To the Congress of the United States:
I am herewith presenting my Economic Report, as required by Section 3 (a) of the Employment Act of 1946.
In preparing this Report, I have had the assistance and advice of the Council of Economic Advisers. I have also had the advice of the heads of executive departments and independent agencies.
I present below, largely in the words of the Report itself, what I regard as its highlights.
SOURCES OF ECONOMIC PROGRESS
With production and employment now increasing on a broad front, the events of the past year have borne out the major conclusions of the Economic Report of January 1954 concerning the state of our economy and the policies needed to promote sound economic growth.
Economic well-being sustains our whole national life. A high and rising standard of living brings to more of our people the opportunity for continued intellectual and spiritual growth.
The main sources of our Nation's economic strength are its free institutions and the qualities of its people--their ambition, skill, enterprise, and willingness to make great efforts in their own behalf and in behalf of their families and communities.
The need of our times is for economic policies that, in the first place, recognize the proven sources of sustained economic growth and betterment, and in the second place, respect the need of people for a sense of security as well as opportunity in our complex, industrialized society.
A free economy has great capacity to generate jobs and incomes if a feeling of confidence in the economic future is widely shared by investors, workers, businessmen, farmers, and consumers.
Many factors favor a continuation of our vigorous economic growth. The population is increasing rapidly, educational levels are rising, work skills are improving, incomes are widely distributed, consumers are eager to better their living standards, businessmen are starting new enterprises and expanding old ones, the tools of industry are multiplying and improving, research and technology are opening up new opportunities, and our public policies generally encourage enterprise and innovation.
With wise management of the national household, our country can within a decade increase its production from the current annual level of about 360 billion dollars to 500 billion, or more, expressed in dollars of the same buying power.
In the future as in the past, increases in productivity and in useful employment opportunities will be the core of economic expansion.
The role of the Federal Government in the achievement of these goals is to create an atmosphere favorable to economic activity by encouraging private initiative, curbing monopolistic tendencies, avoiding encroachment on the private sector of the economy, and carrying out as much of its own work as is practicable through private enterprise. It should take its full part at the side of State and local governments in providing appropriate public facilities. It should restrain tendencies toward recession or inflation. It should widen opportunities for less fortunate citizens, and help individuals to cope with the hazards of unemployment, illness, old age, and blighted neighborhoods.
Last year the Government took many steps, both legislative and administrative, to encourage economic expansion. Fiscal and monetary measures fostered an expectation of improving economic conditions and encouraged people to maintain a high rate of expenditure. The opportunities of competitive enterprise were enlarged; economic ties with other countries were improved; the floor of personal and family security was strengthened; and additions were made to our public assets.
THE ECONOMY TODAY
The year 1954 was one of transition from contraction to recovery. The contraction reflected the efforts of businessmen to reduce inventories, and was aggravated by a large reduction in military expenditures.
The contraction was relatively mild and brief, because of a variety of timely public and private actions.
The Government cut taxes, the Federal Reserve System eased credit conditions, and the Treasury arranged its financing so as not to compete with mortgages and other long-term issues. A comprehensive program for encouraging private enterprise was submitted to the Congress. Apart from this, the decline in private incomes was automatically cushioned by increased payments of unemployment insurance and other benefits and by sharp cuts in taxes due the Government on the reduced incomes.
Consumers maintained a high rate of spending, businessmen kept capital expenditures at a high rate, builders stepped up their activities, trade unions conducted their affairs with a sense of responsibility, farmers recognized the dangers of piling up ever larger surpluses, private lenders made ample supplies of credit available on liberal terms, States and localities carried out large construction programs, and export demand remained strong.
Although manufacturing production fluctuated, total output was fairly stable, and disposable personal income reached record levels. But some industries and localities suffered from serious unemployment. The fortunes of most of them turned for the better when recovery got under way in the early autumn, and they will benefit from further general economic expansion.
Instead of expanding Federal enterprises or initiating new spending programs, the basic policy of the Government in dealing with the contraction was to take actions that created confidence in the future and stimulated business firms, consumers, and States and localities to increase their expenditures.
The vigor of the recent recovery, which has already made up half of the preceding decline in industrial production, suggests that economic expansion will probably continue during coming months. It holds out the promise that we shall achieve a high and satisfactory level of employment and production within the current year.
A further expansion of consumer spending may reasonably be expected; we are soon likely to experience some rebuilding of inventories; the decline of Federal spending next year will be less rapid than during the last two years; State and local expenditure will probably continue to expand; the outlook for housing and commercial construction continues to be good; there is a prospect that plant and equipment expenditures may turn upward, as the general economic advance proceeds; the outlook for export demand is brightened by the economic resurgence of an everwidening area of the Free World.
It is essential to keep a close watch on financial developments; continued economic recovery must not be jeopardized by overemphasis of speculative activity.
TOWARD SUSTAINED ECONOMIC GROWTH
The wise course for Government in 1955 is to direct its program principally toward fostering long-term economic growth rather than toward imparting an immediate upward thrust to economic activity.
Further efforts to reduce Federal expenditures, together with increasing revenues from a tax base growing as the economy expands, should make possible some additional general tax reductions next year. Progress could then also be made in further lowering tax barriers to the free flow of funds into risk-taking and job-creating investments.
Government should persist in its efforts to maintain easy entry into trade and industry, to check monopoly, and to preserve a competitive environment. Continued encouragement should be given to small and new businesses.
Scientific research and development activities in all their phases should continue to have the earnest support of the Federal Government.
Measures by ourselves and other nations to reduce existing barriers to international trade, payments, and investment will make the Free World stronger and aid our own economic growth.
Measures should be considered to extend personal security against the hazard of unemployment, to strengthen minimum wage legislation, to protect savings in credit unions, and to increase the President's discretionary authority to vary the terms of insured mortgage loans in the interest of economic stability.
A great ten-year program to modernize the interstate highway system should be authorized.
Our partnership policies of water resource development should be further implemented by appropriate Congressional and local action.
Action should be taken this year to help meet our Nation-wide needs for school construction. I shall shortly send to the Congress a special message that will deal with methods by which the Federal Government can appropriately assist in this vital field.
Support should be provided for an Office of Coordinator of Public Works Planning in the Executive Office of the President, and for a revolving fund for advances to the States and municipalities for public works planning.
Our Nation's recent history teaches that a foresighted Government can do much to help keep the economy stable, but experience affords no good basis for a belief that the Government can entirely prevent fluctuations.
We should harness the idealism as well as the intelligence of our generation to the practical end of facilitating the growth of private enterprise and of increasing the stability of our economy.
The Government will shoulder its full responsibility to help realize that goal.
DWIGHT D. EISENHOWER