economic report of the president january 1947 · letter of transmittal the white house, washington,...

The Economic Reportof the President

TRANSMITTED TO THE CONGRESS

January 8, 1947

Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

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 corporateprofits after taxes for 1946 should be: 5#0 billiondollars for dividends, and 7*0 billion dollars forsavings*

I .Billions or dollars]

Year

192919301931 -1932 _1933 __19341935193619371938 -19391940- -19411942.194319441945.1946 2

TotalNa-

tionalIn-

come

83.368.954.540.042.349.555.764.971.564.270.877.696.9

122.2149.4160.7161.0164.0

Compensation ofEmployees

Total

53.148.240.631.729.834.537.543.048.345.148.152.364.584.1

106.3116.0114.5109.0

Sala-riesand

Wages

52.647.640.031.028.732.635.640.044.941.244.248.660.880.8

103.1112.8111.4106.0

Sup-ple-

ments

0.5.5.6.6

1.11.91.93.13.33.93.83.73.73.33.23.23.13.0

Net Income ofProprietors

Total

13.610.07.34.86.57.59.5

10.911.930.111.212.015.820.623.524.125.630.0

Agri-cul-

tural

5.23.82.41.52.22.74.14.45.14.04.34.46.39.7

11.911.812.515.0

Non-agri-cul-tural

8.56.34.83.44.34.95.46.56.86.16.97.69.6

10.911.612.313.115.0

Inter-estandNet

Rents

9.48.98.27.16.66.97.17.37.47.37.47.58.08.89.7

10.611.813.0

Net Corporate ProfitsAfter Taxes

Total

7.21.7

-1 .6- 3 . 6- . 6

.51.73.83.91.74.25.88.58.79.89.99.0

12.0

Divi-dends

5.95.64.32.72.22.72.94.74.73.23.84,04.54.34.34.54.5

-7,0

Sav-ings

1.2- 3 . 9- 5 . 8-6 .4- 2 . 8- 2 . 1- 1 . 3- . 9- . 8

- 1 . 5.4

1.84.04.45.55.44.5

1 National income is the total net income earned in production by individuals or businesses. The con-cept of national income currently used differs from the concept of gross national product in excluding de-preciation and depletion allowances and business taxes. A reconciliation between these two series andincome 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

THE 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 theCouncil of Economic Advisers, members of the Cabinet, and headsof independent agencies.

Respectfully,


TABLE OF CONTENTS

PageIntroduction vn

I. Review of 1946 1Employment 1Production 1Purchasing Power 1

II. Prices, Wages, Profits in 1946 2Piices 2Wages 4Profits 4

III. The Nation's Economic Budget 5Postwar Transformation 7

IV. Goalsfor 1947 9Employment Objectives 9Production Objectives 9Purchasing Power Objectives 10

V. Favorable and Unfavorable Factors in 1947 11Consumer Income and Expenditures 11Business Income and Outlays 15International Transactions 16Government Budgets 17

VI. Summary of Economic Conditions and Trends 19VII. Recommendations 20

Short-Range Program 20Prices and Wages 20Social Security 21Housing 21Taxation 22Labor-Management Relations 22

Long-Range Program 22Efficient Utilization of the Labor Force 24Maximum Utilization of Productive Resources 24Encouragement of Free Competitive Enterprise 28Promoting Welfare, Health, and Security 28Cooperation in International Economic Relations 30Combating Economic Fluctuations 32

Appendix A: Explanation of the Nation's Economic Budget 35Appendix B: Statistical tables relating to employment, production, and

purchasing power 41Appendix C: Excerpt from the State of the Union Message 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 athand.

The job at hand today is to see to it that America is not ravagedby recurring depressions and long periods of unemployment, but thatinstead we build an economy so fruitful, so dynamic, so progressivethat each citizen can count upon opportunity and security for him-self and his family.

Nor is prosperity in the United States important to the Americanpeople alone. I t is the foundation of world prosperity and worldpeace. And the world is looking to us.

I believe that the American people have the wisdom and the will touse our abundant resources so that all may prosper. I reject, andI know the American people reject, the notion that we must haveanother depression. I am not referring to minor detours and bumpsin the road ahead—these we know we shall have. I am referring toeconomic collapse and stagnation such as started in 1929. This neednot happen again, and must not happen again.

The Congress passed the Employment Act of 1946 by an overwhelm-ing bipartisan vote. This Act wisely provided for a Council of Eco-nomic Advisers to the President, men who as a result of training,experience, and attainments are exceptionally qualified to analyzeand interpret economic developments, to appraise programs andactivities of the Government and to formulate and recom-mend national economic policy.

The Congress also provided for a permanent joint committee toreceive and analyze this annual Economic Report of the President andto submit recommendations concerning it to both Houses.

In transmitting this first Economic Report, I am conscious of itssignificance as the beginning of a series of reports that will serve theExecutive and the Congress as the basis for an orderly and continuingreview of the economic state of the union and for integrated and com-prehensive steps to ensure the permanent economic health of theNation.

The Economic Report is an opportunity for national self-examina-tion and self-criticism. I t is a challenge to the President and the Con-gress to determine the causes of whatever problems we face in oureconomic life and to find the solutions to those problems. It providesan opportunity for all our citizens to judge the merits of the analysisand proposed action. It is a new and splendid tool to help us in ourtasks. And like all governmental tools, its effectiveness will increaseyear by year as we learn by doing.

vn


VIII INTRODUCTION

Prosperity cannot be the concern of one party or of one group. I tcannot be attained without the goodwill and the cooperation of all.

To build a greater America we must approach the task with unity ofpurpose, with patience, with wisdom, and with determination to over-come all obstacles. If we do this—and we must—I have no doubtabout the ability of Americans to build, on a firm basis of security andpolitical and economic freedom, a country in which the rewards weenjoy 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. Thiswas the highest civilian employment this Nation has ever known—10 million more than in 1940 and several million higher than thewartime peak. If we include the military services, total employmentexceeded 60 million. Unemployment, on the other hand, remainedlow throughout the year. At the present time it is estimated at about2 million actively seeking work. This is probably close to the mini-mum 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 war-time workers have found employment in the swiftest and most giganticchange-over that any nation has ever made from war to peace. At itspeak during 1946 aggregate employment was substantially in accordwith the objectives stated by the Congress in the Employment Act.

PRODUCTION

Total production turned out by the Nation's farmers and workerslikewise mounted to new peacetime levels. In 1946 it was about 50percent above the 1939 predefense level and only 15 percent belowthe wartime high. (Appendix B, Table I.) However, production isnot yet at its peak in relation to our present plant and manpowerresources. Bottlenecks, shortages of materials and components, labor-management disputes, and other reconversion difficulties have hadtheir retarding influence.

But with all these obstacles, production in the second half of 1946reached a higher rate than in any peacetime year. Goods scarce dur-ing the war began to fill dealers' shelves. The American people wereeating more food per capita than in any previous year, even thoughin some cases they were unable to buy exactly the kind of food theywanted. In total, people were supplied with more goods and servicesthan ever before. This indicates that when all our resources are fullymarshalled for peacetime pursuits, the whole American people willbe able to enjoy a standard of living far surpassing any that we haveever known.

PURCHASING POWER

The Congress, by setting maximum purchasing power as an objec-tive of National policy in the Employment Act, pointed to the im-portance of purchasing power in keeping our economy fully employedand fully productive. When people stop buying, business stops pro-

1727048—47 2


2 ECONOMIC REPORT OF THE PRESIDENT

ducing and employment drops. It is therefore of the utmost im-portance that at all times we be concerned as to the volume of pur-chasing power of the Nation and its relation to the volume of produc-tion 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 dollargoes down.

In 1946 the problem of linking maximum purchasing power withmaximum employment was not completely solved. To be sure, cashand credit were available to purchasers in extraordinary amounts.This was due to high agricultural and industrial earnings, large ac-cumulated savings, considerable extension of credit, and the paymentof veterans' allowances and mtistering-out pay. In the face of con-tinuing shortages of many kinds of goods and services, this led to aninflationary pressure. When price controls were relaxed and finallydropped, this pressure resulted in a substantial increase in the generalprice level.

The rise in prices that occurred in the latter half of 1946 greatlyreduced the purchasing power of the current incomes received by thelarge majority of people. It is true that some groups in the popula-tion received increases in income that for them balanced or more thanbalanced the rise in prices. But the large mass of consumers did notenjoy such offsets. How to effect a mutual adjustment of incomesand prices which will provide purchasing power adequate to sustainedmaximum production in the years ahead thus becomes a central prob-lem for private enterprise and Government.

I I

PEICES, WAGES, PEOFITS IN 1946

The relation of wages, prices, and profits is the key to the main-tenance of purchasing power. If prices are too low in relation towages, they squeeze or eliminate profits, stifling the initiative ofbusiness, interfering with production, and reducing or retardingemployment. If prices are too high in relation to wages, they restrictthe market and reduce employment, as well as causing suffering toindividual consumers.

PRICES

During the war years prices were on the whole successfully keptin check under the "hold the line" policy, with farm and food pricesrising somewhat more than most others. Between VJ-day and themiddle of last year when the lapse in price control occurred, pricesrose moderately, chiefly due to price increases granted to speed pro-duction or to take account of wage rises. The average increase inwholesale prices from VJ-day to mid-1946 was 7 percent, and in retailprices was 3 percent, although textiles and clothing rose considerablymore than the average.


ECONOMIC REPORT OF THE PRESIDENT

1 9 3 9 1 9 4 0 1 9 4 1 1 9 4 2 1 9 4 3 1 9 4 4 1 9 4 5 1 9 4 6 1 9 4 7

Source: Department of Labor



But between June and December wholesale prices jumped an addi-tional 24 percent, while the consumer price index climbed 15 percent.The sharpest increases were for the most part in farm and food prod-ucts, textiles, clothing, and in residential construction.

The Congress made clear its intent that decontrol be speeded. Infact, after the new price-control law was passed, the direct control ofprices soon became virtually impossible. I t was no longer a questionof whether it was in the interest of the workers, businessmen, farmers,and the public to control prices; it was a question whether pricecontrols were any longer workable. I t was the advice by late fallof labor, business, the farm groups, and my Cabinet that general pricecontrol be dropped.

Two things immediately happened. Prices rose sharply. Goodsthat had been produced under price control but withheld in the hopeof decontrol appeared on shelves.

The increase in consumer prices has substantially reduced the pur-chasing 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 inthe building trades, were dropped in order to permit a return, so faras possible, to collective bargaining. Indirect wage controls were,however, maintained until general price decontrol.

Between July 1945 and July 1946 the average wage-rate increasein manufacturing was about 10 percent. Nearly half of this increasewas offset by reductions in overtime, declines in piecework earn-ings, and the shift of workers from higher-paid wartime to lower-paid peacetime jobs. Thus, for manufacturing as a whole, theaverage hourly earnings of labor last July were 6 percent above whatthey were the year before. Because of the reduction in the workweekduring 1945 and 1946, weekly take-home pay declined in many indus-tries and rose but moderately elsewhere in spite of the increase in wagerates.

Since July 1946 there has been some further increase in wage rates,average hourly earnings, and average take-home pay, but less than theincrease in prices. Thus real earnings have fallen. (Appendix B,Tables VIII and IX.)

PROFITS

Business profits began to rise in many lines of nondurable goodsand in most trades and services soon after VJ-day. This rise reflectedthe increased volume of civilian sales. Price increases during the pastyear and removal of the excess-profits tax added still further to profitsafter taxes. In most of the soft goods and service lines, profits aftertaxes in the second quarter of 1946 were already above the levels of1944 and 1945. Further increases were reported for the third quarter.

But profits have been extremely uneven as between industries. Inmany of the reconversion industries, especially where volume wasslow 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 bythe carry-back provision of the tax law.

Third-quarter reports showed increased profits in most of the dur-able-goods industries, although price ceilings had not yet been gen-erally removed. Profits increased further during the fourth quarterwith the removal of price control.

We should not infer that all industries or all firms in a given indus-try were operating at a highly profitable level or that none wereincurring losses. We must also remember that the purchasing powerof the business dollar as well as the consumer dollar has been dimin-ished by the price rise. Nevertheless, taking account of all of theseconsiderations, it is plain that business in general is receiving excep-tional profits. (Appendix B, Table I I and X.)

I l l

THE NATION'S ECONOMIC BUDGET

The volume of employment and production in any given period de-pends upon the volume of expenditures. These expenditures are offour 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^ aheadand the relative proportion of our goods and services going to con-sumers, business, foreign markets, and Government, I here set forththe Nation's Economic Budget. (A detailed explanation may befound in Appendix A.)

The Nation's Economic Budget shows the distribution of incomeand expenditures among consumers, business, and Government, andimports and exports. I t sheds light upon whether price and wagepolicies and other public policies are encouraging an alignment amongthese four component parts which is favorable to sustained highlevels of economic activity, or which threatens us with an economicdecline. The Economic Budget also indicates whether a given level ofeconomic activity is being achieved mainly by private expenditures,or by public expenditures, and in what proportion. By comparingbudgets for different periods, we can discern favorable and un-favorable trends.

The Nation's Economic Budget is primarily a device for themeasurement of our economic activity. Use of this device is notwedded to any particular economic theory. The Economic Budget isan objective summary statement of our economy in action at a giventime, as reflected by the income and expenditures of its major parts.It reflects the aggregate actions of millions of consumers and businessesand of the Federal, State, and local governments.

By way of illustration, Table I contrasts the Nation's EconomicBudget during the last pre-defense year 1939 with the Budget duringthe war year 1944, and with the Budget during the transition year 1946.



THE NATION'S ECONOMIC BUDGETis made up of these components/

CONSUMERS

GOVERNMENT 1 9 4 4

1946

1939

BUSINESS &

INTERNATIONAL1 9 4 4

1 9 4 6

RECEIPTS

-EXPENDITURES

25 50 75 125 150

This is how the excess and deficit of receipts over expenditures is balanced.(inbillions)

- 5 0 - 25 0 +25 +50• CONSUMERS

U GOVERNMENT

BUSINESS &t* INTERNATIONAL

1939

1944

S946

mm1939

1944

1946

* Tht components do not add exactly fo the gross notional product because of certain minor adjustments,

' i * Includes adjustment for Government transfers abroad.



