take
the place of goods previously imported from other countries. China
increasingly is a large and growing market for U.S. goods and services.
As the chart below shows, since China’s accession to the WTO, U.S.
exports to China have risen faster than exports to the rest of the world.
Engaging China
The U.S.-Asia trade and economic relationship offers vast opportunities for citizens in all of these countries to prosper, however, China’s
integration into the global economy will not come without challenges.
For instance, WTO membership has offered China new benefits, such as
Permanent Normal Trade Relations with the United States and access to
the WTO’s rules-based dispute-settlement mechanism. China’s WTO
membership also brings new responsibilities, such as improving the
protection of intellectual property, full compliance with trade agreements, and continued progress toward a flexible, market-based
exchange-rate regime. China has made strides toward economic reform
at all levels of government, but there are areas that require further
progress. The United States will continue to work with China to assist
its integration as a responsible stakeholder in the international
economy and to ensure that bilateral economic relations are
mutually beneficial.

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Avenues for Further Liberalization
Countries are increasingly employing negotiations at the bilateral, regional,
and multilateral levels to achieve further liberalization. These avenues are not
mutually exclusive. The United States employs a multi-faceted approach, and
in recent years has signed a number of bilateral and regional free trade agreements. These agreements set rules for trade, increase market access for firms,
and strengthen the effective enforcement of intellectual property rights and
environmental and labor laws. Other trading partners such as the European
Union (EU) have pursued an even greater number of bilateral and regional
agreements. The WTO nevertheless remains the most important forum for
trade liberalization due to its global reach and the interdependence of the
world economy.
The general consensus on the WTO among academics and practitioners is
that the organization has facilitated increased trade and openness. By establishing a rules-based system, the organization provides a forum for all
members to resolve trade disputes and offers a greater voice to developing
countries in the establishment of global trade rules. These rules help to foster
better business climates, particularly among developing countries, which can
help to reduce corruption and attract more foreign direct investment. The
United States fully supports the role of the WTO in promoting a rules-based
global trading system, opening markets, and encouraging economic growth.
The 149 WTO members are currently engaged in the Doha Development
Round of negotiations, which recognizes that global trade expansion can
make a significant contribution to spurring economic growth and reducing
global poverty. The Doha Round focuses on better integrating developing
countries into the international trading system and enabling them to benefit
from increased trade.

Moving Beyond Goods Trade Liberalization
To date, most trade liberalization has been in the form of reduction in
barriers to goods trade. Using existing trade agreements and partnerships,
trade and investment ties can be strengthened to include services and other
nontariff measures that limit international commerce. This section discusses
how the United States is pursuing deeper economic cooperation across North
America and with the European Union.

Services Liberalization
From telecommunications and finance to health and education, services are
the single largest sector in most industrialized and many developing countries.
Not only do services provide the bulk of employment and income in many
countries, but services provide critical input for the production of other goods
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and services. An in-depth look at financial services illustrates many of the key
issues involved in liberalizing trade in services.
The unprecedented growth of global financial markets in recent years has
given prominence to the issues associated with financial services liberalization.
Liberalizing international trade in financial services can be a market-based
means to strengthen financial systems. It is often an important catalyst in
improving the quality of capital flows through exposure to foreign competition
and in strengthening financial systems—particularly in developing and
transitioning economies. Enhanced financial services trade can improve
technology transfer and encourage better risk management across borders.
Foreign competition challenges domestic firms to improve the quality of their
financial services through broader opportunities for trade and portfolio diversification. This results in more consumer choice and competitive pricing.
Financial services liberalization for developing countries offers many possibilities for strengthening weak domestic financial systems through trade
openness, competition, and sound regulation. Countries with fully open
financial service sectors grow on average one percentage point faster than
other countries. Foreign-backed financial institutions in developing countries
often possess a greater ability to lend to those countries during economic
downturns and thereby stabilize capital flows in times of crisis. Foreign banks
that can extend credit to local businesses can be critical for stabilizing developing-country economies in the absence of more limited capacity of domestic
financial intermediaries.
The General Agreement on Trade in Services (GATS) of the WTO is the
most comprehensive framework to date that supports national programs of
financial services liberalization within an international context. Insurance,
banking, and financial services trade exists primarily in two forms: crossborder trade and commercial presence. In cross-border trade, domestic
consumers purchase services from a foreign supplier abroad. In the case of
commercial presence, a foreign supplier establishes itself in a country through
direct investment.

U.S.-EU Economic Initiative
Trade and investment ties between Europe and the United States have been
crucial in each region’s economic growth for several decades. Trans-Atlantic
trade is mostly free in terms of border taxes, with the exception of the agricultural sector. However, there remain a host of nontariff measures and
regulatory divergences that hinder U.S.-EU trade and investment. In 2005,
the United States and the European Union launched a trans-Atlantic
economic initiative, which aims to promote regulatory cooperation and
mutual recognition of standards, enhance trade in services, stimulate open
and competitive capital markets, and promote innovation, among other
economic-cooperation goals.
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In order to enhance trade in services, the initiative calls for U.S. and
European authorities to work with regulators and professional associations to
identify sectors where the potential exists to achieve mutual recognition of
professional qualifications. For instance, an agreement in architectural services might allow American architects to provide their services to European
developers without having to navigate a complex and often nontransparent
regulatory and licensing process. Underlying these goals to promote
trans-Atlantic commerce is a commitment to greater cooperation beyond the
reduction of traditional trade barriers.

Strengthening Economic Cooperation Across North America
NAFTA achieved important trade liberalization across the United States,
Canada, and Mexico, and has laid the foundation for further economic cooperation in trade, investment, and other mutual interests such as immigration
and security. Through the North American Security and Prosperity
Partnership, the United States is working with the governments of Canada
and Mexico to promote such economic cooperation. This “NAFTA-plus”
initiative aims to eliminate nontariff barriers, streamline regulatory processes,
expand duty-free treatment by liberalizing the rules of origin, and promote
free and secure electronic commerce. Heightened security concerns since
September 11, 2001, have resulted in greater port inspections, longer shipment times, and more-frequent delays. The imposition of security fees and
increased inspections on NAFTA commerce can increase trade costs,
adversely affecting businesses that have integrated their operations on a
regional basis (such as the auto industry). This initiative also aims to harmonize safety standards for trade, streamline checkpoint operations, and make
the movement of legitimate and low-risk traffic across North American
borders more secure and efficient.

Conclusion
The expansion of international trade and investment over the past two
decades has created an increasingly interdependent global economy.
Achievements in trade liberalization have had substantial payoffs for the
United States and our trading partners. With just 23 members (or
“contracting parties”) in 1948, the purview and membership of the GATT
have grown dramatically. Today the WTO (the formal international organization of the GATT) has 149 members with many countries eager to join.
While this increased engagement by countries in international commerce
presents immense opportunities for U.S. consumers, workers, and firms,
reaching consensus among all these countries on further reductions in trade
170 | Economic Report of the President

barriers can be difficult. Like many other countries, the United States has
pursued multilateral, regional, and bilateral agreements to achieve its goals.
These avenues all lead to the same destination of more-open markets and
greater economic growth. Existing trade partnerships and formal agreements
can be platforms for further economic cooperation in areas such as services
and investment. Recognizing the payoff to date and the prospective gains
from further liberalization, the United States is committed to working with
all countries to open markets and create favorable conditions for economic
growth both here and abroad.

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C H A P T E R

8

The U.S. Agricultural Sector

I

n 2005, the Federal government spent approximately $20 billion on
agricultural support payments in a sector forecast to produce approximately
$270 billion of output in 2005. In addition, the United States maintains
barriers to the import of some commodities, and these barriers raise the
domestic prices of these commodities relative to world prices. To what extent
do these payments and trade barriers serve a public purpose? Are they needed
to maintain a healthy U.S. agricultural sector? Could alternative policies
achieve this goal? This chapter addresses these and other questions.
Today’s agricultural commodity support programs are rooted in the
landmark New Deal legislation that followed the agricultural depression of
the 1920s and 1930s. These programs were designed to sustain prices and
incomes for producers of cotton, milk, wheat, rice, corn, sugar, tobacco,
peanuts, and other crops, at a time when a large portion of the U.S. population was engaged in farming. Changing economic conditions and trends in
agriculture since then suggest that many of the original motivations for farm
programs no longer apply. For example, the increasing reliance of farm families on income earned from sources other than their farms and a shift toward
market-oriented farm policies have made farms and commodity markets less
vulnerable to adverse price changes than before. These changes imply that
moving away from traditional commodity support programs today would
have a much smaller impact on farm household income than in previous
decades. Nonetheless, substantial government support of agriculture remains.
A more economically efficient farm policy would reflect contemporary
economic conditions, environmental needs, and public values. Economic efficiency would be served by policies that are cost-effective and that give farmers
greater opportunity to respond to market signals. Revising government policy
to better meet these objectives would help unleash more of the innovative
energy that has long characterized American agriculture. U.S. agriculture can
successfully compete in a global marketplace that has been freed of domestic
support and barriers to trade. The key findings of this chapter are:
• Most farmers do not benefit from commodity subsidies.
• Support to agriculture can be provided in many forms that are
potentially less market- distorting than existing commodity subsidies.

173

The U.S. Farm Sector Has Evolved
Dramatically Over Time
In the 1930s, farms accounted for a sizable share of U.S. employment and
gross domestic product (GDP), but per capita farm income was only onethird the per capita income of the remaining population. Commodity
programs were intended to reduce this disparity by sustaining farm household
income, particularly in the face of adverse changes in agricultural prices. For
instance, in the early 1930s farm household incomes were at the mercy of
year-to-year fluctuations in farm prices. Commodity price support programs,
which provided price floors (minimum prices) for agricultural producers,
effectively insured them against adverse price swings. Proponents of these
programs argued that they had macroeconomic benefits because they maintained rural purchasing power in times of general economic weakness. Many
of today’s basic Federal farm policies were established in the 1930s, and at the
time, they were reasonably matched to this overall economic picture. Since
that time, however, the U.S. agricultural industry has evolved dramatically.
As Table 8-1 shows, in the 1930s farm households accounted for 25 percent
of the U.S. population and generated approximately 8 percent of GDP.
Today they account for only 1 percent of the population (25 times lower than
in 1930, as a percentage of total population) and generate approximately
1 percent of GDP. Over the same period, the rural share of the population has
fallen far less (approximately two times lower than in 1930, as a percentage of
total population), suggesting that rural areas are less dependent on farming’s
contribution to the rural economy. Our agricultural sector is still vital to our
country, but due to both growth in other sectors of the economy and rapid
gains in agricultural productivity that have lowered the prices of agricultural
products, it has become a smaller share of the U.S. economy.
Astonishing progress in agricultural productivity growth likely explains
much of the structural change in U.S. agriculture (Chart 8-1). Growth in
agricultural total factor productivity averaged 2.1 percent annually between
1950 and 2002. In comparison, productivity growth in private nonfarm business over the same period averaged 1.2 percent annually. Technological
progress and growth in farm productivity permit a smaller labor force to
supply the agricultural needs of the country at ever lower cost. As a result,
agriculture’s contribution to total U.S. GDP has declined over time even
though physical production has been rising (Chart 8-2).

174 | Economic Report of the President

TABLE 8-1.— 100 Years of Structural Change in U.S. Agriculture
1930

1900

1945

1970

2000

Number of farms (millions) .............................................
Average farm size (acres) ...............................................
Average number of commodities
produced per farm...........................................................
Farm share of population (percent) ................................
Rural share of population (percent)................................
Farm share of workforce (percent)..................................
Farm share of GDP (percent)..........................................

5.7
146

6.3
151

5.9
195

2.9
376

2.1
441

5.1
39
60
41
na

4.5
25
44
22
8

4.6
17
36b
16
7

2.7
5
26
4
2

1.3
1
21
2
1c

Off-farm labora ................................................................

na

100 days

27%

54%

93%

na= not available.
a
Off-farm labor measures the extent to which members of farm households work in other sectors besides farming.
1930, average number of days worked off-farm; 1945, percent of farmers working off-farm; 1970 and 2000, percent
of farm households with off-farm income.
b
Data for 1950.
c

Data for 2002.
Sources: Department of Agriculture (Economic Research Service) and Department of Commerce (Bureau of
Economic Analysis).

TABLE 8-2.— Farm Income and Farm Operator Household Income by the
USDA Farm Size Classification, 2004
Item
Farm operator households (total number) ........................
Average gross cash per farm income per farm
operator household (dollars)a ............................................

Rural
residence
farms

Intermediate
farms

Commercial
farms

1,373,956

529,071

157,795

2,060,822

15,343

73,053

751,696

86,540

All
farms

Percent of average gross cash farm income
per farm operator household by source
Crop, livestock, and other farm-related income .........
Government payments.................................................

91.8
8.2

92.7
7.3

95.5
4.5

94.5
5.5

Total cash farm expenses .................................................
Net cash farm income.......................................................

15,980
-638

58,423
14,630

525,655
226,041

65,902
20,638

Farm operator household incomeb .....................................

75,316

64,789

191,115

81,480

Average per farm operator household (dollars)

Source: Department of Agriculture (Agricultural Resource Management Survey).
a
Gross cash farm income is income from crop, livestock, and other farm-related income, including agricultural
subsidy payments.
b
Farm operator household income is income from all sources, farm and nonfarm related, earned by the farm
household.
Note: Rural residence farms. Small farms with agricultural sales less than $250,000—whose operators report
they are retired or have a major occupation other than farming. Rural residence farms also include limited-resource
farms, regardless of the occupation of their operator. (Limited-resource farms have sales less than $100,000 and
are also operated by households with low household income during the two previous years.)
Intermediate farms. Small farms with sales less than $250,000—whose operators report farming as their major
occupation. This category excludes farms classified as limited-resource farms, even if their operators report farming
as their major occupation.
Commercial farms. These comprise farms with annual sales of $250,000 or more.

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TABLE 8-3.— Distribution of Agricultural Production and Government Payments by

The Average Farm Payment Recipient
Is No Longer Poor
Fifty years ago, average household income for the farm population was
approximately half that of the general population. Today, however, the
average farm household tends to be better off than the average American
household; in 2004, farm households earned about 35 percent more than the
U.S. average household income.
While on average farm households earn more than other Americans, the
relative contribution of farm income (income from farming activities,
including crop, livestock, and other farm-related income, and government
farm support payments) to total farm operator household income (income
from all sources—farm and nonfarm—that is earned by a household that
operates a farm) varies by farm size. Households operating the “rural residence
farms” (Table 8-2 shows the farm size classifications) earn more than the U.S.
average family income even though their net cash income from farming is
negative (that is, the expenses from operating the farm exceed the gross
revenues) on average. The income from these farms is unlikely to be sufficient
to support a family, and households operating these farms receive their
income from other sources. Households operating intermediate farms have on
average positive net cash income from their farming operations, but most
household income comes from sources other than farming. Households
176 | Economic Report of the President

operating commercial farms have average household income over three times
TABLE 8-1.— 100 Years of Structural Change in U.S. Agriculture
higher than the U.S. average family income in 2004, with most of their
income coming from farming.
1930
1945
1970
1900
2000
Number of farms (millions) .............................................

5.7

6.3

5.9
195

Average farm size (acres) ...............................................
146
151
Production and Government Payments
Average number of commodities
produced per farm...........................................................
5.1
4.5
Are Concentrated on Large Farms 25
Farm share of population (percent) ................................
39

2.9
376

2.1
441

4.6
2.7
1.3
17
5
1
21
44
36b
toward fewer, larger26
operations
22
16
4
2
complemented by 2 growing
a
8
7
1c

Rural share of populationof farming continues to move
60
The structure (percent)................................
Farm share of workforce (percent)..................................
41
producingGDP (percent)..........................................
the bulk of farm commodities,
Farm share of
na
Off-farm labor smaller farms earning most
na
54%
93%
number of................................................................ of their 100 days from off-farm sources.
income 27%
As Table 8-3 shows, most farms in the United States are still small farms or
na= not available.
Off-farm labor measures the extent to they produce households work other of total agricul“rural residence farms,” butwhich members of farmonly a smallinsharesectors besides farming.
1930, average number of days worked off-farm; 1945, percent of farmers working off-farm; 1970 and 2000, percent
tural households with off-farm income.
of farm output and receive only a small share of direct agricultural subsidy
Data for 1950.
payments. Most production and government payments are now associated
Data for 2002.
with intermediate and commercial farms, particularly the latter, which
Sources: Department of Agriculture (Economic Research Service) and Department of Commerce (Bureau of
account for a relatively small percentage of the total number of U.S. farms
Economic Analysis).
but receive over half of direct payments.
a

a

b
c

TABLE 8-2.— Farm Income and Farm Operator Household Income by the
USDA Farm Size Classification, 2004
Item
Farm operator households (total number) ........................
Average gross cash per farm income per farm
operator household (dollars)a ............................................

Rural
residence
farms

Intermediate
farms

Commercial
farms

1,373,956

529,071

157,795

2,060,822

15,343

73,053

751,696

86,540

All
farms

Percent of average gross cash farm income
per farm operator household by source
Crop, livestock, and other farm-related income .........
Government payments.................................................

91.8
8.2

92.7
7.3

95.5
4.5

94.5
5.5

Total cash farm expenses .................................................
Net cash farm income.......................................................

15,980
-638

58,423
14,630

525,655
226,041

65,902
20,638

Farm operator household incomeb .....................................

75,316

64,789

191,115

81,480

Average per farm operator household (dollars)

Source: Department of Agriculture (Agricultural Resource Management Survey).
a
Gross cash farm income is income from crop, livestock, and other farm-related income, including agricultural
subsidy payments.
b
Farm operator household income is income from all sources, farm and nonfarm related, earned by the farm
household.
Note: Rural residence farms. Small farms with agricultural sales less than $250,000—whose operators report
they are retired or have a major occupation other than farming. Rural residence farms also include limited-resource
farms, regardless of the occupation of their operator. (Limited-resource farms have sales less than $100,000 and
are also operated by households with low household income during the two previous years.)
Intermediate farms. Small farms with sales less than $250,000—whose operators report farming as their major
occupation. This category excludes farms classified as limited-resource farms, even if their operators report farming
as their major occupation.
Commercial farms. These comprise farms with annual sales of $250,000 or more.

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TABLE 8-3.— Distribution of Agricultural Production and Government Payments by
the USDA Farm Size Classification, 2003a
Item
Farms (number) ...................................................................
Farms (percent of total farms) ............................................
Percent of total value of agricultural production................
Percent of total direct government payments received ......

Rural residence
farms
1,429,953
67
9
17

Intermediate
farms
502,771
24
19
32

Commercial
farms
188,095
9
72
51

Source: Department of Agriculture (Agricultural Resource Management Survey).
a
See bottom of Table 8-2 for the definitions of the USDA Farm Size Classifications, but with the inclusion of farms
organized as nonfamily corporations or cooperatives, as well as farms operated by hired managers.

The United States is not the only country in which subsidy payments are
concentrated among a relatively small portion of farms receiving commodity
subsidy payments. Data on the distribution of payments by farm size are relatively hard to come by for most European Union (EU) countries. However,
in 2001 in France, farms of approximately 500 acres or more represented
2 percent of farms and received 11 percent of direct payments for arable crops
(grains and oilseeds), while small farms (25 to 50 acres) represented 19 percent
of farms but received 7 percent of direct payments for arable crops. While the
EU is currently in the process of converting most of its various forms of direct
farm payments into “single farm payments” that will be largely independent of
production, the direct farm payments will be based on payments historically
received by a farm. Hence, it is likely that direct payments to European farmers
will remain concentrated among a relatively small portion of farms.

Issues in Current U.S. Farm Policy
In the United States, producers of bulk commodities, such as cash grains
(wheat, rice, and corn), cotton, oilseeds, and peanuts, and producers of several
other minor crops are eligible for commodity support in various forms,
including fixed direct payments, countercyclical payments, and marketing
loan program benefits (whose particulars will be discussed in a later section).
Dairy, sugar, and (until 2004) tobacco prices are also supported through
production and import control programs.

Agricultural Production and Farm Program Benefits
Are Increasingly Concentrated
Because of differences in farm size and types of commodities produced
across farms, the distribution of government payments is unbalanced. Among
the factors affecting the allocation of government payments are farm size
(acreage), location, and types of commodities produced.
178 | Economic Report of the President

Less than half of the Nation’s 2.1 million farms receive government
payments—only 40 percent received government payments (including income
support and conservation payments) in 2003. Direct government payments on
crops eligible for commodity support reach only about 500,000 farms (around
25 percent of all farms). Even for farms that receive payments, government
payments typically represent a small share of gross farm income (revenue from
farming activities, including crop, livestock, and other farm-related income,
and government farm support payments) and an even smaller share of farm
operator household income. Government payments accounted for only about
5 percent of receipts for commercial farms (Table 8-2).
Most program payments go to larger farms, because program commodity
production is concentrated on larger farms. While commercial farms received
approximately half of government payments in 2003, they accounted for only
15.5 percent of farms receiving payments, and the average household income of
their operator is almost three times higher than U.S. average household income.
The largest of the commercial family farms (those with gross annual sales of
$500,000 or more) received 27 percent of payments even though they account
for 5.5 percent of farms receiving payments. Some of the largest farms in terms
of value of production produce livestock or fruits and vegetables and thus may
not receive any government program payments. As Charts 8-3 and 8-4 show,
both production and program payments have become increasingly concentrated
over time, with notable shifts toward larger farms even over the last decade.

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The share of program participants is highest in regions where production
of corn, oilseeds, wheat, rice, and cotton is concentrated. Cotton and rice
farms reported the highest average payment level. In 2003, cash grain (wheat,
rice, corn, barley, oats, and sorghum) and soybean farms received 49 percent
of total payments even though they represented only 21 percent of the value
of total agricultural commodity sales. Farms that receive no payments
typically specialize in the production of nonprogram commodities such as
meats, vegetables, fruits, and nursery products.

Farmers Today Have Many Options for Managing the
Risks They Face
Farmers face many risks. The uncertainties of weather, crop yields, prices,
government policies, global markets, and other factors can cause wide swings
in farm income. Furthermore, farm income is more variable than income
from off-farm activities.
Risk management involves choosing among many options for reducing the
financial effects of such uncertainties. In addition to participating in government commodity programs that are available for certain commodities,
farmers today have private options for managing risk that were not available
when commodity price support programs were introduced. For instance, the
180 | Economic Report of the President

growth of futures and options markets provides a market-based method for
farmers to protect themselves against short-term price declines. Other private
means to stabilize farm incomes include saving, borrowing, diversifying
among different types of crops and livestock, contracting farm output with
processors at assured prices, crop insurance and total revenue insurance,
utilizing a wide range of farm management practices that reduce crop loss
(e.g., irrigation, pesticide use), leasing out farmland, and taking advantage of
expanded opportunities for earning nonfarm income.
The sources of income for farm households are increasingly diversified,
which means many of them are less vulnerable to the volatilities of farm
income. By 2000, 93 percent of farm households earned off-farm income,
including off-farm wages, salaries, business income, investments, and Social
Security. Off-farm work has played a key role in raising farm household
income, which, as already noted, now exceeds the national average. Chart
8-5 shows the increasing importance of nonfarm income for farm households
in the United States.
While farm household incomes have become more diversified, farm
operations have become increasingly specialized: In 1900, a farm produced an
average of about five commodities; by 2000, this average had fallen to about one
per farm. This change reflects not only the production and marketing efficiencies gained by concentration on fewer commodities, but also the effects of farm

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price and income policies that have reduced the risk of depending on returns
from only one crop or just a few crops. Farms would likely cope with decreases
in commodity subsidies by increasing the number of different commodities
they produce and by the other income stabilizing strategies already discussed.

Economic Costs of Commodity Support Programs
Despite the decreasing share of agriculture in U.S. GDP, the decreasing
share of farm income in total farm household income, and despite the fact
that the average farm household is no longer poor, U.S. farmers continue to
receive billions of dollars in subsidy payments from U.S. taxpayers every year
(Chart 8-6). Total payments to farmers from the Federal government were
approximately $20 billion in 2005 and are projected to be approximately
$21 billion in 2006. This constitutes about 6 percent of the U.S. Federal
budget deficit for 2005 of $319 billion.
In addition, these subsidy payments can cause market distortions by
stimulating more production than would occur without the subsidies. To the
extent that payments are tied to production and prices, they send market
signals to farmers that differ from those they would receive from a market
operating free from government intervention. These distorted price signals
lead to an economically inefficient allocation of resources both within the
agricultural sector and across other sectors of the economy. The link between
agricultural support payments and markets varies among programs. For
instance, fixed direct payments (FDPs) are based on a farm’s historic production and are fixed lump-sum payments. Countercyclical payments (CCPs) are
based on historic production but the per acre payment varies with changes in
the current market price. Marketing loan benefits (MLBs) are calculated
based on current production and prices. Although there is some debate over
the relative levels of the market distortions caused by these direct payments,
FDPs are generally believed to be minimally market-distorting per dollar of
expenditure, followed by CCPs, and finally MLBs, which are generally
perceived to result in the most market distortion per dollar of expenditure.
While these domestic support policies increase costs to taxpayers, they are
only part of the support that agriculture receives and these other forms of
support can also cause market distortions. In particular, for some commodities,
market price supports such as tariffs impose additional costs on U.S. consumers
of commodities by raising their domestic prices relative to world prices and thus
reducing consumer purchasing power. Such support is especially high as a
percentage of the value of the commodity in the case of sugar. Because of the
U.S. tariff rate quota system on sugar imports, the domestic price of sugar
has been approximately double world sugar price over the last few years. An
estimate by the OECD found that the cost of U.S. sugar policies to U.S. sugar
consumers due to increased sugar prices was $1.5 billion in 2004.
182 | Economic Report of the President

In general, U.S. commodity support programs promote overproduction of
commodities in the United States and hurt countries that could benefit from
exporting these commodities to the United States. The existence of these U.S.
programs in turn has prompted some U.S. trading partners to insist that we
reduce these market-distorting programs in exchange for concessions important to United States trade in services and manufacturing. At the same time,
as discussed in the next section, U.S. agriculture increasingly depends on the
availability of foreign markets.
This section focused on distortions of market for land-based food resources.
For an example of government policy that increases economic efficiency
through market-based management of marine food resources, see Box 8-3 at
the end of this chapter.

Trade Policy Issues
The potential economic gains from further trade liberalization in agriculture
as well as in manufactured goods and in services are large (see Chapter 7, The
History and Future of International Trade, for more information). Trade ministers are working at the World Trade Organization to resolve differences about
how to reform various protections for agriculture, a key issue that must be
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addressed before negotiations in other areas can proceed. Areas of significant
policy interest are the economic impacts of agricultural trade liberalization and
the potential impact on the environment and the supply of amenities.

Trade Is Essential to the U.S. Agricultural Sector
Trade is important for all major sectors of the U.S. economy, and agriculture
is no exception. The quantity of agricultural goods exported from the United
States has grown dramatically over the last half century, and is approximately
eight times higher today than in 1950. With the productivity of U.S. agriculture growing faster than domestic food and fiber demand, U.S. farmers and
agricultural firms rely heavily on export markets to sustain prices and revenues.
U.S. export revenues have accounted for 20-30 percent of U.S. farm income
during the last 30 years and are projected to remain at this level.

Nonsubsidized Commodities Now Account for Most
of U.S. Agricultural Exports
Historically, bulk commodities—wheat, rice, coarse grains, oilseeds,
cotton, and tobacco—accounted for most of U.S. agricultural exports.
Because of a cost advantage due to favorable land resources and capital-tolabor ratios, the United States is comparatively better at producing these crops
than many other countries. The adoption of biotechnology and consolidation
of farm operations have further boosted productivity. Stagnant import
demand in some major markets, however, has resulted in a shift in U.S.
exports of grains and oilseeds. Over the last decade, the share of U.S. bulk
commodity exports shipped to developed countries dropped from 43 to
34 percent. Fast-growing developing countries are the prospective future
markets for U.S. bulk crops and other farm exports. China, for example, is
now the largest importer of U.S. soybeans, having surpassed the EU.
In the 1990s, U.S. exports of high-value products—meats, poultry, live
animals, meals, oils, fruits, vegetables, and beverages—showed steady growth,
while exports of bulk commodities tended to fluctuate more widely, particularly in response to changes in global supplies and prices (Chart 8-7). As
population and incomes rose worldwide in the 1990s, U.S. exports of highvalue products (HVPs) expanded in response to demand for greater
diversification of diets. In fiscal 1991, HVP exports exceeded exports of bulk
products for the first time (in terms of value). Notwithstanding that producers
of HVPs receive little in the way of commodity subsidy payments compared to
producers of bulk commodities, HVP exports have continued to exceed bulk
exports, regardless of overall growth of U.S. agricultural trade.

184 | Economic Report of the President

Trade Agreements Promote Reform of
U.S. Commodity Support Programs
The November 2001 declaration of the World Trade Organization’s (WTO)
Fourth Ministerial Conference in Doha, Qatar, provides for negotiation on a
range of subjects, including the reform of agricultural and trade policies
among all 149 members. This 2001 declaration was further supported by the
March 2005 ruling of the WTO Dispute Settlement Body against certain
U.S. cotton program subsidies.
The United States has implemented free trade agreements with several countries, and has negotiated and is currently negotiating free trade agreements
with various additional countries (see Chapter 7, The History and Future of
International Trade, for further information); all of these agreements call for
increases in market access, both for agriculture and for other goods and services. As an example of the impact of these types of agreements, the North
American Free Trade Agreement (NAFTA), implemented in 1994, has spurred
market integration among businesses and communities in Canada, Mexico,
and the United States, with research showing that NAFTA boosted agricultural
trade substantially above levels that would have occurred without the agreement. Trade negotiations provide an opportunity to remove market distortions
and increase market access for U.S. exports including agricultural exports.
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Benefits of Agricultural Trade Liberalization
At a global level, agricultural land and other resources are used most
efficiently when farmers in each country face the same price signals. Prices are
the market’s way of indicating how much of each crop is produced, how it is
produced, and where it should be produced in order to achieve the most
efficient production patterns and the best, least-cost outcomes for consumers.
Trade barriers, export subsidies, and domestic support programs distort the
price signals that farmers receive and limit the potential economic gains that
consumers and producers can obtain from trade. Trade liberalization that
removes or at least lowers these distortions is motivated by the prospects of
economic gains from trade (as in the example in Box 8-1 on New Zealand’s
experience with trade liberalization).
Empirical evidence suggests that global agricultural policy distortions
impose substantial costs on the world economy. One study finds that agricultural tariffs, domestic subsidies, and export subsidies could leave world
agricultural prices about 12 percent below levels otherwise expected in an
intervention-free market. Because U.S. tariffs, domestic support, and export
subsidies are relatively low compared to some other OECD countries, most of
the benefits for the United States would come from our trade partners’ policy
reforms. A new study shows that global reform of agricultural and food trade
policy would provide roughly 60 percent of the global gains from merchandise
(agricultural and manufactured goods) trade reform—$180 billion of a total of
approximately $290 billion (in 2001 dollars) by 2015. Even though agriculture is a relatively small portion of world output, agriculture is more protected
than other sectors, which accounts for the significant contribution of
agricultural trade liberalization to the benefits of total trade liberalization.
U.S. agriculture will continue to be competitive if global agriculture policy
distortions are eliminated. According to the same study, with removal of
all global agriculture policy distortions U.S. farm exports would increase
by 12 percent in volume and the value of U.S. agricultural exports would
continue to exceed the value of farm imports to the United States. With
global agriculture and food reform, average annual agricultural production
growth in the United States would continue to be positive.
Even though the net gains from removal of domestic supports would likely
be positive, their removal would likely come with some costs. For example, a
portion of domestic support payments are included in the value of farmland
and other farm assets, thereby distorting their values. These asset values can
decrease in sectors where the subsidies are reduced. However, if the marketdistorting subsidies can be replaced by less-distorting payments—in particular,
payments that are not closely tied to market prices or quantities, such as lump
sum payments—the adverse impacts on farm asset values should be minimized.

186 | Economic Report of the President

Box 8-1: New Zealand’s Abolition of Agricultural Subsidies
The farming sector in New Zealand now has negligible subsidies.
Historically, assistance to New Zealand farmers was low until the 1970s,
when it started to increase dramatically. The support policies of the
seventies and early eighties shielded the rural economy from adopting
efficient practices, increased transaction costs, and undermined the farm
sector’s capacity to adjust successfully to international market demands.
Within a broad package of reforms to New Zealand’s economy in the
1980s, subsidies to agriculture were abolished in 1985. The reforms had
an immediate and widespread effect on agriculture and the rural
economy: farm incomes fell, farm input costs (particularly fertilizers)
increased, farm profitability declined, the farm debt burden rose, and
land values fell. Farmers’ problems were compounded by low international prices for some agricultural products during the middle and late
1980s and increasing interest rates. The slower pace of reform for the
manufacturing sector and the ensuing appreciation of the real exchange
rate made the adjustment process of rural households more acute than
the withdrawal of agricultural support would have caused on its own.
Within five years, however, the economy picked up, farm incomes had
fully recovered and fears of a rural collapse never materialized. Rural
population and farm households proved resourceful in adapting to the
changes that swept the sector. Despite the early problems, few farmers
were forced to leave their land. The rural economy and the agricultural
sector as a whole have become more efficient, and competitive. Farmers
have had to become more responsive to world price signals and have
shown that they are able to explore and develop new niche markets. A
research paper estimated that the annual rate of productivity growth was
approximately 50 percent higher during 1985-1998, compared to that of
1972-1984. The level of producer support in New Zealand is now the
lowest across member countries of the OECD, domestic and world prices
are aligned, and government payments are only provided for pest control
or relief against climate disasters. Even with low levels of government
support, it is estimated that agriculture accounted for 7 percent of New
Zealand’s GDP over 2002-2004 compared to 8 percent over 1983-1985,
and with a post-liberalization high of 9 percent in 2001. Agriculture
accounted for 43 percent of New Zealand’s total exports in 2004.

With the removal of global agriculture policy distortions, U.S. consumers would
face higher prices for those commodities that currently receive domestic support,
such as grains, because their production would fall. U.S. consumers would face
lower prices for a few products, such as sugar, that are currently protected by
border measures and that will face increased competition from imports.
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The recent study estimates that nearly half of the global income gains of
approximately $290 billion would go to developing countries. Global reform
thus becomes an effective supplement to, and in some cases a substitute for,
less-effective development aid. Several recent studies conclude that global
agricultural trade reform would reduce rural poverty in developing
economies, both because in the aggregate these countries have a strong
comparative advantage in agriculture and because their agricultural sector is
important for income generation.
Trade liberalization would be particularly beneficial for the poorest
countries, with several studies finding the potential of trade liberalization for
manufactured and agricultural goods to lift hundreds of millions of people
out of poverty. Debt relief and foreign aid can also help to reduce poverty,
but trade is a far more powerful tool. One study finds that the payoff from
agricultural trade liberalization to developing countries alone would be
$54 billion (in 2001 dollars) by 2015, roughly equal to the current debt relief
proposal of $56 billion. Furthermore, development aid does not always trickle
down to the underprivileged. Agricultural liberalization is particularly important because roughly 75 percent of the world’s poor live in rural areas, and
because farmers and other low-skilled workers constitute the vast majority of
the poor in developing countries. An open global market for agricultural
goods would lead to greater crop specialization, increased agricultural exports,
and higher farm incomes in poor countries.

Alternatives to Commodity Subsidies
Support to agriculture can come in many forms, not all of which are equally
market-distorting. For example, some countries (including the United States)
offer fixed payments to farmers, irrespective of what they produce. Decoupled
payments are lump-sum income transfers to farm operators that do not
depend on current or future production, factor use, or commodity prices.
From an economic perspective, the best way to provide agricultural support
would focus on forms of support that interfere less with market forces while
achieving the desired policy objectives.
The WTO’s Uruguay Round Agreement on Agriculture encourages
countries to “decouple” support from the production of specific commodities
by creating a “green box” category for agricultural support. The main criterion for a support program’s eligibility to be included in the green box is that
the program is “not more than minimally trade-distorting.” Unlike the
WTO’s categories for support that is more trade-distorting, the green box
is not subject to spending limits. Note that the term “green box” refers to
potential trade-distorting impacts and not to environmental issues, although
environmental programs may be included in the green box.

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Besides including lump sum payments not tied to present or future prices
or output, the green box includes payments for “doing something,” such as
conserving the soil. For instance, support can be shifted from payments
based on commodity output to agri-environmental programs such as the
U.S. Environmental Quality Incentive Program, which has provisions to pay
farmers to adopt environmentally benign management practices. Payments
can also be made for activities that benefit the entire farm sector. For example,
investments in public goods like infrastructure for rural development
(e.g., roads), agricultural research, market promotion, extension and teaching,
as well as collecting and diffusing agricultural statistics and market information, are also included in the green box. Government support for activities
that boost agricultural productivity in the United States relative to that in
other countries can help to increase competitiveness of U.S. agriculture in
world markets. The exemption of these decoupled payments from WTO
payment ceilings provides members of the WTO with the flexibility to
transfer income to their agricultural producers, but in a manner presumed to
have minimal potential to distort production and trade.
While green box payments are not currently constrained by global trade
rules, many countries argue that some of them distort production and trade
and that their use should be limited. A recent study of the U.S. experience
with decoupled payments finds that these payments have improved the wellbeing of recipient farm households, enabling them to comfortably increase
spending, savings, investments, and leisure but with minimal distortion of
U.S. agricultural production and trade.

Environmental Aspects of Agricultural Subsidies
In the 1980s, agri-environmental programs began to play a larger role in
Federal farm policies, in part due to greater concern about environmental
damage from agricultural production. While U.S. agri-environmental policies
have long addressed the negative externalities of agricultural production, agrienvironmental policy in a number of developed country members of the
WTO is increasingly giving attention to the positive by-products of agriculture. Major US agri-environmental programs can be categorized as either
incentive programs or cross-compliance mechanisms (see Box 8-2).
Agri-environmental incentive programs can be further categorized as follows:
• Land retirement programs remove land from crop production. In exchange
for voluntarily retiring land, producers receive rental or easement
payments plus cost sharing and technical assistance to aid in the establishment of permanent cover on the land. Economic use of the land is limited
under retirement programs (e.g., the Conservation Reserve Program and
the Wetlands Reserve Program). The bulk of U.S. agri-environmental
programs expenditures fall in this category.
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Box 8-2: Policy Mechanisms for Addressing Agri-environmental
Issues
The United States and many other developed countries utilize a
combination of programs to address agri-environmental issues:
• Voluntary incentive-based programs. Agri-environmental incentives
are payments made to the farmer for the adoption of environmentally
sound practices or to retire environmentally sensitive land from
production. The advantage of incentives is that they increase the likelihood that farmers will adopt the desired practices or retire land. The
disadvantage of incentives is the cost to taxpayers. Incentives can also
have the effect of expanding production, so even if the disamenities
(negative by-products of agricultural production) produced by each
farm (or on each field) decrease, more farms (or fields) may now
produce disamenities. For example, a business that would be unprofitable when subject to a tax may be made profitable through the
payment of an incentive or a subsidy. While a tax may drive a business
out of a competitive industry, an incentive may increase entry and
induce expansion in competitive outputs. Nonetheless, while
economic theory may suggest that taxes are the most economically
efficient instrument to reduce pollution, they have seldom been used
in agri-environmental programs at the Federal level in the United
States. Note too that assessing taxes on the level of agricultural pollution is difficult due to its nonpoint source nature (that is, the originating
source(s) of agricultural pollution cannot be easily pinpointed).
• Regulation. Regulatory requirements or standards represent an involuntary or mandatory approach to improving agri-environmental
performance. Unlike policy choices in which farmer participation is
uncertain, regulations require that all farmers participate. This feature
can be particularly important if the consequences of not changing
practices are drastic or irreversible. On the other hand, regulatory
requirements are a blunt tool and can be the least flexible of all policy
instruments. This regulatory instrument requires that producers reach
a specific environmental goal or adopt specific practices without
regard for cost or environmental effectiveness, which may vary
significantly across farms, but are seldom known by regulators.
Consequently, regulation can be less flexible and less efficient than
economic incentives. Regulatory requirements are used sparingly in
both the United States and the EU.
• Cross-compliance. Cross-compliance requires a basic level of environmental compliance as a condition for farmer eligibility for other
government programs that farmers may find economically desirable,
such as producer payments. Technically, cross-compliance is a voluntary instrument, but in practice it may not strictly be perceived by

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Box 8-2 — continued
farmers as voluntary, particularly when the existing subsidy represents
an important share of total farm income. Namely, it may be difficult for
a farmer to forgo cross-compliance when the value of the existing
subsidies exceeds the farmer’s costs of adopting the mandated practices. An advantage of cross-compliance programs is that less
government spending is required than with subsidies to address environmental problems. Disadvantages are that it will have a lesser
impact on farms that are not traditional participants in commodity
payment programs or in situations when program payments are lower
than the costs to farmers of complying.

• Working land conservation programs support adoption and maintenance
of land management and structural conservation practices on
agricultural land, including crop and grazing land, and in some cases,
forestland, in exchange for cost-shares or incentives (e.g., the Conservation
Security Program and the Environmental Quality Incentive Program).
• Agricultural land preservation programs help retain land in agricultural
production by purchasing the landowner’s right to convert land to other
uses (e.g., the Farm and Ranch Land Protection Program).
A requirement for agri-environment programs to be included in the WTO
green box is that they have not more than “minimally” trade-distorting
effects. With the exception of the Conservation Reserve Program (CRP) and
other land retirement programs that likely reduce U.S. production, current
U.S. cost-sharing, incentive payment, and technical assistance programs have
a minimal effect on production, given that the focus of such programs is on
environmental improvements rather than altering production. In contrast,
the focus of complaints brought before the WTO to date on agricultural
subsidy programs has been on programs that may have a tendency to increase
production, not reduce it.
If new WTO negotiations produce an agreement to further reduce
trade-distorting domestic support, countries may find it necessary to shift
support from programs that are subject to reduction to programs that are
exempt. This may include agri-environmental programs that qualify for inclusion in the WTO green box. Nonetheless, great care needs to be taken in
designing programs to ensure that they indeed have only minimal tradedistorting effects (in particular, production-increasing impacts tend to be a
source of international contention); there is no reason to assume that
environmental programs will automatically fall in the WTO green box.

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Conclusion
While the income of farm operator households is higher than the U.S.
average, their household income is more variable than that of the average
U.S. household because farm income is more variable than income from
off-farm sources. Management of the risks faced by large commercial farms—
who receive the biggest share of U.S. subsidy payments—may be best served
by crop or revenue insurance and forward pricing through participation in
futures and options markets. And if one of society’s goals for agricultural subsidies is to support the nonmarket benefits of agriculture, then there are more
efficient instruments than those that are coupled to commodity production.
If the intent of commodity support programs is to assist low-income households, then these programs are failing in this task today because the bulk of
payments go to farm households with incomes above the U.S. nonfarm
average. Furthermore, as world trade in agricultural products increases, food
security for U.S. consumers becomes less dependent on domestic production
and, consequently, on domestic commodity subsidies programs. Not only are
domestic commodity policies—domestic support, market access, and export
subsidies—not targeting vulnerable populations in the United States, these
policies, as used by the United States and other countries, reduce farm income
in poor countries.

Box 8-3: A Market-Based Approach to Reduce Overfishing
The Nation’s marine fisheries are valuable resources, contributing
$31.5 billion in value added to U.S. GDP supporting 82 million recre,
ational fishing trips, and providing 9.5 billion pounds of protein-rich
food. Unfortunately, many of these fisheries suffer from overfishing,
excessive harvest capacity, and low profitability. Limited Access
Privileges (LAPs)—which give individual commercial or recreational
fishermen, cooperatives, or communities the exclusive privilege of
harvesting a share of the total allowable catch—are a market-based
approach to addressing these challenges.
Under traditional management approaches, fishermen compete for a
share of a common resource. This leads to a “race for fish” that results
in short fishing seasons, higher harvesting costs, lower profits, overcapacity, poor product quality, and environmentally damaging fishing

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Box 8-3 — continued
practices. Traditional approaches often mandate certain fishing gear,
specify short fishing seasons, and impose other restrictions to limit
overfishing. These restrictions are difficult to enforce, do not provide
incentives for fishermen to reduce their catch, and impede the development of innovative technology and fishing practices.
LAP programs, which include individual fishing quotas (IFQs) as well
as allocations to fishing cooperatives, communities, and potentially,
recreational fishermen, do not suffer from these same problems. LAPs
with transferable quotas provide fishermen with the incentive to
harvest fish at minimal cost, thereby reducing fleet overcapacity and
increasing profitability. Each fisherman in a LAP program cannot
harvest more fish than his individual quota permits. This means that
fishermen can adopt new fishing practices to reduce bycatch (i.e.,
unwanted or unintentional catch) without concern that they will lose
target catch to competitors, and have a lot more choice about when to
fish, allowing them to avoid hazardous weather and sea conditions and
improve their profitability by fishing when prices are best.
LAPs have been implemented in eight U.S. fisheries since 1990.
Commercial fishermen in these fisheries have seen increased profits,
decreased harvesting costs, and a safer and more stable industry. For
example, due to improved product quality under a LAP program, the
Alaska pollock catcher/processor cooperative fleet harvest in 2001
yielded 49 percent more products per pound than in 1998, the last year
of the “race for fish. IFQs in the Alaska halibut and sablefish fishery
”
ended the race for fish and increased season length from less than 5
days to 245 days per year. Profits have increased due to lower operating
costs and higher product prices, which have more than doubled
because halibut now arrive to market fresh rather than frozen, thereby
benefiting consumers. Harvesting costs in the mid-Atlantic surf clam
and ocean quahog fishery have fallen by 46 percent since implementation of an IFQ system.
In September 2005, the President proposed legislation reauthorizing
the Magnuson-Stevens Fishery Conservation and Management Act that
would implement key elements of the President’s 2004 Ocean Action
Plan, including encouragement for fishery managers to use marketbased management, such as LAPs. At the same time, the Administration
pledged to work with regional fishery management councils to double
the number of LAP programs by 2010, bringing at least eight new
fisheries under market-based management. The Administration is also
working with regional fishery managers to create guidelines for
planning and implementation of future LAP programs.

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C H A P T E R

9

The U.S. Financial Services Sector

E

veryday life tends to expose people to the financial services sector. For
example, people make deposits at banks and obtain loans from them.
Nevertheless, understanding what this sector does can be difficult. Why do
individuals go to intermediaries like banks for mortgages, rather than skip
intermediaries (and their costs) and deal directly with savers? And why do
financial service firms ask for so much information before making a loan and,
afterward, place so many restrictions on borrowers?
This chapter explores what financial services do for an economy, how
financial development relates to economic performance, and how financial services
can be effectively regulated. In particular, it develops the following conclusions.
• The financial services sector addresses informational problems that can
otherwise keep financial capital from finding productive uses. Moreover,
the U.S. financial services sector tends to deliver these services in a
cost-effective manner.
• Financial services facilitate innovation and thus encourage the economic
growth that is necessary to increase living standards over time. They
might also bolster economic stability.
• Financial regulation should protect consumers and ensure the system’s
safety and soundness. Moving too far in the public regulation direction,
however, can stifle the productivity and innovation that are necessary for
the economy to enjoy fully the benefits of financial services. An effective
financial regulatory system appropriately balances the costs and benefits
of public regulation.

The Economic Roles of Financial Services
Financial services address information problems inherent in lending and
investing. This section explains this and other benefits, and presents evidence that
the United States enjoys a comparative advantage in producing financial services.

Financial Services Address Information Problems in
Lending and Investing
Adverse Selection
In general, information problems can hinder efficient economic behavior.
Consider an example from the used-car market. In this market, sellers are
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likely to have better information than do buyers about the cars being sold.
A buyer might have general information about the quality of a certain model,
but the seller likely enjoys additional information about the particular car that
is being considered. In this and related cases, information is said to be
distributed asymmetrically across the transaction’s parties.
Economic theorists have shown that, absent a tool for reducing
information asymmetries, only the worst-quality cars will be sold. In the case
of the used-car market, given the general nature of the buyer’s information,
he or she may be willing to pay only the average price that the model under
consideration tends to command. But sellers may then only offer cars that are
below average in quality—i.e., “lemons.” Indeed, a seller would incur a loss
by selling an above-average car at a price based on the value of the average car.
Consequently, high-quality cars might never make their way to the market.
This tendency for sellers of lemons to adversely select themselves creates
difficulties in a number of markets, including those for financial capital. For
example, just as a used car’s owner has relatively good information about that
car’s quality, a manager likely has better information about his or her business
projects than does an outside supplier of financial capital. This information
asymmetry, in turn, can encourage “low-quality” projects to adversely select
themselves into the financial market. As in the automobile example, relatively
well-informed sellers (managers) may want to withhold highly valued assets
(the right to share in the proceeds of a new project) if the general nature of
available information lets buyers bid only an average price. An economy may
thus forgo the very projects that are important for its performance.

Moral Hazard
The above discussion shows that, when information is asymmetric before a
transaction takes place, the side with relatively good information can
adversely select itself. The prospect of this strategic behavior can discourage
the financing of otherwise valuable projects. But even if parties to a potential
transaction can address this problem, information can still be asymmetric
after a transaction takes place. This latter type of asymmetry is known as
moral hazard and, left untreated, it too can hinder economic efficiency.
Like adverse selection, moral hazard is problematic for a number of markets.
For example, because insurance customers have better information about their
behavior than do insurers, an individual who buys insurance can subsequently
take on too much risk. Here, an insured driver might enjoy the benefit of
driving faster (e.g., the value of time saved) while passing at least some of the
costs on to the insurance agency (e.g., the value of an expected claim).
A similar phenomenon plays out in more narrowly defined financial
services. Indeed, just as insurance customers tend to have better information
about their behavior than do insurance sellers, businesses and households
tend to have better information about how they use loans than do lenders.
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Lending contracts, like insurance contracts, may thus be plagued by moral
hazard problems. A manager might, for example, pursue a project that is more
risky than what was agreed upon when the loan was made. In doing so, the
manager enjoys the benefit of projects that ultimately perform well, but passes
the cost of poorly performing projects onto the firm’s lenders. Absent an institution that would discourage managers from acting in this manner, suppliers
of financial capital will be reluctant to offer financing. Again, the problem of
asymmetric information can lower an economy’s level of productive activity.

Financial Services Can Mitigate Adverse Selection and
Moral Hazard
The above discussions show that information problems can impede the
efficient use of financial capital. Because these problems can stand in the way
of better outcomes for both demanders (i.e., businesses, households) and
suppliers (i.e., savers) of financial capital, opportunities exist for a third party
to reduce informational obstacles. Financial service providers frequently play
this important intermediary role.
Financial service firms can, for example, build expertise in evaluating and
monitoring borrowers. Understanding what is, and what is not, a productive
project can check the problem of adverse selection. An effective monitoring
program can then keep borrowers on task with agreed-upon projects and thus
limit moral hazard problems.
Demanding collateral can help mitigate information problems in this
regard. To see how, suppose that a low- and a high-quality applicant ask for a
loan and notice that, while information about quality is important for
deciding whether to grant a loan, low-quality applicants may not want to
divulge that information. In terms of the above discussion, lenders are
worried about low-quality individuals adversely selecting themselves into the
pool of applicants.
Asking for collateral can address this problem by encouraging applicants to
truthfully (rather than strategically) reveal this information. Here, highquality applicants are more willing to post collateral because they are more
confident that they will not lose it. In this manner, collateral requirements can
induce applicants to truthfully separate themselves into distinctive types of
borrowers (rather than strategically masquerade as more attractive types).
Likewise, asking for collateral can mitigate the problem of moral hazard.
Recall from the above discussion that borrowers may find it attractive to opportunistically increase a project’s risk. Collateral requirements can mitigate this
problem by essentially exposing the borrower’s own capital to such risk taking.
In each case, financial service firms reduce informational obstacles that can
stand in the way of lending. A good project can benefit both the project’s
manager and lenders. But because managers tend to have better information
about projects, both before and after the projects are underway, passive lenders
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will be reluctant to offer the requisite funding. By specializing in setting
collateral requirements and evaluating and monitoring projects, financial service
firms can play the important economic role of reducing such asymmetries.

Financial Services Reduce the Cost of Collecting Information
A well-developed financial system not only mitigates information
asymmetries, it does so in an efficient manner. Notice from the above example
that individual savers could, in principle, mitigate these asymmetries themselves. In doing so, however, they would unnecessarily reproduce the same
information a number of times. The relatively high cost of collecting information in this manner would still leave an economy with considerable
information asymmetries and thus prevent financial capital from being
matched with its most productive uses.
A reputable car dealer illustrates this point. After carefully examining a car,
a dealer might offer a guarantee. In that case, prospective buyers can take some
confidence from the guarantee itself, as opposed to having to reproduce information about the same car through repeated examinations. In a competitive
environment, the associated cost savings can make their way to consumers. By
essentially delegating the process of information discovery to experts, savers
can likewise benefit from having financial service firms examine prospective
investments on their behalf. In both cases, intermediaries not only facilitate
mutually beneficial trades by reducing information asymmetries, they produce
these benefits in a relatively low-cost manner.

Other Benefits of Financial Services
Diversifying Investment Risks
In addition to being concerned with asymmetric information problems,
individuals are concerned with the fundamental risks to which their savings are
exposed. Indeed, independent of information problems, the return on investments can be very uncertain. This type of risk can also discourage financial capital
from finding productive uses. Financial services can address this problem by
economizing on the costs of investing in diversified pools of loans.
By saving at a bank, for example, individuals do not expose themselves to the
risk of any one investment. Instead, they can participate in the return from a pool
of investments, some of which will perform better at times than do others.
On average, then, savers can reduce the volatility that they would otherwise face
in an undiversified portfolio while maintaining a relatively high rate of return.

Transforming Long-Term Investments into Liquid Assets
Financial services can economize on the cost of providing liquid access to
even long-term investments. Individuals tend to save because they want to
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expand their consumption opportunities in the future. But while investments
in assets like long-term loans might be good at expanding these opportunities, they are typically not good at facilitating exchanges. It is much easier to
buy groceries, for example, with currency than it is with a long-term loan.
Absent a mechanism that can readily transform loans into more readily usable
forms of money, savers will again be reluctant to invest in projects that could
otherwise be mutually beneficial.
Financial firms provide savers with liquidity. Banks, coupled with Federal
deposit insurance (discussed in the Policy section below), can fund long-term
business projects while fulfilling the transaction demands of depositors.
Absent such a service, savers may be reluctant to commit their capital for
longer periods of time. But innovative projects frequently need long gestation
periods to build themselves into productive endeavors. By giving savers ready
access to the proceeds of even long-term investments, financial services again
encourage capital to find its best uses.

Providing Cost-Effective Means of Payment
The financial sector also furthers economic well-being by economizing on
the costs of producing payment services. The most widely used means of
payment, cash, is a good way to make small purchases, but creates difficulties
for larger transactions and those made from a distance. Financial services have
found innovative ways to make life easier here.
Services like processing checks and conducting electronic funds transfers, to
name a couple, can enhance the speed, safety, and convenience of transacting.
In addition, means of payment like these can open up opportunities to better
match consumers with the producers of goods and services that they demand.
Finally, the potential to expand these already considerable benefits is large.
By moving even further toward an electronic payment system, for example,
the savings in postage costs alone could reach into the billions of dollars.

The United States Enjoys a Comparative Advantage in
Financial Services
The U.S. financial services sector has been making increasing contributions
to GDP over the past several decades. The growing importance of this sector
to the U.S. economy owes, in part, to the U.S. global comparative advantage
in the production of financial services.
Chart 9-1 shows how financial services, such as central banking, taking
deposits, and making loans, have accounted for a growing share of U.S.
nominal GDP. This contribution has increased steadily from about 2 percent
in 1977 (the first year for which data are available) to about 4 percent in 2003
(the most recent year for which data are available).

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The growing importance of the financial services sector is consistent with
U.S. workers having a global comparative advantage in the production of
financial services. For example, financial firms open offices in other countries
to serve foreigners (i.e., to export their services). Since 1997 (the first year for
which these data are consistently available), exports of financial services have
outpaced imports, with exports increasing by about $15 billion and imports
increasing by only about $5 billion. In 2004, financial service exports totaled
$27 billion while imports of financial services were only $11 billion.

Economic Growth and Stability
The above discussion highlights the potential for financial services to mitigate
information asymmetries and economize on transactions costs. Recent research
cites these attributes as important channels through which financial services can
increase living standards and promote economic stability. This section elaborates
on the general economic benefits that financial services can generate in this regard.

Financial Development and Economic Growth
Well-developed financial markets are important for economic growth.
Equipped with a comparative advantage in reducing information asymmetries
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and transactions costs, financial service firms can productively identify and
guide promising entrepreneurs, and thus pave the way for scarce resources to
find innovative projects. Innovations, in turn, can help turn a fixed amount
of resources into more output, and thus facilitate increases in living standards.
This funneling of resources to productive projects can also encourage the
replacement of outdated and inefficient technologies. Absent productive
financial services, for example, individuals can pursue innovations only when
they have enough resources to get their projects off the ground. “Idea-rich”
but “capital-poor” innovators pose little threat to a market’s incumbents, who
can become complacent and set the stage for poor performance to entrench
itself. By easing the way for newcomers to participate in the economy, financial services can hasten the replacement of bad ideas with growing
opportunities. Box 9-1 discusses the role of financial intermediaries in the
development and implementation of particularly innovative ideas.

Box 9-1: Venture Capital and Innovation
Venture capitalists raise funds, search for profitable investments, and
then guide investments until sufficient proceeds can be returned to the
original contributors. Working through this process, venture capitalists
can be especially successful in identifying and guiding productive innovations. An influential study finds, for example, that a dollar of venture
capital produces about three times more patents than does a dollar of
corporate research and development (R&D). In addition, patents that
ultimately emerge from venture capitalization tend to be of high quality.
The previous section of this chapter showed that asymmetric
information can slow, or even preclude, mutually beneficial transactions from taking place. In this way, information problems can prevent
financial capital from flowing to its most-productive enterprise. These
problems can become even more difficult when the project that seeks
funding is an innovative one. Indeed, the features of innovative projects
tend to be intangible, and thus expand opportunities to strategically act
on informational advantages. Without a mechanism for dealing with
these advantages, an economy may thus forgo projects that would
contribute most to its growth.
Venture capital firms are one such mechanism. Their expertise in
identifying productive ideas and creating incentive structures that
productively guide development therein lets them attract the type of
long-term steady funding that is necessary to see innovations through
from start to finish. This necessity for commitment creates risks that do
not let other intermediaries succeed. Here, for example, even the most
innovative borrowers may lack the credit or business track record that

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Box 9-1 — continued
would make them attractive prospects to conventional lenders. Venture
capitalists overcome such obstacles by taking extraordinary measures
to examine prospective projects and maintaining a hands-on approach
after making an investment. One study indicates that by discovering
worthy projects and shepherding them to fruition, venture capitalists
are able to annually attract upward of $100 billion in funding, and
channel this capital in a manner that accounts for about 14 percent of
U.S. innovative activity.

Consistent with the argument that financial services encourage growth and
discourage entrenchment, one study finds that industries that tend to lack
their own funding (and thus rely heavily on external sources to finance
projects) grow significantly faster when they are located in countries that have
well-developed financial intermediaries (such as banks). In addition, studies
show that countries that maintain well-developed financial systems tend to
grow their economies at relatively high rates.
This relationship between financial development and economic performance
also shows up in data from U.S. states. The relaxation of multi-state branch
banking restrictions since the mid-1970s, for example, appears to have
improved the quality of U.S. bank lending (as measured by a decline in
nonperforming loans). Evidence suggests that the entrepreneurial sector
responded to this enhanced development by leading state-level economies
onto higher and more stable growth paths. Looking at data at the firm- and
economy-levels, as well as across countries and U.S. states, researchers have
thus found evidence to suggest that an economy’s living standards and growth
prospects depend to a considerable degree on its financial development.

Financial Services and Economic Stability
The above discussion suggests that economic growth increases with the
development of financial markets and services. Fortunately, such long-term
benefits need not compromise short-term stability. Indeed, financial development may contribute to a reduction in the volatility of economic activity.
The reduction in economic volatility over the past several decades is well
documented. As indicated in Chart 9-2, the volatilities of real output and
consumption growth (measured by their standard deviations over 20-quarter
periods) have both trended down since 1950. This remarkable decline in
aggregate volatility, coined “The Great Moderation,” appears to have set the
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stage for a stable macroeconomic landscape that better avoids the inefficiencies
that might emerge from increased economic uncertainty.
The evolution of the financial system may have played an important, though
not exclusive, role in the Great Moderation. One change in the financial
system that may have contributed to the Great Moderation was the removal of
regulations that created volatility. Evidence suggests, for example, that
Regulation Q, which limited the maximum interest that banks could pay on
deposits until its repeal in 1980, depressed lending in high-interest-rate
environments. As a result, banks may have created volatility by translating
financial shocks into real ones.
The Great Moderation may also reflect the financial system’s development
of more sophisticated ways of managing and sharing risk. For example, banks
now use derivative securities to insulate their balance sheets from interest-rate
risk. Derivatives are contractual arrangements that specify payments between
parties, where the payments are usually tied to some observable and verifiable
measure (e.g., an interest rate or stock market index). Banks may also use
derivatives to essentially purchase insurance against the defaults of large loans.
In addition, banks have developed new methods for selling loans to investors
through securitizations, the process of pooling loans and selling claims on
these pools to dispersed investors.

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Further, innovations in consumer financial products offered by banks, such
as cash-out-mortgage refinancing (COMR), may have helped to moderate
economic fluctuations. This role was evident in 2001, the year of the most
recent recession, when households reportedly extracted $83 billion of home
equity, up from $26 billion in the prior year. In addition, the widespread
distribution of consumer credit has almost certainly allowed many individuals
to insulate themselves from short-term economic shocks.

Policy Issues
The financial services sector appears to favorably affect economic growth
and may also reduce economic volatility. As the above discussions about financial mechanisms such as collateral and monitoring illustrate, private financiers
do a lot to facilitate financial development. However, public policy plays a
productive role. In particular, the desire to protect consumers and ensure the
safety and soundness of the financial system has motivated policies in this area.

Consumer Protection
Policies protect consumers in a number of settings. The Food and Drug
Administration (FDA), for example, requires producers to disclose certain
nutritional content and other information about their products. In the financial
services sector, the Truth-in-Lending Act also requires informational disclosures.
The Act requires that consumers be made aware of information about the
amount and rate of interest that they are paying on a loan.
A consumer-protection issue of current interest is identity theft. To conduct
their operations and reduce the risks of lending, financial service firms rely
heavily on the Nation’s credit-reporting system to both assess risk and verify the
identity of credit applicants. Identity thieves prey on this system by using another
consumer’s personal information to obtain credit in the consumer’s name.
Identity theft is a considerable problem. In 2005, banks, credit card companies,
retailers, and data brokers were involved in high-profile security breaches that
affected up to 50 million account holders. The entity whose security is
breached generally bears the costs of direct losses from identity theft.
However, consumers bear significant indirect costs of verifying fraudulent
charges and correcting the damage to their credit profiles.
The Administration has taken substantial steps to protect individuals from
identity theft. In 2003, the President signed the Fair and Accurate Credit
Transactions Act, which allows all Americans free access to review credit
reports annually to ensure the security and accuracy of their credit reports and
to protect against identity theft. In 2004, the President signed the Identity

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Penalty Enhancement Act, which defined a new crime of “aggravated identity
theft” and increased penalties for identity fraud. Congress may enact additional protective measures, and the Administration has recommended that it
consider extending to brokers and other entities the consumer safeguards
that govern the way financial institutions secure their databases. The
Administration also supports narrowly tailored legislation requiring companies to notify consumers if the security of their information has been breached
in a manner that creates a significant risk of identity theft. Enacting this legislation would result in uniform national rules for dealing with identity theft,
rather than the current patchwork of inconsistent state and local regulations.
Of course, some regulations can be overly burdensome if not carefully crafted
(see Box 9-2 for additional discussion).

Box 9-2: Regulation Is Not Costless
While regulation can improve economic performance, it can also have
the opposite effect if not carefully crafted. For instance, if consumerprotection laws for some transactions are unduly burdensome, financial
service firms may stop engaging in those transactions altogether.
Therefore, regulations must carefully assess the overall benefit to
consumers to be sure the regulation’s benefits outweigh its costs.
Excessive regulation can increase the cost of producing financial
services. The now-repealed Glass-Steagall Act is illustrative. The Act
prohibited banks from producing commercial and investment services
under the same roof. This prohibition addressed the concern that a
bank’s investment arm (where banks sell financial securities, like stocks)
could opportunistically sell low-quality investments, and then use the
proceeds to shore up bad loans from its commercial arm (where banks
take in deposits and turn out loans). However, by decreasing the scope
of activities in which banks could engage, research has argued that it
pushed out economical ways of producing financial services. The costs
of regulation, in this case, could very well have outweighed the benefits.
Finally, regulation can work against the ability of financial services to
encourage capital to find productive uses. As described in the previous
section, research has found that historical restrictions on banks opening
new branches in other states decreased the quality of loans. When banks
make bad loans, financial capital may not find its most productive use.
Consistent with this argument, state-level economies grew at faster and
more stable rates after they relaxed bank branch restrictions.

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Safety and Soundness
Another policy concern, the financial system’s safety and soundness, has
deep historical roots. Until the 1930s, the banking sector was largely unregulated. As such, it was susceptible to bank runs, whereby depositors raced to
withdraw funds in anticipation that others would do so first. Bank runs are
problematic because banks cannot quickly turn loans into cash in order to
repay depositors. Indeed, faced with a deposit run, a bank may be forced to
sell loans at a discount, which could leave depositors toward the end of the
run with little or no money.
To address this problem, the Federal government began to insure deposits.
Depositors have little reason to run on a bank when their funds are
guaranteed by the government. However, given that this insurance can expose
the U.S. taxpayer to potentially large losses, the Federal government has an
obligation to ensure that banks operate in a safe and sound manner.
Federal banking agencies have sought to achieve safety and soundness
through supervision and the setting of capital requirements. Agencies supervise
banks much like banks would monitor their loan customers. Bank capital
requirements dictate the amount of capital or liquid assets that banks must
hold as a cushion against potential losses.

The Basel Accords
Capital requirements have found guidance over the past two decades from
two international agreements known as the Basel Accords. These agreements
were created under the auspices of the Basel Committee on Banking
Supervision (which is organized and operated by the G-10 countries) within
the larger Bank for International Settlements (BIS) located in Basel,
Switzerland. The Basel Accords aim to produce general principles and
guidelines rather than promulgate binding law.
Basel I was instituted in 1988, and Basel II was issued in June 2004 (but
has not yet been implemented). Basel II was designed to improve upon its
predecessor, Basel I, in the areas of risk management and capital adequacy.
And while the Accords are intended for large international banks, a number
of countries are using them to guide domestic banking industries.
In addition to protecting depositors, Basel I and II aim to mitigate global
systemic risk: the risk that an event will trigger significant adverse effects on the
economy through loss of economic value and confidence in the global financial system. Systemic risk is normally associated with spillover effects, in
which the original shock spreads contagiously to other parts of the global
financial system and disrupts output and employment. The adverse effects of
systemic problems can arise from disruption of credit and capital flows. The
failure of a major international bank due to inadequate capital financing
provides one example of the type of “event” that could trigger adverse shocks.
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Prior to Basel I, countries operated under very different regulatory capital
regimes for their banks. Over time this arrangement raised competitiveness
and financial soundness concerns, prompting banking supervisors in the
industrialized countries to establish common approaches to defining regulatory capital and setting minimum regulatory capital requirements. Still, under
Basel I, minimum capital requirements can lack sensitivity to the underlying
riskiness of a bank’s business activities. This encourages bank investments in
higher-risk assets for which regulatory capital charges are too low, and fails to
reward improvements in the bank’s underwriting and risk-management
processes. The lack of risk sensitivity also reduces the effectiveness of statutorily mandated, prompt corrective-action policies in the United States, which
are tied to a bank’s regulatory capital ratios. In recent years, financial innovations, such as securitization and credit derivatives, and the greater
sophistication and complexity of risk-management techniques have rendered
the current regulatory capital framework, and related bank-reporting and
disclosure policies, increasingly outmoded for large, internationally active
banking organizations.
On September 30, 2005, the four Federal banking regulators (the Board
of Governors of the Federal Reserve System, the Office of the Comptroller of
the Currency, the Federal Deposit Insurance Corporation, and the Office
of Thrift Supervision) announced their intent to issue in 2006 a Notice of
Proposed Rulemaking for the U.S. implementation of Basel II. The banking
regulators plan to implement only the so-called “advanced” Basel II
approaches, under which minimum capital requirements would be much
more closely aligned with a bank’s actual risk taking by linking these requirements to the bank’s own internal risk assessments. This new framework
introduces three “pillars” intended to make reported regulatory capital ratios
better indicators of a bank’s financial condition and to make a bank’s risk
taking more transparent to both supervisors and the general public. Pillar 1
sets a bank’s minimum capital requirement based on capital formulas whose
basic inputs are derived from the bank’s internal risk-management systems.
Pillar 2 establishes a process through which supervisors and senior bank
management will review a bank’s overall capital adequacy in relation to its
business activities and plans. Last, Pillar 3 attempts to enhance transparency
through requiring expanded public disclosures of a bank’s risk positions.
Under the plan announced by the banking agencies, qualified U.S. banks
could begin transitioning to the advanced Basel II approaches in January 2009.
Within the United States, only a few banks are expected to apply this new
framework. It will be mandatory only for the largest, internationally active
U.S. banks under the belief that the advanced risk-measurement and management standards are most appropriate and cost-effective for these institutions.
However, any U.S. bank may elect to adopt the new framework voluntarily.

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To address potential competitiveness concerns that might arise from banks
being subject to different capital standards, the Federal banking agencies also
are considering possible modifications of the U.S. capital rules that would
apply to those banks not adopting the advanced Basel II approaches. Broadly,
such modifications would be designed to make the rules applicable to the
vast majority of banks more risk sensitive, but without sacrificing overall
simplicity of the current capital framework.
As discussed above, capital standards for large banks are motivated by the
need to protect depositors and limit systemic risk. Concerns about systemic
risk extend beyond the traditional banking sector to other sectors, such as
government sponsored enterprises (GSEs).

Government Sponsored Enterprises (GSEs)
The Federal National Mortgage Association and the Federal Home Loan
Mortgage Corporation, more popularly known as Fannie Mae and Freddie
Mac, are two government sponsored enterprises (GSEs) that are organized by the
Federal government for the purpose of supporting the secondary market for
residential mortgages. The original congressional intent behind the formation
of these institutions was to provide stability and liquidity in the mortgage
market and to promote home ownership, particularly among low-income
families, by reducing the costs of mortgages. (The government also pursues
these objectives through the Federal Home Loan Bank (FHLB) system.)
Fannie and Freddie primarily run two businesses: mortgage securitization
and portfolio management. In their securitization program, Fannie and
Freddie buy home mortgages from banks and other mortgage loan originators, package them into pools, and sell claims on these pools to investors as
mortgage-backed securities (MBS). To augment investor demand, Fannie and
Freddie guarantee the interest and principal on the underlying mortgages.
These securitization programs provide liquidity to mortgage markets by
expanding the range of investors who hold mortgage assets. The portfoliomanagement function of Fannie and Freddie arises because they purchase and
hold MBS on their balance sheets. The combined assets on the balance sheets
of Freddie and Fannie rose from $132 billion (5.6 percent of the single-family
home-mortgage market) at the end of 1990 to $1.38 trillion (23 percent of
the home-mortgage market) by 2003.
The market perception that the U.S. government backs GSE-issued debt
has facilitated the growth in Fannie and Freddie’s portfolios. Although GSE
debt is not guaranteed by the government, the balance of evidence suggests
that most investors perceive that the Federal government would step in to
prevent a GSE default. This perception allows GSEs to issue debt at an
estimated 40 basis points (i.e., 0.40 percent) below the rates of their peer
institutions. With access to relatively inexpensive funds, the GSEs can easily
finance expansions of their portfolios.
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The growth in GSE portfolios is accompanied by prepayment risk.
Prepayment of mortgages is problematic because GSEs tend to raise funds at
fixed interest rates, and prepayments tend to occur when interest rates fall.
Raising funds at fixed interest rates implies that GSE debt issued to finance a
purchase of mortgages is fixed until the debt matures. However, if interest
rates fall and, as a result, prepayments occur, the GSEs must reinvest the
funds from the prepayment in the now-lower interest-rate environment.
Typical methods for hedging prepayment risk (without assuming additional
credit risk) include the use of interest-rate swaps to turn fixed-rate debt obligations into floating-rate ones, and the buying of Treasury securities. Both
methods generate income when interest rates fall, helping to offset the decline
in income caused by prepayments.
While all mortgage investors may face prepayment risk, the size of the
GSEs makes this risk of particular concern to financial markets and regulators. Given the large size of their portfolios, it might be very difficult for the
GSEs to quickly adjust their portfolios if hedges turned out to be less than
perfect. The sudden failure of one of these enormous providers of mortgage
liquidity could severely diminish the liquidity of the mortgage market and
create severe financial stress for holders of GSE securities. Prepayment risk is
also compounded by the low level of GSE capital. The capital-to-asset ratios
(measures of the financial cushion available to absorb portfolio losses without
becoming insolvent) of Fannie and Freddie are roughly half the average
capital-to-asset ratios at comparable financial institutions.
The Administration’s policy proposals have attempted to minimize the
systemic risks posed by GSEs, while preserving the benefits for low-income
home owners and the liquidity that GSEs provide to mortgage markets. In
particular, the Administration has proposed that the GSEs focus on the
business of mortgage securitization. As a result, market liquidity will be
enhanced for a wider range of mortgages, and the home owner and liquidity
benefits associated with the GSEs will be maintained. Moreover, the resulting
reduction in the sizes of the portfolios will make the portfolios easier to hedge,
decreasing the likelihood of systemic problems with little adverse impact on
the liquidity of the market. Indeed, at the behest of the Office of Federal
Housing Enterprise Oversight (OFHEO), Fannie’s portfolio has declined by
$75 billion in the first half of 2005 without any noticeable effects on the MBS
and home mortgage markets. Apparently, there was ample MBS demand
from other investors, including banks and insurance companies.
The Administration has also recommended that regulators be allowed a free
hand in setting minimum and critical capital levels for the GSEs, and that a
clear and credible receivership process be established for the GSEs. This
extension of regulatory authority should have little impact on the liquiditygenerating activities of the GSEs (i.e., their securitization activities), but
would help to mitigate the likelihood of systemic events.
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Conclusion
Information tends to distribute itself asymmetrically—e.g., borrowers tend
to have better information about how they will use funds than do lenders.
The potential to exploit such advantages can stand in the way of mutually
beneficial transactions. Financial services are important for economic
performance because they can check this potential in an efficient manner.
While they do not make tangible goods, these organizations can play an
integral role in expanding economic possibilities.
Public policy can improve upon unregulated outcomes, but must do so in
a cost-effective manner. Moving too far on deregulation could compromise
consumer protection and system soundness. But moving too far on public
regulation can weaken economic performance. A well-developed financial
system is thus one that balances the costs and benefits of public regulation.
Systems like that in the United States appear to have found this balance, and
thus tend to support strong economies.

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C H A P T E R

1 0

The Role of Intellectual Property
in the Economy
Certainly an inventor ought to be allowed a a right
Certainly an inventor ought be allowed right
to the benefit of his invention for some certain time. It
to the benefit of his invention for some certain time.
is equally certain it ought not to be perpetual; for to
It is equally certain it ought not to be perpetual;
embarrass society with monopolies for everyfor
for to embarrass society with monopolies utensil
existing, and in all the details of life, the details more
every utensil existing, and in all would be
injurious to thembe morehad the supposed inventors
of life, would than injurious to them than
never had the supposed long the term should be is the
existed… How inventors never existed…
difficult question. should be is the difficult question.
How long the term
—Thomas Jefferson, 1807
—Thomas Jefferson, 1807

T

he founders of this country believed that intellectual property was so
important that one of the specific grants of power to Congress under
Article I, Section 8 of the Constitution was the power “To promote the Progress
of Science and the useful Arts, by securing for limited Times to Authors and
Inventors the exclusive Right to their respective Writings and Discoveries.” This
grant gives Congress the power to define and to protect intellectual property
through measures such as the issuance of patents and copyrights.
Other powers granted to Congress by Article I, Section 8 of the Constitution
include taxation, regulating interstate commerce, coining money, borrowing,
and naturalization. (For more on the early history of intellectual property
rights in the U.S. see Box 10-1.)
Economic research over the past two centuries confirms the Founders’
wisdom regarding the importance of intellectual property. This chapter examines how intellectual property differs from other, more tangible, forms of
property, the justification for having a formal system for its protection, and
its role in economic growth. The chapter also looks at certain policy challenges in ensuring that intellectual property protection continues to promote
U.S. economic growth and development. The key points of this chapter are:
• Intellectual property rights create incentives for individuals and firms to
invest in research and development, and to commercialize inventions
and other creations by allowing individuals and firms to profit from their
creative activities.
• Well-defined and enforced intellectual property rights are an important
element of the American economy and can contribute to the economic
growth of all countries.
211

• The Administration continues to vigorously enforce the laws that protect
the rights of American intellectual property owners.

Knowledge Is Different from
Other Types of Goods
Economists generally recognize that intellectual property (such as knowing
how to make bread) differs from physical property (such as a loaf of bread) in
two basic attributes:
1. Can more than one person use the good at a time? Physical property,
like a slice of bread, can be effectively used for only one purpose at a
time, and that use precludes other uses. For instance, a slice of bread
used to make a ham sandwich for one person cannot be used to make
a grilled cheese sandwich or a ham sandwich for another person. This
makes bread a good that is rival in consumption, which means that one
use or one person’s use of the product partially or wholly prevents
another use or another person from using it.
2. Can other people be effectively prevented from using the good? The
owner of physical property, such as a slice of bread, can prevent others
from using that slice with relative ease. This makes physical goods like
bread excludable, which means that others can readily be prevented
from using the good.
Something that could be intellectual property, such as bread-making knowledge, differs from physical property in both of these attributes. Unlike a slice
of bread, any person can use bread-making knowledge without diminishing
the practical usefulness of that knowledge to anyone else. This makes breadmaking knowledge, like all knowledge, a good that is nonrival in consumption.
In addition, it is very difficult to exclude others from using knowledge
such as the knowledge of bread-making once it is created and publicized. If
someone wanted to reap the economic rewards for his creation of such knowledge, his only option may be to not disclose the information at all. Even this
approach may not be sufficient if others take active measures, such as reverse
engineering, to learn how the knowledge was used to produce a product. Once
others learn such knowledge, the person who developed it will be unable to
prevent others from using it. Under the rules that apply to physical property,
this makes knowledge a nonexcludable good.
Most knowledge also differs from physical goods in that the costs of
developing knowledge are upfront, fixed costs that do not vary with the
number of times the knowledge is used. Once it is produced, knowledge can
be replicated repeatedly at effectively no cost. For a firm to have an incentive

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to create new forms of knowledge, such as a formula for a new drug or a
software program, it must be able to recoup its initial costs of development.
It may not be able to do this if the knowledge becomes publicly available and
competition forces prices down to the level at which they reimburse the seller
only for the material costs of the products produced using this knowledge.

Treating Knowledge as Intellectual Property
Because knowledge is nonrival in consumption and nonexcludable, any
person who incurs the fixed cost of developing a new or better product or
process will soon find that others, including competitors, are using that knowledge. Competition could drive the price of the product down to the cost of the
physical inputs used to make one unit of the product. The innovator would
receive little or no financial return for paying the cost and undertaking the risk
involved in developing such knowledge. Without the potential to profit from
such innovation, most individuals will be unwilling to incur the fixed costs and
financial risks associated with creating new knowledge.
This is not to say that there is no innovation without the potential for
profit. Some innovations might occur as a by-product of the normal production process. Other innovators might still invest in research and development
but try to prevent the use of their discoveries by keeping them secret. For
many types of innovations this is likely to be costly and ineffective. However,
if innovators cannot control the knowledge they have developed, they are
significantly less likely to invest in developing such new knowledge.
An intellectual property system creates an incentive to develop certain types
of knowledge by granting exclusive rights, enforceable through government
action and a well-functioning legal system, to use that knowledge. These
exclusive rights enable individuals to profit from their inventions by excluding
others from using the innovation. Most intellectual property systems offer
innovators an exchange. The innovator is given the right to exclude others—
for a limited time—from the use of the innovation, but must provide the
public with the complete details of the innovation. This public disclosure
furthers the development of the knowledge base by enabling others to build
on the knowledge embodied in the intellectual property and avoids the
duplication of research efforts.

The Social Costs of an Intellectual Property System
Social costs could arise from making intellectual property protection too
strong. These costs go beyond the obvious bureaucratic costs of intellectual
property systems. Economics tends to focus on two of these social costs: the
potential for creating monopoly power and the restrictions on exploiting
useful technologies.
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Box 10-1: Intellectual Property in the Early American Republic
While the phrase “intellectual property” is the product of more
modern times, the concept in American thought harkens back to the
Constitution. The gradual recognition of intellectual property rights in
early America predates the Constitutional Convention, where it was
formalized in the Constitution. By 1787, every state but one had passed
copyright laws and many had already begun granting patents to inventors. Two delegates to the Constitutional Convention of 1787, James
Madison and Charles Pinckney, were ardent advocates of assigning
copyrights and patents to promote and protect the rights of the authors
and innovators. The Framers of the Constitution assented to giving
Congress its mandate in Article I, Section 8 to “promote the Progress of
Science and useful Arts.
”
This is not surprising. The founders, among them Jefferson and
Franklin, were deeply influenced by the British common law system and
the preeminence of scientific achievements throughout the Age of
Enlightenment. Copyright and patent rights in early America, while distinguishable from their English predecessors, were justified on the same
basic premise that defense of property rights precipitated economic
growth. George Washington noted in his first inaugural address that the
ownership of intellectual property is a necessary means of encouraging
“exertions of skill and genius” to foster technological development.
Article I, Section 8 (Clause 8) provided the necessary authorization for
Congress to extend intellectual property rights in the form of the patent
statutes of 1790, 1793, 1800, 1836, and 1839 that were in effect until the
Civil War period. Manufacturing productivity at the firm level in early
nineteenth-century America has been documented to have varied
directly with the level of patent protections afforded to inventors.
Spurred by their belief in individual enterprise and the maximization of
social returns through private protections, the early policymakers of
the American Republic were prescient in their recognition of the
importance of intellectual property rights in a market economy.

