Published by

AMERICAN INSTITUTEfor ECONOMIC RESEARCHGreat Barrington, Massachusetts 01230

RESEARCHREPORTS

Vol. LVIII No. 12 June 17, 1991

The Rule of the FewAIER long has opposed any type of special interest legisla-

tion as detrimental to the larger public interest. In recentyears, however, special interests seemingly have manipulatedthe congressional legislative process at will. In the discussionbelow, Mark A. Geist* describes some of the factors that cur-rently threaten to replace the American representative form ofgovernment with a home-grown oligarchy.

The Federal Government often is portrayed as an unwieldy,overspending entity that is prey to short-sighted, fragmented,special interests to the detriment of long-term, cohesive, na-tional policies. An inspection of how groups achieve and exer-cise political power, the institutional structures that make legis-lators susceptible to political pressure, and the decline in partycontrol over its members, may provide some insight into ourdysfunctional Government.

Generally, Political Action Committees (PACs) and Spe-cial Interest Groups (SIGs) are formed in order to further thecommon interests of the individuals involved. The benefits thatthey seek to secure are called collective goods — ones that areavailable to everyone if they are available to anyone — andcomprise the legislative and budgetary favors provided byCongress. However, even though some people have commongoals and would be better off if those goals were realized, itdoes not follow that they necessarily will act as a group. Sincecollective goods by definition are nonexcludable, presumablymany would rather be "free riders" who avoid the costs ofcontributing to the group yet still enjoy the benefits of itssuccesses. This situation describes what social scientists havetermed the "collective action problem." It arises when thevalue to the individual of his contribution is less than the cost ofcontributing.

The collective action problem can be directly overcome intwo ways: by making participation compulsory — as in thepayment of Federal, state and local taxes to provide for nationaldefense, education, highways, and social programs; or by pro-viding "selective incentives" that are distinct from the collec-tive good as a reward for contributing to the group. For ex-ample, the American Association of Retired Persons (AARP)is a SIG that "informs" Federal and state lawmakers about theconcerns of older citizens. To induce membership, the AARPprovides a vast array of selective benefits including the AARPTravel Service, Pharmacy Service, Group Health Insurance,Investment Program, Modern Maturity magazine and TV pro-gram, retirement guides, crime prevention courses, 55 Alive/Mature Driving Course, tax preparation assistance, and volun-teer projects. AARP's membership of 30 million may suggestthe effectiveness of selective incentives.

SIGs also have been adept at shifting their costs onto thegeneral public. The cost borne by the individual is small andfairly unnoticeable whereas in the aggregate, the cost can beextremely large. The AARP presents two examples of cost

* Mark A. Geist, a second-year Summer Fellow at AIER, is a graduatestudent in Yale University's School of Management.

65

shifting that derive from its nonprofit, hence tax-exempt, status.Large financial companies pay an average of 6.2 percent of theirrevenue in Federal income tax. At this rate, AARP last yearwould have had to pay $8.7 million in taxes on the $140 million(60 percent of AARP's budget) realized from the sale ofselective incentives. In short, AARP realizes its profits attaxpayers' expense and to the detriment of for-prbfit firms thatcompete with AARP's commercial selective incentives. Be-yond this, AARP's nonprofit postal rate enables it to send out 74percent more mail for the dollar than a for-profit, bulk-rate firm.

The AARP is remarkable only in size. Twenty-one thou-sand such associations now operate at the national level, and1,000 more are formed each year. They employ 567,000 peoplewith an annual payroll of $15.6 billion.

Political scientists posit two other factors that are necessaryfor group formation and maintenance. Of primary importanceis the role of political entrepreneurs who are required to initiatethe process of mobilization. However, to maintain a group,outside sponsors and patrons must be found. A substantialpercent of an interest group's funds usually derives from wealthyindividuals, foundations, government agencies, and other asso-ciations. Since many group members may be concerned prima-rily with the selective incentives offered, the group leadershipmay respond to the political agendas of its large patrons andsponsors, which may not coincide with the underlying politicalinterests of its membership.

