Full text of Economic Report of the President : January 1947
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The Economic Report
of the President
TRANSMITTED TO THE CONGRESS
January 8, 1947
THE ECONOMIC REPORT
OF THE
PRESIDENT
To the Congress, January 8, 1947
UNITED STATES GOVERNMENT PRINTING OFFICE
WASHINGTON .: 1947
ERROR
In Appendix B, table II, p» 41, net corporate
profits after taxes for 1946 should be: 5#0 billion
dollars for dividends, and 7*0 billion dollars for
savings*
I .Billions or dollars]
Year
1929
1930
1931
1932
1933
1934
1935
1936
1937
1938
1939
19401941
1942.
1943
1944
1945.
1946 2
_
__
-
Compensation of
Employees
Net Income of
Proprietors
Total
National
Income
Total
Salaries
and
Wages
Supplements
83.3
68.9
54.5
40.0
42.3
49.5
55.7
64.9
71.5
64.2
70.8
77.6
96.9
122.2
149.4
160.7
161.0
164.0
53.1
48.2
40.6
31.7
29.8
34.5
37.5
43.0
48.3
45.1
48.1
52.3
64.5
84.1
106.3
116.0
114.5
109.0
52.6
47.6
40.0
31.0
28.7
32.6
35.6
40.0
44.9
41.2
44.2
48.6
60.8
80.8
103.1
112.8
111.4
106.0
0.5
.5
.6
.6
1.1
1.9
1.9
3.1
3.3
3.9
3.8
3.7
3.7
3.3
3.2
3.2
3.1
3.0
Total
13.6
10.0
7.3
4.8
6.5
7.5
9.5
10.9
11.9
30.1
11.2
12.0
15.8
20.6
23.5
24.1
25.6
30.0
Agricultural
Nonagricultural
5.2
3.8
2.4
1.5
2.2
2.7
4.1
4.4
5.1
4.0
4.3
4.4
6.3
9.7
11.9
11.8
12.5
15.0
8.5
6.3
4.8
3.4
4.3
4.9
5.4
6.5
6.8
6.1
6.9
7.6
9.6
10.9
11.6
12.3
13.1
15.0
Interest
and
Net
Rents
9.4
8.9
8.2
7.1
6.6
6.9
7.1
7.3
7.4
7.3
7.4
7.5
8.0
8.8
9.7
10.6
11.8
13.0
Net Corporate Profits
After Taxes
Total
7.2
1.7
-1.6
-3.6
-.6
.5
1.7
3.8
3.9
1.7
4.2
5.8
8.5
8.7
9.8
9.9
9.0
12.0
Dividends
5.9
5.6
4.3
2.7
2.2
2.7
2.9
4.7
4.7
3.2
3.8
4,0
4.5
4.3
4.3
4.5
4.5
-7,0
Savings
1.2
-3.9
-5.8
-6.4
-2.8
-2.1
-1.3
-.9
-.8
-1.5
.4
1.8
4.0
4.4
5.5
5.4
4.5
1
National income is the total net income earned in production by individuals or businesses. The concept of national income currently used differs from the concept of gross national product in excluding depreciation and depletion allowances and business taxes. A reconciliation between these two series and
income payments is shown in Appendix A, table II, for 1939,1944, and 1946.
2 Estimates based on incomplete data.
NOTE.—-Detail will not necessarily add to totals because of rounding.
Source: Department of Commerce.
41
LETTER OF TRANSMITTAL
T H E WHITE HOUSE,
Washington, D. G. January #,1947.
The Honorable the PRESIDENT OF THE SENATE,
The Honorable the SPEAKER OF THE HOUSE OF REPRESENTATIVES.
SIRS : I am presenting herewith my Economic Report to the Congress,
as required under the Employment Act of 1946.
In preparing this report I have had the advice and assistance of the
Council of Economic Advisers, members of the Cabinet, and heads
of independent agencies.
Respectfully,
TABLE OF CONTENTS
Page
Introduction
I. Review of 1946
Employment
Production
Purchasing Power
II. Prices, Wages, Profits in 1946
Piices
Wages
Profits
III. The Nation's Economic Budget
Postwar Transformation
IV. Goalsfor 1947
Employment Objectives
Production Objectives
Purchasing Power Objectives
V. Favorable and Unfavorable Factors in 1947
Consumer Income and Expenditures
Business Income and Outlays
International Transactions
Government Budgets
VI. Summary of Economic Conditions and Trends
VII. Recommendations
Short-Range Program
Prices and Wages
Social Security
Housing
Taxation
Labor-Management Relations
Long-Range Program
Efficient Utilization of the Labor Force
Maximum Utilization of Productive Resources
Encouragement of Free Competitive Enterprise
Promoting Welfare, Health, and Security
Cooperation in International Economic Relations
Combating Economic Fluctuations
Appendix A: Explanation of the Nation's Economic Budget
Appendix B: Statistical tables relating to employment, production, and
purchasing power
Appendix C: Excerpt from the State of the Union Message
vn
1
1
1
1
2
2
4
4
5
7
9
9
9
10
11
11
15
16
17
19
20
20
20
21
21
22
22
22
24
24
28
28
30
32
35
41
52
To the Congress of the United States:
As the year 1947 opens America has never been so strong or so
prosperous. Nor have our prospects ever been brighter.
Yet in the minds of a great many of us there is a fear of another
depression, the loss of our jobs, our farms, our businesses.
But America was not built on fear. America was built on courage,
on imagination and an unbeatable determination to do the job at
hand.
The job at hand today is to see to it that America is not ravaged
by recurring depressions and long periods of unemployment, but that
instead we build an economy so fruitful, so dynamic, so progressive
that each citizen can count upon opportunity and security for himself and his family.
Nor is prosperity in the United States important to the American
people alone. It is the foundation of world prosperity and world
peace. And the world is looking to us.
I believe that the American people have the wisdom and the will to
use our abundant resources so that all may prosper. I reject, and
I know the American people reject, the notion that we must have
another depression. I am not referring to minor detours and bumps
in the road ahead—these w^e know we shall have. I am referring to
economic collapse and stagnation such as started in 1929. This need
not happen again, and must not happen again.
The Congress passed the Employment Act of 1946 by an overwhelming bipartisan vote. This Act wisely provided for a Council of Economic Advisers to the President, men who as a result of training,
experience, and attainments are exceptionally qualified to analyze
and interpret economic developments, to appraise programs and
activities of the Government and to formulate and recommend national economic policy.
The Congress also provided for a permanent joint committee to
receive and analyze this annual Economic Report of the President and
to submit recommendations concerning it to both Houses.
In transmitting this first Economic Report, I am conscious of its
significance as the beginning of a series of reports that will serve the
Executive and the Congress as the basis for an orderly and continuing
review of the economic state of the union and for integrated and comprehensive steps to ensure the permanent economic health of the
Nation.
The Economic Report is an opportunity for national self-examination and self-criticism. It is a challenge to the President and the Congress to determine the causes of whatever problems we face in our
economic life and to find the solutions to those problems. It provides
an opportunity for all our citizens to judge the merits of the analysis
and proposed action. It is a new and splendid tool to help us in our
tasks. And like all governmental tools, its effectiveness will increase
year by year as we learn by doing.
vn
VIII
INTRODUCTION
Prosperity cannot be the concern of one party or of one group. I t
cannot be attained without the goodwill and the cooperation of all.
To build a greater America we must approach the task with unity of
purpose, with patience, with wisdom, and with determination to overcome all obstacles. If we do this—and we must—I have no doubt
about the ability of Americans to build, on a firm basis of security and
political and economic freedom, a country in which the rewards we
enjoy can be doubled within the life span of many of those now living.
I
REVIEW OF 1946
EMPLOYMENT
During 1946, civilian employment approached 58 million. This
was the highest civilian employment this Nation has ever known—
10 million more than in 1940 and several million higher than the
wartime peak. If we include the military services, total employment
exceeded 60 million. Unemployment, on the other hand, remained
low throughout the year. At the present time it is estimated at about
2 million actively seeking work. This is probably close to the minimum unavoidable in a free economy of great mobility such as ours.
Thus, at the end of 1946, less than a year and a half after VJ-day,
more than 10 million demobilized veterans and other millions of wartime workers have found employment in the swiftest and most gigantic
change-over that any nation has ever made from war to peace. At its
peak during 1946 aggregate employment was substantially in accord
with the objectives stated by the Congress in the Employment Act.
PRODUCTION
Total production turned out by the Nation's farmers and workers
likewise mounted to new peacetime levels. In 1946 it was about 50
percent above the 1939 predefense level and only 15 percent below
the wartime high. (Appendix B, Table I.) However, production is
not yet at its peak in relation to our present plant and manpower
resources. Bottlenecks, shortages of materials and components, labormanagement disputes, and other reconversion difficulties have had
their retarding influence.
But with all these obstacles, production in the second half of 1946
reached a higher rate than in any peacetime year. Goods scarce during the war began to fill dealers' shelves. The American people were
eating more food per capita than in any previous year, even though
in some cases they were unable to buy exactly the kind of food they
wanted. In total, people were supplied with more goods and services
than ever before. This indicates that when all our resources are fully
marshalled for peacetime pursuits, the whole American people will
be able to enjoy a standard of living far surpassing any that we have
ever known.
PURCHASING POWER
The Congress, by setting maximum purchasing power as an objective of National policy in the Employment Act, pointed to the importance of purchasing power in keeping our economy fully employed
and fully productive. When people stop buying, business stops pro1
727048—47
2
2
ECONOMIC REPORT OF THE PRESIDENT
ducing and employment drops. It is therefore of the utmost importance that at all times we be concerned as to the volume of purchasing power of the Nation and its relation to the volume of production of goods and services.
Purchasing power, of course, depends upon current cash income,
the use of savings, and the use of credit. It also depends upon prices.
As we all know, when prices go up the purchasing power of the dollar
goes down.
In 1946 the problem of linking maximum purchasing power with
maximum employment was not completely solved. To be sure, cash
and credit were available to purchasers in extraordinary amounts.
This was due to high agricultural and industrial earnings, large accumulated savings, considerable extension of credit, and the payment
of veterans' allowances and mtistering-out pay. In the face of continuing shortages of many kinds of goods and services, this led to an
inflationary pressure. When price controls were relaxed and finally
dropped, this pressure resulted in a substantial increase in the general
price level.
The rise in prices that occurred in the latter half of 1946 greatly
reduced the purchasing power of the current incomes received by the
large majority of people. It is true that some groups in the population received increases in income that for them balanced or more than
balanced the rise in prices. But the large mass of consumers did not
enjoy such offsets. How to effect a mutual adjustment of incomes
and prices which will provide purchasing power adequate to sustained
maximum production in the years ahead thus becomes a central problem for private enterprise and Government.
II
PEICES, WAGES, PEOFITS IN 1946
The relation of wages, prices, and profits is the key to the maintenance of purchasing power. If prices are too low in relation to
wages, they squeeze or eliminate profits, stifling the initiative of
business, interfering with production, and reducing or retarding
employment. If prices are too high in relation to wages, they restrict
the market and reduce employment, as well as causing suffering to
individual consumers.
PRICES
During the war years prices were on the whole successfully kept
in check under the "hold the line" policy, with farm and food prices
rising somewhat more than most others. Between VJ-day and the
middle of last year when the lapse in price control occurred, prices
rose moderately, chiefly due to price increases granted to speed production or to take account of wage rises. The average increase in
wholesale prices from VJ-day to mid-1946 was 7 percent, and in retail
prices was 3 percent, although textiles and clothing rose considerably
more than the average.
ECONOMIC REPORT OF THE PRESIDENT
1939
1940 1941 1942 1943 1944 1945 1946
1947
Source: Department of Labor
4
ECONOMIC REPORT OF THE PRESIDENT
But between June and December wholesale prices jumped an additional 24 percent, while the consumer price index climbed 15 percent.
The sharpest increases were for the most part in farm and food products, textiles, clothing, and in residential construction.
The Congress made clear its intent that decontrol be speeded. In
fact, after the new price-control law was passed, the direct control of
prices soon became virtually impossible. It was no longer a question
of whether it was in the interest of the workers, businessmen, farmers,
and the public to control prices; it was a question whether price
controls were any longer workable. It was the advice by late fall
of labor, business, the farm groups, and my Cabinet that general price
control be dropped.
Two things immediately happened. Prices rose sharply. Goods
that had been produced under price control but withheld in the hope
of decontrol appeared on shelves.
The increase in consumer prices has substantially reduced the purchasing power of the great majority of consumers. (Appendix B,
Tables V, VI, and VII.)
WAGES
After VJ-day, direct wage controls, with the exception of those in
the building trades, were dropped in order to permit a return, so far
as possible, to collective bargaining. Indirect wage controls were,
however, maintained until general price decontrol.
Between July 1945 and July 1946 the average wage-rate increase
in manufacturing was about 10 percent. Nearly half of this increase
was offset by reductions in overtime, declines in piecework earnings, and the shift of workers from higher-paid wartime to lowerpaid peacetime jobs. Thus, for manufacturing as a whole, the
average hourly earnings of labor last July were 6 percent above what
they were the year before. Because of the reduction in the workweek
during 1945 and 1946, weekly take-home pay declined in many industries and rose but moderately elsewhere in spite of the increase in wage
rates.
Since July 1946 there has been some further increase in wage rates,
average hourly earnings, and average take-home pay, but less than the
increase in prices. Thus real earnings have fallen. (Appendix B,
Tables VIII and IX.)
PROFITS
Business profits began to rise in many lines of nondurable goods
and in most trades and services soon after VJ-day. This rise reflected
the increased volume of civilian sales. Price increases during the past
year and removal of the excess-profits tax added still further to profits
after taxes. In most of the soft goods and service lines, profits after
taxes in the second quarter of 1946 were already above the levels of
1944 and 1945. Further increases were reported for the third quarter.
But profits have been extremely uneven as between industries. In
many of the reconversion industries, especially where volume was
slow in getting underway, profits at first were low and in many cases
ECONOMIC REPORT OF THE PRESIDENT
5
there were actual losses, many of which, however, were alleviated by
the carry-back provision of the tax law.
Third-quarter reports showed increased profits in most of the durable-goods industries, although price ceilings had not yet been generally removed. Profits increased further during the fourth quarter
with the removal of price control.
We should not infer that all industries or all firms in a given industry were operating at a highly profitable level or that none were
incurring losses. We must also remember that the purchasing power
of the business dollar as well as the consumer dollar has been diminished by the price rise. Nevertheless, taking account of all of these
considerations, it is plain that business in general is receiving exceptional profits. (Appendix B, Table I I and X.)
Ill
THE NATION'S ECONOMIC BUDGET
The volume of employment and production in any given period depends upon the volume of expenditures. These expenditures are of
four types :
1. Consumer Buying.
2. Business Buying.
3. Foreign Buying.
4. Government Buying (Federal, State, and local).
In order that we may have a better idea of the size of the job^ ahead
and the relative proportion of our goods and services going to consumers, business, foreign markets, and Government, I here set forth
the Nation's Economic Budget. (A detailed explanation may be
found in Appendix A.)
The Nation's Economic Budget shows the distribution of income
and expenditures among consumers, business, and Government, and
imports and exports. It sheds light upon whether price and wage
policies and other public policies are encouraging an alignment among
these four component parts which is favorable to sustained high
levels of economic activity, or which threatens us with an economic
decline. The Economic Budget also indicates whether a given level of
economic activity is being achieved mainly by private expenditures,
or by public expenditures, and in what proportion. By comparing
budgets for different periods, we can discern favorable and unfavorable trends.
The Nation's Economic Budget is primarily a device for the
measurement of our economic activity. Use of this device is not
wedded to any particular economic theory. The Economic Budget is
an objective summary statement of our economy in action at a given
time, as reflected by the income and expenditures of its major parts.
It reflects the aggregate actions of millions of consumers and businesses
and of the Federal, State, and local governments.
By way of illustration, Table I contrasts the Nation's Economic
Budget during the last pre-defense year 1939 with the Budget during
the war year 1944, and with the Budget during the transition year 1946.