As Thomas Jefferson noted in the passage quoted at the start of this chapter,
the power to exclude, depending on its length, has the potential to create
monopoly power. Modern economic analysis supports this conclusion. The
holder of intellectual property has a monopoly over the use of that intellectual property, but this control may not result in monopoly power in any
meaningful sense. The potential for monopoly power is related to the breadth

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and length of the power to exclude others from making use of the intellectual
property. If this power is narrow or for a short duration, others can enter the
market and compete in a timely manner, and the innovator will have little
or no market power. Overly long or broad grants of exclusivity potentially
limit the ability of others to compete and create a greater possibility of
market power.
Economic research over the past two decades suggests that another social
cost of an intellectual property system is that the power to exclude may deter
others from advancing the state of knowledge by building on protected intellectual property since permission to use the property may be too expensive or
may not be granted. Finally, the expiration of intellectual property protection
after a specific time period may also spur firms to continue to innovate to
ensure continued market success.

Intellectual Property Rights Basics
Intellectual property protection allows individuals to profit from their
innovative or creative activities thereby creating an incentive to innovate and
promote technological progress. Balanced against this benefit are the potential costs of giving the innovator monopoly power and limiting the ability of
subsequent innovators to build on that invention. In crafting the existing
intellectual property laws, Congress and the states have considered these
associated costs and benefits and have granted differing levels of protection
for four basic types of intellectual property: patents, copyrights, trademarks,
and trade secrets. In recognition of the potential social costs of intellectual
property protection for some kinds of knowledge, Congress has refused to
allow individuals to claim intellectual property protection for certain types
of knowledge.
The boundary between what can and cannot be protected is sometimes
difficult to define. However, it is generally understood that intellectual property rights cannot protect things like intellectual concepts, mental processes,
and basic laws of nature. While many justifications have been offered for these
exclusions, one possible explanation, consistent with an economic understanding of the social costs of intellectual property, is that allowing ownership
of any of these types of knowledge will create broad restrictions on innovators
and will slow technical progress. To prevent stifling of innovation, intellectual
property rights are granted only after fulfilling specific legislatively
defined criteria and protect only a particular implementation, expression, or
representation of an idea.

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Patents: Protecting a Particular Implementation of an Idea
Thomas Jefferson wrote the original statute defining what may be patented.
The language was brief and has changed little since the passage of the original
patent act. “[A]ny new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof” may be patented.
Patents protect what is normally called an invention but not the idea the
machine or process is implementing.
The Constitution grants Congress the power to establish the requirements
an inventor must satisfy before a patent is granted. Under current law,
Congress requires that an inventor submit plans describing the invention to
the United States Patent and Trademark Office (USPTO). To be granted a
patent, the invention or innovation must satisfy a patent examiner under a
“preponderance of the evidence standard” that the invention is useful, novel,
and nonobvious. Once a patent is granted, its holder can exclude others
from making, selling, or using the patented invention or substantially similar
inventions for up to a Congressionally mandated 20 years after the patent
application was initially filed. (A subset of patents called “design patents,”
which protect an ornamental design of a product, provide patent protection
for only 14 years.) The scope of this right to exclude depends on the legitimate breadth of the patent’s claims. In general, the more novel and innovative
a patented product is, the broader are its claims and its protection.

Copyrights: Protecting the Expression of an Idea
Copyrights protect a particular expression of an idea and are generally
associated with a variety of creative works including books, music, movies,
magazines, paintings, sculptures, and any other expressive work. The key
factor for obtaining a copyright is originality, and only a minimal amount of
that is necessary. Registering a work with the Copyright Office in the Library
of Congress provides some important litigation benefits—including the
ability to obtain monetary damages when suing for infringement—but such
registration is not necessary. A copyright exists the moment an expressive
work is created and, except for work for hire, becomes the property of the
author creating the work.
A copyright entitles the holder to exclude others from performing,
publishing, or otherwise copying the work. It also entitles the holder to
exclude others from producing “derivative works,” such as a movie adaptation
of a book or its translation into a foreign language. Copyright protection
generally lasts the life of the author plus 70 years. In the case of work for hire
or anonymous works, copyright lasts 95 years from publication or 120 years
from creation, whichever is shorter.

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Trademarks: Protecting the Symbol of an Idea, Product,
or Service
Trademarks can be words, phrases, designs, colors, sounds, or any combination of these that are used to distinguish the products or services of one entity
from those of another. Trademarks reduce consumer search costs because they
make it easier for consumers to identify and find products and services.
Trademarks also protect consumers by providing an assurance of quality or
attributes that can be expected with the trademarked product. Because the key
function of a trademark is to uniquely identify a company, a product, or a
service, the qualifying factor for a trademark is distinctiveness. Generic terms
for a product and, in some cases, even descriptive terms cannot be a trademark.
Trademarks do not have to be registered with the USPTO but such
registration provides the benefit of a legal presumption of nationwide ownership and exclusive right to use the mark for the goods or services identified
in the registration. However, a trademark only becomes intellectual property
when it is used in commerce to identify a product, service, or company.
Trademarks give the holder the ability to exclude others from using that mark
to identify any similar product and, in some cases, exclude others from using
their mark if that use dilutes or weakens consumer association of the product
or service with that mark. Validity of the trademark lasts as long as the trademark continues to identify the product or the company, which in some cases
may be for centuries. The oldest U.S. registered trademark still in use today
is for Samson Rope and was registered in 1884. However, trademark protection may be lost if the mark becomes associated with a product generically
rather than a particular brand as occurred with the term “escalator,” which
was once a trademark for escalators sold by the Otis Elevator company.

Trade Secrets: Limited Protection for Knowledge
Kept Secret
Trade secrets consist of any information possessed by a firm that the firm
takes reasonable measures to keep secret, is legitimately kept secret, and has
commercial value because it is secret. This information may include information that could be protected as other forms of intellectual property but also
includes knowledge that cannot be so protected, including customer lists,
contracts, and other information whose value is diminished if it becomes
publicly available.
Trade secrets are not formally protected in the way other intellectual property
is protected. Protection is provided under state, rather than Federal, law. For
example, protection occurs through the enforcement of the firm’s confidentiality provisions in contracts and the use of the legal system to block those who

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have improperly or illegally obtained a firm’s trade secrets from using or
disclosing them. In general, however, a firm has no legal recourse to prevent
others from using its trade secrets if they become publicly available. Trade-secret
protection lasts only as long as the firm can maintain secrecy. One of the most
successful trade secrets in this regard is the formula for Coca-Cola.

Intellectual Property, the American Economy,
and Economic Growth
Intellectual property played an important role in the growth of the
American economy from a primarily agrarian society through an industrial
economy to the current information age. One researcher notes that even in
the early part of the nineteenth century, the American patent system granted
effective intellectual property rights that led to the development and diffusion
of new technologies that fueled economic growth and prosperity. Today intellectual property protection plays an important role in many industries in
which the United States has a comparative advantage and contributes to the
size, growth, and exports of the American economy.

Intellectual Property and the American Economy
Industries such as chemicals, pharmaceuticals, information technology, and
transportation are highly dependent on patent protection to provide the
incentives to innovate. Some industries, such as software, entertainment,
publishing, broadcasting, and other broadly defined communication industries, are highly dependent on copyright protection to ensure that the creators
of such content are fully compensated for their efforts and continue to have
the incentive to create such works. The combination of these patent and
copyright-dependent industries and any such support industries that are
necessary for these industries to function can be grouped together as intellectual property industries. Chart 10-1 shows the total economic activity
generated by this group of industries. In 2003, these industries represented
approximately 17.3 percent of total U.S. economic activity and approximately one-fifth of private economic activity. Their combined activity exceeds
the total economic activity of all levels of government in the United States.
The estimate in Chart 10-1 represents the income generated in intellectual
property industries. Equally important is the stock of intellectual property
assets that generates these returns. Intellectual property is one of many
intangible assets a firm may hold. Other intangible assets include brand value,
organizational efficiencies, and firm-specific human capital. It has been
estimated that approximately 70 percent of the value of publicly traded
companies comes from intangible assets.
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Chart 10-2 shows the total asset value of U.S. publicly traded firms broken
out by the value of tangible assets, the value that can be inferred for various
types of intellectual property, and the value of other intangible assets.
Intellectual property accounts for approximately 33 percent of the value of
U.S. corporations—with software and other copyright-protected materials
representing nearly two-fifths of this value, patents representing one-third,
and trade secrets representing the rest. In all, U.S. intellectual property may
be worth more than $5 trillion.
The one type of intellectual property excluded from the estimate in Chart
10-2 is trademarks. While there is no doubt that trademarks represent an
important element of any firm’s assets, it is difficult to separate the value of a
trademark from the value of the rest of the value of branding. However, the
sources used to create Chart 10-2 also suggest that the combined value of
branding and trademarks represents approximately 14 percent of the total
value of publicly traded U.S. firms. In some instances, this value may be a
company’s most important asset.
Other studies have indicated that intellectual property-related industries
tend to grow at approximately twice the rate of the economy as a whole and
are an important contributing factor not only to the productivity growth of
the intellectual property-related sectors of the economy but also to the growth
of all sectors of the economy. These industries also represent a growing share
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of exports. Chart 10-3 shows the annual growth rates for the exports from
U.S. copyright-based industries from 1991 to 2002. In all but one of those
years (1995), exports from copyright industries grew at a faster rate than total
exports. Indeed, on average, U.S. copyright exports grew faster by approximately six percentage points than total exports and have become an increasing
share of our total exports.
This analysis, however, obscures an important point about the role of
intellectual property in the economy and undervalues its contribution. There
are many industries that are not counted among the intellectual property
industries but generate innovations and rely on patent and other intellectual
property protection to create incentives for innovation and growth. More
importantly, many innovations from the past have led to significant productivity advances in industries such as medicines, textiles, railroads, steel
manufacture, and farm equipment. The capital value of these innovations was
dissipated as the intellectual property protecting these innovations expired
and the innovative knowledge and information entered the public domain.
Even after these innovations become public knowledge, however, the country
still benefits from the productivity gains the innovations produced. Any
complete consideration of the overall importance of intellectual property to
the American economy should include the value of these advances. Such a
consideration is beyond the scope of this chapter but would suggest that the
220 | Economic Report of the President

estimates discussed above underestimate the importance of intellectual
property to the American economy.

Intellectual Property Protection and Economic Growth
The protection of intellectual property rights plays an important role in
inducing technological change and facilitating economic growth. Intellectual
property protection does not directly lead to growth, but it helps create an
incentive structure that encourages research and development, which in turn
leads to increased innovation. Increased innovation generates greater rates of
economic growth.
The link between improved intellectual property protection and increased
innovation can be seen at the firm level for companies in developing and
developed countries. One study showed that 80 percent of 377 firms surveyed
in Brazil would invest more in internal research if more legal protection, such
as improved intellectual property-right protection, were available. A similar
study of U.S. firms showed that the availability of patent protection in the
United States was a critical factor in research and development decisions.
Using a random sample of 100 U.S. manufacturing firms, this study found
that had it not been for the availability of patents, 60 percent of the inventions in the pharmaceutical industry and nearly 40 percent of the inventions
in the chemical industry would not have been developed.
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A number of other recent economic studies have shown a more direct link
between greater intellectual property protection and capital investment. One
study of the relationship between patent protection and investment in
research and development found that countries with the lowest level of patent
protection invested less than one-third of 1 percent of their GNP in research
and development while countries with the highest level of protection invested
six times as much. Likewise, another study suggests that increasing
intellectual property protection increases capital and research investment.
As intellectual property protection makes investment in research and development more attractive, the supply of knowledge is increased, lowering the cost
of innovation. The increase in innovation leads to an increase in the rate at
which new products are introduced, resulting in greater economic growth.
Intellectual property protection alone does not drive economic growth.
There must be an existing research base in the country, a relatively unconstrained trade regime, a stable macroeconomic environment, the rule of
law, and well-functioning institutions that grant, monitor, and enforce the
intellectual property rights.

Intellectual Property Policy Challenges
Technological and economic change sometimes expose weaknesses in
existing intellectual property laws and necessitate modifications of those laws
to ensure their continued effectiveness in protecting intellectual property and
ensuring economic growth. The Administration has continually reviewed and
implemented policies to improve the intellectual property laws to ensure the
efficiency of the patent review process, to protect the intellectual property of
American firms engaged in international trade, and to prevent potentially
dangerous counterfeit products from entering U.S. and foreign markets.

Ensuring the Integrity of the Patent Process
As noted earlier, patents have broader protection than copyrights or trademarks and, of these three, patents have the only formal review process prior to
being granted. The effectiveness of the patent system in fostering technical
progress and economic growth is tied to the efficiency of this review process.
Patents granted in error may create market power without any offsetting benefit
of inducing innovation. If a patent increases the cost of using existing technology, it may deter innovation or simply cause a firm to use a less-efficient
technology. In 2004, the USPTO issued 187,170 patents. Occasionally a very
small percentage of patents are challenged or overturned, and it is this
particular process within the patent system that is examined below.

222 | Economic Report of the President

Challenging a patent’s validity can be costly and time-consuming.
Estimates suggest that median litigation costs average $4 million each for the
plaintiff and defendant when more than $25 million is at stake in a patent
suit. Research has found that on average it takes approximately three and a
half years to challenge a patent through litigation and that the typical patent
challenge is initiated after the patent has been in force for approximately eight
and half years. An unwarranted patent could be in force for more than twelve
years of a twenty-year term before the legal system would find it to be invalid.
Challenging a patent’s validity can also be financially risky. Generally a firm
cannot sue to have a patent invalidated. It must first infringe on that patent,
wait for the patent holder to sue, and then claim patent invalidity as a defense
to infringement. Firms that do this incur a great financial risk because intentional infringement of a patent may result in triple damages. Patents are
presumed to be valid and an accused infringer must prove it is invalid by “clear
and convincing evidence” to overturn this presumption. This is greater than the
burden that a patent application must satisfy before a patent is issued. Despite
the hurdles faced by a firm challenging the validity of a patent, researchers have
found that 46 percent of the fully litigated patent challenges between 1989 and
1996 ultimately resulted in the patent being judged to be invalid.
In recent years, businesses and commentators have noted substantial
increases in the number of patent applications received by the USPTO. This
trend, combined with an increased availability of patents in areas such as business methods, has led some to question whether wrongly issued patents might
affect the competitiveness of the U.S. economy. Patent policy can foster innovation, but must also be balanced with the consumer protection provided by
competition in the marketplace.
Because of increased interest in how best to balance patent and competition
interests, in 2002, the Federal Trade Commission (FTC), together with the
Antitrust Division of the Department of Justice (DOJ), held extensive hearings with testimony and written comments from investors, entrepreneurs,
antitrust organizations, and scholars. While hearing participants praised
many aspects of the current patent system, many participants expressed
concerns about poor patent quality and legal standards that may inadvertently
create market power and reduce innovation.
In 2003, the FTC issued a report based on the information gained in the
hearings conducted in the prior year. This report contained several
recommendations to alleviate the problems discussed above. Two of these
recommendations were also supported by a subsequent report issued by the
National Academy of Sciences.
The first recommendation was to create an administrative post-grant appeal
procedure that would allow firms to challenge the validity of a questionable
patent within a limited period after it has been issued. This procedure could

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significantly shorten the time period in which a wrongly issued patent is in force
and reduce the risk of some patent challenges. The second recommendation was
to reduce the firm’s risk of triple damages in cases in which firms infringe a patent
with knowledge of that patent. This change would encourage firms to read
their competitors’ patents more frequently, to develop noninfringing business
plans, and to reduce wasteful duplication of effort.

Intellectual Property and International Trade
As intellectual property became a more important element of international
trade starting in the 1980s, differences in the level of protection for intellectual
property across various countries started to lead to an increasing number of trade
disputes about the use and alleged misuse of the intellectual property belonging
to others. These trade frictions had the potential to disrupt the benefits of
increased worldwide trade. In the Uruguay Round of trade negotiations from
1986 to 1994, the members of the World Trade Organization (WTO) negotiated an agreement to introduce more order and predictability into the
international protection of intellectual property rights. The WTO Agreement on
Trade-Related Aspects of Intellectual Property Rights (TRIPs) is the first comprehensive and enforceable global set of rules covering intellectual property rights.
The TRIPs Agreement helps alleviate trade frictions by reducing nontariff
trade barriers related to differing intellectual property protection regimes and by
setting minimum intellectual property rights standards for all WTO members.
The agreement established transparency standards that require all members to
publish laws, regulations, judicial decisions, and administrative findings that
affect the treatment of intellectual property. The agreement also requires
nondiscrimination between nationals and non-nationals and for the first time
applies the Most-Favored Nations (MFN) obligation (prohibiting discrimination across trading partners) to international intellectual property rights.
The TRIPs Agreement took effect in 1995, but only industrialized
countries had to ensure that their laws and practices conformed to it by
January 1, 1996. Developing countries and transition economies were given
five years, until 2000, and the least-developed countries were given 11 years,
until 2006 to comply. The 2006 deadline applicable to least-developed countries was recently extended to 2016 for pharmaceutical patents and July 2013
for other obligations. Questions remain, however, about the extent to which
some developing countries are in compliance with their TRIPs obligations, and
many least-developed countries are unlikely to be in full compliance by July
2013. In addition, many developed countries have implemented a variety of
cost-containment efforts that greatly reduce the value of intellectual property.
Thus, an apparent strong patent protection stance may, in fact, not be a
completely accurate representation, at least across all industries. Consequently,
the level of intellectual property-rights protection varies across countries.
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Developing Countries Tend to Have Weaker Intellectual Property
Regimes
Economists have developed a number of indices to determine the strength
of various countries’ intellectual property protection regimes. While the results
of the research using these indices are not uniform, they suggest that the level
of intellectual property protection increases with a country’s real gross
domestic product per capita. Economists have offered some explanations for
this relationship. Rising income increases the demand for higher-quality,
differentiated products. This increase in demand leads to growing preferences
for the protection of intellectual property, such as patents, copyrights,
and trademarks, which provide an innovator with certain protections when
producing such products.
Countries with lower per capita gross domestic product may prefer intellectual
property regimes with little or weak intellectual property protection because they
believe it allows free access to information that would otherwise have to be paid
for. These countries may also believe that lack of intellectual property protection
allows them to access technological development through imitation and
domestic efforts to build upon the existing stock of worldwide knowledge.
However, the lack of intellectual property protection may slow development in
these countries by inhibiting the development of domestic innovative and
creative industries that generate much of the economic growth in moredeveloped countries. Furthermore, the ubiquity of counterfeit products that is
generally associated with weak intellectual property protection may have health
and safety implications because it is difficult for consumers to be certain of the
origin and efficiency of medicines, machine parts, and other critical products.
Countries like the United States, with greater levels of intellectual property
protection and with comparative advantages in knowledge-intensive goods
and services, place a high priority on intellectual property-rights protection.
Most indices of the strength of intellectual property protection tend to show
that the United States is among the countries with the highest level of protection. More objective measures also suggest that the United States has a
comparative advantage in knowledge-intensive goods. The United States
holds one of the highest shares of global patents and has a trade surplus in
intellectual property-dependent services and in royalties and license fees.

Economic Costs of Intellectual Property Theft in Foreign Markets
Theft in foreign markets of intellectual property belonging to American
companies is significant. In China alone, industry estimates suggest that in
2003 and 2004 the piracy rate was 90 percent or more, which means that at
least 90 percent of the existing copies of a particular work (such as CDs and
DVDs) in China were produced without the copyright holder’s permission.
Industry estimates show that the piracy rates in Latin America were more than
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60 percent and the global software piracy rate was approximately 35 percent.
Some of these pirated copies are exported to the United States. Piracy is an
especially serious problem for American companies because of the strong
comparative advantage they hold in intellectual property-related goods.
Turning these estimates of piracy rates into estimates of lost revenues
involves consideration of two factors: (1) how many copies would have been
sold by legitimate producers in the absence of the pirated copies, and (2) the
price that would have been charged for those copies. Without the competition from pirated copies, the legitimate holder of the copyright might have
been able to sell the product for a higher price and earn higher revenues. In
addition, because pirated products are generally sold at a much lower price
than what a legitimate producer charges, fewer copies might have been sold if
consumers had to pay the higher prices for the legitimate copies. Many
estimates assume that sales of intellectual property-protected goods would
correspond to the current sales of the infringing goods. Under this
assumption, industry estimates suggest that in 2004 software piracy alone cost
U.S. developers at least $6.6 billion.

Preventing Global Intellectual Property Piracy
The Administration is strongly committed to addressing the issues of piracy
(unauthorized copies of copyrighted materials) and counterfeiting (unauthorized reproduction of trademarked or patented goods) without sacrificing the
benefits to be gained through trade and specialization. To accomplish these
goals, the White House initiated the Strategy Targeting Organized Piracy
(STOP!) in October 2004. The STOP! initiative brings together nine
federal agencies, including the Office of the U.S. Trade Representative, the
Department of Commerce, the Department of Justice, the Department of
Homeland Security, and the State Department. Under STOP!, these agencies
and departments have and continue to develop new tools to help U.S. businesses better protect their intellectual property, increase efforts to seize
counterfeit goods at our borders, pursue criminal enterprises involved in piracy
and counterfeiting, and aggressively engage our trading partners to join our
efforts. Through STOP!, new forms of federal assistance are being provided to
U.S. companies, increased law enforcement resources are being provided, and
the Administration has developed an international law enforcement network
to increase criminal enforcement abroad.
Domestically, the Department of Justice has created a Task Force on
Intellectual Property and increased from 5 to 18 the number of Computer
Hacking and Intellectual Property Units in U.S. Attorneys’ Offices across the
country. This increased to 229 (one in each Federal district) the number of
specially trained prosecutors available to focus on intellectual property and
high-tech crimes.
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Internationally, the United States has conducted several hundred intellectual
property rights enforcement and technical assistance projects around the
world. The Administration has established a “Global Intellectual Property
Rights Academy,” located within the USPTO, to consolidate and expand intellectual property training programs for foreign judges, enforcement officials,
and relevant administrators. These programs are designed to foster respect for
intellectual property, encourage governmental and rights holders’ efforts to
combat infringement, and promote best practices in the enforcement of intellectual property rights. The Administration is also expanding its intellectual
property attaché program at our embassies in China, India, Brazil, and Russia.
These attachés will assist American businesses, advocate U.S. intellectual property policy, and conduct intellectual property rights training. STOP! objectives
have also been endorsed in numerous multilateral forums including the
G-8, Organization for Economic Cooperation and Development, the U.S.-EU
summit, and Asia-Pacific Economic Cooperation sphere.
The Administration also created a new senior-level office of the Coordinator
for International Intellectual Property Enforcement. This office will coordinate
the strategies of the Federal Government to use its capabilities and resources to
provide an internationally secure and predictable environment for American
intellectual property.

Technological Change and Intellectual Property Reform
As technology has advanced, it has become cheaper for legitimate producers
to produce many types of intellectual property-related products, including
medicines, CDs, DVDs, automotive and airplane parts, and other products.
Technology also holds the promise for new, more efficient means of distribution of intellectual property-related products, including digital music and
video content. Producers of these products have a great opportunity to take
advantage of changing technologies and a great challenge to limit the use of
these technologies to legitimate producers of these products. Based on current
distribution preferences, intellectual property holders have lost some control
over the distribution of their products.
There are many manifestations of this loss in control. For instance, some
peer-to-peer networks provided technology that enabled individuals to freely
download copyrighted music from the computers of other individuals on these
networks. Moreover, current technology can less expensively and more faithfully
reproduce some intellectual property-protected materials than previous technologies could. These illegal copies are difficult to detect. In the United States and
internationally, this has resulted in a significant increase in the production and sale
of counterfeit products. These counterfeit copies may directly harm consumers
through the sale of fake medicines and defective products, such as batteries, automobile parts, and airplane parts. Furthermore, in the long run, counterfeiting
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harms all consumers by reducing the profitability of and the incentive to
produce new and interesting innovative products and creative works.

Box 10-2: The Free Software Licensing Movement
In the early stages of computing, a number of software developers
wanted to put their work in the public domain, but also wanted to
prevent individuals who modified the software from limiting its accessibility. This resulted in the development of free software licensing,
sometimes called open source, wherein software is licensed for free use
and modification but requires that any subsequent modifications also
remain available for free use and modification by others. Many of the
developers of free, or open-source, software are individuals in academic
environments where open and cooperative development projects are
especially important. Others are hobbyists or companies that are in the
business of providing computing support services to third parties.
General Public Licenses (GPLs) and other free software licenses differ
from traditional commercial licenses by granting to their users the
freedom to run, study, improve, and redistribute copies of the program.
A GPL uses traditional copyright law to ensure that these freedoms are
retained in derivative works by requiring those works to also be
licensed under GPL terms. Many advocates of these types of licenses
believe that they increase network benefits by creating a pool of
commonly accessible work and requiring any improvements made to
the original software code to be contributed to that pool. These advocates believe that by having an unlimited number of developers
viewing the source code and working to modify and improve it, the
quality and testing of software are improved.
GPL licensees are permitted to charge for copying or distribution of their
works. Further, nothing prevents software from being licensed under both
GPL and traditional licensing. Dual-licensing was developed to respond to
consumers of free software who were unwilling or unable to accept the
reciprocity requirements of an open-source license and were willing to pay
to avoid them. Open-source licensing such as GPL licenses is just another
business model of software development that has been embraced by such
companies as Sun Microsystems, Intel Corporation, and IBM.
Traditional and open-source development models currently compete
in the market. Different developers are motivated by different aims and
have different target customers. A system that neither favors nor
discourages either licensing model would best serve a market
consisting of diverse customers and developers. Competition on a level
playing field would ensure that the better licensing system becomes
the most successful. If each system has different advantages, it is likely
that both systems will survive and find success.

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In November 2005, the Administration forwarded proposed legislation to
Congress that would implement some of the changes necessary to respond to
these technical developments. The Intellectual Property Protection Act of
2005 would strengthen intellectual property protection, toughen penalties,
and increase the range of investigative tools in both criminal and civil
intellectual property-law enforcement.
In the past, it might not have been necessary to sanction criminally certain
types of actions because they had little impact on the level of the counterfeiting of intellectual property. For instance, while there are criminal sanctions
for selling a counterfeit good, there are no criminal sanctions against giving it
away. It has only recently become profitable for a company that engages in,
or contributes to, infringement to give a counterfeit product away and profit
from the sale of auxiliary products and services. Technically, these actions are
not criminal violations, but they still diminish the value of the intellectual
property to its owner. The Administration’s proposed legislation provides for
criminal sanctions for distributing any infringing materials for the purpose of
commercial advantage, including the selling of complementary products.
Because the production of a large number of copies is now cheap and easy,
it is much easier for a counterfeiter to flood the market with illegal copies.
Because current intellectual property law was designed when such an action
was not easily accomplished, merely possessing a large number of infringing
products with the intent to sell does not necessarily constitute a crime. Only
the sale of the good itself is a criminal violation. Infringers are now capable of
flooding the market and imposing significant financial harm on the intellectual property holder before criminal sanctions can be applied to limit the
damage from this activity. The Administration’s proposed legislation modifies
the law to criminalize the possession of infringing materials with the intent to
sell and will help stop the sale of counterfeits before they have an injurious
impact on intellectual property holders.

Conclusion
Well-defined and well-enforced intellectual property rights are an important
component of the U.S. economy and an important element in fostering
continued economic growth. Intellectual property differs from other more
tangible property in at least two key characteristics: it is nonrival in consumption and nonexcludable. An intellectual property system creates an incentive
to innovate by rewarding the developers of new inventions with the right to
exclude others from using that innovation for a limited period of time. In
this way, inventors can benefit financially from their innovation. Economic
research supports the conclusion of the American founders that a well-defined
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intellectual property system rewards innovation and fosters economic growth.
By continually adapting to economic and technical change, the American
intellectual property law system will continue to foster economic growth in the
United States and throughout the world.

230 | Economic Report of the President

C H A P T E R

1 1

Recent Developments in Energy

E

nergy is essential to the U.S. economy. It provides light and heat for our
homes and businesses, brings our computers and appliances to life, and
powers life-saving medical devices. It propels the automobiles, buses, and
trains that carry us to home, work, and school, and the aircraft that fly us
from city to city. It fuels the tractors that harvest our food, the machines we
use to turn raw materials into final products, and the trucks, trains, and ships
that carry these goods across our Nation and around the world. All told, the
United States spent about $870 billion on energy in 2004, an amount
equivalent to 7.4 percent of GDP, and was on pace to spend an estimated
$1.1 trillion on energy in 2005, or about 8.6 percent of GDP.
Over the past several decades, the U.S. economy has seen a steady decline
in its energy intensity—that is, the ratio of total physical units of energy
consumed per dollar of real GDP. Nonetheless, households and businesses
remain keenly aware of the prices they pay for energy products and the impact
of rising energy prices on their budgets and bottom lines. When prices change
gradually, households and businesses have time to adapt their energy
consumption levels, fuel choices, and purchases of energy-using products to
new price levels. Sometimes, however, disruptions to our energy production
and distribution infrastructure, such as those caused by the recent hurricanes
Katrina and Rita, result in temporary but sharp price increases to which
households and businesses cannot adjust quickly.
This chapter discusses energy markets—systems that connect consumers
and suppliers of energy products, where prices are determined by what buyers
will pay and what sellers will accept. The chapter reviews recent developments
in energy markets for crude oil, refined petroleum products, and natural gas,
as well as recent developments in the electricity-generation sector. It considers
these developments in the context of historical experience, and offers an
economic perspective on energy market, policy, and technological innovations
that benefit the Nation.
The key points in this chapter are:
• Crude oil prices have risen steadily over the past several years due to
growing world demand, leading to rising prices for gasoline and other
refined petroleum products and stimulating further development of
alternative energy sources. Recent price increases have occurred more
gradually than in the past.
• Disruptions to energy supply and distribution networks can lead to
sharp short-term price increases. Recent hurricanes Katrina and Rita
231

demonstrate that competitive markets connecting energy producers,
distributors, and consumers play a central role in encouraging conservation and allocating scarce energy resources, especially during times of
natural disaster or national emergency.
• The continued expansion of natural gas and other energy markets
through regional and global trade can improve our economic security by
increasing access to low-cost energy resources and mitigating the impacts
of local energy shortages and price increases. Innovative market instruments designed to insure against market volatility can also help lessen
these impacts.
• Absent policy, individual energy market participants may not have an
incentive to tackle certain problems associated with their energy production and consumption. Carefully targeted policies that reduce U.S.
vulnerability to energy disruptions, encourage energy efficiency, and
protect the environment can therefore be beneficial supplements to
markets. These policies can be made more effective and less costly when
designed based on economic incentives.
The first section below provides an overview of U.S. energy sources and
uses. The second section discusses the world market for crude oil. The third
section examines markets for refined petroleum products, including the
impact of crude oil prices on refined product prices. The fourth section
considers the expansion of natural gas markets from limited geographic
regions to a more global level. The fifth section describes challenges and
recent changes in the electricity-generation sector, and the final section
concludes with a look toward the future.

Energy Sources and Uses
One British thermal unit (Btu) is the amount of energy required to raise the
temperature of one pound of water one degree Fahrenheit. The United States
used approximately 100 quadrillion Btu of energy in 2004 (see Table 11-1)—
the energy equivalent of about 17 billion barrels of oil or 60 barrels of oil per
person. Eighty-six percent of this energy came from fossil fuels, including
40 percent from petroleum, 23 percent from coal, and 23 percent from
natural gas. The remaining 14 percent of this energy came from nuclear and
renewable sources, such as hydroelectric power, wind, biomass (e.g., wood
and agricultural crops), and solar energy.
On the consumption side, 39 percent of total U.S. energy use in 2004 passed
through the electricity-generation sector. Roughly one-third of electricity-sector
energy input was converted into electricity and delivered to end-use customers.
The remaining two-thirds was lost due to inefficiencies in the production and
transmission of electricity. Of the 73 quadrillion Btu of energy delivered to
232 | Economic Report of the President

TABLE 11-1.— Energy Sources and Uses, 2004
[Quadrillion BTU]
Energy Uses
End-use sectors

Energy sources
Transport

Industrial Residential Commercial All end-use

Total primary.......................
Petroleum ......................
Natural gas....................
Coal................................
Nuclear ..........................
Renewable .....................
Electricity retail sales .........

27.7
26.7
0.7
0.0
0.0
0.3
0.0

22.1
9.6
8.7
2.2
0.0
1.7
3.5

7.0
1.6
5.0
0.0
0.0
0.4
4.4

4.1
0.8
3.1
0.1
0.0
0.1
4.2

60.9
38.6
17.5
2.3
0.0
2.5
12.1

Total end-use ......................

27.7

25.6

11.4

8.3

Electricity
sector
38.9
1.2
5.5
20.3
8.2
3.6

All
sectors
99.7
39.8
23.0
22.5
8.2
6.1

73.0

Note: Because total primary energy consumption in 2004 was almost exactly 100 quadrillion Btu, numbers in the
table can also be interpreted approximately as the percent of total primary energy consumption coming from various
sectors and going to various uses. Total end-use energy consumption of 73 quadrillion Btu is less than total primary
energy consumption due to electricity-sector energy losses.
Source: Department of Energy (Energy Information Administration).

end-use customers, 38 percent went to the transportation sector (to power
vehicles used to transport people and goods), 35 percent went to industry (for
manufacturing, agriculture, mining, and construction), 16 percent was used in
residences, and 11 percent was used by the commercial sector (in business,
government, schools, and other public and private organizations).

Crude Oil
U.S. crude oil consumption in 2004 was 15.5 million barrels per day,
approximately 65 percent of which was imported. Crude oil is used to
produce a wide array of petroleum products, including gasoline, diesel and jet
fuels, heating oil, lubricants, asphalt, plastics, and many other products used
for their energy or chemical content. Not surprisingly, crude oil markets are
monitored closely by consumers, businesses, and governments, because the
prices of petroleum-based products depend heavily on the price of crude oil.

A Global Market in Crude Oil
Crude oil can be transported long distances cheaply. Transportation costs
average roughly $2 per barrel for crude oil imported into the United States.
As a result, oil prices generally are determined by the balancing of supply and
demand at the global level, where prices are roughly uniform for a given grade
of oil. U.S. refiners, and ultimately U.S. consumers, realize great benefit from
having the option of purchasing crude oil from both nearby sources, such as
Texas or Oklahoma, and from sources halfway around the globe, such as
Russia or the Middle East.
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The international crude oil market is very active. Out of a total global crude
oil production of 67 million barrels per day in 2002, roughly 60 percent was
traded internationally. However, crude oil is produced in large quantities for
export in a relatively limited number of locations around the world. In the
first nine months of 2005, the top ten oil-producing countries accounted for
over 50 percent of global production, and nearly 30 percent of global production originated in the Persian Gulf. Although the United States was the
world’s third-largest oil producer in 2004, trailing only Saudi Arabia and
Russia, the United States ranks eleventh in total proven oil reserves, with just
2 percent of total proven world reserves (Chart 11-1).

Crude Oil Prices
Crude oil prices generally change gradually in response to slowly evolving
domestic and international trends in oil demand and supply, though prices
have spiked sharply on a limited number of occasions. Some of these spikes
were short-lived, while others persisted for several years.

Recent Price Rises
Because crude oil is traded in a global market, long-term trends in demand
by other consuming nations and unexpected events in other countries affect
the world market price that U.S. refiners pay and the price that domestic oil

234 | Economic Report of the President

producers receive. Due to robust economic growth in the United States,
China, and other high-growth countries in Asia, world consumption of
petroleum products grew strongly over the past several years.
On the supply side, industrial countries have exhausted most low-cost
opportunities for profitable domestic exploration and development, and international energy companies often face considerable risk when making
investments for exploration, development, and production in less-developed
countries. Some countries, particularly those with national oil companies,
prohibit or restrict foreign investment. Consequently, new production capacity
has been slow to emerge. World crude oil production in 2005 stood at about
74 million barrels per day, while the Department of Energy estimates that
current world oil production capacity is only 1-1.5 million barrels per day
higher—the lowest level of world spare capacity in more than three decades.
Most of this spare capacity is in Saudi Arabia. As a result of this tight market,
crude oil prices have increased roughly threefold since the beginning of 2002.

Past Oil Price Spikes
Although high, the current price of West Texas Intermediate (WTI) crude
oil (a common pricing benchmark) is lower than the historic peak of over
$87 per barrel (in 2005 dollars) reached in 1980. Oil prices more than
doubled from the last quarter of 1973 to the first quarter of 1974 as a result
of the Arab Oil Embargo. Oil prices more than doubled again from mid-1979
to mid-1980 following the 1979 Iranian Revolution. Prices fell gradually
from this point until 1985-1986, and then they fell rapidly after Saudi Arabia
and other oil-exporting countries increased production. A short-lived shock
in 1990 was associated with the Persian Gulf War. The recent increase in
crude oil prices, which has come largely through a surge in world oil demand,
has occurred much more gradually than past price spikes, which resulted from
abrupt reductions in production in oil-exporting countries.

The Strategic Petroleum Reserve
Sudden oil supply shocks are potentially damaging to the U.S. economy.
The Strategic Petroleum Reserve (SPR) provides the United States with an
insurance policy should a severe energy supply disruption occur. These
Federally owned crude oil stocks, which totaled 684 million barrels in late
2005, are sufficient to cover about 68 days of U.S. crude oil imports or
44 days of total U.S. crude oil consumption. The President of the United
States has authorized an emergency drawdown of the SPR on two occasions:
once during Operation Desert Storm in 1991, and a second time in
September 2005 following Hurricane Katrina, which temporarily shut down
crude oil production facilities in the Gulf of Mexico (See Box 11-2). The
Secretary of Energy has also approved a number of short-term loans of SPR
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oil to help companies address short-term disruptions to their operations,
including after hurricanes Lili in 2002, Ivan in 2004, and Katrina in 2005.
The Administration recognizes the critical importance of the SPR, and has
increased SPR stocks by about 25 percent since January 2001.

Future Price Expectations and Incentives for
Nonconventional Fuels
Although world oil production capacity is expected to increase, world
demand is expected to increase as well, and we are likely to face tight crude
oil markets for a number of years. Prices on contracts for future deliveries of
crude oil (called crude oil futures) indicate that market participants expect oil
prices to remain elevated at or near current levels through at least the end of
2006. Box 11-1 looks at the development of energy futures markets, which
can help energy suppliers and users manage the risks associated with market
fluctuations, and which can help facilitate investment in new conventional
and alternative sources of energy.
In the longer term, an expectation of high future petroleum prices serves as
a signal to potential developers of alternative fuels and producers of petroleum
from nonconventional sources that investment in exploration, research, development, production, and marketing of such alternatives is likely to be
profitable. Chart 11-2 presents cost estimates for commercial production of
potential alternative fuels and nonconventional petroleum sources.
Commercial production of some of these alternatives has already begun. For
other alternatives, such as coal-to-liquids and oil shale, the technologies
needed for production are not yet mature, and their production cost estimates
do not include research, development, and initial demonstration costs. In all
cases, the production cost estimates reflect expenditures on variable inputs
(e.g., raw materials and labor), as well as capital costs for production facilities.
These production costs vary widely.
Although oil prices have risen to more than $60 per barrel in recent
months, they have averaged as low as $25 per barrel within the last five years.
Having experienced past volatility in oil prices, oil companies report using a
working assumption of $15-$30 per barrel for the future price of oil when
making long-term investment planning decisions. Only a handful of alternative fuels and nonconventional sources of petroleum are profitable at these
prices, including petroleum from Canadian oil sands and ethanol (when
subsidized at current levels). Canada’s petroleum industry reports that
production of crude oil from oil sands is currently at 1 million barrels per day
and is expected to approach 2.7 million barrels per day by 2015.
Ethanol—an alcohol fuel made from the sugars found in corn and other
crops—can be burned by most automobile engines in the United States when
blended with gasoline. U.S. ethanol production, which is supported by
236 | Economic Report of the President

Box 11-1: Energy Futures Markets
A futures contract is a legal agreement to buy or sell a particular,
precisely defined commodity at a specified price and location at a specified date in the future. Trading in energy futures allows suppliers or
consumers of energy to lock in a specific price at which they can sell or
purchase energy products, thereby reducing or eliminating price risk.
This can aid in investment planning for energy production.
The market for crude oil futures in organized exchanges, such as the
New York Mercantile Exchange (NYMEX) and the International
Petroleum Exchange in London, is well developed and increasing in
size. For example, the quantity of oil committed under NYMEX futures
contracts with maturities of three months or less increased from a value
equal to 30 percent of U.S. oil production in 1997 to 80 percent in mid2005. The expansion of markets for contracts with longer maturities is
even more striking, with the quantity of oil committed under NYMEX
futures contracts with six-year maturities growing from less than
1 percent of U.S. production in 1997 to 9 percent in 2005.
Although there is very little trading in crude oil futures with longer
maturities, futures contracts for horizons of longer than six years can be
arranged privately with the assistance of investment banks or other
financial intermediaries in so-called over-the-counter transactions.
Energy futures are examples of financial instruments known as
derivatives, which firms use to manage risks associated with market
fluctuations. Weather derivatives also have been used by firms in recent
years in order to manage risks associated with fluctuations in temperature
and precipitation, which can have a significant effect on energy markets.

various Federal subsidies, currently stands at about 250,000 barrels per day.
Ethanol production is expected to increase substantially in response to a
mandate included in the Energy Policy Act of 2005 that gasoline sold in the
United States contain at least 7.5 billion gallons of renewable fuels in 2012
(about half-a-million barrels per day).
Private-sector development of nonconventional fuels, such as coal-to-liquids
or oil shale, may accelerate if high oil prices are sustained over the long term.
For the time being, however, these alternatives are in a developmental stage and
their future commercial success will depend on future energy prices, technological
advances, and environmental and other regulatory requirements.
High energy prices also provide incentives for expanded domestic production
of conventional oil and gas. The Administration supports greater access to oil
and natural gas resources in Federal waters off shore states that support such
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development and supports opening a small portion of the Arctic National
Wildlife Refuge (ANWR) in Alaska for environmentally responsible oil and gas
exploration. According to estimates by the U.S. Geological Survey (USGS), the
1.5-million-acre coastal plain of ANWR and adjacent Native lands and state
offshore waters hold between 5.7 and 16 billion barrels of technically recoverable reserves, with a mean estimate of 10.4 billion barrels—enough to supply
1 million barrels per day for over 28 years.

Gasoline and Other Refined Products
The United States derives approximately 40 percent of the energy it uses
from petroleum, making petroleum the single largest source of energy for our
Nation. Refined petroleum products, such as gasoline, diesel, and jet fuel,
provide 96 percent of the energy used in the U.S. transportation sector, and
are also important for the industrial sector, which gets 37 percent of its energy
from petroleum. The residential sector gets 14 percent of its energy from
refined petroleum products (mainly home heating oil), while petroleum
supplies 10 percent of the energy used in the commercial sector.
238 | Economic Report of the President

Gasoline Prices
The prices that consumers and other end users pay for gasoline depend
heavily on the prices that petroleum refiners pay for crude oil. During the first
eleven months of 2005, the cost of crude oil accounted for about 53 percent
of the retail price of gasoline (the most recent available data from the
Department of Energy). Refining costs and profits accounted for 20 percent,
Federal and state taxes another 20 percent, and distribution and marketing
about 8 percent of the retail price of gasoline.
Crude oil price changes are passed directly through to consumers in the
form of changing prices for gasoline and other refined products, at the rate of
about 2.4 cents per gallon of refined product for every $1 per barrel change
in the price of crude oil. According to Department of Energy data, rising
crude oil prices explain roughly two-thirds of the increase in average gasoline
prices between 2000 and 2005.
In addition to crude oil prices, other factors have a lesser but sometimes
pronounced effect on the price that consumers pay for gasoline. Refinery or
pipeline shutdowns caused by damaging weather, such as hurricanes Katrina
and Rita, can impede the ability of refiners to produce or distribute refined
petroleum products, leading to short-term local or regional spikes in the price
of gasoline and other refined products that do not coincide with spikes in the
price of crude oil (Box 11-2).

Box 11-2: The Effects of Hurricanes Katrina and Rita on
Energy Supplies
In late August 2005 the states of Alabama, Louisiana, and Mississippi
were struck by Hurricane Katrina, a powerful storm that disrupted,
damaged, or destroyed portions of our Nation’s energy infrastructure.
Hurricane Rita followed almost exactly one month later, while recovery
from Katrina was still underway. The impact of these disruptions on
prices for crude oil, gasoline, other refined petroleum products, and
natural gas varied substantially, and the divergent impacts help illustrate key differences in markets for these energy sources (see Chapter
1 for a discussion of the effects on the economy generally).
Due to evacuations and subsequent damage of oil rigs and platforms,
virtually all of Gulf-region oil production—about 28 percent of total U.S.
production—was shut down. Because there is a robust world market for
crude oil, however, the effect on world prices and the prices that U.S.
refiners pay for crude oil was relatively small. The Administration
approved several temporary loans of oil from the Strategic Petroleum
Reserve (SPR) to help refineries offset short-term physical supply

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Box 11-2 — continued
disruptions. The President also authorized the emergency sale of up to
an additional 30 million barrels of crude oil from the SPR. These actions
also helped to moderate any impact the production shut-downs had on
U.S. oil supplies.
About two dozen Gulf region refineries were also shut down by
flooding and electricity outages associated with the hurricanes, so that
following Hurricane Rita more than half of Gulf region refining capacity
and roughly one-quarter of total U.S. refining capacity were shut down.
Katrina initially led to a shutdown of the Colonial and Plantation
pipelines, which deliver most of the refined petroleum products
consumed on the East Coast, as well as the Capline pipeline, which
delivers crude oil from the Gulf region to pipeline systems serving
refineries in the Midwest. After the storm passed and safety assessments revealed no damage, these pipelines began operation
substantially below capacity due to electricity outages and product
shortages. Hurricane Rita subsequently led to shutdowns in several
other pipelines. As a result of these shutdowns of refineries and
pipelines, gasoline and refined product price increases were particularly pronounced in regions served by these refineries and
pipelines—namely, the East Coast, Midwest, and Gulf regions. The
effects on West Coast refined product prices were less pronounced.
The International Energy Agency (IEA) of the Organisation for
Economic Cooperation and Development responded by coordinating
the release of IEA members’ reserve stocks of petroleum. The United
States made SPR crude oil available, while other IEA countries primarily offered refined petroleum products. These and other imports of
refined petroleum products helped ease the impact of the hurricanes on
gasoline and refined product prices, and prices declined further as
petroleum refineries and pipelines came back on line.
Offshore natural gas production faced similar disruptions, with shutdowns of up to about 85 percent of Gulf daily natural gas production or
16 percent of total U.S. production. Onshore natural gas processing
facilities and gathering lines were also damaged, further disrupting
natural gas markets. Unlike crude oil prices, however, natural gas prices
rose by over half as a result of the hurricane-related supply disruptions,
due to the regional isolation of U.S. natural gas markets.
By the end of 2005, less than 10 percent of U.S. oil production
capacity, less than 5 percent of U.S. refining capacity, and less than
5 percent of U.S. natural gas production capacity remained off-line, and
further recovery was expected. Prices for crude oil, gasoline, and
natural gas had returned to pre-Katrina levels, although natural gas
prices were still experiencing volatility.

240 | Economic Report of the President

Another related factor is that surplus refining capacity has declined
substantially during the last 25 years. In the early 1980s, U.S. petroleum
refiners were producing at only about 70 percent of their total potential
production capacity. In contrast, total refiner output has been over 90 percent
of capacity for the last decade. Several factors explain this trend. First, many
small, inefficient refineries exited the industry in the early 1980s following the
removal of poorly conceived Federal petroleum price and allocation controls
that had favored such refineries. Without these controls, inefficient refineries
were no longer profitable, and total U.S. refining capacity fell by 19 percent
from roughly 19 million barrels per day at its peak in 1981 to about 15 million
barrels per day in 1994. Second, low profitability in the refining sector during
the early to mid 1990s did not provide the necessary incentive to expand total
refining capacity. Finally, local concerns about environmental quality have
made it increasingly difficult to site new heavy industrial facilities, including
refineries. Constraints on the expansion of refining capacity to keep pace with
growing demand can lead to higher prices for refined products in the long run.
Refinery profitability increased in the late 1990s, however. As a result,
domestic refining capacity rose 12 percent from 1994 to 17 million barrels
per day in 2004. This increase in capacity has come exclusively through the
expansion of existing refineries, as no new refinery has been built in the
United States since 1976. In response to more-stringent clean-air regulations
over the last two decades, much of the recent investment in refining has been
directed toward increased capacity for producing cleaner fuels, even while
using heavier crude oils with higher sulfur contents. Rising refinery costs and
profits explain roughly one-quarter of the increase in average gasoline prices
between 2000 and 2005.

Short-Run Impacts of High Gasoline Prices
When gasoline prices increase unexpectedly, households and businesses are
not able to cut their gasoline consumption quickly enough to fully offset the
higher costs. In the short term, then, gasoline price increases cut into household budgets and increase business costs. Price increases can have a substantial
impact over the longer term, as well. Mirroring year-to-year changes in gasoline prices, household gasoline expenditures have increased recently after
declining for several years from a peak of about 6 percent of mean household
income in 1981 (Chart 11-3). Fuel-intensive transportation industries, such
as airlines and trucking, also face substantially higher costs when prices of
refined petroleum products increase.
When such price increases occur in response to a natural disaster or a failure
of energy supply infrastructure, sellers are often accused of “price gouging.”
Following hurricanes Katrina and Rita, which caused energy supply disruptions and price spikes, the Administration remained vigilant to pursue and

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investigate reports of illegal pricing practices, while recognizing that
competitive markets are the most effective means for delivering energy
supplies to areas of greatest need. Rising prices encourage consumers to
conserve fuel and provide domestic producers and importers with incentives
to increase supply. If prices are controlled artificially and not allowed to
increase, however, consumers will demand more than suppliers are willing to
deliver, leading to nonprice rationing (e.g., long lines) and potentially exacerbating the shortage. At least 28 states currently have statutes that address
potential market manipulation in the aftermath of a disaster, and a number
of these states have initiated investigations of anticompetitive behavior. The
Federal Trade Commission has also launched an investigation to scrutinize the
refining industry for evidence of unlawful and anticompetitive behavior.

Refining Capacity and Trade
Efficiency improvements and restructuring in the refining industry have led
to lower operating costs per barrel. Excluding oil and other energy inputs,
refinery operating costs fell roughly 20 percent between the early 1980s
and 2003. These cost reductions tend to reduce the price of gasoline for
consumers. Lower surplus capacity may, however, increase the sensitivity of
242 | Economic Report of the President

gasoline prices to temporary disruptions in production at particular refineries.
When production at one refinery is disrupted, it is difficult for other refineries
to compensate by ramping up production. As a result, we are more likely to
see short-term spikes in the price of gasoline.
Although U.S. refining capacity and utilization have increased since the early
1990s, these increases in production have not kept pace with U.S. demand for
gasoline and other refined products. As a consequence, U.S. imports of refined
petroleum products, including gasoline, have grown from 11 percent of total
refined product consumption in 1993 to 15 percent in 2004.
Demand for various types of petroleum products within a country and the
configuration of its domestic refining capacity drive much of this international
trade. For instance, Europe has moved toward consuming more diesel fuel relative to gasoline. According to industry sources, diesel-powered vehicles
increased from roughly 30 percent of European new car sales in 2000 to
40 percent in 2005. This has resulted in an excess supply of gasoline at
European refineries, which Europe now exports to the United States. At the
same time, Europe imports diesel fuel from the United States and other countries. Likewise, other countries have differences between domestic
consumption patterns and production capacity. These patterns have resulted in
the United States exporting certain refined petroleum products to North
America, South America, and Europe, while importing other refined products
from these same countries, as well as from the Middle East and the Caribbean.
Transport costs for refined petroleum products are sufficiently low that
international trading can moderate the effects of regional price spikes. For
example, when supplies of gasoline and other refined petroleum products ran
short in the United States following Hurricane Katrina, and prices began to
rise quickly, importers responded to this price incentive by delivering
significantly more product to the United States.

Price-Induced Substitution and Technological Change
In the long run, households and businesses respond to higher fuel prices by
cutting consumption, purchasing products that are more efficient, and
switching to alternative energy sources. Higher energy prices also encourage
entrepreneurs to invest in the research and development of new energyconserving technologies and alternative fuels, further expanding the
opportunities available to households and businesses to reduce energy use and
switch to low-cost energy sources.
The energy intensity of the U.S. economy—that is, the ratio of total Btu of
energy consumed per dollar of real GDP—has declined substantially over the
past several decades (Chart 11-4). And, as one might expect, energy intensity
declined most rapidly from the mid-1970s though the mid-1980s, when energy
prices were at their highest in real terms. Reductions in overall energy intensity
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result from both shifts in economic activity toward less energy-intensive sectors,
as well as from energy efficiency improvements within particular sectors. Recent
research suggests that energy efficiency improvements account for roughly
one-third of the reduction in energy intensity between 1985 and 2002, after
controlling for shifts in economic activity between different sectors.
Although reductions in energy consumption are made primarily in response
to changes in market conditions, government policy may also play a role in facilitating improvements in energy efficiency. This role has included supporting the
development of new technologies, encouraging investment in improved
efficiency, and in some areas, mandating efficiency improvements to new appliances, equipment, buildings, and vehicles. For example, on-road fuel efficiency
for new cars and light trucks (e.g., minivans, pickup trucks, and SUVs)
increased from an average of 13 miles per gallon in 1975 to 21 miles per gallon
in 2005. This rise is due in part to higher fuel prices, technological improvements, and Corporate Average Fuel Economy (CAFE) standards, which
mandate fuel efficiency in passenger cars and light trucks (Box 11-3). The
benefits of any such government policy must be weighed carefully against the
costs to U.S. taxpayers, consumers, workers, and businesses. The Administration
recently proposed new CAFE standards for light trucks in model years
2008-2011 based on a careful accounting of these benefits and costs.

244 | Economic Report of the President

Box 11-3: Automobile Fuel Economy Standards
For three decades, Corporate Average Fuel Economy (CAFE) standards
have mandated separate average fuel economy targets for passenger
cars and light trucks sold in the United States, and each domestic and
foreign manufacturer must meet these same targets in every model year.
Congress has established a default level of 27 miles per gallon for
.5
passenger cars, and passenger car standards have remained at this
default level since 1990. The Department of Transportation (DOT) sets
CAFE standards for light trucks for each model year, and the
Administration raised those standards from 20.7 miles per gallon in 2004
to 22.2 miles per gallon by model year 2007
.
There are concerns that the structure of current CAFE standards
encourages manufacturers to build minivans, SUVs, and other light
trucks instead of cars, because the fuel economy standard for light trucks
is lower than the standard for cars. This could lead to an overall decrease
in average fuel economy. There are also concerns that manufacturers
might meet higher CAFE targets primarily by reducing vehicle size and
weight, rather than by applying fuel-saving technologies, and that these
size and weight reductions could have a negative impact on the safety
of vehicle occupants.
Motivated by these concerns, DOT has proposed a new CAFE rule for
light trucks for model years 2008-2011 (to be finalized by April 2006) that
incorporates two notable reforms. First, DOT has proposed that CAFE
standards for light trucks depend on vehicle size, whereby smaller light
trucks will face higher fuel economy standards than larger light trucks.
Size-dependent CAFE standards will reduce the incentive to build light
trucks instead of cars, discourage manufacturers from achieving CAFE
standards only by selling smaller vehicles, encourage greater fuel
savings in small light trucks, and spread the burden of achieving CAFE
standards more evenly across manufacturers. Second, proposed standards for 2011 would be set using a new economic model developed by
DOT that sets CAFE standards to maximize economic benefits minus
costs—a milestone in the use of benefit-cost analysis in the rule-making
process. The model takes into account the impact of mandated fuel
economy improvements on vehicle costs, the value of fuel savings, environmental benefits and costs, and other factors. The proposed rule will
save an estimated 10 billion gallons of fuel over the lifetime of the light
trucks affected by the rule.
The Administration has requested authority from Congress to
implement further reforms to the CAFE system, including utilization of
market-based incentives, such as trading of fuel economy credits, to
obtain fuel savings at the lowest possible cost to consumers. The Energy
Policy Act of 2005 signed by the President calls for a report on CAFE
reform ideas to be delivered to Congress within one year.

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Reform of the New Source Review Program
Unfortunately, government mandates sometimes lead unintentionally to
outcomes that are contrary to their environmental goals. An example of this
is the New Source Review (NSR) component of the 1977 Clean Air Act
Amendment. NSR requires that new refineries, electric generating units, and
other industrial sources of air emissions apply the best-available air emissions
control technology. Existing facilities that undertake significant modifications
are also required to apply the best-available technology. NSR requirements
were designed to ensure that new emissions sources are appropriately
controlled so that the local air quality is not compromised. Unfortunately,
NSR has led over time to sources seeking to avoid its requirements because
the permitting process was complicated, potentially expensive, and timeconsuming, especially for sources modifying their facilities. This can provide
an incentive for existing sources of emissions to continue their business operations for longer than would have been the case under normal market
conditions without the regulation. It also provides an incentive for existing
plants to forgo modifications.
New production sources tend to be less polluting than old ones even in the
absence of regulations, so extending the business operations of older plants
without making modifications could result in higher emissions. Applying
different regulations for “routine” versus “major” modifications also leads to
ambiguity, litigation delays, and uncertainty in business planning, all of
which can harm the economy and may impede environmental improvements.
The Administration recently addressed this problem by establishing clear
rules that remove disincentives for facilities to modify and undertake routine
equipment replacement activities that could improve the safety, reliability,
and efficiency of the plants. The Administration also established rules that
provide facilities with greater flexibility to modernize their operations without
increasing air pollution, encourage the installation of state-of-the-art pollution controls, and base NSR requirements more accurately on actual facility
emissions levels. These changes will help to address the extreme demands
being placed on our Nation’s energy supply infrastructure by assuring that the
NSR program provides greater regulatory certainty and flexibility for business
investment decisions, while protecting the environment.

Natural Gas
Nearly a quarter of U.S. energy consumption is supplied by natural gas.
Natural gas has numerous uses in homes, industry, commerce, electricity
production, and transportation and is a vital component of fertilizer and
chemical production. The United States consumed 61 billion cubic feet of
246 | Economic Report of the President

natural gas per day in 2004: 38 percent in industry (roughly one-tenth of
which was used as a feedstock), 24 percent in electricity generation,
22 percent by households, 13 percent in the commercial sector, and the
remaining 3 percent in transportation. U.S. natural gas consumption is
projected to grow to 74 billion cubic feet per day by 2025.
Natural gas is produced from underground reservoirs that are sometimes
associated with crude oil; much smaller amounts are generated from landfills,
coal mines, and other sources. Domestic onshore production totaled about
42 billion cubic feet per day in 2004, while offshore production totaled
12 billion cubic feet per day. Total domestic production of 54 billion cubic
feet per day is enough to heat about 300 million typical Midwestern homes
for one year. After extraction, natural gas is processed to remove impurities
(e.g., heavier hydrocarbons) and distributed via pipelines to retailers and
eventually to end-use consumers in all sectors of the economy.

Regionalized Natural Gas Markets
Unlike crude oil, which trades on a global market at roughly uniform world
prices, the current natural gas marketplace is highly regionalized. As a point
of comparison, about 60 percent of global crude oil production was traded
internationally in 2002, whereas only 28 percent of global natural gas production was traded. These differences stem from relatively high shipping costs for
natural gas and a less-developed infrastructure for natural gas trade.
International trade in natural gas occurs mainly within the regions of North
America, Western Europe/Russia, and Asia-Pacific/Japan, each with its own
unique pricing system and other market characteristics.
In North America, pipelines move natural gas between the United States,
Canada, and Mexico with subregions of the continent supplying the majority
of their own consumption needs. U.S. net imports of natural gas were
9.3 billion cubic feet per day in 2004, representing 15 percent of total U.S.
natural gas consumption. Most imports came by gas pipeline from Canada.
Only a relatively small amount was imported from beyond North America, as
liquefied natural gas (LNG) from Trinidad, Algeria, and other countries. The
United States also exports small amounts of natural gas to Canada and
Mexico by pipeline and to Japan as LNG from Alaska.

Natural Gas Prices
Wholesale natural gas prices at Henry Hub on the Louisiana Gulf coast (a
common natural gas pricing benchmark) averaged around $2-$3 per million
Btu from 1994 through the middle of 2000. One million Btu of natural gas
is equal to about one thousand cubic feet of natural gas. Prices then spiked to
a peak of $10.50 per million Btu in December of 2000 in response to an
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unusually cold winter before falling back to their previous low levels. Prices
have increased substantially since then from roughly $3 per million Btu in
early 2002 to over $10 per million Btu in November 2005. Prices rose
roughly in tandem with crude oil prices due to the presence of close substitution possibilities between natural gas and oil in power production and
heating, though there have been some bumps along the way. Prices spiked to
a peak of $19 per million Btu in February 2003 in response to another unusually cold winter, rose as high as $15 per million Btu in September 2005
following hurricanes Katrina and Rita, and increased to over $15 again in
December 2005 with the onset of cold temperatures.

Volatility in Natural Gas Prices
Regionalization reduces the frequency and extent to which natural gas price
spikes in other regions affect U.S. natural gas prices. However, the absence of
a robust international market for natural gas also makes the United States
more susceptible to price shocks within our own region. Disruptions to
supply or increases in demand may necessitate large price changes to reestablish equilibrium between regional supply and demand. Opportunities for the
import of natural gas from other regions would dull these sharp price spikes,
although localized price spikes in some regions will likely never be eliminated
completely due to limitations in the natural gas distribution infrastructure.
Volatility in natural gas prices in the United States is often related to
extreme and unexpected weather events. In the summer months, for example,
periods of extreme heat drive up demand for electricity to power air conditioners, leading to increased demand for natural gas for electricity production.
Droughts and periods of low rainfall deplete resources for hydroelectric power
generation and may require increased use of natural gas for replacement electricity generation. In the winter, periods of extreme cold drive up demand for
natural gas for heating. Hurricanes, floods, and other severe weather events
may shut down natural gas production and processing facilities and pipeline
distribution networks, leading to supply disruptions.

Liquefied Natural Gas
Liquefied natural gas (LNG)—natural gas in liquid form—is expanding
natural gas markets to a more global level, which in the future holds potential to moderate some of this price volatility. LNG is created by cooling
natural gas to minus 260 degrees Fahrenheit, at which point it turns into a
liquid, significantly reducing its volume. Specially manufactured doublehulled ships are then able to transport LNG over long distances at lower cost
than pipeline transport of natural gas. Upon reaching port, LNG is pumped
into a receiving terminal where it is converted back into gas (regasified) and
then distributed to consumers via pipeline.
248 | Economic Report of the President

Although some inter-regional movement of natural gas does occur, three
key factors have limited the development of a full-scale international market.
First, natural gas resources are widely distributed internationally, which at
least until recently, has limited the need of many countries to import natural
gas from distant sources. Second, it is still costly to transport natural gas as
LNG over long distances, which means that regional price differentials need
to be large before international trade is cost-effective. Finally, natural gas price
differentials are now high enough to justify long-distance shipping of LNG,
but the infrastructure for liquefying natural gas into LNG is not well
developed in many countries with natural gas supplies.
Although the United States has been able to maintain a high level of natural
gas production, North America holds only 4 percent of proven world reserves,
including 3 percent of world reserves in the United States and 1 percent in
Canada (Chart 11-5). Assuming U.S. demand continues to increase, the need
for imports from sources outside the region will grow. At present, it appears
that LNG is the best means for importing natural gas from beyond North
America, and current Department of Energy projections are that LNG
imports from various regions will increase from about 3 percent of U.S.
natural gas consumption in 2004 to 15 percent by 2025.

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LNG Conversion and Transport Costs
A truly global market for natural gas will require transporting natural gas
over long distances, and LNG is superior to pipeline transport in this regard.
Currently, pipeline transport is less expensive than LNG for distances up to
about 1,300 miles in the case of offshore pipelines and up to about 2,400
miles in the case of onshore pipelines. Beyond these distances, LNG transport
in tankers is less expensive.
In addition to the cost of extracting and processing natural gas at the supply
source, LNG must be liquefied, transported via special tanker, and then
turned back into gas upon arrival. The costs associated with liquefying LNG
have decreased between 35 percent and 50 percent over the past ten years,
while transport and regasification costs have also fallen. These costs are still
high enough, however, that U.S. natural gas prices need to exceed wellhead
prices in LNG-supplying countries by at least $1.50 to $3 per million Btu—
roughly $9 to $17 per barrel of oil equivalent—before LNG transport is
cost-effective. As these costs continue to fall, the international marketability
of LNG will grow.

U.S. LNG Terminal Capacity
Total LNG import costs are about $2-$4 per million Btu, which is far below
current domestic natural gas prices. Given sufficient LNG infrastructure
capacity, therefore, domestic prices eventually could be reduced through
increased imports. Over 150 LNG tankers were in operation in 2003, and
another 50 are under construction. Currently, there are five existing LNG
import terminals in the continental United States (four onshore and one
offshore), and these facilities operated at about 40 percent of capacity in 2005.
About a dozen additional terminals have been approved, and about 20 others
have been proposed. The recent Energy Policy Act of 2005 signed by the
President took steps to remove unnecessary impediments to siting LNG terminals by clarifying the role of the Federal Energy Regulatory Commission
(FERC) as the lead agency for coordinating authorization of onshore LNG
terminals and LNG terminals in state waters. Federal approval of projects will
continue to be conditional on state approval under various environmental laws.
With ample capacity in both shipping and receiving, the current bottleneck
in LNG imports to the United States is an insufficient supply of overseas facilities for liquefying LNG. As long as capacity for liquefying LNG is in short
supply abroad, there will be great competition in international markets for
LNG cargoes, as is already happening among the major importers of LNG,
including the United States, Japan, Spain, and other countries. Not surprisingly, high natural gas prices in these and other countries have led to an
expansion of capacity to liquefy LNG abroad. Qatar, which has 15 percent of
proven world natural gas reserves, recently began exporting LNG. The
250 | Economic Report of the President

12 nations that currently export LNG hold more than one-quarter of proven
world reserves, and some of the world’s largest natural gas exporters are in the
process of constructing plants to develop LNG export capacity, including
Russia and Norway.

Future Prospects for an International LNG Market
Currently, LNG markets are undergoing a substantial evolution, with
demand growing and strong future growth expected. Between 1993 and 2003,
international LNG trade grew at an average annual rate of 7 percent, and global
LNG capacity is expected to grow by more than one-third between 2003 and
2007. Although international trade in LNG is expanding, the market has not
yet evolved to the point where it can respond fully to price spikes in North
America and other regional markets. The market for prompt delivery of LNG
“spot cargoes,” although growing, is still less than 10 percent of world
LNG trade, with most LNG cargoes delivered under long-term contracts.

Prospects for Domestic Production of Natural Gas
The emergence of international natural gas markets does not eliminate the
need to develop domestic production. Greater domestic natural gas production holds promise both in Alaska and on the outer continental shelf
(OCS)—Federally controlled offshore areas within the 200-mile exclusive
economic zone of the United States but beyond the 3-mile zone under state
jurisdiction—as well as other areas. A difficulty in Alaskan production has
been the lack of infrastructure to transport remote natural gas resources to
market, which would be solved by development of the Alaska natural gas
pipeline to the lower 48 states. The Alaska Natural Gas Pipeline Act signed by
the President in October 2004 established an expedited Federal approval
process for construction of the pipeline, and FERC has been working
with state, Federal, and Canadian agencies to establish a framework for
coordinating permitting activities.
The OCS has vast additional natural gas resources. Proven Federal offshore
reserves as of 2003 were about 23 trillion cubic feet—12 percent of total
U.S. proven reserves of 189 trillion cubic feet. The Department of Interior
estimates the OCS also contains 400 trillion cubic feet of undiscovered,
technically recoverable natural gas. About 20 percent of this natural gas—80
trillion cubic feet—is currently subject to Federal offshore leasing moratoria.
The Administration supports greater access to natural gas and oil resources in
Federal waters off shore of states that support such development. This would
open up substantial additional natural gas supplies for the Nation.

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Electricity
Although 39 percent of total U.S. energy consumption in 2004 passed
through the electricity-generation sector, only about one-third of electricitysector energy input was converted into electricity and passed on to end-use
customers (Table 11-1). The remaining two-thirds was lost due to inefficiencies in the production and transmission of electricity. Some of these losses
could be avoided through further efficiency improvements, though most are
unavoidable due to the physics of electricity production and transmission.
Retail electricity consumption is divided roughly equally among the residential, commercial, and industrial sectors. The residential sector consumed
36 percent of this electricity for lighting, heating, air conditioning, and
powering household appliances, while 35 percent went to the commercial
sector for similar uses. Industry consumed 29 percent, and less than 1 percent
went to the transportation sector to power electric rail transport.

Electricity-Generation Technologies
A range of energy sources and technologies are used to produce electricity.
A total of 71 percent of generated electricity comes from fossil fuels, including
50 percent from coal, 18 percent from natural gas, and 3 percent from petroleum. Nuclear power provides about 20 percent of electricity, while
hydroelectric power provides 7 percent, and other renewable sources, such as
wind, biomass, and solar, provide a combined 2 percent.
With the exception of solar power and diesel-powered internal combustion
engines, all electricity is generated by the turning of turbines that drive electric generators. Falling water drives the turbines in a hydroelectric plant, and
wind turns the turbine of a windmill. Natural gas plants use a combustion
process like that in a jet aircraft engine to generate a high-speed stream of
combustion gases, which is used to drive a natural gas turbine. In natural-gascombined-cycle plants, exhaust gases exiting the gas turbine are used to heat
water, which generates high-pressure steam that drives a second turbine.
Nuclear and conventional coal plants generate high-pressure steam to drive
turbines by heating water using the energy released by nuclear reactions and
coal combustion, respectively. Advanced coal-fired generating plants use
various alternative technologies to enhance efficiency and cut emissions.
Combined heat and power plants can very efficiently generate steam or hot
water for heating and production processes, as well as for electricity.

The Real-Time Challenge of Electricity Markets
Most fuels, such as gasoline, home heating oil, or natural gas, can be manufactured and then stored for later distribution and use. Unlike these energy
252 | Economic Report of the President

sources, however, the generation and consumption of electricity must match
exactly in real time. Although it is possible to store electricity in batteries,
storing electricity on a large scale is too costly. If generation fails to provide
the energy needed to satisfy demand, the electricity production and distribution network can become unstable, leading to outages or system failures.
Shutdowns of generating plants in one location can therefore affect the entire
network, as was the case in August 2003, when a plant shutdown in Ohio
triggered cascading failures that ultimately forced the shutdown of at least
265 power plants. These shutdowns left an estimated 50 million people in the
United States and Canada without power and led to economic losses of
$4-$10 billion in the United States and noticeable downturns in Canadian
hours worked, manufacturing shipments, and economic output. The Federal
government took a number of actions after the blackout to diminish the risk
that a similar disruption would occur in the future.
The demand for electricity fluctuates with the seasons and during the
course of each day. For example, the hot summer months bring increased
demand for electricity to power air conditioners, and electricity demand peaks
each afternoon and drops to its lowest level late at night. Because the production and use of electricity must match in real time, electricity generation
fluctuates one-for-one with these seasonal and daily consumption patterns.
Electricity-generating capacity is tuned to match these fluctuations. Plants
that have low operating costs or that are difficult to turn on and off, such as
nuclear and coal-fired steam plants, provide the “baseload” power that is used
all day every day. Plants that have higher operating costs or that can be started
up quickly, such as natural gas turbine plants, start up incrementally as electricity demand increases and peaks, with some units remaining idle for much
of the day or even much of the year. Hydroelectric plants, which have low
operating costs and can be started quickly, are suitable for both baseload and
peak electricity production.
These fluctuations can have impacts in other energy markets. Reduced
hydroelectric power due to low rainfall and falling reservoir levels can increase
demand for electricity from natural gas. Likewise, particularly hot summers
increase electricity demand to power air conditioners, increasing demand for
natural gas as gas-powered generators come on line. If the weather is drier or
the summer is hotter than marketers of natural gas anticipate, stored levels of
natural gas will be low relative to unexpectedly high demand, and natural gas
prices will increase.

Real-Time Pricing and Other Reforms
Because electricity-generating units are dispatched incrementally in order
of increasing operating cost, the marginal cost of producing electricity—that
is, the additional cost of producing one additional unit of electricity—is
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highest during periods of peak production and lowest during periods of low
production. In practice, however, most retail customers pay a fixed seasonal
rate for the electricity they use and thus have no incentive to reduce their
consumption of electricity during the times of day when it is most costly to
produce. As a result, electricity producers must invest in generating units that
remain idle most of the time, and the capital costs of these units are passed on
to consumers in the form of higher average prices. Constraints in the electricity transmission system, which limit the extent to which electricity can be
directed to areas of high demand or low supply, can also lead to high
electricity prices in some regions.
The recent Energy Policy Act of 2005 signed by the President addresses the
issue of inefficient pricing by requiring electric utilities and competitive
retailers to offer customers time-based rates by February 2007. By ensuring
that electricity suppliers offer their customers rates that better reflect the cost
of electricity generation, these provisions will encourage consumers and businesses to conserve electricity during times of peak demand. This will reduce
the need for excess generating capacity that remains idle most of the time and
will, as a result, lower average electricity bills for retail customers. The Act also
establishes energy-efficiency standards for household products and Federal
buildings, which will reduce consumption of energy.

Environmental Protection
Combustion of fossil fuels, coal in particular, generates sulfur oxides and
nitrogen oxides, which contribute to poor air quality if not controlled.
Currently, emissions of sulfur and nitrogen oxides from electric utilities are
regulated under the 1990 amendments to the Clean Air Act, which established a cap-and-trade system of tradable permits that holds total annual
emissions to a mandated level at low cost. See Box 11-4, which includes a
discussion of the Clean Air Interstate Rule and the President’s Clear Skies
proposal, which calls for a further 70 percent reduction in air emissions.
Fossil fuel combustion also generates emissions of carbon dioxide and other
greenhouse gases, which contribute to the warming of the Earth's surface.
The Administration is supporting the development of various technologies
that will improve power plant efficiency, while greatly reducing air pollution
and greenhouse gas emissions. For example, the Department of Energy is
supporting research and development of technologies that turn coal into a
highly enriched hydrogen gas, which can be burned much more cleanly than
burning coal directly or can be used as an industrial feedstock. These technologies also provide opportunities to remove and sequester emissions of
carbon dioxide and air pollutants prior to combustion. In February 2003 the
President announced FutureGen, a government-industry partnership to build
a prototype fossil fuel power plant that will demonstrate these technologies.
254 | Economic Report of the President

Box 11-4: Cap-and-Trade Programs for Air Pollution
Title IV of the 1990 Clean Air Act Amendments established a national
cap-and-trade system for sulfur dioxide (SO2) emissions. SO2 emissions, which are generated by the burning of fossil fuels—such as coal
in an electric power plant—can lead to health concerns and are a
component of acid rain. Title IV’s program caps total allowable SO2
emissions from power plants nationwide and requires that each facility
own a permit for every unit of SO2 it emits. The Environmental
Protection Agency (EPA) monitors and enforces this cap rigorously.
Under the Title IV program, SO2 permits can be bought and sold by
emitting facilities. Trading allows facilities with high pollution-reduction
costs to purchase permits from facilities with low reduction costs,
thereby allowing the power industry to achieve mandated emissions
reductions in a cost-effective manner. The program does not tell power
producers how to reduce pollution, but rather they are free to choose
the most cost-effective method for achieving reductions.
The SO2 trading program has been very successful at reducing
emissions at a lower cost than direct plant-level emissions standards.
The compliance has been nearly 100 percent, and research shows the
trading program saves U.S. power producers hundreds of millions of
dollars per year relative to direct plant-level standards. Thus, cap-andtrade programs promote clean air while reducing the cost impact on
energy consumers. A similar regional cap-and-trade program exists in
the eastern United States to control nitrogen oxide emissions, which
contribute to regional ozone and smog problems.
In 2002, the President proposed “Clear Skies” legislation, which
would expand the Clean Air Act Title IV cap-and-trade approach for SO2
to also include nitrogen oxide and mercury, reducing these emissions
to roughly 70 percent below 2000 levels by 2018. As Congress has not
yet enacted Clear Skies, the EPA has sought to achieve much of the
benefits of the Clear Skies legislation by issuing the Clean Air Interstate
Rule (CAIR) and the Clean Air Mercury Rule (CAMR) in March 2005.
CAIR requires 28 states in the eastern half of the country to regulate
power plant emissions of SO2 and nitrogen oxides and encourages
them to do this within the framework of an interstate cap-and-trade
system. When fully implemented, CAIR will reduce power-plant SO2
emissions in these states by over 70 percent and nitrogen oxide emissions by over 60 percent from 2003 levels. CAMR is the first-ever
regulatory action to reduce mercury emissions from coal-fired power
plants and includes a cap-and-trade approach as a way of achieving
nearly 70-percent reductions in mercury emissions.

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The Administration is also supporting further development of renewable
sources of electricity, such as wind, solar energy, and biomass (e.g., wood and
agricultural crops), which generate little or zero net greenhouse gas emissions.
Finally, the Administration is supporting the development of nuclear power,
which does not generate air pollution or greenhouse gases. The Nuclear Power
2010 program is a cost-shared government-industry partnership to identify
sites for new nuclear power plants, improve nuclear technologies, and demonstrate untested regulatory processes. The Generation IV nuclear power
program supports the development of future technologies with reduced
capital costs, enhanced safety, minimal waste, and reduced risk of weapons
materials proliferation.

Electricity Markets in Transition
The electric power industry has gone through a transition over the past
several decades, evolving from a highly regulated, monopolistic industry to a
less regulated, more competitive industry. Traditionally, electric utilities
owned and operated electricity-generating units, transmission lines, and
distribution systems, and were the sole providers of electricity to a specific
geographic area. Federal legislation and rule-making activities during the last
decade, however, have opened up access to transmission lines and encouraged
greater wholesale trade of electricity between generators and retailers. The
market changes vary from state to state and are dynamic, with continual
adjustments being made as problems emerge. Some states continue to operate
under a traditional, integrated market structure, others are striving to
encourage greater competition among generating companies, and some even
have opened up competition between electricity retailers.

Recent Electricity Market Policy Reforms
Successful operation of the electric power system requires coordination
among system participants. Competition can lead to better products and
lower costs for consumers. Ensuring the benefits of competition and reliability are therefore key components of successful reform. Provisions in the
Energy Policy Act of 2005 signed by the President promote competition and
investment in transmission infrastructure by providing for reasonably priced
access to transmission grids, while providing for the establishment of mandatory reliability rules for the electric system. In order to further reduce costs
and increase reliability, the Act repealed the Public Utility Holding Company
Act (PUHCA), which restricted the ability of regulated utilities to invest in
electricity infrastructure, and amended the Public Utility Regulatory Policies
Act (PURPA) to allow utilities greater flexibility to purchase wholesale electricity from producers with lower costs. The Energy Policy Act of 2005
improves market competition by promoting the dissemination of information
256 | Economic Report of the President

about the availability and prices of wholesale electricity and transmission
services. The Act also protects consumers by banning market manipulation,
unauthorized disclosure of consumer information, and unfair trade practices,
such as changing the electricity service providers chosen by consumers
without their consent.

Conclusion
Today, most of our energy comes from petroleum, coal, and other fossil
fuels. There are constraints on supplies of these resources in the short term.
Increased scarcity and rising prices over time will encourage conservation,
increase incentives for exploration, and stimulate the development of new,
energy-efficient technologies and alternative energy sources. In the near term,
unexpected disruptions to energy supply and distribution networks may
continue to impact consumers and businesses. The recent hurricanes Katrina
and Rita demonstrated that competitive markets play a central role in allocating scarce energy resources, especially during times of natural disaster or
national emergency. The continued expansion of energy markets through
regional and global trade can further increase our resilience to energy supply
disruptions. Finally, individual energy market participants do not always have
an incentive to tackle problems associated with the production and consumption of energy, such as environmental damage or the potentially damaging
effects of energy price spikes on the U.S. economy. Policies that reduce U.S.
vulnerability to supply disruptions, encourage energy efficiency, and protect
the environment can therefore be beneficial supplements to markets.
Policymakers can design these policies to be more effective and less costly
by harnessing the power of economic incentives and aiming to minimize
distortion of normal market forces.

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Appendix A
REPORT TO THE PRESIDENT ON THE ACTIVITIES
OF THE
COUNCIL OF ECONOMIC ADVISERS DURING 2005

LETTER OF TRANSMITTAL

COUNCIL OF ECONOMIC ADVISERS,
Washington, D.C., December 30, 2005.

MR. PRESIDENT:
The Council of Economic Advisers submits this report on its activities
during the calendar year 2005 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,
Ben S. Bernanke, Chairman
Katherine Baicker, Member
Matthew J. Slaughter, Member

Appendix A

| 261

Council Members and Their Dates of Service
Name

Position

Oath of office date

Separation date
November 1, 1949.

Edwin G. Nourse ............................

Chairman .....................................

August 9, 1946.........................

Leon H. Keyserling.........................

Vice Chairman .............................

August 9, 1946.........................

Acting Chairman ..........................

November 2, 1949 ....................

Chairman .....................................

May 10, 1950 ...........................

Member........................................

August 9, 1946.........................

John D. Clark .................................

January 20, 1953.

Vice Chairman .............................

May 10, 1950 ...........................

Roy Blough ....................................

Member........................................

June 29, 1950...........................

August 20, 1952.

Robert C. Turner............................

Member........................................

September 8, 1952...................

January 20, 1953.

Arthur F. Burns..............................

Chairman .....................................

March 19, 1953 ........................

December 1, 1956.

Neil H. Jacoby ................................

Member........................................

September 15, 1953.................

