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IN
FEDERAL RESERVE BANK of CLEVELAND
THIS
ISSUE
Patterns in
Federal Spending: 1900 - 1 9 6 2 ........ 2
Current Trends in Retail S a le s.............. 12
fluHt t$63
M ilitary outlays have accounted for a substantial part of total
Federal spending since 1940, and intergovernmental and trust
fund expenditures have accounted for larger proportions of
total spending since 1952.
Per c en t Di s t r i b u t i on - S e l e ct ed Fi scal Y e a r s
IN T ER G O V ER N M EN T A L
A N D TRUST FUND
EXPENDITURES
ALL OTHER DIRECT
EXPENDITURES
DIRECT M ILITARY
EXPENDITURES
1 902
1927
1938
S o u r c e o f d a t a : U . S . B u r e a u ot ( h e C e n s u s .
1944
1952
1961
Patterns in Federal Spending: 1900-1962
level that cannot be easily put into perspec
January the President of the United
tive by the average individual.
States sends a Budget Message to Con
gress in which he outlines projected Federal The climb in Government outlays has not
income and spending for the coming fiscal
been continuous since the turn of the cen
year.(1) The Budget usually creates consider
tury. Between fiscal years 1900 and 1915,
able interest in Congress and among the gen
expenditures increased gradually, reaching
eral public. The reaction from some people is
a level close to $1 billion. Two years later,
favorable; from others, disapproving. In
Federal spending jumped as a result of the
either event, the introduction of the Budget
U. S. entrance into W orld W ar I, reaching,
is often followed by a lengthy debate con
by fiscal 1919, a total of approximately $18
cerning Federal spending plans. At times,
billion. (This was a record amount in the
the ensuing discussions may conceal the basic
history of the country up to that time.) In
purposes and value of some Federal expendi
accordance with fiscal policy of the time, how
tures. In the following review of Government
ever, postwar spending was cut back sharply
spending from 1900 to the present, an at
in 1920 and then continued to decline very
tempt will be made to define and categorize
gradually until 1928. Budget expenditures in
the expenditures, as well as to place budget
fiscal 1928 totaled about $2.9 billion, reveal
programs in historical perspective. In addi
ing that the economy and Federal spending
tion, some comments are offered on the eco
grew beyond the prewar levels of 1900-15.
nomic objectives of Federal spending.
In order to comprehend the relative eco
nomic importance of Federal spending, it is
Level of Spending
useful to compare the total dollar amount
In fiscal year 1962, the United States Gov
with the aggregate measure of spending in
ernment paid out to the public a cash amount
the entire economy, Gross National Product
of almost $108 billion.(2) At this level, gross
(G N P). Some estimates of GNP have been
Federal cash outlays reached a record volume
made for the years prior to 1930, although
that exceeded even the unusually high rate
the early decades are represented only by
of spending that was necessary during the
averages for five-year periods. Using these
Second W orld War. The tremendous expan
figures, one can estimate that Government
sion and increasing importance of this sector
expenditures in fiscal 1900 amounted to about
of the economy is more apparent when the
3 percent of total spending in the economy.(3)
recent all-time high is contrasted with total
The proportion actually declined slightly
budget expenditures of just half a billion
until 1917. In other words, the activities o f
dollars in 1900. In other words, in sixty-two
the Federal Government were not a major
years Federal spending has shown an increase
factor in the business and financial activity
of more than two-hundred-fold, attaining a
of the United States between the turn of the
(1) A fiscal year is the twelve-month period from July 1
century and the First W orld War. This situ
through June 30, and is designated by the June calendar
ation was changed sharply by the entrance o f
year date.
a c h
E
(2) See Appendix to this article for a description of the dif
ferent accounting concepts of Federal spending and for an
explanation of the statistics used in the following pages.
2
(3) The relation of Federal spending to G N P is approximate
because of the time lag between calendar and fiscal years.
the nation into the war and the concentration
of economic output into defense needs. By
1919, Federal spending had increased to the
extent of accounting for about one-fourth of
GNP. With the decrease of Government out
lays following the war, the proportion of
such spending to total GNP dropped back to
3 percent by the end of the 1920's.
The setbacks of 1929 coupled with the suc
ceeding depression that gripped the economy
in the 1930’s led to substantial changes in
theories of government and in the emphasis
placed on Federal spending. As a result, cash
outlays by the U. S. Government rose to a
little over $8 billion in fiscal 1937, a peace
time spending record up to that time. At that
level, expenditures amounted to 9 percent of
GNP. Spending then slipped in the follow
ing year, until the advent of the Second
W orld W ar resulted in a skyrocketing vol
ume o f funds paid out to the private econ
omy. Between 1940 and 1945, Federal cash
outlays showed a 1,000 percent increase to
a total that had been virtually undreamed of
in any previous wartime period. Total cash
payments exceeded $90 billion in both fiscal
1944 and 1945. Although there was a concur
rent rise in national income during the war
years, Government expenditures at these rec
ord heights accounted for nearly half (45
percent) of GNP.