6
ECONOMIC REPORT OF THE PRESIDENT
THE NATION'S ECONOMIC BUDGET
is made up of these components/
CONSUMERS
GOVERNMENT
1944
1946
RECEIPTS
1939
-EXPENDITURES
BUSINESS &
INTERNATIONAL
1944
1946
25
50
75
125
150
This is how the excess and deficit of receipts over expenditures is balanced.(inbillions)
-50
• CONSUMERS
1939
U GOVERNMENT
1944
BUSINESS &
t* INTERNATIONAL
* Tht
-25
0
+50
1939
mm
S946
components do not add exactly fo the gross notional product because of certain minor adjustments,
' i * Includes adjustment for Government transfers abroad.
+25
1944
1946
ECONOMIC REPORT OF THE PRESIDENT
TABLE I.—The Nation's Economic Budget, 1989,1944, and 1946
l
[Billions of dollars; current prices]
Predefense Calendar Year 1939
±T
Economic Group
Reconversion Calendar Year 1946 *
War Calendar
Year 1944
±T
±T
CONSUMERS
Income after taxes.
Expenditures
Savings (+)
62
Undistributed profits and
reserves
Gross capital formation3
Excess of receipts (+);or capital formation (—).
10
133
99
142
+34
127
+15
27
+7
-16
+2
-5
INTERNATIONAL
Net imports
Net exports
Net expenditures on foreign account
-2
-1
GOVERNMENT
(Federal, State, local)
Receipts from the public other than borrowing..
Payments to the public
_
___
Excess of receipts (+) or payments (—).
15
18
59
-3
57
104
55
-45
+2
ADJUSTMENTS
4
For Government transfers to public
_
For Government transfers abroad 8
Gross National Product..
-2
-2
-5
198
-5
-2
198
0
+2
-16
194
-16
-4
0
+4
194
1
2
3
See Appendix A for supporting tables and descriptive material.
Preliminary.
Includes residential construction, but excludes net exports.
* Includes transfers of funds which are included in private receipts and Government expenditures but
do not involve addition to the Nation's output, such as unemployment compensation, veterans' readjustment allowances, mustering-out pay, etc.
• Includes loans to foreign governments, subscriptions to international organizations, reimbursable lendlease, etc.
POSTWAR TRANSFORMATION"
The figures for the years 1939, 1944, and 1946 show that a transformation has taken place in our economy since the last predefense
year. The great increase in the total Economic Budget reflects the
change-over from an economy of substantial unemployment and moderate production to an economy of unparalleled employment and
production. Great significance lies in the fact that the Economic
Budget for the year 1946 was almost as high as during the war year
1944, and more than twice as high as during the predefense year 1939.
Even allowing for price changes, we have made such great strides
forward in wealth and productivity that our thinking for the future
can no longer be bound by the distant past.
The changes in the composition of the Nation's Economic Budget
during these years also deserves attention.
During the war year 1944, Government expenditures were more
than half the total Economic Budget.
8
ECONOMIC REPORT OF THE PRESIDENT
Business responded to the Government's demand with record production.
Private income derived from production doubled the predefense
level, even after allowance for the increase in taxes.
Consumer expenditures increased, but due to the shortages of civilian
goods, effective price control, and patriotic motives for saving, they
did not increase nearly as much as they otherwise would have, the
difference going into savings.
In the transition year 1946, the expenditures of business and consumers once more took the lead, as the Government's wartime expenditures were drastically reduced. Business spent large sums for reconverting, overhauling, and modernizing plants and equipment and
for replenishing depleted pipe lines of inventories. High business
activity resulted in high levels of consumer income and expenditures.
Consumer spending was further increased by the use of wartime savings and expanding installment credit, and in the case of veterans by
mustering-out pay and readjustment allowances.
As a point of departure for examining our objectives for this year,
it is useful to present tentative estimates of the rates at which expenditures and receipts in the Nation's Economic Budget were running
at the end of 1946. This is shown in Table I I .
TABLE II.—The Nation's
Economic Budget During
Calendar Year 1946
the J^th Quarter
of
the
[Preliminary estimates; billions of dollars]
4th Quarter Seasonally Adjusted Annual Kates
Economic Group
Year as a Whole
Excess
Receipts
Expenditures
(+)or
Deficit
Receipts
Expenditures
(-)
Consumers _.
Business
International..
Government
Adjustments: Transfer Payments
Gross national product —
148
14
_"__
56
-13
205
135
33
4
51
-18
205
Excess
(+) or
Deficit
(-)
+13
-19
-4
+5
+5
0
142
11
57
-16
194
127
27
5
55
-20
194
+15
-16
-5
+2
In comparing preliminary estimates for the fourth quarter of 1946
with those for the year as a whole, the significant changes may be
summarized as follows:
1. Government expenditures were reduced. This was highly
desirable, but it meant that much higher private expenditures were
needed to sustain maximum employment and production.
2. Business expenditures increased, but a part of the increase
reflected higher prices rather than increased production.
3. Consumer expenditures rose, but practically all of the increase
was attributable to the price rise. Consumer incomes rose less
than expenditures and actually declined in real terms.
This trend in the position of consumers becomes of central importance as we turn to a consideration of our prospects for 1947.
ECONOMIC REPORT OF THE PRESIDENT
9
IV
GOALS FOR 1947
The Employment Act requires that this Economic Report set forth
the levels of employment, production, and purchasing power needed
to carry out the policy of the Act. This policy is to create and maintain "conditions under which there will be afforded useful employment
opportunities, including self-employment, for those able, willing, and
seeking to work, and to promote maximum employment, production,
and purchasing power."
EMPLOYMENT OBJECTIVES
We do not know exactly how many people will want jobs during
1947. Our labor force fluctuates by several million during the course
of any year, with the changing seasons, with boys and girls of school
age going back to the classroom, and with part-time workers coming
into and going out of the labor force. The purposes of the Act would
be substantially achieved if during 1947 we sustain employment at
about the 1946 levels or slightly higher.
In maintaining a high level of total civilian employment, we must
also achieve a better distribution between localities of labor scarcity
and labor surplus; between occupations that are short of workers and
occupations that are overcrowded. The proper use of our workers is
equally important both to the economy and to the individual.
PRODUCTION OBJECTIVES
During the last quarter of 1946, total national production is estimated to have reached an annual rate of 205 billion dollars. We know,
however, that we are not yet turning out goods as fast as we are capable
of doing with our present plant, manpower, and material resources.
Bottlenecks in the supply of certain parts and materials have slowed
down production. So have labor-management disputes. With maximum employment in 1947, we should be able to increase our total output significantly, although limits may be imposed by shortages of
basic materials.
It is not yet clear that our basic industries are fully adjusted to a
200-billion-dollar peacetime economy. I t will become increasingly
important that capacity goals in the basic industries such as steel,
power, and transportation be set high enough so as not only to sustain
present and foreseeable levels of economic activity, but also to permit
their expansion.
It is not practical to state in physical terms just exactly how much
our production should be during 1947 because of the great variety of
goods and services which our economy produces. To state production
in terms of dollars is of doubtful usefulness at the present time because
price levels may move up or down and any dollar figure set forth now
might prove to be misleading. We do know, however, that a labor
force of the anticipated size can be expected to produce more goods
and services during 1947 than were produced during the past twelve
months. Perhaps an over-all increase of 5 percent might be a reasonable objective for maximum production.
727048—47
3
10
ECONOMIC REPORT OF THE PRESIDENT
A considerable amount of last year's production went into the rebuilding and reequipping of our manufacturing plant and the replenishing of producers' and dealers' inventories. We can expect an increased flow of consumer goods during 1947 even if there were to be no
increase in total output. Hence, a 5-percent increase in total production would mean a greater proportionate increase of consumer goods.
The question, therefore, will become one of the ability of consumers
to buy the total supply of products offered to them.
PURCHASING POWER OBJECTIVES
Consumer purchasing power depends upon the flow of money into
consumers' hands as current income. It depends also on the use of past
savings and the rate of current saving. It depends on the use of credit
and it depends upon what money will buy; that is, upon the level of
prices.
No attempt will be made to set a dollar figure on the purchasing power needed to buy the goods and services which the Nation
will produce in 1947. It is plain, however, that if employment is to
remain high and if production is to increase in 1947, real purchasing
power must rise sufficiently to take the increased production off the
market.
I t has been stated that maximum production for 1947 would give
us an over-all increase of some 5 percent above the level reached during
the last quarter of 1946.
This increase would be due only in small part to a slight rise in
the number of workers employed, and principally to the increased
efficiency of the productive process as the lingering impediments to
maximum production are eliminated.
What are*the chances that consumers could buy an additional several
billion dollars' worth of product if present prices and pay rates were
maintained? Only a minor portion of the value of the additional
goods and services produced in 1947 would be reflected in additional
consumer income. The greater part of the additional income would
be represented in the surpluses of governments and in reserves of business concerns. Thus it follows that consumers would have to buy considerably more goods and services with only slightly increased income.
This could be done only if consumers made still freer use of credit, or
if they reduced the rate of their new savings and drew heavily upon
their past savings. Although consumer credit has not yet reached
prewar levels, it has already expanded gfeatly, and still freer use
might build up difficulties for the future. The rate of net savings, as
shown elsewhere in this Report, has receded to a point below which
it can hardly be expected to fall. Increasing consumer purchasing
power in this way could at best be only a temporary solution, and
certainly not a desirable one.
Another method by which the markets could be cleared of the
enlarged volume of goods and services produced in 1947 would be to
enlarge the real purchasing power of the consumers by increasing
their incomes. It would be unrealistic, however, to expect that this
increase in real purchasing power of consumers could occur solely
through a corresponding increase in money incomes. An attempt to
raise income by the amount necessary would mean such large increases
ECONOMIC REPORT OF THE PRESIDENT
II
in money wages and salaries at certain points as to threaten curtailments of production or wage-price spirals. Further, there is no
practical way to distribute such wage and salary increases throughout
the whole population in such a manner as to effect the desired supports
to the market. The groups of wage and salary garners whose purchasing power has been most reduced are the very ones who are likely
to participate least in an increase of money earnings. Such concentration of pay increases within particular groups would make even more
difficult the task of obtaining a sufficient total increase to sustain
maximum employment, production, and purchasing power.
Thus it follows that we could not expect to attain the economic
objectives for this year solely by an increase in money incomes. A
major approach to bringing real purchasing power of consumers into
balance with productive capacity this year must be through reduced
prices.
The emphasis on price reduction as a major route for an increase
in consumers' purchasing power does not overlook the desirability of
increases in pay rates in some sectors.
It follows that only through adjustments both in the price and pay
structure, made with discriminating regard for specific circumstances
rather than on an over-all national basis, can we achieve a sustained
demand for the maximum output which the American economy is able
to produce this year.
V
FAVORABLE AND UNFAVORABLE FACTORS IN 1947
Because the health of our economy depends on the acts of 140 million people with millions of separate enterprises, including farming,,
business, and professional, it is not possible to forecast the precise
course of events a year in advance in a report of this kind. Indeed,
the Employment Act contemplates that the state of the Nation's economic health must be constantly watched so that timely policies may
be adopted during the course of the year as conditions change. We
can, however, appraise in advance some of the favorable and unfavorable factors affecting the expenditures of consumers, business, foreign
buyers, and Government.
CONSUMER INCOME AND EXPENDITURES
The main facts about consumer income, expenditures, and purchasing power are given in Appendix B, Tables I I , I I I , and V. Here
I shall comment briefly upon a few of the favorable and unfavorable
factors.
Favorable factors in consumer demand
Consumer demand has been at very high levels since VJ-day. This
has been due largely to two factors: First, the pent-up demand for
many goods that have been scarce in recent years; and, second, a level
of incomes and purchasing power substantially higher than in prewar
years.
Some of the pent-up demands are gradually being met, but during
this year we can anticipate continued high demand for a number
12
ECONOMIC REPORT OF THE PRESIDENT
of items that have been scarce, including housing, automobiles, appliances, and many housefurnishings.
With larger supplies of durable goods coming on the market this
year, an increased proportion of consumer expenditures may be made
for these items and a smaller proportion for nondurable goods and
services. Such a shift may be listed as a favorable factor because it
will tend toward the reduction of the prices of many nondurable goods
and services which were raised to extraordinarily high levels in 1946
because of the concentration of consumer expenditures in these fields.
The most solid and permanent foundation for consumer demand is
current disposable income. In this there has been great improvement
since the prewar period, even when account is taken of the increase in
consumers' prices. The following table illustrates this:
TABLE III.—Per Capita Disposable Income
Year or Quarter
1935-39 (average)
1944
_
1945
1946 2
Seasonally Adjusted Annual Rates:
First quarter
Second quarterThird quarter
Fourth quarter
1
For method of computation and interpretation see Appendix B, table V, and accompanying note.
3 Preliminary estimates based on incomplete data.
The American public had a "disposable" income (after taxes) of
145 billion dollars in 1946. This represents an average of $1,026 per
capita. In the prewar period, 1935-39, the corresponding figure was
$497. It is true that a large part of this increase in income was absorbed by higher prices. The Consumer Price Index in 1946 averaged
39 percent above the 1935-39 level. This index measures the increase
in the retail prices of most of the goods and services bought by families
with low to moderate incomes. It provides a rough measure of the
general rise in prices paid by consumers as a whole. Thus, it appears
that average per capita incomes rose considerably more than prices.
This means that the average per capita real purchasing power in 1946
was substantially greater than in the prewar period.
In consequence of these improvements, and in spite of some continued shortages, the average American family is buying more food,
clothing, and other things than ever before. The total volume of consumption of these and other things, particularly durable goods, needs
to be maintained and expanded if 1947 is to be a year of maximum
production.
Unfavorable factors in consumer demand
Despite the continuance of many favorable factors, the recent trends
in consumer purchasing power are disturbing. Many groups of consumers suffered a larger drop in purchasing power in the latter half
of 1946 than is indicated by the trends in average per capita disposable income shown in Table IV. The purchasing power of wages
has dropped seriously, especially during trie past six months. The $46
weekly take-home pay of the average factory worker in October 1946
bought only about as much as the $35 he received in April 1942.
13
ECONOMIC REPORT OF THE PRESIDENT
In consequence of these developments, and the appearance of more
goods on the market, there has been a marked change in saving by
consumers, indicated in the following table:
TAB:LE IV.—Trends in Consumers' Savings
Year or Quarter
1935-39 average
1940
1941
1942
1943....
1944
1945
19461
_
Seasonally Adjusted Annual Rates
First quarter
_
Second quarter
Third quarter 1
Fourth quarter
__
_.
Less:
Dispos- Consumer
Equals:
able
Savings
ExpendiIncome
tures
(Billions of dollars)
64.3
58.8
72.9
65.7
88.7
74.6
110.6
82.0
124.6
91.3
137.4
98.5
139.6
106.4
144,5
127.0
138.0
141.8
148.4
149.7
120.9
122.0
129.4
135.5
Percent of Disposable Income
Spent
Saved
5.5
7.3
14.2
28.6
33.3
38.9
33.1
17.5
91.4
90.1
84.1
74.1
73.3
71.7
76.2
87.9
8.6
9.9
15.9
25.9
26.7
28.3
23.8
12.1
17.1
19.8
19.0
14.2
87.6
86.0
87.2
90.5
12.4
14.0
12.8
9.5
1
Preliminary estimate based on incomplete data.
NOTE.—Detail will not necessarily add to totals because of rounding.
Source: Department of Commerce.
In the war year 1944, consumers saved about 28 percent of their
total disposable income. A major part of this saving reflected shortages of civilian goods, effective price ceilings, and patriotic bond purchases. The rate of savings has fallen substantially since then, and
by the end of 1946 had dropped to a little less than 10 percent of
this disposable income. This was only slightly above the level of
savings in the prewar years 1935-39. I t is doubtful whether the rate
of consumer savings will or even can be reduced much further except
by adversity.
In spite of the high rate of savings during the war, it is unsafe
to assume that most American families still have enough savings
in hand to supplement current income for any considerable length of
time. Recent surveys indicate that 24 percent of American families
held no war bonds or bank accounts in 1945, and 29 percent held less
than $500 of savings in these forms. Available data point to the fact
that past savings have been used to supplement current incomes during
this past year.