February 9, 1955.
April 29, 1955.

Walter W. Stewart .........................

Member........................................

December 2, 1953 ....................

Raymond J. Saulnier......................

Member........................................

February 11, 1953.

April 4, 1955.............................

Chairman .....................................

December 3, 1956 ....................

Joseph S. Davis..............................

Member........................................

May 2, 1955 .............................

January 20, 1961.
October 31, 1958.

Paul W. McCracken .......................

Member........................................

December 3, 1956 ....................

January 31, 1959.

Karl Brandt....................................

Member........................................

November 1, 1958 ....................

January 20, 1961.

Henry C. Wallich ............................

Member........................................

May 7, 1959 .............................

January 20, 1961.

Walter W. Heller.............................

Chairman .....................................

January 29, 1961......................

November 15, 1964.

James Tobin ..................................

Member........................................

January 29, 1961......................

July 31, 1962.

Kermit Gordon ...............................

Member........................................

January 29, 1961......................

December 27, 1962.

Gardner Ackley ..............................

Member........................................

August 3, 1962.........................

Chairman .....................................

November 16, 1964 ..................

February 15, 1968.

Member........................................

May 17, 1963 ...........................

August 31, 1964.

Otto Eckstein .................................

Member........................................

September 2, 1964...................

February 1, 1966.

Arthur M. Okun ..............................

Member........................................

November 16, 1964 ..................

John P. Lewis .................................

Chairman .....................................

February 15, 1968 ....................

James S. Duesenberry ...................

Member........................................

February 2, 1966 ......................

January 20, 1969.
June 30, 1968.

Merton J. Peck...............................

Member........................................

February 15, 1968 ....................

January 20, 1969.

Warren L. Smith.............................

Member........................................

July 1, 1968..............................

January 20, 1969.

Paul W. McCracken .......................

Chairman .....................................

February 4, 1969 ......................

December 31, 1971.
July 15, 1971.

Hendrik S. Houthakker...................

Member........................................

February 4, 1969 ......................

Herbert Stein .................................

Member........................................

February 4, 1969 ......................

Chairman .....................................

January 1, 1972........................

August 31, 1974.

Ezra Solomon.................................

Member........................................

September 9, 1971...................

March 26, 1973.

Marina v.N. Whitman.....................

Member........................................

March 13, 1972 ........................

August 15, 1973.

Gary L. Seevers..............................

Member........................................

July 23, 1973............................

April 15, 1975.

William J. Fellner ...........................

Member........................................

October 31, 1973......................

February 25, 1975.

Alan Greenspan .............................

Chairman ...................................

September 4, 1974...................

January 20, 1977.

Paul W. MacAvoy ...........................

Member........................................

June 13, 1975...........................

November 15, 1976.

Burton G. Malkiel...........................

Member........................................

July 22, 1975............................

January 20, 1977.

262 | Economic Report of the President

Council Members and Their Dates of Service
Name

Position

Oath of office date

Separation date

Charles L. Schultze........................

Chairman .....................................

January 22, 1977......................

January 20, 1981.

William D. Nordhaus......................

Member........................................

March 18, 1977 ........................

February 4, 1979.

Lyle E. Gramley..............................

Member........................................

March 18, 1977 ........................

May 27, 1980.

George C. Eads ..............................

Member........................................

June 6, 1979.............................

January 20, 1981.

Stephen M. Goldfeld ......................

Member........................................

August 20, 1980.......................

January 20, 1981.

Murray L. Weidenbaum..................

Chairman .....................................

February 27, 1981 ....................

August 25, 1982.

William A. Niskanen ......................

Member........................................

June 12, 1981...........................

March 30, 1985.

Jerry L. Jordan ...............................

Member........................................

July 14, 1981............................

July 31, 1982.

Martin Feldstein ............................

Chairman .....................................

October 14, 1982......................

July 10, 1984.

William Poole.................................

Member........................................

December 10, 1982 ..................

January 20, 1985.

Beryl W. Sprinkel ...........................

Chairman .....................................

April 18, 1985...........................

January 20, 1989.

Thomas Gale Moore.......................

Member........................................

July 1, 1985..............................

May 1, 1989.

Michael L. Mussa...........................

Member........................................

August 18, 1986.......................

September 19, 1988.

Michael J. Boskin...........................

Chairman .....................................

February 2, 1989 ......................

January 12, 1993.

John B. Taylor................................

Member........................................

June 9, 1989.............................

August 2, 1991.

Richard L. Schmalensee ................

Member........................................

October 3, 1989........................

June 21, 1991.

David F. Bradford ..........................

Member........................................

November 13, 1991 ..................

January 20, 1993.

Paul Wonnacott .............................

Member........................................

November 13, 1991 ..................

January 20, 1993.

Laura D’Andrea Tyson ...................

Chair ............................................

February 5, 1993 ......................

April 22, 1995.

Alan S. Blinder...............................

Member........................................

July 27, 1993............................

June 26, 1994.

Joseph E. Stiglitz ...........................

Member........................................

July 27, 1993............................

Chairman .....................................

June 28, 1995...........................

February 10, 1997.

Martin N. Baily ..............................

Member........................................

June 30, 1995...........................

August 30, 1996.

Alicia H. Munnell ...........................

Member........................................

January 29, 1996......................

August 1, 1997.

Janet L. Yellen ...............................

Chair ............................................

February 18, 1997 ....................

August 3, 1999.

Jeffrey A. Frankel...........................

Member........................................

April 23, 1997...........................

March 2, 1999.

Rebecca M. Blank..........................

Member........................................

October 22, 1998......................

July 9, 1999.

Martin N. Baily ..............................

Chairman .....................................

August 12, 1999.......................

January 19, 2001.

Robert Z. Lawrence........................

Member........................................

August 12, 1999.......................

January 12, 2001.

Kathryn L. Shaw ............................

Member........................................

May 31, 2000 ...........................

January 19, 2001.

R. Glenn Hubbard ..........................

Chairman .....................................

May 11, 2001 ...........................

February 28, 2003.

Mark B. McClellan .........................

Member........................................

July 25, 2001............................

November 13, 2002.

Randall S. Kroszner .......................

Member........................................

November 30, 2001 ..................

July 1, 2003.

N. Gregory Mankiw ........................

Chairman .....................................

May 29, 2003 ...........................

February 18, 2005.

Kristin J. Forbes.............................

Member........................................

November 21, 2003 ..................

June 3, 2005.

Harvey S. Rosen.............................

Ben S. Bernanke ............................

Member........................................

November 21, 2003 ..................

Chairman .....................................

February 23, 2005 ....................

Chairman .....................................

June 21, 2005...........................

Katherine Baicker..........................

Member........................................

November 18, 2005 ..................

Matthew J. Slaughter ....................

Member........................................

June 10, 2005.

November 18, 2005 ..................

Appendix A

| 263

Report to the President on the
Activities of the Council of Economic
Advisers During 2005
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
Ben S. Bernanke was appointed by the President on June 21, 2005 as
Chairman of the President’s Council of Economic Advisers. Dr. Bernanke
succeeded Harvey S. Rosen, who returned to Princeton University, where he is
the John L. Weinberg Professor of Economics and Business Policy. Dr. Rosen
succeeded N. Gregory Mankiw, who returned to Harvard University, where he
is the Robert M. Beren Professor of Economics.
Prior to his appointment to the Council, Dr. Bernanke served as a Member of
the Board of Governors of the Federal Reserve System. Before becoming a
Member of the Board, Dr. Bernanke was the Howard Harrison and Gabrielle
Snyder Beck Professor of Economics and Public Affairs and Chair of the
Economics Department at Princeton University (1996-2002). Dr. Bernanke had
served as a Professor of Economics and Public Affairs at Princeton since 1985.
Dr. Bernanke was nominated by the President on October 24, 2005 to be
Chairman of the Federal Reserve System for a term to begin on February 1,
2006. Dr. Bernanke subsequently recused himself from the development of
the Administration’s economic forecast for the fiscal year 2007 budget.
The Chairman of the Council is responsible for communicating the
Council's views on economic matters directly to the President through
personal discussions and written reports. He represents the Council at Cabinet
meetings, meetings of the National Economic Council, daily White House
senior staff meetings, budget team meetings with the President, and other
formal and informal meetings with the President. He also travels within the
United States and overseas to present the Administration’s views on the
economy. The Chairman is the Council’s chief public spokesperson. He directs
the work of the Council and exercises ultimate responsibility for the work of
the professional staff.

Appendix A

| 265

The Members of the Council
Katherine Baicker was appointed by the President as a Member of the
Council of Economic Advisers on November 8, 2005. She succeeds Dr. Rosen,
who had served as a Member prior to being appointed Chairman. Dr. Baicker is
on leave from the University of California in Los Angeles, where she is an
Associate Professor in the Department of Public Policy. At the Council Dr.
Baicker’s responsibilities include work on public finance, labor, and health issues.
Matthew J. Slaughter was appointed by the President as a Member of the
Council of Economic Advisers on November 8, 2005. He succeeds Kristin J.
Forbes, who returned to the Massachusetts Institute of Technology Sloan
School of Management where she is the Mitsubishi Career Development
Chair of International Management and Associate Professor of International
Management in the Applied Economics Group. Dr. Slaughter is on leave from
the Tuck School of Business at Dartmouth College where he is an Associate
Professor of Business Administration. At the Council Dr. Slaughter’s responsibilities include work on international finance and trade, and industrial
organization issues.

Macroeconomic Policies
As is its tradition, the Council devoted much time during 2005 to assisting
the President in formulating economic policy objectives and designing
programs to implement them. In this regard the Chairman kept the President
informed, on a continuing basis, of important macroeconomic developments
and other major policy issues through regular macroeconomic briefings. The
Council prepares for the President, the Vice President, and the White House
senior staff regular memoranda that report key economic data and analyze
current economic events.
The Council, the Department of the Treasury, and the Office of Management
and Budget (OMB)—the Administration’s economic “troika”—are responsible
for producing the economic forecasts that underlie the Administration’s
budget proposals. The Council, under the leadership of the Chairman and the
Chief Economist, 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 2005, the Council took part in discussions on a range of macroeconomic
issues. An important concern in the second half of the year was providing
analysis related to hurricanes Katrina and Rita. The Council works closely
with the Treasury, the Federal Reserve, and other government agencies in

266 | Economic Report of the President

providing analyses to the Administration on these topics of concern. It also
works closely with the National Economic Council, the Office of Management
and Budget, and other offices within the Executive Office of the President in
assessing the economy and economic policy proposals.

International Economic Policies
The Council was involved in a range of international trade issues, including
discussions on trade liberalization at the global, regional, and bilateral levels.
This involvement included extensive analysis of alternative liberalization
scenarios, participation in deliberations concerning trade policy in a number
of industries, and analysis related to U.S. economic interaction with China.
In international finance, the Council provided extensive analysis of the implications of changes in the U.S. external position and developments in
foreign-exchange markets. The Council participated in discussions concerning
international financial relations with both advanced and emerging market
economies. Council members regularly met with representatives of the
Council’s counterpart agencies in foreign countries, as well as with foreigntrade ministers, other government officials, and members of the private sector.
In recent months, meetings have been held with the ministers of finance from
countries including Great Britain, Japan, and India as well as officials from the
European Commission and international financial institutions such as the
International Monetary Fund.
Council staff were part of the U.S delegation that participated in Joint
Economic Committee discussions in Beijing, focused on banking reform and
capital market development in China. In addition, the Council participated in
discussions with Chinese officials in the U.S.-China Joint Commission on
Commerce and Trade. The Council participated in the development of U.S.
proposals for providing additional debt relief to the world’s poorest countries
(Highly Indebted Poor Countries, or HIPCs) that were agreed to at the G-8
Summit held at Gleneagles, Scotland, and prepared analyses for the summits
involving the countries of the Asia Pacific Economic Cooperation (APEC).
The Council is also 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 Chairman
heads the U.S. delegation to the semiannual meetings of the OECD’s
Economic Policy Committee (EPC) and serves as the EPC Chairman. Dr.
Rosen, Dr. Forbes, and Dr. Slaughter participated in meetings of the
Economic Policy Committee, as well as meetings of the OECD’s Working
Party 3 on macroeconomic policy and coordination. Council staff participated
in additional OECD meetings.

Appendix A

| 267

Microeconomic Policies
A wide variety of microeconomic issues received Council attention during
2005. The Council actively participated in the Cabinet-level National
Economic Council, dealing with such diverse issues as health care policy,
energy policy, environment, Social Security, tax policy, immigration, education reform, asbestos litigation, and financial markets and institutions. The
Council was particularly active in the area of health care policy, conducting
analyses of the sources and impact of rising health care costs, the use of health
savings accounts, and a number of issues related to the Medicare and Medicaid
programs. The Council also participated in discussions related to marketbased health care reforms and the tax treatment of health care spending.
Energy policy was also an important focus of the Council, with analysis on the
impact of hurricanes Katrina and Rita on energy markets, increasing world
demand for oil, and the impact of various policy proposals regarding both
energy efficiency and energy supply.

268 | Economic Report of the President

The Staff of the Council of Economic Advisers
The professional staff of the Council consists of the Chief of Staff, the Chief
Economist, the Director of Macroeconomic Forecasting and Statistics, nine
senior economists, four staff economists, and five research assistants. The
professional staff and their areas of concentration at the end of 2005 were:

Chief of Staff
Gary D. Blank
Chief Economist
H. Keith Hall
Director
of
Macroeconomic Forecasting and Statistics
Steven N. Braun

Senior Economists
John E. Anderson............................ Public Finance
William D. Block............................ International Finance and Development
Joseph C. Cooper.............................. Agriculture and Natural Resources
Daniel M. Covitz ............................ Macroeconomics and Finance
William H. Dow............................. Health
Wayne R. Dunham ......................... Regulation, Technology, and
Transportation
Dino D. Falaschetti ......................... Regulation and Finance
Christine A. McDaniel .................... International Trade
Richard G. Newell .......................... Energy and Environment
Economist
Rebecca J. Kalmus ........................ Labor
Staff Economists
Faisal Z. Ahmed............................ International Finance and Trade,
and Macroeconomics
Soren T. Anderson ........................ Regulation
Andrew R. Hanson ....................... Public Finance

Appendix A

| 269

Research Assistants
Jeffrey P. Clemens ......................... Public Finance and Regulation
Sarena F. Goodman....................... Macroeconomics and Labor
Dagmara K. Tchalakov ................. International Trade and Finance
Diana C. Wielocha ....................... Macroeconomics, Finance,
and Regulation
Jonathan A. Wolfson..................... Health and Regulation

Statistical Office
The Statistical Office maintains and updates the Council’s 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.
Linda A. Reilly.............................. Program Analyst (Statistical)
Brian A. Amorosi .......................... Program Analyst (Statistical)
Dagmara A. Mocala ...................... Research Assistant
Catherine Furlong retired from Federal service on September 2, 2005. She
had worked in the CEA Statistical Office for 54 years, and had been its Senior
Statistician since 1977. A retirement ceremony was held on September 30,
where she was honored in comments by present and former Council
Chairmen, Ben Bernanke, Alan Greenspan, and Charles Schultz. Chairman
Raymond Saulinier was also in attendance. Her untiring dedication to
accuracy, detail and the reputation of the Council will indeed be missed. All
future Councils will benefit from that wisdom.

Administrative Office
The Administrative Office provides general support for the Council’s activities.
This includes financial management, human resource management, and travel,
facility, security, information, and telecommunications management support.
Rosemary M. Rogers ..................... Administrative Officer

Office of the Chairman
Alice H. Williams ......................... Executive Assistant to the Chairman
Sandra F. Daigle............................ Executive Assistant to the Chairman
and Assistant to the Chief of Staff

270 | Economic Report of the President

Lisa D. Branch.............................. Executive Assistant to Dr. Slaughter
Mary E. Jones ............................... Executive Assistant to Dr. Baicker

Staff Support
Sharon K. Thomas ........................ Administrative Support Assistant
Jane Tufts and Barbara Pendergast provided editorial assistance in the
preparation of the 2006 Economic Report of the President.
Student Interns during the year were: Matthew B. Adler, Taylor W. Buley,
Sean D. Clifford, Andrew M. Dietrich, Alan Y. Gu, Brett W. Hollenbeck,
Rebecca L. Homkes, Thomas R. Johnson, Aaron W. Kletzing, Edwin H. Lee,
Stephanie Mak, Andrew Park, Sean X. Qin, Elizabeth M. Schultz, Brian C.
Tucci, and Joseph S. Vavra.
Fellows during the year were: Courtney Biesecker, Kenneth Gillingham,
and Neal Rappaport.

Departures
Phillip P. Swagel left the Council as Chief of Staff in February of 2005 to
join the American Enterprise Institute as a resident scholar.
Donald B. Marron left the Council as Chief Economist in October of 2005 to
join the Congressional Budget Office where he is currently the Acting Director.
The Council’s 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
one or two years. Some of the senior economists who resigned during the year
returned to their previous affiliations. They are: Raymond R. Geddes (Cornell
University), Pia M. Orrenius (Federal Reserve Bank of Dallas), John C.
Driscoll (Federal Reserve Board), Joshua S. Graff Zivin (Columbia
University), Gerald Auten (Department of the Treasury), Alexander Raskovich
(Department of Justice), Philip Levy (State Department)
Staff economists are generally graduate students who spend one year with
the Council and then return to complete their dissertations. Those who
departed the Council in 2005 are: Maria Damon, Peter R. Kingston, Anne
Berry, and Carol Cohen.
Those who served as research assistants at the Council and resigned during
2005 were: Namita K. Kalyan, Therese C. Scharlemann, Derek A. Haas,
James Soldano, and Daniel Ramsey.

Appendix A

| 271

Brenda Compton, Finance Manager, accepted a position with the Census
Bureau.
Satiah Pee, Information Management Assistant accepted a position with the
Discovery Channel.

Public Information
The Council’s annual Economic Report of the President is an important vehicle
for presenting the Administration’s domestic and international economic policies. It is available on the Internet at www.gpoaccess.gov/eop. The Council also
has responsibility for compiling the monthly Economic Indicators. The Internet
address for the Economic Indicators is www.gpoaccess.gov/indicators. The
Council’s home page is located at www.whitehouse.gov/cea.

272 | Economic Report of the President

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

C O N T E N T S
Page

NATIONAL INCOME OR EXPENDITURE:
B–1.
B–2.
B–3.
B–4.
B–5.
B–6.
B–7.
B–8.
B–9.
B–10.
B–11.
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, 1959–2005 .................................................
Real gross domestic product, 1959–2005 ..........................................
Quantity and price indexes for gross domestic product, and percent changes, 1959–2005 ................................................................
Percent changes in real gross domestic product, 1959–2005 ..........
Contributions to percent change in real gross domestic product,
1959–2005 .......................................................................................
Chain-type quantity indexes for gross domestic product, 1959–
2005 .................................................................................................
Chain-type price indexes for gross domestic product, 1959–2005
Gross domestic product by major type of product, 1959–2005 .......
Real gross domestic product by major type of product, 1959–2005
Gross value added by sector, 1959–2005 ..........................................
Real gross value added by sector, 1959–2005 ..................................
Gross domestic product (GDP) by industry, value added, in current dollars and as a percentage of GDP, 1974–2004 .................
Real gross domestic product by industry, value added, and percent changes, 1974–2004 ................................................................
Gross value added of nonfinancial corporate business, 1959–2005
Gross value added and price, costs, and profits of nonfinancial
corporate business, 1959–2005 ......................................................
Personal consumption expenditures, 1959–2005 .............................
Real personal consumption expenditures, 1990–2005 ....................
Private fixed investment by type, 1959–2005 ..................................
Real private fixed investment by type, 1990–2005 .........................
Government consumption expenditures and gross investment by
type, 1959–2005 ..............................................................................
Real government consumption expenditures and gross investment by type, 1990–2005 ...............................................................
Private inventories and domestic final sales by industry, 1959–
2005 .................................................................................................
Real private inventories and domestic final sales by industry,
1959–2005 .......................................................................................
Foreign transactions in the national income and product accounts, 1959–2005 ..........................................................................
Real exports and imports of goods and services, 1990–2005 ..........
Relation of gross domestic product, gross national product, net
national product, and national income, 1959–2005 .....................
Relation of national income and personal income, 1959–2005 .......
National income by type of income, 1959–2005 ...............................
Sources of personal income, 1959–2005 ...........................................
Disposition of personal income, 1959–2005 .....................................
Total and per capita disposable personal income and personal
consumption expenditures, and per capita gross domestic product, in current and real dollars, 1959–2005 .................................

275

280
282
284
285
286
288
290
292
293
294
295
296
298
300
301
302
303
304
305
306
307
308
309
310
311
312
313
314
316
318

319

Page
B–32.
B–33.

Gross saving and investment, 1959–2005 ........................................
Median money income (in 2004 dollars) and poverty status of
families and persons, by race, selected years, 1991–2004 ...........

320
322

POPULATION, EMPLOYMENT, WAGES, AND PRODUCTIVITY:
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.
B–49.
B–50.

Population by age group, 1929–2005 ................................................
Civilian population and labor force, 1929–2005 ..............................
Civilian employment and unemployment by sex and age, 1959–
2005 .................................................................................................
Civilian employment by demographic characteristic, 1959–2005 ..
Unemployment by demographic characteristic, 1959–2005 ...........
Civilian labor force participation rate and employment/population ratio, 1959–2005 ..................................................................
Civilian labor force participation rate by demographic characteristic, 1965–2005 ......................................................................
Civilian employment/population ratio by demographic characteristic, 1965–2005 ......................................................................
Civilian unemployment rate, 1959–2005 .........................................
Civilian unemployment rate by demographic characteristic,
1965–2005 .......................................................................................
Unemployment by duration and reason, 1959–2005 .......................
Unemployment insurance programs, selected data, 1978–2005 ....
Employees on nonagricultural payrolls, by major industry, 1959–
2005 .................................................................................................
Hours and earnings in private nonagricultural industries, 1959–
2005 .................................................................................................
Employment cost index, private industry, 1984–2005 ....................
Productivity and related data, business sector, 1959–2005 ...........
Changes in productivity and related data, business sector, 1959–
2005 .................................................................................................

323
324
326
327
328
329
330
331
332
333
334
335
336
338
339
340
341

PRODUCTION AND BUSINESS ACTIVITY:
B–51.
B–52.
B–53.
B–54.
B–55.
B–56.
B–57.
B–58.
B–59.

Industrial production indexes, major industry divisions, 1959–
2005 .................................................................................................
Industrial production indexes, market groupings, 1959–2005 .......
Industrial production indexes, selected manufacturing industries,
1967–2005 .......................................................................................
Capacity utilization rates, 1959–2005 ..............................................
New construction activity, 1964–2005 ..............................................
New private housing units started, authorized, completed and
houses sold, 1959–2005 ..................................................................
Manufacturing and trade sales and inventories, 1965–2005 .........
Manufacturers’ shipments and inventories, 1965–2005 .................
Manufacturers’ new and unfilled orders, 1965–2005 ......................

342
343
344
345
346
347
348
349
350

PRICES:
B–60.
B–61.
B–62.
B–63.
B–64.

Consumer price indexes for major expenditure classes, 1959–
2005 .................................................................................................
Consumer price indexes for selected expenditure classes, 1959–
2005 .................................................................................................
Consumer price indexes for commodities, services, and special
groups, 1960–2005 ..........................................................................
Changes in special consumer price indexes, 1960–2005 .................
Changes in consumer price indexes for commodities and services,
1929–2005 .......................................................................................

276

351
352
354
355
356

Page
B–65.
B–66.
B–67.
B–68.

Producer price indexes by stage of processing, 1959–2005 .............
Producer price indexes by stage of processing, special groups,
1974–2005 .......................................................................................
Producer price indexes for major commodity groups, 1959–2005
Changes in producer price indexes for finished goods, 1965–2005

357
359
360
362

MONEY STOCK, CREDIT, AND FINANCE:
B–69.
B–70.
B–71.
B–72.
B–73.
B–74.
B–75.
B–76.
B–77.

Money stock and debt measures, 1959–2005 ...................................
Components of money stock measures, 1959–2005 .........................
Aggregate reserves of depository institutions and the monetary
base, 1959–2005 ..............................................................................
Bank credit at all commercial banks, 1959–2005 ............................
Bond yields and interest rates, 1929–2005 ......................................
Credit market borrowing, 1997–2005 ...............................................
Mortgage debt outstanding by type of property and of financing,
1949–2005 .......................................................................................
Mortgage debt outstanding by holder, 1949–2005 ..........................
Consumer credit outstanding, 1955–2005 ........................................

363
364
366
367
368
370
372
373
374

GOVERNMENT FINANCE:
B–78.
B–79.
B–80.
B–81.
B–82.

B–83.

B–84.
B–85.
B–86.
B–87.
B–88.

B–89.

Federal receipts, outlays, surplus or deficit, and debt, fiscal
years, 1940–2007 ............................................................................
Federal receipts, outlays, surplus or deficit, and debt, as percent
of gross domestic product, fiscal years 1934–2007 ......................
Federal receipts and outlays, by major category, and surplus or
deficit, fiscal years 1940–2007 .......................................................
Federal receipts, outlays, surplus or deficit, and debt, fiscal years
2002–2007 .......................................................................................
Federal and State and local government current receipts and expenditures, national income and product accounts (NIPA),
1959–2005 .......................................................................................
Federal and State and local government current receipts and expenditures, national income and product accounts (NIPA), by
major type, 1959–2005 ...................................................................
Federal Government current receipts and expenditures, national
income and product accounts (NIPA), 1959–2005 .......................
State and local government current receipts and expenditures,
national income and product accounts (NIPA), 1959–2005 ........
State and local government revenues and expenditures, selected
fiscal years, 1927–2003 ..................................................................
U.S. Treasury securities outstanding by kind of obligation, 1967–
2005 .................................................................................................
Maturity distribution and average length of marketable interestbearing public debt securities held by private investors, 1967–
2005 .................................................................................................
Estimated ownership of U.S. Treasury securities, 1994–2005 .......

375
376
377
378

379

380
381
382
383
384

385
386

CORPORATE PROFITS AND FINANCE:
B–90.
B–91.
B–92.
B–93.

Corporate profits with inventory valuation and capital consumption adjustments, 1959–2005 .........................................................
Corporate profits by industry, 1959–2005 ........................................
Corporate profits of manufacturing industries, 1959–2005 ............
Sales, profits, and stockholders’ equity, all manufacturing corporations, 1965–2005 .....................................................................

277

387
388
389
390

Page
B–94.
B–95.
B–96.

Relation of profits after taxes to stockholders’ equity and to sales,
all manufacturing corporations, 1955–2005 .................................
Historical stock prices and yields, 1949–2003 .................................
Common stock prices and yields, 2000–2005 ...................................

391
392
393

AGRICULTURE:
B–97.
B–98.
B–99.
B–100.
B–101.
B–102.

Farm income, 1945–2005 ...................................................................
Farm business balance sheet, 1950–2004 ........................................
Farm output and productivity indexes, 1948–2004 .........................
Farm input use, selected inputs, 1948–2005 ...................................
Agricultural price indexes and farm real estate value, 1975–2005
U.S. exports and imports of agricultural commodities, 1945–2005

394
395
396
397
398
399

INTERNATIONAL STATISTICS:
B–103. U.S. international transactions, 1946–2005 .....................................
B–104. U.S. international trade in goods by principal end-use category,
1965–2005 .......................................................................................
B–105. U.S. international trade in goods by area, 1999–2005 ....................
B–106. U.S. international trade in goods on balance of payments (BOP)
and Census basis, and trade in services on BOP basis, 1981–
2005 .................................................................................................
B–107. International investment position of the United States at yearend, 1997–2004 ...............................................................................
B–108. Industrial production and consumer prices, major industrial
countries, 1980–2005 ......................................................................
B–109. Civilian unemployment rate, and hourly compensation, major industrial countries, 1980–2005 .......................................................
B–110. Foreign exchange rates, 1984–2005 ..................................................
B–111. International reserves, selected years, 1962–2005 ..........................
B–112. Growth rates in real gross domestic product, 1987–2005 ...............

278

400
402
403

404
405
406
407
408
409
410

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 (2000) dollar estimates for the detailed components do not add to the
chained-dollar value of GDP or to any intermediate aggregate. The Department of
Commerce (Bureau of Economic Analysis) no longer publishes chained-dollar
estimates prior to 1990, 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 through January 27, 2006. In particular, tables containing national income and product accounts (NIPA) estimates reflect revisions released by the Department of Commerce in July 2005.

279

NATIONAL INCOME OR EXPENDITURE
TABLE B–1.—Gross domestic product, 1959–2005
[Billions of dollars, except as noted; quarterly data at seasonally adjusted annual rates]
Personal consumption expenditures

Gross private domestic investment
Fixed investment

Year or
quarter

Gross
domestic
product

Nonresidential
Total

Durable
goods

Nondurable
goods

Services

Total
Total
Total

Structures

Equipment
and
software

Residential

Change
in
private
inventories

1959 ...................

506.6

317.6

42.7

148.5

126.5

78.5

74.6

46.5

18.1

28.4

28.1

3.9

1960
1961
1962
1963
1964
1965
1966
1967
1968
1969

...................
...................
...................
...................
...................
...................
...................
...................
...................
...................

526.4
544.7
585.6
617.7
663.6
719.1
787.8
832.6
910.0
984.6

331.7
342.1
363.3
382.7
411.4
443.8
480.9
507.8
558.0
605.2

43.3
41.8
46.9
51.6
56.7
63.3
68.3
70.4
80.8
85.9

152.8
156.6
162.8
168.2
178.6
191.5
208.7
217.1
235.7
253.1

135.6
143.8
153.6
162.9
176.1
189.0
203.8
220.3
241.6
266.1

78.9
78.2
88.1
93.8
102.1
118.2
131.3
128.6
141.2
156.4

75.7
75.2
82.0
88.1
97.2
109.0
117.7
118.7
132.1
147.3

49.4
48.8
53.1
56.0
63.0
74.8
85.4
86.4
93.4
104.7

19.6
19.7
20.8
21.2
23.7
28.3
31.3
31.5
33.6
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

1970
1971
1972
1973
1974
1975
1976
1977
1978
1979

...................
...................
...................
...................
...................
...................
...................
...................
...................
...................

1,038.5
1,127.1
1,238.3
1,382.7
1,500.0
1,638.3
1,825.3
2,030.9
2,294.7
2,563.3

648.5
701.9
770.6
852.4
933.4
1,034.4
1,151.9
1,278.6
1,428.5
1,592.2

85.0
96.9
110.4
123.5
122.3
133.5
158.9
181.2
201.7
214.4

272.0
285.5
308.0
343.1
384.5
420.7
458.3
497.1
550.2
624.5

291.5
319.5
352.2
385.8
426.6
480.2
534.7
600.2
676.6
753.3

152.4
178.2
207.6
244.5
249.4
230.2
292.0
361.3
438.0
492.9

150.4
169.9
198.5
228.6
235.4
236.5
274.8
339.0
412.2
474.9

109.0
114.1
128.8
153.3
169.5
173.7
192.4
228.7
280.6
333.9

40.3
42.7
47.2
55.0
61.2
61.4
65.9
74.6
93.6
117.7

68.7
71.5
81.7
98.3
108.2
112.4
126.4
154.1
187.0
216.2

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

1980
1981
1982
1983
1984
1985
1986
1987
1988
1989

...................
...................
...................
...................
...................
...................
...................
...................
...................
...................

2,789.5
3,128.4
3,255.0
3,536.7
3,933.2
4,220.3
4,462.8
4,739.5
5,103.8
5,484.4

1,757.1
1,941.1
2,077.3
2,290.6
2,503.3
2,720.3
2,899.7
3,100.2
3,353.6
3,598.5

214.2
231.3
240.2
280.8
326.5
363.5
403.0
421.7
453.6
471.8

696.1
758.9
787.6
831.2
884.6
928.7
958.4
1,015.3
1,083.5
1,166.7

846.9
950.8
1,049.4
1,178.6
1,292.2
1,428.1
1,538.3
1,663.3
1,816.5
1,960.0

479.3
572.4
517.2
564.3
735.6
736.2
746.5
785.0
821.6
874.9

485.6
542.6
532.1
570.1
670.2
714.4
739.9
757.8
803.1
847.3

362.4
420.0
426.5
417.2
489.6
526.2
519.8
524.1
563.8
607.7

136.2
167.3
177.6
154.3
177.4
194.5
176.5
174.2
182.8
193.7

226.2
252.7
248.9
262.9
312.2
331.7
343.3
349.9
381.0
414.0

123.2
122.6
105.7
152.9
180.6
188.2
220.1
233.7
239.3
239.5

−6.3
29.8
−14.9
−5.8
65.4
21.8
6.6
27.1
18.5
27.7

1990
1991
1992
1993
1994
1995
1996
1997
1998
1999

...................
...................
...................
...................
...................
...................
...................
...................
...................
...................

5,803.1
5,995.9
6,337.7
6,657.4
7,072.2
7,397.7
7,816.9
8,304.3
8,747.0
9,268.4

3,839.9
3,986.1
4,235.3
4,477.9
4,743.3
4,975.8
5,256.8
5,547.4
5,879.5
6,282.5

474.2
453.9
483.6
526.7
582.2
611.6
652.6
692.7
750.2
817.6

1,249.9
1,284.8
1,330.5
1,379.4
1,437.2
1,485.1
1,555.5
1,619.0
1,683.6
1,804.8

2,115.9
2,247.4
2,421.2
2,571.8
2,723.9
2,879.1
3,048.7
3,235.8
3,445.7
3,660.0

861.0
802.9
864.8
953.4
1,097.1
1,144.0
1,240.3
1,389.8
1,509.1
1,625.7

846.4 622.4
803.3
598.2
848.5 612.1
932.5
666.6
1,033.3
731.4
1,112.9
810.0
1,209.5
875.4
1,317.8
968.7
1,438.4 1,052.6
1,558.8 1,133.9

202.9
183.6
172.6
177.2
186.8
207.3
224.6
250.3
275.2
282.2

419.5
414.6
439.6
489.4
544.6
602.8
650.8
718.3
777.3
851.7

224.0
205.1
236.3
266.0
301.9
302.8
334.1
349.1
385.8
424.9

14.5
−.4
16.3
20.8
63.8
31.1
30.8
72.0
70.8
66.9

2000 ...................
2001 ...................
2002 ...................
2003 ...................
2004 ..................
2005 p ................

9,817.0
10,128.0
10,469.6
10,971.2
11,734.3
12,479.4

6,739.4
7,055.0
7,350.7
7,709.9
8,214.3
8,745.9

863.3
883.7
923.9
950.1
987.8
1,025.7

1,947.2
2,017.1
2,079.6
2,189.0
2,368.3
2,564.3

3,928.8
4,154.3
4,347.2
4,570.8
4,858.2
5,155.9

1,735.5
1,614.3
1,582.1
1,670.4
1,928.1
2,099.5

1,679.0
1,646.1
1,570.2
1,654.9
1,872.6
2,084.3

1,232.1
1,176.8
1,066.3
1,082.4
1,198.8
1,328.3

313.2
322.6
279.2
276.9
298.4
334.5

918.9
854.2
787.1
805.6
900.4
993.8

446.9
469.3
503.9
572.5
673.8
756.0

56.5
−31.7
11.9
15.4
55.4
15.2

2002: I ................
II ...............
III ..............
IV ..............

10,333.3
10,426.6
10,527.4
10,591.1

7,230.3
7,323.0
7,396.6
7,453.1

915.2
918.9
940.1
921.5

2,044.9
2,078.9
2,085.1
2,109.7

4,270.2
4,325.2
4,371.4
4,421.8

1,564.1
1,571.4
1,592.9
1,600.1

1,572.4
1,568.8
1,566.8
1,572.8

1,085.2
1,067.8
1,061.4
1,050.7

292.2
280.9
272.1
271.7

793.0
787.0
789.3
779.0

487.2
501.0
505.4
522.1

−8.3
2.6
26.0
27.3

2003: I ................
II ...............
III ..............
IV ..............

10,717.0
10,844.6
11,087.4
11,236.0

7,555.2
7,635.3
7,782.4
7,866.6

919.7
942.2
974.7
963.6

2,156.0
2,153.1
2,213.5
2,233.6

4,479.5
4,540.0
4,594.2
4,669.5

1,610.0
1,619.3
1,694.2
1,757.9

1,588.2
1,619.7
1,683.7
1,728.2

1,048.2
1,066.8
1,098.8
1,116.0

268.4
277.1
279.0
283.0

779.8
789.7
819.8
833.0

540.0
552.9
584.9
612.2

21.8
−.4
10.6
29.8

2004: I ................
II ...............
III ..............
IV .............

11,457.1
11,666.1
11,818.8
11,995.2

8,032.3
8,145.6
8,263.2
8,416.1

974.2
974.6
993.8
1,008.6

2,302.7
2,355.2
2,378.4
2,437.1

4,755.4
4,815.9
4,891.0
4,970.4

1,818.2
1,928.5
1,961.2
2,004.5

1,772.7
1,856.6
1,908.7
1,952.6

1,140.7
1,182.7
1,219.0
1,252.9

285.3
296.3
302.1
309.8

855.3
886.5
916.9
943.1

632.0
673.9
689.7
699.7

45.5
71.9
52.5
51.9

2005: I ................
II ...............
III ..............
IV p ...........

12,198.8
12,378.0
12,605.7
12,735.3

8,535.8
8,677.0
8,844.0
8,926.9

1,017.3
1,035.5
1,050.9
999.0

2,476.6
2,533.7
2,604.9
2,642.0

5,041.8
5,107.8
5,188.3
5,285.9

2,058.5
2,054.4
2,099.5
2,185.7

1,998.7
2,058.5
2,119.2
2,160.9

1,280.1
1,313.5
1,348.9
1,370.6

315.9
325.6
340.2
356.3

964.3
987.9
1,008.7
1,014.3

718.5
745.0
770.3
790.3

59.9
−4.2
−19.7
24.8

See next page for continuation of table.

280

TABLE B–1.—Gross domestic product, 1959–2005—Continued
[Billions of dollars, except as noted; quarterly data at seasonally adjusted annual rates]
Net exports of goods
and services
Year or
quarter

Government consumption expenditures
and gross investment
Federal

Net
exports

Exports

Imports

Total
Total

National
defense

Nondefense

State
and
local

AddenFinal
Gross
dum:
sales of domesGross
domestic
national
tic
purproduct chases 1 product 2

Percent change
from preceding
period
Gross
Gross
domes- domestic
tic
prodpuruct
chases 1

1959 ..........

0.4

22.7

22.3

110.0

65.4

53.8

11.5

44.7

502.7

506.2

509.3

8.4

8.5

1960
1961
1962
1963
1964
1965
1966
1967
1968
1969

..........
..........
..........
..........
..........
..........
..........
..........
..........
..........

4.2
4.9
4.1
4.9
6.9
5.6
3.9
3.6
1.4
1.4

27.0
27.6
29.1
31.1
35.0
37.1
40.9
43.5
47.9
51.9

22.8
22.7
25.0
26.1
28.1
31.5
37.1
39.9
46.6
50.5

111.6
119.5
130.1
136.4
143.2
151.5
171.8
192.7
209.4
221.5

64.1
67.9
75.3
76.9
78.5
80.4
92.5
104.8
111.4
113.4

53.4
56.5
61.1
61.0
60.3
60.6
71.7
83.5
89.3
89.5

10.7
11.4
14.2
15.9
18.2
19.8
20.8
21.3
22.1
23.8

47.5
51.6
54.9
59.5
64.8
71.0
79.2
87.9
98.0
108.2

523.2
541.7
579.5
612.1
658.8
709.9
774.2
822.7
900.9
975.4

522.2
539.8
581.5
612.8
656.7
713.5
783.9
829.0
908.6
983.2

529.5
548.2
589.7
622.2
668.5
724.4
792.9
838.0
916.1
990.7

3.9
3.5
7.5
5.5
7.4
8.4
9.5
5.7
9.3
8.2

3.2
3.4
7.7
5.4
7.2
8.6
9.9
5.8
9.6
8.2

1970
1971
1972
1973
1974
1975
1976
1977
1978
1979

..........
..........
..........
..........
..........
..........
..........
..........
..........
..........

4.0
.6
−3.4
4.1
−.8
16.0
−1.6
−23.1
−25.4
−22.5

59.7
63.0
70.8
95.3
126.7
138.7
149.5
159.4
186.9
230.1

55.8
62.3
74.2
91.2
127.5
122.7
151.1
182.4
212.3
252.7

233.8
246.5
263.5
281.7
317.9
357.7
383.0
414.1
453.6
500.8

113.5
113.7
119.7
122.5
134.6
149.1
159.7
175.4
190.9
210.6

87.6
84.6
87.0
88.2
95.6
103.9
111.1
120.9
130.5
145.2

25.8
29.1
32.7
34.3
39.0
45.1
48.6
54.5
60.4
65.4

120.3
132.8
143.8
159.2
183.4
208.7
223.3
238.7
262.6
290.2

1,036.5
1,118.9
1,229.2
1,366.8
1,486.0
1,644.6
1,808.2
2,008.6
2,268.9
2,545.3

1,034.6
1,126.5
1,241.7
1,378.6
1,500.8
1,622.4
1,826.9
2,054.0
2,320.1
2,585.9

1,044.9
1,134.7
1,246.8
1,395.3
1,515.5
1,651.3
1,842.1
2,051.2
2,316.3
2,595.3

5.5
8.5
9.9
11.7
8.5
9.2
11.4
11.3
13.0
11.7

5.2
8.9
10.2
11.0
8.9
8.1
12.6
12.4
13.0
11.5

1980
1981
1982
1983
1984
1985
1986
1987
1988
1989

..........
..........
..........
..........
..........
..........
..........
..........
..........
..........

−13.1
−12.5
−20.0
−51.7
−102.7
−115.2
−132.7
−145.2
−110.4
−88.2

280.8
305.2
283.2
277.0
302.4
302.0
320.5
363.9
444.1
503.3

293.8
566.2
317.8
627.5
303.2
680.5
328.6
733.5
405.1
797.0
417.2
879.0
453.3
949.3
509.1
999.5
554.5 1,039.0
591.5 1,099.1

243.8
280.2
310.8
342.9
374.4
412.8
438.6
460.1
462.3
482.2

168.0
196.3
225.9
250.7
281.6
311.2
330.9
350.0
354.9
362.2

75.8
84.0
84.9
92.3
92.8
101.6
107.8
110.0
107.4
120.0

322.4
347.3
369.7
390.5
422.6
466.2
510.7
539.4
576.7
616.9

2,795.8
3,098.6
3,269.9
3,542.4
3,867.8
4,198.4
4,456.3
4,712.3
5,085.3
5,456.7

2,802.6
3,141.0
3,275.0
3,588.3
4,035.9
4,335.5
4,595.6
4,884.7
5,214.2
5,572.5

2,823.7
3,161.4
3,291.5
3,573.8
3,969.5
4,246.8
4,480.6
4,757.4
5,127.4
5,510.6

8.8
12.2
4.0
8.7
11.2
7.3
5.7
6.2
7.7
7.5

8.4
12.1
4.3
9.6
12.5
7.4
6.0
6.3
6.7
6.9

1990
1991
1992
1993
1994
1995
1996
1997
1998
1999

..........
..........
..........
..........
..........
..........
..........
..........
..........
..........

−78.0
−27.5
−33.2
−65.0
−93.6
−91.4
−96.2
−101.6
−159.9
−260.5

552.4
596.8
635.3
655.8
720.9
812.2
868.6
955.3
955.9
991.2

630.3
624.3
668.6
720.9
814.5
903.6
964.8
1,056.9
1,115.9
1,251.7

1,180.2
1,234.4
1,271.0
1,291.2
1,325.5
1,369.2
1,416.0
1,468.7
1,518.3
1,620.8

508.3
527.7
533.9
525.2
519.1
519.2
527.4
530.9
530.4
555.8

374.0
383.2
376.9
362.9
353.7
348.7
354.6
349.6
345.7
360.6

134.3 671.9
144.5 706.7
157.0 737.0
162.4 766.0
165.5 806.3
170.5 850.0
172.8 888.6
181.3 937.8
184.7 987.9
195.2 1,065.0

5,788.5
5,996.3
6,321.4
6,636.6
7,008.4
7,366.5
7,786.1
8,232.3
8,676.2
9,201.5

5,881.1
6,023.4
6,371.0
6,722.4
7,165.8
7,489.0
7,913.1
8,405.9
8,906.9
9,528.9

5,837.9
6,026.3
6,367.4
6,689.3
7,098.4
7,433.4
7,851.9
8,337.3
8,768.3
9,302.2

5.8
3.3
5.7
5.0
6.2
4.6
5.7
6.2
5.3
6.0

5.5
2.4
5.8
5.5
6.6
4.5
5.7
6.2
6.0
7.0

2000 ..........
2001 ..........
2002 ..........
2003 ..........
2004 ..........
2005 p ........

−379.5
−367.0
−424.4
−500.9
−624.0
−725.7

1,096.3
1,032.8
1,005.9
1,045.6
1,173.8
1,299.2

1,475.8
1,399.8
1,430.3
1,546.5
1,797.8
2,024.9

1,721.6
1,825.6
1,961.1
2,091.9
2,215.9
2,359.7

578.8
612.9
679.7
754.8
827.6
874.8

370.3
392.6
437.1
496.7
552.7
585.3

208.5
220.3
242.5
258.2
274.9
289.5

1,142.8
1,212.8
1,281.5
1,337.1
1,388.3
1,484.9

9,760.5
10,159.7
10,457.7
10,955.8
11,678.9
12,464.2

10,196.4
10,495.0
10,894.0
11,472.1
12,358.3
13,205.2

9,855.9
10,171.6
10,500.2
11,039.3
11,788.0
..............

5.9
3.2
3.4
4.8
7.0
6.4

7.0
2.9
3.8
5.3
7.7
6.9

2002: I .......
II ......
III .....
IV .....

−373.1
976.4
−416.1 1,008.2
−433.8 1,022.9
−474.6 1,016.2

1,349.5
1,424.3
1,456.7
1,490.8

1,912.0
1,948.3
1,971.8
2,012.5

654.9
675.2
682.0
706.6

418.2
431.1
438.0
461.1

236.6
244.1
243.9
245.5

1,257.2
1,273.1
1,289.8
1,305.9

10,341.6
10,424.0
10,501.4
10,563.9

10,706.4
10,842.7
10,961.2
11,065.7

10,359.5
10,443.3
10,557.0
10,641.1

4.3
3.7
3.9
2.4

4.9
5.2
4.4
3.9

2003: I .......
II ......
III .....
IV .....

−502.6
−500.6
−495.3
−505.0

1,018.8
1,016.1
1,046.6
1,101.1

1,521.4
1,516.6
1,541.9
1,606.1

2,054.4
2,090.5
2,106.2
2,116.5

724.0
763.4
761.8
770.0

467.2
507.2
500.3
512.0

256.8
256.3
261.5
258.0

1,330.4
1,327.1
1,344.4
1,346.5

10,695.2
10,845.0
11,076.9
11,206.2

11,219.6
11,345.2
11,582.8
11,741.1

10,761.9
10,911.4
11,154.8
11,329.2

4.8
4.8
9.3
5.5

5.7
4.6
8.6
5.6

2004: I .......
II ......
III .....
IV ....

−559.6
−613.1
−638.0
−685.4

1,130.8
1,163.3
1,183.8
1,217.1

1,690.3
1,776.4
1,821.8
1,902.5

2,166.2
2,205.0
2,232.5
2,260.0

808.3
824.6
836.5
840.8

538.7
547.2
562.9
562.0

269.6
277.4
273.6
278.8

1,357.9
1,380.4
1,395.9
1,419.1

11,411.6
11,594.2
11,766.3
11,943.3

12,016.7
12,279.1
12,456.8
12,680.6

11,540.1
11,712.8
11,867.3
12,032.0

8.1
7.5
5.3
6.1

9.7
9.0
5.9
7.4

2005: I .......
II ......
III .....
IV p ...

−697.5
−691.0
−730.4
−784.1

1,253.2
1,297.1
1,314.6
1,331.8

1,950.6
1,988.1
2,045.1
2,115.8

2,302.0
2,337.6
2,392.7
2,406.8

860.2
869.8
892.2
876.9

575.3
582.5
601.7
581.6

285.0
287.3
290.5
295.3

1,441.7
1,467.7
1,500.4
1,529.9

12,138.9
12,382.1
12,625.4
12,710.5

12,896.3
13,069.0
13,336.1
13,519.3

12,238.2
12,413.5
12,650.0
..............

7.0
6.0
7.6
4.2

7.0
5.5
8.4
5.6

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.

281

TABLE B–2.—Real gross domestic product, 1959–2005
[Billions of chained (2000) dollars, except as noted; quarterly data at seasonally adjusted annual rates]
Personal consumption expenditures

Gross private domestic investment
Fixed investment

Year or
quarter

Gross
domestic
product

Nonresidential
Total

Durable
goods

Nondurable
goods

Services

Total
Total
Total

Structures

Equipment
and
software

Residential

Change
in
private
inventories

1959 ...............

2,441.3

1,554.6 .............. ................ ..............

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

...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
..............

2,501.8
2,560.0
2,715.2
2,834.0
2,998.6
3,191.1
3,399.1
3,484.6
3,652.7
3,765.4
3,771.9
3,898.6
4,105.0
4,341.5
4,319.6
4,311.2
4,540.9
4,750.5
5,015.0
5,173.4
5,161.7
5,291.7
5,189.3
5,423.8
5,813.6
6,053.7
6,263.6
6,475.1
6,742.7
6,981.4
7,112.5
7,100.5
7,336.6
7,532.7
7,835.5
8,031.7
8,328.9
8,703.5
9,066.9
9,470.3

1,597.4
1,630.3
1,711.1
1,781.6
1,888.4
2,007.7
2,121.8
2,185.0
2,310.5
2,396.4
2,451.9
2,545.5
2,701.3
2,833.8
2,812.3
2,876.9
3,035.5
3,164.1
3,303.1
3,383.4
3,374.1
3,422.2
3,470.3
3,668.6
3,863.3
4,064.0
4,228.9
4,369.8
4,546.9
4,675.0
4,770.3
4,778.4
4,934.8
5,099.8
5,290.7
5,433.5
5,619.4
5,831.8
6,125.8
6,438.6

..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
453.5
427.9
453.0
488.4
529.4
552.6
595.9
646.9
720.3
804.6

................
................
................
................
................
................
................
................
................
................
................
................
................
................
................
................
................
................
................
................
................
................
................
................
................
................
................
................
................
................
1,484.0
1,480.5
1,510.1
1,550.4
1,603.9
1,638.6
1,680.4
1,725.3
1,794.4
1,876.6

..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
2,851.7
2,900.0
3,000.8
3,085.7
3,176.6
3,259.9
3,356.0
3,468.0
3,615.0
3,758.0

266.6
264.9
298.4
318.5
344.7
393.1
427.7
408.1
431.9
457.1
427.1
475.7
532.1
594.4
550.6
453.1
544.7
627.0
702.6
725.0
645.3
704.9
606.0
662.5
857.7
849.7
843.9
870.0
890.5
926.2
895.1
822.2
889.0
968.3
1,099.6
1,134.0
1,234.3
1,387.7
1,524.1
1,642.6

266.7 .............. .............. .............. .............. ............ ..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
886.6
829.1
878.3
953.5
1,042.3
1,109.6
1,209.2
1,320.6
1,455.0
1,576.3

..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
595.1
563.2
581.3
631.9
689.9
762.5
833.6
934.2
1,037.8
1,133.3

..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
275.2
244.6
229.9
228.3
232.3
247.1
261.1
280.1
294.5
293.2

..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
355.0
345.9
371.1
417.4
467.2
523.1
578.7
658.3
745.6
840.2

............
............
............
............
............
............
............
............
............
............
............
............
............
............
............
............
............
............
............
............
............
............
............
............
............
............
............
............
............
............
298.9
270.2
307.6
332.7
364.8
353.1
381.3
388.6
418.3
443.6

..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
15.4
−.5
16.5
20.6
63.6
29.9
28.7
71.2
72.6
68.9

2000 ...............
2001 ...............
2002 ...............
2003 ...............
2004 ..............
2005 p ............

9,817.0
9,890.7
10,048.8
10,320.6
10,755.7
11,131.1

6,739.4
6,910.4
7,099.3
7,306.6
7,588.6
7,858.1

863.3
900.7
964.8
1,028.5
1,089.9
1,137.7

1,947.2
1,986.7
2,037.1
2,101.8
2,200.4
2,298.0

3,928.8
4,023.2
4,100.4
4,183.9
4,310.9
4,438.0

1,735.5
1,598.4
1,557.1
1,617.4
1,809.8
1,915.6

1,679.0
1,629.4
1,544.6
1,600.0
1,755.1
1,896.1

1,232.1
1,180.5
1,071.5
1,085.0
1,186.7
1,287.6

313.2
306.1
253.8
243.1
248.4
253.1

918.9
874.2
820.2
846.8
947.6
1,049.8

446.9
448.5
469.9
509.4
561.8
602.1

56.5
−31.7
12.5
15.5
52.0
17.2

2002: I ............
II ..........
III .........
IV .........
2003: I ............
II ..........
III .........
IV .........
2004: I ............
II ..........
III .........
IV .........
2005: I ............
II ..........
III .........
IV p .......

9,977.3
10,031.6
10,090.7
10,095.8
10,138.6
10,230.4
10,410.9
10,502.6
10,612.5
10,704.1
10,808.9
10,897.1
10,999.3
11,089.2
11,202.3
11,233.5

7,042.2
7,083.5
7,123.2
7,148.2
7,192.2
7,256.8
7,360.7
7,416.4
7,501.4
7,536.6
7,617.5
7,698.8
7,764.9
7,829.5
7,907.9
7,930.2

948.4
956.9
983.4
970.4
979.1
1,014.0
1,061.0
1,060.0
1,071.6
1,072.5
1,100.4
1,115.1
1,122.3
1,143.9
1,169.7
1,114.7

2,026.8
2,033.4
2,035.0
2,053.1
2,069.5
2,079.1
2,121.2
2,137.3
2,171.9
2,186.1
2,206.9
2,236.5
2,265.6
2,285.9
2,305.8
2,334.7

4,069.4
4,095.7
4,109.0
4,127.4
4,146.5
4,169.7
4,190.2
4,229.4
4,269.0
4,288.6
4,324.0
4,362.1
4,392.0
4,417.6
4,453.5
4,489.1

1,541.7
1,549.0
1,570.9
1,567.0
1,565.3
1,575.8
1,640.6
1,687.9
1,729.1
1,813.0
1,833.4
1,863.9
1,902.9
1,885.0
1,909.4
1,965.1

1,551.5
1,545.9
1,543.2
1,537.8
1,540.9
1,573.7
1,629.0
1,656.3
1,684.4
1,744.5
1,780.2
1,811.3
1,842.2
1,884.7
1,921.5
1,935.9

1,090.3
1,073.3
1,068.0
1,054.5
1,051.6
1,072.9
1,101.8
1,113.7
1,135.1
1,171.6
1,204.8
1,235.1
1,252.2
1,279.0
1,305.2
1,314.2

270.3
256.4
245.8
242.5
237.3
244.8
244.7
245.5
243.4
248.5
249.4
252.3
251.0
252.7
254.1
254.5

820.9
819.0
825.7
815.4
818.7
832.0
862.4
874.0
899.1
931.4
965.6
994.2
1,014.2
1,040.9
1,067.5
1,076.8

459.0
469.5
471.8
479.3
484.8
496.0
521.2
535.7
542.4
565.1
568.8
571.0
584.1
599.3
610.0
615.2

−10.2
2.6
28.0
29.5
24.0
−.4
9.3
29.0
41.9
65.6
50.4
50.1
58.2
−1.7
−13.3
25.7

See next page for continuation of table.

282

TABLE B–2.—Real gross domestic product, 1959–2005—Continued
[Billions of chained (2000) dollars, except as noted; quarterly data at seasonally adjusted annual rates]
Net exports of goods
and services
Year or
quarter

Government consumption expenditures
and gross investment
Federal

Net
exports

Exports Imports

Total
Total

National
defense

Nondefense

State
and
local

Final
sales of
domestic
product

Gross
domestic
purchases 1

Addendum:
Gross
national
product 2

Percent change
from preceding
period
Gross
Gross
domes- domestic
tic
prodpuruct
chases 1

1959
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969

.........
.........
.........
.........
.........
.........
.........
.........
.........
.........
.........

..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............

77.2
90.6
91.1
95.7
102.5
114.6
117.8
126.0
128.9
139.0
145.7

101.9
714.3 ............ ..............
103.3
715.4 ............ ..............
102.6
751.3 ............ ..............
114.3
797.6 ............ ..............
117.3
818.1 ............ ..............
123.6
836.1 ............ ..............
136.7
861.3 ............ ..............
157.1
937.1 ............ ..............
168.5 1,008.9 ............ ..............
193.6 1,040.5 ............ ..............
204.6 1,038.0 ............ ..............

............
............
............
............
............
............
............
............
............
............
............

..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............

2,442.7
2,506.8
2,566.8
2,708.5
2,830.3
2,999.9
3,173.8
3,364.8
3,467.6
3,640.3
3,753.7

2,485.9
2,529.6
2,587.6
2,751.4
2,866.0
3,023.2
3,228.6
3,450.3
3,545.1
3,727.5
3,844.1

2,457.4
2,519.4
2,579.3
2,736.9
2,857.2
3,023.6
3,217.3
3,423.7
3,510.1
3,680.0
3,792.0

7.1
2.5
2.3
6.1
4.4
5.8
6.4
6.5
2.5
4.8
3.1

7.1
1.8
2.3
6.3
4.2
5.5
6.8
6.9
2.7
5.1
3.1

1970
1971
1972
1973
1974
1975
1976
1977
1978
1979

.........
.........
.........
.........
.........
.........
.........
.........
.........
.........

..............
..............
..............
..............
..............
..............
..............
..............
..............
..............

161.4
164.1
176.5
209.7
226.3
224.9
234.7
240.3
265.7
292.0

213.4
224.7
250.0
261.6
255.7
227.3
271.7
301.4
327.6
333.0

1,012.9
990.8
983.5
980.0
1,004.7
1,027.4
1,031.9
1,043.3
1,074.0
1,094.1

............
............
............
............
............
............
............
............
............
............

..............
..............
..............
..............
..............
..............
..............
..............
..............
..............

............
............
............
............
............
............
............
............
............
............

..............
..............
..............
..............
..............
..............
..............
..............
..............
..............

3,787.7
3,893.4
4,098.6
4,315.9
4,305.5
4,352.5
4,522.3
4,721.6
4,981.6
5,161.2

3,837.4
3,974.2
4,192.8
4,399.1
4,343.8
4,297.0
4,575.0
4,818.5
5,081.5
5,206.8

3,798.2
3,927.8
4,136.2
4,383.6
4,367.5
4,348.4
4,585.3
4,800.3
5,064.4
5,240.1

.2
3.4
5.3
5.8
−.5
−.2
5.3
4.6
5.6
3.2

−.2
3.6
5.5
4.9
−1.3
−1.1
6.5
5.3
5.5
2.5

1980
1981
1982
1983
1984
1985
1986
1987
1988
1989

.........
.........
.........
.........
.........
.........
.........
.........
.........
.........

..............
..............
..............
..............
..............
..............
..............
..............
..............
..............

323.5
327.4
302.4
294.6
318.7
328.3
353.7
391.8
454.6
506.8

310.9
319.1
315.0
354.8
441.1
469.8
510.0
540.2
561.4
586.0

1,115.4
1,125.6
1,145.4
1,187.3
1,227.0
1,312.5
1,392.5
1,426.7
1,445.1
1,482.5

............
............
............
............
............
............
............
............
............
............

..............
..............
..............
..............
..............
..............
..............
..............
..............
..............

............
............
............
............
............
............
............
............
............
............

..............
..............
..............
..............
..............
..............
..............
..............
..............
..............

5,196.7
5,265.1
5,233.4
5,454.0
5,739.2
6,042.1
6,271.8
6,457.2
6,734.5
6,962.2

5,108.9
5,244.7
5,175.1
5,477.6
5,951.6
6,215.8
6,443.6
6,644.1
6,857.9
7,060.8

5,227.6
5,349.7
5,249.7
5,482.5
5,869.3
6,093.4
6,290.6
6,500.9
6,775.2
7,015.4

−.2
2.5
−1.9
4.5
7.2
4.1
3.5
3.4
4.1
3.5

−1.9
2.7
−1.3
5.8
8.7
4.4
3.7
3.1
3.2
3.0

1990
1991
1992
1993
1994
1995
1996
1997
1998
1999

.........
.........
.........
.........
.........
.........
.........
.........
.........
.........

−54.7
552.5
607.1 1,530.0
−14.6
589.1
603.7 1,547.2
−15.9
629.7
645.6 1,555.3
−52.1
650.0
702.1 1,541.1
−79.4
706.5
785.9 1,541.3
−71.0
778.2
849.1 1,549.7
−79.6
843.4
923.0 1,564.9
−104.6
943.7 1,048.3 1,594.0
−203.7
966.5 1,170.3 1,624.4
−296.2 1,008.2 1,304.4 1,686.9

659.1
658.0
646.6
619.6
596.4
580.3
573.5
567.6
561.2
573.7

479.4
474.2
450.7
425.3
404.6
389.2
383.8
373.0
365.3
372.2

178.6
868.4
182.8
886.8
195.4
906.5
194.1
919.5
191.7
943.3
191.0
968.3
189.6
990.5
194.5 1,025.9
195.9 1,063.0
201.5 1,113.2

7,108.5
7,115.0
7,331.1
7,522.3
7,777.8
8,010.2
8,306.5
8,636.6
8,997.6
9,404.0

7,161.6
7,101.2
7,338.9
7,577.2
7,911.3
8,098.4
8,405.7
8,807.6
9,272.5
9,767.7

7,155.2
7,136.8
7,371.8
7,568.6
7,864.2
8,069.8
8,365.3
8,737.5
9,088.7
9,504.7

1.9
−.2
3.3
2.7
4.0
2.5
3.7
4.5
4.2
4.5

1.4
−.8
3.3
3.2
4.4
2.4
3.8
4.8
5.3
5.3

2000 .........
2001 .........
2002 .........
2003 .........
2004 ........
2005 p .......

−379.5
−399.1
−471.3
−521.4
−601.3
−631.9

1,721.6
1,780.3
1,858.8
1,911.1
1,952.3
1,985.1

578.8
601.4
643.4
687.8
723.7
738.4

370.3
384.9
413.2
449.7
481.3
492.2

208.5
216.5
230.2
238.0
242.2
246.0

1,142.8
1,179.0
1,215.4
1,223.3
1,228.4
1,246.5

9,760.5
9,920.9
10,036.5
10,303.6
10,702.4
11,112.2

10,196.4
9,855.9
10,290.1
9,933.6
10,517.7 10,079.0
10,837.3 10,385.2
11,348.7 10,805.7
11,754.1 ................

3.7
.8
1.6
2.7
4.2
3.5

4.4
.9
2.2
3.0
4.7
3.6

2002: I ......
II .....
III ...
IV ...

−441.3
992.8 1,434.0 1,832.0
−458.9 1,018.0 1,476.9 1,853.4
−472.2 1,025.2 1,497.4 1,863.9
−513.0 1,017.2 1,530.2 1,885.8

623.2
641.7
646.5
662.3

399.2
410.2
414.4
428.9

224.0
231.5
232.2
233.4

1,208.9
1,211.8
1,217.5
1,223.6

9,986.8
10,028.4
10,063.5
10,067.3

10,418.0
10,488.5
10,560.4
10,604.1

10,004.1
10,048.6
10,119.7
10,143.8

2.7
2.2
2.4
.2

3.6
2.7
2.8
1.7

2003: I ......
II .....
III ...
IV ...

−510.7
−528.4
−516.2
−530.2

1,009.7
1,004.5
1,032.2
1,078.4

1,520.4
1,532.9
1,548.4
1,608.6

1,884.4
1,917.5
1,920.1
1,922.6

662.8
696.8
693.2
698.5

425.0
460.1
452.5
461.2

237.9
236.4
240.6
237.0

1,221.6
1,220.7
1,226.8
1,224.1

10,114.7
10,228.2
10,399.5
10,471.8

10,644.7
10,753.8
10,923.1
11,027.6

10,182.0
10,294.1
10,474.7
10,590.0

1.7
3.7
7.2
3.6

1.5
4.2
6.5
3.9

2004: I ......
II .....
III ...
IV ...

−563.0
−601.7
−606.5
−634.1

1,091.8
1,110.2
1,125.0
1,144.5

1,654.8
1,711.9
1,731.5
1,778.6

1,938.4
1,949.5
1,958.4
1,962.8

716.5
722.2
728.6
727.6

476.4
477.4
487.7
483.7

239.9
244.6
240.6
243.6

1,221.8
1,227.1
1,229.6
1,235.0

10,568.9
10,637.4
10,757.1
10,846.0

11,168.8
11,297.4
11,407.0
11,522.0

10,689.5
10,747.7
10,854.1
10,931.8

4.3
3.5
4.0
3.3

5.2
4.7
3.9
4.1

2005: I ......
II .....
III ...
IV p ..

−645.4
−614.2
−617.5
−650.3

1,165.3
1,195.4
1,202.7
1,209.8

1,810.7
1,809.6
1,820.2
1,860.1

1,971.9
1,984.1
1,998.1
1,986.2

731.8
736.1
749.5
736.1

487.3
491.7
503.6
486.2

244.3
244.2
245.6
249.7

1,239.8
1,247.8
1,248.5
1,249.8

10,940.3
11,089.2
11,214.4
11,205.0

11,635.4 11,036.3
11,694.8 11,122.5
11,811.2 11,243.2
11,875.1 ................

3.8
3.3
4.1
1.1

4.0
2.1
4.0
2.2

1,096.3
1,036.7
1,013.3
1,031.2
1,117.9
1,193.3

1,475.8
1,435.8
1,484.6
1,552.6
1,719.2
1,825.2

1 Gross
2 GDP

domestic product (GDP) less exports of goods and services plus imports of goods and services.
plus net income receipts from rest of the world.

Source: Department of Commerce, Bureau of Economic Analysis.

283

TABLE B–3.—Quantity and price indexes for gross domestic product, and percent changes, 1959–2005
[Quarterly data are seasonally adjusted]
Gross domestic product (GDP)
Index numbers, 2000=100
Year or quarter

Real GDP
(chain-type
quantity
index)

GDP
chain-type
price
index

1959 ............................................................

24.868

20.754

20.751

1960
1961
1962
1963
1964
1965
1966
1967
1968
1969

............................................................
............................................................
............................................................
............................................................
............................................................
............................................................
............................................................
............................................................
............................................................
............................................................

25.484
26.077
27.658
28.868
30.545
32.506
34.625
35.496
37.208
38.356

21.044
21.281
21.572
21.801
22.134
22.538
23.180
23.897
24.916
26.153

21.041
21.278
21.569
21.798
22.131
22.535
23.176
23.893
24.913
26.149

1970
1971
1972
1973
1974
1975
1976
1977
1978
1979

............................................................
............................................................
............................................................
............................................................
............................................................
............................................................
............................................................
............................................................
............................................................
............................................................

38.422
39.713
41.815
44.224
44.001
43.916
46.256
48.391
51.085
52.699

27.538
28.916
30.171
31.854
34.721
38.007
40.202
42.758
45.762
49.553

27.534
28.911
30.166
31.849
34.725
38.002
40.196
42.752
45.757
49.548

1980
1981
1982
1983
1984
1985
1986
1987
1988
1989

............................................................
............................................................
............................................................
............................................................
............................................................
............................................................
............................................................
............................................................
............................................................
............................................................

52.579
53.904
52.860
55.249
59.220
61.666
63.804
65.958
68.684
71.116

54.062
59.128
62.738
65.214
67.664
69.724
71.269
73.204
75.706
78.569

1990
1991
1992
1993
1994
1995
1996
1997
1998
1999

............................................................
............................................................
............................................................
............................................................
............................................................
............................................................
............................................................
............................................................
............................................................
............................................................

72.451
72.329
74.734
76.731
79.816
81.814
84.842
88.658
92.359
96.469

2000 ............................................................
2001 ............................................................
2002 ............................................................
2003 ............................................................
2004 ............................................................
2005 p ..........................................................

Percent change from preceding period

1

Real GDP
(chain-type
quantity
index)

GDP
chain-type
price
index

8.4

7.1

1.2

1.2

3.9
3.5
7.5
5.5
7.4
8.4
9.5
5.7
9.3
8.2

2.5
2.3
6.1
4.4
5.8
6.4
6.5
2.5
4.8
3.1

1.4
1.1
1.4
1.1
1.5
1.8
2.8
3.1
4.3
5.0

1.4
1.1
1.4
1.1
1.5
1.8
2.8
3.1
4.3
5.0

5.5
8.5
9.9
11.7
8.5
9.2
11.4
11.3
13.0
11.7

.2
3.4
5.3
5.8
−.5
−.2
5.3
4.6
5.6
3.2

5.3
5.0
4.3
5.6
9.0
9.5
5.8
6.4
7.0
8.3

5.3
5.0
4.3
5.6
9.0
9.4
5.8
6.4
7.0
8.3

54.043
59.119
62.726
65.207
67.655
69.713
71.250
73.196
75.694
78.556

8.8
12.2
4.0
8.7
11.2
7.3
5.7
6.2
7.7
7.5

−.2
2.5
−1.9
4.5
7.2
4.1
3.5
3.4
4.1
3.5

9.1
9.4
6.1
3.9
3.8
3.0
2.2
2.7
3.4
3.8

9.1
9.4
6.1
4.0
3.8
3.0
2.2
2.7
3.4
3.8

81.614
84.457
86.402
88.390
90.265
92.115
93.859
95.415
96.475
97.868

81.590
84.444
86.385
88.381
90.259
92.106
93.852
95.414
96.472
97.868

5.8
3.3
5.7
5.0
6.2
4.6
5.7
6.2
5.3
6.0

1.9
−.2
3.3
2.7
4.0
2.5
3.7
4.5
4.2
4.5

3.9
3.5
2.3
2.3
2.1
2.0
1.9
1.7
1.1
1.4

3.9
3.5
2.3
2.3
2.1
2.0
1.9
1.7
1.1
1.4

100.000
100.751
102.362
105.130
109.562
113.386

100.000
102.402
104.193
106.310
109.102
112.144

100.000
102.399
104.187
106.305
109.099
112.113

5.9
3.2
3.4
4.8
7.0
6.4

3.7
.8
1.6
2.7
4.2
3.5

2.2
2.4
1.7
2.0
2.6
2.8

2.2
2.4
1.7
2.0
2.6
2.8

2002: I ..........................................................
II ........................................................
III .......................................................
IV .......................................................

101.633
102.186
102.788
102.840

103.553
103.944
104.347
104.926

103.568
103.938
104.328
104.907

4.3
3.7
3.9
2.4

2.7
2.2
2.4
.2

1.7
1.5
1.6
2.2

1.5
1.4
1.5
2.2

2003: I ..........................................................
II ........................................................
III .......................................................
IV .......................................................

103.276
104.211
106.050
106.984

105.724
106.019
106.500
106.996

105.705
106.004
106.498
106.983

4.8
4.8
9.3
5.5

1.7
3.7
7.2
3.6

3.1
1.1
1.8
1.9

3.1
1.1
1.9
1.8

2004: I ..........................................................
II ........................................................
III .......................................................
IV .......................................................

108.104
109.037
110.104
111.003

107.951
108.976
109.371
110.111

107.958
108.987
109.343
110.077

8.1
7.5
5.3
6.1

4.3
3.5
4.0
3.3

3.6
3.9
1.5
2.7

3.7
3.9
1.3
2.7

2005: I ..........................................................
II ........................................................
III .......................................................
IV p .....................................................

112.044
112.959
114.112
114.429

110.950
111.655
112.567
113.407

110.905
111.622
112.527
113.369

7.0
6.0
7.6
4.2

3.8
3.3
4.1
1.1

3.1
2.6
3.3
3.0

3.0
2.6
3.3
3.0

1 Quarterly

percent changes are at annual rates.

Source: Department of Commerce, Bureau of Economic Analysis.

284

GDP
implicit
price
deflator

GDP
(current
dollars)

GDP
implicit
price
deflator

TABLE B–4.—Percent changes in real gross domestic product, 1959–2005
[Percent change from preceding period; quarterly data at seasonally adjusted annual rates]
Personal consumption
expenditures
Year or
quarter

Gross
domestic
product

Exports and imports of goods
and services

Gross private domestic
investment

Government consumption expenditures and
gross investment

Exports

Imports

Total

Nonresidential fixed
Total

Durable
goods

Nondurable
goods

Services

Total

Structures

Equipment
and
software

Residential
fixed

Federal

State
and
local

1959 ............

7.1

5.6

12.1

4.1

5.3

8.0

2.4

11.9

25.4

10.3

10.5

3.4

3.1

3.8

1960
1961
1962
1963
1964
1965
1966
1967
1968
1969

............
............
............
............
............
............
............
............
............
............

2.5
2.3
6.1
4.4
5.8
6.4
6.5
2.5
4.8
3.1

2.8
2.1
5.0
4.1
6.0
6.3
5.7
3.0
5.7
3.7

2.0
−3.8
11.7
9.7
9.3
12.7
8.4
1.6
11.0
3.5

1.5
1.8
3.1
2.1
4.9
5.3
5.5
1.6
4.6
2.7

4.5
4.2
5.0
4.6
6.1
5.3
5.0
4.9
5.2
4.8

5.7
−.6
8.7
5.6
11.9
17.4
12.5
−1.4
4.5
7.6

7.9
1.4
4.5
1.1
10.4
15.9
6.8
−2.5
1.5
5.4

4.2
−1.9
11.6
8.4
12.8
18.3
16.0
−.7
6.2
8.8

−7.1
.3
9.6
11.8
5.8
−2.9
−8.9
−3.1
13.6
3.0

17.4
.5
5.1
7.1
11.8
2.8
6.9
2.3
7.9
4.8

1.3
−.7
11.3
2.7
5.3
10.6
14.9
7.3
14.9
5.7

.2
5.0
6.2
2.6
2.2
3.0
8.8
7.7
3.1
−.2

−2.7
4.2
8.5
.1
−1.3
.0
11.0
9.9
.8
−3.4

4.4
6.2
3.1
6.0
6.8
6.7
6.3
5.0
5.9
3.4

1970
1971
1972
1973
1974
1975
1976
1977
1978
1979

............
............
............
............
............
............
............
............
............
............

.2
3.4
5.3
5.8
−.5
−.2
5.3
4.6
5.6
3.2

2.3
3.8
6.1
4.9
−.8
2.3
5.5
4.2
4.4
2.4

−3.2
10.0
12.7
10.3
−6.9
.0
12.8
9.3
5.3
−.3

2.4
1.8
4.4
3.3
−2.0
1.5
4.9
2.4
3.7
2.7

4.0
3.9
5.7
4.7
2.3
3.7
4.1
4.3
4.7
3.1

−.5
.0
9.2
14.6
.8
−9.9
4.9
11.3
15.0
10.1

.3
−1.6
3.1
8.2
−2.1
−10.5
2.4
4.1
14.4
12.7

−1.0
1.0
12.9
18.3
2.6
−9.5
6.2
15.1
15.2
8.7

−6.0
27.4
17.8
−.6
−20.6
−13.0
23.6
21.5
6.3
−3.7

10.7
1.7
7.5
18.9
7.9
−.6
4.4
2.4
10.5
9.9

4.3
5.3
11.3
4.6
−2.3
−11.1
19.5
10.9
8.7
1.7

−2.4
−2.2
−.7
−.4
2.5
2.3
.4
1.1
2.9
1.9

−7.4
−7.7
−4.1
−4.2
.9
.3
.0
2.1
2.5
2.4

2.8
3.1
2.2
2.8
3.8
3.7
.7
.4
3.3
1.5

1980
1981
1982
1983
1984
1985
1986
1987
1988
1989

............
............
............
............
............
............
............
............
............
............

−.2
2.5
−1.9
4.5
7.2
4.1
3.5
3.4
4.1
3.5

−.3
1.4
1.4
5.7
5.3
5.2
4.1
3.3
4.1
2.8

−7.8
1.2
−.1
14.6
14.6
10.1
9.7
1.7
6.0
2.2

−.2
1.2
1.0
3.3
4.0
2.7
3.6
2.4
3.3
2.8

1.8
1.7
2.1
5.5
4.1
5.6
2.9
4.3
4.0
3.0

−.3
5.7
−3.8
−1.3
17.7
6.6
−2.9
−.1
5.2
5.6

5.8
8.0
−1.7
−10.8
14.0
7.1
−11.0
−2.9
.6
2.0

−3.6
4.3
−5.2
5.4
19.8
6.4
1.9
1.4
7.5
7.3

−21.2
−8.0
−18.2
41.4
14.8
1.6
12.3
2.0
−1.0
−3.0

10.8
1.2
−7.6
−2.6
8.2
3.0
7.7
10.8
16.0
11.5

−6.6
2.6
−1.3
12.6
24.3
6.5
8.6
5.9
3.9
4.4

2.0
.9
1.8
3.7
3.3
7.0
6.1
2.5
1.3
2.6

4.7
4.8
3.9
6.6
3.1
7.8
5.7
3.6
−1.6
1.5

−.1
−2.0
.1
1.2
3.6
6.2
6.4
1.5
3.7
3.4

1990
1991
1992
1993
1994
1995
1996
1997
1998
1999

............
............
............
............
............
............
............
............
............
............

1.9
−.2
3.3
2.7
4.0
2.5
3.7
4.5
4.2
4.5

2.0
.2
3.3
3.3
3.7
2.7
3.4
3.8
5.0
5.1

−.3
−5.6
5.9
7.8
8.4
4.4
7.8
8.6
11.3
11.7

1.6
−.2
2.0
2.7
3.5
2.2
2.6
2.7
4.0
4.6

2.9
1.7
3.5
2.8
2.9
2.6
2.9
3.3
4.2
4.0

.5
−5.4
3.2
8.7
9.2
10.5
9.3
12.1
11.1
9.2

1.5
−11.1
−6.0
−.7
1.8
6.4
5.6
7.3
5.1
−.4

.0
−2.6
7.3
12.5
11.9
12.0
10.6
13.8
13.3
12.7

−8.6
−9.6
13.8
8.2
9.6
−3.2
8.0
1.9
7.6
6.0

9.0
6.6
6.9
3.2
8.7
10.1
8.4
11.9
2.4
4.3

3.6
−.6
7.0
8.8
11.9
8.0
8.7
13.6
11.6
11.5

3.2
1.1
.5
−.9
.0
.5
1.0
1.9
1.9
3.9

2.0
−.2
−1.7
−4.2
−3.7
−2.7
−1.2
−1.0
−1.1
2.2

4.1
2.1
2.2
1.4
2.6
2.6
2.3
3.6
3.6
4.7

2000 ............
2001 ............
2002 ............
2003 ............
2004 ............
2005 p ..........

3.7
.8
1.6
2.7
4.2
3.5

4.7
2.5
2.7
2.9
3.9
3.6

7.3
4.3
7.1
6.6
6.0
4.4

3.8
2.0
2.5
3.2
4.7
4.4

4.5
2.4
1.9
2.0
3.0
2.9

8.7
−4.2
−9.2
1.3
9.4
8.5

6.8
−2.3
−17.1
−4.2
2.2
1.9

9.4
−4.9
−6.2
3.2
11.9
10.8

.8
.4
4.8
8.4
10.3
7.2

8.7
−5.4
−2.3
1.8
8.4
6.7

13.1
−2.7
3.4
4.6
10.7
6.2

2.1
3.4
4.4
2.8
2.2
1.7

.9
3.9
7.0
6.9
5.2
2.0

2.7
3.2
3.1
.6
.4
1.5

2002: I .........
II ........
III .......
IV .......

2.7
2.2
2.4
.2

1.4
2.4
2.3
1.4

−4.2
3.6
11.5
−5.2

3.3
1.3
.3
3.6

1.8
2.6
1.3
1.8

−12.8
−6.1
−2.0
−5.0

−19.0
−19.0
−15.5
−5.3

−10.4
−.9
3.3
−4.9

10.4
9.5
2.0
6.4

5.2
10.6
2.9
−3.1

11.7
12.5
5.7
9.0

4.3
4.8
2.3
4.8

5.9
12.5
3.0
10.2

3.5
1.0
1.9
2.0

2003: I .........
II ........
III .......
IV .......

1.7
3.7
7.2
3.6

2.5
3.6
5.8
3.1

3.6
15.1
19.8
−.3

3.2
1.9
8.3
3.1

1.9
2.3
2.0
3.8

−1.1
8.4
11.2
4.4

−8.4
13.3
−.1
1.3

1.6
6.7
15.4
5.5

4.7
9.6
21.9
11.5

−2.9
−2.1
11.5
19.1

−2.5
3.3
4.1
16.5

−.3
7.2
.5
.5

.3
22.1
−2.0
3.1

−.6
−.3
2.0
−.9

2004: I .........
II ........
III .......
IV .......

4.3
3.5
4.0
3.3

4.7
1.9
4.4
4.3

4.4
.4
10.8
5.5

6.6
2.6
3.9
5.5

3.8
1.8
3.4
3.6

7.9
13.5
11.8
10.4

−3.5
8.8
1.4
4.7

12.0
15.2
15.5
12.4

5.2
17.8
2.6
1.6

5.0
6.9
5.5
7.1

12.0
14.5
4.7
11.3

3.3
2.3
1.8
.9

10.7
3.2
3.6
−.6

−.7
1.8
.8
1.8

2005: I .........
II ........
III .......
IV p .....

3.8
3.3
4.1
1.1

3.5
3.4
4.1
1.1

2.6
7.9
9.3
−17.5

5.3
3.6
3.5
5.1

2.8
2.3
3.3
3.2

5.7
8.8
8.5
2.8

−2.0
2.7
2.2
.7

8.3
10.9
10.6
3.5

9.5
10.8
7.3
3.5

7.5
10.7
2.5
2.4

7.4
−.3
2.4
9.1

1.9
2.5
2.9
−2.4

2.4
2.4
7.4
−7.0

1.6
2.6
.2
.4

Note.—Percent changes based on unrounded data.
Source: Department of Commerce, Bureau of Economic Analysis.