TABLE I.—The Nation's Economic Budget, 1989,1944, and 1946 l

[Billions of dollars; current prices]

Economic Group

CONSUMERS

Income after taxes.ExpendituresSavings (+)

Undistributed profits and reservesGross capital formation3

Excess of receipts (+);or capital formation (—).

INTERNATIONALNet importsNet exportsNet expenditures on foreign account

GOVERNMENT

(Federal, State, local)

Receipts from the public other than borrow-ing..

Predefense Cal-endar Year 1939

15

62

10

±T

- 1

War CalendarYear 1944

133

59

99

- 2

±T

+34

+7

+2

Reconversion Cal-endar Year 1946 *

142

57

127

27

±T

+15

-16

- 5

Payments to the public _ ___Excess of receipts (+) or payments (—).

ADJUSTMENTS

For Government transfers to public 4_For Government transfers abroad 8

18- 3

104-45

55

- 2 - 2 - 5 - 5-2

0+2

-16 -16- 4

+2

0+4

Gross National Product.. 198 198 194 194

1 See Appendix A for supporting tables and descriptive material.2 Preliminary.3 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' readjust-ment allowances, mustering-out pay, etc.

• Includes loans to foreign governments, subscriptions to international organizations, reimbursable lend-lease, etc.

POSTWAR TRANSFORMATION"

The figures for the years 1939, 1944, and 1946 show that a trans-formation has taken place in our economy since the last predefenseyear. The great increase in the total Economic Budget reflects thechange-over from an economy of substantial unemployment and mod-erate production to an economy of unparalleled employment andproduction. Great significance lies in the fact that the EconomicBudget for the year 1946 was almost as high as during the war year1944, and more than twice as high as during the predefense year 1939.Even allowing for price changes, we have made such great stridesforward in wealth and productivity that our thinking for the futurecan no longer be bound by the distant past.

The changes in the composition of the Nation's Economic Budgetduring these years also deserves attention.

During the war year 1944, Government expenditures were morethan half the total Economic Budget.



Business responded to the Government's demand with record pro-duction.

Private income derived from production doubled the predefenselevel, even after allowance for the increase in taxes.

Consumer expenditures increased, but due to the shortages of civiliangoods, effective price control, and patriotic motives for saving, theydid not increase nearly as much as they otherwise would have, thedifference going into savings.

In the transition year 1946, the expenditures of business and con-sumers once more took the lead, as the Government's wartime expendi-tures were drastically reduced. Business spent large sums for re-converting, overhauling, and modernizing plants and equipment andfor replenishing depleted pipe lines of inventories. High businessactivity resulted in high levels of consumer income and expenditures.Consumer spending was further increased by the use of wartime sav-ings and expanding installment credit, and in the case of veterans bymustering-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 ex-penditures and receipts in the Nation's Economic Budget were runningat the end of 1946. This is shown in Table I I .

TABLE II.—The Nation's Economic Budget During the J^th Quarter of theCalendar Year 1946

[Preliminary estimates; billions of dollars]

Economic Group

Consumers _.BusinessInternational..GovernmentAdjustments: Transfer Payments _"__Gross national product —

4th Quarter Seasonally Ad-justed Annual Kates

Receipts

14814

56- 1 3205

Expend-itures

135334

51- 1 8205

Excess(+)orDeficit

(-)

+13- 1 9- 4+5+5

0

Year as a Whole

Receipts

14211

57- 1 6194

Expend-itures

127275

55- 2 0194

Excess(+) orDeficit

(-)

+15- 1 6- 5+2

In comparing preliminary estimates for the fourth quarter of 1946with those for the year as a whole, the significant changes may besummarized as follows:

1. Government expenditures were reduced. This was highlydesirable, but it meant that much higher private expenditures wereneeded to sustain maximum employment and production.

2. Business expenditures increased, but a part of the increasereflected higher prices rather than increased production.

3. Consumer expenditures rose, but practically all of the increasewas attributable to the price rise. Consumer incomes rose lessthan expenditures and actually declined in real terms.

This trend in the position of consumers becomes of central impor-tance as we turn to a consideration of our prospects for 1947.



IV

GOALS FOR 1947

The Employment Act requires that this Economic Report set forththe levels of employment, production, and purchasing power neededto carry out the policy of the Act. This policy is to create and main-tain "conditions under which there will be afforded useful employmentopportunities, including self-employment, for those able, willing, andseeking to work, and to promote maximum employment, production,and purchasing power."

EMPLOYMENT OBJECTIVES

We do not know exactly how many people will want jobs during1947. Our labor force fluctuates by several million during the courseof any year, with the changing seasons, with boys and girls of schoolage going back to the classroom, and with part-time workers cominginto and going out of the labor force. The purposes of the Act wouldbe substantially achieved if during 1947 we sustain employment atabout the 1946 levels or slightly higher.

In maintaining a high level of total civilian employment, we mustalso achieve a better distribution between localities of labor scarcityand labor surplus; between occupations that are short of workers andoccupations that are overcrowded. The proper use of our workers isequally important both to the economy and to the individual.

PRODUCTION OBJECTIVES

During the last quarter of 1946, total national production is esti-mated 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 capableof doing with our present plant, manpower, and material resources.Bottlenecks in the supply of certain parts and materials have sloweddown production. So have labor-management disputes. With max-imum employment in 1947, we should be able to increase our total out-put significantly, although limits may be imposed by shortages ofbasic materials.

I t is not yet clear that our basic industries are fully adjusted to a200-billion-dollar peacetime economy. I t will become increasinglyimportant that capacity goals in the basic industries such as steel,power, and transportation be set high enough so as not only to sustainpresent and foreseeable levels of economic activity, but also to permittheir expansion.

It is not practical to state in physical terms just exactly how muchour production should be during 1947 because of the great variety ofgoods and services which our economy produces. To state productionin terms of dollars is of doubtful usefulness at the present time becauseprice levels may move up or down and any dollar figure set forth nowmight prove to be misleading. We do know, however, that a laborforce of the anticipated size can be expected to produce more goodsand services during 1947 than were produced during the past twelvemonths. Perhaps an over-all increase of 5 percent might be a reason-able objective for maximum production.

727048—47 3


1 0 ECONOMIC REPORT OF THE PRESIDENT

A considerable amount of last year's production went into the re-building and reequipping of our manufacturing plant and the replen-ishing of producers' and dealers' inventories. We can expect an in-creased flow of consumer goods during 1947 even if there were to be noincrease in total output. Hence, a 5-percent increase in total produc-tion would mean a greater proportionate increase of consumer goods.

The question, therefore, will become one of the ability of consumersto buy the total supply of products offered to them.

PURCHASING POWER OBJECTIVES

Consumer purchasing power depends upon the flow of money intoconsumers' hands as current income. It depends also on the use of pastsavings and the rate of current saving. I t depends on the use of creditand it depends upon what money will buy; that is, upon the level ofprices.

No attempt will be made to set a dollar figure on the purchas-ing power needed to buy the goods and services which the Nationwill produce in 1947. I t is plain, however, that if employment is toremain high and if production is to increase in 1947, real purchasingpower must rise sufficiently to take the increased production off themarket.

I t has been stated that maximum production for 1947 would giveus an over-all increase of some 5 percent above the level reached duringthe last quarter of 1946.

This increase would be due only in small part to a slight rise inthe number of workers employed, and principally to the increasedefficiency of the productive process as the lingering impediments tomaximum production are eliminated.

What are*the chances that consumers could buy an additional severalbillion dollars' worth of product if present prices and pay rates weremaintained? Only a minor portion of the value of the additionalgoods and services produced in 1947 would be reflected in additionalconsumer income. The greater part of the additional income wouldbe represented in the surpluses of governments and in reserves of busi-ness concerns. Thus it follows that consumers would have to buy con-siderably more goods and services with only slightly increased income.This could be done only if consumers made still freer use of credit, orif they reduced the rate of their new savings and drew heavily upontheir past savings. Although consumer credit has not yet reachedprewar levels, it has already expanded gfeatly, and still freer usemight build up difficulties for the future. The rate of net savings, asshown elsewhere in this Report, has receded to a point below whichit can hardly be expected to fall. Increasing consumer purchasingpower in this way could at best be only a temporary solution, andcertainly not a desirable one.

Another method by which the markets could be cleared of theenlarged volume of goods and services produced in 1947 would be toenlarge the real purchasing power of the consumers by increasingtheir incomes. It would be unrealistic, however, to expect that thisincrease in real purchasing power of consumers could occur solelythrough a corresponding increase in money incomes. An attempt toraise 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 curtail-ments of production or wage-price spirals. Further, there is nopractical way to distribute such wage and salary increases throughoutthe whole population in such a manner as to effect the desired supportsto the market. The groups of wage and salary garners whose pur-chasing power has been most reduced are the very ones who are likelyto participate least in an increase of money earnings. Such concentra-tion of pay increases within particular groups would make even moredifficult the task of obtaining a sufficient total increase to sustainmaximum employment, production, and purchasing power.

Thus it follows that we could not expect to attain the economicobjectives for this year solely by an increase in money incomes. Amajor approach to bringing real purchasing power of consumers intobalance with productive capacity this year must be through reducedprices.

The emphasis on price reduction as a major route for an increasein consumers' purchasing power does not overlook the desirability ofincreases in pay rates in some sectors.

I t follows that only through adjustments both in the price and paystructure, made with discriminating regard for specific circumstancesrather than on an over-all national basis, can we achieve a sustaineddemand for the maximum output which the American economy is ableto produce this year.

V

FAVORABLE AND UNFAVORABLE FACTORS IN 1947Because the health of our economy depends on the acts of 140 mil-

lion people with millions of separate enterprises, including farming,,business, and professional, it is not possible to forecast the precisecourse of events a year in advance in a report of this kind. Indeed,the Employment Act contemplates that the state of the Nation's eco-nomic health must be constantly watched so that timely policies maybe adopted during the course of the year as conditions change. Wecan, however, appraise in advance some of the favorable and unfavor-able factors affecting the expenditures of consumers, business, foreignbuyers, and Government.

CONSUMER INCOME AND EXPENDITURES

The main facts about consumer income, expenditures, and purchas-ing power are given in Appendix B, Tables I I , I I I , and V. HereI shall comment briefly upon a few of the favorable and unfavorablefactors.Favorable factors in consumer demand

Consumer demand has been at very high levels since VJ-day. Thishas been due largely to two factors: First, the pent-up demand formany goods that have been scarce in recent years; and, second, a levelof incomes and purchasing power substantially higher than in prewaryears.

Some of the pent-up demands are gradually being met, but duringthis year we can anticipate continued high demand for a number



of items that have been scarce, including housing, automobiles, appli-ances, and many housefurnishings.

With larger supplies of durable goods coming on the market thisyear, an increased proportion of consumer expenditures may be madefor these items and a smaller proportion for nondurable goods andservices. Such a shift may be listed as a favorable factor because itwill tend toward the reduction of the prices of many nondurable goodsand services which were raised to extraordinarily high levels in 1946because of the concentration of consumer expenditures in these fields.

The most solid and permanent foundation for consumer demand iscurrent disposable income. In this there has been great improvementsince the prewar period, even when account is taken of the increase inconsumers' prices. The following table illustrates this:

TABLE III.—Per Capita Disposable Income

Year or Quarter

1935-39 (average)1944 _19451946 2 -

Seasonally Adjusted Annual Rates:First quarterSecond quarter-Third quarterFourth 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) of145 billion dollars in 1946. This represents an average of $1,026 percapita. In the prewar period, 1935-39, the corresponding figure was$497. I t is true that a large part of this increase in income was ab-sorbed by higher prices. The Consumer Price Index in 1946 averaged39 percent above the 1935-39 level. This index measures the increasein the retail prices of most of the goods and services bought by familieswith low to moderate incomes. It provides a rough measure of thegeneral rise in prices paid by consumers as a whole. Thus, it appearsthat average per capita incomes rose considerably more than prices.This means that the average per capita real purchasing power in 1946was substantially greater than in the prewar period.

In consequence of these improvements, and in spite of some con-tinued shortages, the average American family is buying more food,clothing, and other things than ever before. The total volume of con-sumption of these and other things, particularly durable goods, needsto be maintained and expanded if 1947 is to be a year of maximumproduction.Unfavorable factors in consumer demand

Despite the continuance of many favorable factors, the recent trendsin consumer purchasing power are disturbing. Many groups of con-sumers suffered a larger drop in purchasing power in the latter halfof 1946 than is indicated by the trends in average per capita dispos-able income shown in Table IV. The purchasing power of wageshas dropped seriously, especially during trie past six months. The $46weekly take-home pay of the average factory worker in October 1946bought only about as much as the $35 he received in April 1942.



In consequence of these developments, and the appearance of moregoods on the market, there has been a marked change in saving byconsumers, indicated in the following table:

TAB:LE IV.—Trends in Consumers' Savings

Year or QuarterDispos-

ableIncome

Less:ConsumerExpendi-

tures

Equals:Savings

Percent of Dispos-able Income

Spent Saved

1935-39 average _1940194119421943... .1944194519461

Seasonally Adjusted Annual RatesFirst quarter _Second quarterThird quarterFourth quarter 1 __ _.

(Billions of dollars)64.372.988.7

110.6124.6137.4139.6144,5

138.0141.8148.4149.7

58.865.774.682.091.398.5

106.4127.0

120.9122.0129.4135.5

5.57.3

14.228.633.338.933.117.5

17.119.819.014.2

91.490.184.174.173.371.776.287.9

87.686.087.290.5

8.69.9

15.925.926.728.323.812.1

12.414.012.89.5

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 theirtotal disposable income. A major part of this saving reflected short-ages of civilian goods, effective price ceilings, and patriotic bond pur-chases. The rate of savings has fallen substantially since then, andby the end of 1946 had dropped to a little less than 10 percent ofthis disposable income. This was only slightly above the level ofsavings in the prewar years 1935-39. I t is doubtful whether the rateof consumer savings will or even can be reduced much further exceptby adversity.

In spite of the high rate of savings during the war, it is unsafeto assume that most American families still have enough savingsin hand to supplement current income for any considerable length oftime. Recent surveys indicate that 24 percent of American familiesheld no war bonds or bank accounts in 1945, and 29 percent held lessthan $500 of savings in these forms. Available data point to the factthat past savings have been used to supplement current incomes duringthis past year.