Another element in current trends is the rapid increase in installment and credit buying during recent months. Consumer credit
totaled almost a billion and a half dollars more in November 1946
than in March. But undue extension of deficit financing on the part
of millions of American families can gravely hurt our business system
and lead in the end to deficit financing by the Government. I n the
long run, consumers must rely on current incomes for purchasing
power.
If consumer incomes should remain at current levels, we would
expect savings to drop little, if any. Consequently we would not expect consumers as a whole to spend much more money than they were
spending at the end of the year, without considerable expansion in consumer credit, unless total consumer incomes are increased. (Appendix B, Table IV.)
Some of my short-range recommendations bear upon this problem.
14
ECONOMIC REfORT OF THE PRESIDENT
THE CHANGE IN SAVINGS
Since V-J Day, people are saving less money, though still more
than in the prewar days.
BILLIONS OF
DOLLARS
DISPOSABLE INCOME
(Income payments less taxes)
150
w
125
NET SAVINGS100
NT
75
50
CONSOMO
25
0
1939
1941
1940
1942
1943
1944
1945
1946
1947
About 10% of disposable income is being saved today — approximately
the prewar rate — as compared with some 30% in 19441
PER CENT
NET SAVINGS AS PERCENT
30
nt niCDP p i n i r mnnur
Ur UloPlJOHDLL m i UML
I
20
\\
K
/
/
10
^
^
1939
^
^
1940
* Seasonally adjusted, annual rate
1941
1942
1943
1944
1945
1946
1947
Source: Department of Commerce
ECONOMIC REPORT OF THE PRESIDENT
15
BUSINESS INCOME AND OUTLAYS
Business investment, as the term is used in the Nation's Economic
Budget, includes investment in industrial plant and equipment, in inventories, in commercial construction, and in residential construction.
To maintain maximum production and employment in 1947 it is desirable that business investment be at an annual rate at least equal to
the annual rate prevailing in the last quarter of 1946.
Plant and equipment
During the war years, a large deferred demand for industrial and
commercial construction and equipment had been accumulating.
In 1946, business investment in plant and equipment approximated
15 billion dollars as compared to 12 billion dollars in 1929 and about
7 billion dollars in 1939. Even with allowances for a substantial
ris,e in costs, it is evident that the most recent rate of investment
in plant and equipment is much higher than before the war and the
defense program.
For the long run, continuation of expenditures for privately financed
productive facilities at anywhere near the recent levels will depend
upon the size of our peacetime market, investment incentives, and the
rate of technological progress, rather than upon backlog.
Inventories
Business inventories increased six to seven billion dollars in 1946, and
at the end of the year were worth about 33 billion dollars. Although
this sum is not disproportionate to total sales, there may be a decline
in the rate of accumulation in 1947. As uncertainties in supply and
price clear up, inventories will become more stable. A reduction in the
rate of inventory accumulation will mean a lower level of business
investment in this area and raises the question of whether or how it
is to be offset by increases in other forms of investment or consumer
expenditures.
Commercial construction
During 1946, the volume of commercial construction, although limited by the shortage of materials and by the requirements of the Veterans' Emergency Housing Program, reached one billion dollars. The
Civilian Production Administration was obliged to defer a large proportion of the nonresidential building applications so that demand
for commercial buildings remains high.
In addition, the distributors of goods and services as a whole,
although with individual exceptions, have enjoyed record profits
during the past year and apparently are in a position to finance an
expansion of their capital facilities. However, the high costs of construction tend to offset in some degree the favorable outlook created
by the continued existence of substantial demand.
At the present time not only have new residential areas been built
up without a corresponding building up of commercial facilities, but
16
ECONOMIC REPORT OF THE PRESIDENT
substantial additional residential construction would create still further demand for commercial facilities.
Residential construction
Investment in residential construction, which totaled about 3%
billion dollars in 1946, would need to approximate 6 billion dollars in
1947 at the current price level in order to maintain a satisfactory level
of activity in this field. As a result of the Veterans' Emergency Housing Program in 1946 the supply of materials has been increased sufficiently to permit the building of at least 1,000,000 houses in 1947.
However, the price problem in housing is even more serious than in
other lines because the gap between consumer income and housing
prices is so great. While material prices may fall substantially this
year, the gap will still remain dangerously high, especially for the
lower income groups. But even if the backlog demand provides a
ready market for all the housing which is produced in 1947, this
superficially satisfactory situation would plant the seeds of a collapse
in residential construction within a few short years because the
number of families who can afford high-priced houses comprises only
a small part of the population.
Favorable factors in business demand
The prospects for business investment are brightened by several
clear elements of strength. The first of these is the availability of
abundant aggregate funds including ample bank credit.
The second favorable factor is that profits in most lines of industry
and business have been highly rewarding during 1946 and have been
rising quarter by quarter. The profits outlook for 1947 suggests adequate motive for investment in plant, equipment, and inventory to
meet the wants of a people functioning at maximum employment.
Still another favorable factor is the backlog demand for construction.
"Unfavorable factors in business demand
Threatening the continuation and expansion of business investment
is the fear that a drop in general consumer demand may be in the
offing.
Another main factor that could adversely affect business confidence, and thus business demand, would be the recurrence of serious
management-labor disputes. Also, the high cost of housing constitutes an adverse factor. Finally, business demand may be somewhat
restricted by shortages of certain basic materials.
INTERNATIONAL TRANSACTIONS
The net balance of international transactions in 1946 was about the
same as we can anticipate for 1947. Some changes in the components
of that balance and in the methods of financing it, however, are both
desirable and likely to occur.
ECONOMIC REPORT OF THE PRESIDENT
17
Intense demand of foreign countries for goods available only or
chiefly in this country has been one of the factors accounting for
a high level of employment, production, and purchasing power in the
United States during 1946.
Our receipts from the sales of goods and services abroad have recently been running at a rate of about 15 billion dollars a year, compared with only 4 billion dollars prior to the war.
Foreign demand for United States goods at present is associated
witli the incompleteness of reconstruction in war-devastated areas,
and it will continue to be high during 1947, even though some
countries may be reluctant to purchase at our current high prices.
Sufficient resources will be available to foreign countries to finance
urgently needed purchases from us. Any recession in domestic demand would permit us to meet soone of the now unsatisfied foreign
demand, with a resulting increase in exports. Even if this should
be confined to a rise in quantities rather than in the dollar values it
would be a factor cushioning the effects of any dip in domestic production and employment.
Should fears concerning our willingness and ability to buy and
lend abroad increase, however, foreign countries may husband their
dollar resources so as to make them available over a longer period.
In this event our exports would be reduced.
GOVERNMENT BUDGETS
In the Budget Message, I review in detail expenditures and receipts
for the current fiscal year, and transmit recommendations for the
next fiscal year. There is no need to repeat those details in this
Economic Report. It should be noted that the Government receipt
and expenditure figures used in the Economic Report are not identical
with the conventional figures of budget estimates, because they refer
to the calendar year rather than to the fiscal year and because they
are on a consolidated and cash basis in order to measure the economic
impact of Government transactions on the economy.
With an outlook of high economic activity for the current year,
the revenue policies are designed to balance the budget and achieve a
surplus toward the retirement of the national debt. The expenditure
policies are designed exclusively to cover the essential cost of national
defense and war liquidation, to meet our international commitments
and the obligations to war veterans under existing law, to carry
forward programs required by the Congress, and to take some small
but essential further steps toward fulfilling the duties of alert and
progressive government.
Nevertheless, it is obvious that Government transactions, which—
including Federal, State, and local government—total more than a
fourth of our national product, profoundly affect the whole economy.
An analysis of the economic impact of Government expenditures is
facilitated by a break-down of the totals according to the type of
recipients and character of the payments. Federal payments to the
727048—47-
18
ECONOMIC REPORT OF THE PRESIDENT
public are classified along lines of economic significance in the
following estimates:
TABUE V.—Federal Cash Payments
(inch net loans) to the Public
[Billions of dollars]
Calendar year
Payments to—
Change
1946
1. Active Federal personnel:
Civilian
Military
_
_
Total
2. Individuals (other than active Federal personnel):
Civilian
Military
.
—
.-
Total
3.
4
5.
6.
7.
8.
Farmers (incl. food subsidies) l
-.
Business 1
Holders of the Federal debt (interest payments) . .
State and local governments
International organizations, foreign governments and U. S. exporters...
Producers of goods and services, transportation, and miscellaneous
Total
1947
5.2
6.1
4.3
3.6
—0.9
-2.5
11.4
7.9
-3.5
4.1
7.8
3.7
6.5
—0.4
-1.3
11.9
10.2
-1.7
1.0
1.8
3.9
1.0
2.1
11.6
1.2
1.0
3.7
1.5
3.9
9.7
+0.2
-0.8
-0.2
+0.5
+1.8
-1.9
44.7
39.0
-5.7
i Excluding payments for purchase of goods and services.
Detail will not necessarily add to totals due to rounding. Calendar year 1947 is estimated.
While Federal cash expenditures are expected to decline by about
6 billion dollars from calendar year 1946 to calendar year 1947, State
and local expenditures are expected to increase by approximately 1
billion dollars, largely because of a probable increase in expenditures
for public works, veterans' bonuses, and an increase in pay rates.
Thus there will be a net reduction in governmental expenditures on
all levels by about 5 billion dollars. As has been shown in Table I I
above, a considerable decline in Federal expenditures took place
during the calendar year 1946, and only a small further decline is
expected for this year as compared with the end of last year. The
economy seems already to have adjusted itself to the decline in Federal spending that took place during the first three quarters of 1946
without a net loss in employment or production. This testifies to the
effectiveness of reconversion policies.
During the war, State and local payments were reduced below prewar levels whereas receipts from the public increased somewhat. The
total of State and local gross debt was reduced by about 4 billion
dollars.
Since VJ-day, State and local expenditures have steadily increased.
This trend is likely to continue in 1947.
State and local revenues in 1947 will probably not be greatly
different from those in 1946 unless there is a sharp drop in economic
activity or prices. Payments to and receipts from the public of State
and local governments will be in approximate balance during this
year.
ECONOMIC REPORT OF THE PRESIDENT
19
VI
SUMMARY OF ECONOMIC CONDITIONS AND TEENDS
On the plus side of the economic ledger we possess a fabulous wealth
of resources. Our industrial plant is larger and, in many cases, better
than ever before. Funds for business expansion are ample and profit
incentives are high in most lines. Our labor force has greatly increased its number of semiskilled and skilled workers. The spending
power of consumers, as a whole, is much higher than it ever was before
the war. Consumer desires are fortified by a backlog of unsatisfied
wants, particularly for housing, commercial construction, automobiles, household appliances, furnishings, and other durable goods.
There are long-deferred and needed public works—Federal, State, and
local. There is a strong and sustained foreign demand. More than
that, we can be optimistic about the desire to buy, because of the
higher standards of living which almost all of our people have recently
enjoyed and which they do not want to forego.
While these favorable factors in our economic situation are fundamental, it is more practical and profitable to examine weaknesses that
need corrections than to congratulate ourselves upon the blessings
which we already enjoy.
1. Chief among the unfavorable factors is the marked decline in
real purchasing power of great numbers of consumers, resulting from
the large price increases in the second half of last year. Maximum
production and employment this year would yield a substantial increase in the available supply of consumer goods and services, especially in the area of durable goods. This requires higher real purchasing power to take the goods off the market.
If price and wage adjustments are not made—and made soon
enough—there is danger that consumer buying will falter, orders to
manufacturers will decline, production will drop, and unemployment
will grow—unless consumers resort to large additional borrowing
and use of past savings to buy the increased supply of goods. These
temporary expedients are limited in power and even if available
would merely postpone the day of reckoning.
2. Weakening of the activity of investment might operate also as
an obstacle to maximum employment, production, and purchasing
power. If industrial and commercial construction slackens, and pricesi
for residential construction remain high as compared with incomes
of laborers and white-collar workers, our maximum employment objective might be threatened this year or soon thereafter.
3. Labor-management strife, with severe work stoppages, remains a
possibility. This would directly interfere with production or employment by creating or intensifying shortages of materials, parts, or
equipment.
Through creation of uncertainties about demand or supply
and costs %of materials, it might lead to reductions in business outlays
for plant, equipment, and inventories.
That is why in my State of the Union Message I placed so much
stress upon successful labor-management relations.
20
ECONOMIC REPORT OF THE PRESIDENT
During this year, the underlying favorable factors are strong enough
to maintain high prosperity. But this year brings us face to face with
maladjustments and unfavorable possibilities which, if not corrected
or*prevented, could cause a recession in production and employment.
The Government will watch this situation and be prepared for action
if needed.
I shall now proceed to discuss the contribution labor, business, agriculture, and the Government can make to the solution of these basic
problems, along with recommendations related to other elements in a
"national economic policy" as called for by the Employment Act.
VII
RECOMMENDATIONS
SHORT-RANGE PROGRAM
My short-range recommendations have long-range significance as
well. But they merit immediate attention from the Congress and
from the people as a whole because of their influence upon economic
conditions in 1947.
1. Prices and wages
Removal of emergency price and wage controls has restored the
main responsibility for prices and wages to business, labor, farmers,
and consumers. The Government can point out dangers seen from
the perspective of the whole economy, but the correctives must largely
be applied by others.
Business should reduce prices wherever possible in order to bring
about the necessary increase in consumer purchasing power to bolster
their markets. Price reductions are especially needed in the case of
goods such as many articles of food, clothing, housefurnishings, and
building materials, whose prices have risen out of line. If business makes these reductions in a timely and orderly way, it will help
sustain markets rather than destroy them.
Farmers must realize that last year's exceptional farm prices will
fall somewhat as world food supplies increase and as consumers find
a more ample supply of durable goods to purchase. Existing price
supports afford protection against a severe price decline.
Labor, on its part, must recognize that high volume at low costs and
low prices requires high productivity and the absence of restrictions
on production. For its own advantage as well as that of the country
at large, labor should refrain from demands for excessive wage increases that would require price increases or would prevent price
reductions that are necessary to sell the capacity output of the product.
Management in turn should recognize that increased productivity
permits wage increases in some cases as well as price reductions; and
that wages and salaries need to be raised where they have lagged substantially behind the increase in living costs in the past few years or
where they are substandard.
But just as there can be no universal or uniform rule to govern price
reductions, so there can be no uniform rule relating to wages. Both
price adjustments and wage adjustments are necessary in the ensuing
months. Wage adjustments, like price adjustments, need to be made
ECONOMIC REPORT OF THE PRESIDENT
21
with a discriminating regard for individual situations throughout the
economy.
The Government can help in several ways to maintain a balance
between prices and wages. Procurement agencies will avoid policies
that stimulate price increases or prevent reductions. Disposal of
surplus goods will be speeded. The antitrust laws will be applied
vigorously to prevent and eliminate restrictive practices and pricing
abuses.
The Congress should take steps at once to extend rent control beyond
next June. A large increase in rents would substantially reduce consumer purchasing power.
On the wage side, the Congress should extend the coverage of the
Fair Labor Standards Act to classes of workers in interstate commerce
now excluded, and should raise the minimum wage in view of the
substantial rise in the cost of living and in the national production
since it was enacted.
2'. Social security
I shall treat generally of the social-security program in a subsequent
section dealing with long-range programs and recommendations. In
view of current economic trends, however, certain, action is desirable
at once. I urge the Congress to take immediate steps to revise benefit
payments under the social-security system. The Congress has already
authorized a temporary increase in public assistance benefits. This
legislation expires by the end of this year and new legislative action
is required. Benefits under the old-age and survivors' insurance system should also be adjusted. These measures are necessary to alleviate real hardship which has been aggravated by increases in the cost
of living. Beyond that, adequate social-security benefit payments
provide a desirable support to mass purchasing power.
3. Housing
More than a million additional housing units need to be started in
1947. This goal will not only furnish badly needed shelter to our
veterans and other citizens, but will result in a sizable contribution
of the housing industry toward employment and purchasing power.
At the lowest cost levels foreseeable this year, one million additional
housing units will approximate an investment of 6 billion dollars
during 1947.
As shortages of materials and manpower disappear, the main threat
to a high volume of housing is the high level of current housing prices
relative to the volume of consumer income.
