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Statement by the President on the State of the Economy at Midyear.

August 12, 1954

1. THE PARAMOUNT FACT about the economy at mid-year is that the recent decline in economic activity has come to a halt. For the last six months, the Federal Reserve index of industrial production has moved within an extremely narrow range. At the beginning of the year the index stood at 125 (average 1947-49=100). In March and April, the index registered 123; in May and June, 124.

2. In view of this narrow range of fluctuation in total industrial production during the past six months, we may justly take an average of the past six months as indicative of the recent level of economic activity. It then becomes of interest to compare this level with that attained by the economy during the first half of 1953, when our Nation was enjoying the greatest prosperity we have yet known.

3. Making that comparison, we find that industrial production has been running 8.1% lower in 1954 than in 1953. But in forming a judgment about the state of the economy, we must bear in mind that the widely used Federal Reserve index of production covers only manufacturing and mining; that it omits construction, agriculture, transportation, and the great range of personal services; and that the omitted parts are much more important sources of employment than the included parts. It is desirable, therefore, to look at more comprehensive measures or indicators of economic activity.

4. The most significant of these measures are the following:

(a) Gross national product--which expresses the dollar value of the Nation's total output of commodities and services.

(b) Nonagricultural employment (as estimated by the Bureau of Labor Statistics) --which expresses the number of wage and salary workers in business establishments outside of agriculture.

(c) Personal income--which is simply the sum of all individual and family incomes.

(d) Disposable personal income--which is simply the sum of all individual and family incomes minus personal income tax payments.

(e) Bank debits outside New York City--which express debits to individual and business bank accounts, and thus measure the flow of money payments in industrial, commercial, and to some degree, financial transactions (New York City debits are omitted because they are dominated by financial transactions).

5. When we now compare the first half of 1954 with the first half of 1953, we obtain the following results:

Percent change

from 1st half of

1953 to 1st

half of 1954

Gross national product --2.7

Nonagricultural employment --2.6

Personal income +0.2

Disposable personal income +1.4

Bank debits outside New York City +0.9

It is fair to conclude from these facts that the recent economic decline, on an over-all basis, has been very small. This conclusion will not be changed if we take account of the increase in population. Thus, while the total disposable personal income increased 1.4%, the disposable personal income per capita declined merely 0.3% between the first half of 1953 and the first half of 1954.

6. In judging the performance of the American economy during 1954, we have taken the first half of 1953 as the standard. It may help us to see the current state of the economy in better perspective if we go one year further back. The first haft of 1952 was not characterized by the same intensity of activity, but it was the best year we had experienced prior to 1953- Therefore, while 1952 does not provide us with as high a standard as 1953, it still constitutes a very high standard.

7. If we now compare the first half of 1954 with first half of 1952, the showing of the rather broad indicators to which we have already referred is as follows:

Percent change

from 1st half of 1952 to 1st

half of 1954

Industrial production +3.3

Gross national product +4.4

Nonagricultural employment + 1.1

Personal income +7.2

Disposable personal income +8.8

Per capita disposable income +5.3

Bank debits outside New York City +10.2

Every one of these indicators shows a rise, and some of the increases are not small.

Since 1952 was the best year before this Administration took office, it follows that economic activity of late has been higher than at any time before this Administration assumed responsibility. And since 1953 was a still better year than 1954 is turning out to be, it follows that the over-all performance of the American economy thus far during this Administration has been better than during any earlier time.

8. Some of the economic indicators used above are expressed in a physical unit, others in a monetary unit. It is well, therefore, to say a word about the price level.

When we compare the first half of 1954 with the first half of 1953, we find that the index of wholesale prices is up 0.8% and that the index of consumer prices is up 1.1%. Not only are these increases tiny, but our measures of price movements fail to take account of discounts, concessions, bargain sales, etc., that have been a significant feature of recent markets. If we allow for these developments we can surely say, without the slightest fear of contradiction, that the value of the people's money has remained entirely intact.

This conclusion also holds if we carry comparisons one year further back--that is, if we compare the first half of 1954 with the first half of 1952. On this basis, the index of wholesale prices is down 1.3% and the index of consumer prices is up 1.9 %.

9. Let us take note of another fact, namely, that while recent economic activity has been at a high level and the value of the dollar has been stable, the increase in wages--which is one of the principal expressions of the progressiveness of the American economy--has continued.

Average hourly earnings have moved as follows:

Percent change from the--

First half of First half of

1952 to first 1953 to first

half of 1954 half of 1954

Manufacturing, total +9.1 +2.9

Durable +9.2 +2.2

Nondurable +7.8 +3.8

Building construction +13.3 +5.3

Retail trade +10.8 +4.3

10. The above statistics suggest a high, or even an improving, state of economic welfare. An economic historian of an earlier generation, if confronted with facts such as these, would have felt no hesitation in describing recent times as a period of great prosperity. And if our imaginary historian had stopped to take account of the difficulties of shifting from a war to a more nearly peace economy, with government expenditure on national security dropping nearly one-fifth in a year, he might well have described the last year or two as a time when economic miracles were being wrought.

11. Not all of our contemporaries, however, are describing the performance of the American economy in these lyrical terms. The reason is partly that a decline occurred after July 1953 in economic activity, particularly in employment, and that the thinking of many people is geared to the concept of uninterrupted progress. The reason is partly that this rather minor decline has been better advertised than many major declines of our past. The reason is also that, while the decline has been small on an overall basis, it has affected seriously some industries, communities, and groups in our society. Factory employment, particularly in the durable goods industries, has suffered, while agricultural prices and incomes have shown the adverse effects of shrinking export markets and unbalanced production.

12. Unemployment is now greater than during the time of the Korean War, as the following figures indicate:

Unemployment as percent of

civilian labor force

1949 1950 1951 1952 1953 1954

January-March 5.0 7.2 3.8 3.2 2.8 5.5

April-June 5.4 5.2 2.8 2.7 2.3 5.2

July 6.4 5.0 2.9 3.0 2.4 5.1

It is clear, however, that unemployment in recent months has not been larger than during comparable months in 1949 and 1950.

13. Moreover, the rate of unemployment has shown some tendency to diminish of late. This is one of numerous signs of economic improvement. Retail sales have recently been rising again. Business expenditures on capital expansion and improvement are continuing at a high rate. New construction contracts are running well above the level of a year ago. Inventories have been reduced and are now in better adjustment to current sales. The financial markets have been displaying great strength. The level of business and consumer confidence in the economic future is high and improving.

14. The standards that our generation apply to the performance of an economic system are very different from those that our fathers applied and even different from those that we ourselves applied only a few years ago. It is a good thing that our standards are higher. Great economic and social achievements will not be made unless we are sensitive to the need for making them.

The economic program being enacted by the present Congress marks a milestone in constructive legislation. It will help to reduce unemployment and to stimulate enterprise and development in all directions. In the months and years ahead, we must continue to bring knowledge, cool judgment, and a concern for people to the consideration of economic problems. In the measure that we do this, we may look forward with great confidence to the future.

Dwight D. Eisenhower, Statement by the President on the State of the Economy at Midyear. Online by Gerhard Peters and John T. Woolley, The American Presidency Project https://www.presidency.ucsb.edu/node/232484

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