The Federalist #20 RevisitedIn a number of respects, PACs and SIGs are the realization

of the danger of factions envisioned by James Madison in theFederalist Paper #10. Current legislation reflects primarily thedesires of vocal, well-organized, financially robust, minorityinterest groups (even the AARP does not constitute a majorityof the population). Madison suggested that the "mischiefs offactions" can be cured either by removing the causes or bycontrolling the effects. Removing the causes can be accom-plished either by "destroying the liberty essential for its exist-ence" or by "giving to every citizen the same opinions, pas-sions and interests." However, he concedes that the lattermeasure is as impractical as the first is unwise. Madison con-cluded that controlling the effects of faction could be achievedby the "republican principle, which enables the majority todefeat its sinister views."

Contrary to what Madison imagined, the recent explosionof interest groups has not led to increased competition for thesupport of policymakers and a balancing of interests. Indi-vidual groups have deliberately differentiated into narrow policy"niches" that are easily identified by policymakers and thatavoid the costs of gathering information on broad issues. Mostimportant, by restricting themselves to narrow issues the groupsavoid conflicts with other lobbies. Reportedly, the vast major-ity of lobbyists believe that to gain congressional support, theymust eschew "general policy" proposals in favor of narrowlydrawn legislation. The result is fragmented policy whose vari-ous special-interest elements may be self-contradictory.

IRON TRIANGLES IN THE HOUSE OF REPRESENTATIVESOrganized Merest Croups Executive Agencies Congressional Committees

Farm bureausLumber companies

ContractorsVeterans' groups

Local governments

Banks, S&LsInsurance companies

Brokerage houses

Labor unionsSchool districts

Teachers

State & local governmentsCorporations

Foreign governmentsInternational business

Council on Foreign Relations

ContractorsDevelopers

State & local governmentsEnvironmental groups

LawyersInsurance companies

State & local governments

ShipbuildersFishing Industry

Port cities

Letter carriersThird-class mailers

ContractorsDevelopers

State & local governments

UniversitiesContractors

Military

Small business

Veterans

Department of AgricultureForest Service

Soil Conservation Service

Department of Defense

Treasury DepartmentFederal Reserve System

Labor DepartmentDepartment of Education

Interstate Commerce CommissionTransportation Department

State Department

Army Corps of EngineersDepartment of the interior

Justice Department

Bureau of Fisheries

Post Office

Bureau of ReclamationTransportation Department

National Science FoundationNASA

Small Business Administration

Veterans' Administration

Agriculture

Armed Services

Banking, Finance& Urban Affairs

Education & Labor

Energy and Commerce

Foreign Affairs

Interior & Insular Affairs

Judiciary

Merchant Marine& Fisheries

Post Office & Civil Service

Public Works& Transportation

Science & Technology

Small Business

Veterans' Affairs

It seems abundantly apparent that many legislators are will-ing to trade policy favors for the electoral and financial supportthat interest groups can provide. But why have SIGs and PACsgained such prominence in the political arena only within thelast 3 decades? The answer may be in changes in the institu-tional structure and norms of Congress, and the decline of partycontrol over its members. These developments have greatlyincreased the autonomy of individual congressmen whose im-mediate interest is in advocating the policies of the most pow-erful special interests in their districts.

The principal institutional change has been the devolutionof general congressional powers to specific committees andsubcommittees. This trend, which had been building for de-cades, reached its zenith in the 1970's in a wave of legislationthat included the Legislative Reorganization Act (1970), theSubcommittee Bill of Rights (1973) and the Committee Re-form Amendment (1974). Whereas bills formerly were de-bated on the floor of the Senate or House of Representatives,since the passage of those acts, they have been referred to the"appropriate" committee for consideration. Subcommittees ofthose committees focus their activities even more narrowly.