To reduce the cost of housing on all fronts and by all desirable
methods, we must start as promptly as possible a long-range housing
program. Such a program can stimulate large investments in land
acquisition and preparation for development. It can start the flow
of new types of private investment into housing ventures. It can
bring the traditional home-building industry into rental housing as
well.
No subject has received more protracted study by the Congress leading to more uniform conclusions. Nonpartisan housing legislation4
was introduced in the Seventy-ninth Congress and passed the Senate
by a large majority.
22
ECONOMIC REPORT OF THE PRESIDENT
On several occasions, I have urged enactment of this program which
was developed within the Congress itself. I again urge enactment
of this program at the earliest possible moment.
^. Taxation
Expert and lay opinion is in agreement on the rule of sound public
finance that calls for a surplus in Government revenues over expenditures while employment is high and the total of income is large. In
the present economic situation, it is clear that it would be unsound
fiscal policy to reduce taxes.
Everyone is agreed that the tax burden is great and should be
reduced as soon as possible. When reductions come, it will be important that they be fairly and .equitably distributed, that they contribute to the maintenance of purchasing power by reducing the
burden on the mass of consumers, and that they help provide the work
and business incentives essential for a high level of production. There
are various ways of accomplishing these objectives of tax policy and
of making an equitable reduction of taxes fairly distributed over all
levels of income. These problems should receive careful study so that
we are adequately prepared for wise action when the time comes.
5. Labor-management relations
I have transmitted to the Congress, in my State of the Union Message, recommendations covering the broad field of labor-management
relations, and need not dwell further on them here. (Appendix C.)
It is important, however, to emphasize once more, in relation to
our goal of a permanent high-production, high-employment economy,
the key responsibility that both management and labor have in helping to achieve this goal. Sound collective bargaining is essential.
In order to build an enduring prosperity for ourselves and our
children, we must and we shall solve the problem of making necessary
adjustments in wages and working conditions without round after
round of crippling and futile halts in production.
LONG-RANGE PROGRAM
The war has left us a tremendously increased productive potential, and further increases are in store. In order to keep our expanding economic activity in line with our growing capacities, the extraordinary postwar demand that we enjoy today must be transformed
into sustained demand of an expanding peacetime economy.
Elimination of wartime controls does not mean that we want to go
back to the size of economy we had before the war. The possibilities
and requirements of a sustained 200-billion-dollar economy differ from
those of an unstable 100-billion-dollar economy.
A variety of measures will be needed to fortify the basic structure
of the American economy before the transformation from war and
reconversion to a high-consumption peacetime economy is completed.
We are still at the threshold in formulating a program of consistent
policies designed to give business, agriculture, and labor the opportunities which are envisaged in the Employment Act.
23
ECONOMIC REPORT OP THE PRESIDENT
THE LABOR FORCE
Since V-J Day, the armed forces have released
over ten million men and women.
MILLIONS OF
PERSONS
ARMED 1 ORCES
10
5
0
niiiiiiiiiiiiiji
1940
niiilllllllillllll
1941
gill I
1942
I
1943
1944
1945
in Illllll
1946
1947
1946
1947
and the civilian labor force has reached peak levels
1940
1941
' New series beginning July 1945
1942
1943
1944
1945
Source: Department of Commerce
24
ECONOMIC REPORT OF THE PRESIDENT
A long-range program designed to strengthen the structure of the
American economy should include policies toward:
1. Efficient utilization of the labor force;
2. Maximum utilization of productive resources;
3. Encouragement of free competitive enterprise;
4. Promoting welfare, health and security;
5. Cooperation in international economic relations;
6. Combating economic fluctuations.
1. Efficient utilization of the labor force
The Nation's labor force is its greatest productive asset. Prudent
use of our human resources requires a working population not only
large and well-trained, but enjoying high American standards of
health, education, security, and personal and political freedom.
We must develop and utilize fully the skills of our labor force. We
must improve productive efficiency through industrial training and
counseling focused on employment opportunities in various occupations, industries, and localities. I am directing the Federal agencies
concerned to initiate a study of these programs, in cooperation with
State and local authorities, in order to improve such training and
services and to remedy inconsistencies and gaps.
The return of the Employment Service to State administration
should not result in its disintegration into 48 disconnected pieces, nor
in the subordination of the placement service to unemployment insurance. An efficient placement service requires uniform minimum
standards and an integrated interstate system for disseminating job
information and placing workers across State lines.
We must end discrimination in employment or wages against certain
classes of workers regardless of their individual abilities. Discrimination against certain racial and religious groups, against workers in late
middle age, and against women, not only is repugnant to the principles of our democracy, but often creates artificial "labor shortages"
in the midst of labor surplus. Employers and unions both need to
reexamine and revise practices resulting in discrimination. I recommend that, at this session, the Congress provide permanent Federal
legislation dealing with this problem.
2. Maocirrvwri utilization of productive resources
In our free-enterprise system, we rely mainly upon private initiative
to expand the productive base of the economy. Our productive
capacity has grown not only through technological developments, but
also through a steady stream of additions to plant and equipment.
Output per man-hour has increased on the average some 3 percent
per year over the decades.
The whole history of America indicates that this progress can be
entrusted mainly to the initiative and inventiveness within our business system. But we do need Nation-wide concerted action to remove
the fear that demand will periodically be inadequate to absorb maximum production. This is what puts brakes upon inventiveness and
initiative.
Even in times of prosperity, aside from war, a substantial portion
of our productive facilities has been idle. Recurrent depressions
have brought paralysis to as much as one-third or even one-half of our
plants and machines.
ECONOMIC REPORT OF THE PRESIDENT
25
While the Government has a function in the encouragement of new
industries and the development and dissemination of research, the
greatest incentive that the Government can provide for business productivity is through helping to prevent depressions. If production
incentives are adequate, business will expand without hesitancy when
markets for its products are reasonably assured through a successful
Nation-wide program for continuous maximum employment, production, and purchasing power.
Agriculture.—The soil is one of the most valuable economic assets
of the Nation. Most effective utilization and conservation of this resource should be an important aim of the agricultural program of the
Government.
We have experienced amazing technological progress in agriculture
and further progress is to be expected. This progress necessitates adjustments in farming, adjustments in the processing and manufacture
of foods and clothing, and in the process of distribution.
American agriculture suffered a severe depression in the years following the First World War. This situation was generally recognized by ajl groups. It resulted in large-scale governmental programs to help the farmer get incomes more nearly in line with the incomes of other groups.
The long-range agricultural policy of the Government should be
aimed at preserving the family-sized farm and preventing another
agricultural depression as we go through the readjustments following
the Second World War. I t should help to see that farmers' incomes
do not fall below those earned by other comparable productive groups.
This should involve the least possible interference in the management
of actual farming operations. It should be accomplished without use
of subsidies so far as feasible. We should seek to make it possible for
farmers to earn good incomes through their own efforts.
Above all, the long-range agricultural policy of the Government
should be based upon the principle of plenty and not upon the encouragement of scarcity. The term "maximum production" in the Employment Act applies to the farm as well as to the factory. This basic
policy is inconsistent with a policy of production restriction, though
we must take a realistic view of the proportion that agriculture as a
whole bears to the economy and also of the relative amount of effort
devoted to the several lines of production. Our domestic capacity to
absorb the products of our farms—if farmers are encouraged to turn
their productive efforts in the right directions—will be enormous as
we get nearer to solving the problems of sustained employment and
high purchasing power. How much of an export surplus from the
United States the markets of the world will be able to absorb will depend in part on our international economic policies, notably as to industrial imports and overseas investments.
Agricultural production increased more than 30 percent during the
war. Technological improvements in farming and in food distribution would make it possible not only to continue this high rate of production, but also to increase it substantially during the next few years.
The high rate of agricultural production during and since the war
has been supported by unusually high rates of food and fiber consumption. For the satisfactory solution of our agricultural problems during the next several years it is essential that we maintain these high
26
ECONOMIC REPORT OF THE PRESIDENT
rates of consumption, or even increase them. This is desirable not
only from the farmer's point of view, but from the point of view of
American diets and standards of living.
The Congress has recently authorized a permanent school-lunch
program in cooperation with the States. I hope this program will be
expanded until we are sure that every American school child gets an
adequate diet. In addition, we should study carefully the possible
need for food and nutrition programs to reach low-income families.
The Congress also recently authorized a broad and strengthened
program to improve the marketing and distribution of farm products.
This includes the strengthening of research and educational work, as
well as the improvement of the various marketing services performed
by the Government. We shall need to give increasing emphasis to
marketing during the next few years. Better marketing can go a long
way toward maintaining adequate rates of consumption, with benefit
to farmers and the public alike.
We must honor the Government's commitment to support farm
product prices during the period of readjustment to a stabilized peacetime basis. However, experience within the past year Jias demonstrated, on a small scale, some of the dangers that may result from
holding the support level for any commodity too high. This only
leads to maladjustments within agriculture, to the wastage of food,
and to unnecessarily large Government expense.
The Government s long-range program to support farm incomes at
reasonable levels must be kept flexible. I t should be designed to encourage adjustments of production in line with the capacity of markets
to take products at a price remunerative to efficient farming. I t should
promote well-managed use of our vast resources of farm land,
machinery, and agricultural labor in such ways as to be profitable to
farmers and of maximum benefit to the public as' a whole.
The standard of living on farms depends on more than the amount
of money income received by farmers. Farm communities have never
received comparable treatment with cities in such matters as education,
housing, medical care, health, nutrition, and social security. Federal
and State programs in these fields should give increasing attention to
the needs of rural areas.
Regional development.—Wide regions of this country still hold the
promise of tremendous economic development. The Government
should examine particularly the contribution it can make toward this
development by stimulating production and distribution of
low-cost hydroelectric energy, by developing flood control and navigation, by improving roads, by enforcing fair competitive rates of transportation, by removing barriers to truck transportation, by land drainage and irrigation projects. We need to rebuild croplands, grazing
areas, and forests. Future programs of resource and industrial development should be prepared so that we can move ahead rapidly at
the appropriate time.
Even under today's full employment conditions, there are a few
chronically depressed areas, and some areas left stranded by the end
of the war. These problem areas were created by the interplay of
Nation-wide forces, and our Government has the responsibility of
assisting these communities in developing ways and means of improving their positions. The Council of Economic Advisers will give
particular attention to these problems.
ECONOMIC REPORT OF THE PRESIDENT
27
Federal-aid programs,—The Federal Government is engaged in
several programs of grants-in-aid to State and local governments
involving large amounts of money. Further programs are planned.
These programs, particularly those related to health and education,
public works, and road and airport construction, contribute greatly
toward bringing all sections of the country up to the levels of productivity consistent with American standards of living.
I have asked the Council of Economic Advisers to cooperate with
the Bureau of the Budget and other Federal agencies concerned, and
with State and local advisory committees, to undertake a study of
Federal grants to State and local governments to determine to what
extent revised standards for the distribution of these grants may take
into account more fully the needs for support that exist in various
parts of the country.
Public works.—Aggregate expenditures for public works are large.
They obviously have a considerable effect upon the whole economy.
Further, since many public-works projects are not related to the daily
problems of business operations nor to the daily needs of consumers,
they are subject to adjustment in their time of commencement and
their rate of progress. This had led, particularly in recent years, to
an overemphasis upon the prospects of stabilizing our whole economy
through the bold use of public works.
There are valid reasons why public works cannot accomplish as
much toward stabilization as some have supposed. In the event of
severe unemployment, they cannot be generated in sufficient volume
to avoid supplementation by other means. In a period of mild recession, they cannot be generated on time to be fully effective. If the
tempo of the public-works program is geared to some business index,
the reserves accumulated for emergency use may be used after they
are needed and they then become inflationary rather than stabilizing.
Even if advance preparations are made through the completion of
plans, the acquisition of sites, and the accumulation of funds, there
will be an inevitable time lag between calling the emergency program
into operation and the employment of men on the job.
These comments are substantiated by experience. The chief lesson
to be learned is that no one device constitutes an adequate safeguard
against recession or an adequate fighting apparatus against
depression. All useful devices need to be thought through in advance
and blended into a consistent program.
Instead of regarding public works as the first and foremost device
to restore our whole economy when it sags, we should attempt to
stabilize public-works construction according to our long-term needs.
Increasing regularization of public-works expenditures at all levels
of governmental activity over a long period will offer an assurance
of a demand for capital, of a market for materials and equipment,
and of a field for employment which will assist in stabilizing that
segment of the business world. This approach to public works will
have the further advantage of appraising their size and character in
terms of our total national needs.
This policy by no means forestalls the expansion of public works as
a sustaining factor if recessions or depressions should unfortunately
develop despite our best efforts to avoid them. The very procedure
necessary for long-term regularized expenditure will pave the way
for more effective emergency use than in the past.
28
ECONOMIC REPORT OF THE PRESIDENT
Research and patents,—The United States will this year invest more
than 1 billion dollars in research. In order to protect national
security and the development of the domestic economy, I have
established by Executive Order a Presidential Research Board to survey Federal research and development programs. The continuance
of a research program of large magnitude for many years to come, together with the fact that many of the inventions resulting from it
will be patentable, calls for action to protect the public interest in inventions and discoveries resulting from expenditures of public funds.
I hope that suitable legislation for a uniform patent policy will be
enacted by the Congress at this session.
3. Encouragement of free competitive enterprise
It is imperative that there be no restrictions on free competition
resulting in curtailment of production and employment, or in maintenance of high prices, or in interference with freedom to invest funds,
or in hampering the entry of new firms to any line of production or
trade. I recommend that the Congress review the studies made by
the Temporary National Economic Committee and by other Congressional Committees with a view toward supplementing or strengthening existing legislation in this field. Among the steps to be taken
is the extension of Section 7 of the Clayton Act to prohibit mergers
by the acquisition of assets, as well as by the acquisition of stock
control.
Enforcement of existing antitrust laws.—The Antitrust Division
of the Department of Justice and the Federal Trade Commission have
both labored under inadequate appropriations. They should be better
supplied with funds so that their activities can be more closely integrated. Accordingly, I am recommending in the Budget Message
increased appropriations for the control of monopolistic practices.
Encouragement of small business.—The Government should take
affirmative action to enlarge the opportunities for efficient and enterprising small businesses.
I believe that the Government should study ways and means of
facilitating the availability of long-term credit and equity capital to
small and promising business enterprises.
The Department of Commerce has developed, and will further develop, business service programs providing businessmen with such
information on markets and technical and commercial facts as only
large establishments can provide by their own staffs.
Consideration should be given to the impact which existing taxes
have upon small and growing businesses.
4- Promoting welfare, health, cmd security1
There are certain programs of Government which have come to be
looked upon as "welfare programs" in a narrow sense. This has
placed them in an insulated compartment. They have not been sufficiently related to the needs of the economy as a whole. In fact, they
are a part of the problem of maximum employment, production, and
purchasing power.
The Employment Act presents the opportunity to abandon this insu- •
lation, and to put these programs back in the economic setting from
which they must draw their sustenance.
Unemployment insurance is designed to take care of the unemployed
as a matter of right rather than of charity, but it also provides pur-
ECONOMIC REPORT OF THE PRESIDENT
29
chasing power as a cushion against recessions, and its tax features are
of general economic significance. Retirement and pension systems
exist to take care of workers who have given of their years in factory,
field, or office. But these systems, both on the income and outgo side,
have a profound effect upon volumes of purchasing power, and the
retirement age needs to be adjusted to the size and composition of our
labor force and the trend of improved technologies. Health insurance
relates clearly to the efficiency of workers and thus to the productivity
of industry and agriculture. And this is even more true of education,
which must be reshaped continuously to meet the changing demands
and job opportunities of the machine age—or, some day, of the atomic
age.
The total amounts of public outlays for these and other purposes
need to be measured against the total size of our economy—its wealth
and resources today, and the trends and policies which shape its future.
Many of these programs have been born of a depression psychology{
They have proceeded from the assumption that our enterprise system
will necessarily fail to employ given numbers of people from time to
time, and that these other programs must be brought forward to prime
the pump or fill in the gaps. Here, too, we need a restatement. We
should regard them rather as an inescapable obligation of an enlightened people, and we should expand them as our resources permit.
The relationship between these welfare programs and general economic conditions has been inadequately explored. Proposals for maximum employment, production, and purchasing power, and proposals
traditionally regarded as being in the general-welfare area, should be
integrated because they are interrelated. Further studies will provide the basis for this integration.