In the next three years, following the end
of hostilities in 1945, Federal spending de
clined very sharply as cash payments for
military defense were cut back. Starting in
1949, however, and continuing to the present,
expenditures have increased on balance. A
substantial rise was apparent in fiscal year
1952 partly as a result of the involvement of
the United States in the Korean War. It is
noteworthy that succeeding Federal spending
has never dropped back to the pre-1952 level,
although absolute declines in outpayments
were recorded in 1954, 1955, and 1960. What
is more important is the fact that the private
sector of the American economy has grown
so rapidly in the postwar period that even at
the record 1962 level, Government expendi
tures accounted for only one-fifth o f total
GNP. From fiscal 1948 to 1962, Federal cash
payments nearly tripled in dollar volume, but
as a proportion of GNP, Government expen
ditures increased moderately from 14 percent
to 19 percent. This means that the rise in
Government outlays since W orld War II has
proceeded at a pace only moderately faster
than that for the economy as a whole.
There could be objections to evaluating
Federal Government expenditures in this way
in that much of the increase in Federal
spending has been due to rising prices since
1900 (with some major interruptions). To
evaluate this criticism, it is first necessary to
“ deflate” statistics for Government outlays.
Since the national Government purchases
goods and services at both wholesale and re
tail levels, a price deflator has been used that
represents both aspects of the general econ
omy. The implicit price deflator for the GNP
series was used with a 1929 base period —roughly halfway through the time span under
review.
On an adjusted basis, the pattern of Fed
eral cash spending since 1900 is roughly the
same as on an unadjusted basis, with one
important exception. That is, if Federal out
lays are put in terms of 1929 dollars, it is
still apparent that spending was low between
fiscal 1900 and 1917, that it climbed during
World War I and again during the 1930’s,
and that it increased very sharply at the
start of the Second W orld War. The impor
tant exception is the experience since 1942,
when the changes in the volume of Federal
spending represented price behavior to a
more important extent than previously. From
the end of that fiscal year until the present,
Government expenditures on a 1929 base are
much smaller than in terms of current dol
lars, so much so, that deflated outlays in fiscal
1962 are roughly half as large as the un
adjusted dollar volume.(4) After this price
adjustment is made, cash spending in 1962
becomes the highest peacetime amount on
record but falls some $26 billion below the
wartime record of fiscal 1944.
(*) The G N P implicit price deflator (1 9 2 9 base)
from 103 in 1 9 4 2 to 1 92 in 1 962 .
increased
3
To summarize the description o f the growth
in total Federal payments, the greatest stim
ulus during this century has been the expense
of wars in which the United States has taken
an active part. While the record spending
volume of fiscal 1962 is also due in large part
to military outlays, analysis of the expendi
tures by changing type of function provides
further insight in this study.
Purposes for Spending
The objective of Federal spending is to
meet the financial obligations of the Federal
Government assigned to it by law and cus
tom. From this basic objective, it follows that
if the scope and activity of the national Gov
ernment increases, operating expenses and
cash outlays will also increase (barring a
sharp decline in the price level).
The magnitude of the operations of the
Government, in turn, increases partly as a
result of the growth in population, territory,
and national income of the United States.
For example, part of the rise in expenses of
the House of Representatives in this century
has been due to the increase in the number
of Congressmen, reflecting increases in popu
lation. In addition, in fiscal 1908 salaries paid
to employees of the Internal Revenue Service
amounted to $4.4 million; by fiscal 1962, the
amount was 100 times higher, reflecting in
part the increase in staff necessary to accom
modate a larger tax-paying population as well
as changes in tax legislation. The acquisition
of additional land or facilities, such as the
Panama Canal, also causes a rise in Federal
spending. The Canal land was purchased in
1904 for a little more than $50 million, and
the operating costs and costs of improvements
have ranged from $4 million to $72 million
in the succeeding fiscal years.
Some fiscal outlays reflect changes in the
stage of economic and political development
of the nation. Thus, a few of the accounts
listed in the summary of disbursements made
in fiscal year 1908 now seem like early Ameri
can history. Examples are “ payments for
public schools in the territory of Oklahoma ’ ’,
some aspects of “ Steamboat-Inspection Serv
4
ice” , and in 1909, “ payments to the State of
Kansas for suppressing Indian hostilities” .
In contrast, the following accounts appeared
in 1962: National Aeronautics and Space
Council, Subscriptions to International F i
nancial Institutions, Southeastern Power
Administration, and the Subversive Activities
Control Board. In recent years, the increased
emphasis on scientific research and knowl
edge has led to higher Federal costs for
specialized equipment and highly-trained
workers.
A third, and undoubtedly the most impor
tant, factor that currently influences the vol
ume of Government expenditures is the in
creasing role of the Federal Government in
both the domestic and world economies.