285

TABLE B–5.—Contributions to percent change in real gross domestic product, 1959–2005
[Percentage points, except as noted; quarterly data at seasonally adjusted annual rates]
Personal consumption expenditures

Year or
quarter

Gross
domestic
product
(percent
change)

Gross private domestic investment
Fixed investment
Nonresidential

Total

NonDurable durable
goods goods

Services

Total
Total
Total

Structures

Equipment
and
software

Change
in
priResivate
dential inventories

1959 .......................................

7.1

3.55

0.97

1.25

1.33

2.80

1.94

0.73

0.09

0.64

1.21

0.86

1960
1961
1962
1963
1964
1965
1966
1967
1968
1969

.......................................
.......................................
.......................................
.......................................
.......................................
.......................................
.......................................
.......................................
.......................................
.......................................

2.5
2.3
6.1
4.4
5.8
6.4
6.5
2.5
4.8
3.1

1.73
1.30
3.11
2.56
3.71
3.91
3.50
1.81
3.50
2.27

.17
−.31
.89
.77
.77
1.07
.73
.13
.93
.31

.44
.53
.90
.59
1.33
1.43
1.46
.42
1.19
.69

1.12
1.08
1.31
1.20
1.61
1.42
1.31
1.26
1.38
1.28

.00
−.10
1.81
1.00
1.25
2.16
1.44
−.76
.90
.90

.13
−.04
1.24
1.08
1.37
1.50
.87
−.28
1.00
.90

.52
−.06
.78
.50
1.07
1.65
1.29
−.15
.46
.78

.28
.05
.16
.04
.36
.57
.27
−.10
.06
.20

.24
−.11
.61
.46
.71
1.07
1.02
−.05
.41
.58

−.39
.01
.46
.58
.30
−.15
−.43
−.13
.53
.13

−.13
−.05
.57
−.08
−.13
.66
.58
−.49
−.10
.00

1970
1971
1972
1973
1974
1975
1976
1977
1978
1979

.......................................
.......................................
.......................................
.......................................
.......................................
.......................................
.......................................
.......................................
.......................................
.......................................

.2
3.4
5.3
5.8
−.5
−.2
5.3
4.6
5.6
3.2

1.42
2.38
3.80
3.05
−.47
1.42
3.48
2.68
2.76
1.52

−.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
1.09
1.61
1.33
.65
1.05
1.19
1.27
1.38
.90

−1.04
1.67
1.87
1.96
−1.30
−2.98
2.84
2.43
2.16
.61

−.31
1.10
1.81
1.46
−1.04
−1.71
1.42
2.18
2.04
1.02

−.06
.00
.92
1.50
.09
−1.14
.52
1.19
1.69
1.23

.01
−.06
.12
.31
−.09
−.43
.09
.15
.54
.52

−.07
.07
.81
1.19
.18
−.70
.43
1.04
1.15
.71

−.26
1.10
.89
−.04
−1.13
−.57
.90
.99
.35
−.21

−.73
.58
.06
.50
−.27
−1.27
1.41
.25
.12
−.41

1980
1981
1982
1983
1984
1985
1986
1987
1988
1989

.......................................
.......................................
.......................................
.......................................
.......................................
.......................................
.......................................
.......................................
.......................................
.......................................

−.2
2.5
−1.9
4.5
7.2
4.1
3.5
3.4
4.1
3.5

−.17
.90
.87
3.65
3.44
3.31
2.62
2.17
2.66
1.86

−.65
.09
.00
1.07
1.15
.83
.83
.16
.53
.19

−.04
.29
.23
.80
.93
.61
.78
.52
.70
.59

.52
.51
.65
1.79
1.36
1.87
1.01
1.50
1.43
1.07

−2.12
1.59
−2.55
1.45
4.63
−.17
−.12
.51
.39
.64

−1.21
.39
−1.22
1.17
2.68
.89
.20
.09
.52
.47

−.04
.74
−.51
−.16
2.05
.82
−.36
−.01
.57
.61

.27
.40
−.09
−.57
.60
.32
−.50
−.11
.02
.07

−.30
.34
−.42
.41
1.44
.50
.15
.10
.55
.54

−1.17
−.35
−.71
1.33
.64
.07
.55
.10
−.05
−.14

−.91
1.20
−1.34
.29
1.95
−1.06
−.32
.42
−.14
.17

1990
1991
1992
1993
1994
1995
1996
1997
1998
1999

.......................................
.......................................
.......................................
.......................................
.......................................
.......................................
.......................................
.......................................
.......................................
......................................

1.9
−.2
3.3
2.7
4.0
2.5
3.7
4.5
4.2
4.5

1.34
.11
2.18
2.23
2.52
1.81
2.31
2.54
3.36
3.44

−.02
−.46
.44
.59
.66
.36
.64
.70
.93
.99

.33
−.05
.43
.56
.71
.44
.51
.53
.78
.89

1.03
.62
1.31
1.09
1.14
1.01
1.15
1.31
1.66
1.56

−.53
−1.20
1.07
1.21
1.93
.48
1.35
1.95
1.63
1.33

−.32
−.94
.79
1.14
1.30
.94
1.34
1.42
1.60
1.36

.05
−.57
.32
.83
.91
1.08
1.01
1.33
1.28
1.09

.05
−.39
−.18
−.02
.05
.17
.16
.21
.16
−.01

.00
−.18
.50
.85
.87
.91
.85
1.12
1.12
1.11

−.37
−.37
.47
.31
.39
−.14
.33
.08
.32
.27

−.21
−.26
.29
.07
.63
−.46
.02
.54
.03
−.03

2000 ......................................
2001 ......................................
2002 ......................................
2003 ......................................
2004 ......................................
2005 p ....................................

3.7
.8
1.6
2.7
4.2
3.5

3.17
1.74
1.90
2.05
2.71
2.49

.63
.37
.61
.57
.51
.37

.74
.40
.50
.63
.94
.90

1.80
.97
.79
.85
1.27
1.22

.99
−1.39
−.41
.58
1.82
.96

1.09
−.50
−.84
.54
1.47
1.28

1.06
−.52
−1.06
.13
.92
.87

.21
−.07
−.55
−.11
.06
.05

.85
−.44
−.51
.24
.86
.82

.03
.02
.22
.41
.55
.42

−.10
−.88
.43
.05
.35
−.32

2002: I ....................................
II ..................................
III .................................
IV .................................

2.7
2.2
2.4
.2

1.01
1.64
1.57
.97

−.39
.31
.98
−.47

.65
.26
.06
.70

.75
1.07
.54
.74

1.92
.30
.87
−.14

−1.04
−.23
−.12
−.21

−1.50
−.66
−.21
−.52

−.60
−.58
−.44
−.14

−.90
−.09
.23
−.38

.46
.43
.09
.30

2.95
.53
.98
.08

2003: I ....................................
II ..................................
III .................................
IV .................................

1.7
3.7
7.2
3.6

1.70
2.55
4.13
2.15

.31
1.23
1.64
−.03

.63
.37
1.65
.61

.76
.94
.84
1.57

−.03
.42
2.53
1.78

.13
1.26
2.15
1.03

−.10
.79
1.08
.43

−.22
.32
.00
.03

.12
.47
1.09
.40

.23
.47
1.07
.59

−.16
−.84
.38
.75

2004: I ....................................
II ..................................
III .................................
IV .................................

4.3
3.5
4.0
3.3

3.27
1.33
3.05
3.01

.38
.03
.88
.45

1.31
.53
.78
1.09

1.58
.77
1.39
1.47

1.52
3.10
.75
1.11

1.04
2.22
1.31
1.13

.76
1.29
1.15
1.04

−.09
.22
.04
.12

.85
1.07
1.12
.92

.28
.93
.15
.09

.48
.87
−.56
−.03

2005: I ....................................
II ..................................
III .................................
IV p ...............................

3.8
3.3
4.1
1.1

2.44
2.35
2.85
.79

.22
.64
.76
−1.56

1.07
.74
.73
1.04

1.15
.97
1.36
1.32

1.42
−.63
.87
1.95

1.12
1.51
1.31
.51

.58
.90
.88
.30

−.05
.07
.06
.02

.64
.83
.82
.28

.54
.62
.43
.21

.29
−2.14
−.43
1.45

See next page for continuation of table.

286

TABLE B–5.—Contributions to percent change in real gross domestic product, 1959–2005—Continued
[Percentage points, except as noted; quarterly data at seasonally adjusted annual rates]
Net exports of
goods and services
Year or
quarter

Exports
Net
exports

Total

Goods

Government consumption expenditures
and gross investment
Imports

Services

Total

Goods

Federal
Services

Total
Total

NaNontional
defense defense

State
and
local

1959 .......................................

0.00

0.45

−0.02

0.48

−0.45

−0.48

0.03

0.76

0.42

−0.23

0.65

0.34

1960
1961
1962
1963
1964
1965
1966
1967
1968
1969

.......................................
.......................................
.......................................
.......................................
.......................................
.......................................
.......................................
.......................................
.......................................
.......................................

.72
.06
−.21
.24
.36
−.30
−.29
−.22
−.30
−.04

.78
.03
.25
.35
.59
.15
.36
.12
.41
.25

.76
.02
.17
.29
.52
.02
.27
.02
.30
.20

.02
.01
.08
.06
.07
.13
.09
.10
.10
.05

−.06
.03
−.47
−.12
−.23
−.45
−.65
−.34
−.70
−.29

.05
.00
−.40
−.12
−.19
−.41
−.49
−.17
−.68
−.20

−.11
.02
−.07
.00
−.04
−.04
−.16
−.16
−.03
−.09

.03
1.07
1.36
.58
.49
.65
1.87
1.68
.73
−.06

−.35
.51
1.07
.01
−.17
.00
1.24
1.17
.10
−.42

−.17
.45
.63
−.25
−.40
−.19
1.21
1.19
.16
−.49

−.18
.06
.44
.26
.23
.19
.03
−.02
−.06
.06

.39
.56
.29
.57
.65
.66
.63
.51
.63
.37

1970
1971
1972
1973
1974
1975
1976
1977
1978
1979

.......................................
.......................................
.......................................
.......................................
.......................................
.......................................
.......................................
.......................................
.......................................
.......................................

.34
−.19
−.21
.82
.75
.89
−1.08
−.72
.05
.66

.56
.10
.42
1.12
.58
−.05
.37
.20
.82
.82

.44
−.02
.43
1.01
.46
−.16
.31
.08
.68
.77

.12
.11
−.01
.11
.12
.10
.05
.11
.15
.06

−.22
−.29
−.63
−.29
.18
.94
−1.45
−.92
−.78
−.16

−.15
−.33
−.57
−.34
.17
.87
−1.35
−.84
−.67
−.14

−.07
.04
−.06
.05
.00
.07
−.10
−.07
−.11
−.02

−.55
−.50
−.16
−.08
.52
.48
.10
.23
.60
.37

−.86
−.85
−.42
−.41
.08
.03
.00
.19
.22
.20

−.83
−.97
−.61
−.39
−.05
−.06
−.02
.07
.05
.17

−.03
.12
.18
−.02
.13
.09
.03
.12
.16
.03

.31
.36
.26
.33
.44
.45
.09
.04
.38
.17

1980
1981
1982
1983
1984
1985
1986
1987
1988
1989

.......................................
.......................................
.......................................
.......................................
.......................................
.......................................
.......................................
.......................................
.......................................
.......................................

1.68
−.15
−.60
−1.35
−1.58
−.42
−.30
.17
.82
.52

.97
.12
−.73
−.22
.63
.23
.54
.78
1.24
.99

.86
−.09
−.67
−.19
.46
.20
.26
.56
1.04
.75

.11
.21
−.06
−.03
.17
.02
.28
.21
.20
.24

.71
−.27
.12
−1.13
−2.21
−.65
−.84
−.61
−.42
−.47

.67
−.18
.20
−1.00
−1.83
−.52
−.82
−.39
−.36
−.38

.04
−.09
−.08
−.13
−.39
−.13
−.02
−.22
−.07
−.10

.38
.19
.35
.77
.70
1.41
1.27
.52
.27
.52

.39
.42
.35
.63
.30
.74
.55
.36
−.15
.14

.25
.38
.48
.50
.35
.60
.47
.35
−.03
−.03

.14
.04
−.13
.13
−.05
.14
.08
.01
−.12
.17

−.01
−.23
.01
.13
.40
.67
.71
.17
.42
.39

1990
1991
1992
1993
1994
1995
1996
1997
1998
1999

.......................................
.......................................
.......................................
.......................................
.......................................
.......................................
.......................................
.......................................
.......................................
.......................................

.43
.69
−.04
−.59
−.43
.11
−.14
−.34
−1.16
−.99

.81
.63
.68
.32
.85
1.04
.91
1.30
.27
.47

.56
.46
.52
.23
.67
.85
.68
1.11
.18
.29

.26
.16
.16
.09
.18
.19
.22
.19
.09
.18

−.39
.06
−.72
−.91
−1.29
−.93
−1.05
−1.64
−1.43
−1.46

−.26
.01
−.77
−.85
−1.18
−.87
−.94
−1.45
−1.20
−1.31

−.13
.05
.05
−.06
−.11
−.06
−.11
−.19
−.23
−.15

.64
.23
.11
−.18
.00
.10
.18
.34
.34
.67

.18
−.02
−.15
−.35
−.30
−.20
−.08
−.07
−.07
.14

.00
−.07
−.32
−.33
−.27
−.19
−.07
−.13
−.09
.08

.18
.06
.17
−.02
−.03
−.01
−.02
.06
.02
.06

.46
.24
.26
.17
.30
.30
.26
.41
.41
.54

2000 .......................................
2001 .......................................
2002 .......................................
2003 .......................................
2004 .......................................
2005 p .....................................

−.86
−.20
−.69
−.46
−.73
−.28

.93
−.60
−.23
.17
.80
.68

.84
−.48
−.28
.12
.59
.49

.09
−.12
.06
.05
.22
.18

−1.79
.40
−.46
−.63
−1.53
−.96

−1.55
.39
−.41
−.56
−1.30
−.86

−.25
.01
−.05
−.07
−.23
−.09

.36
.60
.80
.53
.41
.32

.05
.23
.43
.45
.36
.14

−.02
.15
.29
.37
.32
.11

.07
.08
.14
.08
.04
.04

.31
.37
.37
.08
.05
.18

2002: I ....................................
II ...................................
III ..................................
IV ..................................

−.97
−.62
−.49
−1.52

.47
.96
.27
−.31

−.11
.88
.14
−.64

.59
.08
.13
.33

−1.44
−1.58
−.76
−1.21

−.95
−1.65
−.72
−.90

−.48
.07
−.04
−.31

.79
.88
.43
.89

.36
.76
.20
.64

.14
.45
.17
.59

.22
.31
.03
.05

.43
.12
.23
.25

2003: I ....................................
II ...................................
III ..................................
IV ..................................

.08
−.66
.48
−.47

−.29
−.20
1.04
1.69

.09
.00
.58
1.05

−.38
−.20
.46
.64

.37
−.46
−.56
−2.16

.32
−.71
−.10
−1.91

.05
.26
−.46
−.25

−.05
1.37
.11
.10

.03
1.40
−.14
.21

−.15
1.46
−.31
.35

.18
−.06
.17
−.14

−.08
−.04
.25
−.11

2004: I ....................................
II ...................................
III ..................................
IV .................................

−1.16
−1.37
−.17
−.98

.49
.67
.53
.70

.50
.53
.55
.25

−.01
.14
−.02
.44

−1.65
−2.03
−.70
−1.68

−1.41
−1.71
−.59
−1.60

−.23
−.32
−.11
−.08

.62
.43
.35
.17

.71
.22
.25
−.04

.60
.04
.41
−.16

.11
.19
−.16
.12

−.09
.21
.10
.21

2005: I ....................................
II ...................................
III ..................................
IV p ................................

−.40
1.11
−.12
−1.18

.74
1.07
.26
.25

.37
1.08
.23
.27

.37
−.01
.03
−.03

−1.14
.04
−.38
−1.42

−1.05
.15
−.46
−1.32

−.10
−.11
.09
−.11

.35
.47
.54
−.45

.17
.17
.52
−.50

.14
.17
.46
−.66

.03
−.01
.06
.15

.19
.31
.03
.05

Source: Department of Commerce, Bureau of Economic Analysis.

287

TABLE B–6.—Chain-type quantity indexes for gross domestic product, 1959–2005
[Index numbers, 2000=100; quarterly data seasonally adjusted]
Personal consumption expenditures

Gross private domestic investment
Fixed investment

Year or
quarter

Gross
domestic
product

Nonresidential
Durable
goods

Nondurable
goods

Total

Total

Services

Structures

Equipment
and
software

Total
Total

Residential

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 .......................
2000 .......................
2001 .......................
2002 .......................
2003 .......................
2004 .......................
2005 p ......................
2002: I .....................
II ....................
III ...................
IV ...................
2003: I .....................
II ....................
III ...................
IV ...................

24.868
25.484
26.077
27.658
28.868
30.545
32.506
34.625
35.496
37.208
38.356
38.422
39.713
41.815
44.224
44.001
43.916
46.256
48.391
51.085
52.699
52.579
53.904
52.860
55.249
59.220
61.666
63.804
65.958
68.684
71.116
72.451
72.329
74.734
76.731
79.816
81.814
84.842
88.658
92.359
96.469
100.000
100.751
102.362
105.130
109.562
113.386
101.633
102.186
102.788
102.840
103.276
104.211
106.050
106.984

23.067
23.702
24.191
25.389
26.436
28.020
29.791
31.484
32.422
34.284
35.558
36.381
37.770
40.082
42.048
41.729
42.688
45.041
46.950
49.012
50.204
50.065
50.779
51.493
54.436
57.325
60.303
62.749
64.840
67.468
69.369
70.782
70.903
73.224
75.672
78.504
80.623
83.382
86.533
90.896
95.537
100.000
102.537
105.340
108.416
112.601
116.600
104.494
105.106
105.695
106.066
106.719
107.678
109.219
110.046

10.822
11.041
10.622
11.865
13.017
14.222
16.025
17.377
17.648
19.594
20.289
19.631
21.593
24.336
26.849
25.001
24.996
28.187
30.809
32.435
32.325
29.788
30.149
30.128
34.535
39.577
43.577
47.785
48.616
51.549
52.686
52.532
49.564
52.470
56.577
61.321
64.011
69.025
74.935
83.432
93.192
100.000
104.327
111.752
119.134
126.245
131.777
109.858
110.840
113.908
112.404
113.407
117.456
122.891
122.784

33.491
33.994
34.621
35.710
36.463
38.248
40.277
42.487
43.157
45.126
46.326
47.436
48.294
50.422
52.068
51.020
51.771
54.301
55.609
57.687
59.226
59.137
59.839
60.409
62.417
64.898
66.665
69.060
70.715
73.016
75.044
76.209
76.033
77.553
79.619
82.369
84.152
86.300
88.605
92.154
96.374
100.000
102.027
104.614
107.938
113.000
118.014
104.085
104.426
104.507
105.439
106.282
106.775
108.934
109.762

20.794
21.720
22.626
23.747
24.830
26.345
27.749
29.129
30.552
32.148
33.691
35.038
36.400
38.469
40.274
41.216
42.743
44.475
46.392
48.558
50.044
50.921
51.773
52.865
55.760
58.026
61.303
63.111
65.843
68.506
70.555
72.583
73.812
76.379
78.540
80.854
82.973
85.420
88.270
92.011
95.652
100.000
102.403
104.366
106.493
109.725
112.960
103.579
104.247
104.585
105.055
105.539
106.131
106.652
107.649

15.367
15.362
15.261
17.197
18.351
19.863
22.650
24.644
23.517
24.887
26.338
24.608
27.413
30.658
34.249
31.729
26.111
31.387
36.130
40.486
41.776
37.182
40.615
34.918
38.172
49.420
48.963
48.629
50.130
51.309
53.369
51.574
47.378
51.223
55.795
63.358
65.340
71.123
79.961
87.821
94.647
100.000
92.103
89.724
93.195
104.286
110.379
88.835
89.255
90.517
90.290
90.194
90.798
94.533
97.257

15.736
15.870
15.820
17.248
18.584
20.378
22.459
23.745
23.306
24.935
26.486
25.931
27.894
31.246
34.101
31.971
28.541
31.356
35.863
40.205
42.473
39.708
40.591
37.737
40.491
47.331
49.823
50.403
50.682
52.352
53.928
52.803
49.379
52.312
56.788
62.079
66.090
72.018
78.657
86.657
93.884
100.000
97.047
91.997
95.297
104.534
112.929
92.405
92.076
91.914
91.593
91.779
93.732
97.023
98.652

10.760
11.371
11.299
12.284
12.966
14.504
17.031
19.160
18.900
19.746
21.246
21.134
21.135
23.072
26.429
26.653
24.022
25.200
28.045
32.243
35.489
35.388
37.398
35.981
35.518
41.788
44.561
43.287
43.259
45.520
48.063
48.302
45.712
47.179
51.287
55.999
61.885
67.661
75.820
84.232
91.980
100.000
95.817
86.969
88.063
96.314
104.510
88.489
87.116
86.687
85.584
85.353
87.082
89.423
90.394

36.530
39.433
39.966
41.775
42.239
46.626
54.058
57.751
56.284
57.102
60.189
60.364
59.370
61.201
66.200
64.785
57.984
59.390
61.841
70.769
79.731
84.350
91.074
89.528
79.865
91.016
97.502
86.817
84.340
84.885
86.583
87.867
78.091
73.423
72.891
74.180
78.903
83.354
89.432
94.019
93.619
100.000
97.737
81.029
77.621
79.314
80.802
86.299
81.879
78.500
77.438
75.763
78.173
78.146
78.400

6.065
6.322
6.200
6.917
7.500
8.457
10.007
11.609
11.532
12.250
13.334
13.201
13.332
15.052
17.812
18.268
16.529
17.562
20.208
23.284
25.318
24.407
25.445
24.122
25.420
30.462
32.397
33.011
33.463
35.987
38.624
38.636
37.643
40.387
45.428
50.846
56.930
62.981
71.641
81.137
91.437
100.000
95.136
89.265
92.154
103.126
114.250
89.335
89.130
89.855
88.739
89.097
90.549
93.852
95.117

37.820
35.129
35.227
38.604
43.154
45.662
44.329
40.362
39.092
44.421
45.733
42.998
54.789
64.526
64.112
50.877
44.271
54.698
66.440
70.623
68.032
53.636
49.336
40.378
57.093
65.566
66.604
74.776
76.269
75.496
73.204
66.887
60.460
68.825
74.446
81.621
79.005
85.331
86.947
93.597
99.254
100.000
100.357
105.149
113.989
125.714
134.732
102.707
105.066
105.582
107.242
108.474
110.989
116.631
119.861

2004: I .....................
II ....................
III ...................
IV ...................
2005: I .....................
II ....................
III ...................
IV p .................

108.104
109.037
110.104
111.003
112.044
112.959
114.112
114.429

111.307
111.829
113.030
114.236
115.217
116.176
117.338
117.670

124.119
124.231
127.463
129.166
129.999
132.499
135.492
129.119

111.540
112.267
113.337
114.857
116.351
117.392
118.413
119.900

108.657
109.156
110.059
111.027
111.789
112.440
113.353
114.260

99.632
104.469
105.644
107.398
109.645
108.615
110.023
113.234

100.323
103.905
106.027
107.880
109.722
112.252
114.443
115.300

92.126
95.095
97.790
100.246
101.633
103.806
105.935
106.665

77.704
79.361
79.635
80.554
80.145
80.680
81.123
81.259

97.851
101.364
105.087
108.201
110.376
113.274
116.170
117.180

121.376
126.441
127.267
127.772
130.695
134.100
136.484
137.648

See next page for continuation of table.

288

TABLE B–6.—Chain-type quantity indexes for gross domestic product, 1959–2005—Continued
[Index numbers, 2000=100; quarterly data seasonally adjusted]
Exports of goods and
services

Imports of goods and
services

Government consumption expenditures
and gross investment

Year or
quarter

Federal
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 ........................
1999 .......................
2000 .......................
2001 .......................
2002 .......................
2003 .......................
2004 .......................
2005 p ......................
2002: I .....................
II ....................
III ...................
IV ...................
2003: I .....................
II ....................
III ...................
IV ...................
2004: I .....................
II ....................
III ...................
IV ..................
2005: I .....................
II ....................
III ...................
IV p .................

7.043
8.266
8.309
8.729
9.353
10.454
10.747
11.492
11.757
12.681
13.294
14.723
14.973
16.096
19.131
20.643
20.512
21.408
21.923
24.234
26.637
29.506
29.868
27.586
26.875
29.068
29.951
32.259
35.742
41.469
46.233
50.394
53.736
57.439
59.291
64.447
70.982
76.930
86.082
88.164
91.969
100.000
94.565
92.430
94.064
101.970
108.850
90.557
92.858
93.520
92.784
92.103
91.624
94.159
98.373
99.591
101.269
102.622
104.398
106.295
109.037
109.710
110.357

Goods

6.198
7.651
7.689
8.031
8.662
9.849
9.901
10.589
10.638
11.481
12.082
13.460
13.408
14.849
18.259
19.709
19.252
20.165
20.429
22.712
25.396
28.422
28.114
25.573
24.838
26.801
27.790
29.217
32.456
38.572
43.172
46.810
50.042
53.785
55.534
60.937
68.070
74.086
84.717
86.614
89.907
100.000
93.871
90.143
91.763
99.899
106.963
88.206
91.181
91.670
89.517
89.842
89.843
91.830
95.538
97.292
99.153
101.120
102.031
103.356
107.266
108.104
109.124

Services

9.641
9.797
9.857
10.535
11.070
11.733
12.926
13.814
14.905
16.049
16.646
18.128
19.527
19.404
20.775
22.396
23.773
24.476
26.055
28.234
29.103
30.919
34.211
33.263
32.710
35.627
36.051
41.325
45.502
49.616
54.723
60.480
64.082
67.590
69.726
74.097
78.793
84.483
89.509
92.077
97.207
100.000
96.302
98.104
99.776
107.119
113.569
96.393
97.034
98.120
100.870
97.714
96.058
99.938
105.396
105.303
106.532
106.368
110.275
113.578
113.466
113.738
113.493

Total

6.908
7.000
6.953
7.742
7.951
8.374
9.265
10.642
11.417
13.118
13.866
14.457
15.229
16.943
17.729
17.327
15.402
18.413
20.426
22.196
22.565
21.066
21.620
21.348
24.041
29.893
31.833
34.561
36.602
38.039
39.706
41.139
40.905
43.748
47.576
53.256
57.539
62.544
71.037
79.299
88.391
100.000
97.291
100.601
105.205
116.495
123.676
97.172
100.078
101.467
103.688
103.023
103.872
104.923
109.003
112.134
115.999
117.328
120.518
122.698
122.620
123.340
126.044

Goods

5.403
5.314
5.307
6.092
6.339
6.757
7.714
8.930
9.400
11.342
11.963
12.432
13.474
15.307
16.388
15.932
13.924
17.073
19.153
20.871
21.229
19.653
20.058
19.554
22.210
27.584
29.310
32.314
33.812
35.181
36.686
37.770
37.741
41.263
45.423
51.466
56.104
61.337
70.172
78.364
88.078
100.000
96.833
100.377
105.288
116.830
124.643
96.360
99.998
101.580
103.572
102.892
104.476
104.711
109.073
112.311
116.225
117.563
121.221
123.629
123.276
124.335
127.332

Source: Department of Commerce, Bureau of Economic Analysis.

289

Services

15.462
16.669
16.385
17.150
17.137
17.579
18.096
20.395
22.887
23.298
24.767
26.059
25.317
26.390
25.500
25.472
24.367
26.049
27.347
29.297
29.700
29.037
30.711
32.346
34.958
43.724
47.050
47.638
53.205
55.010
57.678
61.430
59.849
58.321
60.026
63.421
65.492
69.094
75.600
84.222
90.038
100.000
99.706
101.824
104.921
114.991
119.070
101.358
100.577
100.995
104.367
103.800
101.044
106.053
108.787
111.401
115.027
116.317
117.217
118.292
119.561
118.596
119.830

National
defense

Nondefense

State
and
local

68.666
66.779
69.564
75.492
75.540
74.530
74.508
82.737
90.960
91.681
88.525
81.997
75.686
72.574
69.519
70.134
70.360
70.388
71.880
73.681
75.465
79.043
82.818
86.018
91.726
94.550
101.957
107.754
111.674
109.898
111.594
113.873
113.679
111.713
107.056
103.050
100.254
99.091
98.066
96.970
99.122
100.000
103.908
111.169
118.839
125.038
127.575
107.667
110.873
111.700
114.438
114.521
120.383
119.770
120.680
123.791
124.774
125.881
125.704
126.446
127.188
129.491
127.174

89.447
87.977
91.851
97.412
95.085
91.304
89.403
102.205
115.571
117.416
111.604
101.477
89.980
82.921
78.322
77.714
76.977
76.706
77.597
78.259
80.648
84.160
89.486
96.244
103.158
108.186
117.355
124.871
130.779
130.161
129.518
129.472
128.050
121.708
114.860
109.259
105.093
103.648
100.733
98.650
100.515
100.000
103.936
111.578
121.447
129.970
132.915
107.801
110.780
111.897
115.835
114.772
124.259
122.200
124.558
128.643
128.908
131.709
130.621
131.595
132.791
135.990
131.286

33.305
30.672
31.599
38.144
42.217
45.880
48.995
49.501
49.059
47.912
49.186
48.674
50.961
54.551
54.213
57.023
58.965
59.523
62.089
65.947
66.640
70.373
71.310
67.888
71.398
70.035
74.169
76.764
76.984
73.037
79.075
85.651
87.700
93.749
93.087
91.957
91.613
90.955
93.320
93.985
96.646
100.000
103.859
110.441
114.159
116.166
117.976
107.428
111.040
111.358
111.938
114.102
113.414
115.415
113.704
115.064
117.336
115.399
116.865
117.188
117.120
117.814
119.782

26.999
28.182
29.918
30.839
32.696
34.913
37.252
39.590
41.589
44.048
45.534
46.797
48.232
49.291
50.694
52.603
54.536
54.937
55.137
56.938
57.775
57.736
56.577
56.607
57.268
59.322
63.003
67.064
68.041
70.582
72.994
75.991
77.600
79.318
80.459
82.543
84.728
86.668
89.770
93.014
97.409
100.000
103.162
106.354
107.042
107.487
109.071
105.782
106.033
106.532
107.067
106.895
106.814
107.351
107.109
106.911
107.377
107.592
108.069
108.489
109.183
109.246
109.365

Total

41.489
41.553
43.639
46.329
47.522
48.563
50.028
54.430
58.604
60.436
60.290
58.833
57.553
57.128
56.926
58.360
59.675
59.940
60.598
62.383
63.549
64.790
65.381
66.530
68.964
71.273
76.240
80.885
82.873
83.940
86.110
88.869
89.872
90.342
89.513
89.525
90.015
90.896
92.588
94.354
97.987
100.000
103.412
107.969
111.009
113.398
115.305
106.411
107.658
108.266
109.539
109.454
111.378
111.528
111.675
112.595
113.236
113.753
114.008
114.537
115.248
116.063
115.372

TABLE B–7.—Chain-type price indexes for gross domestic product, 1959–2005
[Index numbers, 2000=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

Nondurable
goods

Services

Total
Total
Total

Structures

Equipment
and
software

Residential

1959 ..............

20.754

20.432

45.662

22.765

15.485

29.474

28.262

35.114

15.923

50.882

16.630

1960
1961
1962
1963
1964
1965
1966
1967
1968
1969

..............
..............
..............
..............
..............
..............
..............
..............
..............
..............

21.044
21.281
21.572
21.801
22.134
22.538
23.180
23.897
24.916
26.153

20.767
20.985
21.232
21.479
21.786
22.103
22.662
23.237
24.151
25.255

45.444
45.551
45.755
45.915
46.142
45.721
45.517
46.228
47.749
49.067

23.089
23.227
23.412
23.683
23.986
24.423
25.232
25.830
26.820
28.062

15.887
16.173
16.466
16.701
17.016
17.334
17.810
18.349
19.128
20.106

29.619
29.538
29.558
29.467
29.634
30.107
30.726
31.538
32.714
34.264

28.414
28.325
28.346
28.267
28.440
28.926
29.536
30.364
31.582
33.140

35.275
35.076
35.087
35.088
35.268
35.672
36.206
37.129
38.431
40.018

15.904
15.810
15.941
16.085
16.316
16.791
17.398
17.943
18.835
20.074

51.305
51.025
50.774
50.495
50.474
50.520
50.654
51.776
53.167
54.645

16.743
16.769
16.795
16.663
16.796
17.272
17.899
18.521
19.504
20.853

1970
1971
1972
1973
1974
1975
1976
1977
1978
1979

..............
..............
..............
..............
..............
..............
..............
..............
..............
..............

27.538
28.916
30.171
31.854
34.721
38.007
40.202
42.758
45.762
49.553

26.448
27.574
28.528
30.081
33.191
35.955
37.948
40.410
43.248
47.059

50.148
51.975
52.531
53.301
56.676
61.844
65.278
68.129
72.038
76.830

29.446
30.359
31.373
33.838
38.702
41.735
43.346
45.911
48.985
54.148

21.175
22.340
23.304
24.381
26.345
28.595
30.603
32.933
35.464
38.316

35.713
37.493
39.062
41.172
45.263
50.847
53.654
57.677
62.381
68.027

34.565
36.306
37.865
39.958
43.890
49.384
52.244
56.342
61.101
66.642

41.908
43.880
45.367
47.115
51.658
58.763
62.018
66.258
70.695
76.440

21.390
23.040
24.704
26.619
30.295
33.911
35.571
38.651
42.382
47.313

56.657
58.340
59.044
60.047
64.474
74.001
78.355
83.011
87.391
92.932

21.526
22.775
24.158
26.297
29.011
31.706
33.743
37.147
41.696
46.374

1980
1981
1982
1983
1984
1985
1986
1987
1988
1989

..............
..............
..............
..............
..............
..............
..............
..............
..............
..............

54.062
59.128
62.738
65.214
67.664
69.724
71.269
73.204
75.706
78.569

52.078
56.720
59.859
62.436
64.795
66.936
68.569
70.947
73.755
76.972

83.277
88.879
92.358
94.181
95.550
96.620
97.685
100.465
101.921
103.717

60.449
65.130
66.955
68.386
70.004
71.543
71.273
73.731
76.206
79.842

42.332
46.746
50.528
53.799
56.680
59.295
62.040
64.299
67.493
70.708

74.424
81.278
85.455
85.237
85.845
86.720
88.599
90.289
92.354
94.559

72.887
79.670
84.047
83.912
84.399
85.457
87.501
89.118
91.431
93.641

83.198
91.245
96.295
95.432
95.195
95.936
97.566
98.435
100.625
102.731

51.740
58.880
63.566
61.939
62.468
63.940
65.168
66.199
69.016
71.707

100.868
108.077
112.293
112.530
111.547
111.413
113.178
113.796
115.216
116.657

51.394
55.587
58.564
59.908
61.630
63.219
65.868
68.561
70.928
73.211

1990
1991
1992
1993
1994
1995
1996
1997
1998
1999

..............
..............
..............
..............
..............
..............
..............
..............
..............
.............

81.614
84.457
86.402
88.390
90.265
92.115
93.859
95.415
96.475
97.868

80.498
83.419
85.824
87.804
89.654
91.577
93.547
95.124
95.978
97.575

104.561
106.080
106.756
107.840
109.978
110.672
109.507
107.068
104.152
101.626

84.226
86.779
88.105
88.973
89.605
90.629
92.567
93.835
93.821
96.173

74.197
77.497
80.684
83.345
85.748
88.320
90.844
93.305
95.319
97.393

96.379
97.749
97.395
98.521
99.813
100.941
100.520
100.157
99.035
98.972

95.542
96.960
96.670
97.805
99.133
100.292
100.028
99.785
98.861
98.888

104.695
106.314
105.411
105.487
106.008
106.239
105.011
103.696
101.421
100.057

74.015
75.355
75.330
77.602
80.388
83.879
86.045
89.381
93.474
96.257

118.168
119.854
118.444
117.243
116.572
115.224
112.451
109.120
104.259
101.366

74.930
75.912
76.836
79.941
82.754
85.769
87.610
89.843
92.239
95.780

2000 .............
2001 .............
2002 .............
2003 .............
2004 .............
2005 p ...........

100.000
102.402
104.193
106.310
109.102
112.144

100.000
102.094
103.542
105.520
108.246
111.298

100.000
98.114
95.766
92.372
90.631
90.159

100.000
101.531
102.089
104.151
107.634
111.585

100.000
103.257
106.018
109.246
112.695
116.176

100.000
101.013
101.640
103.311
106.555
109.796

100.000
101.023
101.660
103.432
106.697
109.937

100.000
99.683
99.513
99.764
101.025
103.155

100.000
105.403
110.030
113.889
120.124
132.176

100.000
97.708
95.956
95.133
95.022
94.666

100.000
104.633
107.240
112.379
119.935
125.568

2002: I ...........
II .........
III ........
IV ........

103.553
103.944
104.347
104.926

102.673
103.385
103.841
104.268

96.496
96.029
95.594
94.946

100.895
102.238
102.464
102.760

104.937
105.608
106.390
107.137

101.347
101.472
101.512
102.229

101.348
101.480
101.532
102.279

99.542
99.485
99.380
99.645

108.065
109.455
110.612
111.988

96.607
96.087
95.598
95.534

106.151
106.720
107.130
108.960

2003: I ...........
II .........
III ........
IV ........

105.724
106.019
106.500
106.996

105.051
105.220
105.734
106.076

93.906
92.879
91.833
90.868

104.179
103.560
104.356
104.509

108.036
108.887
109.647
110.414

102.954
102.831
103.255
104.202

103.071
102.933
103.370
104.354

99.676
99.436
99.733
100.211

113.093
113.182
113.996
115.287

95.251
94.916
95.061
95.304

111.420
111.508
112.261
114.330

2004: I ...........
II .........
III ........
IV ........

107.951
108.976
109.371
106.996

107.084
108.089
108.484
106.076

90.898
90.866
90.310
90.868

106.031
107.744
107.781
104.509

111.402
112.303
113.120
110.414

105.086
106.280
107.120
104.202

105.263
106.448
107.248
104.354

100.502
100.958
101.185
100.211

117.279
119.230
121.159
115.287

95.121
95.168
94.945
95.304

116.561
119.294
121.312
114.330

2005: I ...........
II .........
III ........
IV p ......

110.950
111.655
112.567
113.407

109.936
110.832
111.846
112.576

90.648
90.527
89.839
89.621

109.327
110.854
112.985
113.176

114.803
115.633
116.508
117.758

108.427
109.164
110.169
111.424

108.522
109.254
110.318
111.653

102.244
102.715
103.358
104.304

125.876
128.886
133.914
140.027

95.067
94.910
94.491
94.197

123.062
124.359
126.335
128.516

See next page for continuation of table.

290

TABLE B–7.—Chain-type price indexes for gross domestic product, 1959–2005—Continued
[Index numbers, 2000=100, except as noted; quarterly data seasonally adjusted]

Year or
quarter

Exports and
imports
of goods and
services

Government consumption expenditures
and gross investment
Federal
Total

Exports Imports

Total

National Nondefense defense

State
and
local

Gross domestic
purchases 1
Final
sales of
domestic
product

Total

Percent change 2

Gross domestic
purchases 1
Gross
Less
domestic
food and product
Less
energy
Total food and
energy

1959 ................

29.433

21.901

15.404

16.450

16.257

16.591

14.475

20.581

20.365 ..............

1.2

1.2 ..............

1960
1961
1962
1963
1964
1965
1966
1967
1968
1969

................
................
................
................
................
................
................
................
................
................

29.846
30.300
30.375
30.307
30.556
31.529
32.481
33.725
34.461
35.627

22.110
22.110
21.849
22.273
22.743
23.059
23.596
23.688
24.048
24.675

15.597
15.909
16.314
16.669
17.132
17.588
18.330
19.099
20.128
21.341

16.590
16.871
17.228
17.597
18.191
18.658
19.330
19.913
20.995
22.130

16.383
16.619
16.940
17.320
17.822
18.314
18.950
19.518
20.539
21.664

16.798
17.296
17.808
18.116
19.036
19.408
20.190
20.815
22.116
23.251

14.738
15.093
15.564
15.911
16.234
16.685
17.507
18.488
19.475
20.780

20.872
21.108
21.398
21.629
21.963
22.368
23.010
23.729
24.752
25.988

20.646
20.865
21.139
21.385
21.725
22.102
22.724
23.389
24.380
25.580

..............
..............
..............
..............
..............
..............
..............
..............
..............
..............

1.4
1.1
1.4
1.1
1.5
1.8
2.8
3.1
4.3
5.0

1.4
1.1
1.3
1.2
1.6
1.7
2.8
2.9
4.2
4.9

..............
..............
..............
..............
..............
..............
..............
..............
..............
..............

1970
1971
1972
1973
1974
1975
1976
1977
1978
1979

................
................
................
................
................
................
................
................
................
................

36.993
38.358
40.146
45.425
55.965
61.682
63.707
66.302
70.342
78.808

26.135
27.739
29.682
34.841
49.847
53.997
55.622
60.523
64.798
75.879

23.079
24.875
26.788
28.743
31.646
34.824
37.118
39.694
42.235
45.775

23.915
25.957
28.495
30.449
33.162
36.615
39.217
42.180
44.785
48.231

23.321
25.387
28.319
30.396
33.217
36.460
39.117
42.079
45.035
48.628

25.478
27.400
28.780
30.394
32.819
36.746
39.209
42.152
43.983
47.099

22.488
24.087
25.524
27.477
30.500
33.481
35.563
37.872
40.359
43.944

27.369
28.741
29.994
31.673
34.517
37.789
39.987
42.546
45.551
49.322

26.964
28.351
29.619
31.343
34.546
37.761
39.938
42.634
45.663
49.669

..............
..............
..............
..............
..............
..............
..............
..............
..............
..............

5.3
5.0
4.3
5.6
9.0
9.5
5.8
6.4
7.0
8.3

5.4
5.1
4.5
5.8
10.2
9.3
5.8
6.8
7.1
8.8

..............
..............
..............
..............
..............
..............
..............
..............
..............
..............

1980
1981
1982
1983
1984
1985
1986
1987
1988
1989

................
................
................
................
................
................
................
................
................
................

86.801 94.513
93.217 99.594
93.645 96.235
94.015 92.629
94.887 91.829
91.983 88.813
90.639 88.871
92.874 94.251
97.687 98.774
99.310 100.944

50.761
55.752
59.414
61.778
64.955
66.970
68.175
70.056
71.899
74.139

53.299
58.476
62.446
64.612
68.426
69.974
70.352
71.200
72.704
74.677

53.908
59.229
63.392
65.617
70.290
71.621
71.554
72.281
73.631
75.528

51.683
56.516
60.020
62.038
63.577
65.740
67.395
68.616
70.609
72.826

48.858
53.709
57.140
59.666
62.336
64.739
66.624
69.361
71.485
73.940

53.806
58.859
62.489
64.958
67.399
69.494
71.060
72.985
75.519
78.383

54.876 ..............
59.896 ..............
63.296 62.221
65.515 64.685
67.822 67.106
69.760 69.232
71.338 71.474
73.527 73.716
76.043 76.429
78.934 79.151

9.1
9.4
6.1
3.9
3.8
3.0
2.2
2.7
3.4
3.8

10.5 ..............
9.1 ..............
5.7 ..............
3.5
4.0
3.5
3.7
2.9
3.2
2.3
3.2
3.1
3.1
3.4
3.7
3.8
3.6

1990
1991
1992
1993
1994
1995
1996
1997
1998
1999

................
................
................
................
................
................
................
................
................
................

77.139
79.787
81.719
83.789
86.002
88.358
90.491
92.139
93.469
96.079

77.142
80.232
82.602
84.788
87.061
89.503
91.982
93.533
94.511
96.884

78.010
80.821
83.628
85.313
87.412
89.598
92.379
93.716
94.643
96.886

75.260
79.100
80.411
83.728
86.375
89.351
91.216
93.192
94.268
96.880

77.357
79.681
81.300
83.294
85.472
87.778
89.709
91.414
92.934
95.667

81.440
84.286
86.237
88.226
90.108
91.965
93.736
95.320
96.428
97.847

82.144
84.836
86.828
88.730
90.583
92.483
94.145
95.440
96.060
97.556

82.109
84.942
87.169
89.211
91.213
93.176
94.616
95.865
96.797
98.165

3.9
3.5
2.3
2.3
2.1
2.0
1.9
1.7
1.1
1.4

4.1
3.3
2.3
2.2
2.1
2.1
1.8
1.4
.6
1.6

3.7
3.5
2.6
2.3
2.2
2.2
1.5
1.3
1.0
1.4

100.000 100.000 100.000 100.000 100.000 100.000 100.000
99.624 97.497 102.544 101.907 102.002 101.739 102.868
99.273 96.341 105.507 105.631 105.792 105.345 105.435
101.398 99.610 109.460 109.740 110.434 108.473 109.303
104.999 104.571 113.505 114.354 114.840 113.498 113.022
108.879 110.982 118.874 118.478 118.915 117.724 119.131

100.000
102.406
104.197
106.330
109.124
112.166

100.000
101.994
103.583
105.863
108.899
112.377

100.000
101.882
103.796
105.640
108.224
110.954

2.2
2.4
1.7
2.0
2.6
2.8

2.5
2.0
1.6
2.2
2.9
3.2

1.9
1.9
1.9
1.8
2.4
2.5

2000 ................
2001 ................
2002 ................
2003 ................
2004 ...............
2005 p .............
2002: I .............
II ...........
III ..........
IV ..........

99.982
101.313
100.892
100.898
102.033
104.376
102.988
101.232
98.905
98.313

98.360
99.048
99.772
99.911

103.826
103.420
103.552
102.671
103.634
106.412
104.529
100.816
95.353
95.960

94.146
96.474
97.304
97.441

104.378
105.126
105.795
106.728

105.098
105.231
105.502
106.696

104.784
105.112
105.744
107.529

105.665
105.449
105.073
105.193

103.997
105.064
105.943
106.734

103.554
103.946
104.352
104.936

102.755
103.385
103.816
104.374

103.150
103.579
103.990
104.465

1.7
1.5
1.6
2.2

1.5
2.5
1.7
2.2

1.8
1.7
1.6
1.8

2003: I .............
II ...........
III ..........
IV ..........

100.909 100.069 109.030 109.238 109.939
101.165 98.938 109.026 109.579 110.229
101.401 99.580 109.695 109.902 110.573
102.116 99.853 110.087 110.241 110.995

107.966
108.396
108.676
108.853

108.909
108.714
109.582
110.005

105.743
106.036
106.521
107.021

105.418
105.513
106.040
106.483

105.115
105.367
105.806
106.270

3.1
1.1
1.8
1.9

4.1
.4
2.0
1.7

2.5
1.0
1.7
1.8

2004: I .............
II ...........
III ..........
IV ..........

103.584
104.803
105.242
106.366

102.177
103.812
105.269
107.026

111.755
113.114
114.003
115.148

112.825
114.191
114.825
115.575

113.091
114.641
115.429
116.198

112.402
113.408
113.734
114.447

111.141
112.496
113.536
114.914

107.980
109.003
109.389
110.124

107.586
108.683
109.235
110.092

107.164
108.011
108.541
109.181

3.6
3.9
1.5
2.7

4.2
4.1
2.0
3.2

3.4
3.2
2.0
2.4

2005: I .............
II ...........
III ..........
IVp .........

107.559
108.534
109.323
110.098

107.783
109.925
112.413
113.807

116.747
117.820
119.751
121.178

117.550
118.168
119.056
119.140

118.060
118.471
119.493
119.634

116.647
117.681
118.298
118.270

116.291
117.635
120.186
122.411

110.963
111.667
112.589
113.443

110.883
111.785
112.953
113.886

109.990
110.561
111.236
112.027

3.1
2.6
3.3
3.0

2.9
3.3
4.2
3.3

3.0
2.1
2.5
2.9

1 Gross

domestic product (GDP) less exports of goods and services plus imports of goods and services.
percent changes are at annual rates.
Source: Department of Commerce, Bureau of Economic Analysis.
2 Quarterly

291

TABLE B–8.—Gross domestic product by major type of product, 1959–2005
[Billions of dollars; quarterly data at seasonally adjusted annual rates]
Goods

Year or
quarter

Change
Final
in
Gross
sales of
pridomestic domesvate
product
tic
product inventories

Durable goods

Total

Total

Final
sales

Change
in
private
inventories

Final
sales

Change
in
private
inventories 1

Nondurable goods

Final
sales

Change
in
private
inventories 1

Services 2

Structures

1959 ............................

506.6

502.7

3.9

237.6

233.6

3.9

86.3

2.9

147.3

1.1

206.5

62.5

1960
1961
1962
1963
1964
1965
1966
1967
1968
1969

............................
............................
............................
............................
............................
............................
............................
............................
............................
............................

526.4
544.7
585.6
617.7
663.6
719.1
787.8
832.6
910.0
984.6

523.2
541.7
579.5
612.1
658.8
709.9
774.2
822.7
900.9
975.4

3.2
3.0
6.1
5.6
4.8
9.2
13.6
9.9
9.1
9.2

246.6
250.1
268.1
280.1
300.9
329.4
364.5
373.9
402.6
432.0

243.4
247.2
262.0
274.5
296.0
320.2
350.9
364.0
393.6
422.8

3.2
3.0
6.1
5.6
4.8
9.2
13.6
9.9
9.1
9.2

90.2
90.2
99.4
106.0
116.4
128.4
142.0
146.4
158.7
171.1

1.7
−.1
3.4
2.6
3.8
6.2
10.0
4.8
4.5
6.0

153.2
157.0
162.6
168.5
179.7
191.8
208.9
217.6
234.8
251.7

1.6
3.0
2.7
3.0
1.0
3.0
3.6
5.0
4.5
3.2

217.9
231.0
249.7
265.0
284.3
305.0
335.3
369.1
407.4
444.4

61.9
63.6
67.8
72.7
78.4
84.7
88.0
89.6
100.0
108.3

1970
1971
1972
1973
1974
1975
1976
1977
1978
1979

............................
............................
............................
............................
............................
............................
............................
............................
............................
............................

1,038.5
1,127.1
1,238.3
1,382.7
1,500.0
1,638.3
1,825.3
2,030.9
2,294.7
2,563.3

1,036.5
1,118.9
1,229.2
1,366.8
1,486.0
1,644.6
1,808.2
2,008.6
2,268.9
2,545.3

2.0
8.3
9.1
15.9
14.0
−6.3
17.1
22.3
25.8
18.0

446.9 444.9
472.9 464.7
516.6 507.5
597.1 581.2
643.3 629.3
691.4 697.7
777.5 760.4
851.5 829.1
961.0 935.2
1,078.1 1,060.1

2.0
8.3
9.1
15.9
14.0
−6.3
17.1
22.3
25.8
18.0

173.6
181.1
202.4
236.6
254.5
284.5
321.2
363.8
413.2
472.0

−.2
2.9
6.4
13.0
10.9
−7.5
10.8
9.5
18.2
12.8

271.3
283.6
305.1
344.6
374.8
413.2
439.2
465.3
522.0
588.1

2.2
5.3
2.7
2.9
3.1
1.2
6.3
12.8
7.6
5.2

481.9
525.8
574.8
622.7
691.0
780.2
856.6
952.7
1,059.7
1,171.9

109.7
128.4
146.9
162.9
165.6
166.7
191.2
226.8
273.9
313.3

1980
1981
1982
1983
1984
1985
1986
1987
1988
1989

............................
............................
............................
............................
............................
............................
............................
............................
............................
............................

2,789.5
3,128.4
3,255.0
3,536.7
3,933.2
4,220.3
4,462.8
4,739.5
5,103.8
5,484.4

2,795.8
3,098.6
3,269.9
3,542.4
3,867.8
4,198.4
4,456.3
4,712.3
5,085.3
5,456.7

−6.3
29.8
−14.9
−5.8
65.4
21.8
6.6
27.1
18.5
27.7

1,145.7
1,288.2
1,277.3
1,365.0
1,549.6
1,607.4
1,657.0
1,751.3
1,903.4
2,066.6

1,152.0
1,258.3
1,292.2
1,370.8
1,484.2
1,585.6
1,650.5
1,724.2
1,884.9
2,038.9

−6.3
29.8
−14.9
−5.8
65.4
21.8
6.6
27.1
18.5
27.7

500.1
542.2
539.7
578.1
650.2
711.0
739.9
764.9
841.8
917.1

−2.3
7.3
−16.0
2.5
41.4
4.4
−1.9
22.9
22.7
20.0

651.9
716.1
752.5
792.7
834.0
874.6
910.6
959.3
1,043.1
1,121.9

−4.0
22.5
1.1
−8.2
24.0
17.4
8.4
4.2
−4.3
7.7

1,322.5
1,487.7
1,633.2
1,802.9
1,957.8
2,154.1
2,325.7
2,490.5
2,685.3
2,888.7

321.3
352.6
344.5
368.7
425.8
458.7
480.1
497.6
515.0
529.0

1990
1991
1992
1993
1994
1995
1996
1997
1998
1999

............................
............................
............................
............................
............................
............................
............................
............................
............................
............................

5,803.1
5,995.9
6,337.7
6,657.4
7,072.2
7,397.7
7,816.9
8,304.3
8,747.0
9,268.4

5,788.5
5,996.3
6,321.4
6,636.6
7,008.4
7,366.5
7,786.1
8,232.3
8,676.2
9,201.5

14.5
−.4
16.3
20.8
63.8
31.1
30.8
72.0
70.8
66.9

2,155.8
2,184.7
2,282.3
2,387.8
2,563.8
2,661.1
2,807.0
3,007.7
3,143.4
3,311.3

2,141.3
2,185.1
2,266.0
2,367.0
2,500.0
2,630.0
2,776.3
2,935.7
3,072.6
3,244.4

14.5
−.4
16.3
20.8
63.8
31.1
30.8
72.0
70.8
66.9

950.2
944.1
986.1
1,047.9
1,125.0
1,202.2
1,298.0
1,409.1
1,487.8
1,576.5

7.7
−13.6
−3.0
17.1
35.7
33.6
19.1
39.9
42.8
40.0

1,191.1
1,241.0
1,279.8
1,319.1
1,375.0
1,427.8
1,478.3
1,526.6
1,584.8
1,667.9

6.8
13.2
19.3
3.7
28.1
−2.4
11.7
32.1
28.0
26.9

3,113.7
3,311.3
3,532.7
3,711.7
3,901.2
4,098.4
4,312.7
4,548.4
4,789.8
5,081.8

533.5
499.9
522.7
557.8
607.3
638.1
697.1
748.2
813.8
875.3

2000 ............................
2001 ............................
2002 ............................
2003 ............................
2004 ............................
2005 p ..........................

9,817.0
10,128.0
10,469.6
10,971.2
11,734.3
12,479.4

9,760.5
10,159.7
10,457.7
10,955.8
11,678.9
12,464.2

56.5
−31.7
11.9
15.4
55.4
15.2

3,449.3
3,412.6
3,442.4
3,536.7
3,783.0
3,962.1

3,392.8
3,444.3
3,430.5
3,521.2
3,727.6
3,946.9

56.5
−31.7
11.9
15.4
55.4
15.2

1,653.3
1,630.3
1,559.9
1,586.7
1,668.3
1,782.0

36.1
−41.8
15.1
12.4
37.4
18.9

1,739.5
1,814.0
1,870.7
1,934.6
2,059.4
2,164.9

20.4
10.0
−3.2
3.0
18.0
−3.7

5,425.6
942.1
5,725.6
989.8
6,031.4
995.8
6,366.1 1,068.4
6,755.4 1,195.8
7,184.6 1,332.7

2002: I .........................
II ........................
III ......................
IV ......................

10,333.3
10,426.6
10,527.4
10,591.1

10,341.6
10,424.0
10,501.4
10,563.9

−8.3
2.6
26.0
27.3

3,434.1
3,437.0
3,473.1
3,425.4

3,442.4
3,434.4
3,447.1
3,398.2

−8.3
2.6
26.0
27.3

1,570.7
1,560.7
1,578.2
1,529.7

−4.7
6.7
15.8
42.6

1,871.7
1,873.7
1,868.8
1,868.4

−3.7
−4.1
10.2
−15.4

5,908.8
990.4
5,997.9 991.8
6,064.0
990.3
6,155.0 1,010.6

2003: I .........................
II ........................
III ......................
IV ......................

10,717.0
10,884.6
11,087.4
11,236.0

10,695.2
10,845.0
11,076.9
11,206.2

21.8
−.4
10.6
29.8

3,448.2
3,466.9
3,603.1
3,628.5

3,426.4
3,467.3
3,592.6
3,598.7

21.8
−.4
10.6
29.8

1,534.4
1,565.0
1,631.4
1,615.9

20.3
.0
−4.8
34.2

1,892.0
1,902.2
1,961.2
1,982.8

1.5
−.4
15.4
−4.5

6,243.4
6,330.5
6,396.8
6,493.9

1,025.4
1,047.2
1,087.5
1,113.7

2004: I .........................
II ........................
III .......................
IV ......................

11,457.1
11,666.1
11,818.8
11,995.2

11,411.6
11,594.2
11,766.3
11,943.3

45.5
71.9
52.5
51.9

3,705.8
3,771.5
3,804.0
3,850.8

3,660.3
3,699.7
3,751.5
3,799.0

45.5
71.9
52.5
51.9

1,639.3
1,640.9
1,683.8
1,709.0

42.1
51.0
26.9
29.9

2,021.0
2,058.8
2,067.7
2,090.0

3.5
20.9
25.6
22.0

6,617.3
6,699.7
6,797.9
6,906.7

1,133.9
1,194.8
1,216.9
1,237.7

2005: I .........................
II ........................
III .......................
IV p .....................

12,198.8
12,378.0
12,605.7
12,735.3

12,138.9
12,382.1
12,625.4
12,710.5

59.9
−4.2
−19.7
24.8

3,906.3
3,954.4
4,001.3
3,986.3

3,846.4
3,958.5
4,021.0
3,961.5

59.9
−4.2
−19.7
24.8

1,723.9
1,786.6
1,827.6
1,789.8

35.0
−7.3
5.6
42.2

2,122.5
2,171.9
2,193.4
2,171.8

24.9
3.1
−25.3
−17.4

7,025.1
7,112.4
7,250.2
7,350.8

1,267.4
1,311.2
1,354.1
1,398.1

1 Estimates for durable and nondurable goods for 1996 and earlier periods are based on the Standard Industrial Classification (SIC); later
estimates are based on the North American Industry Classification System (NAICS).
2 Includes government consumption expenditures, which are for services (such as education and national defense) produced by government.
In current dollars, these services are valued at their cost of production.

Source: Department of Commerce, Bureau of Economic Analysis.

292

TABLE B–9.—Real gross domestic product by major type of product, 1959–2005
[Billions of chained (2000) dollars; quarterly data at seasonally adjusted annual rates]
Goods

Year or
quarter

Change
Final
in
Gross
sales of
pridomestic domesvate
product
tic
product inventories

Durable goods

Total

Final
sales

Total

Change
in
private
inventories

Final
sales

Change
in
private
inventories 1

Nondurable goods

Final
sales

Change
in
private
inventories 1

700.7 .............. ............ .............. ............ .............. ............

Services 2

Structures

1959 ........................

2,441.3

2,442.7

12.3

1,391.1

392.8

1960
1961
1962
1963
1964
1965
1966
1967
1968
1969

........................
........................
........................
........................
........................
........................
........................
........................
........................
........................

2,501.8
2,560.0
2,715.2
2,834.0
2,998.6
3,191.1
3,399.1
3,484.6
3,652.7
3,765.4

2,506.8
2,566.8
2,708.5
2,830.3
2,999.9
3,173.8
3,364.8
3,467.6
3,640.3
3,753.7

10.4
9.4
19.5
18.0
15.4
29.3
42.1
30.3
27.4
27.0

721.1
726.7
773.8
803.4
856.4
927.3
1,005.2
1,006.4
1,047.9
1,082.2

..............
..............
..............
..............
..............
..............
..............
..............
..............
..............

............
............
............
............
............
............
............
............
............
............

..............
..............
..............
..............
..............
..............
..............
..............
..............
..............

............
............
............
............
............
............
............
............
............
............

..............
..............
..............
..............
..............
..............
..............
..............
..............
..............

............
............
............
............
............
............
............
............
............
............

1,433.0
1,489.4
1,574.3
1,642.4
1,720.1
1,803.6
1,916.7
2,034.8
2,140.4
2,212.2

389.1
399.9
422.8
451.3
481.7
505.8
506.4
499.0
529.7
536.5

1970
1971
1972
1973
1974
1975
1976
1977
1978
1979

........................
........................
........................
........................
........................
........................
........................
........................
........................
........................

3,771.9
3,898.6
4,105.0
4,341.5
4,319.6
4,311.2
4,540.9
4,750.5
5,015.0
5,173.4

3,787.7
3,893.4
4,098.6
4,315.9
4,305.5
4,352.5
4,522.3
4,721.6
4,981.6
5,161.2

5.0
22.3
23.1
35.0
25.9
−11.3
30.7
38.5
41.1
25.1

1,076.3
1,105.7
1,180.5
1,299.5
1,288.1
1,263.7
1,359.8
1,423.2
1,515.6
1,577.9

..............
..............
..............
..............
..............
..............
..............
..............
..............
..............

............
............
............
............
............
............
............
............
............
............

..............
..............
..............
..............
..............
..............
..............
..............
..............
..............

............
............
............
............
............
............
............
............
............
............

..............
..............
..............
..............
..............
..............
..............
..............
..............
..............

............
............
............
............
............
............
............
............
............
............

2,255.4
2,313.6
2,393.7
2,461.3
2,522.8
2,612.1
2,676.9
2,770.5
2,874.9
2,943.3

513.4
561.0
602.7
615.6
551.8
501.7
548.7
600.6
658.3
677.0

1980
1981
1982
1983
1984
1985
1986
1987
1988
1989

........................
........................
........................
........................
........................
........................
........................
........................
........................
........................

5,161.7
5,291.7
5,189.3
5,423.8
5,813.6
6,053.7
6,263.6
6,475.1
6,742.7
6,981.4

5,196.7
5,265.1
5,233.4
5,454.0
5,739.2
6,042.1
6,271.8
6,457.2
6,734.5
6,962.2

−8.0
34.9
−17.5
−6.4
71.3
23.7
8.3
30.3
20.3
28.3

1,567.1
1,634.5
1,559.7
1,625.4
1,810.9
1,851.3
1,906.0
1,984.9
2,108.9
2,223.3

..............
..............
..............
..............
..............
..............
..............
..............
..............
..............

............
............
............
............
............
............
............
............
............
............

..............
..............
..............
..............
..............
..............
..............
..............
..............
..............

............
............
............
............
............
............
............
............
............
............

..............
..............
..............
..............
..............
..............
..............
..............
..............
..............

............
............
............
............
............
............
............
............
............
............

3,004.2
3,062.5
3,120.0
3,251.0
3,341.1
3,520.8
3,671.0
3,797.3
3,930.9
4,049.5

627.8
619.2
566.1
607.1
689.2
725.1
735.9
739.2
737.9
732.8

1990
1991
1992
1993
1994
1995
1996
1997
1998
1999

........................
........................
........................
........................
........................
........................
........................
........................
........................
........................

7,112.5
7,100.5
7,336.6
7,532.7
7,835.5
8,031.7
8,328.9
8,703.5
9,066.9
9,470.3

7,108.5
7,115.0
7,331.1
7,522.3
7,777.8
8,010.2
8,306.5
8,636.6
8,997.6
9,404.0

15.4
−.5
16.5
20.6
63.6
29.9
28.7
71.2
72.6
68.9

2,252.7
2,221.5
2,307.8
2,394.8
2,550.6
2,639.0
2,772.4
2,971.3
3,132.7
3,312.6

2,244.3
2,228.9
2,297.7
2,380.3
2,493.9
2,614.9
2,747.4
2,904.6
3,063.7
3,246.4

15.4
−.5
16.5
20.6
63.6
29.9
28.7
71.2
72.6
68.9

872.8
852.7
894.7
949.8
1,016.4
1,096.9
1,193.8
1,317.4
1,431.8
1,554.3

7.2
−13.6
−3.0
16.4
33.4
31.0
17.8
38.5
42.4
40.4

1,402.1
1,410.3
1,434.3
1,457.7
1,501.4
1,536.9
1,566.5
1,593.4
1,634.2
1,692.6

3.5
6.1
8.7
1.5
12.6
−1.2
4.5
32.4
29.8
28.1

4,170.0
4,251.2
4,373.7
4,457.5
4,558.3
4,654.7
4,765.6
4,901.1
5,057.5
5,245.1

718.3
662.8
688.3
709.3
746.0
753.5
803.1
835.7
879.1
913.0

2000 ........................
2001 ........................
2002 ........................
2003 ........................
2004 .......................
2005 p ......................

9,817.0
9,890.7
10,048.8
10,320.6
10,755.7
11,131.1

9,760.5
9,920.9
10,036.5
10,303.6
10,702.4
11,112.2

56.5
−31.7
12.5
15.5
52.0
17.2

3,449.3
3,390.9
3,432.5
3,549.0
3,778.2
3,950.7

3,392.8
3,421.9
3,419.7
3,531.2
3,721.3
3,932.0

56.5
−31.7
12.5
15.5
52.0
17.2

1,653.3
1,655.6
1,610.8
1,680.7
1,797.7
1,929.4

36.1
−42.4
15.5
12.6
36.5
18.0

1,739.5
1,766.1
1,806.3
1,849.3
1,925.3
2,008.6

20.4
10.3
−2.8
3.3
16.4
.5

5,425.6
942.1
5,553.2
945.6
5,693.4
922.1
5,820.7 951.6
5,979.6 1,006.1
6,139.0 1,054.1

2002: I .....................
II ....................
III ..................
IV ..................

9,977.3 9,986.8
10,031.6 10,028.4
10,090.7 10,063.5
10,095.8 10,067.3

−10.2
2.6
28.0
29.5

3,413.1
3,425.5
3,468.8
3,422.8

3,422.7
3,422.3
3,440.7
3,393.2

−10.2
2.6
28.0
29.5

1,609.4
1,609.2
1,635.4
1,589.3

−4.6
6.8
16.1
43.6

1,810.7
1,810.3
1,803.7
1,800.5

−5.7
−4.2
11.9
−13.1

5,635.1
5,683.1
5,707.2
5,748.2

928.7
922.3
915.3
922.2

2003: I .....................
II ....................
III ...................
IV ..................

10,138.6
10,230.4
10,410.9
10,502.6

10,114.7
10,228.2
10,399.5
10,471.8

24.0
−.4
9.3
29.0

3,458.9
3,478.4
3,616.3
3,642.5

3,434.1
3,476.6
3,604.4
3,609.9

24.0
−.4
9.3
29.0

1,605.8
1,651.3
1,735.8
1,729.8

21.6
−1.0
−4.9
34.6

1,824.6
1,823.7
1,869.2
1,879.7

2.9
.5
13.6
−4.0

5,758.2
5,810.7
5,829.4
5,884.4

920.2
938.6
968.9
978.8

2004: I .....................
II ....................
III ...................
IV ...................

10,612.5
10,704.1
10,808.9
10,897.1

10,568.9
10,637.4
10,757.1
10,846.0

41.9
65.6
50.4
50.1

3,706.5
3,749.6
3,809.9
3,846.6

3,660.0
3,678.2
3,754.7
3,792.2

41.9
65.6
50.4
50.1

1,760.3
1,765.1
1,820.5
1,844.8

41.9
50.0
25.8
28.4

1,900.3
1,913.1
1,936.8
1,950.9

1.8
17.2
24.7
22.0

5,932.1 980.1
5,950.1 1,010.9
5,994.6 1,014.0
6,041.5 1,019.5

2005: I .....................
II ....................
III ...................
IVp .................

10,999.3
11,089.2
11,202.3
11,233.5

10,940.3
11,089.2
11,214.4
11,205.0

58.2
−1.7
−13.3
25.7

3,888.0
3,935.3
3,986.8
3,992.9

3,824.9
3,937.5
4,002.6
3,962.9

58.2
−1.7
−13.3
25.7

1,858.8
1,929.6
1,981.7
1,947.3

33.4
−6.9
5.6
39.9

1,969.3
2,013.5
2,029.5
2,022.0

25.3
4.6
−17.4
−10.5

6,089.9
6,112.8
6,167.8
6,185.4

1,032.5
1,053.4
1,062.0
1,068.4

1 Estimates for durable and nondurable goods for 1996 and earlier periods are based on the Standard Industrial Classification (SIC); later
estimates are based on the North American Industry Classification System (NAICS).
2 Includes government consumption expenditures, which are for services (such as education and national defense) produced by government.
In current dollars, these services are valued at their cost of production.

Source: Department of Commerce, Bureau of Economic Analysis.

293

TABLE B–10.—Gross value added by sector, 1959–2005
[Billions of dollars; quarterly data at seasonally adjusted annual rates]
Business 1

Year or
quarter

Gross
domestic
product

Total

Nonfarm 1

Households and institutions

Farm

Total

Households

Nonprofit
institutions
serving
households 2

General government 3

Total

Federal

State
and
local

Addendum:
Gross
housing
value
added

1959 ....................................

506.6

408.2

390.9

17.3

40.1

29.8

10.3

58.3

31.9

26.5

36.9

1960
1961
1962
1963
1964
1965
1966
1967
1968
1969

....................................
....................................
....................................
....................................
....................................
....................................
....................................
....................................
....................................
....................................

526.4
544.7
585.6
617.7
663.6
719.1
787.8
832.6
910.0
984.6

420.4
432.0
464.5
488.7
525.6
571.4
625.1
654.5
714.5
770.3

402.3
413.7
446.1
470.2
508.2
551.5
604.3
634.4
694.0
747.5

18.2
18.3
18.4
18.5
17.3
19.9
20.8
20.1
20.5
22.8

43.9
46.7
50.4
53.6
56.9
61.0
65.8
70.9
76.5
84.3

32.3
34.3
36.7
38.8
40.8
43.3
45.9
48.8
51.6
55.6

11.7
12.4
13.6
14.8
16.1
17.7
19.9
22.1
25.0
28.7

62.0
66.0
70.7
75.5
81.1
86.7
96.9
107.2
119.0
130.0

33.1
34.4
36.5
38.4
40.7
42.4
47.3
51.7
56.4
60.0

28.9
31.6
34.2
37.1
40.4
44.2
49.6
55.5
62.5
70.0

39.9
42.8
46.0
48.9
51.6
54.9
58.2
62.1
65.9
71.3

1970
1971
1972
1973
1974
1975
1976
1977
1978
1979

....................................
....................................
....................................
....................................
....................................
....................................
....................................
....................................
....................................
....................................

1,038.5
1,127.1
1,238.3
1,382.7
1,500.0
1,638.3
1,825.3
2,030.9
2,294.7
2,563.3

803.6
869.9
959.0
1,079.4
1,166.9
1,268.5
1,423.7
1,593.5
1,813.4
2,032.9

779.9
844.5
929.4
1,032.7
1,122.6
1,222.8
1,380.7
1,549.9
1,762.7
1,972.8

23.7
25.4
29.7
46.8
44.2
45.6
43.0
43.5
50.7
60.1

91.4
100.9
109.9
120.0
131.7
145.4
158.1
172.8
193.8
217.4

59.4
65.1
70.3
76.0
82.5
90.3
98.1
107.3
120.4
135.0

32.0
35.7
39.5
44.0
49.2
55.1
60.0
65.6
73.4
82.5

143.6
156.4
169.4
183.3
201.4
224.5
243.5
264.6
287.5
313.0

64.1
67.8
71.6
74.0
79.6
87.3
93.8
102.1
109.7
117.6

79.5
88.6
97.9
109.3
121.8
137.1
149.7
162.6
177.8
195.4

76.7
83.9
91.1
98.3
106.8
117.2
126.6
140.3
155.2
172.5

1980
1981
1982
1983
1984
1985
1986
1987
1988
1989

....................................
....................................
....................................
....................................
....................................
....................................
....................................
....................................
....................................
....................................

2,789.5
3,128.4
3,255.0
3,536.7
3,933.2
4,220.3
4,462.8
4,739.5
5,103.8
5,484.4

2,191.1
2,459.4
2,520.7
2,747.2
3,071.8
3,290.8
3,468.8
3,669.9
3,948.6
4,243.2

2,139.7
2,394.5
2,460.3
2,702.3
3,007.7
3,227.4
3,409.4
3,608.4
3,887.2
4,169.7

51.4
65.0
60.4
44.9
64.2
63.4
59.4
61.6
61.3
73.6

249.9
283.7
315.3
344.0
376.2
406.0
438.0
478.4
525.1
569.6

155.5
176.8
195.7
211.7
230.2
249.6
267.4
287.6
312.8
337.0

94.4
106.9
119.6
132.4
146.0
156.4
170.6
190.8
212.4
232.6

348.6
385.3
419.0
445.4
485.2
523.5
556.1
591.2
630.1
671.5

131.3
147.4
161.3
171.3
192.1
205.1
212.6
223.4
234.9
246.6

217.3
237.9
257.7
274.1
293.1
318.4
343.5
367.8
395.2
424.9

199.4
228.4
255.4
277.4
301.1
332.9
359.5
385.5
415.5
443.8

1990
1991
1992
1993
1994
1995
1996
1997
1998
1999

....................................
....................................
....................................
....................................
....................................
....................................
....................................
...................................
....................................
....................................

5,803.1
5,995.9
6,337.7
6,657.4
7,072.2
7,397.7
7,816.9
8,304.3
8,747.0
9,268.4

4,462.6
4,569.3
4,840.4
5,096.2
5,444.0
5,700.6
6,056.7
6,471.9
6,827.1
7,243.4

4,386.0
4,499.5
4,761.7
5,025.6
5,362.4
5,632.0
5,966.0
6,383.8
6,748.2
7,174.7

76.6
69.9
78.7
70.6
81.6
68.5
90.7
88.1
78.9
68.8

618.9
660.7
697.9
732.0
771.3
815.5
852.2
895.8
949.7
1,012.3

362.9
383.4
397.2
413.7
439.5
463.3
484.7
509.6
538.0
576.4

256.0
277.3
300.7
318.3
331.7
352.1
367.5
386.2
411.7
435.9

721.6
765.9
799.4
829.3
857.0
881.6
908.0
936.7
970.3
1,012.7

258.9
275.0
282.1
286.3
286.2
284.7
288.6
290.9
293.1
300.9

462.6
490.9
517.3
543.0
570.7
596.9
619.3
645.8
677.2
711.8

478.1
508.5
531.0
549.1
582.0
613.3
638.0
667.7
700.2
747.8

2000 ....................................
2001 ....................................
2002 ....................................
2003 ....................................
2004 ....................................
2005 p ..................................

9,817.0
10,128.0
10,469.6
10,971.2
11,734.3
12,479.4

7,666.7
7,841.2
8,040.5
8,427.8
9,041.2
9,640.7

7,595.1
7,768.0
7,969.7
8,339.8
8,928.9
9,554.6

71.5
73.1
70.8
88.0
112.2
86.1

1,080.7
1,160.4
1,227.3
1,267.1
1,353.5
1,436.0

615.6
662.0
687.7
696.9
751.3
789.7

465.1
498.4
539.6
570.3
602.2
646.4

1,069.6
1,126.4
1,201.8
1,276.3
1,339.7
1,402.7

315.4
325.7
352.9
382.6
408.2
424.1

754.2
800.8
848.9
893.7
931.4
978.5

794.3
849.8
876.7
875.5
933.1
972.1

2002: I .................................
II ................................
III ..............................
IV ...............................

10,333.3
10,426.6
10,527.4
10,591.1

7,938.3
7,999.1
8,090.4
8,134.2

7,871.8
7,937.7
8,017.6
8,051.6

66.5
61.4
72.9
82.6

1,213.4
1,233.0
1,230.5
1,232.3

688.7
696.5
684.3
681.0

524.6
536.4
546.2
551.3

1,181.6
1,194.5
1,206.4
1,224.7

349.4
351.1
351.8
359.2

832.2
843.5
854.6
865.5

882.5
889.2
871.5
863.8

2003: I .................................
II ................................
III ...............................
IV ...............................

10,717.0
10,844.6
11,087.4
11,236.0

8,206.6
8,318.0
8,548.6
8,638.1

8,130.1
8,232.4
8,460.7
8,536.0

76.4
85.6
87.9
102.1

1,252.2
1,255.0
1,255.3
1,306.0

692.6
687.9
682.2
724.8

559.6
567.2
573.1
581.2

1,258.2
1,271.5
1,283.5
1,291.9

377.4
383.1
384.4
385.4

880.9
888.4
899.1
906.5

875.7
866.8
854.7
904.7

2004: I .................................
II ................................
III ...............................
IV ...............................

11,457.1
11,666.1
11,818.8
11,995.2

8,822.4
8,993.2
9,106.5
9,242.5

8,699.6
8,868.4
9,001.9
9,145.9

122.8
124.9
104.6
96.6

1,316.4
1,339.8
1,366.0
1,391.7

731.6
744.9
758.7
770.0

584.8
594.9
607.3
621.6

1,318.2
1,333.1
1,346.3
1,361.0

403.3
407.2
409.4
413.1

914.9
925.9
936.9
948.0

912.7
926.0
941.0
952.9

2005: I .................................
II ................................
III ...............................
IV p ............................

12,198.8
12,378.0
12,605.7
12,735.3

9,405.3
9,559.9
9,748.3
9,849.5

9,312.5
9,475.2
9,665.8
9,765.0

92.8
84.7
82.5
84.5

1,411.4
1,424.7
1,445.9
1,462.1

777.8
783.4
793.0
804.4

633.5
641.3
653.0
657.7

1,382.1
1,393.4
1,411.4
1,423.7

422.8
423.1
424.6
426.0

959.4
970.2
986.8
997.7

960.9
965.5
975.1
987.0

1 Gross domestic business product equals gross domestic product excluding gross value added of households and institutions and of general government. Nonfarm product equals gross domestic business value added excluding gross farm value added.
2 Equals compensation of employees of nonprofit institutions, the rental value of nonresidential fixed assets owned and used by nonprofit
institutions serving households, and rental income of persons for tenant-occupied housing owned by nonprofit institutions.
3 Equals compensation of general government employees plus general government consumption of fixed capital.
Source: Department of Commerce, Bureau of Economic Analysis.

294

TABLE B–11.—Real gross value added by sector, 1959–2005
[Billions of chained (2000) dollars; quarterly data at seasonally adjusted annual rates]
Business 1

Year or
quarter

Gross
domestic
product

Total

Nonfarm 1

Households and institutions

Farm

Total

Households

Nonprofit
institutions
serving
households 2

General government 3

Total

Federal

State
and
local

Addendum:
Gross
housing
value
added

1959 ................................

2,441.3

1,716.0

1,684.1

21.2

261.7

161.6

97.8

514.5

279.4

236.7

195.0

1960
1961
1962
1963
1964
1965
1966
1967
1968
1969

................................
................................
................................
................................
................................
................................
................................
................................
................................
................................

2,501.8
2,560.0
2,715.2
2,834.0
2,998.6
3,191.1
3,399.1
3,484.6
3,652.7
3,765.4

1,748.8
1,782.8
1,897.7
1,985.4
2,111.7
2,260.6
2,413.6
2,459.5
2,581.7
2,660.3

1,713.5
1,747.8
1,867.0
1,954.3
2,086.0
2,233.5
2,393.2
2,434.1
2,561.5
2,639.1

22.4
22.6
22.1
22.8
22.1
23.5
22.7
24.5
23.6
24.5

279.6
291.5
307.7
320.4
333.7
350.2
366.3
381.6
400.4
417.8

171.4
179.6
189.8
197.7
205.7
215.2
224.0
233.1
239.3
249.1

106.6
109.6
115.4
120.0
125.4
132.6
140.2
146.5
161.0
168.8

532.2
550.9
572.5
589.5
609.7
630.3
669.7
705.2
732.7
751.3

284.6
290.5
302.5
305.2
308.2
310.4
330.7
352.2
358.1
359.0

249.3
262.1
271.8
285.9
303.1
321.5
340.6
354.9
376.2
393.4

207.3
219.2
232.8
244.3
255.4
268.9
281.0
294.0
304.6
318.7

1970
1971
1972
1973
1974
1975
1976
1977
1978
1979

................................
................................
................................
................................
................................
................................
................................
................................
................................
................................

3,771.9
3,898.6
4,105.0
4,341.5
4,319.6
4,311.2
4,540.9
4,750.5
5,015.0
5,173.4

2,659.3
2,761.5
2,939.8
3,145.0
3,101.3
3,071.2
3,272.9
3,456.2
3,673.3
3,796.7

2,636.0
2,736.2
2,918.4
3,131.5
3,089.1
3,037.5
3,249.1
3,431.1
3,656.8
3,774.2

25.1
26.4
26.4
26.2
25.6
30.5
29.1
30.7
29.6
32.2

425.0
443.0
460.7
476.3
493.9
513.7
521.5
528.3
552.4
576.7

254.7
266.5
277.7
287.5
299.9
308.0
313.3
316.2
335.1
350.4

170.0
176.1
182.4
188.2
193.1
205.2
207.5
211.6
216.3
225.3

754.1
755.3
753.8
757.2
772.6
785.1
791.8
800.1
815.5
824.2

343.6
327.8
311.8
300.1
299.2
297.5
297.9
298.8
302.5
302.3

410.8
427.5
442.3
457.8
474.4
488.9
495.3
502.9
514.6
523.7

328.9
343.8
360.1
373.0
390.7
402.7
408.3
418.3
436.8
453.9

1980
1981
1982
1983
1984
1985
1986
1987
1988
1989

................................
................................
................................
................................
................................
................................
................................
................................
................................
................................