Public health and education programs.—Among those whose income
is less than the minimum necessary for a decent subsistence are those
who cannot earn their living because of physical unfitness or lack of
educational training.
A combination of public health, nutrition, education, and regional
development programs would create additional job opportunities and
supply workers fit to fill these jobs. Relatively small Government
expenditures for health and education yield a high national dividend.
It is more economical to prepare people to earn a decent living than
to care for them through relief.
The Federal Government is now spending a large amount of money
for health and education programs for war veterans, but general
expenditures in these fields are relatively small. I urge the Congress
to give early consideration to expanded peacetime programs of public
health, nutrition, and education.
Social security.—Although maximum employment would protect
wage earners generally from the effects of prolonged mass unemployment, the individual is still exposed to many hazards of economic
insecurity.
Our social security program has not kept pace with the times, nor
with our increase in general living standards. Many individuals are
not covered by the present provisions of the Act, and the benefit
payments to those covered are inadequate under today's conditions.
I recommend that the Congress, cooperating with the States, take
action that will lead to increasing the amount and duration of unemployment benefits. Present unemployment reserve funds are ample
to support such increases.
30
ECONOMIC REPORT OF THE PRESIDENT
I recommend that the Congress amend the social-security laws to
extend the benefits of old-age and survivors' insurance to the occupational groups now excluded, and to include under unemployment
compensation the employees of all establishments, regardless of size,
in the industries now covered by the Unemployment Compensation
Tax Act. In expanding general social security, the Congress should
not overlook the railway workers, whose protection is under separate
laws.
While we compensate workers for loss of wages due to unemployiment arising from lack of work opportunities, we do not insure them
against the risks of loss of earnings from temporary or permanent
disability, nor against the costs of medical care. This represents
not only a heavy loss for the individual but a great waste of productive manpower.
There is an Urgent need to spread the risks arising from sickness
and disability by insuring workers against the loss of income and by
providing, through social insurance, ready access to essential preventive and curative medical services. I have, in a previous message,
presented recommendations for a program of medical care and disability benefits. I urge early consideration of this program.
Our present social insurance system is financed by employee and
employer contributions. We must recognize, however, that the employees' contributions and the employers' pay-roll tax curtail mass
purchasing power and increase businessmen's costs. From an economic point of view, it would be desirable to finance a part of the
social security system out of the general budget. Therefore, I propose
that the Congress, in working out a system of financing an expanded
social security program, give full consideration to the economic as
well as the social import of various methods of taxation for this
purpose.
5. Cooperation in international economic relations
While most of this Report has necessarily been devoted to the
domestic aspects of employment, production, and purchasing power,
we must bear in mind that we are part of a world economy. Our
sales of goods and services abroad, amounting to about 15 billion
dollars in 1946, played an important role in the maintenance of
domestic production, employment, and purchasing power and may
be expected to do so this year. Such a high level of exports reflects
in large part the war destruction of productive capacity in other
countries. If we are to maintain a well-balanced prosperity over a
long period, our foreign trade must be established on a more permanent basis.
In the long run we can sell to other countries only if we are willing
to buy from them, or to invest our funds abroad.
Both foreign trade and foreign investment are vital to maintaining
a dynamic economy in this country.
The shortages we have suffered during the war and are even now
experiencing have proved to us our need for foreign imports. We
will continue to need imports not only to add richness and variety
to our standard of living but also as a means of conserving strategic
materials. We do not have to fear so-called foreign competition
when we have maximum production, employment, and purchasing
ECONOMIC REPORT OF THE PRESIDENT
31
power. We must not, of course, indulge in indiscriminate reduction
of barriers to imports. Such a policy is not contemplated.
For a few years we cannot expect to buy as much from abroad as
other countries buy from us. We will find it profitable to invest a
part of our savings in developing the world's productive resources
through sound loans and investments of equity capital abroad. This
is important not only in the first instance as an immediate outlet for
our goods and services, the supply of which will be increasing in the
coming years, but also as a means of permanently increasing foreign
markets for our farmers and businessmen. The quickest demonstration of this can be seen by the fact that nations that are industrialized
are our best customers.
Many countries fear economic depression in the United States as a
threat to their own stability. If faced with the alternatives of
smaller trade and economic insulation on the one hand or close relations with an unstable American economy on the other, many might
prefer some insulation as the lesser evil.
In preference to either of these alternatives, these countries would
choose closer relations with a stable American economy operating at
high levels. They have already begun to cooperate toward achieving
these related goals: economic stability ^nd expansion of world trade.
The International Monetary Fund, designed to stabilize exchange
rates, and the International Bank for Eeconstruction and Development, set up to facilitate the international flow of capital, have already
started to operate. At our initiative, experts of 18 important governments recently worked out a tentative charter for an International
Trade Organization. This charter embodies principles of commercial
conduct designed to enlarge the beneficial flow of world trade, to reenforce the domestic employment and development programs of the
cooperating governments and, by intergovernmental commodity
agreements, to remove the depressing effects of burdensome world
surpluses. This charter represents the first major effort in the field
of trade to replace unilateral action—which often injured other
countries and provoked retaliation—by cooperation, and joint action
under a set of common principles. Continued progress in the formation of the International Trade Organization represents the most
important step that we can take to reestablish a high volume of
foreign trade on a sound basis.
The willingness of many other countries to enter the proposed trade
organization will depend to a great extent on our attitude in connection with the reciprocal tariff negotiations scheduled for this year.
In return for our own tariff concessions, we can hope to secure not
only reduction of foreign tariffs and discriminations but also elimination of a mass of restrictions, in particular, rigid import quotas preventing our access to foreign markets. Thus we should press forward with our program to secure the reciprocal reduction of trade
barriers.
If we fail to do our part in putting international economic relations
on a healthier basis, it is quite likely that some other countries will
feel compelled to increase their own controls. Such a development
would tend to break the world into trading blocs and could have
profound effects upon world politics and the prospects for creating
an enduring peace.
32
ECONOMIC REPORT OF THE PRESIDENT
6. Combating economic fluctuations
Only by blending all practicable programs in wise proportions
can we be successful in stabilizing our economy at the highest feasible
levels. The long-range policies I have outlined are designed to
strengthen the structure of the economy and to reinforce its resistance
to economic fluctuations.
The greater this power of resistance, the less need there will be
for some of the limited and specialized stabilizing devices which have
received much attention in recent years.
I have directed the Council of Economic Advisers and the other
appropriate Government agencies to make a continuing study of the
stabilization devices that may become necessary and to recommend
their being placed in operation in ample time to insure the anticipated
effect.
Among these devices are a well-integrated program of employment
stabilization; improvements in the process by which workers find
jobs and employers find workers; improvements in the tax structure;
wise management of the public debt; and a flexible credit policy.
Continuing policy cannot be extemporized from month to month
or even from year to year; most policies designed to increase the
stability of the economy are of long-range character. Fortunately,
we have time in which to plan deliberately and wisely, and in which
to secure the cooperation of all our citizens in driving toward our
common goal: an expanding economy of maximum production, employment, and purchasing power under a system of free competitive
enterprise, with full recognition of the duties and responsibilities of
forward-looking government.
TABLE OF CONTENTS OF APPENDIXES
Page
Appendix A: Explanation of the Nation's Economic Budget
Appendix B: Statistical Tables Eelating to Employment, Production, and
Purchasing Power
I. Gross national product or expenditure, 1939-46
II. National income by distributive shares, 1929-46
III. Income payments to individuals, 1929-46
IV. Disposition of income payments, 1929-46
V. Disposable income, population, and consumers' prices, 1929-46.
VI. Consumers'prices, 1939-46
VII. Wholesale prices, 1939-46
VIII. Gross weekly earnings in selected industries, 1940-46
IX. Average hourly earnings in selected industries, 1940-46
X. Corporate profits before and after taxes, 1939-46
XI. Total labor force classified by employment status and sex, and
veteran status of males, 1940-46
XII. Estimated number of employees in nonagricultural establishments, 1940-46
Appendix C: Excerpt from the State of the Union Message
33
35
41
41
41
42
43
44
45
46
47
48
49
50
51
52
APPENDIX A
EXPLANATION OF THE NATION'S ECONOMIC BUDGET
The Nation's-Economic Budget is designed to depict the flow of
funds by which major economic groups are interrelated in the national
economy. To this end it shows income and expenditures for consumers, businesses, and government, as well as the balance of international trade. Broadly speaking, the decisions to spend or to save
of each of these groups of consumers may be considered as springing
from a different set of considerations than those of the other groups.
The results of these decisions are embodied in four sets of accounts
comprising the Nation's Budget.
Expenditures.—The expenditure side of the accounts is clear and
unambiguous. The meaning of consumer expenditures is just what
the name implies. One exception may be mentioned: residential
construction is included with all other construction in business outlays.
Business expenditures are not the total expenditures of business, but
only that part which consists in additions to or replacements of plant,
machinery or other equipment, and additions to inventories (exclusive
of inventory revaluation). In contrast, the operating expenditures
of business are part of prices charged the consumer, so that including
them would involve double counting. The international expenditure
figure consists of the net balance of receipts from the sale of goods and
services over payments, since it is this portion which is not balanced
by an equivalent amount of foreign goods and services added to the
domestic supply. Government expenditures consist mainly of payments for goods and services currently rendered, but include certain
other types of payments. In summing the components the latter
are deducted as adjustments to obtain the total national expenditure
for goods and services, which is equal to the value of gross national
production.
Income.—The production of the national product involves an
equivalent flow of income to individuals or businesses or government
producing the product. The manner in which income is allocated to
consumers, business, and government is somewhat complicated, however.
Consumers' earned income consists of salaries ancl wages, dividends,
income of farmers and other unincorporated business, and interest,
rents, etc., going to individuals and fiduciaries. Income earned in
production is not equivalent to income available for spending by
consumers, however, and it is the latter quantity which is of more
significance for the analysis of economic flows. Both additions and
deductions must be made from earned income to arrive at spendable
or disposable income.
In each period, sizable additions to consumers' earned income are
made by the Government. For example, in 1946 servicemen received
mustering-out pay and dependency allotments and veterans received
pensions and readjustment allowances. Old-age benefits from the
social-security funds were a further addition to consumers' disposable
income. On the other hand, in each period, pay-roll, income, and
35
36
ECONOMIC REPORT OF THE PRESIDENT
estate taxes are deducted from the total of consumer income. The
residual income constitutes the disposable income of consumers appearing in the Nation's Economic Budget table.
Of the income going to business, some is withdrawn by the Government in the form of corporation income taxes, excise taxes, and other
business taxes. The residual income of business, after payment of
dividends to shareholders, consists of additions to reserves, and corporate undivided profits. Undivided profits and reserves of all business (with some adjustments to put the figures on a cash basis)
comprise the receipts appearing in the Nation's Economic Budget
table.
No entry is made on the receipts side of the international account,
since the excess of expenditures over income is shown in the expenditure column.
Government income is obviously the sum of business, pay-roll, and
personal taxes, plus some miscellaneous income obtained from the sale
of surplus property, contract settlement, etc.
Surplus or deficit.—The Nation's Economic Budget table shows that
total expenditures equal total incomes. This means that savings of
some groups must equal the deficits of other groups. Expressed somewhat differently, withdrawals from the income stream (savings) by
some groups are offset by additions to the income stream (deficit or
investment) by other groups.
The sum of the incomes of all groups is in excess of the incomes derived from the productive process, however, because it includes the
"unearned" (OF transfer) incomes previously mentioned. These transfer incomes, along with the expenditures which give rise to them, do
not reflect a current addition to goods and services and must, therefore,
be deducted in order to arrive at the national production of goods and
services. This is done by the adjustment shown at the bottom of the
table. The deduction from incomes is equal to that from expenditures,
unless there are transfers abroad. No deduction need be made from
incomes for transfers abroad, since they do not directly augment
domestic spendable funds.
The sum of income or expenditures, less the adjustments for transfers of purchasing power, is the gross national production of goods and
services. By making an allowance for wear and tear upon existing
machinery and equipment and depletion of natural resources, the net
national production is determined.
Sections 1 through 6 below contain a somewhat more detailed description of the accounts of consumers, business, and government and
of international transactions, which appear in the Nation's budget
table. The basic estimates of economic magnitudes are the gross
national product, national income, and related series of the Department of Commerce. The series for Government receipts and expenditures conform to the concept of cash receipts from and payments to
the public as presented in the Budget of the United States for fiscal
1948 (Table 18, p. A128). Minor adjustments between these series
and the gross national product series are necessary because the latter
are not on a cash basis.
Substantial revisions of the Department of Commerce series, involving changes in classification of some components, are expected to be
published in the near future. These will hardly change the significance
of the Nation's Economic Budget picture, however. Estimates for
1946 are based on incomplete data and are consequently tentative.
37
ECONOMIC REPORT OF THE PRESIDENT
1. Consumers1 account.—The account of consumers' receipts,
expenditures, and savings is shown in detail in table I.
TABLE I.—Consumers' account]
[Billions of dollars]
1939
1.
2.
3.
4.
5.
Receipts:
Disposable income of individuals
Less:
Adjustment to Federal cash income and expenditure series
Adjustment for discrepancy
Equals: Adjusted disposable income
10.
Expenditures:
Durable goods
Nondurable goods
Services.
Total
.'
11.
Excess of receipts: Savings
6.
7.
8
9.
1
2
__
1944
1946 2
67.7
137.4
145
.3
2.2
2.2
2
1
67.4
133.0
142
6.4
32.6
22.7
6.7
60.0
31.8
14
77
36
61.7
98.5
127
5.7
34.5
15
Detail may not add to total due to rounding.
Preliminary estimates.
Line 2: The derivation of disposable income of individuals from incomes received in producing the gross national product is shown in table II.
Line 3: The adjustments are as follows:
(a) The excess of tax payments made by the public through pay-roll deductions or other means over receipts by the Government is added back into
consumer disposable income.
(b) Benefit payments from national service and Government life insurance
are added.
(c) Premiums paid for Government insurance and other payments to trust
accounts are deducted, since they become part of Federal cash income.
(d) The net accrued interest on Federal debt held by the public is deducted,
since it is not part of Federal cash outgo.
Line 4: This adjustment is necessary because the gross national product as
estimated from the income side was somewhat higher in 1944 and 1946 than as
independently estimated from the expenditure side. The whole of this discrepancy, which arises from statistical imperfections, is here deducted from consumer
incomes.
Line 7: Does not include expenditures for residential construction even though
financed and occupied by owners. These are included with private capital
formation.
Line 11: Includes savings of unincorporated business.
TABLE II.—Derivation of disposable income of individuals*
[Billions of dollars]
1939
1. Gross national product
Less:
2.
Depreciation depletion and other reserves
3.
Inventory revaluation
4.
Business taxes
5.
Adjustment for discrepancy
6.
Equals: Net national income
7.
Plus: Transfer payments to individuals
Less:
8.
Corporate undivided profits
9. '
Contributions to social insurance funds-..
10. Equals: Income payments to individuals
11.
Less: Personal taxes and nontax payments._.
12. E quals: Disposable income of individuals
_
1944
1946 2
88.6
197.6
194
7.7
-.4
10.4
0
70.8
2.4
9.6
-.1
29.7
-2.2
160.7
5.3
10
-4
25
-1
164
11
.4
2.0
70.8
3.1
67.7
5.4
3.9
156.8
19.4
137.4
7
4
164
19
145
1 Detail may not add, to total due to rounding.
2 Preliminary estimates.
Lines 1-12: For a description of these series, see the Survey of Current Business,
May and August 1942, and March 1943.
38
ECONOMIC REPORT OF THE PRESIDENT
2. Business account.—Table III contains a detail of the business
account. Profits are those of incorporated business only, while expenditures include the expenditures of both corporate and unincorporated business (including farms) and residential construction (including that financed and occupied by owners). Depreciation and
other reserves also include allowances for unincorporated enterprise
and dewllings. Unincorporated business savings are not included in
business income because of the difficulty in separating them from income of individuals.
TABLE III.—Business accountl
[Billions of dollars]
1939
1. Receipts:
2.
Corporate profits before tax
_.Less:
3.