Earlier in this article, it was demonstrated
that prior to the 1930’s Federal spending
was held down to low levels in peacetime. It
was also mentioned that a basic change in
fiscal policy occurred in the 1930’s. The
change may be said to have taken two forms
simultaneously. First, the usefulness of Gov
ernment spending as an anticyclical weapon
was tested, and secondly, the Federal Govern
ment assumed chief responsibility in provid
ing economic relief to large segments of
society. Modern economic theory recognizes
that Federal spending can be used to stimu
late the economy at times when consumer
spending and business investment are weak.
This approach was adopted and applied dur
ing the world-wide depression of the 1930’s.
At the same time, the deep slump produced
such human hardship and economic want in
the United States that the Federal Govern
ment intervened to prevent further deterio
ration in living standards of wide segments
of the population. As a result, in fiscal 1934,
while total budget expenditures amounted to
$7.1 billion, expenditures for both recovery
and relief accounted for $4.0 billion of the
total.
Similar outlays were necessary throughout
the decade until the Second W orld War
brought an improvement in levels of employ
ment and income in the United States. The
newer types of Federal spending that arose
with the Depression have continued. It is cur
rent policy to increase spending during reces
sions. In addition, it is the policy to continue
many o f the social programs begun in the
1930’s, often in expanded form.
A final development that has contributed
to the expansion in the operations of the
Federal Government occurred first in the
Depression. Since that time there has been an
increasing dependence on the national admin
istration as a source of funds. The Federal
Government became involved in many local
projects during the 1930 ’s because state and
municipal governments suffered from a sharp
loss in revenue and, in turn, curtailed serv
ices. As a result, construction of highways,
public buildings, and parks was carried out
with Federal financing. The payment of na
tional funds to state and local governments
rose sharply during this period, amounting
to 9 percent of total Federal outlays by fiscal
1938. In the past decade, state and local gov
ernments have depended heavily upon Fed
eral funds to aid in financing such projects
as urban renewal, conservation, welfare, air
ports, college housing, highways, and perhaps
mass transit. In fiscal 1961, intergovernmental
expenditures made up nearly 7 percent of
total Federal spending.
The national Government has also served
as a source o f credit in recent years. Loans
are made directly to small businesses, manu
facturers of defense equipment, veterans of
the U. S. armed forces, and farmers. Direct
loans in fiscal 1962 (excluding those to inter
national agencies or other nations) amounted
to $15 billion. In addition, the Government
has an extensive program of insuring and
guaranteeing loans made by private sources,
primarily in the area of housing. Total guar
antees and insurance on domestic loans
equaled almost $76 billion in fiscal 1962. The
rationale for both direct loans and guarantees
is that the Government provides credit that
is not otherwise available or assumes risks
that private financial institutions would not
undertake.
Types of Spending
There are several ways of grouping Fed
eral expenditures by functions. To illustrate
the diversity of fiscal projects, the functional
classifications developed by the Bureau of the
Census are used here.
Some functions of administration have al
ways been considered the natural “ domain”
of the Federal Government. There is little
doubt, for example, that the national govern
ment is the logical and capable choice to han
dle the defense of the country. Spending for
military equipment, personnel, and adminis
tration has accounted consistently for a large
part of total Federal expenditures. Even in
1902, military outlays amounted to 29 per
cent of “ direct general expenditures” .<5) The
proportion rose sharply in W orld W ar I but
dropped in the period between the wars. A
low point was reached in 1934 when the ratio
for military spending sank to 11 percent. In
contrast, a high of 76 percent was recorded
in 1944. It is important to note that defense
outlays have equaled more than half of
“ direct general expenditures” since 1951,
with the actual share ranging from 60 per
cent in fiscal 1952 to 51 percent in fiscal
1962. The present emphasis on military ex
penditures reflects international defense com
mitments such as U. S. obligations to NATO
and the United Nations, as well as the high
cost of armaments and the continual search
for new weapons. Outlays for these purposes
are judged to be vital in the present-day
world; they account for the major portion of
Federal spending, but it is a slightly declin
ing proportion. In other words, the volume
of military expenditures explains the current
high level of total Federal spending, but not
the rising trend of such spending.
Other expenditures of the Government are
closely related to current or past defense
programs. For example, benefits and services
for veterans of the armed forces are a result
of previous wars. In addition, one could
( 5) A s defined by the U . S. B ureau erf the Census, direct
general expenditures exclude trust fund and intergovern
mental spending.
5
count in civil defense, interest costs on debt
issued to finance wars, and even the current
space exploration program. Other expenses
related to defense efforts fall in the area of
international relations, i.e., foreign aid and
assistance and subscriptions to international
organizations. The cost of research and devel
opment in atomic energy is also included in
this broad grouping. The classifications of
international affairs and military science are
among the most rapidly increasing expense
units in total Federal spending. To illustrate,
cash payments to the public for space re
search and technology rose from $71 million
in fiscal 1956 to $1,257 million in fiscal 1962.
In the same period, payments connected with
international relations increased from $1.6
billion to $2.5 billion. While most of the in
creasing expenditures just mentioned stem
from U. S. efforts to fulfill its current and
future responsibilities to the free world, the
subject of veterans’ benefits and services is
related to the past. (A further discussion of
these services is given later.)