5,161.7
5,291.7
5,189.3
5,423.8
5,813.6
6,053.7
6,263.6
6,475.1
6,742.7
6,981.4

3,756.1
3,859.5
3,743.1
3,944.3
4,286.3
4,484.5
4,652.0
4,815.5
5,023.0
5,206.6

3,736.1
3,814.7
3,691.9
3,932.8
4,254.3
4,434.2
4,606.2
4,769.8
4,987.7
5,162.3

31.1
41.0
43.1
26.9
37.2
46.7
44.9
45.5
40.9
46.4

606.9
626.5
647.2
665.9
687.8
700.1
718.5
745.7
780.6
812.3

372.9
384.7
391.8
399.4
413.3
423.2
428.7
440.3
457.1
471.5

232.8
240.5
254.4
265.7
273.6
275.9
289.1
304.8
323.1
340.6

836.0
840.6
849.2
854.6
865.2
890.0
911.9
931.8
956.0
978.8

307.0
311.7
316.8
324.2
331.5
341.0
347.0
356.1
360.5
364.9

530.8
530.6
534.0
531.8
535.0
550.3
566.3
577.2
596.9
615.3

481.9
501.0
514.7
526.2
543.0
564.4
574.9
588.8
606.2
620.3

1990
1991
1992
1993
1994
1995
1996
1997
1998
1999

................................
................................
................................
................................
................................
................................
................................
................................
................................
...............................

7,112.5
7,100.5
7,336.6
7,532.7
7,835.5
8,031.7
8,328.9
8,703.5
9,066.9
9,470.3

5,287.0
5,245.4
5,456.5
5,625.9
5,905.3
6,076.8
6,356.0
6,693.8
7,017.1
7,376.8

5,237.9
5,194.7
5,395.2
5,576.0
5,841.4
6,030.2
6,300.4
6,627.2
6,955.3
7,314.2

49.3
50.0
57.5
50.6
60.9
49.6
56.1
64.4
61.6
62.9

841.2
865.3
882.6
904.8
923.1
945.1
957.8
983.5
1,010.4
1,042.3

483.2
497.8
502.6
507.9
524.7
534.3
540.8
554.0
563.8
590.7

357.9
367.5
379.9
396.9
398.4
410.8
417.0
429.5
446.9
451.6

1,003.9
1,014.3
1,017.7
1,019.8
1,019.9
1,020.6
1,022.1
1,030.0
1,041.0
1,051.4

371.6
373.8
366.0
358.9
347.2
334.1
325.0
318.8
315.2
312.7

633.6
641.7
652.6
661.6
673.1
686.5
697.2
711.2
725.8
738.7

635.7
657.2
666.2
669.9
690.8
705.7
712.1
726.5
735.5
767.2

2000 ...............................
2001 ...............................
2002 ................................
2003 ................................
2004 ................................
2005 p .............................

9,817.0
9,890.7
10,048.8
10,320.6
10,755.7
11,131.1

7,666.7
7,691.0
7,806.9
8,070.6
8,454.4
8,790.7

7,595.1
7,625.7
7,736.9
7,994.6
8,379.5
8,726.4

71.5
65.6
70.1
76.0
75.9
69.1

1,080.7
1,110.0
1,130.9
1,126.3
1,172.0
1,204.0

615.6
634.8
634.2
625.9
666.5
690.1

465.1
475.1
496.6
500.3
506.0
514.8

1,069.6
1,089.3
1,110.4
1,126.3
1,135.7
1,146.8

315.4
317.0
323.3
331.8
334.9
336.7

754.2
772.3
787.1
794.4
800.7
810.1

794.3
815.1
809.0
786.5
827.8
852.4

2002: I .............................
II ............................
III ..........................
IV ..........................

9,977.3
10,031.6
10,090.7
10,095.8

7,740.7
7,780.4
7,848.8
7,857.6

7,686.5
7,712.9
7,772.7
7,775.5

54.5
67.4
76.3
82.1

1,131.4
1,141.0
1,129.1
1,122.1

642.1
645.3
628.8
620.8

489.4
495.7
500.2
501.2

1,104.2
1,108.9
1,112.6
1,116.0

320.4
322.5
324.6
325.7

783.7
786.3
788.0
790.4

823.2
824.0
801.0
787.7

2003: I .............................
II ............................
III ..........................
IV ..........................

10,138.6
10,230.4
10,410.9
10,502.6

7,891.8
7,986.2
8,176.1
8,228.3

7,814.2
7,903.8
8,102.4
8,157.9

77.1
81.9
73.7
71.2

1,124.3
1,119.5
1,112.5
1,149.1

623.6
619.8
612.8
647.6

500.6
499.5
499.4
501.7

1,122.4
1,126.1
1,127.4
1,129.1

329.7
332.4
332.6
332.5

792.6
793.6
794.7
796.5

789.6
781.3
767.4
807.9

2004: I .............................
II ...........................
III ..........................
IV ..........................

10,612.5
10,704.1
10,808.9
10,897.1

8,328.2
8,410.5
8,501.7
8,577.2

8,241.6
8,335.3
8,430.2
8,510.7

83.6
76.0
73.8
70.4

1,157.9
1,166.9
1,177.6
1,185.4

654.5
662.0
671.1
678.3

503.7
505.3
507.0
507.9

1,131.5
1,132.7
1,136.6
1,142.0

334.1
333.7
335.0
337.0

797.3
799.0
801.5
804.9

814.2
821.9
832.6
842.4

2005: I .............................
II ...........................
III ..........................
IV p ........................

10,999.3
11,089.2
11,202.3
11,233.5

8,669.6
8,754.8
8,857.8
8,880.8

8,601.7
8,694.8
8,794.3
8,814.6

71.6
65.3
68.5
70.9

1,194.5
1,199.9
1,208.1
1,213.7

683.8
686.5
691.5
698.5

511.4
514.2
517.4
516.3

1,143.9
1,144.6
1,148.0
1,150.5

337.4
336.5
336.1
336.8

806.4
808.1
812.0
813.7

847.1
849.4
853.4
859.5

1 Gross domestic business product equals gross domestic product excluding gross value added of households and institutions and of general government. Nonfarm product equals gross domestic business value added excluding gross farm value added.
2 Equals compensation of employees of nonprofit institutions, the rental value of nonresidential fixed assets owned and used by nonprofit
institutions serving households, and rental income of persons for tenant-occupied housing owned by nonprofit institutions.
3 Equals compensation of general government employees plus general government consumption of fixed capital.
Source: Department of Commerce, Bureau of Economic Analysis.

295

TABLE B–12.—Gross domestic product (GDP) by industry, value added, in current dollars and as a
percentage of GDP, 1974–2004
[Billions of dollars; except as noted]
Private industries

Year

Gross
domestic
product

Total
private
industries

Agriculture,
forestry,
fishing,
and
hunting

Manufacturing
Mining

Construction

Total
manufacturing

Durable
goods

Nondurable
goods

Utilities

Wholesale
trade

Retail
trade

Value added
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
2000
2001
2002
2003
2004

........................
........................
........................
........................
........................
........................
........................
........................
........................
........................
........................
........................
........................
........................
........................
........................
........................
........................
........................
........................
........................
........................
........................
........................
........................
........................
........................
........................
........................
........................
........................

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
2000
2001
2002
2003
2004

........................
........................
........................
........................
........................
........................
........................
........................
........................
........................
........................
........................
........................
........................
........................
........................
........................
........................
........................
........................
........................
........................
........................
........................
........................
........................
........................
........................
........................
........................
........................

1,500.0 1,277.3
1,638.3 1,391.5
1,825.3 1,556.2
2,030.9 1,739.4
2,294.7 1,977.0
2,563.3 2,217.7
2,789.5 2,405.8
3,128.4 2,702.5
3,255.0 2,792.6
3,536.7 3,043.5
3,933.2 3,395.1
4,220.3 3,637.0
4,462.8 3,842.9
4,739.5 4,080.4
5,103.8 4,399.1
5,484.4 4,732.3
5,803.1 4,997.8
5,995.9 5,138.7
6,337.7 5,440.4
6,657.4 5,729.3
7,072.2 6,110.5
7,397.7 6,407.2
7,816.9 6,795.2
8,304.3 7,247.5
8,747.0 7,652.5
9,268.4 8,127.2
9,817.0 8,614.3
10,128.0 8,869.7
10,469.6 9,131.2
10,971.2 9,556.8
11,734.3 10,251.0

50.1
51.4
50.2
51.3
59.8
70.6
62.0
75.4
71.3
57.1
77.1
77.1
74.2
79.8
80.2
92.8
96.7
89.2
99.6
93.1
105.6
93.1
113.8
110.7
102.4
93.8
98.0
97.9
95.4
114.2
141.6

74.0
74.8
85.5
94.2
111.5
127.0
130.3
131.8
128.8
139.8
164.4
184.6
207.7
218.2
232.7
244.8
248.5
230.2
232.5
248.3
274.4
287.0
311.7
337.6
374.4
406.6
435.9
469.5
482.3
501.0
549.5

318.2
337.1
386.7
438.6
489.9
543.8
556.6
616.5
603.2
653.1
724.0
740.3
766.0
811.3
876.9
927.3
947.4
957.5
996.7
1,039.9
1,118.8
1,177.3
1,209.4
1,279.8
1,343.9
1,373.1
1,426.2
1,341.3
1,352.6
1,369.2
1,420.1

192.5
198.5
230.2
265.0
303.4
331.1
333.9
370.4
353.4
379.3
443.5
449.2
459.3
483.8
519.0
543.2
542.7
540.9
562.8
593.1
647.7
677.2
706.5
755.5
806.9
820.4
865.3
778.9
774.8
785.5
824.1

125.7
138.6
156.5
173.6
186.5
212.7
222.7
246.1
249.8
273.8
280.5
291.1
306.7
327.5
357.9
384.1
404.7
416.6
433.8
446.8
471.1
500.0
502.9
524.3
537.0
552.7
560.9
562.5
577.9
583.7
596.1

29.2
37.1
41.5
45.9
50.4
51.9
60.0
70.7
81.7
91.6
102.3
109.2
114.4
123.0
122.8
135.9
142.9
152.5
157.4
165.3
174.6
181.5
183.3
179.6
180.8
185.4
189.3
202.3
207.3
222.6
235.3

104.7
114.6
122.7
134.9
153.4
175.8
188.7
208.3
207.9
222.9
249.4
268.3
278.5
285.3
318.1
337.4
347.7
360.5
378.9
401.2
442.7
457.0
489.1
521.2
542.9
577.7
591.7
607.1
615.4
633.0
694.7

113.4
127.3
144.0
158.5
177.6
193.2
200.9
221.0
229.9
261.6
293.6
318.7
336.6
349.9
366.0
389.0
398.8
405.5
430.0
458.0
493.3
514.9
543.8
574.2
598.6
635.5
662.4
691.6
719.6
751.0
790.4

7.0
7.0
6.7
6.6
6.7
6.9
6.8
6.7
6.4
6.3
6.3
6.4
6.2
6.0
6.2
6.2
6.0
6.0
6.0
6.0
6.3
6.2
6.3
6.3
6.2
6.2
6.0
6.0
5.9
5.8
5.9

7.6
7.8
7.9
7.8
7.7
7.5
7.2
7.1
7.1
7.4
7.5
7.6
7.5
7.4
7.2
7.1
6.9
6.8
6.8
6.9
7.0
7.0
7.0
6.9
6.8
6.9
6.7
6.8
6.9
6.8
6.7

Industry value added as a percentage of GDP (percent)

Percent
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0

29.3
33.8
37.5
43.4
49.5
58.4
91.3
122.9
120.0
103.1
107.2
105.4
68.9
71.5
71.4
76.0
84.9
76.0
71.3
72.1
73.6
74.1
87.5
92.6
74.8
85.4
121.3
118.7
106.5
142.3
171.9

85.2
84.9
85.3
85.6
86.2
86.5
86.2
86.4
85.8
86.1
86.3
86.2
86.1
86.1
86.2
86.3
86.1
85.7
85.8
86.1
86.4
86.6
86.9
87.3
87.5
87.7
87.7
87.6
87.2
87.1
87.4

3.3
3.1
2.7
2.5
2.6
2.8
2.2
2.4
2.2
1.6
2.0
1.8
1.7
1.7
1.6
1.7
1.7
1.5
1.6
1.4
1.5
1.3
1.5
1.3
1.2
1.0
1.0
1.0
.9
1.0
1.2

2.0
2.1
2.1
2.1
2.2
2.3
3.3
3.9
3.7
2.9
2.7
2.5
1.5
1.5
1.4
1.4
1.5
1.3
1.1
1.1
1.0
1.0
1.1
1.1
.9
.9
1.2
1.2
1.0
1.3
1.5

4.9
4.6
4.7
4.6
4.9
5.0
4.7
4.2
4.0
4.0
4.2
4.4
4.7
4.6
4.6
4.5
4.3
3.8
3.7
3.7
3.9
3.9
4.0
4.1
4.3
4.4
4.4
4.6
4.6
4.6
4.7

21.2
20.6
21.2
21.6
21.3
21.2
20.0
19.7
18.5
18.5
18.4
17.5
17.2
17.1
17.2
16.9
16.3
16.0
15.7
15.6
15.8
15.9
15.5
15.4
15.4
14.8
14.5
13.2
12.9
12.5
12.1

12.8
12.1
12.6
13.1
13.2
12.9
12.0
11.8
10.9
10.7
11.3
10.6
10.3
10.2
10.2
9.9
9.4
9.0
8.9
8.9
9.2
9.2
9.0
9.1
9.2
8.9
8.8
7.7
7.4
7.2
7.0

8.4
8.5
8.6
8.5
8.1
8.3
8.0
7.9
7.7
7.7
7.1
6.9
6.9
6.9
7.0
7.0
7.0
6.9
6.8
6.7
6.7
6.8
6.4
6.3
6.1
6.0
5.7
5.6
5.5
5.3
5.1

1.9
2.3
2.3
2.3
2.2
2.0
2.2
2.3
2.5
2.6
2.6
2.6
2.6
2.6
2.4
2.5
2.5
2.5
2.5
2.5
2.5
2.5
2.3
2.2
2.1
2.0
1.9
2.0
2.0
2.0
2.0

1 Consists of agriculture, forestry, fishing, and hunting; mining; construction; and manufacturing.
2 Consists of utilities; wholesale trade; retail trade; transportation and warehousing; information; finance, insurance, real estate, rental, and
leasing; professional and business services; educational services, health care, and social assistance; arts, entertainment, recreation, accommodation, and food services; and other services, except government.
Note.—Value added is the contribution of each private industry and of government to gross domestic product. Value added is equal to an
industry’s gross output minus its intermediate inputs. Current-dollar value added is calculated as the sum of distributions by an industry to
its labor and capital which are derived from the components of gross domestic income.
See next page for continuation of table.

296

TABLE B–12.—Gross domestic product (GDP) by industry, value added, in current dollars and as a
percentage of GDP, 1974–2004—Continued
[Billions of dollars; except as noted]
Private industries—continued

Year

Transportation
and
warehousing

Information

Finance,
insurance,
real
estate,
rental,
and
leasing

Arts,
EducaProentertional
fes- services, tainment, Other
sionrecrea- services, Governal and health
tion,
ment
care,
except
busiaccom- governand
ness
social modation, ment
servand
assisices
food
tance services

Private Private
goods- servicesproduc- producing
ing
indusindustries 1
tries 2

Value added
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

.........................................................
.........................................................
.........................................................
.........................................................
.........................................................
.........................................................
.........................................................
.........................................................
.........................................................
.........................................................
.........................................................
.........................................................
.........................................................
.........................................................
.........................................................
.........................................................
.........................................................
.........................................................
.........................................................
.........................................................
.........................................................
.........................................................
.........................................................
.........................................................
.........................................................
.........................................................

58.5
59.4
68.8
76.2
86.7
96.6
102.3
109.9
105.9
117.8
131.4
136.3
145.6
151.1
161.1
164.1
169.4
178.2
186.6
201.0
218.0
226.3
235.2
253.7
273.7
287.4

50.9
56.5
63.5
71.1
81.4
90.3
99.0
112.7
123.6
140.0
147.1
162.9
173.1
185.0
194.0
210.4
225.1
235.2
250.9
272.6
294.0
307.6
335.7
347.8
381.6
439.3

223.3
84.6
248.2
92.9
272.1
105.1
304.0
122.7
347.4
141.9
390.3
164.0
442.4
186.3
498.4
213.2
539.9
230.9
604.6
262.5
670.2
303.8
729.7
340.8
795.1
378.8
840.3
414.1
910.1
466.3
975.4
518.0
1,042.1
569.8
1,103.6
579.3
1,177.4
626.7
1,241.5
659.1
1,297.8
698.4
1,383.0
743.1
1,470.7
810.1
1,593.3
896.5
1,684.6
976.2
1,798.4 1,064.5

64.3
74.2
84.0
93.8
106.4
120.5
139.7
159.9
177.9
198.3
214.1
231.3
252.0
286.5
309.1
347.0
386.7
424.8
463.5
488.0
511.1
533.3
552.5
573.1
601.5
634.5

40.9
45.7
51.9
58.8
67.9
77.1
83.5
93.5
100.9
112.0
121.2
134.3
144.9
152.1
165.9
180.2
195.2
202.2
216.2
225.5
235.0
248.3
264.4
289.8
306.0
327.8

35.8
38.4
42.8
46.1
53.2
58.2
62.6
68.5
70.7
79.2
89.3
98.0
107.2
112.3
124.4
133.9
142.6
144.2
153.0
163.7
173.2
180.9
188.1
197.4
211.1
217.8

222.6
246.9
269.1
291.5
317.7
345.7
383.7
425.9
462.4
493.1
538.1
583.3
620.0
659.1
704.7
752.0
805.3
857.2
897.3
928.1
961.8
990.4
1,021.6
1,056.8
1,094.5
1,141.2

471.7
497.2
559.8
627.5
710.6
799.7
840.2
946.6
923.3
953.1
1,072.7
1,107.4
1,116.7
1,180.8
1,261.3
1,341.0
1,377.4
1,352.8
1,400.0
1,453.4
1,572.4
1,631.4
1,722.4
1,820.8
1,895.4
1,958.9

805.6
894.3
996.4
1,111.9
1,266.4
1,417.9
1,565.6
1,755.9
1,869.3
2,090.5
2,322.3
2,529.5
2,726.1
2,899.5
3,137.8
3,391.4
3,620.4
3,785.9
4,040.5
4,275.9
4,538.0
4,775.8
5,072.8
5,426.8
5,757.1
6,168.3

2000
2001
2002
2003
2004

.........................................................
.........................................................
.........................................................
.........................................................
.........................................................

301.6
296.9
304.6
321.6
332.9

458.3
476.9
483.0
491.8
538.7

1,931.0
2,059.2
2,141.9
2,260.4
2,412.9

678.4
739.3
799.6
850.6
909.0

350.1
361.5
381.5
398.8
424.3

229.1
241.5
252.5
264.3
227.7

1,202.7
1,258.3
1,338.4
1,414.5
1,483.3

2,081.5
2,027.5
2,036.9
2,126.7
2,283.1

6,532.8
6,842.2
7,094.3
7,430.0
7,967.9

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
2000
2001
2002
2003
2004

.........................................................
.........................................................
.........................................................
.........................................................
.........................................................
.........................................................
.........................................................
.........................................................
.........................................................
.........................................................
.........................................................
.........................................................
.........................................................
.........................................................
.........................................................
.........................................................
.........................................................
.........................................................
.........................................................
.........................................................
.........................................................
.........................................................
.........................................................
.........................................................
.........................................................
.........................................................
.........................................................
.........................................................
.........................................................
.........................................................
.........................................................

3.9
3.6
3.8
3.8
3.8
3.8
3.7
3.5
3.3
3.3
3.3
3.2
3.3
3.2
3.2
3.0
2.9
3.0
2.9
3.0
3.1
3.1
3.0
3.1
3.1
3.1
3.1
2.9
2.9
2.9
2.8

3.4
3.4
3.5
3.5
3.5
3.5
3.5
3.6
3.8
4.0
3.7
3.9
3.9
3.9
3.8
3.8
3.9
3.9
4.0
4.1
4.2
4.2
4.3
4.2
4.4
4.7
4.7
4.7
4.6
4.5
4.6

31.4
30.3
30.7
30.9
31.0
31.2
30.1
30.3
28.4
26.9
27.3
26.2
25.0
24.9
24.7
24.5
23.7
22.6
22.1
21.8
22.2
22.1
22.0
21.9
21.7
21.1
21.2
20.0
19.5
19.4
19.5

53.7
54.6
54.6
54.7
55.2
55.3
56.1
56.1
57.4
59.1
59.0
59.9
61.1
61.2
61.5
61.8
62.4
63.1
63.8
64.2
64.2
64.6
64.9
65.3
65.8
66.6
66.5
67.6
67.8
67.7
67.9

1,140.8
1,165.9
1,189.0
1,235.9
1,351.9

Industry value added as a percentage of GDP (percent)
14.9
15.1
14.9
15.0
15.1
15.2
15.9
15.9
16.6
17.1
17.0
17.3
17.8
17.7
17.8
17.8
18.0
18.4
18.6
18.6
18.4
18.7
18.8
19.2
19.3
19.4
19.7
20.3
20.5
20.6
20.6

5.6
5.7
5.8
6.0
6.2
6.4
6.7
6.8
7.1
7.4
7.7
8.1
8.5
8.7
9.1
9.4
9.8
9.7
9.9
9.9
9.9
10.0
10.4
10.8
11.2
11.5
11.6
11.5
11.4
11.3
11.5

4.3
4.5
4.6
4.6
4.6
4.7
5.0
5.1
5.5
5.6
5.4
5.5
5.6
6.0
6.1
6.3
6.7
7.1
7.3
7.3
7.2
7.2
7.1
6.9
6.9
6.8
6.9
7.3
7.6
7.8
7.7

2.7
2.8
2.8
2.9
3.0
3.0
3.0
3.0
3.1
3.2
3.1
3.2
3.2
3.2
3.3
3.3
3.4
3.4
3.4
3.4
3.3
3.4
3.4
3.5
3.5
3.5
3.6
3.6
3.6
3.6
3.6

2.4
2.3
2.3
2.3
2.3
2.3
2.2
2.2
2.2
2.2
2.3
2.3
2.4
2.4
2.4
2.4
2.5
2.4
2.4
2.5
2.4
2.4
2.4
2.4
2.4
2.3
2.3
2.4
2.4
2.4
2.4

14.8
15.1
14.7
14.4
13.8
13.5
13.8
13.6
14.2
13.9
13.7
13.8
13.9
13.9
13.8
13.7
13.9
14.3
14.2
13.9
13.6
13.4
13.1
12.7
12.5
12.3
12.3
12.4
12.8
12.9
12.6

Note (cont’d).—Value added industry data shown in Tables B–12 and B–13 are based on the 1997 North American Industry Classification
System (NAICS). GDP by industry data based on the Standard Industrial Classification (SIC) are available from the Department of Commerce,
Bureau of Economic Analysis.
Historical data for 1947–73 are available from the U.S. Department of Commerce, Bureau of Economic Analysis. See Survey of Current
Business, December 2005, for details.
Source: Department of Commerce, Bureau of Economic Analysis.

297

TABLE B–13.—Real gross domestic product by industry, value added, and percent changes, 1974–2004
Private industries

Year

Gross
domestic
product

Total
private
industries

Agriculture,
forestry,
fishing,
and
hunting

Manufacturing
Mining

Construction

Total
manufacturing

Durable
goods

Nondurable
goods

Utilities

Wholesale
trade

Retail
trade

Chain-type quantity indexes for value added (2000=100)
1974
1975
1976
1977
1978
1979

........................
........................
........................
........................
........................
........................

44.001
43.916
46.256
48.391
51.085
52.699

41.645
41.482
43.911
46.088
48.802
50.606

39.532
45.885
44.589
46.430
45.057
48.573

78.981
80.253
80.136
86.262
88.929
79.749

75.227
68.132
73.128
74.057
78.442
81.174

42.094
39.206
43.369
46.745
49.157
50.843

35.093
31.649
34.910
37.736
40.159
40.808

54.964
53.697
59.644
64.010
66.062
70.282

57.065
60.771
60.220
59.909
59.583
54.661

30.154
30.899
31.994
33.611
37.065
39.888

33.972
34.244
36.890
38.412
40.654
40.701

1980
1981
1982
1983
1984
1985
1986
1987
1988
1989

........................
........................
........................
........................
........................
........................
........................
........................
........................
........................

52.579
53.904
52.860
55.249
59.220
61.666
63.804
65.958
68.684
71.116

50.321
51.720
50.422
52.785
56.789
59.383
61.137
63.367
66.299
68.710

47.543
59.731
62.961
43.338
57.105
69.555
68.605
71.483
64.678
71.099

89.978
90.260
86.329
81.175
88.849
93.077
87.529
91.661
99.992
97.072

74.626
67.939
59.460
62.805
72.200
79.043
81.818
82.448
85.435
87.646

48.190
50.480
46.795
50.455
55.084
56.582
56.516
60.746
64.212
65.033

38.476
39.563
35.645
37.953
44.042
45.187
45.550
48.859
52.843
53.696

67.152
72.303
69.864
76.660
76.466
78.688
77.515
83.572
85.425
86.109

51.968
51.733
50.698
52.706
57.341
60.940
64.406
72.315
70.613
79.002

39.782
42.074
42.096
43.770
47.143
49.523
54.486
53.070
56.444
58.603

38.907
40.035
39.951
44.123
48.265
51.232
54.187
52.138
56.545
58.838

1990
1991
1992
1993
1994
1995
1996
1997
1998
1999

........................
........................
........................
........................
........................
........................
........................
........................
........................
........................

72.451
72.329
74.734
76.731
79.816
81.814
84.842
88.658
92.359
96.469

69.905
69.779
72.363
74.291
77.765
79.722
83.179
87.362
91.662
96.183

74.689
75.398
83.114
72.838
84.616
73.099
80.041
88.315
86.287
89.163

96.157
97.638
95.694
97.020
105.327
105.681
98.850
102.463
101.682
104.300

86.543
79.137
80.026
82.010
86.586
86.312
90.694
93.267
97.087
99.411

64.299
63.412
65.508
68.255
73.496
76.819
79.682
84.518
90.181
94.104

52.963
51.496
52.742
55.173
60.173
65.218
69.120
75.335
84.355
89.627

85.419
85.835
89.669
92.943
98.369
97.783
98.443
100.438
99.762
101.298

84.447
85.285
85.362
85.814
89.518
93.835
95.405
91.161
90.481
94.672

57.318
59.387
65.037
67.135
71.346
70.800
77.261
85.648
95.431
100.412

59.794
59.483
62.960
65.351
69.806
72.974
79.407
86.039
90.399
95.686

2000
2001
2002
2003
2004

........................
........................
........................
........................
........................

100.000
100.751
102.362
105.130
109.562

100.000
100.908
102.354
105.178
110.069

100.000
93.661
98.767
106.268
108.139

100.000
94.715
88.719
87.383
89.352

100.000
100.163
98.201
96.895
99.305

100.000
94.436
97.066
98.894
103.638

100.000
94.031
95.663
99.756
106.071

100.000
95.034
99.056
97.827
100.507

100.000
95.081
99.144
106.881
108.054

100.000
107.003
108.059
110.467
115.559

100.000
106.970
109.294
113.202
120.420

1974
1975
1976
1977
1978
1979

........................
........................
........................
........................
........................
........................

−0.5
−.2
5.3
4.6
5.6
3.2

−0.9
−.4
5.9
5.0
5.9
3.7

−2.2
16.1
−2.8
4.1
−3.0
7.8

−4.2
1.6
−.1
7.6
3.1
−10.3

−3.6
−9.4
7.3
1.3
5.9
3.5

−4.5
−6.9
10.6
7.8
5.2
3.4

−3.4
−9.8
10.3
8.1
6.4
1.6

−6.2
−2.3
11.1
7.3
3.2
6.4

1.8
6.5
−.9
−.5
−.5
−8.3

−1.2
2.5
3.5
5.1
10.3
7.6

−4.2
.8
7.7
4.1
5.8
.1

1980
1981
1982
1983
1984
1985
1986
1987
1988
1989

........................
........................
........................
........................
........................
........................
........................
........................
........................
........................

−.2
2.5
−1.9
4.5
7.2
4.1
3.5
3.4
4.1
3.5

−.6
2.8
−2.5
4.7
7.6
4.6
3.0
3.6
4.6
3.6

−2.1
25.6
5.4
−31.2
31.8
21.8
−1.4
4.2
−9.5
9.9

12.8
.3
−4.4
−6.0
9.5
4.8
−6.0
4.7
9.1
−2.9

−8.1
−9.0
−12.5
5.6
15.0
9.5
3.5
.8
3.6
2.6

−5.2
4.8
−7.3
7.8
9.2
2.7
−.1
7.5
5.7
1.3

−5.7
2.8
−9.9
6.5
16.0
2.6
.8
7.3
8.2
1.6

−4.5
7.7
−3.4
9.7
−.3
2.9
−1.5
7.8
2.2
.8

−4.9
−.5
−2.0
4.0
8.8
6.3
5.7
12.3
−2.4
11.9

−.3
5.8
.1
4.0
7.7
5.0
10.0
−2.6
6.4
3.8

−4.4
2.9
−.2
10.4
9.4
6.1
5.8
−3.8
8.5
4.1

1990
1991
1992
1993
1994
1995
1996
1997
1998
1999

........................
........................
........................
........................
........................
........................
........................
........................
........................
........................

1.9
−.2
3.3
2.7
4.0
2.5
3.7
4.5
4.2
4.5

1.7
−.2
3.7
2.7
4.7
2.5
4.3
5.0
4.9
4.9

5.0
.9
10.2
−12.4
16.2
−13.6
9.5
10.3
−2.3
3.3

−.9
1.5
−2.0
1.4
8.6
.3
−6.5
3.7
−.8
2.6

−1.3
−8.6
1.1
2.5
5.6
−.3
5.1
2.8
4.1
2.4

−1.1
−1.4
3.3
4.2
7.7
4.5
3.7
6.1
6.7
4.4

−1.4
−2.8
2.4
4.6
9.1
8.4
6.0
9.0
12.0
6.2

−.8
.5
4.5
3.7
5.8
−.6
.7
2.0
−.7
1.5

6.9
1.0
.1
.5
4.3
4.8
1.7
−4.4
−.7
4.6

−2.2
3.6
9.5
3.2
6.3
−.8
9.1
10.9
11.4
5.2

1.6
−.5
5.8
3.8
6.8
4.5
8.8
8.4
5.1
5.8

2000
2001
2002
2003
2004

........................
........................
........................
........................
........................

3.7
.8
1.6
2.7
4.2

4.0
.9
1.4
2.8
4.7

12.2
−6.3
5.5
7.6
1.8

−4.1
−5.3
−6.3
−1.5
2.3

.6
.2
−2.0
−1.3
2.5

6.3
−5.6
2.8
1.9
4.8

11.6
−6.0
1.7
4.3
6.3

−1.3
−5.0
4.2
−1.2
2.7

5.6
−4.9
4.3
7.8
1.1

−.4
7.0
1.0
2.2
4.6

4.5
7.0
2.2
3.6
6.4

Percent change from year earlier

1 Consists

of agriculture, forestry, fishing, and hunting; mining; construction; and manufacturing.
2 Consists of utilities; wholesale trade; retail trade; transportation and warehousing; information; finance, insurance, real estate, rental, and
leasing; professional and business services; educational services, health care, and social assistance; arts, entertainment, recreation, accommodation, and food services; and other services, except government.
See next page for continuation of table.

298

TABLE B–13.—Real gross domestic product by industry, value added, and percent changes, 1974–
2004—Continued
Private industries—continued

Year

Transportation
and
warehousing

Information

Finance,
insurance,
real
estate,
rental,
and
leasing

Professional and
business
services

Arts,
Educaentertional tainment,
services, recreaOther
health
services,
tion,
care,
except
accom- governand
social modation, ment
and
assisfood
tance
services

Government

Private
goodsproducing
industries 1

Private
servicesproducing
industries 2

Chain-type quantity indexes for value added (2000=100)
1974
1975
1976
1977
1978
1979

..........................................
..........................................
..........................................
..........................................
..........................................
..........................................

41.313
38.471
41.733
43.462
45.697
48.252

24.289
25.176
26.473
28.460
31.532
34.231

43.359
45.494
46.720
47.363
50.358
52.965

30.374
29.732
31.391
34.086
36.884
39.387

48.961
51.971
54.419
57.878
60.672
63.234

41.950
42.348
45.554
48.641
52.049
53.512

68.356
68.213
70.997
71.231
75.107
75.703

72.251
73.147
74.283
74.973
76.694
77.721

47.628
45.467
49.103
52.269
54.587
56.085

38.887
39.687
41.544
43.258
46.163
48.120

1980
1981
1982
1983
1984
1985
1986
1987
1988
1989

..........................................
..........................................
..........................................
..........................................
..........................................
..........................................
..........................................
..........................................
..........................................
..........................................

47.232
46.178
43.855
49.486
52.121
52.715
53.021
55.690
57.990
59.507

36.394
38.257
38.155
41.017
40.717
42.039
42.672
45.764
47.649
51.150

55.414
56.573
56.986
58.734
61.282
62.812
63.965
65.941
68.652
70.359

40.529
41.554
41.345
44.142
48.913
52.748
56.860
60.050
64.420
68.787

66.887
68.455
68.856
71.153
72.366
73.629
75.166
80.273
80.570
84.002

52.407
54.193
55.695
59.784
62.194
66.167
69.642
68.742
71.515
73.872

74.411
72.329
69.103
72.470
77.498
80.936
82.885
84.221
89.044
92.188

79.023
79.328
79.456
80.178
81.038
83.172
85.105
86.753
88.812
90.984

53.880
55.783
52.029
53.361
59.454
62.569
62.534
66.173
69.104
70.366

48.764
49.923
49.794
52.637
55.727
58.104
60.576
62.256
65.186
68.033

1990
1991
1992
1993
1994
1995
1996
1997
1998
1999

..........................................
..........................................
..........................................
..........................................
..........................................
..........................................
..........................................
..........................................
..........................................
..........................................

62.281
65.060
68.758
71.988
77.827
80.473
84.585
88.373
91.454
95.301

53.420
54.441
57.568
61.445
65.223
67.996
72.714
74.559
82.252
95.467

71.877
73.051
74.863
76.931
78.506
80.732
82.893
86.786
90.201
94.994

72.073
69.786
72.008
73.224
75.430
77.382
82.053
87.432
91.976
96.898

87.047
89.285
91.728
92.199
92.413
93.503
94.144
94.809
95.603
97.304

76.063
74.232
77.250
78.787
80.604
83.542
86.796
90.310
93.446
96.836

94.369
91.258
92.502
95.195
98.624
99.714
99.072
99.291
101.871
100.236

93.215
93.658
94.134
94.055
94.407
94.250
94.768
95.864
96.923
98.009

69.858
68.214
70.330
72.128
77.818
79.572
82.596
87.229
91.878
95.402

69.877
70.319
73.074
75.047
77.745
79.773
83.377
87.407
91.591
96.434

2000
2001
2002
2003
2004

..........................................
..........................................
..........................................
..........................................
..........................................

100.000
97.354
99.531
103.164
107.340

100.000
104.034
106.263
109.092
123.022

100.000
103.858
104.800
108.409
112.539

100.000
99.346
99.192
102.393
108.993

100.000
103.186
107.527
110.523
114.026

100.000
99.292
101.022
103.997
107.168

100.000
98.337
98.667
99.780
101.001

100.000
100.794
102.467
103.766
104.766

100.000
95.654
96.853
98.009
101.811

100.000
102.584
104.107
107.452
112.686

1974
1975
1976
1977
1978
1979

..........................................
..........................................
..........................................
..........................................
..........................................
..........................................

1.0
−6.9
8.5
4.1
5.1
5.6

3.2
3.7
5.2
7.5
10.8
8.6

5.1
4.9
2.7
1.4
6.3
5.2

0.8
−2.1
5.6
8.6
8.2
6.8

4.1
6.1
4.7
6.4
4.8
4.2

−2.5
.9
7.6
6.8
7.0
2.8

−3.3
−.2
4.1
.3
5.4
.8

2.6
1.2
1.6
.9
2.3
1.3

−4.1
−4.5
8.0
6.4
4.4
2.7

1.1
2.1
4.7
4.1
6.7
4.2

1980
1981
1982
1983
1984
1985
1986
1987
1988
1989

..........................................
..........................................
..........................................
..........................................
..........................................
..........................................
..........................................
..........................................
..........................................
..........................................

−2.1
−2.2
−5.0
12.8
5.3
1.1
.6
5.0
4.1
2.6

6.3
5.1
−.3
7.5
−.7
3.2
1.5
7.2
4.1
7.3

4.6
2.1
.7
3.1
4.3
2.5
1.8
3.1
4.1
2.5

2.9
2.5
−.5
6.8
10.8
7.8
7.8
5.6
7.3
6.8

5.8
2.3
.6
3.3
1.7
1.7
2.1
6.8
.4
4.3

−2.1
3.4
2.8
7.3
4.0
6.4
5.3
−1.3
4.0
3.3

−1.7
−2.8
−4.5
4.9
6.9
4.4
2.4
1.6
5.7
3.5

1.7
.4
.2
.9
1.1
2.6
2.3
1.9
2.4
2.4

−3.9
3.5
−6.7
2.6
11.4
5.2
−.1
5.8
4.4
1.8

1.3
2.4
−.3
5.7
5.9
4.3
4.3
2.8
4.7
4.4

1990
1991
1992
1993
1994
1995
1996
1997
1998
1999

..........................................
..........................................
..........................................
..........................................
..........................................
..........................................
..........................................
..........................................
..........................................
..........................................

4.7
4.5
5.7
4.7
8.1
3.4
5.1
4.5
3.5
4.2

4.4
1.9
5.7
6.7
6.1
4.3
6.9
2.5
10.3
16.1

2.2
1.6
2.5
2.8
2.0
2.8
2.7
4.7
3.9
5.3

4.8
−3.2
3.2
1.7
3.0
2.6
6.0
6.6
5.2
5.4

3.6
2.6
2.7
.5
.2
1.2
.7
.7
.8
1.8

3.0
−2.4
4.1
2.0
2.3
3.6
3.9
4.0
3.5
3.6

2.4
−3.3
1.4
2.9
3.6
1.1
−.6
.2
2.6
−1.6

2.5
.5
.5
−.1
.4
−.2
.5
1.2
1.1
1.1

−.7
−2.4
3.1
2.6
7.9
2.3
3.8
5.6
5.3
3.8

2.7
.6
3.9
2.7
3.6
2.6
4.5
4.8
4.8
5.3

2000
2001
2002
2003
2004

..........................................
..........................................
..........................................
..........................................
..........................................

4.9
−2.6
2.2
3.7
4.0

4.7
4.0
2.1
2.7
12.8

5.3
3.9
.9
3.4
3.8

3.2
−.7
−.2
3.2
6.4

2.8
3.2
4.2
2.8
3.2

3.3
−.7
1.7
2.9
3.0

−.2
−1.7
.3
1.1
1.2

2.0
.8
1.7
1.3
1.0

4.8
−4.3
1.3
1.2
3.9

3.7
2.6
1.5
3.2
4.9

Percent change from year earlier

Note.—Data are based on the 1997 North American Industry Classification System (NAICS).
Historical data for 1947–73 are available from the U.S. Department of Commerce, Bureau of Economic Analysis. See Survey of Current
Business, December 2005, for details.
See Note, Table B–12.
Source: Department of Commerce, Bureau of Economic Analysis.

299

TABLE B–14.—Gross value added of nonfinancial corporate business, 1959–2005
[Billions of dollars; quarterly data at seasonally adjusted annual rates]
Net value added

Year or
quarter

Gross
value
added
of
nonfinancial
corporate
business 1

1959 ..................
266.0
1960 ..................
276.4
1961 ..................
283.7
1962 ..................
309.8
1963 ..................
329.9
1964 ..................
356.1
1965 ..................
391.2
1966 ..................
429.0
1967 ..................
451.2
1968 ..................
497.8
1969 ..................
540.5
1970 ..................
558.3
1971 ..................
603.0
1972 ..................
669.5
1973 ..................
750.8
1974 ..................
809.8
1975 ..................
876.7
1976 ..................
989.7
1977 .................. 1,119.4
1978 .................. 1,272.9
1979 .................. 1,415.9
1980 .................. 1,537.1
1981 .................. 1,746.0
1982 .................. 1,806.2
1983 .................. 1,933.0
1984 .................. 2,167.5
1985 .................. 2,302.0
1986 .................. 2,387.5
1987 .................. 2,557.1
1988 .................. 2,771.6
1989 .................. 2,912.3
1990 .................. 3,041.5
1991 .................. 3,099.7
1992 .................. 3,236.0
1993 .................. 3,397.8
1994 .................. 3,669.5
1995 .................. 3,879.5
1996 .................. 4,109.5
1997 .................. 4,401.8
1998 .................. 4,655.0
1999 .................. 4,950.8
2000 .................. 5,272.2
2001 .................. 5,293.5
2002 .................. 5,371.7
2003 .................. 5,595.7
2004 .................. 5,995.4
2005 p ................ ..............
2002: I ................ 5,284.6
II .............. 5,358.3
III ............. 5,395.6
IV ............. 5,448.4
2003: I ................ 5,456.5
II .............. 5,541.8
III ............. 5,650.0
IV ............. 5,734.4
2004: I ................ 5,822.0
II .............. 5,922.8
III ............. 6,038.0
IV ............. 6,198.9
2005: I ................ 6,282.8
II .............. 6,414.0
III ............. 6,512.1
IV p ........... ..............

Addenda:

Net operating surplus
Consumption
of
fixed
capital

21.1
22.6
23.2
23.9
25.2
26.4
28.4
31.5
34.3
37.6
42.4
46.8
50.7
56.4
62.7
74.1
87.9
97.0
110.5
127.8
147.3
168.2
191.5
211.2
217.6
230.7
247.4
255.3
266.5
281.6
301.6
319.2
341.4
353.6
363.4
391.5
415.0
436.5
467.1
493.3
523.8
567.8
646.8
643.6
652.6
690.3
729.2
643.3
643.4
643.4
644.2
646.1
649.6
654.3
660.2
667.4
675.7
722.0
696.2
697.5
700.4
792.8
726.0

Total

244.9
253.8
260.5
285.9
304.7
329.7
362.8
397.4
416.8
460.2
498.1
511.5
552.4
613.2
688.1
735.7
788.7
892.7
1,008.8
1,145.1
1,268.6
1,368.9
1,554.5
1,594.9
1,715.4
1,936.8
2,054.6
2,132.2
2,290.6
2,490.0
2,610.7
2,722.3
2,758.3
2,882.3
3,034.4
3,278.0
3,464.5
3,673.0
3,934.7
4,161.7
4,427.0
4,704.3
4,646.7
4,728.2
4,943.1
5,305.1
..............
4,641.3
4,715.0
4,752.1
4,804.2
4,810.4
4,892.2
4,995.7
5,074.2
5,154.7
5,247.1
5,316.1
5,502.8
5,585.3
5,713.6
5,719.3
..............

Taxes
Comon
Net
penprodinterest Business
sauction
and
curtion
and
misrent
of
imports Total
cel- transemploy- less
lafer
ees
subsineous paydies
pay- ments
ments
170.8
180.4
184.5
199.3
210.1
225.7
245.4
272.9
291.1
321.9
357.1
376.5
399.4
443.9
502.2
552.2
575.5
651.4
735.3
845.3
959.9
1,049.8
1,161.5
1,203.9
1,266.9
1,406.1
1,504.2
1,583.1
1,687.8
1,812.8
1,914.7
2,012.9
2,048.4
2,154.1
2,244.8
2,381.5
2,509.8
2,630.8
2,812.9
3,045.6
3,267.7
3,544.4
3,595.9
3,611.9
3,703.2
3,906.8
4,173.9
3,576.7
3,616.8
3,626.4
3,627.4
3,636.8
3,682.2
3,726.1
3,767.8
3,806.3
3,850.5
3,928.5
4,042.0
4,105.4
4,140.5
4,198.8
4,251.1

24.4
49.7
2.9
26.6
46.8
3.2
27.6
48.4
3.7
29.9
56.8
4.3
31.7
62.9
4.7
33.9
70.2
5.2
36.0
81.4
5.8
37.0
87.6
7.0
39.3
86.4
8.4
45.5
92.8
9.7
50.2
90.8
12.7
54.2
80.7
16.6
59.5
93.4
17.6
63.7 105.6
18.6
70.1 115.8
21.8
74.4 109.1
27.5
80.2 133.1
28.4
86.7 154.7
26.0
94.6 178.9
28.5
102.7 197.0
33.4
108.8 200.0
41.8
121.5 197.6
54.2
146.7 246.4
67.2
152.9 238.1
77.4
168.0 280.5
77.0
185.0 345.7
86.0
196.6 353.8
91.5
204.6 344.5
95.1
216.8 386.0
96.4
233.8 443.4 109.8
248.2 447.9 142.0
263.5 445.8 146.2
285.7 424.2 135.9
302.5 425.7 111.3
318.8 470.8 102.0
349.6 546.9 101.0
356.9 597.8 115.2
369.1 673.1 111.9
385.5 736.3 124.0
398.7 717.4 143.8
416.6 742.7 160.2
443.4 716.5 191.7
439.1 611.8 204.0
465.5 650.8 167.4
486.5 753.4 166.2
519.1 879.2 164.9
549.8 ............ ............
454.3 610.2 186.1
462.8 635.3 168.5
470.2 655.5 160.1
474.8 702.0 155.0
478.3 695.2 161.3
474.9 735.2 166.1
493.1 776.5 168.4
499.8 806.6 168.9
509.8 838.5 169.1
516.2 880.4 166.2
520.6 866.9 162.1
529.9 930.9 162.1
537.7 942.2 167.0
547.9 1,025.2 167.3
553.7 966.8 172.8
559.9 ............ ............

Corporate profits with
inventory valuation and
capital consumption
adjustments

Total

Taxes
on cor- Profits
porate after
2
income tax

InCapivental
tory
conProfits valua- sumpbefore tion
tion
tax
adadjustjustment ment

1.3
45.5
20.7
24.8
43.4
−0.3
1.4
42.2
19.1
23.1
40.1
−.2
1.5
43.2
19.4
23.8
39.9
.3
1.7
50.8
20.6
30.2
44.6
.0
1.7
56.5
22.8
33.8
49.7
.1
2.0
63.0
23.9
39.2
55.9
−.5
2.2
73.3
27.1
46.2
66.1
−1.2
2.7
77.9
29.5
48.4
71.4
−2.1
2.8
75.2
27.8
47.3
67.6
−1.6
3.1
80.0
33.5
46.5
74.0
−3.7
3.2
74.9
33.3
41.6
71.2
−5.9
3.3
60.9
27.3
33.6
58.5
−6.6
3.7
72.1
30.0
42.1
67.4
−4.6
4.0
83.0
33.8
49.2
79.2
−6.6
4.7
89.4
40.4
49.0
99.4 −19.6
4.1
77.5
42.8
34.7 110.1 −38.2
5.0
99.6
41.9
57.7 110.7 −10.5
7.0 121.7
53.5
68.2 138.2 −14.1
9.0 141.4
60.6
80.9 159.4 −15.7
9.5 154.1
67.6
86.6 183.7 −23.7
9.5 148.8
70.6
78.1 197.0 −40.1
10.2 133.2
68.2
65.0 184.0 −42.1
11.4 167.7
66.0 101.7 185.0 −24.6
8.8 151.9
48.8 103.1 139.9
−7.5
10.5 192.9
61.7 131.2 163.3
−7.4
11.7 248.0
75.9 172.0 197.6
−4.0
16.1 246.3
71.1 175.2 173.4
.0
27.3 222.1
76.2 145.9 149.7
7.1
29.9 259.7
94.2 165.5 209.8 −16.2
27.4 306.2
104.0 202.3 260.4 −22.2
23.0 282.9
101.2 181.7 238.7 −16.3
25.4 274.3
98.5 175.8 239.0 −12.9
26.7 261.5
88.6 172.9 222.4
4.9
25.2 289.2
94.4 194.8 258.2
−2.8
29.6 339.2
108.0 231.2 303.3
−4.0
30.0 415.9
132.9 283.1 380.1 −12.4
30.2 452.5
141.0 311.4 419.3 −18.3
38.0 523.2
153.1 370.1 458.5
3.1
39.0 573.4
161.9 411.5 494.2
14.1
35.2 538.3
158.6 379.7 449.4
20.2
45.0 537.6
171.2 366.3 457.9
1.0
48.4 476.4
170.2 306.2 423.9 −14.1
50.6 357.2
111.7 245.5 310.6
11.3
54.0 429.4
97.0 332.3 336.3
−2.2
62.4 524.9
126.5 398.3 448.1 −13.3
60.4 653.9
165.9 487.9 573.9 −39.6
43.0 ............ .............. ............ ............ ............
53.6 370.6
78.2 292.3 260.9
13.3
53.2 413.5
91.9 321.6 317.2
−1.6
53.8 441.5
102.0 339.5 357.2 −11.8
55.2 491.8
116.0 375.8 409.8
−8.8
59.1 474.8
119.3 355.4 423.7 −25.0
61.6 507.5
116.7 390.7 414.3
−2.1
63.7 544.4
128.1 416.3 454.0
−5.1
65.0 572.8
141.9 430.9 500.5 −20.8
66.7 602.7
145.9 456.8 507.9 −28.9
67.6 646.6
165.2 481.4 571.9 −48.3
37.9 666.9
171.8 495.1 589.5 −36.9
69.5 699.3
180.8 518.5 626.1 −44.4
58.0 717.1
231.9 485.2 807.6 −39.1
58.4 799.6
248.6 550.9 865.5 −18.9
2.9 791.1
258.0 533.1 890.8 −27.5
52.7 ............ .............. ............ ............ ............

2.3
2.3
3.0
6.1
6.8
7.7
8.4
8.5
9.1
9.7
9.6
8.9
9.3
10.5
9.5
5.6
−.5
−2.4
−2.2
−5.9
−8.1
−8.7
7.4
19.5
37.1
54.3
72.8
65.3
66.2
68.0
60.6
48.2
34.2
33.8
39.9
48.3
51.5
61.6
65.0
68.7
78.7
66.6
35.2
95.3
90.0
119.7
−55.7
96.4
97.9
96.1
90.9
76.0
95.3
95.6
93.1
123.8
123.0
114.2
117.6
−51.3
−47.0
−72.2
−52.0

1 Estimates for nonfinancial corporate business for 2000 and earlier periods are based on the Standard Industrial Classification (SIC); later
estimates are based on the North American Industry Classification System (NAICS).
2 With inventory valuation and capital consumption adjustments.
Source: Department of Commerce, Bureau of Economic Analysis.

300

TABLE B–15.—Gross value added and price, costs, and profits of nonfinancial corporate business,
1959–2005
[Quarterly data at seasonally adjusted annual rates]

Year or quarter

Gross
value added
of
nonfinancial
corporate
business
(billions of
dollars) 1
Current
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 ..................................
1999 ..................................
2000 ..................................
2001 ..................................
2002 ..................................
2003 ..................................
2004 ..................................
2002: I ...............................
II ..............................
III .............................
IV .............................
2003: I ...............................
II ..............................
III .............................
IV .............................
2004: I ...............................
II ..............................
III .............................
IV .............................
2005: I ...............................
II ..............................
III .............................

266.0
276.4
283.7
309.8
329.9
356.1
391.2
429.0
451.2
497.8
540.5
558.3
603.0
669.5
750.8
809.8
876.7
989.7
1,119.4
1,272.9
1,415.9
1,537.1
1,746.0
1,806.2
1,933.0
2,167.5
2,302.0
2,387.5
2,557.1
2,771.6
2,912.3
3,041.5
3,099.7
3,236.0
3,397.8
3,669.5
3,879.5
4,109.5
4,401.8
4,655.0
4,950.8
5,272.2
5,293.5
5,371.7
5,595.7
5,995.4
5,284.6
5,358.3
5,395.6
5,448.4
5,456.5
5,541.8
5,650.0
5,734.4
5,822.0
5,922.8
6,038.0
6,198.9
6,282.8
6,414.0
6,512.1

Price per unit of real gross value added of nonfinancial corporate business (dollars) 1

Total 2

Chained
(2000)
dollars
980.4
1,012.0
1,033.6
1,120.7
1,186.7
1,270.3
1,375.1
1,472.6
1,508.9
1,604.8
1,667.6
1,649.9
1,716.6
1,846.4
1,957.7
1,925.4
1,898.8
2,050.0
2,200.0
2,344.1
2,418.7
2,394.6
2,491.5
2,430.6
2,545.1
2,772.8
2,896.3
2,963.3
3,119.6
3,300.7
3,361.8
3,404.0
3,376.2
3,479.5
3,575.5
3,797.9
3,977.4
4,196.4
4,469.3
4,725.4
5,011.0
5,272.2
5,224.5
5,269.7
5,418.2
5,714.1
5,194.6
5,265.4
5,296.0
5,322.8
5,301.9
5,374.5
5,466.9
5,529.7
5,578.3
5,625.9
5,756.2
5,895.9
5,943.3
6,046.0
6,107.0

0.271
.273
.274
.276
.278
.280
.284
.291
.299
.310
.324
.338
.351
.363
.384
.421
.462
.483
.509
.543
.585
.642
.701
.743
.759
.782
.795
.806
.820
.840
.866
.894
.918
.930
.950
.966
.975
.979
.985
.985
.988
1.000
1.013
1.019
1.033
1.049
1.017
1.018
1.019
1.024
1.029
1.031
1.033
1.037
1.044
1.053
1.049
1.051
1.057
1.061
1.066

Compensation
of
employees
(unit
labor
cost)
0.174
.178
.179
.178
.177
.178
.178
.185
.193
.201
.214
.228
.233
.240
.257
.287
.303
.318
.334
.361
.397
.438
.466
.495
.498
.507
.519
.534
.541
.549
.570
.591
.607
.619
.628
.627
.631
.627
.629
.645
.652
.672
.688
.685
.683
.684
.689
.687
.685
.681
.686
.685
.682
.681
.682
.684
.682
.686
.691
.685
.688

Unit nonlabor cost

Total

0.051
.053
.054
.053
.053
.053
.053
.053
.057
.059
.065
.073
.077
.078
.081
.093
.106
.106
.110
.117
.127
.148
.167
.186
.185
.185
.190
.196
.195
.197
.213
.222
.234
.228
.228
.230
.230
.228
.228
.226
.229
.237
.257
.253
.252
.251
.258
.252
.250
.250
.253
.252
.253
.252
.253
.254
.250
.247
.245
.244
.249

Consumption
of
fixed
capital

Taxes
on
production
and
imports 3

Net
interest
and
miscellaneous
payments

0.022
.022
.022
.021
.021
.021
.021
.021
.023
.023
.025
.028
.030
.031
.032
.038
.046
.047
.050
.055
.061
.070
.077
.087
.085
.083
.085
.086
.085
.085
.090
.094
.101
.102
.102
.103
.104
.104
.105
.104
.105
.108
.124
.122
.120
.121
.124
.122
.121
.121
.122
.121
.120
.119
.120
.120
.125
.118
.117
.116
.130

0.026
.028
.028
.028
.028
.028
.028
.027
.028
.030
.032
.035
.037
.037
.038
.041
.045
.046
.047
.048
.049
.055
.063
.067
.070
.071
.073
.078
.079
.079
.081
.085
.093
.094
.097
.100
.097
.097
.095
.092
.092
.093
.094
.099
.101
.101
.098
.098
.099
.100
.101
.100
.102
.102
.103
.104
.097
.102
.100
.100
.091

0.003
.003
.004
.004
.004
.004
.004
.005
.006
.006
.008
.010
.010
.010
.011
.014
.015
.013
.013
.014
.017
.023
.027
.032
.030
.031
.032
.032
.031
.033
.042
.043
.040
.032
.029
.027
.029
.027
.028
.030
.032
.036
.039
.032
.031
.029
.036
.032
.030
.029
.030
.031
.031
.031
.030
.030
.028
.027
.028
.028
.028

2

Corporate profits with
inventory valuation and
capital consumption
adjustments 4

Total

0.046
.042
.042
.045
.048
.050
.053
.053
.050
.050
.045
.037
.042
.045
.046
.040
.052
.059
.064
.066
.062
.056
.067
.062
.076
.089
.085
.075
.083
.093
.084
.081
.077
.083
.095
.110
.114
.125
.128
.114
.107
.090
.068
.081
.097
.114
.071
.079
.083
.092
.090
.094
.100
.104
.108
.115
.116
.119
.121
.132
.130

Taxes
on
corporate
income

Profits
after
tax 5

0.021
.019
.019
.018
.019
.019
.020
.020
.018
.021
.020
.017
.017
.018
.021
.022
.022
.026
.028
.029
.029
.028
.026
.020
.024
.027
.025
.026
.030
.031
.030
.029
.026
.027
.030
.035
.035
.036
.036
.034
.034
.032
.021
.018
.023
.029
.015
.017
.019
.022
.023
.022
.023
.026
.026
.029
.030
.031
.039
.041
.042

0.025
.023
.023
.027
.028
.031
.034
.033
.031
.029
.025
.020
.025
.027
.025
.018
.030
.033
.037
.037
.032
.027
.041
.042
.052
.062
.060
.049
.053
.061
.054
.052
.051
.056
.065
.075
.078
.088
.092
.080
.073
.058
.047
.063
.074
.085
.056
.061
.064
.071
.067
.073
.076
.078
.082
.086
.086
.088
.082
.091
.087

1 Estimates for nonfinancial corporate business for 2000 and earlier periods are based on the Standard Industrial Classification (SIC); later
estimates are based on the North American Industry Classification System (NAICS).
2 The implicit price deflator for gross value added of nonfinancial corporate business divided by 100.
3 Less subsidies plus business current transfer payments.
4 Unit profits from current production.
5 With inventory valuation and capital consumption adjustments.
Source: Department of Commerce, Bureau of Economic Analysis.

301

TABLE B–16.—Personal consumption expenditures, 1959–2005
[Billions of dollars; quarterly data at seasonally adjusted annual rates]
Durable goods

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
consumption
expendi- Total 1
tures

317.6
331.7
342.1
363.3
382.7
411.4
443.8
480.9
507.8
558.0
605.2
648.5
701.9
770.6
852.4
933.4
1,034.4
1,151.9
1,278.6
1,428.5
1,592.2
1,757.1
1,941.1
2,077.3
2,290.6
2,503.3
2,720.3
2,899.7
3,100.2
3,353.6
3,598.5
3,839.9
3,986.1
4,235.3
4,477.9
4,743.3
4,975.8
5,256.8
5,547.4
5,879.5
6,282.5

Nondurable goods

FurniMotor ture
vehiand
cles house- Total 1
and
hold
parts equipment

Clothing
and
shoes

Food

Services

Gaso- Fuel
line
oil
1
and and Total
oil
coal

Household
operation
Housing 2
Total 1

Electricity
and
gas

Trans- Mediporcal
tacare
tion

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
280.8
326.5
363.5
403.0
421.7
453.6
471.8
474.2
453.9
483.6
526.7
582.2
611.6
652.6
692.7
750.2
817.6

18.9
19.7
17.8
21.5
24.4
26.0
29.9
30.3
30.0
36.1
38.4
35.5
44.5
51.1
56.1
49.5
54.8
71.3
83.5
93.1
93.5
87.0
95.8
102.9
126.5
152.1
175.9
194.1
195.0
209.4
215.3
212.8
193.5
213.0
234.0
260.5
266.7
284.9
305.1
336.1
370.8

18.1
18.0
18.3
19.3
20.7
23.2
25.1
28.2
30.0
32.9
34.7
35.7
37.8
42.4
47.9
51.5
54.5
60.2
67.2
74.3
82.7
86.7
92.1
93.4
106.6
119.0
128.5
143.0
153.4
163.7
171.6
171.6
171.7
178.7
193.4
213.4
228.6
242.9
256.2
273.1
293.9

148.5
152.8
156.6
162.8
168.2
178.6
191.5
208.7
217.1
235.7
253.1
272.0
285.5
308.0
343.1
384.5
420.7
458.3
497.1
550.2
624.5
696.1
758.9
787.6
831.2
884.6
928.7
958.4
1,015.3
1,083.5
1,166.7
1,249.9
1,284.8
1,330.5
1,379.4
1,437.2
1,485.1
1,555.5
1,619.0
1,683.6
1,804.8

80.6
82.3
84.0
86.1
88.2
93.5
100.7
109.3
112.4
122.2
131.5
143.8
149.7
161.4
179.6
201.8
223.2
242.5
262.6
289.6
324.7
356.0
383.5
403.4
423.8
447.4
467.6
492.0
515.2
553.5
591.6
636.8
657.5
669.3
691.9
720.6
740.9
768.7
796.2
829.8
873.1

26.4
27.0
27.6
29.0
29.8
32.4
34.1
37.4
39.2
43.2
46.5
47.8
51.7
56.4
62.5
66.0
70.8
76.6
84.1
94.3
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
229.9
238.1
241.7
250.2
258.1
270.9
286.3

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
88.3
98.6
111.2
108.5
112.4
114.1
116.2
120.2
130.4
134.4
122.4
137.9

4.0
3.8
3.8
3.8
4.0
4.1
4.4
4.7
4.8
4.7
4.6
4.4
4.6
5.1
6.3
7.8
8.4
10.1
11.1
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
12.4
12.8
13.1
14.3
13.3
11.5
11.9

126.5
135.6
143.8
153.6
162.9
176.1
189.0
203.8
220.3
241.6
266.1
291.5
319.5
352.2
385.8
426.6
480.2
534.7
600.2
676.6
753.3
846.9
950.8
1,049.4
1,178.6
1,292.2
1,428.1
1,538.3
1,663.3
1,816.5
1,960.0
2,115.9
2,247.4
2,421.2
2,571.8
2,723.9
2,879.1
3,048.7
3,235.8
3,445.7
3,660.0

45.0
48.2
51.2
54.7
58.0
61.4
65.4
69.5
74.1
79.8
86.9
94.1
102.8
112.6
123.3
134.8
147.7
162.2
180.2
202.4
227.3
256.2
289.7
315.2
341.0
374.5
412.7
448.4
483.7
521.5
557.4
597.9
631.1
658.5
683.9
726.1
764.4
800.1
842.6
894.6
948.4

18.7
20.3
21.2
22.4
23.6
25.0
26.5
28.1
30.0
32.3
35.0
37.8
41.1
45.4
49.9
55.8
64.0
72.5
81.8
91.2
100.3
113.7
126.8
142.5
157.0
169.4
181.8
187.7
195.4
207.3
221.1
227.3
238.6
250.7
269.9
286.2
298.7
318.5
337.0
350.5
364.8

7.6
8.3
8.8
9.4
9.9
10.4
10.9
11.5
12.2
13.0
14.1
15.3
16.9
18.8
20.4
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
118.2
120.7
122.2
129.4
131.3
129.8
130.6

10.6
11.2
11.6
12.3
12.9
13.8
14.7
15.9
17.4
19.3
21.6
24.0
26.8
29.6
31.6
34.1
37.9
42.5
48.7
53.4
59.9
65.2
70.3
72.9
81.1
93.2
104.5
111.1
120.9
133.4
142.0
147.7
145.3
157.7
172.7
190.6
207.7
226.5
245.7
259.5
276.4

16.4
17.7
19.0
21.2
23.0
26.4
28.6
31.5
34.7
40.1
45.8
51.7
58.4
65.6
73.3
82.3
95.6
109.1
125.3
143.1
161.0
184.4
216.7
243.3
274.3
303.2
331.5
357.5
392.2
442.8
492.5
556.0
608.9
672.2
715.1
752.9
797.9
833.5
873.0
921.4
961.1

2000 ...............
2001 ...............
2002 ...............
2003 ...............
2004 ..............
2005 p ............

6,739.4 863.3
7,055.0 883.7
7,350.7 923.9
7,709.9 950.1
8,214.3 987.8
8,745.9 1,025.7

386.5
407.9
429.3
439.1
441.8
445.8

312.9
312.1
323.1
330.3
354.1
373.3

1,947.2
2,017.1
2,079.6
2,189.0
2,368.3
2,564.3

925.2
967.9
1,001.9
1,048.5
1,134.7
1,218.8

297.7
297.7
303.5
310.8
329.0
345.5

175.7
171.6
164.5
192.6
230.4
287.2

15.8
15.4
14.2
17.0
19.5
23.4

3,928.8
4,154.3
4,347.2
4,570.8
4,858.2
5,155.9

1,006.5
1,073.7
1,123.1
1,158.0
1,221.1
1,281.6

390.1
409.0
407.7
428.8
446.2
482.4

143.3
156.7
152.5
166.6
175.9
201.6

291.3
292.8
288.4
296.8
306.9
321.1

1,026.8
1,113.8
1,206.2
1,299.4
1,401.1
1,509.8

2002: I ............
II ...........
III ..........
IV ..........
2003: I ............
II ...........
III ..........
IV ..........
2004: I ............
II ...........
III ..........
IV ..........
2005: I ............
II ...........
III ..........
IVp ........

7,230.3
7,323.0
7,396.6
7,453.1
7,555.2
7,635.3
7,782.4
7,866.6
8,032.3
8,145.6
8,263.2
8,416.1
8,535.8
8,677.0
8,844.0
8,926.9

915.2
918.9
940.1
921.5
919.7
942.2
974.7
963.6
974.2
974.6
993.8
1,008.6
1,017.3
1,035.5
1,050.9
999.0

422.8
422.4
446.6
425.2
427.2
438.1
454.6
436.4
437.0
432.4
444.9
452.8
449.6
458.5
468.7
406.4

322.0
324.9
322.2
323.3
319.5
325.9
335.3
340.6
347.2
351.7
356.9
360.6
366.9
370.0
374.9
381.6

2,044.9
2,078.9
2,085.1
2,109.7
2,156.0
2,153.1
2,213.5
2,233.6
2,302.7
2,355.2
2,378.4
2,437.1
2,476.6
2,533.7
2,604.9
2,642.0

993.3
1,000.3
1,002.4
1,011.6
1,026.6
1,033.7
1,058.9
1,074.9
1,106.5
1,124.8
1,141.0
1,166.4
1,184.2
1,207.1
1,229.9
1,254.2

303.6
303.8
300.2
306.5
302.8
307.0
316.1
317.3
326.7
325.7
328.3
335.2
340.5
344.9
343.9
352.6

146.7
167.2
170.1
174.1
199.9
185.2
194.9
190.6
211.3
234.9
229.0
246.5
253.1
273.9
313.9
307.9

12.7
14.1
14.4
15.8
18.1
16.1
16.7
17.3
18.0
18.2
20.3
21.4
22.0
22.5
24.4
24.4

4,270.2
4,325.2
4,371.4
4,421.8
4,479.5
4,540.0
4,594.2
4,669.5
4,755.4
4,815.9
4,891.0
4,970.4
5,041.8
5,107.8
5,188.3
5,285.9

1,112.9
1,121.1
1,126.2
1,132.2
1,141.8
1,149.5
1,162.4
1,178.4
1,195.8
1,213.9
1,230.0
1,244.7
1,260.6
1,275.3
1,288.2
1,302.3

400.0
406.9
407.9
415.9
424.7
428.2
427.9
434.3
440.0
440.7
445.9
457.9
465.3
471.4
484.4
508.4

146.5
153.0
151.3
159.1
164.2
167.1
165.1
169.8
172.9
171.8
173.2
185.9
189.5
192.4
202.1
222.4

287.7
289.0
287.7
289.4
293.0
294.9
298.4
300.8
304.8
305.6
308.0
309.2
312.3
318.5
324.1
329.6

1,169.4
1,193.4
1,218.0
1,244.0
1,265.2
1,288.6
1,308.1
1,335.9
1,360.1
1,387.1
1,415.4
1,441.6
1,470.5
1,492.6
1,522.0
1,554.0

1 Includes

other items not shown separately.
imputed rental value of owner-occupied housing.
Source: Department of Commerce, Bureau of Economic Analysis.
2 Includes

302

TABLE B–17.—Real personal consumption expenditures, 1990–2005
[Billions of chained (2000) dollars; quarterly data at seasonally adjusted annual rates]

Year or
quarter

1990
1991
1992
1993
1994
1995
1996
1997
1998
1999

.........
.........
.........
.........
.........
.........
.........
.........
.........
.........

Durable goods
Personal
FurniconMotor ture
sumpvehiand
tion Total 1 cles houseexand
hold
pendiparts equiptures
ment

Nondurable goods

Total 1

Food

Clothing
and
shoes

Gasoline
and
oil

Services

Fuel
oil
and
coal

Household
operation
Total 1

Housing 2
Total 1

Electricity
and
gas

Transportation

Medical
care

453.5
427.9
453.0
488.4
529.4
552.6
595.9
646.9
720.3
804.6

256.1
226.6
244.9
259.2
276.2
272.3
285.4
304.7
339.0
372.4

119.9
121.1
127.8
141.1
156.8
173.3
193.4
216.3
244.7
280.7

1,484.0
1,480.5
1,510.1
1,550.4
1,603.9
1,638.6
1,680.4
1,725.3
1,794.4
1,876.6

784.4
783.3
787.9
802.2
821.8
827.1
834.7
845.2
865.6
893.6

188.2
188.8
199.2
207.4
218.5
227.4
238.7
246.0
263.1
282.7

141.8
140.3
146.0
149.7
151.7
154.5
157.9
162.8
170.3
176.3

16.7
16.6
17.0
17.4
18.2
18.7
18.4
16.9
16.0
16.4

2,851.7
2,900.0
3,000.8
3,085.7
3,176.6
3,259.9
3,356.0
3,468.0
3,615.0
3,758.0

802.2
820.1
832.7
841.8
869.3
887.5
901.1
922.5
948.8
978.6

266.4
269.9
277.4
291.1
303.3
312.9
327.3
340.4
357.1
371.9

117.4
121.1
120.4
126.8
128.8
130.2
134.7
133.7
136.7
138.1

195.7
186.3
194.2
202.5
218.4
231.8
247.5
263.2
272.0
283.4

797.6
824.5
863.6
877.2
887.1
906.4
922.5
942.8
970.7
989.0

2000 .........
2001 .........
2002 .........
2003 .........
2004 ........
2005 p .......

6,739.4 863.3
6,910.4 900.7
7,099.3 964.8
7,306.6 1,028.5
7,588.6 1,089.9
7,858.1 1,137.7

386.5
405.8
429.0
449.7
457.0
451.7

312.9
331.8
364.3
396.3
442.9
485.2

1,947.2 925.2
1,986.7 940.2
2,037.1 954.6
2,101.8 980.1
2,200.4 1,029.1
2,298.0 1,081.2

297.7
303.7
318.3
334.1
355.0
376.6

175.7
178.3
181.9
183.2
185.9
190.6

15.8
15.2
15.5
15.5
15.5
14.6

3,928.8
4,023.2
4,100.4
4,183.9
4,310.9
4,438.0

1,006.5
1,033.7
1,042.1
1,048.4
1,078.4
1,103.8

390.1
391.0
393.2
398.2
405.6
416.8

143.3
140.9
144.9
146.8
149.2
154.9

291.3
288.0
280.2
280.1
283.4
287.2

1,026.8
1,075.2
1,136.6
1,184.9
1,233.5
1,291.8

2002: I ......
II .....
III ....
IV ....

7,042.2
7,083.5
7,123.2
7,148.2

948.4
956.9
983.4
970.4

422.1
422.5
445.6
425.9

356.9
363.5
365.2
371.6

2,026.8
2,033.4
2,035.0
2,053.1

950.2
954.5
954.4
959.5

315.9
317.0
315.7
324.4

181.3
182.0
183.2
181.2

14.7
15.6
15.5
16.3

4,069.4
4,095.7
4,109.0
4,127.4

1,044.4
1,043.7
1,041.0
1,039.3

388.0
395.1
392.4
397.3

139.8
145.8
144.1
149.8

281.9
281.0
279.1
279.0

1,113.5
1,129.9
1,144.4
1,158.8

2003: I ......
II .....
III ....
IV ....

7,192.2 979.1
7,256.8 1,014.0
7,360.7 1,061.0
7,416.4 1,060.0

431.6
445.9
466.8
454.4

372.5
387.4
407.5
417.7

2,069.5
2,079.1
2,121.2
2,137.3

969.2
970.5
987.7
992.8

323.4
331.1
340.4
341.5

181.7
181.7
184.0
185.3

15.7
14.7
15.6
16.1

4,146.5
4,169.7
4,190.2
4,229.4

1,041.3
1,044.5
1,050.1
1,057.7

397.9
396.4
395.9
402.4

148.6
145.5
143.8
149.2

280.6
279.4
280.0
280.4

1,169.8
1,180.1
1,187.6
1,202.2

2004: I ......
II .....
III ....
IV ....

7,501.4
7,536.6
7,617.5
7,698.8

1,071.6
1,072.5
1,100.4
1,115.1

453.9
448.1
461.4
464.6

428.4
437.1
449.2
456.8

2,171.9
2,186.1
2,206.9
2,236.5

1,015.5
1,022.5
1,030.9
1,047.4

352.6
349.7
354.9
363.0

184.7
185.5
185.4
188.1

15.6
15.4
16.0
15.0

4,269.0
4,288.6
4,324.0
4,362.1

1,067.6
1,074.6
1,081.9
1,089.5

404.2
402.3
403.5
412.4

149.7
146.9
145.6
154.7

283.8
283.5
283.4
283.0

1,211.4
1,225.5
1,241.6
1,255.4

2005: I ......
II .....
III ....
IV p

7,764.9
7,829.5
7,907.9
7,930.2

1,122.3
1,143.9
1,169.7
1,114.7

455.0
463.3
477.3
411.3

469.2
475.9
490.5
505.2

2,265.6
2,285.9
2,305.8
2,334.7

1,060.9
1,072.2
1,088.7
1,103.0

367.9
374.4
377.2
387.0

192.1
190.5
188.7
190.9

15.6
14.8
14.4
13.6

4,392.0
4,417.6
4,453.5
4,489.1

1,095.6
1,101.4
1,106.6
1,111.5

414.3
413.8
418.5
420.5

155.2
153.2
155.5
155.9

284.6
286.3
287.6
290.5

1,269.1
1,282.3
1,299.6
1,316.1

4,770.3
4,778.4
4,934.8
5,099.8
5,290.7
5,433.5
5,619.4
5,831.8
6,125.8
6,438.6

1 Includes

other items not shown separately.
imputed rental value of owner-occupied housing.
Note.—See Table B-2 for data for total personal consumption expenditures for 1959-89.
Source: Department of Commerce, Bureau of Economic Analysis.
2 Includes

303

TABLE B–18.—Private fixed investment by type, 1959–2005
[Billions of dollars; quarterly data at seasonally adjusted annual rates]
Nonresidential

Residential

Equipment and software

Year or
quarter

1959 ........

Private
fixed
investment

Total
nonresidential

Structures

Information processing equipment and software
Structures

Total

Computers
and peripheral
equipment

Total

Software

Other

Industrial
equipment

Transportation
equipment

Other
equipment

Total
residential 1

Total 1

Single
family

74.6

46.5

18.1

28.4

4.0

0.0

0.0

4.0

8.5

8.3

7.6

28.1

27.5

16.7

1960
1961
1962
1963
1964
1965
1966
1967
1968
1969

........
........
........
........
........
........
........
........
........
........

75.7
75.2
82.0
88.1
97.2
109.0
117.7
118.7
132.1
147.3

49.4
48.8
53.1
56.0
63.0
74.8
85.4
86.4
93.4
104.7

19.6
19.7
20.8
21.2
23.7
28.3
31.3
31.5
33.6
37.7

29.8
29.1
32.3
34.8
39.2
46.5
54.0
54.9
59.9
67.0

4.9
5.3
5.7
6.5
7.4
8.5
10.7
11.3
11.9
14.6

.2
.3
.3
.7
.9
1.2
1.7
1.9
1.9
2.4

.1
.2
.2
.4
.5
.7
1.0
1.2
1.3
1.8

4.6
4.8
5.1
5.4
5.9
6.7
8.0
8.2
8.7
10.4

9.4
8.8
9.3
10.0
11.4
13.7
16.2
16.9
17.3
19.1

8.5
8.0
9.8
9.4
10.6
13.2
14.5
14.3
17.6
18.9

7.1
7.0
7.5
8.8
9.9
11.0
12.7
12.4
13.0
14.4

26.3
26.4
29.0
32.1
34.3
34.2
32.3
32.4
38.7
42.6

25.8
25.9
28.4
31.5
33.6
33.5
31.6
31.6
37.9
41.6

14.9
14.1
15.1
16.0
17.6
17.8
16.6
16.8
19.5
19.7

1970
1971
1972
1973
1974
1975
1976
1977
1978
1979

........
........
........
........
........
........
........
........
........
........

150.4
169.9
198.5
228.6
235.4
236.5
274.8
339.0
412.2
474.9

109.0
114.1
128.8
153.3
169.5
173.7
192.4
228.7
280.6
333.9

40.3
42.7
47.2
55.0
61.2
61.4
65.9
74.6
93.6
117.7

68.7
71.5
81.7
98.3
108.2
112.4
126.4
154.1
187.0
216.2

16.6
17.3
19.5
23.1
27.0
28.5
32.7
39.2
48.7
58.5

2.7
2.8
3.5
3.5
3.9
3.6
4.4
5.7
7.6
10.2

2.3
2.4
2.8
3.2
3.9
4.8
5.2
5.5
6.3
8.1

11.6
12.2
13.2
16.3
19.2
20.2
23.1
28.0
34.8
40.2

20.3
19.5
21.4
26.0
30.7
31.3
34.1
39.4
47.7
56.2

16.2
18.4
21.8
26.6
26.3
25.2
30.0
39.3
47.3
53.6

15.6
16.3
19.0
22.6
24.3
27.4
29.6
36.3
43.2
47.9

41.4
55.8
69.7
75.3
66.0
62.7
82.5
110.3
131.6
141.0

40.2
54.5
68.1
73.6
64.1
60.8
80.4
107.9
128.9
137.8

17.5
25.8
32.8
35.2
29.7
29.6
43.9
62.2
72.8
72.3

1980
1981
1982
1983
1984
1985
1986
1987
1988
1989

........
........
........
........
........
........
........
........
........
........

485.6
542.6
532.1
570.1
670.2
714.4
739.9
757.8
803.1
847.3

362.4
420.0
426.5
417.2
489.6
526.2
519.8
524.1
563.8
607.7

136.2
167.3
177.6
154.3
177.4
194.5
176.5
174.2
182.8
193.7

226.2
252.7
248.9
262.9
312.2
331.7
343.3
349.9
381.0
414.0

68.8
81.5
88.3
100.1
121.5
130.3
136.8
141.2
154.9
172.6

12.5
17.1
18.9
23.9
31.6
33.7
33.4
35.8
38.0
43.1

9.8
11.8
14.0
16.4
20.4
23.8
25.6
29.0
34.2
41.9

46.4
52.5
55.3
59.8
69.6
72.9
77.7
76.4
82.8
87.6

60.7
65.5
62.7
58.9
68.1
72.5
75.4
76.7
84.2
93.3

48.4
50.6
46.8
53.5
64.4
69.0
70.5
68.1
72.9
67.9

48.3
55.2
51.2
50.4
58.1
59.9
60.7
63.9
69.0
80.2

123.2
122.6
105.7
152.9
180.6
188.2
220.1
233.7
239.3
239.5

119.8
118.9
102.0
148.6
175.9
183.1
214.6
227.9
233.2
233.4

52.9
52.0
41.5
72.5
86.4
87.4
104.1
117.2
120.1
120.9

1990
1991
1992
1993
1994
1995
1996
1997
1998
1999

........
........
........
........
........
........
........
........
........
.......

846.4
803.3
848.5
932.5
1,033.3
1,112.9
1,209.5
1,317.8
1,438.4
1,558.8

622.4
598.2
612.1
666.6
731.4
810.0
875.4
968.7
1,052.6
1,133.9

202.9
183.6
172.6
177.2
186.8
207.3
224.6
250.3
275.2
282.2

419.5
414.6
439.6
489.4
544.6
602.8
650.8
718.3
777.3
851.7

177.2
182.9
199.9
217.6
235.2
263.0
290.1
330.3
363.4
411.0

38.6
37.7
44.0
47.9
52.4
66.1
72.8
81.4
87.2
96.0

47.6
53.7
57.9
64.3
68.3
74.6
85.5
107.5
124.0
152.6

90.9
91.5
98.1
105.4
114.6
122.3
131.9
141.4
152.2
162.4

92.1
89.3
93.0
102.2
113.6
129.0
136.5
140.4
146.4
147.0

70.0
71.5
74.7
89.4
107.7
116.1
123.2
135.5
144.0
167.6

80.2
70.8
72.0
80.2
88.1
94.7
101.0
112.1
123.5
126.0

224.0
205.1
236.3
266.0
301.9
302.8
334.1
349.1
385.8
424.9

218.0
199.4
230.4
259.9
295.6
296.5
327.8
342.8
379.3
417.8

112.9
99.4
122.0
140.1
162.3
153.5
170.8
175.2
199.4
223.8

2000 ........
2001 ........
2002 ........
2003 ........
2004 .......
2005 p ......

1,679.0
1,646.1
1,570.2
1,654.9
1,872.6
2,084.3

1,232.1
1,176.8
1,066.3
1,082.4
1,198.8
1,328.3

313.2
322.6
279.2
276.9
298.4
334.5

918.9
854.2
787.1
805.6
900.4
993.8

467.6
437.0
399.4
405.7
447.0
489.2

101.4
85.4
77.2
77.6
91.6
105.6

176.2 190.0
174.7 177.0
167.6 154.5
170.0 158.2
178.5 176.9
198.1 185.5

159.2
146.7
135.7
137.1
145.3
161.0

160.8
141.7
126.3
127.9
151.9
170.9

131.2
128.8
125.7
134.8
156.2
172.7

446.9
469.3
503.9
572.5
673.8
756.0

439.5
461.9
496.3
564.7
665.4
747.1

236.8
249.1
265.9
310.6
377.6
420.7

2002: I .....
II ....
III ...
IV ...