Corporation income tax liabilities.
4.
Dividends
5.
E quals: Corporate undivided profits
Plus:
6.
Business reserves, depreciation, and depletion.
7.
Government payments to business
Less:
8.
Inventory revaluation adjustment
9.
Payments by business to government-._
10.
Equals: Adjusted corporate profits and reserves
11. Expenditures:
p
12
C t t i
12.
Construction.._
_
13.
Residential
14.
NonresidentiaL15.
Producers' durables
16.
Net change in inventories
17.
1946 2
5.5
24.9
20.5
1.3
3.8
.4
15.0
4.5
5.4
8.0
5.5
7.0
7.7
.5
9.6
9.5
4.2
.4
.1
4.2
3.5
6.4
8.3
11.3
10.8
3.6
2.0
1.6
5.5
1.6
.5
1.1
4.0
-1.7
8.0
3.0
5.0
13.0
6.0
3.9
27.0
-1.6
+7.4
-16.2
Total, gross domestic capital formation.
18. Excess of receipts (+), or expenditures ( - ) —
1944
1
Detail may not add to total due to rounding.
2 Preliminary estimates.
Line 2: Department of Commerce concept which differs from that of the Bureau
of Internal Revenue. Excludes profits arising from the sale or exchange of
capital assets.
Line 6: Includes depreciation and depletion, other business reserves, and capital outlays charged to current expense.
Line 7: Includes refunds of business taxes, loan transactions of Government
corporations, capital transactions, renegotiation of war contracts and miscellaneous items.
Line 9: Includes renegotiation payments made in discharge of previous liabilities and excess of business tax payments over liabilities.
3. International account.—Expenditures of foreign countries in the
United States are reflected in current exports of goods and services.
Only the net balance of exports over imports and unilateral transfers is included in the Nation's Economic Budget, since other exports
are matched by an equivalent volume of imports. Exports include
transfers of surplus property abroad.
4. The Government account.—The Government account includes
revenues and expenditures for all governmental units—Federal, State,
and local (table IV).
Federal receipts are cash receipts from the public, except from
borrowing, and expenditures are cash payments to the public. The
public includes individuals, private corporations, and State, local, and
39
ECONOMIC REPORT OP THE PRESIDENT
foreign governments. The cash receipts and expenditures series
presents the financial operations of the Government as a unit. Government trust accounts and Government-owned corporations are considered part of the Government, and the effect of transactions among
these units is eliminated. Noncash payments.to the public, such as
accrued interest on Government bonds, are not included. Cash
receipts and expenditures rather than budgetary receipts and expenditures were chosen in order to give a better picture of the economic
effect of the financial operations of the Government.
TABLE IV.—Government accountl {Federal, State, and local)
[Billions of dollars]
1939
1. Receipts:
2.
Federal receipts from the public other than borrowing
3.
State and local
_
4.
Total
5. Expenditures:
6.
Federal.
7.
State and local
8.
Total
9. Excess (+) or deficit (—)
.___
_
_
_
_
_
6.6
8.9
48.6
10.1
45.6
11.2
_
15.4
58.7
56.7
__
9.4
9.1
95.3
8.5
44.7
10.0
_
1946 3
1944
_
18.5
103.8
54.7
-3.1
-45.1
+2.0
* Detail may not add to total, due to rounding.
2 Preliminary.
5. Adjustments,—In order to derive an estimate of the national production of goods and services, expenditures which do not involve
purchases of current output must be eliminated. Correspondingly, a
deduction must be made from the income side of the account for income not derived from current production. A detail of the expenditure adjustments is shown in table V below.
TABLE V.—Adjustments 1—Reconciliation between \Government cash expenditures
and expenditures for goods and services
[Billions of dollars]
1939
1. Cash expenditures—Federal, State, and local
Less:
Transfer payments—
2.
3.
4
5.
6.
To individuals
To business
Abroad
Benefit payments national service and Government life insurance
7.
Refunds to individuals
J.
Plus:
8.
Noncash expenditures for goods and services:
9.
Net accrued discQunt on United States securities
10.
Government contributions to retirement funds.
11.
Interest on trust-fund investments
.
12.
Federal employees contributions to retirement funds
13. Expenditures for goods and services.
1944
1946 2
18.5
103.8
54.7
2.4
.5
5.3
.6
1.5
11.1
4.2
4.6
.3
.2
1.5
.3
.3
.3
.2
97.1
.6
.4
.6
.3
35.0
.2
.1
.1
16.0
1 Detail may not add to total due to rounding,
2 Preliminary.
Line 1: See section 4 above.
Line 3: Includes veterans' pensions and training and readjustment allowances,
servicemen's allowances to dependents and mustering-out pay, cash terminal
leave pay, public assistance, unemployment compensation, old-age, and survivors'
insurance, etc. These payments constitute a transfer of purchasing power from
40
ECONOMIC REPORT OF THE PRESIDENT
the governmental units to individuals, and consequently should not appear in
the gross national product.
Line 4: See table III, line 7.
Line 5: Includes loans to foreign governments, subscriptions to international
organizations, reimbursable lend-lease, etc. Since this expenditure has not been
included in the income of any domestic group, no deduction from income needs to
be made for this item. However, it must be deducted from expenditures.
Lines 8-12: These noncash expenditures are considered part of the gross
national product and must be added to cash payments.
6. Gross and net national product.—The expenditure side of the
accounts is summarized in table VI. The adjustment for noncash
expenditures and for transfers to the public and abroad is deducted
to obtain the gross national production of goods and services. The
gross national product contains an element of duplication, however.
Replacement costs are included in business expenditures; as depreciation they are also included in the price of goods aad services paid by
the consumer or government. By deducting an allowance for depreciation and depletion, duplication is eliminated and the net output of
the economy is obtained, as shown in table VI below.
TABLE VI.—Reconciliation between the gross and net national product1
[Billions of dollars]
1939
1. Expenditures:
2.
Consumer (purchases of goods and services) __
3.
Business (private domestic capital formation)
4.
Net exports
5.
Government (cash payments to the public). _
6.
7.
8.
9.
10.
Total
Less: Adjustments
Equals: Gross national product.__.
Less: Depreciation and depletion
Equals: Net national product
1944
1946 «
61.7
9.9
.8
18.5
98.5
3.9
-1.8
103.8
127
27
5
55
90.9
2.5
88.6
6.9
81.7
204.4
6.8
197.6
9.1
188.5
214
20
194
9
185
1 Detail may not add to total due to rounding.
Preliminary.
2
Line 7: See section 5 above.
Line 9: Includes capital outlays charged to current expense.
Line 10: This is not conceptually the same as the net national income as defined
by the Department of Commerce, which excludes both depreciation and depletion
and business taxes.
APPENDIX
B
STATISTICAL TABLES RELATING TO EMPLOYMENT, PRODUCTION, AND
PURCHASING POWER
l
TABLE I.—Gross national product or expenditure, 1989-46
Year
1939 . _ .
1940
1941 .
1942_.
_
Actual
Dollars
(billions)
Dollars
(billions) 2
88.6
97.1
120.2
192.3
112
122
142
160
1944
Actual
Dollars
(billions)
Year
1943
1944
1945
1946 3
1944
Dollars
(billions) 2
187.4
197.6
199 2
194.0
187
198
192
170
1 Gross national product is a measure of the goods and services produced, including consumers' goods and
services, producers' goods for expansion or replacement, and goods and services used by Federal, State, and
local governments. The output of the private sector of the economy is valued at market prices, while Government services are valued at cost.
2 The deflated series was prepared by breaking the gross national product into a large number of components,
each of which was divided by the most appropriate index or series of relative prices.
3
Estimates based on incomplete data.
Source: Department of Commerce.
TABLE II.—National income by distributive shares, 1929-46
l
[Billions of dollars]
Year
1929.
1930
1931
1932
1933
1934
1935
1936
1937
1938
1939
1940
1941
1942
1943
1944
1945.
1946 2
._
-
_
Compensation of
Employees
Net Income of
Proprietors
Total
National
Income
Total
Salaries
and
Wages
Supplements
83.3
68.9
54.5
40.0
42.3
49.5
55.7
64.9
71.5
64.2
70.8
77.6
96.9
122.2
149.4
160.7
161.0
164.0
53.1
48.2
40.6
31.7
29.8
34.5
37.5
43.0
48.3
45.1
48.1
52.3
64.5
84.1
106.3
116.0
114.5
109.0
52.6
47.6
40.0
31.0
28.7
32.6
35.6
40.0
44.9
41.2
44.2
48.6
60.8
80.8
103.1
112.8
111.4
106.0
0.5
.5
.6
.6
1.1
1.9
1.9
3.1
3.3
3.9
3.8
3.7
3.7
3.3
3.2
3.2
3.1
3.0
Total
13.6
10.0
7.3
4.8
6.5
7.5
9.5
10.9
11.9
10.1
11.2
12.0
15.8
20.6
23.5
24.1
25.6
30.0
Agricultural
5.2
3.8
2.4
1.5
2.2
2.7
4.1
4.4
5.1
4.0
4.3
4.4
6.3
9.7
11.9
11.8
12.5
15.0
Nonagricultural
8.5
6.3
4.8
3.4
4.3
4.9
5.4
6.5
6.8
6.1
6.9
7.6
9.6
10.9
11.6
12.3
13.1
15.0
Net Corporate Profits
After Taxes
Interest
and
Net
Rents
Total
9.4
8.9
8.2
7.1
6.6
6.9
7.1
7.3
7.4
7.3
7.4
7.5
8.0
8.8
9.7
10.6
11.8
13.0
7.2
1.7
-1.6
-3.6
-.6
.5
1.7
3.8
3.9
1.7
4.2
5.8
8.5
8.7
9.8
9.9
9.0
12.0
Dividends
5.9
5.6
4.3
2.7
2.2
2.7
2.9
4.7
4.7
3.2
3.8
4.0
4.5
4.3
4.3
4.5
4.5
7,0
.% O
Savings
1.2
-3.9
-5.8
-6.4
-2.8
-2.1
-1.3
-.9
c
-L5
.4
1.8
4.0
4.4
5.5
5.4
4.5
5,-0-
1 National income is the total net income earned in production by individuals or businesses. The concept of national income currently used differs from the concept of gross national product in excluding depreciation and depletion allowances and business taxes. A reconciliation between these two series and
income payments is shown in Appendix A, table II, for 1939,1944, and 1946.
2 Estimates based on incomplete data.
NOTE.—Detail will not necessarily add to totals because of rounding.
Source: Department of Commerce.
41
42
ECONOMIC REPORT OF THE PRESIDENT
TABLE III.—Income payments to individuals, 1929-46
[Millions of dollars]
Year or Quarter
1929—
1930—
1931....
1932....
1933....
1934._..
1935.-..
1936-..
1937—
1938—
1939—.
1940—
1941—.
1942—.
1943—
1944—.
1945—
II.
Ill
IV.
1946—
III
III
IV
Total
Income
Payments
82, 587
73, 346
62,013
47,414
46,271
52,916
58, 563
68,055
72,351
66,166
70,829
76,237
92,732
117,285
143,134
156,794
160, 773
39, 786
40,426
39, 683
40,878
3163, 667
38, 314
40, 206
41,723
3 43, 424
EntreprePublic
InDiviSalaries neurial
Assist- Payments
come and
dends, ance
and
and
to
Net
Rents
and
Wages *
Other Veterans2
and
Interest
Relief
Royalties
52, 512
47,602
40,027
31,103
29,290
33,922
36,895
42,067
46,189
42,851
45,658
49,700
61,374
80,407
101,791
111,734
110,193
28,627
28,650
27,174
25, 742
(4)
24,580
25,957
26,946
(4)
17,199
12,907
9,531
6,320
8,006
9,255
11,436
13,003
14,162
12,369
13,441
14, 313
18, 599
23,933
27,161
28,017
29,737
6,771
6,803
7,613
8,550
11,811
11,682
10,237
8,355
7,303
7,901
8,037
9,785
9,891
8,240
8,891
9,175
9,761
9,771
10,389
11,195
12,223
2,770
3,159
2,833
3,461
60
94
158
326
580
829
1,099
672
836
1,008
1,071
1,098
1,112
1,061
939
943
988
240
242
246
260
421
445
1,432
695
485
379
404
1,826
526
466
456
462
452
582
1,473
3,391
5,624
970
1,160
1,350
2,144
7,426
7,584
8,982
3,033
3,688
3,102
276
282
291
2,183
1,898
1,704
Other
584
616
628
615
607
630
692
702
747
1,232
1,312
1,489
1,434
1,531
1,381
1,514
2,008
408
412
467
721
(
\l6
797
698
(*)
1 Differs from salaries and wages in Appendix B, table II, because it excludes employees' contributions to
social
insurance.
2
Includes veterans' pensions and compensation, readjustment allowances (unemployment), payments to
self-employed, subsistence allowances to those going to school, part of tuition payments (payments to
nonprofit institutions), adjusted-service certificate compensation, mustering-out pay, terminal leave pay to
enlisted
personnel, and the Government's contribution to family allowances.
3
Estimates based on incomplete data.
* Not available.
Source: Department of Commerce.
43
ECONOMIC REPORT OF THE PRESIDENT
TABLE IV.—Disposition of income payments, 1929-46
[Billions of dollars]
Income
Payments
to Individuals
Year or Quarter
1929
1930
1931
1932
1933
1934
1935
1936
1937 . . . .
1938
_-.
1939...
1940
1941
1942
1943
1944
1945
1946 i
.._
•v
._
82.6
73.3
62.0
47.4
46.3
52.9
58.6
68.1
72.4
66.2
70.8
76.3
92.8
117.3
143.1
156.8
160.7
163.7
Less:
Equals:
Personal Disposable
Taxes on Income of
Nontax
IndividPayments
uals
Less:
Consumer
Expenditures
79.6
70.7
59.6
45.6
44.5
51.0
56.3
65.2
69.2
62.9
67.7
72.9
88.7
110.6
124.6
137.4
139.6
144.5
70.8
64.9
54.2
43.0
42.4
47.7
52.2
59.1
62.5
58.5
61.7
65.7
74.6
82.0
91.3
98.5
106.4
127.0
3.0
2.6
2.4
1.9
1.8
1.9
2.3
2.9
3.1
3.3
3.1
3.3
4.0
6.7
18.6
19.4
21.2
19.2
Equals:
Net Savings of Individuals
8.8
5.8
5.4
2.6
2.1
3.3
4.1
6.1
6.7
4.4
6.0
7.3
14.2
28.6
33.3
38.9
33.1
17.5
Seasonally Adjusted Annual Rates
1945:
I
II..
Ill
IV.
1946:
Ii.
II1
Illi
IV i
....
163.7
163.2
158.6
156.9
22.1
21.7
20.7
20.1
141.6
141.5
137.9
136.9
105.0
101.8
106.0
113.0
36.6
39.7
31.9
23.9
156.7
160.6
167.7
169.6
18.7
18.8
19.3
19.9
138.0
141.8
148.4
149.7
120.9
122.0
129.4
135.5
17.1
19.8
19.0
14.2
Estimates based on incomplete data.
NOTE.—Detail will not necessarily add to totals because of rounding.
Source: Department of Commerce.
44
ECONOMIC REPORT OF THE
PRESIDENT
TABLE V.—Disposable income, population, and consumers1 prices, 1929-46
Per Capita DisposDisposable
Consumable Income 2
1
Income of
ers' Prices
Individuals Population
(billions of (thousands) (1944=
100)
Actual
1944
dollars)
Dollars
Dollars
Year or Quarter
1929
1930
1931
1932
1933
1934
1935
1936
1937
1938
1939
1940
1941
1942
1943
1944
1945
1946
-
..
-.
.
_
_
-
.
-
79.6
70.7
59.6
45.6
44.5
51.0
56.3
65.2
69.2
62.9
67.7
72.9
88.7
110.6
124.6
137.4
139.6
< 144.5
121,770
123,077
124,040
124,840
125. 579
126,374
127, 250
128,053
128,825
130,825
130, 880
131, 970
133, 203
134,665
136, 497
138,083
139,621
140,840
97.6
95.1
86.6
77.8
73.6
76.3
78.2
79.0
81.8
80.3
79.2
79.8
83.8
92.8
98.5
100.0
102.3
110.9
Seasonally
Adjusted
Annual
Rates
1945:
I
II
III
.