Another element in current trends is the rapid increase in install-ment and credit buying during recent months. Consumer credittotaled almost a billion and a half dollars more in November 1946than in March. But undue extension of deficit financing on the partof millions of American families can gravely hurt our business systemand lead in the end to deficit financing by the Government. In thelong run, consumers must rely on current incomes for purchasingpower.

If consumer incomes should remain at current levels, we wouldexpect savings to drop little, if any. Consequently we would not ex-pect consumers as a whole to spend much more money than they werespending at the end of the year, without considerable expansion in con-sumer credit, unless total consumer incomes are increased. (Appen-dix B, Table IV.)

Some of my short-range recommendations bear upon this problem.


14 ECONOMIC REfORT OF THE PRESIDENT

THE CHANGE IN SAVINGSSince V-J Day, people are saving less money, though still morethan in the prewar days.

BILLIONS OFDOLLARS

150

125

100

75

50

25

0

DISPOSABLE INCOME(Income payments less taxes)

NETSAVINGS-

CONSOMO

w NT

1939 1940 1941 1942 1943 1944 1945 1946 1947

About 10% of disposable income is being saved today — approximatelythe prewar rate — as compared with some 30% in 19441

PER CENT

30

20

10

1 9 3 9 1940

* Seasonally adjusted, annual rate

NET SAVINGS AS PERCENTnt niCDPp i n i r mnnurUr UloPl

^ ^

JOHDLL m i

^ ^

UML

/

/

I \ \K1 9 4 1 1942 1943 1944 1945 1946 1947

Source: Department of Commerce



BUSINESS INCOME AND OUTLAYS

Business investment, as the term is used in the Nation's EconomicBudget, includes investment in industrial plant and equipment, in in-ventories, in commercial construction, and in residential construction.To maintain maximum production and employment in 1947 it is de-sirable that business investment be at an annual rate at least equal tothe annual rate prevailing in the last quarter of 1946.Plant and equipment

During the war years, a large deferred demand for industrial andcommercial construction and equipment had been accumulating.

In 1946, business investment in plant and equipment approximated15 billion dollars as compared to 12 billion dollars in 1929 and about7 billion dollars in 1939. Even with allowances for a substantialris,e in costs, it is evident that the most recent rate of investmentin plant and equipment is much higher than before the war and thedefense program.

For the long run, continuation of expenditures for privately financedproductive facilities at anywhere near the recent levels will dependupon the size of our peacetime market, investment incentives, and therate of technological progress, rather than upon backlog.Inventories

Business inventories increased six to seven billion dollars in 1946, andat the end of the year were worth about 33 billion dollars. Althoughthis sum is not disproportionate to total sales, there may be a declinein the rate of accumulation in 1947. As uncertainties in supply andprice clear up, inventories will become more stable. A reduction in therate of inventory accumulation will mean a lower level of businessinvestment in this area and raises the question of whether or how itis to be offset by increases in other forms of investment or consumerexpenditures.Commercial construction

During 1946, the volume of commercial construction, although lim-ited by the shortage of materials and by the requirements of the Veter-ans' Emergency Housing Program, reached one billion dollars. TheCivilian Production Administration was obliged to defer a large pro-portion of the nonresidential building applications so that demandfor commercial buildings remains high.

In addition, the distributors of goods and services as a whole,although with individual exceptions, have enjoyed record profitsduring the past year and apparently are in a position to finance anexpansion of their capital facilities. However, the high costs of con-struction tend to offset in some degree the favorable outlook createdby the continued existence of substantial demand.

At the present time not only have new residential areas been builtup without a corresponding building up of commercial facilities, but



substantial additional residential construction would create still fur-ther 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 in1947 at the current price level in order to maintain a satisfactory levelof activity in this field. As a result of the Veterans' Emergency Hous-ing Program in 1946 the supply of materials has been increased suffi-ciently to permit the building of at least 1,000,000 houses in 1947.

However, the price problem in housing is even more serious than inother lines because the gap between consumer income and housingprices is so great. While material prices may fall substantially thisyear, the gap will still remain dangerously high, especially for thelower income groups. But even if the backlog demand provides aready market for all the housing which is produced in 1947, thissuperficially satisfactory situation would plant the seeds of a collapsein residential construction within a few short years because thenumber of families who can afford high-priced houses comprises onlya small part of the population.Favorable factors in business demand

The prospects for business investment are brightened by severalclear elements of strength. The first of these is the availability ofabundant aggregate funds including ample bank credit.

The second favorable factor is that profits in most lines of industryand business have been highly rewarding during 1946 and have beenrising quarter by quarter. The profits outlook for 1947 suggests ade-quate motive for investment in plant, equipment, and inventory tomeet the wants of a people functioning at maximum employment.

Still another favorable factor is the backlog demand for construc-tion."Unfavorable factors in business demand

Threatening the continuation and expansion of business investmentis the fear that a drop in general consumer demand may be in theoffing.

Another main factor that could adversely affect business confi-dence, and thus business demand, would be the recurrence of seriousmanagement-labor disputes. Also, the high cost of housing consti-tutes an adverse factor. Finally, business demand may be somewhatrestricted by shortages of certain basic materials.

INTERNATIONAL TRANSACTIONS

The net balance of international transactions in 1946 was about thesame as we can anticipate for 1947. Some changes in the componentsof that balance and in the methods of financing it, however, are bothdesirable and likely to occur.



Intense demand of foreign countries for goods available only orchiefly in this country has been one of the factors accounting fora high level of employment, production, and purchasing power in theUnited States during 1946.

Our receipts from the sales of goods and services abroad have re-cently been running at a rate of about 15 billion dollars a year, com-pared with only 4 billion dollars prior to the war.

Foreign demand for United States goods at present is associatedwitli the incompleteness of reconstruction in war-devastated areas,and it will continue to be high during 1947, even though somecountries may be reluctant to purchase at our current high prices.Sufficient resources will be available to foreign countries to financeurgently needed purchases from us. Any recession in domestic de-mand would permit us to meet soone of the now unsatisfied foreigndemand, with a resulting increase in exports. Even if this shouldbe confined to a rise in quantities rather than in the dollar values itwould be a factor cushioning the effects of any dip in domestic produc-tion and employment.

Should fears concerning our willingness and ability to buy andlend abroad increase, however, foreign countries may husband theirdollar 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 receiptsfor the current fiscal year, and transmit recommendations for thenext fiscal year. There is no need to repeat those details in thisEconomic Report. It should be noted that the Government receiptand expenditure figures used in the Economic Report are not identicalwith the conventional figures of budget estimates, because they referto the calendar year rather than to the fiscal year and because theyare on a consolidated and cash basis in order to measure the economicimpact 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 asurplus toward the retirement of the national debt. The expenditurepolicies are designed exclusively to cover the essential cost of nationaldefense and war liquidation, to meet our international commitmentsand the obligations to war veterans under existing law, to carryforward programs required by the Congress, and to take some smallbut essential further steps toward fulfilling the duties of alert andprogressive government.

Nevertheless, it is obvious that Government transactions, which—including Federal, State, and local government—total more than afourth of our national product, profoundly affect the whole economy.An analysis of the economic impact of Government expenditures isfacilitated by a break-down of the totals according to the type ofrecipients and character of the payments. Federal payments to the

727048—47-



public are classified along lines of economic significance in thefollowing estimates:

TABUE V.—Federal Cash Payments (inch net loans) to the Public

[Billions of dollars]

Payments to—

1. Active Federal personnel:CivilianMilitary _ _

Total - .-

2. Individuals (other than active Federal personnel):CivilianMilitary . — -

Total

3. Farmers (incl. food subsidies)l - .4 Business 1

5. Holders of the Federal debt (interest payments) . .6. State and local governments7. International organizations, foreign governments and U. S. exporters...8. Producers of goods and services, transportation, and miscellaneous

Total

Calendar year

1946

5.26.1

11.4

4.17.8

11.9

1.01.83.91.02.1

11.6

44.7

1947

4.33.6

7.9

3.76.5

10.2

1.21.03.71.53.99.7

39.0

Change

—0.9- 2 . 5

- 3 . 5

—0.4- 1 . 3

- 1 . 7

+0.2-0.8-0.2+0.5+1.8-1.9

-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 about6 billion dollars from calendar year 1946 to calendar year 1947, Stateand local expenditures are expected to increase by approximately 1billion dollars, largely because of a probable increase in expendituresfor public works, veterans' bonuses, and an increase in pay rates.

Thus there will be a net reduction in governmental expenditures onall levels by about 5 billion dollars. As has been shown in Table I Iabove, a considerable decline in Federal expenditures took placeduring the calendar year 1946, and only a small further decline isexpected for this year as compared with the end of last year. Theeconomy seems already to have adjusted itself to the decline in Fed-eral spending that took place during the first three quarters of 1946without a net loss in employment or production. This testifies to theeffectiveness of reconversion policies.

During the war, State and local payments were reduced below pre-war levels whereas receipts from the public increased somewhat. Thetotal of State and local gross debt was reduced by about 4 billiondollars.

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 greatlydifferent from those in 1946 unless there is a sharp drop in economicactivity or prices. Payments to and receipts from the public of Stateand local governments will be in approximate balance during thisyear.



VI

SUMMARY OF ECONOMIC CONDITIONS AND TEENDS

On the plus side of the economic ledger we possess a fabulous wealthof resources. Our industrial plant is larger and, in many cases, betterthan ever before. Funds for business expansion are ample and profitincentives are high in most lines. Our labor force has greatly in-creased its number of semiskilled and skilled workers. The spendingpower of consumers, as a whole, is much higher than it ever was beforethe war. Consumer desires are fortified by a backlog of unsatisfiedwants, particularly for housing, commercial construction, automo-biles, household appliances, furnishings, and other durable goods.There are long-deferred and needed public works—Federal, State, andlocal. There is a strong and sustained foreign demand. More thanthat, we can be optimistic about the desire to buy, because of thehigher standards of living which almost all of our people have recentlyenjoyed and which they do not want to forego.

While these favorable factors in our economic situation are funda-mental, it is more practical and profitable to examine weaknesses thatneed corrections than to congratulate ourselves upon the blessingswhich we already enjoy.

1. Chief among the unfavorable factors is the marked decline inreal purchasing power of great numbers of consumers, resulting fromthe large price increases in the second half of last year. Maximumproduction and employment this year would yield a substantial in-crease in the available supply of consumer goods and services, espe-cially in the area of durable goods. This requires higher real pur-chasing power to take the goods off the market.

If price and wage adjustments are not made—and made soonenough—there is danger that consumer buying will falter, orders tomanufacturers will decline, production will drop, and unemploymentwill grow—unless consumers resort to large additional borrowingand use of past savings to buy the increased supply of goods. Thesetemporary expedients are limited in power and even if availablewould merely postpone the day of reckoning.

2. Weakening of the activity of investment might operate also asan obstacle to maximum employment, production, and purchasingpower. If industrial and commercial construction slackens, and pricesifor residential construction remain high as compared with incomesof laborers and white-collar workers, our maximum employment ob-jective might be threatened this year or soon thereafter.

3. Labor-management strife, with severe work stoppages, remains apossibility. This would directly interfere with production or employ-ment by creating or intensifying shortages of materials, parts, orequipment. Through creation of uncertainties about demand or supplyand costs %of materials, it might lead to reductions in business outlaysfor plant, equipment, and inventories.

That is why in my State of the Union Message I placed so muchstress upon successful labor-management relations.



During this year, the underlying favorable factors are strong enoughto maintain high prosperity. But this year brings us face to face withmaladjustments and unfavorable possibilities which, if not correctedor*prevented, could cause a recession in production and employment.The Government will watch this situation and be prepared for actionif needed.

I shall now proceed to discuss the contribution labor, business, agri-culture, and the Government can make to the solution of these basicproblems, 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 aswell. But they merit immediate attention from the Congress andfrom the people as a whole because of their influence upon economicconditions in 1947.1. Prices and wages

Removal of emergency price and wage controls has restored themain responsibility for prices and wages to business, labor, farmers,and consumers. The Government can point out dangers seen fromthe perspective of the whole economy, but the correctives must largelybe applied by others.

Business should reduce prices wherever possible in order to bringabout the necessary increase in consumer purchasing power to bolstertheir markets. Price reductions are especially needed in the case ofgoods such as many articles of food, clothing, housefurnishings, andbuilding materials, whose prices have risen out of line. If busi-ness makes these reductions in a timely and orderly way, it will helpsustain markets rather than destroy them.

Farmers must realize that last year's exceptional farm prices willfall somewhat as world food supplies increase and as consumers finda more ample supply of durable goods to purchase. Existing pricesupports afford protection against a severe price decline.

Labor, on its part, must recognize that high volume at low costs andlow prices requires high productivity and the absence of restrictionson production. For its own advantage as well as that of the countryat large, labor should refrain from demands for excessive wage in-creases that would require price increases or would prevent pricereductions that are necessary to sell the capacity output of the product.

Management in turn should recognize that increased productivitypermits wage increases in some cases as well as price reductions; andthat wages and salaries need to be raised where they have lagged sub-stantially behind the increase in living costs in the past few years orwhere they are substandard.

But just as there can be no universal or uniform rule to govern pricereductions, so there can be no uniform rule relating to wages. Bothprice adjustments and wage adjustments are necessary in the ensuingmonths. Wage adjustments, like price adjustments, need to be made


ECONOMIC REPORT OF THE PRESIDENT 2 1

with a discriminating regard for individual situations throughout theeconomy.

The Government can help in several ways to maintain a balancebetween prices and wages. Procurement agencies will avoid policiesthat stimulate price increases or prevent reductions. Disposal ofsurplus goods will be speeded. The antitrust laws will be appliedvigorously to prevent and eliminate restrictive practices and pricingabuses.

The Congress should take steps at once to extend rent control beyondnext June. A large increase in rents would substantially reduce con-sumer purchasing power.

