To the Congress of the United States:
I present herewith my Economic Report, as required by Section 3 (a) of the Employment Act of 1946.
In preparing this Report, I have received the assistance and advice of the Council of Economic Advisers. I have also had the advice of the heads of the executive departments and independent agencies of the Government.
I set forth below, essentially in the words of the Report itself, what I consider to be its major conclusions and recommendations.
OPPORTUNITY AND RESPONSIBILITY IN A FREE ECONOMY
The vast productive power of the American economy was demonstrated again in 1956 in a record national output of $412 billion of goods and services.
In addition to providing this material basis for better living, our free economy gives indispensable support to our form of political life and offers unparalleled opportunities to the individual for personal choice and development.
Important responsibilities accompany these opportunities. They are borne ]n part by Government, but they must be borne also by the individual in his own economic activity and in his organized activity with others.
Government must use all practicable means to promote high levels of production and employment, and to contribute toward achieving an expanding and widely-shared national income, earned in dollars of stable buying power. It must pursue policies that encourage the enterprising spirit of our people and protect incentives to work, to save, and to invest. It must exercise a strict discipline over its expenditures and avoid taking in taxes too much of the incomes of individuals and businesses. It must strive to strengthen competitive markets and to facilitate the adjustments necessary in a dynamic economy.
Even more exacting are the responsibilities of individuals and economic groups. Business managements should formulate and carry out their plans so as to contribute to steady economic growth. They must also recognize the broad public interest in the prices set on their products and services.
Both management and labor should remove restrictions on the operation of competitive markets and enhance the economy's adaptability to change. Of particular importance in a prosperous economy is the responsibility of leaders of business and labor to reach agreements on wages and other labor benefits that are consistent with productivity prospects and with the maintenance of a stable dollar.
Reliance for stability in economic growth cannot be placed exclusively on the fiscal and monetary policies of Government. The successful extension of prosperity with price stability calls for a cooperative effort in which the policies of individuals and economic groups and of all levels of government are consistent with one another and mutually reinforcing.
ECONOMIC GROWTH AND IMPROVEMENT, 1953--56
The opportunities which our free economy provides for the improvement of well-being are clearly evident in the record of the last four years. Civilian employment increased by about 3.7 million. Per capita personal income measured in constant dollars rose 10 percent after taxes. Five million homes were built and home ownership became more widespread. Rising incomes enabled consumers to expand their purchases of virtually all types of goods and to make important improvements in their own provisions for financial security. Participation in, and support of, religious, cultural, educational, and civic activities increased significantly.
Great strides were taken in the expansion and improvement of the Nation's productive facilities. Business firms and farmers spent over $150 billion for this purpose. These investment outlays contain the promise of greater national output and better living in the years ahead.
Agriculture has faced difficult problems in this period, resulting chiefly from the persistent tendency for production to exceed commercial demands. Progress has been made, however, toward a better balanced farm economy, and there has been some recent improvement in farm income. To sustain agricultural progress, experience suggests that continued emphasis is needed on the basic objectives of the last four years--wider freedom for our commercial farmers in managing their own enterprises, appropriate shifts in the use of the Nation's cropland, an improved system of price supports, and research into new products, markets, and uses.
The period was marked by economic improvement throughout the free world and by a notable expansion of international trade and finance, including our own exports and imports. Sharp increases have occurred in our exports to industrialized countries with high per capita incomes and to others currently experiencing a rapid rate of economic growth. This fact shows that prosperity elsewhere widens markets for the products of our farms, mines, and factories.
The contributions that Government can make toward the achievement of stable economic growth have been evident during the last four years. The 1953-54 experience demonstrated that, when consumer and business confidence is maintained, timely public policies can help keep recessionary tendencies in check. The Government policies followed in 1955 and 1956 helped to moderate the upward pressure on prices and to prevent conditions that would threaten economic stability.
THE ECONOMY IN 1956
The Nation's aggregate output of goods and services in 1956 was $21.5 billion greater than in 1955, despite a decrease in activity in some sectors of the economy, notably in automobile production and home construction. Heavy expenditures for new plant and equipment by business concerns, increases in foreign trade and investment, a high rate of consumer expenditures, and rising outlays by State and local governments contributed to the expansion. About half of the increase represented a gain in physical output, and the remainder reflected moderately higher prices.
Sizable gains in employment were made in important sectors of the economy; for the year as a whole, there was an increase of 1.8 million over 1955 in total civilian employment. Incomes rose for all major groups of income recipients.
As the year progressed, farm income improved. There were further advances in the value of farm land, in the net worth of farm proprietors, and in agricultural exports. Farm technology continued to improve.