1,572.4
1,568.8
1,566.8
1,572.8

1,085.2
1,067.8
1,061.4
1,050.7

292.2
280.9
272.1
271.7

793.0
787.0
789.3
779.0

402.9
400.3
403.7
390.6

79.7
76.4
78.1
74.8

165.9
167.7
171.0
166.0

157.3
156.2
154.7
149.9

136.7
133.6
136.0
136.4

130.6
126.9
123.1
124.7

122.8
126.1
126.5
127.3

487.2
501.0
505.4
522.1

479.6
493.3
497.8
514.5

254.3
264.0
267.9
277.4

2003: I .....
II ....
III ...
IV ...

1,588.2
1,619.7
1,683.7
1,728.2

1,048.2
1,066.8
1,098.8
1,116.0

268.4
277.1
279.0
283.0

779.8
789.7
819.8
833.0

392.0
395.3
412.9
422.8

73.9
75.0
79.1
82.3

165.6
166.7
173.0
174.6

152.5
153.6
160.8
165.9

140.7
137.6
136.9
133.3

119.0
127.2
131.6
133.7

128.1
129.5
138.4
143.3

540.0
552.9
584.9
612.2

532.4
545.2
576.9
604.1

291.4
296.2
313.8
341.0

2004: I .....
II ....
III ...
IV ..

1,772.7
1,856.6
1,908.7
1,952.6

1,140.7
1,182.7
1,219.0
1,252.9

285.3
296.3
302.1
309.8

855.3
886.5
916.9
943.1

436.5
444.3
450.9
456.3

86.6
90.0
92.3
97.5

176.1
176.9
179.9
181.1

173.9
177.4
178.6
177.8

139.9
139.5
149.3
152.6

133.3
150.3
155.6
168.4

145.6
152.4
161.0
165.8

632.0
673.9
689.7
699.7

623.8
665.5
681.3
691.1

354.5
376.7
388.1
390.9

2005: I .....
II ....
III ...
IV p

1,998.7
2,058.5
2,119.2
2,160.9

1,280.1
1,313.5
1,348.9
1,370.6

315.9
325.6
340.2
356.3

964.3
987.9
1,008.7
1,014.3

474.6
486.6
494.5
501.3

102.7
105.6
105.0
109.3

188.3 183.6
197.3 183.6
201.3 188.2
205.5 186.6

161.3
154.9
161.3
166.4

163.8
172.8
177.9
169.0

164.6
173.7
175.0
177.6

718.5
745.0
770.3
790.3

709.7
736.1
761.3
781.1

401.6
410.3
426.6
444.2

1 Includes

other items, not shown separately.

Source: Department of Commerce, Bureau of Economic Analysis.

304

TABLE B–19.—Real private fixed investment by type, 1990–2005
[Billions of chained (2000) dollars; quarterly data at seasonally adjusted annual rates]
Nonresidential

Residential

Equipment and software

Year or
quarter

1990
1991
1992
1993
1994
1995
1996
1997
1998
1999

Private
fixed
investment

Total
nonresidential

Structures

Information processing equipment
and software
Structures

Total

Computers
and
Total peripheral
equipment1

Software

Other

Industrial
equipment

Transportation
equipment

Other
equipment

Total
residential 2

Total 2

Single
family

.......
.......
.......
.......
.......
.......
.......
.......
.......
......

886.6
829.1
878.3
953.5
1,042.3
1,109.6
1,209.2
1,320.6
1,455.0
1,576.3

595.1
563.2
581.3
631.9
689.9
762.5
833.6
934.2
1,037.8
1,133.3

275.2
244.6
229.9
228.3
232.3
247.1
261.1
280.1
294.5
293.2

355.0
345.9
371.1
417.4
467.2
523.1
578.7
658.3
745.6
840.2

100.7
105.9
122.2
138.2
155.7
182.7
218.9
269.9
328.9
398.5

...........
...........
...........
...........
...........
...........
...........
...........
...........
...........

39.9
45.1
53.0
59.3
65.1
71.6
84.1
108.8
129.4
157.2

80.1
79.6
84.4
90.9
99.4
107.0
117.2
127.3
143.2
158.0

109.2
102.2
104.0
112.9
122.9
134.9
139.9
143.0
148.1
147.9

81.0
78.8
80.2
95.1
111.4
120.6
125.4
135.9
145.4
167.7

96.0
82.0
81.6
89.3
96.5
101.7
105.6
115.8
125.7
126.7

298.9
270.2
307.6
332.7
364.8
353.1
381.3
388.6
418.3
443.6

292.6
264.0
301.4
326.4
358.6
346.8
375.1
382.4
411.9
436.6

154.2
135.1
164.1
179.7
198.9
180.6
197.3
196.6
218.1
234.2

2000 .......
2001 .......
2002 .......
2003 .......
2004 ......
2005 p .....

1,679.0
1,629.4
1,544.6
1,600.0
1,755.1
1,896.1

1,232.1
1,180.5
1,071.5
1,085.0
1,186.7
1,287.6

313.2
306.1
253.8
243.1
248.4
253.1

918.9
874.2
820.2
846.8
947.6
1,049.8

467.6
459.0
437.4
459.7
522.4
590.8

...........
...........
...........
...........
...........
...........

176.2
173.8
169.7
175.7
188.8
210.2

190.0
181.7
161.1
166.2
188.9
198.8

159.2
145.7
134.5
134.9
139.4
148.9

160.8
142.8
126.0
123.1
138.7
156.5

131.2
126.9
122.9
130.7
150.0
159.7

446.9
448.5
469.9
509.4
561.8
602.1

439.5
441.1
462.2
501.3
552.9
592.7

236.8
237.1
246.3
272.6
307.5
327.5

2002: I ....
II ...
III ..
IV ..

1,551.5
1,545.9
1,543.2
1,537.8

1,090.3
1,073.3
1,068.0
1,054.5

270.3
256.4
245.8
242.5

820.9
819.0
825.7
815.4

435.0
437.1
444.2
433.3

...........
...........
...........
...........

166.3
170.2
173.4
168.7

162.9
162.6
161.7
157.1

135.8
132.7
134.7
134.9

130.4
126.1
124.1
123.5

120.3
123.8
123.6
124.1

459.0
469.5
471.8
479.3

451.4
461.8
464.2
471.6

238.0
245.9
248.9
252.4

2003: I ....
II ...
III ..
IV ..

1,540.9
1,573.7
1,629.0
1,656.3

1,051.6
1,072.9
1,101.8
1,113.7

237.3
244.8
244.7
245.5

818.7
832.0
862.4
874.0

439.4
445.3
469.0
485.3

...........
...........
...........
...........

169.8
171.0
178.9
183.2

159.7
161.1
169.1
174.9

138.8
135.6
134.5
130.7

116.7
126.3
126.6
122.6

124.5
125.5
134.0
138.8

484.8
496.0
521.2
535.7

477.1
488.0
512.9
527.1

257.8
262.4
276.4
293.8

2004: I ....
II ...
III ..
IV

1,684.4
1,744.5
1,780.2
1,811.3

1,135.1
1,171.6
1,204.8
1,235.1

243.4
248.5
249.4
252.3

899.1
931.4
965.6
994.2

504.8
517.4
527.9
539.7

...........
...........
...........
...........

185.5
186.9
190.0
192.8

184.7
189.5
191.1
190.3

135.9
134.4
142.8
144.5

121.9
136.7
142.8
153.3

141.3
146.4
154.3
158.0

542.4
565.1
568.8
571.0

533.7
556.2
559.7
561.8

298.0
308.2
312.0
312.0

2005: I ....
II ...
III ..
IV p

1,842.2
1,884.7
1,921.5
1,935.9

1,252.2
1,279.0
1,305.2
1,314.2

251.0
252.7
254.1
254.5

1,014.2
1,040.9
1,067.5
1,076.8

565.1
584.6
600.2
613.4

...........
...........
...........
...........

199.8
209.1
213.7
218.2

196.3
196.5
202.1
200.5

150.9
143.2
148.8
152.6

148.8
158.1
163.3
155.6

153.9
160.6
161.1
163.1

584.1
599.3
610.0
615.2

574.8
590.0
600.6
605.6

320.5
323.3
329.0
337.4

1 For details on this component see Survey of Current Business, Table 5.3.6, Table 5.3.1 for growth rates, Table 5.3.2 for contributions, and
Table 5.3.3 for quantity indexes.
2 Includes other items, not shown separately.
Source: Department of Commerce, Bureau of Economic Analysis.

305

TABLE B–20.—Government consumption expenditures and gross investment by type, 1959–2005
[Billions of dollars; quarterly data at seasonally adjusted annual rates]
Government consumption expenditures and gross investment
Federal
State and local
National defense
Year or
quarter

Total
Total
Total

Consumption
expenditures

Nondefense

Gross
investment

Structures

Equipment
and
software

Total

Gross
investment

Consumption
expenditures

Structures

Equipment
and
software

Total

Gross
investment

Consumption
expenditures

Structures

Equipment
and
software

1959 .......

110.0

65.4

53.8

40.1

2.5

11.2

11.5

9.8

1.5

0.2

44.7

30.7

12.8

1.1

1960
1961
1962
1963
1964
1965
1966
1967
1968
1969

.......
.......
.......
.......
.......
.......
.......
.......
.......
.......

111.6
119.5
130.1
136.4
143.2
151.5
171.8
192.7
209.4
221.5

64.1
67.9
75.3
76.9
78.5
80.4
92.5
104.8
111.4
113.4

53.4
56.5
61.1
61.0
60.3
60.6
71.7
83.5
89.3
89.5

41.0
42.7
46.6
48.3
48.8
50.6
60.0
70.0
77.2
78.2

2.2
2.4
2.0
1.6
1.3
1.1
1.3
1.2
1.2
1.5

10.1
11.5
12.5
11.0
10.2
8.9
10.5
12.3
10.9
9.9

10.7
11.4
14.2
15.9
18.2
19.8
20.8
21.3
22.1
23.8

8.7
9.0
11.3
12.4
14.0
15.1
15.9
17.1
18.3
20.2

1.7
1.9
2.1
2.3
2.5
2.8
2.8
2.2
2.1
1.9

.3
.6
.8
1.2
1.6
1.9
2.1
1.9
1.7
1.7

47.5
51.6
54.9
59.5
64.8
71.0
79.2
87.9
98.0
108.2

33.5
36.6
39.0
41.9
45.8
50.2
56.1
62.6
70.4
79.9

12.7
13.8
14.5
16.0
17.2
19.0
21.0
23.0
25.2
25.6

1.2
1.3
1.3
1.5
1.8
1.9
2.1
2.3
2.4
2.7

1970
1971
1972
1973
1974
1975
1976
1977
1978
1979

.......
.......
.......
.......
.......
.......
.......
.......
.......
.......

233.8
246.5
263.5
281.7
317.9
357.7
383.0
414.1
453.6
500.8

113.5
113.7
119.7
122.5
134.6
149.1
159.7
175.4
190.9
210.6

87.6
84.6
87.0
88.2
95.6
103.9
111.1
120.9
130.5
145.2

76.6
77.1
79.5
79.4
84.5
90.9
95.8
104.2
112.7
123.8

1.3
1.8
1.8
2.1
2.2
2.3
2.1
2.4
2.5
2.5

9.8
5.7
5.7
6.6
8.9
10.7
13.2
14.4
15.3
18.9

25.8
29.1
32.7
34.3
39.0
45.1
48.6
54.5
60.4
65.4

22.1
24.9
28.2
29.4
33.4
38.7
41.4
46.5
50.6
55.1

2.1
2.5
2.7
3.1
3.4
4.1
4.6
5.0
6.1
6.3

1.7
1.7
1.8
1.8
2.2
2.4
2.7
3.0
3.7
4.0

120.3
132.8
143.8
159.2
183.4
208.7
223.3
238.7
262.6
290.2

91.5
102.7
113.2
126.0
143.7
165.1
179.5
195.9
213.2
233.3

25.8
27.0
27.1
29.1
34.7
38.1
38.1
36.9
42.8
49.0

3.0
3.1
3.5
4.1
4.9
5.5
5.7
5.9
6.6
7.8

1980
1981
1982
1983
1984
1985
1986
1987
1988
1989

.......
.......
.......
.......
.......
.......
.......
.......
.......
.......

566.2
627.5
680.5
733.5
797.0
879.0
949.3
999.5
1,039.0
1,099.1

243.8
280.2
310.8
342.9
374.4
412.8
438.6
460.1
462.3
482.2

168.0
196.3
225.9
250.7
281.6
311.2
330.9
350.0
354.9
362.2

143.7
167.3
191.2
208.8
232.9
253.7
268.0
283.6
293.6
299.5

3.2
3.2
4.0
4.8
4.9
6.2
6.8
7.7
7.4
6.4

21.1
25.7
30.8
37.1
43.8
51.3
56.1
58.8
53.9
56.3

75.8
84.0
84.9
92.3
92.8
101.6
107.8
110.0
107.4
120.0

63.8
71.0
72.1
77.7
77.1
84.7
90.3
90.6
88.9
99.7

7.1
7.7
6.8
6.7
7.0
7.3
8.0
9.0
6.8
6.9

4.9
5.3
6.0
7.8
8.7
9.6
9.5
10.4
11.7
13.4

322.4
347.3
369.7
390.5
422.6
466.2
510.7
539.4
576.7
616.9

258.4
282.3
304.9
324.1
347.7
381.8
417.9
440.9
470.4
502.1

55.1
55.4
54.2
54.2
60.5
67.6
74.2
78.8
84.8
88.7

8.9
9.5
10.6
12.2
14.4
16.8
18.6
19.6
21.5
26.0

1990
1991
1992
1993
1994
1995
1996
1997
1998
1999

.......
.......
.......
.......
.......
.......
.......
......
.......
......

1,180.2
1,234.4
1,271.0
1,291.2
1,325.5
1,369.2
1,416.0
1,468.7
1,518.3
1,620.8

508.3
527.7
533.9
525.2
519.1
519.2
527.4
530.9
530.4
555.8

374.0
383.2
376.9
362.9
353.7
348.7
354.6
349.6
345.7
360.6

308.1
319.8
315.3
307.6
300.7
297.3
302.5
304.7
300.7
312.9

6.1
4.6
5.2
5.1
5.7
6.3
6.7
5.7
5.1
5.0

59.8
58.8
56.3
50.1
47.2
45.1
45.4
39.2
39.9
42.8

134.3
144.5
157.0
162.4
165.5
170.5
172.8
181.3
184.7
195.2

111.7
119.7
129.8
134.2
140.1
143.2
143.8
153.0
153.9
162.2

8.0
9.2
10.3
11.2
10.5
10.8
11.2
9.8
10.6
10.6

14.6
15.7
16.9
16.9
14.9
16.5
17.9
18.5
20.2
22.4

671.9
706.7
737.0
766.0
806.3
850.0
888.6
937.8
987.9
1,065.0

544.6
574.6
602.7
630.3
663.3
696.1
724.8
758.9
801.4
858.9

98.5
103.2
104.2
104.5
108.7
117.3
126.8
139.5
143.6
159.7

28.7
28.9
30.1
31.2
34.3
36.7
36.9
39.4
43.0
46.4

2000 ......
2001 ......
2002 .......
2003 .......
2004 ......
2005 p .....
2002: I ....
II ...
III ..
IV ..

1,721.6
1,825.6
1,961.1
2,091.9
2,215.9
2,359.7
1,912.0
1,948.3
1,971.8
2,012.5

578.8
612.9
679.7
754.8
827.6
874.8
654.9
675.2
682.0
706.6

370.3
392.6
437.1
496.7
552.7
585.3
418.2
431.1
438.0
461.1

321.5
342.4
381.7
436.6
484.2
514.4
366.8
375.4
379.8
404.8

5.0
4.6
4.4
5.1
5.1
5.2
4.2
4.4
4.5
4.6

43.8
45.6
51.0
55.0
63.4
65.6
47.3
51.3
53.7
51.7

208.5
220.3
242.5
258.2
274.9
289.5
236.6
244.1
243.9
245.5

177.8
189.5
209.9
225.3
241.4
252.8
204.5
209.6
211.6
213.7

8.3
8.3
9.9
10.3
9.4
10.2
9.7
9.7
9.8
10.3

22.3
22.5
22.8
22.6
24.0
26.5
22.5
24.8
22.5
21.5

1,142.8
1,212.8
1,281.5
1,337.1
1,388.3
1,484.9
1,257.2
1,273.1
1,289.8
1,305.9

917.8
969.8
1,025.3
1,074.8
1,117.7
1,192.6
1,001.8
1,019.4
1,033.6
1,046.7

176.0
192.4
205.9
211.6
217.6
235.8
204.8
203.5
206.0
209.5

49.0
50.6
50.2
50.8
53.0
56.5
50.6
50.2
50.2
49.8

2003: I ....
II ...
III ..
IV ..

2,054.4
2,090.5
2,106.2
2,116.5

724.0
763.4
761.8
770.0

467.2
507.2
500.3
512.0

409.9
447.0
439.4
450.0

4.7
5.0
5.5
5.3

52.6
55.2
55.5
56.6

256.8
256.3
261.5
258.0

224.9
220.6
229.0
226.8

10.2
10.9
10.6
9.3

21.8
24.7
21.9
21.9

1,330.4
1,327.1
1,344.4
1,346.5

1,070.8
1,067.8
1,077.7
1,082.9

209.6
209.0
215.6
212.0

50.1
50.2
51.1
51.7

2004: I ....
II ...
III ..
IV ..

2,166.2
2,205.0
2,232.5
2,260.0

808.3
824.6
836.5
840.8

538.7
547.2
562.9
562.0

472.5
479.6
494.6
490.1

5.1
4.7
5.2
5.2

61.1
62.9
63.1
66.7

269.6
277.4
273.6
278.8

238.1
241.5
241.1
245.1

9.1
9.6
9.5
9.6

22.4
26.4
23.0
24.2

1,357.9
1,380.4
1,395.9
1,419.1

1,095.1
1,108.9
1,123.9
1,143.1

210.7
218.7
218.8
222.0

52.1
52.7
53.3
54.0

2005: I ....
II ...
III ..
IV p

2,302.0
2,337.6
2,392.7
2,406.8

860.2
869.8
892.2
876.9

575.3
582.5
601.7
581.6

508.9
512.3
528.6
507.8

5.1
5.1
5.1
5.5

61.3
65.1
68.0
68.2

285.0
287.3
290.5
295.3

250.7
250.5
254.3
255.7

9.2
8.7
9.8
13.1

25.0
28.2
26.4
26.5

1,441.7
1,467.7
1,500.4
1,529.9

1,159.0
1,175.7
1,205.7
1,230.1

227.5
235.7
237.7
242.2

55.2
56.3
57.1
57.6

Source: Department of Commerce, Bureau of Economic Analysis.

306

TABLE B–21.—Real government consumption expenditures and gross investment by type, 1990–2005
[Billions of chained (2000) dollars; quarterly data at seasonally adjusted annual rates]
Government consumption expenditures and gross investment
Federal
State and local
National defense
Year or
quarter

Total
Total
Total

Nondefense

Gross
investment

Consumption
expenditures

Structures

Equipment
and
software

Total

Gross
investment

Consumption
expenditures

Structures

Equipment
and
software

Total

Gross
investment

Consumption
expenditures

Structures

Equipment
and
software

1990 .........
1991 .........
1992 .........
1993 .........
1994 .........
1995 .........
1996 .........
1997 .........
1998 .........
1999 .........
2000 .........
2001 .........
2002 .........
2003 .........
2004 ........
2005 p ......

1,530.0
1,547.2
1,555.3
1,541.1
1,541.3
1,549.7
1,564.9
1,594.0
1,624.4
1,686.9
1,721.6
1,780.3
1,858.8
1,911.1
1,952.3
1,985.1

659.1
658.0
646.6
619.6
596.4
580.3
573.5
567.6
561.2
573.7
578.8
601.4
643.4
687.8
723.7
738.4

479.4
474.2
450.7
425.3
404.6
389.2
383.8
373.0
365.3
372.2
370.3
384.9
413.2
449.7
481.3
492.2

404.9
404.4
383.5
367.2
350.6
338.1
332.2
328.1
319.8
324.6
321.5
334.1
356.7
388.5
413.3
423.0

8.6
6.4
7.0
6.4
7.1
7.4
7.7
6.4
5.5
5.2
5.0
4.4
4.2
4.7
4.4
4.3

64.2
61.8
58.7
51.1
46.8
43.7
43.8
38.9
40.1
42.5
43.8
46.4
52.6
56.7
64.4
65.6

178.6
182.8
195.4
194.1
191.7
191.0
189.6
194.5
195.9
201.5
208.5
216.5
230.2
238.0
242.2
246.0

156.5
158.4
168.2
166.0
167.3
164.7
161.1
166.6
164.8
168.1
177.8
185.8
197.3
204.8
208.6
210.0

10.6
11.8
13.2
14.1
12.7
12.6
12.7
10.9
11.5
11.1
8.3
8.0
9.3
9.4
8.3
8.4

12.9
13.7
15.0
15.0
13.3
14.7
16.4
17.5
19.8
22.3
22.3
22.7
23.5
23.6
25.3
28.0

868.4
886.8
906.5
919.5
943.3
968.3
990.5
1,025.9
1,063.0
1,113.2
1,142.8
1,179.0
1,215.4
1,223.3
1,228.4
1,246.5

714.2
729.0
746.5
761.4
780.6
798.4
812.8
834.9
866.4
900.3
917.8
941.2
969.4
975.2
979.5
991.1

132.1
136.5
137.0
133.9
134.9
139.5
146.3
155.8
155.6
167.0
176.0
186.0
193.5
194.3
192.8
196.0

25.0
24.8
25.9
26.8
29.5
31.7
32.7
36.1
41.2
45.9
49.0
51.7
52.5
53.9
56.6
60.5

2002: I ......
II ....
III ....
IV ....

1,832.0
1,853.4
1,863.9
1,885.8

623.2
641.7
646.5
662.3

399.2
410.2
414.4
428.9

346.5
353.5
355.2
371.5

3.9
4.2
4.3
4.3

48.8
52.9
55.4
53.2

224.0
231.5
232.2
233.4

191.8
196.9
199.5
201.2

9.2
9.2
9.3
9.6

22.9
25.6
23.3
22.3

1,208.9
1,211.8
1,217.5
1,223.6

961.9
967.8
972.0
975.7

194.4
191.6
192.8
195.4

52.5
52.4
52.7
52.3

2003: I ......
II ....
III ...
IV ....

1,884.4
1,917.5
1,920.1
1,922.6

662.8
696.8
693.2
698.5

425.0
460.1
452.5
461.2

366.7
398.7
390.5
398.2

4.3
4.5
5.0
4.8

54.2
57.0
57.3
58.4

237.9
236.4
240.6
237.0

205.5
200.7
207.7
205.2

9.4
10.1
9.7
8.5

22.7
25.8
22.9
23.1

1,221.6
1,220.7
1,226.8
1,224.1

975.3
975.1
974.8
975.4

193.4
192.3
197.8
193.8

52.8
53.3
54.4
55.1

2004: I ......
II ....
III ...
IV ....

1,938.4
1,949.5
1,958.4
1,962.8

716.5
722.2
728.6
727.6

476.4
477.4
487.7
483.7

409.7
410.1
419.8
413.4

4.5
4.1
4.5
4.4

62.7
63.9
63.9
66.9

239.9
244.6
240.6
243.6

207.9
208.8
207.9
209.9

8.2
8.5
8.3
8.2

23.6
27.7
24.3
25.5

1,221.8
1,227.1
1,229.6
1,235.0

975.3
977.2
980.7
984.8

191.2
194.2
192.6
193.2

55.6
56.2
56.9
57.6

2005: I ......
II ....
III ...
IV p

1,971.9
1,984.1
1,998.1
1,986.2

731.8
736.1
749.5
736.1

487.3
491.7
503.6
486.2

421.9
422.9
432.2
415.0

4.3
4.3
4.2
4.4

61.2
65.2
68.1
68.0

244.3
244.2
245.6
249.7

210.4
208.2
210.1
211.4

7.8
7.2
8.0
10.6

26.3
29.7
28.0
28.1

1,239.8
1,247.8
1,248.5
1,249.8

986.8
988.8
993.3
995.6

195.0
199.9
195.5
193.7

58.8
60.1
61.0
62.0

Note.—See Table B-2 for data for total government consumption expenditures and gross investment for 1959-89.
Source: Department of Commerce, Bureau of Economic Analysis.

307

TABLE B–22.—Private inventories and domestic final sales by industry, 1959–2005
[Billions of dollars, except as noted; seasonally adjusted]
Private inventories 1

Quarter
Total 2

Fourth quarter:
1959 ....................

Farm

Mining,
utilities,
and
construction 2

Manufacturing

Wholesale
trade

Retail
trade

Other
industries 2

Nonfarm 2

Final
sales
of
domestic
business 3

Ratio of private
inventories
to final sales of
domestic business
Total

Nonfarm

132.9

42.1

.................

47.7

16.5

20.5

6.1

90.8

31.6

4.20

2.87

1960
1961
1962
1963
1964
1965
1966
1967
1968
1969

....................
....................
....................
....................
....................
....................
....................
....................
....................
....................

136.2
139.6
147.2
149.7
154.3
169.3
185.7
194.9
208.2
227.7

42.7
44.3
46.7
44.2
42.1
47.1
47.4
45.8
48.9
53.1

.................
.................
.................
.................
.................
.................
.................
.................
.................
.................

48.7
50.1
53.2
55.1
58.6
63.4
73.0
79.9
85.1
92.6

16.9
17.3
18.0
19.5
20.8
22.5
25.8
28.1
29.3
32.5

21.9
21.3
22.7
23.9
25.2
28.0
30.6
30.9
34.2
37.5

6.1
6.6
6.6
7.1
7.7
8.3
8.9
10.1
10.6
12.0

93.5
95.2
100.5
105.5
112.2
122.2
138.3
149.1
159.3
174.6

32.7
34.3
36.0
38.3
41.2
45.3
47.8
50.3
55.4
59.1

4.17
4.07
4.09
3.91
3.75
3.73
3.88
3.87
3.76
3.85

2.86
2.78
2.79
2.75
2.73
2.70
2.89
2.96
2.87
2.95

1970
1971
1972
1973
1974
1975
1976
1977
1978
1979

....................
....................
....................
....................
....................
....................
....................
....................
....................
....................

236.0
253.9
283.9
352.2
406.3
409.3
440.1
482.4
571.4
668.2

52.7
59.5
74.0
102.8
88.2
90.3
85.8
91.0
119.7
135.6

.................
.................
.................
.................
.................
.................
.................
.................
.................
.................

95.5
96.6
102.1
121.5
162.6
162.2
178.7
193.2
219.8
261.8

36.4
39.4
43.1
51.7
66.9
66.5
74.1
84.0
99.0
119.5

38.5
44.7
49.8
58.4
63.9
64.4
73.0
80.9
94.1
104.7

12.9
13.7
14.8
17.7
24.7
25.9
28.5
33.3
38.8
46.6

183.3
194.4
209.9
249.4
318.1
319.0
354.2
391.4
451.7
532.6

62.4
68.0
76.3
84.3
90.4
101.7
111.9
124.8
144.7
160.1

3.78
3.73
3.72
4.18
4.49
4.02
3.93
3.86
3.95
4.17

2.94
2.86
2.75
2.96
3.52
3.14
3.17
3.14
3.12
3.33

1980
1981
1982
1983
1984
1985
1986
1987
1988
1989

....................
....................
....................
....................
....................
....................
....................
....................
....................
....................

739.8
779.2
774.1
797.6
869.3
876.1
858.0
924.2
999.2
1,044.4

141.1
127.5
131.5
132.5
131.8
125.9
112.9
119.8
130.2
129.6

.................
.................
.................
.................
.................
.................
.................
.................
.................
.................

293.4
313.1
304.6
308.9
344.5
333.3
320.6
339.6
372.4
390.5

139.4
148.8
147.9
153.4
169.1
175.9
182.0
195.8
213.9
222.8

111.7
123.2
123.2
137.6
157.0
171.4
176.2
199.1
213.2
231.4

54.1
66.6
66.8
65.2
66.9
69.5
66.3
69.9
69.5
70.1

598.7
651.7
642.6
665.1
737.6
750.2
745.1
804.4
869.1
914.7

175.0
187.7
195.8
216.8
234.8
250.7
265.7
279.3
305.6
324.4

4.23
4.15
3.95
3.68
3.70
3.49
3.23
3.31
3.27
3.22

3.42
3.47
3.28
3.07
3.14
2.99
2.80
2.88
2.84
2.82

1990
1991
1992
1993
1994
1995
NAICS:
1996
1997
1998
1999

....................
....................
....................
....................
....................
....................

1,082.3
1,057.2
1,082.4
1,115.8
1,194.3
1,257.0

133.4
123.2
132.9
132.1
134.3
130.9

.................
.................
.................
.................
.................
.................

404.5
384.1
377.6
380.1
404.3
424.5

236.8
239.2
248.3
258.6
281.5
303.7

236.6
240.2
249.4
268.6
293.6
312.2

71.0
70.5
74.3
76.5
80.6
85.6

948.9
934.0
949.5
983.7
1,060.0
1,126.1

337.6
347.6
372.7
393.6
416.8
439.2

3.21
3.04
2.90
2.83
2.87
2.86

2.81
2.69
2.55
2.50
2.54
2.56

....................
....................
....................
....................

1,284.4
1,329.5
1,346.8
1,442.2

136.3
136.7
120.3
124.2

31.1
33.7
37.3
39.6

421.0
431.7
431.5
457.7

285.1
303.1
313.3
337.4

328.7
337.5
353.6
383.8

82.1
86.9
90.9
99.5

1,148.1
1,192.9
1,226.5
1,318.0

469.1
495.6
526.8
556.7

2.74
2.68
2.56
2.59

2.45
2.41
2.33
2.37

2000 ....................
2001 ....................

1,535.9
1,458.3

132.1
126.1

44.5
47.5

477.0
437.9

359.0
338.6

409.0
395.6

114.4
112.6

1,403.8
1,332.2

583.6
598.7

2.63
2.44

2.41
2.23

2002: I ..................
II .................
III ...............
IV ...............

1,460.8
1,468.2
1,487.6
1,507.8

128.3
125.1
128.1
135.8

47.8
49.1
48.0
49.4

437.1
436.8
441.0
443.6

336.0
338.0
346.1
348.0

400.4
407.5
412.7
419.3

111.0
111.7
111.5
111.7

1,332.4
1,343.0
1,359.4
1,372.0

596.0
598.2
600.6
601.0

2.45
2.45
2.48
2.51

2.24
2.25
2.26
2.28

2003: I ..................
II .................
III ...............
IV ...............

1,536.2
1,529.6
1,547.5
1,569.3

136.5
136.9
149.2
151.0

55.5
55.6
56.4
58.4

450.9
446.5
443.9
449.7

352.3
348.4
351.5
360.3

428.7
429.5
434.0
437.3

112.4
112.6
112.6
112.6

1,399.7
1,392.7
1,398.3
1,418.3

606.6
614.8
631.5
639.1

2.53
2.49
2.45
2.46

2.31
2.27
2.21
2.22

2004: I ..................
II .................
III ...............
IV ...............

1,606.5
1,650.9
1,679.7
1,711.7

154.2
160.0
152.9
152.5

60.7
63.3
66.3
70.4

460.7
474.7
491.7
499.6

370.9
380.4
393.6
404.2

446.6
457.5
458.4
465.9

113.4
114.9
116.9
119.1

1,452.3
1,490.9
1,526.8
1,559.3

650.6
661.2
670.4
681.0

2.47
2.50
2.51
2.51

2.23
2.25
2.28
2.29

2005: I ..................
II .................
III ...............
IV p .............

1,761.5
1,763.0
1,792.3
1,829.0

170.1
165.4
164.3
166.2

71.8
75.9
80.5
90.7

512.8
510.7
522.9
531.5

414.9
419.5
430.4
438.0

470.8
468.8
469.2
476.0

121.1
122.7
124.9
126.5

1,591.4
1,597.6
1,628.0
1,662.8

691.3
707.8
721.3
725.9

2.55
2.49
2.48
2.52

2.30
2.26
2.26
2.29

1 Inventories at end of quarter. Quarter-to-quarter change calculated from this table is not the current-dollar change in private inventories
component of GDP. The former is the difference between two inventory stocks, each valued at its 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, mining, and utilities establishments are included in other industries through 1995.
3 Quarterly totals at monthly rates. Final sales of domestic business equals final sales of domestic product less gross output of general
government, gross value added of nonprofit institutions, compensation paid to domestic workers, and space rent for owner-occupied housing.
Includes a small amount of final sales by farm and by government enterprises.
Note.—The industry classification of inventories is on an establishment basis. Estimates through 1995 are based on the Standard Industrial Classification (SIC). Beginning with 1996, estimates are based on the North American Industry Classification System (NAICS).
Source: Department of Commerce, Bureau of Economic Analysis.

308

TABLE B–23.—Real private inventories and domestic final sales by industry, 1959–2005
[Billions of chained (2000) dollars, except as noted; seasonally adjusted]
Private inventories 1

Quarter
Total 2

Fourth quarter:
1959 ............................

Farm

Mining,
utilities,
and
construction 2

Manufacturing

Wholesale
trade

Retail
trade

Other
industries 2

Nonfarm 2

Final
sales
of
domestic
business 3

Ratio of private
inventories
to final sales of
domestic business

Total

Nonfarm

428.1

106.9

............

143.5

57.6

63.9

29.8

298.7

131.3

3.26

2.27

1960
1961
1962
1963
1964
1965
1966
1967
1968
1969

............................
............................
............................
............................
............................
............................
............................
............................
............................
............................

438.5
448.0
467.4
485.4
500.8
530.1
572.2
602.5
629.9
656.9

108.3
110.4
111.8
112.9
109.8
111.8
110.7
112.8
116.1
116.1

............
............
............
............
............
............
............
............
............
............

145.4
149.8
159.8
165.9
175.1
187.4
212.5
229.3
239.8
250.9

59.1
60.7
63.4
68.4
72.5
77.4
87.7
94.7
98.0
105.1

68.2
66.9
71.5
75.3
79.3
87.1
94.1
94.1
101.9
108.9

30.8
33.9
33.8
36.2
38.4
40.1
41.1
46.0
47.3
49.7

307.5
314.4
332.7
349.7
369.4
396.8
442.0
470.4
494.1
521.9

134.3
140.1
145.4
153.9
163.2
177.2
180.9
185.3
195.1
198.9

3.27
3.20
3.21
3.15
3.07
2.99
3.16
3.25
3.23
3.30

2.29
2.24
2.29
2.27
2.26
2.24
2.44
2.54
2.53
2.62

1970
1971
1972
1973
1974
1975
1976
1977
1978
1979

............................
............................
............................
............................
............................
............................
............................
............................
............................
............................

661.9
684.2
707.3
742.2
768.1
756.8
787.5
826.0
867.1
892.2

114.2
117.5
117.9
119.3
115.7
120.4
119.1
125.0
126.7
130.2

............
............
............
............
............
............
............
............
............
............

250.9
247.9
254.6
273.5
294.1
286.7
300.4
308.8
322.9
335.3

113.0
119.1
124.6
128.1
139.7
133.7
142.7
154.1
166.9
175.0

109.0
123.6
133.1
143.7
141.6
134.6
144.9
153.2
163.3
163.3

50.3
52.1
54.7
57.5
61.3
62.9
63.6
68.4
72.5
72.4

529.7
548.3
572.5
609.1
644.2
625.0
659.0
691.1
732.0
753.5

201.3
211.5
228.8
236.9
228.2
238.7
250.5
263.6
283.2
289.8

3.29
3.24
3.09
3.13
3.37
3.17
3.14
3.13
3.06
3.08

2.63
2.59
2.50
2.57
2.82
2.62
2.63
2.62
2.58
2.60

1980
1981
1982
1983
1984
1985
1986
1987
1988
1989

............................
............................
............................
............................
............................
............................
............................
............................
............................
............................

884.3
919.2
901.7
895.3
966.6
990.3
998.5
1,028.8
1,049.1
1,077.4

124.3
132.5
138.6
124.4
129.6
135.3
133.5
126.1
115.4
115.4

............
............
............
............
............
............
............
............
............
............

335.7
340.2
325.0
324.5
352.8
346.6
342.9
351.1
367.6
381.4

180.0
185.1
183.0
182.7
198.5
204.9
213.2
220.6
229.7
233.6

158.7
167.5
163.7
177.0
198.6
214.0
217.4
238.5
246.1
260.5

71.2
79.2
76.8
75.9
77.0
81.4
84.4
86.6
85.2
81.4

753.5
779.0
754.4
764.6
831.2
848.7
858.8
896.5
929.2
958.0

289.6
287.2
286.1
307.6
324.6
339.4
352.2
362.6
381.6
392.5

3.05
3.20
3.15
2.91
2.98
2.92
2.84
2.84
2.75
2.75

2.60
2.71
2.64
2.49
2.56
2.50
2.44
2.47
2.43
2.44

1990
1991
1992
1993
1994
1995
NAICS:
1996
1997
1998
1999

............................
............................
............................
............................
............................
............................

1,092.8
1,092.3
1,108.7
1,129.4
1,193.0
1,222.8

120.9
119.4
125.1
119.1
130.3
119.6

............
............
............
............
............
............

390.0
383.5
378.9
382.4
394.1
407.8

242.0
246.4
254.8
261.0
276.7
289.9

258.9
259.5
264.1
279.4
299.9
312.0

78.3
81.4
83.9
86.9
91.1
93.3

971.2
972.2
982.5
1,010.2
1,062.2
1,103.5

394.0
394.6
415.7
429.8
447.2
464.2

2.77
2.77
2.67
2.63
2.67
2.63

2.46
2.46
2.36
2.35
2.38
2.38

............................
............................
............................
............................

1,251.6
1,322.7
1,395.3
1,464.2

126.4
129.3
130.7
127.8

33.6
36.1
43.3
42.7

409.9
430.7
449.3
466.3

273.3
298.3
320.9
340.6

325.9
340.6
357.9
385.5

82.7
88.1
94.0
101.3

1,125.2
1,193.7
1,264.9
1,336.4

488.3
509.2
538.0
563.4

2.56
2.60
2.59
2.60

2.30
2.34
2.35
2.37

2000 ............................
2001 ............................

1,520.7
1,488.9

126.4
126.5

41.1
51.7

474.2
452.8

358.2
347.5

407.1
396.3

113.7
113.9

1,394.3
1,362.4

581.0
583.6

2.62
2.55

2.40
2.33

2002: I .........................
II ........................
III ......................
IV ......................

1,486.4
1,487.0
1,494.0
1,501.4

126.7
124.4
124.1
124.0

51.8
50.1
49.2
48.1

449.1
446.3
447.1
447.0

343.6
343.6
346.7
348.8

401.6
408.7
413.4
420.6

113.1
113.5
113.1
112.5

1,359.6
1,362.7
1,370.1
1,377.6

581.1
582.6
584.1
582.5

2.56
2.55
2.56
2.58

2.34
2.34
2.35
2.37

2003: I .........................
II ........................
III ......................
IV ......................

1,507.4
1,507.3
1,509.6
1,516.9

125.1
124.7
123.9
124.2

48.6
49.5
50.9
53.2

445.8
444.0
440.7
439.4

348.4
346.9
347.5
350.0

427.2
429.2
434.0
437.3

111.9
112.6
112.4
112.3

1,382.5
1,382.7
1,386.0
1,393.0

586.2
592.8
606.8
611.4

2.57
2.54
2.49
2.48

2.36
2.33
2.28
2.28

2004: I .........................
II ........................
III ......................
IV ......................

1,527.4
1,543.8
1,556.4
1,568.9

123.4
125.0
126.6
126.6

52.3
52.4
54.1
55.0

441.7
443.5
445.2
445.6

353.2
358.3
366.9
373.3

443.9
451.0
448.5
452.7

113.1
113.7
114.8
115.8

1,404.7
1,419.3
1,430.3
1,443.0

617.2
621.7
629.5
636.2

2.47
2.48
2.47
2.47

2.28
2.28
2.27
2.27

2005: I .........................
II ........................
III ......................
IV p ....................

1,583.4
1,583.0
1,579.7
1,586.1

126.0
124.9
123.8
122.9

55.5
56.7
55.8
55.3

451.8
449.7
449.1
447.4

379.1
383.2
385.9
389.2

454.5
451.1
447.7
453.9

116.6
117.4
117.7
118.7

1,458.4
1,459.3
1,457.2
1,464.9

642.0
653.7
661.9
661.7

2.47
2.42
2.39
2.40

2.27
2.23
2.20
2.21

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, mining, and utilities establishments are included in other industries through 1995.
3 Quarterly totals at monthly rates. Final sales of domestic business equals final sales of domestic product less gross output of general
government, gross value added of nonprofit institutions, compensation paid to domestic workers, and space rent for owner-occupied housing.
Includes a small amount of final sales by farm and by government enterprises.
Note.—The industry classification of inventories is on an establishment basis. Estimates through 1995 are based on the Standard Industrial Classification (SIC). Beginning with 1996, estimates are based on the North American Industry Classification System (NAICS).
See Survey of Current Business, Tables 5.7.6A and 5.7.6B, for detailed information on calculation of the chained (2000) dollar inventory series.
Source: Department of Commerce, Bureau of Economic Analysis.

309

TABLE B–24.—Foreign transactions in the national income and product accounts, 1959–2005
[Billions of dollars; quarterly data at seasonally adjusted annual rates]
Current receipts from rest of the world

Current payments to rest of the world

Exports of goods and
services
Year or
quarter

Total
Total

Goods 1

Services 1

Income
receipts

Imports of goods and
services
Total
Total

Goods 1

Services 1

Income
payments

Current taxes and
transfer payments
to rest of the world (net)

Total

From
persons
(net)

From
government
(net)

From
business
(net)

Balance
on
current
account,
NIPA

1959 .................

27.0

22.7

16.5

6.3

4.3

28.2

22.3

15.3

7.0

1.5

4.3

0.5

3.8

0.1

−1.2

1960
1961
1962
1963
1964
1965
1966
1967
1968
1969

.................
.................
.................
.................
.................
.................
.................
.................
.................
.................

31.9
32.9
35.0
37.6
42.3
45.0
49.0
52.1
58.0
63.7

27.0
27.6
29.1
31.1
35.0
37.1
40.9
43.5
47.9
51.9

20.5
20.9
21.7
23.3
26.7
27.8
30.7
32.2
35.3
38.3

6.6
6.7
7.4
7.7
8.3
9.4
10.2
11.3
12.6
13.7

4.9
5.3
5.9
6.5
7.2
7.9
8.1
8.7
10.1
11.8

28.7
28.6
31.1
32.6
34.7
38.8
45.1
48.6
56.3
61.9

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
2.3
2.6
3.0
3.3
4.0
5.7

4.1
4.2
4.3
4.4
4.3
4.7
5.0
5.4
5.7
5.8

.5
.5
.5
.7
.7
.8
.8
1.0
1.0
1.1

3.5
3.6
3.6
3.6
3.4
3.7
4.0
4.1
4.4
4.4

.1
.1
.1
.1
.2
.2
.2
.2
.3
.3

3.2
4.3
3.9
5.0
7.5
6.2
3.9
3.6
1.7
1.8

1970
1971
1972
1973
1974
1975
1976
1977
1978
1979

.................
.................
.................
.................
.................
.................
.................
.................
.................
.................

72.5
77.0
87.1
118.8
156.5
166.7
181.9
196.6
233.1
298.5

59.7
63.0
70.8
95.3
126.7
138.7
149.5
159.4
186.9
230.1

44.5
45.6
51.8
73.9
101.0
109.6
117.8
123.7
145.4
184.0

15.2
17.4
19.0
21.3
25.7
29.1
31.7
35.7
41.5
46.1

12.8
14.0
16.3
23.5
29.8
28.0
32.4
37.2
46.3
68.3

68.5
76.4
90.7
109.5
149.8
145.4
173.0
205.6
243.6
297.0

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

6.4
6.4
7.7
10.9
14.3
15.0
15.5
16.9
24.7
36.4

6.3
7.6
8.8
7.4
8.1
7.6
6.3
6.2
6.7
8.0

1.3
1.3
1.4
1.5
1.3
1.3
1.3
1.3
1.5
1.6

4.7
5.9
7.0
5.2
5.8
5.6
3.9
3.5
3.8
4.3

.4
.4
.5
.7
1.0
.7
1.1
1.4
1.4
2.0

4.0
.6
−3.6
9.3
6.6
21.4
8.9
−9.0
−10.4
1.4

1980
1981
1982
1983
1984
1985
1986
1987
1988
1989

.................
.................
.................
.................
.................
.................
.................
.................
.................
.................

359.9
397.3
384.2
378.9
424.2
414.5
431.9
487.1
596.2
681.0

280.8
305.2
283.2
277.0
302.4
302.0
320.5
363.9
444.1
503.3

225.8
239.1
215.0
207.3
225.6
222.2
226.0
257.5
325.8
369.4

55.0
66.1
68.2
69.7
76.7
79.8
94.5
106.4
118.3
134.0

79.1
92.0
101.0
101.9
121.9
112.4
111.4
123.2
152.1
177.7

348.5
390.9
384.4
410.9
511.2
525.3
571.2
637.9
708.4
769.3

293.8
317.8
303.2
328.6
405.1
417.2
453.3
509.1
554.5
591.5

248.6
267.8
250.5
272.7
336.3
343.3
370.0
414.8
452.1
484.8

45.3
49.9
52.6
56.0
68.8
73.9
83.3
94.3
102.4
106.7

44.9
59.1
64.5
64.8
85.6
85.9
93.6
105.3
128.5
151.5

9.8
14.1
16.7
17.5
20.5
22.2
24.3
23.5
25.5
26.4

1.8
5.5
6.6
6.9
7.8
8.2
9.0
9.9
10.6
11.4

5.5
5.4
6.7
7.2
9.2
11.1
12.2
10.3
10.4
10.4

2.4
3.2
3.4
3.4
3.5
2.9
3.2
3.4
4.5
4.6

11.4
6.3
−.2
−32.1
−86.9
−110.8
−139.2
−150.8
−112.2
−88.3

1990
1991
1992
1993
1994
1995
1996
1997
1998
1999

.................
.................
.................
.................
.................
.................
.................
................
................
................

741.5
765.7
788.0
812.1
907.3
1,046.1
1,117.3
1,242.0
1,243.1
1,312.1

552.4
596.8
635.3
655.8
720.9
812.2
868.6
955.3
955.9
991.2

396.6
423.5
448.0
459.9
510.1
583.3
618.3
687.7
680.9
697.2

155.7
173.3
187.4
195.9
210.8
228.9
250.2
267.6
275.1
294.0

189.1
168.9
152.7
156.2
186.4
233.9
248.7
286.7
287.1
320.8

811.5 630.3 508.1
752.3 624.3 500.7
824.9 668.6 544.9
882.5 720.9 592.8
1,012.5 814.5 676.8
1,137.1 903.6 757.4
1,217.6 964.8 807.4
1,352.2 1,056.9 885.3
1,430.5 1,115.9 929.0
1,585.9 1,251.7 1,045.5

122.3
123.6
123.6
128.1
137.7
146.1
157.4
171.5
186.9
206.3

154.3
138.5
123.0
124.3
160.2
198.1
213.7
253.7
265.8
287.0

26.9
−10.6
33.4
37.3
37.8
35.4
39.1
41.6
48.8
47.2

12.0
13.0
12.3
14.2
15.4
16.2
18.0
21.0
24.6
28.3

10.0
−28.6
17.1
17.8
15.8
10.1
14.1
10.9
11.2
11.6

4.8
5.0
3.9
5.4
6.6
9.1
7.1
9.7
12.9
7.3

−70.1
13.5
−36.9
−70.4
−105.2
−91.0
−100.3
−110.2
−187.4
−273.9

2000 ................
2001 ................
2002 ................
2003 ................
2004 ................
2005 p ...............

1,478.9
1,355.2
1,311.6
1,389.3
1,589.2
............

1,096.3
1,032.8
1,005.9
1,045.6
1,173.8
1,299.2

784.3
731.2
697.6
724.3
818.1
903.2

311.9
301.6
308.4
321.3
355.7
396.0

382.7
322.4
305.7
343.7
415.4
..........

1,875.6
1,725.6
1,769.9
1,893.8
2,240.9
............

1,475.8
1,399.8
1,430.3
1,546.5
1,797.8
2,024.9

1,243.5
1,167.9
1,189.3
1,283.9
1,495.9
1,697.8

232.3 343.7
231.9 278.8
241.0 275.0
262.6 275.6
301.9 361.7
327.1 ............

56.1
47.0
64.5
71.7
81.5
89.3

31.5
33.0
40.0
41.2
42.9
45.8

13.5
9.5
14.3
18.0
19.7
24.9

11.2
4.5
10.3
12.4
18.9
18.5

−396.6
−370.4
−458.3
−504.5
−651.7
............

2002: I ..............
II .............
III ............
IV ............

1,270.8 976.4 676.7
1,315.3 1,008.2 703.4
1,340.6 1,022.9 713.0
1,319.6 1,016.2 697.1

299.6
304.8
309.9
319.1

294.5
307.1
317.7
303.3

1,691.9
1,774.7
1,804.1
1,808.7

1,349.5
1,424.3
1,456.7
1,490.8

1,115.4
1,187.8
1,214.5
1,239.7

234.1
236.5
242.2
251.1

268.3
290.5
288.1
253.3

74.1
60.0
59.4
64.6

39.5
39.0
40.2
41.1

23.0
10.4
9.6
14.1

11.6
10.6
9.6
9.4

−421.0
−459.4
−463.6
−489.1

2003: I ..............
II .............
III ............
IV ............

1,335.2
1,345.1
1,390.9
1,486.0

1,018.8
1,016.1
1,046.6
1,101.1

705.8
708.6
723.1
759.8

313.0
307.5
323.5
341.3

316.5
329.1
344.3
384.9

1,864.4
1,848.4
1,889.9
1,972.5

1,521.4
1,516.6
1,541.9
1,606.1

1,266.8
1,264.3
1,275.0
1,329.5

254.6
252.3
266.9
276.6

271.5
262.2
277.0
291.7

71.5
69.5
71.0
74.7

40.8
40.7
39.3
44.2

20.9
18.2
18.7
14.2

9.8
10.6
13.1
16.3

−529.1
−503.3
−499.0
−486.5

2004: I ..............
II .............
III ............
IV ............

1,510.7
1,564.5
1,601.9
1,679.5

1,130.8
1,163.3
1,183.8
1,217.1

786.1
811.5
829.7
845.0

344.7
351.8
354.1
372.1

380.0
401.2
418.1
462.4

2,076.9
2,213.4
2,255.1
2,418.1

1,690.3
1,776.4
1,821.8
1,902.5

1,401.9
1,478.3
1,515.0
1,588.4

288.5
298.1
306.8
314.1

297.0
354.5
369.6
425.6

89.6
82.6
63.6
90.0

43.0
43.5
43.4
41.7

27.3
16.8
17.3
17.3

19.2
22.3
3.0
31.0

−566.2
−648.9
−653.2
−738.6

2005: I ..............
II .............
III ............
IV p ..........

1,715.4
1,786.6
1,835.5
............

1,253.2
1,297.1
1,314.6
1,331.8

865.4
904.7
914.8
928.0

387.7
392.5
399.9
403.8

462.3
489.4
520.8
..........

2,482.4
2,533.4
2,576.6
............

1,950.6
1,988.1
2,045.1
2,115.8

1,627.6
1,661.8
1,718.6
1,783.3

323.0 422.9
326.3 453.9
326.4 476.6
332.5 ............

108.8
91.3
54.9
102.0

48.3
44.9
44.4
45.7

31.8
18.2
19.2
30.4

28.7
28.2
−8.7
25.9

−767.0
−746.8
−741.1
............

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.

310

TABLE B–25.—Real exports and imports of goods and services, 1990–2005
[Billions of chained (2000) dollars; quarterly data at seasonally adjusted annual rates]
Exports of goods and services

Imports of goods and services

Goods 1
Year or quarter
Total
Total

1990
1991
1992
1993
1994
1995
1996
1997
1998
1999

......................................................................
552.5
......................................................................
589.1
......................................................................
629.7
......................................................................
650.0
......................................................................
706.5
......................................................................
778.2
......................................................................
843.4
......................................................................
943.7
......................................................................
966.5
...................................................................... 1,008.2

Durable
goods

Goods 1
Nondurable
goods

Services 1

Total
Total

367.2
392.5
421.9
435.6
478.0
533.9
581.1
664.5
679.4
705.2

226.3
243.1
262.5
276.1
309.6
353.6
394.9
466.2
481.2
503.6

145.1
153.7
163.6
162.4
170.1
181.1
186.7
198.7
198.5
201.7

188.7 607.1 469.7
199.9 603.7 469.3
210.8 645.6 513.1
217.5 702.1 564.8
231.1 785.9 640.0
245.8 849.1 697.6
263.5 923.0
762.7
279.2 1,048.3
872.6
287.2 1,170.3
974.4
303.2 1,304.4 1,095.2

1,096.3
1,036.7
1,013.3
1,031.2
1,117.9
1,193.3

784.3
736.3
707.0
719.7
783.6
839.0

569.2
522.2
491.2
499.8
555.7
606.1

215.1
214.2
216.1
220.2
229.0
235.6

311.9
300.4
306.0
311.2
334.1
354.3

2002: I ...................................................................
992.8
II .................................................................. 1,018.0
III ................................................................ 1,025.2
IV ................................................................ 1,017.2

691.8
715.2
719.0
702.1

478.2
497.4
502.2
487.2

214.1
218.1
217.1
215.1

2003: I ...................................................................
II ..................................................................
III ................................................................
IV ................................................................

1,009.7
1,004.5
1,032.2
1,078.4

704.7
704.7
720.3
749.3

483.7
488.4
498.6
528.4

2004: I ...................................................................
II ..................................................................
III ................................................................
IV ................................................................

1,091.8
1,110.2
1,125.0
1,144.5

763.1
777.7
793.1
800.3

2005: I ...................................................................
II .................................................................
III ................................................................
IV p ...............................................................

1,165.3
1,195.4
1,202.7
1,209.8

810.7
841.3
847.9
855.9

2000 ......................................................................
2001 ......................................................................
2002 ......................................................................
2003 ......................................................................
2004 ......................................................................
2005 p ....................................................................

Durable
goods

Nondurable
goods

Services 1

264.7
266.1
294.0
328.8
383.1
427.1
472.8
550.3
621.8
711.7

218.4
215.9
231.9
248.0
266.0
277.0
295.2
326.4
355.7
384.3

142.7
139.0
135.5
139.4
147.3
152.1
160.5
175.6
195.6
209.1

1,475.8
1,435.8
1,484.6
1,552.6
1,719.2
1,825.2

1,243.5
820.7
1,204.1
769.4
1,248.2
801.0
1,309.2 835.3
1,452.7
949.7
1,549.9 1,028.7

422.8
435.1
447.4
474.2
505.4
526.3

232.3
231.6
236.5
243.7
267.1
276.6

300.7
302.7
306.1
314.7

1,434.0
1,476.9
1,497.4
1,530.2

1,198.2
1,243.4
1,263.1
1,287.9

769.2
802.3
814.3
818.4

429.4
441.4
449.2
469.8

235.4
233.6
234.6
242.4

221.0
216.5
221.8
221.7

304.8
299.6
311.7
328.8

1,520.4
1,532.9
1,548.4
1,608.6

1,279.4
1,299.1
1,302.1
1,356.3

811.9
825.6
827.1
876.6

467.6
473.6
475.0
480.5

241.1
234.7
246.3
252.7

538.6
551.8
564.7
567.7

225.3
227.0
229.8
233.8

328.5
332.3
331.8
344.0

1,654.8
1,711.9
1,731.5
1,778.6

1,396.6
1,445.2
1,461.9
1,507.3

898.9
946.2
963.6
990.1

498.4
501.5
501.6
520.2

258.8
267.2
270.2
272.3

576.4
599.3
614.2
634.7

235.6
243.6
236.7
226.5

354.3
353.9
354.8
354.0

1,810.7
1,809.6
1,820.2
1,860.1

1,537.3
1,532.9
1,546.1
1,583.3

1,007.8
1,019.2
1,037.0
1,050.6

532.1
519.0
516.6
537.3

274.8
277.7
275.5
278.4

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 1959-89.
Source: Department of Commerce, Bureau of Economic Analysis.

311

TABLE B–26.—Relation of gross domestic product, gross national product, net national product, and
national income, 1959–2005
[Billions of dollars; quarterly data at seasonally adjusted annual rates]

Year or
quarter

Gross
domestic
product

Plus:
Income
receipts
from rest
of the
world

Less:
Income
payments
to
rest of
the
world

Less: Consumption of fixed capital
Equals:
Gross
national
product

Total

Private

Government

Equals:
Net
national
product

Less:
Statistical
discrepancy

Equals:
National
income

1959 ...........

506.6

4.3

1.5

509.3

53.0

38.6

14.5

456.3

0.5

455.8

1960
1961
1962
1963
1964
1965
1966
1967
1968
1969

...........
...........
...........
...........
...........
...........
...........
...........
...........
...........

526.4
544.7
585.6
617.7
663.6
719.1
787.8
832.6
910.0
984.6

4.9
5.3
5.9
6.5
7.2
7.9
8.1
8.7
10.1
11.8

1.8
1.8
1.8
2.1
2.3
2.6
3.0
3.3
4.0
5.7

529.5
548.2
589.7
622.2
668.5
724.4
792.9
838.0
916.1
990.7

55.6
57.2
59.3
62.4
65.0
69.4
75.6
81.5
88.4
97.9

40.5
41.6
42.8
44.9
46.9
50.5
55.5
59.9
65.2
73.1

15.0
15.6
16.5
17.5
18.1
18.9
20.1
21.6
23.1
24.8

473.9
491.0
530.5
559.8
603.5
655.0
717.3
756.5
827.7
892.8

−.9
−.6
.4
−.8
.8
1.6
6.3
4.6
4.6
3.2

474.9
491.6
530.1
560.6
602.7
653.4
711.0
751.9
823.2
889.7

1970
1971
1972
1973
1974
1975
1976
1977
1978
1979

...........
...........
...........
...........
...........
...........
...........
...........
...........
...........

1,038.5
1,127.1
1,238.3
1,382.7
1,500.0
1,638.3
1,825.3
2,030.9
2,294.7
2,563.3

12.8
14.0
16.3
23.5
29.8
28.0
32.4
37.2
46.3
68.3

6.4
6.4
7.7
10.9
14.3
15.0
15.5
16.9
24.7
36.4

1,044.9
1,134.7
1,246.8
1,395.3
1,515.5
1,651.3
1,842.1
2,051.2
2,316.3
2,595.3

106.7
115.0
126.5
139.3
162.5
187.7
205.2
230.0
262.3
300.1

80.0
86.7
97.1
107.9
126.6
147.8
162.5
184.3
212.8
245.7

26.7
28.3
29.5
31.4
35.9
40.0
42.6
45.7
49.5
54.5

938.2
1,019.7
1,120.3
1,256.0
1,353.0
1,463.6
1,637.0
1,821.2
2,054.0
2,295.1

7.3
11.6
9.1
8.6
10.9
17.7
25.1
22.3
26.6
46.0

930.9
1,008.1
1,111.2
1,247.4
1,342.1
1,445.9
1,611.8
1,798.9
2,027.4
2,249.1

1980
1981
1982
1983
1984
1985
1986
1987
1988
1989

...........
...........
...........
...........
...........
...........
...........
...........
...........
...........

2,789.5
3,128.4
3,255.0
3,536.7
3,933.2
4,220.3
4,462.8
4,739.5
5,103.8
5,484.4

79.1
92.0
101.0
101.9
121.9
112.4
111.4
123.2
152.1
177.7

44.9
59.1
64.5
64.8
85.6
85.9
93.6
105.3
128.5
151.5

2,823.7
3,161.4
3,291.5
3,573.8
3,969.5
4,246.8
4,480.6
4,757.4
5,127.4
5,510.6

343.0
388.1
426.9
443.8
472.6
506.7
531.3
561.9
597.6
644.3

281.1
317.9
349.8
362.1
385.6
414.0
431.8
455.3
483.5
522.1

61.8
70.1
77.1
81.7
87.0
92.7
99.5
106.7
114.1
122.2

2,480.7
2,773.3
2,864.6
3,130.0
3,496.9
3,740.1
3,949.3
4,195.4
4,529.8
4,866.3

41.4
30.9
.3
45.7
14.6
16.7
47.0
21.7
−19.5
39.7

2,439.3
2,742.4
2,864.3
3,084.2
3,482.3
3,723.4
3,902.3
4,173.7
4,549.4
4,826.6

1990
1991
1992
1993
1994
1995
1996
1997
1998
1999

...........
...........
...........
...........
...........
...........
...........
...........
...........
...........

5,803.1
5,995.9
6,337.7
6,657.4
7,072.2
7,397.7
7,816.9
8,304.3
8,747.0
9,268.4

189.1
168.9
152.7
156.2
186.4
233.9
248.7
286.7
287.1
320.8

154.3
138.5
123.0
124.3
160.2
198.1
213.7
253.7
265.8
287.0

5,837.9
6,026.3
6,367.4
6,689.3
7,098.4
7,433.4
7,851.9
8,337.3
8,768.3
9,302.2

682.5
725.9
751.9
776.4
833.7
878.4
918.1
974.4
1,030.2
1,101.3

551.6
586.9
607.3
624.7
675.1
713.4
748.8
800.3
851.2
914.3

130.9
139.1
144.6
151.8
158.6
165.0
169.3
174.1
179.0
187.0

5,155.4
5,300.4
5,615.5
5,912.9
6,264.7
6,555.1
6,933.8
7,362.8
7,738.2
8,200.9

66.2
72.5
102.7
139.5
142.5
101.2
93.7
70.7
−14.6
−35.7

5,089.1
5,227.9
5,512.8
5,773.4
6,122.3
6,453.9
6,840.1
7,292.2
7,752.8
8,236.7

2000 ...........
2001 ...........
2002 ...........
2003 ...........
2004 ...........
2005 p .........

9,817.0
382.7
343.7
9,855.9
10,128.0
322.4
278.8
10,171.6
10,469.6
305.7
275.0
10,500.2
10,971.2
343.7
275.6
11,039.3
11,734.3
415.4
361.7
11,788.0
12,479.4 .................. .................. ....................

1,187.8
1,281.5
1,292.0
1,331.3
1,435.3
1,574.1

990.8
1,075.5
1,080.3
1,112.8
1,206.2
1,327.2

197.0
8,668.1
−127.2
8,795.2
206.0
8,890.2
−89.6
8,979.8
211.6
9,208.3
−21.0
9,229.3
218.5
9,708.0
47.1
9,660.9
229.1
10,352.8
76.8
10,275.9
246.9 .................. ................ ..................

2002: I .........
II .......
III .....
IV ......

10,333.3
10,426.6
10,527.4
10,591.1

294.5
307.1
317.7
303.3

268.3
290.5
288.1
253.3

10,359.5
10,443.3
10,557.0
10,641.1

1,282.0
1,288.2
1,294.9
1,302.7

1,073.1
1,077.5
1,082.4
1,088.4

208.9
210.8
212.5
214.3

9,077.5
9,155.0
9,262.1
9,338.4

−53.6
−56.7
14.6
11.7

9,131.1
9,211.7
9,247.5
9,326.7

2003: I .........
II .......
III ......
IV ......

10,717.0
10,844.6
11,087.4
11,236.0

316.5
329.1
344.3
384.9

271.5
262.2
277.0
291.7

10,761.9
10,911.4
11,154.8
11,329.2

1,311.8
1,323.8
1,337.2
1,352.5

1,095.7
1,105.8
1,117.8
1,131.8

216.1
218.1
219.3
220.6

9,450.1
9,587.6
9,817.6
9,976.8

16.6
14.4
85.3
72.0

9,433.6
9,573.2
9,732.3
9,904.8

2004: I .........
II .......
III ......
IV ......

11,457.1
11,666.1
11,818.8
11,995.2

380.0
401.2
418.1
462.4

297.0
354.5
369.6
425.6

11,540.1
11,712.8
11,867.3
12,032.0

1,371.1
1,393.8
1,534.1
1,442.0

1,147.8
1,165.8
1,303.5
1,207.6

223.3
228.1
230.6
234.5

10,169.0
10,319.0
10,333.2
10,589.9

77.8
108.1
90.8
30.6

10,091.2
10,210.9
10,242.4
10,559.3

2005: I .........
II .......
III ......
IV p ....

12,198.8
462.3
422.9
12,238.2
12,378.0
489.4
453.9
12,413.5
12,605.7
520.8
476.6
12,650.0
12,735.3 .................. .................. ....................

1,448.4
1,457.2
1,863.8
1,526.9

1,210.9
1,216.9
1,603.6
1,277.3

237.5
10,789.8
39.4
10,750.4
240.4
10,956.3
78.3
10,878.0
260.2
10,786.2
66.5
10,719.6
249.6 .................. ................ ..................

Source: Department of Commerce, Bureau of Economic Analysis.

312

TABLE B–27.—Relation of national income and personal income, 1959–2005
[Billions of dollars; quarterly data at seasonally adjusted annual rates]
Less:

Year or quarter

National
income

Equals:

Plus:

Corporate
profits
Taxes ContriNet
with
buon prointerest
inventory duction tions and mis- Business Current
current surplus
valuation
for
and
cellane- transfer of govand
imports govern- ous paypayernment
capital
ment
less
ments
ments
enterconsump- subsi- social
on
(net)
prises
tion
insurdies
assets
adjustance
ments

Wage
Personal
accruals income
less
receipts
disburse- on asments
sets

Personal
current
transfer
receipts

Personal
income

1959 .......................

455.8

55.7

40.0

13.8

9.6

1.8

1.0

0.0

34.6

24.2

392.8

1960
1961
1962
1963
1964
1965
1966
1967
1968
1969

.......................
.......................
.......................
.......................
.......................
.......................
.......................
.......................
.......................
.......................

474.9
491.6
530.1
560.6
602.7
653.4
711.0
751.9
823.2
889.7

53.8
54.9
63.3
69.0
76.5
87.5
93.2
91.3
98.8
95.4

43.4
45.0
48.2
51.2
54.6
57.8
59.3
64.2
72.3
79.4

16.4
17.0
19.1
21.7
22.4
23.4
31.3
34.9
38.7
44.1

10.6
12.5
14.2
15.2
17.4
19.6
22.4
25.5
27.1
32.7

1.9
2.0
2.2
2.7
3.1
3.6
3.5
3.8
4.3
4.9

.9
.8
.9
1.4
1.3
1.3
1.0
.9
1.2
1.0

.0
.0
.0
.0
.0
.0
.0
.0
.0
.0

37.9
40.1
44.1
47.9
53.8
59.4
64.1
69.0
75.2
84.1

25.7
29.5
30.4
32.2
33.5
36.2
39.6
48.0
56.1
62.3

411.5
429.0
456.7
479.6
514.6
555.7
603.9
648.3
712.0
778.5

1970
1971
1972
1973
1974
1975
1976
1977
1978
1979

.......................
.......................
.......................
.......................
.......................
.......................
.......................
.......................
.......................
.......................

930.9
1,008.1
1,111.2
1,247.4
1,342.1
1,445.9
1,611.8
1,798.9
2,027.4
2,249.1

83.6
98.0
112.1
125.5
115.8
134.8
163.3
192.4
216.6
223.2

86.7
95.9
101.4
112.1
121.7
131.0
141.5
152.8
162.2
171.9

46.4
51.2
59.2
75.5
85.2
89.3
101.3
113.1
131.3
152.7

39.1
43.9
47.9
55.2
70.8
81.6
85.5
101.1
115.0
138.9

4.5
4.3
4.9
6.0
7.1
9.4
9.5
8.4
10.6
13.0

.0
−.2
.5
−.4
−.9
−3.2
−1.8
−2.6
−1.9
−2.6

.0
.6
.0
−.1
−.5
.1
.1
.1
.3
−.2

93.5
101.0
109.6
124.7
146.4
162.2
178.4
205.3
234.8
274.7

74.7
88.1
97.9
112.6
133.3
170.0
184.0
194.2
209.6
235.3

838.8
903.5
992.7
1,110.7
1,222.6
1,335.0
1,474.8
1,633.2
1,837.7
2,062.2

1980
1981
1982
1983
1984
1985
1986
1987
1988
1989

.......................
.......................
.......................
.......................
.......................
.......................
.......................
.......................
.......................
.......................

2,439.3
2,742.4
2,864.3
3,084.2
3,482.3
3,723.4
3,902.3
4,173.7
4,549.4
4,826.6

201.1
226.1
209.7
264.2
318.6
330.3
319.5
368.8
432.6
426.6

190.9
224.5
226.4
242.5
269.3
287.3
298.9
317.7
345.5
372.1

166.2
195.7
208.9
226.0
257.5
281.4
303.4
323.1
361.5
385.2

181.8
232.3
271.1
285.3
327.1
341.3
366.8
366.4
385.3
432.1

14.4
17.6
20.1
22.5
30.1
34.8
36.6
33.8
34.0
39.2

−4.8
−4.9
−4.0
−3.1
−1.9
.8
1.3
1.2
2.5
4.9

.0
.1
.0
−.4
.2
−.2
.0
.0
.0
.0

338.7
421.9
488.4
529.6
607.9
654.0
695.5
717.0
769.3
878.0

279.5
318.4
354.8
383.7
400.1
424.9
451.0
467.6
496.6
543.4

2,307.9
2,591.3
2,775.3
2,960.7
3,289.5
3,526.7
3,722.4
3,947.4
4,253.7
4,587.8

1990
1991
1992
1993
1994
1995
1996
1997
1998
1999

.......................
.......................
.......................
.......................
.......................
.......................
.......................
.......................
.......................
.......................

5,089.1
5,227.9
5,512.8
5,773.4
6,122.3
6,453.9
6,840.1
7,292.2
7,752.8
8,236.7

437.8
451.2
479.3
541.9
600.3
696.7
786.2
868.5
801.6
851.3

398.7
430.2
453.9
467.0
513.5
524.2
546.8
579.1
604.4
629.8

410.1
430.2
455.0
477.7
508.2
532.8
555.2
587.2
624.2
661.4

442.2
418.2
388.5
365.7
366.4
367.1
376.2
415.6
487.1
495.4

39.4
39.9
42.4
40.7
43.3
46.9
53.1
49.9
64.7
67.4

1.6
5.7
7.6
7.2
8.6
11.4
12.7
12.6
10.3
10.1

.1
−.1
−15.8
6.4
17.6
16.4
3.6
−2.9
−.7
5.2

924.0
932.0
910.9
901.8
950.8
1,016.4
1,089.2
1,181.7
1,283.2
1,264.2

595.2
666.4
749.4
790.1
827.3
877.4
925.0
951.2
978.6
1,022.1

4,878.6
5,051.0
5,362.0
5,558.5
5,842.5
6,152.3
6,520.6
6,915.1
7,423.0
7,802.4

8,795.2
817.9
8,979.8
767.3
9,229.3
886.3
9,660.9
1,031.8
10,275.9
1,161.5
.................. ................

664.6
673.3
724.4
754.8
809.4
847.1

702.7
731.1
750.0
776.6
822.2
869.4

559.0
566.3
520.9
528.5
505.5
497.1

87.1
92.8
84.3
81.6
91.1
79.4

5.3
−1.4
.9
1.3
−3.0
−11.2

.0
.0
.0
.0
.0
.0

1,387.0
1,380.0
1,333.2
1,338.7
1,396.5
1,456.7

1,084.0
1,193.9
1,286.2
1,344.0
1,427.5
1,525.5

8,429.7
8,724.1
8,881.9
9,169.1
9,713.3
10,238.2

2000 .......................
2001 .......................
2002 .......................
2003 .......................
2004 .......................
2005 p .....................
2002: I ....................
II ...................
III .................
IV .................

9,131.1
9,211.7
9,247.5
9,326.7

829.4
864.3
895.4
956.1

706.1
720.8
733.3
737.2

747.1
751.1
751.1
750.9

545.8
519.3
507.0
511.5

91.1
85.8
81.4
78.8

−1.6
−1.2
4.0
2.3

.0
.0
.0
.0

1,340.6
1,336.5
1,327.4
1,328.5

1,260.9
1,284.0
1,292.7
1,307.1

8,814.7
8,892.0
8,895.4
8,925.5

2003: I ....................
II ...................
III ..................
IV ..................

9,433.6
9,573.2
9,732.3
9,904.8

951.5
1,005.0
1,057.5
1,113.1

741.6
740.1
762.1
775.2

765.8
773.6
780.7
786.3

530.9
532.4
528.1
522.7

79.0
80.5
82.5
84.3

4.1
1.8
.4
−1.1

1.4
−1.4
.0
.0

1,334.6
1,340.5
1,337.6
1,342.1

1,319.8
1,336.9
1,356.8
1,362.3

9,013.7
9,118.6
9,215.4
9,328.7

2004: I ....................
II ...................
III ..................
IV ..................

10,091.2
10,210.9
10,242.4
10,559.3

1,147.3
1,162.0
1,117.2
1,219.5

794.8
806.0
812.3
824.4

806.3
813.0
825.9
843.5

519.9
512.2
497.5
492.7

88.2
90.7
83.0
102.6

−1.6
−2.2
−3.0
−5.2

1.5
−1.5
.0
.0

1,350.4
1,363.9
1,378.2
1,493.6

1,399.6
1,419.8
1,441.5
1,449.2

9,484.8
9,614.3
9,729.2
10,024.8

10,750.4
1,288.2
10,878.0
1,347.5
10,719.6
1,293.1
.................. ................

833.2
848.0
853.4
853.8

861.0
864.9
872.6
879.2

498.3
488.7
497.6
503.8

99.0
99.6
21.8
97.2

−6.1
−7.0
−22.8
−8.8

.0
.0
.0
.0

1,407.9
1,439.8
1,468.9
1,510.3

1,488.8
1,509.6
1,558.1
1,545.5

10,073.4
10,185.7
10,231.0
10,462.6

2005: I ....................
II ...................
III ..................
IV p ................

Source: Department of Commerce, Bureau of Economic Analysis.

313

TABLE B–28.—National income by type of income, 1959–2005
[Billions of dollars; quarterly data at seasonally adjusted annual rates]
Compensation of employees
Wage and salary accruals

Year or
quarter

National
income

Government

Employer
contributions for
employee
pension
and
insurance
funds

Proprietors’ income with
inventory valuation and
capital consumption adjustments

Supplements to wages and
salaries

Total
Total

Other

Total

Employer
contributions for
government
social
insurance

Total

Farm

Nonfarm

Rental
income
of persons
with
capital
consumption
adjustment

1959 ........

455.8

281.0

259.8

46.1

213.8

21.1

13.3

7.9

50.7

10.0

40.6

16.2

1960
1961
1962
1963
1964
1965
1966
1967
1968
1969

........
........
........
........
........
........
........
........
........
........

474.9
491.6
530.1
560.6
602.7
653.4
711.0
751.9
823.2
889.7

296.4
305.3
327.1
345.2
370.7
399.5
442.7
475.1
524.3
577.6

272.9
280.5
299.4
314.9
337.8
363.8
400.3
429.0
472.0
518.3

49.2
52.5
56.3
60.0
64.9
69.9
78.4
86.5
96.7
105.6

223.7
228.0
243.0
254.8
272.9
293.8
321.9
342.5
375.3
412.7

23.6
24.8
27.8
30.4
32.9
35.7
42.3
46.1
52.3
59.3

14.3
15.2
16.6
18.0
20.3
22.7
25.5
28.1
32.4
36.5

9.3
9.6
11.2
12.4
12.6
13.1
16.8
18.0
20.0
22.8

50.8
53.2
55.4
56.5
59.4
63.9
68.2
69.8
74.3
77.4

10.5
11.0
11.0
10.8
9.6
11.8
12.8
11.5
11.5
12.6

40.3
42.2
44.4
45.7
49.8
52.1
55.4
58.4
62.8
64.7

17.1
17.9
18.8
19.5
19.6
20.2
20.8
21.2
20.9
21.2

1970
1971
1972
1973
1974
1975
1976
1977
1978
1979

........
........
........
........
........
........
........
........
........
........

930.9
1,008.1
1,111.2
1,247.4
1,342.1
1,445.9
1,611.8
1,798.9
2,027.4
2,249.1

617.2
658.9
725.1
811.2
890.2
949.1
1,059.3
1,180.5
1,336.1
1,500.8

551.6
584.5
638.8
708.8
772.3
814.8
899.7
994.2
1,121.2
1,255.8

117.2
126.8
137.9
148.8
160.5
176.2
188.9
202.6
220.0
237.1

434.3
457.8
500.9
560.0
611.8
638.6
710.8
791.6
901.2
1,018.7

65.7
74.4
86.4
102.5
118.0
134.3
159.6
186.4
214.9
245.0

41.8
47.9
55.2
62.7
73.3
87.6
105.2
125.3
143.4
162.4

23.8
26.4
31.2
39.8
44.7
46.7
54.4
61.1
71.5
82.6

78.4
84.8
95.9
113.5
113.1
119.5
132.2
145.7
166.6
180.1

12.7
13.2
16.8
28.9
23.2
21.7
17.0
15.7
19.6
21.8

65.7
71.6
79.1
84.6
89.9
97.8
115.2
130.0
147.1
158.3

21.4
22.4
23.4
24.3
24.3
23.7
22.3
20.7
22.1
23.8

1980
1981
1982
1983
1984
1985
1986
1987
1988
1989

........
........
........
........
........
........
........
........
........
........

2,439.3
2,742.4
2,864.3
3,084.2
3,482.3
3,723.4
3,902.3
4,173.7
4,549.4
4,826.6

1,651.8
1,825.8
1,925.8
2,042.6
2,255.6
2,424.7
2,570.1
2,750.2
2,967.2
3,145.2

1,377.6
1,517.5
1,593.7
1,684.6
1,855.1
1,995.5
2,114.8
2,270.7
2,452.9
2,596.3

261.5
285.8
307.5
324.8
348.1
373.9
397.0
422.6
451.3
480.2

1,116.2
1,231.7
1,286.2
1,359.8
1,507.0
1,621.6
1,717.9
1,848.1
2,001.6
2,116.2

274.2
308.3
332.1
358.0
400.5
429.2
455.3
479.5
514.2
548.9

185.2
204.7
222.4
238.1
261.5
281.5
297.5
313.2
329.6
355.2

88.9
103.6
109.8
119.9
139.0
147.7
157.9
166.3
184.6
193.7

174.1
183.0
176.3
192.5
243.3
262.3
275.7
302.2
341.6
363.3

11.3
18.7
13.1
6.0
20.6
20.8
22.6
28.7
26.8
33.0

162.8
164.3
163.3
186.5
222.7
241.5
253.1
273.5
314.7
330.3

30.0
38.0
38.8
37.8
40.2
41.9
33.5
33.5
40.6
43.1

1990
1991
1992
1993
1994
1995
1996
1997
1998
1999

........
........
........
........
........
........
........
........
........
........

5,089.1
5,227.9
5,512.8
5,773.4
6,122.3
6,453.9
6,840.1
7,292.2
7,752.8
8,236.7

3,338.2
3,445.2
3,635.4
3,801.4
3,997.2
4,193.3
4,390.5
4,661.7
5,019.4
5,357.1

2,754.0
2,823.0
2,964.5
3,089.2
3,249.8
3,435.7
3,623.2
3,874.7
4,182.7
4,471.4

517.7
546.8
569.2
586.8
606.2
625.5
644.4
668.1
697.3
729.3

2,236.3
2,276.2
2,395.3
2,502.4
2,643.5
2,810.2
2,978.8
3,206.6
3,485.5
3,742.1

584.2
622.3
670.9
712.2
747.5
757.7
767.3
787.0
836.7
885.7

377.8
407.1
442.5
472.4
493.3
493.6
492.5
497.5
529.7
562.4

206.5
215.1
228.4
239.8
254.1
264.0
274.9
289.5
307.0
323.3

380.6
377.1
427.6
453.8
473.3
492.1
543.2
576.0
627.8
678.3

31.9
26.7
34.5
31.2
33.9
22.7
37.3
34.2
29.4
28.6

348.7
350.4
393.0
422.6
439.4
469.5
505.9
541.8
598.4
649.7

50.7
60.3
78.0
95.6
119.7
122.1
131.5
128.8
137.5
147.3

2000 ........
2001 ........
2002 ........
2003 ........
2004 .......
2005 p ......

8,795.2
8,979.8
9,229.3
9,660.9
10,275.9
..............

5,782.7
5,942.1
6,091.2
6,321.1
6,687.6
7,113.6

4,829.2
4,942.8
4,980.9
5,111.1
5,389.4
5,711.9

774.7
815.9
865.9
903.3
939.5
971.4

4,054.5
4,126.9
4,115.0
4,207.8
4,450.0
4,740.4

953.4
999.3
1,110.3
1,210.0
1,298.1
1,401.8

609.9
642.7
745.1
830.0
895.5
976.2

343.5
356.6
365.2
380.0
402.7
425.6

728.4
771.9
768.4
810.2
889.6
937.8

22.7
19.7
10.6
27.7
35.8
20.1

705.7
752.2
757.8
782.4
853.8
917.7

150.3
167.4
152.9
131.7
134.2
73.9

2002: I .....
II ....
III ...
IV ..

9,131.1
9,211.7
9,247.5
9,326.7

6,025.3
6,091.5
6,114.5
6,133.4

4,961.2
4,989.4
4,988.5
4,984.5

855.4
863.7
869.3
875.4

4,105.7
4,125.7
4,119.2
4,109.1

1,064.2
1,102.1
1,126.0
1,148.9

700.7
736.2
760.1
783.2

363.4
365.8
365.9
365.8

763.0
763.5
769.1
778.1

8.9
4.0
11.0
18.4

754.1
759.4
758.1
759.7

172.1
167.7
142.9
129.2

2003: I .....
II ....
III ...
IV ..

9,433.6
9,573.2
9,732.3
9,904.8

6,210.4
6,286.6
6,360.1
6,427.4

5,031.1
5,086.4
5,139.8
5,187.3

895.1
902.3
906.1
909.9

4,135.9
4,184.1
4,233.8
4,277.4

1,179.4
1,200.2
1,220.2
1,240.1

804.8
821.6
838.1
855.4

374.6
378.6
382.1
384.7

778.3
801.4
821.1
840.0

20.5
27.2
28.2
35.1

757.8
774.1
793.0
804.8

137.7
125.4
120.4
143.2

2004: I .....
II ....
III ...
IV ..