On the wage side, the Congress should extend the coverage of theFair Labor Standards Act to classes of workers in interstate commercenow excluded, and should raise the minimum wage in view of thesubstantial rise in the cost of living and in the national productionsince it was enacted.2'. Social security

I shall treat generally of the social-security program in a subsequentsection dealing with long-range programs and recommendations. Inview of current economic trends, however, certain, action is desirableat once. I urge the Congress to take immediate steps to revise benefitpayments under the social-security system. The Congress has alreadyauthorized a temporary increase in public assistance benefits. Thislegislation expires by the end of this year and new legislative actionis required. Benefits under the old-age and survivors' insurance sys-tem should also be adjusted. These measures are necessary to alle-viate real hardship which has been aggravated by increases in the costof living. Beyond that, adequate social-security benefit paymentsprovide a desirable support to mass purchasing power.3. Housing

More than a million additional housing units need to be started in1947. This goal will not only furnish badly needed shelter to ourveterans and other citizens, but will result in a sizable contributionof the housing industry toward employment and purchasing power.At the lowest cost levels foreseeable this year, one million additionalhousing units will approximate an investment of 6 billion dollarsduring 1947.

As shortages of materials and manpower disappear, the main threatto a high volume of housing is the high level of current housing pricesrelative to the volume of consumer income.

To reduce the cost of housing on all fronts and by all desirablemethods, we must start as promptly as possible a long-range housingprogram. Such a program can stimulate large investments in landacquisition and preparation for development. It can start the flowof new types of private investment into housing ventures. I t canbring the traditional home-building industry into rental housing aswell.

No subject has received more protracted study by the Congress lead-ing to more uniform conclusions. Nonpartisan housing legislation4

was introduced in the Seventy-ninth Congress and passed the Senateby a large majority.



On several occasions, I have urged enactment of this program whichwas developed within the Congress itself. I again urge enactmentof this program at the earliest possible moment.^. Taxation

Expert and lay opinion is in agreement on the rule of sound publicfinance that calls for a surplus in Government revenues over expendi-tures while employment is high and the total of income is large. Inthe present economic situation, it is clear that it would be unsoundfiscal policy to reduce taxes.

Everyone is agreed that the tax burden is great and should bereduced as soon as possible. When reductions come, it will be im-portant that they be fairly and .equitably distributed, that they con-tribute to the maintenance of purchasing power by reducing theburden on the mass of consumers, and that they help provide the workand business incentives essential for a high level of production. Thereare various ways of accomplishing these objectives of tax policy andof making an equitable reduction of taxes fairly distributed over alllevels of income. These problems should receive careful study so thatwe 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 Mes-sage, recommendations covering the broad field of labor-managementrelations, and need not dwell further on them here. (Appendix C.)

I t is important, however, to emphasize once more, in relation toour goal of a permanent high-production, high-employment economy,the key responsibility that both management and labor have in help-ing to achieve this goal. Sound collective bargaining is essential.

In order to build an enduring prosperity for ourselves and ourchildren, we must and we shall solve the problem of making necessaryadjustments in wages and working conditions without round afterround of crippling and futile halts in production.

LONG-RANGE PROGRAM

The war has left us a tremendously increased productive poten-tial, and further increases are in store. In order to keep our expand-ing economic activity in line with our growing capacities, the extraor-dinary postwar demand that we enjoy today must be transformedinto sustained demand of an expanding peacetime economy.

Elimination of wartime controls does not mean that we want to goback to the size of economy we had before the war. The possibilitiesand requirements of a sustained 200-billion-dollar economy differ fromthose of an unstable 100-billion-dollar economy.

A variety of measures will be needed to fortify the basic structureof the American economy before the transformation from war andreconversion to a high-consumption peacetime economy is completed.We are still at the threshold in formulating a program of consistentpolicies designed to give business, agriculture, and labor the oppor-tunities which are envisaged in the Employment Act.


ECONOMIC REPORT OP THE PRESIDENT 23

THE LABOR FORCESince V-J Day, the armed forces have releasedover ten million men and women.

MILLIONS OFPERSONS

10

5

0

ARMED 1

niiiiiiiiiiiiiji

ORCES

niiilllllllillllll gill II I in Illllll1940 1941 1942 1943 1944 1945 1946

and the civilian labor force has reached peak levels

1940 1941 1942

' New series beginning July 1945

1943 1944 1945 1946

1947

1947

Source: Department of Commerce



A long-range program designed to strengthen the structure of theAmerican 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 forceThe Nation's labor force is its greatest productive asset. Prudent

use of our human resources requires a working population not onlylarge and well-trained, but enjoying high American standards ofhealth, education, security, and personal and political freedom.

We must develop and utilize fully the skills of our labor force. Wemust improve productive efficiency through industrial training andcounseling focused on employment opportunities in various occupa-tions, industries, and localities. I am directing the Federal agenciesconcerned to initiate a study of these programs, in cooperation withState and local authorities, in order to improve such training andservices and to remedy inconsistencies and gaps.

The return of the Employment Service to State administrationshould not result in its disintegration into 48 disconnected pieces, norin the subordination of the placement service to unemployment insur-ance. An efficient placement service requires uniform minimumstandards and an integrated interstate system for disseminating jobinformation and placing workers across State lines.

We must end discrimination in employment or wages against certainclasses of workers regardless of their individual abilities. Discrimina-tion against certain racial and religious groups, against workers in latemiddle age, and against women, not only is repugnant to the prin-ciples of our democracy, but often creates artificial "labor shortages"in the midst of labor surplus. Employers and unions both need toreexamine and revise practices resulting in discrimination. I recom-mend that, at this session, the Congress provide permanent Federallegislation dealing with this problem.2. Maocirrvwri utilization of productive resources

In our free-enterprise system, we rely mainly upon private initiativeto expand the productive base of the economy. Our productivecapacity has grown not only through technological developments, butalso through a steady stream of additions to plant and equipment.Output per man-hour has increased on the average some 3 percentper year over the decades.

The whole history of America indicates that this progress can beentrusted mainly to the initiative and inventiveness within our busi-ness system. But we do need Nation-wide concerted action to removethe fear that demand will periodically be inadequate to absorb maxi-mum production. This is what puts brakes upon inventiveness andinitiative.

Even in times of prosperity, aside from war, a substantial portionof our productive facilities has been idle. Recurrent depressionshave brought paralysis to as much as one-third or even one-half of ourplants and machines.



While the Government has a function in the encouragement of newindustries and the development and dissemination of research, thegreatest incentive that the Government can provide for business pro-ductivity is through helping to prevent depressions. If productionincentives are adequate, business will expand without hesitancy whenmarkets for its products are reasonably assured through a successfulNation-wide program for continuous maximum employment, produc-tion, and purchasing power.

Agriculture.—The soil is one of the most valuable economic assetsof the Nation. Most effective utilization and conservation of this re-source should be an important aim of the agricultural program of theGovernment.

We have experienced amazing technological progress in agricultureand further progress is to be expected. This progress necessitates ad-justments in farming, adjustments in the processing and manufactureof foods and clothing, and in the process of distribution.

American agriculture suffered a severe depression in the years fol-lowing the First World War. This situation was generally recog-nized by ajl groups. It resulted in large-scale governmental pro-grams to help the farmer get incomes more nearly in line with the in-comes of other groups.

The long-range agricultural policy of the Government should beaimed at preserving the family-sized farm and preventing anotheragricultural depression as we go through the readjustments followingthe Second World War. I t should help to see that farmers' incomesdo not fall below those earned by other comparable productive groups.This should involve the least possible interference in the managementof actual farming operations. It should be accomplished without useof subsidies so far as feasible. We should seek to make it possible forfarmers to earn good incomes through their own efforts.

Above all, the long-range agricultural policy of the Governmentshould be based upon the principle of plenty and not upon the encour-agement of scarcity. The term "maximum production" in the Em-ployment Act applies to the farm as well as to the factory. This basicpolicy is inconsistent with a policy of production restriction, thoughwe must take a realistic view of the proportion that agriculture as awhole bears to the economy and also of the relative amount of effortdevoted to the several lines of production. Our domestic capacity toabsorb the products of our farms—if farmers are encouraged to turntheir productive efforts in the right directions—will be enormous aswe get nearer to solving the problems of sustained employment andhigh purchasing power. How much of an export surplus from theUnited States the markets of the world will be able to absorb will de-pend in part on our international economic policies, notably as to in-dustrial imports and overseas investments.

Agricultural production increased more than 30 percent during thewar. Technological improvements in farming and in food distribu-tion would make it possible not only to continue this high rate of pro-duction, but also to increase it substantially during the next few years.

The high rate of agricultural production during and since the warhas been supported by unusually high rates of food and fiber consump-tion. For the satisfactory solution of our agricultural problems dur-ing the next several years it is essential that we maintain these high



rates of consumption, or even increase them. This is desirable notonly from the farmer's point of view, but from the point of view ofAmerican diets and standards of living.

The Congress has recently authorized a permanent school-lunchprogram in cooperation with the States. I hope this program will beexpanded until we are sure that every American school child gets anadequate diet. In addition, we should study carefully the possibleneed for food and nutrition programs to reach low-income families.

The Congress also recently authorized a broad and strengthenedprogram to improve the marketing and distribution of farm products.This includes the strengthening of research and educational work, aswell as the improvement of the various marketing services performedby the Government. We shall need to give increasing emphasis tomarketing during the next few years. Better marketing can go a longway toward maintaining adequate rates of consumption, with benefitto farmers and the public alike.

We must honor the Government's commitment to support farmproduct prices during the period of readjustment to a stabilized peace-time basis. However, experience within the past year Jias demon-strated, on a small scale, some of the dangers that may result fromholding the support level for any commodity too high. This onlyleads 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 atreasonable levels must be kept flexible. I t should be designed to en-courage adjustments of production in line with the capacity of marketsto take products at a price remunerative to efficient farming. I t shouldpromote well-managed use of our vast resources of farm land,machinery, and agricultural labor in such ways as to be profitable tofarmers and of maximum benefit to the public as' a whole.

The standard of living on farms depends on more than the amountof money income received by farmers. Farm communities have neverreceived comparable treatment with cities in such matters as education,housing, medical care, health, nutrition, and social security. Federaland State programs in these fields should give increasing attention tothe needs of rural areas.

Regional development.—Wide regions of this country still hold thepromise of tremendous economic development. The Governmentshould examine particularly the contribution it can make toward thisdevelopment by stimulating production and distribution oflow-cost hydroelectric energy, by developing flood control and naviga-tion, by improving roads, by enforcing fair competitive rates of trans-portation, by removing barriers to truck transportation, by land drain-age and irrigation projects. We need to rebuild croplands, grazingareas, and forests. Future programs of resource and industrial de-velopment should be prepared so that we can move ahead rapidly atthe appropriate time.

Even under today's full employment conditions, there are a fewchronically depressed areas, and some areas left stranded by the endof the war. These problem areas were created by the interplay ofNation-wide forces, and our Government has the responsibility ofassisting these communities in developing ways and means of improv-ing their positions. The Council of Economic Advisers will giveparticular attention to these problems.



Federal-aid programs,—The Federal Government is engaged inseveral programs of grants-in-aid to State and local governmentsinvolving 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 greatlytoward bringing all sections of the country up to the levels of pro-ductivity consistent with American standards of living.

I have asked the Council of Economic Advisers to cooperate withthe Bureau of the Budget and other Federal agencies concerned, andwith State and local advisory committees, to undertake a study ofFederal grants to State and local governments to determine to whatextent revised standards for the distribution of these grants may takeinto account more fully the needs for support that exist in variousparts 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 dailyproblems of business operations nor to the daily needs of consumers,they are subject to adjustment in their time of commencement andtheir rate of progress. This had led, particularly in recent years, toan overemphasis upon the prospects of stabilizing our whole economythrough the bold use of public works.

There are valid reasons why public works cannot accomplish asmuch toward stabilization as some have supposed. In the event ofsevere unemployment, they cannot be generated in sufficient volumeto avoid supplementation by other means. In a period of mild reces-sion, they cannot be generated on time to be fully effective. If thetempo of the public-works program is geared to some business index,the reserves accumulated for emergency use may be used after theyare needed and they then become inflationary rather than stabilizing.Even if advance preparations are made through the completion ofplans, the acquisition of sites, and the accumulation of funds, therewill be an inevitable time lag between calling the emergency programinto operation and the employment of men on the job.

These comments are substantiated by experience. The chief lessonto be learned is that no one device constitutes an adequate safeguardagainst recession or an adequate fighting apparatus againstdepression. All useful devices need to be thought through in advanceand blended into a consistent program.

Instead of regarding public works as the first and foremost deviceto restore our whole economy when it sags, we should attempt tostabilize public-works construction according to our long-term needs.Increasing regularization of public-works expenditures at all levelsof governmental activity over a long period will offer an assuranceof a demand for capital, of a market for materials and equipment,and of a field for employment which will assist in stabilizing thatsegment of the business world. This approach to public works willhave the further advantage of appraising their size and character interms of our total national needs.

This policy by no means forestalls the expansion of public works asa sustaining factor if recessions or depressions should unfortunatelydevelop despite our best efforts to avoid them. The very procedurenecessary for long-term regularized expenditure will pave the wayfor more effective emergency use than in the past.



Research and patents,—The United States will this year invest morethan 1 billion dollars in research. In order to protect nationalsecurity and the development of the domestic economy, I haveestablished by Executive Order a Presidential Research Board to sur-vey Federal research and development programs. The continuanceof a research program of large magnitude for many years to come, to-gether with the fact that many of the inventions resulting from itwill be patentable, calls for action to protect the public interest in in-ventions and discoveries resulting from expenditures of public funds.I hope that suitable legislation for a uniform patent policy will beenacted by the Congress at this session.3. Encouragement of free competitive enterprise

It is imperative that there be no restrictions on free competitionresulting in curtailment of production and employment, or in main-tenance of high prices, or in interference with freedom to invest funds,or in hampering the entry of new firms to any line of production ortrade. I recommend that the Congress review the studies made bythe Temporary National Economic Committee and by other Con-gressional Committees with a view toward supplementing or strength-ening existing legislation in this field. Among the steps to be takenis the extension of Section 7 of the Clayton Act to prohibit mergersby the acquisition of assets, as well as by the acquisition of stockcontrol.

Enforcement of existing antitrust laws.—The Antitrust Divisionof the Department of Justice and the Federal Trade Commission haveboth labored under inadequate appropriations. They should be bettersupplied with funds so that their activities can be more closely inte-grated. Accordingly, I am recommending in the Budget Messageincreased appropriations for the control of monopolistic practices.