IV
1946:
I
II
Ill
IV
654
574
480
365
354
404
442
509
537
481
517
552
666
821
913
995
1,000
4 1,026
670
604
554
469
481
529
565
644
656
599
653
692
795
885
927
995
978
4 925
Seasonally Adjusted
Annual Rates
141.6
141.5
137.9
136.9
138,923
139, 254
139, 621
140,063
101.1
102.1
102.9
103.1
1,019
1,016
988
977
1,008
995
960
948
138.0
141.8
148.4
* 149. 7
140,387
3140, 613
140, 840
3 141, 289
103.5
105.2
114.5
* 120.4
983
1,008
1,054
M,060
950
958
921
4 880
1 Estimated population of continental United States, including armed forces overseas; annual data as of
July
1 and quarterly data as of first of quarter.
2
The measurement of changes in purchasing power is explained below.
3
Interpolated from published data.
4
Estimates based on incomplete data.
Sources: Department of Commerce (disposable income and population) and Department of Labor (consumers' prices).
THE MEASUREMENT OF CHANGES IN PURCHASING POWER
Actual incomes, in current dollars, do not give a fair picture of
changes in purchasing power. For example, if the income of a particular family should be raised from $2,000 to $3,000 (or an increase of
50 percent), and if, at the same time all prices were raised 50 percent,
the purchasing power of the family would be unchanged. With
$3,000 the family could buy the same amount of goods and services as
before with $2,000.
Actually, of course, all prices do not usually rise and fall at the same
time, nor by the same percentage. A rough measure of the average
increases in prices paid by consumers is the Consumer's Price Index.
This is shown in column 3, table V, Appendix B. A rough estimate
of changes in purchasing power can be obtained by dividing incomes
by the Consumer's Price Index.
45
ECONOMIC REPORT OF THE PRESIDENT
Table III, page 12 of the text, makes certain comparisons in terms of
per capita disposable incomes in 1944 dollars. These figures, shown
in table V, were computed by dividing actual per capita incomes by
the Consumers' Price Index, with 1944=100. If any other base is
preferred, for example, 1939 dollars or 1946. dollars, it is a simple
matter to compute the figures on that basis.
The comparisons made in the text are not affected in any way by
the choice of 1944 dollars as a yardstick. Use of any other year as a
base would show the same percentage changes in purchasing power.
Table I I I on page 12 of the text compares the purchasing power of
recent per capita incomes both with war years and with prewar years.
The report shows that the purchasing power of per capita incomes is
now substantially higher than before the war, but that it has fallen
considerably from the wartime levels.
TABLE VI.— Consumers' prices, 1989-46
[1935-39=100]
Year or Month
1939
1940
1941
1942
1943
1944
1945
January
February..
March
April
May
June
July
August
September.
October...
November.
December.
1946
January...
February..
March
April
May
June
July
August
September.
October
November.
December..
1 Usually surveyed quarterly.
2 Not available.
3 Preliminary estimate.
Source: Department of Labor.
All
Items
3
99.4
100.2
105.2
116.5
11.3.6
125.5
128.4
127.1
126.9
126.8
127.1
128.1
129.0
129.4
129.3
128.9
128. 9
129.3
129.9
139.2
129.9
129.6
130.2
131.1
131.7
133.3
141.0
144.1
145.9
148.4
151.7
153.3
Food
8
95.2
96.5
105.5
123.9
138.0
136.1
139.1
137.3
136.5
135.9
136.6
138.8
141.1
141.7
140.9
139.4
139.3
140.1
141.1
160.0
141.0
139.6
140.1
141.7
142.6
145.6
165.7
171.2
174.1
180.0
187.7
189.0
Clothing
100.5
101.7
106.3
124.2
129.7
138.8
145.9
143.0
143.3
143.7
144.1
144.6
145.4
145.7
146.4
148.2
148.5
148.7
149.4
(2)
149.7
150.5
153.1
154.5
155.7
157.2
157.9
161.2
165.9
167.0
168.7
(2)
Rent
104.3
104.6
106.3
108.5
108.0
108.2
108.3
0)
0)
108.3
0)
0)
108.3
0)
0)
108.3
(0
0)
108.3
(2)
0)
0)
108.4
0)
0)
108.5
0)
108.7
108.8
0)
0)
(2)
Fuel,
Electricity,
etc.
99.0
99.8
102.3
105.4
107.7
109.8
110.3
109. 7
110.0
110.0
109.8
110.0
110.0
111.2
111.4
110.7
110.5
110.1
110.3
(2)
110.8
111.0
110.5
110.4
110.3
110.5
113.3
113. 7
114.4
114.4
114.7
(2)
House MiscelFurnish- laneous
ings
101.3
100.5
107.4
122.1
125.6
136.4
145.8
143.6
144.0
144.5
144.9
145.4
145.8
145.3
146.0
146.8
146.9
147.6
148.3
(2)
148.8
149.7
150.2
152.0
153.7
156.1
156.9
160.0
165.6
167.6
169.1
(2)
100.7
101.1
104.0
110.9
115.8
121.3
124.1
123.3
123.4
123.6
123.8
123.9
124.0
* 124.2
124.5
124.6
124.7
124.6
124.8
(2)
125.4
125.6
125.9
126.7
127.2
127.9
127.8
129.8
129.9
130.8
132.0
()
46
ECONOMIC REPORT OF THE PRESIDENT
TABLE VII.—Wholesale prices, 1989-46
January
February
March
April.
May
June.
July
August .
September
October -_
November
December
1946:
January
February
March
April
May
June.July
August
September
October
November*
December 8
89.0
90.1
104.6
125.9
135.0
132.7
134.3
132.4
132.4
132.2
133.8
135.3
135.9
135.1
134.5
132.6
133.6
136.4
137.3
100.1
102.2
109.6
122.5
119.3
121. 3
122.8
122.0
122.2
122.2
122.3
122.4
122.7
122.8
123.0
122.9
123.3
123.4
123.8
100.0
105.4
113.1
123.0
123.0
122.0
123.5
122.9
123.0
123.2
123.3
123.3
123.4
123.4
123.4
124.2
124.1
124.3
124.4
98.2
103.9
119.4
136.3
137.2
138.6
141.0
140.3
140.4
140.4
140.3
140.3
140.3
140.3
140.3
141.0
142.3
142.4
142.8
96.9
95.1
101.3
104.1
107.0
110.1
111.4
110.5
110.5
110.6
110.7
111.0
111.3
111.8
112.5
111.5
111.7
112.2
112.5
102.8
104.4
108.3
113.1
113.1
113.0
114.1
113.3
113.5
113.5
113.5
113.6
114.1
114.1
114.1
114.3
114.4
114.6
115.0
101.0
105.8
115.1
122.9
124.3
128.8
131.5
130.4
130.6
130.7
130.7
130.9
131.0
131.1
131.5
131.7
132.0
132.5
133.4
96.0
97.8
107.2
121.3
120.6
121.0
121.0
120.6
120.6
120.6
120.6
120.6
120.7
121.1
121.1
121.1
121.3
121.6
122.1
101.5
104.1
110.9
120.7
120.7
122.8
122.9
122.9
122.9
122.9
122.9
122.9
122.9
122.9
122.9
123.1
123.2
123.2
123.2
102.6
106.0
112.5
123.0
126.5
128.4
129.9
129.2
129.8
129.8
130.0
130.0
130.0
130.0
130.0
130.0
130.0
130.0
130.0
132.9
133.6
135.1
136. 7
137.7
140.1
15$. 7
__ 160.2
153.8
166.4
173.2
170.9
172.1
175.5
178.2
180.9
184.3
206.6
211.8
203.0
217.5
223.4
135.7
136.3
138.3
140.1
141.0
142.7
177.2
188.4
166.8
199.6
209.1
124.1
124.8
125.9
127.2
128.0
130.0
134.9
137.4
138.2
142.5
148.5
124.9
125.1
125.3
125.3
125.9
128.0
147.7
145.3
148.1
149.0
164.9
143.1
143.9
147.5
152.0
153.2
153.8
166.3
174.6
177.0
181.1
184.9
112.6
112.9
112.7
114.2
114.2
116.4
119.8
125.2
125.1
125.1
125.3
115.1
116.1
118.1
118.5
119.2
122.2
123.4
124.2
124.4
136.9
141.3
133.9
134.9
139.4
141.2
142.6
145.0
147.4
148.1
149.3
150.4
162.4
122.0
121.9
122.0
122.1
122.6
122.5
126.2
125.0
125.0
126.9
151.1
124.9
125.3
125.8
126.5
127.4
129.9
131.6
132.5
133.6
135.6
139.6
130.7
131.1
131.1
131.3
133.1
135.1
139.0
139.9
140.1
142.7
146.1
i The published data on the 1926=100 base have been converted to the 1936-39=100 base.
* Preliminary estimates.
• Not available.
Source: Department of Labor.
Miscellaneous
85.9
89.1
108.4
139.3
161.3
162.5
168.7
166.1
167.1
167.4
169.7
170.9
171.6
169.7
167.0
163.6
167.5
172.5
173.0
Chemicals
and Allied
Products
House Furnishing
Goods
95.7
97.5
108.3
112.6
128.0
_ . . 129.0
131.3
130.1
_ 130.5
130.6
131.1
131.5
__ __ 131.6
131.4
131.1
130.5
131.4
132.5
132.9
"o
Metals and
M e t a l
Products
Building
Materials
Fuel and
Lighting
.
Textile
Products
_
Hides and
Leather
Products
_
Foods
1939
1940
1941
1942
1943—
1944
1945
Other Than Farm Products and Foods
•8
Farm Produ
Year or Month
All Gommodities
[1935-39=100] »
ECONOMIC REPORT OF THE PRESIDENT
47
TABLE VIII.—Gross weekly earnings in selected industries,
Manufacturing
Year or Month
Total
Min- Private Class I
ing, Bi- Building
Steam
tumiDura- NonConRailnous strucble durable Coal
roads
Goods Goods
tion
Telephone
Whole- Retail Hotels
sale
(YearTrade Trade Round)
1940
$26.20 $28.44 $22.27 $24.71 $31.70 $31.32
$32.44 $30.39 $21.17
1941
._- 29.58 34.04 24.92
32.32 21.94
30.86
35.14
34.04
32.74
1942
35.56 23.24
38.39
33.97
36.65 42.73 29.13 36.02 41.80
34.12
1943
49.30
39.40
24.88
48.13 43.48
36.30
41.62
43.14
37.12
52.07
26.58
1944
52.18
45.69
38.39 42.29
51.27
46.08
38.29
1945..
4V.05
44.07
28.31
53.80
45.49
52.25
0)
44.39
January
38.66 54.11 52.98 46.82
53.64
26.99
39.49 43.15
47.50
February
38.69
63.30
43.45
27.32
52.89
47.52
39.75
53.89
47.37
March
38.96
27.21
40.60 43.51
52.26 54.49 46.51
47.40 63.22
f
40.72
April
47.12
52.90
38.80 43.45 54.42 46.15 \ 2 37.50 } 44.51 27.69
May
51.56 38.18
46.02
53.75 53.64 45.91
37.91 43.83 27.56
June
51.74
46.32
38.95 59.11 55.50 46.26
44.13 28.46
38.87
July 50.66 38.58 50.66
45.45
55.57 45.64
39.36 44.92 29.40
45.72 36.63 49.90 55.79
45.10
August
41.72
42.98
43.27 29.01
43.95
43.90
September
39.62
40.87
37.80
52.73 53.11
43.85 28.95
40.54 44.60
44.23
October
40.97
37.76
39.09 54.05 44.30
29.17
42.02
43.71
44.04
November
40.77
37.89
56.29
51.97
44.94 28.88
41.44
44.08 38.52 58.09
43.61
December
41.21
51.85
29.12
44.71
1946:
January
43.67
38.75
41.19
41.15
52.89
45.14 30.54
54.16
43.29
February
42.57
39.01
30.77
44.37
40.58
53.04
46.07
57.37
43.84
March
44.79
39.83 58.30
31.12
43.76
42.15
52.87
46.31
43.01
April
45.71 40.13 30.15
31.40
44.09
42.88
54.29
47.13
47.76
May
45.10
39.93 34.20
44.82 47.48 31.45
42.51
53.63 46.39
June
46.32 40.28 64.44 55.23 51.05
44.93
43.31
47.88 32.93
July 40.46
33.64
44.82
43.38 46.24
48.06
52.27 56.25
51.78
48.00
41.89
33.81
August
__ 44.98
44.19
56.67
48.14
62.37
C1)
48.39
42.34 61.00
September..- 45.41
44.10
58.49
49. 54 33.76
(»)
48.83
42.42 62.54
October 3 J
44.30
45.68
59.20
49.44 33.19
0)
November
December *
$15.52
16.09
17.62
20.21
22.65
24.53
23.71
24.07
23.97
23.99
24.03
24.43
24.40
24.37
24.79
25.08
25.54
25.94
26.21
26.43
26.57
26.64
26.65
26.70
26.63
27.15
26.98
27.17
1
Not available.
2 New series; includes only employees subject to provisions of the Fair Labor Standards Act and is not
comparable with preceding series, which includes all employees.
3 Preliminary.
Source: Department of Labor.
48
ECONOMIC REPORT OF THE PRESIDENT
TABLE IX.—Average hourly earnings in selected industries, 1940-46
Manufacturing
Year or Month
Total
1940
1941
1942
1943
1944
1945
.. _
Mining, BitumiDura- Non- nous
ble durable
Goods Goods Coal
Private
Build- Class I
ing Steam
Conrailstruc- roads
tion
$0.661
.729
.853
.
.961
1.019
1.023
1.046
1.043
1.044
1.044
1.042
1.038
1.033
1.024
.987
.985
.990
.994
$0.724
.808
.947
1.059
1.117
L. I l l
L 144
L. 139
L. 139
$0.602
.640
.723
.803
.861
.904
.891
.892
.896
$0.883
.993
1.059
1.139
1.186
1.240
1.204
1.190
1.197
$0.958
1.010
1.148
1.252
1.319
1.380
:L. 364
1.352
L. 363
L138
L134
L. 130
L. 127
L113
L. 072
:L.063
]L.064
]L.066
.899
.903
.904
.902
.909
.903
.909
.918
.927
1.184
1.256
1.285
1.254
1.249
1.261
1.242
1.263
1.281
L. 361
1.366
L. 374
L. 387
L383
L.392
:
L.396
]L. 397
]L. 397
1.004
1.002
1.035
1.058
1.071
1.084
1.093
1.111
1.126
1.130
]L.070
]L.064
]L. 103
]L. 131
]L. 147
.941
.953
.975
.988
.996
1.003
1.009
1.036
1.049
1. 055
1.259
1.265
1.274
1.239
1.321
1.474
1. 457
1.468
1.480
1.459
January
February
March
April
May
June
July
August
September
October
November
December
1946:
January
February
March
April...
May
June
July
.
August
September. ._
Octobers
November 1 _
December *
i .165
1.177
1.186
1.201
1.202
i .402
] .422
] .411
i .423
i .431
i .444
1.473
1.482
1. 510
1.526
$0.711
.745
.819
.892
.934
.938
.944
.960
.934
.944 /
\
.935
.929
.939
.930
.942
.923
.937
.948
.935
.949
.929
1.045
1.069
1.117
1.116
1
i )1
C1)
C)
Telephone
$0.827
.820
.843
.870
.911
Whole- Retail Hotels
sale
(YearTrade Trade Round)
$0.739
.793
.860
.933
.985
1.029
1.006
1.013
1.016
%
.938
.951
.952 } 1.031
2.926
1.018
.926
.941 1.027
1.037
.944
1.013
.977
1.025
.959
1.045
.972
1.056
1.002
1.058
1.011
1.030
1.095
1.105
1.131
1.143
1.147
1.135
1.129
1.148
1.137
1.070
1.095
1.101
1.121
1.135
1.146
1.155
1.148
1.179
1.172
.763
.764
.769
.773
.773
.783
.793
.800
.796
$0.332
.348
.386
.451
.505
.550
.532
.537
.529
.532
.532
.539
.547
.555
.567
.565
.575
.585
.828
.835
.841
.851
.859
.876
.888
.893
.906
.908
.604
.602
.600
.599
.596
.598
.602
.614
.620
.619
$0,542
.568
.614
.670
.724
.773
.751
.756
.752
* Not available.