Once in the hands of the committee, the bill becomes subjectto that committee's agenda. The committee chairperson thenchooses the subcommittee (friendly or unfriendly) to which thebill is referred or may choose not to refer at all in which case thebill is "killed." The subcommittee chair controls the timing andduration of hearings. The subcommittee can recommendchanges, or can kill the bill by not reporting its "markup" to thefull committee. At its discretion, the committee can hold hear-ings and recommend its own changes or rely upon subcommit-tee recommendations, express its favor or disfavor with the billas is, or kill the bill by either not referring it to the full House orby submitting a new bill in its place.

In addition, a variety of congressional "norms" augment the66

power of the committees and subcommittees. Mostimportant is that of reciprocity. Committee membersare considered "experts" in their legislative jurisdictionand other congressmen usually follow their recom-mendations with the tacit understanding that their own"expertise" will receive like treatment when the timecomes. In practice, political expediency usually dic-tates committee assignments and, hence, a legislator'sarea of "expertise." Congressmen regularly obtain partyassignment to committees that can safeguard and ad-vance the interests of the most powerful SIGs andPACs in their districts. Most specialize in only one, orat most a few, legislative areas.

Obviously, if a bill is not favored by a committee, ithas little chance of passing unaltered onto the Housefloor, regardless of the strength of its support withinCongress. The means of circumventing committeerule—discharge petitions, suspension of the rules bytwo-thirds' majority vote, direct reporting of bills bythe Rules Committee, and the use of select commit-tees— are onerous and rarely used. Of the 371 dis-charge petitions filed between 1937 and 1982, only 15were passed and only two of the bills became law.While 86 percent of the 13,240 bills introduced in the97th Congress were killed in committee, roughly 90percent of the bills reported out of House committeesare passed by the House. In short, committees controllegislation.

The committee system of government distortsmajoritarian rule in other ways. Congressmen gravitateto the committee(s) that further the interests of theirlargest constituencies, with the result that committeemembers generally want more of the relevant publicgood than Congress as a whole. That is, the foxes are

guarding the henhouse. This tendency is exacerbated by theneed for the majority party members on a committee to dish outadditional pork in order to achieve consensus with the minoritymembers. PACs have a perfect point of access for turning theirdesires into favorable legislation; banks lobby the House Bank-ing and Finance Committee, unions lobby the House Educa-tion and Labor Committee, and so on.

Committees have amassed so much power that attempts atperiodic overhaul have failed or have been watered down.Today, committees are self-perpetuating and their power isgrowing. Indeed, policy changes are better predicted by changesin the membership of the relevant committee than by a changein the Presidency or Congress as a whole.

A Collapse of Party DisciplineHistorically, the differences between competing interests

were bridged by political parties. Today, however, party con-trol over members is waning. The power of the Speaker andparty leaders has been transferred to the committees. Theparties have little control over tangible resources such as jobsand contracts. Also, the spread of the direct primary has re-duced the value of party endorsement and thus the ability of theparty to control nominations. The determinants of voter choicealso have changed. Whereas previously party affiliation andnational conditions were the dominant factors, the congres-sional candidates and the "incumbency effect" or "incumbentprotection plan" have become important. Recent findings sug-gest that incumbency status provides up to an 8 percentagepoint advantage at the polls.

One reason is that congressmen increasingly have been ableto engineer their own reelection without party aid. In effect,they have formed their own mini "Reelect Me" parties byvoting themselves taxpayer-financed perks such as increasedstaff, district offices, trips home, and access to mass communi-

PRIMARY LEADING INDICATORSThese series typically hit troughs and begin to expand a few months before general business conditions turn. Over the past

few months eight leaders have increased from recent lows. Four of these series now are appraised as cyclically expanding.These broad-based improvements suggest the recession could end soon. If this is to happen, however,

we would expect the other leaders to improve shortly.675

625

575

525

475

425

Ml MONEY SUPPLY (1)(Constant Dollars, Billions)

[4/91]

2750

2250

1750

1250

750

M2 MONEY SUPPLY (1) -»(Constant DoElars, Billions) [4/91]

+18

+12

+6

0

-6

-12

PERCENT CHANGE IN SENSITIVE MATERIAL PRICES

[1/91]