Some nondefense programs have always
been considered within the province of the
Federal Government. A number of these
functions seem best handled by the national
administration because the operations cut
across state boundaries. Postal service for the
United States has been a Federal function
since the eighteenth century. In the early
part of this century, the Post Office Depart
ment accounted for a large proportion of fis
cal spending (about 20 percent). With the
increased diversification of Government pro
grams, however, expenses for postal service
have recently accounted for only 5 percent
of total direct expenditures.
The Federal debt is, of course, a national
function. The ratio of interest expense on
the debt to total Government spending be
comes larger in peacetime when the bulk of
spending is nondefense; it also increases fol
lowing periods of heavy Federal borrowing.
Since fiscal 1952, the ratio for interest ex
pense has held within a narrow range around
8 percent of direct expenditures. Other Gov
6
ernment operations carried on without regard
to area or group identity include the Weather
Bureau, the Coast Guard, the St. Lawrence
Seaway, and air traffic agencies. The propor
tion of spending for these functions has de
clined since the early 1900’s. Finally, the
United States has been fortunate to keep
spending for ‘ ‘ police’ ’ supervision (FB I,
Secret Service, and Immigration) at frac
tional levels in the twentieth century. Ex
penditures for all these “ customary” Govern
ment services make up a much smaller share
of total spending today than prior to the
Second W orld War, even though the share
has been increasing slightly since 1944 be
cause of improvements and additions to
established programs.
The remaining types of Federal spending,
while heterogeneous, have an underlying fac
tor in common. The outlays generally are
aimed at improving the standard of living of
certain groups of people or in specific areas
of the country. Spending of this sort is not
a new development; in the budget accounts
for fiscal 1908, the following expenditures
appear: ‘ ‘ funds for epidemic diseases
“ ex
penses of cotton-boll weevil investigations” ,
“ wagon roads in Alaska fund” , and “ money
for the relief of sufferers from cyclone in the
Southern States” . Nevertheless, the relative
growth and widening impact of Federal so
cial programs since the early 1930’s has been
a major factor in the transition of Govern
ment spending. The reasons for this spending
were explained earlier; the evidence is pre
sented in the accompanying tables.
Spending for social welfare was relatively
large during the 1930’s, as the Government
made efforts to alleviate the effects of the
Depression. The amount of such expenditures
in fiscal 1938, however, was only one-fifth of
the amount spent in fiscal 1961.(6) The refer
ence in Table I to the rise in the proportion
of Federal spending made by the trust funds
and to political subdivisions (primarily states)
is important in this context because most of
these funds go to improve social welfare. To
(6) Latest data available.
TABLE I
Percentage Distribution of Total Federal Expenditures
for Selected Fiscal Years
Total
Direct general expenditures
Trust fund expenditures
Intergovernmental expenses
1902
1922
1938
1954
1961
1 0 0 .0
9 8 .8
—
1 .2
1 0 0 .0
9 6 .7
0 .2
3 .1
1 0 0 .0
8 9 .0
2 .0
9 .0
1 0 0 .0
8 9 .7
6 .5
3 .8
1 0 0 .0
79.1
1 4 .2
6 .7
TABLE II
Percentage Distribution of Federal Spending for "S o c ia l Programs'*
fo r Selected Fiscal Years
As percent of direct general expenditures (including defense):
Type of Spending
1902
1922
1938
1954
1961
Total
Farm subsidies
Veterans’ services
Natural resources
Hospitals
Education
Health
Housing and urban renewal
Highways
Public welfare
2 8 .2
1 7 .0
—
—
2 5 .0
1 .4
0 .4
0 .5
0 .2
11 .7
2 .2
2 .4
0 .2
0 .2
*
4 6 .8
4 .3
7 .9
2 0 .5
1 .3
2 .2
0 .4
1 .4
6 .6
2 .2
1 4 .8
5 .5
4 .0
2 .6
1 .0
0 .9
0 .4
0 .2
0 .1
0 .1
2 0 .6
8 .8
4 .8
3 .4
1 .3
0 .8
0 .7
0 .5
0 .2
0 .1
—
—
0 .7
0 .1
0 .2
* Less than 0 .0 5 percent.
illustrate, in fiscal 1961, nearly one-third of
Federal payments to other governments was
for welfare purposes, while slightly more
than half was for the improvement o f educa
tional systems and highways. Similarly, of
the total spending accounted for by Federal
trust funds, almost 80 percent was in the
form of social security payments.
Within the category of direct expenditures
for programs to improve living standards
(Table I I ), farm subsidies made up the larg
est share in fiscal 1961. This Federal program
began in 1933, with the ratio of such outlays
to total spending remaining high until W orld
War II and then again increasing steadily
since 1952. The rise in this spending is di
rectly related to Federal farm legislation but
is also affected by the increasing productivity
of American agriculture. On the other hand,
payments for veterans’ benefits and pensions
comprise a declining proportion of total di
rect spending. The ratio for this category has
hovered just under 5 percent since fiscal
1954, in contrast to the early years of the
century when almost all social programs were
for the benefit of veterans.