Encouragement of small business.—The Government should takeaffirmative action to enlarge the opportunities for efficient and enter-prising small businesses.

I believe that the Government should study ways and means offacilitating the availability of long-term credit and equity capital tosmall and promising business enterprises.

The Department of Commerce has developed, and will further de-velop, business service programs providing businessmen with suchinformation on markets and technical and commercial facts as onlylarge establishments can provide by their own staffs.

Consideration should be given to the impact which existing taxeshave upon small and growing businesses.4- Promoting welfare, health, cmd security1

There are certain programs of Government which have come to belooked upon as "welfare programs" in a narrow sense. This hasplaced them in an insulated compartment. They have not been suffi-ciently related to the needs of the economy as a whole. In fact, theyare a part of the problem of maximum employment, production, andpurchasing power.

The Employment Act presents the opportunity to abandon this insu- •lation, and to put these programs back in the economic setting fromwhich they must draw their sustenance.

Unemployment insurance is designed to take care of the unemployedas a matter of right rather than of charity, but it also provides pur-



chasing power as a cushion against recessions, and its tax features areof general economic significance. Retirement and pension systemsexist 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 theretirement age needs to be adjusted to the size and composition of ourlabor force and the trend of improved technologies. Health insurancerelates clearly to the efficiency of workers and thus to the productivityof industry and agriculture. And this is even more true of education,which must be reshaped continuously to meet the changing demandsand job opportunities of the machine age—or, some day, of the atomicage.

The total amounts of public outlays for these and other purposesneed to be measured against the total size of our economy—its wealthand 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 systemwill necessarily fail to employ given numbers of people from time totime, and that these other programs must be brought forward to primethe pump or fill in the gaps. Here, too, we need a restatement. Weshould regard them rather as an inescapable obligation of an enlight-ened people, and we should expand them as our resources permit.

The relationship between these welfare programs and general eco-nomic conditions has been inadequately explored. Proposals for max-imum employment, production, and purchasing power, and proposalstraditionally regarded as being in the general-welfare area, should beintegrated because they are interrelated. Further studies will pro-vide the basis for this integration.

Public health and education programs.—Among those whose incomeis less than the minimum necessary for a decent subsistence are thosewho cannot earn their living because of physical unfitness or lack ofeducational training.

A combination of public health, nutrition, education, and regionaldevelopment programs would create additional job opportunities andsupply workers fit to fill these jobs. Relatively small Governmentexpenditures for health and education yield a high national dividend.I t is more economical to prepare people to earn a decent living thanto care for them through relief.

The Federal Government is now spending a large amount of moneyfor health and education programs for war veterans, but generalexpenditures in these fields are relatively small. I urge the Congressto give early consideration to expanded peacetime programs of publichealth, nutrition, and education.

Social security.—Although maximum employment would protectwage earners generally from the effects of prolonged mass unemploy-ment, the individual is still exposed to many hazards of economicinsecurity.

Our social security program has not kept pace with the times, norwith our increase in general living standards. Many individuals arenot covered by the present provisions of the Act, and the benefitpayments to those covered are inadequate under today's conditions.

I recommend that the Congress, cooperating with the States, takeaction that will lead to increasing the amount and duration of unem-ployment benefits. Present unemployment reserve funds are ampleto support such increases.



I recommend that the Congress amend the social-security laws toextend the benefits of old-age and survivors' insurance to the occupa-tional groups now excluded, and to include under unemploymentcompensation the employees of all establishments, regardless of size,in the industries now covered by the Unemployment CompensationTax Act. In expanding general social security, the Congress shouldnot overlook the railway workers, whose protection is under separatelaws.

While we compensate workers for loss of wages due to unemploy-iment arising from lack of work opportunities, we do not insure themagainst the risks of loss of earnings from temporary or permanentdisability, nor against the costs of medical care. This representsnot only a heavy loss for the individual but a great waste of pro-ductive manpower.

There is an Urgent need to spread the risks arising from sicknessand disability by insuring workers against the loss of income and byproviding, through social insurance, ready access to essential preven-tive and curative medical services. I have, in a previous message,presented recommendations for a program of medical care and dis-ability benefits. I urge early consideration of this program.

Our present social insurance system is financed by employee andemployer contributions. We must recognize, however, that the em-ployees' contributions and the employers' pay-roll tax curtail masspurchasing power and increase businessmen's costs. From an eco-nomic point of view, it would be desirable to finance a part of thesocial security system out of the general budget. Therefore, I proposethat the Congress, in working out a system of financing an expandedsocial security program, give full consideration to the economic aswell as the social import of various methods of taxation for thispurpose.5. Cooperation in international economic relations

While most of this Report has necessarily been devoted to thedomestic aspects of employment, production, and purchasing power,we must bear in mind that we are part of a world economy. Oursales of goods and services abroad, amounting to about 15 billiondollars in 1946, played an important role in the maintenance ofdomestic production, employment, and purchasing power and maybe expected to do so this year. Such a high level of exports reflectsin large part the war destruction of productive capacity in othercountries. If we are to maintain a well-balanced prosperity over along period, our foreign trade must be established on a more perma-nent basis.

In the long run we can sell to other countries only if we are willingto buy from them, or to invest our funds abroad.

Both foreign trade and foreign investment are vital to maintaininga dynamic economy in this country.

The shortages we have suffered during the war and are even nowexperiencing have proved to us our need for foreign imports. Wewill continue to need imports not only to add richness and varietyto our standard of living but also as a means of conserving strategicmaterials. We do not have to fear so-called foreign competitionwhen we have maximum production, employment, and purchasing



power. We must not, of course, indulge in indiscriminate reductionof barriers to imports. Such a policy is not contemplated.

For a few years we cannot expect to buy as much from abroad asother countries buy from us. We will find it profitable to invest apart of our savings in developing the world's productive resourcesthrough sound loans and investments of equity capital abroad. Thisis important not only in the first instance as an immediate outlet forour goods and services, the supply of which will be increasing in thecoming years, but also as a means of permanently increasing foreignmarkets for our farmers and businessmen. The quickest demonstra-tion of this can be seen by the fact that nations that are industrializedare our best customers.

Many countries fear economic depression in the United States as athreat to their own stability. If faced with the alternatives ofsmaller trade and economic insulation on the one hand or close rela-tions with an unstable American economy on the other, many mightprefer some insulation as the lesser evil.

In preference to either of these alternatives, these countries wouldchoose closer relations with a stable American economy operating athigh levels. They have already begun to cooperate toward achievingthese related goals: economic stability ^nd expansion of world trade.The International Monetary Fund, designed to stabilize exchangerates, and the International Bank for Eeconstruction and Develop-ment, set up to facilitate the international flow of capital, have alreadystarted to operate. At our initiative, experts of 18 important govern-ments recently worked out a tentative charter for an InternationalTrade Organization. This charter embodies principles of commercialconduct designed to enlarge the beneficial flow of world trade, to re-enforce the domestic employment and development programs of thecooperating governments and, by intergovernmental commodityagreements, to remove the depressing effects of burdensome worldsurpluses. This charter represents the first major effort in the fieldof trade to replace unilateral action—which often injured othercountries and provoked retaliation—by cooperation, and joint actionunder a set of common principles. Continued progress in the forma-tion of the International Trade Organization represents the mostimportant step that we can take to reestablish a high volume offoreign trade on a sound basis.

The willingness of many other countries to enter the proposed tradeorganization will depend to a great extent on our attitude in con-nection with the reciprocal tariff negotiations scheduled for this year.In return for our own tariff concessions, we can hope to secure notonly reduction of foreign tariffs and discriminations but also elimina-tion of a mass of restrictions, in particular, rigid import quotas pre-venting our access to foreign markets. Thus we should press for-ward with our program to secure the reciprocal reduction of tradebarriers.

If we fail to do our part in putting international economic relationson a healthier basis, it is quite likely that some other countries willfeel compelled to increase their own controls. Such a developmentwould tend to break the world into trading blocs and could haveprofound effects upon world politics and the prospects for creatingan enduring peace.



6. Combating economic fluctuationsOnly by blending all practicable programs in wise proportions

can we be successful in stabilizing our economy at the highest feasiblelevels. The long-range policies I have outlined are designed tostrengthen the structure of the economy and to reinforce its resistanceto economic fluctuations.

The greater this power of resistance, the less need there will befor some of the limited and specialized stabilizing devices which havereceived much attention in recent years.

I have directed the Council of Economic Advisers and the otherappropriate Government agencies to make a continuing study of thestabilization devices that may become necessary and to recommendtheir being placed in operation in ample time to insure the anticipatedeffect.

Among these devices are a well-integrated program of employmentstabilization; improvements in the process by which workers findjobs 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 monthor even from year to year; most policies designed to increase thestability of the economy are of long-range character. Fortunately,we have time in which to plan deliberately and wisely, and in whichto secure the cooperation of all our citizens in driving toward ourcommon goal: an expanding economy of maximum production, em-ployment, and purchasing power under a system of free competitiveenterprise, with full recognition of the duties and responsibilities offorward-looking government.


TABLE OF CONTENTS OF APPENDIXES

PageAppendix A: Explanation of the Nation's Economic Budget 35Appendix B: Statistical Tables Eelating to Employment, Production, and

Purchasing Power 41I. Gross national product or expenditure, 1939-46 41

II. National income by distributive shares, 1929-46 41III. Income payments to individuals, 1929-46 42IV. Disposition of income payments, 1929-46 43V. Disposable income, population, and consumers' prices, 1929-46. 44

VI. Consumers'prices, 1939-46 45VII. Wholesale prices, 1939-46 46

VIII. Gross weekly earnings in selected industries, 1940-46 47IX. Average hourly earnings in selected industries, 1940-46 48X. Corporate profits before and after taxes, 1939-46 49

XI. Total labor force classified by employment status and sex, andveteran status of males, 1940-46 50

XII. Estimated number of employees in nonagricultural estab-lishments, 1940-46 51

Appendix C: Excerpt from the State of the Union Message 52

33


APPENDIX A

EXPLANATION OF THE NATION'S ECONOMIC BUDGET

The Nation's-Economic Budget is designed to depict the flow offunds by which major economic groups are interrelated in the nationaleconomy. To this end it shows income and expenditures for con-sumers, businesses, and government, as well as the balance of inter-national trade. Broadly speaking, the decisions to spend or to saveof each of these groups of consumers may be considered as springingfrom a different set of considerations than those of the other groups.The results of these decisions are embodied in four sets of accountscomprising the Nation's Budget.

Expenditures.—The expenditure side of the accounts is clear andunambiguous. The meaning of consumer expenditures is just whatthe name implies. One exception may be mentioned: residentialconstruction is included with all other construction in business outlays.Business expenditures are not the total expenditures of business, butonly that part which consists in additions to or replacements of plant,machinery or other equipment, and additions to inventories (exclusiveof inventory revaluation). In contrast, the operating expendituresof business are part of prices charged the consumer, so that includingthem would involve double counting. The international expenditurefigure consists of the net balance of receipts from the sale of goods andservices over payments, since it is this portion which is not balancedby an equivalent amount of foreign goods and services added to thedomestic supply. Government expenditures consist mainly of pay-ments for goods and services currently rendered, but include certainother types of payments. In summing the components the latterare deducted as adjustments to obtain the total national expenditurefor goods and services, which is equal to the value of gross nationalproduction.

Income.—The production of the national product involves anequivalent flow of income to individuals or businesses or governmentproducing the product. The manner in which income is allocated toconsumers, business, and government is somewhat complicated, how-ever.

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 inproduction is not equivalent to income available for spending byconsumers, however, and it is the latter quantity which is of moresignificance for the analysis of economic flows. Both additions anddeductions must be made from earned income to arrive at spendableor disposable income.

In each period, sizable additions to consumers' earned income aremade by the Government. For example, in 1946 servicemen receivedmustering-out pay and dependency allotments and veterans receivedpensions and readjustment allowances. Old-age benefits from thesocial-security funds were a further addition to consumers' disposableincome. On the other hand, in each period, pay-roll, income, and

35



estate taxes are deducted from the total of consumer income. Theresidual income constitutes the disposable income of consumers ap-pearing in the Nation's Economic Budget table.

Of the income going to business, some is withdrawn by the Govern-ment in the form of corporation income taxes, excise taxes, and otherbusiness taxes. The residual income of business, after payment ofdividends to shareholders, consists of additions to reserves, and cor-porate undivided profits. Undivided profits and reserves of all busi-ness (with some adjustments to put the figures on a cash basis)comprise the receipts appearing in the Nation's Economic Budgettable.

No entry is made on the receipts side of the international account,since the excess of expenditures over income is shown in the expendi-ture column.

Government income is obviously the sum of business, pay-roll, andpersonal taxes, plus some miscellaneous income obtained from the saleof surplus property, contract settlement, etc.

Surplus or deficit.—The Nation's Economic Budget table shows thattotal expenditures equal total incomes. This means that savings ofsome groups must equal the deficits of other groups. Expressed some-what differently, withdrawals from the income stream (savings) bysome groups are offset by additions to the income stream (deficit orinvestment) by other groups.

The sum of the incomes of all groups is in excess of the incomes de-rived from the productive process, however, because it includes the"unearned" (OF transfer) incomes previously mentioned. These trans-fer incomes, along with the expenditures which give rise to them, donot reflect a current addition to goods and services and must, therefore,be deducted in order to arrive at the national production of goods andservices. This is done by the adjustment shown at the bottom of thetable. The deduction from incomes is equal to that from expenditures,unless there are transfers abroad. No deduction need be made fromincomes for transfers abroad, since they do not directly augmentdomestic spendable funds.

The sum of income or expenditures, less the adjustments for trans-fers of purchasing power, is the gross national production of goods andservices. By making an allowance for wear and tear upon existingmachinery and equipment and depletion of natural resources, the netnational production is determined.

Sections 1 through 6 below contain a somewhat more detailed de-scription of the accounts of consumers, business, and government andof international transactions, which appear in the Nation's budgettable. The basic estimates of economic magnitudes are the grossnational product, national income, and related series of the Depart-ment of Commerce. The series for Government receipts and expendi-tures conform to the concept of cash receipts from and payments tothe public as presented in the Budget of the United States for fiscal1948 (Table 18, p. A128). Minor adjustments between these seriesand the gross national product series are necessary because the latterare not on a cash basis.