120

60

30

15

NEW ORDERS, CONSUMER GOODS (3)(Constant Dollars, Billions)

[3/91]

80

40

20

10

1945

«- CONTRACTS & ORDERS, P. & E. (4)(Constant Dollars, Billions)

12/91] -

INDEX OF HOUSING PERMITS (3)

240

120

60'50 '55 '60 '65 '70

67'75 '80 '85 '90

PRIMARY LEADING INDICATORS (Continued).80

.76

.72

.68

.64

.60

.56

RATIO OF MANUFACTURING & TRADE SALES TO INVENTORIES (3)

[2/91] _

100

85

70

55

40

25

10

VENDOR PEBfORMANCE (2)(Percent)

[4/91]

400

200

100

50

INfDEX OF STOCK PRICE$<2)(Constant Dollars}

[3/91]

46

44

42

40

38

AVERAGE WORKWEEK, MANUFACTURING (3)(Hours)

[4/91]

160

260

360

460

560

660

INITIAL CLAIMS,STATE UNEMPLOYMENT INSURANCE (3)(Thousands, Invited)

[3/91]

+16

+12

+8

+4

PERCENT CHANGE I N CONSUMER INSTALLMENT DEBT (4)

[2/91]

1945 '50 '55 '60 '65 '70 '75 '80 '85 '90

Note: The number in parentheses next to the name of a series is an estimate of the minimum number of months over which cyclicalmovements of a series are greater than irregular fluctuations. That number is the span of each series' moving average, or MCD(months for cyclical dominance), used to smooth out irregular fluctuations. The data plotted in the charts are those MCDs and not thebase data. The number in brackets is the latest month for which the moving average is plotted.

68

PRIMARY ROUGHLY COINCIDENT INDICATORS

Turning points in these series help identify the peaks and troughs of the business cycle.None of the coinciders currently is appraised as expanding. However, increases in nonagricultural employment (in May)

and the index of industrial production (in April) suggest the economy may be approaching a turning point.120

60

30

EMPLOYMENT IN N ON AGRICULTURAL ESTABLISHMENTS (1)(Melons)

[5/91]

120

60

30

15

[4/91]

INDEX OF INDUSTRIAL PRODUCTION ( 1 ) - *

600

300

150

PERSONAL INCOME, MANUFACTURING (2)(Coft$fent Dollars, Pillions)

[3/91]

600

300

150

75

[2/91]

MANUFACTURING & TRADE SALES (2)(Constant Dollars, Billions)

.62

.58

.54

.50

.46

NONAGRICULTURAL EMPLOYMENT RATIO (2) [4/91] "

4800

2400

1200

600

[3/91]

GROSS NATIONAL PRODUCT (1)(Constant Dollars, Billions)

1945 '50 '55 '60 '65I....'70

69'75 '80 '85 '90

10

14

18

22

PRIMARY LAGGING INDICATORSThese series typically continue to contract through the early stages of economic recovery, and are useful mainly

for confirming the turning points of business cycles. Although the average duration of unemployment (inverted)and the ratio of consumer debt to personal income have decreased during the current recession,

both series are well below the troughs they reached following earlier recessions.

[4/91J .

AVERAGE DURATION O * UNEMPLOYMENT (2)s, Inverted?

[3/91]

MANUFACTURING & TRADE INVENTORIES (1)(Constant Dollars, Billions)

800

400

200

480

240

120

60

30

100

+16

+12

+8

+4

0

-4

-8

[4/91]

COMMERCIAL & INDUSTRIAL LOANS (1)(Constant Dollars, Billions)!