2
New series; includes only employees subject to provisions of the Fair Labor Standards Act and is not
comparable with preceding series, which includes all employees.
3 Preliminary.
Source: Department of Labor.
ECONOMIC REPORT OP THE PRESIDENT
49
TABLE X.—Corporate profits before and after taxes, 1939-4-6
[Millions of dollars]
All Private
Corporations J
Year or Quarter
629 Large Private Corporations—Profits after Taxes 2
EH
1
I
Number of companies
1939
1940
1941
1942
1943
1944
1945
I
II
III
IV
1946 3
I
II.
III
IV
6,374
9,185
17,050
20,969
24,908
24,077
20,875
5,970
5,887
5,031
3,987
20,000
(4)
4,868
6,248
9,141
9,179
9,945
9,757
9,080
2,624
2,624
2,116
1,716
12,000
(4)
629
1,465
1,818
2,163
1,769
1,800
1,896
1,925
492
508
439
485
(4)
323
604
676
49
151
148
159
151
162
175
199
45
46
50
58
-19 -34
49
21
31
44
74
122
132
152
161
171
184
203
45
47
53
58
80
79
1 Kevised series; not exactly comparable with that used as a component of national income.
Federal and State income and excess-profits taxes.
3 Preliminary estimate, based on incomplete data and subject to revision.
4
Not available.
Note: Detail will not necessarily add to totals because of rounding.
Sources: Department of Commerce (all corporations); Board of Governors of the Federal Keserve System
(629 large corporations).
2
50
ECONOMIC REPORT OF THE PRESIDENT
TABLE XI.—Total labor force classified by employmentl status and sex, and veteran
status of males, 1940-1946
[In thousands]
Employed
Unemployed
Civilian Labor Force
Total
Civilians
Civilians
Labor
Force
(inYear or Month
Male
Male
cluding
Agri- Total
Female Total culture
Armed Total
Forces)
Total Veteran J
Total Veteran 2
1940
1941
1942
1943
1944_.
1945
_
.
January
February
March
April
May..
June
Julyi
August
September ._
October
November...
December
1946:
January
February
March
April....
May
June.
July
August
September
October
November3
December
54,790
55, 730
58,430
62,460
64, 010
64,122
62,870
63,390
63, 710
64,030
64, 250
65,420
54,230
54,100
54,490
53,480
52, 620
52, 793
50,960
51,430
51, 660
51,930
52,030
53,140
40,950
40, 530
39, 620
36,140
34, 770
34,456
33,650
33,660
33, 720
33,840
33, 790
34, 380
13,280
13,570
14,870
17, 340
17, 850
18,336
17, 310
17,770
17,940
18,090
18, 240
18, 760
46,930
49,090
52,110
52,410
51, 780
51,639
50,120
50, 550
50,830
51,160
51, 300
52,060
9,500
8,650
8,640
8,280
8,060
8,145
6,690
6,790
7,290
7,750
7,950
9,090
7,300
5,010
2,380
1,070
840
1,153
840
880
830
770
730
1,080
5,350
3,610
1,590
600
450
700
490
490
490
430
430
580
67, 450
66, 470
64, 770
63, 770
62,410
60, 920
55, 350
54,460
53,050
53,170
53,190
53,130
35, 270
35,130
34,400
34,650
35,030
35,950
3,830
4,990
20.080
19,330
18,650
18, 520
18,160
17,180
54,400
53, 630
51,400
51,610
51,450
51,160
9,900
9,090
8,840
8,810
8,380
7,160
950
830
1,650
1,560
1,740
1,970
480
430
930
940
1,210
1,500
520
750
59,490
59,130
59, 630
60, 300
60,570
62,000
62,820
62,200
61, 340
61,160
60,980
53,320
53,890
55,160
56,450
57,160
58,930
60,110
59,750
59,120
58,990
58, 970
37,160
37,890
38,870
39,860
40,480
41,660
42, 710
42, 580
41,850
41, 820
41, 950
6,410
7,440
8,410
9,240
9,830
10,380
10,810
10,950
11, 230
11,150
11,380
16,160
16,000
16,290
16, 590
16, 680
17,270
17,400
17,170
17,270
17,170
17,020
51,020
51,240
52,460
54,120
54,850
56, 360
57,840
57,690
57, 050
57,030
57,040
6,720
6,940
7,530
8,170
8,880
10,010
9,970
9,140
8,750
8,620
7,900
2,300
2,650
2,700
2,330
2,310
2,570
2,270
2,060
2,070
1,960
1,930
1,770
2,140
2,190
1,870
1,890
2,010
1,760
1,600
1,580
1,550
1,520
840
1,060
1,210
990
930
980
930
850
830
760
700
1 An improved interviewing procedure, which resulted in a larger estimate of employment and a smaller
estimate of unemployment, was adopted July 1945. Data prior to this date are not strictly comparable with
subsequent
data.
2
World War II veterans only. Data are not available for the period prior to November 1945.
3
Not available.
Source: Department of Commerce.
51
ECONOMIC REPORT OF THE PRESIDENT
TABLE XII.—Number of employees in nonagricultural establishments, 1940-46 1
[In thousands]
Manufacturing
Year or Month
Production
Workers 3
Total
Total 2
1940
1941
1942
1943
-
November
1944
Durable
goods
Mining
Nondurable
goods
Construction
Transportation
and
Public
Utilities
Trade
Finance,
Service,
Governand
ment
Miscellaneous
31, 784
35,668
38,447
40,185
.
*.. 40,467
39, 689
38,144
39, 093
39,135
39, 251
38, 991
38, 880
_. 38, 767
38, 474
38,172
36, 398
36, 327
36, 779
37,463
10, 780
12,974
15,051
17, 381
17,858
17,111
15,060
16, 696
16,684
16, 557
16, 302
16,012
15, 749
15, 331
15, 019
13,159
13,048
13,110
13,059
4,172
5, 554
6,997
8,727
9,073
8,506
6,809
8,155
8,142
8,039
7,854
7,639
7,382
7,054
6,779
5,234
5,151
5,180
5,097
4,639
5,270
5,621
5,834
5,831
5,621
5,441
5,581
5,583
5, 562
5,502
5,451
5,473
5,405
5,400
5, 295
5,299
5,323
5,422
916
947
970
891
863
835
779
801
798
796
761
728
794
784
784
784
718
793
802
1,722
2,236
2,078
1,259
918
679
834
582
599
636
699
798
845
911
927
945
1,006
1,014
1,042
3,013
3,248
3,433
3,619
3,683
3,761
3,822
3,740
3,771
3,788
3,792
3,802
3,833
3,858
3,860
3,831
3,825
3,871
3,896
6,906
7,378
7,263
7,030
7,245
7,044
7,173
7,030
6,985
7,084
6,990
7,021
7,004
6,975
6,979
7,143
7,331
7,571
7,959
4,310
4,438
4,447
4,115
4,078
4,348
4,589
4,350
4,360
4,394
4,444
4,513
4,589
4,672
4,666
4,603
4,698
4,845
4,936
4,136
4,446
' 5,203
5,890
5,822
5,911
5,887
5,894
5,938
5,996
6,003
6,006
5,953
5,943
5,937
5,933
5,701
5,575
5,769
37,013
36, 509
37,469
38,121
38, 612
39,056
39, 260
39,871
40,129
40,250
40,603
13, 236
12, 536
13,206
13, 779
13,885
14,098
14, 245
14, 583
14, 731
14, 761
14,982
5,205
4,427
4,999
5, 474
5,583
5, 713
5,829
6,001
6,089
6,118
6,204
5/461
5, 562
5,640
5,656
5,633
5,699
5,725
5,881
5,927
5,903
6,016
810
808
801
505
713
807
815
828
827
825
826
1,132
1,260
1,345
1,517
1,742
1,874
1,976
2,091
2,103
2,084
1,984
3,897
3,907
3,930
3,919
3,873
3,917
3,963
4,001
3,948
3,988
3,997
7,481
7,505
7,617
7,759
7,724
7,749
7,740
7,814
7,918
8,034
8,245
4,984
5,031
5,076
5,140
5,134
5,131
5,152
5,160
5,155
5,208
5,260
5,473
5,462
5,494
5,502
5,541
5,480
5,369
5,394
5,447
5,350
5,309
1945
January.
February
March
April
May
June
July
August
September
October
November
December
1946:
January
__
February
March
. _
April
May
June
_.
July
August
September. _.
October
November
December 8 _
1
Number of employees in nonagricultural establishments includes all full and part-time wage and salary
workers in nonagricultural establishments who worked or received pay during the pay period ending nearest
the 15th of the month. Proprietors, self-employed persons, domestic servants, and personnel of the armed
forces are excluded. Not comparable with estimates for nonagricultural employment of the civilian labor
force derived from data in Appendix B, table XI, because latter include self-employed, proprietors, and
domestic servants and are based on population enumeration whereas estimates in this table are based on
establishment
reports.
2
Includes production and nonproduction workers.
*4 Excludes supervisory employees, clerical and sales staffs, and other nonproduction workers.
Date of peak employment in manufacturing and munitions-producing industries.
6
Not available.
Note: Detail will not necessarily add to totals because rounding.
Source: Department of Labor.
APPENDIX C
EXCERPT FROM THE STATE OF THE UNION MESSAGE DELIVERED TO THE
CONGRESS JANUARY 6,1947
The year just past—like the year after the First World War—was
marred by labor-management strife.
Despite this outbreak of economic warfare in 1946, we are today
producing goods and services in record volume. Nevertheless, it is
essential to improve the methods for reaching agreement between labor
and management and to reduce the number of strikes and lock-outs.
We must not, however, adopt punitive legislation. We must not, in
order to punish a few labor leaders, pass vindictive laws which will
restrict the proper rights of the rank and file of labor. We must not,
under the stress of emotion, endanger our American freedoms by
taking ill-considered action which will lead to results not anticipated
or desired.
We must remember, in reviewing the record of disputes in 1946, that
management shares with labor the responsibility for failure to reach
agreements which would have averted strikes. For that reason, we
must realize that industrial peace cannot be achieved merely by laws
directed against labor unions.
During the last decade and a half, we have established a national
labor policy in this country based upon free collective bargaining as
the process for determining wages and working conditions.
This is still the national policy.
It should continue to be the national policy.
But as yet, not all of us have learned what it means to bargain freely
and fairly. Nor have all of us learned to carry the mutual responsibilities that accompany the right to bargain. There have been abuses
and harmful practices which limit the effectiveness of our system of
collective bargaining. Furthermore, we have lacked sufficient governmental machinery to aid labor and management in resolving differences.
Certain labor-management problems need attention at once and certain others, by reason of their complexity, need exhaustive investigation and study.
We should enact legislation to correct certain abuses and to provide
additional governmental assistance in bargaining. But we should
also concern ourselves with the basic causes of labor-management difficulties.
In the light of these considerations, I propose to you and urge your
cooperation in effecting the following four-point program to reduce
industrial strife:
Point number one is the early enactment of legislation to prevent
certain unjustifiable practices.
First, under this point, are jurisdictional strikes. In such strikes
the public and the employer are innocent bystanders who are injured
52
ECONOMIC REPORT OF THE PRESIDENT
53
by a collision between rival unions. This type of dispute hurts production, industry, and the public—and labor itself. I consider jurisdictional strikes indefensible.
The National Labor Relations Act provides procedures for determining which union represents the employees of a particular employer. In some jurisdictional disputes, however, minority unions
strike to compel employers to deal with them despite a legal duty to
bargain with the majority union. Strikes to compel an employer to
violate the law are inexcusable. Legislation to prevent such strikes
is clearly desirable.
Another form of interunion disagreement is the jurisdictional strike
involving the question of which labor union is entitled to perform a
particular task. When rival unions are unable to settle such disputes
themselves, provision must be made for peaceful and binding determination of the issues.
A second unjustifiable practice is the secondary boycott, when used
to further jurisdictional disputes or to compel employers to violate
the National Labor Eelations Act.
Not all secondary boycotts are unjustified. We must judge them
on the basis of their objectives. For example, boycotts intended to
protect wage rates and working conditions should be distinguished
from those in furtherance of jurisdictional disputes. The structure of
industry sometimes requires unions, as a matter of self-preservation,
to extend the conflict beyond a particular employer. There should be
no blanket prohibition against boycotts. The appropriate goal is legislation which prohibits secondary boycotts in pursuance of unjustifiable objectives, but does not impair the union's right to preserve its
own existence and the gains made in genuine collective bargaining.
A third practice that should be corrected is the use of economic force,
by either labor or management, to decide issues arising out of the interpretation of existing contracts.
Collective bargaining agreements, like other contracts, should be
faithfully adhered to by both parties. In the most enlightened unionmanagement relationships, disputes over the interpretation of contract
terms are settled peacefully by negotiation or arbitration. Legislation
should be enacted to provide machinery whereby unsettled disputes
concerning the interpretation of an existing agreement may be, referred
by either party to final and binding arbitration.
Point number two is the extension of the facilities within the Department of Labor for assisting collective bargaining.
One of our difficulties in avoiding labor strife arises from a lack of
order in the collective-bargaining process. The parties often do not
have a clear understanding of their responsibility for settling disputes
through their own negotiations. We constantly see instances where
labor or management resorts to economic force without exhausting the
possibilities for agreement through the bargaining process. Neither
the parties nor the Government have a definite yardstick for determining when and how Government assistance should be invoked.
There is need for integrated governmental machinery to provide the
successive steps of mediation, voluntary arbitration, and—ultimately
in appropriate cases—ascertainment of the facts of the dispute and the
reporting of them to the public. Such machinery would facilitate
and expedite the settlement of disputes.
54
ECONOMIC REPORT OF THE PRESIDENT
Point number three is the broadening of our program of social legislation to alleviate the causes of workers' insecurity.
On June 11, 1946, in my message vetoing the Case bill, I made a
comprehensive statement of my views concerning labor-management
relations. I said then, and I repeat now, that the solution of labormanagement difficulties is to be found not only in legislation dealing
directly with labor relations, but also in a program designed to remove
the causes of insecurity felt by many workers in our industrial society.
In this connection, for example, the Congress should consider the extension and broadening of our social security system, better housing, a
comprehensive national health program, and provision for a fair
minimum wage.
Point number four is the appointment of a Temporary Joint Commission to inquire into the entire field of labor-management relations.
I recommend that the Congress provide for the appointment of a
Temporary Joint Commission to undertake this broad study.
The President, the Congress, and management and labor have a
continuing responsibility to cooperate in seeking and finding the solution of these problems. I therefore recommend that the Commission
be composed as follows: 12 to be chosen by the Congress from the
members of both parties in the House and the Senate, and 8 representing the public, management, and labor, to be appointed by the
President.
The Commission should be charged with investigating and making
recommendations upon certain major subjects, among others:
First, the special and unique problem of Nation-wide strikes in vital
industries affecting the public interest. In particular, the Commission
should examine into the question of how to settle or prevent such strikes
without endangering our general democratic freedoms.
Upon a proper solution of this problem may depend the whole
industrial future of the United States. The paralyzing effects of a
Nation-wide strike in such industries as transportation, coal, oil, steel,
or communications can result in national disaster. We have been able
to avoid such disaster, in recent years, only by the use of extraordinary
war powers. All those powers will soon be gone. In their place there
must be created an adequate system and effective machinery in these
vital fields. This problem will require careful study and a bold approach, but an approach consistent with the preservation of the rights
of our people. The need is pressing. The Commission should give this
its earliest attention.
Second, the best methods and procedures for carrying out the collective-bargaining process. This should include the responsibilities of
labor and management to negotiate freely and fairly with each other,
and to refrain from strikes or lockouts until all possibilities of negotiation have been exhausted.
Third, the underlying causes of labor-management disputes.
Some of the subjects presented here for investigation involve longrange study. Others can be considered immediately by the Commission and its recommendations can be submitted to the Congress in the
near future.
I recommend that this Commission make its first report, including
specific legislative recommendations, not later than March 15,1947.
@FedFRASER