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 consider to be its highlights.
A great opportunity lies before the American people. Our approach to a position of military preparedness now makes it possible for the United States to turn more of its attention to a sustained improvement of national living standards.
Our economic goal is an increasing national income, shared equitably among those who contribute to its growth, and achieved in dollars of stable buying power.
Sustained economic growth is necessary to the welfare and, indeed, to the survival of America and the free world.
Although American living standards on the average are now higher than ever, there are certain groups whose consumption is much less than it should be. We can in our lifetime go far toward eliminating substandard living.
A steadily rising national income is the best assurance of harmonious social and economic adjustments. There can be no lasting harmony in a nation in which competing groups and interests seek to divide a constant or shrinking national output.
ROLE OF GOVERNMENT
The demands of modern life and the unsettled status of the world require a more important role for Government than it played in earlier and quieter times.
It is Government's responsibility in a free society to create an environment in which individual enterprise can work constructively to serve the ends of economic progress; to encourage thrift; and to extend and strengthen economic ties with the rest of the world.
To help build a floor over the pit of personal disaster, Government must concern itself with the health, security and welfare of the individual citizen.
Government must remain alert to the social dangers of monopoly and must continue vigorous enforcement of the anti-trust laws.
Government must use its vast power to help maintain employment and purchasing power as well as to maintain reasonably stable prices.
Government must be alert and sensitive to economic developments, including its own myriad activities. It must be prepared to take preventive as well as remedial action; and it must be ready to cope with new situations that may arise. This is not a start-and-stop responsibility, but a continuous One.
The arsenal of weapons at the disposal of Government for maintaining economic stability is formidable. It includes credit controls administered by the Federal Reserve System; the debt management policies of the Treasury; authority of the President to vary the terms of mortgages carrying Federal insurance; flexibility in administration of the budget; agricultural supports; modification of the tax structure; and public works. We shall not hesitate to use any or all of these weapons as the situation may require.
THE CURRENT SITUATION
The year just closed was very prosperous with record output, widely distributed incomes, very little unemployment, and prices stable on the average.
In the second half of the year there was a slight contraction in business leading to unemployment in some localities. This was due mainly to a decline in spending by businesses for additions to inventory. Other categories of spending, notably retail sales, have been well sustained.
Our economic growth is likely to be resumed during the year, especially if the Congress strengthens the economic environment by translating into action the Administration's far-reaching program.
BASIS FOR CONFIDENCE
The removal of wage and price controls, the stopping of price inflation, the development of new products available to consumers, and the improved economic condition of the nations of the free world constitute an unusual combination of favorable factors for the future.
While Federal expenditures were being cut in many directions during the past year, outlays on research and development grew and came to 2½ billion dollars out of a total national expenditure on research of 4 billion dollars. Research has already given us many new industries and products, including atomic energy, radioactive isotopes, electronics, helicopters, jet engines, titanium and heat resistant materials, plastics, synthetic fibers, soil conditioners, and many others. Outlays on the building of new knowledge must continue since they are our surest promise of expanding economic opportunities.
Because of billions of dollars of savings in Government spending made in this Administration's first year, major tax cuts went into effect on January 1. More than 5 billion dollars of tax savings are now being left with the American people to increase their purchasing power this year. More will be released to taxpayers as rapidly as additional savings in Government expenses are in sight.
Also favorable to the maintenance of high consumer expenditures growing out of high personal incomes is our wide diffusion of wealth and incomes and the strong urge of Americans to improve their living standards.
Expenditure plans of American business for plant and equipment constitute a powerful support for economic activity.
Despite the record volume of home building in recent years, there is still a good market for housing in this country. Vacancies in our cities, with few exceptions, are below the level necessary for a healthy competitive market.
A continued rise in State and local expenditures may be expected. There is still, in most parts of the country, a vast backlog of needed schools, highways, hospitals, and sewer, water and other facilities. Federal expenditures will remain a significant sustaining factor in the economy.
Our financial institutions are fully capable of meeting all reasonable credit demands and are in condition to withstand successfully any strains to which they may be exposed.
MEASURES TO STRENGTHEN THE ECONOMY
To protect and promote economic stability we should take bold steps-by modernizing unemployment insurance; by broadening the base and benefits of old-age insurance; by permitting a longer "carry-back" of losses for tax purposes; by granting broad discretionary authority to the Executive to alter, within limits and appropriate to changing circumstances, the terms of governmentally insured loans and mortgages; by establishing a secondary home mortgage market; and by making improvements in the planning of public works programs.
To stimulate the expansive power of individual enterprise we should take action--by revising the tax laws so as to increase incentives and to remove certain impediments to enterprise, especially of small business; by improving credit facilities for home building, modernization, and urban rehabilitation; by strengthening the highway system; and by facilitating the adjustments of agriculture to current conditions of demand and technology.
Employment in January, 1954, is somewhat lower than in January, 1953. There seems to be a connection between this fact and the fact that in January, 1953, we were still fighting in Korea and are not doing so today. We can make the transition to a period of reduced mobilization without serious interruption in our economic growth. We can have in this country and in the free world a prosperity based on peace.
There is much that justifies confidence in the future. The Government will do its full part to help realize the promise of that future in its program to encourage an expanding and dynamic economy.
DWIGHT D. EISENHOWER