1945

[4/91]

RATIO OF CONSUMER INSTALLMENT DEBT TO PERSONAL INCOME (1)

COMPOSITE OF SHORT-TERM INTEREST RATES (1)(Percent)

'50 '55 '60 '65 '70

70'75 '80

18

15

12

9

6

3

0

PERCENT CHANGE f ROM A YEAR EARLIERIN INDEX OF LABOR COST PER UNIT OF OUTPUT

[3/91]

[5/91]

20

16

12

8

4

0'85 '90

cations. In 1987, 595 million unsolicited letters and postcardswere mailed by congressmen and in 1990, they voted to in-crease their franking limit from $24 to $35 million. Althoughfree to incumbents, these resources could cost up to $1 millionper term on the open market. Rather than expressing commit-ment to vague national party objectives, incumbents usuallyemphasize their ability to deliver services to constituents andtheir special interests. This approach pays off. Of the 408members seeking reelection in 1990,402 were successful — areelection rate higher than that of the Soviet Politburo.

Government Agencies Complete the "Iron Triangle"Government agencies have aligned with interest groups and

committees to complete durable, three-sided arrangements thathave become known as "subgovernments" or "iron triangles."The dynamics of these are such that the interest group providesfinancial and electoral support to key committee members, thecommittee members lend legislative and budgetary support toagency programs and fend off any congressional opponents,and the agency supplies the services valued by the interestgroup. A number of iron triangles in the House of Representa-tives are listed in the accompanying table.

The arrangements described above may be useful for under-standing that Government regulation often is not the result ofany mandate from a disgruntled people. Rather, it often is"purchased" from congressmen by small, tightly organizedpressure groups (aptly termed "primary constituencies") and,as such, is not intended to address the concerns of the generalpublic. Similarly, selective deregulation is demanded and re-ceived by industry pressure groups when the previously de-manded regulations no longer serve their interests. In bothinstances, the general public bears the associated costs and,despite its majoritarian interest, seems unwilling or unable tofight back. In today's Congress, any legislative and budgetaryembodiment of genuine public concerns seems almost inciden-tal, and the broad public interest increasingly is representedonly to the extent that it does not interfere with the activities ofspecial interest organizations.

For Further ReadingCox, Gary W., McCubbins, Mathew D., Weingast, Barry R., "An Outline of

Congressional Procedure," ms April 1987.Cox, Gary W., McCubbins, Mathew D., Weingast, Barry R., "Congressional

Procedure and the Committee System," ms April 1987.Fiorina, Morris P., "The Presidency and Congress: An Electoral Connec-

tion?" The Presidency and the Political System, 2nd ed., (Washington:Congressional Quarterly, 1988).

Hammond, Thomas H., Knott, Jack H., "The Deregulatory Snowball: Ex-plaining Deregulation in the Financial Industry," Journal of Politics, 50(Feb. 1988).

Hardin, Russell, Collective Action (Washington, D.C.: RFF, 1982).Knott, Jack H., Miller, Gary J., Reforming Bureaucracy: The Politics of

Institutional Choice (Englewood Cliffs, NJ: Prentice Hall, 1987).Madison, James, Federalist if 10.Noll, Roger, "The Political Foundations of Regulatory Policy," in M.

McCubbins and T. Sullivan, Congress: Structure and Policy (Cambridge,1987).

Olson, Mancur, The Logic of Collective Action (Cambridge: Harvard Uni-versity Press, 1965).

Salisbury, Robert H., "The Paradox of Interest Groups in Washington," inAnthony King, ed. The New American Political System, 2nd ed. (Wash-ington, D.C.: AEI Press, 1990).

Walker, Jack, "Political Mobilization in America," in John Jackson, ed.,Institutions in American Society (Ann Arbor: University of MichiganPress, 1990).

"Associations: Possom to Phlebotomy, They're All Spoken For," The NewYork Times, Aug. 3, 1988.

"Did the Pilgrims Have a PAC?" Newsweek, Nov. 26,1990."Enrich Your life With AARP," AARP Brochure."Lobbyists Get Low Marks in Poll," Lawrence Journal World, June 23,

1990."The Empire," Money, Oct., 1988."The Incumbent Protection Plan," The New York Times, Oct. 29,1990.

BUSINESS-CYCLE CONDITIONS:Waiting for the Green Light

The relatively broad-based improvements among the lead-ing indicators this month suggest that an economic recoverymay occur sooner rather than later. The current data comparefavorably to those of recent months, when gains were centeredin the financial sector of the economy. That said, the prospectsfor increased consumer spending, on which hopes of anyrecovery depend, remain uncertain. Thus far, the coincidentindicators of economic activity show little improvement, al-though the loggers currently display few of the "bottlenecks"that would thwart a recovery.