Government expenditures on the nation’s
natural resources go for a multitude of proj
ects. Such spending was the major vehicle for
combating economic conditions in the 1930’s,
with most public works projects classed in
this group. Included now are outlays for the
Tennessee Valley Authority, the Army Engi
neers, reclamation projects, and the National
Park and Forest Systems. The remaining
categories in the table have smaller relative
importance, although the total dollar amount
spent for these functions has been increasing.
The emphasis on direct spending for high
ways and education has declined since the
1930’s because funds of this nature are now
7
FEDE RAL EJ E NDITURES
Fi s
B i l li o n s of d o l l a rs
P e r c e n t of G N P
75%
TOTAL EXPENDITURES
('<----- S c a l e )
Althougl Federal spentling in tiscal 19 62 reached a r ecord level in <:omp
son with the early 19W s , spending as a proport fon of G ross 1Natia
Product has increased only moderaf ely.
60
E XPENDI TU RES
A S 7, O F G R O S S NATIC >NAL P R O D U C T
/( Cs c a l1e ----
'W
' -H
A
30
Hi
L lj
1900
1905
19*10
19*15
*■
T - . --------
19*20
19*25
1930
1950
1955
1960
1965
* See Appendix.
Source of data: U .S . Treasury Department.
channeled through intergovernmental pay
ments. Expenditures for hospitals and health
(primarily for veterans) have been increas
ing a little faster than total outlays in recent
years, and the share of spending for housing
and urban renewal has risen since 1957.
Conclusions
Federal spending is currently at a record
level, with cash payments to the public reach
ing an all-time high in the past fiscal year.
Since the world situation has saddled the
United States with heavy expenses, about
half of the total outlays are for national de
fense, with a much smaller but growing pro
portion budgeted for military research and
international affairs.
An increasing share of Government expen
8
ditures has gone for domestic programs of a
social nature. Most programs were begun in
the Depression, but their coverage has
widened, and the demand for new Federal
services has grown. There are many reasons
for the increased participation of the na
tional Government in the economy: to combat
the extremes of the business cycle, to provide
for social needs too severe or too widespread
to be countered on regional or local levels,
and to provide credit that has not or could
not come from private financial sources.
Given the current environment and role of
the Federal Government, it appears that Fed
eral spending will continue to grow in future
years. Spending could be cut, but only if
wide segments of the American public were
willing to give up the assistance that they re
ceive in so many forms from the Federal
Government. It would also be necessary for
state and local governments to take over
some of the functions which they relinquished
thirty years ago, perhaps by regaining part
of the taxing power now concentrated on a
national basis. In addition, the private finan
cial sector of the economy would have to
assume some of the credit functions now per
formed on the Federal level.
There are probably some weaknesses in
spending programs at all levels of govern
ment. Some projects may cost more than is
necessary, while others may represent un
needed duplication. Often the need is stressed
for a complete re-evaluation of Federal ex
penditures, with the suggestion that some
functions would be better handled on a local
level. (Examples that have been mentioned
by several observers are unemployment com
pensation and urban renewal.) In many in
stances, the entire budgetary process has
come under attack, including the method of
approving fiscal outlays and the motives
underlying many spending decisions.
Nevertheless, both the level and nature of
Federal spending have undoubtedly contrib
uted to the nation’s economic growth. While
Federal spending has been implicitly ap
proved by the people of the United States,
wider public awareness and understanding of
government operations may help to provide
improvements in government fiscal activities.
9
APPENDIX
Data on U. S. Government expenditures,
like the Budget as a whole, are presented in
several different formats. For example, spend
ing plans which are submitted to Congress
for approval make up part o f the administra
tive budget. This budget has certain dis
advantages in use, chiefly because the nowsubstantial income and spending by trust
and deposit funds and Government-sponsored
enterprises are omitted.{1) As a result, expen
ditures on an administrative budget basis do
not disclose the complete scope of Federal
activity nor do they help in tracing the im
pact of total Government spending on the
U. S. economy. In the past few years, empha
sis has been placed instead on expenditures
as forming a part of the national income
accounts. Such statistics seek to measure the
direct impact of Government purchases on
the national economy by recording the pur
chases at the time of delivery rather than at
the time of payment. Federal outlays on a
national income basis, however, exclude
purely financial transactions and District of
Columbia expenditures. Thus, this approach
still does not measure the full flow of funds
from the Federal Government to the
economy.
A third format for reporting fiscal spend
ing is on the basis of cash payments to the
public. Expenditures on a cash basis most
nearly approximate the actual flow of funds
from the Treasury Department to the public.
Included are spending by the Federal trust
and deposit funds and by Government corpo
rations; missing are all intragovemmental
transactions which do not involve payments
to the public (e.g., payments to Federal em
ployee retirement funds). In addition, ac
crued items such as interest on Government
securities are shifted to a checks-paid basis.
