CONSERVE HUMAN AND NATURAL RESOURCES OF THE NATION WEDNESDAY, AUGUST 5, 1964 U.S. SENATE, SUBCOMMITTEE ON EMPLOYMENT AND MANPOWER OF THE Washington, D.C. The subcommittee met at 10 a.m., pursuant to notice, in room 4232, New Senate Office Building, Senator Joseph S. Clark (chairman of the subcommittee) presiding. Present: Senator Clark (presiding). Also present: Senators Nelson of Wisconsin, and Boggs of Delaware. Committee staff members present: Stewart E. McClure, chief clerk; Edward D. Friedman, counsel to subcommittee; Frazier Kellogg, professional staff member; and George Dennison, minority associate counsel. Senator CLARK. The subcommittee will be in session. Today the Subcommittee on Employment and Manpower of the Senate Committee on Labor and Public Welfare concludes its extensive studies of the Nation's employment problems begun in May 1963. It does so with the satisfying realization that, during this period, the country has through the use of the tax cut and other new economic measures-crossed a major watershed in the use of economic knowledge to improve the fortunes of working Americans. The country is now far more sensitively attuned to the many complexities of our giant economy and how it works than it was 4 years ago. We are now in the fourth year of one of the longest-lived periods of economic expansion in recent American history. So in this one urgent area of public policy alone, the Johnson-Kennedy administration has won its laurels. It has lived up to the commitments made by John F. Kennedy in his campaign for the Presidency to "get the country moving again." In over 40 months of expansion, there has not been the slightest hint of inflation. So one of the greatest bugaboos raised whenever the wise use of public policy to promote economic growth and employment is discussed has been quietly laid to rest. Nearly every other indicator of our economic performance is up. Harold B. Dorsey, financial columnist for the Washington Post, on this past Monday, August 3, called attention to the remarkable performance of the economy so far this year. He pointed out that, while the increase in total employment in 1963 was 963,000 as opposed to a previous 3-year average of 610,000 per year, the year-to-year increase indicated by performance in the first and second quarters of 1964 will be well above 112 million new jobs. 1 And accompanying this increase in the creation of new jobs has been a remarkable rise in nearly every other index: personal income is increasing at a rate a full percentage point higher than last year; disposible income is increasing at a rate nearly two percentage points greater; and we are headed into really substantial increases in consumer spending and capital investment. I ask that Mr. Dorsey's column be printed at this point in the record. (The article referred to follows:) [From the Washington Post, Aug. 3, 1964] INVESTMENT VIEW (By Harold B. Dorsey) WATCHING THE SIGNIFICANT FACTORS NEW YORK.-Business statistics now becoming available for the second quarter provide a measurement of the recent rate to year-to-year improvement and some of the effects of the reduction in tax rates. While the number of people employed (on the average) in 1963 was 963,000 more than the number in 1962, and the average annual increase in the preceding 3 years was about 610,000, the first quarter of 1964 showed a year-to-year increase of 1,480,000 and for the second quarter it was 1,820,000. The increases this year were registered in spite of a declining trend in agricultural employment and a slight decline in the number of Federal Government employees. While personal income for the full year 1963 was 4.9 percent higher than the preceding year, the year-to-year increase in the first quarter of 1964 was 5.6 percent and in the second quarter it was 6 percent. The rising trend was, of course, more pronounced in personal disposable income (personal income after taxes), because the lower tax rates were moderately effective in the first quarter and completely effective in the second. This measurement of personal purchasing power in 1963 was 4.6 percent higher than in the preceding year. In the first quarter of 1964 the year-to-year improvement was 6.2 percent and for the second quarter it was 8.1 percent. If we assume that the growth rate of personal income in the second half will be similar to that registered a year earlier, personal disposable income in the two final quarters of the current year will continue to show year-to-year increase of 8 percent or better. This is an exceptionally high rate of year-to-year improvement in personal purchasing power. Usually, 92 to 93 percent of personal disposable income goes into personal consumption expenditures, although this ratio was only 91.8 percent in the second quarter compared with 92.9 percent in the first quarter and 93 percent for the full year 1963. Personal consumption expenditures last year were 5.1 percent higher than the year earlier, but the first quarter of 1964 year-to-year improvement was 5.6 percent and in the second quarter it was 6.5 percent. If these expenditures will be 92 percent of the foregoing estimate of disposable income in the third and fourth quarters, the year-to-year increase in expenditures would be 6.8 and 7.3 percent respectively. Here again, there are exceptionally large year-to-year increases. It appears that personal consumption expenditures were held down by a comparatively sluggish April. The total of all types of retail sales for that month had a year-to-year increase of 5.5 percent but for May and June combined it was 6.9 percent. The weekly figures for July suggest that the higher rate of year-toyear improvement is continuing. Final demand for goods and services (gross national product minus inventory increase) showed a 5.3-percent increase in 1963 over 1962. The year-to-year improvement in the first quarter of 1964 was 6.7 percent and for the second quarter it was 7.4 percent. It is likely that the third and fourth quarters of this year will continue to show a year-to-year improvement of 7 percent or better. Here again, this is a very satisfactory rate of growth for this broad measurement of goods and services moved into consumption by the personal, business, Government and foreign trade sectors. Whether this growth rate can continue on into 1965, depends on whether the various elements of the economy go into the breeding process; i.e., (1) whether the higher personal purchasing power and its spending creates new jobs and new purchasing power, (2) whether the higher activity results in a proportionate increase in business earnings, and (3) whether the additional earnings cause a proportionate increase in business capital expenditures and a consequent additional creation of jobs, personal purchasing power, and earnings. Business analysts and investment managers will be following this particular phenomenon by observing the month-to-month and quarter-to-quarter trends of the significant