This June marks the eleventh month since the start ofrecession, roughly the average duration of all recessions sinceWorld War II. In recent months, the primary leading indicatorsof business activity have improved somewhat, which has ledto widespread expectation that "the recession is over" — or atleast soon will be. Dr. Geoffrey Moore, Director of the Centerfor International Business Cycles Research, notes that thisrecession is "milder" than average in terms of magnitude {i.e.,lost sales, output, and employment), but he also warns that"mild" recessions typically are associated with "weaker" thanaverage recoveries.*

In this respect, economic recovery hinges first and fore-most on increased personal consumption, which absorbsroughly two-thirds of Gross National Product. Consumers fi-nance consumption in several ways: by spending out of cur-rent income, by drawing down savings and other assets, or byborrowing. Strong gains in consumer spending during Febru-ary and March (not shown in the accompanying charts) spurredhopes of a rebound. But those gains were partially offset by a$4.2 billion decrease in April. (This and all other dollar-de-nominated series are reported in constant dollars.)

In fact, sharply increased state and local taxes, increased"user fees," and most recently the effects of recession havedepressed after-tax incomes. Thus, currently earned incomemay not be related to the recent increases in consumer spend-ing. Rather, consumers may have tapped their savings andsold off other assets to finance consumption, a pattern that isnot sustainable and that could yield "false signals" about pros-pects for a recovery. Total consumer installment debt posted amodest increase of $1.7 billion in April for the first time in 4months, and the 3-month average of the change in consumerinstallment debt increased from an 80-month low last month.That series' appraisal was upgraded from clearly to probablycontracting, but the "confidence" that inclines consumers to

* Dr. Geoffrey H. Moore, Recession-Recovery Watch..., Vol. 13, No. 2,May 1991 (NY: Columbia Business School).

100AIER LEADERS PERCENT EXPANDING

25

0

100"CYCLICAL SCORE" OF AIER LEADERS

1970 '80 '85 '90

71

spend by assuming debt (i.e., spending out of future in-come) can evaporate quickly in the face of bad news.

New orders for consumer goods and materials increased$7.3 billion, or 8.9 percent, in April and the series wasupgraded from clearly to probably contracting. The slightincrease in the demand for goods may help to account forthe modest improvements in the manufacturing series thismonth. The base series for vendor performance, a diffusionindex of purchasing managers reporting slower deliveries,increased for the second consecutive month in May andwas upgraded to probably expanding from indeterminate.

On the other hand, contracts and orders for new plantand equipment decreased $2.3 billion, or 5.3 percent, inApril and its 3-month moving average hit a new low. Theappraisal for this series was downgraded from probably toclearly contracting. The 3-month moving average of ratio ofmanufacturing and trade sales to inventories hit a new lowand remains clearly contracting, despite a modest increase inits base data for March. The 3-month rate of change insensitive materials prices still is probably contracting.

As a result of modest improvements in the demand forgoods, firms hired more workers. The average workweek inmanufacturing series increased in May and was upgraded toprobably from clearly contracting. The base data for (in-verted) initial claims for unemployment insurance increasedin April, although its 3-month moving average hit a newlow. The series still is appraised as clearly contracting.

In contrast to their performance in recent months, thefinancial series weakened slightly in April. Both the Mlmoney supply and the broader M2 money supply seriesdecreased by $2.0 and $0.1 billion, respectively. The con-stant-dollar index of 500 common stock prices hit a newhigh in April, but the series' current-dollar base data de-creased in May. The underlying trends of all three financialseries remain appraised as probably expanding.