Another method of compiling cash figures
on fiscal expenditures is used by the U. S.
(1)
Government-sponsored enterprises include the Federal
Deposit Insurance Corporation, the Federal land banks, the
Federal H om e Loan banks, banks for cooperatives, and the
Federal intermediate credit banks.
10
Bureau of the Census. Here, some additional
financial transactions are excluded (loan re
payments and mortgage purchases), while
expenditures of Government enterprises are
reported on a gross basis, rather than net, as
in cash payments to the public. The Census
method also counts in employee contributions
to Federal retirement funds. This approach
performs a useful service by grouping Fed
eral expenditures into functional classes;
such information is available for selected
years from fiscal 1902 through fiscal 1961.
Confining the use of statistics to those on
a cash basis has the added advantage of elim
inating confusion among funds ‘ ‘ authorized ’ ’,
“ appropriated” , and “ obligated” . Plans for
Government expenditures must first be au
thorized by Congress, but the actual outlays
can not be made until Congress also appropri
ates the necessary funds. While the authori
zation for certain projects can continue
indefinitely, appropriations usually have a
time limit of one year. In addition, obliga
tions to spend from the appropriations must
be made within the original year, even though
the checks may be written in future years.
Thus, the existence of obligated but unspent
funds often has the effect of boosting Federal
spending above the levels proposed for an
individual year in the Budget Message from
the President.
In this article, an attempt was made to
report Federal spending, wherever possible,
on the basis of checks paid and cash payments
made. Because of the difficulties of obtaining
a consistent series with both historical length
and descriptive detail, however, some leeway
was taken. Annual totals for expenditures
from 1929 to the present time represent cash
payments to the public. Prior to 1929, ex
penditures from the administrative budget
were used, since data on a cash basis are not
available. (The average annual discrepancy
between the two series is estimated to be less
than $0.2 billion in these early years.) In the
discussion of Federal spending by type or
function, the chief source was the data pub
lished by the Bureau of the Census in its
releases “ Summary of Governmental F i
nances. ’ ’
The Federal budget system has always
been set up on a current basis, i.e., projects
which will absorb funds over a period of
time longer than one year (and thus do not
need to be paid for within one year) are not
isolated in a separate grouping. A number of
observers believe that the United States
should adopt the system used by many Euro
pean countries of a separate capital budget.
Such an accounting statement would include
expenditures for construction, capital equip
ment, and the purchase of land and existing
buildings, as opposed to expenses for current
operations. While various estimates are avail
able for Federal capital expenditures, there
is substantial disagreement about the types
of spending to be included. For example, the
Bureau of the Census lists capital spending
in a range of $16.2 billion to $18.5 billion in
each fiscal year since 1952, with most of the
outlays going into defense equipment. (Data
for previous years are not available.) N. H.
Jacoby would include expenditures for re
search and education in a capital budget, and
accordingly, estimates Federal capital spend
in g in fiscal 1962 at $35.3 billion.(2)
sets, but also developmental expenditures
which represent an investment in human
capital. It does not distinguish precisely be
tween capital and current items, although it
does provide useful general magnitudes. . . .
This analysis does not purport to be a capital
budget in the sense of a long-range program
for the acquisition of assets. Nor is it a plan
for separate financing of capital expendi
tures. ” (3) In this presentation, total expendi
tures of an investment or developmental
nature in fiscal 1962 amounted to $38.4 bil
lion. The outlays falling in this classification
were loans for home building and improve
ments, grants to states, spending for public
works, commodity inventories, buildings,
land, and major equipment, and the expenses
of research and development in science and
health. Some 65 percent of the total for 1962
was for defense purposes (68 percent if re
search spending by the National Aeronautics
and Space Administration is included). In
addition, it is of interest to note that 25 per
cent of the total investment outlays fell in
the categories of “ social” spending presented
in the table accompanying the article. The
major nondefense item was Federal grants to
states for highway construction; other large
proportions of funds were spent for improve
ment and conservation of natural resources
and for housing and urban renewal.
The Government itself, in the 1964 Budget,
presented a special analysis o f expenditures
by an investment versus operating division.
The accounts included “ not only outlays to
increase physical capital and intangible as
This brief description of the intricacies of
statistics on Federal spending should not give
the impression that all the figures are exact
to the cent. It is hoped, however, that the
magnitudes involved in this article are accu
rate enough for the purpose at hand.
(2) Neil H . Jacoby, “ The Analysis of Fiscal Policies — Past
and Present” , Quarterly R eview , Banca Nazionale Del
Lavoro, March 1962 .
(3) U . S. Bureau of the Budget, “ Special Analysis D ” , The
B u dget of the United States G overnm ent for the fiscal year
ending June 30, 1 964 .
11
Current Trends in Retail Sales
e ta il
sales have received considerable
, attention in recent months as dollar
volume, seasonally adjusted, pushed into alltime high levels during the first quarter of
this year, easing only slightly in April, and
in May returned to March’s record-high level.