Substantial revisions of the Department of Commerce series, involv-ing changes in classification of some components, are expected to bepublished in the near future. These will hardly change the significanceof the Nation's Economic Budget picture, however. Estimates for1946 are based on incomplete data and are consequently tentative.



1. Consumers1 account.—The account of consumers' receipts,expenditures, and savings is shown in detail in table I.

TABLE I.—Consumers' account]


1.2.

3.4.

5.

6.7.89.

10.

11.

Receipts:Disposable income of individualsLess:

Adjustment to Federal cash income and expenditure seriesAdjustment for discrepancy

Equals: Adjusted disposable income

Expenditures:Durable goodsNondurable goods _ _Services.

Total .'

Excess of receipts: Savings

1939

67.7

.3

67.4

6.432.622.7

61.7

5.7

1944

137.4

2.22.2

133.0

6.760.031.8

98.5

34.5

1946 2

145

21

142

147736

127

15

1 Detail may not add to total due to rounding.2 Preliminary estimates.

Line 2: The derivation of disposable income of individuals from incomes re-ceived 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 deduc-

tions or other means over receipts by the Government is added back intoconsumer disposable income.

(b) Benefit payments from national service and Government life insuranceare added.

(c) Premiums paid for Government insurance and other payments to trustaccounts 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 asestimated from the income side was somewhat higher in 1944 and 1946 than asindependently estimated from the expenditure side. The whole of this discrep-ancy, which arises from statistical imperfections, is here deducted from consumerincomes.

Line 7: Does not include expenditures for residential construction even thoughfinanced and occupied by owners. These are included with private capitalformation.

Line 11: Includes savings of unincorporated business.

TABLE II.—Derivation of disposable income of individuals*[Billions of dollars]

1946 2

1. Gross national product -Less:

2. Depreciation depletion and other reserves3. Inventory revaluation4. Business taxes5. Adjustment for discrepancy6. Equals: Net national income7. Plus: Transfer payments to individuals

Less:8. Corporate undivided profits9. ' Contributions to social insurance funds-..

10. Equals: Income payments to individuals11. Less: Personal taxes and nontax payments._.12. E quals: Disposable income of individuals _

1939

88.6

7.7- . 410.40

70.82.4

.42.0

70.83.1

67.7

1944

197.6

9.6- . 129.7

- 2 . 2160.7

5.3

5.43.9

156.819.4

137.4

194

10-425-116411

74

16419145

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.



2. Business account.—Table III contains a detail of the businessaccount. Profits are those of incorporated business only, while ex-penditures include the expenditures of both corporate and unincor-porated business (including farms) and residential construction (in-cluding that financed and occupied by owners). Depreciation andother reserves also include allowances for unincorporated enterpriseand dewllings. Unincorporated business savings are not included inbusiness income because of the difficulty in separating them from in-come of individuals.

TABLE III.—Business accountl


1939 1944 1946 2

1. Receipts:2. Corporate profits before tax _.-

Less:3. Corporation income tax liabilities.4. Dividends5. E quals: Corporate undivided profits

Plus:6. Business reserves, depreciation, and depletion.7. Government payments to business

Less:8. Inventory revaluation adjustment9. Payments by business to government-._

5.5

1.33.8.4

7.7.5

.4

24.9

15.04.55.4

9.6

.14.2

20.5

8.05.57.0

9.54.2

3.56.4

10. Equals: Adjusted corporate profits and reserves

11. Expenditures:12 C t t i

8.3 11.3

p12. Construction.._ _13. Residential14. NonresidentiaL-15. Producers' durables16. Net change in inventories

3.62.01.65.5

1.6.5

1.14.0

-1.7

10.8

8.03.05.0

13.06.0

17. Total, gross domestic capital formation.

18. Excess of receipts (+), or expenditures ( - ) —

3.9 27.0

- 1 . 6 +7.4 -16.2

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 Bureauof Internal Revenue. Excludes profits arising from the sale or exchange ofcapital assets.

Line 6: Includes depreciation and depletion, other business reserves, and capi-tal outlays charged to current expense.

Line 7: Includes refunds of business taxes, loan transactions of Governmentcorporations, capital transactions, renegotiation of war contracts and miscellane-ous items.

Line 9: Includes renegotiation payments made in discharge of previous lia-bilities and excess of business tax payments over liabilities.

3. International account.—Expenditures of foreign countries in theUnited States are reflected in current exports of goods and services.Only the net balance of exports over imports and unilateral trans-fers is included in the Nation's Economic Budget, since other exportsare matched by an equivalent volume of imports. Exports includetransfers of surplus property abroad.

4. The Government account.—The Government account includesrevenues and expenditures for all governmental units—Federal, State,and local (table IV).

Federal receipts are cash receipts from the public, except fromborrowing, and expenditures are cash payments to the public. Thepublic includes individuals, private corporations, and State, local, and


ECONOMIC REPORT OP THE PRESIDENT 39

foreign governments. The cash receipts and expenditures seriespresents the financial operations of the Government as a unit. Gov-ernment trust accounts and Government-owned corporations are con-sidered part of the Government, and the effect of transactions amongthese units is eliminated. Noncash payments.to the public, such asaccrued interest on Government bonds, are not included. Cashreceipts and expenditures rather than budgetary receipts and expendi-tures were chosen in order to give a better picture of the economiceffect of the financial operations of the Government.

TABLE IV.—Government accountl {Federal, State, and local)[Billions of dollars]

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 (—) _ _

1939

6.68.9

15.4

9.49.1

18.5

- 3 . 1

1944

48.610.1

58.7

95.38.5

103.8

-45 .1

1946 3

45.611.2

56.7

44.710.0

54.7

+2.0

* Detail may not add to total, due to rounding.2 Preliminary.

5. Adjustments,—In order to derive an estimate of the national pro-duction of goods and services, expenditures which do not involvepurchases of current output must be eliminated. Correspondingly, adeduction must be made from the income side of the account for in-come not derived from current production. A detail of the expendi-ture adjustments is shown in table V below.

TABLE V.—Adjustments 1—Reconciliation between \Government cash expendituresand expenditures for goods and services


1. Cash expenditures—Federal, State, and localLess:

2. Transfer payments—3. To individuals4 To business5. Abroad6. Benefit payments national service and Government life insur-

ance7. 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 funds13. Expenditures for goods and services.

1939

18.5

2.4.5

.2

.1

.116.0

1944

103.8

5.3.6

1.5

.3

.3

.3

.3

.297.1

1946 2

54.7

11.14.24.6

.21.5

.6

.4

.6

.335.0

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 terminalleave pay, public assistance, unemployment compensation, old-age, and survivors'insurance, etc. These payments constitute a transfer of purchasing power from



the governmental units to individuals, and consequently should not appear inthe 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 beenincluded in the income of any domestic group, no deduction from income needs tobe made for this item. However, it must be deducted from expenditures.

Lines 8-12: These noncash expenditures are considered part of the grossnational product and must be added to cash payments.

6. Gross and net national product.—The expenditure side of theaccounts is summarized in table VI. The adjustment for noncashexpenditures and for transfers to the public and abroad is deductedto obtain the gross national production of goods and services. Thegross national product contains an element of duplication, however.Replacement costs are included in business expenditures; as deprecia-tion they are also included in the price of goods aad services paid bythe consumer or government. By deducting an allowance for depre-ciation and depletion, duplication is eliminated and the net output ofthe economy is obtained, as shown in table VI below.

TABLE VI.—Reconciliation between the gross and net national product1


1939 1944 1946 «

1. Expenditures:2. Consumer (purchases of goods and services) __3. Business (private domestic capital formation)4. Net exports5. Government (cash payments to the public). _

6. Total7. Less: Adjustments8. Equals: Gross national product.__.9. Less: Depreciation and depletion

10. Equals: Net national product

61.79.9.8

18.5

90.92.588.66.981.7

98.53.9

-1.8103.8

12727555

204.46.8

197.69.1

188.5

214201949

185

1 Detail may not add to total due to rounding.2 Preliminary.

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 depletionand business taxes.


APPENDIX B

STATISTICAL TABLES RELATING TO EMPLOYMENT, PRODUCTION, AND

PURCHASING POWER

TABLE I.—Gross national product or expenditure, 1989-46 l

Year

1939 . _ .19401941 .1942_. _

ActualDollars

(billions)

88.697.1

120.2192.3

1944Dollars

(billions) 2

112122142160

Year

1943194419451946 3

ActualDollars

(billions)

187.4197.6199 2194.0

1944Dollars

(billions) 2

187198192170

1 Gross national product is a measure of the goods and services produced, including consumers' goods andservices, producers' goods for expansion or replacement, and goods and services used by Federal, State, andlocal governments. The output of the private sector of the economy is valued at market prices, while Gov-ernment services are valued at cost.

2 The deflated series was prepared by breaking the gross national product into a large number of com-ponents, each of which was divided by the most appropriate index or series of relative prices.



TABLE II.—National income by distributive shares, 1929-46 l


Year

1929.193019311932 ._193319341935 -193619371938193919401941 _1942194319441945.1946 2

TotalNa-

tionalIn-

come

83.368.954.540.042.349.555.764.971.564.270.877.696.9

122.2149.4160.7161.0164.0

Compensation ofEmployees

Total

53.148.240.631.729.834.537.543.048.345.148.152.364.584.1

106.3116.0114.5109.0

Sala-riesand

Wages

52.647.640.031.028.732.635.640.044.941.244.248.660.880.8

103.1112.8111.4106.0

Sup-ple-

ments

0.5.5.6.6

1.11.91.93.13.33.93.83.73.73.33.23.23.13.0

Net Income ofProprietors

Total

13.610.07.34.86.57.59.5

10.911.910.111.212.015.820.623.524.125.630.0

Agri-cul-

tural

5.23.82.41.52.22.74.14.45.14.04.34.46.39.7

11.911.812.515.0

Non-agri-cul-tural

8.56.34.83.44.34.95.46.56.86.16.97.69.6

10.911.612.313.115.0

Inter-estandNet

Rents

9.48.98.27.16.66.97.17.37.47.37.47.58.08.89.7

10.611.813.0

Net Corporate ProfitsAfter Taxes

Total

7.21.7

-1 .6- 3 . 6- . 6

.51.73.83.91.74.25.88.58.79.89.99.0

12.0

Divi-dends

5.95.64.32.72.22.72.94.74.73.23.84.04.54.34.34.54.57,0.% O

Sav-ings

1.2- 3 . 9- 5 . 8- 6 . 4- 2 . 8- 2 . 1- 1 . 3

- . 9c

- L 5.4

1.84.04.45.55.44.55,-0-

1 National income is the total net income earned in production by individuals or businesses. The con-cept of national income currently used differs from the concept of gross national product in excluding de-preciation and depletion allowances and business taxes. A reconciliation between these two series andincome payments is shown in Appendix A, table II, for 1939,1944, and 1946.


NOTE.—Detail will not necessarily add to totals because of rounding.


41



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.I l lIV.

1946—

IIIIIIIV

TotalIncome

Pay-ments

82, 58773, 34662,01347,41446,27152,91658, 56368,05572,35166,16670,82976,23792,732

117,285143,134156,794160, 77339, 78640,42639, 68340,878

3163, 66738, 31440, 20641,723

3 43, 424

Salariesand

Wages *

52, 51247,60240,02731,10329,29033,92236,89542,06746,18942,85145,65849,70061,37480,407

101,791111,734110,19328,62728,65027,17425, 742(4)

24,58025,95726,946(4)

Entrepre-neurial In-come andNet Rents

andRoyalties

17,19912,9079,5316,3208,0069,255

11,43613,00314,16212,36913,44114, 31318, 59923,93327,16128,01729,7376,7716,8037,6138,550

7,4267,5848,982

Divi-dends,and

Interest

11,81111,68210,2378,3557,3037,9018,0379,7859,8918,2408,8919,1759,7619,771

10,38911,19512,2232,7703,1592,8333,461

3,0333,6883,102

PublicAssist-

ance andOtherRelief

6094

158326580829

1,099672836

1,0081,0711,0981,1121,061

939943988240242246260

276282291

Paymentsto

Veterans2

421445

1,432695485379404

1,826526466456462452582

1,4733,3915,624

9701,1601,3502,144

2,1831,8981,704

Other

584616628615607630692702747

1,2321,3121,4891,4341,5311,3811,5142,008

408412467721

(\l6797698

(*)

1 Differs from salaries and wages in Appendix B, table II, because it excludes employees' contributions tosocial insurance.

2 Includes veterans' pensions and compensation, readjustment allowances (unemployment), payments toself-employed, subsistence allowances to those going to school, part of tuition payments (payments tononprofit institutions), adjusted-service certificate compensation, mustering-out pay, terminal leave pay toenlisted personnel, and the Government's contribution to family allowances.

3 Estimates based on incomplete data.* Not available.Source: Department of Commerce.



TABLE IV.—Disposition of income payments, 1929-46


43

Year or Quarter

1929193019311932193319341935 _-19361937 . . . . - .19381 9 3 9 . . .1940194119421943 . ._19441945 ._1946 i

1945:III.. . . . .I l lIV.

1946:Ii.I I 1

IlliIV i

IncomePaymentsto Indi-viduals

82.673.362.047.446.352.958.668.172.466.270.876.392.8

117.3143.1

•v 156.8160.7163.7

Less:PersonalTaxes onNontax

Payments

3.02.62.41.91.81.92.32.93.13.33.13.34.06.7

18.619.421.219.2

Equals:DisposableIncome ofIndivid-

uals

79.670.759.645.644.551.056.365.269.262.967.772.988.7

110.6124.6137.4139.6144.5

Less:ConsumerExpendi-

tures

70.864.954.243.042.447.752.259.162.558.561.765.774.682.091.398.5

106.4127.0

Equals:Net Sav-ings of In-dividuals

8.85.85.42.62.13.34.16.16.74.46.07.3

14.228.633.338.933.117.5

Seasonally Adjusted Annual Rates

163.7163.2158.6156.9

156.7160.6167.7169.6

22.121.720.720.1

18.718.819.319.9

141.6141.5137.9136.9

138.0141.8148.4149.7

105.0101.8106.0113.0

120.9122.0129.4135.5

36.639.731.923.9

17.119.819.014.2

Estimates based on incomplete data.

