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 had the advice and assistance of the Council of Economic Advisers. I have also had the advice of the heads of executive departments and independent agencies of the Government. I set forth below, largely in the language of the Report itself, what I consider to be its salient conclusions and recommendations.
Economic Recovery in 1958
When the Economic Report was submitted to the Congress in January 1958, a contraction in production and employment that had started some six months earlier was still under way. The decline proved to be sharper than the 1953-54 recession, but it did not last as long. A recovery began in May 1958, and by the end of the year most of the ground lost had been regained. Gross national product, our broadest measure of the Nation's output of goods and services, was at an annual rate of $453 billion in the fourth quarter of the year. In dollars of constant purchasing power, this was almost equal to the highest output attained in the pre-recession period. Nearly a million more people were at work in December 1958 than in July, after allowance for seasonal changes. Although the number of persons unemployed was above 4 million in December, it was 1 million brow the highest unemployment figure reached during the recession. Wage and salary income and consumer spending were at an all-time high, and the index of consumer prices had been virtually stable for six months, although about 2 percent higher than a year earlier.
Economic Policies in 1957-58
The events of the last 18 months show again the considerable capacity of our economy to resist contractive influences and to hold a downturn within fairly narrow limits.
Many factors contribute to this capacity. Chief among them are the industry and resourcefulness of our people, the strength and resiliency of our free competitive institutions, and the continuing operation in the American economy of powerful forces making for long-term growth.
Also of importance are features of our economic system that moderate the impact of contractive influences on personal income, and thus help to maintain demand. Increasingly, our people work in industries and occupations that are not readily affected by moderate economic declines. And such reductions in income as do result from lower production and employment are offset, to a considerable extent, by supplementary payments, notably by those made under the Federal-State system of unemployment insurance.
Governmental actions also played an important role in moderating the recession and helping to bring about a prompt and sound recovery. Monetary and credit policies were employed vigorously to assure ample supplies of credit. Legislation was enacted to lengthen temporarily the period of entitlement to unemployment benefits. Numerous actions were taken to spur building activity. Steps were taken to accelerate Federal construction projects already under way and to speed up projects supported by Federal financial assistance. Activities under a number of Federal credit programs, in addition to those in the housing field, helped counter the recession. And the acceleration of defense procurement, which was being undertaken in line with national security policy, exerted an expansive effect.
The 1957-58 recession shows that the major emphasis of Federal policies to counteract an economic downturn should be placed on measures that will act promptly to help shift the balance of economic forces from contraction to recovery and growth. Though an effective contribution can be made by the acceleration of public construction projects already under way, little reliance can be placed on large undertakings which, however useful they may be in the longer term, can be put into operation only after an extended interval.
The 1957-58 experience is also a reminder that there is no simple prescription for corrective action which can be applied with only minor variations in every business downturn. It emphasizes the importance, in a situation in which powerful corrective forces are at work, of avoiding hasty and disproportionate actions, such as tax reductions that needlessly endanger the prospects of future fiscal balance and prejudice the orderly revision of the tax structure.
As production, employment, and income moved upward in 1958, the economic policies of Government became increasingly concerned with keeping the recovery on a sound basis and promoting a sustainable longterm expansion. Monetary and credit policy was shifted with a view to limiting the expansion of bank credit to a sustainable pace. The large financing operations of the United States Treasury are being conducted with a view to enhancing the basic stability of our financial system and promoting sound economic growth. And the fiscal operations of Government are moving in the direction of restoring a balance between outlays and incomes and thereby countering potential inflationary tendencies.
The Economic Outlook
As 1959 opens, there is reason for confidence that the improvement in business activity which began in the second quarter of last year will be extended into the months ahead. Factors that influence decisions on business capital outlays have become more favorable, and an upturn in these expenditures may already be under way. Residential construction outlays should contribute further to economic expansion, especially if favorable action is taken by the Congress on recommendations made in the Report to provide a steadier and more assured flow of private funds into mortgages. Sales of United States products in foreign markets may increase as the pace of business activity abroad quickens and the trade position of primary producing countries is improved. The combined outlays of Federal, State, and local government units will continue to rise. Under the impact of these developments, the liquidation of inventories should soon come to an end; indeed, the gap between current sales and stepped-up production schedules may already have been dosed. The effect of these favorable factors on employment and income can be expected to enlarge the markets for consumer goods and thereby to reinforce the conditions making for over-all economic expansion.