The retail sales series, which reflects sales of
all retail stores including department store
sales, automotive sales, food sales, and others,
is closely watched by businessmen and econo
mists as one of the indicators of current eco
nomic activity.(1)
R
As is the case with numerous business indi
cators, it is characteristic for retail sales to
increase over the long run, partly because of
the continuing growth of the population.
Changes in the general price level also affect
the level of retail sales as well as other busi
ness indicators which are measured in terms
of current dollars. Therefore, in order to
evaluate the significance of current develop
ments in retail trade, it will be helpful to
compare recent rates of expansion with past
experience and to relate changes in the level
of retail sales with changes in the level of
other business statistics associated with con
sumer spending, such as disposable personal
income and expenditures for services.
Retail Sales in Three Business Cycle s
A comparison of retail sales trends in three
business recovery periods is illustrated in
Chart 1. On the chart, expansion in retail
sales is measured at two-month intervals over
a span of 26 months starting from the lowTest
sales month of each of the last three business
recessions.
As the chart shows, each of the three re
covery periods has been accompanied by ex( i ) The retail sales series is compiled by the Bureau of the
Census of the U . S. Department of Commerce from a repre
sentative cross-section of approximately 2 0 0 0 business firms
which, in total, operate some 4 0 ,0 0 0 retail stores in the
United States. It is designated by the National Bureau of
Economic Research as one of the fifteen coincident indicators
of economic activity. Other coincident indicators include
nonagricultural employment, industrial production, and per
sonal income.
12
pansion in retail sales. The over-all percentage
increase from the beginning to the end of
each 26-month period was much the same, i.e.,
14.6 percent in the latest period (January,
1961 through March, 1963) as compared with
15.5 percent in the January, 1954 to March,
1956 period, and 14.6 percent in the March,
1958 to May, 1960 period. Part of this expan
sion represents shifts in retail price levels
rather than increased physical volume. In the
two latest recovery periods, retail prices in
creased one percent; however, in the earlier
1954 to 1956 recovery period, retail prices
declined two percent thus understating the
expansion in retail sales.(2)
A difference is apparent, however, in the
rapidity with which a pickup in retail sales
got under way after the trough month of each
recession was passed; the current expansion
ary period in retail sales was the slowest in
starting.
The importance of the sluggish rate of
post-recession expansion in retail sales in the
latest period is pointed up by the fact that
monthly retail sales in the entire 26-month
period averaged only 7.5 percent above the
level of sales at the beginning of the recov
ery period, whereas similar calculations for
the two earlier periods under review show
that monthly sales averaged 9.6 percent and
9.7 percent, respectively, above the level of
sales at the start of the 1954-56 and the 195860 periods. On an over-all cumulative basis,
therefore, expansion of total retail sales in
the most recent business recovery has been
proportionately smaller than it was in the
previous two periods of post-recession expan
sion, although retraction of retail sales in the
last two cycles was comparable and exceeded
the 1953-54 contraction.
On the other hand, expansion in the latter
half of the present recovery has progressed
somewhat more evenly than was the case in
(2) A s measured by the “ all commodities” component of the
Consumer Price Index, Bureau of Labor Statistics.
Chart 1.
Percent c h a n g e
+ 20
A
c o m p a ris o n
p an sion
J &N. ’ 5-4 TO M AR. ’5 6 INCI
the
%
o ""•in,,
00
■H
O
**
/ '
f iv e
\
i
/.
/ i
A N. '61 TO M \R . ’6 3 INCL.
of
in
recovery
p r o v id e s
a
s te a d y
sion
of
s a le s
h a lf
of
th e
in
e v i
expan
th e
m ost
la s t
recent
p e r io d . It should b e n o te d ,
how ever,
m onths
A'<
ex
th a t
th e
tro u g h
/,»t
/
+5
th r e e
c y c le
dence
/ Si
/
+10
th e
tr a d e
lo w m onth in e a c h r e s p e c -
“ \
M A Y 6 0 IN<:i. *
la s t
of
r e ta il
p e r io d s m e a su re d fro m the
+15
MAR. ’
in
not
''
in
re ta il
n e c e s s a r ily
s a le s
w ith th e tro u g h
S E X S O N A L LY A D J LISTED
8
10
12
14
16
18
20
22
do
coincide
o v e r -a ll e c o n o m ic
m onths in
a c tiv ity .
26
N u m b e r of m o n t h s after r ec e s s i o n low
Source of d a ta :
U .S . Department of Commerce
earlier recoveries. In the current expansion,
increases have continued with little interrup
tion for 26 months, through March of this
year. Expansion is now halted on a new, high
plateau for, as was noted above, there was a
slight easing of retail sales in April of this
year which was regained in May. It remains
to be seen whether the April-May experience
signified a peaking out of current expansion
in retail sales.