NOTE.—Detail will not necessarily add to totals because of rounding.




TABLE V.—Disposable income, population, and consumers1 prices, 1929-46

Year or Quarter

19291930 -19311932193319341935 . -1936 - -1937 . - . _1938 - -1939 . _19401941 .19421943194419451946

1945:IIIIII .I V

1946:IIII l lIV

DisposableIncome ofIndividuals(billions of

dollars)

79.670.759.645.644.551.056.365.269.262.967.772.988.7

110.6124.6137.4139.6

< 144.5

SeasonallyAdjustedAnnualRates

141.6141.5137.9136.9

138.0141.8148.4

* 149. 7

Population1

(thousands)

121,770123,077124,040124,840125. 579126,374127, 250128,053128,825130,825130, 880131, 970133, 203134,665136, 497138,083139,621140,840

138,923139, 254139, 621140,063

140,3873140, 613

140, 8403 141, 289

Consum-ers' Prices

(1944=100)

97.695.186.677.873.676.378.279.081.880.379.279.883.892.898.5

100.0102.3110.9

101.1102.1102.9103.1

103.5105.2114.5

* 120.4

Per Capita Dispos-able Income 2

ActualDollars

654574480365354404442509537481517552666821913995

1,0004 1,026

1944Dollars

670604554469481529565644656599653692795885927995978

4 925

Seasonally AdjustedAnnual Rates

1,0191,016

988977

9831,0081,054

M,060

1,008995960948

950958921

4 880

1 Estimated population of continental United States, including armed forces overseas; annual data as ofJuly 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 (con-sumers' prices).

THE MEASUREMENT OF CHANGES IN PURCHASING POWER

Actual incomes, in current dollars, do not give a fair picture ofchanges in purchasing power. For example, if the income of a par-ticular family should be raised from $2,000 to $3,000 (or an increase of50 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 asbefore with $2,000.

Actually, of course, all prices do not usually rise and fall at the sametime, nor by the same percentage. A rough measure of the averageincreases in prices paid by consumers is the Consumer's Price Index.This is shown in column 3, table V, Appendix B. A rough estimateof changes in purchasing power can be obtained by dividing incomesby the Consumer's Price Index.



Table III , page 12 of the text, makes certain comparisons in terms ofper capita disposable incomes in 1944 dollars. These figures, shownin table V, were computed by dividing actual per capita incomes bythe Consumers' Price Index, with 1944=100. If any other base ispreferred, for example, 1939 dollars or 1946. dollars, it is a simplematter to compute the figures on that basis.

The comparisons made in the text are not affected in any way bythe choice of 1944 dollars as a yardstick. Use of any other year as abase would show the same percentage changes in purchasing power.

Table III on page 12 of the text compares the purchasing power ofrecent per capita incomes both with war years and with prewar years.The report shows that the purchasing power of per capita incomes isnow substantially higher than before the war, but that it has fallenconsiderably from the wartime levels.

TABLE VI.— Consumers' prices, 1989-46

[1935-39=100]

Year or Month AllItems

99.4100.2105.2116.511.3.6125.5128.4127.1126.9126.8127.1128.1129.0129.4129.3128.9128. 9129.3129.9139.2129.9129.6130.2131.1131.7133.3141.0144.1145.9148.4151.7

3 153.3

Food

95.296.5

105.5123.9138.0136.1139.1137.3136.5135.9136.6138.8141.1141.7140.9139.4139.3140.1141.1160.0141.0139.6140.1141.7142.6145.6165.7171.2174.1180.0187.7

8 189.0

Cloth-ing

100.5101.7106.3124.2129.7138.8145.9143.0143.3143.7144.1144.6145.4145.7146.4148.2148.5148.7149.4(2)149.7150.5153.1154.5155.7157.2157.9161.2165.9167.0168.7(2)

Rent

104.3104.6106.3108.5108.0108.2108.30)0)108.30)0)108.30)0)108.3(00)108.3(2)0)0)108.40)0)108.50)108.7108.80)0)(2)

Fuel,Elec-

tricity,etc.

99.099.8

102.3105.4107.7109.8110.3109. 7110.0110.0109.8110.0110.0111.2111.4110.7110.5110.1110.3(2)110.8111.0110.5110.4110.3110.5113.3113. 7114.4114.4114.7(2)

HouseFurnish-

ings

101.3100.5107.4122.1125.6136.4145.8143.6144.0144.5144.9145.4145.8145.3146.0146.8146.9147.6148.3(2)148.8149.7150.2152.0153.7156.1156.9160.0165.6167.6169.1(2)

Miscel-laneous

1939194019411942194319441945

JanuaryFebruary..MarchAprilMayJuneJulyAugustSeptember.October...November.December.

1946January. . .February..MarchAprilMayJuneJulyAugustSeptember.OctoberNovember.December..

100.7101.1104.0110.9115.8121.3124.1123.3123.4123.6123.8123.9124.0

* 124.2124.5124.6124.7124.6124.8

(2)125.4125.6125.9126.7127.2127.9127.8129.8129.9130.8132.0

()

1 Usually surveyed quarterly.2 Not available.3 Preliminary estimate.Source: Department of Labor.



TABLE VII.—Wholesale prices, 1989-46

[1935-39=100] »

Year or Month

19391940 _ _194119421943— .1944 _ . .1945

JanuaryFebruary _MarchApril.M a yJune. __ __JulyAugust .SeptemberOctober -_NovemberDecember

1946:JanuaryFebruaryMarchAprilM a yJune.-JulyAugust __SeptemberOctoberNovember*December 8

ties

All

Gom

mod

i95.797.5

108.3112.6128.0129.0131.3130.1130.5130.6131.1131.5131.6131.4131.1130.5131.4132.5132.9

132.9133.6135.1136. 7137.7140.115$. 7160.2153.8166.4173.2

•8

Far

m P

rodu

85.989.1

108.4139.3161.3162.5168.7166.1167.1167.4169.7170.9171.6169.7167.0163.6167.5172.5173.0

170.9172.1175.5178.2180.9184.3206.6211.8203.0217.5223.4

Foo

ds

89.090.1

104.6125.9135.0132.7134.3132.4132.4132.2133.8135.3135.9135.1134.5132.6133.6136.4137.3

135.7136.3138.3140.1141.0142.7177.2188.4166.8199.6209.1

Other Than Farm Products and Foods

"o

100.1102.2109.6122.5119.3121. 3122.8122.0122.2122.2122.3122.4122.7122.8123.0122.9123.3123.4123.8

124.1124.8125.9127.2128.0130.0134.9137.4138.2142.5148.5

Hid

es

an

dL

ea

the

rP

rodu

cts

100.0105.4113.1123.0123.0122.0123.5122.9123.0123.2123.3123.3123.4123.4123.4124.2124.1124.3124.4

124.9125.1125.3125.3125.9128.0147.7145.3148.1149.0164.9

Te

xt

il

eP

rodu

cts

98.2103.9119.4136.3137.2138.6141.0140.3140.4140.4140.3140.3140.3140.3140.3141.0142.3142.4142.8

143.1143.9147.5152.0153.2153.8166.3174.6177.0181.1184.9

Fu

el

an

dL

ight

ing

96.995.1

101.3104.1107.0110.1111.4110.5110.5110.6110.7111.0111.3111.8112.5111.5111.7112.2112.5

112.6112.9112.7114.2114.2116.4119.8125.2125.1125.1125.3

Met

als

an

dM

et

al

Pro

duct

s

102.8104.4108.3113.1113.1113.0114.1113.3113.5113.5113.5113.6114.1114.1114.1114.3114.4114.6115.0

115.1116.1118.1118.5119.2122.2123.4124.2124.4136.9141.3

Bu

ild

ing

Mat

eria

ls

101.0105.8115.1122.9124.3128.8131.5130.4130.6130.7130.7130.9131.0131.1131.5131.7132.0132.5133.4

133.9134.9139.4141.2142.6145.0147.4148.1149.3150.4162.4

Ch

em

ica

lsan

d A

llied

Pro

duct

s

96.097.8

107.2121.3120.6121.0121.0120.6120.6120.6120.6120.6120.7121.1121.1121.1121.3121.6122.1

122.0121.9122.0122.1122.6122.5126.2125.0125.0126.9151.1

Hou

se

Fu

r-n

ish

ing

Goo

ds

101.5104.1110.9120.7120.7122.8122.9122.9122.9122.9122.9122.9122.9122.9122.9123.1123.2123.2123.2

124.9125.3125.8126.5127.4129.9131.6132.5133.6135.6139.6

Mis

cell

ane-

ous

102.6106.0112.5123.0126.5128.4129.9129.2129.8129.8130.0130.0130.0130.0130.0130.0130.0130.0130.0

130.7131.1131.1131.3133.1135.1139.0139.9140.1142.7146.1

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.



TABLE VIII.—Gross weekly earnings in selected industries,

47

Year or Month

19401941 ._-1942194319441945..

JanuaryFebruaryMarchAprilMayJuneJuly -AugustSeptemberOctoberNovemberDecember

1946:JanuaryFebruaryMarchAprilMayJuneJuly -August __September..-October 3November J

December *

Manufacturing

Total

$26.2029.5836.6543.1446.0844.3947.5047.3747.4047.1246.0246.3245.4541.7240.8740.9740.7741.21

41.1540.5842.1542.8842.5143.3143.3844.9845.4145.68

Dura-ble

Goods

$28.4434.0442.7349.3052.074V.0553.6463.3063.2252.9051.5651.7450.6645.7243.9544.2343.7144.08

43.6742.5744.7945.7145.1046.3246.2448.0048.3948.83

Non-durableGoods

$22.2724.9229.1334.1237.1238.2938.6638.6938.9638.8038.1838.9538.5836.6337.8037.7637.8938.52

38.7539.0139.8340.1339.9340.2840.4641.8942.3442.42

Min-ing, Bi-tumi-nousCoal

$24.7130.8636.0241.6251.2752.2554.1153.8952.2643.45

53.7559.1150.6649.9052.7339.0956.2958.09

54.1657.3758.3030.1534.2064.4452.2762.3761.0062.54

PrivateBuild-

ingCon-

struc-tion

$31.7035.1441.8048.1352.1853.8052.9852.8954.4954.4253.6455.5055.5755.7953.1154.0551.9751.85

52.8953.0452.8754.2953.6355.2356.2556.6758.4959.20

Class ISteamRail-roads

$31.3234.0438.3943.4845.6945.4946.8247.5246.5146.1545.9146.2645.6445.1043.9044.3044.0443.61

43.2943.8443.0147.7646.3951.0551.78C1)(»)0 )

Tele-phone

$32.4432.7433.9736.3038.390)39.4939.7540.60

f 40.72\ 2 37.50

37.9138.8739.3642.9839.6240.5442.0241.44

41.1944.3743.7644.0944.8244.9344.8244.1944.1044.30

Whole-sale

Trade

$30.3932.3235.5639.4042.2944.0743.1543.4543.51

} 44.5143.8344.1344.9243.2743.8544.6044.9444.71

45.1446.0746.3147.1347.4847.8848.0648.1449. 5449.44

RetailTrade

$21.1721.9423.2424.8826.5828.3126.9927.3227.2127.6927.5628.4629.4029.0128.9529.1728.8829.12

30.5430.7731.1231.4031.4532.9333.6433.8133.7633.19

Hotels(Year-

Round)

$15.5216.0917.6220.2122.6524.5323.7124.0723.9723.9924.0324.4324.4024.3724.7925.0825.5425.94

26.2126.4326.5726.6426.6526.7026.6327.1526.9827.17

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.



TABLE IX.—Average hourly earnings in selected industries, 1940-46

Year or Month

1940194119421943 .19441945 . . _

JanuaryFebruaryMarchAprilMayJuneJulyAugustSeptemberOctoberNovemberDecember

1946:JanuaryFebruaryMarchApril...MayJuneJuly .AugustSeptember. ._OctobersNovember 1 _December *

Manufacturing

Total

$0.661.729.853.961

1.0191.0231.0461.0431.044

1.044

1.0421.0381.0331.024.987.985.990.994

1.0041.0021.0351.0581.0711.0841.0931.1111.1261.130

Dura-ble

Goods

$0.724.808.947

1.059

:]]

]]]]]i

1.117L. I l lL 144L. 139L. 139

L138

L134L. 130L. 127L113L. 072L.063L.064L.066

L.070L.064L. 103L. 131L. 147.165

1.1771.1861.2011.202

Non-durableGoods

$0.602.640.723.803.861.904.891.892.896

.899

.903

.904

.902

.909

.903

.909

.918

.927

.941

.953

.975

.988

.9961.0031.0091.0361.0491. 055

Min-ing, Bi-tumi-nousCoal

$0.883.993

1.0591.1391.1861.2401.2041.1901.197

1.184

1.2561.2851.2541.2491.2611.2421.2631.281

1.2591.2651.2741.2391.3211.4741. 4571.4681.4801.459

PrivateBuild-

ingCon-struc-tion

$0.9581.0101.1481.2521.3191.380:

:

]]

i]]iii

L. 3641.352L. 363

L. 361

1.366L. 374L. 387L383L.392L.396L. 397L. 397

.402

.422

.411

.423

.431

.4441.4731.4821. 5101.526

Class ISteamrail-

roads

$0.711.745.819.892.934.938.944.960.934

.944

.935

.929

.939

.930

.942

.923

.937

.948

.935

.949

.9291.0451.0691.1171.116

i1)C1)C1)

Tele-phone

$0.827.820.843.870.911

%.938.951

/ .952\ 2.926

.926

.941

.944

.977

.959

.9721.0021.011

1.0301.0951.1051.1311.1431.1471.1351.1291.1481.137

Whole-sale

Trade

$0.739.793.860.933.985

1.0291.0061.0131.016

} 1.0311.0181.0271.0371.0131.0251.0451.0561.058

1.0701.0951.1011.1211.1351.1461.1551.1481.1791.172

RetailTrade

$0,542.568.614.670.724.773.751.756.752

.763

.764

.769

.773

.773

.783

.793

.800

.796

.828

.835

.841

.851

.859

.876

.888

.893

.906

.908

Hotels(Year-

Round)

$0.332.348.386.451.505.550.532.537.529.532.532.539.547.555.567.565.575.585

.604

.602

.600

.599

.596

.598

.602

.614

.620

.619

* 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 49TABLE X.—Corporate profits before and after taxes, 1939-4-6

[Millions of dollars]

Year or Quarter

All PrivateCorporations J

EH

1I

629 Large Private Corporations—Profits after Taxes 2

Number of com-panies

1939194019411942194319441945

IIIIIIIV

1946 3II I .IIIIV

6,3749,185

17,05020,96924,90824,07720,8755,9705,8875,0313,987

20,000(4)

4,8686,2489,1419,1799,9459,7579,0802,6242,6242,1161,71612,000(4)

6291,4651,8182,1631,7691,8001,8961,925492508439485(4)323604676

4915114815915116217519945465058

-194931

-342144

7412213215216117118420345475358

8079

1 Kevised series; not exactly comparable with that used as a component of national income.2 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).



