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.
The Report was prepared with the advice and assistance of the Council of Economic Advisers, who, in turn, have had the assistance of the heads of the executive departments and independent agencies directly concerned with the matters discussed. Pursuant to the requirements of the Employment Act, the Report summarizes the economic developments of the year and the policy actions taken to promote balanced growth of the economy, appraises the economic outlook, and puts forward a number of legislative proposals designed to help achieve the purposes of the Act. The Report also reviews the performance of the economy under the Employment Act, and particularly during the period of this Administration, and discusses policies for the future in the light of this experience.
The major conclusions and recommendations of the Report are set forth below, in part in the words of the Report itself.
As the year 1960 came to a close, the Nation was producing goods and services at an annual rate of $503.5 billion, the same as in the third quarter of the year, though slightly less than in the second quarter. For the year as a whole, the total output of our economy, in dollars of constant buying power, was 2.6 percent greater than in 1959.
Production and employment declined in the latter part of 1960, and unemployment rose, owing in large measure to an inventory adjustment. In the first quarter, inventories were being built up at an annual rate of $11.4 billion, but in the fourth quarter they were being reduced at an annual rate of $4.0 billion. It is encouraging, however, that the declines in production and income were moderate. And it is especially important that final demands for goods and services--that is, the sum of the Nation's expenditures except those resulting in inventory change--rose without interruption during the year and in the final quarter reached the level of $507.5 billion.
The achievement of a reasonable equilibrium in the Nation's international transactions continued to be a goal of our policies in 1960. The over-all deficit in the United States balance of payments last year remained close to that in each of the two preceding years, but the structure of the deficit changed markedly. Short-term capital outflows accelerated, mainly in response to a widening of the margin by which interest rates abroad exceeded those in this country. But the deficit on all other transactions diminished greatly, as a result of a rapid rise in exports.
The underlying strength of our economy, manifested in final demand for goods and services, is a distinctly favorable element in appraising the economic outlook. So, also, is the fact that economic conditions today are free of maladjustments and imbalances which, to be corrected, would require prolonged contraction. Businessmen and consumers have kept their use of credit within reasonable limits, and speculative excesses have been generally avoided. Inflationary pressure has been restrained. While this may have affected inventory policies and, perhaps, other demands for goods and services, it has helped to prepare a solid foundation for a resumption of sustainable growth. Because action to maintain balance and to consolidate gains was taken in good time, we can look forward, provided public and private policies are favorable, to a period of sound economic growth from a firm base.
The Federal policies needed to promote balanced growth can, to a considerable extent, be applied under existing administrative authority. But there are certain areas in which legislative action is needed.
First, funds appropriated by the Congress for the fiscal year 1962 should be held within the limits of expected revenues. A budget conforming to this standard has been presented to the Congress. It makes certain suggestions for revenues to cover projected expenditures, including necessary extensions of taxes that would otherwise terminate or be reduced on July 1, 1961; an increase in the highway fuel tax to 4 1/2 cents per gallon, to supply needed funds in the Highway Trust Fund; the rescinding by the Congress of action taken in 1959 which would divert funds from the general fund of the Treasury for road construction; and a rate increase to place the postal system on a self-supporting basis.
Second, Congress should give the Secretary of the Treasury authority to raise funds in the long-term capital market when, in his judgment, this is in the public interest, even if the cost of the funds is above 4 1/4 percent. The existing ceiling remains an important impediment to the Treasury's flexibility in achieving significant debt lengthening.
Third, as I have pointed out to the Congress each year since 1955, legislation is needed to enable the Federal Government to give constructive assistance to areas where there is high and persistent unemployment. The character of the legislation needed is described in the Economic Report, and an Administration proposal drafted to meet the standards indicated has been placed before the Congress.
Fourth, legislative needs in the areas of health, education and welfare, antitrust enforcement, long-term agricultural adjustment, unemployment compensation, and housing and community development are outlined in the Report. These are also described in the Budget Message.
Finally, I recommend again that Congress amend the Employment Act of 1946 to make reasonable price stability an explicit goal of national economic policy, coordinate with the goals of maximum employment, production, and purchasing power now stated in the Act. The amendment proposed is limited to a change in the language of the Act's declaration of policy and would accomplish its aim without placing restrictions on the effective operation of economic markets. It would strengthen the Employment Act which, as the Economic Report shows, has been a useful statute under which our citizens have made notable further advances in their welfare.
DWIGHT D. EISENHOWER