elements. However, aside from this matter of economic dynamics, the statistical evidence suggests that the business figures to be reported over the balance of this year will continue to show unusually good year-to-year comparisons. Senator CLARK. What is most remarkable about this performance, however, is the great stability in prices which has accompanied it. Indeed, the figures look so good that there are already pundits asking if the United States has not finally licked the business cycle. Even the august magazine Business Week in its June 27 issue has been led to observe that "the current upswing is changing many rules that have applied for more than a century." I ask that the article "A Well-Tempered Boom" from the June 27 issue of Business Week magazine be included at this point in the record. (The article referred to previously follows:) [From Business Week, June 27, 1964] A WELL-TEMPERED BOOM The longest business upswing on record is changing economic ideas that have been held for more than 100 years. For the first time, a boom has been accompanied by price stability. At mid-1964, U.S. business finds itself in the midst of an upswing that's changing everybody's thoughts about what a free enterprise economy can do. Previously, it was believed the United States couldn't expect to combine economic growth with price stability for more than a short period of time. The current upswing already is the longest on record for normal peacetime years and shows absolutely no signs of topping out (Business Week, Mar. 28, 1964, p. 23). But in over 40 months of business advance, industrial prices barely have budged from a horizontal line. The old idea was that prosperous times create enough distortions between prices and costs, sales and inventories, credit and liquidity, capacity and demand to bring a downturn. Yet a careful look at the economy over the past 40 months shows a record that is singularly free of the kinds of imbalances that always have appeared in past periods of prosperity. FIRST IN A CENTURY Indeed, the current upswing is changing many rules that have applied for more than a century. The National Bureau of Economic Research's business cycle chronology, dating back to 1854, covers 27 business expansions. It shows that the U.S. economy is now writing a wholly new record of stable growth: Prices have been uniquely stable over the past 40 months. The Federal Reserve index of industrial production has risen by over 25 percent-a good gain by historic standards. Metals prices have been rising since mid1963, but cuts in other areas have kept the overall wholesale price index stable. Past upswings always have brought rising costs. This time, costs have declined. The Census Bureau's index of unit labor costs in manufacturing (1957-59=100) stood at 98.6 in April, more than three points below the 102.1 figure of February, 1961, when the current business upswing got underway. Good business always has led previously to higher interest rates. Yet in April of this year, bond yields stood at approximately the same level as in early 1961. EXPLANATIONS In seeking to explain these new trends, economists point to a long list of changes in the behavior of government, business, and consumers, all of which make for greater stability of growth. In sharp contrast to a history of abrupt shifts, the Federal Government has been pursuing smoothly expansionary fiscal policies. Government spending rose by $7 to $9 billion in each of the years between 1960 and 1963. The growth of spending is now tapering off. But this year's tax cut of about $9 billion will have a similar expansionary effect. MONEY SUPPLY The Federal Reserve Board, too, has abandoned its old stop-start behavior in favor of a policy of allowing the money supply to grow smoothly. Defined to include demand deposits and currency only, the U.S. money supply has grown by $2 to $5 billion in each of the past 3 years. Figures up to the end of May lead to the expectation of similar growth in 1964. If the money supply is broadened to include time deposits, the growth of monetary liquidity has been more dramatic, but equally smooth. For its part, business has rigorously avoided the scramble for inventories that has always occurred in the past when prosperity has led to a big push for sales. In a dramatic change in management policy (Business Week, Apr. 4, 1964, p. 25), companies now see tight inventory management as the right policy during prosperity as well as recessions. The result is a stability of the inventory sales ratio that has lasted throughout the present upswing. UNDER WRAPS Business also shows restraint in its long-term planning. The most recent McGraw-Hill capital spending survey showed that companies are planning a 14 percent increase in capacity over the next 3 years. Over the same period, they foresee a 19-percent increase in the physical volume of their sales-an expectation that seems reasonable, even conservative, in the light of the tax cut. Consumer spending reflects a similar restrained optimism. The cut in personal taxes has led neither to a burst of savings nor a burst of spending. Instead, consumers are spending at close to the normal relation to disposable income. Some analysts have argued that the months since the tax cut have been abnormally high debt repayments. But the $587-million increase in outstanding installment debt in April is actually the biggest gain posted so far this year, and is above the average monthly increase for 1963. INVESTMENTS Cautious optimism carries over into investment behavior. Stocks have made a sharp recovery from the 1962 crash. But because earnings have also grown, price-earnings ratios have continued relatively stable. Particularly in the past year, the benefits of stable growth have been widespread. Profits continue to post new quarterly records. Long-term unemployment, which seemed intractable only a few months ago, is declining. And the United States is making strides in closing both the balance-of-payments deficit and the deficit of the Federal budget. Senator CLARK. Surely present performance demonstrates that the state of economic know-how is now such that it is possible for wise public policy to be applied in such a way that it can help assure consistent and sound economic expansion without the threat of runaway inflation. If there ever was a time when the country needed an intelligent discussion of its future economic policies, it is now. The Subcommittee on Employment and Manpower has studied the employment challenge ahead for well over a year and it has come to the conclusion that we are, indeed, entering a "second industrial revolution" in which the terms of human labor will be steadily altered from what we have known in the past. More than this, our economy will come to be preoccupied more and more with technological innovation and change a preoccupation which will profoundly affect the occupational outlook for millions of Americans. The challenge this will |