TABLE XI.—Total labor force classified by employment status and sex, and veteranstatus of males, 1940-1946 l

[In thousands]

Year or Month

19401941194219431944_. _ .1945

JanuaryFebruaryMarchAprilMay..June

JulyiAugustSeptember ._OctoberNovember...December

1946:JanuaryFebruaryMarchApril....MayJune.JulyAugustSeptemberOctoberNovemberDecember 3

TotalLaborForce(in-

cludingArmedForces)

54,79055, 73058,43062,46064, 01064,12262,87063,39063, 71064,03064, 25065,420

67, 45066, 47064, 77063, 77062,41060, 920

59,49059,13059, 63060, 30060,57062,00062,82062,20061, 34061,16060,980

Civilian Labor Force

Total

54,23054,10054,49053,48052, 62052, 79350,96051,43051, 66051,93052,03053,140

55, 35054,46053,05053,17053,19053,130

53,32053,89055,16056,45057,16058,93060,11059,75059,12058,99058, 970

Male

Total

40,95040, 53039, 62036,14034, 77034,45633,65033,66033, 72033,84033, 79034, 380

35, 27035,13034,40034,65035,03035,950

37,16037,89038,87039,86040,48041,66042, 71042, 58041,85041, 82041, 950

Veteran2

3,8304,990

6,4107,4408,4109,2409,830

10,38010,81010,95011, 23011,15011,380

Female

13,28013,57014,87017, 34017, 85018,33617, 31017,77017,94018,09018, 24018, 760

20.08019,33018,65018, 52018,16017,180

16,16016,00016,29016, 59016, 68017,27017,40017,17017,27017,17017,020

EmployedCivilians

Total

46,93049,09052,11052,41051, 78051,63950,12050, 55050,83051,16051, 30052,060

54,40053, 63051,40051,61051,45051,160

51,02051,24052,46054,12054,85056, 36057,84057,69057, 05057,03057,040

Agri-culture

9,5008,6508,6408,2808,0608,1456,6906,7907,2907,7507,9509,090

9,9009,0908,8408,8108,3807,160

6,7206,9407,5308,1708,880

10,0109,9709,1408,7508,6207,900

UnemployedCivilians

Total

7,3005,0102,3801,070

8401,153

840880830770730

1,080

950830

1,6501,5601,7401,970

2,3002,6502,7002,3302,3102,5702,2702,0602,0701,9601,930

Male

Total

5,3503,6101,590

600450700490490490430430580

480430930940

1,2101,500

1,7702,1402,1901,8701,8902,0101,7601,6001,5801,5501,520

VeteranJ

520750

8401,0601,210

990930980930850830760700

1 An improved interviewing procedure, which resulted in a larger estimate of employment and a smallerestimate of unemployment, was adopted July 1945. Data prior to this date are not strictly comparable withsubsequent data.2 World War II veterans only. Data are not available for the period prior to November 1945.3 Not available.



ECONOMIC REPORT OF THE PRESIDENT 51TABLE XII.—Number of employees in nonagricultural establishments, 1940-46 1

[In thousands]

Year or Month

194019411942 -1943 .

November *..19441945

January.FebruaryMarchAprilMayJune _.JulyAugustSeptemberOctoberNovemberDecember

1946:January __FebruaryMarch . _AprilMayJune _.JulyAugustSeptember. _.OctoberNovemberDecember 8 _

Total

31, 78435,66838,44740,18540,46739, 68938,14439, 09339,13539, 25138, 99138, 88038, 76738, 47438,17236, 39836, 32736, 77937,463

37,01336, 50937,46938,12138, 61239,05639, 26039,87140,12940,25040,603

Manufacturing

Total 2

10, 78012,97415,05117, 38117,85817,11115,06016, 69616,68416, 55716, 30216,01215, 74915, 33115, 01913,15913,04813,11013,059

13, 23612, 53613,20613, 77913,88514,09814, 24514, 58314, 73114, 76114,982

ProductionWorkers 3

Dur-able

goods

4,1725, 5546,9978,7279,0738,5066,8098,1558,1428,0397,8547,6397,3827,0546,7795,2345,1515,1805,097

5,2054,4274,9995, 4745,5835, 7135,8296,0016,0896,1186,204

Nondur-able

goods

4,6395,2705,6215,8345,8315,6215,4415,5815,5835, 5625,5025,4515,4735,4055,4005, 2955,2995,3235,422

5/4615, 5625,6405,6565,6335,6995,7255,8815,9275,9036,016

Min-ing

916947970891863835779801798796761728794784784784718793802

810808801505713807815828827825826

Con-struc-tion

1,7222,2362,0781,259

918679834582599636699798845911927945

1,0061,0141,042

1,1321,2601,3451,5171,7421,8741,9762,0912,1032,0841,984

Trans-porta-tionand

PublicUtil-ities

3,0133,2483,4333,6193,6833,7613,8223,7403,7713,7883,7923,8023,8333,8583,8603,8313,8253,8713,896

3,8973,9073,9303,9193,8733,9173,9634,0013,9483,9883,997

Trade

6,9067,3787,2637,0307,2457,0447,1737,0306,9857,0846,9907,0217,0046,9756,9797,1437,3317,5717,959

7,4817,5057,6177,7597,7247,7497,7407,8147,9188,0348,245

Fi-nance,Serv-ice,and

Miscel-lane-ous

4,3104,4384,4474,1154,0784,3484,5894,3504,3604,3944,4444,5134,5894,6724,6664,6034,6984,8454,936

4,9845,0315,0765,1405,1345,1315,1525,1605,1555,2085,260

Govern-ment

4,1364,446

' 5,2035,8905,8225,9115,8875,8945,9385,9966,0036,0065,9535,9435,9375,9335,7015,5755,769

5,4735,4625,4945,5025,5415,4805,3695,3945,4475,3505,309

1 Number of employees in nonagricultural establishments includes all full and part-time wage and salaryworkers in nonagricultural establishments who worked or received pay during the pay period ending nearestthe 15th of the month. Proprietors, self-employed persons, domestic servants, and personnel of the armedforces are excluded. Not comparable with estimates for nonagricultural employment of the civilian laborforce derived from data in Appendix B, table XI, because latter include self-employed, proprietors, anddomestic servants and are based on population enumeration whereas estimates in this table are based onestablishment reports.

2 Includes production and nonproduction workers.* Excludes supervisory employees, clerical and sales staffs, and other nonproduction workers.4 Date of peak employment in manufacturing and munitions-producing industries.6 Not available.

Note: Detail will not necessarily add to totals because

Source: Department of Labor.rounding.


APPENDIX C

EXCERPT FROM THE STATE OF THE UNION MESSAGE DELIVERED TO THECONGRESS JANUARY 6,1947

The year just past—like the year after the First World War—wasmarred by labor-management strife.

Despite this outbreak of economic warfare in 1946, we are todayproducing goods and services in record volume. Nevertheless, it isessential to improve the methods for reaching agreement between laborand management and to reduce the number of strikes and lock-outs.

We must not, however, adopt punitive legislation. We must not, inorder to punish a few labor leaders, pass vindictive laws which willrestrict the proper rights of the rank and file of labor. We must not,under the stress of emotion, endanger our American freedoms bytaking ill-considered action which will lead to results not anticipatedor desired.

We must remember, in reviewing the record of disputes in 1946, thatmanagement shares with labor the responsibility for failure to reachagreements which would have averted strikes. For that reason, wemust realize that industrial peace cannot be achieved merely by lawsdirected against labor unions.

During the last decade and a half, we have established a nationallabor policy in this country based upon free collective bargaining asthe 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 responsi-bilities that accompany the right to bargain. There have been abusesand harmful practices which limit the effectiveness of our system ofcollective bargaining. Furthermore, we have lacked sufficient gov-ernmental machinery to aid labor and management in resolving dif-ferences.

Certain labor-management problems need attention at once and cer-tain others, by reason of their complexity, need exhaustive investiga-tion and study.

We should enact legislation to correct certain abuses and to provideadditional governmental assistance in bargaining. But we shouldalso concern ourselves with the basic causes of labor-management dif-ficulties.

In the light of these considerations, I propose to you and urge yourcooperation in effecting the following four-point program to reduceindustrial strife:

Point number one is the early enactment of legislation to preventcertain unjustifiable practices.

First, under this point, are jurisdictional strikes. In such strikesthe public and the employer are innocent bystanders who are injured

52



by a collision between rival unions. This type of dispute hurts pro-duction, industry, and the public—and labor itself. I consider juris-dictional strikes indefensible.

The National Labor Relations Act provides procedures for deter-mining which union represents the employees of a particular em-ployer. In some jurisdictional disputes, however, minority unionsstrike to compel employers to deal with them despite a legal duty tobargain with the majority union. Strikes to compel an employer toviolate the law are inexcusable. Legislation to prevent such strikesis clearly desirable.

Another form of interunion disagreement is the jurisdictional strikeinvolving the question of which labor union is entitled to perform aparticular task. When rival unions are unable to settle such disputesthemselves, provision must be made for peaceful and binding deter-mination of the issues.

A second unjustifiable practice is the secondary boycott, when usedto further jurisdictional disputes or to compel employers to violatethe National Labor Eelations Act.

Not all secondary boycotts are unjustified. We must judge themon the basis of their objectives. For example, boycotts intended toprotect wage rates and working conditions should be distinguishedfrom those in furtherance of jurisdictional disputes. The structure ofindustry sometimes requires unions, as a matter of self-preservation,to extend the conflict beyond a particular employer. There should beno blanket prohibition against boycotts. The appropriate goal is leg-islation which prohibits secondary boycotts in pursuance of unjustifi-able objectives, but does not impair the union's right to preserve itsown 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 inter-pretation of existing contracts.

Collective bargaining agreements, like other contracts, should befaithfully adhered to by both parties. In the most enlightened union-management relationships, disputes over the interpretation of contractterms are settled peacefully by negotiation or arbitration. Legislationshould be enacted to provide machinery whereby unsettled disputesconcerning the interpretation of an existing agreement may be, referredby either party to final and binding arbitration.

Point number two is the extension of the facilities within the Depart-ment of Labor for assisting collective bargaining.

One of our difficulties in avoiding labor strife arises from a lack oforder in the collective-bargaining process. The parties often do nothave a clear understanding of their responsibility for settling disputesthrough their own negotiations. We constantly see instances wherelabor or management resorts to economic force without exhausting thepossibilities for agreement through the bargaining process. Neitherthe parties nor the Government have a definite yardstick for deter-mining when and how Government assistance should be invoked.There is need for integrated governmental machinery to provide thesuccessive steps of mediation, voluntary arbitration, and—ultimatelyin appropriate cases—ascertainment of the facts of the dispute and thereporting of them to the public. Such machinery would facilitateand expedite the settlement of disputes.



Point number three is the broadening of our program of social legis-lation to alleviate the causes of workers' insecurity.

On June 11, 1946, in my message vetoing the Case bill, I made acomprehensive statement of my views concerning labor-managementrelations. I said then, and I repeat now, that the solution of labor-management difficulties is to be found not only in legislation dealingdirectly with labor relations, but also in a program designed to removethe causes of insecurity felt by many workers in our industrial society.In this connection, for example, the Congress should consider the exten-sion and broadening of our social security system, better housing, acomprehensive national health program, and provision for a fairminimum wage.

Point number four is the appointment of a Temporary Joint Com-mission to inquire into the entire field of labor-management relations.

I recommend that the Congress provide for the appointment of aTemporary Joint Commission to undertake this broad study.

The President, the Congress, and management and labor have acontinuing responsibility to cooperate in seeking and finding the solu-tion of these problems. I therefore recommend that the Commissionbe composed as follows: 12 to be chosen by the Congress from themembers of both parties in the House and the Senate, and 8 repre-senting the public, management, and labor, to be appointed by thePresident.

The Commission should be charged with investigating and makingrecommendations upon certain major subjects, among others:

First, the special and unique problem of Nation-wide strikes in vitalindustries affecting the public interest. In particular, the Commissionshould examine into the question of how to settle or prevent such strikeswithout endangering our general democratic freedoms.

Upon a proper solution of this problem may depend the wholeindustrial future of the United States. The paralyzing effects of aNation-wide strike in such industries as transportation, coal, oil, steel,or communications can result in national disaster. We have been ableto avoid such disaster, in recent years, only by the use of extraordinarywar powers. All those powers will soon be gone. In their place theremust be created an adequate system and effective machinery in thesevital fields. This problem will require careful study and a bold ap-proach, but an approach consistent with the preservation of the rightsof our people. The need is pressing. The Commission should give thisits earliest attention.

Second, the best methods and procedures for carrying out the collec-tive-bargaining process. This should include the responsibilities oflabor and management to negotiate freely and fairly with each other,and to refrain from strikes or lockouts until all possibilities of nego-tiation have been exhausted.

Third, the underlying causes of labor-management disputes.Some of the subjects presented here for investigation involve long-

range study. Others can be considered immediately by the Commis-sion and its recommendations can be submitted to the Congress in thenear future.

I recommend that this Commission make its first report, includingspecific legislative recommendations, not later than March 15,1947.


economic report of the president january 1947 · letter of transmittal the white house, washington,...

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