10,091.2
10,210.9
10,242.4
10,559.3

6,528.2
6,602.1
6,724.2
6,895.8

5,256.3
5,316.6
5,422.0
5,562.9

928.8
936.3
942.8
950.0

4,327.5
4,380.3
4,479.2
4,612.9

1,271.9
1,285.5
1,302.3
1,332.9

877.0
887.5
897.9
919.6

394.9
398.0
404.4
413.4

870.2
898.4
889.1
900.9

44.8
44.1
29.7
24.6

825.4
854.2
859.4
876.3

144.2
141.8
122.1
128.7

2005: I .....
II ....
III ...
IV p

10,750.4
10,878.0
10,719.6
..............

7,001.7
7,060.2
7,155.4
7,237.3

5,629.9
5,672.3
5,741.6
5,803.6

961.8
967.3
975.0
981.6

4,668.1
4,705.0
4,766.6
4,822.0

1,371.8
1,387.9
1,413.8
1,433.7

950.0
964.4
986.8
1,003.7

421.9
423.5
427.0
430.0

917.9
936.6
932.4
964.2

24.7
19.6
18.0
17.9

893.2
917.1
914.3
946.3

118.0
104.4
−11.1
84.5

See next page for continuation of table.

314

TABLE B–28.—National income by type of income, 1959–2005—Continued
[Billions of dollars; quarterly data at seasonally adjusted annual rates]
Corporate profits with inventory valuation and capital consumption adjustments
Profits with inventory valuation adjustment and without
capital consumption adjustment
Year or
quarter

Total
Total

Capital
Profits
conInven- sumptory
Profits after tax
tion
Taxes on
valu- adjustProfits corpoation
before
Net
Undis- adjust- ment
rate
tax
Total
divi- tributed ment
income
dends profits

BusiNet
ness
interest Taxes Less: current
on
and
miscel- produc- Sub- transtion
sifer
laneous
and
dies paypayimports
ments
ments
(net)

Current
surplus
of
government
enterprises

1959 ............

55.7

53.5

53.8

23.7

30.0

12.6

17.5

−0.3

2.2

9.6

41.1

1.1

1.8

1.0

1960
1961
1962
1963
1964
1965
1966
1967
1968
1969

............
............
............
............
............
............
............
............
............
............

53.8
54.9
63.3
69.0
76.5
87.5
93.2
91.3
98.8
95.4

51.5
51.8
57.0
62.1
68.6
78.9
84.6
82.0
88.8
85.5

51.6
51.6
57.0
62.1
69.1
80.2
86.7
83.5
92.4
91.4

22.8
22.9
24.1
26.4
28.2
31.1
33.9
32.9
39.6
40.0

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
20.7
21.5
23.5
24.2

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
−1.2
−2.1
−1.6
−3.7
−5.9

2.3
3.0
6.2
6.8
7.9
8.6
8.6
9.3
10.0
9.9

10.6
12.5
14.2
15.2
17.4
19.6
22.4
25.5
27.1
32.7

44.6
47.0
50.4
53.4
57.3
60.8
63.3
68.0
76.5
84.0

1.1
2.0
2.3
2.2
2.7
3.0
3.9
3.8
4.2
4.5

1.9
2.0
2.2
2.7
3.1
3.6
3.5
3.8
4.3
4.9

.9
.8
.9
1.4
1.3
1.3
1.0
.9
1.2
1.0

1970
1971
1972
1973
1974
1975
1976
1977
1978
1979

............
............
............
............
............
............
............
............
............
............

83.6
98.0
112.1
125.5
115.8
134.8
163.3
192.4
216.6
223.2

74.4
88.3
101.2
115.3
109.5
135.0
165.6
194.7
222.4
231.8

81.0
92.9
107.8
134.8
147.8
145.5
179.7
210.4
246.1
271.9

34.8
38.2
42.3
50.0
52.8
51.6
65.3
74.4
84.9
90.0

46.2
54.7
65.5
84.9
95.0
93.9
114.4
136.0
161.3
181.9

24.3
25.0
26.8
29.9
33.2
33.0
39.0
44.8
50.8
57.5

21.9
29.7
38.6
55.0
61.8
60.9
75.4
91.2
110.5
124.4

−6.6
−4.6
−6.6
−19.6
−38.2
−10.5
−14.1
−15.7
−23.7
−40.1

9.2
9.7
10.9
10.2
6.2
−.2
−2.3
−2.3
−5.8
−8.5

39.1
43.9
47.9
55.2
70.8
81.6
85.5
101.1
115.0
138.9

91.5
100.6
108.1
117.3
125.0
135.5
146.6
159.9
171.2
180.4

4.8
4.7
6.6
5.2
3.3
4.5
5.1
7.1
8.9
8.5

4.5
4.3
4.9
6.0
7.1
9.4
9.5
8.4
10.6
13.0

.0
−.2
.5
−.4
−.9
−3.2
−1.8
−2.6
−1.9
−2.6

1980
1981
1982
1983
1984
1985
1986
1987
1988
1989

............
............
............
............
............
............
............
............
............
............

201.1
226.1
209.7
264.2
318.6
330.3
319.5
368.8
432.6
426.6

211.4
219.1
191.0
226.5
264.6
257.5
253.0
301.4
363.9
367.4

253.5
243.7
198.5
233.9
268.6
257.4
246.0
317.6
386.1
383.7

87.2
84.3
66.5
80.6
97.5
99.4
109.7
130.4
141.6
146.1

166.3
159.4
132.0
153.3
171.1
158.0
136.3
187.2
244.4
237.7

64.1
73.8
77.7
83.5
90.8
97.6
106.2
112.3
129.9
158.0

102.2
85.6
54.3
69.8
80.3
60.5
30.1
74.9
114.5
79.7

−42.1 −10.2
−24.6
7.0
−7.5
18.6
−7.4
37.8
−4.0
54.0
.0
72.9
7.1
66.5
−16.2
67.5
−22.2
68.7
−16.3
59.2

181.8
232.3
271.1
285.3
327.1
341.3
366.8
366.4
385.3
432.1

200.7
236.0
241.3
263.7
290.2
308.5
323.7
347.9
374.9
399.3

9.8
11.5
15.0
21.2
21.0
21.3
24.8
30.2
29.4
27.2

14.4
17.6
20.1
22.5
30.1
34.8
36.6
33.8
34.0
39.2

−4.8
−4.9
−4.0
−3.1
−1.9
.8
1.3
1.2
2.5
4.9

1990
1991
1992
1993
1994
1995
1996
1997
1998
1999

............
............
............
............
............
............
............
............
............
............

437.8
451.2
479.3
541.9
600.3
696.7
786.2
868.5
801.6
851.3

396.6
427.9
458.3
513.1
564.6
656.0
736.1
812.3
738.5
776.8

409.5
423.0
461.1
517.1
577.1
674.3
733.0
798.2
718.3
775.9

145.4
138.6
148.7
171.0
193.7
218.7
231.7
246.1
248.3
258.6

264.1
284.4
312.4
346.1
383.3
455.6
501.4
552.1
470.0
517.2

169.1
180.7
187.9
202.8
234.7
254.2
297.6
334.5
351.6
337.4

95.0
103.7
124.5
143.3
148.6
201.4
203.8
217.6
118.3
179.9

−12.9
4.9
−2.8
−4.0
−12.4
−18.3
3.1
14.1
20.2
1.0

41.2
23.3
21.1
28.8
35.7
40.7
50.1
56.2
63.1
74.5

442.2
418.2
388.5
365.7
366.4
367.1
376.2
415.6
487.1
495.4

425.5
457.5
483.8
503.4
545.6
558.2
581.1
612.0
639.8
674.0

26.8
27.3
29.9
36.4
32.2
34.0
34.3
32.9
35.4
44.2

39.4
39.9
42.4
40.7
43.3
46.9
53.1
49.9
64.7
67.4

1.6
5.7
7.6
7.2
8.6
11.4
12.7
12.6
10.3
10.1

2000 ............
817.9
759.3
773.4
265.2
508.2
2001 ............
767.3
719.2
707.9
204.1
503.8
2002 ............
886.3
766.2
768.4
192.6
575.8
2003 ............ 1,031.8
923.9
937.2
232.1
705.1
2004 ........... 1,161.5 1,019.7 1,059.3
271.1
788.2
2005 p .......... .............. .............. .............. .............. ..............

377.9
130.3
−14.1
58.6
370.9
132.9
11.3
48.1
399.2
176.6
−2.2 120.1
423.2
281.9
−13.3 107.9
493.0
295.2
−39.6 141.8
514.2 .............. .............. −55.0

559.0
566.3
520.9
528.5
505.5
497.1

708.9
728.6
762.8
801.4
852.8
903.2

44.3
55.3
38.4
46.7
43.5
56.1

87.1
92.8
84.3
81.6
91.1
79.4

5.3
−1.4
.9
1.3
−3.0
−11.2

2002: I .........
II ........
III ......
IV ......

693.8
742.1
786.4
851.5

174.9
188.5
196.9
210.2

518.9
553.6
589.5
641.3

382.5
396.1
406.1
412.0

136.4
157.5
183.4
229.3

13.3
−1.6
−11.8
−8.8

122.4
123.8
120.8
113.4

545.8
519.3
507.0
511.5

746.0
757.9
771.6
775.5

39.9
37.0
38.3
38.3

91.1
85.8
81.4
78.8

−1.6
−1.2
4.0
2.3

2003: I .........
II ........
III .......
IV ......

951.5
858.0
883.0
1,005.0
891.0
893.1
1,057.5
944.0
949.0
1,113.1 1,002.6 1,023.4

223.9
221.7
235.3
247.5

659.1
671.4
713.8
775.9

416.3
419.9
424.6
432.0

242.8
251.5
289.2
343.9

−25.0
−2.1
−5.1
−20.8

93.4
114.0
113.5
110.5

530.9
532.4
528.1
522.7

783.8
794.7
806.6
820.6

42.1
54.6
44.5
45.4

79.0
80.5
82.5
84.3

4.1
1.8
.4
−1.1

2004: I .........
II ........
III ......
IV ......

1,147.3 1,001.2 1,030.2
1,162.0 1,016.5 1,064.9
1,117.2
981.3 1,018.2
1,219.5 1,079.7 1,124.1

257.9
274.7
259.0
293.0

772.3
790.2
759.2
831.1

445.9
460.9
475.9
589.3

326.4
329.2
283.4
241.8

−28.9
−48.3
−36.9
−44.4

146.1
145.4
135.8
139.8

519.9
512.2
497.5
492.7

837.1
847.8
855.5
870.9

42.3
41.8
43.2
46.5

88.2
90.7
83.0
102.6

−1.6
−2.2
−3.0
−5.2

1,378.3
362.6
1,412.2
372.5
1,392.6
360.3
.............. ..............

1,015.7
1,039.7
1,032.3
..............

494.9
520.8
−39.1
506.3
533.4
−18.9
520.1
512.2
−27.5
535.4 .............. ..............

−51.0
−45.8
−72.1
−51.1

498.3
488.7
497.6
503.8

883.8
900.1
909.5
919.3

50.6
52.1
56.1
65.6

99.0
99.6
21.8
97.2

−6.1
−7.0
−22.8
−8.8

829.4
864.3
895.4
956.1

2005: I ......... 1,288.2
II ........ 1,347.5
III ....... 1,293.1
IV p .... ..............

707.0
740.5
774.5
842.7

1,339.2
1,393.3
1,365.1
..............

Source: Department of Commerce, Bureau of Economic Analysis.

315

TABLE B–29.—Sources of personal income, 1959–2005
[Billions of dollars; quarterly data at seasonally adjusted annual rates]
Compensation of employees, received
Wage and salary disbursements
Year or quarter

Personal
income

Total
Total

Private Governindusment
tries

Supplements to wages and salaries

Total

Employer
contributions for
employee
pension
and insurance funds

Employer
contributions for
government social insurance

Proprietors’ income
with inventory
valuation and
capital
consumption
adjustments

Total

Farm

Nonfarm

Rental
income
of
persons
with
capital
consumption
adjustment

1959 ....................

392.8

281.0

259.8

213.8

46.1

21.1

13.3

7.9

50.7

10.0

40.6

16.2

1960
1961
1962
1963
1964
1965
1966
1967
1968
1969

....................
....................
....................
....................
....................
....................
....................
....................
....................
....................

411.5
429.0
456.7
479.6
514.6
555.7
603.9
648.3
712.0
778.5

296.4
305.3
327.1
345.2
370.7
399.5
442.7
475.1
524.3
577.6

272.9
280.5
299.4
314.9
337.8
363.8
400.3
429.0
472.0
518.3

223.7
228.0
243.0
254.8
272.9
293.8
321.9
342.5
375.3
412.7

49.2
52.5
56.3
60.0
64.9
69.9
78.4
86.5
96.7
105.6

23.6
24.8
27.8
30.4
32.9
35.7
42.3
46.1
52.3
59.3

14.3
15.2
16.6
18.0
20.3
22.7
25.5
28.1
32.4
36.5

9.3
9.6
11.2
12.4
12.6
13.1
16.8
18.0
20.0
22.8

50.8
53.2
55.4
56.5
59.4
63.9
68.2
69.8
74.3
77.4

10.5
11.0
11.0
10.8
9.6
11.8
12.8
11.5
11.5
12.6

40.3
42.2
44.4
45.7
49.8
52.1
55.4
58.4
62.8
64.7

17.1
17.9
18.8
19.5
19.6
20.2
20.8
21.2
20.9
21.2

1970
1971
1972
1973
1974
1975
1976
1977
1978
1979

....................
....................
....................
....................
....................
....................
....................
....................
....................
....................

838.8
903.5
992.7
1,110.7
1,222.6
1,335.0
1,474.8
1,633.2
1,837.7
2,062.2

617.2
551.6
434.3
658.3
584.0
457.4
725.1
638.8
501.2
811.3
708.8
560.0
890.7
772.8
611.8
949.0
814.7
638.6
1,059.2
899.6
710.8
1,180.4
994.1
791.6
1,335.8 1,120.9
901.2
1,501.0 1,256.0 1,018.7

117.2
126.6
137.6
148.8
161.0
176.1
188.8
202.5
219.7
237.3

65.7
74.4
86.4
102.5
118.0
134.3
159.6
186.4
214.9
245.0

41.8
47.9
55.2
62.7
73.3
87.6
105.2
125.3
143.4
162.4

23.8
26.4
31.2
39.8
44.7
46.7
54.4
61.1
71.5
82.6

78.4
84.8
95.9
113.5
113.1
119.5
132.2
145.7
166.6
180.1

12.7
13.2
16.8
28.9
23.2
21.7
17.0
15.7
19.6
21.8

65.7
71.6
79.1
84.6
89.9
97.8
115.2
130.0
147.1
158.3

21.4
22.4
23.4
24.3
24.3
23.7
22.3
20.7
22.1
23.8

1980
1981
1982
1983
1984
1985
1986
1987
1988
1989

....................
....................
....................
....................
....................
....................
....................
....................
....................
....................

2,307.9
2,591.3
2,775.3
2,960.7
3,289.5
3,526.7
3,722.4
3,947.4
4,253.7
4,587.8

1,651.8
1,825.7
1,925.9
2,043.0
2,255.4
2,424.9
2,570.1
2,750.2
2,967.2
3,145.2

1,377.7
1,517.5
1,593.7
1,685.0
1,854.9
1,995.7
2,114.8
2,270.7
2,452.9
2,596.3

1,116.2
1,231.7
1,286.2
1,359.8
1,507.0
1,621.6
1,717.9
1,848.1
2,001.6
2,116.2

261.5
285.8
307.5
325.2
347.9
374.1
397.0
422.6
451.3
480.2

274.2
308.3
332.1
358.0
400.5
429.2
455.3
479.5
514.2
548.9

185.2
204.7
222.4
238.1
261.5
281.5
297.5
313.2
329.6
355.2

88.9
103.6
109.8
119.9
139.0
147.7
157.9
166.3
184.6
193.7

174.1
183.0
176.3
192.5
243.3
262.3
275.7
302.2
341.6
363.3

11.3
18.7
13.1
6.0
20.6
20.8
22.6
28.7
26.8
33.0

162.8
164.3
163.3
186.5
222.7
241.5
253.1
273.5
314.7
330.3

30.0
38.0
38.8
37.8
40.2
41.9
33.5
33.5
40.6
43.1

1990
1991
1992
1993
1994
1995
1996
1997
1998
1999

....................
....................
....................
....................
....................
....................
....................
....................
....................
....................

4,878.6
5,051.0
5,362.0
5,558.5
5,842.5
6,152.3
6,520.6
6,915.1
7,423.0
7,802.4

3,338.2
3,445.3
3,651.2
3,794.9
3,979.6
4,177.0
4,386.9
4,664.6
5,020.1
5,352.0

2,754.0
2,823.0
2,980.3
3,082.7
3,232.1
3,419.3
3,619.6
3,877.6
4,183.4
4,466.3

2,236.3
2,276.2
2,411.1
2,496.0
2,625.9
2,793.8
2,975.2
3,209.5
3,486.2
3,736.9

517.7
546.8
569.2
586.8
606.2
625.5
644.4
668.1
697.3
729.3

584.2
622.3
670.9
712.2
747.5
757.7
767.3
787.0
836.7
885.7

377.8
407.1
442.5
472.4
493.3
493.6
492.5
497.5
529.7
562.4

206.5
215.1
228.4
239.8
254.1
264.0
274.9
289.5
307.0
323.3

380.6
377.1
427.6
453.8
473.3
492.1
543.2
576.0
627.8
678.3

31.9
26.7
34.5
31.2
33.9
22.7
37.3
34.2
29.4
28.6

348.7
350.4
393.0
422.6
439.4
469.5
505.9
541.8
598.4
649.7

50.7
60.3
78.0
95.6
119.7
122.1
131.5
128.8
137.5
147.3

2000 ....................
2001 ....................
2002 ....................
2003 ....................
2004 ....................
2005 p ..................

8,429.7
8,724.1
8,881.9
9,169.1
9,713.3
10,238.2

5,782.7
5,942.1
6,091.2
6,321.1
6,687.6
7,113.6

4,829.2
4,942.8
4,980.9
5,111.1
5,389.4
5,711.9

4,054.5
4,126.9
4,115.0
4,207.8
4,450.0
4,740.4

774.7
815.9
865.9
903.3
939.5
971.4

953.4
999.3
1,110.3
1,210.0
1,298.1
1,401.8

609.9
642.7
745.1
830.0
895.5
976.2

343.5
356.6
365.2
380.0
402.7
425.6

728.4
771.9
768.4
810.2
889.6
937.8

22.7
19.7
10.6
27.7
35.8
20.1

705.7
752.2
757.8
782.4
853.8
917.7

150.3
167.4
152.9
131.7
134.2
73.9

2002: I .................
II ................
III ..............
IV ..............

8,814.7
8,892.0
8,895.4
8,925.5

6,025.3
6,091.5
6,114.5
6,133.4

4,961.2
4,989.4
4,988.5
4,984.5

4,105.7
4,125.7
4,119.2
4,109.1

855.4
863.7
869.3
875.4

1,064.2
1,102.1
1,126.0
1,148.9

700.7
736.2
760.1
783.2

363.4
365.8
365.9
365.8

763.0
763.5
769.1
778.1

8.9
4.0
11.0
18.4

754.1
759.4
758.1
759.7

172.1
167.7
142.9
129.2

2003: I .................
II ................
III ..............
IV ..............

9,013.7
9,118.6
9,215.4
9,328.7

6,209.0
6,288.0
6,360.1
6,427.4

5,029.7
5,087.8
5,139.8
5,187.3

4,135.9
4,184.1
4,233.8
4,277.4

893.7
903.7
906.1
909.9

1,179.4
1,200.2
1,220.2
1,240.1

804.8
821.6
838.1
855.4

374.6
378.6
382.1
384.7

778.3
801.4
821.1
840.0

20.5
27.2
28.2
35.1

757.8
774.1
793.0
804.8

137.7
125.4
120.4
143.2

2004: I .................
II ................
III ..............
IV ..............

9,484.8
9,614.3
9,729.2
10,024.8

6,526.7
6,603.6
6,724.2
6,895.8

5,254.8
5,318.1
5,422.0
5,562.9

4,327.5
4,380.3
4,479.2
4,612.9

927.3
937.7
942.8
950.0

1,271.9
1,285.5
1,302.3
1,332.9

877.0
887.5
897.9
919.6

394.9
398.0
404.4
413.4

870.2
898.4
889.1
900.9

44.8
44.1
29.7
24.6

825.4
854.2
859.4
876.3

144.2
141.8
122.1
128.7

2005: I .................
II ...............
III ..............
IV p .............

10,073.4
10,185.7
10,231.0
10,462.6

7,001.7
7,060.2
7,155.4
7,237.3

5,629.9
5,672.3
5,741.6
5,803.6

4,668.1
4,705.0
4,766.6
4,822.0

961.8
967.3
975.0
981.6

1,371.8
1,387.9
1,413.8
1,433.7

950.0
964.4
986.8
1,003.7

421.9
423.5
427.0
430.0

917.9
936.6
932.4
964.2

24.7
19.6
18.0
17.9

893.2
917.1
914.3
946.3

118.0
104.4
−11.1
84.5

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.

See next page for continuation of table.

316

TABLE B–29.—Sources of personal income, 1959–2005—Continued
[Billions of dollars; quarterly data at seasonally adjusted annual rates]
Personal income receipts on
assets

Personal current transfer receipts
Government social benefits to persons

Year or
quarter
Total

Personal Personal
interest dividend
income income

Old-age,
survivors, Government
disability, unemand
ployment
health
insurinsurance
ance ben- benefits
efits

Total
Total

Veterans
benefits

Family
assistance 1

Other

Less:
Other Contributions
current
for
transfer governreceipts, ment
from
social
business insurance
(net)

1959 ..................

34.6

22.0

12.6

24.2

22.9

10.2

2.8

4.6

0.9

4.5

1.3

13.8

1960
1961
1962
1963
1964
1965
1966
1967
1968
1969

..................
..................
..................
..................
..................
..................
..................
..................
..................
..................

37.9
40.1
44.1
47.9
53.8
59.4
64.1
69.0
75.2
84.1

24.5
26.2
29.1
31.7
35.6
39.2
43.4
47.5
51.6
59.9

13.4
13.9
15.0
16.2
18.2
20.2
20.7
21.5
23.5
24.2

25.7
29.5
30.4
32.2
33.5
36.2
39.6
48.0
56.1
62.3

24.4
28.1
28.8
30.3
31.3
33.9
37.5
45.8
53.3
59.0

11.1
12.6
14.3
15.2
16.0
18.1
20.8
25.8
30.5
33.1

3.0
4.3
3.1
3.0
2.7
2.3
1.9
2.2
2.1
2.2

4.6
5.0
4.7
4.8
4.7
4.9
4.9
5.6
5.9
6.7

1.0
1.1
1.3
1.4
1.5
1.7
1.9
2.3
2.8
3.5

4.7
5.1
5.5
5.9
6.4
7.0
8.1
9.9
11.9
13.4

1.3
1.4
1.5
1.9
2.2
2.3
2.1
2.3
2.8
3.3

16.4
17.0
19.1
21.7
22.4
23.4
31.3
34.9
38.7
44.1

1970
1971
1972
1973
1974
1975
1976
1977
1978
1979

..................
..................
..................
..................
..................
..................
..................
..................
..................
..................

93.5
101.0
109.6
124.7
146.4
162.2
178.4
205.3
234.8
274.7

69.2
75.9
82.8
94.8
113.2
129.3
139.5
160.6
184.0
217.3

24.3
25.0
26.8
29.9
33.2
32.9
39.0
44.7
50.7
57.4

74.7
88.1
97.9
112.6
133.3
170.0
184.0
194.2
209.6
235.3

71.7
85.4
94.8
108.6
128.6
163.1
177.3
189.1
203.2
227.1

38.6
44.7
49.8
60.9
70.3
81.5
93.3
105.3
116.9
132.5

4.0
5.8
5.7
4.4
6.8
17.6
15.8
12.7
9.1
9.4

7.7
8.8
9.7
10.4
11.8
14.5
14.4
13.8
13.9
14.4

4.8
6.2
6.9
7.2
8.0
9.3
10.1
10.6
10.8
11.1

16.6
20.0
22.7
25.7
31.7
40.2
43.7
46.7
52.5
59.6

2.9
2.7
3.1
3.9
4.7
6.8
6.7
5.1
6.5
8.2

46.4
51.2
59.2
75.5
85.2
89.3
101.3
113.1
131.3
152.7

1980
1981
1982
1983
1984
1985
1986
1987
1988
1989

..................
..................
..................
..................
..................
..................
..................
..................
..................
..................

338.7
421.9
488.4
529.6
607.9
654.0
695.5
717.0
769.3
878.0

274.7
348.3
410.8
446.3
517.2
556.6
589.5
604.9
639.5
720.2

64.0
73.6
77.6
83.3
90.6
97.4
106.0
112.2
129.7
157.8

279.5
318.4
354.8
383.7
400.1
424.9
451.0
467.6
496.6
543.4

270.8
307.2
342.4
369.9
380.4
402.6
428.0
447.4
476.0
519.9

154.8
182.1
204.6
222.2
237.8
253.0
268.9
282.6
300.2
325.6

15.7
15.6
25.1
26.2
15.9
15.7
16.3
14.5
13.2
14.3

15.0
16.1
16.4
16.6
16.4
16.7
16.7
16.6
16.9
17.3

12.5
13.1
12.9
13.8
14.5
15.2
16.1
16.4
16.9
17.5

72.8
80.2
83.4
91.0
95.9
102.0
109.9
117.3
128.8
145.3

8.6
11.2
12.4
13.8
19.7
22.3
22.9
20.2
20.6
23.5

166.2
195.7
208.9
226.0
257.5
281.4
303.4
323.1
361.5
385.2

1990
1991
1992
1993
1994
1995
1996
1997
1998
1999

..................
..................
..................
..................
..................
..................
..................
..................
..................
..................

924.0
932.0
910.9
901.8
950.8
1,016.4
1,089.2
1,181.7
1,283.2
1,264.2

755.2
751.7
723.4
699.6
716.8
763.2
793.0
848.7
933.2
928.6

168.8
595.2
180.3
666.4
187.4
749.4
202.2
790.1
234.0
827.3
253.2
877.4
296.2
925.0
333.0
951.2
349.9
978.6
335.6 1,022.1

573.1
648.5
729.8
775.7
812.2
858.4
902.1
931.8
952.6
988.0

351.8
381.7
414.4
443.4
475.4
506.8
537.7
563.2
575.1
588.9

18.0
26.6
38.9
34.1
23.5
21.4
22.0
19.9
19.5
20.3

17.8
18.3
19.3
20.1
20.1
20.9
21.7
22.5
23.4
24.3

19.2
21.1
22.2
22.8
23.2
22.6
20.3
17.9
17.4
17.9

166.2
200.8
234.9
255.3
270.0
286.7
300.4
308.3
317.3
336.7

22.2
17.9
19.6
14.4
15.1
19.0
22.9
19.4
26.0
34.1

410.1
430.2
455.0
477.7
508.2
532.8
555.2
587.2
624.2
661.4

2000 ..................
2001 ..................
2002 ..................
2003 ..................
2004 ..................
2005 p ................

1,387.0 1,011.0
1,380.0 1,011.0
1,333.2
936.1
1,338.7
917.6
1,396.5
905.9
1,456.7
945.0

376.1
369.0
397.2
421.1
490.6
511.7

1,084.0
1,193.9
1,286.2
1,344.0
1,427.5
1,525.5

1,041.6
1,143.9
1,248.9
1,313.5
1,394.5
1,483.9

620.8
668.5
707.5
739.3
789.3
845.1

20.3
31.7
53.2
52.8
36.0
28.9

25.1
26.7
29.6
32.0
34.2
36.4

18.4
18.1
17.7
18.4
18.5
18.8

357.0
398.9
440.9
471.1
516.5
554.7

42.4
50.0
37.3
30.5
33.0
41.6

702.7
731.1
750.0
776.6
822.2
869.4

2002: I ...............
II ..............
III ............
IV ............

1,340.6
1,336.5
1,327.4
1,328.5

960.1
942.4
923.3
918.4

380.5
394.1
404.1
410.0

1,260.9
1,284.0
1,292.7
1,307.1

1,218.6
1,245.4
1,257.3
1,274.2

698.4
704.5
710.3
716.7

42.8
60.1
56.8
53.1

28.8
29.4
29.9
30.4

17.7
17.6
17.6
17.8

430.9
433.8
442.7
456.2

42.3
38.6
35.4
32.9

747.1
751.1
751.1
750.9

2003: I ...............
II ..............
III ............
IV ............

1,334.6
1,340.5
1,337.6
1,342.1

920.6
922.6
915.1
912.2

414.0
417.9
422.4
429.9

1,319.8
1,336.9
1,356.8
1,362.3

1,288.2
1,306.1
1,326.7
1,333.0

726.6
736.0
742.6
751.9

51.1
54.5
54.4
51.3

31.5
31.9
32.2
32.3

18.1
18.3
18.5
18.5

460.8
465.4
479.1
478.9

31.6
30.8
30.1
29.3

765.8
773.6
780.7
786.3

2004: I ...............
II ..............
III ............
IV ............

1,350.4
1,363.9
1,378.2
1,493.6

906.6
905.1
904.7
907.4

443.9
458.8
473.5
586.2

1,399.6
1,419.8
1,441.5
1,449.2

1,370.6
1,390.8
1,397.1
1,419.5

772.9
784.9
793.7
805.5

43.1
35.3
33.3
32.4

33.8
34.0
34.4
34.8

18.4
18.5
18.5
18.6

502.4
518.3
517.1
528.2

29.0
28.9
44.4
29.8

806.3
813.0
825.9
843.5

2005: I ...............
II .............
III ............
IV p ...........

1,407.9
1,439.8
1,468.9
1,510.3

915.4
936.0
951.2
977.5

492.5
503.8
517.6
532.9

1,488.8
1,509.6
1,558.1
1,545.5

1,459.7
1,480.4
1,483.2
1,512.4

828.0
842.2
850.1
860.2

29.4
28.0
28.5
29.7

36.2
36.4
36.4
36.7

18.7
18.7
18.8
18.9

547.3
555.1
549.3
566.9

29.1
29.2
74.8
33.1

861.0
864.9
872.6
879.2

Source: Department of Commerce, Bureau of Economic Analysis.

317

TABLE B–30.—Disposition of personal income, 1959–2005
[Billions of dollars, except as noted; quarterly data at seasonally adjusted annual rates]
Less: Personal outlays

Year or quarter

Personal
income

Less:
Personal
current
taxes

Equals:
Disposable
personal
income

Total

Percent of disposable
personal income 2

PerPersonal Personal sonal
curconrent
sumption interest transpayexpendi- ments 1
fer
tures
payments

Equals:
Personal
saving

Personal outlays

Total

Personal Personal
consumption saving
expenditures

1959 .....................

392.8

42.3

350.5

323.9

317.6

5.5

0.8

26.7

92.4

90.6

7.6

1960
1961
1962
1963
1964
1965
1966
1967
1968
1969

.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................

411.5
429.0
456.7
479.6
514.6
555.7
603.9
648.3
712.0
778.5

46.1
47.3
51.6
54.6
52.1
57.7
66.4
73.0
87.0
104.5

365.4
381.8
405.1
425.1
462.5
498.1
537.5
575.3
625.0
674.0

338.8
349.6
371.3
391.8
421.7
455.1
493.1
520.9
572.2
621.4

331.7
342.1
363.3
382.7
411.4
443.8
480.9
507.8
558.0
605.2

6.2
6.5
7.0
7.9
8.9
9.9
10.7
11.1
12.2
14.0

.8
1.0
1.1
1.2
1.3
1.4
1.6
2.0
2.0
2.2

26.7
32.2
33.8
33.3
40.8
43.0
44.4
54.4
52.8
52.5

92.7
91.6
91.7
92.2
91.2
91.4
91.7
90.5
91.6
92.2

90.8
89.6
89.7
90.0
89.0
89.1
89.5
88.3
89.3
89.8

7.3
8.4
8.3
7.8
8.8
8.6
8.3
9.5
8.4
7.8

1970
1971
1972
1973
1974
1975
1976
1977
1978
1979

.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................

838.8
903.5
992.7
1,110.7
1,222.6
1,335.0
1,474.8
1,633.2
1,837.7
2,062.2

103.1
101.7
123.6
132.4
151.0
147.6
172.3
197.5
229.4
268.7

735.7
801.8
869.1
978.3
1,071.6
1,187.4
1,302.5
1,435.7
1,608.3
1,793.5

666.2
721.2
791.9
875.6
958.0
1,061.9
1,180.2
1,310.4
1,465.8
1,634.4

648.5
701.9
770.6
852.4
933.4
1,034.4
1,151.9
1,278.6
1,428.5
1,592.2

15.2
16.6
18.1
19.8
21.2
23.7
23.9
27.0
31.9
36.2

2.6
2.8
3.1
3.4
3.4
3.8
4.4
4.8
5.4
5.9

69.5
80.6
77.2
102.7
113.6
125.6
122.3
125.3
142.5
159.1

90.6
89.9
91.1
89.5
89.4
89.4
90.6
91.3
91.1
91.1

88.1
87.5
88.7
87.1
87.1
87.1
88.4
89.1
88.8
88.8

9.4
10.1
8.9
10.5
10.6
10.6
9.4
8.7
8.9
8.9

1980
1981
1982
1983
1984
1985
1986
1987
1988
1989

.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................

2,307.9
2,591.3
2,775.3
2,960.7
3,289.5
3,526.7
3,722.4
3,947.4
4,253.7
4,587.8

298.9
345.2
354.1
352.3
377.4
417.4
437.3
489.1
505.0
566.1

2,009.0
2,246.1
2,421.2
2,608.4
2,912.0
3,109.3
3,285.1
3,458.3
3,748.7
4,021.7

1,807.5
2,001.8
2,150.4
2,374.8
2,597.3
2,829.3
3,016.7
3,216.9
3,475.8
3,734.5

1,757.1
1,941.1
2,077.3
2,290.6
2,503.3
2,720.3
2,899.7
3,100.2
3,353.6
3,598.5

43.6
49.3
59.5
69.2
77.0
90.4
96.1
93.6
96.8
108.2

6.8
11.4
13.6
15.0
16.9
18.6
20.9
23.1
25.4
27.8

201.4
244.3
270.8
233.6
314.8
280.0
268.4
241.4
272.9
287.1

90.0
89.1
88.8
91.0
89.2
91.0
91.8
93.0
92.7
92.9

87.5
86.4
85.8
87.8
86.0
87.5
88.3
89.6
89.5
89.5

10.0
10.9
11.2
9.0
10.8
9.0
8.2
7.0
7.3
7.1

1990
1991
1992
1993
1994
1995
1996
1997
1998
1999

.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................

4,878.6
5,051.0
5,362.0
5,558.5
5,842.5
6,152.3
6,520.6
6,915.1
7,423.0
7,802.4

592.8
586.7
610.6
646.6
690.7
744.1
832.1
926.3
1,027.0
1,107.5

4,285.8
4,464.3
4,751.4
4,911.9
5,151.8
5,408.2
5,688.5
5,988.8
6,395.9
6,695.0

3,986.4
4,140.1
4,385.4
4,627.9
4,902.4
5,157.3
5,460.0
5,770.5
6,119.1
6,536.4

3,839.9
3,986.1
4,235.3
4,477.9
4,743.3
4,975.8
5,256.8
5,547.4
5,879.5
6,282.5

116.1
118.5
111.8
107.3
112.8
132.7
150.3
163.9
174.5
181.0

30.4
35.6
38.3
42.7
46.3
48.9
52.9
59.2
65.2
73.0

299.4
324.2
366.0
284.0
249.5
250.9
228.4
218.3
276.8
158.6

93.0
92.7
92.3
94.2
95.2
95.4
96.0
96.4
95.7
97.6

89.6
89.3
89.1
91.2
92.1
92.0
92.4
92.6
91.9
93.8

7.0
7.3
7.7
5.8
4.8
4.6
4.0
3.6
4.3
2.4

2000 .....................
2001 .....................
2002 .....................
2003 .....................
2004 .....................
2005 p ...................

8,429.7
8,724.1
8,881.9
9,169.1
9,713.3
10,238.2

1,235.7
1,237.3
1,051.8
999.9
1,049.1
1,206.9

7,194.0
7,486.8
7,830.1
8,169.2
8,664.2
9,031.3

7,025.6
7,354.5
7,645.3
7,996.3
8,512.5
9,072.8

6,739.4
7,055.0
7,350.7
7,709.9
8,214.3
8,745.9

204.7
212.2
196.4
183.2
186.7
206.4

81.5
87.2
98.2
103.3
111.5
120.5

168.5
132.3
184.7
172.8
151.8
−41.6

97.7
98.2
97.6
97.9
98.2
100.5

93.7
94.2
93.9
94.4
94.8
96.8

2.3
1.8
2.4
2.1
1.8
−.5

2002: I ..................
II .................
III ................
IV ................
2003: I ..................
II .................
III ................
IV ................
2004: I ..................
II .................
III ................
IV ................

8,814.7
8,892.0
8,895.4
8,925.5
9,013.7
9,118.6
9,215.4
9,328.7
9,484.8
9,614.3
9,729.2
10,024.8

1,063.2
1,050.3
1,050.0
1,043.8
1,024.3
1,026.9
940.8
1,007.6
1,009.6
1,034.0
1,058.4
1,094.3

7,751.5
7,841.7
7,845.4
7,881.7
7,989.4
8,091.7
8,274.6
8,321.0
8,475.3
8,580.3
8,670.9
8,930.4

7,526.1
7,620.5
7,692.4
7,742.4
7,835.4
7,922.1
8,069.5
8,158.4
8,319.4
8,439.1
8,566.3
8,725.0

7,230.3
7,323.0
7,396.6
7,453.1
7,555.2
7,635.3
7,782.4
7,866.6
8,032.3
8,145.6
8,263.2
8,416.1

199.2
200.6
197.0
188.8
179.3
184.8
185.2
183.4
178.0
182.2
190.3
196.2

96.6
96.8
98.9
100.5
101.0
102.0
101.9
108.4
109.2
111.3
112.8
112.7

225.4
221.2
153.0
139.3
154.0
169.6
205.1
162.6
155.8
141.2
104.6
205.4

97.1
97.2
98.0
98.2
98.1
97.9
97.5
98.0
98.2
98.4
98.8
97.7

93.3
93.4
94.3
94.6
94.6
94.4
94.1
94.5
94.8
94.9
95.3
94.2

2.9
2.8
2.0
1.8
1.9
2.1
2.5
2.0
1.8
1.6
1.2
2.3

2005: I ..................
II .................
III ................
IV p ..............

10,073.4
10,185.7
10,231.0
10,462.6

1,171.4
1,206.0
1,215.9
1,234.3

8,902.0
8,979.7
9,015.1
9,228.3

8,854.6
9,001.2
9,173.9
9,261.6

8,535.8
8,677.0
8,844.0
8,926.9

198.1
205.3
210.0
212.1

120.8
118.8
119.9
122.7

47.4
−21.5
−158.9
−33.3

99.5
100.2
101.8
100.4

95.9
96.6
98.1
96.7

.5
−.2
−1.8
−.4

1 Consists

of nonmortgage interest paid by households.
based on data in millions of dollars.
Source: Department of Commerce, Bureau of Economic Analysis.
2 Percents

318

TABLE B–31.—Total and per capita disposable personal income and personal consumption expenditures,
and per capita gross domestic product, in current and real dollars, 1959–2005
[Quarterly data at seasonally adjusted annual rates, except as noted]
Disposable personal income
Year or
quarter

Total (billions of
dollars)

Personal consumption expenditures

Per capita
(dollars)

Current
dollars

Chained
(2000)
dollars

Current
dollars

1959 ........

350.5

1,715.5

1960
1961
1962
1963
1964
1965
1966
1967
1968
1969

........
........
........
........
........
........
........
........
........
........

365.4
381.8
405.1
425.1
462.5
498.1
537.5
575.3
625.0
674.0

1,759.7
1,819.2
1,908.2
1,979.1
2,122.8
2,253.3
2,371.9
2,475.9
2,588.0
2,668.7

1970
1971
1972
1973
1974
1975
1976
1977
1978
1979

........
........
........
........
........
........
........
........
........
........

735.7
801.8
869.1
978.3
1,071.6
1,187.4
1,302.5
1,435.7
1,608.3
1,793.5

1980
1981
1982
1983
1984
1985
1986
1987
1988
1989

........
........
........
........
........
........
........
........
........
........

1990
1991
1992
1993
1994
1995
1996
1997
1998
1999

Total (billions of
dollars)

Per capita
(dollars)

Current
dollars

Chained
(2000)
dollars

1,979

9,685

317.6

1,554.6

1,793

8,776

2,860

13,782

177,130

2,022
2,078
2,171
2,246
2,410
2,563
2,734
2,895
3,114
3,324

9,735
9,901
10,227
10,455
11,061
11,594
12,065
12,457
12,892
13,163

331.7
342.1
363.3
382.7
411.4
443.8
480.9
507.8
558.0
605.2

1,597.4
1,630.3
1,711.1
1,781.6
1,888.4
2,007.7
2,121.8
2,185.0
2,310.5
2,396.4

1,835
1,862
1,947
2,022
2,144
2,283
2,446
2,555
2,780
2,985

8,837
8,873
9,170
9,412
9,839
10,331
10,793
10,994
11,510
11,820

2,912
2,965
3,139
3,263
3,458
3,700
4,007
4,189
4,533
4,857

13,840
13,932
14,552
14,971
15,624
16,420
17,290
17,533
18,196
18,573

180,760
183,742
186,590
189,300
191,927
194,347
196,599
198,752
200,745
202,736

2,781.7
2,907.9
3,046.5
3,252.3
3,228.5
3,302.6
3,432.2
3,552.9
3,718.8
3,811.2

3,587
3,860
4,140
4,616
5,010
5,498
5,972
6,517
7,224
7,967

13,563
14,001
14,512
15,345
15,094
15,291
15,738
16,128
16,704
16,931

648.5
701.9
770.6
852.4
933.4
1,034.4
1,151.9
1,278.6
1,428.5
1,592.2

2,451.9
2,545.5
2,701.3
2,833.8
2,812.3
2,876.9
3,035.5
3,164.1
3,303.1
3,383.4

3,162
3,379
3,671
4,022
4,364
4,789
5,282
5,804
6,417
7,073

11,955
12,256
12,868
13,371
13,148
13,320
13,919
14,364
14,837
15,030

5,064
5,427
5,899
6,524
7,013
7,586
8,369
9,219
10,307
11,387

18,391
18,771
19,555
20,484
20,195
19,961
20,822
21,565
22,526
22,982

205,089
207,692
209,924
211,939
213,898
215,981
218,086
220,289
222,629
225,106

2,009.0
2,246.1
2,421.2
2,608.4
2,912.0
3,109.3
3,285.1
3,458.3
3,748.7
4,021.7

3,857.7
3,960.0
4,044.9
4,177.7
4,494.1
4,645.2
4,791.0
4,874.5
5,082.6
5,224.8

8,822
9,765
10,426
11,131
12,319
13,037
13,649
14,241
15,297
16,257

16,940
17,217
17,418
17,828
19,011
19,476
19,906
20,072
20,740
21,120

1,757.1
1,941.1
2,077.3
2,290.6
2,503.3
2,720.3
2,899.7
3,100.2
3,353.6
3,598.5

3,374.1
3,422.2
3,470.3
3,668.6
3,863.3
4,064.0
4,228.9
4,369.8
4,546.9
4,675.0

7,716
8,439
8,945
9,775
10,589
11,406
12,048
12,766
13,685
14,546

14,816
14,879
14,944
15,656
16,343
17,040
17,570
17,994
18,554
18,898

12,249
13,601
14,017
15,092
16,638
17,695
18,542
19,517
20,827
22,169

22,666
23,007
22,346
23,146
24,593
25,382
26,024
26,664
27,514
28,221

227,726
230,008
232,218
234,333
236,394
238,506
240,683
242,843
245,061
247,387

........
........
........
........
........
........
........
........
........
........

4,285.8
4,464.3
4,751.4
4,911.9
5,151.8
5,408.2
5,688.5
5,988.8
6,395.9
6,695.0

5,324.2
5,351.7
5,536.3
5,594.2
5,746.4
5,905.7
6,080.9
6,295.8
6,663.9
6,861.3

17,131
17,609
18,494
18,872
19,555
20,287
21,091
21,940
23,161
23,968

21,281
21,109
21,548
21,493
21,812
22,153
22,546
23,065
24,131
24,564

3,839.9
3,986.1
4,235.3
4,477.9
4,743.3
4,975.8
5,256.8
5,547.4
5,879.5
6,282.5

4,770.3
4,778.4
4,934.8
5,099.8
5,290.7
5,433.5
5,619.4
5,831.8
6,125.8
6,438.6

15,349
15,722
16,485
17,204
18,004
18,665
19,490
20,323
21,291
22,491

19,067
18,848
19,208
19,593
20,082
20,382
20,835
21,365
22,183
23,050

23,195
23,650
24,668
25,578
26,844
27,749
28,982
30,424
31,674
33,181

28,429
28,007
28,556
28,940
29,741
30,128
30,881
31,886
32,833
33,904

250,181
253,530
256,922
260,282
263,455
266,588
269,714
272,958
276,154
279,328

2000 .......
2001 .......
2002 .......
2003 .......
2004 .......
2005 p ......

7,194.0
7,486.8
7,830.1
8,169.2
8,664.2
9,031.3

7,194.0
7,333.3
7,562.2
7,741.8
8,004.3
8,114.5

25,472
26,236
27,165
28,065
29,475
30,429

25,472
25,698
26,236
26,596
27,230
27,340

6,739.4
7,055.0
7,350.7
7,709.9
8,214.3
8,745.9

6,739.4
6,910.4
7,099.3
7,306.6
7,588.6
7,858.1

23,862
24,723
25,502
26,487
27,944
29,468

23,862
24,216
24,630
25,101
25,816
26,476

34,759
35,491
36,323
37,691
39,919
42,047

34,759
34,660
34,863
35,456
36,590
37,504

282,429
285,366
288,240
291,085
293,951
296,798

2002: I .....
II ....
III ..
IV ..

7,751.5
7,841.7
7,845.4
7,881.7

7,549.9
7,585.2
7,555.5
7,559.3

26,994
27,246
27,187
27,241

26,292
26,355
26,182
26,127

7,230.3
7,323.0
7,396.6
7,453.1

7,042.2
7,083.5
7,123.2
7,148.2

25,179
25,444
25,631
25,760

24,524
24,612
24,684
24,706

35,985
36,227
36,481
36,606

34,745
34,855
34,967
34,894

287,154
287,812
288,575
289,328

2003: I .....
II ...
III ..
IV ..

7,989.4
8,091.7
8,274.6
8,321.0

7,605.5
7,690.5
7,826.2
7,844.8

27,552
27,839
28,392
28,475

26,228
26,459
26,853
26,846

7,555.2
7,635.3
7,782.4
7,866.6

7,192.2
7,256.8
7,360.7
7,416.4

26,054
26,269
26,703
26,921

24,803
24,967
25,256
25,380

36,958
37,311
38,043
38,451

34,963
35,197
35,722
35,941

289,977
290,656
291,442
292,217

2004: I .....
II ...
III ..
IV ..

8,475.3
8,580.3
8,670.9
8,930.4

7,915.1
7,938.8
7,993.3
8,169.2

28,939
29,231
29,461
30,265

27,026
27,045
27,159
27,685

8,032.3
8,145.6
8,263.2
8,416.1

7,501.4
7,536.6
7,617.5
7,698.8

27,426
27,750
28,076
28,522

25,613
25,675
25,882
26,091

39,120
39,743
40,157
40,651

36,236
36,466
36,726
36,930

292,872
293,540
294,315
295,077

2005: I .....
II ...
III ..
IV p

8,902.0
8,979.7
9,015.1
9,228.3

8,098.1
8,102.6
8,060.8
8,198.0

30,103
30,298
30,338
30,975

27,384
27,338
27,127
27,516

8,535.8
8,677.0
8,844.0
8,926.9

7,764.9
7,829.5
7,907.9
7,930.2

28,864
29,276
29,762
29,963

26,258
26,417
26,612
26,617

41,251
41,763
42,421
42,745

37,195
37,415
37,699
37,705

295,720
296,383
297,155
297,933

Current
dollars

Chained
(2000)
dollars

Population
(thousands) 1

Chained
(2000)
dollars

Current
dollars

Chained
(2000)
dollars

Gross domestic
product
per capita
(dollars)

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).

319

TABLE B–32.—Gross saving and investment, 1959–2005
[Billions of dollars, except as noted; quarterly data at seasonally adjusted annual rates]
Gross saving
Net saving
Net private saving
Year or quarter

Total
gross
saving

Total
net
saving

Total

Net government saving

UndisWage
accruals
Personal tributed less discorsaving
porate burseprofits 1 ments

Total

Federal

State
and
local

Consumption of fixed
capital

Total

Private Government

1959 .............................

106.2

53.2

46.0

26.7

19.4

0.0

7.1

3.3

3.8

53.0

38.6

14.5

1960
1961
1962
1963
1964
1965
1966
1967
1968
1969

.............................
.............................
.............................
.............................
.............................
.............................
.............................
.............................
.............................
.............................

111.3
114.3
124.9
133.2
143.4
158.5
168.7
170.5
182.0
198.3

55.8
57.1
65.7
70.8
78.4
89.1
93.1
89.0
93.6
100.4

44.3
50.2
57.9
59.7
71.0
79.2
83.1
91.4
88.4
83.7

26.7
32.2
33.8
33.3
40.8
43.0
44.4
54.4
52.8
52.5

17.6
18.1
24.1
26.4
30.1
36.2
38.7
36.9
35.6
31.2

.0
.0
.0
.0
.0
.0
.0
.0
.0
.0

11.5
6.9
7.8
11.1
7.4
9.9
10.0
−2.4
5.2
16.7

7.2
2.6
2.5
5.4
1.0
3.3
2.3
−9.4
−2.3
8.7

4.3
4.3
5.2
5.7
6.4
6.5
7.8
7.0
7.5
8.0

55.6
57.2
59.3
62.4
65.0
69.4
75.6
81.5
88.4
97.9

40.5
41.6
42.8
44.9
46.9
50.5
55.5
59.9
65.2
73.1

15.0
15.6
16.5
17.5
18.1
18.9
20.1
21.6
23.1
24.8

1970
1971
1972
1973
1974
1975
1976
1977
1978
1979

.............................
.............................
.............................
.............................
.............................
.............................
.............................
.............................
.............................
.............................

192.7
208.9
237.5
292.0
301.5
297.0
342.1
397.5
478.0
536.7

86.0
93.9
111.0
152.7
139.0
109.2
137.0
167.5
215.7
236.6

94.0
115.8
119.8
148.3
143.4
175.8
181.3
198.5
223.5
234.9

69.5
80.6
77.2
102.7
113.6
125.6
122.3
125.3
142.5
159.1

24.6
34.8
42.9
45.6
29.8
50.2
59.0
73.2
81.0
75.7

.0
.4
−.3
.0
.0
.0
.0
.0
.0
.0

−8.1
−21.9
−8.8
4.4
−4.4
−66.6
−44.4
−31.0
−7.8
1.7

−15.2
−28.4
−24.4
−11.3
−13.8
−69.0
−51.7
−44.1
−26.5
−11.3

7.1
6.5
15.6
15.7
9.3
2.5
7.4
13.1
18.7
13.0

106.7
115.0
126.5
139.3
162.5
187.7
205.2
230.0
262.3
300.1

80.0
86.7
97.1
107.9
126.6
147.8
162.5
184.3
212.8
245.7

26.7
28.3
29.5
31.4
35.9
40.0
42.6
45.7
49.5
54.5

1980
1981
1982
1983
1984
1985
1986
1987
1988
1989

.............................
.............................
.............................
.............................
.............................
.............................
.............................
.............................
.............................
.............................

549.4
654.7
629.1
609.4
773.4
767.5
733.5
796.8
915.0
944.7

206.5
266.6
202.2
165.6
300.9
260.7
202.2
234.9
317.4
300.4

251.3
312.3
336.2
333.7
445.0
413.4
372.0
367.4
434.0
409.7

201.4
244.3
270.8
233.6
314.8
280.0
268.4
241.4
272.9
287.1

49.9
68.0
65.4
100.1
130.3
133.4
103.7
126.1
161.1
122.6

.0
.0
.0
.0
.0
.0
.0
.0
.0
.0

−44.8
−45.7
−134.1
−168.1
−144.1
−152.6
−169.9
−132.6
−116.6
−109.3

−53.6
−53.3
−131.9
−173.0
−168.1
−175.0
−190.8
−145.0
−134.5
−130.1

8.8
7.6
−2.2
4.9
23.9
22.3
21.0
12.4
17.9
20.8

343.0
388.1
426.9
443.8
472.6
506.7
531.3
561.9
597.6
644.3

281.1
317.9
349.8
362.1
385.6
414.0
431.8
455.3
483.5
522.1

61.8
70.1
77.1
81.7
87.0
92.7
99.5
106.7
114.1
122.2

1990
1991
1992
1993
1994
1995
1996
1997
1998
1999

.............................
.............................
.............................
.............................
.............................
.............................
.............................
.............................
.............................
............................

940.4
964.1
948.2
962.4
1,070.7
1,184.5
1,291.1
1,461.1
1,598.7
1,674.3

258.0
238.2
196.3
186.0
237.1
306.2
373.0
486.6
568.6
573.0

422.7
456.1
493.0
458.6
438.9
491.1
489.0
503.3
477.8
419.0

299.4
324.2
366.0
284.0
249.5
250.9
228.4
218.3
276.8
158.6

123.3
131.9
142.7
168.1
171.8
223.8
256.9
287.9
201.7
255.3

.0
.0
−15.8
6.4
17.6
16.4
3.6
−2.9
−.7
5.2

−164.8
−217.9
−296.7
−272.6
−201.9
−184.9
−116.0
−16.7
90.8
154.0

−172.0
−213.7
−297.4
−273.5
−212.3
−197.0
−141.8
−55.8
38.8
103.6

7.2
682.5
−4.2
725.9
.7
751.9
.9
776.4
10.5
833.7
12.0
878.4
25.8
918.1
39.1
974.4
52.0 1,030.2
50.4 1,101.3

551.6
586.9
607.3
624.7
675.1
713.4
748.8
800.3
851.2
914.3

130.9
139.1
144.6
151.8
158.6
165.0
169.3
174.1
179.0
187.0

1,187.8
1,281.5
1,292.0
1,331.3
1,435.3
1,574.1

990.8
1,075.5
1,080.3
1,112.8
1,206.2
1,327.2

197.0
206.0
211.6
218.5
229.1
246.9

2000 ............................
1,770.5
582.7 343.3
2001 .............................
1,657.6
376.1 324.6
2002 .............................
1,489.1
197.1 479.2
2003 .............................
1,474.1
142.7 549.3
2004 ............................
1,572.0
136.8 549.1
2005 p ........................... ................ .............. ............

168.5
174.8
132.3
192.3
184.7
294.5
172.8
376.5
151.8
397.3
−41.6 ..............

.0
239.4
189.5
50.0
.0
51.5
46.7
4.8
.0 −282.1 −247.9
−34.2
.0 −406.5 −382.7
−23.8
.0 −412.3 −406.5
−5.9
.0 .............. .............. ..............

2002: I ..........................
II ........................
III .......................
IV .......................

1,535.7
1,512.6
1,461.5
1,446.6

253.7
224.4
166.7
143.8

497.4
500.9
445.4
473.3

225.4
221.2
153.0
139.3

272.0
279.7
292.4
334.0

.0
.0
.0
.0

−243.8
−276.5
−278.7
−329.5

−208.5
−241.4
−247.3
−294.6

−35.3
−35.1
−31.4
−34.9

1,282.0
1,288.2
1,294.9
1,302.7

1,073.1
1,077.5
1,082.4
1,088.4

208.9
210.8
212.5
214.3

2003: I ..........................
II ........................
III .......................
IV .......................

1,413.3
1,456.8
1,470.0
1,556.2

101.4
133.0
132.8
203.7

465.2
532.9
602.8
596.2

154.0
169.6
205.1
162.6

311.3
363.4
397.7
433.6

.0
.0
.0
.0

−363.8
−399.9
−469.9
−392.5

−296.0
−373.8
−456.2
−405.0

−67.8
−26.1
−13.8
12.5

1,311.8
1,323.8
1,337.2
1,352.5

1,095.7
1,105.8
1,117.8
1,131.8

216.1
218.1
219.3
220.6

2004: I ..........................
II .........................
III .......................
IV .......................

1,534.7
1,546.4
1,590.1
1,617.0

163.6
152.6
56.0
174.9

599.4
567.6
486.9
542.6

155.8
141.2
104.6
205.4

443.5
426.4
382.3
337.2

.0
.0
.0
.0

−435.8
−415.0
−430.9
−367.7

−429.3
−413.4
−411.6
−371.6

−6.5
−1.6
−19.3
4.0

1,371.1
1,393.8
1,534.1
1,442.0

1,147.8
1,165.8
1,303.5
1,207.6

223.3
228.1
230.6
234.5

.0 −290.9 −298.3
7.4
.0 −276.1 −297.3
21.3
.0 −421.6 −415.2
−6.4
.0 .............. .............. ..............

1,448.4
1,457.2
1,863.8
1,526.9

1,210.9
1,216.9
1,603.6
1,277.3

237.5
240.4
260.2
249.6

2005: I ..........................
1,635.5
187.1 478.1
II .........................
1,628.4
171.2 447.2
III .......................
1,696.0 −167.8 253.8
IV p ..................... ................ .............. ............

47.4
430.7
−21.5
468.7
−158.9
412.6
−33.3 ..............

1 With inventory valuation and capital consumption adjustments.
See next page for continuation of table.

320

TABLE B–32.—Gross saving and investment, 1959–2005—Continued
[Billions of dollars, except as noted; quarterly data at seasonally adjusted annual rates]
Gross domestic investment, capital account transactions, and net lending, NIPA

Addenda:
Gross government saving

Gross domestic investment
Year or
quarter
Total

Total

CapNet
ital lending Statistical
Gross
acGross count or net discrepprivate governborancy
domes- ment trans- rowing
tic
ac(–),
invest- invest- tions NIPA 4
ment 2 (net) 3
ment

Gross
private
saving

Total

Federal

State
and
local

Gross
saving
as a
Net
perdomes- cent
tic
of
invest- gross
ment
national
income

Net
saving
as a
percent
of
gross
national
income

1959 ..........

106.7

107.8

78.5

−1.2

0.5

84.6

21.6

13.6

8.0

54.8

20.9

10.4

1960
1961
1962
1963
1964
1965
1966
1967
1968
1969

..........
..........
..........
..........
..........
..........
..........
..........
..........
..........

110.4
113.8
125.3
132.4
144.2
160.0
175.0
175.1
186.6
201.5

107.2
109.5
121.4
127.4
136.7
153.8
171.1
171.6
184.8
199.7

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
39.8
43.0
43.6
43.3

..........
..........
..........
..........
..........
..........
..........
..........
..........
..........

3.2
4.3
3.9
5.0
7.5
6.2
3.9
3.6
1.7
1.8

−.9
−.6
.4
−.8
.8
1.6
6.3
4.6
4.6
3.2

84.8
91.8
100.7
104.6
117.9
129.7
138.6
151.3
153.7
156.8

26.5
22.5
24.3
28.6
25.5
28.8
30.1
19.2
28.3
41.5

17.8
13.5
14.0
17.5
13.4
16.0
15.5
4.7
12.5
24.2

8.7
9.0
10.3
11.1
12.1
12.8
14.6
14.5
15.8
17.3

51.6
52.3
62.2
65.0
71.7
84.4
95.5
90.1
96.5
101.8

21.0
20.8
21.2
21.4
21.5
21.9
21.4
20.5
20.0
20.1

10.5
10.4
11.1
11.4
11.7
12.3
11.8
10.7
10.3
10.2

1970
1971
1972
1973
1974
1975
1976
1977
1978
1979

..........
..........
..........
..........
..........
..........
..........
..........
..........
..........

200.0
220.5
246.6
300.7
312.3
314.7
367.2
419.8
504.6
582.8

196.0
219.9
250.2
291.3
305.7
293.3
358.4
428.8
515.0
581.4

152.4
178.2
207.6
244.5
249.4
230.2
292.0
361.3
438.0
492.9

43.6
41.8
42.6
46.8
56.3
63.1
66.4
67.5
77.1
88.5

..........
..........
..........
..........
..........
..........
..........
..........
..........
..........

4.0
.6
−3.6
9.3
6.6
21.4
8.9
−9.0
−10.4
1.4

7.3
11.6
9.1
8.6
10.9
17.7
25.1
22.3
26.6
46.0

174.1
202.5
216.8
256.3
270.0
323.6
343.8
382.8
436.3
480.5

18.6
6.4
20.7
35.8
31.5
−26.6
−1.7
14.7
41.7
56.2

.9
−11.9
−7.7
5.8
4.5
−49.3
−30.3
−21.0
−1.5
15.7

17.7
18.3
28.5
30.0
27.0
22.7
28.6
35.7
43.2
40.5

89.3
104.9
123.7
152.1
143.2
105.6
153.2
198.8
252.7
281.2

18.6
18.6
19.2
21.1
20.0
18.2
18.8
19.6
20.9
21.1

8.3
8.4
9.0
11.0
9.2
6.7
7.5
8.3
9.4
9.3

1980
1981
1982
1983
1984
1985
1986
1987
1988
1989

..........
..........
..........
..........
..........
..........
..........
..........
..........
..........

590.9
579.5
685.6
679.3
629.4
629.5
655.1
687.2
788.0
875.0
784.1
895.0
780.5
919.7
818.5
969.2
895.5 1,007.7
984.3 1,072.6

479.3
572.4
517.2
564.3
735.6
736.2
746.5
785.0
821.6
874.9

100.3 ..........
106.9 ..........
112.3 −0.2
122.9
−.2
139.4
−.2
158.8
−.3
173.2
−.3
184.3
−.4
186.1
−.5
197.7
−.3

11.4
6.3
.0
−31.8
−86.7
−110.5
−138.9
−150.4
−111.7
−88.0

41.4
30.9
.3
45.7
14.6
16.7
47.0
21.7
−19.5
39.7

532.4
630.3
686.0
695.8
830.6
827.3
803.9
822.7
917.5
931.8

17.0
24.4
−56.9
−86.5
−57.2
−59.9
−70.4
−25.9
−2.5
12.9

−23.6
−19.4
−94.2
−132.3
−123.5
−126.9
−139.2
−89.8
−75.2
−66.7

40.6
43.9
37.3
45.8
66.3
67.0
68.8
63.9
72.7
79.6

236.6
291.2
202.6
243.4
402.4
388.3
388.4
407.3
410.1
428.4

19.7
20.9
19.1
17.3
19.6
18.1
16.5
16.8
17.8
17.3

7.4
8.5
6.1
4.7
7.6
6.2
4.6
5.0
6.2
5.5

1990
1991
1992
1993
1994
1995
1996
1997
1998
1999

..........
..........
..........
..........
..........
..........
..........
..........
..........
.........

−76.6
9.0
−37.5
−71.7
−106.9
−91.9
−101.0
−111.3
−188.1
−278.7

66.2
72.5
102.7
139.5
142.5
101.2
93.7
70.7
−14.6
−35.7

974.3
1,042.9
1,100.4
1,083.3
1,114.0
1,204.5
1,237.8
1,303.6
1,328.9
1,333.3

−33.8
−78.8
−152.1
−120.8
−43.2
−19.9
53.3
157.5
269.8
341.0

−104.1
−141.5
−222.7
−195.5
−132.2
−115.1
−59.7
26.7
121.6
188.5

70.3
62.7
70.6
74.7
88.9
95.2
113.0
130.7
148.2
152.5

394.2
297.3
336.0
395.9
484.7
498.4
567.1
667.5
741.3
811.2

16.3
16.2
15.1
14.7
15.4
16.2
16.6
17.7
18.2
17.9

4.5
4.0
3.1
2.8
3.4
4.2
4.8
5.9
6.5
6.1

29.3 ..........

1,006.7
1,036.6
1,051.0
1,102.0
1,213.2
1,285.7
1,384.8
1,531.7
1,584.1
1,638.5

1,076.7
1,023.2
1,087.9
1,172.4
1,318.4
1,376.7
1,485.2
1,641.9
1,771.5
1,912.4

861.0
802.9
864.8
953.4
1,097.1
1,144.0
1,240.3
1,389.8
1,509.1
1,625.7

215.7
220.3
223.1
219.0
221.4
232.7
244.9
252.2
262.4
286.8

6.6
4.5
.6
1.3
1.7
.9
.7
1.0
.7
4.8

2000 ......... 1,643.3
2001 .......... 1,567.9
2002 .......... 1,468.1
2003 .......... 1,521.1
2004 ......... 1,648.9
2005 p ....... ..............

2,040.0
1,938.3
1,926.4
2,025.6
2,300.6
2,499.4

1,735.5
1,614.3
1,582.1
1,670.4
1,928.1
2,099.5

304.5
.8 −397.4 −127.2 1,334.1
436.4
276.6
159.8
324.0
1.1 −371.5
−89.6 1,400.1
257.5
134.9
122.6
344.3
1.4 −459.7
−21.0 1,559.6
−70.5 −159.1
88.6
355.3
3.2 −507.7
47.1 1,662.1 −188.0 −292.5
104.5
372.5
1.6 −653.4
76.8 1,755.3 −183.2 −312.7
129.4
399.9 .......... .............. .............. .............. .............. .............. ..............

2002: I .......
II ......
III ....
IV ....

1,482.1
1,455.9
1,476.1
1,458.3

1,903.1
1,915.4
1,939.7
1,947.4

1,564.1
1,571.4
1,592.9
1,600.1

339.0
343.9
346.8
347.4

1.2
1.2
1.5
1.6

−422.2
−460.7
−465.1
−490.7

−53.6
−56.7
14.6
11.7

1,570.5
1,578.3
1,527.7
1,561.7

−34.9
−65.7
−66.2
−115.2

−119.9
−152.8
−158.4
−205.1

85.0
87.0
92.2
90.0

621.1
627.2
644.8
644.7

14.7
14.4
13.9
13.6

2.4
2.1
1.6
1.4

2003: I .......
II ......
III .....
IV .....

1,429.8
1,471.2
1,555.3
1,628.2

1,958.9
1,974.5
2,054.4
2,114.7

1,610.0
1,619.3
1,694.2
1,757.9

349.0
355.2
360.1
356.8

1.7
6.4
3.3
1.4

−530.8
−509.6
−502.4
−487.9

16.6
14.4
85.3
72.0

1,560.9
1,638.7
1,720.6
1,728.1

−147.7
−181.9
−250.6
−171.9

−206.4
−283.4
−365.7
−314.3

58.7
101.6
115.1
142.5

647.1
650.6
717.2
762.2

13.2
13.4
13.3
13.8

.9
1.2
1.2
1.8

2004: I .......
II ......
III .....
IV ....

1,612.5
1,654.5
1,680.9
1,647.6

2,178.7
2,303.4
2,334.0
2,386.2

1,818.2
1,928.5
1,961.2
2,004.5

360.4
375.0
372.9
381.7

1.7
1.5
1.6
1.8

−567.9
−650.4
−654.7
−740.4

77.8
108.1
90.8
30.6

1,747.2
1,733.4
1,790.4
1,750.2

−212.5
−187.0
−200.3
−133.2

−337.6
−320.0
−317.3
−275.7

125.1
133.0
117.1
142.5

807.5
909.6
799.9
944.2

13.4
13.3
13.5
13.5

1.4
1.3
.5
1.5

2005: I ....... 1,675.0
II ...... 1,706.6
III ..... 1,762.5
IV p .. ..............

2,441.9
2,453.5
2,503.6
2,598.8

2,058.5
2,054.4
2,099.5
2,185.7

383.4 17.3 −784.3
39.4 1,688.9
−53.4 −201.4
148.0
993.5 13.4
1.5
399.1
.5 −747.3
78.3 1,664.1
−35.7 −199.6
163.9
996.3 13.2
1.4
404.1
.5 −741.6
66.5 1,857.4 −161.5 −316.0
154.6
639.8 13.5 −1.3
413.1 .......... .............. .............. .............. .............. .............. .............. 1,071.9 .......... ..........

2 For

details on government investment, see Table B–20.
of capital transfers and the acquisition and disposal of nonproduced nonfinancial assets.
to 1982, equals the balance on current account, NIPA (see Table B–24).
Source: Department of Commerce, Bureau of Economic Analysis.
3 Consists
4 Prior

321

852.1 17.7
5.8
656.9 16.2
3.7
634.4 14.2
1.9
694.3 13.4
1.3
865.3 13.4
1.2
925.4 .......... ..........

TABLE B–33.—Median money income (in 2004 dollars) and poverty status of families and persons,
by race, selected years, 1991–2004
Families 1

Persons
below
poverty level

Below poverty level
Year

ALL RACES
1991 .........................
1992 3 .......................
1993 .........................
1994 .........................
1995 .........................
1996 .........................
1997 .........................
1998 .........................
1999 4 .......................
2000 5 .......................
2001 .........................
2002 .........................
2003 .........................
2004 .........................
WHITE
1991 .........................
1992 3 .......................
1993 .........................
1994 .........................
1995 .........................
1996 .........................
1997 .........................
1998 .........................
1999 4 .......................
2000 5 .......................
2001 .........................
Alone 6
2002 .........................
2003 .........................
2004 .........................
Alone or in
combination 6
2002 .........................
2003 .........................
2004 .........................
BLACK
1991 .........................
1992 3 .......................
1993 .........................
1994 .........................
1995 .........................
1996 .........................
1997 .........................
1998 .........................
1999 4 .......................
2000 5 .......................
2001 .........................
Alone 6
2002 .........................
2003 .........................
2004 .........................
Alone or in
combination 6
2002 .........................
2003 .........................
2004 .........................

Number
(millions)

Median
money
income
(in
2004
dollars) 2

Female
householder

Total
Number
(millions)

Percent

Number
(millions)

Percent

Median money income (in 2004 dollars)
of persons 15 years old and over with
income 2
Males

Number
(millions)

Percent

Females

All
persons

Yearround
full-time
workers

All
persons

Yearround
full-time
workers

67.2
68.2
68.5
69.3
69.6
70.2
70.9
71.6
73.2
73.8
74.3
75.6
76.2
77.0

$48,608
48,255
47,578
48,895
49,987
50,705
52,307
54,091
55,350
55,647
54,857
54,285
54,096
54,061

7.7
8.1
8.4
8.1
7.5
7.7
7.3
7.2
6.8
6.4
6.8
7.2
7.6
7.9

11.5
11.9
12.3
11.6
10.8
11.0
10.3
10.0
9.3
8.7
9.2
9.6
10.0
10.2

4.2
4.3
4.4
4.2
4.1
4.2
4.0
3.8
3.6
3.3
3.5
3.6
3.9
4.0

35.6
35.4
35.6
34.6
32.4
32.6
31.6
29.9
27.8
25.4
26.4
26.5
28.0
28.4

35.7
38.0
39.3
38.1
36.4
36.5
35.6
34.5
32.8
31.6
32.9
34.6
35.9
37.0

14.2
14.8
15.1
14.5
13.8
13.7
13.3
12.7
11.9
11.3
11.7
12.1
12.5
12.7

$27,684
26,989
27,165
27,384
27,771
28,570
29,590
30,660
30,937
31,089
31,054
30,712
30,735
30,513

$41,023
40,680
40,006
39,855
39,633
40,202
41,368
41,956
42,450
42,659
42,829
42,549
42,618
41,667

$14,169
14,136
14,220
14,456
14,930
15,361
16,082
16,700
17,347
17,619
17,729
17,659
17,723
17,629

$28,734
29,150
28,925
29,332
29,266
29,889
30,549
31,080
31,019
31,945
32,461
32,531
32,504
32,101

57.2
57.7
57.9
58.4
58.9
58.9
59.5
60.1
61.1
61.3
61.6

51,102
51,022
50,592
51,545
52,492
53,649
54,872
56,736
57,898
58,167
57,695

5.0
5.3
5.5
5.3
5.0
5.1
5.0
4.8
4.4
4.3
4.6

8.8
9.1
9.4
9.1
8.5
8.6
8.4
8.0
7.3
7.1
7.4

2.2
2.2
2.4
2.3
2.2
2.3
2.3
2.1
1.9
1.8
1.9

28.4
28.5
29.2
29.0
26.6
27.3
27.7
24.9
22.5
21.2
22.4

23.7
25.3
26.2
25.4
24.4
24.7
24.4
23.5
22.2
21.6
22.7

11.3
11.9
12.2
11.7
11.2
11.2
11.0
10.5
9.8
9.5
9.9

28,937
28,244
28,297
28,580
29,412
29,906
30,649
31,996
32,491
32,684
32,269

41,864
41,648
40,978
40,899
41,253
41,644
42,389
43,048
44,447
44,153
43,527

14,500
14,465
14,503
14,663
15,159
15,536
16,187
16,917
17,401
17,637
17,769

29,153
29,488
29,581
30,125
29,866
30,396
31,066
31,600
31,738
32,853
32,919

62.3
62.6
63.2

57,387
57,267
56,700

4.9
5.1
5.3

7.8
8.1
8.4

2.0
2.2
2.3

22.6
24.0
24.8

23.5
24.3
25.3

10.2
10.5
10.8

31,914
31,558
31,335

43,460
43,275
42,601

17,687
17,890
17,648

32,983
33,057
32,683

63.0
63.5
64.1

57,193
57,098
56,568

5.0
5.2
5.4

7.9
8.1
8.5

2.1
2.2
2.3

22.6
24.2
24.9

24.1
25.0
26.0

10.3
10.6
10.9

31,844
31,482
31,269

43,398
43,210
42,490

17,652
17,858
17,618

32,970
33,045
32,649

7.7
8.0
8.0
8.1
8.1
8.5
8.4
8.5
8.7
8.7
8.8

29,144
27,844
27,731
31,138
31,966
31,792
33,568
34,030
36,102
36,939
35,853

2.3
2.5
2.5
2.2
2.1
2.2
2.0
2.0
1.9
1.7
1.8

30.4
31.1
31.3
27.3
26.4
26.1
23.6
23.4
21.8
19.3
20.7

1.8
1.9
1.9
1.7
1.7
1.7
1.6
1.6
1.5
1.3
1.4

51.2
50.2
49.9
46.2
45.1
43.7
39.8
40.8
39.2
34.3
35.2

10.2
10.8
10.9
10.2
9.9
9.7
9.1
9.1
8.4
8.0
8.1

32.7
33.4
33.1
30.6
29.3
28.4
26.5
26.1
23.6
22.5
22.7

17,531
17,237
18,801
18,889
19,701
19,768
21,238
22,361
23,170
23,411
22,907

30,605
30,335
30,337
30,769
30,523
32,528
31,567
31,794
34,180
33,443
34,063

11,924
11,726
12,240
13,294
13,492
14,111
15,314
15,204
16,749
17,420
17,375

25,879
26,729
26,152
26,007
25,946
26,359
26,717
27,619
28,497
28,245
29,129

8.9
8.9
8.9

35,215
35,293
35,158

1.9
2.0
2.0

21.5
22.3
22.8

1.4
1.5
1.5

35.8
36.9
37.6

8.6
8.8
9.0

24.1
24.4
24.7

22,648
22,577
22,714

33,541
34,327
31,732

17,572
17,027
17,383

29,017
28,364
29,145

9.1
9.1
9.1

35,329
35,537
35,328

2.0
2.0
2.1

21.4
22.1
22.8

1.5
1.5
1.5

35.7
36.8
37.6

8.9
9.1
9.4

23.9
24.3
24.7

22,593
22,525
22,740

33,577
34,363
31,724

17,511
16,985
17,369

29,099
28,419
29,191

1 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.
2 Current dollar median money income adjusted by CPI–U–RS.
3 Based on 1990 census adjusted population controls; comparable with succeeding years.
4 Reflects implementation of Census 2000-based population controls comparable with succeeding years.
5 Reflects household sample expansion.
6 Data are for white alone; for white alone or in combination; for black alone; and, for black alone or in combination. (Black is also Black or
African American.) Beginning with data for 2002 the Current Population Survey allowed respondents to choose more than one race; for earlier
years respondents could report only one race group.

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; 1966, 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; 1979, 11.7; 1980, 13.0; 1981, 14.0; 1982, 15.0; 1983, 15.2; 1984,
14.4; 1985, 14.0; 1986, 13.6; 1987, 13.4; 1988, 13.0; 1989, 12.8; and 1990, 13.5.
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.

322

POPULATION, EMPLOYMENT, WAGES, AND PRODUCTIVITY
TABLE B–34.—Population by age group, 1929–2005
[Thousands of persons]
Age (years)
July 1

Total
Under 5

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

5-15

16-19

20-24

25-44

45-64

65 and
over

..........................
..........................
..........................
..........................
..........................
..........................
..........................
..........................
..........................
..........................
..........................
..........................
..........................
..........................
..........................
..........................
..........................
..........................
..........................
..........................
..........................
..........................
..........................
..........................
..........................
..........................
..........................
..........................
..........................
..........................
..........................
..........................
..........................
..........................
..........................
..........................
..........................
..........................
..........................
..........................
..........................
..........................
..........................

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

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

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

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

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

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
46,786
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

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

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
12,803
13,203
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

1980 ..........................
1981 ..........................
1982 ..........................
1983 ..........................
1984 ..........................
1985 ..........................
1986 ..........................
1987 ..........................
1988 ..........................
1989 ..........................
1990 ..........................
1991 ..........................
1992 ..........................
1993 ..........................
1994 ..........................
1995 ..........................
1996 ..........................
1997 ..........................
1998 ..........................
1999 ..........................
2000 1 ........................
2001 1 ........................
2002 1 ........................
2003 1 ........................
2004 1 ........................
2005 ..........................

227,726
229,966
232,188
234,307
236,348
238,466
240,651
242,804
245,021
247,342
250,132
253,493
256,894
260,255
263,436
266,557
269,667
272,912
276,115
279,295
282,402
285,329
288,173
291,028
293,907
296,639

16,451
16,893
17,228
17,547
17,695
17,842
17,963
18,052
18,195
18,508
18,856
19,208
19,528
19,729
19,777
19,627
19,408
19,233
19,145
19,136
19,187
19,361
19,548
19,791
20,071
................

38,838
38,144
37,784
37,526
37,461
37,450
37,404
37,333
37,593
37,972
38,632
39,349
40,161
40,904
41,689
42,510
43,172
43,833
44,332
44,755
45,166
45,186
45,141
45,081
44,962
................

17,167
16,812
16,332
15,823
15,295
15,005
15,024
15,215
15,198
14,913
14,466
13,992
13,781
13,953
14,228
14,522
15,057
15,433
15,856
16,164
16,205
16,248
16,302
16,359
16,534
................

21,590
21,869
21,902
21,844
21,737
21,478
20,942
20,385
19,846
19,442
19,323
19,414
19,314
19,101
18,758
18,391
17,965
17,992
18,250
18,672
19,189
19,875
20,408
20,840
21,064
................

63,470
65,528
67,692
69,733
71,735
73,673
75,651
77,338
78,595
79,943
81,291
82,844
83,201
83,766
84,334
84,933
85,527
85,737
85,663
85,408
85,159
84,918
84,632
84,372
84,276
................

44,504
44,500
44,462
44,474
44,547
44,602
44,660
44,854
45,471
45,882
46,316
46,874
48,553
49,899
51,318
52,806
54,396
56,283
58,249
60,362
62,419
64,414
66,557
68,642
70,705
................

25,707
26,221
26,787
27,361
27,878
28,416
29,008
29,626
30,124
30,682
31,247
31,812
32,356
32,902
33,331
33,769
34,143
34,402
34,619
34,798
35,077
35,328
35,585
35,943
36,294
................

1 Revised total population data are available as follows: 2000, 282,403; 2001, 285,335; 2002, 288,216; 2003, 291,089; and 2004, 293,908.
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.

323

TABLE B–35.—Civilian population and labor force, 1929–2005
[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
ian
emlabor ployforce ment/
parpopticipation ulation
rate 2 ratio 3

Thousands of persons 14 years of age and over
1929
1933
1939
1940
1941
1942
1943
1944
1945
1946
1947

.............................................................. ................
.............................................................. ................
.............................................................. ................
..............................................................
99,840
..............................................................
99,900
..............................................................
98,640
..............................................................
94,640
..............................................................
93,220
..............................................................
94,090
..............................................................
103,070
..............................................................
106,018

49,180
51,590
55,230
55,640
55,910
56,410
55,540
54,630
53,860
57,520
60,168

47,630
38,760
45,750
47,520
50,350
53,750
54,470
53,960
52,820
55,250
57,812

10,450
10,090
9,610
9,540
9,100
9,250
9,080
8,950
8,580
8,320
8,256

37,180
28,670
36,140
37,980
41,250
44,500
45,390
45,010
44,240
46,930
49,557

Unemployment
rate,
civilian
workers 4

Percent

1,550 ............
12,830 ............
9,480 ............
8,120 44,200
5,560 43,990
2,660 42,230
1,070 39,100
670 38,590
1,040 40,230
2,270 45,550
2,356 45,850

.......... ..........
.......... ..........
.......... ..........
55.7 47.6
56.0 50.4
57.2 54.5
58.7 57.6
58.6
57.9
57.2 56.1
55.8
53.6
56.8
54.5

3.2
24.9
17.2
14.6
9.9
4.7
1.9
1.2
1.9
3.9
3.9

Thousands of persons 16 years of age and over
1947 ..............................................................
1948 ..............................................................
1949 ..............................................................
1950 ..............................................................
1951 ..............................................................
1952 ..............................................................
1953 5 ...........................................................
1954 ..............................................................
1955 ..............................................................
1956 ..............................................................
1957 ..............................................................
1958 ..............................................................
1959 ..............................................................
1960 5 ...........................................................
1961 ..............................................................
1962 5 ...........................................................
1963 ..............................................................
1964 ..............................................................
1965 ..............................................................
1966 ..............................................................
1967 ..............................................................
1968 ..............................................................
1969 ..............................................................
1970 ..............................................................
1971 ..............................................................
1972 5 ...........................................................
1973 5 ...........................................................
1974 ..............................................................
1975 ..............................................................
1976 ..............................................................
1977 ..............................................................
1978 5 ...........................................................
1979 ..............................................................
1980 ..............................................................
1981 ..............................................................
1982 ..............................................................
1983 ..............................................................
1984 ..............................................................
1985 ..............................................................
1986 5 ...........................................................
1987 ..............................................................
1988 ..............................................................
1989 ..............................................................
1990 5 ...........................................................
1991 ..............................................................
1992 ..............................................................
1993 ..............................................................
1994 5 ...........................................................
1995 ..............................................................
1996 ..............................................................
1997 5 ...........................................................
1998 5 ...........................................................
1999 5 ...........................................................