Long-Term G row th:
Durable Vs. Nondurable Goods
There is some popular tendency to concen
trate on the vicissitudes of the automotive
sales sector, or even on retail sales of durable
goods as a group, as being representative of
over-all retail sales activity. Over the short
run, this may be a valid assumption since it is
a well-known fact that retail sales of durable
goods, and of new autos in particular, tend
to fluctuate with the ups and downs of the
business cycle while sales of nondurables
maintain a much steadier pace. During the
past eight or ten years, however, retail sales
of nondurable goods have provided most of
the growth in total retail sales, not only in
terms of the larger dollar volume involved,
but also in terms of rates of gain.
As Chart 2 shows, all automotive sales,
including both new and used cars and acces
sories, form only about one-fifth of total retail
sales. More importantly, however, the chart
shows that sales of automotive goods, and
even sales of all durable goods at retail, have
shown much less growth in the past decade
than have retail sales of nondurable goods.
In terms of percentage increase, the annual
volume of nondurable retail sales expanded
48 percent between 1953 and 1962 while re
tail sales of all durable goods, including auto
motive sales, rose only half as fast with an
increase of but 24 percent in the same period.
Automotive sales taken separately increased
13
28 percent, or just a little more than durable
goods as a group, but increased far less than
nondurable goods.
Chart 2.
C O M P O N E N T S O F RETA IL TRA D E
Billions
of
Increase in Expenditures for
Consumer Services
dollars
25
Retail sales volume is only one of a number
of statistical series that measures, in one way
or another, the key role played by the con
sumer in the economy. Other pertinent series
are those reflecting disposable personal in
come, total personal consumption expendi
tures, and expenditures for consumer serv
ices.(3) Growth rates of these three measures
are summarized in the accompanying table
for comparison with corresponding changes
in retail sales volume (total retail sales are
not directly comparable with the more inclu
sive GNP total of expenditures for durable
and nondurable goods).
15
10
0
1953
'5 4
’55
’56
’57
’58
’59
'6 0
’61
Source of data: U .S . Department of Commerce,
Bureau of the Census.
’62
While retail sales trends show some corre
lation from year to year with disposable per
sonal income fluctuations, the expansion of
retail trade in the ten-year period 1953 to
1962 has not kept pace with the expansion in
disposable personal income. In the ten-vear
Com parison of G row th Rates
Disposable Personal
Income
Personal Consumption
Expenditures
1953-1962 annual average
4-7 %
4 -7 %
6 .7 %
3 .7 %
1954
1955
1956
1957
1958
1959
1960
1961
1.7
6.8
6.7
5.4
2.9
6.0
3.6
4.1
5.3
1.2
7.9
5.1
5.7
2.8
6.9
4.8
2.9
5.5
5.5
7.2
8.1
7.1
6.7
7.4
7.4
5.5
5.8
0.0
8.7
3.2
5.4
Period
1962
Consumer
Services
Source of data: U. S. Department of Commerce
(3) Total disposable personal income (as a part of Gross National Product) is the income remaining with
individuals after deductions of personal tax and nontax payments to government. This is a more meaning
ful measure for comparison purposes as it disregards changes in tax levels over the 10-year period.
Personal Consumption Expenditures (as a part of Gross National Product) consist of the market value
of goods and services purchased by individuals and nonprofit institutions and the value of food.
Consumer services (Expenditures for Services as a part of Gross National Product) include the ex
penditures for household operation, housing, transportation, personal services and recreation.
14
Retail
Sales
0.2
7.5
1.9
— 0.3
7.6
period 1953-1962, retail sales registered an
average annual increase of only 3.7 percent
per year in comparison with the 4.7 percent
increase per year for disposable personal in
come. At the same time, total personal con
sumption expenditures matched the 4.7
percent growth in disposable personal income,
indicating that consumers were using more
and more of their disposable income for pur
poses not included in retail sales. By 1962,
consumer service expenditures’ share of dis
posable personal income had grown to 40 per
cent from 35 percent in 1953.
Chart 3.
C o n s u m e r s e rv ic e e x p e n d itu re s co n tin u e to o u tp a c e
the g r o w t h o f re ta il sale s a n d a re little a ffecte d
by fluctu a tio n s in e c o n o m ic a ctiv ity .
B i l l i o n s of d o l l a r s
As shown on the table, expenditures for
services have shown consistently high rates
of growth throughout the ten-year period.
Year-to-year increases ranged from 5.5 per
cent in 1954 and 1961 to 8.1 percent in 1956.
Costs of consumer services have spiraled up
ward in the last decade, increasing 25 per
cent in comparison with a seven percent in
all other consumer prices.
The relationship among disposable personal
income, retail sales, and expenditures for con
sumer services is also shown graphically in
Chart 3. The shaded areas on the chart indi
cate the three postwar recession periods from
peak to trough. In both the disposable per
sonal income series and the retail sales series,
the levels shift coincidentally with the reces
sion contractions and recovery expansions;
however, expenditures for services were
noticeably unaffected by setbacks in over-all
economic activity and show almost a straightline increase during this period.
Source of da ta : U .S . Department of Commerce
15
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