Mortgage rates have mirrored the downward trend inU.S. interest rates, but apparently are not responding to addi-tional monetary easing by the Federal Reserve. The FederalHousing Finance Board reported that effective mortgage rates,the contract interest rate adjusted for initial fees and charges,increased slightly from 9.50 percent to 9.53 percent in April.Nonetheless, demand for housing has increased during recentmonths, which in turn has stimulated construction employ-ment and building activity. After decreasing for 13 consecu-tive months to a 6-year low, employment in the constructionsector increased in May. The 3-month average of the index ofhousing permits series increased again in April and was up-graded to indeterminate from probably contracting.

As a result of five upgrades and only one downgrade amongthe leaders, the economic outlook improved for the fourthconsecutive month. Perhaps of greatest significance is that thismonth's gains occurred in the manufacturing, labor, and hous-ing series rather than in the financial series. The percentageexpanding of leaders for which a trend is apparent increased to36 (4 out of 11) from 27 (3 out of 11) last month. AIER'sexperimental cyclical score also increased to 37 from a revised31 last month. When these scores have increased above 40during past recessions, an economic recovery typically was inthe offing (see charts on page 71).

Among the roughly coincident series, monthly changeswarranted reappraisals only for the labor series. Nonagricul-tural employment, based on a survey of establishments by theBureau of Labor Statistics (BLS), increased slightly in May toreverse 10 consecutive months of decrease. The cyclical statusof that series, which was clearly contracting last month, now isindeterminate. On the other hand, the nonagricultural employ-ment ratio series, based on a survey of households by the BLS,decreased in May after a substantial increase earlier in April.

THE STATISTICAL INDICATORS

Feb.

Direction of Changein Base DataMar. Apr. May

— Cyclical Status —4/91 5/91 6/91

13 27

+?+?-?

-?

36

+?

25 25 20

Primary LeadingM1 money supplyt + +M2 money supplyt + +Chg. in sensitive mat. prices + -New orders, cons, goodst + -Contracts & orders, p. & e.t - -Housing permits + +Mfg. & trade sales/inv.t + +Vendor performance nc -Stock pricest + +Average workweek, mfg. - -Initial claims, unempl. ins.* - -Chg. in cons, instal. debt - +

Percent expanding cyclically

Primary Roughly CoincidentNonagr. employment - -Industrial production - -Personal income, mfg.t - -Mfg. & trade salest +Nonagr. employment ratio - -Cross National Producttq

Percent expanding cyclically

Primary LaggingAvg. duration of unempl.* - -Mfg. & trade inventoriest - -Com'l. & industrial loanst + +Cons, instal. debt/pers. inc. - -Chg. in labor cost/output + +Short-term interest rates

Percent expanding cyclically

t In constant dollars. * Inverted, q Quarterly. nc No change. 'Revised.Under "Direction of Change," plus and minus signs indicate, respectively, in-

creases or decreases in monthly or quarterly data from the previous month orquarter, blank spaces indicate data not yet available. Under "Cyclical Status," plusand minus signs indicate expansions or contractions of each series as currentlyappraised; question marks indicate doubtful status when shown with another sign orindeterminate status when standing alone.

The series now is clearly contracting. This series' recent er-ratic behavior suggests that the data obtained from the surveyof establishments are far more reliable for assessing the under-lying trends in employment than are those from the householdsurvey. The percent of coinciders expanding cyclically re-mains zero.

Among the primary lagging indicators, the 12-month changein unit labor costs hit a new high. As the recession curtailsproduction, firms that delayed lay-offs of redundant laborhave experienced increases in labor costs per unit of output.Additional lay-offs may result if demand is slow in coming.The series was upgraded from probably to clearly expanding.On the other hand, manufacturing and trade inventories de-creased $4.9 billion to a 16-mqnth low in March and wasdowngraded to clearly contracting from indeterminate lastmonth. As a result of these changes, the percent of laggers forwhich a trend is apparent fell to 20 (1 out of 5) from 25 (1 outof 4) last month. Moderation among the laggers has preventedthe resurgence of bottlenecks that in this phase of the businesscontraction would only prolong recession.

PRICE OF GOLD

Final fixing in London

1990Jun. 18$349.25

799/Jun. 6 Jun. 13$364.85 $369.70

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72