Financial markets and prices were under continuous pressure. Interest rates rose as the demand for credit continued large relative to the supply of funds. The unusually heavy demands of business concerns tended to raise prices of capital goods and related commodities. High costs of raw materials and wage increases that tended to outrun the year's small gain in productivity were pervasive factors making for higher prices.
Pressures on prices, costs, and financial resources in 1956 called for the continuation of policies designed to counter inflationary forces. The Federal Government's budget surplus contributed to this end, as did the credit restraints imposed by the Federal Reserve System. The events of the year showed, however, that when production and employment are high, wage and price increases in important industries can create upward pressures on costs and prices generally, and that the monetary and fiscal policies of Government must be supported by appropriate private policies to assure both a high level of economic activity and stable prices.
EXTENDING AND BROADENING ECONOMIC PROGRESS
This Report outlines legislative proposals designed to carry out the declared policy of the Employment Act. They include measures to strengthen our enterprise system, enlarge our national resources, and improve the level of living.
Government can strengthen the enterprise system at this time by preserving a balanced budget. Accordingly, the Congress should continue tax rates at their present levels, and Federal expenditures should be strictly limited.
Our enterprise system would also be strengthened by legislative measures to assist small businesses and to foster competition. These measures, which the Congress is urged to consider, include extension of the Small Business Act beyond June 30, 1957; easier access of small- and medium-sized companies to capital markets; such tax adjustments as can be made with a minimum loss of revenue; and reduction of the burden of paperwork imposed by Government. The Congress is also urged to provide for needed improvements in the antitrust laws and in the procedures available to enforcement agencies.
Recent changes in our financial structure and practices call for careful study of the adequacy of existing facilities for meeting the Nation's capital and credit requirements and of the means for exercising appropriate controls over credit. As requested in the State of the Union Message, the Congress should authorize a National Monetary and Financial Commission to perform this important task.
Our enterprise system would benefit from United States membership in the Organization for Trade Cooperation and participation in the International Atomic Energy Agency, and from continuation of economic assistance, including defense support, under the Mutual Security Program.
Additional measures are required to enlarge and improve our national resources. The partnership principle, which encourages local leadership and participation in the development of water and power resources, should continue to be given close attention in current authorizations and appropriations.
To aid agricultural adjustments, recommendations will be made to the Congress for an improved acreage-allotment and price-support program for corn, and for steps to deal with problems of land use and water shortage accentuated by recent drought conditions. Extension of Title I of the Agricultural Trade Development and Assistance Act for one year, and a limited increase in permissible losses, would be a useful short-run measure for helping reduce surplus stocks of farm commodities.
The Congress is again requested to enact a program of Federal assistance for developing the economic base of local areas experiencing persistent unemployment.
No proposal for enlarging our national resources is more important than that for Federal assistance in overcoming the critical shortage of schoolrooms. The Congress is urged to enact a program which would help meet the backlog of these needs within four years. After that time full responsibility for school construction should revert to the State and local governments.
Further advances in the level of living would be accomplished by measures to raise the Nation's standards of housing, health, and personal security. Home building and ownership would be aided by an adjustment that would bring the maximum interest rate on VA-guaranteed home loans into closer conformity with competitive market rates; by an increase of funds for the secondary market operations of the Federal National Mortgage Association; and by an extension of the Voluntary Home Mortgage Credit Program.
Health standards would be advanced by legislation to encourage voluntary health plans and by a program of construction grants for medical and dental training facilities.
Personal security would be strengthened by extending unemployment insurance coverage to employees of small firms and certain other groups; by broadening minimum wage legislation to cover additional workers needing this protection; by requiring Federal registration and reporting by private pension and welfare funds; and by a program of technical aid and limited financial assistance to States for promoting occupational safety.
There are grounds for confidence that the Nation's over-all prosperity will be extended into the months ahead. A moderate rise in business capital outlays is indicated. Construction expenditures and foreign trade and investment should continue to favor economic expansion. The combined expenditures of Federal, State, and local governments are expected to be higher. Consumer expenditures should be sustained by favorable employment conditions and good earnings.
However, uncertainties and problems are always present in the economic situation and require careful attention. These include the present international situation, the upward pressure of costs and prices, factors affecting capital outlays by business, and the provision of an adequate flow of new savings to meet the prospective heavy demands for funds.
These and other uncertainties and problems which inevitably arise in a dynamic economy challenge individuals, economic groups, and Government to meet their respective responsibilities for maintaining stable economic growth. If all live up to these responsibilities, the capacity of our economy to provide the high levels of employment, production, and purchasing power envisaged by the Employment Act, and broadly attained in the past year, will be further enhanced.
DWIGHT D. EISENHOWER