A Program for Economic Growth with Stable Prices
Our objective must be to establish a firm foundation for extending economic growth with stable prices into the months and years ahead. This will not come about automatically. To attain our goal, we must safeguard and improve the institutions of our free competitive economy. These are basic to America's unassailable economic strength. We must wage a relentless battle against impediments to the fullest and most effective use of our human and technological resources. We must provide incentives for the enlargement and improvement of the facilities that supplement human effort and make it increasingly productive. Finally, an indispensable condition for achieving vigorous and continuing economic growth is firm confidence that the value of the dollar will be reasonably stable in the years ahead.
Action to meet these challenges is required on many fronts, by all groups in our society and by all units of government.
The individual consumer can play an important part by shopping carefully for price and quality. In this way the American housekeeper can be a powerful force in holding down the cost of living and strengthening the principle that good values and good prices make good business.
Businessmen must redouble their efforts. They must wage a ceaseless war against costs. Production must be on the most economical basis possible. The importance of wide and growing markets must be borne in mind in setting prices. Expanding markets, in themselves, promise economies that help keep costs and prices in check.
Leaders of labor unions have a particularly critical role to play, in view of the great power lodged in their hands. Their economic actions must reflect awareness that the only road to greater material well-being for the Nation lies in the fullest realization of our productivity potential and that stability of prices is an essential condition of sustainable economic growth.
The terms of agreements reached between labor and management in wage and related matters will have a critical bearing on our success in attaining a high level of economic growth with stable prices. It is not the function of Government in our society to establish the terms of these contracts, but it must be recognized that the public has a vital interest in them. Increases in money wages and other compensation not justified by the productivity performance of the economy are inevitably inflationary. They impose severe hardships on those whose incomes are not enlarged. They jeopardize the capacity of the economy to create jobs for the expanding labor force. They endanger present jobs by limiting markets at home and impairing our capacity to compete in markets abroad. In short, they are, in the end, self-defeating.
Self-discipline and restraint are essential if reasonable stability of prices is to be reached within the framework of the free competitive institutions on which we rely heavily for the improvement of our material welfare. If the desired results cannot be achieved under our arrangements for determining wages and prices, the alternatives are either inflation, which would damage our economy and work hardships on millions of Americans, or controls, which are alien to our traditional way of life and which would be an obstacle to the Nation's economic growth and improvement.
The chief way for Government to discharge its responsibility in helping to achieve economic growth with price stability is through the prudent conduct of its own financial affairs. The budget submitted to the Congress for the fiscal year 1960, which balances expenditures with receipts at a level of $77 billion, seeks to fulfill this responsibility. If Government spending is held within the limits set in the proposed budget, the growth of our economy at the rate that may be expected would make it possible in the reasonably foreseeable future to provide, through a significant further step in tax reform and reduction, added incentives and means for vigorous economic growth and improvement.
Governmental actions in other areas can also help to maintain price stability as our economy expands. The Congress will be requested to amend the Employment Act of 1946 to make reasonable price stability an explicit goal of Federal economic policy, coordinate with the goals of maximum production, employment, and purchasing power now specified in that Act. Steps will be taken within the Executive Branch to assure that governmental programs and activities are administered in line with the objective of reasonable price stability, and programs for the enlargement and improvement of public information on prices, wages and related costs, and productivity will be accelerated.
The many continuing programs of Government that promote the expansion and improvement of our economy will be administered vigorously. Also, new legislation will be requested to strengthen competitive forces, to enhance personal welfare, to promote integrity in labor-management relationships and to foster better industrial relations, to assist local areas experiencing heavy and persistent unemployment, to make more effective use of the large Federal expenditures relating to agricultural price support, to promote conditions favorable to trade among nations, and to assist in the economic growth and development of the Free World.
Favorable consideration of these legislative proposals by the Congress will materially help to achieve the goals of vigorous, orderly, and sustainable economic progress within a framework of reasonable price stability.
All of our people, in view of their broad common interest in promoting the Nation's economic strength, can fully support this program.
DWIGHT D. EISENHOWER