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
58,343
57,651
58,918
59,961
60,250
61,179
60,109
62,170
63,799
64,071
63,036
64,630
65,778
65,746
66,702
67,762
69,305
71,088
72,895
74,372
75,920
77,902
78,678
79,367
82,153
85,064
86,794
85,846
88,752
92,017
96,048
98,824
99,303
100,397
99,526
100,834
105,005
107,150
109,597
112,440
114,968
117,342
118,793
117,718
118,492
120,259
123,060
124,900
126,708
129,558
131,463
133,488

1 Not

seasonally adjusted.
labor force as percent of civilian noninstitutional population.
employment as percent of civilian noninstitutional population.
4 Unemployed as percent of civilian labor force.
See next page for continuation of table.
2 Civilian
3 Civilian

324

7,890
7,629
7,658
7,160
6,726
6,500
6,260
6,205
6,450
6,283
5,947
5,586
5,565
5,458
5,200
4,944
4,687
4,523
4,361
3,979
3,844
3,817
3,606
3,463
3,394
3,484
3,470
3,515
3,408
3,331
3,283
3,387
3,347
3,364
3,368
3,401
3,383
3,321
3,179
3,163
3,208
3,169
3,199
3,223
3,269
3,247
3,115
3,409
3,440
3,443
3,399
3,378
3,281

49,148
50,714
49,993
51,758
53,235
53,749
54,919
53,904
55,722
57,514
58,123
57,450
59,065
60,318
60,546
61,759
63,076
64,782
66,726
68,915
70,527
72,103
74,296
75,215
75,972
78,669
81,594
83,279
82,438
85,421
88,734
92,661
95,477
95,938
97,030
96,125
97,450
101,685
103,971
106,434
109,232
111,800
114,142
115,570
114,449
115,245
117,144
119,651
121,460
123,264
126,159
128,085
130,207

2,311
2,276
3,637
3,288
2,055
1,883
1,834
3,532
2,852
2,750
2,859
4,602
3,740
3,852
4,714
3,911
4,070
3,786
3,366
2,875
2,975
2,817
2,832
4,093
5,016
4,882
4,365
5,156
7,929
7,406
6,991
6,202
6,137
7,637
8,273
10,678
10,717
8,539
8,312
8,237
7,425
6,701
6,528
7,047
8,628
9,613
8,940
7,996
7,404
7,236
6,739
6,210
5,880

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
59.2
59.2
59.0
58.9
58.8
59.3
60.0
59.6
59.5
59.3
59.4
59.3
58.8
58.7
58.7
58.9
59.2
59.6
59.6
60.1
60.4
60.2
60.4
60.8
61.3
61.2
61.6
62.3
63.2
63.7
63.8
63.9
64.0
64.0
64.4
64.8
65.3
65.6
65.9
66.5
66.5
66.2
66.4
66.3
66.6
66.6
66.8
67.1
67.1
67.1

56.0
56.6
55.4
56.1
57.3
57.3
57.1
55.5
56.7
57.5
57.1
55.4
56.0
56.1
55.4
55.5
55.4
55.7
56.2
56.9
57.3
57.5
58.0
57.4
56.6
57.0
57.8
57.8
56.1
56.8
57.9
59.3
59.9
59.2
59.0
57.8
57.9
59.5
60.1
60.7
61.5
62.3
63.0
62.8
61.7
61.5
61.7
62.5
62.9
63.2
63.8
64.1
64.3

3.9
3.8
5.9
5.3
3.3
3.0
2.9
5.5
4.4
4.1
4.3
6.8
5.5
5.5
6.7
5.5
5.7
5.2
4.5
3.8
3.8
3.6
3.5
4.9
5.9
5.6
4.9
5.6
8.5
7.7
7.1
6.1
5.8
7.1
7.6
9.7
9.6
7.5
7.2
7.0
6.2
5.5
5.3
5.6
6.8
7.5
6.9
6.1
5.6
5.4
4.9
4.5
4.2

TABLE B–35.—Civilian population and labor force, 1929–2005—Continued
[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
ian
emlabor ployforce ment/
parpopticipation ulation
rate 2 ratio 3

Thousands of persons 16 years of age and over

Unemployment
rate,
civilian
workers 4

Percent

2000 5 6

.........................................................
2001 ..............................................................
2002 ..............................................................
2003 5 ...........................................................
2004 5 ...........................................................
2005 5 ...........................................................
2002: Jan ......................................................
Feb ......................................................
Mar .....................................................
Apr ......................................................
May .....................................................
June ....................................................
July ......................................................
Aug ......................................................
Sept .....................................................
Oct ......................................................
Nov ......................................................
Dec ......................................................
2003: Jan 5 ....................................................
Feb 5 ....................................................
Mar .....................................................
Apr ......................................................
May .....................................................
June ....................................................
July ......................................................
Aug ......................................................
Sept .....................................................
Oct ......................................................
Nov ......................................................
Dec ......................................................
2004: Jan 5 ....................................................
Feb ......................................................
Mar .....................................................
Apr ......................................................
May .....................................................
June ....................................................
July ......................................................
Aug ......................................................
Sept .....................................................
Oct ......................................................
Nov ......................................................
Dec ......................................................

212,577
215,092
217,570
221,168
223,357
226,082
216,506
216,663
216,823
217,006
217,198
217,407
217,630
217,866
218,107
218,340
218,548
218,741
219,897
220,114
220,317
220,540
220,768
221,014
221,252
221,507
221,779
222,039
222,279
222,509
222,161
222,357
222,550
222,757
222,967
223,196
223,422
223,677
223,941
224,192
224,422
224,640

142,583
143,734
144,863
146,510
147,401
149,320
143,883
144,663
144,485
144,718
144,933
144,803
144,803
145,007
145,562
145,313
145,050
145,065
145,937
146,104
146,004
146,452
146,480
147,031
146,505
146,427
146,546
146,716
147,063
146,773
146,817
146,681
146,849
146,800
147,021
147,427
147,773
147,558
147,476
147,808
148,250
148,173

136,891
136,933
136,485
137,736
139,252
141,730
135,698
136,442
136,195
136,136
136,546
136,415
136,410
136,695
137,305
137,001
136,517
136,400
137,424
137,472
137,461
137,637
137,547
137,784
137,478
137,525
137,601
137,986
138,453
138,400
138,472
138,495
138,452
138,659
138,843
139,181
139,591
139,558
139,495
139,768
140,276
140,133

2,464
2,299
2,311
2,275
2,232
2,197
2,385
2,397
2,369
2,373
2,263
2,170
2,336
2,132
2,284
2,440
2,255
2,349
2,343
2,240
2,267
2,157
2,183
2,197
2,205
2,304
2,336
2,435
2,364
2,247
2,211
2,227
2,189
2,250
2,296
2,251
2,242
2,317
2,223
2,163
2,192
2,190

134,427
134,635
134,174
135,461
137,020
139,532
133,230
134,126
133,816
133,833
134,277
134,153
134,082
134,584
135,108
134,587
134,183
134,073
135,032
135,288
135,223
135,538
135,356
135,454
135,211
135,193
135,373
135,603
136,052
136,153
136,205
136,294
136,291
136,420
136,524
136,816
137,329
137,227
137,391
137,675
138,045
137,944

5,692
6,801
8,378
8,774
8,149
7,591
8,184
8,221
8,290
8,582
8,387
8,388
8,392
8,311
8,257
8,312
8,533
8,665
8,513
8,632
8,543
8,816
8,933
9,246
9,027
8,902
8,945
8,730
8,610
8,373
8,345
8,186
8,397
8,140
8,178
8,247
8,182
8,000
7,981
8,040
7,974
8,040

69,994
71,359
72,707
74,658
75,956
76,762
72,623
72,000
72,338
72,287
72,265
72,605
72,827
72,859
72,545
73,027
73,499
73,676
73,961
74,011
74,314
74,088
74,288
73,984
74,748
75,080
75,232
75,323
75,216
75,736
75,344
75,675
75,701
75,957
75,946
75,768
75,649
76,119
76,465
76,384
76,172
76,467

67.1
66.8
66.6
66.2
66.0
66.0
66.5
66.8
66.6
66.7
66.7
66.6
66.5
66.6
66.7
66.6
66.4
66.3
66.4
66.4
66.3
66.4
66.4
66.5
66.2
66.1
66.1
66.1
66.2
66.0
66.1
66.0
66.0
65.9
65.9
66.1
66.1
66.0
65.9
65.9
66.1
66.0

64.4
63.7
62.7
62.3
62.3
62.7
62.7
63.0
62.8
62.7
62.9
62.7
62.7
62.7
63.0
62.7
62.5
62.4
62.5
62.5
62.4
62.4
62.3
62.3
62.1
62.1
62.0
62.1
62.3
62.2
62.3
62.3
62.2
62.2
62.3
62.4
62.5
62.4
62.3
62.3
62.5
62.4

4.0
4.7
5.8
6.0
5.5
5.1
5.7
5.7
5.7
5.9
5.8
5.8
5.8
5.7
5.7
5.7
5.9
6.0
5.8
5.9
5.9
6.0
6.1
6.3
6.2
6.1
6.1
6.0
5.9
5.7
5.7
5.6
5.7
5.5
5.6
5.6
5.5
5.4
5.4
5.4
5.4
5.4

2005: Jan 5 ....................................................
Feb ......................................................
Mar .....................................................
Apr ......................................................
May .....................................................
June ....................................................
July ......................................................
Aug ......................................................
Sept .....................................................
Oct ......................................................
Nov ......................................................
Dec ......................................................

224,837
225,041
225,236
225,441
225,670
225,911
226,153
226,421
226,693
226,959
227,204
227,425

147,956
148,271
148,217
148,839
149,201
149,243
149,605
149,792
150,083
150,043
150,183
150,153

140,234
140,285
140,601
141,196
141,571
141,750
142,111
142,425
142,435
142,625
142,611
142,779

2,138
2,161
2,199
2,253
2,216
2,321
2,332
2,157
2,140
2,126
2,154
2,130

138,076
138,111
138,416
138,926
139,322
139,333
139,772
140,294
140,421
140,577
140,427
140,638

7,723
7,986
7,616
7,644
7,629
7,493
7,494
7,367
7,648
7,418
7,572
7,375

76,881
76,770
77,019
76,601
76,469
76,668
76,548
76,629
76,610
76,916
77,021
77,271

65.8
65.9
65.8
66.0
66.1
66.1
66.2
66.2
66.2
66.1
66.1
66.0

62.4
62.3
62.4
62.6
62.7
62.7
62.8
62.9
62.8
62.8
62.8
62.8

5.2
5.4
5.1
5.1
5.1
5.0
5.0
4.9
5.1
4.9
5.0
4.9

5 Not strictly comparable with earlier data due to population adjustments or other changes. See Employment and Earnings for details on
breaks in series.
6 Beginning in 2000, data for agricultural employment are for agricultural and related industries; data for this series and for nonagricultural employment are not strictly comparable with data for earlier years. Because of independent seasonal adjustment for these two
series, monthly data will not add to total civilian employment.
Note.—Labor force data in Tables B-35 through B-44 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.

325

TABLE B–36.—Civilian employment and unemployment by sex and age, 1959–2005
[Thousands of persons 16 years of age and over; monthly data seasonally adjusted]
Civilian employment
Males
Year or month
Total
Total

16-19
years

Unemployment
Males

Females
20
years
and
over

Total

16-19
years

20
years
and
over

Total
Total

Females

20
16-19 years
years and
over

Total

20
16-19 years
years and
over

1959 ....................

64,630 43,466

2,198 41,267 21,164

1,640 19,524

3,740 2,420

398 2,022 1,320

1960
1961
1962
1963
1964
1965
1966
1967
1968
1969

....................
....................
....................
....................
....................
....................
....................
....................
....................
....................

65,778
65,746
66,702
67,762
69,305
71,088
72,895
74,372
75,920
77,902

43,904
43,656
44,177
44,657
45,474
46,340
46,919
47,479
48,114
48,818

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
44,859
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
2,423
2,472
2,205
1,914
1,551
1,508
1,419
1,403

426
479
408
501
487
479
432
448
426
440

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

286
349
313
383
385
395
405
391
412
413

1,080
1,368
1,175
1,216
1,195
1,056
921
1,078
985
1,015

1970
1971
1972
1973
1974
1975
1976
1977
1978
1979

....................
....................
....................
....................
....................
....................
....................
....................
....................
....................

78,678
79,367
82,153
85,064
86,794
85,846
88,752
92,017
96,048
98,824

48,990
49,390
50,896
52,349
53,024
51,857
53,138
54,728
56,479
57,607

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
2,714
4,442
4,036
3,667
3,142
3,120

599
693
711
653
757
966
939
874
813
811

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

506
568
598
583
665
802
780
789
769
743

1,349
1,658
1,625
1,507
1,777
2,684
2,588
2,535
2,292
2,276

1980
1981
1982
1983
1984
1985
1986
1987
1988
1989

....................
....................
....................
....................
....................
....................
....................
....................
....................
....................

99,303
100,397
99,526
100,834
105,005
107,150
109,597
112,440
114,968
117,342

57,186
57,397
56,271
56,787
59,091
59,891
60,892
62,107
63,273
64,315

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
913 3,353 3,370
39,590 8,273 4,577
962 3,615 3,696
40,086 10,678 6,179 1,090 5,089 4,499
41,004 10,717 6,260 1,003 5,257 4,457
42,793 8,539 4,744
812 3,932 3,794
44,154 8,312 4,521
806 3,715 3,791
45,556 8,237 4,530
779 3,751 3,707
47,074 7,425 4,101
732 3,369 3,324
48,383 6,701 3,655
667 2,987 3,046
49,745 6,528 3,525
658 2,867 3,003

755
800
886
825
687
661
675
616
558
536

2,615
2,895
3,613
3,632
3,107
3,129
3,032
2,709
2,487
2,467

1990
1991
1992
1993
1994
1995
1996
1997
1998
1999

....................
....................
....................
....................
....................
....................
....................
....................
....................
....................

118,793
117,718
118,492
120,259
123,060
124,900
126,708
129,558
131,463
133,488

65,104
64,223
64,440
65,349
66,450
67,377
68,207
69,685
70,693
71,446

3,427
3,044
2,944
2,994
3,156
3,292
3,310
3,401
3,558
3,685

61,678
61,178
61,496
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

667
751
806
768
740
744
733
694
686
633

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

544
608
621
597
580
602
573
577
519
529

2,596
3,074
3,469
3,288
3,049
2,819
2,783
2,585
2,424
2,285

2000
2001
2002
2003
2004
2005

....................
....................
....................
....................
....................
....................

136,891
136,933
136,485
137,736
139,252
141,730

73,305
73,196
72,903
73,332
74,524
75,973

3,671
3,420
3,169
2,917
2,952
2,923

69,634
69,776
69,734
70,415
71,572
73,050

63,586
63,737
63,582
64,404
64,728
65,757

3,519
3,320
3,162
3,002
2,955
3,055

60,067
60,417
60,420
61,402
61,773
62,702

5,692
6,801
8,378
8,774
8,149
7,591

2,975
3,690
4,597
4,906
4,456
4,059

599
650
700
697
664
667

2,376
3,040
3,896
4,209
3,791
3,392

2,717
3,111
3,781
3,868
3,694
3,531

483
512
553
554
543
519

2,235
2,599
3,228
3,314
3,150
3,013

2004: Jan ............
Feb ............
Mar ............
Apr .............
May ...........
June ...........

138,472
138,495
138,452
138,659
138,843
139,181

74,344
74,047
74,043
74,081
74,082
74,462

3,004
2,941
2,851
2,947
2,909
2,921

71,340
71,105
71,192
71,134
71,173
71,541

64,128
64,449
64,409
64,578
64,761
64,719

2,960
2,954
2,922
2,964
3,017
2,917

61,168
61,495
61,487
61,614
61,745
61,802

8,345
8,186
8,397
8,140
8,178
8,247

4,506
4,449
4,527
4,459
4,552
4,441

640
607
643
672
667
642

3,866
3,841
3,883
3,787
3,885
3,799

3,839
3,737
3,870
3,681
3,626
3,806

580
562
516
498
544
549

3,259
3,175
3,354
3,183
3,082
3,257

July ............
Aug ............
Sept ...........
Oct .............
Nov ............
Dec ............

139,591
139,558
139,495
139,768
140,276
140,133

74,769
74,756
74,667
74,850
75,192
74,937

2,987
2,977
2,933
2,980
3,051
2,900

71,782
71,780
71,733
71,870
72,140
72,037

64,822
64,801
64,828
64,918
65,084
65,196

2,913
2,937
2,945
2,948
2,971
3,027

61,909
61,864
61,883
61,970
62,113
62,169

8,182
8,000
7,981
8,040
7,974
8,040

4,398
4,417
4,411
4,434
4,398
4,457

647
660
664
713
686
767

3,751
3,757
3,747
3,721
3,712
3,689

3,784
3,583
3,570
3,606
3,576
3,583

628
545
523
513
500
525

3,156
3,038
3,048
3,093
3,076
3,058

2005: Jan ............
Feb ............
Mar ............
Apr .............
May ...........
June ...........

140,234
140,285
140,601
141,196
141,571
141,750

74,980
75,075
75,436
75,773
75,998
76,099

2,888
2,829
2,924
2,918
2,890
2,921

72,092
72,246
72,513
72,855
73,108
73,178

65,254
65,209
65,165
65,423
65,573
65,652

3,018
2,989
3,036
2,997
3,058
3,099

62,236
62,220
62,129
62,426
62,515
62,552

7,723
7,986
7,616
7,644
7,629
7,493

4,197
4,415
4,181
4,085
4,047
3,966

639
732
729
738
711
673

3,558
3,683
3,453
3,347
3,337
3,294

3,525
3,572
3,434
3,559
3,582
3,526

501
508
483
523
569
496

3,024
3,064
2,952
3,036
3,013
3,030

July ............
Aug ............
Sept ...........
Oct .............
Nov ............
Dec ............

142,111
142,425
142,435
142,625
142,611
142,779

76,258
76,404
76,257
76,396
76,410
76,529

2,913
2,924
2,926
2,896
2,970
3,061

73,345
73,479
73,331
73,500
73,441
73,468

65,853
66,022
66,178
66,229
66,200
66,250

3,110
3,121
3,104
3,068
3,031
3,000

62,744
62,901
63,074
63,162
63,170
63,249

7,494
7,367
7,648
7,418
7,572
7,375

3,928
3,951
4,076
3,853
3,984
3,902

654
644
615
573
702
584

3,274
3,307
3,461
3,281
3,282
3,318

3,566
3,416
3,572
3,565
3,588
3,473

497
539
518
552
535
507

3,070
2,877
3,055
3,013
3,053
2,966

Note.—See footnote 5 and Note, Table B–35.
Source: Department of Labor, Bureau of Labor Statistics.

326

256 1,063

TABLE B–37.—Civilian employment by demographic characteristic, 1959–2005
[Thousands of persons 16 years of age and over; monthly data seasonally adjusted]
White 1
Year or
month

All
civilian
workers

Total

Males

Black and other 1

Females

Both
sexes Total
16-19

Males

Females

Black or African American 1
Both
sexes
16-19

Total

Both
FeMales males sexes
16-19

1959 ..........................................

64,630

58,006 39,494 18,512 3,475

6,623

3,971

2,652

362 ............ .......... .......... ..........

1960
1961
1962
1963
1964
1965
1966
1967
1968
1969

..........................................
..........................................
..........................................
..........................................
..........................................
..........................................
..........................................
..........................................
..........................................
..........................................

65,778
65,746
66,702
67,762
69,305
71,088
72,895
74,372
75,920
77,902

58,850
58,913
59,698
60,622
61,922
63,446
65,021
66,361
67,750
69,518

39,755
39,588
40,016
40,428
41,115
41,844
42,331
42,833
43,411
44,048

19,095
19,325
19,682
20,194
20,807
21,602
22,690
23,528
24,339
25,470

3,700
3,693
3,774
3,851
4,076
4,562
5,176
5,114
5,195
5,508

6,928
6,833
7,003
7,140
7,383
7,643
7,877
8,011
8,169
8,384

4,149
4,068
4,160
4,229
4,359
4,496
4,588
4,646
4,702
4,770

2,779
2,765
2,843
2,911
3,024
3,147
3,289
3,365
3,467
3,614

430
414
420
404
440
474
545
568
584
609

1970
1971
1972
1973
1974
1975
1976
1977
1978
1979

..........................................
..........................................
..........................................
..........................................
..........................................
..........................................
..........................................
..........................................
..........................................
..........................................

78,678
79,367
82,153
85,064
86,794
85,846
88,752
92,017
96,048
98,824

70,217
70,878
73,370
75,708
77,184
76,411
78,853
81,700
84,936
87,259

44,178
44,595
45,944
47,085
47,674
46,697
47,775
49,150
50,544
51,452

26,039
26,283
27,426
28,623
29,511
29,714
31,078
32,550
34,392
35,807

5,571 8,464
5,670 8,488
6,173 8,783
6,623 9,356
6,796 9,610
6,487 9,435
6,724 9,899
7,068 10,317
7,367 11,112
7,356 11,565

4,813
4,796
4,952
5,265
5,352
5,161
5,363
5,579
5,936
6,156

3,650
3,692
3,832
4,092
4,258
4,275
4,536
4,739
5,177
5,409

574 ............ .......... .......... ..........
538 ............ .......... .......... ..........
573 7,802 4,368 3,433
509
647 8,128 4,527 3,601
570
652 8,203 4,527 3,677
554
615 7,894 4,275 3,618
507
611 8,227 4,404 3,823
508
619 8,540 4,565 3,975
508
703 9,102 4,796 4,307
571
727 9,359 4,923 4,436
579

1980
1981
1982
1983
1984
1985
1986
1987
1988
1989

..........................................
..........................................
..........................................
..........................................
..........................................
..........................................
..........................................
..........................................
..........................................
..........................................

99,303 87,715
100,397 88,709
99,526 87,903
100,834 88,893
105,005 92,120
107,150 93,736
109,597 95,660
112,440 97,789
114,968 99,812
117,342 101,584

51,127
51,315
50,287
50,621
52,462
53,046
53,785
54,647
55,550
56,352

36,587
37,394
37,615
38,272
39,659
40,690
41,876
43,142
44,262
45,232

7,021
6,588
5,984
5,799
5,836
5,768
5,792
5,898
6,030
5,946

11,588
11,688
11,624
11,941
12,885
13,414
13,937
14,652
15,156
15,757

6,059
6,083
5,983
6,166
6,629
6,845
7,107
7,459
7,722
7,963

5,529
5,606
5,641
5,775
6,256
6,569
6,830
7,192
7,434
7,795

689
637
565
543
607
666
681
742
774
813

9,313
9,355
9,189
9,375
10,119
10,501
10,814
11,309
11,658
11,953

4,798
4,794
4,637
4,753
5,124
5,270
5,428
5,661
5,824
5,928

4,515
4,561
4,552
4,622
4,995
5,231
5,386
5,648
5,834
6,025

547
505
428
416
474
532
536
587
601
625

1990
1991
1992
1993
1994
1995
1996
1997
1998
1999

..........................................
..........................................
..........................................
..........................................
..........................................
..........................................
..........................................
..........................................
..........................................
..........................................

118,793
117,718
118,492
120,259
123,060
124,900
126,708
129,558
131,463
133,488

102,261
101,182
101,669
103,045
105,190
106,490
107,808
109,856
110,931
112,235

56,703
55,797
55,959
56,656
57,452
58,146
58,888
59,998
60,604
61,139

45,558
45,385
45,710
46,390
47,738
48,344
48,920
49,859
50,327
51,096

5,779
5,216
4,985
5,113
5,398
5,593
5,667
5,807
6,089
6,204

16,533 8,401 8,131
16,536 8,426 8,110
16,823 8,482 8,342
17,214 8,693 8,521
17,870 8,998 8,872
18,409 9,231 9,179
18,900 9,319 9,580
19,701 9,687 10,014
20,532 10,089 10,443
21,253 10,307 10,945

801
690
684
691
763
826
832
853
962
968

12,175
12,074
12,151
12,382
12,835
13,279
13,542
13,969
14,556
15,056

5,995
5,961
5,930
6,047
6,241
6,422
6,456
6,607
6,871
7,027

6,180
6,113
6,221
6,334
6,595
6,857
7,086
7,362
7,685
8,029

598
494
492
494
552
586
613
631
736
691

2000
2001
2002
2003
2004
2005

..........................................
..........................................
..........................................
..........................................
..........................................
..........................................

136,891
136,933
136,485
137,736
139,252
141,730

114,424
114,430
114,013
114,235
115,239
116,949

62,289
62,212
61,849
61,866
62,712
63,763

52,136
52,218
52,164
52,369
52,527
53,186

6,160
5,817
5,441
5,064
5,039
5,105

............
............
............
............
............
............

............
............
............
............
............
............

............
............
............
............
............
............

............
............
............
............
............
............

15,156
15,006
14,872
14,739
14,909
15,313

7,082
6,938
6,959
6,820
6,912
7,155

8,073
8,068
7,914
7,919
7,997
8,158

711
637
611
516
520
536

2004: Jan ...................................
Feb ...................................
Mar ..................................
Apr ...................................
May ..................................
June .................................

138,472
138,495
138,452
138,659
138,843
139,181

114,648
114,696
114,525
114,783
114,974
115,204

62,581
62,382
62,248
62,401
62,310
62,618

52,068
52,313
52,276
52,382
52,663
52,585

5,119
5,053
4,945
5,061
5,079
4,985

............
............
............
............
............
............

............
............
............
............
............
............

............
............
............
............
............
............

............
............
............
............
............
............

14,892
14,887
14,944
14,893
14,808
14,803

6,959
6,892
6,931
6,844
6,883
6,914

7,933
7,995
8,013
8,049
7,925
7,889

507
514
507
492
504
499

July ..................................
Aug ..................................
Sept .................................
Oct ...................................
Nov ..................................
Dec ..................................

139,591
139,558
139,495
139,768
140,276
140,133

115,608
115,480
115,362
115,653
115,962
115,908

63,050
62,915
62,748
62,996
63,191
63,069

52,558
52,565
52,614
52,656
52,770
52,840

5,066
5,013
5,017
5,036
5,091
5,009

............
............
............
............
............
............

............
............
............
............
............
............

............
............
............
............
............
............

............
............
............
............
............
............

14,907
14,939
14,952
14,999
14,938
14,936

6,835
6,888
6,930
6,962
6,960
6,927

8,072
8,050
8,022
8,037
7,978
8,010

500
569
533
546
552
515

2005: Jan ...................................
Feb ...................................
Mar ..................................
Apr ...................................
May ..................................
June .................................

140,234
140,285
140,601
141,196
141,571
141,750

116,072
116,081
116,187
116,624
116,845
116,811

63,196
63,248
63,492
63,659
63,802
63,873

52,875
52,833
52,694
52,965
53,043
52,939

5,058
5,014
5,073
5,042
5,080
5,131

............
............
............
............
............
............

............
............
............
............
............
............

............
............
............
............
............
............

............
............
............
............
............
............

14,965
14,941
15,069
15,206
15,347
15,392

6,909
6,929
7,026
7,141
7,202
7,230

8,056
8,012
8,043
8,064
8,145
8,163

546
510
558
536
542
550

July ..................................
Aug ..................................
Sept .................................
Oct ...................................
Nov ..................................
Dec ..................................

142,111
142,425
142,435
142,625
142,611
142,779

117,168
117,446
117,354
117,396
117,598
117,729

63,853
64,004
63,812
63,954
64,054
64,166

53,316
53,441
53,542
53,441
53,544
53,564

5,126
5,175
5,222
5,074
5,123
5,110

............
............
............
............
............
............

............
............
............
............
............
............

............
............
............
............
............
............

............
............
............
............
............
............

15,581
15,476
15,455
15,591
15,299
15,397

7,355
7,297
7,241
7,231
7,090
7,193

8,225
8,179
8,215
8,360
8,209
8,203

549
512
490
517
523
598

............
............
............
............
............
............
............
............
............
............

..........
..........
..........
..........
..........
..........
..........
..........
..........
..........

..........
..........
..........
..........
..........
..........
..........
..........
..........
..........

..........
..........
..........
..........
..........
..........
..........
..........
..........
..........

1 Beginning in 2003, persons who selected this race group only. Prior to 2003, persons who selected more than one race were included in
the group they identified as the main race. Data for black or African American were for black prior to 2003. Data discontinued for black and
other series. See Employment and Earnings, for details.
Note.—Beginning with data for 2000, since data for all race groups are not shown here, detail will not sum to total.
See footnote 5 and Note, Table B–35.
Source: Department of Labor, Bureau of Labor Statistics.

327

TABLE B–38.—Unemployment by demographic characteristic, 1959–2005
[Thousands of persons 16 years of age and over; monthly data seasonally adjusted]
White 1
Year or
month

All
civilian
workers

Total

Males

Females

Black and other 1
Both
sexes
16-19

Total

Black or African American 1

Males

Females

Both
sexes
16-19

Total

Males

Females

Both
sexes
16-19

1959 ..............

3,740

2,946

1,903

1,043

525

793

517

276

128

............

...........

...........

..........

1960
1961
1962
1963
1964
1965
1966
1967
1968
1969

..............
..............
..............
..............
..............
..............
..............
..............
..............
..............

3,852
4,714
3,911
4,070
3,786
3,366
2,875
2,975
2,817
2,832

3,065
3,743
3,052
3,208
2,999
2,691
2,255
2,338
2,226
2,260

1,988
2,398
1,915
1,976
1,779
1,556
1,241
1,208
1,142
1,137

1,077
1,345
1,137
1,232
1,220
1,135
1,014
1,130
1,084
1,123

575
669
580
708
708
705
651
635
644
660

788
971
861
863
787
678
622
638
590
571

498
599
509
496
426
360
310
300
277
267

290
372
352
367
361
318
312
338
313
304

138
159
142
176
165
171
186
203
194
193

............
............
............
............
............
............
............
............
............
............

...........
...........
...........
...........
...........
...........
...........
...........
...........
...........

...........
...........
...........
...........
...........
...........
...........
...........
...........
...........

..........
..........
..........
..........
..........
..........
..........
..........
..........
..........

1970
1971
1972
1973
1974
1975
1976
1977
1978
1979

..............
..............
..............
..............
..............
..............
..............
..............
..............
..............

4,093
5,016
4,882
4,365
5,156
7,929
7,406
6,991
6,202
6,137

3,339
4,085
3,906
3,442
4,097
6,421
5,914
5,441
4,698
4,664

1,857
2,309
2,173
1,836
2,169
3,627
3,258
2,883
2,411
2,405

1,482
1,777
1,733
1,606
1,927
2,794
2,656
2,558
2,287
2,260

871
1,011
1,021
955
1,104
1,413
1,364
1,284
1,189
1,193

754
930
977
924
1,058
1,507
1,492
1,550
1,505
1,473

380
481
486
440
544
815
779
784
731
714

374
450
491
484
514
692
713
766
774
759

235
249
288
280
318
355
355
379
394
362

............
............
906
846
965
1,369
1,334
1,393
1,330
1,319

...........
...........
448
395
494
741
698
698
641
636

...........
...........
458
451
470
629
637
695
690
683

..........
..........
279
262
297
330
330
354
360
333

1980
1981
1982
1983
1984
1985
1986
1987
1988
1989

..............
..............
..............
..............
..............
..............
..............
..............
..............
..............

7,637
8,273
10,678
10,717
8,539
8,312
8,237
7,425
6,701
6,528

5,884
6,343
8,241
8,128
6,372
6,191
6,140
5,501
4,944
4,770

3,345
3,580
4,846
4,859
3,600
3,426
3,433
3,132
2,766
2,636

2,540
2,762
3,395
3,270
2,772
2,765
2,708
2,369
2,177
2,135

1,291
1,374
1,534
1,387
1,116
1,074
1,070
995
910
863

1,752
1,930
2,437
2,588
2,167
2,121
2,097
1,924
1,757
1,757

922
997
1,334
1,401
1,144
1,095
1,097
969
888
889

830
933
1,104
1,187
1,022
1,026
999
955
869
868

377
388
443
441
384
394
383
353
316
331

1,553
1,731
2,142
2,272
1,914
1,864
1,840
1,684
1,547
1,544

815
891
1,167
1,213
1,003
951
946
826
771
773

738
840
975
1,059
911
913
894
858
776
772

343
357
396
392
353
357
347
312
288
300

1990
1991
1992
1993
1994
1995
1996
1997
1998
1999

..............
..............
..............
..............
..............
..............
..............
..............
..............
..............

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
4,484
4,273

2,935
3,859
4,209
3,828
3,275
2,999
2,896
2,641
2,431
2,274

2,251
2,701
2,959
2,827
2,617
2,460
2,404
2,195
2,053
1,999

903
1,029
1,037
992
960
952
939
912
876
844

1,860
2,068
2,444
2,285
2,104
1,945
1,936
1,903
1,726
1,606

971
1,087
1,314
1,227
1,092
984
984
935
835
792

889
981
1,130
1,058
1,011
961
952
967
891
814

308
330
390
373
360
394
367
359
329
318

1,565
1,723
2,011
1,844
1,666
1,538
1,592
1,560
1,426
1,309

806
890
1,067
971
848
762
808
747
671
626

758
833
944
872
818
777
784
813
756
684

268
280
324
313
300
325
310
302
281
268

2000
2001
2002
2003
2004
2005

..............
..............
.............
.............
.............
.............

5,692
6,801
8,378
8,774
8,149
7,591

4,121
4,969
6,137
6,311
5,847
5,350

2,177
2,754
3,459
3,643
3,282
2,931

1,944
2,215
2,678
2,668
2,565
2,419

795
845
925
909
890
845

............
............
............
............
............
............

...........
...........
...........
...........
...........
...........

...........
...........
...........
...........
...........
...........

..........
..........
..........
..........
..........
..........

1,241
1,416
1,693
1,787
1,729
1,700

620
709
835
891
860
844

621
706
858
895
868
856

230
260
260
255
241
267

2004: Jan .......
Feb .......
Mar ......
Apr .......
May ......
June .....

8,345
8,186
8,397
8,140
8,178
8,247

6,047
5,949
6,116
5,952
5,958
6,050

3,315
3,317
3,400
3,396
3,482
3,344

2,732
2,632
2,716
2,556
2,477
2,707

880
896
862
922
921
868

............
............
............
............
............
............

...........
...........
...........
...........
...........
...........

...........
...........
...........
...........
...........
...........

..........
..........
..........
..........
..........
..........

1,719
1,586
1,701
1,612
1,645
1,684

853
758
821
782
791
818

866
828
880
830
855
866

260
178
217
188
230
246

July ......
Aug ......
Sept .....
Oct .......
Nov ......
Dec ......

8,182
8,000
7,981
8,040
7,974
8,040

5,776
5,732
5,660
5,618
5,614
5,599

3,174
3,228
3,184
3,209
3,112
3,163

2,602
2,504
2,476
2,409
2,502
2,436

900
901
873
891
854
936

............
............
............
............
............
............

...........
...........
...........
...........
...........
...........

...........
...........
...........
...........
...........
...........

..........
..........
..........
..........
..........
..........

1,864
1,750
1,732
1,814
1,796
1,808

920
908
893
919
928
943

944
843
840
894
868
864

295
230
214
289
263
249

2005: Jan .......
Feb .......
Mar ......
Apr .......
May ......
June .....

7,723
7,986
7,616
7,644
7,629
7,493

5,419
5,588
5,306
5,383
5,368
5,224

3,039
3,136
3,037
2,923
2,933
2,804

2,380
2,452
2,269
2,460
2,434
2,420

834
917
850
902
907
839

............
............
............
............
............
............

...........
...........
...........
...........
...........
...........

...........
...........
...........
...........
...........
...........

..........
..........
..........
..........
..........
..........

1,758
1,807
1,733
1,746
1,713
1,766

875
931
849
872
852
902

883
876
884
875
861
863

242
242
275
300
304
262

July ......
Aug ......
Sept .....
Oct .......
Nov ......
Dec ......

7,494
7,367
7,648
7,418
7,572
7,375

5,263
5,193
5,489
5,415
5,215
5,264

2,832
2,847
3,024
2,877
2,782
2,855

2,431
2,345
2,465
2,537
2,433
2,409

804
829
801
838
826
789

............
............
............
............
............
............

...........
...........
...........
...........
...........
...........

...........
...........
...........
...........
...........
...........

..........
..........
..........
..........
..........
..........

1,619
1,654
1,613
1,559
1,819
1,582

793
814
785
774
903
741

826
840
828
785
916
841

268
287
242
248
326
194

1 See

footnote 1 and Note, Table B–37.

Note.—See footnote 5 and Note, Table B–35.
Source: Department of Labor, Bureau of Labor Statistics.

328

TABLE B–39.—Civilian labor force participation rate and employment/population ratio, 1959–2005
[Percent;1 monthly data seasonally adjusted]
Labor force participation rate
Year or
month

All
civilFeian Males males
workers

Employment/population ratio

Both
sexes
16–19
years

White 2

Black
and
other 2

Black
or
African
American 2

All
civilFeian Males males
workers

Both
sexes
16–19
years

White 2

Black
Black
or
and African
other 2 American 2

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 .......................
2000 .......................
2001 .......................
2002 .......................
2003 .......................
2004 .......................
2005 .......................
2004: Jan ...............
Feb ...............
Mar ..............
Apr ...............
May ..............
June .............
July ...............
Aug ...............
Sept ..............
Oct ...............
Nov ...............
Dec ...............

59.3
59.4
59.3
58.8
58.7
58.7
58.9
59.2
59.6
59.6
60.1
60.4
60.2
60.4
60.8
61.3
61.2
61.6
62.3
63.2
63.7
63.8
63.9
64.0
64.0
64.4
64.8
65.3
65.6
65.9
66.5
66.5
66.2
66.4
66.3
66.6
66.6
66.8
67.1
67.1
67.1
67.1
66.8
66.6
66.2
66.0
66.0
66.1
66.0
66.0
65.9
65.9
66.1
66.1
66.0
65.9
65.9
66.1
66.0

83.7
83.3
82.9
82.0
81.4
81.0
80.7
80.4
80.4
80.1
79.8
79.7
79.1
78.9
78.8
78.7
77.9
77.5
77.7
77.9
77.8
77.4
77.0
76.6
76.4
76.4
76.3
76.3
76.2
76.2
76.4
76.4
75.8
75.8
75.4
75.1
75.0
74.9
75.0
74.9
74.7
74.8
74.4
74.1
73.5
73.3
73.3
73.6
73.2
73.2
73.1
73.1
73.3
73.5
73.4
73.2
73.3
73.5
73.2

37.1
37.7
38.1
37.9
38.3
38.7
39.3
40.3
41.1
41.6
42.7
43.3
43.4
43.9
44.7
45.7
46.3
47.3
48.4
50.0
50.9
51.5
52.1
52.6
52.9
53.6
54.5
55.3
56.0
56.6
57.4
57.5
57.4
57.8
57.9
58.8
58.9
59.3
59.8
59.8
60.0
59.9
59.8
59.6
59.5
59.2
59.3
59.1
59.2
59.2
59.2
59.2
59.3
59.3
59.1
59.0
59.1
59.1
59.2

46.7
47.5
46.9
46.1
45.2
44.5
45.7
48.2
48.4
48.3
49.4
49.9
49.7
51.9
53.7
54.8
54.0
54.5
56.0
57.8
57.9
56.7
55.4
54.1
53.5
53.9
54.5
54.7
54.7
55.3
55.9
53.7
51.6
51.3
51.5
52.7
53.5
52.3
51.6
52.8
52.0
52.0
49.6
47.4
44.5
43.9
43.7
44.4
43.7
42.8
43.7
44.0
43.3
44.2
43.9
43.5
44.0
44.3
44.3

58.7
58.8
58.8
58.3
58.2
58.2
58.4
58.7
59.2
59.3
59.9
60.2
60.1
60.4
60.8
61.4
61.5
61.8
62.5
63.3
63.9
64.1
64.3
64.3
64.3
64.6
65.0
65.5
65.8
66.2
66.7
66.9
66.6
66.8
66.8
67.1
67.1
67.2
67.5
67.3
67.3
67.3
67.0
66.8
66.5
66.3
66.3
66.4
66.3
66.2
66.2
66.3
66.4
66.4
66.3
66.1
66.2
66.3
66.2

64.3
64.5
64.1
63.2
63.0
63.1
62.9
63.0
62.8
62.2
62.1
61.8
60.9
60.2
60.5
60.3
59.6
59.8
60.4
62.2
62.2
61.7
61.3
61.6
62.1
62.6
63.3
63.7
64.3
64.0
64.7
64.4
63.8
64.6
63.8
63.9
64.3
64.6
65.2
66.0
65.9
..........
..........
..........
..........
..........
..........
..........
..........
..........
..........
..........
..........
..........
..........
..........
..........
..........
..........

............
............
............
............
............
............
............
............
............
............
............
............
............
59.9
60.2
59.8
58.8
59.0
59.8
61.5
61.4
61.0
60.8
61.0
61.5
62.2
62.9
63.3
63.8
63.8
64.2
64.0
63.3
63.9
63.2
63.4
63.7
64.1
64.7
65.6
65.8
65.8
65.3
64.8
64.3
63.8
64.2
64.2
63.6
64.2
63.6
63.3
63.3
64.3
63.9
63.8
64.2
63.8
63.7

56.0
56.1
55.4
55.5
55.4
55.7
56.2
56.9
57.3
57.5
58.0
57.4
56.6
57.0
57.8
57.8
56.1
56.8
57.9
59.3
59.9
59.2
59.0
57.8
57.9
59.5
60.1
60.7
61.5
62.3
63.0
62.8
61.7
61.5
61.7
62.5
62.9
63.2
63.8
64.1
64.3
64.4
63.7
62.7
62.3
62.3
62.7
62.3
62.3
62.2
62.2
62.3
62.4
62.5
62.4
62.3
62.3
62.5
62.4

79.3
78.9
77.6
77.7
77.1
77.3
77.5
77.9
78.0
77.8
77.6
76.2
74.9
75.0
75.5
74.9
71.7
72.0
72.8
73.8
73.8
72.0
71.3
69.0
68.8
70.7
70.9
71.0
71.5
72.0
72.5
72.0
70.4
69.8
70.0
70.4
70.8
70.9
71.3
71.6
71.6
71.9
70.9
69.7
68.9
69.2
69.6
69.4
69.1
69.0
69.0
68.9
69.2
69.4
69.3
69.1
69.2
69.4
69.1

35.0
35.5
35.4
35.6
35.8
36.3
37.1
38.3
39.0
39.6
40.7
40.8
40.4
41.0
42.0
42.6
42.0
43.2
44.5
46.4
47.5
47.7
48.0
47.7
48.0
49.5
50.4
51.4
52.5
53.4
54.3
54.3
53.7
53.8
54.1
55.3
55.6
56.0
56.8
57.1
57.4
57.5
57.0
56.3
56.1
56.0
56.2
55.7
56.0
55.9
56.0
56.1
56.0
56.0
56.0
55.9
55.9
56.0
56.1

39.9
40.5
39.1
39.4
37.4
37.3
38.9
42.1
42.2
42.2
43.4
42.3
41.3
43.5
45.9
46.0
43.3
44.2
46.1
48.3
48.5
46.6
44.6
41.5
41.5
43.7
44.4
44.6
45.5
46.8
47.5
45.3
42.0
41.0
41.7
43.4
44.2
43.5
43.4
45.1
44.7
45.2
42.3
39.6
36.8
36.4
36.5
36.9
36.4
35.7
36.5
36.6
36.0
36.4
36.4
36.2
36.5
37.0
36.4

55.9
55.9
55.3
55.4
55.3
55.5
56.0
56.8
57.2
57.4
58.0
57.5
56.8
57.4
58.2
58.3
56.7
57.5
58.6
60.0
60.6
60.0
60.0
58.8
58.9
60.5
61.0
61.5
62.3
63.1
63.8
63.7
62.6
62.4
62.7
63.5
63.8
64.1
64.6
64.7
64.8
64.9
64.2
63.4
63.0
63.1
63.4
63.0
63.0
62.9
63.0
63.0
63.1
63.3
63.2
63.0
63.1
63.2
63.2

57.5
57.9
56.2
56.3
56.2
57.0
57.8
58.4
58.2
58.0
58.1
56.8
54.9
54.1
55.0
54.3
51.4
52.0
52.5
54.7
55.2
53.6
52.6
50.9
51.0
53.6
54.7
55.4
56.8
57.4
58.2
57.9
56.7
56.4
56.3
57.2
58.1
58.6
59.4
60.9
61.3
..........
..........
..........
..........
..........
..........
..........
..........
..........
..........
..........
..........
..........
..........
..........
..........
..........
..........

............
............
............
............
............
............
............
............
............
............
............
............
............
53.7
54.5
53.5
50.1
50.8
51.4
53.6
53.8
52.3
51.3
49.4
49.5
52.3
53.4
54.1
55.6
56.3
56.9
56.7
55.4
54.9
55.0
56.1
57.1
57.4
58.2
59.7
60.6
60.9
59.7
58.1
57.4
57.2
57.7
57.6
57.5
57.6
57.4
56.9
56.8
57.2
57.2
57.1
57.2
56.9
56.9

2005: Jan ...............
Feb ...............
Mar ..............
Apr ...............
May ..............
June .............
July ...............
Aug ...............
Sept ..............
Oct ...............
Nov ...............
Dec ...............

65.8
65.9
65.8
66.0
66.1
66.1
66.2
66.2
66.2
66.1
66.1
66.0

73.0
73.2
73.2
73.4
73.5
73.4
73.4
73.5
73.4
73.2
73.3
73.2

59.1
59.1
58.9
59.1
59.2
59.2
59.4
59.3
59.5
59.5
59.4
59.3

43.2
43.3
43.9
43.9
44.2
43.9
43.7
44.0
43.6
43.0
43.9
43.3

66.2
66.2
66.1
66.3
66.4
66.2
66.4
66.4
66.5
66.4
66.3
66.4

..........
..........
..........
..........
..........
..........
..........
..........
..........
..........
..........
..........

63.6
63.6
63.7
64.2
64.5
64.8
64.8
64.5
64.1
64.3
64.1
63.5

62.4
62.3
62.4
62.6
62.7
62.7
62.8
62.9
62.8
62.8
62.8
62.8

69.1
69.1
69.4
69.6
69.8
69.8
69.8
69.9
69.7
69.7
69.6
69.7

56.1
56.0
55.9
56.1
56.2
56.2
56.3
56.4
56.5
56.4
56.4
56.4

36.2
35.7
36.5
36.2
36.4
36.8
36.7
36.8
36.7
36.2
36.4
36.7

63.2
63.2
63.2
63.4
63.4
63.4
63.5
63.6
63.5
63.4
63.5
63.5

..........
..........
..........
..........
..........
..........
..........
..........
..........
..........
..........
..........

56.9
56.7
57.1
57.6
58.0
58.1
58.7
58.2
58.1
58.5
57.3
57.6

1 Civilian

labor force or civilian employment as percent of civilian noninstitutional population in group specified.
2 See footnote 1, Table B–37.
Note.—Data relate to persons 16 years of age and over.
See footnote 5 and Note, Table B-35.
Source: Department of Labor, Bureau of Labor Statistics.

329

TABLE B–40.—Civilian labor force participation rate by demographic characteristic, 1965–2005
[Percent;1 monthly data seasonally adjusted]
White 2
Year or
month

All
civilian
workers

Black and other or black or African American 2

Males
Total
Total

16-19
years

Males

Females
20
years
and
over

Total

83.9
83.6
83.5
83.2
83.0
82.8
82.3
82.0

38.1
39.2
40.1
40.7
41.8
42.6
42.6
43.2

16-19
years

20
years
and
over

Total
Total

16-19
years

Females
20
years
and
over

Total

16-19
years

20
years
and
over

Black and other
1965
1966
1967
1968
1969
1970
1971
1972

.............
.............
.............
.............
.............
.............
.............
.............

58.9
59.2
59.6
59.6
60.1
60.4
60.2
60.4

58.4
58.7
59.2
59.3
59.9
60.2
60.1
60.4

80.8
80.6
80.6
80.4
80.2
80.0
79.6
79.6

54.1
55.9
56.3
55.9
56.8
57.5
57.9
60.1

39.2
42.6
42.5
43.0
44.6
45.6
45.4
48.1

38.0
38.8
39.8
40.4
41.5
42.2
42.3
42.7

62.9
63.0
62.8
62.2
62.1
61.8
60.9
60.2

79.6
79.0
78.5
77.7
76.9
76.5
74.9
73.9

51.3
51.4
51.1
49.7
49.6
47.4
44.7
46.0

83.7
83.3
82.9
82.2
81.4
81.4
80.0
78.6

48.6
49.4
49.5
49.3
49.8
49.5
49.2
48.8

29.5
33.5
35.2
34.8
34.6
34.1
31.2
32.3

51.1
51.6
51.6
51.4
52.0
51.8
51.8
51.2

Black or African American 2
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
2000
2001
2002
2003
2004
2005

.............
.............
.............
.............
.............
.............
.............
.............
.............
.............
.............
.............
.............
.............
.............
.............
.............
.............
.............
.............
.............
.............
.............
.............
.............
.............
.............
.............
.............
.............
.............
.............
.............
.............

60.4
60.8
61.3
61.2
61.6
62.3
63.2
63.7
63.8
63.9
64.0
64.0
64.4
64.8
65.3
65.6
65.9
66.5
66.5
66.2
66.4
66.3
66.6
66.6
66.8
67.1
67.1
67.1
67.1
66.8
66.6
66.2
66.0
66.0

60.4
60.8
61.4
61.5
61.8
62.5
63.3
63.9
64.1
64.3
64.3
64.3
64.6
65.0
65.5
65.8
66.2
66.7
66.9
66.6
66.8
66.8
67.1
67.1
67.2
67.5
67.3
67.3
67.3
67.0
66.8
66.5
66.3
66.3

79.6
79.4
79.4
78.7
78.4
78.5
78.6
78.6
78.2
77.9
77.4
77.1
77.1
77.0
76.9
76.8
76.9
77.1
77.1
76.5
76.5
76.2
75.9
75.7
75.8
75.9
75.6
75.6
75.5
75.1
74.8
74.2
74.1
74.1

60.1
62.0
62.9
61.9
62.3
64.0
65.0
64.8
63.7
62.4
60.0
59.4
59.0
59.7
59.3
59.0
60.0
61.0
59.6
57.3
56.9
56.6
57.7
58.5
57.1
56.1
56.6
56.4
56.5
53.7
50.3
47.5
47.4
46.2

82.0
81.6
81.4
80.7
80.3
80.2
80.1
80.1
79.8
79.5
79.2
78.9
78.7
78.5
78.5
78.4
78.3
78.5
78.5
78.0
78.0
77.7
77.3
77.1
77.3
77.5
77.2
77.2
77.1
76.9
76.7
76.3
76.2
76.2

43.2
44.1
45.2
45.9
46.9
48.0
49.4
50.5
51.2
51.9
52.4
52.7
53.3
54.1
55.0
55.7
56.4
57.2
57.4
57.4
57.7
58.0
58.9
59.0
59.1
59.5
59.4
59.6
59.5
59.4
59.3
59.2
58.9
58.9

48.1
50.1
51.7
51.5
52.8
54.5
56.7
57.4
56.2
55.4
55.0
54.5
55.4
55.2
56.3
56.5
57.2
57.1
55.3
54.1
52.5
53.5
55.1
55.5
54.7
54.1
55.4
54.5
54.5
52.4
50.8
47.9
46.7
47.6

42.7
43.5
44.4
45.3
46.2
47.3
48.7
49.8
50.6
51.5
52.2
52.5
53.1
54.0
54.9
55.6
56.3
57.2
57.6
57.6
58.1
58.3
59.2
59.2
59.4
59.9
59.7
59.9
59.9
59.9
60.0
59.9
59.7
59.7

59.9
60.2
59.8
58.8
59.0
59.8
61.5
61.4
61.0
60.8
61.0
61.5
62.2
62.9
63.3
63.8
63.8
64.2
64.0
63.3
63.9
63.2
63.4
63.7
64.1
64.7
65.6
65.8
65.8
65.3
64.8
64.3
63.8
64.2

73.6
73.4
72.9
70.9
70.0
70.6
71.5
71.3
70.3
70.0
70.1
70.6
70.8
70.8
71.2
71.1
71.0
71.0
71.0
70.4
70.7
69.6
69.1
69.0
68.7
68.3
69.0
68.7
69.2
68.4
68.4
67.3
66.7
67.3

46.3
45.7
46.7
42.6
41.3
43.2
44.9
43.6
43.2
41.6
39.8
39.9
41.7
44.6
43.7
43.6
43.8
44.6
40.7
37.3
40.6
39.5
40.8
40.1
39.5
37.4
40.7
38.6
39.2
37.9
37.3
31.1
30.0
32.6

78.5
78.4
77.6
76.0
75.4
75.6
76.2
76.3
75.1
74.5
74.7
75.2
74.8
74.4
74.8
74.7
74.6
74.4
75.0
74.6
74.3
73.2
72.5
72.5
72.3
72.2
72.5
72.4
72.8
72.1
72.1
71.5
70.9
71.3

48.7
49.3
49.0
48.8
49.8
50.8
53.1
53.1
53.1
53.5
53.7
54.2
55.2
56.5
56.9
58.0
58.0
58.7
58.3
57.5
58.5
57.9
58.7
59.5
60.4
61.7
62.8
63.5
63.1
62.8
61.8
61.9
61.5
61.6

32.2
34.2
33.4
34.2
32.9
32.9
37.3
36.8
34.9
34.0
33.5
33.0
35.0
37.9
39.1
39.6
37.9
40.4
36.8
33.5
35.2
34.6
36.3
39.8
38.9
39.9
42.5
38.8
39.6
37.3
34.7
33.7
32.8
32.2

51.2
51.6
51.4
51.1
52.5
53.6
55.5
55.4
55.6
56.0
56.2
56.8
57.6
58.6
58.9
60.0
60.1
60.6
60.6
60.0
60.8
60.2
60.9
61.4
62.6
64.0
64.8
66.1
65.4
65.2
64.4
64.6
64.2
64.4

2004: Jan ......
Feb ......
Mar .....
Apr ......
May .....
June ....

66.1
66.0
66.0
65.9
65.9
66.1

66.4
66.3
66.2
66.2
66.3
66.4

74.4
74.1
74.0
74.1
74.0
74.1

48.4
47.6
46.1
48.4
47.7
46.6

76.4
76.1
76.1
76.1
76.1
76.3

58.8
58.9
58.9
58.8
59.0
59.1

47.0
46.9
46.2
46.6
47.6
46.3

59.6
59.7
59.8
59.7
59.8
60.0

64.2
63.6
64.2
63.6
63.3
63.3

67.6
66.1
66.9
65.7
66.0
66.4

28.5
24.6
29.2
25.4
26.7
29.3

72.1
70.9
71.2
70.3
70.5
70.6

61.5
61.6
62.0
61.8
61.1
60.8

35.3
32.9
30.9
30.9
34.1
32.2

63.9
64.3
64.9
64.7
63.6
63.5

July .....
Aug .....
Sept ....
Oct ......
Nov .....
Dec .....

66.1
66.0
65.9
65.9
66.1
66.0

66.4
66.3
66.1
66.2
66.3
66.2

74.4
74.2
73.9
74.1
74.1
74.0

47.6
47.3
46.7
48.3
47.8
46.9

76.4
76.3
76.0
76.1
76.2
76.1

58.9
58.8
58.7
58.7
58.9
58.8

47.1
46.5
46.8
45.6
46.3
47.2

59.8
59.6
59.6
59.6
59.7
59.6

64.3
63.9
63.8
64.2
63.8
63.7

66.5
66.7
66.8
67.2
67.2
66.9

30.6
32.5
31.7
34.2
34.8
31.5

70.6
70.6
70.8
71.0
70.9
71.0

62.5
61.6
61.3
61.7
61.0
61.1

35.0
33.3
29.8
34.3
32.0
30.9

65.1
64.2
64.2
64.2
63.7
64.0

2005: Jan ......
Feb ......
Mar .....
Apr ......
May .....
June ....

65.8
65.9
65.8
66.0
66.1
66.1

66.2
66.2
66.1
66.3
66.4
66.2

73.9
74.0
74.2
74.2
74.3
74.1

46.1
46.2
47.0
46.7
46.4
46.2

76.1
76.2
76.3
76.3
76.4
76.3

58.7
58.7
58.4
58.8
58.8
58.7

47.2
47.7
46.6
47.2
48.1
48.0

59.6
59.5
59.2
59.6
59.6
59.4

63.6
63.6
63.7
64.2
64.5
64.8

66.1
66.6
66.7
67.7
68.0
68.5

31.6
32.7
35.5
36.9
35.3
33.8

70.0
70.5
70.2
71.3
71.7
72.5

61.5
61.1
61.3
61.3
61.7
61.7

32.7
28.6
32.3
31.1
33.2
31.9

64.2
64.1
64.0
64.1
64.4
64.5

July .....
Aug .....
Sept ....
Oct ......
Nov .....
Dec .....

66.2
66.2
66.2
66.1
66.1
66.0

66.4
66.4
66.5
66.4
66.3
66.4

74.1
74.2
74.1
74.0
73.9
74.0

45.8
45.9
46.1
45.2
46.3
46.0

76.2
76.3
76.2
76.2
76.0
76.2

59.0
59.0
59.2
59.1
59.1
59.0

47.7
48.7
48.7
47.8
47.1
46.5

59.8
59.8
59.9
59.9
59.9
59.9

64.8
64.5
64.1
64.3
64.1
63.5

68.5
68.1
67.3
67.0
66.7
66.1

31.4
31.3
28.7
28.1
35.3
30.7

72.8
72.3
71.7
71.4
70.4
70.2

61.8
61.5
61.6
62.2
62.0
61.3

34.5
32.9
30.0
33.0
32.3
32.3

64.4
64.2
64.6
64.9
64.8
64.1

1Civilian labor force as percent of civilian noninstitutional population in group specified.
2 See footnote 1, Table B–37.
Note.—Data relate to persons 16 years of age and over.
See footnote 5 and Note, Table B–35.
Source: Department of Labor, Bureau of Labor Statistics.

330

TABLE B–41.—Civilian employment/population ratio by demographic characteristic, 1965–2005
[Percent;1 monthly data seasonally adjusted]
White 2

Year or month

All
civilian
workers

Black and other or black or African American 2

Males

Total

16-19
years

20
years
and
over

77.9
78.3
78.4
78.3
78.2
76.8
75.7
76.0

47.1
50.1
50.2
50.3
51.1
49.6
49.2
51.5

81.5
81.7
81.7
81.6
81.4
80.1
79.0
79.0

Total

Males

Females

Total

16-19
years

20
years
and
over

36.2
37.5
38.3
38.9
40.1
40.3
39.9
40.7

33.7
37.5
37.7
37.8
39.5
39.5
38.6
41.3

36.5
37.5
38.3
39.1
40.1
40.4
40.1
40.6

Total
Total

16-19
years

73.7
74.0
73.8
73.3
72.8
70.9
68.1
67.3

39.4
40.5
38.8
38.7
39.0
35.5
31.8
32.4

Females
20
years
and
over

Total

16-19
years

20
years
and
over

20.2
23.1
24.8
24.7
25.1
22.4
20.2
19.9

47.3
48.2
47.9
48.2
48.9
48.2
47.3
46.7

Black and other
1965
1966
1967
1968
1969
1970
1971
1972

.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................

56.2
56.9
57.3
57.5
58.0
57.4
56.6
57.0

56.0
56.8
57.2
57.4
58.0
57.5
56.8
57.4

57.8
58.4
58.2
58.0
58.1
56.8
54.9
54.1

78.7
79.2
79.4
78.9
78.4
76.8
74.2
73.2

44.1
45.1
45.0
45.2
45.9
44.9
43.9
43.3

Black or African American 2
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
2000
2001
2002
2003
2004
2005

.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................

57.0
57.8
57.8
56.1
56.8
57.9
59.3
59.9
59.2
59.0
57.8
57.9
59.5
60.1
60.7
61.5
62.3
63.0
62.8
61.7
61.5
61.7
62.5
62.9
63.2
63.8
64.1
64.3
64.4
63.7
62.7
62.3
62.3
62.7

57.4
58.2
58.3
56.7
57.5
58.6
60.0
60.6
60.0
60.0
58.8
58.9
60.5
61.0
61.5
62.3
63.1
63.8
63.7
62.6
62.4
62.7
63.5
63.8
64.1
64.6
64.7
64.8
64.9
64.2
63.4
63.0
63.1
63.4

76.0
76.5
75.9
73.0
73.4
74.1
75.0
75.1
73.4
72.8
70.6
70.4
72.1
72.3
72.3
72.7
73.2
73.7
73.3
71.6
71.1
71.4
71.8
72.0
72.3
72.7
72.7
72.8
73.0
72.0
70.8
70.1
70.4
70.8

51.5
54.3
54.4
50.6
51.5
54.4
56.3
55.7
53.4
51.3
47.0
47.4
49.1
49.9
49.6
49.9
51.7
52.6
51.0
47.2
46.4
46.6
48.3
49.4
48.2
48.1
48.6
49.3
49.5
46.2
42.3
39.4
39.7
38.8

79.0
79.2
78.6
75.7
76.0
76.5
77.2
77.3
75.6
75.1
73.0
72.6
74.3
74.3
74.3
74.7
75.1
75.4
75.1
73.5
73.1
73.3
73.6
73.8
74.2
74.7
74.7
74.8
74.9
74.0
73.1
72.5
72.8
73.3

40.7
41.8
42.4
42.0
43.2
44.5
46.3
47.5
47.8
48.3
48.1
48.5
49.8
50.7
51.7
52.8
53.8
54.6
54.7
54.2
54.2
54.6
55.8
56.1
56.3
57.0
57.1
57.3
57.4
57.0
56.4
56.3
56.1
56.3

41.3
43.6
44.3
42.5
44.2
45.9
48.5
49.4
47.9
46.2
44.6
44.5
47.0
47.1
47.9
49.0
50.2
50.5
48.3
45.9
44.2
45.7
47.5
48.1
47.6
47.2
49.3
48.3
48.8
46.5
44.1
41.5
40.3
41.8

40.6
41.6
42.2
41.9
43.1
44.4
46.1
47.3
47.8
48.5
48.4
48.9
50.0
51.0
52.0
53.1
54.0
54.9
55.2
54.8
54.9
55.2
56.4
56.7
57.0
57.8
57.7
58.0
58.0
57.7
57.3
57.3
57.2
57.4

53.7
54.5
53.5
50.1
50.8
51.4
53.6
53.8
52.3
51.3
49.4
49.5
52.3
53.4
54.1
55.6
56.3
56.9
56.7
55.4
54.9
55.0
56.1
57.1
57.4
58.2
59.7
60.6
60.9
59.7
58.1
57.4
57.2
57.7

66.8
67.5
65.8
60.6
60.6
61.4
63.3
63.4
60.4
59.1
56.0
56.3
59.2
60.0
60.6
62.0
62.7
62.8
62.6
61.3
59.9
60.0
60.8
61.7
61.1
61.4
62.9
63.1
63.6
62.1
61.1
59.5
59.3
60.2

31.6
32.8
31.4
26.3
25.8
26.4
28.5
28.7
27.0
24.6
20.3
20.4
23.9
26.3
26.5
28.5
29.4
30.4
27.7
23.8
23.6
23.6
25.4
25.2
24.9
23.7
28.4
26.7
28.9
26.4
25.6
19.9
19.3
20.8

73.0
73.7
71.9
66.5
66.8
67.5
69.1
69.1
65.8
64.5
61.4
61.6
64.1
64.6
65.1
66.4
67.1
67.0
67.1
65.9
64.3
64.3
65.0
66.1
65.5
66.1
67.1
67.5
67.7
66.3
65.2
64.1
63.9
64.7

43.0
43.8
43.5
41.6
42.8
43.3
45.8
46.0
45.7
45.1
44.2
44.1
46.7
48.1
48.8
50.3
51.2
52.0
51.9
50.6
50.8
50.9
52.3
53.4
54.4
55.6
57.2
58.6
58.6
57.8
55.8
55.6
55.5
55.7

19.2
22.0
20.9
20.2
19.2
18.5
22.1
22.4
21.0
19.7
17.7
17.0
20.1
23.1
23.8
25.8
25.8
27.1
25.8
21.5
22.1
21.6
24.5
26.1
27.1
28.5
31.8
29.0
30.6
27.0
24.9
23.4
23.6
22.4

46.5
47.2
46.9
44.9
46.4
47.0
49.3
49.3
49.1
48.5
47.5
47.4
49.8
50.9
51.6
53.0
53.9
54.6
54.7
53.6
53.6
53.8
55.0
56.1
57.1
58.4
59.7
61.5
61.3
60.7
58.7
58.6
58.5
58.9

2004: Jan ..............
Feb ..............
Mar .............
Apr ..............
May .............
June ............

62.3
62.3
62.2
62.2
62.3
62.4

63.0
63.0
62.9
63.0
63.0
63.1

70.6
70.3
70.1
70.2
70.1
70.4

41.5
40.4
38.6
39.9
39.1
39.0

72.9
72.7
72.6
72.6
72.5
72.8

55.8
56.1
56.0
56.1
56.3
56.2

39.9
40.0
40.0
40.5
41.7
40.1

57.0
57.2
57.1
57.2
57.4
57.3

57.6
57.5
57.6
57.4
56.9
56.8

60.2
59.6
59.8
59.0
59.2
59.4

16.0
17.2
18.5
17.7
18.5
19.4

65.3
64.4
64.5
63.7
63.9
64.0

55.4
55.8
55.9
56.1
55.1
54.8

26.1
25.5
23.5
23.0
23.2
21.9

58.2
58.6
58.9
59.1
58.1
57.9

July .............
Aug .............
Sept ............
Oct ..............
Nov .............
Dec .............

62.5
62.4
62.3
62.3
62.5
62.4

63.3
63.2
63.0
63.1
63.2
63.2

70.8
70.6
70.3
70.5
70.7
70.5

40.2
39.8
39.3
39.9
40.4
38.4

73.2
73.0
72.7
72.9
73.0
73.0

56.1
56.1
56.1
56.1
56.2
56.2

40.3
39.8
40.3
40.0
40.2
41.0

57.3
57.3
57.2
57.2
57.3
57.3

57.2
57.2
57.1
57.2
56.9
56.9

58.6
59.0
59.2
59.4
59.3
58.9

19.3
21.5
20.2
21.5
21.8
19.1

63.1
63.2
63.7
63.7
63.5
63.4

56.0
55.8
55.5
55.5
55.0
55.2

21.9
25.4
23.6
23.3
23.4
23.0

59.2
58.6
58.5
58.5
58.0
58.2

2005: Jan ..............
Feb ..............
Mar .............
Apr ..............
May .............
June ............

62.4
62.3
62.4
62.6
62.7
62.7

63.2
63.2
63.2
63.4
63.4
63.4

70.5
70.5
70.8
70.9
71.0
71.0

38.5
37.8
38.7
38.6
38.3
38.9

73.0
73.1
73.3
73.4
73.5
73.5

56.2
56.1
56.0
56.2
56.3
56.1

41.6
41.5
41.6
41.1
41.9
42.1

57.2
57.2
57.0
57.3
57.3
57.1

56.9
56.7
57.1
57.6
58.0
58.1

58.7
58.7
59.5
60.4
60.8
60.9

22.2
21.2
22.7
22.7
22.3
21.1

62.8
63.0
63.7
64.7
65.2
65.5

55.4
55.1
55.2
55.3
55.8
55.8

22.4
20.3
22.7
20.9
21.6
23.3

58.5
58.3
58.3
58.5
59.0
58.9

July .............
Aug .............
Sept ............
Oct ..............
Nov .............
Dec .............

62.8
62.9
62.8
62.8
62.8
62.8

63.5
63.6
63.5
63.4
63.5
63.5

70.9
71.0
70.7
70.8
70.8
70.9

38.7
38.9
39.0
38.4
39.3
39.7

73.4
73.5
73.2
73.3
73.3
73.3

56.5
56.5
56.6
56.4
56.5
56.5

42.2
42.7
43.2
41.4
41.1
40.5

57.5
57.5
57.5
57.5
57.6
57.6

58.7
58.2
58.1
58.5
57.3
57.6

61.9
61.3
60.7
60.5
59.2
60.0

19.2
18.9
19.1
18.3
19.5
23.4

66.8
66.1
65.5
65.3
63.8
64.2

56.2
55.8
55.9
56.8
55.7
55.6

25.0
22.2
20.2
23.0
22.1
24.1

59.1
58.9
59.3
60.0
58.9
58.6

1 Civilian

employment as percent of civilian noninstitutional population in group specified.
footnote 1, Table B–37.
Note.—Data relate to persons 16 years of age and over.
See footnote 5 and Note, Table B–35.
Source: Department of Labor, Bureau of Labor Statistics.
2 See

331

TABLE B–42.—Civilian unemployment rate, 1959–2005
[Percent;1 monthly data seasonally adjusted, except as noted by NSA]
Males

Year or month

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 ................
2000 ................
2001 ................
2002 ................
2003 ................
2004 ................
2005 ................
2004: Jan ........
Feb ........
Mar .......
Apr ........
May .......
June ......
July ........
Aug ........
Sept ......
Oct ........
Nov ........
Dec ........
2005: Jan ........
Feb ........
Mar .......
Apr ........
May .......
June ......
July ........
Aug ........
Sept ......
Oct ........
Nov ........
Dec ........

All
civilian
workers

5.5
5.5
6.7
5.5
5.7
5.2
4.5
3.8
3.8
3.6
3.5
4.9
5.9
5.6
4.9
5.6
8.5
7.7
7.1
6.1
5.8
7.1
7.6
9.7
9.6
7.5
7.2
7.0
6.2
5.5
5.3
5.6
6.8
7.5
6.9
6.1
5.6
5.4
4.9
4.5
4.2
4.0
4.7
5.8
6.0
5.5
5.1
5.7
5.6
5.7
5.5
5.6
5.6
5.5
5.4
5.4
5.4
5.4
5.4
5.2
5.4
5.1
5.1
5.1
5.0
5.0
4.9
5.1
4.9
5.0
4.9

By race

Females

Both
20
20
sexes
16– years
16– years 16–19
Total 19
19
and Total years and years
years over
over
5.2
5.4
6.4
5.2
5.2
4.6
4.0
3.2
3.1
2.9
2.8
4.4
5.3
5.0
4.2
4.9
7.9
7.1
6.3
5.3
5.1
6.9
7.4
9.9
9.9
7.4
7.0
6.9
6.2
5.5
5.2
5.7
7.2
7.9
7.2
6.2
5.6
5.4
4.9
4.4
4.1
3.9
4.8
5.9
6.3
5.6
5.1
5.7
5.7
5.8
5.7
5.8
5.6
5.6
5.6
5.6
5.6
5.5
5.6
5.3
5.6
5.3
5.1
5.1
5.0
4.9
4.9
5.1
4.8
5.0
4.9

15.3
15.3
17.1
14.7
17.2
15.8
14.1
11.7
12.3
11.6
11.4
15.0
16.6
15.9
13.9
15.6
20.1
19.2
17.3
15.8
15.9
18.3
20.1
24.4
23.3
19.6
19.5
19.0
17.8
16.0
15.9
16.3
19.8
21.5
20.4
19.0
18.4
18.1
16.9
16.2
14.7
14.0
16.0
18.1
19.3
18.4
18.6
17.6
17.1
18.4
18.6
18.6
18.0
17.8
18.2
18.5
19.3
18.3
20.9
18.1
20.6
20.0
20.2
19.7
18.7
18.3
18.0
17.4
16.5
19.1
16.0

4.7
4.7
5.7
4.6
4.5
3.9
3.2
2.5
2.3
2.2
2.1
3.5
4.4
4.0
3.3
3.8
6.8
5.9
5.2
4.3
4.2
5.9
6.3
8.8
8.9
6.6
6.2
6.1
5.4
4.8
4.5
5.0
6.4
7.1
6.4
5.4
4.8
4.6
4.2
3.7
3.5
3.3
4.2
5.3
5.6
5.0
4.4
5.1
5.1
5.2
5.1
5.2
5.0
5.0
5.0
5.0
4.9
4.9
4.9
4.7
4.9
4.5
4.4
4.4
4.3
4.3
4.3
4.5
4.3
4.3
4.3

5.9
5.9
7.2
6.2
6.5
6.2
5.5
4.8
5.2
4.8
4.7
5.9
6.9
6.6
6.0
6.7
9.3
8.6
8.2
7.2
6.8
7.4
7.9
9.4
9.2
7.6
7.4
7.1
6.2
5.6
5.4
5.5
6.4
7.0
6.6
6.0
5.6
5.4
5.0
4.6
4.3
4.1
4.7
5.6
5.7
5.4
5.1
5.6
5.5
5.7
5.4
5.3
5.6
5.5
5.2
5.2
5.3
5.2
5.2
5.1
5.2
5.0
5.2
5.2
5.1
5.1
4.9
5.1
5.1
5.1
5.0

13.5
13.9
16.3
14.6
17.2
16.6
15.7
14.1
13.5
14.0
13.3
15.6
17.2
16.7
15.3
16.6
19.7
18.7
18.3
17.1
16.4
17.2
19.0
21.9
21.3
18.0
17.6
17.6
15.9
14.4
14.0
14.7
17.5
18.6
17.5
16.2
16.1
15.2
15.0
12.9
13.2
12.1
13.4
14.9
15.6
15.5
14.5
16.4
16.0
15.0
14.4
15.3
15.8
17.7
15.7
15.1
14.8
14.4
14.8
14.2
14.5
13.7
14.9
15.7
13.8
13.8
14.7
14.3
15.2
15.0
14.4

5.2
5.1
6.3
5.4
5.4
5.2
4.5
3.8
4.2
3.8
3.7
4.8
5.7
5.4
4.9
5.5
8.0
7.4
7.0
6.0
5.7
6.4
6.8
8.3
8.1
6.8
6.6
6.2
5.4
4.9
4.7
4.9
5.7
6.3
5.9
5.4
4.9
4.8
4.4
4.1
3.8
3.6
4.1
5.1
5.1
4.9
4.6
5.1
4.9
5.2
4.9
4.8
5.0
4.8
4.7
4.7
4.8
4.7
4.7
4.6
4.7
4.5
4.6
4.6
4.6
4.7
4.4
4.6
4.6
4.6
4.5

White 2

Black
and
other 2

Black
or
African
American 2

4.8
5.0
6.0
4.9
5.0
4.6
4.1
3.4
3.4
3.2
3.1
4.5
5.4
5.1
4.3
5.0
7.8
7.0
6.2
5.2
5.1
6.3
6.7
8.6
8.4
6.5
6.2
6.0
5.3
4.7
4.5
4.8
6.1
6.6
6.1
5.3
4.9
4.7
4.2
3.9
3.7
3.5
4.2
5.1
5.2
4.8
4.4
5.0
4.9
5.1
4.9
4.9
5.0
4.8
4.7
4.7
4.6
4.6
4.6
4.5
4.6
4.4
4.4
4.4
4.3
4.3
4.2
4.5
4.4
4.2
4.3

10.7
10.2
12.4
10.9
10.8
9.6
8.1
7.3
7.4
6.7
6.4
8.2
9.9
10.0
9.0
9.9
13.8
13.1
13.1
11.9
11.3
13.1
14.2
17.3
17.8
14.4
13.7
13.1
11.6
10.4
10.0
10.1
11.1
12.7
11.7
10.5
9.6
9.3
8.8
7.8
7.0
...........
...........
...........
...........
...........
...........
...........
...........
...........
...........
...........
...........
...........
...........
...........
...........
...........
...........
...........
...........
...........
...........
...........
...........
...........
...........
...........
...........
...........
...........

.............
.............
.............
.............
.............
.............
.............
.............
.............
.............
.............
.............
.............
10.4
9.4
10.5
14.8
14.0
14.0
12.8
12.3
14.3
15.6
18.9
19.5
15.9
15.1
14.5
13.0
11.7
11.4
11.4
12.5
14.2
13.0
11.5
10.4
10.5
10.0
8.9
8.0
7.6
8.6
10.2
10.8
10.4
10.0
10.3
9.6
10.2
9.8
10.0
10.2
11.1
10.5
10.4
10.8
10.7
10.8
10.5
10.8
10.3
10.3
10.0
10.3
9.4
9.7
9.5
9.1
10.6
9.3

14.6
14.7
16.8
14.7
17.2
16.2
14.8
12.8
12.9
12.7
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
20.1
19.0
17.6
17.3
16.7
16.0
14.6
13.9
13.1
14.7
16.5
17.5
17.0
16.6
17.0
16.6
16.7
16.5
17.0
16.9
17.8
16.9
16.8
17.1
16.5
17.9
16.2
17.6
16.9
17.6
17.7
16.3
16.0
16.4
15.8
15.9
17.1
15.2

1 Unemployed

as percent of civilian labor force in group specified.
footnote 1, Table B-37.
whose ethnicity is identified as Hispanic or Latino may be of any race.
Note.—Data relate to persons 16 years of age and over.
See footnote 5 and Note, Table B-35.
NSA indicates data are not seasonally adjusted.
Source: Department of Labor, Bureau of Labor Statistics.
2 See

3 Persons

332

Asian
(NSA) 2

............
............
............
............
............
............
............
............
............
............
............
............
............
............
............
............
............
............
............
............
............
............
............
............
............
............
............
............
............
............
............
............
............
............
............
............
............
............
............
............
............
3.6
4.5
5.9
6.0
4.4
4.0
5.2
4.7
4.2
4.4
4.2
5.0
4.3
3.6
4.3
4.8
4.2
4.1
4.2
4.5
3.9
3.9
3.9
4.0
5.2
3.6
4.1
3.1
3.6
3.8

HisWomen
panic Married who
or
mainmen,
Latino spouse
tain
eth- present faminilies
city 3
(NSA)
..........
..........
..........
..........
..........
..........
..........
..........
..........
..........
..........
..........
..........
..........
7.5
8.1
12.2
11.5
10.1
9.1
8.3
10.1
10.4
13.8
13.7
10.7
10.5
10.6
8.8
8.2
8.0
8.2
10.0
11.6
10.8
9.9
9.3
8.9
7.7
7.2
6.4
5.7
6.6
7.5
7.7
7.0
6.0
7.3
7.4
7.4
7.1
7.0
6.7
6.9
6.9
7.0
6.7
6.6
6.5
6.2
6.3
5.7
6.4
5.9
5.8
5.5
5.8
6.5
5.9
6.1
6.0

3.6
3.7
4.6
3.6
3.4
2.8
2.4
1.9
1.8
1.6
1.5
2.6
3.2
2.8
2.3
2.7
5.1
4.2
3.6
2.8
2.8
4.2
4.3
6.5
6.5
4.6
4.3
4.4
3.9
3.3
3.0
3.4
4.4
5.1
4.4
3.7
3.3
3.0
2.7
2.4
2.2
2.0
2.7
3.6
3.8
3.1
2.8
3.3
3.3
3.2
3.2
3.2
3.2
3.3
3.1
3.0
3.0
3.0
3.0
3.0
2.9
2.9
2.6
2.7
2.6
2.7
2.9
2.7
2.6
2.6
2.6

............
............
............
............
............
............
............
............
4.9
4.4
4.4
5.4
7.3
7.2
7.1
7.0
10.0
10.1
9.4
8.5
8.3
9.2
10.4
11.7
12.2
10.3
10.4
9.8
9.2
8.1
8.1
8.3
9.3
10.0
9.7
8.9
8.0
8.2
8.1
7.2
6.4
5.9
6.6
8.0
8.5
8.0
7.8
8.3
8.1
8.4
7.5
7.4
8.2
9.0
8.3
8.2
7.8
7.7
7.1
8.2
8.0
8.0
7.7
7.9
8.2
8.8
7.2
7.6
7.3
7.2
6.9

TABLE B–43.—Civilian unemployment rate by demographic characteristic, 1965–2005
[Percent; 1 monthly data seasonally adjusted]
White 2

Year or month

All
civilian
workers

Black and other or black or African American 2

Males

Total

16-19
years

20
years
and
over

3.6
2.8
2.7
2.6
2.5
4.0
4.9
4.5

12.9
10.5
10.7
10.1
10.0
13.7
15.1
14.2

2.9
2.2
2.1
2.0
1.9
3.2
4.0
3.6

Total

Males

Females

Total

16-19
years

20
years
and
over

5.0
4.3
4.6
4.3
4.2
5.4
6.3
5.9

14.0
12.1
11.5
12.1
11.5
13.4
15.1
14.2

4.0
3.3
3.8
3.4
3.4
4.4
5.3
4.9

Total
Total

16-19
years

7.4
6.3
6.0
5.6
5.3
7.3
9.1
8.9

23.3
21.3
23.9
22.1
21.4
25.0
28.8
29.7

Females
20
years
and
over

Total

16-19
years

20
years
and
over

31.7
31.3
29.6
28.7
27.6
34.5
35.4
38.4

7.5
6.6
7.1
6.3
5.8
6.9
8.7
8.8

Black and other
1965
1966
1967
1968
1969
1970
1971
1972

.....................
.....................
.....................
.....................